PwrCor, Inc. - Quarter Report: 2016 June (Form 10-Q)

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Receivable Acquisition and Management Corporation

Financial Statements

For the Six Months Ended

June 30, 2016

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Receivable Acquisition and Management Corporation

Balance Sheet

See notes to financial statements

F-1

Receivable Acquisition and Management Corporation

Statement of Operations

(Unaudited)

See notes to financial statements

F-2

Receivable Acquisition and Management Corporation

Statement of Stockholders’ Equity

For the Six Months Ended June 30, 2016

(Unaudited)

See notes to financial statements

F-3

Receivable Acquisition and Management Corporation

Statement of Cash Flows

(Unaudited)

See notes to financial statements

F-4

Receivable Acquisition and Management Corporation

Notes to Financial Statements

June 30, 2016

(Unaudited)

Note 1. Organization and Nature of Business

Receivable Acquisition and Management Corporation (the “Company” or “RAMCO”), a public reporting entity, was in the business to purchase, manage and collect defaulted consumer receivables. RAMCO ceased investments in distressed consumer credit portfolios in September 2007 and subsequently ran off existing portfolios.

Sustainable Energy L.L.C. (“Sustainable LLC”) is a New York limited liability company formed on July 26, 2010. Sustainable LLC is involved in developing and improving the efficiency of energy infrastructure using a combination of traditional and advanced technologies. On March 29, 2013, Sustainable LLC contributed certain assets and liabilities into a newly formed entity, Sustainable Energy Industries, Inc. (“Sustainable”). At the time, Sustainable LLC had a license agreement with a third party involving manufacturing and licensing, and limited assets, liabilities and operations.

Cornerstone Program Advisors LLC, (“Cornerstone”) is a Delaware limited liability company formed on January 5, 2009. Cornerstone is an energy infrastructure project management company focused on healthcare and higher learning institutions.

As a result of a reverse merger acquisition between the Company, 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.

The Company does business as Cornerstone Sustainable Energy.

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 income for work completed and unbilled to customers, the allowance for doubtful accounts, and the valuation of the License Agreement. 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 its contractual obligations and to fund growth.  The Company expects to seek additional capital to cover any working capital needs and its contractual obligations, 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 receive revenues.

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, 2015.  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, 2016, are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

F-5

Receivable Acquisition and Management Corporation

Notes to Financial Statements

June 30, 2016

(Unaudited)

Note 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 June 30, 2016, no allowance for doubtful accounts has been provided.

Income Recognition

The Company recognizes income from the sale of services and products when persuasive evidence of an arrangement exists, services have been rendered or delivery has occurred, the fee is fixed or determinable and the collectability of the related income is reasonably assured.

The Company principally derives income from fees for services generated on a project-by-project basis. Prior to the commencement of a project, the Company reaches agreement with the client on rates for services based upon the scope of the project, staffing requirements and the level of client involvement. It is the Company’s policy to obtain written agreements from new clients prior to performing services. In these agreements, the clients acknowledge that they will pay based upon the amount of time spent on the project or an agreed-upon fee structure. Income for services rendered is recognized on a time and materials basis or on a fixed-fee or capped-fee basis in accordance with accounting and disclosure requirements for income recognition.

Fees for services that have been performed, but for which the Company has not invoiced the customers, are recorded as unbilled receivables.  

Income for time and materials contracts are recognized based on the number of hours worked by the Company’s subcontractors at an agreed upon rate per hour, and are recognized in the period in which services are performed. Income for time and materials contracts is billed monthly or in accordance with the specific contractual terms of each project.

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 20 years.  The license agreement is reflected in the accompanying June 30, 2016 balance sheet net of accumulated amortization of $37,200.

F-6

Receivable Acquisition and Management Corporation

Notes to Financial Statements

June 30, 2016

(Unaudited)

Note 2. Significant Accounting Policies (continued)

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 (2012 - 2015).

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 potential dilutive instruments and accordingly basic income (loss) and diluted income per share are the same.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09 “Revenue from Contracts with Customers” (Topic 606) ("ASU 2014-09"). 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. In adopting ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach. ASU 2014-09 is effective for the first interim period within annual reporting periods beginning after December 15, 2017, and early adoption is not permitted. The Company will adopt ASU 2014-09 during the first quarter of fiscal 2018. Management is evaluating the provisions of this statement and has not determined what impact the adoption of ASU 2014-09 will have on the Company's financial position or results of operations.

