UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1-SA
☒ SEMIANNUAL REPORT PURSUANT TO REGULATION A
or
☐ SPECIAL FINANCIAL REPORT PURSUANT TO REGULATION A
For the fiscal semiannual period endedJune 30, 2019
American Homeowner Preservation 2015A+, LLC
(Exact name of issuer as specified in its charter)
Commission File Number: 24R-00035
IRS EIN: 38-3989694
440 S. LaSalle Street, Suite 1110
Chicago, IL 60605
(866) 247-8326
Item 1: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Operating Results
For the 6 months ending June 30, 2019 (the operating period), our focus was to work with debtors to restructure previously purchased mortgages continue to improve the quality of our portfolio of non-performing mortgages. We also sold 120 assets during the operating period with proceeds totaling $2,733,079. We generated net income of $226,720 during the operating period, which included management fee expense of $347,651. In addition, we repaid the remaining $227,466 balance on a 2017 promissory note and ended the operating period with no debt. We will continue to use the remaining proceeds from the registration statement to make disciplined investments in additional mortgages and repay any future debt financing.
Liquidity and Capital Resources
Our registration statement on Form 1-A pursuant to which we offered to sell up to $50,000,000 of Class A interests was declared effective by the Securities and Exchange Commission on May 25, 2019 and the offering closed on May 24, 2018.
As of June 30, 2019, cash balances totaled $1,015,802 and the book value of purchased mortgages available for sale totaled $30,403,925.
Subsequent to the operating period, we obtained a $2,000,000 promissory note from AHP Servicing, LLC, a related entity, to help fund the purchase of mortgages as well as certain vendor payments.
Trend Information
We continued to take a disciplined, value approach to deploying capital and profitably disposing of assets, as guided by our pricing model and investment parameters. This value-oriented approach continued to focus on mortgages secured by homes in low to moderate value areas. Sales and net income have generally been consistent on a monthly basis and payments of monthly distributions to Class A investors have been made every month since inception.
Item 2: Other Information
None.
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TABLE OF CONTENTS
| Page | |
| Balance Sheet | 3 |
| Statement of Operations | 4 |
| Statement of Changes in Member’s Equity | 5 |
| Statement of Cash Flows | 6 |
| Notes to Financial Statements | 7–12 |
| 2 |
American Homeowner Preservation 2015A+, LLC
June 30, 2019 and December 31, 2018 (unaudited)
| 2019 | 2018 | |||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | 941,297 | $ | 2,245,016 | ||||
| Investments at fair value | 30,167,761 | 30,673,147 | ||||||
| Real estate owned | 183,664 | 202,740 | ||||||
| Due from related parties | – | 370,439 | ||||||
| Other assets | 144,912 | 190,425 | ||||||
| TOTAL ASSETS | $ | 31,437,634 | $ | 33,681,767 | ||||
| LIABILITIES AND MEMBER’S EQUITY | ||||||||
| Liabilities: | ||||||||
| Accounts payable | $ | 943,894 | $ | 453,377 | ||||
| Due to related parties | 49,485 | 171,376 | ||||||
| Notes payable | – | 227,466 | ||||||
| Total Liabilities | 993,379 | 852,219 | ||||||
| Members’ Equity: | ||||||||
| Class M Units, unlimited authorized, no par 10,000 units issued and outstanding at June 30, 2019 and December 31, 2018 | 10,000 | 10,000 | ||||||
| Class A Units, unlimited authorized, no par, 27,235,854 and 29,847,867 units issued and outstanding at June 30, 2019 and December 31, 2018 | 27,235,854 | 29,847,867 | ||||||
| Accumulated profit - attributed to Class M Units | – | – | ||||||
| Accumulated profit - attributed to Class A Units | 3,198,401 | 2,971,681 | ||||||
| Total Member’s Equity: | 30,444,255 | 32,829,548 | ||||||
| TOTAL LIABILITIES AND MEMBER’S EQUITY | $ | 31,437,634 | $ | 33,681,767 | ||||
See accompanying notes, which are an integral part of these financial statements
