ITEM
1. FINANCIAL STATEMENTS
Pillarstone
Capital REIT
Condensed
Consolidated Balance Sheets
March
31, 2016 and December 31, 2015
|
|
|
March
31,
2016
|
|
|
December
31, 2015
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
139,691
|
|
|
$
|
174,283
|
|
|
Marketable securities
|
|
|
100
|
|
|
|
100
|
|
|
Other assets
|
|
|
10,541
|
|
|
|
9,952
|
|
|
Total
Assets
|
|
$
|
150,332
|
|
|
$
|
184,335
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
15,107
|
|
|
$
|
14,010
|
|
|
Convertible notes payable – related
parties
|
|
|
197,780
|
|
|
|
197,780
|
|
|
Accrued interest
payable
|
|
|
7,207
|
|
|
|
2,276
|
|
|
Total
Liabilities
|
|
|
220,094
|
|
|
|
214,066
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
Deficit
|
|
|
|
|
|
|
|
|
|
Preferred A Shares – $0.01 par
value, 1,518,000 authorized: 258,236 Class A cumulative convertible shares issued and outstanding, $10.00 per share liquidation
preference
|
|
|
2,583
|
|
|
|
2,583
|
|
|
Preferred C Shares – $0.01 par
value, 300,000 authorized: 244,444 Class C cumulative convertible shares issued and outstanding, $10.00 per share liquidation
preference
|
|
|
2,444
|
|
|
|
2,444
|
|
|
Common Shares - $0.01 par value, 400,000,000 authorized: 443,226
shares issued and 405,096 outstanding.
|
|
|
4,051
|
|
|
|
4,051
|
|
|
Additional paid-in capital
|
|
|
28,146,971
|
|
|
|
28,146,971
|
|
|
Accumulated deficit
|
|
|
(27,425,076
|
)
|
|
|
(27,385,045
|
)
|
|
Treasury stock,
at cost, 38,130 shares
|
|
|
(800,735
|
)
|
|
|
(800,735
|
)
|
|
Total
Shareholders’ Deficit
|
|
|
(69,762
|
)
|
|
|
(29,731
|
)
|
|
Total
Liabilities and Shareholders’ Deficit
|
|
$
|
150,332
|
|
|
$
|
184,335
|
|
The
accompanying notes are an integral part of the condensed consolidated financial statements.
Pillarstone
Capital REIT
Condensed Consolidated Statements
of Operations
(unaudited)
|
|
|
For
the three months ended
March 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Interest/dividend
income
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Total
revenues
|
|
|
—
|
|
|
|
—
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
35,100
|
|
|
|
20,043
|
|
|
Interest
|
|
|
4,931
|
|
|
|
—
|
|
|
Total
expenses
|
|
|
40,031
|
|
|
|
20,043
|
|
|
Income
(loss) from operations
|
|
|
(40,031
|
)
|
|
|
(20,043
|
)
|
|
Net
income (loss) attributable to common shareholders
|
|
|
(40,031
|
)
|
|
|
(20,043
|
)
|
|
Net income (loss)
attributable to common shareholders per Common Share: basic and diluted
|
|
$
|
(.10
|
)
|
|
$
|
(.05
|
)
|
|
Weighted average number of Common Shares
outstanding: basic and diluted
|
|
|
405,096
|
|
|
|
405,096
|
|
The
accompanying notes are an integral part of the condensed consolidated financial statements.
Pillarstone
Capital REIT
Condensed Consolidated Statements
of Cash Flows
(unaudited)
|
|
|
For
the three months ended
March 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(40,031
|
)
|
|
$
|
(20,043
|
)
|
|
Net change in operating
assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
(589
|
)
|
|
|
3,179
|
|
|
Accounts
payable and accrued expenses
|
|
|
6,028
|
|
|
|
(400
|
)
|
|
Net
cash from (used in) continuing operations
|
|
|
(34,592
|
)
|
|
|
(17,264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
Cash used for the
purchase of marketable securities
|
|
|
—
|
|
|
|
—
|
|
|
Proceeds
from the sale of marketable securities
|
|
|
—
|
|
|
|
10,000
|
|
|
Net
cash from (used for) investing activities
|
|
|
—
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Net
cash from (used for) financing activities
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(34,592
|
)
|
|
|
(7,264
|
)
|
|
Cash
|
|
|
|
|
|
|
|
|
|
Beginning of
period
|
|
|
174,283
|
|
|
|
10,726
|
|
|
End of period
|
|
$
|
139,691
|
|
|
$
|
3,462
|
|
The
accompanying notes are an integral part of the condensed consolidated financial statements.
