UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q/A

 

(Mark One)

 

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2020

 

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from ___________ to _____________

 

Commission File Number 0-30786

 

Video River Networks, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada

 

87-0627349

(State or other jurisdiction

 

(I.R.S. Employer

of incorporation or organization)

 

Identification No.)

 

 

 

370 Amapola Ave., Suite 200A, Torrance California

 

90501

(Address of principal executive offices)

 

(Zip Code)

 

310-895-1839

(Registrant’s telephone number, including area code)

 

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 past 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. Yes [X] 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 and post such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or, an emerging growth company. See the 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 [  ]

 

Accelerated filer [  ]

Non-accelerated filer [  ]

 

Smaller reporting company [X]

(Do not check if smaller reporting company)

 

Emerging growth company [  ]


 

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

As of March 31, 2020, there were 169,922,436 shares of the registrant’s common stock, $0.001 par value per share, issued and outstanding.

 

 

 

 

 


 

 

EXPLANATORY NOTE

Video River Networks, Inc. (the “Company) is amending this quarterly Report on Form 10-Q to change the accounting for Real Estate Investments Properties contained in our audited financial statements included with this report, which mistakenly accounted for real estate inventory using “fair market” valuation, but which we have changed to historical cost, and the impact of this change has been  reflected on the Balance Sheet, Profit and Loss, Shareholders’ Equity and Cash Flow Statements.  

We have made no attempt in this Quarterly Report on Form 10-Q/A to modify or update the disclosures presented in the Original Report other than as noted in the previous paragraph. Except as noted above, this Quarterly Report on Form 10-Q/A does not reflect events occurring after the filing of the Original Report. Accordingly, this Quarterly Report on Form 10-Q/A should be read in conjunction with the Original Report, and the Company’s other filings with the Securities and Exchange Commission (“SEC”) subsequent to the filing of the Original Report, including any amendments thereto.

 


 

VIDEO RIVER NETWORKS, INC.

TABLE OF CONTENTS

 

PART I. – FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements

1

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

23

 

 

Item 4. Controls and Procedures

23

 

 

PART II. – OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

24

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

25

 

 

Item 3. Defaults Upon Senior Securities

25

 

 

Item 4. Mine Safety Disclosures

25

 

 

Item 5. Other Information

25

 

 

Item 6. Exhibits

26

 

 

Signatures

28

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PART I – FINANCIAL INFORMATION

 


 

Item 1. Financial Statements

 

Condensed Consolidated Balance Sheets as of March 31, 2020 (unaudited) and December 31, 2019 (audited)

2

 

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019 (unaudited)

3

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (unaudited)

4

 

 

Notes to the condensed consolidated financial statements (unaudited)

5

 

 


 

VIDEO RIVER NETWORKS INC

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

For the three months ended March 31, 2020  (unaudited)

 

December 31, 2019       

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

              5,362

 

$

               850

Total Current Assets

 

 

              5,362

 

 

               850

 

 

 

 

 

 

 

Real Estate Holdings

 

 

       1,098,734

 

 

      1,452,897

 

 

 

       1,098,734

 

 

      1,452,897

Total Assets

 

$

       1,104,096

 

$

      1,453,747

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' DEFICIT

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

Accounts Payable

 

$

 

 

$

 

Deferred tax liabilities

 

 

 

 

 

 

Loans – Unrelated Parties

 

 

 

 

 

 

Loans – Related Parties

 

 

       1,119,980

 

 

      1,459,971

Total Liabilities

 

 

1,119,980

 

 

      1,529,679

 

 

 

 

 

 

 

Shareholders' Deficit

 

 

 

 

 

 

Preferred stock, $.001 par value, 1,000,000 shares authorized, 1 issued and outstanding

 

 

 

 

 

 

Common stock ($0.001 par value)

 

 

 

 

 

 

1,200,000,000 shares authorized, no par 139,153,206 and 169,922,436 issued and outstanding on 3/31/2019 and 3/31/2020

 

 

169,922

 

 

        169,922

Additional Paid-In Capital

 

 

18,974,719

 

 

    18,974,719

Accumulated Deficit

 

 

     (19,160,525)

 

 

   (19,150,865)

 

 

 

 

 

 

 

Total Shareholders' Equity

 

 

           (15,884)

 

 

           (6,224)

 

 

 

 

 

 

 

Total Liabilities and Shareholders' Deficit

 

$

       1,104,096

 

$

      1,453,747

             
             

The accompanying notes are an integral part of these consolidated financial statements

 


 

 

VIDEO RIVER NETWORKS INC

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

         
   

For the three months ended March 31,

   

2020

 

2019

   

 

 

 

REVENUE

 

$

        495,000

 

 

$

—  

 

 

 

 

 

 

 

 

COST OF SALES

 

 

        488,499

 

 

 

0

               

GROSS PROFIT

 

 

            6,501

 

 

 

0

               

EXPENSES

 

 

 

 

 

 

 

General and administrative expenses

 

 

16,161

 

 

 

0

 

 

 

 

 

 

 

 

Total Expenses

 

 

16,161

 

 

 

0

 

 

 

 

 

 

 

 

OPERATING PROFIT/LOSS

 

 

         (9,660)

 

 

 

0

 

 

 

 

 

 

 

 

OTHER INCOME

 

 

 

 

 

 

 

Net unrealized gain on real estate

 

 

 

 

 

 

0

 

 

 

 

 

 

 

 

INCOME (LOSS) BEFORE TAXES

 

 

           (9,660)

 

 

 

0

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

           (9,660)

 

 

$

0

 

 

 

 

 

 

 

 

Net Income (Loss) per Common Share: Basic and Diluted

 

$

     (0.000049)

 

 

$

(0.00

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding: Basic and Diluted

 

 

196,223,806

 

 

 

139,153,206

               

The accompanying notes are an integral part of these consolidated financial statements

 

 

 

 

 


 

VIDEO RIVER NETWORKS INC

STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT

 
           

Additional

       
 

Common

       

Paid-In

 

Accumulated

   
 

Shares

 

Amount

 

 

Capital

 

Deficit

 

Total

 

 

 

 

 

 

 

 

 

 

 

 Balance at December 31, 2006

139,153,206

$

139,153

 

$

18,974,719

$

      (19,113,872)

$

            -  

 

 

 

 

 

 

 

 

 

 

 

 Balance at December 31, 2018

139,153,206

$

139,153

 

$

18,974,719

$

      (19,113,872)

$

            -  

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock to employee

  30,769,230

 

      30,769

 

 

                   -  

 

                         -  

 

   30,769

Net income for the period

                   -  

 

                -  

 

 

                   -  

 

              (36,993)

 

 (36,993)

Balance, December 31, 2019

169,922,436

$

169,922

 

$

18,974,719

$

      (19,150,865)

$

-6,224

 

 

 

 

 

 

                   -  

 

 

 

 

Net loss (income) for the period

                   -  

 

                -  

 

 

                   -  

 

                (9,660)

 

    (9,660)

 

                   -  

 

                -  

 

 

 

 

 

 

 

Balance, March 31, 2020

169,922,436

$

169,922

 

$

18,974,719

$

      (19,160,525)

$

 (15,884)

 

 

 

 

 

 

 

 

 

 

 

                     

The accompanying notes are an integral part of these consolidated financial statements

   

 

 


 

VIDEO RIVER NETWORKS INC

 

STATEMENTS OF CASHFLOWS

 

(unaudited)

 
         
   

For the three months ended March 31,

   

2020

 

2019

   

 

 

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Net Income (Loss)

 

$

        (9,660)

 

 

$

0

 

 Adjustments to reconcile net income (loss) to

 

 

 

 

 

 

 

 

net cash used in operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Cash Flows Used in Operating Activities

 

 

        (9,660)

 

 

 

0

 

 

 

 

 

 

 

 

 

 

Net Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Real Estate: SFR - 4904 S Wilton Place 90062

 

 

      (12,965)

 

 

 

 

 

Real Estate: SFR - 831 E 94TH ST 90002

 

 

      367,128

 

 

 

 

 

Net Cash Flows Used in Investing Activities

 

 

      354,163

 

 

 

0

 

 

 

 

 

 

 

 

 

 

Net Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan from related parties

 

 

    (339,991)

 

 

 

 

 

New Cash Flows from Financing Activities

 

 

    (339,991)

 

 

 

0

 

 

 

 

 

 

 

 

 

 

Net Change in Cash:

 

 

          4,512

 

 

 

0

 

Beginning cash:

 

 

850

 

 

 

0

 

Ending Cash:

 

 

          5,362

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

0

 

 

$

0

 

Cash paid for tax

 

$

0

 

 

$

0

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosures of Non-Cash Financing Activities

 

 

 

 

 

 

 

 

Shares issued to settle accounts payable

 

$

0

 

 

$

0

 

Shares issued to settle accruals - related parties

 

$

0

 

 

$

0

 

                 

The accompanying notes are an integral part of these consolidated financial statements

 

 

 


 

VIDEO RIVER NETWORKS, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

 

1. NATURE OF OPERATIONS

 

Video River Networks, Inc. is one of the few black-controlled public companies in America.  Video River Networks, Inc., a specialty real estate holding company, focuses on the acquisition, ownership, and management of specialized industrial properties. Since 2002, the Company’s Power Controls Division has used wireless technology to control both residential utility meters and remote, mission-critical devices. The Set Top Box Division, acquired in October 2007, enables hotels to provide in-room high definition television (“HDTV”) broadcasts, integrated with video-on-demand, and customized guest services information.

 

On August 14, 2009, the Company filed Form 15D, Suspension of Duty to Report, and as a result, the Company was not required to file any SEC forms since August 14, 2009.

 

On October 29, 2019, Video River Networks, Inc. sold one (1) Special 2019 series A preferred share (one preferred share is convertible 150,000,000 share of common stocks) of the company for an agreed upon purchase price to Community Economic Development Capital LLC, (“CED Capital”) a California limited liability company CED. The Special preferred share controls 60% of the company’s total voting rights and thus, gave to CED Capital the controlling vote power to control and dominate the affairs of the company theretofor.  Upon the closing of the transaction, the business of CED Capital was merged into the Company and CED Capital became a wholly owned subsidiary of the Company. 

 

Following the completion of above mentioned transactions, the Company pivoted its business model to become a specialty real estate holding company for specialized assets including, affordable housing, opportunity zones properties, medical real estate investments, hemp and cannabis farms, dispensaries facilities, CBD related commercial facilities, industrial and commercial real estate, and other real estate related services.  Because our principal is a California Real Estate Broker, NIHK aspires to qualify as a Real Estate Investment Trust in the near future and lead in providing real estate focused on hemp and medial-cannabis growth, to the public markets. 

 

Furthermore, we are now, an internally-managed real estate holding company focused on the acquisition, ownership and management of specialized industrial properties leased to experienced, state-licensed operators for their regulated state-licensed cannabis facilities. We plan to acquire our properties through sale-leaseback transactions and third-party purchases. We expect to lease our properties on a triple-net lease basis, where the tenant is responsible for all aspects of and costs related to the property and its operation during the lease term, including structural repairs, maintenance, taxes and insurance.

