UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form 10-Q
☒ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Quarterly Period ended September 30, 20172022
☐ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission file number: 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 incorporation or organization) | (IRS Employer Identification No.) |
420 S. Dixie Highway701 W Main Street, Suite 4-B410
Coral Gables, FL 33146Durham, NC 27701
(Address of principal executive offices)
(305) 666-0024(919) 888-8194
(Registrant’s telephone number including area code)
(Former name, former address and former fiscal year, if changed since last report)Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $0.0001 | SCWO | The Nasdaq Capital Market LLC |
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 past 12 months (or for 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
☐ | Large accelerated filer | ☐ | Accelerated filer |
☐ | Non-accelerated | ☒ | 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 number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of November 14, 20171, 2022, the issuer had 31,750,106126,680,895 shares of common stock outstanding.
Index to Form 10-Q
Page | ||||
3 | ||||
3 | ||||
4 | ||||
5 | ||||
6 | ||||
Notes to Unaudited Condensed Consolidated Financial Statements | 7 | |||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 | |||
15 | ||||
15 | ||||
16 | ||||
16 | ||||
16 | ||||
16 | ||||
16 | ||||
16 | ||||
17 | ||||
18 |
Table of Contents |
Cautionary Note Regarding Forward-Looking Information
This Form 10-Q contains certain statements related to future results of the Company that are considered “forward-looking statements'' within the meaning of the Private Litigation Reform Act of 1995. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties, including, but not limited to, changes in political and economic conditions; interest rate fluctuation; competitive pricing pressures within the Company’s market; equity and fixed income market fluctuation; technological changes; changes in law; changes in fiscal, monetary, regulatory, and tax policies; monetary fluctuations as well as other risks and uncertainties detailed elsewhere in this Form 10-Q or from time-to-time in the filings of the Company with the Securities and Exchange Commission. Such forward-looking statements speak only as of the date on which such statements are made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
PowerVerde,374Water Inc. and SubsidiarySubsidiaries
Condensed Consolidated Balance Sheets
September 30, 20172022 (Unaudited) and December 31, 20162021
2017 | 2016 | |||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 7,476 | $ | 4,786 | ||||
Accounts receivable | 108,686 | 170,539 | ||||||
Liberty note receivable | 25,000 | — | ||||||
Prepaid expenses and other current assets | 11,334 | 56,628 | ||||||
Total Current Assets | 152,496 | 231,953 | ||||||
Property and Equipment | ||||||||
Property and equipment, net of accumulated depreciation of $95,853 and $85,156, respectively | 11,788 | 22,484 | ||||||
Other Assets | ||||||||
Intellectual Property, net of accumulated amortization of $686,854 and $677,716 | 5,420 | 14,558 | ||||||
License, net of accumulated amortization of $13,322 and $5,822, respectively | 86,678 | 94,178 | ||||||
Total Other Assets | 92,098 | 108,736 | ||||||
Total Assets | $ | 256,382 | $ | 363,173 | ||||
Liabilities and Stockholders’ Deficiency | ||||||||
Current Liabilities | ||||||||
Accounts payable and accrued expenses | $ | 80,766 | $ | 79,073 | ||||
Note payable to related parties | 200,000 | 425,000 | ||||||
Total Current Liabilities | 280,766 | 504,073 | ||||||
Total Liabilities | 280,766 | 504,073 | ||||||
Stockholders’ Deficiency | ||||||||
Preferred Stock: | ||||||||
50,000,000 preferred shares authorized, 0 preferred shares issued at September 30, 2017 and December 31, 2016 | — | — | ||||||
Common stock: | ||||||||
200,000,000 common shares authorized, par value $0.0001 per share, 31,750,106 common shares issued and outstanding at September 30, 2017 and December 31, 2016 | 3,981 | 3,981 | ||||||
Additional paid-in capital | 12,129,331 | 12,129,331 | ||||||
Treasury stock, 8,550,000 shares at cost | (491,139 | ) | (491,139 | ) | ||||
Accumulated deficit | (11,666,557 | ) | (11,783,073 | ) | ||||
Total Stockholders’ Deficiency | (24,384 | ) | (140,900 | ) | ||||
Total Liabilities and Stockholders’ Deficiency | $ | 256,382 | $ | 363,173 |
|
| 2022 |
|
| 2021 |
| ||
Assets |
|
|
|
|
|
| ||
Current Assets: |
|
|
|
|
|
| ||
Cash |
| $ | 2,407,983 |
|
| $ | 11,131,175 |
|
Accounts receivable |
|
| 164,600 |
|
|
| - |
|
Investments |
|
| 5,994,272 |
|
|
| - |
|
Prepaid expenses |
|
| 1,297,933 |
|
|
| 218,466 |
|
Total Current Assets |
|
| 9,864,788 |
|
|
| 11,349,641 |
|
Long-Term Assets: |
|
|
|
|
|
|
|
|
Equipment, net |
|
| 124,593 |
|
|
| 959 |
|
Intangible asset, net |
|
| 980,753 |
|
|
| 1,028,114 |
|
Other assets |
|
| 35,170 |
|
|
| 34,742 |
|
Total Long-Term Assets |
|
| 1,140,516 |
|
|
| 1,063,815 |
|
Total Assets |
| $ | 11,005,304 |
|
| $ | 12,413,456 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
| $ | 1,043,660 |
|
| $ | 62,981 |
|
Deferred revenue |
|
| 200,109 |
|
|
| — |
|
Other liabilities |
|
| 18,388 |
|
|
| 23,390 |
|
Total Current Liabilities |
|
| 1,262,157 |
|
|
| 86,371 |
|
Total Liabilities |
|
| 1,262,157 |
|
|
| 86,371 |
|
Stockholders’ Equity |
|
|
|
|
|
|
|
|
Preferred Stock: 1,000,000 Convertible Series D preferred shares authorized; par value $0.0001 per share, nil issued and outstanding at September 30, 2022 and 27,272 issued and outstanding at December 31, 2021 |
|
| — |
|
|
| 3 |
|
|
|
|
|
|
|
|
|
|
Common stock: 200,000,000 common shares authorized, par value $0.0001 per share, 126,680,895 and 125,317,746 shares outstanding at September 30, 2022 and December 31, 2021, respectively |
|
| 12,667 |
|
|
| 12,531 |
|
Additional paid-in capital |
|
| 15,894,426 |
|
|
| 15,474,566 |
|
Accumulated (deficit) |
|
| (6,159,975 | ) |
|
| (3,160,015 | ) |
Accumulated other comprehensive loss |
|
| (3,971 | ) |
|
| — |
|
Total Stockholders’ Equity |
|
| 9,743,147 |
|
|
| 12,327,085 |
|
Total Liabilities and Stockholders’ Equity |
| $ | 11,005,304 |
|
| $ | 12,413,456 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3 |
Table of Contents |
PowerVerde,
374Water, Inc. and SubsidiarySubsidiaries
Condensed Consolidated Statements of Operations
For the three and nine months ended September 30, 20172022 and 20162021
(Unaudited)
Three months ended September 30, | Nine months ended September 30, |
| Three months ended September 30, |
| Nine months ended September 30, |
| ||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Revenue | $ | 133,686 | $ | 89,118 | $ | 473,485 | $ | 417,074 |
| $ | 922,718 |
| $ | 19,000 |
| $ | 2,226,477 |
| $ | 33,600 |
| |||||||||||
Cost of Goods Sold |
|
| 812,386 |
|
|
| — |
|
|
| 1,962,879 |
|
|
| — |
| ||||||||||||||||
Gross Profit |