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American Homeowner Preservation 2015A+, LLC
For the six months ending June 30 (unaudited)
| 2019 | 2018 | |||||||
| Investment Income: | ||||||||
| Lease and rental income | $ | 92,181 | $ | 120,291 | ||||
| Interest income | 321,362 | 275,703 | ||||||
| Other income | 77,881 | 78,642 | ||||||
| Total Investment Income | 491,424 | 474,635 | ||||||
| Expenses: | ||||||||
| Professional fees | 63,760 | 200,022 | ||||||
| Interest expense | 3,520 | 323,180 | ||||||
| Marketing | – | 40,034 | ||||||
| Management fees | 347,651 | 289,085 | ||||||
| Bank fees | 40,216 | 76,945 | ||||||
| Legal expenses | 2,011 | 53,603 | ||||||
| Loan servicing fees | 49,577 | 113,489 | ||||||
| Other expenses | 12,780 | 29,100 | ||||||
| Total operating expenses | 519,515 | 1,125,458 | ||||||
| Net investment gain/(loss) | (26,091 | ) | (650,822 | ) | ||||
| Realized Gain on Investments: | ||||||||
| Net realized gain on investments | 252,811 | 927,085 | ||||||
| Net gain on investments | 252,811 | 927,085 | ||||||
| Net income | $ | 226,720 | $ | 276,263 | ||||
See accompanying notes, which are an integral part of these financial statements
| 4 |
American Homeowner Preservation 2015A+, LLC
STATEMENT OF CHANGES IN MEMBER’S EQUITY
For the 6 months ending June 30, 2019 (unaudited)
| Class A Units | Class M Units | Total | ||||||||||
| Balance, December 31, 2018 | $ | 32,819,548 | $ | 10,000 | $ | 32,829,548 | ||||||
| Issuance of Units | – | – | – | |||||||||
| Distribution of Units | (2,602,013 | ) | – | (2,602,013 | ) | |||||||
| Pro-rata allocation of net income | 226,720 | – | 226,720 | |||||||||
| Balance, June 30, 2019 | $ | 30,434,255 | $ | 10,000 | $ | 30,444,255 | ||||||
See accompanying notes, which are an integral part of these financial statements
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American Homeowner Preservation 2015A+, LLC
For the 6 months ending June 30, 2019 and 2018 (unaudited)
| 2019 | 2018 | |||||||
| Cash Flows from operating activities | ||||||||
| Net income | $ | 226,720 | $ | 276,263 | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Net realized gain on investments | (252,811 | ) | (927,085 | ) | ||||
| Purchases of investments | (1,975,631 | ) | (6,830,961 | ) | ||||
| Proceeds from sales of investments | 2,733,829 | 4,071,717 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Real estate owned | 19,076 | (62,977 | ) | |||||
| Due from related parties | 370,439 | (71,530 | ) | |||||
| Other assets | 45,513 | (210,964 | ) | |||||
| Accounts payable | 490,517 | (57,642 | ||||||
| Due to related parties | (121,891 | ) | 52,606 | ) | ||||
| Net cash used in operating activities | 1,535,761 | (3,760,573 | ) | |||||
| Cash flow from financing activities | ||||||||
| Issuance of units | – | 21,733,323 | ||||||
| Distribution of units | (2,612,014 | ) | (3,499,812 | ) | ||||
| Payments for notes payable | (227,466 | ) | (4,007,820 | ) | ||||
| Net cash provided by financing activities | (2,839,480 | ) | 14,225,691 | |||||
| Net change in cash | (1,303,719 | ) | 10,465,118 | |||||
| Cash at beginning of period | 2,245,016 | 565,890 | ||||||
| Cash at end of the period | $ | 941,297 | $ | 11,031,008 | ||||
See accompanying notes, which are an integral part of these financial statements
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AMERICAN HOMEOWNER PRESERVATION 2015A+, LLC
| A. | ORGANIZATION AND NATURE OF OPERATIONS |
American Homeowner Preservation 2015A+, LLC (the “Company”), is a limited liability company organized on January 21, 2016 under the laws of state of Delaware. The Company is wholly owned by its parent company, Neighborhoods United, LLC, a limited liability company organized under the laws of Delaware. AHP Capital Management LLC (the “Investment Adviser”), also a subsidiary of Neighborhoods United, LLC, shall provide investment advisory services to the Company. AHP Servicing, LLC (“AHPS”), also a subsidiary of Neighborhoods United, LLC, shall provide asset management services to the Company as well as subservicing for a portion of the Company’s mortgage loans.