 

 

NOTE 2. GOING CONCERN

 

Our financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. We have a limited ongoing business or income.  For the period ended March 31, 2020, we reported net income of $495,000 and an accumulated deficit of $19,020,525 as of March 31, 2020. These conditions raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these uncertainties. Our ability to continue as a going concern is dependent upon our ability to raise additional debt or equity funding to meet our ongoing operating expenses and ultimately in merging with another entity with experienced management and profitable operations. No assurances can be given that we will be successful in achieving these objectives.


 

 

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The summary of significant accounting policies is presented to assist in the understanding of the financial statements. These policies conform to accounting principles generally accepted in the United States of America and have been consistently applied. The Company has elected a calendar year of December 31 year-end.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company, its subsidiaries, in which the Company has a controlling voting interest and entities consolidated under the variable interest entities (“VIE”) provisions of ASC 810, “Consolidation” (“ASC 810”).  The consolidated financial statements include the Company and Community Economic Development Capital LLC, (“CED Capital”) a California limited liability company. All inter-company accounts have been eliminated during consolidation.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make 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 period. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

We maintain cash balances in a non-interest-bearing account that currently does not exceed federally insured limits. For the purpose of the statements of cash flows, all highly liquid investments with a maturity of three months or less are considered to be cash equivalents. As of March 31, 2020 and December 31, 2019, we did maintain $5,362.00 and $850.00 balance of cash equivalents respectively.

 

Financial Instruments

 

The estimated fair values for financial instruments were determined at discrete points in time based on relevant market information. These estimates involved uncertainties and could not be determined with precision. The carrying amount of the our accounts payable and accruals, our accruals- related parties and loans – related parties approximate their fair values because of the short-term maturities of these instruments.

 

Investments

 

Fair value measurement guidelines establish a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable input be used when available. Observable inputs are used by the market participants in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances.


 

 

Fair Value Measurements: 

 

ASC Topic 820, Fair Value Measurements and Disclosures ("ASC 820"), provides a comprehensive framework for measuring fair value and expands disclosures which are required about fair value measurements.  Specifically, ASC 820 sets forth a definition of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs.  ASC 820 defines the hierarchy as follows:

 

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities listed on the New York Stock Exchange.

 

Level 2 – Pricing inputs are other than quoted prices in active markets but are either directly or indirectly observable as of the reported date.  The types of assets and liabilities in Level 2 are typically either comparable to actively traded securities or contracts or priced with models using highly observable inputs.

 

Level 3 – Significant inputs to pricing that are unobservable as of the reporting date.  The types of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation, such as complex and subjective models and forecasts used to determine the fair value of financial transmission rights.

 

Our financial instruments consist of accounts payable and accruals and our accruals- related parties. The carrying amount of the out accounts payable and accruals, accruals- related parties and loans – related parties approximates their fair values because of the short-term maturities of these instruments.

 

Related Party Transactions:

 

A related party is generally defined as (i) any person that holds 10% or more of our membership interests including such person's immediate families, (ii) our management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with us, or (iv) anyone who can significantly influence our financial and operating decisions. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.  As at march 31, 2020, the Company has a loan balance of $1,119,980 from a company that is controlled by the Company’s majority stockholder.

 

 

 

Leases:

 

In February 2016, the FASB issued ASU 2016-02, "Leases" that requires for leases longer than one year, a lessee to recognize in the statement of financial condition a right-of-use asset, representing the right to use the underlying asset for the lease term, and a lease liability, representing the liability to make lease payments. The accounting update also requires that for finance leases, a lessee recognize interest expense on the lease liability, separately from the amortization of the right-of-use asset in the statements of earnings, while for operating leases, such amounts should be recognized as a combined expense. In addition, this accounting update requires expanded disclosures about the nature and terms of lease agreements. The Company has reviewed the new standard and does not expect it to have a material impact to the statement of financial condition or its net capital.


 

 

Income Taxes:

 

The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carry-forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

 

Uncertain Tax Positions:

 

We evaluate tax positions in a two-step process. We first determine whether it is more likely than not that a tax position will be sustained upon examination, based on the technical merits of the position. If a tax position meets the more-likely-than-not recognition threshold it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. We classify gross interest and penalties and unrecognized tax benefits that are not expected to result in payment or receipt of cash within one year as long term liabilities in the financial statements.

 

Revenue Recognition:

 

The Company recognizes revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, which requires that five basic steps be followed to recognize revenue: (1) a legally enforceable contract that meets criteria standards as to composition and substance is identified; (2) performance obligations relating to provision of goods or services to the customer are identified; (3) the transaction price, with consideration given to any variable, noncash, or other relevant consideration, is determined; (4) the transaction price is allocated to the performance obligations; and (5) revenue is recognized when control of goods or services is transferred to the customer with consideration given, whether that control happens over time or not. Determination of criteria (3) and (4) are based on our management’s judgments regarding the fixed nature of the selling prices of the products and services delivered and the collectability of those amounts. The adoption of ASC 606 did not result in a change to the accounting for any of the in-scope revenue streams; as such, no cumulative effect adjustment was recorded.  During the periods ended March 31, 2020 or 2019, the Company did recognized revenue of $495,000 and $0.00 respectively.

 

Advertising Costs:

 

We expense advertising costs when advertisements occur.  During the periods ended March 31, 2020 or 2019, the Company did recognized advertising costs of $0.00 and $0.00 respectively.

 

Stock Based Compensation:

 

The cost of equity instruments issued to non-employees in return in accordance with ASC 505-50 “Equity-Based Payments to Non-Employees” for goods and services is measured by the fair value of the goods or services received or the measurement date fair value of the equity instruments issued, whichever is the more readily determinable. Measurement date for non-employees is the earlier of performance commitment date or the completion of services. The cost of employee services received in exchange for equity instruments is based on the grant date fair value of the equity instruments issued in accordance with ASC 718 “Compensation - Stock Compensation.”


 

 

Net Loss per Share Calculation:

 

Basic net loss per common share ("EPS") is computed by dividing loss available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted average shares outstanding, assuming all dilutive potential common shares were issued. Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive.

 

Except for the October 29, 2019 transaction in which the company sold one (1) Special 2019 series A preferred share (one preferred share is convertible 150,000,000 share of common stocks) to Community Economic Development Capital LLC, no otherpotentially dilutive debt or equity instruments were issued or outstanding during the periods ended March 31, 2020 or 2019.

 

Subsequent Events:

 

Pursuant to ASC 855-10, the Company has evaluated all events or transactions that occurred from April 1, 2020 to July 2, 2020.  The Company did not have any material recognizable subsequent events that required disclosure in these financial statements.

 

NOTE 4. REAL ESTATE INVESTMENTS

 

            At March 31, 2020 and December 31, 2019 investment properties consist of:

 

   

Cost basis

   
   

3/31/2020

 

12/31/2019

 

 

 

 

         

 

 

 

 

5125 Harold Way #307

$

         555,031

 

 $    555,031

 

 

 

 

SFR - 831 E 94TH ST 90002

 

        

 

         367,128

 

 

 

 

SFR - 4904 S Wilton Place 90062

 

         530,739

 

       530,739

 

 

 

 

 

$

     1,085,770

 

 $  1,452,897

 

 

 

 

 

On April 23, 2019, the Company acquired land and building located at 4904 S Wilton Place, Los Angeles, CA 90062, to hold as investment property for $498,983.51.  The Company plans to improve the property and then sell it for profit.  As at 3/31/2020, the Company had spent about $31,755 on its rehabilitation and improvement.

 

On April 24, the Company acquired land and building located at 831 E 94th Street, Los Angeles, CA 90002, for $325,000.   The Company plans to improve the property and then sell it for profit.  The Company sold the property in February of 2020.  Thus, as at 3/31/2020, this property is no longer in the Company’s inventory.

 

On the same April 24, the Company acquired a Condominium unit located at 5125 Harold Way #307, Los Angeles, CA 90027, for $540,000.   The Company plans to improve the property and then sell it for profit.  As at 3/31/2020, the Company had spent about $15,031 on its rehabilitation and improvement processes.


 

 

NOTE 5. COMMITMENTS & CONTINGENCIES

Legal Proceedings

We were not subject to any legal proceedings the periods ended March 31, 2020 and 2019, and, to the best of our knowledge, no legal proceedings are pending or threatened.

The Company has no real property and do not presently owned any interests in real estate.   The Company’s executive, administrative and operating offices are located at 370 Amapola Ave, Suite 200A, Torrance, CA 90501.  We have not formalized a lease for the use of the space which belongs to our controlling shareholder.

From time to time, the Company may be involved in certain legal actions and claims arising in the normal course of business. Management is of the opinion that such matters will be resolved without material effect on the Company’s financial condition or results of operations.

 

Contractual Obligations

 

We were not subject to any contractual obligations during the periods ended March 31, 2020 and 2019.

 

NOTE 6. ACCRUALS - RELATED PARTIES

 

N/A

 

NOTE 7. LOANS- RELATED PARTIES

 

During the period under review, the Company recorded a loan of $1,119,980 to from company that is controlled by the Company’s majority stockholder.

 

Real Estate Properties

 

During the period ended March 31, 2020, we bought three single family residences (SFR) with a carrying amount of $1,207,985, in Los Angeles.  We financed the purchase with borrowing from our controlling shareholder.  We intend to rehabilitee these properties and deliver same to eligible homebuyers as part of our mission of promoting homeownership affordable housing.

 

 

NOTE 8. INCOME TAXES

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A full valuation allowance is established against all net deferred tax assets as of March 31, 2020 and December 31, 2019 based on estimates of recoverability. While the Company has optimistic plans for its business strategy, it determined that such a valuation allowance was necessary given the current and expected near term losses and the uncertainty with respect to its ability to generate sufficient profits from its business model.

 


 

We did not provide any current or deferred US federal income tax provision or benefit for any of the periods presented in these financial statements because we have accumulated substantial operating losses over the years.  When it is more likely than not, that a tax asset cannot be realized through future income, we must record an allowance against any future potential future tax benefit.  We have provided a full valuation allowance against the net deferred tax asset, consisting of net operating loss carry forwards, because management has determined that it is more likely than not that we will not earn income sufficient to realize the deferred tax assets during the carry forward periods.

 

The Company has not taken a tax position that, if challenged, would have a material effect on the financial statements for the periods ended March 31, 2020 and 2019 as defined under ASC 740, "Accounting for Income Taxes."  We did not recognize any adjustment to the liability for uncertain tax position and therefore did not record any adjustment to the beginning balance of the accumulated deficit on the balance sheet.

 

A reconciliation of the differences between the effective and statutory income tax rates for the period ended March 31, 2020 and December 31, 2019:

 

Percent

   

31-Mar-20

   

31-Dec-19

 
 

 

   

 

   

 

 

Federal statutory rates

 

34

%

 

$

  (6,466,979)

)

 

$

   (6,443,918)

)

State income taxes

 

5

%

 

 

     (951,026)

)

 

 

      (947,635)

)

Permanent differences

 

-0.5

%

 

 

         95,103

 

 

 

           94,764

 

Valuation allowance against net deferred tax assets

 

-38.5

%

 

 

    7,322,902

 

 

 

        7,296,790

 

Effective rate

 

0

%

 

$

                 -  

 

 

$

                    -  

 

 

 

At March 31, 2020 and December 31, 2019, the significant components of the deferred tax assets are summarized below:

 

 

31-Mar-20

   

31-Dec-19

Deferred income tax asset

 

 

   

 

 

Net operation loss carryforwards

 

19,020,525

   

 

  18,952,701

Total deferred income tax asset

 

7,418,005

   

 

7,391,553

Less: valuation allowance

 

         (7,418,005)

   

 

         (7,391,553)

Total deferred income tax asset

$

-

   

$

-

 

 

The Company has recorded as of March 31, 2020 and December 31, 2019, a valuation allowance of  $7,456,837 and  $7,454,410 respectively, as it believes that it is more likely than not that the deferred tax assets will not be realized in future years. Management has based its assessment on the Company’s lack of profitable operating history.

