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)
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The completion of the fiscal year in which the company has total annual gross revenues of $1 billion or more;
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(ii)
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The completion of the fiscal year of the fifth anniversary of the company's IPO;
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(iii)
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The company's issuance of more than $1 billion in nonconvertible debt in the prior three-year period; or
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(iv)
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The company becoming a "larger accelerated filer" as defined under the Securities Exchange Act of 1934.
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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)
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Audited financial statements required for only two fiscal years;
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(ii)
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Selected financial data required for only the fiscal years that were audited;
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(iii)
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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)
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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. The $15,000 earned
in related party revenue was part of business development and administrative services provided by the company and Mr. O’Connell.
Property and equipment
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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, 2006 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 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.
Going Concern
As of March 31, 2018, RC-1, Inc. had an
accumulated deficit of $3,220,817, and a working capital deficiency of $236,849. 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.
Expected management estimates for the cost
of operating the business through March 31, 2019 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; $20,000
for marketing and branding; $30,000 for legal and accounting; $15,000 for engineers and consultants; $15,000 for parts, $90,000
for engine and transmission leases. $50,000 for fuels and tires; $10,000 for racecar transporter travel; $20,000 for debt service
of all Company notes payable; and $10,000 in airfare and rental cars.
The Company has no outstanding payments
due for the lease of race cars at this time.
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 December 31, 2017, the company had cash of approximately $50,000.
Result of Operations
Three Months Ended March 31, 2018 Compared
to Three Months Ended March 31, 2017
Revenues
The
Company recognized no revenue during the three months ended March 31, 2018 and $54,000 revenue for the same period in
2017.
The Company did not recognize any racing event related
revenue due to the fact that most of the racing events scheduled for 2018 occur after June of 2018.
Operating Expenses
For the three months ended March
31, 2018 operating expenses were $68,771 compared to $52,030 in 2017 for an increase of $16,741. The increase is due to
an increase in professional fees to $29,738 from $12,000 for a difference of $17,738 which was related to year ended 2017
filings and related preparatory work.
Interest and Financing Costs
Interest
was ($2,738) for the three months ended March 31, 2018 compared to ($11,131) in the three months ended March 31, 2017. The reduction in the interest expense was related
directly to a reduction in the overall debt of the company.
Net Loss
The Company incurred losses of ($71,509)
in the three months ended March 31, 2018 compared to ($9,161) during the three months ended March 31, 2017, due to the factors
discussed above.
LIQUIDITY
AND CAPITAL RESOURCES
The
company had $5,767 in cash at March 31, 2018 with a working capital deficit of ($236,849). As of December 31, 2017, the Company
had cash of $60,342 with a working capital deficit of ($189,873).
Cash
Flows for the three Months Ended March 31, 2018 Compared to the Three Months Ended March 31, 2017.
Operating activities
During
the three months ended March 31, 2018, we used ($19,608) in operating activities compared to $23,668 during the three months ended
March 31, 2017, a decrease of ($43,276). The decrease between the two periods was largely due to an increase in accrued liabilities
during the period.
Investing activities
We neither generated nor used cash flow
in investing activities during the three months ended March 31, 2018 or 2017.
Financing activities
During the three months ended March 31,
2018, we used ($34,967) for financing activities compared to ($44,000) during the three months ended March 31, 2017, an increase
of $9,033. During the three months ended March 31, 2018, we repaid $34,967 of advances from a related party.