NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations
- Revolutionary
Concepts, Inc. (the “Company”) was originally organized in North Carolina on March 12, 2004. On February
28, 2005, the Company was reorganized and re-domiciled as a Nevada corporation. The Company is a development stage company
positioned to begin launch and license of its patented technologies. The Company was incorporated as a Nevada corporation on February
28, 2005 to reincorporate and re-domesticate two existing North Carolina entities; Revolutionary Concepts, Inc. and DVMS, LLC.
The Company is engaged in the development of patented entry management systems and hopes to continue to develop smart camera technologies
that interface with smart devices enabling remote monitoring.
The Company’s efforts to date
have been devoted to securing the intellectual framework around several key technologies and applications related to remote video
monitoring, video analytics and software enabled camera. Advances in wireless technologies combined with increased data speed rates
permits a very sophisticated and new means of monitoring, security and entry management.
The Company is planning to brand its
smart technology “EyeTalk®”. EyeTalk® will include smart camera technology that allows interactive two-way
communication between a smart phone and other handheld device. Unlike many IP cameras that simply produce and transmit an image,
the EyeTalk® smart camera technology will have embedded capabilities that distinguish it as a significant technological advancement
over traditional camera systems.
The Company’s joint venture
agreement with IQMagine continues to advance, with the recently received patent for a child car seat with a built in monitor for
gaming and two-way communication (Patent No. 8,016,676). The proof of concept and ideation of this product have been completed
as well as an additional item - consisting of a plush toy capable of monitoring and two-way communication. Chris Scheppegrell,
managing member of IQMagine is implementing a strategy for licensing of both products.
The Company has also completed the acquisition
of Greenwood Finance Group, LLC. The Company and Rainco Industries, Inc. entered into a Member Interest Purchase Agreement, (the
“Purchase Agreement”) dated as of December 7, 2012, in which the Company purchased from Rainco Industries, Inc. all
the issued and outstanding member interests in Greenwood Finance Group, LLC. (“Greenwood”). With representatives in
Atlanta and Charlotte, Greenwood is a private equity firm consisting of a team of individuals who understand the work that goes
into developing businesses in their beginning stages. In addition to providing funding through their Green Path Fund, Greenwood
provides consultation services to help business leaders’ map out plans and goals for continued success. Greenwood provides
broad-spectrum investment and capital services to small-cap and micro-cap companies; strategically positioning them for long-term
growth and profitability. Greenwood delivers, through their global network of investment partners and private equity groups, the
capabilities to quickly tailor funding solutions that meet the unique needs of each client which can be tailored to a client’s
capital funding needs so it can focus on growing the client’s company.
On February 10, 2014, the
Company’s Board of Directors agreed to an exclusive worldwide license agreement for the following patents: U.S. Patent
7,193,844
;
U.S. Patent 8,139,098; U.S. Patent 8,144,183; U.S. Patent 8,144,184; U.S.
Patent 8,154,581; U.S. Patent 8,164,614; U.S. Patent 8,016,676 B2 to a third party. Under the terms of the agreement, the
third party would bear ongoing development and operational cost to build and or secure a licensee Additionally, the licensee
will bear all legal cost to prosecute and defend the patents in any infringement actions. Under the terms of the agreement,
the Company will receive 40% of all gross profit generated by the sale and or additional licensing of the patents. Under the
terms of the agreement, we cannot disclose more details at the present time. The licensee also agreed to cancel $900,000 in
notes payable plus accrued interests as part of license agreement.
Basis of presentation
- These
financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America
and have been consistently applied in the preparation of the financial statements on a going concern basis, which assumes the realization
of assets and the discharge of liabilities in the normal course of operations for the foreseeable future. The Company
maintains its financial records on an accrual method of accounting. The Company’s ability to continue as a going
concern is dependent upon continued ability to obtain financing to repay its current obligations and fund working capital until
it is able to achieve profitable operations. The Company will seek to obtain capital from equity financing through the
exercise of warrants and through future common share private placements. The Company may also seek debt financing, if
available. Management hopes to realize sufficient sales in future years to achieve profitable operations. There
can be no assurance that the Company will be able to raise sufficient debt or equity capital on satisfactory terms. If
management is unsuccessful in obtaining financing or achieving profitable operations, the Company may be required to cease operations. The
outcome of these matters cannot be predicted at this time. These financial statements do not give effect to any adjustments
which could be necessary should the Company be unable to continue as a going concern and, therefore, be required to realize its
assets and discharge its liabilities in other than the normal course of business and at amounts differing from those reflected
in the financial statements.
Revenue recognition
– The
Company will recognize sales revenue at the time of delivery when ownership has transferred to the customer, when evidence of a
payment arrangement exists and the sales proceeds are determinable and collectable. Provisions will be recorded for
product returns based on historical experience. To date, the Company’s revenue is primarily comprised of interest
income.
Options and warrants issued
–
The Company allocates the proceeds received from equity financing and the attached options and warrants issued, based on their
relative fair values, at the time of issuance. The amount allocated to the options and warrants is recorded as additional
paid in capital.
Stock-based compensation
–
The Company accounts for stock-based compensation at fair value in accordance with the provisions of the Financial Accounting Standards
Board’s Accounting Standards Codification (“ASC”) Topic 718, “Stock Compensation”, which establishes
accounting for stock-based payment transactions for employee services and goods and services received from non-employees. Under
the provisions of ASC Topic 718, stock-based compensation cost is measured at the date of grant, based on the calculated fair value
of the award, and is recognized as expense in the consolidated statements of operations pro ratably over the employee’s
or non-employee’s requisite service period, which is generally the vesting period of the equity grant. The fair value of
stock option awards is generally determined using the Black-Scholes option-pricing model. Restricted stock awards and units are
valued using the market price of the Company’s common stock on the grant date. Additionally, stock-based compensation cost
is recognized based on awards that are ultimately expected to vest, therefore, the compensation cost recognized on stock-based
payment transactions is reduced for estimated forfeitures based on the Company’s historical forfeiture rates. Additionally,
no stock-based compensation costs were capitalized
for the three months ended December 31,
2013 and
for the periods from inception (March 12, 2004) to December 31, 2013, no stock options were committed to be issued
to employees.
Income taxes
– Income taxes
are accounted for under the asset and liability method. 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 liabilities and their respective
tax bases and operating loss carry forwards that are available to be carried forward to future years for tax purposes. 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. 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. When it is not considered
to be more likely than not that a deferred tax asset will be realized, a valuation allowance is provided for the excess. Although
the Company has significant loss carry forwards available to reduce future income for tax purposes, no amount has been reflected
on the balance sheet for deferred income taxes as any deferred tax asset has been fully offset by a valuation allowance.
Reclassifications
–
Certain prior period amounts have been reclassified to
conform to current year presentations.
Loss per share
– Basic
loss per share has been calculated using the weighted average number of common shares issued and outstanding during the year.
Use of Estimates
-
The preparation of the financial statements in conformity with generally accepted accounting principles requires management
to make certain estimates and assumptions, where applicable, that affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses
during the reporting period. While actual results could differ from those estimates, management does not expect such variances,
if any, to have a material effect on the financial statements.
Research and Development Costs
-
Research and development costs are expensed as incurred in accordance with generally accepted accounting principles in the United
States of America.
