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 September 30, 2020

 

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

 

  LOGO

(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

 

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
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 November 19, 2020
Common Stock, par value $0.0001   40,290,400 shares

 

Documents incorporated by reference: None

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2 

 

 

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

 

  Page No.
Item 1. Financial Statements.  
Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019 (unaudited) 5
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019 (unaudited) 6
Condensed Consolidated Statement of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2020 and 2019 (unaudited) 7
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 (unaudited) 8
Notes to Unaudited Condensed Consolidated Financial Statements 9 – 16
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 17 – 19
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 19
Item 4. Controls and Procedures. 19

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings. 20
Item 1A. Risk Factors. 20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 20
Item 3. Defaults Upon Senior Securities. 20
Item 4. Mine Safety Disclosures. 20
Item 5. Other Information. 20
Item 6. Exhibits. 20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 2019 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

(Unaudited)

 

    As of     As of  
    September 30,     December 31,  
    2020     2019  
ASSETS                
Current Assets:                
Cash   $ 47,056     $ 91,693  
Restricted cash held in escrow     —         2,509,186  
Total Current Assets     47,056       2,600,879  
                 
Other Assets:                
Loans receivable - related party, net of discounts     871,086       883,554  
Loans receivable, net of discounts     487,679       480,809  
Interest receivable     97,827       64,208  
Investment in Legacy Sand Group, LLC (Note 1)     33,323,000       —    
      34,779,592       1,428,571  
                 
Property and Equipment, net:                
Furniture and equipment, net     711       1,005  
Total Property and Equipment, net     711       1,005  
                 
TOTAL ASSETS   $ 34,827,359     $ 4,030,455  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current Liabilities:                
Accounts payable   $ 37,372     $ 37,320  
Accrued management fees - related party     112,500       —    
Distributions payable     190,000       100,000  
Total Current Liabilities     339,872       137,320  
                 
Payroll Protection Plan Loan     20,800       —    
Total Liabilities     360,672       137,320  
                 
Redeemable Common Stock; ($0.0001 par value), 100,000,000 shares authorized, 166,667 shares issued and outstanding as of December 31, 2019 (See Note 8)     —         2,500,000  
Series 2018 Convertible Preferred Stock ($0.0001 par value), net of discounts of $175,701 and $187,545, respectively, 100,000 shares authorized; 36,667 shares issued and outstanding  (Liquidation Value: $500,000) (See Note 8)     380,800       363,034  
      380,800       2,863,034  
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 issued and outstanding     17,505       17,505  
Series 2020 Convertible Preferred Stock ($10,000 par value), 100,000 shares authorized; 3,382 issued and outstanding     33,323,000       —    
Common stock, ($0.0001 par value), 100,000,000 shares authorized; 40,290,400 shares issued and outstanding     4,030       4,030  
Additional paid-in capital     5,535,717       5,110,717  
Accumulated deficit     (4,635,125 )     (4,019,729 )
Total Equity     34,245,127       1,112,523  
Non-controlling interest in variable interest entities     (159,240 )     (82,422 )
Total Stockholders' Equity     34,085,887       1,030,101  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 34,827,359     $ 4,030,455  

 

See notes to unaudited condensed consolidated financial statements.

 

 

5 

 

 

 

ALPHA INVESTMENT INC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

    Three Months     Three Months     Nine Months     Nine Months  
    Ended     Ended     Ended     Ended  
    September 30,     September 30,     September 30,     September 30,  
    2020     2019     2020     2019  
Income:                                
Net investment income - related parties   $ 7,173     $ 11,246     $ 21,518     $ 78,158  
Net investment income     2,356       —         6,797       —    
Total Income     9,529       11,246       28,315       78,158  
                                 
General and Administrative Expenses:                                
Management fee - related party     37,500       40,179       112,500       121,429  
Administrative expenses     59,306       267,037       342,205       647,442  
Professional fees     21,750       76,709       148,821       407,646  
Total General and Administrative Expenses     118,556       383,925       603,526       1,176,517  
Loss from Operations     (109,027 )     (372,679 )     (575,211 )     (1,098,359 )
                                 
Other Expense:                                
Gain on deconsolidation     —         —         —         316,774  
Interest expense     (52 )     (3,213 )     (9,237 )     (623,212 )
Total Other Expense     (52 )     (3,213 )     (9,237 )     (306,438 )
                                 
