UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
☒ QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended July 31, 2015
Or
☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from ______ to ______.
Commission
File Number: 000-54379
MAGNOLIA
LANE INCOME FUND
(Exact
name of registrant as specified in its charter)
Delaware |
|
|
(State
or other jurisdiction of
incorporation
or organization) |
|
(I.R.S.
Employee
Identification
No.) |
7
Grove Street
Topsfield,
MA 01983
(Address
of principal executive offices and Zip code)
(978)
887-5981
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) 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 ☒ 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 ☒
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” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
Accelerated Filer ☐ |
Accelerated
Filer ☐ |
Non-Accelerated
Filer ☐ |
Smaller
Reporting Company ☒ |
Indicate
by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.
Yes ☐ No
☒
Indicate
the number of shares outstanding of each of the issuer’s classes of common stock. As of September 15, 2015, there were 1,796,875
shares of common stock, par value $.0001 per share, issued and outstanding.
MAGNOLIA
LANE INCOME FUND
FORM
10-Q
July
31, 2015
INDEX
CAUTIONARY
STATEMENT ON FORWARD-LOOKING INFORMATION
This
Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation
Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical
facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,”
“believe,” “estimate,” “intend,” “could,” “should,” “would,”
“may,” “seek,” “plan,” “might,” “will,” “expect,” “anticipate,”
“predict,” “project,” “forecast,” “potential,” “continue” negatives
thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying
assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially
different from the results of operations or plans expressed or implied by such forward-looking statements.
We
cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that
the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume
any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements
are found at various places throughout this quarterly report on Form 10-Q and include information concerning possible or assumed
future results of our operations, including statements about potential acquisition or merger targets; business strategies; future
cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash
needs, future operations, business plans and future financial results, and any other statements that are not historical facts.
These
forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are
subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results
to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties
and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or
at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date of the quarterly report on Form 10-Q. All subsequent written and oral forward-looking statements
concerning other matters addressed in this Quarterly Report on Form 10-Q and attributable to us or any person acting on our behalf
are expressly qualified in their entirety by the cautionary statements contained or referred to in this quarterly report on Form
10-Q.
Except
to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result
of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or
otherwise.
CERTAIN
TERMS USED IN THIS REPORT
Unless
the context otherwise indicates, references in this report to the terms “Palmerston,” “Magnolia Lane,”
“we,” “us,” “our,” and the “Company” refer to Magnolia Lane Income Fund.
PART
I -- FINANCIAL INFORMATION
ITEM 1. |
FINANCIAL
STATEMENTS |
MAGNOLIA
LANE INCOME FUND |
Condensed
Consolidated Balance Sheets |
| |
July
31, 2015 | | |
April
30, 2015 | |
| |
| | |
| |
ASSETS
| |
(Unaudited) | | |
| |
| |
| | |
| |
Rental
property, net | |
$ | 2,266,005 | | |
$ | 2,289,618 | |
Cash | |
| 14,534 | | |
| 17,286 | |
Restricted
cash | |
| 15,608 | | |
| 13,799 | |
Accounts
receivable | |
| 1,925 | | |
| 1,225 | |
| |
| | | |
| | |
Total
Assets | |
$ | 2,298,072 | | |
$ | 2,321,928 | |
| |
| | | |
| | |
LIABILITIES
AND STOCKHOLDERS DEFICIT | |
| | | |
| | |
| |
| | | |
| | |
Mortgage
payable | |
$ | 538,486 | | |
$ | 542,694 | |
Related
party mortgage payable | |
| 1,425,982 | | |
| 1,425,982 | |
Accounts
payable and accrued expenses | |
| 118,697 | | |
| 103,465 | |
Security
deposits | |
| 2,900 | | |
| 2,900 | |
Due
to shareholders | |
| 450,581 | | |
| 450,581 | |
| |
| | | |
| | |
Total
Liabilities | |
| 2,536,646 | | |
| 2,525,622 | |
| |
| | | |
| | |
Commitments
and Contingencies | |
| | | |
| | |
| |
| | | |
| | |
STOCKHOLDERS'
DEFICIT: | |
| | | |
| | |
Preferred
stock: par value $0.0001; 100,000,000 shares authorized; | |
| | | |
| | |
None
issued or outstanding | |
| - | | |
| - | |
Common
stock: par value $0.0001; 200,000,000 shares authorized; | |
| | | |
| | |
1,796,875
and 1,796,875 shares issued and outstanding, respectively | |
| 180 | | |
| 180 | |
Additional
paid-in capital | |
| 311,575 | | |
| 303,972 | |
Accumulated
deficit | |
| (550,329 | ) | |
| (507,846 | ) |
| |
| | | |
| | |
Total
Stockholders' Deficit | |
| (238,574 | ) | |
| (203,694 | ) |
| |
| | | |
| | |
Total
Liabilities and Stockholders' Deficit | |
$ | 2,298,072 | | |
$ | 2,321,928 | |
See accompanying
notes to unaudited condensed consolidated financial statements.
MAGNOLIA
LANE INCOME FUND |
Condensed Consolidated
Statements of Operations |
(Unaudited) |
| |
| | |
| |
| |
| For
the three | | |
| For
the three | |
| |
| months
ended | | |
| months
ended | |
| |
| July
31, 2015 | | |
| July
31, 2014 | |
REVENUE | |
| | | |
| | |
Rental
revenue | |
$ | 62,818 | | |
$ | 63,568 | |
| |
| | | |
| | |
OPERATING EXPENSES | |
| | | |
| | |
Operating
costs | |
| 11,954 | | |
| 25,609 | |
Professional
fees | |
| 38,122 | | |
| 22,500 | |
Repairs
and maintenance | |
| 6,164 | | |
| 3,734 | |
Depreciation | |
| 23,613 | | |
| 22,237 | |
Interest
expense | |
| 33,956 | | |
| 36,498 | |
| |
| | | |
| | |
Total
operating expenses | |
| 113,809 | | |
| 110,578 | |
| |
| | | |
| | |
LOSS
FROM OPERATIONS | |
| (50,991 | ) | |
| (47,010 | ) |
| |
| | | |
| | |
OTHER INCOME | |
| | | |
| | |
Insurance
proceeds | |
| 8,508 | | |
| - | |
| |
| | | |
| | |
NET
LOSS | |
$ | (42,483 | ) | |
$ | (47,010 | ) |
| |
| | | |
| | |
| |
| | | |
| | |
NET LOSS PER COMMON SHARE | |
| | | |
| | |
-
BASIC AND DILUTED: | |
$ | (0.02 | ) | |
$ | (0.03 | ) |
| |
| | | |
| | |
Weighted average
common shares outstanding | |
| | | |
| | |
-
basic and diluted | |
| 1,796,875 | | |
| 1,796,875 | |
See accompanying
notes to unaudited condensed consolidated financial statements.
