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Financial Statements

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________

FORM 10-K

______________

 

 

For the fiscal year ended December 31, 2017

 

 

For the transition period from ______________ to ______________

 

Commission File No. 000-54845

REAC GROUP, INC.

 (Exact name of small business issuer as specified in its charter)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes þ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes þ No

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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.

þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  þNo  o

Indicate by check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

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

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If an emerging growth company, indicate by checkmark 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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)  o Yes þ No

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter, June 30, 2017: $231,280.

Number of the issuer’s shares of Common Stock outstanding as of April 17, 2018:  252,951,154

Documents incorporated by reference: None.

 

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TABLE OF CONTENTS

  

		Page
Part I
Item 1	Business	1
Item 1A	Risk Factors	2
Item 1B	Unresolved Staff Comments	6
Item 2	Properties	6
Item 3	Legal Proceedings	6
Item 4	Mine Safety Disclosures	6
Part II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	7
Item 6	Selected Financial Data.	8
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operation	8
Item 7A	Quantitative and Qualitative Disclosures about Market Risk	13
Item 8	Financial Statements and Supplementary Data	14
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	30
Item 9A	Controls and Procedures	30
Item 9B	Other Information	31
Part III
Item 10	Directors and Executive Officers and Corporate Governance.	32
Item 11	Executive Compensation	33
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	34
Item 13	Certain Relationships and Related Transactions, and Director Independence	34
Item 14	Principal Accounting Fees and Services	35
Part IV
Item 15	Exhibits, Financial Statement Schedules	36
Signatures		37

  

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PART I

 

ITEM 1.  BUSINESS

Background Information

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

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

RealEstateContacts.com will serve as an internet portal that will feature a real estate search engine that directs consumers to receive more detailed information about their local agents, brokers, and offices, with regards to showing current listings, homes for sale, commercial properties, mortgages, and foreclosures.

Our customer base is consumers interested in buying or selling their home and properties. We've made it an easy and convenient process for the consumer to start their search by featuring their local real estate companies or agents current listings. Consumers can view current properties and houses for sale in hundreds of U.S. cities as well as in their local market.

Real Estate professionals use the internet to generate leads.  The top sources of internet leads are company and agent web sites.  The internet is vital to a growing number of real estate professionals’ success. The strong surge in technology has created many new companies in the real estate industry. Many of them have become household names and gone public in a few short years.

Our goal as a real estate portal is to send consumers to our real estate search site to view offices, brokers or agents current listings.  We are building a national online lead network for our real estate professionals.

Our mission is for our Company to become one of the leading marketing partners to the real estate industry.

The Company provides consumers the opportunity to view real estate listings and homes for sale from their local real estate in their local markets and in most markets and cities throughout the United States.

We enable real estate professionals to better promote themselves and their listings and connect with transaction-ready consumers through our online websites and marketing website products.

Business Operations

REAC Group, Inc., through their real estate website, will provide a service that enables real estate professionals to capture, cultivate, and convert leads which cater to prospective home buyers and sellers.   (www.realestatecontacts.com).

The Company’s real estate website is conducted solely within the Internet. Our Company matches buyers, sellers, and real estate brokers’ agents and offices anywhere in the world.

Products and Services

The Company has designed a real estate website that will operate as a real estate search portal www.realestatecontacts.com that features the real estate professional’s profiles and other real estate service providers in their service areas.

The Company’s marketing strategy is to feature the real estate professional’s profile on the RealEstateContacts.com portal website exclusively in the areas that they service and work in so potential home buyers can view current real estate listings and homes that are for sale. We will send homebuyers and sellers to our real estate website so they can view our real estate contacts profiles so our real estate professionals become focused on receiving good leads for their business.  This format would be called a lead generation program for real estate professionals that are on the RealEstateContacts.com portal website.

The driving of internet traffic is the key to any online marketing company. Our advertising campaign will be built around all internet related marketing concepts, such as search engine optimization, pay per clicks advertising, banner advertising, email marketing, and linking up to other real estate portals and directories.

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We currently offer real estate agents, brokers, and offices the opportunity to become the exclusive real estate contact in the city that they serve on www.RealEstateContacts.com for a yearly fee.

We will also offer other real estate service providers the opportunity to advertise their services in the cities they work in.

Our website will set the stage to drive more business for our real estate professionals as well as small business owners.

Participating real estate brokers, offices and agents receive EXCLUSIVE coverage in the cities, areas and territories that they service.  

The Company intends to generate its revenue from selling advertising to real estate professionals and real estate service providers that are featured on our real estate portal.

Consumers will and do continue to buy and sell homes in real estate markets throughout the United States.  The majority are going online to do so and will continue to contact and seek the advice of real estate professionals.

Reports to Security Holders

We file reports and other information with the U.S. Securities and Exchange Commission (“SEC”).  You may read and copy any document that we file at the SEC's public reference facilities at 100 F. Street, N.E., Washington, D.C. 20549.  Please call the SEC at 1-800-732-0330 for more information about its public reference facilities.  Our SEC filings will be available to you free of charge at the SEC's web site at www.sec.gov.

At the request of a shareholder, we will send a copy of an annual report to include audited financial statements.  As a reporting company with the U.S. Securities and Exchange Commission (“SEC”), we file all necessary quarterly (Form 10-Q), annual (Form 10-K) and other reports as required.

ITEM 1A .

RISK FACTORS

 

The shares of our common stock being offered for resale by the selling security holders are highly speculative in nature, involve a high degree of risk and should be purchased only by persons who can afford to lose the entire amount invested in the common stock. Before purchasing any of the shares of common stock, you should carefully consider the following factors relating to our business and prospects. If any of the following risks actually occurs, our business, financial condition or operating results could be materially adversely affected. In such case, you may lose all or part of your investment.  You should carefully consider the risks described below and the other information in this process before investing in our common stock.

Risks Related to Our Business

 

Our business is difficult to evaluate because we have a limited operating history.

 

REAC Group, Inc. was incorporated on March 10, 2005.  For the years ended December 31, 2017, and 2016, net losses were $838,214 and $5,465,973, respectively.   Although the Company has conducted its operations since March 2005, it nonetheless has a limited operating history.  Additionally, the Company has been unsuccessful in generating any significant revenues since its inception.  This limited operating history and lack of revenues may not serve as an adequate basis to judge the Company’s future prospects and results of operations.  The Company’s business and prospects must be considered in light of the risks and uncertainties frequently encountered by companies in their early stages of operations, including such companies that operate in the new and rapidly changing online advertising and marketing environment.  The Company cannot assure that it will ever be profitable or that it will not be subject to increasing accumulated losses in the foreseeable future.  The Company anticipates that its operating expenses will increase in concert with its planned operations.  Any significant failure to realize anticipated revenue growth could result in further losses.  The Company will continue to encounter risks and difficulties frequently experienced by companies at a similar stage of development, including its potential failure to:

·

Implement and/or adapt and modify the Company’s business model and strategy;

·

Develop and increase brand awareness, protect the Company’s reputation, and develop customer loyalty;

·

Efficiently manage the Company’s planned expansion of its operations and related expenses; and

·

Anticipate and adapt to changing conditions in markets in which the Company operates, such as the impact of any changes mergers and acquisitions involving the Company’s competitors, technological developments, and other significant competitive and market dynamics.

 

If the Company is unsuccessful in addressing any or all of these risks, its business and financial condition may be materially and adversely affected.

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We need additional capital to develop our business.  Without additional capital we may not be able to implement our business plan.

The continued development of our services will require the commitment of substantial resources to implement our business plan. In addition, substantial expenditures will be required to enable us to manage properties in the future.  Currently, we have no established bank-financing arrangements.  Therefore, it is likely we would need to seek additional financing through a subsequent future private offering of our equity securities, or through strategic partnerships and other arrangements with corporate partners.

 

We cannot give you any assurance that any additional financing will be available to us, or if available, will be on terms favorable to us.  The sale of additional equity securities will result in dilution to our stockholders.  The occurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financing covenants that would restrict our operations.  If adequate additional financing is not available on acceptable terms, we may not be able to implement our business development plan or continue our business operations.

Our business is susceptible to fluctuation in the real estate market which may have an adverse effect on our ability to generate revenue.

Our business depends substantially on the conditions of the real estate market.  Demand for real estate has grown rapidly in the past decade but such growth is often accompanied by volatility in market conditions and fluctuations in real estate prices.  For example, following a period of rising real estate prices and transaction volumes in most major cities from 2003 to 2007, the industry experienced a downturn in 2008, with transaction volumes in many major cities declining significantly compared to 2007.  Fluctuations in the real estate market may negatively impact our ability to generate revenue through the advertising of real estate professionals on our website.  If we are unable to generate revenue through advertising on our website we may have to cease operations.

 

We are subject to general real estate risks and our revenue may fluctuate.

 

Our primary revenue is generated from advertisements by real estate professionals, such as real estate offices, real estate brokerages, real estate agents, and the sales of real estate video websites which subjects our business to a variety of risks.  The revenue available from these advertisements and websites will depend on the current real estate market. If the advertisements on our websites and the sales of video websites do not generate sufficient income to meet operating expenses our cash flow and ability to operate will be adversely affected.

 

Our future success is dependent, in part, on the performance and continued service of Robert DeAngelis, President and Director.  Without his continued service, we may be forced to interrupt or eventually cease our operations.

 

We are presently dependent to a great extent upon the experience, abilities and continued services of Robert DeAngelis, President and Director.  The loss of the service of Mr. DeAngelis could have a material adverse effect on our business, financial condition or results of operation.

We may incur significant costs to be a public company to ensure compliance with U.S. corporate governance and accounting requirements and we may not be able to absorb such costs.

 

We may incur significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission.  We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly.  We also expect that these applicable rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.  As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers.  We are currently evaluating and monitoring developments with respect to these newly applicable rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.  In addition, we may not be able to absorb these costs of being a public company which will negatively affect our business operations.

 

The lack of public company experience of our management team could adversely impact our ability to comply with the reporting requirements of U.S. Securities Laws.  

 

Our   management team lacks public company experience, which could impair our ability to comply with legal and regulatory requirements such as those imposed by Sarbanes-Oxley Act of 2002.  Our senior management has never had responsibility for managing a publicly traded company.  Such responsibilities include complying with federal securities laws and making required disclosures on a

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timely basis.  Our senior management may not be able to implement programs and policies in an effective and timely manner that adequately respond to such increased legal, regulatory compliance and reporting requirements, including the establishing and maintaining of internal controls over financial reporting.  Any such deficiencies, weaknesses or lack of compliance could have a materially adverse effect on our ability to comply with the reporting requirements of the Securities Exchange Act of 1934 which is necessary to maintain our public company status.  If we were to fail to fulfill those obligations, our ability to continue as a U.S. public company would be in jeopardy in which event you could lose your entire investment in our company.  