Research
is planned search or critical investigation aimed at discovery of new knowledge
with the hope that such knowledge will be useful in developing a new product or service or a new process or technique or in bringing
about a significant improvement to an existing product or process. Development
is the translation of research findings
or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or
process whether intended for sale or use. It includes the conceptual formulation, design, and testing of product alternatives,
construction of prototypes, and operation of pilot plants. It does not include routine or periodic alterations to existing products,
production lines, manufacturing processes, and other on-going operations even though those alterations may represent improvements
and it does not include market research or market testing activities. Elements of costs shall be identified with research and development
activities as follows: The costs of materials and equipment or facilities that are acquired or constructed for research
and development activities and that have alternative future uses shall be capitalized as tangible assets when acquired or constructed.
The cost of such materials consumed in research and development activities and the depreciation of such equipment or facilities
used in those activities are research and development costs. However, the costs of materials, equipment, or facilities that are
acquired or constructed for a particular research and development project and that have no alternative future uses and therefore
no separate economic values are research and development costs at the time the costs are incurred. Salaries, wages,
and other related costs of personnel engaged in research and development activities shall be included in research and development
costs.
The costs of contract services performed by others in connection with the research and development activities
of an enterprise, including research and development conducted by others in behalf of the enterprise, shall be included in research
and development costs.
Depreciation
– Depreciation
is computed using the straight-line method over the assets’ expected useful lives. Valuation of Long-Lived Assets - The Company
periodically analyzes its long-lived assets for potential impairment, assessing the appropriateness of lives and recoverability
of unamortized balances through measurement of undiscounted operating cash flows on a basis consistent with accounting principles
generally accepted in the United States of America.
Intangible and Other Long-Lived Assets,
Net
- (Included in Accounting Standards Codification (“ASC”) 350 “Goodwill and Other Intangible Assets”
previously SFAS No. 142 and ASC 985 “Accounting for Costs of Computer Software to be Sold, Leased, or Otherwise Marketed”
previously SFAS No. 86)
Intangible assets are comprised of software
development costs and legal fees incurred in order to obtain the patent. The software development costs are capitalized in accordance
with SFAS 86. Costs of producing product masters incurred subsequent to establishing technological feasibility shall be capitalized.
Those costs include coding and testing performed subsequent to establishing technological feasibility. Software production costs
for computer software that is to be used as an integral part of a product or process shall not be capitalized until both (a) technological
feasibility has been established for the software and (b) all research and development activities for the other components of the
product or process have been completed. The fees incurred in order to obtain the patent are capitalized in accordance with SFAS
142 “Goodwill and Other Intangible Assets. This Statement applies to costs of internally developing identifiable intangible
assets that an entity recognizes as assets APB Opinion 17, paragraphs 5 and 6. The Company periodically analyzes its long-lived
assets for potential impairment, assessing the appropriateness of lives and recoverability of unamortized balances through measurement
of undiscounted operating cash flows on a basis consistent with accounting principles generally accepted in the United States of
America.
Amortization
–
Deferred charges are amortized using the straight-line method over six years.
NOTE 2 – RECENT ACCOUNTING
PRONOUNCEMENTS
The Company has reviewed all recently
issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may
be expected to cause a material impact on its consolidated financial condition or the consolidated results of its operations.
NOTE 3 – RELATED PARTY TRANSACTIONS
The Board of Directors previously authorized
the officers of the Company to receive advances from the Company, in lieu of taking compensation, under terms of promissory notes
bearing 5% interest, beginning January 1, 2006. As of March 31, 2014 and December 31, 2013, the advances totaled $87,5894 and $86,780,
respectively. These advances are described as unpaid capital contributions for financial reporting purposes.
Ronald Carter. Under Ronald Carter’s
employment agreement, he has agreed to serve as the President and Chief Executive Officer. His term of service under this agreement
commenced on April 1, 2010 and continues for a term of two (2) years with renewal options. The agreement was amended on January
1, 2014. The amended agreement provides for a base salary of $60,000 for the first year of the term and an annual increase of at
least 8% thereafter. The agreement also provides Mr. Carter with cash and equity incentives based on performance that must be approved
by the Board of Directors. The agreement also provides for participation in the Company’ s programs to acquire options
or equity incentives in common stock subject to the discretion of the Board of Directors, expense reimbursements, participation
in retirement and benefit plans, paid time off and indemnification and liability coverage. The Company can terminate Mr. Carter's
employment with cause, or without cause upon certain written notice and Mr. Carter can terminate the agreement for "good reason"
as defined in the agreement. There are specific severance provisions, as well as confidentiality and non-solicitation requirements
resulting from any termination.
Solomon Ali. Under Solomon Ali's employment
agreement, he has agreed to serve as the Senior Vice President. His term of service under this agreement commenced on August 16,
2010 and continues for a term of two (2) years with renewal options and was revised on January 1, 2012. The agreement was amended
again on January 1, 2014.The revised agreement provides for a base salary of $60,000 for the first year of the term and an annual
increase of at least 8% thereafter. The agreement also provides Solomon Ali with cash and equity incentives based on performance
that must be approved by the Board of Directors. The agreement also provides for participation in the Company’ s programs
to acquire options or equity incentives in common stock, subject to the discretion of the Board of Directors, expense reimbursements,
participation in retirement and benefit plans, paid time off and indemnification and liability coverage. The Company can terminate
Solomon Ali's employment with cause, or without cause upon certain written notice and Solomon Ali can terminate the agreement for
"good reason" as defined in the agreement. There are specific severance provisions, as well as confidentiality and non-solicitation
requirements resulting from any termination.
On October 5, 2010, the Company received
notice that a claim for judgment had been filed in Mecklenburg County by a shareholder for the note that was in default as of May
2010. On January 7, 2011, the note holder amended the filing to include the personal loan. The amount of the claim was
$100,996, plus interest at 8% and legal costs. On the 10
th
day of May 2011, a summary judgment was entered on behalf
of the plaintiff against Mr. Carter and the Company. On the 4
th
day of August 2011, the Company reached an agreement
with a third party to negotiate and acquire the judgment award and to agree to a convertible note from the Company for its services.
The total value of the convertible note is $144,067 including interest, of which the Company has received a promissory note from
Mr. Carter for $112,663 for the part of the judgment, interest and fees that was from the personal promissory note that the Company
guaranteed.
On August 4, 2011, the Company
issued 6,600,000 restricted common shares to the officers of the Company, for contributions to the Company over the past year.
The shares were recorded at the market price on the date of issue of an aggregate of $340,000 (Also See Note 8).
On October 1, 2011, the Company entered
into a two (2) year convertible Promissory Note with its President and CEO, Ronald Carter for $92,308 at 10% interest for the balance
of the accrued compensation owed to him for the fiscal year 2010 in accordance with his Employment Agreement. The holder has the
right to convert the note to common stock at $.005. On March 30, 2012, this Note was converted to 18,461,544 and reduced our Long
Term Notes by $92,308.
On October 1, 2011, the Company entered
into a two (2) year convertible Promissory Note with its Vice President, Solomon Ali for $46,154 at 10% interest for the accrued
compensation owed to him for the fiscal year 2010 in accordance with his Employment Agreement. The holder has the right to convert
the note to common stock at $.005. On March 30, 2012, this Note was converted to 9,230,768 and reduced our Long Term Notes by $46,154.
