UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from ________to_________
Commission file number
(Exact name of registrant as specified in its charter)
(Former Name of Registrant as Specified in its Charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (zip code)
(Registrant's telephone number, including area code)
The Registrant does not have any securities registered pursuant to Section 12(b) of the Exchange Act.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.)
x
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| None |
| 1 |
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated filer o | Accelerated filer o | |
| 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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes
x
Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date.
| Class | Outstanding at December 16, 2022 | |
| Common Stock, par value $0.0001 | shares |
Documents incorporated by reference: None
| 2 |
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
PART II - OTHER INFORMATION
| 3 |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This report includes forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs. Forward-looking statements include, but are not limited to, statements about:
| Ÿ | our lack of significant revenues and history of losses, |
| Ÿ | our ability to continue as a going concern, |
| Ÿ | our ability to raise additional working capital as necessary, |
| Ÿ | our ability to satisfy our obligations as they become due, |
| Ÿ | the failure to successfully commercialize our product or sustain market acceptance, |
| Ÿ | the reliance on third party agreements and relationships for development of our business, |
| Ÿ | the control exercised by our management, |
| Ÿ | the impact of government regulation on our business, |
| Ÿ | our ability to effectively compete, |
| Ÿ | the possible inability to effectively protect our intellectual property, |
| Ÿ | the lack of a public market for our securities and the impact of the penny stock rules on trading in our common stock should a public market ever be established. |
You should read thoroughly this report and the documents that we refer to herein with the understanding that our actual future results may be materially different from and/or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements including those made in this report, in Part I. Item 1A. Risk Factors appearing in our Annual Report on Form 10-K for the year ended December 31, 2021 and our other filings with the Securities and Exchange Commission. Other sections of this report include additional factors which could adversely impact our business and financial performance. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.
OTHER PERTINENT INFORMATION
Unless specifically set forth to the contrary, when used in this report the terms “the “Company,” “we,” “our,” “us,” and similar terms refers to Alpha Investment, Inc.
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ITEM 1. FINANCIAL STATEMENTS
Alpha Investment Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
| As of | As of | |||||||
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Total Current Assets | ||||||||
| Other Assets: | ||||||||
| Loans receivable - related party, net of discounts | ||||||||
| Loans receivable, net of discounts | ||||||||
| Interest receivable | ||||||||
| Total Other Assets | ||||||||
| Property and Equipment, net: | ||||||||
| Furniture and Equipment, net | ||||||||
| Total Property and Equipment, net | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued management fees - related party | ||||||||
| Distribution payable | ||||||||
| Notes payable - short-term | ||||||||
| Notes payable - related party | ||||||||
| Judgments payable | ||||||||
| Total Current Liabilities | ||||||||
| Payroll Protection Plan Loan | ||||||||
| Total Liabilities | ||||||||
| Temporary Equity: | ||||||||
| Series
2018 Convertible Preferred Stock ($ par value), net of discounts of $ | ||||||||
| 428,176 | 410,410 | |||||||
| Stockholders' Equity: | ||||||||
| Preferred stock ($ par value), shares | ||||||||
| Series A Convertible Preferred stock ($ par value), shares authorized; shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | ||||||||
| Series AA Convertible Preferred stock ($ par value), shares authorized, and -0- issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | ||||||||
| Common stock, ($ par value), shares authorized; shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Equity | ( | ) | ( | ) | ||||
| Non-controlling interest in variable interest entities | ( | ) | ( | ) | ||||
| Total Stockholders' Equity | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | $ | ||||||
See notes to unaudited condensed consolidated financial statements.
| 5 |
ALPHA INVESTMENT INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months | Three Months | Nine Months | Nine Months | |||||||||||||
| Ended | Ended | Ended | Ended | |||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Income: | ||||||||||||||||
| Net investment income - related parties | $ | $ | $ | $ | ||||||||||||
| Net investment income | ||||||||||||||||
| Total Income | ||||||||||||||||
| General and Administrative Expenses: | ||||||||||||||||
| Management fee - related party | ||||||||||||||||
| Administrative expenses | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Total General and Administrative Expenses | ||||||||||||||||
| Loss from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Expense: | ||||||||||||||||
| Other income/expense | ( | ) | ||||||||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total Other Expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Amortization of discounts on Series 2018 preferred stock and redeemable common stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Income Attributable to Non-controlling Interests | ( | ) | ( | ) | ||||||||||||
| Net Loss Attributable to Common Stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and Diluted Loss Per Share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and Diluted Weighted Average Number of Common Shares Outstanding | ||||||||||||||||
See notes to unaudited condensed consolidated financial statements.
