Dividends

We have never declared or paid any cash dividends on our common stock, nor do we intend to declare or pay any cash dividends on our common stock in the foreseeable future. Subject to the limitations described below, the holders of our common stock are entitled to receive only such dividends (cash or otherwise) as may (or may not) be declared by our Board of Directors.

Recent Sales of Unregistered Securities

All of PowerVerde’s sales of unregistered securities since inception have been made pursuant to private offerings to accredited investors. The sales set forth below were made pursuant to an exemption from registration requirements under Regulation D and/or Section 4(2) of the Securities Act of 1933, as amended. Except as otherwise noted below, no placement agent fees or commissions were paid on these offerings, and net proceeds were used for working capital.

In the fourth quarter of 2012, we sold $325,000 principal amount of two-year Series A Secured Promissory Notes to accredited investors. At closing, we issued to each investor a three-year warrant to purchase one share of our common stock at an exercise price of $.41 per share. Pursuant to the terms of the Notes, on December 1, 2013, we were obligated to issue an additional three-year warrant (covering the same number of shares as the initial warrant) to each investor at an exercise price equal to $.21 per share (the average price of the common stock during the 10 trading days prior to December 1, 2013).

Each Note investor receivesreceived simple interest at the rate of 10% per annum based on a 365-day year and actual days elapsed in the period for which such interest is payable. Accrued interest was payable semi-annually on June 30, 2013, December 31, 2013, June 30, 2014, and December 31, 2014. The entire principal balance of the Notes, together with all unpaid interest accrued thereon, was due and payable on December 31, 2014. The Notes arewere collateralized by our Biotech license fee revenues. We agreed to pay a $25,000 fee to the placement agent, Martinez-Ayme Securities, Inc. (“MAS”); however, in December 2013, this receivable was assigned by MAS to our Director and Chief Executive Officer Richard Davis and the amount due was reduced to $20,000 in exchange for payment to Mr. Davis of $4,000, which was paid in 2014. See Note 10 of Notes to Consolidated Financial Statements.

In the first quarter of 2013, we sold an additional $75,000 principal amount of Series A Secured Promissory Notes. In connection with these Notes, we issued warrants to purchase 75,000 shares of common stock concurrent with issuance of the Notes and we issued warrants to purchase an additional 75,000 shares in December 2013 at an exercise price equal to $.21 per share (the average price of the common stock during the 10 trading days prior to December 1, 2013).

In the fourth quarter of 2014, the Note Holders agreed to extend the maturity date of the Note principal balance to December 31, 2016. In connection with the Note extension, we revised the terms of the original warrants issued December 31, 2012, extending the expiration date from December 31, 2015 to December 31, 2017 and the exercise price was reduced from $0.41 per share to $0.39 per share. We also revised the terms of the additional warrants to extend the expiration date to December 31, 2018, and the exercise price was reduced from $.21 per share to $0.17 per share.

In the first quarter of 2014, we raised gross proceeds2017, the Note Holders agreed to extend the maturity date of $240,000 through private placement of 2,400,000 unregistered shares of common stockthe Notes to accredited investors at $.10 per share.

In the second quarter of 2014, we raised gross proceeds of $75,000 through private placement of 750,000 unregistered shares of common stock to accredited investors at $.10 per share. We paid a 10% placement agent fee to MAS for this offering.

InSeptember 30, 2017, and in the third quarter of 2014,2017 the maturity date was extended to April 30, 2018. In 2017, we raised gross proceedspaid $250,000 in principal on the Notes. The $150,000 balance of the Notes was paid in full in January 2018.

In 2019, we issued convertible promissory notes in the aggregate principal amount of $300,000 to stockholders in connection with loans in the same amount. The notes are to be paid in one principal payment, along with any unpaid interest by December 31, 2021. Interest is payable semiannually at 10%. The notes were convertible into common stock at a price of $.20 per share through December 31, 2019, and are convertible at $.30 per share from January 1, 2020, through December 31, 2020, and $.40 per share from January 1, 2021, through the maturity date of December 31, 2021.

In December 2019, we issued a convertible promissory note in the principal amount of $25,000 to a stockholder in connection with a loan in the same amount. The note is to be paid in one principal payment, along with any unpaid interest by December 31, 2022. Interest is payable semiannually at 10%. The note is convertible into common stock at a price of $.20 per share through December 31, 2020, $.30 per share from January 1, 2021 through December 31, 2021, and $.40 per share from January 1, 2022, through the maturity date of December 31, 2022.

In February 2020, the Company issued a convertible promissory note in the principal amount of $100,000 through private placement of 1,000,000 unregistered shares ofto a stockholder in connection with a loan in the same amount. The note is to be paid in one principal payment, along with any unpaid interest by December 31, 2022. Interest is payable semiannually at 10%. The note is convertible into common stock to accredited investors at $.10a price of $.20 per share.share through December 31, 2020, $.30 per share from January 1, 2021 through December 31, 2021, and $.40 per share from January 1, 2022, through the maturity date of December 31, 2022.

Issuer Purchases of Equity Securities

During the years ended December 31, 2015,2019, and 2014,2018, there were no equity securities repurchases by the Company.

Not required for smaller reporting companies.

The following discussion and analysis should be read in conjunction with the financial statements and notes thereto appearing elsewhere herein.

Critical Accounting Policies

The 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 consolidated financial statements requires our management to make estimates and assumptions about future events that effect 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 the consolidated financial statements.

Revenue Recognition

LicensingRevenue from royalties and royalty revenue from royalty agreementsassembly services are unrelated to our planned operations. Royalties are recognized as earned in the Company’s planned operationsperiod the sales to which the royalties relate occur. Manufacturing assembly services are recognized as revenue when the assembled product is recognized in accordance withdelivered to the terms of the specific agreement.customer. Revenues recognized under these agreements amount to 100% of total revenues for the years ended December 31, 20152019 and 2014.2018.

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, 20152019 and 2014,2018, were classified as equity.

Intellectual Property

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 never generated any substantial 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. In March 2009, we assigned most of our Biotech intellectual property other than our rights under existing licensing agreements (the “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 future sale and/or licensing of the Biotech IP. We do not expect this arrangement to generate material revenues.

