NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 2021
NOTE 1 – ORGANIZATION AND DESCRIPTION OF
BUSINESS
Alpha Investment Inc, formerly GoGo Baby, Inc. (the
“Company”) was incorporated on February 22, 2013 under the laws of the State of Delaware to develop, create, manufacture and
market, toys for small children which would be designed to attach to car seats and amuse and entertain children during a drive, without
distracting the attention of the driver. The Company, however, encountered significant constraints in raising sufficient capital to fully
implement its business plan.
To better reflecting management’s shifted focus
of the Company’s business to real estate and other commercial lending, on March 30, 2017, the Company filed a Certificate of Amendment
to its Certificate of Incorporation with the Delaware Secretary of State changing its name from “Gogo Baby, Inc.” to “Alpha
Investment Inc.”. The name change and a corresponding change in the Company’s OTC markets trading symbol from GGBY to ALPC
received approval from FINRA and became effective as of April 19, 2017.
On March 11, 2019, the Company, through a newly formed
LLC or Special Purpose Vehicle “SPV” called Alpha Mortgage Notes I, LLC executed an operating agreement with Alameda Partners
LLC. Alameda Partners is a Utah Limited Liability Company which made a capital contribution of $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 six months ended June 30, 2021, the Company has recorded $60,000 of
distributions as reductions to non-controlling interest, which has been accrued and included in Distributions Payable on the accompanying
consolidated balance sheet as of June 30, 2021. As of June 30, 2021, 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.
However, despite using its best efforts, pending Legacy
Sand commencing operations and generating revenues, the Company was not been able to sufficiently establish the valuation of the Interest
and the Series 2020 Preferred Shares to the satisfaction of its independent registered public accounting firm, in order to allow the Interest
to be reflected as an asset on the Company’s balance sheet included in its periodic reports filed with the SEC under the Securities
Act of 1934, as amended.
Accordingly, on July 29, 2021, the Company and Parsons
entered into an Unwinding Agreement (the “Unwinding Agreement”), pursuant to which the joint venture was unwound. Under the
Unwinding Agreement, Parsons returned the Series 2020 Preferred Shares to the Company for cancellation and the Company assigned the Interest
in Legacy Sand back to Parsons and exchanged mutual releases.
NOTE 2 – GOING CONCERN
Future issuances of the Company’s equity or
debt securities will be required in order for the Company to continue to finance its operations and continue as a going concern. The Company’s
present revenues are insufficient to meet operating expenses. The financial statements of the Company have been prepared assuming that
the Company will continue as a going concern, which contemplates, among other things, the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has an accumulated deficit of $5,351,386 as of June 30, 2021. During the six
months ended June 30, 2021, the Company used $142,248 of cash in operations and incurred a net loss of $170,932. The Company 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 3 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
In the opinion of the Company, the accompanying unaudited
condensed consolidated financial statements are prepared in accordance with instructions for Form 10-Q, include all adjustments (consisting
only of normal recurring accruals) which we considered as necessary for a fair presentation of the results for the periods presented.
Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements
be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2020. The results of operations for
the three and six months ended June 30, 2021 are not necessarily indicative of the results to be expected for future periods or the full
year.
Principles of Consolidation
The condensed consolidated financial statements include
the accounts of the Company, Alpha Mortgage Notes I, LLC, which is controlled by the Company through its 90% ownership interest, and Paris
Med CP-LLC (“Paris Med”), variable interest entity for which the Company is deemed to be the primary beneficiary, (collectively,
the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting periods presented. The Company is required to make judgments
and estimates about the effect of matters that are inherently uncertain. The Company regularly evaluates estimates and assumptions related
to the useful life and recoverability of long-lived assets, deferred income tax asset valuations and loss contingences. The Company bases
its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under
the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities and the
accrual of costs and expenses that are not readily apparent from other sources. Although, we believe our judgments and estimates are appropriate,
actual future results may be different; if different assumptions or conditions were to prevail, the results could be materially different
from our reported results.
Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid
investments with maturities of three months or less at the time of acquisition. As of June 30, 2021, the Company had no cash equivalents.
Loans Receivable, net and Allowance for Losses
The Company records its investments in loans receivable
at the lower of cost or fair value. Costs are the gross loan receivables less unamortized costs of issuance and deferred origination fees.
Origination fees collected at the time of investment are recorded against the loans receivable and amortized into net interest income
over the lives of the related loans. Issuance costs incurred are capitalized along with the initial investment and amortized against net
interest income over the lives of the related loans.
When a loan receivable is placed on non-accrual status,
the related interest receivable is charged to bad debt of the current period. If a non-accrual loan is returned to accrual status, the
accrued interest existing at the date the residential loan is placed on non-accrual status and interest during the non-accrual period
are recorded as interest income as of the date the loan no longer meets the non-accrual criteria.
The Company maintains an
allowance for loan losses on its investments in real estate loans receivable for estimated credit impairment. Management’s
estimate of losses is based on a number of factors including the types and dollar amounts of loans in the portfolio, adverse situations
that may affect the borrower’s ability to repay, prevailing economic conditions and the underlying collateral securing the loan. Additions
to the allowance are provided through a charge to earnings and are based on an assessment of certain factors, which may indicate estimated
losses on the loans. Actual losses on loans are recorded first as a reduction to the allowance for loan losses. Generally,
subsequent recoveries of amounts previously charged off are recognized as income.
Mortgage Receivables
Estimating allowances for
loan losses requires significant judgment about the underlying collateral, including liquidation value, condition of the collateral, competency
and cooperation of the related borrower and specific legal issues that affect loan collections or taking possession of the property on
an individual loan receivable basis. Management has established an allowance of $250,000 as of June 30, 2021, and December
31, 2020.
Property and Equipment
Equipment and Fixtures
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.
Income Taxes
The Company accounts for its income taxes in accordance
with FASB Accounting Standards Codification (“ASC”) No. 740, "Income Taxes". Under this method, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax balances. Deferred tax assets and liabilities are measured using enacted or
substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered
or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the date of enactment or substantive enactment.
Accounting for Uncertainty in Income Taxes
The Company applies the provisions of ASC Topic 740-10-25, Income
Taxes – Overall – Recognition (“ASC Topic 740-10-25”) with respect to the accounting for uncertainty of income
tax positions. ASC Topic 740-10-25 clarifies the accounting for uncertainty in income taxes recognized in a company’s financial
statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. ASC Topic 740-10-25 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and transition. As of June 30, 2021, tax years since 2013 remain open
for IRS audit. The Company has received no notice of audit from the Internal Revenue Service for any of the open tax years.
Revenue Recognition and Investment Income
Origination fees collected at the time of investment
are recorded against the loans receivable and amortized into net interest income over the lives of the related loans. Issuance costs incurred
are capitalized along with the initial investment and amortized against net interest income over the lives of the related loans. The Company
records interest income in accordance with ASC subtopic 835-30 "Imputation of Interest", using the effective interest method.
The following is a summary of the components of the Company’s net investment income for the six months ended June 30, 2021 and 2020:
|
|
|
2021
|
|
|
2020
|
|
|
Interest Income
|
|
$
|
33,426
|
|
|
$
|
22,518
|
|
|
Accretion of Loan Origination Fees
|
|
|
22,294
|
|
|
|
47,839
|
|
|
Amortization of Loan Issuance Costs
|
|
|
(41,334
|
)
|
|
|
(51,571
|
)
|
|
Net Investment Income
|
|
$
|
14,386
|
|
|
$
|
18,786
|
|
When a loan is placed on non-accrual status, the related
interest receivable is charged to bad debt of the current period. If a non-accrual loan is returned to accrual status, the accrued interest
existing at the date the residential loan is placed on non-accrual status and interest during the non-accrual period are recorded as interest
income as of the date the loan no longer meets the non-accrual criteria.
