Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2017

 

o       TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from ______________ to _____________

 

Commission file number 333-210960

 

RC-1, INC.

(Exact name of small business issuer as specified in its charter)

 

Nevada		26-1449268
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

 

 

110 Sunrise Center Drive

Thomasville, NC 27360

(Address of principal executive offices)

 

800.348.2870

(Issuer’s telephone number)

 

_______________________________________________

(Former name, former address and former fiscal year, if changed since last report)

 

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 September 30, 2017.

 

 

 

 

RC-1, INC.

 

TABLE OF CONTENTS

 

			Page
Part I – FINANCIAL INFORMATION			3
	Item 1.	Condensed Financial Statements:	3
		Condensed Balance Sheets at September 30, 2017 and December 31, 2016 (unaudited)	3
		Condensed Statements of Operations for the three and nine-month periods ended September 30, 2017 and 2016 (unaudited)	4
		Condensed Statements of Cash Flows for the nine-month periods ended September 30, 2017 and 2016 (unaudited)	5
		Notes to Condensed Financial Statements (unaudited)	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16
	Item 4.	Controls and Procedures	16
Part II – OTHER INFORMATION			18
	Item 1.	Legal Proceedings	17
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
	Item 3.	Default Upon Senior Securities	18
	Item 4.	Mine Safety Disclosures	18
	Item 5.	Other Information	18
	Item 6.	Exhibits	18
		Signatures	19

 

 

 

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. CONDENSED FINANCIAL STATEMENTS

 

RC-1, Inc.

CONDENSED BALANCE SHEETS (Unaudited)

 

		September 30				December 31,
		2017				2016
ASSETS
Current assets
Cash		$	52,918			$	49,900
Accounts receivable			15,000				–
Accounts receivable - related party			–				15,000
Prepaid rent, current portion			60,000				–
Total current assets			127,918				64,900
Fixed assets - net			46,666				96,667
Prepaid rent, net of current portion			75,000				–
Note receivable - related party			75,000				–
Interest receivable - related party			2,612				–
			152,612				–
Total Assets		$	327,196			$	161,567
LIABILITIES & STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable		$	30,905			$	27,478
Accrued liabilities - related party			15,539				196,302
Line of credit			75,000				75,000
Due to related parties			157,811				515,811
Accrued interest payable - unrelated parties			28,043				22,418
Accrued interest - related parties			105,523				85,394
Total current liabilities			412,821				922,403
Common stock issuable, net of current portion			120,000				–
Total Liabilities			532,821				922,403
Stockholders' Deficit
Preferred stock, $.001 par value; 10,000,000 shares authorized; no shares issued and outstanding			–				–
Common stock, $.0001 par value;190,000,000 shares authorized; 13,929,581 (2017) and 7,929,581 (2016) issued and outstanding			1,392				792
Additional paid in capital			2,877,562				2,244,829
Accumulated deficit			(3,084,579	)			(3,006,457	)
Total Stockholders' Deficit			(205,625	)			(760,836	)
Total Liabilities and Stockholders' Deficit		$	327,196			$	161,567

 

The accompanying notes are an integral part of the unaudited condensed financial statements.

 

 

 

 

RC-1, Inc.

CONDENSED STATEMENTS OF OPERATIONS (Unaudited)

 

