UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

 

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: June 30, 2017

 

OR

 

[  ]	TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______________ to ______________

 

Commission file number: 333-205358

 

HELPFUL ALLIANCE COMPANY

(Exact Name of Registrant as Specified in Its Charter)

 

Florida		45-5023152
(State of Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification Number)

 

700 West Hillsboro Blvd, Suite 1-100 Deerfield Beach, FL		33441
(Address of Principal Executive Offices)		(Zip Code)

 

(754) 227-5783

(Registrant’s Telephone Number, Including Area Code)

 

With a copy to:

Philip Magri, Esq.

Magri Law, LLC

2642 NE 9th Avenue

Fort Lauderdale, FL 33334

T: (646) 502-5900

F: (646) 826-9200

pmagri@magrilaw.com

www.magrilaw.com

 

N/A

(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)

 

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 [X ] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [  ] No [X]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer	[  ]	Accelerated filer	[  ]
Non-accelerated filer	[  ]	Smaller reporting company	[X]
		Emerging growth company	[X]

 

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 by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] No [X]

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date. As of August 18, 2017, there were 2,100,000 shares of Common Stock, $0.001 par value per share, issued and outstanding.

 

 

 

	Page
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets As of June 30, 2017 (Unaudited) and December 31, 2016	F-2
Condensed Consolidated Statements of Operations For the Three and Six Months Ended June 30, 2017 and 2016 (Unaudited)	F-3
Condensed Consolidated Statement of Change in Stockholders’ Deficit For the Six Months Ended June 30, 2017 (Unaudited)	F-4
Condensed Consolidated Statements of Cash Flows For the Three and Six Months Ended June 30, 2017 and 2016 (Unaudited)	F-5
Notes to Condensed Consolidated Financial Statements (Unaudited)	F-6-F-29
ITEM 2. MANAGEMENT’ DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	3
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	25
ITEM 4. CONTROLS ND PROCEDURES	25
PART II – OTHER INFORMATION	26
ITEM 1. LEGAL MATTERS	26
ITEM 1A. RISK FACTORS	26
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	26
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	26
ITEM 5. OTHER INFORMATION	26
ITEM 6. EXHIBITS	27
SIGNATURES	28

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

HELPFUL ALLIANCE COMPANY

INDEX TO FINANCIAL STATEMENTS

June 30, 2017

 

		Page
Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2017 (Unaudited) and December 31, 2016		F-2
Condensed Consolidated Statements of Operations For the Three Months and Six Months Ended June 30, 2017 and 2016 (Unaudited)		F-3
Condensed Consolidated Statement of Change in Stockholders’ Deficit For the Six Months Ended June 30, 2017 (Unaudited)		F-4
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016 (Unaudited)		F-5
Notes to Condensed Consolidated Financial Statements (Unaudited)		F-6-F-29

 

 

HELPFUL ALLIANCE COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		June 30, 2017				December 31, 2016
		(unaudited)
ASSETS
CURRENT ASSETS:
Cash		$	3,918			$	402,409
Prepaid expenses and other current assets			1,107				2,650
Total Current Assets			5,025				405,059
OTHER ASSETS:
Equipment, net			1,703				1,843
Land held for development			-				320,128
Security deposit on lease			2,602				2,602
Due from affiliate			64,153				-
Home model			1,900				1,900
Investment			17,573				-
Total Other Assets			87,931				326,473
TOTAL ASSETS		$	92,956			$	731,532
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Accounts payable		$	86,673			$	80,232
Accrued expenses			22,697				73,664
Accrued interest payable			175,140				109,595
Customer deposit liability – related party			29,420				4,000
Cash overdraft			-				7,200
Note payable			-				600,000
Notes payable, related party			741,000				432,000
Convertible note payable			-				400,000
Total Current Liabilities			1,054,930				1,706,691
TOTAL LIABILITIES			1,054,930				1,706,691
COMMITMENTS AND CONTINGENCIES (NOTE 16)
STOCKHOLDERS’ DEFICIT:
Preferred stock ($0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding)			-				-
Common stock - series X, ($0.001 par value; 40,000,000 shares authorized; 6,606,250 and 6,606,250 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively)			6,606				6,606
Common stock, ($0.001 par value; 200,000,000 shares authorized; 2,100,000 and 2,100,000 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively)			2,100				2,100
Additional paid-in capital			1,286,432				1,285,594
Accumulated deficit			(2,257,112	)			(2,309,366	)
TOTAL Helpful Alliance Company STOCKHOLDERS’ DEFICIT			(961,974	)			(1,015,066	)
Non-controlling interest			-				39,907
TOTAL STOCKHOLDERS’ DEFICIT			(961,974	)			(975,159	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT		$	92,956			$	731,532

 

The accompanying notes are an integral part of these financial statements.

 

 

HELPFUL ALLIANCE COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		For the Three Months Ended								For the Six Months Ended
		June 30,								June 30,
		2017				2016				2017				2016
REVENUES
Revenue		$	-			$	130,533			$	-			$	138,405
Revenue, related party			113,785				-				113,785				-
Cost of revenue			15,600				-				15,600				-
Gross profit			98,185				130,533				98,185				138,405
OPERATING EXPENSES
Compensation			173,273				167,266				351,058				324,696
Professional fees			122,150				(13,929	)			145,219				60,521
Interest expense			37,451				29,761				74,864				58,101
Amortization of debt discount			-				434,182				-				434,182
Other selling, general and administrative			39,787				34,837				70,614				54,975
TOTAL OPERATING EXPENSES			372,661				652,117				641,755				932,475
LOSS FROM OPERATIONS			(274,476	)			(521,584	)			(543,570	)			(794,070	)
OTHER INCOME
Other income			26,160				30				26,160				116
Gain on settlement of debt			572,091				-				572,091				-
Loss on investment			(2,427	)			-				(2,427	)			-
TOTAL OTHER INCOME			595,824				30				595,824				116
NET INCOME (LOSS)		$	321,348			$	(521,554	)		$	52,254			$	(793,954	)
NET INCOME (LOSS) PER COMMON SHARE
Basic and diluted		$	0.15			$	(0.25	)		$	0.02			$	(0.38	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic and diluted			2,100,000				2,100,000				2,100,000				2,492,265

 

The accompanying notes are an integral part of these financial statements.

 

 

HELPFUL ALLIANCE COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

For the Six Months Ended June 30, 2017 (Unaudited)

 

		Preferred Stock								Common Stock – Series X								Common Stock
		Number of Shares				Amount				Number of Shares				Amount				Number of Shares				Amount				Additional Paid-in Capital				Accumulated Deficit				Non-Controlling Interest				Total Stockholders’ Deficit
Balance at December 31, 2016			-			$	-				6,606,250			$	6,606				2,100,000			$	2,100			$	1,285,594			$	(2,309,366	)		$	39,907			$	(975,159	)
Stock option issuance			-				-				-				-				-				-				838				-				-				838
Elimination of non-controlling interest in deconsolidated subsidiary			-				-				-				-				-				-								-				(39,907	)			(39,907	)
Net income			-				-				-				-				-				-				-				52,254				-				52,254
Balance at June 30, 2017 (Unaudited)			-			$	-				6,606,250			$	6,606				2,100,000			$	2,100			$	1,286,432			$	(2,257,112	)		$	-			$	(961,974	)

 

The accompanying notes are an integral part of these financial statements.

 

 

HELPFUL ALLIANCE COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		For the Six Months Ended
		June 30,
		2017				2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)		$	52,254			$	(793,954	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation			140				140
Stock option compensation			838				822
Gain on settlement of debt			(572,091	)			-
Amortization of debt discount			-				434,182
Loss on investment			2,427				-
Changes in operating assets and liabilities:
Note interest receivable			-				56,639
Notes receivable			-				411,000
Due from affiliate			(64,153	)			507
Prepaid expenses and other current assets			(25,669	)			(16,081	)
Accounts payable			18,005				45,308
Accrued expenses			(50,967	)			25,181
Accrued interest payable			66,840				(54,649	)
Land development cost			(22,194	)			(88,991	)
Customer deposit liability - related party			25,420				-
Net cash (used in) provided by operating activities			(569,150	)			20,104
CASH FLOWS FROM INVESTING ACTIVITIES
Patent cost			-				(3,506	)
Cash disposed of in deconsolidation			(742,251	)			-
Net cash used in investing activities			(742,251	)			(3,506	)
CASH FLOWS FROM FINANCING ACTIVITIES
Notes payable- related party			369,000				-
Cash overdraft			(7,200	)			-
Note payable			500,000				-
Non-controlling interest			51,110				-
Due to founder			-				55,174
Repayment of note payable			-				(400,000	)
Repurchase of Series-X common stock			-				(90,000	)
Note payable			-				260,000
Net cash provided by (used in) financing activities			912,910				(174,826	)
NET DECREASE IN CASH AND CASH EQUIVALENTS			(398,491	)			(158,228	)
CASH - BEGINNING OF PERIOD			402,409				214,784
CASH - END OF PERIOD		$	3,918			$	56,556
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest		$	9,320			$	112,750
Income taxes		$	-			$	-
NON-CASH INVESTING AND FINANCING ACTIVITIES
Settlement of debt for membership interests in deconsolidated subsidiary		$	1,000,000			$	-
Retirement of Series-X common stock		$	-			$	1,600
Debt discount on note payable		$	-			$	434,182

 

The accompanying notes are an integral part of these financial statements.

 

 

HELPFUL ALLIANCE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 and June 30, 2016

(Unaudited)

 

NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS

 

Incorporated in the state of Florida on April 11, 2012, we are an emergent growth construction management company with operations structured in three segments: (i) land development, (ii) engineering and (iii) construction. From our inception and going forward, we are developing core expertise in three areas: (i) designing master plans and developing land for neighborhoods of new generation; (ii) engineering and producing pre-fabricated building kits that would enable easy-to-build construction of new properties; and (iii) swift and inexpensive construction of building shells from foundation to roof. Our mission is to build new, health-conscious, tech-centric real-estate properties at lower cost and at superior speed.

 

From our inception to date, majority of our operations have been focused on engineering activities (i.e. testing novel building materials and developing proprietary building methods, revising and improving plan of development for our Seasons Creek community, and designing our building kits), and searching for land suitable for pilot-testing the selected technologies and building kits in real construction projects. However, because of significant time and effort constraints in conducting research and development and locating land for suitable construction projects to test the selected construction technology, the majority of our revenues from inception to date have been derived from financial assistance activities, in which we engaged in to generate sufficient working capital to fund our early stage business efforts. In 2016, we have completely withdrawn from the financial assistance segment and focused our efforts on the engineering, land development and construction activities.

 

We are an emerging growth company as defined in the JOBS Act. As an emerging growth company, we have elected, pursuant to Section 107(b) of the JOBS Act, to take advantage of the extended transition period provided in Securities Act Section 7(a)(2)(B) for complying with new or revised accounting standards. We will therefore delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. We may take advantage of this extended transition period provided in Securities Act Section 7(a)(2)(B) until the first to occur of the date we (i) are no longer an “emerging growth company” or (ii) affirmatively and irrevocably opt out of the extended transition period provided in Securities Act Section 7(a)(2)(B). As such, our financial statements may not be comparable to companies that comply with public company effective dates.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Going concern

 

These financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business.

 

As reflected in the accompanying unaudited financial statements, the Company had a net loss from operations of $543,570 and $794,070 for the six months ended June 30, 2017 and 2016, respectively, an accumulated deficit of $2,257,112 and working capital deficit of $1,049,905 at June 30, 2017. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital, implement its business plan, and generate significant revenues. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

 

HELPFUL ALLIANCE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 and June 30, 2016

(Unaudited)

 

Management is continuing with its plan to expand operations in construction and business development, which requires substantial additional working capital. The management believes that its current operating strategy, combined with continued funding, will provide the opportunity for the Company to continue as a going concern. The Company plans on raising capital through the sale of equity or debt instruments to implement its business plan. The Company remains dependent upon outside investors or its controlling stockholders to fund its operations. There is no assurance that the Company will raise the required capital or succeed in the realization of its business plans.

 

Principles of consolidation

 

The accompanying consolidated financial statements include the accounts of Helpful Alliance Company Inc., its wholly-owned subsidiaries, River City Park LLC, Washington Woods LLC, Alliance Business Park LLC, and Alliance Building Kits LLC from inception on May 31, 2017, and have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). All intercompany transactions and balances have been eliminated.

 

Deconsolidation of subsidiary

 

On June 30, 2017, Helpful Alliance Company settled the principal portion of a $1,000,000 note payable to unaffiliated party by issuing 20 Units of Class-A membership interests of our 67% owned subsidiary Seasons Creek Development LLC (“SCD”) in lieu of repaying the $1,000,000 principal amount of the loan (the “Transaction”). This Transaction is a settlement of debt that also results in the deconsolidation of SCD. Prior to the transaction, the Company’s direct ownership of SCD was 20 Units of Class-A membership interests (“Disposed Equity”) and 1 Unit of Common membership interest. After the transaction, the Company’s direct ownership of SCD is 1 Unit of Common membership interest (“Retained Equity”). Furthermore, on June 26, 5210 W Shore Drive LLC, redeemed the 1,100 Class A Preferred LLC Membership Interests with 14.0% Class A Preferred annual yield from Seasons Creek Development LLC for $116,160. We recognized the amount of $6,160 representing the 14% annual yield as other income, on consolidated basis with Seasons Creek Development LLC. Prior to June 26, 2017, Seasons Creek Development LLC owned 68.3% of the outstanding equity securities of 5210 W Shore Drive LLC. The remaining 31.7% were owned by affiliated non-controlling investors who prior to redemption invested an aggregate amount of $51,110 for their share of the subsidiary. 5210 WSD was consolidated with SCD from inception on January 2017 to June 26, 2017 when it SCD sold all of its membership interests of 5210 WSD and subsequently deconsolidated 5210 WSD. Where a company sells its controlling interest in a subsidiary it is a requirement that any profit or loss generated by the subsidiary is to be recorded in the consolidated financial statements for the period during which the Company had control of the subsidiary. We have included the income and expenses of SCD in the consolidated financial statements until June 30, 2017 when the Company ceased to control of the subsidiary and the income and expenses of 5210 W Shore Drive LLC from January 2017 until June 26, 2017 when SCD sold all of its interest in 5210 WSD. Accordingly, the Company derecognized related assets, liabilities and noncontrolling interests of SCD and 5210 WSD.

 

 

HELPFUL ALLIANCE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 and June 30, 2016

(Unaudited)

 

Use of estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the economic environment, which management believes to be reasonable under the circumstances. Management adjusts such estimates and assumptions when facts and circumstances dictate.

 

As future events and their effects cannot be determined with precision, actual results could differ from those estimates. Significant estimates during the six months ended June 30, 2017 and 2016 include valuation of warrant and allowance for doubtful accounts.

 

Basis of presentation

 

The accompanying unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted.

 

In our opinion, the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly our financial position as of June 30, 2017, the results of our operations for the six months ended June 30, 2017 and 2016, and our cash flows for the six months ended June 30, 2017 and 2016. The results of our operations for the six months ended June 30, 2017 are not necessarily indicative of the results to be expected for the full year due to seasonal variations in operating results and other factors. The balance sheet at December 31, 2016 has been taken from the audited financial statements as of that date. These unaudited financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2016.

 

Fair value of financial instruments and fair value measurements

 

The Company adopted the guidance of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

 

	Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
	Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
	Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

 

 

HELPFUL ALLIANCE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 and June 30, 2016

(Unaudited)

 

The carrying amounts reported in the balance sheets for cash, current notes receivable, accounts payable and accrued expenses, accrued interest payable and due to officer approximate their fair market value based on the short-term maturity of these instruments. Furthermore, non-current notes receivable amounts approximate their fair value since they carry market rates of interest. The Company did not have any non-financial assets or liabilities that are measured at fair value on a recurring basis as of June 30, 2017.

 

ASC 825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.

 

Cash and cash equivalents

 

Cash and cash equivalents consist of cash and short-term highly liquid investments purchased with original maturities of three months or less. There were no cash equivalents at June 30, 2017 and December 31, 2016.

 

Equipment

 

Equipment is carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed, and any resulting gains or losses are included in the Statement of Operations.

 

Land held for development

 

Land is carried at cost. The cost of development, construction activities and improvements are capitalized. The Company acquired two lands held for future development in State of Virginia, one in December 2015 at historical cost of $211,336, and in January 2017 the Company acquired a second land at a historical cost of $110,111, both of which represent the purchase price. During the six months ended June 30, 2017 and during the year ended December 31, 2016 the Company incurred costs attributable to the development activities in amount of $0 and $110,692, respectively, which were capitalized. On June 30, 2017, the Company deconsolidated the entities that owned the lands held for development (See Note 2, Deconsolidation of subsidiary).

 

Impairment of long-lived assets

 

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.

 

 

HELPFUL ALLIANCE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 and June 30, 2016

(Unaudited)

 

Investment in Unconsolidated Investees

 

The Company accounts for investments in which the Company owns less than 20% of the investee, using the cost method under ASC-325-20 requires the Company to account for the investment at its historical cost (i.e., the purchase price) and appears as an asset on the balance sheet of the Company unless the Company has the ability to exercise significant influence over operating and financial policies of an investee. The Company will account for its Seasons Creek Development LLC retained equity interest under applicable equity method according to US GAAP, because the subsequent operations of Seasons Creek Development LLC will be managed by the Company under the Exclusive Construction Management Agreement currently in effect.

 

The Company makes investments in real estate development entities. The investments have the following criteria, so the Company accounts for the investment using the cost method:

 

	●	The Company has no substantial influence over the investee (generally considered to be an investment of 20% or less of the shares of the investee).
	●	The investment has no easily determinable fair value.

 

Once the Company records the initial transaction, there is no need to adjust it, unless there is evidence that the fair market value of the investment has declined to below the recorded historical cost. If so, the Company writes down the recorded cost of the investment to its new fair market value.

 

Stock-based compensation

 

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award. Stock-based compensation is included in Compensation expense and totaled $838 and $822 for the six months ended June 30, 2017 and 2016, respectively.

