UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

For the quarterly period ended JuneSeptember 30, 2021

For the transition period from __________ to ___________

Commission File Number 333-326458

iCap Vault 1, LLC

(Exact name of registrant as specified in its charter)

(425) 278-9030

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ YesNo ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

There is no public market for the registrant’s outstanding membership interests. As of August 13November 10, 2021, there were 1,000membership interests issued and outstanding.

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report includes “forward-looking statements” within the meaning of the federal securities laws that involve risks and uncertainties. Forward-looking statements include statements we make concerning our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs and other information that is not historical information. When used in this quarterly report, the words “estimates,” “expects,” “anticipates,” “projects,” “forecasts,” “plans,” “intends,” “believes,” “foresees,” “seeks,” “likely,” “may,” “might,” “will,” “should,” “goal,” “target” or “intends” and variations of these words or similar expressions (or the negative versions of any such words) are intended to identify forward-looking statements. All forward-looking statements are based upon information available to us on the date of this quarterly report.

These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of our control, that could cause actual results to differ materially from the results discussed in the forward-looking statements. These risks and uncertainties are discussed in the “Risk Factors” section of our annual report on Form 10-K for the fiscal year ended December 31, 2020, filed with the Securities and Exchange Commission on March 31, 2020,2021, as the same may be updated from time to time.

All forward-looking statements attributable to us in this quarterly report apply only as of the date of this quarterly report and are expressly qualified in their entirety by the cautionary statements included in this quarterly report. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to publicly update or revise forward-looking statements to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events, except as required by law.

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

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

MEMBER’S DEFICIT

Three Months Ended September 30, 2021

MEMBER’S DEFICIT

Nine Months Ended September 30, 2021

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

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

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

iCap Vault 1, LLC and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

For the SixNine Months Ended JuneSeptember 30, 2021

Note 1. Nature of Business and Summary of Significant Accounting Policies

Organization and Nature of Business:

iCap Vault 1, LLC (the “Company”), a Delaware limited liability company, was formed on July 30, 2018 pursuant to and in accordance with the Delaware Limited Liability Company Act for the purpose of acquiring real estate investments in the United States and providing a rate of return to its investors. The Company was organized for the principal purposes of (a) sourcing, acquiring, financing and managing a portfolio of investments and (b) engaging in all activities incidental or ancillary thereto as the Manager, iCap Vault Management, LLC (the “Manager”), deems necessary or advisable. The Company’s Limited Liability Company Agreement dated August 1, 2018 (the “Operating Agreement”) provides for one class of membership units that have the same rights, powers and duties.units. The Company had 1,000 units issued and outstanding as of JuneSeptember 30, 2021, which were issued at the timeall of formation. All unitswhich are held by one member. The Operating Agreement was amended and restated on September 18, 2020 to clarify that the member’s liability is limited to the member’s equity plus any debt for which a personal guarantee has been given by the member. The Operating Agreement continues until the Company is dissolved.

The Company has two wholly owned subsidiaries, Vault Holding, LLC (“Holding”) and Vault Holding 1, LLC (“Holding 1”). Holding was formed September 27, 2018. Holding 1 was formed2018 and April 28, 2020.2020, respectively. Each entity was formed with the intention of owning one or more standalone subsidiaries (each a “Portfolio SPE”), which itself will hold real property investments and real estate-based financial instruments. Through the acquisition of six townhomes in the three months ended June 30, 2021, the Company is generating revenue through net rental income on our properties. The Company also intends to generate revenue from its properties through price appreciation of the properties upon their disposition. For the financial instruments secured by real estate that the Company invests in, the Company intends to generate revenues from the interest income received on such financial instruments. Additionally, the entitiesBoth Holding and Holding I provide guarantiesguarantees to secured noteholders of the Company. Holding provides such a guarantythe guarantee to holders of private placement secured demand notes. Holding 1 shall provideprovides a guarantyguarantee to holders of publicly available variable denomination floating rate demand notes the Company intends to offeroffers through a public offering.registration. As of the date of issuance of these unaudited condensed consolidated financial statements, Holding made three loans (see Note 2) and purchasedowns six townhomes through itsan SPE subsidiary, VH Willows Townhomes, LLC and has invested in four loans (See Notes 23 and 3).

4), whereas Holding 1 has not commenced operations and has no assets and liabilities.

The Company executed the Operating Agreement asgenerates revenue from rentals of August 1, 2018, which was amendedreal property investments and restatedinterest on September 18, 2020. Each member’s liability is limited to their respective member’s equity plus any debtinvestments in financial instruments secured by real estate. Management intends for which a personal guarantee has been given. The Operating Agreement continues until the Company is dissolved.to generate additional revenue from price appreciation of real properties upon their disposition.

Management intends for the Company to fund its operations and investments through demand notes issued pursuant to a $500,000,000 private placement (“Private Placement Notes”) and $500,000,000 of Variable Denomination Floating Rate Demand Notes (“Public Demand Notes”).

On September 18, 2020, the Company, Holding 1 and American Stock Transfer & Trust Company, LLC, as trustee, entered into an Indenture, which complies with the requirements of the Trust Indenture Act of 1939, as amended, under which the publicly registered demand notes will beare offered.

On November 24, 2020, the Securities and Exchange Commission (“SEC”) declared the Company’s Registration Statement on Form S-11/A (the “Registration Statement”), filed with the SEC on November 2, 2020, effective and the Company is authorized to sell $500,000,000 of Variable Denomination Floating RatePublic Demand Notes (“Public Demand Notes”) on a continuous basis, in a direct public offering. On April 29, 2021, the Company filed with the SEC Post-Effective Amendment No. 1 to the Registration Statement. The SEC declared Post-Effective Amendment No. 1 effective on May 5, 2021. No additional securities were registered pursuant to Post-Effective Amendment No. 1. The Public Demand Notes will have the following terms and features:

iCap Vault 1, LLC and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

For the SixNine Months Ended JuneSeptember 30, 2021

Note 2.

There have been no Public Demand Notes issued asSummary of June 30, 2021 (see Note 9).Significant Accounting Policies

Basis of Presentation:

The accompanying unaudited condensed consolidated financial statements (“financial statements”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and have been consistently applied. They do not include allCertain information and footnotesfootnote disclosures normally included in financial statements presented in accordance with GAAP, but which are not required by GAAP for complete financial statements.interim reporting purposes, have been omitted. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to present fairly the financial position as of September 30, 2021 and the results of operations and cash flows for a fair presentationthe interim periods ended September 30, 2021 and 2020, have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 31, 2021. Operating results for the three and sixnine months ended JuneSeptember 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

Use of Estimates:

The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported amounts of assets and liabilities and disclosure of contingent assets and liabilities atin the date of the unaudited condensed consolidated financial statements and reported amounts of revenues and expenses during the reporting period.accompanying notes. Actual results could differ from those estimates.

iCap Vault 1, LLC and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

For the SixNine Months Ended JuneSeptember 30, 2021

Principles of Consolidation:

The unaudited condensed consolidated financial statements represent the consolidation of the Company and its wholly owned subsidiaries, Holding, Holding 1 and VH Willows Townhomes LLC.their wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Accounting for Acquisitions

The Company accounts for acquisitions for investment properties as asset acquisitions in accordance with ASC 805, “Business Combinations,” and allocates the purchase price of the property based upon the fair value of the assets acquired, which generally consist of land and buildings. The Company allocates the purchase price of an acquired propertyinvestment properties to the underlying assets (and liabilities, if applicable) based upon the estimated fair values at the date of acquisition. Investment properties generally determined byconsist of land and buildings. Management estimates the fair values at the date of acquisition using either internal evaluation as well asvaluations or third-party appraisal of the property obtained in conjunction with the purchase.appraisals. The Company capitalizedcapitalizes acquisition-related costs and fees associated with asset acquisitions.

Cash and Cash Equivalents:

The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. The Company’s cash and cash equivalents are held at major commercial banks which hold balances that at times may exceed the Federal Deposit Insurance Corporation limit. The Company has not experienced any losses in such accounts with these financial institutions. There were 0 cash equivalents as of June 30, 2021 and December 31, 2020.

The Company sets aside reserves a minimum of between 5-10%10% of the outstanding principal balances in available cash reservesof Private Placement Notes to addressaccommodate demand payments of its private placement secured demand notes pursuant topermitted by the private placement memorandum (see Note 6).

Notes Receivable and Interest Income:

Notes receivable are accounted forincluded in the Company’saccompanying unaudited condensed consolidated balance sheets (“balance sheets”) at the outstanding principal balance plus accrued interest. Interest income is accruedrecognized at the contractual rate of interest over the term of the note. The accrual of interest is discontinued when management believes, after considering collection efforts and other factors, the amount ultimately to be collected will be insufficient to cover the additional interest payments. The Company designates notes as non-performing at such time as (i) the note has a maturity default; or (ii) in the opinion of management, it is probable the Company will be unable to collect all amounts due according to the contractual terms of the note.

The Company may fund a specific note receivable origination net of an interest reserve to ensure timely interest payments at the inception of the note. Any interest reserve is amortized over the period that the amount is prepaid. In the event of an early note payoff, any unapplied interest reserves would be first applied to any accrued but unpaid interest and then as a reduction of principal.

iCap Vault 1, LLC and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

For the SixNine Months Ended JuneSeptember 30, 2021

The CompanyManagement routinely reviews notes receivable for impairment and provides an allowance for credit losses if all or a portion of the note is determined to be uncollectible. Notes are charged off to the allowance for credit losses when the contractual amount is no longer realizable.

Investment Property

Investment property consists of land and buildings and are stated at cost, less accumulated depreciation and amortization as applicable. Buildings are depreciated using a straight-line method over their estimated useful lives of 40 years. Expenditures for maintenance and repairs are charged to expense when incurred, while renewals and betterments that materially extend the life of an asset are capitalized. When assets are sold, retired or otherwise disposed of, the cost and accumulated depreciation are removed from the consolidated balance sheets and any resulting gain or loss is reflected in the consolidated statements of operations in the period realized.

