HUNTWICKE
CAPITAL GROUP, INC
|
(Formerly
Known As MAGNOLIA LANE INCOME FUND)
|
Condensed Consolidated
Balance Sheets
|
|
|
October
31, 2016
|
|
|
April
30, 2016
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
property, net
|
|
$
|
4,425,453
|
|
|
$
|
3,398,685
|
|
Cash
|
|
|
241,994
|
|
|
|
209,079
|
|
Restricted
cash
|
|
|
11,337
|
|
|
|
-
|
|
Marketable securities
|
|
|
486,155
|
|
|
|
-
|
|
Prepaid
expenses
|
|
|
11,502
|
|
|
|
-
|
|
Advances
|
|
|
64,145
|
|
|
|
-
|
|
Accounts
receivable
|
|
|
1,619
|
|
|
|
2,050
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
5,242,205
|
|
|
$
|
3,609,814
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
payable
|
|
$
|
516,342
|
|
|
$
|
525,322
|
|
Secured
line of credit
|
|
|
956,113
|
|
|
|
956,113
|
|
Accounts
payable and accrued expenses
|
|
|
15,805
|
|
|
|
11,852
|
|
Deferred
income
|
|
|
4,013
|
|
|
|
7,459
|
|
Security
deposits
|
|
|
10,050
|
|
|
|
2,900
|
|
Due
to shareholders
|
|
|
511,452
|
|
|
|
504,218
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
2,013,775
|
|
|
|
2,007,864
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY (DEFICIT):
|
|
|
|
|
|
|
|
|
Preferred
stock: par value $0.0001; 100,000,000 shares authorized;
None
issued or outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock: par value $0.0001; 200,000,000 shares authorized; 1,188,820 and 2,000,590 shares issued and
outstanding, respectively
|
|
|
118
|
|
|
|
200
|
|
Additional
paid-in capital
|
|
|
4,008,617
|
|
|
|
1,877,794
|
|
Accumulated
deficit
|
|
|
(780,306
|
)
|
|
|
(707,094
|
)
|
|
|
|
|
|
|
|
|
|
Total
Magnolia Lane Income Fund Stockholders' Equity(Deficit)
|
|
|
3,228,430
|
|
|
|
1,170,900
|
|
|
|
|
|
|
|
|
|
|
Non-controlling
interest
|
|
|
-
|
|
|
|
431,050
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders' Equity (Deficit)
|
|
|
3,228,430
|
|
|
|
1,601,950
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity (Deficit)
|
|
$
|
5,242,205
|
|
|
$
|
3,609,814
|
|
See
accompanying notes to condensed consolidated financial statements.
HUNTWICKE
CAPITAL GROUP, INC
|
(Formerly
Known As MAGNOLIA LANE INCOME FUND)
|
Condensed
Consolidated Statements of Operations
|
|
|
For the three
|
|
|
For the three
|
|
|
For the six
|
|
|
For the six
|
|
|
|
months ended
|
|
|
months ended
|
|
|
months ended
|
|
|
months ended
|
|
|
|
October 31, 2016
|
|
|
October 31, 2015
|
|
|
October 31, 2016
|
|
|
October 31, 2015
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenue
|
|
$
|
96,417
|
|
|
$
|
64,017
|
|
|
$
|
174,785
|
|
|
$
|
126,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs
|
|
|
26,872
|
|
|
|
40,840
|
|
|
|
40,821
|
|
|
|
52,794
|
|
Professional fees
|
|
|
32,698
|
|
|
|
49,707
|
|
|
|
64,509
|
|
|
|
87,829
|
|
Repairs and maintenance
|
|
|
10,628
|
|
|
|
3,673
|
|
|
|
16,669
|
|
|
|
9,837
|
|
Depreciation
|
|
|
40,938
|
|
|
|
23,611
|
|
|
|
87,767
|
|
|
|
47,224
|
|
Interest expense
|
|
|
15,235
|
|
|
|
37,289
|
|
|
|
36,930
|
|
|
|
71,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
126,371
|
|
|
|
155,120
|
|
|
|
246,696
|
|
|
|
268,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(29,954
|
)
|
|
|
(91,103
|
)
|
|
|
(71,911
|
)
|
|
|
(142,094
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized Loss on sale of securities
|
|
|
(3,846
|
)
|
|
|
-
|
|
|
|
(3,846
|
)
|
|
|
-
|
|
Insurance proceeds
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,508
|
|
Other income / (expenses)
|
|
|
(3,846
|
)
|
|
|
-
|
|
|
|
(3,846
|
)
|
|
|
8,508
|
|
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS’
|
|
|
(33,800
|
)
|
|
|
(91,103
|
)
|
|
|
(75,757
|
)
|
|
|
(133,586
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME / (LOSS) - ATTRIBUTABLE TO NON CONTROLLING INTEREST
|
|
|
161
|
|
|
|
(1,408
|
)
|
|
|
(2,545
|
)
|
|
|
(1,408
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS AVAILABLE TO STOCKHOLDERS’
|
|
$
|
(33,639
|
)
|
|
$
|
(89,695
|
)
|
|
$
|
(73,212
|
)
|
|
$
|
(132,178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER COMMON SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- BASIC AND DILUTED:
|
|
$
|
(0.02
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- BASIC AND DILUTED
|
|
|
2,207,298
|
|
|
|
1,796,875
|
|
|
|
2,103,379
|
|
|
|
1,796,875
|
|
See
accompanying notes to condensed consolidated financial statements.
HUNTWICKE
CAPITAL GROUP, INC
|
(Formerly
Known As MAGNOLIA LANE INCOME FUND)
|
Condensed
Consolidated Statements of Cash Flows
|
|
|
For the six months
|
|
|
For the six months
|
|
|
|
ended
|
|
|
ended
|
|
|
|
October 31, 2016
|
|
|
October 31, 2015
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(73,212
|
)
|
|
$
|
(132,178
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash provided by (used in) from operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
87,768
|
|
|
|
47,224
|
|
Imputed interest
|
|
|
15,127
|
|
|
|
15,206
|
|
Losses on investment account
|
|
|
3,846
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(2,694
|
)
|
|
|
(3,464
|
)
|
Accounts payable and accrued expenses
|
|
|
1,030
|
|
|
|
(22,169
|
)
|
Deferred income
|
|
|
(3,446
|
)
|
|
|
-
|
|
Security deposits
|
|
|
(11,503
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
16,916
|
|
|
|
(51,043
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Cash acquired from acquisition
|
|
|
83,311
|
|
|
|
-
|
|
Cash acquired from non interest control party
|
|
|
-
|
|
|
|
429,363
|
|
Investment in securities
|
|
|
(490,000
|
)
|
|
|
-
|
|
Advances for acquisitions
|
|
|
(64,145
|
)
|
|
|
-
|
|
Restricted cash
|
|
|
(4,187
|
)
|
|
|
(3,167
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(475,021
|
)
|
|
|
(764,930
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Advances from shareholders
|
|
|
-
|
|
|
|
52,419
|
|
Proceeds from line of credit
|
|
|
-
|
|
|
|
760,355
|
|
Proceeds from loans from shareholder
|
|
|
500,000
|
|
|
|
-
|
|
Repayments of mortgages payable
|
|
|
(8,980
|
)
|
|
|
(8,474
|
)
|
Cash over draft
|
|
|
-
|
|
|
|
1,536
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
491,020
|
|
|
|
805,836
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH
|
|
|
32,915
|
|
|
|
(10,137
|
)
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period
|
|
|
209,079
|
|
|
|
17,286
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
$
|
241,994
|
|
|
$
|
7,149
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
12,927
|
|
|
$
|
8,473
|
|
|
|
|
|
|
|
|
|
|
OTHER NON CASH ITEMS
|
|
|
|
|
|
|
|
|
Conversion of minority interest to common stock
|
|
$
|
431,050
|
|
|
$
|
-
|
|
Conversion of notes payable to common stock
|
|
$
|
500,000
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Purchase of building for common stock
|
|
$
|
1,208,500
|
|
|
$
|
-
|
|
See
accompanying notes to condensed consolidated financial statements.
