UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

For the quarterly period ended March 31,June 30, 2022

For the transition period from __________ to ___________

Commission File Number 333-326458333-236458

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 ☒ 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 May 13,August 11, 2022, 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, 2021, filed with the Securities and Exchange Commission on March 24, 2022, as the same may be updated from time to time.

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

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

iCap Vault 1, LLC

Condensed Consolidated Balance Sheets

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

iCap Vault 1, LLC

Condensed Consolidated Statements of Operations (Unaudited)

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

iCap Vault 1, LLC

Condensed Consolidated Statements of Member’s Deficit (Unaudited)

Three Months Ended March 31,June 30, 2022 and 2021

Six Months Ended June 30, 2022 and 2021

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

iCap Vault 1, LLC

Consolidated Statements of Cash Flows (Unaudited)

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

iCap Vault 1, LLC

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022

Note 1. Nature of Business

iCap Vault 1, LLC (the “Company”), a Delaware limited liability company, was formed on July 30, 2018 pursuant to and in accordance with the Delaware Limited Liability Company Act for the purpose of acquiring real estate investments in the United States and providing a rate of return to its investors. The Company was organized for the principal purposes of (a) sourcing, acquiring, financing and managing a portfolio of investments and (b) engaging in all activities incidental or ancillary thereto as iCap Vault Management, LLC (the “Manager”), deems necessary or advisable. The Company’s amended and restated operating agreement is dated September 18, 2020 (the “Operating Agreement”) and provides for one class of membership. The Company had 1,000 units issued and outstanding as of March 31,June 30, 2022, all of which are held by one member. The Operating Agreement continues until the Company is dissolved.

The Company has two wholly owned subsidiaries, Vault Holding, LLC (“Holding”) and Vault Holding 1, LLC (“Holding 1”) formed September 27, 2018 and April 28, 2020, respectively. Each entity was formed with the intention of owning one or more standalone subsidiaries (each a “Portfolio SPE”), which itself will hold real property investments and real estate-based financial instruments. Both Holding and Holding 1 provide guarantees to secured noteholders of the Company. Holding provides a guarantee to holders of private placement notes. Holding 1 provides a guarantee to holders of publicly available variable denomination floating rate demand notes the Company offers through a public registration. As of the date of issuance of these unaudited condensed consolidated financial statements, Holding owns all investment properties and affiliated notes receivable, whereas Holding 1 has not commenced operations and has no assets and liabilities.

The Company generates revenue from rentals of real property investments and interest on investments in financial instruments based in real estate. Management intends for the Company to generate additional revenue from price appreciation of real properties upon their disposition.

The Company’s investments and its operations in the near term will be funded primarily by $1 billion of investor demand notes. The first offering is a private placement to accredited investors of up to $500 million under an exemption from the registration requirements of the Securities Act of 1933, as amended pursuant to Rule 506(c) and Regulation S (“Private Placement Notes”). The second is a registered a public offering of up to $500 million of Variable Denomination Floating Rate Demand Notes (“Public Demand Notes”), under an effective registration statement (File No. 333-236458). Collectively these are referred to as the (“Demand Notes”) hereto, unless otherwise distinguished.

On September 18, 2020, the Company, Holding 1 and American Stock Transfer & Trust Company, LLC, as trustee, entered into an indenture, which complies with the requirements of the Trust Indenture Act of 1939, as amended, under which the Public Demand Notes are offered.

On November 24, 2020, the Securities and Exchange Commission (“SEC”) declared the Company’s Registration Statement on Form S-11/A (the “Registration Statement”), filed with the SEC on November 2, 2020, effective and the Company is authorized to sell $500,000,000 of Public Demand Notes on a continuous basis, in a direct public offering. On April 29, 2022, the Company filed with the SEC Post-Effective Amendment No. 2 to the Registration Statement. The SEC declared Post-Effective Amendment No. 2 effective on May 6, 2022. No additional securities were registered pursuant to Post-Effective Amendment No. 2.

iCap Vault 1, LLC

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022

Note 2. Basis of Presentation

Quarterly Reporting:Reporting:

The accompanying unaudited condensed consolidated financial statements (“financial statements”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and have been consistently applied. Certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP, but which are not required for interim reporting purposes, have been omitted. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to present fairly the financial position as of March 31,June 30, 2022 and the results of operations and cash flows for the interim periods ended March 31,June 30, 2022 and 2021, have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 24, 2022. Operating results for the three and six months ended March 31,June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

Liquidity and Going Concern:Concern:

The Company has issued Public Demand Notes and Private Placement Notes through March 31,June 30, 2022 and does not have sufficient cash or sources of revenue to cover its operating costs and debt service. In addition, the Company and its subsidiaries have generated recurring losses from operations and negative operating cash flows since inception. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern for one year following the date these unaudited condensed consolidated financial statements are available to be issued. The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These unaudited condensed consolidated financial statements do not include any adjustments relating to the realization of the carrying value of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern for one year following the date these unaudited condensed consolidated financial statements are available to be issued. The Company is dependent upon raising additional financing through issuance of debt in order to implement its business plan. There can be no assurance that the Company will be successful in this situation in order to continue as a going concern. The Company is funding its initial operations from (1) payments of expenses by its related entities, which are included in related party payables on the unaudited condensed consolidated balance sheets, (2) equity contributions, (3) issuance of Public Demand Notes and Private Placement Notes and (4) leveraging existing investment properties.

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

iCap Vault 1, LLC

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022

Recent Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU updates Topic 326 by removing the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. The guidance in ASU 2016-13 is effective for “public business entities,” for reporting periods beginning after December 15, 2022. Early adoption of the guidance is permitted for reporting periods beginning after December 15, 2018. Management is currently evaluating the impact that the pending adoption of this guidance will have on its consolidated financial statements.

