RC-1, Inc. - Quarter Report: 2016 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2016

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)

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 accredited filer, a non-accredited filer, (or a smaller reporting company in Rule 12b-2 of the Exchange Act.(check one)

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 7,929,581 shares of the registrant’s common stock, $0.001 par value per share, outstanding on September 30, 2016.

RC-1, INC.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

RC-1, Inc.

CONDENSED BALANCE SHEETS

(UNAUDITED)

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

RC-1, Inc.

CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)

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

RC-1, Inc.

CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

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, 2016 and 2015

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 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, 2016 are not necessarily indicative of the final results that may be expected for the year ended December 31, 2016. 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, 2015 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.

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 nine months ended September 30, 2016 and year ended December 31, 2015 there were no potentially dilutive shares.

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 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 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. 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. As of September 30, 2016, and December 31, 2015, the Company had an accrued payable balance due to this related party of $165,000 and $120,000, respectively. During the three months ended September 30, 2016 and 2015, the Company incurred related party consulting expense of $15,000 and $45,000 respectively. During the nine months ended September 30, 2016 and 2015, the Company incurred related party consulting expense of $ $45,000 respectively.

On January 1, 2014, the Company entered into an event services agreement with an event services company that is owned and controlled by an individual who is also the owner and controller of a separate company that became an owner of 16.6% of the Company's issued and outstanding common shares on June 15, 2014. During the three months ended September 30, 2016 and 2015, the Company incurred and paid $0 and $47,500, respectively, in consulting fees to this event services company. During the nine months ended September 30, 2016 and 2015, the Company incurred $0 and $108,000, respectively, in consulting fees to this event services company.

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. As of September 30, 2016, and December 31, 2015, the Company owed $178,164 and $155,364, respectively, in operating advances to this related party. As of September 30, 2016, and December 31, 2015, the Company had accrued interest on this line of credit in the amounts of $15,606 and $5,532, 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 September 30, 2016, and December 31, 2015, the Company owed $322,372 and $302,913, respectively, in operating advances to this related party. As of September 30, 2016, and December 31, 2015, the Company had accrued interest on this line of credit in the amounts of $60,434 and $44,790, respectively.

NOTE 5. SUBSEQUENT EVENTS

Management was evaluated subsequent events pursuant to the requirements of ASC Topic 855 and has determined that other than listed below, no material subsequent events exist through the date of this filing.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION

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.

BUSINESS OF THE COMPANY

Background

We are a development stage small motorsports production company which was originally organized in 2007 to participate 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"). The Road Racing motorsports events require the use of “Stock Cars” that are professionally modified for Road Racing, and “Sports Cars” that are specifically manufactured for competition Road Racing. The Company's principal executive offices are located at 110 Sunrise Center Drive, Thomasville, NC 27360 and its telephone number is (760) 230-1617

We are focused on ways to attract new sponsors, agency clients and collect money purses for finishing positions. The Company engages in regional and national motorsports events involving road course racing. The Company has the potential to earn revenues in multiple ways. The Company owns three race cars which it uses for promotional and marketing operations as well as from time to time enters into races for a chance at winning purse money. Only if the Company race car finishes in a top position, will it earn purse money. The Company’s target revenue stream is to actively market its advertising services in the mobile billboard industry. The Company also plans to negotiate sponsorship deals with other race teams whereby the Company acts as an agent to sell advertising sponsorship packages.

In 2012, we commenced offering racing production and management services to potential clients that wish to participate in motorsports racing. Our production services range from producing a full "turnkey" motorsports racing team, to sourcing or providing management of, or access to, any part of equipment or human services required to participate in one or more racing events. The following is a list of some of what services we offer to potential clients:

Among our potential clients are racing drivers who wish to participate in sanctioned racing events; businesses that wish to market their brand through participation in sanctioned racing events; businesses which wish to stage hosting and promotional parties and events before, during and after sanctioned race events, and race teams that are unfamiliar with particular racing series event and require our assistance to participate in such racing series.