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Alpha Investment Inc.
Condensed Consolidated Statement of Changes in Stockholders' Equity (Deficit)
(Unaudited)
| Series A | Series AA | Non- | |||||||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Preferred Stock | Paid-in | controlling | Accumulated | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Interest | Deficit | Total | ||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||
| Stock exchange | ( | ) | ( | ) | — | ||||||||||||||||||||||||||||||
| Stockholder contribution | — | — | — | ||||||||||||||||||||||||||||||||
| Distributions due to non-controlling interest | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Amortization of discount on redeemable preferred stock | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||
| Stockholder contribution | — | — | — | ||||||||||||||||||||||||||||||||
| Distributions due to non-controlling interest | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Amortization of discount on redeemable preferred stock | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||
| Stockholder contribution | — | — | — | ||||||||||||||||||||||||||||||||
| Distributions due to non-controlling interest | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Amortization of discount on redeemable preferred stock | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||
| Series A | Series AA | Non- | |||||||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Preferred Stock | Paid-in | controlling | Accumulated | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Interest | Deficit | Total | ||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Stockholder contribution | — | — | — | ||||||||||||||||||||||||||||||||
| Distributions due to non-controlling interest | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Amortization of discount on redeemable preferred stock | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Stockholder contribution | — | — | — | ||||||||||||||||||||||||||||||||
| Distributions due to non-controlling interest | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Amortization of discount on redeemable preferred stock | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Stockholder contribution | — | — | — | ||||||||||||||||||||||||||||||||
| Distributions due to non-controlling interest | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Amortization of discount on redeemable preferred stock | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
See notes to unaudited condensed consolidated financial statements.
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ALPHA INVESTMENT INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months | Nine Months | |||||||
| Ended | Ended | |||||||
| September 30, | September 30, | |||||||
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation Expense | ||||||||
| Accretion of origination fee income | ( | ) | ||||||
| Amortization of deferred loan costs | ||||||||
| Payroll protection loan forgiveness | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Increase in judgments payable | ||||||||
| Increase in settlements payable | ||||||||
| Increase in interest receivable | ( | ) | ||||||
| Increase in accrued management fees - related party | ||||||||
| Decrease in accounts payable and accrued expenses | ( | ) | ||||||
| Increase in interest payable | ||||||||
| Increase in notes payable - related party | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Net cash from investing activities | ||||||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from short term loan | ||||||||
| Proceeds from stockholder contribution | ||||||||
| Net cash provided by (used in) financing activities | ||||||||
| Net increase (decrease) in cash | ( | ) | ( | ) | ||||
| Cash and restricted cash at beginning of year | ||||||||
| Cash and restricted cash at end of year | $ | $ | ||||||
| Supplemental Disclosure of Cash Flow Information: | ||||||||
| Cash paid during year for: | ||||||||
| Interest | $ | $ | ||||||
| Income Taxes | $ | $ | ||||||
| Schedule of Non-Cash Investing and Financing Activities: | ||||||||
| Distribution due to non-controlling interest | $ | $ | ||||||
| Amortization of discount on redeemable preferred stock | $ | $ | ||||||
See notes to unaudited condensed consolidated financial statements.
| 8 |
ALPHA INVESTMENT INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Alpha Investment Inc, formerly GoGo Baby, Inc. (the “Company”) was incorporated on February 22, 2013 under the laws of the State of Delaware to develop, create, manufacture and market, toys for small children which would be designed to attach to car seats and amuse and entertain children during a drive, without distracting the attention of the driver. The Company, however, encountered significant constraints in raising sufficient capital to fully implement its business plan.
