UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2017

 

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number 000-50331

 

REALSOURCE RESIDENTIAL, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   98-0371433
(State or other jurisdiction of
incorporation or organization) 		  (I.R.S. Employer
Identification No.)

 

2089 E Fort Union Blvd, Salt Lake City, UT   84121
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code (801) 601-2700

 

Securities registered under Section 12(b) of the Act:

 

None   N/A
Title of each class   Name of each exchange on which registered

 

Securities registered under Section 12(g) of the Act:

 

Common Stock, $0.001 par value

(Title of class)

 

Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

 

Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes [  ] No [X]

 

Indicate by checkmark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

 

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ] Accelerated filer [  ]
Non-accelerated filer [  ] Smaller reporting company [X]
(Do not check if a small reporting company)  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [X] No [  ]

 

The aggregate market value of the voting and non-voting common stock, other than shares held by persons who may be deemed affiliates of the registrant, computed by reference to the closing sales price for the registrant’s common stock on June 30, 2017, as reported on the The OTC Pink Market, was approximately $389,249.

 

As of March 23, 2018, there were 15,719,645 outstanding shares of common stock of the registrant, par value $0.001 per share.

 

 

 

 
 

 

RealSource Residential, Inc.

 

Annual Report on Form 10-K

For the Fiscal-Year Ended December 31, 2017

 

TABLE OF CONTENTS

 

    Page
     
Cautionary Note Regarding Forward Looking Statements i
     
PART I 1
     
Item 1. Business.  1
Item 1A. Risk Factors. 4
Item 1B. Unresolved Staff Comments 9
Item 2. Properties. 9
Item 3. Legal Proceedings. 9
Item 4. Mine Safety Disclosures 9
     
PART II 10
     
Item 5. Market for Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Market Information. 10
Item 6. Selected Financial Data. 10
Item 7. Management’s Discussion and Analysis or Plan of Operation. 10
Item 7A. Quantitative and Qualitative Disclosures about Market Risk. 13
Item 8. Financial Statements and Supplementary Data. 13
Item 9. Changes In and Disagreements with Accountants On Accounting and Financial Disclosure. 14
Item 9A. Controls and Procedures. 14
Item 9B. Other Information. 15
     
PART III 16
     
Item 10. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(A) of the Exchange Act. 16
Item 11. Executive Compensation 18
Item 12. Security Ownership of Certain Beneficial Owners and Management 19
Item 13. Certain Relationships and Related Transactions and Director Independence. 19
Item 14. Principal Accountant Fees and Services. 20
     
Part IV 20
     
Item 15. Exhibits 20

 

 
 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain information set forth in this Annual Report on Form 10-K, including in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein may address or relate to future events and expectations and as such constitutes “forward-looking statements” within the meaning of the Private Securities Litigation Act of 1995. Statements which are not historical reflect our current expectations and projections about our future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and their interpretation of what is believed to be significant factors affecting our business, including many assumptions regarding future events. Such forward-looking statements include statements regarding, among other things:

 

  ● our ability to implement our current stated business plans
     
  ● our ability to retain key members of our management team;
     
  ● our future financing or acquisition plans and our ability to consummate any such transactions on favorable terms if at all ;
     
  ● our anticipated needs for working capital; and
     
  ● our ability to establish a market for our common stock and operate as a public company.

 

Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “would,” “could,” “scheduled,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these words or comparable terminology. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially and perhaps substantially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors. These statements may be found under the section of this Annual Report entitled “Risk Factors” as well as in our other public filings.

 

In light of these risks and uncertainties of our business, there can be no assurance that the forward-looking statements contained herein will in fact occur. Readers should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.

 

i
 

 

Item 1. Business.

 

Corporate History and Recent Developments

 

We were incorporated pursuant to the laws of the State of Nevada on March 20, 2002 under the name Integrated Brand Solutions Inc., and on February 6, 2006, we changed our name to Upstream Biosciences Inc. From 2006 to December 2009, our company operated as a biotechnology company, and from 2010 until May 2013, our company had no operating business.

 

On May 24, 2013, our then majority stockholders sold their interests in our company (consisting of 10,778,081 shares of our common stock, representing approximately 90% of the issued and outstanding voting securities of our company) to RealSource Acquisition Group, LLC, a Utah limited liability company (“RSAG”), and Chesterfield Faring Ltd., a New York corporation in consideration of an aggregate of $175,000 in cash. RSAG is affiliated with The RealSource Group, a group of affiliated real estate brokerage and management companies based in Salt Lake City, Utah. On July 11, 2013, we changed our corporate name by merging with our newly formed, wholly owned subsidiary called RealSource Residential, Inc., a Nevada corporation, and we remained as the surviving corporation under the name “RealSource Residential, Inc.” The merger was effective on July 15, 2013 and was approved by the Financial Industry Regulatory Authority on August 5, 2013.

 

Our initial business strategy in 2013 was to build our company into a publicly held and traded real estate investment trust (a “REIT”) by combining a portfolio of multi-family properties owned by RealSource Properties, LLC and its clients into one operating entity in a traditional “UPREIT” structure and leveraging the experience of our management team and The RealSource Group. Based on recommendations of our investment advisors, we determined in 2016 that a more optimal capital raising and operational structure for such properties is to combine the target properties into a privately held portfolio and perhaps form a private REIT. Since we disposed of our assets during 2016 as described below, at present we have no meaningful assets or operations, and we are thus currently a “shell company.”

 

We may engage in efforts to identify and merge with or otherwise acquire an unaffiliated operating company or business of any kind, although we retain the ability to utilize our company as a public vehicle for real estate-related activities.

 

On December 9, 2013, we consummated the closing of a private placement offering (the “2013 Private Placement”) of 231 units (or “Units”) for $10,000 per Unit, for aggregate gross proceeds of $2,310,000. Each Unit consisted of: (i) a $10,000 face value 12% Series A Senior Unsecured Convertible Promissory Note (collectively, the “Notes”), and (ii) one detachable Common Stock Purchase Warrant (collectively, the “Warrants”), each to purchase 10,000 shares (the “Warrant Shares”) of our common stock. The Notes accrued interest at 12% per year and had a maturity date of December 9, 2015.

 

The Notes were convertible into shares of our common stock at $0.50 per share (subject to customary adjustments for stock splits and similar transactions) and would automatically convert into shares of our common stock at the then applicable conversion price in the event that the 90-day trading volume weighted average price per share of the common stock exceeds $1.50 per share at any time during the term of the Notes.

 

Each Warrant included within each Unit granted to each investor the right, for a period of five (5) years from the closing of the 2013 Private Placement to subscribe for 10,000 shares of our common stock (i.e. 50% warrant coverage) at an exercise price equal to $2.00 per share. The exercise price of the Warrants is subject to adjust on the same terms as provided for in the Notes. As of the date of this report, an aggregate of 2,310,000 shares of our common stock are available for issuance assuming full exercise of the Warrants.

 

In connection with the closing of the 2013 Private Placement, we entered into definitive subscription agreements (the “Subscription Agreements”) with twenty-nine (29) accredited investors (the “Holders”). The Subscription Agreements contained customary representations, warranties and covenants.

 

1
 

 

Proceeds from the 2013 Private Placement were used to (i) acquire, on December 10, 2013 a $2.85 million face value subordinated mortgage note secured by the Cambridge Apartments in Gulfport, Mississippi (“Cambridge”) for approximately $1,073,000 (the “B Note”) and (ii) fund (in the amount of approximately $465,000) certain costs associated with a refinancing of the senior mortgage indebtedness encumbering Cambridge (which refinancing occurred concurrently with our acquisition of the B Note). Immediately upon our acquisition of the B Note, we entered into a Right of First Refusal and Option Agreement with RS Cambridge Apartments, LLC (“RS Cambridge”), owners of Cambridge (the “Option Agreement”), pursuant to which we converted the B Note into a right of first refusal and option (the “Option”) in the amount of approximately $1,538,000 (the “Option Payment”). The Option afforded us the right to acquire Cambridge within five (5) years after the closing of the 2013 Private Placement at the fair value of Cambridge as we negotiated with RS Cambridge. Under the Option, if RS Cambridge received an offer to purchase Cambridge during the option period, we would have had a right of first refusal to purchase Cambridge on the same terms as the offer. Had we elected not to match the offer, the Option Payment was required to be repaid upon the sale of Cambridge to the other buyer. In February 2016, RS Cambridge sold Cambridge. We elected not to exercise our right of first refusal and the cost of the Option plus accrued interest was paid to us.

 

On June 10, 2014, we invested $375,000 to acquire an approximate 19% interest in RS Bakken One, LLC, a newly-formed affiliated entity, which in turn acquired two properties in North Dakota, one near Williston and one in Watford City and had a combined acquisition price of $5,700,000. Concurrently, we purchased an option for $25,000 that allows us to acquire 100% of these two properties after one year for a purchase price of not less than $7,000,000, or not more than $8,000,000. Under terms of the Amendment discussed below, effective June 1, 2016 the ownership in RS Bakken One was transferred to RSRT Holdings, LLC, which is owned by the Holders.

 

On October 24, 2014, we invested $100,000 to become an approximate 3.876% member in a newly formed entity called RS Heron Walk Apartments, LLC (“RSHWA”), an affiliated entity which acquired the Heron Walk Apartments in Jacksonville, Florida (“Heron Walk”). Our investment in the Heron Walk apartments, through our ownership in RSHWA, carries an 8% cumulative preferred return under the terms of the RSHWA operating agreement, with projected higher expected average cash-on-cash and internal rates of return. Under terms of the Amendment discussed above, effective April 1, 2016 the ownership in RSHWA was transferred to RSRT Holdings, LLC, which is owned by the Holders as described below.

 

On January 15, 2016, each of the Holders entered into a separate Amendment to Note and Warrant (the “Amendment”) to modify certain terms and provisions of the Notes and Warrants, such Amendment being effective as of December 9, 2015, the original maturity date of the Notes. The Amendment was entered into given the maturity of the Notes to memorialize the agreements of the Company and each Holder with respect to the Notes and the Warrants held by such Holder.