 

We may issue additional shares that could dilute your potential ownership interest and limit the ability of a third party to obtain voting control.

 

Some events over which investors in the Company have no control could result in the issuance of additional shares of our Common Stock or issuances of preferred stock (of which none is currently outstanding), which would dilute the ownership percentage of current shareholders.  We may issue additional shares of Common Stock:

·

to raise additional capital or finance acquisitions;

·

upon the exercise or conversion of outstanding warrants or convertible notes;

·

in lieu of cash payment of interest on our outstanding convertible subordinated notes; or

·

to vendors in exchange for products or services

 

We have not filed for trademark protection with the United States Patent and Trademark office which may adversely impact our ability to generate revenue.

 

We have not filed for trademark protection with the United States Patent and Trademark Office regarding the use of the Company’s name, REAC Group, Inc.  Should we fail to file for protection of the Company’s name, we may be unable to adequately protect the use of our name, which would negatively affect the Company’s brand name and its ability to generate revenues.

 

The Company’s officer and director has significant control over shareholder matters and the minority shareholders will have little or no control over the Company’s affairs.

 

The Company’s officer/director currently owns approximately 150,005,002 shares (65%), as of March 2, 2018, of the Company’s outstanding Common Stock and has significant control over shareholder matters, such as election of the Company's directors, amendments to its Articles of Incorporation, and approval of significant corporate transactions; as a result, the Company’ minority shareholders will have little or no control over its affairs.

 

The Company may become dependent upon only a few customers for a significant portion of its revenue.  If these customers no longer require our service, it will have an adverse effect on our business operations.

The Company may become dependent upon only a few customers for a significant portion of its revenues. Should the Company be successful in obtaining those customers, but those customers no longer require the Company’s services or terminate the use of its services, the Company’s revenues and operations will be negatively affected.

 

The real estate market is very competitive which may have a negative effect on our ability to generate revenue and continue our business operations.

 

The Real Estate Advertising/Marketing services market is becoming increasingly competitive and the barriers to entry regarding such services are low.  Many of the Company’s existing and potential competitors have longer operating histories in the Real Estate Advertising Marketing and website business, greater name recognition, larger client base, greater Internet traffic, and greater financial, technical and marketing resources than the Company does.  The Real Estate Advertising Marketing business and the sales of real estate websites is subject to intense competition; should the Company be unable to overcome such competitive forces, its operations will be negatively affected and it will be unable to expand its business.

 

If the Company fails to promote its brand cost effectively it may have a negative impact on our business operations.

 

If the Company fails to promote and maintain its brand successfully, or the Company incurs significant expenses pertaining to promotion of its brand without corresponding revenue increases, the Company’s business may be adversely affected.

 

Our business is subject to various risks associated with conducting business online.

 

The Company’s business  is conducted solely within the Internet arena and is subject to various risks associated with conducting business online, including: (a) the Company’s target clients, real estate professionals, offices, brokers, agents, may operate their own Internet portal and websites for advertising and marketing purposes, and have no need for the Company’s advertising, marketing and website

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services; and (b) consumer traffic to the Company’s website and its advertising/marketing revenues are based on consumer and real estate professional’s acceptance and/or continued acceptance of online marketing and advertising, which there is no assurance will continue to be an acceptable mode of marketing and advertising.

 

Risk Related To Our Capital Stock

 

We may never pay any dividends to shareholders.

 

We have never declared or paid any cash dividends or distributions on our capital stock.  We currently intend to retain our future earnings, if any, to support operations and to finance expansion and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable future.

 

The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant.  There is no assurance that future dividends will be paid, and, if dividends are paid, there is no assurance with respect to the amount of any such dividend.

 

You will experience dilution of your ownership interest because of the future issuance of additional shares of our common stock and our preferred stock.

 

In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders.  We are currently authorized to issue an aggregate of 10,000,000,000 shares of capital stock consisting of 9,999,000,000 shares of common stock, par value $.00001 per share, and 1,000,000 shares of Preferred Stock, of which 500,000 shares have been designated as Series A Preferred Stock, par value $0.0001 per share (“Series A”), as per the amended and restated Articles of Incorporation, effective February 20, 2018.

We may also issue additional shares of our common stock or other securities that are convertible into or exercisable for common stock in connection with hiring or retaining employees or consultants, future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes.

 

Our common stock is considered a penny stock, which may be subject to restrictions on marketability, so you may not be able to sell your shares.

 

If our common stock becomes tradable in the secondary market, we will be subject to the penny stock rules adopted by the Securities and Exchange Commission that require brokers to provide extensive disclosure to their customers prior to executing trades in penny stocks.  These disclosure requirements may cause a reduction in the trading activity of our common stock, which in all likelihood would make it difficult for our shareholders to sell their securities.

 

Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system).  Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market.  The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account.  The broker-dealer must also make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.  These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules.  The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit the market price and liquidity of our securities.  These requirements may restrict the ability of broker-dealers to sell our common stock and may affect your ability to resell our common stock.

 

If we fail to maintain an effective system of internal control over financial reporting and disclosure controls and procedures, we may be unable to accurately report our financial results and comply with the reporting requirements under the Exchange Act.

We intend to prepare an internal plan of action for compliance with the requirements of Section 404. As a result, we cannot guarantee that we will not have any “significant deficiencies” or “material weaknesses” within our processes. Compliance with the requirements of Section 404 is expected to be expensive and time-consuming.  If we fail to complete this evaluation in a timely manner, we could be subject to regulatory scrutiny and a loss of public confidence in our internal control over financial reporting.  In addition, any failure to establish an effective system of disclosure controls and procedures could cause our current and potential stockholders and customers to lose confidence in our financial reporting and disclosure required under the Exchange Act, which could adversely affect our business.

 

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Our Common Stock has a very limited trading market.

 

Our Common Stock is traded on the over-the-counter market (OTCBB) electronic quotation service, an inter-dealer quotation system that provides significantly less liquidity than the NASDAQ stock market or any other national securities exchange.  In addition, trading in our Common Stock has historically been extremely limited.  This limited trading adversely affects the liquidity of our Common Stock, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions and reduction in security analysts’ and the media’s coverage of us.  As a result, there could be a larger spread between the bid and ask prices of our Common Stock and you may not be able to sell shares of our Common Stock when or at prices you desire.

 

Our bylaws provide for our indemnification of our officers and directors.

 

Our directors and officers are indemnified as provided by the Florida corporate law and our Bylaws. We have agreed to indemnify each of our directors and certain officers against certain liabilities, including liabilities under the Securities Act of 1933.  Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons pursuant to the provisions described above, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.  In the event that a claim for indemnification against such liabilities (other than our payment of expenses incurred or paid by our director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

We have been advised that in the opinion of the Securities and Exchange Commission indemnification for liabilities arising under the Securities Act is against public policy as expressed in the Securities Act, and is, therefore, unenforceable.  In the event that a claim for indemnification against such liabilities is asserted by one of our directors, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion of our legal counsel the matter has been settled by controlling precedent, submit the question of whether such indemnification is against public policy to a court of appropriate jurisdiction.  We will then be governed by the court’s decision.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

There is no reporting requirement under this item for a smaller reporting company.

ITEM 2.

PROPERTIES

Our principal executive office is located at 8878 Covenant Avenue, Suite 209, Pittsburgh, PA., 15237 and our telephone number is (724) 656-8886.  Office space is provided by our Chief Executive Officer at no charge.

ITEM 3.

LEGAL PROCEEDINGS

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business.  However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.  We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5.

MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDERS MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is quoted on the Over the Counter Bulletin Board (“OTC Pink”) under the symbol “REAC” for the reporting period.  Although we are listed on the OTC Pink, there can be no assurance that an active trading market for our stock will develop. Price quotations on the exchange will reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.

Should a market develop for our shares, the trading price of the common stock is likely to be highly volatile and could be subject to wide fluctuations in response to factors such as actual or anticipated variations in quarterly operating results, announcements of technological innovations, new sales formats, or new services by us or our competitors, changes in financial estimates by securities analysts, conditions or trends in Internet or traditional retail markets, changes in the market valuations of other equipment and furniture leasing service providers or accounting related business services, announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, capital commitments, additions or departures of key personnel, sales of common stock and other events or factors, many of which are beyond our control. In addition, the stock market in general, and the market for instant messaging business services in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of such companies. These broad market and industry factors may materially adversely affect the market price of the common stock, regardless of our operating performance.

Consequently, future announcements concerning us or our competitors, litigation, or public concerns as to the commercial value of one or more of our services may cause the market price of our common stock to fluctuate substantially for reasons which may be unrelated to operating results.  These fluctuations, as well as general economic, political and market conditions, may have a material adverse effect on the market price of our common stock. 

Cash dividends have not been paid since inception. In the near future, we intend to retain any earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. The declaration and payment of cash dividends by us are subject to the discretion of our board of directors. Any future determination to pay cash dividends will depend on our results of operations, financial condition, capital requirements, contractual restrictions and other factors deemed relevant at the time by the board of directors. We are not currently subject to any contractual arrangements that restrict our ability to pay cash dividends.

At the present time we have outstanding warrants to purchase securities convertible into common stock. (See Note 10 to the Financial Statements.)

Price Range of Common Stock

 

Our Common Stock is to be quoted on the over-the-counter market (OTC: Pink) electronic quotation service under the symbol “REAC.”   

	High*			Low*
Fiscal Year 2017
First quarter ended March 31, 2017	$	3.79		$	0.0575
Second quarter ended June 30, 2017	$	0.085		$	0.0359
Third quarter ended September 30, 2017	$	0.085		$	0.0140
Fourth quarter ended December 31, 2017	$	0.036		$	0.0050
Fiscal Year 2016
First quarter ended March 31, 2016	$	1.00		$	1.00
Second quarter ended June 30, 2016	$	1.00		$	1.00
Third quarter ended September 30, 2016	$	1.00		$	0.0200
Fourth quarter ended December 31, 2016	$	3.55		$	0.1101

* Share quotations retroactively restated for reverse stock splits of 10,000:1 on July 15, 2016

Approximate Number of Equity Security Holders

 

 As of December 31, 2017, there were approximately 122 certificate holders of record of the Company’s common stock.

 

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Dividends

 

We have not declared or paid cash dividends on our common stock.

 Stock Option Grants

There are no outstanding options to purchase our securities.

 

ITEM 6.

SELECTED FINANCIAL DATA

 

We qualify as a smaller reporting company, as defined by Rule 229.10(f)(1), and are not required to prove the information required by this Item.

ITEM 7.

