The accompanying notes are an integral part
of the consolidated financial statements.
The accompanying notes are an integral part
of the consolidated financial statements.
The accompanying notes are an integral part
of the consolidated financial statements.
The accompanying notes are an integral part
of the consolidated financial statements.
REVEN HOUSING REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012 and 2013
NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Reven Housing REIT, Inc. and Subsidiaries
(the “Company”) (formerly known as Bureau of Fugitive Recovery, Inc.) was incorporated in the State of Colorado on
April 26, 1995. The Company previously provided bounty hunting services for bail bond businesses through July 2, 2012.
On July 2, 2012 Chad M. Carpenter purchased
an aggregate of 5,999,300 shares of the outstanding common stock of the Company from certain of the Company’s stockholders
in a private transaction. In connection with the transaction, an aggregate of 1,650,000 shares of the Company’s outstanding
common stock were returned to treasury for cancellation. Immediately upon the closing of the transaction, Mr. Carpenter became
the majority shareholder and Chief Executive Officer of the Company and beneficially owned stock representing 71.8 percent of the
outstanding voting shares of the Company.
The Company formally changed its name from
Bureau of Fugitive Recovery, Inc. to “Reven Housing REIT, Inc.” and commenced activities to acquire portfolios of occupied
and rented single-family houses throughout the United States in accordance with its new business plan. The Company’s business
plan involves (i) acquiring portfolios of rented houses from investors; and (ii) receiving income from rental property activity
and future profits from sale of rental property at appreciated values.
Discontinued Operations
On July 2, 2012, the Company discontinued
operations related to the Bureau of Fugitive Recovery, Inc. upon Chad M. Carpenter becoming the majority shareholder of the Company.
Accordingly, the former operations are classified as discontinued operations in the accompanying consolidated statements of operations.
Basis of Accounting
The accompanying consolidated financial
statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
Principles of Consolidation
The accompanying financial statements consolidate
the accounts of the Company and its wholly-owned subsidiaries, Reven Housing Georgia, LLC and Reven Housing Texas, LLC. All significant
inter-company transactions have been eliminated in consolidation.
New Accounting Pronouncements
The Company has adopted all recently issued
accounting pronouncements. The adoption of the accounting pronouncements, including those not yet effective, is not anticipated
to have a material effect on the financial position or results of operations of the Company.
Cash and Cash Equivalents
The Company considers all highly liquid
investments with an original maturity of three months or less as cash equivalents.
Rents and Other Receivables
Rents and other receivables represent the
amount of rent receivables, security deposits and net rental funds which are held by the property manager on behalf of the Company,
net of any allowance for amounts deemed uncollectible.
Deferred Stock Issuance Costs
Deferred stock issuance costs represent
amounts paid for consulting services and other offering expenses in conjunction with the future raising of additional capital to
be performed within one year. These costs are charged against additional paid-in capital as a cost of the stock issuance upon closing
of the respective stock placement.
Concentration of Risk
Financial instruments, which potentially
subject the Company to concentrations of credit risk, consist of cash. The Company’s cash in excess of the Federal Deposit
Insurance Corporation insured limits at December 31, 2013, were approximately $1,911,000. The Company does not believe it is exposed
to any significant credit risk due to the quality nature of the financial instruments in which the money is held.
REVEN HOUSING REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012 and 2013
NOTE 1. ORGANIZATION, OPERATIONS AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Warrant Issuance and Note Conversion
Feature
The Company accounts for the proceeds from
the issuance of convertible notes payable with detachable stock purchase warrants and embedded conversion features in accordance
with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 470-20,
Debt
with Conversion and Other Options.
Under FASB ASC 470-20, the proceeds from the issuance of a debt instrument with detachable
stock purchase warrants shall be allocated to the two elements based on the relative fair values of the debt instrument without
the warrants and of the warrants themselves at the time of issuance. The portion of the proceeds allocated to the warrants is accounted
for as additional paid-in capital and the remaining proceeds are allocated to the debt instrument which resulted in a discount
to debt which is amortized and charged as interest expense over the term of the note agreement. Additionally, pursuant to FASB
ASC 470-20, the intrinsic value of the embedded conversion feature of the convertible notes payable is included in the discount
to debt and amortized and charged to interest expense over the life of the note agreement.
