You
may only rely on the information contained in this prospectus or that we have referred you to. We have not authorized anyone to
provide you with different information. This prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any securities other than the common stock offered by this prospectus. This prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any common stock in any circumstances in which such offer or solicitation is unlawful. Neither
the delivery of this prospectus nor any sale made in connection with this prospectus shall, under any circumstances, create any
implication that there has been no change in our affairs since the date of this prospectus or that the information contained by
reference to this prospectus is correct as of any time after its date.
PURSUANT
TO SECURITIES ACT RELEASE 33-6900 AND CF DISCLOSURE GUIDANCE, TOPIC NO. 6, TO THE EXTENT THE COMPANY WILL REGULARLY UPDATE ITS
PROSPECTUS TO COMPLY WITH THE SECURITIES ACT; MORE SPECIFICALLY, THE COMPANY WILL COMPLY WITH THE UNDERTAKINGS OF ITEM 20.D BY
PROVIDING STICKER SUPPLEMENTS, POST-EFFECTIVE AMENDMENTS, AND FORM 8-K FILINGS THAT THE COMPANY SHOULD MAKE TO REFLECT THE ACQUISITION
OF PROPERTIES WITH THE OFFERING PROCEEDS.
The
information in this prospectus is not complete and may be changed. Neither we nor the selling stockholders may sell these securities
until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities, and neither we nor the selling stockholders are soliciting an offer to buy these securities in any state
where the offer or sale is not permitted.
This
preliminary prospectus will permit our President and Chief Executive Officer, Jeff Howard, and our Chief Financial Officer and
Treasurer, Sean Zarinegar, to sell the common stock directly to the public, friends, family members and business acquaintances
with no commission or other remuneration. Mr. Zarinegar and Mr. Howard will be relying on the safe harbor from broker-dealer
registration on the basis that, as associated persons of the Company, they are not subject to a statutory disqualification under
Rule 3a4-1(a)(1) under the Securities and Exchange Act of 1934, and are not compensated in connection with their participation
by the payment of commissions or other remuneration based either directly or indirectly on transactions in securities, and at
the time of the respective participation, neither of them are associated persons of a broker-dealer. Furthermore, Mr. Zarinegar
and Mr. Howard will be relying on Rule 34(a)4-1(a)(ii) and/or (iii) as the final component of the four-prong analysis
under the safe harbor rules.
Mr.
Zarinegar and Mr. Howard primarily perform, or intend to primarily perform, at the end of the offering, substantial duties for
or on behalf of the Company not in connection with transactions in securities. Neither individual is a broker nor dealer, nor
associated person of a broker or dealer, within the preceding 12 months, and neither participate in selling an offering of securities
for any issuer more than once every 12 months other than in reliance on Rule 3a4-(a)(iii). Mr. Zarinegar and Mr. Howard will be
restricting their participation to preparing written communication or delivering such communications approved by the officers
or directors of the Company through the mails or other means, and to specifically exclude any direct oral solicitations that are
not considered to be responses to inquiries by potential purchasers under this prospectus. The Resolution of the Board of Directors
has been attached hereto as an exhibit.
The
Company is an "emerging growth company," as defined in the Jumpstart Our Business Startups Act. Investing in our common stock
involves a high degree of risk. You should purchase shares only if you can afford a complete loss of your investment. Neither
the Securities and Exchange Commission (the "Commission"), nor any state securities commission or regulatory body, has approved
or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
PROSPECTUS
SUMMARY AND RISK FACTORS
This
prospectus contains forward-looking statements which relate to future events or our future financial performance. In some cases,
you can identify forward-looking statements by terminology such as "may", "should", "expects", "plans", "anticipates", "believes",
"estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements
are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section
entitled "Risk Factors," that may cause our or our industry's actual results, levels of activity, performance or achievements
to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these
forward-looking statements.
While
these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current
judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates,
predictions, projections, assumptions or other future performance suggested herein. Except as required by applicable law, including
the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements
to actual results.
Although
management believes that the assumptions underlying the forward looking statements included in this filing are reasonable, they
do not guarantee our future performance, and actual results could differ from those contemplated by these forward looking statements.
The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates
of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances.
As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions
from and among reasonable alternatives require the exercise of judgment.
To
the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and,
accordingly, no opinion is expressed on the achievability of those forward-looking statements. In the light of these risks and
uncertainties, there can be no assurance that the results and events contemplated by the forward-looking statements contained
in this filing will in fact transpire. You are cautioned not to place undue reliance on these forward-looking statements, which
speak only as of their dates. We do not undertake any obligation to update or revise any forward-looking statements.
Factors
that might cause or contribute to such differences include, but are not limited to, those discussed in "Risk Factors" contained
in this report. As a result of these factors, we cannot assure you that the forward-looking statements in this prospectus will
prove to be accurate. Except as required by law, we expressly disclaim any obligation to update publicly any forward-looking statements
for any reason after the date of this report, to conform these statements to actual results, or to changes in our expectations.
You should, however, review the factors and risks we describe in the reports we will file from time to time with the United States
Securities and Exchange Commission (the "SEC" or the "Commission") after the date of this statement.
AMERICAN
HOUSING INCOME TRUST, INC.
Description
of Business
The Company's
intent is to qualify and operate as a real estate investment trust (commonly referred to as a "REIT") effective tax year 2015.
Currently, as set forth herein, the Company does not qualify to operate as a REIT; rather, it operates as a real estate investment
holding company that acquires, operates and maintains single family residence, and rents such residence to tenants that meet certain
criteria set by management.
As
of the filing of this registration statement, the Company holds title to 46 residential properties in Arizona, Nevada
and Texas through related entities that operate as wholly-owned or wholly-controlled subsidiaries of the Company. The entity's
structure has been dictated, in large part, by lending requirements of the Company's primary lender - FirstKey Lending, LLC, a
Delaware limited liability company operating out of New York, New York ("Firstkey"). The Company considers its relationship with
Firstkey essential in furthering its business goals and objectives, as set forth in prior filings and herein. In addition
to the summary charts below regarding properties titled to the Company's subsidiaries and operating umbrella limited partnership,
the Company has set forth its property portfolio in the section titled "Single Family Residence Portfolio," below.
Property
Details |
Revenue |
Annual
Expenses |
|
Property
Type |
Address |
City |
State |
Purchase
Date |
Purchase
Price |
Rehab |
Total
Investment |
Year
Built |
Monthly
Rent |
Annual
Rent |
ROI |
Annual
Property Taxes |
Annual
Property Insurance |
Annual
HOA Fees |
Total
Expenses (Taxes, HOA, Insurance) |
Bed
Count |
Bath
Count |
Approx.
Unit Size (SF) |
Book
Value |
Total
Cash Flow |
Lender |
Entity
Holder |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Comm |
2525
W Carefree Hwy |
Phoenix |
AZ |
2/28/2011 |
$159,000.00 |
$60,844 |
$219,844 |
2006 |
Office |
|
0.00% |
$4,190 |
$500 |
$7,380 |
$12,070 |
0 |
0 |
2573 |
$219,844 |
-$12,070 |
n/a |
American
Realty Partners, LLC |
2 |
SFR |
41204
N Congressional Dr |
Anthem |
AZ |
3/25/2011 |
$372,000.00 |
$21,783 |
$393,783 |
2003 |
$0 |
$0 |
0.00% |
$5,009 |
$1,098 |
$3,938 |
$10,045 |
4 |
3.5 |
2981 |
$393,783 |
-$10,045 |
First
Key |
ARP
Borrower, LLC. |
3 |
SFR |
40255
N Faith Lane |
Phoenix |
AZ |
3/24/2011 |
$135,100.00 |
$11,304 |
$146,404 |
2000 |
$1,500 |
$18,000 |
12.29% |
$2,339 |
$462 |
$1,016 |
$3,817 |
4 |
3 |
1859 |
$146,404 |
$14,183 |
First
Key |
ARP
Borrower, LLC. |
4 |
SFR |
2378
W Firethorn Way |
Anthem |
AZ |
8/31/2012 |
$211,000.00 |
$3,300 |
$214,300 |
2001 |
$1,300 |
$15,600 |
7.28% |
$2,037 |
$658 |
$3,938 |
$6,633 |
3 |
2 |
2039 |
$214,300 |
$8,967 |
First
Key |
ARP
Borrower, LLC. |
5 |
Lots |
W
Joy Ranch Rd - 3 Lots |
Phoenix |
AZ |
7/26/2012 |
$140,000.00 |
$243,602 |
$383,602 |
2014 |
$0 |
$0 |
0.00% |
$2,438 |
$0 |
$0 |
$2,438 |
0 |
0 |
32670 |
$306,482 |
-$2,438 |
n/a |
American
Realty Partners, LLC |
6 |
SFR |
1819
W Owens Way |
Anthem |
AZ |
5/17/2012 |
$149,000.00 |
$22,863 |
$171,863 |
2004 |
$1,300 |
$15,600 |
9.08% |
$1,723 |
$493 |
$3,938 |
$6,154 |
2 |
2 |
1454 |
$171,863 |
$9,446 |
First
Key |
ARP
Borrower, LLC. |
7 |
SFR |
8457
W Quail Track Drive |
Peoria |
AZ |
11/17/2012 |
$156,000.00 |
$2,350 |
$158,350 |
2004 |
$1,150 |
$13,800 |
8.71% |
$1,771 |
$530 |
$600 |
$2,901 |
3 |
2 |
1828 |
$158,350 |
$10,899 |
First
Key |
ARP
Borrower, LLC. |
8 |
SFR |
3539
W Sousa Court |
Anthem |
AZ |
4/17/2012 |
$142,900.00 |
$4,566 |
$147,466 |
2000 |
$1,000 |
$12,000 |
8.14% |
$1,717 |
$477 |
$1,016 |
$3,210 |
3 |
2 |
1567 |
$147,466 |
$8,790 |
First
Key |
ARP
Borrower, LLC. |
9 |
SFR |
3030
W Villa Cassandra Drive |
Phoenix |
AZ |
7/27/2012 |
$136,200.00 |
$7,975 |
$144,175 |
2003 |
$1,000 |
$12,000 |
8.32% |
$1,550 |
$460 |
$598 |
$2,608 |
3 |
2.5 |
1642 |
$144,175 |
$9,392 |
First
Key |
ARP
Borrower, LLC. |
10 |
SFR |
14646
N 90th Dr |
Peoria |
AZ |
5/18/2012 |
$217,000.00 |
$0 |
$217,000 |
1994 |
$1,433 |
$17,196 |
7.92% |
$2,155 |
$674 |
$1,377 |
$4,206 |
4 |
2 |
2018 |
$217,000 |
$12,990 |
First
Key |
ARP
Borrower, LLC. |
11 |
SFR |
42708
N Livingstone Way |
Anthem |
AZ |
9/14/2012 |
$209,000.00 |
$10,120 |
$219,120 |
2003 |
$1,600 |
$19,200 |
8.76% |
$2,540 |
$655 |
$1,016 |
$4,211 |
4 |
2.75 |
2295 |
$219,120 |
$14,989 |
First
Key |
ARP
Borrower, LLC. |
12 |
SFR |
2514
W Memorial Drive |
Anthem |
AZ |
3/29/2012 |
$146,700.00 |
$2,200 |
$148,900 |
2003 |
$1,200 |
$14,400 |
9.67% |
$1,939 |
$489 |
$1,016 |
$3,443 |
3 |
2 |
1827 |
$148,900 |
$10,957 |
First
Key |
ARP
Borrower, LLC. |
13 |
SFR |
3545
W Sousa Court |
Anthem |
AZ |
6/15/2012 |
$184,500.00 |
$1,500 |
$186,000 |
2003 |
$1,260 |
$15,120 |
8.13% |
$2,110 |
$589 |
$1,016 |
$3,715 |
4 |
2.5 |
2140 |
$186,000 |
$11,405 |
Lead
Funding |
ARP
Borrower, LLC. |
14 |
SFR |
14296
E Thoroughbred Trail |
Scottsdale |
AZ |
1/31/2012 |
$271,304.00 |
$17,127 |
$288,431 |
1998 |
$1,950 |
$23,400 |
8.11% |
$2,651 |
$826 |
$414 |
$3,891 |
3 |
2 |
2582 |
$288,431 |
$19,509 |
First
Key |
ARP
Borrower, LLC. |
15 |
SFR |
40629
N Apollo Way |
Anthem |
AZ |
4/24/2013 |
$157,000.00 |
$3,858 |
$160,858 |
1999 |
$1,150 |
$13,800 |
8.58% |
$1,616 |
$514 |
$1,016 |
$3,146 |
3 |
2 |
1403 |
$160,858 |
$10,654 |
First
Key |
ARP
Borrower, LLC. |
16 |
SFR |
6241
E Camelot Drive |
Mesa |
AZ |
4/30/2013 |
$290,000.00 |
$6,872 |
$296,872 |
1987 |
$1,900 |
$22,800 |
7.68% |
$2,843 |
$873 |
$0 |
$3,716 |
4 |
2.6 |
2677 |
$296,872 |
$19,084 |
First
Key |
ARP
Borrower, LLC. |
17 |
Condo |
42424
N Gavilan Peak Pkwy #21206 |
Anthem |
AZ |
5/13/2013 |
$106,500.00 |
$4,775 |
$111,275 |
2004 |
$0 |
$0 |
0.00% |
$1,079 |
$381 |
$3,542 |
$5,002 |
2 |
2 |
1204 |
$111,275 |
-$5,002 |
First
Key |
ARP
Borrower, LLC. |
18 |
SFR |
3401
W Thoreau Ln |
Anthem |
AZ |
4/24/2013 |
$175,268.00 |
$10,226 |
$185,494 |
2000 |
$1,260 |
$15,120 |
8.15% |
$2,036 |
$563 |
$1,016 |
$3,615 |
3 |
2 |
1798 |
$185,494 |
$11,505 |
First
Key |
ARP
Borrower, LLC. |
19 |
SFR |
2518
W Warren Dr |
Anthem |
AZ |
2/25/2014 |
$190,000.00 |
$0 |
$190,000 |
2002 |
$1,250 |
$15,000 |
7.89% |
$1,888 |
$602 |
$1,016 |
$3,506 |
4 |
2 |
1827 |
$190,000 |
$11,494 |
First
Key |
ARP
Borrower, LLC. |
20 |
SFR |
4320
W Diburgo Dr |
New
River |
AZ |
2/28/2014 |
$240,000.00 |
$11,171 |
$251,171 |
2007 |
$1,900 |
$22,800 |
9.08% |
$2,082 |
$742 |
$1,016 |
$3,840 |
4 |
2 |
2369 |
$251,171 |
$18,960 |
First
Key |
ARP
Borrower, LLC. |
21 |
Townhome |
1102
W Glendale Ave, #122 |
Phoenix |
AZ |
3/7/2014 |
$192,000.00 |
$0 |
$192,000 |
2002 |
$1,230 |
$14,760 |
7.69% |
$2,677 |
$603 |
$2,832 |
$6,112 |
3 |
2.5 |
1809 |
$192,000 |
$8,648 |
First
Key |
ARP
Borrower, LLC. |
22 |
Condo |
7041
Kingston Cove Ln #155 |
Willis |
TX |
7/2/2014 |
$84,391.06 |
$0 |
$84,391 |
1985 |
$770 |
$9,240 |
10.95% |
$1,774 |
$200 |
$2,640 |
$4,614 |
1 |
1 |
720 |
$84,391 |
$4,626 |
Exchnage |
American
Realty Partners, LLC |
23 |
Condo |
7041
Kingston Cove Ln #252 |
Willis |
TX |
1/2/2014 |
$118,147.50 |
$28,255 |
$146,403 |
1985 |
$1,150 |
$13,800 |
9.43% |
$2,047 |
$200 |
$2,640 |
$4,887 |
2 |
2 |
1101 |
$146,403 |
$8,913 |
Exchnage |
American
Realty Partners, LLC |
24 |
Condo |
7041
Kingston Cove Ln #254 |
Willis |
TX |
7/2/2014 |
$118,147.50 |
$16,745 |
$134,893 |
1985 |
$1,150 |
$13,800 |
10.23% |
$2,047 |
$200 |
$2,640 |
$4,887 |
2 |
2 |
1101 |
$134,893 |
$8,913 |
Exchnage |
American
Realty Partners, LLC |
25 |
SFR |
14542
W Yosemite Dr |
Sun
City West |
AZ |
8/1/2014 |
$120,000.00 |
$28,869 |
$148,869 |
1987 |
$1,100 |
$13,200 |
8.87% |
$1,130 |
$431 |
$408 |
$1,969 |
2 |
2 |
1677 |
$148,869 |
$11,231 |
First
Key |
Borrower
II |
26 |
SFR |
11637
W Citrus Grove Way |
Avondale |
AZ |
8/26/2014 |
$108,000.00 |
$13,952 |
$121,952 |
1991 |
$1,350 |
$16,200 |
13.28% |
$1,182 |
$351 |
$416 |
$1,949 |
3 |
2 |
1268 |
$121,952 |
$14,251 |
First
Key |
Borrower
II |
27 |
SFR |
920
W. Joy Ranch Rd |
Phoenix |
AZ |
7/26/2012 |
$106,250.00 |
$324,448 |
$430,698 |
2014 |
$1,950 |
$23,400 |
4.61% |
$4,908 |
$1,098 |
$0 |
$6,006 |
4 |
2 |
10890 |
$430,698 |
$17,394 |
n/a |
American
Realty Partners, LLC |
28 |
SFR |
2233
W Clearview Trl |
Anthem |
AZ |
1/22/2015 |
$320,000.00 |
$0 |
$320,000 |
2004 |
$1,600 |
$19,200 |
6.00% |
$2,746 |
$577 |
$1,016 |
$4,339 |
4 |
2.5 |
2663 |
$320,000 |
$14,861 |
First
Key |
Borrower
II |
29 |
SFR |
4630
N 68th St #212 |
Scottsdale |
AZ |
2/17/2015 |
$80,000.00 |
$27,495 |
$107,495 |
1974 |
$1,150 |
$13,800 |
12.84% |
$483 |
$325 |
$2,220 |
$3,028 |
2 |
2 |
1020 |
$107,495 |
$10,772 |
Lead
Funding |
American
Realty Partners, LLC |
30 |
SFR |
4630
N 68th St #218 |
Scottsdale |
AZ |
7/8/2015 |
$101,000.00 |
$0 |
$101,000 |
1974 |
$900 |
$10,800 |
10.69% |
$362 |
$325 |
$2,220 |
$2,907 |
2 |
2 |
1020 |
$101,000 |
$7,893 |
Lead
Funding |
American
Realty Partners, LLC |
31 |
SFR |
3559
W Morse Ct |
Anthem |
AZ |
2/19/2015 |
$171,000.00 |
$11,560 |
$182,560 |
2000 |
$1,500 |
$18,000 |
9.86% |
$1,858 |
$468 |
$1,016 |
$3,342 |
3 |
2 |
1567 |
$182,560 |
$14,658 |
First
Key |
Borrower
II |
32 |
SFR |
4201
Martin Condo |
Las
Vegas |
NV |
12/22/2014 |
$208,828.03 |
$5,733 |
$214,561 |
2014 |
$2,700 |
$32,400 |
15.10% |
$1,212 |
$323 |
$423 |
$1,958 |
3 |
2 |
1500 |
$214,561 |
$30,442 |
Citibank |
American
Realty Partners, LLC TIC% |
33 |
SFR |
3340
W King Dr |
Anthem |
AZ |
3/19/2015 |
$203,000.00 |
$0 |
$203,000 |
2000 |
$1,350 |
$16,200 |
7.98% |
$2,057 |
$850 |
$1,016 |
$3,923 |
3 |
2 |
1798 |
$203,000 |
$12,277 |
First
Key |
Borrower
II |
34 |
SFR |
515
Shalimar Dr |
Prescott |
AZ |
4/21/2015 |
$300,000.00 |
$2,657 |
$302,657 |
1983 |
$1,600 |
$19,200 |
6.34% |
$1,874 |
$725 |
$0 |
$2,599 |
4 |
2 |
2714 |
$302,657 |
$16,601 |
Exchnage |
Borrower
II |
35 |
SFR |
7801
N. 32nd Dr |
Phoenix |
AZ |
5/27/2015 |
$140,000.00 |
$0 |
$140,000 |
1964 |
$1,200 |
$14,400 |
10.29% |
$1,101 |
$500 |
$0 |
$1,601 |
3 |
2 |
1962 |
$140,000 |
$12,799 |
First
Key |
Borrower
II |
36 |
SFR |
3525
W. Owens Ct |
Anthem |
AZ |
5/27/2015 |
$212,000.00 |
$1,270 |
$213,270 |
2000 |
$1,750 |
$21,000 |
9.85% |
$1,932 |
$500 |
$1,016 |
$3,448 |
4 |
3 |
2140 |
$213,270 |
$17,552 |
PAJ |
American
Realty Partners, LLC |
37 |
SFR |
7818
E. Apple Tree Dr |
Tucson |
AZ |
8/4/2015 |
$152,776.13 |
$0 |
$152,776 |
1972 |
$995 |
$11,940 |
7.82% |
$1,483 |
$526 |
$0 |
$2,009 |
4 |
2 |
1657 |
$152,776 |
$9,931 |
Ocwen |
AHIT
Valfre, LLP |
38 |
SFR |
9651
E. Stonehaven Way |
Tucson |
AZ |
8/4/2015 |
$172,489.18 |
$0 |
$172,489 |
1994 |
$1,100 |
$13,200 |
7.65% |
$1,879 |
$533 |
$468 |
$2,880 |
4 |
2 |
1672 |
$172,489 |
$10,320 |
Natnstr/Compass |
AHIT
Valfre, LLP |
39 |
SFR |
2972
S. Beck Dr. |
Tucson |
AZ |
8/4/2015 |
$147,847.87 |
$0 |
$147,848 |
2001 |
$1,100 |
$13,200 |
8.93% |
$1,690 |
$485 |
$288 |
$2,463 |
3 |
2 |
1645 |
$147,848 |
$10,737 |
SLS/BofA |
AHIT
Valfre, LLP |
40 |
SFR |
10372
E Capercaillie St |
Tucson |
AZ |
8/4/2015 |
$197,130.49 |
$0 |
$197,130 |
2005 |
$1,200 |
$14,400 |
7.30% |
$2,250 |
$512 |
$504 |
$3,266 |
3 |
2 |
1898 |
$197,130 |
$11,134 |
Regions |
AHIT
Valfre, LLP |
41 |
SFR |
10395
E. Valley Quail Dr |
Tucson |
AZ |
8/4/2015 |
$177,417.44 |
$0 |
$177,417 |
2006 |
$1,200 |
$14,400 |
8.12% |
$2,159 |
$431 |
$504 |
$3,094 |
3 |
2 |
1761 |
$177,417 |
$11,306 |
Flagstar |
AHIT
Valfre, LLP |
42 |
SFR |
10833
S. Camino San Clemente |
Vail |
AZ |
8/4/2015 |
$193,187.88 |
$0 |
$193,188 |
2001 |
$1,200 |
$14,400 |
7.45% |
$2,419 |
$477 |
$288 |
$3,184 |
3 |
2 |
2166 |
$193,188 |
$11,216 |
PennyMac |
AHIT
Valfre, LLP |
43 |
SFR |
10872
S Raptor Court |
Vail |
AZ |
8/4/2015 |
$187,273.97 |
$0 |
$187,274 |
2002 |
$1,100 |
$13,200 |
7.05% |
$2,296 |
$491 |
$288 |
$3,075 |
3 |
2 |
1990 |
$187,274 |
$10,125 |
PennyMac |
AHIT
Valfre, LLP |
44 |
SFR |
10565
S.Sage Hill Court |
Vail |
AZ |
8/4/2015 |
$317,380.10 |
$0 |
$317,380 |
2006 |
$2,000 |
$24,000 |
7.56% |
$4,038 |
$685 |
$288 |
$5,011 |
5 |
3 |
2998 |
$317,380 |
$18,989 |
W
F/Green Tree |
AHIT
Valfre, LLP |
45 |
SFR |
13735
E. Shadow Pines Lane |
Vail |
AZ |
8/4/2015 |
$190,230.93 |
$0 |
$190,231 |
2002 |
$1,200 |
$14,400 |
7.57% |
$2,484 |
$504 |
$288 |
$3,276 |
3 |
2 |
2166 |
$190,231 |
$11,124 |
Nationstar/
Ocwen |
AHIT
Valfre, LLP |
46 |
SFR |
3666
W. Thalia Ct |
Anthem |
AZ |
9/4/2015 |
$193,800.00 |
$0 |
$193,800 |
2006 |
$1,040 |
$12,480 |
6.44% |
$2,280 |
$650 |
$1,010 |
$3,940 |
4 |
2.5 |
1772 |
$193,800 |
$8,540 |
First
Key |
Borrower
II |
|
|
|
|
|
|
$8,300,770 |
|
$9,208,190 |
|
|
$680,856 |
|
$98,079 |
$24,555 |
$59,296 |
$181,930 |
|
|
|
$9,208,190 |
$498,926 |
|
|
American
Realty Partners, LLC
The
Company operates in Arizona under its wholly-owned subsidiary - American Realty Partners, LLC, an Arizona limited liability
company ("American Realty").American Realty holds title to the following properties subject to the following
notes and mortgages, which were assumed by American Realty on June 30, 2014:
American
Realty Partners |
|
|
|
|
|
|
|
|
Loans |
|
|
|
|
|
|
|
|
As
of November 16, 2015 |
|
|
|
|
|
|
|
|
Loans |
Principal
Amount |
Holder |
Date
of Note |
Date
debt is assumed |
Interest |
Monthly
payment |
Escrow |
Maturity |
Kingston
Cove Ln #155; 1642 |
54,448.63 |
PHH
Mortgage |
|
6/30/2014 |
3% |
321.86 |
147.19 |
2/1/2034 |
Kingston
Cove Ln #252; 0453 |
75,192.07 |
PHH
Mortgage |
|
6/30/2014 |
3% |
444.96 |
170.56 |
2/1/2034 |
Kingston
Cove Ln #254; 1592 |
75,814.37 |
PHH
Mortgage |
|
6/30/2014 |
3% |
448.51 |
169.84 |
2/1/2034 |
Owens,
3525W |
180,000 |
PAJ |
5/27/2015 |
|
16% |
2,400.00 |
|
11/27/2015 |
68th
Street; 4630 #218 |
80,000 |
Lead |
7/8/2015 |
|
12% |
800.00 |
|
7/8/2016 |
68th Street:
4630 #212 |
80,000 |
Lead |
2/13/15 |
|
12% |
800.00 |
|
7/8/2016 |
Total
Loans |
$
545,455.07 |
|
|
|
|
|
|
|
The
note related to the property located at 3525 W. Owens Court in Anthem, Arizona is between American Realty and PAJ Fund I, LLC
("PAJ"). The note was executed on May 27, 2015. The principal amount of the loan is $180,000 with six-month interest only payments
of $2,400 with a balloon payment of $182,080 due on November 27, 2015. On November 27, 2015, American Realty and PAJ agreed to
extend the interest-only payments out until May 27, 2016, at which time the note becomes mature. Performance Realty is the guarantor
under this loan.
The
note related to the property located at 4630 N. 68th Street, Unit 218 in Scottsdale, Arizona is between American
Realty and Mr. Zarinegar, as co-borrowers, and Lead Funding, LLC ("Lead"). The principal amount of the loan is $80,000 earning
simple interest at 12% per annum. The maturity date on this loan is July 8, 2016, unless paid sooner. Lead has a first secured
position on the property through a deed of trust. The monthly payment under this note is $800.
The
note related to the property located at 4630 N. 68th Street, Unit 212 in Scottsdale, Arizona is between American
Realty and Lead Funding, LLC ("Lead") was refinanced on February 17, 2015. The principal amount of the loan is $80,000 earning
simple interest at 12% per annum. Lead has a first secured position on the property through a deed of trust. The monthly payment
under this note is $800.
On
June 26, 2014, the remaining three properties were conveyed from the prior title holders to American Realty in consideration of
American Realty take an Assumption Debt resulting in American Realty assuming the debt obligations on these properties. In consideration
for the conveyance, American Realty issued 10.35 units in American Realty, which were converted into shares of the Company at
the time of the restructuring identified below. These properties are subject to deeds of trust to secure the assumption obligations
of American Realty. In the event the assumption obligations of American Realty are not satisfied, the holders of the notes, Charles
Schwab, N.A. ("Charles Schwab"), which is serviced by PHH Mortgage, has the ability to exercise its rights as payee and beneficiary
under the deeds of trust, which includes, among other things, seeking title to the properties.
Mr.
Zarinegar and American Realty hold the property located at 4471 Dean Martin Drive in Las Vegas, Nevada as tenants-in-common. The
note associated with the loan on this property is held by Citibank, which holds a deed in trust as collateral for Mr. Zarinegar's
obligations. Mr. Zarinegar is the sole borrower on the note. A conflict of interest might arise to the extent Mr. Zarinegar defaults
under the note or deed in trust; more specifically, to the extent Citibank exercises its rights under the deed-in-trust, American
Realty could lose title to the property, which in turn would impact the value of the Company's stock, and if additional capital
is needed in order to meet the note obligations, so American Realty does not lose its interest in the property, there would be
dilution of all shares. Performance Realty authorized this tenancy in common as being in the best interests of American Realty.
Neither
PAJ, Lead, Citibank nor Charles Schwab have ownership interest in the properties identified above; however, they retain secured
positions on the properties as collateral for repayment of ARP's obligations. In the event ARP fails to perform its payment and
performance obligations under the notes or deeds of trust, and the lender elects its remedy in taking title to the real property,
the value of the Company's common stock would be negatively impacted. In addition, the Company would have continuing obligations
to ensure that the debt service related to the properties titled to ARP is current and in good standing. This might require the
Company to refinance its debt obligations and perhaps raise additional capital to satisfy these debt obligations, which might
have an impact on the value of the common stock offered herein and might result in dilution.
ARP
Borrower, LLC and ARP Pledgor, LLC
American
Realty is the sole member of ARP Pledgor, LLC, an Arizona limited liability company ("ARP Pledgor"). ARP Pledgor is
the sole member of ARP Borrower, LLC, a Delaware limited liability company ("ARP Borrower"). ARP Borrower and ARP Pledgor
were organized as special purpose entities for the sole purpose of effectuating a financing relationship with Firstkey. The
properties identified in this subsection are titled to ARP Borrower. These properties are financed through an original non-recourse
promissory note dated October 17, 2014 bearing interest at 5.371% with a maturity dated on November 1, 2019.
On
June 25, 2015, the Company and American Realty entered into restructured financing with Firstkey's related-party assignee - Towd
Point Master Funding Trust 2015-CPLA. Firstkey had approved the restructuring of American Realty, as set forth in the
Stock Exchange Agreement and Subsidiary Agreement, as disclosed in prior filings, and incorporated herein by reference in the
Exhibits section below. Mr. Zarinegar and Performance Realty ratified their respective guaranty obligations to Firstkey. The Firstkey
debt service directly benefits the Company. The refinancing associated with this debt service was disclosed on the Company's Form
8-K dated June 29, 2015, and is incorporated by referenced in the Exhibits section herein.
Firstkey
has no ownership interest in the properties identified below; however, it retains a first secured position on the properties as
collateral for repayment of ARP Borrower's obligations. In addition to its first secured position, ARP Pledgor has pledged all
of its membership interests in ARP Borrower to Firstkey as collateral. In the event ARP Borrower fails to perform its payment
and performance obligations under the note or mortgage, and Firstkey elects its remedy in taking title to the pledged interests
in ARP Borrower, the value of the Company's common stock would be negatively impacted. In addition, the Company would have continuing
obligations to ensure that the debt service related to the properties titled to ARP Borrower is current and in good standing,
and there is no guarantee that ARP Borrower will continue to service this debt as agreed to in the financing documents. This might
require the Company to refinance its debt obligations and perhaps raise additional capital to satisfy these debt obligations,
which might have an impact on the value of the common stock offered herein and might result in dilution.
|
|
|
Holder |
Date
of Note |
Date
debt is assumed |
Interest |
Monthly
payment |
Escrow |
Maturity |
9/30/15
Principal |
|
41204
N Congressional Dr |
Anthem |
AZ |
ARP
Borrower, LLC. |
First
Key |
10/17/2014 |
|
5.371% |
1,598.53 |
|
11/1/2019 |
166,299.98 |
40255
N Faith Lane |
Phoenix |
AZ |
ARP
Borrower, LLC. |
First
Key |
10/17/2014 |
|
5.371% |
836.00 |
|
11/1/2019 |
86,972.05 |
2378
W Firethorn Way |
Anthem |
AZ |
ARP
Borrower, LLC. |
First
Key |
10/17/2014 |
|
5.371% |
881.29 |
|
11/1/2019 |
91,683.04 |
1819
W Owens Way |
Anthem |
AZ |
ARP
Borrower, LLC. |
First
Key |
10/17/2014 |
|
5.371% |
631.88 |
|
11/1/2019 |
65,736.37 |
8457
W Quail Track Drive |
Peoria |
AZ |
ARP
Borrower, LLC. |
First
Key |
10/17/2014 |
|
5.371% |
767.21 |
|
11/1/2019 |
79,814.97 |
3539
W Sousa Court |
Anthem |
AZ |
ARP
Borrower, LLC. |
First
Key |
10/17/2014 |
|
5.371% |
668.80 |
|
11/1/2019 |
69,577.64 |
3030
W Villa Cassandra Drive |
Phoenix |
AZ |
ARP
Borrower, LLC. |
First
Key |
10/17/2014 |
|
5.371% |
627.00 |
|
11/1/2019 |
65,229.04 |
14646
N 90th Dr |
Peoria |
AZ |
ARP
Borrower, LLC. |
First
Key |
10/17/2014 |
|
5.371% |
853.42 |
|
11/1/2019 |
88,783.97 |
42708
N Livingstone Way |
Anthem |
AZ |
ARP
Borrower, LLC. |
First
Key |
10/17/2014 |
|
5.371% |
1,003.21 |
|
11/1/2019 |
104,366.46 |
2514
W Memorial Drive |
Anthem |
AZ |
ARP
Borrower, LLC. |
First
Key |
10/17/2014 |
|
5.371% |
748.92 |
|
11/1/2019 |
77,912.46 |
3545
W Sousa Court |
Anthem |
AZ |
ARP
Borrower, LLC. |
First
Key |
10/17/2014 |
|
5.371% |
741.95 |
|
11/1/2019 |
77,187.69 |
14296
E Thoroughbred Trail |
Scottsdale |
AZ |
ARP
Borrower, LLC. |
First
Key |
10/17/2014 |
|
5.371% |
1,227.53 |
|
11/1/2019 |
127,703.96 |
40629
N Apollo Way |
Anthem |
AZ |
ARP
Borrower, LLC. |
First
Key |
10/17/2014 |
|
5.371% |
647.90 |
|
11/1/2019 |
67,403.34 |
6241
E Camelot Drive |
Mesa |
AZ |
ARP
Borrower, LLC. |
First
Key |
10/17/2014 |
|
5.371% |
1,149.51 |
|
11/1/2019 |
119,586.57 |
42424
N Gavilan Peak Pkwy #21206 |
Anthem |
AZ |
ARP
Borrower, LLC. |
First
Key |
10/17/2014 |
|
5.371% |
428.45 |
|
11/1/2019 |
44,573.18 |
3401
W Thoreau Ln |
Anthem |
AZ |
ARP
Borrower, LLC. |
First
Key |
10/17/2014 |
|
5.371% |
731.50 |
|
11/1/2019 |
76,100.54 |
2518
W Warren Dr |
Anthem |
AZ |
ARP
Borrower, LLC. |
First
Key |
10/17/2014 |
|
5.371% |
685.12 |
|
11/1/2019 |
93,683.39 |
4320
W Diburgo Dr |
New
River |
AZ |
ARP
Borrower, LLC. |
First
Key |
10/17/2014 |
|
5.371% |
900.52 |
|
11/1/2019 |
71,274.68 |
1102
W Glendale Ave, #122 |
Phoenix |
AZ |
ARP
Borrower, LLC. |
First
Key |
10/17/2014 |
|
5.371% |
797.37 |
|
11/1/2019 |
82,951.04 |
|
|
|
|
|
|
|
|
15,926.11 |
|
|
1,656,840.37 |
ARP
Borrower II, LLC and ARP Pledgor II, LLC
Firstkey
has a similar nonrecourse lending relationship with ARP Borrower II, LLC, a Delaware limited liability company ("ARP
Borrower II") with Mr. Zarinegar serving as a limited guarantor on certain performance obligations of ARP Borrower II.
ARP Borrower II is likewise a special purpose entity owned solely by ARP Pledgor II, LLC, a Delaware limited liability company
("ARP Pledgor II"). As with ARP Pledgor, above, American Realty is the sole member of ARP Pledgor II. ARP Borrower
II holds title to 8 properties.
Following
closing costs, the Company was issued $940,893.41 in net proceeds from the credit facility. In addition to standard security under
similar lending agreements, ARP Pledgor II pledged all membership interests in ARP Borrower II as collateral for payment and performance
obligations of ARP Borrower II. ARP Pledgor II and the Company have guaranteed payment and performance obligations of ARP Borrower
II. In addition, ARP Borrower II agreed that in the event it enters into a Management Agreement for management of the subject
properties being financed, ARP Borrower II has agreed to conditionally transfer, set over and assign to Firstkey all of ARP Borrower
II's rights, title and interest in and to any Management Agreement. The properties were deeded in trust to Pioneer Title Agency,
Inc., an Arizona corporation ("Pioneer"). The deed of trust is a perfected security interest serving as collateral. All profits
and income associated with ARP Borrower and ARP Borrower II are allocated to American Realty, which, once again, is wholly owned
by the Company. The properties titled to ARP Borrower II are as follows:
Address |
City |
State |
Zip |
Allocated
Loan Amount |
Interest
Rate |
Monthly
P&I Payment |
Monthly
Tax Escrow |
Monthly
Insurance Escrow |
Total
PITI Monthly Payment |
Maturity
Date |
14542
W Yosemite Dr* |
Sun
City West |
AZ |
85375 |
$99,991.00 |
5.880% |
$591.80 |
$97.90 |
$38.55 |
$728.25 |
12/1/2020 |
11637
W Citrus Grove Way |
Avondale |
AZ |
85392 |
$86,163.00 |
5.880% |
$509.96 |
$102.52 |
$35.33 |
$647.82 |
12/1/2020 |
2233
W Clearview Trl |
Anthem |
AZ |
85086 |
$180,835.00 |
5.880% |
$1,070.29 |
$267.88 |
$62.52 |
$1,400.68 |
12/1/2020 |
3666
W. Thalia Court |
Anthem |
AZ |
85086 |
$103,182.00 |
5.880% |
$610.69 |
$136.59 |
$52.95 |
$800.23 |
12/1/2020 |
3559
W Morse Ct |
Anthem |
AZ |
85086 |
$122,330.00 |
5.880% |
$724.02 |
$161.01 |
$46.06 |
$931.09 |
12/1/2020 |
515
Shalimar Dr |
Prescott |
AZ |
86303 |
$172,857.00 |
5.880% |
$1,023.07 |
$162.45 |
$67.71 |
$1,253.22 |
12/1/2020 |
3340
W King Dr |
Anthem |
AZ |
85086 |
$117,011.00 |
5.880% |
$692.54 |
$178.30 |
$50.36 |
$921.19 |
12/1/2020 |
7801
N 32nd Dr |
Phoenix |
AZ |
85051 |
$85,631.00 |
5.880% |
$506.81 |
$95.46 |
$38.37 |
$640.64 |
12/1/2020 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$968,000.00 |
5.880% |
$5,729.18 |
$1,202.10 |
$391.84 |
$7,323.12 |
12/1/2020 |
As
of this registration statement, Firstkey retains all rights under the financing associated with ARP Borrower II. Firstkey has
no ownership interest in the Company or its subsidiaries, as charted below, and has no legal title to the assets of the Company's
subsidiaries. The base payment against this note on $968,000 (principal and interest) is $5,729.18, and taxes of $1,803.16 and
insurance of $522.45, for an estimated monthly payment of $8,054.79.
In
the event ARP Borrower II fails to perform its payment and performance obligations under the note or mortgage, and Firstkey elects
its remedy in taking title to the pledged interests in ARP Borrower, the value of the Company's common stock would be negatively
impacted. In addition, the Company would have continuing obligations to ensure that the debt service related to the properties
titled to ARP Borrower II is current and in good standing, and there is no guarantee that the Company can continue to do so in
the future. This might require the Company to refinance its debt obligations and perhaps raise additional capital to satisfy these
debt obligations, which might have an impact on the value of the common stock offered herein and might result in dilution.
AHIT
Valfre - Umbrella Partnership
The
Company also holds title to properties through an umbrella partnership, commonly referred to as an "UPREIT," named AHIT Valfre,
LLP ("AHIT Valfre"). AHIT Valfre is a Maryland limited liability partnership. The Company serves as the General Partner with limited
partners retaining certain conversion rights into shares of the Company, as disclosed in more detail below. All profits and income
from these properties are allocated to the Company under the Limited Liability Partnership Agreement. AHIT Valfre assumed
the debt set forth in the following chart on August 5, 2015. Neither the Company, American Realty, ARP Borrower nor ARP Borrower
II have any direct obligor relationships with the banks identified below; rather, AHIT Valfre has agreed that in consideration
of the conveyance of title of the properties in the AHIT Valfre portfolio from the limited partners, the Company would assume
the payment and performance obligations.
Debt
Rollforward |
|
|
|
|
|
|
|
|
|
|
Sep
30, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Promissory Notes |
|
|
|
Holder |
Date
of Note |
Date
debt is assumed |
Interest |
Monthly
payment |
Escrow |
Maturity |
9/30/2015 |
Loans |
|
|
|
|
|
|
|
|
|
|
|
Apple
Tree |
|
Ocwen |
Mar
17, 2003 |
8/5/15 |
5.000% |
$
827.01 |
$
163.10 |
4/1/18 |
21,087.30 |
|
Stonehaven |
|
NationalStar |
Aug
25, 2003 |
8/5/15 |
3.125% |
$
459.50 |
$
202.28 |
9/1/33 |
77,142.91 |
|
Stonehaven |
|
Compass |
Jan
13, 2005 |
8/5/15 |
2.760% |
n/a |
$
- |
1/13/40 |
50,214.71 |
|
Beck |
|
Bank
of America |
Jun
26, 2014 |
8/5/15 |
4.125% |
$
741.12 |
$
193.90 |
7/1/29 |
93,209.52 |
|
Beck |
|
SLS |
Mar
9, 2007 |
8/5/15 |
3.625% |
n/a |
$
- |
HELOC |
46,112.62 |
|
Capercaille |
|
Regions |
Aug
22, 2005 |
8/5/15 |
3.125% |
$
795.38 |
$
253.57 |
10/1/35 |
141,810.76 |
|
Valley
Quail |
|
Flagstar |
Oct
4, 2011 |
8/5/15 |
4.500% |
$
803.24 |
$
225.05 |
11/1/26 |
83,996.61 |
|
Shadow
Pines |
|
NationalStar |
Oct
4, 2011 |
8/5/15 |
2.875% |
$
635.40 |
$
270.27 |
12/1/34 |
112,255.63 |
|
Shadow
Pines |
|
Ocwen |
unknown |
8/5/15 |
4.375% |
n/a |
$
- |
1/1/22 |
16,684.90 |
|
Sage
Hills |
|
Wells
Fargo |
Jun
6, 2011 |
8/5/15 |
5.250% |
$
1,631.76 |
$
445.93 |
7/1/41 |
276,180.43 |
|
Sage
Hills |
|
Green
Tree / ditech |
Jul
19, 2007 |
8/5/15 |
8.250% |
$
285.48 |
$
- |
HELOC |
34,626.92 |
|
San
Clemente |
|
Penny
Mac |
May
22, 2013 |
8/5/15 |
4.125% |
$
672.45 |
$
266.78 |
6/1/43 |
133,009.98 |
|
Raptor |
|
Penny
Mac |
May
21, 2013 |
8/5/15 |
4.125% |
$
574.31 |
$
254.98 |
6/1/43 |
113,589.16 |
|
|
|
|
|
|
|
|
|
|
1,199,921.45 |
To
the extent the holder of any of the credit instruments, above, alleges a breach of a covenant, or breach of a payment or performance
obligation by one of the limited partners related to one or more of the note obligations, above, the Company owes certain indemnification
obligations to the limited partners, which if properly asserted, would expose the Company to potential liability. If this occurs,
the value of the Company's common stock would be negatively impacted. In addition, the Company would have continuing obligations
to ensure that the debt service related to the properties titled to AHIT Valfre is current and in good standing. This might require
the Company to refinance its debt obligations and perhaps raise additional capital to satisfy these debt obligations, which might
have an impact on the value of the common stock offered herein and might result in dilution. None of the lenders identified above
have any ownership interest in AHIT Valfre, the Company or its subsidiaries.
As
of this registration statement, the Company is structured as follows:
Firstkey
has no ownership interest in the Company's assets, or the assets of the Company's subsidiaries.
The
Company will continue to acquire, renovate, lease, and manage primarily single-family residential properties, and engage in such
other activities as are reasonably incidental to the foregoing. More specifically, the Company intends on engaging in the business
of purchasing real estate for the purpose of making cosmetic changes, repairs, and other enhancements in order to increase the
value of the properties, and then rent such property to tenants. The Company does not intend to acquire commercial properties. We
intend to conduct our operations so that neither we nor any of our subsidiaries are required to register as an investment company
under the Investment Company Act of 1940, as amended, or the 1940 Act.
Acquisition
of Properties
The
Company intends on acquiring residential properties primarily through foreclosure sales, bank owned real estate, purchase transactions
constituting a short sale (a transaction where the purchase price is less than the secured indebtedness on the property), distressed
sale transactions, and, in some circumstances, wholesale transactions. The number of residential properties that may be available
from all of the foregoing sources will vary from time to time, depending on numerous factors including, without limitation, trends
in delinquent mortgages and foreclosure sales in a given area, extent to which banks may or may not aggressively seek to sell
owned real estate (typically acquired through foreclosure on a delinquent mortgage), number of persons seeking to purchase distressed
properties, trends impacting values of residential properties, and other factors beyond the control of the Company. Another intended
strategy of the Company is to partner with other single family residential owners in creating related umbrella partnerships through
entities similar to AHIT Valfre.
Target
Markets
The
Company's goal is to purchase real property primarily in the western United States (including without limitation Phoenix, Las
Vegas, Tucson, and California) at or below the target purchase price of $200,000 (which amount is intended to include completion
costs of any repairs and/or other enhancements). Although the Company will strive to meet this goal, it may, however, on occasion,
purchase real property with a total purchase price in excess of $200,000. If the Board of Directors decides that any markets outside
of the aforementioned markets present an opportunity to purchase real property in accordance with the Company's business and purpose,
the Board of Directors, in its sole and absolute discretion, may pursue the purchase of real estate in such markets. The Board
of Directors will have complete discretion in the types of residential properties purchased by the Company.
Consequently,
shareholders will be dependent upon the ability of the Board of Directors to select residential properties that have the most
potential to generate potential profits and can be readily marketed and sold.
Selection
Criteria and Methodology for Properties
The
Company intends to use a specific methodology when analyzing each property. This methodology is described in the paragraphs that
follow. However, these steps are subject to change and refinement by the Board of Directors as warranted by market conditions
and other considerations, all in the Board of Directors' sole discretion. The Board of Directors will create a list of potential
residential properties is created. Often this list is based on actual homes being auctioned. The homes are then compared under
the following factors:
A.
Potential fair market value and sales price, keeping in mind that:
i.
Each market has a target sales price; and
ii.
The potential sales price is determined by looking at a comparative market analysis detailing:
a.
Homes for sale in the subject area; and
b.
Homes sold in the subject area.
B.
Potential acquisition price, keeping in mind that:
i.
Each property is physically inspected and necessary repairs are estimated; and
ii.
The acquisition price is based on the potential sales price plus expected costs associated with the property.
Qualified
properties, as determined by the Board of Directors in its sole and absolute discretion, will then be evaluated and assessed based
on the following:
A.
Determining if the house has had any reports of meth use. If the home has such a history, it is automatically rejected.
B.
Performing a lien search to determine what, if any, liens are associated with the property.
If
after evaluating a property under the foregoing, the Board of Directors determines that a property is qualified to be acquired,
the property is then subjected to a physical inspection by a third party vendor making, at a minimum, an external inspection of
the property. Among the matters which will be considered in conducting the physical inspection are:
A.
Is the property occupied? If the property is occupied, an agreement between AHIT and the current tenant must be reached
as to vacating the property and other pertinent considerations in order to continue further with such property.
B.
What is the condition of the property?
C.
Are there any major structural concerns with the property? Major structural concerns are automatic cause for rejection
of a property.
D.
Does the property have curb appeal? If a property does not have curb appeal, what would it take to make the property have
curb appeal?
E.
Is the floor plan desirable and functional?
F.
The extent of any water damage, costs associated with cosmetic enhancements which may be necessary, and other similar factors.
Once
the property is acquired, then a detailed plan of action will be put into place regarding the improvement and sale of the property.
These project management plans include timelines, order of events and inspections of repairs. All federal and local building codes
will be followed. In addition, building permits will be obtained whenever required.
Selection
Criteria and Methodology for Tenants
Each
potential tenant will be evaluated on a case-by-case basis by the Board of Directors. Regardless, at a minimum, all tenants will
be subject to credit and criminal background checks. Tenants will be chosen based on their ability to pay rent and a clear background
check.
Region |
Southwest |
South-Central |
Sample
Resident Profile Statistics |
AZ |
TX |
Average
Rental Rate |
$1,366 |
$880 |
Average
Rental Price/SF |
$0.71 |
$0.90 |
Average
AHIT Household Income |
$89,283 |
$73,220 |
State
Median Household Income* |
$54,000 |
$54,762 |
Ratio
of AHIT Household Income to State Median Household Income |
1.65 |
1.34 |
Average
AHIT Income to Rent Ratio |
5.45 |
6.93 |
Average
AHIT Rent to Income Ratio |
18.36% |
14.42% |
Average
Renewal Rent Increase |
5.00% |
6.00% |
Management
of Properties
At
this time, it is anticipated that all rental properties will be managed by the Company through its Board of Directors
and Officers. American Realty had historically been advised and managed by Performance Realty Management, LLC ("Performance
Realty"), an Arizona limited liability company and an entity owned in the majority by Mr. Zarinegar, the Company's Chairman
of the Board, Chief Financial Officer and Treasurer.
Mr.
Zarinegar is also the personal guarantor on all debt serviced by Firstkey, as set forth in this registration statement, i.e. debt
serviced through ARP Borrower and ARP Borrower II. The Company, as the sole member of American Realty, agreed to pay Performance
Realty a one-time management fee of 1,000,000 shares of restricted common stock. American Realty's Second Amendment to its Operating
Agreement dated December 21, 2015 ratified this issuance as the sole compensation paid to Performance Realty in serving as manager
of American Realty. During the nine months ended September 30, 2015, the Company recorded management fees of $90,000 (2014 - $90,000).
As at September 30, 2015, American Realty is indebted to Performance Realty for $9,047 (December 31, 2014 - $54,382), which represents
management fees owed and other general and administrative expenses paid on behalf of the Company.
A
conflict of interest might arise in Mr. Zarinegar serving as the manager of Performance Realty and as Chairman of the Board for
the Company. The Board of Directors for the Company directs Performance Realty to take certain actions or to refrain from certain
actions as manager of American Realty. American Realty is the sole member of the Company's related-entities - ARP Borrower and
ARP Borrower II. Mr. Zarinegar is a personal guarantor on the ARP Borrower debt and co-borrower on some of the debt owed by American
Realty, as set forth above. A conflict of interest might arise to the extent the Company's affiliates are not able to service
the debt, and a particular lender elects to file claims or causes of action against Mr. Zarinegar under his personal guarantees.
Such claims or causes of action could possibly interfere with Mr. Zarinegar's sole as manager of Performance Realty, and thus,
his ability to manage American Realty, and ARP Borrower and ARP Borrower II, and serve as the primary manager of the Company's
role as General Partner in AHIT Valfre.
Not
to be confused with managers of a limited liability company or management of the relationship between the Company and the subsidiaries
or operating umbrella partnership, the Company utilizes property managers for the three properties identified in the Portfolio
of Properties located in Texas. The Company intends on using similar property manager relationships as it deploys into new markets.
Furthermore, the Company may employ an affiliate company to engage similar property management services.
FHA
Rules and Considerations
Since
most residential properties the Company anticipates re-selling in the retail arena involve Federal Housing Administration ("FHA")
loans, the Company intends to make all repairs in accordance with FHA standards. FHA has shifted from its historical emphasis
on the repair of minor property deficiencies and now only requires repairs for those conditions that rise above the level of cosmetic
defects or normal wear and tear, and do not affect the safety of the occupants or the security or soundness of the property.
Accordingly,
the Company will focus on repairs that include, but are not limited to, paint, carpet, flooring, windows, roof, decking, furnace,
hot water heater, electric, plumbing, etc. The Company believes that focusing on the foregoing repairs, as necessary, will enhance
the likelihood that the renovated property can be resold using an FHA loan which, in the current environment of restricted access
to credit, works well for first time buyers because it allows individuals to finance up to 97% of the home loan and helps to keep
down payments and closing costs at a minimum.
Liquidity
and Capital Resources
The
Company intends on seeking additional financing, which might result in the dilution of your common stock. In addition, although
not anticipated at this time, the Company may leverage all or a portion of its assets to obtain debt financing. Such debt financing
could be obtained in connection with a single property or for the Company as a whole.
Competition
The
Company faces competition from many entities engaged in real estate investment activities, including individuals, other real estate
investment companies including newly formed REITs, and real estate limited partnerships. Our competitors may enjoy significant
competitive advantages that result from, among other things, having substantially more available capital, a lower cost of capital
and enhanced operating efficiencies. Further, the market for the rental of properties is highly competitive. We also face competition
from new home builders, investors and speculators, as well as homeowners renting their properties.
Employees
As
of December 23, 2015, the Company employed a total of six people. The Company considers its relationship with its employees
to be stable, and anticipates growing its workforce. The Company's public filings set forth its current directors and officers,
and their related compensation, if any.
Facilities
and Logistics
The
Company operates through the offices of its wholly-owned subsidiary - American Realty, located at 34225 North 27th Drive, Building
5, Suite 238 in Phoenix, Arizona 85085. The Company's resident agent in Maryland is located at 7 St. Paul Street, Suite 1660 in
Baltimore, Maryland 21202.
2015
YEAR IN REVIEW
By
many measures, 2015, as with 2014, was an extraordinary year for American Realty, and the Company. We made remarkable headway
in strengthening our platform for long-term success in the single-family rental (SFR) industry. As capital was raised, we were
able to quickly deploy it into attractive investment opportunities in our target market. At year-end of 2014, our portfolio stood
at just under $7,000,000 in investment assets in two states, and at year-end in 2015, our portfolio stood at 9,217,963.10
(combination of asset values for American Realty, ARP Borrower, ARP Borrower II and AHIT Valfre).
Pioneer
in Single-Family Rental
In
2010, we recognized an unprecedented opportunity to capitalize on the severe price deterioration and asset re-pricing in the single-
family housing sector. After a decade of price appreciation in excess of underlying fundamentals, a dramatic over-correction in
the market occurred, creating an opportunity to acquire assets at deep discounts. The rapid pace of foreclosures and ensuing decline
in home ownership drove thousands of displaced families to seek rental housing. We recognized that the size and fragmentation
of the SFR market presented significant potential to transform a cottage industry of "mom & pop" owners to well-capitalized
and professionally managed operators. These factors triggered our decision to make our first acquisitions in 2010, placing us
at the forefront of the professionally managed SFR industry.
Looking
back on our history of acquiring, renovating and leasing homes, we are proud of our pioneering role in the SFR industry. Looking
forward, we are even more excited about its future. We believe the opportunity for growth is sustainable based on increasing demand
for home rentals and the continued ability to acquire homes at attractive prices - still well below replacement value. The parallels
to the development of the multi-family market are considerable and the opportunity to capitalize on large-scale efficiencies in
this emerging sector is extensive.
Intelligent
Aggregation
In
2014, we executed our disciplined acquisition strategy by focusing on markets that demonstrate macro-trends - economic, demographic
and employment - favorable to the rental market. Leveraging our proprietary technology platform, we also evaluated microeconomic
data that matched our selection criteria to specific census tracts, neighborhoods, and subdivisions within our core market. We
believe our emphasis on attracting stable residents is the key driver of consistent cash flow through increasing rental rates
and high occupancy levels. We expect that steady cash flow in combination with home price appreciation (HPA) will deliver attractive
total returns to our unit holders over the long term.
According
to the housing price index from the Federal Housing Finance Agency, the HPA in Phoenix was 9.0% in 2014. These valuations have
been consistent with our expectations. Given our focus on acquiring high-quality assets, we believe our portfolio has experienced
HPA even greater than that of the overall markets. We continued to build out our core market to leverage the operational efficiencies
that come with achieving critical mass.
Acquisitions
We
have a disciplined acquisition platform that is capable of acquiring large numbers of properties across all of our acquisition
channels in multiple target markets. When identifying desirable markets, we focus on factors such as the magnitude of housing
price declines, strength of rental demand, and rates of job growth, population growth and unemployment, providing for attractive
potential yields and potential home price appreciation. We use data from a variety of sources and evaluate macroeconomic and microeconomic
inputs (including housing market, demographic and economic data). Within markets that meet our selection criteria, we seek to
identify the submarkets, subdivisions, and neighborhoods that offer the most attractive mix of housing prices, discounts to replacement
cost, rental demand and rental rates, which are often characterized by good access to transportation networks and employment centers,
quality schools, and low levels of crime.
We
source acquisition opportunities through a variety of channels, including foreclosure auctions, short-sales, REO, and traditional
MLS. We also source portfolios of leased and vacant properties through brokerages or directly from operators, investors, or banks.
Most recently, foreclosure auctions and broker sales (primarily MLS and short sales) have presented the most attractive channels
to access a significant supply of quality homes at attractive prices. While foreclosure auctions provide for a limited time frame
to complete due diligence, our underwriting includes an evaluation of our acquisition parameters, property location, (including
a drive-by inspection), an estimation of potential eviction and restoration costs, expected rents and expenses, as well as a review
for the existence of any liens. We have acquired and will continue to acquire properties through direct contracts with various
property owners through brokers (including traditional MLS, REO, and short sales) and portfolio sales from governmental agencies,
financial institutions and competitors. Acquisitions through these channels generally allow more time for underwriting to determine
the expected rents, expenses and renovation costs, to perform physical property inspections, obtain title insurance, and review
local covenant conditions and restrictions.
