|TEV||-0||TEV/EBIT||2||TTM 2019-09-30, in MM, except price, ratios|
|Part I - Financial Information|
|Item 1. Financial Statements|
|Note 1. Organization and Description of Business Operations|
|Note 2. Summary of Significant Accounting Policies|
|Note 3. Going Concern|
|Note 4. Property and Equipment|
|Note 5. Note Receivable|
|Note 6. Lease Receivable - Related Party|
|Note 7. Lines of Credit|
|Note 8. Stockholders' Equity|
|Note 9. Related Party Transactions|
|Note 10. Subsequent Events|
|Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations|
|Item 3. Quantitative and Qualitative Disclosures About Market Risk.|
|Item 4. Controls and Procedures|
|Part II - Other Information|
|Item 1. Legal Proceedings|
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds|
|Item 3. Default Upon Senior Securities|
|Item 4. Mine Safety Disclosures|
|Item 5. Other Information|
|Item 6. Exhibits|
|Balance Sheet||Income Statement||Cash Flow|
Rev, G Profit, Net Income
Ops, Inv, Fin
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|x||QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
For the quarterly period ended June 30, 2020
|o||TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT|
For the transition period from ________ to ___________.
Commission file number 333-210960
(Exact name of small business issuer as specified in its charter)
|(State or other jurisdiction of incorporation or organization)||(IRS Employer Identification No.)|
110 Sunrise Center Drive
Thomasville, NC 27360
(Address of principal executive offices)
(Issuer’s telephone number)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
|Title of each class||Trading Symbol(s)||Name of each exchange on which registered|
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issues (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)
|Large accelerated filer o||Accelerated filer o|
|Non-accelerated filer o||Smaller reporting company x|
|Emerging growth company o|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
There were 13,929,581 shares of the registrant’s common stock, $0.001 par value per share, outstanding on August 14, 2020.
|Part I – FINANCIAL INFORMATION|
|Item 1.||Condensed Financial Statements:||3|
|Condensed Balance Sheets at June 30, 2020 and December 31, 2019 (unaudited)||3|
|Condensed Statements of Operations for the three and six months ended June 30, 2020 and 2019 (unaudited)||4|
|Condensed Statements of Stockholders’Deficit for the three and six months ended June 30, 2020 and 2019 (unaudited)||5|
|Condensed Statements of Cash Flows for the six months ended June 30, 2020 and 2019 (unaudited)||6|
|Notes to Condensed Financial Statements (unaudited)||7|
|Item 2.||Management’s Discussion and Analysis of Financial Condition and Results of Operations||13|
|Item 3.||Quantitative and Qualitative Disclosures About Market Risk||20|
|Item 4.||Controls and Procedures||20|
|Part II – OTHER INFORMATION|
|Item 1.||Legal Proceedings||21|
|Item 2.||Unregistered Sales of Equity Securities and Use of Proceeds||21|
|Item 3.||Defaults Upon Senior Securities||21|
|Item 4.||Mine Safety Disclosures||21|
|Item 5.||Other Information||21|
|June 30,||December 31,|
|Note Receivable, related party||34,375||50,000|
|Lease Receivable, related party||158,700||–|
|Interest receivable, related party||2,669||892|
|Total current assets||240,247||100,998|
|Property and equipment, net||6,055||7,157|
|Lease Receivable - related party (net of current portion)||95,071||–|
|Total long-term assets||101,126||7,157|
|LIABILITIES AND STOCKHOLDERS' DEFICIT|
|Accrued liabilities - related party||170,799||161,601|
|Note payable – related party||146,086||–|
|Line of credit, current portion||75,000||75,000|
|Line of credit to related parties||50,835||18,964|
|Accrued interest payable – line of credit||48,668||44,918|
|Accrued interest – related parties||83,795||119,471|
|Total current liabilities||613,400||449,622|
|Note payable – related party, net of current portion||107,537||–|
|Total long-term liabilities||107,537||–|
|Preferred stock, $.001 par value; 10,000,000 shares authorized; no shares issued and outstanding||–||–|
|Common stock, $0.001 par value; 190,000,000 shares authorized; 13,929,581 shares issued and outstanding||13,930||13,930|
|Additional paid in capital||2,895,024||2,865,024|
|Common stock issuable||90,000||120,000|
|Total Stockholders' Deficit||(379,564||)||(341,467||)|
|Total Liabilities and Stockholders' Deficit||$||341,373||$||108,155|
The accompanying notes are an integral part of the unaudited condensed financial statements.
