Item 1. Business.
Overview
Magnolia Lane Income Fund was incorporated in the state of Delaware on May 12, 2009. We were formed to commence business as a stock agent in the wool trade.
On May 13, 2013, we entered into a stock purchase agreement (the “Stock Purchase Agreement”) with Ian Raleigh and Michael Raleigh (the “Sellers”) and Magnolia Lane Financial, Inc. (the “Purchaser”), whereby the Purchaser purchased from the Sellers, 10,000,000 shares of common stock, par value $0.0001 per share, of the Company (the “Shares”), representing approximately 69.57% of the issued and outstanding shares of the Company. As a result, the Purchaser became the majority shareholder of the Company.
In connection with the Stock Purchase Agreement, we have ceased pursuing our prior business plan and have begun focusing on our new business which is to manage and invest in real property. Our current Chief Executive Officer and sole director, Brian Woodland, has numerous years in the real estate acquisition, syndication and asset management business. We intend to acquire real estate in small markets with high degrees of safety to provide income streams to our shareholders. In addition, we will develop property, syndicate, manage and acquire property for capital appreciation.
In connection with this change of control and change of business, we have conducted a name change and reverse stock split. On August 1, 2013, we filed a Certificate of Amendment to our Articles of Incorporation (the “Amendment”) to change its name from “Palmerston Stock Agency, Inc.” to “Magnolia Lane Income Fund” (the “Name Change”) and to memorialize a 8 to 1 reverse stock split (the “Stock Split”). The Amendment was effective as of August 1, 2013.
On August 12, 2013, the Company received approval from the Financial Industry Regulatory Authority (“FINRA”) to effectuate the Name Change and Stock Split. FINRA also confirmed that the new stock symbol is MIFC.
Our Operating Strategy
Our business plan is focused on managing real property. Specifically, we intend to acquire real estate in small markets with high degrees of safety to provide income streams to our shareholders. In addition, we will develop property, syndicate, manage and acquire property for capital appreciation.
On December 23, 2013, a majority shareholder, Magnolia Lane Financial, entered into three separate LLC Membership Interest Purchase and Sale Agreements for the acquisition of two limited liability companies, Grove Realty Partners, LLC and Walker Partners, LLC (the “Acquisition Agreements”). Pursuant to the Acquisition Agreements, Magnolia Lane Financial acquired 100% of the equity interests in Grove Realty Partners, LLC and Walker Partners, LLC. As consideration for the acquisition, Magnolia Lane Financial transferred 134,574 shares of our Common Stock to WS Advantage and Phalanx Wealth Management (the “Consideration Shares”). For purposes of the Acquisition Agreements, the parties valued the shares at $16.60 per share for a total purchase price of $2,233,928. Prior to this transaction, Magnolia Lane Financial owned 1,250,000 shares of our common stock and now owns 1,115,426 shares of our common stock. WS Advantage, LP owns 115,347 shares of our common stock and Phalanx Partners, LLC owns 19,227 shares of our common stock.
Subsequently, on January 16, 2014, we entered into an LLC Membership Interest Purchase and Sale Agreement with Magnolia Lane Financial, Inc. (the “Agreement”). Pursuant to the Agreement, we acquired all rights, title and interest to all assets of Magnolia Lane Financial, including the assets acquired in the Acquisition Agreements, in exchange for $3,000.
As of April 30, 2014, real estate that we own through our subsidiaries consisted of two properties:
Grove Street, Topsfield, Ma 01983.
· Description: 12,000 Square foot, Business Office, Retail and Professional Space
· Status: Rented at 100% occupancy. Lease term: 3-Year
· Owner: Grove Realty Partners, LLC
· Purchase Price: $2.025 million
· Current Mortgage Debt: $1,425,982
Main Street, Topsfield, Ma 01983
· Description: 4,000 Square foot, Commercial Building
· Status: Rented 100% occupancy. Lease term: 3-Year
· Owner: Walker Partners, LLC
· Purchase Price: $503,000
· Current Mortgage Debt: $558,176
Competition
We believe that we face a lot of competition for properties that meet our investment objectives. Many of our competitors have greater resources than we do. We compete with similarly situated entities engaged in real estate investment activities, including individuals, corporations, banks and insurance company investment accounts, REITs, real estate limited partnerships, the U.S. Government and other entities, to acquire, manage and rent real estate properties. Our competitors may demonstrate significant competitive advantages that result from, among other things, a lower cost of capital, additional access to capital and enhanced operating efficiencies. In addition, the number of entities and the amount of funds competing for suitable investments may increase which would cause our competition to increase.
Government Regulation
We do not expect any governmental regulations to have an impact on our planned business operations. Existing laws with which we must comply cover issues that include:
● Corporate Taxes
● Environmental
New laws may impact our ability to market our products in the future. However, we are not aware of any pending laws or regulations that would have an impact on our business.
