UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 1−SA

 

SEMIANNUAL REPORT PURSUANT TO REGULATION A

OF THE SECURITIES ACT OF 1933

 

For the fiscal year ended June 30, 2020

 

 

 

 

 

TABLE OF CONTENTS

 

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

The information contained in this report includes some statements that are not historical and that are considered “forward-looking statements.” Such forward-looking statements include, but are not limited to, statements regarding our development plans for our business; our strategies and business outlook; anticipated development of our company, our manager, each series of our company and the Otis Platform; and various other matters (including contingent liabilities and obligations and changes in accounting policies, standards and interpretations). These forward-looking statements express our manager’s expectations, hopes, beliefs, and intentions regarding the future. In addition, without limiting the foregoing, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “possible,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” and similar expressions and variations, or comparable terminology, or the negatives of any of the foregoing, may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

The forward-looking statements contained in this report are based on current expectations and beliefs concerning future developments that are difficult to predict. Neither we nor our manager can guarantee future performance, or that future developments affecting our company, our manager or the Otis Platform will be as currently anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements.

All forward-looking statements attributable to us are expressly qualified in their entirety by these risks and uncertainties. These risks and uncertainties, along with others, are also described under the heading “Risk Factors”  included in the Offering Statement. Should one or more of these risks or uncertainties materialize, or should any of the parties’ assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. You should not place undue reliance on any forward-looking statements and should not make an investment decision based solely on these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

ITEM 1.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Since its formation in October 2019, Otis Collection LLC, a Delaware series limited liability company (which we refer to as “we,” “us,” “our” or “our company”), has been engaged primarily in acquiring and managing a collection of investment-grade art and collectibles (the “underlying assets”). Otis Wealth, Inc. is the manager of our company (our “manager”) and serves as the asset manager for the underlying assets owned by our company. We acquire the underlying assets from our manager financed through promissory notes issued to our manager, and develop the financial, offering and other materials to begin offering membership interests (“interests”) in series of our company (each, a “series”) through a mobile app-based investment platform called Otis (we refer to as the “Otis Platform”). We offer and sell interests in a number of separate individual series, and investors in any series acquire a proportional share of income and liabilities as they pertain to a particular series. The sole asset of any given series at the time of an offering is the underlying asset related to such series (plus any cash reserves for future operating expenses), and the sole liability of any given series at the time of an offering is the promissory note related to the acquisition of such underlying asset. We conduct separate closings with respect to each offering. See the offering statement filed with the Securities and Exchange Commission (the “Commission”) on Form 1-A under the Securities Act (the “Offering Statement”) for additional details regarding our current offerings.

We are considered to be a development-stage company, since we are devoting substantially all of our efforts to establishing our business and planned principal operations have only recently commenced. As such, the reported financial information herein will likely not be indicative of future operating results or operating conditions. Because of our corporate structure, we are in large part reliant on our manager and its employees to grow and support our business. There are a number of key factors that will have large potential impacts on our operating results going forward, including our manager’s ability to:

We have not yet generated any revenues and do not anticipate doing so until the second half of 2021.

Recent Developments

Acquisitions

On April 23, 2020, Series Collection Drop 001, a series of our company, entered into a First Amendment to Purchase and Sale Agreement with our manager, which amendment amended the purchase price and consideration for the acquisition of the Series Collection Drop 001 Asset from our manager set forth in that certain Purchase and Sale Agreement, dated November 22, 2019. Series Collection Drop 001 had issued a promissory note, dated November 22, 2019, to our manager as the original consideration for the asset acquisition. As replacement consideration therefor in connection with the amendment, Series Collection Drop 001 issued a promissory note, dated April 23, 2020, to our manager in the sum of $12,250, which amends and restates in its entirety, and replaces, the original note. Aside from the revised principal amount, the note remains unchanged.

On April 23, 2020, Series Collection Drop 003, a series of our company, entered into a First Amendment to Purchase and Sale Agreement with our manager, which amendment amended the purchase price and consideration for the acquisition of the Series Collection Drop 003 Asset from our manager set forth in that certain Purchase and Sale Agreement, dated November 25, 2019. Series Collection Drop 003 had issued a promissory note, dated November 25, 2019, to our manager as the original consideration for the asset acquisition. As replacement consideration therefor in connection with the amendment, Series Collection Drop 003 issued a promissory note, dated April 23, 2020, to our manager in the sum of $11,750, which amends and restates in its entirety, and replaces, the original note. Aside from the revised principal amount, the note remains unchanged.