 

Pursuant to ASC 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the service period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at the reporting date.

 

Revenue recognition

 

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the purchase price is fixed or determinable and collectability is reasonably assured. The Company’s specific revenue recognition policies are as follows:

 

Interest Income: Revenue is earned on the interest-bearing notes based on the effective yield of the financial instrument. In the six months ended June 30, 2017 and 2016, the Company had $0 and $14,191 revenues, respectively, generated from interest income. The Company records income from the settlement and sale of collateral from notes held into revenue when the note or collateral is sold and the cash proceeds are received. During the three and six months ended June 30, 2016, the Company recognized $124,214 of proceeds from the foreclosure and sale of one note.

 

 

HELPFUL ALLIANCE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 and June 30, 2016

(Unaudited)

 

Land Development Income: Revenue is earned from our land development activities, when services are rendered. We search for, find, and purchase land suitable for construction of intended properties, and manage land development works, including but not limited to creating plans of development, obtaining permits, conducting earthwork, site clearing, installation of utility lines, road creation, and other works necessary to result in the recordation of individual lots ready for commencement of real estate property construction. Most of these works are outsourced to independent contractors, whereas we manage the contractors’ performance based on our plans of development and project guidelines. We also conduct due diligence for potential project analysis, including, but not limited to, project feasibility studies using our engineering, architectural, and administrative resources; market research using a network of local real estate agents; and calculations of expected financial performance for each project type, size, timeline, budgets and profits. In the six months ended June 30, 2017 and 2016, the Company had $113,785 from affiliated companies and $0 revenues, respectively, generated by land development activities.

 

Construction: Revenues from the management of the construction, remodeling and sale of residential properties are recognized upon the sale of the properties. Most of these works are outsourced to independent contractors, whereas we manage the contractors’ performance based on our plans of development and project guidelines. In the six months ended June 30, 2017 and 2016, the Company had no revenues generated by construction activities.

 

Business Development: Revenues from sales of home kits are recognized when the sales are closed and home kits are delivered to the customer. In the six months ended June 30, 2017 and 2016, the Company had no revenues generated by the sale of home kits.

 

Engineering consulting: Revenues from sales of engineering consulting services are earned when services are provided. In the six months ended June 30, 2017 and 2016 the Company had no revenues generated by engineering consulting.

 

Segments

 

The Company follows the guidance of ASC 280-10 for “Disclosures about Segments of an Enterprise and Related Information.” During the six months ended June 30, 2017 and 2016, the Company only operated in one segment.

 

Income taxes

 

Deferred income tax assets and liabilities arise from temporary differences associated with differences between the financial statements and tax basis of assets and liabilities, as measured by the enacted tax rates, which are expected to be in effect when these differences reverse. Deferred tax assets and liabilities are classified as current or non-current, depending upon the classification of the asset or liabilities to which they relate. Deferred tax assets and liabilities not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

 

 

HELPFUL ALLIANCE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 and June 30, 2016

(Unaudited)

 

The Company follows the provisions of FASB ASC 740-10 “Uncertainty in Income Taxes” (ASC 740-10). Certain recognition thresholds must be met before a tax position is recognized in the financial statements. An entity may only recognize or continue to recognize tax positions that meet a “more-likely-than-not” threshold. As of June 30, 2017, and December 31, 2016, the Company does not believe it has any uncertain tax positions that would require either recognition or disclosure in the accompanying financial statements.

 

Advertising and promotion

 

Advertising and promotion is expensed as incurred and is included in other selling, general and administrative expense and totaled $7,964 and $4,677 for the six months ended June 30, 2017 and 2016, respectively.

 

Research and development

 

Expenditures for research and product development costs are expensed as incurred and are included in other selling, general and administrative expense and totaled $1,222 and $21 for the six months ended June 30, 2017 and 2016, respectively.

 

Basic and diluted earnings per share

 

Pursuant to ASC 260-10-45, basic earnings per common share is computed by dividing income (loss) available to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted income per share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. Diluted income (loss) per share reflects the potential dilution that could occur if securities were exercised or converted into common stock or other contracts to issue common stock resulting in the issuance of common stock that would then share in the Company’s income (loss) subject to anti-dilution limitations. Potentially dilutive common shares consist of common stock issuable for stock warrants, convertible debt, Series X - common stock, restricted stock options (using the treasury stock method). In periods where the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding as they would have had an anti-dilutive impact.

 

Net loss per share for each class of common stock is as follows:

 

		Six Months Ended June 30, 2017				Six Months Ended June 30, 2016
Net income (loss) per common shares outstanding:
Basic and diluted		$	0.02			$	(0.38	)
Weighted average common shares outstanding:
Basic and diluted			2,100,000				2,492,265

 

 

HELPFUL ALLIANCE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 and June 30, 2016

(Unaudited)

 

		Three Months Ended June 30, 2017				Three Months Ended June 30, 2016
Net income (loss) per common shares outstanding:
Basic and diluted		$	0.15			$	(0.25	)
Weighted average common shares outstanding:
Basic and diluted			2,100,000				2,100,000

 

The Company’s aggregate common stock equivalents at June 30, 2017 and June 30, 2016 included the following:

 

		June 30, 2017				June 30, 2016
Convertible notes			-				250,000
Warrants for common stock			2,000,000				2,625,000
Series X - common stock			6,606,250				6,606,250
Restricted stock options			1,432,000				1,432,000
Total			10,038,250				10,913,250

 

Related parties

 

Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions are recorded at historical cost of the goods or services exchanged.

 

Recent accounting pronouncements

 

In February 2016, the FASB issued ASU 2016-02, Leases, which will amend current lease accounting to require lessees to recognize (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model. This standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.

 

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which relates to the accounting for employee share-based payments. This standard addresses several aspects of the accounting for share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. This standard will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.

 

 

HELPFUL ALLIANCE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 and June 30, 2016

(Unaudited)

 

In April 2016, the FASB issued ASU 2016–10 Revenue from Contract with Customers (Topic 606): identifying Performance Obligations and Licensing “. The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. Topic 606 includes implementation guidance on (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments in this Update are intended render more detailed implementation guidance with the expectation to reduce the degree of judgement necessary to comply with Topic 606. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.

 

Reclassification

 

Certain reclassifications have been made to the prior year’s data to conform to current year representation. These reclassifications had no effect on the net loss.

 

NOTE 3 – EQUIPMENT

 

Equipment consists of the following:

 

		Estimated Useful
		Lives in Years		June 30, 2017				December 31, 2016
Trailer		10		$	2,800			$	2,800
Less total accumulated depreciation					(1,097	)			(957	)
Machinery and equipment, net				$	1,703			$	1,843

 

Depreciation expense for the six months ended June 30, 2017 and 2016 amounted to $140 and $140, respectively.

 

NOTE 4 – INVESTMENTS IN UNCONSOLIDATED INVESTEES

 

On June 30, 2017, the Company settled the principal portion of a $1,000,000 note payable to unaffiliated party by issuing 20 Units of Class-A membership interests of our 67% owned subsidiary Seasons Creek Development LLC (“SCD”) in lieu of repaying the $1,000,000 principal amount of the loan (the “Transaction”). We recognized a gain on deconsolidation of subsidiary in the amount of $572,091 during the six and three months ended June 30, 2017. This Transaction was a settlement of debt that also results in the deconsolidation of SCD. Prior to the transaction, the Company’s direct ownership of SCD was 20 Units of Class-A membership interests (“Disposed Equity”) and 1 Unit of Common membership interest. After the transaction, the Company’s direct ownership of SCD is 1 Unit of Common membership interest (“Retained Equity”). The Company had maintained a 3% voting interest (Common Class Member) in SCD. The Company accounted for its Seasons Creek Development LLC retained equity interest under applicable equity method according to US GAAP. The fair value of the retained equity interest is $17,573 at June 30, 2017.

 

 

HELPFUL ALLIANCE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 and June 30, 2016

(Unaudited)

 

NOTE 5 – CONVERTIBLE NOTES PAYABLE

 

Convertible debt consists of the following at June 30, 2017 and December 31, 2016:

 

		June 30, 2017				December 31, 2016
Convertible note in the principal amount of $400,000 was issued in June 2014. The note accrued interest at an annual rate of 8.0%, payable annually, with maturity in June 2017. This note was convertible into common stock at a conversion rate of $1.60 per share. Termination could occur prior to the maturity date for any reason with an early withdrawal notice one hundred days prior to the withdrawal date. If an early withdrawal does occur the principal loan amount shall be discounted by twenty percent. As of December 31, 2016, the amount of accrued interest was $32,533. On January 27, 2017, an amendment to this loan was made increasing the annual rate from 8.0% to 10.0% payable quarterly and this loan was combined with non-convertible note with principal amount of $600,000. The collateral for the non-convertible combined loan with principal amount of $1 million were Class-A Preferred Membership Interests of our subsidiary, Seasons Creek Development LLC, with conversion rate $50,000 per unit and the loan was no longer convertible into shares of Common Stock of the Company (See note 6). During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $0 and $32,444, respectively.		$	-			$	400,000
Total			-				400,000
Less Current Portion			-				(400,000	)
Convertible notes payable, long term		$	-			$	-

 

 

HELPFUL ALLIANCE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 and June 30, 2016

(Unaudited)

 

NOTE 6 – NOTES PAYABLE

 

Non-convertible debt consists of the following at June 30, 2017, and December 31, 2016:

 

		June 30, 2017				December 31, 2016
Convertible note in the principal amount of $1,000,000 was issued in March 2013. On May 16, 2016, the Company repaid $400,000 and issued a restated and amended note for the remaining amount due of $600,000 as a non-convertible note. The note accrued interest at an annual rate of 10.0%, payable quarterly, and matured on June 30, 2016. As of December 31, 2016, the amount of accrued interest was $70,192 and the note was in default for non-payment of principal and interest. On January 27, 2017, an extension to this loan was made extending the maturity date to June 30, 2017 and the note was combined with previously convertible note with principal amount of $400,000 (See note 5). The collateral for the combined loan were Class-A Preferred Membership Interests of our subsidiary, Seasons Creek Development LLC, with conversion rate $50,000 per unit. On June 30, 2017, the Company settled the principal portion of this $1,000,000 note payable by issuing 20 Units of Class-A membership interests of our 67% owned subsidiary Seasons Creek Development LLC in lieu of repaying the $1,000,000 principal amount of the loan (see Note 4). We recognized a gain on deconsolidation of subsidiary in the amount of $532,184 during the six and three months ended June 30, 2017. As of June 30, 2017, the amount of accrued interest under combined loan was $146,790. During the six months ended June 30, 2017, the Company did not make any payments for interest. The accrued interest under the combined loan is due on or before December 31, 2017.			-				600,000
Total			-				600,000
Less Current Portion			-				(600,000	)
Convertible notes payable, long term		$	-			$	-

 

NOTE 7 – NOTES PAYABLE - RELATED PARTIES

 

Notes payable with related parties consists of the following at June 30, 2017 and December 31, 2016:

 

		June 30, 2017				December 31, 2016
On February 22, 2016, the Company received $10,000 for note payable issued from an affiliated company. The note accrues interest at an annual rate of 5.0%, payable quarterly, and matures on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $125 and $126, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $249 and $0, respectively.		$	10,000			$	10,000
In February, March, April, May and June, 2016, the Company received an aggregate principal amount of $100,000 for notes payable issued from the Company’s founder. The notes accrue interest at an annual rate of 5.0%, payable quarterly, and mature on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $3,739 and $1,260, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $0 and $0, respectively.			100,000				100,000

 

 

HELPFUL ALLIANCE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 and June 30, 2016

(Unaudited)

 

On June 30, 2016, the Company received $50,000 for note payable issued from the Company’s founder. The note accrues interest at an annual rate of 8.0%, payable quarterly, and matures on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $2,991 and $1,008, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $0 and $0, respectively.			50,000				50,000
In July 2016, the Company received an aggregate principal amount of $75,000 for note payable issued from the Company’s founder. The notes accrue interest at an annual rate of 8.0%, payable quarterly, and mature on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $1,978 and $1,512, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $1,512 and $0, respectively. $50,000 note was derecognized on our balance sheet as of June 30, 2017 due to deconsolidation of the subsidiary.			25,000				75,000
In August 2016, the Company received an aggregate principal amount of $52,000 for note payable issued from the Company’s founder. The note accrues interest at an annual rate of 12.5%, payable monthly, and matures on December 31, 2017. June 30, 2017, and December 31, 2016, the amount of accrued interest was $543 and $534, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $2,558 and $0, respectively.			52,000				52,000
In August 2016, the Company received an aggregate principal amount of $5,000 for note payable issued from an affiliated company. The note accrues interest at an annual rate of 12.5%, payable quarterly, and matures on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $310 and $158, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $158 and $0, respectively. This note was derecognized on our balance sheet as of June 30, 2017 due to deconsolidation of the subsidiary.			-				5,000

 

In September 2016, the Company received an aggregate principal amount of $50,000 for note payable issued from the Company’s founder. The notes accrue interest at an annual rate of 12.5%, payable quarterly, and mature on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $4,674 and $1,575, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $0 and $0, respectively.			50,000				50,000
In October 2016, the Company received a principal amount of $5,000 for note payable issued from the Company’s founder. The note accrues interest at an annual rate of 12.5%, payable quarterly, and matures on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $0 and $139, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $139 and $0, respectively. This note was derecognized on our balance sheet as of June 30, 2017 due to deconsolidation of the subsidiary.			-				5,000

 

 

HELPFUL ALLIANCE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 and June 30, 2016

(Unaudited)

 

In November 2016, the Company received an aggregate principal amount of $20,000 for notes payable issued from an affiliated company. The notes accrue interest at an annual rate of 5.0%, payable quarterly, and mature on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $249 and $156, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $403 and $0, respectively.			20,000				20,000
In November 2016, the Company received a principal amount of $5,000 for note payable issued from the Company’s founder. The note accrues interest at an annual rate of 12%, payable quarterly, and matures on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $298 and $64, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $0 and $0, respectively.			5,000				5,000
In November 2016, the Company received a principal amount of $5,000 for note payable issued from the Company’s founder. The note accrues interest at an annual rate of 12%, payable quarterly, and matures on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $298 and $61, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $61 and $0, respectively.			5,000				5,000
In December 2016, the Company received an aggregate principal amount of $55,000 for notes payable issued from an affiliated company. The notes accrue interest at an annual rate of 12.0%, payable quarterly, and mature on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $1,645 and $278, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $1,905 and $0, respectively.			55,000				55,000
In January, February, March, April and May 2017, the Company received an aggregate principal amount of $240,000 for notes payable issued from the Company’s founder. The notes accrue interest at an annual rate of 12%, payable quarterly, and mature on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $6,128 and $0, respectively. During the six months ended June 30, 2017 and 2016, the Company did not make any payments for interest, respectively.			240,000				-

 

 

HELPFUL ALLIANCE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 and June 30, 2016

(Unaudited)

 

In January, February and May 2017, the Company received an aggregate principal amount of $102,500 for notes payable issued from an affiliated company. The notes accrue interest at an annual rate of 12.0%, payable quarterly, and mature on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $2,756 and $0, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest, $1,746 and $0, respectively.			102,500				-
In April, May and June 2017, the Company received a principal amount of $6,500 for notes payable issued from the Company’s founder. The notes accrue interest at an annual rate of 12%, payable quarterly, and mature on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $93 and $0, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $0 and $0, respectively.			6,500				-
In May 2017, the Company received a principal amount of $20,000 for note payable issued from an affiliated company. The note accrues interest at an annual rate of 12.0%, payable quarterly, and matures on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $289 and $0, respectively. During the six months ended June 30, 2017 and 2016, the Company did not make any payments for interest, respectively.			20,000				-
In June 2017, the Company received discounted amount of $500,000 for note payable with principal amount of $585,000 issued from an affiliated company. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $0 and $0, respectively. During the six months ended June 30, 2017 and 2016, the Company did not make any payments for interest, respectively. This note was derecognized on our balance sheet as of June 30, 2017 due to deconsolidation of the subsidiary.			-				-
Total			741,000				432,000
Less Current Portion			(741,000	)			(432,000	)
Notes payable - related party, long term		$	-			$	-

 

Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist.

 

NOTE 8 –ACCRUED EXPENSES

 

At June 30, 2017 and December 31, 2016, accrued expenses consisted of the following:

 

		June 30, 2017				December 31, 2016
Accrued payroll		$	9,669			$	11,326
Payroll taxes payable			12,482				62,338
Reimbursement due to employee			546				-
Total		$	22,697			$	73,664

 

 

HELPFUL ALLIANCE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 and June 30, 2016

(Unaudited)

 

NOTE 9 – DUE FROM AFFILIATES

 

At June 30, 2017 and December 31, 2016, Due from Affiliates, which are in the form of a receivable consisted of the following:

 

		June 30, 2017				December 31, 2016
Officer		$	-			$	507
Management fees			64,153				-
Total		$	64,153			$	507

 

As of June 30, 2017, the Company had receivables from its deconsolidated subsidiary of $64,153 for land development management fees. As of December 31, 2016, the Company had receivables from its founder in amount of $507 for payment made on behalf of our founder and has been included in Due from affiliate on the accompanying balance sheets.

 

Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist.

 

NOTE 10 – RELATED PARTY TRANSACTIONS

 

Due from affiliates

 

As of June 30, 2017, the Company had receivables from its deconsolidated subsidiary of $64,153 for land development management fees. As of December 31, 2016, the Company had receivables from its founder in amount of $507 for payment made on behalf of our founder and has been included in Due from affiliate on the accompanying balance sheets (see Note 9).

 

Due to affiliates

 

On February 22, 2016, the Company received $10,000 for note payable issued from an affiliated company. The note accrues interest at an annual rate of 5.0%, payable quarterly, and matures on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $125 and $126, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $249 and $0, respectively (see Note 7).

 

In February, March, April, May and June, 2016, the Company received an aggregate principal amount of $100,000 for notes payable issued from the Company’s founder. The notes accrue interest at an annual rate of 5.0%, payable quarterly, and mature on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $3,739 and $1,260, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $0 and $0, respectively (see Note 7).

