|
REVOLUTIONARY CONCEPTS INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations
(Edgar Glimpses Via Acquire Media NewsEdge) Forward-Looking Statements
Included in this Report are "forward-looking" statements, within the meaning of
the Private Securities Litigation Reform Act of 1995 ("PSLRA") as well as
historical information The following discussion and analysis should be read in
conjunction with our consolidated financial statements and related notes thereto
included elsewhere in this registration statement. Portions of this document
that are not statements of historical or current fact are forward-looking
statements that involve risk and uncertainties, such as statements of our plans,
objectives, expectations and intentions. The cautionary statements made in this
registration statement should be read as applying to all related forward-looking
statements wherever they appear in this registration statement. From time to
time, we may publish forward-looking statements relative to such matters as
anticipated financial performance, business prospects, technological
developments and similar matters. The Private Securities Litigation Reform Act
of 1995 provides a safe harbor for forward-looking statements. All statements
other than statements of historical fact included in this section or elsewhere
in this report are, or may be deemed to be, forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Important factors that could cause actual
results to differ materially from those discussed in such forward-looking
statements include, but are not limited to, the following: changes in the
economy or in specific customer industry sectors; changes in customer
procurement policies and practices; changes in product manufacturer sales
policies and practices; the availability of product and labor; changes in
operating expenses; the effect of price increases or decreases; the variability
and timing of business opportunities including acquisitions, alliances, customer
agreements and supplier authorizations; our ability to realize the anticipated
benefits of acquisitions and other business strategies; the incurrence of debt
and contingent liabilities in connection with acquisitions; changes in
accounting policies and practices; the effect of organizational changes within
the Company; the emergence of new competitors, including firms with greater
financial resources than ours; adverse state and federal regulation and
legislation; and the occurrence of extraordinary events, including natural
events and acts of God, fires, floods and accidents.
Forward-looking statements involve risks, uncertainties and other factors, which
may cause our actual results, performance or achievements to be materially
different from those expressed or implied by such forward-looking statements.
Factors and risks that could affect our results and achievements and cause them
to materially differ from those contained in the forward-looking statements
include those identified in the section titled "Risk Factors" in the Company's
Annual Report on Form 10-K for the period ended December 31, 2011, as well as
other factors that we are currently unable to identify or quantify, but that may
exist in the future.
In addition, the foregoing factors may affect generally our business, results of
operations and financial position. Forward-looking statements speak only as of
the date the statement was made. We do not undertake and specifically decline
any obligation to update any forward-looking statements.
Our Ability To Continue as a Going Concern
Our independent registered public accounting firm has issued its report dated
April 13, 2012, in connection with the audit of our consolidated financial
statements as of December 31, 2011, that included an explanatory paragraph
describing the existence of conditions that raise substantial doubt about our
ability to continue as a going concern. Our unaudited condensed consolidated
financial statements as of September 30, 2012 have been prepared under the
assumption that we will continue as a going concern. Specifically, Note 11 of
our unaudited financial statement for the quarter ended September 30, 2012
addresses the issue of our ability to continue as a going concern. If we are not
able to continue as a going concern, it is likely that holders of our common
stock will lose all of their investment. Our financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Overview
We are a development stage company positioned to begin launch and license of our
patented technologies in 2012. We were incorporated as a Nevada corporation on
February 28, 2005 to reincorporate and re-domesticate two existing North
Carolina entities; Revolutionary Concepts, Inc. and DVMS, LLC. We are engaged in
the development of smart camera technologies that interface with smart handheld
devices enabling remote monitoring.
Our efforts to date have been devoted to securing the intellectual framework
around several key technologies and applications related to remote video
monitoring. Advances in wireless technologies combined with increased data speed
rates permits a very sophisticated and new means of monitoring, security and
entry management.
We have branded is new smart technology "EyeTalk®". EyeTalk® is a first
generation smart camera technology that allows interactive two-way communication
between a smart phone or other handheld device.
Unlike many IP cameras that simply produce and transmit an image, the EyeTalk®
smart camera technology has embedded capabilities that distinguish it as a
significant technological advancement over traditional camera systems.
In July of 2011, we engaged SIS Development Inc. to direct the development of
this state of the art system. SIS Development, Inc. offers highly specialized,
wing-to-wing commercial OEM product development services. SIS Development has an
extensive track record of high volume product and software successes in Fortune
100 and startup environments alike. The initial product launch will be in the
entry management space for both residential and commercial uses, with a medical
application as an immediate spin-off.
We currently hold seven (7) patents related to the use of wireless technology in
key market segments. The seven patents position Revolutionary Concepts as a key
player in the wireless space and introduce a new smart technology in an area
that is virtually untapped. Five of the patents were issued in the second
quarter of 2012.
The five new patents collectively include nine independent claims comprised of
seven system claims and two method claims.
Of the seven independent system claims, three are directed to communications and
monitoring systems; three are directed to detection and viewing systems; and one
is directed to an audio-video communication system. The claims directed to the
communications and monitoring systems are claims 1, 19, and 20 of USPN
8,164,614. The claims directed to the detection and viewing systems are claims
1, 19, and 20 of USPN 8,144,184. The claims directed to the audio-video
communication system is claim 1 of USPN 8,154,581.
Of the two independent method claims, one is directed to a method for
audio-video communications; and the other is directed to a method for receiving
a person at an entrance. The independent claim directed to the audio-video
communications method is claim 1 of USPN 8,144,183; and the independent claim
directed to the method for receiving a person at an entrance is claim 1 of USPN
8,139,098.
Generally speaking, if any of these claims describe a method that is performed
by a third party, or describe a system of a third party, then that third-party
method or system infringes such claim.
Our management plans to implement a variety of commercialization strategies
ranging from development to licensing to generate revenue and to capitalize on
the opportunities made possible by the wave of new wireless products in the
market place.
We have funded development through three private offerings in 2005, 2007 and
2009. We have also borrowed $307,500 from four non-related parties at 4%
interest to fund ongoing operations, and new patent applications. These
promissory notes began to become due in October 2008 and were repaid in November
2008 by issuing 630,811 shares of restricted common stock from authorized
shares.
In July and August 2009, we issued two notes payable in the total amount of
$20,000. The two notes were later combined at the note holder's request into one
note. The note bears interest at a rate of 10%. Principal and interest were due
in May 2010. In 2009, our Board of Directors agreed to guarantee a personal loan
to the President of the Company, Mr. Ron Carte, of $75,000 with interest of 10%,
by a shareholder. The note became due in November 2010. On October 5, 2010, we
received notice that a claim for judgment had been filed in Mecklenburg County
by a shareholder for the note that was in default as of May 2010. On January 7,
2011, the note holder amended the filing to include the personal loan. The
amount of the claim is $100,996, plus interest at 18% and legal costs. On the 10
th day of May 2011, a summary judgment was entered on behalf of the plaintiff
against Mr. Carter and our company. On the 4th day of August 2011, we reached an
agreement with a third party to negotiate and acquire the judgment award and to
agree to a convertible note from us for their services. The total value of the
convertible note is $144,067 with no interest, of which we have received a
promissory note from Mr. Carter for $112,663for the part of the judgment,
interest and fees that was from the personal promissory note that we guaranteed
In July 2010, we partnered with US Financial and Rainco Industries to consult in
Investor Relations, introduction to institutional investors, assist with mergers
and acquisitions, and to help develop a strategy to fund its growth. As a result
of this partnership, we have resolved additional debt obligations, are now
trading on both the US and Frankfurt stock exchanges, and are also now listed
with Standards and Poors. In November 2011, we terminated our association with
US Financial but retained the relationship with Rainco Industries.