 

Pursuant to the Amendment, the term of the Notes was extended by six months to June 9, 2016 (the “Maturity Date”). The Amendment also provided for the mandatory conversion of a portion of the interest accrued under the Note as of December 9, 2015 into shares of our common stock (the “Mandatory Conversion”). The number of shares of common stock to be issued upon the Mandatory Conversion to each Holder equaled each Holder’s pro rata portion of interest owed on such Holder’s Note converted at $0.10 per share. A total of 3,744,000 shares of our common stock were issued in February 2016.

 

On December 31, 2015, we held an asset consisting of a deposit (the “Cambridge Deposit”) on the Cambridge property. Cambridge was owned by RS Cambridge, an entity controlled and partially owned by the Chairman, President and CEO of our company. The Amendment further provided that in the event that, prior to the Maturity Date, RS Cambridge sold Cambridge, thus generating a return of the Cambridge Deposit to the Company, we would, within thirty (30) days of such sale, prepay, without penalty, a portion of each Note equal to each Holder’s pro rata portion of the Cambridge Deposit. Cambridge was sold to a third party in February 2016 and the Cambridge Deposit plus accrued interest was paid to us. With the proceeds, we then redeemed the Notes plus a portion of the accrued interest as required under the Amendment.

 

2
 

 

Also pursuant to the Amendment, we agreed with each Holder that, by no later than February 15, 2016, we would establish a new limited liability company (“Newco 1”) and assign to Newco 1: (a) a $100,000 equity investment (the “Heron Equity”) previously made by us in RSHWA and (b) a $400,000 equity investment (“Bakken Equity”) previously made by us in the two properties in North Dakota described above. This investment consisted of a $375,000 investment in RS Bakken One Investors, LLC and a $25,000 option to acquire the two properties within a specific range of a purchase prices. The Amendment provides that each Holder will be given a pro rata portion (based on the aggregate principal of the Notes held by such Holder) of the equity in Newco 1, entitling each Holder to a pro rata portion of all cash flows, profits and losses generated by Newco 1’s holdings of the Bakken Equity and the Heron Equity. Each Holder similarly agreed that such Holder shall have no voting, management, consent or approval rights whatsoever over the business or operations of Newco 1 (save as required by law), and all such rights are vested in us or our affiliates as the sole managing member of Newco 1. Each Holder agreed to enter into a customary limited liability company operating agreement relating to Newco1 to memorialize the foregoing. We formed Newco 1 on February 5, 2016 with the name RSRT Holdings, LLC and each Holder signed the operating agreement.

 

Finally, the Amendment provides that the Warrants held by such Holder were amended to (i) reduce the exercise price of the Warrants from $2.00 to $0.50 per Warrant Share and (ii) to extend the expiration time of the Warrants from December 9, 2018 to December 9, 2020.

 

Our Current Business

 

Our initial business strategy was to build the Company into a public REIT by combining a portfolio of multi-family properties owned by RealSource Properties, LLC and its clients into one operating entity in a traditional UPREIT structure and leveraging the experience of our management team and The RealSource Group. Based on recommendations of our investment advisors we have determined that the target properties should be combined into a private portfolio, raise additional equity to expand the asset value of the portfolio and perhaps form a private REIT. Since at present we have no meaningful assets or operations, we are thus currently a “shell company.” We may engage in efforts to identify and merge with an operating company, although we retain the ability to utilize our company as a public vehicle for real estate-related activities.

 

Competition

 

As we currently have no operations, this section is not applicable.

 

Intellectual Property

 

We own the following registered internet domain names:

www.realsourceresidential.com

www.realsourceres.com

 

The information contained on our website (www.realsourceresidential.com) does not form part of this Annual Report.

 

Employees

 

We currently do not have any employees except for our officers and directors. These officers take no salary.

 

Suppliers

 

We have no suppliers other than for services such as legal, accounting and filing requirements.

 

3
 

 

Item 1A. Risk Factors.

 

Investing in our securities involves a high degree of risk. Before deciding whether to invest in our securities, you should consider carefully the risks and uncertainties described below. There may be other unknown or unpredictable economic, business, competitive, regulatory or other factors that could have material adverse effects on our future results. If any of these risks actually occurs, our business, business prospects, financial condition or results of operations could be seriously harmed. This could cause the trading price of our common stock to decline, resulting in a loss of all or part of your investment. Please also read carefully the section above entitled “Cautionary Note Regarding Forward-Looking Statements.”

 

Risks Relating to Our Company and its Business

 

We are a shell company, and our lack of assets and current prospects makes it difficult for you to evaluate our future performance.

 

Although our original plan beginning in 2013 was to accumulate real estate assets and form a REIT, as of the date of this Annual Report we have no meaningful assets or operations, and are thus currently a “shell company.” We may engage in efforts to identify and merge with an operating company, although we retain the ability to utilize our company as a public vehicle for real estate-related activities. We may be unable to find an operating company to acquire or may be unable to acquire suitable properties, operate our businesses or achieve our investment objectives as planned or at all. If we do not acquire assets, you would likely lose any of your investment in us.

 

We have a near term need for capital and will need to raise additional capital in order to maintain our company.

 

Even if our sole corporate purpose presently is to merge with an operating company, this activity still requires operating capital to maintain our status as a publicly reporting and trading company. As of the date hereof, we have limited cash resources and may be unable to meet our current operating expenses for the next 12 months without borrowing funds, and there is no assurance that we can do so. Additional sources of financing might not be available on favorable terms, if at all, particularly if we acquire an operating company or seek to use our company to again try and acquire real estate assets. There is no assurance that we will be able to raise the additional needed to fund our business. If we are not able to raise such sufficient capital, our continued operations will be in significant jeopardy, which would lead to a significant decrease in the value of your investment or even the loss of your entire investment.

 

Moreover, any additional sources of financing will likely involve the issuance of our equity securities, which would have a dilutive effect on your investment. Included in these equity securities could be shares of preferred stock which our board of directors has the discretion to designate, which could give new investors that hold such preferred stock rights which are senior to the holders of our common stock.

 

Our independent registered public accounting firm has expressed doubt about our ability to continue as a going concern.

 

Our financial statements included in this Annual Report have been prepared under the assumption that we will continue as a going concern. Our independent registered public accounting firm has issued a report that included an explanatory paragraph referring to our recurring net losses and accumulated deficit and expressing substantial doubt in our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to launch our business, obtain additional equity financing or other capital, and, ultimately, to generate revenue. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. However, if we are unable to launch our business, or if adequate funds are not available to us when we need it, and we are unable to generate revenue, we will be required to curtail our operations which would, in turn, further raise substantial doubt about our ability to continue as a going concern.

 

4
 

 

Our officers, directors and affiliates are now, and all of them may in the future become, affiliated with entities engaged in business activities similar to those intended to be conducted by us and, accordingly, may have conflicts of interest in allocating to which entity a particular business opportunity should be presented.

 

Our executive officers, directors and affiliates are, or may in the future become, affiliated with entities (including The RealSource Group of companies) that are engaged in a similar business to ours. Our officers and directors also may become aware of business opportunities which may be appropriate for presentation to us and the other entities to which they owe certain fiduciary duties. As a result, our executive officers, directors and affiliates may have conflicts of interest in determining to which entity a particular business opportunity should be presented. These conflicts may not be resolved in our favor and as a result, a potential business opportunity may be presented to another entity prior to its presentation to us.

 

Our management is currently and will be employed on a part-time basis for the foreseeable future and will have outside business interests that will require their time and attention and may interfere with their ability to devote all of their time to our business, which may adversely affect our business and operations.

 

Since our business will be limited until we either find a suitable business combination partner or elect to acquire a critical mass of properties, all of our employees, including our executive officers, will be employed for the foreseeable future on a part-time basis and will have outside business interests that could require substantial time and attention. For example, our executive officers and directors are all associated with The RealSource Group and devote significant time to such affairs. We cannot accurately predict the amount of time and attention that will be required of our officers and directors to perform their ongoing duties related to outside business interests. The inability of our officers and directors to devote sufficient time to managing our business could have a material adverse effect on our business and operations.

 

We may suffer from delays in locating suitable investments or business combination partners, or may be unable to acquire otherwise suitable investments or businesses, which could adversely affect our growth prospects and results of operations.

 

Our ability to achieve our business goals and create any value for our stockholders depends upon our ability to locate, obtain financing for and consummate the acquisition of properties or business that we believe are suitable for acquisition. There is a risk that we will be unable to acquire investments or businesses on financially attractive terms or at all. If we fail to acquire such investments or businesses, the value of the company and your investment in the company will be materially impaired and you could lose the entire amount of your investment. Moreover, as our company is controlled by members of the RealSource Group, investors will have little or no say over the future direction of our company, including what assets or businesses we may acquire, or whether we elect to continue as a shell company for a long period of time.

 

Additionally, as a public company, we are subject to the ongoing reporting requirements under the Securities Exchange Act of 1934, as amended (the Exchange Act). Pursuant to the Exchange Act, we may be required to file with the SEC financial statements of properties or businesses we acquire. To the extent any required financial statements are not available or cannot be obtained, we may not be able to acquire the property or business. As a result, we may be unable to acquire certain properties or businesses that otherwise would be suitable investments, which would impair the value of our company and your investment in our company.

 

We may become subject to litigation, which could have an adverse effect on our financial condition, results of operations, cash flow and per share trading price of our common stock.

 

In the future we may become subject to litigation, including claims relating to our operations, properties, offerings, and otherwise in the ordinary course of business. Some of these claims may result in significant defense costs and potentially significant judgments against us, some of which are not, or cannot be, insured against. We generally intend to vigorously defend ourselves; however, we cannot be certain of the ultimate outcomes of any claims that may arise in the future. Resolution of these types of matters against us may result in our having to pay significant fines, judgments, or settlements, which, if uninsured, or if the fines, judgments, and settlements exceed insured levels, could adversely impact our earnings and cash flows, thereby having an adverse effect on our financial condition, results of operations, cash flow and per share trading price of our common stock. Certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which could adversely impact our results of operations and cash flows, expose us to increased risks that would be uninsured, and/or adversely impact our ability to attract officers and directors.