BuildingsManagement evaluates investment properties for impairment when conditions exist which may indicate that it is probable that the sum of expected future cash flows (on an undiscounted basis without interest) from that investment property is less than the carrying values under its historical net cost basis. When estimating expected future cash flows, management considers factors such as future operating income, trends and prospects as well as the effects of leasing demand, competition and other pertinent factors. Upon determination that there is a permanent impairment, the carrying values of the applicable investment properties are depreciated usingreduced to their relative fair values. For investment properties to be disposed of, an impairment loss is recognized when the fair values, less the estimated cost to sell, is less than the carrying amount of the investment property measured at the time there is a straight-line method over theircommitment to sell the property and/or it is actively being marketed for sale. A property to be disposed of is reported at the lower of its carrying amount or its estimated useful lives of 40 years.fair value, less its cost to sell. Subsequent to the date that a property is held for disposition, depreciation expense is not recorded

Rental Income

Rental income includes revenue derived from fixed lease payments and are recognized on a straight-line basis over the non-cancelable period of the lease. The Company commences rental revenue recognition when the underlying asset is available for use by the lessee. The Company’s leases are short-term and are less than one year.one-year or less.

Deferred Rent:Finite-Lived Intangible Assets

The Company recognizes rental income on a straight-line basis over the terms of the leases and, accordingly, records the difference between cash rent and security deposit payments received and the recognition of rental income as a deferred rent liability.

Capitalized Software:

The Company recognized internal use software development costs in accordance with ASC 350-40, Intangibles – Goodwill and Other – Internal Use Software. Costs of materials, consulting, payroll, and payroll related costs incurred in developing internal use computer software are capitalized when incurred. The cost of certain upgrades and enhancements to internal use software that result in additional functionality are also capitalized. Costs incurred during the preliminary project and post implementation stages are charged to expense as incurred. Once a development project is substantially complete and the software is ready for its intended use, software costs are amortized on a straight-line basis over a three-year estimated useful life.

Impairment of Definite-Lived Tangible Assets:

The Company applies FASB ASC 360-10, “Property, Plant & Equipment,” to measure impairment in real estate investments. Rental properties are individually evaluated for impairment when conditions exist which may indicate that it is probable that the sum of expected future cash flows (on an undiscounted basis without interest) from a rental property is less than the carrying value under its historical net cost basis. These expected future cash flows consider factors such as future operating income, trends and prospects as well as the effects of leasing demand, competition and other factors. Upon determination that a permanent impairment has occurred, rental properties are reduced to their fair value. For properties to be disposed of, an impairment loss is recognized when the fair value of the property, less the estimated cost to sell, is less than the carrying amount of the property measured at the time there is a commitment to sell the property and/or it is actively being marketed for sale. A property to be disposed of is reported at the lower of its carrying amount or its estimated fair value, less its cost to sell. Subsequent to the date that a property is held for disposition, depreciation expense is not recorded. There was 0 impairment during the three and six months ended June 30, 2021 and 2020.

Impairment of Definite-Lived Intangible Assets:

Definite-livedManagement reviews finite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. When it becomes apparent that indicators such asIndicators include but are not limited to a significant decrease in the market value of an intangible asset group or if there are material differences between operating results and the Company’s forecasted expectations occur, then an impairment analysis is performed.expectations.

If indicators arise, an initial determination ofmanagement evaluates the asset group’s recoverability is performed based on an estimate ofby comparing the estimated undiscounted future cash flows resulting from the use of the asset group and its eventual disposition compared withto the carrying value.value of the asset group. If the carrying value of the asset group exceeds the undiscounted cash flows, a measurementmanagement estimates the fair value of an impairment loss for intangible assets is performed. The impairment charge is the excess ofasset group using appropriate fair value techniques. If the carrying value of the asset group overexceeds the estimated fair value, as determined utilizing appropriate valuation techniques.an impairment is recorded.

Due to the Company’s recurring losses, management conductedThe Company recognized an impairment analysis and concluded there was impairment expense related to itsof capitalized software of $0 for the three and six months ended June 30, 2021 and $157,143 for the year ended December 31, 2020.

iCap Vault 1, LLC and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

For the SixNine Months Ended JuneSeptember 30, 2021

Income Taxes:

AsThe Company is a limited liability company and is not taxable for federal and most state income tax purposes. As a result, earnings or losses for federal and most state purposes are included in the Company’s taxable income or loss is allocated totax returns of the sole member. Therefore, no provision or liability for income taxes has been included in the unaudited condensed consolidatedaccompanying financial statements.

Holding and Holding 1 are subsidiaries, and as single member LLCs are considered disregarded entities for income tax purposes, as well the SPE subsidiary of Holding.

The Company’s policy, if it had anyTax benefits from uncertain tax positions would be to recognize accrued interestare recognized in the financial statements if management determines it is “more-likely-than-not” that the positions are sustainable based on their technical merits. The term “more-likely-than-not” contemplates a likelihood of more than 50 percent. The determination of whether the position meets this threshold is made based on the facts, circumstances and penalties related to uncertaininformation available at the reporting date. Tax liabilities for tax positions as interest expense and other expense, respectively.

Management evaluated the Company’s tax positions and concludeduncertainties are carried by the Company had no uncertain tax positionsuntil such time that would require disclosure.the statute of limitations or period under audit for the applicable jurisdiction is settled. Since its formation, the Company is subject to income tax examinations by the U.S. federal, state or local tax authorities.

Organizational and Offering Costs:

Costs incurred in the private placement offering and the organization of the Limited Liability Company (collectively “Offering Costs”) are expensed as incurred.

Notes Payable and Related Costs:

The Company has been conducting a private placement of up to $500,000,000 of secured notes (“private placement secured demand notes”) to fund its investmentPublic Demand Notes and operational activities.Private Placement Notes payable are recorded at the principal amount of the notes sold, plus reinvestedaccrued but unpaid interest. Interest accrues daily and is recognized in the accompanying unaudited condensed consolidated statement of operations (“statement of operations”) when incurred.

Fair Value of Financial Instruments:

The recorded amounts of the Company’s cash and restricted cash, accounts receivable, affiliated notes receivable, related party receivables and payables, accounts payable, accrued expenses and demand notes payable approximate their fair values based upon the relatively short-term maturity of these financial instruments.

Liquidity and Going Concern:

The Company has not issued anya limited amount of Public Demand Notes as of Juneand Private Placement Notes through September 30, 2021.

Interest is expensed in the period incurred.

Fair Value of Financial Instruments:

The Company calculates the fair value of its assets and liabilities which qualify as financial instruments and includes this additional information in the notes to unaudited condensed consolidated financial statements when the fair value is different than the carrying value of these financial instruments. The estimated fair value of accounts receivable, related party receivables and payables, affiliated notes receivable, private placement secured demand notes, accounts payable and accrued liabilities and related party payables approximate their carrying amounts due to the relatively short maturity of these instruments. None of these instruments are held for trading purposes.

Liquidity and Going Concern:

The Company has issued one Public Demand Notes as of the date that these unaudited condensed consolidated financial statements are available to be issued2021 and does not have sufficient cash or a sourcesources of revenue sufficient to cover its operation costs and debt obligations. As of June 30, 2021,service. In addition, the Company and its subsidiaries have continued to generategenerated recurring losses from operations and negative operating cash flows since inception. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern within one year after the date these unaudited condensed consolidated financial statements are available to be issued. The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These unaudited condensed consolidated financial statements do not include any adjustments relating to the realization of the carrying value of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company will beis dependent upon the raising of additional capitalfinancing through issuance of debt in order to implement its business plan. There can be no assurance that the Company will be successful in this situation in order to continue as a going concern. The Company is funding its initial operations from payments of expenses by its related entities, which are included in related party payables on the unaudited condensed consolidated balance sheets, equity contributions, and issuance of private placementPublic Demand Notes and Private Placement demand notes.

iCap Vault 1, LLC and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

For the SixNine Months Ended JuneSeptember 30, 2021

The Company’s operations may be affected by the ongoing outbreak of the coronavirus disease 2019 (COVID-19) which in March 2020 waspandemic declared a pandemic by the World Health Organization.Organization in 2020. The ultimate disruption which may be caused by the outbreak is uncertain; however, it may result in a material adverse impact on the Company’s financial position, operations and cash flows. Possible areas that may be affected include, but are not limited to, disruption to the Company’s ability to make investments through its subsidiaries, negative impact to revenue related to real estate holdings, negative impact on its workforce, unavailability of professional services and other resources, disruption to credit markets necessary for success of the Company’s business model, and the decline in value of assets held by the Company’s subsidiaries.

The supply of housing inventory in the Greater Seattle area may become further restricted through a shutdown of construction activity. Additionally, a moratorium on real estate transactions may be imposed in reaction to the pandemic. These housing market impacts may limit the Company’s ability to acquire or dispose of real estate assets.

General employment in the region may continue to suffer as the pandemic continues. Some local governments have proposed rent or eviction moratoria, or similar programs of rent abatement, in response to the sudden upturn in unemployment. Any of these factors could cause a future decline in the market rate for residential rentals negatively impacting the Company’s income and cash flow from its real estate holdings.

Employees of affiliated companies could be medically or mentally affected by the pandemic and may be required to continue to work remotely, particularly given potential for complete or partial school closures. This situation could cause a reduction in productivity or the inability to complete critical tasks for the Company.

As of the date of this filing, the Company has not experienced significant impact related to the COVID-19 pandemic.

Recent Accounting PronouncementPronouncements:s:

In June 2016 theThe Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which adds a newInstruments. This ASU updates Topic 326 to the Codification and removesby removing the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. The guidance in ASU 2016-13 is effective for “public business entities,” as defined, that are SEC filers for fiscal years and for interimreporting periods with those fiscal years beginning after December 15, 2022. Early adoption of the guidance is permitted for fiscal yearsreporting periods beginning after December 15, 2018, including interim periods within those fiscal years. The Company2018. Management is currently evaluating the impact that the pending adoption of this guidance will have on its consolidated financial statements.

