Notes to Financial Statements
December 31, 2020
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 formed July 26, 2010, 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 in March 2017.
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 from time to time to be made by management include valuation of shares issued for services, recognition of income 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 worldwide virus pandemic, the Company’s ongoing business activities have been and may continue be curtailed for an indefinite 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 Company’s operations for the next twelve months. The Company did not qualify for temporary payroll assistance because it has no salaried employees, but did obtain a Covid-related loan from the Small Business Administration in September, 2020. 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 Company’s engine technology to business in a set of identified key markets to accelerate the commercialization of the Company’s latest generation product. 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 receive revenues. No adjustments have been made to the financial statements as a result of this uncertainty. The accompanying financial statements have been prepared assuming the Company will continue as a going concern.
Cash
The Company continually monitors its positions with, and the credit quality of, the financial institutions it invests with. From time to time, however, the Company briefly maintains balances in operating accounts in excess of federally insured limits.
F-7
PwrCor, Inc.
Notes to Financial Statements
December 31, 2020
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 December 31, 2020, an allowance for doubtful accounts totaling $52,105 was 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. In 2019, this allowance was the same.
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.
For the years ended December 31, 2020 and 2019, the majority of the Company’s revenue was derived from products and services transferred to customers at a point in time. 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 Company’s 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 in 2020 or in 2019. Revenue under this type of contract is generally recognized based upon the proportion of actual costs incurred to estimated total project costs, which is considered most indicative of the Company’s performance to date under the terms of the contract.
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 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.
The Company had unbilled receivables (contract assets) of an estimated $14,590 and of $63,410 at December 31, 2020 and 2019, respectively. There were no costs in excess of billings and billings in excess of costs associated with “over time” contracts at December 31, 2020 or 2019. There was no revenue recognized during the year ended December 31, 2020 and 2019 that was included in contract liabilities at the beginning of the period.
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PwrCor, Inc.
Notes to Financial Statements
December 31, 2020
2. Significant Accounting Policies (continued)
Revenue Recognition (continued)
In much of the Company’s 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.
Fixed Assets
Fixed assets are being depreciated on the straight line basis over a period of five years. Accumulated depreciation at December 31, 2020 and 2019 was $32,493 and $27,879, respectively.
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 (2017 - 2019).
Basic and Diluted Net (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 (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 (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 2020 and 2019, basic (loss) and diluted (loss) per share were the same. The warrants outstanding at December 31, 2020 are antidilutive.
Recent Accounting Pronouncements
All 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 that perform services for customers were compensated at various rates. Total consulting expenses incurred by these entities amounted to $62,852 and $386,735 for the years ended December 31, 2020 and 2019, respectively. Amounts payable to these entities amounted to $9,460 and $102,700 at December 31, 2020 and 2019, respectively.
Prepaid Expenses
There were no amounts advanced to related entities in 2020 or 2019.
F-9
PwrCor, Inc.
Notes to Financial Statements
December 31, 2020
3. Related Party Transactions (continued)
Technology Development Fees
Under a technology development agreement the Company has with 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 December 31, 2020 and 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 management’s qualitative assessment, the Company determined that the carrying value of its license agreement warranted no loss or impairment as of December 31, 2020.
License Agreements
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 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 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 for the patent applications and inventions licensed thereunder 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 Company will pay TTH a royalty equal to five (5%) percent 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, which has been paid. 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 December 31, 2020 and 2019 balance sheet presents the carrying value of the license fee at $135,000 net of $40,500 and $27,000 in accumulated amortization, respectively. The cost of the license agreement is being amortized over ten years for an estimated $13,500 annually.
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
December 31, 2020
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 the Company’s total revenue during the year ended December 31, 2020, and two customers accounted for 92.1% and 5.2% during the year ended December 31, 2019.
Two customers accounted for 59% and 41% of total net accounts receivable at December 31, 2020, and two customers accounted for 73.9% and 14.4% at December 31, 2019.
5. Stock Issuance
At December 31, 2020, the Company had 4,575,000 warrants outstanding which were issued as part of an issuance of common stock in 2017 and 2018. 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 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 these transactions. The proceeds of these transactions were used for the Company’s working capital and general corporate purposes. The shares issued to these investors are restricted securities.
6. Long Term Notes
On September 15, 2020, the Company received the net proceeds of an Economic Injury Disaster Loan (“EIDL” or the “Loan”) from the Small Business Administration (“SBA”), in the amount of $78,200. After a processing fee, net proceeds were $78,100 under the terms. The Loan, which is in the form of a promissory note dated September 10, 2020, matures on September 10, 2050, and bears interest at a rate of 3.75% per annum. Payments are to be made monthly beginning as of September 10, 2022. The loan terms provide for a collateral interest for the SBA, and limits the use of proceeds to working capital to alleviate the effects of Covid-19 on the Company’s economic condition.
