Company Quick10K Filing
Quick10K
Alpha Investment
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-08-13 Quarter: 2017-08-13
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
8-K 2019-07-15 Accountant, Exhibits
8-K 2019-06-07 Enter Agreement, M&A
8-K 2019-03-11 Other Events
8-K 2019-01-31 Enter Agreement, M&A, Exhibits
8-K 2018-02-08 Accountant, Exhibits
WCRS Western Capital Resources 40
CRGS Curaegis Technologies 6
BCTCV Boston Capital Tax Credit Fund V 0
SQFT Presidio Property Trust 0
XTRIB Xtribe 0
EKKH Eason Education Kingdom Holdings 0
ZGL Zayo Group 0
CCTC Clean Coal Technologies 0
CSGN Chase General 0
ACHI Achison 0
ALPC 2019-06-30
Part I - Financial Information
Part II - Other Information
Item 1. Financial Statements
Note 1 - Organization and Description of Business
Note 2 - Summary of Significant Accounting Policies
Note 3 - Loans Receivable, Net
Note 4 - Mortgage Note Payable
Note 5 - Commitments and Contingencies
Note 6 - Going Concern
Note 7 - Related Party Transactions
Note 8 - Stockholders' Equity
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 exhibit311.htm
EX-31.2 exhibit312.htm
EX-32.1 exhibit321.htm

Alpha Investment Earnings 2019-06-30

ALPC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 alpc10q063019.htm 10-Q Alpha Investment Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

x       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2019

 

OR

 

o       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________to_________

 

Commission file number 333-198772

 

(Exact name of registrant as specified in its charter)

 

 

(Former Name of Registrant as Specified in its Charter)

 

Delaware   90-0998139
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)

 

200 East Campus View Blvd., Suite 200

Columbus, OH  43235

(Address of principal executive offices) (zip code)

 

305-704-3294

(Registrant's telephone number, including area code)

 

The Registrant does not have any securities registered pursuant to Section 12(b) of the Exchange Act. 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

x Yes o No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.)

 

x Yes o No

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated filer     o   Accelerated filer     o
Non-accelerated filer     o   Smaller reporting company     x
    Emerging growth Company     x

 

 

 

 

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

o Yes x No

 

Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date.

 

Class   Outstanding at June 30, 2019
Common Stock, par value $0.0001   40,436,400 shares

 

Documents incorporated by reference: None

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2 

 

 

 

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

 

  Page No.
Item 1. Financial Statements. 5 - 8
Condensed Consolidated Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018 5
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 (unaudited) and 2018 (unaudited) 6
Condensed Consolidated Statement of Stockholders’ Equity for the Six Months Ended June 30, 2019 and 2018 (unaudited) 7
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019  and 2018 (unaudited) 8
Notes to Unaudited Condensed Consolidated Financial Statements 9 - 17
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 18 - 20
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 20
Item 4. Controls and Procedures. 20 - 21

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings. 21
Item 1A. Risk Factors. 21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 21
Item 3. Defaults Upon Senior Securities. 21
Item 4. Mine Safety Disclosures. 21
Item 5. Other Information. 21
Item 6. Exhibits. 22

 

 

 

 

3 

 

 

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

 

This report includes forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs. Forward-looking statements include, but are not limited to, statements about:

 

Ÿour lack of significant revenues and history of losses,
Ÿour ability to continue as a going concern,
Ÿour ability to raise additional working capital as necessary,
Ÿour ability to satisfy our obligations as they become due,
Ÿthe failure to successfully commercialize our product or sustain market acceptance,
Ÿthe reliance on third party agreements and relationships for development of our business,
Ÿthe control exercised by our management,
Ÿthe impact of government regulation on our business,
Ÿour ability to effectively compete,
Ÿthe possible inability to effectively protect our intellectual property,
Ÿthe lack of a public market for our securities and the impact of the penny stock rules on trading in our common stock should a public market ever be established.

 

You should read thoroughly this report and the documents that we refer to herein with the understanding that our actual future results may be materially different from and/or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements including those made in this report, in Part I. Item 1A. Risk Factors appearing in our Annual Report on Form 10-K for the year ended December 31, 2018 and our other filings with the Securities and Exchange Commission. Other sections of this report include additional factors which could adversely impact our business and financial performance. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.

 

OTHER PERTINENT INFORMATION

 

Unless specifically set forth to the contrary, when used in this report the terms “the “Company,” “we,” “our,” “us,” and similar terms refers to Alpha Investment, Inc.

 

 

 

 

4 

 

 

ITEM 1. FINANCIAL STATEMENTS

 

ALPHA INVESTMENT INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   As of   As of 
   June 30,   December 31, 
   2019   2018 
    (unaudited)      
ASSETS          
Current Assets:          
Cash  $212,273   $11,286 
Restricted cash held in escrow   2,512,399    2,500,099 
Interest receivable   45,107    19,167 
Prepaid expenses   298,641    —   
Total Current Assets   3,068,420    2,530,552 
           
Other Assets:          
Loans receivable - related party, net of discounts   916,866    925,178 
Loans receivable, net of discounts   476,229    173,449 
Total Other Assets   1,393,095    1,098,627 
           
Property and Equipment, net:          
Furniture and Equipment, net   12,654    1,501 
Total Property and Equipment, net   12,654    1,501 
TOTAL ASSETS  $4,474,169   $3,630,680 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current Liabilities:          
Accounts payable  $50,196   $70,904 
Distributions payable   40,000    —   
Total Current Liabilities   90,196    70,904 
Total Liabilities   90,196    70,904 
           
Redeemable Common Stock, net of discount; ($0.0001 par value), 100,000,000 shares authorized, 166,667 shares issued and outstanding as of June 30, 2019 and December 31, 2018   2,500,000    2,500,000 
Series 2018 Convertible Preferred Stock, net of discount ($0.0001 par value), 100,000 shares authorized; 44,000 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively   464,190    452,346 
Subscription receivable   (113,000)   (113,000)
Temporary Equity   2,851,190    2,839,346 
           
Stockholders' Equity:          
Preferred stock ($0.0001 par value), 20,000,000 shares          
Series A Convertible Preferred stock ($15.00 par value), 100,000 shares authorized; 1,167 shares issued and outstanding as of June 30, 2019 and December 31, 2018   17,505    17,505 
Common stock, ($0.0001 par value), 100,000,000 shares authorized; 40,293,066 and 40,239,333 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively   4,029    4,024 
Additional paid-in capital   4,833,216    2,980,118 
Accumulated deficit   (3,331,732)   (2,281,217)
Total Stockholders' Equity   1,523,018    720,430 
Non-controlling interests   9,765    —   
Total Equity   1,532,783    720,430 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $4,474,169   $3,630,680 

 

See notes to unaudited condensed consolidated financial statements.