The Company suspends recognizing interest income when
it is probable that the Company will be unable to collect all payments according to the contractual terms of the underlying agreements.
Management considers all information available in assessing collectability. Collectability is measured on a receivable-by-receivable basis
by either the present value of estimated future cash flows discounted at the effective rate, the observable market price for the receivable
or the fair value of the collateral if the receivable is collateral dependent. Large groups of smaller balance homogeneous receivables,
such as pre-settlement funding transactions, are collectively assessed for collectability. Receivables, including those arising from the
sale of loan origination services, is charged off when in the Company's judgment, the receivable or portion of the receivable is considered
uncollectible.
Payments received on past due receivables and finance
receivables the Company has suspended recognizing interest income on are applied first to principal and then to accrued interest. Interest
income on past due receivables and finance receivables, if received, is recorded using the cash basis method of accounting. Additionally,
the Company generally does not resume recognition of interest income once it has been suspended.
Variable Interest Entity
Paris Med
Omega Commercial Finance Corp.
Variable Interest Entity
The Company holds a 10%
interest in Paris Med, of which the remaining 90%
interest is held by Omega. Through June 30, 2021, 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 June 30, 2021, the Company is considered the primary beneficiary because it has provided substantially all of its financial support
and is the only party at risk. As of June 30, 2021, 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 six months ended June 30, 2021, 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 this instrument.
The carrying value of the Company’s loans receivable approximate fair value because their terms approximate market rates.
Net Loss Per Share
Basic loss per share is computed by dividing the net
loss available to common stockholders by the weighted average number of common shares outstanding for the year. Dilutive loss per share
reflects the potential dilution of securities that could share in the losses of the Company. 166,667 shares underlying convertible preferred
stock and 350,000 shares of common stock underlying common stock warrants were excluded from the computation of diluted loss per share
for the six months ended June 30, 2021, 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 six months ended June 30, 2021 and 2020, because their impact
was anti-dilutive.
Concentration of Credit Risk
Financial instruments that potentially subject the
Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and loans receivable. The Company
maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. Management has established
an allowance of $250,000 as of June 30, 2021 and December 31, 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 June 2016, the FASB issued ASU 2016-13, Financial
Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendments introduce an
impairment model that is based on expected credit losses (“ECL”), rather than incurred losses, to estimate credit losses on
certain types of financial instruments (ex. loans and held to maturity securities), including certain off-balance sheet financial instruments
(ex. commitments to extend credit and standby letters of credit that are not unconditionally cancellable). The ECL should consider historical
information, current information, and reasonable and supportable forecasts, including estimates of prepayments, over the contractual term.
An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances.
Financial instruments with similar risk characteristics may be grouped together when estimating the ECL. The ASU also amends the current
available for sale security impairment model for debt securities whereby credit losses relating to available for sale debt securities
should be recorded through an allowance for credit losses. The ASU was effective for the Company on January 1, 2021. The adoption of ASU
2016-13 did not have a material impact to the Company’s condensed consolidated financial statements.
NOTE 4 – LOANS RECEIVABLE, NET
Loans Receivable - Related Parties
Loan Agreement with Partners South Holdings LLC
(Revolving Line of Credit)
On August 28, 2017 the Company entered into a loan
agreement with Partners South Holdings LLC (“Borrower”), which is owned by Timothy R. Fussell, President, Chairman of the
Board and a director of the Company, for a revolving line of credit in the maximum principal sum of $ for the purpose of financing
real property construction costs and working capital needs. On January 28, 2020, this loan was amended to reduce the loan amount to $.