Reclassification

Certain prior period balances in the unaudited condensed consolidated statements of cash flows have been reclassified to conform with the current period presentation. The Company reflected non-cash issuances and corresponding redemptions of Private Placement Notes of $163,0002,235,930 used in financing activities, which reduced proceeds and repayments of Private Placement Notes.

Note 3. Related-Party Transactions

Operations:

Amounts due from affiliated entities of $0 and $1,440 at March 31,June 30, 2022 and December 31, 2021, respectively, are included in related party receivables on the accompanying unaudited condensed consolidated balance sheets. These receivables are related to payments of operating expenses made on behalf of affiliated entities, are non-interest bearing and are due on demand. Amounts due to affiliated entities of $62,181169,368 and $84,461 at March 31,June 30, 2022 and December 31, 2021, respectively, are included in related party payables on the accompanying unaudited condensed consolidated balance sheets. These payables are non-interest bearing and due on demand.

The Company pays the Manager a management fee equal to 1% of the outstanding aggregate principal balances of the Private Placement Notes and 1.3% of outstanding Public Demand Notes.Notes. The Company incurred management fees of $55,70560,113 and $8,91130,702 in management fees from the Manager duringfor the three months ended March 31,June 30, 2022 and 2021, respectively, and $115,818 and $39,613 for the six months ended June 30, 2022 and 2021, respectively.

Private Placement Notes:

Private Placement Notes payable to employees, officers and an affiliated entity at March 31,June 30, 2022 and December 31, 2021 are presented in the following table:

Schedule of Private Placement Notes Payable

iCap Vault 1, LLC

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022

In addition, other non-key management employees of affiliated entities held $114,282 88,833and $83,201of Private Placement Notes and $10,114 10,168and $10,060of Public Demand Notes at March 31,June 30, 2022 and December 31, 2021, respectively. These notes and the notes presented in the table above are included in the private placement notes and public demand notes on the accompanying unaudited condensed consolidated balance sheets.

As of May 13,August 11, 2022, the total amount of outstanding Private Placement Notes held by the Chief Executive Officer, iCap International Investments, LLC, employees of affiliated entities, was $1,0801,086, $1,763,1371,819,016 and $1,1431,186 respectively. In addition, other non-key management employees of affiliated entities held $76,536580,178 of Private Placement Notes and $10,13910,193 of Public Demand Notes as of May 13,August 11, 2022.

Affiliated Notes Receivable:

The Company holds $10,780,90911,034,625 and $10,393,206 of affiliated notes receivable, inclusive of accrued interest on March 31,June 30, 2022 and December 31, 2021, respectively. These notes receivable include loans from Holding to individuals who are minority co-owners of an affiliated entity and affiliated entities with investment properties secured by real estate. The full amount of the notes plus accrued interest is recorded as affiliated notes receivable on the accompanying unaudited condensed consolidated balance sheets.

Affiliated notes receivable consists of the following:

  Schedule of Affiliated Notes Receivable

Note 4. Investment Properties

Investment properties consist of the following:

Schedule of Investment Property

Depreciation expense for the three months ended March 31,June 30, 2022 and 2021, was $26,44139,089 and $09,283, respectively, and $65,530 and $9,283 for the six months ended June 30, 2022 and 2021, respectively.

At March 31,June 30, 2022, the Company has the following investment properties:

iCap Vault 1, LLC

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022

Note 5. Acquisitions

On March 11, 2022, VH Senior Care LLC (“Senior Care”) entered into a Residential Purchase and Sale Agreement (the “Lynnwood Purchase Agreement”) by and between Senior Care and unaffiliated Sellers (the “Lynnwood Sellers”). Senior Care is a wholly owned subsidiary of Holding. Pursuant to the terms of the Lynnwood Purchase Agreement, Senior Care agreed to purchase from the Lynnwood Sellers certain real property located at 1226 160^th St. SW, Lynnwood, WA 98087 (the “Lynnwood Property”). Senior Care acquired the property for a purchase price of $1,779,431on March 25, 2022. The aggregate purchase price was allocated between the estimated fair values of the underlying assets of $1,330,547of buildings and $448,884of land at the date of acquisition.

On March 14, 2022, Senior Care entered into a Residential Purchase and Sale Agreement (the “Burien Purchase Agreement”) by and between Senior Care and unaffiliated Sellers (the “Burien Sellers”). Pursuant to the terms of the Burien Purchase Agreement, Senior Care agreed to purchase from the Burien Sellers certain real property located at 302 SW 146^th St., Burien, WA 98166. Senior Care acquired the property for a purchase price of $1,003,768 on March 25, 2022. The aggregate purchase price was allocated between the estimated fair values of the underlying assets of $693,107 of buildings and $310,661 of land at the date of acquisition.

The Company entered into lease agreements for both properties that beginwith a term beginning April 1,^st, 2022 and continuing through March 31, 2027, subject to extension or earlier termination set forth in the lease agreements (see Note 8).

On April 23, 2021 and May 7, 2021, the Company acquired, in related transactions, investment properties from an affiliated entity for a purchase price of $3,420,000 and a carrying value of $3,052,266.