Since the Merger, we have focused on the development and testing of our electric power systems, and since 2008 we have focused on their applicability to thermal and formerly natural gas pipeline operations. We have abandoned the pipeline opportunities in terms of focusing on the thermal applications. The Company’s 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

Years ended December 31, 20152019 and 20142018

During 2015, we continued to focus on upgrading the durability and continued operations capability of our Liberator Waste Heat System. We had no revenues in 20152019 other than $529,861$24,000 for assembly revenues under the Liberty Agreement. In 2018, we generated $31,000 in assembly revenues under the Liberty Agreement along with $159,094 in Biotech IP licensing fees,license revenue in the first quarter, representing the final payment under our license agreement. 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 23.6% increase from $428,747 in licensing income for 2014.public company. Our research and development expenses increaseddecreased by $263,794 (72.5%$411,823 (65.3%) in 2015 as2019 compared to 2014,2018, and our general and administrative expenses decreased by $229,425 (45.7%$21,841 (9.1%). The increasedecrease in expenses wasis primarily duetodue to the decrease in stock option issuances of stock options for services.and legal fees. Our net loss decreased by 24.2% in 2019 even though we had no Biotech IP revenue in 2019. Substantial net losses will continue until we are able to successfully commercialize and market our products,systems, as to which there can be no assurance.

Liquidity and Capital Resources

We have financed our operations since inception principally through the sale of debt and equity securities. Also, since 2012from 2012-18 we have received material amounts of Biotech IP licensing fees. As of December 31, 2015,2019, we had a working capital deficit of $288,544 and$63,639 as compared to working capital of $9,788 as of December 31, 2014, we had a2018. Our negative working capital surplus of $78,580. This decrease in working capitalposition is due primarily to the note payablesubstantial administrative expenses associated with our status as a public company and our inability to related parties (issued in 2012) that is due on December 31, 2016.raise significant capital. .

During 2015, we received $529,861 inOur Biotech IP licensing fees alone.

Bylicense agreement expired in March 2018 due to the end of 2015, we had spent allexpiration of our $4,736 opening cash balance, so that our year-end cash balance was only $5,601, while our accounts payable and accrued expenses were $41,951. As of the date of this Report,underlying patents. Consequently, we have only enough cashno further material source of revenues. We are generating some revenue by using our employee to finance operations for approximately two months, until approximately May 2016.

provide part-time skilled manufacturing services to a third party under the Liberty Agreement; however, we expect this arrangement to generate no more than $3,000 per month. This arrangement generated revenues of $24,000 in 2019 and $31,000 in 2018. We expect 2016 Biotech IP revenues to exceedgenerate substantial revenue from the 2015 level;374Water/Duke project in 2020 if we receive the expected purchase order; however, there can be no assurance that this revenue level will be achieved. Further, our contract which provides our Biotech IP revenues expires in March 2018, and we will therefore be without a source of working capital at that time unless we can generate material revenues from operations or raise substantial additional capital, as to which there can be no assurance.receive the purchase order.

We continue to seek funding from private debtequity and equitydebt 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. If we do not promptly raise the necessary funds, we may be forced to cease operations.

Not required for smaller reporting companies.

The consolidated financial statements of the Company and other information required by this Item are set forth herein in a separate section beginning with the Index to the Financial Statements on page F-1.

None.

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, 2015.2019. 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 (September 1992). Based on this evaluation, our management concluded that, as of December 31, 2015,2019, our internal control over financial reporting was effective.

No Attestation Report

This annual 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 annual report.

Changes in Internal Control Over Financial Reporting

There were no significant changes in internal control over financial reporting during the fourth quarter of 20152019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

None.

PART III

The names of our officers and directors, as well as certain information about them are set forth below:

Richard H. Davis. Mr. Davis joined our Board in February 2008 in connection with the Vyrex Merger, and he became Chief Executive Officer in August 2011. He received a B.S degree in economics from Florida State University in 1982. He joined First Equity Corporation (“First Equity”) in Miami that same year. First Equity operated as a regional full-service brokerage and investment bank. Mr. Davis’ duties included equity deal structure and brokerage-related activities. After First Equity was acquired in 2001, Mr. Davis joined the corporate finance department of William R. Hough & Company (“Hough”), where he continued structuring equity finance and private acquisitions. Hough was acquired in 2004 by RBC Dain Rauscher (“Dain”), a global investment banking firm. Dain consolidated Hough’s corporate finance activities into its New York offices. Mr. Davis elected to remain in Miami and joined Martinez-Ayme Securities, assuming the newly-created position of managing director of corporate finance.

Daniel T. Bogar. Mr. Bogar is an executive with decades of experience in managing, growing and financing companies. From 1987-2000 he served in various management positions with Cellstar Corporation, a pioneer provider of cellular telephone service, in Miami, Florida, and Mexico City, Mexico. In his last position with Cellstar, Mr. Bogar served as President of the Americas region from 1999-2000. From 2000-2009, he served as Managing Director of Stanford Group Holdings (“Stanford”), a wealth management firm based in Houston, Texas. Mr. Bogar served as President/COO of American Green Technology, Inc./Vida Shield (“AGT”), a South Bend, Indiana manufacturer of LED industrial lighting products and anti-microbial lighting products, from inception in 2009 until 2018. Since 2019, Mr. Bogar has served as an adjunct professor of management at the McCoy School of Business, Texas State University, San Marcos, Texas.

On December 18, 2013, the SEC entered a final decision against Mr. Bogar finding that, in connection with his work on behalf of Stanford, which collapsed in 2009, he violated Section 17(a) of the Securities Act of 1933, Sections 10(b) and 15(c)(1) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The SEC found Mr. Bogar liable as a result of gross negligence but not willful fraud. Mr. Bogar, his family and friends suffered substantial losses as a result of their investments in Stanford’s securities. Pursuant to the SEC decision, Mr. Bogar was ordered (a) to cease and desist from committing or causing any violations or future violations of the relevant securities laws; (b) barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization and prohibited, permanently, from serving or acting as an employee, officer, director, member of an advisory board, investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter; (c) to disgorge $1,555,485.75, plus prejudgment interest; and (d) to pay a civil money penalty of $260,000.

On August 28, 2018, certain noteholders of AGT unaffiliated with AGT’s majority shareholder Ushio America Inc. (“Ushio”) filed an involuntary chapter 11 petition against AGT in the U.S. Bankruptcy Court for the Southern District of Texas. The petition was granted on October 2, 2018. AGT had run out of cash due to Ushio’s refusal to provide further funding and refusal to extend the maturity of prior financing by Ushio which was secured by AGT’s intellectual property (“IP”) and other assets. On December 18, 2018, the court appointed a trustee for AGT, and on July 11, 2019, the court granted the trustee’s motion to convert the case to a Chapter 7 liquidation.

On October 30, 2019, the trustee filed an adversary complaint against Ushio and its affiliates alleging fraud, breach of fiduciary duty and other claims. In essence the trustee alleges that Ushio and its affiliates acted in bad faith in connection with their investment in and control of AGT for the purpose of misappropriating AGT’s IP and other assets. Ushio denies the allegations.

