UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from ________to_________
Commission file number
(Former Name of Registrant as Specified in its Charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (zip code)
(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
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
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| None |
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 | |
| Smaller reporting company | ||
| Emerging growth Company |
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
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 November 19, 2021 | |
| Common Stock, par value $0.0001 | shares |
Documents incorporated by reference: None
| 2 |
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
PART II - OTHER INFORMATION
| 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:
| Ÿ | our lack of significant revenues and history of losses, |
| Ÿ | our ability to continue as a going concern, |
| Ÿ | our ability to raise additional working capital as necessary, |
| Ÿ | our ability to satisfy our obligations as they become due, |
| Ÿ | the failure to successfully commercialize our product or sustain market acceptance, |
| Ÿ | the reliance on third party agreements and relationships for development of our business, |
| Ÿ | the control exercised by our management, |
| Ÿ | the impact of government regulation on our business, |
| Ÿ | our ability to effectively compete, |
| Ÿ | the possible inability to effectively protect our intellectual property, |
| Ÿ | the 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, 2020 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.
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ITEM 1. FINANCIAL STATEMENTS
ALPHA INVESTMENT INC
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Total Current Assets | ||||||||
| Other Assets: | ||||||||
| Loans receivable - related party, net of discounts and allowance | ||||||||
| Loans receivable, net of discounts | ||||||||
| Interest receivable | ||||||||
| Total Other Assets | ||||||||
| Property and Equipment, net: | ||||||||
| Furniture and Equipment, net | ||||||||
| Total Property and Equipment, net | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued management fees - related party | ||||||||
| Distribution payable | ||||||||
| Notes payable - related party | ||||||||
| Total Current Liabilities | ||||||||
| Payroll Protection Plan Loan | ||||||||
| Total Liabilities | ||||||||
| Temporary Equity: | ||||||||
| Series
2018 Convertible Preferred Stock ($par value), net of discounts of $ | ||||||||
| Total Temporary Equity | ||||||||
| Stockholders' Equity: | ||||||||
| Preferred stock ($ par value), shares | ||||||||
| Series A Convertible Preferred stock ($ par value), shares authorized; shares issued and outstanding as of June 30, 2021 and December 31, 2020 | ||||||||
| Series AA Convertible Preferred stock ($ par value), shares authorized, and -- issued and outstanding as of June 30, 2021 and December 31, 2020 | ||||||||
| Common stock, ($ par value), shares authorized; and shares issued and outstanding as of June 30, 2021 and December 31, 2020 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Equity | ||||||||
| Noncontrolling interest in variable interest entities | ( | ) | ( | ) | ||||
| Total Stockholders' Equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | $ | ||||||
See notes to unaudited condensed consolidated financial statements.
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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, | |||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Income: | ||||||||||||||||
| Net investment income - related parties | $ | $ | $ | $ | ||||||||||||
| Net investment income | ||||||||||||||||
| Total Income | ||||||||||||||||
| General and Administrative Expenses: | ||||||||||||||||
| Management fee - related party | ||||||||||||||||
| Administrative expenses | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Total General and Administrative Expenses | ||||||||||||||||
| Loss from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Expense): | ||||||||||||||||
| Other income | ||||||||||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ||||||||||
| Total Other Income (Expense), net | ( | ) | ||||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Amortization of discounts on Series 2018 preferred stock and redeemable common stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Income Attributable to Noncontrolling Interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Loss Attributable to Common Stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss Per Share - Basic and Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted Average Common Shares Outstanding - Basic and Diluted | ||||||||||||||||
See notes to unaudited condensed consolidated financial statements.