Employees
As of August 2014, we have no full time employees. Our President and Chief Executive Officer, Brian Woodland, spends approximately 30 hours per week on the Company’s matters. We believe this is sufficient time to successfully implement our business plan and further commence our operations. We plan to employ more qualified employees in the near future.
Item 1A.
Item 1A. Risk Factors.
Smaller reporting companies are not required to provide the information required by this item.
Item 1B.
Item 1B. Unresolved Staff Comments.
Smaller reporting companies are not required to provide the information required by this item.
Item 2.
Item 2. Properties.
Our principal office is located at 7 Grove Street, Topsfield, MA 01983. Our primary telephone number is (978) 887-5981
Item 3.
Item 3. Legal Proceedings.
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Item 4.
Item 4. Mine Safety Disclosures.
Not Applicable.
PART II
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
No established public trading market exists for the Company’s common stock. We have a trading symbol, MIFC, and are quoted on the OTC Pink Markets operating by OTC Markets Group, Inc. There are no plans, proposals, arrangements or understandings with any person with regard to the development of a trading market in any of the Company’s common stock.
Holders
As of August 7, 2014, there were 7 holders of record of our common stock. This does not reflect the number of persons or entities who held stock in nominee or street name through various brokerage firms.
Dividends
To date, we have not declared or paid any dividends on our common stock. We currently do not anticipate paying any cash dividends in the foreseeable future on our common stock, when issued pursuant to this offering. Although we intend to retain our earnings, if any, to finance the exploration and growth of our business, our Board of Directors will have the discretion to declare and pay dividends in the future.
Payment of dividends in the future will depend upon our earnings, capital requirements, and other factors, which our Board of Directors may deem relevant.
Item 6.
Item 6. Selected Financial Data.
Smaller reporting companies are not required to provide the information required by this item.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto. The following discussion and analysis contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements.
Plan of Operations
Magnolia Lane Income Fund was incorporated in the state of Delaware on May 12, 2009. We were formed to commence business as a stock agent in the wool trade.
On May 13, 2013, we changed our business plan to one that is focused on managing real property. Specifically, we intend to acquire real estate in small markets with high degrees of safety to provide income streams to our shareholders. In addition, we will develop property, syndicate, manage and acquire property for capital appreciation.
In connection with the change in our business plan, we have conducted a name change and reverse stock split. On August 1, 2013 we filed a Certificate of Amendment to our Articles of Incorporation (the “Amendment”) to change its name from “Palmerston Stock Agency, Inc.” to “Magnolia Lane Income Fund” (the “Name Change”) and to memorialize a 8 to 1 reverse stock split (the “Stock Split”). The Amendment was effective as of August 1, 2013.
On August 12, 2013, the Company received approval from the Financial Industry Regulatory Authority (“FINRA”) to effectuate the Name Change and Stock Split. FINRA also confirmed that the new stock symbol is MIFC.
On December 23, 2013, a shareholder of ours, Magnolia Lane Financial, entered into three separate LLC Membership Interest Purchase and Sale Agreements for the acquisition of two limited liability companies, Grove Realty Partners, LLC and Walker Partners, LLC (the “Acquisition Agreements”). Pursuant to the Acquisition Agreements, Magnolia Lane Financial acquired 100% of the equity interests in Grove Realty Partners, LLC and Walker Partners, LLC. As consideration for the acquisition, Magnolia Lane Financial transferred 134,574 shares of our Common Stock to WS Advantage and Phalanx Wealth Management (the “Consideration Shares”). For purposes of the Acquisition Agreements, the parties valued the shares at $16.60 per share for a total purchase price of $2,233,928. Prior to this transaction, Magnolia Lane Financial owned 1,250,000 shares of our common stock and now owns 1,115,426 shares of our common stock. WS Advantage, LP owns 115,347 shares of our common stock and Phalanx Partners, LLC owns 19,227 shares of our common stock.
Subsequently, on January 16, 2014, we entered into an LLC Membership Interest Purchase and Sale Agreement with Magnolia Lane Financial, Inc. (the “Agreement”). Pursuant to the Agreement, we acquired all rights, title and interest to all assets of Magnolia Lane Financial, including the assets acquired in the Acquisition Agreements, in exchange for $3,000.
As of April 30, 2014, real estate that we, through our subsidiaries, owned consisted of two properties:
Grove Street, Topsfield, Ma 01983.
