Item 7.
Management's
Discussion and Analysis of Financial Condition and Results of Operations ("MD&A")
The following is management’s discussion
and analysis (|MD&A”) of certain significant factors that have affected our financial position and operating results
during the periods included in the accompanying consolidated financial statements, as well as information relating to the plans
of our current management. This report includes forward-looking statements. Generally, the words “believes,” “anticipates,”
“may,” “will,” “should,” “expect,” “intend,” “estimate,”
“continue,” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other
reports or documents we file with the Securities and Exchange Commission from time to time, which could cause actual results or
outcomes to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements which
speak only as of the date hereof. We undertake no obligation to update these forward-looking statements.
The following discussion and analysis should
be read in conjunction with our consolidated financial statements and the related notes thereto and other financial information
contained elsewhere in this Form 10-K
The
Company's MD&A is comprised of significant accounting estimates made in the normal course of its operations, overview of the
Company's business conditions, results of operations, liquidity and capital resources and contractual obligations. The Company
did not have any off balance sheet arrangements as of December 31, 2011 or 2012.
The discussion and analysis
of the Company’s financial condition and results of operations is based upon its financial statements, which have been prepared
in accordance with generally accepted accounting principles generally accepted in the United States (or "GAAP"). The
preparation of those financial statements requires us to make estimates and judgments that affect the reported amount of assets
and liabilities at the date of its financial statements. Actual results may differ from these estimates under different assumptions
or conditions.
Critical accounting policies
are those that reflect significant judgments or uncertainties, and potentially result in materially different results under different
assumptions and conditions. The Company has described below what it believes are its most critical accounting policies. SEE ALSO
NOTES 1 and 2 TO FINANCIAL STATEMENTS, "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES."
SUMMARY OF CRITICAL ACCOUNTING
POLICIES
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
(Included in Accounting
Standards Codification (“ASC”) 718 “Share Based Payment”, previously SFAS No. 123(R) “Accounting
for stock based compensation”)
The Company will account
for its employee stock based compensation arrangements in accordance with the provisions of Accounting Principles Board (“APB”)
Opinion No. 25. “Accounting for Stock Issued to Employees”, and related interpretations. As such, compensation expense
for stock options, common stock and other equity instruments issued to non-employees for services received will be based upon the
fair value of the equity instruments issued, as the services are provided and the securities earned. SFAS No. 123, “Accounting
for Stock-Based Compensation”, requires entities that continue to apply the provisions of APB Opinion No. 25 for transactions
with employees to provide pro forma net earnings (loss) and pro forma earnings (loss) per share disclosures for employee stock
option grants as if the fair-value-based method defined in SFAS No. 123 had been applied to these transactions. For the period
from inception (March 12, 2004) to December 31, 2012, 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.
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.
Amortization
Deferred charges are amortized
using the straight-line method over five and six years.
Cash and Cash Equivalents
Cash and cash equivalents
include cash on hand, deposits in banks with maturities of three months or less, and all highly liquid investments which are unrestricted
as to withdrawal or use, and which have original maturities of three months or less.
Concentrations of Credit Risk
Financial instruments that
subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains its
cash and cash equivalents with high-quality institutions. Deposits held with banks may exceed the amount of insurance provided
on such deposits. Generally these deposits may be redeemed upon demand and therefore bear minimal risk.
Fair Value of Financial Instruments
The carrying value of financial
instruments including cash and cash equivalents, receivables, accounts payable and accrued expenses, approximates their fair value
at December 31, 2012 due to the relatively short-term nature of these instruments.
Supplies
Supplies are experimental
materials used for research and development purpose. Actual cost is used to value these materials and supplies.
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.
Comprehensive Income
(Included in ASC 220 “Reporting Comprehensive
Income” previously SFAS No. 130)
Statement of Financial
Accounting Standards (SFAS) No. 130, “Reporting Comprehensive Income,” establishes standards for reporting and display
of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity
during a period from non-owner sources. Accumulated comprehensive income, as presented in the accompanying statement of changes
in shareholders' equity consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive
income is not included in the computation of income tax expense or benefit.
Related Parties
For the purposes of these
financial statements, parties are considered to be related if one party has the ability, directly or indirectly, to control the
party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the
Company and the party are subject to common control or common significant influence. Related parties may be individuals or other
entities.
Unpaid Capital Contributions
“Unpaid Capital
Contributions”
are short-term loans to our officers and directors in lieu of salary or other compensation. These loans
are unsecured, bear a 5% interest and have five year repayment term. The total balance of loans to officers and directors was $80,345
and $83,562 in 2011 and 2012, respectively.
Management expects these
loans on a rolling basis throughout the term of the five year loans. After deducting re-payments made by the officers and adding
accumulated interest, balances were due as of year ended 2011 and 2012 as follows:
|
|
12/31/11
|
|
12/31/12
|
Garry Stevenson
|
|
|
34,428
|
|
|
|
35,814
|
|
Bethiel Tesfasillasie
|
|
|
45,917
|
|
|
|
47,748
|
|
|
|
$
|
80,435
|
|
|
$
|
83,562
|
|
In the event that the loans are not fully repaid, any shortfall
will be written off as compensation expense in its income statement.
Earnings (Loss) Per Common Share
Basic earnings (loss) per
common share are computed on the basis of the weighted average number of common shares outstanding during the period.
Diluted earnings (loss)
per share are computed on the basis of the weighted average number of common shares and dilutive securities (such as convertible
preferred stock) outstanding. Dilutive securities having an anti-dilutive effect on diluted earnings (loss) per share are excluded
from the calculation.
Our Ability To Continue as a Going Concern
Our independent registered
public accounting firm has issued its report in connection with the audit of our financial statements as of December 31, 2012 that
included an explanatory paragraph describing the existence of conditions that raise substantial doubt about our ability to continue
as a going concern. Our consolidated financial statements as of December 31, 2012 have been prepared under the assumption that
we will continue as a going concern. If we are not able to continue as a going concern, it is likely that holders of our common
stock will lose all of their investment. Our financial statements do not include any adjustments that might result from the outcome
of this uncertainty.
Overview – Business Conditions
We are a development stage company positioned
to begin launch and license of its patented technologies in 2013. 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.
Our efforts to date have successfully accomplished
the securing of seven (7) very relevant patent technologies in the wireless space. Six of the company’s patents are related
to the EyeTalk® smart camera technology and one (1) patent related to a new child’s car seat, equipped with video monitoring,
2- way communication, gaming and a host of other cutting edge features.
Unlike many IP cameras that simply produce and
transmit an image, we envision the EyeTalk® smart camera technology will have embedded capabilities that distinguish it as
a significant technological advancement over traditional camera systems. Features such as voice recognition, audible response capability,
messaging, alert technology, collectively will make the EyeTalk technology one of a kind.
In July of 2011, we engaged SIS Development
Inc. to direct the development of this state of the art system. SIS Development, Inc. offers highly specialized, wing-to-wing commercial
OEM product development services. SIS Development has an extensive track record of high volume product and software successes in
Fortune 100 and startup environments alike.
We initially funded development through three
private offerings in 2005, 2007 and 2009. We also borrowed $307,500 from four non-related parties at 4% interest to fund ongoing
operations, and new patent applications. These promissory notes began to become due in October 2008 and were repaid in November
2008 by issuing 630,811 shares of restricted common stock from authorized shares.
In July and August 2009, we issued two notes
payable in the total amount of $20,000. The two notes were later combined at the note holder’s request into one note. The
note bears interest at a rate of 10%. Principal and interest were due in May 2010. In 2009, our board of directors
agreed to guarantee a personal loan to the President of the Company, Mr. Ron Carter of $75,000 with interest of 10%, by a shareholder. The
note became due in November 2010.
On October 5, 2010, we 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 is $100,996, plus interest at 18% 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 our company.
On the 4
th
day of August 2011, we reached an agreement with a third party to negotiate and acquire the judgment award
and to agree to a convertible note from our for its services. The total value of the convertible note is $144,066.76 with no interest,
of which we have received a promissory note from Mr. Carter for $112,663.02 for the part of the judgment, interest and fees that
was from the personal promissory note that the Company guaranteed
In July 2010, we partnered with US Financial
and Rainco Industries to consult in Investor Relations, introduction to institutional investors, assist with mergers and acquisitions,
and to help develop a strategy to fund its growth. As a result of this partnership, we resolved additional debt obligations, are
now trading on both the US and Frankfurt stock exchanges and are also now listed with Standards and Poors. In November 2011, we
terminated our association with US Financial but retained the relationship with Rainco Industries.