		Three Months Ended								Nine Months Ended
		September 30,				September 30,				September 30,				September 30,
		2017				2016				2017				2016
Revenues
Consulting fees		$	–			$	–			$	50,000			$	–
Consulting fees - related parties			–				–				4,000				–
Sponsorships - related parties			20,000				–				101,000				–
			20,000				–				155,000				–
Cost of sales			–				–				–				–
Gross margin			20,000				–				155,000				–
Operating expenses:
Race expenses			39,564				15,003				40,178				15,003
Consulting to related parties			16,750				15,000				77,250				45,000
General and administrative			18,615				13,030				59,524				33,095
Professional fees			7,988				22,402				33,028				50,377
			82,917				65,435				209,980				143,475
Operating loss			(62,917	)			(65,435	)			(54,980	)			(143,475	)
Other expenses:
Interest expense - unrelated parties			(1,875	)			(1,875	)			(5,625	)			(5,625	)
Interest expense - related parties			(2,004	)			(9,013	)			(20,129	)			(25,718	)
Interest income - related parties			1,512				–				2,612				–
			(2,367	)			(10,888	)			(23,142	)			(31,343	)
Net Loss Before Taxes			(65,284	)			(76,323	)			(78,122	)			(174,818	)
Income Tax Provision			–				–				–				–
Net loss		$	(65,284	)		$	(76,323	)		$	(78,122	)		$	(174,818	)
Net loss per share
(Basic and fully diluted)		$	(0.00	)		$	(0.01	)		$	(0.01	)		$	(0.02	)
Weighted average number of
common shares outstanding
(basic and diluted)			13,726,320				7,929,581				9,630,924				7,929,581

 

The accompanying notes are an integral part of the unaudited condensed financial statements.

 

 

 

 

 

RC-1, Inc.

CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

 

		Nine Months Ended
		September 30,				September 30,
		2017				2016
Cash Flows From Operating Activities:
Net loss		$	(78,122	)		$	(174,818	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			13,334				30,000
Non-cash rent expense			45,000				–
Changes in Operating Assets and Liabilities
Increase in note receivable - related party			(75,000	)			–
Increase in interest receivable			(2,612	)			–
Increase in accounts payable			3,427				24,015
Increase in accounts payable - related parties			29,237				45,000
Increase in accrued interest			5,625				5,625
Increase in accrued interest-related parties			20,129				25,718
Net cash used in operating activities			(38,982	)			(44,460	)
Cash Flows From Investing Activities:			–				–
Cash Flows From Financing Activities:
Repayments on line of credit			–				(1,459	)
Proceeds from line of credit from related party			201,500				187,359
Repayments on line of credit from related party			(159,500	)			(145,100	)
Net cash provided by financing activities			42,000				40,800
Net  Increase (Decrease) In Cash			3,018				(3,660	)
Cash At The Beginning Of The Period			49,900				49,118
Cash At The End Of The Period			52,918				45,458
Schedule of Non-Cash Investing and Financing Activities
Stock received for sale of assets		$	(86,667	)		$	–
Assets acquired for issuance of stock		$	50,000			$	–
Related party debt converted to stock		$	400,000			$	–
Related party accounts payable converted to stock		$	210,000			$	–
Cash paid during the year for:
Interest		$	–			$	–
Income tax		$	–			$	–

 

The accompanying notes are an integral part of the unaudited condensed financial statements.

 

 

 

 

 

  

RC-1, Inc.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)

For the Three and Nine Months Ended September 30, 2017 and 2016

 

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 primary 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 financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

Interim 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 financial statements. In our opinion the financial statements include all adjustments (consisting of normal recurring accruals) necessary in order to make the financial statements not misleading. Operating results for the nine months ended September 30, 2017 are not necessarily indicative of the final results that may be expected for the year ending December 31, 2017. For more complete financial information, these unaudited financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2016 filed with the SEC.

  

Use of Estimates

 

The preparation of 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 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 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.

 

Financial Instruments

 

The Company measures its financial assets and liabilities in accordance with the requirements of FASB ASC 825 “Financial Instruments”. The carrying values of its note receivable, accounts payable, line of credit, accrued expenses, and other current liabilities approximate fair value due to the short-term maturities of these instruments.

 

Revenue recognition

 

The Company follows paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.

 

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 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. The Company recognizes 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.

 

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 nine months ended September 30, 2017 and 2016 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 67.8% and 87.3% of the Company line of credit balances at September 30, 2017 and December 31, 2016, respectively. See Note 6 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 financial statements.

 

NOTE 3. GOING CONCERN

 

These unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company's ability to continue as a going concern is contingent upon its ability to achieve and maintain profitable operations, and the Company’s ability to raise additional capital as required.