 

5
 

 

Risks Associated with Our Securities Generally

 

There has been a very limited market for our common stock, and an active trading market for our common stock may not develop.

 

To date, there has been a very limited public market for our common stock, and there is a risk that no active trading market will develop or be sustained. In addition, the market value of our common stock could be substantially affected by the nature of any assets or businesses we may acquire and general market conditions, all of which investors have little or no control over. There is a significant risk that a limited market for our common stock will continue for the foreseeable future, which could adversely impact the

 

Even if an active market for our common stock develops, the market price and trading volume of our common stock may be volatile.

 

Even if an active trading market develops for our common stock, the per share trading price of our common stock may be volatile. In addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur. If the per share trading price of our common stock declines significantly, you may be unable to resell your shares. There is a risk that the per share trading price of our common stock will fluctuate or decline significantly in the future. Some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common stock include:

 

● actual or anticipated variations in our operating results or dividends;
     
  ● changes in our funds from operations or earnings estimates;
     
  ● publication of research reports about us or our industry;
     
  ● increases in market interest rates that lead purchasers of our shares to demand a higher yield;
     
  ● changes in market valuations of similar companies;
     
  ● adverse market reaction to any additional debt we incur in the future;
     
  ● actions by institutional stockholders;
     
  ● speculation in the press or investment community;
   
  ● the extent of investor interest in our securities;
     
  ● changes in tax and other real estate related laws;
     
  ● our underlying asset value;
     
  ● future equity or equity linked issuances by us;
     
  ● failure to meet earnings estimates;
     
  ● general market and economic conditions

 

In addition, the market price for our common stock may also be affected by our ability to meet or exceed expectations of analysts or investors. Any failure to meet these expectations, even if minor, may have a material adverse effect on the market price of our common stock.

 

6
 

 

Ownership may become diluted if we issue new shares of stock or other securities.

 

To raise necessary capital to maintain and grow our business, we expect to conduct financings in the future through the issuance of additional shares of stock or other securities. We may issue common stock, convertible debt or preferred stock pursuant to a subsequent public offerings or private placements, or to sellers of properties we directly or indirectly acquire instead of, or in addition to, cash consideration. If you do not participate in any future stock issuances, you will experience dilution in your ownership.

 

The requirements of being a public company may strain our resources and divert management’s attention.

 

As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934 (the Exchange Act), the Sarbanes-Oxley Act, the Dodd-Frank Act and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results. We may need to hire more employees in the future or engage outside consultants to comply with these requirements, which will increase our costs and expenses.

 

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.

 

Due to our status as a “shell company”, there may be significant restrictions on your ability to sell shares of our common stock.

 

If a company is a “shell company” as defined under applicable SEC rules, restricted shares cannot be sold in reliance on SEC Rule 144 until the shareholder has satisfied a one-year holding period (as opposed to a six month holding period for non-shell companies). Since we were a “shell company”, holders of restricted shares in our company may be required to hold their common stock for a full year from acquisition, which would preclude them from selling such shares in the open market and otherwise significantly impair your ability to sell such shares. As such, such holders may be unable to react to movements in the price of our shares.

 

Our officers and directors will control our company for the foreseeable future, including the outcome of matters requiring shareholder approval.

 

Our officers and directors directly or indirectly own approximately 75% of our outstanding shares of common stock. Consequently, they will have the ability, acting alone, to control the election of our directors and the outcome of corporate actions requiring shareholder approval, such as: (i) a merger or a sale of our company, (ii) a sale of all or substantially all of our assets, and (iii) amendments to our articles of incorporation and bylaws. This concentration of voting power and control could have a significant effect in delaying, deferring or preventing an action that might otherwise be beneficial to our other shareholders and be disadvantageous to our shareholders with interests different from those of our officers and directors.

 

7
 

 

If we fail to maintain an effective system of integrated internal controls, we may not be able to accurately report our financial results.

 

Effective internal and disclosure controls are necessary for us to provide reliable financial reports and effectively prevent fraud and to operate as a public company. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed. As part of our ongoing monitoring of internal controls, we may discover material weaknesses or significant deficiencies in our internal controls. As a result of weaknesses that may be identified in our internal controls, we may also identify certain deficiencies in some of our disclosure controls and procedures that we believe require remediation. If we discover weaknesses, we will make efforts to improve our internal and disclosure controls, but there is a risk that we may be unable to make any improvements. Our failure to maintain effective controls or timely effect any necessary improvement of our internal and disclosure controls could harm operating results or cause us to fail to meet our reporting obligations, which could affect our ability to remain a public company. Ineffective internal and disclosure controls could also cause investors to lose confidence in our reported financial information, which would likely have a negative effect on the per share trading price of our common stock.

 

Our common stock may be considered a “penny stock,” and thereby be subject to additional sale and trading regulations that may make it more difficult to sell.

 

Our common stock, which is currently and will be for the foreseeable future quoted for trading on the OTC Bulletin Board and/or The OTC Pink Market operated by OTC Markets Group, Inc., may be considered to be a “penny stock” if it does not qualify for one of the exemptions from the definition of “penny stock” under applicable SEC rules. Our common stock may be a “penny stock” if it meets one or more of the following conditions: (i) the stock trades at a price less than $5.00 per share; (ii) it is not traded on a “recognized” national exchange; or (iii) is issued by a company that has been in business less than three years with net tangible assets less than $5 million. The principal result or effect of being designated a “penny stock” is that securities broker-dealers participating in sales of our common stock will be subject to the “penny stock” regulations set forth in Rules 15-2 through 15g-9 promulgated under the Exchange Act. For example, Rule 15g-2 requires broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document at least two business days before effecting any transaction in a penny stock for the investor’s account. Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to: (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult and time consuming for holders of our common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.

 

We have identified material weaknesses related to our internal control over financial reporting and concluded that our internal control over financial reporting and disclosure controls and procedures were ineffective as of December 31, 2017. These material weaknesses remain unremedied, which could continue to impact our ability to report results of operations and financial condition accurately and in a timely manner.

 

We have identified a number of material weaknesses in our internal control over financial reporting. Our management assessed the effectiveness of our internal control over financial reporting and disclosure controls and procedures as at December 31, 2017 pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and the related SEC rules and concluded that our internal control over financial reporting and disclosure controls and procedures were ineffective. We have concluded that four material weaknesses existed as at December 31, 2017 which are set out in Item 9A under the heading “Controls and Procedures”. Although we intend to remediate such material weaknesses as set out in Item 9A, we have not yet been able to address these material weaknesses and they may continue to remain unremedied for some time, which could adversely impact the accuracy and timeliness of future reports and filings we make to the SEC and could have a material adverse effect on our business, results of operations, financial condition and liquidity.

 

8
 

 

FINRA’s sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.

 

In addition to the “penny stock” rules promulgated by the Securities and Exchange Commission (see above for a discussion of penny stock rules), FINRA rules require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

 

If we are deemed an “investment company” under the Investment Company Act of 1940, it could have a material adverse effect on our business.

 

We do not expect to operate as an “investment company” under the Investment Company Act of 1940, as amended (the Investment Company Act). However, the analysis relating to whether a company qualifies as an investment company can involve technical and complex rules and regulations. If we own assets that qualify as “investment securities” as such term is defined under the Investment Company Act and the value of such assets exceeds 40% of the value of our total assets, we could be deemed to be an investment company and be required to register under the Investment Company Act. Registered investment companies are subject to a variety of substantial requirements that could significantly impact our operations. The costs and expenses we would incur to register and operate as an investment company, as well as the limitations placed on our operations, could have a material adverse impact on our operations and your investment return. In order to operate in a manner to avoid being required to register as an investment company we may be unable to sell assets we would otherwise want to sell or we may need to sell assets we would otherwise wish to retain. In addition, we may also have to forgo opportunities to acquire interests in companies or entities that we would otherwise want to acquire.

 

Item 1B. Unresolved Staff Comments.

 

None.

 

Item 2. Properties.

 

Our executive offices are located at 2089 E Fort Union Blvd; Salt Lake City, UT 84121. Our principal executive office is currently provided by The RealSource Group at no cost. We believe this space is adequate for our anticipated operations.

 

Item 3. Legal Proceedings.

 

We know of no material, active, or pending legal proceeding against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation where such claim or action involves damages for more than 10% of our current assets as of December 31, 2017. Additionally, there were no proceedings in which any of our company’s directors, officers, or affiliates, or any registered or beneficial shareholders holding more than 5% of our voting securities, is an adverse party or has a material interest adverse to our company’s interest as of December 31, 2017.

 

Item 4. Mine Safety Disclosures.

 

Not Applicable.

 

9
 

 

PART II

 

Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity Securities.

 

Our stock is listed for quotation on the OTC Pink Market under the trading symbol “RSRT”. Trading in the common stock in the over-the-counter market has been limited and the quotations set forth below are not necessarily indicative of actual market conditions. The following table sets forth, for the periods indicated, the high and low closing prices for each quarter within the last two fiscal years ended December 31, 2017 as reported by the quotation service operated by the OTCQB Marketplace. All quotations for the OTCQB Marketplace reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 

Quarter Ended   High     Low  
             
December 31, 2017   $ .09     $ .06  
September 30 2017     .25       .06  
June 30, 2017     .16       .06  
March 31, 2017     .55       .03  
December 31, 2016     .14       .06  
September 30 2016     .09       .06  
June 30, 2016     .15       .06  
March 31, 2016     .12       .06  

 

On March 23, 2018, the closing price for the common stock as reported by the quotation service operated by the OTC Pink Market was $0.04. The number of our shareholders of record excludes any estimate by us of the number of beneficial owners of shares held in street name, the accuracy of which cannot be guaranteed.

 

Transfer Agent

 

Nevada Agency and Transfer Company is the registrar and transfer agent for our common shares. Their address is 50 West Liberty, Suite 880 Reno, Nevada, 89501 Telephone: 775.322.0626, Facsimile: 775.322.5623.