The following unaudited pro-formaPro Forma information presents the combined results of operations for the three and six months ended March 31,June 30, 2022 and 2021 as if the above acquisitions had been completed on January 1, 2021. The November 15, 2021 acquisition of five townhouses was under construction until near the acquisition date and had no operations therefore, no proformaPro Forma financial information is available or included in the table below. The proformaPro Forma financial information is as follows:

 Schedule of Proforma Revenue and Net (loss) Income

Revenues of $93,570 and operating expenses of $71,592 are included in the accompanying unaudited condensed consolidated statement of operations for the three months ended March 31, 2022 asAs a result of the acquisition of investment properties acquired in 2022 and 2021.2021, the Company recorded revenues of $146,628 and $240,198 for the three and six months ended June 30, 2022 and operating expenses of $166,669 and $350,768 for the three and six months ended June 30, 2022, which are included in the accompanying unaudited condensed consolidated statement of operations. Operating expenses include depreciation expense for the three months ended June 30, 2022 and 2021, of $39,089 and $9,283, respectively, and $65,530 and $9,283 for the six months ended June 30, 2022 and 2021, respectively.

On June 22, 2022, VH 2^nd Street Office, LLC, formed June 10, 2022 as a wholly owned subsidiary of Holding entered into an agreement to acquire a property, an office and warehouse facility for a purchase price of $6,000,000 that was scheduled to close on or before July 15, 2022 located at 2818 E. 2^nd Street, Vancouver WA 98661. Pursuant to the agreement, the Company made a $1,000,000 non-refundable deposit that was credited towards the purchase at closing that occurred on July 26, 2022. The Company held a $2,000,000 affiliated note receivable from the seller that was collateralized by the acquired investment property of $2,038,667 including interest accrued through the date of acquisition credited towards the purchase price. The Company paid $2,963,249, net of deposits and affiliated loans at closing for total consideration including closing costs of $6,004,052. The investment property is under lease until May 2028.

On June 27, 2022, VH Pioneer Village, LLC, a wholly owned subsidiary of Holding, which was formed June 27, 2022, entered into an agreement to acquire Pioneer Village, a multi-tenant investment property for a purchase price of $3,000,000 that was scheduled to occur no later than July 15, 2022 located at 4318 South Settler Drive, Ridgefield, WA 98642. Pursuant to the agreement, the Company made a $500,000 non-refundable deposit that was credited towards the purchase at closing that occurred on July 18, 2022 for $3,002,156.

The Company is not including Pro Forma information with regards to the acquisitions that closed on July 18, 2022 and July 26, 2022, respectively for the three and six months ended June 30, 2022 and 2021 since sufficient information is not yet available on the acquired operations.

Note 6. Notes Payable

On January 31, 2022, the Company entered into two loan agreements of $2,985,000 and $3,000,000, collateralized by two investment properties. The $2,985,000 loan is guaranteed by the CEO of the Company and the $3,000,000 loan is guaranteed by the CEO and affiliated entities. Each loan bears interest at $7.57.5%% per annum and matures on March 1, 2023. Aggregate monthly interest only payments of $37,406 began March 10, 2022 and continue through February 10, 2023. The loans either individually or collectively, may be repaid before the maturity date with no prepayment penalty. The loans provide for non-financial covenants and include cross default and collateral provisions for the borrowers. The Company incurred financing fees related to the issuance of these loans of $42,827, which are amortized over the term of the notes. The notes payable are presented net of unamortized deferred financing costs of $36,23826,437. ForInterest expense related to these notes was $112,219 and $0 and for the three months ended March 31,June 30, 2022 and 2021, respectively and $187,031 and $0 for the Company recorded interest expense of $74,812 of related to these notes payable.six months ended June 30, 2022 and 2021, respectively. Additionally, the Company recorded amortization of deferred financing fees of $6,5899,801 and $0 the three months ended June 30, 2022 and 2021, respectively and $16,390 and $0 for the six months ended June 30, 2022 and 2021, respectively to interest expense.

iCap Vault 1, LLC

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022

Note 7. Demand Notes

Private Placement Notes

The Company is offering up to $500,000,000 of Private Placement Notes dated October 1, 2018. Private Placement Notes are being offered through August 31, 2022 and are subordinated to the Company’s future secured bank debt and credit facilities and structurally subordinated to indebtedness or other liabilities of Portfolio SPEs. The Private Placement Notes are secured by a pledge of Holding’s equity interests in Portfolio SPEs for as long as the Private Placement Notes remain outstanding.

The Private Placement Notes, inclusive of accrued but unpaid interest, can be redeemed, in whole or in part, at any time through a demand for repayment but in no instance will an individual note extend beyond 15 years following its issuance date. The Company plans to establish additional accounts with lending sources pursuant to which funds will be advanced as the Company secures additional real estate assets. Private Placement Notes will be subordinate to any security interest in favor of lenders of credit facilities.

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

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

The outstanding Private Placement Notes, inclusive of accrued but unpaid interest, totaled $18,310,55920,298,065 and $20,261,724 on March 31,June 30, 2022 and December 31, 2021, respectively. Approximately 6576% and 33%, respectively, of these Private Placement Notes are held by foreign investors.

The Company issued additional Private Placement Notes of $6,167,845 12,547,807and redeemed $3,746,9836,303,238 after the consolidated balance sheet date through May 13,August 11, 2022. An aggregate of $387,847,908 367,770,646of Private Placement Notes are available to be issued as of May 13,August 11, 2022.

iCap Vault 1, LLC

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022

Public Demand Notes

The Company is offering up to $500,000,000 of Public Demand Notes on a continuous basis pursuant to a registration filed with the SEC, which is effective November 24, 2020, as amended May 5, 2021.6, 2022. The Public Demand Notes accrue interest at a rate per annum equal to the Average Savings Account Rate as published by the FDIC plus 2% (“Floating Rate”). In addition, noteholders are eligible to accrue one or more interest rate premiums (“Interest Rate Premiums”). Both the Floating Rate and Interest Rate Premiums accrue monthly without compounding unless the noteholder opts to reinvest interest into additional Public Demand Notes, in which case, interest will accrue and compound daily. The Public Demand Notes are secured by a guarantee from Holding 1 for the benefit of the noteholders and the membership interest in Holding 1, which will hold interests in real estate and real estate-based financial instruments. There are no restrictions on the guarantee. Currently, Holding 1 is limited in its ability to satisfy the guarantee itself as it has not commenced operations and has no assets. Public Demand Notes will be subordinate to any security interest in favor of lenders of credit facilities.