  

These conditions raise substantial doubt about the Company's ability to continue as a going concern. These unaudited condensed financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.

 

NOTE 4. LINES OF CREDIT

 

On October 15, 2012, the Company entered into a revolving line of credit agreement with TVP Investments, LLC, 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, 2019. As of September 30, 2017, and December 31, 2016, the balance of the line of credit was $75,000. As of September 30, 2017, and December 31, 2016, the Company had accrued interest on this line of credit in the amounts of $28,043 and $22,418, respectively.

 

The Company has a business line of credit up to $3,000 with Wells Fargo bank. The line of credit is unsecured with a variable interest rate of approximately 18.0%. The balance owed as of September 30, 2017 and December 31, 2016 was zero.

 

NOTE 5. STOCKHOLDERS’ EQUITY

 

There are 10,000,000 shares of preferred stock authorized with a $.001 par value, none of which are outstanding.

 

There are 190,000,000 shares of common stock authorized with a par value of $.0001 per share.

 

There were no issuances of preferred or common stock during the three months ended March 31, 2017.

 

During January 2017, the Company entered into a 36-month warehouse lease with Rick Ware Leasing, LLC, payable in 1,200,000 shares of the Company’s common stock (400,000 shares annually), 400,000 of which were issued in July, 2017. See Note 6 for equity transactions with related parties.

  

NOTE 6. RELATED PARTY TRANSACTIONS

 

Consulting expense to related parties

 

On January 1, 2015, the Company extended for three years a previous consulting agreement with 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. On July 3, 2017, $210,000 of the accrued fees were converted into 2,100,000 shares of stock at a value of $.10 per share. As of September 30, 2017, and December 31, 2016, the Company had an accrued payable balance due to this related party of $15,000 and $180,000, respectively. During the three and nine months ended September 30, 2017 and 2016, the Company incurred related party consulting expense of $15,000 and $45,000 respectively.

 

 

 

 

 

Due 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. On July 3, 2017, $200,000 of the balance due was converted into 2,000,000 shares of stock at a value of $.10 per share. As of September 30, 2017, and December 31, 2016, the Company owed $108,164 and $183,164, respectively, in operating advances from this related party. As of September 30, 2017, and December 31, 2016, the Company had accrued interest on this line of credit in the amounts of $26,816 and $18,354, respectively.

   

On August 5, 2013, the Company entered into a line of credit agreement for up to $500,000 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. On July 3, 2017, $200,000 of the balance due was converted into 2,000,000 shares of stock at a value of $.10 per share. As of September 30, 2017, and December 31, 2016, the Company owed $49,647 and $332,647, respectively, in operating advances to this related party. As of September 30, 2017, and December 31, 2016, the Company had accrued interest on this line of credit in the amounts of $78,707 and $67,040, respectively.

 

Due from related parties

 

In April 2017, the Company entered into a sponsorship agreement with a client, a privately owned company. The majority shareholder of the Company is the chairman of the board of directors of the client. The Company recognized $81,000 income in the current period. Of this amount, $6,000 was paid in cash and $75,000 was converted to a note receivable bearing interest at 8% maturing October 2018. The principal balance of the receivable, plus accrued interest, may be converted into shares of common stock of the client at the price of $1.00 per share. The option is exercisable no later than the maturity date of the note. In addition to the note, the Company received warrants to purchase up to 24,999 shares of common stock of the client at $1.00 per share. The warrants expire April 30, 2018.

 

Other related party transactions

 

On March 25, 2017, the Company transferred a Ford Mustang to the shareholder from whom it was purchased in exchange for 833,333 shares of common stock, which were cancelled.

 

On May 25, 2017, the Company purchased two racecars from the same shareholder in exchange for 333,333 shares of common stock. The racecars were valued at $50,000.

 

 

 

 

 

 

 

 

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

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.

 

Overview

 

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 condensed Financial Statements describes the significant accounting policies used in the preparation of the condensed 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 – The Company follows paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.

