Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The
following discussion should be read in conjunction with our financial statements and related notes thereto included elsewhere
in this Quarterly Report on Form 10-Q and the financial statements and related notes thereto in our Annual Report on Form 10-K
for the year ended December 31, 2017.
This
discussion contains certain forward-looking statements that involve risks and uncertainties. Our actual results and the timing
of certain events could differ materially from those discussed in these forward-looking statements as a result of certain factors,
including, but not limited to, those set forth herein and elsewhere in this Quarterly Report and in our other filings with the
Securities and Exchange Commission. See “Cautionary Note Regarding Forward Looking Statements.”
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 431,123, adjusted for Reverse
Stock Split, 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.”
On
May 16, 2018, certain majority stockholders of our company, including certain former directors and officers of our company,
entered into a stock purchase agreement dated May 16, 2018 (the “Control Purchase Agreement”) with RealSource Acquisition
Group, LLC, a Utah limited liability company (“RealSource Acquisition”), whereby RealSource Acquisition agreed to
purchase an aggregate of 11,006,356 shares (440,256 shares after giving effect to the Reverse Stock split (see Note 3) (the “Control
Shares”) of our issued and outstanding shares of common stock for an aggregate purchase price of $180,000. Immediately
prior to the closing under the Control Purchase Agreement on September 12, 2018 (the “Closing Date”), RealSource Acquisition
assigned its rights under the Control Purchase Agreement to M1 Advisors, LLC, a Delaware limited liability company (“M1
Advisors”) pursuant to a purchase agreement and assignment and assumption of contract rights dated as of August 28, 2018
between RealSource Acquisition and M1 Advisors. M1 Advisors paid RealSource Acquisition $80,000 as consideration for such assignment.
Effective
at the time of the Closing Date, and in accordance with our amended and restated bylaws and the requirements of the Control
Purchase Agreement, (a) each of Michael S. Anderson, Nathan W. Hanks and V. Kelly Randall resigned as directors of our company,
(b) Michael Campbell, the sole member of M1 Advisors, and Piers Cooper were elected to our board of directors, and (c)
Mr. Hanks also resigned as our president and chief executive officer, Mr. Randall also resigned as our chief operating
office and chief financial officer, Mr. Campbell was appointed our chief executive officer and Piers Cooper was appointed
our president.
On
the Closing Date, we entered into a series A preferred stock purchase agreement dated as of the Closing Date (the
“Preferred Purchase Agreement”) with M1 Advisors, which is an entity controlled by Michael Campbell, our chief
executive officer and a director of our company at such time, Piers Cooper, our president and a director of our
company at such time, the members of RealSource Acquisition, and the other investors who were signatories thereto (collectively,
the Purchasers”). Pursuant to the Preferred Purchase Agreement, we sold to the Purchasers an aggregate of 15,600,544
shares of our series A preferred stock, par value $0.001 per share (“Founder Preferred Stock”), for
an aggregate purchase price of $16,000, or $0.001 per share. Of the Founder Preferred Stock purchased, 9,320,414 shares
were purchased by M1 Advisors, 4,674,330 shares were purchased by Mr. Cooper and an aggregate of 1,195,000 shares were purchased
by the members of RealSource Acquisition or their assigns.
Immediately
following the above transactions, an aggregate of 15,600,544 shares of Founder Preferred Stock and 630,207 shares of common
stock was issued and outstanding. At such time, the shares of Founder Preferred Stock and common stock owned by M1 Advisors
represented approximately 60.14% of the issued and outstanding shares of our capital stock on a fully-diluted basis and
the shares of Founder Preferred Stock owned by Mr. Cooper represented approximately 28.80% of our issued and outstanding
shares of capital stock on a fully-diluted basis. The shares of Founder Preferred Stock acquired by M1 Advisors were purchased
with funds that M1 Advisors borrowed from another entity controlled by Mr. Campbell.
Following
the change in control, as described above, our board of directors determined to establish our company in
the rapidly-growing cannabis industry, initially in the State of California, and to engage in the business of developing proprietary
product formulations and processing methodologies and utilizing various nano- and micro-encapsulation, agglomeration and liquefying
or drying processes to convert hydrophobic cannabinoid oils (marijuana THC and hemp CBD) into highly-soluble THC and CBD that
can be used in foods and beverages and in a wide range of cosmetic and medicinal applications.
Critical
Accounting Policies
Our
financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted
in the United States (US GAAP). Our fiscal year ends December 31.
This
Management’s Discussion and Analysis of Financial Condition and Results of Operations discuss our financial statements,
which have been prepared in accordance with US GAAP. The preparation of these financial statements requires making estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements, as well as the reported revenues and expenses for the reporting periods. On an ongoing
basis, we evaluate such estimates and judgments. We base our estimates on historical experience and on various other factors that
we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
value of assets and liabilities that are not readily apparent from other sources. Actual results may differ (perhaps significantly)
from these estimates under different assumptions or conditions.
While
all the accounting policies impact the financial statements, certain policies may be viewed to be critical. Our management believes
that we do not have any significant accounting policies, given we had no meaningful operations as of September 30,
2018.
Results
of Operations
Revenues
We
had no revenues for the three and nine months ended September 30, 2018 and 2017.
Expenses
Operating
costs for the three months ended September 30, 2018 were $41,000, compared to $3,000 for the three months ended September 30,
2017, and operating costs for the nine months ended September 30, 2018 were $53,000, compared to $14,000 for the nine months ended
September 30, 2017. The expenses in 2018 and 2017 primarily included audit, filing, legal and transfer agent fees.
