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EX-31 - EXHIBIT 31 - USA Capital Management Inc.tv499623_ex31.htm
EX-32 - EXHIBIT 32 - USA Capital Management Inc.tv499623_ex32.htm

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

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

 

For the fiscal year ended December 31, 2017

 

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 Constitución # 208

San Juan, Puerto Rico 00901-2251

(Address of principal executive offices) (zip code)

 

(Registrant's telephone number, including area code): 787-900-5048

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Exchange Act:

 

Common Stock, $.0001 par value per share

(Title of class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:

¨ Yes     x  No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act:

¨ Yes     x  No

 

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 has submitted electronically and posted on its Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.404 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.

Yes  x    No ¨

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

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) Emerging growth company   ¨

 

If an emerging growth company, indicate by check 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 x

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter:

 

  $ 0

 

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

 

   Outstanding at 
Class  August 02, 2018 
     
Common Stock, par value $0.0001   3,000,000 
      
Documents incorporated by reference:   None 

 

 

 

 

 

 

PART I

 

Item 1.BUSINESS

 

USA Capital Management, Inc. ("USA Capital" or "the Company") 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, acquisitions, development and consulting within the real estate industry. The Company was originally formed to provide a method for a foreign or domestic private company to become reporting company with a class of securities registered under the Securities Exchange Act of 1934. On September 25, 2014 the Company issued 20,000,000 shares to its two founders and directors. The Company registered its common stock on Form a 10 registration statement filed pursuant to the Securities Exchange Act of 1934 (“the Exchange Act”) and Rule 12(g) thereof.

 

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 the director of the company. On May 6, 2015, the Company issued 3,000,000 shares of its common stock pursuant to Section 4(2) of the Securities Act of 1933 to Richard Meruelo and is currently the sole shareholder.

 

In May 2015, the Company converted from a Delaware to a Puerto Rico corporation and moved its principal place of business to San Juan, Puerto Rico. Currently, the Company’s book and records are kept in California.

 

In June 2016, the Company was granted tax benefits by the government of Puerto Rico under the provisions of ACT 20-2012. Under the Act, the Company will benefit from significant tax advantages, including a 4% tax on qualifying taxable income.

 

In 2017, the Company had one employee and one officer, director and shareholder (three employees in 2016).

 

Item 2.PROPERTIES

 

Our principal corporate office is located at 404 Ave Constitucion #208 San Juan, Puerto Rico 00901-2251. The Company’s books and records are kept in California.

 

Real Estate Acquisitions

 

The following list sets forth certain information for each of our consolidated real estate acquisitions as of December 31, 2017:

 

Description   Acquisition Date   Type of Real Estate
Condo Unit   04/01/2015   Residential  
Land Parcel   07/09/2015   Commercial
Land Parcel   07/29/2015   Commercial
Land Parcel   08/31/2016   Commercial

 

Item 3.LEGAL PROCEEDINGS

 

There is no litigation pending or threatened by or against the Company.

 

Item 4.MINE SAFETY DISCLOSURES

 

Not applicable

 

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PART II

 

Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

There is currently no public market for the Company’s securities and no plans to currently sell any security to the public. The Company has not yet elected to cause the Company’s stock to trade in one or more United States securities markets.

 

At such a time as it decides, the Company may choose to apply for quotation of its securities on the OTC Bulletin Board.

 

The OTC Bulletin Board is a dealer-driven quotation service. Unlike the Nasdaq Stock Market, companies cannot directly apply to be quoted on the OTC Bulletin Board, only market makers can initiate quotes, and quoted companies do not have to meet quantitative financial requirements. Any equity security of a reporting company not listed on the NASDAQ Stock Market or on a national securities exchange is eligible.

 

As such time as it qualifies, the Company may choose to apply for quotation of its securities on the Nasdaq Capital Market.

 

In general, there is greatest liquidity for traded securities on the Nasdaq Capital Market and less on the OTC Bulletin Board. It is not possible to predict where, if at all, the securities of the Company will be traded.

