Discontinued Operations | On April 6, 2017, the Company completed a reverse acquisition (Note 4) and changed the focus of the business as the Company is no longer pursuing to be a REIT. The assets and liabilities related to the REIT business have been presented as held for discontinued operations following the approval of management to sell the assets and liabilities. i. Current assets of disposal group classified as held for discontinued operations 2017 $ 2016 $ Accounts receivable 310 2,406 Other assets 16,892 209,1520 Due from related party 103,566 – Total 120,768 211,558 ii. Non-current assets of disposal group classified as held for discontinued operations 2017 $ 2016 $ Land 1,663,713 6,736,848 Building and improvements, net 687,415 4,390,398 Loan receivable – related party 242,979 – Total 2,594,107 11,127,246 iii. Current liabilities of disposal group classified as held for discontinued operations 2017 $ 2016 $ Accounts payable and accrued liabilities 38,411 119,291 Due to related parties 136 7,164 Note payable – related parties – 74,307 Prepaid rent received 1,780 13,048 Note payable 6,870 386,656 Total 47,197 600,466 iv. Non-current liabilities of disposal group classified as held for discontinued operations 2017 $ 2016 $ Note payable 652,836 4,690,077 Total 652,836 4,690,077 Analysis of the result of discontinued operations, and the result on the re-measurement of assets is as follows: For the Three Months Ended September 30, 2017 $ For the Three Months Ended September 30, 2016 $ April 6, 2017 through September 30, 2017 $ January 1, 2017 through April 6, 2017 $ For the Nine Months Ended September 30, 2016 $ Successor Predecessor Successor Predecessor Predecessor Revenue 44,496 175,695 192,782 170,819 503,210 Expenses Depreciation 25,767 43,864 56,772 43,269 109,259 General and administrative 728,346 1,261,364 1,266,236 421,434 3,498,539 Interest expense 35,385 91,038 102,617 78,371 286,526 Total expenses 789,498 1,396,266 1,425,625 543,074 3,894,324 Net loss before other income (expenses) from discontinued operations (745,002 ) (1,220,571 ) (1,232,843 ) (372,255 ) (3,391,114 ) Interest Income 1,389 — 1,389 — — (Loss) gain on sale of properties (661,672 ) — (728,839 ) 269,521 4,981 Impairment of real estate properties (149,860 ) — (277,762 ) (37,071 ) — Loss from disposal of subsidiary (1,066,426 ) — (1,066,426 ) — — Net loss from discontinued operations (2,621,571 ) (1,220,571 ) (3,304,481 ) (139,805 ) (3,386,133 ) Cash flows: For the Six Months Ended September 30, 2017 For the Three Months Ended March 31, 2017 For the Nine Months Ended September 30, 2016 Successor Predecessor Predecessor Operating activities Net loss from discontinued operations (3,304,481 ) (139,805 ) (3,386,133 ) Items not affecting cash: Depreciation 56,772 43,269 109,260 Loss (gain) on sale of assets 728,839 (269,521 ) (4,981 ) Impairment of real estate properties 277,762 37,071 — Stock-based compensation — — 1,950,794 Write-off of accounts receivable — 1,950 — Loss on disposal of subsidiary 1,066,426 — — Imputed Interest (1,389 ) — — Changes in operating assets and liabilities: Accounts receivable (5,030 ) (5,826 ) (6,188 ) Prepaid expenses 148,870 40,145 (39,566 ) Accounts payable (45,783 ) (2,130 ) 21,785 Accrued liabilities (42,830 ) 20,357 31,575 Prepaid rent received (12,214 ) 946 (15,760 ) Due to related parties 1,792 18,330 16,905 Net cash used in operating activities – discontinued operations (1,131,266 ) (255,214 ) (1,322,309 ) Investing activities Purchase of real estate properties and improvements (11,005 ) (3,592 ) (22,908 ) Proceeds from sale of real estate properties, net 3,258,951 384,996 211,200 Proceeds from sale of subsidiary 22,651 — — Net cash provided by investing activities – discontinued operations 3,270,597 381,404 188,292 Financing activities Advances received from related party 5,000 — — Proceeds from notes payable — — 325,232 Repayment of related party note payable (1,478 ) (1,685 ) — Repayment of notes payable (1,232,208 ) (19,742 ) (52,327 ) Repayment of related party advances (61,402 ) — — Net cash (used in) provided by investing activities – discontinued operations (1,290,088 ) (21,427 ) 272,905 Note receivable On September 20, 2017, the Company sold a property to PRM, the manager of a former subsidiary of the Company for a note receivable in the amount of $325,000. The note is non-interest bearing, due on October 1, 2022 and secured by the property sold to PRM. Pursuant to ASC 835-30, the Company determined the present value of the note by discounting the note at an imputed interest rate of 6.07%, resulting in a carrying value of $241,590 at issuance. The resulting discount of $83,410 is to be recognized as interest income over the term of the note. As at September 30, 2017, the Company has recognized interest income of $1,389 and the carrying value of the note was increased to $242,979. Investment in Real Estate September 30, 2017 December 31, 2016 Cost of real estate properties $ 2,606,760 $ 11,603,385 Accumulated depreciation (93,263) (354,639) Impairment of real estate properties (162,369) (121,500) Balance at the end of the period $ 2,351,128 $ 11,127,246 During the six months ended September 30, 2017, the Company sold 34 properties for gross proceeds of $5,638,395 and a note receivable