Note 2. 3. Related-Party Transactions

As of June 30, 2021Related Party Receivables and December 31, 2020, thePayables:

The Company holds related party receivables of $4,6691,441 and $170,591, at September 30, 2021 and December 31, 2020, respectively. These receivables are related to payments of operating expenses made on behalf of affiliated entities. These receivables are non-interest bearing and are due on the Company’s demand of payment.

In consideration for the Manager’s services in managing the investments of theThe Company the Company pays to the Manager an annual management fee equal to one percent1% of the outstanding aggregate principal balances of the private placement secured demand notes.Private Placement Notes and 1.3% of outstanding Public Demand Notes. The management fee is paid in arrears on the last day of each calendar quarter and is calculated on the average daily outstanding principal balances of the private placement secured demand notes during the applicable quarter.notes. There were $30,70241,280 and $2,9073,400 in management fees incurred during the three months ended JuneSeptember 30, 2021 and 2020, respectively, and $39,61380,893 and $5,2828,682 for the sixnine months ended JuneSeptember 30, 2021 and 2020, respectively. These fees are included in management fee expense-related party on the unaudited condensed consolidatedaccompanying statements of operations.When the Company issues Public Demand Notes, the management fee paid by the Company shall increase to 1.3% of outstanding Public Demand Notes. Management fees on the private placement secured demand notes will remain at 1%.

Certain expenses of the Company were paid directly by affiliated entities, iCap Equity, LLC and iCap PNW Management, LLC. Direct expenses paid by the affiliated entities totaled $4,268 5,272and $1,661 172for the three months ended JuneSeptember 30, 2021 and 2020, respectively, and $4,545 9,817and $10,652 10,824for the sixnine months ended JuneSeptember 30, 2021 and 2020, respectively. These expenses are included in general and administrative expenses on the unaudited condensed consolidatedaccompanying statements of operations.

Amounts due to affiliated entities inclusive of direct expenses paid by affiliated entities and management fees accrued, are included in the related party payables of $23,66270,214 and $7,644 on the unaudited condensed consolidated balance sheets at JuneSeptember 30, 2021 and December 31, 2020, respectively, are included in related party payables on the accompanying balance sheets. Related party payables represent 51% and 16% of total payables and accrued expenses at September 30, 2021 and December 31, 2020, respectively. These payables are non-interest bearing and due on the affiliated companies’ demand of payment.At June 30, 2021, there exists a concentration of payables to related parties of approximately 17% of the Company’s payables and accrued expenses compared to approximately 16% at December 31, 2020.

AsPrivate Placement Notes:

The Company holds related party Private Placement Notes payable to employees, officers and an affiliated entity of June$10,044,077 and $1,926 at September 30, 2021 a private placement securedand December 31, 2020, respectively. These demand note of $1,062notes are payable to the CEO, is included in related party private placement secured demand notes on the unaudited condensed consolidated balance sheets. Asfollowing:

Schedule of December 31, 2020, this note totaled $1,051Private Placement Notes Payable. As of June 30, 2021, a private placement secured demand note of $884 is payable to the Director of Capital Markets, which is included in related party private placement secured demand notes on the accompanying unaudited condensed consolidated balance sheets. As of December 31, 2020, this note totaled $875. As of June 30, 2021, a private placement secured demand note of $9,724,678 payable to iCap International Investments, LLC, a joint venture entity in which the CEO is the majority owner, is included in related party private placement secured demand notes on the unaudited condensed consolidated balance sheets. As of December 31, 2020, there were 0 notes owned by iCap International Investments, LLC.

iCap Vault 1, LLC and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

For the SixNine Months Ended JuneSeptember 30, 2021

Additionally, other non-key management employees of affiliated entities held $72,26682,496 and $19,342 of private placement secured demand notes,Private Placement Notes, which are included in the private placement secured demand notes on the unaudited condensed consolidated balance sheets as of JuneSeptember 30, 2021, and December 31, 2020, respectively.

Effective October 13, 2020, HoldingiCap International Investments, LLC made additional investments of $5,299,970 and redemptions of $5,055,045 during the quarter ended September 30, 2021 and as of November 10, 2021, the total amount of outstanding Private Placement Notes held by iCap International Investments, LLC was $10,115,725. The Director of Investor Relations made a first-time investment of $1,000 during the quarter ended September 30, 2021, and as of November 10, 2021, the total amount of outstanding Private Placement Notes held by the Director of Investor Relations was $1,008. The Director of Capital Markets made a redemption of $764 and as of November 10, 2021, the total amount of outstanding Private Placement Notes held by the Director of Capital Markets was $121. There were no other investment or redemption activities related to the Private Placement Notes held by iCap International Investments, LLC, the CEO, the Director of Capital Markets or the Director of Investor Relations.

Affiliated Notes Receivable:

The Company holds $6,671,906 and $871,232 of affiliated notes receivable plus accrued interest on September 30, 2021 and December 31, 2020, respectively. These notes receivable include loans from Holding to individuals who are minority co-owners of an affiliated entity and investment properties secured by real estate. The full amount of the notes plus accrued interest is recorded as affiliated notes receivable on the accompanying balance sheets.

Holding entered a $2,000,000loan toagreement on April 23, 2021 with individuals who are minority co-owners of an affiliated entity, in exchange for a promissory note bearing 8% interest and secured by a deed of trust on property owned by the borrower. Through September 30, 2021, $2,000,000 of the note was distributed, of which $92,000 was retained by the Company as an interest reserve. From the initial draw on this facility, $150,000 was held as interest reserve by the Company. As of September 30, 2021, the total amount of the note outstanding net of the interest reserve is $1,908,000. Interest income of $38,778 and $0 was earned for the three months ended September 30, 2021 and 2020, respectively, and $58,000 and $0 for the nine months ended September 30, 2021 and 2020, respectively.

Holding entered into a loan agreement with Colpitts Sunset, LLC, an affiliated entity, in the amount of $864,032,on October 13, 2020 in exchange for a promissory note secured by a deed of trust on property owned by Colpitts Sunset, LLCLLC. The promissory note bears interest at 10% per annum and bearing interest of 10% per annum. Effectivewas amended to increase the maximum available under the facility and its maturity date on January 14, 2021 Holding amended and restated its promissory note from Colpitts Sunset, LLC extendingagain on April 15, 2021. The January 14, 2021 amendment extended the maturity date to June 30, 2021, and increasingincreased the total available principal balance onfrom the notefacility to a maximum of $1,500,000 of the note. On January 14, 2021, an additional advance of $350,000 was made under the agreement. OnThe April 15, 2021 Holding amended and restated its promissory note from Colpitts Sunset, LLC extendingamendment extended the maturity date to April 1, 2023 and increasingincreased the total available principal balance onfrom the notefacility to a maximum of $3,500,000 (see Note 1). Theof the note. All the available principal balanceunder this facility, as amended, has been advanced as of September 30, 2021. Outstanding principal plus accrued interest from this facility is $3,448,6183,653,562 and $864,032871,232 was outstanding as of Juneon September 30, 2021 and December 31, 2020, respectively. Interestrespectively, of which $204,944 and $7,200, respectively, are accrued interest. The Company recognized interest income of $75,24186,215 and $0 was earned for the three months ended JuneSeptember 30, 2021 and 2020, respectively, and $111,529197,744 and $0 for the sixnine months ended June 30, 2021 and 2020, respectively. The full amount of the note plus interest earned and accrued of $118,729 and $7,200 is included in the affiliated notes receivable on the unaudited condensed consolidated balance sheets as of June 30, 2021, and December 31, 2020, respectively.

Effective April 23, 2021, Holding made a $2,000,000 loan to individuals who are minority co-owners of an affiliated entity, provided by the Company as an investment in Holding, in exchange for a promissory note bearing 8% interest and secured by a deed of trust on property owned by the borrower. On April 23, 2021, $1,000,000 of the note was distributed and $150,000 of the principal proceeds distributed was retained by the Company as an interest reserve. An additional $500,000 of the note was distributed on May 24, 2021. Interest income of $19,222 and $0 was earned for the three months ended JuneSeptember 30, 2021 and 2020, respectively and $19,222 and $0 for the six months ended June 30, 2021 and 2020, respectively. The remaining portion of the loan is payable at the Company’s discretion, upon written request of the borrower delivered to the Company on or before October 22, 2021. As of June 30, 2021, the total amount of the note outstanding net of the interest reserve is $1,369,222, which consists of $1,500,000 principal and $19,222 accrued interest offset by $150,000 of interest reserve. Subsequent to June 30, 2021, the remaining $500,000 of the original note was distributed to the individuals. As of August 13, 2021, the total amount of the note outstanding net of interest reserve is $1,886,925.this note.

Effective May 17, 2021, Holding madeentered a $1,200,000 loan toagreement with 725 Broadway, LLC, an affiliated entity on May 17, 2021, in exchange for a promissory note secured by a deed of trust on property owned by 725 Broadway, LLC and bearingLLC. The note bears interest at 10% 10% per annum with a maturity date ofand matures December 1, 2022. InterestOutstanding principal plus accrued interest from this facility is $1,110,345 and $0 on September 30, 2021 and December 31, 2020, respectively. There is $133,989 available to be drawn on this facility and $1,066,011 outstanding principal as of September 30, 2021. The Company recognized interest income of $14,33330,000 and $0 was earned for the three and six months ended JuneSeptember 30, 2021 and 2020, respectively.respectively, and $44,334 and $0 for the nine months ended September 30, 2021 and 2020, respectively on this note.

