UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________

FORM 10-Q

 

_______________

(Mark One)

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

For the quarterly period ended June 30, 2014

or

 

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

For the transition period from ______to______.

(Exact name of registrant as specified in charter)

 

Florida		000-54845		593800845
(State or other jurisdiction of incorporation or organization)		(Commission File Number)		(I.R.S Employer Identification No.)

 8955 US Highway 301 N., No. 192

 Parrish, Florida  34219

 (Address of principal executive offices)

_______________

(724) 656-8886

 (Registrant’s telephone number, including area code)

_______________

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

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 x No o

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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer. o	Accelerated filer.o
Non-accelerated filer.o (Do not check if a smaller reporting company)	Smaller reporting company.x

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

As of August 11, 2014 there are 21,119,679 shares par value $0.00001 of the issuer’s common stock issued and outstanding.

 

 

1

REAL ESTATE CONTACTS, INC.

QUARTERLY REPORT ON FORM 10-Q

June 30, 2014

TABLE OF CONTENTS

		PAGE
PART 1 - FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3	Quantitative and Qualitative Disclosures About Market Risk	16
Item 4.	Controls and Procedures	16
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	17
Item 1A.	Risk Factors	17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3.	Defaults Upon Senior Securities	17
Item 4.	Mine Safety Disclosures	17
Item 5.	Other Information	17
Item 6.	Exhibits	17
SIGNATURES		17

 

 

2

 

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

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

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

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

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

CERTAIN TERMS USED IN THIS REPORT

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

 

3

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements.

 

Index to Financial Statements

Real Estate Contacts, Inc.

Contents

 

Financial Statements:	Page Number
Balance Sheets, as of June 30, 2014 (unaudited) and December 31, 2013 (audited)	5
Statements of Operations for the six months ended June 30, 2014 and 2013 (unaudited)	6
Statements of Cash Flows for the six months ended June 30, 2014 and 2013 (unaudited)	7
Notes to Financial Statements (unaudited)	8

4

Real Estate Contacts, Inc.
Balance Sheets
					June 30,				December 31,
					2014				2013
					(unaudited)
Assets
Current assets
	Cash			$	133,406			$	120,743
Total current assets					133,406				120,743
Website development costs, net of accumulated
	amortization of  $21,137 and $11,703, respectively				101,280				76,839
Total assets				$	234,686			$	197,582
Liabilities and Stockholders' Deficit
Current liabilities
	Accounts payable			$	25,892			$	26,592
	Accrued expenses				103,826				90,396
	Deferred revenue				-				546
	Derivative liability				1,085,859				1,092,030
	Due to principle shareholder – related party				7,526				111,426
	Notes payable				5,000				5,000
	Convertible note payable				190,990				199,816
Total current liabilities					1,419,093				1,525,806
Total liabilities					1,419,093				1,525,806
Stockholders' Deficit
	Preferred Stock A $.0001 par value, 10,000 shares authorized; none issued and outstanding				-				-
	Preferred Stock B $.001 par value, 90,000 shares authorized; none issued and outstanding				-				-
	Common Stock, $0.00001 par value, 349,900,000 shares authorized; 19,319,526 and 2,336,423 shares issued and outstanding, respectively				193				23
	Additional paid-in capital				12,526,600				7,205,686
	Accumulated deficit				(13,711,200)				(8,533,933)
Total stockholders' deficit					(1,184,407)				(1,328,224)
Total Liabilities and Stockholders' Deficit				$	234,686			$	197,582
	* shares retroactively restated for reverse stock split 1,000:1, June 10, 2014

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

5

 

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

6

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

7

REAL ESTATE CONTACTS, INC.

Notes to the Financial Statements

(Unaudited)

For the three and six months ended June 30, 2014 and 2013

1.

