ITEM 1. BUSINESS
Background Information
REAC Group, Inc. ("The Company") was formed on March 10, 2005 under the name of Real Estate Contacts, Inc. as a Florida Corporation and is based in Pittsburgh, Pennsylvania. The company changed its name to REAC Group, Inc. effective February 16, 2017. The Company engages in the ownership and operation of a real estate advertising portal website. The company will provide a comprehensive online real estate search portal that consists of an advertising and marketing platform for real estate professionals.
The company’s new website will offer exclusive cities to real estate professionals so they can grow their businesses online and have the opportunity to show their listings and reach consumers interested in buying or selling property in their respective exclusive geographic areas.
RealEstateContacts.com will serve as an internet portal that will feature a real estate search engine and a media network that directs consumers to receive more detailed information about agents, offices, current listings, homes for sale, commercial properties, mortgages, and foreclosures.
Our customer base is consumers interested in buying or selling their home and properties. We've made it an easy and convenient process for the consumer to start their search by featuring their local real estate companies or agents current listings. Consumers can view current properties and houses for sale in hundreds of U.S. cities as well as in their local market.
Real Estate professionals use the internet to generate leads. The top sources of internet leads are company and agent web sites. The internet is vital to a growing number of real estate professionals’ success. The strong surge in technology has created many new companies in the real estate industry. Many of them have become household names and gone public in a few short years.
Our goal as a real estate portal is to send consumers to our real estate search site to view offices, brokers or agents current listings. We are building a national online lead network for our real estate professionals.
Our mission is for our company to become one of the leading marketing partners to the real estate industry.
The company provides consumers the opportunity to view real estate listings, homes for sale, and agent and offices profiles in their local markets and in most markets and cities throughout the United States.
We enable real estate professionals to better promote themselves and their listings and connect with transaction-ready consumers through our online websites and marketing website products.
Subsequent to the filing of this report, the Board of Directors authorized the Company to enter into the Green Sector. The Company intends to bring additional value to its shareholders by becoming a leader in the alternative energy industrial agriculture biofuel business. Made effective January 17, 2017, the Company acquired assets of Patriot Bioenergy Corporation, which is an alternative energy agriculture biofuel company specializing in the utilization of hemp. The Company is currently evaluating whether the conditions for closing have been met.
REAC Group, Inc. will continue to introduce our operational progress and other corporate actions that will include our business plan, business model and plan of growth.
Business Operations
REAC Group, Inc., through their new website, will provide a service that enables real estate professionals to capture, cultivate, and convert leads which cater to prospective home buyers and sellers from our Real Estate Search Engine Website (www.realestatecontacts.com).
The Company’s new website is conducted solely within the Internet. Our company matches buyers, sellers, and real estate brokers’ agents and offices anywhere in the world.
Products and Services
The Company is currently designing a new website that will operate as a real estate search portal www.realestatecontacts.com that features the real estate professional’s profiles in their service areas.
Financial Statements
The Company’s marketing strategy is to feature the real estate professional’s profile on the RealEstateContacts.com portal website exclusively in the areas that they service and work in so potential home buyers can view current real estate listings and homes that are for sale. We will send homebuyers and sellers to our real estate website so they can view our real estate contacts profiles so our real estate professionals become focused on receiving good leads for their business. This format would be called a lead generation program for real estate professionals that are on the RealEstateContacts.com portal website.
The driving of internet traffic is the key to any online marketing company. Our advertising campaign will be built around all internet related marketing concepts, such as search engine optimization, pay per clicks advertising, banner advertising, email marketing, and linking up to other real estate portals and directories.
We currently offer real estate agents, brokers, and offices the opportunity to become the exclusive real estate contact in the city that they serve on www.RealEstateContacts.com for a yearly fee,
Our new website will set the stage to offer more services that empower consumers and drive more business for our real estate professionals as well as small business owners.
Participating real estate brokers, offices and agents receive EXCLUSIVE coverage in the cities, areas and territories that they service. Consumers can find houses and foreclosures for sale in hundreds of U.S. cities and in their local market.
The company intends to generate its revenue from selling advertising to real estate professionals on our real estate portal.
Consumers will and do continue to buy and sell homes in real estate markets throughout the United States. The majority are going online to do so and will continue to contact and seek the advice of real estate professionals.
Reports to Security Holders
We file reports and other information with the U.S. Securities and Exchange Commission (“SEC”). You may read and copy any document that we file at the SEC's public reference facilities at 100 F. Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-732-0330 for more information about its public reference facilities. Our SEC filings will be available to you free of charge at the SEC's web site at www.sec.gov.
At the request of a shareholder, we will send a copy of an annual report to include audited financial statements. As a reporting company with the U.S. Securities and Exchange Commission (“SEC”), we file all necessary quarterly (Form 10-Q), annual (Form 10-K) and other reports as required.
ITEM 1A
ITEM 1A .
RISK FACTORS
The shares of our common stock being offered for resale by the selling security holders are highly speculative in nature, involve a high degree of risk and should be purchased only by persons who can afford to lose the entire amount invested in the common stock. Before purchasing any of the shares of common stock, you should carefully consider the following factors relating to our business and prospects. If any of the following risks actually occurs, our business, financial condition or operating results could be materially adversely affected. In such case, you may lose all or part of your investment. You should carefully consider the risks described below and the other information in this process before investing in our common stock.
Risks Related to Our Business
Our business is difficult to evaluate because we have a limited operating history.
REAC Group, Inc. was incorporated on March 10, 2005. For the years ended December 31, 2016, and 2015, net losses were $5,465,973 and $1,396,800, respectively. Although the Company has conducted its operations since March 2005, it nonetheless has a limited operating history. Additionally, the Company has been unsuccessful in generating any significant revenues since its inception. This limited operating history and lack of revenues may not serve as an adequate basis to judge the Company’s future prospects and results of operations. The Company’s business and prospects must be considered in light of the risks and uncertainties frequently encountered by companies in their early stages of operations, including such companies that operate in the new and rapidly changing online advertising and marketing environment. The Company cannot assure that it will ever be profitable or that it will not be subject to increasing accumulated losses in the foreseeable future. The Company anticipates that its operating expenses will increase in concert with its planned operations. Any significant failure to realize anticipated revenue growth could result in further losses. The Company will continue to encounter risks and difficulties frequently experienced by companies at a similar stage of development, including its potential failure to:
Financial Statements
·
Implement and/or adapt and modify the Company’s business model and strategy;
·
Develop and increase brand awareness, protect the Company’s reputation, and develop customer loyalty;
·
Efficiently manage the Company’s planned expansion of its operations and related expenses; and
·
Anticipate and adapt to changing conditions in markets in which the Company operates, such as the impact of any changes mergers and acquisitions involving the Company’s competitors, technological developments, and other significant competitive and market dynamics.
If the Company is unsuccessful in addressing any or all of these risks, its business and financial condition may be materially and adversely affected.
We need additional capital to develop our business. Without additional capital we may not be able to implement our business plan.
The continued development of our services will require the commitment of substantial resources to implement our business plan. In addition, substantial expenditures will be required to enable us to manage properties in the future. Currently, we have no established bank-financing arrangements. Therefore, it is likely we would need to seek additional financing through a subsequent future private offering of our equity securities, or through strategic partnerships and other arrangements with corporate partners.
We cannot give you any assurance that any additional financing will be available to us, or if available, will be on terms favorable to us. The sale of additional equity securities will result in dilution to our stockholders. The occurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financing covenants that would restrict our operations. If adequate additional financing is not available on acceptable terms, we may not be able to implement our business development plan or continue our business operations.
Our business is susceptible to fluctuation in the real estate market which may have an adverse effect on our ability to generate revenue.
Our business depends substantially on the conditions of the real estate market. Demand for real estate has grown rapidly in the past decade but such growth is often accompanied by volatility in market conditions and fluctuations in real estate prices. For example, following a period of rising real estate prices and transaction volumes in most major cities from 2003 to 2007, the industry experienced a downturn in 2008, with transaction volumes in many major cities declining significantly compared to 2007. Fluctuations in the real estate market may negatively impact our ability to generate revenue through the advertising of real estate professionals on our website. If we are unable to generate revenue through advertising on our website we may have to cease operations.
We are subject to general real estate risks and our revenue may fluctuate.
Our primary revenue is generated from advertisements by real estate professionals, such as real estate offices, real estate brokerages, real estate agents, and the sales of real estate video websites which subjects our business to a variety of risks. The revenue available from these advertisements and websites will depend on the current real estate market. If the advertisements on our websites and the sales of video websites do not generate sufficient income to meet operating expenses our cash flow and ability to operate will be adversely affected.
Our future success is dependent, in part, on the performance and continued service of Robert DeAngelis, President and Director. Without his continued service, we may be forced to interrupt or eventually cease our operations.
We are presently dependent, to a great extent, upon the experience, abilities and continued services of Robert DeAngelis, President and Director. The loss of the service of Mr. DeAngelis could have a material adverse effect on our business, financial condition or results of operation.
We may incur significant costs to be a public company to ensure compliance with U.S. corporate governance and accounting requirements and we may not be able to absorb such costs.