(15)
Table of Contents
Introduction to EyeTalk®
We are the patent holder of a wireless smart camera technology, branded
EyeTalk®. EyeTalk® represents a very disruptive technology that integrates into
an industry of new smart devices…. an industry on pace to establish a new era in
everyday life across all lines.
From Wire Industry News - February 2012;
"By most standards, the iPhone is considered by a lot of people to be one of the
most successful products in business history, and there are many reasons why the
majority of people and especially iPhone users think so.
So far, about 200 million iPhones have been sold since it was introduced in the
spring of 2007, and 37 million of them in the last three months of 2011 alone.
And make no mistake-- the iPhone is a huge revenue generator! Just last quarter,
it contributed to over $24.39 billion in revenue for the fruity company from
Cupertino, greater than the $20.9 billion Microsoft made in all of its many
businesses."
Apple also produces the iPad. iPad is a line of tablet computers designed,
developed and marketed by Apple Inc., primarily as a platform for audio-visual
media
Tech Crunch - March 2012
"Following Apple's announcement yesterday of the new iPad's record weekend,
which saw 3 million devices sold in three days, analysts are upping their
predictions for the tablet's market share growth over the course of the year. In
a note to investors, Gene Munster of Piper Jaffray says the firm is now
forecasting as many as 66 million sales of the new device in 2012, up from the
earlier prediction of 60 million. Meanwhile, Shaw Wu of Sterne Agee is now
predicting 60 million, up from 55 million. Regardless of the final outcome, the
bottom line impact the device will have on the market was summed up in Munster's
bullish note: "we believe the unprecedented ramp of the iPad over the past year
is evidence that the tablet market will be measurably larger than the PC
market," he said. (emphasis added)
Our Revolutionary Concepts EyeTalk® technology represents a camera system with
embedded intelligence. Moving beyond the typical take a picture, take a video
and send it technology, the
EyeTalk® technology will activate and engage. The capabilities of the EyeTalk®
system go beyond the ability to offer two way communication by incorporating an
embedded processor that will ultimately be able to communicate and interpret
while providing video surveillance and remote monitoring capabilities.
Wireless cameras, wireless communication devices such as smart phones and hand
held devices represent the ultimate marriage of wireless technologies. Until we
discover how to actually teleport people, wireless cameras and mobile monitors
will allow people to literally be in two places at once.
Management believes our patent represents a very significant asset and
advancement in camera technology.
The EyeTalk® technology is primarily a software platform with a hardware
component of an external smart camera deployed at a chosen location. The system
offers two-way communication and it streams video to designated PC or handheld
devices such as PDA's, smart phones or other smart devices. . The software
interface allows the system to offer preprogrammed messages, greetings,
commands, etc. The software maintains information captured by the EyeTalk®
system. Access to the information may be achieved via a Personal Data Assistant
(PDA), Handheld Computer (HC), Smart phone, or other compatible device. The
EyeTalk® software platform will be able to communicate with many of the
smartphone and other devices that are currently available in the market place.
As a residential application, the EyeTalk® system provides a very effective and
efficient means of entry management allowing seamless communication to and from
a location to the owner to interact remotely with anyone who approaches with the
benefit of audio, video and data communication. The system utilizes new
technology to synergistically improve communication, security, convenience,
messaging, and manage deliveries and guest.
According to USBX (US Business Exchange), "iSuppli, a respected technology
market research firm, announced this quarter that they project IP video
surveillance camera revenue to grow to more than $9.0 billion by 2011, a
compound annual growth rate of 13.2%". Declining cost of new surveillance
technology have improved the viability of enhanced security systems while
boosting the affordability and demand for basic security systems among families
in the middle to lower-middle income strata of society."
Management believes that the point of greatest significance is not the fact that
our plans to participate in this space, but the fact that our company owns IP
rights to the much anticipated wireless activity in the space.
Our company management has a careful eye on the transition many traditional
security companies are attempting to make to a more practical video solution.
Fortunately for us, our company owns the rights to the use of wireless cameras
and their interface with wireless handheld devices.
The EyeTalk® system also records and archives data, video and audio records. The
system provides a centralized control system using a user-friendly application
with a means for storing digital images and provides enhanced security features.
We also recognize that we have entered an era where cellphone applications are
just a matter of every day activity. An "AP" that offers individuals the ability
to manage and monitor locations of interest is both very marketable and
necessary.
Our management expects the EyeTalk® technology to provide three primary
benefits:
Protection - EyeTalk® as a standalone system will provide a much safer platform
because of its preemptive capabilities, or the EyeTalk® system may augment
current residential and commercial security systems.
Monitoring - EyeTalk® may allow the user to better facilitate the task of entry
management in non-threatening circumstances, such as latch key school children,
and deliveries allowing the user to maintain better control and understanding of
what is going on at any given location or property at any given time.
Convenience - EyeTalk® will add convenience to home and business owners, by
providing a more responsive and efficient means of responding to, screening, and
monitoring activity at a given location. Deliveries and service appointments can
be better managed with a system such as EyeTalk®.
For all intents and purposes, we contend that traditional security and alarm
services are ineffective, inefficient and costly. Across the country, in our
belief, municipalities report false alarms at a rate exceeding 90%. The response
time between an event and police arrival can be much too long. EyeTalk®
represents a proactive response rather than a reactive one.
To insure the highest quality and product reliability, we entered into a
development agreement with SIS Development to produce the initial EyeTalk®
system. We are committed to producing a very high quality, reliable and
sophisticated system however the first generation of the EyeTalk®technology will
not have all of the feature sets intended for future models, and will simply
serve as the company's initial launch and introduction.
SIS Development, Inc. offers highly specialized, wing-to-wing commercial OEM
product development services. SIS has managed formidable, leading-edge design
teams shipping millions of products a year and has an extensive track record of
high volume product and software successes in Fortune 100 and startup
environments alike.
The President of SIS Development is Richard Kramer. Prior to founding SIS
Development, Inc. and Security Industry Services, Inc., Richard Kramer served as
General Manager-Technology and Vice President, Engineering at General Electric's
GE Security division, where he led a progressive 250+ person organization with
more than $500M per year in revenue. He was responsible for managing 16 groups
in 11 geographically dispersed locations, providing advanced Network, Software,
Wireless, Enterprise/Commercial/Residential/Real Estate Solutions for the video
surveillance (system software, IP solutions, communications, cameras, recorders,
PTZs, video recognition technology), life safety (central station software,
intrusion systems, software and sensors), and key control/real estate system
software/product markets.
The EyeTalk® product development is in very capable and competent hands.
Needless to say, we are thrilled to have SIS Development as a part of our team.
(16)
Table of Contents
INDUSTRY
Security industry stats from IMS Research by Geoff Kohl
First up is 2009.