HUNTWICKE
CAPITAL GROUP, INC.
(F/K/A MAGNOLIA LANE INCOME FUND)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS
OF OCTOBER 31, 2016
(UNAUDITED)
NOTE
1 – ORGANIZATION
The accompanying
unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in The United States of America and the rules and regulations of the Securities and Exchange Commission for interim financial
information. Accordingly, they do not include all of the information necessary for a comprehensive presentation of financial position
and results of operations. The interim results for the period ended October 31, 2016 are not necessarily indicative of results
for the full fiscal year and should be read in junction with the annual financial statements filed on July 29, 2016. It is management's
opinion, however that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary
for a fair financial statements presentation.
Huntwicke
Capital Group Inc. formerly known as Magnolia Lane Income Fund (the “Company,” ”We,” “Ours,”
“Us”), was incorporated on May 12, 2009 under the laws of the State of Delaware. On November 12, 2015, the Company
changed domicile from the State of Delaware to the State of Nevada by filing Articles of Domestication and Articles of Incorporation
with the Secretary of State of Nevada. The Company was originally formed to commence business as a stock agent in the wool
trade.
On
May 13, 2013, we entered into a stock purchase agreement (the “Stock Purchase Agreement”) with Ian Raleigh and Michael
Raleigh (the “Sellers”) and Magnolia Lane Financial, Inc. (the “Purchaser”), whereby the Purchaser purchased
from the Sellers, 10,000,000 shares of common stock, par value $0.0001 per share, of the Company (the “Shares”), representing
approximately 69.57% of the issued and outstanding shares of the Company. As a result, the Purchaser became the majority shareholder
of the Company.
In
connection with the Stock Purchase Agreement, we have ceased pursuing our prior business plan and have begun focusing on our new
business which is to manage and invest in real property. Our current Chief Executive Officer, Chief Financial Officer and
sole director, Brian Woodland, has numerous years in the real estate acquisition, syndication and asset management business. We
intend to acquire real estate in small markets with high degrees of safety to provide income streams to our shareholders. In addition,
we will develop property, syndicate, manage and acquire property for capital appreciation.
In
connection with this change of control and change of business, we have conducted a name change and reverse stock split. On August
1, 2013, we filed a Certificate of Amendment to our Articles of Incorporation (the “Amendment”) to change its name
from “Palmerston Stock Agency, Inc.” to “Magnolia Lane Income Fund” (the “Name Change”) and
to memorialize a 1:8 reverse stock split (the “Stock Split”). The Amendment was effective as of August 1, 2013.
On
August 12, 2013, the Company received approval from the Financial Industry Regulatory Authority (“FINRA”) to effectuate
the Name Change and Stock Split. FINRA also confirmed that the new stock symbol is MIFC.
On
December 23, 2013, a shareholder of ours, Magnolia Lane Financial, entered into three separate LLC Membership Interest Purchase
and Sale Agreements for the acquisition of two limited liability companies, Grove Realty Partners, LLC and Walker Partners, LLC
(the “
Acquisition Agreements
”). Pursuant to the Acquisition Agreements, Magnolia Lane Financial acquired 100%
of the equity interests in Grove Realty Partners, LLC and Walker Partners, LLC. As consideration for the acquisition, Magnolia
Lane Financial transferred 134,574 shares of our Common Stock to WS Advantage and Phalanx Wealth Management (the “
Consideration
Shares
”). For purposes of the Acquisition Agreements, the parties valued the shares at $16.60 per share for a total
purchase price of $2,233,928. Prior to this transaction, Magnolia Lane Financial owned 1,250,000 shares of our common stock and
now owns 1,115,426 shares of our common stock. WS Advantage, LP owns 115,347 shares of our common stock and Phalanx Partners,
LLC owns 19,227 shares of our common stock.
On
January 16, 2014, we entered into an LLC Membership Interest Purchase and Sale Agreement with Magnolia Lane Financial, Inc. (the
“
Agreement
”). Pursuant to the Agreement, we acquired all rights, title and interest to all assets of Magnolia
Lane Financial, including the assets acquired in the Acquisition Agreements, for a total purchase price of $3,000.
On
October 15, 2015 the Company paid a total of $761,355 for the purchase of 64% of Butler Cabin LLC. This entity is controlled by
our President, a principal of Butler Cabin LLC.
On
November 12, 2015, the Company changed domicile from the State of Delaware to the State of Nevada by filing Articles of Domestication
and Articles of Incorporation with the Secretary of State of Nevada.
On August 11, 2016,
Huntwicke the Company entered into a “Magnolia Lane Share Issuance Agreement” with a subsidiary, Butler Cabin, LLC.
(“Butler”), in which the Company purchased from Butler the remaining ownership interest (36%) of real property located
at 6 Park Street, Topsfield, MA 01983 from a related party. As consideration for the purchase, the Company agreed to issue Butler
61,396 shares of common stock of the Company with a historical cost of $431,050. The Company now owns a 100% interest in 6 Park
Street, Topsfield, MA 01983. The transaction was recorded at the net asset value of the non-controlling interest on the date of
acquisition.
On August 11, 2016,
the Company entered into a “Magnolia Lane Share Issuance Agreement" with Founders Circle Partners, LLC (“Founders”)
(Related Party) whereby the Company purchased from Founders a 100% interest in real property located at 36-42 Main Street, Topsfield,
MA 01983. The purchase was recorded at the historical cost of the net assets of $1,208,500 acquired for 170,831 shares of common
stock of the Company from a related party.
NOTE
2 – SUMMARY OF ACCOUNTING POLICIES
Principles
of consolidation
The
accompanying consolidated financial statements represent the consolidated financial position and results of operations of the
Company and include the accounts and results of operations of the Company and its subsidiaries. The accompanying financial statements
include the active entity of Magnolia Lane Income Fund and its wholly owned subsidiaries, Walker Partners, LLC, Grove Realty Partners,
LLC, Butler LLC from October 15, 2015 and Founders Circle, LLC from, August 11, 2016.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements as well as the reported amount of revenues and expenses during
the reporting period. Actual results could differ from these estimates.
Cash
Equivalents
The
Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.