MAGNOLIA
LANE INCOME FUND |
Condensed
Consolidated Statements of Cash Flows |
(Unaudited) |
| |
| | |
| |
| |
| | |
| |
| |
| | |
| |
| |
For the
three | | |
For the
three | |
| |
months
ended | | |
months
ended | |
| |
July
31, 2015 | | |
July
31, 2014 | |
| |
| | |
| |
CASH FLOWS FROM
OPERATING ACTIVITIES: | |
| | | |
| | |
Net
loss | |
$ | (42,483 | ) | |
$ | (47,010 | ) |
Adjustments to
reconcile net loss to net cash provided by operating activities: | |
| | | |
| | |
Depreciation
and amortization | |
| 23,613 | | |
| 22,237 | |
Imputed
interest | |
| 7,603 | | |
| 7,515 | |
Changes in operating
assets and liabilities: | |
| | | |
| | |
Accounts
receivable | |
| (700 | ) | |
| (58 | ) |
Accounts
payable and accrued expenses | |
| 15,232 | | |
| 42,398 | |
Deferred
income | |
| - | | |
| (4,010 | ) |
| |
| | | |
| | |
Net
cash provided by operating activities | |
| 3,265 | | |
| 21,072 | |
| |
| | | |
| | |
CASH FLOWS FROM
INVESTING ACTIVITIES: | |
| | | |
| | |
Restricted
cash | |
| (1,809 | ) | |
| (1,219 | ) |
Building
Improvements | |
| - | | |
| (5,871 | ) |
| |
| | | |
| | |
Net
cash used in investing activities | |
| (1,809 | ) | |
| (7,090 | ) |
| |
| | | |
| | |
CASH FLOWS FROM
FINANCING ACTIVITIES: | |
| | | |
| | |
Advances
from shareholders | |
| - | | |
| (30 | ) |
Repayments
of mortgages payable | |
| (4,208 | ) | |
| (2,264 | ) |
| |
| | | |
| | |
Net
cash used in financing activities | |
| (4,208 | ) | |
| (2,294 | ) |
| |
| | | |
| | |
NET CHANGE IN
CASH | |
| (2,752 | ) | |
| 11,688 | |
| |
| | | |
| | |
Cash at
beginning of period | |
| 17,286 | | |
| 19,379 | |
| |
| | | |
| | |
Cash at end
of period | |
$ | 14,534 | | |
$ | 31,067 | |
| |
| | | |
| | |
SUPPLEMENTAL
DISCLOSURE OF CASH FLOWS INFORMATION: | |
| | | |
| | |
Cash
paid for interest | |
$ | 6,745 | | |
$ | 6,376 | |
| |
| | | |
| | |
NON-CASH INVESTING
AND FINANCING ACTIVITIES: | |
| | | |
| | |
Imputed
interest on stockholder loans | |
$ | 7,603 | | |
$ | 7,515 | |
See accompanying
notes to unaudited condensed consolidated financial statements.
MAGNOLIA
LANE INCOME FUND
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS
OF JULY 31, 2015
(UNAUDITED)
NOTE
1 - ORGANIZATION
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in The United States of America and the rules and regulations of the Securities and Exchange Commission for
interim financial information. Accordingly, they do not include all of the information necessary for a comprehensive presentation
of financial position and results of operations. The interim results for the period ended July 31, 2015 are not necessarily indicative
of results for the full fiscal year. It is management's opinion, however that all material adjustments (consisting of normal recurring
adjustments) have been made which are necessary for a fair financial statements presentation.
Magnolia
Lane Income Fund, formerly known as Palmerston Stock Agency, Inc. (the “Company,” ”We,” “Ours,”
“Us”), 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, Chief Financial Officer and
sole director, Brian Woodland, has numerous years in the real estate acquisition, syndication and asset management business. We
intend to acquire real estate in small markets with high degrees of safety to provide income streams to our shareholders. In addition,
we will develop property, syndicate, manage and acquire property for capital appreciation.
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 5)
NOTE
2 – SUMMARY OF ACCOUNTING POLICIES
Principles
of consolidation
The
accompanying unaudited condensed consolidated financial statements represent the consolidated financial position and results of
operations of the Company and include the accounts and results of operations of the Company and its subsidiaries. The accompanying
financial statements include the active entity of Magnolia Lane Income Fund and its wholly owned subsidiaries, Walker Partners,
LLC 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 both of its properties.
Concentrations
Concentration
in a geographic area
The
Company operates in the real estate industry and the operations are concentrated in the State of Massachusetts.
Rental
Property, Net
Rental
property assets are stated at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated
useful lives of the asset.
We
capitalize replacements and improvements, such as HVAC equipment, structural replacements, windows, appliances, flooring, carpeting
and renovations. Ordinary repairs and maintenance, such as unit cleaning, painting and appliance repairs, are expensed when incurred.
Asset |
|
Useful
Life
(in years) |
Building |
|
30 years |
Land |
|
Indefinite |
Building Improvements |
|
30 years |
Net
loss per common share
Net
loss per common share is computed pursuant to section 260-10-45 of the Financial Accounting Standards Board Accounting Standards
Codification. Basic net loss per common share is computed by dividing net loss by the weighted average number of shares of common
stock outstanding during the period. Diluted net loss per common share is computed by dividing net loss by the weighted average
number of shares of common stock and potentially dilutive outstanding shares of common stock during the period.
There
were no potentially dilutive shares outstanding for any periods presented.
Income
Taxes
The
Company utilizes the asset and liability method to measure and record deferred income tax assets and liabilities. Deferred tax
assets and liabilities reflect the future income tax effects of temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates that apply
to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets
are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
The
Company follows the provisions of Income Taxes Topic of the FASB Accounting Standards Codification, which provides clarification
on accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The guidance prescribes
a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken
or expected to be taken in a tax return, and also provides guidance on derecognition, classification, interest and penalties,
disclosure and transition. At July 31, 2015, no significant income tax uncertainties have been included in the Company’s
Balance Sheets. The Company’s policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense
in the Statements of Operations. No interest and penalties are present for periods open.
The
Company is subject to the United States federal and state income tax examinations by the tax authorities for the 2015, 2014, and
2013 tax years.
Property
Revenue Recognition
Our
commercial property leases are for varied terms ranging from month-to-month to 3 years. Rental income is recognized on a straight-line
basis over the term of the lease.
Rent
concessions, including free rent incurred in connection with commercial property leases, are amortized on a straight-line basis
over the terms of the related leases and are charged as a reduction of rental revenue.
Impairment
of Real Estate Investments
The
Company assesses on a regular basis whether there are any indicators that the carrying value of rental property assets may be
impaired. Potential indicators may include an increase in vacancy at a property, tenant reduction in utilization of a property,
tenant financial instability and the potential sale of the property in the near future. An asset is determined to be impaired
if the asset’s carrying value is in excess of its estimated fair value.
Deferred
Revenue
From
time to time, rental payments may be paid by tenants, but not earned yet by the Company. Such revenue is initially recorded as
a deferred liability and is recognized as revenue once earned. As of July 31, 2015 and April 30, 2015, the Company had $0 and
$0 in deferred revenue, respectively.
Segments
The
Company operates in one segment and therefore segment information is not presented.
NOTE
3 – RECENT ACCOUNTING PRONOUNCEMENTS
In
April 2015, FASB issued Accounting Standards Update (“ASU”) No. 2015-03, “
Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs”,
is to simplify presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability
be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt
discounts. The ASU does not affect the recognition and measurement guidance for debt issuance costs. For public companies, the
ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within
those fiscal years. Early application is permitted. We are currently reviewing the provisions of this ASU to determine if there
will be any impact on our results of operations, cash flows or financial condition.
In
April 2015, FASB issued Accounting Standards Update (“ASU”) No. 2015-04, “Compensation
– Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation
and Plan Assets”, permits the entity to measure defined benefit plan assets and obligations using the month-end that
is closest to the entity’s fiscal year-end and apply that practical expedient consistently from year to year. The ASU is
effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015, and
interim periods within those fiscal years. Early application is permitted. We are currently reviewing the provisions of this ASU
to determine if there will be any impact on our results of operations, cash flows or financial condition.
In
April 2015, FASB issued Accounting Standards Update (“ASU”) No. 2015-05, “Intangibles
– Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud
Computing Arrangement”, provides guidance to customers about whether a cloud computing arrangement includes a software
license. If such an arrangement includes a software license, then the customer should account for the software license element
of the arrangement consistent with the acquisition of other software licenses. If the arrangement does not include a software
license, the customer should account for it as a service contract. For public business entities, the ASU is effective for annual
periods, including interim periods within those annual periods, beginning after December 15, 2015. Early application is permitted.