In the Americas, here's how differing industries compared in a rough financial
year. The semiconductor market was down 30%; industrial automation was down 15%;
vehicle production was down 33% and consumer technology was down 6%. Despite
those significant downturns in many major industries, the electronic security
industry was down only 0.2%. Basically, that means our industry stayed flat
during 2009.
Also in 2009, IMS saw network video up 25% and analog video down 7%. They saw a
terrible year for analytics companies. While analytics was having trouble,
megapixel video surveillance had a good year, even as HD emerged as a potential
format of choice. Megapixel could even outpace "standard resolution" IP video
usage by 2012 or 2013 based on what IMS saw in 2009.
Now to the future...
In 2013, in the Americas, video surveillance is going to be 43% of the total
physical security systems market; that means a huge increase in terms of video's
role in the overall market. Fire will be 20% (that's down from current market
share per IMS); intrusion will be 11.2% (also down in overall market share); and
access control will be 7.8% (again, that's down in overall market share -- a
loss chiefly attributed video's strong growth rather than any failing in the
access control market).
In 2010 (since that's the year we're dealing with now), IMS is forecasting a
large number of mergers and acquisitions, which they think will happen because
the capital funding for such purchase is finally coming back. They're expecting
2% growth in North America for security products as a whole, a growth number
that pales in comparison to a 15.2% growth forecast for security products in
China/India. While North America isn't going to see the banner year that China
and India will see, it certainly is better than what IMS is forecasting for
Europe -- which is a -4.8% decline in overall revenues attributed to the sale of
security products.*"
*Article not incorporated by reference.
The tipping point for when IP video takes over analog video in sales is going to
be pushed back a year thanks to the bad economy of 2009; now it is forecasted to
be 2013 or 2014 when that transition happens.
How to Capitalize on the Fastest Growing Trend in Residential Security By Jay
Kenny - Feb 03, 2012
"Security dealers and integrators are recognizing that consumers increasingly
rely on smartphones, tablets and other mobile devices to control home security,
automation and energy management services. Alarm.com, a provider of interactive
security solutions, has evidence to support this trend.
This shift in consumer behavior is driven both by the explosive adoption of
mobile devices and the availability of dynamic apps and services for end users
to unlock additional value from their security system. Usage trends are not
limited to monitoring security events that occur in the home, but also extend to
a range of relevant day-to-day interactive services such as receiving
motion-triggered video clips when kids arrive home from school, alerts when
cabinets are accessed, or the ability to remotely adjust thermostats, lights and
door lock settings. It is a behavioral change that presents a new opportunity
and should not be lost on security dealers and integrators. Mobile connection to
the security system has proven to be a successful way to improve retention of
existing customers, drive new customer acquisition, deliver additional
revenue-generating services, and differentiate a product offering as new
entrants hit the market.*"
*Article not incorporated by reference.
EyeTalk® as stated previously represents a technology with embedded
intelligence. This one key feature that we term smart camera technology,
combined with smart phone technology is a very powerful and compelling
combination of technologies. A key reason we define EyeTalk® a "disruptive
technology".
Mobile apps help close sales - Increasingly, feedback from Alarm.com partners is
that one of the most powerful sales tactics is to show interactive system
capabilities and features on a mobile device such as an iPhone, iPad or Android
smartphone. This "mobile-first" approach in the sales cycle is more effective
than showing mobile apps as a "nice-to-have" among a list of broader system
features. We believe that once prospective customers see how easy and convenient
it is to use a free app to arm the system, adjust the lights or watch live video
of their property, their perceived value increases dramatically and distances
the product offering from that of competitors.
Mobile services keep customers "sticky" - In addition to helping dealers close
more sales, the mobile app significantly drives day-to-day use of the system, in
turn increasing customer stickiness and reducing customer attrition. In fact,
analysis conducted by Alarm.com in 2011 confirmed a direct correlation between a
consumer's consistent interaction with their interactive security system and
reduced attrition. Through an independent third party analysis, it was proven
that customers with interactive accounts stay on longer than traditional
security customers and those who are actively logging into their accounts via
the Alarm.com website or mobile app attrite even less.
Mobile apps help meet rising consumer expectations - Current mobile trending
shows people are not just becoming more comfortable with technology, but that
they prefer the convenience of the mobile app to monitor and control home
security system settings. Mobile apps enhance the value of the security platform
and deliver access to key services consumers expect on-demand wherever they are,
and from any device.
Mobility isn't just about remote access - It would be reasonable to assume that
customers are solely utilizing mobile devices remotely to monitor and interact
with security, video, energy and automation functions. But dealers and
integrators report that for many customers the mobile app offers much more.
Customers appreciate the ability to change system settings, lock doors or turn
off lights from the living room couch or bedroom rather than having to do so
from a physical keypad. Mobile apps also offer a new level of awareness and
comfort by enabling the user to stay connected and essentially extend the value
of the security system.
Mobile apps can drive sales for other services - Mobile apps can expose
customers to additional services anchored to the security platform, especially
when used as a sales tactic for a whole home solution. The ease of controlling
home energy and seeing video through the same platform can create higher system
value as well as increase the opportunity to attach add-on services and generate
more RMR. Mobile apps help drive sales for system-integrated services such as
video, energy management and home automation.
Below is an illustration of the security market segments. (2011)
[[Image Removed]]
(17)
Table of Contents
Future Plans and Potential Markets
Our management believes it has the capability to enter into a growing security
marketplace with an explosive product at the perfect time.. Research and current
trends suggest that the security industry will continue to experience increased
spending and growth on detection devices such as EyeTalk®. Our companies
Intellectual Property makes it more than just a provider but the outright owner
of a very relevant and significant IP… a tremendous asset. We believe that the
future of our company is bright and the options of development and/or licensing
provide incredible latitude.
We systematically filed patents over the past decade in the areas of medical,
institutional, child monitoring, home healthcare and real estate markers. As
these assets are now manifesting themselves one by one, the company's plans are
unfolding perfectly. Each of the aforementioned markets are monumental and
perfectly suited for the IP in our portfolio.
Our management also believes that EyeTalk® has advantages over existing and
competing technologies by virtue of its embedded intelligence and processing
capabilities. Many of these capabilities may not relate to the security field at
all, but may nonetheless be commercially useful. The additional commercial
benefits of the EyeTalk® include:
º Virtual reception capabilities for offices and businesses
º Advanced operations management and remote supervision
º Remote on-line education and real-time teacher/student interface
(homeschooling)
º Home healthcare monitoring and independent living capabilities
º Sports applications and entertainment
Sales Strategy
Our management plans to utilize multiple sales and distribution channels.
· Direct Sales
The EyeTalk® technology can be introduced to the market in a variety of ways,
given the unique applications it provides. RCI looks to engage a direct sales
team of over 2000 sales personnel to launch the residential and commercial
versions of the EyeTalk® technology. A nationwide, direct-sales team can be
assembled, provided the necessary training and tools, to introduce the products
to the consumer. Partnerships with reputable vendors such as The Geek Squad,
will be formed to insure professional installation at residential/commercial
sites around the country. Infomercials have been proven to be effective also in
generating massive appeal quickly. A well-produced infomercial can reach
hundreds of thousands of consumers and lead to enormous volumes of sales in a
relatively short period of time.
