10. Related Party Transactions

 

The Company currently leases office space, on a month-to-month basis, in a building owned by Union News of New Haven, Inc., an entity that is controlled and 20%-owned by Jeffrey Villano, the Company’s co-CEO. Rent and other facility related charges paid by the Company to Union News for the year ended December 31, 2017 was $18,000. The Company expects to move its operations to a new location, owned by the Company, in the fourth quarter of 2018. (See Note 7.)

 

Prior to the Exchange, SCP reimbursed the Manager for rent and other expenses paid by the Manager on its behalf. For the period beginning January 1, 2017 and ending February 8, 2017 such amount totaled $35,847 and for 2016 such amount totaled $350,229. In addition to rent, these amounts include other payments made by the Manager on SCP’s behalf including insurance premiums and real estate taxes in instances where SCP was been notified that the borrower is in default, costs of any actions (i.e.,  foreclosures) commenced by SCP to enforce its rights or collect amounts due from borrowers who were in default of their obligations to SCP as well as other costs that the Manager deemed appropriate to protects SCP’s interests. During 2017, the Manager paid salaries and payroll taxes on behalf of the Company totaling $12,223. For 2016, SCP reimbursed the Manager $20,392 for certain payroll and related costs. Unreimbursed costs advanced by the Manager on behalf of SCP as of December 31, 2017 and 2016 were $-0- and $64,794, respectively, and are included in due to member on the Company’s balance sheets as of those dates.

 

During the period beginning January 1, 2017 and ending February 8, 2017 and for the year ended December 31, 2016, SCP paid the Manager $52,902 and $636,260, respectively, representing the origination fees on loans funded by SCP in those years. (See Note 9.)

 

From time to time, the Manager would acquire certain troubled assets from third parties who are not existing SCP borrowers. In such instances, the Manager would borrow money from SCP to finance these acquisitions. As part of the Exchange, the Company acquired the notes evidencing these loans from SCP. The principal balance of the loans to the Manager at December 31, 2017 and 2016 were $1,104,022 and $1,229,022, respectively. The real estate purchased is held by the Manager in trust for the Company. The Company accounts for these arrangements as separate loans to the Manager. The income earned on these loans is equivalent to the income earned on similar loans in the portfolio. All underwriting guidelines are adhered to. The mortgage documents allow the Manager to sell the properties in case of default with proceeds in excess of loan principal and accrued expense being returned to the Manager. Neither SCP nor the Company made any loans to the Manager in 2016 or 2017. During the years ended December 31, 2017 and 2016, the Manager paid $134,452 and $166,193, respectively, of interest to the Company (or to SCP prior to the Exchange).

 

During the year ended December 31, 2016, the Company acquired a property from the Manager. This property has a cost basis of $117,500 and is currently held for rental.

 

In the ordinary course of business, the Company may originate, fund, manage and service loans to shareholders (members in the case of loans funded prior to the Exchange). The underwriting process on these loans is consistent with Company policy. The terms of such loans, including the interest rate, income, origination fees and other closing costs are the same as those applicable to loans made to unrelated third parties in the portfolio. As of December 31, 2017 and 2016, loans to former partners and now shareholders totaled $3,588,669 and $4,856,391, respectively. Interest income earned on these loans totaled $303,232 and $411,147 for the years ended December 31, 2017 and 2016, respectively.

 

During the year ended December 31, 2017, the Company originated then sold notes to a shareholder in the amount of $2,750,000. Notes totaling $2,000,000 were repurchased by the Company and are classified as mortgages receivable at December 31, 2017. Prior to December 31, 2017, $723,478 was paid to the Company for the benefit of the noteholder. This amount is reflected in our balance sheet as Due to note purchaser at December 31, 2017, and was paid to the noteholder in January 2018.

 

At December 31, 2017, total amounts owed by Manager to the Company was $22,977 and is reflected as other receivables on the Company’s balance sheet. At December 31, 2016, total amount owed by SCP to the Manager was $656,296. which is reflected as due to member on the Company’s balance sheets as of that date.

 

On February 9, 2017, the Company purchased computer hardware, software and furniture and fixtures totaling $92,806 from JJV.

 

During the year ended December 31, 2017, the wife of one of our executive officers was paid $75,000 for accounting and financial reporting services provided to the Company.