We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash
flows or financial condition
In
April 2015, FASB issued Accounting Standards Update (“ASU”) No. 2015-06, “Earnings
Per Share (Topic 260): Effects on Historical Earnings per Unit of Master Limited Partnership Dropdown Transactions”,
specifies that, for purposes of calculating historical earnings per unit under the two-class method, the earnings (losses) of
a transferred business before the date of a drop down transaction should be allocated entirely to the general partner. In that
circumstance, the previously reported earnings per unit of the limited partners (which is typically the earnings per unit measure
presented in the financial statements) would not change as a result of the dropdown transaction. Qualitative disclosures about
how the rights to the earnings (losses) differ before and after the dropdown transaction occurs for purposes of computing earnings
per unit under the two-class method also are required. The ASU is effective for fiscal years beginning after December 15, 2015,
and interim periods within those fiscal years. Earlier application is permitted. We are currently reviewing the provisions of
this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.
NOTE
4 – GOING CONCERN
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern,
which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As
reflected in the accompanying consolidated financial statements, the Company had an accumulated deficit of $550,329 and a stockholders’
deficit of $238,574. These conditions raise substantial doubt about its ability to continue as a going concern.
The
ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business
plan and generate sufficient revenues. The consolidated financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern. Management believes that the actions presently being taken to further
implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern.
The
consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue
in existence.
NOTE
5 – 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 $2,472,178 in assets contributed and $2,317,469 in liabilities
assumed was recorded as a contribution of capital to the Company in the amount of $154,709.
Cash | |
$ | 13,730 | |
Cash
– escrow | |
| 6,023 | |
Accounts
receivable | |
| 15,050 | |
Related
Party note receivable | |
| 10,000 | |
Real
property, net | |
| 2,427,375 | |
Deferred
tax asset | |
| 458,324 | |
Valuation
allowance on deferred tax asset | |
| (458,324 | ) |
Assets
contributed | |
$ | 2,472,178 | |
Security
deposits | |
| (3,528 | ) |
Mortgage
notes payable | |
| (2,313,941 | ) |
Liabilities
assumed | |
$ | (2,317,469 | ) |
| |
| | |
Net
assets contributed | |
$ | 154,709 | |
NOTE
6 – RENTAL PROPERTY, NET
Rental
Property, Net consisted of the following at July 31, 2015 and April 30, 2015:
| |
July
31, 2015 | | |
April
30, 2015 | |
Land | |
| 120,733 | | |
| 120,733 | |
Buildings | |
| 2,695,016 | | |
| 2,695,016 | |
Leasehold
Improvements | |
| 130,731 | | |
| 130,731 | |
Accumulated
Depreciation | |
| (680,475 | ) | |
| (656,862 | ) |
Net,
Real Estate Investments | |
| 2,266,005 | | |
| 2,289,618 | |
As
of July 31, 2015, real estate investments consisted of two properties:
58
Main St. Topsfield, Ma 01983
|
● |
Description: 4,000 Square foot, Commercial
Building |
|
● |
Status: Rented 100% occupancy. Lease
term: 3-Year |
|
● |
Owner: Walker Partners, LLC |
|
● |
Purchase Price: $503,000 |
|
● |
Mortgage Debt as of July 31, 2015: $538,486 |
7
Grove St., Topsfield, Ma 01983
|
● |
Description: 12,000 Square foot, Business
Office, Retail and Professional Space |
|
● |
Status: Rented at 100% occupancy. Lease
term: 3-Year |
|
● |
Owner: Grove Realty Partners, LLC |
|
● |
Purchase Price: $2.025 million |
|
● |
Mortgage Debt as of July 31, 2015: $1,425,982 |
For
the three months ended July 31, 2015 and 2014, the Company recognized revenues of $62,818 and $63,568, respectively. Rent for
the three months ended July 31, 2015 and 2014 included $9,000 from a related party who occupies an office in one of the Company’s
properties.
Depreciation
expense for the three months ended July 31, 2015 and 2014 totaled $23,613 and $22,237, respectively.
NOTE
7 – MORTGAGE AND RELATED PARTY NOTES PAYABLE
58
Main Street
On
January 16, 2014, the Company assumed a mortgage note payable to a third-party, unrelated to the seller, on the property located
at 58 Main Street, Topsfield, Massachusetts. The note bears interest at 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 the underlying property. At maturity, the balloon payment of $481,454
will be due in full. The remaining principal balance as of July 31, 2015 and April 30, 2015 is $538,486 and $542,694, respectively.
7
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 began
on May 15, 2014 in the amount of $6,536 per month.
Future
principle requirements on long-term debt for fiscal years ending after July 31, 2015 are as follows:
Mortgage
Payable - Related Party |
|
Mortgage
Payable |
For
fiscal year ending |
|
Future
Payout |
|
|
For
fiscal year ending |
|
Future
Payout |
|
2016 |
|
$ |
- |
|
|
2016 |
|
$ |
7,798 |
|
2017 |
|
|
- |
|
|
2017 |
|
|
15,291 |
|
2018 |
|
|
|
|
|
2018 |
|
|
16,371 |
|
2019 |
|
|
- |
|
|
2019 |
|
|
17,527 |
|
2020
and thereafter |
|
|
1,425,982 |
|
|
2020
and thereafter |
|
|
481,499 |
|
Total |
|
$ |
1,425,982 |
|
|
Total |
|
$ |
538,486 |
|
NOTE
8 – FUTURE RENTS AND TENANT CONCENTRATION
The
Company’s revenue is derived from property leases with varied lease terms. The following table represents future minimum
rents to be received under non-cancelable leases with terms of twelve months or more as of July 31, 2015:
Future
Rents |
2015 |
|
$ |
100,270 |
|
2016 |
|
|
37,999 |
|
2017 |
|
|
14,400 |
|
2018 |
|
|
8,400 |
|
Thereafter |
|
|
- |
|
|
|
$ |
161,069 |
|
For
the three months ended July 31, 2015, two tenants represented approximately 17% and 14% of the Company’s revenue. For the
three months ended July 31, 2014, two tenants represented approximately 17% and 14% of the Company’s revenue.
NOTE
9 – RELATED PARTY TRANSACTIONS
Related
parties to the Company include, but are not limited to, officers, directors, and shareholders. From time to time, the Company
receives loans and advances from Phalanx Partners and WS Advantage LP for working capital purposes. Phalanx Partners and WS Advantage
LP formerly held equity interests in Grove Realty Partners, LLC and Walker Partners, LLC and are currently shareholders and controlled
by the Company’s president.
An
aggregate of $450,581 has been received from related parties for working capital purposes and debt and expenses paid on the Company’s
behalf. These advances are interest-free and payable upon demand. During the three months ended July 31, 2015 and 2014 the Company
imputed interest expense of $7,603 and $7,515, respectively.
During
the three months ended July 31, 2015 and 2014, the Company received $9,000 in rental income from Phalanx Partners, who occupies
an office in one of the Company’s properties.
During the three months
ended July 31, 2015 and 2014 the Company paid a related party $19,608 for principal and interest payments.
NOTE
10 - STOCKHOLDERS’ EQUITY
Common stock
Common Stock includes
200,000,000 shares authorized at a par value of $0.0001.
Preferred
stock
Preferred
stock includes 100,000,000 shares authorized at a par value of $0.0001, of which none are issued or outstanding.
Additional paid in Capital
During the
three months ended July 31, 2015 the Company recorded imputed interest on stockholders loans of $7,603
NOTE
11 – SUBSEQUENT EVENTS
The
Company has evaluated all events that occur after the balance sheet date through the date when the consolidated financial statements
were issued to determine if they must be reported.