- Licensing
We currently hold the IP that provides the use of a wireless camera and it's
interface with other devices enabling monitoring. The IP is very relevant to a
multi-billion dollar industry. We plan to offer licensing opportunities to
companies who wish to utilize this technology and aggressively defend its patent
rights. The company has identified an industry expert that it plans to engage to
assist with the licensing to companies within the security industry.
· Internet Sales
Management expects to sale a significant percentage of the EyeTalk® technology
via direct internet sales. We are currently developing 3 commercials that will
be airing of television networks, YouTube and our website. It is anticipated
that these commercials will generate interest and sales.
- Existing Security Companies
The use of wireless camera technology is so effective and efficient today that
every security company will have to include the technology in their product
offerings in order to remain competitive. We will not only offer a wireless
camera technology, but one our management believes will be vastly superior
because of its smart capabilities. We are in the process of developing key
relationships with industry leaders to identify the fortune 500 companies we
will target.
· Commercials and Advertising
We have engaged the services of two individuals to assist in the development of
its first 3 commercials to be aired on television networks, internet sites and
the company's website.
Patent and Intellectual Property
On March 20, 2007, the United States Patent and Trademark Office issued to the
Company a patent, number 7,193,644 B2. The patent abstract states:
"The invention is audio-video communication and answering system that
synergisticallyimproves communication between an exterior and an interior of a
business or residence and a remote location, enables messages to be stored and
accessed from both locally and remotely, and enables viewing, listening, and
recording from a remote location. The system's properties make it particularly
suitable as a sophisticated door answering-messaging system. The system has a
DVMS module on the exterior. The DVMSmodule has a proximity sensor, a video
camera, a microphone, a speaker, an RF transmitter, and an RF receiver. The
system also has a computerized controller with a graphic user interface DVMS
database application. The computerized controller is in communication with a
public switching telephone network, and an RF switchingdevice. The RF switching
device enables communication between the DVMS module and the computerized
controller. The RF switching device can be in communication with the other RF
devices, such as a cell phone, PDA, or computer."
The following additional patents have now been awarded:
U.S. Patent 8,139,098
Revolutionary Concepts Inc. of Charlotte, North Carolina, has recently been
awarded U.S. patent 8,139,098 covering a method for receiving a person at an
entrance
U.S. Patent 8,144,183
Revolutionary Concepts Inc. of Charlotte, North Carolina, has recently been
awarded U.S. patent 8,144,183 covering a method for two-way audio-video
communications between a first person at an entrance and a second person.
U.S. Patent 8,144,184
Revolutionary Concepts Inc. of Charlotte, North Carolina, has recently been
awarded U.S. patent 8,144,184 covering a detection and viewing system. The
system includes a wireless device associated with a door.
U.S. Patent 8,154,581
Revolutionary Concepts Inc. of Charlotte, North Carolina, has recently been
awarded U.S. patent 8,154,581 covering an audio-video communication system. The
system includes a wireless exterior module located proximate an entrance and a
computerized controller.
U.S. Patent 8,164,614
Revolutionary Concepts Inc. of Charlotte, North Carolina, has recently been
awarded U.S. patent 8,164,614 covering a communications and monitoring system.
U.S. Patent 8,016,676 B2
Revolutionary Concepts Inc. of Charlotte, North Carolina has been awarded U.S.
patent 8,016,676 related to Child Car Seat Assembly enabling access to remote
gaming applications and two-way person-to-person communications.
We have patent pending applications related to; (a) video system for
individually selecting and viewing events at a venue; (b) medical monitoring;
and (c) real estate audio-video monitoring.
Legal
For several years, we have been engaged in litigation against its former patent
attorneys for malpractice arising from a missed filing deadline relating to
obtaining patents for our core technologies outside the United States. After a
two-year fight over jurisdiction in the case, including wins for us at the trial
court and at the North Carolina Court of Appeals, the case was remanded to the
trial court for further proceedings. Unfortunately, the trial court dismissed
the case on a technicality, potentially ending the case. Our trial counsel has
assured us that the judge's ruling is contrary to law and that good grounds
exist for appeal. An appeal was filed in November 2012, and the Company is
awaiting a decision from the court on the appeal.
COMPETITION
We expect to compete with much larger and better financed companies in the
remote monitoring industry, all of which have superior name recognition, such as
ADT, Alarm Force, ATT, Pinkerton's and others. We own the patent by which many
of the aforementioned companies will be dependent upon and we believe, but
cannot assure, may already be infringing in some manner
Remote monitoring is available through a variety of media and processes,
including systems integrators, closed circuit television systems, intrusion
detection systems, and others. These systems typically incorporate ultrasonic,
infrared, vibration, microwave and other sensors to detect door and window
openings, glass breakage, vibration, motion, temperature, and noise and transmit
through alarms and other peripheral equipment.
For example, the ATT remote monitor integrates with Cingular and Yahoo through
cell phones and wireless internet. The user can remotely select the device and
determine whether notification will be triggered by door sensors, motion
sensors, temperature sensors or a combination. The user can remotely control
cameras with pan, tilt and zoom features. The user can download and record or
view live camera. The EyeTalk® system provides similar capabilities; however
with two-way communication and a programmable software interface enabling the
system to effectively manage itself if the user desires.
Industry analysts report that both Cysco and IBM are developing new hardware and
software applications for remote monitoring that, if successful, could have
profound implications for the industry.
(18)
Table of Contents
Regulation
We are subject to the same federal, state and local laws as other companies
conducting business in the software field. Our products are subject to copyright
laws. We may become the subject of infringement claims or legal proceedings by
third parties with respect to its current or future products. In addition, we
may initiate claims or litigation against third parties for infringement of its
proprietary rights, or to establish the validity of our proprietary rights. Any
such claims could be time-consuming, divert management from our daily
operations, result in litigation, cause product delays or lead us to enter into
royalty or licensing agreements rather than disputing the merits of such claims.
Moreover, an adverse outcome in litigation or a similar adversarial proceedings
could subject us to significant liabilities to third parties, require the
expenditure of significant resources to develop non-infringing products, require
disputed rights to be licensed from others or require us to cease the marketing
or use of certain products, any of which could have a material adverse effect on
our business and operating results.
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012
COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011
Operating Expenses We have not begun to generate revenues to date. Our total
operating expenses decreased to $176,580 from $1,030,618 for the three months
ended September 30, 2012 and 2011, respectively as compared to $557,383 and
$1,512,683 for the nine months ended September 30, 2012 and 2011, respectively.
This decrease is primarily attributable to decreased professional fees,
compensation, research and development, and payroll tax expense, offset somewhat
by increases in marketing expenses.
Net Loss. Our net loss decreased to $307,019 from $1,028,108 for the three
months ended September 30, 2012 and 2011, respectively as compared to $823,323
and $1,514,880 for the nine months ended September 30, 2012 and 2011,
respectively. This decrease is primarily attributable to decreased professional
fees, compensation, research and development and payroll tax expense, offset
somewhat by increases in marketing expenses and expenses related to our
derivative liabilities.
Assets. Assets increased by $1,391 to $130,3012 as of September 30, 2011, from
$128,921 as of December 31, 2011. This decrease was primarily due to
depreciation and amortization.
