NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2018
NOTE 1 – ORGANIZATION AND BUSINESS
Brightlane Corp. (“we”, “our”, “us”, the “Company” or the “Registrant”) was initially incorporated under the laws of the State of Delaware in December 2006 under the name “Cold Gin Corporation.” On December 27, 2010, in connection with an Agreement and Plan of Reorganization we changed our domicile from Delaware to Nevada, our name to Bonanza Gold Corp. In the third quarter of 2015, Brightlane Acquisition Corp. acquired a controlling interest in the Company from existing shareholders. This change of control began the transitioning to a lease-to-own real estate company. In connection with this transition, effective September 22, 2015 we changed our name to Brightlane Corp.
On December 21, 2015, we completed the agreement to acquire all of the outstanding shares of Brightlane Homes, Inc., which through its wholly owned subsidiary, acquired a 99.9% limited partner interest in Brightlane RECA, LP which was the beneficiary of the Brightlane RECA Trust which owned a portfolio of assets referred to as the Brightlane RECA Portfolio.
In April 2017, the partners of Brightlane RECA, LP amended the Revised Limited Partnership Agreement to admit Brightlane GP, Corp., an affiliate of the Registrant, as a General Partner of BL RECA LP. Additionally, National Asset Advisors, LLC (NAA) transferred all of its General Partner interests and powers to Brightlane GP Corp. and withdrew as General Partner of Brightlane RECA LP.
On November 21, 2017, the Company entered into an Agreement resulting in the following actions: (1) Brightlane #1, LLC, a subsidiary of Brightlane Homes, Inc., a wholly owned subsidiary of Brightlane Corp., transferred its limited partnership interest in Brightlane RECA LP, the sole beneficiary of the Brightlane RECA Trust, to GP 2002, LLC; and (2) Brightlane GP Corp, a wholly owned subsidiary of Brightlane Corp., transferred its general partnership interest in Brightlane RECA LP, the sole beneficiary of the Brightlane RECA Trust, to GP 2002, LLC.
The Agreement and the associated actions resulted in the termination of all agreements entered into on December 21, 2015 and all subsequent addenda to those agreements. These actions terminate any rights of the Company to the Brightlane RECA Trust, thereby terminating all obligations to the underlying acquisition related debt associated with the assets contributed to the Brightlane RECA Trust. In addition, per the November 21, 2017 Agreement the parties agreed that: (1) the RECA Principals as defined in the Brightlane RECA Contribution Agreement agreed to return all of their common stock in the registrant totaling 2,100,013 common shares to the Registrant; and, (2) the RECA Principals agreed to facilitate the transfer of certain assets to Brightlane Homes, Inc., a wholly owned subsidiary of the Company.
Brightlane Corp. now concentrates on being a real estate operator providing opportunities in the affordable housing market including reasonable rents and leases plus an opportunity to participate in a right-to-purchase program upon meeting certain criteria. Brightlane acquires single-family homes and portfolios of single-family homes and actively pursues the acquisition of these types of homes through one-off purchases, the purchase of portfolios, and other methods of acquisition. We service a market that is historically underserved – those seeking living arrangements in the sub $150,000 home market. We continually seek out and make the appropriate investments in ancillary services.
NOTE 2 – GOING CONCERN
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has only generated minimal revenues since inception, has sustained operating losses since inception, and has an accumulated deficit of $(3,094,786) at June 30, 2018. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time. The Company’s continuation as a going concern is dependent upon, among other things, its ability to generate revenues and its ability to obtain capital from third parties. No assurance can be given that the Company will be successful in these efforts.
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Management plans to identify adequate sources of funding to provide operating capital for continued growth. In addition, Management intends access the $5 million credit facility obtained by its Brightlane – CLOC Acquisitions, LLC subsidiary (see note 6) in order to acquire additional homes that will provide a profitable revenue stream for the Company.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as June 30, 2018 and the results of operations and cash flows for the periods presented. The results of operations for the six and three months ended June 30, 2018 are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Form 10-K for the year ended December 31, 2017 filed with the SEC on April 2, 2018.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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 the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Principals of Consolidation
The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.
