ITEM 1. BUSINESS
Corporate History
We were incorporated on April 19, 2006 under the name School4Chauffeurs, Inc. ("SFCF") in the State of Delaware. We had been in the process of establishing ourselves as a specialty educational vocational skill service for the limousine and driver industry. We had intended to provide driver training to all entry-level employees as well as to employees of small to medium sized limousine companies.
On April 16, 2010, the Company filed an Information Statement Pursuant to Section 14(F) of the Securities Exchange Act of 1934 and Rule 14f-1 thereunder announcing that Grant Jasmin (“Mr. Jasmin”) acquired the majority of the issued and outstanding common stock of the Company from Jeffrey E. Jones (“Mr. Jones”) per the terms of a common stock purchase agreement between Mr. Jasmin and Mr. Jones. Pursuant to the terms of the Purchase Agreement, Mr. Jasmin acquired control of 1,700,000 shares of SFCF’s issued and outstanding common stock representing approximately 70% of the total shares issued and outstanding.
On May 14, 2010, SFCF, POWRtec Corporation, a Delaware corporation (“POWRtec”) and the shareholders of POWRtec (the “POWRtec Shareholders”) closed a transaction pursuant to that certain Share Exchange Agreement (the “Share Exchange Agreement”), whereby SFCF acquired approximately 100% of the outstanding shares of common stock of POWRtec (the “POWRtec Stock”) from the POWRtec Shareholders. In exchange for the POWRtec Stock, SFCF issued 1,750,001 shares of its common stock. As a result of closing the transaction the POWRtec Shareholders now hold approximately 70% of our issued and outstanding common stock.
On May 20, 2010, we filed an Amended and Restated Certificate of Incorporation with the Delaware Secretary of State. As a result of the Amended and Restated Certificate of Incorporation, SFCF: (i) changed its name to “POWRtec International Corp.;” and, (ii) increased the aggregate number of authorized shares to 305,000,000 shares, consisting of 300,000,000 shares of Common Stock, par value $0.001 per share and 5,000,000 shares of preferred stock, par value $0.001 per share.
In addition to the name change, the Company's Board of Directors approved a forward split of the issued and outstanding common shares, whereby every one old share of common stock was exchanged for 40 new shares of the Company's common stock. As a result, the issued and outstanding shares of common stock increased from 2,500,001 prior to the forward split to 100,000,040 following the forward split.
The Company now designs, develops and sells intelligent electricity meters to utility companies to enable real time management of electricity consumption as a way of balancing energy supply and demand.
The consolidated statements of operations include the results of operations of POWRtec from its inception, and the results of operations of SFCF from the Acquisition Date through December 31, 2014. Our fiscal year end is December 31.
Overview
POWRtec is a California-based inventor, developer and producer of intelligent metering systems for use by utility companies, governments and to a lesser extent businesses, at competitive prices. An intelligent meter is a highly advanced electricity meter that has a number of additional possibilities other than just measuring the electrical throughput at a given time or the total consumption over time. For instance, it may be able to provide the end-user and the utility company with a number of other data, as well as be able to remotely control appliances where that particular option has been built in.
Recent world trends in energy supply and consumption have drawn attention to the challenges of meeting supply at economic prices.
Much of this attention is focused on finding new and alternate sources of supply, and mitigating usage through applied technology and energy conservation. Because electricity cannot be stored, the significant day to day, hour to hour, and minute to minute variations in peak and off-peak demand require enough infrastructure to balance supply and demand at all times. As a result, much of this generating capacity will be idle for significant amounts of time creating significant volatility in pricing and under-utilized capital investment.
POWRtec addresses this problem by using its intelligent metering systems to improve the efficiency, and thereby lower the cost of the energy generation and supply infrastructure through remote management and control using GSM, ZigBee, GPRS, or internet networks. By using POWRtec’s networked intelligent metering solutions, utility companies can monitor actual consumption at individual premises and as necessary, remotely adjust delivery to balance supply and demand. The Company will continue its efforts to develop a range of meters providing connectivity and management solutions for a wide range of applications.
POWRtec products address a global market with approximately 210,000 meters already delivered into Denmark through the end of 2014 and a further 25,000 meters ordered for delivery during 2015. POWRtec is also looking for opportunities to acquire distribution partner channels in India and other developing countries where the capacity and reliability of the power grid is limited in relation to growing demand from both business and residential users. The market for intelligent meters is influenced among other things by energy shortages, volatile prices, deregulation, and privatization.
Although there is no single other producer of intelligent metering solutions identical to POWRtec’s networked intelligent meters, there are some near-competitors in the market space. Among these are ABB, Echelon, Landis+Gyr, Larsen & Tourbo and others. Nearly all of POWRtec’s competitors are very large organizations with significant overhead expenses. POWRtec, on the other hand, aims to have an organization, a Research and Development function and a Production workflow and capability that will ensure a scalability of operations. POWRtec’s cost-effective designs, low-cost manufacturing and low overhead allow it to offer smart meters at an attractively low price. More importantly, POWRtec’s relatively small size allows for customer flexibility and the opportunity to modify and customize standard products to meet client special needs. The meters are developed in the USA, and are manufactured in China.
Mission
POWRtec develops and markets intelligent single-phase and three-phase meters to enable utility companies to gather real-time data on individual power use, load, and fluctuations, and communicate with network enabled home appliances such as air conditioners, washers/dryers, refrigerators, and other appliances to manage power deliveries and optimize against pre agreed contractual delivery options and incremental cost and supply constraints
Continued Development of Product, Adding Functions
POWRtec already has a fully functional product that meets and exceeds its customers’ current needs. However, it is important for the Company to stay ahead of the competition by continually meeting new demands and adding new functions that will benefit both end users as well as utility providers. POWRtec’s meters can come equipped with GSM and GPRS as well as infrared, Ethernet, or ZigBee and as markets develop the Company intends to consider other communications protocols as well. The Company has limited funds and currently relies on a network of independent consultants to carry out R&D projects when required. No R&D activities took place during 2014.