 

Since inception, the Company has sold securities which were not registered as follows:

 

      NUMBER OF     
DATE  NAME  SHARES   CONSIDERATION 
            
September 25, 2014  James Cassidy   10,000,000(1)  $1,000 
              
September 25, 2014  James McKillop   10,000,000(1)  $1,000 
              
May 6, 2015  Richard Meruelo   3,000,000   $300 

 

(1)Shares redeemed and cancelled on May 5, 2015.

 

The Company paid cash dividends of approximately $.96 per share and $.59 per share for the twelve months ended December 31, 2017 and December 31, 2016, respectively. The Company expects to continue to pay cash dividends in the future.

 

Item 6.Selected Financial Data

 

There is no selected financial data required to be filed for a smaller reporting company as defined by Item 10(f)(1) of Regulation S-K.

 

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

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 redemption price of $.001 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.

 

3] Richard Meruelo was named Director of the Company.

 

 3 

 

 

On May 6, 2015, the Company changed its name from Oak Valley Acquisition Corp to USA Capital Management, Inc. and effected a change in control. The Company issued 3,000,000 shares of common stock at par (representing 100% of the total outstanding 3,000,000 shares of outstanding stock) to Richard Meruelo, the sole officer and director of the Company.

 

The Company expects to manage Limited Liability Company’s (LLC’s) that are formed to promote, invest and operate business opportunities globally within the Real Estate Industry.

 

The Company qualified for tax benefits provided by Act 20 in Puerto Rico in June of 2016. Act 20 provides tax incentives to local companies exporting services from Puerto Rico to other jurisdictions in and outside of the United States. It allows for a reduced 4% income tax rate and a 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 services that qualify for Act 20 tax benefits.

 

Results of Operations for the twelve months ended December 31, 2017 and December 31, 2016.

 

The Company increased its net income to $15,812,273 for the twelve months ended December 31, 2017 and had $1,664,388 for the twelve months ended December 31, 2016. This is largely a result of the current year fees earned increasing to $17,000,000. The total fees for the year ended December 31, 2016 was $2,000,000. The $15,000,000 increase was primarily a result of the Company’s participation in the sale of two of its managed properties from related parties. That participation in these sales generated in current year $14,600,000 fees, of which $10,400,0000 were consulting fees and $4,200,000 were a bonus fee income due to performance.

 

Current year expenses increased due to higher salary and wage costs of $147,567 and the write-off of $136,879 in capitalized legal costs. Those increases were partially offset by a reduction of legal fees in 2017 of approximately $46,000. All other expenses were generally comparable and consistent with the 2016 year. The resulting net income increase over last year accounted for approximately $592,994 of additional income taxes at December 31, 2017.

 

Liquidity and Capital Resources

 

Operating activities provided cash of $15,945,867 for the twelve months ended December 31, 2017 and $1,556,078 for December 31, 2016. The company continues to fund its operations from fees generated. Preliminary development cost will also be funded by the proceeds of its operating activities. Any additional capital expenditures will be provided through capital contributions by its sole stockholder.

 

Investing activities used for the twelve months ended December 31, 2017 of $12,594,610 was primarily a result of a note receivable provided in March, 2017. In addition, the Company paid $94,610 in preliminary development costs. The investing activities of $34,630 for December 31, 2016 were for legal costs incurred in the negotiation and pursuit of other developmental properties. There were no such costs in the current year.

 

In 2017, the Company used $2,786,500 from financing activities to pay cash dividends (net of $100,000 in capital contributions). During the twelve month period ended December 31, 2016, the Company used $220,527 from its financing activities to purchase the sole parcel of land it acquired (the funds were provided from its sole shareholder).

 

For the years ended December 31, 2017 and December 31, 2016, the Company had working capital(deficit) of $(394,711) and ($240,178), respectively. For the year ended December 31, 2017, the Company paid dividends of $2,886,500 to its sole shareholder and received contributions from its sole shareholder of $100,000.

 

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Item 8.Financial Statements and Supplementary Data

 

The financial statements for the year ended December 31, 2017 are attached hereto.