Revenue Recognition
Property is leased under rental agreements of generally one
year and revenue is recognized over the lease term on a straight-line basis.
Income Taxes
The Company intends to elect to be taxed
as a REIT, as defined in the Internal Revenue Code, commencing with the taxable year ended December 31, 2014. Management believes
that the Company will be able to satisfy the requirements for qualification as a REIT. Accordingly, the Company is not expecting
to be subject to federal income tax, provided that it qualifies as a REIT and distributions to the stockholders equal or exceed
REIT taxable income.
However, qualification and taxation as
a REIT depend upon the Company’s ability to meet the various qualification tests imposed under the Internal Revenue Code
related to the percentage of income that are earned from specified sources, the percentage of assets that fall within specified
categories, the diversity of capital stock ownership, and the percentage of earnings that are distributed. Accordingly, no assurance
can be given that the Company will be organized or be able to operate in a manner so as to qualify or remain qualified as a REIT.
If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal and state income tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate tax rates, and the Company may be ineligible to
qualify as a REIT for four subsequent tax years. Even if the Company qualifies as a REIT, it may be subject to certain state or
local income taxes.
The tax benefit of uncertain tax positions
is recognized only if it is “more likely than not” that the tax position will be sustained, based solely on its technical
merits, with the taxing authority having full knowledge of relevant information. The measurement of a tax benefit for an uncertain
tax position that meets the “more likely than not” threshold is based on a cumulative probability model under which
the largest amount of tax benefit recognized is the amount with a greater than 50% likelihood of being realized upon ultimate settlement
with the taxing authority, having full knowledge of all the relevant information. As of December 31, 2012 and 2013, the Company
had no unrecognized tax benefits. The Company does not anticipate a significant change in the total amount of unrecognized tax
benefits during 2014.
Incentive Compensation Plan
During 2012, the Company established the
2012 Incentive Compensation Plan, which was subsequently amended and restated in December 2013 (“2012 Plan”). The 2012
Plan allows for the grant of options and other awards representing up to 33,000,000 shares of the Company’s common stock.
Such awards may be granted to officers, directors, employees, consultants and other persons who provide services to the Company
or any related entity. Under the 2012 Plan, options may be granted at an exercise price greater than or equal to the market value
at the date of the grant, for owners of 10% or more of the voting shares, at an exercise price of not less than 110% of the market
value. Awards are exercisable over a period of time as determined by a committee designated by the Board of Directors, but in no
event longer than ten years. No awards have been granted as of December 31, 2013.
REVEN HOUSING REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012 and 2013
NOTE 1. ORGANIZATION, OPERATIONS AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Net Loss Per Share
Net loss per share is computed by dividing
the net loss by the weighted average number of shares of common stock outstanding. Warrants, stock options, and common stock issuable
upon the conversion of the Company's preferred stock (if any), are not included in the computation if the effect would be anti-dilutive
and would increase the earnings or decrease loss per share. For the year ended December 31, 2012 there were no shares that were
potentially dilutive. For the year ended December 31, 2013, potentially dilutive securities excluded from the calculations were
5,271,760 shares issuable upon exercise of outstanding warrants granted in conjunction with the convertible notes.
Financial Instruments
The carrying value of the Company’s
financial instruments, as reported in the accompanying consolidated balance sheets, approximates fair value.
Security Deposits
Security deposits represent amounts deposited
by tenants at the inception of the lease.
Use of Estimates
The preparation of the consolidated financial
statements in conformity with GAAP 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 balance sheet dates and reported amounts of expenses
for the periods presented. Accordingly, actual results could differ from those estimates. Significant estimates include assumptions
used to value warrants and conversion features associated with convertible notes payable (Note 3). Further, significant estimates
include assumptions used to determine the allocation of purchase prices of property acquisitions (Note 1).
