UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form 10-Q
| x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Quarterly Period ended September 30, 2018
| o | 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)
| Delaware | 88-0271109 | |
| (State or other
jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
9300 S. Dadeland Blvd, Ste 600
Miami, FL 33156
(Address of principal executive offices)
(305) 670-3370
(Registrant’s telephone number including area code)
(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. x Yes o 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). x Yes o 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.
| o | Large accelerated filer | o | Accelerated filer |
| o | Non-accelerated filer | x | Smaller reporting company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x 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 9, 2018, the issuer had 31,750,106 shares of common stock outstanding.
Index to Form 10-Q
Item 1. Condensed Consolidated Financial Statements
| PowerVerde, Inc. and Subsidiary
Condensed Consolidated Balance Sheets September 30, 2018 (Unaudited) and December 31, 2017 |
| 2018 | 2017 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 37,084 | $ | 1,336 | ||||
| Accounts receivable | 10,304 | 369,959 | ||||||
| Note receivable | — | 34,000 | ||||||
| Prepaid expenses | 17,990 | 8,694 | ||||||
| Total Current Assets | 65,378 | 413,989 | ||||||
| Property and Equipment | ||||||||
| Property and equipment, net of accumulated depreciation of $106,327 and $99,418, respectively | 1,313 | 8,222 | ||||||
| Other Assets | ||||||||
| Intellectual Property, net of accumulated amortization of $692,274 and $689,900 | — | 2,374 | ||||||
| License, net of accumulated amortization of $23,322 and $15,822, respectively | 76,678 | 84,178 | ||||||
| Total Other Assets | 76,678 | 86,552 | ||||||
| Total Assets | $ | 143,369 | $ | 508,763 | ||||
| Liabilities and Stockholders’ Deficiency | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 3,211 | $ | 95,310 | ||||
| Note payable to related parties | — | 150,000 | ||||||
| Total Current Liabilities | 3,211 | 245,310 | ||||||
| Total Liabilities | 3,211 | 245,310 | ||||||
| Stockholders’ Deficiency | ||||||||
| Preferred Stock: | ||||||||
| 50,000,000 preferred shares authorized, 0 preferred shares issued at September 30, 2018 and December 31, 2017 | — | — | ||||||
| Common stock: | ||||||||
| 200,000,000 common shares authorized, par value $0.0001 per share, 40,300,106 common shares issued and 31,750,106 common shares outstanding at September 30, 2018 and December 31, 2017 | 3,981 | 3,981 | ||||||
| Additional paid-in capital | 12,609,980 | 12,129,331 | ||||||
| Treasury stock, 8,550,000 shares at cost | (491,139 | ) | (491,139 | ) | ||||
| Accumulated deficit | (11,982,664 | ) | (11,378,720 | ) | ||||
| Total Stockholders’ Deficiency | 140,158 | 263,453 | ||||||
| Total Liabilities and Stockholders’ Deficiency | $ | 143,369 | $ | 508,763 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 1 |
| PowerVerde, Inc. and Subsidiary Condensed Consolidated Statements of Operations For the three and nine months ended September 30, 2018 and 2017 (Unaudited) |
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Revenue | $ | 8,000 | $ | 133,686 | $ | 173,094 | $ | 473,485 | ||||||||
| Operating Expenses | ||||||||||||||||
| Research and development | 71,415 | 78,371 | 596,128 | 172,760 | ||||||||||||
| General and administrative | 47,511 | 45,635 | 181,832 | 160,533 | ||||||||||||
| Total Operating Expenses | 118,926 | 124,006 | 777,960 | 333,293 | ||||||||||||
| Income (Loss) from Operations | (110,926 | ) | 9,680 | (604,866 | ) | 140,192 | ||||||||||
| Other Income (Expenses) | ||||||||||||||||
| Interest income | — | — | 1,621 | 50 | ||||||||||||
| Interest expense | — | (5,589 | ) | (699 | ) | (23,726 | ) | |||||||||
| Total Other Income (Expense) | — | (5,589 | ) | 922 | (23,676 | ) | ||||||||||
| Income (Loss) before Income Taxes | (110,926 | ) | 4,090 | (603,944 | ) | 116,516 | ||||||||||
| Provision for Income Taxes | — | — | — | — | ||||||||||||
| Net Income (Loss) | $ | (110,926 | ) | $ | 4,090 | $ | (603,944 | ) | $ | 116,516 | ||||||
| Net Income (Loss) per Share - Basic and Diluted | $ | 0.00 | $ | 0.00 | $ | 0.02 | $ | 0.00 | ||||||||
| Weighted Average Common Shares Outstanding - Basic and Diluted | 31,750,106 | 31,750,106 | 31,750,106 | 31,750,106 | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 2 |
| PowerVerde, Inc. and Subsidiary Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2018 and 2017 (Unaudited) |
| 2018 | 2017 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net income (loss) | $ | (603,944 | ) | $ | 116,516 | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 16,783 | 27,334 | ||||||
| Stock based compensation | 480,649 | — | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable and prepaid expenses | 350,359 | 82,147 | ||||||
