UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 20152021
Commission File No. 000-27866
PowerVerde, Inc.
(Exact name of registrant as specified in its charter)
374WATER INC. | ||
(Exact name of Registrant as specified in its charter) |
Delaware | 88-0271109 | |
(State or other jurisdiction of | (I.R.S. Employer | |
701 W Main Street, Suite | 27701 | |
(Address of principal executive offices) | (Zip Code) |
(305) 666-0024(919)-888-8194
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.0001 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. □☐ Disclosure not contained.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company as defined in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated Filer | ☐ | |||||
Smaller reporting company | ☒ | |||||
Emerging Growth Company | ☒ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and ask prices of such stock equity, as of June 30, 2015,2021, the last business day of the issuer’s most recently completed second fiscal quarter: $4,100,000.$45,785,090.
As of March 30, 2016,1, 2022, the number of outstanding shares of common stock, $0.0001 par value per share, of the registrant was 31,750,106.126,680,895.
DOCUMENTS INCORPORATED BY REFERENCE
None.
PowerVerde, Inc.
Portions of the registrant’s definitive proxy statement relating to its 2022 annual meeting of stockholders (the “2022 Proxy Statement”) are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated. The 2022 Proxy Statement will be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the year to which this report relates.
374WATER INC.
Annual Report on Form 10-K
Year Ended December 31, 20152021
INDEX
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JUMPSTART OUR BUSINESS STARTUPS ACT DISCLOSURE
PART IWe qualify as an “emerging growth company,” as defined in Section 2(a)(19) of the Securities Act by the Jumpstart Our Business Startups Act (the “JOBS Act”). An issuer qualifies as an “emerging growth company” if it has total annual gross revenues of less than $1.0 billion during its most recently completed fiscal year, and will continue to be deemed an emerging growth company until the earliest of:
GeneralAs an emerging growth company, we are exempt from various reporting requirements. Specifically, we are exempt from the following provisions:
· | Section 404(b) of the Sarbanes-Oxley Act of 2002, which requires evaluations and reporting related to an issuer’s internal controls; | |
· | Section 14A(a) of the Exchange Act, which requires an issuer to seek shareholder approval of the compensation of its executives not less frequently than once every three years; and | |
· | Section 14A(b) of the Exchange Act, which requires an issuer to seek shareholder approval of its so-called “golden parachute” compensation, or compensation upon termination of an employee’s employment. |
Under the JOBS Act, emerging growth companies may delay adopting new or revised accounting standards that have different effective dates for public and private companies until such time as those standards apply to private companies.
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PART I
Vyrex Corporation (“Vyrex” or the “Company”) was incorporated in Nevada in 1991 and operated as a research and development stage company seeking to discover and develop pharmaceuticals, nutraceuticals and cosmeceuticals for the treatment and prevention of respiratory, cardiovascular and neurodegenerative diseases and conditions associated with aging (the “Biotech Business”). The Biotech Business was unsuccessful and, as a result, the Company ceased material operations relating to that business in October 2005; however, the Company retained its intellectual property rights and contract rights relating to that business (the “Biotech IP”). On October 17, 2005, the Company reincorporated in Delaware.ITEM 1.BUSINESS.
On February 11, 2008, Vyrex, PowerVerde, Inc. (“PowerVerde”) and Vyrex Acquisition Corporation (“VAC”), a wholly-owned subsidiary of Vyrex, all Delaware corporations, entered into an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, on February 12, 2008, VAC merged with and into PowerVerde, with PowerVerde remaining as the surviving corporation and a wholly-owned subsidiary of Vyrex (the “Merger”). As consideration for the Merger, as of the closing of the Merger, each issued and outstanding share of common stock of PowerVerde was converted into the right to receive 1.2053301 shares of the common stock of Vyrex and each share of VAC was converted into one share of PowerVerde common stock. As a result of the Merger, the former shareholders of PowerVerde hold 95% of the common stock of Vyrex.General
On August 6, 2008, at a special meeting of shareholders, Vyrex’s name was changed to “PowerVerde,374Water, Inc.” Simultaneously, the name of our operating company, PowerVerde, Inc. (the “Company”, was changed to “PowerVerde Systems, Inc.”
In March 2009, we sold all of the Biotech IP other than existing licensing contract rights to Dr. Edward Gomez, a pre-Merger investor in PowerVerde and now a shareholder of the Company. In exchange for the assignment of the Biotech IP to him, Dr. Gomez agreed to (i) pay all future costs and expenses relating to the Biotech IP, including, but not limited to, patent fees, license fees and legal fees, and (ii) pay to the Company 20% of all net revenues received from the sale and/“374Water”, “We”, or licensing of any of the Biotech IP.
Please note that the information provided below relates to the combined company after the Merger. Since our operations after the Merger consist solely of PowerVerde operations, except where the context otherwise requires, references throughout this Report hereafter to “PowerVerde,” “we,” “us,” “our” and the “Company” will mean or refer to PowerVerde’s business and operations.
The Company“Our”) is a Delaware corporation formed in March 2007 by George Konrad and Fred Barker, who remain our two largest stockholders. Mr. Konrad served as an officer and director of the Company until October 2012. Mr. Barker served as an officer and director until January 2015. See Item 10 “Directors, Executive Officers and Corporate Governance.”which was incorporated on September 8, 2005. The Company was initially formed in order to further develop, commercialize, and market a series of unique electric generating power systems designed to produce electrical power with zero emissions or waste byproducts, based on a patented pressure-driven expander motor and related organic pressure-drivenrankine cycle components. The designtechnology.
On April 16, 2021, 374Water Inc. (f/k/a PowerVerde, Inc.) entered into an Agreement and Plan of Merger (the “Merger”) with 374Water, Inc., a privately held company based in Durham, North Carolina, (“374Water Private Company”) and 374Water Acquisition Corp., a newly-formed wholly-owned subsidiary of PowerVerde. Subsequent to the merger, 374Water Inc. became the surviving entity.
As a result of the motor was conceived by Mr. Barker in January 2001. Mr. Barker previously had a working relationship with Mr. KonradMerger, the former 374Water Private Company shareholders own 65.8% of our issued and enlisted Mr. Konradoutstanding common stock and his manufacturing expertise, together with Mr. Barker’s own engineering expertise, to co-develop53.8% of our issued and outstanding voting stock (which includes the motor. As a research and development company, we have tested and continue to test other style driverspreferred stock on an as well.
An initial prototype of the motor was created and tested in early 2002, and, based on positive test results, Messrs. Barker and Konrad concluded that the concept could lead to a commercial product. A new design was developed in early 2007, which resulted in a motor that produced more torque and horsepower, as well as being easier to mass produce. The prototype was tested extensively, and substantial tooling and engineering with CAM/CNC programming was completed at the facility of Mr. Konrad’s company, Arizona Research and Development (“ARD”), for the possibility of an eventual mass production model.converted basis).
BasedSubsequent to the Merger, 374Water is focused on data learned from these earlier prototypes, PowerVerde has manufactured three 25/50kW motorsbeing a cleantech and additional next generation motors or drivers as well. The Company has been testing these devicessocial impact company providing a disruptive technology that addresses imminent environmental pollution challenges. We are focused on a more powerfulnew era of sustainable waste stream management that promotes circular economy initiatives and advanced organic pressure-driven cycle (OPDC) referredenables organizations to as the Liberator. During 2009, the Company also built and tested a 100kW pressure-driven motor at another machining and manufacturing facility, Global Machine Works, in Arlington, WA. These two related but distinct systems are designed for two different markets. The 25/50kW system uses low-grade heat (waste heat) as a fuel source, expanding a working fluid thereby driving the motor/generator, while the 100kW system (without organic rankine cycle (“ORC”) or organic pressure driver cycle (“OPDC”) systems), uses wasted energy (pressure) from natural gas pipeline and wellhead infrastructures to drive the motor/generatorachieve sustainability goals and create electric power. In early 2010,green impact. Our vision is a world without waste and our Board of Directors created two separate product lines: waste heat/solar organic rankine cycle powered systems;mission is to preserve a clean and gas pipeline/wellhead waste energy recovery systems. Because the markets and customers for these two systems are entirely different and the design and manufacturing are geographically separate, we believehealthy environment that this bifurcation will result in a more streamlined and efficient business structure. The development of the natural gas pipeline system has been suspended due to our decision to dedicate our limited human and financial resources to commercialize our waste heat/solar thermal system, which we believe has more near term potential.
In January 2011, we entered into a Binding Letter of Intent for European Distribution (the “BLOI”) with Newton Investments BV, a Dutch corporation based in Leeuwarden, Netherlands (“Newton”). Pursuant to the BLOI, Newton purchased one Liberator system for a discounted price of $130,000, which was delivered in July 2011. In September 2011, we entered into a definitive License Agreement with Newton as contemplated by the BLOI. Under the Agreement, Newton was designated, for a period of 10 years, to be the exclusive manufacturer and distributor of our proprietary emissions-free electrical power generation systems (the “Systems”) in the 27 countries which are currently members of the European Union, subject to Newton achieving minimum sales of at least 100 Systems per year, beginning in the second year of the Agreement. Pursuant to the Agreement, we were entitled to a royalty equal to 20% of the gross sale price of each System sold by Newton. We authorized Newton to manufacture our Systems under a strict licensing agreement with a Dutch foundry and machine shop, Autonational BV, based in Ijlst, Netherlands, and capable of producing hundreds of units per year. Of the 27 European Union nations, we focused initially on the Netherlands, Belgium, Germany and the Scandinavian countries.
Despite our initial optimism, the PowerVerde driver (motor) failed to demonstrate sufficient capacity for the uninterrupted hours of operation required for commercial performance. Due to the ongoing technical problems, Newton did not sell any of our Systems and, in August 2014, Newton terminated the License Agreement.sustains life.
We have addresseddeveloped proprietary waste stream treatment systems based on Supercritical Water Oxidation (SCWO). The term used for the pending technical issues,process is AirSCWOTM. SCWO leverages the unique properties of water in its supercritical phase (above 374oC and we believe221 Bar) to convert organic matter to energy and safe products that by year end 2016 we willcan be recovered and used. The AirSCWOTM systems are essentially waste stream agnostic and able to delivertreat a commercial device capablevariety of operationcomplex, hazardous and non-hazardous waste streams, opening up opportunities for 25,000 hours (almost three years) without major mechanical failure. There can be no assurance, however,multiple applications in diverse market verticals on an international scale. Most pertinently, the technology is shifting the landscape in addressing environmental challenges that, these technical issues will be resolveduntil now, have been considered unsurmountable (due to science/engineering or that any of our Systems will ever be commercially viable.cost barriers), one good example being the global PFAS crisis.
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In November 2011, we entered into
We currently outsource manufacturing the AirSCWOTM systems to our strategic partner in the US, Merrell Bros., Inc., that have the facilities and capability to rapidly ramp-up manufacturing volumes and also support system modifications and deployment as required per market and clients. We envision in the future applying an outsourced manufacturing model in a binding letter of intent for the acquisition of all of the membership interestsfew territories, and may consider establishing our own manufacturing capability in Cornerstone Conservation Group LLC, Scottsdale, Arizona (“Cornerstone”). The acquisition was consummated pursuantgeographies where this is needed to a definitive agreement executed in March 2012. Cornerstone’s main asset is its proprietary Combined Cooling, Heating and Power (“CCHP”) technology, which utilizes waste heat from commercial and residential heating, ventilation air conditioning and refrigeration (“HVACR”) systems. Cornerstone also has substantial experience and technology relating to geothermal or ground source heat pumps.adequately grow our market share.
As consideration forThe systems are supplied to multiple market verticals, and our revenue model includes both capital equipment sales and long-term service agreements based on throughput and capacity (Waste Purchase Agreements). Our market penetration strategy is combined of direct client and channel partner sales routes, depending on the Cornerstone acquisition, we issued (i)specific market and territory. In some cases, the systems may be white labelled and sold as part of a total of 2,250,000 restricted shares of our common stock to Cornerstone���s members, Bryce Johnson (“Johnson”), Paul Kelly (“Kelly”)broader solution package.
Human Capital and Vincent Hils (“Hils”) in the amounts of 1,575,000, 337,500 and 337,500 shares, respectively, (ii) 10,000 restricted shares to a Cornerstone employee, and (iii) three-year warrants to purchase 150,000 shares each to Johnson and Kelly at exercise prices of $2.00-$4.00 per share. In November 2011, Johnson joined our Board of Directors, and in January 2012 we moved our operations to a facility in Scottsdale, Arizona, owned by Johnson. See “Item 2 - Properties.” Johnson also became our chief operating officer in January 2012. Johnson resigned from his officer and director positions in March 2013. As a result of Johnson’s resignation, Management decided to impair the goodwill entirely as of December 31, 2012. We continue to operate our laboratory and test the Liberator within Mr. Johnson’s facility, where several infrastructure upgrades have been completed. There can be no assurance that our good relationship with Mr. Johnson regarding use of his facility will continue. See Item 2 “Properties.”Culture
We believecurrently employ seven full-time employees and ten consultants on a full or part-time basis. Our current projections are to increase the workforce to twelve full-time employees in 2022 and forty full-time employees in 2023.
We recognize and value our people as our most important asset in achieving our strategic goals and growing a great company. We are working towards a human resources strategy that Cornerstone’s technology is complementarywill help drive the right culture, leadership, talent management, performance, reward and recognition, personal development, and ways of working vital to PowerVerde’s platform and existing markets – mainly throughensure the conversion of thermal energy into electric power generation. While we believe that the Cornerstone acquisition brings substantial opportunities for synergy, there can be no assurance that the acquisition will prove successful.Company achieves its strategic goals whilst our people benefit from an exceptional experience.
Our focus forareas in creating a working environment that draws out the remainder of 2016 is to commercialize our waste heat power systemsbest in our Phoenix facility for eventual commercial deployment. We planemployees and allows them to completefulfil their potential and support the Company to attain its goals are as follows:
1) | Attract, identify, develop and retain high-performing talent across all areas. | |
2) | Develop and support the growth of leadership. | |
3) | Enable the development of a high-performance culture in which staff performance can be supported, rewarded, enhanced and managed effectively. | |
4) | Foster a values-based culture focused on diversity, inclusivity, wellbeing and positive staff engagement. | |
5) | Develop a total reward approach which is valued by staff and facilitates organisational objectives. | |
6) | Provide excellent core HR, professional development and health and safety services across all business areas to enable the effective operation of the organisation. |
Our recruitment strategy is based on identifying top talent, predominantly via existing networks and referrals, and offering competitive remuneration packages that combine salary, benefits and equity. As we move forward our development and testing by mid-year 2016 and haverecruitment strategy will expand to wider platforms allowing outreach to a market-ready system by year end; however, there can be no assurance thatwider audience. In the immediate future, we will meet this timetable or ever haveuse an outsourced human resources firm, and as we grow, within 2022, embed a market-ready system.human resources function into the Company. We continue discussions with certain manufacturersintend to apply a wide range of integrated componentsretention initiatives that include rewarding high-performance, and service providers in the oil/natural gas industries, methane plants, as well as with electric utility companiesopening opportunities for progression and government entities. There can be no assurance that any manufacturing, distribution or marketing agreementscareer development. Identification of high-performing talent will be successfully consummated or executed or that welinked to succession planning and development of the future-workforce will ever achieve material sales.be embedded in employee professional development schemes.
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Employees
We are setting clear standards with respect to generating an open and transparent working environment in which everyone has a voice. This will invoke effective personal development discussions and provide the opportunity to conduct performance reviews supported by transparent data and open conversation.
We currently have one full-time employee: Mark Prinz basedare dedicated to embedding Diversity and Inclusion (D&I) as an important part of developing our culture through delivery of innovative initiatives and internal workshops, ensuring that D&I policies touch on all aspects of the Company from recruitment practices to company behaviour/operating frameworks. These policies will also be reviewed periodically as required and updated accordingly.
Moving forward we intend to deliver a total reward strategy which appropriately supports achievement of organisational aims and priorities, and will help position us as an employer of choice which employees value and understand. This will undergo periodical review to ensure we are able to attract and retain top talent in Scottsdale, Arizona. Mark was hired in 2011. Our chief engineer, Hank Leibowitz, was hired pursuanta financially sustainable way.