|
| 110,332 |
|
|
| 19,000 |
|
|
| 263,598 |
|
|
| 33,600 |
| ||||||||||||||||
Operating Expenses |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Research and development | 78,371 | 177,885 | 172,760 | 282,339 |
| 118,253 |
| 115,936 |
| 726,602 |
| 269,796 |
| |||||||||||||||||||
Compensation and related expenses |
| 435,297 |
| 227,790 |
| 1,135,979 |
| 405,456 |
| |||||||||||||||||||||||
Product and development expenses |
| — |
| — |
| — |
| 1,399,833 |
| |||||||||||||||||||||||
Professional Fees |
| 82,752 |
| 84,514 |
| 375,313 |
| 245,152 |
| |||||||||||||||||||||||
General and administrative | 45,635 | 55,485 | 160,533 | 262,599 |
|
| 387,018 |
|
|
| 143,147 |
|
|
| 1,027,287 |
|
|
| 206,931 |
| ||||||||||||
Total Operating Expenses | 124,006 | 233,370 | 333,293 | 544,938 |
| 1,023,320 |
| 571,387 |
| 3,265,181 |
| 2,527,168 |
| |||||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Income (Loss) from Operations | 9,680 | (144,252 | ) | 140,192 | (127,864 | ) | ||||||||||||||||||||||||||
Loss from Operations |
|
| (912,988 | ) |
|
| (552,387 | ) |
|
| (3,001,583 | ) |
|
| (2,493,568 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Other Income (Expenses) | ||||||||||||||||||||||||||||||||
Other Income (Expense) |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Award income |
| — |
| — |
| — |
| — |
| |||||||||||||||||||||||
Interest income | — | — | 50 | — |
| 162 |
| 428 |
| 1,617 |
| 751 |
| |||||||||||||||||||
Interest expense | (5,589 | ) | (17,338 | ) | (23,726 | ) | (45,898 | ) | ||||||||||||||||||||||||
Other income |
| — |
| — |
| 7 |
| — |
| |||||||||||||||||||||||
Total Other Income (Expense) | (5,589 | ) | (17,338 | ) | (23,676 | ) | (45,898 | ) |
|
| 162 |
|
|
| 428 |
|
|
| 1,624 |
|
|
| 751 |
| ||||||||
Income (Loss) before Income Taxes | 4,090 | (161,590 | ) | 116,516 | (173,761 | ) | ||||||||||||||||||||||||||
Net Loss before Income Taxes |
| (912,826 | ) |
| (551,959 | ) |
| (2,999,959 | ) |
| (2,492,817 | ) | ||||||||||||||||||||
Provision for Income Taxes | — | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Net Income (Loss) | $ | 4,090 | $ | (161,590 | ) | $ | 116,516 | $ | (173,761 | ) | ||||||||||||||||||||||
Net Loss |
| $ | (912,826 | ) |
| $ | (551,959 | ) |
| $ | (2,999,959 | ) |
| $ | (2,492,817 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Net Income (Loss) per Share - Basic and Diluted | $ | 0.000 | $ | (0.005 | ) | $ | 0.004 | $ | (0.005 | ) | ||||||||||||||||||||||
Other comprehensive loss |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Change in foreign currency translation |
| — |
| — |
| (850 | ) |
| — |
| ||||||||||||||||||||||
Change in unrealized loss on marketable securities |
|
| (3,122 | ) |
|
| — |
|
|
| (3,122 | ) |
|
| — |
| ||||||||||||||||
Total other comprehensive loss |
|
| (3,122 | ) |
|
| — |
|
|
| (3,972 | ) |
|
| — |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Total comprehensive loss |
|
| (915,948 | ) |
|
| (551,959 | ) |
|
| (3,003,931 | ) |
|
| (2,492,817 | ) | ||||||||||||||||
Net Loss per Share - Basic and Diluted |
| $ | (0.01 | ) |
| $ | (0.01 | ) |
| $ | (0.02 | ) |
| $ | (0.03 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Weighted Average Common Shares Outstanding - Basic and Diluted | 31,750,106 | 31,750,106 | 31,750,106 | 31,750,106 |
| 126,680,895 |
| 98,391,746 |
| 126,621,412 |
| 84,283,229 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4 |
Table of Contents |
PowerVerde,
374Water Inc. and SubsidiarySubsidiaries
Condensed Consolidated Statements of Cash FlowsChanges in Stockholders’ Equity
For the three and nine months ended September 30, 20172022 and 20162021
(Unaudited)
2017 | 2016 | |||||||
Cash Flows From Operating Activities | ||||||||
Net income (loss) | $ | 116,516 | $ | (173,761 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 27,334 | 23,259 | ||||||
Amortization of discount | — | 12,920 | ||||||
Stock based compensation | — | 202,065 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable and prepaid expenses | 82,147 | 112,946 | ||||||
Accounts payable and accrued expenses | 1,693 | (3,786 | ) | |||||
Payable to related parties | — | (26,000 | ) | |||||
Cash Provided by Operating Activities | 227,690 | 147,643 | ||||||
Cash Flows from Financing Activities | ||||||||
Proceeds from note payable, related party | — | 25,000 | ||||||
Principal payments on notes payable, related parties | (225,000 | ) | (25,000 | ) | ||||
Principal payments on notes payable | — | (147,569 | ) | |||||
Cash (Used in) Provided by Financing Activities | (225,000 | ) | (147,569 | ) | ||||
Net Increase in Cash and Cash Equivalents | 2,690 | 74 | ||||||
Cash and Cash Equivalents at Beginning of Period | 4,786 | 5,601 | ||||||
Cash and Cash Equivalents at End of Period | $ | 7,476 | $ | 5,675 | ||||
Supplemental Disclosure of Cash Flow Information | ||||||||
Cash paid during the period for interest | $ | 38,664 | $ | 24,175 | ||||
Cash paid during the period for income taxes | $ | — | $ | — | ||||
Supplemental Disclosure of Non-Cash Activities | ||||||||
Note Receivable in connection with Liberty accounts receivable | $ | 25,000 | $ | — | ||||
Note Receivable in connection with IP acquisition | $ | — | $ | 100,000 |
For the three and nine months ended September 30, 2022
|
| Preferred Stock |
|
| Common Stock |
|
| Additional |
|
|
|
| Other |
|
| Total |
| |||||||||||||||
|
| Number of |
|
|
|
| Number of |
|
|
|
| Paid in |
|
| Accumulated |
|
| Comprehensive |
|
| Stockholders’ |
| ||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Income |
|
| Equity |
| ||||||||
Balances, December 31, 2021 |
|
| 27,272 |
|
| $ | 3 |
|
|
| 125,317,746 |
|
| $ | 12,531 |
|
| $ | 15,474,566 |
|
| $ | (3,160,015 | ) |
| $ | — |
|
| $ | 12,327,085 |
|
Conversion of Preferred Shares to Common Shares |
|
| (27,272 | ) |
|
| (3 | ) |
|
| 1,363,149 |
|
|
| 136 |
|
|
| (135 | ) |
|
| — |
|
|
| — |
|
|
| (2 | ) |
Accretion of stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 97,558 |
|
|
| — |
|
|
| — |
|
|
| 97,558 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (872,858 | ) |
|
| — |
|
|
| (872,858 | ) |
Balances, March 31, 2022 |
|
| — |
|
|
| — |
|
|
| 126,680,895 |
|
| $ | 12,667 |
|
| $ | 15,571,989 |
|
| $ | (4,032,873 | ) |
|
| — |
|
| $ | 11,551,783 |
|
Accretion of stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 138,912 |
|
|
| — |
|
|
| — |
|
|
| 138,912 |
|
Foreign currency gain (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (771 | ) |
|
| (771 | ) |
Unrealized gain (loss) on investments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (11,243 | ) |
|
| (11,243 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,214,275 | ) |
|
| — |
|
|
| (1,214,275 | ) |
Balances, June 30, 2022 |
|
| — |
|
|
| — |
|
|
| 126,680,895 |
|
| $ | 12,667 |
|
| $ | 15,710,901 |
|
| $ | (5,247,148 | ) |
| $ | (12,014 | ) |
| $ | 10,464,406 |
|
Accretion of stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 183,524 |
