SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2016

 

OR

 

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from        to

 

Commission file number    000-55309

 

USA CAPITAL MANAGEMENT, INC.

(Exact name of registrant as specified in its charter)

 

Puerto Rico		47-2128828
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

 

404 Ave Constitucion # 208

San Juan, Puerto Rico 00901-2251

(Address of principal executive offices) (zip code)

 

787-900-5048

(Registrant's telephone number, including area code)

 

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 x No ¨

 

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

 

Large accelerated filer ¨	Accelerated Filer ¨
Non-accelerated filer ¨	Smaller reporting company x
(do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

 

Indicate the number of shares outstanding of each of the issuer's classes of stock, as of the latest practicable date.

 

		Outstanding at
Class		November 14, 2016
Common Stock, par value $0.0001			3,000,000

 

Documents incorporated by reference: None

 

 

 

UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

Unaudited Consolidated Financial Statements	3-5
Notes to Unaudited Consolidated Financial Statements	6-9

 

 

USA Capital Management, Inc

Consolidated Balance Sheets

 

ASSETS		September 30, 2016 (Unaudited)				December 31, 2015
Current Assets
Cash		$	353,976			$	593,611
Accounts receivable			500,000				-
Deposits			11,003				261,003
Total Currrent Assets			864,979				854,614
Property and Equipment:
Capitalized costs			154,030				102,248
Land			1,529,455				1,267,115
Building, Improvements and Equipment			275,000				275,000
Less: Accumulated Depreciation			(15,000	)			(7,500	)
Property and Equipment, net of accumulated depreciation			1,943,485				1,636,863
Escrow costs			25,451				25,451
Less: Accumulated Amortization			(1,173	)			(479	)
Escrow Costs, net of accumulated amortization			24,278				24,972
TOTAL ASSETS		$	2,832,742			$	2,516,449
LIABILITIES and STOCKHOLDERS' EQUITY(DEFICIT)
LIABILITIES
Accounts Payable and Accrued Expenses		$	309,159			$	738,949
Total Current Liabilities			309,159				738,949
Note Payable			750,000				750,000
TOTAL LIABILITIES			1,059,159				1,488,949
STOCKHOLDERS' EQUITY
Stockholders' Equity:
Preferred stock, $0.0001 par value, 20,000,000 shares authorized;
none issued and outstanding as of  March 31, 2016 and			-				-
December 31, 2015, respectively.
Common  Stock, $0.0001 par value, 100,000,000 shares authorized;
3,000,000 shares issued and outstanding as of March 31, 2016			300				300
and December 31, 2015, respectively
Discount on Common stock			(300	)			(300	)
Additional Paid in Capital			1,231,634				1,189,821
Retained Earnings(Accumulated Deficit)			541,949				(162,321	)
TOTAL STOCKHOLDERS' EQUITY			1,773,583				1,027,500
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT)		$	2,832,742			$	2,516,449

 

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

 

 

 

USA Capital Management, Inc

Unaudited Condensed Statement of Operations

 

		For the Three Months Ended September 30, 2016				For the Nine Months Ended September 30, 2016				For the Three Months Ended September 30, 2015				For the Nine Months Ended September 30, 2015
Consulting Fees, related party		$	300,000			$	900,000			$	-			$	-
Expenses:
Salaries & wages		$	15,333			$	29,333			$	-			$	-
Payroll taxes			1,602				2,923				-				-
Payroll processing fees			200				350				-				-
Utilities			1,610				5,907				2,007				2,007
Property taxes			4,156				11,218				6,040				6,040
Property insurance			750				750				750				1,472
Tax & Licenses			325				7,482				-				-
Municipal & state taxes			12				142				-				-
Legal and professional fees			19,545				56,689				4,760				4,760
Review and audit fees			3,775				11,125				4,100				4,100
Homeowners association fees											(1,003	)			501
Depreciation & amortization			2,731				8,194				2,728				5,248
Office supplies			-				997				-				-
Bank charges			205				521				-				-
Total Expenses			50,244				135,631				19,382				24,128
Income(Loss) from Operations			249,756				764,369				(19,382	)			(24,128	)
Other Expenses:
Interest Expense			9,584				28,542				8,958				8,958
Total Other Expenses			9,584				28,542				8,958				8,958
Net Income (Loss) before income taxes			240,172				735,827				(28,340	)			(33,086	)
Income taxes			10,085				31,558				-				-
Net Income ( Loss)		$	230,087			$	704,269			$	(28,340	)		$	(33,086	)
Earnings (Loss) Per Share - basic and diluted		$	0.08			$	0.23			$	-			$	-
Weighted average shares-basic and diluted			3,000,000				3,000,000				3,000,000				10,722,894

 

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

 

 

 

USA Capital Management, Inc.