|Three Months Ended||Six Months Ended|
|June 30,||June 30,||June 30,||June 30,|
|Consulting - related parties||15,000||15,000||30,000||30,000|
|General and administrative||581||22,231||6,328||40,281|
|Operating income (loss)||(6,099||)||(15,876||)||(36,658||)||(41,383||)|
|Other income (expense):|
|Interest expense – unrelated parties||(1,875||)||(1,875||)||(3,750||)||(3,750||)|
|Interest expense – related parties||(6,209||)||(219||)||(11,017||)||(566||)|
|Interest income – related parties||8,475||–||13,328||–|
|Gain on sale of assets - related party||–||20,000||–||20,000|
|Net other income (expense)||391||17,906||(1,439||)||15,684|
|Net Income (Loss) Before Taxes||(5,708||)||2,030||(38,097||)||(25,699||)|
|Provision for income tax||–||–||–||–|
|Net income (loss)||$||(5,708||)||$||2,030||(38,097||)||(25,699||)|
|Net income (loss) per share (basic and diluted)||$||(0.00||)*||$||0.00||*||(0.00||)*||(0.00||)|
|Weighted average number of common shares outstanding, basic and diluted||13,929,581||13,929,581||13,929,581||13,929,581|
* denotes income (loss) per share of less than one cent per share.
The accompanying notes are an integral part of the unaudited condensed financial statements.
For the Three and Six Months Ended June 30, 2020 and 2019
|Balances at December 31, 2018||13,929,581||$||13,930||$||2,865,024||$||120,000||$||(3,291,436||)||$||(292,482||)|
|Balances at March 31, 2019||13,929,581||13,930||2,865,024||$||120,000||(3,319,166||)||(320,212||)|
|Balances at June 30, 2019||13,929,581||$||13,930||$||2,865,024||$||120,000||$||(3,317,136||)||$||(318,182||)|
|Balances at December 31, 2019||13,929,581||$||13,930||$||2,865,024||$||120,000||$||(3,340,421||)||$||(341,467||)|
|Shares to be cancelled at end of direct financing lease||–||–||30,000||(30,000||)||–||–|
|Balances at March 31, 2020||13,929,581||13,930||2,895,024||90,000||(3,372,810||)||(373,856||)|
|Balances at June 30, 2020||13,929,581||$||13,930||$||2,895,024||$||90,000||$||(3,378,518||)||$||(379,564||)|
The accompanying notes are an integral part of the unaudited condensed financial statements.
|Six Months Ended|
|June 30, 2020||June 30, 2019|
|Cash Flows From Operating Activities:|
|Adjustments to reconcile net loss to net cash used in operating activities:|
|Non-cash rent expense||–||30,000|
|Gain on sale of assets||–||(20,000||)|
|Changes in operating assets and liabilities|
|Decrease in lease receivable – related party||46,229||–|
|Increase in interest receivable – related parties||(1,777||)||–|
|Increase (Decrease) in accounts payable||8,549||(12,124||)|
|Increase in accounts payable – related parties||9,198||29,736|
|Increase in accrued interest – unrelated parties||3,750||3,750|
|(Decrease) Increase in accrued interest – related parties||(35,676||)||565|
|Net cash (used in) provided by operating activities||(6,722||)||11,495|
|Cash Flows From Investing Activities:|
|Purchase of asset for financing lease||$||(300,000||)||$||–|
|Collections on notes receivable||15,625||–|
|Net cash used in investing activities||(284,375||)||–|
|Cash Flows From Financing Activities:|
|Proceeds from line of credit from related party||343,746||123,500|
|Proceeds from note payable to related party||253,623||–|
|Repayments on line of credit from related party||(311,875||)||(146,076||)|
|Net cash (used in) provided by financing activities||285,494||(22,576||)|
|Net Decrease In Cash||(5,603||)||(11,081||)|
|Cash At The Beginning Of The Period||50,106||50,596|
|Cash At The End Of The Period||$||44,503||$||39,515|
|Schedule of Non-Cash Investing And Financing Activities|
|Assets sold for note receivable||$||–||$||50,000|
|Asset transferred in direct financing lease||$||300,000||$||–|
|Cash paid for interest||$||46,694||$||–|
|Cash paid for income taxes||$||–||$||–|
The accompanying notes are an integral part of the unaudited condensed financial statements.
