Notes to Financial Statements
March 31, 2020
(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 on March 3, 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 revenue for work completed and unbilled to customers, the allowance for doubtful accounts, and the valuation of License Agreements. Actual results could differ from those estimates.
In view of the disruptions to the economy resulting from the recently emerged worldwide coronavirus pandemic, the Companys ongoing business activities may be curtailed for a period. In consequence, there can be no assurance that funds generated from operations, together with existing cash and cash infusions by stockholders, will be sufficient to finance the Companys operations for the next twelve months. The Company is actively seeking additional capital to cover its working capital needs and to fund growth initiatives in its identified markets, and has engaged the services of an investment bank to assist in this and in actively introducing the Companys engine technology to businesses in a set of identified key markets to accelerate the commercialization of the Companys latest generation product. However, there can be no assurance these efforts will succeed, or 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, 2019. 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, 2020, are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.
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PwrCor, Inc.
Notes to Financial Statements
March 31, 2020
(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 both March 31, 2020, and December 31, 2019, an allowance for doubtful accounts was made totaling $52,105, to provide for the possibility of a revenue shortfall from the project in Modoc County, and is reflected in the accounts receivable balance on the balance sheet in the accompanying financial statements.
Revenue Recognition
Revenues are recognized when the Company satisfies a performance obligation by transferring goods or services promised in a contract to a customer, in an amount that reflects the consideration to be received in exchange for those goods or services.
Revenue from contract customers is recognized by: (1) identifying the contract with the customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to separate performance obligations; and (5) recognizing revenues when (or as) each performance obligation is satisfied.
The majority of the Companys revenue is currently from products and services transferred to customers at a point in time. It was 100.0% of revenue for the quarters ended March 31, 2020 and March 31, 2019. These revenues are generated by providing consulting services to customers under a contractual arrangement. They are (a) time and expense arrangements, under which the customer pays the Company, typically as billed in a monthly invoice, based on hours incurred and contracted rates; (b) performed activities arrangements, under which the customer pays the Company for particular tasks performed (typically tasks which can be valued, but for which time spent is highly variable or unpredictable), based on contracted rates; or (c) reimbursements by the customer for certain identified expenses, such as travel, out-of-pocket, or advances on behalf of the customer.
The Company recognizes revenue for (a) and (b) at the point in time in which the customer is provided the service and is invoiced for that period. Amounts under (c) are generally included in revenues in the period invoiced, and an equivalent amount of reimbursable expenses is included in costs of services in the period in which the expense is incurred.
The Companys performance obligations under its engine business are generally satisfied as over time. There was no revenue from products or services transferred to a customer over time for the three months ended March 31, 2020 and 2019, respectively. Revenue under this type of contract is generally recognized over time using an input measure based upon the proportion of actual costs incurred to estimated total project costs, which is a method used to best depict the Companys performance to date under the terms of the contract.
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PwrCor, Inc.
Notes to Financial Statements
March 31, 2020
(Unaudited)
2. Significant Accounting Policies (continued)
Revenue Recognition, continued
Progress payments, which when involved are invoiced, are typically characteristic of such contracts, but do not affect revenue recognition. In this regard and in other instances, the timing of revenue recognition may differ from the timing of invoicing to customers and these timing differences result in contract assets or contract liabilities (deferred revenue) on the Companys balance sheet. The Company records a contract asset when revenue is recognized prior to invoicing, or contract liabilities when revenue is recognized subsequent to invoicing.
The Company had unbilled receivables (contract assets) of $54,439 and $63,410 at March 31, 2020 and December 31, 2019, respectively. There were no costs in excess of billings and billings in excess of costs associated with over time contracts at December 31, 2019 or 2018. There was no revenue recognized during the year ended December 31, 2019 and 2018 that was included in contract liabilities at the beginning of the period.
In much of the Companys business, customers request changes in contract specifications or in the scope or amount of services to be delivered. These are typically covered under the contract with the customer.
On March 31, 2020, the Company had no remaining performance obligations.
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 ten years. The license agreement is tested annually for impairment or earlier if an indication of impairment exists. The Company believes that the license agreement has not been impaired.
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 (2016 - 2018). The Companys tax year ends September 30.
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.
For the three month period ended March 31, 2020 and 2019, basic (loss) and diluted (loss) per share were the same. The 4,575,000 warrants outstanding at March 31, 2020 are anti-dilutive as the trading price of the Companys common stock was below the exercise price of the warrants.
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PwrCor, Inc.
Notes to Financial Statements
March 31, 2020
(Unaudited)
2. Significant Accounting Policies (continued)
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-02: Leases (ASU 2016-02). ASU 2016-02 creates new accounting and reporting guidelines for leasing arrangements. The new standard will require organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The standard will also require new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The new standard has been adopted by the Company. The Company has evaluated the impact of ASU 2016-02 on its consolidated financial statements, and it did not have a material impact as the Companys lease obligation is less than one year.
