UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to ___________
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| (Address of principal executive offices) | (Zip Code) |
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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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. Yes ☐
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
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the 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 | ☐ | Accelerated filer | ☐ |
| ☒ | 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.
Indicate
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There is no public market for the registrant’s outstanding membership interests. As of November 18, 2022, there were membership interests issued and outstanding.
Table of Contents
| 2 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report includes “forward-looking statements” within the meaning of the federal securities laws that involve risks and uncertainties. Forward-looking statements include statements we make concerning our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs and other information that is not historical information. When used in this quarterly report, the words “estimates,” “expects,” “anticipates,” “projects,” “forecasts,” “plans,” “intends,” “believes,” “foresees,” “seeks,” “likely,” “may,” “might,” “will,” “should,” “goal,” “target” or “intends” and variations of these words or similar expressions (or the negative versions of any such words) are intended to identify forward-looking statements. All forward-looking statements are based upon information available to us on the date of this quarterly report.
These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of our control, that could cause actual results to differ materially from the results discussed in the forward-looking statements. These risks and uncertainties are discussed in the “Risk Factors” section of our annual report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission on March 24, 2022, as the same may be updated from time to time.
All forward-looking statements attributable to us in this quarterly report apply only as of the date of this quarterly report and are expressly qualified in their entirety by the cautionary statements included in this quarterly report. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to publicly update or revise forward-looking statements to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events, except as required by law.
| 3 |
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
iCap Vault 1, LLC
Condensed Consolidated Balance Sheets
| September 30, 2022 (Unaudited) | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Accrued rents and accounts receivable | ||||||||
| Related party receivables | ||||||||
| Prepaid expenses | ||||||||
| Affiliated notes receivable | ||||||||
| Investment properties, net | ||||||||
| Intangible assets, net | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND MEMBER’S DEFICIT | ||||||||
| Liabilities: | ||||||||
| Private placement notes | $ | $ | ||||||
| Related party private placement notes | ||||||||
| Public demand notes | ||||||||
| Notes payable, net | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Related party payables | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and contingencies (Note 9) | ||||||||
| Member’s deficit | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND MEMBER’S DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
iCap Vault 1, LLC
Condensed Consolidated Statements of Operations (Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| REVENUE | ||||||||||||||||
| Interest income — related party | $ | $ | $ | $ | ||||||||||||
| Rental income | ||||||||||||||||
| Other | ||||||||||||||||
| Total revenue | ||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Management fee expense—related party | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| INCOME (LOSS) FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ||||||||||
| OTHER EXPENSES, NET | ||||||||||||||||
| Interest expense—related party | ||||||||||||||||
| Interest expense, net | ||||||||||||||||
| Total other expenses, net | ||||||||||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per membership unit | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of membership units outstanding | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
iCap Vault 1, LLC
Condensed Consolidated Statements of Member’s Deficit (Unaudited)
Three Months Ended September 30, 2022 and 2021
| Total | ||||
| Balance at July 1, 2022 – units issued and outstanding | $ | ( | ) | |
| Net loss | ( | ) | ||
| Member’s deficit balance at September 30, 2022 – units issued and outstanding | $ | ( | ) | |
| Total | ||||
| Balance at July 1, 2021 – units issued and outstanding | $ | ( | ) | |
| Net loss | ( | ) | ||
| Member’s deficit balance at September 30, 2021 – units issued and outstanding | $ | ( | ) |
Nine Months Ended September 30, 2022 and 2021
| Total | ||||
| Balance at January 1, 2022 – units issued and outstanding | $ | ( | ) | |
| Net loss | ( | ) | ||
| Member’s deficit balance at September 30, 2022 – units issued and outstanding | $ | ( | ) | |
| Total | ||||
| Balance at January 1, 2021 – units issued and outstanding | $ | ( | ) | |
| Investment acquisition (Note 4) | ( | ) | ||
| Net loss | ( | ) | ||
| Member’s deficit balance at September 30, 2021 – units issued and outstanding | $ | ( | ) | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
iCap Vault 1, LLC
Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Reinvestment of interest on private placement notes | ||||||||
| Reinvestment of interest on related party private placement notes | ||||||||
| Reinvestment of interest on public demand notes | ||||||||
| Accrued interest earned on affiliated notes receivable | ( | ) | ( | ) | ||||
| Depreciation expense | ||||||||
| Amortization of debt issuance costs | ||||||||
| Amortization of rent-related intangibles and below market rent | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accrued rents and accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expenses | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Related party payables | ||||||||
| Deferred rent | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of investment property | ( | ) | ( | ) | ||||
| Issuance of affiliated notes receivable | ( | ) | ( | ) | ||||
| Proceeds from repayment of related party receivables | ||||||||
| Repayment of related party receivables | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from the issuance of private placement notes | ||||||||
| Proceeds from the issuance of related party private placement notes | ||||||||
| Proceeds from the issuance of public demand notes | ||||||||
| Repayments of private placement notes | ( | ) | ( | ) | ||||
| Repayments of related party private placement notes | ( | ) | ( | ) | ||||
| Repayment of public demand notes | ( | ) | ( | ) | ||||
| Notes payable debt issuance costs | ( | ) | ||||||
| Proceeds from notes payable | ||||||||
| Net cash provided by financing activities | ||||||||
| Net (decrease) increase in cash and restricted cash | ( | ) | ||||||
| Cash and restricted cash at beginning of period | ||||||||
| Cash and restricted cash at end of period | $ | $ | ||||||
| Reconciliation of cash and restricted cash - beginning of period | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Total | $ | $ | ||||||
| Reconciliation of cash and restricted cash - end of period | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Total | $ | $ | ||||||
| Supplemental disclosure | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Non-cash investing and financing activities | ||||||||
| Affiliated note receivable credited upon acquisition of investment property | $ | $ | ||||||
| Issuances and redemptions of private placement and public demand notes* | $ | $ | ||||||
| * |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 7 |
iCap Vault 1, LLC
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1. Nature of Business
iCap Vault 1, LLC (the “Company”), a Delaware limited liability company, was formed on July 30, 2018 pursuant to and in accordance with the Delaware Limited Liability Company Act for the purpose of acquiring real estate investments in the United States and providing a rate of return to its investors. The Company was organized for the principal purposes of (a) sourcing, acquiring, financing and managing a portfolio of investments and (b) engaging in all activities incidental or ancillary thereto as iCap Vault Management, LLC (the “Manager”), deems necessary or advisable. The Company’s amended and restated operating agreement is dated September 18, 2020 (the “Operating Agreement”) and provides for one class of membership. The Company had units issued and outstanding as of September 30, 2022, all of which are held by one member. The Operating Agreement continues until the Company is dissolved.
The Company has two wholly owned subsidiaries, Vault Holding, LLC (“Holding”) and Vault Holding 1, LLC (“Holding 1”) formed September 27, 2018 and April 28, 2020, respectively. Each entity was formed with the intention of owning one or more standalone subsidiaries (each a “Portfolio SPE”), which itself will hold real property investments and real estate-based financial instruments. Both Holding and Holding 1 provide guarantees to secured noteholders of the Company. Holding provides a guarantee to holders of private placement notes. Holding 1 provides a guarantee to holders of publicly available variable denomination floating rate demand notes the Company offers through a public registration. As of the date of issuance of these unaudited condensed consolidated financial statements, Holding owns all investment properties and affiliated notes receivable, whereas Holding 1 has not commenced operations and has no assets and liabilities.
The Company generates revenue from rentals of real property investments and interest on investments in financial instruments based in real estate. Management intends for the Company to generate additional revenue from price appreciation of real properties upon their disposition.
The
Company’s investments and its operations in the near term will be funded primarily by $
On September 18, 2020, the Company, Holding 1 and American Stock Transfer & Trust Company, LLC, as trustee, entered into an indenture, which complies with the requirements of the Trust Indenture Act of 1939, as amended, under which the Public Demand Notes are offered.
On
November 24, 2020, the Securities and Exchange Commission (“SEC”) declared the Company’s Registration Statement on
Form S-11/A (the “Registration Statement”), filed with the SEC on November 2, 2020, effective and the Company is authorized
to sell $
| 8 |
iCap Vault 1, LLC
Notes to Unaudited Condensed Consolidated Financial Statements
Note 2. Basis of Presentation and Significant Accounting Policies
Quarterly Reporting:
The accompanying unaudited condensed consolidated financial statements (“financial statements”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and have been consistently applied. Certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP, but which are not required for interim reporting purposes, have been omitted. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to present fairly the financial position as of September 30, 2022 and the results of operations and cash flows for the interim periods ended September 30, 2022 and 2021, have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 24, 2022. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
Liquidity and Going Concern:
The Company has issued Public Demand Notes and Private Placement Notes through September 30, 2022 and does not have sufficient cash or sources of revenue to cover its operating costs and debt service. In addition, the Company and its subsidiaries have generated recurring losses from operations and negative operating cash flows since inception. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern for one year following the date these unaudited condensed consolidated financial statements are available to be issued. The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These unaudited condensed consolidated financial statements do not include any adjustments relating to the realization of the carrying value of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern for one year following the date these unaudited condensed consolidated financial statements are available to be issued. The Company is dependent upon raising additional financing through issuance of debt in order to implement its business plan. There can be no assurance that the Company will be successful in this situation in order to continue as a going concern. The Company is funding its initial operations from (1) payments of expenses by its related entities, which are included in related party payables on the unaudited condensed consolidated balance sheets, (2) equity contributions, (3) issuance of Public Demand Notes and Private Placement Notes and (4) leveraging existing investment properties.
The Company’s operations may be affected by the pandemic that has continued since 2020. The ultimate disruption which may be caused by the outbreak is uncertain; however, it may result in a material adverse impact on the Company’s financial position, operations and cash flows. Possible areas that may be affected include, but are not limited to, disruption to the Company’s ability to make investments through its subsidiaries, negative impact to revenue related to real estate holdings, negative impact on its workforce, unavailability of professional services and other resources, disruption to credit markets necessary for success of the Company’s business model, and the decline in value of assets held by the Company’s subsidiaries.
| 9 |
iCap Vault 1, LLC
Notes to Unaudited Condensed Consolidated Financial Statements
Accounting for Acquisitions
In accordance with the guidance for business combinations, we determine whether a transaction or other event is a business combination, which requires that the assets acquired and liabilities assumed constitute a business. If the assets acquired are not a business, the Company accounts for the transaction or other event as an asset acquisition. The Company allocates the purchase price of properties considered to be an asset acquisition to net tangible and identified intangible assets acquired based on estimated fair values at the date of acquisition. The Company identifies identifiable assets acquired and liabilities assumed. Based on these estimates, The Company records the estimated fair value to the applicable assets and liabilities. In making estimates of fair values, a number of sources are utilized, including information obtained as a result of pre-acquisition due diligence, marketing and leasing activities. The estimates of fair value were determined to have primarily relied upon Level 2 and Level 3 inputs.
The Company estimates the fair value of the building on an as-if-vacant basis and the fair value of land determined either by comparable market data, real estate tax assessments, independent appraisals or other relevant data. The remaining economic life of leased assets is estimated by relying in part upon third-party appraisals of the leased assets and industry standards. Different estimates of remaining economic life will affect the depreciation expense that is recorded.
Above-market and below-market in-place lease values for acquired properties are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) the Company’s estimate of the fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining noncancellable term of the lease (including the below market fixed renewal periods that are considered probable, if applicable). Above-market lease values are amortized as a reduction of rental income over the remaining noncancellable terms of the respective leases. Below-market lease values are amortized as an increase to rental income over the remaining noncancellable terms of the respective leases, including any below market fixed-rate renewal option periods that are considered probable.
Other intangible assets also include in-place leases based on the Company’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with the respective tenant. The Company estimates the cost to execute leases with terms similar to the remaining lease terms of the in-place leases, including leasing commissions, legal and other related expenses. This intangible asset is amortized to expense over the remaining term of the respective leases and any fixed-rate bargain renewal periods. Factors considered by the Company in this analysis include an estimate of the carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases.
Impairments
Management routinely reviews notes receivable for impairment and provides an allowance for credit losses if all or a portion of a note is determined to be uncollectible. Notes are charged off to the allowance for credit losses when the contractual amount is no longer realizable.
Management evaluates investment properties for impairment when conditions exist which may indicate that it is probable that the sum of expected future cash flows (on an undiscounted basis without interest) from that investment property is less than the carrying values under its historical net cost basis. When estimating expected future cash flows, management considers factors such as future operating income, trends and prospects as well as the effects of leasing demand, competition and other pertinent factors. Upon determination that there is a permanent impairment, the carrying values of the applicable investment properties are reduced to their relative fair values. For investment properties to be disposed of, an impairment loss is recognized when the fair values, less the estimated cost to sell, is less than the carrying amount of the investment property measured at the time there is a commitment to sell the property and/or it is actively being marketed for sale. A property to be disposed of is reported at the lower of its carrying amount or its estimated fair value, less its cost to sell. Subsequent to the date that a property is held for disposition, depreciation expense is not recorded.