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

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

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, inclusive of accrued but unpaid interest, totaled $2,746,4196,217,233 and $7,657,018 at March 31,June 30, 2022 and December 31, 2021, respectively. Approximately 9397% and 94%, respectively, of the Public Demand Notes are held by foreign investors.

The Company issued additional Public Demand Notes of $1,763,8775,034,200 and redeemed $2,130,0456,400,770 after the consolidated balance sheet date through May 13,August 11, 2022. An aggregate of $481,064,182469,056,326 of Public Demand Notes are available to be issued as of May 13,August 11, 2022.

For the three months ended March 31, 2022 and 2021, theThe Company recorded $159,668 and $22,221, respectively, of aggregate interest expense on these Demand Notes.Notes of $182,271 and $91,950 for the three months ended June 30, 2022 and 2021, respectively, and $341,939 and $114,221 respectively, for the six months ended June 30, 2022 and 2021, respectively

iCap Vault 1, LLC

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022

Note 8. Rental Income

On March 21, 2022, the Company entered separate operating lease agreements for two of its investment properties acquired on March 25, 2022 with an operator of two senior care facilities beginningthat began April 1, 2022 and continuing through March 31, 2027, subject to extension or earlier termination. The leases provide for aggregate monthly rental income of $19,717 for the first year and annual increases 3%of 3% on each anniversary date, thereafter. Each lease provides the lessee three 5-year extension options. The leases provide for tenant allowances of $75,000 and $150,000 for the Lynnwood Property and Burien Property, respectively to be reimbursed to lessee subject to terms of the lease agreements. The Company recognizes income from these leases on a straight-line basis over the terms of the related leases. Differences between rental income earned and amounts due per the respective lease agreements are charged to accrued rents and accounts receivable in the unaudited condensed consolidated balance sheets.

The following is a summary of our expected future minimum base rental income from our operating leases as of March 31,June 30, 2022:

Schedule of Future Minimum Base Rental Income

Income from leases is included in rental income on the accompanying unaudited condensed consolidated statements of operations.

Additionally, the Company leases individual units in its other investment properties under various operating leases. These leases generate an aggregate monthly rental income of approximately $33,00028,000 and each have a term of one year or less. These leases expire on various dates through FebruaryJune 2023. The operations of these properties, including leasing activities, are managed by an unrelated third party.

On July 26, 2022, the Company acquired an office and warehouse facility investment property for a purchase price of $6,000,000. The investment property is under lease until May 2028.

On June 27, 2022, VH Pioneer Village, LLC purchased a multi-tenant office building with existing leases that expire through May 31, 2032. The leases provide for current monthly rental income of $5,406 and $6,887, respectively with terms of 5 years and 10 years, respectively. The leases provide for annual increases of 3% on each anniversary date, thereafter. Additionally, each lease provides for 5 year extensions options.

iCap Vault 1, LLC

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022

Note 9. Commitments and Contingencies

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

The Company is party to selling agreements with various distributors of the Private Placement Notes and Public Demand Notes for both international and domestic investors. The terms of these agreements allow the distributors to effect sales of the Private Placement Notes and the Public Demand Notes to US and non-US persons on a best-efforts basis. Offers and sales of the Public Demand Notes may be made to qualified investors, upon the terms and subject to the conditions set forth in the Prospectus dated May 5, 2021, as amended. Offers and sales of the Private Placement Notes may only be made in accordance with the terms of the offering, as set forth in the private placement memorandum, and in compliance with all U.S. laws and regulations including, but not limited to, Regulation S under the Securities Act of 1933, as amended. The terms of agreements with foreign distributors allow for the sales of the Private Placement Notes only to non-U.S. persons. Each distributor is compensated 1% per annum on the average outstanding balance of those notes sold by such distributor. These agreements can be cancelled at any time.

The Company entered into property management agreements to manage, lease and operate the investment properties. The property management agreements for investment properties were entered into on May 11, 2021 and August 21, 2021, respectively. The agreements will remain in effect for twelve months and will automatically extend thereafter on a monthly basis. The management fee is the greater of $100per month per unit or 7% of monthly gross income. The Company is also responsible for paying leasing and sale commissions if they occur.

Note 10. Subsequent Event

On April 25, 2022, the Company entered into listing agreements to market and sell the VH Willows investment properties.

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

The following discussion of the financial condition and results of operations of iCap Vault 1, LLC and its subsidiaries, including, but not limited to, Vault Holding, LLC and Vault Holding 1, LLC (collectively, the “Company” or “iCap Vault”), should be read in conjunction with the unaudited condensed consolidated financial statements and the notes to those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us,” “we,” “our,” and similar terms refer to the Company. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors section of our annual report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission (the “SEC”) on March 24, 2022, as the same may be updated from time to time. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

iCap Vault 1, LLC, Vault Holding, LLC (“Holding”) and Vault Holding 1, LLC (“Holding 1”) were formed as Delaware limited liability companies on July 30, 2018, September 27, 2018 and April 28, 2020, respectively. Each of Holding and Holding 1 was formed with the intention of owning one or more standalone subsidiaries which itself will hold real property investments whether directly or through special purpose entities. Additionally, each of Holding and Holding 1 provides guaranties to secured demand noteholders of the Company. Holding provides such a guaranty to holders of the private placement notes, while Holding 1 will provideprovides a guaranty to holders of the public notes the Company offers through a registered offering. Holding 1 has not commenced operations and has no assets or liabilities. iCap Vault Management, LLC (“Manager”) is the manager of the Company.