in the amount $325,000 and recognized a loss on sale of $728,839. Of the $5,638,395 proceeds, $2,381,411 was used to settle debt associated with the properties. During the three months ended June 30, 2017, the Company discovered that $267,841 of improvement costs for a property owned by the Manager of ARP were erroneously capitalized by and paid by the Company during the fiscal years 2014 – 2016 ($52,000 in 2014, $201,932 in 2015 and $13,909 in 2016). $65,909 of the $267,841 capitalized cost was related to a property the predecessor sold during the 3 months ended March 31, 2017. $186,932 of the $267,841 capitalized cost was related to another property that remains a property of the Company as at June 30, 2017. The error was corrected during the three months ended June 30, 2017 and the $247,841 capitalized during fiscal year 2014-2016 and $15,000 of depreciation expense were reversed. As one of the properties was already sold, the Company recorded a gain of $65,909 on sale of asset. During the three months ended March 31, 2017, the predecessor recorded depreciation expense of $43,269 for its real estate properties. During the six months ended September 30, 2017, the Company recorded depreciation expense of $56,772 for its real estate properties. During the nine months ended September 30, 2016, the predecessor recorded depreciation expense of $109,260 for its real estate properties. During the three months ended March 31, 2017, the predecessor recorded impairment of $37,071 for its real estate properties. During the six months ended September 30, 2017, the Company recorded impairment of $277,762 for its real estate properties. During the nine months ended September 30, 2016, no impairment was recorded for its real estate properties by the predecessor. Prepaid Rent Received September 30, 2017 December 31, 2016 Balance, beginning of period $ 13,994 $ 39,598 Prepaid rent recognized as revenue during the period (73,903) (160,559) Prepaid rent received during the period 61,689 134,009 Balance, end of period $ 1,780 $ 13,048 Related Party Transactions a) On July 13, 2016, the Company entered into the Master UPREIT Formation Agreement resulting in the formation of AHIT NNMP, LLP, a Maryland limited liability company. Pursuant to the agreement, the Company agreed to retain the designee of the Limited Partner to serve as property manager during the period from the closing of the transaction to the exercise of the conversion option. In consideration for the property management services, the Limited Partner or its designee shall receive a property management fee equal to a mutually agreeable yearly fee based on a good faith analysis of net profits from the operation of the partnership for the year, but under no circumstances in excess of $120,000. b) As of June 30, 2017, the Company is indebted to the former limited partner of AHIT Valfre, LLP for $136 (December 31, 2016 - $136), of repair expenses the limited partner paid on behalf of the Company. c) On July 15, 2016, the Company entered into a Consultancy Agreement with the Vice President of the Company for consulting services. The Consultancy Agreement is for a term of one year. In addition to a $30,000 signing bonus, the Company has agreed to issue 25,000 restricted shares as compensation and bi-weekly monetary compensation that is on par with the value of the services provided by the Vice President. On July 20, 2016, the Company issued the 25,000 shares of common stock with a fair value of $75,000 to the Vice President of the Company. d) On July 15, 2016, the Company entered into a Board Director Agreement whereby the Company has agreed to issue 10,000 restricted shares of common stock as compensation. In addition to the 10,000 shares of common stock, the Company has agreed to pay the Director from time to time monetary and equity compensation for the services. As at September 30, 2017, the Company has not issued the 10,000 shares. e) On July 21, 2016, the Company entered into a Board Director Agreement whereby the Company has agreed to issue 10,000 restricted shares of common stock as compensation. In addition to the 10,000 shares of common stock, the Company has agreed to pay the Director from time to time monetary and equity compensation for the services. On October 31, 2016, the Company issued the 10,000 shares of common stock with a fair value of $30,000. f) On July 14, 2017, the limited partner of AHIT NNMP purchased from the Company its General Partnership interest in AHIT NNMP for $35,000. As a result, the net assets of AHIT-NNMP of $1,101,426 was derecognized and a loss on sale of subsidiary of $1,066,426 was recognized. g) On September 20, 2017, the Company sold one property to PRM, the manager of a former subsidiary of the Company for a $325,000 note receivable. The note is non-interest bearing and secured by the property sold to PRM and due on October 1, 2022. h) During the three months ended March 31, 2017, the predecessor paid commission of $31,575 to a company owned by the former CFO of the predecessor. During the six months ended September 30, 2017, the Company paid commission of $129,185 to a company owned by the director of the Company. i) American Realty Partners (“ARP”), the Company’s former subsidiary, has been advised and managed by Performance