The Loan consists of the following:
|
December 31,
2020
|
U.S. SBA term note payable in equal monthly installments, bearing an interest rate of 3.75% and maturing in September 2050.
|
$78,200
|
Less current portion
|
(0)
|
Long-term debt, excluding current portion
|
$78,200
|
Unlike the Paycheck Protection Program (“PPP”), established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) enacted March 27, 2020, the EIDL program does not currently provide a mechanism for loan forgiveness.
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PwrCor, Inc.
Notes to Financial Statements
December 31, 2020
6. Long Term Notes (continued)
The Loan is projected to amortize as follows:
|
Payments against Principal
|
2020
|
$
|
-
|
2021
|
$
|
-
|
2022
|
$
|
530
|
2023
|
$
|
1,630
|
2024
|
$
|
1,692
|
2025
|
$
|
1,757
|
|
|
|
Remaining principal to be paid 2026 to 2050:
|
$
|
72,591
|
|
|
|
Total
|
$
|
78,200
|
7. Commitments and Contingencies
Consultants
The Company entered into an agreement with Thomas Telegades, Chief Executive Officer, Interim Chief Financial Officer, and Director of the Company, under which Mr. Telegades shall serve on a full-time basis as Chief Executive Officer for a three year term beginning on May 15, 2013, which was renewed on May 15, 2016 and again on May 15, 2019. The agreement includes non-competition and non-solicitation provisions which expire the later of three years from May 15, 2019, or one year following his termination or voluntary resignation.
The Company entered into an agreement with Peter Fazio, the Chief Operating Officer and Director of the Company, under which Mr. Fazio shall serve on a full-time basis as Chief Operating Officer of the Company for a three year term beginning on May 15, 2013, which was renewed on May 15, 2016 and again on May 15, 2019. The agreement includes non-competition and non-solicitation provisions which expire the later of three years from May 15, 2019, or one year following his termination or voluntary resignation.
The Company entered into an agreement with Gramercy Ventures LLC (“Gramercy”), under which the manager of Gramercy, James Valentino, who is also one of the directors of the Company, serves as consultant to and non-executive Chairman of the Board of the Company for a three year term beginning on July 1, 2014, which was renewed on July 1, 2017 and again on July 1, 2020. This agreement includes non-competition and non-solicitation provisions which expire the later of three years from July 1, 2020, or one year following his termination or voluntary resignation.
The Company entered into an agreement with Wallace Baker, a director of the Company, under which Mr. Baker serves on a full-time basis as Chief Administrative Officer and Secretary of the Company for a three year term beginning on July 1, 2014, which was renewed on July 1, 2017 and again on July 1, 2020. This agreement includes non-competition and non-solicitation provisions which expire the later of three years from July 1, 2020, or one year following his termination or voluntary resignation.
For 2020 and 2019, no amounts were paid to these officers nor were any amounts accrued.
The Company’s operations and financial performance has been materially affected by the coronavirus outbreak which spread globally and has adversely affected economic conditions throughout the world. The outbreak has been of long duration, causing the Company to experience disruptions in operations as well as a decline in revenue activities. The lingering effects of the outbreak may continue to adversely affect the Company’s business, financial conditions, and results of operations.
F-12
PwrCor, Inc.
Notes to Financial Statements
December 31, 2020
8. Income Taxes
There was no provision for income tax for the years ended December 31, 2020 and 2019. The Company files a consolidated federal income tax return.
The difference between the basis of assets and liabilities for financial and income tax reporting are not considered material. There were approximately $2,355,000 in net operating loss carryforwards at December 31, 2020, and approximately $2,229,000 at December 31, 2019, representing a potential deferred tax asset. The deferred tax asset amounted to approximately $495,000 at December 31, 2020 at current corporate tax rates, as compared to $468,000 at December 31, 2019. Of the total $2,355,000 total net operating losses at December 31, 2020, approximately $1,560,000 expire in various years through 2037 and approximately $795,000 carry forward indefinitely. For net operating losses prior to the Merger, net operating loss carryforwards are subject to limitations as a result of a change in ownership as defined by IRC Section 382. Upon an assessment of the potential of realizing these deferred tax assets in the future, an offsetting valuation allowance has been established for the full amount of the deferred tax assets.
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