 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Cautionary Notice Regarding Forward Looking Statements

This section of this Form 10-K includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.

Readers should not place undue reliance on these forward-looking statements, which are based on management’s current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions (including those described below), and apply only as of the date of this filing.  Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements.  Factors which could cause or contribute to such differences include, but are not limited to, the risks to be discussed in our Annual Report on form 10-K and in the press releases and other communications to shareholders issued by us from time to time which attempt to advise interested parties of the risks and factors which may affect our business.  We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

 

Our Operating Strategy

 

Our website allows real estate professionals and consumers to interact through the Internet as a business medium.  Our operating strategy is to feature exclusively real estate agents websites on the www.realestatecontacts.com portal website in the areas that they service and work enabling potential home buyers to view real estate listings and homes that are for sale.  This format would be called a lead generation program for real estate professionals that are on the RealEstateContacts.com portal website.

Our business strategy is an ease of use approach which allows the consumer to view listings of homes from our website and also of their local real estate office or agent.

Our focus is driving high volumes of traffic to our website and our advertisers profile pages putting the consumer with the most relevant and desired professional.  Thousands of unique visitors visit our website to view real estate listings and homes for sale.  We accomplish this through highly focused and well-designed SEO strategies that allow our advertisers to receive greater amount of sales without spending huge resources.  Our methodology and resource expenditures are invaluable tools to our advertisers.  We do the marketing and our advertisers get the leads.

Currently, while there are other real estate directories and portals on the Internet, only realestatecontacts.com features real estate agents on an exclusive basis in the cities they work in.  We believe this approach will be attractive to real estate professionals in each locale.

Our real estate search portal website will also include local real estate service providers that want more traffic and exposure to their business website for potential new clients.

We believe the driving of internet traffic is the key to any online marketing company.  We intend to build our advertising campaign around all internet related marketing concepts, such as search engine optimization, pay per clicks advertising, banner advertising, email marketing, and linking up to other real estate portals and directories.

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Financial Statements

Our goal is to connect real estate professionals with consumers who are interested in buying or selling a home.  We believe that when a customer does research and knows which house he or she is interested in, the result is a more effective and time-efficient transaction for both buyer and seller.  

Plan of Operations

Our plan of operation is to operate a search engine portal website for real estate.  

Our real estate search website allows real estate professionals and consumers to interact through the internet as a business medium. The Company’s operating strategy is to feature real estate professional’s websites and profiles on the RealEstateContacts.com portal website in the areas that they service and work enabling potential home buyers to view real estate listings and homes that are for sale and featured on the real estate professionals’ website.  This format is called a lead generation program for real estate professionals that are on the RealEstateContacts.com portal website.

Our business strategy is an ease of use approach which allows the consumer to view listings of homes from of their local real estate office, broker or agent. This service is provided from our real estate search website: www.realestatecontacts.com.   In addition, our real estate search website will feature one agent per city.  This policy will eliminate 100% of the competition for the real estate agent, broker and office.  For this reason we believe our concept will have a high level of interest from any real estate professional.

Currently, while there are other real estate directories and portals on the internet, only www.realestatecontacts.com features real estate agents on an-exclusive basis.  We believe this approach will be attractive to real estate professionals in each locale.

The RealEstateContacts.com portal website will also feature local real estate service providers such as local or national mortgage lenders and mortgage brokers. By featuring local mortgage brokers our website allows the consumer to have access to any financial questions and can receive all the information they need quickly in their geographical area.  

Our goal is to connect real estate professionals with consumers who are interested in buying or selling a home.

We anticipate generating revenues from advertising sales from real estate professionals on our current website.

We plan to grow revenues in the next 12 months by undertaking the following steps:

·

Devote greater resources to marketing and selling our services such as developing and creating a more productive advertising sales division within our Company by the hiring of advertising sales account executives.

·

Focus to expand our network of advertisers and real estate professionals by increasing our online presence to include various marketing channels such as the major search engines, Google, Yahoo and Bing.

·

Expand our Company’s public relations by creating more brand awareness on the internet.  An example would be to focus on other social media websites such as Facebook, Twitter, and LinkedIn.

·

Develop other marketing programs to efficiently increase our brand awareness such as email campaigns, newsletters, linking our website to other real estate business websites, real estate portals and directories.

·

We intend to continue, maintain and aggressively pursue to build our advertising campaign around all internet related marketing concepts, such as search engine optimization, pay per click advertising, banner advertising and social media networks to help manage and geographically target consumer traffic and lead volume.

·

Focus on driving more internet traffic and unique visitors to our websites by using these search engine marketing techniques.

·

We plan to increase our online Search Engine Marketing to create more unique users.  Measuring unique users is important to us because our advertising revenues depend in part on our ability to enable our consumers to connect with real estate professionals.  We define a unique user as a user who visits our website at least once during a calendar month, as measured by our analytical tools.

·

The number of real estate professionals (advertisers) on our websites is an important driver of revenue growth because each advertiser pays us a yearly fee to participate in the advertising of their services.

Limited Operating History

We have generated a limited financial history and have not previously demonstrated that we will be able to expand our business through increased investment in marketing activities.  We cannot guarantee that the expansion efforts described in this Registration Statement will be successful.  The business is subject to risks inherent in growing an enterprise, including limited capital resources and possible rejection of our business model and/or sales methods.

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Financial Statements

Future financing may not be available to us on acceptable terms.  If debt financing is not available or not available on satisfactory terms, we may be unable to continue expanding our operations.  Equity financing will result in a dilution to existing shareholders.

Results of Operations

For the years ended December 31, 2017 and 2016.

Revenues

For the years ended December 31, 2017 and 2016, we generated no revenues.

Operating Expenses

Operating expenses were incurred in the amount of $1,236,390 and $5,189,788 for the years ended December 31, 2017 and 2016, respectively.  The decrease was largely due to a decrease in stock based compensation resulting from shares issued for services of $4,023,000; which included stock valued at $550,000 issued in exchange for services related to determining specific performance requirements necessary in further developing and installing software to our existing website; thereby restoring its full functionality.  We anticipate that our professional fees ($54,994 in 2017 vs $53,997 in 2016) will remain significant as we maintain compliance with our public reporting requirements.

Net Loss

The Company recognized net losses of $822,873 and $5,465,973 for the years ended December 31, 2017 and 2016, respectively.  The decreased loss is largely due to significant decreases in stock based compensation and the change in the fair value of our derivative financing. At this time, normal costs of public filing and increasing advertising efforts will continue and it is not known when significant revenues will occur to off-set these expenses.

 

Liquidity and Capital Resources

 

The Company is currently financing its operations primarily through loans, equity sales and advances from shareholders.  These advances are being made to supplement any cash generated by the operating revenue.  We believe we can currently satisfy our cash requirements for the next twelve months with our current expected increase in revenue, and the expected capital to be raised in private placement and sales of our common stock.  Additionally, we will begin to use our common stock as payment for certain obligations and to secure work to be performed.  Management plans to continue to rely upon advances from shareholders until it has generated revenue through yearly advertising subscriptions.

The Company has negative working capital, in the amount of $1,200,880 as of December 31, 2017 and has used cash from operations of $303,209.  The Company received $5,000 in proceeds from the issuance of common stock for the year ended December 31, 2017 and none for the year ended December 31, 2016.

At December 31, 2017 the Company’s cash balance was $51,396.  The Company anticipates generating revenue, which will partially mitigate cash flow deficiencies; however, without revenue at the present time, we are unable to cover our cash requirements without relying upon loans and advances.  In consideration of the potential shortfall in adequate resources, management has disclosed its substantial doubt about its ability to continue as a going concern and our auditor has also expressed the same in their auditors’ report.

We do believe that we will have enough cash to support our daily operations, at reduced levels of development, beyond the next 12 months while we are attempting to expand operations and produce revenues.  Although we believe we have adequate funds to maintain our current operations for the near term, we do not believe that we have the required funding to expand our product offering (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.

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Financial Statements

The foregoing represents our best estimate of our cash needs based on current planning and business conditions.  In the event we are not successful in reaching our initial revenue targets, additional funds may be required, and we may not be able to proceed with our business plan for the development and marketing of our core services.  Should this occur, we will suspend or cease operations.

We anticipate that depending on market conditions and our plan of operations, we may incur operating losses in the foreseeable future. Therefore, our auditors have raised substantial doubt about our ability to continue as a going concern.

Management Consideration of Alternative Business Strategies

In order to continue to protect and increase shareholder value management believes that it may, from time to time, consider alternative management strategies to create value for the Company or additional revenues.  Strategies to be reviewed may include acquisitions; roll-ups; strategic alliances; joint ventures on large projects; issuing common stock as compensation in lieu of cash; and/or mergers.

Management will only consider these options where it believes the result would be to increase shareholder value while continuing the viability of the Company.  At the current time, there have been no planned commitments to any independent considerations mentioned above.

Subsequent Events

On March 1, 2018, the sole director accepted an offer to convert $112,266 of the existing unpaid compensation to Robert DeAngelis in exchange for the issuance to him of 449,065 shares of the Company’s Series A Preferred Shares.

On February 20, 2018, the Board of Directors recommended and the majority shareholder (holding 83% of the voting shares) voted in favor of increasing the authorized capital of the Company from Three Billion (3,000,000,000) shares, to Ten Billion (10,000,000,000) shares.  No change was made to the number of preferred shares authorized.  Accordingly, as of February 20, 2018, the total authorized capital of the Company will be comprised of Nine Billion Nine Hundred Ninety-Nine Million (9,999,000,000) shares of common stock, par value $0.00001 per share, and One Million (1,000,000) shares of Preferred Stock, of which Five Hundred Thousand (500,000) shares are designated as Series A Preferred Stock, par value $0.0001 per share.

On February 5, 2018, the Board of Directors recommended and the majority shareholder (holding 74% of the voting shares) voted in favor of increasing the authorized capital of the Company from One Billion (1,000,000,000) shares, to Three Billion (3,000,000,000) shares.  No change was made to the number of preferred shares authorized.  Accordingly, as of February 5, 2018, the total authorized capital of the Company will be comprised of Two Billion Nine Hundred Ninety-Nine Million (2,999,000,000) shares of common stock, par value $0.00001 per share, and One Million (1,000,000) shares of Preferred Stock, of which Five Hundred Thousand (500,000) shares are designated as Series A Preferred Stock, par value $0.0001 per share.

On January 23, 2018, the Company issued 100,000,000 shares of its common stock to sole officer and director, Robert DeAngelis, as his 2017 annual bonus per his employment agreement.  The shares were valued at $0.0033, which is the average price for which the Company stock sold during the ten (10) trading days ending January 23, 2018, as reported on OTCMarkets website.