Introduction to EyeTalk®
Revolutionary Concepts is the patent holder
of a wireless smart camera technology, branded EyeTalk®. EyeTalk® represents a very disruptive technology that integrates
into an industry of new smart devices…. an industry on pace to establish a new era in everyday life across several industries.
From Wire Industry News – February 2012;
By most standards, the iPhone is considered
by a lot of people to be one of the most successful products in business history, and there are many reasons why the majority of
people and especially iPhone users think so.
So far, about 200 million
iPhones have been sold since it was introduced in the spring of 2007, and 37 million of them in
the last three
months of 2011 alone.
And make no mistake-- the iPhone is a huge
revenue generator! Just last quarter, it contributed to over $24.39 billion in revenue for the fruity company from Cupertino, greater
than the $20.9 billion Microsoft made in all of its many businesses.
Apple also produces the iPad. iPad is a
line of tablet computers designed, developed and marketed by Apple Inc., primarily as a platform for audio-visual media
Tech Crunch – March 2012
Following
Apple’s
announcement
yesterday of the new iPad’s record weekend, which saw 3 million devices sold in three
days, analysts are upping their predictions for the tablet’s market share growth over the course of the year. In a note to
investors, Gene Munster of Piper Jaffray says the firm
is now forecasting
as many as 66 million
sales of the new device in 2012, up from the earlier prediction of 60 million. Meanwhile, Shaw Wu of Sterne Agee is now
predicting
60 million, up from 55 million. Regardless of the final outcome, the bottom line impact the device will have on the market was
summed up in Munster’s bullish note: ”we believe the unprecedented ramp of the iPad over the past year is evidence
that the tablet market will be measurably larger than the PC market,” he said.
Revolutionary Concepts EyeTalk® technology
represents a camera system with embedded intelligence. Moving beyond the typical take a picture, take a video and transmit it technology,
the EyeTalk® technology will activate and engage. The capabilities of the EyeTalk® system go beyond the ability to offer
two-way communication by incorporating an embedded processor that will ultimately be able to communicate and interpret while providing
video surveillance and remote monitoring capabilities.
Wireless cameras, wireless communication
devices such as smart phones and hand held devices represent the ultimate marriage of wireless technologies. Until we discover
how to actually teleport people, wireless cameras and mobile monitors will virtually allow people to literally be in two places
at once.
Our management believes our patents represent
a very significant asset and advancement in camera technology.
The EyeTalk® technology is being designed
as primarily a software platform with a hardware component of an external smart camera deployed at a chosen location. The system
will offer two-way communication and will stream video to designated PC or handheld devices such as PDA’s, smart phones or
other smart devices. The software interface may allow the system to perform voice recognition and response, offer preprogrammed
messages, greetings, commands, etc. The software will maintain information captured by the EyeTalk® system. Access to the information
may be achieved via a Personal Data Assistant (PDA), Handheld Computer (HC), Smart phone, or other compatible device. The EyeTalk®
software platform will be able to communicate with many of the smartphone and other devices that are currently available in the
market place.
As a residential application, the EyeTalk®
system may providesa very effective and efficient means of entry management allowing seamless communication to and from a location
to the owner to interact remotely with anyone who approaches, with the benefit of audio, video and data communication. The system
utilizes new technology to synergistically improve communication, security, convenience, messaging, entry management and access
control.
According to USBX
(US Business Exchange), “iSuppli, a respected technology market research firm, announced this quarter that they project IP
video surveillance camera revenue to grow to more than $9.0 billion by 2011, a compound annual growth rate of 13.2%”. Declining
cost of new surveillance technology have improved the viability of enhanced security systems while boosting the affordability and
demand for basic security systems among families in the middle to lower-middle income strata of society.”
The point of greatest significance
is not the fact that our plans are to participate in this space, but the fact that our company owns IP rights to the much anticipated
wireless activity in the space. We have a careful eye on the transition many traditional security companies are attempting to make
to a more practical video solution. Fortunately for us, our company owns the rights to the use of wireless cameras and their interface
with wireless handheld devices.
The EyeTalk® system will also record
and archive data, video and audio records. The system will provide a centralized control system using a user-friendly application
with a means for storing digital images and provides enhanced security features.
Our management also recognizes that we have
entered an era where smartphone applications are just a matter of every day activity. An “APP” that offers individuals
the ability to manage and monitor locations of interest is both very marketable and essential.
Our management expects
the EyeTalk® technology to provide three primary benefits:
Protection
– EyeTalk®
as a standalone system will provide a much safer platform because of its preemptive capabilities, or the EyeTalk® system may
augment current residential and commercial security systems.
Monitoring
– EyeTalk®
may allow the user to better facilitate the task of entry management in non-threatening circumstances, such as latch key school
children, and deliveries allowing the user to maintain better control and understanding of what is going on at any given location
or property at any given time.
Convenience
– EyeTalk®
will add convenience to home and business owners, by providing a more responsive and efficient means of responding to, screening,
and monitoring activity at a given location. Deliveries and service appointments can be better managed with a system such as EyeTalk®..
For all intents
and purposes, traditional security and alarm services are ineffective, inefficient and costly. Across the country, municipalities
report false alarms at a rate exceeding 90%. The response time between an event and police arrival can be much too long. EyeTalk®
represents a proactive response rather than a reactive one.
To insure the highest quality and
product reliability, we entered into a development agreement with SIS Development to produce the initial EyeTalk® system. Our
management are committed to producing a very high quality, reliable and sophisticated system; however, the first generation of
the EyeTalk® technology will not have all of the feature sets intended for future models, and will simply serve as our company’s
initial launch and introduction.
SIS Development, Inc. offers highly
specialized, wing-to-wing commercial OEM product development services. SIS has managed formidable, leading-edge design teams shipping
millions of products a year and has an extensive track record of high volume product and software successes in Fortune 100 and
startup environments alike.
The President of SIS Development
is Richard Kramer. Prior to founding SIS Development, Inc. and Security Industry Services, Inc., Richard Kramer served as General
Manager-Technology and Vice President, Engineering at General Electric’s GE Security division, where he led a progressive
250+ person organization with more than $500M per year in revenue. He was responsible for managing 16 groups in 11 geographically
dispersed locations, providing advanced Network, Software, Wireless, Enterprise/Commercial/Residential/Real Estate Solutions for
the video surveillance (system software, IP solutions, communications, cameras, recorders, PTZs, video recognition technology),
life safety (central station software, intrusion systems, software and sensors), and key control/real estate system software/product
markets.
Product development has been a goal
of the company, however not to the extent that the company feels any sense of urgency. Our goal is to achieve revenue, maximizing
our opportunities through adequate diligence and exploration. Over the past year, the company is aware of patent rejections by
the USPTO citing the Company patents as a basis. This discovery places greater focus and emphasis on licensing opportunities over
the next 12 months. Product development is only essential to the Company from a standpoint of offering a technology that encompasses
the total feature sets identified in our patents. Our management’s diligence and patience has proven to be the best approach
in maximizing the value of our company’s total patent portfolio.
INDUSTRY
Security industry stats
from IMS Research
by
Geoff Kohl
First up
is 2009.
In the Americas, here's how differing industries
compared in a rough financial year. The semiconductor market was down 30%; industrial automation was down 15%; vehicle production
was down 33% and consumer technology was down 6%. Despite those significant downturns in many major industries, the electronic
security industry was down only 0.2%. Basically, that means our industry stayed flat during 2009.
Also in 2009, IMS saw network video up 25%
and analog video down 7%. They saw a terrible year for analytics companies. While analytics was having trouble, megapixel video
surveillance had a good year, even as HD emerged as a potential format of choice. Megapixel could even outpace "standard resolution"
IP video usage by 2012 or 2013 based on what IMS saw in 2009.
Now to the
future...
In 2013, in the Americas, video surveillance is
going to be 43% of the total physical security systems market; that means a huge increase in terms of video's role in the overall
market. Fire will be 20% (that's down from current market share per IMS); intrusion will be 11.2% (also down in overall market
share); and access control will be 7.8% (again, that's down in overall market share -- a loss chiefly attributed video's strong
growth rather than any failing in the access control market).
In 2010 (since that's the year we're dealing with
now), IMS is forecasting a large number of mergers and acquisitions, which they think will happen because the capital funding for
such purchase is finally coming back. They're expecting 2% growth in North America for security products as a whole, a growth number
that pales in comparison to a 15.2% growth forecast for security products in China/India. While North America isn't going to see
the banner year that China and India will see, it certainly is better than what IMS is forecasting for Europe -- which is a -4.8%
decline in overall revenues attributed to the sale of security products.*
*Article not incorporated by reference.