On April 1, 2012, the Company
entered into a two (2) year convertible Promissory Note with its President and CEO, Ronald Carter for $200,000 at 10%
interest for the balance of the accrued compensation owed to him for the fiscal year 2011 in accordance with his Employment
Agreement. The holder has the right to convert the note to common stock at $.005. On February 1, 2014, this note was assigned
to an unrelated third party, who in turn assigned the note to The licensee. On February 10, 2014, the licensee returned this
note to the Company as partial consideration for the exclusive license agreement. This reduced our Notes by $200,000 and
generated other income of $200,000.
On April 1, 2012, the Company
entered into a two (2) year convertible Promissory Note with its Vice President, Solomon Ali for $174,000 at 10% interest for
the accrued compensation owed to him for the fiscal year 2011 in accordance with his Employment Agreement. The holder has the
right to convert the note to common stock at $.005. On February 1, 2014, this note was assigned to an unrelated third party,
who in turn assigned the note to the licensee. On February 10, 2014, the licensee returned this note to the Company as
partial consideration for the exclusive license agreement. This reduced our Notes by $174,000 and generated other income of
$174,000.
On September 30, 2013 the Company
entered into a three (3) year convertible Promissory Note with its President and CEO, Ronald Carter for $140,806 at 10%
interest for the accrued compensation owed to him for the fiscal year 2012 in accordance with his Employment Agreement. The
holder has the right to convert the note to common stock at $0.005 per share. On February 1, 2014, this note was assigned to
an unrelated third party, who in turn assigned the note to the licensee . February 10, 2014, the licensee returned this
note to the Company as partial consideration for the exclusive license agreement. This reduced our Notes by $140,806 and
generated other income of $140,806.
On September 30, 2013 the Company entered
into a three (3) year convertible Promissory Note with its Senior Vice President, Solomon Ali for $200,000 at 10% interest for
the accrued compensation owed to him for the fiscal year 2012 in accordance with his Employment Agreement. The holder has the right
to convert the note to common stock at $0.005 per share. On February 1, 2014, this note was assigned to an unrelated third party,
who in turn assigned the note to the licensee .February 10, 2014, the licensee returned this note to the Company as partial
consideration for the exclusive license agreement. This reduced our Notes by $200,000 and generated other income of $200,000.
On December 31, 2013 the Company entered
into three, three (3) year convertible Promissory Note with its President and CEO, Ronald Carter for $112,663, $59,194 and $5,643,
each at 10% interest for the accrued compensation owed to him for the fiscal year 2013 in accordance with his Employment Agreement.
The holder has the right to convert the note to common stock at $0.005 per share. On February 1, 2014, one of the notes were assigned
to an unrelated third party, who in turn assigned the note to the licensee. February 10, 2014, the licensee returned this note
to the Company as partial consideration for the exclusive license agreement. This reduced our Notes by $59,194 and generated other
income of $59,194.
On December 31, 2013 the Company entered
into two, three (3) year convertible Promissory Note with its Senior Vice President, Solomon Ali for $126,000 and $74,000, each
at 10% interest for the accrued compensation owed to him for the fiscal year 2013 in accordance with his Employment Agreement.
The holder has the right to convert the note to common stock at $0.005 per share. On February 1, 2014, one of the notes were assigned
to an unrelated third party, who in turn assigned the note to the licensee. February 10, 2014, the licensee returned this note
to the Company as partial consideration for the exclusive license agreement. This reduced our Notes by $126,000 and generated other
income of $126,000.
NOTE 4 – ACCOUNTS PAYABLE
Accounts payable consist of the following:
|
|
|
03/31/14
|
|
|
|
12/31/13
|
|
|
|
|
|
|
|
|
|
|
Professional fees
|
|
$
|
174,491
|
|
|
$
|
133,852
|
|
Other
|
|
|
17,693
|
|
|
|
14,173
|
|
Legal fees
|
|
|
101,556
|
|
|
|
103,316
|
|
Consulting fees
|
|
|
8,200
|
|
|
|
8,200
|
|
|
|
$
|
300,940
|
|
|
$
|
259,541
|
|
NOTE 5 – COMITMENTS AND
CONTENGINCIES
Liabilities for loss contingencies,
arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability
has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Recoveries from third
parties, which are probable of realization are separately recorded, and are not offset against the related liability, in accordance
with FASB ASC
210-10-05-3
, “Offsetting of Amounts Related to
Certain Contracts.” The Company is the plaintiff in a lawsuit seeking damages against the law firm retained to
file for “EyeTalk®” product patent.
For
several years, the Company has been engaged in litigation against its former patent attorneys for malpractice arising from a missed
filing deadline relating to obtaining patents for the Company’s core technologies outside the United States. After
a two-year fight over jurisdiction in the case, including wins for the Company at the trial court and at the North Carolina Court
of Appeals, the case was remanded to the trial court for further proceedings. Unfortunately, the trial court dismissed the
case on a technicality, potentially ending the case. The Company's trial counsel has assured the Company that the judge's
ruling is contrary to law and that good grounds exist for appeal. An appeal was filed in November 2012.
The North
Carolina Court of Appeals reviewed the Company’s appeal on February 12, 2013. The results of the appeal were filed on May
7, 2013. The Court of Appeals reversed the dismissal in part. The Court ruled that tort claims are not assignable in North Carolina,
therefore, the plaintiff in the case will remain Ron Carter. Management believes the fact that the Company was dismissed is not
really significant at all, because the claims in the suit will be maintained and the case continues to be litigated. The Court
also affirmed that the uninvolved individual defendants, Clements and Bernard, are not individually liable for Dougherty's and
Brockington's malpractice, which management believes is irrelevant.
The Company also sued Emmanuel
Ozoeneh in federal court. Mr. Ozoeneh was a former business partner in a prior business venture with our CEO Ron Carter. Mr. Ozoeneh
began making false claims that he was the inventor of the EyeTalk® system. RCI filed suit in federal court to have Mr. Carter
declared the sole inventor. This case has been resolved to the satisfaction of the Company. The terms of the agreement are confidential,
but the result was that Ronald Carter and the Company were declared as the sole inventor and retains all rights to the patent(s)
for the EyeTalk® system. The Company is currently in default on the agreement and is working to resolve the default.
On October 5, 2010, the Company
received notice that a claim for judgment had been filed in Mecklenburg County by a shareholder for the note that was in default
as of May 2010. On January 7, 2011, the note holder amended the filing to include the personal loan. The amount of the
claim was $100,996, plus interest at 8% and legal costs. On the 10
th
day of May 2011, a summary judgment was entered
on behalf of the plaintiff against Mr. Carter and the Company. On the 4
th
day of August 2011, the Company reached an
agreement with a third party to negotiate and acquire the judgment award and to agree to a convertible note from the Company for
its services. The total value of the convertible note is $144,067 including interest, of which the Company has received a promissory
note from Mr. Carter for $112,663 for the part of the judgment, interest and fees that was from the personal promissory note that
the Company guaranteed.