Common Shares issued for Repayment of Notes

In November 2017, the Company issued an aggregate of 5,000,000 shares of common stock, for a value of $5,000 in satisfaction of $4,859 in principal and $141 in interest on a convertible note payable.  The Company recorded the issuances at the contract value, at the date of exchange, off-setting the notes payable, accrued interest and the recorded derivative liability.

In November 2017, the Company issued an aggregate of 3,114,800 shares of common stock, for a value of $11,213 in satisfaction of $461 in principal and $10,753 in interest on a convertible note payable.  The Company recorded the issuances at the contract value, at the date of exchange, off-setting the notes payable, accrued interest and the recorded derivative liability.

In November 2017, the Company issued an aggregate of 3,880,000 shares of common stock, for a value of $3,880 in satisfaction of $2,891 in principal and $989 in interest on a convertible note payable.  The Company recorded the issuances at the contract value, at the date of exchange, off-setting the notes payable, accrued interest and the recorded derivative liability.

In October 2017, the Company issued an aggregate of 3,690,476 shares of common stock, for a value of $31,000 in satisfaction of $30,519 in principal and $481 in interest on a convertible note payable.  The Company recorded the issuances at the contract value, at the date of exchange, off-setting the notes payable, accrued interest and the recorded derivative liability.

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In October 2017, the Company issued 3,880,000 shares of common stock, for a value of $3,880 in satisfaction of $3,880 in interest on a convertible note payable.  The Company recorded the issuances at the contract value, at the date of exchange, off-setting the notes payable, accrued interest and the recorded derivative liability.

In September 2017, the Company issued 3,571,429 shares of common stock, for a value of $30,000 in satisfaction of $23,273 in principal and $6,727 in interest on a convertible note payable.  The Company recorded the issuances at the contract value, at the date of exchange, off-setting the notes payable, accrued interest and the recorded derivative liability.

In July 2017, the Company issued an 3,350,000 shares of common stock, for a value of $3,350 in satisfaction of $3,350 accrued interest on a convertible note payable.  The Company recorded the issuances at the contract value, at the date of exchange, off-setting the accrued interest and the recorded derivative liability.

In May 2017, the Company authorized the issuance of 1,153,000 shares of common stock, for a value of $63,415, in satisfaction of $63,415 in finance costs associated with a convertible note payable.  The Company recorded the issuance at the fair value on the date of grant, which was $0.055 per share.

In November 2016, the Company issued an aggregate of 7,600,000 shares of common stock, for a value of $76,000 in satisfaction of $7,629 in principal and $68,371 in interest on a convertible note payable.  The Company recorded the issuances at the contract value, at the date of exchange, off-setting the notes payable, accrued interest and the recorded derivative liability.

Off-Balance Sheet Arrangements

Under the definition contained in Item 303(a)(4)(ii) of Regulation S-K, we do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).

Critical Accounting Policies

 

The Company’s significant accounting policies are presented in the Company’s notes to financial statements for the period ended December 31, 2017 and 2016, which are contained in this filing, the Company’s 2017 Annual Report on Form 10-K.  The significant accounting policies that are most critical and aid in fully understanding and evaluating the reported financial results include the following:

·

The Company prepares its financial statements in conformity with generally accepted accounting principles in the United States of America.  These principals require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Management believes that these estimates are reasonable and have been discussed with the Board of Directors; however, actual results could differ from those estimates.

·

The Company currently does not issue credit on services provided, therefore there are no accounts receivable.  No allowance for doubtful accounts is considered necessary to be established for amounts that may not be recoverable, since there has been no credit issued.  

·

Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable.  When required impairment losses on assets to be held and used are recognized based on the fair value of the asset.  The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required.  If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset.  When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets.  We did not recognize any impairment losses for any periods presented.

·

The Company issues restricted stock to consultants for various services.  Cost for these transactions are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is measurable more reliably measurable.  The value of the common stock is measured at the earlier of (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or (ii) the date at which the counterparty's performance is complete.  

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Financial Statements

Recent Accounting Pronouncements

The Financial Accounting Standards Board and other standard-setting bodies issued new or modifications to, or interpretations of, existing accounting standards during the year.  The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation’s reported financial position or operations in the near term.  These recently issued pronouncements have been addressed in the footnotes to the financial statements included in this filing.

 

ITEM 7A.

QUANTITATIVE AND QUALITIATIVE DISCLOSURES ABOUT MARKET RISK

We do not hold any derivative instrument assets and do not engage in any hedging activities.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial Statements

REAC Group, Inc.

As of December 31, 2017 and 2016

 

Contents

 

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Financial Statements

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors

REAC Group, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheet of REAC Group, Inc. as of December 31, 2017 and the related statements of operations, changes in stockholders’ deficit and cash flows for the year ended December 31, 2017 and the related notes (collectively referred to as the financial statements).  In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and the results of its operations and its cash flows for the year ended December 2017, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph – Going Concern

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company had a net loss and cash used in operations of approximately $823,000 and $303,000, respectively for the year ended of December 31, 2017 and a working capital deficit of approximately $1,201,000. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on the Company’s financial statements based on our audit.  We are a public accounting firm registered with the Public Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the auditing standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.

Our audit includes performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.  Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.  Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.  We believe that our audit provides a reasonable basis for our opinion.

The financial statements as of December 31, 2016, were audited by D’Arelli Pruzansky, P.A., who sold its audit practice to Assurance Dimensions, Inc. as of May 3, 2017, and whose report dated April 17, 2017, expressed an unmodified opinion on those statements.

/s/ Assurance Dimensions

Certified Public Accountants

We have served as the Company’s auditor since 2017.

Coconut Creek, Florida

April 12, 2018

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Financial Statements

REAC Group, Inc.

Balance Sheets

					December 31, 2017				December 31, 2016
Assets
Current assets
	Cash			$	51,396			$	105
	Prepaid expenses				461				-
	Total current assets				51,857				105
Total assets				$	51,857			$	105
Liabilities and Stockholders' Deficit
Current liabilities
	Accounts payable			$	-			$	46,466
	Accrued interest				14,559				43,395
	Accrued salaries, payroll taxes, and penalties and interest				853,011				793,998
	Derivative liability				-				699,090
	Due to principal shareholder				47				90,151
	Notes payable to principal shareholder				-				31,250
	Convertible notes payable (net of debt discount of $14,648 and $0, respectively)				350,073				128,525
	Warrant derivative liability				35,047				-
Total current liabilities					1,252,737				1,832,875
Total liabilities					1,252,737				1,832,875
Commitments and Contingencies (Note 13)					-				-
Stockholders' Deficit
	Preferred Stock Series A $.0001 par value, 500,000 shares authorized; 50,935 and 50,935 shares issued and outstanding, respectively				5				5
	Preferred Stock, no designation, 500,000 shares authorized; none issued and outstanding
	Common Stock, $0.00001 par value, 999,000,000 shares authorized; 93,642,790 and 47,988,085 shares* issued and outstanding, respectively				936				480
	Additional paid-in capital				21,482,249				20,027,941
	Accumulated deficit				(22,684,069)				(21,861,196)
Total stockholders' deficit					(1,200,879)				(1,832,770)
Total Liabilities and Stockholders' Deficit				$	51,857			$	105

* shares retroactively restated for reverse stock split of 1:10,000 on July 15,2016

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

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Financial Statements

REAC Group, Inc.

Statements of Operations

					For the Year Ended December 31, 2017				For the Year Ended December 31, 2016
Revenues				$	-			$	-
Operating expenses:
	Compensation				1,016,013				5,126,827
	Professional				154,994				53,997
	Rents				1,200				1,200
	General and administrative				64,183				7,764
	Total operating expenses				1,236,390				5,189,788
Net loss from operations					(1,236,390)				(5,189,788)
Other income/(expense)
	Interest expense				(259,175)				(43,337)
	Change in fair value of derivative liability				(526,070)				(269,071)
	Gain on write-off of derivative liability				1,232,164
	Gain on extinguishment of debt				128,598				36,223
	Impairment of asset				(162,000)				-
Net gain/(loss) loss before provision for income taxes					(822,873)				(5,465,973)
	Provision for income taxes				-				-
Net loss				$	(822,873)			$	(5,465,973)
Loss per share, basic and dilutive				$	(0.01)			$	(1.10)
Weighted average shares outstanding, basic and dilutive					61,713,363				4,985,143

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

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Financial Statements

REAC Group, Inc.

Statements of Shareholders’ Equity (Deficit)

	Preferred			Common					Additional			Accumulated
	Shares		Amount	Shares*		Amount				Paid in Capital		Deficit			Total
Balance as of December 31, 2015	-	$	-	106,753	$	1		$		14,952,867	$	(16,395,223)		$	(1,442,355)
Fractional shares issued in stock split	-		-	1,426		-				-		-			-
In kind contribution of rent	-		-	-		-				1,200		-			1,200
Preferred, Series A issued	50,935		5	(60,000)		(1)				165,496		-			165,500
Shares issued in satisfaction of loan debt and interest	-		-	7,739,906		77				98,658		-			98,735
Common shares issued as compensation for services	-		-	40,000,000		400				4,749,600		-			4,750,000
Reclassification of derivative liability upon conversion	-		-	-		-				55,123		-			55,123
Common stock issued for cash	-		-	200,000		2				4,998		-			5,000
Net loss for the year												(5,465,973)			(5,465,973)
Balance as of December 31, 2016	50,935	$	5	47,988,085	$	480		$		20,027,941	$	(21,861,196)		$	(1,832,770)
In kind contribution of rent	-		-	-		-				1,200		-			1,200
Common stock issued for cash	-		-	5,000		-				5,000		-			5,000
Common shares issued as compensation for services	-		-	30,010,000		300				931,700		-			932,000
Discounts on convertible debt and warrants	-		-	-		-				122,326		-			122,326
Common shares issued for purchase of assets				50,000		1				142,500					142,500
Cancellation of common shares				(14,050,000)		(141)				141					-
Shares issued in satisfaction of loan debt and interest				26,486,705		265				88,058					88,323
Common stock issued for finance costs				1,153,000		12				63,403					63,415
Common stock issued for investor relations				2,000,000		20				99,980					100,000
Net loss for the year												(822,873)			(822,873)
Balance as of December 31, 2017	50,935	$	5	93,642,790	$	936		$		21,482,249	$	(22,684,069)		$	(1,200,879)

*shares retroactively restated for reverse stock split of 1:10,000 on July 15,2016

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

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Financial Statements

REAC Group, Inc.