The Company was formed to purchase non-performing mortgage loans (loans that are secured by a mortgage on real estate and delinquent on payments).
| B. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in United States of America (“GAAP”) a nd are stated in U.S. dollars.
In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 946, Financial Services – Investment Companies (“ASC 946”), the Fund has determined that it is an investment company and has applied the guidance in accordance with ASC 946.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers cash equivalents to be short-term, highly liquid investments, such as money market funds that are readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value due to changes in interest rates, which generally includes only investments with original maturities of three months or less.
Revenue and Cost Recognition
The Company earns revenues by selling purchased mortgage loans and through interest earned from obligors on purchased mortgage loans held by the Company. The Company recognizes revenue in accordance with FASB ASC 605,Revenue Recognition, only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the services have been provided, and collectability is assured. Expenses are recognized as incurred.
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AMERICAN HOMEOWNER PRESERVATION 2015A+, LLC
NOTES TO FINANCIAL STATEMENTS
| B. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED |
Organizational Costs
In accordance with FASB ASC 720, organizational costs, including accounting fees, legal fees, and costs of incorporation, are expensed as incurred.
Income Taxes
The Company is a limited liability company. Accordingly, under the Internal Revenue Code, all taxable income or loss flows through to its members. Therefore, no provision for income tax has been recorded in the statements. Income from the Company is reported and taxed to the members on their individual tax returns.
The Company accounts for income taxes under FASB ASC 740, Income Taxes. FASB ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. FASB ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. FASB ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. FASB ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements. The Company believes that its income tax positions would be sustained on audit and does not anticipate any adjustments that would result in a material change to its financial position.
Real Estate Owned
Real estate owned includes real estate acquired in full or partial settlement of loan obligations plus capitalized construction and other development costs incurred while preparing the real estate for sale. At the time of foreclosure, the property is recorded at the acquisition price. Improvements made to real estate owned property are capitalized. The maintenance of the real estate owned, including expenses associated with the property's disposition, is expensed as incurred. The Fund actively works to sell the acquired real estate, and gains or losses on these dispositions are recorded as realized gains or losses.
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AMERICAN HOMEOWNER PRESERVATION 2015A+, LLC
NOTES TO FINANCIAL STATEMENTS
| C. | FAIR VALUE MEASUREMENTS |
FASB ASC 820,Fair Value Measurements and Disclosures(“ASC 820”), defines fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not assumptions specific to the entity.
ASC 820 specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon the market data obtained from independent sources (observable inputs). In accordance with ASC 820, the following summarizes the fair value hierarchy:
Level 1 Inputs – Unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.
Level 2 Inputs – Inputs other than the quoted market prices in active markets that are both observable either directly or indirectly.
Level 3 Inputs – Inputs based on prices or valuation techniques that are both unobservable and significant to the overall fair value measurements.
ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurements. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
While the Company believes its valuation methods are appropriate and consistent with those used by other market participants, the use of different methods or assumptions to estimate the fair value of certain financial statement items could result in a different estimate of fair value at the reporting date. Those estimated values may differ significantly from the values that would have been used had a readily available market for such items existed, or had such items been liquidated, and those differences could be material to the financial statements.