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ALPHA INVESTMENT INC
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
| Series A | Series AA | Non | ||||||||||||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Preferred Stock | Paid-in | controlling | Accumulated | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Interest | Deficit | Total | |||||||||||||||||||||||||||||||
| Balance, December 31, 2019 | $ | 1,167 | $ | — | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||
| Stockholder contribution | — | — | — | |||||||||||||||||||||||||||||||||||||
| Distributions payable to noncontrolling interest | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Amortization of discount on redeemable preferred stock | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance, March 31, 2020 | 1,167 | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Stockholder contribution | — | — | — | |||||||||||||||||||||||||||||||||||||
| Distributions payable to noncontrolling interest | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Amortization of discount on redeemable preferred stock | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance, June 30, 2020 | $ | 1,167 | $ | — | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||
| Series A | Series AA | Non | ||||||||||||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Preferred Stock | Paid-in | controlling | Accumulated | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Interest | Deficit | Total | |||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | — | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Stock exchange | ( | ) | ( | ) | — | |||||||||||||||||||||||||||||||||||
| Stockholder contribution | — | — | — | |||||||||||||||||||||||||||||||||||||
| Distributions payable to noncontrolling interest | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Amortization of discount on redeemable preferred stock | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Stockholder contribution | — | — | — | |||||||||||||||||||||||||||||||||||||
| Distributions payable to noncontrolling interest | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Amortization of discount on redeemable preferred stock | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
See notes to unaudited condensed consolidated financial statements.
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ALPHA INVESTMENT INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months | Six Months | |||||||
| Ended | Ended | |||||||
| June 30, | June 30, | |||||||
| 2021 | 2020 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation expense | ||||||||
| Accretion of origination fee income | ( | ) | ( | ) | ||||
| Amortization of deferred loan costs | ||||||||
| Payroll protection loan forgiveness | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Increase in interest receivable | ( | ) | ( | ) | ||||
| Increase in accrued management fees - related party | ||||||||
| Decrease in accounts payable and accrued expenses | ( | ) | ||||||
| Increase in notes payable - related party | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Net cash from investing activities | ||||||||
| Cash Flows from Financing Activities: | ||||||||
| Redemption of common stock | ( | ) | ||||||
| Proceeds from payroll protection loan | ||||||||
| Proceeds from stockholder contribution | ||||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net increase (decrease) in cash | ( | ) | ( | ) | ||||
| Cash and restricted cash at beginning of year | ||||||||
| Cash at end of period | $ | $ | ||||||
| Supplemental Disclosure of Cash Flow Information: | ||||||||
| Cash paid during year for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Schedule of Non-Cash Investing and Financing Activities: | ||||||||
| Distribution payable to noncontrolling interest | $ | $ | ||||||
| Amortization of discount on redeemable preferred stock | $ | $ | ||||||
See notes to unaudited condensed consolidated financial statements.
| 8 |
ALPHA INVESTMENT INC
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 2021
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 to develop, create, manufacture and market, toys for small children which would be designed to attach to car seats and amuse and entertain children during a drive, without distracting the attention of the driver. The Company, however, encountered significant constraints in raising sufficient capital to fully implement its business plan.
To better reflecting management’s shifted focus of the Company’s business to real estate and other commercial lending, on March 30, 2017, the Company filed a Certificate of Amendment to its Certificate of Incorporation with the Delaware Secretary of State changing its name from “Gogo Baby, Inc.” to “Alpha Investment Inc.”. The name change and a corresponding change in the Company’s OTC markets trading symbol from GGBY to ALPC received approval from FINRA and became effective as of April 19, 2017.
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 which made a capital contribution of $
However, despite using its best efforts, pending Legacy Sand commencing operations and generating revenues, the Company was not been able to sufficiently establish the valuation of the Interest and the Series 2020 Preferred Shares to the satisfaction of its independent registered public accounting firm, in order to allow the Interest to be reflected as an asset on the Company’s balance sheet included in its periodic reports filed with the SEC under the Securities Act of 1934, as amended.
Accordingly, on July 29, 2021,
| 9 |
NOTE 2 – 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. The Company has an accumulated deficit of $
NOTE 3 – 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, 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, 2020. The results of operations for the three and six months ended June 30, 2021 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 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 equivalents include short-term, highly liquid investments with maturities of three months or less at the time of acquisition. As of June 30, 2021, the Company had no cash equivalents.
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Loans Receivable, net and Allowance for Losses
The Company records its investments in loans receivable at the lower of cost or fair value. Costs are the gross loan receivables 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 charged to bad debt 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 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 has established an allowance of $
Property and Equipment
Property and equipment are stated at cost. Equipment
and fixtures will be depreciated using the
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 of June 30, 2021, tax years since 2013 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.