Our
Financing Strategy
We
have financed our operations and acquisitions to date through the issuance of equity securities and borrowings under our credit
facility with Firstkey. In the future, we expect to finance our operations, in part, with additional equity placements and borrowings
under the credit facility with Firstkey and other types of indebtedness.
Restoration
Once
an offer to purchase a property is accepted, a detailed assessment is completed with an on-site review to identify the scope of
desired restoration. Beyond customary restoration, we identify improvements that we believe will optimize the property's overall
appeal and ability to generate premium rents and an appropriate return on our invested capital. Detailed work plans are distributed
electronically to our restoration team, (which solicits bids and establishes sequential work schedules), so that restoration can
begin as soon as possible after closing. We oversee all restorations, including reviewing bids, managing the restoration process,
and maintaining quality control oversight. We have established relationships with many home improvement professionals, including
contractors, electricians, plumbers, painters, HVAC specialists, locksmiths, carpet installers, landscapers, and cleaning companies.
Due to our scale, we are able to negotiate discounted pricing both through national purchasing programs and in local markets with
various suppliers of appliances, floor coverings, kitchen cabinetry, window treatments, replacement windows, lighting fixtures
and plumbing supplies, among other items.
Leasing
We
establish rental rates based on local market conditions and are responsible for collecting and processing rent. Factors considered
when establishing rents include prevailing rental rates for comparable properties, weighing factors such as the size and age of
the home, neighborhood characteristics, and proximity to lifestyle amenities, such as schools, medical facilities, and transportation.
We use local leasing agents who interface with potential tenants and our internal leasing staff. Properties are marketed through
multiple channels, including our website, Internet-based marketing strategies, MLS, yard signage, and local brokers. Our leases
with residential tenants are typically written with a term of one year, using standardized leases appropriate for each jurisdiction,
and generally contain customary provisions applicable to that market. Security deposits for repair of the property and other customary
conditions are typically required. In some instances, where we have acquired a leased property, a tenant has an option to purchase
the property at the end of the lease term at a specified price or based on fair market value, subject to the tenant satisfying
certain conditions.
Rigorous
tenant underwriting is critical in our effort to lease our self-managed properties to creditworthy tenants that we believe are
likely to maintain their residence. We evaluate prospective tenants based on established guidelines and review financial data
and metrics, such as household income, tenure at current job, rent as a percentage of household income, and income- to-rent ratio.
We also review non-financial factors, such as household size and rental history. In addition, when underwriting prospective tenants,
we typically conduct a tenant credit check and criminal background checks for all proposed occupants over the age of 18.
Resident-Centric
Philosophy and Focus
Attracting
and retaining quality residents is the key driver of revenue in the SFR industry. Our experience over the past six years has taught
us that success is directly correlated to a resident-centric approach in all we do. This starts with buying homes in neighborhoods
that have top-rated schools, low crime, and access to amenities and transportation, and restoring these homes to make them highly
desirable to residents. Ingrained in our culture is a commitment to earning loyalty from our residents by providing quality homes
and excellent customer service. Our mission is to deliver the greatest possible value to our residents on the most cost-effective
basis.
To
build the American Housing Income Trust brand and deepen our connection with residents, we developed a Resident Service Center
to ensure a high level of response and service for all resident inquiries. We also initiated a resident relations and communications
program that includes welcome bags complete with "how to" home manuals, quarterly newsletters, maintenance request follow-ups,
and social media posts. We believe our resident-centric approach has tangible long-term economic benefits as it generally translates
to early lease renewals, higher renewal rents, lower turnover, and qualified referrals.
Property
Management
We
provide the continuum of property management services, including securing a property upon acquisition, coordinating with utility
companies, controlling the restoration process, managing the leasing process, communicating with tenants, collecting rents, conducting
periodic inspections, managing routine property maintenance and repair, paying applicable taxes and HOA fees, and interfacing
with vendors and contractors. By performing these functions internally with respect to our self-managed portfolio, we believe
that we establish improved communications, foster direct relationships with tenants, and gain tighter control over the quality
and cost of restorations and property maintenance.
We
perform full-service property management functions out of our corporate office in Phoenix, Arizona. The following functions are
performed internally by our employees with respect to our self- managed properties: coordinate and supervise periodic property
inspections performed by a combination of internal employees and service providers; establish and cancel utility services upon
lease commencement or lease expiration; communicate, monitor, coordinate and comply with all HOAs of which we are a member.
Additionally,
our tenants can make maintenance requests on a 24-hour basis through our website or emergency telephone hotline, both of which
are administered and managed from our headquarters office. They can also call our office during regular business hours. Upon receiving
a maintenance request, our maintenance personnel and systems identify an appropriate service provider from our network of vendor
relationships and dispatch repair personnel to the home.
Well-Positioned
to Create Long-Term Value
We
project 2016 will be another year of strong growth in our portfolio. We will continue focusing on our established market, which
should further enhance operational efficiencies as we add to our critical mass in this region. American Housing Income Trust is
well-positioned to expand in this vibrant core market that offers both strong rental demand and favorable economics. Further,
we are confident in our ability to leverage all acquisition sourcing channels, including MLS, auction, and portfolio purchases.
We
built a strong foundation in 2015. The work we did last year to develop a platform capable of managing our homes should drive
operational efficiencies for years to come, enabling us to effectively manage the continued growth in our asset base. Our focus
will always be on driving risk-adjusted total returns for our unit holders through revenue generation, intelligent growth, optimizing
operating margins, and capitalizing on HPA.
Competition
As
set forth above, we face competition from different sources in each of our two primary activities, acquiring properties and renting
our properties. We believe our primary competitors in acquiring our target properties through individual acquisitions are individual
investors, small private investment partnerships looking for one-off acquisitions of investment properties that can either be
rented or restored and sold, larger investors, including private equity funds and other REITs, that are seeking to capitalize
on the same market opportunity that we have identified, and owner occupants. Our primary competitors in acquiring portfolios are
private equity investors, REITs, and sizeable institutional investors. We believe that our vertically integrated real estate acquisition
and management platform, local presence, and market knowledge in markets that meet our selection criteria provide us with competitive
advantages.
REIT
Qualification
We
believe that, with certain adjustments to our beneficial owner's holdings in order to comply with the REIT requirements under
the Internal Revenue Code of 1986, as amended, or the Code, and our charter, we will qualify to be taxed as a REIT for
part of the 2015 taxable year or by the conclusion of the 2016 tax year. Our qualification as a REIT depends upon our ability
to meet on a continuing basis, through actual investment and operating results, various complex requirements under the Internal
Revenue Code of 1986, as amended, or the Code, relating to, among other things, the percentage of income that we earn from specified
sources, the percentage of our assets that fall within specified categories, the diversity of our capital stock ownership, and
the percentage of our earnings that we distribute. We believe that we have been organized in conformity with the requirements
for qualification and taxation as a REIT under the Code and that our intended manner of operation will enable us to continue to
meet the requirements for qualification and taxation as a REIT. So long as we qualify as a REIT, we generally will not be subject
to federal income tax on our REIT taxable income that we distribute currently to our unit holders. If we fail to qualify as a
REIT in any taxable year and do not qualify for certain statutory relief provisions, we will be subject to federal income tax
at regular corporate rates and may be precluded from qualifying as a REIT for the subsequent four taxable years following the
year during which we fail to qualify as a REIT. Even if we qualify as a REIT, we may be subject to certain federal, state and
local taxes on our income or property.
Corporate
History
The
Company was originally incorporated as Green Bikes Rental Corporation on December 17, 2007, under the laws of the State of Nevada,
as a development stage company. The Company issued 5,000,000 shares of common stock at the time of incorporation as "founder's
shares" to Yulia Nesterchuk. On April 30, 2008, the Company filed its Form S-1 Registration Statement under the Securities Act
of 1933 registering 2,000,000 shares of our common stock at an offering price of $0.10. On May 30, 2008, the Company completed
its public offering and raised $50,830 by selling 508,300 shares of registered common stock. On October 17, 2008, our shares of
common stock began trading on FINRA's Over-The-Counter Bulletin Board under the symbol "GBKR." There was minimal trading activity
in 2009 and early-2010.
On
January 30, 2009, the Company amended its Articles of Incorporation to change the name of Green Bikes Rental Corporation to Affinity
Mediaworks Corp. and increase the authorized shares of common stock in the Company to 200,000,000 and effectuated a 20:1 forward-split
of the Company's issued and outstanding shares of common stock. We received a new symbol - "AFFW", for the quotation of our common
stock on the OTC Bulletin Board on January 30, 2009. At the time, the intent of the Company was to become involved in the development,
finance, sales, acquisition, distribution and marketing of high quality intellectual property devoted for the entertainment and
leisure markets, through films under budgets from $4 to $8 million. We believed that our product line would represent a timely
opportunity with the potential for fast acceptance in the international marketplace.
We
were also finalizing plans to vertically integrate in all aspects of the industry, including pre and post production services.
These ancillary services were priced at a level where we believed we could become a key provider of solutions to the independent
and small film sector. The services that we planned on offering would help provide a monthly revenue stream that would create
an independent profit center within our organization and provide supplemental cash flow to us while our major film projects are
being shot and carried to market. As of May 17, 2010, we had approximately 51 shareholders of record and 50,166,000 outstanding
shares of common stock.
On
July 23, 2012, Cortland Communications, LLC, a Utah limited liability company ("Cortland"), whose principal was Mark T. Gleason,
entered into a share purchase agreement with the Company. Under the terms of the agreement, Cortland purchased a control block
consisting of approximately seventy-nine and forty-six one hundredths percent (79.46%) of the outstanding common shares of the
Company in consideration for $75,000. Scott Cramer resigned as the sole director of the Company, and Mr. Gleason was appointed
Chief Executive Officer, Chief Financial Officer, Treasurer, Secretary, and sole Director. As of July 31, 2012, the Company had
50,355,969 shares of common stock issued and outstanding.
On
August 2, 2012, 24,000,000 shares of our common stock were issued in consideration of a release of a note payable to three shareholders.
These shares were issued to Robert Thast (7,000,000), Phillip Brooks (7,000,000) and Yuriy Nesterchuck (10,000,000). On August
20, 2012, the Company filed a Certificate of Amendment with the State of Nevada reclassifying its capital stock as 190,000,000
shares of common stock and 10,000,000 shares of blank check preferred stock.
On
August 23, 2012, in consideration of the release of a note payable, the Company issued 3,380,000 shares of its common stock. Id.
On September 18, 2012, the Company recorded minutes on a proposed 777:1 reverse stock split retroactively adjusted to inception
of the Company, pending approval from FINRA. On July 2, 2013, the Company recorded minutes announcing the termination of the proposed
reverse stock split. On July 12, 2013, in exchange for notes payable and accrued interest of $16,098, the Company issued 73,549
shares of common stock to Cortland Communications, LLC. The Company recorded a loss on debt conversion of $1,693,902 related to
this transaction.
On
January 24, 2014, the Company recorded minutes on a proposed a 775:1 reverse stock split. See Form 10-K dated March 7, 2014. As
of March 7, 2014, the common stock issued and outstanding had been adjusted retroactively back to inception to reflect this split.
The reverse stock split had been approved by FINRA with the effective date of February 21, 2014. As of January 31, 2014, the common
stock issued and outstanding had been adjusted retroactively back to inception to reflect the proposed 775:1 reverse stock split.
On
April 1, 2014, 69,531,000 shares of common stock were issued for consulting services. The shares of common stock had been valued
at $695 based on par value for the issuance for these shares on the date of the grant. The shares were issued to:
Fortitude
Group, Inc. |
9,250,000
Common Shares; |
Calypso
Ventures, LLC |
6,250,000
Common Shares; |
Friction
and Heat, LLC |
6,250,000
Common Shares; |
Procap
Funding, Inc. |
6,250,000
Common Shares; |
Rochester
Equities of NY, Inc. |
6,700,000
Common Shares; |
Data
Capital Corp. |
6,700,000
Common Shares; |
Bengal
Holdings, Inc. |
6,250,000
Common Shares; |
Gabon
Investments, Inc. |
6,250,000
Common Shares; |
Carson
Holdings, LLC |
6,700,000
Common Shares; |
Libra6
Management Corp. |
6,481,000
Common Shares; |
Gemini
Group Global Corp. |
2,000,000
Common Shares. |
On
July 8, 2014 the Company filed a Certificate of Amendment with the State of Nevada to increase the number of authorized capital
stock to 510,000,000. The number of authorized shares common stock increased to 500,000,000 with a par value of $0.00001 and the
number of authorized blank check preferred remained the same at 10,000,000 with a par value of $0.00001. Id. On July 11, 2014,
the Company authorized from its 10,000,000 shares of preferred stock, the designation of 20,000 shares of preferred stock classified
as the "Series A Preferred Stock," which carried super voting rights equal to 25,000 votes per share.
On
July 25, 2014, the Company recorded a stock payable of 9,000,000 shares of common stock, in exchange for received payment of $1,800.
As of July 31, 2014, the Company had 500,000,000 shares of common stock authorized and 69,705,083 shares of common stock issued
and outstanding. On August 19, 2014, 9,000,000 shares of common stock were issued at $0.002/ per share, in exchange for a stock
payable of $1,800 recorded on July 25, 2014, and 18,000,000 shares of common stock were issued at $0.002/ per share, in exchange
for a stock payable of $3,600 recorded on August 14, 2014.
A
change of control of the Company occurred on October 28, 2014 when Cortland Communications, LLC acquired 20,000 shares of the
Series A Preferred Stock in consideration for the retirement of debt owed the entity. See Form 8-K dated October 29, 2014. The
Company recorded on its Form 10-Q dated December 15, 2014, $19,452 in debt converted held in interest and notes and $66,548 as
a loss on the conversion of related party debt. As a result, Cortland Communications, LLC held, at the time, voting rights equivalent
to 500,000,000 shares of the Company's common stock. According to the Form 10-Q, as of the filing, the Company had 94,568,770
shares of common stock issued and outstanding.
On
February 4, 2015, the Board of Directors for the Company ratified and approved, amongst other things, the private sale of 20,000
shares of the Series A Preferred Stock and 58,809,678 shares of Common Stock representing 50.79% of the total outstanding of 116,068,770
Common Stock outstanding of the Company.
The
Share Purchase Agreements were entered into between the selling shareholders, below, American Realty, as buyer, and the Company.
These agreements are collectively referred to herein as the "SPAs". The SPAs closed escrow on February 13, 2015 with the receipt
of medallion signed transfers of the restricted certificates. The selling shareholders were as follows:
Aquamarine
Holdings, LLC |
9,000,000
Common Shares; |
Dunlap
Consulting, LLC |
9,000,000
Common Shares; |
Nutmeg
State Realty, LLC |
9,000,000
Common Shares; |
Carson
Holdings, LLC |
6,700,000
Common Shares; |
Calypso
Ventures, LLC |
6,250,000
Common Shares; |
Bengal
Holdings, Inc. |
6,250,000
Common Shares; |
Gabon
Investments, Inc. |
6,250,000
Common Shares; |
Friction
& Heat, LLC |
6,250,000
Common Shares; |
Cortland
Comm., LLC |
109,678
Common Shares. |
The
Company believed that Section 4(2) was available because the foregoing transaction was exempt from the registration requirements
under the Securities Act of 1933, as amended ("the Act"), based on the following facts: there was no general solicitation, there
was a limited number of purchasers, each of whom the Registrant believes was an "accredited investor" (within the meaning of Regulation
D under the Securities Act of 1933, as amended) and was sophisticated about business and financial matters, and all shares issued
were subject to restriction on transfer, so as to take reasonable steps to assure that the purchaser was not an underwriter within
the meaning of Section 2(11) under the Act.
These
common shares, in the aggregate, account for 58,809,678, or 50.79% of the common shares outstanding of the Company. In addition,
American Realty acquired 20,000 of the Series A Preferred Stock from Cortland Communications, LLC (the "Series A Preferred").
As a result, a change of control of the Company took place on February 13, 2015 (the date of the closing of escrow).
On
March 2, 2015, American Realty voted its shares of common stock and preferred stock in adopting a Plan of Conversion pursuant
to Sections 92A.005 et seq. of the Nevada Revised Statutes, and Section 3-904(c)(1) of the Code of Maryland (the "Plan of Conversion").
The Plan of Conversion was recommended by the Board of Directors of the Company. The action consented to was to convert the Company
from a Nevada corporation to a Maryland corporation, pursuant to conversion statutes under the Nevada Revised Statutes (the "NRS")
and the Maryland General Corporation Law (the "MGCL") (the "Maryland Conversion").
As
of the close of business on March 2, 2015, we had 116,068,770 shares of Common Stock outstanding of the Company (subject to the
Reverse Stock Split) and 20,000 shares of Preferred Stock. Each share of outstanding Common Stock is entitled to one vote and
each share of Preferred Stock is entitled to 25,000 votes. These common shares, in the aggregate, account for 58,809,678, or 50.79%
of the common shares outstanding of the Company. In addition, American Realty acquired 20,000 of the Series A Preferred Stock
from Cortland Communications, LLC (the "Series A Preferred"). As a result, a change of control of the Company took place.
On
March 27, 2015, through Schedule 14C, the Company noticed a reverse split of its common stock on a 1:1,000 basis, and its conversion
from a Nevada corporation to a Maryland corporation pursuant to the conversion statutes under the Nevada Revised Statutes and
Maryland General Corporation Law. In order to account for dissenter's rights and abbreviated notice to non-beneficial owners of
the Company's common stock, these actions did not become effective until May 6, 2015.
Pursuant
to the Amended Resolution of the Board of Directors dated May 14, 2015, which supplemented, amended and revised the Resolution
of the Board of Directors dated May 8, 2015, the Board of Directors authorized Eric Stoffer's execution of the following materially
definitive agreements: (a) the Stock Exchange and Restructuring Agreement (the "Stock Exchange Agreement") between American Realty
and the Company dated May 15, 2015, and (b) the Parent-Subsidiary and Operations Agreement (the "Subsidiary Agreement") between
Performance Realty Management, LLC, an Arizona limited liability company and related party ("Performance Realty"), American Realty
and the Company, which has as an effective date of the "Closing," as defined under the Stock Exchange Agreement.
The
Stock Exchange Agreement was executed on May 15, 2015, but the closing had been conditioned upon satisfaction of the conditions
precedent in Article V thereunder. More specifically, the closing was conditioned upon approval by the Financial Industry Regulatory
Authority ("FINRA") of the actions in its Schedule 14C; more specifically, FINRA's approval of the reverse stock split. The closing
of the Stock Exchange Agreement occurred on July 6, 2015 with the issuance of the shares to the former members of American Realty
Partners. The closing of the Stock Exchange Agreement resulted in American Realty being a wholly-owned subsidiary of the Company.
The Subsidiary Agreement, as amended, closed concomitant with the closing of the Stock Exchange Agreement.
Under
the terms of the Subsidiary Agreement, the Company agreed to be bound by the Operating Agreement for American Realty dated November
1, 2013 (the "American Realty Operating Agreement"). The Company further agreed that Performance Realty would continue to operate
as the Manager for American Realty pursuant to the terms of the American Realty Operating Agreement, subject to the following
amendment to Section 3.10 of the American Realty Operating Agreement, which was approved by a Resolution of the Board of Directors:
The
Member acknowledges and agrees that, as the sole member of the Company, it and its shareholders directly benefit from the management
services provided by Manager under this Article III. The Member further recognizes that any capital expenditures made for the
benefit of the Company derive directly from the Member, as opposed to the Company itself. Therefore, in consideration for the
services to be rendered to or on behalf of the Company by the Manager, the Member shall issue 1,000,000 shares of common stock
in the Member, i.e. American Housing Income Trust, Inc., into the Member's treasury for future issuance upon written notice by
PRM to Member's Secretary electing to issue the shares through the Member's transfer agent within a reasonably commercial period
of time under the same or similar circumstances, but in no event greater than three business days from exercising the option,
and future issuance on the annual anniversary of the issuance out of treasury, shares of common stock valued at one-percent (1%)
of the net assets of the Company being managed by Manager under this Operating Agreement, unless otherwise agreed upon by Member
and Manager, or unless doing so impairs or restricts the Member's intent of operating as a real estate investment trust. In the
event such structure impairs or restricts the Member's intent of operating as a real estate investment trust, the Member and Manager
agree to work in good faith to restructure compensation for Manager in performing under this Article 3. The fee paid to Manager
hereunder is intended to constitute a guaranteed payment within the meaning of IRS Code §707(c), and will be treated as an
expense of the Company and deducted in determining Profits and Losses.
The
aforementioned amendment was executed on September 18, 2015. On September 22, 2015, the Company authorized the issuance of 1,000,000
shares of common stock to Performance Realty upon receipt of the written notice of exercise of the option by Performance Realty. On
December 21, 2015, Performance Realty and American Realty agreed that this stock issuance constituted all compensation to be paid
to Performance Realty in serving as manager of American Realty. Although Performance Realty is the manager of American Realty,
the business and operations of American Realty are dictated by the Board of Directors of the Company in order to meet the requirements
of serving as a REIT. The Second Amendment to the Operating Agreement for American Realty amended the management fee provision
as follows:
The
Member acknowledges and agrees that, as the sole member of the Company, it and its shareholders directly benefit from the management
services provided by Manager under this Article III. The Member further recognizes that any capital expenditures made for the
benefit of the Company derive directly from the Member, as opposed to the Company itself. Therefore, in consideration for the
services to be rendered to or on behalf of the Company by the Manager, the Member issued 1,000,000 shares of common stock in the
Member, i.e. American Housing Income Trust, Inc., to PRM on September 28, 2015. The fee paid to Manager hereunder is intended
to constitute a guaranteed payment within the meaning of IRS Code §707(c), and will be treated as an expense of the Company
and deducted in determining Profits and Losses. Any and all prior agreements for the issuance of shares of common stock in the
Member to PRM are terminated in consideration of the Member ratifying and reaffirming its obligations to Sean Zarinegar under
his Advisory Board Consulting and Compensation Agreement effective May 15, 2015. PRM has agreed to amend its reporting with the
United States Securities and Exchange Commission to reflect the extinguishment of the option previously disclosed. PRM acknowledges
that this amendment to the Management Fee is in order to comply with the Member's intention of operating as a REIT.
In
the Subsidiary Agreement, the Company recognized the value of Performance Realty in continuing to serve as Manager of American
Realty until such time the Company determines that the management impairs or restricts the Company's long-term objective of operating
as a real estate investment trust under Maryland law. The parties under the Subsidiary Agreement recognize that until the Company
is financially and operationally prepared and positioned to operate as a real estate investment trust, Performance Realty must
manage American Realty in order to maintain continuity during this transition in operations. Performance Realty has agreed to
take direction from the Company's Board of Directors regarding those matters set forth in Article 3 of the American Realty Operating
Agreement. Notwithstanding, the day-to-day administrative and ministerial tasks in operating American Realty are to be performed
in the discretion of Performance Realty and its employees and agents, based on their collective education, experience and training.
Performance Realty shall provide reporting and general updates to the Company's Board of Directors in a commercially reasonable
manner.
On
May 26, 2015, the Board of Directors unanimously approved Direct Transfer, LLC to issue additional shares as required to facilitate
requests to perform the round-up of the fractional shares on a beneficial holder level following FINRA's approval of the reverse
stock split without further notification to or approvals. FINRA approved the completion of the reverse stock split effective June
10, 2015. FINRA assigned the Company the temporary trading symbol of AFFWD for trading on the Over-The-Counter market (recently
down-listed from the QB to Pink Sheets). The trading symbol will automatically be changed to AHIT effective July 8, 2015. As a
result of the reverse stock split and round-up, and the conversion of the Series A Preferred (but before the issuances under the
Stock Exchange Agreement, Subsidiary Agreement and Advisory Agreements discussed herein), the Company's issued and outstanding
shares of common stock, as of June 28, 2015, equaled 116,353. On June 29, 2015, the Company issued 21 shares to Pershing, LLC
as part of the beneficial round-up previously approved by resolution. Therefore, as of June 29, 2015, the total issued and outstanding
shares of common stock equaled 116,374.
On
June 23, 2015, pursuant to Article VII of the Articles of Incorporation for the Company, American Realty approved the Board of
Director's recommendation to amend the Articles of Incorporation to ratify the authorized shares of common stock at 100,000,000,
par value of $0.01, and shares of preferred stock at 10,000,000, par value of $.001. In response, on June 24, 2015, the Board
of Directors, pursuant to Article III, Section 10 and Article VII, Section 1 of the Bylaws, resolved to amend the Articles of
Incorporation as directed by American Realty. The Board of Directors independently resolved to amend the Articles of Incorporation
as directed by American Realty, and to amend the fiscal year end to December 31st.
In
addition to this amendment, the Board of Directors accepted the resignations of Eric Stoffers as Chairman of the Board, Chief
Executive Officer and President, and Bill Deegan as Chief Financial Officer, Treasurer and Secretary, and in turn, appointed Sean
Zarinegar to fill the vacancies of Chairman of the Board, Chief Executive Officer, Chief Financial Officer, President and Treasurer.
Monica Andreas was appointed Secretary to fill the vacancy. The Board of Directors had concluded that making such adjustments
at the director and officer levels were in the best interests of the Company. Jeff Howard was appointed a director to fill the
vacancy caused by Eric Stoffers' resignation. On October 12, 2015, Mr. Zarinegar resigned as Chief Executive Officer and President
in order for Mr. Howard to assume such positions and diversify our executive positions. There were no disagreements between Mr.
Zarinegar and the Company. The Board of Directors ratified and approved Mr. Howard's appointment as Chief Executive Officer and
President, and furthermore ratified and approved his Executive Agreement.
On
June 25, 2015, the Company and American Realty entered into restructured financing agreements with Firstkey. Firstkey approved
the restructuring of American Realty, as set forth in the Stock Exchange Agreement and Subsidiary Agreement. Sean Zarinegar and
Performance Realty ratified their respective duties and obligations to Firstkey. The Firstkey debt service directly benefits the
Company.
On
July 6, 2015, the Company proceeded to issue shares of common stock to Sean Zarinegar (1,000,000 shares) and Ken Hedrick (25,000
shares) under their respective agreements. There was an additional 21 shares issued to Pershing, LLC and 1 share to Interactive
Brokers, LLC, as part of the beneficial round-up, and an additional 109 beneficial round up shares issued upon the effectiveness
of the Stock Exchange Agreement.
On
July 7, 2015, the Company filed its Form 8-K commonly referred to as a "Super K" disclosing under Item 5.06 that it had exited
shell status under Rule 405 of the Securities Act and Rule 12b-2 under the Exchange Act as a result of the aforementioned business.
The Company further disclosed that it had a number of legally binding contract producing revenue, and was in the process of implementing
its business plan set forth therein.
On
or about July 17, 2015, the Company commenced with its private offering under Regulation 506(c) to selected accredited investors,
as defined in Rule 501(a) under the Securities Act. This offering was being made in reliance on exemptions from registration pursuant
to Section 4(2) of the Securities Act and Regulation D promulgated thereunder and applicable state securities laws. This offering
closed on October 8, 2015. The Company sold a total of 384,044 shares of its common stock for $3.00 per share under the offering.
On August 3, 2015, the Company, and Valfre Holdings, LLC, an Arizona limited liability company, and James A. Valfre and Pamela
J. Valfre, f/k/a Pruitt (collectively, "Valfre") closed on the Company's acquisition of nine single family residences in Arizona
through an umbrella limited liability partnership organized in Maryland called "AHIT Valfre, LLP" ("AHIT Valfre"). The Company
is the General Partner of AHIT Valfre pursuant to the terms of the Master UPREIT Agreement, Contribution Agreements and all related
documents, including but not limited to the UPREIT Partnership Agreement (collectively, the "AHIT Valfre Agreements.").
Pursuant
to the AHIT Valfre Agreements, in consideration for the conveyance of the nine single family residences, which were acquired by
AHIT Valfre "subject to" existing mortgages, AHIT Valfre issued the following limited partnership interests (collectively, the
"Limited Partnership Interests" or singularly a "Limited Partnership Interest") in AHIT Valfre: (a) Valfre Holdings, LLC 69,555,
and (b) James A. Valfre 192,050 and Pamela J. Valfre 38,421.
The
Company and Valfre entered into the AHIT Valfre Agreements contemplating, amongst other things that AHIT Valfre would be operated
to reduce risk and increase diversification of real estate holdings, and to seize an opportunity for Valfre for estate and tax
planning purposes through an exchange under Section 721 of the Internal Revenue Code (defined in the AHIT Valfre Agreements as
the "Intended Tax Treatment"). More specifically, commencing on August 4, 2016, each Limited Partnership Interest shall be convertible,
at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by
the holder thereof, into the number of fully paid and nonassessable shares of common stock in the Company on a 1:1 basis. AHIT
Valfre may require any holder of a Limited Partnership Interest to convert each of his, her or its Limited Partnership Interest
into the number of fully paid and nonassessable shares of common stock in the Company on August 4, 2016. These shares are not
being registered with this statement.
In
order for Valfre, individually or collectively, to exercise its, his or her conversion rights, such holder shall deliver to the
Company's Transfer Agent written notice in the same or similar form as Exhibit A attached to the AHIT Valfre Limited Liability
Partnership Agreement. While Valfre holds the aforementioned option and the Company holding the aforementioned put option, the
Company shall be allocated all net profits or losses of AHIT Valfre pursuant to the AHIT Valfre Limited Liability Partnership
Agreement. As a result of closing on the AHIT Valfre Agreements, the Company acquired nine single family residences with a stated
"Gross Asset Value," as defined in the AHIT Valfre Agreements, of $1,735,734 offset by debt service in the amount of $1,215,734
as of August 1, 2015. Although the Company is of the opinion that that the Registration Rights Agreement with the Limited
Partners of AHIT Valfre precludes the registration of “Shares” or “Registrable Securities,” as defined
under the Registration Rights Agreement, in this Registration Statement since the Limited Partners have not, and cannot until,
at the earliest August 1, 2016, convert their limited partnership units into common shares in the Company, the Company, as General
Partner, and the Limited Partners agreed on September 29, 2015 to toll any registration requirement, to the extent such a requirement
exists in the first place, to December 31, 2015. This tolling was subsequently ratified in a Second Amendment to Master
Registration Rights Agreement on January 19, 2016. In summation, the shares subject to any conversion rights of the Limited
Partners in AHIT Valfre are not being registered herein.
Therefore, as of this filing, the Company has 7,565,340
shares of common stock issued and outstanding among 599 shareholders. It should be noted that, although the private offering closed
just prior to this registration statement, the Company had three subscriptions executed with funding pending. The new share issuance
forms had been executed and were subsequently submitted to the Company's transfer agent. The funds associated with these subscriptions
cleared, and the Company's transfer agent issued 26,334 shares of common stock pursuant to these three outstanding subscriptions.
The subscriptions are not associated with any related parties or affiliates. These additional shares are subject to the Company's
registration requests herein. For purposes of calculations throughout this registration statement, the Company is disclosing the
current issued and outstanding as set forth in the first sentence of this paragraph. The Company is currently working with its
auditors, financial advisors, and corporate, tax and securities counsel to take the necessary steps to restructure the entity
into a real estate investment trust (a "REIT"). The intent following the restructuring into a REIT is to embark on a capital raising
strategy commencing in 2016 in order to expand upon the recent successes of our wholly-owned subsidiary - American Realty.
Legal
Matters
Mr.
Zarinegar is subject to consent cease and desist orders issued by the Kansas Securities Commission and Alabama Securities Commission.
These orders are not related to the Company. Zarinegar was a registered representative with FINRA between approximately 1992 and
2005. During the period of time in which he was registered with FINRA, Zarinegar held Series 6, 7, 22, 24, 27, 39 and 63 designations.
He had been registered with six securities firms during this time period with the last being Malory Investments, LLC ("Malory")
between August 2001 and April 2005. Zarinegar has two disclosure events set forth in his CRD, both of which revolve around alleged
activity during his tenure at Malory. These disclosures are not customer complaints; rather, they revolve around cease and desist
orders issued by the State of Kansas and the State of Alabama in 2007 as part of their respective investigations into Malory and
six other primary respondents. The allegations against Zarinegar were that he failed to properly supervise the sale of private
offerings in Kansas and Alabama. Zarinegar has filed a Statement of Claim for Expungement with FINRA pursuant to Rule 2080. Mr.
Zarinegar has been in compliance with the Orders since issuance. The Orders are not related in any manner with respect to the
Company or its related parties. To Orders do not restrict Mr. Zarinegar from engaging in an offering in the State of Kansas or
State of Alabama provided he complies with the appropriate disclosures and laws. The Company is not aware of any similar orders
in any other jurisdiction. Except as disclosed above, none of our officers nor directors, promoters or control persons have been
involved in the past ten years in any of the following:
(a)
Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either
at the time of the bankruptcy or within two years prior to that time;
(b)
Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other
minor offenses);
(c)
Being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, or any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities
or banking activities;
(d)
Being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission
to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
Trading
Market
The
Company is currently quoted on the OTCQB Marketplace, operated by the OTC Markets Group using the symbol "AHIT."
There can be no assurance that the Company will continue to qualify for quotation of its securities on the OTC Bulletin Board.
See "RISK FACTORS" and "DESCRIPTION OF SECURITIES".
Common
Stock Offering by Selling Shareholders |
|
The
maximum number of shares identified herein as common stock held by Selling Shareholders that can be sold under this offering
is 30,000. The offering will terminate no later than twenty-four (24) months from the date of this Prospectus unless
earlier fully subscribed or terminated by the Company. |
|
The
Offering By Selling Shareholders |
|
|
Common
Stock Offered By Selling Shareholders (1) |
7,565,340
shares of common stock |
Common
Stock Outstanding Before the Offering |
7,565,340
shares of common stock |
Common
Stock Outstanding After the Offering |
10,565,340
shares of common stock assuming all shares registered as part of the public offering are sold. |
Terms
of the Offering |
The
Selling Shareholders may sell their shares at the fixed rate of $3.75 per share during the term of this Offering. |
Termination
of the Offering |
This
Offering will terminate no later than twenty-four (24) months after the effective date of the registration statement
associated with this Prospectus. |
Use
of Proceeds |
The
Company will not receive any proceeds from the sale of the shares offered by the Selling Shareholders. |
Risk
Factors |
The
investment in the shares offered hereby involves a high degree of risk and should not be purchased by any investor who cannot
afford the loss of their entire investment. |
|
The
above referenced offering represents the number of shares outstanding as of the date of this Prospectus. The Company is not
receiving proceeds from the sale of the shares offered by the Selling Shareholders. In the event the Selling Shareholders
are successful in the sale of the shares at $3.75 per share, the value of the outstanding shares subject to this specific
offering, i.e. not including the shares subject to the direct public offering below, may be assumed to be $28,370,025.
|
|
Direct
Public Offering of Common Stock |
|
The
maximum number of shares identified herein as common stock subject to the Company's "best efforts" direct public offering
is 3,000,000. |
|
The
Direct Public Offering |
|
|
Common
Stock Offered Through Direct Offering |
3,000,000
shares of common stock |
Common
Stock Outstanding Before the Offering |
7,565,340
shares of common stock |
Common
Stock Outstanding After the Offering |
10,565,340
shares of common stock assuming all shares registered as part of the public offering are sold. |
Terms
of the Offering |
$3.00
per share |
Use
of Proceeds |
The
Company will not receive any proceeds from the sale of common stock by the Selling Shareholders. Our direct public offering
of 3,000,000 shares of common stock is being made on a self-underwritten basis and there is no minimum number of shares of
common stock that must be sold in order for the offering to proceed. The offering will terminate no later than twenty-four
(24) months after effectiveness. The net proceeds to the Company from the sale of up to 3,000,000 shares offered through the
offering price of $3.00 per share (total of $9,000,000) will vary contingent upon the success of the Company's sales efforts.
It is the Company's intention to use proceeds raised through this prospectus towards its business plan, and towards the continued
expenses commonly associated with operating a publicly reporting and trading company. To the extent there are excess proceeds
from the offering associated with this prospectus, the Company intends on using such proceeds in furtherance of its business
purpose, as set forth in Item 11. Regardless of the number of shares of common stock sold, the Company expects to incur offering
expenses estimated at $50,000 for legal, accounting, printing and other costs in connection with this offering. We will not
maintain an escrow account for the receipt of proceeds from the sale of our registered shares of common stock. |
Risk
Factors |
The
investment in the shares offered hereby involves a high degree of risk and should not be purchased by any investor who cannot
afford the loss of their entire investment. |
Use
of Funds from Public Offering: Provided that funds are raised in the Direct Offering at between the 25 - 100% levels,
funds raised will be allocated on a proportional basis as reflected in the following Funds Use Tables:
|
If
25% of |
If
50% of |
If
75% of |
If
100% of |
|
shares
were |
shares
were |
shares
were |
shares
were |
Application
of Funds |
sold |
Sold |
sold |
sold |
|
|
|
|
|
Shares
Sold |
750,000 |
1,500,000 |
2,250,000 |
3,000,000 |
Offering
Price Per Share |
$
3.00 |
$
3.00 |
$
3.00 |
$
3.00 |
Gross
Proceeds |
$
2,250,000 |
$
4,500,000 |
$
6,750,000 |
$ 9,000,000 |
Offering
Expenses |
50,000 |
50,000 |
50,000 |
50,000 |
Net
Proceeds |
$
2,200,000 |
$
4,450,000 |
$
6,700,000 |
$
8,950,000 |
|
|
|
|
|
Use
of Net Proceeds |
|
|
|
|
|
|
|
|
|
SEC
Reporting and Compliance |
$41,000 |
$82,000 |
$123,000 |
$164,000 |
Consulting
& Management Fees |
96,000 |
192,000 |
288,000 |
384,000 |
General
and Administrative |
99,000 |
198,000 |
297,000 |
396,000 |
Marketing
& Advertising |
165,000 |
330,000 |
495,000 |
660,000 |
Interest
Expense |
57,000 |
114,000 |
171,000 |
228,000 |
Legal
& Other Professional Fees |
27,500 |
55,000 |
82,500 |
110,000 |
Accounting |
15,000 |
30,000 |
45,000 |
60,000 |
Rental
Property Expense |
45,000 |
90,000 |
135,000 |
180,000 |
Real
Estate Acquisition Cost |
25,000 |
50,000 |
75,000 |
100,000 |
|
|
|
|
|
Total
Use of Net Proceeds |
$570,500 |
$1,141,000 |
$1,711,500 |
$2,282,000 |
General
Operating Funds |
$1,629,500 |
$3,309,000 |
4,988,500 |
$6,668,000(1) |
(1)
General Operating Funds are to be used towards the acquisition of future properties consistent with the Company's plan to expand
its revenue generating real estate portfolio.
The
Company has no agreement or immediate plans to conduct a private placement. The Company has not issued debt securities and at
this time and have no plans to do so. In our projections, we plan on raising funds through equity investments, stock sales and
loans. Although we feel positive about our ability to raise funds, we understand that the undertaking can be difficult and may
not be attainable. There are no agreements in place, contemplated or expected in our funds raising efforts, nor is there any guarantee
that the source of the funds projected will ever be realized or obtained. The following Projected Funding Table is management's
projections, which may or may not be achieved, and this table does not apply to any particular location.
Disclosure
Regarding Jumpstart Our Business Startups ("JOBS") Act
In
April of 2012, the Jumpstart Our Business Startups Act ("JOBS Act") was enacted into law. The JOBS Act provides, among other things:
(a)
Exemptions for emerging growth companies from certain financial disclosure and governance requirements
for up to five years and provides a new form of financing to small companies. Amendments to certain provisions of the federal
securities laws to simplify the sale of securities and increase the threshold number of record holders required to trigger the
reporting requirements of the Exchange Act;
(b)
Relaxation of the general solicitation and general advertising prohibition for Rule 506 offerings;
(c)
Adoption of a new exemption for public offerings of securities in amounts not exceeding $50 million;
and
(d)
Exemption from registration by a non-reporting company offers and sales of securities of up to $1,000,000
that comply with rules to be adopted by the SEC pursuant to Section 4(6) of the Securities Act and such sales are exempt from
state law registration, documentation or offering requirements.
In
general, a company is an emerging growth company under the JOBS Act if its initial public offering ("IPO") of common equity securities
was effected after December 8, 2011 and the company had less than $1 billion of total annual gross revenues during its last completed
fiscal year. A company will no longer qualify as an emerging growth company after the earliest of:
(i)
the completion of the fiscal year in which the company has total annual gross revenues of $1 billion or more,
(ii)
the completion of the fiscal year of the fifth anniversary of the company's IPO;
(iii)
the company's issuance of more than $1 billion in nonconvertible debt in the prior three-year period, or
(iv)
the company becoming a "larger accelerated filer" as defined under the Securities Exchange Act of 1934.
The
Company is of the opinion that it meets the definition of an emerging growth company. The Company will be affected by some of
the changes provided in the JOBS Act and certain new exemptions. The JOBS Act provides additional new guidelines and exemptions
for non-reporting companies and for non-public offerings. For example, the financial disclosure in a registration statement filed
by an emerging growth company pursuant to the Securities Act of 1933 will differ from registration statements filed by other companies
as follows: (i) audited financial statements required for only two fiscal years; (ii) selected financial data required for only
the fiscal years that were audited; and (iii) executive compensation only needs to be presented in the limited format now required
for smaller reporting companies. A smaller reporting company is one with a public float of less than $75 million as of the last
day of its most recently completed second fiscal quarter. However, the requirements for financial disclosure provided by Regulation
S-K promulgated by the Rules and Regulations of the SEC already provide certain of these exemptions for smaller reporting companies.
The Company is a smaller reporting company. Currently a smaller reporting company is not required to file as part of its registration
statement selected financial data and only needs audited financial statements for its two most current fiscal years and no tabular
disclosure of contractual obligations.
Pursuant
to section 102(b) of the JOBS Act, the Company's independent registered public accounting firm are exempt from complying with
any rules adopted by the Public Company Accounting Oversight Board ("PCAOB") after the date of the JOBS Act's enactment, except
as otherwise required by SEC rule. Section 102(c) of the JOBS Act also exempts an emerging growth company from any requirement
adopted by the PCAOB for mandatory rotation of the Company's accounting firm or for a supplemental auditor report about the audit.
Section
103 of the JOBS Act also provides an exemption from the requirement of the Company's independent registered public accounting
firm to file a report on the Company's internal control over financial reporting, although management of the Company is still
required to file its report on the adequacy of the Company's internal control over financial reporting. Section 102(a) of the
JOBS Act goes on to exempt emerging growth companies from the requirements in 1934 Act Section 14A(e) for companies with a class
of securities registered under the 1934 Act to hold shareholder votes for executive compensation and golden parachutes.
Section
105 of the JOBS Act also provides that an emerging growth company can communicate with potential investors that are qualified
institutional buyers or institutions that are accredited to determine interest in a contemplated offering either prior to or after
the date of filing the respective registration statement. The Act also permits research reports by a broker or dealer about an
emerging growth company regardless if such report provides sufficient information for an investment decision. In addition, the
JOBS Act precludes the SEC and FINRA from adopting certain restrictive rules or regulations regarding brokers, dealers and potential
investors, communications with management and distribution of a research reports on the emerging growth company IPO.
Section
106 of the JOBS Act permits emerging growth companies to submit 1933 Act registration statements on a confidential basis provided
that the registration statement and all amendments are publicly filed at least 21 days before the issuer conducts any road show.
This is intended to allow the emerging growth company to explore the IPO option without disclosing to the market the fact that
it is seeking to go public or disclosing the information contained in its registration statement until the company is ready to
conduct a road show.
Election
to Opt Out of Transition Period Under The JOBS Act
Section
102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting
standards until private companies (that is, those that have not had a 1933 Act registration statement declared effective or do
not have a class of securities registered under the 1934 Act) are required to comply with the new or revised financial accounting
standard. The JOBS Act provides a company can elect to opt out of the extended transition period and comply with the requirements
that apply to non-emerging growth companies but any such an election to opt out is irrevocable. The Company has elected not to
opt out of the transition period.
RISK
FACTORS RELATING TO OUR COMPANY AND COMMON STOCK
Special
Note Regarding Forward-Looking Statements
Information
included in this Form S-11/A contains forward-looking statements. All forward-looking statements are inherently uncertain
as they are based on current expectations and assumptions concerning future events or future performance of the Company. Readers
are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of
the date hereof. Forward-looking statements may contain the words "believes," "project," "expects," "anticipates," "estimates,"
"forecasts," "intends," "strategy," "plan," "may," "will," "would," "will be," "will continue," "will likely result," and similar
expressions, and are subject to numerous known and unknown risks and uncertainties. Additionally, statements relating to implementation
of business strategy, future financial performance, acquisition strategies, capital raising transactions, performance of contractual
obligations, and similar statements may contain forward-looking statements. In evaluating such statements, prospective investors
and shareholders should carefully review various risks and uncertainties identified in this S-11/A, including the matters set
forth under the captions "Risk Factors" and in the Company's other SEC filings. These risks and uncertainties could cause the
Company's actual results to differ materially from those indicated in the forward-looking statements. The Company disclaims any
obligation to update or publicly announce revisions to any forward-looking statements to reflect future events or developments.
Although
forward-looking statements in this Form S-11/A reflect the good faith judgment of our management, such statements can only
be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks
and uncertainties, and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated
by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include,
without limitation, those specifically addressed under the heading "Risk Factors Related to Our Business" below, as well as those
discussed elsewhere in this registration statement on Form S-11/A. Readers are urged not to place undue reliance on these forward-looking
statements, which speak only as of the date of registration statement on Form S-11/A. We file reports with the Securities and
Exchange Commission ("SEC"). You can read and copy any materials we file with the SEC at the SEC's Public Reference Room, 100
F. Street, NE, Washington, D.C. 20549. You can obtain additional information about the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy
and information statements, and other information regarding issuers that file electronically with the SEC, including us.
We
disclaim any obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that
may arise after the date of this Form S-11/A. Readers are urged to carefully review and consider the various disclosures made
throughout the entirety of this registration statement, which attempt to advise interested parties of the risks and factors that
may affect our business, financial condition, results of operations and prospects.
Before
you invest in the Company' securities, you should be aware that there are various risks. These risks must be evaluated in the
context of the disclosures made within the section titled "Description of Business." You should consider carefully these risk
factors, together with all of the other information included in this prospectus before you decide to purchase our securities.
If any of the following risks and uncertainties develops into actual events, our business, financial condition or results of operations
could be materially adversely affected.
The
stock offered hereby involves a high degree of risk. No one should invest who is not prepared to lose his, her, or its entire
investment. There is no public market in the foreseeable future for the resale of the stock. Prospective investors, prior to making
an investment, should carefully examine the risk factors set forth in the business plan and the following risk factors, which
are inherent in making an investment in, and affecting the business of, the Company, in addition to the other information presented
in this prospectus. This prospectus contains certain forward-looking statements. The Company's actual results could differ materially
from the results anticipated in these forward-looking statements as a result of various risks and uncertainties, including certain
factors set forth in the following risk factors and elsewhere in this prospectus.
Summary
of Risk Factors
The
Company intends on pursuing designation as a REIT, and until that time, the Company will continue to operate as an entity focusing
on the acquisition and management of single family residences, as identified above. The risks associated with qualifying and operating
as a REIT are more fully discussed herein.
An
investment in our common stock is subject to significant risks. Listed below are some of the most significant risks relating to
an investment in our common stock, which we have organized in descending order starting with those risks that we consider as the
most significant. We have a limited operating history and may not be able to successfully operate our business or generate sufficient
operating cash flows to make or sustain distributions to our shareholders. We have a history of net operating losses, and we may
never achieve profitability from operations.
Our
common shares are being offered by our executive officers on a best-efforts basis, which means there is no commitment on the part
of anyone to purchase any of the shares, and there can be no assurance we will be able to sell shares in excess of the minimum
offering amount. Our common shares are being offered by our executive officers on a best-efforts basis, which means there is no
commitment on the part of anyone to purchase any of the shares, and there can be no assurance we will be able to sell shares in
excess of the minimum offering amount. Certain of our existing shareholder affiliated with Mr. Zarinegar, such as American Realty,
Performance Realty, ARP Borrower, ARP Borrower II and AHIT Valfre, have substantial influence over our company, and their interests
may not be aligned with the interests of our other shareholders and sales of their shares could cause the market price of our
common stock to decrease.
We
do not have any experience operating as a REIT, and we cannot assure you that we will be successful operating as a REIT. Until
such time we are successfully operating as a REIT, we will be dependent on our executive officers and dedicated personnel, and
the departure of any of our key personnel could materially and adversely affect us. If we cannot obtain financing, our growth
may be limited.
Our
underwriting criteria and evaluation of properties involves a number of assumptions that may prove inaccurate, which may cause
us to overpay for our properties or incur significant costs to operate a property. Operating our business on a larger scale could
result in substantial increases in our expenses. If rents in our markets do not increase sufficiently to keep pace with rising
costs of operations, we may be unable to generate or sustain cash available for distribution. Declining real estate values and
impairment charges could adversely affect our earnings and financial condition.
Our
Articles of Incorporation, or commonly referred as our charter, gives significant flexibility to our Board of Directors in determining
a suitable business plan and strategy, which might, in the future, deviate from the current business plan and strategy. Our Board
of Directors may change our investment strategy, financing strategy or leverage policies, or any of our other major policies,
without the consent of shareholders. If due to an adjustment in our strategy, we are unable to qualify as a REIT, it could adversely
affect our operations and our ability to make distributions.
The
availability and timing of cash distributions are uncertain, and we may make distributions using the proceeds of this offering,
which would represent a return of capital. The NASDAQ Capital Market or another nationally recognized stock exchange may not list
our securities, which could limit investors' ability to make transactions in our securities and subject us to additional trading
restrictions. An active trading market for our common stock may never develop following this offering. There may be limitations
on the effectiveness of our internal controls, and a failure of our control systems to prevent error or fraud may materially harm
our company.
Risk
Factors Applicable To The Company
Our
Articles of Incorporation and Bylaws have restrictions on ownership and transfer of our common stock.
Due
to limitations on the concentration of ownership of REIT stock imposed by the Internal Revenue Code of 1986, as amended, or the
Code, subject to certain exceptions, our charter provides generally that no person may, in the absence of an exemption granted
by our Board of Directors, beneficially or constructively own more than 9.8% in value or in number of shares, whichever is more
restrictive, of our outstanding shares of common stock or more than 9.8% in value or number of shares, whichever is more restrictive,
of the aggregate outstanding shares of all classes and series of our capital stock.
-Our
charter also prohibits any person from, among other things, beneficially or constructively owning or transferring shares of our
capital stock if such ownership or transfer would result in our being "closely held" within the meaning of Section 856(h) of the
Code. Our charter also prohibits transferring shares of our capital stock if such transfer would result in our capital stock being
owned by fewer than 100 persons.
Our
Board of Directors, in its sole discretion, may exempt (prospectively or retroactively) a person from the 9.8% ownership limits
and other restrictions in our charter and may establish or increase an excepted holder percentage limit for such person if we
obtain such representations and undertakings as our Board of Directors deems appropriate in order to conclude that granting the
exemption and/or establishing or increasing the excepted holder percentage limit will not cause us to fail to qualify as a REIT.
Our
charter also provides that any ownership or purported transfer of our stock in violation of the foregoing restrictions will result
in the shares owned or transferred in such violation being automatically transferred to one or more charitable trusts for the
benefit of a charitable beneficiary and the purported owner or transferee acquiring no rights in such shares, except that any
transfer that results in the violation of the restriction relating to shares of our capital stock being beneficially owned by
fewer than 100 persons will be null and void. If the transfer to the trust is ineffective for any reason to prevent a violation
of the restriction, the transfer that would have resulted in such violation will also be null and void.
As
a company intending to qualify as a REIT, our Articles of Incorporation and Bylaws have a distribution policy intended to comply
with the applicable rules.
To
qualify as a REIT, we must distribute annually to our shareholders an amount equal to at least 90% of our REIT taxable income,
determined without regard to the deduction for dividends paid and excluding any net capital gain. We intend to make distributions
that will enable us to meet the distribution requirements applicable to REITs and to eliminate or minimize our obligation to pay
income and excise taxes. Distributions declared by us will be authorized by our Board of Directors in its sole discretion out
of funds legally available for such and will depend upon a number of factors, including restrictions under applicable law and
the requirements for our qualification as a REIT for federal income tax purposes. We do not currently generate taxable income
and we cannot guarantee whether or when we will be able to make distributions or that any such distributions will be sustained
over time. There can be no assurance we will be able to generate sufficient operating cash flows to make or sustain distributions
to our shareholders.
As
a company intending to qualify as a REIT, we are taking measures to comply with certain tax restrictions and requirements.
We
intend to elect and qualify to be taxed as a REIT for federal income tax purposes commencing with our taxable year ending December
31, 2015; however, to the extent management does not believe it can do so consistent with the Code, we intend to take all necessary
steps to elect and qualify by the conclusion of our taxable year ending December 31, 2016. We
believe that we have been organized and have operated in a manner that will allow us to qualify as a REIT for federal income tax
purposes commencing with such taxable year, and we intend to continue operating in such a manner. To qualify and maintain our
qualification as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we
annually distribute to our stockholders at least 90% of our REIT taxable income, determined without regard to the dividends paid
deduction and excluding any net capital gain.
Pursuant
to the terms of his Advisory Board Consulting and Compensation Agreement dated May 15, 2015, Mr. Zarinegar is entitled to the
issuance of future common stock, which once issued and granted, will dilute all shareholder's respective holdings and
might impair the Company's ability to secure and maintain REIT status.
The
Company retained Mr. Zarinegar through the agreement to issue 1,000,000 shares of common stock in the Company upon the Company's
confirmation of the approval of the reverse stock split by FINRA, which occurred on July 7, 2015. The Company has agreed to pay
Mr. Zarinegar an annual fee equal to $120,000 or 1% of the Company's assets as reported on its year-end balance sheet, whichever
is greater, unless, an opinion of counsel or the Company's auditors conclude that the asset-based compensation limits or impairs
the Company's intent of becoming a real estate investment trust or impairs the Company's status as a publicly reporting company
in good standing under the rules promulgated by the United States Securities and Exchange Commission. The Consulting Fee shall
be payable at the same time, in the same manner, and following the same procedures as apply to directors' fees paid to non-employee
directors of the Company. All such payments shall be paid on a "1099" basis. Although the Company has designated Mr. Zarinegar
as an independent contractor, Mr. Zarinegar is bound by the fiduciary duties of a director and officer under Maryland law.
The
Company also recognizes that Mr. Zarinegar is a significant independent contractor to the Company. In addition to providing advisory
services to the Board of Directors based on his education, experience and training in the business operated by the Company, Mr.
Zarinegar is incurring risk and exposure in guaranteeing the Firstkey debt service identified herein. Although the Firstkey debt
service is to ARP Borrower I, the Company ultimately benefits from the debt service. Recognizing that the consideration, above,
does not completely compensate Mr. Zarinegar, the Company has agreed to issue Mr. Zarinegar or his designee a total of 3,000,000[1] shares
of the Company's common stock on the first, second and third anniversary.
Mr.
Zarinegar and the Company acknowledged that, concomitant with the execution of his agreement, the Company was effectuating a Stock
Exchange and Restructuring Agreement ("SEA") with American Realty and the "ARP Members," as defined under the SEA. In the event
counsel for the Company or its tax advisors advise the Company that the stock issuance to Mr. Zarinegar might impair the intended
tax-free reorganization under the SEA, the Company shall agree to hold the shares in escrow until such time the Board of Directors
and its advisors conclude that the shares may be issued in any manner that does not interfere with the intended tax free restructuring
of the Company. In light of this agreement between the parties, the Company has designated the stock issuance to Mr. Zarinegar
as a stock grant, as opposed to an option, especially considering that Mr. Zarinegar is issued the shares in the event of termination. In
the event additional shares are issued to Mr. Zarinegar, the issuance will dilute all shareholders.
Pursuant
to the First Amended Operating Agreement for American Realty, Performance Realty holds title to 1,000,000 shares of common
stock in the Company.
Following
the reverse merger of the Company, the Company had agreed that Performance Realty would continue to operate as the Manager for
American Realty pursuant to the terms of the American Realty Operating Agreement, subject to the following amendment to Section
3.10 of the American Realty Operating Agreement, which was approved by a Resolution of the Board of Directors:
The
Member acknowledges and agrees that, as the sole member of the Company, it and its shareholders directly benefit from the management
services provided by Manager under this Article III. The Member further recognizes that any capital expenditures made for the
benefit of the Company derive directly from the Member, as opposed to the Company itself. Therefore, in consideration for the
services to be rendered to or on behalf of the Company by the Manager, the Member shall issue 1,000,000 shares of common stock
in the Member, i.e. American Housing Income Trust, Inc., into the Member's treasury for future issuance upon written notice by
PRM to Member's Secretary electing to issue the shares through the Member's transfer agent within a reasonably commercial period
of time under the same or similar circumstances, but in no event greater than three business days from exercising the option,
and future issuance on the annual anniversary of the issuance out of treasury, shares of common stock valued at one-percent (1%)
of the net assets of the Company being managed by Manager under this Operating Agreement, unless otherwise agreed upon by Member
and Manager, or unless doing so impairs or restricts the Member's intent of operating as a real estate investment trust. In the
event such structure impairs or restricts the Member's intent of operating as a real estate investment trust, the Member and Manager
agree to work in good faith to restructure compensation for Manager in performing under this Article 3. The fee paid to Manager
hereunder is intended to constitute a guaranteed payment within the meaning of IRS Code §707(c), and will be treated as an
expense of the Company and deducted in determining Profits and Losses.
The
aforementioned amendment was executed on September 18, 2015. On September 22, 2015, the Company authorized the issuance of 1,000,000
shares of common stock to Performance Realty upon receipt of the written notice of exercise of the option by Performance Realty.
The shares were issued on September 28, 2015. On December 21, 2015, Performance Realty and American Realty agreed that this
stock issuance constituted all compensation to be paid to Performance Realty in serving as manager of American Realty. Although
Performance Realty is the manager of American Realty, the business and operations of American Realty are dictated by the Board
of Directors of the Company in order to meet the requirements of serving as a REIT.
We
anticipate being involved in a variety of litigation.