We intend to generate revenues on our investments from net rental income on our properties and from price appreciation of properties upon their disposition. For our investment in financial instruments based in real estate, we intend to generate revenues from the interest income received on such financial instruments. Until we generate revenue sufficient to use for investments, to cover operations and to service debt, we will rely on the proceeds from a $500 million private placement of demand notenotes (“Private Placement Notes” described below) and a $500 million registered public offering of demand notes (“Public Demand Notes” described below). Collectively these are referred to as the Demand Notes hereto, unless otherwise distinguished.

Our business plan contemplates continually acquiring income-producing real estate properties and financial instruments related to real properties in selected metropolitan statistical areas in the U.S. (each, a “Portfolio Investment”) that generate a rate of return that is greater than the costs necessary to purchase, finance and service the investment. Although our Portfolio Investments will be anchored to U.S. real estate, we are not a real estate investment trust and do not intend to be treated as such.

At March 31,June 30, 2022, the Company has the following Portfolio Investments:

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

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 beare 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 March 31,June 30, 2022 and 2021, we generated interest income from related party promissoryaffiliated notes receivable of $253,715$253,716 and $40,093,$104,991, respectively rental income of $93,570$146,628 and $0,$33,870, respectively and reported a net loss of $330,446$319,955 and $293,225,$334,236, respectively.

For the six months ended June 30, 2022 and 2021, we generated interest income from affiliated notes receivable of $507,431 and $145,084, respectively, rental income of $240,198 and $33,870, respectively, and reported a net loss of $650,401 and $627,461, respectively. For the threesix months ended March 31,June 30, 2022 and 2021, we had cash used in operating activities of $224,997$649,015 and $209,614,$555,940, respectively. As of March 31,June 30, 2022, we had member’s deficit of $2,457,143.$2,777,098.

The capital to be raised from both our private placement (defined below) and registered offering (defined below) has been budgeted to cover the costs associated with continuing to operate our company, marketing expense, and acquisition related costs. We intend to use the majority of the proceeds from the registered offering for the acquisition of Portfolio Investments. However, closing and other acquisition related costs such as title insurance, professional fees and taxes will likely require cash. We do not have the ability to quantify any of the expenses as they will all depend on size of deal, price, and place versus procuring new financing, due diligence performed (such as appraisal, environmental, property condition reports), legal and accounting, etc. There is no way to predict or otherwise detail the expenses.

Recent Financings

Private Placements

We are currently conducting a private placement to accredited investors of up to $500,000,000 secured demand notes under an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) pursuant to Rule 506(c) and Regulation S promulgated under the Securities Act (“Private Placement Notes”). Private Placement Notes issued during the threesix months ended March 31,June 30, 2022 and 2021 totaled $24,230,409$37,763,769 and $7,818,508,$22,607,048, respectively. As of May 13,August 11, 2022, $387,847,908$367,770,646 of this offering is available for issuance and the amount of the aggregate outstanding principal and accrued interest is $20,802,911.$26,617,736.

On February 5, 2021, Chris Christensen, the Chief Executive Officer of the Company, formed iCap International Investments, LLC, a Washington limited liability company. Mr. Christensen holds a 51% ownership interest in the entity, and he is also the manager. As of May 13,August 11, 2022, the total amount of outstanding principal amount and accrued interest of Private Placement Notes held by iCap International Investments, LLC was $1,763,137.$1,819,016.

Registered Public Offering

We have registered a public offering (“Registered Offering”) of up to $500,000,000 aggregate principal amount of our Variable Denomination Floating Rate Demand Notes, marketed and sold as “Demand Notes” (the “Public Demand Notes”), under an effective Registration Statement (File No. 333-236458) (“Registration Statement”), to fund our investment and operational activities. Public Demand Notes issued during the threesix months ended March 31,June 30, 2022 and 2021 totaled $6,108,847$14,809,093 and $0, respectively. As of May 13,August 11, 2022, $481,064,182$469,056,326 of this offering is available for issuance and the amount of the aggregate outstanding principal and accrued interest is $2,385,341.$4,871,097.

Notes Payable

On January 31, 2022, the Company entered into two loan agreements of $2,985,000 and $3,000,000, collateralized by two investment properties. The $2,985,000 loan is guaranteed by the CEO of the Company and the $3,000,000 loan is guaranteed by the CEO and affiliated entities. Each loan bears interest at $7.5% per annum and matures on March 1, 2023.

Recent Developments

COVID-19

The COVID-19 pandemic has caused significant economic dislocation in the United States, resulting in an unprecedented slow-down in economic activity. The economic effects, including disruptions to the global supply chain, of the COVID-19 outbreak have had a destabilizing effect on financial markets, key market indices, and overall economic activity. The spread of the coronavirus has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences.

Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be fully controlled and abated. Possible areas that may be affected include, but are not limited to, disruption to the Company’s ability to make investments through its subsidiaries, negative impact to revenue related to real estate holdings, negative impact on its workforce, unavailability of professional services and other resources, disruption to credit markets necessary for success of the Company’s business model, and the decline in value of assets held by the Company’s subsidiaries.

The supply of housing inventory in certain geographical areas may become further restricted through a shutdown of construction activity. Housing market impacts may limit the Company’s ability to acquire or dispose of real estate assets.

