[SUTTON ROBINSON FREEMAN LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of
Clear Image, Inc.
Danvers, Massachusetts
We have audited the accompanying consolidated balance sheet of Clear Image, Inc.
(a development stage company) as of December 31, 2006 and the related statements
of operations, shareholders' equity, and cash flows for the years ended December
31, 2006 and 2005. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit and the report of the other auditors
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Clear Image, Inc. as
of December 31, 2006, and the results of its consolidated operations and its
cash flows for the years ended December 31, 2006 and 2005 and for the period
from October 6, 1998 (inception) to December 31, 2006 in conformity with
accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency, which raises substantial doubt about its
ability to continue as a going concern. Management's plans regarding those
matters also are described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Sutton Robinson Freeman & Co., P.C.
- ---------------------------------------
Sutton Robinson Freeman & Co., P.C.
Certified Public Accountants
Tulsa, Oklahoma
June 8, 2007
Clear Image, Inc.
(A Development Stage Company)
Consolidated Balance Sheet
December 31, 2006
ASSETS
Current assets
Cash 42,163
-----------
TOTAL ASSETS $ 42,163
===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Accounts Payable $ 31,206
Accrued Liabilities- Related Party (Notes 3 and Note 7) 50,900
-----------
Total current liabilities 82,106
-----------
Shareholders' deficit
Preferred stock, $0.001 par value,
5,000,000 shares authorized; no shares issued and outstanding --
Common stock, $0.001 par value,
45,000,000 shares authorized;
15,503,539 shares issued and outstanding (Note 6) 15,503
Paid in capital 7,033,298
Deficit accumulated during the development stage (7,088,744)
-----------
Net capital deficiency (39,943)
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 42,163
===========
The accompanying notes are an integral part of the financial statements
1
Clear Image, Inc.
(A Development Stage Company)
Consolidated Statements of Operations
From Inception (October 6, 1998) through December 31, 2006 and
For the Years Ended December 31, 2006 and 2005
From inception
(October 6, 1998) Years Ended
through -------------------------------
December 31, December 31, December 31,
2006 2006 2005
------------- ------------- -------------
Revenue $ -- $ -- $ --
EXPENSES
Research and development 930,439 82,400 205,200
Purchased research and development 1,150,000 -- --
Accounting and Legal Services 195,255 63,500 4,160
Consulting Fees 2,308,773 300,187 957,000
Value of services contributed 1,960,000 -- --
General and administrative 404,359 118,817 10,760
------------- ------------- -------------
Total operating expenses 6,948,826 564,904 1,177,120
------------- ------------- -------------
Operating loss (6,948,826) (564,904) (1,177,120)
Interest expense 231,572 33,444 126,800
------------- ------------- -------------
Net loss $ (7,180,398) $ (598,348) $ (1,303,920)
============= ============= =============
Weighted average shares outstanding 9,217,880 13,414,556 12,630,707
============= ============= =============
Net loss per share $ (0.78) $ (0.04) $ (0.10)
============= ============= =============
The accompanying notes are an integral part of the financial statements
2
Clear Image, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
From Inception (October 6, 1998) through December 31, 2006, and
For the Years Ended December 31, 2006 and 2005
From Inception Years Ended
(October 6, 1998) ---------------------------
to December 31, December 31, December 31,
2006 2006 2005
----------- ----------- -----------
OPERATING ACTIVITIES
Net loss $(7,180,397) $ (598,348) $(1,303,919)
Plus non-cash charges to earnings:
Purchased research and development 1,150,000 -- --
Amortization of sponsored research and license agreements 395,990 -- --
Value of common stock issued for services 647,000 392,000 255,000
Value of common stock issued in financing transaction 125,000 -- 125,000