|
|
| — |
|
|
| — |
|
|
| 183,524 |
|
Foreign currency gain (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (78 | ) |
|
| (78 | ) |
Unrealized gain (loss) on investments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,121 |
|
|
| 8,121 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (912,826 | ) |
|
| — |
|
|
| (912,826 | ) |
Balances, September 30, 2022 |
|
| — |
|
|
| — |
|
|
| 126,680,895 |
|
| $ | 12,667 |
|
| $ | 15,894,426 |
|
| $ | (6,159,975 | ) |
| $ | (3,971 | ) |
| $ | 9,743,147 |
|
For the three and nine months ended September 30, 2021
|
| Preferred Stock |
|
| Common Stock |
|
| Additional |
|
|
|
| Other |
|
| Total |
| |||||||||||||||
|
| Number of |
|
|
|
| Number of |
|
|
|
| Paid in |
|
| Accumulated |
|
| Comprehensive |
|
| Stockholders’ |
| ||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Income |
|
| Equity |
| ||||||||
Balances, December 31, 2020 |
|
| — |
|
| $ | — |
|
|
| 62,410,452 |
|
| $ | 6,241 |
|
| $ | 416 |
|
| $ | 4,593 |
|
| $ | — |
|
| $ | 11,250 |
|
Accretion of stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,433 |
|
|
| — |
|
|
| — |
|
|
| 10,433 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (66,551 | ) |
|
| — |
|
|
| (66,551 | ) |
Balances, March 31, 2021 |
|
| — |
|
|
| — |
|
|
| 62,410,452 |
|
|
| 6,241 |
|
|
| 10,849 |
|
|
| (61,958 | ) |
|
| — |
|
|
| (44,868 | ) |
Issuance of stock warrants for development of product |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,399,833 |
|
|
| — |
|
|
| — |
|
|
| (1,399,833 | ) |
Recapitalization of the Company |
|
| — |
|
|
| — |
|
|
| 33,203,512 |
|
|
| 3,320 |
|
|
| (87,545 | ) |
|
| — |
|
|
| — |
|
|
| (84,225 | ) |
Series D preferred stock issued for cash and settlement of accounts payable |
|
| 440,125 |
|
|
| 44 |
|
|
| — |
|
|
| — |
|
|
| 6,601,701 |
|
|
| — |
|
|
| — |
|
|
| 6,601,745 |
|
Exercised option and warrants |
|
| — |
|
|
| — |
|
|
| 1,175,500 |
|
|
| 118 |
|
|
| 150,227 |
|
|
| — |
|
|
| — |
|
|
| 150,345 |
|
Accretion of stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15,134 |
|
|
| — |
|
|
| — |
|
|
| 15,134 |
|
Issuance of common stock for license rights |
|
| — |
|
|
| — |
|
|
| 1,602,282 |
|
|
| 160 |
|
|
| 1,073,369 |
|
|
| — |
|
|
| — |
|
|
| 1,073,529 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,874,307 | ) |
|
| — |
|
|
| (1,874,307 | ) |
Balances, June 30, 2021 |
|
| 440,125 |
|
| $ | 44 |
|
|
| 98,391,746 |
|
| $ | 9,839 |
|
| $ | 9,163,568 |
|
| $ | (1,936,265 | ) |
| $ | — |
|
| $ | 7,237,186 |
|
Exercised option and warrants |
|
| — |
|
|
| — |
|
|
| 3,783,333 |
|
|
| 377 |
|
|
| 1,134,622 |
|
|
| — |
|
|
| — |
|
|
| 1,134,999 |
|
Accretion of stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 60,585 |
|
|
| — |
|
|
| — |
|
|
| 60,585 |
|
Conversion of convertible preferred shares into common stock |
|
| (412,853 | ) |
|
| (41 | ) |
|
| 20,642,667 |
|
|
| 2,064 |
|
|
| (2,023 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (551,959 | ) |
|
| — |
|
|
| (551,959 | ) |
Balances, September 30, 2021 |
|
| 27,272 |
|
| $ | 3 |
|
|
| 122,817,746 |
|
| $ | 12,281 |
|
| $ | 10,356,751 |
|
| $ | (2,488,224 | ) |
| $ | — |
|
| $ | 7,880,811 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
PowerVerde,374Water Inc. and SubsidiarySubsidiaries
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 2022 and 2021(Unaudited)
|
| 2022 |
|
| 2021 |
| ||
Cash Flows from Operating Activities |
|
|
|
|
|
| ||
Net loss |
| $ | (2,999,959 | ) |
| $ | (2,492,817 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
| 50,052 |
|
|
| 16,314 |
|
Stock based compensation |
|
| 419,995 |
|
|
| 86,152 |
|
Warrant issued for product development agreement |
|
| — |
|
|
| 1,399,833 |
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (164,600 | ) |
|
| 19,663 |
|
Prepaid expenses |
|
| (1,079,467 | ) |
|
| (26,185 | ) |
Accounts payable and accrued expenses |
|
| 980,679 |
|
|
| (78,558 | ) |
Deferred revenue |
|
| 200,109 |
|
|
| — |
|
Other liabilities |
|
| (5,002 | ) |
|
| 22,007 |
|
|
|
|
|
|
|
|
|
|
Cash Provided by (Used In) Operating Activities |
|
| (2,598,193 | ) |
|
| (1,053,591 | ) |
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
Purchase of marketable securities |
|
| (5,998,243 | ) |
|
| — |
|
Purchase of equipment |
|
| (125,011 | ) |
|
| (2,319 | ) |
Proceeds from reverse acquisition |
|
| — |
|
|
| 29,536 |
|
Increase in other asset |
|
| (1,745 | ) |
|
| (19,826 | ) |
|
|
|
|
|
|
|
|
|
Cash Provided by (Used In) Investing Activities |
|
| (6,123,999 | ) |
|
| 7,391 |
|
|
|
|
|
|
|
|
|
|
Cash Flow from Financing Activities |
|
|
|
|
|
|
|
|
Repayments to (advances) from stockholders |
|
| — |
|
|
| (15,108 | ) |
Proceeds from sale of series D preferred shares |
|
| — |
|
|
| 6,551,745 |
|
Proceeds from exercise of options and warrants |
|
| — |
|
|
| 1,285,344 |
|
|
|
|
|
|
|
|
|
|
Cash Provided by Financing Activities |
|
| — |
|
|
| 7,821,981 |
|
|
|
|
|
|
|
|
|
|
Net Increase in Cash |
|
| (8,723,192 | ) |
|
| 6,775,781 |
|
Cash, Beginning of the Period |
|
| 11,131,175 |
|
|
| 71,799 |
|
Cash, End of the Period |
| $ | 2,407,983 |
|
| $ | 6,847,580 |
|
|
|
|
|
|
|
|
|
|
NON-CASH FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Conversion of preferred stock to common stock |
| $ | 133 |
|
| $ | — |
|
License |
|
| — |
|
|
| 1,073,529 |
|
Accounts payable settled with Series D Preferred Stock |
|
| — |
|
|
| 50,000 |
|
NET LIABILITIES ASSUMED IN REVERSE ACQUISITION |
|
|
|
|
|
|
|
|
Cash |
|
| — |
|
|
| 29,536 |
|
Prepaid expense |
|
| — |
|
|
| 14,483 |
|
Accounts receivable |
|
| — |
|
|
| 1,000 |
|
Account payable |
|
| — |
|
|
| (46,150 | ) |
Accrued expenses |
|
| — |
|
|
| (83,094 | ) |
Net liability assumed |
|
| — |
|
|
| (84,225 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6 |
Table of Contents |
374Water Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2017
Note 1 – Condensed ConsolidatedNature of Business and Presentation of Financial Statements
Description of the Company
374Water Inc., f/k/a PowerVerde, Inc. (the “Company”) is a Delaware corporation formed in March 2007. 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, (“Private 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 Private 374Water, with Private 374Water as the surviving corporation. In connection with the Merger, all Private 374Water shares were canceled and the Company issued to the former Private 374Water shareholders a total of 62,410,452 shares of the Company common stock. Immediately following the Merger, Private 374Water changed its name to 374Water Systems Inc and PowerVerde changed its name to 374Water Inc. After the Merger, the former Private 374Water stockholders owned 64.2% of the Company’s issued and outstanding common stock and 53.8% of the Company’s issued and outstanding voting stock which includes the Preferred Stock. The Merger was accounted for as a reverse acquisition (See Note 4). 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.