The valuation allowance $7,418,005 as at March 31, 2020 increased by $26,451 compared to December 31, 2019 of $7,391,553 as a result of the Company generating additional net operating losses of $67,824.


 

The Company conducts an analysis of its tax positions and has concluded that it has no uncertain tax positions as of March 31, 2020 and 2019.

For the period ended March 31, 2020 and 2019, the Company has net operating loss carry-forwards of approximately $19,020,525 and $18,952,701 respectively. Such amounts are subject to IRS code section 382 limitations and expire in 2033.

 

 

NOTE 9. RECENTLY ACCOUNTING PRONOUNCEMENTS

 

Recently Issued Accounting Standards

 

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which amends FASB ASC Topic 326, Financial Instruments - Credit Losses. In addition, in May 2019, the FASB issued ASU 2019-05, Targeted Transition Relief, which updates FASB ASU 2016-13. These ASU’s require financial assets measured at amortized cost to be presented at the net amount to be collected and broadens the information, including forecasted information incorporating more timely information, that an entity must consider in developing its expected credit loss estimate for assets measured. These ASU’s are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early application is permitted for fiscal years beginning after December 15, 2018. Most of our financial assets are excluded from the requirements of this standard as they are measured at fair value or are subject to other accounting standards. In addition, certain of our other financial assets are short-term in nature and therefore are not likely to be subject to significant credit losses beyond what is already recorded under current accounting standards. As a result, we currently do not anticipate this standard to have a significant impact on our consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurements, which amends FASB ASC Topic 820, Fair Value Measurements. This ASU eliminates, modifies and adds various disclosure requirements for fair value measurements. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Certain disclosures are required to be applied using a retrospective approach and others using a prospective approach. Early adoption is permitted. The various disclosure requirements being eliminated, modified or added are not significant to us. As a result, we currently do not anticipate this standard to have a significant impact on our consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which amends FASB ASC Subtopic 350-40, Intangibles-Goodwill and Other-Internal-Use Software. This ASU adds certain disclosure requirements related to implementation costs incurred for internal-use software and cloud computing arrangements. The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The amendments in this ASU should be applied either using a retrospective or prospective approach. Early adoption is permitted. We currently do not anticipate this standard to have a significant impact on our consolidated financial statements.

 

In August 2014, the FASB issued ASU 2014-15 on “Presentation of Financial Statements Going Concern (Subtopic 205-40) – Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. Currently, there is no guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments in this update provide such guidance. In doing so, the amendments are intended to reduce diversity in the timing and content of footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this update are effective for public and nonpublic entities for annual periods ending after December 15, 2016. Early adoption is permitted. We currently do not anticipate this standard to have a significant impact on our consolidated financial statements.


 

 

In January 2013, the FASB issued ASU No. 2013-01, "Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities." This ASU clarifies that the scope of ASU No. 2011-11, "Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities." applies only to derivatives, repurchase agreements and reverse purchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specific criteria contained in FASB Accounting Standards Codification or subject to a master netting arrangement or similar agreement. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013.  We currently do not anticipate this standard to have a significant impact on our consolidated financial statements.

 

In February 2013, the FASB issued ASU No. 2013-02, "Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." The ASU adds new disclosure requirements for items reclassified out of accumulated other comprehensive income by component and their corresponding effect on net income. The ASU is effective for public entities for fiscal years beginning after December 15, 2013.  We currently do not anticipate this standard to have a significant impact on our consolidated financial statements.

 

In February 2013, the Financial Accounting Standards Board, or FASB, issued ASU No. 2013-04, "Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for which the Total Amount of the Obligation Is Fixed at the Reporting Date." This ASU addresses the recognition, measurement, and disclosure of certain obligations resulting from joint and several arrangements including debt arrangements, other contractual obligations, and settled litigation and judicial rulings. The ASU is effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2013. We currently do not anticipate this standard to have a significant impact on our consolidated financial statements.

  

In March 2013, the FASB issued ASU No. 2013-05, "Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity." This ASU addresses the accounting for the cumulative translation adjustment when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. The guidance outlines the events when cumulative translation adjustments should be released into net income and is intended by FASB to eliminate some disparity in current accounting practice. This ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013.  We currently do not anticipate this standard to have a significant impact on our consolidated financial statements.

 


 

In March 2013, the FASB issued ASU 2013-07, “Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting.” The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties or (b) a plan for liquidation is being imposed by other forces (for example, involuntary bankruptcy). If a plan for liquidation was specified in the entity’s governing documents from the entity’s inception (for example, limited-life entities), the entity should apply the liquidation basis of accounting only if the approved plan for liquidation differs from the plan for liquidation that was specified at the entity’s inception. The amendments require financial statements prepared using the liquidation basis of accounting to present relevant information about an entity’s expected resources in liquidation by measuring and presenting assets at the amount of the expected cash proceeds from liquidation. The entity should include in its presentation of assets any items it had not previously recognized under U.S. GAAP but that it expects to either sell in liquidation or use in settling liabilities (for example, trademarks). The amendments are effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. We currently do not anticipate this standard to have a significant impact on our consolidated financial statements.

 

We have reviewed all the recently issued, but not yet effective, accounting pronouncements. Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.

 

 

 

NOTE 10. SHAREHOLDERS’ DEFICIT

 

Preferred Stock

 

As of March 31, 2020 and 2019, we were authorized to issue 1,000,000 shares of preferred stock with a par value of $0.001.

 

The Company has 1 and 1 shares of preferred stock were issued and outstanding during the periods ended March 31, 2020 and 2019 respectively.

 

Common Stock

 

The Company is authorized to issue 1,200,000,000 and 1,200,000,000 shares of common stock with a par value of $0.001 as at March 31, 2020 and 2019 respectively.

 

Period ended March 31, 2020

 

The Company has issued 169,922,436 and 169,922,436 shares of our common stock to more than 163 shareholders as at March 31, 2020 and December 31, 2019 respectively.

 

Warrants

 

No warrants were issued or outstanding during the periods ended March 31, 2020 and 2019.

 

Stock Options


 

 

The Company has never adopted a stock option plan and has never issued any stock options.

 

 

NOTE 11. RESTATEMENT

 

The previously issued consolidated financial statements for the year ended December 31, 2019, and the interim financial statement for the three months ended March 31, 2020, have been restated for correction of material misstatement. 

 

For the year ended December 31, 2019, the correction resulted to changes in our Real Estate Holdings, Deferred tax liabilities, Accumulated Deficit, Total Shareholders’ equity, Income (loss) before taxes, and cash flow accounts. 

 

(a)     The effect of the correction on each financial statement line item and per-share amounts as of December 31, 2019 are as follows:

 

As Previously Reported

 

Change

 

As Restated

Real Estate Holdings

 $

       1,690,000

 

 $

  (237,103)

 

 $

       1,452,897

Deferred tax liabilities

 $

             69,708

 

 $

    (69,708)

 

 $

                      -  

Accumulated Deficit

 $

  (18,952,701)

 

 $

  (198,164)

 

 $

  (19,150,865)

Total Shareholders' Equity

 $

          161,171

 

 $

  (167,395)

 

 $

             (6,224)

Income (Loss) Before Taxes

 $

          230,879

 

 $

  (267,872)

 

 $

          (36,993)

Net Cash Flows Used in Operating Activities

 $

          230,879

 

 $

  (267,872)

 

 $

          (36,993)

Net Cash Flows Used in Investing Activities

 $

       1,690,000

 

 $

  (237,103)

 

 $

       1,452,897

Net Income (Loss) per Common Share: Basic and Diluted

 $

        0.000821

 

 $

  (0.00101)

 

 $

      (0.000189)

 

 

 

(b)     The cumulative effect of the change on retained earnings as of December 31, 2019 are as follows:

 

 

As Previously Reported

 

Change

 

As Restated

Retained Earnings (Accumulated Deficit)

 $

  (18,952,701)

 

 $

  (198,164)

 

 $

  (19,150,865)

Total Shareholders' Equity

 $

          161,171

 

 $

  (167,395)

 

 $

             (6,224)

 

 


 

For the three months ended March 31, 2020, the correction resulted to changes in our Real Estate Holdings, Cost of Sales, Gross profit, Operating Profit/Loss, Income (Loss) Before Taxes, Accumulated Deficit, Total Shareholders’ equity, and cash flow accounts.

 

(a)     The effect of the correction on each financial statement line item and per-share amounts as of March 31, 2020 are as follows:

 

 

As Previously Reported

 

Change

 

As Restated

Real Estate Holdings

 $

             1,207,985

 

 $

  (109,251)

 

 $

       1,098,734

Cost of Sales

 $

                 546,663

 

 $

    (58,164)

 

 $

          488,499

Gross Profit

 $

                 (51,663)

 

 $

       58,164

 

 $

               6,501

Operating Profit/Loss

 

                 (67,824)

   

       58,164

   

             (9,660)

Income (Loss) Before Taxes

 $

                 (67,824)

   

       58,164

   

             (9,660)

Accumulated Deficit

 

        (19,020,525)

   

  (140,000)

   

  (19,160,525)

Total Shareholders' Equity

 $

                   93,347

 

 $

  (109,231)

 

 $

          (15,884)

Net Cash Flows Used in Operating Activities

 $

              (137,532)

 

 $

    127,872

 

 $

             (9,660)

Net Cash Flows Used in Investing Activities

 $

                 482,035

 

 $

  (127,872)

 

 $

          354,163

Net Income (Loss) per Common Share: Basic and Diluted

 $

            (0.000346)

 

 $

                 0

 

 $

      (0.000049)

 

 

(b)     The cumulative effect of the change on retained earnings as of March 31, 2020 are as follows:

 

 

As Previously Reported

 

Change

 

As Restated

                 
                 

Retained Earnings (Accumulated Deficit)

 $

        (19,020,525)

   

  (140,000)

   

  (19,160,525)

Total Shareholders' Equity

 $

                   93,347

 

 $

  (109,231)

 

 $

          (15,884)

 

 

 

 

 

 

 


 

NOTE 12. SUBSEQUENT EVENTS

 

The Company evaluated subsequent events after March 31, 2020 through the date these financial statements were issued and has determined there have been no subsequent events for which disclosure is required except for the following:

 

As shown in Note 6, during the period ended March 31, 2020, we sold one, and continue to hold two of the three single family residences (SFR) with a carrying amount of $1,207,985 in Los Angeles.  We financed the purchase with borrowing from our controlling shareholder.  We intend to rehabilitee these properties and deliver same to eligible homebuyers as part of our mission of promoting homeownership affordable housing. We sold one of the two remaining properties in April of 2020.