Other
than as set forth below, there are not presently any material pending legal proceedings to which the Company is a party or as
to which any of its property is subject, and no such material proceedings are known to the Company to be threatened or contemplated
against it. The Company is a defendant in a civil matter pending in San Joaqin County, California. The plaintiff was a member
in American Realty prior to the Share Exchange Agreement with the Company was effectuated, as discussed above. The plaintiff
is seeking rescission damages against American Realty, i.e. a return of his investment, on the premise that Performance Realty
was required to honor his demand for redemption of his units when, according to American Realty, honoring the redemption was at
the sole discretion of Performance Realty. The Company is a defendant by virtue of its relationship with American Realty.
The Company has denied all allegations and is defending the case.
Although
we have not been subject to any other litigation to date, we anticipate being involved in a range of court proceedings in the
ordinary course of business as we continue to operate our business. These actions may include eviction proceedings and other landlord-tenant
disputes, challenges to title and ownership rights (including actions brought by prior owners alleging wrongful foreclosure by
their lender or loan servicer) and issues with local housing officials arising from the condition or maintenance of a property.
While we intend to vigorously defend any non-meritorious action or challenge, no assurance can be given that we will not incur
significant expense relating to these matters or that they will not require significant management attention and adversely affect
us.
Although
we consider ourselves an operating company following the acquisitions identified herein, we have no operating history, so it will
be difficult for potential investors to judge our prospects for success.
We
have a limited operating history based solely on the financial history of American Realty through the reverse merger disclosed
herein from which to evaluate our business and prospects. We have earned little to no revenue since inception. There can be no
assurance that our future proposed operations will be implemented successfully or that we will ever have profits. If we are unable
to sustain our operations, investors may lose their entire investment. The Company plans to increase significantly its expenditures
on sales and marketing, technology and infrastructure, expand administrative resources to support the enlarged organization, maintain
brand identity, broaden its customer support capabilities, and pursue strategic alliances. To the extent that revenues do not
grow at anticipated rates or that increases in such operating expenses precede or are not subsequently followed by commensurate
increases in revenues, the Company's business, results of operations and financial condition will be materially and adversely
affected. There can be no assurance that the Company will achieve or sustain the substantial revenue growth needed in order to
reach profitability.
We
may experience potential fluctuations in results.
The
Company's operating results may fluctuate significantly in the future as a result of a variety of factors, some of which are outside
of the Company's control. These factors include: general economic conditions, specific economic conditions in the transportation
industry, demand for transportation products/services, usage and growth of transportation products/services, seasonal sales trends,
budget cycles of individual customers, the mix of products or services sold by the Company or the Company's competitors, lengthy
sales cycles for Company's products or services, changes in costs of expenses or capital expenditures relating to the Company's
expansion of operations, the introduction of new products or services by the Company or its competitors, change in the sales mix,
distribution channels or pricing for the Company's products or services. In the future, strategic partners may require payments
or other consideration in exchange for providing access to the Company's products or services. As a strategic response to a changing
competitive environment, the Company may elect from time to time to make certain pricing, service or marketing decisions or acquisitions
that could have a material adverse effect on its results.
The
company's auditor has substantial doubts as to the Company's ability to continue as a going concern.
Our
auditor's report on our 2014 and 2013 financial statements expresses an opinion that substantial doubt exists as to whether we
can continue as an ongoing business. The Company has suffered recurring losses and generated negative cash flows from operations.
These raise substantial doubt about our ability to continue as a going concern. The accompanying audited financial statements
do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification
of liabilities that might result from the outcome of this uncertainty.
Because
the Company has been issued an opinion by its auditors that substantial doubt exists as to whether the company can continue as
a going concern, it may be more difficult for the company to attract investors. Our future is dependent upon our ability to obtain
financing to continue operations and attain profitable operations. We will seek additional funds through private placements of
our common stock. Our financial statements do not include any adjustments relating to the recoverability and classification of
recorded assets, or the amounts of and classification of liabilities that might be necessary in the event we cannot continue in
existence.
If
we complete a financing through the sale of additional shares of our common stock in the future, then shareholders will experience
dilution.
The
most likely source of future financing presently available to us is through the sale of shares of our common stock. Any sale of
common stock will result in dilution of equity ownership to existing shareholders. This means that, if we sell shares of our common
stock, more shares will be outstanding and each existing shareholder will own a smaller percentage of the shares then outstanding.
To raise additional capital we may have to issue additional shares, which may substantially dilute the interests of existing shareholders.
Alternatively, we may have to borrow large sums, and assume debt obligations that require us to make substantial interest and
capital payments.
As
of the date of this filing, we have earned revenue. However, we cannot guarantee we will be successful in continuing to generate
revenue or be successful in raising funds through the sale of shares to pay for the Company's business plan and expenditures.
Failure to generate revenue or to raise funds could cause us to go out of business, which would result in the complete loss of
your investment.
Because
we do not have an audit committee, shareholders will have to rely on the directors, who are not independent, to perform these
functions.
We
do not have an audit or compensation committee comprised of independent directors. The board of directors as a whole performs
these functions. The members of the Board of Directors are not independent. Thus, there is a potential conflict in that the board
members are also engaged in management and participates in decisions concerning management compensation and audit issues that
may affect management performance.
We
have not developed independent corporate governance.
We
do not presently have audit, compensation, or nominating committees. This lack of independent controls over our corporate affairs
may result in conflicts of interest between our officers, directors and our stockholders. We presently have no policy to resolve
such conflicts. As a result, our directors have the ability to, among other things, determine their own level of compensation.
Until we comply with such corporate governance measures to form audit and other board committees in a manner consistent with rules
of a national securities exchange, there is no assurance that we will not be subject to any conflicts of interest. As a result,
potential investors may be reluctant to provide us with funds necessary to expand our operations.
The
requirements of being a public company may strain our resources and distract our management, which could make it difficult to
manage our business, particularly after we are no longer an "emerging growth company."
We
are required to comply with various regulatory and reporting requirements, including those required by the SEC. Complying with
these reporting and other regulatory requirements are time-consuming and expensive and could have a negative effect on our business,
results of operations and financial condition.
As
a public company, we are subject to the reporting requirements of the Exchange Act, and requirements of the Sarbanes-Oxley Act
of 2002 ("SOX"). The cost of complying with these requirements may place a strain on our systems and resources. The Exchange Act
requires that we file annual, quarterly and current reports with respect to our business and financial condition. SOX require
that we maintain effective disclosure controls and procedures and internal controls over financial reporting. To maintain and
improve the effectiveness of our disclosure controls and procedures, we must commit significant resources, may be required to
hire additional staff and need to continue to provide effective management oversight. We will be implementing additional procedures
and processes for the purpose of addressing the standards and requirements applicable to public companies. Sustaining our growth
also will require us to commit additional management, operational and financial resources to identify new professionals to join
the Company and to maintain appropriate operational and financial systems to adequately support expansion. These activities may
divert management's attention from other business concerns, which could have a material adverse effect on our business, financial
condition, results of operations and cash flows. We cannot predict or estimate the amount of additional costs we may incur as
a result of becoming a public company or the timing of such costs.
We
will be obligated to develop and maintain proper and effective internal controls over financial reporting.
We
may not complete our analysis of our internal controls over financial reporting in a timely manner, or these internal controls
may have one or more material weaknesses, which may adversely affect investor confidence in our company and, as a result, the
value of our common stock.
Ensuring
that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial
statements on a timely basis is a costly and time-consuming effort that will need to be evaluated frequently. Section 404 of the
Sarbanes-Oxley Act requires public companies to conduct an annual review and evaluation of their internal controls and attestations
of the effectiveness of internal controls by independent auditors. We will be required to perform the annual review and evaluation
of our internal controls no later than for the fiscal year ending January 31st on any given year. However, we initially expect
to qualify as a smaller reporting company and as an emerging growth company, and thus, we would be exempt from the auditors' attestation
requirement until such time as we no longer qualify as a smaller reporting company and an emerging growth company. We would no
longer qualify as a smaller reporting company if the market value of our public float exceeded $75 million as of the last day
of our second fiscal quarter in any fiscal year following this offering. We would no longer qualify as an emerging growth company
at such time as described in the risk factor immediately below.
We
are in the early stages of the costly and challenging process of compiling the system and processing documentation necessary to
evaluate our internal controls needed to comply with Section 404. During the evaluation and testing process, if we identify one
or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls
are effective. If we are unable to assert that our internal control over financial reporting is effective, we could lose investor
confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline.
We
have not achieved profitable operations and continue to operate at a loss.
From
incorporation to date, we have not achieved profitable operations and continue to operate at a loss. Our present business strategy
is to improve cash flow by adding to our existing product line and expanding our sales and marketing efforts, including the addition
of in-house sales personnel. There can be no assurance that we will ever be able to achieve profitable operations or that we will
not require additional financing to fulfill our business plan.
The
relative lack of public company experience of our management team may put us at a competitive disadvantage.
As
a company with a class of securities registered under the Exchange Act, we are subject to reporting and other legal, accounting,
corporate governance, and regulatory requirements imposed by the Exchange Act and rules and regulations promulgated under the
Exchange Act. Our management team lacks significant public company experience, which could impair our ability to comply with these
legal, accounting, and regulatory requirements. Such responsibilities include complying with Federal securities laws and making
required disclosures on a timely basis. Our senior management may not be able to implement and effect programs and policies in
an effective and timely manner that adequately responds to such increased legal and regulatory compliance and reporting requirements.
Our failure to do so could lead to the imposition of fines and penalties and further result in the deterioration of our business.
Our
profitability depends upon achieving success in our future operations through implementing our business plan, increasing sales,
and expanding our customer and distribution bases, for which there can be no assurance given.
Profitability
depends upon many factors, including the success of the Company's marketing program, the Company's ability to identify and obtain
the rights to additional products to add to its existing product line, expansion of its distribution and customer base, maintenance
or reduction of expense levels and the success of the Company's business activities. The Company anticipates that it will continue
to incur operating losses in the future. The Company's ability to achieve profitable operations will also depend on its ability
to develop and maintain an adequate marketing and distribution system.
There
can be no assurance that the Company will be able to develop and maintain adequate marketing and distribution resources. If adequate
funds are not available, the Company may be required to materially curtail or cease its operations.
We
are highly dependent on our directors and executive officers.
We
depend heavily on our directors and executive officers, and more specifically, Mr. Howard and Mr. Zarinegar. Mr. Zarinegar has
also personally guaranteed the debt of our wholly-owned subsidiary, American Realty, and its special purpose entities, ARP Borrower
and ARP Borrower II, held by Firstkey. We have written board or executive agreements with Sean Zarinegar with these directors
and officers. The loss of services of any of these personnel could impede the achievement of the Company's objectives. There can
be no assurance that the Company will be able to attract and retain qualified executive or technical personnel on acceptable terms.
Our
insurance policies may be inadequate and potentially expose us to unrecoverable risks.
Any
significant insurance claims would have a material adverse effect on our business, financial condition and results of operations.
Insurance availability, coverage terms and pricing continue to vary with market conditions. We endeavor to obtain appropriate
insurance coverage for insurable risks that we identify; however, we may fail to correctly anticipate or quantify insurable risks.
Additionally, we may not be able to obtain appropriate insurance coverage, and insurers may not respond as we intend to cover
insurable events that may occur. We have observed rapidly changing conditions in the insurance markets relating to nearly all
areas of traditional corporate insurance. Such conditions have resulted in higher premium costs, higher policy deductibles, and
lower coverage limits. For some risks, we may not have or maintain insurance coverage because of cost or availability.
We
have no dividend history.
We
have never paid dividends on or in connection with our common stock. In connection with our intention to operate as
a REIT in the future, we intend on issuing dividends to common stockholders, but have not done so to date. Ownership of our common
stock has not provided dividend income to the holder, and holders should not rely on investment in our common
stock for dividend income, unless we are able to issue dividends in operating as a REIT in the future. Any increase in the value
of investment in our common stock could come only from a rise in the market price of our common stock, which is uncertain and
unpredictable, and there can be no guarantee that our stock price will rise to provide any such increase.
We
face competition from established as well as other emerging companies, which could divert customers to our competitors and significantly
reduce our revenue and profitability.
We
expect existing competitors and new entrants to the market to constantly revise and improve their business models in response
to challenges from competing businesses, including ours. If these or other participants introduce changes or developments that
we cannot meet in a timely or cost-effective manner, our revenue and profitability could be reduced. In addition, consolidation
among our competitors may give them increased negotiating leverage and greater marketing resources, thereby providing corresponding
competitive advantages over us. Consolidation among other companies may increase competition from a small number of very prominent
companies in the market place. If we are unable to compete effectively, competitors could divert our customers away from our products.
Regulations,
including those contained in and issued under the Sarbanes-Oxley Act of 2002 ("SOX") and the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 ("Dodd-Frank"), increase the cost of doing business and may make it difficult for us to retain
or attract qualified officers and directors, which could adversely affect the management of our business and our ability to obtain
or retain listing of our common stock.
We
are subject to the reporting obligations under the Exchange Act. We are a publicly reporting company. The current regulatory climate
for publicly reporting companies, even small and emerging growth companies such as ours, may make it difficult or prohibitively
expensive to attract and retain qualified officers, directors and members of board committees required to provide for our effective
management in compliance with the rules and regulations which govern publicly-held companies, including, but not limited to, certifications
from executive officers and requirements for financial experts on boards of directors. The perceived increased personal risk associated
with these recent changes may deter qualified individuals from accepting these roles. For example, the enactment of the Sarbanes-Oxley
Act of 2002 has resulted in the issuance of a series of new rules and regulations and the strengthening of existing rules and
regulations by the SEC. Further, recent and proposed regulations under Dodd-Frank heighten the requirements for board or committee
membership, particularly with respect to an individual's independence from the corporation and level of experience in finance
and accounting matters. We may have difficulty attracting and retaining directors with the requisite qualifications. If we are
unable to attract and retain qualified officers and directors, the management of our business could be adversely affected.
If
we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately
insured loss or damage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely
affected if we experience difficulty in obtaining adequate directors' and officers' liability insurance.
We
do not have officer and director liability insurance or general liability insurance for our business. We may be unable to maintain
sufficient insurance to cover liability claims made against us or against our officers and directors. If we are unable to adequately
insure our business or our officers and directors, our business will be adversely affected and we may not be able to retain or
recruit qualified officers and directors to manage the Company.
Limitations
on director and officer liability and our indemnification of our officers and directors may discourage stockholders from bringing
suit against a director.
Our
Certificate of Incorporation and By-Laws provide, with certain exceptions as permitted by Maryland law, that a director or officer
shall not be personally liable to us or our stockholders for breach of fiduciary duty as a director, except for acts or omissions
which involve intentional misconduct, fraud or knowing violation of law, or unlawful payments of dividends. These provisions may
discourage stockholders from bringing suit against a director for breach of fiduciary duty and may reduce the likelihood of derivative
litigation brought by stockholders on our behalf against a director. In addition, our Certificate of Incorporation and By-Laws
provide for mandatory indemnification of directors and officers to the fullest extent permitted by governing state law.
Our
failure to manage growth effectively could harm our ability to attract and retain key personnel and adversely impact our operating
results.
Our
culture is important to us, and we anticipate that it will be a major contributor to our success. As we grow, however, we may
have difficulty maintaining our culture or adapting it sufficiently to meet the needs of our operations. Failure to maintain our
culture could negatively impact our operations and business results. Additionally, expansion increases the complexity of our business
and places a significant strain on our management, operations, technical performance, financial resources and internal control
over financial reporting functions.
There
can be no assurance that we will be able to manage our expansion effectively. Our current and planned personnel, systems, procedures
and controls may not be adequate to support and effectively manage our future operations, especially as we employ personnel in
multiple geographic locations. We may not be able to hire, train, retain, motivate and manage required personnel, which may limit
our growth, damage our reputation and negatively affect our financial performance and harm our business.
We
cannot assure that our marketing and sales efforts will be successful.
Management
believes that its marketing and development programs will sustain the business. Additionally, we intend to invest substantial
financial resources in the marketing and sales of our business concept. We cannot assure you that our marketing and sales efforts
will be successful and that we will be able to capture sufficient market share to realize our financial projections.
The
Company's operating results may fluctuate significantly from period to period as a result of a variety of factors, including purchasing
patterns of customers, competitive pricing, debt service and principal reduction payments, and general economic conditions. There
is no assurance that the Company will be successful in marketing any of its products, or that the revenues from the sale of such
products will be significant. Consequently, the Company's revenues may vary by quarter, and the Company's operating results may
experience fluctuations.
We
cannot assure that acceptance of products and services will be successful. There is no assurance that customers will accept our
product offer. Risks of borrowing might adversely impact us.
If
the Company incurs additional indebtedness, a portion of its cash flow will have to be dedicated to the payment of principal and
interest on such indebtedness. Typical loan agreements also might contain restrictive covenants, which may impair the Company's
operating flexibility. Such loan agreements would also provide for default under certain circumstances, such as failure to meet
certain financial covenants. A default under a loan agreement could result in the loan becoming immediately due and payable and,
if unpaid, a judgment in favor of such lender which would be senior to the rights of members of the Company. A judgment creditor
would have the right to foreclose on any of the Company's assets resulting in a material adverse effect on the Company's business,
operating results or financial condition.
Changes
in or missteps in the execution of our business plan may adversely impact operations.
The
Company's business plans may change significantly. Many of the Company's potential business endeavors are capital intensive and
may be subject to statutory or regulatory requirements. Management believes that the Company's chosen activities and strategies
are achievable in light of current economic and legal conditions with the skills, background, and knowledge of the Company's principals
and advisors. Management reserves the right to make significant modifications to the Company's stated strategies depending on
future events.
Need
for Future Funding.
The
Company anticipates that its existing capital resources, together with the net proceeds from the sale of its stock under any future
prospectus, interest earned thereon and expected future revenues will enable it to maintain its current operations into the first
quarter of 2016. There can be no assurance that the Company will be able to develop, produce or market products or services on
a profitable basis. The Company may have underestimated the costs necessary to achieve sustainable revenues. The Company will
need to raise additional funding thereafter in order to continue operations. No party is obligated to provide financing to the
Company. It is possible that such external financing may not be obtainable. No assurances can be given that the Company will be
able to raise cash from additional financing efforts and, even if such cash is raised, that it will be sufficient to satisfy the
Company's anticipated capital requirements, or on what terms such capital will be available. Future equity financing is likely
to result in ownership dilution to existing investors. If the Company is unable to obtain sufficient funds from future financings,
the Company will need to curtail certain development efforts and operating plans, which would have a material adverse effect on
its business, results of operations and financial condition.
Changes
in laws or regulations may adversely impact our business.
National,
regional and local governments may enact laws that we may be subject to that may adversely impact our operations. In particular,
we will be required to comply with certain SEC, state and other legal requirements. Compliance with, and monitoring of, applicable
laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application
may also change from time to time and those changes could have a material adverse effect on our business, investments and results
of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied could have a material
adverse effect on our business and results of operations.
A
downturn in general economic conditions could cause adverse consequences for the Company operations.
The
financial success of the Company may be sensitive to adverse changes in general economic conditions in the United States, and
any States in which we do business, such as recession, inflation, unemployment, and interest rates. Such changing conditions could
reduce demand in the marketplace for the Company's services and products. Management believes that the impending growth of the
market, mainstream market acceptance and the targeted product line of the Company will insulate the Company from excessive reduced
demand. Nevertheless, the Company has no control over these changes.
We
have not obtained an opinion of counsel as to the tax treatment of certain material federal tax issues potentially affecting the
Company, the management, and/or the shareholders.
Moreover,
any such opinion, if we obtained one, would not be binding upon the IRS, and the IRS could challenge our position on such issues.
Also, rulings on such a challenge by the IRS, if made, could have a negative effect on the tax results of ownership of the Company's
securities.
Dependence
on Strategic Relationships.
The
Company believes that its success in penetrating markets for its investment and services will depend in part on its ability to
develop and maintain strategic relationships, such as those relationships with American Realty, Performance Realty and AHIT Valfre.
The Company further believes that such relationships are important in order to expand the functionality of the Company's services
and products. No assurance can be given that the Company will be successful in entering into any strategic alliances on acceptable
terms or, if any such strategic alliance is entered into, that the Company will realize any anticipated benefits from it, or at
all. In addition, the alliance of strategic partners with competitors, or the termination of one or more successful relationships,
could have a material adverse effect on the Company's business, results of operations and financial condition.
Dependence
on Key Personnel.
The
Company's success significantly depends on reputation and the continued services of the Company's key management; more specifically,
the employment of Sean Zarinegar pursuant to the terms of his employment agreement discussed above. The Company intends to maintain
a key man life insurance on Mr. Zarinegar. There is no assurance that the Company will be able to insure the aforementioned employee
or that such amount will be adequate to compensate the Company in event of his death. The loss of this individual or other key
personnel would likely harm the Company's business.
In
order to grow the Company's business, the Company's future success depends on its continuing ability to identify, attract, hire,
train, motivate and retain highly qualified management, research and development, and sales and marketing personnel (including
the Company's past hires). Competition for qualified personnel are intense and there can be no assurance that the Company will
be able to attract, assimilate or retain qualified personnel in the future. The inability to attract and retain the necessary
personnel could have a material adverse effect upon the Company's business, operating results and financial condition.
Tax
laws are subject to change and these changes could adversely impact our business.
Tax
laws are continually being introduced, changed, or amended, and there is no assurance that the tax treatment presently potentially
available with respect to the Company's proposed activities will not be modified in the future by legislative, judicial, or administrative
action. Congress could enact proposals or laws having an adverse tax impact on our activities and these proposals could be adopted
by at any time, and such proposals could have a severe economic impact on us.
Failure
to qualify as a REIT could adversely affect our operations and our ability to make distributions.
We
intend to elect to be treated as a REIT for U.S. federal income tax purposes. However, there can be no assurance that we will
be successful in obtaining and maintaining REIT status. Our ability to qualify as a REIT will depend on our satisfaction of numerous
requirements (some on an annual and quarterly basis) established under highly technical and complex provisions of the Code, for
which there may be only limited judicial or administrative interpretations. Qualification and maintenance of REIT status involves
the determination of various factual matters and circumstances not entirely within our control. No assurance can be given that
legislation, new regulations, administrative interpretations or court decisions will not change the tax laws with respect to qualification
as a REIT or the U.S. federal income tax consequences of that qualification.
If
we were to fail to qualify as a REIT for any taxable year, we would be subject to U.S. federal income tax on our taxable income
at corporate rates (currently 35%). In addition, we would generally be disqualified from treatment as a REIT for the four taxable
years following the year in which we lose our REIT status. Losing our REIT status would reduce our net earnings available for
investment or distribution to stockholders because of the additional tax liability. In addition, distributions to stockholders
would no longer be deductible in computing our taxable income and we would no longer be required to make distributions. To the
extent that distributions had been made in anticipation of our qualifying as a REIT, we might be required to borrow funds or liquidate
some investments in order to pay the applicable corporate income tax. In addition, although we intend to elect for qualification
as a REIT, it is possible that future economic, market, legal, tax, or other considerations may cause our Board of Directors to
determine that it is no longer in our best interest to be qualified as a REIT and recommend that we do not proceed with our proposed
REIT election or otherwise revoke our REIT election.
To
qualify as a REIT, we must meet annual distribution requirements, which could result in us distributing amounts that may otherwise
be used for our operations.
To
obtain the favorable tax treatment accorded to REITs, we normally will be required each year to distribute to our stockholders
at least 90% of our REIT taxable income, determined without regard to the deduction for distributions paid and by excluding net
capital gains. We will be subject to United States federal income tax on our undistributed taxable income and net capital gain
and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than
the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years.
These requirements could cause us to distribute amounts that otherwise would be spent on acquisitions of properties and it is
possible that we might be required to borrow funds or sell assets to fund these distributions. It is possible that we might not
always be able to continue to make distributions sufficient to meet the annual distribution requirements required to maintain
our REIT status, avoid corporate tax on undistributed income and/or avoid the 4% excise tax.
From
time to time, we may generate taxable income that is greater than our income for financial reporting purposes, or differences
in timing between the recognition of taxable income and the actual receipt of cash may occur. If we do not have other funds available
in these situations, we could be required to borrow funds on unfavorable terms, sell investments at disadvantageous prices or
distribute amounts that would otherwise be invested in future acquisitions to make distributions sufficient to enable us to pay
out enough of our taxable income to satisfy the REIT distribution requirement and to avoid corporate income tax and the 4% excise
tax in a particular year. These alternatives could increase our costs or reduce our equity. Thus, compliance with the REIT requirements
may hinder our ability to grow, which could adversely affect our value.
Distributions
to tax-exempt investors may be classified as unrelated business taxable income.
Neither
ordinary nor capital gain distributions with respect to our common stock nor gain from the sale of common stock should generally
constitute unrelated business taxable income to a tax-exempt investor. However, there are certain exceptions to this rule. In
particular, part of the income and gain recognized by certain qualified employee pension trusts with respect to our common stock
may be treated as unrelated business taxable income if shares of our common stock are predominately held by qualified employee
pension trusts, and we are required to rely on a special look-through rule for purposes of meeting one of the REIT share ownership
tests, and we are not operated in a manner that prevents treatment of such income or gain as unrelated business taxable income.
Similarly, a portion of the income and gain recognized by a tax-exempt investor with respect to our common stock would constitute
unrelated business taxable income if the investor incurs debt in order to acquire the common stock, and part or all of the income
or gain recognized with respect to our common stock by social clubs, voluntary employee benefit associations, supplemental unemployment
benefit trusts and qualified group legal services plans which are exempt from federal income taxation under Sections 501(c)(7),
(9), (17), or (20) of the Code may be treated as unrelated business taxable income.
The
prohibited transactions tax may limit our ability to dispose of our properties.
A
REIT's net income from prohibited transactions is subject to a 100% tax. In general, prohibited transactions are sales or other
dispositions of property other than foreclosure property held primarily for sale to customers in the ordinary course of business.
We may be subject to the prohibited transactions tax in an amount equal to 100% of net gain upon a disposition of real property.
Although a safe harbor to the characterization of the sale of real property by a REIT as a prohibited transaction is available,
we cannot assure you that we will be able to comply with the safe harbor or that we will avoid owning property that may be characterized
as held primarily for sale to customers in the ordinary course of business. Consequently, we may choose not to engage in certain
sales of our properties or may conduct such sales through a taxable REIT subsidiary (a "TRS"), which would be subject to federal
and state income taxation as a corporation. For example, if we decide to acquire properties opportunistically to restore in anticipation
of immediate resale, we will need to conduct that activity through our TRS to avoid the 100% prohibited transactions tax. No assurance
can be given, however, that the Internal Revenue Service (the "IRS") will respect the transaction by which any such properties
are contributed to our TRS, and, even if the contribution transaction is respected, our TRS may incur a significant tax liability
as a result of any such sales.
We
may pay taxable dividends of our common stock and cash, in which case stockholders may sell shares of our common stock to pay
tax on such dividends, placing downward pressure on the market price of our common stock.
We
may distribute taxable dividends that are payable in cash and common stock at the election of each stockholder. The IRS has issued
private letter rulings to other REITs treating certain distributions that are paid partly in cash and partly in stock as taxable
dividends that would satisfy the REIT annual distribution requirement and qualify for the dividends paid deduction for federal
income tax purposes. Those rulings may be relied upon only by taxpayers to whom they were issued, but we could request a similar
ruling from the IRS. Accordingly, it is unclear whether and to what extent we will be able to make taxable dividends payable in
cash and common stock.
If
we made a taxable dividend payable in cash and common stock, taxable stockholders receiving such dividends will be required to
include the full amount of the dividend as ordinary income to the extent of our current and accumulated earnings and profits,
as determined for federal income tax purposes. As a result, stockholders may be required to pay income tax with respect to such
dividends in excess of the cash dividends received. If a U.S. stockholder sells the common stock that it receives as a dividend
in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending
on the market price of our common stock at the time of the sale. Furthermore, with respect to certain non-U.S. stockholders, we
may be required to withhold federal income tax with respect to such dividends, including in respect of all or a portion of such
dividend that is payable in common stock. If we made a taxable dividend payable in cash and our common stock and a significant
number of our stockholders determine to sell shares of our common stock in order to pay taxes owed on dividends, it may be viewed
as economically equivalent to a dividend reduction and put downward pressure on the market price of our common stock. We do not
currently intend to pay taxable dividends in the form of our common stock and cash, although we may choose to do so in the future.
Complying
with REIT requirements may cause us to forgo otherwise attractive opportunities.
To
qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources
of our income, the nature and diversification of our assets, the amounts that we distribute to our stockholders and the ownership
of our stock. We may be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily
available for distribution and may be unable to pursue investments that would be otherwise advantageous to us in order to satisfy
the source-of-income or asset-diversification requirements for qualifying as a REIT. Thus, compliance with the REIT requirements
may hinder our ability to make certain attractive investments.
Complying
with the REIT requirements may force us to liquidate otherwise attractive investments.
To
qualify as a REIT, we must ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of
cash, cash items, government securities and qualified REIT real estate assets. The remainder of our investments (other than governmental
securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any
one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more
than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities
of any one issuer, and no more than 25% of the value of our assets can be represented by securities of one or more taxable REIT
subsidiaries together with any other non-qualifying assets. If we fail to comply with these requirements at the end of any calendar
quarter, we must correct such failure within 30 days after the end of the calendar quarter to avoid losing our REIT status and
suffering adverse tax consequences. As a result, we may be required to liquidate otherwise attractive investments.
Dividends
payable by REITs do not qualify for the reduced tax rates available for some dividends.
The
maximum tax rate applicable to "qualified dividend income" payable to U.S. stockholders that are taxed at individual rates is
currently 20%. Dividends payable by REITs, however, generally are not eligible for the reduced rates on qualified dividend income.
The more favorable rates applicable to regular corporate qualified dividends could cause investors who are taxed at individual
rates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations
that pay dividends, which could adversely affect the value of the shares of REITs, including our common stock.
Liquidation
of assets may jeopardize our REIT status.
To
qualify as a REIT, we must comply with requirements regarding our assets and our sources of income. If we are compelled to liquidate
our investments to satisfy our obligations to our lenders, we may be unable to comply with these requirements, ultimately jeopardizing
our status as a REIT, or we may be subject to a 100% tax on any resultant gain if we sell assets that are treated as dealer property
or inventory.
Qualifying
as a REIT involves highly technical and complex provisions of the Code.
Qualification
as a REIT involves the application of highly technical and complex Code provisions for which only limited judicial and administrative
authorities exist. Even a technical or inadvertent violation could jeopardize our proposed REIT qualification. Our qualification
as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other
requirements on a continuing basis. In addition, our ability to satisfy the requirements to qualify as a REIT may depend in part
on the actions of third parties over which we have no control or only limited influence, including in cases where we own a non-controlling
equity interest in an entity that is classified as a partnership for federal income tax purposes.
Foreign
investors may be subject to FIRPTA on the sale of common stock if we are unable to qualify as a domestically controlled REIT.
A
foreign person disposing of a U.S. real property interest, including shares of a U.S. corporation whose assets consist principally
of U.S. real property interests, is generally subject to a tax known as the Foreign Investment in Real Property Tax Act ("FIRPTA")
on the gain recognized on the disposition. FIRPTA does not apply, however, to the disposition of stock in a REIT if the REIT is
a domestically controlled REIT. A domestically controlled REIT is a REIT in which, at all times during a specified testing period,
less than 50% in value of its shares is held directly or indirectly by non-U.S. holders. We are not currently domestically-controlled,
and may never become domestically-controlled, and so there can be no assurance that foreign investors will be able to rely on
this exemption under FIRPTA. Another FIRPTA exemption is potentially available in the case of gain realized by a foreign investor
on a sale of our common stock if our common stock is traded on an established securities market and the foreign investor did not
at any time during a specified testing period directly or indirectly own more than five percent of the value of our outstanding
common stock. Although our stock is currently not traded on an established securities market, we expect that it will be following
the completion of this offering.
We
may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our common stock.
At
any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may be amended. We cannot
predict when or if any new federal income tax law, regulation or administrative interpretation, or any amendment to any existing
federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective, and any
such law, regulation, or interpretation may take effect retroactively. We and our stockholders could be adversely affected by
any such change in the federal income tax laws, regulations or administrative interpretations.
To
the extent we end up qualifying and operating as a REIT, our distribution policy requires compliance with strict provisions promulgated
by the IRS under the Code.
To
qualify as a REIT, we must distribute annually to our shareholders an amount equal to at least 90% of our REIT taxable income,
determined without regard to the deduction for dividends paid and excluding any net capital gain. We will be subject to income
tax on our taxable income that is not distributed and to an excise tax to the extent that certain percentages of our taxable income
are not distributed by specified dates. See "Material Federal Income Tax Considerations." Income as computed for purposes of the
foregoing tax rules will not necessarily correspond to our income as determined for financial reporting purposes.
The
amount, timing and frequency of distributions authorized by our Board of Directors will be based upon a variety of factors, including,
but not limited to, (a) actual results of operations, (b) our ability to generate positive cash flow, (c) the timing of the investment
of the net proceeds of this offering, (d) restrictions under Maryland law, and under our Articles of Incorporation and Bylaws,
(e) any debt service requirements and compliance with covenants under our credit facilities, (f) our taxable income, (g) the annual
distribution requirements under the REIT provisions of the Code, and (h) other factors the Board of Directors deems relevant.
We
have not made any distributions to our shareholders. Our ability to make distributions to our shareholders following this offering
will depend upon the ability of our management team to invest the net proceeds of this offering in our target assets in accordance
with our business strategy and the performance of our properties. Distributions will be made in cash to the extent that cash is
available for distribution. We do not currently and may not at any time following this offering be able to generate sufficient
cash flow from operations to pay distributions to our shareholders. In addition, our Board of Directors may change our distribution
policy in the future.
Our
goal is to fund future payments of quarterly distributions to our shareholders entirely from distributable cash flows. Our ability
to fund distributions from cash flow will depend primarily upon our ability to acquire additional portfolios of single-family
rental homes and the capital with which to conduct those acquisitions. We intend to pursue future offerings of our equity securities,
the proceeds of which will be applied primarily towards the acquisition of additional portfolios of single family rental homes.
In addition, we have adopted an UPREIT structure for the specific purpose of attracting potential sellers of single-family rental
home portfolios interested in exchanging their portfolios for an equity interest in our operating partnership, i.e. AHIT Valfre,
on a tax-deferred basis. There can be no assurance, however, that we will be able to acquire additional portfolios of single-family
rental homes or the capital with which to conduct those acquisitions. In the event we are unable to consistently fund distributions
to our shareholders entirely from distributable cash flows, the value of our shares may be negatively impacted.
Our
Articles of Incorporation allow us to issue preferred shares that could have a preference on distributions. If we do issue preferred
shares, the distribution preference on the preferred shares could limit our ability to make distributions to the holders of our
common shares. Our Board of Directors will set the level of distributions. We intend to distribute our taxable income (if any)
to our shareholders and retain the balance of our cash available for distribution for reinvestment in properties. However, our
cash available for distribution may be less than the amount required to meet the distribution requirements for REITs under the
Code, and we may be required to borrow money, sell assets or make taxable distributions of our equity shares or debt securities
to satisfy the distribution requirements.
The
timing and frequency of distributions authorized by our Board of Directors in its sole discretion and declared by us will be based
upon a variety of factors deemed relevant by our Board of Directors, which may include among others: our actual and projected
results of operations; our liquidity, cash flows and financial condition; revenue from our properties; our operating expenses;
economic conditions; debt service requirements; limitations under our financing arrangements; applicable law; capital requirements
and the REIT requirements of the Code. Our actual results of operations will be affected by a number of factors, including the
revenue we receive from our assets, our operating expenses, interest expenses and unanticipated expenditures.
We
cannot guarantee whether or when we will be able to make distributions or that any distributions will be sustained over time.
Distributions to our shareholders generally will be taxable to our shareholders as ordinary income, although a portion of such
distributions may be designated by us as capital gain dividends or qualified dividend income, or may constitute a return of capital.
We will furnish annually to each of our shareholders a statement setting forth distributions paid during the preceding year and
their federal income tax treatment.
Risks
Related to Ownership of Our Common Stock
We
are subject to the reporting requirements of federal securities laws, which can be expensive.
We
are a public reporting company and, accordingly, are subject to the information and reporting requirements of the Exchange Act
and other federal securities laws. The costs of preparing and filing annual and quarterly reports, proxy statements and other
information with the SEC and furnishing audited reports to stockholders will cause our expenses to be higher than they would be
if we remained a privately held company.
Our
compliance with the Sarbanes-Oxley Act and SEC rules concerning internal controls may be time consuming, difficult and costly.
The
Company's Chairman of the Board and two current directors do not have recent experience in management of a publicly reporting
company. It may be time consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures
required by Sarbanes-Oxley. We may need to hire additional financial reporting, internal controls and other finance staff in order
to develop and implement appropriate internal controls and reporting procedures. If we are unable to comply with Sarbanes-Oxley's
internal controls requirements, we may not be able to obtain the independent accountant certifications that Sarbanes-Oxley Act
requires publicly traded companies to obtain.
There
is no public market for our securities and an active trading market may not develop.
We
cannot predict the extent to which investor interest will lead to the development of an active trading market on the OTC Bulletin
Board or otherwise or how liquid that market might become. An active public market for our common stock may not develop or be
sustained after the offering. If an active public market does not develop or is not sustained, it may be difficult for our current
shareholders to sell their shares of common stock at a price that is attractive to them, or at all. Once our shares begin trading,
the market price for our common stock is likely to be volatile, in part because our shares have not been actively traded publicly.
If
securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our
stock price and trading volume could decline.
The
trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish
about our business or us. We do not currently have and may never obtain research coverage by securities and industry analysts.
If no securities or industry analysts commence coverage of our company, the trading price for our common stock would be negatively
impacted. If we obtain securities or industry analyst coverage and if one or more of the analysts who cover us downgrades our
common stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one
or more of these analysts cease coverage or fail to publish reports on us regularly, demand for our common stock could decrease,
which could cause our stock price and trading volume to decline.
Our
common stock is subject to risks arising from restrictions on reliance on Rule 144 by shell companies or former shell companies.
Under
a regulation of the SEC known as "Rule 144," a person who has beneficially owned restricted securities of an issuer and who is
not an affiliate of that issuer may sell them without registration under the Securities Act provided that certain conditions have
been met. One of these conditions is that such person has held the restricted securities for a prescribed period, which will be
6 months or 1 year, depending on various factors. The holding period for our common stock would be 1 year if our common stock
could be sold under Rule 144.
However,
Rule 144 is unavailable for the resale of securities issued by an issuer that is a shell company (other than a business combination
related shell company) or that has been at any time previously a shell company. The SEC defines a shell company as a company that
has (a) no or nominal operations and (b) either (i) no or nominal assets, (ii) assets consisting solely of cash and cash equivalents;
or (iii) assets consisting of any amount of cash and cash equivalents and nominal other assets.
The
SEC has provided an exception to this unavailability if and for as long as the following conditions are met: (a) the issuer of
the securities that was formerly a shell company has ceased to be a shell company, (b) the issuer of the securities is subject
to the reporting requirements of Section 13 or 15(d) of the Exchange Act, (c) the issuer of the securities has filed all Exchange
Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter period that the
issuer was required to file such reports and materials), other than Current Reports on Form 8-K; and (d) at least one year has
elapsed from the time that the issuer filed current comprehensive disclosure with the SEC reflecting its status as an entity that
is not a shell company known as "Form 10 Information." The Company is of the opinion that it is subject to the reporting requirements
as a former shell based on prior disclosure of Form 10 Information. The Company further submits that it no longer meets the definition
of a "shell company."
Nevertheless,
because of the Company's prior history as a shell company, stockholders who receive our restricted securities will be able to
sell them pursuant to Rule 144 without registration for only as long as we continue to meet those requirements and are not a shell
company. No assurance can be given that we will meet these requirements or that we will continue to do so, or that we will not
again be a shell company. Furthermore, any non-registered securities we sell in the future or issue for acquisitions or to consultants
or employees in consideration for services rendered, or for any other purpose, will have limited or no liquidity until and unless
such securities are registered with the SEC and/or until a year after we have complied with the requirements of Rule 144. We are
seeking the registration of all restricted shares issued as of this registration statement.
In
the event the Company elected not to seek registration of its restricted shares, or reverts back to a shell company, it may be
harder for us to fund our operations, to acquire assets and to pay our consultants with our securities instead of cash. Furthermore,
it will be harder for us to raise funding through the sale of debt or equity securities unless we agree to register such securities
with the SEC, which could cause us to expend additional resources in the future. In addition, if we are unable to attract additional
capital, it could have an adverse impact on our ability to implement our business plan and sustain our operations. Our status
as a "shell company" could prevent us from raising additional funds, engaging consultants, and using our securities to pay for
any acquisitions, which could cause the value of our securities, if any, to decline in value or become worthless.
The
Company may issue more shares in connection with future mergers or acquisitions, which could result in substantial dilution to
existing shareholders.
Our
Certificate of Incorporation authorizes the issuance of 100,000,000 shares of common stock and 10,000,000 shares of preferred
stock. Any future merger or acquisition effected by us may result in the issuance of additional securities without stockholder
approval and may result in substantial dilution in the percentage of our common stock held by our then-current stockholders. Moreover,
the common stock issued in any such merger or acquisition transaction may be valued on an arbitrary or non-arm's-length basis
by our management, resulting in an additional reduction in the percentage of common stock held by our then existing stockholders.
Our Board of Directors has the power to issue any or all of such authorized but unissued shares without stockholder approval.
To the extent that additional shares of common stock or preferred stock are issued in connection with a future business combination
or otherwise, dilution to the interests of our stockholders will occur, and the rights of the holders of common stock could be
materially and adversely affected.
Our
Certificate of Incorporation authorizes the issuance of "blank check" preferred stock, which could result in dilution to the holdings
of our stockholders.
Our
Certificate of Incorporation authorizes the issuance of up to 10,000,000 shares of preferred stock with designations, rights and
preferences determined from time to time by our Board of Directors. Accordingly, our Board of Directors is empowered, without
stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting, or other rights, which could adversely
affect the voting power or, other rights of the holders of the common stock. In the event of issuance, the preferred stock could
be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company.
Although as of the date of this registration statement we had intentions or plans to issue any shares of our authorized preferred
stock, there can be no assurance that we will not do so in the future, and such issuances could have a dilutive impact on the
holdings of our stockholders.
We
cannot assure you that the common stock will become liquid or we will be able to maintain the listing requirements of the OTC.
We
are quoted on the OTC. An investor may find it difficult to obtain accurate quotations as to the market value of the common stock.
In addition, if we failed to meet the criteria set forth in SEC regulations or the FINRA rules, various requirements would be
imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors.
Consequently, such regulations may deter broker-dealers from recommending or selling the common stock, which may further affect
its liquidity. This would also make it more difficult for us to raise additional capital.
Our
common stock may be subject to "Penny Stock" restrictions.
As
long as our stock price remains at less than $5, we will be subject to so-called penny stock rules, which could decrease our stock's
market liquidity. The Securities and Exchange Commission has adopted regulations which define a "penny stock" to include any equity
security that has a market price of less than $5 per share or an exercise price of less than $5 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the rules require the delivery to and execution by the
retail customer of a disclosure statement written suitability relating to the penny stock, which must include disclosure of the
commissions payable to both the broker/dealer and the registered representative and current quotations for the securities. Finally,
the broker/dealer must send monthly statements disclosing recent price information for the penny stocks held in the account and
information on the limited market in penny stocks. Those requirements could adversely affect the market liquidity of such stock.
There can be no assurance that if our common stock becomes publicly-traded the price will rise above $5 per share so as to avoid
these regulations.
Our
internal controls over financial reporting may not be effective and our independent registered public accounting firm may not
be able to certify as to their effectiveness, which could have a significant and adverse effect on our business and reputation.
As
a publicly reporting company, we will be required to evaluate our internal controls over financial reporting. Furthermore, at
such time as we cease to be an "emerging growth company," as more fully described herein, we shall also be required to comply
with Section 404. At such time, we may identify material weaknesses that we may not be able to remediate in time to meet the applicable
deadline imposed upon us for compliance with the requirements of Section 404. In addition, if we fail to achieve and maintain
the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be
able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance
with Section 404. We cannot be certain as to the timing of completion of our evaluation, testing and any remediation actions or
the impact of the same on our operations.
If
we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, our independent registered
public accounting firm may issue an adverse opinion due to ineffective internal controls over financial reporting and we may be
subject to sanctions or investigation by regulatory authorities, such as the SEC. As a result, there could be a negative reaction
in the financial markets due to a loss of confidence in the reliability of our financial statements. In addition, we may be required
to incur costs in improving our internal control system and the hiring of additional personnel. Any such action could negatively
affect our results of operations and cash flows.
Our
internal controls over financial reporting may not be effective and our independent registered public accounting firm may not
be able to certify as to their effectiveness, which could have a significant and adverse effect on our business and reputation.
As
a publicly reporting company, we will be required to evaluate our internal controls over financial reporting. Furthermore, at
such time as we cease to be an "emerging growth company," as more fully described herein, we shall also be required to comply
with Section 404. At such time, we may identify material weaknesses that we may not be able to remediate in time to meet the applicable
deadline imposed upon us for compliance with the requirements of Section 404. In addition, if we fail to achieve and maintain
the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be
able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance
with Section 404. We cannot be certain as to the timing of completion of our evaluation, testing and any remediation actions or
the impact of the same on our operations.
If
we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, our independent registered
public accounting firm may issue an adverse opinion due to ineffective internal controls over financial reporting and we may be
subject to sanctions or investigation by regulatory authorities, such as the SEC. As a result, there could be a negative reaction
in the financial markets due to a loss of confidence in the reliability of our financial statements. In addition, we may be required
to incur costs in improving our internal control system and the hiring of additional personnel. Any such action could negatively
affect our results of operations and cash flows.
We
are an "emerging growth company" and we cannot be certain if the reduced disclosure requirements applicable to emerging growth
companies will make our common stock less attractive to investors, potentially decreasing our stock price.
We
are an "emerging growth company," as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting
requirements that are applicable to other public companies that are not "emerging growth companies" including, but not limited
to, not being required to comply with the auditor attestation requirements of section 404 of the Sarbanes-Oxley Act, reduced disclosure
obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements
of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not
previously approved. We cannot predict if potential investors will find our common stock less attractive because we may rely on
these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market
for our common stock and our stock price may be more volatile or decrease.
In
addition, Section 107 of the JOBS Act also provides that an "emerging growth company" can take advantage of the extended transition
period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words,
an "emerging growth company" can delay the adoption of certain accounting standards until those standards would otherwise apply
to private companies. However, we may choose "opt out" of such extended transition period, and as a result, we would then comply
with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging
growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying
with new or revised accounting standards would be irrevocable.
When
these exemptions cease to apply, we expect to incur additional expenses and devote increased management effort toward ensuring
compliance with them. We may remain an "emerging growth company" for up to five years, although we may cease to be an emerging
growth company earlier under certain circumstances. We cannot predict or estimate the amount of additional costs we may incur
as a result of the change in our status under the JOBS Act or the timing of such costs.
Qualifications
and Risks In Operating A REIT and Federal Tax Considerations
WE
URGE YOU TO CONSULT YOUR OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO YOU OF THE PURCHASE, OWNERSHIP AND SALE OF
OUR COMMON STOCK AND OF OUR ELECTION TO BE TAXED AS A REIT. SPECIFICALLY, YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR REGARDING
THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION, AND REGARDING POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
Taxation
of Our Company
We
were converted into a Maryland corporation on May 4, 2015. We intend to elect to be taxed as a REIT for federal income tax purposes
commencing with our taxable year ending December 31, 2015 upon filing our federal income tax return for that year. This section
discusses the laws governing the federal income tax treatment of a REIT and its stockholders. These laws are highly technical
and complex.
In
connection with this offering, Paesano Akkashian Apkarian, P.C. will render an opinion that we will qualify to be taxed as a REIT
under the federal income tax laws commencing with our taxable year ending December 31, 2016, subject to, amongst other things,
certain events of dilution of affiliate shareholders to meet our charter's 9.8% shareholder holdings requirement, and
our current and proposed method of operations will enable us to continue to satisfy the requirements for qualification and taxation
as a REIT provided that certain shareholdings by beneficial owners are diluted in order for the Company to satisfy its charter
associated with shareholder limits capped at 9.8% of issued and outstanding shares.
Investors
should be aware that Mr. Hoops' opinion will be based upon customary assumptions, will be conditioned upon certain representations
made by us as to factual matters, including representations regarding the nature of our assets and the conduct of our business,
is not binding upon the IRS, or any court and speaks as of the date issued. In addition, Mr. Hoops' opinion will be based on existing
federal income tax law governing qualification as a REIT, which is subject to change either prospectively or retroactively.
Moreover,
our qualification and taxation as a REIT will depend upon our ability to meet on a continuing basis, through actual results, certain
qualification tests set forth in the federal income tax laws. Those qualification tests relate to, among other things, the percentage
of income that we earn from specified sources, the percentage of our assets that fall within specified categories, the diversity
of our capital stock ownership, and the percentage of our earnings that we distribute. Mr. Hoops' will not review our compliance
with those tests on a continuing basis. Accordingly, no assurance can be given that our actual results of operations for any particular
taxable year will satisfy such requirements. Mr. Hoops' opinion does not foreclose the possibility that we may have to use one
or more of the REIT savings provisions described below, which would require us to pay an excise or penalty tax (which could be
material) in order for us to maintain our REIT qualification.
If
we qualify as a REIT, we generally will not be subject to federal income tax on the income that we distribute to our stockholders.
The benefit of that tax treatment is that it avoids the "double taxation," or taxation at both the corporate and stockholder levels,
that generally results from owning stock in a corporation.
However,
we will be subject to federal tax on any taxable income, including undistributed net capital gain that we do not distribute to
stockholders during, or within a specified time period after, the calendar year in which the income is earned. We may be subject
to the "alternative minimum tax" on any items of tax preference including any deductions of net operating losses. We will pay
a 100% tax on net income from sales or other dispositions of property that we hold primarily for sale to customers in the ordinary
course of business. If we fail to satisfy one or both of the 75% gross income test or the 95% gross income test, as described
below under "- Gross Income Tests," and nonetheless continue to qualify as a REIT because we meet other requirements, we
will pay a 100% tax on the gross income attributable to the greater of the amount by which we fail the 75% gross income test or
the 95% gross income test, in either case, multiplied by a fraction intended to reflect our profitability.
If
we fail to distribute during a calendar year at least the sum of (1) 85% of our REIT ordinary income for the year, (2) 95% of
our REIT capital gain net income for the year, and (3) any undistributed taxable income required to be distributed from earlier
periods, we will pay a 4% nondeductible excise tax on the excess of the required distribution over the sum of (a) the amount we
actually distributed and (b) the amounts we retained and upon which we paid income tax at the corporate level. We may elect to
retain and pay income tax on our net long-term capital gain. In that case, a stockholder would be taxed on its proportionate share
of our undistributed long-term capital gain (to the extent that we made a timely designation of such gain to the stockholders)
and would receive a credit or refund for its proportionate share of the tax we paid. We may be subject to a 100% excise tax on
transactions with our TRS, or any taxable REIT subsidiaries we form in the future, that are not conducted on an arm's-length basis.
If
we fail to satisfy any of the asset tests, other than a de minimis failure of the 5% asset test, the 10% vote
test or 10% value test, as described below, as long as the failure was due to reasonable cause and not to willful neglect, we
file a description of each asset that caused such failure with the IRS, and we dispose of the assets causing the failure or otherwise
comply with the asset tests within six months after the last day of the quarter in which we identify such failure, we maintain
our REIT qualification but will be required to pay a tax equal to the greater of $50,000 or the highest federal income tax rate
then applicable to U.S. corporations (currently 35%) multiplied by the net income from the non-qualifying assets during the period
in which we failed to satisfy the asset tests.
If
we acquire any asset from a C corporation, or a corporation that generally is subject to full corporate-level tax, in a merger
or other transaction in which we acquire a basis in the asset that is determined by reference either to the C corporation's basis
in the asset or to another asset, (including assets that we may own at the time that our REIT election became effective on January
1, 2015) we will pay tax at the highest regular corporate rate applicable to the extent that we recognize gain on the sale or
disposition of the asset during the 10-year period after we acquire the asset provided that no election is made for the transaction
to be taxable on a current basis. The amount of gain on which we will pay tax is the lesser of: (a) the amount of gain that we
recognize at the time of the sale or disposition, and the amount of gain that we would have recognized if we had sold the asset
at the time we acquired it (or at the time that our REIT election became effective in the case of assets that we owned on January
1, 2015).
We
may be required to pay monetary penalties to the IRS in certain circumstances, including if we fail to meet record-keeping requirements
intended to monitor our compliance with rules relating to the composition of a REIT's stockholders, as discussed in more detail
below. The earnings of our lower-tier entities that are subchapter C corporations, including our TRS and any taxable REIT subsidiaries
we form in the future, will be subject to federal corporate income tax.
In
addition, notwithstanding our qualification as a REIT, we may also have to pay certain state and local income taxes because not
all states and localities treat REITs in the same manner that they are treated for federal income tax purposes. Moreover, as further
described below, our TRS and any other taxable REIT subsidiaries we form in the future will be subject to federal, state and local
corporate income tax on their taxable income.
Requirements
for Qualification
A
REIT is a corporation, trust, or association that meets each of the following requirements:
1.
It is managed by one or more trustees or directors.
2.
Its beneficial ownership is evidenced by transferable shares, or by transferable certificates of beneficial interest.
3.
It would be taxable as a domestic corporation, but for the REIT provisions of the federal income tax laws.
4.
It is neither a financial institution nor an insurance company subject to special provisions of the federal income tax laws.
5.
At least 100 persons are beneficial owners of its shares or ownership certificates.
6.
Not more than 50% in value of its outstanding shares or ownership certificates is owned, directly or indirectly, by five or fewer
individuals, which the Code defines to include certain entities, during the last half of any taxable year.
7.
It elects to be a REIT, or has made such election for a previous taxable year, and satisfies all relevant filing and other administrative
requirements established by the IRS that must be met to elect and maintain REIT status.
8.
It meets certain other qualification tests, described below, regarding the nature of its income and assets and the amount of its
distributions to stockholders.
9.
It uses a calendar year for federal income tax purposes and complies with the recordkeeping requirements of the federal income
tax laws.
We
must meet requirements 1 through 4, 8 and 9 during our entire taxable year and must meet requirement 5 during at least 335 days
of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months. Requirements 5 and 6
will apply to us beginning with our 2016 taxable year.
If
we comply with all the requirements for ascertaining the ownership of our outstanding shares in a taxable year and have no reason
to know that we violated requirement 6, we will be deemed to have satisfied requirement 6 for that taxable year. For purposes
of determining stock ownership under requirement 6, an "individual" generally includes a supplemental unemployment compensation
benefits plan, a private foundation, or a portion of a trust permanently set aside or used exclusively for charitable purposes.
An "individual," however, generally does not include a trust that is a qualified employee pension or profit sharing trust under
the federal income tax laws, and beneficiaries of such a trust will be treated as holding our shares in proportion to their actuarial
interests in the trust for purposes of requirement 6.
Our
charter provides restrictions regarding the transfer and ownership of shares of our capital stock. We believe that we will have
issued sufficient stock with sufficient diversity of ownership to allow us to satisfy requirements 5 and 6 above once they are
applicable to us. The restrictions in our charter are intended (among other things) to assist us in continuing to satisfy requirements
5 and 6 above. These restrictions, however, may not ensure that we will, in all cases, be able to satisfy such share ownership
requirements. If we fail to satisfy these share ownership requirements, our qualification as a REIT may terminate.
Qualified
REIT Subsidiaries
A
corporation that is a "qualified REIT subsidiary" is not treated as a corporation separate from its parent REIT. All assets, liabilities,
and items of income, deduction, and credit of a "qualified REIT subsidiary" are treated as assets, liabilities, and items of income,
deduction, and credit of the REIT. A "qualified REIT subsidiary" is a corporation, other than a taxable REIT subsidiary, all of
the stock of which is owned by the REIT. Thus, in applying the requirements described herein, any "qualified REIT subsidiary"
that we own will be ignored, and all assets, liabilities, and items of income, deduction, and credit of such subsidiary will be
treated as our assets, liabilities, and items of income, deduction, and credit.
Other
Disregarded Entities and Partnerships
An
unincorporated domestic entity, such as a limited liability company that has a single owner, generally is not treated as an entity
separate from its owner for federal income tax purposes. An unincorporated domestic entity with two or more owners is generally
treated as a partnership for federal income tax purposes. In the case of a REIT that is a partner in a partnership that has other
partners, the REIT is treated as owning its proportionate share of the assets of the partnership and as earning its allocable
share of the gross income of the partnership for purposes of the applicable REIT qualification tests. Our proportionate share
for purposes of the 10% value test is based on our proportionate interest in the equity interests and certain debt securities
issued by the partnership. For all of the other asset and income tests, our proportionate share is based on our capital interest
in the partnership. Our proportionate share of the assets, liabilities, and items of income of any partnership, joint venture,
or limited liability company that is treated as a partnership for federal income tax purposes in which we acquire an equity interest,
directly or indirectly, is treated as our assets and gross income for purposes of applying the various REIT qualification requirements.
Our
operating partnership, AHIT Valfre, initially, will be wholly-owned, directly and indirectly, by us, and during such time it will
be classified for U.S. federal income tax purposes as a disregarded entity. The operating partnership will be classified as a
partnership for federal income tax purposes at such time as it is deemed for such purposes to have more than one member (apart
from us and the general partner). We have control of our operating partnership and intend to control any subsidiary partnerships
and limited liability companies, and we intend to operate them in a manner consistent with the requirements for our qualification
as a REIT.
We
may from time to time be a limited partner or non-managing member in some of our partnerships and limited liability companies.
If a partnership or limited liability company in which we own an interest takes or expects to take actions that could jeopardize
our status as a REIT or require us to pay tax, we may be forced to dispose of our interest in such entity. In addition, it is
possible that a partnership or limited liability company could take an action which could cause us to fail a gross income or asset
test, and that we would not become aware of such action in time to dispose of our interest in the partnership or limited liability
company or take other corrective action on a timely basis. In that case, we could fail to qualify as a REIT unless we were entitled
to relief, as described below.
