UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

Form 10-Q

For the Quarterly Period ended March 31, 20202021

Commission file number: 000-27866

POWERVERDE,374WATER INC.

(Exact name of Registrant as specified in its charter)

9300 S. Dadeland Blvd, Suite 600

Miami, FL 33156

(Address of principal executive offices)

(305) 670-3370

(Registrant’s telephone number including area code)

POWERVERDE, INC. 

(Former name, former address and former fiscal year, if changed since last report)

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.

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 May 12, 2020,14, 2021, the issuer had 31,750,10697,216,246 shares of common stock outstanding.

Index to Form 10-Q

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

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

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

PowerVerde, Inc374Water Inc. and Subsidiary

(f/k/a PowerVerde, Inc)

Condensed Consolidated Changes in Stockholders’ Deficit

For the three months ended March 31, 20202021 and 20192020

(Unaudited)

For the three months ended March 31, 2021

For the three months ended March 31, 2020

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

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

PowerVerde,374Water Inc. and Subsidiary

(f/k/a PowerVerde, Inc)

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2021

Note 1 – Nature of Business and Presentation of Financial Statements

Nature of Business

The Company is devoting substantially all of its present efforts to establish a new business involving the development and commercialization of clean energy electric power generation systems, and none of its planned principal operations have commenced. No material revenues from this planned principal operation have been generated since inception. Revenues to date have been from assembly services provided to one customer.

Presentation of Financial Statements

The accompanying unaudited condensed consolidated financial statements prepared in accordance with instructions for Form 10-Q, 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 of 374Water Inc, formerly known as PowerVerde, Inc. (“PowerVerde,” “we,” “us,” “our,” or the “Company”) as of and for the year ended December 31, 2020 filed with the Securities and Exchange Commission (“SEC”) on March 9, 2021. The results of operations for the three months ended March 31, 2021, 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 374Water Inc, formerly known as PowerVerde, Inc. (the “Company”), and PowerVerde Systems, Inc., its wholly-owned subsidiary. Intercompany balances and transactions have been eliminated in consolidation.

Note 2 – Liquidity, Capital Resources and Going Concern

The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As of March 31, 2021, we had a working capital deficit of $446,056 compared to a working capital deficit of $237,593 at December 31, 2020. This increase in the working capital deficit is due primarily to the maturity date of the convertible notes payable. As of March 31, 2021, the Company has an accumulated deficit of $13,384,722. For the three months ended March 31, 2021, the Company had a net loss of $278,348 and $65,334 of net cash used in operations for the period. Those factors create substantial doubt about the Company’s ability to continue as a going concern.

Subsequent to March 31, 2021, as more fully disclosed in Note 11, the Company raised approximately $6.5 million from the sale of Series D Preferred Stock and converted all of its convertible debt notes and accrued interest to shares of common stock. These events served to mitigate the conditions that historically raised substantial doubt about the Company’s ability to continue as a going concern.

Based on these events, the Company concluded it has the ability to continue as a going concern for at least the next 12 months and meet its financial obligations as they become due.

Note 1 – Condensed Consolidated Financial Statements

The accompanying unaudited condensed consolidated financial statements prepared in accordance with instructions for Form 10-Q, 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 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 of PowerVerde, Inc. (“PowerVerde,” “we,” “us,” “our,” or the “Company”) as of and for the year ended December 31, 2019. The results of operations for the three months ended March 31, 2020, 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, Inc., formerly known as Vyrex Corporation (the “Company”), and PowerVerde Systems, Inc., formerly known as PowerVerde, Inc., its wholly-owned subsidiary. Intercompany balances and transactions have been eliminated in consolidation.

Note 2 – Going Concern

We have financed our operations since inception through the sale of debt and equity securities and through Biotech IP licensing revenues which expired in March 2018. As of March 31, 2020, we had a working capital deficit of $60,368 compared to a working capital deficit of $63,638 at December 31, 2019.

The Company has historically relied upon unrelated and related party debt and equity financing to fund its cash flow shortages and will require either additional debt or equity financing to sustain its operations. The Company’s revenues through 2018 were derived mainly from royalties under its biotech licensing agreement, which expired in March 2018. Those factors create substantial doubt about the Company’s ability to continue as a going concern.