 

On June 30, 2016, the Company received $50,000 for note payable issued from the Company’s founder. The note accrues interest at an annual rate of 8.0%, payable quarterly, and matures on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $2,991 and $1,008, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $0 and $0, respectively (see Note 7).

 

 

HELPFUL ALLIANCE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 and June 30, 2016

(Unaudited)

 

In July 2016, the Company received an aggregate principal amount of $75,000 for note payable issued from the Company’s founder. The notes accrue interest at an annual rate of 8.0%, payable quarterly, and mature on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $1,978 and $1,512, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $1,512 and $0, respectively. $50,000 note was derecognized on our balance sheet as of June 30, 2017 due to deconsolidation of the subsidiary (see Note 7).

 

In August 2016, the Company received an aggregate principal amount of $52,000 for note payable issued from the Company’s founder. The note accrues interest at an annual rate of 12.5%, payable monthly, and matures on December 31, 2017. June 30, 2017, and December 31, 2016, the amount of accrued interest was $543 and $534, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $2,558 and $0, respectively (see Note 7).

 

In August 2016, the Company received an aggregate principal amount of $5,000 for note payable issued from an affiliated company. The note accrues interest at an annual rate of 12.5%, payable quarterly, and matures on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $310 and $158, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $158 and $0, respectively. This note was derecognized on our balance sheet as of June 30, 2017 due to deconsolidation of the subsidiary (see Note 7).

 

In September 2016, the Company received an aggregate principal amount of $50,000 for note payable issued from the Company’s founder. The notes accrue interest at an annual rate of 12.5%, payable quarterly, and mature on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $4,674 and $1,575, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $0 and $0, respectively (see Note 7).

 

In October 2016, the Company received a principal amount of $5,000 for note payable issued from the Company’s founder. The note accrues interest at an annual rate of 12.5%, payable quarterly, and matures on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $0 and $139, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $139 and $0, respectively. This note was derecognized on our balance sheet as of June 30, 2017 due to deconsolidation of the subsidiary (see Note 7).

 

In November 2016, the Company received an aggregate principal amount of $20,000 for notes payable issued from an affiliated company. The notes accrue interest at an annual rate of 5.0%, payable quarterly, and mature on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $249 and $156, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $403 and $0, respectively (see Note 7).

 

In November 2016, the Company received a principal amount of $5,000 for note payable issued from the Company’s founder. The note accrues interest at an annual rate of 12%, payable quarterly, and matures on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $298 and $64, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $0 and $0, respectively (see Note 7).

 

 

HELPFUL ALLIANCE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 and June 30, 2016

(Unaudited)

 

In November 2016, the Company received a principal amount of $5,000 for note payable issued from the Company’s founder. The note accrues interest at an annual rate of 12%, payable quarterly, and matures on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $298 and $61, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $61 and $0, respectively (see Note 7).

 

In December 2016, the Company received an aggregate principal amount of $55,000 for notes payable issued from an affiliated company. The notes accrue interest at an annual rate of 12.0%, payable quarterly, and mature on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $1,645 and $278, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $1,905 and $0, respectively (see Note 7).

 

In January, February, March, April and May 2017, the Company received an aggregate principal amount of $240,000 for notes payable issued from the Company’s founder. The notes accrue interest at an annual rate of 12%, payable quarterly, and mature on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $6,128 and $0, respectively. During the six months ended June 30, 2017 and 2016, the Company did not make any payments for interest, respectively (see Note 7).

 

In January, February and May 2017, the Company received an aggregate principal amount of $102,500 for notes payable issued from an affiliated company. The notes accrue interest at an annual rate of 12.0%, payable quarterly, and mature on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $2,756 and $0, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest, $1,746 and $0, respectively (see Note 7).

 

In April, May and June 2017, the Company received a principal amount of $6,500 for notes payable issued from the Company’s founder. The notes accrue interest at an annual rate of 12%, payable quarterly, and mature on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $93 and $0, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $0 and $0, respectively (see Note 7).

 

In May 2017, the Company received a principal amount of $20,000 for note payable issued from an affiliated company. The note accrues interest at an annual rate of 12.0%, payable quarterly, and matures on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $289 and $0, respectively. During the six months ended June 30, 2017 and 2016, the Company did not make any payments for interest, respectively (see Note 7).

 

In June 2017, the Company received discounted amount of $500,000 for note payable with principal amount of $585,000 issued from an affiliated company. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $0 and $0, respectively. During the six months ended June 30, 2017 and 2016, the Company did not make any payments for interest, respectively. This note was derecognized on our balance sheet as of June 30, 2017 due to deconsolidation of the subsidiary (see Note 7).

 

Other related party transactions

 

On April 25, 2017, the Company received $20,000 from an affiliated company for purchase of all rights for U.S. Patent Application 62/222,424 - Building block and interlocking construction method filed on September 23, 2015.

 

In the three and six months ended June 30, 2017, the Company had $113,785 from affiliated companies generated by land development activities.

 

Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist.

 

 

HELPFUL ALLIANCE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 and June 30, 2016

(Unaudited)

 

NOTE 11 – CONCENTRATIONS

 

Concentration of credit risk

 

The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. The Company has not experienced any losses in such accounts through June 30, 2017. There was $0 and $152,409 excess of FDIC insured levels as of June 30, 2017, and December 31, 2016, respectively.

 

Credit risk with notes receivable

 

We are generally exposed to the risk that third parties that owe us money, securities or other assets do not meet their performance obligations due to bankruptcy, lack of liquidity, operational failure or other reasons.

 

Declines in the real estate market or sustained economic downturns may cause us to write down the value of some of our loans or foreclose on certain real estate properties. Credit quality generally may also be affected by adverse changes in the financial performance or condition of our debtors or deterioration in the strength of the U.S. economy.

 

Customers

 

Three customers accounted for 10% or more of the Company’s revenue, totaling 98.4%, and two customers accounted for 10% or more of the Company’s revenue, totaling 100%, during the six months ended June 30, 2017 and 2016, respectively.

 

		Six Months Ended June 30, 2017				Six Months Ended June 30, 2016
Customer 1 (Interest income)			-	%			89.1	%
Customer 2 (Interest income)			-	%			10.9	%
Customer 3 (Land development management, related party)			43.9	%			-
Customer 4 (Land search, feasibility studies, related party)			28.1	%			-
Customer 5 (Land development management, related party)			26.4	%			-
			98.4	%			100	%

 

Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist.

 

Suppliers

 

No supplier accounted for 10% or more of the Company’s purchase during the six months ended June 30, 2017 and 2016, respectively.

 

 

HELPFUL ALLIANCE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 and June 30, 2016

(Unaudited)

 

NOTE 12 – NON-CONTROLLING INTEREST

 

On October 19, 2016, our subsidiary, Seasons Creek Development LLC issued 33% ownership structured in the form of 10 units of Class-B Preferred Share LLC Membership Interests bearing 14.0% annual yield and the right for Class-B Preferred Profit Share of 30%. Both, the Class-B Preferred Yield and the Class-B Preferred Profit Share are payable to Class-B LLC Member upon completion of the Seasons Creek project or as declared by our Board of Directors for $50,000 per unit or aggregate $500,000 for 10 units. In November 2016, as a result from this sale, our ownership in Seasons Creek Development LLC was diluted from 100% to 67% and structured in the form of 20 Units of Class-A Preferred Share LLC Membership Interests bearing 14.0% annual yield and Class-A Preferred Profit Share of 30%, both payable to us upon completion of the Seasons Creek project or as declared by our Board of Directors and 1 Unit Common Share LLC Membership Interests. The sale of the non-controlling interest was accounted for under ASC 810-10-45, which requires the Company to account for proceeds in excess of the carrying amount as an adjustment to additional paid-in capital. The Company recorded $410,000 increase in Additional Paid-in Capital. Furthermore, upon completion of this sale, we have entered the Amended and Restated Exclusive Construction Management Agreement with new member of Seasons Creek Development LLC entitling us to approximately $1.75 million in construction management fees payable to us upon completion of the Seasons Creek project.

 

On January 30, 2017, Seasons Creek Development LLC acquired 1,100 Class A Preferred LLC Membership Interests in 5210 W Shore Drive LLC, a Virginia limited liability company for $110,000, which were used to purchase an individual building lot located at 5210 West Shore Road, Midlothian, Virginia 23112. On February 6, 2017, 5210 W Shore Drive LLC issued 1,100 Class A Preferred LLC Membership Interests to Seasons Creek Development LLC. The 1,100 Class A Preferred LLC Membership Interests bear 14.0% Class A Preferred annual yield and are redeemable at any time. Seasons Creek Development LLC owned 97.5% of the outstanding equity securities of 5210 W Shore Drive LLC. The remaining 2.5% were owned jointly by Gurin Group LLC, which is operated by our officer and director, Mr. Sergey Gurin, Ms. Tatyana Gurina, daughter of our officer and director Mr. Sergey Gurin, and by Ms. Ganna Mikheleva, one of our employees, all of whom invested an aggregate amount of $8,100 into 5210 W Shore Drive LLC.

 

On June 30, 2017, Helpful Alliance Company settled the principal portion of a $1,000,000 note payable by issuing 20 Units of Class-A membership interests of our 67% owned subsidiary Seasons Creek Development LLC (“SCD”) in lieu of repaying the $1,000,000 principal amount of the loan (the “Transaction”). This Transaction is a settlement of debt that also results in the deconsolidation of SCD. Furthermore, on June 26, 5210 W Shore Drive LLC (“5210 WSD”), redeemed the 1,100 Class A Preferred LLC Membership Interests with 14.0% Class A Preferred annual yield from Seasons Creek Development LLC for $116,160. We recognized the amount of $6,160 representing the 14% annual yield as other income, on consolidated basis with Seasons Creek Development LLC. Prior to June 26, 2017, Seasons Creek Development LLC owned 68.3% of the outstanding equity securities of 5210 W Shore Drive LLC. The remaining 31.7% were owned by affiliated non-controlling investors who prior to redemption invested an aggregate amount of $51,110 for their share of the subsidiary. 5210 WSD was consolidated with SCD from inception on January 2017 to June 26, 2017 when SCD sold all of its membership interests of 5210 WSD and subsequently deconsolidated 5210 WSD. Where a company sells its controlling interest in a subsidiary it is a requirement that any profit or loss generated by the subsidiary is to be recorded in the consolidated financial statements for the period during which the Company had control of the subsidiary. We have included the income and expenses of SCD in the consolidated financial statements from the inception on November 30, 2015 to June 30, 2017 when the Company ceased to control of the subsidiary and the income and expenses of 5210 W Shore Drive LLC from January 2017 until June 26, 2017 when SCD sold all of its interest in 5210 WSD. Accordingly, the Company derecognized related assets, liabilities and noncontrolling interests of SCD and 5210 WSD.

 

 

HELPFUL ALLIANCE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 and June 30, 2016

(Unaudited)

 

As of June 30, 2017 and December 31, 2016, our consolidated balance sheets reflected total non-controlling interests of $0 and $39,907, respectively, which represents the equity portion of our subsidiary held by non-controlling investors in Seasons Creek Development LLC.

 

note 13 – STOCKHOLDERs’ EQUITY (DEFICIT)

 

On July 1, 2014 the Company amended the Articles of Incorporation to decrease the total authorized shares from 2.5 billion to 250 million and increased the par value from $0.0001 to $0.001. The amended authorized shares consist of 10,000,000 preferred shares, 40,000,000 Series-X common shares and 200,000,000 common shares.

 

Preferred Stock

 

The Company is authorized to issue 10,000,000 shares of its $0.001 par value preferred stock in one or more series with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors. As of June 30, 2017 and December 31, 2016, no preferred shares were issued and outstanding.

 

Series-X Common Stock

 

The Company is authorized to issue 40,000,000 shares of its $0.001 par value Series-X common stock. The shares of Series-X common stock have no voting rights, no dividend rights, no liquidation rights, and no registration rights. Each one share of Series-X common stock may be converted into one share of fully paid Common stock, from time to time, as permitted by the Company’s Board of Directors. As of June 30, 2017 and December 31, 2016, 6,606,250 and 6,606,250 shares of Series-X common stock were issued and outstanding, respectively.

 

On March 31, 2015 the Company issued 206,250 Series-X common shares to a note-holder for the conversion of his $330,000 note. This stock can be converted to common stock as follows:

 

	●	With respect to 20% of the Shares, on the date when the Company’s Board of Directors announces its decision to undertake an initial public offering of any of the Company’s securities;
	●	With respect to the additional 25% of such shares, on the date when the price per common share of the Company on public market exceeds $5.00 for any 20 consecutive trading days;
	●	With respect to the next additional 25% of such shares on the date when the price per common share of the Company on public market exceeds $7.00 for any 20 consecutive trading days;
	●	With respect to the remaining 30% of such shares, on the date when the price per common share of the Company on public market exceeds $10.00 for any 20 consecutive trading days;

 

Or earlier, if the Company engages in a transaction (1) resulting in its shareholders having the right to exchange their shares for cash or other securities or (2) involving a consolidation, merger or other change in the majority of our board of directors or management team in which the company is the surviving entity.

 

 

HELPFUL ALLIANCE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 and June 30, 2016

(Unaudited)

 

Common Stock

 

The Company is authorized to issue 200,000,000 shares of its $0.001 par value common stock. As of June 30, 2017 and December 31, 2016, 2,100,000 shares of common stock were issued and outstanding, respectively.

 

Warrants for Common Stock

 

On April 15, 2015, the Company received $100,000 for warrants sold on April 10, 2015 from a related Company, AssetsTZ Holdings LLC, exercisable to purchase up to an aggregate of 2,000,000 shares of common stock with an exercise price of $1.60 per warrant, exercisable from December 31, 2016 to December 31, 2019. As long as the investor owns 5% of the outstanding shares of voting stock in the company, he is eligible to nominate a representative to the Company’s Board of Directors. This agreement also contains registration rights.

 

On April 29, 2016, the Company issued a warrant in consideration of the extension of the maturity date of convertible note payable with principal amount of $1,000,000 to June 30, 2016, to purchase up to an aggregate of 625,000 shares of Common stock of the Corporation, at an exercise price of $1.60 per share of Common Stock, exercisable in full or in part at any time vesting from January 1, 2018 and expiring on December 31, 2028. As long as the investor owns 5% of the outstanding shares of voting stock in the company, he is eligible to nominate a representative to the Company’s Board of Directors. This agreement also contains registration rights. This warrant was valued using the Black-Scholes model using a volatility of 87.85% (derived using the average volatility of three similar public companies), an expected term of 1.7 years and a discount rate of 0.77%. The fair value of the warrant of $434,182 was treated as a debt discount on the note payable. The debt discount was amortized over the life of the note, which was due on June 30, 2016 and amortization of debt discount expense of $434,182 was recorded for the six months ended June 30, 2016. On June 30, 2017, Helpful Alliance Company settled the principal portion of a $1,000,000 note payable by issuing 20 Units of Class-A membership interests of our 67% owned subsidiary Seasons Creek Development LLC (“SCD”) in lieu of repaying the $1,000,000 principal amount of the loan and the Lender abandoned, and the Company cancelled the warrant as part of the settlement.

 

Restricted Stock Option

 

In April 2015, a Director was granted 432,000 restricted shares of the Company’s Series-X Common stock options. The option shall be valid for as long as the Director remains rendering services to, or otherwise engaged with, the Company, and expires on December 31, 2019. The restricted stock options shall become vested in the following amount(s) at the following times, and upon the following conditions, provided that the service of the Director continues through and on the applicable Vesting Date:

 

 

HELPFUL ALLIANCE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 and June 30, 2016

(Unaudited)

 

Number of Shares of Restricted Stock		Vesting Event
43,200 Restricted Series X common shares		Date on which the Company’s common stock is registered by the U.S. Securities and Exchange Commission (the “SEC”) as evidenced by the Notice of Effectiveness issued by the SEC in response to filing by the Company of a registration statement for its securities.
86,400 Restricted Series X common shares		When the closing price of the Company’s common stock trading on public over the counter market exceeds $5.00 per share for any 20 trading days within a 30-trading day period.
Additional 86,400 Restricted Series X common shares		When the closing price of the Company’s common stock trading on public over the counter market exceeds $7.00 per share for any 20 trading days within a 30-trading day period.
108,000 Restricted Series X common shares		When the closing price of the Company’s common stock trading on public over the counter market exceeds $10.00 per share for any 20 trading days within a 30-trading day period.
Additional 108,000 Restricted Series X common shares		When the closing price of the Company’s common stock trading on public over the counter market exceeds $12.00 per share for any 20 trading days within a 30-trading day period, or earlier, if the Company engages in a transaction (1) resulting in our shareholders having the right to exchange their shares for cash or other securities or (2) involving a consolidation, merger or other change in the majority of board of directors in which the company is the surviving entity.

 

This stock option was valued using the Black-Scholes model using a volatility of 69.56% (derived using the average volatility of three similar public companies), an expected term of 4.7 years and a discount rate of 1.33%. The value of the stock option, $450 will be recognized as expense over the period required to meet the performance criteria which is estimated to be approximately five years. Stock compensation expense of $30 was recorded for the six months ended June 30, 2017.

 

In December 2015, three employees and the Company’s counsel were each granted 250,000 options to purchase restricted shares of the Company’s Series-X Common Stock options or an aggregate amount of 1 million restricted shares. The option shall be valid for as long as the Optionee remains rendering services to or otherwise engaged with the Company, and expires on December 31, 2021.

 

The shares of Restricted Stock shall become vested in the following amount(s) at the following times, and upon the following conditions, provided that the Continuous Service of the Recipient continues through and on the applicable Vesting Date:

 

Number of Shares of Restricted Stock		Vesting Event
500,000 shares of Restricted Stock		December 1, 2016
500,000 shares of Restricted Stock		December 1, 2017

 

This stock option was valued using the Black-Scholes model using a volatility of 94.44% (derived using the average volatility of three similar public companies), an expected term of 6.1 years and a discount rate of 1.59%. The value of the stock option for each of the three employees and the Company’s counsel, $2,480 will be recognized as expense over the period required to meet the performance criteria which is estimated to be approximately six years.