We may incur significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly. We also expect that these applicable rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a
Financial Statements
result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these newly applicable rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. In addition, we may not be able to absorb these costs of being a public company which will negatively affect our business operations.
The lack of public company experience of our management team could adversely impact our ability to comply with the reporting requirements of U.S. Securities Laws.
Our management team lacks public company experience, which could impair our ability to comply with legal and regulatory requirements such as those imposed by Sarbanes-Oxley Act of 2002. Our senior management has never had responsibility for managing a publicly traded company. Such responsibilities include complying with federal securities laws and making required disclosures on a timely basis. Our senior management may not be able to implement programs and policies in an effective and timely manner that adequately respond to such increased legal, regulatory compliance and reporting requirements, including the establishing and maintaining of internal controls over financial reporting. Any such deficiencies, weaknesses or lack of compliance could have a materially adverse effect on our ability to comply with the reporting requirements of the Securities Exchange Act of 1934 which is necessary to maintain our public company status. If we were to fail to fulfill those obligations, our ability to continue as a U.S. public company would be in jeopardy in which event you could lose your entire investment in our company.
We may issue additional shares that could dilute your potential ownership interest and limit the ability of a third party to obtain voting control.
Some events over which investors in the Company have no control could result in the issuance of additional shares of our Common Stock or issuances of preferred stock (of which none is currently outstanding), which would dilute the ownership percentage of current shareholders. We may issue additional shares of Common Stock:
·
to raise additional capital or finance acquisitions;
·
upon the exercise or conversion of outstanding warrants or convertible notes;
·
in lieu of cash payment of interest on our outstanding convertible subordinated notes; or
·
to vendors in exchange for products or services
We have not filed for trademark protection with the United States Patent and Trademark office which may adversely impact our ability to generate revenue.
We have not filed for trademark protection with the United States Patent and Trademark Office regarding the use of the Company’s name, REAC Group, Inc. Should we fail to file for protection of the Company’s name, we may be unable to adequately protect the use of our name, which would negatively affect the Company’s brand name and its ability to generate revenues.
The company’s officer and director has significant control over shareholder matters and the minority shareholders will have little or no control over the company’s affairs.
The Company’s officer/director currently owns approximately 20,005,002 shares (42%), as of April 17, 2017, of the Company’s outstanding Common Stock and has significant control over shareholder matters, such as election of the Company's directors, amendments to its Articles of Incorporation, and approval of significant corporate transactions; as a result, the Company’ minority shareholders will have little or no control over its affairs.
The company may become dependent upon only a few customers for a significant portion of its revenue. If these customers no longer require our service it will have an adverse effect on our business operations.
The Company may become dependent upon only a few customers for a significant portion of its revenues. Should the Company be successful in obtaining those customers, but those customers no longer require the Company’s services or terminate the use of its services, the Company’s revenues and operations will be negatively affected.
The real estate market is very competitive which may have a negative effect on our ability to generate revenue and continue our business operations.
The Real Estate Advertising/Marketing services market is becoming increasingly competitive and the barriers to entry regarding such services are low. Many of the Company’s existing and potential competitors have longer operating histories in the Real Estate Advertising Marketing and website business, greater name recognition, larger client base, greater Internet traffic, and greater financial, technical and marketing resources than the Company does. The Real Estate Advertising Marketing business and the sales of real
Financial Statements
estate websites is subject to intense competition; should the Company be unable to overcome such competitive forces, its operations will be negatively affected and it will be unable to expand its business.
If the company fails to promote its brand cost effectively it may have a negative impact on our business operations.
If the Company fails to promote and maintain its brand successfully, or the Company incurs significant expenses pertaining to promotion of its brand without corresponding revenue increases, the Company’s business may be adversely affected.
Our business is subject to various risks associated with conducting business online.
The Company’s business is conducted solely within the Internet arena and is subject to various risks associated with conducting business online, including: (a) the Company’s target clients, real estate professionals, offices, brokers, agents, may operate their own Internet portal and websites for advertising and marketing purposes, and have no need for the Company’s advertising, marketing and website services; and (b) consumer traffic to the Company’s website and its advertising/marketing revenues are based on consumer and real estate professional’s acceptance and/or continued acceptance of online marketing and advertising, which there is no assurance will continue to be an acceptable mode of marketing and advertising.
Risk Related To Our Capital Stock
We may never pay any dividends to shareholders.
We have never declared or paid any cash dividends or distributions on our capital stock. We currently intend to retain our future earnings, if any, to support operations and to finance expansion and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid, and, if dividends are paid, there is no assurance with respect to the amount of any such dividend.
You will experience dilution of your ownership interest because of the future issuance of additional shares of our common stock and our preferred stock.
In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders. We are currently authorized to issue an aggregate of 250,000,000 shares of capital stock consisting of 249,000,000 shares of common stock, par value $.00001 per share, and 1,000,000 shares of Preferred Stock, of which 500,000 shares have been designated as Series A Preferred Stock, par value $0.0001 per share (“Series A”), as per the amended and restated Articles of Incorporation, effective August 15, 2016.
We may also issue additional shares of our common stock or other securities that are convertible into or exercisable for common stock in connection with hiring or retaining employees or consultants, future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes.
Our common stock is considered a penny stock, which may be subject to restrictions on marketability, so you may not be able to sell your shares.
If our common stock becomes tradable in the secondary market, we will be subject to the penny stock rules adopted by the Securities and Exchange Commission that require brokers to provide extensive disclosure to their customers prior to executing trades in penny stocks. These disclosure requirements may cause a reduction in the trading activity of our common stock, which in all likelihood would make it difficult for our shareholders to sell their securities.
Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system). Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. The broker-dealer must also make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements
Financial Statements
may discourage broker-dealers from effecting transactions in our securities, which could severely limit the market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our common stock and may affect your ability to resell our common stock.
If we fail to maintain an effective system of internal control over financial reporting and disclosure controls and procedures, we may be unable to accurately report our financial results and comply with the reporting requirements under the Exchange Act.
We intend to prepare an internal plan of action for compliance with the requirements of Section 404. As a result, we cannot guarantee that we will not have any “significant deficiencies” or “material weaknesses” within our processes. Compliance with the requirements of Section 404 is expected to be expensive and time-consuming. If we fail to complete this evaluation in a timely manner, we could be subject to regulatory scrutiny and a loss of public confidence in our internal control over financial reporting. In addition, any failure to establish an effective system of disclosure controls and procedures could cause our current and potential stockholders and customers to lose confidence in our financial reporting and disclosure required under the Exchange Act, which could adversely affect our business.
Our Common Stock has a very limited trading market.
Our Common Stock is traded on the over-the-counter market (OTCBB) electronic quotation service, an inter-dealer quotation system that provides significantly less liquidity than the NASDAQ stock market or any other national securities exchange. In addition, trading in our Common Stock has historically been extremely limited. This limited trading adversely affects the liquidity of our Common Stock, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions and reduction in security analysts’ and the media’s coverage of us. As a result, there could be a larger spread between the bid and ask prices of our Common Stock and you may not be able to sell shares of our Common Stock when or at prices you desire.
Our bylaws provide for our indemnification of our officers and directors.
Our directors and officers are indemnified as provided by the Florida corporate law and our Bylaws. We have agreed to indemnify each of our directors and certain officers against certain liabilities, including liabilities under the Securities Act of 1933. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons pursuant to the provisions described above, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than our payment of expenses incurred or paid by our director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
We have been advised that in the opinion of the Securities and Exchange Commission indemnification for liabilities arising under the Securities Act is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities is asserted by one of our directors, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion of our legal counsel the matter has been settled by controlling precedent, submit the question of whether such indemnification is against public policy to a court of appropriate jurisdiction. We will then be governed by the court’s decision.
ITEM 1B.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
There is no reporting requirement under this item for a smaller reporting company.
ITEM 2.
ITEM 2.
PROPERTIES
Our principal executive office is located at 8878 Covenant Avenue, Suite 209, Pittsburgh, PA., 15237 and our telephone number is (724) 656-8886. Office space is provided by our Chief Executive Officer at no charge.
Financial Statements
ITEM 3.
ITEM 3.
LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
ITEM 4.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
Financial Statements
PART II
ITEM 5.
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDERS MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is quoted on the Over the Counter Bulletin Board (“OTCBB”) under the symbol “REAC” for the reporting period. Although we are listed on the OTCBB, there can be no assurance that an active trading market for our stock will develop. Price quotations on the exchange will reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
Should a market develop for our shares, the trading price of the common stock is likely to be highly volatile and could be subject to wide fluctuations in response to factors such as actual or anticipated variations in quarterly operating results, announcements of technological innovations, new sales formats, or new services by us or our competitors, changes in financial estimates by securities analysts, conditions or trends in Internet or traditional retail markets, changes in the market valuations of other equipment and furniture leasing service providers or accounting related business services, announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, capital commitments, additions or departures of key personnel, sales of common stock and other events or factors, many of which are beyond our control. In addition, the stock market in general, and the market for instant messaging business services in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of such companies. These broad market and industry factors may materially adversely affect the market price of the common stock, regardless of our operating performance.
Consequently, future announcements concerning us or our competitors, litigation, or public concerns as to the commercial value of one or more of our services may cause the market price of our common stock to fluctuate substantially for reasons which may be unrelated to operating results. These fluctuations, as well as general economic, political and market conditions, may have a material adverse effect on the market price of our common stock.
Cash dividends have not been paid since inception. In the near future, we intend to retain any earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. The declaration and payment of cash dividends by us are subject to the discretion of our board of directors. Any future determination to pay cash dividends will depend on our results of operations, financial condition, capital requirements, contractual restrictions and other factors deemed relevant at the time by the board of directors. We are not currently subject to any contractual arrangements that restrict our ability to pay cash dividends.
At the present time we have no outstanding options or warrants to purchase securities convertible into common stock.
Price Range of Common Stock
Our Common Stock is to be quoted on the over-the-counter market (OTC: BB) electronic quotation service under the symbol “REAC.”
* Share quotations retroactively restated for reverse stock splits of 10,000:1on July 15, 2016; 100:1 on June 15, 2015 and 10:1 on January 21, 2015
Approximate Number of Equity Security Holders
As of December 31, 2016, there were approximately 53 certificate holders of record of the Company’s common stock.
Financial Statements
Dividends
We have not declared or paid cash dividends on our common stock.
Stock Option Grants
There are no outstanding options to purchase our securities.
ITEM 6.
ITEM 6.
SELECTED FINANCIAL DATA
We qualify as a smaller reporting company, as defined by Rule 229.10(f)(1), and are not required to prove the information required by this Item.
ITEM 7.
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Cautionary Notice Regarding Forward Looking Statements
This section of this Form 10-K includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.
Readers should not place undue reliance on these forward-looking statements, which are based on management’s current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions (including those described below), and apply only as of the date of this filing. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors which could cause or contribute to such differences include, but are not limited to, the risks to be discussed in our Annual Report on form 10-K and in the press releases and other communications to shareholders issued by us from time to time which attempt to advise interested parties of the risks and factors which may affect our business. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Our Operating Strategy
Our website allows real estate professionals and consumers to interact through the Internet as a business medium. Our operating strategy is to feature exclusively real estate agents websites and listings on the www.realestatecontacts.com portal website in the areas that they service and work enabling potential home buyers to view real estate listings and homes that are for sale. This format would be called a lead generation program for real estate professionals that are on the RealEstateContacts.com portal website.
Our business strategy is an ease of use approach which allows the consumer to view listings of homes from our website and also of their local real estate office or agent.
Our focus is driving high volumes of traffic to our website and our advertisers profile pages putting the consumer with the most relevant and desired professional. Thousands of unique visitors visit our website to view real estate listings and homes for sale. We accomplish this through highly focused and well-designed SEO strategies that allow our advertisers to receive greater amount of sales without spending huge resources. Our methodology and resource expenditures are invaluable tools to our advertisers. We do the marketing and our advertisers get the leads.
Currently, while there are other real estate directories and portals on the Internet, only realestatecontacts.com features real estate agents on an exclusive basis in the cities they work in. We believe this approach will be attractive to real estate professionals in each locale.
Our real estate search portal website will also include local real estate commercial brokers and mortgage brokers and lenders that want more traffic and exposure to their profile page and website for potential new clients.
We believe the driving of internet traffic is the key to any online marketing company. We intend to build our advertising campaign around all internet related marketing concepts, such as search engine optimization, pay per clicks advertising, banner advertising, email marketing, and linking up to other real estate portals and directories.
Financial Statements
Our goal is to connect real estate professionals with consumers who are interested in buying or selling a home. We believe that when a customer does research and knows which house he or she is interested in, the result is a more effective and time-efficient transaction for both buyer and seller.
Plan of Operations
Our plan of operation is to operate a search engine portal website for real estate.
Our real estate search website allows real estate professionals and consumers to interact through the internet as a business medium. The Company’s operating strategy is to feature real estate professional’s websites and profiles on the RealEstateContacts.com portal website in the areas that they service and work enabling potential home buyers to view real estate listings and homes that are for sale and featured on the real estate professionals’ website. This format is called a lead generation program for real estate professionals that are on the RealEstateContacts.com portal website.
Our business strategy is an ease of use approach which allows the consumer to view listings of homes from of their local real estate office, broker or agent. This service is provided from our real estate search website: www.realestatecontacts.com. In addition, our real estate search website will feature one agent per city. This policy will eliminate 100% of the competition for the real estate agent, broker and office. For this reason we believe our concept will have a high level of interest from any real estate professional.
Currently, while there are other real estate directories and portals on the internet, only www.realestatecontacts.com features real estate agents on an-exclusive basis. We believe this approach will be attractive to real estate professionals in each locale.
The RealEstateContacts.com portal website will also feature local mortgage brokers and lenders and commercial real estate brokers that want more traffic and exposure to their website for potential new clients. By featuring local mortgage brokers our website allows the consumer to have access to any financial questions and can receive all the information they need quickly in their geographical area.
Our goal is to connect real estate professionals with consumers who are interested in buying or selling a home.
We generate revenues from advertising sales for real estate professionals on our current website.
We plan to grow revenues in the next 12 months by undertaking the following steps:
·
Devote greater resources to marketing and selling our services such as developing and creating a more productive advertising sales division within our company by the hiring of advertising sales account executives.
·
Focus to expand our network of advertisers and real estate professionals by increasing our online presence to include various marketing channels such as the major search engines, Google, Yahoo and Bing.
·
Expand our company’s public relations by creating more brand awareness on the internet. An example would be to focus on other social media websites such as Facebook, Twitter, and LinkedIn.
·
Develop other marketing programs to efficiently increase our brand awareness such as email campaigns, newsletters, linking our website to other real estate business websites, real estate portals and directories.
·
We intend to continue, maintain and aggressively pursue to build our advertising campaign around all internet related marketing concepts, such as search engine optimization, pay per click advertising, banner advertising and social media networks to help manage and geographically target consumer traffic and lead volume.
·
Focus on driving more internet traffic and unique visitors to our websites by using these search engine marketing techniques.
·
We plan to increase our online Search Engine Marketing to create more unique users. Measuring unique users is important to us because our advertising revenues depend in part on our ability to enable our consumers to connect with real estate professionals. We define a unique user as a user who visits our website at least once during a calendar month, as measured by our analytical tools.
·
The number of real estate professionals (advertisers) on our websites is an important driver of revenue growth because each advertiser pays us a yearly fee to participate in the advertising of their services.
Limited Operating History
We have generated a limited financial history and have not previously demonstrated that we will be able to expand our business through increased investment in marketing activities. We cannot guarantee that the expansion efforts described in this Registration Statement will be successful. The business is subject to risks inherent in growing an enterprise, including limited capital resources and possible rejection of our business model and/or sales methods.
Financial Statements
Future financing may not be available to us on acceptable terms. If debt financing is not available or not available on satisfactory terms, we may be unable to continue expanding our operations. Equity financing will result in a dilution to existing shareholders.
Results of Operations
For the years ended December 31, 2016 and 2015.
Revenues
For the years ended; December 31, 2016 and 2015, we generated $0 and $199 in revenues. Revenues have been limited as a result of the Company’s inability to utilize its non-functioning website.
Operating Expenses
Operating expenses were incurred in the amount of $5,189,788 and $1,248,538 for the years ended December 31, 2016 and 2015, respectively. The increase was largely due to an increase in stock based compensation resulting from shares issued for services of $3,871,000. Additionally, there was an increase in general and administrative expenses of approximately $528,000, which is primarily due to stock valued at $550,000 issued in exchange for services related to determining specific performance requirements necessary in further developing and installing software to its existing website; thereby restoring its full functionality. We anticipate that our professional fees ($53,997 in 2016 vs $41,836 in 2015) will remain significant as we maintain compliance with our public reporting requirements.
Net Loss
The Company recognized net losses of $5,465,973 and $1,396,800 for the years ended December 31, 2016 and 2015, respectively. The increased loss is largely due to significant increases in stock based compensation and the change in the fair value of our derivative financing. At this time, normal costs of public filing and increasing advertising efforts will continue and it is not known when significant revenues will occur to off-set these expenses.
Liquidity and Capital Resources
The Company is currently financing its operations primarily through loans, equity sales and advances from shareholders. These advances are being made to supplement any cash generated by the operating revenue. We believe we can currently satisfy our cash requirements for the next twelve months with our current expected increase in revenue, and the expected capital to be raised in private placement and sales of our common stock. Additionally, we will begin to use our common stock as payment for certain obligations and to secure work to be performed. Management plans to continue to rely upon advances from shareholders until it has generated revenue through yearly advertising subscriptions.
The Company has negative working capital, in the amount of $1,832,770 as of December 31, 2016 and has used cash from operations of $11,175. The Company received $5,000 in proceeds from the issuance of common stock for the year ended December 31, 2016 and none for the year ended December 31, 2015.
At December 31, 2016, the Company’s cash balance was $105. The Company anticipates generating revenue, which will partially mitigate cash flow deficiencies; however, without revenue at the present time, we are unable to cover our cash requirements without relying upon loans and advances. In consideration of the potential shortfall in adequate resources, management has disclosed its substantial doubt about its ability to continue as a going concern and our auditor has also expressed the same in their auditors’ report.
We do believe that we will have enough cash to support our daily operations, at reduced levels of development, beyond the next 12 months while we are attempting to expand operations and produce revenues. Although we believe we have adequate funds to maintain our current operations for the near term, we do not believe that we have the required funding to expand our product offering (web video channel and other possible alternative service offerings). We estimate the Company needs an additional $200,000 to fully implement its business plans over the next twelve months. In addition, we anticipate we will need an additional minimum of $120,000
to cover operational and administrative expenses for the next twelve months. The majority shareholder has committed to cover any cash shortfalls of the Company, although there is no written agreement or guarantee. If we are unable to satisfy our cash requirements we may be unable to proceed with our plan of operations.
Future financing for our operations may not be available to us on acceptable terms. To raise equity will require the sale of stock and the debt financing will require institutional or private lenders. We do not have any institutional or private lending sources identified.
Financial Statements
If debt financing is not available or not available on satisfactory terms, we may be unable to continue expanding our operations. Equity financing will result in a dilution to existing shareholders.
The foregoing represents our best estimate of our cash needs based on current planning and business conditions. In the event we are not successful in reaching our initial revenue targets, additional funds may be required, and we may not be able to proceed with our business plan for the development and marketing of our core services. Should this occur, we will suspend or cease operations.
We anticipate that depending on market conditions and our plan of operations, we may incur operating losses in the foreseeable future. Therefore, our auditors have raised substantial doubt about our ability to continue as a going concern.
Management Consideration of Alternative Business Strategies
In order to continue to protect and increase shareholder value management believes that it may, from time to time, consider alternative management strategies to create value for the company or additional revenues. Strategies to be reviewed may include acquisitions; roll-ups; strategic alliances; joint ventures on large projects; issuing common stock as compensation in lieu of cash; and/or mergers.
Management will only consider these options where it believes the result would be to increase shareholder value while continuing the viability of the company. At the current time, there have been no planned commitments to any independent considerations mentioned above.
Subsequent Events
In addition to operating its online real estate search portal, REAC Group, Inc., is seeking to become a leader in the alternative energy agriculture biofuel business. The Company executed an agreement to acquire certain assets of Patriot Bioenergy Corporation, a Kentucky corporation (“Patriot”), which is an alternative energy industrial agriculture biofuel company specializing in the utilization of hemp. Such assets included the rights, titles and interest in and to real property owned and/ or leased by Patriot.
On January 4, 2017, REAC Group, Inc., executed an Asset Purchase Agreement (“APA”) with Patriot, for the purchase of all of Patriot’s assets related to the business of operating a hemp processing and growth operation and selling hemp related products. The Company is currently evaluating whether the conditions for closing have been met.
The assets to be purchased under the above agreement included the “Southern Hemp Company” brand name and related website owned by Patriot. On February 9, 2017, we filed a Report on Form 8-K reporting the signing of a non-binding Letter of Intent for the sale of our Southern Hemp Company brand to Hemp Inc., a Nevada corporation. On March 31, 2017, and pursuant to its terms, the LOI expired with no definitive or ancillary agreements being executed.
The Company has requested accounting records relating to the assets purchased in accordance with the APA’s conditions for closing, but Patriot has provided no such records. Accordingly, the Company cannot allocate the purchase price among any specific assets purchased. As a result, the Company is considering its options at this point. However, in any event, the Company may be unable to reacquire the 50,000 shares issued for the purchase transaction, along with the 15,000,000 shares issued in November 2016 to five individuals currently employed by Patriot.
Common Shares issued for Repayment of Notes
In November 2016, the Company issued an aggregate of 7,600,000 shares of common stock, for a value of $76,000 in satisfaction of $7,629 in principal and $68,371 in interest on a convertible note payable. The Company recorded the issuances at the contract value, at the date of exchange, off-setting the notes payable, accrued interest and the recorded derivative liability.
In December 2016, the Company authorized the issuance of 139,906 shares of common stock, for a value of $22,735, in satisfaction of $16,659 in principal and $6,076 in interest on a convertible note payable.
Off-Balance Sheet Arrangements
Under the definition contained in Item 303(a)(4)(ii) of Regulation S-K, we do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).
Financial Statements
Critical Accounting Policies
The Company’s significant accounting policies are presented in the Company’s notes to financial statements for the period ended December 31, 2016 and 2015, which are contained in this filing, the Company’s 2016 Annual Report on Form 10-K. The significant accounting policies that are most critical and aid in fully understanding and evaluating the reported financial results include the following:
·
The Company prepares its financial statements in conformity with generally accepted accounting principles in the United States of America. These principals require 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 revenues and expenses during the reporting period. Management believes that these estimates are reasonable and have been discussed with the Board of Directors; however, actual results could differ from those estimates.
·
The Company currently does not issue credit on services provided, therefore there are no accounts receivable. No allowance for doubtful accounts is considered necessary to be established for amounts that may not be recoverable, since there has been no credit issued.
·
Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable. When required impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets. We did not recognize any impairment losses for any periods presented.
·
The Company issues restricted stock to consultants for various services. Cost for these transactions are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is measurable more reliably measurable. The value of the common stock is measured at the earlier of (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or (ii) the date at which the counterparty's performance is complete.
Recent Accounting Pronouncements
The Financial Accounting Standards Board and other standard-setting bodies issued new or modifications to, or interpretations of, existing accounting standards during the year. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation’s reported financial position or operations in the near term. These recently issued pronouncements have been addressed in the footnotes to the financial statements included in this filing.
ITEM 7A.
ITEM 7A.
QUANTITATIVE AND QUALITIATIVE DISCLOSURES ABOUT MARKET RISK
We do not hold any derivative instrument assets and do not engage in any hedging activities.
Financial Statements
ITEM 8.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements
REAC Group, Inc.
As of December 31, 2016 and 2015
Contents
Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
REAC Group, Inc.
We have audited the accompanying balance sheets of REAC Group, Inc. (f/k/a Real Estate Contacts, Inc.) as of December 31, 2016 and 2015 and the related statements of operations, changes in stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of REAC Group, Inc. as of December 31, 2016 and 2015 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has incurred a net loss of approximately $5,470,000 for the year ended December 31, 2016, and the Company had an accumulated deficit of approximately $21,800,000, and a working capital deficit of approximately $1,800,000 at December 31, 2016. These 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.
/s/ D’Arelli Pruzansky, P.A.
Certified Public Accountants
Boca Raton, Florida
April 17, 2017
Financial Statements
REAC Group, Inc.
Balance Sheets
* shares retroactively restated for reverse stock splits of 1:10,000 on July 15,2016; 1:100 on June 15, 2015; and 1:10 on January 21, 2015
The accompanying notes are an integral part of these financial statements.
Financial Statements
REAC Group, Inc.
Statements of Operations
* shares retroactively restated for reverse stock splits of 1:10,000 on July 15,2016; 1:100 on June 15, 2015; and 1:10 on January 21, 2015
The accompanying notes are an integral part of these financial statements.
Financial Statements
REAC Group, Inc.
Statements of Changes in Stockholders’ Deficit
For the Years Ended December 31, 2016 and 2015
* shares retroactively restated for reverse stock splits of 1:10,000 on July 15,2016; 1:100 on June 15, 2015; and 1:10 on January 21, 2015
The accompanying notes are an integral part of these financial statements.
Financial Statements
REAC Group, Inc.
Statements of Cash Flows
The accompanying notes are an integral part of these financial statements.
Financial Statements
REAC Group, Inc.
Notes to the Financial Statements
For the years ended December 31, 2016 and 2015
1. Background Information
Real Estate Contacts, Inc. ("The Company") was formed on March 10, 2005 as a Florida Corporation and is based in Pittsburgh, PA. . The company changed its name to REAC Group, Inc., effective February 16, 2017. The Company engages in the ownership and operation of a real estate advertising portal website. REAC Group, Inc. intends to provide a comprehensive online real estate search portal that consists of an advertising and marketing platform for real estate professionals.
The company provides consumers the opportunity to view real estate listings and homes for sale in their local markets.
The company provides real estate professionals the opportunity to reach consumers interested in buying or selling property in their respective geographic area and in most markets and cities throughout the United States.
Business Operations
REAC Group, Inc. intends to provide a service that enables real estate professionals to capture, cultivate, and convert leads which cater to prospective home buyers and sellers from our Real Estate Search engine website (www.realestatecontacts.com).
The Company’s business is conducted solely within the Internet. Our company’s new website will match buyers, sellers, and real estate brokers and agents anywhere in the world.
We enable real estate professionals to better promote themselves and their listings and connect with transaction-ready consumers through our online websites and marketing products. Our new real estate search website will enable real estate professionals to increase their visibility and promote their listings.
The Company has earned little revenues to date due to issues, problems, and the eventual shut-down of its website and video website channel by the developer. The Company’s management has elected to utilize a different developer to restore, further develop, and add functionality to this website.
2. Summary of Significant Accounting Policies
The significant accounting policies followed are:
Basis of Presentation
The Financial Statements and related disclosures have been prepared pursuant to the rules and regulations of the SEC. The Financial Statements have been prepared using the accrual basis of accounting in accordance with Generally Accepted Accounting Principles (“GAAP”) of the United States (See Note 3 regarding the assumption that the Company is a “going concern”).
All share and per share information contained in this report gives retroactive effect to a reverse stock split of our outstanding common stock of 1;10,000 on July 15, 2016; 1:100 on June 15, 2015 and 1:10 on January 21, 2015.
Use of Estimates
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make 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 and revenues and expenses during the reported period. Actual results could differ from those estimates. Our significant estimates include valuation of website development costs, valuation of derivative liabilities, valuation of stock based compensation, interest and penalties recorded on payroll tax liabilities, and deferred tax asset valuation allowances. We evaluate our estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.
Reclassification
Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. Our reclassifications were made to common stock and additional paid in capital due to reverse splits in 2016 and 2015. These reclassifications had no effect on reported losses.
Financial Instruments
The Company’s balance sheets include the following financial instruments: cash, accounts payable, accrued expenses, notes payable and payables to a stockholder. The carrying amounts of cash, accounts payable and accrued expenses approximate their fair value
Financial Statements
because of the relatively short period of time between the origination of these instruments and their expected realization. The carrying values of the notes payable and amounts due to stockholder approximates fair value based on borrowing rates currently available to the Company for instruments with similar terms and remaining maturities. The derivative liability has been valued at fair market value, in consideration of the fair value of the potential future consideration that may be required upon settlement under the terms of the convertible debt instruments.
FASB Accounting Standards Codification (ASC) topic, “Fair Value Measurements and Disclosures”, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
·
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities
·
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
·
Level 3 - Inputs that are both significant to the fair value measurement and unobservable.
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2016. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments.
At December 31, 2016, the company performed a Level 3 non-recurring valuation of its website development costs, resulting in an impairment loss that reduced the net carrying value of this asset to zero.
Cash Flow Reporting
The Company follows ASC 230, Statement of Cash Flows, for cash flows reporting, 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 (“indirect method”) as defined by ASC 230, Statement of Cash Flows, 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.
Cash and Cash Equivalents
All cash is maintained with a major financial institution in the United States. Deposits with this bank may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed on demand and, therefore, bear minimal risk. The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company had no cash equivalents at either December 31, 2016 or December 31, 2015.
Accounts Receivable
The Company currently does not issue credit on services provided, therefore there are no accounts receivable. No allowance for doubtful accounts is considered necessary to be established for amounts that may not be recoverable, since there has been no credit issued.
Website Development Costs
The Company accounts for website development costs in accordance with Accounting Standards Codification 350-50 “Website Development Costs”. Accordingly, all costs incurred in the planning stage are expensed as incurred, costs incurred in the website application and infrastructure development stage that meet specific criteria are capitalized and costs incurred in the day to day operation of the website are expensed as incurred.
The Company placed its main website (www.realestatecontacts.com) into service prior to 2008, with a redesign of the website in 2015. Our video website channel (www.realestatevideochannels.com) and our other website (www.realestatevideowebsites.com) were shut down in September 2015 by the website hosting company as a result of disputes over fees charged by the website developer. All costs associated with these websites are subject to straight-line amortization over there expected useful life, a five year period. As of
Financial Statements
December 31, 2015, the Company impaired the carrying value of capitalized costs associated with our websites and recognized an impairment loss in the amount of $92,449.
Intangible Assets
In accordance with ASC 350-30-65 “Goodwill and Other Intangible Assets", the Company assesses the impairment of identifiable intangible assets, including website development costs, whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important, which could trigger an impairment review include the following:
1. Significant underperformance compared to historical or projected future operating results;
2. Significant changes in the manner or use of the acquired assets or the strategy for the overall business; and
3. Significant negative industry or economic trends.
When the Company determines that the carrying value of an intangible asset may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent to the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows.
For the twelve months ended December 31, 2016 and 2015, the Company incurred impairment losses of $0 and $92,449, respectively. Due to multiple issues with our previous programmer who hosted our website during the year ended December 31, 2015, management believed that the website would not be functional to the required specification and deemed significant modifications would be necessary. Based on the information available to management, in consideration of all issues, an impairment loss was recognized for the carrying value of the website development costs. During the year ended December 31, 2016, the Company engaged a new programmer to determine the specific performance requirements necessary to further develop and install software to its existing website.
Revenue Recognition
The Company recognizes revenue on arrangements in accordance with FASB ASC No. 605, Revenue Recognition. In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability is reasonably assured.
Consideration for future advertising is generally received by customers in advance of those services being provided. Advertising revenue is recognized ratably over the period that the services are subscribed, generally a one year period. The unearned portion of the advertising revenue is deferred until future periods in which the subscription is earned.
The Company has not issued guarantees or other warrantees on the advertising subscription success or results. The Company has not experienced any refund requests or committed to any adjustments for terminated subscriptions. The Company does not believe that there is any required liability.
Share-based Compensation
In December 2004, the FASB issued FASB ASC No. 718, Compensation - Stock Compensation (“ASC 718”). Under ASC 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. As such, compensation cost is measured on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant. The Company applies this statement prospectively.
Equity instruments (“instruments”) issued to other than employees are recorded on the basis of the fair value of the instruments, as required by FASB ASC 718. FASB ASC No. 505, Equity Based Payments to Non-Employees (“ASC 505”) defines the measurement date and recognition period for such instruments. In general, the measurement date is (a) when a performance commitment, as defined, is reached or (b) when the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the ASC 505.
Income Taxes
The Company accounts for income taxes pursuant to the provisions of ASC 740-10, “Accounting for Income Taxes,” which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the
Financial Statements
carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.
The Company follows the provisions of the ASC 740 -10 related to, Accounting for Uncertain Income Tax Positions. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.
The Company has adopted ASC 740-10-25 Definition of Settlement, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion of an examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. As of December 31, 2016, tax years ended December 31, 2015, 2014, and 2013 are still potentially subject to audit by the taxing authorities, along with December 31, 2016 (although the tax return has not yet been filed).
Earnings (Loss) Per Share
Basic earnings (loss) per common share is computed based upon the weighted average common shares outstanding as defined by FASB ASC No. 260, Earnings Per Share .
Diluted earnings (loss) per share include the dilutive effects of stock options, warrants, and stock equivalents. To the extent stock options, stock equivalents and warrants are anti-dilutive they are excluded from the calculation of diluted income per share. For the years ended December 31, 2016 and 2015 there were 7,438,346 and 484 (adjusted for three (3) reverse stock splits) potential common shares from convertible notes, respectively. For December 31, 2016 and 2015, the Company incurred net operating losses and, thus, anti-dilution issues are not considered in the calculation of loss per share.
Commitments and Contingencies
The Company follows ASC 450-20, Loss Contingencies, to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
3. Going Concern
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern.
The Company incurred net losses of $5,465,973 and $1,396,800 during the years ended December 31, 2016 and 2015, and had net cash used in operating activities of $11,175 and $65,595, respectively, for the same periods. Additionally, the Company has an accumulated deficit of $21,861,196 and a working capital deficit of $1,832,770 at December 31, 2016. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of at least twelve months after the date of the report on these financial statements. In view of these matters, the Company's ability to continue as a going concern is dependent upon the Company's ability to achieve a level of profitability and/or to obtain adequate financing through the issuance of debt or equity in order to finance its operations.
While the Company is attempting to commence operations and produce revenues, the Company’s cash position may not be significant enough to support the Company’s operations. While the Company believes in the viability of its strategy to increase revenues and in its ability to raise additional funds, there can be no assurances to that effect. The key factors that are not within the Company's control and that may have a direct bearing on operating results include, but are not limited to, acceptance of the Company's business plan, the ability to raise capital in the future, the ability to expand its customer base, and the ability to hire key employees to build and maintain websites and to provide services and support to its customers and users. There may be other risks and circumstances that management may be unable to predict.
Financial Statements
The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
4. Recently Issued Accounting Pronouncements
We have reviewed all FASB issued Accounting Standards Update (“ASU”) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.
In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”. The amendments are effective for public companies for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. Management believes that this ASU will not have a significant impact on its financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes ASC 840, Leases. This ASU is based on the principle that entities should recognize assets and liabilities arising from leases. The ASU does not significantly change the lessees’ recognition, measurement and presentation of expenses and cash flows from the previous accounting standard. Leases are classified as finance or operating. The ASU’s primary change is the requirement for entities to recognize a lease liability for payments and a right of use asset representing the right to use the leased asset during the term on operating lease arrangements. Lessees are permitted to make an accounting policy election to not recognize the asset and liability for leases with a term of twelve months or less. Lessors’ accounting under the ASC is largely unchanged from the previous accounting standard. In addition, the ASU expands the disclosure requirements of lease arrangements. Lessees and lessors will use a modified retrospective transition approach, which includes a number of practical expedients. The effective date will be the first quarter of fiscal year 2020 with early adoption permitted. Management believes that this ASU will not have a significant effect on its financial statements.
In November 2015 the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes”, which changes how deferred taxes are classified on the Company’s balance sheets and is effective for financial statements issued for annual periods beginning after December 15, 2016, with early adoption permitted. ASU 2015-17 requires all deferred tax assets and liabilities to be classified as non-current. Management does not believe that this ASU will have a significant impact on its financial statements.
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.
5. Related Party Transactions
In August 2016, the Company entered into a Preferred Stock Purchase Agreement with its Chief Executive Officer whereby the Company issued 50,935 Series A Preferred Shares in exchange for the cancellation of 60,000 common shares held by him and the retirement of $165,500 in debt owed by the Company for operating loans and advances. (See Note 11)
The majority shareholder has advanced funds or deferred contractual salaries since inception, for the purpose of financing working capital and product development. As of December 31, 2016, the Company owed $90,151. There are no repayment terms to these advances and deferrals.
Additionally, the majority shareholder has advanced funds, in the form of promissory notes, in the amount of $31,250 and $20,250 as of December 31, 2016 and December 31, 2015, respectively. These promissory notes mature and are payable in six months from the date issued and accrue minimal stated interest at 3%. Total interest accrued as of December 31, 2016 and 2015 was $23,606 and $5,799, respectively.
The Company has minimal needs for facilities and operates from office space provided by the majority shareholder. There are no lease terms. For the year ended December 31, 2016 and 2015, rent has been calculated based on the limited needs at a fair market value of the space provided. Rent expense was $1,200 and $1,200 for the years ended December 31, 2016 and 2015, respectively. The rental value has been recognized as an operating expense and treated as a contribution to capital.
The amounts and terms of the above transactions may not necessarily be indicative of the amounts and terms that would have been incurred had comparable transactions been entered into with independent third parties.
Financial Statements
During the years ended December 31, 2016 and 2015, the Company issued 20,000,000 and 64,850 shares, respectively, of common stock to the Chief Executive Officer in exchange for services. The resulting compensation expense for the years ended December 31, 2016 and 2015 was $1,200,000 and $879,000, respectfully.
On March 4, 2013, we entered into an employment agreement with Robert DeAngelis, our Chief Executive Officer. The employment agreement is for a period of three years and can be cancelled upon written notice by either employee or employer (if certain employee acts of misconduct are committed). The total minimum aggregate annual amount due under the employment agreement is $120,000 plus bonuses. For the years ended December 31, 2016 and 2015, the Company recorded compensation expense in the amount of $120,000 and $120,000, respectively.
6. Website Development Costs
Amortization of the Company’s website was $0 and $21,435 for the years ended December 31, 2016 and 2015, respectively.
The Company placed its main website (www.realestatecontacts.com) into service prior to 2008, with a redesign of the website in 2015. Our video website channel (www.realestatevideochannels.com) and our other website (www.realestatevideowebsites.com) were shut down in September 2015 by the website hosting company as a result of disputes over fees charged by the website developer. All costs associated with these websites are subject to straight-line amortization over the expected useful life, a five year period. As of December 31, 2015, the Company impaired the carrying value of capitalized costs associated with our websites and recognized an impairment loss in the amount of $92,449.The Company incurred impairment losses of $0 and $92,449 for the years ending December 31, 2016 and 2015, respectively.
During the twelve months ended December 31, 2016, the Company issued 5,000,000 shares of its common stock to an outside web service provider for a value of $550,000. In exchange for the consideration paid, the Company plans to use the provider to determine the specific performance requirements necessary to further develop and install software to its existing website to meet its intended use. Due to the Company’s inability to determine feasibility at the date of issuance, these costs were expensed as stock based compensation.
7. Accrued Liabilities
Accrued expenses:
(a) The Company has paid or accrued compensation to its Chief Executive Officer totaling $2,520,000 and $999,000during the years ended December 31, 2016 and 2015, respectively. However, the Company has not paid the related payroll taxes, consisting primarily of Social Security and Medicare taxes. As a result, the Company has established an accrued liability for the unpaid salaries along with related taxes and estimated interest and penalties of $793,998 and $537,171 at December 31, 2016 and 2015, respectively.
8. Notes Payable
The Company owed an aggregate of $203,170 in principal and accrued interest at December 31, 2016; of which, $128,528 represents convertible notes payable, $31,250 represents notes payable to the principal shareholder, and $43.395 represents accrued interest. At December 31, 2015, the Company owed an aggregate of $288,791 in principal and accrued interest; of which, $196,865 represents convertible notes payable, $20,250 represents notes payable to the principal shareholder, and $96,175 represents accrued interest.
Convertible Notes Payable
On December 30, 2016, the Company converted principal in the amount of $16,659 and accrued interest of $6,076 through the issuance of 139,906 common shares. The shares were converted at the contract rate of $0.01625 per share.
Financial Statements
On June 10, 2016, the Company settled a convertible note payable carrying a principal and interest balance of $14,031 for consideration of $3,000, resulting in a gain on settlement of $11,031.
On April 21, 2016 and on November 28, 2016, the Company’s Board of Directors approved the assignments of a convertible note payable to different third-parties. The aggregate balance assigned consisted of $80,429 in principal and $66,571 in interest. On November 7, 2016, the Company’s Board of Directors approved a second assignment of the same note. The balance assigned consisted of $80,429 in principal and $66,619 in accrued interest. On November 28, 2016, the Company issued 7,600,000 common shares valued at a contract value of $0.01 per share, for a total value of $76,000; converting $9,429 in principal $66,571 in interest against the balance of this Note.
On March 11, 2016, the Company settled a convertible note payable carrying a principal balance of $23,342 for consideration of $2,000, resulting in a gain on settlement of $25,192.
During the year ended December 31, 2015, the Company converted notes of $140,493 and accrued interest of $7,729 into 41,627 common shares, in accordance with terms of the agreements. The conversion price, per agreement, was discounted to percentages between 40% and 75% of the fair market trading value.
The notes outstanding are summarized by their terms below:
Schedule of Convertible Debt
Summary of Convertible Note Transactions
9. Derivatives and Fair Value
The Company evaluated the terms of the convertible notes, in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity’s Own Stock and determined that the underlying is indexed to the Company’s common stock. The Company determined that the conversion features meet the definition of a liability and therefore bifurcated the conversion feature and accounted for it as a separate derivative liability. The Company evaluated the conversion feature for the embedded conversion option. Since these notes contain conversion price adjustment provisions (i.e. down round, or ratchet provisions), the Company determined that the embedded conversion options met the definition of a derivative. The effective conversion price was compared to the market price on the date of the note and was deemed to be less than the market value of underlying common stock at the inception of the note. The Company recognized a debt discount on the notes as a reduction (contra-liability) to the Convertible Notes Payable. The debt discounts are being amortized over the life of the notes. The Company recognized financing costs for charges by the lender for original issue discounts and other applicable administrative costs, normally withheld from proceeds, which are being amortized as finance costs over the life of the loan.
A derivative liability in the amount of $699,090 and $485,142 has been recorded, as of December 31, 2016 and 2015, respectively, related to the above notes. The derivative value was calculated using the Binomial method. Assumptions used in the derivative valuation were as follows:
Financial Statements
ASC 825-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 825-10 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 describes three levels of inputs that may be used to measure fair value: Level 1 - Quoted prices in active markets for identical assets or liabilities; Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3 - Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation. The Company’s Level 3 liabilities consist of the derivative liabilities associated with the convertible notes. At December 31, 2016, all of the Company’s derivative liabilities were categorized as Level 3 fair value liabilities. 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.
Level 3 Valuation Techniques
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. Level 3 financial liabilities consist of the derivative liabilities for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation. At the date of the original transaction, we valued the convertible note that contains down round provisions using a Black-Scholes model, with the assistance of a valuation consultant, for which management understands the methodologies. This model incorporates transaction details such as the Company’s stock price, contractual terms, maturity, risk free rates, as well as assumptions about future financings, volatility, and holder behavior. Using assumptions, consistent with the original valuation, the Company has subsequently used the Black-Scholes model for calculating the fair value, as of December 31, 2016:
The table below provides a summary of the changes in fair value, including net transfers in and/or out, of all financial assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the twelve months of fiscal year 2015:
10. Income Tax
The Company accounts for income taxes under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 740, Income Taxes (“ASC 740”). Under ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
Financial Statements
income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
As of December 31, 2016, the Company has estimated tax net operating loss carryforwards of approximately $7.57 million, which can be utilized or expire through tax year 2036. Utilization of these losses may be limited in accordance with IRC Section 382 in the event of certain ownership shifts. The change in the valuation allowance for the years ended December 31, 2016 and 2015 was $1,615,000 and $100,000, respectively.
11. Equity
Stock Subscriptions
In September, 2016, the Company issued 200,000 shares of common stock to two individuals for cash. The shares were valued at $0.025 per share, or $5,000.
Stock Compensation
In November, 2016, the Company entered into two-year Employment Agreements with five individuals in exchange for agricultural management services related to our acquisition of Patriot Biofuels in January 2017 (see Note 13). An aggregate of 15,000,000 shares of common stock was issued and immediately vested, for an aggregate value of $1,800,000, which is included in compensation expense. The shares were valued at the quoted market price on the date of issuance.
Also in November, 2016, the Company issued 20,000,000 shares of common stock to its Chief Executive Officer for a value of $2,400,000, which is included in compensation expense, in exchange for services during the year ended December 31, 2016. These shares were valued at the quoted market price on the date of issuance.
The Company issued 64,850 shares of common stock to its Chief Executive Officer in exchange for services during the year ended December 31, 2015. These shares were valued at the closing market prices of the stock at the date of grant, resulting in the recognition of $879,000 in compensation expense. These shares were valued at the quoted market price on the date of issuance.
Preferred Stock
In August, 2016, the Company’s Board of Directors agreed to exchange $165,500 in debt owed to our Chief Executive Officer for 50,935 shares of Series A Preferred stock and the cancellation of 60,000 shares of common stock held by him. Due to the related party nature of this transaction, any gain was recorded as a credit to stockholders’ deficit.
Other
During the years ended December 31, 2016 and 2015 the Company recorded in-kind contributions for rent expense in the amount of $1,200 and $1,200, respectively.
The Company’s Board of Directors approved reverse stock splits of: 1:10,000 on July 15, 2016; 1:100 on June 15, 2015; and 1:10 on January 21, 2015. All shares have been retroactively restated for this reverse stock split.
There are no warrants or options currently outstanding.
Financial Statements
Amendment to the Articles of Incorporation
On July 29, 2016, the Board of Directors, filed amended and restated articles of incorporation to designate the voting privileges, preferences, limitations, and relative rights of the Company’s Preferred Stock titled as Series A. On August 15, 2016, the Amended and Restated Articles of Incorporation became effective. The Board of Directors recommended and the majority shareholder (holding 61% of the voting shares) voted in favor of amending and restating the Articles of Incorporation to designate the voting privileges, preferences, limitations, and relative rights of the Company’s Preferred Stock titled as Series A. Pursuant to the Articles, no shareholder vote was required for this designation. Accordingly, As of August 15, 2016, the total authorized capital stock of the corporation is Two Hundred Fifty Million shares (250,000,000), consisting of 249,000,000 shares of common stock, par value $0.00001 per share (the “common stock”) and 1,000,000 shares of Preferred Stock, of which 500,000 shares have been designated as Series A Preferred Stock, par value $0.0001 per share (“Series A”). The Series A preferred stock are “super voting” stock, with each Series A share being entitled to vote as five thousand (5,000) shares of Voting Stock.
On July 20, 2016, the Board of Directors recommended and the majority shareholder (holding 61% of the voting shares) voted in favor of increasing the authorized capital of the Company from One Million One Hundred Forty-Nine Thousand Nine Hundred (1,149,900) Shares to Two Hundred Fifty Million (250,000,000) shares, to be effective July 20, 2016. No change was made to the number of preferred shares authorized. Accordingly, as of July 20, 2016, the total authorized capital of the Company will be comprised of Two Hundred Forty Nine Million (249,000,000) shares of common stock, par value $0.00001 per share; 500,000 (Five Hundred Thousand) shares of Preferred Stock, Series A, par value $0.0001 per share; and 500,000 (Five Hundred Thousand) shares of Preferred Stock, Series B, par value $0.001 per share. The financial statements for all periods presented have been retroactively adjusted to reflect this recapitalization.
On January 14, 2016, the Company filed Articles of Amendment with the Secretary of State of Florida decreasing the authorized capital of the Company from One Billion Five Hundred Million (1,500,000,000) Shares to One Million One Hundred Forty-Nine Thousand Nine Hundred (1,149,900) shares. This consisted of 500,000 shares of preferred stock, Series A, par value $0.0001per share; 500,000 shares of preferred stock, Series B, par value $0.001 per share, and 149,900 shares of Common Stock, par value $0.00001 per share. This was done in anticipation of a 1 for 10,000 reverse stock split which became effective July 15, 2016. The financial statements for all periods presented have been retroactively adjusted to reflect this stock split.
On August 19, 2015, the Board of Directors recommended and the majority shareholder (holding 56% of the voting shares) voted in favor of increasing the authorized capital of the Company to One Billion Five Hundred Million (1,500,000,000) shares. Accordingly, the total authorized capital of the Company is comprised of One Billion Four Hundred Ninety Nine Million (1,499,000,000) shares of common stock, par value $0.00001 per share; 500,000 (five hundred thousand) shares of Preferred Stock, Series A, par value $0.0001 per share; and 500,000 (five hundred thousand) shares of Preferred Stock, Series B, par value $0.001 per share.
Financial Statements
As of December 31, 2016, the total number of shares this corporation is authorized to issue is 250,000,000 (two hundred fifty million), allocated as follows among these classes and series of stock:
12. Commitments and Contingencies
From time to time the Company may be a party to litigation matters involving claims against the Company. Management believes that there are no known or potential matters that would have a material effect on the Company’s financial position or results of operations.
The Company’s operations are subject to significant risks and uncertainties including financial, operational and regulatory risks, including the potential risk of business failure.
There were no operating or capital lease commitments as of December 31, 2016 and 2015.
13. Subsequent Events
On January 4, 2017, the Company executed an Asset Purchase Agreement with Patriot Bioenergy Corporation, a Kentucky corporation, for the purchase of all of the assets related to the business of operating a hemp processing and growth operation and selling hemp related products. The Company is evaluating whether the conditions for closing have been met. This transaction was the subject of the Letter of Intent disclosed in our Form 8-K filed on November 15, 2016. The LOI was amended on December 6, 2016, and an amendment to our November 15 Form 8-K was filed on the same date. Pursuant to the Agreement, the Company issued 50,000 common shares for a value of $200,000, based on the closing market price of the stock on the date of issuance.
The assets to be purchased under the above agreement included the “Southern Hemp Company” brand name and related website owned by Patriot. On February 9, 2017, we filed a Report on Form 8-K reporting the signing of a non-binding Letter of Intent for the sale of our Southern Hemp Company brand to Hemp Inc., a Nevada corporation. On March 31, 2017, and pursuant to its terms, the LOI expired with no definitive or ancillary agreements being executed.
The Company has requested accounting records relating to the assets purchased, in accordance with the conditions for closing, but Patriot has provided no such records. Accordingly, the Company cannot allocate the purchase price among any specific assets purchased. As a result, the Company is considering its options at this point. However, in any event, the Company may be unable to re acquire the 50,000 shares issued for the purchase transaction, along with the 15,000,000 shares issued in November 2016 to five individuals currently employed by Patriot (see Note 11).
On January 13, 2017, the Company issued 5,000 common shares for cash. Consideration to the Company was $5,000.
On January 18, 2017, the Company issued 10,000 shares pursuant to a Consulting Agreement entered into on that date. The consultant was engaged to perform research related to hemp processing in the State of Florida. The shares will be valued at the closing market price on the date of issuance.
On January 20, 2017, the Company entered into a Promissory Note with its controlling shareholder in the amount of $20,000.
On January 26, 2017, upon written consent of the board of directors and the majority shareholder, who holds enough common and preferred shares to create a greater than 80% voting position, Article I of the Articles of Incorporation was amended to change the corporate name to REAC Group, Inc. The effective date of the Amendment to the Articles of Incorporation is February 16, 2017.
On March 13, 2017 (the “Closing Date”), REAC Group, Inc. (the “Company”) entered into a Securities Purchase Agreement (“SPA”) with an institutional accredited investor (“Investor”) pursuant to which Investor invested $200,000 (the “Financing”). On the Closing Date, the Company issued to Investor a Secured Convertible Promissory Note (the “Note”) in the principal amount of $230,000, in exchange for payment by Investor of $200,000. The principal sum of the Note reflects the amount invested, plus a $20,000 “Original Issue Discount” (“OID”) and a $10,000 reimbursement of Investor’s legal fees. There is no material relationship between the Company or its affiliates and the Investor and the Company paid no commissions or other placement agent fees.
In connection with the Financing, and in addition to the SPA and the Note, on the Closing Date, the Company issued the Investor a Warrant, pursuant to which the Company granted the right to purchase at any time on or after Closing Date until the date which is the last calendar day of the month in which the third anniversary of the Closing Date occurs, a number of fully paid and non-assessable
Financial Statements
shares (the “Warrant Shares”) of Company’s common stock equal to $57,500 divided by the Market Price (as of the Closing Date). The SPA, the Note and the Warrant are collectively referred to herein as the “Transaction Documents.”
The Note matures in 10 months and is convertible into shares of the Company’s common stock at a conversion price equal to $0.25 per share (or market price if less than the conversion price). The Company may prepay the Note at any time by payment to Investor of 125% of the principal, interest and other amounts then due under the Note.
The Company is currently evaluating the accounting treatment for the transactions referenced in the above three paragraphs, including the effect of any beneficial conversion features or potential derivative liabilities.
Pursuant to the terms of the SPA and the Note, the Company is required to reserve and keep available out of its authorized and unissued shares of common stock a number of shares of common stock at least equal to three (3) times the number of shares issuable on conversion of the Note.