In August 2014, the FASB issued Accounting Standards Update No. 2014-15: “Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). In connection with preparing financial statements for each annual and interim reporting period, an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued (or at the date that the financial statements are available to be issued when applicable). Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued (or available to be issued). The term probable is used consistently with its use in Topic 450, Contingencies. The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted.

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.

F-7

Receivable Acquisition and Management Corporation

Notes to Financial Statements

June 30, 2016

(Unaudited)

Note 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 $272,949 and $368,233 for the six months ended June 30, 2016 and 2015, respectively.  Amounts payable to these stockholders and entities at June 30, 2016 and 2015 totaled $184,383 and $224,237, respectively.

Note 4. License Agreement

During the period from late 2010 to late 2012, Sustainable LLC entered into a set of agreements (collectively, the “Technology Agreements”) with a third party licensor (the “Licensor”) that had developed engines capable of converting low grade heat into other forms of energy. Under the terms of the Technology Agreements, Sustainable LLC obtained exclusive, renewable 20-year license rights in the engines developed by the Licensor (the “License Agreement”) as well as the rights to develop, manufacture and integrate such engines into its projects.

The exclusive market rights portion of the License Agreement provide that Sustainable LLC make a cash payment of $200,000 and issue common stock in Sustainable representing a small minority ownership position in the Company, along with periodic quarterly payments of $25,000 commencing six months after the initial $200,000 payment.  These payments reset to $50,000 per quarter after three payments, and are subject to further resets to up to $100,000 depending on engine sales volume.  Under certain circumstances, engine royalty fees and referral fees can increase the quarterly payment from time to time.  In the event of non-payment, Sustainable, LLC retains a non-exclusive license subject to royalty fees.

On May 15, 2013, in connection with the Merger, the Company, after acquiring 100% ownership interest in Sustainable, LLC issued 2,435,430 shares to the Licensor which represents a small minority position in the Company as required under the terms of the License Agreement.  At the time of issuance, these shares were valued at $48,709 representing the fair value of the RAMCO shares.

In addition, during the fiscal year ended December 31, 2013, the Company made payments of $13,000 that were applied against the required initial $200,000 cash payment as stated under the terms of the License Agreement.

In connection with a November 5, 2013, proceeding commenced by the Securities Division of the Arizona Corporation Commission (the “ACC”) the Company learned that the Licensor had been classified as dissolved by the Delaware Division of Corporations after March 1, 2010 for failure to pay franchise taxes to the State of Delaware, and similarly classified by the ACC as of approximately the same time.  Neither the Company nor any of its officers or directors was named in the complaint brought by the ACC.

In performing due diligence in regard to the status of the Licensor, the Company subsequently also learned that two United States patents that were licensed to the Company under the License Agreement have been classified as expired due to the Licensor’s failure to pay maintenance fees thereon.  In conjunction with the Licensor, in April 2015, the Company arranged for the principal United States patent to be reinstated, and it is now again in effect. The Company has confirmed that Licensor is taking steps to have the corporate charters of each corporation reinstated, but may not be successful in such reinstatements, and is in discussions with the Licensor regarding these matters.

To the best of the Company’s knowledge at present, none of these issues presents a near-term hindrance to the Company’s continued focus on establishing and growing its engine technology business.

F-8

Receivable Acquisition and Management Corporation

Notes to Financial Statements

June 30, 2016

(Unaudited)

Note 4. License Agreement (continued)

Pursuant to the Technology Agreements, the Company has obtained previously described rights to all forms of intellectual property covering certain engine technology that is the subject of the Technology Agreements and is not relying on the remaining U.S. patent classified as expired to be reinstated in order to maintain the ability and knowhow to use such technology.  To the Company’s best knowledge at the current time, the international patent rights remain intact.  However, at this time, there can be no assurance that the foregoing matters will not have a material adverse effect on the Company’s operations.

The accompanying June 30, 2016, balance sheet presents the carrying value of the license fee at $211,509, consisting of the $200,000 required payments under the License Agreement and $48,709, representing the fair value of shares issues to the Licensor, net of $37,200 in accumulated amortization. In addition, the accompanying balance sheet reflects $187,000 due to the Licensor, representing the remaining liability from the initial $200,000 required payment.  After careful assessment, the Company has concluded that no adjustment to the value of the License Agreement or amounts due thereunder should be made as a consequence of the ACC complaint at the current time, but continues to monitor these proceedings.