For the Three and Six Months Ended June 30, 2020 and 2019
NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS OPERATIONS
RC-1, Inc. (the “Company”), was incorporated in the State of Nevada on May 14, 2009. The Company is currently considered to be in the development stage,and has generated only limited revenues from its activities in the racing business. R-Course Promotions, LLC was formed in the State of California on October 30, 2007. On June 1, 2009, in a merger classified as a transaction between parties under common control, the sole membership interest owner in R-Course Promotions, LLC exchanged 125,000 membership interests for 1,786 common shares in RC-1, Inc. Subsequent to the consummation of the merger, R-Course Promotions, LLC ceased to exist. The results of operations of RC-1, Inc. and R-Course Promotions, LLC have been combined from October 30, 2007 forward through the date of merger.
The Company is a motorsports marketing business focused primarily in road racing events in North America utilizing NASCAR type competition equipment.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The Company’s condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Interim Condensed Financial Statements
The accompanying condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to form 10Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete condensed financial statements. In our opinion the condensed financial statements include all adjustments (consisting of normal recurring accruals) necessary in order to make the condensed financial statements not misleading. Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the final results that may be expected for the year ended December 31, 2020. For more complete financial information, these unaudited condensed financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2019 filed with the SEC on April 14, 2020.
Use of Estimates
The preparation of condensed financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid investments with an original maturity of three months or less as cash equivalents. The Company has no cash equivalents. The Company maintains cash with a commercial bank. The deposits are made with a reputable financial institution and the Company does not anticipate realizing any losses from these deposits.
Property and equipment
Property and equipment are recorded at cost and depreciated under the straight-line method over each item's estimated useful life. The Company uses a 5 year life for racecars and equipment, 7 years for furniture and fixtures.
The Company measures its financial assets and liabilities in accordance with the requirements of FASB ASC 825 “Financial Instruments”. The carrying values of its accounts payable, note payable (current portion), line of credit, accrued expenses, and other current liabilities approximate fair value due to the short-term maturities of these instruments.
The Company adopted ASC 606 “Revenue from Contracts with Customers” on January 1, 2018, using the modified retrospective method, which did not have a material impact on the timing and amount of product revenues.
The new revenue recognition standard prescribes a five-step model that focuses on transfer of control and entitlement to payment when determining the amount of revenue to be recognized. Under the new guidance, an entity is required to perform the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
The majority of revenues are from consulting services provided at events which range from one day to one week in length. The Company also earns revenues from entering their race cars into events whereby there is a money purse for finishing positions. The revenues from these events are recognized at a point when the performance obligation is met. In the event that the Company’s revenues are for services provided under contracts greater than one month in length, the contracts will be billed in total at the onset of the contact period, and to the extent that billings exceed revenue earned, the Company will record such amount as deferred revenue until the performance obligations is met. Revenue will be recognized on these contracts in the period the services are provided under the contract. Expenses associated with providing the services are recognized in the period the services are provided which coincides with when the revenue is earned.
Net income (loss) per share
The Company utilizes FASB ASC 260, “Earnings per Share.” Basic earnings per share is computed by dividing earnings (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include additional common share equivalents available upon exercise of stock options and warrants using the treasury stock method. Dilutive common share equivalents include the dilutive effect of in-the-money share equivalents, which are calculated based on the average share price for each period using the treasury stock method, excluding any common share equivalents if their effect would be anti-dilutive. For the three and six months ended June 30, 2020 and 2019 there were no potentially dilutive shares.
Products and services, geographic areas and major customers
The Company earns revenue from race purses, race event consulting and the occasional sale of racecars, but does not separate sales from different activities into operating segments.
Concentrations of debt financing
The Company has line of credit agreements with companies owned and operated by the Company’s CEO and majority shareholder. Outstanding principal on these lines of credit account for 37.88% and 07% of the Company line of credit balances at June 30, 2020 and December 31, 2019, respectively. See Note 7 for further discussion of line of credit terms and relationships.
Stock based compensation
The Company accounts for employee and non-employee stock awards under FASB ASC 718, “Compensation – Stock Compensation”, whereby equity instruments issued to employees for services are recorded based on the fair value of the instrument issued and those issued to non-employees are recorded based on the fair value of the consideration received or the fair value of the equity instrument, whichever is more reliably measurable.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting standards, if adopted, will have a material effect on our condensed financial statements.
