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:
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(i)
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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;
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(ii)
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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.
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(iii)
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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.
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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 follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial
instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to
measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in
generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. To increase consistency
and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy
which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy
gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest
priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described
below:
Level
1
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Quoted
market prices available in active markets for identical assets or liabilities as of the reporting date.
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Level
2
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Pricing
inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable
as of the reporting date.
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Level
3
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Pricing
inputs that are generally observable inputs and not corroborated by market data.
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Financial
assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or
similar techniques and at least one significant model assumption or input is unobservable.
The
fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities
and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within
more than one level described above, the categorization is based on the lowest level input that is significant to the fair value
measurement of the instrument.
The
carrying amounts of the Company’s financial assets and liabilities, such as cash, interest receivable and accounts payable
and accrued liabilities, approximate their fair values because of the short maturity of these instruments.
The
Company’s convertible notes payable at December 31, 2015 approximated the fair value of such instruments based upon management’s
best estimate of interest rates that would be available to the Company for similar financial arrangements.
Transactions
involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of
competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply
that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions
unless such representations can be substantiated.
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.
Method
of Accounting
Investments
held in stock of entities other than subsidiaries, namely corporate joint ventures and other non-controlled entities usually are
accounted for by one of three methods (i) the fair value method (addressed in Topic 320), (ii) the equity method (addressed in
Topic 323), or (iii) the cost method (addressed in Subtopic 325-20). 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.
The
Ability to Exercise Significant Influence
Pursuant
to paragraph 323-10-15-6 the ability to exercise significant influence over operating and financial policies of an investee may
be indicated in several ways, including but limited to the following: (a.) Representation on the board of directors, (b.) Participation
in policy-making processes, (c.) Material intra-entity transactions, (d.) Interchange of managerial personnel, and (e.) Technological
dependency. Pursuant to paragraph 323-10-15-8 an investment (direct or indirect) of 20 percent or more of the voting stock of
an investee shall lead to a presumption that in the absence of predominant evidence to the contrary an investor has the ability
to exercise significant influence over an investee. Conversely, an investment of less than 20 percent of the voting stock of an
investee shall lead to a presumption that an investor does not have the ability to exercise significant influence unless such
ability can be demonstrated.
Initial
and Subsequent Measurement
Pursuant
to Paragraph 323-10-30-2 an investor shall measure an investment in the common stock of an investee (including a joint venture)
initially at cost in accordance with the guidance in Section 805-50-30. An investor shall initially measure, at fair value, a
retained investment in the common stock of an investee (including a joint venture) in a deconsolidation transaction in accordance
with paragraphs 810-10-40-3A through 40-5.
Pursuant
to Section 323-10-35 under the equity method, an investor shall recognize its share of the earnings or losses of an investee in
the periods for which they are reported by the investee in its financial statements rather than in the period in which an investee
declares a dividend. An investor shall adjust the carrying amount of an investment for its share of the earnings or losses of
the investee after the date of investment including adjustments similar to those made in preparing financial statements and shall
report the recognized earnings or losses in income. An investor’s share of losses of an investee may equal or exceed the
carrying amount of an investment accounted for by the equity method plus advances made by the investor. An equity method investor
shall continue to report losses up to the investor’s investment carrying amount, including any additional financial support
made or committed to by the investor and the investor ordinarily shall discontinue applying the equity method if the investment
(and net advances) is reduced to zero and shall not provide for additional losses unless the investor has guaranteed obligations
of the investee or is otherwise committed to provide further financial support for the investee. If the investee subsequently
reports net income, the investor shall resume applying the equity method only after its share of that net income equals the share
of net losses not recognized during the period the equity method was suspended. If a series of operating losses of an investee
or other factors indicate that a decrease in value of the investment has occurred that is other than temporary the loss in value
of an investment that is other than a temporary decline shall be recognized. Evidence of a loss in value might include, but would
not necessarily be limited to, absence of an ability to recover the carrying amount of the investment or inability of the investee
to sustain an earnings capacity that would justify the carrying amount of the investment. A current fair value of an investment
that is less than its carrying amount may indicate a loss in value of the investment. However, a decline in the quoted market
price below the carrying amount or the existence of operating losses alone is not necessarily indicative of a loss in value that
is other than temporary.
Disclosure
Pursuant
to paragraph 323-10-50-3
all of the following disclosures generally shall apply to the equity method
of accounting for investments in common stock:
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a.