Value of common stock options granted to
non-employees for services 58,250 -- --
Value of common stock payable to non-employees for services 280,000 -- --
Value of services contributed by employees 1,960,000 -- --
Other 19,433 -- --
Change in working capital accounts:
Related party receivables -- -- --
Prepaid expenses -- 33,444 (33,444)
Due to Tom O'Brien 348,000 -- 105,500
Due to Ron Wheet 480,000 -- 480,000
Accounts Payable 90,756 30,029 41,176
Accrued rental obligation -- -- --
Accrued liabilities 50,900 -- --
Accrued legal fees -- -- --
Amount due to University of South Florida -- -- --
Interest payable -- -- (26,300)
----------- ----------- -----------
Total operating activities (1,575,068) (142,875) (356,987)
----------- ----------- -----------
FINANCING ACTIVITIES
Loans from shareholders 686,366 100,000 --
Note payable 350,000 -- 350,000
Repayment of loans from related parties (514,145) -- (50,220)
Sale of common stock for cash
To founders 5,110 -- --
To third-party investors 1,613,800 -- 113,250
Less: issue costs (228,500) -- (32,700)
----------- ----------- -----------
Total financing activities 1,912,631 100,000 380,330
----------- ----------- -----------
INVESTING ACTIVITIES
Cash acquired in DIET Transaction 100,000 -- --
Payment of license and sponsored research obligations (395,400) -- --
----------- ----------- -----------
Total investing activities (295,400) -- --
----------- ----------- -----------
Change in cash 42,163 (42,875) 23,343
Cash at beginning of period -- 85,038 61,695
----------- ----------- -----------
Cash at end of period $ 42,163 $ 42,163 $ 85,038
=========== =========== ===========
Supplemental cash flow information:
Cash paid for interest $ 88,933 $ -- $ 35,000
=========== =========== ===========
The accompanying notes are an integral part of the financial statements
3
Clear Image, Inc.
(A Development Stage Company)
Consolidated Statements of Shareholders' Equity
From Inception (October 6, 1998) through December 31, 2006
Deficit
Accumulated
Common During the
Shares of Common Stock to Paid In Development
Stock Stock be Issued Capital Stage Total
------------ ------------ ------------ ------------ ------------ ------------
Balance at October 6, 1998 (Inception) -- $ -- $ -- $ -- $ -- $ --
Common stock issued to founders 5,110,000 5,110 -- -- -- 5,110
Common stock issued to
inventor for services 50,000 50 -- -- -- 50
Common stock issued in Merger 540,000 540 -- -- -- 540
Common stock issued for cash:
To third-party investors 194,875 195 -- 389,555 -- 389,750
Less issue costs -- -- -- (71,650) -- (71,650)
Value of services contributed
by employees -- -- -- 350,000 -- 350,000
Value of stock options granted to
non-employees for services -- -- -- 250 -- 250
Net Loss through December 31, 1999 -- -- -- -- (702,674) (702,674)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1999 5,894,875 $ 5,895 $ -- $ 668,155 $ (702,674) $ (28,624)
Common stock issued for cash:
To third-party investors 217,125 217 -- 434,033 -- 434,250
Less issue costs -- -- -- (85,850) -- (85,850)
Exercise of Options 1,750,000 1,750 -- -- 1,750
Value of services contributed
by employees -- -- -- 410,000 -- 410,000
Value of stock options granted to
non-employees for services -- -- -- 58,000 -- 58,000
Value of common stock payable to
non-employees for services -- -- 245,000 -- -- 245,000
Net Loss through December 31, 2000 -- -- -- -- (1,044,783) (1,044,783)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 2000 7,862,000 $ 7,862 $ 245,000 $ 1,484,338 $ (1,747,457) $ (10,257)
Common stock issued for cash:
To third-party investors 76,600 77 -- 191,423 -- 191,500
Less issue costs -- -- -- (38,300) -- (38,300)
Value of services contributed
by employees -- -- -- 400,000 -- 400,000
Value of stock granted to
non-employees for services -- -- 35,000 -- -- 35,000
Value of common stock payable to
non-employees for services 140,000 140 (280,000) 279,860 -- --
Net Loss through December 31, 2001 -- -- -- -- (796,591) (796,591)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 2001 8,078,600 $ 8,079 $ -- $ 2,317,321 $ (2,544,048) $ (218,648)