Cash and Cash Equivalents
The Company accounts for cash and cash equivalents under FASB ASC 305, “
Cash and Cash Equivalents
”, and considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Convertible Instruments
The Company evaluates and account for conversion options embedded in convertible instruments in accordance with ASC 815 “Derivatives and Hedging Activities”.
Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
The Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: The Company records when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note
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transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.
Deferred Income Taxes and Valuation Allowance
The Company accounts for income taxes under ASC 740
Income Taxes
. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations. No deferred tax assets or liabilities were recognized at June 30, 2018 and December 31, 2017.
Financial Instruments
The Company’s balance sheet includes certain financial instruments: primarily accounts payable, accruals and debt obligations. The carrying amounts of current assets and current liabilities approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization.
ASC 820, “
Fair Value Measurements and Disclosures
,” defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
Level 1 -
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2 -
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 -
Inputs that are both significant to the fair value measurement and unobservable.
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of June 30, 2018. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments.
The Company does not have any assets or liabilities measured at fair value on a recurring basis.
Investments in non-consolidated subsidiaries
Investments in non-consolidated entities are accounted for using the equity method or cost basis depending upon the level of ownership and/or the Company's ability to exercise significant influence over the operating and financial policies of the investee. When the equity method is used, investments are recorded at original cost and adjusted periodically to recognize the Company's proportionate share of the investees' net income or losses after the date of investment. When net losses from an investment accounted for under the equity method exceed its carrying amount, the investment balance is reduced to zero and additional losses are not provided for. The Company resumes accounting for the investment under the equity method if the entity subsequently reports net income and the Company's share of that net income exceeds the share of net losses not recognized during the period the equity method was suspended. Investments are written down only when there is clear evidence that a decline in value that is other than temporary has occurred.
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Long-lived Assets
Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable. When required impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets. We did not recognize any impairment losses for any periods presented.
Property and Equipment
The Company follows ASC 360,
Property, Plant, and Equipment,
for its fixed assets. Equipment is stated at cost less accumulated depreciation. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets (3 years).
Related Parties
The Company follows ASC 850,
“Related Party Disclosures,”
for the identification of related parties and disclosure of related party transactions.
Stock-Based Compensation
FASB ASC 718
“Compensation – Stock Compensation,”
prescribes accounting and reporting standards for all stock-based payments award to employees, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights, may be classified as either equity or liabilities. The Company determines if a present obligation to settle the share-based payment transaction in cash or other assets exists. A present obligation to settle in cash or other assets exists if: (a) the option to settle by issuing equity instruments lacks commercial substance or (b) the present obligation is implied because of an entity’s past practices or stated policies. If a present obligation exists, the transaction should be recognized as a liability; otherwise, the transaction should be recognized as equity.
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of FASB ASC 505-50 “
Equity – Based Payments to Non-Employees
.” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.
Recently Issued Accounting Pronouncements
We have reviewed the FASB issued Accounting Standards Update (“ASU”) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.
NOTE 4 – LINE OF CREDIT FACILITY
On May 19, 2017, Brightlane – CLOC Acquisitions, L.L.C., a Delaware limited liability company and a wholly owned subsidiary of the registrant entered into a $5,000,000 revolving credit facility with CoreVest Finance (f/k/a Colony American Finance Lender, LLC). This credit facility is for the acquisition of residential homes. General provisions of this credit facility are an 18 month term at 9%, with a loan to value of 80%. At June 30, 2018 the Company has utilized this credit facility to complete two transactions resulting in the acquisition of real estate assets totaling $488,750 of which $373,850 was financed utilizing the credit facility.