· Description: 12,000 Square foot, Business Office, Retail and Professional Space
· Status: Rented at 100% occupancy. Lease term: 3-Year
· Owner: Grove Realty Partners, LLC
· Purchase Price: $2.025 million
· Current Mortgage Debt: $1,425,982
Main Street, Topsfield, Ma 01983
· Description: 4,000 Square foot, Commercial Building
· Status: Rented 100% occupancy. Lease term: 3-Year
· Owner: Walker Partners, LLC
· Purchase Price: $503,000
· Current Mortgage Debt: $558,176
Limited Operating History
We have only begun generating modest revenue, have a limited financial history and have limited capital. Our business is subject to risks inherent in growing an enterprise, including limited capital resources and possible rejection of our business model and/or sales methods.
Going Concern
The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenues. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern.
Results of Operations
For the years ended April 30, 2014 and 2013
Our rental revenue for the twelve months ended April 30, 2014 reflects the contribution of rental properties to the Company on January 16, 2014. Revenues were $214,235 as compared to $0 in revenue for the twelve months ended April 30, 2013. The increase in rental revenue of $214,235 is the result of the contribution of the properties on January 16, 2014. Operating expenses for the twelve-month period ended April 30, 2014 totaled $408,204, resulting in a loss of $193,969 as compared with operating expenses and loss of $16,745 for the twelve-month period ended April 30, 2013. Our operating expenses for the twelve months ended April 30, 2014 consisted of $72,443 in general and administrative fees, $62,275 in professional fees, $18,161 in repairs and maintenance, $85,097 in depreciation and $170,228 in interest expense.
Capital Resources and Liquidity
As of April 30, 2014 we had $19,379 cash on hand.
As of April 30, 2014, the Company had a stockholders’ deficit of $19,132. For the fiscal year ended April 30, 2014 and 2013, the Company had a net loss of $193,969 and $16,745, respectively. The Company’s stockholders’ deficiency is primarily due to, among other reasons, interest expenses and general administrative expenses.
Net cash used in operating activities was $119,280 for the fiscal year ended April 30, 2014 as compared to a net loss of $196,969 for the fiscal year ended April 30, 2013.
Net cash used in investing activities was $50,298 for the fiscal year ended April 30, 2014.
Net cash provided by financing activities amounted to $186,727 for the fiscal year ended April 30, 2014.
Our principal sources of liquidity include cash from rental revenue and loans from a related party to cover mortgage obligations.
Mortgage Obligations
In connection with the contribution of assets described in the section above, the Company assumed mortgages related to the respective properties contributed.
On January 16, 2014, the Company assumed a mortgage note payable to a third-party, unrelated to the seller, on a property located at 7 Grove Street, Topsfield, Massachusetts. The note bore interest at 7.9 % per annum and was scheduled to mature on September 5, 2032. Monthly payments of $17,775 started on October 5, 2008. The mortgage note was secured by a mortgage on the property. At maturity, the balloon payment was to be due in full.
On April 12, 2014, the mortgage note payable on the property at 7 Grove Street was paid in full by a shareholder. On that same date, a new mortgage note payable was established between the Company and the shareholder for an amount equal to the balance that was remaining on the original mortgage. The new related party mortgage note payable began on April 12, 2014 and is a 5-year fixed loan at 5.5% interest, with a balloon payment on May 15, 2019 for the outstanding balance. Interest only payments will begin on May 15, 2014 in the amount of $6,536.
On January 16, 2014, the Company assumed a mortgage note payable to a third-party, unrelated to the seller, on a property located at 58 Main Street, Topsfield, Massachusetts. The note bears interest at 6.75% per annum and is due August 26, 2019. Monthly principle and interest payments totaling $4,320 started on September 26, 2009 and will continue through the maturity date. The mortgage note is secured by a mortgage on the property. At maturity, the balloon payment will be due in full. The remaining principal balance as of April 30, 2014 is $558,177.
Related Party Loans
From time to time, the Company receives loans and advances from Phalanx Partners and WS Advantage LP for working capital purposes. Phalanx Partners and WS Advantage LP are shareholders that formerly held equity interests in Grove Realty Partners, LLC and Walker Partners, LLC and are currently controlled by the Company’s president.
An aggregate of $441,516 was received by related parties during the twelve-month period for working capital purposes and debt and expenses paid on the Company’s behalf.
During the fiscal year ended April 30, 2014, the Company received $36,000 in rental income from Phalanx Partners, who occupies an office in one of the Company’s properties.
We believe that our currently available working capital and availability of loans from related parties referred to above should be adequate to sustain our operations at the current level for the next twelve months. Should we not be able to meet our current financial needs, the Company will seek alternative methods of financing, such as issuing convertible debt or introducing additional shares of its common stock into the market.
Our liquidity may be negatively impacted by the significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Smaller reporting companies are not required to provide the information required by this item.
Item 8.
Item 8. Financial Statements and Supplementary Data.