Taxable
REIT Subsidiaries
A
REIT may own, directly or indirectly, up to 100% of the shares of one or more taxable REIT subsidiaries. A taxable REIT subsidiary
is a fully taxable corporation that may earn income that would not be qualifying income if earned directly by the parent REIT.
The subsidiary and the REIT must jointly elect to treat the subsidiary as a taxable REIT subsidiary. A corporation of which a
taxable REIT subsidiary directly or indirectly owns more than 35% of the voting power or value of the securities will automatically
be treated as a taxable REIT subsidiary. We are not treated as holding the assets of a taxable REIT subsidiary or as receiving
any income that the taxable REIT subsidiary earns. Rather, the stock issued by a taxable REIT subsidiary to us is an asset in
our hands, and we treat the dividend distributions paid to us from such taxable REIT subsidiary, if any, as income. This treatment
may affect our compliance with the gross income and asset tests. Because we do not include the assets and income of taxable REIT
subsidiaries in determining our compliance with the REIT requirements, we may use such entities to indirectly undertake activities,
such as earning fee income that the REIT rules might otherwise preclude us from doing directly or through pass-through subsidiaries.
No more than 25% of the value of a REIT's assets may consist of stock or securities of one or more taxable REIT subsidiaries together
with other non-qualifying assets.
A
taxable REIT subsidiary pays income tax at regular corporate rates on any income that it earns. In addition, the "earnings stripping"
rules of Section 163(j) of the Code may limit the deductibility of interest paid or accrued by a taxable REIT subsidiary to its
parent REIT to assure that the taxable REIT subsidiary is subject to an appropriate level of corporate taxation. Further, the
taxable REIT subsidiary rules impose a 100% excise tax on REITs for transactions between a taxable REIT subsidiary and its parent
REIT or the REIT's tenants that are not conducted on an arm's-length basis.
A
taxable REIT subsidiary may not directly or indirectly operate or manage any health care facilities assets or lodging facilities
or provide rights to any brand name under which any health care facility or lodging facility is operated. A taxable REIT subsidiary
is not considered to operate or manage a "qualified health care property" or "qualified lodging facility" solely because the taxable
REIT subsidiary directly or indirectly possesses a license, permit, or similar instrument enabling it to do so.
Rent
that we receive from a taxable REIT subsidiary will qualify as "rents from real property" as long as (1) at least 90% of the leased
space in the property is leased to persons other than taxable REIT subsidiaries and related-party tenants, and (2) the amount
paid by the taxable REIT subsidiary to rent space at the property is substantially comparable to rents paid by other tenants of
the property for comparable space, as described in further detail below. If we lease space to a taxable REIT subsidiary in the
future, we will seek to comply with these requirements.
We
intend to elect to treat AHIT Valfre as a taxable REIT subsidiary. We expect that it will provide services with respect to our
properties to the extent we determine that having our TRS provide those services will assist us in complying with the gross income
tests applicable to REITs. See "- Gross Income Tests - Rents From Real Property." In addition, if we decide to
acquire properties opportunistically to restore in anticipation of immediate resale, we will need to conduct that activity through
our TRS in order to avoid the 100% prohibited transactions tax.
Gross
Income Tests
We
must satisfy two gross income tests annually to maintain our qualification as a REIT. First, at least 75% of our gross income
for each taxable year must consist of defined types of income that we derive, directly or indirectly, from investments relating
to real property or mortgages on real property or qualified temporary investment income. Qualifying income for purposes of that
75% gross income test generally includes (a) rents from real property, (b) interest on debt secured by mortgages on real property,
or on interests in real property, (c) dividends or other distributions on, and gain from the sale of, shares in other REITs, (d)
gain from the sale of real estate assets, (e) income and gain from the sale of real estate assets, (f) income and gain derived
from foreclosure property, and (g) income derived from the temporary investment of new capital that is attributable to the issuance
of our stock or a public offering of our debt with a maturity date of at least five years and that we receive during the one-year
period beginning on the date on which we received such new capital.
Second,
in general, at least 95% of our gross income for each taxable year must consist of income that is qualifying income for purposes
of the 75% gross income test, other types of interest and dividends, gain from the sale or disposition of shares or securities,
or any combination of these. Cancellation of indebtedness income and gross income from our sale of property that we hold primarily
for sale to customers in the ordinary course of business is excluded from both the numerator and the denominator in both gross
income tests. The following paragraphs discuss the specific application of the gross income tests to us.
Rents
from Real Property
Rent
that we receive from our real property will qualify as "rents from real property," which is qualifying income for purposes of
the 75% and 95% gross income tests, only if four specific conditions are met. First, the rent must not be based, in whole or in
part, on the income or profits of any person, but may be based on a fixed percentage or percentages of receipts or sales. Second,
neither we nor a direct or indirect owner of 10% or more of our stock may own, actually or constructively, 10% or more of a tenant
from whom we receive rent, other than a taxable REIT subsidiary. Third, if the rent attributable to personal property leased in
connection with a lease of real property is 15% or less of the total rent received under the lease, then the rent attributable
to personal property will qualify as rents from real property. However, if the 15% threshold is exceeded, the rent attributable
to personal property will not qualify as rents from real property.
Finally,
we generally must not operate or manage our real property or furnish or render services to our tenants, other than through an
"independent contractor" who is adequately compensated and from whom we do not derive revenue. However, we need not provide services
through an "independent contractor," but instead may provide services directly to our tenants, if the services are "usually or
customarily rendered" in connection with the rental of space for occupancy only and are not considered to be provided for the
tenants' convenience. In addition, we may provide a minimal amount of "noncustomary" services to the tenants of a property, other
than through an independent contractor, as long as our income from the services (valued at not less than 150% of our direct cost
of performing such services) does not exceed 1% of our income from the related property. Furthermore, we may own up to 100% of
the stock of a taxable REIT subsidiary which may provide customary and noncustomary services to our tenants without tainting our
rental income for the related properties.
If
a portion of the rent that we receive from a property does not qualify as "rents from real property" because the rent attributable
to personal property exceeds 15% of the total rent for a taxable year, the portion of the rent that is attributable to personal
property will not be qualifying income for purposes of either the 75% or 95% gross income test. Thus, if such rent attributable
to personal property, plus any other income that is non-qualifying income for purposes of the 95% gross income test, during a
taxable year exceeds 5% of our gross income during the year, we would lose our REIT qualification. If, however, the rent from
a particular property does not qualify as "rents from real property" because either (1) the rent is considered based on the income
or profits of the related tenant, (2) the tenant either is a related party tenant or fails to qualify for the exceptions to the
related party tenant rule for qualifying taxable REIT subsidiaries or (3) we furnish noncustomary services to the tenants of the
property, or manage or operate the property, other than through a qualifying independent contractor or a taxable REIT subsidiary,
none of the rent from that property would qualify as "rents from real property."
Our
operating partnership, AHIT Valfre lease properties to tenants that are individuals and families. Our leases with individual tenants
typically have a term of one year and require the tenant to pay fixed rent. We do not lease significant amounts of personal property
pursuant to our leases. Moreover, we do not perform any services other than customary ones for our tenants, unless such services
are provided through independent contractors or our TRS. Accordingly, we believe that our leases will generally produce rent that
qualifies as "rents from real property" for purposes of the 75% and 95% gross income tests.
In
addition to the rent, the tenants may be required to pay certain additional charges. To the extent that such additional charges
represent reimbursements of amounts that we are obligated to pay to third parties such charges generally will qualify as "rents
from real property." To the extent such additional charges represent penalties for nonpayment or late payment of such amounts,
such charges should qualify as "rents from real property." However, to the extent that late charges do not qualify as "rents from
real property," they instead will be treated as interest that qualifies for the 95% gross income test.
Dividends
As
stated above, our share of any dividends received from any corporation (including any taxable REIT subsidiary, but excluding any
REIT) in which we own an equity interest will qualify for purposes of the 95% gross income test but not for purposes of the 75%
gross income test. Our share of any dividends received from any other REIT in which we own an equity interest, if any, will be
qualifying income for purposes of both gross income tests.
Prohibited
Transactions
A
REIT will incur a 100% tax on the net income (including foreign currency gain) derived from any sale or other disposition of property,
other than foreclosure property, that the REIT holds primarily for sale to customers in the ordinary course of a trade or business.
We believe that none of our properties are held primarily for sale to customers and that a sale of any of our properties will
not be in the ordinary course of our business. Whether a REIT holds a property "primarily for sale to customers in the ordinary
course of a trade or business" depends, however, on the facts and circumstances in effect from time to time, including those related
to a particular property. A safe harbor to the characterization of the sale of property by a REIT as a prohibited transaction
and the 100% prohibited transactions tax is available if the following requirements are met:
- the
REIT has held the property for not less than two years;
- the
aggregate expenditures made by the REIT, or any partner of the REIT, during the two-year period preceding the date of the sale
that are includable in the basis of the property do not exceed 30% of the selling price of the property;
- either
(1) during the year in question, the REIT did not make more than seven sales of property other than foreclosure property or sales
to which Section 1033 of the Code applies, (2) the aggregate adjusted basis of all such properties sold by the REIT during the
year did not exceed 10% of the aggregate basis of all of the assets of the REIT at the beginning of the year or (3) the aggregate
fair market value of all such properties sold by the REIT during the year did not exceed 10% of the aggregate fair market value
of all of the assets of the REIT at the beginning of the year;
- in
the case of property not acquired through foreclosure or lease termination, the REIT has held the property for at least two years
for the production of rental income; and
- if
the REIT has made more than seven sales of non-foreclosure property during the taxable year, substantially all of the marketing
and development expenditures with respect to the property are made through an independent contractor from whom the REIT derives
no income.
Once
management determines that we are prepared to operate exclusively as a REIT, subject to the aforementioned requirements, we will
attempt to comply with the terms of the safe-harbor provisions in the federal income tax laws prescribing when a property sale
will not be characterized as a prohibited transaction. We cannot assure you, however, that we can comply with the safe-harbor
provisions or that we will avoid owning property that may be characterized as property that we hold "primarily for sale to customers
in the ordinary course of a trade or business."
The
100% tax will not apply to gains from the sale of property that is held through a taxable REIT subsidiary or other taxable corporation,
although such income will be taxed to the corporation at regular corporate income tax rates. If we decide to acquire properties
opportunistically to restore in anticipation of immediate resale, we will need to conduct that activity through our TRS to avoid
the prohibited transactions tax. No assurance can be given, however, that the IRS will respect the transaction by which any such
properties are contributed to our TRS and even if the contribution transaction is respected, our TRS may incur a significant tax
liability as a result of any such sales.
Fee
Income
Fee
income generally will not be qualifying income for purposes of both the 75% and 95% gross income tests. Any fees earned by our
TRS will not be included for purposes of the gross income tests.
Failure
to Satisfy Gross Income Tests
If
we fail to satisfy one or both of the gross income tests for any taxable year, we nevertheless may qualify as a REIT for that
year if we qualify for relief under certain provisions of the federal income tax laws. Those relief provisions are available if
our failure to meet those tests is due to reasonable cause and not to willful neglect, and following such failure for any taxable
year, we file a schedule of the sources of our income in accordance with the regulations prescribed by the U.S. Treasury.
We
cannot predict, however, whether in all circumstances we would qualify for the relief provisions. In addition, even if the relief
provisions apply, we would incur a 100% tax on the gross income attributable to the greater of the amount by which we fail the
75% gross income test or the 95% gross income test multiplied, in either case, by a fraction intended to reflect our profitability.
Asset
Tests
To
qualify as a REIT, we also must satisfy the following asset tests at the end of each quarter of each taxable year. First, at least
75% of the value of our total assets must consist of (a) cash or cash items, including certain receivables, certain money market
funds and, in certain circumstances, foreign currencies, (b) United States government securities, (c) interests in real property,
including leaseholds and options, (d) interests in mortgage loans secured by real property, stock in other REITs, and investments
in stock or debt instruments during the one-year period following our receipt of, and to the extent acquired with, new capital
that we raise through equity offerings or public offerings of debt having at least a five-year term.
Of
our investments not included in the 75% asset class, the value of our interest in any one issuer's securities may not exceed 5%
of the value of our total assets (the 5% asset test). In addition, of our investments not included in the 75% asset class, we
may not own more than 10% of the voting power of any one issuer's outstanding securities or 10% of the value of any one issuer's
outstanding securities (the 10% vote test and 10% value test, respectively), and no more than 25% of the value of our total assets
may consist of the securities of one or more taxable REIT subsidiaries. Finally, no more than 25% of the value of our total assets
may consist of the securities of taxable REIT subsidiaries and other assets that are not qualifying assets for purposes of the
75% asset test (the 25% securities test).
For
purposes of the 5% asset test, the 10% vote test and the 10% value test, the term "securities" does not include shares in another
REIT, equity or debt securities of a qualified REIT subsidiary or taxable REIT subsidiary, mortgage loans that constitute real
estate assets, or equity interests in a partnership. The term "securities," however, generally includes debt securities issued
by a partnership or another REIT, except that for purposes of the 10% value test. The term "securities" does not include "straight
debt securities," which is defined as a written unconditional promise to pay on demand or on a specified date a sum certain in
money if (1) the debt is not convertible, directly or indirectly, into equity, and (2) the interest rate and interest payment
dates are not contingent on profits, the borrower's discretion, or similar factors. "Straight debt" securities do not include
any securities issued by a partnership or a corporation in which we or any controlled taxable REIT subsidiary (i.e., a taxable
REIT subsidiary in which we own directly or indirectly more than 50% of the voting power or value of the stock) hold non "straight
debt" securities that have an aggregate value of more than 1% of the issuer's outstanding securities.
For
purposes of the 10% value test, our proportionate share of the assets of a partnership is our proportionate interest in any securities
issued by the partnership, without regard to the securities described in the last two bullet points above. We will monitor the
status of our assets for purposes of the various asset tests and will manage our portfolio in order to comply at all times with
such tests. However, there is no assurance that we will not inadvertently fail to comply with such tests. If we fail to satisfy
the asset tests at the end of a calendar quarter, we will not lose our REIT qualification if (a) we satisfied the asset tests
at the end of the preceding calendar quarter, and (b) the discrepancy between the value of our assets and the asset test requirements
arose from changes in the market values of our assets and was not wholly or partly caused by the acquisition of one or more nonqualifying
assets. If we did not satisfy the condition described in (b), above, we still could avoid disqualification by eliminating any
discrepancy within 30 days after the close of the calendar quarter in which it arose.
If
we violate the 5% asset test, the 10% vote test or the 10% value test described above, we will not lose our REIT qualification
if (1) the failure is de minimis (up to the lesser of 1% of our assets or $10 million) and (2) we dispose of assets causing the
failure or otherwise comply with the asset tests within six months after the last day of the quarter in which we identify such
failure. In the event of a failure of any of the asset tests (other than de minimis failures described in the preceding sentence),
as long as the failure was due to reasonable cause and not to willful neglect, we will not lose our REIT qualification if we (1)
dispose of assets causing the failure or otherwise comply with the asset tests within six months after the last day of the quarter
in which we identify the failure, (2) file a description of each asset causing the failure with the IRS and (3) pay a tax equal
to the greater of $50,000 or 35% of the net income from the assets causing the failure during the period in which we failed to
satisfy the asset tests.
We
believe that the assets that we hold, and that we will acquire in the future, will allow us to satisfy the foregoing asset test
requirements. However, we do not obtain independent appraisals to support our conclusions as to the value of our assets. Moreover,
the values of some assets may not be susceptible to a precise determination. As a result, there can be no assurance that the IRS
will not contend that our ownership of assets violates one or more of the asset tests applicable to REITs.
Distribution
Requirements
Each
year, we must distribute dividends, other than capital gain dividends and deemed distributions of retained capital gain, to our
stockholders in an aggregate amount at least equal to the sum of (a) 90% of our "REIT taxable income," computed without regard
to the dividends paid deduction and our net capital gain or loss, and (b) 90% of our after-tax net income, if any, from foreclosure
property, minus, the sum of certain items of non-cash income.
We
must pay such distributions in the taxable year to which they relate, or in the following taxable year if we either declare the
distribution before we timely file our federal income tax return for the year and pay the distribution on or before the first
regular dividend payment date after such declaration, or declare the distribution in October, November or December of the taxable
year, payable to stockholders of record on a specified day in any such month, and we actually pay the dividend before the end
of January of the following year.
The
distributions, above, are taxable to the stockholders in the year in which paid, and the distributions in the latter part of the
aforementioned paragraph, are treated as paid on December 31st of the prior taxable year. In both instances, these
distributions relate to our prior taxable year for purposes of the 90% distribution requirement. We will pay federal income tax
on taxable income, including net capital gain that we do not distribute to stockholders.
If
we fail to distribute during a calendar year, or by the end of January following the calendar year in the case of distributions
with declaration and record dates falling in the last three months of the calendar year, at least the sum of (a) 85% of our REIT
ordinary income for such year, (b) 95% of our REIT capital gain income for such year, and (c) any undistributed taxable income
from prior period, we will incur a 4% nondeductible excise tax on the excess of such required distribution over the sum of the
amounts we actually distribute and the amounts we retain and upon which we pay income tax at the corporate level.
We
may elect to retain and pay income tax on the net long-term capital gain that we receive in a taxable year. If we so elect, we
will be treated as having distributed any such retained amount for purposes of the 4% nondeductible excise tax described above.
We intend to make timely distributions sufficient to satisfy the annual distribution requirements and to avoid corporate income
tax and the 4% nondeductible excise tax.
It
is possible that, from time to time, we may experience timing differences between the actual receipt of income and actual payment
of deductible expenses and the inclusion of that income and deduction of such expenses in arriving at our REIT taxable income.
For example, we may not deduct recognized capital losses from our "REIT taxable income." Further, it is possible that, from time
to time, we may be allocated a share of net capital gain attributable to the sale of depreciated property that exceeds our allocable
share of cash attributable to that sale. As a result of the foregoing, we may have less cash than is necessary to distribute taxable
income sufficient to avoid corporate income tax and the excise tax imposed on certain undistributed income or even to meet the
90% distribution requirement. In such a situation, we may need to borrow funds or, if possible, pay taxable dividends of our capital
stock or debt securities.
We
may satisfy the 90% distribution test with taxable distributions of our stock or debt securities. The IRS has issued private letter
rulings to other REITs treating certain distributions that are paid partly in cash and partly in stock as dividends that would
satisfy the REIT annual distribution requirement and qualify for the dividends paid deduction for federal income tax purposes.
Those rulings may be relied upon only by taxpayers whom they were issued, but we could request a similar ruling from the IRS.
Accordingly, it is unclear whether and to what extent we will be able to make taxable dividends payable in cash and stock. We
have no current intention to make a taxable dividend payable in our stock.
Under
certain circumstances, we may be able to correct a failure to meet the distribution requirement for a year by paying "deficiency
dividends" to our stockholders in a later year. We may include such deficiency dividends in our deduction for dividends paid for
the earlier year. Although we may be able to avoid income tax on amounts distributed as deficiency dividends, we will be required
to pay interest to the IRS based upon the amount of any deduction we take for deficiency dividends.
Recordkeeping
Requirements
We
must maintain certain records in order to qualify as a REIT. In addition, to avoid a monetary penalty, we must request on an annual
basis information from our stockholders designed to disclose the actual ownership of our outstanding stock. We intend to comply
with these requirements.
Failure
to Qualify
If
we fail to satisfy one or more requirements for REIT qualification, other than the gross income tests and the asset tests, we
could avoid disqualification if our failure is due to reasonable cause and not to willful neglect and we pay a penalty of $50,000
for each such failure. In addition, there are relief provisions available in certain circumstances for certain failures to satisfy
the gross income tests and asset tests.
If
we fail to qualify as a REIT in any taxable year and do not qualify for certain statutory relief provisions, we would be subject
to federal income tax and any applicable alternative minimum tax on our taxable income at regular corporate rates. In calculating
our taxable income in a year in which we fail to qualify as a REIT, we would not be able to deduct amounts paid out to stockholders.
In fact, we would not be required to distribute any amounts to stockholders in that year. In such event, to the extent of our
current and accumulated earnings and profits, distributions to stockholders generally would be taxable as ordinary income. Subject
to certain limitations of the federal income tax laws, corporate stockholders may then be eligible for the dividends received
deduction and stockholders taxed at individual rates may be eligible for the reduced federal income tax rate of up to 20% on such
dividends.
Unless
we qualified for relief under specific statutory provisions, we also would be disqualified from taxation as a REIT for the four
taxable years following the year during which we ceased to qualify as a REIT. We cannot predict whether in all circumstances we
would qualify for such relief.
Taxation
of Taxable U.S. Stockholders
As
used herein, the term "U.S. stockholder" means a holder of our common stock that for federal income tax purposes is a citizen
or resident of the United States, a corporation (including an entity treated as a corporation for federal income tax purposes)
created or organized in or under the laws of the United States, any of its states or the District of Columbia, an estate whose
income is subject to federal income taxation regardless of its source, or any trust if (1) a court is able to exercise primary
supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions
of the trust or (2) it has a valid election in place to be treated as a U.S. person.
If
a partnership, entity or arrangement treated as a partnership for federal income tax purposes holds our common stock, the federal
income tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of
the partnership. If you are a partner in a partnership holding our common stock, you should consult your tax advisor regarding
the consequences of the ownership and disposition of our common stock by the partnership.
Disposition
of Common Stock
A
U.S. stockholder who is not a dealer in securities will generally treat any gain or loss realized upon a taxable disposition of
our common stock as long-term capital gain or loss if the U.S. stockholder has held our common stock for more than one year and
otherwise as short-term capital gain or loss. In general, a U.S. stockholder will realize gain or loss in an amount equal to the
difference between the sum of the fair market value of any property and the amount of cash received in such disposition and the
U.S. stockholder's adjusted tax basis. A stockholder's adjusted tax basis generally will equal the U.S. stockholder's acquisition
cost, increased by the excess of net capital gains deemed distributed to the U.S. stockholder (discussed above) less tax deemed
paid on such gains and reduced by any returns of capital.
However,
a U.S. stockholder must treat any loss upon a sale or exchange of common stock held by such stockholder for six months or less
as a long-term capital loss to the extent of capital gain dividends and any other actual or deemed distributions from us that
such U.S. stockholder treats as long-term capital gain. All or a portion of any loss that a U.S. stockholder realizes upon a taxable
disposition of shares of our common stock may be disallowed if the U.S. stockholder purchases other shares of our common stock
within 30 days before or after the disposition.
Capital
Gains and Losses
A
taxpayer generally must hold a capital asset for more than one year for gain or loss derived from its sale or exchange to be treated
as long-term capital gain or loss. The highest marginal individual income tax rate currently is 39.6%. The maximum tax rate on
long-term capital gain applicable to taxpayers taxed at individual rates is 20% for sales and exchanges of assets held for more
than one year. The maximum tax rate on long-term capital gain from the sale or exchange of "Section 1250 property," or depreciable
real property, is 25%, which applies to the lesser of the total amount of the gain or the accumulated depreciation on the Section
1250 property. Individuals, trusts and estates whose income exceeds certain thresholds are also subject to a 3.8% Medicare tax
on gain from the sale of our common stock.
With
respect to distributions that we designate as capital gain dividends and any retained capital gain that we are deemed to distribute,
we generally may designate whether such a distribution is taxable to U.S. stockholders taxed at individual rates currently at
a 20% or 25% rate. Thus, the tax rate differential between capital gain and ordinary income for those taxpayers may be significant.
In addition, the characterization of income as capital gain or ordinary income may affect the deductibility of capital losses.
A non-corporate taxpayer may deduct capital losses not offset by capital gains against its ordinary income only up to a maximum
annual amount of $3,000. A non-corporate taxpayer may carry forward unused capital losses indefinitely. A corporate taxpayer must
pay tax on its net capital gain at ordinary corporate rates. A corporate taxpayer may deduct capital losses only to the extent
of capital gains, with unused losses available to be carried back three years and forward for up to five years. If the capital
losses are not utilized within such carry back and carry forward period, they will expire unused.
Taxation
of Tax-Exempt Stockholders
Tax-exempt
entities, including qualified employee pension and profit sharing trusts and individual retirement accounts, generally are exempt
from federal income taxation. However, they are subject to taxation on their unrelated business taxable income, or UBTI. Although
certain investments in real estate generate UBTI, the IRS has issued a ruling that dividend distributions from a REIT to an exempt
pension trust do not constitute UBTI so long as the pension trust does not otherwise use the shares of the REIT in an unrelated
trade or business. Based on that ruling, amounts that we distribute to tax-exempt stockholders generally should not constitute
UBTI. However, if a tax-exempt stockholder were to finance (or be deemed to finance) its acquisition of common stock with debt,
a portion of the income that it receives from us would constitute UBTI pursuant to the "debt-financed property" rules.
Moreover,
social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal services
plans that are exempt from taxation under special provisions of the federal income tax laws are subject to different UBTI rules,
which generally will require them to characterize distributions that they receive from us as UBTI.
Finally,
in certain circumstances, a qualified employee pension or profit sharing trust that owns more than 10% of our capital stock must
treat a percentage of the dividends that it receives from us as UBTI. Such percentage is equal to the gross income we derive from
an unrelated trade or business, determined as if we were a pension trust, divided by our total gross income for the year in which
we pay the dividends. That rule applies to a pension trust holding more than 10% of our capital stock only if (a) the percentage
of our dividends that the tax-exempt trust must treat as UBTI is at least 5%; (b) we qualify as a REIT by reason of the modification
of the rule requiring that no more than 50% of our capital stock be owned by five or fewer individuals that allows the beneficiaries
of the pension trust to be treated as holding our capital stock in proportion to their actuarial interests in the pension trust;
and either (c) one pension trust owns more than 25% of the value of our capital stock; or a group of pension
trusts individually holding more than 10% of the value of our capital stock collectively owns more than 50% of the value of our
capital stock. Certain restrictions on ownership and transfer of our stock generally should prevent a tax-exempt entity from owning
more than 10% of the value of our stock and generally should prevent a pension trust from having to treat any of the dividends
received from us as UBTI.
Taxation
of Non-U.S. Stockholders
The
term "non-U.S. stockholder" means a holder of our common stock that is not a U.S. stockholder, a partnership (or entity treated
as a partnership for federal income tax purposes) or a tax-exempt stockholder. The rules governing federal income taxation of
nonresident alien individuals, foreign corporations, foreign partnerships, and other foreign stockholders are complex. This section
is only a summary of such rules. We urge non-U.S. stockholders to consult their own tax advisors to determine the impact of federal,
state, and local income tax laws on the purchase, ownership and sale of our common stock, including any reporting requirements.
Distributions
A
non-U.S. stockholder that receives a distribution that is not attributable to gain from our sale or exchange of a "United States
real property interest," or USRPI, as defined below, and that we do not designate as a capital gain dividend or retained capital
gain will recognize ordinary income to the extent that we pay such distribution out of our current or accumulated earnings and
profits. A withholding tax equal to 30% of the gross amount of the distribution ordinarily will apply to such distribution unless
an applicable tax treaty reduces or eliminates the tax.
However,
if a distribution is treated as effectively connected with the non-U.S. stockholder's conduct of a U.S. trade or business, the
non-U.S. stockholder generally will be subject to federal income tax on the distribution at graduated rates, in the same manner
as U.S. stockholders are taxed with respect to such distribution, and a non-U.S. stockholder that is a corporation also may be
subject to the 30% branch profits tax with respect to that distribution. We plan to withhold U.S. income tax at the rate of 30%
on the gross amount of any such distribution paid to a non-U.S. stockholder unless either (a) a lower treaty rate applies and
the non-U.S. stockholder files an IRS Form W-8BEN evidencing eligibility for that reduced rate with us, (b) the non-U.S. stockholder
files an IRS Form W-8ECI with us claiming that the distribution is effectively connected income, or (c) the distribution is treated
as attributable to a sale of a USRPI under FIRPTA (discussed herein).
A
non-U.S. stockholder will not incur tax on a distribution in excess of our current and accumulated earnings and profits if the
excess portion of such distribution does not exceed the adjusted basis of its common stock. Instead, the excess portion of such
distribution will reduce the adjusted basis of such stock. A non-U.S. stockholder will be subject to tax on such a distribution
to the extent it exceeds the adjusted basis of its common stock, if the non-U.S. stockholder otherwise would be subject to tax
on gain from the sale or disposition of its common stock, as described below.
We
must withhold 10% of any distribution that exceeds our current and accumulated earnings and profits. Consequently, although we
intend to withhold at a rate of 30% on the entire amount of any distribution, to the extent that we do not do so, we will withhold
at a rate of 10% on any portion of a distribution not subject to withholding at a rate of 30%. Because we generally cannot determine
at the time we make a distribution whether the distribution will exceed our current and accumulated earnings and profits, we normally
will withhold tax on the entire amount of any distribution at the same rate as we would withhold on a dividend. However, a non-U.S.
stockholder may claim a refund of amounts that we withhold if we later determine that a distribution in fact exceeded our current
and accumulated earnings and profits.
For
any year in which we qualify as a REIT, a non-U.S. stockholder may incur tax on distributions that are attributable to gain from
our sale or exchange of a USRPI under the Foreign Investment in Real Property Act of 1980, or FIRPTA. A USRPI includes certain
interests in real property and stock in corporations at least 50% of whose assets consist of interests in real property. Under
FIRPTA, a non-U.S. stockholder is taxed on distributions attributable to gain from sales of USRPIs as if such gain were effectively
connected with a U.S. business of the non-U.S. stockholder.
A
non-U.S. stockholder thus would be taxed on such a distribution at the normal capital gains rates applicable to U.S. stockholders,
subject to applicable alternative minimum tax and a special alternative minimum tax in the case of a nonresident alien individual,
and would be required to file a U.S. tax return on which such income would be reported. A non-U.S. corporation that is a stockholder
not entitled to treaty relief or exemption also may be subject to the 30% branch profits tax on such a distribution. We would
be required to withhold 35% of any distribution that we could designate as a capital gain dividend. A non-U.S. stockholder may
receive a credit against its tax liability for the amount we withhold.
However,
if our common stock is regularly traded on an established securities market in the United States, capital gain distributions on
our common stock that are attributable to our sale of a USRPI will be treated as ordinary dividends rather than as gain from the
sale of a USRPI, as long as the non-U.S. stockholder did not own more than 5% of our common stock at any time during the one-year
period preceding the distribution. As a result, non-U.S. stockholders generally will be subject to withholding tax on such capital
gain distributions in the same manner as they are subject to withholding tax on ordinary dividends.
We
anticipate that our common stock will be regularly traded on an established securities market in the United States following this
offering. If our common stock is not regularly traded on an established securities market in the United States or the non-U.S.
stockholder owned more than 5% of our common stock at any time during the one-year period preceding the distribution, capital
gain distributions that are attributable to our sale of USRPIs will be subject to tax under FIRPTA, as described in the preceding
paragraph. Moreover, if a non-U.S. stockholder disposes of our common stock during the 30-day period preceding a dividend payment,
and such non-U.S. stockholder (or a person related to such non-U.S. stockholder) acquires or enters into a contract or option
to acquire our common stock within 61 days of the first day of the 30-day period described above, and any portion of such dividend
payment would, but for the disposition, be treated as a USRPI capital gain to such non-U.S. stockholder, then such non-U.S. stockholder
shall be treated as having USRPI capital gain in an amount that, but for the disposition, would have been treated as USRPI capital
gain.
We
believe that based on our analysis of the law, amounts we designate as retained capital gains in respect of the common stock held
by U.S. stockholders generally should be treated with respect to non-U.S. stockholders in the same manner as actual distributions
by us of capital gain dividends. Under this approach, a non-U.S. stockholder would be able to offset as a credit against its federal
income tax liability resulting from its proportionate share of the tax paid by us on such retained capital gains, and to receive
from the IRS a refund to the extent the non-U.S. stockholder's proportionate share of such tax paid by us exceeds its actual federal
income tax liability, provided that the non-U.S. stockholder furnishes required information to the IRS on a timely basis.
In
addition, a further U.S. withholding tax at a 30% rate will be imposed pursuant to the Foreign Account Tax Compliance Act, or
FATCA, on dividends paid to certain non-U.S. stockholders if certain disclosure requirements related to U.S. accounts or ownership
are not satisfied. If payment of withholding taxes is required, non-U.S. stockholders that are otherwise eligible for an exemption
from, or reduction of, U.S. withholding taxes with respect of such dividends will be required to seek a refund from the IRS to
obtain the benefit or such exemption or reduction. We will not pay any additional amounts in respect of any amounts withheld.
Dispositions
Non-U.S.
stockholders could incur tax under FIRPTA with respect to gain realized upon a disposition of our common stock if we are a United
States real property holding corporation during a specified testing period. If at least 50% of a REIT's assets are USRPIs, then
the REIT will be a United States real property holding corporation. We believe that we are a United States real property holding
corporation based on our investment strategy. Even if we are a United States real property holding corporation, a non-U.S. stockholder
generally would not incur tax under FIRPTA on gain from the sale of our common stock if we are a "domestically controlled qualified
investment entity." A "domestically controlled qualified investment entity" includes a REIT in which, at all times during a specified
testing period, which is generally five years, less than 50% in value of its shares are held directly or indirectly by non-U.S.
stockholders. We are not currently a domestically-controlled qualified investment entity and we cannot assure you that we will
become a domestically-controlled qualified investment entity. Even if we subsequently become a domestically- controlled qualified
investment entity, the foregoing FIRPTA exemption would not be available in case of a disposition of our stock by a non-U.S. stockholder
until five years after such date.
In
addition, if our common stock is regularly traded on an established securities market, another exception to the tax under FIRPTA
will be available with respect to our common stock, even if we do not qualify as a domestically controlled qualified investment
entity. Under that exception, the gain from such a sale by such a non-U.S. stockholder will not be subject to tax under FIRPTA
if (1) our common stock is treated as being regularly traded under applicable Treasury Regulations on an established securities
market and (2) the non-U.S. stockholder owned, actually or constructively, 5% or less of our common stock at all times during
a specified testing period. As noted above, we anticipate that our common stock will be regularly traded on an established securities
market following this offering.
If
the gain on the sale of our common stock were taxed under FIRPTA, a non-U.S. stockholder would be taxed on that gain in the same
manner as U.S. stockholders, subject to applicable alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals, would be required to file a U.S. tax return on which such income would be reported, and the purchaser
of the common stock could be required to withhold 10% of the purchase price and remit such amount to the IRS. Furthermore, a non-U.S.
stockholder generally will incur tax on gain not subject to FIRPTA if (1) the gain is effectively connected with the non-U.S.
stockholder's U.S. trade or business, in which case the non-U.S. stockholder will be subject to the same treatment as U.S. stockholders
with respect to such gain or (2) the non-U.S. stockholder is a nonresident alien individual who was present in the United States
for 183 days or more during the taxable year and has a "tax home" in the United States, in which case the non-U.S. stockholder
will incur a 30% tax on his or her capital gains.
For
taxable years beginning after December 31, 2016, a U.S. withholding tax at a 30% rate will be imposed under FATCA on proceeds
from the sale of our common stock received by certain non-U.S. stockholders if certain disclosure requirements related to U.S.
accounts or ownership are not satisfied. If payment of withholding taxes is required, non-U.S. stockholders that are otherwise
eligible for an exemption from, or reduction of, U.S. withholding taxes with respect of such proceeds will be required to seek
a refund from the IRS to obtain the benefit or such exemption or reduction. We will not pay any additional amounts in respect
of any amounts withheld.
Information
Reporting Requirements and Withholding
We
will report to our stockholders and to the IRS the amount of distributions we pay during each calendar year, and the amount of
tax we withhold, if any. Under the backup withholding rules, a stockholder may be subject to backup withholding at a rate of 28%
with respect to distributions unless the stockholder (a) is a corporation or qualifies for certain other exempt categories and,
when required, demonstrates this fact; or (b) provides a taxpayer identification number, certifies as to no loss of exemption
from backup withholding, and otherwise complies with the applicable requirements of the backup withholding rules.
A
stockholder who does not provide us with its correct taxpayer identification number also may be subject to penalties imposed by
the IRS. Any amount paid as backup withholding will be creditable against the stockholder's income tax liability. In addition,
we may be required to withhold a portion of capital gain distributions to any stockholders who fail to certify their non-foreign
status to us.
Backup
withholding will generally not apply to payments of dividends made by us or our paying agents, in their capacities as such, to
a non-U.S. stockholder provided that the non-U.S. stockholder furnishes to us or our paying agent the required certification as
to its non-U.S. status, such as providing a valid IRS Form W-8BEN or W-8ECI, or certain other requirements are met. Notwithstanding
the foregoing, backup withholding may apply if either we or our paying agent has actual knowledge, or reason to know, that the
holder is a U.S. person that is not an exempt recipient. Payments of the proceeds from a disposition or a redemption effected
outside the U.S. by a non-U.S. stockholder made by or through a foreign office of a broker generally will not be subject to information
reporting or backup withholding. However, information reporting (but not backup withholding) generally will apply to such a payment
if the broker has certain connections with the U.S. unless the broker has documentary evidence in its records that the beneficial
owner is a non-U.S. stockholder and specified conditions are met or an exemption is otherwise established. Payment of the proceeds
from a disposition by a non-U.S. stockholder of common stock made by or through the U.S. office of a broker is generally subject
to information reporting and backup withholding unless the non-U.S. stockholder certifies under penalties of perjury that it is
not a U.S. person and satisfies certain other requirements, or otherwise establishes an exemption from information reporting and
backup withholding.
Backup
withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or credited against
the stockholder's federal income tax liability if certain required information is furnished to the IRS. Stockholders should consult
their own tax advisors regarding application of backup withholding to them and the availability of, and procedure for obtaining
an exemption from, backup withholding.
Under
FATCA, a U.S. withholding tax at a 30% rate will be imposed on dividends received by U.S. stockholders who own our capital stock
through foreign accounts or foreign intermediaries if certain disclosure requirements related to U.S. accounts or ownership are
not satisfied. In addition, if those disclosure requirements are not satisfied, a U.S. withholding tax at a 30% rate will be imposed,
for taxable years beginning after December 31, 2016, on proceeds from the sale of our common stock by U.S. stockholders who own
our common stock through foreign accounts or foreign intermediaries. In addition, we may be required to withhold a portion of
capital gain distributions to any U.S. stockholders who fail to certify their non-foreign status to us. We will not pay any additional
amounts in respect of amounts withheld.
Tax
Aspects of Our Investments in Our Operating Partnership and Subsidiary Partnerships
The
following discussion summarizes certain federal income tax considerations applicable to our direct or indirect investments in
our operating partnership, AHIT Valfre, and any future subsidiary partnerships or limited liability companies that we form or
acquire (each individually a "Partnership" and, collectively, the "Partnerships"). The discussion does not cover state or local
tax laws or any federal tax laws other than income tax laws.
Classification
as Partnerships
We
will be entitled to include in our income our distributive share of each Partnership's income and to deduct our distributive share
of each Partnership's losses only if such Partnership is classified for federal income tax purposes as a partnership (or an entity
that is disregarded for federal income tax purposes if the entity is treated as having only one owner or member for federal income
tax purposes) rather than as a corporation or an association taxable as a corporation. An unincorporated entity with at least
two owners or members will be classified as a partnership, rather than as a corporation, for federal income tax purposes if it
(a) is treated as a partnership under the Treasury Regulations relating to entity classification (the "check-the-box regulations");
and (b) is not a publicly-traded partnership.
Under
the check-the-box regulations, an unincorporated entity with at least two owners or members may elect to be classified either
as an association taxable as a corporation or as a partnership. If such an entity fails to make an election, it generally will
be treated as a partnership (or an entity that is disregarded for federal income tax purposes if the entity is treated as having
only one owner or member for federal income tax purposes) for federal income tax purposes. Our operating partnership initially
will be wholly-owned, directly and indirectly, by us, and during such time it will be classified for U.S. federal income tax purposes
as a disregarded entity. The operating partnership will be classified as a partnership for federal income taxes purposes at such
time as it is deemed for such purposes to have more than on member (apart from us and the general partner). It does not intend
to elect to be treated as an association taxable as a corporation under the check-the-box regulations.
A
publicly-traded partnership is a partnership whose interests are traded on an established securities market or are readily tradable
on a secondary market or the substantial equivalent thereof. A publicly-traded partnership will not, however, be treated as a
corporation for any taxable year if, for each taxable year beginning after December 31, 1987 in which it was classified as a publicly-traded
partnership, 90% or more of the partnership's gross income for such year consists of certain passive-type income, including real
property rents, gains from the sale or other disposition of real property, interest, and dividends, or (the "90% passive income
exception"). Treasury Regulations provide limited safe harbors from the definition of a publicly-traded partnership. Pursuant
to one of those safe harbors (the "private placement exclusion"), interests in a partnership will not be treated as readily tradable
on a secondary market or the substantial equivalent thereof if (1) all interests in the partnership were issued in a transaction
or transactions that were not required to be registered under the Securities Act of 1933, as amended, and (2) the partnership
does not have more than 100 partners at any time during the partnership's taxable year.
In
determining the number of partners in a partnership, a person owning an interest in a partnership, grantor trust, or S corporation
that owns an interest in the partnership is treated as a partner in such partnership only if (1) substantially all of the value
of the owner's interest in the entity is attributable to the entity's direct or indirect interest in the partnership and (2) a
principal purpose of the use of the entity is to permit the partnership to satisfy the 100-partner limitation. We anticipate that
our operating partnership, once it ceases to be classified as a disregarded entity for U.S. federal income tax purposes, and any
other partnership in which we own an interest will qualify for the private placement exception.
We
have not requested, and do not intend to request, a ruling from the IRS that our operating partnership will be classified as a
partnership or as a disregarded entity for federal income tax purposes. If for any reason our operating partnership were taxable
as a corporation, rather than as a partnership or as a disregarded entity for federal income tax purposes, we likely would not
be able to qualify as a REIT unless we qualified for certain relief provisions. In addition, any change in a Partnership's status
for tax purposes might be treated as a taxable event, in which case we might incur tax liability without any related cash distribution.
Further, items of income and deduction of such Partnership would not pass through to its partners, and its partners would be treated
as stockholders for tax purposes. Consequently, such Partnership would be required to pay income tax at corporate rates on its
net income, and distributions to its partners would constitute dividends that would not be deductible in computing such Partnership's
taxable income.
Income
Taxation of the Partnerships and their Partners
A
partnership is not a taxable entity for federal income tax purposes. Rather, we are required to take into account our allocable
share of each Partnership's income, gains, losses, deductions, and credits for any taxable year of such
Partnership
ending within or with our taxable year, without regard to whether we have received or will receive any distribution from such
Partnership.
Although
a partnership agreement generally will determine the allocation of income and losses among partners, such allocations will be
disregarded for tax purposes if they do not comply with the provisions of the federal income tax laws governing partnership allocations.
If an allocation is not recognized for federal income tax purposes, the item subject to the allocation will be reallocated in
accordance with the partners' interests in the partnership, which will be determined by taking into account all of the facts and
circumstances relating to the economic arrangement of the partners with respect to such item. Each Partnership's allocations of
taxable income, gain, and loss are intended to comply with the requirements of the federal income tax laws governing partnership
allocations.
We
may acquire properties in exchange for OP units in the future. Income, gain, loss, and deduction attributable to appreciated or
depreciated property that is contributed to a partnership in exchange for an interest in the partnership must be allocated in
a manner such that the contributing partner is charged with, or benefits from, respectively, the unrealized gain or unrealized
loss associated with the property at the time of the contribution. The amount of the unrealized gain or unrealized loss ("built-in
gain" or "built-in loss") is generally equal to the difference between the fair market value of the contributed property at the
time of contribution and the adjusted tax basis of such property at the time of contribution (a "book-tax difference"). Any property
purchased for cash initially will have an adjusted tax basis equal to its fair market value, resulting in no book-tax difference.
Allocations
with respect to book-tax differences are solely for federal income tax purposes and do not affect the book capital accounts or
other economic or legal arrangements among the partners. The U.S. Treasury Department has issued regulations requiring partnerships
to use a "reasonable method" for allocating items with respect to which there is a book-tax difference and outlining several reasonable
allocation methods. Under certain available methods, the carryover basis of contributed properties in the hands of our operating
partnership (1) could cause us to be allocated lower amounts of depreciation deductions for tax purposes than would be allocated
to us if all contributed properties were to have a tax basis equal to their fair market value at the time of the contribution
and (2) in the event of a sale of such properties, could cause us to be allocated taxable gain in excess of the economic or book
gain allocated to us as a result of such sale, with a corresponding benefit to the contributing partners. An allocation described
in (2) above might cause us to recognize taxable income in excess of cash proceeds in the event of a sale or other disposition
of property, which might adversely affect our ability to comply with the REIT distribution requirements and may result in a greater
portion of our distributions being taxed as dividends. We have not yet decided what method will be used to account for book-tax
differences for properties that may be acquired in exchange for OP units by our operating partnership in the future.
Generally,
any gain realized by a Partnership on the sale of property held by the Partnership for more than one year will be long-term capital
gain, except for any portion of such gain that is treated as depreciation or cost recovery recapture. Under Section 704(c) of
the Code, any gain or loss recognized by a Partnership on the disposition of contributed properties will be allocated first to
the partners of the Partnership who contributed such properties to the extent of their built-in gain or loss on those properties
for federal income tax purposes. The partners' built-in gain or loss on such contributed properties will equal the difference
between the partners' proportionate share of the book value of those properties and the partners' tax basis allocable to those
properties at the time of the contribution as reduced for any decrease in the "book-tax difference." Any remaining gain or loss
recognized by the Partnership on the disposition of the contributed properties, and any gain or loss recognized by the Partnership
on the disposition of the other properties, will be allocated among the partners in accordance with their respective percentage
interests in the Partnership.
Our
share of any gain realized by a Partnership on the sale of any property held by the Partnership as inventory or other property
held primarily for sale to customers in the ordinary course of the Partnership's trade or business will be treated as income from
a prohibited transaction that is subject to a 100% prohibited transactions tax. Such prohibited transaction income also may have
an adverse effect upon our ability to satisfy the income tests for REIT status. See "- Gross Income Tests." We do not presently
intend to acquire or hold or to allow any Partnership to acquire or hold any property that represents inventory or other property
held primarily for sale to customers in the ordinary course of our or such Partnership's trade or business.
Other
Tax Considerations
The
present federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative, judicial or administrative
action at any time. The REIT rules are constantly under review by persons involved in the legislative process and by the IRS and
the U.S. Treasury Department which may result in statutory changes as well as revisions to regulations and interpretations. Prospective
stockholders are urged to consult with their own tax advisors regarding the effect of potential changes to the federal tax laws
on an investment in our common stock.
We
and/or you may be subject to taxation by various states and localities, including those in which we or a stockholder transacts
business, owns property or resides. The state and local tax treatment may differ from the federal income tax treatment described
above. Consequently, you should consult your own tax advisors regarding the effect of state and local tax laws upon an investment
in our common stock.
ERISA
CONSIDERATIONS
The
following is a summary of certain considerations associated with the purchase of the shares of our common stock by employee benefit
plans that are subject to Title I of the United States Employee Retirement Income Security Act of 1974, as amended, or ERISA,
plans, individual retirement accounts and other arrangements that are subject to Section 4975 of the Code or provisions under
any federal, state, local, non-U.S. or other laws or regulations that are similar to such provisions of the Code or ERISA, or,
collectively, "Similar Laws," and entities whose underlying assets are considered to include "plan assets" of any such plan, account
or arrangement, or, each, a Plan. THE FOLLOWING IS MERELY A SUMMARY, HOWEVER, AND SHOULD NOT BE CONSTRUED AS LEGAL ADVICE OR AS
COMPLETE IN ALL RELEVANT RESPECTS. ALL INVESTORS ARE URGED TO CONSULT THEIR LEGAL ADVISORS BEFORE INVESTING ASSETS OF A PLAN IN
US AND TO MAKE THEIR OWN INDEPENDENT DECISION.
General
Fiduciary Matters
ERISA
and the Code impose certain duties on persons who are fiduciaries of a Plan subject to Title I of ERISA or Section 4975 of the
Code, or an ERISA Plan, and prohibit certain transactions involving the assets of an ERISA Plan and its fiduciaries or other interested
parties. Under ERISA and the Code, any person who exercises any discretionary authority or control over the administration of
such an ERISA Plan or the management or disposition of the assets of such an ERISA Plan, or who renders investment advice for
a fee or other compensation to such an ERISA Plan, is generally considered to be a fiduciary of the ERISA Plan.
In
considering an investment in shares of our common stock of a portion of the assets of any Plan, a fiduciary should determine whether
the investment is in accordance with the documents and instruments governing the Plan and the applicable provisions of ERISA,
the Code or any Similar Law relating to a fiduciary's duties to the Plan including, without limitation, the prudence, diversification,
delegation of control and prohibited transaction provisions of ERISA, the Code and any other applicable Similar Laws.
Prohibited
Transaction Issues
Section
406 of ERISA and Section 4975 of the Code (which also applies to IRAs and other Plans that are not subject to ERISA) prohibit
ERISA Plans from engaging in specified transactions involving plan assets with persons or entities who are "parties in interest,"
within the meaning of ERISA, or "disqualified persons," within the meaning of Section 4975 of the Code, unless an exemption is
available. A party in interest or disqualified person who engages in a non-exempt prohibited transaction may be subject to excise
taxes under the Code and other penalties and liabilities under ERISA and may result in the loss of tax-exempt status of an IRA.
In addition, the fiduciary of an ERISA Plan that engages in such a non-exempt prohibited transaction may be subject to personal
liabilities under ERISA.
Whether
or not the underlying assets of the Company are deemed to include "plan assets," as described below, the acquisition and/or holding
of shares of our common stock by an ERISA Plan with respect to which we or the initial purchaser is considered a party in interest
or a disqualified person may constitute or result in a direct or indirect prohibited transaction under Section 406 of ERISA and/or
Section 4975 of the Code, unless the investment is acquired and is held in accordance with an applicable statutory, class or individual
prohibited transaction exemption. In this regard, the United States Department of Labor, or the DOL, has issued prohibited transaction
class exemptions, or PTCEs, that may apply to the acquisition and holding of our common stock. These class exemptions include,
without limitation, PTCE 84-14 respecting transactions determined by independent qualified professional asset managers, PTCE 90-1
respecting insurance company pooled separate accounts, PTCE 91-38 respecting bank collective investment funds, PTCE 95-60 respecting
life insurance company general accounts and PTCE 96-23 respecting transactions determined by in-house asset managers.
In
addition, Section 408(b)(17) of ERISA and Section 4975(d)(20) of the Code provide an exemption from certain of the prohibited
transaction provisions of ERISA and Section 4975 of the Code, provided that neither the issuer of the securities nor any of its
affiliates (directly or indirectly) have or exercise any discretionary authority or control or render any investment advice with
respect to the assets of any ERISA Plan involved in the transaction and provided further that the ERISA Plan pays no more than
adequate consideration in connection with the transaction. There can be no assurance that all of the conditions of any such exemptions
will be satisfied.
Plan
Asset Issues
The
DOL Plan Asset Regulations, promulgated under ERISA by the DOL, generally provide that when an ERISA Plan acquires an equity interest
in an entity that is neither a "publicly-offered security" nor a security issued by an investment company registered under the
Investment Company Act, the ERISA Plan's assets include both the equity interest and an undivided interest in each of the underlying
assets of the entity unless it is established either that less than 25% of the total value of each class of equity interest in
the entity is held by "benefit plan investors" (the "insignificant participation test") or that the entity is an "operating company,"
as defined in the DOL Plan Asset Regulations. The term "benefit plan investor" means (i) an employee benefit plan subject to Part
4 of Title I of ERISA, (ii) any "plan" subject to Section 4975 of the Code, and (iii) any entity whose underlying assets include
plan assets by reason of a plan's investment in such entity.
For
purposes of the DOL Plan Asset Regulations, a "publicly-offered security" is a security that is (a) "freely transferable," (b)
part of a class of securities that is "widely held," which generally requires that the securities be owned by 100 or more persons
who are independent of the issuer and one another, and (c) (x) sold to the Plan as part of an offering of securities to the public
pursuant to an effective registration statement under the Securities Act and the class of securities to which such security is
a part is registered under the Exchange Act within 120 days after the end of the fiscal year of the issuer during which the offering
of such securities to the public has occurred, or (y) is part of a class of securities that is registered under Section 12(b)
or 12(g) of the Exchange Act.
Shares
of our common stock are being sold as part of an offering of securities to the public pursuant to an effective registration statement
under the Securities Act, and are part of a class that is registered under Section 12(g) of the Exchange Act. In addition, we
expect to have over 100 independent stockholders, such that shares of our common stock will be "widely held."
Whether
a security is "freely transferable" depends upon the particular facts and circumstances. Upon the closing of this offering, shares
of our common stock will become subject to certain restrictions on transferability intended to ensure that we qualify for federal
income tax treatment as a REIT and maintain such status. However, among other considerations, the DOL Plan Asset Regulations provide
that where the minimum investment in a public offering of securities is $10,000 or less, the presence of a restriction on transferability
intended to prohibit transfers which would result in a termination or reclassification of the entity for state or federal tax
purposes will not ordinarily affect a determination that such securities are freely transferable. The minimum investment in shares
of our common stock is less than $10,000; thus, we believe that the restrictions imposed in order to qualify and maintain our
status as a REIT should not cause the shares of common stock to be deemed not freely transferable. Nonetheless, we cannot assure
you that the Department of Labor and/or the U.S. Treasury Department could not reach a contrary conclusion.
Assuming
that shares of our common stock will be "widely held," that no other facts and circumstances other than those referred to in the
preceding paragraph exist that restrict transferability of shares of our common stock, and the offering takes place as described
in this prospectus, we believe that shares of our common stock should constitute "publicly-offered securities" and, accordingly,
our underlying assets should not be considered "plan assets" under the DOL Plan Assets Regulations. If our underlying assets are
not deemed to be "plan assets," the issues discussed in the paragraph below entitled "Plan Asset Consequences" are not expected
to arise.
Plan
Asset Consequences
If
our assets were deemed to be "plan assets" under ERISA, this would result, among other things, in (1) the application of the prudence
and other fiduciary responsibility standards of ERISA to investments made by us, and (2) the possibility that certain transactions
in which we might seek to engage could constitute "prohibited transactions" under ERISA and the Code.
Representation
Accordingly,
by acceptance of the shares of our common stock, each purchaser or subsequent transferee of shares of our common stock will be
deemed to have represented and warranted either that (1) no portion of such purchaser's or transferee's assets used to acquire
such shares constitutes assets of any benefit plan investor or (2) the purchase of shares of our common stock by such purchaser
or transferee will not constitute a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or
similar violation under any applicable Similar Laws.
The
foregoing discussion is general in nature, is not intended to be all-inclusive, and is based on laws in effect on the date of
this prospectus. Such discussion should not be construed as legal advice. Due to the complexity of these rules and the penalties
that may be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries
of ERISA Plans, or other persons considering purchasing shares of our common stock on behalf of, or with the assets of, any Plan
consult with counsel regarding the potential applicability of ERISA, Section 4975 of the Code and Similar Laws to such investment,
and whether an exemption would be applicable to the purchase of shares of our common stock.
Operating
Partnership and The Partnership Agreement
The
following summary of the terms of the agreement of limited partnership of our operating partnership - AHIT Valfre, does not purport
to be complete and is subject to and qualified in its entirety by reference to the Agreement of Limited Partnership of our operating
partnership. The Company directs the reader of this Prospectus to its prior filings with the Commission detailing the operations
of AHIT Valfre.
Management
The
Company is the sole general partner of our operating partnership, which we organized as a Maryland limited liability partnership.
Pursuant to the partnership agreement, we have full, exclusive and complete responsibility and discretion in the management and
control of our operating partnership, including the ability to cause our operating partnership to enter into certain major transactions
including acquisitions, dispositions, refinancing and selection of tenants, to make distributions to partners and to cause changes
in our operating partnership's business activities.
The
partnership agreement requires that our operating partnership be operated in a manner that enables us to satisfy the requirements
for being classified as a REIT, to avoid any federal income or excise tax liability imposed by the Code (other than any federal
income tax liability associated with our retained capital gains) and to ensure that the partnership will not be classified as
a "publicly-traded partnership" taxable as a corporation under Section 7704 of the Code.
Capital
Contribution
The
Company has made significant contributions to the operating partnership in serving as General Partner. The partnership agreement
provides that if our operating partnership requires additional funds at any time in excess of funds available to our operating
partnership from borrowing or capital contributions, we may borrow such funds from a financial institution or other lender and
lend such funds to our operating partnership on the same terms and conditions as are applicable to our borrowing of such funds.
Redemption
Rights
Pursuant
to the partnership agreement, the limited partners have been granted redemption rights, which would enable them to cause our operating
partnership to redeem their units in exchange for cash or, at our option, shares of our common stock on a one-for-one basis. The
cash redemption amount per unit generally would be based on the market price of our common stock at the time of redemption. The
number of shares of our common stock issuable upon redemption of limited partnership interests held by limited partners may be
adjusted upon the occurrence of certain events such as share dividends, share subdivisions or combinations. Notwithstanding the
foregoing, a limited partner will not be entitled to exercise its redemption rights if the delivery of common stock to the redeeming
limited partner would (a) result in any person owning, directly or indirectly, common stocks in excess of the Stock Ownership
Limit, (b) result in our common stock being owned by fewer than 100 persons (determined without reference to any rules of attribution);
(c) result in our being "closely held" within the meaning of Section 856(h) of the Code; (d) cause us to own, actually or constructively,
10% or more of the ownership interests in a tenant (other than a taxable REIT subsidiary) of ours, our operating partnership's
or a subsidiary partnership's real property, within the meaning of Section 856(d)(2)(B) of the Code; (e) cause us to fail to qualify
as a REIT under the Code; or (f) cause the acquisition of common stock by such redeeming limited partner to be "integrated" with
any other distribution of common stock for purposes of complying with the registration provisions of the Securities Act. We may,
in our sole and absolute discretion, waive any of these restrictions.
Partnership
Expenses
In
addition to the administrative and operating costs and expenses incurred by our operating partnership, our operating partnership
generally will pay all of our administrative costs and expenses. These expenses, however, do not include any of our administrative
and operating costs and expenses incurred that are attributable to residential properties that are owned by us directly rather
than by our operating partnership or its subsidiaries.
Fiduciary
Responsibilities
Our
directors and officers have duties under applicable Maryland law to manage us in a manner consistent with our best interests.