Nature of Business
The Company’s current mission is to support a clean and healthy environment to sustain life. The Company plans to use what it 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 the Company believes will make the sustainable development goals a reality. On February 1, 2022, the Company sold its first AirSCWO system to Orange County Sanitation District of Fountain Valley, California. Revenues to date have been from sale of the Company’s first AirSCWO system and from testing, consulting, and advisory services procedures for our customers.
Presentation of Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) for interim financial information. It is management’s opinion that the accompanying unaudited condensed consolidated financial statements are prepared in accordance with instructions for Form 10-Q and include all adjustments (consisting only of normal recurring accruals) which are necessary for a fair presentation of the results for the periods presented. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the Annual Report on Form 10-K of PowerVerde,374Water Inc. (“PowerVerde,”374 Water," “we,” “us,” “our,” or the “Company”) as of and for the year ended December 31, 2016.2021 filed with the Securities and Exchange Commission (“SEC”) on March 1, 2022. The results of operations for the three and nine months ended September 30, 2017,2022, are not necessarily indicative of the results to be expected for the full year or for future periods. The condensed consolidated financial statements include the accounts of PowerVerde,374Water Inc., formerly known as Vyrex Corporation (the “Company”), and PowerVerde Systems, Inc., formerly known as PowerVerde, Inc., its374Water Systems Inc, and 374Water Sustainability Israel LTD, each a wholly-owned subsidiary.subsidiary of 374 Water. Intercompany balances and transactions have been eliminated in consolidation. These interim financial statements reflect the acquisition of the Company’s wholly-owned subsidiary, 374Water Systems Inc., which was consummated on April 16, 2021, as more fully disclosed in Note 4 and the creation of 374Water Sustainability LTD, an Israeli wholly-owned subsidiary on March 3, 2022 and having no activity until the second quarter of 2022.
7 |
|
Table of Contents |
We have financed our operations since inception through the sale of debt and equity securities and through Biotech IP licensing revenues. As of September 30, 2017, we had a working capital deficit of $128,270 compared to a working capital deficit of $272,120 at December 31, 2016. This improvement in working capital is due primarily to reductions in notes payable to related parties, accounts payable and accrued expenses resulting from positive operating cash flows during this period.
We expect 2017 Biotech IP revenues to approximate the 2016 levels; however, there can be no assurance that this revenue level will be achieved. Further, our contract which provides our Biotech IP revenues expires in March 2018, and we will therefore be without a source of working capital at that time unless we can generate material revenues from operations and/or the Liberty Agreement or raise substantial additional capital, as to which there can be no assurance. See Note 9 – Commitments and Contingencies
In order to meet our obligations under the $150,000 balance (as of October 2017) of our secured notes payable to related parties due April 30, 2018 (the “Notes”), which are collateralized by our Biotech IP receivables, we intend to apply most of the Biotech IP revenues received in 2017 and 2018 toward payment of the interest and principal due on the Notes, after reserving the minimum amount necessary to maintain our operations. We intend to reduce our salary and consulting fee expenses until the Notes are paid in full, and we are also commencing a new source of revenue by using our employee to provide part-time skilled manufacturing services to a third party pursuant to the Liberty Agreement.
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. There can be no assurance that we will be able to raise the necessary funds on commercially acceptable terms if at all. If we do not raise the necessary funds, we may be forced to cease operations.
Note 32 – Summary of Significant Accounting Policies
Nature of Business
The Company is devoting substantially all of its present efforts to establish a new business involving the developmentCash and commercialization of clean energy electric power generation systems,Cash Equivalents and none of its planned principal operations have commenced. However, royalties from licenses unrelated to planned principal operations continue to be recognized as revenue. The license will expire in March 2018, after which no further royalty revenues are expected.
Cash EquivalentsMarketable Securities
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company held no cash equivalents as of September 30, 2022, and December 31, 2021.
The Company held marketable securities as of September 30, 2022 as noted in the following table:
|
| Adjusted Cost |
|
| Unrealized Losses |
|
| Fair Value |
|
| Cash and Cash Equivalents |
|
| Current Marketable Securities |
|
| Non-Current Marketable Securities |
| ||||||
Cash |
| $ | 2,407,983 |
|
|
| — |
|
| $ | 2,407,983 |
|
| $ | 2,407,983 |
|
|
| — |
|
|
| — |
|
Level 2: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
| $ | 5,950,971 |
|
| $ | 15,052 |
|
| $ | 5,994,272 |
|
| $ | 58,353 |
|
| $ | 5,935,919 |
|
|
| — |
|
Total |
| $ | 8,358,954 |
|
| $ | 15,052 |
|
| $ | 8,402,255 |
|
| $ | 2,466,336 |
|
| $ | 5,935,919 |
|
|
| — |
|
The Company held no marketable securities as of December 31, 2021.
Accounting Standards Codification (ASC) Topic 820 “Fair Value Measurements” establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy is as follows:
Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date.
Level 2 Inputs - Fair value estimates are based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
The following is a description of valuation methodologies used for assets and liabilities recorded at fair value:
∙ | Investment Securities Available-for-Sale. Investment securities available-for-sale (“AFS”) is recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange such as the New York Stock Exchange, Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in illiquid markets. |
Accounts Receivable
Accounts receivablereceivables consist of balances due from royalties in connection with the license agreement with VDF FutureCeuticals, Inc.service revenues. The Company monitors accounts receivable and provides allowances for doubtful accounts when considered necessary. AtAs of September 30, 2017,2022 and December 31, 2021, there were $35,480 and $0, outstanding accounts receivable, were considered to be fully collectible. Accordingly,respectively. As of September 30, 2022 and December 31, 2021, there was no allowance for doubtful accounts was provided.recorded.
NotesUnbilled Receivable
Note receivable consistsUnbilled receivables consist of balances that are unconditionally due to the Company for services already rendered except for physical invoicing and the passage of time. Invoicing requirements vary by customer contract, but all unbilled revenues from Liberty Plugins, Inc in connection with the manufacturing assembly agreement dated April 15, 2017.are billed within one year. At September 30, 2017, notes receivable2022 and December 31, 2021, there were considered to be fully collectible.$129,120 and $0, outstanding unbilled receivables, respectively.
Revenue RecognitionEquipment
Revenue from royalty and assembly agreements unrelated to the Company’s planned operationsEquipment is recognized in accordance with the terms of the specific agreements. Revenues recognized under these agreements amount to 100% of total revenues for the nine months ended September 30, 2017 and 2016. The Company does not expect any significant impact of the adoption of the standard on our financial statements based on the current sources of revenue.
Property and Equipment
Property and equipment are statedrecorded at cost, less accumulated depreciation.cost. Depreciation is computed using the straight-line method over theand an estimated useful liveslife of the related assets. Expendituresthree years. Expenses for major betterments and additions are capitalized, while replacement, maintenance and repairs which do not extendare charged to expense as incurred. The Company’s depreciation expense for 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, licensethree months and intellectual property) used in operations when impairment indicators are present and the undiscounted expected cash flows estimated to be generated by those assets are less than the carrying value of such assets. No impairment losses have been recognized during the nine months ended September 30, 2017 or 2016.2022 was $650 and $1,374, respectively.
Intangible Assets
Intangible assets are subject to amortization, and any impairment is determined 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 pattern in which the economic benefits of the intangible asset are consumed or otherwise used up can be reliably determined.
Long-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. Recoverability of assets held and used is measured by a comparison of the carrying amount to the future undiscounted expected net cash flows to be generated by the asset. As of September 30, 2022, and 2021, there were no events or changes in circumstances requiring an impairment analysis.
Revenue Recognition and Concentration
The Company follows the revenue standards of ASC Topic 606 - “Revenue from Contracts with Customers”. The core principle of Topic 606 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 goods or services. Revenue is recognized in accordance with that core principle by applying the following 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. Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from the completion of the equipment build for each customer as the inputs are measured against the cost to build the product.
