NOTE

— SIGNIFICANT ACCOUNTING POLICIES

Our significant accounting policies are detailed in

“Note

- Summary of Significant Accounting Policies"

in our Annual Report on Form

-K for the fiscal year ended

December

31,

2017.

Redeemable Convertible Preferred Stock

During the

six

months ended

June 30, 2018,

the Company issued redeemable convertible preferred stock. The preferred stock is convertible into common stock on a

one

-to-

one

basis, and is redeemable

five

years from the issuance date at the option of the holder for a redemption price of

145%

of the original purchase price of the preferred stock. The preferred stock is reported in the mezzanine equity section of the accompanying consolidated balance sheets. Since the preferred stock does

not

have a mandatory redemption date (rather it is at the option of the holder), under applicable accounting guidance, the Company elected to amortize the redemption premium over the

five

year redemption period using the effective interest method and recording this as a deemed dividend, rather than recording the entire accretion of the redemption premium as a deemed dividend upon issuance of the preferred stock. The Company is required to assess whether the preferred stock is redeemable at each reporting period.

Perpetual Preferred Stock

As described in Note

11,

the Company issued

22,000

shares perpetual preferred stock to Chase Funding during the

six

months ended

June 30, 2018.

While the perpetual preferred stock ranks senior to all other classes or series of shares of preferred or common stock, is does

not

have voting rights, is

not

convertible to common stock and has

stated redemption date. After

five

years, the holder of these shares has call rights to require the Company to redeem all of the shares at the redemption price. However, since the perpetual preferred stock maintains characteristics of both debt and equity as of the reporting date, such preferred stock has been presented in the mezzanine equity section of the accompanying condensed consolidated balance sheets in accordance with GAAP.

Derivative Instruments and Hedging

We occasionally use interest rate derivatives to mitigate our risks against rising variable interest rate debts. Our interest rate derivatives currently consist of

one

interest rate cap which is

not

designated as a hedge. As such, this derivative is recorded at fair value in accordance with the applicable authoritative accounting guidance. Interest rate derivatives are reported as other assets in the accompanying condensed consolidated balance sheets. Changes in the fair value of interest rate derivatives, are recognized in earnings as unrealized gain (loss) on derivatives in the accompanying condensed consolidated statements of operations.

Revenue Recognition

In the

first

quarter of

2018,

the Company implemented ASU

2014

09.

Revenue is measured based on a consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. ASU

2014

defines a

five

-step process to achieve this core principle.

Mortgage Investment Revenue Recognition

Interest on mortgage loans is recognized as revenue when earned using the interest method based on a

360

365

day year, in accordance with the related mortgage loan terms. We do

not

recognize interest income on loans once they are deemed to be impaired and placed in non-accrual status. Generally, a loan is placed in non-accrual status when it is past its scheduled maturity by more than

days, when it becomes delinquent as to interest due by more than

days or when the related fair value of the collateral is less than the total principal, accrued interest and related costs. We

may

determine that a loan, while delinquent in payment status, should

not

be placed in non-accrual status in instances where the fair value of the loan collateral significantly exceeds the principal and the accrued interest, as we expect that income recognized in such cases is probable of collection. Unless and until we have determined that the value of underlying collateral is insufficient to recover the total contractual amounts due under the loan term, generally our policy is to continue to accrue interest until the loan is more than

days delinquent with respect to accrued, uncollected interest or more than

days past scheduled maturity, whichever comes first. Mortgage loans classified as held for sale are recorded on the lower of carrying value or fair value less cost to sell.

We defer fees for loan originations, processing and modifications, net of direct origination costs, at origination and amortize such fees as an adjustment to interest income using the effective interest method. Revenue for non-refundable commitment fees is recognized over the remaining life of the loan as an adjustment to the interest income yield.

We defer premiums or discounts arising from acquired loans at acquisition and amortize such premiums or discounts as an adjustment to interest income over the contractual term of the related loan using the effective interest method. We include the unamortized portion of the premium or discount as a part of the net carrying value of the loan on the condensed consolidated balance sheets. Costs

not

directly paid to the seller of the loan are expensed as incurred and

not

amortized, except for any fees paid directly to the seller.

The significant accounting policies that have changed as a result of the adoption of ASU

2014

are set forth below.

Hotel Revenues

We identified the following performance obligations in connection with our hotel revenues, for which revenue is recognized as the respective performance obligations are satisfied, which results in recognizing the amount we expect to be entitled to for providing the goods or services:

• Cancellable room reservations or ancillary services are typically satisfied as the good or service is transferred to the hotel guest, which is generally when the room stay occurs.

• Noncancellable room reservations and banquet or conference reservations represent a series of distinct goods or services provided over time satisfied as each distinct good or service is provided, which is reflected by the duration of the room reservation.

