On July 8, 2017, the Company’s Board of Directors approved the assignment of a convertible note payable to a different third-party. The total amount assigned was $27,846 which includes principal of $20,775 and accrued interest of $7,087. The terms of the original February 20, 2015 Convertible Promissory Note remain in effect and the note continues to accrue interest at a rate of 8% per annum until the note is paid in full. As of September 30, 2017, the Company has reserved 20,616,000 shares.
In connection with the assignment, the Company issued 3,350,000 common shares for a value of $3,350, which was applied against the balance of accrued interest on the note. As of September 30, 2017, the Company owed $20,775 and accrued interest of $4,505.
_____
On July 5, 2017, the Company entered into a Securities Purchase Agreement and related documents with an institutional accredited investor. On the Closing Date, the Company issued to Investor a Convertible Promissory Note in the principal amount of $175,000 in exchange for payment by Investor of $157,500. The principal sum of the Note reflects the amount invested, plus a $17,500 “Original Issue Discount”. 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. The SPA and the Note are collectively referred to herein as the “Transaction Documents.”
In connection with the Financing, and in addition to the Securities Purchase Agreement and the Secured Convertible Promissory Note, the Company issued a Warrant which grants the investor the right to purchase at any time on or after each tranche, and for a period of one year thereafter, a number of fully paid and non-assessable shares of the Company’s common stock equal to the amount of each tranche received under the Note divided by $0.05.
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 ten (10) times the number of shares issuable on conversion of the Note. As of September 30, 2017, the Company has reserved 15,000,000 shares.
On July 5, 2017, the Company entered into a Securities Purchase Agreement and related documents with an institutional accredited investor. On the Closing Date, the Company issued to Investor a Convertible Promissory Note in the principal amount of $175,000 in exchange for payment by Investor of $157,500. The principal sum of the Note reflects the amount invested, plus a $17,500 “Original Issue Discount”. 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. Pursuant to the terms of the Note, interest is accrued at a rate of 5% per annum and matures twelve months from the effective date of each payment. The note holder has the right at any time to convert all or any part of unpaid principal and interest into common shares of the Company equal to 50% multiplied by the Market Price; that being the lowest (1) trading price for the common stock during the twenty-five trading days prior to the conversion date.
In connection with the Financing, and in addition to the Securities Purchase Agreement and the Secured Convertible Promissory Note, the Company issued a Warrant which grants the investor the right to purchase at any time on or after each tranche, and for a period of one year thereafter, a number of fully paid and non-assessable shares of the Company’s common stock equal to the
14
amount of each tranche received under the Note divided by $0.05. The conversion option and the outstanding common stock warrants on that date will be classified as derivative liabilities at their fair value on the date of issuance. Under ASC-815 the conversion options embedded in notes payable require liability classification because the note does not contain an explicit limit to the number of shares that could be issued upon settlement.
_____
On May 5, 2017, the Company entered into a Securities Purchase Agreement (“SPA”) with an institutional accredited investor pursuant to which the Company received $165,000 in financing through the execution of a Convertible Promissory Note. In addition, the Company issued 1,153,000 shares of common stock for a value of $63,415 as consideration for entering into the financing agreement.
The Note matures in 10 months and is convertible into shares of the Company’s common stock at a conversion price equal to 50% of the lowest trading price per share during the previous twenty-five (25) trading days. The Company may prepay the Note within 90 days by payment to Investor of 135% of the outstanding principal, interest and other amounts then due under the Note or within 180 days by payment to Investor of 150% of the outstanding principal, interest and other amounts then due under the Note. After 180 days, the Company will have no right of prepayment.
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 and a half (3.5) times the number of shares issuable on full conversion of the Note. As of September 30, 2017, the Company has reserved 105,000,000 shares.
The Company determined that the conversion feature meets the definition of a liability and therefore bifurcated the conversion feature and accounted for it as a separate derivative liability. (see Note 10) 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. As of September 30, 2017, the Company owed $157,527 (net of debt discounts of $7,473) and accrued interest of $8,071.
_____
On March 13, 2017, the Company entered into an Agreement with an institutional Lender. On that date, the Company issued to the Lender a Secured Convertible Promissory Note in the principal amount of $230,000; of which, the Company has received $150,000 as of September 30, 2017. The principal sum of the Note reflects the amount borrowed, plus a $20,000 “Original Issue Discount” and a $10,000 reimbursement of Lender’s legal fees.