NOTE 3. GOING CONCERN
The Company's financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustment relating to recoverability and classification of recorded amounts of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company has a minimum cash balance available for payment of ongoing operating expenses. As of June 30, 2020, the Company has an accumulated deficit of $3,378,518 and negative working capital of $373,153. For the six months ended June 30, 2020, the Company had a net loss of $38,097 and a net cash outflow from operating activities of $6,722. These matters raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issue date of this report. Its continued existence is dependent upon its ability to continue to execute its operating plan and to obtain additional debt or equity financing. There can be no assurance the necessary debt or equity financing will be available or will be available on terms acceptable to the Company.
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment values recorded at cost are as follows:
|Less: Accumulated depreciation||(4,958||)||(3,856||)|
|Property and equipment, net||$||6,055||$||7,157|
Depreciation expense for the three and six months ended June 30, 2020 and 2019 were $551 and $2,216 respectively and $1,102 and $5,267 respectively.
On June 1, 2019, the Company sold two racecars for $50,000 recognizing a gain of $20,000. (The racecars were purchased from the same party in 2017).
NOTE 5. NOTE RECEIVABLE
On June 1, 2019, the Company sold two racecars to a related party for a $50,000 note receivable, resulting in a gain of $20,000. The interest rate on the note is 1% per annum and payments of $1,000 per month began August 2019 and increase to $4,778 per month in March 2020, with a final payment of $525 in December 2020. Effective April 1, 2020, the repayment terms were amended due to disruption caused by the COVID-19 outbreak. Payments of $1,350 will be due after each event in the NASCAR race schedule which consists of 36 events ending in November 2020. The balance of the note was $34,375 and $50,000 as of June 30, 2020 and December 31, 2019, respectively
NOTE 6. LEASE RECEIVABLE – RELATED PARTY
On January 28,2020, the Company purchased an Audi Sportscar from a related party for $300,000. On February 15, 2020, the Company leased the vehicle back to the same related party. The term of the lease is for 24 months with payments of $14,125 per month. At the end of the lease, 200,000 shares of stock of the Company owned by the related party will be cancelled at a value of $.15 per share. In addition, the related party has the right to purchase the car for $1,000. The lease is classified as a financing lease under ASC 842. The present value of the lease payments, excluding the end of lease provisions, discounted at an interest rate of 12%, is $300,063. The Company is using the actual cost of the vehicle as the initial value of the lease in accordance with ASC 842-30-55-17A.
The undiscounted cash flow principal payments for the remaining term of the lease will be as follows:
|2020 (remainder of year)||$||98,875|
|Less deferred interest||(28,939||)|
|Less current portion||(158,700||)|
|Long-term lease receivable||$||95,071|
NOTE 7. LINES OF CREDIT
On October 15, 2012, the Company entered into a revolving line of credit agreement with TVP Investments, LLC, and a Georgia Limited Liability Company in the amount up to $500,000. The line of credit is unsecured, bears interest of 10% and has a maturity date of December 31, 2023. As of June 30, 2020, and December 31, 2019, the balance of the line of credit was $75,000. As of June 30, 2020, and December 31, 2019, the Company had accrued interest on this line of credit in the amounts of $48,668 and $44,918, respectively.
The Company also has a business line of credit up to $3,000 with Well Fargo bank. The line of credit is unsecured with a variable interest rate of approximately 18.0%. No amounts have been drawn on this Line.
NOTE 8. STOCKHOLDERS’ EQUITY
There are 10,000,000 shares of preferred stock authorized with a $.001 par value, of which no shares are outstanding.
There are 190,000,000 shares of common stock authorized with a par value of $.001 per share, of which 13,929,581 shares are issued and outstanding as of June 30, 2020.
In January 2017, the Company entered into a 36-month warehouse lease with Rick Ware, payable in 1,200,000 shares of the Company’s common stock. As of June 30, 2020, 400,000 shares had been issued under this agreement.
There were no issuances of preferred or common stock during the three and six months ended June 30, 2020.
NOTE 9. RELATED PARTY TRANSACTIONS
Consulting revenue from related parties
On February 15, 2019, the Company entered into a three-year contract to provide marketing and branding consulting services to a related party. The majority shareholder of the client is also a shareholder in the Company. Consulting revenue recognized for the three and six months ended June 30, 2020 and 2019 was $20,832 and $34,720, and $27,780 and $52,448, respectively.
Consulting expense to related parties
On December 31, 2018, the Company extended for three years a previous consulting agreement with General Pacific Partners, LLC a company owned and operated by the CEO and majority shareholder, to provide consulting services in the motor sports marketing industry. The consulting agreement requires a $5,000 monthly fee and can be terminated by either party pursuant to a 60-day notice. During each of the three and six months ended June 30, 2020 and 2019, the Company incurred related party consulting expense of $15,000 and $30,000, respectively. As of June 30, 2020, and December 31, 2019, the Company had an accrued payable balance due to this related party of $159,713 and $150,000, respectively.