ITEM
2. |
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The
following plan of operation provides information which management believes is relevant to an assessment and understanding of our
results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto.
This section includes a number of forward-looking statements that reflect our current views with respect to future events and
financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend,
project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty
on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from our predictions.
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.
We
did not commence business operations and on May 13, 2013, upon the change of control, we changed our business to a business plan
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 this change of control and change of business, we have conducted a name change and reverse stock split. On August
1, 2013 we filed a Certificate of Amendment to our Articles of Incorporation (the “Amendment”) to change its name
from “Palmerston Stock Agency, Inc.” to “Magnolia Lane Income Fund” (the “Name Change”) and
to memorialize a 1:8 reverse stock split (the “Stock Split”). The Amendment was effective as of August 1, 2013.
On
August 12, 2013, the Company received approval from the Financial Industry Regulatory Authority (“FINRA”) to effectuate
the Name Change and Stock Split. FINRA also confirmed that the new stock symbol is MIFC.
On
December 23, 2013, a shareholder of ours, Magnolia Lane Financial, entered into three separate LLC Membership Interest Purchase
and Sale Agreements for the acquisition of two limited liability companies, Grove Realty Partners, LLC and Walker Partners, LLC
(the “Acquisition Agreements”). Pursuant to the Acquisition Agreements, Magnolia Lane Financial acquired 100%
of the equity interests in Grove Realty Partners, LLC and Walker Partners, LLC. As consideration for the acquisition, Magnolia
Lane Financial transferred 134,574 shares of our Common Stock to WS Advantage and Phalanx Wealth Management (the “Consideration
Shares”). For purposes of the Acquisition Agreements, the parties valued the shares at $16.60 per share for a total
purchase price of $2,233,928. Prior to this transaction, Magnolia Lane Financial owned 1,250,000 shares of our common stock and
now owns 1,115,426 shares of our common stock. WS Advantage, LP owns 115,347 shares of our common stock and Phalanx Partners,
LLC owns 19,227 shares of our common stock.
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, for a total purchase price of $3,000.
As
of July 31, 2015, real estate that we, through our subsidiaries, owned consisted of two properties:
7
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 |
|
● |
Mortgage Debt as of July 31, 2015: $1,425,982 |
58
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 |
|
● |
Mortgage Debt as of July 31, 2015: $538,486 |
Limited
Operating History
We
have only begun generating modest revenue, have a limited financial history and have limited capital. Our business is subject
to risks inherent in growing an enterprise, including limited capital resources and possible rejection of our business model and/or
sales methods.
Going
Concern
The
ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business
plan and generate sufficient revenues. The financial statements do not include any adjustments that might be necessary if the
Company is unable to continue as a going concern. Management believes that the actions presently being taken to further implement
its business plan and generate revenues provide the opportunity for the Company to continue as a going concern.
Results
of Operations
For
the three months ended July 31, 2015 and 2014
Our rental revenue for the three months ended
July 31, 2015 was $62,818 as compared to $63,568 in revenue for the three months ended July 31, 2014. Operating expenses for the
three months ended July 31, 2015 totaled $113,809 resulting in a loss of $50,991, as compared with operating expenses of $110,578
for the three month period ended July 31, 2014. Our operating expenses for the three months ended July 31, 2015 consisted of $11,954
in general and administrative fees, $38,122 in professional fees, $6,164 in repairs and maintenance, $23,613 in depreciation and
$33,956 in interest expense.
Capital
Resources and Liquidity
For
the three months ended July 31, 2015 and 2014
As
of July 31, 2015 we had $14,534 cash on hand and net cash provided by operations of $3,265. Though the Company has negative working
capital of $552,819, management believes our increasing cash provided by operations and the availability of loans from related
parties will be adequate to sustain our operations at the current level for the next twelve months. Should we not be able to meet
our current financial needs, the Company will seek alternative methods of financing, such as issuing convertible debt or introducing
additional shares of its common stock into the market.
As of July 31, 2015, the Company has a stockholders’
deficit of $238,574. For the three months ended July 31, 2015 and 2014, the Company’s net loss was $42,483 and $47,010,
respectively. The Company’s stockholders’ deficiency is primarily due to recurring losses.
Net cash provided by operating activities
was $3,265 for the three months ended July 31, 2015 as compared to net cash provided by operations of $21,072 for the three months
ended July 31, 2014, reflecting a decrease in accounts payable and accrued expenses.
Net
cash used in investing activities was $1,809 for the three months ended July 31, 2015 and reflects monies paid for Building
Improvements on our properties.
Net
cash used in financing activities amounted to $4,208 for the three months ended July 31, 2015, representing the amount paid against
the principle balances of our mortgages.
Our
principal sources of liquidity include cash from rental revenue and loans from shareholders to cover mortgage obligations.
Mortgage
Obligations
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 bears interest at 7.9 % per annum and matures on September
5, 2032. Monthly payments of $17,775 started on October 5, 2008 and the mortgage note is secured by a mortgage on the
property. At maturity, the balloon payment will be due in full.
Effective
April 12, 2014, the Company refinanced the mortgage at 7 Grove Street. The new mortgage 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. The remaining principal balance as of July 31, 2015 is $1,425,982.
On
January 16, 2014, the Company acquired a mortgage note payable to a third-party, unrelated to the seller, on a property located
at 7 Grove Street, Topsfield, Massachusetts. The note bears interest at 6.75% per annum and is due August 26,
2019. Monthly payments of $4,320 started on September 26, 2009. 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 July 31, 2015 is
$538,486.
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 formerly held equity interests in Grove Realty Partners, LLC and Walker Partners, LLC and are currently
controlled by the Company’s president and are shareholders.
During
the three months ended July 31, 2015, the Company received $9,000 in rental income from Phalanx Partners, who occupies an office
in one of the Company’s properties.
The Company paid a related party $19,608 for
principal and interest payments during the three months ended July 31, 2015.
Recent
Accounting Pronouncements
There
are no new accounting pronouncements that are expected to have a material impact on the Company's financial position or results
of operations.
Critical
Accounting Policies and Estimates
Rental
Property, Net
Rental
property assets are stated at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated
useful lives of the asset.
We
capitalize replacements and improvements, such as HVAC equipment, structural replacements, windows, appliances, flooring, carpeting
and renovations. Ordinary repairs and maintenance, such as unit cleaning, painting and appliance repairs, are expensed when incurred.
Asset |
|
Useful
Life
(in
years) |
Building |
|
30 years |
Land |
|
Indefinite |
Building Improvements |
|
30 years |
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.
Off
Balance Sheet Arrangements
We
have no off-balance sheet arrangements.
Item
3. |
Quantitative and Qualitative
Disclosures About Market Risk |
Smaller
reporting companies are not required to provide the information required by this item.
Item
4. |
Controls and Procedures |
Disclosure
of controls and procedures.
We
maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports,
filed under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our
chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no
matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control
objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating
the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based
in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed
in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes
in conditions or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in
a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
As
required by the SEC Rule 13a-15(b), we carried out an evaluation under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of
our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our principal
executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at
the reasonable assurance level due to the material weaknesses described below.
In
light of the material weaknesses described below, we performed additional analysis and other post-closing procedures to ensure
our financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, we believe that
the financial statements included in this report fairly present, in all material respects, our financial condition, results of
operations and cash flows for the periods presented.
A
material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing
Standard No. 2) or combination of control deficiencies that result in more than a remote likelihood that a material misstatement
of the annual or interim financial statements will not be prevented or detected. Management has identified the following material
weaknesses which have caused management to conclude that as of July 31, 2015 our disclosure controls and procedures were not effective
at the reasonable assurance level:
|
(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. |
To
address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial
statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows
for the periods presented.
Changes
in internal controls over financial reporting.