The Company’s performance obligations will be satisfied overtime as the specialized equipment is built for the customer. Based on the Company’s contracts, the Company will have a single performance obligation (build and install of the product). The Company will primarily receive fixed consideration for sales of products.
The majority of revenues for the three months ended September 30, 2022 were generated from the sale of the first AirSCWO system. For the three months and nine months ended September 30, 2021, the Company did not have any ordinary revenue. All revenue generated as of September 30, 2021 was unrelated to the sale of an AirSCWO unit.
8 |
Table of Contents |
Stock-based Compensation
The Company has accounted for stock-based compensation under the provisions of ASC(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, 2016 and September 30, 2017 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. There were no uncertain tax positions as of September 30, 2022, and December 31, 2021.
Income 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 in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.
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 $172,760$726,602 and $282,339$269,796 for the nine months ended September 30, 20172022, and 2016,2021, respectively. The Company’s research and development costs are expensed in the period in which they are incurred. Such expenditures amounted to $118,253 and $115,936 for the three months ended September 30, 2022, and 2021, respectively.
Earnings (Loss)Loss Per Share
Earnings (loss)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)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)loss per share calculation as their effect would be anti-dilutive. Warrants exercisable for4,175,000There were no dilutive shares and options for 5,750,500 shares were excluded from weighted average common shares outstanding on an anti-diluted basis.as of September 30, 2022.
Financial instrumentsInstruments
The Company carries cash, and cash equivalents, accounts receivable, note receivable, accounts payable and accrued expenses, and notes payable, 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 significantly similar to the face value of the notes ($200,000).
9 |
Table of Contents |
Use of Estimates
The preparation of 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 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, useful lives of intangible assets, and valuation allowance against deferred tax assets.
Note 4 – Recent Accounting Pronouncements
Refer to the consolidated financial statements and footnotes thereto included in the PowerVerde, Inc. Annual Report on Form 10-K for the year ended December 31, 2016 for recentAll other newly issued but not yet effective accounting pronouncements. Other pronouncements have been issued butdeemed to be not applicable or immaterial to the Company.
Note 3 – Liquidity, Capital Resources and Going Concern
As of September 30, 2022, the Company does not believe that their adoption will have a significant impact on the financial position or resultshad working capital of operations.
Note 5 – Intellectual Property and License Agreement
Intellectual Property partially consists$8,602,631 compared to working capital of technology acquired from the purchase$11,263,270 at December 31, 2021. As of 100% of the membership interests of Cornerstone Conservation Group LLC (“Cornerstone”) on March 30, 2012 for $659,440. Accumulated amortization with respect to this intellectual property was $659,440 at September 30, 2017 and December 31, 2016.
On June 30, 2015,2022, the Company entered intohad an Assignment Agreement with VyrexIP Holdings Inc., a company owned by Company shareholder Edward Gomez, for the purchaseaccumulated deficit 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 as of March 31, 2016. Accumulated amortization with respect to this intellectual property was $27,414 and $18,276 at September 30, 2017 and December 31, 2016, respectively.
On June 1, 2016, the Company entered into a ten-year License Agreement with Helidyne LLC to utilize the Helidyne intellectual property in the manufacturing of planetary rotor expanders and the incorporation of same in the Company’s distributed electric power generation systems. The license agreement also grants the Company an exclusive license to sell the expanders whether manufactured by Helidyne or by the Company. The Company’s royalty obligation begins on the earlier of the commercialization of the product or three years from the effective date of the agreement. Once the royalty obligation begins, the minimum annual royalty is $50,000 for the first six years, and $100,000 for the remainder of the agreement.
$6,159,975. For the nine months ended September 30, 20172022, the Company had a net loss of $2,999,959 and 2016, amortization expense was $16,638 and $12,460, respectively, and accumulated amortizationused $2,598,193 of net cash in operations for the intangible assets of intellectual property and license agreement was $700,176 at September 30, 2017.
Future amortization of the intangible assets of intellectual property and license agreement was as follows asperiod. As of September 30, 2017:
Year ending December 31: | |||||
2017 | $ | 5,546 | |||
2018 | 12,374 | ||||
2019 | 10,000 | ||||
2020 | 10,000 | ||||
Thereafter | 54,178 | ||||
Total | $ | 92,098 |
Note 6 – Stockholders’ Deficiency
Warrants
A summary2021, the Company had working capital of warrants issued, exercised and expired during$6,800,773 compared to working capital of $10,572 at December 31, 2020. As of September 30, 2021, the Company had an accumulated deficit of $2,488,224. For the nine months ended September 30, 2017 is as follows:2021, the Company had a net loss of $2,492,817 and used $1,053,591 of net cash in operations for the period.
Shares | Weighted Average Exercise Price | Intrinsic Value | |||||||||||
Balance at December 31, 2016 | 4,275,000 | $ | .33 | $ | 45,000 | ||||||||
Issued | — | — | — | ||||||||||
Expired | (100,000 | ) | (3.00 | ) | — | ||||||||
Balance at September 30, 2017 | 4,175,000 | $ | .27 | $ | 18,250 |
The Company believes it has sufficient cash-on-hand (including its marketable securities described in Note 2 above) for the Company to meet its financial obligations as they come due at least the next 12 months from the date of the report.
Note 4 – Acquisition of 374Water, Inc. f/k/a PowerVerde Inc.
Agreement and Plan of Merger
In connection with the Merger, (see Note 1), the Company closed on a private placement of 440,125 shares of Series D Convertible Preferred Stock (the “Preferred Stock”) with a par value of $0.0001, 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 the Company’s AirSCWO 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 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 of September 30, 2017,2022, there were no shares of Preferred Stock issued and outstanding.
As a result of the optionsMerger, the issuance of the Preferred Stock, the former Private 374Water shareholders owned 65.8% of the Company’s issued and outstanding common stock and exercisable had53.8% of the Company’s issued and outstanding voting stock (which includes the Preferred Stock on an intrinsicas converted basis).
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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. The SCWO technology 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 number of shares of common stock (see Note 5).
As a result of the Merger Agreement, for financial statement reporting purposes, the business combination between 374Water Inc. and 374Water was treated as a reverse acquisition and recapitalization for accounting purposes with 374Water deemed the accounting acquirer and 374Water Inc. deemed the accounting acquiree under the acquisition method of accounting in accordance with FASB (“ASC”) Section 805.
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 number of shares of common stock estimated to have a fair value of $18,250.$1,073,529 as consideration for granting the Company the license based on the Company’s common stock market price on the date the License Agreement was executed (see Note 8). Intangible assets are comprised of the following as of September 30, 2022 and December 31, 2021:
Name |
| Estimated Life |
| Balance at December 31, 2021 |
|
| Additions |
|
| Amortization |
|
| Balance at September 30, 2022 |
| ||||
License agreement |
| 17 Years |
| $ | 1,028,114 |
|
| $ | — |
|
| $ | 47,361 |
|
| $ | 980,753 |
|
Patents |
| 20 Years |
|
| 34,742 |
|
|
| 1,745 |
|
|
| 1,317 |
|
|
| 35,170 |
|
Total |
|
|
| $ | 1,062,856 |
|
| $ | 1,745 |
|
| $ | 48,678 |
|
| $ | 1,015,923 |
|
Amortization expense for the nine months ended September 30, 2022 and 2021, was $48,678 and $15,787, respectively.
11 |
Estimated future amortization expense as of September 30, 2022:
|
| September 30, |
| |
|
| 2022 |
| |
2022 (Remaining 3 months) |
| $ | 16,243 |
|
2023 |
|
| 64,973 |
|
2024 |
|
| 64,973 |
|
2025 |
|
| 64,973 |
|
2026 |
|
| 64,973 |
|
Thereafter |
|
| 739,788 |
|
Intangible assets, Net |
| $ | 1,015,923 |
|
Note 6 – Stockholder’ Equity
The Company is authorized to issue 1,000,000 preferred stock shares and 200,000,000 common stock shares both with a par value of $0.0001.
