Notes to Financial Statements
December 31, 2016
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 since then was in the process of running off existing portfolios.
Sustainable Energy LLC (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 businesses of Cornerstone and Sustainable in energy infrastructure and alternative energy.
The Company currently does business as Cornerstone Sustainable Energy.
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 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 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 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.
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.
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Receivable Acquisition and Management Corporation
Notes to Financial Statements
December 31, 2016
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, 2016 and 2015, no allowance for doubtful accounts had 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 an 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 Companys 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 is recognized based on the number of hours worked by the Companys 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 accounting method. The percentage completed is measured by the cost incurred to date compared to the estimated total cost on each contract. This method is used as management considers expended cost to be the best available measure of progress on these contracts, which are expected to be completed within one year. Inherent uncertainties in estimating costs make it at least reasonably possible that the estimates used will change within the near term and over the lives of the respective contracts. 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. Accumulated depreciation at December 31, 2016 and 2015 was $7,406 and $3,174, respectively.
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 December 31, 2016 balance sheet net of accumulated amortization. The license agreement is tested annually for impairment or earlier if an indication of impairment exists. The Company believes that the license agreement is not impaired at December 31, 2016.
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Receivable Acquisition and Management Corporation
Notes to Financial Statements
December 31, 2016
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 Companys tax positions, and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on returns filed for open tax years (2013 - 2015).
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.
The Company has no potential dilutive instruments and accordingly basic (loss) and diluted (loss) per share are the same.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) 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 Entitys Ability to Continue as a Going Concern (ASU 2014-15)
. In connection with preparing financial statements for each annual and interim reporting period, an entitys management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entitys 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). Managements 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 entitys 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. 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 managements assessment of the Companys 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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Receivable Acquisition and Management Corporation
Notes to Financial Statements
December 31, 2016
2. Significant Accounting Policies (continued)
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 $539,118 and $719,240 for the years ended December 31, 2016 and 2015, respectively. Amounts payable to these entities amounted to $168,349 and $249,372 at December 31, 2016 and 2015, respectively.
Prepaid Expenses
Amounts were advanced in 2015 and 2016 to a consultant, who is also a stockholder and officer of the Company, for work committed to be performed in future periods under a contract with that consultant. These advances totaled $13,500 in 2015 and $7,500 in 2016.
4. License Agreement
From late 2010 through November 15, 2012, Sustainable LLC entered into a series of agreements including a renewable 20-year engine technology License Agreement (the Contracts) with a third party licensor (the Licensor) that developed engines capable of converting low grade heat into other forms of energy. Under the terms of the License Agreement, Sustainable LLC obtained certain exclusive license rights in the engines developed by the Licensor which would permit Sustainable LLC to develop, manufacture and integrate such engines into its projects.
The exclusive market rights of the License Agreement provide that Sustainable LLC make a cash payment of $200,000 for this exclusivity and issue common stock 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 retains a non-exclusive license subject to royalty fees.
On May 15, 2013, in connection with the Merger (see Note 1), Sustainable LLC assigned the Contracts to Sustainable. The Company, after acquiring 100% ownership interest in Sustainable, issued 2,435,430 shares to the Licensor which represents the 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 year ended December 31, 2013, the Company made payments of $13,000 that were applied against the initial $200,000 due under the terms of the License Agreement.
In the event the Company elects not to pay for exclusivity under the Technology Agreement, no cash payment or periodic increasing payments are due. During 2016, management has considered the nature of the $187,000 exclusive payment and determined that a more accurate presentation on the balance sheet is to net the contingent liability with the license agreement asset. Thus the contingent amount due, $187,000, has been netted against the amortized value of the License Agreement. The comparative 2015 presentation continues to reflect the asset and contingent liability on a gross basis.
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Receivable Acquisition and Management Corporation
Notes to Financial Statements
December 31, 2016
4. License Agreement (continued)
In connection with the November 5, 2013, proceeding described above (see Item 3) commenced by the Securities Division of the Arizona Corporation Commission (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.
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 had been classified as expired due to the Licensors failure to pay maintenance fees. 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. In addition, the Company had been informed by Deluge and Hydrotherm management that steps were being taken to have the corporate charters of each corporation reinstated, but may not be successful.