 

Holders of Our Common Stock

 

As of March 23, 2018, there were 43 registered holders of record of our common stock. As of such date, common shares were issued and outstanding.

 

Dividend Policy

 

We have not declared or paid any cash dividends since inception. Although there are no restrictions that limit our ability to pay dividends on our common shares, we intend to pay dividends as soon as we are practically able to do so.

 

Equity Compensation Plan Information

 

We currently do not have an equity compensation plan in place.

 

Item 6. Selected Financial Data.

 

We are a “smaller reporting company” as defined by Regulation S-K and as such, are not required to provide the information contained in this item pursuant to Regulation S-K.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

 

The following discussion should be read in conjunction with our audited financial statements and the related notes that appear elsewhere in this Annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this Annual Report.

 

10
 

 

Our audited financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles.

 

Plan of Operations and Cash Requirements for the Next 12 Months

 

Anticipated Cash Requirements

 

Over the next 12 months, we estimate our minimum cash requirements (not including the costs associated with our initial and any subsequent acquisition of properties) to be as follows:

 

Legal and accounting fees   $ 15,500  
General and administrative expenses     3,000  
Corporate communications and SEC filing fees     4,000  
Total   $ 22,500  

 

As our operations are currently minimal, our operating expenses are similarly limited.

 

For the year ended December 31, 2017, we recorded a net loss of $25,578 and had working capital of $3,387. We estimate minimum cash requirements of $22,500 over the next 12 months to fund our operations and we expect to secure such cash from our officers, directors or affiliates.

 

We had $7,161 in cash at December 31, 2017.

 

Liquidity and Capital Resources

 

Our financial position as at December 31, 2017 and December 31, 2016 and the changes for the years ended December 31, 2017 and 2016 are as follows:

 

Working Capital

 

    December 31, 2017     December 31, 2016  
Current Assets   $ 7,161     $ 28,965  
Current Liabilities     (3,774)       -  
Working Capital (Deficit)   $ 3,387     $ 28,965  

 

Working capital decreased from $28,965 at December 31, 2016 to $3,387 at December 31, 2017 for a total change of $25,191. Substantially all this change is a result of the net loss for the year.

 

Cash Flows

 

    For the years ended  
    December 31, 2017     December 31, 2016  
Net cash provided by (used in) operating activities   $ (21,479 )   $ 296,953  
Net cash provided by (used in) investing activities     -       1,541,303  
Net cash (used in) financing activities     -       (1,990,000 )
Change in cash during the period     (21,479 )     (151,744 )
Cash, beginning of period     28,640       180,384  
Cash, end of period   $ 7,161     $ 28,640  

 

Operating activities used $21,479 in cash for the year ended December 31, 2017 for operating expenses.

 

11
 

 

Results of Operations for the years ended December 31, 2017 and 2016

 

The following summary should be read in conjunction with our audited financial statements for the years ended December 31, 2017 and 2016

 

    For the years ended  
    December 31, 2017     December 31, 2016  
Revenues   $ -     $ 3,666  
Expenses                
Professional fees     18,174       36,471  
General and administrative     7,429       13,290  
Total Expenses     25,603       49,791  
Other (income) expense     (25 )     4,728  
Net loss   $ 25,578     $ 50,823  

 

Revenue

 

During the first quarter of 2016, in accordance with the Amendment discussed above, the Company divested all income producing properties resulting in minimal revenue in 2016.

 

Expenses

 

Operating costs for the year ended December 31, 2017 were $25,603, which was $24,188 lower than for the fiscal year ended December 31, 2016.reflecting the lack of any operations during 2017.

 

Other income and expense

 

In 2016, other income and expense is comprised of interest income and interest expense related to the Notes. With the redemption of the Notes in accordance with the Amendment in February 2016, interest income and interest expense stopped. In 2017, other income is comprised on interest on bank balances.

 

Going Concern

 

The audited financial statements accompanying this Annual Report have been prepared on a going concern basis, which implies that our company will continue to realize its assets and discharge its liabilities and commitments in the normal course of business. We are a “shell company” with no meaningful assets or operations presently. Our company has not generated revenues since inception, has never paid any dividends and is unlikely to pay dividends or generate earnings in the immediate or foreseeable future. The continuation of our company as a going concern is dependent upon: (i) continued financial support from our shareholders; (ii) the ability of our company to continue raising necessary debt or equity financing to achieve its operating objectives; and (iii) our ability to acquire assets and establish a business or merge or otherwise acquire business opportunities.

 

Our independent auditors included an explanatory paragraph in their report on our financial statements for the year ended December 31, 2017 regarding concerns about our ability to continue as a going concern. In addition, our financial statements contain further note disclosures in this regard. The continuation of our business plan is dependent upon our ability to continue raising sufficient new capital from equity or debt markets in order to fund our on-going operating losses and real estate acquisition activities. The issuance of additional equity securities could result in a significant dilution in the equity interests of our current stockholders.

 

Application of Critical Accounting Policies

 

The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures of our company. Although these estimates are based on management’s knowledge of current events and actions that our company may undertake in the future, actual results may differ from such estimates.

 

Basis of Presentation

 

The financial statements and related notes included in this Annual Report are presented in accordance with United States generally accepted accounting principles (US GAAP) and are expressed in US dollars.

 

12
 

 

Use of Estimates and Assumptions

 

The preparation of financial statements in conformity with US GAAP requires our 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 revenue and expenses during the reporting period. We base our 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 readily apparent from other sources. The actual results experienced by our company may differ materially from our management’s estimates. To the extent there are material differences, future results may be affected. Estimates used in preparing these financial statements include the fair value of share-based payments, deferred income taxes, financial instruments and assumptions relating to going concern.

 

Share-Based Compensation

 

We account for share-based compensation using the fair value method and related compensation expense is recognized over the period of benefit when the service is rendered.

 

Financial Instruments

 

Our financial instruments consist of cash and accounts payable. The carrying amounts of these financial instruments at December 31, 2017 and 2016 approximate their fair values due to their short term nature.

 

Income Taxes

 

We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial statements and the tax basis of assets and liabilities, and net operating loss carry forwards based on using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the year that includes the enactment date. Deferred tax assets are only recognized to the extent that it is considered more likely than not that the assets will be realized.

 

Earnings (Loss) Per Share

 

Basic earnings (loss) per share is computed by dividing the net loss by the weighted average number of outstanding common shares during the year. Diluted loss per share gives effect to all potentially dilutive common shares outstanding during the year, including convertible debt, stock options and share purchase warrants, using the treasury stock method. The computation of diluted loss per share does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on loss per share.

 

Recent Accounting Pronouncements

 

We do not believe that any recently issued, but not yet effective accounting standards if currently adopted, will have a material effect on our financial statements.

 

Off-Balance Sheet Arrangements

 

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial position, revenues and expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide this information.

 

Item 8. Financial Statements and Supplementary Data.

 

Our Financial Statements and Notes thereto and the report of Novogradac & Company LLP, our independent registered public accounting firm, are set forth on pages F-1 through F -19 of this Annual Report.

 

13
 

 

Item 9. Changes In and Disagreements With Accountants On Accounting and Financial Disclosure.

 

None

 

Item 9A. Controls and Procedures.

 

Disclosure Controls and Procedures

 

As required by paragraph (b) of Rules 13a-15 or 15d-15 under the Exchange Act, our principal executive officer and principal financial officer evaluated our company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, these officers concluded that as of the end of the period covered by this Annual Report on Form 10-K, these disclosure controls and procedures were not effective.

 

The conclusion that our disclosure controls and procedures were not effective was due to the presence of material weaknesses in internal control over financial reporting as identified below under the heading “Management’s Report on Internal Control Over Financial Reporting.” Management anticipates that such disclosure controls and procedures will not be effective until the material weaknesses are remediated.

 

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdown can occur because of simple error or mistake.

 

Management’s Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) for our company. Our internal control over financial reporting is designed to provide reasonable assurance, not absolute assurance, regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and that the degree of compliance with the policies or procedures may deteriorate.

 

Our management, including our principal executive officer and principal financial officer, conducted an evaluation of the design and operation of our internal control over financial reporting as of December 31, 2017 based on the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, our management concluded our internal control over financial reporting was not effective as at December 31, 2017 due to the following material weaknesses which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines; (iii) inadequate security and restricted access to computer systems including insufficient disaster recovery plans; and (iv) no written whistle-blower policy.

 

14
 

 

We plan to take steps to enhance and improve the design of our internal controls over financial reporting when our company has sufficient staff to allocate responsibilities. During the period covered by this Annual Report on Form 10-K, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes once our financial resources will support the required staffing level: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; (ii) adopt sufficient written policies and procedures for accounting and financial reporting and a whistle-blower policy; and (iii) implement sufficient security and restricted access measures regarding our computer systems and implement a disaster recovery plan. The remediation efforts set out in (i) and (iii) are largely dependent upon our company securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely effected in a material manner.

 

This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Our internal control over financial reporting was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report.

 

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.

 

Changes In Internal Control Over Financial Reporting.

 

There were no changes in our internal control over financial reporting during the year ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information.

 

None.

 

15
 

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance.

 

Directors and Executive Officers

 

At March 28, 2018, our directors and executive officers, their ages, positions held, and duration of such, are as follows:

 

Name   Age   Position(s) Held with the Company
Michael S. Anderson   64   Chairman of the Board
Nathan W. Hanks   57   President and Chief Executive Officer
V. Kelly Randall   67   Chief Operating Officer, Chief Financial Officer and Secretary

 

There are no arrangements between our directors and any other person pursuant to which our directors were nominated or elected for their positions. There are no family relationships among our directors or officers.

 

The following contains biographical information regarding our directors and executive officers.

