MYCB 10-Q
My City Builders, Inc. (MYCB)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One) | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended | |
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:
(Exact name of registrant as specified in its charter) |
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(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
| Emerging growth company | ||
If an emerging growth company, indicate by a check mark 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
As of March,15 2024, there were
TABLE OF CONTENTS
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations | 4 |
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| Table of Contents |
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this report. Additionally, statements concerning future matters are forward-looking statements.
Although forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the headings “Risks Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the year ended July 31, 2023, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q, and information contained in other reports that we file with the SEC. You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.
We file reports with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.
We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
All references in this Form 10-Q to the “Company,” “My City Builders,” “we,” “us,” “our” and words of like import relate to My City Builders, Inc. and its wholly-owned subsidiary, RAC Real Estate Acquisition Corp., a Wyoming corporation, unless the context indicates otherwise.
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| Table of Contents |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
My City Builders, Inc.
Index to Unaudited Interim Condensed Consolidated Financial Statements
January 31, 2024
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Consolidated Balance Sheets as of January 31, 2024, and July 31, 2023 (Unaudited) |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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| Table of Contents |
My City Builders, Inc.
Consolidated Balance Sheets
(Unaudited)
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ASSETS |
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Current Assets |
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Cash |
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Prepaid expenses |
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Loan receivable |
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Accrued interest income |
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Total Current Assets |
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Property and equipment, net |
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Investment |
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TOTAL ASSETS |
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LIABILITIES AND EQUITY (DEFICIT) |
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Current Liabilities |
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Accounts payable and accrued liabilities |
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Deferred rent income |
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Due to related parties |
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Loans payable -current portion, net |
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Total Current Liabilities |
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Loans payable-related party |
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Loans payable, net |
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TOTAL LIABILITIES |
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Equity (Deficit) |
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Preferred stock: |
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Series A preferred stock |
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Common stock: |
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Additional paid in capital |
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Accumulated deficit |
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Equity (deficit) attributable to stockholders of My City Builders, Inc. |
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Deficit attributable to noncontrolling interests |
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Total Equity (Deficit) |
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TOTAL LIABILITIES AND EQUITY (DEFICIT) |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-2 |
| Table of Contents |
My City Builders, Inc.
Consolidated Statements of Operations
(Unaudited)
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Revenue |
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Interest income |
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Rental income |
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Total revenue |
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Operating expenses |
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Cost of rental homes |
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Depreciation |
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General and administrative |
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Professional fees |
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Total operating expenses |
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Loss from operations |
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Other expense |
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Impairment loss on investment |
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Interest expense- related party |
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Interest expense |
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Total other expense |
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Loss before income taxes |
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Provision for income taxes |
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Net Loss |
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Less: Net income (loss) attributable to noncontrolling interests |
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Net loss attributable to stockholders of My City Builders, Inc. |
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Basic and diluted loss per share of common stock |
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Basic weighted average number of common shares outstanding |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-3 |
| Table of Contents |
My City Builders, Inc.
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
(Unaudited)
For the Three and Six Months ended January 31, 2024
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| Additional |
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| Total |
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| Preferred Stock |
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| Paid in |
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| Accumulated |
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| Stockholders |
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| Amount |
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| Amount |
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| Capital |
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| interest |
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Balance - July 31, 2023 |
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Net loss |
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Balance - October 31, 2023 |
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Common stock issued for settlement of debt |
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Net loss |
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Balance - January 31, 2024 |
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For the Three and Six Months ended January 31,2023
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Balance - July 31, 2022 |
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Net loss |
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Balance - October 31, 2022 |
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Net loss |
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Balance - January 31, 2023 |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-4 |
| Table of Contents |
My City Builders, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
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Adjustments to reconcile net income (loss) to net cash Provided by (used in) operating activities: |
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Depreciation |
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Amortization of debt discount |
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Impairment loss on investment |
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Changes in operating assets and liabilities: |
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Prepaid expenses |
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Accrued interest income |
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Accounts payable and accrued liabilities |
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Deferred rental revenue |
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Deferred interest income |
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Accrued interest-related party |
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Due to related parties |
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Net cash used in operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Investment |
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Advance on loan receivable |
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Collection of loan receivable |
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Collection of loan receivable for third party investor |
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Purchases of property and equipment |
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Net cash used in investing activities |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Advances from related parties |
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Repayments to related parties |
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Net cash provided by financing activities |
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Net change in cash |
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Cash, end of period |
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Supplemental cash flow information |
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Cash paid for interest |
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Cash paid for taxes |
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Supplemental non-cash investing and financing activity: |
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Recognition of loans payable as debt discount |
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Issuance of loan agreements in exchange with due to related party |
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Common stock issued for settlement of debt |
| $ |
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| $ |
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Assignment of debts between two related parties |
| $ |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-5 |
| Table of Contents |
My City Builders, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 1 - ORGANIZATION AND BUSINESS OPERATIONS
My City Builders, Inc. (the “Company” or “My City Builders”) is a Nevada corporation incorporated on October 26, 2010 under the name Oconn Industries Corp. The Company’s name was changed on March 11, 2014 from Oconn Industries Corp. to Diamante Minerals, Inc., and to iMine Corporation on March 20, 2018 and to My City Builders, Inc on January 31, 2023.