 

Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

On January 23, 2018, the Company engaged Benjamin & Young, LLP (“B&Y”) as its independent registered public accounting firm and dismissed Anton & Chia, LLP (“A&C”) from that role. The change in accountants was approved by the Company’s Audit Committee of the board of directors (“the Audit Committee”). The audit report of A&C on the Company’s financial statements for the fiscal year ended December 31, 2016 contained no adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles. The Company had no “disagreements” (as described in Item 304(a)(1)(iv) of Regulation S-K) with A&C on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.

 

Item 9A.Control & Procedures

 

Evaluation of Disclosure control 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 fiscal year by the principal executive officer (who is also the principal financial officer). There have been no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of the evaluation. Based upon that evaluation, he believes that the Company’s disclosures 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, summarized and processed timely. The principal executive officer is directly involved in the day-to day operations of the company.

 

Changes in Internal Control Over Financial Reporting

 

There have been no changes in the Company’s internal controls over financial reporting during its fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

 

Management’s Report of Internal Control over Financial Reporting

 

The Company is responsible for establishing and maintaining adequate internal control over financial reporting in accordance with the Rule 13a-15 of the Securities Exchange Act of 1934. The Company’s officer and its president, conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017, based on the criteria establish in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2017, based on those criteria. A control system can provide only reasonably, not absolute, assurance that the objectives of the control system are met and no evaluation of controls can provide absolute assurance that all control issues have been detected.

 

 5 

 

 

A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected on a timely basis.  Management identified the following material weakness in its assessment of the effectiveness of internal control over financial reporting as of December 31, 2017:  The Company did not maintain effective controls over certain aspects of the financial reporting process because we lacked a sufficient complement of personnel with a level of accounting expertise that is commensurate with our financial reporting requirements. This material weakness resulted in, among other things, our failure to include all necessary disclosures in the draft financial statements provided to our outside auditing firm. The Company recognizes that in the future it may require additional personnel with knowledge and experience to assist in the preparation, review and completion of its consolidated financial statements and other reports required under the rules and regulations of the Securities and Exchange Commission (the “SEC”). As the need arises, the Company intends to hire additional employees with experience preparing reports for filing with the SEC and will continue to work with outside experts who can assist in the review and analysis of its financial reports before such drafts are delivered to its auditors for review and who can also assist in the evaluation and remediation of its internal controls over financial reporting. The Company does not believe that the material weakness has resulted in any material inaccuracies in the consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2017 or any prior periods.

 

Our management, including our sole President, Secretary and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected.

 

This annual report on Form 10-K does not include an attestation report of our 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 rules of the Commission that permit us to provide only management’s report in this annual report on Form 10-K.

 

Item 9B.Other Information

 

Not applicable

 

PART III

 

Item 10.Directors, Executive Officer, and Corporate Governance

 

The Directors and Officers of the Company are as follows:

 

Name   Age   Positions and Offices Held
Richard Meruelo   55   President, Secretary, CFO, Director

 

There are no agreements or understandings for the officer or director to resign at the request of another person and the above-named officer and director is not acting on behalf of nor will act at the direction of any other person.

 

Richard Meruelo serves as the Chief Executive Officer, Secretary, Chief Financial Officer and Director of the Company (since May 5, 2016). 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.

 

 6 

 

 

Code of Ethics

 

The Company has not at this time adopted a code of Ethics pursuant to rules described in Regulation S-K. The company has only one person who is the only shareholder, director and officer. The adoption of an Ethical Code at this time would not serve the primary purpose of such a code to provide a manner of conduct as the development, execution and enforcement of such a code would be by the same persons and only persons to whom such code applied.

 

The Company does not maintain an Internet website on which to post a code of ethics.

 

Corporate Governance

 

For reasons similar to those described above the Company does not have a nominating nor audit committee of the board of directors. At this time, the Company consists of one shareholder who serves as the corporate director and officers. At such a time as the Company has additional shareholders, the Company will propose creating committees of its board of directors, including both a nominating and an audit committee.

