Notes to Financial Statements
September 30, 2017
(Unaudited)
1. Organization and Nature of Business
PwrCor, Inc. (the Company or PwrCor) was until the first quarter of 2017 named Receivable Acquisition & Management Corporation (RAMCO) and doing business as Cornerstone Sustainable Energy. RAMCO, a public reporting entity, was in the business to purchase, manage and collect defaulted consumer receivables.
Cornerstone Program Advisors LLC (Cornerstone), a Delaware limited liability company, is an energy infrastructure project management company focused on healthcare and higher learning institutions. Sustainable Energy Industries, Inc. (Sustainable) is a New York corporation involved in developing and improving the efficiency of energy infrastructure using advanced proprietary technologies. As a result of a reverse merger acquisition (the Merger) between RAMCO, 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.
In January 2017, the Companys shareholders approved a name change to PwrCor, Inc., which became effective in March 2017.
Note 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. 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 growth. The Company raised $600,000 in capital during the quarter ended September 30, 2017 and, over time, expects to seek additional capital to cover any working capital needs, 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 generate revenue.
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 Companys Form 10-K for the year ended December 31, 2016. 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 and nine months ended September 30, 2017, are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.
8
PwrCor, Inc.
Notes to Financial Statements
September 30, 2017
(Unaudited)
2. Significant Accounting Policies (continued)
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 September 30, 2017, no allowance for doubtful accounts has been provided.
Income Recognition
The Company recognizes income from 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 Companys 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 Companys 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.
Income from engine sales contracts is recognized under the percentage of completion method, measured by the percentage of total costs incurred to date to estimated total costs for each contract. This method is used because management considers expended costs to be the best available measure of progress on these contracts. Provisions for estimated losses on uncompleted contracts are made in the period in which the losses are determined. Changes in job performance, job conditions, and estimated profitability may result in revisions to costs and income and are recognized in the period in which the revisions are determined. Deferred income represents the net amount due, or received, under contract terms in excess of the work completed to date.
Fixed Assets
Fixed assets are being depreciated on the straight line basis over a period of five years.
9
PwrCor, Inc.
Notes to Financial Statements
September 30, 2017
(Unaudited)
2. Significant Accounting Policies (continued)
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 Companys 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 Companys outstanding warrants are anti-dilutive, and accordingly basic (loss) and diluted (loss) per share are the same.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board 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 evaluated the provisions of this statement and has determined that the adoption of ASU 2014-09 will have no material impact 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 Entitys Ability to Continue as a Going Concern (ASU 2014-15). In connection with preparing financial statements for each annual and interim reporting period, an entitys management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entitys 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). Managements 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 entitys 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 were effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company has adopted ASU 2014-15, and accordingly management has assessed its ability to meet its obligations as they become due over the next twelve months. Based on managements assessment of the Companys expected future revenue and expenses, management believes the Company can continue to operate as a going concern.
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.
10
PwrCor, Inc.
Notes to Financial Statements
September 30, 2017
(Unaudited)
3. Related Party Transactions
Consulting Fees
Certain stockholders of the Company and entities affiliated with management perform services for customers and were compensated at various rates. Total consulting expenses incurred by these stockholders and entities amounted to $402,748 and $413,457 for the nine months ended September 30, 2017 and 2016, respectively. Amounts payable to these stockholders and entities at September 30, 2017 and 2016 totaled $131,711 and $218,806, respectively.
4. License Agreement
At the time of the Merger, Sustainable had a series of agreements including an exclusive, renewable 20-year engine technology License Agreement (the Contracts) with a third party licensor (the Licensor) that had developed engines capable of converting low grade heat into other forms of energy. These agreements were assigned to the Company. Under the terms of the License, it could be cancelled by the Company during the term once the patents upon which it was based expired. The newer of two patents expired in August of 2017, and the Company elected at that time to exercise its right to confirm the Licensees cancellation of the License Agreement.
The Licensor had been classified in 2010 as dissolved by the Delaware Division of Corporations, and similarly by the Arizona Corporation Commission, and has not reinstated its charters. Despite this status, during July, 2017, the Company received a demand letter from the principal of the Licensor claiming that an aggregate total of $1,104,367 was due to the Licensor under the License Agreement, and to the principal for consulting work. The Company and its counsel believe that the claims are without merit and would vigorously defend any potential lawsuit. The Company believes it has no outstanding obligation to the Licensor, and has taken the remaining unamortized asset value of the License Agreement, $20,307, as a charge against earnings in the current quarter.
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 91.6% and 7.2%, respectively, of total project management income during the nine months ended September 30, 2017, and two customers accounted for 95.9% and 3.6%, respectively, during the nine months ended September 30, 2016.
Two project management customers accounted for 97.8% and 2.2%, respectively, of total project management accounts receivable at September 30, 2017, and for 93.6% and 6.4%, respectively, at September 30, 2016. Project management accounts receivable constituted 86.4% of receivables at September 30, 2017, but all of receivables as of September 30, 2016.
6. Commitments
Engine Agreement
On December 27, 2016, the Company entered into an agreement with Modoc County, California, to supply its PwrCor engine as part of a demonstration project that will convert ultra-low-grade heat into electricity. The heat will be obtained from a geothermal hot spring which comes to the surface at temperatures of approximately 190° F.
11
PwrCor, Inc.
Notes to Financial Statements
September 30, 2017
(Unaudited)
6. Commitments (continued)
Funding was arranged by Modoc County via a grant from the California Energy Commission with the Company entitled to revenues of up to $123,624. The Company has estimated that the total costs to be incurred in connection with this contract will be $206,395, thus resulting in a $82,771 loss. This total loss amount has been recognized in engine business expenses in the accompanying statement of operations for the period ended September 30, 2017. The project is being managed by Warner Mountain Energy, which specified the PwrCor engine, and is expected to be completed in the fall of 2017.
7. Stock Issuance
In September 2017, the Company issued 6,000,000 shares of common stock at a per share price of $0.10 to eight individual investors in return for a capital infusion of $600,000. Each share issued was accompanied by a warrant for one-half share of common stock; the warrants are exercisable at a price of $0.30 per share. The Company claims an exemption from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506(b) of Regulation D promulgated thereunder. No commissions were paid and no underwriter or placement agent was involved in this transaction. The proceeds of this transaction were used for the Companys working capital and general corporate purposes.
8. 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.
In October, 2017, the Company issued an additional 650,000 shares of common stock at a per share price of $0.10 to five investors in return for a capital infusion of $65,000. Similar to the shares issued in September, 2017, each share issued is accompanied by a warrant for one-half share of common stock with an exercise price of $0.30 per share.
12