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EXCEL - IDEA: XBRL DOCUMENT - POWRTEC CORPFinancial_Report.xls
EX-32.2 - EXHIBIT 32.2 SECTION 906 CERTIFICATION - POWRTEC CORPsection906cert_ex32z2.htm
EX-31.1 - EXHIBIT 31.1 SECTION 302 CERTIFICATION - POWRTEC CORPsection302cert_ex31z1.htm
EX-31.2 - EXHIBIT 31.2 SECTION 302 CERTIFICATION - POWRTEC CORPsection302cert_ex31z2.htm
EX-10.16 - EXHIBIT 10.16 CONSULTING AGREEMENT - POWRTEC CORPconsultingagreement_ex10z16.htm
EX-32.1 - EXHIBIT 32.1 SECTION 906 CERTIFICATION - POWRTEC CORPsection906cert_ex32z1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K


(Mark One)

 X .     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the Fiscal Year Ended December 31, 2011

 


     .     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT


For the transition period from ________ to ______

 

POWRTEC INTERNATIONAL CORP.

(Exact name of registrant as specified in its charter)

 

Delaware

000-53299

20-5478196

(State or other jurisdiction

(Commission File Number)

(IRS Employer

of Incorporation)

 

Identification Number)

1669 Hollenbeck Avenue, Suite 142

Sunnyvale, CA 94087

(Address of principal executive offices)


(408) 374-1900

(Registrant’s Telephone Number)


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes      . No  X .


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  X . No      .


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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.      .


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  X . No      .


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 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 .


The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 29, 2011 was $6,247,624 based upon the price ($0.12) at which the common stock was last sold as of the last business day of the most recently completed second fiscal quarter, multiplied by the approximate number of shares of common stock held by persons other than executive officers, directors and five percent stockholders of the registrant without conceding that any such person is an “affiliate” of the registrant for purposes of the federal securities laws.  Our common stock is traded in the over-the-counter market and quoted on the Over-The-Counter Bulletin Board under the symbol “POWT.OB.”


As of March 27, 2012, there were 102,780,377 shares of the registrant’s $.001 par value common stock issued and outstanding.


Documents incorporated by reference: None




Table of Contents


 

 

Page

 

PART I

 

 

 

 

Item 1

Business

5

Item 1A

Risk Factors

7

Item 1B

Unresolved Staff Comments

8

Item 2

Properties

8

Item 3

Legal Proceedings

8

Item 4

[REMOVED AND RESERVED]

 

 

 

 

 

PART II

 

 

 

 

Item 5

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

8

Item 6

Selected Financial Data

9

Item 7

Management's Discussion and Analysis of Financial Condition and Results of Operations

10

Item 7A

Quantitative and Qualitative Disclosures about Market Risk

12

Item 8

Financial Statements and Supplementary Data

F-1

Item 9

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

13

Item 9A

Controls and Procedures

13

Item 9B

Other Information

13

 

 

 

 

PART III

 

 

 

 

Item 10

Directors and Executive Officers and Corporate Governance

13

Item 11

Executive Compensation

16

Item 12

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

18

Item 13

Certain Relationships and Related Transactions

19

Item 14

Principal Accountant Fees and Services

20

 

 

 

 

PART IV

 

 

 

 

Item 15

Exhibits

21



2



FORWARD-LOOKING STATEMENTS


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. These risks and uncertainties include the following:


·

The availability and adequacy of our cash flow to meet our requirements;

·

Economic, competitive, demographic, business and other conditions in our local and regional markets;

·

Changes or developments in laws, regulations or taxes in our industry;

·

Actions taken or omitted to be taken by third parties including our suppliers and competitors, as well as legislative, regulatory, judicial and other governmental authorities;

·

Competition in our industry;

·

The loss of or failure to obtain any license or permit necessary or desirable in the operation of our business;

·

Changes in our business strategy, capital improvements or development plans;

·

The availability of additional capital to support capital improvements and development; and

·

Other risks identified in this report and in our other filings with the Securities and Exchange Commission or the SEC.

 

This report should be read 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.


Use of Term

 

Except as otherwise indicated by the context, references in this report to “Company”, “POWT”, “we”, “us” and “our” are references to POWRtec International Corp.  All references to “USD” or United States Dollars refer to the legal currency of the United States of America.




3



PART I


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.  In June 2009, we ceased all operations relating to vocational training and began seeking out other potential business models.


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 held approximately 70% of our then 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 we: (i) changed our 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. On January 28, 2011, we changed our symbol from SFCF.OB to POWT.OB in accordance with the Company’s name change.


On August 3, 2011, Len Wood resigned as the Company’s Chief Financial Officer.  His resignation did not involve any disagreement with the Company on any matter relating to the Company’s operations, policies, practices or otherwise. On August 3, 2011, Simon Westbrook was appointed as the Company’s Chief Financial Officer.  On August 3, 2011, Mr. Westbrook accepted the appointment.


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 basically 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, 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



4




POWRtec products address a global market with 180,000 meters already delivered into Denmark in 2009 and 2010 and a further 50,000 meters ordered for delivery in 2012.  POWRtec is also working on opportunities in Norway as well as India. 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-oriented services and modification and extensive customization to meet client 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 will be of great importance for the continued success of 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.


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.


To ensure POWRtec’s continued success, it will be extremely important to continually adapt and enhance its range of meters to meet client needs, making it possible to attract new clients with new needs.