The tipping point for when IP video takes over
analog video in sales was delayed, in our managements opinion, for one year as a consequence of the downturn in the economy in
2009; now we forecast 2013 or 2014 when that transition happens.
How to Capitalize on the Fastest Growing Trend in Residential
Security
By Jay Kenny – Feb 03, 2012
Security dealers and integrators are recognizing
that consumers increasingly rely on smartphones, tablets and other mobile devices to control home security, automation and energy
management services. Alarm.com, a provider of interactive security solutions, has evidence to support this trend.
This shift in consumer behavior is driven
both by the explosive adoption of mobile devices and the availability of dynamic apps and services for end users to unlock additional
value from their security system. Usage trends are not limited to monitoring security events that occur in the home, but also extend
to a range of relevant day-to-day interactive services such as receiving motion-triggered video clips when kids arrive home from
school, alerts when cabinets are accessed, or the ability to remotely adjust thermostats, lights and door lock settings. It is
a behavioral change that presents a new opportunity and should not be lost on security dealers and integrators. Mobile connection
to the security system has proven to be a successful way to improve retention of existing customers, drive new customer acquisition,
deliver additional revenue-generating services, and differentiate a product offering as new entrants hit the market.*
*Article not incorporated by reference.
EyeTalk®
as stated previously is being designed to represent a technology with embedded intelligence. This one key feature that we term
smart camera
technology, combined with smart phone technology is a very powerful and
compelling combination of technologies. A key reason we define EyeTalk® as a “disruptive technology”.
Mobile apps help close sales
–
Increasingly, feedback from Alarm.com partners is that one of the most powerful sales tactics is to show interactive system capabilities
and features on a mobile device such as an iPhone, iPad or Android smartphone. This "mobile-first" approach in the sales
cycle is more effective than showing mobile apps as a "nice-to-have" among a list of broader system features. Once prospective
customers see how easy and convenient it is to use a free app to arm the system, adjust the lights or watch live video of their
property, their perceived value increases dramatically and distances the product offering from that of competitors.
Mobile services keep customers "sticky"
– In addition to helping dealers close more sales, the mobile app significantly drives day-to-day use of the system, in turn
increasing customer stickiness and reducing customer attrition. In fact, analysis conducted by Alarm.com in 2011 confirmed a direct
correlation between a consumer's consistent interaction with their interactive security system and reduced attrition. Through an
independent third party analysis, it was proven that customers with interactive accounts stay on longer than traditional security
customers and those who are actively logging into their accounts via the Alarm.com website or mobile app attrite even less.
Mobile apps help meet rising consumer expectations
– Current mobile trending shows people are not just becoming more comfortable with technology, but that they prefer the convenience
of the mobile app to monitor and control home security system settings. Mobile apps enhance the value of the security platform
and deliver access to key services consumers expect on-demand wherever they are, and from any device.
Mobility isn't just about remote access
– It would be reasonable to assume that customers are solely utilizing mobile devices remotely to monitor and interact
with security, video, energy and automation functions. But dealers and integrators report that for many customers the mobile app
offers much more. Customers appreciate the ability to change system settings, lock doors or turn off lights from the living room
couch or bedroom rather than having to do so from a physical keypad. Mobile apps also offer a new level of awareness and comfort
by enabling the user to stay connected and essentially extend the value of the security system.
Mobile apps can drive sales for other services
– Mobile apps can expose customers to additional services anchored to the security platform, especially when used as a sales
tactic for a whole home solution. The ease of controlling home energy and seeing video through the same platform can create higher
system value as well as increase the opportunity to attach add-on services and generate more RMR. Mobile apps help drive sales
for system-integrated services such as video, energy management and home automation.
Below is an illustration of the security market
segments. (2011)
Future Plans and Potential Markets
Our management believes
the seven (7) awarded patents identify capabilities that make up a significant portion of a tremendous industry. Research and current
trends suggest that the security industry will continue to experience increased spending and growth on detection devices such as
EyeTalk®. Our Intellectual Property makes it more than just a provider but the outright owner of a very relevant and significant
IP… a tremendous asset. Our management contends that the future of our company is bright and the options of development
and/or licensing provide incredible latitude.
We have systematically
filed patents over the past decade in the areas of medical, institutional, child monitoring, home healthcare and real estate markers.
As these assets are now manifesting themselves one by one, the company’s plans are unfolding perfectly. Each of the aforementioned
markets is monumental and perfectly suited for the IP in our portfolio.
Our management also believes
that EyeTalk® will have advantages over existing and competing technologies by virtue of its design of embedded intelligence
and processing capabilities. Many of these capabilities may not relate to the security field at all, but may nonetheless be commercially
useful. The additional commercial benefits of the EyeTalk® include:
-
Virtual reception capabilities for offices and businesses
-
Advanced operations management and remote supervision
-
Remote on-line education and real-time teacher/student interface (homeschooling)
-
Home healthcare monitoring and independent living capabilities
-
Sports applications and entertainment
Commercialization
Licensing
We
currently hold the IP that provides the use of 2-way audio and video communication via wireless technology covering a multitude
of monitoring and reception applications. The IP is directly applicable to multiple residential and commercial industries including
but not limited to security, hardware and service providers representing significant market opportunities. We are also engaged
to monetize these IP opportunities and are currently pursuing licensing programs to companies who wish to utilize this technology.
Our management will also aggressively defend its patent rights against those companies that may infringe on these IP applications.
Existing Security Companies
The
use of wireless 2-way audio and video communication technology will become the predominate form of entrance reception and protection
within the security industry. Applications for ancillary products to the primary application, covered by our IP, ranging from prerecorded
reception messaging to remote door locking and unlocking are the primary marketing efforts of many industry leaders today and should
become commonplace throughout the industry in the next 12 to 24 months. Competitive factors are creating a unique dynamic within
the securities industry where these 2-way wireless entry applications are rapidly becoming "must have features" for security
providers to stay competitive. Our management believes this trend will provide a substantive opportunity for the licensing to the
industry participants encroaching on our IP. In addition, we intend to offer a wireless camera technology that we believe will
be vastly superior because of its extensive capabilities protected by our IP. We are in the process of developing key relationships
with industry leaders to position opportunities reflecting these trend lines encumbered by our IP.
Hardware
Manufacturers
Our
management is currently examining entrance hardware manufacturers and wireless camera manufacturers for possible relationships
regarding its IP including but not limited to entrance locking applications, reception messaging applications and arrival sensing
applications. Our management believes there are current applications in place with hardware manufacturer's products that afford
our licensing opportunities within this industry and see this potential growing for the foreseeable future
Patent and Intellectual
Property
The United States Patent
and Trademark Office issued the following patents to Revolutionary Concepts, Inc. from 2007 through 2012.
Patents Summary
U.S. Patent 7,193,644
Revolutionary Concepts
Inc. of Charlotte, North Carolina, has been awarded U.S. patent 7,193,644 covering an audio-video communication and answering system.
The system includes at least one wireless exterior module, a computerized controller, and a wireless router. The wireless exterior
module has a proximity sensor, a video camera, a microphone, a speaker, a radio frequency transmitter, and a radio frequency receiver.
The wireless router enables communication between the wireless exterior module and the computerized controller, and the computerized
controller runs a software application that includes a graphic user interface that enables a user to view images and streaming
video from the camera. The computerized controller also enables the coordination of multiple communication devices, and the computerized
controller enables user defined responses to prompts and events. The system further includes a recording component that records
video and audio communication that is transmitted to and from the exterior module, and a playing component that plays video and
audio communication recorded by the recording component.
Additionally, the
patent covers a method for audio-video greeting and communicating with visitors at a business or residence. The method utilizes
at least one exterior module having a proximity sensor, a video camera, a microphone, a speaker, a radio frequency transmitter,
a radio frequency receiver; a computerized controller, wherein the computerized controller has components for playing and recording
video and audio media; a radio frequency switching device that enables communication between the exterior module and the computerized
controller; and a software application. The method includes the steps of: detecting the presence of a visitor via the proximity
sensor of the exterior module, where the exterior module is mounted at or near an entrance, and whereupon detection the computerized
controller is signaled that a visitor is present; actuating the components for playing and recording video and audio media, and
saving a recording in a location in the database with a beginning time-stamp; broadcasting that a visitor is present; issuing a
greeting to the visitor, and asking the visitor to state a reason for their visit; observing an image or video of the visitor displayed
on the computerized controller; if appropriate, issuing a prompt stating that occupant "y" is not available and asking
the visitor if they wish to talk to occupant "y" or to leave a message; if appropriate, initiating a call to occupant
"y"; if appropriate, asking the visitor to begin his message; attaching a message beginning with a timestamp and an occupant
mailbox designation in the database; time stamping the end of message; if appropriate, issuing a closing statement; and when the
visitor has finished the message and is out of the range of the proximity sensor, stopping all recording and time stamping the
end of the recording, wherein the occupant "y" can, remotely or locally, selectively sort and view the entire recorded
visit or just the message.