MAGNOLIA LANE INCOME FUND
(fka PALMERSTON STOCK AGENCY, INC.)
April 30, 2014
Index to the Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
Magnolia Lane Income Fund
Topsfield, Massachusetts
We have audited the accompanying consolidated balance sheets of Magnolia Lane Income Fund (the "company") as of April 30, 2014 and 2013, and the related consolidated statements of operations, stockholders’ deficit and cash flows for the years then ended. These consolidated financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of its internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Magnolia Lane Income Fund as of April 30, 2014 and 2013, and the results of their operations and cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the company has an accumulated deficit of $315,421 and net cash used in operations of $119,280. These factors raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Baker Tilly Virchow Krause, LLP
New York, New York
August 13,
MAGNOLIA LANE INCOME FUND
Consolidated Balance Sheets
See accompanying notes to the consolidated financial statements.
MAGNOLIA LANE INCOME FUND
Consolidated Statements of Operations
See accompanying notes to the consolidated financial statements.
MAGNOLIA LANE INCOME FUND
Statement of Stockholders' Deficit
For the Period from April 30, 2012 through April 30, 2014
See accompanying notes to the consolidated financial statements.
MAGNOLIA LANE INCOME FUND
Consolidated Statements of Cash Flows
See accompanying notes to the consolidated financial statements.
MAGNOLIA LANE INCOME FUND
(fka PALMERSTON STOCK AGENCY, INC.)
April 30, 2014
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
Magnolia Lane Income Fund, formerly known as Palmerston Stock Agency, Inc. (the “Company,” ”We,” “Ours,” “Us”), a development stage company, was incorporated on May 12, 2009 under the laws of the State of Delaware. The Company was originally formed to commence business as a stock agent in the wool trade.
On May 13, 2013, we entered into a stock purchase agreement (the “Stock Purchase Agreement”) with Ian Raleigh and Michael Raleigh (the “Sellers”) and Magnolia Lane Financial, Inc. (the “Purchaser”), whereby the Purchaser purchased from the Sellers, 10,000,000 shares of common stock, par value $0.0001 per share, of the Company (the “Shares”), representing approximately 69.57% of the issued and outstanding shares of the Company. As a result, the Purchaser became the majority shareholder of the Company.
In connection with the Stock Purchase Agreement, we have ceased pursuing our prior business plan and have begun focusing on our new business which is to manage and invest in real property. Our current Chief Executive Officer and sole director, Brian Woodland, has numerous years in the real estate acquisition, syndication and asset management business. We intend to acquire real estate in small markets with high degrees of safety to provide income streams to our shareholders. In addition, we will develop property, syndicate, manage and acquire property for capital appreciation.
In connection with this change of control and change of business, we have conducted a name change and reverse stock split. On August 1, 2013, we filed a Certificate of Amendment to our Articles of Incorporation to change our name from “Palmerston Stock Agency, Inc.” to “Magnolia Lane Income Fund” and to memorialize an 8 to 1 reverse stock split.
On August 12, 2013, the Company received approval from the Financial Industry Regulatory Authority (“FINRA”) to effectuate the Name Change and Stock Split. FINRA also confirmed that the new stock symbol is MIFC.
On January 16, 2014, the Company entered into an LLC Membership Interest Purchase and Sale Agreement with Magnolia Lane Financial, Inc. (a shareholder). Pursuant to the Agreement, all rights, title and interest of two commercial real estate properties in Massachusetts were contributed to the Company. (See Note 4)
NOTE 2 - SUMMARY OF ACCONTING POLICIES
Basis of presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, the rules and regulations of the United States Securities and Exchange Commission. In accordance with ASC 850-50, the consolidated financial statements have been recast to give effect to the transaction described in Note 4 as occurring on May 13, 2013, which is the earliest date the entities were under common control.
Principles of consolidation
The accompanying financial statements represent the consolidated financial position and results of operations of the Company and include the accounts and results of operations of the Company and its subsidiaries. The accompanying financial statements include the active entity of Magnolia Lane Income Fund and its wholly owned subsidiaries, Walker Partners, LLC and Grove Realty Partners, LLC.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amount of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.
Restricted Cash
Restricted cash consists of cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements. The Company’s restricted cash is reserved for real estate taxes on its properties.
Concentrations
Concentration in a geographic area
The Company operates in the real estate industry and the operations are concentrated in the State of Massachusetts.
Rental Property, Net
Rental property assets are stated at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful lives of the asset.
We capitalize replacements and improvements, such as HVAC equipment, structural replacements, windows, appliances, flooring, carpeting and renovations. Ordinary repairs and maintenance, such as unit cleaning, painting and appliance repairs, are expensed when incurred.