Background Information

Real Estate Contacts, Inc. ("The Company") was formed on March 10, 2005 as a Florida Corporation and is based in Parrish, Florida. The Company engages in the ownership and operation of three real estate advertising portal websites. Real Estate Contacts, Inc. provides a comprehensive online real estate search portal that consists of an advertising and marketing platform for real estate professionals. Our company also provides and sells video real estate websites to real estate professionals. The company has developed a national online real estate video listings portal that provides consumers the opportunity to view real estate in their local markets all in a video format.

The company provides consumers the opportunity to view real estate listings and homes for sale in their local markets.

The company also provides real estate professionals the opportunity to reach consumers interested in buying or selling property in their respective geographic area 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. Our current real estate search website and our new real estate video website product enable real estate professionals to increase their visibility and promote their listings.

The Company’s business is conducted solely within the Internet and the Online Video arena.

2.

Summary of Significant Accounting Policies 

Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim information and with the instructions to Form 10-Q and Regulation S-K. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

In the opinion of management, all adjustments consisting of a normal and recurring nature considered necessary for a fair presentation have been included. Operating results for the three and six month period ended June 30, 2014 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2014.

For further information, refer to Real Estate Contacts, Inc.’s (the “Company”) audited financial statements and footnotes thereto included in the year ended December 31, 2013 Form 10K filed with the Securities and Exchange Commission.

All share and per share information contained in this report gives retroactive effect to a 1 for 1,000 reverse stock split of our outstanding common stock, effective June 10, 2014.

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 in calculating derivative liabilies and for potential credit card chargeback's and refunds based on our historical chargeback and refund experience. We evaluate our estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions. Sales are reduced by the amount of these estimates.

Financial Instruments

The Company’s balance sheets include the following financial instruments: cash, accounts payable, accrued expenses, deferred revenues, convertible notes payable and payables to a shareholder. 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 payable to shareholder approximates fair value based on borrowing rates currently available to the Company for instruments with similar terms and remaining maturities. Convertible debt has been valued to fair market value in consideration of the fair value of the potential future consideration that may be required upon settlement.

8

Cash and Cash Equivalents

The majority of cash is maintained with a major financial institution in the United States. Deposits with this bank may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed on demand and, therefore, bear minimal risk. The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Accounts Receivable

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

Website Development Costs

The Company accounts for website development costs in accordance with Accounting Standards Codification 350-50 “Website Development Costs”. Accordingly, all costs incurred in the planning stage are expensed as incurred, costs incurred in the website application and infrastructure development stage that meet specific criteria are capitalized and costs incurred in the day to day operation of the website are expensed as incurred.  

The Company placed into service its main website (www.realestatecontacts.com) prior to 2008 and our video website channel (www.realestatevideochannels.com) will be fully operational by year end. All costs associated with theses websites are subject to straight-line amortization over there expected useful life, a five year period.

Goodwill and Other Intangible Assets

In accordance with ASC 350-30-65 “Goodwill and Other Intangible Assets", the Company assesses the impairment of identifiable intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important, which could trigger an impairment review include the following: 

1.Significant underperformance compared to historical or projected future operating results;

2.Significant changes in the manner or use of the acquired assets or the strategy for the overall business; and

3.Significant negative industry or economic trends.

 

When the Company determines that the carrying value of an intangible asset may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent to the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows.  

For the three months ended June 30, 2014 and 2013, the Company did not impair any long-lived assets.

Convertible Debt Instruments

The Company records debt net of debt discount for beneficial conversion features and warrants, on a relative fair value basis. Beneficial conversion features are recorded pursuant to the Beneficial Conversion and Debt Topics of the FASB Accounting Standards Codification. The amounts allocated to warrants and beneficial conversion rights are recorded as debt discount and as additional paid-in-capital. Debt discount is amortized to interest expense over the life of the debt.

