Notes to Financial Statements
March 31, 2016
(Unaudited)
1. Organization and Nature of Business
Receivable Acquisition and Management Corporation (the “Company” or “RAMCO”), a public reporting entity, was in the business to purchase, manage and collect defaulted consumer receivables. RAMCO ceased investments in distressed consumer credit portfolios in September 2007 and subsequently ran off existing portfolios.
Sustainable Energy LLC (“Sustainable LLC”) is a New York Limited Liability Company formed on July 26, 2010. Sustainable LLC is involved in developing and improving the efficiency of energy infrastructure using a combination of traditional and advanced technologies. On March 29, 2013, Sustainable LLC contributed certain assets and liabilities into a newly formed entity, Sustainable Energy Industries, Inc. (“Sustainable”). At the time, Sustainable LLC had a license agreement with a third party involving manufacturing and licensing, and limited assets, liabilities and operations.
Cornerstone Program Advisors LLC, (“Cornerstone”) is a Delaware limited liability company formed on January 5, 2009. Cornerstone is an energy infrastructure project management company focused on healthcare and higher learning institutions.
As a result of a reverse merger acquisition between the Company, Cornerstone, and Sustainable during 2013, the Company adopted a business plan to build on the business of Cornerstone and Sustainable in energy infrastructure and alternative energy.
2. Significant Accounting Policies
Basis of Presentation and Use of Estimates
The Company prepares its financial statements in conformity with accounting principles generally accepted in the United States of America which 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 amounts of revenues and expenses during the reporting period. Some of the more significant estimates required to be made by management include recognition of income for work completed and unbilled to customers, the allowance for doubtful accounts, and the valuation of the License Agreement. Actual results could differ from those estimates.
The Company believes that funds generated from operations, together with existing cash and cash infusions by major stockholders, will be sufficient to finance its operations for the next twelve months, but are likely to be insufficient to fund its contractual obligations and to fund growth. The Company expects to seek additional capital to cover any working capital needs and its contractual obligations, and to fund growth initiatives in its identified markets. However, there can be no assurance that any new debt or equity financing arrangement will be available to the Company when needed on acceptable terms, if at all. The continued operations of the Company are dependent on its ability to raise funds, collect accounts receivable, and increase revenues.
Unaudited Financial Statements
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for financial information and with the instructions to Form 10-Q. They do not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements. The unaudited financial statements should be read in conjunction with those financial statements included in the Company’s Form 10-K for the year ended December 31, 2015. In the opinion of Management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.
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Receivable Acquisition and Management Corporation
Notes to Financial Statements
March 31, 2016
(Unaudited)
Cash
The Company continually monitors its positions with, and the credit quality of, the financial institutions it invests with. From time to time, however briefly, the Company maintains balances in operating accounts in excess of federally insured limits.
Accounts Receivable
Receivables are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. At March 31, 2016, no allowance for doubtful accounts has been provided.
Income Recognition
The Company recognizes income for the sale of services and products when persuasive evidence of an arrangement exists, services have been rendered or delivery has occurred, the fee is fixed or determinable and the collectability of the related income is reasonably assured.
The Company principally derives income from fees for services generated on a project-by-project basis. Prior to the commencement of a project, the Company reaches agreement with the client on rates for services based upon the scope of the project, staffing requirements and the level of client involvement. It is the Company’s policy to obtain written agreements from new clients prior to performing services. In these agreements, the clients acknowledge that they will pay based upon the amount of time spent on the project or an agreed upon fee structure. Income for services rendered is recognized on a time and materials basis or on a fixed-fee or capped-fee basis in accordance with accounting and disclosure requirements for income recognition.
Fees for services that have been performed, but for which the Company has not invoiced the customers are recorded as unbilled receivables.
Income for time and materials contracts are recognized based on the number of hours worked by the Company’s subcontractors at an agreed upon rate per hour, and are recognized in the period in which services are performed. Income for time and materials contracts is billed monthly or in accordance with the specific contractual terms of each project.
Fixed Assets
Fixed assets are being depreciated on the straight line basis over a period of five years.
License Agreement
The cost of the license agreement (see Note 4) is being amortized on a straight-line basis over 20 years. The license agreement is reflected in the accompanying March 31, 2016 balance sheet net of accumulated amortization of $34,100.
F-6
Receivable Acquisition and Management Corporation
Notes to Financial Statements
March 31, 2016
(Unaudited)
Income Taxes
The Company recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by the tax authorities. Management has analyzed the Company’s tax positions, and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on returns filed for open tax years (2012 - 2015).
Basic and Diluted Net Income (Loss) per Share
The Company computes income (loss) per share in accordance with “ASC-260”, “Earnings per Share” which requires presentation of both basic and diluted income (loss) per share on the face of the statement of operations. Basic income (loss) per share is computed by dividing net income available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted income (loss) per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive income (loss) per share excludes all potential common shares if their effect is anti-dilutive.
The Company has no potential dilutive instruments and accordingly basic income (loss) and diluted income per share are the same.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09: “Revenue from Contracts with Customers” (Topic 606) (“ASU 2014-09”). ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. In adopting ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach. ASU 2014-09 is effective for the first interim period within annual reporting periods beginning after December 15, 2017, and early adoption is not permitted. The Company will adopt ASU 2014-09 during the first quarter of fiscal 2018. Management is evaluating the provisions of this statement and has not determined what impact the adoption of ASU 2014-09 will have on the Company's financial position or results of operations.