In July 2022, the Company acquired RAC Real Estate Acquisition Corp, a Wyoming Corporation ("RAC"). RAC is now a wholly owned subsidiary of the Company. The Company, through RAC, plans to focus on real estate transactions, in which the Company will buy and develop real estate for sale or rent of low-income housing. The Company plans to invest in three sectors of this market by (i) buying, refurbishing and selling traditional foreclosures, (ii) buying, developing and renting “Land Banks” that have an average pool of homes or lots in excess of 100 in one location and (iii) buying, refurbishing or developing and selling homes made available by the government through HECM pools.
On March 27, 2023, RAC, a wholly owned subsidiary of the Company entered into a Limited Liability Company Agreement dated effective March 27, 2023, (the “Agreement”) with, Frank Gillen, an individual (“Mr. Gillen”) and Michael Colvard, an individual (“Mr. Colvard”). The purpose of the LLC is to build 3-bedroom 2-bathroom single-family low-income homes in Gadsden Alabama. On May 05, 2023, Mr. Colvard’s construction agreement with the LLC was terminated and Mr. Colvard transferred his
As a result of the Agreement, RAC, formed a limited liability company called RAC Gadsden, LLC (“Gadsden”) incorporated in the state of Alabama. Gadsden will continue until terminated pursuant to the Agreement or as provided for under the laws of Alabama. RAC owns
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Presentation of Interim Information
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) for interim financial information and with Rule 8-03 of Regulation S-X promulgated by the Securities and Exchange Commission. Accordingly, the consolidated financial statements do not include all of the information and footnotes required by US GAAP for complete financial statements. Notes to the unaudited interim consolidated financial statements that would substantially duplicate the disclosures contained in the audited consolidated financial statements for the year ended July 31, 2023, have been omitted. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the footnotes thereto for the fiscal year ended July 31, 2023, included within the Company’s Annual Report on Form 10-K.
In the opinion of management, all adjustments consisting of normal recurring entries necessary for a fair statement of the periods presented for: (a) the financial position; (b) the result of operations; and (c) cash flows, have been made in order to make the consolidated financial statements presented not misleading. The results of operations for such interim periods are not necessarily indicative of operations for a full year.
Principles of Consolidation
The consolidated financial statements include the accounts of My City Builders and its subsidiaries. Intercompany transactions and balances have been eliminated.
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Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s periodic filings with the SEC include, where applicable, disclosures of estimates, assumptions, uncertainties and markets that could affect the financial statements and future operations of the Company.
Fair Value Measurements
As defined in ASC 820, “Fair Value Measurements.” fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs 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 measurement) and the lowest priority to unobservable inputs (level 3 measurement).
Financial assets and liabilities of the Company primarily consisted of cash, loan receivable and other receivables, current loans payable, accounts payable and other payables. As of January 31, 2024 and July 31, 2023, the carrying amounts of financial instruments, approximated to their fair values due to the short-term maturity of these instruments.
Long term investment
The investments for which the Company has the ability to exercise significant influence are accounted for under the equity method. Under the equity method, the Company initially records its investment at cost. The difference between the cost of the equity investment and the amount of the underlying equity in the net assets of the equity investee is recognized as equity method goodwill or as an intangible asset as appropriate.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line over the estimated useful lives which are reviewed periodically and generally have the following ranges: Home for rent:
Impairment of Long-Lived Assets
Long-lived assets with finite lives, primarily investments, real estate inventories, property and equipment, including real estate properties held for lease, and operating lease right-of-use assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated cash flows from the use of the asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair value.
Lessor accounting – operating leases
We account for the revenue from our lease contracts by utilizing the single component accounting policy. This policy requires us to account for, by class of underlying asset, the lease component and non-lease component(s) associated with each lease as a single component if two criteria are met:
| (i) | the timing and pattern of transfer of the lease component and the non-lease component(s) are the same; and |
| (ii) | the lease component would be classified as an operating lease if it were accounted for separately. |
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Lease components consist primarily of fixed rental payments, which represent scheduled rental amounts due under our leases. Non-lease components consist primarily of tenant recoveries representing reimbursements of rental operating expenses, including recoveries for utilities, repairs and maintenance and common area expenses.
If the lease component is the predominant component, we account for all revenues under such lease as a single component in accordance with the lease accounting standard. Conversely, if the non-lease component is the predominant component, all revenues under such lease are accounted for in accordance with the revenue recognition accounting standard. Our operating leases qualify for the single component accounting, and the lease component in each of our leases is predominant. Therefore, we account for all revenues from our operating leases under the lease accounting standard and classify these revenues as rental income.
We commence recognition of rental income related to the operating leases at the date the property is ready for its intended use by the tenant and the tenant takes possession or controls the physical use of the leased asset. Income from rentals related to fixed rental payments under operating leases is recognized on a straight-line basis over the respective operating lease terms. Amounts received currently but recognized as revenue in future periods are classified in other liabilities in our consolidated balance sheets.
Revenue Recognition
The Company recognizes revenue in accordance with Topic 606, which requires the Company to recognize revenues when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those goods or services. The Company recognizes revenue based on the five criteria for revenue recognition established under Topic 606: 1) identify the contract, 2) identify separate performance obligations, 3) determine the transaction price, 4) allocate the transaction price among the performance obligations, and 5) recognize revenue as the performance obligations are satisfied.