 

Item 11.Executive Compensation

 

The Company’s sole officer and director received compensation for services rendered to the company of $200,000 and $16,300 for the fiscal years ended December 31, 2017 and December 31, 2016. Executive compensation is summarized as follows:

 

Name and

Principal

Position

  Year   Salary ($)   Bonus ($)  

Stock/Option

Awards

  

Non-Equity

Incentive Plan

Compensation

  

All Other

Compensation

  

Total

Compensation

 
                             
Richard Meruelo CEO / CFO   2017   $200,000    -    -    -    -   $200,000 

 

No retirement, pension, profit sharing, stock option or issuance programs or other similar programs have been adopted by the Company for the benefit of its employees.

 

The Company does not have a compensation committee for the same reasons as described above.

 

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The following table sets forth, as of December 31, 2017, each person known by the Company to be the beneficial owner of five percent or more of the Company’s common stock and the director and officer of the Company.

 

The Company does not have a compensation plans and has not authorized any securities for future issuance. Except as noted, the holder of thereof has sole voting and investment power with respect to the shares shown.

 

   Name and Address of  Amount of     
Title of Class  of Beneficial Owner  Beneficial Ownership   Percent of Stock 
            
Common  Richard Meruelo   3,000,000    100%
   404 Ave Constitucion #208          
   San Juan, Puerto Rico 00901          

 

Item 13.Certain Relationships and Related Transactions and Director Independence

 

USA Capital Management, Inc. is not currently required to maintain an independent director as defined by Rule 4200 of the Nasdaq Capital Market nor does it anticipate that it will be applying for listing of its securities on an exchange in which an independent directorship is required.

 

All consulting/managing fees earned by the Company are generated through a related party of the sole shareholder, Richard Meruelo. The fee arrangement calls for a rate based on the approximate fair value of the managed property. Additionally, the agreements allow for, under certain conditions, for the Company to participate in bonuses/commissions when better than expected results are achieved.

 

The investment in an unconsolidated entity is a developments company in Florida owned by family members of Richard Meruelo, the sole shareholder of the Company. At December 31, 2017, USA Capital Management, Inc. owns an 18% in that development company.

 

 7 

 

 

Item 14.Principal Accounting Fees and Services

 

Audit Fees

 

The aggregate fees incurred for each of the last two years for professional services rendered by the independent registered public accounting firm for the audits of the Company’s annual financial statements and review of financial statements included in the Company’s Form 10-K and Form 10-Q reports and services normally provided in connection with statutory and regulatory filings or engagements were as follows:

 

December 31, 2017   December 31, 2016 
$37,325   $30,025 

 

Audit-Related Fees

 

The Company does not currently have an audit committee serving and as a result its director performs the duties of an audit committee. The director will evaluate and approve in advance, the scope and cost of the engagement of an auditor before the auditor renders audit and non-audit services. The Company does not rely on pre-approval policies and procedures.

 

PART IV

 

Item 15.Exhibits, Financial Statement Schedules

 

There are no financial statements schedules nor exhibits filed herewith. The exhibits filed in earlier reports and the Company’s Form 10 are incorporated herein by reference.

 

31Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

32Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 8 

 

 

AUDITED FINANCIAL STATEMENTS  
   
Report of Independent Registered Public Accounting Firm 10-11
   
Consolidated Financial Statements 12-15
   
Notes to Consolidated Financial Statements 16-20

 

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INDEPENDENT AUDITOR’S REPORT

 

Board of Directors and Stockholder

USA Capital Management, Inc.

 

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of USA Capital Management, Inc. and subsidiaries (the “Company”) as of December 31, 2017, and the related consolidated statements of operations, changes in stockholder’s equity, and cash flows for the year then ended, and the related notes to the consolidated financial statements (collectively, the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the auditing standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

/s/ Benjamin & Young, LLP  
   
We have served as the Company's auditor since 2018.  
   
