PwrCor, Inc. - Quarter Report: 2017 September (Form 10-Q)

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PwrCor, Inc.

Financial Statements

For the Nine Months Ended

September 30, 2017

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PwrCor, Inc.

Balance Sheet

See notes to financial statements

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PwrCor, Inc.

Statement of Operations

(Unaudited)

See notes to financial statements

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PwrCor, Inc.

Statement of Stockholders’ Equity

For the Nine Months Ended September 30, 2017

(Unaudited)

See notes to financial statements

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PwrCor, Inc.

Statement of Cash Flows

(Unaudited)

See notes to financial statements

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PwrCor, Inc.

Notes to Financial Statements

September 30, 2017

(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 in March 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 income for work completed and unbilled to customers, 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 growth.  The Company raised $600,000 in capital during the quarter ended September 30, 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, 2016.  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 nine months ended September 30, 2017, are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.

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PwrCor, Inc.

Notes to Financial Statements

September 30, 2017

(Unaudited)

2. Significant Accounting Policies (continued)

Cash

The Company continually monitors its positions with, and the credit quality of, the financial institutions it invests with. From time to time, however briefly, the Company maintains balances in operating accounts in excess of federally insured limits.

Accounts Receivable

Receivables are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. At September 30, 2017, 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.

Income from engine sales contracts is recognized under the percentage of completion method, measured by the percentage of total costs incurred to date to estimated total costs for each contract.  This method is used because management considers expended costs to be the best available measure of progress on these contracts.  Provisions for estimated losses on uncompleted contracts are made in the period in which the losses are determined.  Changes in job performance, job conditions, and estimated profitability may result in revisions to costs and income and are recognized in the period in which the revisions are determined.  Deferred income represents the net amount due, or received, under contract terms in excess of the work completed to date.

Fixed Assets

Fixed assets are being depreciated on the straight line basis over a period of five years.

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PwrCor, Inc.

Notes to Financial Statements

September 30, 2017

(Unaudited)

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’s outstanding warrants are anti-dilutive, and accordingly basic (loss) and diluted (loss) 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 evaluated the provisions of this statement and has determined that the adoption of ASU 2014-09 will have no material impact 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 were effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company has adopted ASU 2014-15, and accordingly management has assessed its ability to meet its obligations as they become due over the next twelve months.  Based on management’s assessment of the Company’s expected future revenue and expenses, management believes the Company can continue to operate as a going concern.

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.

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PwrCor, Inc.

Notes to Financial Statements

September 30, 2017

(Unaudited)

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 $402,748 and $413,457 for the nine months ended September 30, 2017 and 2016, respectively.  Amounts payable to these stockholders and entities at September 30, 2017 and 2016 totaled $131,711 and $218,806, 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 “Contracts”) with a third party licensor (the “Licensor”) that had developed engines capable of converting low grade heat into other forms of energy.  These agreements were assigned to the Company.  Under the terms of the License, 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 confirm the Licensee’s cancellation of the License Agreement.

The 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 the Licensor claiming that an aggregate total of $1,104,367 was due to the Licensor under the License 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 the Licensor, and has taken the remaining unamortized asset value of the License Agreement, $20,307, as a charge against earnings in the current quarter.

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 91.6% and 7.2%, respectively, of total project management income during the nine months ended September 30, 2017, and two customers accounted for 95.9% and 3.6%, respectively, during the nine months ended September 30, 2016.

Two project management customers accounted for 97.8% and 2.2%, respectively, of total project management accounts receivable at September 30, 2017, and for 93.6% and 6.4%, respectively, at September 30, 2016.  Project management accounts receivable constituted 86.4% of receivables at September 30, 2017, but all of receivables as of September 30, 2016.

6. Commitments

Engine Agreement

On December 27, 2016, the Company entered into an agreement with Modoc County, California, to supply its PwrCor™ engine as part of a demonstration project that will convert ultra-low-grade heat into electricity.  The heat will be obtained from a geothermal hot spring which comes to the surface at temperatures of approximately 190° F.

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PwrCor, Inc.

Notes to Financial Statements

September 30, 2017

(Unaudited)

6. Commitments (continued)

Funding was arranged by Modoc County via a grant from the California Energy Commission with the Company entitled to revenues of up to $123,624. The Company has estimated that the total costs to be incurred in connection with this contract will be $206,395, thus resulting in a $82,771 loss.  This total loss amount has been recognized in engine business expenses in the accompanying statement of operations for the period ended September 30, 2017.  The project is being managed by Warner Mountain Energy, which specified the PwrCor™ engine, and is expected to be completed in the fall of 2017.

7. Stock Issuance

In September 2017, the Company issued 6,000,000 shares of common stock at a per share price of $0.10 to eight individual investors in return for a capital infusion of $600,000.  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.

8. 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 October, 2017, the Company issued an additional 650,000 shares of common stock at a per share price of $0.10 to five investors in return for a capital infusion of $65,000.   Similar to the shares issued in September, 2017, each share issued is accompanied by a warrant for one-half share of common stock with an exercise price of $0.30 per share.