At the same time, we, as the general partner of our operating partnership, will have fiduciary duties to manage our operating
partnership in a manner beneficial to our operating partnership and its partners. Our duties, through our wholly owned subsidiary,
as general partner to our operating partnership and its limited partners, therefore, may come into conflict with the duties of
our directors and officers to our stockholders. We will be under no obligation to give priority to the separate interests of the
limited partners of our operating partnership or our stockholders in deciding whether to cause our operating partnership to take
or decline to take any actions. The limited partners of our operating partnership expressly will acknowledge that as the general
partner of our operating partnership, our wholly owned subsidiary is acting for the benefit of our operating partnership, the
limited partners and our stockholders collectively.
Indemnification
and Limitation of Liability
The
partnership agreement expressly limits our liability by providing that neither we, as the general partner of our operating partnership,
nor any of our trustees or officers, will be liable or accountable in damages to our operating partnership, the limited partners
or assignees for errors in judgment, mistakes of fact or law or for any act or omission if we, or such trustee or officer, acted
in good faith. In addition, our operating partnership is required to indemnify us, and our officers, trustees, employees, agents
and designees to the fullest extent permitted by applicable law from and against any and all claims arising from operations of
our operating partnership, unless it is established that (1) the act or omission was material to the matter giving rise to the
proceeding and was committed in bad faith or was the result of active and deliberate dishonesty, (2) the indemnified party actually
received an improper personal benefit in money, property or services or (3) in the case of a criminal proceeding, the indemnified
person had reasonable cause to believe that the act or omission was unlawful. Our operating partnership also must pay or reimburse
the reasonable expenses of any such person upon its receipt of a written affirmation of the person's good faith belief that the
standard of conduct necessary for indemnification has been met and a written undertaking to repay any amounts paid or advanced
if it is ultimately determined that the person did not meet the standard of conduct for indemnification.
Distributions
The
partnership agreement provides that our operating partnership may distribute cash from operations (including net sale or refinancing
proceeds, but excluding net proceeds from the sale of our operating partnership's property in connection with the liquidation
of our operating partnership) at such time and in such amounts as determined by us in our sole discretion, to us and, where deemed
appropriate, the limited partners (whose rights are limited to the most part to conversion rights into the Company's common stock)
in accordance with their respective percentage interests in our operating partnership.
Upon
liquidation of our operating partnership, after payment of, or adequate provision for, debts and obligations of the partnership,
including any partner loans, any remaining assets of the partnership will be distributed to us and the limited partners with positive
capital accounts in accordance with their respective positive capital account balances.
Allocations
Profits
and losses of the partnership (including depreciation and amortization deductions) for each fiscal year generally will be allocated
to us and the other limited partners in accordance with the respective percentage interests in the partnership. The foregoing
allocations are subject to compliance with the provisions of Sections 704(b) and 704(c) of the Code and Treasury Regulations promulgated
thereunder. To the extent Treasury Regulations promulgated pursuant to Section 704(c) of the Code permit, and unless we otherwise
agree, we, as the sole member of the general partner, will have the authority to elect the method to be used by our operating
partnership for allocating items with respect to property contributed to the partnership for which the fair market value differs
from the adjusted tax basis at the time of contribution, and such election will be binding on all partners.
Term
Our
operating partnership will continue indefinitely, or until sooner dissolved upon (a) our bankruptcy, dissolution, removal or withdrawal
(unless the limited partners elect to continue the partnership); (b) the passage of 90 days after the sale or other disposition
of all or substantially all of the assets of the partnership; (c) the redemption of all partnership units (other than those held
by us, if any); or (d) an election by us in our capacity as the general partner.
Registration
Rights
Our
operating partnership's limited partners (other than us and our subsidiaries) will have the right to require our operating partnership
to redeem part or all of their units for cash, or, at our election, shares of our common stock. We may grant registration rights
to those persons who will receive shares of our common stock issuable upon redemption of units. The limited partners have agreed
to waive their registration rights associated with the shares subject to the potential redemption.
These
registration rights require us to seek to register all such shares of our common stock approximately 12 months after issuance
of such units. Our operating partnership will bear expenses incident to these registration requirements. However, neither we nor
our operating partnership will bear the costs of (1) any underwriting discounts or commissions or (2) any fees or expenses incurred
by holders of such shares of our common stock in connection with such registration that we or our operating partnership are not
permitted to pay according to the rules of any regulatory authority.
Tax
Matters
The
operating partnership initially will be wholly-owned, directly and indirectly, by the Company, and during such time it will be
classified for U.S. federal income tax purposes as a disregarded entity. The operating partnership will be classified as a partnership
for federal income tax purposes at such time as it is deemed for such purposes to have more than one member. The partnership agreement
provides that the Company, as the sole general partner of our operating partnership, is the tax matters partner of our operating
partnership and, as such, has authority to handle tax audits and to make tax elections under the Code on behalf of our operating
partnership.
ITEM
4. USE OF PROCEEDS
The
Company will not receive any proceeds from the sale of common stock by the Selling Shareholders. Our direct public offering of
3,000,000 shares of common stock is being made on a self-underwritten basis and there is no minimum number of shares of common
stock that must be sold in order for the offering to proceed. The net proceeds to the Company from the sale of up to 3,000,000
shares offered through the offering price of $3.00 per share (total of $9,000,000) will vary contingent upon the success of the
Company's sales efforts.
It
is the Company's intention to use proceeds raised through this prospectus towards the acquisition, planning and development of
real property consistent with its business plan, and towards the continued expenses commonly associated with operating a publicly
reporting company. To the extent there are excess proceeds from the offering associated with this prospectus, the Company intends
on using such proceeds in furtherance of its business purpose, as set forth in Item 11. Regardless of the number of shares of
common stock sold, the Company expects to incur offering expenses estimated at $50,000 for legal, accounting, printing and other
costs in connection with this offering. We will not maintain an escrow account for the receipt of proceeds from the sale of our
registered shares of common stock.
ITEM
5. DETERMINATION OF THE OFFERING PRICE
The
offering price of registered shares of common stock in this Prospectus has been determined arbitrarily by the Company. The
price does not bear any relationship to our assets, book value, earnings, or other established criteria for valuing a publicly-reporting
company. In determining the number of shares to be offered and the offering price, we took into consideration our cash on hand
and the amount of money we would need to implement our business plan. The Company further based this offering price on comparable
companies operating in the same or similar industry. Accordingly, the offering price should not be considered an indication of
the actual value of the securities.
ITEM
6. DILUTION
At
this time, the Company does not have any disclosures required under Item 506 of Regulation S-K.
ITEM
7. SELLING SHAREHOLDERS
The
Company's current shareholders hold an aggregate amount of 7,565,340 issued and outstanding shares. On January 12, 2016,
Tech Associates and the Company entered into a Mutual Release whereby, amongst other things, Tech Associates agreed to release
any and all rights, title and interest to its previously issued shares, i.e. 24,000 shares of common stock. This Mutual Release
was delivered to the Company's transfer agent for cancellation. Other than those shares identified herein as being held by the
Selling Shareholders, the Company is not registering or selling other shareholder's respective shares through this
Prospectus. The Company will not receive any proceeds from the sale of the shares by the Selling Shareholders. The Selling Shareholders
have no agreement with any underwriters with respect to the sale of their shares. The Selling Shareholders, who are deemed to
be statutory underwriters, will offer their shares at a price of $3.75 per share during the duration of this offering.
The
Selling Shareholders may from time to time offer their shares through underwriters, dealers or agents, which may receive compensation
in the form of underwriting discounts, concessions or commissions from them and/or the purchasers of the Selling Shareholder's
shares for whom they may act as agents. Any agents, dealers or underwriters that participate in the distribution of the Selling
Shareholder shares may be deemed to be "underwriters" under the Securities Act and any discounts, commissions or concessions received
by any such underwriters, dealers or agents might be deemed to be underwriting discounts and commissions under the Securities
Act.
The
following table sets forth ownership of shares held by each person who is a Selling Shareholder. The "*" represents a percentage
less than 1.0%.
NAME |
SHARES
BENEFICIALLY OWNED PRIOR TO OFFERINGS (NUMBER) |
SHARES
BENEFICIALLY OWNED PRIOR TO OFFERINGS (PERCENT) |
NUMBER
OF SHARES OFFERED |
SHARES
BENEFICALLY OWNED AFTER OFFERING (NUMBER) |
SHARES
BENEFICALLY OWNED AFTER OFFERING (PERCENT) |
A.
ROGER WELLS |
100,131 |
1.3 |
100,131 |
100,131 |
* |
AARON
MORRISON |
1 |
* |
1 |
1 |
* |
ADENA
YOUNGER |
31,798 |
* |
31,798 |
31,798 |
* |
ADRIAN
DELEON |
1 |
* |
1 |
1 |
* |
ADRIENNE
RICE |
1 |
* |
1 |
1 |
* |
ALASKA
USA TRUST COMPANY |
1 |
* |
1 |
1 |
* |
ALBERT
BOLLWERK |
11,521 |
* |
11,521 |
11,521 |
* |
ALENA
MARGLIN |
4 |
* |
4 |
4 |
* |
ALEX
GAROFALO |
1 |
* |
1 |
1 |
* |
ALEXANDER
AKBRUT |
13 |
* |
13 |
13 |
* |
ALEXANDER
EMES |
1 |
* |
1 |
1 |
* |
ALEXANDER
LIMESAND |
1 |
* |
1 |
1 |
* |
ALEXANDER
ROTHMAN |
1 |
* |
1 |
1 |
* |
ALLAN
OUCHO |
1 |
* |
1 |
1 |
* |
AMERICAN
REALTY PARTNERS, LLC (1) |
58,810 |
* |
58,810 |
58,810 |
* |
AMIL
ALKASS |
1 |
* |
1 |
1 |
* |
AMY
F MACRAE |
1 |
* |
1 |
1 |
* |
ANDREW
STEWART |
3 |
* |
3 |
3 |
* |
ANNA
MARIE CONFORTI |
1 |
* |
1 |
1 |
* |
ANNIE
NGUYEN |
1 |
* |
1 |
1 |
* |
ANTHONY
EUGENIO |
1 |
* |
1 |
1 |
* |
ANTHONY
MALHERON |
1 |
* |
1 |
1 |
* |
ANTHONY
PHIFER |
3 |
* |
3 |
3 |
* |
APEX
CLEARING CORPORATION |
1 |
* |
1 |
1 |
* |
APEX
CLEARING CORPORATION USA |
1 |
* |
1 |
1 |
* |
ARTHUR
CHAN |
1 |
* |
1 |
1 |
* |
ARTHUR
CHANG YULE AND RAYMOND YULE JTTEN |
8,295 |
* |
8,295 |
8,295 |
* |
ARTURO
NAVARRETE |
1 |
* |
1 |
1 |
* |
ASHLEY
MUELLER |
1 |
* |
1 |
1 |
* |
ASHLEY
SINDACO |
1 |
* |
1 |
1 |
* |
AUDREY
LAMBE |
6 |
* |
6 |
6 |
* |
BANK
OF ETIHAD |
1 |
* |
1 |
1 |
* |
BARBARA
METZ |
11,118 |
* |
11,118 |
11,118 |
* |
BARRY
MIGLIORINI (2) |
6,000 |
* |
6,000 |
6,000 |
* |
BEN
KUHNER AND LINDA LOWRY JTTEN |
9,678 |
* |
9,678 |
9,678 |
* |
BEN
WHITE |
14,517 |
* |
14,517 |
14,517 |
* |
BENJAMIN
B GORDON |
1 |
* |
1 |
1 |
* |
BNP
PARIBAS PRIME BROKERAGE, INC. |
1 |
* |
1 |
1 |
* |
BOBBY
GARRIS |
6 |
* |
6 |
6 |
* |
BRANDON
KRAMER |
1 |
* |
1 |
1 |
* |
BRANDON
TAYLOR |
3 |
* |
3 |
3 |
* |
BRIAN
DELEKTA |
1 |
* |
1 |
1 |
* |
BRIAN
SEYMOUR |
2 |
* |
2 |
2 |
* |
BRIAN
WOZINSKY |
1 |
* |
1 |
1 |
* |
BROWN
BROTHERS HARRIMAN & CO |
1 |
* |
1 |
1 |
* |
BRYAN
BOYLE |
19 |
* |
19 |
19 |
* |
BULOVATECH
LABS, INC. |
1 |
* |
1 |
1 |
* |
BYRON
BIZZLE |
1 |
* |
1 |
1 |
* |
CAPITAL
INVESTORS, LLC |
28,802 |
* |
28,802 |
28,802 |
* |
CARL
ALEXANDER HUMANN |
1 |
* |
1 |
1 |
* |
CARMELA
HASNER |
1 |
* |
1 |
1 |
* |
CAROL
ANN SAPHIERE |
63,595 |
* |
63,595 |
63,595 |
* |
CAROL
MCNEIL |
1 |
* |
1 |
1 |
* |
CAROLINE
RHEA |
1 |
* |
1 |
1 |
* |
CARTER
A. JONES |
1 |
* |
1 |
1 |
* |
CDS
CLEARING AND DEPOSITORY SERVICES INC |
1 |
* |
1 |
1 |
* |
CEDE
& CO. |
6 |
* |
6 |
6 |
* |
CELESTE
TABIZ |
1 |
* |
1 |
1 |
* |
CHAD
WESTOVER AND JEAN WESTOVER TTEES, WESTOVER TRUST DYD 12/21/2006 |
20,853 |
* |
20,853 |
20,853 |
* |
CHARLES
BAILES |
9,678 |
* |
9,678 |
9,678 |
* |
CHARLES
G. HODGE III AND LINDA G. HODGE, TTEES OF THE CHARLES G. HODGE AND LINDA G. HODGE LIV TRUST DTD 6/12/2002 |
16,533 |
* |
16,533 |
16,533 |
* |
CHARLES
SCHWAB & CO INC |
1 |
* |
1 |
1 |
* |
CHRIS
NEAL |
2 |
* |
2 |
2 |
* |
CHRIS
ROBERTS |
1 |
* |
1 |
1 |
* |
CHRISTOPHER
BAILLIE |
1 |
* |
1 |
1 |
* |
CLIFFORD
CUONG PHAN |
1 |
* |
1 |
1 |
* |
COLETTE
CROWLEY |
1 |
* |
1 |
1 |
* |
COR
CLEARING LLC |
1 |
* |
1 |
1 |
* |
CORY
GRANNELL |
1 |
* |
1 |
1 |
* |
CRAIG
A HUFFMAN |
1 |
* |
1 |
1 |
* |
CRAIG
HUHMAN |
1 |
* |
1 |
1 |
* |
CRAIG
MCGOVERN |
28,802 |
* |
28,802 |
28,802 |
* |
CRAIG
SALMON |
1 |
* |
1 |
1 |
* |
CRAIG
WA |
1 |
* |
1 |
1 |
* |
DAN
MORIARTY AND MARY ANN MORIARTY TTEES OF THE MORIARTY LIVING TRUST DTD 8/8/2007 |
16,533 |
* |
16,533 |
16,533 |
* |
DANIEL
A. NEGAARD |
22,869 |
* |
22,869 |
22,869 |
* |
DANIEL
CARLBERG |
39,563 |
* |
39,563 |
39,563 |
* |
DANIEL
CROWLEY |
1 |
* |
1 |
1 |
* |
DANIEL
DE LEON |
1 |
* |
1 |
1 |
* |
DANIEL
FORMAN |
1 |
* |
1 |
1 |
* |
DANIEL
PFUNDSTEIN |
4 |
* |
4 |
4 |
* |
DANNY
DAI LIN YU |
1 |
* |
1 |
1 |
* |
DANNY
MCCOY |
4 |
* |
4 |
4 |
* |
DARIUS
WALKER JR. |
1 |
* |
1 |
1 |
* |
DARRELL
COUCH |
1 |
* |
1 |
1 |
* |
DATA
CAPITAL CORP. |
1,870 |
* |
1,870 |
1,870 |
* |
DATA
CAPITAL CORP. |
9,200 |
* |
9,200 |
9,200 |
* |
DATA
CAPITAL CORP. |
6,700 |
* |
6,700 |
6,700 |
* |
DAVID
BARR |
4,782 |
* |
4,782 |
4,782 |
* |
DAVID
BRANNON |
31,798 |
* |
31,798 |
31,798 |
* |
DAVID
CARIDEO |
28,802 |
* |
28,802 |
28,802 |
* |
DAVID
DAVIS |
5 |
* |
5 |
5 |
* |
DAVID
DUTTRY |
1 |
* |
1 |
1 |
* |
DAVID
HARVEY |
11,667 |
* |
11,667 |
11,667 |
* |
DAVID
JONES |
1 |
* |
1 |
1 |
* |
DAVID
MICHAEL ZERBY |
1 |
* |
1 |
1 |
* |
DAVID
ROSS JOHNSON |
1 |
* |
1 |
1 |
* |
DAVID
SLOMINSKI |
2 |
* |
2 |
2 |
* |
DEBORAH
MILLER |
4,839 |
* |
4,839 |
4,839 |
* |
DENNIS
REIBOLD |
6,452 |
* |
6,452 |
6,452 |
* |
DENNIS
SCHNEIDER |
8,641 |
* |
8,641 |
8,641 |
* |
DERRICK
LEFCOE |
9 |
* |
9 |
9 |
* |
DIANE
BYRNE |
4 |
* |
4 |
4 |
* |
DILEEPTHIAGARAJAN |
2 |
* |
2 |
2 |
* |
DOMINIC
PORPIGLIA |
16,533 |
* |
16,533 |
16,533 |
* |
DONALD
DAMON |
2 |
* |
2 |
2 |
* |
DONALD
FARRER |
10,000 |
* |
10,000 |
10,000 |
* |
DONALD
FISHER |
58 |
* |
58 |
58 |
* |
DONALD
ZWIRN AND JOYCE ZWIRN JTTEN |
3,169 |
* |
3,169 |
3,169 |
* |
DOROTHY
BEHNE |
5,000 |
* |
5,000 |
5,000 |
* |
DOROTHY
BEHNE AND NATHAN BEHNE JTTEN |
5,761 |
* |
5,761 |
5,761 |
* |
DOUG
POFFINBARGER SUCC. TRUSTEE OF THE EDWIN CINK AND IDA MAE CINK TRUST DATED 2/12/2002 |
5,761 |
* |
5,761 |
5,761 |
* |
DOUGLAS
TEMPLETON |
28,802 |
* |
28,802 |
28,802 |
* |
DREW
FRANDY |
4 |
* |
4 |
4 |
* |
E*TRADE
CLEARING LLC |
3 |
* |
3 |
3 |
* |
E*TRADE
CUSTODIAN FBO TODD NIELSEN |
9,966 |
* |
9,966 |
9,966 |
* |
EARL
GALLAGHER |
1 |
* |
1 |
1 |
* |
EARTHFIRST
TECHNOLOGIES, INC. |
1 |
* |
1 |
1 |
* |
EDWARD
HALL |
23,042 |
* |
23,042 |
23,042 |
* |
EDWARD
KNIPP |
4,782 |
* |
4,782 |
4,782 |
* |
EDWARD
KOESTER |
1,671 |
* |
1,671 |
1,671 |
* |
ELIAS
DAGHER |
6 |
* |
6 |
6 |
* |
ELIAS
SMEROS |
1 |
* |
1 |
1 |
* |
ELIZABETH
F WASSEROTT |
1 |
* |
1 |
1 |
* |
ELIZABETH
KONAR |
1 |
* |
1 |
1 |
* |
EMRBILLING.US
CORP. |
1,000 |
* |
1,000 |
1,000 |
* |
ENNIS
CHAUHAN |
1 |
* |
1 |
1 |
* |
ERDEM
BICER |
1 |
* |
1 |
1 |
* |
ERIC
BUTZ |
1 |
* |
1 |
1 |
* |
ERIC
GERON |
6,625 |
* |
6,625 |
6,625 |
* |
ERIC
LARSEN |
2 |
* |
2 |
2 |
* |
ERIC
LIND |
1 |
* |
1 |
1 |
* |
ERIC
M JORDAN |
1 |
* |
1 |
1 |
* |
ERIC
MICHAEL O'HALLORAN |
1 |
* |
1 |
1 |
* |
ERIC
MILLER |
1 |
* |
1 |
1 |
* |
ERIC
SHEELY AND BETH SHEELY JTTEN |
51,671 |
* |
51,671 |
51,671 |
* |
ERIK
VANLIER |
6 |
* |
6 |
6 |
* |
ERNESTO
SALAS |
1 |
* |
1 |
1 |
* |
EUGENE
CHEN |
1 |
* |
1 |
1 |
* |
EUGENE
SWANTZ JR TRUSTEE OF THE SWANTZ TRUST A DTD 1/7/1977 |
16,417 |
* |
16,417 |
16,417 |
* |
FADI
MARIE |
1 |
* |
1 |
1 |
* |
FATIN
PRESLEY |
9 |
* |
9 |
9 |
* |
FIRST
CLEARING LLC |
8 |
* |
8 |
8 |
* |
FRANKLIN
D. BARNETT |
6,625 |
* |
6,625 |
6,625 |
* |
FRED
SAXER, TRUSTEE OF THE SAXER LIVING TRUST DTD 9/3/1996 |
96,774 |
1.2 |
96,774 |
96,774 |
* |
FRED
TURNER AND TRUDIE TURNER TTEE TURNER FAMILY TRUST DTD 5/5/1999 |
4,954 |
* |
4,954 |
4,954 |
* |
FRED
VANNATTA AND MARIEL VANNATTA TTEES, VANNATTA LIVING TRUST DTD 7/13/2000 |
17,282 |
* |
17,282 |
17,282 |
* |
FREDERICK
GHOSN |
1 |
* |
1 |
1 |
* |
FREDRICK
MENG |
12,731 |
* |
12,731 |
12,731 |
* |
GABRIEL
ESPINAL |
1 |
* |
1 |
1 |
* |
GARRETT
CAMPBELL |
7,950 |
* |
7,950 |
7,950 |
* |
GARY
DUNNING |
1 |
* |
1 |
1 |
* |
GEMINI
GROUP GLOBAL CORP. |
2,000 |
* |
2,000 |
2,000 |
* |
GEOFFREY
YOUNG |
1 |
* |
1 |
1 |
* |
GEORGE
E. RING JR. |
1 |
* |
1 |
1 |
* |
GEORGE
SHARP |
1,000 |
* |
1,000 |
1,000 |
* |
GERALD
RAYMOND AND JACKIE RAYMOND TRUSTEES OF THE RAYMOND TRUST DTD 4/2/2003 |
41,014 |
* |
41,014 |
41,014 |
* |
GERALDINE
YETZER |
1 |
* |
1 |
1 |
* |
GERARD
WOJTAN |
469 |
* |
469 |
469 |
* |
GERLACH
& CO |
2 |
* |
2 |
2 |
* |
GIBRALTAR
GLOBAL SECURITIES INC |
3 |
* |
3 |
3 |
* |
GILBERT
WEINSTOCK |
4,839 |
* |
4,839 |
4,839 |
* |
GIUSEPPE
CARUSONE |
11 |
* |
11 |
11 |
* |
GLEN
WILSON |
1 |
* |
1 |
1 |
* |
GLENN
STEWART |
1 |
* |
1 |
1 |
* |
GLOBAL
SECURITIES CORPORATION/CDS |
1 |
* |
1 |
1 |
* |
GOLDMAN
SACHS EXECUTION & CLEARING L.P. |
1 |
* |
1 |
1 |
* |
GREEN
STONE HOLDINGS |
11 |
* |
11 |
11 |
* |
GREGG
C. MASON |
55 |
* |
55 |
55 |
* |
GREGORY
LINDEN |
19 |
* |
19 |
19 |
* |
GREGORY
ROE |
1 |
* |
1 |
1 |
* |
GREGORY
WELDON BLEVINS |
33,065 |
* |
33,065 |
33,065 |
* |
GUNDYCO |
1 |
* |
1 |
1 |
* |
HANS-JUERGEN
BALTES |
11 |
* |
11 |
11 |
* |
HARE
& CO LLC |
2 |
* |
2 |
2 |
* |
HARISH
SANJEEVI KRISHNAN |
1 |
* |
1 |
1 |
* |
HAYWOOD
SECURITIES INC |
1 |
* |
1 |
1 |
* |
HENRY
SEBACH |
11,291 |
* |
11,291 |
11,291 |
* |
HUESLER
DOMINIK |
3 |
* |
3 |
3 |
* |
HUMAYOON
NASEER |
1 |
* |
1 |
1 |
* |
IDEAL
VENTURES FUND, LLC |
9,400 |
* |
9,400 |
9,400 |
* |
IRA
RESOURCES , INC. CUST, FBO FRANKLIN BARNETT IRA |
3,284 |
* |
3,284 |
3,284 |
* |
IRA
RESOURCES INC CUST FBO FBO KRIS MENDENHALL IRA |
6,625 |
* |
6,625 |
6,625 |
* |
IRA
RESOURCES INC CUST FBO KENT YAUGER IRA TRADITIONAL |
11,579 |
* |
11,579 |
11,579 |
* |
IRA
RESOURCES INC. CUST FBO BETH SHEELY IRA |
6,625 |
* |
6,625 |
6,625 |
* |
IRA
RESOURCES INC. CUST FBO REBECCA HAYEK IRA |
8,295 |
* |
8,295 |
8,295 |
* |
IRA
RESOURCES INC. CUST FBO ROBIN WRIGHT IRA |
8,295 |
* |
8,295 |
8,295 |
* |
IRA
RESOURCES INC. CUST FBO TERESA HANCOCK IRA |
6,625 |
* |
6,625 |
6,625 |
* |
IRA
RESOURCES, INC. CUST FBO BEVERLY MENDENHALL IRA |
3,284 |
* |
3,284 |
3,284 |
* |
IRA
RESOURCES, INC. CUST FBO GERALD D. NELSON IRA |
6,625 |
* |
6,625 |
6,625 |
* |
IRA
RESOURCES, INC. CUST FBO JAMES STEVENS IRA |
82,719 |
1 |
82,719 |
82,719 |
* |
IRA
RESOURCES, INC. CUST FBO KRIS MENDENHALL IRA |
3,284 |
* |
3,284 |
3,284 |
* |
IRA
RESOURCES, INC. CUST FBO LAURENCE MENDENHALL IRA |
3,284 |
* |
3,284 |
3,284 |
* |
IRA
RESOURCES, INC. CUST FBO LYLE ODENDAHL ROTH IRA |
2,247 |
* |
2,247 |
2,247 |
* |
IRA
RESOURCES, INC. CUST FBO LYLE ODENDAHL TRADITIONAL IRA |
4,551 |
* |
4,551 |
4,551 |
* |
IRA
RESOURCES, INC. CUST FBO RAYMOND YULE ROTH IRA UNIF TRAN MIN ACT |
11,924 |
* |
11,924 |
11,924 |
* |
IRA
RESOURCES, INC. CUST FBO RAYMOND YULE TRADITIONAL IRA |
24,482 |
* |
24,482 |
24,482 |
* |
IRA
RESOURCES, INC. CUST FBO RONALD LUDWIG IRA |
3,284 |
* |
3,284 |
3,284 |
* |
IRA
RESOURCES, INC. CUST FBO STEPHEN PARKFORD IRA |
16,533 |
* |
16,533 |
16,533 |
* |
IRA
RESOURCES, INC. CUST FBO SUSAN ODENDAHL ROTH IRA |
3,802 |
* |
3,802 |
3,802 |
* |
IRA
RESOURCES, INC. CUST FBO THOMAS PAUKERT IRA |
4,954 |
* |
4,954 |
4,954 |
* |
IRA
RESOURCES, INC. CUST FBO WINNIE YULE TRADITIONAL IRA |
1,959 |
* |
1,959 |
1,959 |
* |
IRA
RESOURCES, INC. CUST KENT YAUGER; IRA |
6,625 |
* |
6,625 |
6,625 |
* |
IRA
RESOURCES, INC. CUST PAUL SKOGEBO; IRA |
33,065 |
* |
33,065 |
33,065 |
* |
IRA
RESOURCES, INC. CUST PAUL WROBLOS; IRA |
3,284 |
* |
3,284 |
3,284 |
* |
IRA
RESOURCES, INC. CUST WINNIE YULE ROTH IRA |
11,924 |
* |
11,924 |
11,924 |
* |
IRA
RESOURCES, INC. CUST, DAVID BRANNON, IRA |
41,648 |
* |
41,648 |
41,648 |
* |
IRA
RESOURCES, INC. CUST, JOHN ANDERSON; IRA |
4,321 |
* |
4,321 |
4,321 |
* |
IRA
RESOURCES, INC. CUST, LUZ ANDERSON; IRA |
1,671 |
* |
1,671 |
1,671 |
* |
IRVIN
MOLINA |
1 |
* |
1 |
1 |
* |
IVO
FEUERBORN AND JOAN FEUERBORN JTTEN |
12,961 |
* |
12,961 |
12,961 |
* |
J.P.
MORGAN CLEARING CORP. |
1 |
* |
1 |
1 |
* |
JAGANATHAN
KALIYAPERUMAL |
2 |
* |
2 |
2 |
* |
JAIME
PIROMALLI |
1 |
* |
1 |
1 |
* |
JAMES
A THOMAS |
1 |
* |
1 |
1 |
* |
JAMES
BARBUTO |
2 |
* |
2 |
2 |
* |
JAMES
BRYAN KUNKLE |
1 |
* |
1 |
1 |
* |
JAMES
COLVARD |
1 |
* |
1 |
1 |
* |
JAMES
GILSON |
2 |
* |
2 |
2 |
* |
JAMES
LE |
1 |
* |
1 |
1 |
* |
JAMES
REES |
172,811 |
2.2 |
172,811 |
172,811 |
1.6 |
JANE
CRONISER |
2 |
* |
2 |
2 |
* |
JANE
PARKFORD TAYLOR TRUSTEE, JANE PARKFORD TAYLOR SEPARATE PROPERTY TRUST DTD 2/21/1989 |
48,330 |
* |
48,330 |
48,330 |
* |
JANET
SEEMAN AND THOMAS SEEMAN JTTEN |
82,662 |
1 |
82,662 |
82,662 |
* |
JARED
SKEMP |
1 |
* |
1 |
1 |
* |
JARROD
MADDEN |
2 |
* |
2 |
2 |
* |
JARROD
MORTON |
17 |
* |
17 |
17 |
* |
JASON
CUMIFORD |
3 |
* |
3 |
3 |
* |
JASON
LINEBERGER |
38,802 |
* |
38,802 |
38,802 |
* |
JASON
LIWAG |
3 |
* |
3 |
3 |
* |
JAY
F. LEVINE AND MIRYAM R. LEVINE TTEES OF THE LEVINE FAMILY TRUST DTD 8/18/2003 |
24,517 |
* |
24,517 |
24,517 |
* |
JEANINE
KOLESAR |
1 |
* |
1 |
1 |
* |
JEFF
ROBBINS |
6 |
* |
6 |
6 |
* |
JEFFREY
BURMEISTER |
1 |
* |
1 |
1 |
* |
JEFFREY
KRANZDORF |
22 |
* |
22 |
22 |
* |
JEFFREY
SCHLEGEL |
45,334 |
* |
45,334 |
45,334 |
* |
JENNIFER
CRAWFORD |
4 |
* |
4 |
4 |
* |
JEREMY
CONFORTI |
1 |
* |
1 |
1 |
* |
JEREMY
PILKENTON |
1 |
* |
1 |
1 |
* |
JEREMY
THOMPSON |
1 |
* |
1 |
1 |
* |
JEROME
B KORNFELD |
1 |
* |
1 |
1 |
* |
JERRY
A. RUBEL AND JUDY RUBEL |
16,245 |
* |
16,245 |
16,245 |
* |
JERRY
BROADWAY |
1 |
* |
1 |
1 |
* |
JERRY
WEST AND REBECCA WEST JTTEN |
90,938 |
1.2 |
90,938 |
90,938 |
* |
JESSE
SIMONS |
1 |
* |
1 |
1 |
* |
JESUS
MARRERO |
1 |
* |
1 |
1 |
* |
JOEL
B. KELLEY AND LISA A. KELLEY JTWROS |
172,811 |
2.2 |
172,811 |
172,811 |
1.6 |
JOEL
NEWBURY |
3 |
* |
3 |
3 |
* |
JOHN
DANFORTH |
1 |
* |
1 |
1 |
* |
JOHN
DREW |
7 |
* |
7 |
7 |
* |
JOHN
KARVOUNIARIS |
28,802 |
* |
28,802 |
28,802 |
* |
JOHN
KELLER |
9,678 |
* |
9,678 |
9,678 |
* |
JOHN
M STONE |
1 |
* |
1 |
1 |
* |
JOHN
MANTER AND NANCY MANTER TTEES OF THE MANTER LIVING TRUST DTD 3/29/1999 |
57,604 |
* |
57,604 |
57,604 |
* |
JOHN
MORGAN |
3 |
* |
3 |
3 |
* |
JOHN
R. PASCHALL TRUSTEE BLONITA H. PASCHALL TRUST DTD 8/19/1996 |
16,533 |
* |
16,533 |
16,533 |
* |
JOHN
STANTON |
139 |
* |
139 |
139 |
* |
JOHN
TEVIS |
4 |
* |
4 |
4 |
* |
JOHN
VAN SCHEPEN AND WILIMINA VAN SCHEPEN JTTEN |
9,505 |
* |
9,505 |
9,505 |
* |
JOHN
W. VINCENT |
1 |
* |
1 |
1 |
* |
JOHNATHAN
HECHLER |
40,323 |
* |
40,323 |
40,323 |
* |
JOHNNY
BUNTON |
1 |
* |
1 |
1 |
* |
JOHNNY
DAO |
1 |
* |
1 |
1 |
* |
JOHNNY
DONALDSON |
1 |
* |
1 |
1 |
* |
JONATHAN
SCHULTZ |
1 |
* |
1 |
1 |
* |
JORDAN
COHEN |
1 |
* |
1 |
1 |
* |
JOSEPH
BARTH AND MYRNA M. BARTH, TRUSTEES OF BARTH FAMILY TRUST OF 2010 |
15,438 |
* |
15,438 |
15,438 |
* |
JOSEPH
J. KELLY |
197 |
* |
197 |
197 |
* |
JOSEPH
J. PASSALAQUA |
14 |
* |
14 |
14 |
* |
JOSEPH
MORENO |
1 |
* |
1 |
1 |
* |
JOSEPH
VITORINO |
1 |
* |
1 |
1 |
* |
JOSHUA
EHRAT |
1 |
* |
1 |
1 |
* |
JOSHUA
JOHNS |
1 |
* |
1 |
1 |
* |
JOSHUA
MARHANKA |
1 |
* |
1 |
1 |
* |
JUDY
BIONDICH |
17,282 |
* |
17,282 |
17,282 |
* |
JULIANA
OBIBINE |
1 |
* |
1 |
1 |
* |
JULIE
LOPES |
1 |
* |
1 |
1 |
* |
JULIE
REYNOLDS |
29,551 |
* |
29,551 |
29,551 |
* |
JUSTIN
SMITH |
2 |
* |
2 |
2 |
* |
KATHLEEN
CHIRAS |
14,460 |
* |
14,460 |
14,460 |
* |
KCG
AMERICAS LLC |
1 |
* |
1 |
1 |
* |
KEITH
ESPINOSA |
1 |
* |
1 |
1 |
* |
KEITH
HOLLAND |
3,284 |
* |
3,284 |
3,284 |
* |
KEITH
VOELKER |
3,284 |
* |
3,284 |
3,284 |
* |
KELLY
WIRTH |
2 |
* |
2 |
2 |
* |
KENDALL
SCOTT |
1 |
* |
1 |
1 |
* |
KENNETH
AND JOLEEN HARRINGTON |
3 |
* |
3 |
3 |
* |
KENNETH
BULLOCK |
17,512 |
* |
17,512 |
17,512 |
* |
KENNETH
HEDRICK (3) |
25,000 |
* |
25,000 |
25,000 |
* |
KENNETH
HOLMES |
1 |
* |
1 |
1 |
* |
KENNETH
NOLEN |
50,000 |
* |
50,000 |
50,000 |
* |
KENNETH
P BROWN |
1 |
* |
1 |
1 |
* |
KENNETH
SMART |
1 |
* |
1 |
1 |
* |
KENNETH
TEKNUS |
396 |
* |
396 |
396 |
* |
KENNETH
THIEMAN |
11,522 |
* |
11,522 |
11,522 |
* |
KEVIN
HOFFMAN |
1 |
* |
1 |
1 |
* |
KEVIN
HOUSEHOLDER |
1 |
* |
1 |
1 |
* |
KEVIN
KRENZKE |
25 |
* |
25 |
25 |
* |
KIRBY
DINGCONG |
1 |
* |
1 |
1 |
* |
KIRK
KNEIDINGER |
4 |
* |
4 |
4 |
* |
KRUNAL
PATEL |
2 |
* |
2 |
2 |
* |
KURT
MCCANLESS |
17,282 |
* |
17,282 |
17,282 |
* |
KURT
SICKLES |
57,604 |
* |
57,604 |
57,604 |
* |
KURTIS
STOCKS |
4 |
* |
4 |
4 |
* |
KYLE
LAWERNCE |
1 |
* |
1 |
1 |
* |
LANCE
CRUZ PHROMNOPAVONG |
1 |
* |
1 |
1 |
* |
LANCE
GALE |
9,678 |
* |
9,678 |
9,678 |
* |
LAWRENCE
DELEKTA |
1 |
* |
1 |
1 |
* |
LAWRENCE
LELINKO |
1 |
* |
1 |
1 |
* |
LEAH
NEGAARD |
7,950 |
* |
7,950 |
7,950 |
* |
LIBRA6
MANAGEMENT CORP. |
9,381 |
* |
9,381 |
9,381 |
* |
LINCOLN
VENTURES, LLC |
1 |
* |
1 |
1 |
* |
LOUIS
GRAY |
15 |
* |
15 |
15 |
* |
LOWELL
KORTAS |
1 |
* |
1 |
1 |
* |
LUKE
WILLIAMS |
2 |
* |
2 |
2 |
* |
LYLA
KUDISH AND RIMA KUDISH JTWROS |
8,007 |
* |
8,007 |
8,007 |
* |
LYLE
ODENDAHL |
3,169 |
* |
3,169 |
3,169 |
* |
LYLE
ODENDAHL AND SUSAN ODENDAHL JTWROS |
3,284 |
* |
3,284 |
3,284 |
* |
M
OU MME GABRIEL GONNET |
1 |
* |
1 |
1 |
* |
MAMOON
ELGHALAIENI |
3 |
* |
3 |
3 |
* |
MARC
BEHRMAN |
1 |
* |
1 |
1 |
* |
MARC
MANTONE |
4 |
* |
4 |
4 |
* |
MARGIE
A. SPESS |
1 |
* |
1 |
1 |
* |
MARIANNE
BARRY |
1 |
* |
1 |
1 |
* |
MARINE
INDUSTRIES, LLC |
1 |
* |
1 |
1 |
* |
MARJORIE
THORNBERRY |
59,908 |
* |
59,908 |
59,908 |
* |
MARK
AVERY |
11,521 |
* |
11,521 |
11,521 |
* |
MARK
GARMAN |
1 |
* |
1 |
1 |
* |
MARK
GRADISHAR |
1 |
* |
1 |
1 |
* |
MARK
YOUNG |
1 |
* |
1 |
1 |
* |
MARSCO
INVESTMENT CORPORATION |
1 |
* |
1 |
1 |
* |
MARVIN
LESIKAR |
14,286 |
* |
14,286 |
14,286 |
* |
MATTHEW
GRUEDER |
4 |
* |
4 |
4 |
* |
MATTHEW
KACZINSKI |
1 |
* |
1 |
1 |
* |
MATTHEW
MAGIERA |
1 |
* |
1 |
1 |
* |
MELISSA
DANO |
1 |
* |
1 |
1 |
* |
MELISSA
FERRELL |
5 |
* |
5 |
5 |
* |
MERRILL
LYNCH PIERCE FENNER & SMITH INCORPORATED |
1 |
* |
1 |
1 |
* |
MESHAAL
KHAN |
1 |
* |
1 |
1 |
* |
MICHAEL
A. BRODEKY |
1 |
* |
1 |
1 |
* |
MICHAEL
BARKER |
2 |
* |
2 |
2 |
* |
MICHAEL
BECKADIC |
1 |
* |
1 |
1 |
* |
MICHAEL
DEROSE |
1 |
* |
1 |
1 |
* |
MICHAEL
GANGONE |
11 |
* |
11 |
11 |
* |
MICHAEL
HUNKLER |
45,470 |
* |
45,470 |
45,470 |
* |
MICHAEL
KIRK |
8 |
* |
8 |
8 |
* |
MICHAEL
KRAWCZYK AND JILL KRAWCZYK JTTEN |
23,042 |
* |
23,042 |
23,042 |
* |
MICHAEL
MILLER |
1 |
* |
1 |
1 |
* |
MICHAEL
OSBORN AND SHENAE OSBORN TTEE |
272 |
* |
272 |
272 |
* |
MICHAEL
POWELL |
1 |
* |
1 |
1 |
* |
MICHAEL
QUINN |
6 |
* |
6 |
6 |
* |
MICHAEL
SPITERI |
1 |
* |
1 |
1 |
* |
MICKEY
H HOBBY |
1 |
* |
1 |
1 |
* |
MIKE
SINDACO |
1 |
* |
1 |
1 |
* |
MORTON
MANDELL |
3,284 |
* |
3,284 |
3,284 |
* |
NATHAN
BEHNE |
5,000 |
* |
5,000 |
5,000 |
* |
NATIONAL
FINANCIAL SERVICES LLC |
2 |
* |
2 |
2 |
* |
NICHOLAS
COUTURE |
1 |
* |
1 |
1 |
* |
NICHOLAS
DANTONIO |
1 |
* |
1 |
1 |
* |
NICHOLAS
J COLAROSSI |
1 |
* |
1 |
1 |
* |
NICHOLAS
TOURNILLON AND AUDREY TOURNILLON TTEE, DTD 6/14/2003 |
14,401 |
* |
14,401 |
14,401 |
* |
NICKOLAS
TABRAUE |
9 |
* |
9 |
9 |
* |
NICOLE
BAKER |
1 |
* |
1 |
1 |
* |
OBADIAH
NEGAARD |
7,950 |
* |
7,950 |
7,950 |
* |
OLIVER
BUTTERWORTH |
1 |
* |
1 |
1 |
* |
OPPENHEIMER
& CO., INC. |
1 |
* |
1 |
1 |
* |
OPTIONSXPRESS
INC |
1 |
* |
1 |
1 |
* |
PARMINDER
SINGH |
2 |
* |
2 |
2 |
* |
PATRICIA
M BANKS |
1 |
* |
1 |
1 |
* |
PATRICK
SANDRU |
2 |
* |
2 |
2 |
* |
PATRICK
SHEEHAN |
20,853 |
* |
20,853 |
20,853 |
* |
PATRIK
BONGARTZ |
1 |
* |
1 |
1 |
* |
PAUL
CARTMAN AND SUSANNE CARTMAN, TTEE, PAUL CARTMAN AND SUSANNE CARTMAN TRUST, U/A DTD 1/8/2003 |
15,899 |
* |
15,899 |
15,899 |
* |
PAUL
CARTMAN, JR. |
6,337 |
* |
6,337 |
6,337 |
* |
PAUL
D WASSEROTT |
1 |
* |
1 |
1 |
* |
PAUL
DORAN |
5,761 |
* |
5,761 |
5,761 |
* |
PAUL
HARVEY |
1 |
* |
1 |
1 |
* |
PAUL
HULL |
29 |
* |
29 |
29 |
* |
PAUL
MCVEIGH |
1 |
* |
1 |
1 |
* |
PAUL
SANCHEZ |
3 |
* |
3 |
3 |
* |
PAUL
SEWARD |
28,802 |
* |
28,802 |
28,802 |
* |
PERFORMANCE
REALTY MANAGEMENT, LLC (4) |
1,000,000 |
13.2 |
1,000,000 |
1,000,000 |
9.4 |
PERRY
DODD |
1 |
* |
1 |
1 |
* |
PERSHING
LLC |
22 |
* |
22 |
22 |
* |
PETER
HOMORODY |
6,452 |
* |
6,452 |
6,452 |
* |
PHILIP
PACE |
1 |
* |
1 |
1 |
* |
PHILLIP
SUDLER |
1 |
* |
1 |
1 |
* |
PHILLIP
WILLIAMS |
1 |
* |
1 |
1 |
* |
PHILLIP
YOUNG |
1 |
* |
1 |
1 |
* |
PHYLLIS
BOWLES |
3,169 |
* |
3,169 |
3,169 |
* |
PIUS
OBIBINE |
7 |
* |
7 |
7 |
* |
PROCAP
FUNDING INC. |
3,700 |
* |
3,700 |
3,700 |
* |
PROGRESSIVE
INSURANCE AGENCY INC |
4,839 |
* |
4,839 |
4,839 |
* |
QIAN
CHEN |
1 |
* |
1 |
1 |
* |
QUESTRADE
INC./CDS |
1 |
* |
1 |
1 |
* |
RALPH
MORRISON |
4 |
* |
4 |
4 |
* |
RAMENE
REYHANI |
3 |
* |
3 |
3 |
* |
RAMESH
PATEL |
1 |
* |
1 |
1 |
* |
RANDY
FERRELL |
33 |
* |
33 |
33 |
* |
RAYMOND
CHUCK-SAU YULE AND WINNIE CHANG YULE TTEES OF THE YULE FAMILY TRUST DTD 3/27/2009 |
183,525 |
2.4 |
183,525 |
183,525 |
1.7 |
RAYMOND
COLANTONIO |
15,899 |
* |
15,899 |
15,899 |
* |
RBC
DOMINION SECURITIES INC |
1 |
* |
1 |
1 |
* |
RBC
DOMINION SECURITIES INC / CDS |
1 |
* |
1 |
1 |
* |
RESEARCH
AND DRAFTING SERVICES |
6 |
* |
6 |
6 |
* |
RHONDA
HAYWARD |
1 |
* |
1 |
1 |
* |
RICHARD
BERDSTEN |
1 |
* |
1 |
1 |
* |
RICHARD
CHASE |
2 |
* |
2 |
2 |
* |
RICHARD
HUANG |
1 |
* |
1 |
1 |
* |
RICHARD
KATES |
6,625 |
* |
6,625 |
6,625 |
* |
RICHARD
R. MEARS AND MARILYN MEARS JTTEN |
59,603 |
* |
59,603 |
59,603 |
* |
RICHARD
REESE |
34,563 |
* |
34,563 |
34,563 |
* |
RICHARD
WALKER AND RAMONA WALKER JTTEN |
16,533 |
* |
16,533 |
16,533 |
* |
RICHARD
WENDT |
1 |
* |
1 |
1 |
* |
RICK
HINDES |
9 |
* |
9 |
9 |
* |
ROBERT
EDWARD HART |
1 |
* |
1 |
1 |
* |
ROBERT
HAINES |
2 |
* |
2 |
2 |
* |
ROBERT
INDSETH AND BARBARA INDSETH JTTEN |
10,761 |
* |
10,761 |
10,761 |
* |
ROBERT
KAROWSIK |
1 |
* |
1 |
1 |
* |
ROBERT
MILLER |
9 |
* |
9 |
9 |
* |
ROBERT
MILNES II |
1 |
* |
1 |
1 |
* |
ROBERT
MORRIS AND MARIKAY MORRIS JTWROS |
6,625 |
* |
6,625 |
6,625 |
* |
ROBERT
MORRIS DDS INC. 401K PROFIT SHARING PLAN |
6,625 |
* |
6,625 |
6,625 |
* |
ROBERT
W. FRANTZ AND RUTH E. FRANTZ JTTEN |
6,337 |
* |
6,337 |
6,337 |
* |
ROCKNE
BEMIS |
5 |
* |
5 |
5 |
* |
RODGER
L. MAECHTLEN TRUSTEE RODGER L. MAECHTLEN SUBTRUST DTD 12/28/1994 |
8,065 |
* |
8,065 |
8,065 |
* |
RODNEY
RAYMOND AND COLEEN RAYMOND JTTEN |
15,899 |
* |
15,899 |
15,899 |
* |
RONALD
LUDWIG |
3,284 |
* |
3,284 |
3,284 |
* |
RONALD
TRINCHITELLA AND BILLIE JEAN TRINCHITELLA TTEE TRINCHITELLA FAMILY TRUST DTD 7/15/1999 |
86,406 |
1.1 |
86,406 |
86,406 |
* |
ROSA
CHAO |
1 |
* |
1 |
1 |
* |
ROY
CENTER |
1 |
* |
1 |
1 |
* |
RUSSELL
E. DAVIS |
5,761 |
* |
5,761 |
5,761 |
* |
RYAN
BREEN |
1 |
* |
1 |
1 |
* |
RYAN
TREFRY |
1 |
* |
1 |
1 |
* |
S.
ROBERT SKRYPZAK |
10 |
* |
10 |
10 |
* |
SAINT
ANTON CAPITAL LLC |
7 |
* |
7 |
7 |
* |
SAMNOEUN
LUY |
16 |
* |
16 |
16 |
* |
SAMUEL
GARDIPEE |
1 |
* |
1 |
1 |
* |
SAMUEL
SCHOR |
1 |
* |
1 |
1 |
* |
SANDRA
CASTLE |
14 |
* |
14 |
14 |
* |
SANDRA
RHODES |
1 |
* |
1 |
1 |
* |
SCOTIA
CAPITAL INC |
1 |
* |
1 |
1 |
* |
SCOTT
CALHOUN |
2 |
* |
2 |
2 |
* |
SCOTT
ERNSTE |
1 |
* |
1 |
1 |
* |
SCOTT
NEFF |
17 |
* |
17 |
17 |
* |
SCOTT
NELSON |
11,521 |
* |
11,521 |
11,521 |
* |
SCOTT
SHAFER |
2 |
* |
2 |
2 |
* |
SCOTT
STEFANI |
4 |
* |
4 |
4 |
* |
SCOTTRADE
INC |
96 |
* |
96 |
96 |
* |
SEAN
CADDELL |
2 |
* |
2 |
2 |
* |
SEAN
DIXON |
1 |
* |
1 |
1 |
* |
SEAN
HUFFMAN |
1 |
* |
1 |
1 |
* |
SEAN
ZARINEGAR (5) |
1,000,000 |
13.2 |
1,000,000 |
1,000,000 |
9.4 |
SERITA
EVANS |
2 |
* |
2 |
2 |
* |
SEYED
MOJTABAEI |
1 |
* |
1 |
1 |
* |
SHAKIR
HUSSAINI |
5 |
* |
5 |
5 |
* |
SHANE
BROESKY |
1 |
* |
1 |
1 |
* |
SHARON
RHYDER |
1 |
* |
1 |
1 |
* |
SHAUN
LEWIS |
1 |
* |
1 |
1 |
* |
SHELLY
BENSON |
3 |
* |
3 |
3 |
* |
SKOGEBO
FAMILY LLC |
31,798 |
* |
31,798 |
31,798 |
* |
SOKHA
PANN |
2 |
* |
2 |
2 |
* |
SPRAY
BREAK & CO |
1 |
* |
1 |
1 |
* |
STEPHANIE
BEHLING |
2 |
* |
2 |
2 |
* |
STEPHEN
WILLAMS |
1 |
* |
1 |
1 |
* |
STEVEN
ECKERT |
1 |
* |
1 |
1 |
* |
STEVEN
ERICKSON |
1 |
* |
1 |
1 |
* |
STEVEN
GANOTE OR SRB, INC. |
56 |
* |
56 |
56 |
* |
STEVEN
SPRINGER |
1 |
* |
1 |
1 |
* |
SULTAN
ALGHAMDI |
1 |
* |
1 |
1 |
* |
SUNG
WU |
1 |
* |
1 |
1 |
* |
SUSAN
LJUNGGREN |
4,839 |
* |
4,839 |
4,839 |
* |
SUZANNA
NIGGL |
3,334 |
* |
3,334 |
3,334 |
* |
SUZANNE
KOHLER |
1 |
* |
1 |
1 |
* |
SUZANNE
TWENTIER |
2 |
* |
2 |
2 |
* |
TD
AMERITRADE CLEARING INC |
6 |
* |
6 |
6 |
* |
TD
WATERHOUSE CANADA INC./CDS |
1 |
* |
1 |
1 |
* |
TECH
ASSOCIATES, INC. |
24,000 |
* |
24,000 |
24,000 |
* |
TERRENCE
D. CHATWIN AND ANDREA H. CHATWIN JTTEN |
14,805 |
* |
14,805 |
14,805 |
* |
TERRY
CONE |
32,719 |
* |
32,719 |
32,719 |
* |
TERRY
SHEELY AND BRENDA SHEELY JTTEN |
3,169 |
* |
3,169 |
3,169 |
* |
TESORO
LLC |
1 |
* |
1 |
1 |
* |
THE
KOLANOWSKI LIVING TRUST DATED 12/02/2003 |
89,908 |
1.1 |
89,908 |
89,908 |
* |
THE
PETRON GROUP INC |
1 |
* |
1 |
1 |
* |
THOMAS
CHIDO |
22 |
* |
22 |
22 |
* |
THOMAS
J PARILLA |
2,816 |
* |
2,816 |
2,816 |
* |
THOMAS
PAUKERT |
4,954 |
* |
4,954 |
4,954 |
* |
THOMAS
POLK |
339,478 |
4.4 |
339,478 |
339,478 |
3.2 |
THOMAS
PRICE |
28,284 |
* |
28,284 |
28,284 |
* |
THOMAS
SEIDL |
19 |
* |
19 |
19 |
* |
THOMAS
WARMING |
1 |
* |
1 |
1 |
* |
THURMAN
YOST |
28,802 |
* |
28,802 |
28,802 |
* |
TIM
DUPLER |
46 |
* |
46 |
46 |
* |
TIMOTHY
CAMPBELL |
1 |
* |
1 |
1 |
* |
TIMOTHY
GOETSCH |
1 |
* |
1 |
1 |
* |
TIMOTHY
KINMAN |
1 |
* |
1 |
1 |
* |
TIMOTHY
PAGE |
9 |
* |
9 |
9 |
* |
TIMOTHY
TAYLOR |
14 |
* |
14 |
14 |
* |
TIMOTHY
WILLIS |
1 |
* |
1 |
1 |
* |
TNESHA
DANIEL |
1 |
* |
1 |
1 |
* |
TODD
C. DEBELLO |
6 |
* |
6 |
6 |
* |
TODD
DICK AND LAVONA DICK JTTEN |
5,761 |
* |
5,761 |
5,761 |
* |
TODD
NIELSEN |
17,282 |
* |
17,282 |
17,282 |
* |
TODD
NIELSEN |
9,000 |
* |
9,000 |
9,000 |
* |
TODD
NIELSEN TRUSTEE AN PARTNERS. LIMITED PARTNERSHIP DTD 3/7/2000 |
31,279 |
* |
31,279 |
31,279 |
* |
TODD
NIELSEN TRUSTEE GUNNAR CORPORATION PROFIT SHARING PLAN DTD 4/1/2010 |
14,862 |
* |
14,862 |
14,862 |
* |
TODD
PAUL SWARTZ |
1 |
* |
1 |
1 |
* |
TOM
DAVIDSON |
2 |
* |
2 |
2 |
* |
TOM
H. CORR AND MELODY A. CORR JTTEN |
3,284 |
* |
3,284 |
3,284 |
* |
TOM
KELTY |
1 |
* |
1 |
1 |
* |
TOM
WOOD |
1 |
* |
1 |
1 |
* |
TONY
ROBINSON |
3 |
* |
3 |
3 |
* |
TRACI
HINDES |
1 |
* |
1 |
1 |
* |
TROY
MINOGUE |
1 |
* |
1 |
1 |
* |
TRUST
COMPANY OF KANSAS CUST FBO RODGER L. MAECHTLEN IRA #5434 |
9,908 |
* |
9,908 |
9,908 |
* |
TUAN
M. NGUYEN |
1 |
* |
1 |
1 |
* |
TUAN
PHAM |
2 |
* |
2 |
2 |
* |
TURNAROUND
TRADING & ADVISORY, LLC |
1,000 |
* |
1,000 |
1,000 |
* |
TYLER
WHITESIDE |
1 |
* |
1 |
1 |
* |
UNION
CAPITAL LLC |
6,700 |
* |
6,700 |
6,700 |
* |
USAA
INVESTMENT MANAGEMENT CO |
2 |
* |
2 |
2 |
* |
VANGUARD
MARKETING CORPORATION |
2 |
* |
2 |
2 |
* |
VANTAGE
FBO ALBERT BOLLWERK ROTH IRA |
15,000 |
* |
15,000 |
15,000 |
* |
VANTAGE
RETIREMENT PLANS LLC CUST FBO ERIC SHEELY IRA |
62,385 |
* |
62,385 |
62,385 |
* |
VANTAGE
RETIREMENT PLANS, INC. CUST FBO MICHAEL KRAWCZYK AND JILL KRAWCZYK IRA |
46,083 |
* |
46,083 |
46,083 |
* |
VANTAGE
RETIREMENT PLANS, LLC CUST |
4,839 |
* |
4,839 |
4,839 |
* |
VANTAGE
RETIREMENT PLANS, LLC CUST ARNOLD VICTOR;IRA |
6,567 |
* |
6,567 |
6,567 |
* |
VANTAGE
RETIREMENT PLANS, LLC CUST ARTHUR TOGNAZZINI; IRA |
7,950 |
* |
7,950 |
7,950 |
* |
VANTAGE
RETIREMENT PLANS, LLC CUST DANIEL STILTZ; IRA |
14,401 |
* |
14,401 |
14,401 |
* |
VANTAGE
RETIREMENT PLANS, LLC CUST EMILY FARRINGTON NEWMAN; IRA |
12,731 |
* |
12,731 |
12,731 |
* |
VANTAGE
RETIREMENT PLANS, LLC CUST FBO DOUGLAS D. SHULL IRA |
28,802 |
* |
28,802 |
28,802 |
* |
VANTAGE
RETIREMENT PLANS, LLC CUST FBO ILYA KUDISH IRA |
1,901 |
* |
1,901 |
1,901 |
* |
VANTAGE
RETIREMENT PLANS, LLC CUST FBO JEFFREY SCHLEGEL IRA |
60,599 |
* |
60,599 |
60,599 |
* |
VANTAGE
RETIREMENT PLANS, LLC CUST FBO JULIE S. REYNOLDS ROTH IRA |
15,358 |
* |
15,358 |
15,358 |
* |
VANTAGE
RETIREMENT PLANS, LLC CUST FBO KURT SICKLES IRA |
28,802 |
* |
28,802 |
28,802 |
* |
VANTAGE
RETIREMENT PLANS, LLC CUST FREDERICK VANNATTA; IRA |
5,761 |
* |
5,761 |
5,761 |
* |
VANTAGE
RETIREMENT PLANS, LLC CUST GARY SO; IRA |
14,517 |
* |
14,517 |
14,517 |
* |
VANTAGE
RETIREMENT PLANS, LLC CUST GARYLD MILES; IRA |
15,899 |
* |
15,899 |
15,899 |
* |
VANTAGE
RETIREMENT PLANS, LLC CUST SUSAN LJUNGGREN IRA |
48,445 |
* |
48,445 |
48,445 |
* |
VANTAGE
RETIREMENT PLANS, LLC CUST, ALLEN GAETJENS; IRA |
11,521 |
* |
11,521 |
11,521 |
* |
VANTAGE
RETIREMENT PLANS, LLC CUST, BERNARD BALISTERI; IRA |
6,337 |
* |
6,337 |
6,337 |
* |
VANTAGE
RETIREMENT PLANS, LLC CUST, CARL CUTINELLO; IRA |
7,950 |
* |
7,950 |
7,950 |
* |
VANTAGE
RETIREMENT PLANS, LLC CUST, CHARLES DIEHL; IRA |
12,097 |
* |
12,097 |
12,097 |
* |
VANTAGE
RETIREMENT PLANS, LLC CUST, DAVID BRANNON, IRA |
25,807 |
* |
25,807 |
25,807 |
* |
VANTAGE
RETIREMENT PLANS, LLC CUST, GERALD FALBEL; IRA |
23,042 |
* |
23,042 |
23,042 |
* |
VANTAGE
RETIREMENT PLANS, LLC CUST, JAMES HAGGERTY; IRA |
132,489 |
1.7 |
132,489 |
132,489 |
8.4 |
VANTAGE
RETIREMENT PLANS, LLC CUST, JERRY FIFE |
31,798 |
* |
31,798 |
31,798 |
* |
VANTAGE
RETIREMENT PLANS, LLC CUST, KAREN COLANTONIO IRA |
9,563 |
* |
9,563 |
9,563 |
* |
VANTAGE
RETIREMENT PLANS, LLC CUST, KENNETH BULLOCK; IRA |
10,081 |
* |
10,081 |
10,081 |
* |
VANTAGE
RETIREMENT PLANS, LLC, CUST, FBO DAVID CARIDEO IRA |
28,802 |
* |
28,802 |
28,802 |
* |
VANTAGE
RETIREMENT PLANS, LLC. CUST FBO BLAIR LARSON IRA |
28,197 |
* |
28,197 |
28,197 |
* |
VANTAGE
RETIREMENT PLANS, LLC. CUST FBO CHARLES KOENIG IRA |
63,364 |
* |
63,364 |
63,364 |
* |
VANTAGE
RETIREMENT PLANS, LLC. CUST FBO CHARLES LEWIS IRA |
17,282 |
* |
17,282 |
17,282 |
* |
VANTAGE
RETIREMENT PLANS, LLC. CUST FBO DENNIS SCHNEIDER IRA |
8,641 |
* |
8,641 |
8,641 |
* |
VANTAGE
RETIREMENT PLANS, LLC. CUST FBO HENRY SEBACH IRA UNIF TRAN MIN ACT |
9,563 |
* |
9,563 |
9,563 |
* |
VANTAGE
RETIREMENT PLANS, LLC. CUST FBO HERMAN THORNBERRY IRA |
69,125 |
* |
69,125 |
69,125 |
* |
VANTAGE
RETIREMENT PLANS, LLC. CUST FBO JAMES KELLY IRA |
12,097 |
* |
12,097 |
12,097 |
* |
VANTAGE
RETIREMENT PLANS, LLC. CUST FBO JANET SILKE IRA |
28,802 |
* |
28,802 |
28,802 |
* |
VANTAGE
RETIREMENT PLANS, LLC. CUST FBO JOHN WHERRY IRA |
11,521 |
* |
11,521 |
11,521 |
* |
VANTAGE
RETIREMENT PLANS, LLC. CUST FBO JONATHAN HECHLER IRA |
16,936 |
* |
16,936 |
16,936 |
* |
VANTAGE
RETIREMENT PLANS, LLC. CUST FBO JULIE S . REYNOLDS TRADITIONAL IRA |
37,126 |
* |
37,126 |
37,126 |
* |
VANTAGE
RETIREMENT PLANS, LLC. CUST FBO LEWIS RUSHING IRA |
3,802 |
* |
3,802 |
3,802 |
* |
VANTAGE
RETIREMENT PLANS, LLC. CUST FBO MICHAEL KOZUBAL IRA |
57,604 |
* |
57,604 |
57,604 |
* |
VANTAGE
RETIREMENT PLANS, LLC. CUST FBO RIMA KUDISH IRA |
1,901 |
* |
1,901 |
1,901 |
* |
VANTAGE
RETIREMENT PLANS, LLC. CUST FBO ROBERT HAFNER IRA |
19,521 |
* |
19,521 |
19,521 |
* |
VANTAGE
RETIREMENT PLANS, LLC. CUST FBO SUZANNA NIGGL IRA |
11,521 |
* |
11,521 |
11,521 |
* |
VANTAGE
RETIREMENT PLANS, LLC. CUST, FBO DONALD N. FARRER IRA |
19,067 |
* |
19,067 |
19,067 |
* |
VANTAGE
RETIREMENT PLANS, LLC. CUST, FBO EDWARD HALL IRA |
5,761 |
* |
5,761 |
5,761 |
* |
VANTAGE
RETIREMENT PLANS, LLC. CUST, FBO JAMES CREIGHTON IRA |
5,761 |
* |
5,761 |
5,761 |
* |
VANTAGE
RETIREMENT PLANS, LLC. CUST, FBO LAWRENCE J. COX IRA |
28,802 |
* |
28,802 |
28,802 |
* |
VANTAGE
RETIREMENT PLANS, LLC. CUST, FBO RAYMOND COLANTONIO IRA |
12,731 |
* |
12,731 |
12,731 |
* |
VANTAGE
RETIREMENT PLANS, LLC. CUST, FBO THOMAS P. EWBANK IRA |
72,005 |
* |
72,005 |
72,005 |
* |
VANTAGE
RETIREMENT PLANS, LLC. CUST, FBO WILLIAM ECKENROAD IRA |
15,899 |
* |
15,899 |
15,899 |
* |
VANTAGE
RETIRMENT PLANS, LLC. CUST FBO JULIE S. REYNOLDS HAS |
10,369 |
* |
10,369 |
10,369 |
* |
VENKATA
DAMERA |
1 |
* |
1 |
1 |
* |
VINCE
PETRUCCI |
5,761 |
* |
5,761 |
5,761 |
* |
VIRGIL
G. BOGDAN, TRUSTEE, OF THE VIRGIL BOGDAN TRUST, DTD 12/11/2000 |
17,282 |
* |
17,282 |
17,282 |
* |
WALLACE
LEON WILLIAMS JR TTEE |
1 |
* |
1 |
1 |
* |
WALTER
MESSERSMITH |
23 |
* |
23 |
23 |
* |
WALTER
STICKEL TRUSTEE OF THE STICKEL FAMILY REVOCABLE TRUST DTD 6/23/1986 |
140,495 |
1.8 |
140,495 |
140,495 |
1.3 |
WEB
STOCK TRANSFER AGENCY OMNIBUS BALANCING ACCOUNT |
30 |
* |
30 |
30 |
* |
WELDON
FROST |
6,337 |
* |
6,337 |
6,337 |
* |
WESLEY
BEMIS AND SANDRA BEMIS TTEE, BEMIS FAMILY TRUST DTD 3/7/2002 |
55,991 |
* |
55,991 |
55,991 |
* |
WILLIAM
CATANIA |
17 |
* |
17 |
17 |
* |
WILLIAM
COURTOIS |
1 |
* |
1 |
1 |
* |
WILLIAM
FRITTON |
5 |
* |
5 |
5 |
* |
WILLIAM
IRVINE AND NORMA JEANE IRVINE TRUSTEES OF THE IRVINE TRUST DATED 4/13/1999 |
14,401 |
* |
14,401 |
14,401 |
* |
WILLIAM
JOHN COOGAN |
11 |
* |
11 |
11 |
* |
WILLIAM
LAPE |
15,899 |
* |
15,899 |
15,899 |
* |
WILLIAM
LEVICK |
1 |
* |
1 |
1 |
* |
WILLIAM
SPROUL |
57 |
* |
57 |
57 |
* |
WILLIAM
THRAILKILL TRUSTEE WILLIAM THRAILKILL REVOCABLE TRUST DTD 11/5/2003 |
49,597 |
* |
49,597 |
49,597 |
* |
WILLIAM
WEBER |
5,761 |
* |
5,761 |
5,761 |
* |
WILMER
PERRY |
1 |
* |
1 |
1 |
* |
WOODSON
BRIAN |
1 |
* |
1 |
1 |
* |
WORLD
ENVIRONMENTAL SOLUTIONS CO, INC. |
1 |
* |
1 |
1 |
* |
ZACH
HARMON |
3 |
* |
3 |
3 |
* |
ZERIN
MARGLIN |
4 |
* |
4 |
4 |
* |
(1)
American Realty is a wholly-owned subsidiary of the Company. Performance Realty is the Manager of American Realty. Sean Zarinegar
is the majority member of Performance Realty and a control person by virtue of holding more than 50% of the issued and outstanding
units in Performance Realty. Mr. Zarinegar is also the Chairman of the Board, and Chief Financial Officer and Treasurer.