Also, electricity is different in different parts of the world, so the meters have to be able to work with different electricity setups, for instance 110V/240V/400V or 1-phase or 3-phase, different Amp loads etc. Already, POWRtec has developed one- and three-phase meters capable of the above-mentioned voltages.
Finally, the meters will have to be able to measure several different parameters according to the wishes of the clients. Already, the meters are able to measure extremely low loads, making it possible to bill even when the load is low. Other parameters or requirements may be essential to other clients.
The Market
POWRtec is targeting the utility company market since they control and manage the specification, installation, and service of meters. The Company promotes its products to this channel through a limited network of corporate industry contacts.
Research and Product Development
As a result of limited resources, POWRtec relies on independent consultants for any immediate or future development needs related to current or new accounts. This approach minimizes current cost, yet provides flexibility to develop new features identified by discussions with prospective customers and presence at trade shows.
Scalability of Operations
POWRtec aims to have an organization, Research and Development function and Production workflow and capability that will allow for scalability of operations. By contracting out production, POWRtec has the ability to ramp up output to meet customer demand without carrying fixed costs of production.
Insurance
We do not maintain any insurance and do not intend to maintain insurance in the future. Because we do not have any insurance, if we are made a party to a liability action, we may not have sufficient funds to defend the litigation. If that occurs, a judgment could be rendered against us that could cause us to cease operations.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements and Labor Contracts
We own intellectual property rights including trademarks and two patents which are encompassed in our current and proposed product line. We depend on our ability to develop and maintain the proprietary aspects of our technology to distinguish our products from our competitors’ products. To protect our proprietary technology, we rely primarily on a combination of confidentiality procedures. It is our policy to require employees and consultants to execute confidentiality agreements and invention assignment agreements upon the commencement of their relationship with us. These agreements provide that confidential information developed or made known during the course of a relationship with us must be kept confidential and not disclosed to third parties except in specific circumstances and for the assignment to us of intellectual property rights developed within the scope of the employment relationship.
Employees
As of March 13, 2015, we have 1 part-time employee. None of our employees are subject to a collective bargaining agreement and we believe that relations with our employees are very good. We also use third party consultants to assist in the completion of various projects; third parties are instrumental to keep the development of projects on time and on budget. Our management expects to continue to use consultants, attorneys, and accountants as necessary, to complement services rendered by our employees.
Government Regulation
Health and Safety
We are subject to numerous health and safety laws and regulations imposed by the governments controlling the jurisdictions in which we operate and by our clients and project financiers. These regulations are frequently changing, and it is impossible to predict the effect of such laws and regulations on us in the future. We actively seek to maintain a safe, healthy and environmentally friendly work place for all of our employees and those who work with us.
Office of Foreign Assets Control
The Office of Foreign Assets Control ("OFAC") of the U.S. Department of the Treasury administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States. OFAC acts under Presidential national emergency powers, as well as authority granted by specific legislation, to impose controls on transactions and freeze assets under U.S. jurisdiction. Since the Company is a U.S. corporation, it is bound to the regulations of OFAC. Although we have never contracted nor made any effort to contract with countries which OFAC has identified as state sponsors of terrorism, the possibility exists that certain OFAC sanctioning methods could be employed against certain of our operations.
Environmental Regulation
The countries where we do business often have numerous environmental regulatory requirements by which we must abide in the normal course of our operations. We do not expect costs related to environmental matters will have a material adverse effect on our consolidated financial position or our results of operations.
WHERE YOU CAN GET ADDITIONAL INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy our reports or other filings made with the SEC at the SEC’s Public Reference Room, located at 100 F Street, N.W., Washington, DC 20549. You can obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You can also access these reports and other filings electronically on the SEC’s web site, www.sec.gov.
In addition, certain of our SEC filings, including our annual reports on Form 10-K, our quarterly reports on Form 10-Q, and current reports on Form 8-K, and amendments to these reports, can be viewed and printed from the investor information section of our website at www.powrtec.com, as soon as reasonably practicable after filing with the SEC. The information on our websites is not and should not be considered part of this Report and is not incorporated by reference in this document. The website is only intended to be inactive textual references.
ITEM 1A.
ITEM 1A. RISK FACTORS
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2. PROPERTIES
We are currently using free generic executive office space on a month-to-month basis. The space is being provided to us by an unrelated business associate of our sole director. It is our belief that the space is adequate for our immediate needs. Additional space may be required if we expand our operations. We do not foresee any significant difficulties in obtaining any required additional facilities. We do not own any real estate or have any lease commitments.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, we may be subject to claims, counter claims, suits and other litigation of the type that generally arises from the conduct of our business. We are not aware of any threatened or pending litigation that we expect will have a material adverse effect on our business operations, financial condition or results of operations.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
PART II
ITEM 5.
ITEM 5.
MARKET FOR THE COMPANY’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock
Our common stock is currently quoted on the OTC Bulletin Board. Our common stock has been quoted on the OTC Bulletin Board since August 18, 2008, originally traded under the symbol “SFCF.OB.” On January 28, 2011, we began trading under our current symbol of “POWT.OB.” Because we are quoted on the OTC Bulletin Board, our securities may be less liquid, receive less coverage by security analysts and news media, and generate lower prices than might otherwise be obtained if they were listed on a national securities exchange.
The following table sets forth the high and low bid prices for our Common Stock per quarter as reported by the OTCBB from January 1, 2013 to December 31, 2014, based on our fiscal year end December 31. These prices represent quotations between dealers without adjustment for retail mark-up, markdown or commission and may not represent actual transactions. No price is shown where the reported price rounds to $0.00 after two decimal places.
