Notes to Financial Statements
March 31, 2014
1. Organization and Nature of Business
Receivable Acquisition and Management Corporation (the Company or RAMCO), a public reporting entity, was in the business to purchase, manage and collect defaulted consumer receivables. RAMCO ceased investments in distressed consumer credit portfolios in September 2007 and subsequently ran off existing portfolios.
Sustainable Energy LLC (Sustainable LLC) is a New York Limited Liability Company formed on July 26, 2010. Sustainable LLC is involved in developing and improving the efficiency of energy infrastructure using a combination of traditional and advanced technologies. On March 29, 2013, Sustainable LLC contributed certain assets and liabilities into a newly formed entity, Sustainable Energy Industries, Inc. (Sustainable). At the time, Sustainable LLC had a license agreement with a third party and limited assets, liabilities and operations.
Cornerstone Program Advisors LLC, (Cornerstone) is a Delaware limited liability company formed on January 5, 2009. Cornerstone is an energy infrastructure project management company focused on healthcare and higher learning institutions.
On March 29, 2013, RAMCO entered into a definitive reverse merger agreement (the Agreement) with Cornerstone and Sustainable. Under the terms of the Agreement, RAMCO entered into a voluntary share exchange transaction with Cornerstone and Sustainable whereby approximately 90% of RAMCOs common stock was issued to the members and shareholders of Cornerstone and Sustainable and in exchange, RAMCO acquired the entire membership interest in Cornerstone and all of the issued and outstanding shares of Sustainable (the Merger). At the closing of the Agreement on May 15, 2013, the management of Cornerstone and that of Sustainable assumed control of RAMCOs operations.
The Merger was accounted for as a reverse merger using the purchase method of accounting, with the former members and shareholders of Cornerstone and Sustainable controlling approximately 90% of the issued and outstanding common shares of RAMCO after the closing of the transaction. Cornerstone was deemed to be the acquirer for accounting purposes and the financial statements are presented as a continuation of Cornerstone and include the results of operations of Cornerstone since its incorporation on January 5, 2009, and the results of operations of RAMCO and Sustainable since the date of acquisition on May 15, 2013. Also in August 2013, the Company changed its year end from September 30 to December 31.
Following the Merger, the Company adopted a business plan to build on the business of Cornerstone and Sustainable in energy infrastructure and alternative energy.
2. Significant Accounting Policies
Basis of Presentation and Use of Estimates
The Company prepares its financial statements in conformity with accounting principles generally accepted in the United States of America which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates required to be made by management include recognition of income for work completed and unbilled to customers and the allowance for doubtful accounts. Actual results could differ from those estimates.
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Receivable Acquisition and Management Corp.
Notes to Financial Statements
March 31, 2014
2. Significant Accounting Policies (continued)
Unaudited Financial Statements
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for financial information and with the instructions to Form 10-Q. They do not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements. The unaudited financial statements should be read in conjunction with those financial statements included in the Companys Form 8-K/A filed with the SEC on August 5, 2013, and Form 10-K for the year ended December 31, 2013 filed on May 7, 2014. In the opinion of Management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the three months ended March 31, 2014, are not necessarily indicative of the results that may be expected for the year ended December 31, 2014.
Cash
The Company continually monitors its positions with, and the credit quality of, the financial institutions it invests with. From time to time, however briefly, the Company maintains balances in operating accounts in excess of federally insured limits.
Accounts Receivable
Receivables are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. At March 31, 2014, no allowance for doubtful accounts has been provided.
Income Recognition
The Company recognizes income for the sale of services and products when persuasive evidence of an arrangement exists, services have been rendered or delivery has occurred, the fee is fixed or determinable and the collectability of the related income is reasonably assured.
The Company principally derives income from fees for services generated on a project-by-project basis. Prior to the commencement of a project, the Company reaches agreement with the client on rates for services based upon the scope of the project, staffing requirements and the level of client involvement. It is the Companys policy to obtain written agreements from new clients prior to performing services. In these agreements, the clients acknowledge that they will pay based upon the amount of time spent on the project or an agreed-upon fee structure. Income for services rendered is recognized on a time and materials basis or on a fixed-fee or capped-fee basis in accordance with accounting and disclosure requirements for income recognition.
Fees for services that have been performed, but for which the Company has not invoiced the customers are recorded as unbilled receivables.
Income for time and materials contracts are recognized based on the number of hours worked by the Companys subcontractors at an agreed upon rate per hour, and are recognized in the period in which services are performed. Income for time and materials contracts is billed monthly or in accordance with the specific contractual terms of each project.
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Receivable Acquisition and Management Corp.
Notes to Financial Statements
March 31, 2014
2. Significant Accounting Policies (continued)
License Agreement
The cost of the License Agreement (see Note 4) is being amortized on a straight-line basis over 20 years. The License Agreement is reflected in the accompanying March 31, 2014 balance sheet net of accumulated amortization of $9,300.
Income Taxes
The Company recognizes the tax benefits of uncertain tax positions only where the position is more likely than not to be sustained assuming examination by the tax authorities. Management has analyzed the Companys tax positions, and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on returns filed for open tax years (2010 - 2013).