Lines of credit to related parties
On October 1, 2009, the Company entered into a line of credit agreement for up to $600,000 with a related party owned and operated by the CEO and majority shareholder that also provides motor sports marketing industry consulting services to the Company as needed. Under the agreement, the Company receives operating fund advances and reimbursement for expenses incurred on behalf of the Company. The loan bears interest at eight percent (8%) per annum. As of June 30, 2020, and December 31, 2019, the Company owed $50,235 and $18,364, respectively, on the line of credit to this related party. As of June 30, 2020, and December 31, 2019, the Company had accrued interest on this line of credit in the amounts of $228 and $35,929, respectively.
On August 5, 2013, the Company entered into a line of credit agreement for up to $600,000 with a related party owned and operated by the CEO and majority shareholder. Under the agreement, the Company receives operating fund advances and reimbursement for expenses incurred on behalf of the Company. As of June 30, 2020, and December 31, 2019, the Company owed $600 under this line of credit to this related party. As of June 30, 2020, and December 31, 2019, the Company had accrued interest of $83,567 and $83,542, respectively.
Notes payable – related party
On March 6, 2020, the Company borrowed $287,500 from a related party. The term of the note is 36 months with payments of $14,055 per month commencing April 6, 2020 including interest at 12%. Payments will continue until the note is paid in full. The Company had a balance due at June 30, 2020 of $253,623. Interest expense of $8,288 has been paid.
The majority shareholder of the Company pays certain ongoing operating costs from personal funds and is periodically reimbursed. As of June 30, 2020, and December 31, 2019, the amount due to the shareholder was $11,086 and $11,601, respectively, and is reflected in accounts payable – related parties on the balance sheet.
NOTE 10. SUBSEQUENT EVENTS
Management has concluded that the COVID-19 outbreak in 2020 may have a significant impact on business in general, but the potential impact on the Company is not currently measurable. Due to the level of risk this virus may have on the global economy, it is at least reasonably possible that it could have an impact on the operations of the Company in the near term that could materially impact the Company’s financials. Management has not been able to measure the potential financial impact on the Company but will review commercial and federal financing options should the need arise.
FORWARD-LOOKING STATEMENT NOTICE
This Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose any statements contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate” or “continue” or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include but are not limited to economic conditions generally and in the industries in which we may participate; competition within our chosen industry, including competition from much larger competitors; technological advances and failure to successfully develop business relationships.
This section contains forward-looking statements that involve risks and uncertainties. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date that they are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
The following discussion should be read in conjunction with the financial statements and notes thereto included herein.
We are a small auto competition and event management business that has participated primarily in NASCAR and IMSA sanctioned events. We utilize our racecars to provide marketing and branding services to client advertisers desiring to use our racecars to market their product or service by having our vehicles carry their corporate brand. We have conducted limited operations to date.
Election under JOBS Act of 2012
The Company has chosen to opt-in and make use of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act of 2012. This election is irrevocable. If we choose to adopt any accounting standard on the public company time frame we would be required to adopt all subsequent accounting standards on the public company time frame.
Jumpstart Our Business Startups Act
In April, 2012, the Jumpstart Our Business Startups Act ("JOBS Act") was enacted into law. The JOBS Act provides, among other things:
Exemptions for emerging growth companies from certain financial disclosure and governance requirements for up to five years and provides a new form of financing to small companies;
Amendments to certain provisions of the federal securities laws to simplify the sale of securities and increase the threshold number of record holders required to trigger the reporting requirements of the Securities Exchange Act of 1934;
Relaxation of the general solicitation and general advertising prohibition for Rule 506 offerings;
Adoption of a new exemption for public offerings of securities in amounts not exceeding $50 million; and Exemption from registration by a non-reporting company of offers and sales of securities of up to $1,000,000 that comply with rules to be adopted by the SEC pursuant to Section 4(6) of the Securities Act and exemption of such sales from state law registration, documentation or offering requirements.