Quarter
Year
High
Low
First
$ 0.01
$ -
Second
$ 0.01
$ -
Third
$ 0.01
$ -
Fourth
$ 0.01
$ -
First
$ -
$ -
Second
$ -
$ -
Third
$ 0.02
$ -
Fourth
$ 0.01
$ -
Our common stock is subject to rules adopted by the Commission regulating broker dealer practices in connection with transactions in “penny stocks.” Those disclosure rules applicable to “penny stocks” require a broker dealer, prior to a transaction in a “penny stock” not otherwise exempt from the rules, to deliver a standardized list disclosure document prepared by the Securities and Exchange Commission. That disclosure document advises an investor that investment in “penny stocks” can be very risky and that the investor’s salesperson or broker is not an impartial advisor but rather paid to sell the shares. The disclosure contains further warnings for the investor to exercise caution in connection with an investment in “penny stocks,” to independently investigate the security, as well as the salesperson with whom the investor is working and to understand the risky nature of an investment in this security. The broker dealer must also provide the customer with certain other information and must make a special written determination that the “penny stock” is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. Further, the rules require that, following the proposed transaction, the broker provide the customer with monthly account statements containing market information about the prices of the securities.
These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for our common stock. Many brokers may be unwilling to engage in transactions in our common stock because of the added disclosure requirements, thereby making it more difficult for stockholders to dispose of their shares.
Record Holders
As of March 13, 2015, an aggregate of 102,780,377 shares of our common stock were issued and outstanding and were owned by approximately 17 holders of record, based on information provided by our transfer agent.
Recent Sales of Unregistered Securities
None, other than as previously reported.
Re-Purchase of Equity Securities
None.
Dividends
We have not paid any cash dividends on our Common Stock since inception and presently anticipate that all earnings, if any, will be retained for development of our business and that no dividends on our Common Stock will be declared in the foreseeable future. Any future dividends will be subject to the discretion of our Board of Directors and will depend upon, among other things, future earnings, operating and financial condition, capital requirements, general business conditions and other pertinent facts. Therefore, there can be no assurance that any dividends on our Common Stock will be paid in the future.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections. We may use words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “foresee,” “estimate” and variations of these words and similar expressions to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted. You should read this report completely and with the understanding that actual future results may be materially different from what we expect. The forward looking statements included in this report are made as of the date of this report and should be evaluated with consideration of any changes occurring after the date of this Report. We will not update forward-looking statements even though our situation may change in the future and we assume no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
Results of Operations
The following analysis is of selected statement of operations data from our audited financial statements for the year ended December 31, 2014 and 2013.
Historical results are not necessarily indicative of the results to be expected in future periods. You should read this data together with our financial statements and the related notes to these financial statements included elsewhere in this Annual Report on Form 10-K.
Revenues, Cost of Revenues and Gross Margin
During 2012, the Company received an order for approximately $2.5 million of its intelligent power meters. This was our first order since 2009 from our one and only customer in Denmark. That order was due to be shipped in several installments with approximately $946,000 shipping in 2012, and $400,000 shipping in 2013. The balance was scheduled to ship in 2014 but the customer has been repeatedly extending the next shipment date. While the Company is using its best efforts to secure more orders either from this customer, or from new customers, it has been limited by lack of cash, limited manpower, and lack of resources to travel, attend trade shows and otherwise explore new sales opportunities. The Company has continued to look for new customers through attendance at trade shows, networking with distribution channels, and using the internet however the conservative nature of most utility companies results in slow conversion and adoption rates. As at December 31, 2014, the Company has reserved $72,420 against a receivable of $72,420 from the Danish customer because they had still not paid for a delivery shipped and billed in June 2013.
During the year ended December 31, 2014, the Company had no revenue in comparison to $400,334 during the year ended December 31, 2013.
The Company uses an independent sub contract manufacturer to build its power meters, and has placed a firm priced purchase order to match its obligations under the sales order received from its customer which is expected to result in an overall gross margin of 32% on the complete order. The Company carries no inventory as all orders are made specifically against customer orders.
Operating Expenses
Selling and Marketing
Selling and Marketing expense decreased approximately $2,000, or 15%, from approximately $15,000 during the year ended December 31, 2013, to approximately $13,000 during the year ended December 31, 2014. Travel expense continues to be focused on securing further shipments to our Danish customer.
Research and Development Costs
Following development work for the Danish sales order received in 2012, R&D activities have been cut to conserve cash until potential sales prospects emerge. No R&D expenditure took place in either 2014 or 2013.
General and Administrative
General and Administrative expenses decreased approximately $78,000 or 22%, from approximately $356,000 during the year ended December 31, 2013, to approximately $279,000 during the year ended December 31, 2014. The decrease related mainly to a reduction in travel expenses following a cut back in travel following the signing of the Danish sales order in 2012, and reduced service fees for consultants and service providers following the reduced level of activities in 2014. The G&A expense for the year ended December 31, 2014 and December 31, 2013 includes approximately $249,600 and $249,600, respectively, for executive payroll that was accrued but not paid.
Non-operating expenses
Non- operating expenses include interest and revaluation adjustments related to derivative liabilities. Interest, including amortization of discount on convertible notes was $29,100 for the year ended December 31, 2014 compared to $40,480 for the year ended December 31, 2013. The reduction was due to the fact that the discount reserves became fully amortized and no new notes were issued.
Net Loss
During the year ended December 31, 2014 the Company had a net loss of $321,236 as compared to $333,458 for the year ended December 31, 2013.
Liquidity and Capital Resources
During the year ended December 31, 2014, the Company used $45,458 in operating activities, and generated $47,401 from financing activities, of which $47,500 was advanced by a related party. Net cash increased by approximately $1,943 to a balance of $1,948.