 

 

HELPFUL ALLIANCE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 and June 30, 2016

(Unaudited)

 

Stock compensation expense of aggregate $838, and $822 was recorded for the six months ended June 30, 2017 and 2016, respectively.

 

A summary of option activity under the Company’s stock plan for the six months ended June 30, 2017 is presented below:

 

Option Activity		Shares				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term				Aggregate Intrinsic Value
Outstanding at December 31, 2016			1,432,000			$	0.11				4.4 years				-
Granted			-			$	-
Exercised			-			$	-
Forfeited or Expired			-			$	-
Outstanding at June 30, 2017			1,432,000			$	0.11				3.8 years			$	-
Exercisable at June 30, 2017			543,200			$	0.11				3.8 years			$	-

 

The aggregate intrinsic value in the table above is before applicable income taxes and represents the excess amount over the exercise price optionees would have received if all options had been exercised on the last business day of the period indicated.

 

A summary of the Company’s non-vested options for the three months ended June 30, 2017 is presented below:

 

Non-vested Options		Shares				Weighted Average Grant-Date Fair Value
Non-vested at December 31, 2016			888,800			$	0.01
Granted			-				-
Vested			-				-
Forfeited			-				-
Non-vested at June 30, 2017			888,800			$	0.01

 

The weighted average grant-date fair value of stock options granted for six months ended June 30, 2017 and fiscal year ended December 31, 2016 $0 and $0, respectively. The total grant-date fair values of stock options that vested during the six months ended June 30, 2017 and during fiscal year 2016 were $0 and $5,432, respectively.

 

 

HELPFUL ALLIANCE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 and June 30, 2016

(Unaudited)

 

NOTE 16 – COMMITMENTS AND CONTINGENCIES

 

On November 1, 2016, the Company executed an office lease for the offices at Deerfield Beach, FL, to a non-affiliated company. The rent is $2,602 per month. The term of the lease is from November 1, 2016 to October 31, 2018. One security deposit of $2,602 and one-month prepaid rent of $2,602 was required.

 

Office lease expense was $15,800 and $10,669 for the six months ended June 30, 2017 and 2016, respectively.

 

NOTE 17 – SUBSEQUENT EVENTS

 

In July 2017, the Company received a principal amount of $20,000 for note payable issued from Company’s founder. The note accrues interest at an annual rate of 12.0%, payable quarterly, and matures on December 31, 2017.

 

On July 19, 2017, the Company received a $25,000 customer deposit for land development services from an affiliated company.

 

On August 8, 2017, the Company sold its 1 Common Unit of Seasons Creek Development LLC membership interests for $20,000. The Company has no further ownership of Seasons Creek Development LLC.

 

On August 9, 2017, Seasons Creek Development LLC and Helpful Alliance have executed the Management Termination Settlement Agreement (the “Termination”), under which Helpful Alliance shall complete the steps of land development activities that initiated before the Termination but will continue until Seasons Creek Development LLC recordation of individual building lots, as will be indicated by the receipt of official documentation to that effect from Chesterfield County, Virginia authorities. Resulting from the Termination, Seasons Creek Development LLC will owe to Helpful Alliance Company (a) $916,140 for management of land development activities prior to the Termination, (b) $64,153 for reimbursement of expenses accrued prior to the Termination recorded as due from affiliate on our balance sheet as of June 30, 2017, and (c) $97,425 of accrued 14.0% annual preferred yield from November 30, 2016 to June 30, 2017 on ownership of 20 units Class A Preferred Share LLC Membership Interests of Seasons Creek Development LLC upon completion of project, a total of $1,077,718. We will record the $916,140 on the books of Helpful Alliance Company as due from affiliate upon recordation of individual building lots. There will be no compensation to Helpful Alliance Company from the Termination date to the date of recordation of individual building lots. Helpful Alliance Company no longer has any managerial power of control over the Seasons Creek Development LLC operations. The steps subject to completion under the Termination agreement shall be conducted by Helpful Alliance Company acting merely as agent-representative of Seasons Creek Development LLC and not as a manager. Specifically, the holder of Class-B LLC Membership Interests, Mr. Mirmanov, is appointed as Manager of Seasons Creek Development LLC effective from August 9, 2017. As Manager of Seasons Creek Development LLC, Mr. Mirmanov is able to exercise all managerial and executive powers over the Seasons Creek Development LLC operations, including but not limited to replacing Helpful Alliance Company in its role as agent-representative with any other individual or entity of his choice. Helpful Alliance Company would have no remedy for such a dismissal and/or replacement.

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements. Our forward-looking statements include, but are not limited to, statements regarding our or our management’s expectations, hopes, beliefs, intentions or strategies regarding the future. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors” in our Registration Statement on Form S-1, declared effective by the Securities and Exchange Commission on September 8, 2016. 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. You should not place undue reliance on any forward-looking statement. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. There is no assurance that the milestones, business plans, or contemplated future events we identify in this Quarterly Report on Form 10-Q will be achieved, or/and that we will actually be able to raise the investment proceeds as currently planned and described in this Quarterly Report on Form 10-Q, or that if we obtain such investments, we will be actually able to complete the milestones of our business plan, according to the anticipated timeframe, if at all.

 

Overview

 

Incorporated in the state of Florida on April 11, 2012, we are an emerging growth construction management company with operations structured in three segments: (i) land development, (ii) engineering and (iii) construction. Since our inception, we have been developing core expertise in three areas: (a) engineering and producing pre-fabricated building kits intended to enable the easy-to-build construction of new properties; (b) designing master plans and developing land for neighborhoods of the next generation; and (c) learning to erect building shells from foundation to roof swiftly and inexpensively. Our mission is to build new, health-conscious, tech-centric real-estate properties at lower cost and at superior speed.

 

To date, the majority of our operations have been focused on engineering activities (i.e., testing novel building materials and developing proprietary building methods, revising and improving the development plan for our Seasons Creek community consisting of approximately 28.8 acres located in Chesterfield, Virginia, and designing our building kits), and searching for land suitable to test pilot selected technologies and building kits in real construction projects. However, because of significant time and capital constraints in conducting research and development and locating land for suitable construction projects to test the selected construction technology, the majority of our revenues from inception to 2016 were derived from financial assistance activities in which we engaged to generate sufficient working capital to fund our early stage business efforts. In 2016, we completely withdrew from the financial assistance segment and focused our efforts on the engineering, land development and construction activities.

 

We are headquartered in Deerfield Beach, Florida (within the Fort Lauderdale, FL metropolitan area), and presently engaged in searching, purchasing, and developing raw land for building residential and commercial real estate properties in the Florida and Virginia. Upon incorporation, our founders, Dr. Temnikov, Mr. Gurin and FVZ, LLC (represented by Ms. Fay Katz and Mr. Val Zevel), collectively invested $100,000 to finance our start-up expenses. In addition, our initial investors collectively invested approximately $2.9 million in equity and debt. In addition, Dr. Temnikov and Mr. Gurin, directly and through affiliated entities, loaned approximately $1million to the Company, and unaffiliated third parties invested an aggregate of $500,000 equity capital into our subsidiary, Seasons Creek Development LLC. From inception to date of this report, the aggregate amount of $4.5 million was contributed to our business operations by our founders and investors.

 

 

On September 8, 2016, our Registration Statement on Form S-1 (File No. 333-205358) was declared effective by the Securities and Exchange Commission (the “Registration Statement”). We registered 15,025,658 shares of common stock at an offering price of $2 per share, of which 14,500,000 shares, or 96.5%, were registered by the Company in connection with its initial public offering and the remaining 525,658 shares, or 3.5%, were register on behalf of the Selling Stockholders named in the Registration Statement. As of the date of this report, no shares have been sold pursuant to the Registration Statement and there is no public trading market for our securities.

 

Operating Segments:

 

● Engineering: In the course of our engineering activities, we are creating and developing (a) proprietary construction systems and methods of their assembly that are anticipated to enable us and our partners to optimize the cost-benefit efficiency of the construction process, (b) proprietary building kits that, when prefabricated, are expected to enable us and our partners build real estate properties at a lower cost and superior speed, and (c) proprietary plans of development for our living communities that we intend to market under our Organic CommunityTM brand.

 

At the date of this report, we have one patent application pending review by the U.S. Patent and Trademark Office (USPTO) cited below on page 9. We believe when issued, our patents should provide adequate protection of our intellectual properties. However, at the time of this report, we cannot assure you that any of our patents would be granted or issued by the USPTO, or if issued, that such patents would not be challenged with reexamination, and, if so challenged, that such patents would be reaffirmed by the USPTO. We cannot assure you that a third party would not infringe on our patents (when and if issued) and that we will be able to adequately protect our patents and other intellectual properties if and as required. At the date of this report, we cannot assure, that we will have the necessary financing to conduct our engineering research and development activities on time or at all.

 

At the date of this report, we have not completed the development of any building kits nor are any kits presently for sale. However, in March 2017 we have completed architectural design for our first single-family home building kit, the Woodlake home model kit, which we anticipate testing during 2017 through the construction of this property at 5210 West Shore Road, Midlothian, Virginia 23112. The Woodlake home model features approximately 4,350 square feet of living space with two car garage. It is our goal to complete the construction of this model under $60 per square foot.

 

As we develop the proprietary building materials and methods, we envision using these novelties in both, remodeling and new construction activities, which we believe will ultimately enable us to generate land development and construction revenues, hence enabling us funding increasingly more money for our engineering and product development activities in our search for a faster and less expensive construction, and further deployment of these products to the addressable markets.

 

● Land Development: In the course of our land development activities, we search for, find, and purchase land suitable for construction of intended properties, and manage land development works, including but not limited to creating plans of development, obtaining permits, conducting earthwork, site clearing, installation of utility lines, road creation, and other works necessary to result in the recordation of individual lots ready for commencement of real estate property construction. Most of these works will be outsourced to independent contractors, whereas we manage the contractors’ performance based on our plans of development and project guidelines. We also conduct due diligence for potential project analysis, including, but not limited to, project feasibility studies using our engineering, architectural, and administrative resources; market research using a network of local real estate agents; and calculations of expected financial performance for each project type, size, timeline, budgets and profits.

 

● Construction: As of the date of this report, we have started construction activities with the commencement of managing construction of a single-family home located at 5210 W Shore Road, Midlothian, VA. Our construction activities comprise practical application of our proprietary products, construction methods, building process, and know-how as outlined below in this section. Engaging in the construction of concrete walls using our proprietary wall panels is expected to allow us to create short-term revenue streams, test our wall panels in real-time products. This could also allow us to use profits to scale up our business, and to develop, measure, and prove the cost/time advantages that we plan on selling to our customers and partners and use in the development of our proprietary building kits. Engaging in the construction of new properties, such as, including, but not limited to, residential and commercial properties under our projects as described below, is expected to allow us to establish mid-term revenues and profits. Engaging in the development of the master plans for our Organic Communities, such as, including, but not limited to, 70 homes in our Seasons Creek project, is expected to allow us to form a long-term revenue pipeline with lasting benefits for our target market groups, as well as for our Company and stockholders. We intend to manage construction activities associated with land development through our subsidiaries and manage homebuilding through our affiliate, Good Life Builders Inc., a Virginia for-profit corporation fully owned and controlled by our Interim CFO and Vice President of Business Development, Mr. Gurin.

 

 

In the course of our construction activities, we intend to build new properties and to test novel methods, materials, equipment, and related technologies on actual projects. Our construction activities we will be diversified into two main activity groups: (1) managing our own projects, and (2) managing projects in alliance with other developers and builders. Starting from June 2017, we intend to manage construction of properties based upon our proprietary building kits and plans of development via our own projects beginning with Profit Bright Plaza and Courthouse Commons. In projects in alliance with other builders, we intend to manage all aspects of construction from purchase of building lots to sale of properties to enable our partners focus solely on managing subcontractors and ensuring code compliance.

 

Products

 

We continue to develop products in three principal product groups, each of which is designed to be a natural expansion of the previously planned product group, and the combination of which is designed to improve the way people build properties and organize their living in the 21^st century:

 

	●	Wall Panels – We are developing, with the intention of offering for sale, our proprietary wall panels that we believe will enable contractors to build concrete walls faster and at a lesser cost. We are attempting to protect our intellectual properties underlying this wall panel product line by filing and prosecuting U.S. Patent Application 62/406,165 - Wall panel, wall spacer, and method of construction filed on October 10, 2016.   The cost advantage is mainly based upon a reduced cost of labor required to build a structure as compared with using traditional cinderblock or removable mold forms. Our engineering and developmental testing indicate that our wall panels are currently applicable to build structural basement walls, retaining walls, or any other type of walls (except sea walls) up to a height of 24 feet. This line of products features utility that is new to the construction industry, and, therefore, is presently unknown to other developers and builders. As of the date of this report, we have not tested any of the wall panels in a real construction project. However, in 1Q2017, we have procured the materials necessary to produce several prototypes of our wall panels. We are planning to produce these prototypes and test the panels in real projects during 2017.
	●	Building Kits – We are designing and developing the set of engineering specifications and construction materials that we call “Building Kits.” We intend to start production in June 2017. We envision this product line to be a natural expansion of our wall panel product line, as we incorporate such wall panels into the Building Kits. At the present time, we are developing the building kits for single- and multi-family structures up to 60 feet of height. Our goal is to test the performance of certain building kits in our Seasons Creek and other near-term projects and offer first building kits for sale in year 2020.
	●	Organic Communities – We are designing new living communities that utilize our proprietary Organic Community concept that we believe will present a new perception of organized living for people to work and live in the 21st century. We envision this product line to be a natural expansion of our planned building kits product line, as we intend on developing the building kits to comprise and build properties in our Organic Community neighborhoods. This product line is focused on Millennials and the Generation-Z generation markets. Our goal is to test certain Organic Community functionality in our Seasons Creek and other near-term projects, and present a full-scale Organic Community neighborhood, River City Park, available for occupancy by 2030.

 

 

All of our anticipated products are new to the construction industry, and, therefore, are presently unknown to other developers and builders. In effort to expedite market awareness about our wall panels, we are currently planning to offer other builders and developers the opportunity to purchase our products at discounted prices, which include basic training programs. We believe our products are simple to understand and intuitive to use for any builder experienced in concrete construction. However, if an extensive training would be required, we are offering such training at a price additional to the product price.

 

The development of our products is lengthy and subject to several risks and obstacles. It is further subject to various uncertainties and barriers to market entry. For example, our competitors may compete against us with products based on the technologies other than those protected by our patent applications and/or other than those we are contemplating to use for our products (e.g. EVG-3D Panel technology), which may be more competitive than our products. Also, numerous other companies are developing competitive products based on the EVG-3D Panel technology and other technologies we are contemplating to use for our products, and such products (including materials, tools, and assembly methods) may be developed more competitive than our products. Although we continue researching and screening other novel construction technologies, there is no guarantee that we will be able to adopt these technologies for product development. Licensing the technologies from inventors may require significant capital resources, which we do not have at this time and there is no guarantee that we will be able to raise such resources in adequate amounts or at all. Also, licenses may be revoked or the technologies may become obsolete, in which case the amount of license fees paid would be non-refundable. Even if and when we develop technologies in-house and file patents, prosecuting and defending these patents will require additional capital, and there is no guarantee that, even if we raise such capital and pay our patent agents and attorneys, such patents will be granted. If patents are granted, any party can request re-examination of the patents, upon which the patents may be revoked by the USPTO. Patents may also be found infringing on other patents, which may cause us being responsible for additional license and royalty fees. Our engineering and product development efforts will require significant capital, and, although we are planning to obtain such capital through private and public offerings of our securities, there are no guarantees or assurances that we would be able to obtain such capital in adequate amounts or at all. Furthermore, if we are successful in the technology implementation, engineering and product development, obtaining product approvals and conducting continuing testing will require additional capital. Our land and property purchases to test our products in pilot-test projects will also require significant capital, and we cannot predict the then-current market conditions, in which we would be required to raise such capital. Hence, we cannot guarantee that we will be able to complete our product development, even if some capital is obtained. We will be also subject to several other risks and obstacles while implementing our business plan and operating our company. Even when we are successful in developing competitive products, we will face several risks and uncertainties. Please read “Business” and “Risk Factors” sections for more information.

 

Projects

 

The implementation of our business plans regarding our projects is lengthy and subject to several risks and obstacles, including the market risks and operating uncertainties. Our projects are subject to environmental and municipal regulations, attainment of easements, the opinions of officials, availability of land, fluctuations in the market, supply and demand, cost of labor and materials, zoning requirements, the ability to raise capital at terms acceptable to us or at all, and many other factors. Even when we are successful in completing our projects, we will face several risks and uncertainties, which may limit our performance and reduce our profits. Please read “Business” and “Risk Factors” sections for more information.

 

Seasons Creek – On November 30, 2015, we formed Seasons Creek Development LLC, a Virginia limited liability company of which the Company is currently the manager under Exclusive Construction Management Agreement. Seasons Creek Development purchased and is developing a parcel of land consisting of approximately 28.8 acres located in Chesterfield, Virginia. The land was purchased on December 11, 2015 and has been zoned to accommodate up to 70 single family homes and currently holds a tentative plan of development approval. We intend to develop this land into a residential subdivision to be called “Seasons Creek” consisting of 70 single family homes built with the novel construction materials and methods we have researched. We will manage the homebuilding activities through our affiliated company, Good Life Builders Inc., A Virginia Corporation, owned and controlled by our Interim CFO and Vice President of Business Development, Mr. Sergey Gurin. As of the date of this report, we have performed major engineering revisions of our plan of development for the 70 buildable lots and submitted such revisions to Chesterfield County, Virginia for review and approval. In June 2017, we received approvals for our Major Adjustment to the Tentative Plat and submitted our final Construction Plans for review. We currently anticipate this project being able to obtain a land disturbance permit and for contractors to begin earthwork, utilities work, and other land development works during the third quarter of 2017, subject to acquiring certain easements and approvals. We estimate the Seasons Creek land development works to take approximately 6 months.