John Hofmann.L. Hofmann. Mr. Hofmann became our Chief Financial Officer in August 2011. He isSince December 2017, he has been a partner in the accounting firm of KSDT and Company, Miami, Florida (“KSDT”). Previously, he was president of J L Hofmann & Associates, P.A., Coral Gables, Florida (“JLHA”JLHPA”), which haswhere he provided financial consulting and accounting services to select clientele since 1990. JLHA hasJLHPA and KSDT have provided services to PowerVerde since July 2010. Mr. Hofmann also serves as Operating Partner of Taft Street Partners I, Ltd., providing consulting services and capital for commercial and residential real estate projects. Mr. Hofmann started his career working with multinational companies for ten years as a Senior Manager for PricewaterhouseCoopers LLP (“PwC”). While at PwC, he traveled extensively primarily working on international tax matters and issues concerning the Internal Revenue Service. Locally, Hofmann has worked with the Miami Dolphins, Carnival Cruise Line, Royal Caribbean Cruise Line, Resorts International and Terremark Worldwide. Mr. Hofmann earned his Bachelor of Science in Accounting at the University of Florida and obtained his Master of Science in Taxation from Florida International University. Mr. Hofmann became a Certified Public Accountant through the Florida Board of Accountancy in 1982. He is a member of the Florida Institute of CPAs.

Election of Directors

Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of the stockholders, including the election of directors. Cumulative voting with respect to the election of directors is not permitted by our Certificate of Incorporation.

Our Board of Directors shall be elected at the annual meeting of the shareholders or at a special meeting called for that purpose. Each director shall hold office until the next annual meeting of shareholders and until the director’s successor is elected and qualified.

Committees

Our Board of Directors does not yet have any committees; however, we intend tomay establish an audit committee and a compensation/stock option committee in the near future. Additional board members are anticipated to be added in 2016.

Advisory Board Members

In March 2010, our Board of Directors created an Advisory Board to advise and recommend, on a non-legally-binding basis, certain directions or actions deemed to be beneficial to the Company’s success. The Advisory Board’s members may be shareholders or non-shareholders; however, each member represents a specific industry or vocation complementary to the Company’s anticipated markets, customers and technical needs. It is anticipated that the Advisory Board will meet once a year in person and meet by conference call quarterly. We expect to compensate the Advisory Board members with restricted stock and/or options; however, the compensation plan has not yet been established. The members of the Advisory Board are as follows:

All of the Advisory Board Members are PowerVerde shareholders.

Compliance with Section 16(a) of the Securities and Exchange Act of 1934

Under the securities laws of the United States, our directors, executive officers and any persons holding more than 10% of the Company’s common stock are required to report their initial ownership of the Company’s common stock and any subsequent changes in that ownership to the Securities and Exchange Commission. Specific due dates for these reports have been established and the Company is required to identify in this Report those persons who failed to timely file these reports. All of the filing requirements were satisfied in 2015.2019. In making this disclosure, we have relied solely on written representations of our directors and executive officers and copies of the reports that have been filed with the Commission.

Code of Ethics

We have not adopted a code of ethics for our management because of the costs involved and our lack of resources and limited operations.

Through March 2016,April 2020, we have not paid any cash compensation to officers or directors in such capacity. Since becoming PowerVerde officers, Messrs Davis and Hofmann have not received any salary or other cashas compensation for services in that capacity except that, in June 2011, Messrs. Davisonly grants of options and Hofmann received three-year warrants to purchase 600,000 and 200,000 shares, respectively, of our common stock, at a price of $1.05 per share (the market price on the date of grant). In addition, in March 2013, Messrs Davis and Hofmann received five-year warrants to purchase 1,000,000 and 500,000 shares, respectively, of our common stock, at a price of $.30 per share (the market price on the date of grant). In March 2012, in exchange for his interest in Cornerstone, our then officer and director Bryce Johnson received 1,575,000 shares of our restricted common stock and three-year warrants to purchase 150,000 shares of our common stock at exercise prices of $2.00, $3.00 and $4.00 as to 50,000 shares each. Mr. Johnson resigned from his positions with PowerVerde in March 2013.warrants.

Employment Agreements

On April 7, 2011, in order to enhance our ability to raise capital and limit dilution of our stockholders, we entered into an agreement with our co-founder George Konrad, pursuant to which Mr. Konrad agreed to surrender to our treasury 4,500,000 shares of our common stock owned by him since inception in exchange for our (i) entering into an employment agreement with him; and (ii) agreeing to pay to his company, ARD, $200,000, representing the cost of certain equipment owned by ARD which was principally used by us.

Consequently, on April 7, 2011, we entered into a two-year employment agreement with Mr. Konrad, pursuant to which Mr. Konrad served as our President. Pursuant to this employment agreement, we paid Mr. Konrad a salary of $10,000 per month. The employment agreement contained standard confidentiality provisions, as well as standard non-competition and non-solicitation provisions which survive for two years following termination of employment.

On August 19, 2011, we amended our agreement with Mr. Konrad dated as of April 7, 2011, relating to his surrender to the Company’s treasury of 4,500,000 shares of common stock (the “Original Agreement”). Pursuant to this amendment, we extended the due date for payment of $200,000 to be made to Mr. Konrad’s company, ARD, under the Original Agreement to on or before April 7, 2013.

On October 16, 2012, in order to enhance our ability to raise capital and limit dilution of our stockholders, as well as to satisfy our obligations to ARD for past services and Mr. Konrad under the agreement dated April 7, 2011 as amended August 19, 2011 (the “Initial Agreement”) and the employment agreement between Mr. Konrad and the Company dated April 7, 2011( the “Employment Agreement”), we entered into an agreement (the “Settlement Agreement”) with Mr. Konrad and ARD, pursuant to which Mr. Konrad agreed to surrender to our treasury 3,000,000 shares of our common stock owned by him in exchange for payment of $530,000. Of this amount, $130,000 was paid to ARD and $300,000 was paid to Mr. Konrad upon execution of the Settlement Agreement, and we agreed to pay $100,000 to Mr. Konrad in six consecutive monthly installments of $16,666.67 each due on the 16^th day of each month beginning November 16, 2012. In the event any part of the $100,000 balance remained unpaid six months after the date of the Settlement Agreement, Mr. Konrad had an option to convert some or all of the unpaid balance into shares of the Company’s common stock at a price of .0667 per share. The execution of the Settlement Agreement terminated both the Initial Agreement and the Employment Agreement, and neither party had any further obligations or liabilities under those agreements. In March 2014, our debt to Mr. Konrad was paid in full following his receipt of payments totaling $116,667 in 2013 and 2014.

Pursuant to the Settlement Agreement, Mr. Konrad resigned from his positions as President and Director of PowerVerde. He was not replaced in either position.