In 2015, we participated in the following NASCAR sanctioned events:

In 2016, when we enter a racing event for marketing purposes, we intend to use our own vehicles, and equipment, or lease a vehicle for the event. Also, when we use our own vehicles in an event, we expect to offer advertising space on our vehicles to clients desiring to use our cars and equipment to display and market their product or services by having the client's logo prominently appear on the vehicle. Our ability to attract clients for our production services or advertising services will, in part, be dependent upon the success of our drivers and racecars in the races we may decide to enter. We believe that if we win, or finish within the top 20 finishing places in a race, our ability to attract clients for our production services and advertisers will be enhanced. There can be no assurance that we will be able to secure clients for our production services nor advertisers for our vehicles.

PLAN OF OPERATIONS

Three Months Ended September 30, 2016 Compared to Three Months Ended September 30, 2015 

Revenues

The Company had no revenue during the three months ended September 30, 2016 and September 30, 2015.

Operating Expenses

For the three months ended September 30, 2016 operating expenses were $65,435 compared to $86,250 for the same period in 2015 for a decrease of $20,815. The decrease was primarily a result of the decrease in Consulting to Related Parties to $15,000 from $62,500.

Interest and Financing Costs

Interest expense to unrelated parties was $1,875 for the three months ended September 30, 2016 compared to $2,090 in the three months ended September 30, 2015. Interest expense accrued to related parties for the three months ended September 30, 2016 was $9,013 as compared to $5,164 for the three months ended September 30, 2015.

Net Income (Loss)

The Company incurred losses of $76,323 for the three months ended September 30, 2016 compared to $93,504 during the three months ended September 30, 2015 due to the factors discussed above.

Nine Months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2015 

Revenues

The Company had no revenue during the three months ended September 30, 2016 compared to $1,000 for the same period ended September 30, 2015.

Operating Expenses

For the nine months ended September 30, 2016 operating expenses were $143,475 compared to $225,874 for the same period in 2015 for a decrease of $82,399. The decrease was primarily a result of the decrease in Consulting to Related Parties to $45,000 from $153,000 and a decrease in Race Expenses to $15,003 compared to $27,118 for the same period in 2015.

Interest and Financing Costs

Interest expense to unrelated parties was $5,625 for the nine months ended September 30, 2016 compared to $5,840 in the nine months ended September 30, 2015. Interest expense accrued to related parties for the nine months ended September 30, 2016 was $25,718 as compared to $15,495 for the nine months ended September 30, 2015.

Net Income (Loss)

The Company incurred losses of $174,818 in the nine months ended September 30, 2016 compared to $246,207 during the nine months ended September 30, 2015 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 $45,458 in cash at September 30, 2016 with availability on our related party line of credit with General Pacific Partners, LLC of $421,536. We had a working capital deficit of $815,676.

Operating activities

During the nine months ended September 30, 2016, we used $44,460 in operating activities compared to $163,389 during the nine months ended September 30, 2015, a decrease of $118,929. The decrease between the two periods was largely due to a reduction in operating costs paid and an increase in accounts payable in 2016.

Investing activities

We neither generated nor used cash flow in investing activities during the nine months ended September 30, 2016 and the same for the period in 2015.

Financing activities

During the nine months ended September 30, 2016, we generated $40,800 from financing activities compared to $177,312 for the same period ended September 30, 2015, a decrease of $136,512. The change was due primarily to the reduction in operating costs paid in 2016 and increases in accounts payable and accrued expenses. This resulted in decreased need to borrow on available lines of credit.

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

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 nine months ended September 30, 2016 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

During the nine months ended September 30, 2016, there were no sales of shares of the Company's common stock.

ITEM 3. Default Upon Senior Securities

During the nine months ended September 30, 2016, 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

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 18, 2016

By: /s/ Kevin O'Connell

Kevin O'Connell

Chief Executive Officer