There
has been no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly
Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting
PART
II - OTHER INFORMATION
Item
1. |
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 the Company, any of our officer or director in their capacities as such, in which
an adverse decision could have a material adverse effect.
Smaller
reporting companies are not required to provide the information required by this item.
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 |
None
31.1 |
Certification
of Principal Executive Officer and Principal Financial Officer of the Registrant pursuant to 18 U.S.C. 1350 as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
32.1+ |
Certification
of Principal Executive Officer and Principal Financial Officer of the Registrant pursuant to 18 U.S.C. 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
101 |
Interactive
Data File (Form 10-Q for the quarterly period ended July 31, 2015 furnished in XBRL). |
+
In accordance with SEC Release 33-8238, Exhibit 32.1 is being furnished and not filed.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
|
MAGNOLIA
LANE INCOME FUND |
|
|
Date: September
16, 2015 |
By: |
/s/
Brian Woodland |
|
|
Brian Woodland |
|
|
President and
Chief Financial Officer |
|
|
(Duly
Authorized Officer, Principal Executive Officer
and
Principal Financial and Accounting Officer) |
7
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE
OFFICER
AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE
SARBANES-OXLEY ACT OF 2002
I, Brian Woodland, certify that:
1. I have reviewed
this quarterly report on Form 10-Q of Magnolia Lane Income Fund;
2. Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based
on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this quarterly report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
|
b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; |
|
d) |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. The
registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent function):
|
a) |
all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
Date: September
16, 2015 |
By: |
/s/ Brian
Woodland |
|
|
Brian
Woodland
President,
Chief Executive Officer,
and
Chief Financial Officer
(Principal
Executive Officer and
Principal
Financial Officer) |
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE
OFFICER
AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly
Report of Magnolia Lane Income Fund., (the “Company”) on Form 10-Q for the period ended July 31, 2015 as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), Brian Woodland, Chief
Executive Officer and Chief Financial Officer of the Company, certifies, pursuant to 18 U.S.C. section 1350 of the
Sarbanes-Oxley Act of 2002, that:
(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: September 16, 2015 |
By: |
/s/ Brian Woodland |
|
|
Brian Woodland
President, Chief Executive Officer
and Chief Financial Officer
(Principal Executive Officer and Principal Financial Officer) |
A signed original of this written statement required by Section
906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the
electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished
to the Securities and Exchange Commission or its staff upon request.
v3.3.0.814
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v3.3.0.814
Condensed Consolidated Balance Sheets - USD ($)
|
Jul. 31, 2015 |
Apr. 30, 2015 |
ASSETS |
|
|
Rental property, net |
$ 2,266,005
|
$ 2,289,618
|
Cash |
14,534
|
17,286
|
Restricted cash |
15,608
|
13,799
|
Accounts receivable |
1,925
|
1,225
|
Total Assets |
2,298,072
|
2,321,928
|
LIABILITIES AND STOCKHOLDERS DEFICIT |
|
|
Mortgage payable |
538,486
|
542,694
|
Related party mortgage payable |
1,425,982
|
1,425,982
|
Accounts payable and accrued expenses |
118,697
|
103,465
|
Security deposits |
2,900
|
2,900
|
Due to shareholders |
450,581
|
450,581
|
Total Liabilities |
$ 2,536,646
|
$ 2,525,622
|
Commitments and Contingencies |
|
|
STOCKHOLDERS' DEFICIT: |
|
|
Preferred stock: par value $0.0001; 100,000,000 shares authorized; None issued or outstanding |
|
|
Common stock: par value $0.0001; 200,000,000 shares authorized; 1,796,875 and 1,796,875 shares issued and outstanding, respectively |
$ 180
|
$ 180
|
Additional paid-in capital |
311,575
|
303,972
|
Accumulated deficit |
(550,329)
|
(507,846)
|
Total Stockholders' Deficit |
(238,574)
|
(203,694)
|
Total Liabilities and Stockholders' Deficit |
$ 2,298,072
|
$ 2,321,928
|
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v3.3.0.814
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
|
Jul. 31, 2015 |
Apr. 30, 2015 |
Statement of Financial Position [Abstract] |
|
|
Preferred Stock, par value (in dollars per share) |
$ 0.0001
|
$ 0.0001
|
Preferred Stock, shares authorized |
100,000,000
|
100,000,000
|
Preferred Stock, shares issued |
|
|
Preferred Stock, shares outstanding |
|
|
Common Stock, par value (in dollars per share) |
$ 0.0001
|
$ 0.0001
|
Common Stock, shares authorized |
200,000,000
|
200,000,000
|
Common Stock, shares issued |
1,796,875
|
1,796,875
|
Common Stock, shares outstanding |
1,796,875
|
1,796,875
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v3.3.0.814
Condensed Consolidated Statements of Operations (Unaudited) - USD ($)
|
3 Months Ended |
Jul. 31, 2015 |
Jul. 31, 2014 |
REVENUE |
|
|
Rental revenue |
$ 62,818
|
$ 63,568
|
OPERATING EXPENSES |
|
|
Operating costs |
11,954
|
25,609
|
Professional fees |
38,122
|
22,500
|
Repairs and maintenance |
6,164
|
3,734
|
Depreciation |
23,613
|
22,237
|
Interest expense |
33,956
|
36,498
|
Total operating expenses |
113,809
|
110,578
|
LOSS FROM OPERATIONS |
(50,991)
|
$ (47,010)
|
OTHER INCOME |
|
|
Insurance proceeds |
8,508
|
|
NET LOSS |
$ (42,483)
|
$ (47,010)
|
NET LOSS PER COMMON SHARE- BASIC AND DILUTED: |
$ (0.02)
|
$ (0.03)
|
Weighted average common shares outstanding- basic and diluted |
1,796,875
|
1,796,875
|
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v3.3.0.814
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
|
3 Months Ended |
Jul. 31, 2015 |
Jul. 31, 2014 |
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
Net Loss |
$ (42,483)
|
$ (47,010)
|
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
Depreciation and amortization |
23,613
|
22,237
|
Imputed interest |
7,603
|
7,515
|
Changes in operating assets and liabilities: |
|
|
Accounts receivable |
(700)
|
(58)
|
Accounts payable and accrued expenses |
$ 15,232
|
42,398
|
Deferred income |
|
(4,010)
|
Net cash provided by operating activities |
$ 3,265
|
21,072
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
Restricted cash |
$ (1,809)
|
(1,219)
|
Building Improvements |
|
(5,871)
|
Net cash used in investing activities |
$ (1,809)
|
(7,090)
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
Advances from shareholders |
|
(30)
|
Repayments of mortgages payable |
$ (4,208)
|
(2,264)
|
Net cash used in financing activities |
(4,208)
|
(2,294)
|
NET CHANGE IN CASH |
(2,752)
|
11,688
|
Cash at beginning of period |
17,286
|
19,379
|
Cash at end of period |
14,534
|
31,067
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: |
|
|
Cash paid for interest |
6,745
|
6,376
|
NON-CASH INVESTING AND FINANCING ACTIVITIES: |
|
|
Imputed interest on stockholder loans |
$ 7,603
|
$ 7,515
|
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v3.3.0.814
Organization
|
3 Months Ended |
Jul. 31, 2015 |
Organization and Going Concern [Abstract] |
|
ORGANIZATION |
NOTE 1 - ORGANIZATION
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in The United States of America and the rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, they do not include all of the information necessary for a comprehensive presentation of financial position and results of operations. The interim results for the period ended July 31, 2015 are not necessarily indicative of results for the full fiscal year. It is management's opinion, however that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statements presentation.