Property Acquisitions
The Company accounts for its acquisitions
of real estate in accordance with FASB ASC 805,
Accounting for Business Combinations, Goodwill, and Other Intangible Assets,
which requires the purchase price of acquired properties be allocated to the acquired tangible assets and liabilities, consisting
of land, building, and identified intangible assets, consisting of the value of above-market and below-market leases, the value
of in-place leases, unamortized lease origination costs and security deposits, based in each case on their fair values.
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, assuming the property was vacant. Fair value for land and building is based on the purchase price for these properties.
The Company also considers information obtained about each property as a result of its pre-acquisition due diligence, marketing
and leasing activities in estimating the fair values of the tangible and intangible assets and liabilities acquired.
The total value allocable to intangible
assets acquired, which consists of unamortized lease origination costs and in-place leases (including an above-market or below-market
component of an acquired in-place lease), are allocated based on management’s evaluation of the specific characteristics
of each tenant’s lease and the Company’s overall relationship with that respective tenant. Characteristics considered
by management in allocating these values include the nature and extent of the existing business relationships with the tenant,
growth prospects for developing new business with the tenant, the remaining term of the lease and the tenant’s credit quality,
among other factors. For acquisitions made in 2012 and 2013, management has determined that no value is required to be allocated
to intangible assets, as the leases assumed are short-term with values that are insignificant.
REVEN HOUSING REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012 and 2013
NOTE 1. ORGANIZATION, OPERATIONS AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Land, Buildings and Improvements
Land, buildings and improvements are recorded
at cost and depreciated over estimated useful lives of approximately 27.5 years using the straight-line method. Maintenance and
repair costs are charged to operations as incurred.
The Company assesses the impairment of
long-lived assets, whenever events or changes in business circumstances indicate that carrying amounts of the assets may not be
fully recoverable. When such events occur, management determines whether there has been impairment by comparing the asset’s
carrying value with its fair value, as measured by the anticipated undiscounted net cash flows of the asset. Should impairment
exist, the asset is written down to its estimated fair value. The Company has not recognized any impairment losses through December
31, 2013.
Reclassifications
Certain amounts for 2012 have been reclassified
to conform to the current year’s presentation.
NOTE 2. RESIDENTIAL HOMES, NET
Reven Housing Georgia, LLC (a wholly owned
subsidiary of Reven Housing REIT, Inc.) completed the acquisition of nine residential homes. The nine homes are located in various
cities in Georgia. Five of these homes were purchased in 2012 and the remaining four homes were purchased on January 10, 2013.
On October 4, 2013, Reven Housing Texas,
LLC (a wholly owned subsidiary of Reven Housing REIT, Inc.) entered into a purchase and sale agreement for the purchase of a portfolio
of 170 single family homes located in the Houston, Texas metropolitan area. On October 31, 2013, the Company closed and completed
the purchase of 150 of the homes at a total cost of $11,971,797 including closing expenses (Note 10).
Residential homes purchased by the Company
are recorded at cost. The Homes are depreciated over the estimated useful lives using the straight-line method for financial reporting
purposes. The estimated useful life for the residential homes is estimated to be 27.5 years. The Homes are leased on short-term
leases expiring on various dates over the coming year.