 

Derivative Instruments

The Company enters into financing arrangements that consist of freestanding derivative instruments or are hybrid instruments that contain embedded derivative features. The Company accounts for these arrangements in accordance with Accounting Standards Codification topic 815, Accounting for Derivative Instruments and Hedging Activities (“ASC 815”) as well as related interpretation of this standard. In accordance with this standard, derivative instruments are recognized as either assets or liabilities in the balance sheet and are measured at fair values with gains or losses recognized in earnings. Embedded derivatives that are not clearly and closely related to the host contract are bifurcated and are recognized at fair value with changes in fair value recognized as either a gain or loss in earnings. The Company determines the fair value of derivative instruments and hybrid instruments based on available market data using appropriate valuation models, considering all of the rights and obligations of each instrument.

 

We estimate fair values of derivative financial instruments using various techniques (and combinations thereof) that are considered consistent with the objective measuring fair values. In selecting the appropriate technique, we consider, among other

9

factors, the nature of the instrument, the market risks that it embodies and the expected means of settlement. For less complex derivative instruments, such as freestanding warrants, we generally use the Black-Scholes model, adjusted for the effect of dilution, because it embodies all of the requisite assumptions (including trading volatility, estimated terms, dilution and risk free rates) necessary to fair value these instruments. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques (such as Black-Scholes model) are highly volatile and sensitive to changes in the trading market price of our common stock. Since derivative financial instruments are initially and subsequently carried at fair values, our income (expense) going forward will reflect the volatility in these estimates and assumption changes. Under the terms of the new accounting standard, increases in the trading price of the Company’s common stock and increases in fair value during a given financial quarter result in the application of non-cash derivative expense. Conversely, decreases in the trading price of the Company’s common stock and decreases in trading fair value during a given financial quarter result in the application of non-cash derivative income.

Deferred Revenue

Deferred revenues are derived from the unearned portion of advertising subscriptions. Advertising revenue is generated primarily from annual subscription transactions. Revenue is earned ratably over the expired portion of the subscription term. The unearned portion is deferred until earned through the passage of time based on the subscription term.

Revenue Recognition

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

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

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

Stock Based Compensation

In December 2004, the FASB issued FASB ASC No. 718, Compensation – Stock Compensation (“ASC 718”). Under ASC 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. As such, compensation cost is measured on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant. The Company applies this statement prospectively.

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

Advertising

The costs of advertising are expensed as incurred. Advertising expense was $2,889, $3,555, $4,015 and $5,224 for the three and six months ended June 30, 2014 and 2013, respectively.

Income Taxes

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

10

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. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

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 June 30, 2014 there were approximately 11,276,000 share equivalents, as calculated, for potential conversion demand of our outstanding convertible notes.

Recently Issued Accounting Pronouncements

In May 2014, FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers.   The revenue recognition standard affects all entities that have contracts with customers, except for certain items. The new revenue recognition standard eliminates the transaction-and industry-specific revenue recognition guidance under current GAAP and replaces it with a principle-based approach for determining revenue recognition.  Public entities are required to adopt the revenue recognition standard for reporting periods beginning after December 15, 2016, and interim and annual reporting periods thereafter. Early adoption is not permitted for public entities.  The Company has reviewed the applicable ASU and has not, at the current time, quantified the effects of this pronouncement, however it believes that there will be no material effect on the consolidated financial statements.

In June 2014, FASB issued Accounting Standards Update (ASU) No. 2014-12 Compensation — Stock Compensation (Topic 718), Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.  A performance target in a share-based payment that affects vesting and that could be achieved after the requisite service period should be accounted for as a performance condition under Accounting Standards Codification (ASC) 718, Compensation — Stock Compensation. As a result, the target is not reflected in the estimation of the award’s grant date fair value. Compensation cost would be recognized over the required service period, if it is probable that the performance condition will be achieved.  The guidance is effective for annual periods beginning after 15 December 2015 and interim periods within those annual periods. Early adoption is permitted.  Management has reviewed the ASU and believes that they currently account for these awards in a manner consistent with the new guidance, therefore there is no anticipation of any effect to the consolidated financial statements.  