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

Note 3 – Summary of Significant Accounting Policies

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, and none of its planned principal operations have commenced. However, royalties from licenses unrelated to planned principal operations were recognized as revenue through March 2018, when the underlying license agreement terminated. No material revenues from this planned principal operation have been generated.

Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company held no cash equivalents as of March 31, 2021 and December 31, 2020.

Accounts Receivable and Concentration

Accounts receivable consist of balances due from assembly services. The Company monitors accounts receivable and provides allowances when considered necessary. At March 31, 2021 and December 31, 2020, accounts receivable were considered to be fully collectible. Accordingly, no allowance for doubtful accounts was provided. At March 31, 2021 and December 31, 2020, accounts receivable were due from one related customer.

Revenue Recognition and Concentration

The Company follows the revenue standards of Financial Accounting Standards Board Update No. 2014-09: “Revenue from Contracts with Customers (Topic 606).” The core principle of this Topic is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those 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.

Royalties are recognized as earned in the period the sales to which the royalties relate occur. The Company has not yet generated any royalty revenues. Manufacturing assembly services are recognized as revenue when the assembled product is delivered to the customer.customer and the Company has completed its performance obligations. Revenues recognized under these agreements amount to 100% of total revenues for the three months ended March 31, 2021 and 2020 were generated from manufacturing assembly services and 2019

Intellectual Property

The Company reviews intangible assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company uses an estimate of the undiscounted cash flows over the remaining life of its long-lived assets, orare from one 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.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Expenditures for major betterments and additions are capitalized, while replacement, maintenance and repairs, which do not extend the lives of the respective assets, are expensed as incurred.

Impairment of Long-Lived Assets

Impairment losses are recorded on long-lived assets (property, equipment and intellectual property) used in operations when impairment indicators are present and the undiscounted expected cash flows estimated to be generated by those assets are less than the carrying value of such assets. As of June 2019, the Company recognized an impairment loss of $69,178. The intellectual property was fully amortized as of December 31, 2019.customer.

Stock-based Compensation

The Company has accounted for stock-based compensation under the provisions of ASCAccounting Standards Codification (ASC) Topic 718 – “Stock Compensation” which requires the use of the fair-value based method to determine compensation for all arrangements under which employees and others receive shares of stock or equity instruments (stock options and common stock purchase warrants). The fair value of each stock option award is estimated on the date of grant using the Black-Scholes valuation model that uses assumptions for expected volatility, expected dividends, expected term, and the risk-free interest rate. Expected volatilities are based on historical volatility of peer companies and other factors estimated over the expected term of the stock options. The expected term of options granted is derived using the “simplified method” which computes expected term as the average of the sum of the vesting term plus the contract term. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the period of the expected term.

Common Stock Purchase Warrants

The Company accounts for common stock purchase warrants in accordance with ASC Topic 815- 40, “Derivatives and Hedging – Contracts in Entity’s Own Equity” (“ASC 815-40”). Based on the provisions of ASC 815- 40, the Company classifies as equity any contracts that (i) require physical settlement or net-share settlement, or (ii) gives the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company, 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, 2019 and March 31, 2020 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 March 31, 2021 and December 30, 2020.

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 $34,939$34,398 and $35,059$34,939 for the three months ended March 31, 20202021 and 2019,2020, respectively.

Earnings (Loss) Per Share

Earnings (loss) per share is computed in accordance with FASB ASC Topic 260, “Earnings per Share”. Diluted earnings per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock, common stock equivalents and other potentially dilutive securities outstanding during the period. Certain common stock equivalents were not included in the earnings (loss) per share calculation as their effect would be anti-dilutive. Warrants exercisable for 950,000 and 975,000shares as of March 31, 2021 and options for 12,180,500 sharesMarch 31, 2020, respectively, were excluded from weighted average common shares outstanding on a diluted basis.basis as well as options for 10,850,500 shares and 12,180,500 shares, respectively.

Financial instrumentsInstruments

The Company carries cash, and cash equivalents, accounts receivable, accounts payable, accrued expenses and convertible notes payable, at historical costs. The respective estimated fair values of these assets and liabilities approximate carrying values due to their current nature or market interest rates on interest bearing debt.nature.

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.