• Material rights for free or discounted goods or services are satisfied at the earlier point in time when the material right expires or the underlying free or discounted good or service is provided to the hotel guest.

• Other ancillary goods and services are purchased independently of the room reservation at standalone selling prices and are considered separate performance obligations, which are satisfied when the related good or service is provided to the hotel guest.

• Components of package reservations for which each component could be sold separately to other hotel guests are considered separate performance obligations and are satisfied as set forth above.

Hotel revenues primarily consist of hotel room rentals, food and beverage sales, and other ancillary goods and services. Revenue is recognized when rooms are occupied or goods and services have been delivered or rendered, respectively. Payment terms typically align with when the goods and services are provided.

Although the transaction prices of room rentals, goods and other services are generally fixed and based on the respective room reservation or other agreement, an estimate to reduce the transaction price is required if a discount is expected to be provided to the customer. For corporate customers, the hotel offers discounts on goods and services sold in package reservations, and the corresponding transaction price is allocated to the performance obligations within the package based on the estimated standalone selling prices of each component. On occasion, the hotel

may

also provide the customer with a material right to a free or discounted good or service in conjunction with a room reservation or banquet contract. These material rights are considered separate performance obligations to which a portion of the transaction price is allocated based on the estimated standalone selling prices of the good or service, adjusted for the likelihood the hotel guest will exercise the right.

Funds Held by Lender and Restricted Cash

Funds held by lender and restricted cash includes amounts maintained in escrow or other restricted accounts deposited into reserve accounts held by lenders for contractually specified purposes, which includes property taxes, insurance, and interest reserves. The following table provides a reconciliation of cash, cash equivalents, and funds held by lender and restricted cash reported within the condensed consolidated balance sheet that sum to the total of the same such amounts shown in the condensed consolidated statement of cash flows as of

June 30, 2018

and

December

31,

2017

(in thousands):

	June 30,		June 30,		December 31,
	2018		2017		2017
Cash and cash equivalents	$	30,098	$	40,164	$	11,789
Funds held by lender and restricted cash		308		611		143
Total cash, cash equivalents, and restricted cash	$	30,406	$	40,775	$	11,932

Recent Accounting Pronouncements

Adopted Accounting Standards

May 2014,

the FASB issued ASU

2014

09.

This ASU supersedes the revenue recognition requirements in Revenue Recognition (Topic

605

) and requires entities to recognize revenue when a customer obtains control of promised goods or services and in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. Subsequent to ASU

2014

09,

the FASB issued several related ASUs to clarify the application of the new revenue recognition standard, collectively referred to herein as ASU

2014

09.

We adopted this standard effective

January 1, 2018,

under the modified retrospective method, and the adoption of this standard did

not

have a material impact on our consolidated financial statements. See related disclosures in Note

January 2016,

the FASB issued ASU

2016

01,

Recognition and Measurement of Financial Assets and Financial Liabilities

(Subtopic

825

), which requires all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments in this update also require an entity to present separately in other comprehensive income, the portion of the total change in the fair value of a liability resulting from a change in the instrument specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments in this update require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after

December 15, 2017.

We adopted this standard effective

January 1, 2018.

The adoption of this standard did

not

have a material impact on our consolidated financial statements and related disclosures.

August 2016,

the FASB issued ASU

2016

15,

Statement of Cash Flows

(Topic

230

Classification of Certain Cash Receipts and Cash Payments

(“ASU

2016

15”

), which is intended to address diversity in practice related to how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in ASU

2016

address

eight

specific cash flow issues as well as application of the predominance principle (dependence on predominant source or use of receipt or payment) and are effective for public business entities for fiscal years beginning after

December 15, 2017

and interim periods within those fiscal years with early adoption permitted. ASU

2016

requires retrospective adoption unless it is impracticable to apply, in which case it is to be applied prospectively as of the earliest date practicable. We adopted the requirements of ASU

2016

which had

significant impact on the consolidated financial statements.

November 2016,

the FASB issued ASU

2016

18,

Statement of Cash Flows

(Topic

230

Restricted Cash

(“ASU

2016

18”

), which provides guidance on the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. In accordance with ASU

2016

18,

restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning of period and end of period amounts shown on the statements of cash flows. The amendments of ASU

2016

are effective for reporting periods beginning after

December 15, 2017,

with early adoption permitted. We adopted the requirements of ASU

2016

which resulted in a change in the presentation of the statement of cash flows. The Company’s statement of cash flows for the

six

months ended

June 30, 2017

has been retroactively restated for the effect of adopting this ASU, adding approximately

$2.2

million to the beginning of the period cash, cash equivalents, and restricted cash and approximately

$0.6

million to the end of the period cash, cash equivalents, and restricted cash. The reclassification resulted in an increase to cash, cash equivalents, and restricted cash used in operating activities by

$1.4

million and a decrease to cash, cash equivalents, and restricted cash provided by investing activities by

$0.2

million. The preceding table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown on the condensed consolidated statement of cash flows.