To better reflecting management’s shifted focus of the Company’s business to real estate and other commercial lending, on March 30, 2017, the Company filed a Certificate of Amendment to its Certificate of Incorporation with the Delaware Secretary of State changing its name from “Gogo Baby, Inc.” to “Alpha Investment Inc.”. The name change and a corresponding change in the Company’s OTC markets trading symbol from GGBY to ALPC received approval from FINRA and became effective as of April 19, 2017.
On March 11,
2019, the Company, through Alpha Mortgage Notes I, LLC (the “SPV”) entered into an operating agreement with Alameda
Partners LLC, a Utah limited liability company (“Alameda Partners”). Alameda Partners acquired a ten percent (10%)
equity interest in the SPV in exchange for a payment of $
On July 21, 2021,
NOTE 2 – GOING CONCERN
Future issuances of the Company’s equity or
debt securities will be required 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 $
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements are prepared in accordance with instructions for Form 10-Q, include all adjustments (consisting only of normal recurring accruals) which we considered as necessary for a fair presentation of the results for the periods presented. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2021. The results of operations for the nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for future periods or the full year.
| 9 |
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
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, 2022, the Company has $
Loans Receivable, net and Allowance for Losses
The Company records its investments in loans receivable at the lower of cost or fair value. Costs are the gross loan receivables less unamortized costs of issuance and deferred origination fees. Origination fees collected at the time of investment are recorded against the loans receivable and amortized into net interest income over the lives of the related loans. Issuance costs incurred are capitalized along with the initial investment and amortized against net interest income over the lives of the related loans.
When a loan receivable is placed on non-accrual status, the related interest receivable is charged to bad debt of the current period. If a non-accrual loan is returned to accrual status, the accrued interest existing at the date the residential loan is placed on non-accrual status and interest during the non-accrual period are recorded as interest income as of the date the loan no longer meets the non-accrual criteria.
The Company maintains an allowance for loan losses on its investments in real estate loans receivable for estimated credit impairment. Management’s estimate of losses is based on several 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 has established an allowance of $
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,
| 10 |
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, 2022, tax years since 2014 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, 2022 and 2021
| 2022 | 2021 | |||||||
| Interest Income | $ | $ | ||||||
| Accretion of Loan Origination Fees | ||||||||
| Amortization of Loan Issuance Costs | ( | ) | ||||||
| Net Investment Income | $ | $ | ||||||
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. At December 31, 2021, the Company evaluated the collectability of its loans and lines of credit receivable, in light of economic conditions during the Covid-19 pandemic, established an allowance account to bring these to $0. Accordingly, there is no imputed interest receivable for the nine months ended September 30, 2022.
| 11 |
Variable Interest Entity
The Company holds a
Fair Value
The carrying amounts reported in the balance sheet for cash, accounts payable and notes payable approximate their estimated fair market value based on the short-term maturity of this instrument. The carrying value of the Company’s loans receivable approximate fair value because their terms approximate market rates.
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. shares underlying convertible preferred stock and 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, 2022 and 2021, because their impact was anti-dilutive.
Concentration of Credit Risk
Financial instruments that potentially subject the
Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and loans receivable. The Company
maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. Management has established
an allowance of $
Recently Issued and Adopted Accounting Pronouncements
Recent accounting pronouncements that the Company has adopted or that will be required to adopt in the future are summarized below.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendments introduce an impairment model that is based on expected credit losses (“ECL”), rather than incurred losses, to estimate credit losses on certain types of financial instruments (ex. loans and held to maturity securities), including certain off-balance sheet financial instruments (ex. commitments to extend credit and standby letters of credit that are not unconditionally cancellable). The ECL should consider historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments, over the contractual term. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. Financial instruments with similar risk characteristics may be grouped together when estimating the ECL. The ASU also amends the current available for sale security impairment model for debt securities whereby credit losses relating to available for sale debt securities should be recorded through an allowance for credit losses. 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, which is not effective for interim periods in 2021, will have on the Company’s financial statements.
