NOTES TO CONDENSED
FINANCIAL STATEMENTS
NOTE 1 –
ORGANIZATION AND DESCRIPTION OF BUSINESS
Alpha Investment Inc, formerly GoGo Baby, Inc.
(the “Company”) was incorporated on February 22, 2013 under the laws of the State of Delaware to develop, create, manufacture
and market, toys for small children which would be designed to attach to car seats and amuse and entertain children during a drive,
without distracting the attention of the driver. The Company, however, encountered significant constraints in raising sufficient
capital to fully implement its business plan.
On March 30, 2017, the Company filed a Certificate
of Amendment to its Certificate of Incorporation with the Delaware Secretary of State changing its name from “Gogo Baby,
Inc.” to “Alpha Investment Inc.” to better reflect the new business focus. The name change and a corresponding
change in the Company’s OTC markets trading symbol from GGBY to ALPC received approval from FINRA and became effective as
of April 19, 2017.
On March 11, 2019, the Company, through a newly
formed LLC or Special Purpose Vehicle “SPV” called Alpha Mortgage Notes I, LLC executed an operating agreement with
Alameda Partners LLC. Alameda Partners is a Utah Limited Liability Company which made a capital contribution of $1,000,000, which
was paid to the Company, for 10% ownership of the SPV, and will be the managing member. The capital shall be used to implement
the strategy of acquiring commercial real estate performing notes and support other related growth initiatives and assets acquisitions
for the Company of which is positioning for its up-listing to the NYSE. The Members of Alameda Partners LLC have decades of experiences
in the commercial real estate industry as property developers, owners, and managers and currently holds over $50 million in commercial
real estate assets. They have been appointed as the Managing Members of the SPV, while ALPC controls and holds 90% ownership. In
exchange for its 90% interest in the SPV, the Company is required to contribute 4,015,667 shares of common stock for the purchase
of performing notes for the SPV. The special purpose vehicle was organized to acquire the membership interests, develop, own, hold,
sell, lease, transfer, exchange, re-lend, manage and operate the underlying assets and conduct activities related thereto the ownership
of commercial real estate mortgage notes and REO’s. The initial $1,000,000 was recorded as additional paid in capital on
the accompanying consolidated balance sheet. Alameda Partners is entitled to monthly distributions in cash and stock equal to $10,000.
For the nine months ended September 30, 2020, the Company has recorded $90,000 of distributions as reductions to non-controlling
interest, which has been accrued and included in Distributions Payable on the accompanying consolidated balance sheet totaling
$190,000 as of September 30, 2020. As of September 30, 2020, Alpha Mortgage Notes I, LLC has not completed any transactions.
NOTE 2 – SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
In the opinion of the Company, the accompanying
unaudited condensed consolidated financial statements are prepared in accordance with instructions for Form 10-Q, include all adjustments
(consisting only of normal recurring accruals) which we considered as necessary for a fair presentation of the results for the
periods presented. Certain information and footnote disclosures normally included in the financial statements prepared in accordance
with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that
these condensed financial statements be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December
31, 2019. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the
results to be expected for future periods or the full year.
Principles of Consolidation
The condensed consolidated financial statements
include the accounts of the Company, Alpha Mortgage Notes I, LLC, which is controlled by the Company through its 90% ownership
interest, and Paris Med CP-LLC (“Paris Med”), variable interest entity for which the Company is deemed to be the primary
beneficiary, (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated
in consolidation.
Use of Estimates
The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods presented.
The Company is required to make judgments and estimates about the effect of matters that are inherently uncertain. The Company
regularly evaluates estimates and assumptions related to the useful life and recoverability of long-lived assets, deferred income
tax asset valuations and loss contingences. The Company bases its estimates and assumptions on current facts, historical experience
and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities and the accrual of costs and expenses that are not readily apparent
from other sources. Although, we believe our judgments and estimates are appropriate, actual future results may be different; if
different assumptions or conditions were to prevail, the results could be materially different from our reported results.
Cash and Cash Equivalents
Cash equivalents include short-term, highly
liquid investments with maturities of three months or less at the time of acquisition. As of September 30, 2020, the Company had
no cash equivalents.
Restricted Cash Held in Escrow
As of December 31, 2019, the Company had $2,500,000
of restricted cash held in escrow from the sale of commons stock to an investor that has the right to require the Company to repurchase
the common stock for $2,500,000 through June 2019. During the nine months ended September 30, 2020, the investor exercised its
right to require the Company to acquire the common stock, resulting in the release of the escrowed cash to the investor in exchange
for the return of the common stock.