U.S. Patent 8,139,098
Revolutionary Concepts
Inc. of Charlotte, North Carolina, has recently been awarded U.S. patent 8,139,098 covering a method for receiving a person at
an entrance. The method includes the steps of detecting the presence of a person at the entrance; transmitting, to a computerized
controller running a software application, video of the person at the entrance that is recorded using a camera located proximate
the entrance; and providing, with the application software running at the computerized controller,
a
graphical user interface
to a remote peripheral device by which a user of the remote peripheral device may view the video
of the person at the entrance.
U.S. Patent 8,144,183
Revolutionary Concepts
Inc. of Charlotte, North Carolina, has recently been awarded U.S. patent 8,144,183 covering a method for two-way audio-video communications
between a first person at an entrance and a second person. The method includes the steps of detecting the presence of a first person
at the entrance; and following the detection, providing real time audio-video communications between the first person at the entrance
and a second person using a wireless handheld device by, (i) transmitting, to the wireless handheld device of the second person,
video of the first person at the entrance that is recorded using a camera located proximate the entrance, (ii) transmitting, to
the wireless handheld device of the second person, audio of the first person at the entrance recorded using a microphone located
proximate the entrance, and (iii) transmitting, to a speaker located proximate the entrance for playing to the first person, audio
of the second person recorded using the wireless handheld device.
U.S. Patent 8,144,184
Revolutionary Concepts
Inc. of Charlotte, North Carolina, has recently been awarded U.S. paten 8,144,184 covering a detection and viewing system. The
system includes a wireless device associated with a door. The wireless device includes a camera and is configured to communicate
video data from the camera. The system also includes a sensor for activating the camera and a computer. The computer is configured
for communication with the wireless device and is configured for communication with each of a plurality of peripheral devices that
is associated with a respective user. The computer executes software, in accordance with which the association of each of the peripheral
devices with a respective user is maintained; video data from the wireless device is received by the computer upon actuation of
the sensor; and
a graphical user interface
is provided, through which video data from the wireless
device is accessible by each respective user using one of the peripheral devices.
Additionally, the
patent separately covers a detection and viewing system. The system includes a wireless device associated with a door. The wireless
device is configured to communicate video data. The system also includes a sensor associated with the door for activating the camera
upon triggering of the sensor. A computer is included in the system that is configured for communication with the wireless device
and is configured for communication, via the Internet, with each of a plurality of peripheral devices that is associated with a
respective user. The computer executes software, in accordance with which the association of each of the peripheral devices with
a respective user is maintained; video data from the wireless device is received and stored by the computer; and
a
graphical user interface
is provided, through which video data from the wireless device is accessible, via the Internet,
by each respective user using one of the peripheral devices. Additionally, in accordance with the software, each user is authenticated
based on a biometric of the user. The authentication may be based, for example, on the voice of the user.
The patent also covers
a detection and viewing system. The system includes a wireless device associated with a door. The wireless device includes a sensor,
a camera, a microphone, a speaker, an radio frequency transmitter, and radio frequency receiver, and the wireless device is configured
to communicate the audio and video data upon triggering of the sensor. The system also includes a sensor for activating the camera
and a computer. The computer is configured for communication with the wireless device and is configured for communication with
each of a plurality of peripheral devices that is associated with a respective user. The computer executes software, in accordance
with which: the association of each of the peripheral devices with a respective user is maintained; audio and video data from the
wireless device is received by the computer; and
a graphical user interface
is provided, through
which audio and video data from the wireless device is accessible via the Internet by each respective user using one of the peripheral
devices. Additionally, in accordance with the software, audio and video data received form the wireless device is recorded, and
access to the recorded audio and video data is provided through the graphical user interface.
U.S. Patent 8,154,581
Revolutionary Concepts
Inc. of Charlotte, North Carolina, has recently been awarded U.S. patent 8,154,581 covering an audio-video communication system.
The system includes a wireless exterior module located proximate an entrance and a computerized controller. The wireless exterior
module has a proximity sensor for detecting a person at the entrance, a video camera for recording an image of the person at the
entrance, a microphone for recording sound of the person at the entrance, a speaker for playing audio to the person at the entrance,
a transmitter for communicating sounds and images of the person at the entrance, and a receiver for receiving communications at
the wireless exterior module. The computerized controller is disposed in wireless electronic communication with the wireless exterior
module via the transmitter and the receiver of the wireless exterior module, and the computerized controller is configured to control
recording of communications with said wireless exterior module and playback of such recording. The computerized controller runs
a software application that includes a graphic user interface that enables a user to view images from the video camera communicated
from the wireless exterior module. The system further includes a remote peripheral device that is configured to electronically
communicate with the computerized controller for viewing an image from the video camera communicated from the wireless exterior
module.
U.S. Patent 8,164,614
Revolutionary Concepts
Inc. of Charlotte, North Carolina, has recently been awarded U.S. patent 8,164,614 covering a communications and monitoring system.
The system includes a wireless device, peripheral devices, and a computer with software. The computer is configured for communication
with the wireless device. The wireless device is associated with a door and is configured to communicate audio and video data that
is received by the computer. Each of the peripheral devices is associated with a respective user, which association is maintained
by the computer. The computer is configured for communication with each of the peripheral devices and provides
a
graphical user interface
through which audio and video data from the wireless device is
made accessible by each respective user using one of the peripheral devices.
Additionally, the
patent separately covers a communications and monitoring system including a wireless device, peripheral devices, and a computer
with software. The computer is configured for communication with the wireless device. The wireless device is associated with a
door and is configured to communicate audio and video data that is received and stored by the computer. Each of the peripheral
devices is associated with a respective user, which association is maintained by the computer. The computer is configured for communication
with each of the peripheral devices over the Internet, and the computer provides
a graphical user interface
through which audio and video data from the wireless device is made accessible, via the Internet, by each respective user
using one of the peripheral devices. Additionally, each user is authenticated based on a biometric of the user. The authentication
may be based, for example, on the voice of the user.
The patent also separately
covers a communications and monitoring system including a wireless device, peripheral devices, and a computer with software. The
computer is configured for communication with the wireless device. The wireless device includes a camera, a microphone, a speaker,
a radio frequency transmitter, and radio frequency receiver. The wireless device is associated with a door and is configured to
communicate audio and video data that is received and recorded by the computer. Each of the peripheral devices is associated with
a respective user, which association is maintained by the computer. The computer is configured for communication via the Internet
with each of the peripheral devices, and the computer provides
a graphical user interface
through
which audio and video data from the wireless device is made accessible, via the Internet, by each respective user using one of
the peripheral devices.
U.S. Patent Number
8,016,676
Generally,
the invention broadly relates to a child's car seat assembly and, in particular, to a child's car seat that includes built-in components
enabling wireless gaming applications; to a child's car seat that includes built-in components enabling two-way, person-to-person
communications; and to a child's car seat that includes built-in components enabling both wireless gaming applications and two-way,
person-to-person communications. The car seat assembly of the invention is intended for use with an infant or toddler.
Remote
Gaming Access
Generally,
in an aspect of the invention, a child's car seat assembly includes communication components that are incorporated into the car
seat assembly and that enable wireless gaming applications to be played by a child who is retained in the car seat assembly.
In
features of this aspect, the communication components include a transceiver or, alternatively, a separate receiver and a separate
transmitter; a speaker; a display; and controls for operating the components. The communication components further may include
a microphone and a camera. The car seat assembly also preferably includes a processing unit for locally executing software at the
car seat assembly.
The
components preferably are built-in and form part of the car seat assembly. Furthermore, the display and controls may be combined
such as, for example, in a touch screen display, whereby a graphical user interface (GUI) may be provided on the display itself.
The
gaming applications that are played in accordance with this aspect of the invention preferably provide educational benefits to
the child and include educational media that is interactive. The gaming applications may be hosted remotely from the car seat assembly.