 

Michael S. Anderson , age 64, was appointed Chairman of the Board of our company on May 31, 2013. Mr. Anderson has been involved the real estate industry since 1972 and is the founder and chairman of the board of directors of Real Source Brokerage Services, LLC since 1989. The RealSource Group of companies is involved in real estate brokering through a national referral business, tenant-in-common sponsorships with over 4,000 apartment units under asset management, a commercial finance group which has arranged for over $400 million in debt financing since 2002, a property management company and real estate insurance services. Mr. Anderson is on the National Strategic Planning Committee and Vice Chair of the National Network Committee and he served on the national board of the Certified Commercial Investment Member (CCIM) and has served on the national CCIM Member Services Committee and as 2008 President of the CCIM Utah Chapter and was named Utah CCIM of the year in 2007. Mr. Anderson attended the University of Utah from 1972 to 1976. He has held a principal real estate brokerage license in the State of Utah since 1986. Mr. Anderson is qualified to serve on our Board of Directors because of his extensive experience in the real estate industry.

 

Nathan W. Hanks, age 57, was appointed President, Chief Executive Officer and Director of our company on May 31, 2013. Mr. Hanks joined RealSource Brokerage Services, LLC in 1999 as an advisor and marketing director and became a co-owner in 2006. Mr. Hanks is also associated with other RealSource companies, having served as the co-owner and President of RealSource Equity Services, LLC since 2002 and a co-owner and President of RealSource Management since 2004. He served as Vice-President and General Manager of Dalmar Enterprises Inc., a real estate training and marketing company, from 1997 to 1999. He served as President of Capstone Entertainment, a video production and marketing company, from 1994 to 1997. Mr. Hanks served as Chief Executive Officer of Teleconsulting Services Inc. from 1991 to 1994 and as Chief Financial Officer from 1987 to 1991. He worked as a Certified Public Accountant at Ernst & Young from 1984 to 1986. Mr. Hanks received his Bachelor of Arts in Accounting from the University of Utah in 1984 and was a Certified Public Accountant. Mr. Hanks became a licensed Real Estate Agent in 2002 and a Certified Commercial Investment Member in 2003. Mr. Hanks is qualified to serve on our Board of Directors because of his extensive experience in the real estate industry.

 

V. Kelly Randall , age 67, was appointed Chief Operating Officer, Chief Financial Officer and Director of our company on May 31, 2013 and Secretary on December 11, 2013. Mr. Randall has served as the Chief Operating Officer of RealSource Properties, LLC and RealSource Equity Services, LLC since 2006. Prior to his time with RealSource, he spent 12 years with Ernst & Young serving numerous public and privately owned clients including Questar Corporation, a New York Stock Exchange company. Since leaving Ernst & Young in 1991, Mr. Randall worked in increasingly important positions in both public and private companies including Corporate Controller and Secretary/Treasurer of Research Medical Inc. from 1991 to 1996 (NASDAQ reporting company), Vice President and Chief Financial Officer of Mycotech Corporation from 1996 to 1999, Vice President and Chief Financial Officer of Found, Inc. from 1991 to 2001, Vice President, Chief Financial Officer and Director of Commercial Concepts, Inc. from 2001 to 2002 (OTC reporting company) and the RealSource companies from 2002 to present. He has extensive involvement in public and private financing, budgeting, reporting, information systems, mergers and acquisitions, personnel management, and SEC accounting and reporting. Mr. Randall received his Bachelor of Science and Masters of Accountancy degrees from Utah State University in 1975 and 1979. He holds a real estate license in the state of Utah. Mr. Randall is qualified to serve on our Board of Directors because of his accounting expertise and his extensive experience in the real estate industry.

 

16
 

 

We presently have no employees apart from our management. Our officers and directors are engaged in outside business activities and are employed on a full-time basis by certain affiliated companies including RealSource Equity Services, LLC and Real Source Brokerage Services, LLC. Our officers and directors anticipate that they will devote very limited time to our business until the acquisition of a portfolio of properties. The specific amount of time that management will devote to our company may vary from week to week or even day to day, and therefore the specific amount of time that management will devote to our company on a weekly basis cannot be ascertained with any level of certainty. In all cases, management intends to spend as much time as is necessary to exercise its fiduciary duties as officers and directors of our company.

 

Involvement in Certain Legal Proceedings

 

None of our directors and executive officers have been involved in any of the following events during the past ten years:

 

  1. 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;
  2. any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
  3. being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of 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;
  4. being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, where the judgment has not been reversed, suspended, or vacated;
  5. being the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of (i) any federal or state securities or commodities law or regulation; (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease- and-desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

Director Independence

 

We currently have three directors: Michael S. Anderson, Nathan W. Hanks and V. Kelly Randall. We have determined that these directors are not independent directors, as that term is used in the Nasdaq Listing Rules of the Nasdaq Stock Market LLC. Once we have acquired a significant number of multi-family properties and before filing for REIT status, we will appoint one or more independent directors to the Board of Directors.

 

Board Committees

 

We do not have a standing Audit Committee. We do not believe that the lack of an Audit Committee has had or will have any adverse effect on our financial statements, based upon current operations; however, our Board of Directors will consider establishing an Audit Committee of independent directors as the number of directors increases. Until such time, our Board of Directors will perform the duties of an Audit Committee including delegating an auditor firm and interacting with them.

 

17
 

 

We do not have a standing Compensation Committee. Presently, our executive officers, who constitute our only employees, do not take salary or other benefits from our company. As we acquire our initial properties, we expect to increase the size of our board to include independent directors who will approve the compensation arrangements with our executive officers.

 

We also do not have a Nominating Committee as we have not adopted any procedures by which security holders may recommend nominees to our Board of Directors.

 

Code of Ethics

 

Effective January 29, 2004, our Board of Directors adopted a Code of Business Conduct and Ethics that applies to, among other persons, members of our board of directors, our company’s officers, contractors, consultants and advisors. We will provide a copy of the Code of Business Conduct and Ethics to any person without charge, upon request. Requests can be sent to our company at the address on the cover of this Annual Report.

 

Section 16(a) Beneficial Ownership Compliance

 

Section 16(a) of the Securities Exchange Act requires our executive officers and directors, and persons who own more than 10% of our common stock, to file reports regarding ownership of, and transactions in, our securities with the Securities and Exchange Commission and to provide us with copies of those filings. Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, and without conducting any independent investigation of our own we believe that during the fiscal year ended December 31, 2017, all filing requirements applicable to our officers, directors and greater than 10% percent beneficial owners were complied with.

 

Item 11. Executive Compensation.

 

No executive officer was paid compensation during the two years ended December 31, 2017.

 

Outstanding Equity Awards At Annual Period End

 

There were no outstanding equity awards at December 31, 2017.

 

Aggregated Option Exercises

 

There were no options exercised by any officer or director of our company during the year ended December 31, 2017.

 

Long-Term Incentive Plan

 

Currently, our company does not have a long-term incentive plan in favor of any director, officer, consultant or employee of our company.

 

Directors Compensation

 

No director compensation was paid during 2017 and 2016 in the form of cash expenses, stock awards, option awards, non-equity incentive plan compensation, pension value and nonqualified deferred compensation earnings or any other type of compensation. We do not currently pay any cash fees to our directors, nor do we pay directors’ expenses in attending board meetings.

 

Employment Agreements

 

We are not presently a party to any employment agreements.

 

Pension and Retirement Plans

 

Currently, we do not offer any annuity, pension or retirement benefits to be paid to any of our officers, directors or employees, in the event of retirement.

 

18
 

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The following table sets forth certain information known to us with respect to the beneficial ownership of our common stock as of that date by (i) each stockholder known to be the beneficial owner of more than five percent of any class of our voting securities then outstanding, (ii) each of our directors, (iii) each of our executive officers, and (iv) all of our directors and executive officers as a group. Except as set forth in the table below, there is no person known to us who beneficially owns more than 5% of our common stock.

 

    Common Stock (1)        
Michael S. Anderson (2)     3,197,715       26.70 %
Nathan W Hanks (3)     3,797,715       31.71 %
V. Kelly Randall (4)     2,236,726       18.68 %
Lawrence Selevan (5)     1,616,712       13.50 %
Chesterfield Faring Ltd (5)     1,616,712       13.50 %
All Directors and Officers as a Group     9,232,156       77.09 %

 

(1) As of March 24, 2017, there were 15,719,645 shares of our common stock outstanding.

 

(2) Michael Anderson is Chairman of the Board of our company. Mr. Anderson (i) owns 25% of the membership interest of JKKMN Investments, LLC and therefore has the pecuniary interests over the shares of common stock underlying 15,000 Warrants and 30,000 Promissory Notes (ii) 50% of the equity ownership of RealSource Properties, LLC and therefore has the pecuniary interests over the shares of common stock underlying 125,000 Warrants and 250,000 Promissory Notes. Mr. Anderson may be deemed to have dispositive control over the securities held by RealSource Properties LLC, (iii) 37.5% of the equity ownership of RealSource Management LLC and therefore has the pecuniary interests over the shares of common stock underlying 18,750 Warrants and 37,500 Promissory Notes. Mr. Anderson disclaims beneficial ownership of the reported securities owned by JKKMN Investments, LLC, and RealSource Properties, LLC except to the extent of his pecuniary interest therein.

 

(3) Nathan Hanks is President and Chief Executive of our company. Mr. Hanks owns (i) 25% of the membership interest of JKKMN Investments, LLC and therefore has the pecuniary interests over the shares of common stock underlying 15,000 Warrants and 30,000 Promissory Notes (ii) owns 50% of the equity ownership of RealSource Properties LLC and therefore has the pecuniary interests over the shares of common stock underlying 125,000 Warrants and 250,000 Promissory Notes, (iii) 37.5% of the equity ownership of RealSource Management LLC and therefore has the pecuniary interests over the shares of common stock underlying 18,750 Warrants and 37,500 Promissory Notes. Mr. Hanks may be deemed to have dispositive control over the securities held by RealSource Properties LLC. Mr. Hanks disclaims beneficial ownership of the reported securities owned by JKKMN Investments, LLC, and Real Source Property Consultants, LLC except to the extent of his pecuniary interest therein.