Pillarstone
Capital REIT
Notes to Condensed Consolidated
Financial Statements
(unaudited)
Note
1 – Organization
In
March 2016, shareholders of Paragon Real Estate Equity and Investment Trust approved changing the company’s name to Pillarstone
Capital REIT (the “Company,” “Pillarstone,” “we,” “our,” or “us”),
which is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”))
and a Maryland real estate investment trust. Pillarstone is primarily focused on maintaining its trust existence and Securities
and Exchange Commission (“SEC”) reporting history to enable it, in the future, to raise additional capital and make
real estate investments. Future real estate investments may include acquisition and development of retail, office, office warehouse,
industrial, multifamily, hotel, other commercial properties, acquisition of or merger with a REIT or real estate operating company
and joint venture investments. Excess funds may be invested in marketable securities of other real estate companies depending
on market conditions.
Note
2 – Basis of Presentation
Condensed
Consolidated Financial Statement Presentation
We
have prepared the Condensed Consolidated financial statements without audit pursuant to the rules and regulations of the SEC.
Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. However, we believe that
the included disclosures are adequate to make the information presented not misleading. In our opinion, all adjustments (consisting
solely of normal recurring items) necessary for a fair presentation of our financial position as of March 31, 2016, the results
of our operations for the three month periods ended March 31, 2016 and 2015, and of our cash flows for the three month periods
ended March 31, 2016 and 2015 have been included. The results of operations for interim periods are not necessarily indicative
of the results for a full year. For further information, please see our consolidated financial statements and footnotes included
in the Annual Report on Form 10-K for the year ended December 31, 2015.
The
Company presents its financial statements on a consolidated basis because it combines its accounts with a wholly-owned subsidiary
that ceased operations in 2002. All significant intercompany transactions are eliminated in consolidation.
Going
Concern
The
financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the continued
operations as a public company and paying liabilities in the normal course of business. The Company is being maintained as a corporate
shell that is current in its SEC filings. Management and the board of trustees are evaluating real estate opportunities to put
into the Company.
At
March 31, 2016, our cash in the operating account was $139,691. In November 2015, we issued convertible notes payable for proceeds
of $197,780, which have been and will continue to be used to pay expenses to keep the Company current in its SEC filings so that
the Company may be used in the future for real estate transactions or sold to another company. Expenses, such as salaries and
rent, have been eliminated. Our ability to continue as a going concern will be dependent upon acquiring assets to generate cash
flow.
There
can be no assurance that the Company will be able to acquire an operating company, be acquired by or merge with another company,
raise capital or otherwise continue to exist as a going concern. Even if our management is successful in closing a transaction,
investors may not value the transaction in the same manner as we did, and investors may not value the transaction as they would
value other transactions or alternatives. Failure to obtain external sources of capital and complete a transaction will materially
and adversely affect the Company’s ability to continue operations.
Note
3 – Marketable Securities
As
of March 31, 2016, our marketable securities had a fair market value of $100 and was in the form of cash in an insured deposit
account at the brokerage firm. During the three month period ended March 31, 2016, there were no transfers to the operating account
from the brokerage firm and there was no interest income earned in the account at the brokerage firm.
During
the three month period ended March 31, 2015, the Company transferred $10,000 to the operating account, which is shown as proceeds
from the sale of marketable securities on the cash flow statement.
Note
4 – Convertible Notes Payable – Related Parties
On
November 20, 2015, five trustees on our board of trustees loaned $197,780 to the Company in exchange for convertible notes payable.
The convertible notes payable accrue interest at 10% per annum and mature on November 20, 2018. The convertible notes payable
can be converted by the noteholder into common shares at the rate of $1.331 per common share at any time. After six months, the
Company can convert the notes payable into common shares. At maturity or when the Company chooses to convert the convertible notes
payable into common shares, the noteholders have the option to receive cash plus accrued interest or convert the convertible notes
payable into common shares.