Loans Receivable, net and Allowance for Losses
The Company records its investments in loans
receivable at the lower of cost or fair value. Costs are the gross loan receivables less unamortized costs of issuance and deferred
origination fees. Origination fees collected at the time of investment are recorded against the loans receivable and amortized
into net interest income over the lives of the related loans. Issuance costs incurred are capitalized along with the initial investment
and amortized against net interest income over the lives of the related loans.
When a loan receivable is placed on non-accrual
status, the related interest receivable is charged to bad debt of the current period. If a non-accrual loan is returned to accrual
status, the accrued interest existing at the date the residential loan is placed on non-accrual status and interest during the
non-accrual period are recorded as interest income as of the date the loan no longer meets the non-accrual criteria. As of September
30, 2020 and December 31, 2019, since all loans receivable are considered performing according to their payment terms, no loans
are on non-accrual status.
The Company maintains
an allowance for loan losses on its investments in real estate loans receivable for estimated credit impairment. Management’s
estimate of losses is based on a number of factors including the types and dollar amounts of loans in the portfolio, adverse situations
that may affect the borrower’s ability to repay, prevailing economic conditions and the underlying collateral securing the
loan. Additions to the allowance are provided through a charge to earnings and are based on an assessment of certain
factors, which may indicate estimated losses on the loans. Actual losses on loans are recorded first as a reduction
to the allowance for loan losses. Generally, subsequent recoveries of amounts previously charged off are recognized
as income.
Estimating allowances
for loan losses requires significant judgment about the underlying collateral, including liquidation value, condition of the collateral,
competency and cooperation of the related borrower and specific legal issues that affect loan collections or taking possession
of the property on an individual loan receivable basis. Management determined that no allowance for loan losses was
necessary as of September 30, 2020, and December 31, 2019.
Property and Equipment
Property and equipment are stated at cost.
Equipment and fixtures will be depreciated using the straight-line method over the estimated asset lives, 5 years.
Income Taxes
The Company accounts for its income taxes in
accordance with FASB Accounting Standards Codification (“ASC”) No. 740, "Income Taxes". Under this method,
deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax balances. Deferred tax assets and liabilities
are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those
differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of
enactment or substantive enactment.
Accounting for Uncertainty in Income Taxes
The Company applies the provisions of ASC Topic
740-10-25, Income Taxes – Overall – Recognition (“ASC Topic 740-10-25”) with respect to the accounting
for uncertainty of income tax positions. ASC Topic 740-10-25 clarifies the accounting for uncertainty in income taxes recognized
in a company’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740-10-25 also provides
guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As
of September 30, 2020, tax years since 2013 remain open for IRS audit. The Company has received no notice of audit from the Internal
Revenue Service for any of the open tax years.
Revenue Recognition and Investment Income
Origination fees collected at the time of investment
are recorded against the loans receivable and amortized into net interest income over the lives of the related loans. Issuance
costs incurred are capitalized along with the initial investment and amortized against net interest income over the lives of the
related loans. The Company records interest income in accordance with ASC subtopic 835-30 "Imputation of Interest", using
the effective interest method. The following is a summary of the components of the Company’s net investment income for the
nine months ended September 30, 2020 and 2019:
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Interest Income
|
|
$
|
11,393
|
|
|
$
|
13,112
|
|
|
$
|
33,612
|
|
|
$
|
78,112
|
|
|
Accretion of Loan Origination Fees
|
|
|
23,919
|
|
|
|
23,919
|
|
|
|
71,758
|
|
|
|
103,187
|
|
|
Amortization of Loan Issuance Costs
|
|
|
(25,785
|
)
|
|
|
(25,785
|
)
|
|
|
(77,356
|
)
|
|
|
(103,141
|
)
|
|
Net Investment Income
|
|
$
|
9,527
|
|
|
$
|
11,246
|
|
|
$
|
28,015
|
|
|
$
|
78,158
|
|
When a loan is placed on non-accrual status,
the related interest receivable is charged to bad debt of the current period. If a non-accrual loan is returned to accrual status,
the accrued interest existing at the date the residential loan is placed on non-accrual status and interest during the non-accrual
period are recorded as interest income as of the date the loan no longer meets the non-accrual criteria.