Recent Accounting Pronouncements
The Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU updates Topic 326 by removing the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. The guidance in ASU 2016-13 is effective for “public business entities,” for reporting periods beginning after December 15, 2022. Early adoption of the guidance is permitted for reporting periods beginning after December 15, 2018. Management is currently evaluating the impact that the pending adoption of this guidance will have on its consolidated financial statements.
Reclassification
Certain
prior period balances in the unaudited condensed consolidated statements of cash flows have been reclassified to conform with the current
period presentation. The Company reflected non-cash issuances and corresponding redemptions of Private Placement Notes of $
Note 3. Related-Party Transactions
Operations:
Amounts
due from affiliated entities of $
Private Placement Notes:
Private Placement Notes payable to employees, officers and an affiliated entity at September 30, 2022 and December 31, 2021 are presented in the following table:
| September 30, 2022 | December 31, 2021 | |||||||
| Chief Executive Officer (CEO) | $ | $ | ||||||
| iCap International Investments, LLC (joint venture controlled by the CEO) | ||||||||
| Employees of affiliated entities | ||||||||
| Total related party Private Placement Notes | $ | $ | ||||||
| 10 |
iCap Vault 1, LLC
Notes to Unaudited Condensed Consolidated Financial Statements
In
addition, other non-key management employees of affiliated entities held $
As of November 18, 2022, Private Placement Notes held by, officers, affiliated entities and employees at November 18, 2022 are presented in the following table:
| November 18, 2022 | ||||
| Chief Executive Officer (CEO) | $ | |||
| iCap International Investments, LLC (joint venture controlled by the CEO) | ||||
| iCap Development, LLC | ||||
| Senza Kenmore | ||||
| 725 Broadway, LLC | ||||
| Employees of affiliated entities | ||||
| Total related party Private Placement Notes | $ | |||
Affiliated Notes Receivable:
The
Company holds $
Affiliated notes receivable consists of the following:
| September 30, 2022 | December 31, 2021 | |||||||||
| ● | $ | $ | $ | |||||||
| ● | $ | |||||||||
| ● | $ | |||||||||
| ● | $ | |||||||||
| $ | ||||||||||
| $ | $ | |||||||||
Note 4. Investment Properties
Investment properties consist of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| Buildings and tenant improvements | $ | $ | ||||||
| Land | ||||||||
| Investment properties, gross | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Investment properties, net | $ | $ | ||||||
Depreciation
expense for the three months ended September 30, 2022 and 2021, was $
At September 30, 2022, the Company has the following investment properties:
| ● | Six
townhomes (VH Willows) – the townhomes were acquired during 2021 from a commonly controlled affiliate recorded with an
initial carrying value of $ | |
| ● | Five
townhomes (VH 1121 14th LLC) – the townhomes were acquired in November 2021 from a commonly controlled affiliate
with an initial carrying value of $ | |
| ● | Senior
care facility (Lynnwood Property) – The Lynnwood Property was acquired in March 2022 for $ | |
| ● | Senior
care facility (Burien Property) – The Burien Property was acquired in March 2022 for $ | |
| ● | Commercial
multi-tenant office building (VH Pioneer Village) – The VH Pioneer Village property was acquired in July 2022 for $ | |
| ● | Office
and warehouse facility (VH 2nd Street) – The VH 2nd Street property was acquired in July 2022 for
$ |
| 11 |
iCap Vault 1, LLC
Notes to Unaudited Condensed Consolidated Financial Statements
Note 5. Acquisitions
On
April 23, 2021 and May 7, 2021, the Company acquired, in related transactions, investment properties from an affiliated entity for a
purchase price of $
On
March 11, 2022, VH Senior Care LLC (“Senior Care”) entered into a Residential Purchase and Sale Agreement (the “Lynnwood
Purchase Agreement”) by and between Senior Care and unaffiliated Sellers (the “Lynnwood Sellers”). Senior Care is a
wholly owned subsidiary of Holding. Pursuant to the terms of the Lynnwood Purchase Agreement, Senior Care agreed to purchase from the
Lynnwood Sellers certain real property located at 1226 160th St. SW, Lynnwood, WA 98087 (the “Lynnwood Property”).
Senior Care acquired the property for a purchase price of $
On
March 14, 2022, Senior Care entered into a Residential Purchase and Sale Agreement (the “Burien Purchase Agreement”) by
and between Senior Care and unaffiliated Sellers (the “Burien Sellers”). Pursuant to the terms of the Burien Purchase
Agreement, Senior Care agreed to purchase from the Burien Sellers certain real property located at 302 SW 146th St.,
Burien, WA 98166. Senior Care acquired the property for a purchase price of $
The Company entered into lease agreements for both properties with a term beginning April 1, 2022 and continuing through March 31, 2027, subject to extension or earlier termination set forth in the lease agreements (see Note 8).
On
July 18, 2022, VH Pioneer Village, LLC, a wholly owned subsidiary of Holding, which was formed June 27, 2022, acquired Pioneer
Village, a commercial multi-tenant investment property for a purchase price of $
On
July 26, 2022, VH 2nd Street Office, LLC, as a wholly owned subsidiary of Holding, which was formed June 10, 2022,
acquired an office and warehouse facility for a purchase price of $
The following unaudited Pro Forma information presents the combined results of operations for the three and nine months ended September 30, 2022 and 2021 as if the above acquisitions had been completed on January 1, 2021. The July 18, 2022 acquisition was a newly constructed building with no operating history and the November 15, 2021 acquisition of five townhouses was under construction until near the acquisition date and had no operations therefore, no Pro Forma financial information is available or included in the table below for these acquisitions. The Pro Forma financial information is as follows:
| Three Months Ended September 30, | Nine months Ended September 30, | |||||||||||||||
| 2022 Pro Forma (unaudited) | 2021 Pro Forma (unaudited) | 2022 Pro Forma (unaudited) | 2021 Pro Forma (unaudited) | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Operating expenses | ||||||||||||||||
| Other expenses | ||||||||||||||||
| Total expenses | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
As
a result of the acquisition of investment properties acquired in 2022 and 2021, the Company recorded rental revenues of $
Note 6. Notes Payable
On
January 31, 2022, the Company entered into two loan agreements of $
| 12 |
iCap Vault 1, LLC
Notes to Unaudited Condensed Consolidated Financial Statements
Note 7. Demand Notes
Private Placement Notes
The
Company is offering up to $
The Private Placement Notes, inclusive of accrued but unpaid interest, can be redeemed, in whole or in part, at any time through a demand for repayment but in no instance will an individual note extend beyond 15 years following its issuance date. The Company plans to establish additional accounts with lending sources pursuant to which funds will be advanced as the Company secures additional real estate assets. Private Placement Notes will be subordinate to any security interest in favor of lenders of credit facilities.
The
Company released Supplement No. 2 to its private placement memorandum on March 1, 2021 which modified the interest rates on Private Placement
Notes and introduced an interest premium program that matches the rewards program associated with the Public Demand Notes. Prior to March
1, 2021, the
The
outstanding Private Placement Notes, inclusive of accrued but unpaid interest, totaled $
The
Company issued additional Private Placement Notes of $
| 13 |
iCap Vault 1, LLC
Notes to Unaudited Condensed Consolidated Financial Statements
Public Demand Notes
The
Company is offering up to $
The Floating Rate resets quarterly on January 1, April 1, July 1, and October 1 of each year based on the Average Savings Account Rate posted by the FDIC on December 15, March 15, June 15, and September 15, respectively, of the prior month. “Average Savings Account Rate” means the “national rate” for savings account products, which is the average of rates paid by all insured depository institutions and credit unions for which data is available, with rates weighted by each institution’s share of domestic deposits, as calculated by the FDIC.
Interest Rate Premiums are available for noteholders whose Public Demand Note features meet certain criteria. The features and criteria are as follows below:
| Minimum
principal amounts of $ | |
| Noteholders
that waive the right to demand repayment of the Public Demand Notes for 12, 18 or 24 months will earn additional per annum interest
during those months of | |
| Noteholders
that are clients of Registered Investment Advisors (“RIA”) with whom the Company has a selling agreement and have made
a direct investment through the RIA, will earn additional per annum interest of |
The Public Demand Notes are subject to repayment upon the earlier of demand by the noteholder or redemption by the Company. Public Demand Notes have no stated maturity.
The
outstanding Public Demand Notes, inclusive of accrued but unpaid interest, totaled $
The
Company issued additional Public Demand Notes of $
The
Company recorded interest expense on these Demand Notes of $
| 14 |
iCap Vault 1, LLC
Notes to Unaudited Condensed Consolidated Financial Statements
Note 8. Rental Income
On
March 21, 2022, the Company entered separate operating lease agreements for two of its investment properties acquired on March 25,
2022 with an operator of two senior care facilities that began April 1, 2022 and continuing through March 31, 2027, subject to
extension or earlier termination. The leases provide for initial aggregate monthly rentals of $
The Company recognizes income from these leases on a straight-line basis over the terms of the related leases. Differences between rental income earned and amounts due per the respective lease agreements are charged to accrued rents and accounts receivable in the unaudited condensed consolidated balance sheets.
The following is a summary of our expected future minimum base rental income from our operating leases as of September 30, 2022:
| 2022 (October 1, 2022 to December 31, 2022) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ |
Income from leases is included in rental income on the accompanying unaudited condensed consolidated statements of operations.
Additionally,
the Company leases individual units in its other investment properties under various operating leases. These leases generate an aggregate
monthly rental income of approximately $
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iCap Vault 1, LLC
Notes to Unaudited Condensed Consolidated Financial Statements
Note 9. Commitments and Contingencies
The
Company entered into a Broker Dealer Agreement with an independent broker-dealer effective June 30, 2020, as amended on September 18,
2020 and again on August 9, 2021. Pursuant to this agreement, the broker-dealer agreed to be the Company’s broker-dealer of record
in thirteen states including Texas, Florida, Arizona, Virginia, Utah, Maryland, Oklahoma, Nebraska, Delaware, West Virginia, Montana,
North Carolina and Arkansas as well as up to eight additional states to be determined from time to time during the term of the registered
offering. As compensation for these services, the broker-dealer is paid a monthly fee of $
The
Company is party to selling agreements with various distributors of the Private Placement Notes and Public Demand Notes for both international
and domestic investors. The terms of these agreements allow the distributors to effect sales of the Private Placement Notes and the Public
Demand Notes to US and non-US persons on a best-efforts basis. Offers and sales of the Public Demand Notes may be made to qualified investors,
upon the terms and subject to the conditions set forth in the Prospectus dated May 5, 2021, as amended. Offers and sales of the Private
Placement Notes may only be made in accordance with the terms of the offering, as set forth in the private placement memorandum, and
in compliance with all U.S. laws and regulations including, but not limited to, Regulation S under the Securities Act of 1933, as amended.
The terms of agreements with foreign distributors allow for the sales of the Private Placement Notes only to non-U.S. persons. Each distributor
is compensated
The
Company entered into property management agreements to manage, lease and operate the investment properties. The property management agreements
for investment properties were entered into on May 11, 2021 and August 21, 2021, respectively. The agreements will remain in effect for
twelve months and will automatically extend thereafter on a monthly basis. The management fee is the greater of $
Note 10. Subsequent Events
On
October 19, 2022, the Company issued a $
On
November 7, 2022, the Company through its wholly owned subsidiary entered into a loan agreement of $
On November 15, 2022, the Company filed form 8-K for entering into Placement Agent Agreement (“Agreement”) on November 3, 2022. The Manager entered into the Agreement on behalf of the Company, with IBN Financial Services, Inc., pursuant to which the Manager appointed the Placement Agent to effect sales, on a best efforts basis, of the Private Placement Notes and Public Demand Notes, with a minimum investment of $ per purchaser, to qualified investors, upon the terms and subject to the conditions set forth in the Prospectus dated May 6, 2022, as amended.
On
November 15, 2022, the Company advanced an additional $
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations of iCap Vault 1, LLC and its subsidiaries, including, but not limited to, Vault Holding, LLC and Vault Holding 1, LLC (collectively, the “Company” or “iCap Vault”), should be read in conjunction with the unaudited condensed consolidated financial statements and the notes to those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us,” “we,” “our,” and similar terms refer to the Company. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors section of our annual report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission (the “SEC”) on March 24, 2022, as the same may be updated from time to time. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.
iCap Vault 1, LLC, Vault Holding, LLC (“Holding”) and Vault Holding 1, LLC (“Holding 1”) were formed as Delaware limited liability companies on July 30, 2018, September 27, 2018 and April 28, 2020, respectively. Each of Holding and Holding 1 was formed with the intention of owning one or more standalone subsidiaries which itself will hold real property investments whether directly or through special purpose entities. Additionally, each of Holding and Holding 1 provides guaranties to secured demand noteholders of the Company. Holding provides such a guaranty to holders of the private placement notes, while Holding 1 provides a guaranty to holders of the public notes the Company offers through a registered offering. Holding 1 has not commenced operations and has no assets or liabilities. iCap Vault Management, LLC (“Manager”) is the manager of the Company.