 

5 

 

 

ALPHA INVESTMENT INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   Three Months   Three Months   Six Months   Six Months 
   Ended   Ended   Ended   Ended 
   June 30,   June 30,   June 30,   June 30, 
   2019   2018   2019   2018 
Income:                    
Net investment income - related parties  $39,799   $8,932   $66,912   $17,365 
Total Income   39,799    8,932    66,912    17,365 
                     
General and Administrative Expenses:                    
Management fee - related party   40,625    —      81,250    —   
Administrative expenses   202,256    17,144    380,405    53,346 
Professional fees   306,362    9,088    330,937    26,848 
Total General and Administrative Expenses   549,243    26,232    792,592    80,194 
Loss from Operations   (509,444)   (17,300)   (725,680)   (62,829)
                     
Other Income (Expense):                    
Gain on deconsolidation   316,774    —      316,774    —   
Interest (expense) income, net   (310,000)   (103,108)   (620,000)   (1,032,216)
Total Other Income (Expense), net   6,774    (103,108)   (303,226)   (1,032,216)
                     
Net Loss  $(502,670)  $(120,408)  $(1,028,906)  $(1,095,045)
                     
Amortization of discounts on Series 2018 preferred stock treated as deemed dividends   (5,922)   (5,923)   (11,844)   (11,845)
                     
Net Loss Attributable to Non-controlling Interests   (4,883)   —      (9,765)   —   
                     
Net Loss Attributable to Common Stockholders  $(513,475)  $(126,331)  $(1,050,515)  $(1,106,890)
                     
Basic and Diluted Loss Per Share  $(0.01)  $(0.00)  $(0.03)  $(0.03)
                     
Basic and Diluted Weighted Average Number of Common Shares Outstanding   40,272,810    40,406,000    40,258,851    40,406,000 

 

 

See notes to unaudited condensed consolidated financial statements.

 

 

6 

 

 

ALPHA INVESTMENT INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

                   Additional           Non-     
   Common Stock   Preferred Stock   Paid-in   Subscription   Accumulated   controlling     
   Shares   Amount   Shares   Amount   Capital   Receivable   Deficit   Interests   Total 
Balance, December 31, 2017   40,406,000   $4,041    24,000   $2   $2,477,220   $—     $(649,380)  $—     $1,831,883 
Stockholder contribution   —      —      —      —      5,000    —      —      —      5,000 
Sale of preferred stock classified in temporary equity   —      —      1,000    —      —      —      —      —      —   
Issuance of Parent Company Stock for extension of common stock repurchase obligation   —      —      —      —      81,250    —      —      —      81,250 
Deemed dividend -  discount on redeemable preferred stock   —      —      —      —      —      —      (5,923)   —      (5,923)
Net loss   —      —      —      —      —      —      (974,637)   —      (974,637)
Balance, March 31, 2018   40,406,000    4,041    25,000    2    2,563,470    —      (1,629,940)   —      937,573 
Stockholder contribution   —      —      —      —      7,488    —      —      —      7,488 
Issuance of Parent Company Stock for extension of common stock repurchase obligation   —      —      —      —      103,144    —      —      —      103,144 
Deemed dividend -  discount on redeemable preferred stock   —      —      —      —      —      —      (5,923)   —      (5,923)
Net loss   —      —      —      —      —      —      (120,408)   —      (120,408)
Balance, June 30, 2018   40,406,000   $4,041    25,000   $2   $2,674,102   $—     $(1,756,271)  $—     $921,874 

 

                   Additional           Non-     
   Common Stock   Preferred Stock   Paid-in   Subscription   Accumulated   controlling     
   Shares   Amount   Shares   Amount   Capital   Receivable   Deficit   Interests   Total 
Balance, December 31, 2018   40,239,333   $4,024    1,167   $17,505   $2,980,118   $—     $(2,281,217)  $—     $720,430 
Stockholder contribution   —      —      —      —      87,100    —      —      —      87,100 
Sale of common stock   30,400    3    —      —      425,997    (30,000)   —      —      396,000 
Sale of minority interest in subsidiary   —      —      —      —      1,000,000    —      —      —      1,000,000 
Issuance of common stock for acquisition   3,000,000    300    —      —      29,222,200    —      —      —      29,222,500 
Deemed dividend -  discount on redeemable preferred stock   —      —      —      —      —      —      (5,922)   —      (5,922)
Net loss   —      —      —      —      —      —      (531,118)   4,882    (526,236)
Balance, March 31, 2019   43,269,733    4,327    1,167    17,505    33,715,415    (30,000)   (2,818,257)   4,882    30,893,872 
Sale of common stock   23,333    2    —      —      380,001    30,000    —      —      410,003 
Rescission of acquisition   (3,000,000)   (300)   —      —      (29,222,200)   —      —      —      (29,222,500)
Deemed dividend -  discount on redeemable preferred stock   —      —      —      —      —      —      (5,922)   —      (5,922)
Distributions due to non-controlling interest   —      —      —      —      (40,000)   —      —      —      (40,000)
Net loss   —      —      —      —      —      —      (507,553)   4,883    (502,670)
Balance, June 30, 2019   40,293,066   $4,029    1,167   $17,505   $4,833,216   $—     $(3,331,732)  $9,765   $1,532,783 

 

See notes to unaudited condensed consolidated financial statements.

