UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q/A

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2019

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______to______.

 

REAC GROUP, INC.

(Exact name of registrant as specified in charter)

 

Florida

 

000-54845

 

59-3800845

(State or other jurisdiction of

incorporation or organization)

 

(Commission File

 Number)

 

(I.R.S Employer

Identification No.)

 

3400 NW 74th Street

Miami, FL 33122

(Address of principal executive offices)

 

305-503-1200

(Registrant’ s telephone number, including area code)

 

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 ☒    No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒    No ☐

 

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

 

Large accelerated filer.

Accelerated filer.

Non-accelerated filer.

Smaller reporting company.

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to 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 ☐    No ☒

 

As of June 15, 2021 there are 28,933,048 shares, par value $0.00001, of the issuer’ s common stock issued and outstanding.

 

 

 

  

REAC GROUP, INC.

 

QUARTERLY REPORT ON FORM 10-Q/A

June 30, 2019

 

TABLE OF CONTENTS

 

 

PAGE

PART 1 - FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (Unaudited)

4

Item 2.

Management’ s Discussion and Analysis of Financial Condition and Results of Operations

27

Item 3

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.

Controls and Procedures

31

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

32

Item 3.

Defaults Upon Senior Securities

32

Item 4.

Mine Safety Disclosures

32

Item 5.

Other Information

32

Item 6.

Exhibits

33

 

 

 

SIGNATURES

34

 

2

Table of Contents

  

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

 

This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.

 

We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.

 

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.

 

Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

 

CERTAIN TERMS USED IN THIS REPORT

 

When this report uses the words “we,” “us,” “our,” and the “Company,” they refer to REAC Group, Inc. When this report uses “SEC”, it refers to the Securities and Exchange Commission.

 

EXPLANATORY NOTE

 

The Company is filing this amendment in order to correct errors made during the period ending March 31, 2019. The original report filed on May 20, 2019 reported gains on forgiveness of debt related to two of the Company’ s convertible notes payable. During the audit process for the Company’ s 10-K annual report ending December 31, 2019, our auditors determined that the Company did not have sufficient and verifiable documentation to support the debt forgiveness previously recorded.

 

Therefore, and as a result, the Company recognizes that there is a material deficiency in its controls over financial reporting. Subsequent to the period ended March 31, 2019, the Company has undergone a change in control and new management has taken subsequent steps to alleviate deficiencies of this nature (See Part 1, Item 4). The effect of the restatement to the Company’ s financial statements is disclosed in Footnote 3 to these financial statements.

 

 
3

Table of Contents

  

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements. (unaudited)

 

Index to Financial Statements

 

REAC Group, Inc.

 

Contents

 

Financial Statements:

Page Number

 

 

Balance Sheets, as of June 30, 2019 (restated) and December 31, 2018

5

 

 

Statements of Operations for the three and six months ended June 30, 2019 (restated) and 2018

6-7

 

 

Statements of Stockholders’ deficit for the three and six months ended June 30, 2019 (restated) and 2018

8-9

 

 

Statements of Cash Flows for the six months ended June 30, 2019 (restated) and 2018

10

 

 

Notes to Financial Statements, as of June 30, 2019 (unaudited)

11

 

 
4

Table of Contents

  

REAC GROUP, Inc.

Balance Sheets

 

 

 

June 30,

2019

 

 

December 31,

2018

 

 

 

(restated)

 

 

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash

 

$ 317

 

 

$ 1,162

 

Total current assets

 

 

317

 

 

 

1,162

 

 

 

 

 

 

 

 

 

 

Total assets

 

$ 317

 

 

$ 1,162

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Deficit

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$ 18,200

 

 

$ 3,000

 

Accrued interest

 

 

105,400

 

 

 

54,119

 

Accrued salaries, payroll taxes and related expenses

 

 

964,568

 

 

 

807,108

 

Convertible notes payable, net of discounts of $-0- and $4,915, respectively

 

 

506,412

 

 

 

488,823

 

Due to principal stockholder, related party

 

 

7,625

 

 

 

-

 

Total current liabilities

 

 

1,602,205

 

 

 

1,353,050

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

1,602,205

 

 

 

1,353,050

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (Note 12)

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Stockholders’ Deficit

 

 

 

 

 

 

 

 

Preferred Stock A, $.0001 par value, 500,000 shares authorized; 500,000 and 50,935 issued and outstanding at June 30, 2019 and December 31, 2018, respectively

 

 

50

 

 

 

50

 

Preferred Stock B, $.0001 par value, 500,000 shares authorized; none issued and outstanding

 

 

-

 

 

 

-

 

Common Stock, $0.00001 par value, 200,000,000 shares authorized; 15,077,517 and 50,441 shares issued and outstanding, at June 30, 2019 and December 31, 2018, respectively

 

 

150

 

 

 

-

 

Additional paid-in capital

 

 

25,049,065

 

 

 

22,034,695

 

Accumulated deficit

 

 

(26,651,153 )

 

 

(23,386,633 )

Total stockholders’ deficit

 

 

(1,601,888 )

 

 

(1,351,888 )

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Deficit

 

$ 317

 

 

$ 1,162

 

 

The accompanying notes are an integral part of these unaudited financial statements. 

 

 
5

Table of Contents

  

REAC GROUP, Inc.

Statements of Operations

(unaudited)

 

 

 

For the Three Months Ended

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

 

(restated)

 

 

 

Revenues

 

$ -

 

 

$ -

 

 

Operating expenses:

Compensation and related costs

 

 

32,621

 

 

 

32,621

 

Professional

 

 

7,324

 

 

 

16,879

 

General and administrative

 

 

450

 

 

 

1,147

 

Total operating expenses

 

 

40,395

 

 

 

50,647

 

 

 

 

 

 

 

 

 

 

(Loss) from operations

 

 

(40,395 )

 

 

(50,647 )

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense

 

 

(26,722 )

 

 

(15,607 )

Gain on extinguishment of debt

 

 

-

 

 

 

20,589

 

Total other income (expense)

 

 

(26,722 )

 

 

4,982

 

(Loss) before provision for income taxes

 

 

(67,117 )

 

 

(45,665 )

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Net (Loss)

 

$ (67,117 )

 

$ (45,665 )

 

 

 

 

 

 

 

 

 

(Loss) per share, basic and dilutive

 

$ (0.00 )

 

$ (0.20 )

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic and dilutive

 

 

15,069,601

 

 

 

231,075

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 
6

Table of Contents

  

REAC GROUP, Inc.

Statements of Operations

(unaudited)

 

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

 

(restated) 

 

 

 

 

Revenues

 

$ -

 

 

$ -

 

 

Operating expenses:

Compensation and related costs

 

 

3,157,461

 

 

 

385,569

 

Professional

 

 

33,354

 

 

 

35,433

 

General and administrative

 

 

915

 

 

 

2,350

 

Total operating expenses

 

 

3,191,730

 

 

 

423,352

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(3,191,730 )

 

 

(423,352 )

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense

 

 

(58,696 )

 

 

(33,942 )

Gain on extinguishment of debt

 

 

-

 

 

 

20,589

 

Debt financing penalties

 

 

(14,094 )

 

 

-

 

Gain on write off of warrant liability

 

 

-

 

 

 

35,047

 

Total other income (expense)

 

 

(72,790 )

 

 

21,694

 

(Loss) before provision for income taxes

 

 

(3,264,520 )

 

 

(401,658 )

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Net (Loss)

 

$ (3,264,520 )

 

$ (401,658 )

 

 

 

 

 

 

 

 

 

(Loss) per share, basic and dilutive

 

$ (0.34 )

 

$ (1.89 )

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic and dilutive

 

 

9,676,116

 

 

 

212,771

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 
7

Table of Contents

  

REAC Group, Inc.