Note 4 – Recent Accounting Pronouncements

In August, 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, “Debt-Debt with Conversion and other options” which simplifies the accounting for convertible debt instruments and convertible preferred stock. The ASU is effective for public companies for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the impact ASU 2020-06 could have on its financial statements.

There are several other new accounting pronouncements issued or proposed by the FASB. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe any of these accounting pronouncements has had or will have a material impact on the Company’s condensed consolidated financial position, operating results, or cash flow.flows.

Note 5 – Intellectual Property- Convertible Notes Payable to Related Parties/Stockholders and License AgreementNonrelated Parties

On June 1, 2016,In January, March, and May 2019, the Company enteredissued Convertible Notes Payable totaling $200,000 to related parties and stockholders and $100,000 convertible note payable to a nonrelated party. The notes are to be paid in one principal payment, along with any unpaid interest by December 31, 2021. Interest is payable semiannually at 10%. The notes are convertible into common stock at a ten-year License Agreementprice of $.20 per share through December 31, 2019, $.30 per share from January 1, 2020 through December 31, 2020, and $.40 per share from January 1, 2021 through the maturity date of December 31, 2021.

In December 2019, the Company issued a Convertible Note Payable in the principal amount of $25,000 to a stockholder in connection with Helidyne LLC for total considerationa loan in the same amount. The note is to be paid in one principal payment, along with any unpaid interest by December 31, 2022. Interest is payable semiannually at 10%. The note is convertible into common stock at a price of $.20 per share through December 31, 2020, $.30 per share from January 1, 2021 through December 31, 2021, and $.40 per share from January 1, 2022 through the maturity date of December 31, 2022. On December 4, 2020, the note along with accrued interest totaling $26,072 was converted into 130,362 shares of common stock.

In March 2020, the Company issued a Convertible Note Payable in the principal amount of $100,000 to utilize the Helidyne intellectual propertya nonrelated party in connection with a loan in the manufacturingsame amount. The note is to be paid in one principal payment, along with any unpaid interest by December 31, 2022. Interest is payable semiannually at 10%. The note is convertible into common stock at a price of planetary rotor expanders$.20 per share through December 31, 2020, $.30 per share from January 1, 2021 through December 31, 2021, and $.40 per share from January 1, 2022 through the maturity date of December 31, 2022. On March 22, 2021, the note along with accrued interest totaling $102,164 was converted into 510,822 shares of common stock.

In June 2020, the Company issued a Convertible Note Payable in the principal amount of $25,000 to a related party in connection with a loan in the same amount. The note is to be paid in one principal payment, along with any unpaid interest by July 31, 2023. Interest is payable semiannually at 10%. The note is convertible into common stock at a price of $.20 per share through December 31, 2020, $.30 per share from January 1, 2021 through December 31, 2021, and $.40 per share from January 1, 2022 through the maturity date of July 31, 2023.

In the third quarter 2020, the Company issued Convertible Notes Payable totaling $511,000, of which $25,000 was with a stockholder and the incorporationremaining $486,000 was with nonrelated accredited investors in connection with loans for the same amount. The notes are to be paid in one principal payment, along with any unpaid interest by December 31, 2023. Interest is payable semiannually at 10% on June 30 and December 31. The notes are convertible into common stock at a price of $.20 per share through December 31, 2020, $.30 per share from January 1, 2021 through December 31, 2021, and $.40 per share from January 1, 2022 through the maturity date of December 31, 2023.

In the fourth quarter 2020, the Company issued Convertible Notes Payable totaling $250,000, of which $75,000 was with a related party and stockholder and the remaining $175,000 was with nonrelated accredited investors in connection with loans for the same amount. The notes are to be paid in one principal payment, along with any unpaid interest by December 31, 2023. Interest is payable semiannually at 10% on June 30 and December 31. The notes are convertible into common stock at a price of $.20 per share through December 31, 2020, $.30 per share from January 1, 2021 through December 31, 2021, and $.40 per share from January 1, 2022 through the maturity date of December 31, 2023.

Consequently, the Company has outstanding Convertible Notes Payable in an aggregate principal amount of $1,086,000 as of March 31, 2021, of which $325,000 are due to related parties and stockholders, and $761,000 are to nonrelated parties (collectively referred to as the “Notes”). See Note 12 for further related party transactions.