During the year ended December 31, 2013, the Company used $118,916 in operating activities, and generated $11,099 from financing activities, of which $11,000 was advanced by a related party. Net cash decreased by approximately $107,817 to a balance of $5.
Going Concern
The Company requires additional funds to continue operations. As reflected in the accompanying financial statements, the Company has a net loss since inception of approximately $9.2 million and has a cash balance of only $1,948. As of December 31, 2014, current liabilities and total liabilities exceeded current assets and total assets by approximately $3.9 million. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement a business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Because the Company has net losses since inception and does not expect to be profitable until 2015 or later, it will most likely be required to raise required additional funds through convertible debt, debt or equity financings, strategic business partnerships, or by selling its assets.
Management believes that actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern. However, this additional financing may not be available on a timely basis or on terms acceptable to it, or at all. The Company’s ability to obtain such financing may be impaired by the current economic conditions and the lack of liquidity in the credit markets. If the Company is unable to secure additional funding, it may have to discontinue operations; delay additional development or commercialization of its meters; license to third parties the rights to commercialize products or technologies that it would otherwise seek to commercialize; reduce marketing, customer support, or other resources devoted to its system: or any combination of these activities. Any of these results would materially harm the Company’s business, financial condition, and results of operations, and there can be no assurance that any of these results will result in cash flows that will be sufficient to fund its current or future operating needs. The Company may also need to seek protection under the U.S. Bankruptcy Code or otherwise liquidate its assets, which may result in the failure of the Company’s stockholders to receive value for their ownership of its stock.
Future Financings
We intend to rely on proceeds from sale of our meters and equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned acquisitions and exploration activities.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Contractual Obligations
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Critical Accounting Policies
Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in Note 2 of the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
Recently Issued Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders’ Deficiency
Notes to the Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM
Board of Directors
PowrTec International Corp.
Campbell, California
We have audited the accompanying consolidated balance sheets of PowrTec International Corp. (the “Company”) as of December 31, 2014 and 2013 and the related consolidated statements of operations, stockholders’ deficiency and cash flows for the years then ended. These consolidated financial statements are the responsibility of PowrTec International Corp.’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes consideration of internal control for financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s control over financial reporting. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of PowrTec International Corp. as of December 31, 2014 and 2013 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The financial statements are presented on the basis that the Company is a going concern, a concept that contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company requires additional funds to continue operations. As disclosed in Note 1 to the financial statements, the Company has a net loss since inception of approximately $9.2 million and has a cash balance of only $1,948. As of December 31, 2014, current liabilities and total liabilities exceeded current assets and total assets by approximately $3.9 million. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement a business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
/s/ Paritz & Company P.A.
Hackensack, New Jersey
March 13, 2015
POWRTEC INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 & 2013
1. OVERVIEW
Business description
Corporate History
Powrtec International Corp. (the “Company”) has designed and distributed intelligent power meters since April 2010.
Going concern
The financial statements are presented on the basis that the Company is a going concern, a concept that contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company requires additional funds to continue operations. As reflected in the accompanying financial statements, the Company has a net loss since inception of approximately $9.2 million and has a cash balance of only $1,948. As of December 31, 2014, current liabilities and total liabilities exceeded current assets and total assets by approximately $3.9 million. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement a business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Because the Company has net losses since inception and does not expect to be profitable until 2015 or later, it will most likely be required to raise required additional funds through convertible debt, debt or equity financings, strategic business partnerships or by selling its assets.
Management believes that actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern. However, this additional financing may not be available on a timely basis or on terms acceptable to it, or at all. The Company’s ability to obtain such financing may be impaired by the current economic conditions and the lack of liquidity in the credit markets. If the Company is unable to secure additional funding, it may have to discontinue operations; delay additional development or commercialization of its meters; license to third parties the rights to commercialize products or technologies that it would otherwise seek to commercialize; reduce marketing, customer support, or other resources devoted to its system: or any combination of these activities. Any of these results would materially harm the Company’s business, financial condition, and results of operations, and there can be no assurance that any of these results will result in cash flows that will be sufficient to fund its current or future operating needs. The Company may also need to seek protection under the U.S. Bankruptcy Code or otherwise liquidate its assets, which may result in the failure of the Company’s stockholders to receive value for their ownership of its stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, School4Chauffeurs, Inc. All intercompany transactions and balances have been eliminated in consolidation.
Advertising policy
The Company does not spend any money on advertising since the highly concentrated and governmentally controlled nature of the power industry renders potential customers unresponsive to advertising messages.
Uses of estimates in the preparation of financial statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts in our financial statements of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Concentration of Credit Risk
The Company places its cash with a commercial financial institution and at times may exceed federally insured limits. Management believes that this institution is financially sound and accordingly, minimal credit risk exists. To date the Company sells its meters to a single customer who is required to pay within 30 days of acceptance of deliveries. As at December 31, 2014, one customer has an overdue balance of $72,420 outstanding for 18 months and accordingly, the Company reserved against this receivable in full.
Cash and cash equivalents
The Company considers all highly liquid debt investments with original maturities of three months or less when purchased to be cash equivalents. The carrying amounts approximate fair market value because of the short maturity.
The Company maintains cash balances at a commercial financial institution. Accounts at this institution are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company's accounts at may, at times, exceed the federally insured limits. The Company has not experienced any losses in such accounts.
Fair values of financial instruments
Pursuant to ASC 820, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 and 825 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 and 825 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
Stock-based compensation
We account for share-based compensation plans in accordance to the provisions of ASC 718, "Stock Compensation" (formerly referred to as SFAS No. 123(R)). We estimate the fair value of each option award on the date of grant using the Black-Scholes option-pricing model, using appropriate assumptions on volatility, expected term, and risk-free rate for the expected term of the option. The resulting compensation expense is recognized over the period during which an employee is required to provide service in exchange for the option grant. No compensation cost is recognized for equity instruments for which employees do not render the requisite service.