The following table represents the Company’s net investment
in the homes and allocates purchase price in accordance with ASC 805:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
|
Number
|
|
|
|
|
|
Residential
|
|
|
Total
|
|
|
Accumulated
|
|
|
In Real Estate
|
|
|
|
of
Homes
|
|
|
Land
|
|
|
Homes
|
|
|
Investment
|
|
|
Depreciation
|
|
|
Net
|
|
Purchased
during 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Georgia
|
|
|
5
|
|
|
$
|
67,019
|
|
|
$
|
276,391
|
|
|
$
|
343,410
|
|
|
$
|
(1,400
|
)
|
|
$
|
342,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at December 31, 2012
|
|
|
5
|
|
|
|
67,019
|
|
|
|
276,391
|
|
|
|
343,410
|
|
|
|
(1,400
|
)
|
|
|
342,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased during 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Georgia
|
|
|
4
|
|
|
|
52,631
|
|
|
|
210,797
|
|
|
|
263,428
|
|
|
|
(16,800
|
)
|
|
|
246,628
|
|
Texas
|
|
|
150
|
|
|
|
2,394,359
|
|
|
|
9,577,438
|
|
|
|
11,971,797
|
|
|
|
(58,000
|
)
|
|
|
11,913,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at December 31, 2013
|
|
|
159
|
|
|
$
|
2,514,009
|
|
|
$
|
10,064,626
|
|
|
$
|
12,578,635
|
|
|
$
|
(76,200
|
)
|
|
$
|
12,502,435
|
|
Net investment in homes, as shown above, consists of the following
as of December 31:
|
|
2012
|
|
|
2013
|
|
|
|
Number
|
|
|
Investment
|
|
|
Number
|
|
|
Investment
|
|
|
|
of Homes
|
|
|
Net
|
|
|
of Homes
|
|
|
Net
|
|
Leased
|
|
|
5
|
|
|
$
|
342,010
|
|
|
|
146
|
|
|
$
|
11,579,899
|
|
Vacant
|
|
|
-
|
|
|
|
-
|
|
|
|
13
|
|
|
|
922,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
$
|
342,010
|
|
|
|
159
|
|
|
$
|
12,502,435
|
|
REVEN HOUSING REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012 and 2013
NOTE 3. CONVERTIBLE NOTES PAYABLE
The Company issued convertible promissory
notes (the “Notes”) to certain accredited investors, shareholders, and officers in the aggregate principal amount of
$1,054,352. Of this total, $500,000 was issued on January 3, 2013 in order to fund the four residential homes purchased in January
2013 and to pay operating expenses. The maturity date for the Notes was the earlier of December 31, 2013, or upon the Company raising
$5 million or more of equity capital. The Notes bore interest at a rate of 10 percent per annum payable in full on the maturity
date and were unsecured. Upon the Company successfully raising additional capital, the Notes could be exchanged by the holders
for such securities of the Company at the same price and on the same terms and conditions being offered to the other investors
in such financing, and the principal and accrued interest under the Notes could be applied towards the purchase price of such security.
The Notes could be prepaid in whole or in part at the Company’s option without penalty.
Of the total Notes, $652,176 were issued
to an officer, $350,000 were issued to accredited investors, and $52,176 to shareholders.
On September 27, 2013, in connection with
the Company’s sale of common stock through a private placement (Note 5), convertible notes with a principal balance of $902,176
were exchanged for 4,510,880 shares of common stock at a conversion price of $0.20 per share and retired. Also in connection with
the private placement, notes with a principal balance of $152,176 were paid in full with cash payments. Additionally, the Company
paid accrued interest of $82,071 on all the convertible notes with cash payments.
Warrant Issuance and Note Conversion Feature
In connection with the issuance of the
above Notes, the Company also issued to the investors 5-year detachable warrants exercisable for shares of the Company’s
common stock (the “Warrants”). The exercise price of the Warrants is at the same price per share as the price of the
equity securities sold to investors in the qualified equity financing, and each Warrant provides for 100% warrant coverage on the
principal amount of the related Note.
The fair value of the Warrants and debt
beneficial conversion feature were determined using the Monte-Carlo simulation valuation model that uses assumptions for expected
volatility, expected dividends, and the risk-free interest rate. Expected volatilities were based on weighted averages of the selected
peer group of thirteen companies as the Company has limited trading history and were estimated over the expected term of the Warrants.
The risk-free rate was based on the U.S. Treasury yield curve at the date of issuance for the period of the expected term.