The
gaming applications may be downloaded on demand and executed locally at the car seat assembly. Additionally, it is contemplated
that the gaming applications are not sophisticated and that each gaming application is designed to attract and hold the attention
of a child who is retained in the car seat assembly.
Remotely
hosted applications, and applications that are downloaded on demand, are accessed using the communications capabilities of the
car seat assembly. Specifically, the communication components preferably enable radio communications over a satellite or cellular
network. Alternatively, where a WiMax or similar network is present, the communication components may enable communications over
such a network. In any case, protocols for such communications may include, where applicable and as desired, the General Packet
Radio Service (GPRS) protocol; the 3G protocol; the transmission control protocol (TCP), including TCP-IP protocol; and one or
more 802.11 protocols.
Two-Way
Person-to-Person Communications
This aspect
of the invention enables two-way communications between a child seated in the car seat assembly and a person who is remotely located,
i.e., someone who is not in the vehicle. In features of this aspect, the two-way communications include audio communications; the
two-way communications include video communications; and the two-way communications include both audio and video communications.
Legal
For
several years, we have been engaged in litigation against its former patent attorneys for malpractice arising from a missed filing
deadline relating to obtaining patents for our core technologies outside the United States. After a two-year fight over jurisdiction
in the case, including wins for us 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. Our trial counsel has assured us that the judge's ruling is contrary to law and that good grounds exist for appeal.
An appeal was filed in November 2012, and the Company is awaiting a decision from the court on the appeal.
The North Carolina Court
of Appeals held oral argument before a three-judge panel on 12 February 2013. The oral argument was spirited and included many
questions from the judges about specific points in the briefs. It is not always possible to discern from the questions and comments
made by the individual judges as to which direction they are leaning, but if the questions and comments
are
an indication,
we appear to be in good shape. As you know, I believe strongly that the Business Court erred by granting summary judgment. The
judges seemed receptive to my argument that applying various rules and statutes as the Business Court did in this case results
in absurd outcomes. On the whole, I believe we have put our best foot forward. We will know within a few months if it was enough.
The Company also sued Emmanuel
Ozoeneh in federal court. Ozoeneh was a former business partner in a prior business venture with CEO Ron Carter. Ozoeneh began
making false claims that he was the inventor of the EyeTalk® system. RCI filed suit in federal court to have 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.
In July and August 2009,
the Company issued two notes payable in the total amount of $20,000. The two notes were later combined at the note holder’s
request into one note. The note bears interest at a rate of 10%. Principal and interest were due in
May 2010. In 2009, the Board of Directors agreed to guarantee a personal loan to the President of the Company, Mr. Ron Carter of
$75,000 with interest of 10%, by a shareholder. The note became due in November 2010.
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 $144,066.76 including interest, of which the Company has received
a promissory note from Mr. Carter for $112,663.02 for the part of the judgment, interest and fees that was from the personal promissory
note that the Company guaranteed.
On February 5, 2013, we received
notification regarding an order signed by a Superior Court Judge and filed with the Clerk of Court in a civil action against Claude
McDougal ( a former officer and Director of the Company) by Omisun Azali (12-CVS-6243). The order places Revolutionary Concepts
on notice that;
-
Any and all property of the judgment debtor Claude D. McDougall
currently in the possession of any person, including but not limited to Revolutionary Concepts, Inc. be sold and the proceeds delivered
to the judgment creditor and applied towards satisfaction of the judgment, and
-
Any and all monies owed to this judgment debtor by any person,
including but not limited to Revolutionary Concepts Inc., be assigned to the judgment creditor and then said monies delivered to
the judgment creditor and, at the time of delivery, be applied toward the satisfaction of the judgment, and;
3. The membership interest
of the judgment debtor in Revolutionary Concepts. Inc., be charged with payment of the judgment and that Revolutionary Concepts,
Inc., assign and deliver to the judgment creditor any distributions of money owed or allocations or earned salary that this judgment
debtor is entitled to, not inconsistent with law and, at the time monies are delivered to the judgment creditor, the monies be
applied towards the satisfaction of the judgment.
The Company intends to comply with the notice
should any amounts owed to Mr. McDougal be released.
COMPETITION
We
expect to compete with much larger and better financed companies in the remote monitoring industry, all of which have superior
name recognition, such as ADT, Alarm Force, ATT, Pinkerton’s and others. RCI owns the patent by which many of the aforementioned
companies will be dependent upon and “MAY” already be infringing in some manner
Remote monitoring is available
through a variety of media and processes, including systems integrators, closed circuit television systems, intrusion detection
systems, and others. These systems typically incorporate ultrasonic, infrared, vibration, microwave and other sensors to detect
door and window openings, glass breakage, vibration, motion, temperature, and noise and transmit through alarms and other peripheral
equipment.
For example, the ATT remote
monitor integrates with Cingular and Yahoo through cell phones and wireless internet. The user can remotely select the device and
determine whether notification will be triggered by door sensors, motion sensors, temperature sensors or a combination. The user
can remotely control cameras with pan, tilt and zoom features. The user can download and record or view live camera. The EyeTalk®
system provides similar capabilities; however with two-way communication and a programmable software interface enabling the system
to effectively manage itself if the user desires.
Industry analysts report
that both Cysco and IBM are developing new hardware and software applications for remote monitoring that, if successful, could
have profound implications for the industry.
Regulation
We are subject to the same
federal, state and local laws as other companies conducting business in the software field. Our products are subject to copyright
laws. We may become the subject of infringement claims or legal proceedings by third parties with respect to its current or future
products. In addition, we may initiate claims or litigation against third parties for infringement of its proprietary rights, or
to establish the validity of our proprietary rights. Any such claims could be time-consuming, divert management from our daily
operations, result in litigation, cause product delays or lead us to enter into royalty or licensing agreements rather than disputing
the merits of such claims. Moreover, an adverse outcome in litigation or a similar adversarial proceedings could subject us to
significant liabilities to third parties, require the expenditure of significant resources to develop non-infringing products,
require disputed rights to be licensed from others or require us to cease the marketing or use of certain products, any of which
could have a material adverse effect on our business and operating results.
Results of Operations
Comparison of Twelve months Periods Ended December 31, 2010 and
December 31, 2011
Assets.
Assets increased
by $7,576 to $136,497 as of December 31, 2012, or approximately 5.9%, from $128,921 as of December 31, 2011. This increase was
primarily due to additional value added to our patents by the accumulated depreciation and amortization. This is also net of the
reserve of $7,374,531 by our subsidiary Greenwood Finance Group, LLC for its notes receivables and accumulated interest income
receivable.
Liabilities.
Total liabilities increased by $624,547 to $2,358,844 as of December 31, 2012, or approximately
36%, from $1,734,297 as of December 31, 2011. The increase was primarily due to increases notes payable, amortization related to
our derivative liability notes payables, accrued payroll expenses for payroll and the related expected payroll liability and a
contingent payroll liability that we have booked on unpaid capital contributions. As the Company continued to develop its technology,
it has incurred additional development and legal cost associated with protecting its IP rights and furthering the abilities of
the technology.
Additionally, we plan to convert some of the accrued compensation and expenses of certain officers
and vendors into long term notes payable, to reduce our current liabilities, improve our cash flow, and improve the Balance Sheet.
Stockholders' Equity.
Stockholders'
equity decreased by $616,971 to $(2,222,347) as of December 31, 2012 or approximately 38% from $(1,718,039) as of December 31,
2011 The decrease was due primarily to increases in paid in capital from the issuance of stock for services and debt retirement
valued at $416,751 and a total net loss of $8,370,464 for the year. Additionally, through our acquisition of Greenwood Finance
Group, LLC, the reserve of $7,374,531 for its notes receivables and accumulated interest income receivable.
We are still a development-stage company and have not had revenues
from our operations or reached the level of our planned operations. Our general and administrative expenses were $1,692,432
and $850,594 for the years ended December 31, 2011 and 2012 respectively. General and administrative expenses principally
consist of those costs required to maintain our corporate existence, and to meet our statutory requirements as a small public reporting
company. Such costs include legal fees, accounting fees, auditing fees, transfer agent costs, marketing and other fees
for filing our reports with the Securities and Exchange Commission. Other significant costs include continued research and development
and professional fees both related to our further development of our principal product EyeTalk® and the related patents. Compensation
to officers is being accrued, even though most of the accrued compensation will not likely be paid in cash.
Liquidity and Capital Resources
General.