The Company periodically performs an analysis of its contractual rights and arrangements and establishes asset value based on that analysis.

Note 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 96.2% and 2.9%, respectively, of total project management income during the six months ended June 30, 2016, and two customers accounted for 69.1% and 30.9%, respectively, during the six months ended June 30, 2015.

Two customers accounted for 92.5% and 5.7%, respectively, of total accounts receivable at June 30, 2016, and for 58.6% and 41.4%, respectively, at June 30, 2015.

Note 6. 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.

In July 2016, the Company issued a total of 227,273 shares of common stock valued at $0.022 per share to an individual investor in return for a capital infusion of $5,000.

F-9

Item 2. Management’s Discussion & Analysis of Financial Condition and Results of Operations.

The following management’s discussion and analysis should be read in conjunction with the Company’s historical consolidated financial statements and the related notes thereto included in our audited financial statements for the year ended December 31, 2015, and the notes thereto.  The management’s discussion and analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect” and the like, and/or future tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this quarterly report. The Company’s actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this quarterly report.

Overview

On May 15, 2013, Receivable Acquisition & Management Corporation, a Delaware corporation (the “Company”) completed the acquisition of Cornerstone Program Advisors LLC, a Delaware limited liability company (“Cornerstone”) and Sustainable Energy Industries, Inc., a Delaware corporation (“Sustainable”), and the Company assumed the operations of each of these entities (the “Merger”).  The Company had operated as a business purchasing and collecting upon defaulted consumer receivables and its operations were spun off by the Company.  Cornerstone has been in the business of managing energy infrastructure projects, specializing in the non-profit marketplace.  Sustainable is in the business of developing, marketing, and implementing clean tech technologies.  The Company has refocused on managing energy infrastructure projects and developing applications for a licensed environmentally benign heat engine with particular focus on the geothermal and waste-heat-to-energy production markets.

Results of Operations

During the three and six month periods ended June 30, 2016, the Company had a net gain of $414 and net (loss) of ($20,245), respectively, on revenues of $245,331 and $474,032, respectively, versus a net (loss) of ($8,813) and ($1,034) on revenues of $292,426 and $558,137, in the three and six month periods ended June 30, 2015.  The net gain in the most recent three month period in 2016 as compared to the corresponding period last year was due primarily to a reduction in the expenses attributable to consulting contractors in the quarter.  The larger net loss in the most recent six month period in 2016 as compared to the corresponding period last year was due to an increase in general, administrative and professional fees despite a decline in revenues and a parallel decline in consulting contractor charges.

Revenue

Revenues from the Company’s major customer showed improvement, and the margin of project management revenue over the corresponding cost of subcontracted consultants for such projects has increased from 2015 to 2016 due to client coverage of direct related expenses.  This gross profit for the six month period ended June 30, 2016, was 20% of revenues, versus 17% for the corresponding period in 2015.

Revenue decreased 16% and 15%, respectively, for the three and six month periods ended June 30, 2016, as compared to the corresponding periods from 2015. This is a consequence of an expectedly temporary decrease in activity on one client’s project, partially offset by growing business activity with two other clients.   

Operating Expenses

Total operating expenses for the three and six month periods ended June 30, 2016 were $244,917 and $494,277 respectively, versus $301,239 and $559,171, respectively, during the three and six month periods ended June 30, 2015.  The 19% decrease in operating expenses in the three month period in 2016, as well as the 12% decrease in operating expenses in the six month period in 2016, against the corresponding periods in 2015, are wholly due to a reduction in the expenses attributable to consulting contractors.

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Consulting Expenses  

The Company outsources a significant portion of its project management, oversight and advisory activities to a carefully selected group of small firms, individuals and subcontractors with expertise specific to the projects underway.  As of the quarter ended June 30, 2016, the Company was using seven such consulting resources. Consulting expenses consistently constitute the bulk of operating costs for the project advisory and management business activities of the Company, and accordingly generally track revenue.  