 

 


 

 

 

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

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements. The Securities and Exchange Commission (the “SEC”) encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This Quarterly Report and other written and oral statements that we make from time to time contain such forward-looking statements that set out anticipated results based on management’s plans and assumptions regarding future events or performance. We have tried, wherever possible, to identify such statements by using words such as “anticipate,”“estimate,”“expect,”“project,”“intend,”“plan,”“believe,”“will” and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance or results of current and anticipated sales efforts, expenses, the outcome of contingencies, such as legal proceedings, and financial results.

 

We caution that the factors described herein, and other factors could cause our actual results of operations and financial condition to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on our results of operations 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.

 

General

 

Business Overview

 

Video River Networks, Inc. is one of the few black-controlled public companies in America.  Video River Networks, Inc., a specialty real estate holding company, focuses on the acquisition, ownership, and management of specialized industrial properties. Since 2002, the Company’s Power Controls Division has used wireless technology to control both residential utility meters and remote, mission-critical devices. The Set Top Box Division, acquired in October 2007, enables hotels to provide in-room high definition television (“HDTV”) broadcasts, integrated with video-on-demand, and customized guest services information. On August 14, 2009, the Company filed Form 15D, Suspension of Duty to Report, and as a result, the Company was not required to file any SEC forms since August 14, 2009.

 

On October 29, 2019, Video River Networks, Inc. sold one (1) Special 2019 series A preferred share (one preferred share is convertible 150,000,000 share of common stocks) of the company for an agreed upon purchase price to Community Economic Development Capital LLC, (“CED Capital”) a California limited liability company CED. The Special preferred share controls 60% of the company’s total voting rights and thus, gave to CED Capital the controlling vote power to control and dominate the affairs of the company theretofor.  Upon the closing of the transaction, the business of CED Capital was merged into the Company and CED Capital became a wholly owned subsidiary of the Company. 


 

 

Following the completion of above mentioned transactions, the Company pivoted its business model to become a specialty real estate holding company for specialized assets including, affordable housing, opportunity zones properties, medical real estate investments, hemp and cannabis farms, dispensaries facilities, CBD related commercial facilities, industrial and commercial real estate, and other real estate related services.  Because our principal is a California Real Estate Broker, NIHK aspires to qualify as a Real Estate Investment Trust in the near future and lead in providing real estate focused on hemp and medial-cannabis growth, to the public markets. 

 

Furthermore, we are now, an internally-managed real estate holding company focused on the acquisition, ownership and management of specialized industrial properties leased to experienced, state-licensed operators for their regulated state-licensed cannabis facilities. We plan to acquire our properties through sale-leaseback transactions and third-party purchases. We expect to lease our properties on a triple-net lease basis, where the tenant is responsible for all aspects of and costs related to the property and its operation during the lease term, including structural repairs, maintenance, taxes and insurance.

 

Our corporate office is located at 370 Amapola Ave., Suite 200A, Torrance, California 90501. Our telephone number is (310) 895-1839.  As of March 31, 2020, we had no W-2 employee, but three of our officers and directors provide all the services without pay until we formally enter into employment contract with them as full-time employees.

 

 

Our Business Objectives and Growth Strategies

 

Our principal business objective is to maximize stockholder returns through a combination of (1) distributions to our stockholders, (2) sustainable long-term growth in cash flows from increased rents, which we hope to pass on to stockholders in the form of increased distributions, and (3) potential long-term appreciation in the value of our properties from capital gains upon future sale.

 

The Company is engaged primarily in the ownership, operation, management, acquisition, development and redevelopment of predominantly multifamily housing and specialized industrial properties in the United States. Additionally, our specialized industrial property strategy is to acquire and own a portfolio of specialized industrial properties, including multifamily properties, hemp farms, CBD processing and medical-use cannabis facilities leased to tenants holding the requisite state licenses to operate in the regulated medical-use cannabis industry. This strategy includes the following components:

 

 

·

Owning Specialized Real Estate Properties and Assets for Income.  We intend to primarily acquire multifamily housings, economic development real estates, hemp farms, CBD processing facilities and multifamily properties, hemp farms, CBD processing and medical-use cannabis facilities leased licensed growers who will continue their cultivation operations after our acquisition of the property. We expect to hold acquired properties for investment and to generate stable and increasing rental income from leasing these properties to licensed growers.

 

 

·

Owning Specialized Real Estate Properties and Assets for Appreciation.  We intend to primarily lease our acquired properties under long-term, triple-net leases. However, from time to time, we may elect to sell one or more properties if we believe it to be in the best interests of our stockholders. Accordingly, we will seek to acquire properties that we believe also have potential for long-term appreciation in value.

 

 

·

Expanding into Additional States Permit Medical-Use Cannabis Cultivation and Production.  We intend to acquire properties in the United States, with a focus on states that permit cannabis cultivation for medical use.

 

 

·

Affordable Housing.  Our motto is: “acquiring distressed/troubled properties, securing generous government subsidies, empowering low-income families, and generating above-market returns to investors.”

 

·

Preserving Financial Flexibility on our Balance Sheet. We intend to focused on maintaining a conservative capital structure, in order to provide us flexibility in financing our growth initiatives.


 

 

As of March 31, 2020, we owned three investment properties in California, and we expect to continue to expand to other real estate asset classes including hemp and multifamily properties, hemp farms, CBD processing and medical-use cannabis facilities.  We believe an intense focus on operations is necessary to realize consistent, sustained earnings growth. Ensuring tenants’ satisfaction, increasing rents as market conditions allow, maximizing rent collections, maintaining property occupancy at optimal levels, and controlling operating costs comprise our principal strategies to maximize property financial results. We believe a web-based property management and revenue management systems strengthen on-site operations and allow us to quickly adjust rental rates as local market conditions change. Lease terms are generally staggered based on vacancy exposure by property type so lease expirations are matched to each property's seasonal rental patterns. We generally offer leases ranging from twelve to fifteen months with individual property marketing plans structured to respond to local market conditions. In addition, we conduct ongoing customer service surveys to help ensure timely response to tenants' changing needs and a high level of satisfaction.

 

Our Affordable Housing Target Markets

 

Our multifamily affordable housing target market is focused on urban and suburban neighborhoods in California, Nevada and Maryland and other highly urbanized states.  We are also open to acquiring properties in opportunity zone multifamily properties that includes most urban neighborhoods of the United States, including underserved suburbs of major cities across the country.

 

Research Driven Approach to Investments  The Company believes that successful real estate investment decisions and portfolio growth begin with extensive regional economic research and local market knowledge. The Company continually assesses markets where the Company operates, as well as markets where the Company considers future investment opportunities by evaluating markets and focusing on the following strategic criteria:

   

Major metropolitan areas that have regional population in excess of one million;

 

   

Constraints on new supply driven by: (i) low availability of developable land sites where competing housing could be economically built; (ii) political growth barriers, such as protected land, urban growth boundaries, and potential lengthy and expensive development permit processes; and (iii) natural limitations to development, such as mountains or waterways;

 

   

Rental demand enhanced by affordability of rents relative to costs of for-sale housing; and

 

   

Housing demand based on job growth, proximity to jobs, high median incomes and the quality of life including related commuting factors.

 

Recognizing that all real estate markets are cyclical, the Company regularly evaluates the results of its regional economic, and local market research, and adjusts the geographic focus of its portfolio accordingly. The Company seeks to increase its portfolio allocation in markets projected to have the strongest local economies and to decrease allocations in markets projected to have declining economic conditions. Likewise, the Company also seeks to increase its portfolio allocation in markets that have attractive property valuations and to decrease allocations in markets that have inflated valuations and low relative yields.

Multifamily Property Operations – The Company intends to manage its multifamily properties by focusing on activities that may generate above-average rental growth, tenant retention/satisfaction and long-term asset appreciation.  The Company intends to achieve this by utilizing the strategies set forth below:

 

   

Property Management  Oversee delivery and quality of the housing provided to our tenants and manage the properties financial performance.

 

   

Capital Preservation – The Company's asset management services are responsible for the planning, budgeting and completion of major capital improvement projects at the Company’s multifamily properties.

 

   

Business Planning and Control – Comprehensive business plans are implemented in conjunction with significant investment decisions. These plans include benchmarks for future financial performance based on collaborative discussions between on-site managers, the operations leadership team, and senior management.

 

   

Development and Redevelopment – The Company focuses on acquiring and developing apartment multifamily properties in supply constrained markets, and redeveloping its existing multifamily properties to improve the financial and physical aspects of the Company’s multifamily properties.


 

 

 Our Specialized Industrial Properties Target Markets

 

The target market for our CBD processing facilities, hemp farms and licensed-medical cannabis facilities include states that permit cannabis cultivation for medical use. As of March 31, 2020, we owned three properties in any of the states where medical-use cannabis has been legalized such as Arizona, Colorado, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New York and Pennsylvania. According to the National Conference of State Legislatures, As of March 31, 2020, 33 states and the District of Columbia have legalized cannabis for medical use.

 

Although these states have approved the medical use of cannabis, the applicable state and local laws and regulations vary widely. For example, most states' laws allow commercial production and sales through dispensaries and set forth rigorous licensing requirements; in other states the licensing rules are unclear. In some states, dispensaries are mandated to operate on a not-for-profit basis. Some states permit home cultivation activities. The states also differ on the form in which cannabis can be sold. For example, some states do not permit cannabis-infused products such as concentrates, edibles and topicals, while other states ban smoking cannabis.

 

In addition, we expect other factors will be important in the development and growth of the medical-use cannabis industry in the United States, including the timeframes for developing regulations and issuing licenses in states that recently passed laws allowing for medical-use cannabis, and continued legislative authorization of medical-use cannabis at the state level. Progress in the regulated medical-use cannabis industry, while encouraging, is not assured and any number of factors could slow or halt progress in this area.

 

We believe we are well positioned in our current markets and have the expertise to take advantage of new opportunities as they arise. These capabilities, combined with what we believe is a conservative financial structure, should allow us to concentrate our growth efforts toward selective opportunities to enhance our strategy of having a geographically diverse portfolio of assets which meet the requirements of our tenants.

 

We continue to operate in our core markets which we believe provides an advantage due to economies of scale. We believe, where possible, it is best to operate with a strong base of properties in order to benefit from the personnel allocation and the market strength associated with managing multiple properties in the same market. However, consistent with our goal of generating sustained earnings growth, we intend to selectively dispose of properties and redeploy capital for various strategic reasons, including if we determine a property cannot meet our long-term earnings growth expectations.

 

We try to maximize capital appreciation of our properties by investing in markets characterized by conditions favorable to multifamily property appreciation. These markets generally feature the following:

 

   

Strong economic growth leading to household formation and job growth, which in turn should support higher demand for our properties; and

An attractive quality of life, which may lead to higher demand and retention for our properties and allow us to more readily increase rents.

 

Subject to market conditions, we intend to continue to seek opportunities to develop new multifamily properties, and to redevelop, reposition and acquire existing multifamily properties. We also intend to evaluate our operating property and land development portfolio and plan to continue our practice of selective dispositions as market conditions warrant and opportunities arise.

 

We expect to maintain a strong balance sheet and preserve our financial flexibility by continuing to focus on our core fundamentals which currently are generating positive cash flows from operations, maintaining appropriate debt levels and leverage ratios, and controlling overhead costs. We intend to meet our near-term liquidity requirements through a combination of one or more of the following: cash flows generated from operations, draws on our unsecured credit facility or other short-term borrowing, proceeds from property dispositions, other unsecured borrowings, or secured mortgages.