We intend to generate revenues on our investments from net rental income on our properties and from price appreciation of properties upon their disposition. For our investment in financial instruments based in real estate, we intend to generate revenues from the interest income received on such financial instruments. Until we generate revenue sufficient to use for investments, to cover operations and to service debt, we will rely on the proceeds from a $500 million private placement of demand notes (“Private Placement Notes” described below) and a $500 million registered public offering of demand notes (“Public Demand Notes” described below). Collectively these are referred to as the Demand Notes hereto, unless otherwise distinguished.
Our business plan contemplates continually acquiring income-producing real estate properties and financial instruments related to real properties in selected metropolitan statistical areas in the U.S. (each, a “Portfolio Investment”) that generate a rate of return that is greater than the costs necessary to purchase, finance and service the investment. Although our Portfolio Investments will be anchored to U.S. real estate, we are not a real estate investment trust and do not intend to be treated as such.
At September 30, 2022, the Company has the following Portfolio Investments:
| ● | $8.0 million note receivable from Colpitts Sunset LLC (“Colpitts”), an affiliated entity – Note bears interest at 10% per annum, is secured by a deed of trust on property owned by Colpitts and is due April 1, 2023. Principal plus accrued and unpaid interest was $7,118,424, | |
| ● | $2.7 million note receivable from 725 Broadway, LLC (“725 Broadway”), an affiliated entity – Note bears interest at 10% per annum, is secured by a deed of trust on property owned by 725 Broadway and is due December 1, 2022. The outstanding principal plus accrued interest from this facility was $2,983,916. | |
| ● | $2.0 million note receivable from CS2 Real Estate Development, LLC (“CS2”), an affiliated entity – Note bears interest at 12% per annum, is secured by a deed of trust on property owned by CS2 and is due December 1, 2022. Principal plus accrued and unpaid interest was $2,238,000. | |
| ● | $2.5 million note receivable from iCap@UW, LLC (“UW”), an affiliated entity – Note bears interest at 10% per annum, is secured by a deed of trust on property owned by UW and is due September 15, 2023 Principal plus accrued and unpaid interest was $2,510,417. | |
| ● | Six townhomes (VH Willows) – the townhomes were acquired during 2021 from a commonly controlled affiliate for $3,420,000 with an initial carrying value of $3,052,266. | |
| ● | Five townhomes (VH 1121 14th LLC) – the townhomes were acquired in November 2021 from a commonly controlled affiliate for $3,917,436 with an initial carrying value of $3,564,412. | |
| ● | Senior care facility (Lynnwood Property) – The Lynnwood Property was acquired in March 2022 for $1,779,431. | |
| ● | Senior care facility (Burien Property) – The Burien Property was acquired in March 2022 for $1,003,768. | |
| ● | Commercial multi-tenant office building (VH Pioneer Village) – The VH Pioneer Village property was acquired in July 2022 for $3,001,839. | |
| ● | Office and warehouse facility (VH 2nd Street) – The VH 2nd Street property was acquired in July 2022 for $6,004,052. |
We have no plans to change our business activities or to combine with another business, and we are not aware of any events or circumstances that might cause our plans to change. Neither Manager, nor the sole member of the Company, have any plans or arrangements to enter into a change of control, business combination or similar transaction or to change management.
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Portfolio Investments may be held directly by the Company or held in a standalone wholly owned limited liability company (each, a “Portfolio SPE”) and one or more Portfolio SPEs may be held by a holding company that is wholly owned by the Company, rather than by the Company directly. The rental and interest income earned allows us to provide a rate of return to investors who acquire the Public Demand Notes. The Public Demand Notes are secured by the membership interests in Holding 1. The Company’s business plan targets primarily income-producing properties and seeks to acquire the properties debt-free, and the Company expects to generate income from the financial instruments that it may hold. The Portfolio Investments will serve as collateral for one or more credit facilities entered into by the Company or an affiliate of us.
The locations of the properties are determined by selecting metropolitan statistical areas upon consultation with market professionals, such as real estate analytics companies, title and escrow companies, real estate brokerages, land-use specialists, licensed surveyors and civil engineers, and in-depth internal review of economic data. The Company may adjust its investment criteria to accommodate changing market conditions but will generally seek Portfolio Investments in attractive locations with strong rental income and a likelihood of long-term appreciation of value.
For the three months ended September 30, 2022 and 2021, we generated interest income from affiliated notes receivable of $254,799 and $154,993, respectively, rental income of $232,137 and $45,830, respectively and reported a net loss of $303,396 and $321,156, respectively.
For the nine months ended September 30, 2022 and 2021, we generated interest income from affiliated notes receivable of $762,230 and $300,077, respectively, rental income of $472,335 and $79,700, respectively, and reported a net loss of $953,797 and $948,617, respectively. For the nine months ended September 30, 2022 and 2021, we had cash used in operating activities of $869,834 and $891,376, respectively. As of September 30, 2022, we had member’s deficit of $3,080,494.
The capital to be raised from both our private placement (defined below) and registered offering (defined below) has been budgeted to cover the costs associated with continuing to operate our company, marketing expense, and acquisition related costs. We intend to use the majority of the proceeds from the registered offering for the acquisition of Portfolio Investments. However, closing and other acquisition related costs such as title insurance, professional fees and taxes will likely require cash. We do not have the ability to quantify any of the expenses as they will all depend on size of deal, price, and place versus procuring new financing, due diligence performed (such as appraisal, environmental, property condition reports), legal and accounting, etc. There is no way to predict or otherwise detail the expenses.
Recent Financings
Private Placements
We are currently conducting a private placement to accredited investors of up to $500,000,000 secured demand notes under an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) pursuant to Rule 506(c) and Regulation S promulgated under the Securities Act (“Private Placement Notes”). Private Placement Notes issued during the nine months ended September 30, 2022 and 2021 totaled $57,589,478 and $41,581,276, respectively. As of November 18, 2022, $349,198,885 of this offering is available for issuance and the amount of the aggregate outstanding principal and accrued interest is $23,587,731.
On February 5, 2021, Chris Christensen, the Chief Executive Officer of the Company, formed iCap International Investments, LLC, a Washington limited liability company. Mr. Christensen holds a 51% ownership interest in the entity, and he is also the manager. As of November 18, 2022, the total amount of outstanding principal amount and accrued interest of Private Placement Notes held by iCap International Investments, LLC was $94,279.
Registered Public Offering
We have registered a public offering (“Registered Offering”) of up to $500,000,000 aggregate principal amount of our Variable Denomination Floating Rate Demand Notes, marketed and sold as “Demand Notes” (the “Public Demand Notes”), under an effective Registration Statement (File No. 333-236458) (“Registration Statement”), to fund our investment and operational activities. Public Demand Notes issued during the nine months ended September 30, 2022 and 2021 totaled $24,608,718 and $3,776,304, respectively. As of November 18, 2022, $457,998,820 of this offering is available for issuance and the amount of the aggregate outstanding principal and accrued interest is $8,536,529.
Notes Payable
On January 31, 2022, the Company entered into two loan agreements of $2,985,000 and $3,000,000, collateralized by two investment properties. The $2,985,000 loan is guaranteed by the CEO of the Company and the $3,000,000 loan is guaranteed by the CEO and affiliated entities. Each loan bears interest at $7.5% per annum and matures on March 1, 2023.
On November 7, 2022, the Company through its wholly owned subsidiary entered into a loan agreement of $1,600,000, collateralized by two investment properties acquired during the year ended December 31, 2022. The note bears interest at 12% per annum and matures on May 28, 2023. The $1,600,000 loan is guaranteed by the CEO of the Company. Monthly payments of accrued interest only until maturity begin December 1, 2022. The Company may prepay the loan before maturity with no prepayment penalty. The Company incurred financing fees of $51,500 related to the issuance of this loan.
Affiliated Notes Receivable
On October 19, 2022, the Company issued a $500,000 loan to an affiliated entity which bears interest at 12% per annum secured by a deed of trust and matures on September 30, 2023.
On November 15, 2022, the Company advanced an additional $1,883,382 for the Colpitts loan to an affiliated entity.
Placement Agent Agreement
On November 15, 2022, the Company filed form 8-K for entering into Placement Agent Agreement (“Agreement”) on November 3, 2022. The Manager entered into the Agreement on behalf of the Company, with IBN Financial Services, Inc., pursuant to which the Manager appointed the Placement Agent to effect sales, on a best efforts basis, of the Private Placement Notes and Public Demand Notes, with a minimum investment of $25.00 per purchaser, to qualified investors, upon the terms and subject to the conditions set forth in the Prospectus dated May 6, 2022, as amended.
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Recent Developments
COVID-19
The COVID-19 pandemic has caused significant economic dislocation in the United States, resulting in an unprecedented slow-down in economic activity. The economic effects, including disruptions to the global supply chain, of the COVID-19 outbreak have had a destabilizing effect on financial markets, key market indices, and overall economic activity. The spread of the coronavirus has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences.
Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be fully controlled and abated. Possible areas that may be affected include, but are not limited to, disruption to the Company’s ability to make investments through its subsidiaries, negative impact to revenue related to real estate holdings, negative impact on its workforce, unavailability of professional services and other resources, disruption to credit markets necessary for success of the Company’s business model, and the decline in value of assets held by the Company’s subsidiaries.
The supply of housing inventory in certain geographical areas may become further restricted through a shutdown of construction activity. Housing market impacts may limit the Company’s ability to acquire or dispose of real estate assets.
General employment in the region may continue to suffer as the pandemic continues. Some local governments have proposed rent or eviction moratoria, or similar programs of rent abatement, in response to the sudden upturn in unemployment. Any of these factors could cause a future decline in the market rate for residential rentals negatively impacting the Company’s income and cash flow from its real estate holdings.
Employees of affiliated companies could be medically or mentally affected by the pandemic and may be required to continue to work remotely, particularly given potential for complete or partial school closures. This situation could cause of reduction in productivity or the inability to complete critical tasks for the Company.
We lack the comparative historical financial information about the Company since our operations did not commence until after the start of the COVID-19 pandemic. Accordingly, although management believes that COVID-19, along with other macro-economic factors, were contributing factors to our business and results of operations to date, management is unable to measure the actual impact of COVID-19 on our business as of the date of this quarterly report on Form 10-Q.
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Affiliated Notes Receivable
Effective April 22, 2022, the Company amended a $2,000,000 loan agreement dated April 23, 2021 with individuals who are minority co-owners of an affiliated entity that provided for an extension of the maturity date to July 23, 2022. On July 26, 2022, the Company entered into an agreement to purchase the underlying property for $6,000,000, net of the outstanding loan balance at closing which continued to bear interest at 8%. The Company acquired the investment property on July 26, 2022 for $6,004,052, inclusive of closing costs, net of the loan balance at closing of $2,038,667 and an escrow deposit of $1,000,000 paid on June 22, 2022.
On August 31, 2022, the Company amended a $3,500,000 loan agreement which provided for $8,000,000 of financing to an affiliate with the same terms and conditions with respect to the interest rate, payment terms and maturity date.
On, September 14, 2022, the Company issued a $2,500,000 loan to an affiliated entity which bears interest at 10% per annum secured by a deed of trust and matures on September 15, 2023
On September 23, 2022, the Company the amended a $2,000,000 affiliated loan to extend the maturity date until December 1, 2022.
On October 19, 2022, the Company issued a $500,000 loan to an affiliated entity which bears interest at 12% per annum secured by a deed of trust and matures on September 30, 2023.
Acquisitions
Lynnwood Property
On March 11, 2022, VH Senior Care LLC (“Senior Care”) entered into a Residential Purchase and Sale Agreement (the “Lynnwood Purchase Agreement”) by and between Senior Care and unaffiliated Sellers (the “Lynnwood Sellers”). Senior Care is a wholly owned subsidiary of Holding. Pursuant to the terms of the Lynnwood Purchase Agreement, Senior Care agreed to purchase from the Lynnwood Sellers certain real property located at 1226 160th St. SW, Lynnwood, WA 98087 (the “Lynnwood Property”). Senior Care acquired the property for a purchase price of $1,779,431 on March 25, 2022.
On March 21, 2022, Senior Care entered into a Lease Agreement (the “Lynnwood Lease”) with AFH Senior Care C Corp. (“AFH”). Pursuant to the terms of the Lynnwood Lease, AFH agreed to lease the Lynnwood Property from Senior Care with a term facilities that began April 1, 2022 and continues through March 31, 2027, subject to extension or earlier termination, as set forth in the Lynnwood Lease. The monthly rent is $11,717 for the first 12 months. Thereafter, effective as of each anniversary of the commencement date of the Lynnwood Lease, the base rent will increase to an amount equal to 103% of the base rent in effect immediately prior to the adjustment.
Burien Property
On March 14, 2022, Senior Care entered into a Residential Purchase and Sale Agreement (the “Burien Purchase Agreement”) by and between Senior Care and unaffiliated Sellers (the “Burien Sellers”). Pursuant to the terms of the Burien Purchase Agreement, Senior Care agreed to purchase from the Burien Sellers certain real property located at 302 SW 146th St., Burien, WA 98166. Senior Care acquired the property for a purchase price of $1,003,768, on March 25, 2022.
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On March 21, 2022, Senior Care entered into a Lease Agreement (the “Burien Lease”) with AFH. Pursuant to the terms of the Burien Lease, AFH agreed to lease the Burien Property from Senior Care, that began April 1, 2022 and continued through March 31, 2027, subject to extension or earlier termination as set forth in the Burien Lease. The monthly rent is $8,000 for the first 12 months. Thereafter, effective as of each anniversary of the commencement date of the Burien Lease, the base rent will increase to an amount equal to 103% of the base rent in effect immediately prior to the adjustment.
VH Pioneer Village
On July 18, 2022, VH Pioneer Village, LLC, a wholly owned subsidiary of Holding, which was formed June 27, 2022, acquired Pioneer Village, a commercial multi-tenant investment property for a purchase price of $3,001,839 located at 4318 South Settler Drive, Ridgefield, WA 98642. The aggregate purchase price was allocated between the estimated fair values of the underlying assets of $1,880,470 of buildings, $935,266 of land and intangibles assets net of a below market lease liability of $186,103 at the date of acquisition. The investment property’s leases assumed at acquisition expire in August 2026 and May 2032, respectively.
The leases provide for current monthly rental income of $5,406 and $6,887, respectively with terms of 5 years and 10 years, respectively. The leases provide for annual increases of 3% on each anniversary date, thereafter. Additionally, each lease provides the lessee an option to renew the lease for additional two and three 5-year periods depending on the individual lease.
VH 2nd Street Office
On July 26, 2022, VH 2nd Street Office, LLC, as a wholly owned subsidiary of Holding acquired an office and warehouse facility for a purchase price of $6,004,052 located at 2818 E. 2nd Street, Vancouver WA 98661. The aggregate purchase price was allocated between the estimated fair values of the underlying assets of $5,052,776 of buildings, $504,911 of land and intangibles assets of $446,365 at the date of acquisition. The investment property lease assumed at acquisition is under contract until April 2028. The lease provides initial rent of $28,500 with annual increases of 2% on each anniversary date, thereafter. Additionally, the lease provides for the lessee an option to renew the lease for two additional 5-year periods.
Plan of Operations
We believe we will need at least $1,500,000 of working capital during the next 12 months for management fees, professional fees and other operating expenses. In addition, we will need funding for our continued investment in revenue generating real estate properties. We will rely primarily on funds raised from both the registered offering and from our private placement to fund these uses for the next twelve months. To a lesser extent, we will rely on income from our existing investment properties and financial instruments.
As of September 30, 2022, we have aggregate cash balances of $4,606,090, including restricted cash of $2,962,318 available for operations and investment from both the public and private offerings. Our strategy contemplates the ability to invest in financial instruments collateralized by or involved in real estate operations; however, we intend to focus primarily on investing in revenue generating properties. We are currently in competitive bidding scenarios to obtain additional investment properties and plan to continue acquiring revenue generating properties during 2022.
Acquisitions will depend highly on our funds, the availability of those funds, availability of assets that meet our investment criteria and the size of the assets to be acquired. There can be no assurance that we will be able to successfully complete such acquisitions.
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RESULTS OF OPERATIONS
Results of Operations for the three months Ended September 30, 2022 Compared to the three months Ended September 30, 2021
Revenue
Interest income for the three months ended September 30, 2022, and 2021 was $254,799 and $154,993, respectively, which is from affiliated notes receivable. The increase in interest income was primarily the result of additional the notes issued during 2021 and 2022. The notes receivable balances as of September 30, 2022 and 2021 were $14,850,757 and $6,671,906. Rental income for the three months ended September 30, 2022, and 2021 was $232,137 and $45,830, respectively. The increase in rental income was due to the recent acquisitions of investment properties over the last twelve months.
Operating Expenses
General and administrative expenses for the three months ended September 30, 2022 were $365,338 as compared to $357,891 for the three months ended September 30, 2021. The increase in expenses is primarily due to the increase in depreciation for recent acquisitions of investment properties offset with decreases in computer, professional fees. Management fees – related party was $78,769 for the three months ended September 30, 2022 as compared to $41,280 for the three months ended September 30, 2021. The increase is directly attributable to the increase in demand note balances during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.
Other Expenses, net
Interest expense, net, for the three months ended September 30, 2022 and 2021 was $359,164 and $122,940, respectively, in which $14,635 and $72,292, respectively, was incurred on related party Private Placement Notes. The increase in interest expense is primarily attributable to the two loan agreements aggregating $5,985,000 entered into in January 2022 collateralized by two investment properties and the increase in demand notes payable. Interest and amortization of deferred financing fee for these loans for the three months ended September 30, 2022 and 2021 was $122,184 and $0, respectively. The other significant increase in interest expense is attributable to the increase in average outstanding Private Placement Notes and Public Demand Notes balances during the quarter ended September 30, 2022 as compared to September 30, 2021.
Net Loss
The change to the net loss for the three months ended September 30, 2022 and 2021 is provided for in the explanations shown above.
Results of Operations for the Nine months Ended September 30, 2022 Compared to the Nine months Ended September 30, 2021
Revenue
Interest income for the nine months ended September 30, 2022, and 2021 was $762,230 and $300,077, respectively, which is from affiliated notes receivable. The increase in interest income was primarily the result of the notes issued during 2021 and 2022. The notes receivable balances as of September 30, 2022 and 2021 were $14,850,757 and $6,671,906. Rental income for the nine months ended September 30, 2022, and 2021 was $472,335 and $79,700, respectively. The increase in rental income was due to the recent acquisition of investment properties over the last twelve months.
Operating Expenses
General and administrative expenses for the nine months ended September 30, 2022 were $1,102,475 as compared to $1,010,642 for the nine months ended September 30, 2021. The increase in expenses is primarily due to increases of consulting fees, commissions, depreciation and amortization expenses offset with decreases in legal and professional fees and computer expenses. Management fees – related party was $194,587 for the nine months ended September 30, 2022 as compared to $80,893 for the nine months ended September 30, 2021. The increase is directly attributable to the increase in demand note balances during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.
Other Expenses, net
Interest expense, net, for the nine months ended September 30, 2022 and 2021 was $904,239 and $237,161, respectively, in which $40,716 and $135,882, respectively, was incurred on related party Private Placement Notes. The increase in interest expense is primarily attributable to the two loan agreements aggregating $5,985,000 entered into in January 2022 collateralized by two investment properties. Interest and amortization of deferred financing fee for these loans for the nine months ended September 30, 2022 and 2021 was $325,605 and $0, respectively. The other significant increase in interest expense is attributable to the increase in average outstanding Private Placement Notes and Public Demand Notes balances during the quarter ended September 30, 2022 as compared to September 30, 2021.
Net Loss
The change to the net loss for the nine months ended September 30, 2022 and 2021 is provided for in the explanations shown above.
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LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have generated minimal revenues and expect to rely on capital raised in the issuances of the Demand Notes to cover the costs associated with establishing and expanding Company operations, marketing expense, and acquisition related costs. We intend to use the majority of the proceeds from the Demand Notes for the acquisition of Portfolio Investments. However, closing and other acquisition related costs such as title insurance, professional fees and taxes will likely require cash. We do not have the ability to quantify any of the expenses as they will all depend on size of deal, price, and place versus procuring new financing, due diligence performed (such as appraisal, environmental, property condition reports), legal and accounting, etc.
Currently, our primary source of liquidity is $1.0 billion from our registered and private offerings discussed herein (collectively the “offerings”). As of November 18, 2022, we have approximately $807 million available for offerings of new subscriptions that will fund operations and new portfolio investments in income producing real estate properties and financial instruments. In addition, the Company may leverage its portfolio investments to provide additional liquidity. During the nine months ended September 30, 2022, the Company borrowed $5,985,000 against its investment properties pursuant to notes payable that are due February 2023.
The following table sets forth a summary of our net cash flows for the nine months ended September 30:
| 2022 | 2021 | |||||||
| Net cash flows from total operating activities | $ | (869,834 | ) | $ | (891,376 | ) | ||
| Net cash flows from total investing activities | $ | (15,530,359 | ) | $ | (8,751,447 | ) | ||
| Net cash flows from total financing activities | $ | 12,026,517 | $ | 16,721,035 | ||||
The Company had cash used in operating activities of $869,834 for the nine months ended September 30, 2022, as compared to cash used in operating activities of $891,376 for the nine months ended September 30, 2021. The overall decrease in the use of cash is primarily attributable to the variances for the period attributable to the change in accrued interest earned on affiliated notes receivable of $462,153 offset by the change in accrued interest on Private Placement Notes and Public Demand Notes of $341,473, depreciation of $134,178 and changes in operating assets and liabilities of $28,159.
The Company had used cash in investing activities of $15,530,359 for the nine months ended September 30, 2022, as compared to cash used in investing activities of $8,751,447 for the nine months ended September 30, 2021. The net change of $6,778,912 was primarily attributable to the increase in investment acquisitions of $6,342,219, increase in issuances and a repayment of an affiliated notes receivable of $233,391, and a decrease in proceeds from the repayment of related party receivables of $169,150.
The Company had cash provided by financing activities of $12,026,517 for the nine months ended September 30, 2022 as compared to the cash provided for in financing activities of $16,721,035 for the nine months ended September 30, 2021. The net change of $4,694,518 was attributable the overall net decrease in proceeds over issuances from the prior period of Private Placement Notes and Public Demand Notes resulting in a net change $10,636,691, offset with net loan proceeds of $5,942,173 on collateralized investment properties obtained in January 2022.
Going Concern
As a result of recurring losses, limited cash and insufficient revenue to cover our operating costs and debt service, management believes there is a substantial doubt regarding our ability to continue as a going concern. Moreover, if the Company is not successful in raising sufficient capital, or if it does not have access to sufficient credit from outside parties or related parties, it may have to delay or reduce expenses, or curtail operations, since its current cash and capital resources are not sufficient to meet its needs for the 12 months following the date of this filing. The accompanying unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that could result should the Company not continue as a going concern.
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Assets
At September 30, 2022 and December 31, 2021, we had total assets of $37,869,976 and $25,979,143, respectively. Assets consist primarily of the cash accounts held by the Company, inclusive of $2,962,318 and $2,026,172 of restricted cash on September 30, 2022 and December 31, 2021, respectively, and investment properties of $17,587,070 and $6,575,789 as of September 30, 2022 and December 31, 2021, respectively. In addition, the Company holds promissory notes with affiliated entities, inclusive of interest receivable, totaling $14,850,757 and $10,393,206 as of September 30, 2022 and December 31, 2021, respectively.
Liabilities
At September 30, 2022 and December 31, 2021, we had total liabilities of $40,950,470 and $28,105,840, respectively. The Company obtained two loans on investment properties and amounts outstanding on the notes payable, net of unamortized financing fees were $5,968,528 and $0 as of September 30, 2022 and December 31, 2021. Outstanding Private Placement Notes and Public Demand Notes were $34,581,719 and $27,918,742 as of September 30, 2022 and December 31, 2021, respectively.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of November 18, 2022 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 are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.
CRITICAL ACCOUNTING POLICIES
Management believes the estimates and judgments most critical to the preparation of our unaudited condensed consolidated financial statements and to the understanding of our reported financial results include those made in connection with impairment of our tangible and intangible assets including notes receivable, investment properties and finite-lived intangible assets and our evaluation of whether the Company can continue as a going concern. Management evaluates our policies and assumptions on an ongoing basis.
Accounting for Acquisitions
In accordance with the guidance for business combinations, we determine whether a transaction or other event is a business combination, which requires that the assets acquired and liabilities assumed constitute a business. If the assets acquired are not a business, the Company accounts for the transaction or other event as an asset acquisition. The Company allocates the purchase price of properties considered to be an asset acquisition to net tangible and identified intangible assets acquired based on estimated fair values at the date of acquisition. The Company identifies identifiable assets acquired and liabilities assumed. Based on these estimates, The Company records the estimated fair value to the applicable assets and liabilities. In making estimates of fair values, a number of sources are utilized, including information obtained as a result of pre-acquisition due diligence, marketing and leasing activities. The estimates of fair value were determined to have primarily relied upon Level 2 and Level 3 inputs.
The Company estimates the fair value of the building on an as-if-vacant basis and the fair value of land determined either by comparable market data, real estate tax assessments, independent appraisals or other relevant data. The remaining economic life of leased assets is estimated by relying in part upon third-party appraisals of the leased assets and industry standards. Different estimates of remaining economic life will affect the depreciation expense that is recorded.
Above-market and below-market in-place lease values for acquired properties are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) the Company’s estimate of the fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining noncancellable term of the lease (including the below market fixed renewal periods that are considered probable, if applicable). Above-market lease values are amortized as a reduction of rental income over the remaining noncancellable terms of the respective leases. Below-market lease values are amortized as an increase to rental income over the remaining noncancellable terms of the respective leases, including any below market fixed-rate renewal option periods that are considered probable.
Other intangible assets also include in-place leases based on the Company’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with the respective tenant. The Company estimates the cost to execute leases with terms similar to the remaining lease terms of the in-place leases, including leasing commissions, legal and other related expenses. This intangible asset is amortized to expense over the remaining term of the respective leases and any fixed-rate bargain renewal periods. Factors considered by the Company in this analysis include an estimate of the carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases.