 

(4) V. Kelly Randall is Chief Operating Officer, Chief Financial Officer and Secretary of our company. Includes 25% of the membership interest stock of JKKMN Investments, LLC in which Mr. Randall has the pecuniary interests over the shares of common stock underlying 15,000 Warrants and 30,000 Promissory Notes. Mr. Randall disclaims beneficial ownership of the reported securities owned by JKKMN Investments, LLC except to the extent of his pecuniary interest therein.

 

(5) According to a Schedule 13D filed with the SEC on June 11, 2013, as amended, Chesterfield Faring Ltd. (Chesterfield Faring) is the holder of 1,616,712 shares of our common stock. Mr. Selevan is the sole stockholder and Chief Executive Officer of Chesterfield Faring. Consequently, Mr. Selevan may be deemed to have a beneficial interest and dispositive control over any shares owned by Chesterfield Faring. The address of Mr. Selevan and principal office of Chesterfield Faring is 415 Madison Avenue, New York, NY 10017.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence.

 

To the best of our knowledge, during the last fiscal year, there were no material transactions, or series of similar transactions, or any currently proposed transactions, or series of similar transactions, to which we were or are to be a party, in which the amount involved exceeds $120,000 or one percent of the average total assets at year end for each of the last two fiscal years, and in which any director or executive officer, or any security holder who is known by us to own of record or beneficially more than 5% of any class of our common stock, or any member of the immediate family of any of the foregoing persons, has an interest.

 

19
 

 

Item 14. Principal Accountant Fees And Services.

 

Audit Fees

 

The aggregate fees billed during the year ended December 31, 2017 and 2016 for professional services rendered by Novogradac & Company, LLP, for the audit of financial statements, quarterly reviews of our interim financial statements and services normally provided by the independent accountant in connection with statutory and regulatory filings or engagements for these periods were as follows:

 

    December 31, 2017     December 31, 2016  
Audit Fees and Audit Related Fees   $ 11,000     $ 19,700  
Tax Fees     —       —  
All Other Fees     —       —  
TOTAL   $ 11,000     $ 19,700  

 

In the above table, “audit fees” are fees billed by our company’s external auditor for services provided in auditing our company’s financial statements for the periods indicated above. “Audit-related fees” are fees not included in audit fees that are billed by the auditor for assurance and related services, including quarterly reviews, that are reasonably related to the performance of the audit review of our company’s financial statements. “Tax fees” are fees billed by the auditor for professional services rendered for tax compliance, tax advice and tax planning. “All other fees” are fees billed by the auditor for products and services not included in the foregoing categories.

 

Our Board of Directors pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and approved by the board of directors either before or after the respective services were rendered.

 

PART IV

Item. 15. Exhibits, Financial Statement Schedules.

 

Exhibit    
Number   Description
     
3.1   Articles of Incorporation (incorporated by reference from our Registration Statement on Form SB-2 filed on July 5, 2002).
     
3.2   Certificate of Change filed with the Nevada Secretary of State on December 20, 2005 (incorporated by reference from our Current Report on Form 8-K filed on December 29, 2005).
     
3.3   Articles of Merger filed with the Nevada Secretary of State on February 6, 2006 (incorporated by reference from our Current Report on Form 8-K filed on February 9, 2006).
     
3.4   Certificate of Amendment filed with the Nevada Secretary of State on November 27, 2006 (incorporated by reference from our Current Report on Form 8-K filed on November 30, 2006).
     
3.5   Articles of Merger filed with the Nevada Secretary of State on February 6, 2006 (incorporated by reference from our Current Report on Form 8-K filed on February 9, 2006).

 

20
 

 

3.6   Articles of Merger filed with the Nevada Secretary of State on July 15, 2013 (incorporated by reference from our Current Report on Form 8-K filed on July 19, 2013).
     
3.7   Amended and Restated Bylaws (incorporated by reference from our Current Report on Form 8-K filed on July 19, 2013).
     
10.1   Debt Cancellation and Use of Proceeds Letter Agreement dated May 31, 2013 between the Company and Six Capital Limited (incorporated by reference from our Current Report on Form 8-K filed on June 6, 2013)
     
10.2   Form of 12% Unsecured Convertible Promissory Note (incorporated by reference from our Current Report on Form 8-K filed on December 13, 2013)
     
10.3   Form of Warrant issued to Investors in the 2013 Private Placement.(incorporated by reference from our Current Report on Form 8-K filed on December 13, 2013)
     
10.4   Form of Subscription Agreement (incorporated by reference from our Current Report on Form 8-K filed on December 13, 2013)
     
10.5   Right of First Refusal and Option Agreement, dated December 9, 2013, between the Company and RS Cambridge Apartments, LLC (incorporated by reference from our Current Report on Form 8-K filed on December 13, 2013)
     
10.6   Purchase and Sale Agreement, dated March 12, 2014, between the Company and RS Cambridge Apartments, LLC. (incorporated by reference from our Annual Report on Form 10-K filed on March 31, 2016)
     
10.7   Form of Amendment to Note and Warrant (incorporated by reference from our Current Report on Form 8-K filed on January 19, 2016)
     
16.1   Letter from Li and Company, PC to the SEC, dated October 2, 2015 (incorporated by reference from our Current Report on Form 8-K filed on October 2, 2015).
     
31.1   Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.***
     
31.2   Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.***
     
32.1   Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.***
     
101.ins**   XBRL Instance Document
     
101.xsd**   XBRL Taxonomy Extension Schema Document
     
101.cal**   XBRL Taxonomy Calculation Linkbase Document
     
101.def**   XBRL Taxonomy Definition Linkbase Document
     
101.lab**   XBRL Taxonomy Label Linkbase Document
     
101.pre**   XBRL Taxonomy Presentation Linkbase Document
     
**   Furnished. Not filed. Not incorporated by reference. Not subject to liability.
***   A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request

 

21
 

 

SIGNATURES

 

Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 28th day of March 2018.

 

  RealSource Residential, Inc.
     
  By: /s/ Nathan W. Hanks
  Name: Nathan W. Hanks
  Title: President and Chief Executive Officer
    (Principal Executive Officer)
     
  By: /s/ V. Kelly Randall
  Name: V. Kelly Randall
  Title: Chief Financial Officer, Chief Operating Officer and Secretary
    (Principal Accounting Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature   Title   Date
         
/s/ Nathan W. Hanks   Chief Executive Officer and President   March 28, 2018
Nathan W. Hanks   (Principal Executive Officer)    
         
/s/ V. Kelly Randall   Chief Operating Officer, Chief Financial Officer, Secretary and Director   March 28, 2018
V. Kelly Randall   (Principal Financial Officer and Principal Accounting Officer)    
         
/s/ Michael Anderson   Chairman of the Board   March 28, 2018
Michael Anderson        

 

22
 

 

RealSource Residential, Inc.

 

December 31, 2017 and 2016

 

Index to the Financial Statements

 

Contents   Page(s)
     
Report of Independent Registered Public Accounting Firm   F-2
     
Balance Sheets at December 31, 2017 and December 31, 2016   F-3
     
Statements Operations for the Years ended December 31, 2017 and 2016   F-4
     
Statement of Changes in Stockholders’ Equity (Deficit) for the Years ended December 31, 2017 and 2016   F-5
     
Statements of Cash Flows for the Years ended December 31, 2017 and 2016   F-6
     
Notes to the Financial Statements   F-7

 

F- 1
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Board of Directors and Stockholders of RealSource Residential, Inc.:

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of RealSource Residential, Inc. (the “Company”), a Nevada corporation, as of December 31, 2017 and 2016, and the related statements of operations, changes in stockholders’ equity and cash flows for each of the years in the two-year period ended December 31, 2017, and the related notes to the financial statements. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (the “PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, 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.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 3, the Company had an accumulated deficit at December 31, 2017, and a net loss and periodic cash flow difficulties for the two-year period ended December 31, 2017. Those conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to that matter.

 

/s/ Novogradac & Company LLP

Alpharetta, Georgia

March 28, 2018

 

We have served as the Company’s auditor since 2015.

 

F- 2
 

 

RealSource Residential, Inc.

Balance Sheets

 

    December 31, 2017     December 31, 2016  
             
ASSETS                
CURRENT ASSETS:                
Cash   $ 7,161     $ 28,640  
Prepaid expenses     -       325  
                 
Total Current Assets     7,161       28,965  
                 
Total Assets   $ 7,161     $ 28,965  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
CURRENT LIABILITIES:                
Accounts payable   $ 3,774     $ -  
                 
Total Current Liabilities     3,774       -  
                 
Total Liabilities     3,774       -  
                 
STOCKHOLDERS’ EQUITY                
Preferred stock par value $0.001: 100,000,000 shares authorized; none issued or outstanding     -       -  
Common stock par value $0.001: 100,000,000 shares authorized; 15,719,645 shares issued and outstanding     15,719       15,719  
Additional paid-in capital     7,586,426       7,586,426  
Accumulated deficit     (7,598,758 )     (7,573,180 )
                 
Total Stockholders’ Equity     3,387       28,965  
                 
Total Liabilities and Stockholders’ Equity   $ 7,161     $ 28,965  

 

See accompanying notes to the financial statements.

 

F- 3
 

 

RealSource Residential, Inc.

Statements of Operations

 

    For the Year Ended     For the Year Ended  
    December 31, 2017     December 31, 2016  
                 
Revenue from equity investments in real estate   $ -     $ 3,666  
                 
Operating expenses:                
Professional fees     18,174       36,471  
General and administrative expenses     7,429       13,290  
                 
Total operating expenses     25,603       49,761  
                 
Loss from operations     (25,603 )     (46,095 )
                 
Other (income) expense:                
Interest and finance charges     -       32,210  
Interest income     (25 )     (27,482 )
                 
Other (income) expense, net     (25 )     4,728  
                 
Loss before income tax provision     (25,578 )     (50,823 )
                 
Income tax provision     -       -  
                 
Net Loss   $ (25,578 )   $ (50,823 )
                 
Earings per share:                
- Basic and diluted   $ (0.00 )   $ (0.00 )
                 
Weighted average common shares outstanding:                
- Basic and diluted     15,719,645       15,371,827  

 

See accompanying notes to the financial statements.