On January 30, 2013, a final order was filed in the
Superior Court of Mecklenburg County North Carolina against a former officer and director, Mr. Claude McDougal. The final order
was for a judgment against Mr. McDougal and US Financial Consulting, LLC, by an unrelated third party. The Company received a copy
of the notice and has been instructed by the court to forward any property, monies and or membership interest due to Mr. McDougal
to the defendant, up to and including principal; accumulated interest; attorney’s fees and court costs of $142,150.
On September 30, 2013, the Company complied with this
notice and assigned $142,150 of Mr. McDougal’s interest in a note for unpaid salary that was dated April 26, 2013 to Omnisun
Azali, per the courts instructions. The original note assignment was mailed to Omnisun Azali shortly after issuance.
On February 12, 2013, the Company received notice that
a petitioner had been issued a summary judgment against the Company in the amount of $6,485.96, including $1,250.00 attorney fees,
plus interest.
NOTE 6 – INTELLECTUAL PROPERTY
The patent number US 7,193644
B2, for the prototype was successfully obtained on March 20, 2007. In accordance with FASB ASC
210-10-05-3
,
the Company has established a technological feasibility date on July 21, 2004, the date that Phase I was delivered and presented.
The software development costs have been analyzed and it has been determined that all software development costs were incurred
subsequent to the feasibility date. The useful life of capitalized software costs has been assumed to be 5 years. Total
software development costs were $32,200 and the appropriate minimum amortization has been taken, also in accordance with FASB ASC
210-10-05-3
. The following are patent pending applications; Video
system for individually selecting and viewing events at a venue. The following additional patents have now been awarded.
U.S. Patent 8,139,098; U.S. Patent 8,144,183; U.S. Patent 8,144,184; U.S. Patent 8,154,581; U.S. Patent 8,164,614; U.S. Patent
8,016,676 B2. The company has patent pending applications related to; (a) video system for individually selecting and viewing events
at a venue; (b) medical monitoring; and (c) real estate audio-video monitoring.
Patent was comprised of the following
amounts as of March 31, 2014 and December 31, 2013, respectively.
Patent costs
|
|
|
116,450
|
|
|
|
116,450
|
|
Accumulated amortization
|
|
|
(99,211
|
)
|
|
|
(97,804
|
)
|
Total Patent Costs net of accumulated amortization
|
|
|
17,238
|
|
|
|
18,645
|
|
NOTE 7 – COMMON STOCK SHARES
FOR SERVICES RECEIVED
On June 25, 2013, the Company
issued 84,000 restricted common shares for professional services provided to the Company and expensed in 2012. The issuance reduced
the Company’s prepaid expenses by a total of $504.
NOTE 8 – CONVERSION OF DEBT
TO EQUITY
From January 7 through January 9, 2013,
the Company received notices of partial conversion from an unrelated third party as part of a note originally issued on June 19,
2012. A total of $16,500 and accumulated interest of $1,100 was converted and 19,130,435 restricted common shares were issued,
which leaves a remaining principal balance of $0. This conversion of debt reduced the Company notes payables $16,500.
From May 3 through May 20, 2013, the
Company received notices of partial conversion from an unrelated third party as part of a note originally issued on October 12,
2012. A total of $32,500 and accumulated interest of $1,300 was converted and 35,149,254 restricted common shares were issued,
which leaves a remaining principal balance of $0. This conversion of debt reduced the Company notes payables $32,500.
On July 18, 2013 the Company received
notices of partial conversion from an unrelated third party as part of a note originally issued on August 30, 2012. A total of
$20,000 was converted to 18,181,818 restricted common shares (which was originally submitted on May 24, 2013), which leaves a remaining
principal balance of $26,600. This conversion of debt reduced our notes payables $20,000.
From August 20 through September 6,
2013, the Company received notices of partial conversion from an unrelated third party as part of a note originally issued on January
17, 2013. A total of $42,500 and accumulated interest of $1,700 was converted and 70,131,842 restricted common shares were issued,
which leaves a remaining principal balance of $0. This conversion of debt reduced the Company notes payables $42,500.
On September 24, 2013, the Company received
a notice of conversion from an unrelated third party as part of note originally issued to a non-related third party on February
28, 2013. A total of $12,898.04 was converted and 16,122,550 restricted common shares were issued, which leaves a remaining principal
balance of $0. This conversion of debt reduced the Company notes payables $12,898.04.
On November
13, 2013,
the Company received a notice of conversion from an unrelated third party as part of note originally issued to
a non-related third party on April 30, 2013
this note was amended was assigned to a non-related third
party, A request to modify the conversion price to $0.00094 was approved. On November 14, 2013, $23,210 of this note was converted
to restricted common shares, which leaves a remaining principal balance of $0. This conversion reduced the Company notes payable
by $23,210
On December
15, 2013
the Company received a notice of conversion from an unrelated third party as part of note originally issued to
a non-related third party on December 30, 2012. A total of $28,245 was converted and 18,830,000
restricted
common shares were issued, which leaves a remaining principal balance of $0 on this portion of the assigned note. This conversion
reduced the Company notes payable by $28,245.
On December
19, 2013
the Company received a notice of conversion from an unrelated third party as part of note originally issued to
a non-related third party on December 30, 2012. A total of $25,789 was converted and 17,192,667
restricted
common shares were issued one of the third parties, which leaves a remaining principal balance of $0 on this portion of the assigned
note. This conversion reduced the Company notes payable by $25,789.
On December 31, 2013, the Company received a notice
of conversion from an unrelated third party as part of note originally issued to a non-related third party on April 26, 2013. A
total of $20,000 of this note was converted to 25,000,000 restricted common shares, which leaves a remaining principal balance
of $122,150 on this portion of the assigned note. This conversion reduced the Company notes payable by $20,000.
On December 31, 2013,
the
Company received a notice of conversion from an unrelated third party as part of note originally issued to a non-related third
party on June 4, 2013. A
total of $23,900 was converted to 24,639,175 restricted common shares, which
leaves a remaining principal balance of $13,600. This conversion of debt reduced the Company notes payables $23,900.
NOTE 9 –NOTES PAYABLE
During 2010, the Company reclassified
$289,787 in accounts payable to long term notes payable in the amount of $204,836 and $84,950 to accrued interest payable, to reflect
the assignment by three of our creditors of their balance to a note that will be paid one year or more past the original due date.
The outstanding $204,836 of the notes do not bear any interest and began coming due and payable in July 2011. The notes can be
converted to restricted common stock. In October 2011, these notes were modified and two of the notes were assigned to an unrelated
third party; See Notes dated October 1, 2011 below.
For the
twelve months ended December 31, 2013, the Company issued several notes payable for a total of $398,480 and retired $246,842 in
notes payable. The new notes issued bear an interest of 10% - 12% and begin becoming due starting in January 2016. The notes grant
the Note Holder the right, (but not the obligation), to convert them into common stock of the Company in lieu of receiving payment
in cash.
In its efforts to expand and grow, the
Company has issued debt instruments to borrow funds from various creditors to raise capital. These are long-term Notes with various
rates and maturities, that grants the Note Holder the right, (but not the obligation), to convert them into common stock of the
Company in lieu of receiving payment in cash. The issued Notes are secured obligations. The principal amount of the Notes may be
prepaid upon agreement of both parties and a prepayment penalty, in whole or part at any time, together with all accrued interest
upon written notice.