The Convertible Notes Payable that were issued in the Company’s distributed electric power generation systems. The license agreement also grantsthird and fourth quarter 2020 included a beneficial conversion feature, which is recorded as a discount against the Company an exclusive license to sell the expanders whether manufactured by Helidyne or by the Company. The Company’s royalty obligation begins onNotes and amortized through the earlier of the commercializationconversion into common stock, or the maturity date. Amortization of the product or three years fromdebt discount is reported as interest expense in the effective datestatements of operations. The total debt discount associated with the agreement. Once the royalty obligation begins, the minimum annual royalty is $50,000 for each of the first six years, and $100,000, per commercial year,beneficial conversion feature for the remainder ofyear ended December 31, 2020 was $712,500. Total amortization associated with the agreement. Helidyne has defaulted under the agreement. Royalties would be payable only if Helidyne performs as required, or if the Company elects to produce its own expanders using Helidyne technology.

During the year, management of the Company evaluated the continued default by Helidynebeneficial conversion feature debt discount was $53,928 and determined that Helidyne will not be able to perform under the license agreement$0 for the foreseeable future. The Company’s license agreement continues to be active and the Company may utilize the Helidyne intellectual property in marketing its own products. Under the terms of the license agreement, the Company has the right to develop a prototype utilizing the Helidyne technology at its own cost. Due to the continued default by Helidyne and the potential cost of developing its own prototype, the Company has determined that the intangible asset related to the above license agreement is impaired and recognized an impairment charge of $69,178 in the second quarter of 2019, which is 100% of the net carrying value. See Note 9.

For the three months ended March 31, 2021 and 2020, respectively.

Total debt issuance costs were $0 and $8,000 for the three months ended March 31, 2021 and 2020, respectively. Total amortization associated with the debt issuance costs paid was $7,694 and $7,254 for the three months ended March 31, 2021 and 2020, respectively.

Convertible Notes Payable at March 31, 2021 and December 31, 2020 consisted of the following:

These notes and all accrued interest were converted to shares of common stock subsequent to March 31, 2021 (see Note 11).

Note 6 – Warrants

Warrants

During September 2015, the Company issued five-year warrants to a stockholder for the purchase of 25,000 shares of common stock at an exercise price of $.12 per share as additional consideration for a $25,000 loan. On September 30, 2020, the stockholder exercised the warrant for 25,000 shares at $0.12 per share, totaling $3,000.

During June 2016, the Company issued warrants to a stockholder for the purchase of 900,000 shares of common stock at an exercise price of $0.11 per share in consideration for the Company utilizing his facility space from January 2013 to December 2015. These warrants expire in June 2021. As of March 31, 2021, all of these warrants were outstanding.

In July 2016, a warrant for the purchase of 25,000 shares of common stock at an exercise price of $.19 per share was issued to a stockholder as additional consideration for a $25,000 loan. These warrants expire in July 2021. As of March 31, 2021, all of these warrants were outstanding.

In October 2016, another warrant for the purchase of 25,000 shares of common stock was issued to the same stockholder at an exercise price of $.15 per share as additional consideration for extending the maturity of the $25,000 loan for an additional 90 days. These warrants expire in October 2021. As of March 31, 2021, all of these warrants were outstanding.

A summary of warrant activity during the three months ended March 31, 2021 is as follows:

Note 7 – Stock Options

Stock option activity for the quarter ended March 31, 2021, is summarized as follows:

On March 31, 2021, an option for 20,000 shares at an exercise price of $.45 per share was issued to Mr. Bryce Johnson in consideration of the Company’s use of his facility for which the Company owed Mr. Bryce Johnson $12,000. The accounts payable was settled in full with the issuance of the stock option with an estimated fair value of $8,200. The Company recognized a gain on the settlement as presented on the statements of operations (see Note 8).

The significant assumptions relating to the valuation of the Company’s stock options granted during the three months ended March 31, 2021 were as follows:

There was no stock option compensation for the three months ended March 31, 2021 and 2020 and 2019, amortizationno unrecognized compensation expense was $0 and $2,500 respectively.associated with the options.