 

 

 

 

 

7 

 

 

 

ALPHA INVESTMENT INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Six Months   Six Months 
   Ended   Ended 
   June 30,   June 30, 
   2019   2018 
Cash Flows from Operating Activities:          
Net loss  $(1,028,906)  $(1,095,045)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation Expense   2,147    187 
Accretion of origination fee income   22,306    (990)
Amortization of discount on redeemable common stock   —      1,032,215 
Gain on deconsolidation   (316,774)     
Changes in operating assets and liabilities:          
Increase in interest receivable   (25,940)   (7,190)
Increase in prepaid expenses   (298,641)   —   
Decrease in accounts payable   (20,708)   5,900 
Net cash used in operating activities   (1,666,516)   (64,923)
           
Cash Flows from Investing Activities:          
Purchase property and equipment   (13,300)   —   
Net cash used in investing activities   (13,300)   —   
           
Cash Flows from Financing Activities:          
Proceeds from stockholder contribution   87,100    12,488 
Proceeds from the sale of common stock   806,003    —   
Proceeds from the sale of interest in subsidiary   1,000,000    15,000 
Net cash provided by financing activities   1,893,103    27,488 
           
Net increase (decrease) in cash and restricted cash   213,287   (37,435)
Cash and restricted cash at beginning of period   2,511,385    2,544,404 
Cash and restricted cash and restricted cash at end of period  $2,724,672   $2,506,969 
           
Supplemental Disclosure of Cash Flow Information:          
Cash paid during year for:          
Interest  $—     $—   
Income Taxes  $—     $—   
           
Schedule of Non-Cash Investing and Financing Activities:          
Distributions due to non-controlling interest  $40,000   $—   

 

See notes to unaudited condensed consolidated financial statements.

 

 

 

 

8 

 

 

ALPHA INVESTMENT INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Alpha Investment Inc, formerly GoGo Baby, Inc. (the “Company”) was incorporated on February 22, 2013 under the laws of the State of Delaware.

 

On January 31, 2019, the Company, through Jersey Walk Phase I, LLC, entered into a Sale of Membership Interest Agreement (the “Purchase Agreement”) with CMT Developers LLC (“CMT”).  Pursuant to the Purchase Agreement, the Company acquired 100% of CMT’s membership interests, in exchange for the issuance to CMT of 3,000,000 shares of common stock.  During the due diligence on the refinancing of the property, the Company learned that certain of the representations and warranties of CMT in the Purchase Agreement with respect to the property were incorrect in various material respects. Based on the foregoing, effective June 7, 2019, the Company rescinded the Purchase Agreement in accordance with its terms. As of June 7, 2019, the Company deconsolidated CMT, recognizing a gain on deconsolidation of $316,774. The assets, liabilities and equity related to CMT, resulting in the gain on deconsolidation are summarized as follows:

 

Note Payable  $15,500,000 
Accrued Interest   232,500 
Deferred Income   576,774 
Common Stock Returned   29,222,500 
Real Estate   (44,800,000)
Prepaid Expenses   (105,000)
Construction Loan Advances   (310,000)
Gain on Deconsolidation  $316,774 

 

On March 11, 2019, the Company, through a newly formed LLC or Special Purpose Vehicle “SPV” called Alpha Mortgage Notes I, LLC executed an operating agreement with Alameda Partners LLC. Alameda Partners is a Utah Limited Liability Company made a capital contribution of $1,000,000, which was paid to the Company, for 10% ownership of the SPV, and will be the managing member.  The capital shall be used to implement the strategy of acquiring commercial real estate performing notes and support other related growth initiatives and assets acquisitions for the Company of which is positioning for its up-listing to the NYSE. The Members of Alameda Partners LLC have decades of experiences in the commercial real estate industry as property developers, owners, and managers  and currently holds over $50-million in commercial real estate assets. They have been appointed as the Managing Members of the SPV, while ALPC controls and holds 90% ownership.  In exchange for its 90% interest in the SPV, the Company is required to contribute 4,015,667 shares of common stock for the purchase of performing notes for the SPV. The special purpose vehicle was organized to acquire the membership interests, develop, own, hold, sell, lease, transfer, exchange, re-lend, manage and operate the underlying assets and conduct activities related thereto the ownership of commercial real estate mortgage notes and REO’s. The initial $1,000,0000 was recorded as additional paid in capital on the accompanying condensed consolidated balance sheet. Alameda Partner is entitled to monthly distributions in cash and stock equal to $10,000. For the six months ended June 30, 2019, the Company has recorded $40,000 of distributions as reductions to additional paid in capital. Such amounts have not been paid but have been accrued and included in Distributions Payable on the attached condensed consolidated balance sheet as of June 30, 2019. As of June 30, 2019, Alpha Mortgage Notes I, LLC has not completed any transactions.

 

9 

 

 

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements are prepared in accordance with instructions for Form 10-Q and Article 8 of Regulation S-X, include all adjustments (consisting only of normal recurring accruals) which we considered as necessary for a fair presentation of the results for the periods presented. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2018. The results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for future periods or the full year.

 

Principles of Consolidation

 

The condensed consolidated financial statements include the accounts of the Company, Alpha Mortgage Notes I, LLC, which is controlled by the Company through its 90% ownership interest, and Paris Med CP-LLC (“Paris Med”), variable interest entity for which the Company is deemed to be the primary beneficiary, (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods presented. The Company is required to make judgments and estimates about the effect of matters that are inherently uncertain. The Company regularly evaluates estimates and assumptions related to the valuation of the allowance for loan losses, loss contingencies, useful life and recoverability of long-lived assets, deferred income tax asset valuations and loss contingences. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. Although, we believe our judgments and estimates are appropriate, actual future results may be different; if different assumptions or conditions were to prevail, the results could be materially different from our reported results.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash, bank and short-term, highly liquid investments with maturities of three months or less at the time of acquisition. As of June 30, 2019, the Company had no cash equivalents.

 

Restricted Cash Held in Escrow

 

The Company has $2,500,000 of restricted cash held in escrow from the sale of common stock to an investor that has the right to require the Company to repurchase the common stock for $2,500,000 through September 2019.

 

Loans Receivable, net and Allowance for Losses

 

The Company records its investments in loans receivable at cost less unamortized costs of issuance and deferred origination fees. Origination fees collected at the time of investment are recorded against the loans receivable and amortized into net interest income over the lives of the related loans. Issuance costs incurred are capitalized along with the initial investment and amortized against net interest income over the lives of the related loans.