In general, under the JOBS Act a company is an emerging growth company if its initial public offering ("IPO") of common equity securities was affected after December 8, 2011 and the company had less than $1 billion of total annual gross revenues during its last completed fiscal year. A company will no longer qualify as an emerging growth company after the earliest of
|(i)||The completion of the fiscal year in which the company has total annual gross revenues of $1 billion or more;|
|(ii)||The completion of the fiscal year of the fifth anniversary of the company's IPO;|
|(iii)||The company's issuance of more than $1 billion in nonconvertible debt in the prior three-year period; or|
|(iv)||The company becoming a "larger accelerated filer" as defined under the Securities Exchange Act of 1934.|
The JOBS Act provides additional new guidelines and exemptions for non-reporting companies and for non-public offerings. Those exemptions that impact the Company are discussed below.
Financial Disclosure. The financial disclosure in a registration statement filed by an emerging growth company pursuant to the Securities Act of 1933 will differ from registration statements filed by other companies as follows:
|(i)||Audited financial statements required for only two fiscal years;|
|(ii)||Selected financial data required for only the fiscal years that were audited;|
|(iii)||Executive compensation only needs to be presented in the limited format now required for smaller reporting companies. (A smaller reporting company is one with a public float of less than $75 million as of the last day of its most recently completed second fiscal quarter)|
However, the requirements for financial disclosure provided by Regulation S-K promulgated by the Rules and Regulations of the SEC already provide certain of these exemptions for smaller reporting companies. The Company is a smaller reporting company. Currently a smaller reporting company is not required to file as part of its registration statement selected financial data and only needs audited financial statements for its two most current fiscal years and no tabular disclosure of contractual obligations.
The JOBS Act also exempts the Company's independent registered public accounting firm from complying with any rules adopted by the Public Company Accounting Oversight Board ("PCAOB") after the date of the JOBS Act's enactment, except as otherwise required by SEC rule.
The JOBS Act also exempts an emerging growth company from any requirement adopted by the PCAOB for mandatory rotation of the Company's accounting firm or for a supplemental auditor report about the audit.
Internal Control Attestation. The JOBS Act also provides an exemption from the requirement of the Company's independent registered public accounting firm to file a report on the Company's internal control over financial reporting, although management of the Company is still required to file its report on the adequacy of the Company's internal control over financial reporting.
Section 102(a) of the JOBS Act exempts emerging growth companies from the requirements in §14A(e) of the Securities Exchange Act of 1934 for companies with a class of securities registered under the 1934 Act to hold shareholder votes for executive compensation and golden parachutes.
Other Items of the JOBS Act. The JOBS Act also provides that an emerging growth company can communicate with potential investors that are qualified institutional buyers or institutions that are accredited to determine interest in a contemplated offering either prior to or after the date of filing the respective registration statement. The Act also permits research reports by a broker or dealer about an emerging growth company regardless if such report provides sufficient information for an investment decision. In addition the JOBS Act precludes the SEC and FINRA from adopting certain restrictive rules or regulations regarding brokers, dealers and potential investors, communications with management and distribution of a research reports on the emerging growth company IPO.
Section 106 of the JOBS Act permits emerging growth companies to submit 1933 Act registration statements on a confidential basis provided that the registration statement and all amendments are publicly filed at least 21 days before the issuer conducts any road show. This is intended to allow the emerging growth company to explore the IPO option without disclosing to the market the fact that it is seeking to go public or disclosing the information contained in its registration statement until the company is ready to conduct a roadshow.
Election to Opt Out of Transition Period. Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a 1933 Act registration statement declared effective or do not have a class of securities registered under the 1934 Act) are required to comply with the new or revised financial accounting standard.
The JOBS Act provides a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. The Company has elected not to opt out of the transition period and will “opt-in” and make use of the transitional period.
Off-balance sheet arrangements
The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect or change on the Company’s financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with the Company is a party, under which the Company has (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.
Significant Accounting Policies
Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Note 1 of the Notes to Consolidated Financial Statements describes the significant accounting policies used in the preparation of the consolidated financial statements. Certain of these significant accounting policies are considered to be critical accounting policies, as defined below.
A critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes: 1) we are required to make assumptions about matters that are highly uncertain at the time of the estimate; and 2) different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations.
Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements as soon as they became known. Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that our consolidated financial statements are fairly stated in accordance with accounting principles generally accepted in the United States, and present a meaningful presentation of our financial condition and results of operations. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our consolidated financial statements:
Use of Estimates – These financial statements have been prepared in accordance with accounting principles generally accepted in the United States and, accordingly, require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Specifically, our management has estimated the expected economic life and value of our licensed technology, our net operating loss for tax purposes and our stock, option and warrant expenses related to compensation to employees and directors, consultants and investment banks. Actual results could differ from those estimates.