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 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 % and all interest receivables are due at maturity. As of June 30, 2021
and December 31, 2020, the amount of $ had been advanced on the loan. 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 six months ended June 30, 2021 and 2020, the Company recognized $ and $, of the origination fees, which are carried
at $111,799 and $129,513 as of June 30, 2021 and December 31, 2020. The Company also incurred loan issuance costs of $, which were
recorded as deferred issuance costs to be amortized as a reduction of interest income through the maturity date. During the six months
ended June 30, 2021 and 2020, the Company recognized $ and $, of the deferred issuance costs, which are carried at $
and $ as of June 30, 2021 and December 31, 2020. As of June 30, 2021 and December 31, 2020, the gross loan receivable balance is
$657,500.
Loan Agreement with Partners South Properties Corporation
(Revolving Line of Credit)
On August 28, 2017, the Company entered into a loan
agreement with Partners South Properties Corporation (“Borrower”), which is owned by Timothy R. Fussell, President, Chairman
of the Board and a director of the Company, for a revolving line of credit in the maximum principal sum of $ for the purpose
of financing real property construction costs and working capital needs. On November 2, 2019, this loan was amended to reduce the loan
amount to $. 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 at which time the entire principal balance of the loan plus accrued
interest thereon is due and payable. The annual fixed interest rate on the loan is % and all interest receivables are due at maturity.
As of June 30, 2021, and December 31, 2020, the gross loan receivable balance is $250,000. The Company has established a full reserve
against this until loan until such time as the loan is repaid.
The following is a summary of mortgages receivable
as of June 30, 2021, and December 31, 2020:
Loans Receivable,
Net - Schedule of Mortgage Receivables
|
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
Principal Amount Outstanding
|
|
$
|
907,500
|
|
|
$
|
907,500
|
|
|
Unamortized Issuance Costs
|
|
|
97,898
|
|
|
|
101,196
|
|
|
Unaccreted origination fees
|
|
|
(41,629
|
)
|
|
|
(21,307
|
)
|
|
Allowance
|
|
|
(250,000
|
)
|
|
|
(250,000
|
)
|
|
Net Carrying Value
|
|
$
|
713,769
|
|
|
$
|
737,389
|
|
Loans Receivable
Paris Med
On May 2, 2018, the Company and Paris Med entered
into agreements, pursuant to which Paris Med agreed to provide project financing in the amount of $158,216,541, to an unrelated third
party consisting of three notes as follows:
Construction Loans
|
|
1)
|
Construction financing in the amount of $90,204,328, maturing in 10 years,
including the construction period, and accruing interest at an annual rate of 5.5% during the construction period, and 4.5% upon conversion
to a permanent loan. As of June 30, 2021, 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 six months ended June 30, 2021 and 2020,
the Company amortized $4,580 and $4,580, of the discount and, as of June 30, 2021 and December 31, 2020, the loan is carried at $491,504
and $486,924, net of unamortized discount of $66,496 and $71,076.
|
|
|
2)
|
Equipment financing note in the amount of $24,715,986, payable monthly,
accruing interest at an annual rate of 5.75%, and having terms approximating the lives of the underlying equipment. As of June 30,
2021, no amounts have been advanced pursuant to the equipment financing note.
|
|
|
3)
|
Operations financing, business line of credit in the amount of $23,932,625,
accruing interest at an annual rate of 5.75%, maturing in 10 years. As of December 31, 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 June 30, 2021, and December 31, 2020:
Loans Receivable,
Net - Schedule of Loans Receivables
|
Loans Receivable
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
Principal Amount Outstanding
|
|
$
|
558,000
|
|
|
$
|
558,000
|
|
|
Unaccreted Discounts
|
|
|
(66,496
|
)
|
|
|
(68,786
|
)
|
|
Net Carrying Value
|
|
$
|
491,504
|
|
|
$
|
486,924
|
|
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 six months ended June 30, 2021, the Company
accrued $60,000 of distributions. As of June 30, 2021, $280,000 of minimum distributions are owed to the 10% partner.
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, 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 issue 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 – RELATED PARTY TRANSACTIONS
Loans receivable
The Company has extended lines of credit and loans
to related parties. See Note 4.