Effective June 15, 2011, we entered into an employment agreement with Mark P. Prinz, pursuant to which Mr. Prinz serves as a Project Engineer. Pursuant to this agreement, we paid Mr. Prinz a salary of $11,250 per month through June 2013. Based on an amendment effective July 1, 2013, his salary has been $7,500 per month since then. This agreement is terminable by either party without cause upon 30 days’ prior written notice. In connection with this employment agreement, we granted Mr. Prinz (i) a 10-year option to purchase 100,000 shares of our common stock at a price of $1.23 per share (the market price on the date of grant); and (ii) a 10-year option to purchase 100,000 shares of our common stock at a price of $2.00 per share. In each case, one-fourth of the option shares,i.e., 25,000 shares, vested as of the date of the employment agreement, and the balance vestsvested in equal installments every six months thereafter until fully vested, provided that Mr. Prinz iswas still employed by us at the time and subject to PowerVerde achieving certain operational targets. Additionally, in connection with this employment agreement, Mr. Prinz assigned certain intellectual property rights to the Company. The employment agreement contains standard confidentiality provisions, as well as standard non-competition and non-solicitation provisions which survive for two years following termination of employment.

On October 25, 2012, we entered into a consulting agreement with Hank Leibowitz, the principal of Waste Heat Solutions, LLC and an expert with 39 years experience in the field of advanced energy systems. Pursuant to this consulting agreement, which is terminable by either party on 30 days’ notice, we pay to Mr. Leibowitz’s company, Waste Heat Solutions LLC (“WHS”), $7,500 per month. In connection with this consulting agreement, we issued to Waste Heat Solutions (i) a fully vested 10-year option to purchase 500,000 shares of common stock at $.56 per share and (ii) a 10-year option, vesting six months from the contract date, i.e., on April 25, 2013, to purchase an additional 500,000 shares at $.56 per share. This consulting agreement contains standard confidentiality provisions, as well as standard non-competition and non-soliciting provisions which survive for two years following termination of the consultancy.

On September 1, 2019, we hired Daniel Bogar to serve as our President, reporting to the CEO. As compensation, Mr. Bogar received a fully-vested non-qualified option to purchase 1,000,000 shares of our common stock at an exercise price of $.10 per share, with an expiration date of June 30, 2026. In addition, Mr. Bogar will receive an annual salary of $90,000 beginning on the closing of a private financing with gross proceeds of at least $1,000,000; however, we will be permitted to defer the salary to the extent required to maintain solvency.

May 2018 Option Issuance

On May 30, 2018, our Board of Directors agreed to extend all outstanding management and non-employee stock options and warrants (covering 5,975,000 shares) to a common expiration date of June 30, 2026 and adjust the exercise prices to $0.12. The 2,300,000 warrants were cancelled and the 3,675,000 options were terminated and reissued with the adjusted terms. The reissued options included options held by Mr. Davis (2,400,000 shares), Mr. Hofmann (1,200,000 shares) and WHS (1,000,000 shares).

On May 30, 2018, the Company also issued new, immediately vested stock options with an exercise price of $0.12 and an expiration date of June 30, 2026, to: Mr. Davis for 1,300,000 shares; WHS for 500,000 shares; and Mr. Hofmann for 800,000 shares.

We may also issue to our officers and directors further stock options on terms and conditions to be determined by our Board of Directors or designated committee.

Compensation of Directors

We have not yet determined a compensation plan for our directors. We intend to provide our directors with reasonable compensation for their services in cash, stock and/or options.

Indemnification of Directors and Officers

Our Certificate of Incorporation allows us to indemnify our present and former officers and directors and other personnel against liabilities and expenses arising from their service to the full extent permitted by Delaware law. The persons indemnified include our (i) present or former directors or officers, (ii) any person who while serving in any of the capacities referred to in clause (i) who served at our request as a director, officer, partner, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, and (iii) any person nominated or designated by (or pursuant to authority granted by) our Board of Directors or any committee thereof to serve in any of the capacities referred to in clauses (i) or (ii).

The following table sets forth certain information as of March 30, 2016,April 14, 2020, regarding the beneficial ownership of our common stock by (i) each of our directors and “named executive officers”; and (ii) all of our executive officers and directors as a group. To our knowledge, no other person beneficially owns more than 5% of our common stock. As of March 30, 2016April 14, 2020, we had 31,750,106 shares outstanding.

¹Mr. Konrad resigned as President and Director in October 2012. At that time, he surrendered 3,000,000 shares of common stock to our Treasury.

² Mr. Johnson resigned as an officer and director in March 2013. Includes 150,000900,000 shares represented by currently exercisable warrants.

³ Mr. Barker’s shares are owned by Mr. Barker and his wife as joint tenants. Mr. Barker resigned as an officer and director in January 2015.

⁴ Mr. Davis’ shares include: 2,400,0003,700,000 shares represented by currently exercisable warrants,options, 114,033 shares owned by Mr. Davis’ wife, as to which he disclaims beneficial ownership, and 10,000 shares owned by Darby Shore Management, Inc., a Florida corporation (“Darby”), for which Mr. Davis is an officer, director and 25% shareholder. Mr. Davis may be deemed to have voting and investment power over these shares held by Darby.

⁵ All of these shares are represented by currently exercisable warrants.options.

⁶ All of these shares are represented by currently exercisable options.

⁷Includes 3,600,0006,700,000 shares represented by currently exercisable warrants.options.

See Item 11. “Executive Compensation.”

Mr. Barker resigned from his positions as an officer and director of the Company in January 2015.

Since July 2010, Mr. Hofmann’s accounting firm,firms, J.L. Hofmann & Associates P.A. and Kabat, Scherzer, de la Torre, Taraboulos & Co. LLC (“JLHPA”KSDT”) hashave provided financial consulting and accounting services to PowerVerde. We paid a total of $39,150 to JLHPAKSDT $37,334 and $37,280 in 2015.the years ended December 31, 2019 and 2018, respectively.

We do not have any independent directors, as our sole director Mr. Davis is an officer. We intend to seek qualified independent directors to serve on our Board of Directors by the end of 2016.2020.

The firm of Cherry Bekaert LLP, Certified Public Accountants (“CB”) was designated by our Board of Directors to audit the consolidated financial statements of our company for the fiscal years ended December 31, 20152019 and 2014.2018. The following table summarizes the aggregate fees billed and expected to be billed to us by CB for the fiscal years ended December 31, 20152019 and 2014,2018, respectively:

Principal Accountant Fees and Service

Audit Fees

The aggregate fees billed and expected to be billed by CB for professional services rendered for the fiscal years ended 20152019 and 2014,2018, respectively, including fees associated with the annual audit, the reviews of the consolidated financial statements included in our Forms 10-K, the reviews of the quarterly reports on Form 10-Q, fees related to filings with the Securities and Exchange Commission and consultations on accounting issues and the application on new accounting pronouncements were approximately $46,250$52,750 and $43,250,$52,500 for both 2019 and 2018, respectively.