Value of services contributed
by employees -- -- -- 400,000 -- 400,000
DIET Acquisition 500,000 500 -- 1,249,500 -- 1,250,000
Common stock issued for cash:
To third-party investors 51,000 51 -- 127,449 -- 127,500
Less issue costs -- -- -- -- -- 0
Net Loss through December 31, 2002 (1,824,993) (1,824,993)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 2002 8,629,600 $ 8,630 $ -- $ 4,094,270 $ (4,369,041) $ (266,141)
Value of services contributed
by employees 400,000 400,000
Common stock issued for cash: 0
To third-party investors 1,125,000 1,125 -- 187,425 -- 188,550
Net Loss through December 31, 2003 (634,077) (634,077)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 2003 9,754,600 $ 9,755 $ -- $ 4,681,695 $ (5,003,118) $ (311,668)
============ ============ ============ ============ ============ ============
Common stock issued for cash:
To third-party investors 444,000 444 -- 166,806 -- 167,250
Net Loss through December 31, 2004 (1,303,920) (1,303,920)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 2004 10,198,600 $ 10,199 $ -- $ 4,848,501 $ (6,307,038) $ (1,448,338)
============ ============ ============ ============ ============ ============
Common stock issued for cash:
To third-party investors 453,000 453 -- 112,797 -- 113,250
Less issue costs 0 0 -- (32,700) (32,700)
Common stock issued for services 2,040,000 2,040 252,960 255,000
Common stock issued in connection
with Dr. Beahm note 500,000 500 124,500 125,000
Write-off of accrued liabilities 91,654 91,654
Net Loss through December 31, 2005 (275,012) (275,012)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 2005 13,191,600 $ 13,192 $ -- $ 5,306,058 $ (6,490,396) $ (1,171,146)
Common Stock issued for services 1,608,814 $ 1,609 $ -- $ 1,277,942 $ -- 1,279,551
Common Stock issued as payment
of Dr. Beahm note 703,125 $ 703 $ 449,297 $ -- 450,000
Net Loss through December 31, 2006 $ (598,348) (598,348)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 2006 15,503,539 $ 15,504 $ -- $ 7,033,297 $ (7,088,744) $ (39,943)
============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of the financial statements
4
CLEAR IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
NOTE 1-- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF OPERATIONS
-------------------------------------
Clear Image is developing a software process by which gray digital
images produced by Magnetic Resonance Imaging machines ("MRIs") are colored with
realistic colors and combined using a personal computer for easy viewing and
analysis. The software is still in development and is not yet available for
sale.
DEVELOPMENT STAGE OPERATIONS
----------------------------
The Company was incorporated on October 6, 1998, under the laws of the
state of Oklahoma. Since inception, the Company's primary focus has been raising
capital to develop the Color MRI software .
PRINCIPLES OF CONSOLIDATION
---------------------------
The consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly owned. All material
intercompany accounts and transactions are eliminated in consolidation. At
December 31, 2005, the Company had one inactive subsidiary.
STOCK-BASED COMPENSATION
------------------------
Effective January 1, 2003, the Company prospectively adopted the fair
value method of accounting for stock compensation. The Company recognizes
compensation expense based on the straight-line method. The adoption of
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123), had no significant impact on the Company's
consolidated financial statements for the years ended December 31, 2005, 2004,
and 2003.
Until January 1, 2003, the Company had elected to follow Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB
No. 25), and related Interpretations in accounting for stock compensation. Under
APB No. 25, no compensation expense is recognized if the exercise price of stock
options equals the market price of the underlying stock on the date of grant.
Note 5 contains a tabular presentation as if the Company had applied the
alternative fair value accounting provided for under SFAS No. 123, to all stock
options.