 

 

We were managing the Seasons Creek project under the Exclusive Construction Management Agreement we had executed with the Seasons Creek project investors. On August 9. 2017, the Exclusive Construction Management Agreement between Helpful Alliance Company and Seasons Creek Development LLC has been terminated. Seasons Creek Development LLC and Helpful Alliance have executed the Management Termination Settlement Agreement (the “Termination”), under which Helpful Alliance shall complete the steps of land development activities that initiated before the Termination but will continue until Seasons Creek Development LLC recordation of individual building lots, as will be indicated by the receipt of official documentation to that effect from Chesterfield County, Virginia authorities. Resulting from the Termination, Seasons Creek Development LLC will owe to Helpful Alliance Company (a) $916,140 for management of land development activities prior to the Termination, (b) $64,153 for reimbursement of expenses accrued prior to the Termination recorded as due from affiliate on our balance sheet as of June 30, 2017, and (c) $97,425 of accrued 14.0% annual preferred yield from November 30, 2016 to June 30, 2017 on ownership of 20 units Class A Preferred Share LLC Membership Interests of Seasons Creek Development LLC upon completion of project, a total of $1,077,718. We will record the $916,140 on the books of Helpful Alliance Company as due from affiliate upon recordation of individual building lots. There will be no compensation to Helpful Alliance Company from the Termination date to the date of recordation of individual building lots. Helpful Alliance Company no longer has any managerial power of control over the Seasons Creek Development LLC operations. The steps subject to completion under the Termination agreement shall be conducted by Helpful Alliance Company acting merely as agent-representative of Seasons Creek Development LLC and not as a manager. Specifically, the holder of Class-B LLC Membership Interests, Mr. Mirmanov, is appointed as Manager of Seasons Creek Development LLC effective from August 9, 2017. As Manager of Seasons Creek Development LLC, Mr. Mirmanov is able to exercise all managerial and executive powers over the Seasons Creek Development LLC operations, including but not limited to replacing Helpful Alliance Company in its role as agent-representative with any other individual or entity of his choice. Helpful Alliance Company would have no remedy for such a dismissal and/or replacement. The receipt of any proceeds from our involvement into Seasons Creek Project is presently uncertain and is subject to numerous risks, many of which are beyond the scope of our control.

 

5210 W Shore Drive - In March 2017, we have completed architectural design for our first single-family home building kit, the Woodlake home model kit, which we anticipate testing during 2017 through the construction of this property at 5210 West Shore Road, Midlothian, Virginia 23112. The Woodlake home model features approximately 4,350 square feet of living space with a two-car garage. It is our goal that construction of this model will be completed at under $60 per square foot. Site work began on the property in May 2017 and we anticipate construction of the home being completed during the fourth quarter of 2017. Construction management was conducted through an exclusive construction management agreement between the Company and 5210 W Shore Drive LLC. During second quarter of 2017, we received $50,000 of construction management fees for the construction of a new single-family home at 5210 W Shore Road, Midlothian, VA 23112 and recognized that as revenue. We no longer have any continuous revenue plans associated with this project.

 

River City Park – On May 3, 2016, we formed River City Park LLC, a Virginia limited liability company of which the Company currently owns 100%, to potentially locate, purchase, and develop a parcel of land in Virginia that we intend to consist of at least 400 acres and be located along a river. As of the date of this report, we have not reached any material agreements for a purchase of such land. Furthermore, presently we have no material agreements based on which we could determine the minimum amount of proceeds that would be required to purchase such land. The amount of proceeds that we raise in our initial public offering will determine which way we proceed to finance the potential land purchase for this project. If we are successful in locating and acquiring such land, we intend to develop this land into a mixed-use neighborhood to be called “River City Park.” In our estimate, River City Park project would require approximately $12 million to 17 million for purchasing land, creating the neighborhood development concept, and conducting rezoning activities. We anticipate financing this $12-17 million either from the proceeds of initial public offering of our common shares, which was effectuated by the SEC on September 8, 2016, or by causing River City Park LLC to issue and sell its securities in one or more private offerings. If we sell from 75% to 100% of the 14,500,000 shares in our initial public offering, we will use up to approximately $17.0 million from the net proceeds from our initial public offering to purchase the land and to create a neighborhood development concept (excluding general and administrative expenses and other concurrent operating expenses associated with initial management of the River City Park project). If an acquisition of land and development of the River City Park neighborhood concept would require an amount in excess of $17 million, we intend using up to $17 million for the purchases of land for our other projects and cause our River City Park LLC to initiate its own securities offering, for which we have an authority to do so as its sole owner and manager. If we sell only 25% to 75% of the 14,500,000 shares in our initial public offering, we will not use any of the net proceeds from our initial public offering for purchase of land for River City Park project. Instead, we will use the net proceeds from our initial public offering for the purchases of land for our other projects, some of which have presently not yet originated. As of the date of this report, we cannot assure our shareholders, including those who may invest into our initial public offering or into any private offerings related to our River City Park project, that we will have the necessary financing to purchase the land we contemplate purchasing for our River City Park project, or for completion of conceptual design of the River City Park neighborhood, or for the River City Park project execution.

 

 

Washington Woods – On December 15, 2016, we formed Washington Woods LLC, a Virginia limited liability company of which the Company currently owns 100%, to potentially locate, purchase, and develop a parcel of land in Virginia that we intend to consist of at least 100 acres and be located within close proximity of Washington D.C. As of the date of this report, we have not reached any material agreements to purchase any land. Furthermore, presently we have no material agreements based on which we could determine the minimum amount of proceeds that would be required to purchase such land. In our estimate, Washington Woods project would require approximately $2-5 million for the purchasing land, creating the neighborhood development concept, and conducting rezoning activities. We anticipate financing this $2-5 million either from the proceeds of initial public offering of our common shares, which was effectuated by the SEC on September 8, 2016, or by causing Washington Woods LLC to issue and sell its securities in one or more private offerings. The amount of proceeds that we raise in our initial public offering will determine which way we proceed to finance the potential land purchase for this project. If we sell less than 50% or from 75% to 100% of the 14,500,000 shares in our initial public offering, we will not use any of the net proceeds from our initial public offering for our Washington Woods project and pursue the private offering route. If we sell from 50% to 75% of the 14,500,000 shares in our initial public offering, we intend using up to approximately $4.75 million from the net proceeds from our initial public offering for the purchase of land and creating the Washington Woods neighborhood concept. As of the date of this report, we cannot assure our shareholders, including those who may invest into our initial public offering or into any private offerings related to our Washington Woods project, that we will have the necessary financing to purchase the land, or to complete a conceptual design, or successfully execute the Washington Woods project. If we are successful in locating and purchasing such land, we intend to develop this land into a residential neighborhood to be called “Washington Woods” featuring luxury single-family homes.

 

Alliance Business Park – On December 15, 2016, we formed Alliance Business Park LLC, a Virginia limited liability company of which the Company currently owns 100%, to potentially locate, purchase, and develop a parcel of land in Virginia that we intend to consist of at least 5 acres and be located within Richmond, Virginia metropolitan area. As of the date of this report, we have not reached any material agreements for a purchase of such land. Furthermore, presently we have no material agreements based on which we could determine the minimum amount of proceeds that would be required to purchase such land. In our estimate, the purchase of such land for our Alliance Business Park project would require approximately $0.5-2.25 million for purchasing land, creating the business park development concept, and conducting rezoning activities. The amount of proceeds that we raise in our initial public offering will determine which way we proceed to finance the potential land purchase for this project. We anticipate financing this $0.5-2.25 million either from the proceeds of initial public offering of our common shares, which was effectuated by the SEC on September 8, 2016, or by causing our subsidiary, Alliance Business Park LLC, to issue and sell its securities in one or more private offerings. As of the date of this report, we cannot assure our shareholders, including those who may invest into our initial public offering or into any private offerings related to our Alliance Business Park project, that we will have the necessary financing to purchase the land, or to complete a conceptual design, or successfully execute the Alliance Business Park project.

 

 

Intellectual Property

 

At the date of this report, we have one patent application pending review by the U.S. Patent and Trademark Office:

 

● U.S. Patent Application 62,406,165 - Wall panel, wall spacer, and method of construction filed October 10, 2016.

 

We believe if and when issued, our patents should provide adequate protection of our intellectual properties. However, at the time of this report, we cannot assure you that any of our patents would be granted or issued by the U.S. Patent and Trademark Office, nor if issued, that such patents would not be challenged with reexamination, and, if so challenged, that such patents would be reaffirmed by the U.S. Patent and Trademark Office. We cannot assure you that a third party would not infringe on our patents (when and if issued) and that we will be able to adequately protect our patents and other intellectual properties if and as required. At the date of this report, we cannot assure, that we will have the necessary financing to conduct our engineering research and development activities on time or at all.

 

As we develop the proprietary building materials and methods, we envision using these novelties in both, remodeling and new construction activities, which we believe will ultimately enable us increasing both, our construction revenues and our overall profit margins, hence enabling us funding increasingly more money for our engineering and product development activities in our search for a faster and less expensive construction, and further deployment of these products to the addressable markets.

 

Subsidiaries

 

As of June 30, 2017, we have three subsidiaries operating within Land Development arm and one subsidiary within our Home Kits business development arm:

 

Seasons Creek Development LLC: Our former and previously reported Seasons Creek Development LLC subsidiary is an entity formed for holding of the assets and for carrying out our Seasons Creek project. Seasons Creek Development LLC currently owns approximately 28.8 acres of raw land in Chesterfield County, Virginia, which has been appraised in approximately $0.98 million. The raw land is zoned to accommodate up to 70 single family homes and currently holds a tentative plan of development approval. Seasons Creek Development is no longer a subsidiary of the Company, and the Company held a minority stake until August 8, 2017.

 

On June 30, 2017, we settled their $1,000,000 (one million) U.S. dollar loan with Zimas LLC for 20 Units of Class-A membership interests of Seasons Creek Development LLC (“SCD”) in lieu of repaying the $1,000,000 cash principal amount of the loan (the “Transaction”). Our direct ownership of SCD was 20 Units of Class-A membership interests (“Disposed Equity”) and 1 Unit of Common membership interest before the Transaction. Our direct ownership of SCD is 1 Unit of Common membership interest after the Transaction (“Retained Equity”). Subsequently to our settlement with Zimas LLC, SCD repurchased 6 Class-A membership interests from Zimas LLC for $300,000, hence re-arranging the Seasons Creek ownership and control structure. As of the date of this report:

 

	●	Our Vice President of Business Development and Interim CFO, Mr. Gurin, through Gurin Group LLC, effectively owns and controls 4 units of Class-A membership interests in Seasons Creek Development LLC, entitling him to approximately 16.0% voting power over Seasons Creek affairs and 22.9% profit share from the Seasons Creek Project. Gurin Group purchased these 4 units from Zimas LLC at the pro-rata value of our settlement with Zimas for $200,000 cash.
	●	One of our founders, Mr. Zevel, through FVZ LLC, effectively owns and controls 4 units of Class-A membership interests in Seasons Creek Development LLC, entitling him to approximately 16.0% voting power over Seasons Creek affairs and 22.9% profit share from the Seasons Creek Project. FVZ LLC purchased these 4 units from Zimas LLC at the pro-rata value of our settlement with Zimas for $200,000 cash.
	●	Resulting from the settlement and consequent sale of the 4 units of Class-A membership interests to Gurin Group LLC, the 4 units of Class-A membership interests to FVZ LLC, and 6 units of Class-A membership interests back to Seasons Creek Development LLC, Zimas LLC effectively owns and controls 6 units of Class-A membership interests in Seasons Creek Development LLC, entitling it to approximately 24.0% voting power over Seasons Creek affairs and 34.3% profit share from the Seasons Creek project.
	●	One of Seasons Creek’s investors, Mr. Mirmanov, effectively owns and controls 10 units of Class-B membership interests in Seasons Creek Development LLC, entitling him to approximately 40.0% voting power over Seasons Creek affairs and 15.0% profit share from the Seasons Creek Project. Mr. Mirmanov has purchased the 10 units from Seasons Creek Development LLC for $500,000, from which Seasons Creek Development LLC used $300,000 to repurchase the 6 units from Zimas LLC as disclosed in this section above.
	●	Helpful Alliance Company, effectively owned and controled 1 unit of Common membership interest in Seasons Creek Development LLC, entitling it to approximately 4.0% voting power over Seasons Creek affairs and 5.0% profit share from the Seasons Creek Project until August 8, 2017, a date on which SCD redeemed the unit back for $20,000. As a result, Helpful Alliance Company no longer has any equity position in Seasons Creek Development LLC.

 

We managed the Seasons Creek project under the Exclusive Construction Management Agreement we had executed with the Seasons Creek project investors. On August 9. 2017, the Exclusive Construction Management Agreement between Helpful Alliance Company and Seasons Creek Development LLC has been terminated. Seasons Creek Development LLC and Helpful Alliance have executed the Management Termination Settlement Agreement (the “Termination”), under which Helpful Alliance shall complete the steps of land development activities that initiated before the Termination but will continue until Seasons Creek Development LLC recordation of individual building lots, as will be indicated by the receipt of official documentation to that effect from Chesterfield County, Virginia authorities. Resulting from the Termination, Seasons Creek Development LLC will owe to Helpful Alliance Company (a) $916,140 for management of land development activities prior to the Termination, (b) $64,153 for reimbursement of expenses accrued prior to the Termination recorded as due from affiliate on our balance sheet as of June 30, 2017, and (c) $97,425 of accrued 14.0% annual preferred yield from November 30, 2016 to June 30, 2017 on ownership of 20 units Class A Preferred Share LLC Membership Interests of Seasons Creek Development LLC upon completion of project, a total of $1,077,718. We will record the $916,140 on the books of Helpful Alliance Company as due from affiliate upon recordation of individual building lots. There will be no compensation to Helpful Alliance Company from the Termination date to the date of recordation of individual building lots. Helpful Alliance Company no longer has any managerial power of control over the Seasons Creek Development LLC operations. The steps subject to completion under the Termination agreement shall be conducted by Helpful Alliance Company acting merely as agent-representative of Seasons Creek Development LLC and not as a manager. Specifically, the holder of Class-B LLC Membership Interests, Mr. Mirmanov, is appointed as Manager of Seasons Creek Development LLC effective from August 9, 2017. As Manager of Seasons Creek Development LLC, Mr. Mirmanov is able to exercise all managerial and executive powers over the Seasons Creek Development LLC operations, including but not limited to replacing Helpful Alliance Company in its role as agent-representative with any other individual or entity of his choice. Helpful Alliance Company would have no remedy for such a dismissal and/or replacement.

 

 

5210 W Shore Drive LLC – On January 30, 2017, Seasons Creek Development LLC purchased 1,100 Class A Preferred LLC Membership Interests in 5210 W Shore Drive LLC, a Virginia limited liability company, for a purchase price of $110,000, which was used to purchase an individual building lot located at 5210 West Shore Road, Midlothian, Virginia 23112. The lot was purchased from a non-affiliated seller. The 1,100 Class A Preferred LLC Membership Interests bear 14.0% Class A Preferred annual yield and were redeemable at any time. Prior to June 26, 2017, Seasons Creek Development LLC owned 68.3% of the outstanding equity securities of 5210 W Shore Drive LLC. The remaining 31.7% were owned jointly by Gurin Group LLC, which is co-owned and operated by our officer and director, Mr. Sergey Gurin, Ms. Tatyana Gurina, daughter of our officer and director, Mr. Sergey Gurin, and by Ms. Ganna Mikheleva, one of our employees. On June 26, 2017, 5210 W Shore Drive LLC redeemed the 1,100 Class A Preferred LLC Membership Interests with 14.0% Class A Preferred annual yield from Seasons Creek Development LLC for $116,160. We recognized the amount of $6,160 representing the 14% annual yield as other income, on consolidated basis with Seasons Creek Development LLC. As of the date of this report, the Company and Seasons Creek Development LLC does not have any ownership interest in 5210 West Shore Drive LLC.

 

River City Park LLC – On May 3, 2016, we formed a limited liability company in the Commonwealth of Virginia, River City Park LLC, in order to locate, purchase, and develop a parcel of land in Virginia that we intend to consist of at least 400 acres located on a river. We currently own 100% of the outstanding securities and control 100% of the voting power over River City Park LLC.

 

Washington Woods LLC – On December 15, 2016, we formed a limited liability company in the Commonwealth of Virginia, Washington Woods LLC, in order to locate, purchase, and develop a parcel, or multiple adjacent parcels, of land in Central or Northern Virginia that we intend to consist of at least 100 acres. We currently own 100% of the outstanding securities and control 100% of the voting power over Washington Woods LLC.

 

Alliance Business Park LLC – On December 15, 2016, we formed a limited liability company in the Commonwealth of Virginia, Alliance Business Park LLC, in order to locate, purchase, own and develop a parcel of land in Virginia that we intend to consist of at least five acres. We currently own 100% of the outstanding securities and control 100% of the voting power over Alliance Business Park LLC.

 

Alliance Building Kits LLC – On May 31, 2017, we formed a limited liability company in the State of Florida, Alliance Building Kits LLC, in order to develop affordable home kits and its proprietary assembly methods and tools. We currently own 100% of the outstanding securities and control 100% of the voting power over Alliance Building Kits LLC.