All of our human resource initiatives will be supported by key performance indicators to monitor their effectiveness and gain insight into gaps that can be addressed quickly and ensure our overall human resource strategy is adapted as required and maintained to a part-time consulting agreement in October 2012.high degree.
PatentsMarkets and Industries
Messrs. Barker and Konrad together obtained U.S. Patent No. 6,840,151 for a “push-push type fluid pressure actuated motor,” which was issued on January 11, 2005. On June 6, 2007, Messrs. Barker and Konrad and the Company’s predecessor, PowerVerde, LLC, permanently and exclusively assigned to PowerVerde all rights Due to the patentnature of the technology and its ability to treat effectively diverse waste streams, applicable to different industries, the other intellectual property relating tomarkets that the PowerVerde systems. On July 16, 2008, Messrs. BarkerCompany serves are broad. The Company’s technology provides a unique value proposition promoting its adoption across markets, and Konrad filed U.S. Patent application No. 61/081,298 for a “system to produce electricity using waste energy in natural gas pipelines.” This application was assigned to the Company; however, it was abandoned in 2009 because we decided to replace it with a new and improved provisional patent application regarding the natural gas pipeline technology. Mr. Barker filed on behalf of PowerVerde a new provisional patent application regarding this technology on April 7, 2010. On October 17, 2008, Mr. Konrad and Mr. Brian K. Gray filed U.S. Patent application No. 12/253,580 for a “low temperature organic rankine cycle system.” This application was assigned to the Company. There can be no assurance that these patents will be issued or maintained.includes but is not limited to:
· | Generating value from waste by recovering clean energy, water, and minerals | |
· | Providing a highly energy efficient and sustainable treatment option delivering unprecedented elimination of many environmentally persistent pollutants, that current technologies are not able to efficiently treat. These include, as examples, but are not limited to: PFAS, 1,4 Dioxane, microplastics, PPCPs, and CECs | |
· | Treating waste at the source thereby eliminating haulage and transportation needs and reducing greenhouse gas emissions | |
· | Offsetting methane emissions by offering a solution to waste that does not form methane as a by-product (unlike conventional waste treatment technologies) |
In late 2010, we began filing several provisional patents covering
One of our new organic pressure-driven cycle technology. In January 2011, we hiredkey markets is the inventorsludge treatment market, which includes both municipal and industrial sludge. Sludge is the semi solid by-product obtained from wastewater treatment. When it is produced from the treatment of this technology, Keith Johnson,domestic sewage it is considered municipal sludge whilst sludge obtained as by-product from industrial chemicals and waste treatment is referred to as industrial sludge. Activated sludge is the most commonly applied biological treatment process for the treatment of municipal sewage. It generates a specialist in advanced pressure-driven systems. He has assigned to PowerVerde his patent application in this field, U.S. Patent Application 61/424,249 filed on December 17, 2010. There can be no assurance that these patents will be issued or maintained.final residue also known as biosolids as it mainly consists of biological solids. Sludge and biosolids management is a key part of any wastewater treatment process.
Pursuant The global demand for municipal and industrial sludge treatment is expected to generate revenue of above $9 Billion by end of 2026, growing at a Compound Annual Growth Rate (CAGR) of around 5.7% between 2020 and 2026 (Research and Markets Report, August 2020). Growing population has resulted in increased volume of sludge which drives the Cornerstone acquisition, we acquired all rightsmarket for municipal and industrial sludge treatment. Moreover, escalating energy costs from conventional sources prompts the use of biogas which in turn is expected to U.S. Patent Application No. 12,749,416 filed on March 29, 2010, entitled “Solar Photovoltaic Closed Fluid Loop Evaporation Tower.” This application was filed by Bryce Johnson as inventor and assigned to Cornerstonetrigger the municipal sludge treatment market in connection with the acquisition. There can be no assurance that this patent will be issued or maintained.
On June 25, 2015, our consultant Hank Leibowitz assigned to PowerVerde his U.S. Patent No. 62/172,616, issued on June 8, 2015 for a system and method using high temperature sources in Rankine cycle power systems. We have agreed to pay Mr. Leibowitz a 2% royalty for any and all revenues of products and/or project sales by us based on this patent.
We expect to file additional patent applications pertaining to our advanced organic pressure driven cycle later in 2016. There can be no assurances that we will be able to do so or that any patents will be issued based on these applications.
Product Descriptionnear future.
The 2007 advanced generation PowerVerde motor,municipal sludge market is expected to comprise approximately 40% of the Company’s revenue, particularly due to its size, regulatory drivers related to emerging contaminants, evolving land application limitations/restrictions and ever-increasing sludge volumes that require treatment (Sludge at WWTPs: Global Trends of Treatment and Disposal/Reuse, The World Bank 2019). However, additional high value markets are being addressed and will contribute to the Company’s revenue and thereby help fuel its growth plans. Table 1 below shows a non-exhaustive list of target markets, their subsegments, and the relevant applications associated with its related organic rankine cycle (ORC) system, produced 10kWthose markets.
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Table1: Representative target markets, their subsegments and applications
Key Markets | Subsegments | Applications |
Industrial: manufacturing | Chemical, Pharmaceutical, Semiconductor, Food & Beverage | Hazardous and non-hazardous wastes, recalcitrant organics, microplastics, PPCPs, CECs and PFAS. |
Municipal | Utilities Landfills | Sludge and biosolids, Landfill leachate |
Defense | Military Bases Government owned manufacturing facilities | Fuel and oil residuals, rinsates, AFFF (PFAS) |
Oil and Gas | Exploration, Extraction/Offshore & Onshore Petroleum refining | Concentrated waste streams, rinsates, AFFF (PFAS), petroleum refining by-products |
Agricultural | Farms, Slaughterhouses, Poultry houses | Manure, concentrated waste streams |
Waste Management | Recycling Centers Incinerators Landfills | Landfill leachate, food waste, waste oils; Fats, Oil & Greases (FOG), hazardous and non-hazardous organic waste. |
Sanitation Projects in developing countries | Regional centralized facilities, decentralized treatment facilities (villages, schools) | Municipal sludge and biosolids, mixed wastes |
The markets shown represent multi billions in Total Addressable Market (TAM) value, with typical 5-year CAGRs of net power. Our subsequent larger 25/50kWbetween 5%-8%.
The trends that are transforming these markets, and dictating a more robust and sustainable approach to waste heat/solar design was a next generation system. This system was designedstream management are derived from recognition by waste generators, waste operators, government and society that they are key social, environmental and economic benefits to be gained by moving waste up the waste management hierarchy, towards prevention, reuse, recycling and recovery. The drivers that are facilitating adoption of our technology include but are not limited to: population growth and urbanization, increasing quantity/complexity of waste streams, climate change, carbon economics, resource scarcity, corporate sustainability targets, commodity prices, energy security and tightening regulations (Global Industrial Waste Water Systems Market Survey Report, December 2021).
Strategy
Our growth strategy includes a blend of routes, including but not limited to:
1) | Organic growth | ||
● | New market penetration and expansion of customer base with suite of current products | ||
● | Expansion of customer base by product diversification | ||
2) | Inorganic growth | ||
● | M&A | ||
● | Strategic Partnerships |
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Organic Growth
The Company’s growth over the next two years will be predominantly driven by sales of current systems in the identified key markets, leading to customer base expansion, with the municipal market expected to generate a significant portion of the Company’s revenue. The initial geographical focus will be North America and Canada, the UK, and EMEA. Our business model includes direct sales to end-users and indirect sales via channel partners. In some markets revenue will be generated from a mix of capital equipment sales and a Waste Purchase Agreement (WPA) which is a paid service for waste treatment. The latter will be offered through a financing arm which will be established within 2022 and target direct end-user engagement. The financing systems to be sold via service agreements will lower barriers to entry in our key markets and facilitate more rapid expansion of our client base. Examples of models to be used can include, but are not limited to: Build-Operate-Transfer (BOT) and Build-Own-Operate-Transfer (BOOT), depending on clients’ preferences and limitations. We envisage that in some cases public private partnerships (PPPs) will be established, particularly when selling to public utilities, and addressing projects in developing geographies.
In addition, we are planning during the next two to three years to conduct further product development and expand our product portfolio that will facilitate entrance into new subsegments where particularly high strength waste streams require treatment. This is most relevant to some industrial manufacturing, defense, and waste management applications. Our intention is to maintain a healthy R&D budget to attain this goal.
Inorganic Growth
Strategic partnerships will form an ongoing key growth strategy. Strategic partners being considered that we are currently engaging with include:
(1) | Technology companies offering complimentary technologies that can enhance our product offering by creating strong synergies. In particular we are exploring technologies that are able to recycle our end-products to achieve more efficient resource recovery (which has both environmental and cost impacts). This will help accelerate our growth by gaining access to existing client bases. We are currently discussing options with a waste management Company based in the EU. | |
(2) | Original Equipment Manufacturers (OEMs) offering “bolt-on” technologies that are standard ancillary equipment required in some cases for integration of our systems into a wider treatment train. | |
(3) | Technology integrators, engineering consultancies, Engineering-Procurement and Construction (EPC) companies that design and install complete solution packages in which our technology will be a key component. These companies will serve as highly effective distribution channels to accelerate deployment within their existing client base, thereby facilitating our growth agenda. | |
(4) | Equipment manufacturers with adequate facilities to accelerate production, meet deployment lead times, and also attain economies of scale. We have a partnership in place with Merrell Bros., Inc., a US biosolids management Company that operates on a nationwide scale, and with Environmental Services Company Ltd. (ESC), an Israeli government-owned company that is charged with treating industrial waste in Israel. We are in the process of locating another strategic partner in the EU. Our manufacturing agreements are structured so we are able to maintain a healthy working capital that can be reinvested in other company functions for supporting our immediate aggressive growth agenda. |
A mid-term growth strategy, includes licensing agreements and M&As of Small Business Enterprises (SBEs) to increase functionality of our systems (such as implementation of IOT platforms for full process digitization) and to increase supply chain reliability and efficiency for ancillary process equipment that is required for full integration of systems (i.e., pumps, valves, filters, dewatering equipment etc.).
Products and Services
We sell AirSCWO™ as a modular and containerized system. These are compact and prefabricated so they can be cost effectively shipped, installed, in single- or multiple-stacked units for businesses, factories, or any waste heat or solar application such as schools, hospitals, ships and other usersoperated within the footprint of electric power. These non-combustion motorsan existing plant. We are fueled by heat (waste heat), via an ORC relatedcurrently offering a six (6) wet tons per day throughput capacity system and create a pressure source poweringthirty (30) wet tons per day throughput capacity system in 2023. A two hundred (200) wet tons per day throughput capacity system is to be designed between FY 2024 and 2025.
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In some cases, on an as-needed basis, we will sell, as part of the PowerVerde motor/generator while emitting zero carbon emissions orsolution package, ancillary equipment that is required to pre-treat the inlet waste stream byproducts. The other PowerVerdeand post-treat a product stream, depending on the application. For example, to meet the AirSCWOTM inlet requirements (i.e., water %, total dissolved solids, etc.) sometimes a pre-treatment “bolt-on” process is implemented to ensure our system was designed to operate on wellhead or natural gas pipeline infrastructure and lacks the ORC component, but uses wasted latent energy (pressure) inherent in “city gate” letdowns or wellheads as its pressure source. This project (well head or natural gas pipeline applications) has been suspended so that we can focus exclusively on waste heat applications. To this end we anticipate and have designed systems that will be scaled even larger in the future.performance.
Our ORC system requires: We offer two purchase options as follows:
1. | Capital equipment purchase | ||||
a. | Immediate payment in which the client owns the system outright. | ||||
b. | Leasing a system | ||||
2. | Waste Purchase Agreements (WPAs) in which the client pays a fee for having their waste treated. Examples of these agreements can include but are not limited to: Build-Operate-Transfer (BOT) or Build-Own-Operate-Transfer (BOOT). In a BOT model we are responsible for designing, building, operating (during the contracted period), and transferring to the client at the end of the contract term. The client will pay us a service fee for operating and maintaining the system (this does not include installation and commissioning fees). A BOOT model is a variation of the BOT model, except that the ownership of the system will rest with us during the period of the contract, and the client is contracted to purchase the system on mutually agreed terms at the end of the defined term, after we recover our investment and reasonable return as per the contract. | ||||
We have builtIn addition, the Company will offer after sales agreements for supply of parts, maintenance and tested the 25/50kW ORC systems, and we believe that the overall design meets or exceeds performance metrics when compared to the industry at large. We have, however, remained challenged with our inability to thus far generate the continuous hours of operation that we believe necessary for commercial quality expectations. We continue to work toward our goal of a system capable of 25,000 hours (almost three years) of continuous operation. Meanwhile, we believe that we have made great strides in the evolution of the Liberator waste heat energy system and expect to achieve a successful test by year end 2016. There can be no assurance, however, that our ongoing technical issues will be resolved or that any of our Systems will ever be commercially viable.repairs.
Government RegulationsTechnology and Incentives
We believe that the time may be right for the PowerVerde systems. Regulatory proposals to limit greenhouse gases are under consideration, particularly in Europe. One such measure would be a carbon tax placed on fuels in proportion to their carbon content. Another would be a tax on oil. Yet another would be a “cap and trade” system. All of these would drive up the price of electricity from fossil fuel sources, yet have no impact on carbon-free renewable sources such as those offered by us; however, due to the weak economy in the United States and Europe and strong political opposition, there can be no assurance that any of these measures will be implemented.
Governments, utilities, businesses, and consumers alike are acutely aware of the negative effects of pollution and use of fossil fuels. Fossil fuel-based emissions contribute to serious health and environmental conditions such as acid rain, particulate pollution, nitrogen deposition, and global climate change. Consequently, government agencies in the United States and Europe at the national, state/provincial and local levels have implemented and proposed various economic incentives in the form of tax credits, rebates, deductions, accelerated depreciation and other subsidies designed to enhance the use of energy-efficient and clean power sources. We believe that these incentives will have a substantial positive impact on demand for the PowerVerde systems; however, there can be no assurance that, even with these incentives, our systems will be economically competitive or that the incentives will continue to be available.Intellectual Property
We have applied and continuedesigned an offensive intellectual property strategy to apply for federal grants, loans and/or other programs designed to assist development of renewable “green” energy sources, andensure we have previously retained specialized consultants to assistmaintain a competitive edge in this endeavor; however, wespace. We currently have not been successful in these ongoing efforts,filed five (5) provisional patents that cover crucial process operational aspects and there can be no assuranceimprove system efficiencies and performance, including a provisional patent to cover a next-generation AirSCWOTM system for high strength waste stream treatment. We are allocating R&D resources to support data generation that we will ever receive any governmental assistance.allow moving to full non-provisional patent application by November 2022, with the intention of filing a PCT application.
CompetitionCollaborations
We face substantial competitionhave an exclusive manufacturing agreement in place with Merrell Bros Inc., which is based in Kokomo, Indiana, and is a nationwide biosolids management company helping municipalities, industries and agricultural operations successfully manage and recycle biosolids. They also serve as a channel partner to facilitate our market penetration and expansion plans in the US by opening up their existing client base.
We have a Sponsored Partnership Agreement with Duke University that provides access to Duke’s world-class research capabilities, building on our own R&D expertise and strengthening our core development activities when needed.
We have an exclusive partnership agreement with Environmental Services Company Ltd., who is based in Israel, to act as our channel partner for treating hazardous waste streams in Israel.
Marketing
Our approach is through information, education, and thought leadership. This is because business purchase decisions are based more on bottom-line revenue impact. Return on investment (ROI) is a primary focus for corporate decision makers.
We perform a business-to-business style of marketing of our products and services. We conduct marketing campaigns are aimed at any individual(s) with control or influence on purchasing decisions. This can encompass a wide variety of titles and functions, from numerous other companies, most of whom have financial and other resources substantially greater than ours. Our competition is worldwide, ranging from solo inventors and small businessesentry-level end-users all the way up to major utilitythe C-suite.