On December 16, 2004, the FASB issued Statement of Financial Accounting
Standards No. 123 (revised 2004), Share-Based Payment (SFAS No. 123(R)), which
is a revision of SFAS No. 123. SFAS No. 123(R) supersedes APB No. 25, Accounting
for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of
Cash Flows. Generally, the approach in SFAS No. 123(R) is similar to the
approach described in SFAS No. 123. However, SFAS No. 123(R) requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the income statement based on their fair values. Pro forma
disclosure is no longer an alternative. The Company adopted SFAS No. 123(R) on
January 1, 2006.
INCOME TAXES
------------
The Company uses the liability method of accounting for income taxes as
set forth in SFAS No. 109, "Accounting for Income Taxes." Under the liability
method, deferred taxes are determined based on the differences between the
financial statements and tax bases of assets and liabilities at enacted tax
rates in effect in the years in which the differences are expected to reverse.
EARNINGS (LOSS) PER SHARE
-------------------------
The Company computes net income (loss) per share in accordance with
SFAS No. 128, "Earnings per Share". Under the provisions of SFAS No. 128, basic
net income (loss) per share is calculated by dividing net income (loss)
available to Common Stockholders for the period by the weighted average shares
of Common Stock of the Company outstanding during the period (see Note 9).
Diluted net income (loss) per share is computed by dividing the net income
(loss) for the period by the weighted average number of common and common
equivalent shares outstanding during the period. The calculation of diluted
income (loss) per share of Common Stock assumes the dilutive effect of stock
options.
6
CLEAR IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported revenues and expenses during
the reporting period. Actual results could differ from those estimates.
RESEARCH AND DEVELOPMENT ("R&D") COSTS
--------------------------------------
Costs related to developing the Color MRI software are expensed as
incurred. During the year ended December 31 2005, the Company paid $82,400 in
software development expenses.
NEW ACCOUNTING STANDARDS
------------------------
The Financial Accounting Standards Board ("FASB") periodically issues
new accounting standards in a continuing effort to improve standards of
financial accounting and reporting. Management has reviewed the recently issued
pronouncements and concluded that the following new accounting standards are
potentially applicable to the Company.
In May 2005, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 154, Accounting Changes and Error
Corrections (SFAS 154), which replaces APB Opinion No. 20, Accounting Changes,
and FASB Statement 3, Reporting Accounting Changes in Interim Financial
Statements. This statement changes the requirements for the accounting for and
reporting of a change in accounting principle, including all voluntary changes
in accounting principles. It also applies to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include
specific transition provisions. This statement requires voluntary changes in
accounting principles be recognized retrospectively to prior periods' financial
statements, rather than recognition in the net income of the current period.
Retrospective application requires restatements of prior period financial
statements as if that accounting principle had always been used. This statement
carries forward, without change, the guidance contained in Opinion 20 for
reporting the correction of an error in previously issued financial statements
and a change in accounting estimate. The provisions of SFAS No. 154 are
effective for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005.
In March 2006, the Financial Accounting Standards Board issued
Statement of Accounting Standards No. 156, Accounting for Servicing of Financial
Assets (SFAS 156), which amends SFAS 140, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities. SFAS 156 permits, but
does not require, an entity to choose either the amortization method or the fair
value measurement method for measuring each class of separately recognized
servicing assets and servicing liabilities. The provisions of SFAS No. 156 are
effective for fiscal years beginning after September 15, 2006. The Company does
not expect the adoption of SFAS 156 to have a material effect on its financial
statements and related disclosures.
In June 2006, the Financial Accounting Standards Board issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109 (FIN 48). This interpretation clarifies
the accounting for uncertainty in income taxes recognized in an enterprise's
financial statements in accordance with FASB Statement No. 109, Accounting for
Income Taxes. FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. It also provides
guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition. FIN 48 is effective for fiscal
years beginning after December 15, 2006. The Company does not expect the
adoption of FIN 48 to have a material effect on its financial statements and
related disclosures.
In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements " (SFAS 157). This statement defines fair value, establishes a
framework for measuring fair value in GAAP, and expands disclosures about fair
value measurements. SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007. The Company is currently
evaluating the impact of adopting SFAS 157 on our financial condition and
results of operations.