In connection with the Financing, and in addition to the Securities Purchase Agreement and the Secured Convertible Promissory Note, the Company issued a Warrant which grants the right to purchase at any time on or after March 13, 2017 and for a period of three years, a number of fully paid and non-assessable shares of the Company’s common stock equal to $57,500 divided by the Market Price as of the issue date.
The Secured Convertible Promissory 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. In the event the minimum market capitalization falls below $6,000,000, then the conversion price is the lesser of the stated price of $0.25 or the market price (as calculated pursuant to the Agreement). The Company may prepay the Note at any time by payment of 125% of the principal, interest and other amounts then due under the Note.
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. As of September 30, 2017, the Company has reserved 27,738,095 shares.
The Company determined that the conversion feature meets the definition of a liability and therefore bifurcated the conversion feature and accounted for it as a separate derivative liability. (see Note 10) 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.
On September 13, 2017, the Company issued 3,571,429 shares of common stock in satisfaction of $23,273 in principal and $6,727 in interest, for a total value of $30,000.
On September 29, 2017, the Company agreed to issue 3,690,476 shares of common stock in satisfaction of $30,519 in principal and $481 in interest, for a total value of $31,000. As of September 30, 2017, the Company has recorded the conversion against the debt and interest and credited common stock payable for the total value of $31,000.
As of September 30, 2017, the Company owed $158,913 (net of debt discounts of $50,314) and accrued interest of $6,058.
_____
On January 13, 2017, the Company’s Board of Directors approved the assignment of a convertible note payable to a different third-party. On May 8, 2017, the third party lender who accepted the assignment agreed to release the company from all
15
obligations under the note. As a result, the Company has recognized a gain on the extinguishment of debt in the amount of $51,821; which consisted of principal in the amount of $36,750 and $15,071 of interest.
_____
On April 12, 2017, the Company was released from its obligation to pay the remaining balance of a convertible note payable and has recorded a gain on the extinguishment of debt in the amount of $76,777; which consisted of principal in the amount of $71,000 and $5,777 of interest.
_____
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.
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 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 of principal and $66,571 of interest against the balance of a convertible note payable.
10. Derivatives and Fair Value
The Company evaluated the terms of the convertible notes and warrants, 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, true-up, or ratchet provisions), the Company determined that the embedded conversion options met the definition of a derivative. 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. Amortization of debt discounts on Company financing as of September 30, 2017 was $95,158, included in interest expense.
A derivative liability in the amount of $1,485,233 and $576,757 has been recorded as of September 30, 2017 and 2016, respectively, related to the above notes and warrants. The derivative value was calculated using the Binomial method.
Assumptions used in the derivative valuation were as follows:
|
|
|
|
|
|
|
September 30, 2017
|
|
Weighted Average:
|
|
|
|
Dividend rate
|
|
0.00%
|
|
Risk-free interest rate
|
1.31% - 1.62%
|
|
Expected lives (years)
|
.563yrs - 3yrs
|
|
Expected price volatility
|
424.45% - 1,088.21%
|
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 Binomial model for calculating the fair value as of September 30, 2017:
|
|
|
|
|
|
|
|
Carrying Value
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
Derivative Liabilities
|
$ 1,485,233
|
$ ---
|
$ ---
|
$ 1,485,233
|
$ 1,485,233
|
|
Total Derivative Liabilities
|
$ 1,485,233
|
$ ---
|
$ ---
|
$ 1,485,233
|
$ 1,485,233
|
16
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):
|
|
|
Fair Value Measurements using inputs
|
|
|
Balance, December 31, 2016
|
$ 699,090
|
|
Total (gain) losses realized and included in net loss
|
786,143
|
|
Balance, September 30, 2017
|
$ 1,485,233
|
11. Equity
Stock Subscriptions
On January 13, 2017, the Company issued 5,000 common shares for cash. Consideration to the Company was $5,000, or $1.00 per share.
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
On July 3, 2017, the Company’s Board of Directors authorized the issuance of 30,000,000 shares to the Company’s Chief Executive Officer as a performance bonus pursuant to his employment agreement. The shares were valued at $0.03, the quoted market price on the date of issuance, or $900,000.