Preferred Stock
On October 30, 2020, the Company designated 1,000,000 shares as Series D Convertible Preferred Stock with a par value of $0.0001.
On April 16, 2021, the Company closed on a private placement of 440,125 shares of Series D Convertible Preferred Stock (the “Preferred Stock'') with a par value of $0.0001, 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 systems. The Preferred Stock has a stated value of $15 per share, is convertible into common stock at $0.30 per share and has voting rights based on the underlying shares of common stock. Upon liquidation of the Company, the Preferred Stockholders have a liquidation preference before any assets can be distributed to common stockholders. All of the Preferred 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 29, 2021, 412,853 shares of Preferred Stock were converted into 20,642,667 shares of common stock. On January 12, 2022, the Company converted the remaining 27,272 shares of Preferred Stock to 1,363,149 shares of common stock. As of September 30, 2022, there were no shares of Preferred Stock issued and 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 cumulative voting 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 has 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 September 30, 2022, there were 126,680,895 shares of common stock issued and outstanding.
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On April 16, 2021, as a result of the closing of the Merger Agreement (see Note 7 – 4), the equity of the consolidated entity is the historical equity of 374Water Inc (“Private 374Water”) retroactively restated to reflect the number of shares issued by the Company in the reverse recapitalization.
Pursuant to the Merger, all Private 374Water shares were canceled and the Company issued to the former Private 374Water stockholders a total of 62,410,452 shares of the Company’s common stock.
On April 16, 2021, the Company issued a small number of shares of common stock estimated to have a fair value of $1,073,369 as consideration for the grant of a license to the Company (see Notes 5 and 8).
During the nine months ended September 30, 2022, the Company issued 1,363,149 shares of common stock from the conversion of 27,272 Preferred Stock shares.
Stock-based compensation
During the nine months ended September 30, 2022, and 2021, the Company recorded stock-based compensation of $419,995 and $86,152, respectively, related to common stock issued or vested options to employees and various consultants of the Company. For the nine months ended September 30, 2022, $380,383 was charged as general and administrative expenses and $39,612 as research and development expenses in the accompanying condensed consolidated statements of operations. For the nine months ended September 30, 2021, $75,761 was charged as general and administrative expenses and $10,391 as research and development expenses in the accompanying condensed consolidated statements of operations.
Stock Options
Stock option activity for the nine months ended September 30, 2017,2022, is summarized as follows:
Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | |||||||||||
Options outstanding at December 31, 2016 | 5,750,000 | $ | 0.31 | 5.12 | |||||||||
Grant | — | — | — | ||||||||||
Expired/forfeited | — | — | — | ||||||||||
Options outstanding at September 30, 2017 | 5,750,500 | $ | 0.31 | 4.37 |
|
| Shares |
|
| Weighted Average Exercise Price |
|
| Aggregate Intrinsic Value |
|
| Weighted Average Remaining Contractual Life (Years) |
| ||||
Options outstanding at December 31, 2021 |
|
| 12,300,000 |
|
| $ | 0.37 |
|
| $ | 30,504,000 |
|
|
| 5.62 |
|
Granted |
|
| 360,000 |
|
|
| 3.33 |
|
|
| — |
|
|
| — |
|
Exercised |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Expired/forfeit |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Options outstanding at March 31, 2022 |
|
| 12,660,000 |
|
|
| 0.45 |
|
| $ | 45,576,000 |
|
|
| 5.39 |
|
Granted |
|
| 560,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Exercised |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Expired/forfeit |
|
| (40,000 | ) |
|
| 4.10 |
|
|
| — |
|
|
| — |
|
Options outstanding at June 30, 2022 |
|
| 13,180,000 |
|
| $ | 0.54 |
|
| $ | 31,683,690 |
|
|
| 5.31 |
|
Granted |
|
| 270,000 |
|
|
| 2.39 |
|
|
| — |
|
|
| — |
|
Exercised |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Expired/forfeit |
|
| (58,000 | ) |
|
| 3.35 |
|
|
| — |
|
|
| — |
|
Options outstanding at September 30, 2022 |
|
| 13,392,000 |
|
| $ | 0.56 |
|
| $ | 30,383,910 |
|
|
| 5.13 |
|
Total unrecognized compensation associated with these unvested options is approximately $1,956,165 which will be recognized over a period of four years.
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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:
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||
Dividend yield |
|
| 0.00% |
|
| 0.00% | ||
Expected life |
| 5.28 – 6.10 Years |
|
| 1 Year |
| ||
Expected volatility |
| 34.73 – 34.79% |
|
|
| 42.39 | % | |
Risk-free interest rate |
| 3.06 – 3.94% |
|
|
| 0.06 | % |
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 option compensationat an exercise price of $0.30 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 were to 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 consolidated 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. Terry Merrell, a member of the Company’s Board of Directors, has sole voting and dispositive power over the securities held by MB Holdings Inc.
As of September 30, 2022, 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 September 30, 2022 was $412,500 based on the market price of our common stock of $2.83 per share, which was the Company’s closing per share common stock price as reported on Nasdaq as of September 30, 2022.
During the nine months ended September 30, 2017 and 2016 was $0 and $72,000, respectively. There is2022, no unrecognized compensation expense associated with the options.
Note 8 - Notes Payable to Related Parties
Notes payable to related parties at September 30, 2017 consist of notes payable to stockholders of $200,000 (issued in 2012). The notes had been due in one principal payment on September 30, 2017, but are now due on April 30, 2018, after extensions granted by the Note holders in the third quarter of 2017. Interest is payable semiannually at 10%. The notes are collateralized by all receivables nowwarrants were issued or hereafter existing pursuant to the license agreement with VDF FutureCeuticals, Inc. discussed in Notes 3 and 9. In April and July 2017, the Company made payments totaling $100,000 each month toward the principal balance of the Notes.
The notes payable to related parties at December 31, 2016 also includes a promissory note to a stockholder for $25,000. The principal balance and interest at 10% was due March 30, 2016. This note was paid in full, with accrued interest, in January 2017.
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.
On June 1, 2016, the Company entered into a ten-year License Agreement with Helidyne LLC to utilize the Helidyne intellectual property in order to use Helidyne expanders in Powerverde systems and to sell Helidyne expanders. As part of the licensing agreement the Company committed to purchase two 50 kW expanders, at a price of $25,000 each, on or before the sixth month anniversary of the agreement. The $50,000 was payable in two monthly installments of $25,000 beginning October 2016.exercised. As of September 30, 2017, the Company had made payments totaling $38,750, towards the purchase of the expanders, all of which was included in prepaid expense and other current assets in the consolidated balance sheets at December 31, 2016. Due to Helidyne’s failure to perform under the agreement, the Company has not made any further payments to Helidyne and does not intend to do so unless and until Helidyne performs as required. Helidyne has not objected to the Company’s position, and it is very unlikely that Helidyne will ever be able to perform. Consequently, as of September 30, 2017, the Company wrote off the $38,750 paid to Helidyne.
2022, there are 1,250,000 outstanding warrants.
The Company agreed to pay Helidyne LLC a royalty A summary of 3% of sales, subject to a minimum annual royalty of $50,000 beginning on the earlier of commercialization of the product or three years from the effective date of the agreement. This minimum royalty would be payable only if Helidyne performs as required, which is very unlikely, or if the Company elects to produce its own expanders using Helidyne technology. The Company does intend to produce these expanders directly or through a contract manufacturer in the future.
On April 15, 2017, the Company entered into a manufacturing assembly agreement with Liberty Plugins, Inc. (“Liberty”) to manufacture and assemble Liberty’s Hydra electronic vehicle charging systems and ship completed Hydras to Liberty’s facility in Santa Barbara, California (the “Liberty Agreement”). Liberty has agreed to pay $1,000 for the first 10 Hydras assembled in a month, $750 per Hydra for the next 10 Hydras assembled per month and $500 per Hydra for each Hydra assembled above 20 per month. No invoices were issued to Libertywarrant activity during the quarter ended June 30, 2017. As of September 30, 2017, the Company has built and shipped 25 Hydras, and these products were invoiced throughout the third quarter of 2017. The revenue for these products is reflected in the net revenue on the Company’s condensed consolidated statements of operations for the quarter ended September 30, 2017.