 

When a loan receivable is placed on non-accrual status, the related interest receivable is reversed against interest income of the current period. If a non-accrual loan is returned to accrual status, the accrued interest existing at the date the residential loan is placed on non-accrual status and interest during the non-accrual period are recorded as interest income as of the date the loan no longer meets the non-accrual criteria. As of June 30, 2019, and December 31, 2018, since all loans receivable are considered performing according to their payment terms, no accounts receivable aging schedule or credit quality indicators are necessary.

 

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The Company maintains an allowance for loan losses on its investments in real estate loans receivable for estimated credit impairment.  Management’s estimate of losses is based on a number of factors including the types and dollar amounts of loans in the portfolio, adverse situations that may affect the borrower’s ability to repay, prevailing economic conditions and the underlying collateral securing the loan.  Additions to the allowance are provided through a charge to earnings and are based on an assessment of certain factors, which may indicate estimated losses on the loans.  Actual losses on loans are recorded first as a reduction to the allowance for loan losses.  Generally, subsequent recoveries of amounts previously charged off are recognized as income.

 

Estimating allowances for loan losses requires significant judgment about the underlying collateral, including liquidation value, condition of the collateral, competency and cooperation of the related borrower and specific legal issues that affect loan collections or taking possession of the property on an individual loan receivable basis.  Management determined that no allowance for loan losses was necessary as of June 30, 2019 and December 31, 2018.

 

Property and Equipment

 

Property and equipment are stated at cost less accumulated depreciation and amortization. Equipment and fixtures will be depreciated using the straight-line method over the estimated asset lives of 5 years, and software is amortized over the estimated asset lives of 3 years.

 

Income Taxes

 

The Company accounts for its income taxes in accordance with FASB Accounting Standards Codification (“ASC”) No. 740, "Income Taxes". Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax balances. Deferred tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment.

 

Accounting for Uncertainty in Income Taxes

 

The Company applies the provisions of ASC Topic 740-10-25, Income Taxes – Overall – Recognition (“ASC Topic 740-10-25”) with respect to the accounting for uncertainty of income tax positions. ASC Topic 740-10-25 clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740-10-25 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As December 31, 2018, tax years since 2015 remain open for IRS audit. The Company has received no notice of audit from the Internal Revenue Service for any of the open tax years.

 

Revenue Recognition and Investment Income

 

Origination fees collected at the time of investment are recorded against the loans receivable and amortized into net interest income over the lives of the related loans. Issuance costs incurred are capitalized along with the initial investment and amortized against net interest income over the lives of the related loans. The Company records interest income in accordance with ASC subtopic 835-30 "Imputation of Interest", using the effective interest method. The following is a summary of the components of the Company’s net investment income for the three and six months ended June 30, 2019 and 208:

 

   Three Months Ended June 30,   Six Months Ended June 30, 
   2019   2018   2019   2018 
Interest Income  $25,952   $8,440   $39,219   $16,381 
Accretion of Loan Origination Fees   39,632    21,159    79,265    42,318 
Amortization of Loan Issuance Costs   (25,785)   (20,667)   (51,571)   (41,334)
Net Investment Income  $39,799   $8,932   $66,912   $17,365 

 

 

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When a loan is placed on non-accrual status, the related interest receivable is reversed against interest income of the current period. If a non-accrual loan is returned to accrual status, the accrued interest existing at the date the residential loan is placed on non-accrual status and interest during the non-accrual period are recorded as interest income as of the date the loan no longer meets the non-accrual criteria.

 

The Company suspends recognizing interest income when it is probable that the Company will be unable to collect all payments according to the contractual terms of the underlying agreements. Management considers all information available in assessing collectability. Collectability is measured on a receivable-by-receivable basis by either the present value of estimated future cash flows discounted at the effective rate, the observable market price for the receivable or the fair value of the collateral if the receivable is collateral dependent. Large groups of smaller balance homogeneous receivables, such as pre-settlement funding transactions, are collectively assessed for collectability. A receivable is charged off when in the Company's judgment, the receivable or portion of the receivable is considered uncollectible.

 

Payments received on past due receivables and finance receivables the Company has suspended recognizing interest income on are applied first to principal and then to accrued interest. Interest income on past due receivables and finance receivables, if received, is recorded using the cash basis method of accounting. Additionally, the Company generally does not resume recognition of interest income once it has been suspended.

 

Variable Interest Entity

 

The Company holds a 10% interest in Paris Med, of which the remaining 90% interest is held by Omega.  Through December 31, 2018, the Company has provided 100% of the funding to Paris Med, which has provided a construction loan to a third party.  This loan receivable is the sole asset of Paris Med.  The Company determined that Paris Med was a variable interest entity based on various qualitative and quantitative factors including but not limited to: 1) financing of Paris Med’s sole asset was received by the Company, which is disproportionate to the Company’s ownership interest and 2) the Company and Omega, a related party, organized the entity for the purpose of facilitating the Company’s activities.  As of December 31, 2018 and June 30, 2019, the Company is considered the primary beneficiary because it has provided substantially all of its financial support and is the only party at risk.  As of June 30, 2019, Paris Med has total assets of $558,000, consisting solely of advances made pursuant to its third party construction loan agreement, and had no liabilities. 100% of the funding for the sole asset was provided by the Company and such amounts are eliminated in consolidation.  See Note 3.  For the six months ended June 30, 2019, Paris Med had no activity.  The Company will evaluate its investments in Paris Med each reporting period to determine if it is still the primary beneficiary, and if no longer considered the primary beneficiary, deconsolidate Paris Med in the period in which circumstances change or events occur causing a change in its assessment.  The Company has not attributed any of its net loss or equity to non-controlling interest because Paris Med’s sole asset is amounts owed to the Company, which is eliminated in consolidation, and there was no material income earned or losses incurred to date by Paris Med.

 

Fair Value

 

The carrying amounts reported in the balance sheet for cash, accounts payable and notes payable approximate their estimated fair market value based on the short-term maturity of this instrument. The carrying value of the Company’s loans receivable approximate fair value because their terms approximate market rates.

 

Net Loss Per Share

 

Basic loss per share is computed by dividing the net loss available to common stockholders by the weighted average number of common shares outstanding for the year. Dilutive loss per share reflects the potential dilution of securities that could share in the losses of the Company. 166,667 shares underlying convertible preferred stock and 350,000 shares of common stock underlying common stock warrants were excluded from the computation of diluted loss per share for the six months ended June 30, 2019, because their impact was anti-dilutive. 520,000 shares of common stock underlying common stock warrants were excluded from the computation of diluted loss per share for the six months ended June 30, 2018, because their impact was anti-dilutive.