Holding entered a $2,000,000 loan agreement with CS2 Real Estate Development, LLC (“CS2”), an affiliated entity on September 30, 2021, in exchange for a promissory note secured by a deed of trust on property owned by CS2. The note bears interest at 12% per annum and matures September 1, 2022which can be extended by written request from CS2, for up to two additional three month periods. Funds were not disbursed under this promissory note until October 4, 2021. As of June 30,November 10, 2021, $1,200,000 the total amount of the principal balance and $14,333 ofplus accrued interest offsetoutstanding is $2,024,667.

Holding purchased a note receivable that is secured by a deed of trust from iCap Brislawn, LLC, an entity that is owned by iCap Northwest Opportunity Income Fund LLC, an affiliated entity, on October 15, 2021 for $133,989 1,069,895. The note is receivable from an unrelated third party, bears interest at 10% per annum and matures of construction holdback, which was retained by the Company in order to cover unforeseen costs, was outstanding.December 26, 2021.

The Company investedrecorded $3,430,7663,029,307 into Holding, which subsequently investedand $3,430,7660 into VH Willows Townhomes, LLC, a wholly owned subsidiary of Holding. VH Willows Townhomes, LLC purchasedinvestment property, net of accumulated depreciation on September 30, 2021 and December 31, 2020, respectively. The investment property consists of six townhomes totaling $3,420,000which were purchased from iCap Investments, LLC, an affiliated entity.entity for $3,420,000. The purchase was made in two equal installments, one on April 23, 2021 for $1,710,000 and another on May 7, 2021 for $1,710,000. The total purchase price of $3,420,000 andexceeded iCap Investments’, LLC carrying value of $3,052,266 resulted in a difference ofby $367,734, which on the acquisition date. The excess was recorded as a reduction ofan increase to member’s deficit in accordance with GAAP since itthis transaction was a transaction between entities under common control. The buildings had a balance of $2,114,535 as of the acquisition date and will be amortized straight-linetownhomes are being depreciated over their estimated remaining useful lives of 463to 464 months (Note 3(Notes 4 & 5).

Subsequent to June 30, 2021, iCap International Investments, LLC made additional investments of $300,000 and as of August 13, 2021, the total amount of outstanding private placement secured demand notes held by iCap International Investments, LLC was $10,060,754. The Director of Investor Relations made a first-time investment of $1,000 and as of August 13, 2021, the total amount of outstanding private placement secured demand notes held by the Director of Investor Relations was $1,001. The Director of Capital Markets made a redemption of $764 and as of August 13, 2021, the total amount of outstanding private placement secured demand notes held by the Director of Capital Markets was $120. There were no other investment or redemption activities related to the private placement secured demand notes held by iCap International Investments, LLC, the CEO, the Director of Capital Markets or the Director of Investor Relations. During such subsequent period, non-key management employees purchased an additional $156,000 private placement secured demand notes and redeemed $60,000 private placement secured demand notes.

Note 3.4. Investment Property

Investment property consists of the following:

 Schedule of Investment Property

Depreciation expense for the three and six months ended JuneSeptember 30, 2021 and 2020, was $9,28313,676 and $0, respectively, and $22,959 and $0 for the nine months ended September 30, 2021 and 2020, respectively.

iCap Vault 1, LLC and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

For the SixNine Months Ended JuneSeptember 30, 2021

Note 4. Capitalized Software in Development

The Company is in the process of developing software intended to facilitate the processing of demand notes and give noteholders the ability to monitor their notes and link personal accounts. As of February 1, 2021, management believes development of the internal use software is substantially complete and additional costs related to services that do not significantly increase functionality will be expensed as incurred.

Through December 31, 2020, costs of $157,143 were capitalized. Due to the Company’s recurring losses, management conducted an impairment analysis and concluded there was $0 in impairment expense related to its capitalized software for the three and six months ended June 30, 2021. For the year ended December 31, 2020, there was $157,143 of impairment expense related to its capitalized software.

Note 5. Acquisitions

The Company completed one acquisition ofacquired an investment property from an affiliated entity during the threenine months ended JuneSeptember 30, 2021. This was an asset acquisition from an affiliated entity and has been accounted2021 for an asset acquisition.$3,052,266. The total purchase price ofincluded $3,420,000 of cash paid to the affiliate and was reduced by the excess of cash consideration over the carrying value of $3,052,266 resulted in a differencerecorded by the affiliate of $367,734, which was recorded as a reduction of. The excess increased the member’s deficit in accordance with GAAPon the acquisition date since it was a transaction between entitiesthe transacting companies are under common control. The buildings had a carrying valuenet purchase price was allocated between the estimated fair values of the underlying assets of $2,114,535 of buildings and land had a carrying value of $937,731 of land on the acquisition date (see Note 2)3).

The following unaudited pro-forma information presents the combined results of operations for the three and sixnine months ended JuneSeptember 30, 2021 and for the three and nine months ended September 30, 2020 as if the above acquisition had been completed on January 1, 2020.

 Schedule Of Proforma Revenue And Net (loss) Income

Note 6. Private Placement Secured Demand Notes

Private Placement

The Company has been conducting a private placement ofis offering up to $500,000,000 of secured demand notes (“private placement secured demand notes”) to fund its investmentPrivate Placement Notes dated October 1, 2018. Private Placement Notes are being offered through August 31, 2022 and operational activities. The outstanding private placement secured demand notes are subordinated to the Company’s and its subsidiaries’ future secured bank debt and credit facilities and structurally subordinated to indebtedness or other liabilities of special purpose entity subsidiaries.

Until the time of the registered offering, the private placement secured demand notes will bePortfolio SPEs. The Private Placement Notes are secured by a pledge of Holding’s equity interests in the Portfolio SPEs.SPEs until such time of a registered offering and a guarantee from Holding entered into a guaranty agreement with the Company for the benefit of the noteholders, which shall automatically terminate on the 30-day anniversary of the effectiveness of the registered offering. Effective March 1, 2021, as described below, this offering was amended to allow the continuation of the guaranty and security agreement for as long as the private placement secured demand notes remain outstanding.

Effective March 1, 2021, the Company released Supplement No. 2 to its private placement memorandum amending the Company’s private placement memorandum dated October 1, 2018. The amendment modified the interest rates on private placement secured demand notes and introduced an interest premium program that matches the rewards program associated with the Public Demand Notes (see Note 1).

iCap Vault 1, LLC and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2021

Prior to March 1, 2021, the private placement secured demand notes accrue interest at the rate of 2.00% per annum, based on a 365-day year, compounded daily; provided, however, that if an investor agrees to forego the right to make a demand for payment during the first year after issuance, the interest rate for that year will be 3.00%, and then will revert to the standard 2.00% for following periods. The interest rate may be increased, and subsequently decreased, in the Company’s discretion, provided it does not drop below 2.00% or 3.00% for the first year as applicable.noteholders.

The private placement secured demand notes are sold through a private placement that was extended through August 31, 2022.

The private placement secured demand notes,Private Placement Notes, inclusive of accrued but unpaid interest, can be redeemed, in whole or in part, at any time through a demand repayment. Shouldfor repayment but in no instance will an entire private placement secured demandindividual note not be redeemed through demand payments, any remaining balances have a maturity date extend beyond 15 years following theits issuance date of the private placement secured demand note.

date. The Company will establishestablished two sources of liquidity to address demand payments: first, the Company will set aside minimum reserves of between 5-10%5-10% of the outstanding principal balances in available cash reserves (see Note 1); second, the Company plans to establish accounts with lending sources pursuant to which funds will be advanced to the Company. These lending sources have not been established at present and are not expected to be established until the Company secures additional real estate assets.

The Company released Supplement No. 2 to its private placement memorandum on March 1, 2021 which modified the interest rates on Private Placement Notes and introduced an interest premium program that matches the rewards program associated with the Public Demand Notes. Prior to March 1, 2021, the Private Placement Notes accrued interest at the rate of 2.00% per annum, based on a 365-day year, compounded daily; provided, however, that if an investor agreed to forego the right to make a demand for payment during the first year after issuance, the interest rate for that year will be 3.00%, and then would revert to the standard 2.00% for following periods. The Company was able to increase and subsequently decrease the interest rate at its discretion, provided the rate would not drop below 2.00% or 3.00% for the first year as applicable. In addition, Supplement No. 2 amended the offering to allow Holding’s guarantee to continue for as long as the Private Placement Notes remain outstanding. Originally, the guarantee was to terminate 30 days after an effective registered offering. The amendment also allows the original security agreement and guaranty agreement to remain in place, removed the noteholder’s ability to exchange their notes for registered notes, and amended the private placement memorandum to not terminate upon effectiveness of the registered offering. The Company released Supplement No. 3 to its private placement memorandum on October 27, 2021, which updated the status of the offering, provided descriptions of investments made since Supplement No. 2, added discussions of operating results and transactions, provided administrative additions and restated all the risk factors.

iCap Vault 1, LLC and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2021

The Company is restricted from making distributions to its members when the value of the real estate held at the Company’s subsidiaries is less than 70% of the value of the outstanding private placement secured demand notes.Private Placement Notes. Tax distributions and other distributions that may be legally required are exempted from this condition.

AsThe outstanding Private Placement Notes payable, inclusive of Juneaccrued but unpaid interest, totaled $17,620,464 and $2,242,613, at September 30, 2021 and December 31, 2020, the outstanding private placement secured demand notes payable totaled $14,714,310 and $2,242,613, respectively. Approximately 2125% and 70%, respectively, of these private placement secured demand notesPrivate Placement Notes are held by foreign investorsinvestors.

The Company sold additional Private Placement Notes of $5,666,740 and redeemed $5,128,451 as of balance sheet date through November 10, 2021.