Note
5 – Loss Per Share
Net
loss per weighted average common share outstanding—basic and diluted are computed based on the weighted average number of
common shares outstanding for the period. The weighted average number of common shares outstanding for the three month periods
ended March 31, 2016 and March 31, 2015 were 405,096. Common share equivalents of 2,602,898 as of March 31, 2016 include outstanding
Class A Cumulative Convertible Preferred Shares (the “Class A Convertible Preferred Shares”), Class C Cumulative Convertible
Preferred Shares (the “Class C Convertible Preferred Shares”), and convertible notes payable, and common share equivalents
of 2,448,892 as of March 31, 2015 include outstanding Class A Convertible Preferred Shares and Class C Convertible Preferred Shares
and are not included in net loss per weighted average common share outstanding—diluted as they would be anti-dilutive.
Note
6 – Fair Value Measurements
Except
for those assets and liabilities which are required by authoritative accounting guidance to be recorded at fair value in our Condensed
Consolidated Balance Sheets, we have elected not to record any other assets or liabilities at fair value. No events occurred during
the first three months of 2016 which would require adjustment to the recognized balances of assets or liabilities which are recorded
at fair value on a nonrecurring basis.
The
following table provides information on those assets and liabilities measured at fair value on a recurring basis.
|
|
|
Fair
Value Measurement Using
|
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Marketable Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Insured Deposits
|
|
$
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Insured Deposits
|
|
$
|
100
|
|
|
|
|
|
|
|
|
|
The
fair value of the marketable securities is based on the amount of cash in an insured deposit account at the brokerage firm.
Note
7 – Shareholders’ Equity (Deficit)
Our
common shareholders, Preferred Class A shareholders, and Preferred Class C shareholders approved changes to our declaration of
trust, as amended and restated, in March 2016. We presently have authority to issue up to 450,000,000 shares of beneficial interest,
$0.01 par value per share, of which 400,000,000 are classified as common shares of beneficial interest, $0.01 par value per share
and 50,000,000 are classified as preferred shares of beneficial interest, $0.01 par value per share. Of the 50,000,000 preferred
shares of beneficial interest, 1,518,000 shares are designated as Class A Convertible Preferred Shares and 300,000 shares are
designated as Class C Convertible Preferred Shares. Previously, we had authority to issue up to 110,000,000 shares of beneficial
interest, $0.01 par value per share, of which 100,000,000 were classified as common shares of beneficial interest, $0.01 par value
per share, and 10,000,000 were classified as preferred shares of beneficial interest, $0.01 par value per share, with 1,518,000
shares designated as Class A Convertible Preferred Shares and 300,000 shares designated as Class C Convertible Preferred Shares.
Note
8 – 2016 Equity Plan
At
our annual shareholders meeting on March 23, 2016 (the “2016 Annual Meeting”), our shareholders approved the 2016
Equity Plan (“2016 Plan”).
The
2016 Plan provides that awards may be made in common shares of the Company or units in the Company’s operating partnership,
which may be converted into common shares. Subject to adjustment as provided by the terms of the 2016 Plan, the maximum aggregate
number of common shares with respect to which awards may be granted under the 2016 Plan is 57,870, which will be increased based
on future issuances of common share and units of the operating partnership. The maximum aggregate number of common shares that
may be issued under the 2016 Plan will be increased upon each issuance of common shares and units of the operating partnership
by the Company (including issuances pursuant to the 2016 Plan) so that at any time the maximum number of shares that may be issued
under the 2016 Plan shall equal 12.5% of the aggregate number of common shares and units of the operating partnership issued and
outstanding (other than treasury shares and/or units issued to or held by the Company).
The
Management, Organization and Compensation Committee (“Committee”) administers the 2016 Plan, except with respect to
awards to non-employee trustees, for which the 2016 Plan will be administered by the board of trustees. Subject to the terms of
the 2016 Plan, the Committee is authorized to select participants, determine the type and number of awards to be granted, determine
and later amend (subject to certain limitations) the terms and conditions of any award, interpret and specify the rules and regulations
relating to the 2016 Plan, and make all other determinations which may be necessary or desirable for the administration of the
