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MAGNOLIA LANE INCOME FUND - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations.

August 13, 2014

The following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto. The following discussion and analysis contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements.

Plan of Operations



Magnolia Lane Income Fund was incorporated in the state of Delaware on May 12, 2009. We were formed to commence business as a stock agent in the wool trade.

On May 13, 2013, we changed our business plan to one that is focused on managing real property. Specifically, we intend to acquire real estate in small markets with high degrees of safety to provide income streams to our shareholders. In addition, we will develop property, syndicate, manage and acquire property for capital appreciation.

In connection with the change in our business plan, we have conducted a name change and reverse stock split. On August 1, 2013 we filed a Certificate of Amendment to our Articles of Incorporation (the "Amendment") to change its name from "Palmerston Stock Agency, Inc." to "Magnolia Lane Income Fund" (the "Name Change") and to memorialize a 8 to 1 reverse stock split (the "Stock Split"). The Amendment was effective as of August 1, 2013.

On August 12, 2013, the Company received approval from the Financial Industry Regulatory Authority ("FINRA") to effectuate the Name Change and Stock Split. FINRA also confirmed that the new stock symbol is MIFC.

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On December 23, 2013, a shareholder of ours, Magnolia Lane Financial, entered into three separate LLC Membership Interest Purchase and Sale Agreements for the acquisition of two limited liability companies, Grove Realty Partners, LLC and Walker Partners, LLC (the "Acquisition Agreements"). Pursuant to the Acquisition Agreements, Magnolia Lane Financial acquired 100% of the equity interests in Grove Realty Partners, LLC and Walker Partners, LLC. As consideration for the acquisition, Magnolia Lane Financial transferred 134,574 shares of our Common Stock to WS Advantage and Phalanx Wealth Management (the "Consideration Shares"). For purposes of the Acquisition Agreements, the parties valued the shares at $16.60 per share for a total purchase price of $2,233,928. Prior to this transaction, Magnolia Lane Financial owned 1,250,000 shares of our common stock and now owns 1,115,426 shares of our common stock. WS Advantage, LP owns 115,347 shares of our common stock and Phalanx Partners, LLC owns 19,227 shares of our common stock.

Subsequently, on January 16, 2014, we entered into an LLC Membership Interest Purchase and Sale Agreement with Magnolia Lane Financial, Inc. (the "Agreement"). Pursuant to the Agreement, we acquired all rights, title and interest to all assets of Magnolia Lane Financial, including the assets acquired in the Acquisition Agreements, in exchange for $3,000.

As of April 30, 2014, real estate that we, through our subsidiaries, owned consisted of two properties:

7 Grove Street, Topsfield, Ma 01983.

Description: 12,000 Square foot, Business Office, Retail and Professional Space



Status: Rented at 100% occupancy. Lease term: 3-Year

Owner: Grove Realty Partners, LLC

Purchase Price: $2.025 million

Current Mortgage Debt: $1,425,982

58 Main Street, Topsfield, Ma 01983

Description: 4,000 Square foot, Commercial Building Status: Rented 100% occupancy. Lease term: 3-Year Owner: Walker Partners, LLC Purchase Price: $503,000 Current Mortgage Debt: $558,176 Limited Operating History



We have only begun generating modest revenue, have a limited financial history and have limited capital. Our business is subject to risks inherent in growing an enterprise, including limited capital resources and possible rejection of our business model and/or sales methods.

Going Concern



The ability of the Company to continue as a going concern is dependent upon the Company's ability to further implement its business plan and generate sufficient revenues. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern.

Results of Operations



For the years ended April 30, 2014 and 2013

Our rental revenue for the twelve months ended April 30, 2014 reflects the contribution of rental properties to the Company on January 16, 2014. Revenues were $214,235 as compared to $0 in revenue for the twelve months ended April 30, 2013. The increase in rental revenue of $214,235 is the result of the contribution of the properties on January 16, 2014. Operating expenses for the twelve-month period ended April 30, 2014 totaled $408,204, resulting in a loss of $193,969 as compared with operating expenses and loss of $16,745 for the twelve-month period ended April 30, 2013. Our operating expenses for the twelve months ended April 30, 2014 consisted of $72,443 in general and administrative fees, $62,275 in professional fees, $18,161 in repairs and maintenance, $85,097 in depreciation and $170,228 in interest expense.

Capital Resources and Liquidity

As of April 30, 2014 we had $19,379 cash on hand.

As of April 30, 2014, the Company had a stockholders' deficit of $19,132. For the fiscal year ended April 30, 2014 and 2013, the Company had a net loss of $193,969 and $16,745, respectively. The Company's stockholders' deficiency is primarily due to, among other reasons, interest expenses and general administrative expenses.

Net cash used in operating activities was $119,280 for the fiscal year ended April 30, 2014 as compared to a net loss of $196,969 for the fiscal year ended April 30, 2013.

Net cash used in investing activities was $50,298 for the fiscal year ended April 30, 2014.

Net cash provided by financing activities amounted to $186,727 for the fiscal year ended April 30, 2014.

Our principal sources of liquidity include cash from rental revenue and loans from a related party to cover mortgage obligations.

-5- Mortgage Obligations



In connection with the contribution of assets described in the section above, the Company assumed mortgages related to the respective properties contributed.

On January 16, 2014, the Company assumed a mortgage note payable to a third-party, unrelated to the seller, on a property located at 7 Grove Street, Topsfield, Massachusetts. The note bore interest at 7.9 % per annum and was scheduled to mature on September 5, 2032. Monthly payments of $17,775 started on October 5, 2008. The mortgage note was secured by a mortgage on the property. At maturity, the balloon payment was to be due in full.

On April 12, 2014, the mortgage note payable on the property at 7 Grove Street was paid in full by a shareholder. On that same date, a new mortgage note payable was established between the Company and the shareholder for an amount equal to the balance that was remaining on the original mortgage. The new related party mortgage note payable began on April 12, 2014 and is a 5-year fixed loan at 5.5% interest, with a balloon payment on May 15, 2019 for the outstanding balance. Interest only payments will begin on May 15, 2014 in the amount of $6,536.

On January 16, 2014, the Company assumed a mortgage note payable to a third-party, unrelated to the seller, on a property located at 58 Main Street, Topsfield, Massachusetts. The note bears interest at 6.75% per annum and is due August 26, 2019. Monthly principle and interest payments totaling $4,320 started on September 26, 2009 and will continue through the maturity date. The mortgage note is secured by a mortgage on the property. At maturity, the balloon payment will be due in full. The remaining principal balance as of April 30, 2014 is $558,177.

Related Party Loans



From time to time, the Company receives loans and advances from Phalanx Partners and WS Advantage LP for working capital purposes. Phalanx Partners and WS Advantage LP are shareholders that formerly held equity interests in Grove Realty Partners, LLC and Walker Partners, LLC and are currently controlled by the Company's president.

An aggregate of $441,516 was received by related parties during the twelve-month period for working capital purposes and debt and expenses paid on the Company's behalf.

During the fiscal year ended April 30, 2014, the Company received $36,000 in rental income from Phalanx Partners, who occupies an office in one of the Company's properties.

We believe that our currently available working capital and availability of loans from related parties referred to above should be adequate to sustain our operations at the current level for the next twelve months. Should we not be able to meet our current financial needs, the Company will seek alternative methods of financing, such as issuing convertible debt or introducing additional shares of its common stock into the market.

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Our liquidity may be negatively impacted by the significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.


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Source: Edgar Glimpses


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