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.
The
licensee has informed us that they have successfully completed their 90 day assessment of market opportunities, development of
licensing programs and key market strategies. The licensee has reported that they see exceptional opportunities across several
industries and will now begin monetization programs in each of these
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.