Liabilities. Total liabilities increased by $379,440 to $2,113,737 as of
September 30 2012, from $1,734,297 as of December 31, 2011. This increase is
primarily attributable to the increase in current portion of long-term debt,
derivative liability and related party notes payable offset by decreases in
accounts payable and long-term notes payable.
Stockholders' Deficit. Stockholders' deficit increased by $823,323 to $5,404,706
as of September 30, 2012 from $4,581,383 as of December 31, 2011. The increase
was due primarily to continuing losses from operations.
Liquidity and Capital Resources
General. Our primary sources of cash have been sales of common stock through
private placements and loans from affiliates. We are a developmental stage
company moving from Research and Development ("R & D")to the initial stages of
development. The transition from R & D to development and production requires a
greater focus on operations, product infrastructure, distribution and channel
partners and industry alliances. Over the next 6 - 12 months, we will be looking
for the ideal acquisitions that will enable our company to take advantage of an
existing customer base. Our management will also pursue appropriate Letter of
Intents and Joint Ventures that will position our company to move its products
into these ventures when successful production is completed.
Prior relationships with companies discussed in previous filings have been
terminated. We are not involved with any of those companies that were very
instrumental during the Research and Development stages, but are no longer
engaged. We have engaged SIS Development as consulting technical officials for
product development. SIS Development will assist RCI in identifying the
necessary contracts and relationships moving forward. Additionally, industry
expertise and consultation is being provided by advisors in the industry.
As another means of furthering the development of our technology, management is
actively seeking an acquisition of a company or companies that are generating
revenues and net profits, which, in turn, will enable us to complete the
development of the technology and therefore begin to execute a commercialization
strategy (sales and marketing of the technology). No assurances can be provided
that a suitable acquisition candidate will located or that any acquisition
candidate will match all the criteria we have established.
Overall, we had a net increase in cash of $1,355 for the nine month period ended
September 30, 2012 compared to a decrease in cash of $184 over the same prior
year period.
Cash Flows from Operating Activities. Net cash used in operating activities was
$693,082 for the nine month period ended September 30, 2012 compared to $365,700
for nine month period ended September 30, 2011. This increase is primarily
attributable continuing net operating losses offset by a decrease in shares
issued for services, accounts payable and accrued expenses and increases in
amortization of debt and loss on derivative liability.
Cash Flows from Investing Activities. There was $900 used by investment
activities for the purchase of equipment for the nine month period ended
September 30, 2011 compared to $5,243 cash used by investing activities for the
ended period ended September 30, 2012.
Cash Flows from Financing Activities. Net cash provided by financing activities
was $699,680 for the nine month period ended September 30, 2012 compared to cash
provided by financing activities of $366,416 for the period ended September 30,
2011 and is attributable to the decrease in notes payable of $101,342 and
increase in the issuance of common stock shares for the retirement of debt in
the amount of $380,492 and the retirement of debt in the amount of $49,065.
Our Company's Capital Structure. In its efforts to grow and expand the Company,
management must obtain the necessary capital to achieve those objectives, decide
on the best methods to obtain that capital, and adjust the capital structure of
the Company as needed. The primary ways a company will raise capital is either
through debt financing (borrowing money), or equity financing (selling a portion
of the company via shares of stock) or a combination of both. The type of
capital chosen (debt or equity), and methods of raising the capital depend on a
number of factors including; the company's life cycle stage, e.g., start-up,
development, high-growth or maturity, future growth prospects, strength of the
national economy and the credit markets.
Potential investors in any company, including ours, will consider those factors
and the relative risks to their investment capital. To limit their risks, these
investors may limit the size of their investment, or provide it to the company
in stages, that is contingent upon the company reaching stated goals e.g.,
production, marketing, distribution and revenues. The ultimate question for
management is; how do you get the investors to commit to making what could be a
high risk investment for them, although one that would correspondingly benefit
the Company, however one that the investor could lose if the Company were to
fail. Management considered both the equity and the debt financing options based
on the Company's life cycle stage, economy, credit markets and other
circumstances at the time, and reached the following conclusions;
Equity Financing - Management decided not to raise additional capital through an
equity offering in its initial start-up and development stage for a variety of
reasons;
(1) The Company would have had to go through the process of filing a
registration statement e.g. S-1 with the SEC, which would have required
expenditures and resources with no assurances of receiving expeditious approval
and would have been very time consuming, given our situation at that time.
(2) The direct and indirect flotation costs of the issuance of an equity capital
raise could have run $250,000 or more, and the Company did not have those funds
available.
(3) It would have been very difficult to get an investment banker to underwrite
a new issuance for a development stage company with a limited operating history
and revenues.
(4) Many investors did not want to take an equity position in the Company at
that time and the corresponding risks of ownership.
(5) The issuance of equity to these investors, after resolving the potential
regulatory challenges, legal issues, time constraints, and costs would have
resulted in immediate dilution for the other shareholders, giving them only
limited hopes that value would be created.
Therefore, due to the above stated reasons, the economic climate and the
Company's circumstances at that time, management elected not to pursue raising
capital through an equity offering at that time.
(19)
Table of Contents
Debt Financing - Management elected to raise capital for the Company through
debt financing for the following reasons;
(1) Due to the Companies need for further development of our patents, it had
immediate and continuous need for capital.
(2) The investors were more willing to invest funds more expeditiously, and take
a creditor's position instead of that as an owner by taking an equity position.
(3) With those immediately available funds, management could continue to develop
our technology and create short-term economic value to the Company by
contracting with various vendors for work, prior to any equity dilution taking
place.
(4) The investors were issued Promissory Notes that were unsecured without any
collateral (taking a high risk), except as called for in the agreements.
(5) The Notes required no monthly payments which allowed us to use that free
cash flow for operating expenses, reduced our cash outlays, interest payments
and improve our budget, plans and forecast our cash flow.
(6) The investors received the potential upside of conversion of the Notes into
equity while protecting our downside with the use of the cash flow.
(7) Should the investors decide to convert the Notes into common stock, then the
Company's debt would be eliminated from its balance sheet.
(8) The tax benefits of debt financing is that it's less expensive, while the
Company is taxed on earnings, it is not generally taxed on borrowed money and
the interest on the Notes is tax deductible.
(9) Since the investors do not have any equity interests, it has no voting
rights or other control over the management of the Company, its operations and
no claim to its future earnings.
(10) If the Company ever suffers a negative financial situation, it is much
easier to re-negotiate the terms of the
Notes with the individual investors than with a bank, or a group of investors
through an equity or bond offering.
Based on the reasons above, and since the Company required immediate capital to
rapidly expand, grow, restructure its operations, continue development, finance
potential acquisitions and execute its marketing plans; raising capital through
debt financing was our best alternative. This strategy resulted in our expanding
on our technology patents; thereby, increasing our potential assets, market
capitalization value and our shareholders owning a portion of a much larger and
more valuable company. As the Company continues to advance and develop through
the different stages of its business life cycle, management will evaluate
options, alternatives, and make strategic decisions for the best investment
opportunities, financing and capital structure at that time.
Debt
In its efforts to expand and grow, we issued debt instruments to borrow funds
from various creditors to raise capital. These are long-term Notes with various
rates and maturities, that grants the Note Holder the right, (but not the
obligation), to convert them into shares of our common stock in lieu of
receiving payment in cash. The issued Notes are secured obligations. The
principal amount of the Notes may be prepaid upon agreement of both parties and
a prepayment penalty, in whole or part at any time, together with all accrued
interest upon written notice.