Irvine CA, California  
August 3, 2018  

 

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INDEPENDENT AUDITOR’S REPORT

 

To the Board of Directors and Stockholder

 

Report on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheet of USA Capital Management, Inc. (the “Company”) as of December 31, 2016, and the related consolidated statements of operations, changes in stockholder’s equity, and cash flows for the year then ended, and the related notes to the consolidated financial statements.

 

Management’s Responsibility for the Consolidated Financial Statements

 

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditor’s Responsibility

 

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company, at December 31, 2016, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

 

//s// Anton & Chia, LLP  
Newport Beach, California  
March 27, 2017  

 

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USA Capital Management, Inc

Consolidated Balance Sheets

 

   December 31, 2017   December 31, 2016 
ASSETS          
           
Current Assets          
Cash  $683,289   $118,532 
Accounts receivable   450,000    - 
Advances   106,300    - 
Deposits   1,003    1,003 
Total Current Assets   1,240,592    119,535 
           
Investment in unconsolidated entity   12,483,500    - 
           
Property and Equipment:          
Capitalized costs   -    136,879 
Land   1,529,455    1,529,455 
Development costs   94,610    - 
Building, Improvements and Equipment   275,000    275,000 
Less: Accumulated depreciation   (27,500)   (17,500)
Property and Equipment, net of accumulated depreciation   1,871,565    1,923,834 
           
Escrow costs   25,451    25,451 
Less: Accumulated amortization   (2,330)   (1,405)
Escrow Costs, net of accumulated amortization   23,121    24,046 
           
TOTAL ASSETS  $15,618,778   $2,067,415 
           
LIABILITIES and STOCKHOLDERS' EQUITY          
           
LIABILITIES          
           
Accounts Payable and Accrued Expenses  $885,303   $359,713 
Note Payable   750,000    750,000 
Total Current Liabilities   1,635,303    1,109,713 
           
STOCKHOLDERS' EQUITY          
Stockholders' Equity:          
Preferred stock, $0.0001 par value, 20,000,000 shares authorized; none issued and outstanding as of December 31, 2017 and December 31, 2016, respectively.   -    - 
           
Common  Stock, $0.0001 par value, 100,000,000 shares authorized; 3,000,000 shares issued and outstanding as December 31, 2017 and December 31, 2016, respectively   300    300 
           
Discount on Common stock   (300)   (300)
           
Additional Paid in Capital   1,331,635    1,231,634 
Accumulated Earnings(Deficit)   12,651,840    (273,932)
TOTAL STOCKHOLDERS' EQUITY   13,983,475    957,702 
           
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $15,618,778   $2,067,415 

 

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

 

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USA Capital Management, Inc

Consolidated Statements of Operations

 

  

For the Year Ended

December 31, 2017

  

For the Year Ended

December 31, 2016

 
         
Consulting Fees  $17,000,000   $2,000,000 
           
Expenses:          
Salaries & Wages  $212,000   $64,433 
Payroll Taxes   12,444    5,610 
Payroll Processing fees   -    630 
Property/Liability insurance   1,215    2,037 
Utilities   6,972    7,717 
Property Taxes   16,220    15,289 
Other Tax & Licenses   7,300    7,782 
Municipal and State taxes   38    153 
Legal and Professional fees   23,421    69,572 
Write Off of Capitalzed costs   136,879      
Review and Audit fees   37,325    30,025 
Depreciation and Amortization   10,925    10,926 
Office Supplies   -    997 
Postage and courier expense   43    - 
Cost of Terminated Deals   -    10,000 
Late fees   2,991    - 
Bank Charges   879    756 
Total Expenses  $468,652   $225,927 
           
Other Income Expenses:          
Loss from investment in unconsilidated entity   (16,500)   - 
Interest Expense   (38,021)   (38,125)
Total Other Expenses   (54,521)   (38,125)
           
Net Income before income taxes  $16,476,827   $1,735,948 
           
Income taxes   664,554    71,560 
           
Net Income  $15,812,273   $1,664,388 
           
Earnings Per Share - basic and diluted  $5.28   $0.55 
           
Weighted average shares-basic and diluted   3,000,000    3,000,000 

 

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

 