Restricted
Cash
Restricted
cash consists of cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual
agreements. The Company’s restricted cash is reserved for real estate taxes on both of its properties.
Concentrations
Concentration
in a geographic area
The
Company operates in the real estate industry and the operations are concentrated in the State of Massachusetts.
As
of October 31, 2016 two customers comprised 52% and 48%, respectively of accounts receivable. At April 30, 2016, 100% of
accounts receivable was due from one tenant, respectively.
For
the six months ended October 31, 2016 we had two clients that represented 20% and 12%, respectively of revenues (related party).
For the six months ended October 31, 2015, two tenants represented approximately 17% and 14% of the Company’s revenue.
Rental
Property, Net
Rental
property assets are stated at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated
useful lives of the asset.
We
capitalize replacements and improvements, such as HVAC equipment, structural replacements, windows, appliances, flooring, carpeting
and renovations. Ordinary repairs and maintenance, such as unit cleaning, painting and appliance repairs, are expensed when incurred.
Asset
|
|
Useful Life
(in years)
|
Building
|
|
30 years
|
Land
|
|
Indefinite
|
Building Improvements
|
|
30 years
|
Net
loss per common share
Net
loss per common share is computed pursuant to section 260-10-45 of the Financial Accounting Standards Board Accounting Standards
Codification. Basic net loss per common share is computed by dividing net loss by the weighted average number of shares of common
stock outstanding during the period. Diluted net loss per common share is computed by dividing net loss by the weighted average
number of shares of common stock and potentially dilutive outstanding shares of common stock during the period.
There
were no potentially dilutive shares outstanding for any periods presented.
Income
Taxes
The
Company utilizes the asset and liability method to measure and record deferred income tax assets and liabilities. Deferred tax
assets and liabilities reflect the future income tax effects of temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates that apply
to taxable income in the years in which those temporary 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
Company follows the provisions of Income Taxes Topic of the FASB Accounting Standards Codification, which provides clarification
on accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The guidance 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, and also provides guidance on derecognition, classification, interest and penalties,
disclosure and transition. At October 31, 2016 and April 30, 2016, no significant income tax uncertainties have been included in
the Company’s Balance Sheets. The Company’s policy is to recognize interest and penalties on unrecognized tax benefits
in income tax expense in the Statements of Operations. No interest and penalties are present for periods open.
The
Company is subject to the United States federal and state income tax examinations by the tax authorities for the 2015, 2014, and
2013 tax years.
Investments
The Company’s
investments in trading securities are reported at fair value, with unrealized gains and losses included in earnings. The Company
will invest its cash proceeds to enhance shareholder value over the long term. The Company will use both short and long term investing
strategies. Investments are classified as available to trade.
Property
Revenue Recognition
Our
commercial property leases are for varied terms ranging from month-to-month to 3 years. Rental income is recognized on a straight-line
basis over the term of the lease.
Rent
concessions, including free rent incurred in connection with commercial property leases, are amortized on a straight-line basis
over the terms of the related leases and are charged as a reduction of rental revenue.
Impairment
of Real Estate Investments
The
Company assesses on a regular basis whether there are any indicators that the carrying value of rental property assets may be
impaired. Potential indicators may include an increase in vacancy at a property, tenant reduction in utilization of a property,
tenant financial instability and the potential sale of the property in the near future. An asset is determined to be impaired
if the asset’s carrying value is in excess of its estimated fair value.
Deferred
Revenue
From
time to time, rental payments may be paid by tenants, but not earned yet by the Company. Such revenue is initially recorded as
a deferred liability and is recognized as revenue once earned. As of October 31, 2016 and April 30, 2016, the Company had $4,013
and $7,459 in deferred revenue, respectively.
Segments
The
Company operates in one segment and therefore segment information is not presented.
NOTE
3 – RECENT ACCOUNTING PRONOUNCEMENTS
In
February 2016, the FASB issued ASU 2016-02,
Leases
, which will amend current lease accounting to require lessees to recognize
(i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted
basis, and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of,
a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors;
however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model. This standard
will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We
are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash
flows or financial condition.
In
March 2016, the FASB issued ASU 2016-09,
Compensation – Stock Compensation: Improvements to Employee Share-Based Payment
Accounting
, which relates to the accounting for employee share-based payments. This standard addresses several aspects of
the accounting for share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards
as either equity or liabilities; and (c) classification on the statement of cash flows. This standard will be effective for fiscal
years beginning after December 15, 2016, including interim periods within those fiscal years. We are currently reviewing the provisions
of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.
In
April 2016, the FASB issued ASU 2016–10 Revenue from Contract with Customers (Topic 606): identifying Performance Obligations
and Licensing. The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments
in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation
guidance, while retaining the related principles for those areas. Topic 606 includes implementation guidance on (a) contracts
with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity’s promise
to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied
at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments
in this Update are intended render more detailed implementation guidance with the expectation to reduce the degree of judgement
necessary to comply with Topic 606. We are currently reviewing the provisions of this ASU to determine if there will be any impact
on our results of operations, cash flows or financial condition.
NOTE
4 – GOING CONCERN
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern,
which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As
reflected in the accompanying consolidated financial statements, the Company had an accumulated deficit of $780,306. These conditions
raise substantial doubt about its ability to continue as a going concern.
The
ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business
plan and generate sufficient revenues. The consolidated financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern. Management believes that the actions presently being taken to further
implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern.
The
consolidated financial statements do not include any adjustments related 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
in existence.
NOTE
5 – RENTAL PROPERTY, NET
Rental
Property, Net consisted of the following at October 31, 2016 and April 30, 2016:
|
|
October 31,
2016
|
|
|
April 30,
2016
|
|
Land
|
|
|
583,411
|
|
|
|
358,958
|
|
Buildings
|
|
|
4,580,203
|
|
|
|
3,647,917
|
|
Leasehold Improvements
|
|
|
149,860
|
|
|
|
149,860
|
|
Accumulated Depreciation
|
|
|
(888,021
|
)
|
|
|
(758,050
|
)
|
Net, Real Estate Investments
|
|
|
4,425,453
|
|
|
|
3,398,685
|
|
As of October 31, 2016 and April 30, 2016, real
estate investments consisted of four and three properties, respectively:
58
Main St. Topsfield, Ma 01983
|
●
|
Description:
4,000 Square foot, Commercial Building
|
|
|
|
|
●
|
Status:
Rented 100% occupancy. Lease term: 3-Year
|
|
|
|
|
●
|
Owner:
Walker Partners, LLC
|
|
|
|
|
●
|
Purchase
Price: $503,000
|
|
|
|
|
●
|
Mortgage
Debt as of October 31, 2016 and April 30, 2016: $516,342 and $525,322, respectively
|
7
Grove St., Topsfield, Ma 01983
|
●
|
Description:
12,000 Square foot, Business Office, Retail and Professional Space
|
|
|
|
|
●
|
Status:
Rented at 100% occupancy. Lease term: 3-Year
|
|
|
|
|
●
|
Owner:
Grove Realty Partners, LLC
|
|
|
|
|
●
|
Purchase
Price: $2.025 million
|
|
|
|
|
●
|
Mortgage
Debt: On November 1, 2015 WS Advantage elected to convert its mortgage of $1,425,982 and accrued interest of $117,625 in Grove
Realty into 203,711 shares of common stock ($7.58 per share)
|
6
Park St., Topsfield, Ma 01983
|
●
|
Description:
4,500 Square foot, Business Office, Retail and Professional Space
|
|
|
|
|
●
|
Status:
Rented at 70% occupancy. Lease term: Monthly
|
|
|
|
|
●
|
Owner:
Butler Cabin, LLC
|
|
|
|
|
●
|
Purchase
Price: $1.19 million
|
36-42
Main Street, Topsfield, MA 01983
|
●
|
Description:
8000 Square foot, Business Office, Retail and Professional Space
|
|
|
|
|
●
|
Status:
Rented at 100% occupancy. Lease term: Monthly
|
|
|
|
|
●
|
Owner:
Founders Circle Partners, LLC
|
|
|
|
|
●
|
The
Company issued a total of 170,831 shares of common stock valued at the historical cost of the assets acquired of $1,193,739
|
Depreciation expense
for the three and six months ended October 31, 2016 and 2015 totaled $40,939, $87,767, $23,611 and $47,224, respectively.