The Company from time to time issues common stock, stock options or common stock warrants to acquire services or goods from non-employees. Common stock, stock options and common stock warrants issued to other than employees or directors are recorded on the basis of their fair value at date of grant using the Black-Scholes model. Expense related to the options and warrants is recognized on a straight-line basis over the shorter of the period over which services are to be received or the vesting period.
Loss per Share
The Company computes net loss per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and warrants using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. The fully-diluted earnings per share is not reported where the result would be anti-dilutive.
Revenue recognition
Revenues are generally recognized upon shipment of product, which corresponds with the transfer of title. The Company requires payment by irrevocable letter of credit for all sales. Delivery is considered to occur when title to the products has passed to the customer, which typically occurs at physical delivery of the products from the Company’s contract manufacturers to a common carrier. The Company recognizes revenue when all of the following have occurred: persuasive evidence of an agreement with the customer exists; products are shipped and the customer takes delivery and assumes the risk of loss; the selling price is fixed or determinable; and collectability of the selling price is reasonably assured. The costs of shipping are billed to the customer upon shipment and are included in cost of sales. To date the Company sells its meters to a single customer who is required to pay within 30 days of acceptance of deliveries.
Comprehensive Loss
ASC 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As at December 31, 2014, the Company has no items that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.
Derivative Instruments
We measure derivative liabilities at fair value using the Black-Scholes option pricing model with assumptions that include the fair value of the stock underlying the derivative instrument, the exercise or conversion price of the derivative instrument, the risk free interest rate for a term comparable to the term of the derivative instrument and the volatility rate and dividend yield for our common stock. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The Company has not paid dividends to date and does not expect to pay dividends in the foreseeable future due to its substantial accumulated deficit. Accordingly, expected dividends yields are currently zero. Expected volatility is based principally on an analysis of historical volatilities of similarly situated companies in the marketplace. We also considered the use of the lattice or binomial models with respect to valuing derivative financial instruments that feature anti-dilution price protection; however, the differences in the results are insignificant due to the low probability of triggering price adjustments in such financial instruments.
Recent accounting pronouncements
From time to time new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on the Company’s accounting and reporting. The Company believes that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations and cash flows when implemented.
3. DEFERRED REVENUE
The Company sells its meters under the terms of a supply contract with its single customer that provides for certain advance payments. Any such payments received by the Company in advance of shipments are treated as deferred revenue which is then recognized as revenue when subsequently shipped and invoiced. Deferred revenue at December 31, 2014 and 2013 was $147,987 and $147,987, respectively.
4. WARRANTY RESERVE
Based on experience, the Company has determined that replacement of certain components in its meters may be necessary from time to time, and estimates and accrues for the potential cost of this component replacement. The last order received from its only customer included a credit allowance for past warranty claims which would be amortized ratably over the shipments made against that order. No shipments have been made in the 18 months ended December 31, 2014, and accordingly the unamortized balance of $25,393 remained unchanged at December 31, 2014 and 2013. Warranty reserves were included as accrued liabilities in the accompanying balance sheets.
5. NOTES PAYABLE - RELATED PARTIES
From time to time, the Company has had insufficient funds to make necessary payments. In these circumstances an officer of the Company has made advances in the form of promissory notes, which may be repaid or extended at any time, subject to availability of cash. These advances had no maturity date, no security, and no interest. The net balance outstanding under these notes was $58,500 and $11,000 at December 31, 2014 and December 31, 2013, respectively. Such advances are at the sole discretion of the officer and there is no undertaking or commitment to make any additional advances at any time.
6. NOTES PAYABLE
A)
CONVERTIBLE NOTES
Beginning July 1, 2010, the Company has raised funds through the issuance of unsecured convertible promissory notes for terms ranging from six months to two years at interest rates of 6% to 60% per annum, for a weighted average rate of 13.9% per annum, convertible into shares of common stock at discounts of up to 25% of the average closing price in the 30 days preceding conversion. As of November 2, 2013 the notes have all matured and the Company has attempted to repay the noteholders, however such attempts have been unsuccessful as the Company has been unable to locate the noteholders at the addresses provided, nor find them in an internet search. The Company has continued to accrue interest while it seeks an appropriate resolution.
As at December 31, 2014 and 2013, the Company had accrued $115,175 and $86,074, respectively of interest on the notes, which will be paid, or converted into common stock if and when the noteholders can be contacted. Based on the share price of $.002 at December 31, 2014, the Company would require approximately 98 million shares of common stock to convert the notes and accrued interest then outstanding.
The Company recognizes the underlying value of embedded derivatives in accordance with ASC 815-15-25-1. The value of the option for noteholders to convert their notes into shares of common stock is calculated and credited as a derivative liability for the duration of the notes, while an offsetting amount is classified as a discount to the principal value of the notes. Since no new convertible notes were issued during the years ended December 31, 2014 and 2013, no derivative value was added to the discount reserve or derivative liability in these years, respectively. The value of the debt discount is amortized as interest expense on a straight line basis over the life of the notes. As at December 31, 2014, the convertible notes had reached maturity, and the discount and derivative liability were fully amortized.
B)
TERM NOTES
The Company also has an unsecured term note for $25,000, due April 12, 2012. The interest rate on this note is 8% per annum and interest expense of $2,000 was accrued as at December 31, 2014 and 2013, respectively. The note has reached its maturity date, and the Company and noteholder have informally agreed to let the note roll over on a month to month basis with no change in terms.
7. INCOME TAXES
The Company recognizes deferred income tax liabilities and assets for the expected future tax consequences of events that have been recognized in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial statement and income tax purposes under enacted tax laws and rates. Components of the Company’s deferred tax liabilities and assets are as follows:
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the assessment, the Company has established a full valuation allowance against all of the deferred tax assets for every period because it is more likely than not that all of the deferred tax assets will not be realized. The Company is currently open to audit for all years because of its large net operating loss carry-forwards, however the Company is only open to additional tax assessments under the Internal Revenue Code statute of limitations for the years ended December 31, 2009 to present.