It could take several years to convert
all of the Notes to stock if all of the lenders requested it. It’s possible that some of the parties may never convert their
Notes to stock and may take cash only, when the Company is in the best position to settle the obligation on a cash basis.
|
|
March 31, 2014
|
|
December 31, 2013
|
|
On April 30, 2011 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $76,194 at 10% interest. On March 21, 2012, $26,000 of this Note was converted. On August 1, 2012, $37,645 of this Note was converted
|
|
12,549
|
|
12,549
|
|
|
|
|
|
|
|
On April 30, 2011 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $12,000 at 10% interest. The holder has the right to convert the note to common stock.
|
|
12,000
|
|
12,000
|
|
|
|
|
|
|
|
On August 30, 2011 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $44,600 at 10% interest. The holder has the right to convert the note to common stock. On June 7, 2012, $27,000 of this Note was modified and was assigned by the original note holder to an unrelated third party.
|
|
17,600
|
|
17,600
|
|
|
|
|
|
|
|
On September 30, 2011 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $177,522 at 10% interest. The holder has the right to convert the note to common at stock.
|
|
177,522
|
|
177,522
|
|
|
|
|
|
|
|
On October 1, 2011 the Company entered into a two (2) year convertible Promissory Note with Ronald Carter, its President and CEO for $92,308 at 10% interest for the accrued compensation owed to him for the fiscal year 2010 in accordance with his Employment Agreement. On March 30, 2012, this Note was converted.
|
|
|
|
|
|
|
|
|
|
|
|
On October 1, 2011 the Company entered into a two (2) year convertible Promissory Note with its Senior Vice President, Solomon Ali for $46,154 at 10% interest for the accrued compensation owed to him for the fiscal year 2010 in accordance with his Employment Agreement. On March 30, 2012, this Note was converted.
|
|
|
|
|
|
|
|
|
|
|
|
On October 1, 2011 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $63,818 at 10% interest. The holder has the right to convert the note to common stock. This note was assigned to an unrelated third party and was originally issued December 31, 2010
|
|
63,818
|
|
63,818
|
|
|
|
|
|
|
|
On October 1, 2011 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $27,018 at 10% interest. The holder has the right to convert the note to common stock. This note was originally issued December 31, 2010
|
|
27,018
|
|
27,018
|
|
|
|
|
|
|
|
On October 1, 2011 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $198,950 at 10% interest. The holder has the right to convert the note to common stock. This note was assigned to an unrelated third party and was originally issued December 31, 2010
|
|
198,950
|
|
198,950
|
|
|
|
|
|
|
|
On October 30, 2011 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $8,700 at 10% interest. The holder has the right to convert the note to common stock. $6,200 of this note was assigned to an unrelated third party September 4, 2012
|
|
2,500
|
|
2,500
|
|
|
|
|
|
|
|
On November 30, 2011 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $8,500 at 10% interest. The holder has the right to convert the note to common stock. This note was assigned to an unrelated third party September 4, 2012
|
|
|
|
|
|
|
|
|
|
|
|
On December 30, 2011 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $4,700 at 12% interest. The holder has the right to convert the note to common stock.
|
|
4,700
|
|
4,700
|
|
|
|
|
|
|
|
On January 2, 2012 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $57,000 at 10% interest. The holder has the right to convert the note to common stock.
|
|
57,000
|
|
57,000
|
|
|
|
|
|
|
|
On February 28, 2012 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $5,000 at 12% interest. The holder has the right to convert the note to common stock.
|
|
5,000
|
|
5,000
|
|
|
|
|
|
|
|
On March 30, 2012 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $70,000 at 12% interest. The holder has the right to convert the note to common stock.
|
|
70,000
|
|
70,000
|
|
|
|
|
|
|
|
On April 1, 2012 the Company entered into a two (2) year convertible Promissory Note with Ronald Carter, its President and CEO for $200,000 at 10% interest for the accrued compensation owed to him for the fiscal year 2011 in accordance with his Employment Agreement. This note was assigned to a non-related third party, who assigned to the licensee. The licensee contributed this note to RCI as partial consideration for the exclusive license agreement dated February 10, 2014. See footnotes for additional information. This transaction reduced the note payable by $200,000 and also elminated the accrued interest.
|
|
|
|
200,000
|
|
|
|
|
|
|
|
On April 1, 2012 the Company entered into a two (2) year convertible Promissory Note with its Senior Vice President, Solomon Ali for $174,000 at 10% interest for the accrued compensation owed to him for the fiscal year 2011 in accordance with his Employment Agreement. $50,194 of this note has assigned to an unrelated third party. This note was assigned to a non-related third party, who assigned to the licensee. The licensee contributed this note to RCI as partial consideration for the exclusive license agreement dated February 24, 2014. See footnotes for additional information. This transaction reduced the note payable by $174,000 and also elminated the accrued interest.
|
|
|
|
174,000
|
|
|
|
|
|
|
|
On April 30, 2012 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $22,000 at 12% interest. The holder has the right to convert the note to common stock.
|
|
22,000
|
|
22,000
|
|
|
|
|
|
|
|
On May 31, 2012 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $37,000 at 12% interest. The holder has the right to convert the note to common stock.
|
|
37,000
|
|
37,000
|
|
|
|
|
|
|
|
On June 7, 2012 the Company entered into a one (1) year convertible Promissory Note with a non-related creditor for $27,000 at 12% interest. The holder has the right to convert the note to common stock. On June 19, 2012, $4,000 of this note was converted. An additional $17,500 of this note was converted on dates between July 1 and September 30, 2012. On October 4, 2012, the final $5,500 was converted by the holder.
|
|
|
|
|
|
|
|
|
|
|
|
On June 12 2012 the Company entered into a one (1) year convertible Promissory Note with a non-related creditor for $43,448 at 10% interest. The holder has the right to convert the note to common stock. On June 18, 2012, $10,000 of this note was converted. The remaining $33,448 of this note was converted on various dates between July 1 and September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
On June 19, 2012 the Company entered into a one (1) year convertible Promissory Note with a non-related creditor for $27,500 at 8% interest. The holder has the right to convert the note to common stock. On December 26, 2012 the holder elected to convert $11,000 of this note. From January 7 through January 9, 2013 the holder elected to convert a total of $16,500 and accumulated interest of $1,100, which leaves a remaining principal balance of $0. This conversion of debt reduced our notes payables $16,500.
|
|
|
|
|
|
|
|
|
|
|
|
On June 30, 2012 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $38,809 at 12% interest. The holder has the right to convert the note to common stock.
|
|
38,809
|
|
38,809
|
|
|
|
|
|
|
|
On August 30, 2012 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $46,600 at 12% interest. The holder has the right to convert the note to common stock. On May 24, 2013 the holder elected to convert a total of $20,000 to 18,181,818 shares (which was completed on July 18, 2013), which leaves a remaining principal balance of $26,600. This conversion of debt reduced our notes payables $20,000.
|
|
26,600
|
|
26,600
|
|
|
|
|
|
|
|
On September 30, 2012 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $33,518.80 at 12% interest. The holder has the right to convert the note to common stock.