Cash and Equivalents – We maintain our cash in bank deposit accounts, which at times, may exceed federally insured limits. We have not experienced any losses in such account.
Revenue Recognition – In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 606, Revenue From Contracts With Customers, effective for public business entities with annual reporting periods beginning after December 15, 2017. This new revenue recognition standard (new guidance) has a five step process: a) Determine whether a contract exists; b) Identify the performance obligations; c) Determine the transaction price; d) Allocate the transaction price; and e) Recognize revenue when (or as) performance obligations are satisfied. The impact of the Company’s initial application of ASC 606 did not have a material impact on its financial statements and disclosures.
The majority of revenues are from consulting services provided at events which range from one day to one week in length. The revenues from these events are recognized upon completion of the contracted services. In the event that the Company’s revenues are for services provided under contracts greater than one month in length, the contracts will be billed in total at the onset of the contact period, and to the extent that billings exceed revenue earned, the Company will record such amount as deferred revenue until the revenue is earned. We recognize revenue on these contracts in the period the services are provided under the contract. Expenses associated with providing the services are recognized in the period the services are provided which coincides with when the revenue is earned.
Our revenues, to date, has been derived from advertising, and from race purses. Revenue is recognized on an accrual basis as earned under contract terms.
Property and equipment – Property and equipment are recorded at cost and depreciated under the straight line method over each item's estimated useful life. The Company uses a 5 year life for racecars and equipment, 7 years for furniture and fixtures.
Intangible and Long-Lived Assets – We follow FASB ASC 360-10-35 which has established a "primary asset" approach to determine the cash flow estimation period for a group of assets and liabilities that represents the unit of accounting for a long lived asset to be held and used. Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell. During the period ended December 31, 2017 no impairment losses were recognized.
Stock Based Compensation – We recognize expenses for stock-based compensation arrangements in accordance with provisions of Accounting Standards Codification 718. Accordingly, compensation cost is recognized for the fair value of the instrument issued. For equity instruments issued to non-employees, the estimated fair value of the equity instrument is recorded on the earlier of the performance commitment date or the date the services required are completed.
Plan of Operations
RC-1, Inc. (the “Company”), was incorporated in the State of Nevada on May 14, 2009. The Company is a motorsports marketing business focused primary in road racing events in North America utilizing NASCAR type competition equipment. The Company is currently considered to be in the development stage, and has generated only limited revenues from its activities in the racing business.
We will continue to focus in “Road Racing” motorsports events organized by several motorsports sanctioning bodies such as The National Association for Stock Car Auto Racing ("NASCAR"), and The International Motorsports Association ("IMSA") and the Sports Car Vintage Racing Association (SVRA).
In addition, we intend to continue to compete in the Toyota Southwest Superlate Model Series, SVRA and the GAAS series in an effort to promote our business and brand in the western United States.
As of June 30, 2020, RC-1, Inc. had an accumulated deficit of $3,378,518, and a working capital deficiency of $373,153. These factors raise substantial doubt about our ability to continue as a going concern.
Management expects to raise $300,000 in capital through the issuance of debt and equity and believes it will be able to raise sufficient capital over the next twelve months to finance operations. However, there can be no assurances that the Company will be successful in this regard or will be able to eliminate its operating losses. The accompanying financial statements do not contain any adjustments which may be required as a result of this uncertainty.
Management estimates the cost of operating the business through June 30, 2021 will require additional capital of up to Three Hundred Thousand dollars ($300,000) consisting of: $20,000 for registration and licenses required for entry in sanctioned racing events; $20,000 for travel and lodging; $60,000 for marketing and branding; $30,000 for legal and accounting; $15,000 for engineers and consultants; $10,000 for parts, $50,000 for engine and transmission leases. $50,000 for fuels and tires; $15,000 for racecar transporter travel; $20,000 for debt service of all Company notes payable; and $10,000 in airfare and rental cars.
The Company intends to hold discussions with existing shareholders, new prospective shareholders and various lenders in pursuing the capital we need for the upcoming twelve months of operations. Additionally, the Company may elect to draw down additional proceeds from its line of credit with General Pacific Partners, LLC and TVP Investments, LLC, Inc. There can be no assurance that we will be able to raise any additional equity or debt capital.
The Company’s capital requirements consist of general working capital needs, scheduled principal and interest payments on debt when required, obligations, and capital expenditures. The Company’s capital resources consist primarily of cash generated from proceeds through the issuances of common stock. At June 30, 2020, the company had cash of $44,503.
Result of Operations
Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019
The Company recognized $20,832 in revenue during the three months ended June 30, 2020 and $27,780 in revenue for the same period in 2019. The revenue was from consulting revenue from one client and was delayed due to the Chinese Corona virus outbreak and temporary business closures during the period.
For the three months ended June 30, 2020 operating expenses were $26,931 compared to $43,656 in 2019 for a decrease of $16,725 . The decrease is due to a decrease in general and administrative expenses.
Interest and Financing Costs
Interest was $391 for the three months ended June 30, 2020 compared to $17,906 in the three months ended June 30, 2019. The decrease in the interest expense was related directly to a reduction in related party debt. .
The Company incurred net loss of $5,708 in the three months ended June 30, 2020 compared to net income of $2,030 during the three months ended June 30, 2019. This loss for the quarter was primarily due to the temporary closure of the business of our primary client due to the Chinese Corona virus.
Result of Operations
Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019
The Company recognized $34,720 in revenue during the six months ended June 30, 2020 and $52,448 in revenue for the same period in 2019. The reduction in revenue for the quarter was due to the affects of the Chinese Corona virus with our primary consulting client.
For the six months ended June 30, 2020 operating expenses were $71,378 compared to $93,831 in 2019 for a decrease of $22,453. The decrease is due to a decrease in general and administrative fees to $6,328 from $40,281 for a difference of $33,953.
Interest and Financing Costs
Interest expense, net was $1,439 for the six months ended June 30, 2020 compared to interest income, net of $15,684 in the six months ended June 30, 2019. The increase in the interest expense was related to payments made for the reduction of related party debt, offset by interest income of $13,328.
The Company incurred losses of $38,097 in the six months ended June 30, 2020 compared to $25,699 during the six months ended June 30, 2019, due to the temporary closure of the business of our primary consulting client.
LIQUIDITY AND CAPITAL RESOURCES
The company had $44,503 in cash at June 2020, with a working capital deficit of $373,153. As of December 31, 2019, the Company had cash of $50,106 with a working capital deficit of $348,624.
Cash Flows for the Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019.
During the six months ended June 30, 2020, we used $6,722 in cash from operating activities compared to cash provided of $11,495 during the six months ended June 30, 2019, a difference of $18,217. The decrease between the two periods was largely due to an increase in net loss.
We used $284,375 in cash flow in investing activities during the six months ended June 30, 2020 compared to no cash flow in investing activities for the same period in 2019. The increase in cash used in investing activities was the purchase of an asset subsequently used in a direct financing lease.
Financing activities with Related Parties
During the six months ended June 30, 2020, we generated $285,494 from financing activities compared to using $22,576 during the six months ended June 30, 2019, an increase of $308,070. This increase was due to the vehicle acquisition of an asset related to future on- track portion of our business.
As a “smaller reporting company,” we are not required to provide the information under this Item 3.
Evaluation of disclosure controls and procedures
Based upon an evaluation of the effectiveness of our disclosure controls and procedures performed by our Chief Executive Officer as of the end of the period covered by this report, our Chief Executive Officer concluded that our disclosure controls and procedures have not been effective as a result of a weakness in the design of internal control over financial reporting identified below.
As used herein, “disclosure controls and procedures” mean controls and other procedures of our company that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
This quarterly report does not include an attestation report of our registered independent public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered independent public accounting firm.
Changes in Internal Control Over Financial Reporting
No changes in our internal control over financial reporting occurred during the six months ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We know of no material, existing or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceeding or material pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our company.
During the six months ended June 30, 2019, there were no sale of shares of the Company's common stock.
During the six months ended June 30, 2019, the Company had no senior securities issued and outstanding.
Not applicable to our Company.
Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K
|SEC Ref. No.||Title of Document|
|31.1*||Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002|
|31.2*||Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002|
|32.1*||Certification of the Principal Executive Officer pursuant to U.S.C. pursuant to Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002|
|32.2*||Certification of the Principal Financial Officer pursuant to U.S.C. pursuant to Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002|
|101.INS*||XBRL Instance Document|
|101.SCH*||XBRL Schema Document|
|101.CAL*||XBRL Calculation Linkbase Document|
|101.DEF*||XBRL Definition Linkbase Document|
|101.LAB*||XBRL Label Linkbase Document|
|101.PRE*||XBRL Presentation Linkbase Document|
* Filed herewith.
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
August 14, 2020
By: /s/ Kevin O'Connell
Chief Executive Officer