| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 1. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES Organization NRI
Real Estate Investment and Technology, Inc., a Maryland corporation and formerly known as NRI Real Token, Inc. (the “Company”)
was incorporated on June 2, 2021 for the initial purpose of owning, developing and managing THesis Miami, located at 1350 S. Dixie Highway,
Coral Gables, Florida 33146. THesis Miami includes a hotel, apartments, retail (restaurants and shopping) units and a parking garage
which we refer to herein as the Property or the real estate asset. The Company conducts substantially all of its business through its
operating partnership, NRI Real Token, LP, a Delaware limited partnership (the “Operating Partnership”). Prior to November
19, 2021, the Property was owned and operated by 1350 S Dixie Holdings LLC (the “Property Owner”) which was acquired by the
Operating Partnership on November 19, 2021 (the “Closing Date”). The Property Owner was formed on February 22, 2016. The
Property Owner, through a wholly-owned subsidiary, 1350 S Dixie LLC (the “Prior Operating Company”), which was also formed
February 22, 2016, entered into a real estate transaction through which it acquired land and a hotel during 2016 with the intent to develop
the Property. On March 21, 2016, the Prior Operating Company purchased the land, building, furniture and equipment for $44,000,000 of
which $21,500,000 was paid by obtaining a loan. The prior hotel operated until June 2, 2017 at which time the Property Owner demolished
the existing building and commenced construction of the Property. On
July 9, 2021, the Company commenced an offering (the “Offering”) of up to $85,000,000 limited partnership units (the “OP
Units”) in a private placement to qualified purchasers who meet the definition of “accredited investors,” as provided
in Regulation D of the Securities Act of 1933, as amended (the “Securities Act”). Upon election of the limited partner, subject
to certain limitations, each OP Unit is convertible into one share of common stock of the Company, to be issued in the form of digital
securities (distributed ledger shares) which are designated as NRI Real Estate Investment and Technology Security Tokens (the “Security
Tokens”), or, at the election of the Company, cash in an equivalent value. Each Security Token will represent one share of common
stock of the Company. Pursuant to the Offering, which concluded on December 31, 2021, the Operating Partnership issued 7,742,309 OP Units
resulting in gross offering proceeds of approximately $79.4 million. The net proceeds from the Offering, approximately $73 million, were
used to redeem approximately $73 million of interests of 54 Madison Capital, LP (the “Investor Member”) and to pay corresponding
closing costs. In accordance with ASC 810-10-15- Control Section 7.4.a and Section 6.1.b.viii
of the Operating Agreement of NRI Real Token LP, outlines the following: the at-risk equity holders lack the ability to remove the General
Partner, lack kick-out rights, and lack the ability to dissolve the Partnership. The at-risk equity holders maintain their right to receive
their pro-rata share of gains and losses in the partnership per section 5 of the Operating Partnership Agreement. The at-risk equity holders
are not required to absorb additional losses of the Partnership. Lastly, the legal entity is structured with non-substantive voting rights.