(2)
Barry Migliorini obtained his shares through performance under a consulting agreement. He is not an officer or director of the
Company, and is not a broker-dealer or an affiliate of a broker-dealer.
(3)
Kenneth Hedrick is a director of the Company and his biographical information can be found at "Directors and Executive Officers".
He is not an officer or director of the Company, and is not a broker-dealer or an affiliate of a broker-dealer.
(4)
Performance Realty is the manager of American Realty. Mr. Zarinegar is the majority member of Performance Realty and a control
person by virtue of holding more than 50% of the issued and outstanding units in Performance Realty. Mr. Zarinegar is also the
Chairman of the Board, and Chief Financial Officer and Treasurer.
(5)
Mr. Zarinegar is the Chairman of the Board, and Chief Financial Officer and Treasurer. He is also the majority member of Performance
Realty and a control person by virtue of holding more than 50% of the issued and outstanding units in Performance Realty. Performance
Realty is the manager of American Realty, a wholly owned subsidiary of the Company.
ITEM
8. PLAN OF DISTRIBUTION
We
intend to offer and sell our shares through our officers and directors who will receive no compensation or fees with the offers
and/or sales. This Offering is commencing on the date of this Prospectus and will continue until all shares are sold (the "Offering
Period"). The shares are being offered on a "reasonable efforts, best efforts" basis. Affiliates of the Company may purchase shares
for their own account. Such purchases will be included in determining whether all of the shares have been sold. The Company may
hold a closing at any time after funds for all $9,000,000 in registered common stock have been received and accepted, and after
other applicable conditions have been satisfied (the "Closing").
The
Company has agreed to indemnify its officers and directors in offering and selling the common stock, to the fullest extent permitted
by law, against certain liabilities that may be incurred in connection with this Offering, including certain civil liabilities
under the Securities Act. If we should find reasonable cause to believe that any statement in this Prospectus or the due diligence
information is not true or continued ownership of such shares will cause a violation of any law by which we are governed, we may
either (i) refuse to issue the common stock, or (ii) redeem any common stock at 100% of the original purchase price on the date
of redemption as specified in the notice advising the investor of the compulsory redemption.
During
such time as we may be engaged in a distribution of any of the shares we are registering by this registration statement, we are
required to comply with Regulation M. In general, Regulation M precludes any selling security holder, any affiliated purchasers
and any broker-dealer or other person who participates in a distribution from bidding for or purchasing, or attempting to induce
any person to bid for or purchase any security which is the subject of the distribution until the entire distribution is complete.
Regulation M defines a "distribution" as an offering of securities that is distinguished from ordinary trading activities by the
magnitude of the offering and the presence of special selling efforts and selling methods. Regulation M also defines a "distribution
participant" as an underwriter, prospective underwriter, broker, dealer, or other person who has agreed to participate or who
is participating in a distribution.
Regulation
M under the Exchange Act prohibits, with certain exceptions, participants in a distribution from bidding for or purchasing, for
an account in which the participant has a beneficial interest, any of the securities that are the subject of the distribution.
Regulation M also governs bids and purchases made in order to stabilize the price of a security in connection with a distribution
of the security. We have informed the selling shareholders that the anti-manipulation provisions of Regulation M may apply to
the sales of their shares offered by this prospectus, and we have also advised the selling shareholders of the requirements for
delivery of this prospectus in connection with any sales of the common stock offered by this Prospectus. The anti-manipulation
rules of Regulation M under the Exchange Act, may apply to sales of shares and activities of the Selling Shareholders. The Selling
Shareholders will act independently of us in making decisions with respect to the timing, manner and size of each sale.
The
Selling Shareholders may use a variety of methods when selling shares. They may engage in ordinary brokerage transactions and
transactions in which the broker-dealer solicits purchasers. They may block trades in which the broker-dealer will attempt to
sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction. The shares
may be purchased by a broker-dealer as principal and resale by the broker-dealer for its account. They might elect to engage in
an exchange distribution in accordance with the rules of the applicable exchange. Finally, they might engage in privately negotiated
transactions or broker-dealers may agree with the Selling Stockholders to sell a specified number of such shares at a stipulated
price per share, or any other method permitted pursuant to applicable law.
The
Selling Shareholders or their pledges, donees, transferees or other successors in interest, may also sell the Shares directly
to market makers acting as principals and/or broker-dealers acting as agents for themselves or their customers. Such broker-dealers
may receive compensation in the form of discounts, concessions or commissions from the Selling Shareholders and/or the purchasers
of Shares for whom such broker-dealers may act as agents or to whom they sell as principal or both, which compensation as to a
particular broker-dealer might be in excess of customary commissions. Market makers and block purchasers purchasing the shares
will do so for their own account and at their own risk. It is possible that the Selling Shareholders will attempt to sell shares
in block transactions to market makers or other purchasers at a price per Share which may be below the then market price. The
Selling Shareholders cannot assure that all or any of the shares offered in this Prospectus will be sold by the Selling Shareholders.
In addition, the Selling Shareholders and any brokers, dealers or agents, upon effecting the sale of any of the shares offered
in this Prospectus are "underwriters" as that term is defined under the Securities Act or the Exchange Act, or the rules and regulations
under such acts. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.
The
Selling Shareholders may from time to time pledge or grant a security interest in some or all of their shares and, if it defaults
in the performance of its secured obligations, the pledgee or secured parties may offer and sell the shares from time to time
under this Prospectus after the Company has filed an amendment to this Prospectus under
Rule
424(b)(3) or any other applicable provision of the Securities Act amending the list of Selling Shareholders to include the pledgee,
transferee or other successors in interest as a Selling Shareholders under this Prospectus.
The
Selling Shareholders also may transfer the shares in other circumstances, in which case the transferees, pledgees or other successors
in interest will be the selling beneficial owners for purposes of this Prospectus and may sell the shares from time to time under
this Prospectus after we have filed an amendment to this Prospectus under Rule 424(b)(3) or other applicable provision of the
Securities Act amending the list of Selling Stockholders to include the pledgee, transferee or other successors in interest as
a Selling Stockholders under this Prospectus.
The
Selling Shareholders acquired the shares offered hereby in the ordinary course of business and they have advised us that they
have not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale
of the shares, nor is there an underwriter or coordinating broker acting in connection with a proposed sale of Shares by the Selling
Shareholders. We will file a supplement to this Prospectus if the Selling Shareholders enter into a material arrangement with
a broker-dealer for sale of common stock being registered. If the Selling Shareholders use this Prospectus for any sale of the
shares, it will be subject to the prospectus delivery requirements of the Securities Act.
Pursuant
to a requirement by the Financial Industry Regulatory Authority, or FINRA, the maximum commission or discount to be received by
any FINRA member or independent broker/dealer may not be greater than eight percent of the gross proceeds received by the Selling
Shareholders for the sale of any securities being registered pursuant to SEC Rule 415 under the Securities Act.
ITEM
9. DESCRIPTION OF SECURITIES TO BE REGISTERED
Under
Item 202 of Regulation S-K, the Company is to disclose any share classes and any provisions of its Bylaws that might affect an
investor, such as any clauses that may act as a "poison pill" or liability of shares to foreign tax. The Company currently does
not have any such disclosures, and furthermore, directs any investor to the Bylaws and Articles of Incorporation, as amended -
both of which are set forth in the exhibits, below. The authorized capital stock of the Company consists of 100,000,000 shares
of common stock, par value $.01 per share, of which there are 7,565,340 issued and outstanding,
and 10,000,000 shares of preferred stock par value $.0001 per share, of which none have been designated or issued. The Company
is seeking the registration of the 7,565,340 shares herein as "Selling Shareholder" shares.
We
have not paid any dividends on our common stock. The payment of cash dividends in the future, if any, will be contingent upon
our revenues and earnings, if any, capital requirements and general financial condition subsequent to consummation of a business
combination, if any. The payment of any dividends, if any, will be within the discretion of our then existing Board of Directors.
It is the present intention of our Board of Directors to retain all earnings, if any, for use in our business operations and,
accordingly, the Board of Directors does not anticipate paying any cash dividends until such time they determine that doing
so is necessary in operating as a REIT. Holders of common stock are not entitled to pre-emptive or subscription or conversion
rights, and there are no redemption or sinking fund provisions applicable to the common stock.
We
have not issued and do not have outstanding any warrants to purchase common shares. We have issued common stock to Mr. Zarinegar
and stock options to Jeff Howard under their respective agreements, and Performance Realty exercised its option
under the First Amended Operating Agreement for American Realty, as discussed herein. We have not issued and do not have outstanding
any securities convertible into common shares or any rights convertible or exchangeable into common shares.
ITEM
10. INTERESTS OF NAMED EXPERTS AND COUNSEL
The
Company has retained Anthony R. Paesano of the law firm of Paesano Akkashian Apkarian, P.C. located at 7457 Franklin Road, Suite
200 in Bloomfield Hills, Michigan to serve as counsel. Mr. Paesano authored a professional opinion on the validity of the shares
to be issued at Exhibit 23.1. Neither Mr. Paesano nor his Firm has an equity interest in the Company. Daniel
S. Hoops is Of Counsel to Paesano Akkashian Apkarian, P.C. Mr. Paesano and Mr. Hoops have offered a legal tax opinion regarding
the Company and its intent to operate as a REIT. Mr. Hoops does not have an equity interest in the Company. The audited financial
statement of the Company as of and for the years ended December 31, 2014 and 2013 were audited by MaloneBailey, LLP, an independent
registered public accounting firm, located at 9801 Westheimer Road in Houston, Texas 77042 to the extent set forth in its report
and are included herein in reliance upon the authority of this firm as experts in accounting and auditing. See Exhibit 23.3
ITEM
11. INFORMATION WITH RESPECT TO THE REGISTRANT
Management's
Discussion and Analysis of Financial Condition and Operations
You
should read the following discussion of our financial condition and results of operations together with the audited financial
statements and the notes to the audited financial statements included in the registration statement on Form S-1 of which this
Prospectus is a part. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual
results may differ materially from those anticipated in these forward-looking statements.
You
should read the following discussion of our financial condition and results of operations together with the audited financial
statements and the notes to the audited financial statements included in this registration statement on Form S-1. This discussion
contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from
those anticipated in these forward-looking statements.
We
qualify as an "emerging growth company" under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions
from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:
- have
an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
- comply
with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation
or a supplement to the auditor's report providing additional information about the audit and the financial statements (i.e., an
auditor discussion and analysis);
- submit
certain executive compensation matters to shareholder advisory votes, such as "say-on-pay" and "say-on-frequency;" and
- disclose
certain executive compensation related items such as the correlation between executive compensation and performance and comparisons
of the CEO's compensation to median employee compensation.
In
addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition
period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words,
an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply
to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements
may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
We
will remain an "emerging growth company" for up to five years, or until the earliest of (i) the last day of the first fiscal year
in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a "large accelerated filer" as defined
in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our ordinary shares that is
held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or
(iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.
As
an emerging growth company, the company is exempt from Section 14A and B of the Securities Exchange Act of 1934 which require
the shareholder approval of executive compensation and golden parachutes. The Company is an Emerging Growth Company under the
JOBS Act of 2012, but the Company has irrevocably opted out of the extended transition period for complying with new or revised
accounting standards pursuant to Section 107(B) of the JOBS Act.
We
plan to raise capital following our recent change in status to an operating entity through the offering of shares of common stock
or preferred stock to investors. We anticipate we will need to pursue capital to fund our operations over the next twenty-four months.
We believe we will be able to raise the necessary capital to carry out our business plan, but there is no assurance that we will
be able to do so.
General
Discussion
The
following discussion and analysis of our financial condition and results of operations should be read in conjunction with our
consolidated financial statements and related notes included elsewhere in this registration statement. This discussion contains
forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those forward-looking
statements below. Factors that could cause or contribute to those differences include, but are not limited to, those identified
below and those discussed in the section entitled "Risk Factors" included elsewhere in this registration statement.
Results
of Operations for the three and nine months ended September 30, 2015 and 2014
The
following table sets forth the summary income statement for the three and six months ended June 30, 2015 and 2014:
|
Three
Months Ended |
Nine Months
Ended |
|
September 30,
2015 |
September 30,
2014 |
September 30,
2015 |
September 30,
2014 |
Revenue |
$ 133,444 |
$ 81,883 |
$ 398,483 |
$ 236,603 |
Operating
Expense |
$ 1,257,533 |
$ 380,005 |
$ 2,690,136 |
$ 1,078,619 |
Net
Loss |
$ (1,124,089) |
$ (298,122) |
$ (2,291,653) |
$ (842,016) |
For
the three months ended September 30, 2015 and 2014, we reported a net loss of $1,124,089 and $298,122, respectively.
The change in net loss between the three months ended September 30, 2015 and 2014 was primarily attributable to the
increase of $933,814 in general and administrative expense for the three months ended September 30, 2015 due
to an increase in professional and consulting fees and overhead expenses.
For
the nine months ended September 30, 2015 and 2014, we reported a net loss of $2,291,653 and $842,016,
respectively. The change in net loss between the nine months ended September 30, 2015 and 2014 was primarily
attributable to the acquisition cost of $325,000 recognized during the nine months ended September 30, 2015
in relation to the reverse acquisition that closed on July 6, 2015 and the increase of $1,258,529 in general and administrative
expense for the nine months ended September 30, 2015 due to an increase in marketing and advertising, overhead
expenses and professional and consulting fees.
Revenue
- Net sales for the three months ended September 30, 2015, were $133,444, compared to $81,883 for the
three months ended September 30, 2014. This resulted in an increase of approximately $51,561 or 63% from
the comparable period. The increase in revenue is primarily a result of additional rental properties.
Net
sales for the nine months ended September 30, 2015, were $398,483, compared to $236,603 for
the nine months ended September 30, 2014. This resulted in an increase of approximately $161,880 or 68% from
the comparable period. The increase in revenue is primarily a result of additional rental properties.
Operating
Expenses - Operating expenses for the three months ended September 30, 2015, was $1,257,533, as compared to $380,005 for
the three months ended September 30, 2014. The $952,326 increase is primarily attributable to the increase
of $933,814 in general and administrative expense for the three months ended September 30, 2015 due to an
increase in professional and consulting fees and overhead expenses.
Operating
Expenses - Operating expenses for the nine months ended September 30, 2015, was $2,690,136, as compared
to $1,078,619 for the nine months ended September 30, 2014. The $1,686,315 increase is primarily
attributable to the acquisition cost of $325,000 recognized during the nine months ended September 30, 2015
in relation to the reverse acquisition that closed on July 6, 2015 and the increase of $1,258,529 in general and administrative
expense for the nine months ended September 30, 2015 due to an increase in marketing and advertising, overhead
expenses and professional and consulting fees.
Results
of Operations for the year ended December 31, 2014 and 2013
The
following table sets forth the summary income statement for the year ended December 31, 2014 and 2013:
|
Year
Ended |
|
December
31, 2014 |
December
31, 2013 |
Revenue |
$
329,202 |
$
579,712 |
Operating
Expense |
$
1,810,304 |
$
1,100,786 |
Net
Loss |
$
(1,481,102) |
$
(521,074) |
For
the year ended December 31, 2014 and 2013, we reported a net loss of $1,481,102 and $521,074, respectively. The change in net
loss between the year ended December 31, 2014 and 2013 was primarily attributable to fewer properties sold in 2014 and thus a
decrease in gain on sale of real estate properties recognized during the year ended December 31, 2014 and the increase in general
and administrative expense for the year ended December 31, 2014 due to the reorganization to a single family rental model.
Revenue
- Net sales for the year ended December 31, 2014, were $329,202, compared to $579,712 for the year ended December 31, 2013. This
resulted in a decrease of approximately $250,510 or 43% from the comparable period. The decrease in revenue is primarily a result
of fewer properties sold in 2014 and thus a decrease in gain on sale of real estate properties recognized during the year ended
December 31, 2014.
Operating
Expenses - Operating expenses for the year ended December 31, 2014, was $1,810,304, as compared to $1,100,786 for the year ended
December 31, 2013. The $709,518 increase is primarily attributable to increase in general and administrative expense for the year
ended December 31, 2014 due to the ramp up for the single family rental model. Our operating expenses are largely attributable
to office, rent and professional fees related to our reporting requirements as a public company and preparing this registration
statement.
Liquidity
and Capital Resources
Liquidity
is a measure of our ability to meet potential cash requirements, maintain our assets, fund our operations and other general business
needs. Our liquidity, to a certain extent, is subject to general economic, financial, competitive and other factors that are beyond
our control. Our near-term liquidity requirements consist primarily of purchasing our target assets, restoring and leasing properties
and funding our operations.
Our
long-term liquidity needs primarily of funds necessary to pay for the acquisition and maintenance of properties; non-recurring
capital expenditures; interest and principal payments on our indebtedness; and general and administrative expenses. We seek to
satisfy our long-term liquidity needs through cash flow from operations, long-term secured and unsecured indebtedness, the issuance
of debt and equity securities, and property dispositions. We have financed our operations and acquisitions to date through the
funding by members of our subsidiaries and third party loans, including the debt service identified above in the
section titled "Description of Business."
We
believe our current available cash along with anticipated revenues may be insufficient to meet our cash needs for the near future
if we do not receive additional funding. Our assets are illiquid by their nature. Thus, a timely liquidation of assets might not
be a viable source of short-terms liquidity should a cash flow shortfall arise that cause a need for additional liquidity. It
could be necessary to source liquidity from other financing alternatives should any such scenario arise. There can be no assurance
that financing will be available in amounts or terms acceptable to us, if at all. In that event, we would be required to change
our growth strategy and seek funding on that basis, if at all.
Cash
Flow Information
Net
cash used for operating activities for the nine months ended September 30, 2015 and 2014 was $1,969,511 and $806,842,
respectively. The increase in cash used in operating activities was primarily related to the refocusing of our business to the
single family rental business model and the occurrence of $325,000 in acquisition expense related to our restructuring.
Net
cash used for operating activities for the years ended December 31, 2014 and 2013 was $1,502,436 and $1,209,191, respectively.
The increase in cash used in operating activities was primarily related to restructuring to the single family rental business
model and the reduction in gain on sale of assets from $297,904 in fiscal 2013 to $38,244 in fiscal 2014.
Net
cash used in investing activities for the nine months ended September 30, 2015 was $992,106 as compared
to $588 for the nine months ended September 30, 2014. The increase in cash used in investing activities
was primarily related to investing in additional properties of $1,033,106 during the nine months ended September 30,
2015 as compared to $300,071 during the nine months ended September 30, 2014, offset by the proceeds
from sale of real estate properties of $111,000 in the nine months ended September 30, 2015 as compared to $247,078 in the nine
months ended September 30, 2014.
Net
cash provided by investing activities for the years ended December 31, 2014 and 2013 was $331,039 and $732,534, respectively.
The decrease in cash from investing activities was primarily related to reselling fewer properties during 2014 while the Company
refocused on the buy and hold model. We received proceeds of $546,923 from the sale of real estate properties in fiscal 2014 as
compared to proceeds of $1,236,993 from the sale of real estate properties in fiscal 2013.
Net
cash obtained through all financing activities for the nine months ended September 30, 2015, of $3,011,930,
as compared to $852,000 for the nine months ended September 30, 2014. The change was due to proceeds
from sale of common stock of $2,926,505 in the nine months ended September, 2015 as compared
to $1,255,000 in the nine months ended September 30, 2014, and proceeds from issuance of notes payable
of $120,000 in the nine months ended September 30, 2015 as compared to $47,000 in the nine months
ended September 30, 2014, offset by the repayment of notes payable of $34,575 in the nine months
ended September 30, 2015 as compared to $450,000 in the nine months ended September 30,
2014.
Net
cash obtained through financing activities for the years ended December 31, 2014 and 2013 was $1,292,855 and $613,089, respectively.
The change in cash from financing activities was primarily due to proceeds from sale of common stock offset by repayments
of promissory notes payable. We received proceeds from the sale of common stock of $2,001,029 in fiscal 2014 as compared
to $1,462,089 in fiscal 2013. We also repaid notes payable of $708,174 during fiscal 2014 as compared to $849,000 during fiscal
2013.
Our
estimated working capital requirement for the next 12 months is $350,000 with an estimated burn rate of $30,000 per month. As
reflected in the accompanying financial statements, we had cash of $424,684 at September 30, 2015.
Quantitative
and Qualitative Disclosures about Market Risk
We
have not utilized any derivative financial instruments such as futures contracts, options and swaps, forward foreign exchange
contracts or interest rate swaps and futures. We believe that adequate controls are in place to monitor any hedging activities.
We do not have any borrowings (however, our wholly-owned subsidiary does service debt related to the properties owned by the subsidiary),
and, consequently, we are not affected by changes in market interest rates. We do not currently have any sales or own assets and
operate facilities in countries outside the United States and, consequently, we are not affected by foreign currency fluctuations
or exchange rate changes. Overall, we believe that our exposure to interest rate risk and foreign currency exchange rate changes
is not material to our financial condition or results of operations.
Off-Balance
Sheet Arrangements
We
have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect
on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures
or capital.
Critical
Accounting Policies
Our
financial statements and related financial information are based on the application of accounting principles generally accepted
in the United States ("GAAP"). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting
principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect
supplemental information contained in our external disclosures including information regarding contingencies, risk and financial
condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively
applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under
the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue
to monitor significant estimates made during the preparation of our financial statements. Our significant accounting policies
are summarized in Note 2 of our financial statements. While all these significant accounting policies impact our financial condition
and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies
that have the most significant impact on our financial statements and require management to use a greater degree of judgment and
estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances,
it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results
of operations, financial position or liquidity for the periods presented in this report. We believe the following critical accounting
policies and procedures, among others, affect our more significant judgments and estimates used in the preparation of our consolidated
financial statements:
Investment
in Real Estate - We allocate the purchase price to tangible assets of an acquired property (which includes land and building)
based on the estimated fair values of those tangible assets. Fair value for land and building is based on the purchase price for
these properties.
Property/SFRs
acquired not subject to an existing lease are accounted for as an asset acquisition, with the property recorded at the purchase
price, including acquisition costs. We incur costs to prepare our acquired properties to be rented. These costs are capitalized
and allocated to building costs. Costs related to the restoration or improvement of our properties that improve and extend their
useful lives are capitalized and depreciated over their estimated useful lives. Expenditures for ordinary repairs and maintenance
are expensed as incurred.
Depreciation
is computed on a straight-line basis over the useful lives of the properties (building and improvements - 27 years).
Revenue
Recognition - Rental income for property leases is recorded when due from residents and is recognized monthly as it is
earned. We lease single-family residences that we own and manage directly to tenants who occupy the properties under operating
leases, generally, with terms of one year. We perform credit investigations on prospective tenants and obtain security deposits.
Sales and the associated gains or losses of real estate assets are recognized in accordance with the provisions of ASC Topic 360-20,
Property, Plant and Equipment - Real Estate Sale. The specific timing of a sale is measured against various criteria in ASC 360-20
related to the terms of the transaction and any continuing involvement in the form of management or financial assistance associated
with the properties. If the sales criteria for the full accrual method are not met, we defer some or all of the gain recognition
and accounts for continued operations of the property by applying the finance, leasing, deposit, installment or cost recovery
methods, as appropriate, until the sales criteria are met.
Related
Party - A party is considered to be related to us if the party directly or indirectly or through one or more intermediaries,
controls, is controlled by, or is under common control with ourselves. Related parties also include principal owners of the Company,
its management, members of the immediate families of principal owners of the Company and its management and other parties with
which the Company may deal if one party controls or can significantly influence the management or operating policies of the other
to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which
can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest
in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties
might be prevented from fully pursuing its own separate interests is also a related party.
Recent
Accounting Pronouncements
The
Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company's
results of operations, financial position, or cash flow.
Properties
We
currently lease an office at the address set forth above. We believe that this space will be sufficient for our initial needs,
although as funding and revenues become available, and the Company's operations grow, we anticipate finding other office space
as needed.
Plan
of Operation and Cash Requirements
The
Company anticipates that its expenses over the next twelve months will be approximately $1,530,318. These estimates may change
significantly depending on the nature of our business activities and our ability to raise capital from our shareholders or other
sources.
Our
other administrative expenses for the year will consist primarily of transfer agent fees, bank and interest charges and general
office expenses. The professional fees are related to our regulatory filings throughout the year and include legal, accounting
and auditing fees.
Based
on our planned expenditures, we will require approximately $2,292,000 to proceed with our business plan over the next twelve months.
If we secure less than the full amount of financing that we require, we will not be able to carry out our complete business plan
and we will be forced to proceed with a scaled back business plan based on our available financial resources.
We
intend to raise the balance of our cash requirements for the next twenty-four months from private placements, shareholder
loans or possibly a registered public offering (either self-underwritten or through a broker-dealer). If we are unsuccessful in
raising enough money through such efforts, we may review other financing possibilities such as bank loans. At this time we do
not have a commitment from any third-party to provide us with financing. There is no assurance that any financing will be available
to us or if available, on terms that will be acceptable to us.
Even
though we plan to raise capital through equity or debt financing, we believe that the latter may not be a viable alternative for
funding our operations, as we do not have sufficient tangible assets to secure any such financing. We anticipate that any additional
funding will be in the form of equity financing from the sale of our common stock. However, we do not have any financing arranged
and we cannot provide any assurance that we will be able to raise sufficient funds from the sale of our common stock to finance
our operations. In the absence of such financing, we may be forced to abandon our business plan.
Recent
Accounting Pronouncements
The
Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company's
results of operations, financial position, or cash flow.
Contractual
Obligations
As
a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
Legal
Proceedings
Other
than the litigation identified herein, i.e. Trinchitella v American Realty et al., the Company is not aware of any pending legal
proceedings to which the Company is a party or in which any director, officer or affiliate of the Company, any owner of record
or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the
Company or has a material interest adverse to the Company.
Market
Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters
We
intend to have our common stock be quoted on the NASDAQ Capital Market or other US trading exchange. If our securities are not
quoted on the NASDAQ Capital Market or other US trading exchange, a security holder may find it more difficult to dispose of,
or to obtain accurate quotations as to the market value of our securities. The NASDAQ Capital Market differs from national and
regional stock exchanges in that it: (1) is not situated in a single location but operates through communication of bids, offers
and confirmations between broker-dealers, and (2) securities admitted to quotation are offered by one or more Broker-dealers rather
than the "specialist" common to stock exchanges.
To
qualify for quotation on the NASDAQ Capital Market, an equity security must have three registered broker-dealers, known as the
market makers, willing to list bid or sale quotations and to sponsor The Company' listing. We do not yet have an agreement with
a registered broker-dealer, as the market maker, willing to list bid or sale quotations and to sponsor The Company' listing. If
The Company meets the qualifications for trading securities on the NASDAQ Capital Market our securities will trade on the NASDAQ
Capital Market until a future time, if at all, that we apply and qualify for admission to quotation on the NASDAQ Capital Market.
We may not now and it may never qualify for quotation on the NASDAQ Capital Market or be accepted for listing of our securities
on the NASDAQ Capital Market.
The
Company has never paid cash dividends on any of its securities. Payment of dividends on any of its securities is within the discretion
of the Board of Directors of the Company and will depend upon the Company's earnings, its capital requirements and financial condition
and other relevant factors. It is the Company's intention to retain earnings, if any, to finance the operation and expansion of
its business and, therefore, it does not expect to pay any cash dividends on any of its securities until such time they determine
that doing so is necessary in operating as a REIT.
There
is no established public trading market for our securities and a regular trading market may not develop, or if developed, may
not be sustained. A stockholder in all likelihood, therefore, will not be able to resell his or her securities should he or she
desire to do so when eligible for public resale. Furthermore, it is unlikely that a lending institution will accept our securities
as pledged collateral for loans unless a regular trading market develops. We have no plans, proposals, arrangements, or understandings
with any person with regard to the development of a trading market in any of our securities.
Our
shares likely will be "penny stocks" as that term is generally defined in the Exchange Act and the rules and regulations promulgated
thereunder to mean equity securities with a price of less than $5.00. Our shares thus will be subject to rules that impose sales
practice and disclosure requirements on broker-dealers who engage in certain transactions involving a penny stock. Under Rule
15g-9 of the penny stock regulations, a broker-dealer selling a penny stock to anyone other than an established customer or accredited
investor must make a special suitability determination regarding the purchaser and must receive the purchaser's written consent
to the transaction prior to the sale. Generally, an individual with a net worth in excess of $1,000,000 or annual income exceeding
$200,000 individually or $300,000 together with his or her spouse is considered an accredited investor. In addition, under the
penny stock regulations the broker-dealer is required to: (a) Deliver, prior to any transaction involving a penny stock, a disclosure
schedule prepared by the SEC relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt;
(b) Disclose commissions payable to the broker-dealer and our registered representatives and current bid and offer quotations
for the securities; (c) Send monthly statements disclosing recent price information pertaining to the penny stock held in a customer's
account, the account's value and information regarding the limited market in penny stocks; and (d) Make a special written determination
that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction,
prior to conducting any penny stock transaction in the customer's account.
Because
of the penny stock regulations, broker-dealers may encounter difficulties in their attempt to sell shares of our Common Stock,
which may affect the ability of Selling Stockholders or other holders to sell their shares in the secondary market and have the
effect of reducing the level of trading activity in the secondary market. These additional sales practice and disclosure requirements
could impede the sale of our securities, if our securities become publicly traded. In addition, the liquidity for our securities
may be decreased, with a corresponding decrease in the price of our securities. Our shares in all probability will be subject
to such penny stock rules and our stockholders will, in all likelihood, find it difficult to sell their securities.
As
of the date of this Prospectus, we have 599 holders of record of our common stock. For purposes of calculations throughout this
registration statement, the Company is disclosing the current issued and outstanding as set forth in the first sentence of this
paragraph. We have not declared any cash dividends on our common stock since our inception. Any decisions as to future payments
of dividends will depend on our earnings and financial position and such other facts, as the Board of Directors deems relevant.
Financial
Statements
As
a smaller reporting company, the Company is required to disclose information under Rule 8-04 (Financial Statements of Businesses
Acquired or to be Acquired) and Rule 8-05 (Pro Forma Financial Information) of Regulation S-X in lieu of the financial information
required by Rule 3-05 and Article 11 of Regulation S-X. In furtherance of this disclosure requirement, the Company has attached
those financial statements and related audit report filed in its 2014 Form 10-K.
Selected
Financial Data
As
a "smaller reporting company," as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
Supplementary
Financial Information
The
Company does not have any disclosures required under Item 302 of Regulation S-K
Changes
In and Disagreements with Accountants on Accounting and Financial Disclosures
The
Company does not have any disclosures required under Item 304 of Regulation S-K.
Policy
with Respect to Certain Activities
The
following is a discussion of our investment policies and our policies with respect to certain other activities, including financing
matters and conflicts of interest. These policies may be amended or revised from time to time at the discretion of our Board of
Directors, without stockholder approval. Any change to any of these policies by our Board of Directors, however, would be made
only after a thorough review and analysis of that change, in light of then-existing business and other circumstances, and then
only if, in the exercise of its business judgment, our Board of Directors believes that it is advisable to do so in our best interests.
We intend to disclose any changes in our investment policies in periodic reports that we file or furnish under the Exchange Act.
We cannot assure you that our investment objective will be attained.
Our
Board of Directors has the power and authority to make material decisions directly impacting American Realty, ARP Borrower and
ARP Borrower II, and AHIT Valfre in serving as the General Partner of this umbrella limited partnership. A conflict of interest
might arise as a result of the Company serving as the guarantor of the payment and performance obligations of ARP Borrower and
ARP Borrower II under their respective limited recourse guarantees with Firstkey. It should further be noted that our Chairman
of the Board, Chief Financial Officer and Treasurer - Sean Zarinegar, has a limited guaranty obligations under the debt service
associated with ARP Borrower, but not with ARP Borrower II.
To
the extent ARP Borrower or ARP Borrower II are not able to meet their financial obligations under their respective note obligations,
the Company would be exposed to liability under the applicable guarantee. The scope of the guarantees are discussed above. Similarly,
to the extent ARP Borrower is not able to meet its financial obligations to Firstkey, Mr. Zarinegar (in addition to the Company)
would be exposed to potential liability under his limited guaranty. Mr. Zarinegar may seek indemnification from the Company in
not only defending any such allegations, but also in satisfying any of his obligations owed to Firstkey. Therefore, in essence,
the Company could be exposed to potential liability in the event Mr. Zarinegar elects to exercise his rights under the indemnification
provision of the Company's Bylaws and Charter.
Investments
in Real Estate
Upon
the closing of this offering, we expect to conduct substantially all of our investment activities through our subsidiaries and
umbrella partnership, unless the Board of Directors, exercising its discretion, elects to investment through the Company directly
or newly created subsidiaries or operating partnerships. We invest principally in single-family homes and other assets related
to the single-family housing sector in select markets in the United States that we believe exhibit housing, economic, demographic,
employment and other characteristics that make investments in single-family homes as investment properties for rental attractive.
We
will conduct our investment activities in a manner that is consistent with the requirements applicable to REITs for federal income
tax purposes. We pursue our investment objective through the ownership by our subsidiaries and operating partnership of our assets.
Our management team identifies and negotiates acquisition and other investment opportunities, subject to the exclusive oversight
of our Board of Directors. Investments are also subject to our policy not to be treated as an investment company under the 1940
Act.
We
do not have a specific policy to acquire assets primarily for capital gain or primarily for income, although we generally target
properties that we believe will generate income in the near term. No limits have been set on the concentration of our investments
in any one geographic location or property type. We currently anticipate that our real estate investments will continue to be
concentrated in single-family homes. We anticipate that, over time, our real estate investments will become more diversified in
terms of geographic market, but we expect our assets to be concentrated in certain markets that exhibit the characteristics that
support our business and investment strategy.
Purchase
and Sale of Investments
We
expect to invest in our properties primarily for generation of current income and long-term capital appreciation. Although we
do not currently intend to sell our properties, we may deliberately and strategically dispose of assets in the future and redeploy
funds into new acquisitions and development opportunities that align with our strategic objectives.
Issuance
of Additional Securities
If
our Board of Directors determines that obtaining additional capital would be advantageous to us, we may, without stockholder approval,
issue debt or equity securities, including preferred stock and including causing our operating partnership to issue additional
units, retain earnings (subject to the distribution requirements applicable to REITs for federal income tax purposes) or pursue
a combination of these methods. We may offer shares of our common stock or other debt or equity securities in exchange for cash,
real estate assets or other investment targets and to repurchase or otherwise re-acquire shares of our common stock or other debt
or equity securities. We may issue preferred stock from time to time, in one or more classes or series, as authorized by our Board
of Directors without the need for stockholder approval. We have not adopted a specific policy governing the issuance of senior
securities at this time.
Repurchase
of Our Securities
We
may repurchase shares of our common stock from time to time pursuant to a stock redemption plan.
Reporting
Policies
We
file annual and periodic reports, proxy statements and other information, including audited financial statements, with the SEC.
We will continue to make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements
and amendments to those reports or statements available free of charge on our website at www.ahitrust.com, under "Investor
Relations - SEC Filings," as soon as reasonably practicable after we file these materials with, or furnish them to,
the SEC.
Directors
and Executive Officers
Management
Executive
officers, other executive management and directors
The
following table provides information regarding our executive officers, other executive management and directors as of November
18, 2015:
Name |
Age |
Position(s) |
Executive
Officers |
|
|
Sean
Zarinegar |
44 |
Chairman
of the Board, Chief Financial Officer and Treasurer |
Kenneth
Hedrick |
46 |
Director |
Jeff
Howard |
52 |
Director,
Chief Executive Officer and President |
Monica
Andreas |
33 |
Secretary |
Biographical
Information for Sean Zarinegar, Age 44, Chairman of the Board, Chief Financial Officer, Treasurer
Mr.
Zarinegar brings more than twenty years of experience in operations, evaluation, investment and management of real estate assets
and is responsible for new asset origination, evaluation, analysis and due diligence, as well as overall executive direction.
Mr. Zarinegar brings investment experience to the company as well as experience having formed successful business partnerships
and has acquired a talented team of experts necessary to support ongoing and future projects and opportunities. Mr. Zarinegar
has been an active real estate investor in Arizona, Texas, and Nevada as well as Colorado and Southern California, and has been
tasked by the Corporation in leading efforts to convert the Corporation to a Real Estate Investment Trust consistent with 26 USC
§ 856.
Mr.
Zarinegar is focused on maximizing the tremendous opportunity in the Phoenix, Arizona real estate market. With the decades of
experience behind him, along with a severely depressed real estate market, the opportunities are abundant. For the past five years,
Mr. Zarinegar has served as the Managing Partner for Core Performance Realty, and related parties, Performance Realty and American
Realty. Mr. Zarinegar incorporates by reference the prior disclosure regarding the cease and desist orders issued by the Kansas
Securities Commission and Alabama Securities Commission.
Biographical
Information for Jeff Howard, Age 52, Director, Chief Executive Officer and President
Jeff
Howard brings twenty-seven years of experience in residential property acquisitions, homebuilding and investment activities to
the Company in his role as Chief Executive Officer, President and a Director on the Board of Directors. Between 2001 and 2003,
Mr. Howard served as Director of Homebuilding for Suncor Development in Tempe, Arizona. Since 2003, Mr. Howard has been the owner
of Horizon Homes and Investments in Phoenix, Arizona. Mr. Howard has purchased over 2500 houses and has grossed over $850M in
sales since 2003. His unique industry relationships and experience allows him to find properties not available to all investors.
His wisdom and know-how has brought both profit and growth to the Company. Mr. Howard has been a licensed realtor in the state
of Arizona since 2003 and has facilitated investment buys and sells from coast to coast.
Biographical
Information for Kenneth Hedrick, Age 45, Director
Mr.
Hedrick brings over 21 years of residential mortgage and banking experience to the board of American Housing Income Trust. He
currently serves as Vice President of foreclosure, bankruptcy, and loss recovery for TCF National Bank in Michigan, a subsidiary
of TCF Financial Corporation, a $19 billion Minnesota-based national bank holding company.
He
began his career with TCF Bank right out of college, handling production, underwriting, and approval of residential and consumer
loans. As he entered production management, his roles included customer financial analysis, compliance, and audit oversight. Since
2009, as an employee of TCF Bank, Mr. Hedrick has gained expertise through portfolio management in the areas of foreclosure, bankruptcy,
loss recovery, collections, loss mitigation, REO, as well as oversight of legal matters as they relate to residential customers.
In the world of increased regulatory oversight, Mr. Hedrick also brings a wealth of knowledge when it comes to interacting with,
and responding to, regulators and auditors for issues ranging from operational practices to policy development and disaster recovery
plans.
Mr.
Hedrick is currently elected to his 2nd term on the Board of Education for the Avondale School District in Auburn Hills, Michigan.
He has sat on this board since 2006, holding officer positions of Secretary and Treasurer, and currently serves as Board President.
Mr. Hedrick holds a bachelor degree in business administration from Hope College, and currently resides in Bloomfield Hills, Michigan.
Biographical
Information for Monica Andreas, Age 33, Secretary
Mrs.
Andreas has more than ten years' experience in the finance industry. She began her career as an administrative assistant with
a small private lending firm. It was there she developed her skills in compliance, collections, loss prevention, underwriting,
small claims court, auditing and bankruptcy. These skills helped expand the small business into a fast-growing, high profit company
with over a dozen locations statewide. She was promoted to Vice President of Administration and Executive Administration to the
Chief Executive Officer for the reminder of her time there. The knowledge and understanding of business administration, and her
interest in the real estate market is what makes Mrs. Andreas a crucial part of the American Housing Income Trust team. Prior
to joining American Housing Income Trust, Inc., Ms. Andreas spent ten years with 1 Stop Money Centers, LLC as Vice President of
Collections and Executive Administrator.
Executive
Compensation and Corporate Governance
It
is the intention of the Company to establish nominating committees, audit committees, compensation committees and protocols and
procedures associated with annual and special meetings of shareholders (to the extent not addressed in the enclosed Bylaws). The
Company currently does not have an Employee Stock Option Plan.
Since
we do not have an audit or compensation committee comprised of independent directors, the functions that would have been performed
by such committees are performed by our director. The Board of Directors has not established an audit committee and does not have
an audit committee financial expert, nor has the Board established a nominating committee. Thus, there is a potential conflict
of interest in that our director and officer has the authority to determine issues concerning management compensation, nominations,
and audit issues that may affect management decisions.
Our
Board of Directors intends on adopting a code of ethics applying to all employees, including our principal executive officer,
principal financial officer and principal accounting officer or controller, or persons performing similar functions. Among other
matters, our code of ethics will be designed to deter wrongdoing and to promote honest and ethical conduct, including the ethical
handling of actual or apparent conflicts of interest, and full, fair, accurate, timely and understandable disclosures in "simple
English" in our reports filed with the Commission and other public communications. The Company believes it has done so to date.
Any waiver of the code of ethics for our executive officers, directors or employees would be made only by our Board of Directors
or a committee of our Board of Directors and would be promptly disclosed as required by law or stock exchange regulations.
Limitations
on Liabilities and Indemnification of Directors and Officers
For
information concerning limitations of liability and indemnification applicable to our directors, executive officers and, in certain
circumstances, employees, see the discussion above regarding Maryland law, our Charter and our Bylaws. Although it is our intent
in the near future, we have not yet obtained directors' and officers' liability insurance insuring our directors and officers
against liability for acts or omissions in their capacities as directors or officers. We have entered into indemnification agreements
with key officers and directors, and such persons shall also have indemnification rights under applicable laws, and our Charter
and Bylaws.
Interests
in Our Investments
We
are permitted to make or acquire investments in which our directors, officers or stockholders or any of our or their respective
affiliates have direct or indirect pecuniary interests. However, any such transaction in which our directors or any of their respective
affiliates has any interest would be subject to review and approval by the Board of Directors with the interested director or
officer (to the extent they are the one involved in the transaction at issue) abstaining from vote on the particular transaction.
For example, as set forth above, Mr. Zarinegar and American Realty hold the property located at 4201 Martin Road in Las Vegas,
Nevada as tenants-in-common. The note associated with the loan on this property is held by Citibank, which holds a deed in trust
as collateral for Mr. Zarinegar's obligations. Mr. Zarinegar is the sole borrower on the note. A conflict of interest might arise
to the extent Mr. Zarinegar defaults under the note or deed in trust; more specifically, to the extent Citibank exercises its
rights under the deed-in-trust, American Realty could lose title to the property, which in turn would impact the value of the
Company's stock, and if additional capital is needed in order to meet the note obligations, so American Realty does not lose its
interest in the property, there would be dilution of all shares. Performance Realty authorized this tenancy in common as being
in the best interests of American Realty.
Summary
Compensation Table - 2014 and 2015
This
narrative addresses summary compensation of Sean Zarinegar in his role as manager of Performance Realty, which is the manager
of American Realty, a wholly-owned subsidiary of the Company, for the fiscal year ending in 2014 and 2015.
In
2014, Mr. Zarinegar was the sole principal executive officer for Performance Realty, which was the manager of American Realty.
For all intents and purposes, Mr. Zarinegar managed and operated American Realty through Performance Realty. Mr. Zarinegar does
not have a written employment agreement with Performance Realty or American Realty. He was, and still is, an at-will employee
of American Realty receiving W2 compensation. He also received member distributions as a member of Performance Realty.
In
2015, Mr. Zarinegar continued to receive W2 compensation from American Realty and member distributions from Performance Realty.
On May 15, 2015, Mr. Zarinegar executed an Advisory Board Consulting and Compensation Agreement. The Company agreed to pay Mr.
Zarinegar an annual fee equal to $120,000 or 1% of the Company's assets as reported on its year-end balance sheet, whichever is
greater, unless, an opinion of counsel or the Company's auditors conclude that the asset-based compensation limits or impairs
the Company's intent of becoming a real estate investment trust or impairs the Company's status as a publicly reporting company
in good standing under the rules promulgated by the United States Securities and Exchange Commission. Mr. Zarinegar has been paid
$75,000 in 2015 towards this consulting fee. In addition, upon the effectiveness of the reverse merger with American Realty and
the Company, Mr. Zarinegar was issued 1,000,000 shares of common stock. Although the Company compensates Mr. Zarinegar as an independent
contractor, the Company and Mr. Zarinegar agree that Mr. Zarinegar is bound by all fiduciary duties and obligations of a director
and officer under Maryland law.
In
addition to providing advisory services to the Board of Directors based on his education, experience and training in the business
operating by the Company, Mr. Zarinegar is incurring risk and exposure in guaranteeing the Firstkey debt service, as discussed
above. Although the Firstkey debt service is to American Realty, as the parent entity, and ARP Borrower I and ARP Borrower II,
the Company ultimately benefits from the debt service. Recognizing that the consideration, above, does not completely compensate
Mr. Zarinegar, the Company has agreed to issue Mr. Zarinegar or his designee a total of 3,000,000 shares of the Company's common
stock (post-split) on the first, second and third anniversary. The Company agrees to issue these shares into its treasury for
future issuance to Mr. Zarinegar with a legend indicating that the shares are for future issuance under the terms of this Agreement.
Mr. Zarinegar and the Company acknowledge that, concomitant with the execution of its agreement with Mr. Zarinegar, the Company
had approved for execution and has since executed the Stock Exchange Agreement. In the event counsel for the Company or its tax
advisors advise the Company that the stock issuance to Mr. Zarinegar might impair the intended tax-free reorganization under the
Stock Exchange Agreement, the Company and Mr. Zarinegar shall agree to hold the shares identified herein in escrow until such
time the Board of Directors and its advisors conclude that the shares may be issued in any manner that does not interfere with
the intended tax free restructuring of the Company. Mr. Zarinegar's profile has been disclosed in previous filings, and is incorporated
herein by reference.
Mr.
Howard was and is not an employee of American Realty or Performance Realty. On October 12, 2015, the Company hired Jeff Howard
to serve as Chief Executive Officer and President. Pursuant to the terms of the agreement, Mr. Howard is to be compensated an
annual salary of $64,800 between October 12, 2015 and October 12, 2016 (the "Initial Term"). However, since execution of the agreement,
Mr. Howard has been paid independent contractor compensation in the amount of $18,600. The Company intends on paying Mr. Howard
W2 compensation effective January 1, 2016 over the balance of the term. Although Mr. Howard has been treated as an independent
contractor, Mr. Howard and the Company agree that Mr. Howard owes duties to the Company as provided for under Maryland law, and
our Charter and Bylaws, where applicable.
In
addition to the compensation identified above, the Company and Mr. Howard agreed to the following escalators: (a) The Company
agrees to increase his compensation by an additional Twenty-Five Thousand Dollars ($25,000.00) per annum and shall issue an additional
issuance of Twenty-Five Thousand (25,000.00) shares of common stock in the Company to him when the Company achieves the milestone
of a gross revenue of One Million Dollars ($1,000,000.00) per annum; (b) The Company agrees to increase his compensation by an
additional Twenty-Five Thousand Dollars ($25,000.00) per annum when the Company has achieved the milestone of a gross revenue
of One Million Five Hundred Thousand Dollars ($1,500,000.00) per annum; and (c) The Company agrees to increase his compensation
by an additional Twenty-Five Thousand Dollars ($25,000.00) per annum, and issue an additional issuance of Twenty-Five Thousand
(25,000.00) Shares of Common stock in the Company to him when the Company has achieved the milestone of a gross revenue of Two
Million Dollars ($2,000,000.00) per annum. Mr. Howard's current and future compensation is not contingent upon the success of
sales of shares of common stock in this Prospectus.
Mr.
Hedrick has received 25,000 shares of common stock under his board advisory agreement in 2015. He has no future stock options
or grants. Although Mr. Hedrick has been treated as an independent contractor, Mr. Howard and the Company agree that Mr. Howard
owes duties to the Company as provided for under Maryland law, and our Charter and Bylaws, where applicable.
The
Company has not approved and implemented an employee stock option plan, pension plan or other type of incentive plans related
to its common stock or preferred stock.
Name
and principal position |
Year |
Salary
($) |
Bonus
($) |
Stock
awards ($) |
Option
awards ($) |
Nonequity
incentive plan compensation ($) |
Nonqualified
deferred compensation earnings ($) |
All
other compensation ($) |
Total($) |
|
|
|
|
|
|
|
|
|
|
Sean
Zarinegar (1) |
2014 |
$72,000 |
$
- |
$
- |
$
- |
$
- |
$
- |
$48,000 |
$120,000 |
Sean
Zarinegar (2) |
2014 |
$
- |
$
- |
$
- |
$
- |
$
- |
$
- |
$50,315 |
$50,315 |
Jeff
Howard |
2014 |
$
- |
$
- |
$
- |
$
- |
$
- |
$
- |
$
- |
$
- |
Ken
Hedrick |
2014 |
$
- |
$
- |
$
- |
$
- |
$
- |
$
- |
$
- |
$
- |
(1)
This row represents the amount of compensation paid to Sean Zarinegar by American Realty.