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We deploy conventional, yet highly creative demand generation marketing tactics including the following:
• | Pull | |
• | Website | |
• | White papers | |
• | Product brochures and datasheets | |
• | Case studies | |
• | Videos and films | |
• | Industry, Trade Show, Client, and Partner Events | |
• | Push | |
• | Emails | |
• | Newsletters | |
• | Webinars | |
• | Blogs | |
• | Social media | |
• | PR and IR firms |
Clients
Our clients include channel partners (EPCs, technology integrators, waste service providers, operations service providers, NGOs) and end-users which include utilities (private and public), industrial manufacturing facilities (i.e., pharmaceutical, chemical, food & beverage, semi-conductor etc.), waste management and environmental remediation companies (that own/operate waste disposal sites, landfills, incineration sites etc.), agricultural companies, and multinational corporations, allgovernmental entities (i.e., MODs).
Government Regulations
Our operations and AirSCWO units may be subject to various United States federal, state and local and, in the case of whomour Israel operations, Israeli laws and regulations and requirements governing the protection of the environment, public health and safety, and other matters. For example, the construction and operation of our AirSCWO units may require obtaining air permits from various states or, alternatively, obtaining a formal determination from a state that a permit is not required. We may also be required to obtain state and local treatment works approval to install our AirSCWO units if a unit is connected to a system which is permitted pursuant to the United States National Pollutant Discharge Elimination Systems Act. In the event our AirSCWO units are attemptingused to design, developtreat metals, the resulting mineral stream may constitute heavy meals under the United States Resource Conservation and market cleanRecovery Act (the “RCRA”) and efficient methods forrequire separation and regulated disposal if such heavy metals were deemed to be hazardous waste under the generationRCRA. If the operators of our AirSCWO units are treating hazardous waste, they may be required to obtain special hazardous waste technician training. Additionally, we are currently evaluating whether our AirSCWO units may be regulated pursuant to the United States Occupational Safety and delivery of electricity. This competition is expectedHealth Act and thereby be subject to increase due to pressures arising from high prices of fossil fuels, environmental concernsinspections thereunder. We intend that our operations and the increased availability of governmental incentives and subsidies. These competitors may prove more successful in offering similar products and/or may offer alternative products which prove superior in performance and/or more popular with potential customers than our products. Our ability to commercialize our products and grow and achieve profitability in accordance with our business plan will depend on our ability to satisfy our customers and withstand increasing competition by providing high-quality products at reasonable prices. There can be no assurance that weAirSCWO units will be able to achieve or maintain a successful competitive position.in material compliance with, and in many cases surpass, minimum standards required by applicable laws and regulations.
Where You Can Find Additional Information
The Company is subject to the reporting requirements under the Exchange Act. The Company files with, or furnishes to, the SEC quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports and will furnish its proxy statement. These filings are available free of charge on the Company’s website,http://www.powerverdeenergy.com www.374water.com shortly after they are filed with, or furnished to, the SEC.
The SEC maintains an Internet website,http://www.sec.gov,, that contains reports, proxy and information statements and other information regarding issuers.
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The current general economic and market conditions and the volatility and disruption in the financial and capital markets has impacted us and could materially and adversely affect our business and financial results in future periods.
The United States economy continues to suffer from unfavorable economic conditions, including a weak recovery from a severe recession in the general economy, accompanied by large federal and state budget deficits and an increasing national debt. These negative conditions could persist or become even worse. These poor economic conditions continue to make it very difficult for us to raise the capital we need to complete the development and testing of our products so that we can begin sales. In the event that we are able to begin sales of our products, poor economic conditions may adversely affect our business and our financial condition and results of operations by extending the length of the sales cycle and causing potential customers to delay, defer or decline to make purchases of our products due to limitations on their capital expenditures and the adverse effects of the economy and the credit markets on them.
The weak economy is projected by many economic experts to continue or deteriorate further throughout 2016 or longer. These conditions may make it extremely difficult for our customers, our vendors and us to accurately forecast and plan future business activities. We cannot predict the timing, strength or duration of this current weak economy or of a subsequent stronger economic recovery, or the effects thereof on our customers and our markets. Our results of operations may be negatively impacted in future periods and experience substantial fluctuations from period to period as a consequence of these factors, and such conditions and other factors affecting capital spending may affect the timing of orders from major customers. These factors could adversely affect our ability to meet our capital requirements, support our working capital requirements and growth objectives, maintain our existing or secure new financing arrangements, or otherwise materially and adversely affect our business, financial condition and results of operations.
An increase in interest rates or lending rates or tightening of the supply of capital in the global financial markets could make it difficult for end-users to finance the cost of a PowerVerde system and could reduce the demand for our products and/or lead to a reduction in the average selling price for our products.Emerging Growth Company
We believe that,are also an “emerging growth company” as defined in the eventJumpstart Our Business Startups Act of 2012, or “JOBS Act.” As long as we remain an “emerging growth company,” we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not an “emerging growth company,” like those applicable to a “smaller reporting company,” including, but not limited to, a scaled down description of our business in SEC filings; no requirements to include risk factors in Exchange Act filings; no requirement to include certain selected financial data and supplementary financial information in SEC filings; not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act; reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements that we file under the Exchange Act; no requirement for Sarbanes-Oxley Act Section 404(b) auditor attestations of internal control over financial reporting; and exemptions from the requirements of holding an annual nonbinding advisory vote on executive compensation and seeking nonbinding stockholder approval of any golden parachute payments not previously approved. We are able to commercialize our products, many of our end-users will depend on debt financing to fund the initial capital expenditurealso only required to purchase and install a PowerVerde system. As a result, an increase in interest rates or lending rates could make it difficultfile audited financial statements for our end-users to secure the financing necessary to purchase and install PowerVerde systems on favorable terms, or at all and thus lower demand and reduce our net sales. Due to the overall economic outlook, our end-users may change their decision or change the timingprevious two fiscal years when filing registration statements, together with reviewed financial statements of their decision to purchase and install PowerVerde systems. In addition, we believe that a significant percentage of our end-users will install PowerVerde systems as an investment, funding the initial capital expenditure through a combination of equity and debt. An increase in interest rates and/or lending rates could lower an investor’s return on investment in PowerVerde systems, or make alternative investments more attractive relative to PowerVerde systems, and, in each case, could cause these end-users to seek alternative investments. A reduction in the supply of project debt financing or equity investments could reduce the number of our projects that receive financing and thus lower demand for PowerVerde systems.
Reduced growth in or the reduction, elimination or expiration of government subsidies, economic incentives and other support for renewable energy-sourced electricity applications could reduce demand for our systems.
Reduced growth in or the reduction, elimination or expiration of government subsidies, economic incentives and other support for renewable-sourced electricity may result in the diminished competitiveness of our systems relative to conventional and non-renewable sources of energy, and could materially and adversely affect our business.
Electric utility companies or generators of electricity from fossil fuels or other renewable energy sources could also lobby for a change in the relevant legislation in their markets to protect their revenue streams. Reduced growth in or the reduction, elimination or expiration of government subsidies and economic incentives for renewable electricity generation applications, especially those in our target markets, could impede our sales efforts and materially and adversely affect our business, financial condition and results of operations.
Existing regulations and policies and changes to these regulations and policies may present technical, regulatory and economic barriers to the purchase and use of our renewable electricity generation systems, which may significantly reduce demand for our systems.
The market for electricity generation products is heavily influenced by foreign, federal, state and local government regulations and policies concerning the electric utility industry, as well as policies promulgated by electric utilities. These regulations and policies often relate to electricity pricing and technical interconnection of customer-owned electricity generation. In the United States and in a number of other countries, these regulations and policies have been modified in the past and may be modified again in the future. These regulations and policies could deter end-user purchases of our systems.any applicable subsequent quarter.
We anticipate that our systemsmay take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We can remain an “emerging growth company” for up to five years. We would cease to be an “emerging growth company” prior to such time if we have total annual gross revenues of $1 billion or more and their installationwhen we become a “larger accelerated filer,” have a public float of $700 million or more or we issue more than $1 billion of non-convertible debt over a three-year period.
Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Sarbanes/Oxley Act
Except for the limitations excluded by the JOBS Act discussed under the preceding heading “Emerging Growth Company,” we are also subject to the Sarbanes-Oxley Act of 2002. The Sarbanes/Oxley Act created a strong and independent accounting oversight board to oversee the conduct of auditors of public companies and regulation in accordancestrengthens auditor independence. It also requires steps to enhance the direct responsibility of senior members of management for financial reporting and for the quality of financial disclosures made by public companies; establishes clear statutory rules to limit, and to expose to public view, possible conflicts of interest affecting securities analysts; creates guidelines for audit committee members’ appointment, compensation and oversight of the work of public companies’ auditors; management assessment of our internal controls; prohibits certain insider trading during pension fund blackout periods; requires companies and auditors to evaluate internal controls and procedures; and establishes a federal crime of securities fraud, among other provisions. Compliance with national and local ordinances relating to building codes, safety, environmental protection, utility interconnection and metering and related matters. It is difficult to track the requirements of individual statesthe Sarbanes/Oxley Act will substantially increase our legal and design equipment to comply with the varying standards. Any new government regulations or utility policies pertaining to our systems may result in significant additional expenses to us and our potential customers and, as a result, could cause a significant reduction in demand for our systems.accounting costs.
Risks Related to Our Business
We need to raise substantial additional capital to fund our business.
We will need to raise promptly substantial additional funds. Without such additional funds, we may have to cease operations. We will require substantial additional funding for our contemplated research and development activities, commercialization of our products and ordinary operating expenses. Adequate funds for these purposes may not be available when needed or on terms acceptable to us, especially due to the ongoing weak economy. Insufficient funds may require us to delay or scale back our activities or to cease operations. Our sole source of material revenues is Biotech IP licensing fees.
We face substantial competition in our industry, and we may be unable to attract customers and maintain a viable business.
We face substantial competition from numerous other companies, most of whom have financial and other resources substantially greater than ours. Our competition is worldwide, ranging from solo inventors and small businesses all the way to major utility companies and multinational corporations, all of whom are attempting to design, develop and market clean and efficient methods for the generation and delivery of electricity. This competition is expected to increase due to pressures arising from high prices of fossil fuels, environmental concerns and the availability of governmental incentives and subsidies. These competitors may prove more successful in offering similar products and/or may offer alternative products which prove superior in performance and/or more popular with potential customers than our products. Our ability to commercialize our products and grow and achieve profitability in accordance with our business plan will depend on our ability to satisfy our customers and withstand increasing competition by providing high-quality products at reasonable prices. There can be no assurance that we will be able to achieve or maintain a successful competitive position.
Our success is dependent on the services of our key management and personnel.
Our success will depend in large part upon the skill and efforts of our key personnel hired or who may be hired, including our chief engineer, Hank Leibowitz, and our system specialist, Mark Prinz. Loss of any such personnel, whether due to resignation, death, and disability or otherwise, could have a material adverse effect on our business. In addition, Mr. Leibowitz does not intend to work for PowerVerde on a full-time basis, as he has substantial other business activities. He intends to dedicate the time he deems appropriate to meet PowerVerde’s needs; however, there can be no assurance that he will be willing or able to dedicate such time and attention as would maximize PowerVerde’s chances for success.
We have a limited operating history.
We have only a limited operating history. We have yet to generate any material revenues from our systems, as we have sold only one system, in a discounted sale to Newton, and the commercial value of our products is uncertain. There can be no assurance that we will ever be profitable. Further, we are subject to all the risks inherent in a new business including, but not limited to: intense competition; lack of sufficient capital; loss of protection of proprietary technology and trade secrets; difficulties in commercializing its products, managing growth and hiring and retaining key employees; adverse changes in costs and general business and economic conditions; and the need to achieve product acceptance, to enter and develop new markets and to develop and maintain successful relationships with customers, third party suppliers and contractors.
We may have difficulty in protecting our intellectual property and may incur substantial costs to defend ourselves in patent infringement litigation.
We rely primarily on a combination of trade secrets, patents, copyright and trademark laws, and confidentiality procedures to protect our proprietary technology, which is our principal asset.
Our ability to compete effectively will depend to a large extent on our success in protecting our proprietary technology, both in the United States and abroad. There can be no assurance that (i) any patents that we have applied or apply for will be issued, (ii) any patents issued, including our existing U.S. Patent No. 6,840,151, on which our current products are based, will not be challenged, invalidated, or circumvented, (iii) that we will have the financial resources to enforce our patents or (iv) the patent rights granted will provide any competitive advantage. We could incur substantial costs in defending any patent infringement suits or in asserting our patent rights, including those granted by third parties, and we might not be able to afford such expenditures.
We have limited protection over our trade secrets and know-how.
Although we have entered into confidentiality and invention agreements with our key personnel, there can be no assurance that these agreements will be honored or that we will be able to protect our rights to our non-patented trade secrets and know-how effectively. There can be no assurance that competitors will not independently develop substantially equivalent or superior proprietary information and techniques or otherwise gain access to our trade secrets and know-how.
We may be unable to obtain required licenses from third-parties for product development.
We may be required to obtain licenses to patents or other proprietary rights from third parties. If we do not obtain required licenses, we could encounter delays in product development or find that the development, manufacture or sale of products requiring these licenses could be prevented.
The reduction, elimination or unavailability of contemplated government incentives may force our business plan to be changed and may materially adversely affect our business.
Our business plan relies to a significant extent on the availability of substantial federal, state and local governmental incentives for the development, production and purchase of energy-saving, environmentally-friendly products such as our systems. These incentives include, among others, tax deductions, tax credits, rebates, accelerated depreciation and government loans, grants and other subsidies. There can be no assurance that some or all of these incentives will not be substantially reduced or eliminated, nor can there be any assurance that any currently proposed incentives will actually take effect. Similarly, we have never received, and there can be no assurance that we will ever receive, any government loans, grants or other subsidies.
Lower energy prices may hinder our ability to attract customers and become profitable.
Our products are energy-efficient electric generators which compete primarily with conventional fossil fuel-generated electricity produced and delivered by conventional utility companies. The significant decreases in the prices of oil and natural gas since mid-2014 have materially adversely affected our competitive position. If sustained, these lower fossil fuel prices and the corresponding lower cost of fossil fuel-generated electricity could materially adversely affect our business.
We may be unable to purchase materials and parts on commercially reasonable terms from suppliers.
If we are able to commercialize our systems, our success will depend to a large extent on our ability to obtain a reliable supply of materials and parts from our suppliers on commercially reasonable terms. This may not prove possible due to competition, inflation, shortages, international crises, adverse economic and political conditions and business failures of suppliers or other reasons.
Our insurance may not provide adequate coverage.
Although we maintain general and product liability, property and commercial crime insurance coverage which we consider prudent, there can be no assurance that such insurance will prove adequate in the event of actual casualty losses or broader calamities such as terrorist attacks, earthquakes, financial crises, economic depressions or other catastrophic events, which are either uninsurable or not economically insurable. Any such losses could have a material adverse effect on PowerVerde.
We may be unable to obtain or maintain insurance for our commercial products.
The design, development and manufacture of our products involve an inherent risk of product liability claims and associated adverse publicity. There can be no assurance we will be able to maintain insurance for any of our proposed commercial products. Such insurance is expensive, difficult to obtain and may not be available in the future on acceptable terms or at all. We are also exposed to product liability claims in the event the use of our proposed products result in injury.
Risks Related to Our Common Stock; Liquidity Risks
Our stock price is highly volatile.
The market prices for securities of emerging and development stage companies such as ours have historically been highly volatile, and our limited history has reflected this volatility. Difficulty in raising capital as well as future announcements concerning us or our competitors, including the results of testing, technological innovations or new commercial products, government regulations, developments concerning proprietary rights, litigation or public concern as to safety of potential products developed by us or others, may have a significant adverse impact on the market price of our stock.
We do not pay dividends on our common stock, and we have no intention to do so in the future.
For the near-term, we intend to retain remaining future earnings, if any, to finance our operations and do not anticipate paying any cash dividends with respect to our common stock.
There has been limited trading in our stock.
Our common stock is currently quoted on the OTCBB under the symbol “PWVI.” Since our February 2008 Merger with our predecessor Vyrex Corporation, our stock has been thinly traded, and no assurance can be given as to when, if ever, an active trading market will develop or, if developed, that it will be sustained. As a result, investors may be unable to sell their shares of our common stock at a fair price, if at all.
We may issue additional shares of our stock which may dilute the value of our stock.
Shares which we issue pursuant to private placements generally may be sold in the public market after they have been held for six months, pursuant to Rule 144. The sale or availability for sale of substantial amounts of common stock in the public market under Rule 144 or otherwise could materially adversely affect the prevailing market prices of our common stock and could impair our ability to raise additional capital through the sale of our equity securities.