Note 68 – Stockholders’ Deficit

Warrants

A summary of warrants issued, exercised and expired during the three months endedOn March 31, 2020 is as follows:

Note 7 – Stock Options

Stock option activity for the quarter ended March 31, 2020, is summarized as follows:

There was no stock option compensation for the three months ended March 31, 2020 and 2019 and no unrecognized compensation expense associated with the options.

Note 8 – Convertible Notes Payable to Related Parties

In 2019, the Company issued Convertible Promissory Notes totaling $300,000 to stockholders. The notes are to be paid in one principal payment, along with any unpaid interest by December 31, 2021. Interest is payable semiannually at 10%. The notes are convertible into common stock at20, 2021, a price of $.20 per share through December 31, 2019, $.30 per share from January 1, 2020 through December 31, 2020, and $.40 per share from January 1, 2021 through the maturity date of December 31, 2021.

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

In March 2020, the Company issued a Convertible Promissory NotePayable in the principal amount of $100,000 to a stockholder in connection with a loan in the same amount. The note is to be paid in one principal payment, along with any unpaidaccrued interest by December 31, 2022. Interest is payable semiannually at 10%. The note is convertibletotaling $102,164 into 510,822 shares of common stock at a price of $.20 per share through December 31, 2020, $.30 per share from January 1, 2021 through December 31, 2021, and $.40 per share from January 1, 2022 through the maturity date of December 31, 2022.

Consequently, Convertible Promissory Notes have been issued in an aggregate principal amount of $425,000 in 2019 and the first quarter of 2020.

Convertible Notes Payable at March 31, 2020 consisted of the following:

Amortization of the debt issuance costs is reported as interest expense in the income statement.

(see Note 9 - Commitments and Contingencies5).

On June 25, 2015, Company consultant Hank Leibowitz assigned to the Company a patent he obtained for a system and method for using high temperature sources in Rankine cycle power systems. The Company has agreed to pay Mr. Leibowitz a 2% royalty for any and all revenues of products and/or project sales by the Company based on the subject patent.

On June 1, 2016, the Company entered into a ten-year License Agreement with Helidyne LLC to utilize the Helidyne intellectual property in order to use Helidyne expanders in Powerverde systems and to sell Helidyne expanders. As part of the licensing agreement the Company committed to purchase two 50 kW expanders, at a price of $25,000 each, on or before the sixth month anniversary of the agreement. The $50,000 was payable in two monthly installments of $25,000 beginning October 2016. The Company had made payments totaling $38,750, towards the purchase of the expanders. 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.

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

On April 15, 2017, the Company entered into an assembly agreement with Liberty Plugins, Inc. (“Liberty”) to assemble Liberty’s Hydra electronic vehicle charging systems and ship completed Hydras to Liberty’s facility in Santa Barbara, California (the “Liberty Agreement”). Liberty has 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. The Company has never assembled/shipped more than 10 Hydras in any month and does not expect to do so in the future. As of March 31, 2020, the Company has built and shipped 106 Hydras. Revenue of $16,000 and $5,0002021, an option for these products is reflected in the net revenue on the Company’s condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019, respectively.

On September 1, 2019, the Company hired Daniel Bogar to serve as its President, reporting to the CEO. As compensation, Mr. Bogar received a fully-vested non-qualified option to purchase 1,000,00020,000 shares of the Company’s common stock at an exercise price of $.10$.45 per share was issued to Mr. Bryce Johnson in consideration of the Company’s use of his facility for which the Company owed Mr. Bryce Johnson $12,000. The accounts payable was settled in full with the issuance of the stock option with an expiration dateestimated fair value of June 30, 2026. In addition, Mr. Bogar will receive an annual salary of $90,000 beginning$8,200. The Company recognized a gain on the closingsettlement as presented on the statements of a private financing with gross proceeds of at least $1,000,000; however, the Company will be permitted to defer the salary to the extent required to maintain solvency.operations (see Note 7).

Note 109 - Related Party Transactions

SinceFrom July 2010 until December 2017, the accounting firm J.L. Hofmann & Associates, P.A. (“JLHPA”), whose principal is our CFO John L. Hofmann, has provided financial consulting and accounting services to the Company. In December 2017, J.L. Hofmann & Associates, P.A. merged with Kabat, Schertzer, De La Torre, Taraboulos & Co, LLC (“KSDT”). The Company paid $11,825 and $9,300 and $$9,614to KSDT for its services in the three months ended March 31, 2021 and 2020, respectively, and 2019, respectively.$8,300 of services rendered remain unpaid as of March 31, 2021 which is included in accounts payable and accrued expenses.