Our management believes that there are a number of benefits when issuing debt
versus issuing equity capital. The interest paid on debt capital is tax exempt;
hence, our loan costs are lowered. Outside of their contractual debt documents,
creditors have no control in the conduct of the business, so by issuing debt
capital, we do not dilute the ownership rights of our shareholders (unless and
until any debt is converted into equity). Also, as the interest rates are
predetermined, the management is able to budget for the payments. Generally,
debt is less costly and the time involved to be able to raise the capital is
shortened. In many cases, raising capital through equity requires regulatory
approval, which can take months and is dilutive to all shareholders.
2012
On January 2, 2012 we entered into a two (2) year convertible Promissory Note
with a non-related creditor for $57,000 at 10% interest. The holder has the
right to convert the note to common stock at $0.015 per share.
On January 31, 2012, we entered into a two (2) year convertible Promissory Note
with a non-related creditor for $28,000 at 12% interest. The holder has the
right to convert the note to common stock at $0.005 per share.
On February 6, 2012, the Board of Directors approved a request for an adjustment
to the conversion price of a Long Term Note dated April 30, 2011 for $76,194
from $0.005 to $0.0022.
On February 29, 2012, we entered into a two (2) year convertible Promissory Note
with a non-related creditor for $5,000 at 12% interest. The holder has the right
to convert the note to common stock at $0.005 per share.
On March 22, 2012, we completed a partial conversion of one of our Notes payable
dated April 30, 2011, with a principal amount of $76,194. A total of $26,000
worth of the Note was converted, and 11,817,900 common shares were issued for
that part of the conversion, which leaves a remaining balance of $50,194 of the
principal of the Note. No accrued interest was paid on the Note upon conversion.
This conversion of debt reduced our Long Term Notes payables by$26,000.
On March 22, 2012, we issued 159,000 restricted common shares for professional
services provided to us and expensed in 2011. The issuance will reduce our
accounts payable by $4,990.
On March 30, 2012, we completed a conversion of one of our Notes payable to one
of our Officers and Directors Mr. Solomon Ali, dated October 1, 2011, with a
principal amount of $46,154. The Note was converted, and 9,230,768 common shares
were issued for the conversion, No accrued interest was paid on the Note upon
conversion. This conversion of debt reduced our Long Term Notes payablesby
$46,154.
On March 30, 2012, we completed a conversion of one of our Notes payable to one
of our Officers and Directors, Mr. Ronald Carter, dated October 1, 2011, with a
principal amount of $92,308. The Note was converted, and 18,461,544 common
shares were issued for the conversion, No accrued interest was paid on the Note
upon conversion. This conversion of debt reduced our Long Term Notes payables by
$92,308.
On March 30, 2012, we entered into a two (2) year convertible Promissory Note
with a non-related creditor for $70,000 at 12% interest. The holder has the
right to convert the note to common stock at $0.005 per share.
On April 1, 2012 we entered into a two (2) year convertible Promissory Note with
our President and CEO, Ronald Carter for $200,000 at 10% interest for the
balance of the accrued compensation owed to him for the fiscal year 2011 in
accordance with his Employment Agreement. The holder has the right to convert
the note to common stock at $0.005.
On April 1, 2012 we entered into a two (2) year convertible Promissory Note with
our Vice President, Solomon Ali for $174,000 at 10% interest for the accrued
compensation owed to him for the fiscal year 2011 in accordance with his
Employment Agreement. The holder has the right to convert the note to common
stock at $0.005.
On April 30, 2012 we entered into a two (2) year convertible Promissory Note
with a non-related creditor for $22,000 at 12% interest. The holder has the
right to convert the note to common stock at $0.005 per share.
On May 31, 2012 we entered into a two (2) year convertible Promissory Note with
a non-related creditor for $33,000 at 12% interest. The holder has the right to
convert the note to common stock at $0.005 per share.
On June 7, 2012 we entered into a one (1) year convertible Promissory Note with
a non-related creditor for $27,000 at 12% interest. The holder has the right to
convert the note to common stock at 50% of the then current market prices. This
was a partial reassignment and modification of a note dated August 30, 2011. On
June 19, 2012, the Company received a notice of partial conversion. A total of
$4,000 was converted and 1,111,111 restricted common shares were issued, which
leaves a remaining principal balance of $23,000. This conversion of debt reduced
our notes payables by $4,000.
On June 12, 2012 we entered into a one (1) year convertible Promissory Note with
a non-related creditor for $43,448 at 10% interest. The holder has the right to
convert the note to common stock at 50% of the then current market prices. This
was a partial reassignment and modification of notes dated May 30, 2011 for
$12,000, May 30, 2011 for $10,000 and a note dated June 30, 2011 for $17,500 and
accumulated interest of $3,948. On June 18, 2012, the Company received a notice
of partial conversion. A total of $10,000 was converted and 3,030,303 restricted
common shares were issued, which leaves a remaining principal balance of
$33,448. This conversion of debt reduced our notes payables by $10,000.
On June 19, 2012 we entered into a one (1) year convertible Promissory Note with
a non-related creditor for $27,500 at 8% interest. The holder has the right to
convert the note to common stock at 50% of the then current market prices.
On June 30, 2012 we entered into a two (2) year convertible Promissory Note with
a non-related creditor for $38,809 at 12% interest. The holder has the right to
convert the note to common stock at $0.005 per share.
From July 27, 2012 through September 25, 2012 we received several notices of
partial conversion from an unrelated third party as part of a partial
reassignment and modification of a note originally issued to a non-related third
party on August 30, 2011. A total of $17,500 was converted and 27,127,038
restricted common shares were issued, which leaves a remaining principal balance
of $5,500. This conversion of debt reduced our notes payables $17,500.
On August 1, 2012, we received a notice of partial conversion from an unrelated
third party as part of a partial reassignment of a note originally issued to a
non-related third party on April 30, 2012, in the amount of $76,194. A total of
$37,645 was converted and 17,128,475 restricted common shares were issued, which
leaves a remaining principal balance of $12,549. This conversion of debt reduced
our notes payables $37,645.
From August 22, 2012 through September 18, 2012 we received several notices of
partial conversion from an unrelated third party This was a partial reassignment
and modification of notes dated May 30, 2011 for $12,000, May 30, 2011 for
$10,000 and a note dated June 30, 2011 for $17,500 and accumulated interest of
$3,948. A total of $33,448 was converted and 38,618,636 restricted common shares
were issued, which leaves a remaining principal balance of $0. This conversion
of debt reduced our notes payables $33,448.
On August 30, 2012 we entered into a two (2) year convertible Promissory Note
with a non-related creditor for $46,600 at 12% interest. The holder has the
right to convert the note to common stock at $0.005 per share.
