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CalEthos, Inc. - Quarter Report: 2018 March (Form 10-Q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the quarterly period ended March 31, 2018
   
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the transition period from __________ to __________

 

Commission File No. 000-50331

 

REALSOURCE RESIDENTIAL, INC.
(Exact name of registrant as specified in its charter)

 

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

 

2089 East Fort Union Blvd.,
Salt Lake City, Utah
  84121
(Address of Principal Executive Offices)   (Zip Code)

 

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

 

 
(Former name, former address and former fiscal year, if changed since last report)

 

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

 

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

 

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

 

[  ] Large accelerated filer [  ] Accelerated filer
[  ] Non-accelerated filer [X] Smaller reporting company
    [  ] Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes [X] No [  ]

 

As of May 14, 2018, the registrant had 15,719,645 shares of common stock outstanding.

 

 

 

 
 

 

RealSource Residential, Inc.

 

Quarterly Report on Form 10-Q

 

TABLE OF CONTENTS

 

    Page
     

Cautionary Note Regarding Forward-Looking Statements

-ii-
     
PART 1-FINANCIAL INFORMATION  
     
Item 1. Financial Statements (unaudited)  
     
  Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017 F-2
     
  Statements of Operations for the three months ended March 31, 2018 and 2017 (Unaudited) F-3
     
  Statement of Changes in Stockholders’ Equity for the interim period ended March 31, 2018 (Unaudited) F-4
     
  Statements of Cash Flows for the three months ended March 31, 2018 and 2017 (Unaudited) F-5
     
  Notes to Financial Statements F-6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 1
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 3
     
Item 4. Control and Procedures 3
     
PART II-OTHER INFORMATION  
     
Item 1. Legal Proceedings 4
     
Item 1A. Risk Factors 4
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 4
     
Item 3. Defaults Upon Senior Securities 4
     
Item 4. Mine Safety Disclosures 4
     
Item 5. Other Information 4
     
Item 6. Exhibits 4
     
SIGNATURES 5

 

 
 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain information set forth in this Quarterly Report on Form 10-Q, including in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein may address or relate to future events and expectations and as such constitutes “forward-looking statements” within the meaning of the Private Securities Litigation Act of 1995. Statements which are not historical reflect our current expectations and projections about our future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and their interpretation of what is believed to be significant factors affecting our business, including many assumptions regarding future events. Such forward-looking statements include statements regarding, among other things:

 

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

 

Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “would,” “could,” “scheduled,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these words or comparable terminology. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially and perhaps substantially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors. These statements may be found under the section of our Annual Report on Form 10-K for the fiscal-year ended December 31, 2017 (filed on March 28, 2018) entitled “Risk Factors” as well as in our other public filings.

 

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

 

 -ii- 

 

 

RealSource Residential, Inc.

 

March 31, 2018 and 2017

 

Index to the Financial Statements

 

Contents   Page(s)
     
Balance Sheets at March 31, 2018 (Unaudited) and December 31, 2017   F-2
     
Statements Operations for the three months ended March 31, 2018 and 2017 (Unaudited)   F-3
     
Statement of Changes in Stockholders’ Equity for the Interim Period ended March 31, 2018 (Unaudited)   F-4
     
Statements of Cash Flows for the three months ended March 31, 2018 and 2017 (Unaudited)   F-5
     
Notes to the Financial Statements (Unaudited)   F-6

 

F-1 

 

 

RealSource Residential, Inc.

Balance Sheets

 

   March 31, 2018   December 31, 2017 
   (Unaudited)     
         
ASSETS          
CURRENT ASSETS:          
Cash  $3,837   $7,161 
           
Total Current Assets   3,837    7,161 
           
Total Assets  $3,837   $7,161 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
CURRENT LIABILITIES:          
Accounts payable  $8,362   $3,774 
           
Total Current Liabilities   8,362    3,774 
           
Total Liabilities   8,362    3,774 
           
STOCKHOLDERS’ EQUITY          
          
Preferred stock par value $0.001: 100,000,000 shares authorized; none issued or outstanding   -    - 
Common stock par value $0.001: 100,000,000 shares authorized; 15,719,645 shares issued and outstanding   15,719    15,719 
Additional paid-in capital   7,586,426    7,586,426 
Accumulated deficit   (7,606,669)   (7,598,758)
           
Total Stockholders’ Equity   (4,524)   3,387 
           
Total Liabilities and Stockholders’ Equity  $3,837   $7,161 

 

See accompanying notes to the financial statements.