Interest income
The Company records interest income on an accrual basis and recognizes it as earned in accordance with the contractual terms of the loan agreement and underlying debt instrument, to the extent that such amounts are expected to be collected. Debt investments are placed on non-accrual status when it is probable that principal, interest or fees will not be collected according to contractual terms. When a debt investment is placed on non-accrual status, the Company ceases to recognize interest and fee income until the portfolio company has paid all principal and interest due or demonstrated the ability to repay its current and future contractual obligations to the Company. The Company may not apply the non-accrual status to a loan where the investment has sufficient collateral value to collect all of the contractual amount due and is in the process of collection. Interest collected on non-accrual investments are generally applied to the principal.
Rental income
The Company generated rental income from operating leases, which is accounted for under ASC 842. Operating lease revenue is generally recognized on straight-line basis over the terms of the lease agreements.
General and administrative expenses
General and administrative expenses primarily consist of (i) office expenses (ii) travel (iii) meals and entertainment.
Cost of rental homes
Cost of rental homes are expenses directly related to rental homes, such as lawncare, maintenance and repairs, management fees, utilities, insurance and property taxes
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Income Taxes
The Company provides income taxes under ASC 740, Accounting for Income Taxes. ASC 740 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse.
ASC 740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Deferred tax assets have been fully provided for by the Company as of January 31, 2024 and July 31, 2023, respectively.
The provisions of ASC 740-10-25, “Accounting for Uncertainty in Income Taxes,” prescribe a more-likely-than-not threshold for consolidated financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. This interpretation also provides guidance on the recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and related disclosures. The Company believes there were no uncertain tax positions as of January 31, 2024 and July 31, 2023, respectively.
Concentrations of Credit Risk
The Company’s financial instruments that are exposed to concentrations of credit risk primarily consist of its cash and related party payables it will likely incur in the near future. The Company places its cash with financial institutions of high credit worthiness. At times, its cash balance with a particular financial institution may exceed any applicable government insurance limits. The Company’s management plans to assess the financial strength and credit worthiness of any parties to which it extends funds, and as such, it believes that any associated credit risk exposures are limited.
Net Loss per Share of Common Stock
The Company calculates net loss per share in accordance with ASC Topic 260, “Earnings per Share.” Basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted earnings per share of common stock are computed by dividing net earnings by the weighted average number of shares and potential shares outstanding during the period. Potential shares of common stock consist of shares to be issued taken into account the effect of dilutive instruments. As of January 31, 2024 and July 31, 2023, there were
Related Parties and Transactions
The Company identifies related parties, and accounts for, discloses related party transactions in accordance with ASC Topic 850, “Related Party Disclosures” and other relevant ASC standards.
Parties, which can be an entity or individual, are considered to be related if they have the ability, directly or indirectly, to control the Company or exercise significant influence over the Company in making financial and operational decisions. Entities are also considered to be related if they are subject to common control or common significant influence.
Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.
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Segments
Operating segments are defined as components of an enterprise engaging in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company operates and manages its business as one operating segment and all of the Company’s revenues and operations are in United States.
Recent Accounting Pronouncements
The Company has implemented all new pronouncements that are in effect and that may impact its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its consolidated financial statements or results of operations.
NOTE 3 - GOING CONCERN AND LIQUIDITY CONSIDERATIONS
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. During the six months ended January 31, 2024, the Company incurred a net loss of $
The ability of the Company to begin operations in its new business model is dependent upon, among other things, obtaining financing to commence operations and develop a business plan or making an acquisition. The Company cannot give any assurance as to its ability to develop or acquire a business or to operate profitably.
These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 4 – LOAN RECEIVABLE
On July 22, 2022, the Company received a promissory note, in the principal amount of $
On August 18, 2022, the Company issued the promissory note of $
The Company currently has an ongoing lawsuit with Fix Pad Holdings, therefore, no further interest income is recognized and the balance is expected to be fully recovered through the settlement (Note 11).
During the six months ended January 31, 2024, and 2023, the Company recorded interest income of $
As of January 31, 2024, and July 31, 2023, the Company recorded loan receivable of $
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NOTE 5 – PROPERTY AND EQUIPMENT, NET
As of January 31, 2024, and July 31, 2023, property and equipment consist of as follows;
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Homes |
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Construction in progress |
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As of January 31, 2024, the construction in progress consists of the cost of titles and construction for 7 homes which have not been completed. Four homes have been completed and have been leased.