Net Loss   $ (109,079 )   $ (375,892 )   $ (584,448 )   $ (1,404,797 )
                                 
                                 
Amortization of discounts on Series 2018 preferred stock and redeemable common stock     (5,922 )     (5,922 )     (11,844 )     (17,766 )
                                 
Net Loss Attributable to Non-controlling Interests     (4,394 )     (4,883 )     (13,182 )     (14,648 )
                                 
Net Loss Attributable to Common Stockholders   $ (119,395 )   $ (386,697 )   $ (609,474 )   $ (1,437,211 )
                                 
Basic and Diluted Loss Per Share   $ (0.00 )   $ (0.01 )   $ (0.02 )   $ (0.04 )
Basic and Diluted Weighted Average Number of Common Shares Outstanding     40,290,400       40,288,783       40,290,400       40,268,938  

 

 

See notes to unaudited condensed consolidated financial statements.

 

 

 

6 

 

 

 

ALPHA INVESTMENT INC

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

                Series A     2020 Convertible     Additional                          
    Common Stock     Preferred Stock     Preferred Stock     Paid-in     Subscription     Non-controlling     Accumulated        
    Shares     Amount     Shares     Amount     Shares     Amount     Capital     Receivable     Interest     Deficit     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     —         —         —         —         —         —         —                 4,882       (531,118 )     (526,236 )
Balance, March 31, 2019     43,269,733       4,327       1,167       —         —         17,505       33,715,415       (30,000 )     4,882       (2,818,257 )     30,893,872  
Sale of common stock     23,333       2       —         —         —         —         380,001       30,000       —         —         410,003  
Recission of acquisition     (3,000,000 )     (300 )     —         —         —         —         (29,222,200 )     —         —         —         (29,222,500 )
Deemed dividend- discount on redeemable preferred stock     —         —         —         —         —         —         —         —         —         (5,922 )     (5,922 )
Distribution due to non-controlling interest     —         —         —         —         —         —         —         —         (40,000 )     —         (40,000 )
Net loss     —         —         —         —         —         —         —         —         4,883       (507,553 )     (502,670 )
Balance, June 30, 2019     40,293,066       4,029       1,167       —         —         17,505       4,873,216       —         (30,235 )     (3,331,732 )     1,532,783  
Sale of common stock     5,334       —         —         —         —         —         80,000       (50,000 )     —         —         30,000  
Cancellation of sale of common stock     (6,000 )     —         —         —         —         —         (90,000 )     —         —         —         (90,000 )
Deemed dividend- discount on redeemable preferred stock     —         —         —         —         —         —         —         —         —         (5,922 )     (5,922 )
Distribution due to non-controlling interest     —         —         —         —         —         —         —         —         (30,000 )     —         (30,000 )
Net loss     —         —         —         —         —         —         —         —         4,883       (380,775 )     (375,892 )
Balance, September 30, 2019     40,292,400     $ 4,029       1,167     $ —         —       $ 17,505     $ 4,863,216     $ (50,000 )   $ (55,352 )   $ (3,718,429 )   $ 1,060,969  

 

 

                Series A     2020 Convertible     Additional                          
    Common Stock     Preferred Stock     Preferred Stock     Paid-in     Subscription     Non-controlling     Accumulated        
    Shares     Amount     Shares     Amount     Shares     Amount     Capital     Receivable     Interest     Deficit     Total  
Balance, December 31, 2019     40,290,400     $ 4,030       1,167     $ 17,505       —       $ —       $ 5,110,717     $ —       $ (82,422 )   $ (4,019,729 )   $ 1,030,101  
Stockholder contribution     —         —         —         —         —         —         410,000       —         —         —         410,000  
Amortization of discount on redeemable preferred stock     —         —         —         —         —         —         —         —         —         (5,922 )     (5,922 )
Distributions to noncontrolling interest     —         —         —         —         —         —         —         —         (30,000 )     —         (30,000 )
Net loss     —         —         —         —         —         —         —         —         4,394       (260,986 )     (256,592 )
Balance, March 31, 2020     40,290,400       4,030       1,167       17,505       —         —         5,520,717       —         (108,028 )     (4,286,637 )     1,147,587  
Stockholder contribution     —         —         —         —         —         —         15,000       —         —         —         15,000  
Amortization of discount on redeemable preferred stock     —         —         —         —         —         —         —         —         —         (5,922 )     (5,922 )
Distributions to noncontrolling interest     —         —         —         —         —         —         —         —         (30,000 )     —         (30,000 )
Investment in unconsolidated investee     —         —         —         —         3,382       33,323,000       —         —         —         —         33,323,000  
Net loss     —         —         —         —         —         —         —         —         4,394       (223,171 )     (218,777 )
Balance, June 30, 2020     40,290,400       4,030       1,167       17,505       3,382       33,323,000       5,535,717       —         (133,634 )     (4,515,730 )     34,230,888  
Amortization of discount on redeemable preferred stock     —         —         —         —         —         —         —         —         —         (5,922 )     (5,922 )
Distributions to noncontrolling interest     —         —         —         —         —         —         —         —         (30,000 )     —         (30,000 )
Net loss     —         —         —         —         —         —         —         —         4,394       (113,473 )     (109,079 )
Balance, September 30, 2020     40,290,400     $ 4,030       1,167     $ 17,505       3,382     $ 33,323,000     $ 5,535,717     $ —       $ (159,240 )   $ (4,635,125 )   $ 34,085,887  