2016 Plan. The 2016 Plan includes the types of awards for grants and the types of financial performance measures.
As
of March 31, 2016, no grants were issued under the 2016 Plan.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Forward-Looking
Information
This
report on Form 10-Q contains historical information, as well as forward-looking statements that involve known and unknown risks
and relate to future events, our future financial performance, or our expected future operations and actions. In some cases, you
can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,”
“plan,” “anticipate,” “believe,” “estimate,” “future,” “intend,”
“could,” “hope,” “predict,” “target,” “potential,” or “continue”
or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions based upon
current information and involve numerous assumptions, risks and uncertainties. Our actual results or actions may differ materially
from these forward-looking statements for many reasons. While it is impossible to identify all such factors, factors that could
cause actual results to differ materially from those estimated by us include:
|
|
●
|
uncertainties
related to the national economy, including liquidity in the capital markets and lending requirements imposed by financial
institutions;
|
|
|
|
|
|
|
●
|
changes
in values for commercial real estate properties and companies;
|
|
|
|
|
|
|
●
|
increases
in interest rates and in the availability, cost and terms of mortgage funds;
|
|
|
|
|
|
|
●
|
decreases
in market prices of the shares of publicly traded real estate companies;
|
|
|
|
|
|
|
●
|
adverse
changes in governmental rules and fiscal policies; and
|
|
|
|
|
|
|
●
|
other
factors which are beyond our control.
|
In
addition, an investment in the Company involves numerous risks that potential investors should consider carefully, including,
without limitation:
|
|
●
|
we
have no operating assets;
|
|
|
|
|
|
|
●
|
our
cash resources are limited;
|
|
|
|
|
|
|
●
|
we
have a history of losses;
|
|
|
|
|
|
|
●
|
we
have not raised funds through a public equity offering;
|
|
|
|
|
|
|
●
|
our
trustees control a significant percentage of our voting shares;
|
|
|
|
|
|
|
●
|
shareholders
could experience possible future dilution through the issuance of additional shares;
|
|
|
|
|
|
|
●
|
we
are dependent on a small number of key senior professionals who are part-time employees; and
|
|
|
|
|
|
|
●
|
we
currently do not plan to distribute dividends to the holders of our shares.
|
The
forward-looking statements should be read in light of these factors and the factors identified in the “Risk Factors”
section of our Annual Report on Form 10-K for the year ended December 31, 2015, as previously filed SEC.
Overview
Pillarstone
Capital REIT (the “Company,” “Pillarstone,” “we,” “our,” or “us”),
formerly known as Paragon Real Estate Equity and Investment Trust, is a shell company (as defined in Rule 12b-2 of the Exchange
Act) and a Maryland real estate investment trust primarily focused on maintaining its trust existence and Securities and Exchange
Commission (“SEC”) reporting history to enable it, in the future, to raise additional capital and make real estate
investments. Future real estate investments may include (i) acquisition and development of retail, office, office warehouse, industrial,
multifamily, hotel and other commercial properties, (ii) acquisition of or merger with a REIT or real estate operating company,
and (iii) joint venture investments.
As
of March 31, 2016, the Company is a shell company current in its SEC filings, that may make future real estate investments or
be sold to another company. There can be no assurance that we will be able to close a transaction or keep the Company currently
filed with the SEC. Even if our management is successful in closing a transaction, investors may not value the transaction or
the current filing status with the SEC in the same manner as we did, and investors may not value the transaction as they would
value other transactions or alternatives. Failure to obtain external sources of capital will materially and adversely affect the
Company’s ability to continue operations, as well as its liquidity and financial results.
Brief
History
Pillarstone
was formed on March 15, 1994 as a Maryland REIT. We operated as a traditional real estate investment trust by buying, selling,
owning and operating commercial and residential properties through December 31, 1999. In 2000, the Company purchased a software
technology company, resulting in the Company not meeting the qualifications to be a REIT under the Internal Revenue Code of 1986,
as amended. In 2002, the Company discontinued the operations of the technology segment.
Recent
Developments and Executive Overview
On
November 20, 2015, five trustees on our board of trustees loaned $197,780 to the Company in exchange for convertible notes payable.
The loan was made to allow the Company to maintain its existence as a shell company current in its SEC filings so that the Company
may be used for future real estate transactions or sold to another company. Excess funds may be invested in marketable securities
of other real estate companies depending on market conditions.
During
the first quarter of 2016, the Company filed a definitive proxy statement containing five proposals for shareholder approval.
The proposals included electing six trustees to three classes with terms expiring for each class in 2017, 2018, and 2019; amending
and restating the declaration of trust; approving a new long-term equity incentive plan; approving in a non-binding advisory vote
the compensation of the executive officers; and approving in a non-binding advisory vote the frequency of when future voting of
the compensation of the executive officers would occur. At the annual shareholders meeting on March 23, 2016, all proposals were
approved by the shareholders, including the frequency of every three years for future voting of the compensation of the executive
officers. As part of the amended and restated declaration of trust, the name of the Company is being changed to “Pillarstone
Capital REIT.”
