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EX-32 - EX 32.1 SECTION 906 CERTIFICATIONS - POWRTEC CORP | powrtec10q093010ex321.htm |
EX-32 - EX 32.2 SECTION 906 CERTIFICATIONS - POWRTEC CORP | powrtec10q093010ex322.htm |
EX-31 - EX 31.1 SECTION 302 CERTIFICATIONS - POWRTEC CORP | powrtec10q093010ex311.htm |
EX-31 - EX 31.2 SECTION 302 CERTIFICATIONS - POWRTEC CORP | powrtec10q093010ex312.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X . QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010
. TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______ to _______
Commission File Number 333-141406
POWRtec International Corp.
(Name of small business issuer in its charter)
Delaware |
| 20-5478196 |
(State of incorporation) |
| (I.R.S. Employer Identification No.) |
745 Camden Ave., Suite D
Campbell, CA 95008
(Address of principal executive offices)
(408) 374-1900
(Registrants telephone number)
with a copy to:
Carrillo Huettel, LLP
3033 Fifth Ave. Suite 201
San Diego, CA 92103
Telephone (619) 399-3090
Facsimile (619) 399-0120
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No .
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes . No .No (Not required)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | . | Accelerated filer | . |
Non-accelerated filer | . (Do not check if a smaller reporting company) | Smaller reporting company | X . |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes . No X .
As of November 19, 2010 there were 100,162,540 shares of the registrants $.001 par value common stock issued and outstanding.
POWRTEC INTERNATIONAL CORP.*
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION |
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Item 1. Financial Statements |
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Condensed Consolidated Balance Sheets as of September 30, 2010 (Unaudited) and December 31, 2009 | 3 |
Condensed Consolidated Statement of Operations for the Three and Nine Months Ended September 30, 2010 and 2009 | 4 |
Condensed Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2010 and 2009 | 5 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | 6 |
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations | 15 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 17 |
Item 4T. Controls and Procedures | 18 |
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PART II Other Information |
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Item 1. Legal Proceedings | 18 |
Item 1A. Risk Factors | 18 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 18 |
Item 3. Defaults Upon Senior Securities | 19 |
Item 4. [Removed and Reserved] | 19 |
Item 5. Other Information | 19 |
Item 6. Exhibits | 19 |
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SIGNATURES | 20 |
Special Note Regarding Forward-Looking Statements
Information included in this Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). This information may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of POWRtec International Corp. (the Company), to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words may, will, should, expect, anticipate, estimate, believe, intend, or project or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that these projections included in these forward-looking statements will come to pass. Actual results of the Company could differ materially from those expressed or implied by the forward-looking statements as a result of various factors. Except as required by applicable laws, the Company has no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
*Please note that throughout this Quarterly Report, except as otherwise indicated by the context, references in this report to Company, POWRtec, we, us and our are references to POWRtec International Corp.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
POWRTEC INTERNATIONAL CORP.
(CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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| September 30, 2010 |
| December 31, 2009 |
Assets |
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Current assets: |
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Cash and cash equivalents | $ | 563 | $ | 694 |
Prepaid expenses and other current assets |
| 25,965 |
| 298,821 |
Total current assets |
| 26,027 |
| 299,515 |
Property and equipment, net |
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| 3,797 |
Deposits and other non-current assets |
| 13,255 |
| 13.255 |
Total assets | $ | 39,282 | $ | 316,567 |
Liabilities and Stockholders Deficiency |
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Current liabilities: |
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Accounts payable | $ | 574,815 | $ | 371,769 |
Accrued payroll |
| 1,585,798 |
| 1.306,808 |
Accrued liabilities |
| 90,212 |
| 26.502 |
Customer deposits |
| 122,740 |
| 122,740 |
Warranty reserve |
| 55,000 |
| 55,000 |
Notes payable-related party |
| 81,600 |
| 31,000 |
Notes payable, net |
| 59,568 |
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Total current liabilities |
| 2,569,734 |
| 1,913,819 |
Stockholders deficiency: |
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Preferred stock, $0.001 par value 5,000,000 shares authorized 0 shares issued and outstanding |
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Common stock, $0.001 par value 300,000,000 shares authorized 100,162,540 and 98,000,000 shares issued and outstanding at June 30, 2010 and December 31, 2009 |
| 100,000 |
| 98,000 |
Additional paid-in capital |
| 3,129,112 |
| 3,003,638 |
Accumulated deficit |
| (5,759,564) |
| (4,698,890) |
Total stockholders deficiency |
| (2,530,451) |
| (1,597,252) |
Total liabilities and stockholders deficiency | $ | 39,282 | $ | 316,567 |
See accompanying notes to condensed consolidated financial statements.