Impairment
Management routinely reviews notes receivable for impairment and provides an allowance for credit losses if all or a portion of a note is determined to be uncollectible. Notes are charged off to the allowance for credit losses when the contractual amount is no longer realizable.
Management evaluates investment properties for impairment when conditions exist which may indicate that it is probable that the sum of expected future cash flows (on an undiscounted basis without interest) from that investment property is less than the carrying values under its historical net cost basis. When estimating expected future cash flows, management considers factors such as future operating income, trends and prospects as well as the effects of leasing demand, competition and other pertinent factors. Upon determination that there is a permanent impairment, the carrying values of the applicable investment properties are reduced to their relative fair values. For investment properties to be disposed of, an impairment loss is recognized when the fair values, less the estimated cost to sell, is less than the carrying amount of the investment property measured at the time there is a commitment to sell the property and/or it is actively being marketed for sale. A property to be disposed of is reported at the lower of its carrying amount or its estimated fair value, less its cost to sell. Subsequent to the date that a property is held for disposition, depreciation expense is not recorded.
For a description of our going concern analysis, refer to the Liquidity and Capital Resources section in this Management Discussion & Analysis.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A smaller reporting company is not required to provide the information required by this Item.
| 24 |
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the chief executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our current chief executive officer and principal financial officer (our “Certifying Officers”), the effectiveness of our disclosure controls and procedures as of September 30, 2022, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of September 30, 2022, our disclosure controls and procedures were not effective.
The Company does not have an effective control environment because we do not yet have formalized internal control policies and procedures as it relates to financial reporting, including the accounting related to purchase-price allocations. In addition, the Company does not yet have sufficient resources to provide appropriate segregation of duties related to the preparation and review of information used in financial reporting, as well as review controls over the financial statement reporting process.
Since becoming a public reporting company on November 24, 2020, we have initiated and are continuing to recruit and hire additional accounting and financial personnel, establish policies and procedures for timely and accurate financial reporting, upgrade our internal accounting systems, and make various other efforts to remediate these weaknesses in our internal control. Management understands and appreciates the need to rapidly establish an effective system of internal controls over financial reporting.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are involved in ordinary routine litigation typical for companies engaged in our line of business. As of the date of this quarterly report on Form 10-Q, we are not involved in any pending legal proceedings that we believe would be likely, individually or in the aggregate, to have a material adverse effect on our financial condition or results of operations.
ITEM 1A. RISK FACTORS
There have been no material changes to our risk factors as disclosed in our annual report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on March 24, 2022.
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.
| 25 |
ITEM 5. OTHER INFORMATION
(a) None.
(b) There have been no material changes to the procedures by which security holders may recommend nominees to our Board of Directors since we last provided disclosure in response to the requirements of Item 407(c)(3) of Regulation S-K promulgated under the Exchange Act.
ITEM 6. EXHIBITS
| * | Filed herewith. |
| ** | Furnished herewith. |
| 26 |
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
| iCap Vault 1, LLC | ||
| By: | iCap Vault Management, LLC, its manager | |
| Date: November 21, 2022 | By: | /s/ Chris Christensen |
| Chris Christensen | ||
| Chief Executive Officer (principal executive officer, principal financial officer and principal accounting officer) | ||
| 27 |
Exhibit 31.1
CERTIFICATIONS
I, Chris Christensen, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2022 of iCap Vault 1, LLC;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 21, 2022
| /s/ Chris Christensen | |
| Chris Christensen | |
|
Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATIONS
I, Chris Christensen, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2022 of iCap Vault 1, LLC;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 21, 2022
| /s/ Chris Christensen | |
| Chris Christensen | |
|
Chief Executive Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of iCap Vault 1, LLC (the “Company”) for the quarterly period ended September 30, 2022 as filed with the Securities and Exchange Commission (the “Report”), I, Chris Christensen, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
| Date: November 21, 2022 | /s/ Chris Christensen |
| Chris Christensen | |
|
Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) |
This certification accompanies this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.
Condensed Consolidated Balance Sheets - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| ASSETS | ||
| Cash | $ 1,643,772 | $ 6,953,594 |
| Restricted cash | 2,962,318 | 2,026,172 |
| Accrued rents and accounts receivable | 114,720 | 19,455 |
| Related party receivables | 35,592 | 1,440 |
| Prepaid expenses | 4,975 | 9,487 |
| Affiliated notes receivable | 14,850,757 | 10,393,206 |
| Investment properties, net | 17,587,070 | 6,575,789 |
| Intangible assets, net | 670,772 | |
| TOTAL ASSETS | 37,869,976 | 25,979,143 |
| Liabilities: | ||
| Private placement notes | 26,765,348 | 10,099,600 |
| Related party private placement notes | 2,857,829 | 10,162,124 |
| Public demand notes | 4,958,542 | 7,657,018 |
| Notes payable, net | 5,968,528 | |
| Accounts payable and accrued expenses | 313,460 | 102,637 |
| Related party payables | 86,763 | 84,461 |
| TOTAL LIABILITIES | 40,950,470 | 28,105,840 |
| Commitments and contingencies (Note 9) | ||
| Member’s deficit | (3,080,494) | (2,126,697) |
| TOTAL LIABILITIES AND MEMBER’S DEFICIT | $ 37,869,976 | $ 25,979,143 |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| REVENUE | ||||
| Interest income — related party | $ 254,799 | $ 154,993 | $ 762,230 | $ 300,077 |
| Rental income | 232,137 | 45,830 | 472,335 | 79,700 |
| Other | 12,939 | 132 | 12,939 | 302 |
| Total revenue | 499,875 | 200,955 | 1,247,504 | 380,079 |
| OPERATING EXPENSES | ||||
| General and administrative expenses | 365,338 | 357,891 | 1,102,475 | 1,010,642 |
| Management fee expense—related party | 78,769 | 41,280 | 194,587 | 80,893 |
| Total operating expenses | 444,107 | 399,171 | 1,297,062 | 1,091,535 |
| INCOME (LOSS) FROM OPERATIONS | 55,768 | (198,216) | (49,558) | (711,456) |
| OTHER EXPENSES, NET | ||||
| Interest expense—related party | 14,635 | 72,292 | 40,716 | 135,882 |
| Interest expense, net | 344,529 | 50,648 | 863,523 | 101,279 |
| Total other expenses, net | 359,164 | 122,940 | 904,239 | 237,161 |
| NET LOSS | $ (303,396) | $ (321,156) | $ (953,797) | $ (948,617) |
| Net loss per membership unit | $ (303) | $ (321) | $ (954) | $ (949) |
| Weighted average number of membership units outstanding | 1,000 | 1,000 | 1,000 | 1,000 |
Condensed Consolidated Statements of Member's Deficit (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Statement of Financial Position [Abstract] | ||||
| Beginning balance | $ (2,777,098) | $ (1,137,787) | $ (2,126,697) | $ (142,592) |
| Investment acquisition (Note 4) | (367,734) | |||
| Net loss | (303,396) | (321,156) | (953,797) | (948,617) |
| Ending balance | $ (3,080,494) | $ (1,458,943) | $ (3,080,494) | $ (1,458,943) |
Condensed Consolidated Statements of Member's Deficit (Unaudited) (Parenthetical) - shares |
Sep. 30, 2022 |
Jun. 30, 2022 |
Dec. 31, 2021 |
Sep. 30, 2021 |
Jun. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|---|---|---|---|
| Equity [Abstract] | ||||||
| Shares issued | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 |
| Shares outstanding | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 |
Consolidated Statements of Cash Flows (Unaudited) (Parenthetical) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Short-Term Debt [Line Items] | ||
| Non cash note issuances | $ 21,214,309 | $ 6,648,325 |
| Private Placement Notes [Member] | ||
| Short-Term Debt [Line Items] | ||
| Non cash note issuances | 4,661,707 | 3,987,825 |
| Non-cash note redemptions | 14,760,606 | 5,538,325 |
| Related Party Private Placement Notes [Member] | ||
| Short-Term Debt [Line Items] | ||
| Non cash note issuances | 3,600,000 | 1,110,000 |
| Non-cash note redemptions | 1,121,203 | |
| Public Demand Notes [Member] | ||
| Short-Term Debt [Line Items] | ||
| Non cash note issuances | 12,952,602 | $ 1,550,500 |
| Non-cash note redemptions | $ 5,332,500 | |
Nature of Business |
9 Months Ended |
|---|---|
Sep. 30, 2022 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Nature of Business | Note 1. Nature of Business
iCap Vault 1, LLC (the “Company”), a Delaware limited liability company, was formed on July 30, 2018 pursuant to and in accordance with the Delaware Limited Liability Company Act for the purpose of acquiring real estate investments in the United States and providing a rate of return to its investors. The Company was organized for the principal purposes of (a) sourcing, acquiring, financing and managing a portfolio of investments and (b) engaging in all activities incidental or ancillary thereto as iCap Vault Management, LLC (the “Manager”), deems necessary or advisable. The Company’s amended and restated operating agreement is dated September 18, 2020 (the “Operating Agreement”) and provides for one class of membership. The Company had units issued and outstanding as of September 30, 2022, all of which are held by one member. The Operating Agreement continues until the Company is dissolved.
The Company has two wholly owned subsidiaries, Vault Holding, LLC (“Holding”) and Vault Holding 1, LLC (“Holding 1”) formed September 27, 2018 and April 28, 2020, respectively. Each entity was formed with the intention of owning one or more standalone subsidiaries (each a “Portfolio SPE”), which itself will hold real property investments and real estate-based financial instruments. Both Holding and Holding 1 provide guarantees to secured noteholders of the Company. Holding provides a guarantee to holders of private placement notes. Holding 1 provides a guarantee to holders of publicly available variable denomination floating rate demand notes the Company offers through a public registration. As of the date of issuance of these unaudited condensed consolidated financial statements, Holding owns all investment properties and affiliated notes receivable, whereas Holding 1 has not commenced operations and has no assets and liabilities.
The Company generates revenue from rentals of real property investments and interest on investments in financial instruments based in real estate. Management intends for the Company to generate additional revenue from price appreciation of real properties upon their disposition.
The Company’s investments and its operations in the near term will be funded primarily by $1 billion of investor demand notes. The first offering is a private placement to accredited investors of up to $500 million under an exemption from the registration requirements of the Securities Act of 1933, as amended pursuant to Rule 506(c) and Regulation S (“Private Placement Notes”). The second is a registered a public offering of up to $500 million of Variable Denomination Floating Rate Demand Notes (“Public Demand Notes”), under an effective registration statement (File No. 333-236458). Collectively these are referred to as the (“Demand Notes”) hereto, unless otherwise distinguished.
On September 18, 2020, the Company, Holding 1 and American Stock Transfer & Trust Company, LLC, as trustee, entered into an indenture, which complies with the requirements of the Trust Indenture Act of 1939, as amended, under which the Public Demand Notes are offered.
On November 24, 2020, the Securities and Exchange Commission (“SEC”) declared the Company’s Registration Statement on Form S-11/A (the “Registration Statement”), filed with the SEC on November 2, 2020, effective and the Company is authorized to sell $500,000,000 of Public Demand Notes on a continuous basis, in a direct public offering. On April 29, 2022, the Company filed with the SEC Post-Effective Amendment No. 2 to the Registration Statement. The SEC declared Post-Effective Amendment No. 2 effective on May 6, 2022. No additional securities were registered pursuant to Post-Effective Amendment No. 2.
iCap Vault 1, LLC Notes to Unaudited Condensed Consolidated Financial Statements
|
Basis of Presentation and Significant Accounting Policies |
9 Months Ended |
|---|---|
Sep. 30, 2022 | |
| Accounting Policies [Abstract] | |
| Basis of Presentation and Significant Accounting Policies | Note 2. Basis of Presentation and Significant Accounting Policies
Quarterly Reporting:
The accompanying unaudited condensed consolidated financial statements (“financial statements”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and have been consistently applied. Certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP, but which are not required for interim reporting purposes, have been omitted. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to present fairly the financial position as of September 30, 2022 and the results of operations and cash flows for the interim periods ended September 30, 2022 and 2021, have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 24, 2022. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
Liquidity and Going Concern:
The Company has issued Public Demand Notes and Private Placement Notes through September 30, 2022 and does not have sufficient cash or sources of revenue to cover its operating costs and debt service. In addition, the Company and its subsidiaries have generated recurring losses from operations and negative operating cash flows since inception. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern for one year following the date these unaudited condensed consolidated financial statements are available to be issued. The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These unaudited condensed consolidated financial statements do not include any adjustments relating to the realization of the carrying value of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern for one year following the date these unaudited condensed consolidated financial statements are available to be issued. The Company is dependent upon raising additional financing through issuance of debt in order to implement its business plan. There can be no assurance that the Company will be successful in this situation in order to continue as a going concern. The Company is funding its initial operations from (1) payments of expenses by its related entities, which are included in related party payables on the unaudited condensed consolidated balance sheets, (2) equity contributions, (3) issuance of Public Demand Notes and Private Placement Notes and (4) leveraging existing investment properties.