The Company suspends recognizing interest income
when it is probable that the Company will be unable to collect all payments according to the contractual terms of the underlying
agreements. Management considers all information available in assessing collectability. Collectability is measured on a receivable-by-receivable
basis by either the present value of estimated future cash flows discounted at the effective rate, the observable market price
for the receivable or the fair value of the collateral if the receivable is collateral dependent. Large groups of smaller balance
homogeneous receivables, such as pre-settlement funding transactions, are collectively assessed for collectability. Receivables,
including those arising from the sale of loan origination services, is charged off when in the Company's judgment, the receivable
or portion of the receivable is considered uncollectible.
Payments received on past due receivables and
finance receivables the Company has suspended recognizing interest income on are applied first to principal and then to accrued
interest. Interest income on past due receivables and finance receivables, if received, is recorded using the cash basis method
of accounting. Additionally, the Company generally does not resume recognition of interest income once it has been suspended.
Variable Interest Entity
The Company holds a 10% interest in Paris Med,
of which the remaining 90% interest is held by Omega financial Corp, Inc. Through December 31, 2019, the Company has provided
100% of the funding to Paris Med, which has provided a construction loan to a third party. This loan receivable is the sole
asset of Paris Med. The Company determined that Paris Med was a variable interest entity based on various qualitative and
quantitative factors including but not limited to: 1) financing of Paris Med’s sole asset was received by the Company, which
is disproportionate to the Company’s ownership interest and 2) the Company and Omega, a related party, organized the entity
for the purpose of facilitating the Company’s activities. As of September 30, 2020, the Company is considered the primary
beneficiary because it has provided substantially all of its financial support and is the only party at risk. As of September
30, 2020, Paris Med has total assets of $558,000, consisting solely of advances made pursuant to its third party construction loan
agreement, and had no liabilities. See Note 3. For the nine months ended September 30, 2020, Paris Med had no activity
other than accruing interest on outstanding principal. The Company will evaluate its investments in Paris Med each reporting
period to determine if it is still the primary beneficiary, and if no longer considered the primary beneficiary, deconsolidate
Paris Med in the period in which circumstances change or events occur causing a change in its assessment. The Company has
attributed 90% of interest earned on Paris Med’s sole asset to non-controlling interests.
Fair Value
The carrying amounts reported in the balance
sheet for cash, accounts payable and notes payable approximate their estimated fair market value based on the short-term maturity
of these instruments. The carrying value of the Company’s loans receivable approximate fair value because their terms approximate
market rates.
Net Loss Per Share
Basic loss per share is computed by dividing
the net loss available to common stockholders by the weighted average number of common shares outstanding for the year. Dilutive
loss per share reflects the potential dilution of securities that could share in the losses of the Company. 3,971,417 shares underlying
convertible preferred stock and 350,000 shares of common stock underlying common stock warrants were excluded from the computation
of diluted loss per share for the nine months ended September 30, 2020, because their impact was anti-dilutive. 350,000 shares of
common stock underlying common stock warrants were excluded from the computation of diluted loss per share for the nine months
ended September 30, 2019, because their impact was anti-dilutive.
Concentration of Credit Risk
Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and loans receivable. The
Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. The Company
has not experienced any losses in such accounts through September 30, 2020.
Recently Issued and Adopted Accounting Pronouncements
Recent accounting pronouncements that the Company
has adopted or that will be required to adopt in the future are summarized below.
In January 2016, the FASB issued ASU No. 2016-01, Financial
Instruments - Overall (Subtopic 825- 10), Recognition and Measurement of Financial Assets and Financial Liabilities. The
provisions of the update require equity investments to be measured at fair value with changes in fair value recognized in net income.
However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment.
The update also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring
a qualitative assessment to identify impairment. It also eliminates the requirement to disclose the fair value of financial instruments
measured at amortized cost for entities that are not public business entities, and eliminates the requirement for public business
entities to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured
at amortized cost on the balance sheet. ASU No. 2016-01 requires public business entities to use the exit price notion when measuring
the fair value of financial instruments for disclosure purposes. It also requires an entity to present separately in other comprehensive
income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit
risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial
instruments. The update requires separate presentation of financial assets and financial liabilities by category and form on the
balance sheet or the accompanying notes to the financial statements. In addition, the update clarifies that an entity should evaluate
the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s
other deferred tax assets. For an emerging growth company, the amendments in the update are effective for fiscal years beginning
after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The adoption of this ASU did
not have a material impact on the Company’s financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases
(Topic 842), Conforming Amendments Related to Leases. This ASU amends the codification regarding leases in order to increase
transparency and comparability. The ASU requires companies to recognize lease assets and liabilities on the statement of condition
and disclose key information about leasing arrangements. A lessee would recognize a liability to make lease payments and a right-of-use
asset representing its right to use the leased asset for the lease term. For an emerging growth company, the amendments in the
update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after
December 15, 2020. The adoption of this ASU did not have a material effect on the Company’s financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial
Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendments introduce
an impairment model that is based on expected credit losses (“ECL”), rather than incurred losses, to estimate credit
losses on certain types of financial instruments (ex. loans and held to maturity securities), including certain off-balance sheet
financial instruments (ex. commitments to extend credit and standby letters of credit that are not unconditionally cancellable).