Statements of Changes in Stockholders’ Deficit

for the three and six months ended June 30, 2019

(unaudited)

 

 

 

Series A Preferred Shares

 

 

Par Value

 

 

Common

Shares

 

 

Par Value

 

 

Additional

Paid in

 Capital

 

 

Accumulated Deficit

 

 

Total

Deficiency

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2018

 

 

500,000

 

 

$ 50

 

 

 

50,441

 

 

$ -

 

 

$ 22,034,695

 

 

$ (23,386,633 )

 

$ (1,351,888 )

 

In kind contribution of rent

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

300

 

 

 

-

 

 

 

300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares issued as compensation and for services

 

 

-

 

 

 

-

 

 

 

15,000,000

 

 

 

150

 

 

 

2,999,850

 

 

 

-

 

 

 

3,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued in satisfaction of loan debt and interest

 

 

-

 

 

 

-

 

 

 

4,900

 

 

 

-

 

 

 

3,920

 

 

 

-

 

 

 

3,920

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fractional shares issued in stock split

 

 

 

 

 

 

 

 

 

 

2,176

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss for the three months

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,197,403 )

 

 

(3,197,403 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2019

 

 

500,000

 

 

$ 50

 

 

 

15,057,517

 

 

$ 150

 

 

$ 25,038,765

 

 

$ (26,584,036 )

 

$ (1,545,071 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In kind contribution of rent

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

300

 

 

 

-

 

 

 

300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares issued for cash

 

 

-

 

 

 

-

 

 

 

20,000

 

 

 

-

 

 

 

10,000

 

 

 

-

 

 

 

10,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares issued as compensation and for services

 

 

-

 

 

 

-

 

 

 

2,500,000

 

 

 

25

 

 

 

1,374,975

 

 

 

-

 

 

 

1,375,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares issued as compensation and for services returned and cancelled

 

 

-

 

 

 

-

 

 

 

(2,500,000 )

 

 

(25 )

 

 

(1,374,975 )

 

 

-

 

 

 

(1,375,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss for the three months

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(67,117 )

 

 

(67,117 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2019

 

 

500,000

 

 

$ 50

 

 

 

15,077,517

 

 

$ 150

 

 

$ 25,049,065

 

 

$ (26,651,153 )

 

$ (1,601,888 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Shares retroactively restated for reverse stock split of 1:10,000 on March 1, 2019

The accompanying notes are an integral part of these unaudited financial statements.

 

 
8

Table of Contents

  

REAC Group, Inc.

Statements of Changes in Stockholders’ Deficit

for the three and six months ended June 30, 2018

(unaudited)

    

 

 

Series A Preferred Shares

 

 

Par Value

 

 

Common

Shares

 

 

Par Value

 

 

Additional

Paid in

Capital

 

 

Accumulated Deficit

 

 

Total

Deficiency

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2017

 

 

50,935

 

 

$ 5

 

 

 

9,364

 

 

$ -

 

 

$ 21,483,185

 

 

$ (22,684,069 )

 

$ (1,200,879 )

 

In kind contribution of rent

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

300

 

 

 

-

 

 

 

300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares issued as compensation and for services

 

 

 

 

 

 

 

 

 

 

10,000

 

 

 

-

 

 

 

330,000

 

 

 

-

 

 

 

330,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred shares issued as compensation and for services

 

 

449,065

 

 

 

45

 

 

 

 

 

 

 

 

 

 

 

112,221

 

 

 

 

 

 

 

112,266

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued in satisfaction of loan debt and interest

 

 

-

 

 

 

-

 

 

 

5,931

 

 

 

-

 

 

 

45,430

 

 

 

-

 

 

 

45,430

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss for the three months

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(355,994 )

 

 

(355,994 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2018

 

 

500,000

 

 

$ 50

 

 

 

25,295

 

 

$ -

 

 

$ 21,971,136

 

 

$ (23,040,063 )

 

$ (1,068,877 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In kind contribution of rent

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

300

 

 

 

-

 

 

 

300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of warrants issued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,106

 

 

 

 

 

 

 

6,106

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued in satisfaction of loan debt and interest

 

 

 

 

 

 

 

 

 

 

19,113

 

 

 

 

 

 

 

62,660

 

 

 

 

 

 

 

62,660

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss for the three months

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(45,664 )

 

 

(45,664 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2018

 

 

500,000

 

 

$ 50

 

 

 

44,408

 

 

$ -

 

 

$ 22,040,202

 

 

$ (23,085,727 )

 

$ (1,045,475 )

                                                      

* Shares retroactively restated for reverse stock split of 1:10,000 on March 1, 2019

 The accompanying notes are an integral part of these unaudited financial statements. 

 

 
9

Table of Contents

  

REAC GROUP, Inc.

Statements of Cash Flows

(unaudited)

 

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

 

(restated)

 

 

 

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

Net loss

 

$ (3,264,520 )

 

$ (401,658 )

Adjustment to reconcile net loss to net cash used in operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

 

3,000,000

 

 

 

330,000

 

In kind contribution of rent

 

 

600

 

 

 

600

 

Amortization of debt discounts and financing costs

 

 

5,915

 

 

 

11,354

 

Debt financing penalties

 

 

14,094

 

 

 

-

 

Gain on extinguishment of debt

 

 

-

 

 

 

(20,589 )

Gain on write off of warrant liability

 

 

-

 

 

 

(35,047 )

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses

 

 

-

 

 

 

(500 )

Accounts payable

 

 

15,200

 

 

 

-

 

Accrued interest

 

 

52,780

 

 

 

16,089

 

Accrued salaries, payroll taxes and related expenses

 

 

157,461

 

 

 

33,553

 

Net Cash Used in Operating Activities

 

 

(18,470 )

 

 

(66,198 )

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from notes payable, principal shareholder

 

 

12,380

 

 

 

2,500

 

Repayments of notes payable, principal shareholder

 

 

(4,755 )

 

 

(1,517 )

Proceeds from convertible notes payable

 

 

-

 

 

 

25,000

 

Proceeds from issuance of common stock

 

 

10,000

 

 

 

-

 

Net Cash Provided by Financing Activities

 

 

17,625

 

 

 

25,983

 

 

 

 

 

 

 

 

 

 

Net (decrease)/increase in cash

 

 

(845 )

 

 

(40,215 )

Cash at beginning of period

 

 

1,162

 

 

 

51,396

 

Cash at end of period

 

$ 317

 

 

$ 11,181

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$ -

 

 

$ -

 

Taxes paid

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Non-cash disclosures:

 

 

 

 

 

 

 

 

Common stock issued for principal and interest on convertible notes

 

$ 3,920

 

 

$ 45,430

 

Preferred stock issued against accrued officer compensation

 

$ -

 

 

$ 112,266

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 
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REAC Group, Inc.

Notes to the Financial Statements

June 30, 2019

(unaudited)

 

1. Background Information

 

REAC Group, Inc. (“The Company”) was formed on March 10, 2005 under the name of Real Estate Contacts, Inc. as a Florida Corporation and is based in Pittsburgh, Pennsylvania. The Company changed its name to REAC Group, Inc. effective February 16, 2017. The Company engages in the ownership and operation of a real estate advertising portal website. The Company plans to provide a comprehensive online real estate search portal that consists of an advertising and marketing platform for real estate professionals. The Company’ s national real estate search website is www.realestatecontacts.com.

 

The Company’ s website offers cities to real estate professionals so they can grow their businesses online and have the opportunity to show their listings and reach consumers interested in buying or selling property in their respective exclusive geographic areas.

 

RealEstateContacts.com is expected to serve as an internet portal that will feature a real estate search website that directs consumers to receive more detailed information about agents, offices, and current listings, homes for sale, commercial properties, mortgages, and foreclosures. We intend to provide a service that enables real estate professionals to capture, cultivate, and convert leads which cater to prospective home buyers and sellers. The Company is seeking to bring additional value to its shareholders through acquisition, joint venture, or partnerships with other real estate related businesses. The Company intends to add to their business model by acquiring real estate such as multi-family and residential income producing properties. The Company is interested with the possibilities to Acquire, Joint Venture or Partner with other real estate related businesses along with other new business opportunities with established business entities and revenues. We will continue to introduce our operational progress and other corporate actions that include our plan of growth.

 

2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The Balance Sheet as of June 30, 2019, the Statements of Income for the three and six months ended June 30, 2019 and 2018, the Statements of Stockholders’ Deficit for the three and six months ended June 30, 2019 and 2018, and the Statements of Cash Flows for the six months ended June 30, 2019 and 2018 are unaudited. These unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP). In our opinion, the unaudited interim financial statements include all adjustments of a normal recurring nature necessary for the fair presentation of our financial position as of June 30, 2019, our results of operations for the three and six months ended June 30, 2019 and 2018, and our cash flows for the six months ended June 30, 2019 and 2018. The results of operations for the six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019.

 

These unaudited interim financial statements should be read in conjunction with the financial statements and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC.

 

All share and per share information contained in this report gives retroactive effect to a 1 for 10,000 reverse stock split of outstanding common stock, effective March 1, 2019.

 

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, assumptions used in calculating derivative liabilities, 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.

 

 
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Financial Instruments

 

The Company’ s balance sheets include the following financial instruments: cash, 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.

 

FASB Accounting Standards Codification (ASC) topic, “Fair Value Measurements and Disclosures”, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’ s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

 

·

Level 1-

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities

 

 

 

·

Level 2-

Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 

 

 

·

Level 3-

Inputs that are both significant to the fair value measurement and unobservable.

 

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of June 30, 2019.

 

Derivative Liabilities

 

The Company assessed the classification of its derivative financial instruments as of June 30, 2019 and 2018, which consist of convertible instruments and rights to shares of the Company’ s common stock, and determined that such derivatives meet the criteria for liability classification under ASC 815.

