SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting. Our financial records are maintained on the accrual basis of accounting whereby revenues are recognized when earned and expenses are recorded when incurred.

Use of estimates. In order to conform with generally accepted accounting principles in the United States (“GAAP”), management, in preparation of our consolidated financial statements, is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of December 31, 2017 and December 31, 2016, and the reported amounts of revenues and expenses for the years ended December 31, 2017 and 2016. Actual results could differ from those estimates. Significant estimates include deferred taxes and the related valuation allowance for deferred taxes, and these significant estimates, as well as other estimates and assumptions, may change in the near term.

Cash and cash equivalents. We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents as of December 31, 2017 and 2016 consisted of demand deposits at commercial banks and brokerage accounts. We maintain our cash in bank accounts that are federally insured.

Marketable Securities. We classify our existing marketable equity securities as available-for-sale in accordance with the Financial Accounting Standards Board's (“FASB”) Investments-Debt and Equity Securities guidance. These securities are carried at fair value with unrealized gains and losses reported in equity as a component of accumulated other comprehensive income or loss. The fair value of the marketable securities is determined using Level 1 inputs under FASB Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures.” Level 1 inputs represent quoted prices available in an active market for identical investments as of the reporting date. Gains and losses on securities sold are based on the specific identification method, and are reported as a component of interest, dividend and other investment income.

Equity method investment. The Company accounts for its investment in Pillarstone OP in accordance with ASC 323, “Investments - Equity Method and Joint Ventures,” which addresses the accounting for investments in entities over which the investor is deemed to exercise significant influence. The Company serves as the general partner of Pillarstone OP, with a 18.6% equity ownership interest and is a party to the Amended and Restated Agreement of Limited Partnership of Pillarstone OP, as described in Note 5 herein, which gives the general partner, subject to certain protective rights of the limited partners as described in Note 5, the responsibility and discretion for the management of Pillarstone OP, including the ability to cause Pillarstone OP to enter into certain major transactions including a merger of Pillarstone OP or a sale of substantially all of the assets of Pillarstone OP. As such, the Company is deemed to exercise significant influence but not complete control over Pillarstone OP. Additionally, we determined that we are not the primary beneficiary and thus the investment in Pillarstone OP qualifies for usage of the equity method of accounting.

Investments in equipment. Our investments in equipment assets are reported at cost. Depreciation expense is computed using the straight-line method based on the following useful lives:

Furniture, fixtures and equipment 3-7 years

There was no depreciation expense for the years ended December 31, 2017 and December 31, 2016.

Other assets. As of December 31, 2017, other assets totaled $9,679 for director and officer liability insurance. As of December 31, 2016, other assets of $14,499 are prepaid expenses for director and officer liability insurance of $9,202 and $5,297 of prepaid SEC filing charges.

Revenue recognition. Revenues are interest earned on cash balances and equity in earnings of an investee, and are recognized during the period in which they are earned.

Stock-based compensation. The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation - Stock Compensation,” which addresses the accounting for stock-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. ASC 718 generally requires that these transactions be accounted for using a fair-value-based method. The Company uses the Black-Scholes option-pricing model to determine the fair-value of stock-based awards.

Income taxes. Because we have not elected to be taxed as a REIT for federal income tax purposes, we account for income taxes using the liability method under which deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the period in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

The Company evaluates potential uncertain tax positions on an annual basis in conjunction with the board of trustees and its tax accountants. Authoritative literature provides a two-step approach to recognize and measure tax benefits when realization of the benefits is uncertain. The first step is to determine whether the benefit meets the more-likely-than-not condition for recognition and the second step is to determine the amount to be recognized based on the cumulative probability that exceeds 50%. The Company has no uncertain tax positions that required adjustments to our consolidated financial statements in 2017 or 2016.

At December 31, 2017, we have net operating loss carryforwards totaling $2,510,000. While these losses created a deferred tax asset, a valuation allowance was applied against the asset because of the uncertainty of whether we will be able to use these loss carryforwards, which will expire in varying amounts through the year 2038. Pursuant to regulations set forth in the Internal Revenue Code of 1986 as amended (the “Code”), Pillarstone will be limited to using $651,600 of the prior net operating losses of $11,246,000. These same regulations also limit the amount of loss used in any one year.

We are also subject to certain state and local income, excise and franchise taxes. The provision for state and local taxes has been reflected in general and administrative expense in the consolidated statements of operations and has not been separately stated due to its insignificance.

Fair value of financial instruments. We adopted ASC 820, “Fair Value Measurements and Disclosures,” as it applies to our financial instruments, and ASC 825, “Financial Instruments.” ASC 820 defines fair value, outlines a framework for measuring fair value, and details the required disclosures about fair value measurements. ASC 825 permits companies to irrevocably choose to measure certain financial instruments and other items at fair value. ASC 825 also establishes presentation and disclosure requirements designed to facilitate comparison between entities that choose different measurement attributes for similar types of assets and liabilities.

Under ASC 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market. ASC 820 establishes a hierarchy in determining the fair value of an asset or liability. The fair value hierarchy has three levels of inputs, both observable and unobservable. ASC 820 requires the utilization of the lowest possible level of input to determine fair value. Level 1 inputs include quoted market prices in an active market for identical assets or liabilities. Level 2 inputs are market data, other than Level 1, that are observable either directly or indirectly. Level 2 inputs include quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data. Level 3 inputs are unobservable and corroborated by little or no market data.

Except for those assets and liabilities which are required by authoritative accounting guidance to be recorded at fair value in our Consolidated Balance Sheets, we have elected not to record any other assets or liabilities at fair value, as permitted by ASC 825. No events occurred during 2017 which would require adjustment to the recognized balances of assets or liabilities which are recorded at fair value on a nonrecurring basis.

The following table provides information on those assets and liabilities measured at fair value on a recurring basis.



	Fair Value Measurement Using
	Level 1		Level 2		Level 3
Marketable Securities

December 31, 2017
Money Market Investment	$	100	$	—	$	—

December 31, 2016
Money Market Investment	$	100	$	—	$	—

The fair value of the marketable securities is based on quoted market prices in an active market.

Recent accounting pronouncements. Management has reviewed recently issued accounting pronouncements and does not expect the implementation of these pronouncements to have a significant effect on the Company's consolidated financial statements.