NOTE
6 – MORTGAGE AND RELATED PARTY NOTES PAYABLE
58
Main Street
On
January 16, 2014, the Company assumed a mortgage note payable to a third-party, unrelated to the seller, on the property located
at 58 Main Street, Topsfield, Massachusetts. The note bears interest at 4.875% per annum and is due August 26,
2019. Monthly principle and interest payments totaling $4,435 started on September 26, 2009 and will continue through
the maturity date. The mortgage note is secured by the underlying property. At maturity, the balloon payment of $481,454
will be due in full. The remaining principal balance as of October 31, 2016 and April 30, 2016 is $516,342 and $525,322, respectively.
Future
principle requirements on long-term debt for fiscal years ending after October 31, 2016 are as follows:
Mortgage
Payable
|
|
For
fiscal year ending
|
|
|
Future
Payout
|
|
2016
|
|
|
$
|
26,610
|
|
2017
|
|
|
|
53,220
|
|
2018
|
|
|
|
53,220
|
|
2019
and thereafter
|
|
|
|
383,292
|
|
Total
|
|
|
$
|
516,342
|
|
NOTE
7 – SECURED LINE OF CREDIT
On
October 14, 2015, by, between and among Grove Realty Partners (the “Borrower”) and Brian Woodland, individually, entered
into a $1,000,000 secured revolving line a credit with a financial institution. The Guarantor has agreed to guaranty the obligations
of the Borrower. The line of credit is securitized by the property at 7 Grove Street and as well as the personal guarantee of
Brian Woodland.
The
revolving line of credit note (hereinafter referred to as the “Note”), made by the Borrower and payable to the order
of the bank, at the initial per annum rate of 265 basis points above LIBOR (3.086% as of April 30, 2016), floating for two (2)
years. The Note shall provide for monthly payments of interest only for the first two (2) years of the term. Thereafter, the Note
shall for the next five (5) years of the Loan term provide for monthly payments of principal and interest based upon the 5/15
Federal Home Loan Bank Rate plus 200 basis points. Monthly payments of principal and interest shall be made based upon a 25-year
amortization schedule, with a final payment of the unpaid principal balance, interest, fees and late charges, if any, due on October
14, 2022.
As
of October 31, 2016 and April 30, 2016 the Company has drawn down a total of $956,113 and $956,113 and recorded accrued interest
of $1,861 and $2,465, respectively.
NOTE
8 – FUTURE RENTS AND TENANT CONCENTRATION
The
Company’s revenue is derived from property leases with varied lease terms. The following table represents future minimum
rents to be received under non-cancelable leases with terms of twelve months or more as of October 31, 2016:
Future Rents
|
|
For fiscal year ending
|
|
2016
|
|
$
|
95,160
|
|
2017
|
|
|
126,145
|
|
2018
|
|
|
51,040
|
|
2019
|
|
|
7,600
|
|
|
|
$
|
279,945
|
|
For
the six months ended October 31, 2016 we had two clients that represented 20% and 12%, respectively of revenues (related party).
For the six months ended October 31, 2015, two tenants represented approximately 17% and 14% of the Company’s revenue.
NOTE
9 – RELATED PARTY TRANSACTIONS
Related
parties to the Company include, but are not limited to, officers, directors, and shareholders. From time to time, the Company
receives loans and advances from Phalanx Partners and WS Advantage LP for working capital purposes. Phalanx Partners and WS Advantage
LP formerly held equity interests in Grove Realty Partners, LLC and Walker Partners, LLC and are currently shareholders and controlled
by the Company’s president.
An
aggregate of $511,452 has been received from related parties for working capital purposes and debt and expenses paid on the Company’s
behalf. These advances are interest-free and payable upon demand. During the three and six month ended October 31, 2016 and 2015
the Company imputed interest expense of $7,524, $15,127, $7,603 and $15,206, respectively. During the six months ended October
31, 2016 and 2015, the related party received repayments from the Company $0 and $0 respectively, to fund operations.
During
the three and six months ended October 31, 2016 and 2015 revenue included $18,000. $36,000, $9,000 and $18,000, respectively,
in rental income from Phalanx Partners who is owned by our Principal and Shareholder, who occupies an office in one of the Company’s
properties.
During the three
and six months ended October 31, 2016 a 36% and 83% owner in Founders Circle paid us rental income of $3,750 and $7,500, respectively.
On
October 14, 2015, by, between and among Grove Realty Partners (the “Borrower”) and Brian Woodland, individually, entered
into a $1,000,000 secured revolving line a credit with a financial institution. The Guarantor has agreed to guaranty the obligations
of the Borrower. The line of credit is securitized by the property at 7 Grove Street and as well as the personal guarantee of
Brian Woodland (See Note 7).
On
November 1, 2015 WS Advantage elected to convert its mortgage of $1,425,982 and accrued interest of $117,625 in Grove Realty into
203,711 shares of common stock ($7.58 per share).
On
August 11, 2016, Huntwicke Capital Group Inc. (F/K/A Magnolia Lane Income Fund) (the “Company”) entered into a “Magnolia
Lane Share Issuance Agreement” with a subsidiary, Butler Cabin, LLC. (“Butler”), in which the Company purchased
from Butler the remaining ownership interest (36%) of real property located at 6 Park Street, Topsfield, MA 01983 from a related
party. As consideration for the purchase, the Company agreed to issue Butler 61,396 shares of common stock of the Company valued
at $431,505 ($7.02 per share) from a related party. The Company now owns a 100% interest in 6 Park Street, Topsfield, MA 01983.
The transaction was recorded at the net asset value of the non-controlling interest on the date of acquisition.
On August 11, 2016,
the Company entered into a “Magnolia Lane Share Issuance Agreement” with Founders Circle Partners, LLC (“Founders”)
(Related Party) whereby the Company purchased from Founders a 100% interest in real property located at 36-42 Main Street, Topsfield,
MA 01983. The purchase was recorded at the historical cost of the net assets acquired for 170,831 shares of common stock valued
at $1,208,500 ($7.07 per share) of the Company from a related party.
On October 31, 2016,
the Company converted a $500,000 advance from an entity controlled by Company’s President into 71,429 shares of common stock
($7.00 per share).
On October 31, 2016,
the Company President returned to the treasury and canceled 1,115,426 shares of common stock (at par value of $.0001).
NOTE
10 – STOCKHOLDERS’ EQUITY
Common
stock
Common
Stock includes 200,000,000 shares authorized at a par value of $0.0001.
On August 11, 2016,
the Company entered into a “Magnolia Lane Share Issuance Agreement” with a subsidiary, Butler Cabin, LLC. (“Butler”),
in which the Company purchased from Butler the remaining ownership interest (36%) of real property located at 6 Park Street, Topsfield,
MA 01983. As consideration for the purchase, the Company agreed to issue Butler 61,396 shares of common stock of the Company valued
at $428,344. The Company now owns a 100% interest in 6 Park Street, Topsfield, MA 01983. The transaction was recorded at the net
asset value of non-controlling on the date of acquisition.
On August 11, 2016,
the Company entered into an agreement with Founders Circle Partners, LLC (“Founders”) whereby the Company purchased
from Founders a 100% interest in real property located at 36-42 Main Street, Topsfield, MA 01983. The purchase was recorded at
the historical cost of the net assets acquired for 170,831 shares of common stock of the Company. Below are the pro-forma financial
statements as if the Founders Circle Partners, LLC had been acquired on April 1, 2016.
The
acquisition date estimated fair value of the consideration transferred consisted of following:
Total assets acquired
|
|
$
|
1,208,123
|
|
Liabilities assumed
|
|
|
14,384
|
|
Total purchase price
|
|
$
|
1,193,739
|
|
On August 11, 2016, the Company entered
into a agreement with Founders Circle Partners, LLC whereby the Company purchased from Founders a 100% interest in real property
located at 36-42 Main Street, Topsfield, MA 01983. As consideration for the purchase, the Company agreed to issue Founders 170,831
shares of common stock of the Company valued at $1,193,739 the historical depreciated basis of the asset acquired. Founders Circle
Partners, LLC. is an entity controlled by Brian Woodland and President and Chief Financial Officer of the Company. As such, the
Company recorded the Asset at its historical cost. The effective closing date for this transaction was August 11, 2016.
|
|
Huntwicke Capital Group for the six months ended October 31,
2016
|
|
|
Founders Circle Partners, LLC from May 1,
2016 to August 11,
2016 date of acquisition
|
|
|
Pro-Forma Adjustments
|
|
|
Pro-Forma Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
174,785
|
|
|
$
|
54,250
|
|
|
$
|
-
|
|
|
$
|
229,035
|
|
Operating expenses
|
|
|
246,696
|
|
|
|
40,111
|
|
|
|
-
|
|
|
|
286,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(71,911
|
)
|
|
|
14,139
|
|
|
|
-
|
|
|
|
(57,772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
(3,846
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,846
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before provision for income taxes
|
|
|
(75,757
|
)
|
|
|
14,139
|
|
|
|
-
|
|
|
|
(61,618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
ATTRIBUTABLE TO - NON CONTROLLING INTEREST
|
|
|
(2,545
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,545
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(73,212
|
)
|
|
$
|
14,139
|
|
|
$
|
-
|
|
|
$
|
(59,073
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted shares outstanding basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,103,379
|
|
Net Loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.03
|
)
|
On
October 31, 2016, the Company converted a $500,000 advance from an entity controlled by Company’s President into 71,429 shares
of common stock ($7.00 per share).
On October 31, 2016, the Company
President returned to the treasury and canceled 1,115,426 shares of common stock (at par value of $.0001).
Preferred
stock
Preferred
stock includes 100,000,000 shares authorized at a par value of $0.0001, of which none are issued or outstanding.
On
November 12, 2015, the board of directors of the Company authorized a Certificate of Designations of Preferences, Rights and Limitations
of Series A Preferred Stock (the “Certificate of Designation”), designating
five
(5) shares of Series A Preferred stock. Each share of Series A Preferred shall: (i) have a par value of $0.0001 per share, (ii)
rank on parity with the Company's common stock and any class of series of capital stock hereafter created, and (iii) be convertible
into one share of common stock at the option of the holder until January 1, 2017 after which the right to convert to common stock
ceases. Holders of the Series A Preferred are entitled to vote on all matters submitted to the Company's stockholders and are
entitled to such number of votes as is equal to the number of shares of Series A Preferred stock such holder owns. The holders
of Series A Preferred stock are not entitled to any dividends declared by the Company, nor do such holders have any liquidation
preferences or any other asset distribution rights as it relates to the Company.
Additional
paid in Capital
During
the six months ended October 31, 2016 and 2015 the Company recorded imputed interest on stockholders’ loans of $15,127 and
$15,206, respectively.
NOTE
11 – SUBSEQUENT EVENTS
On
November 1, 2016, the Company entered into a Share Agreement with Phalanx Partners, LLC, whereby the Company issued 96,199 shares
of the Company’s common stock to Phalanx Partners, LLC. in exchange for all the interest in Huntwicke Securities LLC and
Huntwicke Advisors, LLC. The acquisition of Huntwicke Securities LLC is subject to approval by the Financial Industry Regulatory
Authority. Phalanx Partners, LLC. is owned and managed by the Company’s President.
On
November 1, 2016, the Company entered into a Share Agreement with WS Advantage LP whereby the Company issued 125,000 shares of
the Company’s common stock to WS Advantage LP in exchange for all of WS Advantage LP’s interest in Riversky Realty
LLC, which owns the property located at 17/19 Main Street, Topfield, MA. WS Advantage LP is owned and managed by the Company’s
President.
ITEM 2.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The following plan of operation provides
information which management believes is relevant to an assessment and understanding of our results of operations and financial
condition. The discussion should be read along with our financial statements and notes thereto. This section includes a number
of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking
statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or
words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements.
These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially
from our predictions.
Overview
Huntwicke Capital Group, Inc. formerly known as Magnolia Lane Income Fund (the “Company”) was
incorporated in the state of Delaware on May 12, 2009. We were formed to commence business as a stock agent in the wool trade.
On May 13, 2013, we entered into a stock purchase
agreement (the “
Stock Purchase Agreement
”) with Ian Raleigh and Michael Raleigh (the “
Sellers
”)
and Magnolia Lane Financial, Inc. (the “
Purchaser
”), whereby the Purchaser purchased from the Sellers, 10,000,000
shares of common stock, par value $0.0001 per share, of the Company (the “Shares”), representing approximately 69.57%
of the issued and outstanding shares of the Company. As a result, the Purchaser became the majority shareholder of the Company.
In connection with the Stock Purchase Agreement,
we have ceased pursuing our prior business plan and have begun focusing on our new business which is to manage and invest in real
property. Our current Chief Executive Officer and sole director, Brian Woodland, has numerous years in the real estate acquisition,
syndication and asset management business. We intend to acquire real estate in small markets with high degrees of safety to provide
income streams to our shareholders. In addition, we will develop, syndicate, manage and acquire property for capital appreciation.