| Accounts payable and accrued expenses | (92,099 | ) | 1,693 | |||||
| Note receivable | 34,000 | — | ||||||
| Cash Provided by Operating Activities | 185,748 | 227,690 | ||||||
| Cash Flows from Financing Activities | ||||||||
| Principal payments on notes payable, related parties | (150,000 | ) | (225,000 | ) | ||||
| Cash Used in Financing Activities | (150,000 | ) | (225,000 | ) | ||||
| Net Increase in Cash | 35,748 | 2,690 | ||||||
| Cash at Beginning of Period | 1,336 | 4,786 | ||||||
| Cash at End of Period | $ | 37,084 | $ | 7,476 | ||||
| Supplemental Disclosure of Cash Flow Information | ||||||||
| Cash paid during the period for interest | $ | 699 | $ | 38,664 | ||||
| Supplemental Disclosure of Non-Cash Activities | ||||||||
| Accounts receivable converted to note receivable | $ | — | $ | 25,000 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
PowerVerde, Inc. and Subsidiary
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2018
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 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 PowerVerde, Inc. (“PowerVerde,” “we,” “us,” “our,” or the “Company”) as of and for the year ended December 31, 2017. The results of operations for the three and nine months ended September 30, 2018, 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. As of September 30, 2018, we had working capital of $62,167 compared to working capital of $168,679 at December 31, 2017. This decrease in working capital is due primarily to the expiration of our Biotech IP licensing revenues in March 2018 and the repayment of long-term related party note payables.
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 in prior years and through March 31, 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 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 development and commercialization of clean energy electric power generation systems, and none of its planned principal operations have commenced. However, royalties from licenses unrelated to planned principal operations were recognized as revenue through March 2018, when the underlying license agreement terminated. No revenues from this planned principal operation have been generated.
Accounts Receivable
Accounts receivable consist of balances due for royalties (2017) and assembly services (2018). The Company monitors accounts receivable and provides allowances when considered necessary. At September 30, 2018, accounts receivable were considered to be fully collectible. Accordingly, no allowance for doubtful accounts was provided.
| 4 |
Note Receivable
Note receivable consisted of amounts due from a customer in connection with the assembly agreement dated April 15, 2017. The note was paid in full in June 2018, along with accrued interest in the amount of $371.
Revenue Recognition
Revenue from royalties and assembly services are unrelated to the Company’s planned operations. Royalties were recognized as earned in the period the sales to which the royalties relate occur. Manufacturing assembly services are recognized as revenue when the assembled product is delivered to the customer. Revenues recognized under these agreements amount to 100% of total revenues for the nine months ended September 30, 2018 and 2017.
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, license 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, 2018 or 2017.
Stock-based Compensation
The Company has accounted for stock-based compensation under the provisions of 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, 2017 and September 30, 2018 were classified as equity.
| 5 |
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.
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 $596,128 and $172,760 for the nine months ended September 30, 2018 and 2017, 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 1,375,000 shares and options for 11,180,500 shares were excluded from weighted average common shares outstanding on a diluted basis.
Financial Instruments
The Company carries cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and notes payable, at historical costs. The respective estimated fair values of these assets and liabilities approximate carrying values due to their current 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 May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“Topic 606”). Topic 606 supersedes the revenue recognition requirements in ASU Topic 605, Revenue Recognition (“Topic 605”), and requires the recognition of revenue when promised goods or services are transferred to customers in an amount that reflects the considerations to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 also includes Subtopic 340-40, Other Assets and Deferred Costs- Contracts with Customers, which discussed the deferral of incremental costs of obtaining a contract with a customer, including the period of amortization of such costs. The new standard was adopted by the Company in our fiscal year beginning January 1, 2018.