Tax Fees

The aggregate fees billed or expected to be billed by John L. Hofmann & Associates P.A.JLHPA and KSDT for tax compliance, tax advice and tax planning rendered to the Company for each of the fiscal years ended December 31, 20152019 and 20142018 were approximately $2,000.

PART IV

See Exhibit Index and Financial Statements Index, below.

PowerVerde, Inc.
Annual Report on Form 10-K
Year Ended December 31, 20152019

EXHIBIT INDEX

*       Filed herewith. 

SIGNATURES

In accordance with Section 13 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.

In accordance with the Exchange Act, this Report has beensignedby the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

PowerVerde, Inc. and Subsidiary

Annual Report on Form 10-K

Year Ended December 31, 20152019

INDEX TO FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

PowerVerde, Inc. and Subsidiary

Coral Gables,Miami, Florida

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of PowerVerde, Inc. and Subsidiary,subsidiary (the “Company”) as of December 31, 20152019 and 2014,2018, and the related consolidated statements of operations, changes in stockholders’ deficiency,equity (deficit), and cash flows for the years then ended. These consolidated financial statements areended, and the responsibility of the Company’s management. Our responsibility isrelated notes to express an opinion on these consolidated financial statements based on our audits.

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 audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required(collectively referred to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over 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 internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

statements). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of PowerVerde, Inc. and Subsidiarythe Company as of December 31, 20152019 and 2014,2018 and the consolidated results of their operations and their consolidated cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.America (“U.S. GAAP”).

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As showndiscussed in Note 2 to the consolidated financial statements, the Company has historically incurred net losses and negative operating cash flows and its principal source of revenue related to a net loss of $426,634 and $565,913license that expired in 2015 and 2014, respectively.March 2018. As of December 31, 20152019, the Company had an accumulated deficit was $11,659,311.of $12,572,714. These factors, and others discussed in Note 2, raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments relatingthat might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the recoverabilityCompany in accordance with the U.S. federal securities laws and classificationthe applicable rules and regulations of recorded assets,the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the amountpurpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and classification of liabilitiesperforming procedures that might be necessaryrespond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the eventconsolidated financial statements. Our audits also included evaluating the Company cannot continue in existence.accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since December 31, 2010.

Cherry Bekaert LLP
Coral Gables,

Fort Lauderdale, Florida
March 30, 2016

April 14, 2020

PowerVerde, Inc. and Subsidiary

Consolidated Balance SheetsCONSOLIDATED BALANCE SHEETS

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

PowerVerde, Inc. and Subsidiary

Consolidated Statements of OperationsCONSOLIDATED STATEMENTS OF OPERATIONS

For the years ended December 31, 20152019 and 20142018

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

PowerVerde, Inc. and Subsidiary

Consolidated Statements of Changes in Stockholders’ deficiencyCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

For the years ended December 31, 20152019 and 20142018

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

PowerVerde, Inc. and Subsidiary

Consolidated Statements of Cash FlowsCONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31, 20152019 and 20142018

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

PowerVerde, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Nature of Business

PowerVerde, Inc. (the “Company”) is a “C” Corporation organized under the Laws of Delaware with operations in Scottsdale, Arizona. The Company’s two founders, now its largest shareholders, have conceived and developed the use of a power systems patent. For several years, the Company has been undertaking research and development on a power generating system based on the patent and related intellectual property, which it hopes to commercialize in the near future.commercialize.

Note 2 – Going Concern

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has incurred recurring operating losses and negative cashflows from operations in 2019. Additionally, 84% of the Company’s revenues in 2018 result from royalties related to a license that expired in March 2018, so such revenues will not recur beyond that date, and the Company currently has limited additional sources of revenues for the foreseeable future. The Company has historically relied upon unrelated and related party debt and equity financing to fund its cash flow shortages and will require either additional debt or equity financing to sustain its operations. The Company had a net loss of $514,916 in 2019 because the royalties under its biotech licensing agreement expired in March 2018. Those factors as well as uncertainty in securing additional funds for continued operations, create an uncertaintysubstantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company continues to seek funding from private debt and equity investors, as it needs to promptly raise substantial additional capital above and beyond expected licensing revenue in order to finance its plan of operations. There can be no assurance that the Company will be able to promptly raise the necessary funds on commercially acceptable terms, if at all. If the Company does not raise the necessary funds, it may be forced to cease operations.

Note 3 – Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of PowerVerde, Inc. and its wholly-owned subsidiary, PowerVerde Systems, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

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 bewere recognized as revenue.revenue through March 2018. No revenues from this planned principal operation have been generated.

Cash Equivalents

The Company considers primarily 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 Company’s license agreement with VDF FutureCeuticals, Inc.for assembly services. The Company monitors accounts receivable and provides allowances when considered necessary. At December 31, 20152019 and 2014,2018, accounts receivable were considered to be fully collectible. Accordingly, no allowance for doubtful accounts was provided.

Employee Advances

The employee advances at December 31, 2014 represent the payroll taxes due on the issuance of common stock as compensation prior to 2014. As of December 31, 2015, all payroll taxes have been repaid by the employee.

Revenue Recognition

Licensing and royaltyRoyalties are recognized as earned in the period the sales to which the royalties relate occur. Manufacturing assembly services are recognized as revenue from a royalty agreement unrelatedwhen the assembled product is delivered to the Company’s planned operations is recognized in accordance with the terms of the specific agreement.customer. Revenues recognized under this agreementthese agreements amount to 100% of total revenues for the years ended December 31, 20152019 and 2014.2018.

Intellectual Property

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 (Step 1 test). 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.

For those reporting units with zero or negative carrying amounts, an entity must evaluate whether it is more likely than not that goodwill impairment exists, regardless of the mathematical results of the Step 1 test. In making that determination, the entity should consider whether there are any adverse qualitative factors that could impact the amount of goodwill.

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. Depreciation of property and equipment were $634 and $7,589 for the years ended December 31, 2019 and 2018, respectively.

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. NoIn 2019, the Company recognized an impairment losses were recognizedloss of $69,178. There was no impairment in the years ended December 31, 2015 and 2014.2018.

Stock-based compensation

The Company has accounted for stock-based compensation under the provisions of ASCAccounting Standards Codification (“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),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, 20142019 and 20152018 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.