On June 7, 2017, the Company issued 2,000,000 shares pursuant to a Service Agreement entered into on that date for investor relation services. The shares were valued at $0.05 per share, the closing market price on the date of issuance, or $100,000. On July 6, 2017, the Company terminated the investor relation agreement. The common shares issued in this transaction will remain issued and outstanding and the corresponding value of $100,000 was recorded to compensation expense.
On May 8, 2017, the Company issued 1,153,000 shares in consideration of financing received by the Company. The shares were valued at $0.055, the quoted market price on the date of issuance, or $63,415.
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 were valued at $3.20 per share, the closing market price on the date of issuance, or $32,000. These services were completed prior to September 30, 2017 and as a result the entire amount was recorded as compensation expense
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 Bioenergy in January 2017. An aggregate of 15,000,000 shares of common stock was issued and immediately vested, for an aggregate value of $1,800,000, which was included in compensation expense. The shares were valued at $0.12, the quoted market price on the date of issuance. In April 2017, the Company terminated the employees of Patriot and on May 25, 2017, 6,000,000 shares were returned to the Company and cancelled. The Company recorded the cancelled shares at their par value.
Warrants
On the July 10, 2017, and in connection with a Securities Purchase Agreement and a Secured Convertible Promissory Note, the Company issued a Warrant which grants the investor the right to purchase at any time on or after July 10, 2017, and for a period of one year thereafter, a number of fully paid and non-assessable shares of the Company’s common stock equal to the amount of the tranche received under the Note divided by $0.05. As of September 30, 2017, the Company had received $35,000 of loan proceeds; resulting in the issuance of a warrant to purchase 700,000 shares of the Company’s common stock. The fair value of the warrant at issuance was $12,565 and was recorded as a liability. The Company estimates the fair value at each reporting period using the Binomial Method and derivative liabilities in the amount of $32,466 and $0 were recorded as of September 30, 2017 and 2016, respectively.
On the March 13, 2017, and in connection with a Securities Purchase Agreement and a Secured Convertible Promissory Note, the Company issued a Warrant which grants the investor the right to purchase at any time on or after March 13, 2017, and for a period of three years thereafter, a number of fully paid and non-assessable shares of the Company’s common stock equal to $57,500 divided by the Market Price as of March 13, 2017. The Market Price, as calculated pursuant to the Warrant Agreement, was $0.1097 per share with 524,157 being the resulting number of warrant shares at issuance. The relative fair value of the warrant at issuance was $47,174, resulting in a debt discount equal to $10,326 which will be amortized over the life of the Warrant. The Company estimates the fair value at each reporting period using the Binomial Method and derivative liabilities in the amount of $24,643 and $0 were recorded as of September 30, 2017 and 2016, respectively.
17
Other
On July 10, 2017, the Company received and cancelled 50,000 common shares issued to Patriot Bioenergy. The Company recorded the cancelled shares at their par value. (see Note 5)
On July 10, 2017, the Company received and canceled 3,000,000 common shares issued to an employee of Patriot Bioenergy. The Company recorded the cancelled shares at their par value. (see Note 5)
During the year ended December 31, 2016, the Company issued 5,000,000 shares for web services. On May 1, 2017, the Company terminated the agreement and the shares were returned to the Company.
During the nine months ended September 30, 2017 and 2016 the Company recorded in-kind contributions for rent expense in the amount of $900, respectively.
The Company’s Board of Directors approved a reverse stock split of: 1:10,000 on July 15, 2016. All shares have been retroactively restated for this reverse stock split.
Amendments to the Articles of Incorporation
On July 21, 2017, the Board of Directors recommended and the majority shareholder (holding 94% of the voting shares) voted in favor of increasing the authorized capital of the Company from Two Hundred Fifty Million (250,000,000) shares, to One Billion (1,000,000,000) shares. The Company filed the Articles of Amendment with the Florida Department of State, to be effective August 1, 2017.
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 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.
As of September 30, 2017, the total number of shares this corporation is authorized to issue is 1,000,000,000 (one billion), allocated as follows among these classes and series of stock:
|
|
|
|
Designation
|
Par value
|
Shares
|
|
Common
|
$0.00001
|
999,000,000
|
|
Preferred Stock, Series A
|
$0.0001
|
500,000
|
18
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.