Publicly Registered Debt

The Company is offering up to $500,000,000 of Public Demand Notes on a continuous basis pursuant to a registration filed with the SEC, which is effective November 24, 2020, as amended May 5, 2021. The Public Demand Notes accrue interest at a rate per annum equal to the Average Savings Account Rate as published by the Federal Deposit Insurance Company (“FDIC”), plus2% (“Floating Rate”). In addition, noteholders are eligible to accrue one or more interest rate premiums (“Interest Rate Premiums”). Both the Floating Rate and Interest Rate Premiums accrue monthly without compounding unless the noteholder opts to reinvest interest into additional Public Demand Notes, in which case, interest will accrue and compound daily. The Public Demand Notes are secured by a guarantee from Holding 1 for the benefit of the noteholders and the membership interest in Holding 1, which will hold interests in real estate and real estate-based financial instruments. There are no restrictions on the guarantee. Currently, Holding I is limited in its ability to satisfy the guarantee itself as it has not commenced operations and has no assets. Public Demand Notes will be subordinate to any security interest in favor of lenders of credit facilities.

The Floating Rate resets quarterly on January 1, April 1, July 1, and October 1 of each year based on the Average Savings Account Rate posted by the FDIC on December 15, March 15, June 15, and September 15, respectively, of the prior month. “Average Savings Account Rate” means the “national rate” for savings account products, which is the average of rates paid by all insured depository institutions and credit unions for which data is available, with rates weighted by each institution’s share of domestic deposits, as calculated by the FDIC.

Interest Rate Premiums are available for noteholders whose Public Demand Note features meet certain criteria. The features and criteria are as follows below:

Minimum principal amounts of $10,000, $25,000, $50,000 or $100,000 of Public Demand Notes, earn additional per annum interest of 0.10%, 0.25%, 0.50% and 1.00%, respectively.

Noteholders that waive the right to demand repayment of the Public Demand Notes for 12, 18 or 24 months will earn additional per annum interest during those months of 1.00%, 1.50%, and 2.00%, respectively.

Noteholders that are clients of Registered Investment Advisors (“RIA”) with whom the Company has a selling agreement and have made a direct investment through the RIA, will earn additional per annum interest of 1.00% for as long as the selling agreement is effective. For purposes of determining the term of this premium, reinvested interest shall not be considered a direct investment by a noteholder.

The Public Demand Notes are subject to repayment upon the earlier of demand by the noteholder or redemption by the Company. Public Demand Notes have no stated maturity.

The outstanding Public Demand Notes payable, inclusive of accrued but unpaid interest, totaled $1,580,344 and $0, at September 30, 2021 and December 31, 2020, respectively. Approximately 71% and 0%, respectively, of these Public Demand Notes are held by foreign investors.

The Company sold additional Public Demand Notes of $1,303,244 and redeemed $338,510 as of balance sheet date through November 10, 2021.

Note 7. Member’s Deficit

On May 7, 2021, iCap Vault’s, LLC balance of membership interest was reduced (increased member deficit) by $367,734 for the excess of purchase price over carrying value of investment properties purchased by the Company from an entity under common control.

On September 30, 2020, iCap Vault, LLC made an additional capital contribution of $1,535,000 into the Company. The contribution consisted of $1,150,000 in cash and non-cash settlement of related party debt of $385,000. iCap Enterprises, Inc., the sole member of iCap Vault, LLC, assumed debt of the Company due to iCap Investments, LLC, an affiliate of the Company and iCap Vault, LLC, in the amount of $385,000. This assumption of debt constitutedcreated a part of the $1,535,000 capital contribution to iCap Vault, LLC from iCap Enterprises, Inc.; concomitantly, iCap Vault, LLC made athe $1,535,000 capital contribution to the Company. No additional membership interests were issued by the Company to iCap Vault, LLC in connection with this additional capital contribution.

iCap Vault 1, LLC and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

For the SixNine Months Ended JuneSeptember 30, 2021

Note 8. Commitments and Contingencies

Pursuant to the Securities Act of 1933 and applicable state blue sky law, in June 2020, theThe Company entered into a Broker Dealer Agreement with aan independent broker-dealer effective June 30, 2020, as amended on September 18, 2020 and again on August 9, 2021, pursuant2021. Pursuant to whichthis agreement, the broker-dealer agreed to be the Company’s broker-dealer of record in thirteen states including Texas, Florida, Arizona, Virginia, Utah, Maryland, Oklahoma, Nebraska, Delaware, West Virginia, Montana, North Carolina and Arkansas as well as up to eight additional states to be determined from time to time during the term of the registered offering. As compensation for these broker dealer services, the broker-dealer will beis paid an aggregatea monthly fee of $8,500per month for the thirteen states plus an additional $300per month for each additional state during the term of the registered offering. The broker-dealer services offered in this agreement continue to the earlier of, the date of which the registration statement ceases to be effective, the date of which the registration has been fully subscribed, or the agreement has been unilaterally terminated by either party with a 30-day notice.

On July 23, 2020,

The Company is party to selling agreements with various distributors of the Company entered a selling agreement with Somerset Securities, Inc. (“Somerset”) for the private placement secured demand notes. In the event Somerset successfully sells and the Company agrees to issue private placement secured demand notes, Somerset will bePrivate Placement Notes. Distributors of Private Placement Notes are compensated 1%1% per annum on the average outstanding balance of those private placement secured demand notes. There is no other commitment to Somerset contemplated in the selling agreement.

On May 11, 2021,The Company entered into a Placement Agent Agreement for Foreign Marketer with Xiaojia Liao (the “Foreign Marketer”) on September 15, 2021. The terms of this agreement allow the Foreign Marketer to effect sales of Private Placement Notes to non-US persons on a best-efforts basis. Offers and sales of the Private Placement Notes may only be made in accordance with the terms of the offering, as set forth in the private placement memorandum, and in compliance with all U.S. laws and regulations including, but not limited to, Regulation S under the Securities Act of 1933, as amended. In consideration for this service, the Company compensates the Foreign Marketer quarterly at a rate of 1% per annum of the average daily balance of the aggregate principal amount of the Private Placement Notes it placed.

The Company entered into a property management agreement with Windermere Property Management on May 11, 2021 to manage, lease and operate the real estate property acquired in the three months ended June 30, 2021.certain investment properties. The agreement will remain in effect for twelve months and will automatically extend thereafter on a monthly basis. The management fee is the greater of $100per month per unit or 7% of monthly gross income and theincome. The Company is also responsible for paying leasing and sale commissions in the event thatif they occur.

Note 9.Subsequent Events

Additional Private Placement Secured Demand Notes Sold and Redeemed

As of August 13, 2021, the Company has sold additional private placement secured demand notes of $4,607,804 and redeemed private placement secured demand notes worth $3,474,835.

Public Demand Notes Sold

On July 27, 2021, the Company sold its first public placement secured demand note of $457,854. As of August 13, 2021, the total amount of the note plus accrued interest is $458,507.

Affiliated Notes Receivable

On July 12, 2021, Holding distributed the remaining $500,000 balance of a total $2,000,000 loan to individuals who are minority co-owners of an affiliated entity. As of August 13, 2021, the total amount of the note outstanding net of interest reserve is $1,886,925.

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

The following discussion of the financial condition and results of operations of iCap Vault 1, LLC and its subsidiaries, including, but not limited to, Vault Holding, LLC and Vault Holding 1, LLC (collectively, the “Company” or “iCap Vault”), should be read in conjunction with the consolidated financial statements and the notes to those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us,” “we,” “our,” and similar terms refer to the Company. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors section of our annual report on Form 10-K for the fiscal year ended December 31, 2020, filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2021, as the same may be updated from time to time. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

iCap Vault 1, LLC, the issuer of the Public Demand Notes (as hereinafter defined), was formed as a Delaware limited liability company on July 30, 2018. Vault Holding, LLC (“Holding”), a wholly owned subsidiary of iCap Vault 1, LLC, was formed as a Delaware limited liability company on September 27, 2018. Vault Holding 1, LLC (“Holding 1”), a wholly owned subsidiary of iCap Vault 1, LLC and the guarantor of the public placement demand notes (“Public Demand Notes,Notes”), was formed as a Delaware limited liability company on April 28, 2020. The Company has commenced only limited operations, primarily focused on organizational matters in connection with the Registered Offering (as hereinafter defined). Each of Holding and Holding 1 was formed with the intention of owning one or more standalone subsidiaries which itself, whether directly or through special purpose entities, will hold income-producing real estate and financial instruments related to real estate in selected metropolitan statistical areas in the U.S. (each, a “Portfolio Investment”) with the objective of generating a rate of return from the Portfolio Investments that is greater than the costs necessary to purchase, finance and service them. Additionally, each of Holding and Holding 1 provides guarantiesguarantees to secured demand noteholders of the Company. Holding provides such a guarantyguarantee to holders of private placement secured demand notes.notes (“Private Placement Notes”). Holding 1 shall provideprovides a guarantyguarantee to holders of the Public Demand Notes the Company intends to offer through the Registered Offering. To date, Holding has made threefive loans, one loan in the amount of $3,448,618, provided by the Company as an investment in Holding, to Colpitts Sunset LLC (“Colpitts”), an affiliated entity, in exchange for a promissory note bearing 10% interest and secured by a deed of trust on property owned by Colpitts, one loan in the amount of $2,000,000 to individuals who are minority co-owners of an affiliated entity, provided by the Company as an investment in Holding, in exchange for a promissory note bearing 8% interest and secured by a deed of trust on property owned by the borrower, and anotherone loan in the amount of $1,200,000, provided by the Company as an investment in Holding, to 725 Broadway, LLC (“725 Broadway”), an affiliated entity, in exchange for a promissory note bearing 10% interest and secured by a deed of trust on property owned by 725 Broadway.Broadway, and another in the amount of $2,000,000, provided by the Company as an investment in Holding, to CS2 Real Estate Development, LLC (“CS2”), an affiliated entity, in exchange for a promissory note bearing 12% interest and secured by a deed of trust on property owned by CS2. Holding purchased a note receivable that is secured by a deed of trust from iCap Brislawn, LLC, an entity that is owned by iCap Northwest Opportunity Income Fund LLC, an affiliated entity, on October 15, 2021 for $1,069,895. The note is receivable from an unrelated third party, bears interest at 10% per annum and matures December 26, 2021.