 

ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract,

(b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815.

 

During the six months ended June 30, 2019 and 2018, respectively, the Company had notes payable outstanding in which the conversion rate was variable and undeterminable. The Company uses judgment in determining the fair value of derivative liabilities at the date of issuance and at every balance sheet thereafter and in determining which valuation method is most appropriate for the instrument, the expected volatility, the implied risk-free interest rate, as well as the expected dividend rate, if any. For the six months ended June 30, 2019, the Company determined that there was no active market for the Company’ s common stock, and because of this lack of liquidity and market value, there was no derivative liability associated with these convertible notes for the period.

 

Beneficial Conversion Features

 

ASC 470-20 applies to convertible securities with beneficial conversion features that must be settled in stock and to those that give the issuer a choice in settling the obligation in either stock or cash. ASC 470-20 requires that the beneficial conversion feature should be valued at the commitment date as the difference between the conversion price and the fair market value of the common stock into which the security is convertible, multiplied by the number of shares into which the security is convertible. This amount is recorded as a debt discount and amortized over the life of the debt. ASC 470-20 further limits this amount to the proceeds allocated to the convertible instrument.

 

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.

 

 
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Cash and Cash Equivalents

 

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 June 30, 2019 or 2018.

 

Long-Lived Assets

 

In accordance with ASC 350, the Company regularly reviews the carrying value of intangible and other long-lived assets for the existence of facts or circumstances, both internally and externally, that suggest impairment. If impairment testing indicates a lack

of recoverability, an impairment loss is recognized by the Company if the carrying amount of a long-lived asset exceeds its fair value.

 

Stock Based Compensation

 

Under ASC 718, Compensation – Stock Compensation, 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.

 

In July 2019, the FASB released Accounting Standards Update (ASU) No. 2018-09, Codification Improvements. ASU 2018-09 that affect a wide variety of Topics in the FASB Accounting Standards Codification including the guidance in paragraph 718-740-35-2, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting is unclear on whether an entity should recognize excess tax benefits (or tax deficiencies) for compensation expense that is taken on the entity’ s tax return. The amendment to paragraph 718-740-35-2 in this update clarifies that an entity should recognize excess tax benefits (that is, the difference in tax benefits between the deduction for tax purposes and the compensation cost recognized for financial statement reporting) in the period in which the amount of the deduction is determined. This includes deductions that are taken on the entity’ s return in a different period from when the event that gives rise to the tax deduction occurs and the uncertainty about whether (1) the entity will receive a tax deduction and (2) the amount of the tax deduction is resolved.

 

Income Taxes

 

The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.

 

The Company adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”). Section 740-10-25 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 Section 740-10-25, 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. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.

 

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.

 

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, convertible debt, 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 June 30, 2019, there were approximately 20,417,643 share equivalents for potential conversion demand of our outstanding convertible notes and warrants.

 

 
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3. Restatement of financial statements

 

The following reflects changes to the accounts affected as a result of the restatement:

 

 

 

 

 

 

 

Changes to the Balance Sheet

 

As originally filed

 

 

As restated

 

 

Change Increase/ (decrease)

 

Accrued Interest

 

$ 66,819

 

 

$ 105,400

 

 

$ 38,581

 

Convertible Notes Payable

 

$ 273,709

 

 

$ 506,412

 

 

$ 232,703

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes to Other Income and Expense

 

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

$ 48,198

 

 

$ 58,696

 

 

$ 10,499

 

Debt financing penalties

 

$ ---

 

 

$ 14,094

 

 

$ 14,094

 

Gain on Settlement of Debt

 

$ 246,691

 

 

$ -

 

 

$ (246,691 )

 

 

 

 

 

 

 

 

 

 

 

 

 

The following reflects changes to the balance sheet as a result of the restatement:

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Deficit

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

As originally filed

 

 

As restated

 

 

Change Increase/ (decrease)

 

Accounts payable

 

$ 18,200

 

 

$ 18,200

 

 

$ -

 

Accrued interest

 

 

66,819

 

 

 

105,400

 

 

 

38,581

 

Accrued salaries and taxes

 

 

964,569

 

 

 

964,569

 

 

 

-

 

Due to principle shareholder, related party

 

 

7,625

 

 

 

7,625

 

 

 

-

 

Convertible notes payable

 

 

273,709

 

 

 

506,412

 

 

 

232,703

 

Total current liabilities

 

 

1,330,922

 

 

 

1,602,205

 

 

 

271,283

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Deficit

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock, Series A $.0001 par value, 500,000 shares authorized; none issued and outstanding

 

 

50

 

 

 

50

 

 

 

-

 

Preferred Stock, Series B $.001 par value, 500,000 shares authorized; none issued and outstanding

 

 

-

 

 

 

-

 

 

 

-

 

Common Stock, $0.00001 par value, 199,000,000 shares authorized15,057,517 and 9,364 issued and outstanding, respectively

 

 

150

 

 

 

150

 

 

 

-

 

Common stock payable

 

 

-

 

 

 

-

 

 

 

-

 

Additional paid-in capital

 

 

25,049,065

 

 

 

25,049,065

 

 

 

-

 

Accumulated deficit

 

 

(26,379,870 )

 

 

(26,651,153 )

 

 

(271,283 )

Total stockholders’ deficit

 

$ (1,330,605 )

 

$ (1,601,888 )

 

$ (271,283 )

 

 

 

 

 

 

 

 

 

 

 

 

 

The following reflects changes to net income and loss per share as a result of the restatement:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As originally filed

 

 

As restated

 

 

Change Increase/ (decrease)

 

Net income/(loss)

 

$ (2,993,237 )

 

$ (3,264,520 )

 

$ (271,283 )

Loss per share, basic and dilutive

 

$ (0.26 )

 

$ (0.34 )

 

$ (0.08

Weighted average shares outstanding, basic and dilutive

 

 

11,464,677

 

 

 

9,676,116

 

 

 

-

 

 

 
14

Table of Contents

  

4. Going Concern

 

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern.

 

The Company incurred net losses of $3,264,520 for the six months ended June 30, 2019 and had net cash used in operating activities of $18,470 for the same period. Additionally, the Company has an accumulated deficit of $26,651,153 and a working capital deficit of $1,601,888 at June 30, 2019. These conditions raise substantial doubt about the Company’ s ability to continue as a going concern for a period of at least twelve months after the date of issuance on these financial statements. In view of these matters, the Company’ s ability to continue as a going concern is dependent upon the Company’ s ability to achieve a level of profitability and/or to obtain adequate financing through the issuance of debt or equity in order to finance its operations.

 

While the Company is attempting to commence operations and produce revenues, the Company’ s cash position may not be significant enough to support the Company’ s operations. While the Company believes in the viability of its strategy to increase revenues and in its ability to raise additional funds, there can be no assurances to that effect. The key factors that are not within the Company’ s control and that may have a direct bearing on operating results include, but are not limited to, acceptance of the Company’ s business plan, the ability to raise capital in the future, the ability to expand its customer base, and the ability to hire key employees to build and maintain websites and to provide services and support to its customers and users. There may be other risks and circumstances that management may be unable to predict.

 

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.

 

5. Recently Issued Accounting Pronouncements

 

We have reviewed all FASB issued Accounting Standards Update (“ASU”) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation’ s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.

 

In July 2018, FASB issued Accounting Standards Update 2018-11; Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480): Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Non-public Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception. The guidance is intended to reduce the complexity associated with issuers’ accounting for certain financial instruments with characteristics of liabilities and equity. Specifically, a down round feature (as defined) would no longer cause a freestanding equity-linked financial instrument (or an embedded conversion option) to be accounted for as a derivative liability at fair value with changes in fair value recognized in current earnings. The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. We adopted Topic 718 effective January 1, 2019 and the standard did not have a significant effect on the results of operations or cash flows.

 

In May 2018, FASB issued Accounting Standards Update 2018-09; Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting. The amendments in this ASU amends the scope of modification accounting for share-based payment arrangements, provides guidance on the types of changes to the terms or conditions of share-based payment awards an entity is required to apply modification accounting under ASC 718. The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. We adopted Topic 718 effective January 1, 2019 and the standard did not have a significant effect on the results of operations or cash flows.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes ASC 840, Leases. This ASU is based on the principle that entities should recognize assets and liabilities arising from leases. The ASU does not significantly change the lessees’ recognition, measurement and presentation of expenses and cash flows from the previous accounting standard. Leases are classified as finance or operating. The ASU’ s primary change is the requirement for entities to recognize a lease liability for payments and a right of use asset representing the right to use the leased asset during the term on operating lease arrangements. Lessees are permitted to make an accounting policy election to not recognize the asset and liability for leases with a term of twelve months or less. Lessors’ accounting under the ASC is largely unchanged from the previous accounting standard. In addition, the ASU expands the disclosure requirements of lease arrangements. Lessees and lessors will use a modified retrospective transition approach, which includes a number of practical expedients. The effective date will be the first quarter of fiscal year 2020 with early adoption permitted. We adopted Topic 842 effective January 1, 2019 and the standard did not have a significant effect on the results of operations or cash flows.