|
|
33,519
|
|
33,519
|
|
|
|
|
|
|
|
On October 12, 2012 we entered into a nine (9) month convertible Promissory Note with a non-related creditor for $32,500 at 8% interest. The holder has the right to convert the note to common stock. From May 3 through May 20, 2013, the Company received notices of partial conversion from an unrelated third party as part of a note originally issued on October 12, 2012. A total of $32,500 and accumulated interest of $1,300 was converted and 35,149,254 restricted common shares were issued, which leaves a remaining principal balance of $0. This conversion of debt reduced the Company notes payables $32,500.
|
|
|
|
|
|
|
|
|
|
|
|
On October 30, 2012 we entered into a two (2) year convertible Promissory Note with a non-related creditor for $2,612 at 12% interest. The holder has the right to convert the note to common stock.
|
|
2,612
|
|
2,612
|
|
|
|
|
|
|
|
On November 30, 2012 we entered into a two (2) year convertible Promissory Note with a non-related creditor for $76,270 at 12% interest. The holder has the right to convert the note to common stock.
|
|
76,270
|
|
76,270
|
|
|
|
|
|
|
|
On December 30, 2012 we entered into a two (2) year convertible Promissory Note with a non-related creditor for $88,000 at 12% interest. The holder has the right to convert the note to common stock. In August, 2013 this note was amended and $25,789 and $28,245 of the note was assigned to two non-related third parties, leaving a balance of $33,966 with the original party. On December 15, 2031 one of the third parties, converted $28,245 to restricted common shares, which leaves a remaining principal balance of $0 on this portion of the assigned note. On December 19, 2013 one of the third parties, converted $25,789 to restricted common shares, which leaves a remaining principal balance of $0 on this portion of the assigned note. These conversions reduced the Company notes payable by $54,034. There is a remaining prinicpal balance of $33,966 on the original note.
|
|
33,966
|
|
33,966
|
|
|
|
|
|
|
|
On January 17, 2013 we entered into a nine (9) month convertible Promissory Note with a non-related creditor for $42,500 at 8% interest. From August 20 through September 6, 2013, the Company received notices of partial conversion from an unrelated third party as part of a note originally issued on January 17, 2013. A total of $42,500 and accumulated interest of $1,700 was converted to restricted common shares, which leaves a remaining principal balance of $0. This conversion of debt reduced the Company notes payables $42,500.
|
|
|
|
|
|
|
|
|
|
|
|
On February 28, 2013 we entered into a three (3) year convertible Promissory Note with a non-related creditor for $12,898 at 12% interest. On September 5, 2013 the holder elected to convert a total of $12,898.04 to 16,122,550 shares, which leaves a remaining principal balance of $0. This conversion of debt reduced our notes payables $12,898.04.
|
|
|
|
|
|
|
|
|
|
|
|
On March 30, 2013 we entered into a three (3) year convertible Promissory Note with a non-related creditor for $3,410 at 12% interest. The holder has the right to convert the note to common stock at $0.002 per share.
|
|
3,410
|
|
3,410
|
|
|
|
|
|
|
|
On April 26, 2013, we entered into a three (3) year convertible Promissory Note with a non-related creditor for $150,019.98 at 10% interest. The holder has the right to convert the note to common stock at $0.005 per share. On September 30, 2013 this note was amended and $142,150.08 of the note was assigned by court order to a non-related third party, leaving a balance of $7,869.90 with the original party. On September 30, 2013 the third party, further assigned their $142, 150.88 poriton of this note and a request to modify the conversion price to $0.0008 was approved. On December 31, 2013 $20,000 of this note was converted to restricted common shares, which leaves a remaining principal balance of $122,150.08 on this portion of the assigned note. This conversion reduced the Company notes payable by $20,000. On January 24, 2014, $20,000 of this note was converted to restricted common shares, which leaves a remaining principal balance of $122,150.08 on this portion of the assigned note. This conversion reduced the Company notes payable by $20,000.
|
|
110,020
|
|
130,020
|
|
|
|
|
|
|
|
On April 30, 2013, we entered into a three (3) year convertible Promissory Note with a non-related creditor for $23,210 at 12% interest. The holder has the right to convert the note to common stock at $0.002 per share. On November 13, 2013 this note was amended was assigned to a non-related third party, A request to modify the conversion price to $0.00094 was approved. On November 14, 2013, $23,210 of this note was converted to restricted common shares, which leaves a remaining principal balance of $0. This conversion reduced the Company notes payable by $23,210
|
|
|
|
|
|
|
|
|
|
|
|
On May 30, 2013, we entered into a three (3) year convertible Promissory Note with a non-related creditor for $13,626 at 12% interest. The holder has the right to convert the note to common stock at $0.002 per share..
|
|
13,626
|
|
13,626
|
|
|
|
|
|
|
|
On June 4, 2013, we entered into a nine (9) month convertible Promissory Note with a non-related creditor for $37,500 at 8% interest. The holder has the right to convert the note to common stock at 50% of the then current market prices. On December 31, 2013, a total of $23,900 was converted to restricted common shares. On January 7, 2014 a total of 13,600 principal and $1,000 interest was converted to restricted common shares, amd on January 8, 2014 $500 in interest was converted to restricted common shares, which leaves a remaining principaland interest balance of $0. These conversions of debt reduced the Company notes payables $37,500.
|
|
|
|
13,600
|
|
|
|
|
|
|
|
On June 30, 2013, we entered into a three (3) year convertible Promissory Note with a non-related creditor for $12,853 at 12% interest. The holder has the right to convert the note to common stock at $0.002 per share.
|
|
12,853
|
|
12,853
|
|
|
|
|
|
|
|
On July 30, 2013, we entered into a three (3) year convertible Promissory Note with a non-related creditor for $13,106 at 12% interest. The holder has the right to convert the note to common stock at $0.002 per share.
|
|
13,106
|
|
13,106
|
|
|
|
|
|
|
|
On August 30, 2013, we entered into a three (3) year convertible Promissory Note with a non-related creditor for $4,581 at 12% interest. The holder has the right to convert the note to common stock at $0.002 per share.
|
|
4,581
|
|
4,581
|
|
|
|
|
|
|
|
On September 30, 2013, we entered into a three (3) year convertible Promissory Note with a non-related creditor for $23,370 at 12% interest. The holder has the right to convert the note to common stock at $0.002 per share.
|
|
23,370
|
|
23,370
|
|
|
|
|
|
|
|
On September 30, 2013 the Company entered into a three (3) year convertible Promissory Note with Ronald Carter, its President and CEO for $140,806,35 at 10% interest for the accrued compensation owed to him for the fiscal year 2012 in accordance with his Employment Agreement. The holder has the right to convert the note to common stock at $0.005 per share. This note was assigned to a non-related third party, who assigned to the licensee. The licensee contributed this note to RCI as partial consideration for the exclusive license agreement dated February 10, 2014. See footnotes for additional information. This transaction reduced the note payable by $140,806 and also elminated the accrued interest.
|
|
|
|
140,806
|
|
|
|
|
|
|
|
On September 30, 2013 the Company entered into a three (3) year convertible Promissory Note with its Senior Vice President, Solomon Ali for $200,000 at 10% interest for the accrued compensation owed to him for the fiscal year 2012 in accordance with his Employment Agreement. The holder has the right to convert the note to common stock at $0.005 per share. This note was assigned to a non-related third party, who assigned to the licensee. The licensee The licensee contributed this note to RCI as partial consideration for the exclusive license agreement dated February 10, 2014. See footnotes for additional information. This transaction reduced the note payable by $200,000 and also elminated the accrued interest.