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

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

We lack the comparative historical financial information about the Company since our operations did not commence until after the start of the COVID-19 pandemic. Accordingly, although management believes that COVID-19, along with other macro-economic factors, were contributing factors to our business and results of operations to date, management is unable to measure the actual impact of COVID-19 on our business as of the date of this quarterly report on Form 10-Q.

Affiliated Note Receivable

Effective April 22, 2022, the Company amended a $2,000,000 loan agreement dated April 23, 2021 with individuals who are minority co-owners of an affiliated entity that provided for an extension of the maturity date to July 23, 2022. TheOn June 22, 2022, the Company entered into an agreement to purchase the underlying property for $6,000,000, net of the outstanding loan continuesbalance at closing which continued to bear interest at 8%. The Company acquired the investment property on July 26, 2022 for $6,004,052, inclusive of closing costs, net of the loan balance at closing of $2,038,667 and retains an interest reserveescrow deposit of $50,000.$1,000,000 paid on June 22, 2022.

Acquisitions

Lynnwood Property

On March 11, 2022, VH Senior Care LLC (“Senior Care”) entered into a Residential Purchase and Sale Agreement (the “Lynnwood Purchase Agreement”) by and between Senior Care and unaffiliated Sellers (the “Lynnwood Sellers”). Senior Care is a wholly owned subsidiary of Holding. Pursuant to the terms of the Lynnwood Purchase Agreement, Senior Care agreed to purchase from the Lynnwood Sellers certain real property located at 1226 160^th St. SW, Lynnwood, WA 98087 (the “Lynnwood Property”). Senior Care acquired the property for a purchase price of $1,779,431 on March 25, 2022.

On March 21, 2022, Senior Care entered into a Lease Agreement (the “Lynnwood Lease”) with AFH Senior Care C Corp. (“AFH”). Pursuant to the terms of the Lynnwood Lease, AFH agreed to lease the Lynnwood Property from Senior Care beginningwith a term facilities that began April 1, 2022 and continuingcontinues through March 31, 2027, subject to extension or earlier termination, as set forth in the Lynnwood Lease. The monthly rent is $11,717 for the first 12 months. Thereafter, effective as of each anniversary of the commencement date of the Lynnwood Lease, the base rent will increase to an amount equal to 103% of the base rent in effect immediately prior to the adjustment.

Burien Property

On March 14, 2022, Senior Care entered into a Residential Purchase and Sale Agreement (the “Burien Purchase Agreement”) by and between Senior Care and unaffiliated Sellers (the “Burien Sellers”). Pursuant to the terms of the Burien Purchase Agreement, Senior Care agreed to purchase from the Burien Sellers certain real property located at 302 SW 146^th St., Burien, WA 98166. Senior Care acquired the property for a purchase price of $1,003,768, on March 25, 2022.

On March 21, 2022, Senior Care entered into a Lease Agreement (the “Burien Lease”) with AFH. Pursuant to the terms of the Burien Lease, AFH agreed to lease the Burien Property from Senior Care, beginningthat began April 1, 2022 and continuingcontinued through March 31, 2027, subject to extension or earlier termination as set forth in the Burien Lease. The monthly rent is $8,000 for the first 12 months. Thereafter, effective as of each anniversary of the commencement date of the Burien Lease, the base rent will increase to an amount equal to 103% of the base rent in effect immediately prior to the adjustment.

VH 2^nd Street Office

On June 22, 2022, VH 2^nd Street Office, LLC, formed June 10, 2022, a wholly owned subsidiary of Vault Holding LLC entered into an agreement to acquire a property, an office and warehouse facility for a purchase price of $6,000,000 that was scheduled to close on or before July 15, 2022 located at 2818 E. 2^nd Street, Vancouver WA 98661. Pursuant to the agreement, the Company made a $1,000,000 non-refundable deposit that was credited towards the purchase at closing that occurred on July 26, 2022. The Company held a $2,000,000 affiliated note receivable from the seller that was collateralized by the acquired investment property of $2,038,667 including interest accrued through the date of acquisition credited towards the purchase price. The Company paid $2,963,249, net of deposits and affiliated loans at closing for total consideration including closing costs of $6,004,052. The investment property is under lease until May 2028.

VH Pioneer Village

On June 27, 2022, VH Pioneer Village, LLC, a wholly owned subsidiary of Vault Holding, LLC formed June 27, 2022, entered into an agreement to acquire Pioneer Village, a multi-tenant investment property for a purchase price of $3,000,000 that was schedule to occur no later than July 15, 2022 located at 4318 South Settler Drive, Ridgefield, WA 98642. Pursuant to the agreement, the Company made a $500,000 non-refundable deposit that was credited towards the purchase at closing that occurred on July 18, 2022 for $3,002,156.

The leases provide for current monthly rental income of $5,406 and $6,887, respectively with terms of 5 years and 10 years, respectively. The leases provide for annual increases of 3% on each anniversary date, thereafter. Additionally, each lease provides for 5 year extensions options.

Plan of Operations

We believe we will need at least $1,500,000 of working capital during the next 12 months for management fees, professional fees and other operating expenses. In addition, we will need funding for our continued investment in revenue generating real estate properties. We will rely primarily on funds raised from both the registered offering and from our private placement to fund these uses in 2022. To a lesser extent, we will rely on income from our existing investment properties and financial instruments.

As of March 31,June 30, 2022, we have aggregate cash balances of $4,759,763,$8,111,794, including restricted cash of $1,831,056$2,029,807 available for operations and investment from both the public and private offerings. Our strategy contemplates the ability to invest in financial instruments collateralized by or involved in real estate operations; however, we intend to focus primarily on investing in revenue generating properties. We are currently in competitive bidding scenarios to obtain additional investment properties and plan to continue acquiring revenue generating properties during 2022.