Magnolia Lane Income Fund, formerly known as Palmerston Stock Agency, Inc. (the “Company,” ”We,” “Ours,” “Us”), 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, Chief Financial Officer and sole director, Brian Woodland, has numerous years in the real estate acquisition, syndication and asset management business. We intend to acquire real estate in small markets with high degrees of safety to provide income streams to our shareholders. In addition, we will develop property, syndicate, manage and acquire property for capital appreciation.
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 5)
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v3.3.0.814
Summary of Accounting Policies
|
3 Months Ended |
Jul. 31, 2015 |
Summary of Accounting Policies [Abstract] |
|
SUMMARY OF ACCONTING POLICIES |
NOTE 2 – SUMMARY OF ACCOUNTING POLICIES Principles of consolidation The accompanying unaudited condensed consolidated financial statements represent the consolidated financial position and results of operations of the Company and include the accounts and results of operations of the Company and its subsidiaries. The accompanying financial statements include the active entity of Magnolia Lane Income Fund and its wholly owned subsidiaries, Walker Partners, LLC 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 both of its properties. Concentrations Concentration in a geographic area The Company operates in the real estate industry and the operations are concentrated in the State of Massachusetts. Rental Property, Net Rental property assets are stated at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful lives of the asset. We capitalize replacements and improvements, such as HVAC equipment, structural replacements, windows, appliances, flooring, carpeting and renovations. Ordinary repairs and maintenance, such as unit cleaning, painting and appliance repairs, are expensed when incurred. Asset | | Useful Life (in years) | Building | | 30 years | Land | | Indefinite | Building Improvements | | 30 years |
Net loss per common share Net loss per common share is computed pursuant to section 260-10-45 of the Financial Accounting Standards Board Accounting Standards Codification. Basic net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock and potentially dilutive outstanding shares of common stock during the period. There were no potentially dilutive shares outstanding for any periods presented. Income Taxes The Company utilizes the asset and liability method to measure and record deferred income tax assets and liabilities. Deferred tax assets and liabilities reflect the future income tax effects of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates that apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company follows the provisions of Income Taxes Topic of the FASB Accounting Standards Codification, which provides clarification on accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition, classification, interest and penalties, disclosure and transition. At July 31, 2015, no significant income tax uncertainties have been included in the Company’s Balance Sheets. The Company’s policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the Statements of Operations. No interest and penalties are present for periods open. The Company is subject to the United States federal and state income tax examinations by the tax authorities for the 2015, 2014, and 2013 tax years. Property Revenue Recognition Our commercial
property leases are for varied terms ranging from month-to-month to 3 years. Rental income is recognized on a straight-line basis over the term of the lease. Rent concessions, including free rent incurred in connection with commercial property leases, are amortized on a straight-line basis over the terms of the related leases and are charged as a reduction of rental revenue. Impairment of Real Estate Investments The Company assesses on a regular basis whether there are any indicators that the carrying value of rental property assets may be impaired. Potential indicators may include an increase in vacancy at a property, tenant reduction in utilization of a property, tenant financial instability and the potential sale of the property in the near future. An asset is determined to be impaired if the asset’s carrying value is in excess of its estimated fair value. Deferred Revenue From time to time, rental payments may be paid by tenants, but not earned yet by the Company. Such revenue is initially recorded as a deferred liability and is recognized as revenue once earned. As of July 31, 2015 and April 30, 2015, the Company had $0 and $0 in deferred revenue, respectively. Segments The Company operates in one segment and therefore segment information is not presented.
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v3.3.0.814
Recent Accounting Pronouncements
|
3 Months Ended |
Jul. 31, 2015 |
Accounting Changes and Error Corrections [Abstract] |
|
RECENT ACCOUNTING PRONOUNCEMENTS |
NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS In April 2015, FASB issued Accounting Standards Update (“ASU”) No. 2015-03, “ Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs”, is to simplify presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The ASU does not affect the recognition and measurement guidance for debt issuance costs. For public companies, the ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early application is permitted. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition. In April 2015, FASB issued Accounting Standards Update (“ASU”) No. 2015-04, “Compensation – Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets”, permits the entity to measure defined benefit plan assets and obligations using the month-end that is closest to the entity’s fiscal year-end and apply that practical expedient consistently from year to year. The ASU is effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early application is permitted. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition. In April 2015, FASB issued Accounting Standards Update (“ASU”) No. 2015-05, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement”, provides guidance to customers about whether a cloud computing arrangement includes a software license. If such an arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If the arrangement does not include a software license, the customer should account for it as a service contract. For public business entities, the ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. Early application is permitted. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition In April 2015, FASB issued Accounting Standards Update (“ASU”) No. 2015-06, “Earnings Per Share (Topic 260): Effects on Historical Earnings per Unit of Master Limited Partnership Dropdown Transactions”, specifies that, for purposes of calculating historical earnings per unit under the two-class method, the earnings (losses) of a transferred business before the date of a drop down transaction should be allocated entirely to the general partner. In that circumstance, the previously reported earnings per unit of the limited partners (which is typically the earnings per unit measure presented in the financial statements) would not change as a result of the dropdown transaction. Qualitative disclosures about how the rights to the earnings (losses) differ before and after the dropdown transaction occurs for purposes of computing earnings per unit under the two-class method also are required. The ASU is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Earlier application is permitted. 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.
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v3.3.0.814
Going Concern
|
3 Months Ended |
Jul. 31, 2015 |
Organization and Going Concern [Abstract] |
|
GOING CONCERN |
NOTE 4 – GOING CONCERN The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected in the accompanying consolidated financial statements, the Company had an accumulated deficit of $550,329 and a stockholders’ deficit of $238,574. These conditions raise substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenues. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern. The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.
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v3.3.0.814
Assets Contributed
|
3 Months Ended |
Jul. 31, 2015 |
Assets Contributed [Abstract] |
|
ASSETS CONTRIBUTED |
NOTE 5 – 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 $2,472,178 in assets contributed and $2,317,469 in liabilities assumed was recorded as a contribution of capital to the
Company in the amount of $154,709. Cash | | $ | 13,730 | | Cash – escrow | | | 6,023 | | Accounts receivable | | | 15,050 | | Related Party note receivable | | | 10,000 | | Real property, net | | | 2,427,375 | | Deferred tax asset | | | 458,324 | | Valuation allowance on deferred tax asset | | | (458,324 | ) | Assets contributed | | $ | 2,472,178 | | Security deposits | | | (3,528 | ) | Mortgage notes payable | | | (2,313,941 | ) | Liabilities assumed | | $ | (2,317,469 | ) | | | | | | Net assets contributed | | $ | 154,709 | |
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v3.3.0.814
Rental Property, Net
|
3 Months Ended |
Jul. 31, 2015 |
Rental Property, Net [Abstract] |
|
RENTAL PROPERTY, NET |
NOTE 6 – RENTAL PROPERTY, NET
Rental Property, Net consisted of the following at July 31, 2015 and April 30, 2015:
|
|
July 31, 2015 |
|
|
April 30, 2015 |
|
Land |
|
|
120,733 |
|
|
|
120,733 |
|
Buildings |
|
|
2,695,016 |
|
|
|
2,695,016 |
|
Leasehold Improvements |
|
|
130,731 |
|
|
|
130,731 |
|
Accumulated Depreciation |
|
|
(680,475 |
) |
|
|
(656,862 |
) |
Net, Real Estate Investments |
|
|
2,266,005 |
|
|
|
2,289,618 |
|
As of July 31, 2015, real estate investments consisted of two properties:
58 Main St. Topsfield, Ma 01983
|
● |
Description: 4,000 Square foot, Commercial Building |
|
● |
Status: Rented 100% occupancy. Lease term: 3-Year |
|
● |
Owner: Walker Partners, LLC |
|
● |
Purchase Price: $503,000 |
|
● |
Mortgage Debt as of July 31, 2015: $538,486 |
7 Grove St., Topsfield, Ma 01983
|
● |
Description: 12,000 Square foot, Business Office, Retail and Professional Space |
|
● |
Status: Rented at 100% occupancy. Lease term: 3-Year |
|
● |
Owner: Grove Realty Partners, LLC |
|
● |
Purchase Price: $2.025 million |
|
● |
Mortgage Debt as of July 31, 2015: $1,425,982 |
For the three months ended July 31, 2015 and 2014, the Company recognized revenues of $62,818 and $63,568, respectively. Rent for the three months ended July 31, 2015 and 2014 included $9,000 from a related party who occupies an office in one of the Company’s properties.