 

Generally, we intend to organize a new limited liability company for each project in the state of geographic location of the subject project (each a “Project LLC”). Usually, the Project LLCs are taxable as a partnership. We manage the Project LLCs under an Operating Agreement for each entity and manage construction of properties under the project under the Construction Management Agreements we sign with the Project LLC partners/investors. With few exceptions, we usually form each Project LLC and initially purchase and own 100% of its equity upon payment of deposits on land under contract. Consecutively, we plan to undertake private offerings of limited membership interests of the Project LLCs for the amounts required to purchase land under contract and conduct construction works. Upon receiving investments, our ownership and profit share in the Project LLCs is diluted based on the amounts contribute by investors into the project. There is no dilution of our Common Stock occurring upon receiving investments into the Project LLCs. Although we aim to own at least 51% of the limited membership interests in each Project LLC, we may result in owning less than 51% of the limited membership interests in each Project LLC. For this reason, we may not have the authority to exercise full control and requisite voting power over the Project LLC’s business affairs, including but not limited the control over the implementation and payments under the operating agreements, which obliges the Project LLC to pay our construction management fees. Notwithstanding the above statement, all decisions that may render a significant effect on the Project LLC business require unanimous vote of all members, including our vote. These decisions include:

 

 

	(1)	Dissolution or winding up of the Project LLC;
	(2)	Any merger or consolidation of the Project LLC;
	(3)	Any sale, exchange, mortgage, pledge, encumbrance, lease or other disposition or transfer of all or substantially all of the assets of the Project LLC;
	(4)	Declaration of any payment by the Project LLC beyond the payments approved by members
	(5)	Any amendment to the operating agreement of the Project LLC;
	(6)	Any amendment, restatement or revocation of the Articles of Organization of the Project LLC, except (a) as provided to effectuate a change in the principal place of business of the Project LLC, (b) to change the name of the Project LLC, (c) as required by applicable law;
	(7)	Any material change in the business purpose of the Project LLC;
	(8)	Any transfer of limited membership interest to any person;
	(9)	The incurrence of any indebtedness for borrowed money by the Project LLC;
	(10)	Any purchase, lease or other acquisition, in any single transaction or in a series of related transactions, of property or services or capital equipment inconsistent with an approved business plan;
	(11)	Any capital expenditures or series of related capital expenditures, that exceed the amount provided therefor in the most recently approved operating budget of the Project LLC (after taking into account any general spending overrun provisions contained in the approved business plan) or any commitment by the Project LLC to make expenditures in any project in an amount greater than the amount set forth in the approved operating budget of the homebuilding project carried out by the Project LLC;
	(12)	The acquisition of any business or entry into any partnership by the Project LLC;
	(13)	(a) the voluntary commencement or the failure to contest in a timely and appropriate manner any involuntary proceeding or the filing of any petition seeking relief under bankruptcy, insolvency, receivership or similar laws, (b) the application for or consent to the appointment of a receiver, trustee, custodian, conservator or similar official for the Project LLC, or for a substantial part of their property or assets, (c) the filing of an answer admitting the material allegations of a petition filed against the Project LLC in any proceeding described above, (d) the consent to any order for relief issued with respect to any proceeding described herein, (e) the making of a general assignment for the benefit of creditors, or (f) the admission in writing of the Project LLC’s inability, or the failure of the Project LLC to pay its debts as they become due or the taking of any action for the purpose of effecting any of the foregoing;
	(14)	Creation of any direct or indirect subsidiary of the Project LLC; and
	(15)	Any other act that would make it impossible for the Project LLC to continue to operate the business of the Project LLC.

 

Revenue

 

During the second quarter of 2017, we earned $113,785 in revenue from management of land development, and pre-construction studies.

 

 

We plan to derive our future revenues from the following activities:

 

	●	sale of our products, along with sale of training programs and technical support associated with our products;
	●	sale of individual building lots as we develop raw land and prepare it for construction;
	●	licensing our intellectual properties;
	●	construction management activities as we originate and commence more projects; and
	●	equity distributions from our Project LLCs when we own an equity in our projects.

 

We will attribute and report in future filings the revenues from sale of our products, intellectual properties and the related training programs and technical support to our engineering activities. We will attribute and report in future filings the revenues from the sale of individual building lots we develop from raw land to our land development activities. We will attribute and report in future filings the revenues from the sale of construction management services to the construction activities.

 

Cost of Revenue

 

Cost of revenue was $15,600 for the three and six months ended June 30, 2017. Our cost of revenue primarily consisted of feasibility studies that were conducted for us by third parties. In the course of our land development activities, we search for, find, and purchase land suitable for construction of intended properties, and manage land development works, including but not limited to creating plans of development, obtaining permits, conducting earthwork, site clearing, installation of utility lines, road creation, and other works necessary to result in the recordation of individual lots ready for commencement of real estate property construction. Most of these works will be outsourced to independent contractors and will be included in cost of revenue.

 

Gross Profit

 

Gross profit is the difference between the revenue and the cost of revenue. We price our properties based on market and competitive conditions in local markets, and from time to time may reduce the price per square feet of our products as market and competitive conditions change. If we are unable to decrease the cost of our products in line with the sale price decrease, we may experience a reduction in our gross profit and gross margin.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expense primarily consists of personnel related expenses (including stock based compensation), sales commissions, field inspection expenses, travel expenses, professional and consulting fees, legal fees, depreciation expense, and other operating expenses. We expect selling, general and administrative expenses to increase on an absolute basis in the future as we expand our involvement into construction projects and hire more project management, sales, marketing, finance and administrative personnel, and we incur additional expenses associated with operating as a public company.

 

Research and Development Expenses

 

Research and development expense primarily consists of prototyping and testing of prototypes of novel construction methods and instruments, and personnel related expenses (including stock based compensation), intellectual property license costs, engineering design development costs, technology evaluation costs, depreciation expense and other expenses related to our research and development of novel construction methods. Research and development activities include the design of new construction elements, methods, systems and processes, refinement of existing elements, methods, systems and processes and product development, including obtaining the appropriate product approvals to ensure compliance with required architectural specifications and building codes. All research and development costs are expensed as incurred. We expect our research and development expenses to increase on an absolute basis as we continue to expand our involvements into developing novel construction elements, methods, systems and processes.

 

Interest Expense

 

Interest expense consists of interest expense related to our debt obligations. Notes payable consist of the following at June 30, 2017:

 

●

Zimas $1 Million Amended and Restated Note: On January 27, 2017, an extension to the loan with remaining principal amount of $600,000 was made extending the maturity date to June 30, 2017 and the note was combined with previously convertible note with principal amount of $400,000. The collateral for the combined loan were Class-A Preferred Membership Interests of our subsidiary, Seasons Creek Development LLC, with conversion rate $50,000 per unit. On June 30, 2017, the Company settled their $1,000,000 (one million) U.S. dollar loan with Zimas LLC for 20 Units of Class-A membership interests of Seasons Creek Development LLC in lieu of repaying the $1,000,000 cash   principal amount of the loan. As of June 30, 2017, the amount of accrued interest under combined loan was $146,790. During the six months ended June 30, 2017, the Company did not make any payments for interest. The unpaid interest under this loan is due on December 31, 2017.

 

 

Notes payable with related parties in aggregate amount of $741,000 consists of the following at June 30, 2017:

 

	●	On February 22, 2016, the Company received $10,000 for note payable issued from an affiliated company. The note accrues interest at an annual rate of 5.0%, payable quarterly, and matures on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $125 and $126, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $249 and $0, respectively (see Note 7).
	●	In February, March, April, May and June 2016, the Company received an aggregate principal amount of $100,000 for notes payable issued from the Company’s founder. The notes accrue interest at an annual rate of 5.0%, payable quarterly, and mature on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $3,739 and $1,260, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $0 and $0, respectively (see Note 7).

 

	●	On June 30, 2016, the Company received $50,000 for note payable issued from the Company’s founder. The note accrues interest at an annual rate of 8.0%, payable quarterly, and matures on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $2,991 and $1,008, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $0 and $0, respectively (see Note 7).
	●	In July 2016, the Company received an aggregate principal amount of $75,000 for note payable issued from the Company’s founder. The notes accrue interest at an annual rate of 8.0%, payable quarterly, and mature on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $1,978 and $1,512, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $1,512 and $0, respectively. $50,000 note was derecognized on our balance sheet as of June 30, 2017 due to deconsolidation of the subsidiary (see Note 7).
	●	In August 2016, the Company received an aggregate principal amount of $52,000 for note payable issued from the Company’s founder. The note accrues interest at an annual rate of 12.5%, payable monthly, and matures on December 31, 2017. June 30, 2017, and December 31, 2016, the amount of accrued interest was $543 and $534, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $2,558 and $0, respectively (see Note 7).
	●	In August 2016, the Company received an aggregate principal amount of $5,000 for note payable issued from an affiliated company. The note accrues interest at an annual rate of 12.5%, payable quarterly, and matures on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $310 and $158, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $158 and $0, respectively. This note was derecognized on our balance sheet as of June 30, 2017 due to deconsolidation of the subsidiary (see Note 7).
	●	In September 2016, the Company received an aggregate principal amount of $50,000 for note payable issued from the Company’s founder. The notes accrue interest at an annual rate of 12.5%, payable quarterly, and mature on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $4,674 and $1,575, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $0 and $0, respectively (see Note 7).
	●	In October 2016, the Company received a principal amount of $5,000 for note payable issued from the Company’s founder. The note accrues interest at an annual rate of 12.5%, payable quarterly, and matures on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $0 and $139, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $139 and $0, respectively. This note was derecognized on our balance sheet as of June 30, 2017 due to deconsolidation of the subsidiary (see Note 7).

 

	●	In November 2016, the Company received an aggregate principal amount of $20,000 for notes payable issued from an affiliated company. The notes accrue interest at an annual rate of 5.0%, payable quarterly, and mature on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $249 and $156, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $403 and $0, respectively (see Note 7).
	●	In November 2016, the Company received a principal amount of $5,000 for note payable issued from the Company’s founder. The note accrues interest at an annual rate of 12%, payable quarterly, and matures on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $298 and $64, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $0 and $0, respectively (see Note 7).
	●	In November 2016, the Company received a principal amount of $5,000 for note payable issued from the Company’s founder. The note accrues interest at an annual rate of 12%, payable quarterly, and matures on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $298 and $61, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $61 and $0, respectively (see Note 7).
	●	In December 2016, the Company received an aggregate principal amount of $55,000 for notes payable issued from an affiliated company. The notes accrue interest at an annual rate of 12.0%, payable quarterly, and mature on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $1,645 and $278, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $1,905 and $0, respectively (see Note 7).
	●	In January, February, March, April and May 2017, the Company received an aggregate principal amount of $240,000 for notes payable issued from the Company’s founder. The notes accrue interest at an annual rate of 12%, payable quarterly, and mature on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $6,128 and $0, respectively. During the six months ended June 30, 2017 and 2016, the Company did not make any payments for interest, respectively (see Note 7).

 

	●	In January, February and May 2017, the Company received an aggregate principal amount of $102,500 for notes payable issued from an affiliated company. The notes accrue interest at an annual rate of 12.0%, payable quarterly, and mature on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $2,756 and $0, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest, $1,746 and $0, respectively (see Note 7).
	●	In April, May and June 2017, the Company received a principal amount of $6,500 for notes payable issued from the Company’s founder. The notes accrue interest at an annual rate of 12%, payable quarterly, and mature on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $93 and $0, respectively. During the six months ended June 30, 2017 and 2016, the Company made payments for interest totaling $0 and $0, respectively (see Note 7).
	●	In May 2017, the Company received a principal amount of $20,000 for note payable issued from an affiliated company. The note accrues interest at an annual rate of 12.0%, payable quarterly, and matures on December 31, 2017. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $289 and $0, respectively. During the six months ended June 30, 2017 and 2016, the Company did not make any payments for interest, respectively (see Note 7).
	●	In June 2017, the Company received discounted amount of $500,000 for note payable with principal amount of $585,000 issued from an affiliated company. As of June 30, 2017, and December 31, 2016, the amount of accrued interest was $0 and $0, respectively. During the six months ended June 30, 2017 and 2016, the Company did not make any payments for interest, respectively. This note was derecognized on our balance sheet as of June 30, 2017 due to deconsolidation of the subsidiary (see Note 7).

 

 

Net Income (Loss)

 

As reflected in the accompanying consolidated financial statements, the Company had a net income (loss) of $52,254 and $(793,954) for the six months ended June 30, 2017 and 2016, respectively. The 107% increase from net operating loss to net operating income was attributed mostly to our increase in revenue and our settlement of $1 million debt with Zimas LLC. On June 30, 2017, Helpful Alliance Company settled the principal portion of a $1,000,000 note payable to unaffiliated party by issuing 20 Units of Class-A membership interests of our 67% owned subsidiary Seasons Creek Development LLC (“SCD”) in lieu of repaying the $1,000,000 principal amount of the loan (the “Transaction”). This Transaction was a settlement of debt that also resulted in the deconsolidation of SCD and a recognition of gain of $572,091. Our increase in revenues and gain was partially offset by increased compensation expense as we hired more employees associated with an expansion of our land development and construction activities, including, but not limited to, performing major revisions for our plan of development for Seasons Creek project, searching for land to purchase for new projects, conducting gradually more feasibility studies for new projects, attempts to originate new projects for future customers, hiring new personnel, and other expenditures related to our core business as well as increase in interest expense due to increased weighted average interest rate as well as increased weighted average of amount of the debt. We expect our active engagement into land development activities to gradually increase our revenues as well as a gradual increase of our operating expenses as we focus our operation on purchase and development of land for construction.

 

 

Income taxes

 

Deferred income tax assets and liabilities arise from temporary differences associated with differences between the financial statements and tax basis of assets and liabilities, as measured by the enacted tax rates, which are expected to be in effect when these differences reverse. Deferred tax assets and liabilities are classified as current or non-current, depending upon the classification of the asset or liabilities to which they relate. Deferred tax assets and liabilities not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

 

The Company follows the provisions of FASB ASC 740-10 “Uncertainty in Income Taxes” (ASC 740-10). Certain recognition thresholds must be met before a tax position is recognized in the financial statements. An entity may only recognize or continue to recognize tax positions that meet a “more-likely-than-not” threshold. As of June 30, 2017 and December 31, 2016, the Company does not believe it has any uncertain tax positions that would require either recognition or disclosure in the accompanying financial statements.

 

RESULTS OF OPERATIONS

 

Results of Operations

 

The following table sets forth unaudited consolidated statement of income data for the periods indicated:

 

		Three Months Ended June 30, (Unaudited)												Six Months Ended June 30, (Unaudited)
		2017				2016				Change				2017				2016				Change
Revenue, including interest income		$	113,785			$	130,533				(13	)%		$	138,405			$	138,405				(18	)%
Cost of revenue			15,600				-				*				15,600				-				*
Gross profit			98,185				130,533				(25	)			98,185				138,405				(29	)
Operating expenses:
Compensation			173,273				167,266				4				351,058				324,696				8
Professional Fees			122,150				(13,929	)			977				145,219				60,521				140
Interest expense			37,451				29,761				26				74,864				58,101				29
Amortization of debt discount			-				434,182				*				-				434,182				*
Other selling, general and administrative			39,787				34,837				14				70,614				54,975				28
Total operating expenses			372,661				652,117				(43	)			641,755				932,475				(31	)
Loss from operations			(274,476	)			(521,584	)			(47	)			(543,570	)			(794,070	)			(32	)
Other income			595,824				30				1,985,980				595,824				116				479,139
Total Other Income			595,824				30				1,985,980				595,824				116				479,139
Net loss		$	321,348			$	(521,554	)			162			$	52,254			$	(793,954	)			107
Net loss per common share:
Basic and diluted		$	0.15				(0.25	)			*				0.02				(0.38	)			*
Weighted average Common Stock:
Basic and diluted			2,100,000				2,100,000				*				2,100,000				2,492,265				*

 

* Percentage not meaningful.

 

 

Comparison of the Three Months Ended June 30, 2017 to the Three Months Ended June 30, 2016 (Unaudited)

 

As reflected in the accompanying unaudited consolidated financial statements, we ended three months ended June 30, 2017 with net income attributable to the Company of $321,348, or $0.15 per basic and diluted share, as compared to net loss of $(521,554), or $(0.25) per basic and diluted share for the three months ended June 30, 2016, which is an increase of 162%. The 162% increase from net operating loss to net operating income was attributed mostly to our revenue from land development activities and our settlement of $1 million debt with Zimas LLC as well as 43% decrease in operating expenses during the three months ended June 30, 2017 as compared to three months ended June 30, 2016. On June 30, 2017, Helpful Alliance Company settled the principal portion of a $1,000,000 note payable to unaffiliated party by issuing 20 Units of Class-A membership interests of our 67% owned subsidiary Seasons Creek Development LLC (“SCD”) in lieu of repaying the $1,000,000 principal amount of the loan (the “Transaction”). This Transaction was a settlement of debt that also resulted in the deconsolidation of SCD and a recognition of gain of $572,091. On April 29, 2016, the Company issued a warrant in consideration of the extension of the maturity date of convertible note payable with principal amount of $1,000,000 to June 30, 2016, to purchase up to an aggregate of 625,000 shares of Common stock of the Corporation, at an exercise price of $1.60 per share of Common Stock, exercisable in full or in part at any time vesting from January 1, 2018 and expiring on December 31, 2028. The fair value of the warrant of $434,182 was treated as a debt discount on the note payable. The debt discount was amortized over the life of the note, which was due on June 30, 2016 and amortization of debt discount expense of $434,182 was recorded for the three months ended June 30, 2016. This amortization of the debt discount resulted in the operating expenses being 43% higher during the three months ended June 30, 2016 as compared to 2017. During the three months ended our revenue and gain were partially offset by increased compensation expense as we hired more employees as well as professional fees associated with an expansion of our land development and construction activities, including, but not limited to, performing major revisions for our plan of development for Seasons Creek project, searching for land to purchase for new projects, conducting gradually more feasibility studies for new projects, attempts to originate new projects for future customers, hiring new personnel, and other expenditures related to our core business as well as increase in interest expense due to increased weighted average interest rate. We expect our active engagement into land development activities to gradually increase our revenues as well as a gradual increase of our operating expenses as we focus our operation on purchase and development of land for construction. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital, implement its business plan, and generate significant revenues.

 

Revenue

 

During the three months ended June 30, 2017, we earned $113,785 in revenue from management of land development, and pre-construction studies, which is a decrease of 18% as compared to our revenues from financial activities during the three months ended June 30, 2016 which produced total amount of $130,553 or $6,319 in interest income and $124,214 of proceeds from the foreclosure and sale of one note. From inception to date, a significant majority of our revenue has been derived from our mortgage financial activities, which we ceased in 2016 as we gradually engaged in increasingly more engineering, land development and construction activities. We anticipate that our revenue from land development activities will increase and it will constitute the majority of our revenue going forward.