On June 20, 2018, FASB issued Accounting Standards Update No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (ASU 2018-07). ASU 2018-07 is intended to reduce cost and complexity and to improve financial reporting for share-based payments issued to non-employees. This ASU expands the scope of ASC Topic 718, Compensation - Stock Compensation, which currently only includes share-based payments issued to employees, to also include share-based payments issued to non-employees for goods and services. Consequently, the accounting for share-based payments to non-employees and employees will be substantially aligned. ASU 2018-07 supersedes ASC Subtopic 505-50, Equity - Equity-Based Payments to Non-Employees. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company has evaluated the impact of ASU 2018-07 on its consolidated financial statements and it did not have a material impact.
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.
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.
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 for the three months ended March 31, 2020 and 2019, amounted to $63,804 and $115,453, respectively. Amounts payable to these stockholders and entities at March 31, 2020 and December 31, 2019 totaled $87,281 and $102,700, respectively.
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PwrCor, Inc.
Notes to Financial Statements
March 31, 2020
(Unaudited)
3. Related Party Transactions (continued)
Technology Development Fees
Under a technology development agreement the Company has with Thermal Tech Holdings, LLC, a Delaware limited liability company (TTH), the Company reimburses TTH for managing the work by a contracted third party on various technology developments as agreed to on a case-by-case basis. The amounts payable under this arrangement amounted to $243,112 at both March 30, 2020 and December 31, 2019. The Company obtains full rights to any intellectual property it develops or acquires through such payments.
Intangible Asset Valuation
The Company performs a qualitative assessment of its intangible assets to determine whether the existence of events and circumstances leads to a determination that it is more likely than not that the fair value of its one such asset is less than its carrying amount. As a result of managements qualitative assessment, the Company determined that the carrying value of its license agreement warranted no loss or impairment as of March 31, 2020.
License Agreements
In December, 2017, the Company entered into an intellectual property license agreement with TTH. TTH is an entity owned equally by two entities affiliated, respectively, with two officers and directors of the Company, who also serve in management positions with TTH.
TTH is the owner of certain patent applications as well as the inventions relating to the Companys proprietary engine technology (the Licensed Patents and Technical Information). The Licensed Patents and Technical Information were developed by an independent non-profit research institute (the Contractor). All work done by the Contractor was paid for by TTH in order that TTH, rather than the Company, would be at risk if the research, development, engineering and design work were of little or no value. Furthermore, the work performed by the Contractor for TTH was confidential for competitive business reasons.
The Patent License grants the Company a worldwide non-exclusive license to use the Licensed Patents and Technical Information to make, use or sell any products and/or services which would be covered by these specific Licensed Patents. However, TTH may not license any Licensed Patents and Technical Information to any competitive entity, or to any other entity without the prior written consent of the Company.
The agreement calls for the Company to pay TTH a royalty equal to five percent (5%) of the Net Revenue (as defined) of all Licensed Products covered by a Licensed Patent sold by the Company and its affiliates, as well as an initial license fee of $135,000. The Patent License will terminate upon the expiration of all Licensed Patents. The Company may terminate the agreement on ninety (90) days prior written notice. TTH may terminate the agreement on ninety (90) days prior written notice for uncured defaults (as defined).
The accompanying March 31, 2020 balance sheet presents the carrying value of the license fee at $104,625, which is net of $30,375 in accumulated amortization. The cost of the license agreement is being amortized over ten years.
The Company periodically performs an analysis of its contractual rights and arrangements and establishes asset value based on that analysis.
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PwrCor, Inc.
Notes to Financial Statements
March 31, 2020
(Unaudited)
4. 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.
One customer accounted for 100% of total project management revenue during the three months ended March 31, 2020, and two customers accounted for 89.9% and 10.1%, respectively, during the three months ended March 31, 2019.
Two customers accounted for approximately 80.5% and 19.5% of total net accounts receivable at March 31, 2020, and two customers accounted for 73.9% and 14.4%, respectively, at December 31, 2019.
5. Stock Issuance
In August, September and October, 2018, the Company issued an aggregate of 2,500,000 shares of common stock at a per share price of $0.14 to three investors in return for a capital infusion of $350,000. Each share issued was accompanied by a warrant for one-half share of common stock; the warrants are exercisable at a price of $0.40 per share. A total of 1,250,000 warrants accompanied these shares.
In September and October 2017, the Company issued an aggregate of 6,650,000 shares of common stock at a per share price of $0.10 to thirteen individual investors in return for a capital infusion of $665,000. 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. A total of 3,325,000 warrants accompanied these shares.
At March 31, 2020, the Company had 4,575,000 warrants outstanding. Of these, 3,325,000 warrants were exercisable at $0.30 per share but may be redeemed by the Company if not exercised, in whole or in part, on at least twenty days prior written notice, at a price of $.001 per share; provided the average closing bid price of the Common Stock is at or above $1.00 per share for at least twenty consecutive trading days ending with three business days prior to the redemption notice. An additional 1,250,000 warrants are exercisable at $0.40 per share but may be redeemed by the Company if not exercised, in whole or in part, on at least twenty days prior written notice, at a price of $.001 per share; provided the average closing bid price of the Common Stock is at or above $1.50 per share for at least twenty consecutive trading days ending with three business days prior to the redemption notice.
The Company claims exemptions 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 these transactions. The proceeds of these transactions were used for the Companys working capital and general corporate purposes.
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