 

Maintaining a Diversified Portfolio and Allocating Capital to Accretive Investment Opportunities.

 


 

We believe greater portfolio diversification, as defined by geographic concentration, location within a market (i.e., urban or suburban) and property quality (i.e., A or B), reduces the volatility of our same-store growth throughout the real estate cycle, appeals to a wider renter and investor audience and lessens the market risk associated with owning a homogenous portfolio.

 

We are focused on increasing our presence in markets with favorable job formation, high propensity to rent, low single-family home affordability, and a favorable demand/supply ratio for multifamily housing. Portfolio investment decisions consider internal analyses and third-party research.

 

Our operating focus is on balancing occupancy and rental rates to maximize our revenue while exercising tight cost control to generate the highest possible return to our shareholders.  Revenue is maximized by attracting qualified prospects to our properties, cost-effectively converting these prospects into new tenants and keeping our tenants satisfied so they will renew their leases upon expiration.  While we believe that it is our high-quality, well-located assets that bring our customers to us, it is the customer service and superior value provided by our on-site personnel that keeps them renting with us and recommending us to their friends.

 

We use technology to engage our tenants, stakeholder and customers in the way that they want to be engaged.  Many of our tenants would utilize our web-based tenant portal and app which allows them to sign and renew their leases, review their accounts and make payments, provide feedback and make service requests on-line or with mobile devices.

 

Market Opportunity

 

The Industrial Real Estate Sub-Market

 

The industrial real estate sub-market continues to perform well in this real estate cycle. According to CBRE Group, Inc., the U.S. industrial property vacancy rate declined to 4.3% in the fourth quarter of 2018, reflecting the 35th consecutive quarter of positive net absorption. Nearly 30.0 million square feet of industrial real estate were absorbed in 2018, which resulted in the highest net asking rents since CBRE Group, Inc. began tracking this metric in 1989.

 

We believe this supply/demand dynamic creates significant opportunity for owners of industrial facilities, particularly those focused on niche categories, as options are limited for tenants requiring specialized buildings. We intend to capitalize on this opportunity by purchasing specialized industrial real estate assets that are critical to the medical-use cannabis industry.

 

The Regulated Medical-Use Cannabis Industry

 

Overview

 

We believe that a convergence of changing public attitudes and increased legalization momentum in various states toward regulated medical-use cannabis creates an attractive opportunity to invest in the industrial real estate sector with a focus on regulated multifamily properties, hemp farms, CBD processing and medical-use cannabis facilities. We also believe that the increased sophistication of the regulated medical-use cannabis industry and the development of strong business, operational and compliance practices have made the sector more attractive for investment. Increasingly, state-licensed, medical-use cannabis cultivation and processing facilities are becoming sophisticated business enterprises that use state-of-the-art technologies and well-honed business and operational processes to maximize product yield and revenues. Additionally, medical-use cannabis growers and dispensers have developed a growing portfolio of products into which they are able to incorporate legal medical-use cannabis in a safe and appealing manner.

 

In the United States, the development and growth of the regulated medical-use cannabis industry has generally been driven by state law and regulation, and accordingly, the market varies on a state-by-state basis. State laws that legalize and regulate medical-use cannabis allow patients to consume cannabis for medicinal reasons with a doctor's recommendation, subject to various requirements and limitations. States have authorized numerous medical conditions as qualifying conditions for treatment with medical-use cannabis, which vary significantly from state to state and may include, among others, treatment for cancer, glaucoma, HIV/AIDs, wasting syndrome, pain, nausea, seizures, muscle spasms, multiple sclerosis, post-traumatic stress disorder (PTSD), migraines, arthritis, Parkinson's disease, Alzheimer's, lupus, residual limb pain, spinal cord injuries, inflammatory bowel disease and terminal illness. As of March 31, 2020, 33 states, plus the District of Columbia, have passed laws allowing their citizens to use medical cannabis.


 

 

We believe that the following conditions, which are described in more detail below, create an attractive opportunity to invest in industrial real estate assets that support the regulated medical-use cannabis industry:

 

 

·

significant industry growth in recent years and expected continued growth;

 

 

·

a shift in public opinion and increasing momentum toward the legalization of medical-use cannabis under state law; and

 

 

·

limited access to capital by industry participants in light of risk perceived by financial institutions of violating federal laws and regulatory guidelines for offering banking services to cannabis-related businesses.

 

Industry Growth and Trends

 

According to Arcview Market Research, sales of state-legal cannabis in the United States grew to $8.6 billion in 2017, including $5.9 billion of medical-use cannabis sales, and are expected to reach $22.2 billion by 2022.

 

According to ProCon.org, a non-profit organization, as of May 2018, over 2.1 million people used or were registered to use state-legalized medical cannabis in the United States, taking data available from the 26 states and Washington, D.C. that had implemented their medical cannabis programs as of that date. As the industry continues to evolve, new ways to consume medical-use cannabis are being developed in order for patients to have the treatment needed for their condition in a safe and appealing manner. In addition to smoking and vaporizing of dried leaves, cannabis can be incorporated into a variety of edibles, pills, spray products, transdermal patches and topicals, including salves, ointments, lotions and sprays with low or high levels of delta-9-tetrahydrocannabinol (“THC”), the principal psychoactive constituent of the cannabis plant.

 

As with any nascent but growing industry, operational and business practices evolve and become more sophisticated over time. We believe that the quality and experience of industry participants and the development of sound business, operational and compliance practices have strengthened significantly over time, increasing the attractiveness for investment in the regulated medical-use cannabis industry.

 

Shifting Public Attitudes and State Law and Legislative Activity

 

We believe that the growth of the regulated medical-use cannabis industry has been fueled, in part, by the rapidly changing public attitudes in the United States. A 2018 poll by Quinnipiac University found that 93% of Americans support patient access to medical-use cannabis, if recommended by a doctor.

 

As of March 31, 2020, 33 states, plus the District of Columbia, have passed laws allowing their citizens to use medical cannabis. The first state to permit the use of cannabis for medicinal purposes was California in 1996, upon adoption of the Compassionate Care Act. The law allowed doctors to recommend cannabis for serious medical conditions and patients were permitted to use, possess and grow cannabis themselves. Several other states adopted medical-use cannabis laws in 1998 and 1999, and the remaining medical-use cannabis states adopted their laws on various dates through 2018.

 

Following the approval of medical-use cannabis, state programs must be developed and businesses must be licensed before commencing cannabis sales. Some states have developed the necessary procedures and licensing requirements quickly, while other states have taken years to develop their programs for production and sales of cannabis. Even where regulatory frameworks for medical-use cannabis production and sales are in place, states tend to revise these rules over time. These revisions often impact sales, making it difficult to predict the potential of new markets. States may restrict the number of medical-use cannabis businesses permitted, restrict the method by which medical cannabis can be consumed, limit the medical conditions that are eligible for cannabis treatment or require registration of doctors and/or patients, each of which can limit growth of the medical-use cannabis industry in those states. Alternatively, states may relax their initial regulations relating to medical-use cannabis production and sales, which would likely accelerate growth of the medical-use cannabis industry in such states.


 

 

Access to Capital

 

To date, the status of state-licensed cannabis under federal law has significantly limited the ability of state-licensed industry participants to fully access the U.S. banking system and traditional financing sources. These limitations, when combined with the high costs of maintaining licensed and stringently regulated multifamily properties, hemp farms, CBD processing and medical-use cannabis facilities (including meeting extensive zoning requirements), substantially increase the cost of production. While future changes in federal and state laws may ultimately open up financing options that have not been available to date in this industry, we believe that such changes, if they do occur, will take time, thereby creating an opportunity over the next few years to provide our sale-leaseback and other real estate solutions to state-licensed industry participants that have limited access to traditional financing sources.

 

Market Opportunity and Associated Risks

 

We focus on purchasing specialized industrial real estate assets for the regulated medical-use cannabis industry, with emphasis on properties that we believe also have potential for long-term appreciation in value. We believe that our sale-leaseback and other real estate solutions offer an attractive alternative to state-licensed medical-cannabis cultivators who have limited access to traditional financing alternatives. We have acquired and intend to continue to acquire multifamily properties, hemp farms, CBD processing and medical-use cannabis facilities in states that permit medical-use cannabis cultivation.

 

Notwithstanding the foregoing market opportunity and trends, and despite legalization at the state level, we continue to believe that the current state of federal law creates significant uncertainty and potential risks associated with investing in multifamily properties, hemp farms, CBD processing and medical-use cannabis facilities, including but not limited to potentially heightened risks related to the use of such facilities for adult-use cannabis operations, if a state passes such laws.

 

STRATEGY

Our Financing Strategy

 

As part of our plan to finance our activities, we utilize proceeds from debt and equity offerings and refinancing to extend maturities, pay down existing debt, fund development and redevelopment activities, and acquire rental properties.  We use mortgage with reasonable terms on all our acquisitions.

 

We intend to meet our long-term liquidity needs through cash flow from operations and the issuance of equity and debt securities, including common stock, preferred stock and long-term notes. Where possible, we also may issue limited partnership interests in our Operating Partnership to acquire properties from existing owners seeking a tax-deferred transaction. We expect to issue equity and debt securities at times when we believe that our stock price is at a level that allows for the reinvestment of offering proceeds in accretive property acquisitions. We may also issue common stock to permanently finance properties that were previously financed by debt securities. However, we cannot assure you that we will have access to the capital markets at times and on terms that are acceptable to us. Our ability to access the capital markets and to obtain other financing arrangements is also significantly limited by our focus on serving the medical-use cannabis industry. Our investment guidelines initially provide that our aggregate borrowings (secured and unsecured) will not exceed 50% of the cost of our tangible assets at the time of any new borrowing, subject to our board of directors' discretion.

 

We may file a shelf registration statement, which would subsequently be declared effective by the SEC, which may permit us, from time to time, to offer and sell common stock, preferred stock, warrants and other securities to the extent necessary or advisable to meet our liquidity needs.

 

Portfolio Management


 

 

Our portfolio management strategy involves the allocation of investment capital to enhance rent growth and increase long-term capital values through portfolio design, emphasizing land value as well as location and submarket. We target geographic diversification in our portfolio in order to reduce the volatility of our rental revenue and to reduce the risk of undue concentration in any particular market. Similarly, we seek price point diversification by owning multifamily properties that offer properties at rents below those asked by competitive new building supply.

 

Acquisitions and Dispositions

 

Acquisitions and developments may be financed from various sources of capital, which may include retained cash flow, issuance of additional equity and debt, sales of properties and joint venture arrangements.  In addition, the Company may acquire properties in transactions that include Operating Partnership (OP) Units as consideration for the acquired properties.  Such transactions may, in certain circumstances, enable the sellers to defer, in whole or in part, the recognition of taxable income or gain that might otherwise result from the sales. 