Based on our evaluation, we have concluded that there are no significant uncertain tax positions requiring recognition in our consolidated financial statements. Our evaluation was performed for the tax years ended December 31, 2012, 2013, 20142015, 2016, 2017 and 2015,2018, the tax years which remain subject to examination by major tax jurisdictions as of December 31, 2015.2019.

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 consolidated financial statements as general and administrative expense.

Research and Development Costs

The Company’s research and development costs are expensed in the period in which they are incurred. Such expenditures amounted to $627,889$218,919 and $364,095$630,742 for the years ended December 31, 20152019 and 2014,2018, respectively.

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 (loss) 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 4,155,000975,000 shares and options for 4,750,00012,180,500 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 substantially similar to the face value of the notes ($400,000).

Use of Estimates

The preparation of the consolidated 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 consolidated 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

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. As a result of the changes, existing development stage entity presentation and disclosure requirements are eliminated. We have adopted ASU 2014-10 on our consolidated financial statements effective January 1, 2015.

In May 2014,February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue2016-02,“Leases,”which created a new Topic, ASC Topic 842 and established the core principle that a lessee should recognize the assets, representing rights-of-use, and liabilities to make lease payments that arise from Contractsleases. For leases with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09a term of 12 months or less, a lessee is intendedpermitted to improve the financial reporting requirements for revenue from contracts with customers by providing a principle based approach. The core principal of the standard is that revenue shouldmake an election under which such assets and liabilities would not be recognized, whenand lease expense would be recognized generally on a straight-line basis over the transfer of promised goods or serviceslease term. This ASU is made in an amount that the entity expects to be entitled to in exchangeeffective for the transfer of goodspublic entities for interim and services. ASU 2014-09 also requires disclosures enabling users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2015-14”) which deferred the effective date of the standard. This standard will be effective for annual reporting periods beginning after December 15, 2018, and interim periods withinearly application is permitted. The Company adopted ASC Topic 842 on January 1, 2019 and such adoption did not have any impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13,Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments(“ASU No. 2016-13”). ASU No. 2016-13 affects entities holding financial assets and net investments in leases that are not accounted for at fair value through net income. The amendments in ASU No. 2016-13 require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net carrying value at the amount expected to be collected on the financial asset. ASU No. 2016-13 also amends the impairment model for available-for-sale securities. An entity will recognize an allowance for credit losses on available-for-sale debt securities as a contra-account to the amortized cost basis rather than as a direct reduction of the amortized cost basis of the investment, as is currently required. ASU No. 2016-13 also requires new disclosures. For financial assets measured at amortized cost, an entity will be required to disclose information about how it developed its allowance for credit losses, including changes in the factors that influenced management’s estimate of expected credit losses and the reasons for those changes. For financing receivables and net investments in leases measured at amortized cost, an entity will be required to further disaggregate the information it currently discloses about the credit quality of these assets by year of the asset’s origination for as many as five annual periods. For available for- sale securities, an entity will be required to provide a roll-forward of the allowance for credit losses and an aging analysis for securities that are past due. ASU No. 2016-13 is effective for annual periods beginning after December 15, 2019. Early adoption2022, including interim periods within those fiscal years.

In June 2018, the FASB issued ASU 2018-07,“Compensation – Stock Compensation (Topic 718).”ASU 2018-07 simplifies the accounting for nonemployee stock-based payment transactions. This ASU is noteffective for public entities for interim and annual reporting periods beginning after December 15, 2018, and early application is permitted. The Company is currently evaluating the potential impactadoption of this guidance on January 1, 2019 did not have an impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820):Disclosure Framework -Changes to the Disclosure Requirements for Fair Value Measurement(“ASU No. 2018-13”). The primary focus of ASU 2018-13 is to improve the effectiveness of the disclosure requirements for fair value measurements. ASU No. 2018-13 removes the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for the timing of transfers between levels and the valuation processes for Level 3 fair value measurements. It also adds a requirement to disclose changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and to disclose the range and weighted average of significant unobservable inputs used to develop recurring and nonrecurring Level 3 fair value measurements. For certain unobservable inputs, entities may disclose other quantitative information in lieu of the weighted average if the other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop the Level 3 fair value measurements. In addition, public entities are required to provide information about the measurement uncertainty of recurring Level 3 fair value measurements from the use of significant unobservable inputs if those inputs reasonably could have been different at the reporting date. ASU No. 2018-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Entities are permitted to early adopt either the entire standard or only the provisions that eliminate or modify the requirements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. As a smaller reporting company this pronouncement is effective for fiscal years beginning after December 15, 2022.

The Company does not believe that any recently issued, but not yet effective accounting standards, if currently adopted, will have a material effect on itsthe Company’s consolidated financial position, results of operations and cash flows.

In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” which requires an entity to evaluate whether conditions or events, in the aggregate, raise substantial doubt about the entity’s ability to continue as a going concern for one year from the date the financial statements are issued or are available to be issued. The guidance will become effective for the year ended December 31, 2016. The adoption of ASU 2014-15 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In April 2015, the FASB issued ASU No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30)” (“ASU 2015-03”). Currently generally accepted accounting principles U.S. GAAP requires any debt issuance costs to be reported in the balance sheet as deferred charges. The amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. The Company is currently evaluating the potential impact this guidance will have on its consolidated financial position, results of operations and cash flows.

In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740)” (“ASU 2015-17”). Currently U.S. GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. The amendments under ASU 2015-17 will require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this update will be effective for fiscal years beginning after December 15, 2017 and interim periods within the fiscal years beginning after December 15, 2018. The adoption of ASU 2015-17 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

Note 5 – Intellectual Property and Note Payable

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 December 31, 2015 and $604,487 at December 31, 2014.License Agreement

On June 30, 2015,1, 2016, the Company entered into an Assignmenta ten-year License Agreement with VyrexIP Holdings Inc., a company ownedHelidyne LLC for total consideration of $100,000 to utilize the Helidyne intellectual property in the manufacturing of planetary rotor expanders and the incorporation of same in the Company’s distributed electric power generation systems. The license agreement also grants the Company an exclusive license to sell the expanders whether manufactured by Company shareholder Edward GomezHelidyne or by the Company. The Company’s royalty obligation begins on the earlier of the commercialization of the product or three years from the effective date of the agreement. Once the royalty obligation begins, the minimum annual royalty is $50,000 for each of the first six years, and $100,000, per commercial year, for the purchaseremainder of the agreement. Helidyne has defaulted under the agreement. Royalties would be payable only if Helidyne performs as required, or if the Company elects to produce its own expanders using Helidyne technology.