Our
primary sources of cash have been sales of common stock through private placements
and loa
ns from affiliates. We are a developmental stage company moving from Research and Development (“R & D”)
to the initial stages of development. The transition from R & D to development and production requires a greater focus on operations,
product infrastructure, distribution and channel partners and industry alliances. Over the next 6 - 12 months, we will be looking
for the ideal acquisitions that will enable our company to take advantage of an existing customer base. Our management will also
pursue appropriate Letter of Intents and Joint Ventures that will position our company to move its products into these ventures
when successful production is completed.
Prior relationships with companies discussed
in previous filings have been terminated. We are not involved with any of those companies that were very instrumental during the
Research and Development stages, but are no longer engaged. We have engaged SIS Development as consulting technical officials for
product development. SIS Development will assist RCI in identifying the necessary contracts and relationships moving forward. Additionally,
industry expertise and consultation is being provided by advisors in the industry.
Overall, we had a net decrease in cash of $184
for the year ended December 31, 2012 compared to an increase of $184 over the same prior year end.
Cash Flows from Operating Activities.
Net
cash used in operations of $874,277 for the twelve-months period ended December 31, 2012 was attributable to a net loss of $8,370,223
and an increase in accounts payable and accrued expenses of $95,252 which was offset by a non-cash expense for depreciation and
amortization of $6,666, amortization of debt discount and loss on derivative liabilities of $280,175, a reserve on the notes receivable
by our subsidiary in the amount of $7,108,861 and the issuance of 264,667,836 shares for services received recorded at an average
of $0.00.0016 per share.
Cash Flows from Investing Activities.
Net
cash used by investing activities was $14,243 for the year ended December 31, 2012.
Cash Flows from Financing Activities.
Net cash provided by financing activities of $888,519 for the twelve-month period ended December 31, 2012 was attributable to the
issuance of notes payable $1,053,867, less retirement of notes payable of $578,881, issuance of stock for conversion of debt of
$416,751, plus the reduction of unpaid capital contributions in the amount of $
3,217
.
Our Company’s Capital Structure.
In its efforts to grow and expand our company, management must obtain the necessary capital to achieve those objectives, decide
on the best methods to obtain that capital, and adjust the capital structure of the Company as needed. The primary ways a company
will raise capital is either through debt financing (borrowing money), or equity financing (selling a portion of the company via
shares of stock) or a combination of both. The type of capital chosen (debt or equity), and methods of raising the capital depend
on a number of factors including; the company’s life cycle stage, e.g., start-up, development, high-growth or maturity, future
growth prospects, strength of the national economy and the credit markets.
Potential investors in any company, including ours, will consider
those factors and the relative risks to their investment capital. To limit their risks, these investors may limit the size of their
investment, or provide it to the company in stages, that is contingent upon the company reaching stated goals e.g., production,
marketing, distribution and revenues. The ultimate question for management is; how do you get the investors to commit to making
what could be a high risk investment for them, although one that would correspondingly benefit the Company, however one that the
investor could lose if the Company were to fail. Management considered both the equity and the debt financing options based on
the Company’s life cycle stage, economy, credit markets and other circumstances at the time, and reached the following conclusions;
Equity Financing
- Management
decided not to raise additional capital through an equity offering in its initial start-up and development stage for a variety
of reasons;
(1) The Company would have had to go through
the process of filing a registration statement e.g. S-1 with the SEC, which would have required expenditures and resources with
no assurances of receiving expeditious approval and would have been very time consuming, given our situation at that time.
(2) The direct and indirect flotation costs
of the issuance of an equity capital raise could have run $250,000 or more, and the Company did not have those funds available.
(3) It would have been very difficult to get
an investment banker to underwrite a new issuance for a development stage company with a limited operating history and revenues.
(4) Many investors did not want to take an
equity position in the Company at that time and the corresponding risks of ownership.
(5) The issuance of equity to these investors,
after resolving the potential regulatory challenges, legal issues, time constraints, and costs would have resulted in immediate
dilution for the other shareholders, giving them only limited hopes that value would be created.
Therefore, due to the above stated reasons,
the economic climate and the Company’s circumstances at that time, management elected not to pursue raising capital through
an equity offering at that time.
Debt Financing
–
Management
elected to raise capital for the Company through debt financing for the following reasons;
(1) Due to the Companies need for further development of
our patents, it had immediate and continuous need for capital.
(2) The investors were more willing
to invest funds more expeditiously, and take a creditor’s position instead of that as an owner by taking an equity position.
(3) With those immediately available funds, management
could continue to develop our technology and create short-term economic value to the Company by contracting with various vendors
for work, prior to any equity dilution taking place.
(4) The investors were issued Promissory Notes that were
unsecured without any collateral (taking a high risk), except as called for in the agreements.
(5) The Notes required no monthly payments which allowed
us to use that free cash flow for operating expenses, reduced our cash outlays, interest payments and improve our budget, plans
and forecast our cash flow.
(6) The investors received the potential upside of conversion
of the Notes into equity while protecting our downside with the use of the cash flow.
(7) Should the investors decide to convert the Notes into
common stock, then the Company’s debt would be eliminated from its balance sheet.
(8) The tax benefits of debt financing is that it’s
less expensive, while the Company is taxed on earnings, it is not generally taxed on borrowed money and the interest on the Notes
is tax deductible.
(9) Since the investors do not have any equity interests,
it has no voting rights or other control over the management of the Company, its operations and no claim to its future earnings.
(10) If the Company ever suffers a negative financial situation,
it is much easier to re-negotiate the terms of the Notes with the individual investors than with a bank, or a group of investors
through an equity or bond offering.
Based on the reasons above, and since the Company required immediate
capital to rapidly expand, grow, restructure its operations, continue development, finance potential acquisitions and execute its
marketing plans; raising capital through debt financing was our best alternative. This strategy resulted in our expanding on our
technology patents; thereby, increasing our potential assets, market capitalization value and our shareholders owning a portion
of a much larger and more valuable company. As the Company continues to advance and develop through the different stages of its
business life cycle, management will evaluate options, alternatives, and make strategic decisions for the best investment opportunities,
financing and capital structure at that time.
Debt
In its efforts to expand and grow, we 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 shares of our common stock 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.
Our management believes that
there are a number of benefits when issuing debt versus issuing equity capital. The interest paid on debt capital is tax exempt;
hence, our loan costs are lowered. Outside of their contractual debt documents, creditors have no control in the conduct of the
business, so by issuing debt capital, we do not dilute the ownership rights of our shareholders (unless and until any debt is converted
into equity). Also, as the interest rates are predetermined, the management is able to budget for the payments. Generally, debt
is less costly and the time involved to be able to raise the capital is shortened. In many cases, raising capital through equity
requires regulatory approval, which can take months and is dilutive to all shareholders.
2012
On January 2, 2012 we 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 at $0.015 per share.
On January 31, 2012, we entered into a two
(2) year convertible Promissory Note with a non-related creditor for $28,000 at 12% interest. The holder has the right
to convert the note to common stock at $0.005 per share.
On February 6, 2012, the Board of Directors
approved a request for an adjustment to the conversion price of a Long Term Note dated April 30, 2011 for $76,194 from $0.005 to
$0.0022.
On February 29, 2012, we 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 at $0.005 per share.
On March 22, 2012,
we completed a partial conversion of one of our Notes payable dated April 30, 2011, with a principal amount of $76,194. A total
of $26,000 worth of the Note was converted, and 11,817,900 common shares were issued for that part of the conversion, which leaves
a remaining balance of $50,194 of the principal of the Note. No accrued interest was paid on the Note upon conversion. This conversion
of debt reduced our Long Term Notes payables
by
$26,000.
On March 22, 2012, we issued 159,000
restricted common shares for professional services provided to us and expensed in 2011. The issuance will reduce our accounts payable
by $4,990.
On March 30, 2012,
we completed a conversion of one of our Notes payable to one of our Officers and Directors Mr. Solomon Ali, dated October 1, 2011,
with a principal amount of $46,154. The Note was converted, and 9,230,768 common shares were issued for the conversion, No accrued
interest was paid on the Note upon conversion. This conversion of debt reduced our Long Term Notes payables
by
$46,154.
On March 30, 2012,
we completed a conversion of one of our Notes payable to one of our Officers and Directors, Mr. Ronald Carter, dated October 1,
2011, with a principal amount of $92,308. The Note was converted, and 18,461,544 common shares were issued for the conversion,
No accrued interest was paid on the Note upon conversion. This conversion of debt reduced our Long Term Notes payables
by
$92,308.
On March 30, 2012, we 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 at $0.005 per share.