 

 
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6. Related Party Transactions

 

The majority shareholder has advanced funds since inception, for the purpose of financing working capital and product development. As of June 30, 2019 and 2018, the Company owed $7,625 and $0, respectively. There are no repayment terms to these advances and deferrals and the Company has imputed interest at a nominal rate of 3%.

 

The Company has minimal needs for facilities and operates from office space provided by the majority stockholder. There are no lease terms. For the six months ended June 30, 2019 and 2018, rent has been calculated based on the limited needs at a fair market value of the space provided. Rent expense was $600 and $600 for the six months ended June 30, 2019 and 2018, respectively. The rental value has been recognized as an operating expense and treated as a contribution to capital.

 

The amounts and terms of the above transactions may not necessarily be indicative of the amounts and terms that would have been incurred had comparable transactions been entered into with independent third parties.

 

On March 31, 2019, the Company’ s Board of Directors authorized the issuance of 15,000,000 shares to the Company’ s Chief Executive Officer as a performance bonus pursuant to his employment agreement. The shares were valued at $0.20, the quoted market price on the date of issuance, or $3,000,000.

 

On March 1, 2018, the Company issued 45 shares of the Company’ s Series A Preferred Shares to its sole director and chief executive officer in satisfaction of accrued compensation owed to him by the Company. (See Note 11).

 

On January 23, 2018, the Company issued 10,000 shares of its common stock to sole officer and director, Robert DeAngelis, as his 2017 annual bonus per his employment agreement. The annual bonus, if any, is determined and paid in accordance with policies set from time to time by the Board or Directors, in its sole discretion. The Board’ s policy has been to base the stock price for such issuances upon the average of the closing price of the preceding 10 trading days as reported on OTC Markets website, which was $33.00; rendering the value of the preferred issued as $330,000. Since the Company’ s closing stock price on the date of grant was also $33.00, the Company did not recognize any associated discounts or benefits associated with the shares issued.

 

On March 4, 2019, the Company renewed its three-year employment agreement with Robert DeAngelis to serve as the President and Chief Executive Officer of the Company. The employment agreement automatically renews for an additional twelve months upon expiration of each term. The agreement 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 six months ended June 30, 2019 and 2018, the Company recorded compensation expense in the amount of $60,000 and $60,000, respectively.

 

7. Accrued Liabilities

 

Accounts Payable and Accrued expenses:

 

 

June 30, 2019

 

 

December 31, 2018

 

Accounts payable

 

$ 18,200

 

 

$ 3,000

 

Accrued interest

 

 

105,400

 

 

 

54,119

 

Accrued salaries, payroll taxes, penalties and interest (a)

 

 

964,569

 

 

 

807,108

 

Due to principle shareholder, related party

 

 

7,625

 

 

 

---

 

 

(a)The Company has accrued additional compensation to its Chief Executive Officer totaling $60,000 and $60,000 during the six months ended June 30, 2019 and 2018, respectively. However, the Company has not paid the related payroll taxes, consisting primarily of Social Security and Medicare taxes. As a result, the Company has established an accrued liability for the unpaid salaries, along with related taxes and estimated interest and penalties of $964,569 and $807,108 at June 30, 2019 and December 31, 2018, respectively.

 

8. Convertible Notes Payable

 

During the six months ended June 30, 2019 and 2018, respectively, the Company had convertible notes payable outstanding in which the conversion rate was variable and undeterminable. The Company determined that there wasn’ t an active market for the Company’ s common stock and because of this lack of liquidity and market value, there wasn’ t a derivative liability associated with these convertible notes as of June 30, 2019 and June 30, 2018. The Company uses judgment in determining the fair value of derivative liabilities at the date of issuance and at every balance sheet thereafter and in determining which valuation method is most appropriate for the instrument, the expected volatility, the implied risk-free interest rate, as well as the expected dividend rate, if any.

 

As of June 30, 2019, all of the Company’ s convertible promissory notes remain outstanding beyond their respective maturity dates; triggering an event of technical default under the respective agreements. Consequently, the Company is accruing interest on these notes at their respective default rates. As a result of being in default on these notes, the Holders could, at their sole discretion, call these Notes in their entirety, including all associated penalties provided for under the respective agreements. In this event, the Company may not have sufficient authorized shares to absolve itself of the defaulted Notes through the issuance of common shares of the Company. The Company is working with the current note holders and its transfer agent in order that it may resolve these outstanding issues as soon as practicable. On November 2, 2018, the Company received a formal letter from one of its Note Holders demanding payment of all amounts due under the Note plus applicable collection costs, including attorney’ s fees at the Mandatory Default Amount. The varied terms and definitions of these default provisions are disclosed below in each of the respective Note disclosures.

 

 
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As of June 30, 2019, the Company owed an aggregate of $611,812 in principal and accrued interest; of which, $506,412 (before a discount of $-0-) represents convertible notes payable and $105,400 represents accrued interest. At December 31, 2018, the Company owed an aggregate of $542,942 (before a discount of $4,915) in principal and accrued interest; of which, $493,738 represents convertible notes payable and $54,119 represents accrued interest.

 

 

 

June 30,

2019

 

 

December31,

 2018

 

Convertible promissory notes, various lending institutions, maturing at variable dates ranging from 180 days to one year from origination date, 8-10% interest and in default interest of 12-24%, convertible at discount to trading price (25-50%) based on various measurements of prior trading, at face value of remaining original note principal balance plus default penalties, net of unamortized debt discounts, attributable to derivative liabilities, and deferred financing costs in the amount of $-0- and $4,915, respectively.

 

$ 506,412

 

 

$ 493,738

 

Principal

 

 

506,412

 

 

 

493,738

 

Debt discount

 

 

---

 

 

 

(4,915 )

Total Principal

 

$ 506,412

 

 

$ 488,823

 

 

Summary of Convertible Note Transactions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 2019

 

 

December31,

2018

 

 

 

 

 

 

 

 

Convertible notes, January 1

 

$ 493,738

 

 

$ 364,721

 

Additional notes, face value

 

 

---

 

 

 

65,000

 

Default Penalties

 

 

14,094

 

 

 

172,886

 

Payments and adjustments

 

 

---

 

 

 

---

 

Settlement of debt

 

 

---

 

 

 

(20,000 )

Conversions of debt

 

 

(1,420 )

 

 

(88,869 )

Unamortized debt discounts

 

 

---

 

 

 

(4,915 )

Convertible notes, balance

 

$ 506,412

 

 

$ 488,823

 

 

Note 6. 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 met the definition of a liability and therefore bifurcated the conversion feature and accounted for it as a separate derivative liability. During the year ended December 31, 2018, the Company determined that there was no active market for the Company’ s common stock, and because of this lack of liquidity and market value, there wasn’ t a derivative liability associated with this convertible note. On May 9, 2018, the note holder agreed to forgive the balance of the principal and accrued interest. As a result, during the year ended December 31, 2018, the Company has recognized a gain on the extinguishment of debt in the amount of $20,589 and canceled the reserve of 50,000 shares of common stock.

 

Note 5. 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 met the definition of a liability and therefore bifurcated the conversion feature and accounted for it as a separate derivative liability. During the year ended December 31, 2018, the Company determined that there was no active market for the Company’ s common stock, and because of this lack of liquidity and market value, there wasn’ t a derivative liability associated with this convertible note. In addition, the Company issued an aggregate of 15,813 common shares in satisfaction of $53,000 in principal and $3,727 in accrued interest. As of December 31, 2018, the note was considered paid in full and the Company canceled the reserve of 41,945 shares of common stock.

 

 
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Note 4. 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. In connection with the assignment, the Company issued 335 common shares for a value of $3,350, which was applied against the balance of accrued interest on the note. During the year ended December 31, 2018, the Company issued an aggregate of 1,125 common shares in satisfaction of $10,696 in principal and $554 in accrued interest for a total value of $11,250 and canceled the reserve of 49 shares of common stock. As of December 31, 2018, the note was considered paid in full.

 

Note 3. 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 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” and accrues interest at 5% per annum. The 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, subject to anti-dilution and market adjustments set forth in the Agreement.

 

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 five years 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. (See Note 9) On April 30, 2018, the Company’ s Board of Directors approved the assignment of the Note to a different third-party. The total amount assigned was $30,306 which includes principal of $28,959 and accrued interest of $1,347. Subsequent to the assignment, the Company received additional tranches from the Assignee in the aggregate amount of $65,000 with no associated discounts. The Warrant associated with the Securities Purchase Agreement was not included in the Assignment of the Original Note.