 

See notes to unaudited condensed consolidated financial statements.

 

7 

 

 

 

ALPHA INVESTMENT INC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

    Nine Months     Nine Months  
    Ended     Ended  
    September 30,     September 30,  
    2020     2019  
Cash Flows from Operating Activities:                
Net loss   $ (584,448 )   $ (1,404,797 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation expense     294       4,012  
Accretion of origination fee income     5,598       24,172  
Gain on deconsolidation     —         (316,774 )
Changes in operating assets and liabilities:                
Increase in interest receivable     (33,620 )     (38,910 )
Increase in prepaid expenses     —         (41,071 )
Increase in accrued management fees - related party     112,500       —    
Decrease in accounts payable     52       (36,507 )
Net cash used in operating activities     (499,623 )     (1,809,875 )
                 
Cash Flows from Investing Activities:                
Purchase property and equipment     —         (13,300 )
Net cash used in investing activities     —         (13,300 )
                 
Cash Flows from Financing Activities:                
Redemption of common stock     (2,500,000 )     (90,000 )
Proceeds from pppl     20,800       —    
Proceeds from stockholder contribution     425,000       87,100  
Proceeds from the sale of common stock     —         836,003  
Proceeds from the sale of interest in subsidiary     —         1,000,000  
Net cash provided by (used in) financing activities     (2,054,200 )     1,833,103  
                 
Net increase (decrease) in cash     (2,553,823 )     9,928  
Cash and restricted cash at beginning of period     2,600,879       2,511,385  
Cash at end of period   $ 47,056     $ 2,521,313  
                 
Supplemental Disclosure of Cash Flow Information:                
Cash paid during year for:                
Interest   $ 9,237     $ —    
Income Taxes   $ —       $ —    
                 
Schedule of Non-Cash Investing and Financing Activities:                
Investment in Legacy Sand Group LLC   $ 33,323,000     $ —    
Distribution due to non-controlling interest   $ 90,000     $ 40,000  
Amortization of discount on redeemable preferred stock   $ 11,844     $ 17,766  

 

See notes to unaudited condensed consolidated financial statements.

 

 

8 

 

 

ALPHA INVESTMENT INC

NOTES TO CONDENSED FINANCIAL STATEMENTS

 

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.

 

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.” to better reflect the new business focus.   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 $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 $1,000,000 was recorded as additional paid in capital on the accompanying consolidated balance sheet. Alameda Partners is entitled to monthly distributions in cash and stock equal to $10,000. For the nine months ended September 30, 2020, the Company has recorded $90,000 of distributions as reductions to non-controlling interest, which has been accrued and included in Distributions Payable on the accompanying consolidated balance sheet totaling $190,000 as of September 30, 2020. As of September 30, 2020, Alpha Mortgage Notes I, LLC has not completed any transactions.

 

On June 2, 2020, the Company acquired a 19% membership interest in Legacy Sand Group, LLC (“Legacy”), which owns real property and mining rights comprised of approximately 1,200 acres that encompass an asset of 110 million tons of Tier 1 Northern White Fracking Sand in Wisconsin. As consideration for the acquisition, the Company issued 3,382 shares of 2020 Convertible Preferred Stock, which is convertible into 3,804,750 shares of the Company’s common stock. The Company recorded its interest in Legacy at the estimated fair value of the preferred stock of $33,323,000. The Company accounted for its investment in Legacy using the cost method and does not consolidate Legacy, or use the equity method because it does not hold a controlling interest and exert significant influence over the management of Legacy.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

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, 2019. The results of operations for the three and nine months ended September 30, 2020 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.

 

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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 September 30, 2020, the Company had no cash equivalents.

 

Restricted Cash Held in Escrow

 

As of December 31, 2019, the Company had $2,500,000 of restricted cash held in escrow from the sale of commons stock to an investor that has the right to require the Company to repurchase the common stock for $2,500,000 through June 2019. During the nine months ended September 30, 2020, the investor exercised its right to require the Company to acquire the common stock, resulting in the release of the escrowed cash to the investor in exchange for the return of the common stock.

 

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. As of September 30, 2020 and December 31, 2019, since all loans receivable are considered performing according to their payment terms, no loans are on non-accrual status.

 

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 September 30, 2020, and December 31, 2019.

 

Property and Equipment

 

Property and equipment are stated at cost. Equipment and fixtures will be depreciated using the straight-line method over the estimated asset lives, 5 years.

 

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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 September 30, 2020, 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.

 

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 nine months ended September 30, 2020 and 2019:

 

    Three Months Ended     Nine Months Ended  
    2020     2019     2020     2019  
Interest Income   $ 11,393     $ 13,112     $ 33,612     $ 78,112  
Accretion of Loan Origination Fees     23,919       23,919       71,758       103,187  
Amortization of Loan Issuance Costs     (25,785 )     (25,785 )     (77,356 )     (103,141 )
Net Investment Income   $ 9,527     $ 11,246     $ 28,015     $ 78,158  

 

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.

 

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Variable Interest Entity

 

The Company holds a 10% interest in Paris Med, of which the remaining 90% interest is held by Omega financial Corp, Inc.  Through December 31, 2019, 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 September 30, 2020, 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 September 30, 2020, 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.  See Note 3.  For the nine months ended September 30, 2020, Paris Med had no activity other than accruing interest on outstanding principal.  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 attributed 90% of interest earned on Paris Med’s sole asset to non-controlling interests.

 

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 these instruments. 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. 3,971,417 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 nine months ended September 30, 2020, because their impact was anti-dilutive. 350,000 shares of common stock underlying common stock warrants were excluded from the computation of diluted loss per share for the nine months ended September 30, 2019, 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 September 30, 2020.

 

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 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.

 

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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 did not 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.

 

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, former 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 September 30, 2020, 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. During the nine months ended September 30, 2020 and 2019, the Company recognized $27,162 and $27,162, respectively of the origination fees, which are carried at $111,602 and $84,440 as of September 30, 2020 and December 31, 2019, respectively. The Company also incurred loan issuance costs of $420,000, which were recorded as deferred issuance costs to amortized as a reduction of interest income through the maturity date. During the nine months ended September 30, 2020 and 2019, the Company recognized $77,356 and $77,356, respectively of the deferred issuance costs, which are carried at $126,982 and $204,338 as of September 30, 2020 and December 31, 2019, respectively. As of September 30, 2020 and December 31, 2019, the gross loan receivable balance is $657,500 which consists of $477,500 of advances on the loan and $180,000 of origination fees.

 

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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, former 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. The Company received $250,000 of a loan receivable as a finder’s fee which is being accreted to income over the underlying loan term. During the nine months ended September 30, 2020 and 2019, the Company recognized $37,726 of the origination fees, which are carried at $155,003 and $92,127 as of September 30, 2020 and December 31, 2019, respectively. As of September 30, 2020, and December 31, 2019, the gross loan receivable balance is $250,000.

 

The following is a summary of mortgages receivable as of September 30, 2020, and December 31, 2019:

 

   

September 30,

2020

   

December 31,

2019

 
Principal Amount Outstanding     907,500       907,500  
Unamortized Issuance Costs     126,982       204,338  
Unaccreted origination fees     (163,395 )     (228,284 )
Net Carrying Value   $ 871,086     $ 883,554  

 

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 December 31, 2019, 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 accompanying consolidated balance sheets and amortized into income over the terms of the underlying loans.  During the nine months ended September 30, 2020 and 2019, the Company amortized $4,580 and $4,580, respectively, of the discount and, as of September 30, 2020 and December 31, 2019, respectively, the loan is carried at $487,679 and $480,809, net of unamortized discount of $72,321 and $77,191.