The ECL should consider historical information, current information, and reasonable and supportable forecasts, including estimates
of prepayments, over the contractual term. An entity must use judgment in determining the relevant information and estimation methods
that are appropriate in its circumstances. Financial instruments with similar risk characteristics may be grouped together when
estimating the ECL. The ASU also amends the current available for sale security impairment model for debt securities whereby credit
losses relating to available for sale debt securities should be recorded through an allowance for credit losses. For an emerging
growth company, the amendments in the update are effective for fiscal years beginning after December 15, 2020, and interim periods
within fiscal years beginning after December 15, 2021. The amendments will be applied through a modified retrospective approach,
resulting in a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the
guidance is effective. The Company is currently planning for the implementation of this accounting standard. It is too early to
assess the impact this guidance will have on the Company’s financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement
of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The amendments in this ASU clarify the
proper classification for certain cash receipts and cash payments, including clarification on debt prepayment or debt extinguishment
costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds
from the settlement of insurance claims, and proceeds from the settlement of corporate-owned life insurance policies, including
bank-owned life insurance policies, among others. For an emerging growth company, the amendments in the update are effective for
fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The
Company adoption of this amendment did not have a material impact on the Company’s Financial Statements.
The Company has implemented all new accounting
pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new
accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 3 – LOANS RECEIVABLE, NET
Related Parties
Loan Agreement with Partners South Holdings
LLC (Revolving Line of Credit)
On August 28, 2017 the Company entered
into a loan agreement with Partners South Holdings LLC (“Borrower”), which is owned by Timothy R. Fussell,
President, Chairman of the Board and a director of the Company, for a revolving line of credit in the maximum
principal sum of $3,600,000 for the purpose of financing real property construction costs and working capital needs. The loan
is secured in full by a first position lien on any and all Real Property in which the Borrower has any interest in for such
purposes. The maturity date of the loan is August 31, 2022 at which time the entire principal balance of the Loan plus
accrued interest thereon is due and payable. The fixed interest rate on the loan is 3.5% to be paid quarterly on the
1st day of the fiscal quarter. As of September 30, 2020, the amount of $477,500 had been advanced on the loan. The
origination fees of $180,000 due to the Company have been added to the balance due on the loan and recorded as a discount
against the loan to be amortized into income through the maturity date. During the nine months ended September 30, 2020 and
2019, the Company recognized $27,162 and $27,162, respectively of the origination fees, which are carried at $111,602 and
$84,440 as of September 30, 2020 and December 31, 2019, respectively. The Company also incurred loan issuance costs of
$420,000, which were recorded as deferred issuance costs to amortized as a reduction of interest income through the maturity
date. During the nine months ended September 30, 2020 and 2019, the Company recognized $77,356 and $77,356, respectively of
the deferred issuance costs, which are carried at $126,982 and $204,338 as of September 30, 2020 and December 31, 2019,
respectively. As of September 30, 2020 and December 31, 2019, the gross loan receivable balance is $657,500.
Loan Agreement with Partners South Properties
Corporation (Revolving Line of Credit)
On August 28, 2017 the Company entered
into a loan agreement with Partners South Properties Corporation (“Borrower”), which is owned by Timothy R.
Fussell, President, Chairman of the Board and a director of the Company, for a revolving line of credit in the maximum
principal sum of $5,000,000 for the purpose of financing real property construction costs and working capital needs. The loan
is secured in full by a first position lien on any and all Real Property in which the Borrower has any interest in for such
purposes. The maturity date of the loan is August 31, 2022 at which time the entire principal balance of the Loan plus
accrued interest thereon is due and payable. The fixed interest rate on the loan is 3.5% to be paid quarterly on the
1st day of the fiscal quarter. As of September 30, 2020, and December 31, 2019, the gross loan receivable balance is $250,000.