Accordingly, the fair value of the proceeds
attributable to Warrants of $309,892 and the debt beneficial conversion feature of $309,891 totaling $619,783, was recorded as
an increase in additional paid-in capital and as a corresponding discount to the convertible notes payable. Of the total debt discount
of $619,783, $327,863 and $291,920 was recorded to additional paid-in capital and debt discount during 2012 and 2013, respectively.
The discount was amortized over the term of the convertible notes payable using the interest method. In connection with the Company’s
private placement of common stock and the corresponding conversion and retirement of the Notes, all remaining discount was recognized
as an expense as of September 27, 2013. Amortization of the discount amounted to $56,530 and $563,253 and is included as a separate
expense on the Consolidated Statements of Operations for the years ended December 31, 2012 and 2013, respectively.
A summary of the assumptions used to value
the warrants and the beneficial conversion feature are as follows:
|
|
2012
|
|
|
2013
|
|
|
|
0.79
|
%
|
|
1.40
|
%
|
Risk -free interest rate
|
|
|
48
|
%
|
|
|
47
|
%
|
Expected stock volatility
|
|
|
5
|
|
|
|
5
|
|
Time to expiration (years)
|
|
$
|
1.00
|
|
|
$
|
0.20
|
|
Fair value of common stock
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
Expected dividends
|
|
|
|
|
|
|
|
|
REVEN HOUSING REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012 and 2013
NOTE 4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
At December 31, 2012 and 2013, accounts
payable and accrued expenses consisted of the following:
|
|
2012
|
|
|
2013
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
-
|
|
|
$
|
89,666
|
|
Accrued property taxes
|
|
|
-
|
|
|
|
196,141
|
|
Accrued legal fees
|
|
|
119,978
|
|
|
|
61,372
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
119,978
|
|
|
$
|
347,179
|
|
NOTE 5. STOCKHOLDERS’ EQUITY
On September 27, 2013, the Company entered
into a stock purchase agreement with King APEX Group II, Ltd. and King APEX Group III, Ltd., which are funds managed by Allied
Fortune (“HK”) Management Limited, a Hong Kong based funds management company, in connection with a private placement
of up to 125,000,000 shares of its common stock at a price of $0.20 per share, for aggregate gross proceeds of up to $25 million.
Under the terms of this agreement, a total of 75,000,000 shares at a gross price of $15,000,000 were purchased through December
31, 2013. Cash proceeds after offering expenses were $14,539,082, plus an additional non-cash expense of $50,000 representing additional
deferred costs relating to the private placement resulting in net proceeds of $14,489,082.
In connection with the private placement
of the Company’s common stock pursuant to the stock purchase agreement mentioned above, the Company also entered into a convertible
promissory note conversion agreement on September 27, 2013 with certain holders of its outstanding 10% convertible promissory notes.
Pursuant to the note conversion agreement, the Company agreed to issue shares of its common stock to those holders of the notes
desiring to convert their convertible notes at the conversion price of $0.20 per share for the cancellation of the outstanding
principal amounts under those notes. Certain holders elected to receive, and the Company agreed to make, cash payments on the outstanding
principal amounts on their notes in lieu of shares of common stock. In addition, the Company agreed to make cash payments on all
the accrued interest due under the notes. As a result of the above, the Company issued 4,510,880 shares and closed on the conversion
of $902,176 of aggregate principal of the Company’s outstanding notes. The remaining $152,176 of outstanding principal and
all of the accrued interest under the notes of $82,071 have been repaid in full. Additionally in connection with the Company’s
private placement, the number of Warrants issued and outstanding to the note holders was set at 5,271,760 shares at an exercise
price of $0.20 per share. The warrants will expire on September 27, 2018, if not exercised prior to that date.
As a result of the issuance of the 75,000,000
shares to King APEX Group II, Ltd. and King Apex Group III, Ltd., the two funds under common control collectively own approximately
85.4% of the Company’s outstanding voting shares and Mr. Carpenter now owns approximately 9.5% of the Company’s outstanding
voting shares.