 

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 September 30, 2020, 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 September 30, 2020, 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.

 

The following is a summary of loans receivable as of September 30, 2020, and December 31, 2019:

 

   

September 30,

2020

   

December 31,

2019

 
Principal Amount Outstanding   $ 558,000     $ 558,000  
Unaccreted Discounts     (70,321 )     (77,191 )
Net Carrying Value   $ 487,679     $ 480,809  

 

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. For the nine months ended September 30, 2020, the Company accrued $90,000 of distributions. As of September 30, 2020, $190,000 of minimum distributions are owed to the 10% partner.

 

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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 a percentage of future capital raises facilitated by the advisor. Compensation includes non-refundable cash compensation based on a percentage of capital raised. The advisor may elect to receive certain percentage-based fees in the form of equity. Upon the closing of a transaction, the advisor will receive five-year warrants to purchase a number of shares of common stock equal to 8% of the number of shares issued in the transaction at a strike price of the transaction value as defined the agreement. As of the date of this report, no amounts have been earned and no equity instruments have been issued as transaction-based fees pursuant to this agreement.

 

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. The Company has an accumulated deficit of $4,635,125 as of September 30, 2020 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

 

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. 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 agreement remains in effect until cancelled by Omega. During the nine months ended September 30, 2020, no amounts have been paid and $112,500 has been accrued.

 

NOTE 8 – 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. 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 September 30, 2020, 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. During the nine months ended September 30, 2020, the investor exercised its right to require the Company to repurchase the shares for $2.5 million and $2.5 million was released from escrow and returned to the investor in exchange for the common stock.

 

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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.  The Company allocated $236,897 of 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 September 30, 2020 and December 31, 2019, was $80,800 and $63,034, respectively, net of unamortized discounts of $169,779 and $187,544, respectively.

 

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.

 

Series A Convertible 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 winding 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.

 

In 2018, the Company sold 1,000 shares of Series A Convertible Preferred Stock for cash proceeds of $15,000.

 

Series 2020 Convertible Preferred Stock

 

In June 2020, the Company designated 100,000 shares of Series 2020 Convertible Preferred Stock. The Series 2020 Convertible Preferred Stock has a par value of $10,000 per share, ranks senior to all of the securities issued by the Company, and provides the holder the right to convert each share into 1,125 shares of common stock. The holders of Series 2020 Convertible Preferred Stock have equal voting and dividend rights as common stockholders on an as-converted basis. The Series 2020 Convertible Preferred Stock has a liquidation preference of $10,000 per share, and is redeemable by the Company at $10,000 per share.

 

As consideration for its acquisition of a 19% interest in Legacy, the Company issued 3,382 shares of Series 2020 Convertible Preferred Stock. The shares were recorded at the estimated fair value of the preferred stock.

 

Capital Contributions

 

During the nine months ended September 30, 2020, Omega Commercial Finance Corp made a cash contribution to the company of $425,000. This was classified as capital contribution and recorded in additional paid-in capital.

 

Common Stock Warrants

 

As of September 30, 2020, there are warrants outstanding to purchase 520,000 shares for an exercise price of $15.00 over five years, of which warrants to acquire 350,000 shares expire on September 19, 2022 and warrants to acquire 170,000 shares expire on December 14, 2022.

 

 

 

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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.

 

Until December 31, 2020, we will be an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, and, as such, have elected to comply with certain reduced public disclosure requirements for this report. Business Overview

 

General 

 

We intend to provide capital directly to borrowers seeking financing for commercial real estate properties either for refinancing or acquisitions. These loans will encompass originating performing commercial first mortgage loans, subordinate financings, and other commercial real estate-related debt. Notwithstanding the foregoing, we intend to operate our business so that we do not become subject to the Investment Company Act of 1940, as amended. Accordingly, we do not plan to primarily engage in the business of investing, reinvesting or trading in securities and we do not plan to acquire investment securities (such as commercial mortgage-backed securities) having a value exceeding 40% of the value of the Company’s total assets.

 

We expect to offer financing across a broad-spectrum of asset backed and commercial real asset type collateral of any property type such as office, retail, industrial, multi-family, and hospitality. The Company will coordinate its lending initiatives with outside commercial real estate loan brokers, which have access to commercial real estate owners seeking financing or refinancing opportunities, and with loan origination firms that have borrowers seeking loans. We believe that this will enable ALPC to broaden its access to new borrowers and to develop and implement financing solutions for these other lenders, mortgage bankers, borrowers, and owners. In the event the Company uses third party loan origination services and underwriters, the Company will cover these costs in accordance with industry standard practices.