NOTE 5 – NOTES RECEIVABLE
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As part of the agreement entered into on November 21, 2017, the Company assumed nine notes receivable totaling $243,264 of which the current balances total $241,041 at June 30, 2018. These notes are for residential assets. The terms associated with these notes range from 11 years to 30 years, with interest rates ranging from 9.3% to 10%. The current portion of these notes is $31,643, and during the six and three months ended June 30, 2018, the principal balances for these notes have been reduced by $2,223 and $1,297 respectively.
NOTE 6 – NOTES PAYABLE
On September 30, 2015 the Company borrowed $60,723 from a third party. The note bears interest at 8% per annum and is payable on demand. Interest is paid quarterly. The note is convertible into common stock of the Company at $0.50 per share. On January 28, 2016, the Company made a principal payment of $10,723, bringing the outstanding principal to $50,000 on this note. The lender elected to have interest accrue for the 3 months ended December 31, 2017 thereby increasing the principal due to $51,000 at December 31,2017. The Company made a principal and interest payment during the period ended June 30, 2018 totaling $2,020 reducing the principal balance to $50,000 and subsequently on May 9
,
2018 the lender elected to exercise his option to convert the remaining $50,000 principal balance into 100,000 shares of common stock reducing the principal balance to $0. Interest expense incurred during the six and three months ended June 30, 2018 was $1,447 and $427 respectively.
On February 28, 2017 the Company borrowed $400,000 from a third party. The promissory note carries an interest rate of 6% per annum with a maturity date of February 28, 2019. The lender may convert into shares of our common stock after one year, at $0.65 per share. The lender has the option of accruing interest or receiving interest only payment annually. On the anniversary of this note, the lender elected to have interest accrued thereby increasing the principal due to $423,424 at June 30,2018. Interest expense for this note for the six and three months ended June 30, 2018 was $12,441 and $6,334 respectively.
On February 5, 2018 the Company issued a note to a third party for the remaining balance owed on properties acquired in a real estate transaction for $63,750. The promissory note carries an interest rate of 9% per annum with a maturity date of February 5, 2020. The lender may convert into shares of our common stock after one year, at $0.50 per share. The lender has the option of accruing interest or receiving interest only payment annually. Interest expense for this note for the six and three months ended June 30, 2018 was $2,295 and 1,430 respectively.
NOTE 7 – RELATED PARTY TRANSACTIONS
On December 9, 2015, we entered into a subscription agreement to sell one unit consisting of a $250,000 promissory note, one share of Series A Preferred Voting Stock and one share of Series B Preferred Voting Stock to a related-party in exchange for $250,000 and the investor’s agreement to utilize its best efforts to cause a capital injection of up to $3,000,000.00 into the Company on or before January 1, 2017 (extended to January 1, 2019). The promissory note carries an interest rate of 6% per annum with a maturity date of December 9, 2018. The lender may convert into shares of our common stock after one year, at $0.50 per share. The lender has the option of accruing interest or receiving interest only payment annually. On the anniversary of this note, the lender elected to have interest accrued thereby increasing the principal due to $280,900 at June 30, 2018. Interest expense for this note for the six and three months ended June 30, 2018 was $8,357 and $4,202 respectively.
On March 24, 2016, we received an additional $110,000 in capital from the aforementioned related party as an advance on the commitments this related party has to us. The promissory note carries an interest rate of 6% per annum with a maturity date of March 24, 2019. The lender may convert into shares of our common stock after one year, at $0.50 per share. The lender has the option of accruing interest or receiving interest only payment annually. On the anniversary of this note, the lender elected to have interest accrued thereby increasing the principal due to $123,615 at June 30, 2018. Interest expense for this note for the six and three months ended June 30, 2018 was $3,584 and $1,849 respectively.
On July 27, 2016, we received an additional $499,200 in capital from the aforementioned related party as an advance on the commitments this related party has to us. The promissory note carries an interest rate of 6% per annum with a maturity date of July 27, 2019. The lender may convert into shares of our common stock after one year, at $0.50 per share. The lender has the option of accruing interest or receiving interest only payment annually. During the year ended December 31, 2016, we repaid a total of $360,000 to the related party toward this promissory note. On the anniversary of this note, the lender elected to have interest accrued thereby increasing the principal due to $152,426 at June 30, 2018. Interest expense for this note for the six and three months ended June 30, 2018 was $4,585 and $2,280 respectively.