On September 30, 2017, the Company converted the outstanding accounts receivable from Liberty, totaling $25,000, into a Promissory Note with 12% interest and a maturity date of January 31, 2018.
Note 10 - Related Party Transactions
Since July 2010, the accounting firm J.L. Hofmann & Associates, P.A. (“JLHPA”), whose principal is the Company’s CFO John L. Hofmann, has provided financial consulting and accounting services to the Company. The Company paid $20,720 and $28,815 to JLHPA for its services in the nine months ended September 30, 2017 and 2016, respectively.2022, is as follows:
|
| Shares |
|
| Weighted Average Exercise Price |
|
| Aggregate Intrinsic Value |
|
| Weighted Average Remaining Contractual Life (Years) |
| ||||
Balance at December 31, 2021 |
|
| 1,250,000 |
|
|
| 2.50 |
|
| $ | 437,500 |
|
|
| 2.96 |
|
Issued |
|
| — |
|
|
| — |
|
| — |
|
|
| — |
| |
Exercised |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Balance at September 30, 2022 |
|
| 1,250,000 |
|
|
| 2.50 |
|
| $ | 412,500 |
|
|
| 2.21 |
|
Note 11 – Subsequent Events7 - Related Party Transactions
In October 2017,2021, the Company made payments totaling $50,000 towardentered into an agreement to fabricate and manufacture the principal balanceAirSCWO systems with Merrell Bros. Holding Company. As part of the Notes payableagreement, the Company appointed Terry Merrell to its board of directors. As of September 30, 2022, Merrell Bros. or their affiliates own stock in excess of 5% of the outstanding common stock. As of September 30, 2022, the Company incurred $841,577 in related parties, discussedparty expenses related to the manufacturing of the AirSCWO systems. As of September 30, 2022, there is an accrual of $62,858 in related party expenses related to the manufacturing of the AirSCWO systems.
Note 8 leaving a remaining principal balance of $150,000 as of October 2017.
- Commitments
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. The SCWO technology 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 number of common stock in the Company (See Notes 4 and 6). Under the terms of the License Agreement, the Company is required to make 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 three month period ending September 30, 2022, the Company has not incurred any expenses in connection with this License Agreement. The Company may terminate the license agreement anytime by providing Duke 60 days’ written notice.
Note 9 – Deferred Revenue
As of September 30, 2022 and September 30, 2021, the Company had total deferred revenue of $200,109 and $0, respectively. As of September 30, 2022, the Company expects 100% of total deferred revenue from sales to be realized in less than a year and deferred revenue from grants to be realized later than a year.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
Readers are cautioned that the statements in this Report that are not descriptions of historical facts may be forward-looking statements“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 are intended to identify such forward-looking statements. Although we believe 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 our 20162021 Annual Report on Form 10-K filed with the SEC on March 1, 2022, 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 us and our ability to achieve our objectives. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above.
The following discussion and analysis should be read in conjunction with the financial statements and notes thereto appearing elsewhere herein.
Critical Accounting Policies
The condensed consolidated financial statements of PowerVerde, Inc.the Company are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these condensed consolidated financial statements requires our management to make estimates and assumptions about future events that effectaffect 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 financial statementsstatements.
Accounting for Uncertainty in Income Taxes
The Company follows the provisions of ASC Topic 740-10, “Accounting for Uncertainty in Income Taxes” which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This topic also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
Based on our evaluation, we have concluded that there are no significant uncertain tax positions requiring recognition in our condensed consolidated financial statements. Our evaluation was performed for the tax years ended December 31, 2012, 2013, 20142019, 2020 and 2015,2021, the tax years which remain subject to examination by major tax jurisdictions as of September 30, 2017.2022.
We may from time to time be assessed interest or penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to our financial results. In the event we have received an assessment for interest and/or penalties, it has been classified in the condensed consolidated financial statements as general and administrative expense.
Revenue Recognition
Revenue from royalty and assembly agreements unrelated to the Company’s planned operations is recognized in accordance with the terms of the specific agreements. Revenues recognized under these agreements amount to 100% of total revenues for the three and nine months ended September 30, 20172022, and 2016. The2021 were generated from the sale of a AirSCWO system, consulting and advisory services, which was recognized when the Company does not expect any significant impact ofperformed the adoption ofservice pursuant to its agreements with its clients which was the standard on our financial statements based onpoint in time when the current sources of revenue.Company completed its performance obligations under the agreements.
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 netsharenet-share settlement, or (ii) gives the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company,Company), or (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). All outstanding warrants asAs of September 30, 2017 and 20162022, there were classified as equity.
Intellectual Property1,250,000 outstanding warrants.
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.
Stock-based compensation.
We account for stock-based compensation based on ASC Topic 718-Stock Compensation which requires expensing of stock options and other share-based payments based on the fair value of each stock option awarded. The fair value of each stock option is estimated on the date of grant using the Black-Scholes valuation model. This model requires management to estimate the expected volatility, expected dividends, and expected term as inputs to the valuation model.
Overview
From January 1991 until October 2005,On April 16, 2021, we closed the Company devoted substantially all of its efforts and resources to research and development related to its unsuccessful Biotech Business, in particularMerger with the study of biological oxidation and antioxidation directedformer 374Water Inc. (“374 Water”) (the “374Water Merger”). Pursuant to the developmentparties’ merger agreement, our acquisition subsidiary merged into 374Water, with 374Water as the surviving corporation. In connection with the 374Water Merger, all 374Water shares were canceled and 374Water Inc. f/k/a PowerVerde, Inc., issued to the former 374Water shareholders a total of potential therapeutic products for62,410,452 shares of our common stock.
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Immediately following the treatment of various diseasesMerger, 374Water changed its name to 374Water Systems Inc. and conditions. In the most recent years, the Company’s research focused mainly on targeted antioxidant therapeutics and nutraceuticals. The Company, has generated only limited revenue from product sales and has relied primarily on equity financing, licensing revenues, and various debt instruments forPowerVerde changed its working capital. The Company has been unprofitable since its inception.name to 374Water Inc.
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 relating to the Biotech IP and to pay us 20% of any net proceeds received from future sale and/or licensing of the Biotech IP. We do not expect this arrangement to generate material revenues.Operations
Since the Merger,inception, we have focused on the development, testing and commercialization of our clean energy electric power systems, in particular, their applicability to thermalgeneration systems. Since the closing of the 374Water Merger, our business has been focused on development and natural gas pipeline operations.commercialization of 374Water’s supercritical water oxidation (SCWO) systems. Our business is subject to significant risks, including the risks inherent in our research and development efforts, uncertainties associated with obtaining and enforcing patents and intense competition. See “Risk Factors.”
Except as specifically noted to the contrary, the following discussion relates only to PowerVerde since, as a result of the Merger, the only historical financial statements presented for the Company in periods following the Merger are those of the operating entity, PowerVerde.
Results of Operations
Three Months Ended September 30, 20172022, as Compared to Three Months Ended September 30, 20162021
Since inception, we have focused onWe generated $922,718 and $19,000 in revenue during the development, testingperiods ended September 30, 2022, and commercialization2021, respectively. The increase in revenue during 2022 was primarily as a result of the sale of our clean energy electric power generation systems. We had no revenues from salesfirst AirSCWO system whereas in the third quarter of 2017past our revenues were derived from treatability studies, consulting and 2016 – but we recorded $108,686advisory services. Our general and $89,118 in Biotech IP licensing fees (based on pre-Merger contracts), respectively. Also, we generated $25,000 in revenue for assembly revenues underadministrative expenses were $387,018 during the Liberty Agreementperiod ended September 30, 2022, as compared to $143,147 in the third quartersame period of 2017. In both years, we had substantial2021, primarily because of increased insurance costs, marketing and business development expenses, duedues and subscriptions, and stock-based compensation expenses. Our professional fees decreased to our ongoing$82,752 during the period ended September 30, 2022, as compared to $84,515 in the same period of 2021, primarily because of decreased legal fees. Our research and development activitiesexpenses were $118,253 during the period ended September 30, 2022, as compared to $115,936 in the same period of 2021, primarily because of the increase in engineering expenses following the 374Water Merger.
