Forward-Looking Statements and Associated Risks.
This Form 10-Q contains certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "estimate," or "continue," or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include but are not limited to economic conditions generally and in the industries in which we may participate; competition within our chosen industry, including competition from much larger competitors; technological advances and failure to successfully develop business relationships.
Based on our financial history since inception, our auditor has expressed substantial doubt as to our ability to continue as a going concern in their auditors' report on our December 31, 2021 and 2020 financial statements. As reflected in the accompanying financial statements, as of March 31, 2022, we had an accumulated deficit totaling $492,988. This raises substantial doubts about our ability to continue as a going concern.
We intend to be engaged in the real estate and land development business in the United States.
On June 1, 2021, Stratus Capital on behalf of itself, its respective heirs, executors, administrators, agents, and assignees, Stratus Summit Trail, LLC, (referred to as "Summit"), the Richard and Reagan Dean Family Partnership, LLLP (referred to as "RRDFPLLLP") and Denver Digital Hub, LLC (referred to as "DDH") (collectively referred to herein as the "Party" or "Parties") entered into a Purchase Agreement ("Purchase Agreement").
RRDFPLLLP and DDH respectively own seventy-five percent (75%) and twenty-five percent (25%) of the membership interest of Summit ("Interest") and both of these parties sold their entire Interest or a total of one hundred percent (100%) of the Interest of Summit to Stratus Capital.
Stratus Capital has agreed to acquire the Interest owned by RRDFPLLLP and DDH of Summit of which Summit owns a total of 21 building lots as identified as Exhibit A to the Purchase Agreement within Grand County, town of Fraser, Colorado ("Subject Property"). Stratus Capital agreed that the continuing engineering, architectural or entitlement improvements are to be assigned to Summit if Stratus Capital does not fully pay the Promissory Note ('the Note') issued in respect of this transaction as per its terms and provisions as described below.
The purchase price is equal to $60,000 per lot, or 21 lots equal to $1,260,000 adjusted for any site or infrastructure costs as agreed upon by the Parties.
Stratus Capital was to fully pay the Note on or before October 31, 2021, or as agreed by the Parties. This repayment date was subsequently extended to March 30, 2022 and now further to July 30, 2022. As denoted within the Deed of Trust of the Note, RRDFPLLLP and DDH will retain a security interest within the Subject Property until the Note is fully paid per its terms and provisions.
The Closing date shall be 30 days from the date of the Purchase Agreement (unless extended by mutual agreement), title will be provided free and clear with exception of debt assumption and the Note and a special warranty deed is agreed upon by the Parties. Closing of the transaction is formally pending audit of Summit, but Stratus Capital is actively managing the project under a management agreement. The Closing date was subsequently extended to September 30, 2021, then to March 30, 2022, and then now further to July 30, 2022, by mutual consent.
Simultaneously with the execution of the Purchase Agreement, Stratus Capital executed and issued a Promissory Note ("Note") with personal guarantee of Peter Gonzalez, our CEO, ("Gonzalez") to RRDFPLLLP and DDH as consideration for the Purchase Agreement. The Note is for the principal sum of One Million Two Hundred Sixty Thousand Dollars and No/100ths Dollars ($1,260,000.00), together with interest on the unpaid principal balance from the date hereof, until paid, at the rate of six percent (6%) per annum. The Note becomes effective upon the Closing date of the Purchase Agreement.
The Parties also agree that as consideration for services provided within the normal course of business since 2019 or initial acquisition of the Subject Property by Summit, a development fee is due and payable to Willamette Group Trust ("WGT") equal to $12,500 per lot or $262,500 which is excluded from proceeds due to Seller pursuant to 1(d) of the Purchase Agreement. WGT is a related party, controlled by Stratus Capital principal Gonzalez and WGT agrees that all fees due to itself shall be waived if Stratus Capital does not
perform on the terms and provisions of the Note. The agreement with WGT becomes effective upon the Closing date of the Purchase Agreement.
We intend to develop a portfolio of development opportunities in various stages along with opportunistic acquisitions and partnerships in our core-markets. We operate solely under Stratus Capital Corp. We have historical presence and management experience in the mid-west and south-east regions. We plan to organize our business into the following operating segments:
NOTE: We reserve the right to add or delete real estate projects or substitute projects in the event that the economics, timing or financing of one or more of the projects, proves to be infeasible under the circumstances. Management will have sole discretion in making those judgments.