On September 4, 2012 we entered into a one (1) year convertible Promissory Note
with a non-related creditor for $42,700 at 10% interest. The holder has the
right to convert the note to common stock at 50% of the then current market
prices. September 19, 20129 through September 28, 2012 the Company received
several notices of partial conversion from an unrelated third party This was a
partial reassignment and modification of notes dated October 30, 2011 for
$8,700, November 30, 2011 for $8,500 and a note dated January 31, 2012 for
$28,000. A total of $16,300 was converted and 23,857,143 restricted common
shares were issued, which leaves a remaining principal balance of $26,400. This
conversion of debt reduced our notes payables $16,300.
On September 30, 2012 we entered into a two (2) year convertible Promissory Note
with a non-related creditor for $33,519 at 12% interest. The holder has the
right to convert the note to common stock at $0.005 per share.
(20)
Table of Contents
2011
On January 15, 2011, we entered into a two (2) year convertible Promissory Note
with a non-related creditor for $42,500 at 10% interest. The holder has the
right to convert the note to common stock. On August 4, 2011 this Note was
converted to 8,500,068 restricted common shares of which 2,200,000 shares had
previously been issued,
On April 30, 2011, we entered into a two (2) year convertible Promissory Note
with a non-related creditor for $76,194 at 10% interest. The holder has the
right to convert the note to common stock at $0.005 per share. On February 6,
2012, the Board of Directors approved a request for an adjustment to the
conversion price of a Long Term Note dated April 30, 2011 for $76,194 from
$0.005 to $0.0022. On March 21, 2012, $26,000 of this note was converted to
11,817,900 shares of common stock, which leaves a remaining principal balance of
$50,194. This conversion of debt reduced our Long Term Notes payables by
$26,000.
On April 30, 2011, we entered into a two (2) year convertible Promissory Note
with a non-related creditor for $12,000 at 10% interest. The holder has the
right to convert the note to common stock at $0.005 per share.
On May 30, 2011, we entered into a two (2) year convertible Promissory Note with
a non-related creditor for $12,000 at 10% interest. The holder has the right to
convert the note to common stock at $0.005 per share.
On May 30, 2011, we entered into a two (2) year convertible Promissory Note with
a non-related creditor for $10,000 at 10% interest. The holder has the right to
convert the note to common stock at $0.005 per share.
On June 30, 2011, we entered into a two (2) year convertible Promissory Note
with a non-related creditor for $17,500 at 10% interest. The holder has the
right to convert the note to common stock at $0.005 per share.
On August 4, 2011, we entered into a two (2) year convertible Promissory Note
with a non-related creditor for $140,663 and $3,404 in interest. The holder has
the right to convert the note to common stock at $0.005 per share.On November
30, 2011, the holder converted $50,166 of the note leaving a principal balance
due of $90,497.
On August 30, 2011, we entered into a two (2) year convertible Promissory Note
with a non-related creditor for $44,600 at 10% interest. The holder has the
right to convert the note to common stock at $0.005 per share. On June 12, 2012,
$27,000 of this note was modified and assigned by the original note holder to a
non-related third party, leaving a principal balance of $17,600 on the original
Note.
On September 30, 2011, we entered into a two (2) year convertible Promissory
Note with a non-related creditor for $177,522 at 10% interest. The holder has
the right to convert the note to common at stock at $0.005 per share.
On October 1, 2011, we entered into a two (2) year convertible Promissory Note
with Ronald Carter, our President and CEO for $92,308 at 10% interest for the
accrued compensation owed to him for the fiscal year 2010 in accordance with his
Employment Agreement. The holder has the right to convert the note to common
stock at $0.005 per share. On March 30, 2012, we completed a conversion of
$92,308. The Note was converted, and 18,461,544 common shares were issued for
the conversion, No accrued interest was paid on the Note upon conversion. This
conversion of debt reduced our Long Term Notes payables by $92,308.
On October 1, 2011, we entered into a two (2) year convertible Promissory Note
with our Senior Vice President, Solomon Ali for $46,154 at 10% interest for the
accrued compensation owed to him for the fiscal year 2010 in accordance with his
Employment Agreement. The holder has the right to convert the note to common
stock at $0.005 per share. On March 30, 2012, we completed a conversion of
$46,154. The Note was converted, and 9,230,768 common shares were issued for the
conversion, No accrued interest was paid on the Note upon conversion. This
conversion of debt reduced our Long Term Notes payables by $46,154.
On October 1, 2011, we entered into a two (2) year convertible Promissory Note
with a non-related creditor for $63,818 at 10% interest. The holder has the
right to convert the note to common stock at $0.005 per share. This note was
originally dated 12/31/10
On October 1, 2011, we entered into a two (2) year convertible Promissory Note
with a non-related creditor for $27,018 at 10% interest. The holder has the
right to convert the note to common stock at $0.005 per share. This note was
assigned to an unrelated third party and was originally issued 12/31/10.
On October 1, 2011, we entered into a two (2) year convertible Promissory Note
with a non-related creditor for $198,950 at 10% interest. The holder has the
right to convert the note to common stock at $0.005 per share. This note was
assigned to an unrelated third party and was originally issued 12/31/10.
On October 30, 2011, we entered into a two (2) year convertible Promissory Note
with a non-related creditor for $8,700 at 10% interest. The holder has the right
to convert the note to common stock at $0.005 per share.
On November 30, 2011, we entered into a two (2) year convertible Promissory Note
with a non-related creditor for $8,500 at 10% interest. The holder has the right
to convert the note to common stock at $0.005 per share.
On December 30, 2011, we entered into a two (2) year convertible Promissory Note
with a non-related creditor for $4,700 at 12% interest. The holder has the right
to convert the note to common stock at $0.005 per share.
The investors and private equity firms are very astute and have many years of
experience and expertise in making successful investments in many companies.
They have been investing with the Company for several years, and have provided
us with critical short and long-term funds that we have used for operations,
working capital, and investment capital for our business acquisitions to expand
and grow the Company. They have the option to convert their Notes into stock
after a holding period per SEC guidelines. However, most have elected to hold
their Notes for 1 to 3 years and therefore have taken a long-term investment
strategy in the Company. Without their continuous long-term commitment to
investment in the Company, it is unlikely that the growth and expansion that we
have achieved would have been possible.
Recent Accounting Pronouncements
In May 2011, FASB issued Accounting Standards Update No. 2011-04, "Fair Value
Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement
and Disclosure Requirements in U.S. GAAP and IFRSs" ("ASU 2011-04"). ASU 2011-04
changes the wording used to describe many of the requirements in U.S. GAAP for
measuring fair value and for disclosing information about fair value
measurements to ensure consistency between U.S. GAAP and IFRS. ASU 2011-04 also
expands the disclosures for fair value measurements that are estimated using
significant unobservable (Level 3) inputs. This new guidance is to be applied
prospectively. The Company anticipates that the adoption of this standard will
not materially expand its financial statement note disclosures.
In June 2011, FASB issued ASU No. 2011-05, "Comprehensive Income (ASC Topic
220): Presentation of Comprehensive Income" ("ASU 2011-05"), which amends
current comprehensive income guidance. This accounting update eliminates the
option to present the components of other comprehensive income as part of the
statement of shareholders' equity. Instead, the Company must report
comprehensive income in either a single continuous statement of comprehensive
income which contains two sections, net income and other comprehensive income,
or in two separate but consecutive statements. ASU 2011-05 will be effective for
public companies during the interim and annual periods beginning after
December 15, 2011, with early adoption permitted. The Company is reviewing ASU
2011-05 to ascertain its impact on the Company's financial position, results of
operations or cash flows as it only requires a change in the format of the
current presentation.