| 12 |
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 4 – LOANS RECEIVABLE, NET
Loans Receivable - Related Parties
Loan Agreement with Partners South Holdings LLC (Revolving Line of Credit)
On August 28, 2017 the Company entered into a loan
agreement with Partners South Holdings LLC (“Borrower”), which is owned by Timothy R. Fussell, President, Chairman of the
Board and a director of the Company, for a revolving line of credit in the maximum principal sum of $
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 $
Loans Receivable
Paris Med
On May 2, 2018, the Company and Paris Med entered
into agreements, pursuant to which Paris Med agreed to provide project financing in the amount of $
| 1) | Construction financing in the amount of $ |
| 2) | Equipment financing note in the amount of $ |
| 3) | Operations financing, business line of credit in the amount of $ |
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| 4) | The notes are secured by the assignment of leases and fixed assets related to the project. |
In December 2021, the Company established a full reserve against this loan until such time as the loan is repaid. As of September 30, 2022 and December 31, 2021, the receivable balance is $0.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Alpha Mortgage Notes, LLC
Litigation
Judgements Payable
Steven T. Matthiesen and Joanna K. Matthiesen, jointly
and severally v. Tmothy Fussell et al. In the United States District Court, Southern District of Florida, Case No. 21CV62334. This breach
of contract matter resulted in a default judgment against the Defendants in 2022 of $
Fusion Lodgings LLC v. PLC et al, In the District
Court, 160th Judicial District, Dallas County, TX, Cause No. DC-20-09139. This breach of contract matter resulted in a default
judgment against the Defendants of $
The Company is not aware of any additional litigation.
Advisory Agreement
In June 2019, the Company entered into an advisory agreement, pursuant to which it agreed to compensate a third-party advisor a percentage of future capital raises facilitated by the advisor. Compensation includes non-refundable cash, cash compensation based on a percentage of capital raised. The advisor may elect to receive certain percentage-based fees in the form of equity. Upon the closing of a transaction, the advisor will receive five-year warrants to purchase a number of shares of common stock equal to 8% of the number of shares issue in the transaction at a strike price of the transaction value as defined the agreement. As of the date of this report, no amounts have been earned and no equity instruments have been issued as transaction-based fees pursuant to this agreement.
NOTE 6 – NOTE PAYABLE SHORT-TERM
On June 29, 2022, the Company received a $
NOTE 7 – RELATED PARTY TRANSACTIONS
Loans receivable
The Company has extended lines of credit and loans to related parties. See Note 4.
Management Fee
The Company pays its parent company, Omega Commercial
Finance Corp (“Omega”) management fees pursuant to a corporate governance management agreement executed on June 1, 2017.
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Note Payable – related party
On October 14, 2020, the Company issue a promissory
note in the amount of $
NOTE 8 – STOCKHOLDERS’ EQUITY
Temporary Equity
On November 27, 2017, shares of Series 2018
Convertible Preferred stock were issued at a value of $ per share to one entity in exchange for cash of $
Preferred Stock
Series A Convertible Preferred Stock.
In November 2017, the Company’s board of directors designated authorized shares of Series A Convertible Preferred Stock (“Series A”). Each share of Series A has a par value of $ and has no voting or dividend rights. Upon liquidation, dissolution or wining up, the holders of Series A shares are entitled to be paid out of the assets of the Company, if any, ratably with the common stock holders. Each share of Series A is convertible within one year of issuance into two shares of common stock of the Company. At any time after 180 days of issuance, the Company has the right, but not the obligation, to redeem all, but not less than all, of the outstanding Series A shares by paying cash, common stock, or a combination of both an amount equal to the par value of the Series A shares. On the one-year anniversary of issuance, the Company has an option to redeem the Series A shares for an amount equal to the par value of the Series A shares. There are shares of Series A Convertible Preferred Stock outstanding as of September 30, 2022 and December 31, 2021.