Through review of the Operating Agreement, the at-risk equity holders lack the ability to replace the fund manager or general partner,
lack the ability influence or control major decisions impacting the financial performance of the entity including the ability to approve
compensation, and lack the ability to determine the overall investment strategy of the entity based on section, Section 7.4 and Section
8.1 of the Operating Agreement. Based on foregoing analysis, the
Company considered ASC 810-10-15, and determined that the Company’s general partnership interest in NRI Real Token LP should
be accounted for as a VIE, and as a result, the financials of NRI Real Token LP have been consolidated in accordance with ASC
810-10-15 and within the financials of the Company presented herein. Basis
of preparation The accompanying unaudited consolidated
financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”)
for interim financial information and with the general instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and notes required by US GAAP for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals), considered necessary for a fair presentation have been included. Operating results
for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending
December 31, 2022 or any future period. Accordingly, readers of these consolidated interim financial statements should refer
to the Company’s audited financial statements prepared in accordance with US GAAP, and the related notes thereto, for the year ended
December 31, 2021, which are included in the Company’s recent filing on Form 10 (and amendments thereto), as certain footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed
or omitted from this report pursuant to the rules of the Securities and Exchange Commission. Principles
of consolidation The
consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. Use
of estimates The
preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash,
restricted cash, and cash equivalents Restricted
cash consists of cash held in accounts specifically for future payments of interest and real estate taxes, reserves for replacement of
furniture, fixtures and equipment and tenant security deposits for the residential apartment leases. The
following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated statements of
cash flows at March 31, 2022 and 2021:
3/31/2022 3/31/2021
Cash and cash equivalents $ 4,349,054 $ 2,507,685
Restricted cash 3,133,126 1,313,361
Cash, restricted cash,
and cash equivalents $ 7,482,180 $ 3,821,046 Real
estate asset, net Costs
associated with the acquisition, development, and construction of the Property were capitalized in accordance with Accounting Standards
Codification (“ASC”) 970-360-25, Real Estate Project Costs. Property
and equipment, also included as part of the real estate asset, are recorded at cost, with depreciation being recognized over the assets’
estimated useful life on the straight-line basis as follows:
Years
Building and improvements 39
Furniture, fixtures and equipment 7 Expenditures
for major improvements and betterments are capitalized and minor repairs and maintenance are charged to expense as incurred. Income
taxes The
Property Owner is organized as a limited liability company and has elected to be treated as a partnership for federal and state income
tax purposes. Accordingly, the members of the Property Owner are taxed on their proportional share of the Property Owner’s taxable
income (loss). Therefore, no provision for federal and state corporate income taxes has been included in these consolidated financial
statements. The
Property Owner recognizes the tax benefits from uncertain tax positions that the entity has taken or expects to take on a tax return.
In the unlikely event an uncertain tax position existed in which the Property Owner could incur income taxes, the Property Owner would
evaluate whether there is a probability that the uncertain tax position taken would be sustained upon examination by a taxing authority.
Reserves for uncertain tax positions would then be recorded if the Property Owner determined it is probable position would not be sustained
upon examination. As
of March 31, 2022, the Company does not believe it has any uncertain tax positions that would result in the Company having
a liability to the taxing authority. It is the Company’s policy to accrue any interest and penalties associated with its
tax obligations when paid. There were no income tax related interest or penalties for the periods ended March 31, 2022 and 2021. The
Company is organized as a C Corp and the Operating Partnership is organized as a limited partnership. Jointly the Company and Operating
Partnership form a REIT structure. The Company intends to elect REIT status for the 2022 tax year. Revenue
recognition Upon
completion of construction in June 2020, the Company (through the Property Owner) began generating revenues from the real estate asset.
The primary sources of revenue include room and food and beverage revenue from the Company’s hotel and restaurants and rental income
from the Property Owner’s residential apartments and retail space. Rooms
revenue represents revenue from the occupancy of our hotel rooms, which is driven by the occupancy and average daily rate charged. Rooms
revenue includes revenue from guest no-shows, daily use, and early/late departure fees. The contracts for room stays with customers are
generally short in duration and revenues are recognized as services are provided over the course of the hotel stay at the daily transaction
price agreed under the contract. Food
and beverage revenue consists of revenue from the restaurants and lounges, in room dining and mini bars revenue, and banquet/catering
revenue from group and social functions. Payment of the transaction price is due immediately when the customer purchases the goods and
services. Therefore, revenue is recognized at a point in time when the physical possession has transferred to the customer. Residential
rental and other property income is recognized over the term of the tenant leases, which is generally for 12 months, when collectability