As of January 31, 2024, the Company entered into four separate lease agreements with monthly lease payments of $
During the six months ended January 31, 2024, the Company recorded a depreciation expense of $
NOTE 6 – INVESTMENT
On October 4, 2022, the Company, through RAC, entered into a Limited Liability Company Agreement with Fix Pads Holdings, LLC ("Fix Pads"). As a result of the agreement, RAC and Fix Pads formed a limited liability company called RAC FIXPADS II, LLC (“LLC”), incorporated in the state of Delaware. The LLC has two members, RAC and Fix Pads, both providing an initial contribution to the LLC of $
As of January 31, 2024, and July 31, 2023, the Company recorded investment of $
NOTE 7 - RELATED PARTY TRANSACTIONS
During the six months ended January 31, 2024, and 2023, the Company's shareholders paid operating expenses of $
During the six months ended January 31, 2024, and 2023, the Company’s related parties advanced $
During the six months ended January 31, 2024, and 2023, the Company’s related parties advanced $
During the six months ended January 31, 2024, one related party assigned $
During the six months ended January 31, 2024, one related party converted $
On January 17, 2024, the Company’s Board of Directors approved the settlement of $
During the six months ended January 31, 2024, the Company allocated interest of $
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NOTE 8 – LOANS PAYABLE
As of January 31, 2024, loans payable consists, as follows;
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Less: unamortized debt discount and issuance cost |
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Total |
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Less: current portion of loans payable |
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Long -term loans portion |
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Loans dated October 27, 2023
The monthly payment of $
During the six months ended January 31,2024, the Company recognized interest of $
Loans dated November 3, 2023
These are construction loans (pre-mortgage) that are expected to convert to mortgage loans once the homes are completed.
During the six months ended January 31, 2024, the Company borrowed $
During the six months ended January 31, 2024, the Company allocated interest of $
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The following table outlines maturities of our long-term loans payable, as of January 31, 2024:
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NOTE 9 – LOANS PAYABLE- RELATED PARTY
As of January 31, 2024, loans payable – related party consist of as follows;
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Less: current portion |
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The monthly payment of $
During the six months ended January 31, 2024, the Company recognized interest of $
During the six months ended January 31, 2024, the Company allocated interest of $
The following table outlines maturities of our long-term loans payable -related party, as of January 31, 2024:
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NOTE 10 - EQUITY
Authorized Preferred Stock
The Company has authorized
Series A Preferred stock
The Company has designated
| · | The Series A Preferred Shares share in any dividends pari passu with the holders of common stock; |
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| · | The Series A Preferred Shares have a liquidation preference equal to $ |
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| · | Each share of Series A Preferred Stock entitles the holder to 10 votes on any matter presented to the holders of the Common Stock: |
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| · | The Company has no right to redeem the shares; and |
As of January 31, 2024, and July 31, 2023, the Company had
Authorized Common Stock
The Company has authorized
During the six months ended January 31, 2024, the Company issued
As of January 31, 2024, and July 31, 2023, the Company had no options and warrants outstanding.
NOTE 11 – LEGAL PROCEEDINGS
On March 23, 2023, RAC was awarded a judgement from the District Court in Clark County Nevada enabling the Company to cancel
On May 19, 2023, RAC filed a complaint for breach of two promissory notes entered into with Fix Pads Holdings, LLC and for injunctive relief in the 11th Judicial Circuit Court in Miami-Dade County Florida, as well as an emergency motion for temporary injunction enjoining Fix Pads Holdings, LLC from selling, transferring, conveying or otherwise disposing of any real property assets pledged as collateral in relation to the two promissory notes entered into between RAC and Fix Pads. In addition to the injunctive relief sought above, RAC is also seeking damages for breach of the promissory notes. After RAC filed and served the lawsuit, Fix Pads removed the lawsuit to the United States District Court for the Southern District of Florida on May 24, 2023. As such, the case will now be proceeding in the Southern District of Florida. RAC has obtained temporary injunctive relief against Fix Pads.
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On July 7, 2023, RAC filed a complaint for appointment of receiver, breach of Limited Liability Company Agreement, and breach of fiduciary duty in the 11th Judicial Circuit Court of Miami-Dade County, Florida against Fix Pads Holdings LLC, FixPads Management, LLC and RAC FixPads II, LLC. RAC seeks for a receiver to be appointed to wind up the real property assets of RAC FixPads II, LLC and for damages for breach of the joint venture agreement.
On October 2, 2023, the parties participated in a global mediation concerning both lawsuits. The parties have reached a tentative verbal agreement on all material terms to resolve both lawsuits and are in the process of finalizing the agreement. As of January 31, 2024, the Company has not reached a signed agreement.
NOTE 12 – CONCENTRATION
During the six months ended January 31, 2024, and 2023, customer concentrations (more than 10%) were as follows:
Revenue – rental income
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NOTE 13 - SUBSEQUENT EVENTS
Management has evaluated subsequent events through March 15, 2024, to the date on which the financial statements are available to be issued. Based on our evaluation no material events have occurred that require disclosure, except as follows:
During February 2024, the Company repaid $
On February 15, 2024, the Company obtained certificates of occupancy for two homes which were under construction in progress on January 31, 2024. As of January 31, 2024, the cost of two homes totalled $
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
On June 15, 2022, the Company’s common stock was reverse split at a 1:125 ratio. As a result, our outstanding shares of common stock went from 74,498,250 common stock outstanding to 595,986 common stock outstanding. References in this quarterly report to shares of common stock outstanding reflect this reverse stock split, unless otherwise stated.
In July of 2022 we acquired RAC Real Estate Acquisition Corp, a Wyoming Corporation (RAC). RAC is now a wholly owned subsidiary of the Company. The Company, through RAC, focuses on real estate transactions, in which we buy and develop real estate for sale or rent of low-income housing. We invest in three sectors of this market by (i) buying, refurbishing, and selling traditional foreclosures, (ii) buying, developing and renting “Land Banks” that have an average pool of homes or lots in excess of 100 in one location, and (iii) buying, refurbishing or developing and selling homes made available by the government through HECM pools.