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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, 2016, 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 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”).  Receivable Acquisition & Management Corporation had operated as a business purchasing and collecting upon defaulted consumer receivables; those operations were ceased and collections on any remaining receivables are being run off.  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.  Shareholders approved a name change to PwrCor, Inc. at the shareholder meeting in January, 2017.  The Company has refocused on managing energy infrastructure projects and developing applications for an environmentally benign heat conversion technology with particular focus on the geothermal and independent power production markets.

Results of Operations

During the three and nine month periods ended September 30, 2017, the Company had a net loss of ($266,182) and ($358,695), respectively, on revenues of $251,066 and $776,032, respectively, versus a net loss of ($8,722) and ($21,688) on revenues of $240,812 and $714,844, respectively, in the three and nine month periods ended September 30, 2016.  The net loss in the most recent three month period in 2017 as compared to the corresponding period last year was due primarily to costs for research and development and the costs of parts and materials to be used in the engine to be delivered to Modoc County, as well as costs associated with the Company’s efforts to raise capital.  The larger net loss in the nine month period in 2017 as compared to the corresponding period last year was due to the increased costs associated with research and development and the costs related to the Modoc County project noted previously, as well as an increase in professional fees associated with our shareholder meeting stockholder communications and efforts to raise capital.

Revenue

Revenues from the Company’s major customer showed a slight decline of approximately 6% while the margin of project management revenue over the corresponding cost of subcontracted consultants for such projects has increased from 2016 to 2017 due primarily to client coverage of direct related expenses.  This gross profit for the nine month period ended September 30, 2017, was 19% of revenues, versus 18% for the corresponding period in 2016.

Revenue increased 4.3% and 8.6%, respectively, for the three and nine month periods ended September 30, 2017, as compared to the corresponding periods from 2016. This is primarily due to recognition of revenue on the Modoc County project.

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Operating Expenses

Total operating expenses for the three and nine month periods ended September 30, 2017 were $517,248 and $1,134,727 respectively, versus $249,534 and $736,532, respectively, during the three and nine month periods ended September 30, 2016.  The 107% increase in operating expenses in the three month period in 2017 as compared to the corresponding period in 2016 was due primarily to the costs associated with research and development and the costs related to the Modoc County project, as well as professional fees associated with our efforts to raise capital.  The 54% increase in operating expenses in the nine month period in 2017, against the corresponding period in 2016, was due to the increased costs associated with research and development and the costs related to the Modoc County project noted above, as well as an increase in professional fees.

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 September 30, 2017, the Company was using six 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 September 30, 2017, the Company had a working capital of $305,624 versus working capital of $62,348 as of the year ended December 31, 2016.  The change was primarily due to increased capital obtained through a private placement in the third quarter.

For the period ended September 30, 2017, the Company had cash of $465,789 versus $90,764 at December 31, 2016.  For the nine months ended September 30, 2017, net cash (used) by operating activities was ($169,678) versus net cash (used) by operating activities of  ($85,885) for the nine months ended September 30, 2016.  The change in net cash from operating activities was primarily due to an increase in accounts payable and accrued expenses, including professional, research and development, and project costs as detailed above.

For the nine months ended September 30, 2017, net cash of ($13,297) was used by investing activities in the purchase of fixed assets, and $600,000 was provided by financing activities from funds raised in a private placement.  There was no net cash provided or used by financing or investing activities in the nine months ended September 30, 2016.

The Company believes that funds generated from operations, together with existing cash and cash infusions by major stockholders, including the $665,000 in capital financing received this year, will be sufficient to finance its operations for the next twelve months, but are likely to be insufficient to fund significant growth.  The Company has been exploring options and alternatives to fund growth initiatives in its identified markets.  However, there can be no assurance that the Company will be able to raise sufficient capital on acceptable terms.  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 nine month period ended September 30, 2017, and does not expect any material income tax liability for the period.  There were no income and related taxes for 2016 paid in the quarter ended September 30, 2017.

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.

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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 September 30, 2017. He has concluded that, as of September 30, 2017, 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 September 30, 2017, 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, 2016 from which there have been no material changes.

Item 1A. Risk Factors.

Subsequent to September 30, 2017, the Company received a demand letter from the principal of the Licensor claiming that an aggregate total of $1,104,367 was due to the Licensor under the License 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.

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

The Company has previously reported on a Form 8-K for October 12, 2017, the sale of an aggregate of $665,000 of restricted securities. During the quarter ended September 30, 2017, the Company issued 6,000,000 shares of common stock at a per share price of $0.10 to eight individual investors in return for gross proceeds of $600,000.  The sale was of units (the “Units”) of the Company’s securities.  Each Unit, sold at $0.10 per Unit, consisted of one restricted share of Common Stock and one warrant to purchase one-half share of Common Stock exercisable at $0.30 per share (the “Warrants”).  The Warrants may be redeemed, in whole or in part, on at least twenty (20) 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 (20) consecutive trading days ending with three (3) 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 this transaction. The proceeds of this transaction were used for the Company’s working capital and general corporate purposes.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosure

Not Applicable.

Item 5. Other Information

None.

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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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