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and loans receivable. The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. The Company has not experienced any losses in such accounts through June 30, 2019.

 

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Recently Issued and Adopted Accounting Pronouncements

 

The following recent accounting pronouncements have been published by the FASB but were not effective at the date these condensed consolidated financial statements were available for issuance.

 

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825- 10), Recognition and Measurement of Financial Assets and Financial Liabilities. The provisions of the update require equity investments to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment. The update also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. It also eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities, and eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost on the balance sheet. ASU No. 2016-01 requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. It also requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The update requires separate presentation of financial assets and financial liabilities by category and form on the balance sheet or the accompanying notes to the financial statements. In addition, the update clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For an emerging growth company, the amendments in the update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The adoption of this ASU did not have a material impact on the Company’s financial statements.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), Conforming Amendments Related to Leases. This ASU amends the codification regarding leases in order to increase transparency and comparability. The ASU requires companies to recognize lease assets and liabilities on the statement of condition and disclose key information about leasing arrangements. A lessee would recognize a liability to make lease payments and a right-of-use asset representing its right to use the leased asset for the lease term. For an emerging growth company, the amendments in the update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The adoption of this ASU is not expected to have a material effect on the Company’s financial statements.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendments introduce an impairment model that is based on expected credit losses (“ECL”), rather than incurred losses, to estimate credit losses on certain types of financial instruments (ex. loans and held to maturity securities), including certain off-balance sheet financial instruments (ex. commitments to extend credit and standby letters of credit that are not unconditionally cancellable). The ECL should consider historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments, over the contractual term. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. Financial instruments with similar risk characteristics may be grouped together when estimating the ECL. The ASU also amends the current available for sale security impairment model for debt securities whereby credit losses relating to available for sale debt securities should be recorded through an allowance for credit losses. For an emerging growth company, the amendments in the update are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The amendments will be applied through a modified retrospective approach, resulting in a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently planning for the implementation of this accounting standard. It is too early to assess the impact this guidance will have on the Company’s financial statements.

 

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The amendments in this ASU clarify the proper classification for certain cash receipts and cash payments, including clarification on debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, and proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, among others. For an emerging growth company, the amendments in the update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Company adoption of this amendment did not have a material impact on the Company’s Financial Statements.

 

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The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

 

NOTE 3 – LOANS RECEIVABLE, NET

 

Related Parties

 

Loan Agreement with Partners South Holdings LLC (Revolving Line of Credit)

 

On August 28, 2017, the Company entered into a loan agreement with Partners South Holdings LLC (“Borrower”), which is owned by Timothy R. Fussell, President, Chairman of the Board and a director of the Company, for a revolving line of credit in the maximum principal sum of $3,600,000 for the purpose of financing real property construction costs and working capital needs. The loan is secured in full by a first position lien on any and all Real Property in which the Borrower has any interest in for such purposes. The maturity date of the loan is August 31, 2022 at which time the entire principal balance of the loan plus accrued interest thereon is due and payable. The fixed interest rate on the loan is 3.5% to be paid quarterly on the 1st day of the fiscal quarter. As of June 30, 2019, the amount of $477,500 had been advanced on the loan. The origination fees of $180,000 due to the Company have been added to the balance due on the loan and recorded as a discount against the loan to be amortized into income through the maturity date. As of June 30, 2019, and December 31, 2018, the gross loan receivable balance is $657,500.

 

Loan Agreement with Partners South Properties Corporation (Revolving Line of Credit)

 

On August 28, 2017 the Company entered into a loan agreement with Partners South Properties Corporation (“Borrower”), which is owned by Timothy R. Fussell, President, Chairman of the Board and a director of the Company, for a revolving line of credit in the maximum principal sum of $5,000,000 for the purpose of financing real property construction costs and working capital needs. The loan is secured in full by a first position lien on any and all Real Property in which the Borrower has any interest in for such purposes. The maturity date of the loan is August 31, 2022 at which time the entire principal balance of the loan plus accrued interest thereon is due and payable. The fixed interest rate on the loan is 3.5% to be paid quarterly on the 1st day of the fiscal quarter. As of June 30, 2019, and December 31, 2018, the gross loan receivable balance is $250,000.

 

Non-Binding Memorandum with Diamond Ventures Funds Management LLC

 

The Company and Diamond Ventures Funds Management LLC (“DVFM”) have executed a non-binding Memorandum of Understanding (“MOU”) in connection with ongoing discussions regarding a Share Exchange & Acquisition of Membership interest into DVFM that will facilitate up to a 40% acquisition of DVFM. The terms of the exchange are not public at this time. Upon the signing of the MOU $25,000 was advanced to the Borrower as part of the Business Line of Credit to be established as part of the MOU. The funds are to be exclusively used for business purposes solely related to accounting and legal fees.

 

The following is a summary of mortgages receivable as of June 30, 2019, and December 31, 2018:

 

  

June 30,

2019

  

December 31,

2018

 
Principal Amount Outstanding  $932,500   $932,500 
Unaccreted Discounts, net of unamortized issuance costs   (15,634)   (7,322)
Net Carrying Value  $916,866   $925,178 

 

Third Parties

 

On May 2, 2018, the Company and Paris Med entered into agreements, pursuant to which Paris Med agreed to provide project financing in the amount of $158,216,541, to an unrelated third party consisting of three notes as follows:

 

1)Construction financing in the amount of $90,204,328, maturing in 10 years, including the construction period, and accruing interest at an annual rate of 5.5% during the construction period, and 4.5% upon conversion to a permanent loan.  As of June 30, 2018, Paris Med has made $558,000 of advances pursuant to the construction loan.  The Company received loan origination fees, in the amount of $92,400, which is presented net of the underlying loan advances on the

 

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accompanying consolidated balance sheets and amortized into income over the terms of the underlying loans.  During the six months ended June 30, 2019, the Company amortized $4,580 of the discount and the loan is carried at $476,229, net of unamortized discount of $81,771.

 

2)Equipment financing note in the amount of $24,715,986, payable monthly, accruing interest at an annual rate of 5.75%, and having terms approximating the lives of the underlying equipment.  As of June 30, 2018, no amounts have been advanced pursuant to the equipment financing note.

