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REALSOURCE RESIDENTIAL, INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

May 13, 2014

The following discussion should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and related notes thereto in our Transition Report on Form 10-K for the three month period ended December 31, 2013.

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

Corporate History and Recent Developments

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

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

Leveraging the experience of our management team and The RealSource Group, we plan to focus on acquiring, managing and holding primarily multi-family housing assets in anticipation of creating a real estate investment trust (a "REIT"). We expect the process of acquiring such multi-family housing assets during 2014.There are certain regulatory requirements that must be satisfied in order to acquire these assets and to operate as a REIT, including audited financial statements for the specific properties acquired, and no assurances can be given that we will be able to do so.

As of the date of this Quarterly Report, we have not acquired any real estate assets and are not structured or operating as a REIT, although during the three months ended December 31, 2013, we did acquire an option to purchase one multi-family housing asset in Gulfport, Mississippi. On March 12, 2014, we entered into a Purchase and Sale Agreement to acquire the property, but it will not be acquired prior to August 1, 2014.

Critical Accounting Policies



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

1



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

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

Results of Operations



For the three months ended March 31, 2014 compared to the three months ended March 31, 2013:

Revenues



For the three month periods ended March 31, 2014 and 2013, we did not generate any revenues.

Cost of Revenues



For the three month periods ended March 31, 2014 and 2013, we did not incur any cost of revenues from operations.

Research and Development Expenses

For the three month periods ended March 31, 2014 and 2013, we did not incur any research and development related costs nor do we expect any future such costs with the change in our operations.

Marketing and pre-production costs

For the three month periods ended March 31, 2014 and 2013, there were no marketing and pre-production related costs.

General and Administrative Expenses

Our general and administrative costs increased from $4,748 during the first quarter of 2013 to $29,078 for the first quarter of 2014 with the primary increase related to legal, filing and audit fees.

Other income and expense



In the first quarter of 2014 we recorded $68,351 of interest expense on our outstanding 12% Senior Convertible Debentures and $46,648 in interest income on our option to purchase to purchase the Cambridge apartments. There were no such income and expense items for the same quarter in 2013.

2 Net loss



Net loss for the three month period ended March 31, 2014 was $50,781 compared to $4,748 for the same period in 2013. The components of this net loss and reasons for the change are explained above.

Plan of Operations and Cash Requirements for the Next 12 Months

Anticipated Cash Requirements



Over the next 12 months, we have estimated our minimum cash requirements (not including the costs associated with our initial and any subsequent acquisition of properties) to be as follows:

Cash Operating Expenses - Legal and accounting fees $ 84,000 General and administrative expenses $ 12,000 Corporate communications and SEC filing fees $ 18,000 Total $ 114,000



As our operations are currently minimal, our operating expenses are similarly limited. However, as we implement our business planto acquire, manage and hold multifamily real estate assets, we will incur significant additional expenses related to these transactions (particularly the formation of a REIT structure and acquisitions and financings of the properties themselves) and thereafter the operations of the properties. While we expect that our acquired properties will generate sufficient cash flow to cover our operating costs related to our properties, no assurances can be given that this will in fact be the case.

At March 31, 2014, we had working capital of $654,338. For the next 12 months, we estimate minimum cash requirements of $114,000 to fund on-going operations before consideration of operating revenues and expenses related to any propertiesthat may be acquired during the next 12 months.

Liquidity and Capital Resources

Our financial position as at March 31, 2014 and December 31, 2013 and the changes for the three months then ended are as follows:

Working Capital As of As of March 31, December 31, 2014 2013 Current Assets $ 745,375$ 735,488 Current Liabilities 91,295 30,627 Working Capital (Deficit) $ 654,338$ 704,861 )



As of March 31, 2014 we had $687,742 in cash and cash equivalents. Working capital decreased by $50,523 from December 31, 2013 to March 31, 2014. The decrease resulted from cash used for operating expenses and accrued interest expense exceeding accrued interest income by approximately $22,000.

3 Cash Flows 3 Months Ended 3 Months Ended March 31, 2014 March 31, 2013 Net cash (used in) Operating Activities $ (36,675 ) $ (13,501 ) Net cash (used in) Investing Activities 0 0 Net cash provided by Financing Activities 200,000 20,000 Increase in Cash during the Period 163,325 6,499 Cash, Beginning of Period 524,417 1,065 Cash, End of Period $ 687,742 $ 7,564



Our net cash used in operating activities increased by $23,170 from the three month period ended March 31, 2013 to the same three month period in 2014. The net loss for the three months ended March 31, 2014 increased by $46,033 over the same period in the prior year and the increase was primarily related to professional fees and the interest accrual on the 12% convertible debt in excess of interest income accrual on the deposit for the purchase of the Cambridge apartments.

In order to effectuate our business plan of acquiring multi-family properties and operating as a REIT, we we will be required to raise substantial additional capital through a debt and/or equity financing both at the company level as well as on specific assets. We can provide no assurance that we will be able to consumate such financings on favorable terms or at all. These conditions raise substantial doubt about our ability to continue as a "going concern".

Off-Balance Sheet Arrangements

As of March 31, 2014, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.


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Source: Edgar Glimpses


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