During the year, management of the Company evaluated the continued default by Helidyne and determined that Helidyne will not be able to perform under the license agreement for the foreseeable future. The Company’s license agreement continues to be active and the Company may utilize the Helidyne intellectual property. The net priceproperty in marketing its own products. Under the terms of these assets was comprised ofthe license agreement, the Company has the right to develop a down payment of $16,116 and a $58,436 promissory noteprototype utilizing the Helidyne technology at its own cost. Due to the seller due July 15, 2016, partially offsetcontinued default by assignment byHelidyne and the sellerpotential cost of developing its own prototype, the Company has determined that the intangible asset related to the Companyabove license agreement is impaired and recognized an impairment charge 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. This note was paid in full in November 2015$69,178 in the amountsecond quarter of $42,579, including accrued interest.2019, which is 100% of the net carrying value. See Note 9.

For each of the years ended December 31, 20152019 and 2014,2018, amortization expense was $61,045$5,000 and $219,813$12,374 respectively, and accumulated amortization of theall intangible asset- intellectual propertyassets was $665,532$107,641 and $107,007 at December 31, 2015.

Future amortization of the intangible asset – intellectual property was as follows as of December 31, 2015:

Year ending December 31:

Note Payable at December 31, 2015 consists of $47,569 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, 2015.2019 and 2018, respectively.

Note 6 – Stockholders’ DeficiencyEquity (Deficit)

Warrants

The Company issued warrants on June 3, 2011 to various persons, including affiliates of the Company, for services provided to the Company. These warrants covered the purchase of 1,855,000 unregistered shares of the Company’s stock at an exercise price of $1.05 per share with a five-year term. These share-based payments have been accounted for in accordance with ASC 815-40 using the Black Scholes warrant pricing model to determine the fair value of each warrant. As of December 31,During September 2015, all of these warrants were outstanding.

On February 3, 2012, the Company issued five-year warrants to a stockholder for the purchase 500,000 unregistered25,000 shares of the Company’s common stock at an exercise price of $3.00$.12 per share withas additional consideration for a five-year term for settlement of certain disputed amounts. These share-based payments have been accounted for in accordance with ASC 815-40 using the Black-Scholes warrant pricing model to determine the fair value of each warrant. These warrants expired during the year ended December 31, 2015.

In connection with the acquisition of Cornerstone (See Note 5), on March 30, 2012, the Company issued warrants to purchase 300,000 unregistered shares of common stock at exercise prices ranging from $2.00 to $4.00 per share.$25,000 loan. These warrants expire at various dates through December 2017.in September 2020. As of December 31, 2015,2019, all of these warrants were outstanding.

During the second quarter of 2012,June 2016, the Company issued warrants to a stockholder for the purchase 335,000 unregisteredof 900,000 shares of the Company’s common stock at an exercise price of $3.00$0.11 per share in association with stock subscription agreements.consideration for the Company utilizing his facility space from January 2013 to December 2015. These warrants expire on various dates through 2015.in June 2021. As of December 31, 2015,2019, all of these warrants were expired.outstanding.

DuringIn July 2016, a warrant for the third quarterpurchase of 2012, the Company issued warrants to purchase 71,000 unregistered25,000 shares of the Company’s common stock at an exercise price of $3.00$.19 per share in association with stock subscription agreements.was issued to a stockholder as additional consideration for a $25,000 loan. These warrants expire in July 30, 2015.2021. As of December 31, 2015,2019, all of these warrants were expired.outstanding.

DuringIn October 2016, another warrant for the fourth quarterpurchase of 2012, the Company issued warrants to purchase 225,000 unregistered25,000 shares of the Company’s common stock was issued to the same stockholder at an exercise price of $1.00$.15 per share in association with stock subscription agreements.as additional consideration for extending the maturity of the $25,000 loan for an additional 90 days. These warrants expire in October 31, 2015.2021. As of December 31, 2015,2019, all of these warrants were expired.

In December 2012, the Company issued three-year warrants to purchase 325,000 unregistered shares of the Company’s common stock at an exercise price of $.41 per share in association with the Secured Promissory Note (See Note 8). In December 2014, the expiration date of these warrants was extended to December 31, 2017.

During January 2013, the Company issued three-year warrants to purchase 75,000 unregistered shares of the Company’s common stock at an exercise price of $0.41 per share in association with the Secured Promissory Note (SeeNote 8). In December 2014, the expiration date of these warrants was extended to December 31, 2017.

During March 2013, the Company issued its Chief Executive Officer and Chief Financial Officer five –year warrants to purchase common stock at an exercise price of $0.30 per share (market price on date of grant) in the amounts of 1,000,000 and 500,000 shares, respectively. The Company recognized $210,000 in compensation expense. As of December 31, 2015, all of these warrants were outstanding. In October 2015,these warrants were repriced and extended with an exercise price of $.15 and a new expiration date of October 26, 2022 in connection with a general repricing and extension of the Company options and warrants as set forth below in this Note 6.

On December 1, 2013, the Company issued additional three-year warrants to purchase 400,000 unregistered shares of the Company’s common stock at an exercise price equal to $0.21 per share (the average closing price of the common stock during the 10 trading days prior to December 1, 2013). This was in association with the Secured Promissory Note (SeeNote 8). In December 2015, the expiration date of these warrants was extended to December 31, 2018. As of December 31, 2015, all of these warrants were outstanding.

During the fourth quarter of 2014, the Company revised the terms of the 400,000 original warrants issued December 2012 and January 2013, extending the maturity dates to December 31, 2017 and the exercise price was reduced from $0.41 per share to $0.39 per share. The Company also revised the terms of the additional 400,000 warrants issued December 1, 2013, to extend the maturity date to December 31, 2018 and the exercise price was reduced from $.21 per share to $0.17 per share.

A summary of warrants issued, exercised and expired during the year ending December 31, 20152018 is as follows:

The warrant for the purchase of 25,000 shares of common stock has a five-year term and was issued to a stockholder in September 2015 as additional consideration for a $25,000 loan. See note 8. The fair market value of the warrant was determined to be $0.08 per share, or $2,000.

Note 7 – Stock Options

The weighted average grant date fair value of warrants issued duringStock option activity for the year ended December 31, 2015 amounted to $0.08 per warrant. The fair value of each warrant granted for equity and debt raises was determined using the Black-Scholes option pricing model and the following assumptions:2019, is summarized as follows:

The expected term of warrants granted is based on historical experience with past warrant holders, and represents the period of time that warrants granted are expected to be outstanding.

The warrant shares referred to above are unregistered shares of the Company’s stock and are restricted from trading as defined under Rule 144 of the United States Securities Act of 1933.