(2)
This row represents the amount of compensation paid to Sean Zarinegar by Performance Realty.
Summary
Compensation Table - 2015
|
Name
and principal position |
Year |
Salary
($) |
Bonus
($) |
Stock
awards ($) |
Option
awards ($) |
Nonequity
incentive plan compensation ($) |
Nonqualified
deferred compensation earnings ($) |
All
other compensation ($) |
Total($) |
|
|
|
|
|
|
|
|
|
|
Sean
Zarinegar (1) |
2015 |
$60,231 |
$
- |
$
- |
$
- |
$
- |
$
- |
$38,131 |
$98,362 |
Sean
Zarinegar (2) |
2015 |
$
- |
$
- |
$
- |
$
- |
$
- |
$
- |
$2,040 |
$2,040 |
Sean
Zarinegar (3) |
2015 |
$
- |
$
- |
$200,000
(4) |
$
- |
$
- |
$
- |
$75,000 |
$275,000 |
Jeff
Howard |
2015 |
$
- |
$
- |
$
- |
$
- |
$
- |
$
- |
$18,600 |
$18,600 |
Ken
Hedrick |
2015 |
$
- |
$
- |
$5,000
(4) |
$
- |
$
- |
$
- |
$
- |
$5,000 |
(1)
This row represents the amount of compensation paid to Sean Zarinegar by American Realty.
(2)
This row represents the amount of compensation paid to Sean Zarinegar by Performance Realty.
(3)
This row represents the amount of compensation paid to Sean Zarinegar by the Company pursuant to his Advisory Board Consulting
and Compensation Agreement. As provided for in the agreement, Mr. Zarinegar is entitled to receive an additional 3,000,000 shares
of common stock upon approval of the Board of Directors, unless Mr. Zarinegar's agreement is terminated, in which case, the balance
of the shares are to be issued within fifteen (15) days.
(4)
These valuations are based on the fair value of the stock at the date of the grant.
Summary
Outstanding Equity Awards Table - 2014 and 2015
Pursuant
to Item 402(q) of Regulation S-K, American Realty, Performance Realty and the Company are required to provide the material terms
of each plan that provides for the payment of retirement benefits, or benefits that will be paid primarily following retirement,
including but not limited to tax-qualified defined benefit plans, supplemental executive retirement plans, tax-qualified defined
contribution plans and nonqualified defined contribution plans. The Company has no disclosures in this respect.
The
Company is also required to provide the material terms of each contract, agreement, plan or arrangement, whether written or unwritten,
that provides for payment(s) to a named executive officer at, following, or in connection with the resignation, retirement or
other termination of a named executive officer, or a change in control of the smaller reporting company or a change in the named
executive officer's responsibilities following a change in control, with respect to each named executive officer.
Under
the Advisory Board and Consulting Agreement for Mr. Zarinegar, if Mr. Zarinegar is terminated by the Company "for Cause," as defined
in the agreement, or if Mr. Zarinegar voluntarily terminates his services prior to the end of the term (other than due to his
death or disability), in consideration of a release of any actual or perceived claims Mr. Zarinegar might have against the Company,
within three weeks from the date of termination, Mr. Zarinegar may send confirmation of his release of any and all claim, and
in turn, the Company shall pay Mr. Zarinegar fifty-percent (50%) of the balance due and owing over the balance of the term, which
has been defined in the agreement as the "For Cause Severance Payment". The Company shall pay half of the For Cause Severance
Payment within sixty (60) days of Mr. Zarinegar's confirmation of release, and the balance within sixty (60) days thereafter.
In
the event the Company does not pay the For Cause Severance Payment, Mr. Zarinegar may elect to either retract his confirmation
of release, or demand a note in the amount due and owing earning six-percent interest per annum requiring twelve equal monthly
installments due on the 1st day of each successive month, which is defined as the "Note Obligation". The parties
agree that the Note Obligation does not need to be memorialized in a separate agreement, unless the parties mutually agree otherwise.
In the event of breach of the Note Obligation, the confirmation of release shall be null and void, and Mr. Zarinegar shall retain
any and all rights, claims and actions against the Company, including but not limited to, the amounts due under the Note Obligation.
If
Mr. Zarinegar is terminated by the Company other than "for Cause" prior to the end of the term, or is terminated by vote of the
majority of shareholders entitled to vote, Mr. Zarinegar shall be entitled to payment of one-hundred percent (100%) of the balance
due and owing over the balance of the term (the "No Cause Severance Payment"). The Company shall pay half of the No Cause Severance
Payment within sixty (60) days of Mr. Zarinegar's confirmation of release, and the balance within sixty (60) days thereafter.
In
the event the Company does not pay the No Cause Severance Payment as agreed upon herein, Mr. Zarinegar may elect to either retract
his confirmation of release, or demand a note in the amount due and owing earning six-percent interest per annum requiring twelve
equal monthly installments due on the 1st day of each successive month (the "Note Obligation"). The parties agree
that the Note Obligation does not need to be memorialized in a separate agreement, unless the parties mutually agree otherwise.
In the event of breach of the Note Obligation, the confirmation of release shall be null and void, and Mr. Zarinegar shall retain
any and all rights, claims and actions against the Company, including but not limited to, the amounts due under the Note Obligation.
Regardless
of the basis for termination under Mr. Zarinegar's agreement, the Company shall issue the balance of the stock grants, i.e. the
balance of 3,000,000 shares of common stock, within fifteen (15) days of the notice of termination.
Neither
Mr. Howard nor Mr. Hedrick have similar provisions under their respective agreements.
Outstanding
Equity Awards at Fiscal Year-End 2014 |
Name |
Option
awards |
Stock
awards |
Number
of securities underlying unexercised options (#) exercisable |
Number
of securities underlying unexercised options (#) unexercisable |
Equity
incentive plan awards: Number of securities underlying unexercised unearned options (#) |
Option
exercise price ($) |
Option
expiration date |
Number
of shares or units of stock that have not vested
(#) |
Market
value of shares of units of stock that have not vested
($) |
Equity
incentive plan awards: Number of unearned shares, units or other rights that have not vested (#) |
Equity
incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($) |
Sean
Zarinegar (1) |
- |
- |
- |
$
- |
- |
- |
$
- |
- |
$
- |
Sean
Zarinegar (2) |
- |
- |
- |
$
- |
- |
- |
$
- |
- |
$
- |
Jeff
Howard |
- |
- |
- |
$
- |
- |
- |
$
- |
- |
$
- |
Ken
Hedrick |
- |
- |
- |
$
- |
- |
- |
$
- |
- |
$
- |
(1)
This row represents the amount of outstanding equity awards to Sean Zarinegar by American Realty.
(2)
This row represents the amount of outstanding equity awards to Sean Zarinegar by Performance Realty.
Outstanding
Equity Awards at Fiscal Year-End 2015 |
Name |
Option
awards |
Stock
awards |
Number
of securities underlying unexercised options (#) exercisable |
Number
of securities underlying unexercised options (#) unexercisable |
Equity
incentive plan awards: Number of securities underlying unexercised unearned options (#) |
Option
exercise price ($) |
Option
expiration date |
Number
of shares or units of stock that have not vested
(#) |
Market
value of shares of units of stock that have not vested
($) |
Equity
incentive plan awards: Number of unearned shares, units or other rights that have not vested (#) |
Equity
incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($) |
Sean
Zarinegar (1) |
- |
- |
- |
$
- |
- |
- |
$
- |
- |
$
- |
Sean
Zarinegar (2) |
- |
- |
- |
$
- |
- |
- |
$
- |
- |
$
- |
Sean
Zarinegar (3) |
- |
- |
- |
$
- |
- |
- |
$
- |
- |
$
- |
Jeff
Howard |
- |
- |
- |
$
- |
- |
- |
$
- |
- |
$
- |
Kenneth
Hedrick |
- |
- |
- |
$
- |
- |
- |
$
- |
- |
$
- |
(1)
This row represents the amount of outstanding equity awards to Sean Zarinegar by American Realty.
(2)
This row represents the amount of outstanding equity awards to Sean Zarinegar by Performance Realty.
(3)
This row represents the amount of outstanding equity awards to Sean Zarinegar by the Company.
2015
Director Compensation Table
Name |
Fees
Earned |
Stock
Awards |
Option
Awards |
Non-Equity
Incentive Plan Compensation |
Deferred
Compensation Earnings |
All
Other Compensation |
Total |
Sean
Zarinegar |
$75,000 |
$200,000 |
- |
- |
- |
- |
$275,000 |
Jeff
Howard |
$0 |
$0 |
- |
- |
- |
- |
$0 |
Kenneth
Hedrick |
$0 |
$5,000 |
- |
- |
- |
- |
$5,000 |
The
dollar amounts in the Stock Awards column reflect the values of equity awards as of the grant date, in accordance with ASC 718, Compensation - Stock
Compensation, and, therefore, do not necessarily reflect actual benefits received by the individuals.
Advisory
Board Consulting and Compensation Agreement - Sean Zarinegar (Chairman of the Board, Chief Financial Officer, Treasurer)
Pursuant
to the Resolutions, the Board of Directors ratified and approved the Advisory Board Consulting and Compensation Agreement for
Director Sean Zarinegar effective May 15, 2015. The Company retained Mr. Zarinegar through the issuance of 1,000,000 shares of
common stock in the Company upon the Company's confirmation of the approval of the reverse stock split by FINRA, which occurred
on July 7, 2015.
The
Company has agreed to pay Mr. Zarinegar an annual fee equal to $120,000 or 1% of the Company's assets
as reported on its year-end balance sheet, whichever is greater, unless, an opinion of counsel or the Company's auditors conclude
that the asset-based compensation limits or impairs the Company's intent of becoming a real estate investment trust or impairs
the Company's status as a publicly reporting company in good standing under the rules promulgated by the United States Securities
and Exchange Commission, and the issuance of 1,000,000 shares upon the effectiveness of the Company's reverse merger. These
shares have been issued. The Consulting Fee shall be payable at the same time, in the same manner, and following the same procedures
as apply to directors' fees paid to non-employee directors of the Company. All such payments shall be paid on a "1099" basis. Although
the Company compensates Mr. Zarinegar as an independent contractor, the Company and Mr. Zarinegar agree that Mr. Zarinegar is
bound by all fiduciary duties and obligations of a director and officer under Maryland law.
In
addition to providing advisory services to the Board of Directors based on his education, experience and training in the business
operating by the Company, Mr. Zareingar is incurring risk and exposure in guaranteeing the Firstkey debt service identified
above. Although the Firstkey debt service is to American Realty, as the parent entity, and ARP Borrower and ARP Borrower
II, the Company ultimately benefits from the debt service. Recognizing that the consideration, above, does not completely
compensate Mr. Zarinegar, the Company has agreed to issue Mr. Zarinegar or his designee a total of 3,000,000 shares of the Company's
common stock (post-split) on the first, second and third anniversary. The Company agrees to issue these shares into its treasury
for future issuance to Mr. Zarinegar with a legend indicating that the shares are for future issuance under the terms of this
Agreement. Mr. Zarinegar and the Company acknowledge that, concomitant with the execution of its agreement with Mr. Zarinegar,
the Company has approved for execution and has executed the Stock Exchange Agreement. In the event counsel for the Company or
its tax advisors advise the Company that the stock issuance to Mr. Zarinegar might impair the intended tax-free reorganization
under the Stock Exchange Agreement, the Company shall agree to hold the shares identified herein in escrow until such time the
Board of Directors and its advisors conclude that the shares may be issued in any manner that does not interfere with the intended
tax free restructuring of the Company. Mr. Zarinegar's profile has been disclosed in previous filings, and is incorporated herein
by reference.
Mr.
Zarinegar's agreement is subject to specific termination provisions. In the event of Mr. Zarinegar's death or total disability
(defined as his inability to perform his duties under the agreement for three (3) consecutive fiscal quarters) during the Term,
the agreement shall terminate on the date of such death or disability; provided that, such termination does not relieve the Company
of its obligations to make the payments set forth in the agreement accrued through the date of such termination. The Company may
terminate the agreement for "Cause" at any time and without notice. The Company shall have "Cause" to terminate the agreement
if (a) Mr. Zarinegar breaches any provision of this Agreement, or (b) Mr. Zarinegar engages in conduct which is intentionally
injurious to the Company as determined by the Board. It is not considered termination for "Cause" if Mr. Zarinegar is terminated
through a majority vote of the shareholders entitled to vote.
If
Mr. Zarinegar is terminated by the Company for Cause or if he voluntarily terminates his services prior to the end of the Term
(other than due to death or disability), in consideration of a release of any actual or perceived claims Mr. Zarinegar might have
against the Company, within three weeks from the date of termination, Mr. Zarinegar may send confirmation of his release of any
and all claim, and in turn, the Company shall pay the him fifty-percent (50%) of the balance due and owing over the balance of
the Term (the "For Cause Severance Payment"). The Company shall pay half of the For Cause Severance Payment within sixty (60)
days of Mr. Zarinegar's confirmation of release, and the balance within sixty (60) days thereafter.
In
the event the Company does not pay the For Cause Severance Payment as agreed upon herein, Mr. Zarinegar may elect to either retract
his confirmation of release, or demand a note in the amount due and owing earning six-percent interest per annum requiring twelve
equal monthly installments due on the 1st day of each successive month (the "Note Obligation"). The parties agree that the Note
Obligation does not need to be memorialized in a separate agreement, unless the parties mutually agree otherwise. In the event
of breach of the Note Obligation, the confirmation of release shall be null and void, and Mr. Zarinegar shall retain any and all
rights, claims and actions against the Company, including but not limited to, the amounts due under the Note Obligation.
If
Mr. Zarinegar is terminated by the Company other than for Cause prior to the end of the Term, or is terminated by vote of the
majority of shareholders entitled to vote, Mr. Zarinegar shall be entitled to payment of one-hundred percent (100%) of the balance
due and owing over the balance of the Term (the "No Cause Severance Payment"). The Company shall pay half of the No Cause Severance
Payment within sixty (60) days of Advisor's confirmation of release, and the balance within sixty (60) days thereafter.
In
the event the Company does not pay the No Cause Severance Payment as agreed upon herein, Mr. Zarinegar may elect to either retract
his confirmation of release, or demand a note in the amount due and owing earning six-percent interest per annum requiring twelve
equal monthly installments due on the 1st day of each successive month (the "Note Obligation"). The Parties agree that the Note
Obligation does not need to be memorialized in a separate agreement, unless the Parties mutually agree otherwise. In the event
of breach of the Note Obligation, the confirmation of release shall be null and void, and Mr. Zarinegar shall retain any and all
rights, claims and actions against the Company, including but not limited to, the amounts due under the Note Obligation. In the
event Mr. Zarinegar resigns from the Board of Directors, and voluntarily terminates the agreement, Mr. Zarinegar agrees to waive
any and all remaining amounts due as a Consulting Fee, but retains the right to reimbursement of any expenses. Regardless of the
basis for termination, the Company shall issue the shares of common stock identified in the agreement within fifteen (15) days
of the notice of termination.
Executive
Agreement - Jeff Howard (Director, Chief Executive Officer and President)
On
October 12, 2015, the Company hired Jeff Howard, currently a Director on the Board of Directors, to fill the vacancy left by Mr.
Zarinegar's resignation as Chief Executive Officer and President. There were no disputes between Mr. Zarinegar and the Company
prior to his resignation. Pursuant to the terms of the Executive Agreement between the Company and Mr. Howard, Mr. Howard is to
be compensated an annual salary of $64,800 between October 12, 2015 and October 12, 2016 (the "Initial Term"), unless his employment
is terminated as set forth in the Executive Agreement. The Executive Agreement has successive one-year renewal periods (a "Renewal
Term").
In
addition to the compensation identified above, the Company and Mr. Howard agreed to the following escalators either during the
Initial Term or Renewal Term, if applicable: (a) The Company agrees to increase Executive's compensation by an additional Twenty-Five
Thousand Dollars ($25,000.00) per annum and shall issue an additional issuance of Twenty-Five Thousand (25,000.00) shares of common
stock in the Company to the Executive when the Company achieves the milestone of a gross revenue of One Million Dollars ($1,000,000.00)
per annum; (b) The Company agrees to increase Executive's compensation by an additional Twenty-Five Thousand Dollars ($25,000.00)
per annum when the Company has achieved the milestone of a gross revenue of One Million Five Hundred Thousand Dollars ($1,500,000.00)
per annum; and (c) The Company agrees to increase Executive's compensation by an additional Twenty-Five Thousand Dollars ($25,000.00)
per annum, and issue an additional issuance of Twenty-Five Thousand (25,000.00) Shares of Common stock in the Company to the Executive
when the Company has achieved the milestone of a gross revenue of Two Million Dollars ($2,000,000.00) per annum.
Advisory
Board Consulting and Compensation Agreement - Kenneth Hedrick (Director)
Pursuant
to the Resolutions, the Board of Directors ratified and approved the Board Director Agreement for Director Kenneth Hedrick effective
May 15, 2015. In consideration of Director's services, the Company has agreed to issue 25,000 shares of restricted common stock
in the Company to Director upon the Company's confirmation of the approval of the reverse stock split currently pending with FINRA,
and to the extent such split is not approved, an equivalent issuance based on the same percentage against issued and outstanding
shares in the Company. The shares issued in lieu of compensation shall be assessable against the Company, and considered issued
and outstanding. Mr. Hedrick's profile has been disclosed in previous filings, and is incorporated herein by reference.
Until
the Company acquires additional capital, it is not anticipated that any officer or director will receive compensation from the
Company other than reimbursement for out-of-pocket expenses incurred on behalf of the Company. The Company has not yet adopted
an Employee Stock Option Plan. The Company has not yet adopted retirement, pension, or profit sharing programs for the benefit
of directors, officers or other employees, but our officers and directors may recommend adoption of one or more such programs
in the future.
Security
Ownership of Certain Beneficial Owners
The
table set forth in this subsection lists, as of October 9, 2015, the number of shares of common stock of our Company that are
beneficially owned by (i) each person or entity known to our company to be the beneficial owner of more than 5% of the outstanding
common stock; (ii) each officer and director of our company; and (iii) all officers and directors as a group.
Information
relating to beneficial ownership of common stock by our principal shareholders and management is based upon information furnished
by each person using "beneficial ownership" concepts under the rules of the SEC. Under these rules, a person is deemed to be a
beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting
of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also
deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within sixty
days. Under the SEC rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may
be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest. Except
as noted below, each person has sole voting and investment power.
The
percentages below are calculated based on 7,565,340 shares of our common stock issued and outstanding as of the date of this Prospectus.
Other than the stock grant issued to Mr. Zarinegar, and the stock options to Mr. Howard, as set forth above,
we do not have any outstanding warrant, options or other securities exercisable for or convertible into shares of our common stock.
Name
of Beneficial Owner(1) |
Amount
and Nature of Beneficial Ownership |
Percent
(%) of Common Stock |
Named
Executive Officers |
|
|
Sean
Zarinegar |
2,058,810(2) |
27.21% |
Kenneth
Hedrick |
25,000 |
<1.0% |
(1)
The above table is based upon information derived from our stock records. Unless otherwise indicated in the footnotes to this
table and subject to community property laws where applicable. Unless otherwise indicated, beneficial ownership is determined
in accordance with the Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended, and includes voting or investment
power with respect to the shares beneficially owned.
(2)
Mr. Zarinegar is the Chairman of the Board, Chief Financial Officer and Treasurer of the Company. He is also the sole member of
Performance Realty Management. Performance Realty Management is the Manager under the Operating Agreement for American Realty
Partners, which upon closing of the Subsidiary Agreement became a wholly-owned subsidiary of the Company. Mr. Zarinegar, individually,
owns 1,000,000 shares of common stock, and Performance Realty owns 1,000,000 shares of common stock.
Related
Party Transactions
As
set forth above, the Company has engaged in, and anticipates that it will continue to engage in, related party transactions with
American Realty, Performance Realty, ARP Borrower, ARP Borrower II and AHIT Valfre. The Company believes that maintaining a relationship
with these related parties will enhance its prospects of success and facilitate additional benefits for its shareholders.
Further pursuant to ASC 850-10-50-6, the Company lists and provides details for all material Related Party transactions so that
readers of the financial statements can better assess and predict the possible impact on performance.
Nature
of Related Parties' Relationship
The
Company recognizes and confirms the requirements in ACS 850-10-50-6 to disclose all related party transactions between the Company,
American Realty, Performance Realty, ARP Borrower, ARP Borrower II and AHIT Valfre, and any other related party transactions
and or relationships.
The
SPAs were entered into between American Realty, as buyer, and nine shareholders. The SPAs closed escrow on February 13, 2015 with
the receipt of medallion signed transfers of the restricted certificates. The Company believed that Section 4(2) was available
because the foregoing transaction was exempt from the registration requirements under the Securities Act of 1933, as amended ("the
Act"), based on the following facts: there was no general solicitation, there was a limited number of purchasers, each of whom
the Registrant believes was an "accredited investor" (within the meaning of Regulation D under the Securities Act of 1933, as
amended) and was sophisticated about business and financial matters, and all shares issued were subject to restriction on transfer,
so as to take reasonable steps to assure that the purchaser was not an underwriter within the meaning of Section 2(11) under the
Act.
These
common shares, in the aggregate, account for 58,809,678, or 50.79% of the common shares outstanding of the Company. In addition,
American Realty acquired 20,000 of the Series A Preferred Stock from Cortland Communications, LLC (the "Series A Preferred").
As a result, a change of control of the Company took place on February 13, 2015 (the date of the closing of escrow).On March 2,
2015, American Realty voted its shares of common stock and preferred stock in adopting a Plan of Conversion pursuant to Sections
92A.005 et seq. of the Nevada Revised Statutes, and Section 3-904(c)(1) of the Code of Maryland (the "Plan of Conversion"). The
Plan of Conversion was recommended by the Board of Directors of the Company. The action consented to was to convert the Company
from a Nevada corporation to a Maryland corporation, pursuant to conversion statutes under the Nevada Revised Statutes (the "NRS")
and the Maryland General Corporation Law (the "MGCL") (the "Maryland Conversion").
Pursuant
to the Amended Resolution of the Board of Directors dated May 14, 2015, which supplemented, amended and revised the Resolution
of the Board of Directors dated May 8, 2015, the Board of Directors authorized the execution of the Stock Exchange Agreement between
American Realty and the Company dated May 15, 2015, and Subsidiary Agreement between Performance Realty, American Realty and the
Company, which has as an effective date of the "Closing," as defined under the Stock Exchange Agreement.
The
Stock Exchange Agreement was executed on May 15, 2015, but the closing had been conditioned upon satisfaction of the conditions
precedent in Article V thereunder. More specifically, the closing was conditioned upon approval by FINRA of the actions in its
Schedule 14C; more specifically, FINRA's approval of the reverse stock split. The closing of the Stock Exchange Agreement occurred
on July 6, 2015 with the issuance of the shares to the former members of American Realty. The closing of the Stock Exchange Agreement
resulted in American Realty being a wholly-owned subsidiary of the Company. The Subsidiary Agreement, as amended, closed concomitant
with the closing of the Stock Exchange Agreement.
Under
the terms of the Subsidiary Agreement, the Company agreed to be bound by the Operating Agreement for American Realty dated November
1, 2013 (the "American Realty Operating Agreement"). The Company further agreed that Performance Realty would continue to operate
as the Manager for American Realty pursuant to the terms of the American Realty Operating Agreement, subject to the following
amendment to Section 3.10 of the American Realty Operating Agreement:
The
Member acknowledges and agrees that, as the sole member of the Company, it and its shareholders directly benefit from the management
services provided by Manager under this Article III. The Member further recognizes that any capital expenditures made for the
benefit of the Company derive directly from the Member, as opposed to the Company itself. Therefore, in consideration for the
services to be rendered to or on behalf of the Company by the Manager, the Member shall issue 1,000,000 shares of common stock
in the Member, i.e. American Housing Income Trust, Inc., into the Member's treasury for future issuance upon written notice by
PRM to Member's Secretary electing to issue the shares through the Member's transfer agent within a reasonably commercial period
of time under the same or similar circumstances, but in no event greater than three business days from exercising the option,
and future issuance on the annual anniversary of the issuance out of treasury, shares of common stock valued at one-percent (1%)
of the net assets of the Company being managed by Manager under this Operating Agreement, unless otherwise agreed upon by Member
and Manager, or unless doing so impairs or restricts the Member's intent of operating as a real estate investment trust. In the
event such structure impairs or restricts the Member's intent of operating as a real estate investment trust, the Member and Manager
agree to work in good faith to restructure compensation for Manager in performing under this Article 3. The fee paid to Manager
hereunder is intended to constitute a guaranteed payment within the meaning of IRS Code §707(c), and will be treated as an
expense of the Company and deducted in determining Profits and Losses.
The
aforementioned amendment was executed on September 18, 2015. On September 22, 2015, the Company authorized the issuance of 1,000,000
shares of common stock to Performance Realty upon receipt of the written notice of exercise of the option by Performance Realty. On
December 21, 2015, Performance Realty and American Realty agreed that this stock issuance constituted all compensation to be paid
to Performance Realty in serving as manager of American Realty. Although Performance Realty is the manager of American Realty,
the business and operations of American Realty are dictated by the Board of Directors of the Company in order to meet the requirements
of serving as a REIT. The Second Amendment to the Operating Agreement for American Realty amended the management fee provision
as follows:
The
Member acknowledges and agrees that, as the sole member of the Company, it and its shareholders directly benefit from the management
services provided by Manager under this Article III. The Member further recognizes that any capital expenditures made for the
benefit of the Company derive directly from the Member, as opposed to the Company itself. Therefore, in consideration for the
services to be rendered to or on behalf of the Company by the Manager, the Member issued 1,000,000 shares of common stock in the
Member, i.e. American Housing Income Trust, Inc., to PRM on September 28, 2015. The fee paid to Manager hereunder is intended
to constitute a guaranteed payment within the meaning of IRS Code §707(c), and will be treated as an expense of the Company
and deducted in determining Profits and Losses. Any and all prior agreements for the issuance of shares of common stock in the
Member to PRM are terminated in consideration of the Member ratifying and reaffirming its obligations to Sean Zarinegar under
his Advisory Board Consulting and Compensation Agreement effective May 15, 2015. PRM has agreed to amend its reporting with the
United States Securities and Exchange Commission to reflect the extinguishment of the option previously disclosed. PRM acknowledges
that this amendment to the Management Fee is in order to comply with the Member's intention of operating as a REIT.
In
the Subsidiary Agreement, the Company recognized the value of Performance Realty in continuing to serve as Manager of American
Realty until such time the Company determines that the management impairs or restricts the Company's long-term objective of operating
as a real estate investment trust under Maryland law. The parties under the Subsidiary Agreement recognize that until the Company
is financially and operationally prepared and positioned to operate as a real estate investment trust, Performance Realty must
manage American Realty in order to maintain continuity during this transition in operations. Performance Realty has agreed to
take direction from the Company's Board of Directors regarding those matters set forth in Article 3 of the American Realty Operating
Agreement. Notwithstanding, the day-to-day administrative and ministerial tasks in operating American Realty are to be performed
in the discretion of Performance Realty and its employees and agents, based on their collective education, experience and training.
Performance Realty shall provide reporting and general updates to the Company's Board of Directors in a commercially reasonable
manner.
On
June 25, 2015, the Company and American Realty entered into restructured financing agreements with Firstkey Lending, LLC ("Firstkey").
Firstkey approved the restructuring of American Realty, as set forth in the Stock Exchange Agreement and Subsidiary Agreement.
Sean Zarinegar and Performance Realty ratified their respective duties and obligations to Firstkey. The Firstkey debt service
directly benefits the Company.
On
August 3, 2015, the Company and Valfre closed on the Company's acquisition of nine single family residences in Arizona through
AHIT Valfre. The Company is the General Partner of AHIT Valfre pursuant to the AHIT Valfre Agreements (all defined above).Pursuant
to the AHIT Valfre Agreements, in consideration for the conveyance of the nine single family residences, which were acquired by
AHIT Valfre "subject to" existing mortgages, AHIT Valfre issued the following limited partnership interests (collectively, the
"Limited Partnership Interests" or singularly a "Limited Partnership Interest") in AHIT Valfre: (a) Valfre Holdings, LLC 69,555,
and (b) James A. Valfre 192,050 and Pamela J. Valfre 38,421.
The
Company and Valfre entered into the AHIT Valfre Agreements contemplating, amongst other things that AHIT Valfre would be operated
to reduce risk and increase diversification of real estate holdings, and to seize an opportunity for Valfre for estate and tax
planning purposes through an exchange under Section 721 of the Internal Revenue Code (defined in the AHIT Valfre Agreements as
the "Intended Tax Treatment"). More specifically, commencing on August 4, 2016, each Limited Partnership Interest shall be convertible,
at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by
the holder thereof, into the number of fully paid and nonassessable shares of common stock in the Company on a 1:1 basis. AHIT
Valfre may require any holder of a Limited Partnership Interest to convert each of his, her or its Limited Partnership Interest
into the number of fully paid and nonassessable shares of common stock in the Company on August 4, 2016. These shares are being
registered with this statement.
In
order for Valfre, individually or collectively, to exercise its, his or her conversion rights, such holder shall deliver to the
Company's Transfer Agent written notice in the same or similar form as Exhibit A attached to the AHIT Valfre Limited Liability
Partnership Agreement. While Valfre holds the aforementioned option and the Company holding the aforementioned put option, the
Company shall be allocated all net profits or losses of AHIT Valfre pursuant to the AHIT Valfre Limited Liability Partnership
Agreement. As a result of closing on the AHIT Valfre Agreements, the Company acquired nine single family residences with a stated
"Gross Asset Value," as defined in the AHIT Valfre Agreements, of $1,735,734 offset by debt service in the amount of $1,215,734
as of August 1, 2015. Although
the Company is of the opinion that that the Registration Rights Agreement with the Limited
Partners of AHIT Valfre precludes the registration of “Shares” or “Registrable Securities,” as defined
under the Registration Rights Agreement, in this Registration Statement since the Limited Partners have not, and cannot until,
at the earliest August 1, 2016, convert their limited partnership
units into common shares in the Company, the Company, as General Partner, and the Limited Partners agreed on September 29, 2015
to toll any registration requirement, to the extent such a requirement exists in the first place, to December 31, 2015.
This tolling was subsequently ratified in a Second Amendment to Master Registration Rights Agreement on January 19, 2016.
In summation, the shares subject to any conversion rights of the Limited Partners in AHIT Valfre are not being registered herein.
In addition, Mr. Zarinegar
and American Realty hold the property located at 4201 Martin Road in Las Vegas, Nevada as tenants-in-common. The note associated
with the loan on this property is held by Citibank, which holds a deed in trust as collateral for Mr. Zarinegar's obligations.
Mr. Zarinegar is the sole borrower on the note. A conflict of interest might arise to the extent Mr. Zarinegar defaults under
the note or deed in trust; more specifically, to the extent Citibank exercises its rights under the deed-in-trust, American Realty
could lose title to the property, which in turn would impact the value of the Company's stock, and if additional capital is needed
in order to meet the note obligations, so American Realty does not lose its interest in the property, there would be dilution
of all shares. Performance Realty authorized this tenancy in common as being in the best interests of American Realty.
Therefore,
as of this filing, the Company has 58,810 shares of common stock issued and outstanding to American Realty, plus 1,000,000 shares
to Sean Zarinegar, who controls Performance Realty and the Company, and 1,000,000 shares issued to Performance Realty. The
related party transactions associated with ARP Borrower and ARP Borrower II are limited to serving as special purpose entities
required of Firstkey under its credit facility guidelines. American Realty controls all aspects of these entities, and the Company
is the sole member of American Realty. The Company is of the opinion that no conflict of interest exists as a result of these
related party transactions. However, it is possible that a conflict of interest could arise to the extent any of these entities
are required to take a position adverse from the other, such as in the context of any dispute with its lenders or in any dispute
regarding the lender's collateral, or through the operation of law, such as in the case of an indemnitor and indemnitee.
Operating
Statement Related Party Transactions (for the nine months ended September 30, 2015)
The
Company has been advised and managed by Performance Realty Management, LLC ("PRM"), an Arizona limited liability company (the
"Manager"). At the formation of the Company, the Company agreed to pay the Manager of the Company a quarterly management fees
equal to the greater of: (a) $120,000 on an annual basis, or (b) 1% of the total assets of the Company in consideration for the
management services to be rendered to or on behalf of the Company by the Manager. During the nine months ended September 30,
2015, the Company recorded management fees of $90,000 (2014 - $90,000).
On
May 15, 2015, AHIT entered into an Advisory Board Consulting and Compensation Agreement with a director of AHIT pursuant to which
AHIT agreed to issue 1,000,000 post split shares of common stock to the director. In addition, AHIT agreed to pay the director
an annual fee equal to $120,000 or 1% of AHIT's assets as reported on its year-end balance sheet, whichever is greater. AHIT will
also issue an aggregate of 3,000,000 post split shares of common stock of AHIT on the first, second and third anniversary. During
the nine months ended September 30, 2014, AHIT recorded management fees of $45,000 (2014 - $nil).
The 1,000,000 post split shares of AHIT were issued on July 6, 2015.
On
May 15, 2015, AHIT entered into a Director Agreement with a director of AHIT pursuant to which AHIT agreed to issue 25,000 post
split shares of common stock to the director. In addition, the Company agreed to pay the director from time to time for the services
provided and may compensate the director with the issuance of shares of common stock of the Company During the nine months
ended September 30, 2015, the director did not provide any services to AHIT and AHIT recorded $nil in directors' fees.
The 25,000 post split shares of AHIT were issued on July 6, 2015.
Balance
Sheet Related Party Transactions (on September 30, 2015)
On
January 16, 2015, the Manager of the Company entered into a promissory note agreement on behalf of the Company for $150,000. The
loan bore interest at 16% per annum and was payable on July 16, 2015. The loan was collateralized by a deed of trust on a real
estate property owned by the Company. The proceeds from the note were used to purchase another real estate property. On May 12,
2015, the Company repaid the $150,000 note.
As
at September 30, 2015, the Company is indebted to PRM for $9,047 (December 31, 2014 - $54,382), which represents
management fees owed and other general and administrative expenses paid on behalf of the Company.
As
at September 30, 2015, AHIT is indebted to the director of AHIT for $45,050 which represents management fees and
general and administrative expense owed.
As
of September 30, 2015, in the consolidated balance sheets, the Company has outstanding related party receivables of $181 for advances
from related party which are netted against $54,097 of amounts due to related parties for expenses paid on behalf of the Company
and management fees owed to a director of the Company.
Item
11A. MATERIAL CHANGES
The
Company does not have any disclosures associated with material changes in its affairs since the end of the latest fiscal year.
ITEM
12. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The
Company does not have any disclosures under this item.
ITEM
12A. DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LITIGATION
Our
Bylaws provide to the fullest extent permitted by law that our directors or officers, former directors and officers, and persons
who act at our request as a director or officer of a body corporate of which we are a shareholder or creditor shall be indemnified
by us. We believe that the indemnification provisions in our By-laws are necessary to attract and retain qualified persons as
directors and officers.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons
controlling The Company pursuant to provisions of the State of Delaware, The Company has been informed that, in the opinion of
the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore,
unenforceable.
WHERE
YOU CAN FIND MORE INFORMATION
We
are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and accordingly, file current
and periodic reports, proxy statements and other information with the SEC. We have also filed a registration statement on Form
S-1 under the Securities Act, as amended, in connection with this offering. We have also filed with the Commission a Registration
Statement on Form S-1, under the Securities Act of 1933, as amended, with respect to the securities offered by this prospectus.
This prospectus, which forms a part of the registration statement, does not contain all the information set forth in the registration
statement, as permitted by the rules and regulations of the Commission. For further information with respect to us and the securities
offered by this prospectus, reference is made to the registration statement. The registration statement and other information
may be read and copied at the Commission's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may
obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Commission maintains
a web site at http://www.sec.gov that contains reports and other information regarding issuers that file electronically with the
Commission.
PART
II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM
13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The
following table indicates the expenses to be incurred in connection with the offering described in this registration statement,
all of which will be paid by us. All amounts are estimated except the Securities and Exchange Commission registration fee, accountant's
fees and expenses, the legal fee and expenses, and transfer agent's fees and expenses.
Securities
and Exchange Commission registration fee |
3,224.00 |
DTC
Eligibility and support fee |
18,000.00 |
Accountants'
fees and expenses |
3,000.00 |
Legal
fees and expenses |
5,000.00 |
Transfer
Agent's fees and expenses |
810.00 |
Edgar
Agent fees and expenses |
2,000.00 |
Total
expenses |
32,034.00 |
ITEM
14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Maryland
law permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers
to the corporation and its shareholders for money damages except for liability resulting from (a) actual receipt of an improper
benefit or profit in money, property or services or (b) active and deliberate dishonesty that is established by a final judgment
and is material to the cause of action. The Maryland charter contains a provision that eliminates the liability of our directors
and officers to the maximum extent permitted by Maryland law.
The
MGCL requires corporations (unless the charter provides otherwise, which the Maryland charter does not) to indemnify a director
or officer who has been successful, on the merits or otherwise, in the defense of any proceeding to which he or she is made or
threatened to be made a party by reason of his or her service in that capacity. The MGCL permits a corporation to indemnify its
present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by them in connection with any proceeding to which they may be made or threatened to be made a party by reason
of their service in those or other capacities unless it is established that:
- the
act or omission of the director or officer was material to the matter giving rise to the proceeding and (a) was committed in bad
faith or (b) was the result of active and deliberate dishonesty;
- the
director or officer actually received an improper personal benefit in money, property or services; or
- in
the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful.
Under
the MGCL, the Company may not indemnify a director or officer in a suit by or in the right of the Company in which the director
or officer was adjudged liable to the Company or in a suit in which the director or officer was adjudged liable on the basis that
personal benefit was improperly received. A court may order indemnification if it determines that the director or officer is fairly
and reasonably entitled to indemnification, even though the director or officer did not meet the prescribed standard of conduct
or was adjudged liable on the basis that personal benefit was improperly received. However, indemnification for an adverse judgment
in a suit by or in the right of the Company, or for a judgment of liability on the basis that personal benefit was improperly
received, is limited to expenses.
In
addition, the MGCL permits the Company to advance reasonable expenses to a director or officer upon receipt of:
- a
written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct
necessary for indemnification by the Company; and
- a
written undertaking by the director or officer or on the director's or officer's behalf to repay the amount paid or reimbursed
by the corporation if it is ultimately determined that the director or officer did not meet the standard of conduct.
The
Maryland charter authorizes the Company to obligate itself, and the Maryland Bylaws obligate the Company to the maximum extent
permitted by Maryland law in effect from time to time, to indemnify and, without requiring a preliminary determination of the
ultimate entitlement to indemnification, pay or reimburse reasonable expenses in advance of final disposition of a proceeding
to:
- any
present or former director or officer of the Company who is made or threatened to be made a party to, or witness in, a proceeding
by reason of his or her service in that capacity; or
- any
individual who, while a director or officer of the Company and at its request, serves or has served as a director, officer, trustee,
member, manager or partner of another corporation, real estate investment trust, limited liability company, partnership, joint
venture, trust, employee benefit plan or any other enterprise and who is made or threatened to be made a party to, or witness
in, the proceeding by reason of his or her service in that capacity.
The
Maryland charter and Bylaws also permit the Company to indemnify and advance expenses to any individual who served a predecessor
of the Company in any of the capacities described above and any employee or agent of the Company or a predecessor of the Company.
ITEM
15. RECENT SALES OF UNREGISTERED SECURITIES.
The
sale of unregistered securities have been addressed under Corporate History. We believed that Section 4(2) was available on the
sale of all unregistered securities because the Company believed, and believes as of this statement, that the foregoing transactions
were exempt from the registration requirements under the Securities Act of 1933, as amended ("the Act"), based on the following
facts: there was no general solicitation, there was a limited number of purchasers, each of whom the Registrant believes was an
"accredited investor"(within the meaning of Regulation D under the Securities Act of 1933, as amended) and was sophisticated about
business and financial matters, and all shares issued were subject to restriction on transfer, so as to take reasonable steps
to assure that the purchaser was not an underwriter within the meaning of Section 2(11) under the Act. As for the sales of those
unregistered securities associated with the Company's private offering, the Company believed, and believes as of this statement,
that the offering and subsequent sales were made in reliance on exemptions from registration pursuant to Section 4(2) of the Securities
Act and Regulation D promulgated thereunder and applicable state securities laws. The Company disclosed to those "accredited investors"
purchasing shares under the private offering that it could not provide any assurances regarding the common stock, and that it
could not assure that an active public market would exist for any of the shares of common stock sold in the future. The Company's
stock was sold subject to restrictions on transferability and resale, and could not be resold unless they are subsequently registered
under the Securities Act and applicable state securities laws or an exemption from registration was available.
ITEM
16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The
exhibits to the Registration Statement are listed in the Exhibit Index attached hereto.
Exhibits.
Exhibit |
Exhibit
Description |
Filed
herewith |
Form |
Period
Ending |
Exhibit |
Filing
Date |
3.1 |
Certificate
of Incorporation |
|
S-1 |
|
31.1 |
4/30/2008 |
3.2 |
By-Laws |
|
S-1 |
|
3.2 |
4/30/2008 |
3.3 |
Minutes
of Shareholders |
|
8-K |
|
99.1 |
2/5/2015 |
3.4 |
Minutes
of Board of Directors |
|
8-K |
|
99.2 |
2/5/2015 |
3.5 |
Written
Consent of Shareholder |
|
8-K |
|
10.1 |
2/18/2015 |
3.6 |
Resolution
of the Board of Directors |
|
8-K |
|
10.2 |
2/18/2015 |
3.7 |
Articles
of Conversion in Nevada, Received by May 8, 2015 |
|
8-K |
|
10.1 |
5/14/2015 |
3.8 |
Articles
of Incorporation in Maryland, Received on May 11, 2015 |
|
8-K |
|
10.2 |
5/14/2015 |
3.9 |
Articles
of Conversion in Maryland, Received by May 11, 2015 |
|
8-K |
|
10.3 |
5/14/2015 |
3.10 |
Stock
Exchange and Restructuring Agreement |
|
8-K |
|
10.1 |
5/18/2015 |
3.11 |
Parent/Subsidiary
and Operations Agreement |
|
8-K |
|
10.2 |
5/18/2015 |
3.12 |
Advisory
Board Consulting and Compensation Agreement (Zarinegar) |
|
8-K |
|
10.1 |
5/18/2015 |
3.13 |
Board
Director Agreement (Hedrick) |
|
8-K |
|
10.4 |
5/18/2015 |
3.14 |
Executive
Agreement and Compensation Schedule (Stoffers) |
|
8-K |
|
10.5 |
5/18/2015 |
3.15 |
Executive
Agreement and Compensation Schedule (Deegan) |
|
8-K |
|
10.6 |
5/18/2015 |
3.16 |
Resolution
of the Board of Directors (May 8, 2015) |
|
8-K |
|
10.7 |
5/18/2015 |
3.17 |
Amended
Resolution of the Board of Directors (May 14, 2015) |
|
8-K |
|
10.8 |
5/18/2015 |
3.18 |
Resolution
of Board of Directors |
|
8-K |
|
10.1 |
5/29/2015 |
3.19 |
Resolution
of Board of Directors |
|
8-K |
|
10.1 |
6/29/2015 |
3.20 |
First
Amended By-laws |
|
8-K |
|
10.2 |
6/29/2015 |
3.21 |
Shareholder
Consent |
|
8-K |
|
10.3 |
6/29/2015 |
3.22 |
Articles
of Amendment |
|
8-K |
|
10.4 |
6/29/2015 |
3.23 |
FirstKey
Lending Agreements (ARP Borrower) |
|
8-K |
|
10.5 |
6/29/2015 |
3.24 |
Master
UPREIT Agreement (AHIT and Valfre) |
|
8-K |
|
10.1 |
8/7/2015 |
3.25 |
Contribution
Agreement (Valfre Holdings, LLC) |
|
8-K |
|
10.2 |
8/7/2015 |
3.26 |
Contribution
Agreement (James Valfre) |
|
8-K |
|
10.3 |
8/7/2015 |
3.27 |
Contribution
Agreement (Pamela Valfre) |
|
8-K |
|
10.4 |
8/7/2015 |
3.28 |
Press
Release |
|
8-K |
|
10.5 |
8/7/2015 |
3.29 |
ARP
Borrower II Loan Cooperation Agreement (Firstkey) |
|
8-K/A |
|
10.1 |
12/21/2015 |
3.30 |
ARP
Borrower II Balloon Note (Firstkey) |
|
8-K/A |
|
10.2 |
12/21/2015 |
3.31 |
ARP
Borrower II Pledge and Security Agreement (Firstkey) |
|
8-K/A |
|
10.3 |
12/21/2015 |
3.32 |
ARP
Borrower II Mortgaged Properties and Allocated Loan Amounts |
|
8-K/A |
|
10.4 |
12/21/2015 |
3.33 |
ARP
Borrower II Deed of Trust |
|
8-K/A |
|
10.5 |
12/21/2015 |
3.34 |
Mutual
Release (Tech Associates) |
|
8-K |
|
10.1 |
1/19/2016 |
3.35 |
Board
Resolution |
X |
|
|
|
|
3.36 |
Second
Amendment to Registration Rights |
X |
|
|
|
|
23.1 |
Consent
of Counsel |
X |
|
|
|
|
23.2 |
Legal
Tax Opinion |
X |
|
|
|
|
23.3 |
Consent
of Independent Auditor |
X |
|
|
|
|
23.4 |
Subsidiary
List |
X |
|
|
|
|
ITEM
17. UNDERTAKINGS.
The
undersigned Registrant hereby undertakes:
1.
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
i.
To include any Prospectus required by section 10(a)(3) of the Securities Act of 1933;
ii.
To reflect in the Prospectus any facts or events arising after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of Prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the effective registration statement.
iii.
To include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
2.
That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
3.
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold
at the termination of the offering.
4.
That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial
distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned
registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser,
if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant
will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
i.
Any Preliminary Prospectus or Prospectus of the undersigned registrant relating to the offering required to be filed pursuant
to Rule 424;
ii.
Any free writing Prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred
to by the undersigned registrant;
iii.
The portion of any other free writing Prospectus relating to the offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the undersigned registrant; and
iv.
Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
5.
That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser: Each Prospectus filed pursuant
to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule
430B or other than Prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration
statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement
or Prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such
first use, supersede or modify any statement that was made in the registration statement or Prospectus that was part of the registration
statement or made in any such document immediately prior to such date of first use.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling
persons, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person
of the corporation in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled
by a controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by us is
against public policy as expressed in the Securities Act of 1933, as amended, and will be governed by the final adjudication of
such case.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/
Jeff Howard
AMERICAN
HOUSING INCOME TRUST, INC.
By:
Jeff Howard
Its:
Chief Executive Officer and President, and
Director
Date:
January 20, 2016
/s/
Sean Zarinegar
AMERICAN
HOUSING INCOME TRUST, INC.
By:
Sean Zarinegar
Its:
Chairman of the Board, Chief Financial Officer
and
Treasurer
Date:
January 20, 2016
/s/
Kenneth Hedrick
AMERICAN
HOUSING INCOME TRUST, INC.
By:
Kenneth Hedrick
Its:
Director
Date:
January 20, 2016
Index
to Financial Statements
Financial
Statements |
Page |
|
|
Consolidated
Balance Sheets as of September 30, 2015 and December 31, 2014 (Unaudited) |
F-2 |
|
|
Consolidated
Statements of Operations for the three and nine months ended September 30, 2015 (Unaudited) |
F-3 |
|
|
Consolidated
Statements of Shareholders' Equity for the nine months ended September 30, 2015 (Unaudited) |
F-4 |
|
|
Statements
of Cash Flows for the nine months ended September 30, 2015 (Unaudited) |
F-5 |
|
|
Notes
to Consolidated Financial Statements (Unaudited) |
F-6 |
|
|
Report
of Independent Registered Public Accounting Firm |
F-14 |
|
|
Financial
Statements: |
|
|
|
Consolidated
Balance Sheets as of December 31, 2014 and 2013 |
F-15 |
|
|
Consolidated
Statements of Operations for the years ended December 31, 2014 and 2013 |
F-16 |
|
|
Consolidated
Statements of Changes in Members' Equity for the years ended December 31, 2014 and 2013 |
F-17 |
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2014 and 2013 |
F-18 |
|
|
Notes
to Consolidated Financial Statements |
F-19 |
American
Realty Partners, LLC
Consolidated
Balance Sheets
(unaudited)
|
September
30,
2015 |
December
31,
2014 |
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
Investment
in real estate: |
|
|
Land |
$ 5,192,730 |
$ 3,881,285 |
Building
and improvements |
4,011,460 |
1,410,583 |
|
9,204,190 |
5,291,868 |
Less:
accumulated depreciation |
(186,056) |
(119,398) |
Investment
in real estate, net |
9,018,134 |
5,172,470 |
Cash |
424,684 |
304,371 |
Notes
receivable |
120,000 |
120,000 |
Other
assets |
156,283 |
79,344 |
|
|
|
Total
Assets |
$ 9,719,101 |
$ 5,676,185 |
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
Accounts
payable and accrued liabilities |
$ 91,560 |
$ 25,847 |
Due
to related parties |
53,916 |
54,382 |
Prepaid
rent received |
32,473 |
7,450 |
Notes
payable |
4,197,217 |
2,016,144 |
|
|
|
Total
Liabilities |
4,375,166 |
2,103,823 |
|
|
|
Commitments
(Note 11) |
|
|
|
|
|
SHAREHOLDERS'
EQUITY |
|
|
|
|
|
American
Housing Income Trust, Inc.'s Shareholders' Equity |
|
|
Preferred
Stock, 9,980,000 shares authorized, $0.001 par value; no shares issued and outstanding |
- |
- |
Preferred
Stock - Series A, 20,000 shares authorized, $0.001 par value; no shares issued and outstanding (December 31, 2014 - no shares) |
- |
- |
Common
stock, 500,000,000 shares authorized, par value $0.01; 7,537,838 shares outstanding (December 31, 2014-3,797,305 shares) |
75,378 |
37,973 |
Additional
paid-in capital |
12,256,529 |
8,762,612 |
Accumulated
deficit |
(7,519,876) |
(5,228,223) |
|
|
|
Total
American Housing Income Trust, Inc.'s Shareholders' Equity |
4,812,031 |
3,572,362 |
Non-controlling
interest |
531,904 |
- |
Total
equity |
5,343,935 |
3,572,362 |
|
|
|
Total
Liabilities and Shareholders' Equity |
$ 9,719,101 |
$ 5,676,185 |
American
Housing Income Trust, Inc.
Consolidated
Statements of Operations
(unaudited)
|
For
the |
For
the |
For
the |
For
the |
|
Three
Months |
Three
Months |
Nine
Months |
Nine
Months |
|
Ended |
Ended |
Ended |
Ended |
|
September
30, |
September
30, |
September
30, |
September
30, |
|
2015 |
2014 |
2015 |
2014 |
Revenue |
|
|
|
|
Rental
revenues |
$ 124,247 |
$ 76,059 |
$ 312,691 |
$ 216,665 |
Interest
income |
2,400 |
5,824 |
7,202 |
19,938 |
Gain
on sale of assets |
- |
- |
71,293 |
- |
Other
Income |
6,797 |
- |
7,297 |
- |
|
|
|
|
|
Total
revenue |
133,444 |
81,883 |
398,483 |
236,603 |
|
|
|
|
|
Expenses |
|
|
|
|
Depreciation |
28,189 |
10,962 |
68,469 |
60,955 |
General
and administrative |
1,143,678 |
209,864 |
2,097,037 |
838,508 |
Interest
expense |
85,666 |
76,834 |
199,630 |
175,858 |
Loss
on sale of assets |
- |
82,345 |
- |
3,298 |
Acquisition
expense |
- |
- |
325,000 |
- |
|
|
|
|
|
Total
expenses |
(1,257,533) |
(380,005) |
(2,690,136) |
(1,078,619) |
|
|
|
|
|
Net
loss |
(1,124,089) |
(298,122) |
(2,291,653) |
(842,016) |
Net
loss attributable to non-controlling interest |
- |
- |
- |
- |
Net
loss attributable to common stockholders |
$ (1,124,089) |
$ (298,122) |
$ (2,291,653) |
$ (842,016) |
Basic
and diluted loss per share: |
|
|
|
|
Net
Loss Per Share attributable to common stockholders |
$ (0.17) |
$ (0.09) |
$ (0.45) |
$ (0.29) |
|
|
|
|
|
Weighted
Average Shares Outstanding - Basic and Diluted |
6,488,000 |
3,220,000 |
5,131,000 |
2,903,000 |
American
Housing Income Trust, Inc.
Consolidated
Statement of Shareholders' Equity
(unaudited)
|
Preferred
Stock - Series A |
Common
stock |
Additional |
|
|
Total |
|
Shares |
Amount |
Shares |
Amount |
Paid-in |
Accumulated |
Non-controlling |
Stockholders' |
|
# |
$ |
# |
$ |
Capital |
Deficit |
Interest |
Deficit |
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2014 |
- |
- |
3,797,305 |
$ 37,973 |
$ 8,762,612 |
$ (5,228,223) |
$
- |
$ 3,572,362 |
|
|
|
|
|
|
|
|
|
Reverse
merger adjustment |
- |
- |
116,394 |
1,164 |
(173,347) |
- |
- |
(172,183) |
|
|
|
|
|
|
|
|
|
Issuance
of shares for cash |
- |
- |
1,403,989 |
14,040 |
2,912,465 |
- |
- |
2,926,505 |
|
|
|
|
|
|
|
|
|
Issuance
of shares in exchange for real estate properties |
- |
- |
171,040 |
1,710 |
298,290 |
- |
- |
300,000 |
|
|
|
|
|
|
|
|
|
Issuance
of shares for services |
- |
- |
2,049,000 |
20,490 |
456,510 |
- |
- |
477,000 |
|
|
|
|
|
|
|
|
|
Issuance
of limited partnership units of AHIT-Valfre, LP in exchange for real estate properties |
- |
- |
- |
- |
- |
- |
531,904 |
531,904 |
|
|
|
|
|
|
|
|
|
Common
stock issued for beneficial round up |
- |
- |
110 |
1 |
(1) |
- |
- |
- |
|
|
|
|
|
|
|
|
|
Net
loss |
- |
- |
- |
- |
- |
$ (2,291,653) |
- |
$ (2,291,653) |
|
|
|
|
|
|
|
|
|
Balance
- September 30, 2015 |
- |
- |
7,537,838 |
$ 75,378 |
$ 12,256,529 |
$ (7,519,876) |
$531,904 |
$ 5,343,935 |
American
Housing Income Trust, Inc.
Consolidated
Statements of Cash Flows
(unaudited)
|
|
|
For
the
Nine
Months
Ended
September
30,
2015 |
For
the
Nine
Months
Ended
September
30,
2014 |
|
|
|
|
|
Cash
Flows from Operating Activities |
|
|
|
|
|
|
|
|
|
Net
loss |
|
|
$ (2,291,653) |
$ (842,016) |
|
|
|
|
|
Adjustment
to reconcile net loss to net cash used in operating activities: |
|
|
|
|
Depreciation |
|
|
68,469 |
60,955 |
(Gain)
loss on sale of assets |
|
|
(71,293) |
3,298 |
Stock-based
compensation |
|
|
477,000 |
- |
|
|
|
|
|
Changes
in operating assets and liabilities: |
|
|
|
|
Prepaid
expenses |
|
|
(69,492) |
(20,000) |
Accounts
payable |
|
|
23,152 |
- |
Accrued
liabilities |
|
|
21,135 |
2,433 |
Prepaid
rent |
|
|
25,023 |
(5,973) |
Due
to related parties |
|
|
(151,852) |
(5,539) |
|
|
|
|
|
Net
Cash Used In Operating Activities |
|
|
(1,969,511) |
(806,842) |
|
|
|
|
|
Cash
Flows from Investing Activities |
|
|
|
|
|
|
|
|
|
Purchase
of real estate properties and improvements |
|
|
(1,033,106) |
(300,071) |
Proceeds
from sale of real estate properties |
|
|
111,000 |
247,078 |
Investment
in promissory notes receivable |
|
|
- |
(120,000) |
Proceeds
from collection of promissory notes receivable |
|
|
- |
172,405 |
|
|
|
|
|
Net
Cash Used in Investing Activities |
|
|
(922,106) |
(588) |
|
|
|
|
|
Cash
Flows from Financing Activities |
|
|
|
|
|
|
|
|
|
Proceeds
from the sale of common stock |
|
|
2,926,505 |
1,255,000 |
Proceeds
from notes payable |
|
|
120,000 |
47,000 |
Repayment
of notes payable |
|
|
(34,575) |
(450,000) |
|
|
|
|
|
Net
Cash Provided by (Used in) Financing Activities |
|
|
3,011,930 |
852,000 |
|
|
|
|
|
Change
in Cash |
|
|
120,313 |
44,570 |
|
|
|
|
|
Cash
- Beginning of Period |
|
|
304,371 |
182,913 |
|
|
|
|
|
Cash
- End of Period |
|
|
$ 424,684 |
$ 227,483 |
|
|
|
|
|
Supplemental
disclosures of cash flow information: |
|
|
|
|
Interest
paid |
|
|
$ 199,630 |
$ 175,858 |
Income
taxes paid |
|
|
$ - |
$ - |
|
|
|
|
|
Non-cash
investing and financing activities: |
|
|
|
|
Issuance
of shares in exchange for real estate properties |
|
|
$ 300,000 |
$ 90,000 |
Notes
payable issued with acquisition of real properties |
|
|
$ 2,445,648 |
$ 1,389,218 |
Notes
payable settled from sale of real properties |
|
|
$ 350,000 |
$ 291,900 |
Note
converted to common shares |
|
|
$ - |
$ 30,000 |
Issuance
of limited partnership units of AHIT-Valfre in exchange for real estate properties |
|
|
$ 531,904 |
$ - |
Reverse
merger adjustment |
|
|
$ 172,183 |
$ - |
American
Housing Income Trust, Inc.
Notes
to Consolidated Financial Statements (unaudited)
1. Nature
of Operations
American
Housing Income Trust, Inc. ("we", "our", the "Company") was incorporated on December 17, 2007 under the laws of the State of Nevada.
On February 13, 2015, following the acquisition of the majority and controlling shares of the Company by American Realty Partners,
LLC ("ARP"), a change of control of the Company took place. On May 11, 2015, the Company converted into a Maryland corporation
and changed its name to American Housing Income Trust, Inc.