 

F- 4
 

 

RealSource Residential, Inc.

Statement of Changes in Stockholders’ Equity

For the Year Ended December 31, 2017

 

    Common Stock Par Value $0.001     Additional           Total  
    Number of           Paid-in     Accumulated     Stockholders’  
    Shares     Amount     Capital     Deficit     Equity  
                               
Balance, December 31, 2015     11,975,645     $ 11,975     $ 7,215,770     $ (7,522,357 )   $ (294,612 )
                                         
Common issued for debt     3,744,000       3,744       370,656               374,400  
Net loss                             (50,823 )     (50,823 )
                                         
Balance, December 31, 2016     15,719,645       15,719       7,586,426       (7,573,180 )     28,965  
                                         
Net loss                             (25,578 )     (25,578 )
                                         
Balance at December 31, 2017     15,719,645     $ 15,719     $ 7,586,426     $ (7,598,758 )   $ 3,387  

 

See accompanying notes to the financial statements.

 

F- 5
 

 

RealSource Residential, Inc.

Statements of Cash Flows

 

    For the Year Ended     For the Year Ended  
    December 31, 2017     December 31, 2016  
             
Cash flows from operating activities:                
Net loss   $ (25,578 )   $ (50,823 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:                
Revenue from equity investments in real estate     -       (3,666 )
Changes in operating assets and liabilities:                
Prepaid expenses     325       (325 )
Interest receivable     -       364,784  
Accounts payable and accrued interest     3,774       (13,017 )
                 
Net cash provided by (used in) operating activities     (21,479 )     296,953  
                 
Cash flows from investing activities:                
Distributions from investments     -       3,666  
Refund of deposit     -       1,537,637  
                 
Net cash provided by investing activities     -       1,541,303  
                 
Cash flows from financing activities:                
Repayment of notes payable     -       (1,990,000 )
                 
Net cash used in financing activities     -       (1,990,000 )
                 
Net change in cash     (21,479 )     (151,744 )
                 
Cash at beginning of reporting period     28,640       180,384  
                 
Cash at end of reporting period   $ 7,161     $ 28,640  
                 
Supplemental disclosure of cash flows information:                
Interest paid   $ -     $ 42,225  
Income tax paid   $ -     $ -  
                 
Supplemental disclosure of noncash financing activities:                
Conversion of notes payable and accrued interest to 3,744,000 shares of common stock   $ -     $ 374,400  
                 
Distribution of investments and option in final settlement of  accrued interest   $       $ 500,000

 

See accompanying notes to the financial statements.

 

F- 6
 

 

RealSource Residential, Inc.

December 31, 2017 and 2016

Notes to the Financial Statements

 

Note 1 - Organization and Operations

 

Upstream Biosciences, Inc.

 

Upstream Biosciences, Inc. (“Upstream Biosciences”) was incorporated on March 20, 2002 under the laws of the State of Nevada. Upstream Biosciences engaged in developing technology relating to biomarker identification, disease susceptibility and drug response areas of cancer.

 

Change in Control

 

On May 24, 2013, Charles El-Moussa and Six Capital Limited (“Six Capital”) (collectively, the “Sellers”), as majority stockholders of Upstream Biosciences, Inc., a Nevada corporation, and RealSource Acquisitions Group, LLC, a Utah limited liability company, and Chesterfield Faring Ltd., a New York corporation (collectively, the “Purchasers”), entered into a Securities Purchase Agreement (the “Agreement”) pursuant to which the Sellers agreed to sell to the Purchasers an aggregate of 10,778,081 shares (representing approximately 90% of the issued and outstanding voting securities of the Company) of common stock of the Company (the “Common Stock”) for $175,000 in cash from the personal funds of the Purchasers.

 

RealSource Residential, Inc.

 

On July 11, 2013, Upstream Biosciences entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which Upstream Biosciences merged with its newly formed, wholly owned subsidiary, RealSource Residential, Inc., a Nevada corporation (“Merger Sub” and such merger transaction, the “Merger”) with the Company remaining as the surviving corporation under the name “RealSource Residential, Inc.” (the “Surviving Company” or the “Company”). Upon the consummation of the Merger, the separate existence of Merger Sub ceased and shareholders of the Company became shareholders of the surviving company named RealSource Residential, Inc. The Merger was effective on Monday, July 15, 2013 and was approved by the Financial Industry Regulatory Authority on August 5, 2013.

 

Note 2 - Significant and Critical Accounting Policies and Practices

 

The Management of the Company is responsible for the selection and use of appropriate accounting policies and the appropriateness of accounting policies and their application. Critical accounting policies and practices are those that are both most important to the portrayal of the Company’s financial condition and results and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. The Company’s significant and critical accounting policies and practices are disclosed below as required by generally accepted accounting principles.

 

Basis of presentation

 

The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules of the Securities Exchange Commission.

 

Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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(s) of the financial statements and the reported amounts of revenues and expenses during the reporting period(s).

 

Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimates and assumptions affecting the financial statements were:

 

  (i) Assumption as a going concern : Management assumes that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business;

 

F- 7
 

 

  (ii) Valuation allowance for deferred tax assets : Management assumes that the realization of the Company’s net deferred tax assets resulting from its net operating loss (“NOL”) carry–forwards for Federal income tax purposes that may be offset against future taxable income was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation allowance. Management made this assumption based on (a) the Company has incurred recurring losses, (b) general economic conditions, and (c) its ability to raise additional funds to support its daily operations by way of a public or private offering, among other factors.
  (iii) Estimates and assumptions used in valuation of equity instruments : Management estimates expected term of share options and similar instruments, expected volatility of the Company’s common shares and the method used to estimate it, expected annual rate of quarterly dividends, and risk free rate(s) to value share options and similar instruments.

 

These significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.

 

Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

 

Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.

 

Actual results could differ from those estimates.

 

Fair Value of Financial Instruments

 

The Company held no financial instruments as of December 31, 2017 or 2016.

 

Cash Equivalents

 

The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. At December 31, 2017 and 2016, the Company held only cash deposits at a financial institution.

 

Related Parties

 

The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.

 

Pursuant to Section 850-10-20 the related parties include (a.) affiliates of the Company (“Affiliate” means, with respect to any specified Person, any other Person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such Person, as such terms are used in and construed under Rule 405 under the Securities Act); (b.) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; (c.) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d.) principal owners of the Company; (e.) management of the Company; (f.) 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; and (g.) other parties that can significantly influence the management or operating policies of the transacting parties or that have 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.

 

The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: (a.) the nature of the relationship(s) involved; (b.) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; (c.) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and (d.) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

 

F- 8
 

 

Commitments and Contingencies

 

The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

 

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

 

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.

 

Revenue Recognition

 

The Company follows paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.

 

Deferred Tax Assets and Income Taxes Provision

 

The Company adopted the provisions of paragraph 740-10-25-13 of the FASB Accounting Standards Codification. Paragraph 740-10-25-13 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under paragraph 740-10-25-13, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Paragraph 740-10-25-13 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of paragraph 740-10-25-13.

 

The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its balance sheets and provides valuation allowances as management deems necessary.

 

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

 

Tax years that remain subject to examination by major tax jurisdictions

 

The Company discloses tax years that remain subject to examination by major tax jurisdictions pursuant to the ASC Paragraph 740-10-50-15. Major tax jurisdictions generally have the right to examine and audit the previous three years of tax returns filed.

 

Earnings Per Share

 

Earnings per share (“EPS”) is the amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or loss per share. EPS is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Pursuant to ASC Paragraphs 260-10-45-10 through 260-10-45-16 Basic EPS shall be computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period. Income available to common stockholders shall be computed by deducting both the dividends declared in the period on preferred stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned) from income from continuing operations (if that amount appears in the income statement) and also from net income. The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants.

 

F- 9
 

 

Pursuant to ASC Paragraphs 260-10-45-21 through 260-10-45-23 Diluted EPS shall be based on the most advantageous conversion rate or exercise price from the standpoint of the security holder. The dilutive effect of outstanding call options and warrants (and their equivalents) issued by the reporting entity shall be reflected in diluted EPS by application of the treasury stock method unless the provisions of paragraphs 260-10-45-35 through 45-36 and 260-10-55-8 through 55-11 require that another method be applied. Equivalents of options and warrants include non-vested stock granted to employees, stock purchase contracts, and partially paid stock subscriptions (see paragraph 260–10–55–23). Anti-dilutive contracts, such as purchased put options and purchased call options, shall be excluded from diluted EPS. Under the treasury stock method: (a.) Exercise of options and warrants shall be assumed at the beginning of the period (or at time of issuance, if later) and common shares shall be assumed to be issued. (b.) The proceeds from exercise shall be assumed to be used to purchase common stock at the average market price during the period. (See paragraphs 260-10-45-29 and 260-10-55-4 through 55-5.) (c.) The incremental shares (the difference between the number of shares assumed issued and the number of shares assumed purchased) shall be included in the denominator of the diluted EPS computation.

 

The Company’s contingent shares issuance arrangement, stock options or warrants were as follows:

 

    Contingent shares issuance arrangement, stock options or warrants  
             
    Dec 31, 2017     Dec 31, 2016  
             
Convertible Notes Payable Shares and Related Warrant Shares                
                 
Common Stock Purchase Warrants (collectively, the “Warrants”) to purchase 10,000 shares (the “Warrant Shares”) of common stock of the Company (the “Common Stock”) with an exercise price of $.50 per share expiring December 9, 2020. See Note 5 for a discussion of changes in Warrant Shares     2,310,000       2,310,000  

 

There were no incremental common shares under the Treasury Stock Method for the reporting periods shown above.

 

Cash Flows Reporting

 

The Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, which classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (the “Indirect Method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments

 

Subsequent Events

 

The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements were issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.

 

Note 3 – Going Concern

 

The Company’s financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

 

As reflected in the financial statements, the Company had an accumulated deficit at December 31, 2017 and a net loss for the reporting period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

The ability of the Company to continue as a going concern is dependent upon the Company’s ability to implement its business plan and generate sufficient revenue and its ability to execute a business strategy and raise additional funds.