Since the Company learned about the Delaware actions and ACC proceedings, it has suspended payments under the License Agreement pending the resolution of this matter.
To the best of the Companys knowledge at present, none of these issues presents a near-term hindrance to the Companys continued focus on establishing and growing its engine technology business and the international patent rights remain intact. However, even though the Company has obtained previously described rights to all forms of intellectual property covering the engine technology that is the subject of the Contracts, at this time there can be no assurance that the foregoing matters will not have a material adverse effect on the Companys operations.
The accompanying December 31, 2016 balance sheet presents the carrying value of the license fee at $21,094, consisting of the $13,000 in licensing payments made under the License Agreement and $48,709, representing the fair value of shares issued to the Licensor, net of $40,615 in accumulated amortization. The carrying value of the License Agreement at December 31, 2015 includes the $187,000 contingent payment and is reflected net of accumulated amortization of $31,000. After careful assessment, the Company has concluded that no adjustment to the value of the Contracts should be made as a consequence of the Delaware actions and 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.
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 95.1% and 3.8% of the Companys total income during the year ended December 31, 2016, and the same two customers accounted for 70.3% and 29.7% during the year ended December 31, 2015, respectively.
These two customers accounted for 81.9% and 2.3% of total accounts receivable at December 31, 2016 and for 43.9% and 56.1% respectively at December 31, 2015.
In addition, 14.4% of total receivables at December 31, 2016 were due to the Company from the County of Modoc, California upon the signing of an agreement to supply an engine as part of a project there (see Note 7).
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Receivable Acquisition and Management Corporation
Notes to Financial Statements
December 31, 2016
6. Stock Issuance
The Company issued 227,273 shares of Common Stock, at market price, to a single investor during the third quarter of 2016 for a cash investment of $5,000. All shares issued are restricted securities.
7. Commitments
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. The agreement specifies that Mr. Telegades shall be paid annual compensation of up to $150,000 for his services. The agreement includes non-competition and non-solicitation provisions which expire the later of three years from May 15, 2016, 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. The agreement specifies that Mr. Fazio shall be paid annual compensation of up to $150,000 for his services. The agreement includes non-competition and non-solicitation provisions which expire the later of three years from May 15, 2016, 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 on a full-time basis as consultant to and non-executive Chairman of the Board of the Company for a three year term beginning on July 1, 2014. The agreement specifies that Gramercy shall be paid an annual compensation of up to $150,000 for such services. This agreement includes non-competition and non-solicitation provisions which expire the later of three years from July 1, 2014, 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. The agreement specifies that Mr. Baker shall be paid annual compensation of up to $150,000 for his services. This agreement includes non-competition and non-solicitation provisions which expire the later of three years from July 1, 2014, or one year following his termination or voluntary resignation.
For 2016 and 2015, no amounts were paid to these officers nor were any amounts accrued.
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.
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 while being responsible for expenses of up to $54,000. The project will be managed by Warner Mountain Energy, which specified the PwrCor engine, and is expected to be completed in the summer of 2017.
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Receivable Acquisition and Management Corporation
Notes to Financial Statements
December 31, 2016
8. Income Taxes
There was no provision for income tax for the years ended December 31, 2016 and 2015. 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 $870,000 in net operating loss carryforwards at December 31, 2016, and approximately $825,000 at December 31, 2015, representing a potential deferred tax asset. The deferred tax asset amounted to approximately $290,000 and $275,000 at December 31, 2016 and 2015, respectively. 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.
9. Subsequent Events
On January 20, 2017, the Company held its 2016 Annual Meeting of Shareholders. At the meeting, various matters were submitted to a vote of the Companys shareholders, and approved by a very large margin. These included the election of five (5) directors, including new director Monirul Hoque, to serve until the next annual meeting of shareholders; ratification of the appointment of PKF OConnor Davies LLP as the Companys independent registered public accounting firm for the 2016 fiscal year; approval of an amendment to the Certificate of Incorporation to change the Companys name to PwrCor, Inc., and approval of a reverse stock split and corresponding amendment to the Certificate of Incorporation. Advisory votes on executive compensation and the frequency of votes on executive compensation every three years were also approved.
Because the reverse stock split has not yet taken place, share and per share amounts have not been retroactively restated.
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