On April 1, 2012 we entered into a two (2)
year convertible Promissory Note with our 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 $0.005.
On April 1, 2012 we entered into a two (2)
year convertible Promissory Note with our 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 $0.005.
On April 30, 2012 we 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 at $0.005 per share.
On May 31, 2012 we entered into a two (2) year
convertible Promissory Note with a non-related creditor for $33,000 at 12% interest. The holder has the right to convert
the note to common stock at $0.005 per share.
2012
On June 7, 2012 we 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 at 50% of the then current market prices. This was a partial reassignment and modification of a note dated
August 30, 2011. On June 19, 2012, the Company received a notice of partial conversion. A total of $4,000 was converted and 1,111,111
restricted common shares were issued,
which leaves a remaining principal balance of $23,000
.
This conversion of debt reduced our notes payables by $4,000.
On June 12, 2012 we 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 at 50% of the then current market prices. This was a partial reassignment and modification of
notes dated May 30, 2011 for $12,000, May 30, 2011 for $10,000 and a note dated June 30, 2011 for $17,500 and accumulated interest
of $3,948. On June 18, 2012, the Company received a notice of partial conversion. A total of $10,000 was converted and 3,030,303
restricted common shares were issued,
which leaves a remaining principal balance of $33,448
.
This conversion of debt reduced our notes payables by $10,000.
On June 19, 2012 we 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 at 50% of the then current market prices.
On June 30, 2012 we 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 at $0.005 per share.
From July 27, 2012 through September 25, 2012
we received several notices of partial conversion from an unrelated third party as part of a partial reassignment and modification
of a note originally issued to a non-related third party on August 30, 2011. A total of $17,500 was converted and 27,127,038 restricted
common shares were issued,
which leaves a remaining principal balance of $5,500
. This conversion
of debt reduced our notes payables $17,500.
On August 1, 2012, we received a notice of
partial conversion from an unrelated third party as part of a partial reassignment of a note originally issued to a non-related
third party on April 30, 2012, in the amount of $76,194. A total of $37,645 was converted and 17,128,475 restricted common shares
were issued,
which leaves a remaining principal balance of $12,549
. This conversion of debt reduced
our notes payables $37,645.
From August 22, 2012 through September 18,
2012 we received several notices of partial conversion from an unrelated third party This was a partial reassignment and modification
of notes dated May 30, 2011 for $12,000, May 30, 2011 for $10,000 and a note dated June 30, 2011 for $17,500 and accumulated interest
of $3,948. A total of $33,448 was converted and 38,618,636 restricted common shares were issued,
which
leaves a remaining principal balance of $0
. This conversion of debt reduced our notes payables $33,448.
On August 30, 2012 we 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 at $0.005 per share.
On September 4, 2012 we entered into a one
(1) year convertible Promissory Note with a non-related creditor for $42,700 at 10% interest. The holder has the right
to convert the note to common stock at 50% of the then current market prices. From September 19, 2012 through September 28, 2012
the Company received several notices of partial conversion from an unrelated third party This was a partial reassignment and modification
of notes dated October 30, 2011 for $8,700, November 30, 2011 for $8,500 and a note dated January 31, 2012 for $28,000. A total
of $16,300 was converted and 23,857,143 restricted common shares were issued,
which leaves a remaining
principal balance of $26,400
. This conversion of debt reduced our notes payables $16,300.
On September 30, 2012 we entered into a two
(2) year convertible Promissory Note with a non-related creditor for $33,519 at 12% interest. The holder has the right
to convert the note to common stock at $0.005 per share.
On October 4, 2012 we received a notice of
partial conversion from an unrelated third party as part of a partial reassignment and modification of a note originally issued
to a non-related third party on August 30, 2011. A total of $5,500 was converted and 14,107,500 restricted common shares were issued,
which leaves a remaining principal balance of $0
. This conversion of debt reduced our notes payables
$5,500.
From October 8, 2012 through December 13, 2012
we received several notices of partial conversion from an unrelated third party. This was a partial reassignment and modification
of notes dated October 30, 2011 for $8,700, November 30, 2011 for $8,500 and a note dated January 31, 2012 for $28,000. A total
of $26,400 was converted and 68,168,930 restricted common shares were issued,
which leaves a remaining
principal balance of $0
. This conversion of debt reduced our notes payables $26,400.
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 at 50% of the then current market prices.
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 at $0.002 per share.
On November 1, 2012 we received a notice of
partial conversion from an unrelated third party as part of note originally issued to a non-related third party on August 4, 2011.
A total of $90,497 was converted and 18,099,488 restricted common shares were issued,
which leaves a
remaining principal balance of $0
. This conversion of debt reduced our notes payables $90,497.
On November 30, 2012 we entered into a two
(2) year convertible Promissory Note with a non-related creditor for $76,390 at 12% interest. The holder has the right
to convert the note to common stock at $0.002 per share.
On December 26, 2012 we received a notice of
partial conversion from an unrelated third party as part of a note originally issued on June 19, 2012. A total of $11,000 was converted
and 13,750,000 restricted common shares were issued,
which leaves a remaining principal balance of $
16,500.
This conversion of debt reduced our notes payables $11,000.
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 at $0.002 per share.
2011
On January 15, 2011, we entered into a two
(2) year convertible Promissory Note with a non-related creditor for $42,500 at 10% interest. The holder has the right
to convert the note to common stock. On August 4, 2011 this Note was converted to 8,500,068 restricted common shares of which 2,200,000
shares had previously been issued,
On April 30, 2011, we entered into a two (2)
year convertible Promissory Note with a non-related creditor for $76,194 at 10% interest. The holder has the right to
convert the note to common stock at $0.005 per share. On February 6, 2012, the Board of Directors approved a request for an adjustment
to the conversion price of a Long Term Note dated April 30, 2011 for $76,194 from $0.005 to $0.0022. On March 21, 2012, $26,000
of this note was converted to 11,817,900 shares of common stock, which leaves a remaining principal balance of $50,194. This conversion
of debt reduced our Long Term Notes payables by $26,000.
On April 30, 2011, we 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 at $0.005 per share.
On May 30, 2011, we 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 at $0.005 per share.
On May 30, 2011, we entered into a two (2)
year convertible Promissory Note with a non-related creditor for $10,000 at 10% interest. The holder has the right to
convert the note to common stock at $0.005 per share.
On June 30, 2011, we entered into a two (2)
year convertible Promissory Note with a non-related creditor for $17,500 at 10% interest. The holder has the right to
convert the note to common stock at $0.005 per share.
On August 4, 2011, we entered into a two (2)
year convertible Promissory Note with a non-related creditor for $140,663 and $3,404 in interest. The holder has the
right to convert the note to common stock at $0.005 per share.
On November 30, 2011, the holder
converted $50,166 of the note leaving a principal balance due of $90,497.
On August 30, 2011, we 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 at $0.005 per share. On June 12, 2012, $27,000 of this note was modified and assigned by the original
note holder to a non-related third party, leaving a principal balance of $17,600 on the original Note.
On September 30, 2011, we 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 at $0.005 per share.
On October 1, 2011, we entered into a two (2)
year convertible Promissory Note with Ronald Carter, our 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. The holder has the right to convert
the note to common stock at $0.005 per share. On March 30, 2012, we completed a conversion of $92,308. The Note was converted,
and 18,461,544 common shares were issued for the conversion, No accrued interest was paid on the Note upon conversion. This conversion
of debt reduced our Long Term Notes payables by $92,308.
On October 1, 2011, we entered into a two (2)
year convertible Promissory Note with our 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. The holder has the right to convert
the note to common stock at $0.005 per share. On March 30, 2012, we completed a conversion of $46,154. The Note was converted,
and 9,230,768 common shares were issued for the conversion, No accrued interest was paid on the Note upon conversion. This conversion
of debt reduced our Long Term Notes payables by $46,154.
On October 1, 2011, we 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 at $0.005 per share. This note was originally dated 12/31/10
On October 1, 2011, we 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 at $0.005 per share. This note was assigned to an unrelated third party and was originally issued
12/31/10.
On October 1, 2011, we 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 at $0.005 per share. This note was assigned to an unrelated third party and was originally issued 12/31/10.
On October 30, 2011, we 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 at $0.005 per share.
On November 30, 2011, we 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 at $0.005 per share.
On December 30, 2011, we 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 at $0.005 per share.