3
POWRTEC INTERNATIONAL CORP.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
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| Three Months Ended |
| Nine Months Ended | ||||
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| September 30, 2010 |
| September 30, 2009 |
| September 30, 2010 |
| September 30, 2009 |
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Revenue | $ | | $ | 262,197 | $ | | $ | 1,766,855 |
Cost of goods sold |
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| 197,563 |
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| 1,002,262 |
Gross Profit |
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| 64,634 |
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| 764,592 |
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Operating expenses: |
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Selling and marketing |
| 4,661 |
| 29,520 |
| 5,016 |
| 224,135 |
Research and development |
| 45,467 |
| 62,166 |
| 136,130 |
| 280,077 |
General and administrative |
| 233,926 |
| 125,769 |
| 905,812 |
| 641,688 |
Total operating expenses |
| 284,053 |
| 217,455 |
| 1,046,959 |
| 1,145,901 |
Operating loss |
| (284,053) |
| (152,822) |
| (1,046,959) |
| (381,309) |
Interest expense |
| 12,108 |
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| 13,715 |
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Net loss | $ | (296,141) | $ | (152,822) | $ | (1,060,674) | $ | (381,309) |
Basic and diluted loss per share of common stock | $ | (0.00) | $ | (0.00) | $ | (0.01) | $ | (0.00) |
Weighted average number of common shares outstanding used in basic and diluted loss per share |
| 100,047,594 |
| 98,000,000 |
| 99,045,517 |
| 98,000,000 |
4
POWRTEC INTERNATIONAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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| Nine Months Ended, | ||
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| September 30, 2010 |
| September 30, 2009 |
Operating activities: |
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Net loss | $ | (1,064,674) | $ | (381,309) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation |
| 3,797 |
| 14,573 |
Non-cash legal expense |
| 62,999 |
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Non-cash consulting expense |
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| 84,504 |
Stock based compensation expense |
| 41,590 |
| 27,809 |
Amortization of discount on notes payable |
| 5,504 |
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Changes in operating assets and liabilities |
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Accounts receivable |
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| 93,165 |
Prepaid expenses and other current assets |
| 272,856 |
| (205,441) |
Accounts payable |
| 203,047 |
| 154,224 |
Accrued payroll |
| 278,990 |
| 307,799 |
Accrued liabilities |
| 63,709 |
| 1,553 |
Reserve for upgrades |
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| (83,151) |
Warranty reserve |
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| 55,000 |
Customer deposits |
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| (117,600) |
Net cash used in operating activities |
| (128,212) |
| (48,874) |
Financing activities: |
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Process from issuance of notes payable |
| 59,658 |
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Beneficial conversion feature of bridge loans |
| 17,381 |
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Proceeds from stockholder loans |
| 50,600 |
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Net cash provided by financing activities |
| 127,549 |
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Net increase (decrease) in cash and cash equivalents |
| (633) |
| (48,874) |
Cash and cash equivalentsbeginning of period |
| 694 |
| 49,925 |
Cash and cash equivalentsend of period | $ | 61 | $ | 1,051 |
Supplemental Disclosures of Cash Flow Information: |
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Cash paid for interest | $ | | $ | |
Cash paid for taxes | $ | 800 | $ | 800 |
See accompanying notes to condensed consolidated financial statements
5
POWRTEC INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010 and 2009
(Unaudited)
1. OVERVIEW
Business description
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 SFCFs 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 will increase from 2,500,001 prior to the forward split to 100,000,040 following the forward split.
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 $5.8 million and has used cash in operations of approximately $3.0 million since inception. This raises substantial doubt about the Companys ability to continue as a going concern. The ability to continue as a going concern is dependent on the Companys 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.
In February 2006 the Company entered into Stock Purchase Agreements through December 31, 2006, pursuant to which it raised $2.8 million net of transaction fees. Even though the Company raised this capital it believes it will need additional funds to meet its anticipated cash needs for working capital and capital expenditures for the next year. Because the Company has net losses since inception and does not expect to be profitable until 2011 or later, it will most likely be required to raise these additional funds through convertible debt, debt or equity financings or by selling its assets.
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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 Companys 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 Companys 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 Companys stockholders to receive value for their ownership of its stock.
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair presentation, have been included, Operating results for the nine months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. For further information, refer to the financial statements and footnotes thereto for the year ended December 31, 2009 and its Form 8-K filed on May 17, 2010.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 ("GAAP") requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates were used for the valuation of the Companys stock, as the Companys stock was not trading as of September 30, 2010 and the valuation of equity and equity-linked instruments such as options and warrants using the Black-Scholes model.
Concentration of Credit Risk
The Company places its cash with two commercial financial institutions and at times may exceed federally insured limits. Management believes that these institutions are financially sound and accordingly, minimal credit risk exists. To date the Company sells its meters to a single customer who pays for the meters using letters of credit and there have been no credit losses.
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 various commercial financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company's accounts at these institutions 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 instruments 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.
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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.
The Companys financial instruments consist principally of cash, accounts payable, and amounts due to related parties. Pursuant to ASC 820 and 825, the fair value of our cash is determined based on Level 1 inputs, which consist of quoted prices in active markets for identical assets. We believe that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
Property and equipment
The Company records property and equipment at cost and calculates depreciation using the straight-line method over the estimated useful life of the assets, which is estimated to be five years. As of September 30, 2010 and December 31, 2009, the Companys property and equipment consisted of the following:
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| September 30 |
| December 31, | |
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| 2010 |
| 2009 | |
Computer hardware, software and equipment | $ | 75,943 | $ | 75,943 | |
Less accumulated depreciation |
| (75,943) |
| (72,146) | |
| $ | 0 | $ | 3,797 |
Impairment of long-lived assets
In accordance with the provisions of ASC 360, Impairment or Disposal of Long-lived Assets, formerly SFAS 144, the Company reviews long-lived assets, including property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. Impairment, if any, is measured as the amount by which the carrying value of a long-lived asset exceeds its fair value. Through September 30, 2010, there have been no such impairment losses.