The Company’s consultant and shareholder Hank Leibowitz receives compensation of $7,500 per month, totaling $22,500 for the three months ended March 31, 20202021 and 2019.2020. At March 31, 2021, Mr. Leibowitz was owed accrued compensation of $68,327$67,500, which is included in accounts payable and $30,000 asaccrued expense on the accompanying balance sheets.

On April 15, 2017, the Company entered into an assembly agreement with Liberty Plugins, Inc. (“Liberty”) to assemble Liberty’s Hydra electronic vehicle charging systems and ship completed Hydras to Liberty’s facility in Santa Barbara, California (the “Liberty Agreement”). Initially, Liberty 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. Revenue for these products is reflected in the revenue –related party on the Company’s consolidated statement of operations and amounted to $1,000 and $16,000 for the three months ended March 31, 2021 and 2020, and 2019, respectively. The Liberty Agreement is subject to termination by either party on 30 days notice.

In connectionThe Company’s director and former CEO is a minority shareholder and member of the Board of Directors of Liberty. Therefore, transactions with theLiberty have been disclosed as transactions with a related party.

See Note 5 for convertible notes that were issued in 2019to related parties and the first quarter of 2020, the Company accrued an 8% finder’s fee to its Chief Executive Officer, Richard Davis, totaling $34,000. Mr. Davis was owed accrued compensation of $9,000 and $5,200 as of March 31, 2020 and 2019, respectively.stockholders.

Note 1110 – Subsequent Events

NoneAgreement and Plan of Merger

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, www.374Water.com (“374Water”) and 374Water Acquisition Corp., a newly-formed wholly-owned subsidiary of PowerVerde (“Sub”). The parties entered into the Agreement pursuant to their Binding Letter of Intent dated September 20, 2020.

Pursuant to the merger contemplated by the Merger Agreement (the “Merger”), on April 16, 2021 Sub merged into 374Water, with 374Water as the surviving corporation. In connection with the Merger, all 374Water shares were cancelled and 374Water, Inc. issued to the former 374Water shareholders a total of 64,012,734 shares of 374Water, Inc. common stock.

Immediately following the Merger, 374Water changed its name to 374Water Systems Inc and PowerVerde changed its name to 374Water Inc.

Also in connection with the Merger, PowerVerde closed on a private placement of 436,782 shares of Series D Convertible Preferred Stock (the “Preferred Stock”) with a par value of $.0001, yielding gross proceeds of $6,551,735 (the “Private Placement”). The Private Placement proceeds will be used for working capital, primarily for development, manufacture and commercialization of 374Water’s Air SCWO Nix systems. The Preferred Stock has a stated value of $15 per share, is convertible into common stock 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. The current liquidation value is $6,551,730. All of the Preferred Stock was sold pursuant to an exemption from registration requirements under Regulation D and/or Section 4(2) of the Securities Act of 1933, as amended.

As a result of the Merger, the issuance of the Preferred Stock and the post-Merger conversion of $1,086,000 principal amount of convertible notes and accrued interest of $31,241 (comprising all outstanding convertible notes and accrued interest) into 5,325,452 shares of PowerVerde common stock, the former 374Water shareholders own 65.8% of 374Water Inc’s issued and outstanding common stock and 53.8% of 374Water Inc.’s issued and outstanding voting stock (which includes the Preferred Stock).

In connection with the Merger, 374Water, Inc. entered into two-year employment agreements with 374Water founders Yaacov (Kobe) Nagar and Marc Deshusses, Ph. D. Mr. Nagar will serve as PowerVerde’s CEO, replacing Richard H. Davis, who resigned upon closing of the Merger. Mr. Nagar will receive an annual salary of $200,000. Dr. Deshusses will serve as PowerVerde’s Head of Technology on a part-time basis at a salary of $60,000 per year.

Pursuant to the Merger, Messrs. Nagar and Deshusses were appointed to the PowerVerde Board of Directors, joining Mr. Davis, who remains as a Director.