Unaudited Consolidated Statement of Cash Flows

 

		For the Nine Months Ended September 30, 2016				For the Nine Months Ended September 30, 2015
OPERATING ACTIVITIES
Net Income(Loss)		$	704,269			$	(33,086	)
Non-cash adjustments to reconcile net income to net cash:
Depreciation and amortization			8,194				5,248
Changes in Operating Assets and Liabilities:
Increase in accounts receivable			(500,000	)			-
(Increase)Decrease in deposits			250,000				(251,003	)
Increase(Decrease) in accounts payable and accrued expenses			(429,790	)			15,952
Total adjustments to reconcile net loss to net cash			(671,596	)			(229,803	)
Net cash provided from (used in) operating activities		$	32,673			$	(262,889	)
INVESTING  ACTIVITIES
Increase in capitalized costs			(51,781	)			-
Net cash used in investing activities		$	(51,781	)		$	-
FINANCING ACTIVITIES
Proceeds(Uses) from issuance of stockholders contribution			(220,527	)			262,889
Net cash provided(Used) by financing activities		$	(220,527	)		$	262,889
Net decrease in cash			(239,635	)			-
Cash, beginning of period			593,611				-
Cash, end of period		$	353,976			$	-
Supplemental cash flow information:
Interest paid		$	-			$	-
Income tax paid		$	-			$	-
Non-Cash transaction:
Purchase of Fixed assets from related party		$	262,340			$	2,310,451

 

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

 

 

 

NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

NATURE OF OPERATIONS

 

USA Capital Management, Inc. ("USA Capital" or "the Company") was incorporated on September 25, 2014 and is a Puerto Rican corporation with its principal place of business in San Juan, Puerto Rico. The Company’s operations include management consulting services and the acquisition of various properties for development. The Company has been granted tax benefits in Puerto Rico under ACT 20-2012. This allows the Company to benefit from significant income tax advantages, including a 4% tax on taxable income. The Company will pursue other fee generating management contracts which may include carried interest, outside of Puerto Rico. USA Capital Management, Inc. intends to provide management services to Limited Liability Companies that are formed to promote, invest and operate business opportunities globally.

 

BASIS OF PRESENTATION

 

The summary of significant accounting policies presented below is designed to assist in understanding the Company's unaudited condensed financial statements. Such unaudited condensed financial statements and accompanying notes are the representations of the Company's management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America ("GAAP") in all material respects, and have been consistently applied in preparing the accompanying unaudited condensed financial statements.

 

Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") were omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements and footnotes included in the Company's Annual Report on Form 10-K filed with the SEC on April 15, 2016. The results for the nine months ended September 30, 2016, are not necessarily indicative of the results to be expected for the year ending December 31, 2016.

 

USE OF ESTIMATES

 

The preparation of unaudited consolidated financial statements in conformity with 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 consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

CASH

 

Cash and cash equivalents include cash on hand and on deposit at banking institutions as well as all highly liquid short-term investments with original maturities of 90 days or less. The Company had cash of $353,976 as of September 30, 2016 and $593,611 as of December 31, 2015. The Company has no cash equivalents.

 

CONCENTRATION OF RISK

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash. The Company places its cash with high quality banking institutions. The Company did have cash balances in excess of the Federal Deposit Insurance Corporation limit as of September 30, 2016 and December 31, 2015 by $103,976 and $343,611  respectively.

 

INCOME TAXES

 

Under ASC 740, "Income Taxes," deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established when it is more likely than not that some or all of the deferred tax assets will not be realized. As of September 30, 2016 there were no deferred taxes due to the uncertainty of the realization of net operating loss or carry forward prior to expiration.

 

 

EARNINGS PER COMMON SHARE

 

Basic earnings per common share excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per common share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. As of September 30, 2016, there were no outstanding dilutive securities.

 

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The Company follows guidance for accounting for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the condensed financial statements (unaudited) on a recurring basis. Additionally, the Company adopted guidance for fair value measurement related to nonfinancial items that are recognized and disclosed at fair value in the condensed financial statements (unaudited) on a nonrecurring basis. The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

 

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

 

Level 2 inputs are inputs other than quoted prices included within Level 1that are observable for the asset or liability, either directly or indirectly.

 

Level 3 inputs are unobservable inputs for the asset or liability.

 

The carrying amounts of financial assets such as cash approximate their fair values because of the short maturity of these instruments.

 

 

NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS

 

On June 12, 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (ASU) No. 2015-10-Technical Corrections and Improvements. The amendments in this Update cover a wide range of Topics in the Codification. The amendments in this Update represent changes to make minor corrections or minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. This Accounting Standards Update is the final version of Proposed Accounting Standards Update 2014-240-Technical Corrections and Improvements, which has been deleted. Transition guidance varies based on the amendments in this Update. The amendments in this Update that require transition guidance are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. All other amendments will be effective upon the issuance of this Update. Management is in the process of assessing the impact of this ASU on the Company's financial statements.