The Company invested $3,430,766 into Holding, which subsequently invested $3,430,766 into VH Willows Townhomes, LLC, a wholly owned subsidiary of Holding. VH Willows Townhomes, LLC purchased six townhomes totaling $3,420,000 from iCap Investments, LLC, an affiliated entity. The purchase was made in two equal installments, one on April 23, 2021, for $1,710,000 and another on May 7, 2021 for $1,710,000.

Holding 1 has not commenced operations and has no assets and liabilities. Holding 1 does not currently own any Portfolio Investments.

iCap Vault Management, LLC, the manager (“Manager”) of the Company, was formed as a Delaware limited liability company on July 31, 2018 and has since been only engaged in limited operations. We intend to generate revenues in the following ways from our properties: from net rental income on our properties and from price appreciation of the properties upon their disposition. For the financial instruments secured by real estate that we invest in, we intend to generate revenues from the interest income received on such financial instruments.

We have no plans to change our business activities or to combine with another business, and we are not aware of any events or circumstances that might cause our plans to change. Neither management of the Company, nor the sole member of the Company, have any plans or arrangements to enter into a change of control, business combination or similar transaction or to change management.

Portfolio Investments may be held directly by the Company or held in a standalone wholly owned limited liability company (each, a “Portfolio SPE”) and one or more Portfolio SPEs may be held by a holding company that is wholly owned by the Company, rather than by the Company directly. The rental and interest income earned allows us to provide a rate of return to investors who acquire the Public Demand Notes. The Public Demand Notes will be secured by the membership interests in Holding 1. The Company’s business plan targets primarily income-producing properties and seeks to acquire the properties debt-free, and the Company expects to generate income from the financial instruments that it may hold. The Portfolio Investments will serve as collateral for one or more credit facilities entered into by the Company or an affiliate of us.

The locations of the properties are determined by selecting metropolitan statistical areas upon consultation with market professionals, such as real estate analytics companies, title and escrow companies, real estate brokerages, land-use specialists, licensed surveyors and civil engineers, and in-depth internal review of economic data. The Company may adjust its investment criteria to accommodate changing market conditions but will generally seek Portfolio Investments in attractive locations with strong rental income and a likelihood of long-term appreciation of value.

For the three months ended JuneSeptember 30, 2021 and 2020, we generated interest income from related party promissory notes of $104,991$154,993 and $0, respectively, rental income of $33,870$45,830 and $0, respectively, and reported a net loss of $334,236$321,156 and $212,966.$315,771. For the sixnine months ended JuneSeptember 30, 2021 and 2020, we generated interest income from related party promissory notes of $145,084$300,077 and $0, respectively, rental income of $33,870$79,700 and $0, respectively, and reported a net loss of $627,461$948,617 and $448,076,$763,847, respectively. For the sixnine months ended JuneSeptember 30, 2021 and 2020, we had cash flow used in operating activities of $555,940$891,376 and $350,164,$803,414, respectively. As of JuneSeptember 30, 2021, we had member’s deficit of $1,137,787.$1,458,943. The capital to be raised in the Registered Offering has been budgeted to cover the costs associated with beginning to operate our company, marketing expense, and acquisition related costs. We intend to use the majority of the proceeds from the Registered Offering for the acquisition of Portfolio Investments. However, closing and other acquisition related costs such as title insurance, professional fees and taxes will likely require cash. We do not have the ability to quantify any of the expenses as they will all depend on size of deal, price, and place versus procuring new financing, due diligence performed (such as appraisal, environmental, property condition reports), legal and accounting, etc. There is no way to predict or otherwise detail the expenses.

Recent Financings

Private Placements during 2018 – Notes

During the period from July 30, 2018 (inception) through December 31, 2018, we issued $370,869 aggregate principal amount of 2% Secured DemandPrivate Placement Notes (“2018 Private Placement Notes”) to accredited investors in a private placement under Rule 506(c) of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”).

Private Placements during 2019 – Notes

During the year ended December 31, 2019, we issued $13,638,437 aggregate principal amount of 2% Secured DemandPrivate Placement Notes (“2019 Private Placement Notes”) to accredited investors in a private placement under Rule 506(c) of Regulation D of the Securities Act.

Private Placements during 2020 – Notes

During the year ended December 31, 2020, we issued $8,789,282 aggregate principal amount of 2% Secured DemandPrivate Placement Notes (“2020 Private Placement Notes”) to accredited investors in a private placement under Rule 506(c) of Regulation D of the Securities Act.

Registered Public Offering

We have registered a public offering (“Registered Offering”) of up to $500,000,000 aggregate principal amount of our Variable Denomination Floating Rate Demand Notes, marketed and sold as “Demand Notes” (the “Public Demand Notes”), under an effective Registration Statement (File No. 333-236458) (“Registration Statement”), to fund our investment and operational activities. On May 5, 2021, we have received a FINRA no objection letter. As of today,November 10, 2021, we have engaged in the offer and sale of one Public Demand NoteNotes under the Registration Statement of $457,854. We expect to use the$5,079,548. The net proceeds from the Registered Offering towill pay for our operating costs, including on-going legal and accounting fees, finance costs associated with acquiring primarily multifamily properties and single-family residences, and costs associated with broker price opinions, title reports and recording fees.

Recent Developments

COVID-19

The Company’s operations may be affected by the ongoing outbreak of the coronavirus disease 2019 (COVID-19) which in March 2020, was declared a pandemic by the World Health Organization. The ultimate disruption which may be caused by the outbreak is uncertain; however, it may result in a material adverse impact on the Company’s financial position, operations and cash flows. Possible areas that may be affected include, but are not limited to, disruption to the Company’s ability to make investments through its subsidiaries, negative impact to revenue related to real estate holdings, negative impact on its workforce, unavailability of professional services and other resources, disruption to credit markets necessary for success of the Company’s business model, and the decline in value of assets held by the Company’s subsidiaries.

The supply of housing inventory in certain geographical areas may become further restricted through a shutdown of construction activity. Additionally, a moratorium on real estate transactions may be imposed in reaction to the pandemic. These housing market impacts may limit the Company’s ability to acquire or dispose of real estate assets.

General employment in the region may continue to suffer as the pandemic continues. Some local governments have proposed rent or eviction moratoria, or similar programs of rent abatement, in response to the sudden upturn in unemployment. Any of these factors could cause a future decline in the market rate for residential rentals negatively impacting the Company’s income and cash flow from its real estate holdings.

Employees of affiliated companies could be medically or mentally affected by the pandemic and may be required to continue to work remotely, particularly given the potential for complete or partial school closures. This situation could cause ofa reduction in productivity or the inability to complete critical tasks for the Company.

As of the date of this filing, Management believes the Company has not experienced significant impact related to the COVID-19 pandemic.

Private Placements during 2021 - Notes

We are currently conducting a private placement of up to $500,000,000 to fund our investment and operational activities in a transaction that is exempt from the registration requirements of the Securities Act pursuant to Regulation 506(c) and Regulation S of Secured Demand Notes pursuant to which we have issued $27,214,852$47,248,016 during the period from January 1, 2021 through August 13,November 10, 2021 (“Current Private Placement Notes”; together with 2018 Private Placement Notes, 2019 Private Placement Notes and 2020 Private Placement Notes, collectively referred to as “Private Placement Notes”).

As of August 13, 2021, weWe have repaid the noteholders of the Private Placement Notes as a return$31,564,996 of capital $13,724,407 of the cumulative principal and accrued interest of Private Placement Notes. As of August 13, 2021, we estimate thethrough November 10, 2021. The value of the aggregate outstanding principal amount and accrued interest estimated to be approximately $15,902,848.

$18,217,952 at November 10, 2021.

On February 5, 2021, Chris Christensen, the Chief Executive Officer of the Company, formed iCap International Investments, LLC, a Washington limited liability company. Mr. Christensen holds a 51% ownership interest in the entity, and he is also the manager. iCap International Investments, LLC signed a subscription agreement on February 8, 2021, and invested $10.00 in the Private Placement Notes. iCap International Investments, LLC subsequently made additional investments of $11,161,108,$16,201,078, and redeemed investments of $1,200,000,$6,255,045 and, as of August 13,November 10, 2021, the total amount of outstanding principal amount and accrued interest of Private Placement Notes held by iCap International Investments, LLC was $10,060,754.$10,115,725.

Amended Private Placement Memorandum

Effective March 1,October 27, 2021, the Company released Supplement No. 23 to its private placement memorandum amending the Company’sCompany private placement memorandum dated October 1, 2018.2018 and Supplement No. 2 effective March 1, 2021. Supplement No. 3 was primarily administrative changes. The second amendment modifiedappointed the interest rates on private placement secured demand notesBroker-Dealer to serve as the broker-dealer of record in thirteen states including Texas, Florida, Arizona, Virginia, Utah, Maryland, Oklahoma, Nebraska, Delaware, West Virginia, Montana, North Carolina and introduced an interest premium program that matchesArkansas as well as up to eight additional states to be determined from time to time during the rewards program associated with the Public Demand Notes (see Note 1 to the unaudited condensed consolidated financial statements). The amendment also allows the original security agreement and guaranty agreement to remain in place, removed the noteholder’s ability to exchange their notes for registered notes and amended the private placement memorandum to not terminate upon effectivenessterm of the registered offering. As compensation for these services, the broker-dealer is paid a monthly fee of $8,500 for the thirteen states plus an additional $300 per month for each additional state during the term of the registered offering. The broker-dealer services offered in this agreement continue to the earlier of, the date of registration statement ceases to be effective, the date of which the registration has been fully subscribed, or the agreement has been unilaterally terminated by either party with a 30-day notice.