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

RESULTS OF OPERATIONS

Results of Operations for the Three Monthsthree months Ended March 31,June 30, 2022 Compared to the Three Monthsthree months Ended March 31,June 30, 2021

Revenue

Interest income for the three months ended March 31,June 30, 2022, and 2021 was $253,715$253,716 and $40,093,$104,991, respectively, which is from related party promissory notes.affiliated notes receivable. The increase in interest income was primarily the result of the notes issued during 2021. The notes receivable balances as of March 31,June 30, 2022 and 2021 were $10,780,909$11,034,625 and $1,261,326.$6,016,914. Rental income for the three months ended March 31,June 30, 2022, and 2021 was $93,570$146,628 and $0,$33,870, respectively. The increase in rental income was due to the acquisitionrecent acquisitions of investment properties during 2021.over the last twelve months.

Operating Expenses

General and administrative expenses for the three months ended March 31,June 30, 2022 were $381,086$356,051 as compared to $302,186$350,565 for the three months ended March 31,June 30, 2021. The increase in expenses is primarily due to increased operating costs related to the investment properties acquired during 2021,the previous fiscal year, professional services and management fees associated with the increase in of the Private Placement Notes and Public Demand Notes since the first quarter of 2021 offset by the decrease in computer related expenses. Management fees – related party was $55,705$60,113 for the three months ended March 31,June 30, 2022 as compared to $8,911$30,702 for the three months ended March 31,June 30, 2021. The increase is directly attributable to the increase in demand note balances for the three months ended March 31June 30 2022 as compared to the three months ended March 31,June 30, 2021.

Other Expenses, net

Interest expense, net, for the three months ended March 31,June 30, 2022 and 2021 was $240,940$304,135 and $22,221,$92,000, respectively, in which $15,970$10,111 and $0,$58,469, respectively, was incurred on related party Private Placement Notes. The increase in interest expense is primarily attributable to the two loan agreements aggregating $5,985,000 entered into in January 2022 collateralized by two investment properties. Interest and amortization of deferred financing fee for these loans for the three months ended March 31,June 30, 2022 and 2021 was $81,401$122,020 and $0, respectively. The other significant increase in interest expense is attributable to the increase in average outstanding Private Placement Notes and Public Demand Notes balances during the quarter ended March 31,June 30, 2022 as compared to March 31,June 30, 2021.

Net Loss

The change to the net loss for the three months ended March 31,June 30, 2022 and 2021 is provided for in the explanations shown above.

Results of Operations for the Six months Ended June 30, 2022 Compared to the Six months Ended June 30, 2021

Revenue

Interest income for the six months ended June 30, 2022, and 2021 was $507,431 and $145,084, respectively, which is from affiliated notes receivable. The increase in interest income was primarily the result of the notes issued during 2021. The notes receivable balances as of June 30, 2022 and 2021 were $11,034,625 and $6,016,914. Rental income for the six months ended June 30, 2022, and 2021 was $240,198 and $33,870, respectively. The increase in rental income was due to the recent acquisition of investment properties over the last twelve months.

Operating Expenses

General and administrative expenses for the six months ended June 30, 2022 were $737,137 as compared to $652,751 for the six months ended June 30, 2021. The increase in expenses is primarily due to increased operating costs related to the investment properties acquired during the previous fiscal year, professional services offset by the decrease in computer related expenses. Management fees – related party was $115,818 for the six months ended June 30, 2022 as compared to $39,613 for the six months ended June 30, 2021. The increase is directly attributable to the increase in demand note balances for the six months ended June 30 2022 as compared to the six months ended June 30, 2021.

Other Expenses, net

Interest expense, net, for the six months ended June 30, 2022 and 2021 was $545,075 and $114,221, respectively, in which $26,081 and $63,590, respectively, was incurred on related party Private Placement Notes. The increase in interest expense is primarily attributable to the two loan agreements aggregating $5,985,000 entered into in January 2022 collateralized by two investment properties. Interest and amortization of deferred financing fee for these loans for the six months ended June 30, 2022 and 2021 was $203,421 and $0, respectively. The other significant increase in interest expense is attributable to the increase in average outstanding Private Placement Notes and Public Demand Notes balances during the quarter ended June 30, 2022 as compared to June 30, 2021.

Net Loss

The change to the net loss for the six months ended June 30, 2022 and 2021 is provided for in the explanations shown above.

LIQUIDITY AND CAPITAL RESOURCES

Since our inception, we have generated minimal revenues and expect to rely on capital raised in the issuances of the Demand Notes to cover the costs associated with establishing and expanding Company operations, marketing expense, and acquisition related costs. We intend to use the majority of the proceeds from the Demand Notes for the acquisition of Portfolio Investments. However, closing and other acquisition related costs such as title insurance, professional fees and taxes will likely require cash. We do not have the ability to quantify any of the expenses as they will all depend on size of deal, price, and place versus procuring new financing, due diligence performed (such as appraisal, environmental, property condition reports), legal and accounting, etc.

Currently, our primary source of liquidity is $1.0 billion from our registered and private offerings discussed herein (collectively the “offerings”). As of May 13,August 11, 2022, we have approximately of $868.9$836.8 million available for offerings of new subscriptions that will fund operations and new portfolio investments in income producing real estate properties and financial instruments. In addition, the Company may leverage its portfolio investments to provide additional liquidity. During the threesix months ended March 31,June 30, 2022, the Company borrowed $5,985,000 against its investment properties pursuant to notes payable that are due February 2023.