The Company’s operations may be affected by the pandemic that has continued since 2020. The ultimate disruption which may be caused by the outbreak is uncertain; however, it may result in a material adverse impact on the Company’s financial position, operations and cash flows. Possible areas that may be affected include, but are not limited to, disruption to the Company’s ability to make investments through its subsidiaries, negative impact to revenue related to real estate holdings, negative impact on its workforce, unavailability of professional services and other resources, disruption to credit markets necessary for success of the Company’s business model, and the decline in value of assets held by the Company’s subsidiaries.
iCap Vault 1, LLC Notes to Unaudited Condensed Consolidated Financial Statements
Accounting for Acquisitions
In accordance with the guidance for business combinations, we determine whether a transaction or other event is a business combination, which requires that the assets acquired and liabilities assumed constitute a business. If the assets acquired are not a business, the Company accounts for the transaction or other event as an asset acquisition. The Company allocates the purchase price of properties considered to be an asset acquisition to net tangible and identified intangible assets acquired based on estimated fair values at the date of acquisition. The Company identifies identifiable assets acquired and liabilities assumed. Based on these estimates, The Company records the estimated fair value to the applicable assets and liabilities. In making estimates of fair values, a number of sources are utilized, including information obtained as a result of pre-acquisition due diligence, marketing and leasing activities. The estimates of fair value were determined to have primarily relied upon Level 2 and Level 3 inputs.
The Company estimates the fair value of the building on an as-if-vacant basis and the fair value of land determined either by comparable market data, real estate tax assessments, independent appraisals or other relevant data. The remaining economic life of leased assets is estimated by relying in part upon third-party appraisals of the leased assets and industry standards. Different estimates of remaining economic life will affect the depreciation expense that is recorded.
Above-market and below-market in-place lease values for acquired properties are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) the Company’s estimate of the fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining noncancellable term of the lease (including the below market fixed renewal periods that are considered probable, if applicable). Above-market lease values are amortized as a reduction of rental income over the remaining noncancellable terms of the respective leases. Below-market lease values are amortized as an increase to rental income over the remaining noncancellable terms of the respective leases, including any below market fixed-rate renewal option periods that are considered probable.
Other intangible assets also include in-place leases based on the Company’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with the respective tenant. The Company estimates the cost to execute leases with terms similar to the remaining lease terms of the in-place leases, including leasing commissions, legal and other related expenses. This intangible asset is amortized to expense over the remaining term of the respective leases and any fixed-rate bargain renewal periods. Factors considered by the Company in this analysis include an estimate of the carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases.
Impairments
Management routinely reviews notes receivable for impairment and provides an allowance for credit losses if all or a portion of a note is determined to be uncollectible. Notes are charged off to the allowance for credit losses when the contractual amount is no longer realizable.
Management evaluates investment properties for impairment when conditions exist which may indicate that it is probable that the sum of expected future cash flows (on an undiscounted basis without interest) from that investment property is less than the carrying values under its historical net cost basis. When estimating expected future cash flows, management considers factors such as future operating income, trends and prospects as well as the effects of leasing demand, competition and other pertinent factors. Upon determination that there is a permanent impairment, the carrying values of the applicable investment properties are reduced to their relative fair values. For investment properties to be disposed of, an impairment loss is recognized when the fair values, less the estimated cost to sell, is less than the carrying amount of the investment property measured at the time there is a commitment to sell the property and/or it is actively being marketed for sale. A property to be disposed of is reported at the lower of its carrying amount or its estimated fair value, less its cost to sell. Subsequent to the date that a property is held for disposition, depreciation expense is not recorded.
Recent Accounting Pronouncements
The Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU updates Topic 326 by removing the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. The guidance in ASU 2016-13 is effective for “public business entities,” for reporting periods beginning after December 15, 2022. Early adoption of the guidance is permitted for reporting periods beginning after December 15, 2018. Management is currently evaluating the impact that the pending adoption of this guidance will have on its consolidated financial statements.
Reclassification
Certain prior period balances in the unaudited condensed consolidated statements of cash flows have been reclassified to conform with the current period presentation. The Company reflected non-cash issuances and corresponding redemptions of Private Placement Notes of $6,648,325 used in financing activities, which reduced proceeds and repayments of Private Placement Notes.
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Related-Party Transactions |
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| Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related-Party Transactions | Note 3. Related-Party Transactions
Operations:
Amounts due from affiliated entities of $35,592 and $1,440 at September 30, 2022 and December 31, 2021, respectively, are included in related party receivables on the accompanying unaudited condensed consolidated balance sheets. These receivables are related to payments of operating expenses made on behalf of affiliated entities, are non-interest bearing and are due on demand. Amounts due to affiliated entities of $86,763 and $84,461 at September 30, 2022 and December 31, 2021, respectively, are included in related party payables on the accompanying unaudited condensed consolidated balance sheets. These payables are non-interest bearing and due on demand.
The Company pays the Manager a management fee equal to 1% of the outstanding aggregate principal balances of the Private Placement Notes and 1.3% of outstanding Public Demand Notes. The Company incurred management fees of $78,769 and $41,280 for the three months ended September 30, 2022 and 2021, respectively, and $194,587 and $80,893 for the nine months ended September 30, 2022 and 2021, respectively.
Private Placement Notes:
Private Placement Notes payable to employees, officers and an affiliated entity at September 30, 2022 and December 31, 2021 are presented in the following table:
iCap Vault 1, LLC Notes to Unaudited Condensed Consolidated Financial Statements
In addition, other non-key management employees of affiliated entities held $94,713 and $83,201 of Private Placement Notes and $10,224 and $10,060 of Public Demand Notes at September 30, 2022 and December 31, 2021, respectively. These notes and the notes presented in the table above are included in the Private Placement Notes and Public Demand Notes on the accompanying unaudited condensed consolidated balance sheets.
As of November 18, 2022, Private Placement Notes held by, officers, affiliated entities and employees at November 18, 2022 are presented in the following table:
Affiliated Notes Receivable:
The Company holds $14,850,757 and $10,393,206 of affiliated notes receivable, inclusive of accrued interest on September 30, 2022 and December 31, 2021, respectively. These notes receivable include loans from Holding to individuals who are minority co-owners of an affiliated entity and affiliated entities with investment properties secured by real estate. The full amount of the notes plus accrued interest is recorded as affiliated notes receivable on the accompanying unaudited condensed consolidated balance sheets.
Affiliated notes receivable consists of the following:
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Investment Properties |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investment Properties | Note 4. Investment Properties
Investment properties consist of the following:
Depreciation expense for the three months ended September 30, 2022 and 2021, was $91,607 and $13,676, respectively, and $157,137 and $22,959 for the nine months ended September 30, 2022 and 2021, respectively.
At September 30, 2022, the Company has the following investment properties:
iCap Vault 1, LLC Notes to Unaudited Condensed Consolidated Financial Statements
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Acquisitions |
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| Business Combination and Asset Acquisition [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisitions | Note 5. Acquisitions
On April 23, 2021 and May 7, 2021, the Company acquired, in related transactions, investment properties from an affiliated entity for a purchase price of $3,420,000 and a carrying value of $3,052,266.
On March 11, 2022, VH Senior Care LLC (“Senior Care”) entered into a Residential Purchase and Sale Agreement (the “Lynnwood Purchase Agreement”) by and between Senior Care and unaffiliated Sellers (the “Lynnwood Sellers”). Senior Care is a wholly owned subsidiary of Holding. Pursuant to the terms of the Lynnwood Purchase Agreement, Senior Care agreed to purchase from the Lynnwood Sellers certain real property located at 1226 160th St. SW, Lynnwood, WA 98087 (the “Lynnwood Property”). Senior Care acquired the property for a purchase price of $1,779,431 on March 25, 2022. The aggregate purchase price was allocated between the estimated fair values of the underlying assets of $1,330,547 of buildings and $448,884 of land at the date of acquisition.
On March 14, 2022, Senior Care entered into a Residential Purchase and Sale Agreement (the “Burien Purchase Agreement”) by and between Senior Care and unaffiliated Sellers (the “Burien Sellers”). Pursuant to the terms of the Burien Purchase Agreement, Senior Care agreed to purchase from the Burien Sellers certain real property located at 302 SW 146th St., Burien, WA 98166. Senior Care acquired the property for a purchase price of $1,003,768 on March 25, 2022. The aggregate purchase price was allocated between the estimated fair values of the underlying assets of $693,107 of buildings and $310,661 of land at the date of acquisition.
The Company entered into lease agreements for both properties with a term beginning April 1, 2022 and continuing through March 31, 2027, subject to extension or earlier termination set forth in the lease agreements (see Note 8).
On July 18, 2022, VH Pioneer Village, LLC, a wholly owned subsidiary of Holding, which was formed June 27, 2022, acquired Pioneer Village, a commercial multi-tenant investment property for a purchase price of $3,001,839 located at 4318 South Settler Drive, Ridgefield, WA 98642 from an affiliate. The aggregate purchase price was allocated between the estimated fair values of the underlying assets of $1,880,470 of buildings, $935,266 of land and intangibles assets net of a below market lease liability of $186,103 at the date of acquisition. The investment property’s leases assumed at acquisition expire in August 2026 and May 2032, respectively.
On July 26, 2022, VH 2nd Street Office, LLC, as a wholly owned subsidiary of Holding, which was formed June 10, 2022, acquired an office and warehouse facility for a purchase price of $6,004,052 located at 2818 E. 2nd Street, Vancouver WA 98661 on July 26, 2022 from an affiliate. The Company held a $2,000,000 affiliated note receivable from the seller that was collateralized by the acquired investment property of $2,038,667 including interest accrued through the date of acquisition credited towards the purchase price. The aggregate purchase price was allocated between the estimated fair values of the underlying assets of $5,052,776 of buildings, $504,911 of land and intangibles assets of $446,365 at the date of acquisition. The investment property lease assumed at acquisition is under contract until April 2028.
The following unaudited Pro Forma information presents the combined results of operations for the three and nine months ended September 30, 2022 and 2021 as if the above acquisitions had been completed on January 1, 2021. The July 18, 2022 acquisition was a newly constructed building with no operating history and the November 15, 2021 acquisition of five townhouses was under construction until near the acquisition date and had no operations therefore, no Pro Forma financial information is available or included in the table below for these acquisitions. The Pro Forma financial information is as follows:
As a result of the acquisition of investment properties acquired in 2022 and 2021, the Company recorded rental revenues of $232,137 and $472,335 for the three and nine months ended September 30, 2022 and expenses of $291,168 and $641,936 for the three and nine months ended September 30, 2022, which are included in the accompanying unaudited condensed consolidated statement of operations. Additionally, the Company recorded rental revenues of $45,830 and $79,700 for the three and nine months ended September 30, 2021 and expenses of $32,849 and $57,821 for the three and nine months ended September 30, 2021, which are included in the accompanying unaudited condensed consolidated statement of operations.
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Notes Payable |
9 Months Ended |
|---|---|
Sep. 30, 2022 | |
| Debt Disclosure [Abstract] | |
| Notes Payable | Note 6. Notes Payable
On January 31, 2022, the Company entered into two loan agreements of $2,985,000 and $3,000,000, collateralized by two investment properties. The $2,985,000 loan is guaranteed by the CEO of the Company and the $3,000,000 loan is guaranteed by the CEO and affiliated entities. Each loan bears interest at $7.5% per annum and matures on March 1, 2023. Aggregate monthly interest only payments of $37,406 began March 10, 2022 and continue through February 10, 2023. The loans either individually or collectively, may be repaid before the maturity date with no prepayment penalty. The loans provide for non-financial covenants and include cross default and collateral provisions for the borrowers. The Company incurred financing fees related to the issuance of these loans of $42,827, which are amortized over the term of the notes. The notes payable are presented net of unamortized deferred financing costs of $16,472. Interest expense related to these notes was $112,219 and $0 and for the three months ended September 30, 2022 and 2021, respectively and $299,250 and $0 for the nine months ended September 30, 2022 and 2021, respectively. Additionally, the Company recorded amortization of deferred financing fees of $9,965 and $0 the three months ended September 30, 2022 and 2021, respectively and $26,355 and $ for the nine months ended September 30, 2022 and 2021, respectively to interest expense.
iCap Vault 1, LLC Notes to Unaudited Condensed Consolidated Financial Statements
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Demand Notes |
9 Months Ended | ||||||||||
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Sep. 30, 2022 | |||||||||||
| Debt Disclosure [Abstract] | |||||||||||
| Demand Notes | Note 7. Demand Notes
Private Placement Notes
The Company is offering up to $500,000,000 of Private Placement Notes dated October 1, 2018. Private Placement Notes are being offered through August 31, 2023 and are subordinated to the Company’s future secured bank debt and credit facilities and structurally subordinated to indebtedness or other liabilities of Portfolio SPEs. The Private Placement Notes are secured by a pledge of Holding’s equity interests in Portfolio SPEs for as long as the Private Placement Notes remain outstanding.