Series AA Convertible Preferred Issuance
In February, 2021, Alpha issued Series AA Convertible Preferred Shares to Omega Commercial Finance Corporation which represents 100% of the issued and outstanding Series AA Convertible Preferred Shares. Each share of Series AA Preferred Stock shall entitle the holder thereof to four hundred fifty (450) votes on all matters submitted to a vote of the stockholders of the Company. Each share of Series AA Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, into ten (10) fully paid and non-assessable shares of Common Stock (the “Conversion Amount”). There are shares of Series AA Convertible Preferred Stock outstanding as of September 30, 2022 and December 31, 2021.
Capital Contributions
During the nine
months ended September 30, 2022, Omega Commercial Finance Corp made a cash contribution to the Company of $
Common Stock Warrants
As of September
30, 2022, there are warrants outstanding to purchase
The following is a summary of warrants outstanding as of September 30, 2022:
| Exercise Price | # of Shares | Expiration | ||||||||
| $ | ||||||||||
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NOTE 9 – SUBSEQUENT EVENTS
Common Stock Warrants
As of December 14, 2022, the remaining outstanding warrants expired. As of December 14, 2022, there are no outstanding warrants.
The Company has evaluated subsequent events through the date the financial statements were issued. The Company has determined that there are no such events that warrant disclosure or recognition in the consolidated financial statements presented herein.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and the accompanying notes thereto included in “Item 8. Financial Statements and Supplementary Data.” In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. See “Forward-Looking Statements.” Our results and the timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors.
Results of Operations
General
We have recognized no income from related parties for the three months ended September 30, 2022, compared to $7,193 for the same period in 2021, resulting from the amortization of loan origination fees received in the form of cash and notes receivable, offset by the amortization of loan costs incurred. As of September 30, 2022, the Company had an accumulated deficit of approximately $7.4 million.
The following table provides selected consolidated balance sheet data as of September 30, 2022.
| Balance Sheet Data: | 9/30/2022 | |
| Cash | $ | 127 |
| Loan receivable and accrued interest receivable, net of discounts | 0 | |
| Total assets | 2062006 | |
| Current liabilities | 4,129,476 | |
| Total liabilities | 4,129,476 | |
| Temporary equity | 428,176 | |
| Shareholders' equity | (4,557,446) | |
Three Months Ended September 30, 2022 as compared to Three Months Ended September 30, 2021
For the three months ended September 30, 2022, we generated no net investment income, compared to $7,193 in 2021. Net investment income in 2021 resulted from interest income of $16,000, the amortization of loan origination fees of $110,000, offset by the amortization of loan costs of $21,000. We incurred $116,716 in operating expenses during the 2022 period, compared to $92,882 in 2021.
Nine Months Ended September 30, 2022 as compared to Nine Months Ended September 30, 2021
For the nine months ended September 30, 2022, we generated no net investment income, compared to $21,579 in 2021. Net investment income in 2021 resulted from interest income of $48,000, the amortization of loan origination fees of $330,000, offset by the amortization of loan costs of $78,000. We incurred $417,814 in operating expenses during the 2022 period, compared to $288,917 in 2021.
Liquidity and Capital Resources
During the nine months ended September 30, 2022, Omega, the principal stockholder of the Company, made additional capital contributions to the Company of $73,650, compared to $191,211 in 2021. In addition, on June 29, 2022, the Company received a short-term loan of $35,000 from an unrelated party, bearing interest of $24%, interest and principal of $39,200 due and payable on December 29, 2022, extendable for three months with payment of $2,100 in accrued interest.
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Critical Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods presented. The Company is required to make judgments and estimates about the effect of matters that are inherently uncertain. The Company regularly evaluates estimates and assumptions related to the valuation of the allowance for loan losses, loss contingencies, useful life and recoverability of long-lived assets, deferred income tax asset valuations and loss contingencies. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. Although, we believe our judgments and estimates are appropriate, actual future results may be different; if different assumptions or conditions were to prevail, the results could be materially different from our reported results.
Loans Receivable, net and Allowance for Losses
The Company records its investments in loans receivable at cost less unamortized costs of issuance and deferred origination fees. Origination fees collected at the time of investment are recorded against the loans receivable and amortized into net interest income over the lives of the related loans. Issuance costs incurred are capitalized along with the initial investment and amortized against net interest income over the lives of the related loans.