On July 22, 2022, the Company received a promissory note, in the principal amount of $672,960 from, and entered into a Loan Agreement dated July 18, 2022, with Fix Pads Holdings, LLC a South Carolina limited liability company. The note has a 12% interest rate per annum payable as follows: (1) a pre-payment on July 22, 2022 of pro-rated interest for the period from July 22, 2022 through July 30, 2022 in the amount of $2,212.47; (2) a pre-payment of interest on August 1, 2022 for the period from August 1, 2022 through September 30, 2022 in the amount of $13,496.07; and then (3) monthly payments of interest only beginning on October 1, 2022 and continuing on the 1st day of each month thereafter until all principal and accrued interest are paid in full by July 1, 2023. The note is secured by mortgages or deeds of trust on 7 properties. Consideration for the note was paid in part by the Company in the amount of $328,625.72 and in part by an investor, Mr. Campanaro, in the amount of $328,625.73 (together both amounts equal $657,251.45 which represent the total note amount of $672,960 minus the two prepayments described above). On July 26, 2022, The Company entered into a partial assignment of the promissory note dated July 25, 2022, with Mr. Campanaro whereby the Company assigned to Mr. Campanaro the right to payment of principal in the amount of $336,480 and the right to half of the amount of any interest payments made on the principal amount of the note.
On August 18, 2022, the Company received a promissory note, in the principal amount of $358,620 from, and entered into a loan agreement, with, Fix Pads Holdings, LLC. The note has a 12% interest rate per annum payable as follows: (1) a pre-payment on August 19, 2022 of pro-rated interest for the period from August 19, 2022 through August 31, 2022 in the amount of $1,414.82; (2) a pre-payment of interest on August 19, 2022 for the period from September 1, 2022 through October 31, 2022 in the amount of $7,192.06; and then (3) monthly payments of interest only beginning on November 1, 2022 and continuing on the 1st day of each month thereafter until all principal and accrued interest are paid in full by August 1, 2023. The note is secured by mortgages or deeds of trust on 4 properties. Consideration for the note was paid in part by the Company in the amount of $175,006.56 and in part by Mr. Campanaro, in the amount of $175,006.56 (together both amounts equal $350,013.12 which represent the total note amount of $358,620 minus the two prepayments described above). On August 18, 2022, the Company entered into a partial assignment of the promissory note with Mr. Campanaro whereby the Company assigned to Mr. Campanaro the right to payment of principal in the amount of $179,310 and the right to half of the amount of any interest payments made on the principal amount of the note.
On October 4, 2022, the Company, through RAC, entered into a Limited Liability Agreement with Fixed Pads Holdings, (“FPH”). As a result of the agreement, RAC and FPH formed a limited liability company called RAC FIXPADS II, LLC (the “LLC”), incorporated in the state of Delaware. The purpose of which is to purchase, finance, collateralize, improve, rehabilitate, market, sell or lease property, as well as carry on any lawful business, purpose or activity. The LLC has two members RAC and FPH, both providing an initial contribution to the LLC of $1,000 in exchange for a 50% membership interest represented by an issuance of 1,000 Units of the LLC to each party. Each member is entitled to 1 vote per member. The LLC is managed by a manager, Fix Pads Management LLC.
The Agreement provides that additional capital contributions of the members will be made to the LLC as follows: (i) FPH will transfer and assign all rights to and incidents of ownership for 60 residential properties it has title, or will have title, to the LLC, as set forth in the Agreement; and (ii) RAC will make additional cash contributions to the capital of the LLC, up to a maximum of $5,214,000, on such dates and in such amounts as requested by the LLC, in the manner set forth in the Agreement.
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Under the Agreement profits and losses are allocated by the LLC to the members based on initial cash contributions of the members, the value of the properties contributed by FPH and the additional cash contributions by RAC. Distributions to the members under the Agreement will be made as follows: (i) from the sale of each property by the LLC, the LLC shall distribute $13,000 of the net sale proceeds to RAC and distribute and additional amount to RAC equal to the average RAC additional cash capital contribution per property, the balance net proceeds will be distributed to FPH; (ii) for any property that is leased by the LLC, RAC will have the option to buy such property from the LLC and for any such property that is not bought by RAC, any net rental income will be retained by the LLC and distributed to the members based on (a) further written agreement of the members or (b) if the members are unable to agree then on such terms as provided in the Agreement.
Since the acquisition of RAC, the Company, through our third-party vendor, has financed the clearance of 55 titles in the name of Fix Pads Holdings, LLC. FPH has completed 9 homes with 6 more under construction. Of the 9 homes completed, 8 homes have been sold in the LLC with 1 still on the market for sale. Regarding the secured loans with FPH 7 of the 11 homes completed have been sold under the two promissory notes.
During the year ended July 31, 2023, RAC has invested $2,679,500 into RAC FIXPADS II of which $2,300,000 was invested for the rehabilitation of homes held in the LLC and $379,500 has been wired to Title Vest to clear 55 titles of taxes and any back fees owed to rehabilitate the homes for sell or rent. Currently, RAC has decided to cease further development with Fix Pads LLC & Fix Pads Holdings. During the year ended July 31,2023, the Company recognized impairment loss of $1,732,000. The Company did not make any additional investment however recognized additional impairment of $947,500 during the six months ended January 31, 2024.