The two permitted transition methods under the new standard were the full retrospective method, in which the new standard would be applied to each prior reporting period presented and the cumulative effect of applying the new standard would be recognized at the earliest period shown, or the modified retrospective method, in which the cumulative effect of applying the new standard would be recognized at the date of initial application. Based on our assessment, the impact of the new standard on our revenue recognition in prior periods was not significant; accordingly, while the Company would have used the modified retrospective method of adoption of the new standard, there was no cumulative effect of adoption on January 1, 2018 retained earnings.
| 6 |
We have reviewed each of our current contracts for the related performance obligations and related revenue and expense recognition implications. A performance obligation under the new revenue standard is defined as a promise to provide a “distinct” good or service to a customer. The Company has determined that the assembly services is a performance obligation for which a transaction price has been established in the manufacturing agreement. The assembly of each unit stands on its own. Revenue related to assembly services is recognized as revenue when the assembled product is delivered to the customer. The Company has also determined that the performance obligation associated with our royalty revenues was the ongoing delivery of the license to which the royalties relate. Royalty revenues were recognized based on the contract royalty rate applied to licensee sales in the periods during which such sales occur.
In February 2016, the FASB issued ASU 2016-02, “Leases,” which created a new Topic, ASC Topic 842 and established the core principle that a lessee should recognize the assets, representing rights-of-use, and liabilities to make lease payments that arise from leases. For leases with a term of 12 months or less, a lessee is permitted to make an election under which such assets and liabilities would not be recognized, and lease expense would be recognized generally on a straight-line basis over the lease term. This ASU is effective for public entities for interim and annual reporting periods beginning after December 15, 2018, and early application is permitted. The Company has evaluated the potential impact of this guidance and does not believe it will have a material impact on the Company’s financial statements.
In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718).” ASU 2018-07 simplifies the accounting for nonemployee stock-based payment transactions. This ASU is effective for public entities for interim and annual reporting periods beginning after December 15, 2018, and early application is permitted. The Company has evaluated the potential impact of this guidance and does not believe it will have a material impact on the Company’s financial statements.
Note 5 – Intellectual Property and License Agreement
Intellectual Property partially consists of technology acquired from the purchase 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, 2018 and December 31, 2017.
On June 30, 2015, the Company entered into an Assignment Agreement with VyrexIP Holdings Inc., a company owned by Company shareholder Edward Gomez, for the purchase of intellectual property. The net price of these assets was comprised of a down payment of $16,116 and a $58,436 promissory note to the seller due July 15, 2016, partially offset by assignment by the seller to the Company of a $38,000 promissory note due November 14, 2015, issued by the seller’s licensee Epalex Corporation, a company of which Mr. Gomez is chairman and a major stockholder. This note was paid in full in November 2015. Accumulated amortization with respect to this intellectual property was $32,834 and $30,460 at September 30, 2018 and December 31, 2017, 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.
| 7 |
For the nine months ended September 30, 2018 and 2017, amortization expense was $9,874 and $16,638, respectively, and accumulated amortization of the intangible assets of intellectual property and license agreement was $715,596 at September 30, 2018.
Future amortization of the intangible assets was as follows as of September 30, 2018:
Year ending December 31:
| 2018 | $ | 2,500 | |||
| 2019 | 10,000 | ||||
| 2020 | 10,000 | ||||
| Thereafter | 54,178 | ||||
| Total | $ | 76,678 |
Note 6 – Stockholders’ Deficiency
Warrants
A summary of warrants issued, exercised and expired during the nine months ended September 30, 2018 is as follows:
| Shares | Weighted Average Exercise Price | Intrinsic Value | ||||||||||
| Balance at December 31, 2017 | 3,675,000 | $ | .15 | $ | 45,000 | |||||||
| Issued | — | — | — | |||||||||
| Cancelled (replaced with Common Stock Options) | (2,300,000 | ) | $ | .15 | — | |||||||
| Balance at September 30, 2018 | 1,375,000 | $ | .14 | $ | — | |||||||
Note 7 – Stock Options
Stock option activity for the nine months ended September 30, 2018, is summarized as follows:
| Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | ||||||||||
| Options outstanding at December 31, 2017 | 5,750,500 | $ | 0.31 | 4.12 | ||||||||
| Granted | 3,130,000 | 0.12 | — | |||||||||
| Warrants cancelled and replaced with Common Stock Options | 2,300,000 | 0.12 | — | |||||||||
| Cancelled for Repricing | (3,675,000 | ) | 0.16 | |||||||||
| Reissued for Repricing | 3,675,000 | 0.12 | ||||||||||
| Options outstanding at September 30, 2018 | 11,180,500 | $ | 0.20 | 7.02 | ||||||||
Total stock-based compensation for the nine months ended September 30, 2018 and 2017 was $480,649 and $0, respectively. There is no unrecognized compensation expense associated with the options.