The investors and private equity firms are
very astute and have many years of experience and expertise in making successful investments in many companies. They have been
investing with the Company for several years, and have provided us with critical short and long-term funds that we have used for
operations, working capital, and investment capital for our business acquisitions to expand and grow the Company. They have the
option to convert their Notes into stock after a holding period per SEC guidelines. However, most have elected to hold their Notes
for 1 to 3 years and therefore have taken a long-term investment strategy in the Company. Without their continuous long-term commitment
to investment in the Company, it is unlikely that the growth and expansion that we have achieved would have been possible.
Recent Accounting Pronouncements
FASB Accounting Standards Codification
In May 2011, FASB issued Accounting Standards
Update No. 2011-04,
“Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and
Disclosure Requirements in U.S. GAAP and IFRSs”
(“ASU 2011-04”). ASU 2011-04 changes the
wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about
fair value measurements to ensure consistency between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair
value measurements that are estimated using significant unobservable (Level 3) inputs. This new guidance is to be applied
prospectively. The Company anticipates that the adoption of this standard will not materially expand its financial statement
note disclosures.
In June 2011, FASB issued ASU No. 2011-05,
“
Comprehensive Income (ASC Topic 220): Presentation
of Comprehensive Income
” (“ASU 2011-05”),
which amends current comprehensive income guidance. This accounting update eliminates the option to present the components
of other comprehensive income as part of the statement of shareholders’ equity. Instead, the Company must report comprehensive
income in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive
income, or in two separate but consecutive statements. ASU 2011-05 will be effective for public companies during the
interim and annual periods beginning after December 15, 2011, with early adoption permitted. The Company is reviewing
ASU 2011-05 to ascertain its impact on the Company’s financial position, results of operations or cash flows as it only requires
a change in the format of the current presentation.
In September 2011, the FASB issued ASU
2011-08, “
Testing Goodwill for Impairment
”, which allows, but does not require, an entity when performing its
annual goodwill impairment test the option to first do an initial assessment of qualitative factors to determine whether it is
more likely than not that the fair value of a reporting unit is less than its carrying amount for purposes of determining whether
it is even necessary to perform the first step of the two-step goodwill impairment test. Accordingly, based on the option created
in ASU 2011-08, the calculation of a reporting unit’s fair value is not required unless, as a result of the qualitative assessment,
it is more likely than not that fair value of the reporting unit is less than its carrying amount. If it is less, the quantitative
impairment test is then required. ASU 2011-08 also provides for new qualitative indicators to replace those currently used. Prior
to ASU 2011-08, entities were required to test goodwill for impairment on at least an annual basis, by first comparing the fair
value of a reporting unit with its carrying amount. If the fair value of a reporting unit is less than its carrying amount, then
the second step of the test is performed to measure the amount of impairment loss, if any. ASU 2011-08 is effective for annual
and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted.
The Company adopted ASU 2011-08 during the first quarter of fiscal 2013. The adoption of ASU 2011-08 did not impact the Company’s
results of operations or financial condition.
In December 2011, FASB issued Accounting
Standards Update 2011-11, “
Balance Sheet - Disclosures about Offsetting Assets and Liabilities
” to enhance disclosure
requirements relating to the offsetting of assets and liabilities on an entity's balance sheet. The update requires enhanced disclosures
regarding assets and liabilities that are presented net or gross in the statement of financial position when the right of offset
exists, or that are subject to an enforceable master netting arrangement. The new disclosure requirements relating to this update
are retrospective and effective for annual and interim periods beginning on or after January 1, 2013. The update only requires
additional disclosures, as such, the Company does not expect that the adoption of this standard will have a material impact on
its results of operations, cash flows or financial condition.
In July 2012, the FASB issued ASU No. 2012-02,
“
Testing Indefinite-Lived Intangible Assets for Impairment
”. The guidance allows companies to perform a “qualitative”
assessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary, similar in approach
to the goodwill impairment test.
ASU 2012-02 allows companies the option
to first assess qualitatively whether it is more likely than not that an indefinite-lived intangible asset is impaired, before
determining whether it is necessary to perform the quantitative impairment test. An entity is not required to calculate the fair
value of an indefinite-lived intangible asset and perform the quantitative impairment test unless the entity determines that it
is more likely than not that the asset is impaired. Companies can choose to perform the qualitative assessment on none, some, or
all of its indefinite-lived intangible assets or choose to only perform the quantitative impairment test for any indefinite-lived
intangible in any period.
ASU 2012-02 is effective for annual and
interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The
Company is in the process of evaluating the guidance and the impact ASU 2012-02 will have on its consolidated financial statements.
Subsequent Events
(Included in Accounting Standards Codification
(“ASC”) 855 “Subsequent Events”, previously SFAS No. 165 “Subsequent Events”)
SFAS No. 165 established general standards
of accounting for and disclosure of events that occur after the balance sheet date, but before the financial statements are issued
or available to be issued (“subsequent events”). An entity is required to disclose the date through which subsequent
events have been evaluated and the basis for that date. For public entities, this is the date the financial statements are issued.
SFAS No. 165 does not apply to subsequent events or transactions that are within the scope of other GAAP and did not result in
significant changes in the subsequent events reported by the Company. SFAS No. 165 became effective for interim or annual periods
ending after June 15, 2009 and did not impact the Company’s financial statements. The Company evaluated for subsequent events
through the issuance date of the Company’s financial statements. No recognized or non-recognized subsequent events were noted.
Determination of the Useful Life of Intangible
Assets
(Included in ASC 350 “Intangibles —
Goodwill and Other”, previously FSP SFAS No. 142-3 “Determination of the Useful Lives of Intangible Assets”)
FSP SFAS No. 142-3 amended the factors that
should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible
asset under previously issued goodwill and intangible assets topics. This change was intended to improve the consistency between
the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset
under topics related to business combinations and other GAAP. The requirement for determining useful lives must be applied prospectively
to intangible assets acquired after the effective date and the disclosure requirements must be applied prospectively to all intangible
assets recognized as of, and subsequent to, the effective date. FSP SFAS No. 142-3 became effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The adoption of FSP SFAS No.
142-3 did not impact the Company’s financial statements.
Noncontrolling Interests
(Included in ASC 810 “Consolidation”,
previously SFAS No. 160 “Noncontrolling Interests in Financial Statements an amendment of ARB No. 51”)
SFAS No. 160 changed the accounting and reporting
for minority interests such that they will be recharacterized as noncontrolling interests and classified as a component of equity.
SFAS No. 160 became effective for fiscal years beginning after December 15, 2008 with early application prohibited. The Company
implemented SFAS No. 160 at the start of fiscal 2009 and no longer records an intangible asset when the purchase price of a noncontrolling
interest exceeds the book value at the time of buyout. The adoption of SFAS No. 160 did not have any other material impact on the
Company’s financial statements.
Consolidation of Variable Interest Entities
— Amended
(To be included in ASC 810 “Consolidation”,
SFAS No. 167 “Amendments to FASB Interpretation No. 46(R)”)
SFAS No. 167 amends FASB Interpretation No.
46(R) “Consolidation of Variable Interest Entities regarding certain guidance for determining whether an entity is a variable
interest entity and modifies the methods allowed for determining the primary beneficiary of a variable interest entity. The amendments
include: (1) the elimination of the exemption for qualifying special purpose entities, (2) a new approach for determining who should
consolidate a variable-interest entity, and (3) changes to when it is necessary to reassess who should consolidate a variable-interest
entity. SFAS No. 167 is effective for the first annual reporting period beginning after November 15, 2009, with earlier adoption
prohibited. The Company will adopt SFAS No. 167 in fiscal 2010 and does not anticipate any material impact on the Company’s
financial statements.
"Safe Harbor" Statement Under
the Private Securities Litigation Reform Act of 1995
This
Annual Report on Form 10-K and certain information incorporated herein by reference contain forward-looking statements within
the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. All statements included or incorporated
by reference in this Annual Report on Form 10-K, other than statements that are purely historical, are forward-looking statements.
Words
such as "anticipates," "expects," "intends," "plans," "believes," "seeks,"
"estimates," and similar expressions also identify forward-looking statements. Forward-looking statements are not guarantees
of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the
results contemplated by the forward-looking statements. These forward-looking statements are based on management's expectations
as of the date hereof, that necessarily contain certain assumptions and are subject to certain risks and uncertainties. The Company
does not undertake any responsibility to update these statements in the future. The Company's actual future performance and results
could differ from that contained in or suggested by these forward-looking statements as a result of the factors set forth in this
Management's Discussion and Analysis of Financial Condition and Results of Operations, the Business Risks described in Item 1
of this Report on Form 10-K and elsewhere in the Company's filings with the Securities and Exchange Commission.