The following table sets forth a summary of our net cash flows for the threesix months ended March 31:June 30:

The Company had cash used in operating activities of $224,997$649,015 for the threesix months ended March 31,June 30, 2022, as compared to cash used in operating activities of $209,614$555,940 for the threesix months ended March 31,June 30, 2021. The overall increase in the use of cash is primarily attributable to the variances for the period attributable to the net loss of $330,446 versus $293,225 and change in accrued interest earned on affiliated notes receivable of $213,622$376,680 offset by the change in accrued interest on Private Placement Notes and Public Demand Notes of $137,398 and depreciation expense variance of $26,441.$227,718.

The Company had used cash in investing activities of $2,915,747$4,415,747 for the threesix months ended March 31,June 30, 2022, as compared to cash used in investing activities of $180,850$8,269,008 for the threesix months ended March 31,June 30, 2021. The net change is primarily attributable to the acquisition of investment properties in March 2022 of $2,783,199 and the changedecrease in issuances of affiliated notes receivable related party notes of $216,012 offset by change$4,880,942, deposits on future investment properties acquired in July 2022 of $1,500,000, decrease in investment acquisitions of $636,801 and a decrease in proceeds from the repayment of related party receivables of $167,710.$164,482

The Company had used cash inprovided by financing activities of $1,079,259$4,196,790 for the threesix months ended March 31,June 30, 2022 as compared to the cash provided for in financing activities of $6,503,385$12,357,475 for the threesix months ended March 31,June 30, 2021. ThisThe net change of $7,582,644$8,160,685 was attributable to the fluctuation resulting from the excess of redemptions in current period compared to an excess of issuances in prior period of Private Placement Notes and Public Demand Notes of $13,251,817, reductions of deposits received $273,000$14,102,858, offset with net loan proceeds of $5,942,173 on collateralized investment properties obtained in January 2022.

Going Concern

As a result of recurring losses, limited cash and insufficient revenue to cover our operating costs and debt service, management believes there is a substantial doubt regarding our ability to continue as a going concern. Moreover, if the Company is not successful in raising sufficient capital, or if it does not have access to sufficient credit from outside parties or related parties, it may have to delay or reduce expenses, or curtail operations, since its current cash and capital resources are not sufficient to meet its needs for the 12 months following the date of this filing. The accompanying unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that could result should the Company not continue as a going concern.

Assets

At March 31,June 30, 2022 and December 31, 2021, we had total assets of $24,941,321$30,023,047 and $25,979,143, respectively. Assets consist primarily of the cash accounts held by the Company, inclusive of $1,831,056$2,029,807 and $2,026,172 of restricted cash on March 31,June 30, 2022 and December 31, 2021, respectively, and investment properties of $9,332,547$9,293,458 and $6,575,789 as of MarchJune 30, 2022 and December 31, 2021, respectively, and held escrowed deposits on investment properties acquired in July 2022 of $1,500,000 and $0 on June 30, 2022 and December 31, 2021, respectively. In addition, the Company holds promissory notes with affiliated entities, inclusive of interest receivable, totaling $10,780,909$11,034,625 and $10,393,206 as of March 31,June 30, 2022 and December 31, 2021, respectively.

Liabilities

At March 31,June 30, 2022 and December 31, 2021, we had total liabilities of $27,398,464$32,800,145 and $28,105,840, respectively. The Company obtained two loans on investment properties and amounts outstanding on the notes payable, net of unamortized financing fees were $5,948,762$5,958,563 and $0 as of March 31,June 30, 2022 and December 31, 2021. Outstanding Private Placement Notes and Public Demand Notes were $21,056,978$26,515,298 and $27,918,742 as of March 31,June 30, 2022 and December 31, 2021, respectively.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of May 13,August 11, 2022 that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

CRITICAL ACCOUNTING POLICIES

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

Accounting for Acquisitions

The Company allocates the purchase price of investment properties to the underlying assets (and liabilities, if applicable) based upon the estimated fair values at the date of acquisition. Investment properties generally consist of land and buildings. Management estimates the fair values at the date of acquisition using either internal valuations or third-party appraisals. The Company capitalizes acquisition-related costs and fees associated with asset acquisitions.

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 recordedrecorded.

For a description of our going concern analysis, refer to the Liquidity and Capital Resources section in this Management Discussion & Analysis.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

A smaller reporting company is not required to provide the information required by this Item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the chief executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our current chief executive officer and principal financial officer (our “Certifying Officers”), the effectiveness of our disclosure controls and procedures as of March 31,June 30, 2022, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of March 31,June 30, 2022, our disclosure controls and procedures were not effective.

The Company does not have an effective control environment because we do not yet have formalized internal control policies and procedures as it relates to financial reporting. In addition, the Company does not yet have sufficient resources to provide appropriate segregation of duties related to the preparation and review of information used in financial reporting, as well as review controls over the financial statement reporting process.

Since becoming a public reporting company on November 24, 2020, we have initiated and are continuing to recruit and hire additional accounting and financial personnel, establish policies and procedures for timely and accurate financial reporting, upgrade our internal accounting systems, and make various other efforts to remediate these weaknesses in our internal control. Management understands and appreciates the need to rapidly establish an effective system of internal controls over financial reporting.

We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are involved in ordinary routine litigation typical for companies engaged in our line of business. As of the date of this quarterly report on Form 10-Q, we are not involved in any pending legal proceedings that we believe would be likely, individually or in the aggregate, to have a material adverse effect on our financial condition or results of operations.

ITEM 1A. RISK FACTORS

There have been no material changes to our risk factors as disclosed in our annual report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on March 24, 2022.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

(a) None.

(b) There have been no material changes to the procedures by which security holders may recommend nominees to our Board of Directors since we last provided disclosure in response to the requirements of Item 407(c)(3) of Regulation S-K promulgated under the Exchange Act.

ITEM 6. EXHIBITS