Net loss per common share
Net loss per common share is computed pursuant to section 260-10-45 of the Financial Accounting Standards Board Accounting Standards Codification. Basic net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock and potentially dilutive outstanding shares of common stock during the period.
There were no potentially dilutive shares outstanding for any periods presented.
Income Taxes
The Company utilizes the asset and liability method to measure and record deferred income tax assets and liabilities. Deferred tax assets and liabilities reflect the future income tax effects of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates that apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company follows the provisions of Accounting for Uncertainty in Income Taxes, which clarified the accounting for uncertainties in tax positions and required that the Company recognizes in its financial statements the impact of an uncertain tax position, if that position has more likely than not chance of not being sustained on audit, based on technical merits of that position.
The Company is subject to the United States federal and state income tax examinations by the tax authorities for the 2013, 2012, and 2011 tax years.
Property Revenue Recognition
Our commercial property leases are for varied terms ranging from month-to-month to 3 years. Rental income is recognized on a straight-line basis over the term of the lease.
Rent concessions, including free rent incurred in connection with commercial property leases, are amortized on a straight-line basis over the terms of the related leases and are charged as a reduction of rental revenue.
Impairment of Real Estate Investments
The Company assesses on a regular basis whether there are any indicators that the carrying value of rental property assets may be impaired. Potential indicators may include an increase in vacancy at a property, tenant reduction in utilization of a property, tenant financial instability and the potential sale of the property in the near future. An asset is determined to be impaired if the asset’s carrying value is in excess of its estimated fair value.
Deferred Revenue
From time to time, some rental payments may be prepaid by tenants, but not earned yet by the Company. Such revenue is initially recorded as a deferred liability and is recognized as revenue once earned. As of April 30, 2014 and 2013, the Company had $4,800 and $0 in deferred revenue, respectively.
NOTE 3 - GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected in the accompanying financial statements, the Company had an accumulated deficit of $315,421 and net cash used in operations of $119,280. These conditions raise substantial doubt about its ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenues. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern.
The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.
NOTE 4 - ASSETS CONTRIBUTED
On December 23, 2013, a shareholder of the Company, Magnolia Lane Financial, Inc. entered into three separate LLC Membership Interest Purchase and Sale Agreements for the acquisition of two limited liability companies; Grove Realty Partners, LLC and Walker Partners, LLC. Pursuant to the Membership Interest Purchase and Sale Agreements, Magnolia Lane Financial, Inc. acquired 100% of the equity interests in Grove Realty Partners, LLC and Walker Partners, LLC.
Each of the entities acquired hold commercial real estate properties. More specifically,
·Grove Realty Partners, LLC holds a single commercial property located at 7 Grove St., Topsfield, Massachusetts.
·Walker Partners, LLC holds a single commercial property located at 58 Main St., Topsfield, Massachusetts.
Subsequent to the Membership Interest Purchase described above, on January 16, 2014, the Company entered into an LLC Membership Interest Purchase and Sale Agreement with Magnolia Lane Financial, Inc. Pursuant to the Agreement, Magnolia Lane Financial, Inc. contributed all rights, title and interest of Magnolia Lane Financial to the Company for total consideration of $3,000.
Because of the related party nature of this transaction, the Company recorded this as a contribution of capital. Assets and liabilities contributed were recorded at their carrying amounts at the date of the transfer. The results of operations included in the financial statements are reported as though the contribution had occurred on May 12, 2013, which is the date that common control was first established among the related parties.
The Company recorded the contribution at carrying value. The net of $2,492,306 in assets contributed and $2,317,469 in liabilities assumed was recorded as a contribution of capital to the Company in the amount of $174,837.
NOTE 5 - RENTAL PROPERTY, NET
Rental Property, Net consisted of the following at April 30, 2014 and April 30, 2013:
As of April 30, 2014, real estate investments consisted of two properties:
Main St. Topsfield, Ma 01983
·Description: 4,000 Square foot, Commercial Building
·Status: Rented 100% occupancy. Lease term: 3-Year
·Owner: Walker Partners, LLC
·Purchase Price: $503,000
·Current Mortgage Debt: $558,177
Grove St., Topsfield, Ma 01983
·Description: 12,000 Square foot, Business Office, Retail and Professional Space
·Status: Rented at 100% occupancy. Lease term: 3-Year
·Owner: Grove Realty Partners, LLC
·Purchase Price: $2.025 million
·Current Mortgage Debt: $1,425,982
For the twelve month periods ending April 30, 2014 and 2013, the Company recognized revenues of $214,235 and $0, respectively. Rent for the current twelve-month period includes $36,000 from a related party who occupies an office in one of the Company’s properties.
Depreciation expense for the twelve months periods ended April 30, 2014 and 2013 totaled $85,097 and $0, respectively.