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USA Capital Management, Inc

Consolidated Statement of Changes in Stockholders' Equity

For the Year ended December 31, 2017 and the period from December 31, 2015

 

   Common Stock                 
   Shares   Amount  

Discount on

Common Stock

  

Additional Paid

in Capital

  

Accumulated

Deficit

  

Total

Stockholders'

Equity

 
                         
Balance as of December 31, 2015   3,000,000   $300   $(300)  $1,189,821   $(162,321)  $1,027,500 
                               
Additional paid in capital   -    -    -    41,814    -    41,814 
                               
Net Income   -    -    -    -    1,664,388    1,664,388 
                               
Dividends   -    -    -    -    (1,776,000)   (1,776,000)
                               
Balance as of December 31, 2016   3,000,000   $300   $(300)  $1,231,635   $(273,933)  $957,702 
                               
Additional paid in capital                  100,000         100,000 
                               
Net Income                       15,812,273    15,812,273 
                               
Dividends                       (2,886,500)   (2,886,500)
                               
Balance as of December 31, 2017   3,000,000   $300.00   $(300.00)  $1,331,635.00   $12,651,840.00   $13,983,475.00 

 

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

 

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USA Capital Management, Inc.

Consolidated Statement of Cash Flows

 

  

For the Year Ended

December 31, 2017

  

For the Year Ended

December 31, 2016

 
OPERATING ACTIVITIES          
Net Income  $15,812,273   $1,664,388 
Non-cash adjustments to reconcile net income  to net cash provided by operating activities:          
Depreciation and amortization   10,925    10,926 
Loss from investment in unconsolidated entity   16,500    - 
Write-Off of Capitalized costs   136,879    - 
           
Changes in Operating Assets and Liabilities:          
(Increase) in accounts receivable   (450,000)   - 
(Increase) Decrease in deposits   -    260,000 
(Increase) in advances   (106,300)     
Increase (Decrease) in accounts payable and accrued expenses   525,590    (379,236)
Total adjustments to reconcile net income to net cash   133,594    (108,310)
           
Net cash provided by  operating activities  $15,945,867   $1,556,078 
           
INVESTING  ACTIVITIES          
Increase in capitalized/development costs   (94,610.00)   (34,630)
Increase in investments in unconsolidated entity   (12,500,000)   - 
Net cash used for investing activities  $(12,594,610)  $(34,630)
           
FINANCING ACTIVITIES          
           
Proceeds from issuance of stockholders contributions   100,000    (220,527)
Dividends   (2,886,500)   (1,776,000)
Net cash (used for) provided by financing activities  $(2,786,500)  $(1,996,527)
           
Net increase (decrease) in cash   564,757    (475,079)
           
Cash, beginning of year   118,532    593,611 
           
Cash, end of year  $683,289   $118,532 
           
Supplemental cash flow information:          
Interest paid  $-   $- 
Income tax paid  $70,395   $20,000 
           
Non-cash transaction:          
Purchase of fixed assets from related party  $-   $262,340 

 

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

 

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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 under the laws of the state of Delaware to engage in any lawful corporate undertaking. In May 2015, 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’s operations are mostly dedicated to its management consulting as it continues to focus on expanding its customer base. The properties are designated for development as the Company is working to complete its development plan and obtain financing. The Company qualified for a tax decree under ACT 20-2012 in Puerto Rico. The Company will benefit from significant income tax advantages, including a 4% tax on taxable income. The Company will continue to 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 businesses.

 

The Company has two employees and one officer, director and shareholder.

 

BASIS OF PRESENTATION

 

The summary of significant accounting policies presented below is designed to assist in understanding the Company's audited financial statements. Such consolidated 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 consolidated financial statements.

 

PRINCIPLES OF CONSOLIDATION

 

Consolidation is the process by which the financial statements of a parent company are combined with those of its subsidiaries, as if they were a single entity. All of the companies over which the Company has a direct or indirect power to determine financial and operating policies are included as part of these consolidated financial statements. All intercompany balances and transactions, if any, have been eliminated.

