Notes to Financial Statements
March 31, 2019
(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.
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 significant growth. The Company raised $665,000 and $350,000 in gross capital in 2017 and 2018, respectively, 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, 2018. 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, 2019, are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.
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PwrCor, Inc.
Notes to Financial Statements
March 31, 2019
(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, 2019, and December 31, 2018, an allowance for doubtful accounts was made totaling $56,204, 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
The Companys revenue is recognized when the Company satisfies its performance obligation(s) under the contract (either implicit or explicit) by transferring the promised product or service to its customer either when (or as) its customer obtains control of the product or service. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. A contracts transaction price is allocated to each distinct performance obligation. The majority of the Companys contracts have a single performance obligation, as the promise to transfer products or services is not separately identifiable from other promises in the contract and, therefore, not distinct.
Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or providing services. As such, revenue is recorded net of returns, allowances, customer discounts, and incentives. Sales and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenues) basis.
The Companys performance obligations under its engine business are generally but not exclusively satisfied as over time. Revenue from products or services transferred to its customer over time accounted for approximately 0% and 14.7% of revenue for the three months ended March 31, 2019 and 2018, respectively. Revenue under this 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.
Accounting for over time contracts involves the use of various techniques to estimate total revenue and costs. The Company estimates profit on such contracts as the difference between total estimated revenue and expected costs to complete a contract and recognizes that profit over the life of the contract. Contract estimates are based on various assumptions to project the outcome of future events that may span several years. These assumptions include, among other things, labor productivity, costs and availability of materials. The nature of these long-term agreements may give rise to several types of variable consideration, such as claims, awards and incentive fees. These amounts of variable consideration are not expected to be significant. Additionally, contract estimates may include additional revenue for submitted contract modifications if there exists and enforceable right to the modification, the amount can be reasonably estimated and its realization is probable. These estimates are based on historical collection experience, anticipated performance, and the Companys best judgment at the time. These amounts are generally included in the contracts transaction price and are allocated over the remaining performance obligations. Changes in judgments on these above estimates could impact the timing and amount of revenue recognized with a resulting impact on the timing and amount of associated income.
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PwrCor, Inc.
Notes to Financial Statements
March 31, 2019
(Unaudited)
2. Significant Accounting Policies (continued)
The Company may receive payments from customers based upon contractual billing schedules; accounts receivable are recorded when the right to consideration becomes unconditional. In the event a contract loss becomes known, the entire amount of the estimated loss is recognized in the Statement of Operations.
The majority of the Companys revenue is from products and services transferred to customers at a point in time. It was approximately 100.0% and 85.3% of revenue for the three months ended March 31, 2019 and 2018, respectively. The Company recognizes revenue at the point in time in which the customer obtains control of the product or service, which is generally when product title passes to the customer upon shipment.
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. Contract liabilities additionally include customer advances or prepayments. Costs in excess of billings and billings in excess of costs associated with over time contracts were not significant at March 31, 2019 or 2018. Revenue recognized during the three months ended March 31, 2019 and 2018 that was included in contract liabilities at the beginning of the period was $0 and $0, respectively.
On March 31, 2019, 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 (2014 - 2017). The Companys tax years end 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, 2019 and 2018, basic (loss) and diluted (loss) per share were the same. The 4,575,000 warrants outstanding at March 31, 2019 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, 2019
(Unaudited)
2. Significant Accounting Policies (continued)
Recent Accounting Pronouncements
In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). 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. ASU 2014-09 is effective for the Companys 2018 calendar year. The Company adopted this standard on January 1, 2018, and it has had no material effect on the Companys financial statements.
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.
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, 2019 and 2018, amounted to $115,453 and $143,454, respectively. Amounts payable to these stockholders and entities at March 31, 2019 and 2018 totaled $169,653 and $144,875, respectively.
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PwrCor, Inc.
Notes to Financial Statements
March 31, 2019
(Unaudited)
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 Agreement) with a third party licensor that had developed engines capable of converting heat into other forms of energy. The agreements were assigned to the Company. Under the terms of the Agreement, 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 cancel the Agreement.
The third party 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 that firm claiming that an aggregate total of $1,104,367 was due the firm under the 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 either party, and took the remaining unamortized asset value of the Agreement, $20,307, as a charge against earnings in the third quarter of 2017.
In December 2017, the Company entered into an intellectual property license agreement with Thermal Tech Holdings, LLC, a Delaware limited liability company (TTH). TTH is an entity owned equally by two entities affiliated, respectively, with two 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 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, 2019 balance sheet presents the carrying value of the license fee at $118,125, which is net of $16,875 in accumulated amortization. The cost of the license agreement is being amortized over ten years.
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PwrCor, Inc.
Notes to Financial Statements
March 31, 2019
(Unaudited)
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 89.9% and 10.1%, respectively, of total project management revenue during the three months ended March 31, 2019, and two customers accounted for 92.9% and 7.1%, respectively, during the three months ended March 31, 2018.
Two project management customers accounted for 90.2% and 9.8%, respectively, of total project management accounts receivable at March 31, 2019, and for 93.6% and 6.4%, respectively, at December 31, 2018. Project management accounts receivable constituted 88.6% of receivables at March 31, 2019, and 93.6% of net receivables as of December 31, 2018.
All of the revenue from the Companys heat conversion technology was from single customers in the periods ended March 31, 2019 and March 31, 2018.
6. Stock Issuance
In August, September and October, 2018, the Company issued 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 had issued 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, 2019, 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.
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.
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