NOTE 6 - MORTGAGE AND RELATED PARTY NOTES PAYABLE
Main Street
On January 16, 2014, the Company assumed a mortgage note payable to a third-party, unrelated to the seller, on the property located at 58 Main Street, Topsfield, Massachusetts. The note bears interest at 6.75% per annum and is due August 26, 2019. Monthly principle and interest payments totaling $4,320 started on September 26, 2009 and will continue through the maturity date. The mortgage note is secured by a mortgage on the property. At maturity, the balloon payment will be due in full. The remaining principal balance as of April 30, 2014 is $558,177.
Grove Street
On January 16, 2014, the Company assumed a mortgage note payable to a third-party, unrelated to the seller, on the property located at 7 Grove Street, Topsfield, Massachusetts. The note bore interest at 7.9 % per annum and was scheduled to mature on September 5, 2032. Monthly payments of $17,775 started on October 5, 2008. The mortgage note was secured by a mortgage on the property. At maturity, the balloon payment was to be due in full.
On April 12, 2014, the mortgage note payable on the property at 7 Grove Street was paid in full by a shareholder. On that same date, a new mortgage payable was established between the Company and the shareholder for an amount equal to the balance that was remaining on the original mortgage. The new related party mortgage payable began on April 12, 2014 and is a 5-year fixed loan at 5.5% interest, with a balloon payment on May 15, 2019 for the outstanding balance. Interest only payments will begin on May 15, 2014 in the amount of $6,536.
Future principle requirements on long-term debt for fiscal years ending after April 30, 2014 are as follows:
NOTE 7 - FUTURE RENTS AND TENANT CONCENTRATION
The Company’s revenue is derived from property leases with varied lease terms. The following table represents future minimum rents to be received under non-cancelable leases with terms of twelve months or more as of April 30, 2014:
For the twelve months ended April 30, 2014, two tenants represented approximately 19% and 15% of the Company’s revenue.
NOTE 8 - RELATED PARTY TRANSACTIONS
Related parties to the Company include, but are not limited to, officers, directors, and shareholders. From time to time, the Company receives loans and advances from Phalanx Partners and WS Advantage LP for working capital purposes. Phalanx Partners and WS Advantage LP formerly held equity interests in Grove Realty Partners, LLC and Walker Partners, LLC and are currently shareholders and controlled by the Company’s president.
An aggregate of $441,516 was received by related parties during the twelve-months for working capital purposes and debt and expenses paid on the Company’s behalf. These advances are interest-free and payable upon demand.
During the twelve months ended April 30, 2014, the Company received $36,000 in rental income from Phalanx Partners, who occupies an office in one of the Company’s properties.
NOTE 9 - STOCKHOLDERS’ EQUITY
Preferred stock
Preferred stock includes 100,000,000 shares authorized at a par value of $0.0001, of which none are issued or outstanding.
Common stock
Common Stock includes 200,000,000 shares authorized at a par value of $0.0001, of which 10,000,000 have been issued for the amount of $1,000 on May 12, 2009 to the Company’s officers as founders’ shares.
On May 13, 2013, we entered into a stock purchase agreement with Ian Raleigh and Michael Raleigh (the “Sellers”) and Magnolia Lane Financial, Inc. (the “Purchaser”), whereby the Purchaser purchased from the Sellers, 10,000,000 shares of common stock, par value $0.0001 per share, of the Company (the “Shares”), representing approximately 69.57% of the issued and outstanding shares of the Company. As a result, the Purchaser became the majority shareholder of the Company.
On July 22, 2013, the Company authorized a 1:8 reverse split of its common shares. Prior to the split, the Company had 14,375,000 shares and post-split shares outstanding are 1,796,875.
Capital Contribution
As a result of the contribution of member interests of Grove Realty Partners, LLC and Walker Partners, LLC on January 16, 2014, the Company recorded $174,837 as contributed capital, representing the net of assets acquired and liabilities assumed.
NOTE 10 - INCOME TAXES
FASB ASC 740-10 provides guidance for the recognition and measurement of certain tax positions in an enterprise’s financial statements. Recognition involves a determination of whether it is more likely than not that a tax position will be sustained upon examination with the presumption that the tax position will be examined by the appropriate taxing authority having full knowledge of all relevant information.
Pursuant to FASB ASC 740-10-10, an entity recognizes deferred tax assets and liabilities for future tax consequences or events that have been previously recognized in the Company’s financial statements or tax returns. The measurement of deferred tax assets and liabilities is based on provisions of enacted tax law. The effects of future changes in tax laws or rates are not anticipated.