 

When evaluating potential acquisitions, we consider a wide variety of factors, including:

                • whether it is located in a high barrier-to-entry market;

                • population growth, cost of alternative housing, overall potential for economic growth and the tax and regulatory environment of the community in which the property is located;

                • geographic location, including proximity to jobs, entertainment, transportation, and our existing communities which can deliver significant economies of scale;

                • construction quality, condition and design of the property;

                • current and projected cash flow of the property and the ability to increase cash flow;

                • ability of the property’s projected cash flows to exceed our cost of capital;

                • potential for capital appreciation of the property;

                • ability to increase the value and profitability of the property through operations and redevelopment;

                • terms of resident leases, including the potential for rent increases;

                • occupancy and demand by tenants for properties of a similar type in the vicinity;

                • prospects for liquidity through sale, financing, or refinancing of the property; and

                • competition from existing multifamily communities and the potential for the construction of new multifamily properties in the area.

 

Our Acquisition Process and Underwriting Criteria

 

We identify property acquisition opportunities primarily through relationships developed over time by our officers with former borrowers, current joint venture partners, real estate investors and brokers. We are interested in acquiring the following types of properties:

          Class B or better properties with strong and stable cash flows in markets where we believe there exists opportunity for rental growth and further value creation;

          Class B or better properties that offer significant potential for capital appreciation through repositioning or rehabilitating the asset to drive rental growth;

          properties available at opportunistic prices providing an opportunity for a significant appreciation in value; and

          development of Class A properties in markets where we believe we can generate significant returns from the operation and if appropriate, sale of the development.

 

We regularly monitor our assets to increase the quality and performance of our portfolio. Factors we consider in deciding whether to dispose of a property include:

          current market price for an asset compared to projected economics for that asset;

          potential increases in new construction in the market area;

          areas with low job growth prospects;

          markets where we do not intend to establish a long-term concentration; and

          operating efficiencies.

 


 

Additionally, as part of our strategy, the Company purchases properties at various stages of occupancy and completion and may acquire land parcels to hold and/or sell as well as options to buy more land in the future.  The Company may also seek to acquire properties by providing mezzanine financing/equity and/or purchasing defaulted or distressed debt that encumbers desirable properties.

 

The Company has done an extensive positioning planning of its portfolio into urban and highly walkable, close-in suburban communities.  The Company targets properties and primarily located in markets and submarkets it believes will remain attractive long-term because they are primarily located in the urban and high-density suburban areas noted above.

 

Environmental, Social and Governance (“ESG”)

 

We endeavor to provide a richly diverse work environment that employs the highest performers, cultivates the best ideas and creates the widest possible platform for success.  We are committed to elevating and supporting the core values of diversity and inclusion, “Total Well-Being” (which brings together physical, financial, career, social and community well-being into a cohesive whole), and environmental, social and governance (“ESG”), which includes sustainability and social responsibility, by actively engaging in these areas.  Each member of the executive team maintains an annual goal related to these core values, which is evaluated by the Company’s Board of Trustees.  Our goal is to create and sustain an inclusive environment where diversity will thrive, employees will want to work and tenants will want.  We are committed to providing our employees with encouragement, guidance, time and resources to learn and apply the skills required to succeed in their jobs.  We provide many classroom and on-line training courses to assist our employees in interacting with prospects and tenants as well as extensive training for our customer service specialists in maintaining our properties and improvements, equipment and appliances.  We actively promote from within and many senior corporate and property leaders have risen from entry level or junior positions.  We monitor our employees’ engagement by surveying them annually and find most employees say they are proud to work at the Company, value one another as colleagues, believe in our mission and values and feel their skills meet their job requirements.   

 

We have a commitment to sustainability and consider the environmental impacts of our business activities.  Sustainability and social responsibility are key drivers of our focus on creating the best properties for tenants operate, work and play.  We have a dedicated in-house team that initiates and applies sustainable practices in all aspects of our business, including investment activities, development, property operations and property management activities.  With its high density, multifamily housing is, by its nature, an environmentally friendly property type.  Our recent acquisition and development activities have been primarily concentrated in pedestrian-friendly urban and close-in suburban locations near public transportation.  When developing and renovating our properties, we strive to reduce energy and water consumption by investing in energy saving technology while positively impacting the experience of our tenants and the value of our assets.  We continue to implement a combination of irrigation, lighting, HVAC and renewable energy improvements at our properties that will reduce energy and water consumption.  For 2020, we continue to have an express company-wide goal for Total Well-Being, which includes  enhanced ESG efforts.  Employees, including our executives, will have their performance against our various  Total Well-Being  goals evaluated as part of our annual performance review process.

 

Buyouts of Joint Venture Partners

 

From time to time, we acquire our joint venture partner's equity interest in projects and as a result, these properties are wholly-owned by us.

 

Risk Management

 

As of March 31, 2020, we owned two properties.  We embraced portfolio diversification at acquisitions as our main risk management strategy. We will continue to diversify the investment size and location of our portfolio of properties in order to manage our portfolio-level risk. Over the long term, we intend that no single property will exceed 25% of our total assets and that no single tenant will exceed 30% of our total assets.

 

We expect that single tenants will occupy our properties pursuant to triple-net lease arrangements in general and, therefore, the success of our investments will be materially dependent on the financial stability of these tenants. We expect the success of our future tenants, and their ability to make rent payments to us, to significantly depend on the projected growth and development of the applicable state market; as many of these state markets have a very limited history, and other state markets are still forming their regulations, issuing licenses and otherwise establishing the market framework, significant uncertainty exists as to whether these markets will develop in the way that we or our future tenants project.


 

 

We intend to evaluate the credit quality of our future tenants and any guarantors on an ongoing basis by reviewing, where available, the publicly filed financial reports, press releases and other publicly available industry information regarding our future tenants and any guarantors. In addition, we intend to monitor the payment history data for all of our future tenants and, in some instances, we monitor our future tenants by periodically conducting site visits and meeting with the tenants to discuss their operations. In many instances, we will generally not be entitled to financial results or other credit-related data from our future tenants.

 

Competition

 

The current market for properties that meet our investment objectives is limited. In addition, we believe finding properties that are appropriate for the specific use of allowing medical-use cannabis growers may be limited as more competitors enter the market, and as medical-use cannabis growers obtain greater access to alternative financing sources, including but not limited to equity and debt financing sources. We face significant competition from a diverse mix of market participants, including but not limited to, other companies with similar business models, independent investors, hedge funds and other real estate investors, hard money lenders, and cannabis operators themselves, all of whom may compete with us in our efforts to acquire real estate zoned for multifamily properties, hemp farms, CBD processing and medical-use cannabis facilities. In some instances, we will be competing to acquire real estate with persons who have no interest in the cannabis industry, but have identified value in a piece of real estate that we may be interested in acquiring.

 

These competitors may prevent us from acquiring desirable properties or may cause an increase in the price we must pay for properties. Our competitors may have greater financial and operational resources than we do and may be willing to pay more for certain assets or may be willing to accept more risk than we believe can be prudently managed. In particular, larger companies may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. Our competitors may also adopt transaction structures similar to ours, which would decrease our competitive advantage in offering flexible transaction terms. In addition, due to a number of factors, including but not limited to potential greater clarity of the laws and regulations governing medical-use cannabis by state and federal governments, the number of entities and the amount of funds competing for suitable investment properties may increase substantially, resulting in increased demand and increased prices paid for these properties. If we pay higher prices for properties, our profitability may decrease, and you may experience a lower return on our common stock. Increased competition for properties may also preclude us from acquiring those properties that would generate attractive returns to us.

 

Competitive Strengths in Affordable Housing

 

On affordable housing, all of the Company’s targeted properties are located in developed areas that include other properties.  The number of competitive properties in a particular area could have a material effect on the Company’s ability to lease units at its properties and on the rents charged.  The Company may be competing with other entities that have greater resources than the Company and whose managers have more experience than the Company’s managers.  In addition, other forms of rental properties provide alternatives to potential renters of our properties. 

 

We believe that, in general, we are well-positioned to compete effectively for tenants and investments. We believe our competitive advantages include:

 

          a fully integrated organization with property management, development, redevelopment, acquisition, marketing, sales and financing expertise;


 

          scalable operating and support systems, which include automated systems to meet the changing electronic needs of our residents and to effectively focus on our Internet marketing efforts;

          access to sources of capital;

          geographic diversification with a presence in markets across the country; and

          significant presence in many of our major markets that allows us to be a local operating expert.

 

Moving forward, we will continue to optimize lease management, improve expense control, increase resident retention efforts and align employee incentive plans with our bottom line performance. We believe this plan of operation, coupled with the portfolio’s strengths in targeting renters across a geographically diverse platform, should position us for continued operational upside.

 

The real estate business is cyclical. Real estate cycles are generally impacted by many factors, including availability of equity and debt capital, borrowing cost, rent levels, and asset values. Our strategy will result in a strong track record of creating both asset and entity value for the benefit of our shareholders and partners over these various real estate cycles. 

 

Governmental Regulation

 

Federal Laws Applicable to the Medical-Use Cannabis Industry

 

Cannabis is classified as a Schedule I controlled substance by the Drug Enforcement Agency ("DEA") and the U.S. Department of Justice ("DOJ") with no medical use, and therefore it is illegal to grow, possess and consume cannabis under federal law. The Controlled Substances Act of 1910 ("CSA") bans cannabis-related businesses; the possession, cultivation and production of cannabis-infused products; and the distribution of cannabis and products derived from it. Moreover, on two separate occasions the U.S. Supreme Court ruled that the CSA trumps state law. That means that the federal government has the option of enforcing U.S. drug laws, creating a climate of legal uncertainty regarding the production and sale of medical-use cannabis.

 

Under the Obama administration, the DOJ previously issued memoranda, including the so-called “Cole Memo” on August 29, 2013, providing internal guidance to federal prosecutors concerning enforcement of federal cannabis prohibitions under the CSA. This guidance essentially characterized use of federal law enforcement resources to prosecute those complying with state laws allowing the use, manufacture and distribution of cannabis as an inefficient use of such federal resources when state laws and enforcement efforts are effective with respect to specific federal enforcement priorities under the CSA.

 

On January 4, 2018, U.S. Attorney General Jeff Sessions issued a written memorandum rescinding the Cole Memo and related internal guidance issued by the DOJ regarding federal law enforcement priorities involving cannabis (the “Sessions Memo”). The Sessions Memo instructs federal prosecutors that when determining which cannabis-related activities to prosecute under federal law with the DOJ’s finite resources, prosecutors should follow the well-established principles set forth in the U.S. Attorneys’ Manual governing all federal prosecutions. The Sessions Memo states that “these principles require federal prosecutors deciding which cases to prosecute to weigh all relevant considerations, including federal law enforcement priorities set by the Attorney General, the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the community.” The Sessions Memo went on to state that given the DOJ’s well-established general principles, “previous nationwide guidance specific to marijuana is unnecessary and is rescinded, effective immediately.” It is unclear what impact the Sessions Memo will have on the medical-use cannabis industry, if any.

 

In addition, pursuant to the current omnibus spending bill previously approved by Congress, the DOJ is prohibited from using funds appropriated by Congress to prevent states from implementing their medical-use cannabis laws. A similar provision was also included in each prior Congressional omnibus spending bill since 2014. This provision, however, is currently set to expire on September 30, 2019, and there is no assurance that Congress will approve inclusion of a similar prohibition on DOJ spending in the appropriations bills for future years. In USA vs. McIntosh, the United States Circuit Court of Appeals for the Ninth Circuit held that this provision prohibits the DOJ from spending funds from relevant appropriations acts to prosecute individuals who engage in conduct permitted by state medical-use cannabis laws and who strictly comply with such laws. However, the Ninth Circuit's opinion, which only applies in the states of Alaska, Arizona, California, Hawaii and Idaho, also held that persons who do not strictly comply with all state laws and regulations regarding the distribution, possession and cultivation of medical-use cannabis have engaged in conduct that is unauthorized, and in such instances the DOJ may prosecute those individuals.


