Form 10-K Summary: PowerVerde, Inc.
Reporting period: Fiscal year ended December 31, 2019; filed April 14, 2020. The provided filing is for PowerVerde, Inc., not 374Water Inc. 374Water is described as a strategic project partner. PowerVerde develops small-scale clean-energy systems, including high-temperature and high-pressure expanders for waste-heat recovery and supercritical water oxidation applications.
Business Context
The company remains a development-stage business and has not generated material revenue from its planned power-generation products. Its former Biotech IP licensing agreement expired in March 2018, eliminating its primary historical revenue source. Current activities focus on engineering and testing systems for the 374Water/Duke University sanitation project and limited assembly services for Liberty Plugins.
- One full-time employee and a part-time chief design engineer consultant.
- As of April 14, 2020, 31,750,106 common shares were outstanding.
- Common stock traded on the OTC Bulletin Board under the symbol PWVI.
Financial Performance and Liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $24,000 | $190,094 |
| Research and development expense | $218,919 | $630,742 |
| General and administrative expense | $217,510 | $239,352 |
| Total operating expenses | $436,429 | $870,094 |
| Loss from operations | $(412,429) | $(680,000) |
| Net loss | $(514,916) | $(679,078) |
| Basic and diluted loss per share | $(0.02) | $(0.02) |
| Cash flow from operations | $(287,449) | $157,146 |
| Cash at year-end | $20,033 | $8,482 |
Revenue in 2019 consisted entirely of $24,000 from assembling Liberty Plugins’ Hydra electric-vehicle charging systems. Operating expenses declined substantially, primarily because of lower stock-based compensation, research and development costs, and legal fees. The 2019 net loss included a $69,178 impairment charge related to the Helidyne license and $33,309 of interest expense.
- Working capital changed from positive $9,788 at December 31, 2018 to a deficit of $63,639 at December 31, 2019.
- Total assets were $37,493, while total liabilities were $407,385, including $306,254 of convertible notes payable, net of issuance costs.
- Stockholders’ equity was negative $369,892 at year-end, compared with positive $65,024 in 2018.
- The company raised $325,000 through related-party convertible notes in 2019, bearing 10% interest and generally maturing in 2021 or 2022.
- Accumulated deficit was $12,572,714 at December 31, 2019.
Material Changes Versus 2018
- Revenue declined $166,094, or approximately 87%, because the $159,094 final Biotech IP royalty received in 2018 did not recur.
- Research and development expense declined $411,823, or 65.3%.
- General and administrative expense declined $21,841, or 9.1%.
- Net loss improved by $164,162, or 24.2%, despite the sharp revenue decline, primarily because expenses decreased.
- Operating cash flow shifted from a $157,146 inflow to a $287,449 outflow.
- The company recorded a $69,178 impairment that fully reduced the carrying value of the Helidyne license to zero.
- Debt increased materially through $325,000 of related-party convertible notes, partially offset by $26,000 of debt issuance costs.
- Stock-based compensation decreased from $480,649 to $80,000. The company issued a fully vested option for 1,000,000 shares to its new president at an exercise price of $0.10 per share.
Outlook, Risks, and Unusual Items
PowerVerde and 374Water entered into a November 2019 memorandum of understanding under which PowerVerde would provide a heat-recovery system and advanced expanders for 374Water’s supercritical water oxidation system. The contemplated transaction included an expected purchase of two nominal 60 kW expanders for approximately $500,000 and potential equity issuance by 374Water to PowerVerde. The funding condition deadline was extended from March 31, 2020 to December 31, 2020.
Management expects substantial 2020 revenue from the 374Water/Duke project if the expected purchase order is received, but no assurance is provided that 374Water will raise the required capital, place the order, or close the contemplated transactions. Management states that it has no alternative source capable of generating material near-term revenue if the order is not received.
- The independent auditor reported substantial doubt about the company’s ability to continue as a going concern because of recurring losses, negative operating cash flow, limited revenue sources, and the expired Biotech license.
- Management expects to raise additional private debt or equity promptly; failure to obtain financing could require the company to scale back activities or cease operations.
- The company has not achieved the continuous operating performance required for commercial-quality systems and has not generated material product-sale revenue.
- The COVID-19 pandemic, lower oil and natural-gas prices, financing conditions, regulatory changes, reduced government incentives, competition, intellectual-property uncertainty, and dependence on key personnel may adversely affect results.
- The company uses a facility owned by a major shareholder without a signed lease, creating occupancy uncertainty.
- PowerVerde has no independent directors and no board committees, and it has not adopted a code of ethics because of limited resources.
- In the first quarter of 2020, the company issued an additional $100,000 convertible note to a stockholder at 10% interest, maturing December 31, 2022.
Important Facts for Investors to Verify
- Confirm the issuer identity: the filing is PowerVerde, Inc.; the request metadata identifies 374Water Inc.
- Verify whether the 374Water financing, purchase order, expander purchases, and contemplated equity issuance were completed after the filing date.
- Assess the company’s ability to raise sufficient capital given $20,033 of year-end cash, negative working capital, negative equity, and substantial doubt regarding going concern.
- Review the terms, conversion features, maturity dates, and dilution potential of the $325,000 of 2019 convertible notes and the additional $100,000 issued in 2020.
- Evaluate technical testing and commercialization milestones for the high-temperature and supercritical water oxidation systems.
- Consider dilution from 12,180,500 outstanding options and 975,000 warrants, in addition to potential conversion of related-party notes.
- Verify subsequent effects of the COVID-19 pandemic and whether the Liberty assembly arrangement or 374Water project generated material revenue.