In August 2014, the FASB issued Accounting Standards Update No. 2014-15: “Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). In connection with preparing financial statements for each annual and interim reporting period, an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued (or at the date that the financial statements are available to be issued when applicable). Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued (or available to be issued). The term probable is used consistently with its use in Topic 450, Contingencies. The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted.
All other accounting standards that have been issued or proposed by the FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.
F-7
Receivable Acquisition and Management Corporation
Notes to Financial Statements
March 31, 2016
(Unaudited)
3. Related Party Transactions
Consulting Fees
Certain stockholders of the Company and entities affiliated with management perform services to customers and were compensated at various rates. Total consulting expenses incurred by these entities amounted to $127,920 and $183,053 for the three months ended March 31, 2016 and 2015, respectively.
4. License Agreement
On November 15, 2012, Sustainable LLC entered into a renewable 20-year engine technology license agreement (the “Technology Agreement”) with a third party licensor (the “Licensor”) that developed engines capable of converting low grade heat into other forms of energy. Under the terms of the Technology Agreement, Sustainable LLC obtained certain exclusive license rights in the engines developed by the Licensor which would permit Sustainable LLC to develop, manufacture and integrate such engines into its projects.
The exclusive market rights of the Technology Agreement provide that Sustainable LLC make a cash payment of $200,000 and issue common stock in Sustainable representing a small minority ownership position in the Company (see Note 1), along with periodic quarterly payments of $25,000 commencing six months after the initial $200,000 payment. These payments reset to $50,000 per quarter after three payments, and are subject to further resets to up to $100,000 depending on engine sales volume. Under certain circumstances, engine royalty fees and referral fees can increase the quarterly payment from time to time. In the event of non-payment, Sustainable retains a non-exclusive license subject to royalty fees.
On May 15, 2013, in connection with the Merger (see Note 1), the Company, after acquiring 100% ownership interest in Sustainable, issued 2,435,430 shares to the Licensor which represents a small minority position in the Company as required under the terms of the Technology Agreement. At the time of issuance, these shares were valued at $48,709 representing the fair value of the RAMCO shares.
In addition, during the fiscal year ended December 31, 2013, the Company made payments of $13,000 that were applied against the required initial $200,000 cash payment as stated under the terms of the Technology Agreement.
In connection with a November 5, 2013, proceeding commenced by the Securities Division of the Arizona Corporation Commission (the “ACC”) the Company learned that the Licensor had been classified as dissolved by the Delaware Division of Corporations after March 1, 2010 for failure to pay franchise taxes to the State of Delaware, and similarly classified by the ACC as of approximately the same time. Neither the Company nor any of its officers or directors was named in the complaint brought by the ACC.
In performing due diligence in regard to the status of the Licensor, the Company subsequently also learned that two United States patents that were licensed to the Company under the Agreement had been classified as expired due to the Licensor’s failure to pay maintenance fees thereon. In April 2015, the Company in cooperation with the Licensor arranged for the principal United States patent to be reinstated, and it is now again in effect. The Company has confirmed that Licensor is taking steps to have the corporate charters of each corporation reinstated, but may not be successful in such reinstatements, and is in discussions with the Licensor regarding these matters.
To the best of the Company’s knowledge at present, none of these issues presents a near-term hindrance to the Company’s continued focus on establishing and growing its engine technology business.
F-8
Receivable Acquisition and Management Corporation
Notes to Financial Statements
March 31, 2016
(Unaudited)
Pursuant to the Agreement, the Company has obtained previously described rights to all forms of intellectual property covering certain engine technology that is the subject of the Agreement and is not relying on the remaining U.S. patent classified as expired to be reinstated. To the best of the Company’s knowledge at the current time, the international patent rights currently remain intact. However, at this time, there can be no assurance that the foregoing matters will not have a material adverse effect on the Company’s operations.
The accompanying March 31, 2016, balance sheet presents the carrying value of the license fee at $214,609, consisting of the $200,000 required payments under the Agreement and $48,709, representing the fair value of shares issues to the Licensor, net of $34,100 in accumulated amortization. In addition, the accompanying balance sheet reflects $187,000 due to the Licensor, representing the remaining liability from the initial $200,000 required payment. After careful assessment, the Company has concluded that no adjustment to the value of the License Agreement or amounts due thereunder should be made as a consequence of the ACC complaint at the current time, but continues to monitor these proceedings.
The Company periodically performs an analysis of its contractual rights and arrangements and establishes asset value based on that analysis.
5. Concentrations
The Company grants credit in the normal course of business to its customers. The Company periodically performs credit analysis and monitors the financial condition of its customers to reduce credit risk.
Two customers accounted for 98.1% and 1.9%, respectively, of total project management income during the three months ended March 31, 2016, and two customers accounted for 69.1% and 30.9%, respectively, during the three months ended March 31, 2015.
Two customers accounted for 81.7% and 16.0%, respectively, of total accounts receivable at March 31, 2016, and for 50.1% and 49.9%, respectively, at March 31, 2015.
6. Stock Issuance
There was no stock issued in the first quarter of 2016.
7. Subsequent Events
Management has evaluated subsequent events for disclosure and/or recognition in the financial statements through the date that the financial statements were available to be issued and have determined there are no such events to disclose.
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