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Financial
statements of an investor shall disclose all of the following parenthetically, in notes to financial statements, or in separate
statements or schedules: (1) the name of each investee and percentage of ownership of common stock. (2) The accounting policies
of the investor with respect to investments in common stock. Disclosure shall include the names of any significant investee
entities in which the investor holds 20 percent or more of the voting stock, but the common stock is not accounted for on
the equity method, together with the reasons why the equity method is not considered appropriate, and the names of any significant
investee corporations in which the investor holds less than 20 percent of the voting stock and the common stock is accounted
for on the equity method, together with the reasons why the equity method is considered appropriate. (3) The difference, if
any, between the amount at which an investment is carried and the amount of underlying equity in net assets and the accounting
treatment of the difference.
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b.
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For
those investments in common stock for which a quoted market price is available, the aggregate value of each identified investment
based on the quoted market price usually shall be disclosed.
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c.
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If
investments in common stock of corporate joint ventures or other investments accounted for under the equity method are, in
the aggregate, material in relation to the financial position or results of operations of an investor, it may be necessary
for summarized information as to assets, liabilities, and results of operations of the investees to be presented in the notes
or in separate statements, either individually or in groups, as appropriate.
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d.
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Conversion
of outstanding convertible securities, exercise of outstanding options and warrants, and other contingent issuances of an
investee may have a significant effect on an investor’s share of reported earnings or losses. Accordingly, material
effects of possible conversions, exercises, or contingent issuances shall be disclosed in notes to financial statements of
an investor.
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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.
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.
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:
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Contingent shares issuance arrangement,
stock options or warrants
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For the Reporting
Period Ended
Dec 31, 2016
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For the Reporting
Period Ended
Dec 31, 2015
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Convertible Notes Payable Shares and Related Warrant Shares
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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 consists of: (i) a $10,000 face value 12% Series A Senior Unsecured Convertible Promissory Note of the Company (collectively, the “Notes”) convertible into shares of Common Stock at $0.50 per share, and (ii) one detachable Common Stock Purchase Warrant (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 the Notes Payable Shares and Related Warrant Shares
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(ii) 2,310,000
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(i) 4,620,000
(ii) 2,310,000
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Sub-total: convertible notes payable shares and related warrant shares
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2,310,000
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6,930,000
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Total contingent shares issuance arrangement, stock options or warrants
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2,310,000
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6,930,000
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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.
Recently
Issued Accounting Pronouncements
In
May 2014, the FASB issued the FASB Accounting Standards Update No. 2014-09 “
Revenue from Contracts with Customers (Topic
606)” (“ASU 2014-09”).
This
guidance amends the existing FASB Accounting Standards Codification, creating a new Topic 606,
Revenue from Contracts with
Customer.
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange
for those goods or services.
To
achieve that core principle, an entity should apply the following steps:
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1.
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Identify
the contract(s) with the customer
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2.
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Identify
the performance obligations in the contract
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3.
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Determine
the transaction price
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4.
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Allocate
the transaction price to the performance obligations in the contract
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5.
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Recognize
revenue when (or as) the entity satisfies performance obligations
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The
ASU also provides guidance on disclosures that should be provided to enable financial statement users to understand the nature,
amount, timing, and uncertainty of revenue recognition and cash flows arising from contracts with customers. Qualitative and quantitative
information is required about the following:
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1.
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Contracts
with customers
– including revenue and impairments recognized, disaggregation of revenue, and information about
contract balances and performance obligations (including the transaction price allocated to the remaining performance obligations)
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2.
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Significant
judgments and changes in judgments
– determining the timing of satisfaction of performance obligations (over time
or at a point in time), and determining the transaction price and amounts allocated to performance obligations
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3.
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Assets
recognized from the costs to obtain or fulfill a contract
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ASU
2014-09 is effective for periods beginning after December 15, 2016, including interim reporting periods within that reporting
period for all public entities. Early application is not permitted.
In
June 2014, the FASB issued the FASB Accounting Standards Update No. 2014-12 “
Compensation—Stock Compensation (Topic
718)
:
Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved
after the Requisite Service Period” (“ASU 2014-12”).
The
amendments clarify the proper method of accounting for share-based payments when the terms of an award provide that a performance
target could be achieved after the requisite service period. The Update requires that a performance target that affects vesting
and that could be achieved after the requisite service period be treated as a performance condition. The performance target should
not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in
which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable
to the period(s) for which the requisite service has already been rendered.
The
amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December
15, 2015. Earlier adoption is permitted.
In
August 2014, the FASB issued the FASB Accounting Standards Update No. 2014-15
“Presentation of Financial Statements—Going
Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU
2014-15”).
In
connection with preparing financial statements for each annual and interim reporting period, an entity’s management should
evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s
ability to continue as a going concern within one year after the date that the
financial statements are issued
(or within
one year after the date that the
financial statements are available to be issued
when applicable). Management’s evaluation
should be based on relevant conditions and events that are known and reasonably knowable at the date that the
financial statements
are issued
(or at the date that the
financial statements are available to be issued
when applicable). Substantial doubt
about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate,
indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the
date that the financial statements are issued (or available to be issued). The term
probable
is used consistently with
its use in Topic 450, Contingencies.