 

Much 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, have been derived from advertising, and from race purses. Revenue is recognized on an accrual basis as earned under contract terms. The $101,000 earned in related party revenue was part of business development, race event sponsorship and administrative services provided by the company and Mr. O’Connell.

 

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 periods ended December 31, 2016 and September 30, 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 714. Accordingly, compensation cost is recognized for the excess of the estimated fair value of the stock at the grant date over the exercise price, if any. 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 other regional NASCAR type model Series in both SVRA and the GAAS series in an effort to promote our business and brand in the western United States.

  

Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016

 

Revenues

 

The Company had $20,000 in related party revenue during the three months ended September 30, 2017 compared to no revenue for the same period ended September 30, 2016.

 

Operating Expenses

 

For the three months ended September 30, 2017 operating expenses were $82,917 compared to $65,435 for the same period in 2016 for an increase of $17,482. The increase was primarily a result of the increase in race expenses to $39,564 from $15,003 for the same period in 2016.

 

Interest and Financing Costs

 

Interest expense was $2,367 for the three months ended September 30, 2017 compared to $10,888 in the three months ended September 30, 2016. Interest expense was reduced for the quarter due to the reduction of our long term notes payable, which were settled via issuances of our common stock.

 

Net Income (Loss)

 

The Company incurred losses of $65,284 for the three months ended September 30, 2017 compared to $76,323 during the three months ended September 30, 2016 due to the factors discussed above.

 

 

 

 

 

Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016

 

Revenues

 

The Company realized $155,000 in revenue during the nine months ended September 30, 2017 compared to no revenue for the nine months ended September 30, 2016.

 

Operating Expenses

 

For the nine months ended September 30, 2017 operating expenses were $209,980 compared to $143,475 for the same period in 2016 for an increase of $66,505.  The increase was a result of an increase in race expenses, which increased to $40,178 from $15,003 for an increase of $25,175, consulting to related parties, which increased to $77,250 from $45,000 for an increase of 32,250, and general and administrative, which increased to $59,524 from $33,095 for an increase of $26,429.

 

Interest and Financing Costs

 

Interest expense was $23,142 for the nine months ended September 30, 2017 compared to $31,343 in the nine months ended September 30, 2016. Interest expense was reduced for the quarter due to the reduction of our long-term notes payable, which were settled via issuances of our common stock.

 

Net Income (Loss)

 

The Company incurred losses of $78,122 for the nine months ended September 30, 2017 compared to $174,818 during the nine months ended September 30, 2016 due to the factors discussed above.

 

LIQUIDITY AND CAPITAL RESOURCES

 

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 and has incurred losses since inception and anticipates future losses in the development of its business raising substantial doubt about the Company’s ability to continue as a going concern. 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.

 

The Company had $52,918 in cash at September 30, 2017 with availability on our related party lines of credit with General Pacific Partners, LLC and DEVCAP Partners, LLC of $491,836 and $450,353, respectively, and our business line of credit with Wells Fargo Bank of $3,000. We had a working capital deficit of $284,903 at September 30, 2017.

 

Operating activities

 

During the nine months ended September 30, 2017, we used $38,982 in operating activities compared to $44,460 during the nine months ended September 30, 2016, a difference of $5,478. The decrease between the periods was largely due to a lower net loss.

 

 

 

 

 

Investing activities

 

We neither generated nor used cash flow in investing activities during the nine months ended September 30, 2017 and the same for the period in 2016.

 

Financing activities

 

During the nine months ended September 30, 2017, we generated $42,000 from financing activities compared to $40,800 for the same period ended September 30, 2016, an increase of $1,200.

 

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.

 

As a “smaller reporting company,” we are not required to provide the information under this Item 3.

 

ITEM 4. Controls and Procedures

 

Management’s Report on Internal Control over Financial Reporting

 

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under Exchange Act). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. 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 generally accepted accounting principles, 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.

 

We recognize that because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

 

Management of the Company conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of September 30, 2017, based on the framework in Internal Control –Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO II Framework”). Based on management’s assessment in accordance with the criteria in the COSO II Framework, our management concluded that our internal control over financial reporting was not effective as of September 30, 2017.