The Company does not currently have any ongoing tax examinations.
If there is a change in ownership, the ability to fully utilize the tax losses may be limited.
8. STOCKHOLDERS’ DEFICIENCY
Common stock and warrants
The Company has authorized shares of common and preferred stock for issuance at December 30, 2014, and December 31, 2013, as follows:
Stock Based Compensation
Stock Option Plan
On December 15, 2010, the Company established the 2010 Share Incentive Plan (the “ Plan”), which permits the granting of stock options (including incentive stock options within the meaning of Code Section 422 and non-qualified stock options), stock appreciation rights, restricted or unrestricted stock awards, phantom stock, performance awards, and other stock-based awards. The Plan is not registered under Form S-8, and the Company will not register thereunder.
Activity with respect to outstanding stock options under the Plan during 2014 and 2013 was as follows:
In 000s shares
Shares available for grant
# Options outstanding
Weighted average price
Balance December 31, 2011
8,000,000
7,000,000
$ 0.13
Granted
Exercised
-
-
Cancelled
-
-
Balance Dec 31, 2012
8,000,000
7,000,000
$ 0.13
Granted
Exercised
-
-
Cancelled
-
-
Balance Dec 31, 2013
8,000,000
7,000,000
$ 0.13
Granted
Exercised
-
-
Cancelled
-
-
Balance Dec 31, 2014
8,000,000
7,000,000
$ 0.13
Options exercisable as of
December 31, 2014
6,863,699
$ 0.13
The Company accounts for share-based compensation plans in accordance to the provisions of ASC 718, "Stock Compensation" (formerly referred to as SFAS No. 123(R)). We estimate the fair value of each option award on the date of grant using the Black-Scholes option-pricing model, and appropriate assumptions for volatility, the expected term of options and the risk-free rate for the expected term of the option.
During the years ended December 31, 2014 and 2013, the Company recorded $10,753 and $10,636 of stock-based compensation expense, respectively, related to stock options granted to employees, directors and consultants.
Warrants
The Company has issued to directors of the Company a total of 3,436,230 warrants to purchase shares of common stock at prices ranging from $.004 to $.11. The Company accounts for the compensation value embedded in the warrants in accordance to the provisions of ASC 718, "Stock Compensation" (formerly referred to as SFAS No. 123(R)). We estimate the fair value of each warrant award on the date of grant using the Black-Scholes option-pricing model, and appropriate assumptions for volatility, the expected term of options and the risk-free rate for the expected term of the option, and amortize the compensation expense on a straight-line basis over the directors’ service periods.
During the year ended December 31, 2014 and 2013, the Company did not record any equity-based compensation expense, respectively, since there were no warrants granted to employees, directors and consultants.
9. RELATED PARTY TRANSACTIONS
See Note 5 for a description of notes provided to the Company by an officer of the Company.
Payables to related parties as of December 31, 2014 and December 31, 2013 includes approximately $1,599,976 and $1,350,376, respectively, of accrued payroll due to our Chief Executive Officer and $120,468 and $85,833, respectively, of accrued consulting fees payable to our Chief Financial Officer. The provision for payroll accrual for the Chief Executive Officer was $249,600 and the amount of consulting fee provided for the Chief Financial Officer in the year ended December 31, 2014 was $34,635. No amounts were actually paid to either officer.
10. CONCENTRATIONS
There were no sales and no receivables in 2014. In 2013, 100% of our sales were made to a single customer, and 100% of our purchases came from a single vendor.
11. COMMITMENTS AND CONTINGENCIES
The Company has a judgment amount of $139,000 awarded against the Company for back rent, legal, and court costs. An amount of $38,000 is included in accrued liabilities being a management estimate of what the judgment could be settled for.
END NOTES TO FINANCIALS
ITEM 9.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A.
ITEM 9A.
CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
Based on an evaluation as of the date of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as required by Exchange Act Rule 13a-15. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate control over financial reporting (as defined in Rule 13a-15(f) promulgated under the Exchange Act. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2014. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework. Because of the fact that there are no full-time employees there is no ability to segregate duties and create independent reviews apart from the quarterly and annual audit reviews by our independent auditor. Accordingly, our management has concluded that, as of December 31, 2014, our internal control over financial reporting is not effective based on these criteria.
Changes in Internal Control and Financial Reporting
There has been no change in our internal control over financial reporting identified in connection with our evaluation we conducted of the effectiveness of our internal control over financial reporting as of December 31, 2014, that occurred during our fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.
ITEM 9B.
ITEM 9B.
OTHER INFORMATION.
None.
PART III
ITEM 10.
ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Identification of Directors and Executive Officers
The following table sets forth the names and ages of our current directors and executive officers and such positions with the Company held by them and the date they became a director or executive officer.
Name
Age
Position with the Company
Date of Appointment
Grant Jasmin
CEO, President, Secretary and Director
April 16, 2010
Simon Westbrook
CFO and Treasurer
August 3, 2011
Term of Office
Each director serves until our next annual meeting of the stockholders or until his or her successor is elected and qualified, unless he or she resigns earlier or is removed from office. The Board of Directors elects officers and their terms of office are at the discretion of the Board of Directors or until he or she resigns earlier or is removed from office.