Impact of Coronavirus Pandemic

In December 2019, a novel strain of coronavirus, referred to as COVID-19, was reported in Wuhan, China. COVID-19 has since spread to other countries, including the United States, and was declared a pandemic by the World Health Organization. Efforts to contain the spread of COVID-19 have intensified, and most states and localities in the United States and countries in Europe and Asia have implemented severe travel and social restrictions, including social distancing, “shelter-in-place” orders and restrictions on the types of businesses that may continue to operate. The impacts of the outbreak are unknown and rapidly evolving. Our principal office in New York State is closed, and we currently have limited access to our storage facility.

Our manager has taken steps to take care of its employees, including providing the ability for employees to work remotely for at least the remainder of 2020. Our manager has also taken precautions with regard to employee, facility and office hygiene and implemented significant travel restrictions. Our manager is also assessing business continuity plans for all business units, including ours, in the context of COVID-19. This is a rapidly evolving situation, and our manager will continue to monitor and mitigate developments affecting its workforce. Our manager has reviewed and will continue to carefully review all rules, regulations and orders and will respond accordingly.

The continued spread of COVID-19 has also led to severe disruption and volatility in the global financial markets, which could increase our cost of capital and adversely affect our liquidity and ability to access capital markets in the future. The continued spread of COVID-19 has caused an economic slowdown and may cause a recession or other unpredictable events, each of which could adversely affect our business, results of operations or financial condition. The pandemic has had, and could have a significantly greater, material adverse effect on the United States economy as a whole and in our industry in particular.

If the spread of COVID-19 cannot be slowed and, ideally, contained, our business operations could be further delayed or interrupted. We expect that government and health authorities will announce new, or extend existing, restrictions, which could require us to make further adjustments to our operations in order to comply with any such restrictions. Our manager may also experience limitations in employee resources. In addition, our operations could be disrupted if any employee of our manager is suspected of having the virus, which could require quarantine of any such employees. The duration of any business disruption cannot be reasonably estimated at this time but may materially affect our ability to operate our business and result in additional costs.

The extent to which COVID-19 may impact our results will depend on future developments, which are highly uncertain and cannot be predicted as of the date of this report, including new information that may emerge concerning the severity of the pandemic and steps taken to contain the pandemic or treat its impact, among others. Nevertheless, the pandemic; the current financial, economic and capital markets environment; and future developments in the global supply chain and other areas present material uncertainty and risk with respect to our performance, financial condition, results of operations and cash flows.

Further, the COVID-19 outbreak has caused unprecedented levels of global uncertainty and may impact the value of art and other collectables. We expect the COVID-19 outbreak will result in low transaction volume until confidence in the global economy is restored. The extent and duration of this disruption cannot be accurately estimated, and the art and collectibles industry may take a significant amount of time to recover. Although we intend to hold and manage all of the assets marketed on the Otis Platform for an average of three to seven years, the COVID-19 outbreak and resulting economic uncertainty may impact the value of the underlying assets, and consequently the value of the interests.

Results of Operations

Revenues

Revenues are generated at the series level. As of June 30, 2020, no series has generated any revenues. Our underlying assets are not expected to generate any revenues until the second half of 2021. 

Operating Expenses

The operating expenses incurred prior to the closing of an offering related to any of the underlying assets are being paid by our manager and recognized by our company as capital contributions and will not be reimbursed by the series. Each series will be responsible for its own operating expenses, such as storage, insurance or maintenance, beginning on the closing date of the offering for such series’ interests.

We incurred $300 in operating expenses for the six months ended June 30, 2020, all of which was attributable to accounting and audit expenses, as compared to $0 for the period from October 8, 2019 (inception) to December 31, 2019.

At the close of the respective offerings for the series, each individual series becomes responsible for operating expenses. Pre-closing operating expenses are incurred on the books of our company, and post-closing operating expenses incurred by each series with a closed offering are incurred and recorded on the books of the series. As of June 30, 2020, no series offering had closed. Our manager has agreed to pay and not be reimbursed for operating expenses incurred prior to the initial closing of each offering. See the Offering Statement for additional information regarding the payment of operating expenses.

Other Expenses

We incurred other expenses in the form of interest expenses of $734 for the six months ended June 30, 2020, as compared to $326 for the period from October 8, 2019 (inception) to December 31, 2019. The following table summarizes the interest expenses by series:

 

Net Loss

As a result of the cumulative effect of the foregoing factors, we generated a net loss of $1,034 for the six months ended June 30, 2020.