Research and development costs
Research and development costs are charged to operations as incurred. Research and development expenses consist primarily of expense of research and development staff, materials and supplies for prototype meter development, and the cost of certain contractors involved in the development process.
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 the assumptions noted in the table below. Expected volatility was based on the historical volatility of a peer group of publicly traded companies. The expected term of options was based upon the simplified method provided by the SEC in Staff Accounting Bulletin No, 107, Share-Based Payments, and (SAB 107). The risk-free rate for the expected term of the option is based on the U.S. Treasury Constant Maturity rate.
That cost is recognized over the period during which an employee is required to provide service in exchange for the award, the requisite service period. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. The grant date fair value of employee share options and similar instruments is estimated using the Black-Scholes model adjusted for the unique characteristics of those instruments.
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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, which is measured as of the valuation date the stock options or common stock warrants are fair valued using the Black-Scholes model on the basis of the market price of the underlying common stock on the valuation date, which for options and warrants related to contracts that have substantial disincentives to non-performance is the date of the contract, and for all other contracts is the vesting date. 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. Where expense must be recognized prior to a valuation date, the expense is computed under the Black-Scholes option-pricing model on the basis of the market price of the underlying common stock at the end of the period, and any subsequent changes in the market price of the underlying common stock through the valuation date is reflected in the expense recorded in the subsequent period in which that change occurs.
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. Loss per share is as follows (in thousands, except per share data).
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| Three Months Ended |
| Six Months Ended | ||||
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| September 30, 2010 |
| September 30, 2009 |
| September 30, 2010 |
| September 30, 2009 |
Basic and Diluted |
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Net loss allocable to common stockholders | $ | 296 |
| 153 |
| 1,061 |
| 381 |
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Basic and diluted loss per share allocable to common stockholders | $ | 0.00 |
| 0.00 |
| 0.01 |
| 0.00 |
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Weighted average shares used to compute basic and diluted loss per share allocable to common stockholders |
| 100,047 |
| 98,000 |
| 99,046 |
| 98,000 |
Outstanding common stock equivalents that are excluded from the calculation of diluted net loss per share, as their effect is anti-dilutive, were approximately 8.0 million shares for the three and nine month periods ended September 30, 2010. Outstanding common stock equivalents that are excluded from the calculation of diluted net loss per share, as their effect is anti-dilutive, were approximately 4.9 million shares for the three and nine month periods ended September 30, 2009.
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 Companys 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. The Company has not established an allowance for doubtful accounts as shipments are paid by customers via a letter of credit
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 September 30, 2010, the Company has no items that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.
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Recent accounting standards
In January 2010, the FASB issued an amendment to ASC 820, Fair Value Measurements and Disclosure, to require reporting entities to separately disclose the amounts and business rationale for significant transfers in and out of Level 1 and Level 2 fair value measurements and separately present information regarding purchase, sale, issuance, and settlement of Level 3 fair value measures on a gross basis. This standard has been implemented in the Companys financial statements for the month periods ended 30, 2010 and 2009 and did not have a material impact on its financial position and its results of operations as the Companys financial instruments consist principally of cash, accounts payable, and amounts due to related parties. Pursuant to ASC 820 and 825, the fair value of our cash is determined based on Level 1 inputs, which consist of quoted prices in active markets for identical assets. We believe that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
In January 2010, the FASB issued an amendment to ASC 505, Equity, where entities that declare dividends to shareholders that may be paid in cash or shares at the election of the shareholders are considered to be a share issuance that is reflected prospectively in EPS, and is not accounted for as a stock dividend. This standard is effective for interim and annual periods ending on or after December 15, 2009 and is to be applied on a retrospective basis. The adoption of this standard has been reflected in the Companys earnings per share calculation for the three and six month periods ended June 30, 2010 and 2009 to reflect the 40 for one forward split of common shares.
The Company does not believe that any other recently issued, but not yet effective accounting standards will have a material effect on the Companys consolidated financial position, results of operations or cash flows.
3. CUSTOMER DEPOSITS
In October 2006, the Company and Dong Energy (Dong) signed the revised Supplement to Framework, valid for eighteen months for the Company to sell a maximum 206,000 meters to Dong. As part of this agreement, Dong paid a $600,000 deposit which is recorded as revenue of $3.00 per unit upon shipment. As of September 30, 2010 and December 31, 2009, customer deposits were $122,740. There are approximately 40,000 units remaining to be shipped under this deposit arrangement.
4. WARRANTY RESERVE
The Company has determined that replacement of certain components in its meters may be necessary and estimates the potential cost of this component replacement to be about $10 per meter and would not exceed $55,000 in total. As of September 30, 2010 and December 31, 2009, warranty reserves were $50,000.
5. NOTES PAYABLE RELATED PARTIES
In 2004, the Company entered into a series of unsecured noninterest bearing promissory notes with an officer for which $3,000 of this note is still outstanding. Since 2006 this officer has loaned the company an additional $13,000 in 2006, $14,000 in 2008, $1,000 in 2009, and $50,600 in the first nine months of 2010. There was a remaining balance of $81,600 and $31,000 for these related party notes to this officer as of September 30, 2010 and 2009, respectively. The officer has not made a formal demand for repayment of these notes payable.
6. NOTES PAYABLE
On July 1, 2010, the Company issued a drawdown convertible promissory note (the drawdown note) to an investor, in the principal amount of $50,000, at an interest rate of eight percent (8%) per annum, with advances available under the drawdown note in amounts of $25,000. The drawdown note can be prepaid upon five days notice, is payable on the one year anniversary of the note on July 1, 2011, and all or a portion of the principal and interest is convertible upon demand into fully paid and non-assessable shares of the Companys common stock at 75% of the average closing price of the Companys common stock during the thirty days immediately preceding the conversion date. The Company requested $50,000 and received proceeds in the amount of $25,000 from the drawdown note on July 7, 2010 and additional proceeds of $25,000 on August 25, 2010. The conversion option was recorded as a discount on notes payable of $17,381 was valued using the Black- Scholes Method using a risk free rate of .053%, volatility rate of 21.05%, and a forfeiture rate of 0%.and expensed over the one year life of the of the drawdown note. Interest expense of $2,173 were recorded in 2010 related to this conversion option. Additional interest expense of $672 was accrued as of September 30, 2010 related to the eight percent (8%) per annum payable under the drawdown note.
10
On July 9, 2010, the Company issued a subordinated promissory note (subordinated note) to an investor, in the principal amount of $25,000, at an interest rate of sixty percent (60%) per annum. The subordinated note is payable on the January 20, 2011 and is subordinate to all present and future borrowings of the Company, and includes additional consideration in the amount of 12,500 unregistered common shares. In the event the Company fails to repay principal and interest on or before January 9, 2011, the Company will issue shares of its unregistered common stock at the rate of $0.50 per share up to 65,000 shares if no cash payments have been made by January 9, 2011. The Company received proceeds in the amount of $25,000 from the subordinated note on July 9, 2010. The conversion option was recorded as a discount on notes payable of $255 and was valued using the Black- Scholes Method using a risk free rate of .062%, volatility rate of 21.05%, and a forfeiture rate of 0%.and expensed over the half year life of the of the drawdown note. Interest expense of $32 was recorded in 2010 related to this conversion option. Additional interest expense of $3,250 was accrued as of September 30, 2010 related to the sixty percent (60%) per annum payable under the drawdown note. The 12,500 additional shares issued as additional consideration were valued at $5,249 using the Black- Scholes Method using a risk free rate of .062%, volatility rate of 21.05%, and a forfeiture rate of 0%.and expensed in the amount of $5,249 in the quarter ending September 30. 2010 as interest expense.
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 Companys deferred tax liabilities and assets are as follows:
Deferred tax assets: |
|
|
Net operating loss carry forwards | $ | 5,760,000 |
Less compensation accruals |
| (1,308,000) |
Less valuation allowance |
| (4,452,000) |
Net deferred tax asset | $ | - |
A valuation allowance for the deferred tax asset has been provided, as it is more likely that not that this asset will not be realized.
8. STOCKHOLDERS DEFICIENCY
Common stock and warrants
On November 1, 2007, POWRtec issued warrants to purchase 80,000 shares of its common stock to two members of its Board of Directors at an exercise price of approximately $7.00 per share. The warrants were fully vested and exercisable upon issuance and expire five years from the date of warrant issuance. The stock price and exercise price were both $7 based on the $7 February 15, 2006 common share purchase price. The warrants were valued at $153,481 using the Black- Scholes Method using a risk free rate of 4.25%, volatility rate of 21.05%, and a forfeiture rate of 0%.and expensed over the five year life of the warrant. Stock-based compensation of $23,022 and $ 30,696 were recorded in both 2010 and 2009 related to these warrants. Management intends to re-issue the above warrants in POWRtec International Corporation in the fourth quarter of 2010.
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 July 1, 2010, the Company issued a drawdown convertible promissory note (the drawdown note) to an investor, in the principal amount of $50,000, at an interest rate of eight percent (8%) per annum, with advances available under the drawdown note in amounts of $25,000. The drawdown note can be prepaid upon five days notice, is payable on the one year anniversary of the note on July 1, 2011, and all or a portion of the principal and interest is convertible upon demand into fully paid and non-assessable shares of the Companys common stock at 75% of the average closing price of the Companys common stock during the thirty days immediately preceding the conversion date.
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On July 9, 2010, the Company issued a subordinated promissory note (subordinated note) to an investor, in the principal amount of $25,000, at an interest rate of sixty percent (60%) per annum. The subordinated note is payable on the January 20, 2011 and is subordinate to all present and future borrowings of the Company, and includes additional consideration in the amount of 12,500 unregistered common shares. In the event the Company fails to repay principal and interest on or before January 9, 2011, the Company will issue shares of its unregistered common stock at the rate of $0.50 per share up to 65,000 shares if no cash payments have been made by January 9, 2011. The Company received proceeds in the amount of $25,000 from the subordinated note on July 9, 2010.
On August 30, 2010 , the Company granted Mr. Carrillo and Mr. Huettel of Carrillo Huettel, LLP, the Companys legal counsel, 75,000 shares each of the Companys Common Stock at $0.42 per share for legal services rendered to the Company. The 150,000 shares were expensed in the amount of $62,999 in the quarter ending September 30. 2010 as legal expense.
The Company has reserved shares of common and preferred stock for issuance at September 30, 2010, and December 31, 2009, as follows:
| September 30, |
| December 31, |
| 2010 |
| 2009 |
Common stock | 300,000,000 |
| 300,000,000 |
|
|
|
|
Preferred stock | 5,000,000 |
| 5,000,000 |
Stock Based Compensation
Stock Option Plan
In 2004, the POWRtec Board of Directors adopted the 2004 Incentive Stock Plan (the "Plan"), under which shares of common stock are reserved for issuance to employees, management and consultants of the Company. The options under this plan will continue to vest under the terms of the Plan.
Under the Plan, either incentive or nonqualified options to purchase the Company's common stock may be granted to full-time employees, directors, and consultants at prices not lower than 100% of the fair value at the date of grant as determined by the Board of Directors (85% if the nonqualified option is granted to a service provider). If the person to whom options are granted is a 10% shareholder, then the exercise price per share shall not be less than 110% of the fair value at the date of grant as determined by the board of directors. Options granted under the Plan are exercisable at such times and conditions as determined by the board to directors, but the term of the option and the right of exercise may not exceed ten years from the date of grant. The stock options generally vest ratably over a two to four-year period, with pro rata cliff vesting after one year and ratable thereafter. Unexercised options expire three months, or within the period specified in the option agreement, after termination of the employment or consulting relationship with the Company.
12
Activity with respect to outstanding stock options for the first nine months of 2010 was as follows as presented based on the 0.940976 Exchange Agreement conversion ratio and the May 20, 2010 40 (forty) for one forward split of the issued and outstanding common shares:
|
| Shares |
|
|
| Weighted |
|
| Available |
| Number of |
| Average |
|
| For |
| Options |
| Exercise |
In thousands of shares |
| Grant |
| Outstanding |
| Price |
BALANCE DECEMBER 31, 2009 |
| 3,764 |
| 5,641 | $ | 0.14 |
Granted |
| (1,317) |
| 1,317 |
| 0.19 |
Exercised |
| - |
| - |
| - |
Cancelled |
| - |
| - |
| - |
BALANCE September 30, 2010 |
| 2,447 |
| 6,963 | $ | 0.15 |
Options exercisable as of: |
|
|
|
|
|
|
December 31, 2009 |
| 2,004 |
| - |
| - |
September 30, 2010 |
| 4,761 |
| - |
| - |
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 the assumptions noted in the table below. Expected volatility was based on the historical volatility of a peer group of publicly traded companies. The expected term of options was based upon the simplified method provided by the SEC in Staff Accounting Bulletin No, 107, Share-Based Payments, and (SAB 107). The risk-free rate for the expected term of the option is based on the U.S. Treasury Constant Maturity rate.
During the nine months ended September 30, 2010, the exercise prices of all options granted were equal to fair market value on the dates of grant based on the closing price of the last sales of common stock in 2006 for $7.00 per share on a pre-exchange and pre split basis. 35,000 pre-conversion shares were granted to a consultant to the Company. Common stock options issued to the non-employee consultant were recorded on the basis of fair value. The fair value of this non-employee consultant option for 35,000 pre-exchange and pre-split common shares at $7.00 per share was $36,971 using the Black-Scholes model and is being expensed during the consultants two year service period in 2009 and 2010. This represents an option grant of 1,317,367 shares on a post share exchange and 40 for one split basis at an option price of $0.186 per common share.
During each of the nine month periods ended September 30, 2010 and 2009, the Company recorded $41,591 and $121,473 stock-based compensation expense, respectively, related to stock options and warrants granted to employees, directors and consultants. For nine months ended September 30, 2010, the Company recorded stock based compensation as $27,726 of general and administrative expenses and $13,864 of research and development expense. For the nine months ended September 30, 2009, the Company recorded stock based compensation as $121,473 of general and administrative expenses and $-0- of research and development expense.
During each of the three month periods ended September 30, 2010 and 2009, the Company recorded $13,864 and $9,269 of stock-based compensation expense, respectively, related to stock options and warrants granted to employees, directors, and consultants. For the three months ended September 30, 2010, the Company recorded stock based compensation as $9,242 of general and administrative expenses and $4,621 of research and development expense. For the three months ended September 30, 2009, the Company recorded stock based compensation as $9,269 of general and administrative expenses and $-0- of research and development expense. The weighted average grant date fair value of each option grant on the date of grant was calculated using the Black Scholes model with following assumptions for the period from January 2, 2004 (Inception) to December 31, 2004, the years ended December 31, 2009 and 2007, and the three and nine month periods ended September 30, 2010. No options were granted in 2005, 2006, and 2008.
| 2004 | 2007 | 2009 | 2010 |
Risk-free interest rate | 3.4% | 4.25% | 4.03% | 4.03% |
Expected life (in years) | 4 | 4 | 2 | 2 |
Dividend yield | 0% | 0% | 0% | 0% |
Volatility | 23.73% | 21.05% | 20.03% | 20.03% |
Forfeiture rate | 0% | 0% | 0% | 0% |
|
|
|
|
|
13
On August 19, the Company established the 2010 Share Incentive Plan (the Plan). The purpose of the Plan is to advance the interests of the Corporation by providing directors, selected employees and consultants of the Corporation with the opportunity to acquire shares of Common Stock. The Plan 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 has authorized 1,500,000 shares of Common Stock issuable pursuant to all Awards granted under the Plan. This plan will be amended to authorize enough additional shares to include the options of the PowerTec 2004 Share Incentive Plan.
9. RELATED PARTY TRANSACTIONS
See Note 8 for a description of the stock sale agreements entered into between the Company and certain officers, individuals, and customers.
See Notes 5 for a description of loans provided to the Company by certain officers of the Company.
Accounts payable as of September 30, 2010 and December 30, 2009 includes approximately $331,000 and $140,000 of accounts payable for the consulting services of our Chief Financial Officer.
Accrued payroll as of September 30, 2010 and December 30, 2009 includes approximately $613,000 and $488,000 of accrued payroll liabilities to our Chief Executive Officer.
10. COMMITMENTS AND CONTINGENCIES
The Company was committed under the second extension of an operating lease for office space which expired at the end of February 2010 at a monthly rental of $10,494 plus certain operating costs. The Company rented this office space on a month to month basis at the same monthly rental rate of $10,494 plus certain operating costs and owes approximately $114,000 of back rent as of September 30, 2010. The Company is in the process of relocating to a smaller facility Rental expense approximated $76,000 and $64,000 for nine months ended June, 2010 and 2009. Rental expense approximated $38,000 for each of the three month periods ended June, 2010 and 2009.
11. SUBSEQUENT EVENTS
There were no subsequent events.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis or Plan of Operation (MD&A) contains forward-looking statements that involve known and unknown risks, significant uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, or implied, by those forward-looking statements. You can identify forward-looking statements by the use of the words may, will, should, could, expects, plans, anticipates, believes, estimates, predicts, intends, potential, proposed, or continue or the negative of those terms. These statements are only predictions. In evaluating these statements, you should specifically consider various factors, including the risk factors outlined below. These factors may cause our actual results to differ materially from any forward-looking statements. Although we believe that the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.
Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
The following analysis is of selected statement of operations data from our unaudited financial statements for the nine months ended September 30, 2010 and 2009.
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 Current Report on Form 10Q.
Revenues
Revenues decreased approximately $262,000, or 100%, from approximately $262,000 during the three months ended September 30, 2009, to $-0- during the three months ended September 30, 2010, due to our customer not ordering any meters due to a slowing in meter deployment by our customer as they slowly began to install meters with a component modification which they developed and accepted in late 2009.
Revenues decreased approximately $1.8 million, or 100%, from approximately $1.8 million during the nine months ended September 30, 2009, to $-0- during the nine months ended September 30, 2010, due to our customer not ordering any meters during this period due to a slowing in meter deployment by our customer as they slowly began to install meters with a component modification which they developed and accepted in late 2009.
Cost of Goods Sold
Cost of Goods Sold decreased approximately $198,000, or 100%, from approximately $198,000 during the nine months ended September 30, 2009, to $-0- during the nine months ended September 30, 2010 as we did not manufacture or sell any meters to customers during this period.
Cost of Goods Sold decreased approximately $1.0 million, or 100%, from approximately $1.0 million during the nine months ended September 30, 2009, to $-0- during the nine months ended September 30, 2010 as we did not manufacture or sell any meters to customers during this period.
Operating Expenses
Selling and Marketing
Selling and Marketing expense decreased approximately $25,000, or 85%, from approximately $30,000 during the three months ended September 30, 2009, to approximately $5,000 during the three months ended September 30, 2010 as we did not sell any meters to customers during this period. Selling and Marketing expenses in the three months ended September 30, 2009 consisted of approximately $30,000 in sales commissions. Selling and Marketing expenses in the three months ended September 30, 2010 consisted primarily of approximately $4,000 in sales related travel expenses. Selling and Marketing expense decreased approximately $219,000, or 100%, from approximately $224,000 during the nine months ended September 30, 2009, to $5,000 during the nine months ended September 30, 2010 as we did not sell any meters to customers during this period. Selling expenses in the nine months ended September 30, 2009 consisted of approximately $202,000 in sales commissions and approximately $22,000 of sales related travel expenses.