Basic and Diluted Net Income (Loss) per Share
The Company computes income (loss) per share in accordance with ASC-260, Earnings per Share which requires presentation of both basic and diluted income (loss) per share on the face of the statement of operations. Basic income (loss) per share is computed by dividing net income available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted income (loss) per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive income (loss) per share excludes all potential common shares if their effect is anti-dilutive.
The Company has no potential dilutive instruments and accordingly basic income (loss) and diluted income per share are the same.
The weighted average number of shares used in computing the income (loss) per share has been adjusted to give effect to the reverse merger described in Note 1.
Subsequent Events
Management has evaluated subsequent events for disclosure and/or recognition in the financial statements through the date that the financial statements were available to be issued.
3. Related Party Transactions
Consulting Fees
Certain stockholders of the Company and entities affiliated with management perform services to customers and were compensated at various rates. Total consulting expenses incurred by these entities amounted to $206,121 and $146,491 for the three months ended March 31, 2014 and 2013, respectively.
Advances Payable
The advances payable are due to officers of the Company with no specified repayment terms.
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Receivable Acquisition and Management Corp.
Notes to Financial Statements
March 31, 2014
4. License Agreement
On November 15, 2012, Sustainable LLC entered into a renewable 20-year engine technology license agreement (the License Agreement) with a third party licensor (the Licensor) that developed engines capable of converting low grade heat into other forms of energy. Under the terms of the License Agreement, Sustainable LLC obtained certain exclusive license rights in the engines developed by the Licensor which would permit Sustainable LLC to develop, manufacture and integrate such engines into its projects.
The exclusive market rights of the License Agreement provide that Sustainable LLC make a cash payment of $200,000 and issue common stock in Sustainable LLC representing a small minority ownership position in the Company (see Note 1), along with periodic quarterly payments of $25,000 commencing six months after the initial $200,000 payment. These payments reset to $50,000 per quarter after three payments, and are subject to further resets to up to $100,000 depending on engine sales volume. Under certain circumstances, engine royalty fees and referral fees can increase the quarterly payment from time to time. In the event of non-payment, Sustainable retains a non-exclusive license subject to royalty fees.
On May 15, 2013, in connection with the Merger (see Note 1), the Company, after acquiring 100% ownership interest in Sustainable, issued 2,435,430 shares to the Licensor which represents the small minority position in the Company as required under the terms of the License Agreement. At the time of issuance, these shares were valued at $48,709 representing the fair value of the RAMCO shares.
In addition, during the fiscal year ended December 31, 2013, the Company made payments of $13,000 that were applied against the required initial $200,000 cash payment as stated under the terms of the License Agreement.
In connection with a November 5, 2013 proceeding commenced by the Securities Division of the Arizona Corporation Commission (the ACC) the Company learned that the Licensor had been classified as dissolved by the Delaware Division of Corporations after March 1, 2010 for failure to pay franchise taxes to the State of Delaware, and similarly classified by the ACC as of approximately the same time.
In performing due diligence in regard to the status of the Licensor, the Company subsequently learned also that two United States patents that were licensed to the Company under the License Agreement have been classified as expired due to the Licensors failure to pay maintenance fees thereon. The Company has confirmed that Licensor is taking steps to have the corporate charters of each, as well as the patents, reinstated, but may not be successful in such reinstatements, and is in discussions with the Licensor regarding these matters.
To the best of the Companys knowledge at present, none of these issues presents a near-term hindrance to the Companys continued focus on establishing and growing its engine technology business.
Pursuant to the License Agreement, the Company has obtained previously described rights to all forms of intellectual property covering certain engine technology that is the subject of the License Agreement and is not relying on the two U.S. patents to be reinstated in order to maintain the ability and knowhow to use such technology. To the Companys best knowledge at the current time, international patent rights remain intact. However, at this time, there can be no assurance that the foregoing matters will not have a material adverse effect on the Companys operations.
The accompanying March 31, 2014, balance sheet presents the carrying value of the license fee at $239,409, consisting of the $200,000 required payments under the License Agreement and $48,709, representing the fair value of shares issues to the Licensor, net of $9,300 in accumulated amortization. In addition, the accompanying balance reflects $187,000 due to the Licensor, representing the remaining liability from the initial $200,000 required payment.
The Company periodically performs an analysis of its contractual rights and arrangements and establishes asset value based on that analysis.
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Receivable Acquisition and Management Corp.
Notes to Financial Statements
March 31, 2014
5. Concentrations
The Company grants credit in the normal course of business to its customers. The Company periodically performs credit analysis and monitors the financial condition of its customers to reduce credit risk.
Two customers accounted for 60.9% and 39.1%, respectively, during the three months ended March 31, 2014, and two customers accounted for 61.7% and 38.3%, respectively, of total project management income during the three months ended March 31, 2013.
Two customers accounted for 65.1% and 34.9%, respectively, of total accounts receivable at March 31, 2014.
6. Stock Issuance
In February 2014, the Company issued 375,000 shares of common stock to the former chief executive officer and 50,000 shares to a lawyer as compensation for services provided to the Company.
In February 2014, the Company issued 300,000 shares of common stock to a law firm as partial compensation for certain services provided to the Company.
In March 2014, the Company issued 250,000 shares of common stock to an industry consultant as partial compensation for services being rendered.
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