We may issue shares of preferred stock that could defer a change of control or dilute the interests of holders of our common stock shareholders.
Our Board of Directors is authorized to issue up to 50,000,000 shares of preferred stock. The Board of Directors has the power to establish the dividend rates, liquidation preferences, voting rights, redemption and conversion terms and privileges with respect to any series of preferred stock. The issuance of any series of preferred stock having rights superior to those of the common stock may result in a decrease in the value or market price of the common stock and further, they could be used by the Board of Directors as a device to prevent a change in control favorable to the Company. Holders of preferred stock to be issued in the future may have the right to receive dividends and certain preferences in liquidation and conversion rights. The issuance of such preferred stock could make the possible takeover of the Company or the removal of management of the Company more difficult, and adversely affect the voting and other rights of the holder of the common stock, or depress the market price of the common stock.
Our common stock is covered by SEC “penny stock” rules which may make it more difficult for you to sell or dispose of our common stock.
Since we have net tangible assets of less than $1,000,000, transactions in our securities are subject to Rule 15g-9 under the Exchange Act which imposes additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000 or $300,000 together with their spouses). For transactions covered by this Rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to the sale. Consequently, this Rule may affect the ability of broker-dealers to sell our securities, and may affect the ability of shareholders to sell any of our securities in the secondary market.
The Commission has adopted regulations which generally define a “penny stock” to be any non-NASDAQ equity security of a small company that has a market price (as therein defined) less than $5.00 per share, or with an exercise price of less than $5.00 per share subject to certain exceptions, and which is not traded on any exchange or quoted on NASDAQ. For any transaction by broker-dealers involving a penny stock (unless exempt), the rules require delivery, prior to a transaction in a penny stock, of a risk disclosure document relating to the penny stock market. Disclosure is also required to be made about compensation payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in an account and information on the limited market in penny stocks.
FORWARD-LOOKING STATEMENTS
Prospective investors are cautioned that the statements in this Report that are not descriptions of historical facts may be forward-looking statements that are subject to risks and uncertainties. This Report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are based on the beliefs of our management as well as on assumptions made by and information currently available to us as of the date of this Report. When used in this Report, the words “plan,” “will,” “may,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “project” and similar expressions, as they relate to PowerVerde,374Water, are intended to identify such forward-looking statements. Although PowerVerde374Water believes these statements are reasonable, actual actions, operations and results could differ materially from those indicated by such forward-looking statements as a result of the risk factors included in this Report or other factors. We must caution, however, that this list of factors may not be exhaustive and that these or other factors, many of which are outside of our control, could have a material adverse effect on PowerVerde374Water and our ability to achieve our objectives. All forward-looking statements attributable to PowerVerde374Water or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above.
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ITEM 1B.UNRESOLVED STAFF COMMENTS.
None.
ITEM 2.PROPERTIES.
None.
ITEM 3.LEGAL PROCEEDINGS.
None.
ITEM 4.MINE SAFETY DISCLOSURES.
Not applicable.
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We do not own any real property. On January 1, 2012 our Board of Directors agreed to end the rental agreement with ARD and moved our operations to a 5,000 foot facility owned by our then-director and chief operating officer Bryce Johnson (who resigned in March 2013), located at 7595 E. Gray Rd., Scottsdale, Arizona. We believe that the facility will be adequate to satisfy our needs for at least the next year. From March 2012 to June 2013, we used the facility for a fee of $700 per month, which covered overhead costs. Since July 2013, this fee has not been charged. We believe that our relationship with Mr. Johnson, who remains a major PowerVerde shareholder, is good, and we believe that this good relationship will continue and allow us to use the facility on current terms for at least the next year; however, there can be no assurance that this will be the case as we do not have a signed lease.
On November 2, 2012, Keith Johnson, our former Chief Technical Officer, filed suit against our operating subsidiary PowerVerde Systems, Inc., in Maricopa County, Arizona, Superior Court. The suit included claims for breach of his employment agreement, for back pay and related claims. Mr. Johnson, whose salary was $12,500 per month, sought back pay of $37,500, reimbursement of expenses totaling approximately $5,012 and other unspecified damages. We believe that Mr. Johnson voluntarily terminated his employment in accordance with the agreement and that he has been paid in full. In an abundance of caution, we also gave Mr. Johnson 30 days’ notice of termination without cause pursuant to the employment agreement, with this notice to be effective only if the Court determines that his employment was not previously terminated by him. Mr. Johnson ceased working for the Company in early September 2012.PART II
In May 2014, the case was settled pursuant to our agreement to pay Mr. Johnson $30,088, with $5,088 due upon execution of the settlement agreement plus an additional $25,000 payable in installments of $12,500 each in July and August 2014. All of the settlement payments have been made, and the case is concluded.ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Notapplicable.
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Our common stock trades on the Over-The-Counter Bulletin Board (“OTCBB”) under the symbol “PWVI.“SCWO.” The over-the-counter market quotations provided below reflect inter-dealer prices, without retail mark-ups, mark-down or commission and may not represent actual transactions. The following table sets forth the range of high and low sales prices on the OTCBB for the periods indicated.
Period Beginning | Period Ending | High | Low | |||||||||
January 1, 2014 | March 31, 2014 | $ | .24 | $ | .08 | |||||||
April 1, 2014 | June 30, 2014 | $ | .24 | $ | .17 | |||||||
July 1, 2014 | September 30, 2014 | $ | .18 | $ | .09 | |||||||
October 1, 2014 | December 31, 2014 | $ | .20 | $ | .10 | |||||||
January 1, 2015 | March 31, 2015 | $ | .50 | $ | .13 | |||||||
April 1, 2015 | June 30, 2015 | $ | .40 | $ | .15 | |||||||
July 1, 2015 | September 30, 2015 | $ | .18 | $ | .10 | |||||||
October 1, 2015 | December 31, 2015 | $ | .14 | $ | .08 | |||||||
January 1, 2016 | March 30, 2016 | $ | .25 | $ | .12 |
Period Beginning |
| Period Ending |
| High |
|
| Low |
| ||
January 1, 2020 |
| March 31, 2020 |
| $ | 0.25 |
|
| $ | 0.08 |
|
April 1, 2020 |
| June 30, 2020 |
| $ | 0.37 |
|
| $ | 0.11 |
|
July 1, 2020 |
| September 30, 2020 |
| $ | 0.68 |
|
| $ | 0.25 |
|
October 1, 2020 |
| December 31, 2020 |
| $ | 0.95 |
|
| $ | 0.36 |
|
January 1, 2021 |
| March 31, 2021 |
| $ | 0.89 |
|
| $ | 0.16 |
|
April 1, 2021 |
| June 30, 2021 |
| $ | 2.56 |
|
| $ | 0.45 |
|
July 1, 2021 |
| September 30, 2021 |
| $ | 2.44 |
|
| $ | 1.00 |
|
October 1, 2021 |
| December 31, 2021 |
| $ | 2.85 |
|
| $ | 1.90 |
|
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’s374Water’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.
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Each Note investor receives 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 are 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 revisedMerger with PowerVerde, 374Water closed on a private placement of 436,783 shares of Series D Convertible Preferred Stock (the “Preferred Stock”) with a par value of $.0001, yielding gross proceeds of $6,551,745 (the “Private Placement”) and the termssettlement of a $50,000 liability for Preferred Stock shares. The Private Placement proceeds will be used for working capital, primarily for development, manufacture and commercialization of 374Water Inc.’s Air SCWO Nix systems. The Preferred Stock has a stated value of $15 per share, is convertible into common stock at $.30 per share and has voting rights based on the underlying shares of common stock. Upon liquidation of the original warrants issued December 31, 2012, extendingCompany, the expiration date from December 31, 2015Preferred Stockholders have liquidation preference before any assets can be distributed to December 31, 2017 and the exercise price was reduced from $0.41 per share to $0.39 per share. We also revised the termscommon stockholders. All of the additional warrantsPreferred Stock was sold pursuant to extendan exemption from registration requirements under Regulation D and/or Section 4(2) of the expiration date to December 31, 2018, and the exercise price was reduced from $.21 per share to $0.17 per share.Securities Act of 1933, as amended.
In the first quarter of 2014, we raised gross proceeds of $240,000 throughDecember 2021, 374Water closed on a private placement of 2,400,000 unregistered2,500,000 shares of common stockCommon Stock (the “Common Shares”) with a par value of $.0001 and at a exercise price of $2.00 yielding $5,000,000. The private placement proceeds were raised to accredited investors at $.10 per share.assist in the Company’s efforts of towards meeting Nasdaq uplisting requirements.
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.
In the third quarter of 2014, we raised gross proceeds of $100,000 through private placement of 1,000,000 unregistered shares of common stock to accredited investors at $.10 per share.
Issuer Purchases of Equity Securities
During the years endedAs of December 31, 2015, and 2014, there were no2021, the Company did not have any purchases of equity securities repurchases by the Company.from stockholders.
ITEM 6.SELECTED FINANCIAL DATA.
Not required for smaller reporting companies.
ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
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 374Water Inc., formerly known as PowerVerde, Inc. (“374Water Inc.,” “we,” “us,” “our,” or the “Company”) 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
Licensing and royalty revenue from royalty agreements unrelated to the Company’s planned operations is recognized in accordance with the terms of the specific agreement. Revenues recognized under these agreements amount to 100% of total revenues for the years ended December 31, 2015 and 2014.
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, 20152021 and 2014,2020 were classified as equity. The Company utilizes the Black Scholes Model to complete valuation of warrants and uses the inputs for the Black Scholes Model including Risk Free Rate, Dividend yield, stock price, exercise price, term, and volatility. The Company uses other public company comparison for Volatility and pulls the risk-free rate from the federal treasury rates based on the term. The Company’s exercise price is pulled from the warrant agreement and the stock price is pulled from the market close on the day of issuance. The Company’s term for the warrants utilizes the simplified method for the calculation of the term.
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Intellectual Property
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.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 2005,374Water, Inc. (the “Company”, “374Water”, “We”, or “Our”) is a Delaware corporation which was incorporated on September 8, 2005. The Company was initially formed to develop, commercialize, and market a series of unique electric generating power systems designed to produce electrical power with zero emissions or waste byproducts, based on a patented pressure-driven expander motor and related organic rankine cycle technology.
On April 16, 2021, 374Water Inc. (f/k/a PowerVerde, Inc.) entered into an Agreement and Plan of Merger (the “Merger”) with 374Water, Inc., a privately held company based in Durham, North Carolina, (“374Water Private Company”) and 374Water Acquisition Corp., a newly-formed wholly-owned subsidiary of PowerVerde.
As a result of the Merger, the former 374Water Private Company devoted substantially allshareholders own 65.8% of its effortsour issued and resources to researchoutstanding common stock and development related to its unsuccessful Biotech Business, in particular53.8% of our issued and outstanding voting stock (which includes the study of biological oxidation and antioxidation directedpreferred stock on an as converted basis).
Subsequent to the developmentMerger, 374Water is focused on being a cleantech and social impact company providing a disruptive technology that addresses imminent environmental pollution challenges. We are focused on a new era of potential therapeutic productssustainable waste stream management that promotes circular economy initiatives and enables organizations to achieve sustainability goals and create green impact. Our vision is a world without waste and our mission is to preserve a clean and healthy environment that sustains life.
We have developed proprietary waste stream treatment systems based on Supercritical Water Oxidation (SCWO). The term used for the treatmentprocess is AirSCWOTM. SCWO leverages the unique properties of various diseaseswater in its supercritical phase (above 374 oC and conditions. In221 Bar) to convert organic matter to energy and safe products that can be recovered and used. The AirSCWOTM systems are essentially waste stream agnostic and able to treat a variety of complex, hazardous and non-hazardous waste streams, opening up opportunities for multiple applications in diverse market verticals on an international scale. Most pertinently, the most recent years,technology is shifting the Company’s research focused mainly on targeted antioxidant therapeuticslandscape in addressing environmental challenges that, until now, have been considered unsurmountable (due to science/engineering or cost barriers), one good example being the global PFAS crisis.
We currently outsource manufacturing of the AirSCWOTM systems to our strategic partner in the US, Merrell Bros., Inc., that have the facilities and nutraceuticals. capability to rapidly ramp-up manufacturing volumes and also support system modifications and deployment as required per market and clients. We envision in the future applying an outsourced manufacturing model in a few territories, and may consider establishing our own manufacturing capability in geographies where this is needed to adequately grow our market share.
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The Company is a development stage company, has never generated any substantialsystems are supplied to multiple market verticals, and our revenue from productmodel includes both capital equipment sales and has relied primarilylong-term service agreements based on equity financing, licensing revenues,throughput and various debt instruments for its working capital. The Company has been unprofitable since its inception.capacity (Waste Purchase Agreements). Our market penetration strategy is combined of direct client and channel partner sales routes, depending on the specific market and territory. In some cases, the systems may be white labelled and sold as part of a broader solution package.
Following the cessationResults 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 relatingOperations
Year Ended December 31, 2021, as Compared 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.Year Ended December 31, 2020
Since the Merger,inception, we have focused on the development, testing and testingcommercialization of our clean energy electric power systems, and since 2008 we havegeneration systems. Since the closing of the 374Water Merger, our business has been focused on their applicabilitydevelopment and commercialization of 374Water’s supercritical water oxidation (SCWO) systems. We generated $48,100 and $86,570 in revenue from manufacturing assembly services and from consulting and advisory services during the years ended December 31, 2021, and 2020, respectively. This year, we had substantial expenses due 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 ongoing research and development activities and efforts uncertaintiesto commercialize our systems, as well as substantial administrative expenses 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,our status as a result ofpublic company. Our general and administrative expenses increased to $1,095,382 during 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
Yearsyear ended December 31, 20152021, as compared to $17,483 in the same period of 2020, primarily because of increased insurance costs, payroll expenses due to hiring employees and 2014
During 2015, we continuedstock-based compensation expenses. Our professional fees increased to focus on upgrading$343,862 during the durabilityyear ended December 31, 2021, as compared to $8,791 in the same period of 2020, primarily because of increased legal fees and continued operations capability ofaccounting fees relating to the 374Water Merger and our Liberator Waste Heat System. We had no revenues in 2015 other than $529,861 in Biotech IP licensing fees,status as a 23.6% increase from $428,747 in licensing income for 2014.public company. Our research and development expenses increased by $263,794 (72.5%) in 2015were $375,032 during the year ended December 31, 2021, as compared to 2014, and our general and administrative expenses decreased by $229,425 (45.7%). The$57,718 in the same period of 2020, primarily because of the increase in engineering expenses was primarily duetofollowing the issuances374Water Merger. Our product development expenses were $1,399,833 during the year ended December 31, 2021, compared to no such expenses in the same period of 2020. This activity represents the issuance of stock optionswarrants to a strategic partner in the second quarter of 2021 as part of compensation for services.the manufacturing, supply and service of AirSCWO products. Substantial net losses will continueare expected until we are able to successfully commercialize and market our products,374Water systems, as to which there can be no assurance.
Liquidity and Capital Resources
In April 2021, in connection with the Merger, we raised approximately $6.6 million from the sale of Series D Preferred Stock and converted all of its convertible debt notes and accrued interest to shares of common stock. On December 17, 2021, the Company raised approximately $5 million from the sales of Common Stock.
We have financed our operations since inception principally through the sale of debt and equity securities. Also, since 2012 we have received material amounts of Biotech IP licensing fees. As of December 31, 2015,2021, we had a working capital deficit of $288,544 and as$11,263,270 compared to working capital of $10,572 at December 31, 2014, we had a working capital surplus of $78,580.2020. This decreaseincrease in working capital occurred in April 2021, and is due primarily to the note payable to related parties (issuedgross proceeds of $6,551,745 from the sale of Series D Convertible Preferred Stock, the receipt of $1,134,999 of proceeds from the exercise of a warrant, and the gross proceeds of $4,999,975 from the private placement in 2012) that is due on December 31, 2016.
During 2015, we received $529,861 in Biotech IP licensing fees alone.
By2021 for the endsale of 2015, we had spent all 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, we have only enough cash to finance operations for approximately two months, until approximately May 2016.Common Stock.