The following is a summary of mortgages receivable
as of September 30, 2020, and December 31, 2019:
|
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
|
Principal Amount Outstanding
|
|
|
907,500
|
|
|
|
907,500
|
|
|
Unamortized Issuance Costs
|
|
|
126,982
|
|
|
|
204,338
|
|
|
Unaccreted origination fees
|
|
|
(163,395
|
)
|
|
|
(228,284
|
)
|
|
Net Carrying Value
|
|
$
|
871,086
|
|
|
$
|
883,554
|
|
Paris Med Unrelated Parties
On May 2, 2018, the Company and Paris Med entered
into agreements, pursuant to which Paris Med agreed to provide project financing in the amount of $158,216,541, to an unrelated
third party consisting of three notes as follows:
|
|
1)
|
Construction financing in the amount of $90,204,328, maturing in
10 years, including the construction period, and accruing interest at an annual rate of 5.5% during the construction period, and
4.5% upon conversion to a permanent loan. As of December 31, 2019, Paris Med has made $558,000 of advances pursuant to the
construction loan. The Company received loan origination fees, in the amount of $92,400, which is presented net of the underlying
loan advances on the accompanying consolidated balance sheets and amortized into income over the terms of the underlying loans.
During the nine months ended September 30, 2020 and 2019, the Company amortized $4,580 and $4,580, respectively, of the discount
and, as of September 30, 2020 and December 31, 2019, respectively, the loan is carried at $487,679 and $480,809, net of unamortized
discount of $72,321 and $77,191.
|
|
|
2)
|
Equipment financing note in the amount of $24,715,986, payable monthly,
accruing interest at an annual rate of 5.75%, and having terms approximating the lives of the underlying equipment. As of
September 30, 2020, no amounts have been advanced pursuant to the equipment financing note.
|
|
|
3)
|
Operations financing, business line of credit in the amount of $23,932,625,
accruing interest at an annual rate of 5.75%, maturing in 10 years. As of September 30, 2020, no amounts have been advanced
pursuant to the line of credit.
|
|
|
4)
|
The notes are secured by the assignment of leases and fixed assets
related to the project.
|
The following is a summary of loans receivable
as of September 30, 2020, and December 31, 2019:
|
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
|
Principal Amount Outstanding
|
|
$
|
558,000
|
|
|
$
|
558,000
|
|
|
Unaccreted Discounts
|
|
|
(70,321
|
)
|
|
|
(77,191
|
)
|
|
Net Carrying Value
|
|
$
|
487,679
|
|
|
$
|
480,809
|
|
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Alpha Mortgage Notes, LLC
In exchange for its 90% interest in the Alpha
Mortgage Notes, LLC, ("SPV") the Company is required to contribute 4,015,667 shares of common stock to be used by the
SPV for the purchase of performing notes for the SPV. The SPV is required to make monthly distributions to its 10% member of $10,000
up until the time a purchase of the performing notes are made, and upon the acquisition of the six mortgages specified in the SPV's
operating agreement, monthly payments of $150,000 per month from gross interest income received for 30 months; and 20% of any other
future note purchases. The 10% partner will also receive an amount equal to 1% of the principal amounts received on each loan.
For the nine months ended September 30, 2020, the Company accrued $90,000 of distributions. As of September 30, 2020, $190,000
of minimum distributions are owed to the 10% partner.
Litigation
The Company is not presently involved in any litigation.
Advisory Agreement
In June 2019, the Company entered into an advisory
agreement, pursuant to which it agreed to compensate a third-party advisor a percentage of future capital raises facilitated by
the advisor. Compensation includes non-refundable cash compensation based on a percentage of capital raised. The advisor may elect
to receive certain percentage-based fees in the form of equity. Upon the closing of a transaction, the advisor will receive five-year
warrants to purchase a number of shares of common stock equal to 8% of the number of shares issued in the transaction at a strike
price of the transaction value as defined the agreement. As of the date of this report, no amounts have been earned and no equity
instruments have been issued as transaction-based fees pursuant to this agreement.
NOTE 6 – GOING CONCERN
Future issuances of the Company’s equity
or debt securities will be required in order for the Company to continue to finance its operations and continue as a going concern.
The Company’s present revenues are insufficient to meet operating expenses. The financial statements of the Company have
been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization
of assets and the satisfaction of liabilities in the normal course of business. The Company has an accumulated deficit of $4,635,125
as of September 30, 2020 and requires capital for its contemplated operational and marketing activities to take place. The Company's
ability to raise additional capital through the future issuances of common stock is unknown. Securing additional financing, the
successful development of the Company's contemplated plan of operations, and its transition, ultimately, to the attainment of profitable
operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raise substantial
doubt about the Company's ability to continue as a going concern. The financial statements of the Company do not include any adjustments
that may result from the outcome of these aforementioned uncertainties.