 

Its wholly owned subsidiaries are Rebuild San Juan-Puerta de Tierra, LLC and Rebuild San Juan-Puerta de Tierra II, LLC. 

 

USE OF ESTIMATES

 

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

 

REVENUE RECOGNITION

 

Revenue recognition is based on accrual accounting in accordance with GAAP and is recognized when earned. Management fees are based on a percentage of the value of the managed project.

 

Interest income on the Company’s notes receivable is recognized on an accrual basis over the life of the investment using the effective interest method. Direct loan origination fees and origination or acquisition costs are amortized over the term of the loan as an adjustment to interest income. The Company will place loans on nonaccrual status when concern exists as to the ultimate collection of principal or interest. When a loan is placed on nonaccrual status, the Company will reserve the accrual for unpaid interest and will not recognize subsequent interest income until the cash is received, or the loan returns to accrual status.

 

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 $683,289 and $118,532 of cash or cash equivalents as of December 31, 2017 and December 31, 2016, respectively.

 

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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 December 31, 2017.

 

PROPERTY AND EQUIPMENT

 

Property and Equipment, including land, building, improvements and development costs are stated at cost, less accumulated depreciation. We have determined the useful life of the buildings and improvements to be 27.5 years. Costs related to the acquisitions or future acquisitions have been capitalized, while expenses for repairs and maintenance are charged to operations as incurred.

 

INVESTMENT IN UNCONSOLIDATED ENTITIES

 

For investments in entities that we do not control, but over which we exercise significant influence, we use the equity method of accounting. Our judgment with regard to our level of influence or control of an entity involves consideration of various factors including the form of our ownership interest, our representation in the entitys governance, our ability to participate in policy-making decisions and the rights of other investors to participate in the decision-making process to replace us as manager or to liquidate the entity. Investments accounted for under the equity method of accounting are recorded at cost and adjusted for our share in the earnings (losses) of the venture and cash contributions and distributions. Any difference between the carrying amount of the equity method investment on our balance sheet and the underlying equity in net assets on the entitys balance sheet results in a basis difference which is adjusted as the related underlying assets are depreciated, amortized or sold and the liabilities are settled. We generally allocate income and loss from unconsolidated entities based on the venture’s distribution priorities, which may be different from its stated ownership percentage.

 

The Company evaluates the recoverability of its investment in unconsolidated entities by first reviewing each investment for any indicators of impairment. If indicators are present, the Company estimates the fair value of the investment. If the carrying value of the investment is greater than the estimated fair value, management makes an assessment of whether the impairment is temporaryor other-than-temporary.In making this assessment, management considers the following: (1) the length of time and the extent to which fair value has been less than cost, (2) the financial condition and near-term prospects of the entity, and (3) the Companys intent and ability to retain its interest long enough for a recovery in market value. If management concludes that the impairment is other-than-temporary,the Company reduces the investment to its estimated fair value. No other-than-temporary impairments were identified during either the year ended December 31, 2017 or 2016.

 

INCOME TAXES

 

Taxation on profits earned in Puerto Rico has been calculated on the estimated assessable profits for the year at the rates of taxation prevailing in Puerto Rico in which the Company operates after taking into effect the benefits from any special tax credits or “tax holidays” allowed in the country of operations.

 

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 December 31, 2017 there were no deferred taxes due to the uncertainty of the realization of net operating loss or carry forward prior to expiration.

 

The Company has qualified in Puerto Rico under Act 20-2012, which among other benefits, is taxed at a rate of 4% of qualifying taxable income.

 

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 December 31, 2017, there were no outstanding dilutive securities.

 

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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 financial statements (audited) 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 financial statements (audited) 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 1 that 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 October 26, 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (ASU) No. 2016-17-Consolidation Topic 810): Interest Held through Related Parties That Are under Common Control. The amendments in this Update cover a wide range of Topics in the Codification. The amendments in this Update represent changes to the evaluation of whether a reporting entity is the primary beneficiary of a variable interest entity by changing how a reporting entity that is a single decision maker of a variable interest entity treats indirect interests in the entity held through related parties that are under common control with the reporting entity. 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, 2016. 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. There were no preferred stock issued and outstanding as of December 31, 2017 and December 31, 2016.