We expect 2016 Biotech IP revenues to exceed the 2015 level; however, there can be no assurancebelieve that this revenue levelthese funds will be achieved. Further,satisfy 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.
We continue to seek funding from private debt and equity investors, as we need to promptly raise substantial additional capital in order to finance our plan of operations.needs for the next 12 months. There can be no assurance that these funds will be sufficient to finance our plan of operations and commercialize our systems or that we will be able to promptly raise theany necessary funds. If we do not promptly raise the necessaryadditional funds we may be forced to cease operations.on a commercially reasonable basis or at all.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required for smaller reporting companies.
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
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.
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ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A.CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
The Company, under the supervision and with the participation of itsthe Company’s management, including the Chief Executive Officer and President,have 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 not effective.
Management’s Annual Report on Internal Control Over Financial Reporting
Management of the CompanyOur management, including our principal executive officer and principal financial officer, 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(as defined in Rule 13a-15(f) under the Exchange Act). Our management, with respect to financial statement preparation and presentation. Further, becausethe participation 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 chiefour principal executive officer and chiefprincipal financial officer, assessedevaluated the effectiveness of our internal control over financial reporting as of December 31, 2015. In making this assessment,2021. Our management’s evaluation of our management usedinternal control over financial reporting was based on the criteria set forthframework in Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—An Integrated Framework (September 1992).Commission. Based on this evaluation, our management concluded that as of December 31, 2015,2021, our internal control over financial reporting was not effective.
The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses which we identified in our internal control over financial reporting:
(1) | the lack of multiples levels of management review on complex accounting and financial reporting issues, and business transactions, | |
(2) | a lack of adequate segregation of duties and necessary corporate accounting resources in our financial reporting process and accounting function as a result of our limited financial resources to support hiring of personnel and implementation of accounting systems, and | |
(3) | a lack of entity level controls due to ineffective board of directors and no audit committee |
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.
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Changes in Internal Control Over Financial Reporting
There were no significant changesManagement noted that in internal controlresponse to the material weaknesses related to complex accounting and lack of segregation of duties, the Company hired Israel Abitbol, CFO, who operated as the full-time accountant on behalf of 374Water Inc., pre-merger. The Company utilized KSDT, a CPA firm to assist with the month-end close (MEC) process following the merger from April to June 2021. At the end of June 2021, a part-time contractor CPA was hired (Steven Dinkins) to assist with the MEC process of the accounting records. Beginning with July 2021, a MEC Checklist was created that allowed the consultant to sign-off as a preparer for records in QuickBooks (QB) as well as schedules and reports maintained outside of QB, and Israel Abitbol would conduct a detailed review of the checklist procedures. This process evolved over the year to include a formal sign-off on the review of the checklist. Beginning in September 2021, the Company hired King Consulting Group (KCG) to assist with the review and preparation of financial statements as well as additional supplemental review over complex accounting areas. For financial reporting, duringthis would have Steven Dinkins, consultant become the fourthinitial preparer and KCG be the initial reviewer of the drafted financial statement information to be used for the quarter (or for the year). KCG would prepare the draft copy of 2015the financial statements and supplemental schedules and allow Israel Abitbol, CFO, and Yaacov Nagar, CEO to review the draft and approval of the final copy. Before publishing, the financial statements are also reviewed by the Company Legal Counsel before the final submission to the SEC. We believe that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.postmerger actions fully addressed and remediated this material weakness.
Additionally, management noted that in response to the material weakness related to the lack of entity level controls due to ineffective Board of Directors and no Audit Committee, the Company is working to remediate the material weakness by December 31, 2022. The Company noted that as part of this remediation process, the Board of Directors has expanded to a four member Board of Directors following the merger. The four members of the board consist of Yaacov Nagar, CEO, Marc Deshusses, Head of Technology, Richard Davis, PowerVerde’s prior CEO, and Terry Merrell, CFO of Merrell Bros. Inc. The Company had their first Board of Directors meeting on May 6, 2021. The Board held 7 monthly meetings out of the 8 total months the Board was active during FY2021. As part of the Company’s uplisting to NASDAQ process, the Company is working on adding 3-4 Independent Board members and creating several Board committees, including Audit Committee.
ITEM 9B.OTHER INFORMATION.
None.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The names of our officers and directors, as well as certain information about them arerequired by this Item is set forth below:
Name | Age | Position(s) | Held Since | |||||||
Richard H. Davis | 60 | Chief Executive Officer, Director | 2008 | |||||||
John Hofmann | 59 | Chief Financial Officer | 2011 |
Richard H. Davis. Mr. Davis joined our Boardunder the headings “Directors, Executive Officers and Corporate Governance” and “Section 16(a) Beneficial Ownership Reporting Compliance” in February 2008the Company’s 2022 Proxy Statement to be filed with the U.S. Securities and Exchange Commission (“SEC”) within 120 days after December 31, 2021 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 joinedsolicitation of proxies for 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.
John Hofmann. Mr. Hofmann became our Chief Financial Officer in August 2011. He is president of J L Hofmann & Associates, P.A., Coral Gables, Florida (“JLHA”), which has provided financial consulting and accounting services to select clientele since 1990. JLHA has 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 nextCompany’s 2022 annual meeting of shareholders and until the director’s successor is elected and qualified.incorporated herein by reference.
CommitteesITEM 11. EXECUTIVE COMPENSATION.
Our BoardThe information required by this Item is set forth under the heading “Executive Compensation” and under the subheadings “Board Oversight of Risk Management,” “Compensation of Directors, does not yet have any committees; however, we intend to establish an audit committee” “Director Compensation-2021” and a compensation/stock option committee“Compensation Committee Interlocks and Insider Participation” under the heading “Directors, Executive Officers and Corporate Governance” in the near future. Additional board members are anticipatedCompany’s 2022 Proxy Statement 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. 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.SEC within 120 days after December 31, 2021 and is incorporated herein by reference.
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, we have not paid any compensation to officers or directors in such capacity. Since becoming PowerVerde officers, Messrs Davis and Hofmann have not received any salary or other cash compensation for services in that capacity except that, in June 2011, Messrs. Davis 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.
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 16th 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 vests in equal installments every six months thereafter until fully vested, provided that Mr. Prinz is 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, $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.
We may also issue to our officers and directors 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, 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, 2016 we had 31,750,106 shares outstanding.
Name and Address of Beneficial Owner | Shares Owned | Percent of Class | ||||||
George Konrad1 | 4,027,408 | 12.68 | % | |||||
21615 N Second Avenue | ||||||||
Phoenix, AZ 85027 | ||||||||
Bryce Johnson2 | 1,858,333 | 5.85 | % | |||||
7595 E. Gray Road | ||||||||
Scottsdale, Arizona 85266 | ||||||||
Fred Barker3 | 1,695,990 | 5.34 | % | |||||
21615 N Second Avenue | ||||||||
Phoenix, AZ 85027 | ||||||||
Officers and Directors | ||||||||
Richard H. Davis4 | 2,803,033 | 8.83 | % | |||||
8365 SW 168 Terrace | ||||||||
Palmetto Bay, FL l33157 | ||||||||
John L. Hofmann5 | 1,200,000 | 3.78 | % | |||||
420 S. Dixie Highway, Suite 4B | ||||||||
Coral Gables, Florida 33146 | ||||||||
All Directors and Executive Officers as a group ( persons)6 | 4,003,033 | 12.61 | % |
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 150,000 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: 2,400,000 shares represented by currently exercisable warrants, 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.
6 Includes 3,600,000 shares represented by currently exercisable warrants.
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, J.L. Hofmann & Associates, P.A. (“JLHPA”) has provided financial consulting and accounting services to PowerVerde. We paid a total of $39,150 to JLHPA in 2015.
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.
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, 2015 and 2014. The following table summarizes the aggregate fees billed and expected to be billed to us by CB for the fiscal years ended December 31, 2015 and 2014, respectively:
Principal Accountant Fees and Service
2015 | 2014 | |||||||
Audit Fees | $ | 46,250 | $ | 43,250 | ||||
Total | $ | 46,250 | $ | 43,250 |
Audit FeesITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The aggregate fees billedinformation required by this Item is set forth under the headings “Security Ownership of Certain Beneficial Owners and expectedManagement” and “Equity Compensation Plan Information” in the Company’s 2022 Proxy Statement to be billed by CB for professional services rendered for the fiscal years ended 2015 and 2014, respectively, including fees associatedfiled 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 SecuritiesSEC within 120 days after December 31, 2021 and Exchange Commission and consultations on accounting issues and the application on new accounting pronouncements were approximately $46,250 and $43,250, respectively.is incorporated herein by reference.
Tax FeesITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The aggregate fees billedinformation required by this Item is set forth under the heading “Review, Approval or expectedRatification of Transactions with Related Persons” and under the subheading “Board Committees” under the heading “Directors, Executive Officers and Corporate Governance” in the Company’s 2022 Proxy Statement to be billed by John L. Hofmann & Associates P.A. for tax compliance, tax advice and tax planning rendered tofiled with the Company for each of the fiscal years endedSEC within 120 days after December 31, 20152021 and 2014 were approximately $2,000.is incorporated herein by reference.
PART IVITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by this Item is set forth under the subheadings “Fees Paid to Auditors” and “Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services Performed by the Independent Registered Public Accounting Firm” under the proposal “Ratification of Appointment of Independent Registered Public Accounting Firm” in the Company’s 2022 Proxy Statement to be filed with the SEC within 120 days after December 31, 2022 and is incorporated herein by reference.
19 | |
Table of Contents |
PART IV
ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
See Exhibit Index and Financial Statements Index, below.
PowerVerde,374Water Inc.
and Subsidiaries
Annual Report on Form 10-K
Year Ended December 31, 20152021
EXHIBIT INDEX
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, 2015
INDEX TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMReport of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders ofPowerVerde,
374Water Inc. and Subsidiarysubsidiaries
Coral Gables, FloridaDurham, North Carolina
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheetssheet of PowerVerde,374Water Inc. and Subsidiary,subsidiaries (the “Company”) as of December 31, 2015 and 2014,2021, and the related consolidated statements of operations, changes in stockholders’ deficiency,equity, and cash flows for the years then ended. year ended December 31, 2021, and the related notes (collectively, the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidatedthe Company’s financial statements based on our audits.audit. 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 Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our auditsaudit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.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. Our audits included considerationAs part of our audit, we are required to obtain an understanding 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
Our audit also includesincluded performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidatedpresentation of the financial statement presentation.statements. We believe that our audits provideaudit provided a reasonable basis for our opinion.
/s/ CHERRY BEKAERT LLP | |
We have served as the Company’s auditor since 2021. | |
Raleigh, North Carolina | |
March 1, 2022 |
21 |
Table of Contents |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
374Water, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of 374Water, Inc. (the Company) as of December 31, 2020, and the related statements of operations, stockholders’ deficit, and cash flows for the year ended December 31, 2020, and the related notes to the financial statements (collectively referred to as the financial 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, 2015 and 2014,2020, and the consolidated results of theirits operations and their consolidatedits cash flows for the years then ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt Regarding 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 incurred a net loss of $426,634operating losses, has incurred negative cash flows from operations and $565,913 in 2015has an accumulated deficit. These and 2014, respectively. As of December 31, 2015 the accumulated deficit was $11,659,311. Theseother 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 relatingManagement’s plan regarding these matters is also described in Note 2 to the recoverability and classification of recorded assets, or the amount and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
Cherry Bekaert LLPCoral Gables, FloridaMarch 30, 2016
PowerVerde, Inc. and Subsidiary
December 31, | ||||||||
2015 | 2014 | |||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 5,601 | $ | 4,736 | ||||
Accounts receivable | 220,158 | 189,220 | ||||||
Employee advances | — | 12,292 | ||||||
Prepaid expenses | 13,332 | 14,238 | ||||||
Total Current Assets | 239,091 | 220,486 | ||||||
Property and Equipment | ||||||||
Property and equipment, net of accumulated depreciation of $70,792 and $55,258, respectively | 36,849 | 52,383 | ||||||
Other Assets | ||||||||
Intellectual property, net of accumulated amortization of $665,532 and $604,487, respectively | 26,742 | 54,953 | ||||||
Total Assets | $ | 302,682 | $ | 327,822 | ||||
Liabilities and Stockholders’ Deficiency | ||||||||
Current Liabilities | ||||||||
Accounts payable and accrued expenses | $ | 41,951 | $ | 100,006 | ||||
Payables to related parties | 26,000 | 41,900 | ||||||
Notes payable to related party | 412,115 | — | ||||||
Note payable | 47,569 | — | ||||||
Total Current Liabilities | 527,635 | 141,906 | ||||||
Long-Term Liabilities | ||||||||
Notes payable to related parties | — | 374,235 | ||||||
Total Long-Term Liabilities | — | 374,235 | ||||||
Total Liabilities | 527,635 | 516,141 | ||||||
Stockholders’ Deficiency | ||||||||
Preferred stock: | ||||||||
50,000,000 shares authorized, 0 shares issued At December 31, 2015 and 2014 | ||||||||
Common stock: | ||||||||
200,000,000 common shares authorized, par value $0.0001 per share, 31,750,106 common shares issued and outstanding at December 31, 2015 and December 31, 2014 | 3,981 | 3,981 | ||||||
Additional paid-in capital | 11,921,516 | 11,531,516 | ||||||
Treasury stock, 8,550,000 shares at cost | (491,139 | ) | (491,139 | ) | ||||
Accumulated deficit | (11,659,311 | ) | (11,232,677 | ) | ||||
Total Stockholders’ Deficiency | (224,953 | ) | (188,319 | ) | ||||
Total Liabilities and Stockholders’ Deficiency | $ | 302,682 | $ | 327,822 |
The accompanying notes are an integral part of these consolidated financial statements.
PowerVerde, Inc. and Subsidiary
Consolidated Statements of Operations
For the years ended December 31, 2015 and 2014
2015 | 2014 | |||||||
Revenue, Net | $ | 529,861 | $ | 428,747 | ||||
Cost of Goods Sold | — | — | ||||||
Gross Profit | 529,681 | 428,747 | ||||||
Operating Expenses | ||||||||
Research and development | 627,889 | 364,095 | ||||||
General and administrative | 272,281 | 501,706 | ||||||
Total Operating Expenses | 900,170 | 865,801 | ||||||
Loss from Operations | (370,309 | ) | (437,054 | ) | ||||
Other Income (Expenses) | ||||||||
Interest income | 861 | — | ||||||
Interest expense | (57,186 | ) | (128,859 | ) | ||||
Other income (expenses) | — | — | ||||||
Total Other Income (Expenses) | (56,325 | ) | (128,859 | ) | ||||
Loss before Income Taxes | (426,634 | ) | (565,913 | ) | ||||
Provision for Income Taxes | — | — | ||||||
Net Loss | $ | (426,634 | ) | $ | (565,913 | ) | ||
Net Loss per Share - Basic and Diluted | $ | (0.01 | ) | $ | (0.02 | ) | ||
Weighted Average Common Shares Outstanding - Basic and Diluted | 31,750,106 | 30,613,257 |
The accompanying notes are an integral part of these consolidated financial statements.