In connection with this change of control and
change of business, we conducted a name change and reverse stock split. On August 1, 2013, we filed a Certificate of Amendment
to our Articles of Incorporation (the “
Amendment
”) to change its name from “Palmerston Stock Agency, Inc.”
to “Magnolia Lane Income Fund” (the “
Name Change
”) and to memorialize a 1:8 reverse stock split
(the “
Stock Split
”). The Amendment was effective as of August 1, 2013.
On August 12, 2013, the Company received approval
from the Financial Industry Regulatory Authority (“FINRA”) to effectuate the Name Change and Stock Split. FINRA
also confirmed that the new stock symbol is MIFC.
On December 23, 2013, a shareholder of ours,
Magnolia Lane Financial, entered into three separate LLC Membership Interest Purchase and Sale Agreements for the acquisition of
two limited liability companies, Grove Realty Partners, LLC and Walker Partners, LLC (the “
Acquisition Agreements
”).
Pursuant to the Acquisition Agreements, Magnolia Lane Financial acquired 100% of the equity interests in Grove Realty Partners,
LLC and Walker Partners, LLC. As consideration for the acquisition, Magnolia Lane Financial transferred 134,574 shares of our Common
Stock to WS Advantage and Phalanx Wealth Management (the “
Consideration Shares
”). For purposes of the Acquisition
Agreements, the parties valued the shares at $16.60 per share for a total purchase price of $2,233,928. Prior to this transaction,
Magnolia Lane Financial owned 1,250,000 shares of our common stock and now owns 1,115,426 shares of our common stock. WS Advantage,
LP owns 115,347 shares of our common stock and Phalanx Partners, LLC owns 19,227 shares of our common stock.
On January 16, 2014, the Company
entered into an LLC Membership Interest Purchase and Sale Agreement with Magnolia Lane Financial, Inc. (the “
Agreement
”).
Pursuant to the Agreement, we acquired all rights, title and interest to all assets of Magnolia Lane Financial, including the
assets acquired in the Acquisition Agreements, for a total purchase price of $3,000.
On October 15, 2015 the Company paid a total of $761,355 for
the purchase of 64% of Butler Cabin LLC. This entity is controlled by our President, a principal of Butler Cabin LLC.
On November 12, 2015, the Company changed domicile
from the State of Delaware to the State of Nevada by filing Articles of Domestication and Articles of Incorporation with the Secretary
of State of Nevada.
On August 11, 2016, the Company entered into share issuance agreement with a subsidiary, Butler Cabin, LLC.
(“Butler”), in which the Company purchased from Butler the remaining ownership interest (36%) of real property located
at 6 Park Street, Topsfield, MA 01983. As consideration for the purchase, the Company agreed to issue Butler 61,396 shares of common
stock of the Company. The Company now owns a 100% interest in 6 Park Street, Topsfield, MA 01983. The transaction was recorded
at the net asset value of the on the date of acquisition.
On August 11, 2016, the Company entered into a share issuance agreement with Founders Circle Partners, LLC
(“Founders”) whereby the Company purchased from Founders a 100% interest in real property located at 36-42 Main Street,
Topsfield, MA 01983. The purchase was recorded at the historical cost of the net assets acquired for 170,831 shares of common stock
of the Company.
On September 19, 2016,
the Company filed a Certificate of Amendment to its Articles of Incorporation to change the name of the Company from “Magnolia
Lane Income Fund” to “Huntwicke Capital Group Inc.” (the “
Name Change
”).
On September 19, 2016, the Company filed the
Name Change and a request for a ticker symbol change with the Financial Industry Regulatory Authority (“
FINRA
”).
On September 23, 2016, FINRA announced the Name Change and the ticker symbol of the Company changed from “MIFC” to
“HCGI”.
On November 1, 2016, the Company
entered into a Share Agreement with Phalanx Partners, LLC, whereby the Company issued 96,199 shares of the Company’s common
stock to Phalanx Partners, LLC. in exchange for all the interest in Huntwicke Securities LLC and Huntwicke Advisors, LLC. The
acquisition of Huntwicke Securities LLC is subject to approval by the Financial Industry Regulatory Authority. Phalanx Partners,
LLC. is owned and managed by the Company’s President.
On November 1, 2016, the Company entered into
a Share Agreement with WS Advantage LP whereby the Company issued 125,000 shares of the Company’s common stock to WS Advantage
LP in exchange for all of WS Advantage LP’s interest in Riversky Realty LLC, which owns the property located at 17/19 Main
Street, Topfield, MA. WS Advantage LP is owned and managed by the Company’s President.
Our Operating Strategy
Our business plan is focused on managing real
property. Specifically, we intend to acquire real estate in small markets with high degrees of safety to provide income streams
to our shareholders. In addition, we will develop, syndicate, manage and acquire property for capital appreciation.
On December 23, 2013, a shareholder of ours,
Magnolia Lane Financial, entered into three separate LLC Membership Interest Purchase and Sale Agreements for the acquisition of
two limited liability companies, Grove Realty Partners, LLC and Walker Partners, LLC (the “
Acquisition Agreements
”).
Pursuant to the Acquisition Agreements, Magnolia Lane Financial acquired 100% of the equity interests in Grove Realty Partners,
LLC and Walker Partners, LLC. As consideration for the acquisition, Magnolia Lane Financial transferred 134,574 shares of our Common
Stock to WS Advantage and Phalanx Wealth Management (the “
Consideration Shares
”). For purposes of the Acquisition
Agreements, the parties valued the shares at $16.60 per share for a total purchase price of $2,233,928. Prior to this transaction,
Magnolia Lane Financial owned 1,250,000 shares of our common stock and now owns 1,115,426 shares of our common stock. WS Advantage,
LP owns 115,347 shares of our common stock and Phalanx Partners, LLC owns 19,227 shares of our common stock.
On January 16, 2014, the Company
entered into an “LLC Membership Interest Purchase and Sale Agreement” with Magnolia Lane Financial, Inc. (the “
Agreement
”).
Pursuant to the Agreement, we acquired all rights, title and interest to all assets of Magnolia Lane Financial, including the
assets acquired in the Acquisition Agreements, for a total purchase price of $3,000.
On August 11, 2016, the Company
entered into a “Magnolia Lane Share Issuance Agreement” with a subsidiary, Butler Cabin, LLC. (“Butler”),
in which the Company purchased from Butler the remaining ownership interest (36%) of real property located at 6 Park Street, Topsfield,
MA 01983 from a related party. As consideration for the purchase, the Company agreed to issue Butler 61,396 shares of common stock
of the Company valued at $431,050. The Company now owns a 100% interest in 6 Park Street, Topsfield, MA 01983.
On August 11, 2016, the Company entered into a “Magnolia Lane Share Issuance Agreement” with Founders
Circle Partners, LLC (“Founders”) whereby the Company purchased from Founders a 100% interest in real property located
at 36-42 Main Street, Topsfield, MA 01983. The purchase was recorded at the historical cost of the net assets acquired for 170,831
shares of common stock.