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NOTE 8– SHAREHOLDERS’ EQUITY
The Company has 250,000,000 authorized common shares with a par value of $0.001 per share. Each common share entitles the holder to one vote, in person or proxy, on any matter on which action of the stockholders of the corporation is sought.
On December 21, 2015, the Company issued 12,000,000 shares of common stock for the acquisition of Brightlane Homes, Inc.
The Company issued 519,662 shares of its common stock on July 17, 2017. The holder of certain warrants elected to exercise his right to convert the exercisable warrants on a cashless basis into common stock prior to their expiration dates.
Per the November 21, 2017 Agreement Principals in RECA as defined in the Brightlane RECA Contribution Agreement agreed to return all of their common stock in the Company totaling 2,100,013 common shares to the Company. These share were returned to treasury, and subsequently retired on April 1, 2018.
The Company issued 100,000 shares of its common stock on May 9, 2018, for the conversion of a $50,000 principal balance of a convertible note payable.
There were 17,442,654 common shares issued and outstanding at June 30, 2018.
Preferred Stock
Currently we have two types of Preferred Stock: (1) Series A Preferred Voting Stock, and (2) Series B Preferred Voting Stock. There is one (1) share of Series A Preferred Voting Stock, and one (1) share of Series B Preferred Voting Stock issued and outstanding as of the date of this report. The series designations of rights and preferences are synopsized below.
Series A Preferred Voting Stock.
With respect to all meetings of the shareholders of the Company at which the holders of the Company’s Common Stock, par value $0.001 per share, are entitled to vote and with respect to any written consents sought by the Company from the holders of the Common Stock, the holder of the share of Series A Preferred Voting Stock shall vote together with all the holders of the Common Stock and any other voting preferred stock issued and outstanding, and holders of the issued Series A Preferred Voting Stock shall be entitled to cast on such matters a number of votes equal to 20,000,000 common shares.
Series B Preferred Voting Stock
With respect to all meetings of the shareholders of the Company at which the holders of the Company’s Common Stock, par value $0.001 per share, are entitled to vote and with respect to any written consents sought by the Company from the holders of the Common Stock, the holder of the share of Series B Preferred Voting Stock shall vote together with all the holders of the Common Stock and any other voting preferred stock issued and outstanding, and holders of the issued Series B Preferred Voting Stock shall be entitled to cast on such matters a number of votes equal to 20,000,000 common shares.
The original holder, Brightlane Acquisition Corp, of the Series A Preferred Voting Stock and Series B Preferred Voting Stock have commitments to the Company to include a loan to the Company on a convertible promissory note dated December 9, 2015 in the amount of $250,000 and to facilitate on a best efforts basis the injection of additional monies to be utilized by the Company in an amount of not less than $3 million prior to January 1, 2017 (extended to January 1, 2019), and the Series A Preferred Voting Stock share be automatically cancelled under the following provisions:
(i)
Upon conversion of the $250,000 convertible promissory note dated December 9, 2015.
(ii)
Upon repayment of the $250,000 convertible promissory note dated December 9, 2015.
(iii)
If the Company is not in receipt of a capital injection of $3 million provided by or facilitated by the holder, or its assignee, of the Series A Preferred Voting Stock or the Series B Preferred Voting Stock on or before January 1, 2017 (extended to January 1, 2019).
Warrants issued in connection with sale of common shares
At June 30, 2018, the Company did not have any warrants outstanding.
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NOTE 9 – SUBSEQUENT EVENTS
On July 3, 2018, the Company issued 1,250,000 shares of its common stock to its Chief Executive Officer in return for a total investment into the Company of $248,938. The total investment into the Company consisted of a contribution of funds as well as the assumption of certain liabilities and accrued expenses.
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