Liquidity and Capital Resources

From inception, our company and each series have financed their business activities through capital contributions to our company and individual series from our manager. Our company and each series expect to continue to have access to capital financing from our manager going forward. However, there is no obligation or assurance that our manager will provide such required capital. Until such time as the series have the capacity to generate cash flows from operations, our manager may cover any deficits through additional capital contributions or the issuance of additional interests in any individual series. In addition, parts of the proceeds of future offerings may be used to create reserves for future operating expenses for individual series at the sole discretion of our manager. There can be no assurance that our manager will continue to fund such expenses. These factors raise substantial doubt about our company’s ability to continue as a going concern for the twelve months following the date of this filing.

Cash and Cash Equivalent Balances

As of June 30, 2020, we had no cash or cash equivalents.

Subscription Receivable

Our company records membership contributions at the effective date. If the subscription is not funded upon issuance, we record a subscription receivable as an asset on the balance sheet. When subscription receivables are not received prior to the issuance of financial statements at a reporting date, the subscription receivable is reclassified as a contra account to members’ equity on the balance sheet. Each series has a minimum offering size that once met will result in the eventual successful subscription to and closing of the series offering. Subscription receivable consists of membership subscriptions received prior to June 30, 2020, for which the minimum subscription requirement was met. As of June 30, 2020, there was a subscription receivable of $45,300. The following table summarizes the subscription receivable by series:

 

 

Plan of Operations

We plan to launch approximately 25 to 50 additional offerings in the next twelve months. The proceeds from any offerings closed during the next twelve months will be used to acquire additional investment-grade art and other collectibles.

We also intend to develop revenue-generating events (as described in the Offering Statement), allowing investors to enjoy the collection of art and collectibles acquired by us through events, museums and other programs, which we anticipate will enable the underlying assets to generate revenue for the applicable series to distribute dividends on a semi-annual basis at the discretion of our manager. See the Offering Statement for additional information regarding the payment of operating expenses.

We believe that the proceeds from the offerings will satisfy our cash requirements for the next six months to implement the foregoing plan of operations.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management’s difficult, subjective or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements:

Fair Value of Financial Instruments

Financial Accounting Standards Board (“FASB”) guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. 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). The three levels of the fair value hierarchy are as follows:

Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities.

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active).

Level 3 - Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable.

The carrying amounts reported in the balance sheets approximate their fair value.

Revenue Recognition

We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee for the arrangement is fixed or determinable and collectability is reasonably assured. Revenues are expected to be derived from the sale of each underlying asset in the associated series. As of June 30, 2020, we had recognized no revenue as there have been no sales of underlying assets in any series.

Operating Expenses

After the closing of an offering of interests, each series is responsible for its own operating expenses, including any and all fees, costs and expenses incurred in connection with the management of the underlying assets. Prior to the closing, operating expenses are borne by our manager and not reimbursed by the series. Our manager will bear its own expenses of an ordinary nature. If the operating expenses exceed the amount of revenues generated from an underlying asset and cannot be covered by any operating expense reserves on the balance sheet of such Series, our manager may pay such expenses and not seek reimbursement, loan the amount of the operating expenses to the applicable series or cause additional interests in such series to be issued.

Sourcing Fee: Our asset manager will be paid a fee as compensation for sourcing each underlying asset in an amount equal to up to 10% of the gross offering proceeds of each offering; provided that such sourcing fee may be waived by our asset manager.

Brokerage Fee: The broker of record for each offering is expected to receive a brokerage fee equal to 1% of the amount raised from outside investors through each offering. Notwithstanding the foregoing, such broker will not receive any fee on funds raised from the sale of interests to our manager. We expense brokerage costs as they are incurred.

Organizational Costs: In accordance with FASB ASC 720, organizational costs, including accounting fees, legal fees and costs of incorporation, are expensed as incurred.

See the Offering Statement for additional information.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU supersedes the previous revenue recognition requirements in ASC Topic 605—Revenue Recognition and most industry-specific guidance throughout the ASC. The core principle within this ASU is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration expected to be received for those goods or services. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers, which deferred the effective date for ASU 2014-09 by one year to fiscal years beginning after December 15, 2017, while providing the option to early adopt for fiscal years beginning after December 15, 2016. Transition methods under ASU 2014-09 must be through either (i) retrospective application to each prior reporting period presented or (ii) retrospective application with a cumulative effect adjustment at the date of initial application. Our company adopted this new standard effective October 8, 2019 (inception).