On
May 15, 2015, the Company entered into a Stock Exchange and Restructuring Agreement ("Stock Exchange Agreement") with ARP. The
transaction closed on July 6, 2015 and, pursuant to the agreement, the Company issued 5,000,000 shares of common stock in exchange
for all the membership units in ARP on a pro rata basis. The Company was issued 100 units of ARP. The transaction is accounted
for as a reverse acquisition and ARP is considered the accounting acquirer for financial reporting purposes. The Company recognized
amounts paid to the selling shareholders amounting to $325,000 as acquisition expenses in the consolidated statements of operations.
On
August 3, 2015, the Company, and Valfre Holdings, LLC, an Arizona limited liability company, and James A. Valfre and Pamela J.
Valfre, f/k/a Pruitt (collectively, "Valfre") closed on the Company's acquisition of nine single family residences in Arizona
through an umbrella limited liability partnership organized in Maryland called "AHIT Valfre, LLP" ("AHIT Valfre"). Pursuant to
the AHIT Valfre Agreements, in consideration for the conveyance of the nine single family residences, which were acquired by AHIT
Valfre "subject to" existing mortgages, AHIT Valfre issued limited partnership interests to Valfre.
The
Company is in the business of acquiring and operating residential properties. As of the date of this filing, the Company holds
title to 46 residential properties.
2.
Summary of Significant Accounting Policies
a) Basis
of Presentation
The
accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles
generally accepted in the United States of America and the rules of the Securities and Exchange Commission and should be read
in conjunction with the audited statements and notes thereto of ARP for the years ended December 31, 2014 and 2013 contained in
the Company's Form 8-K filed on July 7, 2015. In the opinion of management, all adjustments, consisting of normal recurring adjustments,
necessary to present fairly the Company's financial position, results of operations and cash flows for the periods shown have
been reflected herein. The results of operations for such periods are not necessarily indicative of the results expected
for a full year or for any future period. Notes to the financial statements which would substantially duplicate the disclosure
contained in the audited financial statements of ARP for the years ended December 31, 2014 and 2013 as reported in the Company's
Form 8-K have been omitted.
These
consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary, ARP, and its subsidiary special
purpose entities, ARP Pledgor, LLC and ARP Borrower, LLC, and AHIT Valfre. All significant intercompany transaction and balances
have been eliminated. On June 24, 2015, the Company's fiscal year-end is changed from January 31 to December 31.
b) Use
of Estimates
The
preparation of financial statements in accordance with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses in the reporting period. The Company regularly evaluates estimates
and assumptions related to the deferred income tax asset valuation allowances. The Company bases its estimates and assumptions
on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs
and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially
and adversely from the Company's estimates. To the extent there are material differences between the estimates and the actual
results, future results of operations will be affected.
c)
Fair Value of Financial Instruments
The
carrying amounts reported in the consolidated balance sheets for accounts receivable, notes receivable, accounts payable and accrued
liabilities, amounts due to related parties and notes payable are reasonable estimate of fair value because of the short period
of time between the origination of such instruments and their expected realization and if, applicable, the stated rate of interest
is equivalent to rates currently available.
Fair
value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on
the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use
of unobservable inputs. The Company utilizes a three-level valuation hierarchy for disclosures of fair value measurements, defined
as follows:
Level
1 Financial assets and liabilities for which values are based on unadjusted quoted prices for identical assets
or liabilities in an active market that management has the ability to access.
Level
2 Financial assets and liabilities for which values are based on quoted prices in markets that are not active
or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability (commodity
derivatives and interest rate swaps).
Level
3 Financial assets and liabilities for which values are based on prices or valuation techniques that require
inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management's
own assumptions about the assumptions a market participant would use in pricing the asset or liability.
The
Company does not have any financial instruments that are required to be measured and recorded at fair value on a recurring basis.
d) Non-controlling
Interests
Limited
partnership units in AHIT-Valfre that are not owned by us are presented as non-controlling interests in the equity section of
our consolidated balance sheets.
Our
limited partners do not have the right to share in the net income or losses of AHIT-Valfre but have the right to convert all or
part of their partnership units to common shares of the Company on a one-for-one basis following the one-year anniversary of issuance.
At the time of redemption, we have the right to determine whether to redeem the non-controlling limited partnership units of AHIT-Valfre
for cash, based upon the fair value of an equivalent number of shares of our common stock at the time of redemption. As of September 30,
2015, there were 300,026 limited partnership units outstanding in AHIT-Valfre. These units were issued in connection with our
acquisition of certain real estate properties. (See Note 4).
e)
Recent Accounting Pronouncements
The
Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and
does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact
on its financial position or results of operations.
3.
Going Concern
These
interim consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue
to realize its assets and discharge its liabilities in the normal course of business. The Company has never paid any dividends
and is unlikely to pay dividends in the immediate or foreseeable future. The continuation of the Company as a going concern is
dependent upon the continued financial support from its stockholders, the ability of the Company to obtain necessary equity financing
to continue operations, and the attainment of profitable operations. During the nine months ended September 30, 2015, the Company
incurred a net loss of $2,366,451, and as
at September 30, 2015, the Company has accumulated losses of $7,594,674 since inception. These factors raise substantial doubt
regarding the Company's ability to continue as a going concern. These interim consolidated financial statements do not include
any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might
be necessary should the Company be unable to continue as a going concern. The Company has been successful in raising cash through
equity offerings in the past as described in Note 9. The Company has financing efforts in place to continue to raise cash through
equity offerings.
Management
has developed a plan to continue operations. This plans includes obtaining equity financing and reducing expenses. During the
nine months ended September 30, 2015, the Company received $2,926,505 net proceeds. Although the Company has successfully completed
financings, the Company cannot assure that the plans to address these matters in the future will be successful.
4.
Formation of AHIT Valfre
On
August 1, 2015, the Company entered into the Master UPREIT Formation Agreement set forth in Section 1, above, resulting in the
formation of AHIT Valfre, LLP, a Maryland limited liability company. The Company is the General Partner of the limited liability
partnership. AHIT Valfre is intended to serve as an umbrella partnership real estate investment trust, commonly referred to as
an "UPREIT". On August 3, 2015, the AHIT Valfre acquired from the Valfre limited partners, nine properties in exchange for a total
consideration of approximately $1,735,000 consisting of 300,026 common units in the UPREIT valued at approximately $532,000, which
carry with them certain option rights into shares of common stock in the Company and the assumption of certain mortgage notes
totaling to approximately $1,203,000.
5.
Investment in Real Estate
|
September
30,
2015 |
December
31,
2014 |
|
(unaudited) |
|
|
|
|
Cost
of real estate properties |
$ 9,204,190 |
$ 5,291,868 |
Accumulated
depreciation |
(186,056) |
(119,398) |
|
|
|
Balance
at the end of the period |
$ 9,018,134 |
$ 5,172,470 |
During
the nine months period ended September 30, 2015, the Company recorded depreciation expense of $68,469 (2014 - $60,955).
6.
Investment in Real Estate
On
January 13, 2014, the Company invested in a note receivable for $120,000 which bears interest at 8% per annum and matures on January
9, 2017. The note receivable is secured by a deed of trust on the real estate purchased with the loan. During the nine months
ended September 30, 2015, the Company recognized $7,200 (2014 - $6,400) of interest income from the note receivable.
7.
Related Party Transactions
a)
ARP has been advised and managed by Performance Realty Management, LLC ("PRM"), an Arizona limited liability company. ARP has
agreed to pay the Manager of ARP a quarterly management fees equal to the greater of: (a) $120,000 on an annual basis, or (b)
1% of the total assets of ARP in consideration for the management services to be rendered to or on behalf of ARP by PRM. During
the nine months ended September 30, 2015, the Company recorded management fees of $90,000 (2014 - $90,000). As at September 30,
2015, ARP is indebted to PRM for $9,047 (December 31, 2014 - $54,382), which represents management fees owed and other general
and administrative expenses paid on behalf of the Company.
b)
On January 16, 2015, PRM entered into a promissory note agreement on behalf of ARP for $150,000. The loan bore interest at 16%
per annum and was payable on July 16, 2015. The loan was collateralized by a deed of trust on a real estate property owned by
ARP. The proceeds from the note was used to purchase another real estate property. On May 12, 2015, ARP repaid the $150,000 note.
c)
On May 15, 2015, the Company entered into an Advisory Board Consulting and Compensation Agreement with a director of the Company
pursuant to which the Company issued 1,000,000 post-split shares of common stock to the director. In addition, the Company agreed
to pay the director an annual fee equal to $120,000 or 1% of the Company's assets as reported on its year-end balance sheet, whichever
is greater. The Company will also issue an aggregate of 3,000,000 post-split shares of common stock of the Company on the first,
second and third anniversary. During the nine months ended September 30, 2015, the Company recorded management fees of $45,000
(2014 - $nil). As at September 30, 2015, the Company is indebted to the director of the Company for $45,050 which represents management
fees and general and administrative expense owed.
d)
On May 15, 2015, the Company entered into a Director Agreement with a director of the Company pursuant to which the Company issued
25,000 post-split shares of common stock to the director. In addition, the Company agreed to pay the director from time to time
for the services provided and may compensate the director with the issuance of shares of common stock of the Company. During the
nine months ended September 30, 2015, the director did not provide any services to the Company and the Company recorded $nil in
directors' fees.
e)
As of September 30, 2015, in the consolidated balance sheets, the Company has outstanding related party receivables of $181 for
advances from related parties which are netted against $54,097 of amounts due to related parties for expenses paid on behalf of
the Company and management fees owed to a director of the Company.
8.
Notes payable
|
September
30, 2015
$ |
December
31, 2014
$ |
|
|
|
Mortgages
payable on February 20, 2034, bearing interest at a variable rate, collateralized by a deed of trust on the real estate properties
purchased with the loan |
205,455 |
213,100 |
Promissory
note payable on February 1, 2016, bearing interest at 18% per annum initially and at 12% per annum after five months, collateralized
by a deed of trust on the real estate property purchased with the loan |
130,000 |
130,000 |
Promissory
note payable on November 1, 2019, bearing interest at 5.371% per annum, collateralized by the real estate properties titled
to ARP Borrower, LLC and 100% equity ownership in ARP Borrower, LLC. The note is also secured by the Company |
1,656,840 |
1,673,044 |
Promissory
note payable on January 22, 2016, bearing interest at 18% per annum initially and at 12% per annum after 5 months, collateralized
by a deed of trust on the real estate property purchased with the loan |
250,000 |
- |
Promissory
note payable on March 19, 2016, bearing interest at 18% per annum initially and at 12% per annum after 5 months , collateralized
by a deed of trust on the real estate property purchased with the loan |
175,000 |
- |
Promissory
note payable on February 19, 2016, bearing interest at 18% per annum initially and at 12% per annum after 5 months, collateralized
by a deed of trust on the real estate property purchased with the loan |
155,000 |
- |
Promissory
note payable on November 27, 2015, bearing interest at 16% per annum, collateralized by a deed of trust on the real estate
property purchased with the loan |
180,000 |
- |
Promissory
note payable on July 8, 2016, bearing interest at 18% per annum initially and at 12% per annum after four months, collateralized
by a deed of trust on the real estate property purchased with the loan |
80,000 |
- |
Promissory
note payable on September 4, 2016, bearing interest at 18% per annum initially and at 12% per annum after four months, collateralized
by a deed of trust on the real estate property purchased with the loan |
165,000 |
- |
Mortgage
payable on April 1, 2018, bearing interest at 5% per annum, collateralized by a deed of trust on the real estate properties
purchased with the loan |
21,087 |
- |
Mortgage
payable on July 1, 2029, bearing interest at 4.125% per annum, collateralized by a deed of trust on the real estate properties
purchased with the loan |
93,210 |
- |
Home
Equity Line-of-credit, bearing interest at a variable interest rate, collateralized by a deed of trust on the real estate
properties purchased with the loan |
46,113 |
- |
Mortgage
payable on October 1, 2035, bearing interest at a variable rate, collateralized by a deed of trust on the real estate properties
purchased with the loan |
141,811 |
- |
Mortgage
payable on June 1, 2043, bearing interest at 4.125% per annum, collateralized by a deed of trust on the real estate properties
purchased with the loan |
113,589 |
- |
Mortgage
payable on July 1, 2041, bearing interest at 5.25% per annum, collateralized by a deed of trust on the real estate properties
purchased with the loan |
276,180 |
- |
Home
Equity Line-of-credit, bearing interest at 8.25% per annum, collateralized by a deed of trust on the real estate properties
purchased with the loan |
34,627 |
- |
Mortgage
payable on June 1, 2043, bearing interest at 4.125% per annum, collateralized by a deed of trust on the real estate properties
purchased with the loan |
133,010 |
- |
Mortgage
payable on December 1, 2034, bearing interest at a variable rate, collateralized by a deed of trust on the real estate properties
purchased with the loan |
112,255 |
- |
Mortgage
payable on January 1, 2022, bearing interest at 4.375% per annum, collateralized by a deed of trust on the real estate properties
purchased with the loan |
16,685 |
- |
Mortgage
payable on September 1, 2033, bearing interest at a variable rate, collateralized by a deed of trust on the real estate properties
purchased with the loan |
77,143 |
- |
Home
Equity Line-of-credit payable on January 13, 2040, bearing interest at 2.76% per annum, collateralized by a deed of trust
on the real estate properties purchased with the loan |
50,215 |
- |
Mortgage
payable on November 1, 2026, bearing interest at 4.5% per annum, collateralized by a deed of trust on the real estate properties
purchased with the loan |
83,997 |
- |
|
|
|
|
4,197,217 |
2,016,144 |
On
June 25, 2015, ARP Borrower, LLC ("Borrower"), and ARP Pledgor, LLC ("Pledgor"), two wholly owned subsidiaries of ARP, entered
into an agreement with Towd Point Master Funding Trust 2015-CPLA ("Towd") whereby Towd approved the reverse acquisition and restructuring
of the Company, as set forth in the Stock Exchange Agreement and Subsidiary Agreement. Towd is the new holder of the $1,675,000
loan entered into by and among Borrower, Pledgor and FirstKey Lending, LLC ("FirstKey") on October 17, 2014. The loan was assigned
to Towd by FirstKey on June 25, 2015 and the Company is the new guarantor of the loan. The following table schedules the principal
payments on the notes payable for the next five years and thereafter as of September 30, 2015:
Year |
Amount |
2015 |
$ 409,122 |
2016 |
900,093 |
2017 |
78,746 |
2018 |
72,174 |
2019 |
1,626,448 |
thereafter |
1,110,634 |
|
|
Total |
$ 4,197,217 |
9. Common
Stock
a) On
February 4, 2015, the board of directors of the Company approved a 1,000 to 1 reverse stock split of the Company's common stock
which resulted to the increase in the par value of the Company's common stock from $0.00001 to $0.01. All common stock amounts
have been retroactively adjusted for all periods presented.
b) On
May 15, 2015, the Company issued 1,000,000 post-split shares of common stock with a fair value of $200,000 pursuant to the Advisory
Board Consulting and Compensation Agreement as described in Note 7(c).
c) On
July 6, 2015, the Company issued 25,000 post-split shares of common stock with a fair value of $5,000 pursuant to the Director
Agreement as described in Note 7(d).
d) On
September 18, 2015, the Company issued 18,000 post-split shares of common stock with a fair value of $54,000 pursuant to the consulting
agreement as described in Note 11(b).
e) On
September 18, 2015, the Company issued 6,000 post-split shares of common stock with a fair value of $18,000 pursuant to the consulting
agreement as described in Note 11(c).
f) On
September 21, 2015, the Company issued 1,000,000 post-split shares of common stock with a fair value of $200,000 to PRM upon receipt
of written notice from PRM pursuant to the Subsidiary Agreement as described in Note 11(a).
g) During
the nine months ended September 30, 2015, the Company issued 372,334 post-split shares of common stock at $3 per share for cash
proceeds of $1,117,003.
h) During
the nine months ended September 30, 2015, the Company issued 1,031,655 shares of common stock and received total proceeds of $1,809,502.
i) During
the nine months ended September 30, 2015, the Company issued 171,040 shares of common stock in exchange for real estate properties
with a fair value of $300,000.
10.
Single Family Residence Acquisitions
As
of September 30, 2015, the Company owns 46 single family homes. The estimated useful life of the buildings and improvements related
to these assets is 27 years. The following table sets forth the metropolitan statistical area, metropolitan division, number of
homes, aggregate net investment, and average investment for each home acquired.
MSA
/ Metro Division |
Number
of Homes |
Aggregate
Investment |
Average
Investment per Home |
Arizona |
42 |
$ 8,626,304 |
$ 205,388 |
Nevada |
1 |
211,201 |
211,201 |
Texas |
3 |
365,686 |
121,895 |
|
|
|
|
Total
and Weighted Average |
46 |
$ 9,203,191 |
$ 200,069 |
The
Company computes depreciation using the straight-line method over the estimated useful lives of 27 years for building cost. The
Company makes this determination based on subjective assessments as to the useful lives of the Company's properties for purposes
of determining the amount of depreciation to record on an annual basis with respect to our investments in single family real estate.
11.
Commitments and Contingencies
a)
On May 15, 2015, ARP entered into Parent-Subsidiary and Operations Agreement ("Subsidiary Agreement) with the Company and Performance
Realty Management, LLC ("PRM"). Pursuant to the Subsidiary Agreement, the Company agreed to be bound by ARP's Operating Agreement
dated November 1, 2013. The Subsidiary Agreement was amended on June 29, 2015 to provide for the issuance of 1,000,000 shares
of the Company as consideration for services to be rendered by PRM upon written notice to the Company.
b)
On July 10, 2015, the Company entered into a Consulting Agreement with Tech Associates, Inc., a California corporation ("Tech
Associates"), whereby Tech Associates agreed to provide consulting and corporate advisory services to the Company on a month-to-month
basis in consideration of $3,000 per month and the issuance of 6,000 restricted shares of common stock per month. On September
18, 2015, the Company issued 18,000 post-split shares of common stock in connection with this agreement.
c)
On September 11, 2015, the Company entered into a Consulting Agreement with a consultant to provide primarily internet and search
optimization services with the intent to drive interest traffic to the Company's website. In -consideration for the services,
the Company agreed to pay a one-time fee of $2,000 and the issuance of 6,000 shares of common stock.
Lease
Agreements
The
Company rents properties under non-cancellable lease agreements with a term of one year. Future minimum rental revenues under
leases existing on our properties at September 30, 2015 through the end of their term, are as follows:
Fiscal
Year 2015 |
$ 128,364 |
Fiscal
Year 2016 |
196,680 |
Fiscal
Year 2017 |
4,370 |
|
|
Total |
$ 329,414 |
12.
Subsequent Events
a) On
October 12, 2015, the Company entered into an Executive Agreement with its Chief Executive Officer (the "CEO") pursuant to which
the Company agreed to pay an annual salary of $64,800 between October 12, 2015 and October 12, 2016 (the "Initial Term"). The
Executive Agreement has successive one-year renewal periods (a "Renewal Term"). In addition, the Company and its CEO agreed to
the following escalators either during the Initial Term or Renewal Term, if applicable: (a) The Company agrees to increase the
CEO's compensation by an additional $25,000.00 per annum and shall issue an additional issuance of 25,000 shares of common stock
in the Company to the CEO when the Company achieves the milestone of a gross revenue of $1,000,000 per annum; (b) The Company
agrees to increase the CEO's compensation by an additional $25,000 per annum when the Company has achieved the milestone of a
gross revenue of $1,500,000 per annum; and (c) The Company agrees to increase the CEO's compensation by an additional $25,000
per annum, and issue an additional issuance of 25,000 shares of common stock when the Company has achieved the milestone of a
gross revenue of $2,000,000 per annum.
b) Subsequent
to the period ended September 30, 2015, the Company issued 23,000 post-split shares of common stock at $3 per share for cash proceeds
of $69,000.
c) Subsequent
to the period ended September 30, 2015, the Company issued 6,000 post-split shares of common stock pursuant to the consulting
agreement.
d) On
November 5, 2015, ARP Borrower II, LLC ("Borrower II), a subsidiary of the Company entered into a loan agreement with Firstkey
for a principal amount of $968,000 which is subject to annual interest of 5.880%. Borrower II is required to make monthly payments
of $5,729 starting in January 1, 2016 through December 1, 2020. The loan is secured by properties owned by Borrower II, the membership
interests in Borrower II and personal guarantees of the Company and one of its officers.
e)
On November 27, 2015, ARP and a lender agreed to extend the maturity date
of the loan with a principal balance of $180,000 to May 27, 2016.
| f) | On
December 21, 2015, ARP amended its operating agreement with PRM wherein it ratified the
issuance of the 1,000,000 shares of restricted common stock as the sole compensation
paid to PRM for serving as manager of ARP. |
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Members of
American
Realty Partners, LLC
Phoenix,
AZ
We
have audited the accompanying consolidated balance sheets of American Realty Partners, LLC and its subsidiaries (collectively
the "Company") as of December 31, 2014 and 2013 and the related consolidated statements of operations, changes in members' equity
and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of American Realty Partners, LLC and its subsidiaries as of December 31, 2014 and 2013, and the results of their operations and
their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note
3 to the consolidated financial statements, the Company has suffered recurring losses from operations and incurred negative cash
flows from operations. These raise substantial doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/
MaloneBailey, LLP
www.malonebailey.com
Houston, Texas
July
6, 2015
American
Realty Partners, LLC
Consolidated
Balance Sheets
|
December
31, |
December
31, |
|
2014 |
2013 |
|
|
|
ASSETS |
|
|
|
|
|
Investment
in real estate: |
|
|
Land |
$
3,881,285 |
$
2,886,778 |
Building
and improvements |
1,410,583 |
921,664 |
|
5,291,868 |
3,808,442 |
Less:
accumulated depreciation |
(119,398) |
(57,075) |
Investment
in real estate, net |
5,172,470 |
3,751,367 |
Cash |
304,371 |
182,913 |
Accounts
receivable |
- |
- |
Notes
receivable |
120,000 |
250,750 |
Due
from related party |
- |
- |
Other
assets |
79,344 |
- |
Total
Assets |
$
5,676,185 |
$
4,185,030 |
|
|
|
LIABILITIES
AND MEMBERS' EQUITY |
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
Accounts
payable and accrued liabilities |
$
25,847 |
$
10,772 |
Due
to related parties |
54,382 |
50,850 |
Prepaid
rent received |
7,450 |
5,973 |
Notes
payable |
2,016,144 |
1,285,000 |
Total
Liabilities |
2,103,823 |
1,352,595 |
Commitments
(Note 11) |
|
|
MEMBERS'
EQUITY |
|
|
Members'
contributions |
8,800,585 |
6,579,556 |
Accumulated
deficit |
(5,228,223) |
(3,747,121) |
Total
Members' Equity |
3,572,362 |
2,832,435 |
Total
Liabilities and Members' Equity |
$
5,676,185 |
$
4,185,030 |
American
Realty Partners, LLC
Consolidated
Statements of Operations
|
For
the |
For
the |
|
Year
Ended |
year
Ended |
|
December
31, |
December
31, |
|
2014 |
2013 |
|
|
|
Revenue |
|
|
Rental
revenues |
$
268,620 |
$
253,962 |
Interest
income |
22,338 |
10,636 |
Gain
on sale of assets |
38,244 |
297,904 |
Other
Income |
- |
17,210 |
Total
revenue |
329,202 |
579,712 |
|
|
|
Expenses |
|
|
Depreciation |
74,670 |
48,680 |
General
and administrative |
1,533,869 |
783,805 |
Interest
expense |
201,765 |
268,301 |
Acquisition
expense |
- |
- |
Total
expenses |
(1,810,304) |
(1,100,786) |
Net
loss |
$
(1,481,102) |
$
(521,074) |
American
Realty Partners, LLC
Consolidated
Statements of Changes in Members' Equity
|
|
|
Total |
|
Members' |
Accumulated |
Members' |
|
Contributions |
Deficit |
Equity |
Balance
December 31, 2012 |
$
$ 5,612,391 |
$
(3,226,047) |
$
2,386,344 |
Issuance
of membership units for cash |
1,462,089 |
- |
1,462,089 |
Merger
adjustment |
(494,924) |
- |
(494,924) |
Net
loss |
- |
(521,074) |
(521,074) |
Balance
December 31, 2013 |
6,579,556 |
(3,747,121) |
2,832,435 |
Issuance
of membership units for cash |
2,001,029 |
- |
2,001,029 |
Issuance
of membership units in exchange for real estate properties |
190,000 |
- |
190,000 |
Issuance
of membership units pursuant to the conversion of notes payable |
30,000 |
- |
30,000 |
Net
loss |
- |
(1,481,102) |
(1,481,102) |
Balance
December 31, 2014 |
$8,800,585 |
$(5,228,223) |
$3,572,362 |
American
Realty Partners, LLC
Consolidated
Statements of Cash Flows
|
For
the |
For
the |
|
Year
Ended |
Year
Ended |
|
December
31, |
December
31, |
|
2014 |
2013 |
|
|
|
Cash
Flows from Operating Activities |
|
|
Net
loss |
$
(1,481,102) |
$
(521,074) |
|
|
|
Items
not affecting cash: |
|
|
Depreciation |
74,670 |
48,680 |
Gain
on sale of assets |
(38,244) |
(297,904) |
|
|
|
Changes
in operating assets and liabilities: |
|
|
Prepaid
expenses |
(77,844) |
15,508 |
Accounts
payable |
- |
(13,158) |
Accrued
liabilities |
15,075 |
6,412 |
Prepaid
rent |
1,477 |
(5,381) |
Due
to related parties |
3,532 |
(442,274) |
Net
Cash Used In Operating Activities |
(1,502,436) |
(1,209,191) |
Cash
Flows from Investing Activities |
|
|
Purchase
of real estate properties and improvements |
(346,634) |
(657,171) |
Proceeds
from sale of real estate properties |
546,923 |
1,236,993 |
Investment
in promissory notes receivable |
(120,000) |
- |
Proceeds
from collection of promissory notes receivable |
250,750 |
152,712 |
Net
Cash Provided by Investing Activities |
331,039 |
732,534 |
Cash
Flows from Financing Activities |
|
|
|
|
|
Proceeds
from the sale of membership units |
2,001,029 |
1,462,089 |
Repayment
of notes payable |
(708,174) |
(849,000) |
Net
Cash Provided by Financing Activities |
1,292,855 |
613,089 |
Change
in Cash |
121,458 |
136,432 |
Cash
- Beginning of Period |
182,913 |
46,481 |
Cash
- End of Period |
$
304,371 |
$
182,913 |
|
|
|
|
|
|
Supplemental
disclosures of cash flow information: |
|
|
Interest
paid |
$
201,765 |
$
268,301 |
Income
taxes paid |
$
- |
$
- |
Non-cash
investing and financing activities: |
|
|
Issuance
of membership units in exchange for real estate properties |
$
190,000 |
$
- |
Note
receivable from sale of real properties |
$
- |
$
250,750 |
Notes
payable issued with acquisition of real properties |
$
1,761,218 |
$
905,000 |
Notes
payable settled from sale of real properties |
$
291,900 |
$
2,308,000 |
Note
converted to membership units |
$
30,000 |
$
- |
1.
Nature of Operations
American
Realty Partners, LLC ("we", "our", the "Company") is a limited liability company formed in the State of Arizona on September 16,
2013. The Company's principal business is the acquisition and management of single-family residential properties (SFRs) in select
communities throughout the United States.
On
October 18, 2013, Equity Pacesetter, LLC ("EPS"), Equity Pacesetter II, LLC ("EPS II"), and Equity Pacesetter III, LLC ("EPS III"),
three Arizona limited liability companies (together as "EPS entities"), merged with and into the Company, with the Company as
the surviving company taking all the rights and privileges of the EPS entities. Each member's membership interests in the EPS
entities were converted into membership interest in the Company based on the percentage interest of each member in the EPS entities
and the percentage contribution of each of the EPS entities to the Company. The merger was accounted for as a transaction among
entities under common control. The assets and liabilities transferred to the Company are recorded at their carrying amounts at
the date of transfer. The Company recorded an adjustment of $494,924 in Member's Equity for the merger.
On
February 4, 2015, the Company entered into a Share Purchase Agreement with American Housing Income Trust, Inc. ("AHIT"), a Maryland
corporation, and AHIT's shareholders, pursuant to which the Company acquired from the selling shareholders of AHIT 58,809,678
shares of common stock (representing 50.67% of the common shares outstanding of AHIT), and 20,000 shares of Series A preferred
stock (representing 100% of the preferred shares outstanding of AHIT).
2.
Summary of Significant Accounting Policies
a)
Basis of Presentation and Principles of Consolidation
These
consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted
in the United States ("US").These consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries,
ARP Pledgor, LLC and ARP Borrower, LLC. All significant intercompany transaction and balances have been eliminated. The Company's
fiscal year-end is December 31.
b)
Use of Estimates
The
preparation of financial statements in conformity with US generally accepted accounting principles in the United States requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. The Company regularly evaluates estimates and assumptions related to the useful life and recoverability of long-lived
assets, and income taxes. The Company bases its estimates and assumptions on current facts, historical experience and various
other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other
sources.
The
actual results experienced by the Company may differ materially and adversely from the Company's estimates. To the extent there
are material differences between the estimates and the actual results, future results of operations will be affected.
c)
Cash and Cash Equivalents
The
Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
d)
Income Taxes
The
Company has been organized as a limited liability company under the laws of the State of Arizona. Under applicable Treasury Regulations,
a limited liability company with more than two members is automatically treated as a partnership for federal income tax purposes,
unless the limited liability company files an election with the IRS to be treated as a corporation. However, if the units of the
Company were to be traded on an established securities market or a readily tradable secondary market or its substantial equivalent,
the Company would be treated as a "publicly traded partnership" under the Code and taxed as a corporation. The Company has not
filed, nor does it intend to file, an election to be treated as a corporation, and there is presently no public market for the
units of the Company nor is it anticipated that any public market will develop, such that the Company should be treated as a "partnership"
for federal income tax purposes. Under federal income tax law, a "partnership" is not an entity subject to taxation. The Company's
members recognize their share of income and loss in their respective tax returns. Accordingly, no provision for federal income
taxes is recorded.
e)
Investment in Real Estate
The
Company allocates the purchase price to tangible assets of an acquired property (which includes land and building) based on the
estimated fair values of those tangible assets. Fair value for land and building is based on the purchase price for these properties.
Property/SFRs
acquired not subject to an existing lease are accounted for as an asset acquisition, with the property recorded at the purchase
price, including acquisition costs. We incur costs to prepare our acquired properties to be rented. These costs are capitalized
and allocated to building costs. Costs related to the restoration or improvement of our properties that improve and extend their
useful lives are capitalized and depreciated over their estimated useful lives. Expenditures for ordinary repairs and maintenance
are expensed as incurred.
Depreciation
is computed on a straight-line basis over the useful lives of the properties (building and improvements - 27 years).
f)
Accounts receivable
Accounts
receivable represent the amount of rent receivables and interest receivable from promissory notes receivable invested by the Company,
net of any allowance for amounts deemed uncollectible. The Company assesses these balances for collectability on a quarterly basis.
g)
Impairment of Long-lived Assets
The
Company continually evaluates the recoverability of the carrying value of its real estate assets using the methodology prescribed
in ASC Topic 360, Property, Plant and Equipment. Factors considered by management in evaluating impairment of its existing real
estate assets held for investment include significant declines in property operating profits, annually recurring property operating
losses and other significant adverse changes in general market conditions that are considered permanent in nature. Under ASC Topic
360, a real estate asset held for investment is not considered impaired if the undiscounted, estimated future cash flows of an
asset (both the annual estimated cash flow from future operations and the estimated cash flow from the theoretical sale of the
asset) over its estimated holding period are in excess of the asset's net book value at the balance sheet date. If any real estate
asset held for investment is considered impaired, a loss is provided to reduce the carrying value to its estimated fair value
h)
Fair Value of Financial Instruments
The
carrying amounts reported in the consolidated balance sheets for accounts receivable, notes receivable, accounts payable and accrued
liabilities, amounts due to/from related parties and notes payable are reasonable estimate of fair value because of the short
period of time between the origination of such instruments and their expected realization and if, applicable, the stated rate
of interest is equivalent to rates currently available.
Fair
value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on
the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use
of unobservable inputs. The Company utilizes a three-level valuation hierarchy for disclosures of fair value measurements, defined
as follows:
Level
1 Financial assets and liabilities for which values are based on unadjusted quoted prices for identical assets or liabilities
in an active market that management has the ability to access.
Level
2 Financial assets and liabilities for which values are based on quoted prices in markets that are not active or model
inputs that are observable either directly or indirectly for substantially the full term of the asset or liability (commodity
derivatives and interest rate swaps).
Level
3 Financial assets and liabilities for which values are based on prices or valuation techniques that require inputs that
are both unobservable and significant to the overall fair value measurement. These inputs reflect management's own assumptions
about the assumptions a market participant would use in pricing the asset or liability.
The
Company does not have any financial instruments that are required to be measured and recorded at fair value on a recurring basis.
i)
Revenue Recognition
Rental
income for property leases is recorded when due from residents and is recognized monthly as it is earned. The Company leases single-family
residences that the Company owns and manages directly to tenants who occupy the properties under operating leases, generally,
with terms of one year. The Company performs credit investigations on prospective tenants and obtains security deposits. Sales
and the associated gains or losses of real estate assets are recognized in accordance with the provisions of ASC Topic 360-20,
Property, Plant and Equipment - Real Estate Sale. The specific timing of a sale is measured against various criteria in ASC 360-20
related to the terms of the transaction and any continuing involvement in the form of management or financial assistance associated
with the properties. If the sales criteria for the full accrual method are not met, the Company defers some or all of the gain
recognition and accounts for continued operations of the property by applying the finance, leasing, deposit, installment or cost
recovery methods, as appropriate, until the sales criteria are met.
j)
Recent Accounting Pronouncements
The
Company has implemented all new accounting pronouncements that are in effect and that may impact its consolidated financial statements
and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact
on its financial position or results of operations.
3.
Going Concern
These
consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to
realize its assets and discharge its liabilities in the normal course of business. The Company has never paid any dividends, and
is unlikely to pay dividends in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent
upon the continued financial support from its stockholders, the ability of the Company to obtain necessary equity financing to
continue operations, and the attainment of profitable operations. During the year ended December 31, 2014, the Company incurred
a net loss of $1,481,102, and as at December 31, 2014, the Company has accumulated losses of $5,228,223since inception. These
factors raise substantial doubt regarding the Company's ability to continue as a going concern. These consolidated financial statements
do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities
that might be necessary should the Company be unable to continue as a going concern.
4.
Share Purchase Agreement
On
February 4, 2015, the Company entered into a Share Purchase Agreement with American Housing Income Trust, Inc. ("AHIT"), a Maryland
Corporation, pursuant to which the Company acquired 58,809,678shares of common stock, representing 50.67% of the total issued
and outstanding shares of common stock of AHIT, and 20,000 shares of Series A preferred stock of AHIT, representing 100% of the
total issued and outstanding shares of Series A preferred stock of AHIT in consideration for $325,000. The agreement closed on
February 13, 2015.
5.
Investment in Real Estate
|
December
31, |
December
31, |
|
2014 |
2013 |
Cost
of real estate properties |
5,291,868 |
3,808,442 |
Accumulated
depreciation |
(119,398) |
(57,075) |
Balance
at the end of the period |
5,172,470 |
3,751,367 |
During
the year ended December 31, 2014, the Company recorded depreciation expense of $74,670 (2013 - $48,680).
6.
Notes Receivable
On
November 17, 2011, the Company invested in a note receivable for $152,000 which bears interest at 8% per annum and matures on
December 1, 2014. The note receivable is secured by a deed of trust on the real estate purchased with the loan. The Company received
repayment of the $152,000 note in December 2013. During the year ended December 31, 2014, the Company recognized $nil (2013 -
$10,636) of interest income from the note receivable.
On
August 29, 2013, the Company invested in a note receivable for $250,750 which bears interest at 7% per annum and matures on August
30, 2014. The note receivable is secured by a deed of trust on the real estate purchased with the loan. The Company received repayment
of the $250,750 note in August 2014. During the year ended December 31, 2014, the Company recognized $13,538 (2013 - $nil) of
interest income from the note receivable.
On
January 13, 2014, the Company invested in a note receivable for $120,000 which bears interest at 8% per annum and matures on January
9, 2017. The note receivable is secured by a deed of trust on the real estate purchased with the loan. During the year ended December
31, 2014, the Company recognized $8,800 (2013 - $nil) of interest income from the note receivable.
7.
Related party transactions
a)
The Company has been advised and managed by Performance Realty Management, LLC ("PRM"), an Arizona limited liability company (the
"Manager"). At the formation of the Company, the Company agreed to pay the Manager of the Company a quarterly management fees
equal to the greater of: (a) $120,000 on an annual basis, or (b) 1% of the total assets of the Company in consideration for the
management services to be rendered to or on behalf of the Company by the Manager. During the year ended December 31, 2014, the
Company recorded management fees of $120,000 (December 31, 2013 - $nil). As at December 31, 2014, the Company is indebted to the
Manager of the Company for $54,382
(December
31, 2013 - $50,850), which represents management fees owed and other general and administrative expenses paid on behalf of the
Company.
b)
Prior to the merger with EPS, EPS II and EPS III, PRM served as the manager of EPS, EPS II and EPS III. In consideration of the
management services provided by PRM, EPS, EPS II and EPS III each paid $90,000 of management fees to PRM. During the year ended
December 31, 2013, EPS, EPS II and EPS III recorded total management fees of $270,000.
8.
Notes payable
|
December
31, |
December
31, |
|
2014 |
2015 |
|
$ |
$ |
Promissory
note payable on February 25, 2015, bearing interest at 18% per annum initially and at 10% per annum after six months, collateralized
by a deed of trust on the real estate property purchased with the loan |
- |
120,000 |
Promissory
note payable on September 16, 2016, bearing interest at 18% per annum initially and at 10% per annum after six months, collateralized
by a deed of trust on the real estate property purchased with the loan |
- |
100,000 |
Promissory
notes payable on April 17, 2014, bearing interest at 18% per annum initially and at 10% per annum after six months, collateralized
by a deed of trust on the real estate properties purchased with the loans |
- |
200,000 |
Promissory
note payable on May 16, 2014, bearing interest at 18% per annum initially and at 10% per annum after six months, collateralized
by a deed of trust on the real estate property purchased with the loan |
- |
180,000 |
Promissory
note payable on May 17, 2014, bearing interest at 18% per annum initially and at 10% per annum after six months, collateralized
by a deed of trust on the real estate property purchased with the loan |
- |
100,000 |
Promissory
note payable on June 15, 2014, bearing interest at 18% per annum initially and at 10% per annum after six months, collateralized
by a deed of trust on the real estate property purchased with the loan |
- |
125,000 |
Promissory
note payable on August 17, 2014, bearing interest at 18% per annum initially and at 10% per annum after six months, collateralized
by a deed of trust on the real estate property purchased with the loan |
- |
150,000 |
Promissory
note payable on February 28, 2015, bearing interest at 18% per annum initially and at 10% per annum after six months, collateralized
by a deed of trust on the real estate property purchased with the loan |
- |
110,000 |
Promissory
note payable on September 30, 2015, bearing interest at 18% per annum initially and at 10% per annum after six months, collateralized
by a deed of trust on the real estate property purchased with the loan |
- |
200,000 |
Mortgages
payable on February 20, 2034, bearing interest at a variable rate, collateralized by a deed of trust on the real estate properties
purchased with the loan |
213,100 |
- |
Promissory
note payable on August 1, 2015, bearing interest at 18% per annum initially and at 12% per annum after five months, collateralized
by a deed of trust on the real estate property purchased with the loan |
130,000 |
- |
Promissory
note payable on November 1, 2019, bearing interest at 5.371% per annum, collateralized by the real estate properties titled
to ARP Borrower, LLC and 100% equity ownership in ARP Borrower, LLC. The note is also secured by a guaranty of the Manager
of the Company. |
1,673,044 |
- |
|
2,016,144 |
1,285,000 |
The
following table schedules the principal payments on the notes payable for the next five years and thereafter as of December 31,
2014:
Year |
Amount |
2015 |
$
162,333 |
2016 |
31,476 |
2017 |
33,271 |
2018 |
34,904 |
2019 |
1,587,404 |
thereafter |
166,756 |
Total |
$
2,016,144 |
9.
Members' Equity
a)
During the year ended December 31, 2014, the Company authorized the sale of additional membership units at $10,000 per unit and
received total proceeds of $2,001,029.
b)
During the year ended December 31, 2014, the Company issued membership units in exchange for real estate properties with a fair
value of $190,000.
c)
During the year ended December 31, 2014, the Company exchanged notes amounting to $30,000 for membership units of the same amount.
d)
During the year ended December 31, 2013, the Company authorized the sale of additional membership units at $10,000 per unit and
received total proceeds of $1,462,089.
10.
Single Family Residence Acquisitions
As
of December 31, 2014, the Company had purchased 27 single family homes. The estimated useful lives of the buildings and improvements
related to these assets is 27 years. The following table sets forth the metropolitan statistical area, metropolitan division,
number of homes, and aggregate net investment, and average investment for each home acquired.
|
|
|
Average |
|
Number
of |
Aggregate |
Investment
per |
MSA
/ Metro Division |
Homes |
Investment |
Home |
Arizona |
24 |
$
4,926,182 |
$
205,258 |
Texas |
3 |
365,686 |
121,895 |
Total
and Weighted Average |
27 |
$
5,291,868 |
$
195,995 |
The
Company computes depreciation using the straight-line method over the estimated useful lives of 27 years for building cost. The
Company makes this determination based on subjective assessments as to the useful lives of the Company's properties for purposes
of determining the amount of depreciation to record on an annual basis with respect to our investments in single family real estate.
11.
Commitments and contingencies
Lease
Agreements
The
Company rents the properties under non-cancellable lease agreements with a term of one year. Future minimum rental revenues under
leases existing on our properties at December 31, 2014 through the end of their term, are as follows:
Fiscal
Year 2015 |
$
70,910 |
Total |
$
70,910 |
Environmental
Matters
The
Company follows a policy of monitoring its properties for the presence of hazardous or toxic substances. While there can be no
assurance that a material environmental liability does not exist at its properties, the Company is not currently aware of any
environmental liability with respect to its properties that would have a material effect on its consolidated financial position,
consolidated results of operations, or consolidated cash flows. Additionally, the Company is not aware of any material environmental
liability or any unasserted claim or assessment with respect to an environmental liability that management believes would require
additional disclosure or the recording of a loss contingency
Litigation
The
Company is not presently subject to any material litigation nor, to its knowledge, is any material litigation threatened against
the Company, which if determined unfavorably to the Company, would have a material adverse effect on the Company's consolidated
financial position, consolidated results of operations, or consolidated cash flows.
12.
Subsequent Events
a)
On May 15, 2015, the Company entered into a Stock Exchange and Restructuring Agreement ("Stock Exchange Agreement") with American
Housing Income Trust, Inc. ("AHIT").The transaction closed on July 6, 2015 and, pursuant to the agreement, AHIT issued 5,000,000
shares of common stock in exchange for all the membership units in the Company on a pro rata basis. The Company issued 100 units
to AHIT. The transaction is accounted for as a reverse acquisition and the Company is considered the accounting acquirer for financial
reporting purposes.
b)
On May 15, 2015, the Company entered into Parent-Subsidiary and Operations Agreement ("Subsidiary Agreement) with AHIT and Performance
Realty Management, LLC ("PRM"). Pursuant to the Subsidiary Agreement, AHIT agreed to be bound by the Company's Operating Agreement
dated November 1, 2013. The Subsidiary Agreement was amended on June 29, 2015 to provide for the issuance of 1,000,000 shares
of AHIT as consideration for services to be rendered by PRM upon written notice to the Company.
c)
On June 25, 2015, ARP Borrower, LLC ("Borrower"), and ARP Pledgor, LLC ("Pledger"), two wholly owned subsidiaries of the Company,
entered into an agreement with Towd Point Master Funding Trust 2015-CPLA ("Towd") whereby Towd approved the reverse acquisition
and restructuring of the Company, as set forth in the Stock Exchange Agreement and Subsidiary Agreement. Towd is the new holder
of the $1,675,000 loan entered into by and among Borrower, Pledgor and FirstKey Lending, LLC ("FirstKey") on October 17, 2014.
The loan was assigned to Towd by FirstKey on June 25, 2015 and AHIT is the new guarantor of the loan.
[1] The
Company and Mr. Zarinegar agree that the stock issuance associated with the grant is conditioned upon approval of the Board of
Directors during the term of his agreement with the Company; however, as set forth in the Agreement, upon Mr. Zarinegar's exercise
of his rights under the termination provision of the agreement (as set forth below), the balance of the 3,000,000 shares shall
be issued within fifteen days. As a result, the stock grant is not identified on this chart.
American Housing Income Trust, Inc.
34225 N. 27th Drive
Paesano Akkashian
Apkarian, P.C. (the “Firm”) has acted as counsel to American Housing Income Trust, Inc., a Maryland corporation, (the
“Company”) in connection with the Registration Statement on Form S-11/A (the “Registration Statement”)
to be filed with the United States Securities and Exchange Commission (the “Commission”) in connection with the registration
under the Securities Act of 1933, as amended (the “Securities Act”), of 10,565,340 shares of the Company’s common
stock.
In our capacity
as legal counsel to the Company, the Firm has participated in corporate proceedings associated with the issuance by the Company
of a maximum of 10,565,340 shares of common stock as set out and described in the Registration Statement. The Firm has not been
asked to provide a review of the corporate structure, governance or operations associated with any related-party to the Company
in connection with the Registration Statement, including but not limited to, those affiliates and subsidiaries disclosed in the
Registration Statement, and thus no opinion is incorporated herein.
The Firm has examined,
amongst other things, originals or copies, certified or otherwise identified to our satisfaction, of (i) the Registration Statement,
(ii) the Company’s Articles of Incorporation, as amended, (iii) the Company’s By-Laws, as amended (iv) applicable resolutions
of the Company’s Board of Directors, (v) the books and records of the Company, (vi) the Company’s prior filings with
the United States Securities and Exchange Commission, (vii) the Registrar Control dated January 13, 2016 prepared by the Company’s
transfer agent, Issuer Direct Corporation, and (viii) other documents as the Firm has deemed necessary or appropriate for purposes
of rendering the opinion set forth herein.
The Firm has made
certain assumptions in forming its opinion and providing its consent to use this opinion letter as an exhibit to the Registration
Statement. The Firm has assumed the legal capacity of all natural persons. It has further assumed the genuineness and authenticity
of all signatures (handwritten, electronic or otherwise) and documents produced by the Company, whether such documents were in
electronic format, copies or facsimiles.
As to those material
facts set forth in the Registration Statement that the Firm could not independently establish or verify, the Firm has relied upon
statements and representations of directors, officers, advisors and other representatives or agents of the Company. Based upon
the foregoing, and based upon the undersigned’s education, experience and training, the Firm opines that:
(a) The Company is a corporation
duly organized and validly existing in good standing under the laws of the State of Maryland, as amended, including statutory provisions,
and all applicable provisions of the Maryland General Corporation Law (“MGCL”) and reported judicial decisions interpreting
those laws;
(b) The Company has taken
all requisite corporate action and all other action recognized as being consistent with standards of proper corporate governance
required with respect to the authorization, issuance and sale of common stock issued pursuant to the Registration Statement;
(c) The 7,565,340 shares
of common stock being offered by the Selling Shareholders are duly authorized, validly issued, fully paid and non-assessable, unencumbered
and not subject to any actual or threatened litigation, and not subject to any defaults or failures by the Company in filing annual
reports with the State of Maryland;
(d) The 3,000,000 shares
of common stock being offered as part of the Company’s direct public offering are duly authorized, and once issued, shall
be validly issued, fully paid and non-assessable.
(e) The rights, duties
and obligations related to the 10,565,340 shares of common stock being offered in the Registration Statement (i.e. the 7,565,340
Selling Shareholder shares and the 3,000,000 shares being offered through a direct offering on a “best efforts” basis)
are governed by the Articles of Incorporation and Bylaws of the Company, and where necessary, the MGCL; and
(f) Questionnaires completed
and signed by all officers and directors of the Company are truthful in all respect.
Based upon and
in reliance upon the foregoing, and after examination of such corporate and other records, certificates and other documents and
such matters of law as we have deemed applicable or relevant to this opinion, it is our opinion that the Company has been duly
incorporated and is validly existing as a corporation in good standing under the laws of the State of Maryland, the jurisdiction
of its incorporation, and has full corporate power as described in the Registration Statement.
The authorized
capital stock of the Company consists of 100,000,000 shares of Common Stock, as defined in the Articles of Incorporation, as amended,
with a par value of $0.001 per share, of which there are 7,565,340 shares issued and outstanding. The Company is authorized to
issue 10,000,000 shares of Preferred Stock, as defined in the Articles of Incorporation, as amended. The Company has taken proper
corporate action to authorize such authorized capital stock and all the outstanding shares of such capital stock (including the
“Shares,” as defined in the Registration Statement), when delivered in the manner and/or on the terms described in
the Registration Statement (after it is declared effective), are duly and validly issued, fully paid and non-assessable. The shareholders
of the Company have no preemptive rights with respect to the Common Stock.
This correspondence
is necessary in conjunction with the submission of the Registration Statement, and thus the Board of Directors is hereby authorized
to attach it as the Firm’s opinion related to certain representations in the Registration Statement, and to reference the
Firm in the Registration Statement. This correspondence, however, does not constitute a waiver of the attorney-client privilege
as to unrelated or future matters.
I consent to the
prospectus discussion of any and all legal opinions disclosed in the Registration Statement. This opinion is being furnished to
the Company solely in connection with the Company's filing of the Registration Statement with the Commission, and the Firm herebyconsents to the use of this opinion as an exhibit thereto. In giving such consent, we do not hereby admit that we are included
within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations promulgated
thereunder. Please feel free to contact me with any questions.
Anthony R. Paesano
34225 N. 27th Drive
We have
acted as counsel to American Housing Income Trust, Inc., a Maryland corporation (the “Company”), and its related subsidiaries,
American Realty Partners, LLC, an Arizona limited liability company, ARP Borrower I, LLC, a Delaware limited liability company,
ARP Borrower II, LLC, a Delaware limited liability company, and AHIT Valfre, LLP, a Maryland limited liability partnership, in
connection with the filing of the Company’s Registration Statement on Form S-11/A (the “Registration Statement”)
with the Securities and Exchange Commission (the “Commission”) to register under the Securities Act of 1933, as amended
(the “Securities Act”), 10,565,340 shares of the Company’s common stock, $0.01 par value per share (the “Shares”),
for issuance and sale by the Company. Following the effectiveness of the Registration Statement, the Company intends to commence
the offering of the Shares through its directors and officers relying on the safe harbor from broker-dealer registration. We are
furnishing this opinion letter pursuant Item 36(b) of Form S-11 and Item 601(b)(8) of Regulation S-K.
You have
requested our opinion as to (i) the qualification of the Company as a real estate investment trust (“REIT”) under Sections
856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”) and (ii) the accuracy of the discussion
of United States federal income tax considerations contained under the heading “Federal Income Tax Considerations”
in the Registration Statement.
In the preparation
of this opinion, we have relied solely on (i) various facts and factual assumptions as set forth in the Registration Statement;
and (ii) certain representations made by the Company as to factual matters through a certificate of an officer of the Company (the
“Management Certificate”). For purposes hereof, items (i) and (ii) are referred to collectively herein as the “Opinion
Materials.” In addition to reviewing the Opinion Materials, in connection with rendering the opinions expressed below, we
have examined originals (or copies identified to our satisfaction as true copies of the originals) of the following documents:
(a) the Registration Statement, (b) the Articles of Incorporation of the Company dated May 4, 2015, and as amended on June 25,
2015, (c) the Bylaws of the Company dated May 28, 2015, and as amended on June 24, 2015, (d) the Limited Partnership Agreement
and Master UPREIT Agreement regarding AHIT Valfre, LLP dated August 1, 2015; and (e) such other documents deemed by us to be relevant
to this opinion letter as may have been presented to us by the Company from time to time.
We have
assumed, with your consent, that the representations set forth in the Management Certificate are true, accurate, and complete as
of the date hereof. While we are not aware of any facts inconsistent with the representations set forth in the Management Certificate,
we have not made an independent investigation or audit of the facts set forth in any of the Opinion Materials. In addition, we
have examined no documents other than the Opinion Materials for purposes of this opinion and, therefore, our opinion is limited
to matters determined through such an examination.
In rendering
the opinion set forth herein, we have assumed the authenticity of all documents submitted to us as originals, the genuineness of
all signatures thereon, the legal capacity of natural persons executing such documents and the conformity to authentic original
documents of all documents submitted to us as copies. Based solely on our review of the Opinion Materials, we are of the opinion
that:
The Company’s
qualification as a REIT depends on the Company’s satisfaction of the requirements under the Code and described in the Registration
Statement under the heading “Qualifications and Risks In Operating A REIT and Federal Tax Considerations” relating
to, among other things, the nature of the Company’s gross income, the composition of the Company’s assets, the level
of distributions to the Company’s shareholders, and the diversity of the Company’s ownership. The authors hereof, and
Paesano Akkashian Apkarian, P.C., will not review the Company’s compliance with these requirements on a continuing basis.
No assurances can be given that the Company will satisfy these requirements.
An opinion
of counsel merely represents counsel’s best judgment with respect to the probable outcome on the merits and is not binding
on the Internal Revenue Service or the courts. There can be no assurance that positions contrary to our opinion will not be taken
by the Internal Revenue Service or that a court considering the issues would not hold contrary to such opinion.
The opinions
expressed herein are given as of the date hereof and are based upon the Code, the Treasury regulations promulgated thereunder,
current administrative positions of the Internal Revenue Service, and existing judicial decisions, any of which could be changed
at any time, possibly on a retroactive basis. Any such changes could adversely affect the opinions rendered herein. You should
be aware that an opinion of counsel represents only counsel’s best legal judgment, and has no binding effect or official
status of any kind, and that no assurance can be given that contrary positions may not be taken by the IRS or that a court considering
the issues would not hold otherwise.
In addition,
as noted above, our opinions are based solely on the documents that we have examined and the representations that have been made
to us, and cannot be relied upon if any of the facts contained in such documents or in such additional information is, or later
becomes, inaccurate or if any of the representations made to us is, or later becomes, inaccurate. Finally, our opinion is limited
to the US federal income tax matters specifically covered herein, and we have not opined on any other tax consequences to the Company
or any other person, and we express no opinion with respect to other federal laws, the laws of any other jurisdiction, the laws
of any state or as to any matters of municipal law or the laws of any other local agencies within any state.
We hereby
consent to the filing of this opinion as an exhibit to the Registration Statement under the Securities Act, pursuant to Item 601(b)(8)
of Regulation S-X, 17, and the reference to those matters contained under the heading “Legal Matters” in the Prospectus
included as part of the Registration Statement. In giving this consent, we do not admit that we are included in the category of
persons whose consent is required under Section 7 of the Securities Act, or the rules and regulations of the Securities and Exchange
Commission thereunder. No opinion other than that expressly contained herein may be inferred or implied. We have no obligation
to update this opinion.
We consent to the inclusion in
this Registration Statement on Form S-11 of our report dated July 6, 2015 with respect to the audited consolidated financial statements
of American Realty Partners, LLC for the years ended December 31, 2014 and 2013.
We also consent to the references
to us under the heading "Experts" in such Registration Statement.
(1) The subsidiary is authorized to
do business in the State identified as the Principal Place of Business even though the subsidiary is organized as identified herein.
This Second Amendment
to Master Registration Rights Agreement (this “Second Amendment”) is dated as of January 19, 2016 (the “Effective
Date”), by and between American Housing Income Trust, Inc., a Maryland corporation (the “Company”), and Valfre
Holdings, LLC, an Arizona limited liability company (“Valfre”), and James A. Valfre and Pamela J. Valfre (collectively
referred to herein as “Valfre” unless otherwise noted).
WHEREAS, the Company
is the General Partner in AHIT Valfre, LLP, a Maryland limited liability partnership (“AHIT Valfre”), and Valfre are
the limited partners in AHIT Valfre. AHIT Valfre is referred to herein as the “Partnership.”
WHEREAS, the Partnership
is engaged in the business of owning, managing, acquiring and developing single family residences directly and through limited
partnerships and other entities (“Properties”);
WHEREAS, the Partnership
anticipates acquiring from time to time additional Properties or contract rights to acquire Properties or other properties in transactions
(the “Contributions”) in which all or a portion of the consideration to be paid by the Partnership will consist of
Units (as hereinafter defined);
WHEREAS, pursuant
to the Partnership Agreement (as hereinafter defined) Units are, under certain circumstances, redeemable for common stock of the
Company;
WHEREAS, the Company
desires to provide certain registration rights with respect to Shares (as hereinafter defined) for the benefit of Persons receiving
Units in connection with Contributions and the successors and assigns of such Persons (collectively, the “Holders”);
and
WHEREAS, Valfre
acknowledges that, pursuant to Section 3.2 of the Master Registration Rights Agreement dated August 1, 2015 (the “Agreement”),
the Company has set forth to their satisfaction legitimate business reasons why registration of the “Registrable Securities,”
as defined in the Agreement, would not be a prudent business decision at this time and in conjunction with the Company’s
anticipated registration statement. This Second Amendment supersedes the First Amendment previously agreed to.
NOW, THEREFORE,
pursuant to Section 8.2 of the Agreement, the Company and Valfre agree to the following amendment to the Agreement:
1. Tolling of
Registration Rights. Between the Effective Date and Jun e 1, 2016, Valfre agrees to waive any and all registration rights associated
with the Registrable Securities as set forth in the Agreement (the “Tolling Period”). The Tolling Period shall expire
on 12:01 a.m. PST on June 1, 2016. To the extent a conflict arises between this Amendment, and the Master UPREIT Formation Agreement
between the parties dated August 1, 2015, on the issue of registration rights held by Valfre, Valfre agrees that this Amendment
shall govern.
2. Balance of
Agreement. To the extent not amended herein, the balance of the Agreement shall remain in full force and effect.
a Maryland corporation.
VALFRE HOLDINGS, LLC. An Arizona limited
liability company
By: James A. Valfre
James A. Valfre
Pamela J. Valfre