The patented technology underlying 374Water’s supercritical water oxidation (SCWO) units, which was developed principally through the efforts of Messrs. Nagar and Deshusses at the facilities of Duke University, Durham, North Carolina (“Duke”), where Dr. Deshusses is a professor, is licensed to 374Water pursuant to a worldwide non-exclusive license agreement with Duke executed on April 16, 2021 (the “License Agreement”). In connection with the License Agreement, 374Water also executed an Equity Transfer Agreement with Duke pursuant to which Duke received a small block of common stock in 374Water, which in turn was converted into PowerVerde shares pursuant to the Merger.

On March 30, 2021, in anticipation of the Merger, 374Water entered into a Binding Memorandum of Understanding (the “MOU”) with MB Holding Inc. (“MBH”), an affiliate of Merrell Bros., Inc., a nationwide biosolids management company based in Kokomo, Indianawww.merrellbros.com (“Merrell”). The MOU establishes a framework for a contractual relationship for the commercial manufacturing and service of 374Water’s AirSCWO Nix systems. Pursuant to the MOU, MBH and its affiliates invested $1,135,000 in the Private Placement, purchasing 75,667 shares of Preferred Stock, and upon closing of the Merger, 374Water, Inc. assumed 374Water’s commitment to provide an option to MBH to purchase 3,783,350 shares of 374Water, Inc. common stock at $.30 per share. As of the date of this filing, the options remain a commitment pending execution of the commercial manufacturing and service agreement.

As a result of the Merger Agreement, for financial statement reporting purposes, the business combination between 374Water Inc. and 374Water will be 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 Accounting Standards Codification (“ASC”) Section 805-10-55.

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 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 2018 Annual Report, or other factors. We must caution, however, that this list of factors may not be exhaustive and that these or other factors, many of which are outside of our control, could have a material adverse effect on 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,374Water Inc. 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 effect the amounts reported in the financial statements and related notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. We believe the following critical accounting policies affect its more significant judgments and estimates used in the preparation of financial statements.

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, 2014, 2015, 2016, 2017, 2018 and 2018,2019, the tax years which remain subject to examination by major tax jurisdictions as of March 31, 2020.2021.

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 royalties and assembly services with a related party are unrelated to the Company’sour planned operations is recognized when the goods or services are transferred to the customer.operations. Royalties are recognized as earned in the period the sales to which the royalties relate occur. Manufacturing assembly services with a related party are recognized as revenue when the assembled product is deliveredshipped to the customer. Revenues recognized under these agreements amount to 100% of total revenues for the three months ended March 31, 20202021 and 2019.2020.

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), 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 March 31, 20202021 and 20192020, were classified as equity.

Intellectual Property

The Company reviews intangible assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company uses an estimate of the undiscounted cash flows over the remaining life of its long-lived assets, or related group of assets where applicable, in measuring whether the assets to be held and used will be realizable. In the event of impairment, the Company would discount the future cash flows using its then estimated incremental borrowing rate to estimate the amount of the impairment.

Stock-based compensation.

We account for stock-based compensation based on ASC Topic 718-Stock Compensation which requires expensing of stock options and other share-based payments based on the fair value of each stock option awarded. The fair value of each stock option is estimated on the date of grant using the Black-Scholes valuation model. This model requires management to estimate the expected volatility, expected dividends, and expected term as inputs to the valuation model.

Overview

From January 1991 until October 2005, the Company devoted substantially all of its efforts and resources to research and development related to its unsuccessful Biotech Business, in particular the study of biological oxidation and antioxidation directed to the development of potential therapeutic products for the treatment of various diseases and conditions. In the most recent years, the Company’s research focused mainly on targeted antioxidant therapeutics and nutraceuticals. The Company is a development stage company, has never generated only limitedany substantial revenue from product sales and has relied primarily on equity financing, licensing revenues, and various debt instruments for its working capital. The Company has been unprofitable since its inception.

Following the cessation of material Biotech Business operations in October 2005, the Company turned its primary focus to seeking an appropriate merger partner for its public shell. This resulted in the February 2008 Merger with Vyrex.Vyrex (the “Initial Merger”). 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.