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU requires a lessee to recognize a right-of-use asset and a lease liability under most operating leases in its balance sheet. The ASU is effective for annual and interim periods beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. Our company is continuing to evaluate the impact of this new standard on our financial reporting and disclosures.

We do not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the accompanying consolidated financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.

ITEM 2.  OTHER INFORMATION

On August 26, 2020, Series Collection Drop 001, a series of our company, entered into an Amendment to the Escrow Agreement with North Capital Private Securities Corporation, which amendment amended the offering amount and minimum offering amount set forth in that certain Escrow Agreement, dated November 26, 2019. A copy of the amendment has been filed as Exhibit 8.1.2 to this report. 

On September 22, 2020, Series Collection Drop 003, a series of our company, entered into an Amendment to the Escrow Agreement with North Capital Private Securities Corporation, which amendment amended the offering amount and minimum offering amount set forth in that certain Escrow Agreement, dated November 26, 2019. A copy of the amendment has been filed as Exhibit 8.3.2 to this report. 

ITEM 3.  FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS

Exhibit 8.1.2

 

AMENDMENT TO THE ESCROW AGREEMENT

This Amendment to the Escrow Agreement (this “Amendment”) is entered into as of 8/26/2020 by North Capital Private Securities Corporation (“NCPS”) as Escrow Agent, Otis Wealth, Inc. (“Platform”), and Series Collection Drop 001, a Series of Otis Collection LLC (“Issuer”). NCPS, Platform, and the Issuer are sometimes referred to herein individually as a “Party” and collectively as the “Parties”.

WHEREAS:

A. The Parties heretofore entered into that certain Escrow Agreement dated as of November 26, 2019. Capitalized terms used herein without definition have the meaning set forth in the Escrow Agreement.

B. The Escrow Agreement set the Offering Amount to be up to $15,000. Exhibit A of the Escrow Agreement set the Minimum Offering Amount to be $14,000. 

C. The Parties desire to amend the Escrow Agreement and set the Offering Amount to be up to $13,000, and the Minimum Offering Amount to be $12,250.

NOW, THEREFORE, the Parties hereby agree as follows:

 

 

[Signature Pages Follow]

Issuer: Series Collection Drop 001, a Series of Otis Collection LLC

 

 

By: /s/ Keith Marshall

Name:  Keith Marshall

Title:  General Counsel 

 

 

 

Platform: Otis Wealth, Inc.

 

By: /s/ Keith Marshall

Name:  Keith Marshall

Title:  General Counsel 

 

 

 

North Capital Private Securities Corporation, as Escrow Agent

 

 

 

By: /s/ Linsey Harkness

Name:  Linsey Harkness

Title:  Managing Director

Exhibit 8.3.2

 

AMENDMENT TO THE ESCROW AGREEMENT

This Amendment to the Escrow Agreement (this “Amendment”) is entered into as of September 22, 2020 by North Capital Private Securities Corporation (“NCPS”) as Escrow Agent, Otis Wealth, Inc. (“Platform”), and Series Collection Drop 003, a Series of Otis Collection LLC (“Issuer”). NCPS, Platform, and the Issuer are sometimes referred to herein individually as a “Party” and collectively as the “Parties”.

WHEREAS:

A. The Parties heretofore entered into that certain Escrow Agreement dated as of November 26, 2019. Capitalized terms used herein without definition have the meaning set forth in the Escrow Agreement.

B. The Escrow Agreement set the Offering Amount to be up to $14,500. Exhibit A of the Escrow Agreement set the Minimum Offering Amount to be $13,500. 

C. The Parties desire to amend the Escrow Agreement and set the Offering Amount to be up to $12,500, and the Minimum Offering Amount to be $11,750.

NOW, THEREFORE, the Parties hereby agree as follows:

 

 

[Signature Pages Follow]

Issuer: Series Collection Drop 003, a Series of Otis Collection LLC

 

 

By: /s/ Keith Marshall

Name:  Keith Marshall

Title:  General Counsel 

 

 

 

Platform: Otis Wealth, Inc.

 

By: /s/ Keith Marshall

Name:  Keith Marshall

Title:  General Counsel 

 

 

 

North Capital Private Securities Corporation, as Escrow Agent

 

 

 

By: /s/ Linsey Harkness

Name:  Linsey Harkness

Title:  Managing Director