Capital Contribution

In September 2020, iCap Vault, LLC received a $1,535,000 capital contribution from its sole member, iCap Enterprises, Inc., a $1,535,000 capital contributionon September 30, 2020 in the form of $1,150,000 in cash and an assumption by iCap Enterprises, Inc. of iCap Vault 1, LLC’s indebtedness to an affiliate (iCap Investments, LLC) of $385,000. Concurrently, iCap Vault, LLC, the sole member of iCap Vault 1, LLC, made a $1,535,000 capital contribution to iCap Vault 1, LLC.

Affiliated Notes Receivable

Effective October 13, 2020, Holding madeentered into a loan toagreement with Colpitts Sunset, LLC, an affiliated entity, in the amount of $864,032,on October 13, 2020 in exchange for a promissory note secured by a deed of trust on property owned by Colpitts Sunset, LLC and bearingLLC. The promissory note bears interest ofat 10% per annum. Effectiveannum and was amended to increase the maximum available under the facility and its maturity date on January 14, 2021 Holding amended and restated its promissory note from Colpitts Sunset, LLC extendingagain on April 15, 2021. The January 14, 2021 amendment extended the maturity date to June 30, 2021 and increasingincreased the total available principal balance onfrom the notefacility to a maximum of $1,500,000 of the note. On January 14, 2021, an additional advance of $350,000 was made under the agreement. OnThe April 15, 2021 Holding amended and restated its promissory note from Colpitts Sunset, LLC extendingamendment extended the maturity date to April 1, 2023 and increasingincreased the total available principal balance onfrom the notefacility to a maximum$3,500,000 of $3,500,000 (see Note 1 to the unaudited condensed consolidated financial statements). Thenote. All the available principal balance of $3,448,618 and $864,032 was outstandingunder this facility, as amended, has been advanced as of JuneSeptember 30, 2021. Outstanding principal plus accrued interest from this facility is $3,653,562 and $871,232 on September 30, 2021 and December 31, 2020, respectively. Interest income of $75,241 and $0 was earned for the three months ended June 30, 2021 and 2020, respectively and $111,529 and $0 for the six months ended June 30, 2021 and 2020, respectively. The full amount of the note plus interest earned and accrued of $118,729 and $7,200 is included in the affiliated notes receivable on the unaudited condensed consolidated balance sheetssheets. Accrued interest on this facility as of JuneSeptember 30, 2021 and December 31, 2020, respectively.respectively is $204,944 and $7,200. The Company recognized interest income of $86,215 and $0 for the three months ended September 30, 2021 and 2020, respectively, and $197,744 and $0 for the nine months ended September 30, 2021 and 2020, respectively on this note. As of November 10, 2021, outstanding principal plus accrued interest is $3,691,880.

EffectiveHolding entered into a $2,000,000 loan agreement on April 23, 2021 Holding made a $2,000,000 loan towith individuals who are minority co-owners of an affiliated entity, provided by the Company as an investment in Holding, in exchange for a promissory note bearing 8% interest and secured by a deed of trust on property owned by the borrower. On April 23,Through September 30, 2021, $1,000,000$2,000,000 of the note was distributed, and $150,000 of the principal proceeds distributedwhich $92,000 was retained by the Company as an interest reserve. An additional $500,000 of the note was distributed on May 24, 2021. Interest income of $19,222 and $0 was earned for three months ended June 30, 2021 and 2020, respectively, and $19,222 and $0 for the six months ended June 30, 2021 and 2020, respectively. The remaining portion of the loan is payable at the Company’s discretion, upon written request of the borrower delivered to the Company on or before October 22, 2021. As of JuneSeptember 30, 2021, the total amount of the note outstanding net of the interest reserve is $1,369,222, which consists$1,908,000 and is included in affiliated notes receivable on the unaudited condensed consolidated balance sheets. Interest income of $1,500,000 principal$38,778 and $19,222 accrued interest offset by $150,000 of interest reserve. Subsequent to June$0 was earned for the three months ended September 30, 2021 and 2020, respectively, and $58,000 and $0 for the remaining $500,000 of the original note was distributed to the individuals. As of August 13,nine months ended September 30, 2021 theand 2020, respectively. The total amount of the note outstanding net of interest reserve is $1,886,925.$1,925,778 on November 10, 2021.

Effective May 17, 2021, Holding madeentered into a $1,200,000 loan toagreement with 725 Broadway, LLC, an affiliated entity on May 17, 2021, in exchange for a promissory note secured by a deed of trust on property owned by 725 Broadway, LLC and bearingLLC. The note bears interest at 10% per annum. Interestannum and matures December 1, 2022. Outstanding principal plus accrued interest from this facility is $1,110,345 and $0 on September 30, 2021 and December 31, 2020, respectively and is included in affiliated notes receivable on the unaudited condensed consolidated balance sheets. There is $133,989 available to be drawn on this facility and $1,066,011 outstanding principal as of September 30, 2021. The Company recognized interest income of $14,333$30,000 and $0 was earned for the three and six months ended JuneSeptember 30, 2021 and 2020, respectively.respectively, and $44,334 and $0 for the nine months ended September 30, 2021 and 2020, respectively on this note. The total amount of the note outstanding is $1,133,678 on November 10, 2021.

Holding entered a $2,000,000 loan agreement with CS2 Real Estate Development, LLC (“CS2”), an affiliated entity on September 30, 2021, in exchange for a promissory note secured by a deed of trust on property owned by CS2. The note bears interest at 12% per annum and matures September 1, 2022 which can be extended by written request from CS2, for up to two additional three month periods. Funds were not disbursed under this promissory note until October 4, 2021. As of June 30,November 10, 2021, $1,200,000the total amount of the principal balance and $14,333 ofplus accrued interest offsetoutstanding is $2,024,667.

Holding purchased a note receivable and deed of trust from iCap Brislawn, LLC, an entity that is owned by $133,989 of construction holdback was outstanding.iCap Northwest Opportunity Income Fund LLC, an affiliated entity, on October 15, 2021 for $1,069,895. The note is receivable from an unrelated third party, bears interest at 10% per annum and matures December 26, 2021.

Affiliated Real Estate Purchases

The Company invested $3,430,766 into Holding, which subsequently invested $3,430,766 into VH Willows Townhomes, LLC, a wholly owned subsidiary of Holding. VH Willows Townhomes, LLC purchased six townhomes totaling $3,420,000 from iCap Investments, LLC, an affiliated entity. The purchases were made in two equal installments, one on April 23, 2021 for $1,710,000 and another on May 7, 2021 for $1,710,000. The total purchase price of $3,420,000 andexceeded iCap Investments, LLC’s carrying value of $3,052,266 resulted in a difference ofby $367,734 whichon the acquisition date. The excess was recorded as a reduction ofan increase to member’s deficit in accordance with GAAP since itthis transaction was a transaction between entities under common control. The buildings had a balance of $2,114,535 as of the acquisition date and will be amortized straight-line over their remaining useful lives of 463 to 464 months.

Plan of Operations

We believe we will need at least $500,000 to provide working capital and $500,000 for professional fees for the next 12 months. We will utilize from the initial $1,000,000 raised in the Registered Offering for such required amounts for working capital ($500,000) and professional fees ($500,000) for the next 12 months.

We hope to reach the following milestones in the next 12 months:

Acquisitions will depend highly on our funds, the availability of those funds, availability of assets that meet our investment criteria and the size of the assets to be acquired. There can be no assurance that we will be able to successfully complete such acquisition.acquisitions.

RESULTS OF OPERATIONS

Results of Operations for the Three Months Ended JuneSeptember 30, 2021 Compared to the Three Months Ended JuneSeptember 30, 2020

Revenue

Interest income for the three months ended JuneSeptember 30, 2021, and 2020 was $104,991$154,993 and $0, respectively, which is from related party promissory notes. The increase in interest income was primarily the result of the note issued to Colpitts Sunset, LLC in October 2020 and two additional notes issued to minority co-owners of an affiliate and to 725 Broadway, LLC in the three months ended June 30, 2021.April and May 2021, respectively. Rental income for the three months ended JuneSeptember 30, 2021, and 2020 was $33,870$45,830 and $0, respectively. The increase is in rental income was due to the acquisition of real estateinvestment properties during the three months ended June 30, 2021.

Operating Expenses

Operating expenses for the three months ended JuneSeptember 30, 2021 were $381,267$399,171 as compared to $208,453$308,633 for the three months ended JuneSeptember 30, 2020. The increase in expenses is primarily due to increased costs related to professional services associated with the Registered Offering.Offering and management fees associated with the increase in issuances of the Private Placement Notes and Public Demand Notes since the third quarter of 2020.

Other Expense

Interest expense for the three months ended JuneSeptember 30, 2021 and 2020 was $92,000$122,940 and $4,513,$7,138, respectively, in which $58,469$72,292 and $0, respectively, was related to related party private placement secured demand notes.Private Placement Notes. The increase in interest expenses was driven by an increase in Public Demand Notes and Private Placement Notes.Notes sales since the third quarter of 2020.

Net Loss

Net loss for the three months ended JuneSeptember 30, 2021 was $334,236$321,156 as compared to a net loss of $212,966$315,771 for the three months ended JuneSeptember 30, 2020. The increase in net loss was primarily due to the increase in operating expenses and interest expense, offset by andemand notes sales which drove the increase in interest expense and professional services associated with the Registered Offering, resulting in increased operating expenses. This was offset by the increase in rental income.income related to the VH Willows acquisition during the second quarter of 2021 and increase in interest income due to the two additional notes receivable issued since the third quarter of 2020.

Results of Operations for the SixNine Months Ended JuneSeptember 30, 2021 Compared to the SixNine Months Ended JuneSeptember 30, 2020

Revenue

Interest income for the sixnine months ended JuneSeptember 30, 2021 and 2020 was $145,084$300,077 and $0, respectively, which is from related party promissory notes. The increase in interest income was primarily the result of three notes issued insince the six months ended June 30, 2021.third quarter of 2020. Rental income for the sixnine months ended JuneSeptember 30, 2021 and 2020 was $33,870$79,700 and $0, respectively. The increase in rental income was due to the acquisition of investment property duringproperties since the six months ended June 30, 2021.third quarter of 2020.