Depreciation expense for the three months ended July 31, 2015 and 2014 totaled $23,613 and $22,237, respectively.
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v3.3.0.814
Mortgage and Related Party Notes Payable
|
3 Months Ended |
Jul. 31, 2015 |
Mortgage and Related Party Notes Payable [Abstract] |
|
MORTGAGE AND RELATED PARTY NOTES PAYABLE |
NOTE 7 – MORTGAGE AND RELATED PARTY NOTES PAYABLE
58 Main Street
On January 16, 2014, the Company assumed a mortgage note payable to a third-party, unrelated to the seller, on the property located at 58 Main Street, Topsfield, Massachusetts. The note bears interest at 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 the underlying property. At maturity, the balloon payment of $481,454 will be due in full. The remaining principal balance as of July 31, 2015 and April 30, 2015 is $538,486 and $542,694, respectively.
7 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 began on May 15, 2014 in the amount of $6,536 per month.
Future principle requirements on long-term debt for fiscal years ending after July 31, 2015 are as follows:
Mortgage Payable - Related Party |
|
Mortgage Payable |
For fiscal year ending |
|
Future Payout |
|
|
For fiscal year ending |
|
Future Payout |
|
2016 |
|
$ |
- |
|
|
2016 |
|
$ |
7,798 |
|
2017 |
|
|
- |
|
|
2017 |
|
|
15,291 |
|
2018 |
|
|
|
|
|
2018 |
|
|
16,371 |
|
2019 |
|
|
- |
|
|
2019 |
|
|
17,527 |
|
2020 and thereafter |
|
|
1,425,982 |
|
|
2020 and thereafter |
|
|
481,499 |
|
Total |
|
$ |
1,425,982 |
|
|
Total |
|
$ |
538,486 |
|
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v3.3.0.814
Future Rents And Tenant Concentration
|
3 Months Ended |
Jul. 31, 2015 |
Future Rents and Tenant Concentration [Abstract] |
|
FUTURE RENTS AND TENANT CONCENTRATION |
NOTE 8 – FUTURE RENTS AND TENANT CONCENTRATION
The Company’s revenue is derived from property leases with varied lease terms. The following table represents future minimum rents to be received under non-cancelable leases with terms of twelve months or more as of July 31, 2015:
Future Rents |
2015 |
|
$ |
100,270 |
|
2016 |
|
|
37,999 |
|
2017 |
|
|
14,400 |
|
2018 |
|
|
8,400 |
|
Thereafter |
|
|
- |
|
|
|
$ |
161,069 |
|
For the three months ended July 31, 2015, two tenants represented approximately 17% and 14% of the Company’s revenue. For the three months ended July 31, 2014, two tenants represented approximately 17% and 14% of the Company’s revenue.
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v3.3.0.814
Related Party Transactions
|
3 Months Ended |
Jul. 31, 2015 |
Related Party Transactions [Abstract] |
|
RELATED PARTY TRANSACTIONS |
NOTE 9 – RELATED PARTY TRANSACTIONS
Related parties to the Company include, but are not limited to, officers, directors, and shareholders. From time to time, the Company receives loans and advances from Phalanx Partners and WS Advantage LP for working capital purposes. Phalanx Partners and WS Advantage LP formerly held equity interests in Grove Realty Partners, LLC and Walker Partners, LLC and are currently shareholders and controlled by the Company’s president.
An aggregate of $450,581 has been received from related parties for working capital purposes and debt and expenses paid on the Company’s behalf. These advances are interest-free and payable upon demand. During the three months ended July 31, 2015 and 2014 the Company imputed interest expense of $7,603 and $7,515, respectively.
During the three months ended July 31, 2015 and 2014, the Company received $9,000 in rental income from Phalanx Partners, who occupies an office in one of the Company’s properties.
During the three months ended July 31, 2015 and 2014 the Company paid a related party $19,608 for principal and interest payments.
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v3.3.0.814
Stockholders' Equity
|
3 Months Ended |
Jul. 31, 2015 |
Stockholders' Equity [Abstract] |
|
STOCKHOLDERS' EQUITY |
NOTE 10 - STOCKHOLDERS’ EQUITY
Common stock
Common Stock includes 200,000,000 shares authorized at a par value of $0.0001.
Preferred stock
Preferred stock includes 100,000,000 shares authorized at a par value of $0.0001, of which none are issued or outstanding.
Additional paid in Capital
During the three months ended July 31, 2015 the Company recorded imputed interest on stockholders loans of $7,603
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v3.3.0.814
Subsequent Event
|
3 Months Ended |
Jul. 31, 2015 |
Subsequent Events [Abstract] |
|
SUBSEQUENT EVENTS |
NOTE 11 – SUBSEQUENT EVENTS The Company has evaluated all events that occur after the balance sheet date through the date when the consolidated financial statements were issued to determine if they must be reported.
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v3.3.0.814
Summary of Accounting Policies (Policies)
|
3 Months Ended |
Jul. 31, 2015 |
Summary of Accounting Policies [Abstract] |
|
Principles of consolidation |
Principles of consolidation The accompanying unaudited condensed consolidated financial statements represent the consolidated financial position and results of operations of the Company and include the accounts and results of operations of the Company and its subsidiaries. The accompanying financial statements include the active entity of Magnolia Lane Income Fund and its wholly owned subsidiaries, Walker Partners, LLC and Grove Realty Partners, LLC.
|
Use of Estimates |
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 |
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 Restricted cash consists of cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements. The Company’s restricted cash is reserved for real estate taxes on both of its properties.
|
Concentrations |
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, Net Rental property assets are stated at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful lives of the asset. We capitalize replacements and improvements, such as HVAC equipment, structural replacements, windows, appliances, flooring, carpeting and renovations. Ordinary repairs and maintenance, such as unit cleaning, painting and appliance repairs, are expensed when incurred. Asset | | Useful Life (in years) | Building | | 30 years | Land | | Indefinite | Building Improvements | | 30 years |
|
Net loss per common share |
Net loss per common share 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 |
Income Taxes The Company utilizes the asset and liability method to measure and record deferred income tax assets and liabilities. Deferred tax assets and liabilities reflect the future income tax effects of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates that apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company follows the provisions of Income Taxes Topic of the FASB Accounting Standards Codification, which provides clarification on accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition, classification, interest and penalties, disclosure and transition. At July 31, 2015, no significant income tax uncertainties have been included in the Company’s Balance Sheets. The Company’s policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the Statements of Operations. No interest and penalties are present for periods open. The Company is subject to the United States federal and state income tax examinations by the tax authorities for the 2015, 2014, and 2013 tax years.
|
Property Revenue Recognition |
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 |
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 |
Deferred Revenue From time to time, rental payments may be paid by tenants, but not earned yet by the Company. Such revenue is initially recorded as a deferred liability and is recognized as revenue once earned. As of July 31, 2015 and April 30, 2015, the Company had $0 and $0 in deferred revenue, respectively.
|
Segments |
Segments The Company operates in one segment and therefore segment information is not presented.