 

3)Operations financing, business line of credit in the amount of $23,932,625, accruing interest at an annual rate of 5.75%, maturing in 10 years.  As of December 31, 2018, no amounts have been advanced pursuant to the line of credit.

 

4)The notes are secured by the assignment of leases and fixed assets related to the project.

 

On September 26, 2018, the Company, through a newly formed, wholly-owned limited liability company, acquired 100% of Jersey Walk Phase I, LLC (“Jersey Walk”), with all income going to the Company and has entered into a construction loan agreement with an unrelated party, CMT Developers, LLC (“CMT”), pursuant to which, CMT executed a promissory note in the favor of  Jersey Walk in the amount of $73,496,002. This amount was to be advanced to CMT as required for the completion of the construction and development of two multi-family residences in Lakewood, New Jersey.  All amounts advanced under the construction loan agreement were secured by the construction project and due by September 30, 2028.  The acquisition of Jersey Walk was rescinded on June 6, 2019, as of which date, $310,000 had been advanced by Jersey Walk to CMT pursuant to the construction loan agreement.  Pursuant to the construction loan agreement, Jersey Walk is to receive a loan origination fee equal to 1.85% of the loan amount, or $1,259,192, of which $624,596 was received during the year ended December 31, 2018, and recorded as deferred loan origination fees to be amortized into income over the term of the loan. As a result of the rescission of the Jersey Walk acquisition, and deconsolidation of the subsidiary, deferred income of $576,774 and construction loan advances of $310,000 were derecognized and included in the gain on deconsolidation for the three and six months ended June 30, 2019, which totaled $316,774. The Company has retained no investment, and has no continuing involvement, in CMT.

 

The following is a summary of loans receivable as of June 30, 2019, and December 31, 2018:

 

  

June 30,

2019

  

December 31,

2018

 
Principal Amount Outstanding  $558,000   $868,000 
Unaccreted Discounts   (81,771)   (694,551)
Net Carrying Value  $476,229   $173,449 

 

NOTE 4 – MORTGAGE NOTE PAYABLE

 

On January 31, 2019, in connection with the acquisition of CMT, the Company assumed a promissory note in the principal amount of $15,500,000. The note matured on September 27, 2018 and accrues interest at an annual rate of 12%. Interest in monthly payments of $155,000. For the six months ended June 30, 2019, the Company incurred $620,000 of interest expenses related to this note. As a result of the rescission of the Jersey Walk acquisition, and deconsolidation of the subsidiary, the principal amount of the loan and accrued interest totaling $232,500 were derecognized and included in the gain on deconsolidation for the three and six months ended June 30, 2019.

 

NOTE 5 - COMMITMENTS AND CONTINGENCIES

 

Alpha Mortgage Notes, LLC

 

In exchange for its 90% interest in the Alpha Mortgage Notes, LLC, ("SPV") the Company is required to contribute 4,015,667 shares of common stock to be used by the SPV for the purchase of performing notes for the SPV. The SPV is required to make monthly distributions to its 10% member of $10,000 up until the time a purchase of the performing notes are made, and upon the acquisition of the six mortgages specified in the SPV's operating agreement, monthly payments of $150,000 per month from gross interest income received for 30 months; and 20% of any other future note purchases. The 10% partner will also receive an amount equal to 1% of the principal amounts received on each loan.

 

Litigation

 

The Company is not presently involved in any litigation.

 

Advisory Agreement

 

In June 2019, the Company entered into an advisory agreement, pursuant to which it agreed to compensate a third party advisor, pursuant to which it agreed to compensate the advisory a percentage of future capital raises facilitated by the advisor. Compensation includes non-refundable cash, cash compensation based on a percentage of capital raised. The advisor may elect to receive certain percentage-based fees in the form of equity. As of the date of this report, no amounts have been earned and no equity instruments

 

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have been issued as transaction-based fees pursuant to this agreement. In June 2019, the Company paid an advisory fee of $250,000, which were recorded as prepaid expense to be amortized into expense over the three-month initial term. The unamortized portion of the advisory fee totaled $217,391 as of June 30, 2019.

 

NOTE 6 – GOING CONCERN

 

Future issuances of the Company’s equity or debt securities will be required in order for the Company to continue to finance its operations and continue as a going concern. The Company’s present revenues are insufficient to meet operating expenses. The financial statements of the Company have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business. For the six months ended June 30, 2019, the Company had a net loss of $1,028,906 and net cash used in operations of $1,666,516. The Company has an accumulated deficit of $3,331,732 as of June 30, 2019 and requires capital for its contemplated operational and marketing activities to take place. The Company's ability to raise additional capital through the future issuances of common stock is unknown. Securing additional financing, the successful development of the Company's contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.

 

NOTE 7 – RELATED PARTY TRANSACTIONS

 

Loans receivable - The Company has extended lines of credit and loans to related parties. See Note 3.

 

Management fee - During the six months ended June 30, 2019, Omega Commercial Finance Corp, the Company’s principle stockholder, was paid $162,500 in management fees pursuant to a corporate governance management agreement executed on June 1, 2017.  Omega is to provide services related to facilitating the introduction of potential investors for compensation of no less than $150,000 per year, not to exceed $300,000 per year.  The fee paid in 2019 is for services to be rendered throughout 2019. Accordingly, $81,250 is reflected in prepaid expenses on the accompanying condensed consolidated balance sheet as of June 30 2019, and $81,250 was recognized as expense during the six months ended June 30, 2019.

 

NOTE 8 – STOCKHOLDERS’ EQUITY

 

Incentive Plan

 

The Company’s Incentive Plan provides for equity incentives to be granted to its employees, executive officers, directors, or to key advisers or consultants. Equity incentives may be in the form of stock options with an exercise price not less than the fair market value of the underlying Shares as determined pursuant to the Incentive Plan, restricted stock awards, other stock-based awards, or any combination of the foregoing. The Incentive Plan is administered by the board of directors. 5,000,000 Shares are reserved for issuance pursuant to the exercise of awards under the Incentive Plan.  The number of shares so reserved automatically adjusts upward on January 1 of each year, so that the number of shares covered by the Incentive Plan is equal to 15% of our issued and outstanding common stock. As of June 30, 2019, there are 1,375,000 shares available for issuance under the plan and no options outstanding.