 

F- 10
 

 

The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Note 4 – Investments

 

On June 10, 2014, the Company invested $375,000 (approximately 18.8%) into newly formed RS Bakken One, LLC (“RSB1”), an entity that acquired two properties in North Dakota, one near Williston and one in Watford City. These properties are located in the heart of the Bakken oil development and had a combined acquisition price of $5,700,000. Additionally, the Company purchased an option (Option) for $25,000 that will allow it to acquire 100% of these two properties after one year for a purchase price of not less than $7,000,000 or more than $8,000,000.

 

On October 24, 2014 the Company invested $100,000 (approximately a 3.876% interest) into newly formed RS Heron Walk Apartments, LLC (RSHWA), an entity that acquired the Heron Walk Apartments in Jacksonville, Florida. Heron Walk apartments is a value-add opportunity and the investment in RSHWA carries an 8% preferred return and with higher expected average cash-on-cash and internal rates of return.

 

Pursuant to paragraph 323-10-05-5 the equity method tends to be most appropriate if an investment enables the investor to influence the operating or financial policies of the investee. Although the Company owned less than 20 percent of the voting units in both of the above entities, the COO/CFO of the Company is the Vice President of RSB1 and RSHWA and the Chairman of the Company is the Manager of both these entities which enabled the Company to influence the operating or financial policies of RSB1 and RSHWA. Thus, the Company accounted for its investment in these investments using the equity method of accounting.

 

Under terms of an amendment to the Note and Warrant (see Note 5-Convertible Notes) in February 2016, the Noteholders formed RSRT Holdings, LLC and agreed to accept an assignment of ownership in RSHWA and RSB1 and the Option in partial settlement of the Notes and accrued interest. The lenders on the two properties approved such transfers based on the terms of the loan documents. The assignment of the interest in RSHWA was effective April 1, 2016. The assignment of RSB1 and the Option was effective on June 1, 2016.

 

Investment consisted of the following:

 

    Dec 31, 2017     Dec 31, 2016  
             
Initial investment   $ -     $ 475,000  
                 
Add: equity share of net income     -       -  
                 
Less: distributions     -       -  
                 
Transfer of investments in settlement of accrued interest     -       (475,000 )
                 
    $ -     $ -  

 

Note 5 – Convertible Notes

 

On December 9, 2013, the Company consummated the closing (the “Closing”) of a private placement offering (the “Offering”) of 231 units (“Units”) for $10,000 per Unit, for aggregate gross proceeds of $2,310,000. No placement agents or brokers were utilized by the Company in connection with the Offering. Each Unit consisted of: (i) a $10,000 face value 12% Series A Senior Unsecured Convertible Promissory Note of the Company convertible into common shares at $0.50 per share (collectively, the “Notes”), and (ii) one detachable Common Stock Purchase Warrant (collectively, the “Warrants”), each to purchase 10,000 shares (the “Warrant Shares”) of common stock of the Company (the “Common Stock”) with an exercise price of $2.00 per share expiring five years from the date of issuance. In connection with the Closing, the Company entered into definitive subscription agreements (the “Subscription Agreements”) with twenty-nine (29) accredited investors. The Notes accrued interest at 12% per year and had a maturity date of December 9, 2015.

 

On January 15, 2016, each of the Holders of the Notes and the Warrants entered into a separate Amendment to Note and Warrant (the “Amendment”) to modify certain terms and provisions of the Notes and Warrants, such Amendment being effective as of December 9, 2015, the original maturity date of the Notes. The Amendment was entered into given the maturity of the Notes to memorialize the agreements of the Company and each Holder with respect to the Notes and the Warrants held by such Holder.

 

Pursuant to the Amendment, the term of the Notes was extended by six months to June 9, 2016 (the “Maturity Date”). The Amendment also provided for the mandatory conversion of a portion of the Notes and interest accrued under the Note as of December 9, 2015 into shares of Common Stock (the “Mandatory Conversion”) at $.10 per share. In February 2016, the Notes and a portion of accrued interest was repaid with cash of $1,990,000 and the issuance of 3,744,000 shares of common stock at a value of $.10 per share. The balance of accrued interest of $500,000 was repaid through the assignment of ownership interest in RSHWA and RSB1 and the Option as described above in Note 4 – Investments. The Amendment also provides that the Company and each Holder that the Warrants held by such Holder shall be amendment to (i) reduce the exercise price of the Warrants from $2.00 to $0.50 per Warrant Share and (ii) to extend the expiration time of the Warrants from December 9, 2018 to December 9, 2020.

 

F- 11
 

 

The Company estimated the relative fair value of the warrants on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

 

    December 9, 2015  
       
Expected life (year)     3  
         
Expected volatility (*)     27.5 %
         
Expected annual rate of quarterly dividends     0.00 %
         
Risk-free rate(s)     1.85 %

 

  * As a thinly traded entity it is not practicable for the Company to estimate the expected volatility of its share price. The Company selected four (4) comparable public companies listed on NYSE MKT and NASDAQ Capital Market within real estate brokerage and management industry which the Company engages in to calculate the expected volatility3. The Company calculated those four (4) comparable companies’ historical volatility over the expected life of the options or warrants and averaged them as its expected volatility.

 

The estimated relative fair value of the warrants was de minimus at the date of issuance using the Black-Scholes Option Pricing Model.

 

Note 6 – Related Party Transactions

 

Related Parties

 

Related parties with whom the Company had transactions are:

 

Related Parties   Relationship
     
Michael Anderson   Chairman, significant stockholder and director
     
Nathan Hanks   President and CEO, significant stockholder and director
     
V. Kelly Randall   Chief Operating Officer, Chief Financial Officer and Director
     
RSRT Holdings, LLC   An entity controlled and partially owned by the Chairman, President and CEO of the Company

 

Note 7 – Stockholders’ Equity (Deficit)

 

Shares Authorized

 

Upon formation the total number of shares of all classes of stock which the Company is authorized to issue is Two Hundred Million (200,000,000) shares of which One Hundred Million (100,000,000) shares shall be Preferred Stock, par value $0.001 per share, and One Hundred Million (100,000,000) shares shall be Common Stock, par value $0.001 per share.

 

F- 12
 

 

Common Stock

 

Warrants

 

Summary of the Company’s Warrants Activities

 

The table below summarizes the Company’s warrants activities for the reporting period ended December 31, 2017:

 

    Number of Warrant Shares     Exercise Price Range Per Share     Weighted Average Exercise Price     Relative Fair Value at Date of Issuance     Aggregate Intrinsic Value  
                               
Balance, December 31, 2016     2,310,000     $ .50     $ .50     $ *     $ -  
                                         
Granted     -       -       -       -       -  
                                         
Canceled     -       -       -       -       -  
                                         
Exercised     -       -       -       -       -  
                                         
Expired     -       -       -       -       -  
                                         
Balance, December 31, 2017     2,310,000     $ .50     $ .50     $ *     $ -  
                                         
Earned and exercisable, Dec 31, 2017     2,310,000     $ .50     $ .50     $ *     $ -  
                                         
Unvested, December 31, 2017     -     $ -     $ -     $ -     $ -  

 

* The relative fair values at date of issuance and subsequent measurement were de minimis. See Note 5-Convertible Notes for an explanation of the change in the exercise price of the warrants.

 

The following table summarizes information concerning outstanding and exercisable warrants as of December 31, 2017:

 

    Warrants Outstanding     Warrants Exercisable  
Range of Exercise Prices   Number Outstanding     Average Remaining Contractual Life (in years)     Weighted Average Exercise Price     Number Exercisable     Average Remaining Contractual Life (in years)     Weighted Average Exercise Price  
                               
$.50     2,310,000       2.95     $ .50       2,310,000       2.95     $ .50  

 

Note 8 – Deferred Tax Assets and Income Tax Provision

 

Deferred Tax Assets

 

At December 31, 2017, the Company had net operating loss (“NOL”) carry–forwards for Federal income tax purposes of $764,155 that may be offset against future taxable income through 2036. No tax benefit has been reported with respect to these net operating loss carry-forwards in the accompanying financial statements because the Company believes that the realization of the Company’s net deferred tax assets of approximately $160,473 was not considered more likely than not and accordingly, the potential tax benefits of the net operating loss carry-forwards are fully offset by a full valuation allowance.

 

Deferred tax assets consist primarily of the tax effect of NOL carry-forwards. The Company has provided a full valuation allowance on the deferred tax assets because of the uncertainty regarding its realization. The valuation allowance decreased approximately $90,843 and increased approximately $17,280 for the reporting period ended December 31, 2017 and 2016, respectively.

 

Components of deferred tax assets are as follows:

 

    December 31, 2017     December 31, 2016  
Net deferred tax assets – Non-current:                
                 
Expected income tax benefit from NOL carry-forwards   $ 160,473     $ 251,116
                 
Less valuation allowance     (160,473 )     (251,316 )
                 
Deferred tax assets, net of valuation allowance   $ -     $ -  

 

F- 13
 

 

Income Tax Provision in the Statements of Operations

 

A reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income taxes is as follows:

 

    For the Fiscal Year Ended
December 31, 2017 		    For the Fiscal Year Ended
December 31, 2016 		 
             
Federal statutory income tax rate     21.0 %     34.0 %
                 
Change in valuation allowance on net operating loss carry-forwards     (21.0 )     (34.0 )
                 
Effective income tax rate     0.0 %     0.0 %

 

Note 9 – Subsequent Events

 

The Company has evaluated all events that occur after the balance sheet date through the date when the financial statements were issued to determine if they must be reported. The Management of the Company determined that there were no reportable subsequent events to be disclosed.

 

F- 14
 

 

CalEthos (PK) (USOTC:BUUZ)
Historical Stock Chart
From Mar 2024 to Apr 2024 Click Here for more CalEthos (PK) Charts.
CalEthos (PK) (USOTC:BUUZ)
Historical Stock Chart
From Apr 2023 to Apr 2024 Click Here for more CalEthos (PK) Charts.