Operating Expenses

Operating expenses for the sixnine months ended JuneSeptember 30, 2021 were $692,364$1,091,535 as compared to $438,409$747,042 for the sixnine months ended JuneSeptember 30, 2020. The increase in expenses is primarily due to increased costs related to professional services associated with the Registered Offering.Offering and management fees associated with the increase in issuances of the Private Placement Notes and Public Demand Notes since the third quarter of 2020.

Other Expense

Interest expense for the sixnine months ended JuneSeptember 30, 2021 and 2020 was $114,221$237,161 and $9,667,$16,805, respectively, in which $63,590$135,882 and $0, respectively, was related to related party private placement secured demand notes.Private Placement Notes. The increase in interest expenses was driven by an increase in Public Demand Notes and Private Placement Notes.Notes sales.

Net Loss

Net loss for the sixnine months ended JuneSeptember 30, 2021 was $627,461$948,617 as compared to a net loss of $448,076$763,847 for the sixnine months ended JuneSeptember 30, 2020. The increase in net loss was primarily due to the increase in operating expenses and interest expense, offset by andemand notes issued which drove the increase in interest expense and professional services associated with the Registered Offering, resulting in increased operating expenses. This was offset by the increase in rental income.income related to the VH Willows acquisition during the second quarter of 2021 and increase in interest income due to the three notes receivable issued since the third quarter of 2020.

LIQUIDITY AND CAPITAL RESOURCES

The following table sets forth a summary of our net cash flows for the periods indicated:

The Company had cash used in operating activities of $555,940$891,376 for the sixnine months ended JuneSeptember 30, 2021, as compared to cash used in operating activities of $350,164$803,414 for the sixnine months ended JuneSeptember 30, 2020. The increase in cash used in operating activities is primarily the result of increases in net loss.loss and interest earned on related party notes receivable.

The Company had used cash in investing activities of $8,269,008$8,751,447 for the sixnine months ended JuneSeptember 30, 2021, as compared to cash used in investing activities of $20,171$135,826 for the sixnine months ended JuneSeptember 30, 2020. Net cash used in investing activities for the sixnine months ended JuneSeptember 30, 2021 consisted of the issuance of related party notes of $5,014,930,$5,500,597, purchase of investment propertyproperties of $3,420,000 and proceeds from repayment of other related party receivables of $165,922.$169,150. Net cash used in investing activities for the sixnine months ended JuneSeptember 30, 2020 consisted of development of internal-use software of $27,228$142,883 and collections of related party receivables of $7,057.

During the sixnine months ended JuneSeptember 30, 2021, the Company received $22,607,048$41,581,276 of proceeds from the issuance of private placement secured demand notesPrivate Placement Notes and repaid $10,249,573$26,436,545 of private placement secured demand notes.Private Placement Notes and received $3,776,304 from the issuance of Public Demand Notes and repaid $2,200,000 of Public Demand Notes. During the sixnine months ended JuneSeptember 30, 2020, the Company received $2,821,946$5,977,264 of proceeds from the issuance of private placement secured demand notesPrivate Placement Notes and repaid $2,712,103$5,514,127 of private placement secured demand notes.Private Placement Notes and received $0 from the issuance of Public Demand Notes and repaid $0 of Public Demand Notes.

Liquidity and Going Concern

In September 2020, iCap Vault, LLC received from its sole member, iCap Enterprises, a $1,535,000 capital contribution in the form of $1,150,000 in cash and an assumption by iCap Enterprises of iCap Vault 1, LLC’s indebtedness to an affiliate (iCap Investments, LLC) of $385,000. Concurrently, iCap Vault, LLC, the sole member of iCap Vault 1, LLC, made a $1,535,000 capital contribution to iCap Vault 1, LLC, the issuer of the demand notes in the Registered Offering. In addition, iCap Vault, LLC intends to make additional capital contributions in the future to iCap Vault 1, LLC as needed to increase the net worth in the Company. These additional contributions, if necessary, would be derived from debt offerings from entities under common control. iCap Vault 1, LLC expects its operating expenses related to its Registered Offering to decrease significantly in the near future.term. To date, the majority of iCap Vault 1, LLC’s expenses have been in connection with its Registered Offering, including, without limitation, legal, accounting, auditing, printing, blue-sky compliance and other expenses. As of the date of this Quarterly Report on Form 10-Q, iCap Vault 1, LLC has paid all required SEC, FINRA and blue-sky filing fees, and has therefore already expended the majority of the funds required to commence its Registered Offering.Offering including required SEC, FINRA and blue-sky filing fees. On-going operating expenses will be primarily focused on asset acquisition, asset monetization, and asset disposition.

We are currently conducting a private placement of up to $500,000,000 to fund our investment and operational activities in a transaction that is exempt from the registration requirements of the Securities Act pursuant to Regulation 506(c) and Regulation S of the Current Private Placement Notes, pursuant to which we have issued $22,607,048$41,581,276 during the period from January 1, 2021 through JuneSeptember 30, 2021. As of June 30, 2021, weWe have repaid the noteholders of the Private Placement Notes as a return$47,070,169 of capital $30,883,196 of the principal and accrued interest of Private Placement Notes.through September 30, 2021. As of JuneSeptember 30, 2021, we estimate the value of the aggregate outstanding principal amount and accrued interest estimatedis $17,620,464.

We are also currently conducting a public placement of up to be $14,714,310.$500,000,000 pursuant to a registration filed with the SEC, which is effective November 24, 2020, as amended May 5, 2021, to fund our investment and operational activities. A total of $3,776,304 of Public Demand Notes have been issued during the period from January 1, 2021 through September 30, 2021. We have repaid the noteholders of the Public Demand Notes of $2,200,000 of principal and accrued interest of through September 30, 2021. As of September 30, 2021, the value of the aggregate outstanding principal amount and accrued interest is $1,580,344.

In its audit report dated March 31, 2021, our independent registered public accounting firm raised substantial doubt regarding our ability to continue as a going concern. If the Company is not successful in raising sufficient capital, or if it does not have access to sufficient credit from outside parties or related parties, it may have to delay or reduce expenses, or curtail operations, due to the fact thatsince its current cash and capital resources are not sufficient to meet its needs for the 12 months following the date of this filing. The accompanying unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that could result should the Company not continue as a going concern.

Assets

At JuneSeptember 30, 2021 and December 31, 2020, we had total assets of $13,730,945$17,894,416 and $2,154,789, respectively. Assets consist primarily of the cash accounts held by the Company, inclusive of $1,471,431$1,762,046 and $224,261 of restricted cash on JuneSeptember 30, 2021 and December 31, 2020, respectively, and investment property of $3,042,983$3,029,307 and $0 as of JuneSeptember 30, 2021 and December 31, 2020, respectively. In addition, the Company holds promissory notes with affiliated entities, inclusive of interest receivable, totaling $6,016,914$6,671,906 and $871,232 as of JuneSeptember 30, 2021 and December 31, 2020, respectively.

Liabilities

At JuneSeptember 30, 2021 and December 31, 2020, we had total liabilities of $14,868,732$19,353,359 and $2,297,381, respectively. The increase was primarily due to a net increase in Private Placement Notes sales of $12,471,697.$15,377,851 and net increase in Public Demand Notes of $1,580,344.

Off-Balance Sheet Arrangements

As of June 30, 2021, weWe did not have any off-balance sheet arrangements as of September 30, 2021 that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

CRITICAL ACCOUNTING POLICIES

Management believes the estimates and judgments most critical to the preparation of our unaudited condensed consolidated financial statements and to the understanding of our reported financial results include those made in connection with impairment of notes receivable and impairment of definite-livedour tangible and intangible assets as well as evaluatingincluding notes receivable, investment properties and finite-lived intangible assets and our evaluation of whether the Company’s ability toCompany can continue as a going concern. Management evaluates our policies and assumptions on an ongoing basis.

Impairment

Management routinely reviews notes receivable for impairment and provides an allowance for credit losses if all or a portion of a note is determined to be uncollectible. Notes are charged off to the allowance for credit losses when the contractual amount is no longer realizable.

Management evaluates investment properties for impairment when conditions exist which may indicate that it is probable that the sum of expected future cash flows (on an undiscounted basis without interest) from that investment property is less than the carrying values under its historical net cost basis. When estimating expected future cash flows, management considers factors such as future operating income, trends and prospects as well as the effects of leasing demand, competition and other pertinent factors. Upon determination that there is a permanent impairment, the carrying values of the applicable investment properties are reduced to their relative fair values. For investment properties to be disposed of, an impairment loss is recognized when the fair values, less the estimated cost to sell, is less than the carrying amount of the investment property measured at the time there is a commitment to sell the property and/or it is actively being marketed for sale. A property to be disposed of is reported at the lower of its carrying amount or its estimated fair value, less its cost to sell. Subsequent to the date that a property is held for disposition, depreciation expense is not recorded

Management reviews finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Indicators include but are not limited to a significant decrease in the market value of an intangible asset group or if there are material differences between operating results and the Company’s forecasted expectations. If indicators arise, management evaluates the asset group’s recoverability by comparing the estimated undiscounted future cash flows resulting from the use of the asset group and its eventual disposition to the carrying value of the asset group. If the carrying value of the asset group exceeds the undiscounted cash flows, management estimates the fair value of the asset group using appropriate fair value techniques. If the carrying value of the asset group exceeds the estimated fair value, an impairment is recorded.

For a description of our significant accounting policies relatedgoing concern analysis, refer to these accounts in the preparation of our unaudited condensed consolidated financial statements, see “Note 1—Nature of BusinessLiquidity and Summary of Significant Accounting Policies” of our unaudited condensed consolidated financial statements includedCapital Resources section in this Report.Management Discussion & Analysis.