 

 

Furthermore, while we target the acquisition of multifamily properties, hemp farms, CBD processing and medical-use cannabis facilities, our leases do not prohibit cannabis cultivation for adult-use that is permissible under the state and local laws where our facilities are located. Consequently, certain of our future tenants cultivate adult-use cannabis now (or may in the future) in our multifamily properties, hemp farms, CBD processing and medical-use cannabis facilities that are permitted by such state and local laws, which may in turn subject the tenant, us and our properties to greater and/or different federal legal and other risks than exclusively multifamily properties, hemp farms, CBD processing and medical-use cannabis facilities, including not providing protection under the above Congressional spending provision.

 

Federal prosecutors have significant discretion and no assurance can be given that the federal prosecutor in each judicial district where we purchase a property will not choose to strictly enforce the federal laws governing cannabis production or distribution. Any change in the federal government's enforcement posture with respect to state-licensed cultivation of medical-use cannabis, including the enforcement postures of individual federal prosecutors in judicial districts where we purchase properties, would result in our inability to execute our business plan, and we would likely suffer significant losses with respect to our investment in multifamily properties, hemp farms, CBD processing and medical-use cannabis facilities in the United States, which would adversely affect the trading price of our securities. Furthermore, following any such change in the federal government's enforcement position, we could be subject to criminal prosecution, which could lead to imprisonment and/or the imposition of penalties, fines, or forfeiture.

 

State Laws Applicable to the Medical-Use Cannabis Industry

 

In most states that have legalized medical-use cannabis in some form, the growing and/or dispensing of cannabis generally requires that the operator obtain one or more licenses in accordance with applicable state requirements. In addition, many states regulate various aspects of the growing and/or dispensing of medical-use cannabis. For example, New York limits the types of treatable medical conditions, requires registration of both patients and recommending physicians, limits the types of strains that can be grown, sets prices through the State Program Commissioner, requires that a registered pharmacist be on the premises of all dispensaries during hours of operation, and prohibits cannabis in flower form. Local governments in some cases also impose rules and regulations on the manner of operating cannabis businesses. As a result, applicable state and local laws and regulations vary widely. As a result of licensing requirements, if our future tenants default under their leases, we may not be able to find new tenants that have the requisite license to engage in the cultivation of medical cannabis on the properties.

 

Laws Applicable to Banking for Cannabis Industry

 

All banks are subject to federal law, whether the bank is a national bank or state-chartered bank. At a minimum, all banks maintain federal deposit insurance which requires adherence to federal law. Violation of federal law could subject a bank to loss of its charter. Financial transactions involving proceeds generated by cannabis-related conduct can form the basis for prosecution under the federal money laundering statutes, unlicensed money transmitter statutes and the Bank Secrecy Act. For example, under the Bank Secrecy Act, banks must report to the federal government any suspected illegal activity, which would include any transaction associated with a cannabis-related business. These reports must be filed even though the business is operating in compliance with applicable state and local laws. Therefore, financial institutions that conduct transactions with money generated by cannabis-related conduct could face criminal liability under the Bank Secrecy Act for, among other things, failing to identify or report financial transactions that involve the proceeds of cannabis-related violations of the CSA.

 

The Financial Crimes Enforcement Network ("FinCen") issued guidance in February 2014 which clarifies how financial institutions can provide services to cannabis-related businesses consistent with their obligations under the Bank Secrecy Act. Concurrently with the FinCen guidance, the DOJ issued supplemental guidance directing federal prosecutors to consider the federal enforcement priorities enumerated in the Cole Memo with respect to federal money laundering, unlicensed money transmitter and Bank Secrecy Act offenses based on cannabis-related violations of the CSA. The FinCen guidance sets forth extensive requirements for financial institutions to meet if they want to offer bank accounts to cannabis-related businesses, including close monitoring of businesses to determine that they meet all of the requirements established by the DOJ, including those enumerated in the Cole Memo. This is a level of scrutiny that is far beyond what is expected of any normal banking relationship.


 

 

As a result, many banks are hesitant to offer any banking services to cannabis-related businesses, including opening bank accounts. While we currently have a bank account, our inability to maintain that account or the lack of access to bank accounts or other banking services in the future, would make it difficult for us to operate our business, increase our operating costs, and pose additional operational, logistical and security challenges. Similarly, if our proposed tenants are unable to access banking services, they will not be able to enter into triple-net leasing arrangements with us, as our leases will require rent payments to be made by check or wire transfer.

 

Furthermore, it is unclear what impact the rescission of the Cole Memo will have, but federal prosecutors may increase enforcement activities against institutions or individuals that are conducting financial transactions related to cannabis activities. The increased uncertainty surrounding financial transactions related to cannabis activities may also result in financial institutions discontinuing services to the cannabis industry.

 

Agricultural Regulation

 

The medical-use cannabis properties that we acquire are used primarily for cultivation and production of medical-use cannabis and are subject to the laws, ordinances and regulations of state, local and federal governments, including laws, ordinances and regulations involving land use and usage, water rights, treatment methods, disturbance, the environment, and eminent domain.

 

Each governmental jurisdiction has its own distinct laws, ordinances and regulations governing the use of agricultural lands. Many such laws, ordinances and regulations seek to regulate water usage and water runoff because water can be in limited supply, as is the case in certain locations where our properties are located. In addition, runoff from rain or from irrigation is governed by laws, ordinances and regulations from state, local and federal governments. Additionally, if any of the water used on or running off from our properties flows to any rivers, streams, ponds, the ocean or other waters, there may be specific laws, ordinances and regulations governing the amount of pollutants, including sediments, nutrients and pesticides, that such water may contain.

 

We believe that our existing properties have, and other properties that we acquire in the future will have, sources of water, including wells and/or surface water that provide sufficient amounts of water necessary for the current operations at each location. However, should the need arise for additional water from wells and/or surface water sources, we may be required to obtain additional permits or approvals or to make other required notices prior to developing or using such water sources. Permits for drilling water wells or withdrawing surface water may be required by federal, state and local governmental entities pursuant to laws, ordinances, regulations or other requirements, and such permits may be difficult to obtain due to drought, the limited supply of available water within the districts of the states in which our properties are located or other reasons.

 

In addition to the regulation of water usage and water runoff, state, local and federal governments also seek to regulate the type, quantity and method of use of chemicals and materials for growing crops, including fertilizers, pesticides and nutrient rich materials. Such regulations could include restricting or preventing the use of such chemicals and materials near residential housing or near water sources. Further, some regulations have strictly forbidden or significantly limited the use of certain chemicals and materials. Licenses, permits and approvals must be obtained from governmental authorities requiring such licenses, permits and approvals before chemicals and materials can be used at grow facilities. Reports on the usage of such chemicals and materials must be submitted pursuant to applicable laws, ordinances, and regulations and the terms of the specific licenses, permits and approvals. Failure to comply with laws, ordinances and regulations, to obtain required licenses, permits and approvals or to comply with the terms of such licenses, permits and approvals could result in fines, penalties and/or imprisonment.

 


 

The use of land for agricultural purposes in certain jurisdictions is also subject to regulations governing the protection of endangered species. When agricultural lands border, or are in close proximity to, national parks, protected natural habitats or wetlands, the agricultural operations on such properties must comply with laws, ordinances and regulations related to the use of chemicals and materials and avoid disturbance of habitats, wetlands or other protected areas.

 

Because properties we intend to own may be used for growing medical-use cannabis, there may be other additional land use and zoning regulations at the state or local level that affect our properties that may not apply to other types of agricultural uses. For example, certain states in which our properties would be located require stringent security systems in place at grow facilities, and require stringent procedures for disposal of waste materials.  As an owner of agricultural lands, we may be liable or responsible for the actions or inactions of our future tenants with respect to these laws, regulations and ordinances.

 

Environmental Matters

 

Our properties and the operations thereon are subject to federal, state and local environmental laws, ordinances and regulations, including laws relating to water, air, solid wastes and hazardous substances. Our properties and the operations thereon are also subject to federal, state and local laws, ordinances, regulations and requirements related to the federal Occupational Safety and Health Act, as well as comparable state statutes relating to the health and safety of our employees and others working on our properties. Although we believe that we and our future tenants are in material compliance with these requirements, there can be no assurance that we will not incur significant costs, civil and criminal penalties and liabilities, including those relating to claims for damages to persons, property or the environment resulting from operations at our properties.

 

Real Estate Industry Regulation

 

Generally, the ownership and operation of real properties are subject to various laws, ordinances and regulations, including regulations relating to zoning, land use, water rights, wastewater, storm water runoff and lien sale rights and procedures. These laws, ordinances or regulations, such as the Comprehensive Environmental Response and Compensation Liability Act and its state analogs, or any changes to any such laws, ordinances or regulations, could result in or increase the potential liability for environmental conditions or circumstances existing, or created by tenants or others, on our properties. Laws related to upkeep, safety and taxation requirements may result in significant unanticipated expenditures, loss of our properties or other impairments to operations, any of which would adversely affect our cash flows from operating activities.

 

Our property management activities, to the extent we are required to engage in them due to lease defaults by tenants or vacancies on certain properties, will likely be subject to state real estate brokerage laws and regulations as determined by the particular real estate commission for each state.

 

Insurance

 

We carry comprehensive general liability coverage on our communities, with limits of liability customary within the multi-family properties industry to insure against liability claims and related defense costs. We are also insured, with limits of liability customary within the real estate industry, against the risk of direct physical damage in amounts necessary to reimburse us on a replacement cost basis for costs incurred to repair or rebuild each property, including loss of rental income during the reconstruction period.

 

Our primary lines of insurance coverage are property, general liability and workers’ compensation. We believe that our insurance coverages adequately insure our multifamily properties against the risk of loss attributable to fire, earthquake, hurricane, tornado, flood, terrorism and other perils, and adequately insure us against other risk. Our coverage includes deductibles, retentions and limits that are customary in the industry. We have established loss prevention, loss mitigation, claims handling and litigation management procedures to manage our exposure.

 

Seasonality

 

Our business has not been, and we do not expect it to become subject to, material seasonal fluctuations.


 

 

Employees

 

We do not have a W-2 employee at the present.  Frank Ikechukwu Igwealor, our President, Chief Executive Officer and Chief Financial Officer, is our only full-time staff as of March 31, 2020, pending when we could formalize an employment contract for him.   In addition to Mr. Igwealor, we have three part-time unpaid staff who helps with bookkeeping and administrative chores.  Most of our part-time staff, officers, and directors will devote their time as needed to our business and are expect to devote at least 15 hours per week to our business operations.  We plan on formalizing employment contract for those staff currently helping us without pay.  Furthermore, in the immediate future, we intend to use independent contractors and consultants to assist in many aspects of our business on an as needed basis pending financial resources being available. We may use independent contractors and consultants once we receive sufficient funding to hire additional employees. Even then, we will principally rely on independent contractors for substantially all of our technical and marketing needs.