PowerVerde, Inc. and Subsidiary
Consolidated Statements of Changes in Stockholders’ deficiency
For the years ended December 31, 2015 and 2014
Common Shares | Common Stock | Additional Paid in Capital | Treasury Stock | Accumulated Deficit | Total Stockholders’ Deficiency | |||||||||||||||||||
Balances, December 31, 2013 | 27,600,106 | $ | 3,567 | $ | 11,098,665 | $ | (491,139 | ) | $ | (10,666,764 | ) | $ | (55,671 | ) | ||||||||||
Sale of common stock at $.10 per share, net of stock issuance costs of $7,500 | 4,150,000 | 414 | 407,086 | — | — | 407,500 | ||||||||||||||||||
Modification of warrants in connection with Notes payable to related party | — | — | 25,765 | — | — | 25,765 | ||||||||||||||||||
Net loss | — | — | — | — | (565,913 | ) | (565,913 | ) | ||||||||||||||||
Balances, December 31, 2014 | 31,750,106 | $ | 3,981 | $ | 11,531,516 | $ | (491,139 | ) | $ | (11,232,677 | ) | $ | (188,319 | ) | ||||||||||
Stock-based compensation | — | — | 390,000 | — | — | 390,000 | ||||||||||||||||||
Net loss | — | — | — | — | (426,634 | ) | (426,634 | ) | ||||||||||||||||
Balances, December 31, 2015 | 31,750,106 | $ | 3,981 | $ | 11,921,516 | $ | (491,139 | ) | $ | (11,659,311 | ) | $ | (224,953 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
PowerVerde, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the years ended December 31, 2015 and 2014
2015 | 2014 | |||||||
Cash Flows from Operating Activities | ||||||||
Net loss | $ | (426,634 | ) | $ | (565,913 | ) | ||
Adjustments to reconcile net loss to net cash | ||||||||
Used in operating activities: | ||||||||
Depreciation and amortization | 76,579 | 236,455 | ||||||
Amortization of discount | 12,881 | 85,860 | ||||||
Stock based compensation | 390,000 | — | ||||||
Changes in operating assets and liabilities | ||||||||
Accounts receivable and prepaid expenses | (30,033 | ) | (135,248 | ) | ||||
Employee advances | 12,292 | 7,000 | ||||||
Interest receivable, related party | ||||||||
Accounts payable and accrued expenses | (58,056 | ) | 56,431 | |||||
Payable to related parties | (15,900 | ) | (22,065 | ) | ||||
Cash Used in Operating Activities | (38,871 | ) | (337,480 | ) | ||||
Cash Flows From Investing Activities | ||||||||
Purchase of property and equipment | — | (13,590 | ) | |||||
Purchase of intellectual property | (16,116 | ) | — | |||||
Cash Used in Investing Activities | (16,116 | ) | (13,590 | ) | ||||
Cash Flows from Financing Activities | ||||||||
Proceeds from note receivable, related party, and accrued interest | 41,719 | — | ||||||
Payments on note payable | (10,867 | ) | — | |||||
Proceeds from notes payable, related party | 25,000 | — | ||||||
Proceeds from issuance of common stock | — | 415,000 | ||||||
Payment of note payable to related parties | — | (100,000 | ) | |||||
Payment of stock issuance costs | — | (7,500 | ) | |||||
Cash Provided by Financing Activities | 55,852 | 307,500 | ||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 865 | (43,570 | ) | |||||
Cash and cash equivalents at Beginning of Period | 4,736 | 48,306 | ||||||
Cash and cash equivalents at End of Period | $ | 5,601 | $ | 4,736 | ||||
Supplemental Disclosure of Cash Flow Information | ||||||||
Cash Paid for Interest | $ | 44,294 | $ | 43,000 | ||||
Supplemental Schedule of Non-Cash Activities | ||||||||
Note receivable and accrued interest in connection with IP acquisition | $ | 41,179 | $ | — | ||||
Note Payable in connection with IP acquisition | $ | 58,416 | $ | — | ||||
Debt discount in connection with the modified warrants | $ | — | $ | 25,765 |
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.
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. Those factors, as well as uncertainty in securing additional funds for continued operations, create an uncertainty about the Company’s ability to continue as a going concern. The 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.Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s 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 Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 audit, we are required to obtain an understanding of internal control over financial reporting, 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.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there were no critical audit matters.
D. Brooks and Associates CPAs, P.A.
We have served as the Company’s auditor since 2020.
Palm Beach Gardens, Florida
March 29, 2021
22 |
Table of Contents |
374 Water Inc. and Subsidiaries
Consolidated Balance Sheet
As of December 31, 2021 and December 31, 2020
|
| 2021 |
|
| 2020 |
| ||
Assets |
|
|
|
|
|
| ||
Current Assets: |
|
|
|
|
|
| ||
Cash |
| $ | 11,131,175 |
|
| $ | 71,799 |
|
Accounts receivable |
|
| 0 |
|
|
| 31,330 |
|
Prepaid expenses |
|
| 218,466 |
|
|
| 0 |
|
Total Current Assets |
|
| 11,349,641 |
|
|
| 103,129 |
|
Long-Term Assets: |
|
|
|
|
|
|
|
|
Equipment, net |
|
| 959 |
|
|
| 403 |
|
Intangible asset, net |
|
| 1,028,114 |
|
|
| 0 |
|
Other assets |
|
| 34,742 |
|
|
| 275 |
|
Total Long-Term Assets |
|
| 1,063,815 |
|
|
| 678 |
|
Total Assets |
| $ | 12,413,456 |
|
| $ | 103,807 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
| $ | 62,981 |
|
| $ | 76,249 |
|
Advances from stockholders |
|
| 0 |
|
|
| 15,108 |
|
Other liabilities |
|
| 23,390 |
|
|
| 1,200 |
|
Total Current Liabilities |
|
| 86,371 |
|
|
| 92,557 |
|
Total Liabilities |
|
| 86,371 |
|
|
| 92,557 |
|
Commitments and contingencies (Note 8) |
|
|
|
|
|
|
|
|
Stockholders’ Equity |
|
|
|
|
|
|
|
|
Preferred Stock: 1,000,000 Convertible Series D preferred shares authorized; par value $0.0001 per share, 27,272 issued and outstanding at December 31, 2021 and nil issued and outstanding at December 31, 2020 (Liquidation Preference of $409,005) |
|
| 3 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
Common stock: 200,000,000 common shares authorized, par value $0.0001 per share, 125,317,746 and 62,410,452 shares outstanding at December 31, 2021 and December 31, 2020, respectively |
|
| 12,531 |
|
|
| 6,241 |
|
Additional paid-in capital |
|
| 15,474,566 |
|
|
| 416 |
|
Accumulated (deficit) earnings |
|
| (3,160,015 | ) |
|
| 4,593 |
|
Total Stockholders’ Equity |
|
| 12,327,085 |
|
|
| 11,250 |
|
Total Liabilities and Stockholders’ Equity |
| $ | 12,413,456 |
|
| $ | 103,807 |
|
The accompanying notes are an integral part of these consolidated financial statements.
23 |
Table of Contents |
374 Water Inc. and Subsidiaries
Consolidated Statement of Operations
For the years ended December 31, 2021 and December 31, 2020
|
| For the year ended December 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Revenue |
| $ | 48,100 |
|
| $ | 86,570 |
|
Cost of revenues |
|
| 0 |
|
|
| 14,241 |
|
Net Revenue |
|
| 48,100 |
|
|
| 72,329 |
|
Operating Expenses |
|
|
|
|
|
|
|
|
Research and development |
|
| 375,032 |
|
|
| 57,718 |
|
Product development |
|
| 1,399,833 |
|
|
| 0 |
|
Professional Fees |
|
| 343,862 |
|
|
| 8,791 |
|
General and administrative |
|
| 1,095,381 |
|
|
| 17,483 |
|
Total Operating Expenses |
|
| 3,214,108 |
|
|
| 83,992 |
|
Loss from Operations |
|
| (3,166,008 | ) |
|
| (11,663 | ) |
|
|
|
|
|
|
|
|
|
Other Income |
|
|
|
|
|
|
|
|
Award income |
|
| 0 |
|
|
| 52,000 |
|
Interest income |
|
| 1,066 |
|
|
| 0 |
|
Other income |
|
| 334 |
|
|
| 0 |
|
Total Other Income |
|
| 1,400 |
|
|
| 52,000 |
|
Net Income (Loss) before Income Taxes |
|
| (3,164,608 | ) |
|
| 40,337 |
|
Provision for Income Taxes |
|
| 0 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
| $ | (3,164,608 | ) |
| $ | 40,337 |
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) per Share - Basic and Diluted |
| $ | (0.03 | ) |
| $ | 0.00 |
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding - Basic and Diluted |
|
| 94,002,888 |
|
|
| 62,410,452 |
|
The accompanying notes are an integral part of these consolidated financial statements.
24 |
Table of Contents |
374 Water Inc. and Subsidiaries
Consolidated Changes in Stockholders’ Equity
For the years ended December 31, 2021 and December 31, 2020
|
| Preferred Stock |
|
| Common Stock |
|
| Additional Paid-in |
|
| Accumulated |
|
| Total Stockholders’ |
| |||||||||||||
|
| Shares |
|
| Value |
|
| Shares |
|
| Value |
|
| Capital | Deficit | Deficit |
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balances, December 31, 2019 |
|
| — |
|
|
| 0 |
|
|
| 62,410,452 |
|
|
| 6,241 |
|
|
| (6,241 | ) |
|
| (35,744 | ) |
|
| (35,744 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for services |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0 |
|
|
| 6,329 |
|
|
| 0 |
|
|
| 6,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of stock-based |
|
| — |
|
|
| 0 |
|
|
| — |
|
|
| 0 |
|
|
| 328 |
|
|
| 0 |
|
|
| 328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
| — |
|
|
| 0 |
|
|
| — |
|
|
| 0 |
|
|
| 0 |
|
|
| 40,337 |
|
|
| 40,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2020 |
|
| — |
|
|
| 0 |
|
|
| 62,410,452 |
|
|
| 6,241 |
|
|
| 416 |
|
|
| 4,593 |
|
|
| 11,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of stock-based |
|
| — |
|
|
| 0 |
|
|
| — |
|
|
| 0 |
|
|
| 204,217 |
|
|
| 0 |
|
|
| 204,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock warrants for development of product |
|
| — |
|
|
| 0 |
|
|
| — |
|
|
| 0 |
|
|
| 1,399,833 |
|
|
| 0 |
|
|
| 1,399,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recapitalization of the Company |
|
| — |
|
|
| — |
|
|
| 33,203,512 |
|
|
| 3,320 |
|
|
| (87,545 | ) |
|
| 0 |
|
|
| (84,225 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series D Preferred Stock issued for cash |
|
| 440,125 |
|
|
| 44 |
|
|
| — |
|
|
| — |
|
|
| 6,601,701 |
|
|
| — |
|
|
| 6,601,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised. Option and Warrants |
|
| — |
|
|
| — |
|
|
| 4,958,833 |
|
|
| 496 |
|
|
| 1,284,848 |
|
|
| 0 |
|
|
| 1,285,344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for license rights |
|
| — |
|
|
| — |
|
|
| 1,602,282 |
|
|
| 160 |
|
|
| 1,073,369 |
|
|
| 0 |
|
|
| 1,073,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of convertible preferred shares into common stock |
|
| (412,853 | ) |
|
| (41 | ) |
|
| 20,642,667 |
|
|
| 2,064 |
|
|
| (2,023 | ) |
|
| — |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
| — |
|
|
| — |
|
|
| 2,500,000 |
|
|
| 250 |
|
|
| 4,999,750 |
|
|
| — |
|
|
| 5,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,164,608 | ) |
|
| (3,164,608 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2021 |
|
| 27,272 |
|
|
| 3 |
|
|
| 125,317,746 |
|
|
| 12,531 |
|
|
| 15,474,566 |
|
|
| (3,160,015 | ) |
|
| 12,327,085 |
|
The accompanying notes are an integral part of these consolidated financial statements.
25 |
Table of Contents |
374 Water Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the years ended December 31, 2021 and 2020
|
| For the years ended |
| |||||
|
| 2021 |
|
| 2020 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
| ||
Net Loss |
| $ | (3,164,608 | ) |
| $ | 40,337 |
|
Adjustments to reconcile net loss to net cash provided by operations: |
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
| 46,050 |
|
|
| 911 |
|
Stock-based compensation |
|
| 204,217 |
|
|
| 328 |
|
Common stock issued for services |
|
| 0 |
|
|
| 6,329 |
|
Warrant issued for product development agreement |
|
| 1,399,833 |
|
|
| 0 |
|
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| 32,330 |
|
|
| (31,330 | ) |
Accounts payable and accrued expenses |
|
| (142,512 | ) |
|
| 47,488 |
|
Prepaid expense and other assets |
|
| (238,450 | ) |
|
| 0 |
|
Other liabilities |
|
| 22,190 |
|
|
| 696 |
|
|
|
|
|
|
| |||
Net cash (used in) provided by operating activities |
|
| (1,840,950 | ) |
|
| 64,759 |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
| (1,190 | ) |
|
| 0 |
|
Proceeds from reverse acquisition |
|
| 113,760 |
|
|
| 0 |
|
Increase in other assets acquisition |
|
| 0 |
|
|
| (275 | ) |
Recapitalization of the Company |
|
| (84,225 | ) |
|
| 0 |
|
Net cash used in investing activities |
|
| 28,345 |
|
|
| (275 | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Advances from Stockholders |
|
| (15,108 | ) |
|
| 2,052 |
|
Proceeds from Series D Preferred Shares |
|
| 6,601,745 |
|
|
| 0 |
|
Proceeds from Common Stock Offering |
|
| 5,000,000 |
|
|
| 0 |
|
Proceeds from exercise of Options |
|
| 42,845 |
|
|
| 0 |
|
Proceeds from exercise of Warrants |
|
| 1,242,499 |
|
|
| 0 |
|
Net cash provided by financing activities |
|
| 12,871,981 |
|
|
| 2,052 |
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH |
|
| 11,059,376 |
|
|
| 66,536 |
|
|
|
|
|
|
|
|
|
|
CASH - Beginning of year |
|
| 71,799 |
|
|
| 5,263 |
|
|
|
|
|
|
|
|
|
|
CASH - End of year |
| $ | 11,131,175 |
|
| $ | 71,799 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW DISCLOSURES: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
| 0 |
|
|
| 0 |
|
Cash paid for taxes |
|
| 0 |
|
|
| 0 |
|
NON-CASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Issuance of common stock for license rights |
|
| 1,073,529 |
|
|
| 0 |
|
Accounts payable settled with Series D Preferred Stock |
|
| 50,000 |
|
|
| 0 |
|
Net Liabilities Assumed in Reverse Acquisition: |
|
|
|
|
|
|
|
|
Cash |
|
| 29,536 |
|
|
| 0 |
|
Prepaid expense |
|
| 14,483 |
|
|
| 0 |
|
Accounts receivable |
|
| 1,000 |
|
|
| 0 |
|
Accounts payable |
|
| (46,150 | ) |
|
| 0 |
|
Accrued expenses |
|
| (83,094 | ) |
|
| 0 |
|
Net liability assumed |
|
| (84,225 | ) |
|
| 0 |
|
The accompanying notes are an integral part of these consolidated financial statements.
26 |
Table of Contents |
374 Water Inc. and Subsidiaries
For the Years Ended December 31, 2021 and 2020
Notes to Consolidated Financial Statements
Note 31 – Nature of Business
374Water, Inc., f/k/a PowerVerde, Inc. (the “Company”) is a Delaware corporation incorporated on September 8, 2005. The Company was formed to develop, commercialize, and market a series of unique electric generating power systems designed to produce electrical power with zero emissions or waste byproducts, based on a patented pressure-driven expander motor and related organic rankine cycle technology.
On April 16, 2021, 374Water Inc. (f/k/a PowerVerde, Inc.) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with 374Water, Inc., a privately held company based in Durham, North Carolina, (“374Water”) and 374Water Acquisition Corp., a newly-formed wholly-owned subsidiary of PowerVerde (“Sub”). The parties entered into the Agreement pursuant to their Binding Letter of Intent dated September 20, 2020.
Pursuant to the merger contemplated by the Merger Agreement (the “Merger”), on April 16, 2021, Sub merged into 374Water, with 374Water as the surviving corporation. In connection with the Merger, all 374Water shares were cancelled and 374Water, Inc. issued to the former 374Water shareholders a total of 62,410,452 shares of 374Water, Inc. common stock. Immediately following the Merger, 374Water changed its name to 374Water Systems Inc and PowerVerde changed its name to 374Water, Inc. After the Merger, the former 374Water stockholders own 65.8% of 374Water Inc’s issued and outstanding common stock and 53.8% of 374Water Inc.’s issued and outstanding voting stock which includes the Preferred Stock.
With the Merger, 374Water Inc.’s current mission is to support a clean and healthy environment to sustain life. The Company plans to use what is believes to be cutting-edge science to recover resources from the waste our society generates and keep drinking water clean. The Company’s customers will include businesses and local governments that will make the sustainable development goals a reality. No material revenues from this planned principal operation have been generated since inception. Revenues to date have been from manufacturing assembly services and from testing, consulting, and advisory services procedures for multiple customers, which have been performed in collaboration with Duke University.
Note 2 – Summary of Significant Accounting Policies
Principles of ConsolidationCash and Cash Equivalents
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 be recognized as revenue.
Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company held 0 cash equivalents as of December 31, 2021 and 2020.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents. Deposits with financial institutions are insured, up to certain limits, by the Federal Deposit Insurance Corporation (“FDIC”). The Company’s cash deposits often exceed the FDIC insurance limit; however, all deposits are maintained with high credit quality institutions and the Company has not experienced any losses in such accounts. The financial condition of financial institutions is periodically reassessed, and the Company believes the risk of any loss is minimal. The Company believes the risk of any loss on cash due to credit risk is minimal.
Accounts Receivable
Accounts receivablereceivables consist of balances due from royalties in connection with the Company’s license agreement with VDF FutureCeuticals, Inc.service revenues. The Company monitors accounts receivable and provides allowances when considered necessary. At December 31, 20152021 and 2014,2020, accounts receivable were considered to be fully collectible. Accordingly, no0 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 stockprovided and there was no bad debt expense as compensation prior to 2014. As of December 31, 2015, all payroll taxes have been repaid by the employee.2021 and 2020.
27 |
Table of Contents |
Equipment
Revenue RecognitionEquipment is recorded at cost. Depreciation is computed using the straight-line method and an estimated useful live of three years. Expenses for maintenance and repairs are charged to expense as incurred.
LicensingIntangible Assets
Intangible assets are subject to amortization, and royalty revenue from a royalty agreement unrelated to the Company’s planned operationsany impairment is recognizeddetermined in accordance with ASC 360, “Property, Plant, and Equipment.” Intangible assets are stated at historical cost and amortized over their estimated useful lives. The Company uses a straight-line method of amortization, unless a method that better reflects the termspattern in which the economic benefits of the specific agreement. Revenues recognized under this agreement amount to 100% of total revenues for the years ended December 31, 2015 and 2014.intangible asset are consumed or otherwise used up can be reliably determined.
Intellectual PropertyLong-Lived Assets
The Company reviews long-lived assets, including 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). Inrealizable. Recoverability of assets held and used is measured by a comparison of the event of impairment, the Company would discountcarrying amount to 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.
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 net cash flows estimated to be generated by the asset. As of December 31, 2021 and 2020, there were 0 impairments.
Revenue Recognition and Concentration
The Company follows the revenue standards of Financial Accounting Standards Board Update No. 2014-09: “Revenue from Contracts with Customers (Topic 606).” The core principle of this Topic is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those assets are less than the carrying value of such assets. No impairment losses weregoods or services. Revenue is recognized in accordance with that core principle by applying the yearsfollowing five steps: 1) identify the contracts with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations; and 5) recognize revenue when (or as) we satisfy a performance obligation.
The Company’s performance obligations will be satisfied at the point in time when products are shipped or delivered to the customer, which is when the customer has title and the significant risks and rewards of ownership. Therefore, the Company’s contracts will have a single performance obligation (shipment or delivery of product). The Company will primarily receive fixed consideration for sales of product. Manufacturing assembly services are recognized as revenue when the assembled product is delivered to the customer and the Company has completed its performance obligations.
Revenues for the year ended December 31, 20152021 were generated from consulting and 2014.advisory service agreements, which were recognized when the Company completed its performance obligations under the relevant service agreements.
During the year ended December 31, 2020, 100% of the Company’s revenues were earned from consulting and advisory services, which were recognized when the Company performed the service pursuant to its agreement with its clients which was the point in time when the Company completed its performance obligations under the agreements. One customer accounted for approximately 88% of revenues in 2020 and 92% of accounts receivable at December 31, 2020. Revenues generated in 2020 were not from the Company’s planned operations.
Stock-based compensationCompensation
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), or (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). All outstanding warrants as of December 31, 2014 and 2015 were classified as equity.
Accounting for Uncertainty in Income Taxes
The Company follows the provisions of ASC Topic 740-10, “Accounting for Uncertainty in Income Taxes” which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This topic also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
Based on our evaluation, we have concluded that there are no significant There were 0 uncertain tax positions requiring recognition in our consolidated financial statements. Our evaluation was performed for the tax years ended December 31, 2012, 2013, 2014 and 2015, the tax years which remain subject to examination by major tax jurisdictions as of December 31, 2015.
We may from time to timeIncome Tax Policy
The Company accounts for income taxes using the liability method prescribed by ASC 740 - Income Taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be
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$375,032 and $364,095$57,718 for the years ended December 31, 20152021 and 2014,2020, 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 4,155,000 shares and options for 4,750,000 sharesAs of December 31, 2021, there were the following potentially dilutive securities that were excluded from weighted averagediluted net loss per share because their effect would be antidilutive: options for 12,596,000 shares of common stock and 1,363,350 common stock shares outstanding on a diluted basis.
Financial instrumentsInstruments
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 / useful lives of equipment and intangible assets 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. Significant estimates in the accompanying financial statements include the fair value of equity-based compensation, fair value of intangible assets, useful lives of intangible assets, capital raise transactions, and valuation allowance against deferred tax assets.
29 |
Table of Contents |
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,August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from Contracts with Customers (Topic 606)” (“convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2014-09”).2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2014-092020-06 is intended 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 revenueeffective January 1, 2022 and should be recognized when the transfer of promised goodsapplied on a full or services is made in an amountmodified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company notes that the entity expects to be entitled to in exchange for the transfer of goods 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 standardthere will be effective for annual reporting periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. Early adoption is not permitted. The Company is currently evaluatingno effect on the potential impact this guidance will have on its consolidatedcurrent financial position, results of operations and cash flows.statements.
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 statementsThere are several other new accounting pronouncements issued or are available toproposed by the FASB. Each of these pronouncements, as applicable, has been or will be issued. The guidanceadopted by the Company. Management does not believe any of these accounting pronouncements has had or 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 condensed consolidated financial position, operating 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.Note 3 – Liquidity, Capital Resources
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.
On June 30, 2015, the Company entered into an Assignment Agreement with VyrexIP Holdings Inc., a company owned by Company shareholder Edward Gomez for the purchase of intellectual property. The net price of these assets was comprised of a down payment of $16,116 and a $58,436 promissory note to the seller due July 15, 2016, partially offset by assignment by the seller to the Company of a $38,000 promissory note due November 14, 2015, issued by the seller’s licensee Epalex Corporation, a company of which Mr. Gomez is chairman and a major stockholder. This note was paid in full in November 2015 in the amount of $42,579, including accrued interest.
For each of the years ended December 31, 2015 and 2014, amortization expense was $61,045 and $219,813 and accumulated amortization of the intangible asset- intellectual property was $665,532 at December 31, 2015.
Future amortization of the intangible asset – intellectual property was as follows as of December 31, 2015:
Year ending December 31:
2016 | $ | 12,184 | ||||
2017 | 12,184 | |||||
2018 | 2,374 | |||||
Total | $ | 26,742 |
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.
Note 6 – Stockholders’ Deficiency
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, 2015, all of these warrants were outstanding.
On February 3, 2012,2021, the Company issued warrantshad working capital of $11,263,270 compared to purchase 500,000 unregistered sharesworking capital of $10,572 at December 31, 2020. This significant increase in working capital is due primarily to the increase in cash over the twelve-month period is based on the Company’s common stock atsale and issuance of Series D Convertible Preferred Stock (“Preferred Stock”) and the proceeds for the exercise of warrants (see Note 4 and Note 6). During the second quarter of 2021, in connection with the Merger (described in Note 4 below), the Company received gross proceeds of $6,551,745 from the sale of Series D Convertible Preferred Stock. During the fourth quarter of 2021, the Company received gross proceeds of $5,000,000 from the sale of Common Stock (see Note 6). As of December 31, 2021, the Company has an exercise priceaccumulated deficit of $3.00 per share with 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$3,160,015. For the year ended December 31, 2015.2021, the Company had a net loss of $3,164,608 and $1,840,950 of net cash used in operations for the period.
The Company believes that the capital raised from the sale of Common and Preferred Stock and proceeds from conversion of warrants will provide sufficient cash flow for the Company to meet its financial obligations as they come due for at least the next 12 months.
Note 4 – Acquisition of 374Water, Inc. f/k/a PowerVerde Inc.
In connection with the acquisitionMerger, 374Water closed on a private placement of Cornerstone (See Note 5),436,783 shares of Series D Convertible Preferred Stock (the “Preferred Stock”) with a par value of $.0001, yielding gross proceeds of $6,551,745 (the “Private Placement”) and the settlement of a $50,000 liability for Preferred Stock shares. The Private Placement proceeds will be used for working capital, primarily for development, manufacture and commercialization of 374Water Inc.’s Air SCWO Nix systems. The Preferred Stock has a stated value of $15 per share, is convertible into common stock at $.30 per share and has voting rights based on March 30, 2012,the underlying shares of common stock. Upon liquidation of the Company, the Preferred Stockholders have liquidation preference before any assets can be distributed to common stockholders. All of the Preferred Stock was sold pursuant to an exemption from registration requirements under Regulation D and/or Section 4(2) of the Securities Act of 1933, as amended.
As a result of the Merger, the issuance of the Preferred Stock, the former 374Water shareholders own 65.8% of 374Water Inc’s issued warrantsand outstanding common stock and 53.8% of 374Water Inc.’s issued and outstanding voting stock (which includes the Preferred Stock on an as converted basis).
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Pursuant to purchase 300,000 unregisteredthe Merger, Messrs. Nagar and Deshusses were appointed to the Company’s Board of Directors, joining Mr. Davis, who remains as a Director.
The patented technology underlying 374Water’s supercritical water oxidation (SCWO) units, which was developed principally through the efforts of Messrs. Nagar and Deshusses at the facilities of Duke University, Durham, North Carolina (“Duke”), where Dr. Deshusses is a professor, is licensed to 374Water pursuant to a worldwide license agreement with Duke executed on April 16, 2021 (the “License Agreement”) simultaneous with the merger. In connection with the License Agreement, 374Water also executed an equity transfer Agreement with Duke pursuant to which Duke received a small block of shares of common stock at exercise prices ranging from $2.00 to $4.00 per share. These warrants expire at various dates through December 2017. As of December 31, 2015, all of these warrants were outstanding.(see Note 5).
DuringAs a result of the second quarterMerger Agreement, for financial statement reporting purposes, the business combination between 374Water Inc. and PowerVerde, Inc. was treated as a reverse acquisition and recapitalization for accounting purposes with 374Water, Inc. deemed the accounting acquirer and PowerVerde, Inc. deemed the accounting acquiree under the acquisition method of 2012,accounting in accordance with FASB Accounting Standards Codification (“ASC”) Section 805-10-55.
The following assets and liabilities were assumed in the transaction:
Cash |
| $ | 29,536 |
|
Prepaid expense |
|
| 14,483 |
|
Accounts Receivable |
|
| 1,000 |
|
Total assets acquired |
|
| 45,019 |
|
|
|
|
|
|
Accounts payable |
|
| (46,150 | ) |
Accrued expenses |
|
| (83,094 | ) |
Total liabilities assumed |
| $ | (129,244 | ) |
|
|
|
|
|
Net liabilities assumed |
| $ | (84,225 | ) |
Note 5 – Intangible Assets
Intangible assets are recorded at cost and consist of the license agreement with Duke University. The Company issued Duke University a small block of shares of common stock estimated to have a fair value of $1,073,529 as consideration for granting the Company issued warrants to purchase 335,000 unregistered shares ofthe license based on the Company’s common stock at an exercisemarket price on the date the license agreement was executed (see Note 8). Intangible assets are comprised of $3.00 per share in association with stock subscription agreements. These warrants expire on various dates through 2015. Asthe following as of December 31, 2015, all of these warrants were expired.2021 and 2020:
During the third quarter of 2012, the Company issued warrants to purchase 71,000 unregistered shares of the Company’s common stock at an exercise price of $3.00 per share in association with stock subscription agreements. These warrants expire July 30, 2015. As of December 31, 2015, all of these warrants were expired.
Name |
| Estimated Life |
| Balance at December 31, 2020 |
|
| Additions |
|
| Amortization |
|
| Balance at December 31, 2021 |
| ||||
License agreement |
| 17 Years |
| $ | 0 |
|
| $ | 1,073,529 |
|
| $ | 45,415 |
|
| $ | 1,028,114 |
|
Patents |
| 20 Years |
|
| 0 |
|
|
| 34,741 |
|
|
| 0 |
|
|
| 34,741 |
|
Total |
|
|
| $ | 0 |
|
| $ | 1,108,270 |
|
| $ | 45,415 |
|
| $ | 1,062,855 |
|
During the fourth quarter of 2012, the Company issued warrants to purchase 225,000 unregistered shares of the Company’s common stock at an exercise price of $1.00 per share in association with stock subscription agreements. These warrants expire October 31, 2015. As of December 31, 2015, 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, 2015 is as follows:
Shares | Weighted Average Exercise Price | Aggregate Intrinsic Value | |||||||||||
Balance at December 31, 2014 | 5,586,000 | $ | .99 | $ | 45,000 | ||||||||
Issued | 25,000 | .12 | — | ||||||||||
Expired | (1,131,000 | ) | (1.72 | ) | — | ||||||||
Balance at December 31, 2015 | 4,480,000 | $ | .58 | $ | 45,000 |
The warrantAmortization expense 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.
The weighted average grant date fair value of warrants issued during the year ended December 31, 2015 amounted to $0.08 per warrant. The fair value2021 was $45,415. There is no amortization expense associated with the patent expenses.
Estimated future amortization expense as of each warrant granted for equity and debt raises was determined using the Black-Scholes option pricing model and the following assumptions:December 31, 2021:
|
| December 31, |
| |
|
| 2021 |
| |
2022 |
| $ | 63,149 |
|
2023 |
|
| 63,149 |
|
2024 |
|
| 63,149 |
|
2025 |
|
| 63,149 |
|
2026 |
|
| 63,149 |
|
Thereafter |
|
| 712,369 |
|
Intangible assets, Net |
| $ | 1,028,114 |
|
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.Note 6 – Stockholder’ Equity
The warrantCompany is authorized to issue 1,000,000 preferred stock shares referred to above are unregisteredand 200,000,000 common stock shares both with a par value of the Company’s stock and are restricted from trading as defined under Rule 144 of the United States Securities Act of 1933.$.0001.
Preferred Stock
On October 1, 2015,30, 2020, the BoardCompany designated 1,000,000 shares as Series D Convertible Preferred Stock with a par value of Directors agreed to extend all outstanding management$.0001.
On April 16, 2021, the Company closed on a private placement of 436,782 shares of Series D Convertible Preferred Stock (the “Preferred Stock”) with a par value of $.0001, yielding gross proceeds of $6,551,691 (the “Private Placement”) and settlement of a $50,000 liability for Preferred Stock shares. The Private Placement proceeds will be used for working capital, primarily for the development, manufacturing and commercialization of 374Water’s Air SCWO Nix systems. The Preferred Stock has a stated value of $15 per share, is convertible into common stock optionsat $.30 per share and warrants (covering 3,500,000 shares) to ahas voting rights based on the underlying shares of common expiration date of October 26, 2022, and adjust the exercise prices to $0.15. The net effectstock. Upon liquidation of the change inCompany, the Preferred Stockholders have a liquidation preference before any assets can be distributed to common stockholders. The current liquidation value is $409,005. All of the repriced optionsPreferred Stock were sold pursuant to an exemption from registration requirements under Regulation D and/or Section 4(2) of the Securities Act of 1933, as amended. On September 30, 2021, 412,853 shares of Series D Preferred stock were converted into 20,642,667 shares of common stock. As of December 31, 2021, there were 27,272 shares of Series D Preferred stock issued and warrants was an increase in stock based compensation expense of $208,000.outstanding.
Common Stock
The holders of common stock are entitled to one vote per share on all matters submitted to a vote of shareholders, including the directors’ election. There is no right to cumulate votes in the election of directors. The holders of common stock are entitled to any dividends that may be declared by the board of directors out of funds legally available for payment of dividends subject to the prior rights of holders of preferred stock and any contractual restrictions the Company alsohas against the payment of dividends on common stock. In the event of our liquidation or dissolution, holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preferences of any outstanding shares of preferred stock. Holders of common stock have no preemptive rights and have no right to convert their common stock into any other securities. As of December 31, 2021, there were 125,317,746 shares of common stock issued new, immediately vesting,and outstanding.