Background and Business Experience
The business experience during the past five years of the person presently listed above as an Officer or Director of the Company is as follows:
Grant Jasmin - Mr. Jasmin holds both an MBA and a Law degree and has over 25 years of experience as an executive and an attorney working with high-tech companies in Silicon Valley. He has been responsible for dozens of publicly registered and private stock and debt offerings. Mr. Jasmin was a founder of audiohighway.com, which traded on the NASDAQ Small Cap Market, where he served as the Chief Operating Officer and a Director. Audiohighway.com specialized in the delivery of audio content over the Internet. Prior to audiohighway.com Grant was engaged in full time law practice representing Companies and Underwriters as well as various investor groups. Grant was Founder, President and CEO of Advanced Logic Systems, a manufacturer of plug in peripherals for the Apple II computer. Mr. Jasmin was appointed as an officer and a member of the Company’s Board of Directors on account of his prior experience.
Simon Westbrook - Mr. Westbrook was appointed Chief Financial Officer of Powrtec in July 2011. Since May 2009 he has specialized in providing contract CFO services to early stage technology companies. From May 2005 to May 2009 Mr. Westbrook served as Chief Financial Officer of Public Wireless, Inc, a Silicon Valley company specializing in wireless communication infrastructure and from 2004 to 2005 he was CFO of Nanoamp Solutions Inc. a memory IC company. Prior to joining Nanoamp, Mr. Westbrook was Chief Financial Officer at Sage, Inc. (NASDAQ: SAGI), a company specializing in flat panel displays. Before joining Sage, Mr. Westbrook held a number of senior financial positions at Creative Technology (NASDAQ: CREAF), a leading PC multimedia company, and Atari Corp (AMEX: ATC), the video game and home computer company both in the USA and overseas. He is a Chartered Accountant and holds a masters degree in Economics from Trinity College, Cambridge in the United Kingdom. Mr. Westbrook was appointed as an officer on account of his prior experience.
Identification of Significant Employees
As of the date of this Report we have 1 part-time employee. None of our employees are subject to a collective bargaining agreement and we believe that relations with our employees are very good. We may also use third party consultants to assist in the completion of various projects; third parties are instrumental to keep the development of projects on time and on budget. Our management expects to continue to use consultants, attorneys, and accountants as necessary, to complement services rendered by our employees.
Family Relationship
We currently do not have any officers or directors of our Company who are related to each other.
Involvement in Certain Legal Proceedings
During the past ten years no director, executive officer, promoter or control person of the Company has been involved in the following:
(1)
A petition under the Federal bankruptcy laws or any state insolvency law which was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;
(2)
Such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
(3)
Such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:
i.
Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
ii.
Engaging in any type of business practice; or
iii.
Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;
(4)
Such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (f)(3)(i) of this section, or to be associated with persons engaged in any such activity;
(5)
Such person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;
(6)
Such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
(7)
Such person was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:
i.
Any Federal or State securities or commodities law or regulation; or
ii.
Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; o
iii.
Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; o
(8)
Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
Audit Committee and Audit Committee Financial Expert
The Company does not have an audit committee or an audit committee financial expert (as defined in Item 407 of Regulation S-K) serving on its Board of Directors. All current members of the Board of Directors lack sufficient financial expertise for overseeing financial reporting responsibilities. The Company has not yet employed an audit committee financial expert on its Board due to the inability to attract such a person within the range of compensation terms affordable by the Company’s limited financial resources.
The Company intends to establish an audit committee of the board of directors, which will consist of independent directors. The audit committee’s duties will be to recommend to the Company’s board of directors the engagement of an independent registered public accounting firm to audit the Company’s financial statements and to review the Company’s accounting and auditing principles. The audit committee will review the scope, timing and fees for the annual audit and the results of audit examinations performed by the internal auditors and independent registered public accounting firm, including their recommendations to improve the system of accounting and internal controls. The audit committee will at all times be composed exclusively of directors who are, in the opinion of the Company’s board of directors, free from any relationship which would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial statements and generally accepted accounting principles.
Code of Ethics
We have adopted a Code of Ethics (the “Code”) that applies to our directors, officers and employees, including our chief executive officer and chief financial and accounting officer, respectively. A written copy of the Code is available on written request to the Company.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who beneficially own more than ten percent of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of change in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us under Rule 16a-3(e) during the year ended December 31, 2014, Forms 5 and any amendments thereto furnished to us with respect to the year ended December 31, 2014, and the representations made by the reporting persons to us, we believe that during the year ended December 31, 2014, our executive officers and directors and all persons who own more than ten percent of a registered class of our equity securities have complied with all Section 16(a) filing requirements.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The table set forth below summarizes the annual and long-term compensation for services in all capacities to us payable to our executive officers during the years ending December 31, 2014 and 2013.
a)
The salary payable to Mr. Jasmin was accrued in 2014 and 2013. Due to lack of resources nothing was paid in 2014, only $35,813 was paid in 2013, and the remaining unpaid balance is included in payables to related parties at December 31, 2014.
b)
Represents consulting fees for services provided in the years ended December 31, 2014 and 2013. Due to lack of resources, nothing was paid in 2014 or 2013, and the remaining unpaid balance is included in payables to related parties at December 31, 2014.
c)
Represents the value of options granted during the year. The value of the award will be expensed as compensation expense in 48 equal installments over the service period provided by Mr. Westbrook.
Narrative Disclosure to Summary Compensation Table
There are no employment contracts, compensatory plans or arrangements, including payments to be received from the Company with respect to any executive officer, that would result in payments to such person because of his or her resignation, retirement or other termination of employment with the Company, or its subsidiaries, any change in control, or a change in the person’s responsibilities following a change in control of the Company.
Outstanding Equity Awards at Fiscal Year-End
Except as described in the Summary Compensation table above, no officer of the Company received any equity awards, or holds exercisable or unexercisable options, as of the year ended December 31, 2014.
Long-Term Incentive Plans
There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers.