 

The Company determined that the conversion feature met the definition of a liability and therefore bifurcated the conversion feature and accounted for it as a separate derivative liability. During the three months ended March 31, 2018, the Company concluded that there was no active market for the Company’ s common stock, and because of this lack of liquidity and market value, there wasn’ t a derivative liability associated with this convertible note.

 

The Note became due and payable on July 5, 2018 and the Company had defaulted on its obligations under the Note. Interest on the Note was then accrued at the default rate of 24% per annum and the Company classified the Note as a current liability. The Note Holder could, at the Holder’ s sole discretion, call the Note and impose the related default penalties. In this event, the Company would be obligated to pay 150% multiplied by the then outstanding entire balance and the Company would then also be in technical default of its Reserve requirement as it would have insufficient common shares authorized to cover the aggregate reserve requirement of all notes in default. The Company is required to have authorized and reserved ten (10) times the number of shares that is actually issuable upon full exercise of the Note. As of June 30, 2019, the equivalent number of shares the Company would be required to issue to satisfy the Note is 1,865,694 and the Company is in technical default of the Reserve share requirement which is allocable between the Note and the detached Warrant. (See Note 9)

 

During the three months ended June 30, 2019, no shares were issued against the note. . As a result of the Company’ s stock split effective March 1, 2019, the Company incurred a default penalty in the amount of $14,094 and this was applied to the principal balance of the Note. During the year ended December 31, 2018, the Company issued an aggregate of 467 common shares in satisfaction of $6,041 in principal and fees under the Note of $500.

 

Note 2. 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 115 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, subject to anti-dilution and market adjustments set forth in the Agreement.

 

The Company determined that the conversion feature met the definition of a liability and therefore bifurcated the conversion feature and accounted for it as a separate derivative liability. For the six months ended June 30, 2019 and 2018, the Company concluded that there was no active market for the Company’ s common stock, and because of this lack of liquidity and market value, there wasn’ t a derivative liability associated with this convertible note. The Company recognized a debt discount on the note as a reduction (contra-liability) to the Convertible Note Payable and is being amortized over the life of the note.

 

During the year ended December 31, 2018, the Company was required to increase the principal balance of the note by $5,000 pursuant to Section 1.3 of the Agreement which states that if the Borrower does not maintain or replenish the Reserved Amount within three (3) business days of the request of the Holder, the principal amount will increase by $5,000 for each such occurrence. In addition, under Section 1.4(g) of the Note, the Company was required to increase the principal amount of the Note by $15,000 due to the conversion price being less than $0.01. The penalties are tacked back to the Issue Date of the Note.

 

 
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The Note became due and payable on February 5, 2018 and the Company remains in default of its obligations under the Note. Interest on the Note is being accrued at the default rate of 12% per annum and the Company classified the Note as a current liability. The Company is required to have authorized and reserved three and one half (3.5) times the number of shares that is actually issuable upon full exercise of the Note. On February 5, 2018, the Company was obligated to pay a Default Sum calculated as 150% multiplied by the then outstanding entire balance and recorded a penalty in the amount of $92,886 for failing to pay at maturity. As of June 30, 2019, the equivalent number of common shares the Company would be required to issue to satisfy the Note is 8,502,225.

 

During the six months ended June 30, 2019, the Company issued 4,900 common shares for a value of $3,920, satisfying $1,420 in principal, $1,500 in accrued interest, and $1,000 in finance costs. As of June 30, 2019, the Company owed $160,823 in principle, $112,886 in default penalties and accrued interest of $66,380. During the year ended December 31, 2018, the Company issued 3,300 common shares for a value of $6,480, satisfying $5,480 in principal and $1,000 in finance costs. As of December 31, 2018, the Company owed $275,129 in principle and accrued interest of $35,292.

 

Note 1. 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 December 31, 2018. 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. On July 6, 2018, the Company’ s Board of Directors approved the assignment of this Convertible Promissory Note to a different third-party. The terms of the original March 13, 2017 Convertible Promissory Note remain in effect and the note continues to accrue interest at a rate of 10% per annum until the note is paid in full.

 

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. (See Note 9) Effective on July 20, 2018, the Warrant to Purchase Shares previously issued under the March 13, 2017 Convertible Promissory Note was terminated by the Warrant holder to facilitate the Company’ s fundraising efforts.

 

The Secured Convertible Promissory Note 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). During the three months ended September 2017, the minimum market capitalization fell below $6,000,000 and the Company was required to adjust the conversion price to the market price defined in the agreement. 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.

 

The Company determined that the conversion feature met the definition of a liability and therefore bifurcated the conversion feature and accounted for it as a separate derivative liability. For the six months ended June 30, 2019 and 2018, the Company determined that there was no active market for the Company’ s common stock, and because of this lack of liquidity and market value, there wasn’ t a derivative liability associated with this convertible note. The Company recognized a debt discount on the notes as a reduction (contra-liability) to the Convertible Notes Payable and the discounts are being amortized over the life of the notes.

 

The Note became due and payable on January 13, 2018 and the Company is in default of its obligations under the Note. Interest on the Note is being accrued at the default rate of 22% per annum beginning on July 6, 2018 and the Company classified the Note as a current liability. On November 2, 2018, the Note Holder demanded payment of all amounts due under the Note plus applicable collection costs, including attorney’ s fees at the Mandatory Default Amount. The Mandatory Default Amount means the greater of (a) the Outstanding Balance divided by the Installment Conversion Price on the date the Mandatory Default Amount is demanded, multiplied by the VWAP on the date the Mandatory Default Amount is demanded, or (b) the Outstanding Balance following the application of the Default Effect. Pursuant to the demand letter on that date, the Company owed $125,053, which includes the mandatory default amount and interest will continue to accrue at the rate of $78.80 per day. The principal increase is considered applied as of the date of the demand for payment and is not tacked back to the Issue Date of 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. The Company will have insufficient common shares authorized to cover the aggregate reserve requirement of all notes in default. As of June 30, 2019, the Company owed $124,650 in principal, $25,365 in interest, and the equivalent number of shares the Company would be required to issue to satisfy the Note is 2,500,250. As of December 31, 2018, the Company owed $124,650 in principal and accrued interest of $11,766.

 

 
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9. Warrant Liabilities

 

The Company estimates the fair value of each option award on the date of grant using the Binomial option valuation model that uses the assumptions noted in the table below. Because Binomial option valuation models incorporate ranges of assumptions for inputs, those ranges are disclosed. Expected volatilities are based on the historical volatility of the Company’ s stock. The Company uses historical data to estimate option exercise and employee termination within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding; the range given below results from certain groups of employees exhibiting different behavior. During the six months ended June 30, 2019 and the year ended December 31, 2018, management determined that the Company’ s common stock lacked liquidity and market value and therefore no derivative liability was recorded in association with these warrants.

 

The following table sets forth common share purchase warrants outstanding as of June 30, 2019:

 

 

 

June 30,

 2019

 

 

December 31,

2018

 

Warrants, January 1

 

 

66

 

 

 

122

 

Additions

 

 

---

 

 

 

---

 

Conversions

 

 

---

 

 

 

(4 )

Forfeitures

 

 

---

 

 

 

(52 )

Warrants, balance

 

 

66

 

 

 

66

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

Exercise

 

 

Intrinsic

 

 

 

Warrants

 

 

Price

 

 

Value

 

Outstanding, January 1

 

 

66

 

 

$ 7.74

 

 

$ 0.00

 

Warrants granted and issued

 

 

---

 

 

$ ---

 

 

$ ---

 

Warrants forfeited

 

 

---

 

 

$ ---

 

 

$ ---

 

Outstanding, June 30

 

 

66

 

 

$ 7.74

 

 

$ 0.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issuable upon exercise of warrants

 

 

7,549,474

 

 

$ .50

 

 

$ 0.00

 

 

Warrants Outstanding

 

 

Warrants Exercisable

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

Number

 

 

Average

 

 

Weighted

 

 

Number

 

 

Weighted

 

 

 

 

Outstanding

 

 

Remaining

 

 

Average

 

 

Exercisable

 

 

Average

 

Exercise

 

 

at June 30,

 

 

Contractual

 

 

Exercise

 

 

at June 30,

 

 

Exercise

 

Price

 

 

2019

 

 

Life (Years)

 

 

Price

 

 

2019

 

 

Price

 

$

0.04

 

 

 

66

 

 

 

0.60

 

 

$ 7.74

 

 

 

66

 

 

$ .50

 

 

The warrants convert at a rate of $0.04 per warrant, based on a discounted rate anti-dilution adjustments to the exercise price.