On June 6, 2017, the Company entered into a Service Agreement with a third party for Investor Relation Services. Pursuant to the terms of the Agreement, the Company is to pay $5,000 monthly for a period of six months for a total of $30,000. In addition, the Company agreed to issue common stock of the Company in two installments valued at $100,000 each. The first share installment is due on the date the Agreement was consummated (see Note 11); and the second share installment is due on day 90 of the Agreement. Shares issued in relation to this Agreement will be restricted for a period of twelve months, while the entire Agreement expires after a period of six months. On July 6, 2017, the Company terminated the investor relation agreement and the common shares issued in this transaction will remain issued and outstanding.
13. Subsequent Events
On October 2, 2017, the Company received $53,000 in financing through the execution of a Convertible Promissory Note associated with a Securities Purchase Agreement. The Note bears interest at a rate of 12% and matures 280 days from the purchase date. The Note is convertible into shares of the Company’s common stock after a period of 180 days at a conversion price equal to 61% multiplied by the average of the lowest two trading prices during the previous fifteen (15) days. After 180 days following the Issue Date, the Company will have no right of prepayment. The Company evaluated the terms of the convertible note 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 feature meets the definition of a liability and will therefore bifurcate the conversion feature and account for it as a separate derivative liability.
On October 6, 2017, the Company entered into a Convertible Promissory Note with an accredited investor pursuant to which the Company received $150,000 in financing and an initial tranche of $20,000. Each tranche paid under the Note matures in 12 months and is convertible into shares of the Company’s common stock after a period of six months at a conversion price equal to 50% of the lowest trading price per share during the previous ten (10) trading days.
The Company evaluated the terms of the convertible note 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 feature meets the definition of a liability and will therefore bifurcate the conversion feature and account for it as a separate derivative liability.
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto contained elsewhere in this Report. The following discussion and analysis contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements.
The following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto. This section 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.
Plan of Operations
Our plan of operation is to operate a real estate search engine portal website. We want to position our company as a national real estate search engine/social community network that matches buyers, sellers, brokers, and professionals anywhere in the world.
What Makes us Different
Real Estate professionals use the internet to generate leads. The top sources of internet leads are company and agent websites. Each real estate professional on our website will be the EXCLUSIVE agent in the city that they service in and will have their own
19
profile page that contains the agent’s information and bios with links to their listings. Each agent will also have their own exclusive city page that will feature advertising banners from various other local businesses that work in the real estate field such as local mortgage brokers, title companies, real estate attorneys, contractors, among others in the real estate profession.
Products and Services
Our new real estate search website,
https://realestatecontacts.com/
, will allow real estate professionals and consumers to interact through the internet as a business medium and features the real estate professional’s current listings and profiles in their geographic service areas enabling potential home buyers to view real estate listings and homes that are for sale and featured on the real estate professional’s website. This format is called a “lead-generation” program for real estate professionals that are on the
https://realestatecontacts.com/
portal website.
We aim to offer real estate agents, brokers, and offices the opportunity to become the exclusive real estate contact in the city that they serve on
https://realestatecontacts.com/
for a yearly fee.
We believe our services will empower consumers and drive more business for real estate professionals as well as small business owners. Participating real estate brokers, offices and agents receive coverage in the cities, areas and territories that they service.
The Company plans to generate its revenue from selling advertising to real estate professionals on our real estate portal.
Our business strategy is having the agent, broker, or office be exclusive in their city which will eliminate all of their competition for that city. 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, no one features real estate agents on exclusive basis. We believe this approach will be attractive to real estate professionals in each locale.
We plan to grow revenues from the advertising sales from real estate professionals on our current website 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, banner advertising and social media networks to help manage and geographically target consumer traffic and lead volume.
·
We plan to increase our online Search Engine Marketing to create more unique users Focus on driving more internet traffic and unique visitors to our websites by using these search engine marketing techniques.
The number of real estate professionals (advertisers) on our website is an important driver of revenue growth because each advertiser will pay a yearly fee to participate in the advertising of their services on our website.
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.
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.
For the three months ended September 30, 2017 compared to the three months ended September 30, 2016
The Company earned no revenues for the three month periods ended September 30, 2017 and 2016, respectively.
Operating expenses were $953,549 and $45,516 for the three month periods ended September 30, 2017 and 2016 and interest expense was $61,550 and $6,868, respectively. The Company recorded a loss of $1,789,202 for the three months ended September 30, 2017 as compared to a loss of $260,736 for the three months ended September 30, 2016. The change is largely
20
indicative of increased volatility in the fair value of the Company’s common stock and stock compensation issued to the Company’s executive officer.