The Private Placement Notes, inclusive of accrued but unpaid interest, can be redeemed, in whole or in part, at any time through a demand for repayment but in no instance will an individual note extend beyond 15 years following its issuance date. The Company plans to establish additional accounts with lending sources pursuant to which funds will be advanced as the Company secures additional real estate assets. Private Placement Notes will be subordinate to any security interest in favor of lenders of credit facilities.
The Company released Supplement No. 2 to its private placement memorandum on March 1, 2021 which modified the interest rates on Private Placement Notes and introduced an interest premium program that matches the rewards program associated with the Public Demand Notes. Prior to March 1, 2021, the Private Placement Notes accrued interest at the rate of 2.00% per annum, based on a 365-day year, compounded daily; provided, however, that if an investor agreed to forego the right to make a demand for payment during the first year after issuance, the interest rate for that year will be 3.00%, and then would revert to the standard 2.00% for following periods. The Company was able to increase and subsequently decrease the interest rate at its discretion, provided the rate would not drop below 2.00% or 3.00% for the first year as applicable. In addition, Supplement No. 2 amended the offering to allow Holding’s guarantee to continue for as long as the Private Placement Notes remain outstanding. Originally, the guarantee was to terminate 30 days after an effective registered offering. The amendment also allows the original security agreement and guaranty agreement to remain in place, removed the noteholder’s ability to exchange their notes for registered notes, and amended the private placement memorandum to not terminate upon the effectiveness of the registered offering. The Company released Supplement No. 3 to its private placement memorandum on October 27, 2021, which updated the status of the offering, provided descriptions of investments made since Supplement No. 2, added discussions of operating results and transactions, provided administrative additions and restated all the risk factors.
The Company is restricted from making distributions to its members when the value of the real estate held at the Company’s subsidiaries is less than 70% of the value of the outstanding Private Placement Notes. Tax distributions and other distributions that may be legally required are exempted from this condition.
The outstanding Private Placement Notes, inclusive of accrued but unpaid interest, totaled $29,623,177 and $20,261,724 on September 30, 2022 and December 31, 2021, respectively. Approximately 74% and 33%, respectively, of these Private Placement Notes are held by foreign investors.
The Company issued additional Private Placement Notes of $11,061,471 and redeemed $17,209,951 after the consolidated balance sheet date through November 18, 2022. An aggregate of $349,198,885 of Private Placement Notes are available to be issued as of November 18, 2022.
iCap Vault 1, LLC Notes to Unaudited Condensed Consolidated Financial Statements
Public Demand Notes
The Company is offering up to $500,000,000 of Public Demand Notes on a continuous basis pursuant to a registration filed with the SEC, which is effective November 24, 2020, as amended May 6, 2022. The Public Demand Notes accrue interest at a rate per annum equal to the Average Savings Account Rate as published by the FDIC plus 2% (“Floating Rate”). In addition, noteholders are eligible to accrue one or more interest rate premiums (“Interest Rate Premiums”). Both the Floating Rate and Interest Rate Premiums accrue monthly without compounding unless the noteholder opts to reinvest interest into additional Public Demand Notes, in which case, interest will accrue and compound daily. The Public Demand Notes are secured by a guarantee from Holding 1 for the benefit of the noteholders and the membership interest in Holding 1, which will hold interests in real estate and real estate-based financial instruments. There are no restrictions on the guarantee. Currently, Holding 1 is limited in its ability to satisfy the guarantee itself as it has not commenced operations and has no assets. Public Demand Notes will be subordinate to any security interest in favor of lenders of credit facilities.
The Floating Rate resets quarterly on January 1, April 1, July 1, and October 1 of each year based on the Average Savings Account Rate posted by the FDIC on December 15, March 15, June 15, and September 15, respectively, of the prior month. “Average Savings Account Rate” means the “national rate” for savings account products, which is the average of rates paid by all insured depository institutions and credit unions for which data is available, with rates weighted by each institution’s share of domestic deposits, as calculated by the FDIC.
Interest Rate Premiums are available for noteholders whose Public Demand Note features meet certain criteria. The features and criteria are as follows below:
The Public Demand Notes are subject to repayment upon the earlier of demand by the noteholder or redemption by the Company. Public Demand Notes have no stated maturity.
The outstanding Public Demand Notes, inclusive of accrued but unpaid interest, totaled $4,958,542 and $7,657,018 at September 30, 2022 and December 31, 2021, respectively. Approximately 92% and 94%, respectively, of the Public Demand Notes are held by foreign investors.
The Company issued additional Public Demand Notes of $6,245,737 and redeemed $2,692,290 after the consolidated balance sheet date through November 18, 2022. An aggregate of $457,998,820 of Public Demand Notes are available to be issued as of November 18, 2022.
The Company recorded interest expense on these Demand Notes of $236,694 and $122,940 for the three months ended September 30, 2022 and 2021, respectively, and $578,633 and $237,161 for the nine months ended September 30, 2022 and 2021, respectively.
iCap Vault 1, LLC Notes to Unaudited Condensed Consolidated Financial Statements
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Rental Income |
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| Leases [Abstract] | ||||||||||||||||||||||||||||||||||||
| Rental Income | Note 8. Rental Income
On March 21, 2022, the Company entered separate operating lease agreements for two of its investment properties acquired on March 25, 2022 with an operator of two senior care facilities that began April 1, 2022 and continuing through March 31, 2027, subject to extension or earlier termination. The leases provide for initial aggregate monthly rentals of $19,717 for the first year and annual increases of 3% on each anniversary date, thereafter. Each lease provides the lessee three 5-year extension options. The leases provide for tenant allowances of $75,000 and $150,000 for the Lynnwood Property and Burien Property, respectively to be reimbursed to lessee subject to terms of the lease agreements. On July 18, 2022, VH Pioneer Village, LLC purchased a multi-tenant office building with existing leases that expire through May 31, 2032. The leases provide for current monthly rental income of $5,406 and $6,887, respectively with terms of 5 years and 10 years, respectively. The leases provide for annual increases of 3% on each anniversary date, thereafter. Additionally, each lease provides for the lessee an option to renew the lease for two additional 5-year periods. On July 26, 2022, the Company acquired an office and warehouse facility investment property that was under lease until April 2028. The lease provides initial monthly rent of $28,500 with annual increases of 2% on each anniversary date, thereafter. Additionally, the lease provides for the lessee an option to renew the lease for two additional 5-year periods.
The Company recognizes income from these leases on a straight-line basis over the terms of the related leases. Differences between rental income earned and amounts due per the respective lease agreements are charged to accrued rents and accounts receivable in the unaudited condensed consolidated balance sheets.
The following is a summary of our expected future minimum base rental income from our operating leases as of September 30, 2022:
Income from leases is included in rental income on the accompanying unaudited condensed consolidated statements of operations.
Additionally, the Company leases individual units in its other investment properties under various operating leases. These leases generate an aggregate monthly rental income of approximately $15,500 and each have a term of one year or less. These leases expire on various dates through September 2023. The operations of these properties, including leasing activities, are managed by a third party.
iCap Vault 1, LLC Notes to Unaudited Condensed Consolidated Financial Statements
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Commitments and Contingencies |
9 Months Ended |
|---|---|
Sep. 30, 2022 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| Commitments and Contingencies | Note 9. Commitments and Contingencies
The Company entered into a Broker Dealer Agreement with an independent broker-dealer effective June 30, 2020, as amended on September 18, 2020 and again on August 9, 2021. Pursuant to this agreement, the broker-dealer agreed to be the Company’s broker-dealer of record in thirteen states including Texas, Florida, Arizona, Virginia, Utah, Maryland, Oklahoma, Nebraska, Delaware, West Virginia, Montana, North Carolina and Arkansas as well as up to eight additional states to be determined from time to time during the term of the registered offering. As compensation for these services, the broker-dealer is paid a monthly fee of $8,500 for the thirteen states plus an additional $300 per month for each additional state during the term of the registered offering. The broker-dealer services offered in this agreement continue to the earlier of, the date of which the registration statement ceases to be effective, the registration has been fully subscribed, or the agreement has been unilaterally terminated by either party with a 30-day notice.
The Company is party to selling agreements with various distributors of the Private Placement Notes and Public Demand Notes for both international and domestic investors. The terms of these agreements allow the distributors to effect sales of the Private Placement Notes and the Public Demand Notes to US and non-US persons on a best-efforts basis. Offers and sales of the Public Demand Notes may be made to qualified investors, upon the terms and subject to the conditions set forth in the Prospectus dated May 5, 2021, as amended. Offers and sales of the Private Placement Notes may only be made in accordance with the terms of the offering, as set forth in the private placement memorandum, and in compliance with all U.S. laws and regulations including, but not limited to, Regulation S under the Securities Act of 1933, as amended. The terms of agreements with foreign distributors allow for the sales of the Private Placement Notes only to non-U.S. persons. Each distributor is compensated 1% per annum on the average outstanding balance of those notes sold by such distributor. These agreements can be cancelled at any time.
The Company entered into property management agreements to manage, lease and operate the investment properties. The property management agreements for investment properties were entered into on May 11, 2021 and August 21, 2021, respectively. The agreements will remain in effect for twelve months and will automatically extend thereafter on a monthly basis. The management fee is the greater of $100 per month per unit or 7% of monthly gross income. The Company is also responsible for paying leasing and sale commissions if they occur.
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Subsequent Events |
9 Months Ended |
|---|---|
Sep. 30, 2022 | |
| Subsequent Events [Abstract] | |
| Subsequent Events | Note 10. Subsequent Events
On October 19, 2022, the Company issued a $500,000 loan to an affiliated entity which bears interest at 12% per annum secured by a deed of trust and matures on September 30, 2023.
On November 7, 2022, the Company through its wholly owned subsidiary entered into a loan agreement of $1,600,000, collateralized by two investment properties acquired during the year ended December 31, 2022. The note bears interest at 12% per annum and matures on May 28, 2023. The $1,600,000 loan is guaranteed by the CEO of the Company. Monthly payments of accrued interest only until maturity begin December 1, 2022. The Company may prepay the loan before maturity with no prepayment penalty. The Company incurred financing fees of $51,500 related to the issuance of this loan.
On November 15, 2022, the Company filed form 8-K for entering into Placement Agent Agreement (“Agreement”) on November 3, 2022. The Manager entered into the Agreement on behalf of the Company, with IBN Financial Services, Inc., pursuant to which the Manager appointed the Placement Agent to effect sales, on a best efforts basis, of the Private Placement Notes and Public Demand Notes, with a minimum investment of $ per purchaser, to qualified investors, upon the terms and subject to the conditions set forth in the Prospectus dated May 6, 2022, as amended.
On November 15, 2022, the Company advanced an additional $1,883,382 for the Colpitts loan to an affiliated entity (see Note 3). |
Basis of Presentation and Significant Accounting Policies (Policies) |
9 Months Ended |
|---|---|
Sep. 30, 2022 | |
| Accounting Policies [Abstract] | |
| Quarterly Reporting | Quarterly Reporting:
The accompanying unaudited condensed consolidated financial statements (“financial statements”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and have been consistently applied. Certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP, but which are not required for interim reporting purposes, have been omitted. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to present fairly the financial position as of September 30, 2022 and the results of operations and cash flows for the interim periods ended September 30, 2022 and 2021, have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 24, 2022. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
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| Liquidity and Going Concern | Liquidity and Going Concern:
The Company has issued Public Demand Notes and Private Placement Notes through September 30, 2022 and does not have sufficient cash or sources of revenue to cover its operating costs and debt service. In addition, the Company and its subsidiaries have generated recurring losses from operations and negative operating cash flows since inception. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern for one year following the date these unaudited condensed consolidated financial statements are available to be issued. The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These unaudited condensed consolidated financial statements do not include any adjustments relating to the realization of the carrying value of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern for one year following the date these unaudited condensed consolidated financial statements are available to be issued. The Company is dependent upon raising additional financing through issuance of debt in order to implement its business plan. There can be no assurance that the Company will be successful in this situation in order to continue as a going concern. The Company is funding its initial operations from (1) payments of expenses by its related entities, which are included in related party payables on the unaudited condensed consolidated balance sheets, (2) equity contributions, (3) issuance of Public Demand Notes and Private Placement Notes and (4) leveraging existing investment properties.
The Company’s operations may be affected by the pandemic that has continued since 2020. The ultimate disruption which may be caused by the outbreak is uncertain; however, it may result in a material adverse impact on the Company’s financial position, operations and cash flows. Possible areas that may be affected include, but are not limited to, disruption to the Company’s ability to make investments through its subsidiaries, negative impact to revenue related to real estate holdings, negative impact on its workforce, unavailability of professional services and other resources, disruption to credit markets necessary for success of the Company’s business model, and the decline in value of assets held by the Company’s subsidiaries.
iCap Vault 1, LLC Notes to Unaudited Condensed Consolidated Financial Statements
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| Accounting for Acquisitions | Accounting for Acquisitions
In accordance with the guidance for business combinations, we determine whether a transaction or other event is a business combination, which requires that the assets acquired and liabilities assumed constitute a business. If the assets acquired are not a business, the Company accounts for the transaction or other event as an asset acquisition. The Company allocates the purchase price of properties considered to be an asset acquisition to net tangible and identified intangible assets acquired based on estimated fair values at the date of acquisition. The Company identifies identifiable assets acquired and liabilities assumed. Based on these estimates, The Company records the estimated fair value to the applicable assets and liabilities. In making estimates of fair values, a number of sources are utilized, including information obtained as a result of pre-acquisition due diligence, marketing and leasing activities. The estimates of fair value were determined to have primarily relied upon Level 2 and Level 3 inputs.