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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 six months ended June 30, 2021 and 2020:
| 2021 | 2020 | |||||||
| Interest Income | $ | $ | ||||||
| Accretion of Loan Origination Fees | ||||||||
| Amortization of Loan Issuance Costs | ( | ) | ( | ) | ||||
| Net Investment Income | $ | $ | ||||||
When a loan is placed on non-accrual status, the related interest receivable is charged to bad debt 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. Receivables, including those arising from the sale of loan origination services, 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
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.
| 12 |
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. shares underlying convertible preferred stock and 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, 2021, because their impact was anti-dilutive. 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, 2021 and 2020, 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. Management has established
an allowance of $
Recently Issued and Adopted Accounting Pronouncements
Recent accounting pronouncements that the Company has adopted or that will be required to adopt in the future are summarized below.
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. The ASU was effective for the Company on January 1, 2021. The adoption of ASU 2016-13 did not have a material impact to the Company’s condensed consolidated financial statements.
NOTE 4 – LOANS RECEIVABLE, NET
Loans Receivable - 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 $
| 13 |
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 $
The following is a summary of mortgages receivable as of June 30, 2021, and December 31, 2020:
June 30, 2021 | December 31, 2020 | |||||||
| Principal Amount Outstanding | $ | $ | ||||||
| Unamortized Issuance Costs | ||||||||
| Unaccreted origination fees | ( | ) | ( | ) | ||||
| Allowance | ( | ) | ( | ) | ||||
| Net Carrying Value | $ | $ | ||||||
Loans Receivable
Paris Med
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 $
| 1) | Construction financing in the amount of $ |
| 2) | Equipment financing note in the amount of $ |
| 3) | Operations financing, business line of credit in the amount of $ |
| 4) | The notes are secured by the assignment of leases and fixed assets related to the project. |
The following is a summary of loans receivable as of June 30, 2021, and December 31, 2020:
June 30, 2021 | December 31, 2020 | |||||||
| Principal Amount Outstanding | $ | $ | ||||||
| Unaccreted Discounts | ( | ) | ( | ) | ||||
| Net Carrying Value | $ | $ | ||||||
| 14 |
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Alpha Mortgage Notes, LLC
Litigation
The Company is not presently involved in any litigation.
Advisory Agreement
NOTE 6 – RELATED PARTY TRANSACTIONS
Loans receivable
The Company has extended lines of credit and loans to related parties. See Note 4.
Management Fee
The Company pays its parent company, Omega Commercial
Finance Corp (“Omega”) management fees pursuant to a corporate governance management agreement executed on June 1, 2017.
Note Payable
On October 14, 2020, the Company issue a promissory
note in the amount of $
NOTE 7 – STOCKHOLDERS’ EQUITY
Incentive Plan
The Company’s Incentive Plan provides for equity incentives to be granted to its employees, executive officers or 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. 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,
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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, 2021, there are shares available for issuance under the plan and no options outstanding. There was no adjustment to the number of shares covered by the Incentive Plan during the six months ended June 30, 2021.
Temporary Equity
On November 27, 2017, shares of Series 2018
Convertible Preferred stock were issued at a value of $ per share to one entity in exchange for cash of $
During the year ended December 31, 2018, the Company issued shares
of Series 2018 Convertible Preferred Stock, to its chief executive officer as compensation for services provided. These shares are carried
at $
Preferred Stock
In November 2017, the Company’s board of directors designated authorized shares of Series A Convertible Preferred Stock (“Series A”). Each share of Series A has a par value of $ and has 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, ratably 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 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. There are shares of Series A Convertible Preferred Stock outstanding as of June 30, 2021 and December 31, 2020.
On February 25, 2021, Omega Commercial Finance Corp agreed to exchange shares of the Company’s common stock for shares of a newly designated Series AA Convertible Preferred Stock (the “Series AA Preferred Stock”). Each share of Series AA Preferred Stock is convertible into, and has rights and preferences on equal to 10 shares of common stock. The Company determined that the fair value of the Series AA Preferred Stock exceeded the fair value of the common stock surrendered and therefore recorded the exchange as a capital contribution with no recognition of any gain or income.