On January 31, 2023, the Company changed its corporate name to My City Builders, Inc., through the merger of the Company with its wholly owned subsidiary, My City Builders, Inc., a Nevada corporation (the “Subsidiary”). Pursuant to an agreement and plan of merger between the Company and the Subsidiary, the Subsidiary was merged with and into the Company and the Company’s name was changed to My City Builders, Inc. The only change to the Company’s articles of incorporation was the change of the Company’s corporate name. Pursuant to the Nevada Revised Statutes (NRS) 92A.180, the merger did not require stockholder approval. On April 26, 2023, FINRA notified the Company that their review of our corporate name change, disclosed in our 8-K filed on February 1, 2023, with the SEC, was complete and that the announcement of the merger, name and symbol change for the Company had been announced on their Daily List on April 26, 2023. The corporate action took effect at the open of business on April 27, 2023, in the open market. The Company’s new trading symbol is MYCB.
On March 27, 2023, RAC, a wholly owned subsidiary of the Company entered into a Limited Liability Company Agreement dated effective March 27, 2023, (the “Agreement”) with, Frank Gillen, an individual (“Mr. Gillen”) and Michael Colvard, an individual (“Mr. Colvard”). The purpose of the LLC is to build 3-bedroom 2-bathroom single-family low-income homes in Gadsden Alabama. On May 05, 2023, Mr. Colvard’s construction agreement with RAC was terminated and Mr. Colvard transferred his 1% and withdrew as a member and manager of the LLC.
On April 27, 2023, RAC closed on 20 lots in Gadsden Alabama. RAC ordered and received 3 steel framed “pre-engineered” homes for the Gadsden Land Bank project. Based on increased labor costs with the steel framed homes along with high transportation costs RAC has decided to build traditional “stick built” homes in Gadsden Alabama. The homes are 3-bedroom 2-bathroom single family homes with under roof of 1270 square feet. The plan for Gadsden Alabama is to build new low-income single-family homes for rent. As of January 31, 2024, RAC has completed the construction and received occupation permits on 4 homes and is under construction on 7 out of the 20 Gadsden properties. Four of the completed homes have been rented. The remaining 7 homes under construction are projected to be completed and rented by July 31, 2024.
On January 17,2024, the Company’s Board of Directors approved the settlement of $2,850,000 due to one related party in exchange of issuance of 11,400,000 shares of common stock. The Company valued the issuance of 11,400,000 shares of common stock at market price of $0.20 per share on settlement date and recognized gain of $570,000. The gain on settlement of debts to related party was added in additional paid in capital.
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| Table of Contents |
Results of Operations
The following summary of our results of operations should be read in conjunction with our unaudited consolidated financial statements for the six months ended January 31, 2024, and 2023, which are included herein.
Our operating results for the six months ended January 31, 2024, and 2023, and the changes between those periods for the respective items are summarized as follows:
Three Months Ended January 31, 2024, compared to the Three Months ended January 31,2023
|
| Three Months Ended |
|
|
|
| ||||||
|
| January 31, |
|
|
|
| ||||||
|
| 2024 |
|
| 2023 |
|
| Change |
| |||
Revenue |
| $ | 13,599 |
|
| $ | 13,569 |
|
| $ | (30 | ) |
Operating expenses |
|
| 73,961 |
|
|
| 22,575 |
|
|
| 51,386 |
|
Other expenses |
|
| 960,104 |
|
|
| 42,000 |
|
|
| 918,104 |
|
Net loss |
| $ | 1,020,466 |
|
| $ | 51,006 |
|
| $ | 969,460 |
|
For the three months ended January 31, 2024, and 2023, we generated revenue from interest income of $0 and $13,569 and revenue from rent income of $13,599 and $0, respectively.
We had a net loss of $1,020,466 for the three months ended January 31, 2024, and $51,006 for the three months ended January 31, 2023. The increase in net loss of $969,460 was due to an increase in professional fees of $38,201, general and administration expenses of $3,994, depreciation expenses of $6,342, cost of rental homes of $2,851, other expenses of $918,104, offset by an increase in revenue of $30.
Operating expenses for the three months ended January 31, 2024, and 2023 were $73,961 and $22,575, respectively. For the three months ended January 31, 2024, and 2023, the operating expenses were primarily attributed to cost of rental homes of $2,851 and $0, professional fees of $60,218 and $22,107, general and administrative expenses of $4,550 and $558 and depreciation expenses of $6,342 and $0, respectively. The cost of rental homes was for rented homes such as lawncare, maintenance and repairs, management fees, utilities, insurance and property taxes.
Other expenses for the three months ended January 31, 2024, and 2023, represent impairment loss on investment of $947,500 and $0, interest expenses -related party of $8,815 and $42,000 for granted loans and interest expenses of $3,789 and $0 for loans payable to third party, respectively.