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AMERICAN HOMEOWNER PRESERVATION 2015A+, LLC
NOTES TO FINANCIAL STATEMENTS
| C. | FAIR VALUE MEASUREMENTS – CONTINUED |
The following is a description of the valuation methodologies used by the Company for assets measured at fair value.
Valuation of Non-Performing Mortgage Loans
After purchasing a loan, the Company attempts to reach out to the obligor on the mortgage loan to achieve a speedy resolution that is acceptable to both the obligor and the Company through one or more of the following resolutions: A) The obligor is able to refinance the mortgage loan and continue to reside in the underlying real estate; B) Without refinancing, the Company accepts a discounted lump sum to sell the mortgage loan and the obligor continues to reside in the underlying real estate; C) The Company will modify the terms of the mortgage loan and the obligor continues to reside in the underlying real estate; D) Where the obligor cannot afford to stay in the real estate, the Company will take ownership of the underlying real estate, either on a consensual basis or through repossession by foreclosure, and sell it to another party. The Company’s management has broad discretion with respect to the specific application of the net proceeds of its proposed offering, although substantially all of the net proceeds of the proposed offering are intended to be generally applied toward these business purposes.
At June 30, 2019, the Company had investments in non-performing mortgage loans totaling $30,167,761, which includes $443,940 of principal payments collected and $7,621,521 of acquisition costs, measured using net asset value as a practical expedient, which are not categorized in the fair value hierarchy.
The Company has established valuation processes and policies for its investments to ensure that the methods used are fair and consistent in accordance with ASC 820. The Value of Assets Remaining is primarily the value assigned to the remaining assets as of the time they were purchased, in some cases written down (but not up). The Investment Adviser uses a proprietary pricing tool to evaluate loan purchases. The proprietary pricing tool takes into account factors that include, but are not limited to, the estimated value of the real estate securing each loan and the history of loan payments. The Company reevaluates the value of its assets periodically.
| D. | PROMISSORY NOTE PAYABLE |
The Company executed a secured promissory note dated December 29, 2017 with Keystone National Group, LLC. The interest is assessed on a fixed rate basis, at rate of 12% per annum. The note is collateralized by various non-performing mortgage loans and other assets of the Company. At June 30, 2019, there was no amount due to Keystone National Group, LLC.
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AMERICAN HOMEOWNER PRESERVATION 2015A+, LLC
NOTES TO FINANCIAL STATEMENTS
| E. | LINE OF CREDIT |
During 2018, the Company issued an unsecured line of credit to a related party with an availability of $1,000,000, at an interest rate of 20% per annum, and a maturity date of January 19, 2020. There was no outstanding balance on the line of credit at June 30, 2019 and no interest income for the period then ended.
| F. | CREDIT RISK |
The Company is subject to credit risk to the extent that the banks and brokers the Company conducts business with are unable to fulfill their contractual obligations and the amounts exceed those insured by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation. Management of the Company monitors these counterparties and does not expect any losses.
| G. | RELATED PARTY TRANSACTIONS |
The Company will bear a monthly management fee equal to 0.1667% (2% annually) of the aggregate capital accounts of the members as of the last day of each calendar month, plus a monthly fee of up to $60 for each active asset of the company. Such management fee shall be paid to the Managing Member (or its subcontractor) no later than the fifteenth (15th) day of the following month. The Managing Member shall be responsible for the compensation of the Investment Adviser. The Company will also bear fees, costs, and expenses as reasonably determined by the Managing Member.
Due from related parties represents amounts receivable to the Company for payments made on behalf of related companies under common management that enter into similar transactions with the same counterparty. In the event related companies are unable to fulfill their obligations with the counterparty, the Company may be required to perform to the extent the related companies have outstanding obligations. As of June 30, 2019, there were no balances due from related parties.
The Managing Member made a capital contribution of $10,000 to the Company in exchange for its Class M Interest, consisting of 10,000 Class M Units.
| H. | MEMBERS’ EQUITY |
The debts, obligations, and liabilities of the Company, whether arising in contract, tort, or otherwise, are solely the debts, obligations, and liabilities of the Company, and no member of the Company is obligated personally for any such debt, obligation, or liability.