At April 30, 2014, the Company has net operating loss (“NOL”) carry-forwards for Federal income tax purposes of approximately $190,000 that may be offset against future taxable income through 2034. Due to changes in ownership, approximately $121,000 of the NOL carry-forward may be subject to certain annual limitations imposed under Section 382 of the Internal Revenue Code. At this time, the amount of the limitation has not been determined, since the Company has not completed its Section 382 study. Deferred tax assets would arise from the recognition of anticipated utilization of these net operating losses to offset future taxable income. No tax benefit has been reported with respect to these deferred tax assets in the accompanying financial statements because of Management’s assertion that it is more likely than not that the Company’s deferred tax assets of $548,647 will not be realized and accordingly, the deferred tax assets are offset by a full valuation allowance.
NOTE 11 - SUBSEQUENT EVENTS
The Company has evaluated all events that occur after the balance sheet date through the date when the financial statements were issued to determine if they must be reported.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and the principal financial officer, we are responsible for conducting an evaluation of the effectiveness of the design and operation of our internal controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of the end of the fiscal year covered by this report. Disclosure controls and procedures means that the material information required to be included in our Securities and Exchange Commission (“SEC”) reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to our company, including any consolidating subsidiaries, and was made known to us by others within those entities, particularly during the period when this report was being prepared. Based on this evaluation, our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were ineffective as of April 30, 2014 due to the material weaknesses indentified below.
Management's Annual Report on Internal Control Over Financial Reporting.
As of April 30, 2014, management assessed the effectiveness of our internal control over financial reporting. The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, the Company’s Chief Executive Officer and Chief Financial Officer and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP in the United States of America and includes those policies and procedures that:
o Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets;
o Provide reasonable assurance our transactions are recorded as necessary to permit preparation of our financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
o Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statement.
In evaluating the effectiveness of our internal control over financial reporting, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer who also serves as our principal accounting officer, concluded that during the period covered by this report, such internal controls and procedures were ineffective as more fully described below.
Deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls are considered to be material weaknesses.
The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (i) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (ii) inadequate segregation of duties consistent with control objectives; and (iii) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by our President in connection with the review of our financial statements as of April 30, 2014.
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 system of internal control over financial reporting occurred during the period covered by this report (the fourth quarter of the fiscal year ended April 30, 2014) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.
Item 9B. Other Information.
None.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance
The following table sets forth the name and age of our officer and director as of August 13, 2014. Our executive officer and director is elected annually by our Board of Directors. Our executive officer hold their offices until they resign, are removed by the Board, or his or her successor is elected and qualified.
Set forth below is a brief description of the background and business experience of our executive officer and director for the past five years.
Brian Woodland, age 43, Brian has 20 years of investment management experience. He has specialized in managing portfolios for individuals and small institutions during his career. He has also worked closely with trading desks, research analysts, and buy-side portfolio managers at different firms during his career. Brian began his career with Winthrop Securities in 1992. In 1993 joined Olde Financial and became an assistant Branch Manager. Brian joined Cowen & Company in 1996, as a Vice President in the Private Client Group, working with small institutions and private clients. Cowen was widely recognized for its research excellence, specifically in the areas of Technology and Healthcare.
Brian joined Salomon Smith Barney as a Senior Vice President of Investments in Boston, MA in 2000. Mr. Woodland managed portfolios for individuals, small institutions, and advised small institutional clients of the firm. Brian was certified as a Financial Planning Specialist for the firm in 2003. Brian left Smith Barney to start Woodland Asset Management in 2006, where he managed portfolios for private clients and small institutions. In 2008, Brian founded and became President of Phalanx Trading, LLC. In 2009, Brian also rebranded WAM into Phalanx Wealth Management in 2009.
Brian holds the Series 7, 8, 22, 24, 63, and 65 individual securities industry qualifying examinations.
Term of Office
Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.
Employment Agreements
We currently do not have an employment agreement with Mr. Brian Woodland.
Family Relationships
Because Mr. Woodland serves as our sole executive officer and director, there are no family relationships between our director and executive officer.
Certain Legal Proceedings
To the best of our knowledge, none of our directors or executive officers has, during the past ten years:
· been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
· had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;
· been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;
· been found by a court of competent jurisdiction in a civil action or by the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
· been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
· been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
Except as set forth in our discussion below in “Certain Relationships and Related Transactions,” none of our directors or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires our directors and executive officers and persons who beneficially own more than 10% of our common stock to file initial reports of ownership and changes in ownership with the SEC.
Based solely upon a review of copies of such forms filed on Forms 3, 4, and 5, and amendments thereto, furnished to us, we believe that as of the end of our fiscal year, April 30, 2014, our executive officers, directors and greater than 10 percent beneficial owners have complied on a timely basis with all Section 16(a) filing requirements, with the exception of our officers, directors and greater than 10 percent beneficial owners listed in the table below:
Code of Ethics
We have not adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer, or persons performing similar functions, because of the small number of persons involved in the management of the Company.