 

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. In connection with the Financing, and in addition to the Securities Purchase Agreement and the Secured Convertible Promissory Note, the Company issued a Warrant (“Warrant 1”) which grants the investor the right to purchase at any time on or after each tranche, and for a period of five years 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, as adjusted from time to time pursuant to the terms and conditions of the Warrant. The conversion option and the outstanding common stock warrants on that date are classified as derivative liabilities at their fair value on the date of issuance. During the year ended December 31, 2017, the Company received a tranche of $35,000; resulting in the issuance of a warrant to purchase 70 shares of the Company’ s common stock at $5,000 per share, resulting in an exercise value at issuance of $350,000. The relative fair value of the warrant at issuance was $12,565, which was recorded as a debt discount and amortized over the life of the note.

 

 
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The Company estimates the fair value at each reporting period using the Binomial Method. During the year ended December 31, 2018, management determined that the Company’ s common stock lacked liquidity and market value and therefore no derivative liability was recorded in association with these warrants and in quarter ending March 31, 2018, the Company recorded a gain on the write-off of the fair value of the warrant in the amount of $35,047.

 

The Warrant may be exercised in whole or in part at $5,000 per share, subject to anti-dilution adjustments set forth in the Agreement. If the Market Price is greater than the Exercise Price, the Warrant Holder may elect to receive Warrant shares pursuant to a cashless exercise. The Market Price means the highest traded price of the Company’ s common stock during the twenty (20) trading days prior to the date of the respective Exercise Notice. A dilutive issuance occurs when the Company issues common stock at an effective price per share that is less than the then-current Exercise Price. In this event, the Exercise Price is adjusted to match the lowest price per share at which such Common Stock was issued or may be acquired in the dilutive issuance.

 

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 equal to five (5) times the number of shares issuable on conversion of the Warrant. As of June 30, 2019, the Company is in technical default of its Reserve requirement for the detached Warrant.

 

During the six months ended June 30, 2019, no warrants were exercised. The warrant derivative liability as of June 30, 2019 and December 31, 2018 was $0 and $0, respectively. As of June 30, 2019, the remaining equivalent number of shares the Company would be required to issue under a cashless exercise of the Warrant is estimated to be 7,549,474 shares, which is based upon an exercise price of $0.04.

 

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 December 31, 2017. In connection with the Financing, and in addition to the Securities Purchase Agreement and the Secured Convertible Promissory Note, the Company issued a Warrant (“Warrant 2”) 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 Market Price is the conversion factor multiplied by the average of the three lowest closing bid prices during the twenty trading days immediately preceding the applicable conversion. If the average of the three lowest closing bid prices is below $0.10, then the conversion factor is permanently reduced by 10%. If at any time the Company is not DTC eligible, then the conversion factor is further reduced by an additional 5%. At any time prior to the expiration date, the investor may elect a cashless exercise for any warrant shares equal to (i) the excess of the Current Market Value (Trade Price times the number of exercise shares) over the aggregate Exercise Price of the Exercise Shares, divided by (ii) the Adjusted Price (the lower of the Exercise Price of $0.25 or Market Price). The Trade Price is the higher of the closing trade price on the issue date or the VWAP of the stock for the trading day that is two trading days prior to exercise date. The conversion option and the outstanding common stock warrants on that date are 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.

 

The Market Price, as calculated pursuant to the Warrant Agreement, was $1,097 per share with 52 being the resulting number of warrant shares at issuance. The relative fair value of the warrant at issuance was $0, resulting in no debt discount. The Company estimates the fair value at each reporting period using the Binomial Method. As of March 31, 2018, management determined that the Company’ s common stock lacked liquidity and market value and therefore no derivative liability was recorded in association with these warrants. As a result, the Company recorded a gain on the write-off of the fair value of the warrant in the amount of $2,779. Effective July 20, 2018, the warrant to purchase shares previously issued under the Convertible Promissory Note was terminated by the Warrant holder to facilitate the Company’ s fundraising efforts.

 

The following table indicates the fair value of the warrants recorded by the Company at issuance.

 

 

 

Amount

 

 

Factor

 

 

Warrant Shares

 

 

Stock Price on Date of Grant

 

 

Fair Value at Issuance

 

 

Fair Value as of December 31, 2017

 

Warrant 1

 

$ 35,000

 

 

$ 5,000

 

 

 

70

 

 

$ 300

 

 

$ 12,565

 

 

$ 32,268

 

Warrant 2

 

$ 57,500

 

 

$ 1,097

 

 

 

52

 

 

$ 900

 

 

$ -0-

 

 

$ 2,779

 

Total

 

$ 92,500

 

 

 

 

 

 

 

122

 

 

 

 

 

 

$ 12,565

 

 

$ 35,047

 

 

10. Derivatives and Fair Value

 

The Company evaluated the terms of the convertible notes, in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity’ s Own Stock and determined that the underlying is indexed to the Company’ s common stock. The Company determined that the conversion features meet the definition of a liability and therefore bifurcated the conversion feature and accounted for it as a separate derivative liability. The Company evaluated the conversion feature for the embedded conversion option. Since these notes contain conversion price adjustment provisions (i.e. down round, or ratchet provisions), the Company determined that the embedded conversion options met the definition of a derivative. The effective conversion price was compared to the market price on the date of the note and was deemed to be less than the market value of underlying common stock at the inception of the note. The Company recognized a debt discount on the notes as a reduction (contra-liability) to the Convertible Notes Payable. The debt discounts are being amortized over the life of the notes. The Company recognized financing costs for charges by the lender for original issue discounts and other applicable administrative costs, normally withheld from proceeds, which are being amortized as finance costs over the life of the loan. The derivative values are calculated using the Binomial method.

 

 
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As of June 30, 2019 and December 31, 2018, the Company had convertible notes payable outstanding in which the conversion rate was variable and undeterminable; however, the Company determined that there was no active market for the Company’ s common stock and because of this lack of liquidity and market value, there was no derivative liability associated with the convertible notes. The Company uses judgment in determining the fair value of derivative liabilities at the date of issuance and at every balance sheet thereafter and in determining which valuation method is most appropriate for the instrument, the expected volatility, the implied risk-free interest rate, as well as the expected dividend rate, if any.

 

ASC 825-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 825-10 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 describes three levels of inputs that may be used to measure fair value: Level 1 – Quoted prices in active markets for identical assets or liabilities; Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3 – Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation. The Company’ s Level 3 liabilities consist of the derivative

liabilities associated with the convertible notes. At June 30, 2019 and December 31, 2018, all of the Company’ s derivative liabilities were categorized as Level 3 fair value liabilities. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

 

Level 3 Valuation Techniques

 

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. Level 3 financial liabilities consist of the derivative liabilities for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation. At the date of the original transaction, we valued the convertible note that contains down round provisions using a Black-Scholes model, with the assistance of a valuation consultant, for which management understands the methodologies. This model incorporates transaction details such as the Company’ s stock price, contractual terms, maturity, risk free rates, as well as assumptions about future financings, volatility, and holder behavior. Using assumptions, consistent with the original valuation, the Company has subsequently used the Binomial model for calculating the fair value.

 

11. Equity

 

Stock Compensation

 

On April 10, 2019, the Company entered into a Joint Venture Agreement with a third party for purposes of building a digital platform for real estate transactions. The parties have agreed that any projects undertaken jointly from which any funds are raised through the joint venture shall be split 50% to the Company and 50% to the third party. For and in consideration of the services to be provided, the Company has issued 1,250,000 shares of common stock. The shares were valued at $0.55, the quoted market price on the date of issuance, or $687,500. On June 5, 2019, the Company and Consultant mutually agreed to terminate the Agreement and the shares issued by the Company to the Consultant were returned and cancelled.

 

On April 10, 2019, the Company entered into a Consulting Agreement with a third party for purposes of establishing a real estate management division and or real estate holdings which will be operated as a division of the Company. The Company has agreed to dedicate a minimum of thirty-three percent (33%) of all funds received by the Company to the new division.. The term of the Agreement is for a period of twelve months and is automatically extended for successive three month terms. For and in consideration of the services to be provided, the Company has issued 1,250,000 shares of common stock. The shares were valued at $0.55, the quoted market price on the date of issuance, or $687,500.On June 5, 2019, the Company and Consultant mutually agreed to terminate the Agreement and the shares issued by the Company to the Consultant were returned and cancelled.

 

 
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On May 8, the Company issued 20,000 shares of common stock for cash. The shares were issued at $0.50 per share or $10,000.

 

On March 31, 2019, the Company’ s Board of Directors authorized the issuance of 15,000,000 shares to the Company’ s Chief Executive Officer as a performance bonus pursuant to his employment agreement. The shares were valued at $0.20, the quoted market price on the date of issuance, or $3,000,000.