 

The Company effected a change in control on May 5, 2015 with the redemption and cancellation of 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 PLANT AND EQUIPMENT

 

Land and building are recorded at cost. Depreciation is computed on a straight line basis over the estimated life. In the current year, $136,879 was expensed from previously capitalized costs.

 

Depreciation expense for the years ended December 31, 2017 and December 31, 2016 was $10,000.00.

 

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NOTE 5 – INVESTMENTS IN UNCONSOLIDATED ENTITIES

 

Rebuild Miami–Edgewater

 

In March 16, 2017 the Company, as manager to a related party that is currently developing a parcel of land, provided an unsecured note of five years for $12,500,000 at a rate of 10% and which was subsequently converted into an approximate 29% membership interest in Rebuild Miami-Edgewater, LLC which was recorded and accounted as an investment in unconsolidated entity using the equity method of accounting with an effective date as of December 31, 2017. Rebuild Miami–Edgewater, LLC was incorporated in December, 2014 as a domestic limited liability company under the laws of the State of Florida. Rebuild Miami–Edgewater, LLC was formed for the purposes of purchasing and developing approximately 7.4 acres of land, which is currently under development. Share of losses were picked up during 2017. Most development costs were capitalized and only an impairment loss was recognized of which $16,500 was picked up by the Company and included in other expenses as a Loss from Investment in Unconsolidated Entity.

 

The following table summarizes the balance sheet data of the Rebuild Miami–Edgewater, LLC and the Company’s investment balance as of December 31, 2017:

 

   2017 
Cash  $46,669 
Real estate – land and improvements   54,900,000 
Other assets   85,749 
Total assets  $55,032,418 
      
Accounts payable and other liabilities  $1,907,386 
Note payable secured by real estate   13,000,000 
Related party notes payable   17,500,000 
Members’ Capital   22,625,032 
Total liabilities and members’ capital  $55,032,418 
      
Impairment loss   20,935,901 
Net Loss  $20,935,901 
      
The Company’s share of capital in Rebuild Miami-Edgewater  $12,483,500 
Unamortized basis difference   - 
The Company’s investment in Rebuild Miami-Edgewater  $12,483,500 

 

NOTE 6 – 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). At December 31, 2017, the Company has accrued interest payable of $94,688.

 

NOTE 7 – INCOME TAXES

 

We operate under tax holidays in other countries, which are effective through December 31, 2025, and may be extended if certain additional requirements are satisfied. The tax holidays are conditional upon our meeting certain employment and investment thresholds. The impact of these tax holidays decreased taxes by $5,761,409, and $605,460 for 2017 and 2016, respectively. The benefit of the tax holidays on net income per share (diluted) was $1.92 and $.20 for 2017 and 2016, respectively. Commencing after the year ending December 31, 2025, the Company would be subject to the regular prevailing corporate tax rates. If those tax rates were in effect today, the Company’s income tax expense for the years ended December 31, 2017 and December 31, 2016 would be $6,425,963 and $677,020.

 

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NOTE 8 – RELATED PARTY TRANSACTIONS

 

All of the management/consulting fees generated of $17,000,000 and $2,000,000 for the years ended December 31, 2017 and December 31, 2016 are with entities affiliated/related to the sole shareholder of USA Capital Management, Inc. The fee arrangement calls for a rate based on the approximate fair value of the managed property. In addition to the specified management/consulting fees, these agreements allow for, under certain circumstances, for the company to participate in bonuses when better than expected results are achieved. Such bonuses were paid in 2017 (none in 2016).

 

The investment in an unconsolidated entity is with a development company in Florida owned by family members of Richard Meruelo. At December 31, 2017, the Company owns approximately 29% in that development company.

 

NOTE 9 – SUBSEQUENT EVENTS

 

In February,2018 the Company received a one time commission/fee of $8,000,000 on a sale of property owned by a related party.

 

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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: August 3, 2018

 

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