|
|
|
|
200,000
|
|
|
|
|
|
|
|
On October 30, 2013, we entered into a three (3) year convertible Promissory Note with a non-related creditor for $20,895 at 12% interest. The holder has the right to convert the note to common stock at $0.002 per share.
|
|
20,895
|
|
20,895
|
|
|
|
|
|
|
|
On November 30, 2013, we entered into a three (3) year convertible Promissory Note with a non-related creditor for $16,677 at 12% interest. The holder has the right to convert the note to common stock at $0.002 per share.
|
|
16,677
|
|
16,677
|
|
|
|
|
|
|
|
On December 30, 2013, we entered into a three (3) year convertible Promissory Note with a non-related creditor for $23,895 at 12% interest. The holder has the right to convert the note to common stock at $0.002 per share.
|
|
23,895
|
|
23,895
|
|
|
|
|
|
|
|
On December 31, 2013 the Company entered into a three (3) year convertible Promissory Note with its Senior Vice President, Solomon Ali for $126,000 at 10% interest for the accrued compensation owed to him for a portion of the fiscal year 2013 in accordance with his Employment Agreement. The holder has the right to convert the note to common stock at $0.005 per share. This note was assigned to a non-related third party, who assigned to the licensee contributed this note to RCI as partial consideration for the exclusive license agreement dated February 10, 2014. See footnotes for additional information. This transaction reduced the note payable by $126,000 and also elminated the accrued interest.
|
|
|
|
126,000
|
|
|
|
|
|
|
|
On December 31, 2013 the Company entered into a three (3) year convertible Promissory Note with its Senior Vice President, Solomon Ali for $74,000 at 10% interest for the accrued compensation owed to him for a portion of the fiscal year 2013 in accordance with his Employment Agreement. The holder has the right to convert the note to common stock at $0.005 per share.
|
|
74,000
|
|
74,000
|
|
|
|
|
|
|
|
On December 31, 2013 the Company entered into a three (3) year convertible Promissory Note with Ronald Carter, its President and CEO for $112,663 at 10% interest for the accrued compensation owed to him for a portion of the fiscal year 2013 in accordance with his Employment Agreement. The holder has the right to convert the note to common stock at $0.005 per share.
|
|
112,663
|
|
112,663
|
|
|
|
|
|
|
|
On December 31, 2013 the Company entered into a three (3) year convertible Promissory Note with Ronald Carter, its President and CEO for $59,194 at 10% interest for the accrued compensation owed to him for a portion of the fiscal year 2013 in accordance with his Employment Agreement. The holder has the right to convert the note to common stock at $0.005 per share. This note was assigned to a non-related third party, who assigned to the licensee. The licensee contributed this note to RCI as partial consideration for the exclusive license agreement dated February 10, 2014. See footnotes for additional information. This transaction reduced the note payable by $59,194 and also elminated the accrued interest.
|
|
|
|
59,194
|
|
|
|
|
|
|
|
On December 31, 2013 the Company entered into a three (3) year convertible Promissory Note with Ronald Carter, its President and CEO for $5,643 at 10% interest for the accrued compensation owed to him for a portion of the fiscal year 2013 in accordance with his Employment Agreement. The holder has the right to convert the note to common stock at $0.005 per share.
|
|
5,643
|
|
5,643
|
|
|
|
|
|
|
|
On January 31, 2014, we entered into a three (3) year convertible Promissory Note with a non-related creditor for $13,798 at 12% interest. The holder has the right to convert the note to common stock at $0.002 per share.
|
|
13,798
|
|
|
|
|
|
|
|
|
|
On February 28, 2014, we entered into a three (3) year convertible Promissory Note with a non-related creditor for $29,777 at 12% interest. The holder has the right to convert the note to common stock at $0.002 per share.
|
|
29,777
|
|
|
|
|
|
|
|
|
|
On March 31, 2014, we entered into a three (3) year convertible Promissory Note with a non-related creditor for $3,572 at 12% interest. The holder has the right to convert the note to common stock at $0.002 per share.
|
|
3,572
|
|
|
|
|
|
|
|
|
|
Total notes payable
|
$
|
1,401,319
|
|
2,287,772
|
|
|
|
|
|
|
|
Less Current Portion
|
$
|
(919,434
|
)
|
(1,293,433
|
)
|
|
|
|
|
|
|
Less Debt Discount
|
$
|
|
|
(9,050
|
)
|
|
|
|
|
|
|
Less convertble notes, net
|
$
|
|
|
(4,550
|
)
|
|
|
|
|
|
|
Total Long Term Notes Payable
|
$
|
481,885
|
|
980,738
|
|
Principal maturities of notes payable
as of March 31, 2014 for the next five years and thereafter is as follows:
|
2014
|
|
|
$
|
919,433
|
|
|
2015
|
|
|
$
|
-0-
|
|
|
2016
|
|
|
$
|
434,739
|
|
|
2017
|
|
|
$
|
47,147
|
|
|
2018
|
|
|
$
|
-0-
|
|
|
Total
|
|
|
$
|
1,401,319
|
|
Embedded Derivatives
Notes that are convertible at
a discount to market are considered embedded derivatives. For more information on the Notes affected, refer to Management’s
Discussion and analysis and the above list.
Under Financial Accounting Standard
Board (“FASB”), U.S. GAAP, Accounting Standards Codification, “Derivatives and Hedging”, ASC Topic 815
(“ASC 815”) requires that all derivative financial instruments be recorded on the balance sheet at fair value. Fair
values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not readily available,
fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment
and estimates.
The Company issued convertible
Notes and has evaluated the terms and conditions of the conversion features contained in the Notes to determine whether they represent
embedded or freestanding derivative instruments under the provisions of ASC 815. The Company determined that the conversion features
contained in the Notes represent freestanding derivative instruments that meet the requirements for liability classification under
ASC 815. As a result, the fair value of the derivative financial instruments in the Notes is reflected in the Company’s balance
sheet as a liability. The fair value of the derivative financial instruments of the convertible Notes and warrants was measured
at the inception date of the Notes and warrants and each subsequent balance sheet date. Any changes in the fair value of the derivative
financial instruments are recorded as non-operating, non-cash income or expense at each balance sheet date.
The Company valued the conversion
features in its convertible Notes using the Black-Scholes model. The Black-Scholes model values the embedded derivatives based
on a risk-free rate of return ranging from 0.09% to 0.14%, grant dates of Notes, the term of the Notes, conversion prices of 50%
of current stock prices on the measurement date ranging from $0.00085 to $0.0019, and the computed measure of the Company’s
stock volatility, ranging from 345% to 358%.
Included in the March 31, 2014,
is a derivative liability in the amount of $0 to account for this transaction. This liability arose in the third quarter of 2012
and the balance will be revalued quarterly henceforth and adjusted as a gain or loss to the statements of operations depending
on its value at that time.