When a loan receivable is placed on non-accrual status, the related interest receivable is reversed against interest income of the current period. If a non-accrual loan is returned to accrual status, the accrued interest existing at the date the residential loan is placed on non-accrual status and interest during the non-accrual period are recorded as interest income as of the date the loan no longer meets the non-accrual criteria.
The Company maintains an allowance for loan losses on its investments in real estate loans receivable for estimated credit impairment. Management’s estimate of losses is based on a number of factors including the types and dollar amounts of loans in the portfolio, adverse situations that may affect the borrower’s ability to repay, prevailing economic conditions and the underlying collateral securing the loan. Additions to the allowance are provided through a charge to earnings and are based on an assessment of certain factors, which may indicate estimated losses on the loans. Actual losses on loans are recorded first as a reduction to the allowance for loan losses. Generally, subsequent recoveries of amounts previously charged off are recognized as income.
Estimating allowances for loan losses requires significant judgment about the underlying collateral, including liquidation value, condition of the collateral, competency and cooperation of the related borrower and specific legal issues that affect loan collections or taking possession of the property on an individual loan receivable basis.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a smaller reporting company, we are not required to include disclosure under this item.
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ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
As of September 30, 2022, our Chief Executive Officer (our principal executive and financial officer) conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as is defined in Rule 13a-15(e) of Exchange Act. We recognize that there are material weaknesses related to our internal controls. Therefore, our Chief Executive Officer has concluded that our disclosure controls and procedures were not effective, as of the end of the period covered by this Annual Report on Form 10-K. This includes ensuring that information required to be disclosed was recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Furthermore, to provide reasonable assurance that information required to be disclosed is accumulated and communicated as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our Chief Executive Officer (our principal executive and financial officer) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. We have designed our internal controls to provide reasonable assurance that our financial statements are prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP), and include those policies and procedures that:
| · | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of our assets; |
| · | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorization of our management and directors; and |
| · | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
Our Chief Executive Officer (our principal executive and financial officer) conducted an evaluation of the effectiveness of our internal controls over financial reporting as of September 30, 2022. In making this evaluation, the Chief Executive Officer used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in its 2013 Internal Control — Integrated Framework.
Based on this evaluation, our Chief Executive Officer has concluded that our internal controls over financial reporting were not effective as of the end of the period covered in this Quarterly Report on Form 10-K. The Chief Executive Officer has concluded that the financial statements included in this report fairly present in all material respects our financial position and results of operations.
This Quarterly Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. The Chief Executive Officer’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this annual report.
Changes in Internal Control over Financial Reporting
During the quarter ended September 30, 2022, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II
ITEM 1. LEGAL PROCEEDINGS
Steven T. Matthiesen and Joanna K. Matthiesen, jointly and severally v. Tmothy Fussell et al. In the United States District Court, Southern District of Florida, Case No. 21CV62334. This breach of contract matter resulted in a default judgment against the Defendants in 2022 of $1,514,000 plus fees and costs. This case remains pending as to Defendants Timothy Fussell and PartnersSouth Holdings, LLC only.
We are currently not a party to any material legal or administrative proceedings and are not aware of any pending or threatened material legal or administrative proceedings arising in the ordinary course of business. We may from time to time become a party to various legal or administrative proceedings arising in the ordinary course of our business.
ITEM 1A. RISK FACTORS
Risk factors describing the major risks to our business can be found under Item 1A, “Risk Factors”, in our Annual Report on Form 10-K for the year ended December 31, 2021. There has been no material change in our risk factors from those previously discussed in the Annual Report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable to our operations.
ITEM 5. OTHER INFORMATION
See ITEM 1A above.
ITEM 6. EXHIBITS
| 101.INS | XBRL Instance Document * |
| 101.SCH | XBRL Taxonomy Extension Schema Document * |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document * |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document * |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document * |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document * |
* Filed herein
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ALPHA INVESTMENT INC.
| /s/ Todd C. Buxton | Chief Executive Officer, Acting Chief Financial Officer and Director | December 19, 2022 | ||
| TODD C. BUXTON | Title (Principal Executive, financial and Accounting Officer | Date |
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