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 - POWRtec will continually research new functionalities for its meters, and will continue to develop them further to accommodate new needs, communication protocols and purposes. Presently, the meters exist in single-phase and three-phase versions that can work with 110V, 240V or 400V and up to 80 Amps. Although these configurations cover most of the possible purposes, other configurations may be relevant at a later time.


Scalability of Operations - POWRtec aims to have an organization, a Research and Development function and a Production workflow and capability that will allow for scalability of operations. By maintaining the research and development function in-house, POWRtec has complete control over the functions and capabilities to be included in the meters thereby enabling POWRtec to develop exactly the functions needed to address specific market demands when they occur.


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.




5




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 27, 2012, we have 1 full-time and 3 part-time employees. 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.


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.




6




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.   UNRESOLVED STAFF COMMENTS


None.


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.      LEGAL PROCEEDINGS


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 our corporate office 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. Judgment has been entered in favor of Plaintiff for $139,000.


Other than the foregoing, we know of no material, existing or pending legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which our director, officer or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.


ITEM 4.      [REMOVED AND RESERVED]




7




PART II


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 since we began trading 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.  These prices have been adjusted for the 40:1 stock split.

 

 

Bid

 

 

 

High

 

Low

 

Year ended December 31, 2010

 

 

 

 

 

First Quarter 1/1/2010 to 3/31/2010

 

$

-

 

$

-

 

Second Quarter 4/1/2010 to 6/30/2010

 

$

-

 

$

-

 

Third Quarter 7/1/2010 to 9/30/2010

 

$

0.42

 

$

0.40

 

Fourth Quarter 10/1/2010 to 12/31/2010

 

$

0.50

 

$

0.40

 

 

 

Bid

 

 

 

High

 

Low

 

Year ended December 31, 2011

 

 

 

 

 

First Quarter 1/1/2011 to 3/31/2011

 

$

0.50

 

$

0.12

 

Second Quarter 4/1/2011 to 6/30/2011

 

$

0.29

 

$

0.11

 

Third Quarter 7/1/2011 to 9/30/2011

 

$

0.20

 

$

0.05

 

Fourth Quarter 10/1/2011 to 12/31/2011

 

$

0.13

 

$

0.04

 


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 December 31, 2011, an aggregate of 100,634,402 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.




8




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.   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.    MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.


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, 2011 and 2010.


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


The Company had has received no orders and made no shipments since the completion of an order from its single customer in Denmark in 2009, and consequently there is no revenue, no cost of revenue, and no gross profit in either year. While the Company is using its best efforts to secure more orders either from its former 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. In January 2012, the Company announced an additional order for approximately 50,000 more meters from its previous customer, to be shipped in 2012, and subject to financing the production and distribution of these meters, anticipates revenue in the year ending December 31, 2012.

 

Operating Expenses


Selling and Marketing


Selling and Marketing expense increased approximately $35,000, or 250%, from approximately $13,000 during the year ended December 31, 2010, to approximately $48,000 during the year ended December 31, 2011. Our expenses were constrained by lack of cash and consisted principally of travel expenses associated with presentations to potential customers




9




Research and Development Costs


Research and development costs decreased approximately $870,000, or 96%, from approximately $913,000 during the year ended December 31, 2010, to approximately $40,000 during the year ended December 31, 2011.  R&D expenses are very limited due to lack of cash, and are principally non-cash compensation expense related to options and warrants granted to employees and consultant working on engineering design and development assignments. Included in R&D expense for 2010 was $708,000 in one-time stock based compensation expense resulting from a re-measurement and re-pricing of stock options granted under the Company’s Incentive Stock option Plan.


General and Administrative


General and Administrative expenses decreased approximately $1.5 million or 99%, from approximately $1,954,000 during the year ended December 31, 2010, to approximately $412,000 during the year ended December 31, 2011.  The G&A expense for the year ended December 31, 2010 included significant one-time expenses related to non-cash charges for re-measurement and re-pricing of warrants and options of approximately $451,000 and $539,000, respectively, and $313,000 for professional fees for legal, audit, financial consulting and tax services in connection with the reverse merger in May 2010.  The G&A expense for the year ended December 31, 2011 includes approximately $250,000 for executive compensation that was accrued but not paid.


Liquidity and Capital Resources


During the year ended December 31, 2011, approximately $168,000 of net cash was used in operating activities, primarily resulting from an operating loss of approximately $658,000 and partially offset by approximately $283,000 in accrued liabilities and $79,000 in non-cash stock based compensation expense.  The Company funded operations by raising a net of approximately $167,000 in financing activities including approximately $153,000 from the sale of convertible notes, net of repayments, and $49,000 from the sale of common stock.


During the year ended December 31, 2010, approximately $141,000 of net cash was used in operating activities, primarily resulting from an operating loss of approximately $2,905,000 partially offset by approximately $1,822,000 in non-cash compensation expense related to re-measurement and re-pricing of options and warrants in 2010.  The Company funded its operations by raising approximately $53,000 from stockholder loans, and $100,000 from the issuance of convertible notes.


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 $8.3 million and has cash of only $554. As of December 31, 2011, current liabilities exceeded current assets by approximately $3,127,000 and total liabilities exceeded total assets by $3,127,000.  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 2012 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.


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 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.




10




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 1 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


In March 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-11 (ASU 2010-11), “Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives.”  The amendments in this Update are effective for each reporting entity at the beginning of its first fiscal quarter beginning after June 15, 2010.  Early adoption is permitted at the beginning of each entity’s first fiscal quarter beginning after issuance of this Update.  The Company does not expect the provisions of ASU 2010-11 to have a material effect on the financial position, results of operations or cash flows of the Company.


In October 2009, FASB issued an amendment to the accounting standards related to the accounting for revenue in arrangements with multiple deliverables including how the arrangement consideration is allocated among delivered and undelivered items of the arrangement. Among the amendments, this standard eliminated the use of the residual method for allocating arrangement considerations and requires an entity to allocate the overall consideration to each deliverable based on an estimated selling price of each individual deliverable in the arrangement in the absence of having vendor-specific objective evidence or other third party evidence of fair value of the undelivered items. This standard also provides further guidance on how to determine a separate unit of accounting in a multiple-deliverable revenue arrangement and expands the disclosure requirements about the judgments made in applying the estimated selling price method and how those judgments affect the timing or amount of revenue recognition. This standard, for which the Company is currently assessing the impact, became effective on January 1, 2011. The Company does not expect the provisions to have a material effect on the financial position, results of operations or cash flows of the Company.


In October 2009, the FASB issued an amendment to the accounting standards related to certain revenue arrangements that include software elements. This standard clarifies the existing accounting guidance such that tangible products that contain both software and non-software components that function together to deliver the product’s essential functionality, shall be excluded from the scope of the software revenue recognition accounting standards. Accordingly, sales of these products may fall within the scope of other revenue recognition standards or may now be within the scope of this standard and may require an allocation of the arrangement consideration for each element of the arrangement. This standard, for which the Company is currently assessing the impact, became effective on January 1, 2011. The Company does not expect the provisions to have a material effect on the financial position, results of operations or cash flows of the Company.


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.   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.





11




ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




 

Index

Report of Independent Registered Public Accounting Firm

F-2

 

 

Consolidated Balance Sheets

F-3

 

 

Consolidated Statements of Operations

F-4

 

 

Consolidated Statements of Cash Flows

F-5

 

 

Consolidated Statements of Stockholders’ Deficit

F-7

 

 

Notes to the Consolidated Financial Statements

F-8





F-1




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, 2011 and 2010 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, 2011 and 2010 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 accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 3 to the financial statements, as of December 31, 2011 the Company has negative working capital of $3,126,977 and a stockholders’ deficiency attributable to the company of $8,262,274.  These conditions, among others, raise substantial doubt about the Company’s ability to continue as a going concern unless it is able to, among other things, attain profitable operations and generate sufficient cash flows to meet its obligations and sustain its operations.  Management’s plans in regard to these matters are also described in Item 7.  The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.



/s/ Paritz & Company P.A.


Hackensack, New Jersey

March 27, 2012





F-2




POWRTEC INTERNATIONAL CORP.

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

December 31, 2010

 Assets

 

 

 

 

 

 Current assets:

 

 

 

 

 

 

 Cash and cash equivalents

$

554

$

2,272

 

 

 Prepaid expenses and other current assets

 

-

 

23,290

 

 

 Total current assets

 

554

 

25,562

 

 

 

 

 

 

 

 

 

 Deposits and other non current assets

 

-

 

13,255

 

 

 

 

 

 

 

 

 

 Total assets

$

554

$

38,817

 

 

 

 

 

 

 

 Liabilities and stockholders' deficiency

 

 

 

 

 

 Current liabilities:

 

 

 

 

 

 

 Accounts payable

$

593,270

$

585,270

 

 

 Accrued liabilities

 

2,103,073

 

1,805,478

 

 

 Customer deposits

 

122,740

 

122,740

 

 

 Accrued interest

 

35,608

 

14,222

 

 

 Derivative liability

 

20,959

 

-

 

 

 

 

 

 

 

 

 Notes payable

 

 

 

 

 

 

 Notes due to related party

 

48,617

 

84,120

 

 

 Term notes

 

25,000

 

25,000

 

 

 Convertible notes, net of discounts

 

178,264

 

64,712

 

 

 

 

 

 

 

 

 Total current liabilities and liabilities

 

3,127,531

 

2,701,542

 

 

 

 

 

 

 

 Stockholders' deficiency:

 

 

 

 

 

 Preferred stock, $0.001 par value; 5,000,000 shares authorized; 0 shares issued and outstanding

 

-

 

-

 

 Common stock, $0.001 par value; 300,000,000 shares authorized; 100,634,402 and 100,162,540 shares issued and outstanding at December 31, 2011 and December 31, 2010, respectively

 

100,634

 

100,163

 

 Additional paid-in capital

 

5,034,663

 

4,841,369

 

 Accumulated deficit

 

(8,262,274)

 

(7,604,257)

 

 

 

 

 

 

 

 

 Total stockholders' deficiency

 

(3,126,977)

 

(2,662,725)

 

 

 

 

 

 

 

 Total liabilities and stockholders' deficiency

$

554

$

38,817

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements.




F-3




POWRTEC INTERNATIONAL CORP.

 

 

 

 

 

 

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

December 31, 2010

 

 

 

 

 

 

 

 

Revenue

$

-

 

$

-

 

 

 

 

 

 

 

 

Cost of goods sold

 

-

 

 

-

 

 

 

 

 

 

 

 

Gross profit

 

-

 

 

-

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

Selling and marketing

 

47,873

 

 

13,417

 

Research and development

 

39,749

 

 

912,906

 

General and administrative

 

411,862

 

 

1,954,472

 

 

Total operating expenses

 

499,484

 

 

2,880,795

 

 

 

 

 

 

 

 

Operating loss

 

(499,484)

 

 

(2,880,795)

 

 

 

 

 

 

 

 

Interest expense

 

158,533

 

 

24,572

 

 

 

 

 

 

 

 

Net loss

$

 (658,017)

 

$

 (2,905,367)

 

 

 

 

 

 

 

 

Basic and diluted loss per share of common stock

$

 (0.01)

 

$

 (0.03)

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

    used in basic and diluted loss per share

 

100,344,788

 

 

99,325,025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements.





F-4




POWRTEC INTERNATIONAL CORP.

 

 

 

 

 

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

 

 

 

 

For the years ended

 

 

 

 

December 31, 2011

 

December 31, 2010

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

Net loss

$

 (658,017)

$

 (2,905,367)

 

Adjustments to reconcile net loss to net cash used in operating activities

 

 

 

 

 

 

Depreciation

 

-

 

3,797

 

 

Amortization of discount on convertible notes

 

47,058

 

17,649

 

 

Stock based compensation expense

 

78,992

 

1,822,245

 

 

Interest accrued on notes

 

35,608

 

-

 

Changes in operating assets and liabilities

 

 

 

 

 

 

Prepaid expenses

 

23,290

 

275,531

 

 

Other non current assets

 

13,255

 

-

 

 

Accounts payable

 

8,000

 

213,502

 

 

Accrued liabilities

 

283,373

 

431,389

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

(168,441)

 

(141,254)

 

Financing activities

 

 

 

 

 

 

(Repayment of) proceeds from  shareholder loans

 

(35,503)

 

53,120

 

 

Proceeds from sale of convertible notes

 

153,080

 

99,712

 

 

Proceeds from sale of common stock

 

49,146

 

-

 

 

 

 

 

 

 

 

Net cash provided by financing activities

 

166,723

 

152,832

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and equivalents

 

(1,718)

 

11,578

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

2,272

 

(9,306)

 

Cash and cash equivalents at end of period

$

554

$

2,272

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

Cash paid for interest

$

45,580

$

-

 

 

Cash paid for taxes

$

800

$

800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements.





F-5




POWRTEC INTERNATIONAL CORP.

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Shareholders Equity and Accumulated Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

Additional

 

 

 

 

 

 

Common

 

Stock

 

Paid-in

 

Accumulated

 

 

 

 

Stock #

 

Amount

 

Capital

 

Deficit

 

Total

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2009

 

1,859,772

$

1,995

$

3,099,779

$

 (4,698,890)

$

 (1,597,116)

 

 

 

 

 

 

 

 

 

 

 

Discount on convertible notes

 

-

 

-

 

17,636

 

-

 

17,636

Stock based compensation

 

-

 

-

 

1,754,007

 

-

 

1,754,007

Elimination of School4Chauffers equity and common stock in connection with reverse merger

 

98,140,268

 

98,140

 

(98,140)

 

-

 

-

Issuance of stock for settlement of debt

 

12,500

 

13

 

5,238

 

-

 

5,251

Issuance of stock for services

 

150,000

 

15

 

62,849

 

-

 

62,864

Net loss for year ended December 31, 2010

 

-

 

-

 

-

 

 (2,905,367)

 

(2,905,367)

Balance December 31, 2010

 

100,162,540

$

100,163

$

4,841,369

$

 (7,604,257)

$

 (2,662,725)

 

 

 

 

 

 

 

 

 

 

 

Revaluation of derivative liability, net

 

-

 

-

 

38,773

 

-

 

38,773

Stock based compensation expense

 

-

 

-

 

78,992

 

-

 

78,992

Sale of common stock to Laurag Associates

 

196,000

 

195

 

48,805

 

-

 

49,000

Conversion of note into common shares

 

275,862

 

276

 

26,724

 

-

 

27,000

Net loss for year ended December 31, 2011

 

-

 

-

 

-

 

 (658,017)

 

(658,017)

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2011

 

100,634,402

$

100,634

$

5,034,663

$

 (8,262,274)

$

 (3,126,977)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.





F-6



 

POWRTEC INTERNATIONAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 & 2010


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 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.


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 $8.3 million and has a cash balance of only $554. As of December 31, 2011, current liabilities exceeded current assets by $3,127,000 and total liabilities exceeded total assets by $3,127,000. 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 2012 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.


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.




F-7




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.  

 

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 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.


The Company’s 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.




F-8



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 December 31, 2011 and December 31, 2010, the Company’s property and equipment consisted of the following:


 

 

December 31, 2011

 

December 31, 2010

Computer hardware, software and equipment

$

75,493

$

75,493

less Accumulated depreciation

 

(75,493)

 

(75,493)

 

$

-

$

-


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 December 31, 2011, 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 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. Loss per share is as follows (in thousands, except per share data).


 

 

Year ended

 

 

December 31, 2011

 

December 31, 2010

 

 

 

 

 

Net loss allocable to common shareholders

$

(658,017)

$

(2,905,367)

 

 

 

 

 

Basis and diluted loss per share allocable to common stockholders

$

(0.01)

$

(0.03)

 

 

 

 

 

Weighted average shares used to compute basic and diluted loss per share allocable to common stockholders

 

100,344,788

 

99,325,025


The fully-diluted earnings per share is not reported where the result would be anti-dilutive.



F-9




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. 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 December 31, 2011, the Company has no items that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.


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. 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 December 31, 2011 and 2010, customer deposits were $122,740. There are approximately 40,000 units remaining to be shipped under this deposit arrangement, although at December 31, 2011, there were no open orders for shipment.


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 December 31, 2011 and 2010, warranty reserves were $50,000.


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.  The net balance outstanding under these notes was $48,617 and $84,120 at December 31, 2011 and December 31, 2010, 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.




F-10




6. NOTES PAYABLE


A)

CONVERTIBLE NOTES


At various times, starting 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.


Summary of convertible notes at December 31, 2011


Date of Loan

Date of maturity

 

Annual interest

rate

Conversion terms

Balance start of year

Issued in year

Converted in year

Repaid in year

Balance end of year

July 7, 2010

July 7, 2011

*

8.0%

75% of the avg of closing price in 30 trading days preceding conversion

$ 50,000

$          -

$           -

$          -

$50,000

July 9, 2010

April 9, 2011

*

60.0%

Convertible into 65,000 shares at $0.50 p/s for principal & interest if not paid when due

25,000

-

-

-

25,000

March 15, 2011

December 17, 2011

*

8.0%

58% of the 5 lowest of last 10 trading days OTC closing price pre conversion date

-

35,000

(8,000)

(27,000)

-

May 5, 2011

February 9, 2012

 

8.0%

55% of the 5 lowest of last 10 trading days OTC closing price pre conversion date

-

35,000

-

(35,000)

-

July 21, 2011

April 25, 2012

 

8.0%

55% of the 5 lowest of last 10 trading days OTC closing price pre conversion date

-

37,500

-

-

37,500

November 2, 2011

November 2, 2013

 

6.0%

85% of the avg of closing price in 30 trading days preceding conversion, but not less than $0.06

-

45,000

-

-

45,000

November 3, 2011

November 2, 2013

 

6.0%

85% of the avg of closing price in 30 trading days preceding conversion, but not less than $0.06

-

62,580

-

-

62,580

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$ 75,000

$ 215,080

$ (8,000)

$ (62,000)

$ 220,080

* Note rolled over on for additional terms.


As at December 31, 2011 and 2011, the Company had accrued $35,608 and $14,222 of interest on the notes, which will be paid, or converted into common stock on maturity.  During 2011, the Company paid $45,580 in interest and prepayment penalties on two notes that were repaid in November, 2011. Based on the share price of $.04 at December 31, 2011, the Company would require 4,460,792 shares of common stock to convert the notes 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. The derivative value added to the discount reserve and derivative value was $86,483 and $15,522 during the years ended December 31, 2011 and 2010, respectively. The value of the debt discount is amortized as interest expense on a straight line basis over the life of the notes. During the years ended December 31, 2011 and 2010, the Company amortized $49,905 and $910, respectively, as debt discount expense. At December 31, 2011, the Company valued the derivative liability and determined that the carrying value was in excess of the market value by $71,672 and, accordingly, reduced the derivative liability by this amount, with an offset to Additional paid-in capital.


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% pa and interest expense of $2,268 was accrued as at December 31, 2011.




F-11



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:


 

 

December 31, 2011

Deferred tax assets:

 

 

  Net operating loss carry forwards

$

(8,262,274)

  add back compensation accruals

 

1,838,652

 

 

(6,423,622)

Statutory tax rate (combined federal and state)

 

37.60%

Non-capital tax loss

 

2,415,282

Valuation allowance

 

(2,415,282)

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


The Company has reserved shares of common and preferred stock for issuance at December 30, 2011, and December 31, 2010, as follows:


 

 

December 31, 2011

 

December 31, 2010

Common shares, par value $0.001

 

300,000,000

 

300,000,000

Preferred shares, par value $0.001

 

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 " Prior Plan"), under which shares of common stock are reserved for issuance to employees, management and consultants of the Company.  On December 15, 2010, the Company established an additional share incentive plan,  the 2010 Share Incentive Plan (the “New Plan”), which superceded the Prior Plan, and all grants under the Prior Plan were cancelled. The New 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 New Plan has authorized 15,000,000 shares of Common Stock issuable pursuant to all Awards granted under the Plan, and 6,000,000 options were reissued under the New Plan to reflect the post-merger split of shares of forty for one. This resulted in a re-measurement event to reflect the weighted average share price of $0.3588 for stock sales during the first two months in 2011 following the December 27, 2010 reissuance of options. The re-measurement resulted in additional stock based compensation of $1,160,000 which was recorded as research and development expense of $709,000 and general and administrative expense of $451,000 in the fourth quarter of 2010. The New Plan is not registered under Form S-8, and the Company will not register thereunder.




F-12




Activity with respect to outstanding stock options under the New Plan during 2011was as follows:


In 000s shares

 

Shares available for grant

 

# Options outstanding

 

Weighted average price

Balance December 31, 2010

 

4,000,000

 

6,000,000

$

0.18

Granted

 

(1,000,000)

 

1,000,000

$

0.08

Exercised

 

-

 

-

 

-

Cancelled

 

-

 

-

 

-

Balance December 31, 2011

 

3,000,000

 

7,000,000

$

0.13

 

 

 

 

 

 

 

Options exercisable as of December 31, 2011

 

-

 

4,032,740

$

0.11


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 year ended December 31, 2011 and 2010, the Company recorded $38,009 and $45,883 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, 2011 and 2010, the Company recorded $40,984 and $38,045 of equity-based compensation expense, respectively, related to warrants granted to employees, directors and consultants.  


9. RELATED PARTY TRANSACTIONS


See Note 5 for a description of loans provided to the Company by certain officers of the Company.


Accounts payable as of December 31, 2011 and December 31, 2010 includes approximately $354,000 and $346,000, respectively, of accounts payable for the consulting services of our former Chief Financial Officer.


Accrued payroll as of December 31, 2011 and December 31, 2010 includes approximately $923,000 and $673,000, respectively, of accrued payroll liabilities to our Chief Executive Officer.


Accrued consulting fees as of December 31, 2011 and December 31, 2010 includes approximately $21,000 and $0, respectively, of accrued consulting fees payable to our current Chief Financial 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 $139,000 of back rent, legal, and court costs as of December 31, 2010 due to a judgment obtained by the former landlord for unpaid rent. 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 officer and 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. Rental expense approximated $35,000 and $150,000 for each of the years ending December 31, 2011 and 2010, respectively.


11. SUBSEQUENT EVENTS


On January 6, 2012, the Company announced that they had received a purchase order from Dong Energy for a shipment of up to 50,000 Smart Read meters, as an extension to the contract that expired in 2010. If the Company is able to generate the working capital required to fulfill this order, the shipments could contribute revenue during 2012.





F-13



ITEM 9.   

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.


None.  


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, 2011. 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 December 31, 2011, our internal control over financial reporting is 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, 2011, 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.  

OTHER INFORMATION.


None.




13




PART III


ITEM 10.   

DIRECTORS AND EXECUTIVE OFFICERS.


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

Date of Resignation

Grant Jasmin

59

CEO, President, Secretary and Treasurer

April 16, 2010

 

Len Wood

56

CFO and Treasurer

December 1, 2008

August 3, 2011

Simon Westbrook

62

CFO and Treasurer

August 3, 2011

 


Term of Office


Each director serves until our next annual meeting of the stockholders or unless they resign earlier. The Board of Directors elects officers and their terms of office are at the discretion of the Board of Directors. Each of our directors serves until his or her successor is elected and qualified. Each of our officers is elected by the board of directors to a term of one (1) year and serves until his or her successor is duly elected and qualified, or until he or she 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.  


Len Wood - resigned August 3, 2011 - Mr. Wood was named Interim Chief Financial Officer in December 2008 and has been a consultant providing interim financial leadership to companies since 2003. From 1999-2001, Mr. Wood held several positions including Chief Financial Officer and Chief Operating Officer of VPNet, a privately held virtual private networking company, which was sold to Avaya Communications in 2001. In 1999, Mr. Wood served as Chief Financial Officer of Get Manufacturing which was sold to Jabil Circuit in 1999. From 1997 to 1999. Mr. Wood served as Corporate Controller of NetManage and CIDCO.  Prior to that, he had management roles at Raychem, Solectron, and Intel in the United States, Europe, and Asia. Mr. Wood obtained his CPA while working at Coopers & Lybrand, now PricewaterhouseCoopers, and holds a B.S. in Business Administration from Babson College. Mr. Wood was appointed as an officer on account of his prior experience.


Simon Westbrook  - Appointed August 3, 2011 – Mr. Westbrook was appointed Chief Financial Officer of Powrtec in August 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.  




14




Identification of Significant Employees


As of the date of this Report we have 1 full-time employee and 3 part-time employees. 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;




15




(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, 2011, Forms 5 and any amendments thereto furnished to us with respect to the year ended December 31, 2011, and the representations made by the reporting persons to us, we believe that during the year ended December 31, 2011, with the exception of the options granted to Mr. Westbrook, our executive officers and directors and all persons who own more than ten percent of a registered class of our equity securities complied with all Section 16(a) filing requirements.




16




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, 2011 and 2010. 


Name

and

Principal

Position

Fiscal

Year

Ended

12/31




Salary

($)

Bonus

($)

Stock

Awards

($)

Option

Awards

($)

Non-Equity

Incentive

Plan

Compensation

($)

Changes in pension value and

Nonqualified

Deferred

Compensation

Earnings

($)

All Other Compensation

($)

Total

($)

 

 

 

 

 

 

 

 

 

 

Grant Jasmin (from April 16, 2010) CEO, President, Secretary & Director

2011

$250,000(a)

-0-

-0-

-0-

-0-

-0-

-0-

$250,000

2010

$250,000(a)

-0-

-0-

-0-

-0-

-0-

-0-

$250,000

Len Wood (until August 3, 2011)(f)

 Former CFO and Treasurer

2011

-0-

-0-

-0-

-0-

-0-

-0-

$25,000(b)

$25,000

2010

-0-

-0-

-0-

$84,505(e)

-0-

-0-

$206,000(c)

$290,505

Simon Westbrook (from August 3, 2011) CFO and Treasurer

2011

-0-

-0-

-0-

$42,661(e)

-0-

-0-

$21,000(d)

$63,661

2010

-0-

-0-

-0-

-0-

-0-

-0-

-0-

-0-

Jeffrey E. Jones (until April 16, 2010) (g) Former President, CEO, CFO, Secretary, Treasurer & Director

2011

-

-

-

-

-

-

-

-

2010

-0-

-0-

-0-

-0-

-0-

-0-

-0-

-0-


a)

The salary payable to Mr. Jasmin was accrued in 2011 and 2010 but was not paid in either year due to lack of resources, and remains included in accrued payroll at December 31, 2011.

b)

Represents the consulting fee payable to Mr. Wood for the period from January 1, 2010 to August 3, 2011. This amount was not paid due to lack of resources and remains included in accounts payable at December 31, 2011.

c)

During the year ended December 31, 2011, Mr. Wood was paid a total of $17,000 against prior year consulting liabilities included in accounts payable.

d)

Represents consulting fees for services provided between August 3 and December 31, 2011. On August 3, 2011 the Company entered into a Consulting Agreement with Mr. Westbrook (the “Westbrook Consulting Agreement”) whereby Mr. Westbrook agreed to perform duties as Chief Financial Officer and Treasurer of the Company on a month to month term until either party terminates the Westbrook Consulting Agreement by providing written notice in accordance with the terms thereof. In exchange Mr. Westbrook shall receive an hourly rate for such services equal to $150 per hour as further set forth in the Westbrook Consulting Agreement. This amount was not paid due to lack of resources and remains included in accrued liabilities at December 31, 2011.

e)

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 the consultant.

f)

Effective August 3, 2011, Len Wood resigned as the Company’s Chief Financial Officer and Treasurer.

g)

On April 16, 2010, Jeffrey E. Jones resigned as the Company’s President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director.


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, 2011.



17




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 who are also our employees receive no extra compensation for their service on our board of directors.


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 27, 2012 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.


 

 

 

 

 

 

 

Title of class

 

Name and address

of beneficial owner

 

Amount and Nature of Beneficial Ownership

 

Percentage of Common Stock (1)

Common Stock

 

Grant Jasmin

1669 Hollenback Avenue, Suite 142

Sunnyvale, CA 94087

 

15,055,600

 

14.65%

Common Stock

 


Simon Westbrook

1669 Hollenback Avenue, Suite 142

Sunnyvale, CA 94087

 

62,329(4)

 

0.06%

TOTAL                     All executive officers, directors as a group (2)

15,117,929

14.71%

Common Stock

 

NESA A/S (3)

Nesa Alle 1

2820 Gentofte

Denmark

 

10,822,640

 

10.53%

Common Stock

 

Sidoh Mal Air Products

745 Camden Ave, Ste D

Campbell, CA 95008

 

5,377,000

 

5.23%

Common Stock

 


John Heibel

498 Glen Canyon Ct

Santa Cruz, CA 95060

 

19,461,600

 

19.03%

TOTAL Affiliate Shares

 

 

 

50.716,840

 

49.3%

TOTAL Non-Affiliate Shares

 

 

 

52,063,537

 

50.7%

TOTAL Shares O/S

 

 

 

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 27, 2012. Our common stock is our only issued and outstanding class of securities eligible to vote.

(3)

Rene Vedoe, a resident of Denmark, has dispositive and voting power over the shares of NEAS A/S. DONG Energy is the beneficial owner of these shares.

(4)

Beneficial ownership consists of 62,329 vested options to purchase common stock which have vested and are exercisable at December 31, 2011.




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Changes in Control


There were no changes of control during the year ended December 31, 2011.


Securities Authorized for Issuance Under Equity Compensation Plans

 

In 2004, the POWRtec Board of Directors adopted the 2004 Incentive Stock Plan (the " Prior Plan"), under which shares of common stock are reserved for issuance to employees, management and consultants of the Company.  On December 15, 2010, the Company established an additional share incentive plan,  the 2010 Share Incentive Plan (the “New Plan”), which superceded the Prior Plan, and all grants under the Prior Plan were cancelled. The New 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 New Plan has authorized 15,000,000 shares of Common Stock issuable pursuant to all Awards granted under the Plan, and 6,000,000 options were reissued under the New Plan to reflect the post-merger split of shares of forty for one. This resulted in a re-measurement event to reflect the weighted average share price of $0.3588 for stock sales during the first two months in 2011 following the December 27, 2010 reissuance of options. The re-measurement resulted in additional stock based compensation of $1,160,000 which was recorded as research and development expense of $709,000 and general and administrative expense of $451,000 in the fourth quarter of 2010. The New Plan is not registered under Form S-8, and the Company will not register thereunder.

 

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 Officer” 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 $48,617 and $84,120 at December 31, 2011 and December 31, 2010, 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.


Accounts payable as of December 31, 2011 and December 31, 2010 includes approximately $354,000 and $346,000, respectively, of accounts payable for the consulting services of our former Chief Financial Officer.


Accrued payroll as of December 31, 2011 and December 31, 2010 includes approximately $923,000 and $673,000, respectively, of accrued payroll liabilities to our Chief Executive Officer.


Accrued consulting fees as of December 31, 2011 and December 31, 2010 includes approximately $21,000 and $0, 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.




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ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES.


 

 

 

Year ended

 

 

 

December 31, 2011

 

December 31, 2010

Audit Fees

(1)

$

11,085

$

7,355

Audit Related

(2)

 

-

 

-

Tax Fees

(3)

 

-

 

-

All Other fees

(4)

 

-

 

-

 

 

 

 

 

 

Total

 

$

11,085

$

7,355


Audit Fees


During the fiscal years ended December 31, 2011 and 2010, we incurred approximately $11,085 and $7,355, 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, 2011 and 2010 by our principal independent accountants.