The Company estimates the fair value of the building on an as-if-vacant basis and the fair value of land determined either by comparable market data, real estate tax assessments, independent appraisals or other relevant data. The remaining economic life of leased assets is estimated by relying in part upon third-party appraisals of the leased assets and industry standards. Different estimates of remaining economic life will affect the depreciation expense that is recorded.
Above-market and below-market in-place lease values for acquired properties are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) the Company’s estimate of the fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining noncancellable term of the lease (including the below market fixed renewal periods that are considered probable, if applicable). Above-market lease values are amortized as a reduction of rental income over the remaining noncancellable terms of the respective leases. Below-market lease values are amortized as an increase to rental income over the remaining noncancellable terms of the respective leases, including any below market fixed-rate renewal option periods that are considered probable.
Other intangible assets also include in-place leases based on the Company’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with the respective tenant. The Company estimates the cost to execute leases with terms similar to the remaining lease terms of the in-place leases, including leasing commissions, legal and other related expenses. This intangible asset is amortized to expense over the remaining term of the respective leases and any fixed-rate bargain renewal periods. Factors considered by the Company in this analysis include an estimate of the carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases.
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| Impairments | Impairments
Management routinely reviews notes receivable for impairment and provides an allowance for credit losses if all or a portion of a note is determined to be uncollectible. Notes are charged off to the allowance for credit losses when the contractual amount is no longer realizable.
Management evaluates investment properties for impairment when conditions exist which may indicate that it is probable that the sum of expected future cash flows (on an undiscounted basis without interest) from that investment property is less than the carrying values under its historical net cost basis. When estimating expected future cash flows, management considers factors such as future operating income, trends and prospects as well as the effects of leasing demand, competition and other pertinent factors. Upon determination that there is a permanent impairment, the carrying values of the applicable investment properties are reduced to their relative fair values. For investment properties to be disposed of, an impairment loss is recognized when the fair values, less the estimated cost to sell, is less than the carrying amount of the investment property measured at the time there is a commitment to sell the property and/or it is actively being marketed for sale. A property to be disposed of is reported at the lower of its carrying amount or its estimated fair value, less its cost to sell. Subsequent to the date that a property is held for disposition, depreciation expense is not recorded.
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| Recent Accounting Pronouncements | Recent Accounting Pronouncements
The Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU updates Topic 326 by removing the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. The guidance in ASU 2016-13 is effective for “public business entities,” for reporting periods beginning after December 15, 2022. Early adoption of the guidance is permitted for reporting periods beginning after December 15, 2018. Management is currently evaluating the impact that the pending adoption of this guidance will have on its consolidated financial statements.
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| Reclassification | Reclassification
Certain prior period balances in the unaudited condensed consolidated statements of cash flows have been reclassified to conform with the current period presentation. The Company reflected non-cash issuances and corresponding redemptions of Private Placement Notes of $6,648,325 used in financing activities, which reduced proceeds and repayments of Private Placement Notes. |
Related-Party Transactions (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Private Placement Notes Payable | Private Placement Notes payable to employees, officers and an affiliated entity at September 30, 2022 and December 31, 2021 are presented in the following table:
As of November 18, 2022, Private Placement Notes held by, officers, affiliated entities and employees at November 18, 2022 are presented in the following table:
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| Schedule of Affiliated Notes Receivable | Affiliated notes receivable consists of the following:
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Investment Properties (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Investment Property | Investment properties consist of the following:
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Acquisitions (Tables) |
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combination and Asset Acquisition [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Proforma Revenue and Net (loss) Income |
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Rental Income (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||
| Leases [Abstract] | ||||||||||||||||||||||||||||||||||||
| Schedule of Future Minimum Base Rental Income | The following is a summary of our expected future minimum base rental income from our operating leases as of September 30, 2022:
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Basis of Presentation and Significant Accounting Policies (Details Narrative) |
9 Months Ended |
|---|---|
|
Sep. 30, 2021
USD ($)
| |
| Private Placement Notes [Member] | |
| Short-Term Debt [Line Items] | |
| Non-cash debt redemptions | $ 6,648,325 |
Schedule of Affiliated Notes Receivable (Details) - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Related Party Transaction [Line Items] | ||
| Affiliated notes receivable | $ 14,850,757 | $ 10,393,206 |
| Colpitts Sunset LLC [Member] | ||
| Related Party Transaction [Line Items] | ||
| Affiliated notes receivable | 7,118,424 | 3,739,777 |
| Minority Co Owners [Member] | ||
| Related Party Transaction [Line Items] | ||
| Affiliated notes receivable | 1,948,000 | |
| Broadway LLC [Member] | ||
| Related Party Transaction [Line Items] | ||
| Affiliated notes receivable | 2,983,916 | 2,647,429 |
| CSTwo Real Estate Development LLC [Member] | ||
| Related Party Transaction [Line Items] | ||
| Affiliated notes receivable | 2,238,000 | 2,058,000 |
| iCap@UW, LLC [Member] | ||
| Related Party Transaction [Line Items] | ||
| Affiliated notes receivable | $ 2,510,417 |
Related-Party Transactions (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||||
|---|---|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Nov. 18, 2022 |
Dec. 31, 2021 |
|
| Short-Term Debt [Line Items] | ||||||
| Due from affiliates | $ 35,592 | $ 35,592 | $ 1,440 | |||
| Due to affiliated entities | 86,763 | $ 86,763 | 84,461 | |||
| Management Fee, Description | The Company pays the Manager a management fee equal to 1% of the outstanding aggregate principal balances of the Private Placement Notes and 1.3% of outstanding Public Demand Notes | |||||
| Management Fee Expense | 78,769 | $ 41,280 | $ 194,587 | $ 80,893 | ||
| Notes payable, related parties | 2,857,829 | 2,857,829 | $ 1,697,394 | 10,162,124 | ||
| Affiliated note receivable | 14,850,757 | 14,850,757 | 10,393,206 | |||
| Private Placement Secured Demand Notes [Member] | Management Employees [Member] | ||||||
| Short-Term Debt [Line Items] | ||||||
| Notes payable, related parties | 94,713 | 94,713 | 83,201 | |||
| Public Secured Demand Notes [Member] | Management Employees [Member] | ||||||
| Short-Term Debt [Line Items] | ||||||
| Notes payable, related parties | $ 10,224 | $ 10,224 | $ 10,060 | |||
Schedule of Investment Property (Details) - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Property, Plant and Equipment [Abstract] | ||
| Buildings and tenant improvements | $ 13,117,265 | $ 4,148,567 |
| Land | 4,667,832 | 2,468,111 |
| Investment properties, gross | 17,785,097 | 6,616,678 |
| Less accumulated depreciation | (198,027) | (40,889) |
| Investment properties, net | $ 17,587,070 | $ 6,575,789 |
Investment Properties (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Asset Acquisition [Line Items] | ||||
| Depreciation expense | $ 91,607 | $ 13,676 | $ 157,137 | $ 22,959 |
| Payments to acquire real estate | 9,762,219 | $ 3,420,000 | ||
| Lynnwood Property [Member] | ||||
| Asset Acquisition [Line Items] | ||||
| Payments to acquire real estate | 1,779,431 | |||
| Burien Property [Member] | ||||
| Asset Acquisition [Line Items] | ||||
| Payments to acquire real estate | 1,003,768 | |||
| VH Pioneer [Member] | ||||
| Asset Acquisition [Line Items] | ||||
| Payments to acquire real estate | 3,001,839 | |||
| VH Second Street Office LLC [Member] | ||||
| Asset Acquisition [Line Items] | ||||
| Payments to acquire real estate | 6,004,052 | |||
| Six Town Homes [Member] | ||||
| Asset Acquisition [Line Items] | ||||
| Payments to acquire real estate | 3,052,266 | |||
| Five Town Homes [Member] | ||||
| Asset Acquisition [Line Items] | ||||
| Payments to acquire real estate | $ 3,564,412 | |||
Schedule of Proforma Revenue and Net (loss) Income (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Business Combination and Asset Acquisition [Abstract] | ||||
| Revenue | $ 527,727 | $ 351,519 | $ 1,576,484 | $ 874,801 |
| Operating expenses | 477,808 | 493,732 | 1,499,944 | 1,385,957 |
| Other expenses | 359,164 | 122,940 | 904,239 | 237,161 |
| Total expenses | 836,972 | 616,672 | 2,404,183 | 1,623,118 |
| Net loss | $ (309,245) | $ (265,153) | $ (827,699) | $ (748,317) |
Notes Payable (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|
Jan. 31, 2022 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Net Investment Income [Line Items] | |||||
| Interest rate | 7.50% | 7.50% | |||
| Interest | $ 37,406 | ||||
| Financing fees related to debt issuance | 42,827 | ||||
| Payments of financing costs | 16,472 | ||||
| Interest expenses | $ 112,219 | $ 0 | $ 299,250 | $ 0 | |
| Deferred financing fees | $ 9,965 | $ 0 | $ 26,355 | ||
| Chief Executive Officer [Member] | |||||
| Net Investment Income [Line Items] | |||||
| Guarenteed loan amount | 2,985,000 | ||||
| CEO And Affiliated Entities [Member] | |||||
| Net Investment Income [Line Items] | |||||
| Guarenteed loan amount | 3,000,000 | ||||
| Investment Property One [Member] | |||||
| Net Investment Income [Line Items] | |||||
| Collateralized by investment properties acquired | 2,985,000 | ||||
| Investment Property Two [Member] | |||||
| Net Investment Income [Line Items] | |||||
| Collateralized by investment properties acquired | $ 3,000,000 | ||||
Schedule of Future Minimum Base Rental Income (Details) |
Sep. 30, 2022
USD ($)
|
|---|---|
| Leases [Abstract] | |
| 2022 (October 1, 2022 to December 31, 2022) | $ 193,362 |
| 2023 | 773,448 |
| 2024 | 773,448 |
| 2025 | 773,448 |
| 2026 | 750,816 |
| Thereafter | 1,071,040 |
| Total | $ 4,335,562 |
Rental Income (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | |||||
|---|---|---|---|---|---|---|---|
Jul. 26, 2022 |
Jul. 18, 2022 |
Mar. 21, 2022 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Rental income | $ 232,137 | $ 45,830 | $ 472,335 | $ 79,700 | |||
| Lessor, operating lease, option to extend | Each lease provides the lessee three 5-year extension options. | ||||||
| Payments for rent | $ 15,500 | ||||||
| Five Year Term [Member] | |||||||
| Rental income | $ 5,406 | ||||||
| Ten Year Term [Member] | |||||||
| Rental income | $ 6,887 | ||||||
| VH Pioneer Village LLC [Member] | |||||||
| Operating lease, description | The lease provides initial monthly rent of $28,500 with annual increases of 2% on each anniversary date, thereafter. Additionally, the lease provides for the lessee an option to renew the lease for two additional 5-year periods | The leases provide for current monthly rental income of $5,406 and $6,887, respectively with terms of 5 years and 10 years, respectively. The leases provide for annual increases of 3% on each anniversary date, thereafter. Additionally, each lease provides for the lessee an option to renew the lease for two additional 5-year periods | |||||
| Lease Agreement [Member] | |||||||
| Rental income | $ 28,500 | $ 19,717 | |||||
| Lynnwood Property [Member] | |||||||
| Operating lease, cost | 75,000 | ||||||
| Burien Property [Member] | |||||||
| Operating lease, cost | $ 150,000 | ||||||
Subsequent Events (Details Narrative) - Subsequent Event [Member] - USD ($) |
12 Months Ended | ||
|---|---|---|---|
Oct. 19, 2022 |
Dec. 31, 2022 |
Nov. 15, 2022 |
|
| Subsequent Event [Line Items] | |||
| Loan | $ 500,000 | ||
| Interest rate | 12.00% | ||
| Maturity date | Sep. 30, 2023 | ||
| Colpitts Loan [Member] | |||
| Subsequent Event [Line Items] | |||
| Loan | $ 1,883,382 | ||
| Loan Agreement [Member] | |||
| Subsequent Event [Line Items] | |||
| Loan | $ 1,600,000 | ||
| Interest rate | 12.00% | ||
| Maturity date | May 28, 2023 | ||
| Financing fees | $ 51,500 | ||
| Loan Agreement [Member] | Chief Executive Officer [Member] | |||
| Subsequent Event [Line Items] | |||
| Loan | $ 1,600,000 | ||
| Maturity date | Dec. 01, 2022 | ||
| Placement Agent Agreement [Member] | |||
| Subsequent Event [Line Items] | |||
| Minimum investment per share | $ 25.00 |