| 8 |
On May 30, 2018, the Board of Directors agreed to extend all outstanding management and non-employee stock options and warrants (covering 5,975,000 shares) to a common expiration date of June 30, 2026 and adjust the exercise prices to $0.12 (“adjusted terms”). The 2,300,000 warrants were cancelled and replaced with common stock options and the 3,675,000 options were terminated and reissued with the adjusted terms. These transactions were accounted for as modifications of the original instruments. The net effect of the change in the value of the repriced options and warrants was an incremental increase in stock-based compensation expense of $136,349.
The Company also issued new, immediately vesting, stock options with an exercise price of $0.12 and an expiration date of June 30, 2026, to Richard Davis for 1,300,000 shares; Hank Leibowitz for 500,000 shares; John Hofmann for 800,000 shares; Richard McKee for 500,000 shares and Michael McKee for 30,000 shares. The fair market value of these options was determined to be $0.11 per option, or $344,300, which was recognized as stock-based compensation expense of $344,300.
Note 8 - Notes Payable to Related Parties
Notes payable to related parties at December 31, 2017 consisted of notes payable to stockholders of $150,000 (issued in 2012). The notes had been due in one principal payment on September 30, 2017, but were extended to April 30, 2018, after extensions granted by the Note holders in the third quarter of 2017. Interest was payable semiannually at 10%. The notes were collateralized by all receivables existing pursuant to the license agreement with VDF FutureCeuticals, Inc. discussed in Notes 3 and 9. In 2017, the Company made payments totaling $250,000 toward the principal balance of the Notes. The notes were paid in full in January 2018.
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 substantially all of the Company’s revenues since 2012, terminated in March 2018, when the underlying patents expired.
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, 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, in the third quarter of 2017, the Company wrote off the $38,750 paid to Helidyne.
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.
| 9 |
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. As of September 30, 2018, the Company has built and shipped 48 Hydras. Revenue of $14,000 for these products is reflected in the net revenue on the Company’s condensed consolidated statement of operations for the nine months ended September 30, 2018.
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. On December 31, 2017, the Company converted an additional $9,000 from accounts receivable from Liberty to the principal balance of the Promissory Note and extended the maturity date of the Note to April 30, 2018. On May 1, 2018, the Company converted an additional $3,000 from accounts receivable from Liberty to the principal balance of the Promissory Note and extended the maturity date of the Note to June 30, 2018. The note was paid in full in June 2018, along with accrued interest in the amount of $371.
Note 10 - Related Party Transactions
Since July 2010, the accounting firm J.L. Hofmann & Associates, P.A. (“JLHPA”), whose principal is our CFO John L. Hofmann, has provided financial consulting and accounting services to the Company. In December 2017, J.L. Hofmann & Associates, P.A. merged with Kabat, Schertzer, De La Torre, Taraboulos & Co, LLC (“KSDT”). The Company paid $28,380 and $20,720 for KSDT’s and JLHPA’s services in the nine months ended September 30, 2018 and 2017, respectively
Note 11 – Subsequent Events
The Company’s management evaluated subsequent events through November 9, 2018, in connection with the preparation of these condensed consolidated financial statements, which is the date these financial statements were available to be issued. There are no subsequent events to report as of this date.
| 10 |
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 2016 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, 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, 2013, 2014, 2015 and 2016, the tax years which remain subject to examination by major tax jurisdictions as of September 30, 2018.