 

NOTE 3 - STOCKHOLDERS' EQUITY

 

The Company is authorized to issue 100,000,000 shares of common stock and 20,000,000 shares of preferred stock, 3,000,000 shares of common stock and no preferred stock were issued and outstanding as of September 30, 2016 and December 31, 2015, respectively.

 

 

The Company effected a change in control on May 5, 2015 with the redemption and cancellation of the 20,000,000 shares of outstanding common stock, the resignation of the then officers and directors and the election of Richard Meruelo as President, Secretary and Chief Financial Officer. Richard Meruelo was named director of the Company.

 

On May 6, 2015, USA Capital issued 3,000,000 shares of its common stock pursuant to Section 4(2) of the Securities Act of 1933 at par representing 100% of the total outstanding 3,000,000 shares of common stock as follows:

  

Richard Meruelo

3,000,000

 

 NOTE 4 – PROPERTY

 

The Company has purchased the following through September 30, 2016:

 

Description		Purchase Date		Purchase Amount
Building		04/01/15		$	275,000
Land		07/09/15		$	1,267,115
Land		08/31/16		$	262,340
Accumulated Depreciation				$	(15,000	)
Total Property & Equipment, net				$	1,789,455

  

These purchases were funded by paid in capital by its sole shareholder and were purchased under Rebuild San Juan-Puerta de Tierra, LLC and Rebuild San Juan-Puerta De Tierra II, LLC. These are single member LLC’s with USA Capital Management, Inc. as its only member.

 

Additionally, the Company has capitalized legal costs of future purchases in the amount of $154,030.

 

In August 2016, USA Capital Management, Inc. purchased the parcel of land it had on deposit. The total cost including closing and legal expenses was $262,340. This property is part of the Company’s comprehensive development plan. The $252,675 of the cost was originally contributed from the Company’s President, Richard Meruelo, as additional paid-in capital.

 

Additionally, a separate deposit was made on another parcel on December 1, 2015 for $10,000. This amount was also contributed as additional paid-in capital from its sole shareholder.

 

The Company had $7,500 and $5,000 depreciation expense for September 30, 2016 and September 30, 2015.

  

NOTE 5 – NOTE PAYABLE

 

In the negotiation for the closing of the $1,000,000 land purchase, the seller, as an inducement to close escrow quickly, accepted a note for $750,000 at 5% per annum, with interest accruing yearly. The note, which commenced on July 8, 2015, is for 36 months (due and payable on July 8, 2018). It is collaterized by the real estate purchased.

 

 

 

NOTE 6 – RELATED PARTY TRANSACTIONS

 

The land acquisitions were purchased under Rebuild San Juan-Puerta De Tierra, LLC and Rebuild San Juan-Puerta De Tierra II, LLC, single member LLC’s incorporated in Puerto Rico (with the Company as its only member). USA Capital acquired the LLC’s by its capital contributions of $250,000 and $260,000 respectively.

 

The cost of land purchased under each entity were as follows:

 

Rebuild San Juan-Puerta De Tierra, LLC		$	1,007,115
Rebuild San Juan-Puerta De Tierra II, LLC		$	522,340

 

The consulting fees generated by the Company are $900,000 as of September 30, 2016 with entities affiliated/related to the sole shareholder of USA Capital Management, Inc.

 

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

 

USA Capital Management, Inc. (formally known as Oak Valley Acquisition Corp.) was incorporated on September 25, 2014 under the laws of the State of Delaware to engage in any lawful corporate undertaking, including, but not limited to, selected mergers and acquisitions. USA Capital Management, Inc. ("USA Capital" or the "Company") is a blank check company and qualifies as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act which became law in April, 2012.

 

On May 6, 2015, the Company changed its name from Oak Valley Acquisition Corporation to USA Capital Management, Inc. and effected a change in control.

 

On May 5, 2015, the following events occurred:

 

1. The Company redeemed and cancelled an aggregate of 20,000,000 of the then 20,000,000 shares of outstanding stock at a redemption price of $.0001 per share and cancelled such shares. The then current officers and directors resigned.

 

2. Richard Meruelo was named President, Secretary and Chief Financial Officer of the Company.

 

Richard Meruelo was named Director of the Company.

 

Richard Meruelo serves as the Chief Executive Officer, Secretary, Chief Financial Officer and Director of the Company. From 2011 to the present, Mr. Meruelo has served as the manager of Rebuild Miami, LLC. From 2000 to 2011, Mr. Meruelo was chairman and CEO of Meruelo Maddux Properties, Inc. Mr. Meruelo received his Bachelor of Arts Degree from the University of Southern California in 1986.