 

On January 23, 2018, the Company issued 1,000 shares of its common stock to sole officer and director, Robert DeAngelis, as his 2017 annual bonus per his employment agreement. The annual bonus, if any, is determined and paid in accordance with policies set from time to time by the Board or Directors, in its sole discretion. The Board’ s policy has been to base the stock price for such issuances upon the average of the closing price of the preceding 10 trading days as reported on OTC Markets website, which was $33.00; rendering the value of the preferred issued as $330,000. Since the Company’ s closing stock price on the date of grant was also $33.00, the Company will not recognize any associated discounts or benefits associated with the shares issued.

 

Stock Issued for Debt and Interest

 

During the year ended December 31, 2018, the Company issued 31,745 shares of common stock, for a value of $86,811 in satisfaction of $37,101 principal, $39,710 accrued interest, and $10,000 in conversion fees on its convertible notes payable. The Company recorded the issuances at the contract value, at the date of exchange, off-setting the notes payable and accrued interest.

 

Preferred Stock

 

On March 1, 2018, the Company issued 449,065 shares of the Company’ s non-convertible Series A Preferred Shares, with a par value of $0.0001 and with an initial liquidation preference of $200 per share pursuant to its amended and restated Articles on July 26, 2016, at a price of $200 per share, to its sole director and chief executive officer in exchange for $112,266 of accrued compensation. The Company valued the transaction at $8,981and recognized the difference in fair value to additional paid in capital.

 

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 five years 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 $500. The conversion price is $5,000, as adjusted from time to time pursuant to the terms and conditions of the Warrant. As of December 31, 2017, the Company received a tranche of $35,000; resulting in the issuance of a warrant to purchase 70 shares of the Company’ s common stock. The relative fair value of the warrant at issuance was $12,565. The Company estimates the fair value at each reporting period using the Binomial Method. For the six months ended June 30, 2019, management determined that the Company’ s common stock lacked liquidity and market value and therefore no derivative liability was recorded in association with these warrants. The warrant derivative liability as of June 30, 2019 and 2018 was $0 and $0, respectively. During year ended December 31, 2018, the Warrant Holder, in a cashless exercise, was issued 6,032 shares of common stock for an aggregate value of $9,456 pursuant to anti-dilution terms of the Warrant that adjusted the conversion price.

 

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 $1,097 per share with 52 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. Made effective on July 20, 2018, the warrant to purchase shares previously issued under the Convertible Promissory Note was terminated by the Warrant holder to facilitate the Company’ s fundraising efforts.

 

Other

 

During the six months ended June 30, 2019 and 2018, the Company recorded in-kind contributions for rent expense in the amount of $600 and $600, respectively.

 

Amendment to the Articles of Incorporation

 

Pursuant to a written consent in lieu of a meeting, dated January 21, 2019, the Board approved to amend our Articles of Incorporation to (i) effect a 1-for-10,000 reverse stock split of our issued and outstanding shares of Common Stock, par value $0.00001 per share, and (ii) decrease the amount of authorized shares of Common Stock from 9.999 billion (9,999,000,000) prior to the Reverse Stock Split to 200 million (200,000,000). The Company has retro-actively applied the reverse stock split made effective on March 1, 2019 to these financial statements.

 

 
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As of June 30, 2019, the total number of shares this corporation is authorized to issue is 200,000,000 (two-hundred million), allocated as follows among these classes and series of stock:

 

Designation

 

Par value

 

 

Shares Authorized

 

Common

 

$ 0.00001

 

 

 

199,000,000

 

Preferred Stock Class, Series A

 

$ 0.0001

 

 

 

500,000

 

Preferred Stock Class, Series B

 

$ 0.0001

 

 

 

500,000

 

 

12. Commitments and Contingencies

 

From time to time the Company may be a party to litigation matters involving claims against the Company. Management believes that there are no known or potential matters that would have a material effect on the Company’ s financial position or results of operations.

 

The Company’ s operations are subject to significant risks and uncertainties including financial, operational and regulatory risks, including the potential risk of business failure.

 

There were no operating or capital lease commitments as of June 30, 2019 and June 30, 2018.

 

13. 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.

 

On December 20, 2019, the Company entered into a securities purchase agreement with Actus Fund, LLC, a Delaware limited liability company. The SPA provides for the purchase by Actus of a senior secured convertible promissory note in the principal amount of $1,100,000 and a warrant to purchase common stock issued by the Company. On January 15, 2020, the Company authorized the disbursement of the proceeds of this $1,100,000 Note to Florida Beauty Flora, Inc. The Promissory Note matures on December 20, 2020 and bears interest at a rate of 12% per annum.

 

On December 26, 2019, we entered into a definitive agreement and plan of merger and reorganization with Florida Beauty Express Inc., Florida Beauty Flora Inc., Floral Logistics of Miami Inc., Floral Logistics of California Inc. and Tempest Transportation Inc. (collectively “Florida Beauty”), pursuant to which Florida Beauty may purchase all of the shares of stock of our Company held by Robert DeAngelis, our sole director and officer.

 

In December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. While initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it has now spread to several other countries, including the United States, and infections have been reported globally.

 

The COVID-19 outbreak is a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could materially impact our efforts to effectuate ordinary business transactions into the unforeseeable future. A pandemic typically results in social distancing, travel bans and quarantine, and this may limit access to our facilities, customers, management, support staff and professional advisors. These factors, in turn, may not only impact our operations, financial condition and demand for our goods and services but our overall ability to react timely to mitigate the impact of this event. In addition, it may hamper our efforts to comply with our filing obligations with the Securities and Exchange Commission.

 

Our business has been disrupted, but the extent to which the coronavirus impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact. International stock markets have begun to reflect the uncertainty associated with the slow-down in the American, European, and Asian economies, and the significant decline in the Dow Industrial Average in February and March 2020, was largely attributed to the effects of COVID-19.

 

On January 7, 2020, 100,000 shares of the Company’ s common stock were issued to its President and Chief Executive Officer pursuant to the Plan of Share Exchange Agreement originally entered into on December 27, 2019 with Florida Beauty Express, Inc., Florida Beauty Flora, Inc., Floral Logistics of Miami, Inc., Floral Logistics of California, Inc., and Tempest Transportation Inc.

 

On January 13, 2020, we entered into an Amended Agreement and Plan of Share Exchange Agreement (the “Agreement”) by and Amongst, REAC Group, Inc. (“REAC”) and Florida Beauty Express, Inc., Florida Beauty Flora, Inc., Floral Logistics of Miami, Inc., Floral Logistics of California, Inc., Tempest Transportation Inc. (the “Companies”). The Agreement is for the exchange of 100% of the outstanding shares of the Companies in exchange for 15,015,002 shares of REAC Common Stock and 500,000 shares of REAC Series A Preferred Stock. The Agreement also states that the Mr. Robert DeAngelis will return to the REAC Treasury all of the shares that he currently controls, in return for $350,000, to be paid as follows: $100,000 shall be paid in cash within three (3) days of closing by wired funds to Robert DeAngelis, (the “Closing Cash”), and the remaining $150,000 will be payable in $75,000 installments for the first two quarters after closing (March 31, 2020 and June 30, 2020 respectively) and Mr. DeAngelis will also receive 100,000 shares of common stock, that will be valued at $1.00 per share, respectively. As part of the Agreement, Mr. Robert DeAngelis will also resign and appoint new officers and directors as to be chosen by the Companies.

 

 
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On February 3, 2020, the Company entered into a Senior Convertible Promissory Note in the amount of $277,750 and the Company authorized the disbursement of the proceeds to Florida Beauty Flora, Inc. The Note bears interest at a rate of 12% and matures one year from the purchase date. The Note is convertible into shares of the Company’ s common stock at a conversion price equal to 50% multiplied by the lowest trading price during the previous twenty-five (25) days. At any time during the period beginning on the Issue Date and ending on the last Trading Day immediately preceding the Maturity Date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note and subject to the Holder’ s written consent at the time of such prepayment, to prepay the outstanding Note (principal and accrued interest), in full by making a payment to the Holder of an amount in cash equal to 150%, multiplied by the sum of the then outstanding principal amount of this Note, plus accrued and unpaid interest on the unpaid principal amount of the Note, plus Default Interest, if any.

 

On February 14, 2020, the Company issued 500,000 shares of common stock to its President and Chief Executive Officer as a performance bonus for the year ending December 31, 2019. The shares were valued at the quoted market price on the date of issuance.

 

On February 25, 2020, the Company issued 1,000,000 shares of common stock to its President and Chief Executive Officer as a performance bonus for 2020. The shares were valued at the quoted market price on the date of issuance.

 

On April 13, 2020, we entered into a second Amended Agreement and Plan of Share Exchange Agreement that was originally entered into on December 26, 2019 (the “Agreement”) by and Amongst, REAC Group, Inc. (“REAC”) and Florida Beauty Express, Inc., Florida Beauty Flora, Inc., Floral Logistics of Miami, Inc., Floral Logistics of California, Inc., Tempest Transportation Inc. (the “Companies”) and Companies shareholders. The Agreement is for the exchange of 100% of the outstanding shares of the Companies in exchange for 15,015,002 shares of REAC Common Stock and 500,000 shares of REAC Series A Preferred Stock. The Conditions to the Agreement have been satisfied and fully closed, and the Companies are now wholly-owned subsidiaries of REAC. The Agreement also states that Mr. Robert DeAngelis will return to the REAC Treasury all of the shares that he currently controls, in return for $350,000, to be paid as follows: $100,000 shall be paid in cash within three (3) days of closing by wired funds to Robert DeAngelis, (the “Closing Cash”), the Closing Cash has been paid, and the remaining $150,000 will be payable in $75,000 installments for the first two quarters after closing (April 30, 2020 (of which $12,000 has been paid) and June 30, 2020 respectively) and Mr. DeAngelis will also receive 100,000 shares of common stock, that will be valued at $1.00 per share, respectively. As part of the Agreement, Mr. Robert DeAngelis will also resign and appoint new officers and directors as to be chosen by the Companies. The Company plans to bring Mr. DeAngelis back as a consultant and / or an advisor, but no agreements have been made to do so, at this time.

 

The 15,015,002 shares of Common Stock and 500,000 shares of Preferred Stock will be distributed as described below:

 

Common Stock

 

Shares to Issue

Shareholder

1,876,875

Efrat Afek

1,876,875

Ralph Milman

3,753,751

Ronan Koubi

3,003,000

The Q Trust

2,552,551

Ronald Minsky

1,951,950

The Apollo Family Trust

 

Series A Preferred Stock

 

Shares to Issue

Shareholder

62,500

Ralph Milman

62,500

Efrat Afek

125,000

Ronan Koubi

105,000

The Q Trust

80,000

Ronald Minsky

65,000

The Apollo Family Trust

 

The Agreement may be terminated, and the Acquisition contemplated herein may be abandoned at any time prior to the Effective Time, whether before or after stockholder approval thereof by either Acquiror or the Companies.

 

 
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On April 16, 2020, the Company issued 400,000 shares of common stock to its President and Chief Executive Officer pursuant to the terms of his employment agreement. The shares were issued as a performance bonus for 2020 and were valued at the quoted market price on the date of issuance.

 

On April 23, 2020, the Company issued 2,000,000 shares of common stock to its President and Chief Executive Officer pursuant to the terms of his employment agreement. The shares were issued as a performance bonus for 2020 and were valued at the quoted market price on the date of issuance.

 

Effective June 22, 2020, Robert DeAngelis resigned from his position as President and Chief Executive Officer and as a member of the board of directors of REAC Group, Inc. Ronen Koubi will be appointed the new CEO. Ronen Koubi is the President and Director of Florida Beauty Flora, Inc.

 

Effective July 29, 2020, the Company entered into a securities purchase agreement with Auctus Fund, LLC, a Delaware limited liability company. The SPA provides for the purchase by Auctus of a convertible promissory note in the principal amount of $575,000; including 100% warrant coverage with full anti-dilution rights and buyback option. The Company authorized the disbursement of the proceeds of this Note to Florida Beauty Flora, Inc.. The Promissory Note matures on July 29, 2021 and bears interest at a rate of 12% per annum.

 

Effective October 12, 2020, one of the Company’ s convertible promissory notes dated March 13, 2017, with the original principal amount of $230,000, was assigned to a new third party. All rights, title, and interest of the Note were assigned without recourse and without representations or warranties of any kind.

 

 
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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 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.

 

 
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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 June 30, 2019 compared to the three months ended June 30, 2018

 

The Company earned no revenues for the three month periods ended June 30, 2019 and 2018, respectively.

 

Operating expenses for the three months ended June 30, 2019 were $40,395 and for the three months ended June 30, 2018, operating expenses were $50,647. For the three month periods ended June 30, 2019 and 2018, interest expense was $26,722 and $15,607, respectively. The Company recorded a loss of $67,117 for the three months ended June 30, 2019 as compared to a loss of $45,665 for the three months ended June 30, 2018. The change reflects a decrease in professional fees and no gain on the extinguishment of debt in the current period.

 

For the six months ended June 30, 2019 compared to the six months ended June 30, 2018

 

The Company earned no revenues for the six month periods ended June 30, 2019 and 2018, respectively.

 

Operating expenses were $3,191,730 and $423,352 for the six month periods ended June 30, 2019 and 2018 and interest expense was $58,696 and $33,942, respectively. The Company recorded a loss of $3,264,520 for the six months ended June 30, 2019 as compared to a loss of $401,658 for the six months ended June 30, 2018. The change primarily reflects stock compensation issued to the Company’ s executive officer and a gain on the extinguishment of debt in the current period.

 

 
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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 June 30, 2019, the Company has cash in the amount of $317. 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 June 30, 2019, we had negative working capital of $1,601,888 and we have used cash of $18,470 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 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.

 

 
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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, 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

 

ASU 2014-09, Revenue - Revenue from Contracts with Customers

 

On January 1, 2018, we adopted the new accounting standard ASC 606 and the related amendments. In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers, to replace the existing revenue recognition criteria for contracts with customers. In August 2015, the FASB issued ASU No. 2015-14, Deferral of the Effective Date, to defer the effective date of ASU No. 2014-09 to interim and annual periods beginning after December 15, 2017. Subsequently, the FASB issued ASU No. 2016-08, Principal versus Agent Considerations, ASU No. 2016-10, Identifying Performance Obligations and Licensing, ASU No. 2016-11, Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting, ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients, and ASU No. 2016-20, Technical Corrections and Improvements, to clarify and amend the guidance in ASU No. 2014-09.

 

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.

 

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.

 

In July 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This update addresses several aspects of the accounting for nonemployee share-based payment transactions and expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The main provisions of the update change the way nonemployee awards are measured in the financial statements. Under the simplified standards, nonemployee options will be valued once at the date of grant, as compared to at each reporting period end under ASC 505-50. At adoption, all awards without established measurement dates will be revalued one final time, and a cumulative effect adjustment to retained earnings will be recorded as the difference between the pre-adoption value and new value. Companies will be permitted to make elections to establish the expected term and either recognize forfeitures as they occur or apply a forfeiture rate. Compensation expense recognition using a graded vesting schedule will no longer be permitted. This pending content is the result of the FASB’ s Simplification Initiative, to maintain or improve the usefulness of the information provided to the users of financial statements while reducing cost and complexity in financial reporting. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted, but no earlier than an entity’ s adoption date of Topic 606. Because the Company does not currently have any outstanding awards to non-employees for which a measurement date has not been established the adoption of ASU 2018-07 does not have a material impact to the Company’ s financial statements and related disclosures upon adoption. The adoption of this standard will change the way that the Company accounts for non-employee compensation in the future.

 

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 changes in our internal control over financial reporting that occurred subsequent to the filing of the original Form 10Q ending June 30, 2019. These changes are expected to have a material effect, or are reasonably likely to materially affect, our internal control over financial reporting.

 

On April 13, 2020, we entered into a second Amended Agreement and Plan of Share Exchange Agreement with Florida Beauty Express, Inc., Florida Beauty Flora, Inc., Floral Logistics of Miami, Inc., Floral Logistics of California, Inc., Tempest Transportation Inc. (the “Companies”) and Companies shareholders. As a result, the Company has expanded its management and board of directors and believes certain controls such as segregation of duties and levels of review related to our report filings will add reasonable assurances that these deficiency risks will be mitigated in the future.

 

 
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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.

 

During the six months ended June 30, 2019, the Company issued 4,900 shares of common stock for conversion of convertible note principal of $1,500 and accrued interest of $1,420.

 

On May 8, 2019, the Company issued 20,000 common shares for cash. The shares were valued at $0.50 or $10,000.

 

On March 31, 2019, the Company’ s Board of Directors authorized the issuance of 15,000,000 shares to the Company’ s Chief Executive Officer as a performance bonus pursuant to his employment agreement. The shares were valued at $0.20, the quoted market price on the date of issuance, or $3,000,000.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosure.

 

None.

 

Item 5. Other Information.

 

None.

 

 
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Item 6. Exhibits.

 

Exhibit Number

 

Description

31.1

 

Certification by the Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Filed herewith

32.1

 

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

101*

 

Financial statements from the quarterly report on Form 10-Q of REAC GROUP, , Inc. for the quarter ended June 30, 2019, 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

 

*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.

 

 
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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 thereunto duly authorized.

 

 

REAC GROUP, INC.

 

 

 

 

Dated: September 29, 2021

By:

/s/ RONEN KOUBI

 

 

 

Ronen Koubi

 

 

 

President,

 

 

 

Principal Executive Officer, Principal Financial Officer

Principal Accounting Officer and Director

 

 

 

34

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