Included in our Statements of
Operations for the three months ended March 31, 2014 is a gain of $683 and a loss of $(58,551) for the three months ended March
31, 2013 in non-cash charges pertaining to the derivative liability as it pertains to change in derivative liability and amortization
of debt discount, respectively.
NOTE 10 – GOING CONCERN
The losses, negative cash flows from
operations, and negative working capital deficiency sustained by the Company raise substantial doubt about the Company’s
ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability
and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the
Company cannot continue in existence.
NOTE 11 – ACQUISITION
Entry into a Material Definitive
Agreement
.
Revolutionary Concepts, Inc., a Nevada
corporation, and Rainco Industries, Inc, a Georgia corporation (“Rainco”), have entered into a Member Interest Purchase
Agreement, (the “Purchase Agreement”) dated as of December 7, 2012, in which the Company purchased from Rainco all
the member interests in Greenwood Finance Group, LLC.(“Greenwood”). Pursuant to the Purchase Agreement and subject
to the conditions set forth therein, the Company purchased all the member interests of Greenwood in exchange for ten million shares
of Series A Convertible Preferred Stock (the “Preferred Stock”), the rights, preferences and designations of which
are filed as an amendment to the Articles of Incorporation with the State of Nevada.
The completion of the acquisition, and
the rights, preferences and designations (as permitted pursuant to the Company’s Articles of Incorporation) was approved
by the Board of Directors of the Company.
Each of the Company and Rainco
has made customary representations and warranties in the Purchase Agreement. With representatives in Atlanta and Charlotte, Greenwood
is a private equity firm consisting of a team of individuals who understand the work that goes into developing businesses in their
beginning stages. In addition to providing funding through their Green Path Fund, Greenwood provides consultation services to help
business leaders’ map out plans and goals for continued success. Greenwood provides broad-spectrum investment and capital
services to small-cap and micro-cap companies; strategically positioning them for long-term growth and profitability. Greenwood
delivers, through their global network of investment partners and private equity groups, the capabilities to quickly tailor funding
solutions that meet the unique needs of each client which can be tailored to a client’s capital funding needs so it can focus
on growing the client’s company.
Additional Summary of the Purchase
Agreement
The Company has also agreed to various
restrictive covenants in the Purchase Agreement and the Preferred Stock, including, among other things but not limited to, (i)
conduct business in the ordinary course consistent with past practice in all material respects ; (ii) limit the Company’s
right to issue securities, without the approval of the Preferred Stock; (iii) limit the incurrence of debt in excess of $10,000,
without the approval of the Preferred Stock; (iv) sell its own assets or purchase the assets of another entity, without the approval
of the Preferred Stock and (vi) limit the Board of Directors to five members and allow Rainco the right, not the obligation, to
recommend three members in the event of any vacancies, to serve in accordance with the Company bylaws. The restrictive covenants
will terminate upon the elimination of the outstanding obligations of RCI to Rainco.
Each share of Preferred Stock is convertible,
at the discretion of the holder, into 1.8 shares of Company common stock (with provisions which reduce the conversion ratio to
one share of Preferred Stock for one share of Company common stock under specified conditions). The Preferred Stock has liquidation
preferences and may be cancelled and returned to the Company in exchange for the Member Interests under certain restrictive circumstances.
The foregoing summary description of
the Purchase Agreement, the Preferred Stock and the transaction, is not complete and is subject to and qualified in its entirety
by reference to the Purchase Agreement, a copy of which is on file with the Commission as Exhibit 2.1 of the 8-k filed on December
20, 2012, and the Preferred Stock, of which is attached hereto as Exhibit 3.1, and the terms of which are incorporated herein by
reference.
The Purchase Agreement and the right,
preferences and designations of the Preferred Stock have been attached as Exhibits to this report in order to provide investors
and security holders with information regarding its terms. It is not intended to provide any other financial information about
the Company, Rainco, Greenwood, or their respective subsidiaries and affiliates. The representations, warranties and covenants
contained in the Purchase Agreement and Preferred Stock were made only for purposes of that agreement and as of specific dates;
were solely for the benefit of the parties to the Purchase Agreement and Preferred Stock; may be subject to limitations agreed
upon by the parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk
between the parties to the Purchase Agreement instead of establishing these matters as facts; and may be subject to standards of
materiality applicable to the contracting parties that differ from those applicable to investors. Investors should not rely on
the representations, warranties and covenants or any description thereof as characterizations of the actual state of facts or condition
of the Company, Rainco, Greenwood or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject
matter of the representations, warranties and covenants may change after the date of the Purchase Agreement, which subsequent information
may or may not be fully reflected in public disclosures by the Company.
Based on its long-term business strategy,
management has decided to reserve the entire value of the gain on sales of notes and the valuation of the notes receivable through
our subsidiary, Greenwood Finance Group, LLC. We will recognize the assets and revenue as cash payments are received against the
notes receivables and as interest payments. This may also allow the company to maximize its tax planning strategy. The following
table summarizes the consideration paid by the Company and the amounts of the assets acquired at the acquisition date based on
the above noted reserves:
Purchase Price Allocation Consideration:
|
|
December 7 , 2012
|
Equity instruments (10,000,000 Preferred Class A Shares of Revolutionary Concepts, Inc.)
|
|
$
|
18,000,000
|
|
|
|
|
|
|
Recognized amounts of identifiable assets acquired as of March 31, 2014:
|
|
|
|
|
Accumulated Interest Income ($1,561,020 reserved)
|
|
|
—
|
|
Notes Receivable ($7,108,861reserved)
|
|
|
—
|
|
Total assets ($8,669,881 reserved)
|
|
$
|
—
|
|
Fair value of total assets ($8,669,881 reserved)
|
|
$
|
—
|
|
NOTE 12 – SUBSEQUENT EVENTS
On May 8, 2014, the Company received a notice
of conversion from an unrelated third party of note originally issued to a non-related third party on August 30, 2013. A total
of $4,581 of this note was converted to 2,290,500 restricted common shares, which leaves a remaining principal balance of $0 on
this assigned note. This conversion reduced the Company notes payable by $4,581.
On
April 30, 2014, we entered into a three (3) year convertible Promissory Note with a non-related creditor for $34,560 at 12% interest. The
holder has the right to convert the note to common stock at $0.002 per share.
On
April 23, 2014 both Ron Carter and Solomon Ali appeared before the Civil Superior Court of Mecklenburg County concerning the matter
of Omnisun Azali vs Claude McDougal and US Financial Consultants. A hearing has been scheduled for June 2014 to determine if Carter
and Ali are in contempt for failure to cause Revolutionary Concepts, Inc. to take the actions ordered by the Mecklenburg County
Superior Court in its order dated January 30, 2013 and filed on the same date.
It
has consistently been Revolutionary Concepts position that it has performed its obligation to Mr. Azali and the Court’s
order with the issuance and delivery of a certain promissory note dated April 26, 2013 and recorded in the company’s 10Q
filing dated June 30, 2013. The note was later amended on September 30, 2013 and recorded in the company’s 10Q filing dated
September 30, 2013.
In
accordance
with
ASC
855-10
Company
management
reviewed
all
material
events
through
the
date
of
this
report.
Unless otherwise
noted, references in this Form 10-Q to “RCI”, “we”, “us”, “our”, and the “Company”
means Revolutionary Concepts, Inc., a Nevada corporation.