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Research and Development Costs
Research and development costs decreased approximately $17,000, or 27%, from approximately $62,000 during the three months ended September 30, 2010, to approximately $45,000 during the three months ended September 30, 2010, due to an approximately $21,000 decrease in research related payroll expenses partially offset by an approximately $5,000 increase in stock compensation expense.
Research and development costs decreased approximately 144,000, or 51%, from approximately $280,000 during the nine months ended September 30, 2010, to approximately $91,000 during the nine months ended September 30, 2010, due to an approximately $136,000 decrease in research related payroll expenses partially offset by an approximately $12,000 increase in stock compensation expense.
General and Administrative
General and Administrative expenses increased approximately $108,000, or 86%, from approximately $126,000 the nine months ended September 30, 2009, to approximately $234,000 during the nine months ended September 30, 2010, due to increased expenses of approximately $264,000 for professional fees for legal, audit, financial consulting and tax services, partially offset by decreased expenses of approximately $44,000 for reduced executive payroll expenses during this period.
General and Administrative expenses increased approximately $264,000 or 41%, from approximately $642,000 for the nine months ended September 30, 2009, to approximately $906,000 during the nine months ended September 30, 2010, due to increased expenses of approximately $542,000 for professional fees for legal, audit, financial consulting and tax services, partially offset by decreased expenses of approximately $100,000 for reduced executive payroll expenses and approximately $85,000 of stock compensation expense for a consultant which was recognized 2009.
Liquidity and Capital Resources
Historically, POWRtec was financed primarily through cash from operations and through the issuance of common stock. The Company will need to raise additional cash in the near future as our current cash and working capital resources are not sufficient to provide the necessary working capital required by the Company. We will seek to raise additional funds through the public or private sale of debt or equity securities, the issuance of debt, or a combination of both. There can be no assurance that future financings will be available to us, and if available, that the terms will be acceptable to the Company. If financing is not available to us, we will be unable to continue operations. The Company has historically incurred net losses since inception. These historical losses raise doubt about the Companys ability to continue as a going concern.
During the nine months ended September 30, 2010, net cash used in operating activities was approximately $128,212 primarily resulting from an operating loss of approximately $1,065,000 and partially offset by a decrease in prepaids of approximately $273,000 and an increase in accounts payable and accrued liabilities and payroll of approximately $546,000.
During the nine months ended September 30, 2009, net cash used in operating activities was approximately $49,000, primarily resulting from an operating loss of approximately $381,000, an approximately $205,000 increase in prepaids, a decrease in reserve upgrades of approximately $83,000 and a decrease in customer deposits of $118,000, partially offset by an increase in accounts payable and accrued liabilities of approximately $464,000.
During the nine months ended September 30, 2010, net cash provided by financing activities were approximately $128,000 primarily resulting from net proceeds from issuance of notes payable of approximately $75,000 and proceeds from stockholder loans of $51,000. There was no cash provided by or used in financing activities during the nine months ended September 30, 2009.
Going Concern
Given our cash position, and our continuing operating losses, the Company will require a significant amount of funding to sustain its operations and satisfy its contractual obligations. These factors, among others, indicate that the Company may be unable to continue as a going concern. The financial statements presented do not include any adjustments related to the realization of the carrying value of the assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Companys ability to continue as a going concern is dependent upon the Companys ability to secure financing in order to fund its operations and until it achieves profitability. Management believes that they will be successful in obtaining equity or debt financing which will enable the Company to continue its operations and to continue as a going concern.
We have not had profitable operations and are dependent upon obtaining financing to pursue any extensive acquisitions and activities. For these reasons, our auditors stated in their report on our audited financial statements that they have substantial doubt that we will be able to continue as a going concern without further financing.
16
Future Financings
We will continue to rely on 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.
Critical Accounting Estimates
The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our consolidated condensed financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. Our most critical accounting estimates include:
·
the valuation of the Companys stock, as the Companys stock is not currently trading and the valuation of equity and equity-linked instruments such as options using the Black-Sholes model: and,
·
the assessment of recoverability of long-lived assets, which impacts gross margin or operating expenses when we record asset impairments or accelerate their depreciation.
Below, we discuss these policies further, as well as the estimates and judgments involved.
Recent Accounting Standards
In January 2010, the FASB issued an amendment to ASC 820, Fair Value Measurements and Disclosure, to require reporting entities to separately disclose the amounts and business rationale for significant transfers in and out of Level 1 and Level 2 fair value measurements and separately present information regarding purchase, sale, issuance, and settlement of Level 3 fair value measures on a gross basis. This standard has been implemented in the Companys financial statements for the six and nine month periods ended September 30, 2010 and 2009 and did not have a material impact on its financial position and its results of operations as the Companys financial instruments consist principally of cash, accounts payable, and amounts due to related parties. Pursuant to ASC 820 and 825, the fair value of our cash is determined based on Level 1 inputs, which consist of quoted prices in active markets for identical assets. We believe that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
In January 2010, the FASB issued an amendment to ASC 505, Equity, where entities that declare dividends to shareholders that may be paid in cash or shares at the election of the shareholders are considered to be a share issuance that is reflected prospectively in EPS, and is not accounted for as a stock dividend. This standard is effective for interim and annual periods ending on or after December 15, 2009 and is to be applied on a retrospective basis. The adoption of this standard has been reflected in the Companys earnings per share calculation for the six and nine month periods ended September 30, 2010 and 2009 to reflect the 40 for one forward split of common shares.