On April 16, 2021, as a result of the closing of the Merger Agreement (see Note 4), the equity of the consolidated entity is the historical equity of 374Water, Inc (“374Water”) retroactively restated to reflect the number of shares issued by the Company in the reverse recapitalization.
In connection with the Merger, 33,203,512 shares of common stock options with an exercise pricewere issued to 374Water, Inc. (f/k/a PowerVerde, Inc.) stockholders.
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On April 16, 2021, the Company issued Common Stock estimated to Richard Davis for 800,000; Hank Leibowitz for 500,000; John Hofmann for 500,000; and Mark Prinz for 200,000. Thehave a fair market value of these options was determined$1,073,369 as consideration for the grant of a license to be $0.09 per option, or $180,000, which reflects an increase in stock based compensation expense of $180,000.the Company (see Notes 5 and 8).
In December 2021, the Company raised $5,000,000 through a private placement and sale of 2,500,000 shares of Common Stock which were issued to investees as part of the capital raise.
Note 7 – During the year ended December 31, 2021, the Company issued 4,958,833 shares of common stock, in connection with the exercise of warrants and options and received cash proceeds of $1,284,848.
Stock-based compensation
During the year ended December 31, 2021 and 2020, the Company recorded stock-based compensation of $204,217 and $6,657, respectively, related to common stock issued or vested options to employees and various consultants of the Company, of which $190,136 and $328 was charged as general and administrative expenses and $14,081 and $6,329 as research and development expenses in the accompanying consolidated statements of operations during the years ended December 31, 2021 and 2020, respectively
Stock Options
Stock option activity for the year ended December 31, 2015,2021, is summarized as follows:
Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | ||||||||||||||
Options outstanding at December 31, 2014 | 2,750,000 | $ | 0.78 | 9.00 | $ | — | |||||||||||
Granted | 2,000,000 | 0.09 | — | — | |||||||||||||
Expired/forfeited | — | — | — | — | |||||||||||||
Options outstanding at December 31, 2015 | 4,750,000 | $ | 0.49 | 9.00 | $ | — |
|
| Shares |
|
| Weighted Average Exercise Price |
|
| Aggregate Intrinsic Value |
|
| Weighted Average Remaining Contractual Life (Years) |
| ||||
Options outstanding at December 31, 2019 |
|
| 12,180,500 |
|
|
| 0.20 |
|
| $ | 4,750,395 |
|
|
| 5.59 |
|
Granted |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Exercised |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Expired/forfeit |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Options outstanding at December 31, 2020 |
|
| 12,180,500 |
|
|
| 0.20 |
|
| $ | 4,750,395 |
|
|
| 4.59 |
|
Granted |
|
| 2,885,000 |
|
|
| 1.20 |
|
|
| — |
|
|
| — |
|
Exercised |
|
| (225,500 | ) |
|
| 0.19 |
|
|
| — |
|
|
| — |
|
Expired/forfeit |
|
| (2,540,000 | ) |
|
| 0.17 |
|
|
| — |
|
|
| — |
|
Options outstanding at December 31, 2021 |
|
| 12,300,000 |
|
|
| 0.37 |
|
| $ | 4,521,310 |
|
|
| 5.62 |
|
Stock option unvested activity for the year ended December 31, 2021, is summarized as follows:
Options | ||||
Options Unvested at December 31, 2019 | — | |||
Granted | — | |||
Vested | — | |||
Expired/forfeit | — | |||
Options Unvested at December 31, 2020 | — | |||
Granted | 2,885,000 | |||
Vested | (379,817 | ) | ||
Expired/forfeit | (40,000 | ) | ||
Options Unvested at December 31, 2021 | 2,465,183 |
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The fair value of these options granted were estimated on the date of grant, using the Black-Scholes option-pricing model with the following assumptions:
For the years ended | ||||||||
2021 | 2020 | |||||||
Dividend yield | 0.00 | % | — | |||||
Expected life | 5.49 – 6.25 Years | — | ||||||
Expected volatility | 38.39- 38.67 | % | — | |||||
Risk-free interest rate | 0.87– 1.07 | % | — |
Stock Warrants
In April 2021, pursuant to the binding Memorandum of Understanding dated as of March 30, 2021, between 374Water and MB Holding Inc. (the “MOU”), a warrant for the purchase of 3,783,333 shares of common stock at an exercise price of $.30 per share was issued to MB Holding Inc. as consideration for executing the MOU and was considered fully vested upon the execution of the MOU. These warrants expire in March 2022. Those warrants were estimated to have a grant-date fair value of $0.37 per warrant or aggregate fair value of $1,399,833 which has been presented as product development expense on the condensed statements of operations.
During the year ended December 31, 2021, the warrants were exercised resulting in the issuance of 3,783,333 shares of common stock and proceeds of $1,134,499. As of December 31, 2021, there were 1,250,000 warrants outstanding which relate to the Series 1 offering executed in December 2021, where investors were offered a warrant for every two common shares purchased during the offering at an exercise price of $2.50 per share. The intrinsic value of all outstanding warrants as of December 31, 2021 was $437,500 based on the market price of our common stock of $2.85 per share.
The fair value of those warrants granted were estimated on the date of grant, using the Black-Scholes option-pricing model with the following assumptions:
For the years ended | ||||||||
2021 | 2020 | |||||||
Dividend yield | 0.00 | % | — | |||||
Expected life | 1 - 3 Years | — | ||||||
Expected volatility | 42.39% - 45.24% | — | ||||||
Risk-free interest rate | 0.600% - 0.795% | — |
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A summary of warrant activity during the year ended December 31, 2021, is as follows:
|
| Shares |
|
| Weighted Average Exercise Price |
|
| Aggregate Intrinsic Value |
|
| Weighted Average Remaining Contractual Life (Years) |
| ||||
Balance at December 31, 2019 |
|
| 950,000 |
|
|
| 0.11 |
|
| $ | 690,500 |
|
|
| 1.44 |
|
Issued |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Exercised |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Balance at December 31, 2020 |
|
| 950,000 |
|
|
| 0.11 |
|
| $ | 690,500 |
|
|
| 0.44 |
|
Issued |
|
| 5,033,333 |
|
|
| 0.85 |
|
| — |
|
|
| — |
| |
Exercised |
|
| (4,733,333 | ) |
|
| 0.26 |
|
|
| — |
|
|
| — |
|
Balance at December 31, 2021 |
|
| 1,250,000 |
|
|
| 2.50 |
|
| $ | 437,500 |
|
|
| 2.96 |
|
Note 7 - Related Party Transactions
At December 31, 2021 and 2020, the Company has due $0 and 15,108, respectively, of advances received from stockholders of the Company for working capital. There is no formal agreement, these advances are non-interest bearing and due on demand. During the years ended December 31, 20152021 and 2014 was $390,0002020, stockholders advanced $0 and 2,053 respectively, for working capital needs. Advancements were fully paid in fiscal year 2021.
Our previous CFO John L Hofmann is a member of the accounting firm Kabat, Schertzer, De La Torre, Taraboulos & Co, LLC (“KSDT”). The Company paid $43,205 and $0 respectively.
There is no unrecognized stock compensation expense atto KSDT for its services in the year ended December 31, 2015.2021 and 2020, respectively, and $0 of services rendered remain unpaid as of December 31, 2021.
Note 8 - Notes PayableAdditionally, the Company entered into an agreement to Related Partiesfabricate and manufacture the units with Merrell Bros. Holding Company. As part of the agreement, the Company provided Terry Merrell a board of director position. As of December 31, 2021, Merrell Bros. own stock in excess of 5% of the outstanding common stock.
Note 8 – Commitments and Contingencies
The patented technology underlying 374Water’s supercritical water oxidation (SCWO) units, which was developed principally through the efforts of Messrs. Nagar and Deshusses at the facilities of Duke University, Durham, North Carolina (“Duke”), where Dr. Deshusses is a professor, is licensed to 374Water pursuant to a worldwide license agreement with Duke executed on April 16, 2021 (the “License Agreement”). In connection with the License Agreement, 374Water also executed an equity transfer Agreement with Duke pursuant to which Duke received a small block of common stock in the Company (See Notes payable4 and 6). Under the terms of the License Agreement, the Company is required to related parties atmake royalty payments based on a percentage of licensed product sales, as defined in the License Agreement which is triggered by the sale of licensed products. Further, the Company is also required to pay royalties on a percentage of sublicensing fees. The Company will reimburse Duke for any ongoing patent expenses incurred. During the year ended December 31, 2015 consist of notes payable to stockholders of $400,000 (issued2021, the Company has incurred $19,075 in 2012), less unamortized discount of $12,885 related to common stock warrants that had been issued to the stockholdersconnection with the notes.this License Agreement. The discount is being amortized over the extended term of the notes, which are due in one principal payment on December 31, 2016. Interest is payable semiannually at 10%. The notes are collaterized by all receivables now or hereafter existing pursuant toCompany may terminate the license agreement with VDF FutureCeuticals, Inc. discussed in Notes 3 and 9.anytime by providing Duke 60 days’ notice.
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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 of the note to July 31, 2016.
Note 9 - Commitments and Contingencies
On June 25, 2015, Company consultant Hank Leibowitz assigned to the Company a patent he obtained for a system and method for using high temperature sources in Rankine cycle power systems. The Company has agreed to pay Mr. Leibowitz a 2% royalty for any and all revenues of products and/or project sales by the Company based on the subject patent.
The Company’s license agreement with VDF FutureCeuticals, Inc., which has generated all of the Company’s revenues since 2012, will terminate in March 2018, when the underlying patents expire.
Note 10 – 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:
|
| December 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Deferred tax assets: |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Goodwill |
| $ | 208,742 |
|
|
| 0 |
|
Capitalized Start-Up Costs |
|
| 83,710 |
|
|
| 0 |
|
Other Intangibles |
|
| 10,339 |
|
|
| 0 |
|
Other Accruals |
|
| 1,875 |
|
|
| 0 |
|
Stock Compensation |
|
| 17,423 |
|
|
| 1,764 |
|
Net Operating Loss |
|
| 381,112 |
|
|
|
|
|
Deferred tax assets |
|
| 703,211 |
|
|
| 1,764 |
|
Less valuation allowance |
|
| (703,083 | ) |
|
| (1,764 | ) |
Net deferred tax assets after valuation allowance |
| $ | 128 |
|
|
| 0 |
|
For the Years ended December 31, | ||||||||
2015 | 2014 | |||||||
Deferred tax assets: | ||||||||
Net operating loss carryforwards | $ | 2,415,690 | $ | 2,307,440 | ||||
Start-up cost | 320,338 | 350,834 | ||||||
Goodwill | 738,927 | 805,100 | ||||||
Stock based compensation | 669,761 | 621,858 | ||||||
Other | 24 | (6,762 | ) | |||||
Deferred tax assets | 4,144,741 | 4,078,470 | ||||||
Less valuation allowance | (4,144,741 | ) | (4,078,470 | ) | ||||
Net deferred tax assets after valuation allowance | $ | — | $ | — |
|
| December 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Deferred tax liabilities: |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Depreciation |
| $ | (128 | ) |
|
| 0 |
|
Deferred tax liabilities |
|
| (128 | ) |
|
| 1,764 |
|
Net deferred tax asset (liability) |
| $ | 0 |
|
|
| 0 |
|
A reconciliation of the U.S. statutory federal income tax rate to the effective income tax rate (benefit) follows:
Rate Reconciliation | For the Years ended December 31, | |||||||
2015 | 2014 | |||||||
Federal income tax at statutory rate | $ | (145,056 | ) | $ | (192,410 | ) | ||
State Tax | (15,487 | ) | (20,543 | ) | ||||
Permanent Differences | 542 | 237 | ||||||
Other | 93,730 | 16,401 | ||||||
Change in Valuation Allowance | 66,271 | 196,315 | ||||||
$ | — | $ | — |
Rate Reconciliation
|
| December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Rate Reconciliation |
|
|
|
|
|
| ||
Federal income tax at statutory rate |
|
| 21.00 | % |
|
| 21.00 | % |
Change in State Tax |
|
| 0 | % |
|
| 0 | % |
Change in Valuation Allowance |
|
| -22.16 | % |
|
| 19.11 | % |
Permanent Differences |
|
| -12.26 | % |
|
| 0 | % |
State Taxes |
|
| 1.98 | % |
|
| 5.50 | % |
Other |
|
| 11.44 | % |
|
| -45.61 | % |
At December 31, 2021, the Company had U.S. federal net operating loss carryforwards of approximately $1.7 million, which will carry forward indefinitely.
NOLs that were acquired with the acquisition of businesses are excluded from the amount of available NOLs to the extent their use is limited by the provisions of Section 382 of the Internal Revenue Code. Under the provisions of the Internal Revenue Code, certain substantial changes in the Company’s ownership may result in further limitation on the amount of net operating loss carryforwards which can be utilized in future years.
36 |
Table of Contents |
In assessingevaluating the ability to realize a portionamount of the valuation allowance against its deferred tax assets management considers whetheras of December 31, 2021 and 2020, the Company considered all available positive and negative evidence and concluded that it is more than likely than not that somea portion or all of theits deferred tax assets willwould not be realized. The ultimate realization ofAccordingly, the Company has recorded a valuation allowance against its net deferred tax assets due to the uncertainty surrounding the realization of such assets.
The Company had no unrecognized tax benefits as of December 31, 2021 and 2020. The Company does not anticipate a significant change in total unrecognized tax benefits within the next 12 months. Tax years 2018-2020 remain open to examination by the major taxing jurisdictions to which the Company is dependent uponsubject.
Note 10 – Subsequent Events
On Feb 17, 2022, the generation of future taxable income during the periodsCompany opened 374Water Sustainability Israel LTD 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 considerationIsrael as a subsidiary of the evidence, both positiveCompany.
Effective February 7, 2022, Israel Abitbol was promoted to CFO of the Company and negative, managementthe prior CFO, John Hofmann, moved to a senior vice president role.
On February 2, 2022, the Company signed a MOU with Environmental Services Company Ltd. An Israeli based company, in order to produce and sell the second AirSCWO unit.
On February 1, 2022, the Company sold its first AirSCWO unit to the Orange County Sanitation District of Fountain Valley, California.
37 |
Table of Contents |
EXHIBIT INDEX
____________
* Filed herewith.
38 |
Table of Contents |
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has determined that a $4,144,741 valuation allowance at December 31, 2015 is necessary. The changeduly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
374WATER, INC. | |||
Dated: March 1, 2022 | by: | /s/ Yaacov Nagar | |
Yaacov Nagar | |||
Chief Executive Officer, Principal Executive Officer and Chairman of the Board of Directors |
In accordance with the Exchange Act, this Report has been signed by the following persons on behalf of the Registrant and in the valuation allowance forcapacities and on the current year is $66,271, which represents the changes in the deferred items. At December 31, 2015, the Company has available net operating loss carry forwards for federal income tax purposes of $6,115,670 expiring at various times from 2027 through 2032.dates indicated.
Valuation and Qualifying Accounts
Signature | Title | Date | ||||
/S/ Yaacov Nagar. | Chief Executive Officer, Principal Executive Officer and Chairman of the Board of Directors | March 1, 2022 | ||||
/S/ Israel Abitbol | Chief Financial Officer | March 1, 2022 | ||||
/S/ Marc Deshusses | Head of Technology, Director | March 1, 2022 | ||||
/S/ Richard Davis | Director | March 1, 2022 |
Description | Balance at Beginning of Period | Charged to Cost and Expenses | Write-offs | Other Charges | Balance at End of Period | |||||||||||||||
Deferred tax asset valuation allowance | ||||||||||||||||||||
Year ended December 31, 2015 | $ | 4,078,470 | $ | 66,271 | $ | — | $ | — | $ | 4,144,741 | ||||||||||
Year ended December 31, 2014 | $ | 3,882,154 | $ | 196,316 | $ | — | $ | — | $ | 4,078,470 |
Note 11- Related Party Transactions
39 |
Since July 2010, the accounting firm J.L. Hofmann & Associates, P.A. (“JLHPA”), whose principal is our CFO John L. Hofmann, has provided financial consulting and accounting services to the Company. The Company paid $39,150 and $42,625 to JLHPA for its services in the years ended December 31, 2015 and 2014, respectively.
Note 12 – Subsequent Events
See Note 8 regarding prepayment of a $25,000 note in February 2016.
13