Liquidity and Capital Resources

As of June 30, 2016, the Company had a working capital deficit of ($131,601) versus a working capital deficit of ($119,672) as of the year ended December 31, 2015.  The increase in the deficit was primarily due to a decline in cash and accounts receivable.

For the period ended June 30, 2016, the Company had net cash of $77,568 versus $119,167 at December 31, 2015.  For the six months ended June 30, 2016, net cash provided (used) by operating activities was ($41,599) versus net cash provided by operating activities of $88,760 for the six months ended June 30, 2015.  The decline in net cash from operating activities was primarily due to a decrease in accounts payable, as well as a greater net loss for the period.

For the six months ended June 30, 2016, there was no net cash provided by financing activities versus $5,000 during the six months ended June 30, 2015.  The net cash provided in the earlier period was from stock issued to an investor.

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 its contractual obligation and to fund growth.  The Company expects to seek additional capital to cover any working capital needs and its contractual obligation discussed below, 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 collect its receivables and increase revenues.

Income Taxes

The Company did not record any income tax provision for the six month period ended June 30, 2016, and does not expect any material income tax liability for the period.  There were no income and related taxes for 2015 paid in the quarter ended June 30, 2016.  

Contractual Obligation

As previously disclosed, the Company has entered into certain Technology Agreements, including a renewable 20-year engine technology license agreement, with a Licensor that had developed engines capable of converting low grade heat into other forms of energy. Under the terms of the Technology Agreements, the Company obtained certain exclusive license rights in the engines developed by the Licensor which will permit the Company to develop, manufacture and integrate such engines into its projects.  An upfront payment of $200,000 and escalating volume-related quarterly payments are contractually required by the License Agreement in order to maintain certain exclusive markets.  The payments, taken as whole, are expected to obligate the Company to amounts of $250,000 to $400,000 per year depending upon the growth in revenue from this source.  If the expected revenues do not materialize, the Company may elect not to pay these sums, and in the event of non-payment, the Company retains a non-exclusive license subject to royalty fees.  

As previously disclosed by the Company, and as discussed in Note 4 to the Financial Statements herein, the Company learned that the Licensor was administratively dissolved for failure to pay franchise taxes, and that the Licensor’s two U.S. patents in connection with the Technology Agreements expired.  In conjunction with the Licensor, in April 2015, the Company arranged for the principal United States patent to be reinstated, and it is now again in effect.  The Licensor is taking steps to cure the remaining defects but may not be successful.  At this time, the Company has not changed its classification of its contractual obligations under the License Agreement as a result of the aforementioned development.

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Critical Accounting Policy & Estimates

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations section discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements 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 amount of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. These accounting policies are described at relevant sections in this discussion and analysis and in the condensed consolidated financial statements included in this quarterly report.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

The Issuer is not required to provide the information called for in this item due to its status as a Smaller Reporting Company.

Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures

The term “disclosure controls and procedures” is defined in Rules 13(a)-15e and 15(d) - 15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company’s principal executive officer and principal financial officer has evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2016. He has concluded that, as of June 30, 2016, our disclosures, controls and procedures were effective to ensure that:

(1) Information required to be disclosed by the Company in reports that it files or submits under the act is recorded, processed, summarized and reported, within the time periods specified in the Commissions’ rules and forms; and

(2) Controls and procedures are designed by the Company to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management including the principal executive and principal financial officers or persons performing similar functions, as appropriate to allow timely decisions regarding financial disclosure.

This term refers to the controls and procedures of a Company that are designed to ensure that information required to be disclosed by a Company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within the required time periods. Management continues to take steps to improve its controls and procedures, and expects, further, that the growing scale of the business will enable the Company to obtain additional resources to assist in that effort.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting or in any other factors that could significantly affect these controls during the quarter ended June 30, 2016, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The Company is not a party to any material pending legal proceedings or a proceeding being contemplated by a governmental authority nor is any of the Company’s property the subject of any pending legal proceedings or a proceeding being contemplated by a governmental authority except as set forth in our Annual Report on Form 10-K for December 31, 2015 from which there have been no material changes.

Item 1A. Risk Factors.

The Issuer is not required to provide the information called for in this item due to its status as a Smaller Reporting Company.

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosure

Not Applicable.

Item 5. Other Information

None.

Item 6. Exhibits

In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.

* Furnished herewith. XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the Company has caused this report to be signed by the undersigned, thereunto duly authorized.

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