Compensation of Directors
Our directors receive no extra compensation for their service on our board of directors.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Security Ownership of Certain Beneficial Owners
The following table sets forth certain information concerning the number of shares of our common stock owned beneficially based on 102,780,377 issued and outstanding shares of common stock as of March 1, 2015 by: (i) each of our directors; (ii) each of our named executive officers; and (iii) each person or group known by us to beneficially own more than 5% of our outstanding shares of common stock. Unless otherwise indicated, the shareholders listed below possess sole voting and investment power with respect to the shares they own.
December 31, 2014
Name and Address of Beneficial Owner
Amount of Beneficial Ownership(1)
Percentage of Common Stock(2)
Grant Jasmin
15,055,600
14.6%
1669 Hollenbeck Avenue, Suite 142, Sunnyvale, CA 94087
Simon Westbrook
874,658
0.9%
1669 Hollenbeck Avenue, Suite 142, Sunnyvale, CA 94087
Directors and officers as a group
15,930,258
15.5%
John Heibel
19,461,600
18.9%
498 Glen Canyon Court, Santa Cruz, CA 95060
NESA A/S
Nesa Alle 1, 2820 Gentofie, Denmark
10,822,640
10.5%
Sidoh Mal Air Products
5,377,000
5.2%
745 Camden Ave, Ste D, Campbell, CA 95008
Total Affiliate shares
51,591,498
50.2%
Non Affiliate shares
51,188,879
49.8%
Total shares OS
102,780,377
100%
1.
The number and percentage of shares beneficially owned is determined under rules of the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and also any shares which the individual has the right to acquire within 60 days through the exercise of any stock option or other right. The persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable and the information contained in the footnotes to this table.
2.
Applicable percentage of ownership is based on 102,780,377 shares of common stock outstanding on March 1, 2015. Our common stock is our only issued and outstanding class of securities eligible to vote.
3.
Beneficial ownership for Mr. Westbrook consists of 874,658 options to purchase common stock, which will be vested and exercisable within 60 days of December 31, 2014.
4.
Rene Vedoe, a resident of Denmark, has dispositive and voting power over the shares of NESA A/S. DONG Energy is the beneficial owner of these shares.
5.
Subodh Jain, a US resident, has dispositive and voting power over the shares of Sidoh Mal Air products.
Changes in Control
There were no changes of control during the year ended December 31, 2014.
Securities Authorized for Issuance Under Equity Compensation Plans
On December 15, 2010, the Company established the 2010 Share Incentive Plan (the “Plan”), which permits the granting of stock options (including incentive stock options within the meaning of Code Section 422 and non-qualified stock options), stock appreciation rights, restricted or unrestricted stock awards, phantom stock, performance awards, and other stock-based awards. The Plan is not registered under Form S-8, and the Company will not register thereunder.
ITEM 13.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Director Independence
For purposes of determining director independence, we have applied the definitions set out in NASDAQ Rule 5605(a)(2). The OTCBB on which shares of Common Stock are quoted does not have any director independence requirements. The NASDAQ definition of “Independent Director” means a person other than an Executive Officer or employee of the Company or any other individual having a relationship which, in the opinion of the Company's Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. According to the NASDAQ definition, Grant Jasmin is not an independent director because he is an executive officer of the Company.
Related Party Transactions
From time to time, the Company has had insufficient funds to make necessary payments. In these circumstances an officer of the Company has made advances in the form of promissory notes, which may be repaid or extended at any time, subject to availability of cash. The net balance outstanding under this note was $58,500 and $11,000 at December 31, 2014 and 2013, respectively. Such advances are at the sole discretion of the officer and there is no undertaking or commitment to make any additional advances at any time.
Payables to related parties as of December 31, 2014 and December 31, 2013 includes $1,599,976 and $1,350,376, respectively, of accrued payroll liabilities to our Chief Executive Officer and $120,468 and $85,833, respectively, of accrued consulting fees payable to our current Chief Financial Officer.
Other than the foregoing transactions, none of the directors or executive officers of the Company, nor any person who owned of record or was known to own beneficially more than 5% of the Company’s outstanding shares of its Common Stock, nor any associate or affiliate of such persons or companies, has any material interest, direct or indirect, in any transaction that has occurred during the past fiscal year, or in any proposed transaction, which has materially affected or will affect the Company.
With regard to any future related party transaction, we plan to fully disclose any and all related party transactions in the following manor:
·
Disclosing such transactions in reports where required;
·
Disclosing in any and all filings with the SEC, where required;
·
Obtaining disinterested directors consent; and
·
Obtaining shareholder consent where required.
Review, Approval or Ratification of Transactions with Related Persons
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 14.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES.
Audit Fees
During the fiscal years ended December 31, 2014 and 2013, we incurred $13,625 and $12,000, respectively, in fees to our principal independent accountants for professional services rendered in connection with the audit and reviews of our financial statements for fiscal years then ended.
Audit-Related Fees
No audit related services were provided and no fees billed during the fiscal years ended December 31, 2014 and 2013 by our principal independent accountants.
Tax Fees
No tax related services were provided and no fees billed during the fiscal years ended December 31, 2014 and 2013 by our principal independent accountants.
All Other Fees
No other services were provided and no other fees were billed during the fiscal years ended December 31, 2014 and 2013 for other products and services provided by our principal independent accountants.
PART IV
ITEM 15.
ITEM 15.
EXHIBITS.
(a)
Exhibits
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
POWRTEC INTERNATIONAL CORP.
Dated: March 19, 2015
/s/ Grant Jasmin
By: Grant Jasmin
Its: President, Chief Executive Officer, and Director
Dated: March 19, 2015
/s/ Simon Westbrook
By: Simon Westbrook
Its: Chief Financial Officer and Principal Accounting Officer
Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Dated: March 19, 2015
/s/ Grant Jasmin
Grant Jasmin, President, Chief Executive Officer, Secretary and Director
Dated: March 19, 2015
/s/ Simon Westbrook
By: Simon Westbrook
Its: Chief Financial Officer and Principal Accounting Officer