As of October 31, 2016, real
estate that we, through our subsidiaries, owned consisted of four properties:
7 Grove Street, Topsfield, Ma 01983
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Description: 12,000 Square foot, Business Office, Retail and Professional Space
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Status: Rented at 100% occupancy. Lease term: 3-Year
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Owner: Grove Realty Partners, LLC
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Purchase Price: $2.025 million
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Mortgage Debt: On November 1, 2015, WS Advantage elected to convert its mortgage of $1,425,982 and accrued interest of $117,625 in Grove Realty into 203,711 shares of common stock ($7.58 per share)
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58 Main Street, Topsfield, Ma 01983
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Description: 4,000 Square foot, Commercial Building
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Status: Rented 100% occupancy. Lease term: 3-Year
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Owner: Walker Partners, LLC
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Purchase Price: $503,000
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Mortgage Debt as of October 31, 2016 and April 30, 2016: $516,342 and $525,322, respectively
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6 Park St., Topsfield, Ma 01983
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Description: 4,500 Square foot, Business Office, Retail and Professional Space
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Status: Rented at 70% occupancy. Lease term: Monthly
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Owner: Butler Cabin, LLC
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Purchase Price: $1.19 million
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36-42 Main Street, Topsfield, MA 01983
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Description: 8000 Square foot, Business Office, Retail and Professional Space
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Status: Rented at 100% occupancy. Lease term: Monthly
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Owner: Founders Circle Partners, LLC
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The Company issued a total of 170,831 shares of common stock valued at the historical cost of the assets acquired of $1,193,739
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Limited Operating History
We have only begun generating modest revenue,
have a limited financial history and have limited capital. Our business is subject to risks inherent in growing an enterprise,
including limited capital resources and possible rejection of our business model and/or sales methods.
Going Concern
The ability of the Company to continue as a
going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenues.
The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going
concern.
Management believes that the actions presently being taken to further implement its business plan and generate revenues
provide the opportunity for the Company to continue as a going concern.
Results of Operations
For the three months ended October 31,
2016 and 2015
Revenue
Our rental revenue for the three months
ended October 31, 2016 was $96,417 as compared to $64,017 in revenue for the three months ended October 31, 2015. The increase
of $32,400 was primarily due to the Company’s purchase of Butler Cabin LLC and Founders Circle Partners, LLC which resulted
in increased rental revenue.
Operating Expense
Operating expenses for the three months ended October 31, 2016 totaled $126,371, a decrease of $28,749 as
compared with operating expenses of $155,120 for the three-month period ended October 31, 2015. This decrease was due mainly to
reduced professional fees and interest expense. Our operating expenses for the three months ended October 31, 2016 consisted of
$26,872 in operating costs, $32,698 in professional fees, $10,628 in repairs and maintenance, $40,938 in depreciation and $15,235
in interest expense.
Net Loss
During the three months ended October
31, 2016 and 2015, we incurred a net loss of $33,639 and $89,695 respectively, a decrease of $56,056. This decrease was due mainly
to increased rental revenue.
For the six months ended October 31, 2016 and 2015
Revenue
Revenues were $174,785 for the six
months ended October 31, 2016 as compared to $126,835 in revenue for the six months ended October 31, 2015, an increase in revenue
of $47,950. This increase was primarily due to the Company’s purchase of Butler Cabin LLC and Founders Circle Partners,
LLC which resulted in increased rental revenue.
Operating Expense
Operating expenses for the six months ended October 31, 2016 totaled $246,696, a decrease of $22,233 as compared
with operating expenses of $268,929 for the six month period ended October 31, 2015. This decrease was due mainly to reduced professional
fees and interest expense. Our operating expenses for the six months ended October 31, 2016, consisted of $40,821 in operating
costs, $64,509 in professional fees, $16,669 in repairs and maintenance, $87,767 in depreciation and $36,930 in interest expense.
Net Loss
During the six months ended October 31, 2016 and 2015, we incurred a net loss of $75,757 and $133,586, respectively,
a decrease of $57,829. Increased rental revenue due to the Company’s purchase of Butler Cabin LLC and Founders Circle Partners,
LLC as well as reduced professional fees and interest expense.
Capital Resources and Liquidity
As of October 31, 2016 we had $241,994
cash on hand and net cash provided by operating activities of $12,730. Management believes our increasing cash provided by our
secured line of credit and the availability of loans from related parties will be adequate to sustain our operations at the current
level for the next twelve months. Should we not be able to meet our current financial needs, the Company will seek alternative
methods of financing, such as issuing convertible debt or introducing additional shares of its common stock into the market.
Net cash provided by operating
activities was $12,730 for the six months ended October 31, 2016 as compared to net cash used in by operating activities of $51,043
for the six October 31, 2015, reflecting a decrease in our net loss which was partially offset by increases accounts receivable
and security deposits.
Net cash used in investing activities
was $470,835 for the six months ended October 31, 2016 and reflects amounts used for investments in securities of $490,000 and
advances for acquisitions of $64,146 which was partial offset by cash acquired from non controlling interest of $83,111. Net cash
used in investing activities was $764,930 for the six months ended October 31, 2015 and reflects monies paid for the membership
interest in Butler Cabin, LLC of $1,191,126 in which was partially offset by cash acquired from the non controlling interest of
$429,363.
Net cash provided by financing activities amounted to $491,020
for the six months ended October 31, 2016, and reflects proceeds from a shareholder loan of $500,000, which was partially offset
by cash overdraft fees of $8,980. Net cash used in financing activities amounted to $805,836 for the six months ended October
31, 2015, and reflects proceeds from a line of credit of $760,355, advances from shareholders of $52,419 which was partially offset
by mortgage repayments of $8,474.
Our principal sources of liquidity include cash from rental revenue
bank
loans, credit facilities, sales of common stock. and loans from shareholders to cover mortgage obligations.
Mortgage Obligations
58 Main Street
On January 16, 2014, the Company assumed a
mortgage note payable to a third-party, unrelated to the seller, on a property located at 58 Main Street, Topsfield, Massachusetts. The
note bears interest at 7.875% per annum and is due August 26, 2019. Monthly principal and interest payments totaling $4,435 started
on September 26, 2009 and will continue through the maturity date. The mortgage note is secured by the underlying property. At
maturity, the balloon payment of $481,454 will be due in full. The remaining principal balance as of October 31, 2016 and April
30, 2016 is $516,342 and $525,322, respectively.
7 Grove Street
On January 16, 2014, the Company assumed
a mortgage note payable to a third-party, unrelated to the seller, on a property located at 7 Grove Street, Topsfield, Massachusetts.
The note bore interest at 7.9 % per annum and was scheduled to mature on September 5, 2032. Monthly payments of $17,775 started
on October 5, 2008. The mortgage note was secured by the property. At maturity, the balloon payment was to be due in full.
On April 12, 2014, the mortgage note payable on the property at 7 Grove Street was paid in full by its majority
shareholder. On that same date, a new mortgage payable was established between the Company and its majority shareholder for an
amount equal to the balance that was remaining on the original mortgage. The new related party mortgage payable began on April
12, 2014 and is a 5-year fixed loan at 5.5% interest, with a balloon payment on May 15, 2019 for the outstanding balance. Interest
only payments until maturity began on May 15, 2014 in the amount of $6,536.