7
CLEAR IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting
for Defined Benefit Pension and Other Postretirement Plans - an amendment of
FASB Statements No. 87, 88, 106 and 132(R)" (SFAS No. 158"). SFAS No. 158
requires an employer that sponsors one or more single-employer defined benefit
plans to (a) recognize the overfunded or underfunded status of a benefit plan in
its statement of financial position, (b) recognize as a component of other
comprehensive income, net of tax, the gains or losses and prior service costs or
credits that arise during the period but are not recognized as components of net
periodic benefit cost pursuant to SFAS No. 87, "Employers' Accounting for
Pensions", or SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions", (c) measure defined benefit plan assets and obligations as
of the date of the employer's fiscal year-end, and (d) disclose in the notes to
financial statements additional information about certain effects on net
periodic benefit cost for the next fiscal year that arise from delayed
recognition of the gains or losses, prior service costs or credits, and
transition asset or obligation. The Company is currently assessing the impact of
adopting SFAS 158 on our financial statements.
NOTE 2-- UNCERTAINTIES
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company is in the early stages of
development and has not established sources of revenues sufficient to fund the
development of business and pay operating expenses, resulting in a net loss of
($7,088,744) for the period from Inception (October 6, 1998) to December 31,
2006.
Although management intends to obtain the necessary development and
operating capital through sales of its Common Stock and the sale of software
using the Color MRI Technology, these plans depend on the Company's successful
completion of an offering of its Common Stock to raise the capital required to
bring the Color MRI Technology to market. There is no assurance that their
efforts to raise capital will be successful. Consequently, the ability of the
Company to continue as a going concern is doubtful. The financial statements do
not include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
NOTE 3-- ACCRUED LIABILITIES
As of December 31, 2006, the Company owed $50,900 to Revolutions
Medical Corporation (f/k/a/ Maxxon, Inc.) for cash advances made by Maxxon for
the payment of Clear Image expenses during 2001. Ron Wheet, one of our
directors, became an officer and director of Revolutions Medical Corporation in
March, 2005. (See Note 9, "Subsequent Events.")
NOTE 4-- NOTE PAYABLE
On December 31, 2005, the Company entered into a financing transaction
with Dr. Thomas Beahm, who became a director at the time of the transaction. The
transaction consisted of a $350,000 unsecured loan to the Company which is due
on December 31, 2006 and accrues interest at a rate of 10% per year. One year's
interest, or $35,000, was paid to him in advance and is being amortized over a
one year period. As of December 31, 2005, approximately $1,556 of prepaid
interest was amortized, leaving a prepaid interest balance of $33,444. If the
loan is not paid on or before the due date, then the Company is obligated to
issue Dr. Beahm 250,000 shares of its common stock per quarter until such time
as the loan is repaid in cash. In connection with the financing transaction, the
Company issued him 500,000 shares of common stock, the value of which was
recorded as interest expense (See Note 5. "Common Stock and Paid in Capital").
In November, 2006, the Company borrowed an additional $100,000 from Dr. Beahm.
On December 11, 2006, the Company issued 703,125 shares of its common stock to
Dr. Beahm as payment in full of the $450,000 owed him.
8
CLEAR IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
NOTE 5-- COMMITMENTS AND CONTINGENCIES
PAYABLE TO THOMAS O'BRIEN
-------------------------
On May 1, 2004, the Company and Thomas O'Brien agreed that he would act
as the Company's Interim President. Mr. O'Brien is continuing to be compensated
under his existing consulting agreement with the Company, which calls for a
$15,000 monthly fee. Pursuant to that agreement, the Company owed Mr. O'Brien
$348,000 at December 31, 2005, accrued $180,000 and paid $75,000 during 2006,
leaving a balance due of $453,000, which was converted into 575,625 shares of
common stock on December 11, 2006.
PAYABLE TO RON WHEET
--------------------
Effective January 1, 2005, the Company and Ron Wheet entered into an
agreement wherein Mr. Wheet would be compensated at a rate of $10,000 per month.