Nine Months Ended September 30, 2022, as Compared to Nine Months Ended September 30,2021
We generated $2,226,477 and efforts to commercialize$33,600 in revenue during the periods ended September 30, 2022, and 2021, respectively. The increase in revenue during 2022 was primarily as a result of the sale of our systems, as well as substantialfirst AirSCWO system whereas in the past our revenues were derived from treatability studies, consulting and advisory services. Our general and administrative expenses associated withwere $1,027,287 during the period ended September 30, 2022, as compared to $206,931 in the same period of 2021, primarily because of increased insurance costs, marketing and business development expenses, dues and subscriptions, and stock-based compensation expenses. Our professional fees increased to $375,313 during the period ended September 30, 2022, as compared to $245,152 in the same period of 2021, primarily because of increased legal fees and accounting fees relating to our status as a public company. Our research and development expenses decreased by $99,514 inwere $726,602 during the third quarter of 2017period ended September 30, 2022, as compared to $269,796 in the third quartersame period of 2016,2021, primarily because of the decreaseincrease in stock option compensation for services. Our general and administrativeengineering expenses decreased by $9,850 infollowing the third quarter of 2017 as compared to 2016, primarily because of the reduction in employee salaries. Our net income was $4,090 in the third quarter of 2017, a reversal of the net loss of $161,590 in the third quarter of 2016. Substantial net losses will continue until we are able to successfully commercialize and market our systems, as to which there can be no assurance.Any taxes that might result from net income for financial reporting purposes would be eliminated through use of a portion of the Company’s net operating loss carryforward.374Water Merger.
Nine Months Ended September 30, 2017 as Compared to Nine Months Ended September 30, 2016
Since inception, we have focused on the development, testing and commercialization of our clean energy electric power generation systems. We had no revenues from sales in the first nine months of 2017 and 2016 – but we recorded $448,484 and $417,074 in Biotech IP licensing fees (based on pre-Merger contracts), respectively. In the 2017 period, we generated $25,000 in assembly revenues under the Liberty Agreement in the third quarter of 2017. In both years, we had substantial expenses due to our ongoing research and development activities and efforts to commercialize our systems, as well as substantial administrative expenses associated with our status as a public company. Our research and development expenses decreased by $109,579 (38.8%) in the first nine months of 2017 as compared to 2016. This decrease is due mainly to the stock options issued in July 2016. Our general and administrative expenses decreased by $102,066 (38.9%) in the first nine months of 2017 as compared to 2016, due mainly to the warrants issued in 2016. Our net income was $116,516 in the first nine months of 2017, a reversal of the net loss of $173,761 in the third quarter of 2016. Substantial net losses will continue until we are able to successfully commercialize and market our systems, as to which there can be no assurance.
Liquidity and Capital Resources
We have financed our operations since inception throughIn 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 equity securities and through Biotech IP licensing revenues. accrued interest to shares of common stock. On December 17, 2021, the Company raised approximately $5 million from the sales of Common Stock.
As of September 30, 2017,2022, we had a working capital deficit of $128,270$8,602,631 compared to a working capital deficit of $272,120 at$11,263,270 as of December 31, 2016. This improvement in working capital is due primarily to reductions in notes payable to related parties, accounts payable and accrued expenses resulting from positive operating cash flows during this period.2021.
We expect 2017 Biotech IP revenues to approximate the 2016 levels; 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 and/orneeds for the Liberty Agreement or raise substantial additional capital, as to which there can be no assurance. See Note 9- Commitments and Contingenciesnext twelve months.
In order to meet our obligations under the $150,000 balance (as of October 2017) of our secured notes payable to related parties due April 30, 2018 (the “Notes”), which are collateralized by our Biotech IP receivables, we intend to apply most of the Biotech IP revenues received in 2017 and 2018 toward payment of the interest and principal due on the Notes, after reserving the minimum amount necessary to maintain our operations. We intend to reduce our salary and consulting fee expenses until the Notes are paid in full, and we are also commencing a new source of revenue by using our employee to provide part-time skilled manufacturing services to a third party pursuant to the Liberty Agreement.
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. There can be no assurance that we will be able to raise the necessary funds on commercially acceptable terms if at all. If we do not raise the necessary funds, we may be forced to cease operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and President,Chief Financial Officer, 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 the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.
Management’s Annual Report on Internal Control Over Financial Reporting
Management of the 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,(as defined in Rule 13a-15(f) under the Exchange Act). Our management, with the participation of our principal executive officer and not absolute, assurance with respect toprincipal financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of internal controls over financial reporting may vary over time. Because of its inherent limitations, internal controls over financial reporting may also fail to prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.
Our Chief Executive Officer and Chief Financial Officer assessedofficer, evaluated the effectiveness of our internal control over financial reporting as of December 31, 2016. 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.Commission. Based on this evaluation, our management concluded that as of September 30, 2017,2022, our internal control over financial reporting was effective. The Company’s management determined that the previously identified material weakness (as described below) had been remediated as of September 30, 2022.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
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:
● | A lack of entity level controls due to ineffective board of directors and no audit committee. |
Effective June 13, 2022, the Company appointed Buddie Joe (BJ) Penn, Yizhaq (Itzik) Polad, James M. Vanderhider and Deanna Rene to the Board of Directors. Additionally and in connection with their appointment to the Board, Mr. Penn was appointed to the Company’s recently established Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee (Chairperson), Mr. Polad was appointed to the Audit Committee, Compensation Committee (Chairperson) and Nominating and Corporate Governance Committee and Mr. Vanderhider was appointed to the Audit Committee (Chairperson). As of September 30, 2022, the Company now has the knowledge and expertise deemed to satisfy the entity level controls for a board of directors and associated audit committee.
No Attestation Report
This quarterly 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 quarterly report.
Changes in Internal Control Over Financial Reporting
There wereExcept for controls implemented to address the deficiencies described above, there have been no significantother changes in our internal control over financial reporting during the third quarterfirst nine months of 20172022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II OTHER INFORMATION
None.
There are no material changes to the risk factors set forth in Part I, Item 1A, “Risk Factors,” of the 2016 Annual Report. Please refer to that section for disclosure regarding the risks and uncertainties related to our business.Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Not applicable.
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Item 6. Exhibits.
(a) | Exhibits |
31.1 | Certification of | |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of | |
32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS | XBRL INSTANCE DOCUMENT | |
101.SCH | XBRL TAXONOMY EXTENSION SCHEMA | |
101.CAL | XBRL TAXONOMY EXTENSION CALCULATION LINKBASE | |
101.DEF | XBRL TAXONOMY EXTENSION DEFINITION LINKBASE | |
101.LAB | XBRL TAXONOMY EXTENSION LABEL LINKBASE | |
101.PRE | XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE |
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SIGNATURES
In accordance with Section 13(a) 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.
374WATER INC | |||
Dated: November 1, 2022 | By: | /s/ Yaacov Nagar | |
Yaacov Nagar | |||
Chief Executive Officer | |||
Dated: November 1, 2022 | By: | /s/ Israel Abitbol | |
Israel Abitbol | |||
Chief Financial Officer |
Exhibit Index
Exhibit | Description | |
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.INS | XBRL INSTANCE DOCUMENT | |
101.SCH | XBRL TAXONOMY EXTENSION SCHEMA | |
101.CAL | XBRL TAXONOMY EXTENSION CALCULATION LINKBASE | |
101.DEF | XBRL TAXONOMY EXTENSION DEFINITION LINKBASE | |
101.LAB | XBRL TAXONOMY EXTENSION LABEL LINKBASE | |
101.PRE | XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE |
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