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.

3. 

Going Concern

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

The Company has a history of losses and has incurred net loss for the three and six month period ending June 30, 2014. Additionally, the Company has an accumulated deficit, negative net worth and negative operating cash flows for the six months ended June 30, 2014. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company depends upon capital to be derived from future financing activities such as subsequent offerings of its common stock or debt financing in order to operate and grow the business. There can be no assurance that the Company will be successful in raising such capital. The key factors that are not within the Company's control and that may have a direct bearing on operating results include, but are not limited to, acceptance of the Company's business plan, the ability to raise capital in the future, the ability to expand its customer base, and the ability to hire key employees to build and maintain websites and to provide services and support to its customers and users. There may be other risks and circumstances that management may be unable to predict.

The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and

11

classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

4.

Related Party Transactions

On March 4, 2013, we entered into an employment agreement with Robert DeAngelis, our Chief Executive Officer. The employment agreement is for a period of three years and can be cancelled upon written notice by either employee or employer (if certain employee acts of misconduct are committed).The total minimum aggregate annual amount due under the employment agreement is approximately $120,000 plus bonuses.

The Company issued 11,650,000shares (split adjusted) of common stock to the Chief Executive Officer in exchange for services during the six months ending June 30, 2014.  These shares were valued at the fair market value of the stock at the date of grant, resulting in the recognition of $3,695,000 in compensation expense.

The majority shareholder has advanced funds and has deferred contractual salaries since inception, for the purpose of financing working capital and product development. Advances and deferrals amounted to $7,526 and $111,426 as of June 30, 2014 and December 31, 2013, respectively. There are no repayment terms to these advances and deferrals. In the absence of a formal agreement or stated interest rate, the Company is accruing interest at a minimal variable rate, currently 2%. Management will periodically adjust this rate following guidelines of applicable federal rates.

The controlling shareholder has pledged his support to fund continuing operations; however there is no written commitment to this effect. The Company is dependent upon the continued support of this shareholder.

The Company has minimal needs for facilities and operates from office space provided by the majority shareholder. There are no lease terms. Rent has been calculated based on the limited needs at a fair market value of the space provided. Rent expense was $300, $300, $600 and $600 for the three and six month periods ended June 30, 2014 and 2013, respectively.  The fair value of rent has been 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.

5.

Website Development Costs

		June 30, 2014				December 31, 2013
Website Development Costs		$	122,417			$	88,542
Less accumulated amortization			21,137				11,703
Property and equipment, net		$	101,280			$	76,839

Amortization of website costs was $5,595, $1,543, $2,293 and $9,434 for the three and six month periods ending June 30, 2014 and 2013, respectively.

6.

Debt Obligations

 The notes outstanding are summarized by their terms below:

Schedule of Debt

	June 30, 2014		December 31,  2013

12

Notes payable, issued to individual(s), various origination dates, all maturing within one year, at interest rate of 10%-12%	$ 5,000		$5,000
Convertible promissory notes, maturing at variable dates ranging from 180 days to one year from origination date, 8-10% interest, convertible at discount to trading price (40-49%) based on various measurements of prior trading, at face value of remaining original note principle outstanding, net of  unamortized debt discounts, attributable to beneficial conversion features of convertible debt, and deferred financing costs in the amount of $142,110 and $145,584, respectively	190,990		199,816
Total	$195,990		$204,816

Summary of convertible note transactions:

Convertible notes, December 31, 2013	$371,500
Additional notes, face value	256,000
Conversions of debt	(294,400)
Remaining notes, face value	333,100
Unexpired financing costs	(11,064)
Unexpired debt discounts	(131,046)
Convertible notes, June 30, 2014	$190,990

Derivative Liability

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 that the underlying common stock is indexed to the Company’s common stock. The Company determined that the conversion features meet the definition of a liability and therefore bi-furcated the conversion feature and accounted for it as a separate derivative liability. The Company evaluated the conversion feature for a beneficial conversion feature. 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 and charged to income as finance costs.  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 cost over the life of the loan.

 

A derivative liability, in the amount of $1,085,859 has been recorded, as of June 30, 2014, related to the above convertible notes. The derivative value was calculated using the Black-Scholes method. Assumptions used in the derivative valuation were as follows:

Weighted Average:
Dividend rate	0.0%
Risk-free interest rate	.07%
Expected lives (years)	.6
Expected price volatility	481.5%
Forfeiture Rate	0.0%

7.

Equity

During the six months ended June 30, 2013, the Company has issued 12,700 common shares for cash proceeds of $18,400.

The Company issued 13,500 shares of common stock in exchange for services of a consultant during the three and six months ending June 30, 2013. These shares were valued at the fair market value of the stock at the date of grant, resulting in the recognition of $291,500 in compensation expense.

During the six month period ending June 30, 2013, the Company issued 200,000 shares of common stock to the sole officer and director.  These shares were valued at the fair market value of the stock at the date of grant, resulting in the recognition of $2,800,000 in compensation expense.  

During the six month period ending June 30, 2014, the Company issued a total of 11,650,000 shares of common stock to the sole officer and director.  These shares were valued at the fair market value, the common stock trading price, of the stock at the date of grant, resulting in the recognition of $3,695,000 in compensation expense.  

13

During the six month period ending June 30, 2013, convertible notes, in the amount of $97,500 were converted into 73,628 common shares, in accordance with the terms of the note agreements.

During the six month period ending June 30, 2014, convertible notes, in the amount of $268,300 and accrued interest of $22,178 were converted into 5,333,103 common shares, in accordance with the terms of the note agreements.  The conversion price, per agreement, was at a discount to the fair market trading value. The Company recorded the exchange at the fair market value of the shares converted, the excess of which was charged against the derivative liability.  The fair market value of the stock was $1,646,920.

During the three and six month periods ended June 30, 2014 and 2013 the Company recorded in-kind contributions for rent expense in the amount of $300, $300, $600 and $600, respectively.

Amendment to the Articles of Incorporation

On June 18, 2014, the Company amended its Articles of Incorporation. The total number of shares this corporation is authorized to issue is 350,000,000 (three hundred fifty million), allocated as follows among these classes and series of stock:

Schedule of Stock by Class

Designation	Par value	Shares
Common	$0.00001	249,900,000
Preferred Stock Class, Series A	$0.0001	10,000
Preferred Stock Class, Series B	$0.001	90,000

No preferred shares have been issued and have not been defined for the preferences.

There are no warrants or options currently outstanding.

8.

Commitments and Contingencies

From time to time the Company may be a party to litigation matters involving claims against the Company. We have received a claim by former legal representation that involves improperly naming that firm as the registered agent for state registration. We are prepared to mediate any errors. There has been no claim for fees or any other compensation or reparation and we are unaware of any monetary damages. Management believes that any such claim is baseless and settlement, if any deemed reasonable or an obligation of the Company is determined, is considered immaterial.

Management believes that there are no other known or potential matters that would have a material effect on the Company’s financial position or results of operations.

9.

Subsequent Events

Subsequent to June 30, 2014, the Company received proceeds from convertible note agreements with face value in the amount of $114,250.

The Company follows the guidance in Sections 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements were issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.

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Item 2.

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

The following discussion provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto contained elsewhere in this Report. The following discussion and analysis contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements.

The following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto. This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.

 

Plan of Operations

Our plan of operation is to operate the most definitive online real estate video listings website and search engine portal website for real estate. We want to position our company as the first of its kind national real estate search engine/social community/media video network that matches buyers, sellers, brokers, and professionals anywhere in the world through rich and social media.

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 current listings 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 and the RealEstateVideoChannels.com video portal website.

We are now welcoming www.realestatevideowebsites.com to our family.  Our company will offer and sell real estate video websites to offices, brokers, agents and all real estate professionals on our new real estate website.  This is where real estate agents, brokers and offices can go to purchase their own real estate video website that will enable them to create videos and photo tours and use our video web tools. Our new website is loaded with informative information and the latest video news for real estate agents. We currently have dozens of new articles about video and the use of video in the real estate industry.  

We offer agents and real estate offices a responsive video website that works on any PC or any Device where their videos can be displayed along with their photo tours that they can create right on their own real estate video website. This type of responsive website will adjust to fit nicely on a smart phone tablet or PC.  Almost 75% of buyers use smart phones for their initial search.  

We now have several HOW TO videos with tips for real estate agents on using YouTube and making videos and many tips that most people do not know about.

We makes it simple for real estate agents to be part of the video revolution by teaching agents step by step how to create their own videos without a video camera. Our new real estate video websites, online in 48 hours after ordering, will help agents in their SEO and every page, video and gallery is automatically SEO optimized. They can be maintenance free self-updating sites or agents have the power to completely modify sites by adding pages, unlimited videos, unlimited single property pages and photo galleries and even creating their own web based forms with our visual editor. No programming needed.

With our new real estate video websites agents can create a video after logging into their website admin then simply typing in the MLS photo URL or by uploading photos from their desktop.

Real Estate Contacts, Inc. will offer video real estate websites for local and national publishing in many areas, where real estate professionals can have their own video website channel, manage the publishing and display hundreds of video properties through one simple tool giving real estate professionals exposure for their properties in less time and for less money.

The combination of our websites sets the stage to offer more real estate tools and services that empower consumers and drive more business for real estate professionals.  

Our business strategy is an ease of use approach which allows the consumer to view listings of homes from their local real estate office, broker or agent. This service is provided from our real estate search website: (www.realestatecontacts.com) and our video website channel: (www.realestatevideochannels.com). In addition, our real estate search website will feature no more than five agents per territory. This policy will eliminate a substantial amount 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.

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Currently while there are other real estate directories and portals on the internet only a select few feature real estate agents on a semi-exclusive basis. We believe this approach will be attractive to real estate professionals in each locale.

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

We plan to grow revenues from the sales of real estate video websites and the advertising sales for real estate professionals on both of our current websites in the next 12 months by undertaking the following steps:

·

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

·

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

·

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

·

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

·

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

·

We plan to increase our online Search Engine Marketing to create more unique users Focus on driving more internet traffic and unique visitors to our websites by using these search engine marketing techniques.

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

Limited Operating History

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

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

For the three and six months ended June 30, 2014 compared to June 30, 2013

Results of Operation

Revenues generated were $125, $891, $546 and $2,640 for the three and six month periods ended June 30, 2014 and 2013, respectively. Billings have decreased, year over year, as the Company’s management is concentrating on the development and launch of the video channel.  Management is aware that the real estate housing market is stabilizing and potential advertisers are considering increasing advertising expenditures. We have noted that the public’s acceptance and awareness of our sites service offering is increasing as active agents are seeking additional venues to promote their services and listings.  We are concentrating on developing our unique resources in order to fully participate upon revival of competition in the real estate market.

Operating expenses were $2,454,474, $2,981,972, $3,806,712 and $3,144,490 for the three and six month periods ended June 30, 2014 and 2013, respectively. The Company has recorded significant non-cash expenses related to compensation, in the amount of $2,400,000 and $3,695,000 for the three and six months ending June 30, 2014, as compared to $2,968,000 and $3,091,500 for the three and six months ended June 30, 2013. Other significant expenses incurred are related to professional expense related to the preparation of our public filing. We expect professional fees to continue to be a significant expense as our reporting requirements should be increasing, as required as a public company. We anticipate that our advertising and costs of acquiring new subscribers will increase over the future periods, as we attempt to increase our revenue base to cover future operating costs.

Other expenses increased during the current three and six month period due to debt related charges associated with financing through convertible notes (resulting in the recognition of derivative liabilities and expense).

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Capital Resources and Liquidity

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 secure work to be performed. Management plans to increase revenue in order to sustain operations for at least the next twelve months.

At June 30, 2014 the Company has cash in the amount of $133,406. Management does not believe that is has adequate cash resources to meet the requirements to develop certain aspects of our business plan, however, should be sufficient to meet our current obligations, as the amount represents approximately six months to one year of our run rate of operating expenses. The Company anticipates increasing revenue, which will partially mitigate cash flow deficiencies, however at the present time our revenues will not cover our cash requirements. Management believes that financial support from the majority shareholder to pay minimal and necessary incurred expense will allow the Company to benefit from advertising revenue streams, currently in-place, to produce the anticipated cash flow necessary to support operations.

As of June 30, 2014 we have $133,406 cash on hand to meet our current obligations. As of June 30, 2014, we have a negative working capital of $1,285,687 and, for the  six months ended June 30, 2014, we have used $194,508 in our operating activities.

Based upon the above, we do believe we have enough cash to support our daily operations beyond the next 12 months while we are attempting to expand operations and produce revenues. Although we believe we have adequate funds to maintain our current operations for the near term, we do not believe that we have the required funding to expand our product offering (web channel and other possible alternative service offerings). We estimate the Company needs an additional $200,000 to fully implement its business plans over the next twelve months. In addition, we anticipate we will need an additional minimum of $150,000 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 the Offering and our plan of operations.

 

Future financing for our operations may not be available to us on acceptable terms. To raise equity will require the sale of stock and the debt financing will require institutional or private lenders. We do not have any institutional or private lending sources identified. If debt financing is not available or not available on satisfactory terms, we may be unable to continue expanding our operations. Equity financing will result in a dilution to existing shareholders.

 

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

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

 

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.

Critical Accounting Policies and Estimates

Deferred Revenue

Deferred revenues are derived from the unearned portion of advertising subscriptions. Advertising revenue is generated primarily from annual subscription transactions. Revenue is earned ratably over the expired portion of the subscription term. The unearned portion is deferred until earned through the passage of time based on the subscription term.

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.

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

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

Off-Balance Sheet Arrangements

 

The company does not have any off-balance sheet arrangements.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

We are a Smaller Reporting Company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

The company is a small company with limited resources. There is insufficient staff for segregation of duties of accounting functions and for levels of review of our report filings. Due to these constraints, management considers that a material weakness in financial reporting currently exists. Through the use of outside consultants, management is taking actions to remediate this deficiency, including attaining new or additional Board members for oversight.

A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) auditing standard) or combination of control deficiencies that result in more than remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

(b)Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1.

Legal Proceedings.

None.

Item 1A.

Risk Factors.

We are a Smaller Reporting Company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.

Defaults Upon Senior Securities.

None.

Item 4.

Mine Safety Disclosure.

None.

Item 5.

Other Information.

None.

Item 6.

Exhibits.

 

Exhibit Number		Description
31.1		Certification by the Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith
32.1		Certification by the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C Section 1350 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith
101*		Financial statements from the quarterly report on Form 10-Q of Real Estate Contacts, Inc. for the quarter ended June 30, 2014, formatted in XBRL: (i) the Balance Sheet, (ii) the Statement of Income, (iii) the Statement of Cash Flows and (iv) the Notes to the Financial Statements. Filed herewith

Pursuant to Rule 406T of Regulation S-T, the XBRL files contained in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	REAL ESTATE CONTACTS, INC.
Dated: August 11, 2014	By:	/s/ROBERT DEANGELIS
		Robert DeAngelis
		President,
		Principal Executive Officer, Principal Financial Officer Principal Accounting Officer and Director

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