The Company also agreed to pay Mr. Wheet $360,000 for his past services to the
Company. Pursuant to the agreement, the Company owed Mr. Wheet $480,000 at
December 31, 2005 and accrued $120,000 during 2006, leaving a balance due of
$600,000, which was converted into 750,000 shares of common stock on December
11, 2006.
OTHER LIABILITIES CONVERTED TO COMMON STOCK
-------------------------------------------
On December 11, 2006, approximately $114,551 in liabilities was
converted into 143,189 shares of common stock. The liabilities were related to
financial accounting and reporting services, of which $55,000 was accrued in
2006 and $59,551 was accrued in prior years.
SETTLEMENT OR WRITE/OFF OF LIABILITIES
--------------------------------------
During 2005, the Company settled the outstanding litigation with its
former counsel and his Trust by paying him $76,500 in cash. During 2005, the
Company reviewed its accrued liabilities list and determined that approximately
$98,000 should be written off because no claim had been asserted and/or the
statute of limitation had expired or the likelihood of a claim being asserted
was remote.
NOTE 6-- COMMON STOCK AND PAID IN CAPITAL
DESCRIPTION OF COMMON STOCK
- ---------------------------
As of December 31, 2006, there were 15,503,539 shares issued and
outstanding. A description of the common stock is as follows:
VOTING RIGHTS. Holders of shares of Common Stock are entitled to one
vote per share on all matters submitted to a vote of the shareholders. Shares of
Common Stock do not have cumulative voting rights, which means that the holders
of a majority of the shareholder votes eligible to vote and voting for the
election of the Board of Directors can elect all members of the Board of
Directors. Holders of a majority of the issued and outstanding shares of Common
Stock may take action by written consent without a meeting.
DIVIDEND RIGHTS. Holders of record of shares of Common Stock are
entitled to receive dividends when and if declared by the Board of Directors. To
date, the Company has not paid cash dividends on its Common Stock. Holders of
Common Stock are entitled to receive such dividends as may be declared and paid
from time to time by the Board of Directors out of funds legally available. The
Company intends to retain any earnings for the operation and expansion of its
business and does not anticipate paying cash dividends in the foreseeable
future. Any future determination as to the payment of cash dividends will depend
upon future earnings, results of operations, capital requirements, the Company's
financial condition and such other factors as the Board of Directors may
consider.
LIQUIDATION RIGHTS. Upon any liquidation, dissolution or winding up of
Image, holders of shares of Common Stock are entitled to receive pro rata all of
the assets of the Company available for distribution to shareholders after
liabilities are paid and distributions are made to the holders of the Company's
Preferred Stock.
PREEMPTIVE RIGHTS. Holders of Common Stock do not have any preemptive
rights to subscribe for or to purchase any stock, obligations or other
securities of the Company.
9
CLEAR IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
COMMON STOCK TRANSACTIONS DURING 2006
- -------------------------------------
On April 4, 2006, the Company issued 70,000 shares each to Mr. Wheet
and Mr. O'Brien for services.
On December 11, 2006, the Company issued 2,171,939 shares of its common
stock as payment of various liabilities. Of the shares issued, 703,125 were
issued to Dr. Beahm in satisfaction of $450,000 note owed to him by the Company,
750,000 shares were issued to Mr. Wheet in satisfaction of $600,000 owed to him,
and 575,625 shares were issued to Mr. O'Brien in satisfaction of $460,500 owed
to him.
COMMON STOCK TRANSACTIONS DURING 2005
- -------------------------------------
On January 1, 2005, the Company issued 2,040,000 shares of its common
stock for services. Of the shares issued, our director and interim president Tom
O'Brien, and our director Ron Wheet, received 1,000,000 shares each. The shares
were valued using the most recent offering price of $0.25 per share, less a 50%
discount for Rule 144 restrictions. The Company recorded $255,000 in expense
related to the shares.