January 2017,

the FASB issued ASU

2017

01,

Business Combinations

(Topic

805

Clarifying the Definition of a Business

(“ASU

2017

01”

), which clarifies the definition of a business by adding guidance to assist entities in evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. For public companies, ASU

2017

is effective for fiscal years beginning after

December 15, 2017,

including interim periods within those periods. We adopted this standard effective

January 1, 2018.

Under the new standard, certain future acquisitions

may

be considered asset acquisitions rather than business combinations, which would affect capitalization of acquisitions costs (such costs are expensed for business combinations and capitalized for asset acquisitions).

February 2017,

the FASB issued ASU

2017

05,

Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets

(Subtopic

610

): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets

(ASU

“2017

05”

), which clarifies the scope of ASC Subtopic

610

20,

Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets and adds guidance for partial sales of nonfinancial assets. ASU

2017

is effective for fiscal years beginning after

December 15, 2017.

Early adoption is permitted. An entity

may

elect to apply ASU

2017

under a retrospective or modified retrospective method. We adopted this standard effective

January 1, 2018,

under the modified retrospective method. The adoption of this standard did

not

have a material impact on our consolidated financial statements and related disclosures.

May 2017,

the FASB issued ASU

2017

09,

Compensation-Stock Compensati

on (Topic

718

) . The ASU provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. ASU

2017

does

not

change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions or award classification and would

not

be required if the changes are considered non-substantive. The amendments of this ASU are effective for reporting periods beginning after

December 15, 2017,

with early adoption permitted. We adopted this standard effective

January 1, 2018.

The adoption of this standard did

not

have a material impact on our consolidated financial statements and related disclosures.

March 2018,

the FASB issued ASU

2018

05,

Income Taxes

(Topic

740

Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin

No.

118

. This ASU codifies existing SEC guidance contained in SEC Staff Accounting Bulletin

No.

118

(SAB

118

), which expresses the view of the staff regarding application of existing guidance for the accounting for income taxes as it relates to the enactment of the Tax Cuts and Jobs Act (the “Tax Act”) which was signed into law in the

fourth

quarter of

2017.

In accordance with ASU

2018

05,

the Company has recorded provisional estimates for the accounting impacts of the Tax Act, including the transition tax, deferred tax remeasurements, and other items, due to the uncertainty regarding how these provisions are to be implemented and additional anticipated forthcoming guidance. Management has completed the analysis of the impacts of the Tax Act and we adopted ASU

2018

05,

which had

impact to the consolidated financial statements during

2018.

July 2017,

the FASB issued ASU

2017

11,

Earnings Per Share

(Topic

260

Distinguishing Liabilities from Equity

(Topic

480

) and

Derivatives and Hedging

(Topic

815

): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception, (“ASU

2017

11”

). Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic

480,

Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do

not

have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after

December 15, 2018.

We adopted this standard effective

January 1, 2018.

The adoption of this standard did

not

have a material impact on our consolidated financial statements and related disclosures.

Accounting Standards

Not

Yet Adopted

February 2016,

the FASB issued ASU

2016

02,

Leases

. This new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than

months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU

2016

is effective for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is continuing to evaluate the impact that this new guidance will have on its consolidated financial statements and related disclosures

June 2016,

the FASB issued ASU

2016

13,

Financial Instruments-Credit Losses

. The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. For public companies, this update will be effective for interim and annual periods beginning after

December 15, 2019.

We have

not

yet determined the impact the adoption of ASU

2016

will have on the Company’s consolidated financial statements and related disclosures.

January 2017,

the FASB issued ASU

2017

04,

Simplifying the Test for Goodwill Impairment

(“ASU

2017

04”

)

which simplifies the current

two

-step goodwill impairment test by eliminating Step

of the test. The guidance requires a

one

-step impairment test in which an entity compares the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any. This guidance is effective for fiscal years beginning after

December 15, 2019

and interim periods within those fiscal years, and should be applied on a prospective basis. Early adoption is permitted for the interim or annual goodwill impairment tests performed on testing dates after

January 1, 2017.

The Company is currently evaluating the impact of the adoption of this guidance on its financial statements and related disclosures.

June 2018,

the FASB issued ASU

2018

07,

Stock Compensation - Improvements to Nonemployee Share-Based Payment Accounting

(“ASU

2018

07”

), which intended to simplify nonemployee share-based payment accounting. This new guidance will more closely align the accounting for share-based payment awards issued to employees and nonemployees. This guidance is effective for fiscal years beginning after

December 15, 2018

and for interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this guidance on its financial statements and related disclosures.