 

3. On May 6, 2015, the Company issued 3,000,000 shares of its common stock at par representing 100% of the total outstanding 3,000,000 shares of common stock to Richard Meruelo, the sole officer and director of the Company.

 

The Company is now generating consulting revenues as its principal source of income and continues its business objective to provide management services to stateside businesses.

 

The anticipated structure also involves the Company managing Limited Liability Company’s (LLC’s) that are formed to promote, invest and operate business opportunities globally.

 

On June 23, 2016 the Company was granted tax benefits provided by Act 20 in Puerto Rico which allows a reduced 4% income tax rate and 60% municipal license tax exemption for a 20 year period together with the total income tax exemption on dividends. Advisory services on matters relating to any trade or business; investment banking and other financial services; advertising and public relations; economic, environmental, technological scientific, management, marketing, human resources, information and audit consulting, professional services; development of computer programs and research are among the services that qualify for Act 20 tax benefits.

 

 

The Company converted from a Delaware to a Puerto Rico corporation and moved its principal place of business to San Juan, Puerto Rico. The Company amended its certificate of incorporation to reflect the change in its situs and filed a Form 8-K reporting the change.

 

 

Results of Operations for the three months ended September 30, 2016 and September 30, 2015.

 

The Company had net income of $230,087 and a net loss of ($28,340) for the three months ended September 30, 2016 and September 30, 2015, respectively. The current quarter reflects consulting revenues of $300,000 and $0 for the prior year quarter. The Company had increase in quarterly expenses of $31,488 over last year (before taxes). This increase is primarily due to salaries and legal expenses of $30,118 and $1,370 of various other administrative costs.  

 

Results of Operations for the nine months ended September 30, 2016 and September 30, 2015.

 

The Company had net income of $704,269 and a net loss of ($33,086) for the nine months ended September 30, 2016 and September 30, 2015, respectively. In the current year, USA Capital has operating revenues from consulting fees of $900,000 ($0 at September 30, 2015). Total expenses at September 30, 2016 were at $164,173(before taxes) and $33,086 for September 30, 2015. This increase in expenses over last year was a result of a full nine months of operations in 2016, compared to only three months of operations at September 30, 2015. In addition, the Company had increase in costs of salaries and legal expenses.

 

Liquidity and Capital Resources

 

The Company’s operating activities provided $32,673 for the nine months ended September 30, 2016 and used ($262,889) for the nine months ended September 30, 2015. The company intends to fund its operations from fees generated and receivable collections. Any deficiencies or additional capital expenditures will be provided through capital contributions by its sole stockholder.

 

The Company used $51,781 and $0 from investing activities for the nine months ended September 30, 2016 and

September 30, 2015, respectively.

 

For the nine month period ended September 30, 2016, USA Capital used $220,527 from financing activities. This was primarily a result of purchase of land in the current quarter. The Company had proceeds of $262,889 from such financing activities for the nine months ended September 30, 2015, comprised of contributions from its stockholder.

  

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Information not required to be filed by Smaller reporting companies.

 

ITEM 4. Controls and Procedures.

 

Disclosures and Procedures

 

Pursuant to Rules adopted by the Securities and Exchange Commission, the Company carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Exchange Act Rules. This evaluation was done as of the end of the period covered by this report under the supervision and with the participation of the Company's principal executive officer (who was also the principal financial officer).

 

Based upon that evaluation, he believes that the Company's disclosure controls and procedures are not effective in gathering, analyzing and disclosing information needed to ensure that the information required to be disclosed by the Company in its periodic reports is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

 

This Quarterly Report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this Quarterly Report.

 

Changes in Internal Controls

 

There was no change in the Company's internal control over financial reporting that was identified in connection with such evaluation that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

 

PART II -- OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

There are no legal proceedings against the Company and the Company is unaware of such proceedings contemplated against it.

 

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

 

From inception (September 25, 2014), the Company has issued 20,000,000 common shares pursuant to Section 4(2) of the Securities Act of 1933 for an aggregate purchase price of $2,000 as follows:

 

On September 25, 2014, the Company issued the following shares of its common stock:

 

Name		Number of Shares
James Cassidy			10,000,000
James McKillop			10,000,000

 

On May 5, 2015, the Company redeemed and cancelled the 20,000,000 shares of outstanding common stock.

 

On May 6, 2015, the Company issued 3,000,000 shares of common stock to its sole officer and director, Richard Meruelo.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

Not applicable.

 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

(a) Not applicable.

(b) Item 407(c)(3) of Regulation S-K:

 

During the quarter covered by this Report, there have not been any material changes to the procedures by which security holders may recommend nominees to the Board of Directors.

 

 

ITEM 6. EXHIBITS

 

(a)

Exhibits

 

31

Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

32

Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	USA CAPITAL MANAGEMENT, INC.
	By:	/s/ Richard Meruelo
		President, Chief Financial Officer
Dated: November 14, 2016