Our procedure for contracting for projects:
The identified projects are sought and generated by Peter Gonzalez, our CEO, through his experience and network within in each market. He generally takes an option or purchase contract personally or through an entity he controls, for a period of time during which he performs due diligence on the market, zoning, potential costs, the market absorption projections, local subcontractors and any environmental issues. If the Company is able to achieve funding sufficient to buy and build any project or projects, Mr. Gonzalez will assign the option or contract positions to the Company, in full, and at no additional consideration or markup so there is no additional cost to the Company. The Company, as it exists with its current funding, is unable to participate in any project until funding under an Offering has been achieved. At this time, there are no pending contracts or agreements due to the uncertainty of funding.
Accordingly, there are no contracts for real estate or development under which the Company is obligated in any way to participate or incur any costs, at this time. Mr. Gonzalez has committed, under our conflicts policy, to first offer all projects that meet the consideration criteria, to the Company on the terms that can be negotiated with the sellers and with no markups, and no additional consideration to Mr. Gonzalez.
The Company cannot predict or project any profits on any project as it has no history of development. Our project consideration criteria involve three primary elements:
1. Market projections during construction and product marketing period for the project locale.
2. Targeted yield of 24+% on cash cost-there is no assurance that this can be attained-it is a project qualification criteria.
3. Timely availability of financing for the project costs-equity, bank funding, or a combination, in many instances.
Of course, there are many other subordinate considerations such as zoning, utilities, product selection and design, environmental, marketing strategies, that are somewhat variable to individual projects, and cannot be uniformly predicted, or estimated.
We are seeking funding through a Regulation A offering currently filed with the SEC on Form 1-A through CIM Securities. The offering is not yet qualified under Regulation A.
Summary of current development projects under consideration:
Davis Road Apartments, Washington Park Townhomes, Grand Oaks Preserve Condos, Dade City Mixed-Use, Dade City Office, Sligh Avenue Townhomes, Skiff Point Condos, Gulf to Bay Apartments, Reunion Station Townhomes, Miller Street Station Townhomes, Summit Trail Townhomes, CentrePointe Mixed Use, and Delantero Apartments. All projects are located in the Metro Denver and Mountain Resort markets of Colorado and Metro Tampa and SW Florida markets which are experiencing continuing expansion in employment, residential and commercial development, population growth and resulting housing demand.
• Pursuing opportunities within our core markets;
• Developing high-quality relationships with our asset partners;
• Maintaining a cost-efficient culture; and
• Appropriately balancing risk and opportunity.
We are committed to improving the communities we work within and enhancing the lifestyle of our neighborhoods. Delivering on this involves thoughtful planning to accommodate the needs of our various customers, homeowners and the surrounding community. We engage unaffiliated civil and architectural firms to develop and augment existing plans in order to ensure that our developments reflect current market updates to complement our surrounding communities.
We intend to acquire our assets in core locations where we can target maximizing long-term shareholder value and operate our business to capitalize on market appreciation and mitigate risks from economic downturns as we recognize the cyclical nature of the national real estate market. We intend to regularly assess our capital allocation strategy to drive shareholder return. We also take advantage of joint venture opportunities, partnerships and lending opportunities as they arise in order to secure asset allocations to share risk and maximize returns.
We intend to execute this strategy by:
• Increasing our existing land supply through expanding market presence;
• Combining land acquisition and development expertise with development operations;
• Maintaining an efficient capital structure;
• Selectively investing in joint-ventures, partnerships and lending opportunities; and
• Employing and retaining a highly experienced management team with a strong operating track record.
Community development includes the acquisition and development of communities, which may include obtaining significant planning and entitlement approvals and completing construction of off-site and on-site utilities and infrastructure. We intend to generally operate as small community developers, but in some communities, we operate solely as merchant builders, in which case, we acquire fully planned and entitled lots and may construct on-site improvements or in-fill opportunities.
In order to maximize our expected risk-adjusted return, the allocation of capital for land investment is performed in the discretion of our management (2 persons) at the corporate level with a disciplined approach to overall portfolio management. Macro and micro indices, including but not limited to employment, housing starts, new home sales, re-sales and foreclosures, along with market related shifts in competition, land availability and consumer preferences, are carefully analyzed to determine our land and homebuilding strategy. Our
long-term plan is compared on an ongoing basis to current conditions in the marketplace as they evolve and is adjusted to the extent necessary.