 

The Company expects to require substantial capital to fully fund and implement its operations. The Company plans to raise such capital through public or private offerings of debt or other securities or through joint venture partnerships. There can be no assurance that the Company can successfully raise such capital or consummate alternative offerings of its debt or other securities or joint venture partnerships on favorable terms or otherwise. If such efforts are not successful, then we may be unable to honor funding commitments or be forced to curtail our operations or consider other strategic alternatives.

 

Investment Strategy

 

To identify attractive lending opportunities, the Company expects to continue to deploy its capital through the origination of commercial mortgage loans, subordinate financings and other commercial real-estate related debt investments at attractive risk-adjusted yields. The Company targets lending opportunities that are secured by commercial real estate. The Company’s underwriting includes a focus on stressed in-place cash flows, debt yields, debt service coverage ratios, loan-to-value ratios, property quality and market and sub-market dynamics.

 

Results of Operations

 

General

 

We have recognized income from related parties of approximately $18,000 for the nine months ended September 30, 2020, compared to $67,000 for the same period in 2019, 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 September 30, 2020, the Company had an accumulated deficit of approximately $4.5 million.

 

The following table provides selected consolidated balance sheet data as of September 30, 2020.

 

Balance Sheet Data: 9/30/2020
Cash 42,056
Loan receivable and accrued interest receivable, net of discounts 1,456,952
Investment in Legacy Sand Group, LLC 33,323,000
Total assets 34,827,359
Accounts payable and accrued liabilities 339.872
Total liabilities 360,672
Temporary equity 380.800
Shareholders' equity 34,085,887

 

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    Three Months Ended     Nine Months Ended  
    2020     2019     2020     2019  
Interest Income   $ 11,393     $ 13,112     $ 33,612     $ 78,112  
Accretion of Loan Origination Fees     23,919       23,919       71,758       103,187  
Amortization of Loan Issuance Costs     (25,785 )     (25,785 )     (77,356 )     (103,141 )
Net Investment Income   $ 9,527     $ 11,246     $ 28,015     $ 78,158  

 

Three Months Ended September 30, 2020 as compared to year ended September 30, 2019

 

For the three months ended September 30, 2020, we generated approximately $9,000 in net investment income, compared to $11,000 in 2019. Net investment income in 2020 resulted from interest income of $11,000, the amortization of loan origination fees of $24,000, offset by the amortization of loan costs of $26,000.   Net investment income in 2019 consisted of interest income of $26,000, the amortization of loan origination fees of $24,000, offset by the amortization of loan costs of $26,000. We incurred $118,556 in operating expenses during the 2020 period, compared to $383,925 in 2019. Operating expenses decreased due to professional fees incurred in 2019 related to increased investment-related activity.

 

Nine Months Ended September 30, 2020 as compared to year ended September 30, 2019

 

For the nine months ended September 30, 2020, we generated approximately $28,000 in net investment income, compared to $78,000 in 2019. Net investment income in 2020 resulted from interest income of $34,000, the amortization of loan origination fees of $72,000, offset by the amortization of loan costs of $77,000.   Net investment income in 2019 resulted from interest income of $78,000, the amortization of loan origination fees of $103,000, offset by the amortization of loan costs of $103,000.  We incurred $603,526 in operating expenses during the 2020 period, compared to $1,176,517 in 2019. In 2019, the Company recognized interest expense of $620,000 related to the Jersey Walk financing, which was rescinded upon rescission of the Jersey Walk acquisition in June 2019, resulting in a gain on deconsolidation of $317,000 in 2019.

 

Liquidity and Capital Resources

 

During the nine months ended September 30, 2020, Omega, the principal stockholder of the Company, made an additional capital contribution to the Company of $425,000 In addition, during such period, the purchaser of 166,667 Shares in September 2017, exercised its right to cause the Company to repurchase the Shares for the original purchase price of $2.5 million, which had been held in and was released from escrow.

 

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.

 

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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.

 

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.
· 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 September 30, 2020, 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.

 

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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, 2019. 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.

 

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   November 23, 2020
TODD C. BUXTON   Title (Principal Executive, financial and Accounting Officer   Date

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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