 

The Company has no written employment contract or agreement with any person. Currently, we are not actively seeking additional employees or engaging any consultants through a formal written agreement or contract. Services are provided on an as-needed basis to date. This may change in the event that we are able to secure financing through equity or loans to the Company.  As our company grows, we expect to hire more full-time employees.

 

Where You Can Find More Information

 

We have restarted filing annual, quarterly, and special reports, proxy statements, and other information with the Securities and Exchange Commission (“SEC”). Our SEC filings are available to the public over the Internet from the SEC’s website at http://www.sec.gov. You may also read and copy any document we file at the SEC’s public reference room in Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. You can also access these reports and other filings electronically on the SEC’s web site, www.sec.gov.

 

 

Results of Operations

 

Three Months ended March 31, 2020, as Compared to Three Months Ended March 31, 2019

 

Revenues ― The Company recorded $495,000 in revenue for the three months ended March 31, 2020 as compared to $0.00 for the same period of March 31, 2019. The Company had $1,207,985 inventory of Investment Property as of March 31, 2020 as compared to $0.00 for the period ending March 31, 2019.

 

Operating Expenses ― Total operating expenses for the three months ended March 31, 2020 was $16,161 as compared to $0.00 in the same period in, 2019, due to increased operating activities during the period ended March 31, 2020.

 

Net Loss ― Net loss for three months ended March 31, 2020 was $67,82, as compared to net loss of $0 for the three months ended March 31, 2019. 

 

Financial Condition, Liquidity and Capital Resources

 

As of March 31, 2020, the Company had a working capital deficit of $1,213,347, consisting of $5,362 in cash and $1,207,985 in investment property inventory.

 


 

For the three months period ended March 31, 2020, the Company used $137,532 on operating activities, generated cash of $482,035 from investing activities, and used $339,991 in financing activities resulting in an increase in total cash of $4,512 and a cash balance of $5,362 for the period. For the three months period ended March 31, 2019, the Company used cash of $0.00 in operating activities, used cash of $0.00 for investing activities and obtained cash of $0.00 from financing activities, resulting in an increase in cash of $0.00 and a cash balance of $0.00 at the end of such period.

 

 

Total Notes Payable for related and unrelated parties was $1,119,980, a decreased by $339,991from the fiscal period ended December 31, 2019 of $1,459,971.

 

As of March 31, 2020, total stockholders’ equity decreased to $93,347 from $161,171 as of the fiscal period ended December 31, 2019.

 

As of March 31, 2020, the Company had a cash balance of $5,362 (i.e. cash is used to fund operations). The Company does not believe our current cash balances will be sufficient to allow us to fund our operating plan for the next twelve months. Our ability to continue as a going concern is dependent on us obtaining adequate capital to fund operating losses until we become profitable. If we are unable to obtain adequate capital, we could be forced to cease operations or substantially curtail its drug development activities. These conditions raise substantial doubt as to our ability to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities should we be unable to continue as a going concern.

 

Our principal sources of liquidity in the past has been cash generated from loans to us by our major shareholder. In order to be able to achieve our strategic goals, we need to further expand our business and implement our business plan.  To continue to develop our business plan and generate sales, significant capital has been and will continue to be required. Management intends to fund future operations through private or public equity and/or debt offerings. We continue to engage in preliminary discussions with potential investors and broker-dealers, but no terms have been agreed upon. There can be no assurances, however, that additional funding will be available on terms acceptable to us, or at all. Any equity financing may be dilutive to existing shareholders. We do not currently have any contractual restrictions on our ability to incur debt and, accordingly we could incur significant amounts of indebtedness to finance operations. Any such indebtedness could contain covenants which would restrict our operations.

 

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.

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes. The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain.


 

 

Based on this definition, we have identified the critical accounting policies and judgments addressed which are described in Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report. Although we believe that our estimates, assumptions and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not required for smaller reporting companies.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

As required by Securities Exchange Act of 1934, as amended (the “Exchange Act”), Rule 13a-15(b), we have carried out an evaluation(the “Evaluation”), under the supervision and with the participation of our management, including our Chief Executive Officer and Interim Chief Financial Officer, of the effectiveness of the design and operation of our management, and the design and operation of our disclosure controls and procedures as of March 31, 2020. Based upon an evaluation of the effectiveness of disclosure controls and procedures, our Chief Executive Officer and Interim Chief Financial Officer has concluded that as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) were not effective because of the material weaknesses described below, in order to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the SEC and is accumulated and communicated to management, including the Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure (see below for further discussion).We had neither the resources, nor the personnel, to provide an adequate control environment.

 

Due to our limited resources, the following material weaknesses in our internal control over financial reporting continued to exist at March 31, 2020:

 

 

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 of 2002 (the “Sarbanes-Oxley Act”);

 

 

 

 

we do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our limited size and early stage nature of operations, segregation of all conflicting duties may not always be possible and may not be economically feasible; however, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals;

 

 

 

 

we do not have an independent audit committee of our Board of Directors;

 

 

 

 

insufficient monitoring and review controls over the financial reporting closing process, including the lack of individuals with current knowledge of GAAP that led to the restatement of our previously issued financial statements; and

 

 

 

 

we continue to outsource the functions of controller on an interim basis to assist us in implementing the necessary financial controls over the financial reporting and the utilization of internal management and staff to effectuate these controls.


 

 

We believe that these material weaknesses primarily related, in part, to our lack of sufficient staff with appropriate training in GAAP and SEC rules and regulations with respect to financial reporting functions, and the lack of robust accounting systems, as well as the lack of sufficient resources to hire such staff and implement these accounting systems.

  

If and when our financial resources allow, we plan to take a number of actions to correct these material weaknesses including, but not limited to, establishing an audit committee of our Board of Directors comprised of three independent directors, hiring a full-time Chief Financial Officer, adding experienced accounting and financial personnel and retaining third-party consultants to review our internal controls and recommend improvements.

 

It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of certain events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

 

Changes in Internal Control Over Financial Reporting

 

There were no material changes in our internal control over financial reporting (as defined in Rule 13a- 15(f) under the Exchange Act) that occurred as of March 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

CEO and CFO Certifications

 

Exhibits 31.1 and 31.2 to this Quarterly Report are the Certifications of the Chief Executive Officer and the Interim Chief Financial Officer, respectively. These Certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act (the “Section 302 Certifications”). This Item 4 of this Quarterly Report, which you are currently reading, is the information concerning the Evaluation referred to above and in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

 

PART II - OTHER INFORMATION

 

ITEM 1. Legal Proceedings

 

There are no legal proceedings that have occurred within the past ten years concerning our directors or officers which involved a criminal conviction, a criminal proceeding, an administrative or civil proceeding limiting one’s participation in the securities or banking industries, or a finding of securities or commodities law violations.

 


 

 From time to time we may be involved in litigation relating to claims arising out of the operation of our business in the normal course of business. Other than as described below, as of the date of this Registration Statement we are not aware of potential dispute or pending litigation and are not currently involved in a litigation proceeding or governmental actions the outcome of which in management’s opinion would be material to our financial condition or results of operations. An adverse result in these or other matters may have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.

 

On February 20, 2019, Plaintiff Maria De Lourdes Perez filed a complaint against defendants City of Carson, Goldstein Franklin, Inc., Frank Igwealor, Healthy Foods Markets, LLC, Optimal Foods, LLC, and Blockchain Capital LLC.  The complaint alleged statutory liability pursuant to government code section 835, gross negligence, and premises liability for a trip-and-fall that occurred on April 11, 2018 at a property owned and controlled by Healthy Foods Markets, LLC. Defendants Goldstein Franklin, Inc., Frank Igwealor, Optimal Foods, LLC, and Blockchain Capital LLC. had answered the complaint and also requested a demurrer on the grounds that (1) Defendants are not a proper party in interest and there was a misjoinder of defendants.  Our attorney has advised that the complaint would not have an adverse impact on Mr. Igwealor or the Company because the scope of liability is restricted to healthy Food Markets, LLC.

 

As of June 23, 2020, except for the complaint listed above, there was no material proceeding to which any of our directors, officers, affiliates or stockholders is a party adverse to us.  During the past ten years, no present director, executive officer or person nominated to become a director or an executive officer of us:

 

(1) had a petition under the federal bankruptcy laws or any state insolvency law filed by or against, or a receiver, fiscal agent or similar officer appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within ten years before the time of such filing;

 

(2) was convicted in a criminal proceeding or subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

 

(3) was subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any of the following activities:

 

i. acting as a futures commission merchant, introducing broker, commodity trading advisor commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;

 

ii. engaging in any type of business practice; or

 

iii. engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws; or

 


 

(4) was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of an federal or state authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (3) (i), above, or to be associated with persons engaged in any such activity; or

 

(5) was found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and for which the judgment has not been reversed, suspended or vacated.

 

  

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Recent Sales of Unregistered Securities

 

During the three months ended March 31, 2020, the Company issued 0 shares of its common stock.

 

Use of Proceeds of Registered Securities

 

Not applicable.

 

Purchases of Equity Securities by Us and Affiliated Purchasers

 

During the three months ended March 31, 2020, the Company has not purchased any equity securities nor have any officers or directors of the Company.

 

ITEM 3. Defaults Upon Senior Securities

 

The Company is not aware of any defaults upon its senior securities.

 

ITEM 4. Mine Safety Disclosures

 

Not applicable.

 

ITEM 5. Other Information.

 

None.

 

 

ITEM 6. Exhibits

 

Exhibit

 

 

Number

 

Description

 

 

 

 

 

 

31.1*

 

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.

 

 

 

31.2*

 

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.

 

 

 

32.1**

 

Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 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 herewith.

**

Furnished herewith.

 

 

 

 

 

 

 


 

 

 

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.

 

 

VIDEO RIVER NETWORKS, INC.

 

 

Date: September 3, 2020

By:

/s/ Frank I Igwealor

 

 

Frank I Igwealor

 

 

President, Chief Executive Officer and Interim Chief Financial Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)

 

 


 

 

Exhibit 31.1

 

CERTIFICATION OF CEO PURSUANT TO RULE 13a-14(a) OR 15d-14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

 

I, Frank I Igwealor, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of VIDEO RIVER NETWORKS, INC. ;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


 

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

/s/ Frank I Igwealor

 

Frank I Igwealor

 

President and Chief Executive Officer

 

 

Date: September 3, 2020

 

 

 

 


 

Exhibit 31.2

 

CERTIFICATION OF CFO PURSUANT TO RULE 13a-14(a) OR 15d-14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

 

I, Frank I Igwealor, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of VIDEO RIVER NETWORKS, INC. ;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 


 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

/s/ Frank I Igwealor

 

Frank I Igwealor

 

Interim Chief Financial Officer

 

 

Date: September 3, 2020

 

 

 

 


 

Exhibit 32.1

 

CERTIFICATION OF CEO AND CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of VIDEO RIVER NETWORKS, INC.  (the “Company”) on Form 10-Q for the quarter ended March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Frank I Igwealor, the Chief Executive Officer and Interim Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

 

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ Frank I Igwealor

 

Frank I Igwealor

 

President, Chief Executive Officer and

Interim Chief Financial Officer

 

 

Date: September 3, 2020

This Certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.