 

Cost of Revenue

 

Cost of revenue was $15,600 for the three and three months ended June 30, 2017. Our cost of revenue primarily consisted of feasibility studies that were conducted for us by third parties. In the course of our land development activities, we search for, find, and purchase land suitable for construction of intended properties, and manage land development works, including but not limited to creating plans of development, obtaining permits, conducting earthwork, site clearing, installation of utility lines, road creation, and other works necessary to result in the recordation of individual lots ready for commencement of real estate property construction. Most of these works will be outsourced to independent contractors and will be included in cost of revenue. As we continue to further develop our business, we anticipate that our cost of revenue will increase in absolute dollars and decrease as a percentage of total revenues.

 

Operating Expenses

 

Our total operating expenses for the three months ended June 30, 2017 amounted to $372,661, which is a decrease of approximately 43% from the total operating expenses of $652,117 for the three months ended June 30, 2016.

 

 

Selling, general and administrative expenses

 

Selling, general and administrative expenses costs include officer compensation, salaries and benefits, stock-based compensation expense, construction management fees, consulting fees, legal expenses, intellectual property costs, accounting and auditing fees, investor relations costs, insurance, reporting costs and fees, amortization of debt discount and corporate overhead related costs. Total selling, general and administrative expenses for the three months ended June 30, 2017 was $372,661 as compared to $652,117 for the same period of 2016. The decrease of approximately 43% was primarily caused by amortization of debt discount expense in connection to issuance of warrant during the three months ended June 30, 2016. This amortization of the debt discount resulted in the operating expenses being 43% higher during the three months ended June 30, 2016 as compared to 2017. During the three months ended June 30, 2017 as compared to the same period of 2016 we increased our compensation expense by 4% as we hired more employees, we spent about 10 times more on professional fees mostly associated with an expansion of our land development and construction activities, including, but not limited to, performing major revisions for our plan of development for Seasons Creek project and 5210 W Shore Drive project, searching for land to purchase for new projects, conducting gradually more feasibility studies for new projects, attempts to originate new projects for future customers, and other expenditures related to our core business as well as we increased our interest expense by 26% due to increased weighted average interest rate. As we continue to further develop our business, we anticipate that our selling, general and administrative expenses will increase in absolute dollars and decrease as a percentage of total revenues as we become profitable.

 

Interest expenses

 

Interest expense is related to our obligations under our debt and totaled to $37,451 and $29,761 for the three months ended June 30, 2017 and 2016, respectively. The 26% increase in interest expense for the three months ended June 30, 2017 was due to increased weighted average interest rate of debt securities in 2017 as compared to the three months ended June 30, 2016.

 

Other Income

 

Other income consisted primarily of our gain on deconsolidation of the Seasons Creek subsidiary in amount of $572,091, gain on sale of all rights for U.S. Patent Application 62/222,424 - Building block and interlocking construction method in amount of $20,000 to an affiliated company, which was partially offset by loss on investment in amount of $(2,427) or aggregate of 595,824 during the three months ended June 30, 2017. Other income consisted of processing fees received in connection with the repayment of the note receivable to us and totaled to $30 for the three months ended June 30, 2016.

 

Net Income (Loss)

 

As reflected in the accompanying unaudited consolidated financial statements, we ended three months ended June 30, 2017 with net income attributable to the Company of $321,348, as compared to net loss of $(521,554), for the three months ended June 30, 2016, which is an increase of 162%. The 162% increase from net operating loss to net operating income was attributed mostly to our revenue from land development activities and our settlement of $1 million debt with Zimas LLC as well as 43% decrease in operating expenses during the three months ended June 30, 2017 as compared to three months ended June 30, 2016. On June 30, 2017, Helpful Alliance Company settled the principal portion of a $1,000,000 note payable to unaffiliated party by issuing 20 Units of Class-A membership interests of our 67% owned subsidiary Seasons Creek Development LLC (“SCD”) in lieu of repaying the $1,000,000 principal amount of the loan (the “Transaction”). This Transaction was a settlement of debt that also resulted in the deconsolidation of SCD and a recognition of gain of $572,091. On April 29, 2016, the Company issued a warrant in consideration of the extension of the maturity date of convertible note payable with principal amount of $1,000,000 to June 30, 2016, to purchase up to an aggregate of 625,000 shares of Common stock of the Corporation, at an exercise price of $1.60 per share of Common Stock, exercisable in full or in part at any time vesting from January 1, 2018 and expiring on December 31, 2028. The fair value of the warrant of $434,182 was treated as a debt discount on the note payable. The debt discount was amortized over the life of the note, which was due on June 30, 2016 and amortization of debt discount expense of $434,182 was recorded for the three months ended June 30, 2016. This amortization of the debt discount resulted in the operating expenses being 43% higher during the three months ended June 30, 2016 as compared to 2017. During the three months ended our revenue and gain were partially offset by increased compensation expense as we hired more employees as well as professional fees associated with an expansion of our land development and construction activities, including, but not limited to, performing major revisions for our plan of development for Seasons Creek project, searching for land to purchase for new projects, conducting gradually more feasibility studies for new projects, attempts to originate new projects for future customers, hiring new personnel, and other expenditures related to our core business as well as increase in interest expense due to increased weighted average interest rate. We expect our active engagement into land development activities to gradually increase our revenues as well as a gradual increase of our operating expenses as we focus our operation on purchase and development of land for construction.

 

 

Income (Loss) per share

 

We reported net income attributable to the Company of $321,348, or $0.15 per basic and diluted share during the three months ended June 30, 2017, as compared to net loss of $(521,554), or $(0.25) per basic and diluted share for the three months ended June 30, 2016. The increase from loss to income attributable to Common Stockholders per share, basic and diluted was caused by the increase in net income of approximately 162%.

 

		Three Months Ended June 30, (Unaudited)
		2017				2016
Net income (loss) attributable to the Company		$	321,348			$	(521,554	)
Weighted average number of common shares outstanding:
Basic and diluted			2,100,000				2,100,000
Net income (loss) attributable to Common Stockholders per share:
Basic and diluted		$	0.15			$	(0.25	)

 

Comparison of the Six Months Ended June 30, 2017 to the Six Months Ended June 30, 2016 (Unaudited)

 

As reflected in the accompanying unaudited consolidated financial statements, we ended six months ended June 30, 2017 with net income attributable to the Company of $52,254, or $0.02 per basic and diluted share, as compared to net loss of $(793,954), or $(0.38) per basic and diluted share for the six months ended June 30, 2016, which is an increase of 107%. The 107% increase from net operating loss to net operating income was attributed mostly to our revenue from land development activities and our settlement of $1 million debt with Zimas LLC as well as 31 % decrease in operating expenses during the six months ended June 30, 2017 as compared to six months ended June 30, 2016. On June 30, 2017, Helpful Alliance Company settled the principal portion of a $1,000,000 note payable to unaffiliated party by issuing 20 Units of Class-A membership interests of our 67% owned subsidiary Seasons Creek Development LLC (“SCD”) in lieu of repaying the $1,000,000 principal amount of the loan (the “Transaction”). This Transaction was a settlement of debt that also resulted in the deconsolidation of SCD and a recognition of gain of $572,091. On April 29, 2016, the Company issued a warrant in consideration of the extension of the maturity date of convertible note payable with principal amount of $1,000,000 to June 30, 2016, to purchase up to an aggregate of 625,000 shares of Common stock of the Corporation, at an exercise price of $1.60 per share of Common Stock, exercisable in full or in part at any time vesting from January 1, 2018 and expiring on December 31, 2028. The fair value of the warrant of $434,182 was treated as a debt discount on the note payable. The debt discount was amortized over the life of the note, which was due on June 30, 2016 and amortization of debt discount expense of $434,182 was recorded for the six months ended June 30, 2016. This amortization of the debt discount resulted in the operating expenses being 31% higher during the six months ended June 30, 2016 as compared to 2017. During the six months ended our revenue and gain were partially offset by increased compensation expense as we hired more employees as well as professional fees associated with an expansion of our land development and construction activities, including, but not limited to, performing major revisions for our plan of development for Seasons Creek project, searching for land to purchase for new projects, conducting gradually more feasibility studies for new projects, attempts to originate new projects for future customers, hiring new personnel, and other expenditures related to our core business as well as increase in interest expense due to increased weighted average interest rate. We expect our active engagement into land development activities to gradually increase our revenues as well as a gradual increase of our operating expenses as we focus our operation on purchase and development of land for construction. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital, implement its business plan, and generate significant revenues.

 

 

Revenue

 

During the six months ended June 30, 2017, we earned $113,785 in revenue from management of land development, and pre-construction studies, which is a decrease of 18% as compared to our revenues from financial activities for the six months ended June 30, 2016 which produced total amount of $138,405 or $14,191 in interest income and $124,214 of proceeds from the foreclosure and sale of one note. From inception to date, a significant majority of our revenue has been derived from our mortgage financial activities, which we ceased in 2016 as we gradually engaged in increasingly more engineering, land development and construction activities. We anticipate that our revenue from land development activities will increase and it will constitute the majority of our revenue going forward.

 

Cost of Revenue

 

Cost of revenue was $15,600 for the three and six months ended June 30, 2017. Our cost of revenue primarily consisted of feasibility studies that were conducted for us by third parties. In the course of our land development activities, we search for, find, and purchase land suitable for construction of intended properties, and manage land development works, including but not limited to creating plans of development, obtaining permits, conducting earthwork, site clearing, installation of utility lines, road creation, and other works necessary to result in the recordation of individual lots ready for commencement of real estate property construction. Most of these works will be outsourced to independent contractors and will be included in cost of revenue. As we continue to further develop our business, we anticipate that our cost of revenue will increase in absolute dollars and decrease as a percentage of total revenues.

 

Operating Expenses

 

Our total operating expenses for the six months ended June 30, 2017 amounted to $641,755, which is a decrease of approximately 31% from the total operating expenses of $932,475 for the six months ended June 30, 2016.

 

Selling, general and administrative expenses

 

Selling, general and administrative expenses costs include officer compensation, salaries and benefits, stock-based compensation expense, construction management fees, consulting fees, legal expenses, intellectual property costs, accounting and auditing fees, investor relations costs, insurance, reporting costs and fees, amortization of debt discount and corporate overhead related costs. Total selling, general and administrative expenses for the six months ended June 30, 2017 was $641,755 as compared to $932,475 for the same period of 2016. The decrease of approximately 31% was primarily caused by amortization of debt discount expense in connection to issuance of warrant during the six months ended June 30, 2016. This amortization of the debt discount resulted in the operating expenses being 31% higher during the six months ended June 30, 2016 as compared to 2017. During the six months ended June 30, 2017 as compared to the same period of 2016 we increased our compensation expense by 8% as we hired more employees, we increased by 140% our professional fees mostly associated with an expansion of our land development and construction activities, including, but not limited to, performing major revisions for our plan of development for Seasons Creek project and 5210 W Shore Drive project, searching for land to purchase for new projects, conducting gradually more feasibility studies for new projects, attempts to originate new projects for future customers, and other expenditures related to our core business as well as we increased our interest expense by 29% due to increased weighted average interest rate. As we continue to further develop our business, we anticipate that our selling, general and administrative expenses will increase in absolute dollars and decrease as a percentage of total revenues as we become profitable.

 

Interest expenses

 

Interest expense is related to our obligations under our debt and totaled to $74,864 and $58,101 for the six months ended June 30, 2017 and 2016, respectively. The 29% increase in interest expense for the six months ended June 30, 2017 was due to increased weighted average interest rate of debt securities in 2017 as compared to the six months ended June 30, 2016.

 

 

Other Income

 

Other income consisted primarily of our gain on deconsolidation of the Seasons Creek subsidiary in amount of $532,182, gain on sale of all rights for U.S. Patent Application 62/222,424 - Building block and interlocking construction method in amount of $20,000 to an affiliated company, which was partially offset by loss on investment in amount of $2,427 during the six months ended June 30, 2017. Other income consisted of processing fees and other fees received in connection with the repayment of the notes receivable to us and totaled to $116 for the six months ended June 30, 2016.

 

Net Income (Loss)

 

As reflected in the accompanying unaudited consolidated financial statements, we ended six months ended June 30, 2017 with net income attributable to the Company of $52,254, as compared to net loss of $(793,954), for the six months ended June 30, 2016, which is an increase of 107%. The 107% increase from net operating loss to net operating income was attributed mostly to our revenue from land development activities and our settlement of $1 million debt with Zimas LLC as well as 31 % decrease in operating expenses during the six months ended June 30, 2017 as compared to six months ended June 30, 2016. On June 30, 2017, Helpful Alliance Company settled the principal portion of a $1,000,000 note payable to unaffiliated party by issuing 20 Units of Class-A membership interests of our 67% owned subsidiary Seasons Creek Development LLC (“SCD”) in lieu of repaying the $1,000,000 principal amount of the loan (the “Transaction”). This Transaction was a settlement of debt that also resulted in the deconsolidation of SCD and a recognition of gain of $572,091. On April 29, 2016, the Company issued a warrant in consideration of the extension of the maturity date of convertible note payable with principal amount of $1,000,000 to June 30, 2016, to purchase up to an aggregate of 625,000 shares of Common stock of the Corporation, at an exercise price of $1.60 per share of Common Stock, exercisable in full or in part at any time vesting from January 1, 2018 and expiring on December 31, 2028. The fair value of the warrant of $434,182 was treated as a debt discount on the note payable. The debt discount was amortized over the life of the note, which was due on June 30, 2016 and amortization of debt discount expense of $434,182 was recorded for the six months ended June 30, 2016. This amortization of the debt discount resulted in the operating expenses being 31% higher during the six months ended June 30, 2016 as compared to 2017. During the six months ended our revenue and gain were partially offset by increased compensation expense as we hired more employees as well as professional fees associated with an expansion of our land development and construction activities, including, but not limited to, performing major revisions for our plan of development for Seasons Creek project, searching for land to purchase for new projects, conducting gradually more feasibility studies for new projects, attempts to originate new projects for future customers, hiring new personnel, and other expenditures related to our core business as well as increase in interest expense due to increased weighted average interest rate. We expect our active engagement into land development activities to gradually increase our revenues as well as a gradual increase of our operating expenses as we focus our operation on purchase and development of land for construction.

 

Income (Loss) per share

 

We reported net income attributable to the Company of $52,254, or $0.02 per basic and diluted share during the six months ended June 30, 2017, as compared to net loss of $(793,954), or $(0.38) per basic and diluted share for the six months ended June 30, 2016. The increase from loss to income attributable to Common Stockholders per share, basic and diluted was caused by the increase in net income of approximately 107%.

 

		Six Months Ended June 30, (Unaudited)
		2017				2016
Net income (loss) attributable to the Company		$	52,254			$	(793,954	)
Weighted average number of common shares outstanding:
Basic and diluted			2,100,000				2,100,000
Net income (loss) attributable to Common Stockholders per share:
Basic and diluted		$	0.02			$	(0.38	)

 

 

Liquidity & Capital Resources

 

We are consuming capital at the rate of approximately $1.2 million per year, mainly for operating expenses, excluding any purchase of land, property, or other assets and excluding any financing of any land development and construction activities. We anticipate financing this amount by obtaining new loans from our founders, Messrs. Temnikov and Gurin; and by obtaining new equity investments from private sale of securities by the Company. At June 30, 2017, we had $3,918 cash on hand and an accumulated deficit of $2,257,112. In order to finance our operating capital, our founders and majority stockholders are funding the Company’s operations by lending money to the Company under unsecured promissory notes. Other than the actual unsecured promissory notes purchased by our founders and major stockholders, there is no written agreement or arrangement pursuant to which the founders or a third party have agreed to purchase additional notes or otherwise fund our operations. From January 2016 to the date of this report, the Company received an aggregate amount of $961,000 for notes payable issued from our founders, directly and through the affiliated companies operated by the founders, which accrue non-compounding interest at annual rates ranging from 5% to 12.5% and mature on December 31, 2017. As of June 30, 2017, Gurin Group LLC, a limited liability company of which Mr. Sergey Gurin, the Company’s VP, Interim CFO and director, has voting and dispositive control, had loaned the Company an aggregate amount of $382,500 of which the Company on September 30,2016 repaid $200,000 by assignment of notes receivable due to the Company with aggregate principal amount of $200,000 in non-cash transaction and on June 30, 2017 $5,000 was derecognized on our balance sheet due to deconsolidation of our Seasons Creek subsidiary, Mr. Sergey Gurin has loaned $158,500,000, of which $50,000 was derecognized on our balance sheet due to deconsolidation of our Seasons Creek subsidiary, Dr. Temnikov the Company’s President, has loaned the Company an aggregate amount of $450,000, of which $5,000 was derecognized on our balance sheet due to deconsolidation of our Seasons Creek subsidiary, FVZ LLC has loaned the Company an amount of $10,000 and 5210 W Shore Drive LLC has loaned us $20,000. We rely on Messrs. Temnikov and Gurin to finance our operations until we create revenues sufficient to cover our immediate expenses and until we accumulate adequate receivables to eliminate our going concern consideration.

 

We believe that we will be able to fund our operations for the next twelve months with our current cash on hand in combination with capital we anticipate receiving from time to time in form of:

 

	●	creating revenues and receivables at least in the amounts sufficient to cover our operating expenses; or
	●	stockholder loans from our founders and executive officers Dr. Temnikov and Mr. Gurin, for which no verbal or written binding agreement with any of our founders, executive officers or directors; or
	●	obtaining investments through the completion of our initial public offering effectuated by the SEC on September 8, 2016; or
	●	loans from AssetsTZ Holding LLC under the $20 million offering we currently have outstanding; or
	●	a combination of the above stated funding methods.

 

If and when necessary, we may elect funding our future operations through the private sale of equity and/or debt securities in accordance with applicable federal and state laws.

 

We are planning to repay our debentures and accounts payable out of the net offering proceeds of consecutive offerings or out of the operating income.