Board Committees
Our Board of Directors has no separate committees and our Board of Directors acts as the audit committee and the compensation committee. We do not have an audit committee financial expert serving on our Board of Directors.
Item 11.
Item 11. Executive Compensation
The following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named executive officers paid by us during the year ended April 30, 2014.
SUMMARY COMPENSATION TABLE
Outstanding Equity Awards at Fiscal Year-End Table
There were no outstanding equity awards at April 30, 2014.
Compensation of Directors
Directors are permitted to receive fixed fees and other compensation for their services as directors. The Board of Directors has the authority to fix the compensation of directors. No amounts have been paid to, or accrued to, directors in such capacity.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table shows the number of our securities beneficially owned by our named executive officers, our director, our executive officers and directors as a group, and each person known to us to own more than 5% of our outstanding shares of common stock as of August 13, 2014. Except as otherwise indicated, all shares are owned directly and the shareholders possess sole voting and investment power with respect to the shares listed below. As of August 13, 2014 , 1,796,875 shares of our common stock were issued and outstanding.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Related Party Transactions
Related parties to the Company include, but are not limited to, officers, directors, and shareholders. From time to time, the Company receives loans and advances from Phalanx Partners and WS Advantage LP for working capital purposes. Phalanx Partners and WS Advantage LP formerly held equity interests in Grove Realty Partners, LLC and Walker Partners, LLC and are currently shareholders and controlled by the Company’s president.
An aggregate of $441,516 was received by related parties during the twelve-months for working capital purposes and debt and expenses paid on the Company’s behalf. These advances are interest-free and payable upon demand.
During the twelve months ended April 30, 2014, the Company received $36,000 in rental income from Phalanx Partners, who occupies an office in one of the Company’s properties.
Item 14.
Item 14. Principal Accounting Fees and Services.
Audit Fees
For the Company’s fiscal years ended April 30, 2014 and 2013, we were billed approximately $16,914 and $9,500 by Baker Tilly Virchow Krause, LLP (formerly, Holtz Rubenstein Reminick, LLP) for professional services rendered for the audit and interim review of our financial statements filed with the Securities and Exchange Commission.
Audit-Related Fees
There were no other fees for audit related services for the years ended April 30, 2014 and 2013.
Tax Fees and Other Fees
For the Company’s fiscal year ended April 30, 2014 and 2013, there were no fees billed for professional services rendered for tax compliance, tax advice, and tax planning or other services.
Effective May 6, 2003, the Securities and Exchange Commission adopted rules that require that before our auditor is engaged by us to render any auditing or permitted non-audit related service, the engagement be:
· approved by our audit committee; or
· entered into pursuant to pre-approval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular service, the audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee’s responsibilities to management.
We do not have an audit committee. Our entire board of directors pre-approves all services provided by our independent auditors. The pre-approval process has just been implemented in response to the new rules. Therefore, our board of directors does not have records of what percentage of the above fees was pre-approved. However, all of the above services and fees were reviewed and approved by the entire board of directors either before or after the respective services were rendered.
PART IV
ITEM 15.
ITEM 15. Exhibits, Financial Statement Schedules.
(a) The following documents are filed as part of this report:
Financial Statements: See Part II, Item 8 of this Report.
Exhibits: The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Report.
(b) The following are exhibits to this Report and, if incorporated by reference, we have indicated the document previously filed with the SEC in which the exhibit was included.
Certain of the agreements filed as exhibits to this Report contain representations and warranties by the parties to the agreements that have been made solely for the benefit of the parties to the agreement. These representations and warranties:
· may have been qualified by disclosures that were made to the other parties in connection with the negotiation of the agreements, which disclosures are not necessarily reflected in the agreements;
· may apply standards of materiality that differ from those of a reasonable investor; and
· were made only as of specified dates contained in the agreements and are subject to subsequent developments and changed circumstances.
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date that these representations and warranties were made or at any other time. Investors should not rely on them as statements of fact.
(1)
Incorporated by reference to the registration statement on Form S-1 filed with Securities and Exchange Commission on November 12, 2010.
(2)
Incorporated by reference to the Quarterly Report on Form 10-Q filed with Securities and Exchange Commission on July 30, 2014.
(3)
Incorporated by reference to the Current Report on Form 8-K filed with Securities and Exchange Commission on January 27, 2014.
+In accordance with SEC Release 33-8238, Exhibit 32.1 is being furnished and not filed.
**Furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or of the Securities Act of 1933, as amended, deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise not subject to liability under these sections.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /s/ Brian Woodland
Brian Woodland
President, Chief Executive Officer and Director
August 13, 2014