Six Months Ended January 31, 2024, compared to the Six Months ended January 31,2023
|
| Six months ended |
|
|
|
| ||||||
|
| January 31, |
|
|
|
| ||||||
|
| 2024 |
|
| 2023 |
|
| Change |
| |||
Revenue |
| $ | 19,768 |
|
| $ | 27,824 |
|
| $ | 8,056 |
|
Operating expenses |
|
| 149,449 |
|
|
| 59,027 |
|
|
| 90,422 |
|
Other expenses |
|
| 963,362 |
|
|
| 42,000 |
|
|
| 921,362 |
|
Net loss |
| $ | 1,093,043 |
|
| $ | 73,203 |
|
| $ | 1,019,840 |
|
For the six months ended January 31, 2024, and 2023, we generated revenue from interest income of $0 and $27,824 and revenue from rent income of $19,768 and $0, respectively.
We had a net loss of $1,093,043 for the six months ended January 31, 2024, and $73,203 for the six months ended January 31, 2023. The increase in net loss of $1,019.840 was due to an increase in professional fees of $59,610, general and administration expenses of $13,474, depreciation expenses of $12,270, cost of rental homes of $5,070, other expenses of $921,362, offset by a decrease in revenue of $8,056.
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| Table of Contents |
Operating expenses for the six months ended January 31, 2024, and 2023 were $149,449 and $59,027, respectively. For the six months ended January 31, 2024, and 2023, the operating expenses were primarily attributed to professional fees of $117,754 and $58,144, general and administrative expenses of $14,355 and $883 and depreciation expenses of $12,270 and $0, cost of rental homes of $5,070 and $0, respectively. The cost of rental homes was for rented homes such as lawncare, maintenance and repairs, management fees, utilities, insurance and property taxes.
Other expenses for the six months ended January 31, 2024, and 2023, represent impairment loss on investment of $947,500, interest expenses – related party of $12,073 and $42,000 for granted loans and interest expenses of $3,789 and $0 for loans payable to third party, respectively.
Balance Sheet Data
|
| January 31, |
|
| July 31, |
|
|
|
| |||
|
| 2024 |
|
| 2023 |
|
| Change |
| |||
Cash |
| $ | 33,406 |
|
| $ | 151,718 |
|
| $ | (118,312 | ) |
Working capital deficiency |
| $ | (506,358 | ) |
| $ | (3,545,848 | ) |
| $ | 3,039,490 |
|
Total current assets |
| $ | 289,685 |
|
| $ | 418,262 |
|
| $ | (128,577 | ) |
Total current liabilities |
| $ | 796,043 |
|
| $ | 3,964,110 |
|
| $ | (3,168,067 | ) |
Stockholders’ Equity |
| $ | 42,885 |
|
| $ | (1,714,072 | ) |
| $ | 1,756,957 |
|
As of January 31, 2024, our current assets were $289,685 and our current liabilities were $796,043 which resulted in working capital deficiency of $506,358. As of January 31, 2024, current assets were comprised of $33,406 in cash, $24,858 in prepaid expenses, $228,570 in loan and $2,851 in accrued interest income, compared to $151,718 in cash, $34,858 in prepaid expenses, $228,750 in loan receivable and $3,116 in accrued interest income as of July 31,2023.
As of January 31, 2024, current liabilities were comprised of $240,463 in accounts payable and accrued liabilities, $170 in deferred rent income, $505,000 in due to related parties and $50,140 loans payable-current portion, compared to $237,888 in accounts payable and accrued liabilities and $3,726,222 in due to related parties as of July 31, 2023.
Cash Flow Data
|
| Six months ended |
|
|
|
| ||||||
|
| January 31, |
|
|
|
| ||||||
|
| 2024 |
|
| 2023 |
|
| Change |
| |||
Cash used in operating activities |
| $ | (102,645 | ) |
| $ | (44,893 | ) |
| $ | (57,752 | ) |
Cash used in investing activities |
| $ | (392,554 | ) |
| $ | (2,142,272 | ) |
| $ | 1,749,718 |
|
Cash provided by financing activities |
| $ | 376,887 |
|
| $ | 2,196,000 |
|
| $ | (1,819,113 | ) |
Net change in cash during period |
| $ | (118,312 | ) |
| $ | 8,835 |
|
| $ | (127,147 | ) |
Cash Flows from Operating Activities
We have not generated positive cash flows from operating activities. For the six months ended January 31, 2024, net cash flows used in operating activities was $102,645, consisting of a net loss of $1,093043, reduced by impairment loss on investment of $947,500, depreciation expenses of $12,270, amortization of debt discount of $729, prepaid expenses of $10.000, accrued interest income of $265, deferred rent income of $170, accrued interest -related party of $4,453,due to related party of $16,889 and increased by accounts payable and accrued liabilities of $1,878. For the six months ended January 31, 2023, net cash flows used in operating activities was $44,893, consisting of a net loss of $73,2023, reduced by accounts payable and accrued liabilities of $1,278, due to related parties of $33,780 and increased by deferred interest income of $6,748.
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| Table of Contents |
Cash Flows from Investing Activities
During the six months ended January 31, 2024, the Company used $392,554 for payments of construction.
During the six months ended January 31, 2023, the Company received cash from loan receivable of $140,996 and used $1,945,200 for investment, $179,310 for loan receivable and $158,758 for payment of construction.
Cash Flows from Financing Activities
During the six months ended January 31, 2024, the Company received advance from loans payable of $264,998 and from related parties of $457,700 and repaid $345,811 to related parties.
