Notes to Financial Statements
June 30, 2018
(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 Company’s 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, and 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 significant growth. The Company raised $665,000 in gross capital during the second half of 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 Company’s Form 10-K for the year ended December 31, 2017. 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 six months ended June 30, 2018, are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.
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.
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PwrCor, Inc.
Notes to Financial Statements
June 30, 2018
(Unaudited)
2. Significant Accounting Policies (continued)
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 June 30, 2018, and December 31, 2017, an allowance for doubtful accounts was made totaling $56,204 and $63,270, respectively, 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 Company’s 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 contract’s transaction price is allocated to each distinct performance obligation. The majority of the Company’s 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 Company’s performance obligations under its engine business are generally satisfied as over time. Revenue from products or services transferred to its customer over time accounted for approximately 12.3% and 11.0% of revenue for the six months ended June 30, 2018 and 2017, 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 Company’s 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 Company’s best judgment at the time. These amounts are generally included in the contract’s 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.
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.
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PwrCor, Inc.
Notes to Financial Statements
June 30, 2018
(Unaudited)
2. Significant Accounting Policies (continued)
The majority of the Company’s revenue is from products and services transferred to customers at a point in time and was approximately 87.7% and 89.0% of revenue for the six months ended June 30, 2018 and 2017, 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 Company’s 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 June 30, 2018 or 2017. Revenue recognized during the six months ended June 30, 2018 and 2017 that was included in contract liabilities at the beginning of the period was $0 and $34,587, respectively.
On June 30, 2018, 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 10 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 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 (2013 - 2016). The Company’s 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.
The Company has no dilutive instruments and accordingly basic income (loss) and diluted income per share are the same.
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PwrCor, Inc.
Notes to Financial Statements
June 30, 2018
(Unaudited)
2. Significant Accounting Policies (continued)
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), which supersedes the revenue recognition requirements in ASC 605, “Revenue Recognition.” ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue, cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period.
The Company adopted the provisions of ASU 2014-09 on January 1, 2018, using the modified retrospective approach. Revenue from the Company’s sale of services are generally recognized either when services are performed (i.e. point in time) or under engine sales contracts, as the Company transfers control of the product or service to its customers (i.e. over time), which approximates the previously used percentage-of-completion method of accounting. As such, the adoption of ASU 2014-09 had no material impact to the Company’s financial position or results of operations; however, the Company has now presented the disclosures required by this new standard herein.
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.
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 $295,269 and $265,458 for the six months ended June 30, 2018 and 2017, respectively. Amounts payable to these stockholders and entities at June 30, 2018 and 2017 totaled $155,482 and $128,444, 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 “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.
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PwrCor, Inc.
Notes to Financial Statements
June 30, 2018
(Unaudited)
4. License Agreement (continued)
Subsequently, 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 Company’s 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 June 30, 2018 balance sheet presents the carrying value of the license fee at $87,750, which is net of an unpaid balance of $40,500 and $6,750 in accumulated amortization. The cost of the license agreement is being amortized over ten years.
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 94.5% and 5.5%, respectively, of total project management revenue during the six months ended June 30, 2018, and two customers accounted for 90.1% and 9.9%, respectively, during the six months ended June 30, 2017.
Two project management customers accounted for 98.3% and 1.7%, respectively, of total project management accounts receivable at June 30, 2018, and for 90.8% and 5.4%, respectively, at December 31, 2017. Project management accounts receivable constituted 94.8% of receivables at June 30, 2018, and 98.5% of net receivables as of December 31, 2017.
All of the revenue from the Company’s heat conversion technology was from the same customer in the periods ended June 30, 2018 and June 30, 2017.
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PwrCor, Inc.
Notes to Financial Statements
June 30, 2018
(Unaudited)
6. Stock Issuance
In September and October 2017, the Company 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. 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 Company’s 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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