 

Temporary Equity

 

On September 20, 2017, 166,667 shares of common stock were issued at a value of $15.00 per share to one company in exchange for cash of $2,500,000.  Pursuant to the subscription agreement the investor has the right to require the Company to repurchase the shares for $2.5 million at anytime through December 2017.   In December 2017, the Company negotiated and amended its agreement with the investor to extend this right through May 15, 2018. As part of this extension, the investor was granted warrants to purchase 170,000 shares of common stock for an exercise price of $15.00 per share over a five-year term. Because the shares are classified as a temporary equity, and the investors rights to require repurchase of the shares initially expired in 2017 the Company recorded the fair value of these warrants were recorded as a discount against the proceeds to be amortized as interest expense through February 2018, the initial extension date.   In March 2018, the Company entered into a third amendment to the subscription agreement, extending the option period to May 15, 2018. The option was further extended in May and June 2018.  As consideration for the extensions, the Company’s parent company, Omega Commercial Finance Corporation, agreed to issue to the investor, 65,000 shares of its Series Z preferred stock, and the Company agreed to reimburse the investor for $21,894 of legal fees incurred related to the extension.  The Company estimated the fair value of the Series Z preferred stock based on recent sales for cash, and recorded additional discounts of $184,394, including the accrued legal fees, against the common stock to be amortized into interest expense through the extended

 

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expiration of the option in May 2018.  In October 2018, the option period was further extended to November 19, 2018.   As consideration for the extension, the Company agreed to allow the investor to direct the investment of the restricted cash into one more investment types, such stock, money market accounts or similar investments.  The investor was also granted the right to withdrawal any restricted cash in excess of $2.5 million.  In November 2018, the option was further extended to January 12, 2019.   In March 2019, the option period was extended to June 2019.  In June 2019, the option period was extended to September 27, 2019. There is no remaining unamortized discount as of June 30, 2019 and December 31, 2018. Accordingly, the amounts received are presented as a temporary equity as of December 31, 2018 and June 30, 2019.

 

On November 27, 2017, 16,667 shares of Series 2018 Convertible Preferred stock were issued at a value of $15.00 per share to one entity in exchange for cash of $250,000.  The shares have 350,000 warrants attached, each warrant entitling the holder to one additional share with an exercise date of up to 5 years from the issuance date of the shares. The preferred stock is mandatorily redeemable 10 years after issuance. Each share is convertible into 2 shares of common stock per one share of 2018 Convertible Preferred Stock at the option of the holder for a period of one-year from issuance at the option of the holder, and the Company has the right to redeem the preferred stock at any time by paying cash, common stock, or a combination at an amount per share equal to par value per share. The Company allocated $236,897 the proceeds from the sale of the preferred stock to the warrants, which was recorded as a discount against the preferred stock and is to be amortized as a deemed dividend through the 10-year redemption date.  The balance of the preferred stock reflected in temporary equity as of June 30, 2019 and December 31, 2018, was $51,190 and $39,346, respectively, net of unamortized discounts of $205,311 and $211,233, respectively.

 

In November 2017, The Company also issued to the investor, 7,333 shares of Series 2018 Convertible Preferred Stock pursuant to the subscription agreement.  As of June 30, 2019, the Company has yet to receive $113,000 of the proceeds which is presented as subscription receivable.

 

During the year ended December 31, 2018, the Company issued 20,000 shares of Series 2018 Convertible Preferred Stock to its chief executive officer as compensation for services provided.   The Company estimated the fair value of the shares, based on recent sales for cash, of $300,000, which is included in temporary equity as of June 30, 2019 and December 31, 2018.

 

Common Stock

 

During the six months ended June 30, 2019, the Company sold 53,733 shares for gross proceeds of $806,000.

 

Preferred Stock

 

In November 2017, the Company’s board of directors designated 100,000 authorized shares of Series A Convertible Preferred Stock (“Series A”). Each share of Series A has a par value of $15.00 and have no voting or dividend rights. Upon liquidation, dissolution or wining up, the holders of Series A shares are entitled to be paid out of the assets of the Company, if any, rateably with the common stock holders. Each share of Series A is convertible within one year of issuance into two shares of common stock of the Company. At any time after 180 days of issuance, the Company has the right, but not the obligation, to redeem all, but not less than all, of the outstanding Series A shares by paying cash, common stock, or a a combination of both an amount equal to the par value of the Series A shares. On the one-year anniversary of issuance, the Company has an obligation to redeem the Series A shares for an amount equal to the par value of the Series A shares.

 

As of June 30, 2019 and December 31, 2018, there were 1,167 shares of Series A Convertible Preferred Stock outstanding.

 

Capital Contributions

 

During the six months ended June 30, 2019, Omega Commercial Finance Corp made a cash contribution to the Company of $87,100. This was classified as capital contribution and recorded in additional paid-in capital.

 

Sale of Minority Interest in Subsidiary

 

During the six months ended June 30, 2019, the Company sold a 10% interest in a newly formed subsidiary for $1,000,000. See Note 1.

 

Common Stock Warrants

 

As of June 30, 2019, there are warrants outstanding to purchase 520,000 shares for an exercise price of $15.00 over five years. There has been no warrant activity during the year ended December 31, 2018 or the six months ended June 30, 2019.

 

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results.  The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and the accompanying notes thereto included in “Item 8. Financial Statements and Supplementary Data.”  In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions.  See “Forward-Looking Statements.”  Our results and the timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors.

 

We qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:

 

have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;

 

comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

 

submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and

 

disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation.

 

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

 

We will remain an “emerging growth company” for up to five years, or until the earliest of (a) the last day of the first fiscal year in which our total annual gross revenues exceed $1 billion; (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter; or (c) the date on which we have issued more than $1.0 billion in non-convertible debt during the preceding three-year period.

 

Results of Operations

 

General

 

We have recognized income from related parties of approximately $67,000 for the six months ended June 30, 2019.  As of June 30, 2019, the Company had an accumulated deficit of $3,334,272.

 

 

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The following table provides selected consolidated balance sheet data as of June 30, 2019.