 

Management is aware of the following material weaknesses (a material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected and corrected on a timely basis) in the Company’s internal control over financial reporting:

 

Control Environment

 

Inadequate Policies and Procedures: Based on management’s review of key accounting policies and procedures, our management determined that such policies and procedures were inadequate as of September 30, 2017. Management identified certain policies and procedures as inadequate regarding the design of the control and formal written documentation.

 

Segregation of Duties: We did not maintain adequate segregation of duties related to job responsibilities for initiating, authorizing, and recording of certain transactions as September 30, 2017 due to the small size of our accounting teams. We do not have sufficient personnel to provide adequate risk assessment functions.

 

An effective audit committee working closely with the executive management team mitigates the risks that significant transactions are entered into without approval by those charged with governance. We currently have not established an audit committee.

 

 

 

 

Control Activities

 

Testing of Internal Controls: The Company’s accounting staff is relatively small and the Company does not have all the required infrastructure for meeting the demands of being a U.S. publically reporting company. As a result we have identified deficiencies in our internal controls within our key business processes, particularly with respect to the design of quarterly accounting, financial statements close, consolidation, and external financial reporting procedures. Management believes there are entity level controls that are effective within our key business processes. However, certain of these processes could not be formally tested because of lack of documentation and/or process design details.

 

Information and Communication

  

Monitoring

 

Internal Control Monitoring: As a result of our limited financial personnel and ineffective controls (both preventative and detective) management’s ability to monitor the design and operating effectiveness of our internal controls is limited. Accordingly, management’s ability to timely detect, prevent and remediate deficiencies and potential fraud risks is inadequate.

 

These material weaknesses impede the ability of management to adequately oversee our internal control over financial reporting on a timely basis. Management intends to continue focusing its remediation efforts in the near term on providing best practices training to our audit committee. In addition, we will endeavor to design revised accounting and financial reporting policies and procedures that will help ensure that adequate internal controls over financial reporting are met. Additionally, these revised procedures will be formally documented and procedures will focus on transaction processing, period-end account analyses and additional review and monitoring procedures. We plan to periodically assess the need for additional accounting resources as business develops and resources permit. Management also is committed to taking further action by implementing enhancements or improvements as resources permit.  Notwithstanding the material weaknesses discussed above, our management has concluded that the financial statements included in this Report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles.

 

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.

 

Changes in Internal Control Over Financial Reporting

 

No changes in our internal control over financial reporting occurred during the nine months ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

  

PART II – OTHER INFORMATION

 

ITEM 1. Legal Proceedings

 

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.

 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

In May of 2017, the Company acquired a 2003 Laughlin Road Race car formerly used in the NASCAR Busch series and a 2006 Hutch Pagan Super Speedway Truck formerly used in the NASCAR Craftsman Truck Series. Both assets were $25,000 in cash respectively, in which the seller converted the proceeds into the common stock in our Company at .15 cents per share for a total of 333,333 shares issued to the counter party.  

 

In July of 2017, the board agreed to convert $200,000 in related party long term notes payable from General Pacific Partners, LLC into 2,000,000 shares of common stock at a cost basis of .10 per share.

 

In July of 2017, the board agreed to convert $200,000 in related party long term notes payable from DEVCAP Partners, LLC into 2,000,000 shares of common stock at a cost basis of .10 per share.

 

In July of 2017, the board agreed to convert $210,000 in a related party payable from General Pacific Partners, LLC into 2,100,000 shares of common stock at a cost basis of .10 per share.

 

ITEM 3. Default Upon Senior Securities

 

During the nine months ended September 30, 2017, the Company had no senior securities issued and outstanding.

 

ITEM 4. Mine Safety Disclosures

 

Not applicable to our Company.

 

ITEM 5. Other Information

 

None.

 

ITEM 6. Exhibits

 

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.

 

 

 

 

SIGNATURES

  

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.

 

RC-1, Inc.

 

November 14, 2017

 

By: /s/ Kevin O'Connell

Kevin O'Connell

Chief Executive Officer