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|
3 Months Ended |
Jul. 31, 2015 |
Assets Contributed [Abstract] |
|
Schedule of contribution of capital |
Cash | | $ | 13,730 | | Cash – escrow | | | 6,023 | | Accounts receivable | | | 15,050 | | Related Party note receivable | | | 10,000 | | Real property, net | | | 2,427,375 | | Deferred tax asset | | | 458,324 | | Valuation allowance on deferred tax asset | | | (458,324 | ) | Assets contributed | | $ | 2,472,178 | | Security deposits | | | (3,528 | ) | Mortgage notes payable | | | (2,313,941 | ) | Liabilities assumed | | $ | (2,317,469 | ) | | | | | | Net assets contributed | | $ | 154,709 | |
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Rental Property, Net (Tables)
|
3 Months Ended |
Jul. 31, 2015 |
Rental Property, Net [Abstract] |
|
Summary of rental property, net |
|
|
July 31, 2015 |
|
|
April 30, 2015 |
|
Land |
|
|
120,733 |
|
|
|
120,733 |
|
Buildings |
|
|
2,695,016 |
|
|
|
2,695,016 |
|
Leasehold Improvements |
|
|
130,731 |
|
|
|
130,731 |
|
Accumulated Depreciation |
|
|
(680,475 |
) |
|
|
(656,862 |
) |
Net, Real Estate Investments |
|
|
2,266,005 |
|
|
|
2,289,618 |
|
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Mortgage and Related Party Notes Payable (Tables)
|
3 Months Ended |
Jul. 31, 2015 |
Mortgage and Related Party Notes Payable [Abstract] |
|
Schedule of future principle requirements on long-term debt |
Mortgage Payable - Related Party |
|
Mortgage Payable |
For fiscal year ending |
|
Future Payout |
|
|
For fiscal year ending |
|
Future Payout |
|
2016 |
|
$ |
- |
|
|
2016 |
|
$ |
7,798 |
|
2017 |
|
|
- |
|
|
2017 |
|
|
15,291 |
|
2018 |
|
|
|
|
|
2018 |
|
|
16,371 |
|
2019 |
|
|
- |
|
|
2019 |
|
|
17,527 |
|
2020 and thereafter |
|
|
1,425,982 |
|
|
2020 and thereafter |
|
|
481,499 |
|
Total |
|
$ |
1,425,982 |
|
|
Total |
|
$ |
538,486 |
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Assets Contributed (Details)
|
3 Months Ended |
Jul. 31, 2015
USD ($)
|
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items] |
|
Assets contributed |
$ 2,472,178
|
Liabilities assumed |
(2,317,469)
|
Net assets contributed |
154,709
|
Security deposits [Member] |
|
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items] |
|
Liabilities assumed |
(3,528)
|
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|
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items] |
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(2,313,941)
|
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|
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|
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13,730
|
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|
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|
Assets contributed |
6,023
|
Accounts receivable [Member] |
|
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items] |
|
Assets contributed |
15,050
|
Related Party note receivable [Member] |
|
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items] |
|
Assets contributed |
10,000
|
Real property, net [Member] |
|
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items] |
|
Assets contributed |
2,427,375
|
Deferred tax asset [Member] |
|
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items] |
|
Assets contributed |
458,324
|
Valuation allowance on deferred tax asset [Member] |
|
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items] |
|
Assets contributed |
$ (458,324)
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Assets Contributed (Details Textual) - USD ($)
|
3 Months Ended |
|
Jul. 31, 2015 |
Dec. 23, 2013 |
Assets Contributed (Textual) |
|
|
Assets contributed |
$ 2,472,178
|
|
Liabilities assumed |
2,317,469
|
|
Net assets contributed |
154,709
|
|
Grove Realty Partners, LLC and Walker Partners, LLC [Member] |
|
|
Assets Contributed (Textual) |
|
|
Percentaga of equity interest |
|
100.00%
|
Total consideration |
$ 3,000
|
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Rental Property, Net (Details) - USD ($)
|
Jul. 31, 2015 |
Apr. 30, 2015 |
Rental Property, Net [Abstract] |
|
|
Land |
$ 120,733
|
$ 120,733
|
Buildings |
2,695,016
|
2,695,016
|
Leasehold Improvements |
130,731
|
130,731
|
Accumulated Depreciation |
(680,475)
|
(656,862)
|
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$ 2,266,005
|
$ 2,289,618
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Rental Property, Net (Details Textual)
|
3 Months Ended |
Jul. 31, 2015
USD ($)
ft²
|
Jul. 31, 2014
USD ($)
|
Revenue |
$ 62,818
|
$ 63,568
|
Rent from related parties |
9,000
|
9,000
|
Depreciation expense |
$ 23,613
|
$ 22,237
|
58 Main Street, Topsfield |
|
|
Area of real estate property, Description. | ft² |
4,000
|
|
Rental area of land occupancy, Percentage |
100.00%
|
|
Lease term |
3 years
|
|
Purchase Price |
$ 503,000
|
|
Mortgage Debt |
$ 538,486
|
|
7 Grove St., Topsfiel |
|
|
Area of real estate property, Description. | ft² |
12,000
|
|
Rental area of land occupancy, Percentage |
100.00%
|
|
Lease term |
3 years
|
|
Purchase Price |
$ 2,025,000
|
|
Mortgage Debt |
$ 1,425,982
|
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v3.3.0.814
Mortgage and Related Party Notes Payable (Details)
|
Apr. 30, 2015
USD ($)
|
Related Party Mortgage Payable |
|
Mortgage Note Payable [Line Items] |
|
2016 |
|
2017 |
|
2018 |
|
2019 |
|
2020 and thereafter |
$ 1,425,982
|
Total |
1,425,982
|
Mortgage Payable |
|
Mortgage Note Payable [Line Items] |
|
2016 |
7,798
|
2017 |
15,291
|
2018 |
16,371
|
2019 |
17,527
|
2020 and thereafter |
481,499
|
Total |
$ 538,486
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v3.3.0.814
Mortgage and Related Party Notes Payable (Details Textual) - USD ($)
|
|
1 Months Ended |
|
|
Apr. 12, 2014 |
Jan. 16, 2014 |
Jul. 31, 2015 |
Apr. 30, 2015 |
7 Grove Street |
|
|
|
|
Mortgage Note Payable (Textual) |
|
|
|
|
Mortgage note bears interest rate |
5.50%
|
7.90%
|
|
|
Mortgage note maturity date |
|
Sep. 05, 2032
|
|
|
Monthly payments |
|
$ 17,775
|
|
|
Interest payments |
$ 6,536
|
|
|
|
Debt instrument, Term |
5 years
|
|
|
|
Mortgage loan payment terms |
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.
|
|
|
|
58 Main Street |
|
|
|
|
Mortgage Note Payable (Textual) |
|
|
|
|
Mortgage note bears interest rate |
|
6.75%
|
|
|
Mortgage note maturity date |
|
Aug. 26, 2019
|
|
|
Monthly payments |
|
$ 4,320
|
|
|
Balloon payment |
|
$ 481,454
|
|
|
Remaining principal balance |
|
|
$ 538,486
|
$ 542,694
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v3.3.0.814
Stockholders' Equity (Details) - USD ($)
|
3 Months Ended |
|
Jul. 31, 2015 |
Jul. 31, 2014 |
Apr. 30, 2015 |
Stockholders' Equity (Textual) |
|
|
|
Common Stock, shares authorized |
200,000,000
|
|
200,000,000
|
Common stock, par value |
$ 0.0001
|
|
$ 0.0001
|
Preferred Stock, shares authorized |
100,000,000
|
|
100,000,000
|
Preferred Stock, par value (in dollars per share) |
$ 0.0001
|
|
$ 0.0001
|
Preferred Stock, shares issued |
|
|
|
Preferred Stock, shares outstanding |
|
|
|
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$ 7,603
|
$ 7,515
|
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