On October 1, 2015,May 30, 2018, the Board of Directors agreed to extend all outstanding management and non-employee stock options and warrants (covering 3,500,0005,975,000 shares) to a common expiration date of October 26, 2022,June 30, 2026 and adjust the exercise prices to $0.15.$0.12 (“adjusted terms”). 2,300,000 warrants were cancelled and replaced with common stock options and 3,675,000 options were terminated and reissued with the adjusted terms. These transactions were accounted for as modifications of the original instruments. The net effect of the change in the value of the repriced options and warrants was an incremental increase in stock basedstock-based compensation expense of $208,000.$136,349 during the year ended December 31, 2018.

TheOn May 30, 2018, the Company also issued new, immediately vesting, stock options with an exercise price of $0.15$0.12 and an expiration date of October 26, 2022, toJune 30, 2026, to: Richard Davis for 800,000;1,300,000 shares; Hank Leibowitz for 500,000;500,000 shares; John Hofmann for 500,000;800,000 shares; Richard McKee for 500,000 shares; and Mark PrinzMichael McKee for 200,000.30,000 shares. The fair market value of these options was determined to be $0.09$0.11 per option, or $180,000,$344,300, which reflects an increase in stock basedwas recognized as stock-based compensation expense of $180,000.expense.

Note 7 – Stock Options

StockOn September 1, 2019, the Company issued a new, immediately vesting stock option activity for the year ended December 31, 2015, is summarized as follows:1,000,000 shares to its newly-hired president Daniel T. Bogar with an exercise price of $.10 per share and an expiration date of June 30, 2026.

Total stock-basedstock option compensation was $80,000 and $480,649 for the years ended December 31, 20152019 and 2014 was $390,000 and $0 respectively.

2018. There is no unrecognized stock compensation expense at December 31, 2015.associated with the options.

Note 8 -– Convertible Notes Payable to Related Parties

In 2019, the Company issued Convertible Promissory Notes payabletotaling 300,000 to related parties at December 31, 2015 consist ofstockholders. The notes payableare to stockholders of $400,000 (issued in 2012), less unamortized discount of $12,885 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 duebe paid in one principal payment, onalong with any unpaid interest by December 31, 2016.2021. Interest is payable semiannually at 10%. The notes are collaterized by all receivables now or hereafter existing pursuant toconvertible into common stock at a price of $.20 per share through December 31, 2019, $.30 per share from January 1, 2020 through December 31, 2020, and $.40 per share from January 1, 2021 through the license agreement with VDF FutureCeuticals, Inc. discussed in Notes 3 and 9.maturity date of December 31, 2021.

In December 2019, the Company issued a Convertible Promissory Note in the principal amount of $25,000 to a stockholder in connection with a loan in the same amount. The note is to be paid in one principal payment, along with any unpaid interest by December 31, 2022. Interest is payable semiannually at 10%. The notes payable to related partiesare convertible into common stock at a price of $.20 per share through December 31, 2020, $.30 per share from January 1, 2021 through December 31, 2021, and $.40 per share from January 1, 2022 through the maturity date of December 31, 2022.

Consequently, Convertible Promissory Notes have been issued in an aggregate principal amount of $325,000 in 2019.

Convertible Notes Payable at December 31, 2015 also includes a promissory note to a stockholder for $25,000. The principal balance and interest at 10% was due March 30, 2016. This note was paid in full, with accrued interest, in February 2016.2019 consisted of the following:

Payable to related party at December 31, 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

Amortization of the note to July 31, 2016.debt issuance costs is reported as interest expense in the income statement.

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 June 1, 2016, the Company entered into a ten-year License Agreement with Helidyne LLC to utilize the Helidyne intellectual property in order to use Helidyne expanders in Powerverde systems and to sell Helidyne expanders. As part of the licensing agreement the Company committed to purchase two 50 kW expanders, at a price of $25,000 each, on or before the sixth month anniversary of the agreement. The $50,000 was payable in two monthly installments of $25,000 beginning October 2016. The Company made payments totaling $38,750 towards the purchase of the expanders and recorded these payments as prepaid expenses. Due to Helidyne’s failure to perform under the agreement, the Company has not made any further payments to Helidyne and does not intend to do so unless and until Helidyne performs as required. Helidyne has not objected to the Company’s licenseposition, and it is very unlikely that Helidyne will ever be able to perform.

The Company agreed to pay Helidyne LLC a royalty of 3% of sales, subject to a minimum annual royalty of $50,000 beginning on the earlier of commercialization of the product or three years from the effective date of the agreement. This minimum royalty would be payable only if Helidyne performs as required, which is very unlikely, or if the Company elects to produce its own expanders using Helidyne technology. The Company does intend to produce these expanders directly or through a contract manufacturer in the future. See Note 5.

On April 15, 2017, the Company entered into an assembly agreement with VDF FutureCeuticals,Liberty Plugins, Inc., which (“Liberty”) to assemble Liberty’s Hydra electronic vehicle charging systems and ship completed Hydras to Liberty’s facility in Santa Barbara, California (the “Liberty Agreement”). Liberty has generated allagreed to pay $1,000 for the first 10 Hydras assembled in a month, $750 per Hydra for the next 10 Hydras assembled per month and $500 per Hydra for each Hydra assembled above 20 per month. As of December 31, 2019, the Company has built and shipped 65 Hydras. Revenue of $24,000 and $31,000 for these products is reflected in the net revenue on the Company’s condensed consolidated statements of operations for the years ended December 31, 2019 and 2018, respectively.

On September 1, 2019, the Company hired Daniel Bogar to serve as its President, reporting to the CEO. As compensation, Mr. Bogar received a fully-vested non-qualified option to purchase 1,000,000 shares of the Company’s revenues since 2012,common stock at an exercise price of $.10 per share, with an expiration date of June 30, 2026. In addition, Mr. Bogar will terminate in March 2018, whenreceive an annual salary of $90,000 beginning on the underlying patents expire.closing of a private financing with gross proceeds of at least $1,000,000; however, the Company will be permitted to defer the salary to the extent required to maintain solvency.

Note 10 – Income Taxes

Deferred income taxes are provided based on the provisions of ASC Topic 740, “Accounting for Income Taxes”, to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Significant components of the Company’s net deferred income taxes are as follows:

A reconciliation of the U.S. statutory federal income tax rate to the effective income tax rate (benefit) follows:

Rate Reconciliation

In assessing the ability to realize a portion of the deferred tax assets, management considers whether it is more than likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making the assessment. After consideration of the evidence, both positive and negative, management has determined that a $4,144,741$2,843,212 valuation allowance at December 31, 20152019 is necessary. The change in the valuation allowance for the current year is $66,271,$22,904, which represents the changes in the deferred items. At December 31, 2015,2019, the Company has available net operating loss carry forwards for federal income tax purposes of $6,115,670$7,222,861 expiring at various times from 2027 through 2032.

Valuation and Qualifying Accounts