On November 1, 2015, WS Advantage elected to
convert its mortgage of $1,425,982 and accrued interest of $117,625 in Grove Realty into 203,711 shares of common stock ($7.58
per share).
SECURED LINE OF CREDIT
On October 14, 2015, Grove
Realty Partners (the “Borrower”) and Brian Woodland, individually, entered into a $1,000,000 secured revolving line
a credit with a financial institution. The Guarantor has agreed to guaranty the obligations of the Borrower. The line of credit
is securitized by the property at 7 Grove Street and as well as the personal guarantee of Brian Woodland.
The revolving line of credit note (hereinafter
referred to as the “Note”), made by the Borrower and payable to the order of the bank, at the initial per annum rate
of 265 basis points above LIBOR (3.086% as of April 30, 2016), floating for two (2) years. The Note shall provide for monthly payments
of interest only for the first two (2) years of the term. Thereafter, the Note shall for the next five (5) years of the Loan term
provide for monthly payments of principal and interest based upon the 5/15 Federal Home Loan Bank Rate plus 200 basis points. Monthly
payments of principal and interest shall be made based upon a 25-year amortization schedule, with a final payment of the unpaid
principal balance, interest, fees and late charges, if any, due on October 14, 2022.
As of October 31, 2016 and April 30, 2016 the
Company has drawn down a total of $956,113 and $956,113 and recorded accrued interest of $2,627 and $2,465, respectively.
Related Party Transactions
From time to time, the Company receives loans
and advances from Phalanx Partners and WS Advantage LP for working capital purposes. Phalanx Partners and WS Advantage LP
formerly held equity interests in Grove Realty Partners, LLC and Walker Partners, LLC and are currently controlled by the Company’s
president and are shareholders.
An aggregate of $511,452 has
been received from related parties for working capital purposes and debt and expenses paid on the Company’s behalf. These
advances are interest-free and payable upon demand. During the three and six month ended October 31, 2016 and 2015 the Company
imputed interest expense of $7,524, $15,127, $7,603 and $15,206, respectively.
During the three
and six months ended October 31, 2016 and 2015 revenue included $18,000. $36,000, $9,000 and $18,000, respectively, in rental income
from Phalanx Partners who is owned by our Principal and Shareholder, who occupies an office in one of the Company’s properties.
During the three
and six months ended October 31, 2016 a 36% and 83% owner in Founders Circle paid us rental income of $3,750 and $7,500, respectively.
On October 14, 2015, Grove
Realty Partners (the “Borrower”) and Brian Woodland, individually, entered into a $1,000,000 secured revolving line
a credit with a financial institution. The Guarantor has agreed to guaranty the obligations of the Borrower. The line of credit
is securitized by the property at 7 Grove Street and as well as the personal guarantee of Brian Woodland (See Note 7).
On November 1, 2015
WS Advantage elected to convert its mortgage of $1,425,982 and accrued interest of $117,625 in Grove Realty into 203,711 shares
of common stock ($7.58 per share).
On August 11, 2016, the
Company entered into a “Magnolia Lane Share Issuance Agreement” with a subsidiary, Butler Cabin, LLC.
(“Butler”), in which the Company purchased from Butler the remaining ownership interest (36%) of real property
located at 6 Park Street, Topsfield, MA 01983 from a related party. As consideration for the purchase, the Company agreed to
issue Butler 61,396 shares of common stock of the Company valued at $431,505 ($7.02 per share) from a related party. The
Company now owns a 100% interest in 6 Park Street, Topsfield, MA 01983. Butler is owned and controlled by the
Company’s President.
On August 11, 2016, the Company entered into
a “Magnolia Lane Share Issuance Agreement” with Founders Circle Partners, LLC (“Founders”) whereby the
Company purchased from Founders a 100% interest in real property located at 36-42 Main Street, Topsfield, MA 01983. The purchase
was recorded at the historical cost of the net assets acquired for 170,831 shares of common stock valued at $1,208,500. Founders
is owned and controlled by the Company’s President.
On October 31, 2016, the Company converted a
$500,000 advance from an entity controlled by Company’s President into 71,429 shares of common stock.
On October 31, 2016, the Company President returned to the treasury and canceled 1,115,426 shares of common
stock.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02,
Leases
, which will amend current lease accounting to require lessees to recognize (i) a lease liability, which is a lessee’s
obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use asset, which is
an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02
does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align,
where necessary, lessor accounting with the lessee accounting model. This standard will be effective for fiscal years beginning
after December 15, 2018, including interim periods within those fiscal years. We are currently reviewing the provisions of this
ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.
In March 2016, the FASB issued ASU 2016-09,
Compensation –
Stock Compensation: Improvements to Employee Share-Based Payment Accounting
, which relates to the accounting for employee share-based
payments. This standard addresses several aspects of the accounting for share-based payment award transactions, including: (a)
income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement
of cash flows. This standard will be effective for fiscal years beginning after December 15, 2016, including interim periods within
those fiscal years. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results
of operations, cash flows or financial condition.
In April 2016, the FASB issued ASU 2016–10 Revenue from Contract
with Customers (Topic 606): identifying Performance Obligations and Licensing. The amendments in this Update do not change the
core principle of the guidance in Topic 606. Rather, the amendments in this Update clarify the following two aspects of Topic 606:
identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those
areas. Topic 606 includes implementation guidance on (a) contracts with customers to transfer goods and services in exchange for
consideration and (b) determining whether an entity’s promise to grant a license provides a customer with either a right
to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s
intellectual property (which is satisfied over time). The amendments in this Update are intended render more detailed implementation
guidance with the expectation to reduce the degree of judgement necessary to comply with Topic 606. We are currently reviewing
the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.
Critical Accounting Policies and Estimates
Rental Property, Net
Rental property assets are stated at cost less
accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful lives of the asset.
We capitalize replacements and improvements,
such as HVAC equipment, structural replacements, windows, appliances, flooring, carpeting and renovations. Ordinary repairs and
maintenance, such as unit cleaning, painting and appliance repairs, are expensed when incurred.
Asset
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Useful Life
(in years)
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Building
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30 years
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Land
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Indefinite
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Building Improvements
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30 years
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Impairment of Real Estate Investments
The Company assesses on a regular basis whether
there are any indicators that the carrying value of rental property assets may be impaired. Potential indicators may include an
increase in vacancy at a property, tenant reduction in utilization of a property, tenant financial instability and the potential
sale of the property in the near future. An asset is determined to be impaired if the asset’s carrying value is in excess
of its estimated fair value.
Going Concern
At October 31, 2016, we had an accumulated deficit
of $780,306 and incurred a net loss of $2,862,328 for the six-month period ended October 31, 2016. We expect to incur
further losses in the development of our business, all of which casts substantial doubt about our ability to continue as a going
concern. Our ability to continue as a going concern is dependent upon our ability to generate future profitable operations and/or
to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when
they come due.
We have generated minimal revenues and have incurred losses since inception. Accordingly, we will be dependent
on future additional financing in order to finance operations and growth.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements.