Notes to the Financial Statements
(Unaudited)
For the three months ended March 31, 2016
1.
Background Information
Real Estate Contacts, Inc. ("The Company") was formed on March 10, 2005 as a Florida Corporation and is based in Parrish, Florida. The Company engages in the ownership and operation of a real estate advertising portal website. Real Estate Contacts, Inc. provides 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. We enable real estate professionals to better promote themselves and their listings and connect with transaction-ready consumers through our online website. Our current real estate search website will enable real estate professionals to increase their visibility and promote their listings.
Real Estate Contacts, Inc. provides 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 Companys business is conducted solely within the Internet and the Online Video arena.
2.
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim information and with the instructions to Form 10-Q and Regulation S-K. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.
In the opinion of management, all adjustments consisting of a normal and recurring nature considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2016 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2016.
For further information, refer to Real Estate Contacts, Inc.s (the Company) audited financial statements and notes thereto included in the year ended December 31, 2014 Form 10K filed with the Securities and Exchange Commission.
All share and per share information contained in this report gives retroactive effect to a 1 for 1,000 reverse stock split of our outstanding common stock, effective June 10, 2014, a 1 for 10 reverse stock split, effective January 21, 2015 and a 1 for 100 reverse stock split effective June 15, 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 most significant estimates are for stock based compensation, and derivative assumptions used in calculating derivative liabilities and valuation and estimated useful life of website. 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 2014 and 2015, which were retroactively adjusted to presentations of the 2015 balance sheet. These reclassifications had no effect on reported losses.
Financial Instruments
The Companys balance sheets include the following financial instruments: cash, accounts payable, accrued expenses, notes payable and payables to a stockholder. The carrying amounts of current assets and current liabilities approximate their fair value 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
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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 entitys 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 March 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.
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
The majority of 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 March 31, 2016 or as of 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. All costs associated with these websites are subject to straight-line amortization over there expected useful life, a five year period.
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.
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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.
Due to multiple issues with our programmer, who hosts our website, management believes that the website may not be functional to the required specification. Management believes that significant modifications may be necessary. Based on the information available to management, in consideration of all issues, an impairment loss of $92,449 was recognized in the quarter ended December 31, 2015 for the carrying value of the website development costs.
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 services are paid 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, net of any estimates for chargebacks or refunds. 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.
Stock 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 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.
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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, 2015, tax years ended December 31, 2014, 2013, and 2012 are still potentially subject to audit by the taxing authorities.
Earnings Per Share
Basic income per common share is computed based upon the weighted average common shares outstanding as defined by FASB ASC No. 260,
Earnings Per Share
.
Diluted income per share includes 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. As of March 31, 2016 there were approximately 6,100,523,000 share equivalents, as calculated, for potential conversion demand of our outstanding convertible notes.
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 corporations 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.
3.
Going Concern
The accompanying unaudited 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 has a history of losses and has incurred a net loss for the three month period ending March 31, 2016 of $154,868. Additionally, the Company has negative working capital of approximately $1.6 million at March 31, 2016, along with an accumulated deficit of approximately $16.5 million and a stockholders deficit of approximately $1.6 million and negative operating cash flows of approximately $3,300 for the three months ended March 31, 2016. These conditions raise substantial doubt about the Companys ability to continue as a going concern. The Company depends upon capital to be derived from future financing activities such as subsequent offerings of its common stock or debt financing in order to operate and grow the business. There can be no assurance that the Company will be successful in raising such capital. 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.
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.
Related Party Transactions
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 three months ending March 31, 2016 and 2015, the Company recorded compensation expense in the amount of $30,000 and $30,000, respectively.
The majority shareholder has advanced funds or deferred contractual salaries since inception, for the purpose of financing working capital and product development. As of March 31, 2016, the Company owed $131,440. There are no repayment terms to these advances and deferrals. The Company has accrued interest at a minimal variable rate, currently 3%. Management will periodically adjust this rate following guidelines of applicable federal rates.
Additionally, the majority shareholder has advanced funds, in the form of promissory notes, in the amount of $25,750 as of March 31, 2016. These promissory notes mature and are payable in six months from the date issued and have a minimal stated interest. Interest is accrued at 3% on these notes.
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Total interest accrued on these advances and notes is $9,983 as of March 31, 2016.
The Company has minimal needs for facilities and operates from office space provided by the majority shareholder. There are no lease terms. For the three months ended March 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 $300 and $0 for the three months ended March 31, 2016 and 2015, respectively. The rental value provided 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.
During the three months ended March 31, 2016 and 2015, the Company issued nil and 48,500,000 shares, respectively, of common stock to the Chief Executive Officer in exchange for services. These shares were valued at the closing market prices of the stock at the date of grant, resulting in the recognition of $0 and $1,140,000 in compensation expense.
5.
Accrued Liabilities
Accrued expenses consist of: