Attached files
| file | filename |
|---|---|
| EX-32.1 - EXHIBIT 32.1 - 374Water Inc. | ex32_1.htm |
| EX-31.1 - EXHIBIT 31.1 - 374Water Inc. | ex31_1.htm |
| EX-31.2 - EXHIBIT 31.2 - 374Water Inc. | ex31_2.htm |
| EX-32.2 - EXHIBIT 32.2 - 374Water Inc. | ex32_2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form 10-Q
| x |
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
For the Quarterly Period ended June 30, 2015
| o |
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
Commission file number: 000-27866
POWERVERDE, INC.
(Exact name of Registrant as specified in its charter)
|
Delaware
|
88-0271109
|
|
|
(State or other jurisdiction of incorporation or organization)
|
(IRS Employer Identification No.)
|
420 S. Dixie Highway Suite 4-B
Coral Gables, FL33146
(Address of principal executive offices)
(305) 666-0024
(Registrant's telephone number including area code)
(Former name, former address and former fiscal year, if changed since last report)
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 past 12 months (or for 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. x Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o 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.
| o |
Large accelerated filer
|
o |
Accelerated filer
|
| o |
Non-accelerated filer
|
x |
Smaller reporting company
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of August 11, 2015 the issuer had 31,750,106 shares of common stock outstanding.
Index to Form 10-Q
|
Page
|
||
|
1
|
||
|
1
|
||
|
1
|
||
|
2
|
||
|
3
|
||
|
4
|
||
|
9
|
||
|
10
|
||
|
10
|
||
|
11
|
||
|
11
|
||
|
11
|
||
|
11
|
||
|
11
|
||
|
11
|
||
|
11
|
||
|
11
|
||
|
12
|
||
|
June 30, 2015 (Unaudited) and December 31, 2014
|
||||||||
|
2015
|
2014
|
|||||||
|
Assets
|
||||||||
|
Current Assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 7,809 | $ | 4,736 | ||||
|
Accounts receivable
|
32,709 | 189,220 | ||||||
|
Employee advances
|
292 | 12,292 | ||||||
|
Prepaid expenses
|
4,328 | 14,238 | ||||||
|
Note receivable, related party
|
38,000 | |||||||
|
Total Current Assets
|
83,138 | 220,486 | ||||||
|
Property and Equipment
|
||||||||
|
Property and equipment, net of accumulated depreciation of $63,025 and $55,258, respectively
|
44,616 | 52,383 | ||||||
|
|
||||||||
|
Other Assets
|
||||||||
|
Intellectual Property, net of accumulated amortization of $659,440 and $604,487
|
36,552 | 54,953 | ||||||
|
Total Assets
|
$ | 164,306 | $ | 327,822 | ||||
|
Liabilities and Stockholders' Deficiency
|
||||||||
|
Current Liabilities
|
||||||||
|
Accounts payable and accrued expenses
|
$ | 28,332 | $ | 100,006 | ||||
|
Note payable
|
18,242 | |||||||
|
Payable to related parties
|
6,000 | 41,900 | ||||||
|
Total Current Liabilities
|
52,574 | 141,906 | ||||||
|
Long-Term Liabilities
|
||||||||
|
Note payable
|
40,194 |
—
|
||||||
|
Notes payable to related parties
|
380,622 | 374,235 | ||||||
|
Payable to related party
|
20,000 |
—
|
||||||
|
Total Long-Term Liabilities
|
440,816 | 374,235 | ||||||
|
Total Liabilities
|
493,390 | 516,141 | ||||||
|
Stockholders' Deficiency
|
||||||||
|
Preferred Stock:
|
||||||||
|
50,000,000 preferred shares authorized, 0 preferred shares issued at June 30, 2015 and December 31, 2014
|
||||||||
|
Common stock:
|
||||||||
|
200,000,000 common shares authorized, par value $0.0001 per share, 31,750,106 common shares issued and outstanding at June 30, 2015 and December 31, 2014
|
3,981 | 3,981 | ||||||
|
Additional paid-in capital
|
11,531,516 | 11,531,516 | ||||||
|
Treasury stock, 8,550,000 shares at cost
|
(491,139 | ) | (491,139 | ) | ||||
|
Accumulated deficit
|
(11,373,442 | ) | (11,232,677 | ) | ||||
|
Total Stockholders' Deficiency
|
(329,084 | ) | (188,319 | ) | ||||
|
Total Liabilities and Stockholders' Deficiency
|
$ | 164,306 | $ | 327,822 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
|
PowerVerde, Inc. and Subsidiary
For the three and six months ended June 30, 2015 and 2014
(Unaudited)
|
||||||||||||||||
|
Three months ended
June 30,
|
Six months ended
June 30,
|
|||||||||||||||
|
2015
|
2014
|
2015
|
2014
|
|||||||||||||
|
Royalty revenue
|
$ | 32,709 | $ | 125,975 | $ | 187,596 | $ | 166,129 | ||||||||
|
Operating Expenses
|
||||||||||||||||
|
Research and development
|
56,324 | 111,115 | 140,980 | 262,596 | ||||||||||||
|
General and administrative
|
49,886 | 101,887 | 159,670 | 255,322 | ||||||||||||
|
Total Operating Expenses
|
106,210 | 213,002 | 300,650 | 517,918 | ||||||||||||
|
Loss from Operations
|
(73,501 | ) | (87,027 | ) | (113,054 | ) | (351,789 | ) | ||||||||
|
Other Income (Expenses)
|
||||||||||||||||
|
Interest expense
|
(13,932 | ) | (42,368 | ) | (27,711 | ) | (63,556 | ) | ||||||||
|
Total Other Income (Expense)
|
(13,932 | ) | (42,368 | ) | (27,711 | ) | (63,556 | ) | ||||||||
|
Loss before Income Taxes
|
(87,433 | ) | (129,395 | ) | (140,765 | ) | (415,345 | ) | ||||||||
|
Provision for Income Taxes
|
—
|
—
|
—
|
—
|
||||||||||||
|
Net Loss
|
$ | (87,433 | ) | $ | (129,395 | ) | $ | (140,765 | ) | $ | (415,345 | ) | ||||
|
Net Loss per Share - Basic and Diluted
|
$ | (0.003 | ) | $ | (0.004 | ) | $ | (0.004 | ) | $ | (0.01 | ) | ||||
|
Weighted Average Common Shares Outstanding - Basic and Diluted
|
31,750,106 | 30,197,908 | 31,750,106 | 29,778,007 | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
|
PowerVerde, Inc. and Subsidiary
For the six months ended June 30, 2015 and 2014
(Unaudited)
|
||||||||
|
2015
|
2014
|
|||||||
|
Cash Flows from Operating Activities
|
||||||||
|
Net loss
|
$ | (140,765 | ) | $ | (415,345 | ) | ||
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
|
||||||||
|
Depreciation and amortization
|
62,720 | 117,683 | ||||||
|
Amortization of discount
|
6,387 | 42,579 | ||||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Accounts receivable and prepaid expenses
|
166,421 | (69,490 | ) | |||||
|
Employee advances
|
12,000 | - | ||||||
|
Accounts payable and accrued expenses
|
(71,674 | ) | 82,761 | |||||
|
Payable to related parties
|
(15,900 | ) | (92,000 | ) | ||||
|
Cash Provided by (Used in) Operating Activities
|
19,189 | (333,812 | ) | |||||
|
Cash Flows From Investing Activities
|
||||||||
|
Purchase of property and equipment
|
—
|
(13,591 | ) | |||||
|
Purchase of intellectual property
|
(16,116 | ) |
—
|
|||||
|
Cash Used in Investing Activities
|
(16,116 | ) | (13,591 | ) | ||||
|
Cash Flows from Financing Activities
|
||||||||
|
Proceeds from issuance of common stock
|
—
|
315,000 | ||||||
|
Payment of stock issuance costs
|
—
|
(7,500 | ) | |||||
|
Cash Provided by Financing Activities
|
—
|
307,500 | ||||||
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
3,073 | (39,903 | ) | |||||
|
Cash and Cash Equivalents at Beginning of Period
|
4,736 | 48,306 | ||||||
|
Cash and Cash Equivalents at End of Period
|
$ | 7,809 | $ | 8,403 | ||||
|
Supplemental Disclosure of Non-Cash Activities
|
||||||||
|
Note Receivable in connection with IP acquisition
|
$ | 38,000 |
—
|
|||||
|
Note Payable in connection with IP acquisition
|
$ | 58,436 |
—
|
|||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
PowerVerde, Inc. and Subsidiary
June 30, 2015
The accompanying unaudited condensed consolidated financial statements prepared in accordance with instructions for Form 10-Q, include all adjustments (consisting only of normal recurring accruals) which are necessary for a fair presentation of the results for the periods presented. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the Annual Report of PowerVerde, Inc. (“PowerVerde,” “we,” “us,” “our,” or the “Company”) as of and for the year ended December 31, 2014. The results of operations for the three and six months ended June 30, 2015, are not necessarily indicative of the results to be expected for the full year or for future periods. The condensed consolidated financial statements include the accounts of PowerVerde, Inc., formerly known as Vyrex Corporation (the "Company"), and PowerVerde Systems, Inc., formerly known as PowerVerde, Inc., its wholly-owned subsidiary. Intercompany balances and transactions have been eliminated in consolidation.
Note 2 – Going Concern
The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has had recurring operating losses and negative cash flows from operations. Those factors, as well as uncertainty in securing additional funds for continued operations, create an uncertainty about the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Note 3 – Summary of Significant Accounting Policies
Nature of Business
The Company is devoting substantially all of its present efforts to establish a new business involving the development and commercialization of clean energy electric power generation systems, and none of its planned principal operations have commenced. However, royalties from licenses unrelated to planned principal operations continue to be recognized as revenue.
Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Accounts Receivable
Accounts receivable consist of balances due from royalties in connection with the license agreement with VDF FutureCeuticals, Inc. The Company monitors accounts receivable and provides allowances when considered necessary. At June 30, 2015, accounts receivable were considered to be fully collectible. Accordingly, no allowance for doubtful accounts was provided.
Employee Advances
The employee advances represent the payroll taxes due on the issuance of common stock as compensation prior to 2014.
4
Revenue Recognition
Royalty revenue from royalty agreements is recognized in accordance with the terms of the specific agreement. Revenues recognized under these agreements amount to 100% of total revenues for the three and six months ended June 30, 2015 and 2014.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Expenditures for major betterments and additions are capitalized, while replacement, maintenance and repairs, which do not extend the lives of the respective assets, are expensed as incurred.
Impairment of Long-Lived Assets
Impairment losses are recorded on long-lived assets (property, equipment and intellectual property) used in operations when impairment indicators are present and the undiscounted expected cash flows estimated to be generated by those assets are less than the carrying value of such assets. No impairment losses have been recognized during the six months ended June 30, 2015 or 2014.
Stock-based Compensation
The Company has accounted for stock-based compensation under the provisions of ASC Topic 718 – “Stock Compensation” which requires the use of the fair-value based method to determine compensation for all arrangements under which employees and others receive shares of stock or equity instruments (stock options and common stock purchase warrants). The fair value of each stock option award is estimated on the date of grant using the Black-Scholes valuation model that uses assumptions for expected volatility, expected dividends, expected term, and the risk-free interest rate. Expected volatilities are based on historical volatility of peer companies and other factors estimated over the expected term of the stock options. The expected term of options granted is derived using the “simplified method” which computes expected term as the average of the sum of the vesting term plus the contract term. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the period of the expected term.
Common Stock Purchase Warrants
The Company accounts for common stock purchase warrants in accordance with ASC Topic 815- 40, “Derivatives and Hedging – Contracts in Entity’s Own Equity” (“ASC 815-40”). Based on the provisions of ASC 815- 40, the Company classifies as equity any contracts that (i) require physical settlement or net-share settlement, or (ii) gives the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company), or (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). All outstanding warrants as of December 31, 2014 and June 30, 2015 were classified as equity.
Accounting for Uncertainty in Income Taxes
The Company follows the provisions of ASC Topic 740-10, “Accounting for Uncertainty in Income Taxes” which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements, and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This topic also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
5
Research and Development Costs
The Company’s research and development costs are expensed in the period in which they are incurred.
Earnings (Loss) Per Share
Earnings (loss) per share is computed in accordance with FASB ASC Topic 260, “Earnings per Share”. Diluted earnings per share is computed by dividing net income by the weighted-average number of shares of common stock, common stock equivalents and other potentially dilutive securities outstanding during the period. Certain common stock equivalents were not included in the earnings (loss) per share calculation as their effect would be anti-dilutive. Warrants exercisable for 4,751,000 shares and options for 2,750,000 shares were excluded from weighted average common shares outstanding on a diluted basis.
Financial instruments
The Company carries cash and cash equivalents, accounts receivable, accounts payable and accrued expenses at historical costs. The respective estimated fair values of these assets and liabilities approximate carrying values due to their current nature. The Company also carries notes payable to related parties at historical cost less discounts from warrants issued as loan financing costs. The fair value of such notes is significantly similar to the face value of the notes ($400,000).
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
Note 4 – Recent Accounting Pronouncements
Refer to the consolidated financial statements and footnotes thereto included in the PowerVerde, Inc. Annual Report on Form 10-K for the year ended December 31, 2014 for recent accounting pronouncements. Other pronouncements have been issued but the Company does not believe that their adoption will have a significant impact on the financial position or results of operations.
On June 10, 2014, the FASB issued Accounting Standards Update No. 2014-10 (ASU 2014-10), which eliminates development stage reporting requirements under ASC 915, as well as amends provisions of existing variable interest entity guidance under ASC 810. Additionally, the ASU indicates that the lack of commencement of principal operations represents a risk and uncertainty and, accordingly, is subject to the disclosure requirements of ASC 275. We have adopted ASU 2014-10 on our condensed consolidated financial statements effective January 1, 2015. As a result of the changes, existing development stage entity presentation and disclosure requirements are eliminated.
Note 5 – Intellectual Property
Intellectual Property partially consists of technology acquired from the purchase of 100% of the membership interests of Cornerstone Conservation Group LLC (“Cornerstone”) in March 30, 2012 for $659,440. Accumulated amortization with respect to this intellectual property was $659,440 at June 30, 2015.
On June 30, 2015, the Company entered into an Assignment Agreement with VyrexIP Holdings Inc., a company owned by Company shareholder Edward Gomez for the purchase of intellectual property. The net price of these assets was comprised of a down payment of $16,116 and a $58,436 promissory note to the seller due July 15, 2016, partially offset by assignment by the seller to the Company of a $38,000 promissory note due November 14, 2015, issued by the seller’s licensee Epalex Corporation, a company of which Mr. Gomez is chairman and a major stockholder.
6
For each of the six months ended June 30, 2015 and 2014, amortization expense was $54,953 and $109,907 and accumulated amortization of the intangible asset- intellectual property was $659,440 at June 30, 2015.
Future amortization of the intangible asset – intellectual property was as follows as of June 30, 2015:
|
Year ending December 31:
|
||||
|
2015
|
$
|
6,092
|
||
|
2016
|
|
12,184
|
||
|
2017
|
|
|
12,184
|
|
|
2018
|
6,092
|
|||
|
Total
|
$
|
36,552
|
Note Payable at June 30, 2015 consists of $58,436 promissory note to VyrexIP Holdings Inc. for the purchase of intellectual property. The Company has agreed to pay principal plus accrued interest over 10 monthly payments of $6,080.64, each due on the 15th day of each month, beginning October 15th, 2015.
The installments due by December 15, 2015 are included in the Current Liabilities portion of the Note Payable on the condensed consolidated financial statements.
The remaining installments due by July 15, 2016 are included in the Long-Term Liabilities portion of the Note Payable on the condensed consolidated financial statements.
Note 6 – Stockholders’ Deficiency
Warrants
Expenses related to warrants issued in conjunction with settlement of certain disputes are included in the condensed consolidated statement of operations.
A summary of warrants issued, exercised and expired during the six months ended June 30, 2015 is as follows:
|
Shares
|
Weighted Average Exercise Price
|
Aggregate
Intrinsic
Value
|
||||||||||
|
Balance at December 31, 2014
|
5,586,000 | $ | .99 | $ | 45,000 | |||||||
|
Issued
|
—
|
—
|
—
|
|||||||||
|
Expired
|
(835,000 | ) | (1.80 | ) |
—
|
|||||||
|
Balance at June 30, 2015
|
4,751,000 | $ | .84 | $ | 45,000 | |||||||
Note 7 – Stock Options
Stock option activity for the six months ended June 30, 2015, is summarized as follows:
|
Shares
|
Weighted Average Exercise Price
|
Weighted Average Remaining Contractual Life (Years)
|
||||||||||
|
Options outstanding at December 31, 2014
|
2,750,000 | $ | 0.78 | 9.00 | ||||||||
|
Granted
|
—
|
—
|
—
|
|||||||||
|
Expired/forfeited
|
—
|
—
|
—
|
|||||||||
|
Options outstanding at June 30, 2015
|
2,750,000 | $ | 0.78 | 9.00 | ||||||||
7
Total stock option compensation for the six months ended June 30, 2015 and 2014 was $0. There is no unrecognized compensation expense associated with the options.
Note 8 - Notes Payable to Related Parties
Notes payable to related parties at June 30, 2015 consist of notes payable to stockholders of $400,000 (issued in 2012), less unamortized discount of $19,388 related to common stock warrants that had been issued to the stockholders with the notes. The discount is being amortized over the extended term of the notes, which are due in one principal payment on December 31, 2016. Interest is payable semiannually at 10%. The note is collaterized by all receivables now or hereafter existing pursuant to the license agreement with VDF FutureCeuticals, Inc. discussed in Notes 3 and 9.
Payable to related party at June 30, 2015 consists primarily of a $20,000 unsecured note payable to Company shareholder Edward Gomez bearing interest at 10%. On June 11, 2015, the lender extended the maturity date on the balance of the note to July 31, 2016.
Note 9 - Commitments and Contingencies
On June 25, 2015, Company consultant Hank Leibowitz assigned to the Company a patent he obtained for a system and method for using high temperature sources in Rankine cycle power systems. The Company has agreed to pay Mr. Leibowitz a 2% royalty for any and all revenues of products and/or project sales by the Company based on the subject patent.
On November 2, 2012, Keith Johnson, the Company’s former Chief Technical Officer, filed suit against the Company’s operating subsidiary PowerVerde Systems, Inc., in Maricopa County, Arizona, Superior Court. The suit included claims for breach of his employment agreement, for back pay and related claims. Mr. Johnson, whose salary was $12,500 per month, sought back pay of $37,500, reimbursement of expenses totaling approximately $5,012 and other unspecified damages. The Company believes that Mr. Johnson voluntarily terminated his employment in accordance with the agreement and that he has been paid in full. In an abundance of caution, the Company also gave Mr. Johnson 30 days’ notice of termination without cause pursuant to the employment agreement, with this notice to be effective only if the Court determines that his employment was not previously terminated by him. Mr. Johnson ceased working for the Company in early September 2012. Based on the foregoing, the Company believed that it had substantial defenses to Mr. Johnson’s claims, which were denied in the Company’s answer.
In May 2014, the case was settled pursuant to the Company’s agreement to pay Mr. Johnson $30,088, with $5,088 due upon execution of the settlement agreement plus an additional $25,000 payable in installments of $12,500 each in July and August 2014. The installments due in July and August are included in the Payable to Related Parties on the condensed consolidated financial statements at December 31, 2014. As of the date of this filing, all of the settlement payments have been made, and this case is concluded.
The Company’s license agreement with VDF FutureCeuticals, Inc., which has generated all of the Company’s revenues since 2012, will terminate in March 2018, when the underlying patents expire.
Note 10 - Related Party Transactions
See Note 8 for discussion of transactions with stockholders.
8
Forward Looking Statements
Readers are cautioned that the statements in this Report that are not descriptions of historical facts may be forward-looking statements that are subject to risks and uncertainties. This Report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are based on the beliefs of our management, as well as on assumptions made by and information currently available to us as of the date of this Report. When used in this Report, the words “plan,” “will,” “may,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “project” and similar expressions are intended to identify such forward-looking statements. Although we believe these statements are reasonable, actual actions, operations and results could differ materially from those indicated by such forward-looking statements as a result of the risk factors included in our 2014 Annual Report, or other factors. We must caution, however, that this list of factors may not be exhaustive and that these or other factors, many of which are outside of our control, could have a material adverse effect on us and our ability to achieve our objectives. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above.
The following discussion and analysis should be read in conjunction with the financial statements and notes thereto appearing elsewhere herein.
Critical Accounting Policies
The condensed consolidated financial statements of PowerVerde, Inc. are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these condensed consolidated financial statements requires our management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and related notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. We believe the following critical accounting policies affect its more significant judgments and estimates used in the preparation of financial statements.
Accounting for Uncertainty in Income Taxes
The Company follows the provisions of ASC Topic 740-10, “Accounting for Uncertainty in Income Taxes” which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements, and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This topic also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
Based on our evaluation, we have concluded that there are no significant uncertain tax positions requiring recognition in our condensed consolidated financial statements. Our evaluation was performed for the tax years ended December 31, 2011, 2012, 2013 and 2014, the tax years which remain subject to examination by major tax jurisdictions as of June 30, 2015.
We may from time to time be assessed interest or penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to our financial results. In the event we have received an assessment for interest and/or penalties, it has been classified in the condensed consolidated financial statements as general and administrative expense.
Revenue Recognition
Royalty revenue from royalty agreements is recognized in accordance with the terms of the specific agreement.
Common Stock Purchase Warrants
The Company accounts for common stock purchase warrants in accordance with ASC Topic 815- 40, Derivatives and Hedging – Contracts in Entity’s Own Equity (“ASC 815-40”). Based on the provisions of ASC 815- 40, the Company classifies as equity any contracts that (i) require physical settlement or net-share settlement, or (ii) gives the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company), or (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).
Intellectual Property and Goodwill
The Company reviews intangible assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company uses an estimate of the undiscounted cash flows over the remaining life of its long-lived assets, or related group of assets where applicable, in measuring whether the assets to be held and used will be realizable. In the event of impairment, the Company would discount the future cash flows using its then estimated incremental borrowing rate to estimate the amount of the impairment.
Stock-based compensation.
We account for stock-based compensation based on ASC Topic 718-Stock Compensation which requires expensing of stock options and other share-based payments based on the fair value of each stock option awarded. The fair value of each stock option is estimated on the date of grant using the Black-Scholes valuation model. This model requires management to estimate the expected volatility, expected dividends, and expected term as inputs to the valuation model.
Overview
From January 1991 until October 2005, the Company devoted substantially all of its efforts and resources to research and development related to its unsuccessful Biotech Business, in particular the study of biological oxidation and antioxidation directed to the development of potential therapeutic products for the treatment of various diseases and conditions. In the most recent years, the Company’s research focused mainly on targeted antioxidant therapeutics and nutraceuticals. The Company is a development stage company, has generated only limited revenue from product sales and has relied primarily on equity financing, licensing revenues, and various debt instruments for its working capital. The Company has been unprofitable since its inception.
Following the cessation of material Biotech Business operations in October 2005, the Company turned its primary focus to seeking an appropriate merger partner for its public shell. This resulted in the February 2008 merger with Vyrex (the “Merger”). In March 2009, we assigned our Biotech IP to an investor in exchange for his agreement to pay all future expenses relating to the Biotech IP and to pay us 20% of any net proceeds received from new contracts for sale and/or licensing of the Biotech IP. We retained the rights to all revenue from pre-Merger Biotech IP licensing contracts.
In June 2015, we reacquired the Biotech IP from the investor for a net price of $36,552, consisting of a cash down payment of $16,116 and a $58, 436 note to the investor due July 15, 2016, partially offset by an assignment by the investor to the Company of a $38,000 promissory note due November 14, 2015, issued by a post-Merger licensee of the Biotech IP. While the Company believes that it will be able to generate significant new revenue from the Biotech IP as a result of the June 2015 transaction, there can be no assurance that any such revenue will be generated. See Note 5 of Notes to Unaudited Condensed Consolidated Financial Statements.
9
Since the Merger, we have focused on the development, testing and commercialization of our electric power systems, in particular, their applicability to thermal and natural gas pipeline operations. Our business is subject to significant risks, including the risks inherent in our research and development efforts, uncertainties associated with obtaining and enforcing patents and intense competition. See “Risk Factors”.
Except as specifically noted to the contrary, the following discussion relates only to PowerVerde since, as a result of the Merger, the only historical financial statements presented for the Company in periods following the Merger are those of the operating entity, PowerVerde.
Results of Operations
Three Months Ended June 30, 2015 as Compared to Three Months Ended June 30, 2014
Since inception, we have focused on the development, testing and commercialization of our clean energy electric power generation systems. We had no revenues from sales in the second quarter of 2015 and 2014 – but we recorded $32,709 and $125,975 in Biotech IP licensing fees (based on pre-Merger contracts), respectively. In both years, we had substantial expenses due to our ongoing research and development activities and efforts to commercialize our systems, as well as substantial administrative expenses associated with our status as a public company. Our research and development expenses decreased by $54,791 (49.3%) in the second quarter of 2015 as compared to 2014. This decrease is because we are in the process of testing and are not currently building any new generator systems. Our general and administrative expenses decreased by $52,001 (51.0%) in the second quarter of 2015 as compared to 2014, due mainly to decreased expenses in 2015 for amortization and employee compensation. Our net loss was $87,433 in the second quarter of 2015, a 32.4% decrease from the net loss of $129,395 in the second quarter of 2014. Substantial net losses will continue until we are able to successfully commercialize and market our systems, as to which there can be no assurance.
Six Months Ended June 30, 2015 as Compared to Six Months Ended June 30, 2014
Since inception, we have focused on the development, testing and commercialization of our clean energy electric power generation systems. We had no revenues from sales in the first six months of 2015 and 2014 – but we recorded $187,596 and $166,129 in Biotech IP licensing fees (based on pre-Merger contracts), respectively. In both years, we had substantial expenses due to our ongoing research and development activities and efforts to commercialize our systems, as well as substantial administrative expenses associated with our status as a public company. Our research and development expenses decreased by $121,616 (46.3%) in the first six months of 2015 as compared to 2014. This decrease is because we are in the process of testing and are not currently building any new generator systems. Our general and administrative expenses decreased by $95,652 (37.5%) in the first six months of 2015 as compared to 2014, due mainly to decreased expenses in 2015 for amortization and employee compensation. Our net loss was $140,765 in the first six months of 2015, a 66.1% decrease from the net loss of $415,345 in the first six months of 2014. Substantial net losses will continue until we are able to successfully commercialize and market our systems, as to which there can be no assurance.
Liquidity and Capital Resources
We have financed our operations since inception primarily through the sale of debt and equity securities. Also, since 2012 we have received material amounts of Biotech IP royalty fees. As of June 30, 2015, we had working capital of $30,564 compared to $78,580 at December 31, 2014.
We expect 2015 Biotech IP revenues to approximate the 2014 levels; however, there can be no assurance that this revenue level will be achieved.
We continue to seek funding from private debt and equity investors, as we need to promptly raise substantial additional capital in order to finance our plan of operations. There can be no assurance that we will be able to promptly raise the necessary funds on commercially acceptable terms if at all. If we do not raise the necessary funds, we may be forced to cease operations.
Not applicable.
Disclosure Controls and Procedures
The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and President, evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.
Management’s Annual Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate control over financial reporting. Our internal control system was designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of financial statements.
All internal controls over financial reporting, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding of controls. Therefore, even effective internal control over financial reporting can provide only reasonable, and not absolute, assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of internal controls over financial reporting may vary over time. Because of its inherent limitations, internal controls over financial reporting may also fail to prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.
Our Chief Executive Officer and Chief Financial Officer assessed the effectiveness of our internal control over financial reporting as of December 31, 2014. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—An Integrated Framework. Based on this evaluation, our management concluded that, as of June 30, 2015, our internal control over financial reporting was effective.
No Attestation Report
This quarterly report does not include an attestation report of the Company’s independent 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 rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this quarterly report.
Changes in Internal Control Over Financial Reporting
There were no significant changes in internal control over financial reporting during the second quarter of 2015 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
10
None.
There are no material changes to the risk factors set forth in Part I, Item 1A, “Risk Factors,” of the 2014 Annual Report. Please refer to that section for disclosure regarding the risks and uncertainties related to our business.
None.
None.
Not applicable.
Not applicable.
|
(a)
|
Exhibits
|
|
31.1
|
Certification of Principal Executive Officer and Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.2
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
101.INS
|
XBRL INSTANCE DOCUMENT
|
|
101.SCH
|
XBRL TAXONOMY EXTENSION SCHEMA
|
|
101.CAL
|
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
|
|
101.DEF
|
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
|
|
101.LAB
|
XBRL TAXONOMY EXTENSION LABEL LINKBASE
|
|
101.PRE
|
XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
|
__________________
11
In accordance with Section 13(a) or 15(d) of the Exchange Act, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| POWERVERDE, INC. | ||
| Dated: August 11, 2015 | By: | /s/ Richard H. Davis |
| Richard H. Davis | ||
| Chief Executive Officer | ||
| Dated: August 11, 2015 | By: | /s/ John L. Hofmann |
| John L. Hofmann | ||
| Chief Financial Officer | ||
12
Exhibit Index
|
Exhibit No.
|
Description
|
|
|
31.1
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
31.2
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
32.1
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
32.2
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
101.INS
|
XBRL INSTANCE DOCUMENT
|
|
|
101.SCH
|
XBRL TAXONOMY EXTENSION SCHEMA
|
|
|
101.CAL
|
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
|
|
|
101.DEF
|
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
|
|
|
101.LAB
|
XBRL TAXONOMY EXTENSION LABEL LINKBASE
|
|
|
101.PRE
|
XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
|
|