Tax Fees


No tax related services were provided and no fees billed during the fiscal years ended December 31, 2011 and 2010 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, 2011 and 2010 for other products and services provided by our principal independent accountants.





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PART IV

ITEM 15.

EXHIBITS.


(a)

Exhibits

 

Exhibit

 

 

Number

Description of Exhibit

Filing

3.01

Certificate of Incorporation

Filed with the SEC on March 19, 2007 as part of our Registration Statement on Form SB-2.

3.01(a)

Amended and Restated Certificate of Incorporation

Filed with the SEC on May 28, 2010 as part of our Current Report on Form 8-K.

3.02

Bylaws

Filed with the SEC on March 19, 2007 as part of our Registration Statement on Form SB-2.

4.01

2010 Share Incentive Plan

Filed with the SEC on August 23, 2010 as part of our Registration Statement on Form S-8.

4.02

Sample Qualified Stock Option Grant Agreement

Filed with the SEC on August 23, 2010 as part of our Registration on Form S-8.

4.03

Sample Non-Qualified Stock Option Grant Agreement

Filed with the SEC on August 23, 2010 as part of our Registration Statement on Form S-8.

4.04

Sample Performance-Based Award Agreement

Filed with the SEC on August 23, 2010 as part of our Registration Statement on Form S-8.

10.01

Share Exchange Agreement between School4Chauffeurs, Inc., POWRtec Corporation and 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 between the Company and Koryak Investments S.A. 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 between the Company and The Management AB dated July 9, 2010

Filed with the SEC on August 16, 2010 as part of our Quarterly Report on Form 10-Q.

10.04

Nordic Advisory Board Agreement between the Company and Anders Sagadin dated December 1, 2010

Filed with the SEC on May 13, 2011 as part of our Quarterly Report on form 10-Q.

10.05

Nordic Advisory Board Agreement between the Company and Anders Rudlang dated December 1, 2010

Filed with the SEC on May 13, 2011 as part of our Quarterly Report on form 10-Q

10.06

First Extension to the Management AB Note dated January 9, 2011

Filed with the SEC on May 13, 2011 as part of our Quarterly Report on form 10-Q

10.07

Convertible Promissory Note between the Company and Asher Enterprises, Inc. dated March 15, 2011

Filed with the SEC on March 24, 2011 as part of our Current Report on Form 8-K.

10.08

Securities Purchase Agreement between the Company and Asher Enterprises, Inc. dated March 15, 2011

Filed with the SEC on March 24, 2011 as part of our Current Report on Form 8-K.

10.09

Subscription Agreement between the Company and Laurag Associates S.A. dated April 7, 2011.

Filed with the SEC on April 15, 2011 as part of our Annual Report on Form 10-K.

10.10

Second Extension to the Management AB Note dated April 9, 2011

Filed with the SEC on May 13, 2011 as part of our Quarterly Report on Form 10-Q.

10.11

Unsecured Promissory Note between the Company and Koryak Investments executed April 12, 2011

Filed with the SEC on May 13, 2011 as part of our Quarterly Report on Form 10-Q.

10.12

Securities Purchase Agreement between the Company and Asher dated May 19, 2011

Filed with the SEC on May 24, 2011 as part of our Current Report on Form 8-K.

10.13

Convertible Promissory Note dated May 19, 2011

Filed with the SEC on May 24, 2011 as part of our Current Report on Form 8-K.

10.14

Securities Purchase Agreement between the Company and Asher dated July 26, 2011

Filed with the SEC on July 28, 2011 as part of our Current Report on Form 8-K.

10.15

Convertible Promissory Note dated July 26, 2011

Filed with the SEC on July 28, 2011 as part of our Current Report on Form 8-K.

10.16

Consulting Agreement between the Company and Simon Westbrook dated August 3, 2011.

Filed herewith.

16.01

Letter from Former Accountant Kyle L. Tingle, CPA, LLC, dated August 4, 2010

Filed with the SEC on August 11, 2010 as part of our Current Report on Form 8-K.

21.01

List of Subsidiaries

Filed with the SEC on May 17, 2010 as part of our Current Report on Form 8-K.

31.01

Certification of Principal Executive Officer Pursuant to Rule 13a-14

Filed herewith.

31.02

Certification of Principal Financial Officer Pursuant to Rule 13a-14

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.

 101.INS*

XBRL Instance Document

Filed herewith.

101.SCH*

XBRL Taxonomy Extension Schema Document

Filed herewith.

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase Document

Filed herewith.

101.LAB*

XBRL Taxonomy Extension Labels Linkbase Document

Filed herewith.

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase Document

Filed herewith.

101.DEF*

XBRL Taxonomy Extension Definition Linkbase Document

Filed herewith.




21




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 30, 2012

/s/ Grant Jasmin                       

By: Grant Jasmin

Its: President, Chief Executive Officer, and Director




Dated:  March 30, 2012

/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 30, 2012

/s/ Grant Jasmin                       

Grant Jasmin, President, Chief Executive Officer, Secretary and Director




Dated:  March 30, 2012

/s/ Simon Westbrook

By: Simon Westbrook

Its:  Chief Financial Officer and Principal Accounting Officer




22