On October 30, 2013, the Company amended
its Articles of Incorporation to increase the number of authorized shares to 600,000,000 from 100,000,000.
REVEN HOUSING REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012 and 2013
NOTE 6. INCOME TAXES
The Company plans to elect REIT status
effective for the year ending December 31, 2014, when it meets all requirements allowing it to do so. At that time, the Company
would generally not be subject to income taxes assuming it complied with the specific distribution rules applicable to REITs.
Realization of deferred tax assets is dependent
upon sufficient future taxable income during the period that deductible temporary differences and expected carry-forwards are available
to reduce taxable income. The Company records a valuation allowance when, in the opinion of management, it is more likely than
not, that the Company will not realize some or all deferred tax assets. As the achievement of required future taxable income is
uncertain, the Company required a valuation allowance at December 31, 2012 and 2013. The valuation allowance increased by $226,000
and $192,000 during 2012 and 2013, respectively. At December 31, 2013 the Company had federal and state net operating loss carry-forwards
of approximately $675,000 and $673,000, respectively. The federal and state tax loss carry-forwards will begin to expire in 2032,
unless previously utilized.
Significant components of the Company’s
deferred tax assets are as follows:
|
|
2012
|
|
|
2013
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Start-up and acquisition costs
|
|
$
|
20,000
|
|
|
$
|
180,000
|
|
Net operating losses
|
|
|
210,000
|
|
|
|
256,000
|
|
|
|
|
230,000
|
|
|
|
436,000
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
(14,000
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
230,000
|
|
|
|
422,000
|
|
Valuation allowance
|
|
|
(230,000
|
)
|
|
|
(422,000
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
Pursuant to Internal Revenue Code Section
382, use of the Company’s net operating loss carry-forwards may be limited if a cumulative change in ownership of more than
50% occurs within a three year period. Management believes that such an ownership change had occurred but has not performed a study
of the limitations on the net operating losses.
Expected income tax by applying the statutory
income tax rate to net loss differs from the actual tax provision as follows:
|
|
2012
|
|
|
2013
|
|
|
|
|
|
|
|
|
Tax computed at the federal statutory rate
|
|
$
|
(210,000
|
)
|
|
$
|
(364,000
|
)
|
State taxes
|
|
|
(16,000
|
)
|
|
|
(62,000
|
)
|
Permanent differences
|
|
|
-
|
|
|
|
225,000
|
|
Other
|
|
|
-
|
|
|
|
9,000
|
|
Valuation allowance
|
|
|
226,000
|
|
|
|
192,000
|
|
|
|
|
|
|
|
|
|
|
Total provision
|
|
$
|
-
|
|
|
$
|
-
|
|
REVEN HOUSING REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012 and 2013
NOTE 7. RELATED PARTY TRANSACTIONS
At December 31, 2012, the Company had convertible
notes payable outstanding to Chad M. Carpenter of $252,176. At September 27, 2013, the Company had convertible notes payable outstanding
to Chad M. Carpenter and Reven Capital, LLC, an entity wholly owned by Mr. Carpenter, in the amount of $652,176, that were converted
to Company common stock as described more fully in Notes 3 and 5.
At December 31, 2012, the Company had convertible
notes payable outstanding to certain other shareholders of the Company in the amount of $52,176. These notes were paid off or converted
to Company common stock on September 27, 2013 as described more fully in Notes 3 and 5.
At December 31, 2012, the Company owed
Reven Capital, LLC $266,877, for advances made for operating expenses. Reven Capital, LLC is wholly-owned by Chad M. Carpenter.
The Company sub-leases office space on a month-to-month basis from Reven Capital, LLC and reimburses Reven Capital for Company
expenses paid and previously advanced by Reven Capital, LLC. The advances are due on demand, unsecured and are non-interest bearing.
During the year ended December 31, 2013, the Company incurred an additional $148,438 of expenses that were paid by Reven Capital,
LLC. All of these advances were paid off in full during the year ending December 31, 2013, for total payments of $415,315.