 

F-2 

 

 

RealSource Residential, Inc.

Statements of Operations (Unaudited)

 

   For the 3 Months Ended   For the 3 Months Ended 
   March 31, 2018   March 31, 2017 
         
Operating expenses:          
Professional fees  $6,524   $7,050 
General and administrative expenses   1,388    2,086 
           
Total operating expenses   7,913    9,136 
           
Loss from operations   (7,913)   (9,136)
           
Other (income) expense:          
Interest and finance charges   -      
Interest income   (1)   (9)
           
Other (income) expense, net   (1)   (9)
           
Loss before income tax provision   (7,912)   (9,127)
           
Income tax provision   -    - 
           
Net Loss  $(7,912)  $(9,127)
           
Earings per share:          
- Basic and diluted  $(0.00)  $(0.00)
           
Weighted average common shares outstanding:          
- Basic and diluted   15,719,645    15,719,645 

 

See accompanying notes to the financial statements.

 

F-3 

 

 

RealSource Residential, Inc.

Statement of Changes in Stockholders’ Equity

For the Interim Period Ended March 31, 2018

 

   Common Stock
Par Value $0.001
   Additional       Total 
   Number of       Paid-in   Accumulated   Stockholders’ 
   Shares   Amount   Capital   Deficit   Equity 
                     
Balance, December 31, 2016   15,719,645   $15,719   $7,586,426   $(7,573,180)  $28,965 
                          
Net loss                  (25,578)   (25,578)
                          
Balance, December 31, 2017   15,719,645    15,719    7,586,426    (7,598,758)   3,387 
                          
Net loss (Unaudited)                  (7,912)   (7,912)
                          
Balance at March 31, 2018 (Unaudited)   15,719,645   $15,719   $7,586,426   $(7,606,669)  $(4,524)

 

See accompanying notes to the financial statements.

 

F-4 

 

 

RealSource Residential, Inc.

Statements of Cash (Unaudited)

 

   For the 3 Months Ended   For the 3 Months Ended 
   March 31, 2018   March 31, 2017 
         
Cash flows from operating activities:          
Net loss  $(7,912)  $(9,127)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:          
Accounts payable and accrued interest   4,588    - 
           
Net cash provided by (used in) operating activities   (3,324)   (8,802)
           
Net change in cash   (3,324)   (8,802)
           
Cash at beginning of reporting period   7,161    28,640 
           
Cash at end of reporting period  $3,837   $19,838 
           
Supplemental disclosure of cash flows information:          
Interest paid  $-   $- 
Income tax paid  $-   $- 

 

See accompanying notes to the financial statements.

 

F-5 

 

 

RealSource Residential, Inc.

March 31, 2018 and 2017

Notes to the Financial Statements

(Unaudited)

 

Note 1 - Organization and Operations

 

Upstream Biosciences, Inc.

 

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

 

Change in Control

 

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

 

RealSource Residential, Inc.

 

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

 

Note 2 - Significant and Critical Accounting Policies and Practices

 

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

 

Basis of presentation

 

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

 

Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date(s) of the financial statements and the reported amounts of revenues and expenses during the reporting period(s).

 

F-6 

 

 

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

 

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

 

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

 

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

 

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

 

Actual results could differ from those estimates.

 

Fair Value of Financial Instruments

 

The Company held no financial instruments as of March 31, 2018 or December 31, 2017.

 

Cash Equivalents

 

The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. At March 31, 2018 and December 31, 2017, the Company held only cash deposits at a financial institution.

 

Related Parties

 

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

 

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

 

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

 

F-7 

 

 

Commitments and Contingencies

 

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

 

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

 

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

 

Revenue Recognition

 

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

 

Deferred Tax Assets and Income Taxes Provision

 

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

 

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

 

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

 

Tax years that remain subject to examination by major tax jurisdictions

 

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

 

Earnings Per Share

 

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

 

F-8 

 

 

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

 

The Company’s warrants were as follows:

 

   Contingent shares issuance arrangement, stock options or warrants 
         
   For the Reporting Period Ended
Mar 31, 2018
   For the Reporting Period Ended
Dec 31, 2017
 
         
Warrant Shares          
           
Common Stock Purchase Warrants (collectively, the “Warrants”) to purchase 10,000 shares (the “Warrant Shares”) of common stock of the Company (the “Common Stock”) with an exercise price of $.50 per share expiring December 9, 2020.   2,310,000    2,310,000 
           
Total warrants   2,310,000    2,310,000 

 

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

 

Cash Flows Reporting

 

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

 

Subsequent Events

 

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

 

Note 3 – Going Concern

 

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

 

As reflected in the financial statements, the Company had an accumulated deficit at March 31, 2018 and a net loss for the reporting period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

F-9 

 

 

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

 

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

 

Note 4 – Stockholders’ Equity (Deficit)

 

Shares Authorized

 

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

 

Common Stock

 

Warrants

 

Summary of the Company’s Warrants Activities

 

The table below summarizes the Company’s warrants activities for the reporting period ended March 31, 2018:

 

   Number of Warrant Shares   Exercise Price Range Per Share   Weighted Average Exercise Price   Relative Fair Value at Date of Issuance  

Aggregate

Intrinsic

Value

 
                     
Balance, December 31, 2017   2,310,000   $.50   $.50   $*   $- 
                          
Granted   -    -    -    -    - 
                          
Canceled   -    -    -    -    - 
                          
Exercised   -    -    -    -    - 
                          
Expired   -    -    -    -    - 
                          
Balance, March 31, 2018   2,310,000   $.50   $.50   $*   $- 
                          
Earned and exercisable, Mar. 31, 2018   2,310,000   $.50   $.50   $*   $- 
                          
Unvested, Mar 31, 2018   -   $-   $-   $-   $- 

 

* The relative fair values at date of issuance and subsequent measurement were de minimis.

 

The following table summarizes information concerning outstanding and exercisable warrants as of March 31, 2018:

 

    Warrants Outstanding  Warrants Exercisable
Range of Exercise Prices   Number Outstanding  Average Remaining Contractual Life (in years)   Weighted Average Exercise Price   Number Exercisable  Average Remaining Contractual Life (in years)   Weighted Average Exercise Price 
                             
$.50   2,310,000   3.7   $.50    2,310,000   3.7   $.50 

 

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

 

   December 9, 2013 
     
Expected life (year)   3.7 
      
Expected volatility (*)   28.7%
      
Expected annual rate of quarterly dividends   0.00%
      
Risk-free rate(s)   1.93%

 

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

 

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

 

Note 5 – Subsequent Events

 

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

 

F-10 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion should be read in conjunction with our financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the financial statements and related notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2017.

 

This discussion contains certain forward-looking statements that involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those discussed in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth herein and elsewhere in this Quarterly Report and in our other filings with the Securities and Exchange Commission. See “Cautionary Note Regarding Forward Looking Statements.”

 

Corporate History and Recent Developments

 

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

 

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

 

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

 

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

 

Critical Accounting Policies

 

Our financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States (US GAAP). Our fiscal year ends December 31.

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations discuss our financial statements, which have been prepared in accordance with US GAAP. The preparation of these financial statements requires making estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses for the reporting periods. On an ongoing basis, we evaluate such estimates and judgments. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ (perhaps significantly) from these estimates under different assumptions or conditions.

 

While all the accounting policies impact the financial statements, certain policies may be viewed to be critical. Our management believes that the accounting policies which involve more significant judgments and estimates used in the preparation of our consolidated financial statement include derivative liability, stock-based compensation, capitalization of costs and useful lives of assets:

 

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Results of Operations

 

For the three months ended March 31, 2018 compared to the three months ended March 31, 2017:

 

Revenues

 

We had no revenues for the three-month periods ended March 31, 2018 and 2017

 

Expenses

 

Operating costs for the three months ended March 31, 2018 were $7,913, compared to $9,136 for the three months ended March 31, 2017. The decrease results from reduced operating activities as a shell company. The expenses in 2018 primarily include audit, filing, legal and transfer agent fees.

 

Other income and expense

 

Other income for the quarters ended March 31, 2018 and 2017 consisted of interest on our cash deposits.

 

Net loss

 

Net loss for the three-month periods ended March 31, 2018 and 2017 was $7,912 and $9,127, respectively consisting primarily of filing fees, transfer agent costs, legal and accounting expenses.

 

Plan of Operations and Cash Requirements for the Next 12 Months

 

Anticipated Cash Requirements

 

Over the next 12 months, we estimate our minimum operating cash requirements to be as follows:

 

Legal and accounting fees  $12,000 
General and administrative expenses   2,000 
Corporate communications and SEC filing fees   5,000 
Total  $19,000 

 

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

 

At March 31, 2018, we had working capital deficit of $4,525. For the next 12 months, we expect our minimum cash requirements to be approximately $19,000. Based on cash available, we will need to raise approximately $23,500 to meet our 12 months of operating expenses and we expect to secure such cash from our officers, directors or affiliates.

 

Liquidity and Capital Resources

 

Our financial position as at March 31, 2018 and December 31, 2017 and the changes for the three months then ended are as follows:

 

Working Capital

 

   As of
March 31, 2018
   As of
December 31, 2017
 
         
Current Assets  $3,837   $7,161 
Current Liabilities   8,362    3,774 
Working Capital (Deficit)  $(4,525)  $3,387 

 

At March 31, 2018, we had $3,837 in cash. Working capital decreased by $7,912 from December 31, 2017 to March 31, 2018 as a result of operating expenses for the quarter.

 

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Cash Flows

 

   3 Months Ended March 31, 2018   3 Months Ended March 31, 2017 
         
Net cash provided by (used in) Operating Activities  $(3,324)  $(8,802)
Net cash provided by Investing Activities   -    - 
Net cash (used in) Financing Activities   -    -)
(Decrease) increase in Cash during the Period   (3,324)   (8,802)
Cash, Beginning of Period   7,161    28,640 
Cash, End of Period  $3,837   $19,838 

 

Our net cash used in operating activities was $3,324 and $8,802 for three-month periods ended March 31, 2018 and 2017, respectively resulting from operating expenses.

 

Off-Balance Sheet Arrangements

 

As of March 31, 2018, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

We are a smaller reporting company and therefore are not required to provide the information for this item for Form 10-Q.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this Report, our Chief Executive Officer and Chief Financial Officer (our Certifying Officers), conducted evaluations of our disclosure controls and procedures. As defined under Sections 13a – 15(e) and 15d – 15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosures.

 

Based on their evaluation, the Certifying Officers concluded that, as of March 31, 2018, our disclosure controls and procedures were not effective.

 

The material weakness which relate to internal control over financial reporting that was identified at March 31, 2018 that we did not have sufficient personnel staffing in our accounting and financial reporting department. As a result, we were not able to achieve adequate segregation of duties and were not able to provide for adequate review of the financial statements.

 

This control deficiency could result in a reasonable possibility that material misstatements of the financial statements will not be prevented or detected on a timely basis. However, our management believes that the material weakness identified does not result in the restatement of any previously reported financial statements or any other related financial disclosure, and management does not believe that the material weakness had any effect on the accuracy of our financial statements included as part of this Quarterly Report.

 

We will continue to monitor and evaluate the effectiveness of our disclosure controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking action and implementing additional enhancements or improvements, as necessary and as funds allow.

 

Changes in internal control over financial reporting.

 

There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Limitations on the Effectiveness of Internal Controls

 

Readers are cautioned that our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our control have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any control design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

 

 3 

 

 

PART II- OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

None.

 

Item 1A. Risk Factors.

 

As of the date of this Quarterly Report there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

None.

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits.

 

No.   Description of Exhibit
31.1   Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2   Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1   Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act 0f 2002
32.2   Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act 0f 2002
101.INS *   XBRL Instance Document
101.CAL *   XBRL Taxonomy Extension Calculation Linkbase Document
101.SCH *   XBRL Taxonomy Extension Schema Document
101.DEF *   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB *   XBRL Taxonomy Extension Labels Linkbase Document
101.PRE *   XBRL Taxonomy Extension Presentation Linkbase Document

 

* XBRL (eXtensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: May 14, 2018 RealSource Residential, Inc.
     
  By: /s/ Nathan W. Hanks
  Name: Nathan W. Hanks
  Title: President and Chief Executive Officer
     
  By: /s/ V. Kelly Randall
  Name: V. Kelly Randall
  Title: Chief Operating Officer and Chief Financial Officer

 

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