The Company does not believe that any other recently issued, but not yet effective accounting standards will have a material effect on the Companys consolidated financial position, results of operations or cash flows.
ITEM 3. 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.
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ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision and with the participation of our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Exchange Act, as of September 30, 2010. Based on this evaluation, our principal executive officer and principal financial officer concluded as of September 30, 2010, that our disclosure controls and procedures were effective such that the information relating to the Company, including our consolidated subsidiaries, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to management, including our principal executive officer/principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
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 September 30, 2010. 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. Our management has concluded that, as of September 30, 2010, our internal control over financial reporting is effective based on these criteria.
Changes in Internal Control over Financial Reporting
Our management has also evaluated our internal control over financial reporting, and there have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of our last evaluation.
The Company is not required by current SEC rules to include, and does not include, an auditor's attestation report. The Company's registered public accounting firm has not attested to Management's reports on the Company's internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In the ordinary conduct of our business, we are subject to periodic lawsuits, investigations and claims. The following is a summary of a legal proceeding to which we are a party at this time.
On November 5, 2010, 747 Camden, LLC ("Plaintiff") filed an unlawful detainer complaint in the Superior Court of California - County of Santa Clara against the Company, seeking to recover possession of the property as well as past due rent in the amount of $126,189.11, reasonable attorney fees, forfeiture of the lease agreement, prejudgment interest and damages of $420.06 for each day that the Company remains in possession from November 1, 2010 through entry of judgment.
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.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
1.
Quarterly Issuances:
On August 30, 2010, the Company issued 75,000 shares of its Common Stock to Wade Huettel.
On August 30, 2010, the Company issued 75,000 shares of its Common Stock to Luis Carrillo.
On September 29, 2010, the Company issued 12,500 shares of its restricted Common Stock to The Management AB.
2.
Subsequent Issuances:
Subsequent to the quarter, we did not issue any unregistered securities other than as previously disclosed.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. [REMOVED AND RESERVED]
None
ITEM 5. OTHER INFORMATION.
On August 4, 2010, Paritz & Company, P.A. (Paritz) was appointed as the registered independent public accountant for the Company. On August 4, 2010, Kyle L. Tingle, CPA, LLC (Tingle), was dismissed as the registered independent public accountant for the Company. The decisions to appoint Paritz and to dismiss Tingle were approved by the Board of Directors of the Company on August 4, 2010.
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ITEM 6. EXHIBITS
The following exhibits are filed with this Quarterly Report on Form 10-Q:
Exhibit |
|
|
Number | Description of Exhibit | Filing |
3.01 | Certificate of Incorporation filed with the Delaware Secretary of State on April 18, 2006 | Incorporated by reference to our Registration Statement Form SB-2 filed with the SEC on March 19, 2007. |
3.01a | Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on May 20, 2010 | Incorporated by reference to our Form 8-K filed on May 28, 2010. |
3.02 | Bylaws | Incorporated by reference to our Registration Statement Form SB-2 filed with the SEC on March 19, 2007. |
4.01 | 2010 Share Incentive Plan | Filed with the SEC on August 23, 2010 as part of our Form S-8. |
4.02 | Sample Qualified Stock Option Grant Agreement | Filed with the SEC on August 23, 2010 as part of our Form S-8. |
4.03 | Sample Non-Qualified Stock Option Grant Agreement | Filed with the SEC on August 23, 2010 as part of our Form S-8. |
4.04 | Sample Performance-Based Award Agreement | Filed with the SEC on August 23, 2010 as part of our Form S-8. |
10.01 | Share Exchange Agreement between School4Chauffeurs, Inc., POWRtec Corporation and the POWRtec Corporation Shareholders | Filed with the SEC on May 17, 2010 as part of our Current Report on Form 8-K. |
10.02 | Convertible Promissory Note dated July 1, 2010 | Filed with the SEC on August 16, 2010 as part of our Quarterly Report on Form 10-Q. |
10.03 | Promissory Note dated July 9, 2010 | Filed with the SEC on August 16, 2010 as part of our Quarterly Report on Form 10-Q. |
16.01 | Letter from Kyle L. Tingle, CPA, LLC to the SEC dated August 4, 2010 | Filed with the SEC on August 11, 2010 as part of our Current Report on Form 8-K. |
31.01 | CEO Certification Pursuant to Rule 13a-14 of the Exchange Act of 1934 | Filed herewith. |
31.02 | CFO Certification Pursuant to Rule 13a-14 of the Exchange Act of 1934 | Filed herewith. |
32.01 | CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act | Filed herewith. |
32.02 | CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act | Filed herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
POWRTEC INTERNATIONAL CORP.
Dated: November 18, 2010
By:
/s/ Grant Jasmin
GRANT JASMIN
President and CEO
21