For the year ended December 31, 2012, the
Company paid $50,000 for consulting services to a company in which a Board of Director member of the Company is the Senior Managing
Principal which was included in deferred stock issuance costs on the accompanying consolidated balance sheet as of December 31,
2012 and was charged against additional paid-in capital upon the closing of the private placement on September 27, 2013.
NOTE 8. LEASE INCOME
The Company generally rents properties
under non-cancelable lease agreements with a term of one year. Future minimum rental revenues under leases existing on properties
as of December 31, 2013 are expected to be as follows:
2014
|
|
$
|
535,301
|
|
2015
|
|
|
7,895
|
|
|
|
|
|
|
|
|
$
|
543,196
|
|
The Company operates in two states. The breakdown of lease income
between the two states for the years ending December 31, 2012 and 2013 are as follows:
|
|
2012
|
|
|
2013
|
|
|
|
Rent
|
|
|
Rent
|
|
|
|
Revenue
|
|
|
Revenue
|
|
Georgia
|
|
$
|
6,750
|
|
|
$
|
70,716
|
|
Texas
|
|
|
-
|
|
|
|
271,527
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,750
|
|
|
$
|
342,243
|
|
NOTE 9. COMMITMENTS
Property Management Agreement
The Company has entered into property management
agreements with unrelated property management companies in which the Company will pay management fees ranging from six to eight
percent of gross rental receipts.
REVEN HOUSING REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012 and 2013
NOTE 10. SUBSEQUENT EVENT
Single Family Home Purchase
On January 31, 2014, a wholly owned subsidiary
of the Company closed on an additional 18 single family homes as part of the October 31, 2013 purchase (Note 2), located in the
Houston, Texas metropolitan area. Investment in the 18 homes, including acquisition and closing costs, totaled $1,597,663.
The below shows the pro forma effect to
the Company’s balance sheet of the purchase of the homes if the subsequent events had occurred as of December 31, 2013:
|
|
|
|
|
|
|
|
December 31, 2013
|
|
Reven Housing REIT, Inc and Subsidiaries
|
|
December 31,
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
Unaudited Pro Forma Condensed Balance Sheet
|
|
2013
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential homes, net of accumulated depreciation
|
|
$
|
12,502,435
|
|
|
$
|
1,597,663
|
(a)
|
|
$
|
14,100,098
|
|
Cash
|
|
|
2,134,510
|
|
|
|
(1,541,371
|
)(a)
|
|
|
593,139
|
|
Rents and other receivables
|
|
|
10,053
|
|
|
|
-
|
|
|
|
10,053
|
|
Escrow deposits and prepaid expenses
|
|
|
151,128
|
|
|
|
3,662
|
(a)
|
|
|
154,790
|
|
Deferred stock issuance costs
|
|
|
35,000
|
|
|
|
-
|
|
|
|
35,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
14,833,126
|
|
|
$
|
59,954
|
|
|
$
|
14,893,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
347,179
|
|
|
$
|
41,144
|
(a)
|
|
$
|
388,323
|
|
Security deposits
|
|
|
156,985
|
|
|
|
18,810
|
(a)
|
|
|
175,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
504,164
|
|
|
|
59,954
|
|
|
|
564,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
87,861
|
|
|
|
-
|
|
|
|
87,861
|
|
Additional paid-in capital
|
|
|
15,953,180
|
|
|
|
-
|
|
|
|
15,953,180
|
|
Accumulated deficit
|
|
|
(1,712,079
|
)
|
|
|
-
|
|
|
|
(1,712,079
|
)
|
Total Stockholders' Equity
|
|
|
14,328,962
|
|
|
|
-
|
|
|
|
14,328,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity
|
|
$
|
14,833,126
|
|
|
$
|
59,954
|
|
|
$
|
14,893,080
|
|
(a) Acquisition of 18 single family homes for cash, allocation
of purchase price and recognition of liabilities assumed.