Business Context and Reporting Period
This unaudited Form 10-Q covers PowerVerde, Inc. for the three and nine months ended September 30, 2019. The filing identifies PowerVerde as a developer of clean-energy electric power generation systems; planned principal operations had not commenced and no revenue had been generated from those systems. The requested company, 374Water Inc., is referenced as a prospective strategic partner, not as the filing registrant.
PowerVerde generated limited assembly-service revenue under its Liberty Plugins agreement. Historical Biotech licensing revenue ended after the underlying license expired in March 2018.
Financial Performance and Position
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | $3,000 in 2019; $8,000 in 2018 | $9,000 in 2019; $173,094 in 2018 |
| Operating expenses | $164,558 in 2019; $118,926 in 2018 | $343,627 in 2019; $777,960 in 2018 |
| Loss from operations | $161,558 in 2019; $110,926 in 2018 | $334,627 in 2019; $604,866 in 2018 |
| Net loss | $170,823 in 2019; $110,926 in 2018 | $426,814 in 2019; $603,944 in 2018 |
| Operating cash flow | Not separately reported | $(252,378) in 2019; $185,748 in 2018 |
| Cash at period end | $32,104 at September 30, 2019, versus $8,482 at December 31, 2018 |
- Third-quarter revenue declined 62.5% year over year, while nine-month revenue declined 94.8%, primarily because 2018 included $159,094 of Biotech licensing revenue. All 2019 revenue was assembly-service revenue.
- Third-quarter net loss increased 54% year over year. Nine-month net loss improved 29% because of lower research and development costs and the absence of the large 2018 stock-option expense and licensing-related activity.
- Research and development expense was $114,620 for the quarter and $184,301 year to date. The quarterly increase was primarily attributed to stock options issued in 2019.
- The company recorded a $69,178 impairment charge in the nine months ended September 30, 2019, reducing the Helidyne license asset to zero.
- Cash from financing activities was $276,000, consisting principally of $300,000 of related-party convertible-note proceeds, net of $24,000 of debt issuance costs.
- At September 30, 2019, total liabilities were $342,154, including $281,097 of net convertible related-party debt and $61,057 of accounts payable and accrued expenses. Stockholders’ equity was a deficit of $281,790, compared with positive equity of $65,024 at December 31, 2018.
- Working capital remained slightly negative at $(693), although it improved from $(9,788) at December 31, 2018.
Material Changes, Outlook, and Risks
- The company states that it requires substantial additional debt or equity financing and that failure to obtain funding could force it to cease operations. Management’s going-concern assessment identifies substantial doubt about the company’s ability to continue as a going concern.
- Management expects part-time manufacturing services to generate no more than approximately $5,000 per month. It also expected substantial revenue from a 374Water/Duke project if a purchase order was received, but stated that there was no assurance the order would be obtained.
- On November 6, 2019, after the reporting period, PowerVerde and 374Water entered into a memorandum of understanding concerning PowerVerde’s potential supply of a complete heat-recovery system, including an advanced expander, for 374Water’s SCWO system.
- The MOU is conditioned on 374Water raising sufficient equity capital by March 31, 2020. The contemplated transaction included the potential purchase of two approximately 60 kWe expanders for an expected price of approximately $500,000, plus restricted stock and stock options to PowerVerde. The filing states that completion and profitability are not assured.
- PowerVerde hired Daniel Bogar as president on September 1, 2019 and granted him a fully vested option for 1,000,000 shares at $0.10 per share. His $90,000 annual salary would begin after a private financing of at least $1 million, subject to possible deferral.
- Outstanding potentially dilutive securities included warrants for 975,000 shares and options for 12,180,500 shares. The filing’s income-per-share table reports positive $0.01 figures despite reported net losses; this apparent presentation inconsistency should be verified against the filed financial statements.
- Management reported effective disclosure controls and internal control over financial reporting as of September 30, 2019. No material changes to reported risk factors or legal proceedings were disclosed.
Investor Verification Items
- Confirm that the filing registrant is PowerVerde, Inc., while 374Water Inc. is only the prospective counterparty referenced in the post-period MOU.
- Verify the status, financing condition, economics, and enforceability of the November 6, 2019 MOU and any related 374Water/Duke purchase order.
- Assess the company’s ability to raise additional capital and meet obligations under the $300,000 convertible related-party notes, including 10% interest and maturity on December 31, 2021.
- Reconcile the reported positive basic and diluted loss-per-share amounts with the reported net losses.
- Evaluate dilution from the 12.18 million outstanding options, 975,000 warrants, and any equity contemplated in the 374Water transaction.
- Review the Helidyne license impairment, continuing contractual rights and obligations, and the potential royalty or expander-purchase commitments.