is probable and the tenant has taken possession or controls the physical use of the lease asset. Lease incentives to secure new tenants
are recognized as they are incurred given the short-term nature of the related lease arrangements. Reimbursements from tenants for utilities
and shared expenses are recognized as revenue and are included in rental and other property income in the period the expenses are incurred,
with the corresponding expenses included in residential property operating expenses. Additionally, nonrefundable lease application and
administrative fees are recognized as they are earned. Parking
revenue consists of transient self-parking, month-to-month rentals and valet parking. For transient self-parking and valet parking, revenue
is recognized at a point in time at the respective transaction price once services are completed. For month-to-month rentals, revenue
is recognized over time based on the terms of the rental agreement. Other
revenue primarily includes rental income from certain retail leases which is recognized over the term of the respective lease agreement. Debt
issuance costs Cost
incurred to acquire debt are recorded as a reduction against the notes payable. Amortization of debt issuance costs is calculated using
the straight-line method over the term of the notes payable. Amortization expense during development of the Property was included in
the real estate asset on the consolidated balance sheet. Upon the Property being placed into service in June 2020, amortization expense
is included in interest expense on the consolidated statements of operations. Description
of Securities The
Company is authorized to issue 490,000,000 shares of common stock, $0.01 par value per share (“common stock”), and 10,000,000
shares of preferred stock, $0.01 par value per share (“preferred stock”). The charter authorizes the board of directors,
with the approval of a majority of the entire board and without any action on the part of stockholders, to amend the charter to increase
or decrease the aggregate number of shares of stock that the Company is authorized to issue or the number of authorized shares of any
class or series of stock of the Company. As of May 12, 2022, 8,000 shares of common stock, 110 shares of Series A Preferred Stock and
no shares of any other class or series of stock of the Company are issued and outstanding. See subsequent events for details regarding
the issuance of 6,960 common shares after the financial statement date. Under Maryland law, stockholders generally are not liable for
a corporation’s debts or obligations. Shares
Outstanding consist of the following at March 31, 2022 and March 31, 2021:
3/31/2022 3/31/2021
Shares Shares Book
Value Shares Shares Book
Value
Series A Preferred Stock 10,000,000.00 110 $ 1,000 - - $ -
(par value $0.01)
Common Stock 490,000,000.00 1040 $ 12.50 - - $ -
(par
value $0.01)
Weighted Average Shares 500,000,000.00 1150 $ 107 - - $ - The
Company has not presented earnings (loss) per share on the accompanying statements of operations as such Series
A Preferred Stock has the following rights and privileges:
● The
shares of Series A Preferred Stock are senior to all classes and series of the Company’s stock, including shares of common stock
of the Company.
● Dividends on outstanding shares of Series A Preferred Stock accrue on a daily basis at the rate of 12.0% per annum, and will be cumulative
from and including the date of issuance. Dividends on the shares of Series A Preferred Stock are be payable semiannually, in arrears,
on June 30 and December 31 of each year, when, as and if authorized by the board of directors of the Company and declared by the Company.
● The
holders of shares of Series A Preferred Stock will not be entitled to vote in the election
of directors or on any other matters submitted to the Company’s stockholders.
● The
Company’s outstanding shares of Series A Preferred Stock are subject to redemption,
in whole or in part, at any time, upon notice by the Company to the record holder of the
shares of Series A Preferred Stock to be redeemed.
● In
the event of any voluntary or involuntary liquidations, dissolution or winding up of the
Company’s affairs, the holders of outstanding shares of Series A Preferred Stock will
be entitled to be paid, out of the Company’s assets legally available for distribution,
a liquidation preference per share of Series A Preferred Stock equal to $1,000 plus the amount
of accrued and unpaid dividends.
● Series
A Preferred Stock is not convertible. On April 11, 2022 the Board of Directors
authorized the issuance of up to 7,000 shares of Common Stock to U.S. persons, selected by NRI Real Token Advisors LLC, in exchange for
cash consideration of not less than $12.50 per share. On the date of the board resolution, 6,690 common shares were issued for $87,000.
The total common shares outstanding after this transaction was 8,000. New
Accounting Pronouncement In
March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-4, Reference Rate Reform (Topic 848):
Facilitation of the Effects of Reference Rate Reform on Financial Reporting Reference
Rate Reform (Topic 848), Scope,
● Allowing
modifications of debt contracts with lenders that fall under the guidance of ASC Topic 470 to be accounted for as a non- substantial
modification and not be considered a debt extinguishment.
● Allowing
a change to contractual terms of a hedging instrument in conjunction with reference rate
reform to not require a designation of the hedging relationship.
● Allowing
a change to the interest rate used for margining, discounting, or contract price alignment
for a derivative that is a cash flow hedge to not be considered a change to the critical
terms of the hedge and will not require a designation of the hedging relationship. We
have not entered into any contract modifications yet, as it directly relates to reference rate reform, but we anticipate having to undertake
such modifications in the future as a majority of our contracts with lenders and hedging counterparties are indexed to LIBOR. |