During February and March of 2005, the Company sold 453,000 shares of
its common stock to third party investors for $113,250 in cash and incurred
issue costs of $32,700. The issue costs consisted mainly of payments made to Ron
Wheet, a director.
On December 15, 2005, the Company issued 500,000 shares of its common
stock in connection with a $350,000 loan from Dr. Thomas Beahm (See Note 4.) The
shares were valued at $0.25 per share, based on the most recent offering price,
and $125,000 was recorded as interest expense. At the time of the financing
transaction, Dr. Beahm also became a director of the Company.
NOTE 7-- STOCK OPTIONS
On October 14, 1998, the Board of Directors and shareholders approved
the adoption of the Clear Image Incentive Stock Option Plan, pursuant to which
3,500,000 shares of Common Stock was reserved. At December 31, 2006, no stock
options were granted or outstanding.
NOTE 8-- RELATED PARTY TRANSACTIONS
During the year ended December 31, 2005, the Company accrued $180,000
pursuant to Mr. O'Brien's compensation agreement and paid $74,500 to him under
that agreement. During the year ended December 31, 2006, the Company accrued
$180,000 and paid $75,000 to him under that agreement. On December 11, 2006, the
Company issued 575,625 shares of its common stock to Mr. O'Brien to satisfy
amounts owed to him pursuant to the compensation agreement (See Note
5."Commitments and Contingencies" and Note 6. "Common Stock and Paid In
Capital.)
During the year ended December 31, 2005, the Company accrued $480,000
pursuant to Mr. Wheet's compensation agreement. During the year ended December
31, 2006, the Company accrued $120,000 pursuant to Mr. Wheet's compensation
agreement. On December 11, 2006, the Company issued 750,000 shares of its common
stock to Mr. Wheet to satisfy amounts owed to him pursuant to the compensation
agreement (See Note 5."Commitments and Contingencies" and Note 6. "Common Stock
and Paid In Capital.)
On December 15, 2005, the Company entered into a financing transaction
with Dr. Thomas Beahm, who became a director at the time of the transaction (See
Note 4. "Notes Payable" and Note 6. "Common Stock and Paid In Capital"). In
November, 2006, the Company borrowed an additional $100,000 from Dr. Beahm and
on December 11, 2006, the Company issued 703,125 shares of its common stock to
satisfy the $450,000 owed to him pursuant to the note
10
CLEAR IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
NOTE 9-- SUBSEQUENT EVENT
On January 26, 2007 Revolutions Medical Corporation entered into a Plan
and Agreement of Reorganization with Clear Image Acquisition Corporation
("Acquisition Corp") for the acquisition by the Company of all of the assets of
Acquisition Corp in exchange for the issuance by the Company for the benefit of
the holders of the Common Stock of Acquisition Corp. of 8,273,788 shares of the
Company's Common Stock. The Company will assume the minimal liabilities of
Acquisition Corp which are only the costs of Acquisition Corp's liquidation and
dissolution. The shares to be issued are not being registered, but are being
issued in a private offering under Section 4(2) of the Securities Act. On March
26, 2007, the acquisition was completed.
Acquisition Corp is a company which was formed by certain shareholders
of Clear Image, Inc. ("Clear Image"), an Oklahoma corporation, all of whom are
accredited investors, in order to assemble a control block of the shares of
Clear Image for the purposes of such a transaction. Accordingly, the sole asset
of Acquisition Corp is a block of 9,824,139 shares of the Common Stock of Clear
Image. Clear Image is a development stage company which has developed certain
proprietary technology and patent pending for (i) differential coloring, by
series, of MRI scans and (ii) auto-registration of the scan images. As a private
company, however, faced with the substantial competition of the leaders in the
field of MRI technology, Clear Image has had difficulty obtaining the necessary
working capital to complete the development of commercial components of its
technology.
The Company, in acquiring control of Clear Image, believes that it can
provide sufficient working capital to complete commercialization of certain
aspects of Clear Image's technology to the point of supporting some licensing or
joint venture relationship financially adequate to permit Clear Image to
complete the development of the remaining aspects of its technology.
11