SinceAfter the Initial Merger, we have focused on the development testing and commercializationtesting of our electric power systems in particular,and their applicability to thermal and natural gas pipeline operations. We later abandoned the pipeline opportunities and decided to focus on the thermal applications. On April 16, 2021, we closed our merger with 374Water Inc. (the “374Water Merger”). Since the closing of the 374Water Merger, our business has been focused on development and commercialization of 374Water’s supercritical water oxidation (SCWO) systems, which include PowerVerde expanders. See Note 11 “Subsequent Events” in the accompanying condensed consolidated financial statements and Item 5 “Other Information”. 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” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 14, 2020.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 March 31, 20202021 as Compared to Three Months Ended March 31, 20192020

Since inception, we have focused on the development, testing and commercialization of our clean energy electric power generation systems. We generated $16,000$1,000 and $5,000$16,000 in revenue for assembly revenues under the Liberty Agreement in the first quarter of 20202021 and 2019,2020, respectively. 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 general administrative expenses remained consistentincreased by $97,111 (159.0%) in the first quarter of 20202021 as compared to the first quarter of 2019. Net losses were consistent2020, primarily because of increased legal fees relating to the planned 374Water Merger and payroll expenses. Our research and development expenses decreased by $542 (1.6%), primarily because of a decrease in both quarters.engineering expenses. Substantial net losses are expected until we are able to successfully commercialize and market our374Water 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.

Liquidity and Capital Resources

We have financed our operations since inception principally through the sale of debt and equity securities. Also, from 2012 through March 2018 we received material amounts of Biotech IP licensing fees. As of March 31, 2020,2021, we had a working capital deficit of $60,368$446,056 compared to a working capital deficit of $63,638$237,593 at DecemberMarch 31, 2019.2020. This increase in the working capital deficit is due primarily to the maturity date of the related party debt financing.

Our Biotech IP license agreement expired in March 2018 due toIn connection with the expiration374Water Merger, we raised gross proceeds of $6,551,735 from the sale of Series D Convertible Preferred Stock and converted all of our underlying patents. Consequently, we have no further material sourceconvertible debt notes into shares of revenues.common stock. These events served to mitigate the conditions that historically raised substantial doubt about the Company’s ability to continue as a going concern. We are generating some revenue by usingbelieve that these funds will satisfy our employee to provide part-time skilled manufacturing services to a third party; however, we expect this arrangement to generate no more than $3,000 per month. We expect to generate substantial revenue fromworking capital needs for the 374Water/Duke project if we receive the expected purchase order, which we expect to receive by the end of 2020; however, therenext 24 months. There can be no assurance that wethese funds will receive the purchase order, whether in 2020 or thereafter.

We continue to seek funding from private equity and debt investors, as we need to promptly raise substantial additional capital in orderbe sufficient to finance our plan of operations and commercialize our systems. There can be no assurancesystems or that we will be able to promptly raise theany necessary funds. If we do not promptly raise the necessaryadditional funds we may be forced to cease operations.on a commercially reasonable basis or at all.

Item 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, evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective.

Management’s Annual Report on Internal Control Over Financial Reporting

Management of the CompanyOur management, including our principal executive officer and principal financial officer, is responsible for establishing and maintaining adequate control over financial reporting. Our internal control system was designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of financial statements.

All internal controls over financial reporting, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding of controls. Therefore, even effective internal control over financial reporting can provide only reasonable,(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, 2019. In making this assessment,2020. 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 March 31, 2020,2021, our internal control over financial reporting was not effective.

The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses which we identified in our internal control over financial reporting:

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 were no significant changes in internal control over financial reporting during the first quarter of 20202021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

There are no material changes to the risk factors set forth in Part I, Item 1A, “Risk Factors,” of the 20192020 Annual Report. Please refer to that section for disclosure regarding the risks and uncertainties related to our business.

A novel strain of coronavirus (“Covid-19”) emerged globally in December 2019 and has been declared a pandemic. The extent to which Covid-19 will impact our customers, business, results and financial condition will depend on current and future developments, which are highly uncertain and cannot be predicted at this time

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.For information regarding the 374Water Merger, see Note 11 “Subsequent Events” and our Report on Form 8-K filed with the SEC on April 22, 2021..

Item 6. Exhibits.

__________________

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.

Exhibit Index

1720