Capital Contributions
During the six months ended
June 30, 2021, Omega Commercial Finance Corp made cash contributions to the Company of $
Common Stock Warrants
As of June 30, 2021, there
are warrants outstanding to purchase
NOTE 8 – SUBSEQUENT EVENTS
On July 29, 2021, the Company and Parsons entered into an Unwinding Agreement, pursuant to which the joint venture was unwound. Under the Unwinding Agreement, Parsons returned the Series 2020 Preferred Shares to the Company for cancellation and the Company assigned the Interest in Legacy Sand back to Parsons and exchanged mutual releases. See Note 1.
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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.
Results of Operations
General
We have recognized income from related parties of approximately $7,000 for the three months ended June 30, 2021, compared to $9,000 for the same period in 2020, resulting from the amortization of loan origination fees received in the form of cash and notes receivable, offset by the amortization of loan costs incurred. As of June 30, 2021, the Company had an accumulated deficit of approximately $5.4 million.
The following table provides selected consolidated balance sheet data as of June 30, 2021.
| 6/30/2021 | |
| Balance Sheet Data: | |
| Cash | $7,087 |
| Loan receivable and accrued interest receivable, net of discounts | 1,355,442 |
| Total assets | 1,363,003 |
| Current liabilities | 815,307 |
| Total liabilities | 815,307 |
| Temporary equity | 398,566 |
| Shareholders' equity | 149,131 |
Three Months Ended June 30, 2021 as compared to year ended June 30, 2020
For the three months ended June 30, 2021, we generated approximately $7,193 in net investment income, compared to $9,438 in 2020. Net investment income in 2021 resulted from interest income of $16,000, the amortization of loan origination fees of $110,000, offset by the amortization of loan costs of $21,000. Net investment income in 2020 resulted from interest income of $13,000, the amortization of loan origination fees of $40,000, offset by the amortization of loan costs of $26,000. We incurred $93,087 in operating expenses during the 2021 period, compared to $228,125 in 2020.
Six Months Ended June 30, 2021 as compared to year ended June 30, 2020
For the six months ended June 30, 2021, we generated approximately $14,386 in net investment income, compared to $18,786 in 2020. Net investment income in 2021 resulted from interest income of $32,000, the amortization of loan origination fees of $220,000, offset by the amortization of loan costs of $52,000. Net investment income in 2020 resulted from interest income of $26,000, the amortization of loan origination fees of $80,000, offset by the amortization of loan costs of $52,000. We incurred $197,495 in operating expenses during the 2021 period, compared to $484,970 in 2020.
Liquidity and Capital Resources
During the six months ended June 30, 2021, Omega, the principal stockholder of the Company, made an additional capital contributions to the Company of $137,711. In 2020, $2.5 million was release from escrow and paid to an investor for redemption of common stock and Omega made cash contributions of $410,000.
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Critical Accounting Policies
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 contingencies. 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.
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.
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.
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.
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ITEM 4 - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision of our Chief Executive Officer of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer has concluded that our disclosure controls and procedures as of June 30, 2021, were not effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms because of a material weaknesses in the Company’s internal control over financial reporting.
Specifically, we noted the following:
● the Company did not maintain effective controls to identify and maintain segregation of duties to support the identification, authorization, approval, accounting for, and the disclosure of related-party transactions and significant unusual transactions. Specifically, one individual, the CEO, initiates related-party transactions and non-routine transactions. This CEO also reviews, evaluates, and approves these same transactions.
● the Company does not have accounting policies and procedures to specify the correct treatment for estimating the allowance for doubtful accounts and bad debt expense of loans receivable. Specifically, a supporting analysis is not prepared for estimating the allowance for loan losses and bad debt expense.
● the Company’s board of directors does not demonstrate independence from management in exercising oversight of the development and performance of internal control over financial reporting. Specifically, there is no functioning audit committee or outside directors on the board of directors to exercise independent oversight over internal control over financial reporting.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act that occurred during the period covered by this report 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, 2020. 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.
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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.
ITEM 6. EXHIBITS
| 101 | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, were formatted in Inline XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Changes in Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Financial Statements. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.* |
| 104 | Cover Page Interactive Data File – the cover page XBRL tags are embedded within the Inline XBRL. |
* 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 | November 19, 2021 | ||
| TODD C. BUXTON | Title (Principal Executive, financial and Accounting Officer | Date |
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