Notes to Financial Statements
June 30, 2021
(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.
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 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.
Financial Condition of the Company
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 to 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 and any other potential financing sources, 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 businesses 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 earn 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.
8
PwrCor, Inc.
Notes to Financial Statements
June 30, 2021
(Unaudited)
2. Significant Accounting Policies (continued)
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, 2020. 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, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
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 June 30, 2021, and December 31, 2020, 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 Company’s revenue is currently from 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.
9
PwrCor, Inc.
Notes to Financial Statements
June 30, 2021
(Unaudited)
2. Significant Accounting Policies (continued)
Revenue Recognition, continued
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 for the three and six months ended June 30, 2021 and 2020, 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 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 $1,000 and an estimated $14,590 at June 30, 2021 and December 31, 2020, respectively, which are reflected in accounts receivable in the accompanying balance sheet. There were no costs in excess of billings and billings in excess of costs associated with “over time” contracts at June 30, 2021 or December 31, 2020. There was no revenue recognized during the periods ended June 30, 2021 and 2020 that was included in contract liabilities at the beginning of the period.
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.
On June 30, 2021, 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.
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). The Company’s 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 and six month periods ended June 30, 2021 and 2020, basic (loss) and diluted (loss) per share were the same. The 4,575,000 warrants outstanding at June 30, 2021 are anti-dilutive as the trading price of the Company’s common stock was below the exercise price of the warrants.
10
PwrCor, Inc.
Notes to Financial Statements
June 30, 2021
(Unaudited)
2. Significant Accounting Policies (continued)
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 regularly evaluates subsequent events for disclosure and/or recognition in the financial statements through the date that the financial statements were available to be issued.
Following the close of the second quarter of 2021, the Company received approval for an extension of the loan earlier obtained through the Small Business Administration under the EIDL program. The additional loan amount was $121,900, bringing the total loan to $200,000. As a loan extension, terms are essentially unchanged, as is the maturity date of 2050. Interest and principal payments continue to begin in September of 2022.
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 $0 and $3,091 for the three and six month periods, respectively, ended June 30, 2021, and $11,717 and $75,521 for the three and six month periods, respectively, ended June 30, 2020. Amounts payable to these stockholders and entities at June 30, 2021 and December 31, 2020 totaled $11,701 and $9,460, respectively.
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 June 30, 2021.
License Agreements
In December, 2017, the Company entered into an intellectual property license agreement (the “Patent License”) 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 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.
11
PwrCor, Inc.
Notes to Financial Statements
June 30, 2021
(Unaudited)
3. Related Party Transactions (continued)
License Agreements (continued)
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 which was 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 June 30, 2021 balance sheet presents the carrying value of the license fee at $87,750, which is net of $47,250 in accumulated amortization. The cost of the license agreement is being amortized on a straight-line basis over ten years.
The Company periodically performs an analysis of its contractual rights and arrangements and establishes asset value based on that analysis.
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 both June 30, 2021 and December 31, 2020. The Company obtains full rights to any intellectual property it develops or acquires through such payments.
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.
Two customers accounted for approximately 63% and 37% of total project management revenue during the three months ended June 30, 2021, and those two customers accounted for approximately 39% and 61%, respectively, of total project management revenue the six month period ended June 30, 2021. One customer accounted for 100% of total project management revenue during the three and six months ended June 30, 2020.
Two project management customers accounted for approximately 63% and 37%, respectively, of total project management accounts receivable at June 30, 2021, and one such customer accounted for 100% of project management accounts receivable at December 31, 2020.
Two customers accounted for approximately 52% and 30% of total net accounts receivable at June 30, 2021, and two customers accounted for 59% and 41%, respectively, at December 31, 2020.
12
PwrCor, Inc.
Notes to Financial Statements
June 30, 2021
(Unaudited)
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 June 30, 2021, 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 within 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 within three business days prior to the redemption notice.
Both warrant issues expire in April, 2022, as extended.
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 Company’s working capital and general corporate purposes.
6. Long Term Notes
On September 15, 2020, the Company received 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:
|
June 30,
2021
|
December 31,
2020
|
|
(Unaudited)
|
|
U.S. SBA term note payable in equal monthly installments, bearing an interest rate of 3.75% and maturing in September 2050.
|
$ 78,200
|
$ 78,200
|
Less current portion
|
(-)
|
(-)
|
Long-term debt, excluding current portion
|
$ 78,200
|
$ 78,200
|
13
PwrCor, Inc.
Notes to Financial Statements
June 30, 2021
(Unaudited)
6. Long Term Notes (continued)
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.
The Loan is projected to amortize as follows:
|
Payments against Principal
|
|
|
|
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
|
14