When
management identifies conditions or events that raise substantial doubt about an entity’s ability to continue as a going
concern, management should consider whether its plans that are intended to mitigate those relevant conditions or events will alleviate
the substantial doubt. The mitigating effect of management’s plans should be considered only to the extent that (1) it is
probable that the plans will be effectively implemented and, if so, (2) it is probable that the plans will mitigate the conditions
or events that raise substantial doubt about the entity’s ability to continue as a going concern.
If
conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, but the substantial
doubt is alleviated as a result of consideration of management’s plans, the entity should disclose information that enables
users of the financial statements to understand all of the following (or refer to similar information disclosed elsewhere in the
footnotes):
a.
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Principal
conditions or events that raised substantial doubt about the entity’s ability to continue as a going concern (before
consideration of management’s plans)
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b.
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Management’s
evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations
|
|
|
c.
|
Management’s
plans that alleviated substantial doubt about the entity’s ability to continue as a going concern.
|
If
conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, and substantial doubt
is not alleviated after consideration of management’s plans, an entity should include a statement in the footnotes indicating
that there is
substantial doubt about the entity’s ability to continue as a going concern
within one year after the
date that the financial statements are issued (or available to be issued). Additionally, the entity should disclose information
that enables users of the financial statements to understand all of the following:
a.
|
Principal
conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern
|
|
|
b.
|
Management’s
evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations
|
|
|
c.
|
Management’s
plans that are intended to mitigate the conditions or events that raise substantial doubt about the entity’s ability
to continue as a going concern.
|
The
amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim
periods thereafter. Early application is permitted.
Management
does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material
effect on the accompanying financial statements.
Note
3 – Going Concern
The
Company has elected to adopt early application of Accounting Standards Update No. 2014-15,
“Presentation of Financial
Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a
Going Concern (“ASU 2014-15”)
.
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, 2016 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.
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 and reported such in the balance
sheets as investment.
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, 2016
|
|
|
Dec 31, 2015
|
|
|
|
|
|
|
|
|
Initial investment
|
|
$
|
475,000
|
|
|
$
|
475,000
|
|
|
|
|
|
|
|
|
|
|
Add: equity share of net income
|
|
|
|
|
|
|
198,271
|
|
|
|
|
|
|
|
|
|
|
Less: distributions
|
|
|
|
|
|
|
(101,702
|
)
|
|
|
|
|
|
|
|
|
|
Transfer of investments in settlement of accrued interest
|
|
|
(475,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation for impairment of assets
|
|
|
|
|
|
|
(96,569
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
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.
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)
|
|
|
4
|
|
|
|
|
|
|
Expected volatility (*)
|
|
|
27.8
|
%
|
|
|
|
|
|
Expected annual rate of quarterly dividends
|
|
|
0.00
|
%
|
|
|
|
|
|
Risk-free rate(s)
|
|
|
1.93
|
%
|
* 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 volatility. 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.
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, 2016:
|
|
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, 2015
|
|
|
2,310,000
|
|
|
$
|
2.00
|
|
|
$
|
2.00
|
|
|
$
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
|
|
2,310,000
|
|
|
$
|
.50
|
|
|
$
|
.50
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earned and exercisable, Dec 31, 2016
|
|
|
2,310,000
|
|
|
$
|
.50
|
|
|
$
|
.50
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested, December 31, 2016
|
|
|
-
|
|
|
$
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
*
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, 2016:
|
|
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
|
|
|
|
3.95
|
|
|
$
|
.50
|
|
|
|
2,310,000
|
|
|
|
3.95
|
|
|
$
|
.50
|
|
Note
8 – Deferred Tax Assets and Income Tax Provision
Deferred
Tax Assets
At
December 31, 2016, the Company had net operating loss (“NOL”) carry–forwards for Federal income tax purposes
of $738,577 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 $251,116 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 increased approximately $17,280
and $77,517 for the reporting period ended December 31, 2016 and 2015, respectively.
Components
of deferred tax assets are as follows:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Net deferred tax assets – Non-current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax benefit from NOL carry-forwards
|
|
$
|
251,116
|
|
|
$
|
233,836
|
|
|
|
|
|
|
|
|
|
|
Less valuation allowance
|
|
|
(251,116
|
)
|
|
|
(233,836
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets, net of valuation allowance
|
|
$
|
-
|
|
|
$
|
-
|
|
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, 2016
|
|
|
For the Fiscal Year Ended
December 31, 2015
|
|
|
|
|
|
|
|
|
Federal statutory income tax rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance on net operating loss carry-forwards
|
|
|
(34.0
|
)
|
|
|
(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.