ITEM 9.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and acting Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
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) of the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
The Company’s 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 the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s 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. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management, under the supervision of the Company’s Chief Executive Officer and acting Chief Financial Officer, conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2016 under the criteria set forth in the in Internal Control-Integrated Framework.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or
Financial Statements
detected on a timely basis. Management has determined that material weaknesses exist due to a lack of segregation of duties, resulting from the Company's limited resources.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
No change in the Company’s internal control over financial reporting occurred during the year ended December 31, 2016, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B
ITEM 9B . OTHER INFORMATION
None.
Financial Statements
PART III
ITEM 10.
ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
Set forth below is a brief description of the background and business experience of our executive officers and directors for the past five years.
Management Team
Robert DeAngelis, President, Chief Executive Officer, Age 59
Robert DeAngelis is the Founder, President and Chief Executive Officer of REAC Group, Inc., and has been since the company’s inception in 2005. Mr. DeAngelis brings to the company over 20 years of successful business development and management experience along with a strong diverse background of sales, financial and internet experience. Mr. DeAngelis is responsible for running the overall day to day management operations of the companies’ administrative functions, corporate filings, strategic evolution direction of the business, the overall vision as well as the sales and marketing for the company.
From 1997-2005 Mr. DeAngelis developed a company named The Privilege Club, Inc. This company was a print and internet advertising company for upper scale retailers and business owners. Prior to developing The Privilege Club, between 1987 through 1997 he developed a print and newspaper advertising company named Shopping Center Promotions and Marketing, Inc. In this capacity, Mr. DeAngelis planned successful marketing and advertising strategies working with shopping center owners and management owners in the South Florida area. From 1979 through 1985, Mr. DeAngelis managed several branch real estate offices in Ft. Lauderdale, Florida consisting of Century 21, ERA and Realty World Franchises.
In 1974, Mr. DeAngelis received his Associate’s Degree in Applied Business and his Bachelor of Science in Business Administration in 1977 from Youngstown University, Youngstown, Ohio.
Term of Office
Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.
Code of Ethics
We have adopted a code of ethics since the final quarter of 2011 that applies to our principal executive officer, principal financial officer, and principal accounting officer as well as our employees. Our standards are in writing and are to be posted on our website at a future time. The following is a summation of the key points of the Code of Ethics we adopted:
·
Honest and ethical conduct, including ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
·
Full, fair, accurate, timely, and understandable disclosure reports and documents that a small business issuer files with, or submits to, the Commission and in other public communications made by our Company;
·
Full compliance with applicable government laws, rules and regulations;
·
The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and
·
Accountability for adherence to the code
Financial Statements
Corporate Governance
We are a small reporting company, not subject to the reporting requirements of Section 13(a) or 15(d) of the Exchange Act respecting any director. We have conducted special Board of Director meetings almost every month since inception. Each of our directors has attended all meetings either in person or via telephone conference. We have no standing committees regarding audit, compensation or other nominating committees. In addition to the contact information in private placement memorandum, each shareholder will be given specific information on how he/she can direct communications to the officers and directors of the corporation at our annual shareholders meetings. All communications from shareholders are relayed to the members of the Board of Directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Exchange Act, our directors and certain of our officers, and persons holding more than 10 percent of our common stock are required to file forms reporting their beneficial ownership of our common stock and subsequent changes in that ownership with the United States Securities and Exchange Commission. Such persons are also required to furnish Coastline Corporate Services, Inc. with copies of all forms so filed.
Based solely upon a review of copies of such forms filed on Forms 3, 4, and 5, and amendments thereto furnished to us, we believe that as of the date of this report, our executive officers, directors and greater than 10 percent beneficial owners complied on a timely basis with all Section 16(a) filing requirements.
ITEM 11.
ITEM 11.
EXECUTIVE COMPENSATION
The table below summarizes all compensation awarded to, earned by, or paid to our executive officers by any person for all services rendered in all capacities to us for the fiscal years ended December 31, 2016 and 2015.
The following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named executive officers paid by us during the years ended December 31, 2016 and 2015 in all capacities for the accounts of our executives, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO):
Executive Compensation
No other officer or director has received any compensation from us. Until we achieve significant operational revenues, it is not anticipated that any officer or director will receive compensation from us.
As of December 31, 2016 we have one full time employee, and plan to employ more qualified employees in the near future. On March 4, 2016 we renewed and amended the original three year employment agreement dated March 10, 2013, which had expired. We entered into a new three year employment agreement with Robert DeAngelis to serve as the President and Chief Executive Officer of the Company. Mr. DeAngelis will be paid a minimum of $10,000 per month plus performance bonuses. The agreement also stipulated that the Company is to issue stock for the purpose of maintaining voting control of the Company.
Additional Compensation of Directors
We have no stock option, retirement, pension, or profit-sharing programs for the benefit of directors, officers or other employees.
Financial Statements
Board of Directors and Committees
Our board of directors appoints our executive officers to serve at the discretion of the board. Our directors receive no compensation from us for serving on the board. Until we achieve significant operational revenues, we do not intend to reimburse our officers or directors for travel and other expenses incurred in connection with attending the board meetings or for conducting business activities.
Employment Agreements
Effective March 10, 2010, and subsequently renewed on March 4, 2013 and 2016 , we entered into an employment agreement with Robert DeAngelis, our Chief Executive Officer. The employment agreement is for a period of three years and can be cancelled upon written notice by either employee or employer (if certain employee acts of misconduct are committed). The total minimum aggregate annual amount due under the existing employment agreement is $120,000 plus bonuses. For the years ending December 31, 2016 and 2015, the Company awarded stock valued at $1,200,000 and $879,000, respectively.
Director Compensation
We have provided no compensation to our directors for services provided as directors.
Stock Option Grants
We have not granted any stock options to our executive officers since our incorporation.
ITEM 12.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information concerning the beneficial ownership of shares of our common stock with respect to stockholders who were known by us to be beneficial owners of more than 5% of our common stock as of December 31, 2016, and our officers and directors, individually and as a group. Unless otherwise indicated, the beneficial owner has sole voting and investment power with respect to such shares of common stock.
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission ("SEC") and generally includes voting or investment power with respect to securities. In accordance with the SEC rules, shares of our common stock which may be acquired upon exercise of stock options or warrants which are currently exercisable or which become exercisable within 60 days of the date of the table are deemed beneficially owned by the optionees, if applicable.
The following table provides the names and addresses of each person known to us to own more than 5% of our outstanding common stock as of December 31, 2016, and by the officers and directors, individually and as a group. All shares are owned directly.
* based on 47,988,085 shares issued and outstanding as of December 31, 2016
ITEM 13.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
As of December 31, 2016, Mr. DeAngelis beneficially owns 20,005,002 shares of common stock.
Financial Statements
ITEM 14.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table shows the fees that were billed for the audit and other services for the two year period. D'Ardelli Pruzansky, PA provided services for the years ended December 31, 2016 and 2015.
Audit Fees - This category includes the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the independent registered public accounting firm in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.
Audit-Related Fees - This category consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees.” The services for the fees disclosed under this category include consultation regarding our correspondence with the Securities and Exchange Commission and other accounting consulting.
Tax Fees - This category consists of professional services rendered by our independent registered public accounting firm for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.
All Other Fees - This category consists of fees for other miscellaneous items.
Our Board of Directors has adopted a procedure for pre-approval of all fees charged by our independent registered public accounting firm. Under the procedure, the Board approves the engagement letter with respect to audit, tax and review services. Other fees are subject to pre-approval by the Board, or, in the period between meetings, by a designated member of Board. Any such approval by the designated member is disclosed to the entire Board at the next meeting. The audit and review fees paid to the auditors with respect to 2016 were pre-approved by the entire Board of Directors. There were no consultation or tax fees paid to our auditors.
Pursuant to the requirements of 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.
Effective May 6, 2003, the Securities and Exchange Commission adopted rules that require that before our auditor is engaged by us to render any auditing or permitted non-audit related service, the engagement be:
·
approved by our audit committee; or
·
entered into pursuant to pre-approval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular service, the audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee's responsibilities to management.
We do not have an audit committee. Our entire board of directors pre-approves all services provided by our independent auditors.
The pre-approval process has just been implemented in response to the new rules. Therefore, our board of directors does not have records of what percentage of the above fees was pre-approved. However, all of the above services and fees were reviewed and approved by the entire board of directors either before or after the respective services were rendered.
Financial Statements
PART IV
ITEM 15
ITEM 15 . EXHIBITS, FINANCIAL STATEMENT SCHEDULES
*Pursuant to Item 601(32)(ii) of Regulation S-K, Exhibit 32 is not deemed “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, or otherwise subject to liability under that section.
**Pursuant to Rule 406T of Regulation S-T, the interactive XBRL files contained in Exhibit 101 hereto are deemed “not filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under that section.
Financial Statements
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
REAC Group, Inc.
Dated: April 17, 2017
By:
/s/ Robert DeAngelis
Robert DeAngelis
President
Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer and Director
In accordance with the requirements of the Securities Act of 1933, this registration statement was signed by the following persons in the capacities and on the dates stated.
Name
Title
Date
/s/ Robert DeAngelis
President
April 17, 2017
Robert DeAngelis
Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer and Director