 

 

Seasons Creek Project. We estimate that approximately $6 million (excluding general and administrative expenses and other operating expenses associated with management of the project LLC) would be required to conduct land development and construction works for our Seasons Creek project. On October 19, 2016, our subsidiary, Seasons Creek Development LLC issued 33% ownership in consideration of $500,000 equity investment structured in the form of 10 units of Class-B Preferred Share LLC Membership Interests bearing 14.0% annual yield on $0.5 million invested and the right for Class-B Preferred Profit Share of 30%. As of the date of this report, the Class-B Preferred Profit Share was decreased to 15% in accordance with Second Amended and Restated Operating Agreement of Seasons Creek Development LLC. Both, the Class-B Preferred Yield and the Class-B Preferred Profit Share are payable to Class-B LLC Member upon completion of the Seasons Creek project or as declared by our Board of Directors. Concurrently with this subscription, our ownership in Seasons Creek Development LLC was diluted from 100% to 67% and structured in form of 20 Units of Class-A Preferred Share LLC Membership Interests bearing 14.0% annual yield on $1 million and Class-A Preferred Profit Share of 30%, both payable to us upon completion of the Seasons Creek project or as declared by our Board of Directors and 1 Unit Common Share LLC Membership Interests. On June 30, 2017, we transferred these 20 units of Class-A membership interests (“Disposed Equity”) to Zimas LLC in lieu of repaying their $1,000,000 (one million) U.S. dollar loan to us (the “Transaction”). As a result, our ownership in Season Creek Development LLC decreased to 1 Unit of Common membership interest (“Retained Equity”) entitling us to 4% voting power and 5% profit share from the Seasons Creek project until August 8, 2017, a date on which SCD redeemed the unit back for $20,000. As a result, Helpful Alliance Company no longer has any equity position in Seasons Creek Development LLC..

 

We will manage the subsequent operations of Seasons Creek Development LLC until the termination under Amended and Restated Exclusive Construction Management Agreement executed with new member of Seasons Creek Development LLC and entitling us to approximately $915,000 in construction management fees. Under the Amended and Restated Exclusive Construction Management Agreement, we will receive these construction management fees only upon completion of the Seasons Creek project.

 

We estimate that additional $5.5 million (excluding general and administrative expenses and other concurrent operating expenses associated with management of the project LLC) will be required to conduct land development and construction works for our Seasons Creek project. We anticipate financing the $5.5 million either from the proceeds of initial public offering of our common shares, which was effectuated by the SEC on September 8, 2016, or by causing our subsidiary, Seasons Creek Development LLC, to issue and sell its securities in one or more private offerings. The amount of proceeds that we raise in our initial public offering will determine which way we proceed to finance the potential land purchase for this project. However, we cannot assure our shareholders, including those who may invest into our initial public offering or into any private offerings related to our Seasons Creek project, that we will have the necessary financing to the land development, neighborhood design, or execution of the Seasons Creek project.

 

5210 W Shore. On January 30, 2017, Seasons Creek Development LLC acquired 1,100 Class A Preferred LLC Membership Interests in 5210 W Shore Drive LLC, a Virginia limited liability company for $110,000, which were used to purchase an individual building lot located at 5210 West Shore Road, Midlothian, Virginia 23112. The lot was purchased from a non-affiliated seller. The 1,100 Class A Preferred LLC Membership Interests bore 14.0% Class A Preferred annual yield and were redeemable at any time. Prior to June 26, 2017, Seasons Creek Development LLC owned 97.5% of the outstanding equity securities of 5210 W Shore Drive LLC. The remaining 2.5% were owned jointly by Gurin Group LLC, which is owned and operated by our officer and director, Mr. Sergey Gurin, Ms. Tatyana Gurina, daughter of our officer and director, Mr. Sergey Gurin, and by Ms. Ganna Mikheleva, one of our employees. On June 26, 2017, 5210 W Shore redeemed the 1,100 Class A Preferred LLC Membership Interests with the 14.0% Class A Preferred annual yield from Seasons Creek Development LLC for $116,160. As of the date of this report the Company and/or Seasons Creek Development LLC do not have any ownership of 5210 West Shore Drive LLC. As of the date of this report, we have received from 5210 W Shore Drive LLC the amount of $50,000 for construction management of the project, which we recognized as revenue.

 

 

River City Park. We estimate that approximately from $12 million to $17 million (excluding general and administrative expenses and other operating expenses associated with management of the project LLC) would be required to purchase land and create an initial concept for our River City Park neighborhood project. The amount of proceeds that we raise in our initial public offering will determine which way we proceed to finance the potential land purchase for this project. If we are successful in locating and acquiring such land, we intend to develop this land into a residential neighborhood to be called “River City Park”. In our estimate, River City Park project would require approximately $12-17 million for land purchase, creating the neighborhood development concept, and conducting rezoning activities. We anticipate financing this $12-17 million either from the proceeds of initial public offering of our common shares, which was effectuated by the SEC on September 8, 2016, or by causing our subsidiary, River City Park LLC, to issue and sell its securities in one or more private offerings. If we sell from 75% to 100% of the 14,500,000 shares in our initial public offering, we will use up to approximately $17.0 million from the net proceeds from our initial public offering to purchase the land and to create a neighborhood development concept (excluding general and administrative expenses and other concurrent operating expenses associated with initial management of the River City Park project). If an acquisition of land and development of the River City Park neighborhood concept would require an amount in excess of $17 million, we intend using up to $17 million for the purchases of land for our other projects and cause our River City Park LLC to initiate its own securities offering, for which we have an authority to do so as its sole owner and manager. If we sell only 25% to 75% of the 14,500,000 shares in our initial public offering, we will not use any of the net proceeds from our initial public offering for purchase of land for River City Park project. Instead, we will use the net proceeds from our initial public offering for the purchases of land for our other projects, some of which have presently not yet originated. As of the date of this report, we cannot assure our shareholders, including those who may invest into our initial public offering or into any private offerings related to our River City Park project, that we will have the necessary financing to purchase the land we contemplate purchasing for our River City Park project, or for completion of conceptual design of the River City Park neighborhood, or for the River City Park project execution.

 

Washington Woods. We estimate that approximately $2 million to $5 million (excluding general and administrative expenses and other operating expenses associated with management of the project LLC) would be required to purchase land and create an initial concept for our Washington Woods neighborhood project. We anticipate financing this $2-5 million either from the proceeds of initial public offering of our common shares, which was effectuated by the SEC on September 8, 2016, or by causing Washington Woods LLC to issue and sell its securities in one or more private offerings. The amount of proceeds that we raise in our initial public offering will determine which way we proceed to finance the potential land purchase for this project. If we sell less than 50% or from 75% to 100% of the 14,500,000 shares in our initial public offering, we will not use any of the net proceeds from our initial public offering for our Washington Woods project and pursue the private offering route. If we sell from 50% to 75% of the 14,500,000 shares in our initial public offering, we intend using up to approximately $4.75 million from the net proceeds from our initial public offering for the purchase of land and creating the Washington Woods neighborhood concept. As of the date of this report, we cannot assure our shareholders, including those who may invest into our initial public offering or into any private offerings related to our Washington Woods project, that we will have the necessary financing to purchase the land, or to complete a conceptual design, or successfully execute the Washington Woods project. If we are successful in locating and purchasing such land, we intend to develop this land into a residential neighborhood to be called “Washington Woods” featuring luxury single-family homes.

 

 

Alliance Business Park. We estimate that approximately from $0.5 million to $2.25 million (excluding general and administrative expenses and other operating expenses associated with management of the project LLC) would be required to purchase land and create an initial concept for our Alliance Business Park project. The amount of proceeds that we raise in our initial public offering will determine which way we proceed to finance the potential land purchase for this project. We anticipate financing this $0.5-2.25 million either from the proceeds of initial public offering of our common shares, which was effectuated by the SEC on September 8, 2016, or by causing our subsidiary, Alliance Business Park LLC, to issue and sell its securities in one or more private offerings. As of the date of this report, we cannot assure our shareholders, including those who may invest into our initial public offering or into any private offerings related to our Alliance Business Park project, that we will have the necessary financing to purchase the land, or to complete a conceptual design, or successfully execute the Alliance Business Park project.

 

With exception of using a portion of operating capital to finance salaries and operating expenses for project origination on pro-rata basis, at this time we do not intend using any of the net proceeds from our initial public offering for land purchase or development activities related to our Profit Bright Plaza and Courthouse Commons projects, which are currently in the project origination stage.

 

Cash Flows

 

The following table presents a summary of net cash provided by (used in) our operating, investing and financing activities for the periods indicated:

 

		For the Six Months Ended June 30, (Unaudited)
		2017				2016
Net cash provided by (used in)
Operating activities		$	(569,150	)		$	20,104
Investing activities			(742,251	)			(3,506	)
Financing activities			912,910				(174,826	)
Net decrease in cash and cash equivalents		$	(398,491	)		$	(158,228	)

 

Operating Activities. Operating activities used net cash of $(569,150) and provided $20,140 during the six month ended June 30, 2017 and 2016, respectively. The change in net operating cash flows primarily reflected cash used for reconciliation of gain on deconsolidation of subsidiary in amount of $572,091 and cash used for compensation and professional fees which was partially offset by receipt customer deposit of $25,420 during the six month ended June 30, 2017 and cash used for compensation and interest paid on the debt obligations as well as costs for land development in amount of $88,991, which were partially offset by receipt of two notes receivable with principal amount of $81,000 and $330,000 or aggregate amount of $411,000 during the six month ended June 30, 2016.

 

Investing Activities. Investing activities used $742,251 and $3,506 during the six month ended June 30, 2017 and 2016, respectively. On June 30, 2017, Helpful Alliance Company settled the principal portion of a $1,000,000 note payable by issuing 20 Units of Class-A membership interests of our 67% owned subsidiary Seasons Creek Development LLC (“SCD”) in lieu of repaying the $1,000,000 principal amount of the loan (the “Transaction”). This Transaction is a settlement of debt that also caused the deconsolidation of SCD, which resulted in cash disposed of in deconsolidation of $742,251 during the six month ended June 30, 2017. Investing activities used cash for payment of $3,506 for attorney and filing fees for our patent application during the six months ended June 30, 2016.

 

Financing Activities. Financing activities provided net cash of $912,910 and used $174,826 during the six month ended June 30, 2017 and 2016, respectively. Financial activities used cash in amount of $7,200 to recover our cash overdraft, and provided cash by receipt of notes payable from related party in aggregate amount of $369,000, of which $240,000 is from the Company’s founder, Dr. Temnikov, an amount of $102,500 from an affiliated Company, Gurin Group LLC, $6,500 from the Company’s founder, Mr. Gurin and $20,000 from affiliated company, 5210 W Shore Drive LLC as well as cash received for note payable in amount of $500,000 received from an affiliated company and cash invested by affiliated investors in amount of $51,100 into 5210 W Shore LLC, which was prior to June 26, 2017 a 68.3% subsidiary of Seasons Creek Development, which was prior to June 30, 2017 our 67% subsidiary during the six month ended June 30, 2017. Financing activities used cash for repayment of $400,000 of note payable with original principal amount of $1,000,000 which was due by June 30, 2016, repurchase of Series-X common stock in amount of $90,000, all of which was partially offset by due to founder of $55,174 and a receipt of notes payable from the Company’s founder, Dr. Temnikov in amount of $100,000, from the Company’s founder, Mr. Gurin in amount of $50,000, from affiliated company, FVZ LLC in amount of $10,000, and from affiliated company, Gurin Group LLC, in amount of $100,000, or aggregate amount of $260,000 during the six months ended June 30, 2016.

 

We believe that we will need approximately of $1 million for the next 12 months to sufficiently fund our general and administrative expenses, as planned, including hiring the minimally required personnel, funding research and development and marketing, expenses. We also need $146,790 to pay-off our accrued interest up to June 30, 2017 due December 31, 2017 under Notes to Zimas LLC with principal amount of $1 million, which we paid off on June 30, 2017 by settlement and assignment of our 20 Units of Class-A membership interests of Seasons Creek Development LLC. We anticipate funding these amounts by obtaining new loans from our founders, Messrs. Temnikov and Gurin and from private sale of securities by the Company and by our subsidiaries, as and when applicable.

 

 

Summary of Significant Accounting Policies

 

There have been no changes made in significant accounting policies of Helpful Alliance Company during the period covered by this Report.

 

Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 2, “Summary of Significant Accounting Policies” in our unaudited consolidated financial statements June 30, 2017, included in this report on Form 10-Q starting from page F-6 for a discussion of our significant accounting policies and estimates.

 

Emerging Growth Company

 

We are an emerging growth company as defined in the JOBS Act. As an emerging growth company, we have elected, pursuant to Section 107(b) of the JOBS Act, to take advantage of the extended transition period provided in Securities Act Section 7(a)(2)(B) for complying with new or revised accounting standards. We will therefore delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. We may take advantage of this extended transition period provided in Securities Act Section 7(a)(2)(B) until the first to occur of the date we (i) are no longer an “emerging growth company” or (ii) affirmatively and irrevocably opt out of the extended transition period provided in Securities Act Section 7(a)(2)(B). As such, our financial statements may not be comparable to companies that comply with public company effective dates.

 

Off-Balance Sheet Arrangements and Commitments

 

On November 1, 2016, the Company executed an office lease for the offices at Deerfield Beach, FL, to a non-affiliated company. The rent is $2,602 per month. The term of the lease is from November 1, 2016 to October 31, 2018. One security deposit of $2,602 and one month prepaid rent of $2,602 was required.

 

Office lease expense was $15,800 and $10,669 for the six months ended June 30, 2017 and 2016, respectively.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The disclosure under this item is not required to be reported by smaller reporting companies.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures.

 

In accordance with Exchange Act Rules 13a-15 and 15d-15, our management is required to perform an evaluation under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period.

 

Based upon that evaluation, our management has concluded that, as of June 30, 2017, our disclosure controls and procedures were found to be ineffective.

 

This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.

 

Management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.

 

 

Our management has begun evaluating remedies to reduce these deficiencies. However, we will not be able to implement any remedial measures, such as appointing independent members on our board of directors, until we have sufficient funds to do so.

 

Changes in Internal Control over Financial Reporting

 

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the six months ended June 30, 2017 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL MATTERS

 

In the ordinary course of business, we may be involved in legal proceedings from time to time. At the date of this Quarterly Report on Form 10-Q, there are no known legal proceedings against the Company. No governmental agency has instituted proceedings, served, or threatened the Company with any litigation.

 

ITEM 1A. RISK FACTORS

 

Not applicable.

 

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.

 

ITEM 5. OTHER INFORMATION

 

SUBSEQUENT EVENTS

 

 

In July 2017, the Company received a principal amount of $20,000 for note payable issued from Company’s founder. The note accrues interest at an annual rate of 12.0%, payable quarterly, and matures on December 31, 2017.

 

On July 19, 2017, the Company received a $25,000 customer deposit for land development services from an affiliated company.

 

On August 8, 2017, the Company sold its 1 Common Unit of Seasons Creek Development LLC membership interests for $20,000. The Company has no further ownership of Seasons Creek Development LLC.

 

On August 9, 2017, Seasons Creek Development LLC and Helpful Alliance have executed the Management Termination Settlement Agreement (the “Termination”), under which Helpful Alliance shall complete the steps of land development activities that initiated before the Termination but will continue until Seasons Creek Development LLC recordation of individual building lots, as will be indicated by the receipt of official documentation to that effect from Chesterfield County, Virginia authorities. Resulting from the Termination, Seasons Creek Development LLC will owe to Helpful Alliance Company (a) $916,140 for management of land development activities prior to the Termination, (b) $64,153 for reimbursement of expenses accrued prior to the Termination recorded as due from affiliate on our balance sheet as of June 30, 2017, and (c) $97,425 of accrued 14.0% annual preferred yield from November 30, 2016 to June 30, 2017 on ownership of 20 units Class A Preferred Share LLC Membership Interests of Seasons Creek Development LLC upon completion of project, a total of $1,077,718. We will record the $916,140 on the books of Helpful Alliance Company as due from affiliate upon recordation of individual building lots. There will be no compensation to Helpful Alliance Company from the Termination date to the date of recordation of individual building lots. Helpful Alliance Company no longer has any managerial power of control over the Seasons Creek Development LLC operations. The steps subject to completion under the Termination agreement shall be conducted by Helpful Alliance Company acting merely as agent-representative of Seasons Creek Development LLC and not as a manager. Specifically, the holder of Class-B LLC Membership Interests, Mr. Mirmanov, is appointed as Manager of Seasons Creek Development LLC effective from August 9, 2017. As Manager of Seasons Creek Development LLC, Mr. Mirmanov is able to exercise all managerial and executive powers over the Seasons Creek Development LLC operations, including but not limited to replacing Helpful Alliance Company in its role as agent-representative with any other individual or entity of his choice. Helpful Alliance Company would have no remedy for such a dismissal and/or replacement.

 

ITEM 6. EXHIBITS.

 

Index to Exhibits

 

Exhibit No.		Description:
10.1*		Settlement Agreement, dated June 30, 2017, between Helpful Alliance Company and Zimas LLC
10.2*		Addendum to Settlement Agreement, dated June 30, 2017, between Helpful Alliance Company and Zimas LLC
10.3*		Termination Agreement, dated August 9, 2017, between Helpful Alliance Company and Seasons Creek Development LLC
31.1*		Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal Executive Officer
31.2*		Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal Accounting and Financial Officer
32.1*		Section 1350 Certification of Principal Executive Officer
32.2*		Section 1350 Certification of Principal Accounting and Financial Officer
101.INS**		XBRL Instance Document
101.SCH**		XBRL Taxonomy Extension Schema Document
101.CAL**		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB**		XBRL Taxonomy Extension Labels Linkbase Document
101.DEF**		XBRL Taxonomy Extension Definition Linkbase Document
101.PRE**		XBRL Taxonomy Extension Presentation Linkbase Document

 

*	Filed herewith
**	Furnished herewith. Users of this data are advised that, pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Exchange Act of 1934 and otherwise are not subject to liability.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: August 18, 2017	By:	/s/ Jonathan Barker
	Name:	Jonathan Barker
	Title:	Chief Executive Officer
		(Principal Executive Officer)

 

Date: August 18, 2017	By:	/s/ Sergey Gurin
	Name:	Sergey Gurin
	Title:	Vice President and Interim Chief Financial Officer
		(Principal Financial and Accounting Officer)