We intend to complement each community or neighborhood and governing municipality we interact with, beginning with an overall community master plan and then determining the specific asset opportunity to maximize returns for our shareholders and the stakeholders of the area. After necessary governmental and other approvals have been obtained, we intend to improve the assets as planned.
The life cycle of an asset generally ranges from two to five years, commencing with the acquisition or investment in the asset and continuing through the development phase, concluding with the sale, construction or delivery of product types. The actual life cycle will vary based on the asset type, the development cycle and the general market conditions.
Sources and Availability of Raw Materials
When we commence our business plan of development, based on local market practices, we either directly, or indirectly through our subcontractors, intend to purchase drywall, cement, steel, lumber, insulation and the other building materials necessary to construct the various residential product asset classes we develop. While these materials are generally widely available from a variety of sources, from time to time we may experience material shortages on a localized basis which can substantially increase the price for such materials and our construction process can be slowed. We have multiple sources for the materials we intend to purchase, which will decrease the likelihood that we would experience significant delays due to unavailability of necessary materials.
Our construction, land and purchasing teams will coordinate subcontracting services and supervise all aspects of construction work and quality control. We intend to act as a general contractor for residential projects.
Subcontractors perform construction and land development scopes of work, generally under fixed-price contracts. The availability of labor, specifically as it relates to qualified tradespeople, at reasonable prices can be challenging in some markets as the supply chain responds to uneven industry growth and other economic factors that affect the number of people in the workforce.
We plan to have a comprehensive procurement program that leverages our size and regional presence to achieve efficiencies and cost savings. Our procurement objective is to maximize cost and process efficiencies to ensure consistent utilization of established contractual arrangements.
Our marketing program will be built out utilizing a balanced approach of corporate support and local expertise to attract potential lot buyers or homebuyers in a focused, efficient and cost-effective manner. Our sales and marketing teams will provide a generalized marketing framework across our regional operations. We hope to maintain product and price level differentiation through market and customer research to meet the need of our homebuilders and homebuyers.
The central element of our marketing platform is our web presence at www.StratusCap.com. The main purpose of this website is to connect with potential customers.
The land development and homebuilding business is highly competitive and fragmented. We compete with numerous national and local competitors of varying sizes, most of which have greater sales and financial resources than us. We compete primarily on the basis of location, lot availability, product design, quality, service, price and reputation.
In order to maximize our sales volumes, profitability and product strategy, we strive to understand our competition and their pricing, product and sales volume strategies and results. Competition among residential land developers and homebuilders of all sizes is based on a number of interrelated factors, including location, lot sizes, reputation, amenities, floor plans, design, quality and price.
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 31, 2022 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2021
We are a publicly are a quoted real estate development company seeking to develop or redevelop residential, commercial or mixed-use properties
We recognized no revenue during the three-month periods ended March 31, 2022 and 2021 as we had no revenue generating activities during these periods.
During the three months ended March 31, 2022, we incurred general and administrative expenses of $27,387 compared to $33,656 during the same period ended March 31, 2021, a decrease of $6,269. The decrease is due to a decrease of $8,264 in professional fees, partially offset by a $1,512 increase in travel costs and a $483 increase in office costs. The decrease in professional fees related to the fact that during the three months ended March 31, 2021 we incurred significant fees in respect of our proposed fund raising activities that were not incurred during the three months ended March 31, 2022.
During the three months ended March 31, 2022, we incurred an operating loss of $27,387 compared to an operating loss of $33,656 during the three months ended March 31, 2021 due to the factors described above.
During the three months ended March 31, 2022, we incurred $4,247 in related party interest expense compared to $3,431 for the same period ended March 31, 2021, an increase of $813. The increase arose due to the increase in the balance of the loans outstanding with the related parties from $185,342 as of March 31, 2021 to $216,581 as of March 31, 2022.
During the three months ended March 31, 2022, we incurred a net loss before income taxes of $31,634 compared to $37,087 for the three months ended March 31, 2021 due to the factors discussed above.
No provision for income taxes was recorded during the three months ended March 31, 2022 or 2021 as we incurred taxable losses in both periods.
During the three months ended March 31, 2022, we incurred a net loss of $31,634 compared to $37,087 for the three months ended March 31, 2021 due to the factors discussed above.
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