 

Balance Sheet Data:    
Cash  $212,273 
Restricted cash  $2,512,399 
Loan receivable, net of discounts  $1,393,095 
Total assets  $4,474,169 
Total liabilities  $90,196 
Temporary equity  $2,851,190 
Total equity  $1,532,783 

 

   Three Months Ended June 30,   Six Months Ended June 30, 
   2019   2018   2019   2018 
Interest Income  $25,925   $8,440   $39,218   $16,381 
Accretion of Loan Origination Fees   39,632    21,159    79,265    42,318 
Amortization of Loan Issuance Costs   (25,785)   (20,667)   (51,571)   (41,334)
Net Investment Income  $39,799   $8,932   $66,922   $17,365 

 

Three Months Ended June 30, 2019 as compared to three ended June 30, 2018

 

For the three months ended June 30, 2019, we generated approximately $40,000 in net investment income, compared to $9,000 in 2018. Net investment income in 2019 resulted from interest income of $26,000, the amortization of loan origination fees of $40,000, offset by the amortization of loan costs of $26,000.   Net investment income in 2018 resulted from interest income of $8,000, the amortization of loan origination fees of $21,000, offset by the amortization of loan costs of $21,000.  We incurred $549,243 in operating expenses during the 2019 period, compared to $26,232 in 2018, reflecting our increased level of operations. In 2019, the Company recognized $310,000 of interest on the Jersey Walk Mortgage which was derecognized upon the rescission of the Jersey Walk acquisition in June 2019, and a gain on deconsolidation of $316,744 was recognized. Interest expense for the three months ended June 30, 2018, was $103,108 resulting from the amortization of the discount on redeemable common stock.

 

Six Months Ended June 30, 2019 as compared to Six months ended June 30, 2018

 

For the six months ended June 30, 2019, we generated approximately $67,000 in net investment income, compared to $17,000 in 2018. Net investment income in 2019 resulted from interest income of $39,000, the amortization of loan origination fees of $79,000, offset by the amortization of loan costs of $52,000.   Net investment income in 2018 resulted from interest income of $16,000, the amortization of loan origination fees of $42,000, offset by the amortization of loan costs of $41,000.  We incurred $549,243 in operating expenses during the 2019 period, compared to $26,232 in 2018, reflecting our increased level of operations.  We incurred $792,592 in operating expenses during the 2019 period, compared to $80,194 in 2018, reflecting our increased level of operations. In 2019, the Company recognized $620,000 of interest on the Jersey Walk Mortgage which was derecognized upon the rescission of the Jersey Walk acquisition in June 2019, and a gain on deconsolidation of $316,744 was recognized. Interest expense for the six months ended June 30, 2018, was $1,032,216 resulting from the amortization of the discount on redeemable common stock.

 

Liquidity and Capital Resources

 

During the six months ended June 30, 2019, Omega, the principal stockholder of the Company, made an additional capital contribution to the Company of $87,100, we sold a minority interest in a subsidiary for $1,000,000 and the Company received proceeds of $806,000 from the sale of common stock.

 

Critical Accounting Policies

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  Significant estimates included deferred revenue, costs incurred related to deferred revenue, the useful lives of property and equipment and the useful lives of intangible assets.

 

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Loans Receivable, net

 

The Company records its investments in loans receivable at cost less unamortized costs of issuance and deferred origination fees. Origination fees collected at the time of investment are recorded against the loans receivable and amortized into net interest income over the lives of the related loans. Issuance costs incurred are capitalized along with the initial investment and amortized against net interest income over the lives of the related loans.

 

Income Taxes

 

The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes, as clarified by ASC 740-10, Accounting for Uncertainty in Income Taxes.  Under this method, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws.  Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year.  In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which the Company operates, estimates of future taxable income, and available tax planning strategies.  If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required.  Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria of ASC 740.

 

ASC 740-10 requires that the Company recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit.  For tax positions meeting the “more-likely-than-not” threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

 

Off-Balance Sheet Arrangements

 

There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

As a smaller reporting company, we are not required to include disclosure under this item.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

The Company’s management with the participation of the Company’s Chief Executive Officer and Chief Financial Officer has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. The term “disclosure controls and procedures”, as defined under Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based upon the evaluation of the disclosure controls and procedures at the end of the period covered by this report, the Company’s Chief Executive Officer and Chief Financial Officer concluded that that our disclosure controls and procedures were not effective at the reasonable assurance level in that:

 

·We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

 

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·We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transaction s, the custody of assets and the recording of transactions should be performed by separate individuals. Our president evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

 

Changes in Internal Control over Financial Reporting

 

During the quarter ended June 30, 2019, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II

 

ITEM 1. LEGAL PROCEEDINGS

 

We are currently not a party to any material legal or administrative proceedings and are not aware of any pending or threatened material legal or administrative proceedings arising in the ordinary course of business.  We may from time to time become a party to various legal or administrative proceedings arising in the ordinary course of our business.

 

ITEM 1A. RISK FACTORS

 

Risk factors describing the major risks to our business can be found under Item 1A, “Risk Factors”, in our Annual Report on Form 10-K for the year ended December 31, 2018. There has been no material change in our risk factors from those previously discussed in the Annual Report on Form 10-K.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable to our operations.

 

ITEM 5. OTHER INFORMATION

 

See ITEM 1A above.

 

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ITEM 6. EXHIBITS

 

Exhibit Number   Description
     
31.1   Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act*
31.2   Certification of Chief Financial Officer  pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act*
32.1   Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

 

 

101.INS       XBRL Instance Document *

101.SCH       XBRL Taxonomy Extension Schema Document *

101.CAL       XBRL Taxonomy Extension Calculation Linkbase Document *

101.DEF       XBRL Taxonomy Extension Definition Linkbase Document *

101.LAB       XBRL Taxonomy Extension Label Linkbase Document *

101.PRE       XBRL Taxonomy Extension Presentation Linkbase Document *

*     Filed herein

 

 

 

 

 

 

 

 

 

 

 

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

ALPHA INVESTMENT INC.

 

/s/ Todd C. Buxton   Chief Executive Officer, Acting Chief Financial Officer and Director   August 14, 2019
TODD C. BUXTON   Title (Principal Executive, financial and Accounting Officer   Date
         
/s/ Timothy R. Fussell, Ph.D.   Chairman of the Board and President   August 14, 2019
TIMOTHY R. FUSSELL Ph.D   Title   Date

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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