Net
loss
Net
loss for the three months ended September 30, 2018 and 2017 was $41,000 and $3,000, respectively, and the net loss for the nine
months ended September 30, 2018 and 2017 was $53,000 and $14,000, respectively, consisting primarily of filing fees, transfer
agent costs, legal and accounting expenses.
Liquidity
and Capital Resources
Our
financial position as of September 30, 2018 and December 31, 2017 and the changes for the nine months then ended were as follows:
Working
Capital
|
|
|
As
of
September
30, 2018
|
|
|
As
of
December
31, 2017
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
$
|
16,000
|
|
|
$
|
7,000
|
|
|
Current Liabilities
|
|
|
41,000
|
|
|
|
4,000
|
|
|
Working (Deficit)
Capital
|
|
$
|
(25,000
|
)
|
|
$
|
3,000
|
|
At
September 30, 2018, we had $16,000 in undeposited funds. Working capital decreased by $28,000 from December 31, 2017 to September
30, 2018 as a net result of operating expenses and issuance of founder preferred stock issued for the quarter.
Cash
Flows
|
|
|
Nine
Months Ended June 30, 2018
|
|
|
Nine
Months Ended June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
Net cash from Operating
Activities
|
|
$
|
(7,000
|
)
|
|
$
|
(14,000
|
)
|
|
Net cash from Investing Activities
|
|
|
-
|
|
|
|
-
|
|
|
Net cash from
Financing Activities
|
|
|
-
|
|
|
|
-
|
|
|
Decrease in Cash during the Period
|
|
|
(7,000
|
)
|
|
|
(14,000
|
)
|
|
Cash, Beginning of Period
|
|
|
7,000
|
|
|
|
29,000
|
|
|
Cash, End of Period
|
|
$
|
-
|
|
|
$
|
15,000
|
|
Our
net cash used in operating activities was $7,000 and $14,000 for nine-month periods ended September 30, 2018 and 2017, respectively,
resulting from operating expenses.
Plan
of Operations and Cash Requirements
Following
the change in control, as described above, our board of directors determined to establish our company in the rapidly-growing
legal cannabis industry and to engage in the business of developing proprietary products, formulations and processing methodologies
and utilizing various nano- and micro-encapsulation, agglomeration and liquefying or drying processes to convert hydrophobic cannabinoid
oils (marijuana THC and hemp CBD) into highly-soluble THC and CBD that can be used in foods and beverages and in a wide range
of cosmetic and medicinal applications.
As
of the filing of this Form 10-Q, our new management has determined our corporate structure and the initial
products we plan to develop but we are still in the process of refining and finalizing the course of action
needed to implement our proposed new business operations. As a result, management has not determined our actual
short-term or long-term cash requirements, which management expects to be substantial.
We
will require substantial financing to commence meaningful business operations and to achieve our goals, and a failure to obtain
this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product
development plans, any commercialization efforts or other operations. We may not be able to secure financing on favorable terms,
or at all, to meet our future capital needs. In addition, even if we are able to obtain sufficient funding to commence our business
operations, we may need to pursue additional financing in the future to make expenditures and/or investments to support the growth
of our business and may require additional capital to pursue our business objectives and respond to new competitive pressures,
pay extraordinary expenses or fund our growth, including through acquisitions. Additional funds, however, may not be available
when we need them on terms that are acceptable to us, or at all. If we are unable to obtain adequate financing or financing on
terms satisfactory to us when we require it, our ability to commence our proposed business operations, to continue to grow and
support our business and to respond to business challenges could be significantly limited.
Until
we finalize our plans and raise capital to execute our business plan, our operations will be minimal, so
our operating expenses will be similarly limited. Our pre-operational expenses have been and will continue to be funded
by our majority shareholder.
Off-Balance
Sheet Arrangements
As
of September 30, 2018, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.
Item
4. Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
As
of the end of the period covered by this Report, our Chief Executive Officer and Chief Financial Officer (our “Certifying
Officers”), conducted evaluations of our disclosure controls and procedures. As defined under Sections 13a –
15(e) and 15d – 15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the term “disclosure
controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required
to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”).
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required
to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to
the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosures.
Based
on their evaluation, the Certifying Officers concluded that, as of September 30, 2018, our disclosure controls and procedures
were not effective.
The
material weakness which relate to internal control over financial reporting that was identified at September 30, 2018 that we
did not have sufficient personnel staffing in our accounting and financial reporting department. As a result, we were not able
to achieve adequate segregation of duties and were not able to provide for adequate review of the financial statements.
This
control deficiency could result in a reasonable possibility that material misstatements of the financial statements will not be
prevented or detected on a timely basis. However, our management believes that the material weakness identified does not result
in the restatement of any previously reported financial statements or any other related financial disclosure, and management does
not believe that the material weakness had any effect on the accuracy of our financial statements included as part of this Quarterly
Report.
We
will continue to monitor and evaluate the effectiveness of our disclosure controls and procedures and our internal controls over
financial reporting on an ongoing basis and are committed to taking action and implementing additional enhancements or improvements,
as necessary and as funds allow.
Changes
in internal control over financial reporting.
There
were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2018 that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations
on the Effectiveness of Internal Controls
Readers
are cautioned that our management does not expect that our disclosure controls and procedures or our internal control over financial
reporting will necessarily prevent all fraud and material error. An internal control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the
inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within our control have been detected. The design of any system of controls also is based in part
upon certain assumptions about the likelihood of future events, and there can be no assurance that any control design will succeed
in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may deteriorate.