During the six months ended January 31, 2023, the Company received advance from related parties of $2,616,000 and repaid $420,000 to related parties.
Going Concern
Our consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. During the six months ended January 31, 2024, we incurred net loss of $1,093,043 and net cash used in operating activities of $102,645. As of January 31, 2024, we had an accumulated deficit of $3,138,823 and working capital deficit of $506,358. In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management plans to raise necessary funding through equity and debt financing arrangements, which may be insufficient to fund its capital expenditures, working capital and other cash requirements. The ability of the Company to continue operations in its new business model is dependent upon, among other things, obtaining financing to continue operations and continue developing the business plan. The Company cannot give any assurance as to the ability to develop or operate profitably. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Critical Accounting Policies
Use of Estimates: The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that directly affect the results of reported assets, liabilities, revenue, and expenses, including the valuation of non-cash transactions. Actual results may differ from these estimates.
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| Table of Contents |
Concentration
During the six months ended January 31, 2024, and 2023, customer concentrations (more than 10%) were as follows:
Revenue – rental income
|
| Percentage of Revenue |
| |||||
|
| For Six Months ended |
| |||||
|
| January 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Tenant A |
|
| 14.28 | % |
|
| - |
|
Tenant B |
|
| 32.11 | % |
|
| - |
|
Tenant C |
|
| 38.01 | % |
|
| - |
|
Tenant D |
|
| 15.60 | % |
|
| - |
|
Total (as a group) |
|
| 100.00 | % |
|
| - |
|
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As a smaller reporting company, we have elected not to provide the disclosure required by this item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation of the effectiveness of our “disclosure controls and procedures” (“Disclosure Controls”), as defined by Rules 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of January 31, 2024, the end of the period covered by this quarterly report on Form 10-Q. The Disclosure Controls evaluation was done under the supervision and with the participation of management, including our chief executive officer and chief financial officer, which positions are held by the same person who assumed both positions on August 14, 2019, and who is our only executive officer. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon this evaluation, our chief executive officer and chief financial officer, concluded that, due to the inadequacy of our internal controls over financial reporting and our limited internal audit function, our disclosure controls were not effective as of January 31, 2024, such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the president and treasurer, as appropriate, to allow timely decisions regarding disclosure.
Changes in Internal Control over Financial Reporting
As reported in our annual report on Form 10-K for the year ended July 31, 2023, management has determined that our internal controls contain material weaknesses due to the absence of segregation of duties, as well as lack of qualified accounting personnel and excessive reliance on third party consultants for accounting, financial reporting and related activities. Currently we have two principal executive officers, that serve as chief executive officer and chief financial officer, and also directors of the company. Both executive officers do not have an accounting background which makes it unlikely that we will be able to implement effective internal controls over financial reporting in the near future.
During the period ended January 31, 2024, there was no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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| Table of Contents |
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
On March 23, 2023, RAC was awarded a judgement from the District Court in Clark County Nevada enabling the Company to cancel 10,000 common shares held in the name of Hui Ping Liu.
On May 19, 2023, RAC filed a complaint for breach of two promissory notes entered into with Fix Pads Holdings, LLC and for injunctive relief in the 11th Judicial Circuit Court in Miami-Dade County Florida, as well as an emergency motion for temporary injunction enjoining Fix Pads Holdings, LLC from selling, transferring, conveying or otherwise disposing of any real property assets pledged as collateral in relation to the two promissory notes entered into between RAC and Fix Pads. In addition to the injunctive relief sought above, RAC is also seeking damages for breach of the promissory notes. After RAC filed and served the lawsuit, Fix Pads removed the lawsuit to the United States District Court for the Southern District of Florida on May 24, 2023. As such, the case will now be proceeding in the Southern District of Florida. RAC has obtained temporary injunctive relief against Fix Pads.
On July 7, 2023, RAC filed a complaint for appointment of receiver, breach of Limited Liability Company Agreement, and breach of fiduciary duty in the 11th Judicial Circuit Court of Miami-Dade County, Florida against Fix Pads Holdings LLC, FixPads Management, LLC and RAC FixPads II, LLC. RAC seeks for a receiver to be appointed to wind up the real property assets of RAC FixPads II, LLC and for damages for breach of the joint venture agreement.
On October 2, 2023, the parties participated in a global mediation concerning both lawsuits. The parties have reached a tentative verbal agreement on all material terms to resolve both lawsuits and are in the process of finalizing the agreement. As of January 31, 2024, the Company has not reached a signed agreement.
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| Table of Contents |
Item 6. Exhibits.
The following exhibits are included as part of this report:
Exhibit Number |
| Description |
(31) |
| Rule 13a-14(a)/15d-14(a) Certification |
| Section 302 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer, | |
| ||
(32) |
| Section 1350 Certification |
| Section 906 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer | |
| ||
101* |
| Inline XBRL Document Set for the consolidated financial statements and accompanying notes in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q. |
104* |
| Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set. |
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| Table of Contents |
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.
| MY CITY BUILDERS, INC. | ||
| |||
Dated: March 15, 2024 | /s/ Yolanda Goodell | ||
| Yolanda Goodell | ||
|
| Interim Chief Executive Officer | |
| 12 |