For the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016
The Company earned no revenues for the nine month periods ended September 30, 2017 and 2016, respectively.
Operating expenses were $1,199,413 and $129,822 for the nine month periods ended September 30, 2017 and 2016 and interest expense was $206,113 and $65,328, respectively. The Company recorded a loss of $786,143 on the change in the fair value of its derivative financing for the nine months ended September 30, 2017, while recording a loss of $115,129 for the nine months ended September 30, 2016. The change is largely indicative of increased volatility in the fair value of the Company’s common stock. In addition, during the nine months ended September 30, 2017, the Company incurred an impairment loss on its investment in Patriot Bioenergy in the amount of $162,000. This included the fair value of the common stock issued for the assets of Patriot and $19,500 in cash expenses paid for by the Company on behalf of Patriot. The Company also recognized gains on the extinguishment of debt during the nine months ended September 30, 2017 and 2016 in the amounts of $128,598 and $36,223, respectively.
Capital Resources and Liquidity
The Company is currently financing its operations primarily through loans, equity sales and advances from shareholders. We believe we can currently satisfy our cash requirements for the next six months with our 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.
At September 30, 2017, the Company has cash in the amount of $61,251. The Company anticipates earning revenue, which will mitigate partial cash flow deficiencies, however at the present time we do not have revenues to cover our cash requirements. Management does not believe that is has adequate cash resources to meet the requirements to develop certain aspects of our business plan, however, should be sufficient to meet our current obligations, as the amount represents approximately nine months to one year of our run rate of operating expenses. In consideration of the potential shortfall in adequate resources, management has disclosed its going concern. and believes that financial support from the majority shareholder to pay minimal and necessary incurred expense will allow the Company to benefit from advertising revenue streams, currently in-place, to produce the anticipated cash flow necessary to support operations.
As of September 30, 2017, we had negative working capital of $2,697,415 and during the nine months ended September 30, 2017, we have used cash of $330,175 in our operating activities.
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. 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 significant continuing 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
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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.
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 notes to the financial statements included in this filing.
Critical Accounting Policies and Estimates
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 stock based compensation, derivative liabilities, valuation of our investment in affiliate, and deferred tax valuation allowances. We evaluate our estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.
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 made 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.
In February 2016, the FASB codified in ASC Topic 606,
Revenue From Contracts with Customers
. The transition provisions require a public business entity to adopt this standard beginning after December 31, 2017, including interim reporting periods within that reporting period. The Company does not believe that adoption of ASC 606 will have a significant impact on its financial statements at this time.
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.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
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Item 3.
Quantitative and Qualitative Disclosures About Market Risk
We are a Smaller Reporting Company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
(a)
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 Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), 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.
The Company is a small company with limited resources. There is insufficient staff for segregation of duties of accounting functions and for levels of review of our report filings. Due to these constraints, management considers that a material weakness in financial reporting currently exists. Through the use of outside consultants, management is taking actions to remediate this deficiency, including attaining new or additional Board members for oversight.
A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) auditing standard) or combination of control deficiencies that result in more than remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.
(b)
Changes in internal control over financial reporting.
There have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1.
Legal Proceedings.
None.
Item 1A.
Risk Factors.
We are a Smaller Reporting Company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3.
Defaults Upon Senior Securities.
None.
Item 4.
Mine Safety Disclosure.
None.
Item 5.
Other Information.
None.
Item 6.
Exhibits.
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Exhibit Number
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Description
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31.1
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Certification by the Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Filed herewith
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32.1
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Certification by the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C Section 1350 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Filed herewith
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101*
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Financial statements from the quarterly report on Form 10-Q of REAC GROUP, , Inc. for the quarter ended September 30, 2017, formatted in XBRL: (i) the Balance Sheet, (ii) the Statement of Income, (iii) the Statement of Cash Flows and (iv) the Notes to the Financial Statements.
Filed herewith
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*Pursuant to Rule 406T of Regulation S-T, the XBRL files contained in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, 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 those sections.
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 thereunto duly authorized.
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REAC GROUP, INC.
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Dated: November 14, 2017
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By:
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/s/ROBERT DEANGELIS
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Robert DeAngelis
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President,
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Principal Executive Officer, Principal Financial Officer
Principal Accounting Officer and Director
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