In September 2011, the FASB issued ASU 2011-08, "Testing Goodwill for
Impairment", which allows, but does not require, an entity when performing its
annual goodwill impairment test the option to first do an initial assessment of
qualitative factors to determine whether it is more likely than not that the
fair value of a reporting unit is less than its carrying amount for purposes of
determining whether it is even necessary to perform the first step of the
two-step goodwill impairment test. Accordingly, based on the option created in
ASU 2011-08, the calculation of a reporting unit's fair value is not required
unless, as a result of the qualitative assessment, it is more likely than not
that fair value of the reporting unit is less than its carrying amount. If it is
less, the quantitative impairment test is then required. ASU 2011-08 also
provides for new qualitative indicators to replace those currently used. Prior
to ASU 2011-08, entities were required to test goodwill for impairment on at
least an annual basis, by first comparing the fair value of a reporting unit
with its carrying amount. If the fair value of a reporting unit is less than its
carrying amount, then the second step of the test is performed to measure the
amount of impairment loss, if any. ASU 2011-08 is effective for annual and
interim goodwill impairment tests performed for fiscal years beginning after
December 15, 2011, with early adoption permitted. The Company adopted ASU
2011-08 during the first quarter of fiscal 2013. The adoption of ASU 2011-08 did
not impact the Company's results of operations or financial condition.
In December 2011, FASB issued Accounting Standards Update 2011-11, "Balance
Sheet - Disclosures about Offsetting Assets and Liabilities" to enhance
disclosure requirements relating to the offsetting of assets and liabilities on
an entity's balance sheet. The update requires enhanced disclosures regarding
assets and liabilities that are presented net or gross in the statement of
financial position when the right of offset exists, or that are subject to an
enforceable master netting arrangement. The new disclosure requirements relating
to this update are retrospective and effective for annual and interim periods
beginning on or after January 1, 2013. The update only requires additional
disclosures, as such, the Company does not expect that the adoption of this
standard will have a material impact on its results of operations, cash flows or
financial condition.
In July 2012, the FASB issued ASU No. 2012-02, "Testing Indefinite-Lived
Intangible Assets for Impairment". The guidance allows companies to perform a
"qualitative" assessment to determine whether further impairment testing of
indefinite-lived intangible assets is necessary, similar in approach to the
goodwill impairment test.
ASU 2012-02 allows companies the option to first assess qualitatively whether it
is more likely than not that an indefinite-lived intangible asset is impaired,
before determining whether it is necessary to perform the quantitative
impairment test. An entity is not required to calculate the fair value of an
indefinite-lived intangible asset and perform the quantitative impairment test
unless the entity determines that it is more likely than not that the asset is
impaired. Companies can choose to perform the qualitative assessment on none,
some, or all of its indefinite-lived intangible assets or choose to only perform
the quantitative impairment test for any indefinite-lived intangible in any
period.
ASU 2012-02 is effective for annual and interim impairment tests performed for
fiscal years beginning after September 15, 2012, with early adoption permitted.
The Company is in the process of evaluating the guidance and the impact ASU
2012-02 will have on its consolidated financial statements.
Subsequent Events
(Included in Accounting Standards Codification ("ASC") 855 "Subsequent Events",
previously SFAS No. 165 "Subsequent Events")
SFAS No. 165 established general standards of accounting for and disclosure of
events that occur after the balance sheet date, but before the financial
statements are issued or available to be issued ("subsequent events"). An entity
is required to disclose the date through which subsequent events have been
evaluated and the basis for that date. For public entities, this is the date the
financial statements are issued. SFAS No. 165 does not apply to subsequent
events or transactions that are within the scope of other GAAP and did not
result in significant changes in the subsequent events reported by the Company.
SFAS No. 165 became effective for interim or annual periods ending after June
15, 2009 and did not impact the Company's financial statements. The Company
evaluated for subsequent events through the issuance date of the Company's
financial statements. No recognized or non-recognized subsequent events were
noted.
Determination of the Useful Life of Intangible Assets
(Included in ASC 350 "Intangibles - Goodwill and Other", previously FSP SFAS No.
142-3 "Determination of the Useful Lives of Intangible Assets")
FSP SFAS No. 142-3 amended the factors that should be considered in developing
renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under previously issued goodwill and intangible
assets topics. This change was intended to improve the consistency between the
useful life of a recognized intangible asset and the period of expected cash
flows used to measure the fair value of the asset under topics related to
business combinations and other GAAP. The requirement for determining useful
lives must be applied prospectively to intangible assets acquired after the
effective date and the disclosure requirements must be applied prospectively to
all intangible assets recognized as of, and subsequent to, the effective date.
FSP SFAS No. 142-3 became effective for financial statements issued for fiscal
years beginning after December 15, 2008, and interim periods within those fiscal
years. The adoption of FSP SFAS No. 142-3 did not impact the Company's financial
statements.
(21)
Table of Contents
Noncontrolling Interests
(Included in ASC 810 "Consolidation", previously SFAS No. 160 "Noncontrolling
Interests in Financial Statements an amendment of ARB No. 51")
SFAS No. 160 changed the accounting and reporting for minority interests such
that they will be recharacterized as noncontrolling interests and classified as
a component of equity. SFAS No. 160 became effective for fiscal years beginning
after December 15, 2008
with early application prohibited. The Company implemented SFAS No. 160 at the
start of fiscal 2009 and no longer records an intangible asset when the purchase
price of a noncontrolling interest exceeds the book value at the time of buyout.
The adoption of SFAS No. 160 did not have any other material impact on the
Company's financial statements.
Consolidation of Variable Interest Entities - Amended
(To be included in ASC 810 "Consolidation", SFAS No. 167 "Amendments to FASB
Interpretation No. 46(R)")
SFAS No. 167 amends FASB Interpretation No. 46(R) "Consolidation of Variable
Interest Entities regarding certain guidance for determining whether an entity
is a variable interest entity and modifies the methods allowed for determining
the primary beneficiary of a variable interest entity. The amendments include:
(1) the elimination of the exemption for qualifying special purpose entities,
(2) a new approach for determining who should consolidate a variable-interest
entity, and (3) changes to when it is necessary to reassess who should
consolidate a variable-interest entity. SFAS No. 167 is effective for the first
annual reporting period beginning after November 15, 2009, with earlier adoption
prohibited. The Company will adopt SFAS No. 167 in fiscal 2010 and does not
anticipate any material impact on the Company's financial statements.
Additional Information
We file reports and other materials with the Securities and Exchange Commission.
These documents may be inspected and copied at the Commission's Public Reference
Room at Room 1580, 100 F Street, N.E., Washington, D.C. 20549. You can obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. You can also get copies of documents that we file
with the Commission through the Commission's Internet site at www.sec.gov.
[ Back To asia.tmcnet.com's Homepage 's Homepage ]
|
Internet Telephony Magazine
Click here to read latest issue
CUSTOMER 
Cloud Computing Magazine
Click here to read latest issue
M2M Evolution Magazine
Call Center/CRM
Info Tech 
IP Communications 
Mobile 
Green 
Satellite 
Robotics 