Management Fee
The Company pays its parent company, Omega Commercial
Finance Corp (“Omega”) management fees pursuant to a corporate governance management agreement executed on June 1, 2017. 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 each of the six months ended June 30,
2021 and 2020, the company accrued management fees of $75,000. Total management fees of $225,000 and $150,000 remain unpaid as of June
30, 2021 and December 31, 2020.
Note Payable
On October 14, 2020, the Company issue a promissory
note in the amount of $175,000 to Partners South, Holdings, LLC. The note bears interest at an annual rate of % and matured on . As of June 30, 2021, the note is in default and due on demand.
NOTE 7 – STOCKHOLDERS’ EQUITY
Incentive Plan
The Company’s Incentive
Plan provides for equity incentives to be granted to its employees, executive officers or directors or to key advisers or consultants.
Equity incentives may be in the form of stock options with an exercise price not less than the fair market value of the underlying Shares
as determined pursuant to the Incentive Plan, restricted stock awards, other stock-based awards, or any combination of the foregoing.
The Incentive Plan is administered by the board of directors. 5,000,000 Shares are reserved for issuance pursuant to the exercise of awards
under the Incentive Plan. The number of shares so reserved automatically adjusts upward on January 1 of each year,
so that the number of shares
covered by the Incentive Plan is equal to 15% of our issued and outstanding common stock. As of June 30, 2021, there are 1,375,000
shares available for issuance under the plan and no options outstanding. There was no adjustment to the number of shares covered by the
Incentive Plan during the six months ended June 30, 2021.
Temporary Equity
On November 27, 2017, 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
the proceeds from the sale of the preferred stock to the warrants, which was recorded as a discount against the preferred stock and is
to be amortized as a deemed dividend through the 10-year redemption date. The balance of the preferred stock reflected in temporary
equity as of June 30, 2021 and December 31, 2020, was $398,566 and $386,722, net of unamortized discounts of $146,091 and $163,857.
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. These shares are carried
at $300,000 as of June 30, 2021 and December 31, 2020.
Chief Executive Officer
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 has no voting or dividend rights. Upon liquidation, dissolution or wining up, the holders of Series
A shares are entitled to be paid out of the assets of the Company, if any, ratably with the common stock holders. Each share of Series
A is convertible within one year of issuance into two shares of common stock of the Company. At any time after 180 days of issuance, the
Company has the right, but not the obligation, to redeem all, but not less than all, of the outstanding Series A shares by paying cash,
common stock, or a combination of both an amount equal to the par value of the Series A shares. On the one-year anniversary of issuance,
the Company has an obligation to redeem the Series A shares for an amount equal to the par value of the Series A shares. There are 1,167
shares of Series A Convertible Preferred Stock outstanding as of June 30, 2021 and December 31, 2020.
On February 25, 2021, Omega
Commercial Finance Corp agreed to exchange 31,070,000 shares of the Company’s common stock for 100,000 shares of a newly designated
Series AA Convertible Preferred Stock (the “Series AA Preferred Stock”). Each share of Series AA Preferred Stock is convertible
into, and has rights and preferences on equal to 10 shares of common stock. The Company determined that the fair value of the Series AA
Preferred Stock exceeded the fair value of the common stock surrendered and therefore recorded the exchange as a capital contribution
with no recognition of any gain or income.
Capital Contributions
During the six months ended
June 30, 2021, Omega Commercial Finance Corp made cash contributions to the Company of $137,711.
Common Stock Warrants
As of June 30, 2021, 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.
NOTE 8 – SUBSEQUENT EVENTS
On July 29, 2021, the Company and Parsons entered
into an Unwinding Agreement, pursuant to which the joint venture was unwound. Under the Unwinding Agreement, Parsons returned the Series
2020 Preferred Shares to the Company for cancellation and the Company assigned the Interest in Legacy Sand back to Parsons and exchanged
mutual releases. See Note 1.
Subsequent Events