After
the proxy statement was filed and before the annual shareholders meeting, one of the trustees, Michael T. Oliver passed from a
long term illness. Mr. Oliver joined the board of trustees in 2003 and served as Chairman of the Audit Committee. The Company
sincerely appreciates the time that Mr. Oliver devoted to his responsibilities on the board and his expertise. After the annual
shareholders meeting, the board reduced the number of members to five and expects to appoint a new trustee in the near future.
Results
of Operations
The
following is a discussion of our results of operations for the three month periods ended
March 31, 2016 and 2015 and financial condition, including:
|
|
●
|
Explanation
of changes in the results of operations in the Condensed Consolidated Statements of Operations for the three month period
ended March 31, 2016 compared to the three month period ended March 31, 2015.
|
|
|
|
|
|
|
●
|
Our
critical accounting policies and estimates that require our subjective judgment and are important to the presentation of our
financial condition and results of operations.
|
|
|
|
|
|
|
●
|
Our
primary sources and uses of cash for the three month periods ended March 31, 2016 and March 31, 2015, and how we intend to
generate cash for long-term capital needs.
|
|
|
|
|
|
|
●
|
Our
current income tax status.
|
The
following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and notes
thereto appearing elsewhere herein.
Comparison
of the Three Month Periods Ended March 31, 2016
and 2015
Revenues
from Operations
There
was no revenue for the three month periods ended March 31, 2016 and 2015. This was the result of no operations or temporary investments
in marketable securities.
Expenses
from Operations
Total
expenses, comprised of general and administrative expenses, increased $19,988 from $20,043 for the three month period ended March
31, 2015 to $40,031 for the three month period ended March 31, 2016. This increase is the result of costs of $12,446 for filing
and mailing a definitive proxy statement in the first quarter of 2016, increased interest expense of $4,931 for the convertible
notes payable issued November 20, 2015, increased accounting and legal expenses of $2,184, and increased other expenses of $427.
Loss
from Operations and Net Loss Attributable to Common Shareholders
As
a result of the above, the loss from operations and net loss attributable to common shareholders increased $19,988 from $20,043
for the three month period ended March 31, 2015 to $40,031 for the three month period ended March 31, 2016.
Critical
Accounting Policies and Estimates
Our
Condensed Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles, which require
us to make certain estimates and assumptions. A summary of our significant accounting policies is provided in Note 3 included
in our Annual Report on Form 10-K for the year ended December 31, 2015. The following section is a summary of certain aspects
of those accounting policies that both require our most subjective judgment and are most important to the presentation of our
financial condition and results of operations. It is possible that the use of different estimates or assumptions in making these
judgments could result in materially different amounts being reported in our Condensed Consolidated Financial Statements.
Valuation
Allowance of Deferred Tax Asset
Because
we have not elected to be taxed as a REIT for federal income tax purposes, we account for income taxes using the liability method
under which deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases
of assets and liabilities using enacted tax rates in effect for the period in which the differences are expected to affect taxable
income. At March 31, 2016, we have a net operating loss and at December 31, 2015, we had net operating loss carryforwards totaling
approximately $2,575,000. While these losses created a deferred tax asset, a full valuation allowance was applied against this
asset because of the uncertainty of whether we will be able to use these loss carryforwards, which will expire in varying amounts
through the year 2035.
We
and our subsidiary are also subject to certain state and local income, excise and franchise taxes. The provision for state and
local taxes has been reflected in general and administrative expense in the Condensed Consolidated Statements of Operations and
Comprehensive Income (Loss) and has not been separately stated due to its insignificance.
Liquidity
and Capital Resources
Cash
provided by operations, equity transactions, and borrowings from affiliates and lending institutions have generally provided the
primary sources of liquidity to the Company. Historically, the Company has used these sources to fund operating expenses, satisfy
its debt service obligations and fund distributions to shareholders. Presently, we are dependent on our existing cash, which was
provided by loans of $197,780 from five trustees on our board of trustees in exchange for convertible notes payable in November
2015. The funds will be used for the Company to maintain its status as a shell company current in its SEC filings so that the
Company may be used in the future for real estate transactions or sold to another company. We have kept the public entity available
for value-added real estate opportunities, including (i) acquisition and development of retail, office, office warehouse, industrial,
multifamily, hotel, and other commercial properties, (ii) acquisition of or merger with a REIT or real estate operating company,
and (iii) joint venture investments. Excess funds may be invested in marketable securities of other real estate companies depending
on market conditions. Cash of $139,691 at March 31, 2016 is estimated to allow the Company to continue its SEC filings for the
next two years.