Statements of Cash Flows

			For the Year Ended December 31, 2017			For the Year Ended December 31, 2016
Cash Flows from Operating Activities:
	Net loss	$	(822,873)		$	(5,465,973)
	Adjustment to reconcile net loss to net cash provided by operations:
	Stock based compensation		1,032,000			4,750,000
	In kind contribution of rent		1,200			1,200
	Gain on extinguishment of debt		(128,598)			-
	Change in derivative liability		526,070			269,071
	Gain in write-off of derivative liability		(1,232,164)
	Impairment of asset (investment)		162,000			-
	Amortization of debt discounts and finance costs		266,011			(36,223)
	Changes in assets and liabilities:
	Prepaid expenses		(461)			-
	Accounts payable		(46,466)			40,874
	Accrued interest		(28,837)			(17,462)
	Accrued salaries, payroll taxes, penalties and interest		59,013			256,827
	Due to principal shareholder		(90,104)			190,511
	Net Cash Used by Operating Activities		(303,209)			(11,175)
Cash Flows from Investing Activities:
Investment in Patriot			(19,500)			-
Net Cash Used by Investing Activities			(19,500)			-
Cash Flows from Financing Activities:
	Proceeds from shareholder loans and advances		39,000			11,000
	Repayments of shareholder loans and advances		(70,250)			-
	Proceeds from loans and notes		400,250			-
	Repayments of loans and notes		-			(5,000)
	Proceeds from the issuance of common stock		5,000			5,000
	Net Cash Provided by Financing Activities		374,000			11,000
Net increase (decrease) in cash			51,291			(175)
Cash at beginning of period			105			280
Cash at end of period		$	51,396		$	105
Supplemental cash flow information:
	Interest paid	$	26,500		$	-
	Taxes paid	$	-		$	-
Non-cash disclosures
	Common stock issued for conversion of debt and interest	$	88,323		$	98,735
	Common shares issued as finance costs	$	63,415		$	-
	Reclassification of derivative to additional paid in capital upon conversion of notes payable	$	-		$	55,123

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

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REAC Group, Inc.

Notes to the Financial Statements

For the years ended December 31, 2017 and 2016

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 is in the final beta testing phase of development for our new national real estate website, (https://realestatecontacts.com/).

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

RealEstateContacts.com is expected to serve as an internet portal that will feature a real estate search engine and a media network that directs consumers to receive more detailed information about agents, offices, current listings, homes for sale, commercial properties, mortgages, and foreclosures.  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.

2.  Summary of Significant Accounting Policies

Basis of Presentation

The accompanying audited financial statements have been prepared in accordance with accounting principles generally accepted in the United States and with the instructions to Form 10-K and Regulation S-K.

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 July 15, 2016.

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, deferred tax valuation allowances, and valuation of our investment in an affiliate. We evaluate our estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.

Financial Instruments

The Company’s balance sheets include the following financial instruments: cash, accounts payable, accrued expenses, notes payable and payables to a stockholder. The carrying amounts of current assets and current liabilities approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization. The carrying values of the notes payable and amounts due to stockholder approximates fair value based on borrowing rates currently available to the Company for instruments with similar terms and remaining maturities.  The derivative liability has been valued at fair value, in consideration of the fair value of the potential future consideration that may be required upon settlement under the terms of the convertible debt instruments.

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

· Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities

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· Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

· Level 3 - Inputs that are both significant to the fair value measurement and unobservable.

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2017.

Derivative Liabilities

The Company assessed the classification of its derivative financial instruments as of December 31, 2017 and 2016, 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 year ended December 31, 2017 and 2016, the Company had notes payable outstanding in which the conversion rate was variable and undeterminable. Accordingly, the Company has recognized a derivative liability in connection with such instruments for the year ended December 31, 2016. 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 (e.g., Black-Scholes-Merton), the expected volatility, the implied risk-free interest rate, as well as the expected dividend rate, if any. The derivate liability that had previously been recognized was recorded as a gain through the change in fair value of derivative liability on the statement of operations as of December 31, 2017. During the year ended December 31, 2017, 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.  As a result, the Company recognized a gain of $1,232,164 on the write-off of the derivative liability as of December 31, 2017.

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.

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 December 31, 2017 or December 31, 2016.

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Accounts Receivable

The Company currently does not issue credit on services provided, therefore there are no accounts receivable. No allowance for doubtful accounts is considered necessary to be established for amounts that may not be recoverable, since there has been no credit issued.

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. The Company recorded an impairment loss on its long-lived assets in the amount of $162,000 and $0 for the years ended December 31, 2017 and 2016, respectively.

Revenue Recognition

The Company recognizes revenue on arrangements in accordance with FASB ASC No. 605, Revenue Recognition. In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability is reasonably assured.

Consideration for future advertising services are paid by customers in advance of those services being provided. Advertising revenue is recognized ratably over the period that the services are subscribed, generally a one year period, net of any estimates for chargebacks or refunds. The unearned portion of the advertising revenue is deferred until future periods in which the subscription is earned.

The Company has not issued guarantees or other warrantees on the advertising subscription success or results. The Company has not experienced any refund requests or committed to any adjustments for terminated subscriptions. The Company does not believe that there is any required liability.

Stock Based Compensation

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.

Equity instruments (“instruments”) issued to other than employees are recorded on the basis of the fair value of the instruments, as required by FASB ASC 718. FASB ASC No. 505, Equity Based Payments to Non-Employees (“ASC 505”) defines the measurement date and recognition period for such instruments. In general, the measurement date is (a) when a performance commitment, as defined, is reached or (b) when the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the ASC 505.

Income Taxes

The Company accounts for income taxes pursuant to the provisions of ASC 740-10, “Accounting for Income Taxes,” which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.

The Company follows the provisions of the ASC 740 -10 related to, Accounting for Uncertain Income Tax Positions. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.

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The Company has adopted ASC 740-10-25 Definition of Settlement, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion of an examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. As of December 31, 2017, tax years ended December 31, 2016, 2015, and 2014 are still potentially subject to audit by the taxing authorities.

The Tax Cuts and Jobs Act of 2017 changed the top corporate tax rate from 35% to one rate of 21%. This rate will be effective for corporations whose tax year begins after January 1, 2018, and it is a permanent change. Under ASC 740, the effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The resulting amendments to Internal Revenue Code Section 172 disallow the carryback of net operating losses but allow for the indefinite carryforward of those net operating losses. Pursuant to Section 172(e)(2) of the statute, the amended carryback and carryover rules apply to any net operating loss arising in a taxable year ending after Dec. 31, 2017.  In addition to the carryover and carryback changes, the Act also introduces a limitation on the amount of net operating losses that a corporation may deduct in a single tax year under section 172(a) equal to the lesser of the available net operating loss carryover or 80 percent of a taxpayer’s pre-NOL deduction taxable income (the “80-percent limitation”). This limitation applies only to losses arising in tax years that begin after Dec. 31, 2017 based upon section 172(e)(1) of the amended statute. For net operating losses generated in tax years ending before Jan. 1, 2018, historical rules are applicable.

Earnings Per Share

Basic income per common share is computed based upon the weighted average common shares outstanding as defined by FASB ASC No. 260, Earnings Per Share.

Diluted income per share includes the dilutive effects of stock options, warrants, and stock equivalents. To the extent stock options, stock equivalents and warrants are anti-dilutive; they are excluded from the calculation of diluted income per share. As of December 31, 2017, there were approximately 147,219,884 share equivalents, as calculated, for potential conversion demand of our outstanding convertible notes.

3.  

Going Concern

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

The Company incurred net losses of $822,873 during the year ended December 31, 2017 and had net cash used in operating activities of $303,209 for the same period. Additionally, the Company has an accumulated deficit of $22,684,069 and a working capital deficit of $1,200,880 at December 31, 2017.  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.

4.  Recently Issued Accounting Pronouncements

 

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

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In September 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2017-13 (ASU 2017-13) which addresses “Revenue Recognition” (Topic 605), "Revenue from Contracts with Customers" (Topic 606), and Leases (Topics 840 and 842). ASU 2017-13 requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. As currently issued and amended, ASU 2017-13 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, though early adoption is permitted for annual reporting periods beginning after December 15, 2016. We have evaluated the impact of the adoption of ASU 2017-13 on our financial statements and determined that upon generating revenue, the Company will implement accounting system changes and provide the additional disclosure requirements related to the adoption.

In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”. The amendments are effective for public companies for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. Management believes that this ASU will not have a significant impact on its financial statements.

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

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.

Recently Issued Accounting Standards Not Yet Adopted

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. This guidance is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This guidance can be adopted either retrospectively to each prior reporting period presented, or retrospectively with a cumulative-effect adjustment recognized as of the date of adoption. The original effective date of this guidance for public entities was for annual reporting periods beginning after December 15, 2016. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606), to defer the effective date of this guidance by one year, to the annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. A reporting entity may choose to early adopt the guidance as of the original effective date.

5.  

Investment

On January 4, 2017, the Company executed an Asset Purchase Agreement with Patriot Bioenergy Corporation, a Kentucky corporation, for the purchase of all of the assets related to the business of operating a hemp processing and growth operation and selling hemp related products.  Pursuant to the Agreement, the Company issued 50,000 common shares which were valued at $142,500 based on the closing market price of the stock on the date of closing of the asset acquisition.  In addition, the Company paid expenses of Patriot totaling $19,500, resulting in a total investment of $162,000

The Company has requested accounting records relating to the assets purchased, but Patriot has provided no such records.  Accordingly, the Company cannot allocate the purchase price among any specific assets purchased.  As a result, On April 21, 2017, the Company cancelled and terminated the Asset Purchase Agreement with Patriot Bioenergy Corporation that was originally executed on January 4, 2017.  REAC terminated the APA due to Patriot’s refusal to provide any financial information to the Company necessary to prepare the financial statements and pro forma financial information required of a reporting company.  As of March 31, 2017, the Company was unable to re-acquire the 50,000 shares issued for the purchase transaction, along with an aggregate of 15,000,000 shares issued in November 2016 to five individuals currently employed by Patriot (see Note 11, Stock Compensation).  As a result, the Company deemed the entire investment to be impaired and recorded an impairment loss of $162,000 as of March 31, 2017.

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In May 2017, the Company received and cancelled an aggregate of six million shares of common stock related to Patriot employment agreements. The Company recorded the cancelled shares at their par value. In July, 2017, the Company received and cancelled the 50,000 shares issued for the purchase transaction and an additional 3,000,000 shares were returned by an individual employed by Patriot. The Company recorded the cancelled shares at their par value. (see Note 11)

6.  

Website Development Costs

During the twelve months ended December 31, 2016, the Company issued 5,000,000 shares of its common stock to an outside web service provider for a value of $550,000. In exchange for the consideration paid, the Company planned to use the provider to determine the specific performance requirements necessary to further develop and install software to its existing website to meet its intended use. Due to the Company’s inability to determine feasibility at the date of issuance, these costs were expensed as stock-based compensation.  During April 2017, management determined that the service provider would be unable to meet the requirements of the engagement and on May 1, 2017, the 5,000,000 shares issued by Company were returned and cancelled. The Company recorded the cancelled shares at their par value.

7.  

Related Party Transactions

The majority shareholder has advanced funds or deferred contractual salaries since inception, for the purpose of financing working capital and product development.  As of December 31, 2017 and 2016, the Company owed $47 and $90,151, respectively.  There are no repayment terms to these advances and deferrals and the Company has imputed interest at a nominal rate of 3%.

Additionally, the majority shareholder has advanced funds in the form of promissory notes. During the year ending December 31, 2017, the Company received an additional $39,000 and repaid $96,750, which included payment of $26,500 in accrued interest. These promissory notes matured and were payable in six months from the date issued and accrue minimal stated interest at 3%.  The balance as of December 31, 2016 was $31,250.  As of December 31, 2017, the principal balances on these notes were paid in full by the Company.

Total interest accrued on advances and loans in the aggregate as of December 31, 2017 was $6,837.

The Company has minimal needs for facilities and operates from office space provided by the majority shareholder.  There are no lease terms.  For the years ended December 31, 2017 and 2016, rent has been calculated based on the limited needs at a fair market value of the space provided.  Rent expense was $1,200 and $1,200 for the twelve months ended December 31, 2017 and 2016, 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 July 3, 2017, the Company’s Board of Directors authorized the issuance of 30,000,000 shares to the Company’s Chief Executive Officer as a performance bonus pursuant to his employment agreement that automatically renewed on March 4, 2017.  The shares were valued at the quoted market price on the date of grant, or $900,000.

On March 4, 2013, we entered into an employment agreement with Robert DeAngelis, our Chief Executive Officer. The employment agreement is for an initial three-year and automatically renews for an additional twelve months upon expiration of the initial 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 years ended December 31, 2017 and 2016, the Company recorded compensation expense in the amount of $120,000 and $120,000, respectively.

8.  

Accrued Liabilities

Accounts Payable and Accrued Expenses:

	December 31, 2017			December 31, 2016
Accounts payable	$	-		$	46,466
Accrued interest		14,559			43,395
Accrued salaries, payroll taxes, penalties and interest (a)		853,011			793,998

(a) The Company has accrued compensation to its Chief Executive Officer totaling $120,000 and $120,000 during the years ended December 31, 2017 and 2016, 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 $853,011 and $793,998 at December 31, 2017 and 2016, respectively.

9.  

Debt Obligations

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The Company owed an aggregate of $364,632 in principal and accrued interest at December 31, 2017; of which, $350,073 represents convertible notes payable and $14,559 represents accrued interest.  At December 31, 2016, the Company owed an aggregate of $203,170 in principal and accrued interest; of which, $128,528 represents convertible notes payable, $31,250 represents notes payable to the principal shareholder, and $43,395 represents accrued interest.

Convertible Notes Payable

During the year ended December 31, 2017 and 2016, the Company had notes payable outstanding in which the conversion rate was variable and undeterminable. Accordingly, the Company has recognized a derivative liability in connection with such instruments for the year ended December 31, 2016. During the year ended December 31, 2017, 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. 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 (e.g., Black-Scholes-Merton), the expected volatility, the implied risk-free interest rate, as well as the expected dividend rate, if any. During the year ended December 31, 2017, the Company recognized losses in the change in fair value of the derivative liability of $526,070. As of December 31, 2017, the derivate liability balance of $1,232,164 was recorded as a gain on the write-off of derivative liabilities on the statement of operations as of December 31, 2017.

		December 31,
		2017			2016
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 12-22%, convertible at discount to trading price (25-50%) based on various measurements of prior trading, at face value of remaining original note principal balance, net of unamortized debt discounts, attributable to derivative liabilities, and deferred financing costs in the amount of $14,648 and $0, respectively.	$	364,721		$	128,525
Principal		364,721			128,525
Debt discount		(14,648)			-
Total Principal	$	350,073		$	128,525

Summary of Convertible Note Transactions

Convertible notes, January 1	$	128,525		$	196,865
Additional notes, face value		405,949			-
Payments and adjustments		(107,750)			(42,252)
Conversions of debt		(62,003)			(26,088)
Unamortized debt discounts		(14,648)			-
Convertible notes, December 31	$	350,073		$	128,525

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, 2017, 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. As of December 31, 2017, the Company owed $20,000 and accrued interest of $238.

_____

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

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feature and accounted for it as a separate derivative liability. During the year ended December 31, 2017, 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. As of December 31, 2017, the Company owed $53,000 and accrued interest of $1,587. As of December 31, 2017, the Company has reserved 162,185,792 shares.

_____

On July 8, 2017, the Company’s Board of Directors approved the assignment of a convertible note payable to a different third-party. The total amount assigned was $27,846 which includes principal of $20,775 and accrued interest of $7,087.  The terms of the original February 20, 2015 Convertible Promissory Note remain in effect and the note continues to accrue interest at a rate of 8% per annum until the note is paid in full. As of December 31, 2017, the Company has reserved 11,736,000 shares.

In connection with the assignment, the Company issued 3,350,000 common shares for a value of $3,350, which was applied against the balance of accrued interest on the note. Also, during the year ended December 31, 2017, the Company issued an aggregate of 12,760,000 common shares in payment of $7,750 in principle and $5,010 in accrued interest.  As of December 31, 2017, the Company owed $13,025 and accrued interest of $194.

_____

On July 5, 2017, the Company entered into a Securities Purchase Agreement and related documents with an institutional accredited investor. On the Closing Date, the Company issued to Investor a Convertible Promissory Note in the principal amount of $175,000 in exchange for payment by Investor of $157,500. The principal sum of the Note reflects the amount invested, plus a $17,500 “Original Issue Discount”. There is no material relationship between the Company or its affiliates and the Investor and the Company paid no commissions or other placement agent fees.

In connection with the Financing, and in addition to the Securities Purchase Agreement and the Secured Convertible Promissory Note, the Company issued a Warrant which grants the investor the right to purchase at any time on or after each tranche, and for a period of one year thereafter, a number of fully paid and non-assessable shares of the Company’s common stock equal to the amount of each tranche received under the Note divided by $0.05. (See Note 10)

Pursuant to the terms of the SPA and the Note, the Company is required to reserve and keep available out of its authorized and unissued shares of common stock a number of shares of common stock at least equal to ten (10) times the number of shares issuable on conversion of the Note.  As of December 31, 2017, the Company has reserved 75,000,000 shares.

Interest on the Note is accrued at a rate of 5% per annum and matures twelve months from the effective date of each payment.  The note holder has the right at any time to convert all or any part of unpaid principal and interest into common shares of the Company equal to 50% multiplied by the Market Price; that being the lowest (1) trading price for the common stock during the twenty-five trading days prior to the conversion date.  As of December 31, 2017, the Company owed $47,565 and accrued interest of $1,173.

_____

On May 5, 2017, the Company entered into a Securities Purchase Agreement (“SPA”) with an institutional accredited investor pursuant to which the Company received $165,000 in financing through the execution of a Convertible Promissory Note.  In addition, the Company issued 1,153,000 shares of common stock for a value of $63,415 as consideration for entering into the financing agreement.

The Note matures in 10 months and is convertible into shares of the Company’s common stock at a conversion price equal to 50% of the lowest trading price per share during the previous twenty-five (25) trading days. The Company may prepay the Note within 90 days by payment to Investor of 135% of the outstanding principal, interest and other amounts then due under the Note or within 180 days by payment to Investor of 150% of the outstanding principal, interest and other amounts then due under the Note.  After 180 days, the Company will have no right of prepayment.

Pursuant to the terms of the SPA and the Note, the Company is required to reserve and keep available out of its authorized and unissued shares of common stock a number of shares of common stock at least equal to three and a half (3.5) times the number of shares issuable on full conversion of the Note. As of December 31, 2017, the Company has reserved 230,355,048 shares.

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 as of December 31, 2016. During the year ended December 31, 2017, 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. 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.

During the twelve months ended December 31, 2017, the Company issued 3,114,800 common shares as payment of $461 in principle and $10,253 in accrued interest.  As of December 31, 2017, the Company owed $164,539 in principle and accrued interest of $2,802.

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_____

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.  The principal sum of the Note reflects the amount borrowed, plus a $20,000 “Original Issue Discount” and a $10,000 reimbursement of Lender’s legal fees.

In connection with the Financing, and in addition to the Securities Purchase Agreement and the Secured Convertible Promissory Note, the Company issued a Warrant which grants the right to purchase at any time on or after March 13, 2017 and for a period of three years, a number of fully paid and non-assessable shares of the Company’s common stock equal to $57,500 divided by the Market Price as of the issue date. (See Note 10)

The Secured Convertible Promissory Note matures in 10 months and is convertible into shares of the Company’s common stock at a conversion price equal to $0.25 per share. In the event the minimum market capitalization falls below $6,000,000, then the conversion price is the lesser of the stated price of $0.25 or the market price (as calculated pursuant to the Agreement). The Company may prepay the Note at any time by payment of 125% of the principal, interest and other amounts then due under the Note.

Pursuant to the terms of the SPA and the Note, the Company is required to reserve and keep available out of its authorized and unissued shares of common stock a number of shares of common stock at least equal to three (3) times the number of shares issuable on conversion of the Note. As of December 31, 2017, the Company has reserved 27,738,095 shares.

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 as of December 31, 2016. During the year ended December 31, 2017, 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.  The Company recognized a debt discount on the notes as a reduction (contra-liability) to the Convertible Notes Payable. The debt discounts are being amortized over the life of the notes.

On September 13, 2017, the Company issued 3,571,429 shares of common stock in satisfaction of $23,273 in principal and $6,727 in interest, for a total value of $30,000.

On September 29, 2017, the Company agreed to issue 3,690,476 shares of common stock in satisfaction of $30,519 in principal and $481 in interest, for a total value of $31,000.  As of September 30, 2017, the Company has recorded the conversion against the debt and interest and credited common stock payable for the total value of $31,000.

As of December 31, 2017, the Company owed $178,708 in principle and accrued interest of $10,066.

On January 13, 2017, the Company’s Board of Directors approved the assignment of a convertible note payable to a different third-party. On May 8, 2017, the third-party lender who accepted the assignment agreed to release the Company from all obligations under the note. As a result, the Company has recognized a gain on the extinguishment of debt in the amount of $51,821; which consisted of principal in the amount of $36,750 and $15,071 of interest.

On April 12, 2017, the Company was released from its obligation to pay the remaining balance of a convertible note payable and has recorded a gain on the extinguishment of debt in the amount of $76,777; which consisted of principal in the amount of $71,000 and $5,777 of interest.

On December 30, 2016, the Company converted principal in the amount of $16,659 and accrued interest of $6,076 through the issuance of 139,906 common shares. The shares were converted at the contract rate of $0.01625 per share.

On June 10, 2016, the Company settled a convertible note payable carrying a principal and interest balance of $14,031 for consideration of $3,000, resulting in a gain on settlement of $11,031.

On April 21, 2016 and on November 28, 2016, the Company’s Board of Directors approved the assignments of a convertible note payable to different third-parties. The aggregate balance assigned consisted of $80,429 in principal and $66,571 in interest. On November 7, 2016, the Company’s Board of Directors approved a second assignment of the same note.  The balance assigned consisted of $80,429 in principal and $66,619 in accrued interest. On November 28, 2016, the Company issued 7,600,000 common shares valued at a contract value of $0.01 per share, for a total value of $76,000; converting $9,429 in principal $66,571 in interest against the balance of this Note.

 

On March 11, 2016, the Company settled a convertible note payable carrying a principal balance of $23,342 for consideration of $2,000, resulting in a gain on settlement of $25,192.

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10.  Warrant Liabilities

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. (See Note 9) 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 one year thereafter, a number of fully paid and non-assessable shares of the Company’s common stock equal to the amount of each tranche received under the Note divided by $0.05. 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 700,000 shares of the Company’s common stock. 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. The Company estimates the fair value at each reporting period using the Binomial Method.  The warrant derivative liability as of December 31, 2017 was $32,268.

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. (See Note 9) 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 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 $0.1097 per share with 524,157 being the resulting number of warrant shares at issuance.  The relative fair value of the warrant at issuance was $0, resulting in no debt discount. The Company estimates the fair value at each reporting period using the Binomial Method. The warrant derivative liability as of December 31, 2017 was $2,779.

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

11.  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. A derivative liability in the amount of $0 and $699,090 has been recorded, as of December 31, 2017 and 2016, respectively.  

During the years ended December 31, 2017 and 2016, the Company had convertible notes payable outstanding in which the conversion rate was variable and undeterminable.  Accordingly, the Company recognized a derivative liability in connection with such instruments for the year ended December 31, 2016, however during the year ended December 31, 2017, 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 (e.g.,

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Black-Scholes-Merton, Binomial), the expected volatility, the implied risk-free interest rate, as well as the expected dividend rate, if any. The derivate liability that had previously been recognized was recorded as a gain through the change in fair value of derivative liability on the statement of operations as of December 31, 2017.  Assumptions used in the derivative valuation as of December 31, 2016 were as follows:

		December 31,
		2017		2016
Weighted Average:
Dividend rate		-		0.00%
Risk-free interest rate		-		0.49%
Expected lives (years)		-		.736
Expected price volatility		-		507.8%

ASC 825-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 825-10 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 describes three levels of inputs that may be used to measure fair value:  Level 1  – Quoted prices in active markets for identical assets or liabilities;  Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and  Level 3 – Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation. The Company’s Level 3 liabilities consist of the derivative liabilities associated with the convertible notes.  At December 31, 2017 and 2016, all of the Company’s derivative liabilities were categorized as Level 3 fair value liabilities. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Level 3 Valuation Techniques

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.  Level 3 financial liabilities consist of the derivative liabilities for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation.  At the date of the original transaction, we valued the convertible note that contains down round provisions using a Black-Scholes model, with the assistance of a valuation consultant, for which management understands the methodologies. This model incorporates transaction details such as the Company’s stock price, contractual terms, maturity, risk free rates, as well as assumptions about future financings, volatility, and holder behavior.  Using assumptions, consistent with the original valuation, the Company has subsequently used the Binomial model for calculating the fair value, as of December 31, 2017 and 2016:

  

The table below provides a summary of the changes in fair value, including net transfers in and/or out, of all financial assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the twelve months of fiscal years 2017 and 2016:

Fair Value Measurements using inputs		December 31, 2017		December 31, 2016
Balance, January 1,	$	699,090		$	485,142
Loss on change in fair value realized and included in net loss		533,074			269,071
Gain on write-off of derivative liability		(1,232,164)			-
Purchases, issuances and settlements		-			(55,123)
Balance, December 31,	$	-		$	699,090

12.  Income Tax

The Company accounts for income taxes under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 740, Income Taxes (“ASC 740”). Under ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The Tax Cuts and Jobs Act of 2017 changed the top corporate tax rate from 35% to one rate of 21%. This rate will be effective for corporations whose tax year begins after January 1, 2018, and it is a permanent change. Under ASC 740, the effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The resulting

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amendments to IRC Section 172 disallow the carryback of net operating losses but allow for the indefinite carryforward of those net operating losses. Pursuant to Section 172(e)(2) of the statute, the amended carryback and carryover rules apply to any net operating loss arising in a taxable year ending after Dec. 31, 2017.  In addition to the carryover and carryback changes, the Act also introduces a limitation on the amount of net operating losses that a corporation may deduct in a single tax year under section 172(a) equal to the lesser of the available net operating loss carryover or 80 percent of a taxpayer’s pre-NOL deduction taxable income (the “80-percent limitation”). This limitation applies only to losses arising in tax years that begin after Dec. 31, 2017 based upon section 172(e)(1) of the amended statute.

The new tax bill reduced the federal income tax rate for corporations from 35% to 21%. The new bill reduced the blended tax rate for the Company from 38.3% to 24.3%. The change in blended tax rate reduced the 2017 net operating loss carry-forward deferred tax asset by approximately $2.66 million.

	December 31,
	2017			2016
Income tax provision (benefit) at statutory rate of 35%	$	(173,000)		$	(1,913,000)
State taxes at 3.3%, net of federal benefit		(27,000)			(180,000)
Nondeductible items		251,000			1,609,000
Subtotal		51,000			(484,000)
Change in valuation allowance		(51,000)			484,000
Income Tax Expense	$	-		$	-
Net deferred tax assets and liabilities were comprised of the following:
Net Operating Losses	$	1,716,000		$	1,767,000
Valuation allowance		(1,716,000)			(1,767,000)
Deferred tax asset, net	$	-		$	-

As of December 31, 2017, the Company has estimated tax net operating loss carryforwards of approximately $7.06 million, which can be utilized or expire through tax year 2037.  Utilization of these losses may be limited in accordance with IRC Section 382 in the event of certain ownership shifts.

13.  Equity

Stock Subscriptions

On January 13, 2017, the Company issued 5,000 common shares for cash.  Consideration to the Company was $5,000, or $1.00 per share.

In September 2016, the Company issued 200,000 shares of common stock to two individuals for cash.  The shares were valued at $0.025 per share, or $5,000.

Stock Compensation

On July 3, 2017, the Company’s Board of Directors authorized the issuance of 30,000,000 shares to the Company’s Chief Executive Officer as a performance bonus pursuant to his employment agreement.  The shares were valued at $0.03, the quoted market price on the date of issuance, or $900,000.

On June 7, 2017, the Company issued 2,000,000 shares pursuant to a Service Agreement entered into on that date for investor relation services.  The shares were valued at $0.05 per share, the closing market price on the date of issuance, or $100,000. On July 6, 2017, the Company terminated the investor relation agreement. The common shares issued in this transaction will remain issued and outstanding and the corresponding value of $100,000 was recorded to compensation expense.

On May 8, 2017, the Company issued 1,153,000 shares in consideration of financing received by the Company.  The shares were valued at $0.055, the quoted market price on the date of issuance, or $63,415.

On January 18, 2017, the Company issued 10,000 shares pursuant to a Consulting Agreement entered into on that date.  The consultant was engaged to perform research related to hemp processing in the State of Florida.  The shares were valued at $3.20 per share, the closing market price on the date of issuance, or $32,000. These services were completed prior to September 30, 2017 and as a result the entire amount was recorded as compensation expense.

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In November 2016, the Company entered into two-year Employment Agreements with five individuals in exchange for agricultural management services related to our acquisition of Patriot Biofuels in January 2017 (see Note 5).  An aggregate of 15,000,000 shares of common stock was issued and immediately vested, for an aggregate value of $1,800,000, which is included in compensation expense.  The shares were valued at the quoted market price on the date of issuance.

Also in November 2016, the Company issued 20,000,000 shares of common stock to its Chief Executive Officer for a value of $2,400,000, which is included in compensation expense, in exchange for services during the year ended December 31, 2016. These shares were valued at the quoted market price on the date of issuance.

Stock Issued for Debt and Interest

In November 2017, the Company issued an aggregate of 5,000,000 shares of common stock, for a value of $5,000 in satisfaction of $4,859 in principal and $141 in interest on a convertible note payable.  The Company recorded the issuances at the contract value, at the date of exchange, off-setting the notes payable, accrued interest and the recorded derivative liability.

In November 2017, the Company issued an aggregate of 3,114,800 shares of common stock, for a value of $11,213 in satisfaction of $461 in principal and $10,753 in interest on a convertible note payable.  The Company recorded the issuances at the contract value, at the date of exchange, off-setting the notes payable, accrued interest and the recorded derivative liability.

In November 2017, the Company issued an aggregate of 3,880,000 shares of common stock, for a value of $3,880 in satisfaction of $2,891 in principal and $989 in interest on a convertible note payable.  The Company recorded the issuances at the contract value, at the date of exchange, off-setting the notes payable, accrued interest and the recorded derivative liability.

In October 2017, the Company issued an aggregate of 3,690,476 shares of common stock, for a value of $31,000 in satisfaction of $30,519 in principal and $481 in interest on a convertible note payable.  The Company recorded the issuances at the contract value, at the date of exchange, off-setting the notes payable, accrued interest and the recorded derivative liability.

In October 2017, the Company issued 3,880,000 shares of common stock, for a value of $3,880 in satisfaction of $3,880 in interest on a convertible note payable.  The Company recorded the issuances at the contract value, at the date of exchange, off-setting the notes payable, accrued interest and the recorded derivative liability.

In September 2017, the Company issued 3,571,429 shares of common stock, for a value of $30,000 in satisfaction of $23,273 in principal and $6,727 in interest on a convertible note payable.  The Company recorded the issuances at the contract value, at the date of exchange, off-setting the notes payable, accrued interest and the recorded derivative liability.

In July 2017, the Company issued an 3,350,000 shares of common stock, for a value of $3,350 in satisfaction of $3,350 accrued interest on a convertible note payable.  The Company recorded the issuances at the contract value, at the date of exchange, off-setting the accrued interest and the recorded derivative liability.

In May 2017, the Company authorized the issuance of 1,153,000 shares of common stock, for a value of $63,415, in satisfaction of $63,415 in finance costs associated with a convertible note payable.  The Company recorded the issuance at the fair value on the date of grant, which was $0.055 per share.

In December 2016, the Company issued an aggregate of 139,906 shares of common stock, for a value of $22,735 in satisfaction of $16,659 in principal and $6,076 in interest on a convertible note payable.  The Company recorded the issuances at the contract value, at the date of exchange, off-setting the notes payable, accrued interest and the recorded derivative liability.

In November 2016, the Company issued an aggregate of 7,600,000 shares of common stock, for a value of $76,000 in satisfaction of $7,629 in principal and $68,371 in interest on a convertible note payable.  The Company recorded the issuances at the contract value, at the date of exchange, off-setting the notes payable, accrued interest and the recorded derivative liability.

Stock Issued for Investment

On January 4, 2017, the Company executed an Asset Purchase Agreement with Patriot Bioenergy Corporation, a Kentucky corporation, for the purchase of all of the assets related to the business of operating a hemp processing and growth operation and selling hemp related products.  Pursuant to the Agreement, the Company issued 50,000 common shares which were valued at $142,500 based on the closing market price of the stock on the date of issuance.  In addition, the Company paid expenses of Patriot totaling $19,500, resulting in a total investment of $162,000 (see Note 5).

Preferred Stock

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In August 2016, the Company’s Board of Directors agreed to exchange $165,500 in debt owed to our Chief Executive Officer for 50,935 shares of Series A Preferred stock and the cancellation of 60,000 shares of common stock held by him.  This transaction was recorded as a reduction of stockholders’ deficit of $165,500.

Warrants

On the July 10, 2017, and in connection with a Securities Purchase Agreement and a Secured Convertible Promissory Note, the Company issued a Warrant which grants the investor the right to purchase at any time on or after July 10, 2017, and for a period of one year thereafter, a number of fully paid and non-assessable shares of the Company’s common stock equal to the amount of the tranche received under the Note divided by $0.05.  As of December 31, 2017, the Company received a tranche of $35,000; resulting in the issuance of a warrant to purchase 700,000 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.  As of December 31, 2017, 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.

On the March 13, 2017, and in connection with a Securities Purchase Agreement and a Secured Convertible Promissory Note, the Company issued a Warrant which grants the investor the right to purchase at any time on or after March 13, 2017, and for a period of three years thereafter, a number of fully paid and non-assessable shares of the Company’s common stock equal to $57,500 divided by the Market Price as of March 13, 2017.  The Market Price, as calculated pursuant to the Warrant Agreement, was $0.1097 per share with 524,157 being the resulting number of warrant shares at issuance.  The relative fair value of the warrant at issuance was $47,174, resulting in a debt discount equal to $10,326 which will be amortized over the life of the Warrant. The Company estimates the fair value at each reporting period using the Binomial Method. As of December 31, 2017, management asserted that the Company’s common stock lacked liquidity and market value and therefore no derivative liability was recorded in association with these warrants.

Other

During the year ended December 31, 2017, the Company received and canceled 9,000,000 common shares issued to employees of Patriot Bioenergy. The Company recorded the cancelled shares at their par value. (see Note 5)

On April 21, 2017, the Company cancelled and terminated the Asset Purchase Agreement with Patriot Bioenergy Corporation that was originally executed on January 4, 2017.  REAC terminated the APA due to Patriot’s refusal to provide any financial information to the Company as required by the Asset Purchase Agreement. On April 27, 2017, the 50,000 common shares were returned to the Company and cancelled at their par value (see Note 5).

On May 1, 2017, the Company terminated an agreement for web services that was consummated during the year ended December 31, 2016.  As a result, 5,000,000 common shares associated with the agreement were returned to the Company and cancelled.

During the years ended December 31, 2017 and 2016 the Company recorded in-kind contributions for rent expense in the amount of $1,200 and $1,200, respectively.

The Company’s Board of Directors approved reverse stock splits of: 1:10,000 on July 15, 2016.  All shares have been retroactively restated for this reverse stock split.

Amendment to the Articles of Incorporation

On July 21, 2017, the Board of Directors recommended and the majority shareholder (holding 94% of the voting shares) voted in favor of increasing the authorized capital of the Company from Two Hundred Fifty Million (250,000,000) shares, to One Billion (1,000,000,000) shares.  The Company filed the Articles of Amendment with the Florida Department of State, to be effective August 1, 2017.

On January 26, 2017, upon written consent of the board of directors and the majority shareholder, who holds enough common and preferred shares to create a greater than 80% voting position, Article I of the Articles of Incorporation was amended to change the corporate name to REAC GROUP, Inc.  The effective date of the Amendment to the Articles of Incorporation is February 16, 2017.

On July 29, 2016, the Board of Directors, filed amended and restated articles of incorporation to designate the voting privileges, preferences, limitations, and relative rights of the Company’s Preferred Stock titled as Series A. On August 15, 2016, the Amended and Restated Articles of Incorporation became effective.  The Board of Directors recommended and the majority shareholder (holding 61% of the voting shares) voted in favor of amending and restating the Articles of Incorporation to designate the voting privileges, preferences, limitations, and relative rights of the Company’s Preferred Stock titled as Series A. Pursuant to the Articles, no shareholder vote was required for this designation. Accordingly, As of August 15, 2016, the total authorized capital stock of the corporation is Two Hundred Fifty Million shares (250,000,000), consisting of 249,000,000 shares of common stock, par value $0.00001 per share (the “common stock”) and 1,000,000 shares of Preferred Stock, of which 500,000 shares have been designated as Series A Preferred Stock,

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par value $0.0001 per share (“Series A”).  The Series A preferred stock are “super voting” stock, with each Series A share being entitled to vote as five thousand (5,000) shares of Voting Stock.

On July 20, 2016, the Board of Directors recommended and the majority shareholder (holding 61% of the voting shares) voted in favor of increasing the authorized capital of the Company from One Million One Hundred Forty-Nine Thousand Nine Hundred (1,149,900) Shares to Two Hundred Fifty Million (250,000,000) shares, to be effective July 20, 2016.  No change was made to the number of preferred shares authorized.  Accordingly, as of July 20, 2016, the total authorized capital of the Company will be comprised of Two Hundred Forty Nine Million (249,000,000) shares of common stock, par value $0.00001 per share; 500,000 (Five Hundred Thousand) shares of Preferred Stock, Series A, par value $0.0001 per share; and 500,000 (Five Hundred Thousand) shares of Preferred Stock, Series B, par value $0.001 per share. The financial statements for all periods presented have been retroactively adjusted to reflect this recapitalization.

On January 14, 2016, the Company filed Articles of Amendment with the Secretary of State of Florida decreasing the authorized capital of the Company from One Billion Five Hundred Million (1,500,000,000) Shares to One Million One Hundred Forty-Nine Thousand Nine Hundred (1,149,900) shares. This consisted of 500,000 shares of preferred stock, Series A, par value $0.0001per share; 500,000 shares of preferred stock, Series B, par value $0.001 per share, and 149,900 shares of Common Stock, par value $0.00001 per share. This was done in anticipation of a 1 for 10,000 reverse stock split which became effective July 15, 2016.The financial statements for all periods presented have been retroactively adjusted to reflect this stock split.

As of December 31, 2017, the total number of shares this corporation is authorized to issue is 1,000,000,000 (one billion), allocated as follows among these classes and series of stock:

Designation	Par value	Shares Authorized
Common	$0.00001	999,000,000
Preferred Stock Class, Series A	$0.0001	500,000
Preferred Stock Class, allocated but undesignated	-	500,000

14.  Commitments and Contingencies

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

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

There were no operating or capital lease commitments as of December 31, 2017 and 2016.

On June 6, 2017, the Company entered into a Service Agreement with a third party for Investor Relation Services.  Pursuant to the terms of the Agreement, the Company is to pay $5,000 monthly for a period of six months for a total of $30,000.  In addition, the Company agreed to issue common stock of the Company in two installments valued at $100,000 each. The first share installment is due on the date the Agreement was consummated (see Note 11); and the second share installment is due on day 90 of the Agreement. Shares issued in relation to this Agreement will be restricted for a period of twelve months, while the entire Agreement expires after a period of six months.  On July 6, 2017, the Company terminated the investor relation agreement and the common shares issued in this transaction will remain issued and outstanding.

15.  Subsequent Events

On March 1, 2018, the sole director accepted an offer to convert $112,266 of the existing unpaid compensation to the Company’s Chief Executive Officer, Robert DeAngelis, in exchange for the issuance to him of 449,065 shares of the Company’s Series A Preferred Shares.

On February 20, 2018, the Board of Directors recommended and the majority shareholder (holding 83% of the voting shares) voted in favor of increasing the authorized capital of the Company from Three Billion (3,000,000,000) shares, to Ten Billion (10,000,000,000) shares.  No change was made to the number of preferred shares authorized.  Accordingly, as of February 20, 2018, the total authorized capital of the Company will be comprised of Nine Billion Nine Hundred Ninety-Nine Million (9,999,000,000) shares of common stock, par value $0.00001 per share, and One Million (1,000,000) shares of Preferred Stock, of which Five Hundred Thousand (500,000) shares are designated as Series A Preferred Stock, par value $0.0001 per share.

On February 5, 2018, the Board of Directors recommended and the majority shareholder (holding 74% of the voting shares) voted in favor of increasing the authorized capital of the Company from One Billion (1,000,000,000) shares, to Three Billion (3,000,000,000)

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shares.  No change was made to the number of preferred shares authorized.  Accordingly, as of February 5, 2018, the total authorized capital of the Company will be comprised of Two Billion Nine Hundred Ninety-Nine Million (2,999,000,000) shares of common stock, par value $0.00001 per share, and One Million (1,000,000) shares of Preferred Stock, of which Five Hundred Thousand (500,000) shares are designated as Series A Preferred Stock, par value $0.0001 per share.

On January 23, 2018, the Company issued 100,000,000 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 OTCMarkets website, which was $0.0033.  Since the Company’s closing stock price on the date of grant was also $0.0033, the Company will not recognize any associated discounts or benefits associated with the shares issued.

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures 

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and acting Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. 

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) of the Company.  Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Management, under the supervision of the Company’s Chief Executive Officer and acting Chief Financial Officer, conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on this evaluation, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2017 under the criteria set forth in the in Internal Control—Integrated Framework.

 

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.  Management has determined that material weaknesses exist due to a lack of segregation of duties, resulting from the Company's limited resources.

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This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Annual Report on Form 10-K.

 

Changes in Internal Control over Financial Reporting

 

No change in the Company’s internal control over financial reporting occurred during the year ended December 31, 2017, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B .OTHER INFORMATION

None.

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PART III

ITEM 10.

DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Directors and Executive Officers