Realty Management, LLC (“PRM”), an Arizona limited liability company (the “Manager”). At the formation of ARP, ARP agreed to pay the Manager of ARP 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 the Manager. Commencing January 1, 2016, PRM started to serve as the Manager of ARP at no cost. During the six months ended September 30, 2017, the Company discovered that $267,841 of improvement costs for a property owned by the Manager of ARP were erroneously capitalized by and paid by the Company during the fiscal years 2014 – 2016 ($52,000 in 2014, $201,932 in 2015 and $13,909 in 2016). The error was corrected during the six months ended September 30, 2017. Before the adjustment, ARP was indebted to the Manager of ARP for $164,275, which represents advances provided by the Manager of ARP for daily operations. The correction of the error resulted in a receivable from the Manager of APR in the amount of $103,566. As at December 31, 2016, ARP is indebted to the Manager of APR for $363,698, which represents advances provided by the Manager of ARP for daily operations j) As of September 30, 2017, the Company is indebted to the former CFO of the Company, and three companies owned by the former CFO of the Company, for $nil (December 31, 2016 - $44,030), which represents advances made to the Company by the former CFO and the three companies owned by the former CFO. Notes Payable September 30, 2017 $ December 31, 2016 $ Mortgage payable on February 20, 2034, bearing interest at a variable rate, collateralized by a deed of trust on the real estate property purchased with the loan 68,893 194,984 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 – 1,628,276 Promissory note payable on December 1, 2020, bearing interest at 5.88% per annum, collateralized by the real estate properties titled to ARP Borrower II, LLC and 100% equity ownership in ARP Borrower II, LLC – 956,815 Promissory note payable on May 27, 2017, 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, 2017, 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 October 1, 2017, bearing interest at 16% per annum, collateralized by a deed of trust on the real estate properties titled to ARP – 122,298 Promissory note payable on January 1, 2022, bearing interest at 10% per annum, collateralized by a deed of trust on the real estate properties purchased with the loan 350,000 350,000 Mortgage payable on April 1, 2053, bearing interest at 2% per annum, collateralized by a deed of trust on the real estate properties purchased with the loan 240,813 244,767 Promissory note payable on May 1, 2021, bearing interest at 6.07% per annum, collateralized by the real estate properties titled to AHIT Valfre, LLP and ARP Borrower, LLC – 1,196,022 Mortgage payable on April 1, 2028, bearing interest at 2.985% per annum, collateralized by the real estate property purchased with the loan – 123,571 659,706 5,076,733 Note payable – related party, payable on June 1, 2026, bearing interest at 4.5% per annum, collateralized by a deed of trust on the real estate properties purchased with the loan – 74,307 659,706 5,151,040 Less: Current Portion of Note payable (6,870) 652,836 The following table schedules the principal payments on the notes payable for the next five years and thereafter as of September 30, 2017: Year Amount 2017 $ 1,504 2018 7,180 2019 7,379 2020 7,583 2021 7,793 thereafter 628,267 Total $ 659,706 Single Family Residence Acquisitions As of September 30, 2017, the Company owns 6 residential properties and 1 commercial property. 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 2 $ 591,041 $ 295,521 California 3 1,767,323 589,108 Texas 2 248,396 124,198 Total and Weighted Average 7 $ 2,606,760 $ 372,394 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. Employment Agreements On April 15, 2016, the Company entered into employment agreements with two individuals for a term of one year. The Company agreed to issue an aggregate of 200,000 restricted shares as compensation and weekly monetary compensation that is on par with the value of the services provided by the consultants. On July 20, 2016 and July 26, 2016, the Company issued an aggregate of 200,000 shares to the consultants. On July 15, 2016, the Company entered into an employment agreement with the Vice President of the Company for a term of one year. The Company agreed to issue 25,000 restricted shares as compensation and bi-weekly monetary compensation that is on par with the value of the services provided by the Vice President of the Company. In addition, the Company agreed to pay the Vice President a signing bonus of $30,000. On July 20, 2016, the Company issued 25,000 shares to the Vice President of the Company. On December 8, 2016, the Company entered into an employment agreement with its Property Manager for an initial term of six months (“Probation Period”). During the Probation Period, the compensation is to be determined solely by the Company exercising its sole discretion. Following the Probation Period, the Company shall pay the Property Manager compensation equal to 5% of gross rental income from the Company’s tenants. 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, 2017 through the end of their term, are as follows: Fiscal Year 2017 $ 5,835 Fiscal Year 2018 3,120 Total $ 8,955 |