To
further conserve cash, in 2006 each trustee signed a restricted share agreement with the Company to receive a total of 12,500
restricted Class C Convertible Preferred Shares in lieu of receiving fees in cash for service as a trustee for the two years ending
September 29, 2008. The service period ending date and vesting period date for those agreements have been extended to September
30, 2016. Additionally, in 2006, James C. Mastandrea, our President, Chief Executive Officer, and Chairman of the board of trustees,
signed a subscription agreement to purchase 44,444 restricted Class C Convertible Preferred Shares. The consideration for the
purchase was Mr. Mastandrea’s services as an officer of Pillarstone until September 29, 2008. The service period ending
date and vesting period date for this agreement have been extended to September 30, 2016, though the shares were fully amortized
by the original date in 2008.
Cash
Flows
As
of March 31, 2016, our unrestricted cash resources were $139,691. We are dependent on our existing cash, loaned by five trustees
on our board of trustees in exchange for convertible notes payable, to meet our liquidity needs because we do not have cash from
operations to meet our operating requirements.
During
the three months ended March 31, 2016, the Company’s cash balance decreased by $34,592 from $174,283 at December 31, 2015
to $139,691 at March 31, 2016. During the three months ended March 31, 2016, we used $34,592 to continue to maintain the Company
as a shell company current in its SEC filings, including the filing and mailing of our definitive proxy statement filed in connection
the 2016 Annual Meeting.
Future
Obligations
Because
the Company is a shell company that may be used in the future for real estate transactions or sold to another company, we have
no cash from operations and have reduced our day-to-day overhead expenses and material future obligations. We have reduced overhead
expenses by issuing stock for our CEO’s salary and trustee fees, placed our other employee on a part-time unpaid basis,
and have not replaced employees who have left. We have eliminated our office space and rent, and reduced the use of outside consultants,
negotiating discounts on or eliminated expenses wherever possible.
Long
Term Liquidity and Operating Strategies
Historically,
we have financed our long term capital needs, including acquisitions, as follows:
|
|
●
|
borrowings
from new loans;
|
|
|
|
|
|
|
●
|
additional
equity issuances of our common and preferred shares; and
|
|
|
|
|
|
|
●
|
proceeds
from the sales of our real estate, a technology segment, and marketable securities.
|
Because
our unrestricted cash is not sufficient to allow us to continue operations, we have been reviewing other alternatives, including
selling the trust entity and seeking additional investors. In 2006 and 2007, the Company received total payments of $500,000 from
three independent trustees on our board of trustees in exchange for Class C Preferred Shares. In November 2015, five trustees
on our board of trustees loaned to the Company $197,780 in exchange for convertible notes payable. These funds have been and continue
to be used to maintain the Company as a shell company current in its SEC filings while it searches for and reviews other value
added real estate opportunities. Excess funds may be invested in marketable securities of other real estate companies depending
on market conditions.
Current
Tax Status
At
March 31, 2016, we have a net operating loss, and at December 31, 2015, we had net operating loss carryforwards totaling approximately
$2,575,000. While the losses created a deferred tax asset, a full valuation allowance was applied against the asset because of
the uncertainty of whether we will be able to use these loss carryforwards, which will expire in varying amounts through the year
2035. In the event of a change of ownership of the Company, our ability (or the ability of any company that acquires or merges
with us) to use our net operating loss carryforwards will be limited by federal tax regulations.
We,
and our subsidiary, are also subject to certain state and local income, excise and franchise taxes. The provision for state and
local taxes has been reflected in general and administrative expense in the Condensed Consolidated Statements of Operations and
Comprehensive Income (Loss) and has not been separately stated due to its insignificance.
Interest
Rates and Inflation
We
were not significantly affected by inflation during the periods presented in this report due primarily to the relative low nationwide
inflation rates and the Company being a shell company with minimal expenses.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements that have, or are likely to have, a current or future material effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources.