RTSO RTS Oil Holdings Inc (CE)

NOTES TO FINANCIAL STATEMENTS

NOTE 1 - GENERAL INFORMATION

RTS OIL LLC (“RTS” or the “Company”), a Kazakhstan registered entity organized as a limited liability partnership, was founded in 2000 and is headquartered in Taraz, Kazakhstan. RTS is a distributor of refined oil products in the wholesale and retail markets in southern Kazakhstan.

RTS operates 19 gasoline stations and 7 crude oil and fuel terminals (“fuel tank farms”). Of the 7 fuel tank farms, the Company owns one fuel tank farm and leases 6 others with total storage capacity of more than 40,000 tons of crude oil and refined oil products. The Company leases the gasoline stations under operating lease agreements with related parties (see Note 6, Related Party Operating Leases, for additional information). The Company also owns a fleet of 28 trucks with capacities ranging from 20 to 34 tons of diesel/gasoline. Refined products are sold wholesale to other distributors and retail via RTS gasoline stations. The Company also supplies furnace fuel to refineries in the Kyrgyz republic for further processing.

On May 8, 2013, Geo Point Technologies, Inc. (“Geo Point”) entered into a Share Exchange Agreement (the “Agreement”) with RTS to acquire all of the issued and outstanding owners’ equity of RTS. Pursuant to the terms of the Agreement, RTS became a wholly owned subsidiary of Geo Point, and the RTS shareholders assumed the controlling interest in Geo Point. The Company will account for the transaction as a reverse acquisition whereby the operations of RTS will represent the historical operations of the Company in future filings with the Securities and Exchange Commission. See Note 13, Subsequent Events, for additional information.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of estimates

The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). GAAP requires management to make judgments, estimates and assumptions that may affect the reported amounts of assets and liabilities as of the date of its financial statements as well as the reported amounts of revenues and expenses during the periods presented. These judgments, estimates and assumptions are used for, but not limited to: valuation allowances on current assets, useful lives of property and equipment, potential impairment of tangible assets, and the provision for income taxes including required valuation allowances. The Company bases its estimates on various factors and information which may include, but are not limited to, history and prior experience, experience of other enterprises in the same industry, and current economic conditions. Actual results may differ from these estimates, and these differences may be material.

Fair value of financial instruments

Carrying amounts of certain of the Company’s financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued liabilities, and lines of credit approximate fair values due to their short maturities.

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, the Company considers the principal or most advantageous market in which the Company would transact, and takes into consideration the assumptions that market participants would use when pricing the asset or liability. The Company’s assessment of the significance of a particular input to the fair value measurement of an asset or liability requires management to make judgments and to consider specific characteristics of that asset or liability.

The current accounting guidance provides three levels of inputs that may be used to measure fair value, as follows:

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Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities.

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Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which all significant inputs are observable or can be derived

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principally from or corroborated with observable market data for substantially the full term of the assets or liabilities.

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Level 3—Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities.

As of March 31, 2013 and 2012, the Company did not have Level 1, 2, or 3 financial assets, nor did it have any financial liabilities.

Related party transactions

For the purposes of these financial statements, parties are considered to be related if that relationship they are in satisfies criteria and requirements stated in ASC 850-10 Related Party Disclosures . In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form.

Cash and cash equivalents

Cash equivalents are generally comprised of certain highly liquid investments with original maturities of less than three months.

Concentrations of credit risk and significant customers

The Company generates revenues principally from the sale of crude oil and refined oil products. As a result, the Company’s trade accounts receivable are concentrated primarily in these industries. The Company performs limited credit evaluations of its customers and generally does not require collateral. The Company maintains reserves for potential credit losses. The Company considers the following factors when determining if collection of revenue is reasonably assured: customer creditworthiness, past transaction history with the customer, if any, current economic industry trends, and changes in customer payment terms. In some cases regarding new customers, management requires payment in full or letters of credit before goods are provided. If these factors do not indicate collection is reasonably assured, revenue is deferred until collection becomes reasonably assured, which is generally upon receipt of cash. During the periods presented, credit losses were not significant. See Note 11, Concentrations, for further details.  

Inventories

Inventories are carried at the lower of cost or current market value. Market represents net realizable value of inventories, which is determined as an estimated net sales price in the ordinary course of business, less reasonably predictable cost of completion and disposal. As a result of the Company’s assessments, when the market value of inventory is less than the carry value, the inventory cost is written down to the market value and the write down is recorded as a charge to costs and operating expenses. Inventory primarily consists of crude and refined products, including intermediates. The cost of inventories is based on the first-in first-out method. Costs are comprised of direct purchase costs, cost of transportation and refining expenses. See Note 3, Inventory, for further details.

Property and equipment

Property and equipment are stated at historical cost less accumulated depreciation and impairment losses, if any. The costs of major renovations and improvements that lead to a prolongation of the useful life or expanded future use capabilities of an asset are capitalized and depreciated over the asset’s remaining useful life. Maintenance and repair costs that represent minor renewals and improvements are charged to expenses as incurred. Depreciation is charged to the statement of operations on а straight-line basis over the estimated useful lives of the individual assets. Depreciation commences on the date of acquisition.

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The following useful lives are used as а basis for calculating depreciation:

The expected useful lives of property, plant and equipment are reviewed on an annual basis and, if necessary, changes in useful lives are accounted for prospectively. The carrying value of property, plant and equipment is reviewed for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the Statement of Operations in the period in which the item is derecognized.

Impairment of long-lived assets

The Company evaluates long-lived assets, such as property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If indicators of impairment exist and the undiscounted future cash flows that the assets are expected to generate are less than the carrying value of the assets, the Company reduces the carrying amount of the assets to their estimated fair values based on a discounted cash flow approach or, when available and appropriate, to comparable market values.

Revenue recognition

Revenue from the sale of crude oil and refined oil products is recorded net of all trade discounts and volume rebates. Revenue is recognized when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. Transfers of risks and rewards vary depending on the individual terms of the contract of sale.

All proceeds from sales in which the above criteria are not met are deferred until such criteria are met. At March 31, 2013 and 2012, the Company had advances from customers of $1,106 and $1,572, respectively, which were received for future purchases of the Company’s product.

All revenues are reported inclusive of shipping and handling costs billed. Shipping and handling costs incurred are reported in cost of products sold.

Value added and sales tax collected from customers

As a part of the Company’s normal course of business, value added and sales taxes are collected from customers. Such taxes collected are remitted, in a timely manner, to the appropriate governmental tax authority on behalf of the customer. The Company’s policy is to present revenue and costs, net of value added and sales taxes.

Accounts receivable

Accounts receivable are stated at the amount management expects to collect from balances outstanding at year end. Management provides for probable uncollectible amounts through a charge to earnings and an increase to a valuation allowance based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a reduction to accounts receivable.

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Cost classifications

Crude oil and product costs include the cost of crude oil and purchased finished products, inclusive of transportation and other costs attributable to the purchases of crude oil and finished products and are exclusive of depreciation and amortization. Selling, general and administrative expenses include compensation, professional services, marketing expenses, utilities, maintenance materials and services, and other support costs.

Income taxes

Provisions for income taxes include deferred taxes resulting from temporary differences in income for financial and tax purposes, using the liability method of accounting for income taxes. The liability method requires the effect of tax rate changes on current and accumulated deferred income taxes to be reflected in the period in which the rate change was enacted. The liability method also requires that deferred tax assets be reduced by a valuation allowance unless it is more likely than not that the assets will be realized.

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50 percent likely to be realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Estimated interest and penalties related to underpayment of income taxes are recorded as a component of income tax provision.

Foreign currency

The Kazakh Tenge is the functional currency of the Company. The respective balance sheets have been translated into USD at the exchange rates prevailing at each balance sheet date. The respective statements of operations and comprehensive income have been translated into USD using the average exchange rates prevailing during the periods of each statement. The corresponding translation adjustments are part of accumulated other comprehensive income and are shown as part of owners’ equity. Transaction gains or losses related to balances denominated in a different currency than the functional currency are recognized in the statement of operations. Net foreign currency transaction gains and losses included in the Company’s statements of operations were negligible for the years ended March 31, 2013 and 2012.

Comprehensive income

Total comprehensive income represents the net change in owners’ equity during a period from sources other than transactions with owners. Accumulated other comprehensive income is comprised solely of accumulated foreign currency translation adjustments.

Environmental matters

When it is probable that costs associated with environmental remediation obligations will be incurred and they are reasonably estimable, the Company accrues such costs at the most likely estimate. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study and are charged to provisions for closed operations and environmental matters. The Company periodically reviews the accrued liabilities for such remediation costs as evidence becomes available indicating that the remediation liability has potentially changed. Such costs are based on the current estimate of amounts that are expected to be incurred when the remediation work is performed within current laws and regulations.

Accounting for reclamation and remediation obligations, commonly referred to as an asset retirement obligation, requires management to make estimates unique to each operation of the future costs the Company will incur to complete the reclamation and remediation work required to comply with existing laws and regulations. Actual costs incurred in future periods could differ from amounts estimated, if any. Under current laws, the Company is not required to perform any reclamation and remediation procedures if the current property were to be abandoned. However, future changes to environmental laws and regulations could increase the extent of reclamation and remediation work required. Any such increases in future costs could materially impact the amounts charged to earnings. As of March 31, 2013 and 2012, the Company has no accrual for reclamation and remediation obligations

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because the Company has not engaged in any significant activities that would require remediation under the current laws and regulations.

Recent accounting pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) that are adopted by the Company as of the specified date.  If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.

Depreciation expense was $76 and $68 for the years ended March 31, 2013 and 2012, respectively.

NOTE 5 - LINE OF CREDIT

As of March 31, 2012, the Company had entered into four revolving lines of credit with four banks. The related lines of credit bear interest at annual rates from 13% to 19%. Advances on the line of credit are due one year or sooner from the date of the advance and are collateralized by certain properties and equipments, inventories, sales contracts and personal guarantees of the owners. The outstanding balance due under the revolving lines of credit was $44,942 and $43,412 as of March 31, 2013 and 2012, respectively. The amounts have been classified as short-term lines of credit payable in the accompanying balance sheets as of March 31, 2013 and 2012. As of March 31, 2013 and 2012, the Company has withdrawn up to the maximum limits on the lines.  

During the year ended March 31, 2013, the Company entered into a factoring agreement for financing purposes with the transfer of certain accounts receivable with a recourse provision. The agreement qualifies as a secured

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borrowing with collateral under the guidelines of ASC 860 Transfers and Servicing . The loans obtained under the agreement bear interest at annual rate of 18% and are presented as part of Lines of credit on the balance sheets. The assets pledged under the agreement are presented separately on the balance sheet as Accounts receivable pledged as security to creditors. As of March 31, 2013, the assets pledged and the related liabilities were $1,843 and $2,026, respectively.

NOTE 6 – RELATED PARTY OPERATING LEASES

At March 31, 2013 and 2012, the Company leased 6 of its fuel tank farms and 19 of its petrol stations under operating lease agreements from related parties (immediate family members of an owner). The agreements are cancelable upon initiation of either party within 3 months and set the rental payments at nominal amounts. The Company recorded the fair value of rental expense of $4,588 and $4,670 for the years ended March 31, 2013 and 2012, respectively.  

For the year ended March 31, 2012, due to the related party nature of the operating lease agreements, the Company recorded the excess amount of fair value of rent expense over the contractual amount of rent expense as a contribution by the owners in the amount of $1,937 and as an offset for certain loans receivable from related parties in the amount of $2,731. For the year ended March 31, 2013, the Company recorded the excess amount of fair value of rent expense over the contractual amount of rent expense as a contribution by the owners in the amount of $4,460. All of the Company’s operating leases are cancellable with a notice period of less than one year.

NOTE 7 - INCOME TAXES

Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax laws or rates is recognized in income in the period that includes the enactment date.  Under current tax law in the Republic of Kazakhstan, the Company is and will be subject to the 20% corporate income tax rate.

The provision for income taxes consisted of the following:

Following is a reconciliation of income taxes calculated at the federal statutory rates to the provision for income taxes:

The temporary differences which give rise to the deferred income tax assets are Allowance for doubtful accounts – accounts receivables in the total amounts of $0 and $3 as of March 31, 2013 and 2012, respectively.

In assessing the realizability of deferred tax assets, Management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.  The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those differences become deductible or tax loss carry forwards are utilized.  Management considers projected future taxable income and tax

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planning strategies in making this assessment. Based upon an assessment of the level of historical taxable income and projections for future taxable income over the periods on which the deferred tax assets are deductible or can be utilized, Management believes it is likely that the Company will realize all of the benefits of the deferred tax assets as of March 31, 2013 and 2012.

The Company has also incurred various other taxes, comprised primarily of business taxes, value-added taxes, property taxes, local and municipal fees. Any unpaid amounts are reflected on the balance sheets as accrued taxes payable or receivable.

The last five tax years remain subject to examination by the appropriate government agencies for Kazakhstan tax purposes.

The Company reviewed its tax positions and determined that all of its positions are greater than 50% likely to be realized.

NOTE 8 – EQUITY

RTS Oil LLC, a Kazakhstan registered entity organized as a limited liability partnership, beneficially owned by Mr. Rafael Gavrielov, has three shareholders in the name of Ms. Isabekova Zhanat Zhaksylykovna, an individual Kazakhstan citizen, residing in Taraz, Kazakhstan, Mrs. Kurmanbekov Sultan Kaspakovich, an individual Kazakhstan citizen, residing in Taraz, Kazakhstan, and Ms. Gavrielova Yulia Rafaelievna, an individual Kazakhstan citizen, residing in Taraz, Kazakhstan.

Contributions receivable

During the year ended March 31, 2013, the Company declared and paid a cash dividend in the total amount of $10,705. It later rescinded the decision in accordance with the terms of the original dividend declaration and the total amount of dividend was to be repaid back to the Company. Subsequent to March 31, 2013, the total amount of dividend was repaid back to the Company in full.   

Contributions of rent expense in excess of contractual amounts

In connection with the related party operating leases, the Company records the amount of fair value of rent expense in excess of the contractual amount of rent expense as contributions by the owners. For the years ended March 31, 2013, and 2012, the Company recorded contributions in the amount of $4,460 and $1,937, respectively. See Note 6, Operating Leases, for more details.

NOTE 9 - RELATED PARTY TRANSACTIONS

Operating leases

The Company leases 6 of its fuel tank farms and 19 of its petrol stations under operating lease agreements with immediate family members of an owner. See Note 6, Related Party Operating Leases, for additional information.

Notes receivable

During the year ended March 31, 2011, the Company advanced $3,039 to a related party (an immediate family member of an owner) under the long-term loan agreement. The outstanding balances are presented as loans from related parties on the Balance Sheets and were $0 and $199 as of March 31, 2013 and 2012, respectively.

For the year ended March 31, 2012, the Company recorded proceeds in the amount of $2,731 as an offset against the excess amount of fair value of rent expense. For the year ended March 31, 2013 and March 31, 2012, the Company collected $199 balance and $78, respectively.

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NOTE 10 - COMMITMENTS AND CONTINGENCIES

Insurance

The insurance industry in Kazakhstan is at the developing stage and many forms of insurance protection common in other countries of the world are not yet generally available. The Company has full coverage for its fuel tank farms, vehicles, third party liability in respect of property or environmental damages arising from accidents or the Company’s operations. There is still a risk that the loss or destruction of certain assets could have a material adverse effect on the Company’s operations and financial position.

Taxation

Different Kazakhstani legislation acts and norms are often unclear, contradictory and subject to varying interpretation by different tax authorities and the Ministry of Finance of the Republic of Kazakhstan. Frequently, disagreements in opinions occur among local, regional and national tax authorities. The current regime of imposing fines and penalties for identified violations of Kazakhstani legislation, statutes and standards is sufficiently severe. Sanctions include confiscation of questionable amounts (for violation of currency control), as well as fines of 50% of accrued tax. The penalty rate is 22.5%.

There is a degree of uncertainty for the Company associated with the assessment of its tax obligations. The tax system and tax legislation in the Republic of Kazakhstan has been in place for a relatively short period of time and often undergo amendments that can be interpreted in different ways. Management's interpretation of such legislation as applied to the Company may be challenged by the relevant tax authorities, as a result additional tax obligations such as fines and penalties may be imposed which could have a material adverse effect on the financial position and operations of the Company. In this case, all subsequent periods may also have a material adverse effect because of the cumulative nature of the calculation of income tax.

The Company considers that it has accrued or paid all applicable taxes. The Company’s policy assumes accrual of provisions in the period when probability of losses can be reliably assessed. However, in view of the above circumstances, there is a risk that relevant authorities may take a different position in the interpretation of tax legislation which can lead to significant additional tax liabilities.

Environmental Issues

The Company is subject to various environmental laws and regulations of the Republic of Kazakhstan. Management believes that the Company complies with all government requirements regarding environment protection. However, there is no assurance that contingent liabilities will not arise. See Note 2 for additional information.

Litigation

In the normal course of the Company’s business, legal proceedings may be brought against the Company arising out of current and past operations, including matters related to commercial disputes, product liability, premises liability and personal injury claims, allegations of compliance with law violations, consumer claims, general environmental claims, allegations of exposures of third parties to toxic substances and other legal claims.

There were no contingent liabilities at March 31, 2013 and 2012.

NOTE 11 – CONCENTRATIONS

As of March 31, 2013, two customers accounted for 80% of the Company’s accounts receivable. As of March 31, 2012, three customers accounted for 79% of the Company’s accounts receivable.

For the year ended March 31, 2013, two customers accounted for 24.4% and 12.2% of sales, respectively. For the year ended March 31, 2012, no customer accounted for more than 10% of sales.

For the year ended March 31, 2013, purchases from four suppliers accounted for 14.1%, 13.4%, 12.2% and 10.8%

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of purchases, respectively. For the year ended March 31, 2012, purchases from three suppliers accounted for 40.5%, 11.4% and 11.4 % of purchases, respectively.

The loss of any significant customer or supplier could have an adverse effect on the Company.  

NOTE 12 – SEGMENT REPORTING

The Company has one operating segment, which was identified based upon the availability of discrete financial information and the chief operating decision makers’ regular review of financial information.

NOTE 13 - SUBSEQUENT EVENTS

On May 8, 2013, Geo Point acquired 100% of the ownership of RTS via a share exchange agreement and on July 2, 2013, changed its name to RTS Oil Holdings Inc. The acquisition is accounted for as a reverse acquisition in accordance with ASC 805 Business Combinations as it was determined that RTS is the accounting acquirer because of the significant holdings and influence of the control group before and after the acquisition. In connection with the transaction, RTS owners held approximately 70% of Geo Point’s issued and outstanding common stock.

The Company has evaluated subsequent events through September 16, 2013, the date the financial statements were issued.  Other than the aforementioned subsequent events shown above, there were no recognized or non-recognized transactions occurring subsequent to year end.

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(b)

INDEX