Note 5 – Related Party Transactions

Management Agreement

On November 10, 2014, the Company entered into a Management Agreement, with an effective date of April 1, 2014, with Inter-American Management, LLC (the “Manager”), a Delaware limited liability company and an affiliate of the Company.  Under the terms of the Management Agreement, the Manager is responsible for designing and implementing our business strategy and administering our business activities and day-to-day operations. For performing these services, the Company will pay the Manager 8% of rental revenue for property management services (services had not commenced during the six months ended June 30, 2015 and therefore no fees were incurred or recorded in the accompanying Statements of Operations) and a base management fee equal to the greater of (a) 2.0% per annum of the Company’s net asset value (the value of the Company’s assets less the value of the Company’s liabilities), or (b) $30,000 per calendar month.  For the three and six months ended June 30, 2015, management fees of $90,000 and $180,000, respectively, were incurred and expensed.  For the three and six months ended June 30, 2014, management fees of $90,000 (incurred beginning April 1, 2014), were incurred and expensed.  As of June 30, 2015 and December 31, 2014, cumulative management fees of $450,000 and $270,000, respectively (since April 1, 2014), were incurred and expensed by the Company, due to the Manager, and remain unpaid. The unpaid management fee balance is included in the “Due to Related Party, Net” line item in the accompanying Balance Sheets.

Allocated General and Administrative Expenses

In the future, the Company may receive an allocation of general and administrative expenses from the Manager that are either clearly applicable to or were reasonably allocated to the operations of the properties. There were no allocated general and administrative expenses from the Manager for the three and six months ended June 30, 2015 and June 30, 2014, respectively.

Convertible Debenture, Due to Majority Shareholder

As of June 30, 2015 and December 31, 2014, the outstanding principal balance of the Convertible Debenture was $5,446,102. Interest expense on the Convertible Debenture was $108,625 and $216,054 for the three and six months ended June 30, 2015, respectively.  Interest expense on the Convertible Debenture was $29,826 for the three and six months ended June 30, 2014, respectively.  As discussed in the “Notes Payable to Majority Shareholder” section below, during the six months ended June 30, 2015, HFE USA, LLC loaned the Company a total of $350,000 in the form of notes payable in order to pay off all accrued interest and unpaid interest on the Convertible Debenture as of March 31, 2015, in the amount of approximately $341,000.  Incurred and unpaid interest for the three months ended June 30, 2015 of $108,625 is owed by the Company on the Convertible Debenture and is classified as “Accounts Payable and Accrued Expenses” on the accompanying Balance Sheets. 

The Company analyzed the conversion option in the Convertible Debenture for derivative accounting treatment under ASC Topic 815, “Derivatives and Hedging,” and determined that the instrument does not qualify for derivative accounting. The Company therefore performed an analysis to determine if the conversion option was subject to a beneficial conversion feature and determined that the instrument does not have a beneficial conversion feature.  

Notes Payable to Majority Shareholder

During the six months ended June 30, 2015, HFE USA, LLC made two loans to the Company in the amounts of $250,000 and $100,000 ($350,000 total loaned) in the form of notes payable that were primarily used to pay in full all accrued and unpaid interest on the Convertible Debenture as of March 31, 2015 in the amount of approximately $341,000.  As of June 30, 2015 and December 31, 2014, the notes payable to the majority shareholder balance was $388,195 and $38,195, respectively.  The notes payable balance is unsecured, due on demand, and non-interest bearing.

Due to related party, net

                A detail of the due to related party, net balance as of June 30, 2015 and December 31, 2014 is as follows:

(a)  Funds loaned by the Company were primarily used by the Manager for the Asheville facility acquisition.  An additional $6,000 was loaned by the Company during the six months ended June 30, 2015.

(b)  Management fees incurred by the Company and unpaid were $180,000 during the six months ended June 30, 2015.

(c)  Fund received by the Company were primarily used for general corporate purposes.  An additional $1,950 was received by the Company during the six months ended June 30, 2015.