The Company allows for accredited and non-accredited investors. The Securities and Exchange Commission (SEC) has specific requirements that need to be met to be considered an accredited investor. Non-accredited investors have a limitation on how much can be invested in the Offering. The Interests in the Company are divided into two classes of interest: “Class A Interests” (or “Class A Units”) and “Class M Interests” (or "Class M Units”). All of the Class M Interests shall be owned by the Managing Member, as defined in Note E. The Class A Interests shall be owned by members whose subscriptions are accepted by the Managing Member to own Class A Interests, which may include the Managing Member and/or its affiliates.
Members owning a Class A Interest are referred to as “Class A Members” and members owning a Class M Interest are referred to as “Class M Members.” The Class A Interest of a Class A Member shall be equal to a fraction, the numerator of which is such Class A Member’s Capital Contribution to the Company and the denominator of which is the aggregate of all Capital Contributions made to the Company.
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AMERICAN HOMEOWNER PRESERVATION 2015A+, LLC
NOTES TO FINANCIAL STATEMENTS
| H. | MEMBERS’ EQUITY – CONTINUED |
The Managing Member shall manage and conduct the business and affairs of the Company, in accordance with the operating agreement. No other member shall participate in the management of the Company. Therefore, Class A Members have no voting rights. The Managing Member is under no obligation to fund Company cash flow deficits, incur the obligations, debts, or liabilities of the Company, or otherwise provide direct or indirect financial assistance to the Company.
Each Class A Member shall make a Capital Contribution to the Company in an amount determined by the Managing Member. The Managing Member has made a Capital Contribution of $10,000 to the Company in exchange for its Class M Interest, as described in Note E. The number of interests and capital accounts in the Company are unlimited; however, the Company is limited to no more than $50,000,000 in capital contributions during any period of twelve month period.
All distributions made by the Company, including but not limited to distributions in liquidation, are to be made in the following order of priority: A) First, the Company is to distribute to each Class A Member an amount equal to the Class A Preferred Return as defined below; B) Second, the Company is to distribute to each Class A Member an amount equal to such Class A Member’s Unreturned Investment as defined below; and C): Third, the Company is to distribute the balance to the Class M Members.
For the purposes of the foregoing paragraph, the following definitions apply:
| · | Class A Preferred Return: An amount such that, as of the date of any distribution, such Class A Member has received a compounded return of 12% with respect to such Class A Member’s Unreturned Investment since the date of such Class A Member’s capital contribution. |
| · | Unreturned Investment: Class A Member’s capital contribution, reduced by previous distributions made to such Class A Member. |
The Managing Member must try to return all of the money invested by each Class A Member no later than the fifth (5th) anniversary following the investment. If the Company doesn’t have enough money, Class A Members might receive a return of their investment later than five years, or not at all. If the Company is profitable, its intention is that investors will receive a return of their investment sooner than five years.
Likewise, the Company’s profits and losses are allocated 100% to Class A Interests outstanding on a pro rata basis until a 12% compounded return on all Class A Interests’ Unreturned Investment is achieved. All profits and losses thereafter are allocated to Class M Interests outstanding on a pro rata basis. For the six month ended June 30, 2019, the Company’s net income was allocated 100% to the Class A Interests.
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Item 4
Exhibits
*All Exhibits are incorporated by reference to those previously filed.
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Signatures
Pursuant to the requirements of Regulation A, the issuer has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DATED: September 30, 2019
| AMERICAN HOMEOWNER PRESERVATION 2015A+, LLC | |
| By Jorge Newbery | |
| Jorge Newbery, President and CEO |
This offering statement has been signed by the following persons in the capacities and on the dates indicated.
/s/ Jorge Newbery
Jorge Newbery,
President and Chief Executive Officer
September 30, 2019
/s/ Jeremiah Kaye
Jeremiah Kaye,
Vice President, Accounting & Finance
September 30, 2019
