| 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, which, subject to the Company successfully establishing the required infrastructure, may
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,
if issued, 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. The Company entered into an Amended and Restated
Limited Partnership Agreement (the “Amended and Restated Partnership Agreement”) of the Operating Partnership, as of September
30, 2022, with NRI Real Token Thesis LLC, a Delaware limited liability company (“NRI Thesis”) and the limited partners of
NRI Real Token LP, for the purpose of amending the Limited Partnership Agreement of NRI Real Token LP, dated November 19, 2021, as amended
by the First Amendment to Limited Partnership Agreement on April 11, 2022 which designated a series of preferred units in the Operating
Partnership (collectively, the “Original Partnership Agreement”), to (i) assign all the rights and obligations of NRI Thesis,
as a general partner of the Operating Partnership, to the Company and convert the general partnership interest held by NRI Thesis into
a limited partnership interest, and (ii) redesignate the “Special GP Interest” (as such term is defined in the Original
Partnership Agreement) as the “Special OP Units” as set forth in the Amended and Restated Partnership Agreement. The
effect of this amendment and restatement of the Original Partnership Agreement is to make the Company the sole general partner of the
Operating Partnership with the full, complete and exclusive discretion of manage and control the business of the Operating Partnership.
The Amended and Restated Partnership Agreement otherwise retains all material terms of the Original Partnership Agreement. In accordance with ASC 810-10-15- Control Under consolidation guidance, we have determined
that our Operating Partnership is a variable interest entity because the holders of limited partnership interests do not have substantive
kick-out rights or participating rights. Furthermore, we are the primary beneficiary of the Operating Partnership because we have the
obligation to absorb losses and the right to receive benefits from the Operating Partnership and the exclusive power to direct the activities
of the Operating Partnership. As of September 30, 2022 and December 31, 2021, the assets and liabilities of the Company and
the Operating Partnership are substantially the same, as the Company does not have any significant assets other than its investment in
the Operating Partnership. 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 and nine months ended September 30, 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 September 30, 2022 and 2021: 9/30/2022 9/30/2021 Cash and cash equivalents $ 2,067,700 $ 3,915,622 Restricted cash 2,619,677 1,196,441 Cash, restricted cash, and cash equivalents $ 4,687,377 $ 5,112,063 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 September 30, 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 September 30, 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 November 14, 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. Under Maryland law, stockholders generally are not liable for a corporation’s
debts or obligations. Shares Outstanding consist of the following at
September 30, 2022 and September 30, 2021:
9/30/2022 9/30/2021
Shares Shares Book Value Shares Shares Book Value
Series A Preferred Stock 10,000,000 110 $ 1,000 - - $ -
(par value $0.01)
Common Stock 490,000,000 8000 $ 12.50 - - $ -
(par value $0.01)
Weighted Average Shares 500,000,000 8110 $ 25.89 - - $ - The Company has not presented earnings (loss)
per share on the accompanying statements of operations as such information is not meaningful. 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, 6,960 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. |