NOTE 7 – RELATED PARTY TRANSACTIONS
Loans receivable
The Company has extended lines of credit and
loans to related parties. See Note 3.
Management Fee
The Company pays its parent company, Omega
Commercial Finance Corp (“Omega”) management fees pursuant to a corporate governance management agreement executed
on June 1, 2017. Omega is to provide services related to facilitating the introduction of potential investors for compensation
of no less than $150,000 per year, not to exceed $300,000 per year. The agreement remains in effect until cancelled by Omega. During
the nine months ended September 30, 2020, no amounts have been paid and $112,500 has been accrued.
NOTE 8 – STOCKHOLDERS’ EQUITY
Incentive Plan
The Company’s
Incentive Plan provides for equity incentives to be granted to its employees, executive officers or directors or to key advisers
or consultants. Equity incentives may be in the form of stock options with an exercise price not less than the fair market value
of the underlying Shares as determined pursuant to the Incentive Plan, restricted stock awards, other stock-based awards, or any
combination of the foregoing. The Incentive Plan is administered by the board of directors. 5,000,000 Shares are reserved for issuance
pursuant to the exercise of awards under the Incentive Plan. The number of shares so reserved automatically adjusts
upward on January 1 of each year, so that the number of shares covered by the Incentive Plan is equal to 15% of our issued
and outstanding common stock. As of September 30, 2020, there are 1,375,000 shares available for issuance under the plan and no
options outstanding.
Temporary Equity
On September 20, 2017, 166,667 shares of common
stock were issued at a value of $15.00 per share to one company in exchange for cash of $2,500,000. Pursuant to the subscription
agreement the investor has the right to require the Company to repurchase the shares for $2.5 million. During the nine months ended
September 30, 2020, the investor exercised its right to require the Company to repurchase the shares for $2.5 million and $2.5
million was released from escrow and returned to the investor in exchange for the common stock.
On November 27, 2017, 16,667 shares of Series
2018 Convertible Preferred stock were issued at a value of $15.00 per share to one entity in exchange for cash of $250,000. The
shares have 350,000 warrants attached, each warrant entitling the holder to one additional share with an exercise date of up to
5 years from the issuance date of the shares. The preferred stock is mandatorily redeemable 10 years after issuance. The
Company allocated $236,897 of the proceeds from the sale of the preferred stock to the warrants, which was recorded as a discount
against the preferred stock and is to be amortized as a deemed dividend through the 10-year redemption date. The balance
of the preferred stock reflected in temporary equity as of September 30, 2020 and December 31, 2019, was $80,800 and $63,034, respectively,
net of unamortized discounts of $169,779 and $187,544, respectively.
During the year ended December 31, 2018, the Company issued 20,000
shares of Series 2018 Convertible Preferred Stock to its chief executive officer as compensation for services provided.
Series A Convertible
Preferred Stock
In November 2017, the
Company’s board of directors designated 100,000 authorized shares of Series A Convertible Preferred Stock (“Series
A”). Each share of Series A has a par value of $15.00 and have no voting or dividend rights. Upon liquidation, dissolution
or winding up, the holders of Series A shares are entitled to be paid out of the assets of the Company, if any, ratably with the
common stock holders. Each share of Series A is convertible within one year of issuance into two shares of common stock of the
Company. At any time after 180 days of issuance, the Company has the right, but not the obligation, to redeem all, but not less
than all, of the outstanding Series A shares by paying cash, common stock, or a combination of both an amount equal to the par
value of the Series A shares. On the one-year anniversary of issuance, the Company has an obligation to redeem the Series A shares
for an amount equal to the par value of the Series A shares.
In 2018, the Company
sold 1,000 shares of Series A Convertible Preferred Stock for cash proceeds of $15,000.
Capital Contributions
During the nine months
ended September 30, 2020, Omega Commercial Finance Corp made a cash contribution to the company of $425,000. This was classified
as capital contribution and recorded in additional paid-in capital.
Common Stock Warrants
As of September 30,
2020, there are warrants outstanding to purchase 520,000 shares for an exercise price of $15.00 over five years, of which warrants
to acquire 350,000 shares expire on September 19, 2022 and warrants to acquire 170,000 shares expire on December 14, 2022.