374Water Inc. (formerly PowerVerde, Inc.) — Form 10-Q Summary
Business context and reporting period
Filing for the three months ended March 31, 2018, filed May 15, 2018. The filing identifies the registrant as PowerVerde, Inc., formerly Vyrex Corporation; the requested company name is 374Water Inc. The Company is developing and commercializing clean-energy electric power-generation systems, but its planned principal operations had not commenced and had generated no revenue. First-quarter revenue came from legacy biotech licensing royalties and assembly services unrelated to the planned business.
Financial performance and condition
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $162,094 | $171,251 |
| Operating income | $56,408 | $65,151 |
| Net income | $56,624 | $55,206 |
| Operating margin | 34.8% | 38.0% |
| Net margin | 34.9% | 32.2% |
| Cash provided by operating activities | $184,149 | $28,674 |
| Cash at period end | $35,485 | $8,460 |
- Revenue included $159,094 of biotech intellectual-property licensing fees and $3,000 of Liberty assembly revenue; there were no sales from the clean-energy systems.
- Research and development expense declined to $35,292 from $47,657, while general and administrative expense increased to $70,394 from $58,443.
- Accounts receivable declined to $162,094 from $369,959. The Company considered receivables and the $34,000 Liberty note receivable fully collectible.
- Working capital was $233,742 at March 31, 2018, versus $168,679 at December 31, 2017.
- The $150,000 of related-party notes was paid in full in January 2018. Total liabilities declined to $13,995 from $245,310 at year-end.
- Operating cash flow was substantially supported by a $200,400 favorable change in accounts receivable, prepaid expenses and other assets. Financing activities used $150,000 for related-party debt repayment.
- There was no income-tax provision. Basic and diluted earnings per share were reported as $0.00.
Material changes versus the prior comparable period
- Revenue decreased 5.3%, and operating income decreased 13.4%, primarily reflecting lower licensing fees.
- Net income increased 2.6%, helped by sharply lower interest expense: $698 versus $9,945.
- R&D expense decreased approximately 26%, primarily due to lower employee salaries; general and administrative expense increased approximately 20%, primarily due to higher accounting and legal fees.
- The VDF FutureCeuticals licensing agreement, which generated substantially all revenue since 2012, terminated in March 2018 when the underlying patents expired. The final $159,094 royalty payment was received in April 2018.
- The Company adopted ASC Topic 606 effective January 1, 2018; management reported no significant impact and no cumulative-effect adjustment.
Guidance, outlook, risks and unusual items
- Management expects substantial net losses until the clean-energy systems can be successfully commercialized, with no assurance that commercialization will occur.
- The expired biotech license leaves the Company without another material cash source, other than the final royalty payment. A proposed skilled-manufacturing arrangement was expected to generate no more than $5,000 per month.
- Management stated that substantial additional debt or equity capital must be raised promptly. Failure to obtain financing could force the Company to cease operations, creating substantial doubt about its ability to continue as a going concern.
- The Company had 31,750,106 common shares outstanding as of May 15, 2018, plus 3,675,000 outstanding warrants and 5,750,500 outstanding options excluded from diluted share calculations.
- The Liberty assembly agreement generated $3,000 in first-quarter revenue. A $34,000 Liberty note receivable was outstanding at March 31, 2018; an additional $3,000 was added to the note on May 1, 2018, extending maturity to June 30, 2018.
- The Company reported no legal proceedings, no material changes to previously disclosed risk factors, and effective disclosure controls and internal control over financial reporting based on management’s evaluation.
Important facts for investors to verify
- Whether the Company has secured financing or developed recurring revenue after the March 2018 expiration of the principal licensing agreement.
- The collectibility and timing of the $34,000 Liberty note receivable and other accounts receivable.
- Progress toward commercialization of the clean-energy systems, including customer contracts, production capability and expected funding needs.
- The basis for the going-concern assessment and the likelihood of additional equity or debt financing and related dilution or repayment obligations.
- The registrant’s current corporate name, business status and capitalization, given that this filing is under PowerVerde, Inc., while the requested company is 374Water Inc.