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 unrelated to the Company’s planned operations is recognized when the goods or services are transferred to the customer. Royalties are recognized as earned in the period the sales to which the royalties relate occur. Manufacturing assembly services are recognized as revenue when the assembled product is delivered to the customer. Revenues recognized under these agreements amount to 100% of total revenues for the nine months ended September 30, 2018 and 2017.
| 11 |
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 September 30, 2018 and 2017 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, has generated only limited revenue from product sales and has relied primarily on equity financing, licensing revenues, and various debt instruments for its working capital. The Company has been unprofitable since its inception.
Following the cessation of material Biotech Business operations in October 2005, the Company turned its primary focus to seeking an appropriate merger partner for its public shell. This resulted in the February 2008 Merger with Vyrex. In March 2009, we assigned most of our Biotech intellectual property other than our rights under existing licensing agreements (the “Biotech IP”) to an investor in exchange for his agreement to pay all future expenses relating to the Biotech IP and to pay us 20% of any net proceeds received from future sale and/or licensing of the Biotech IP. We do not expect this arrangement to generate material revenues.
Since the Merger, we have focused on the development, testing and commercialization of our electric power systems, in particular, their applicability to thermal and natural gas pipeline operations. 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 17, 2018.
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.
| 12 |
Results of Operations
Three Months Ended September 30, 2018 as Compared to Three Months Ended September 30, 2017
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 third quarter of 2018 and 2017 – but we recorded $0 and $108,686 in Biotech IP licensing fees (based on pre-Merger contracts), respectively. Also, we generated $8,000 in assembly revenues under the Liberty Agreement in the third quarter of 2018 and $25,000 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 $6,956 in the third quarter of 2018 as compared to the third quarter of 2017, primarily because of decreased engineering and manufacturing expenses. Our general and administrative expenses increased by $1,876 in the third quarter of 2018 as compared to 2017, primarily because of increased accounting and legal fees. Our net loss was $110,926 in the third quarter of 2018, as opposed to net income of $4,090 in the third quarter of 2017. This loss was due primarily to the expiration of our Biotech IP revenues in March 2018 and the issuance of stock options in the second quarter of 2018. Substantial net losses are expected 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.
Nine Months Ended September 30, 2018 as Compared to Nine Months Ended September 30, 2017
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 2018 and 2017 – but we recorded $159,094 and $448,485 in Biotech IP licensing fees (based on pre-Merger contracts), respectively. Also, we generated $14,000 and $25,000 in assembly revenues under the Liberty Agreement in the first nine months of 2018 and 2017, 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 research and development expenses increased by $423,368 (245.1%) in the first nine months of 2018 as compared to 2017. This increase is primarily due to the stock options issued in the second quarter of 2018. Our general and administrative expenses increased by $21,299 (13.3%) in the first nine months of 2018 as compared to 2017, due mainly to the increase in accounting and legal fees in 2018. Our net loss was $603,944 in the first nine months of 2018, a reversal of the net income of $116,516 in the third quarter of 2017. This loss was due primarily to the expiration of our Biotech IP revenues in March 2018 and the issuance of stock options in the second quarter of 2018. 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.
Liquidity and Capital Resources
We have financed our operations since inception principally through the sale of debt and equity securities. Also, since 2012 we have received material amounts of Biotech IP licensing fees. As of September 30, 2018, we had working capital of $62,168 compared to working capital of $168,679 at December 31, 2017. Our decrease in working capital position is due primarily to the expiration of Biotech IP revenue in March 2018.
Due to our substantially increased Biotech IP revenues in 2017, we were able in January 2018 to pay in full the $150,000 balance of our Notes payable to related parties and to begin 2018 with substantial working capital; however, our Biotech IP license agreement expired in March 2018 due to the expiration of our underlying patents. Consequently, we have no further material source of cash other than our final Biotech IP royalty payment for the first quarter of 2018, which we received in April 2018 in the amount of $159,094. We are seeking a new source of revenue by using our employee to provide part-time skilled manufacturing services to a third party; however, we expect this arrangement to generate no more than $2,000 per month.
We continue to seek funding from private equity and debt investors, as we need to promptly raise substantial additional capital in order to finance our plan of operations and commercialize our systems. There can be no assurance that we will be able to promptly raise the necessary funds. If we do not promptly raise the necessary funds, we may be forced to cease operations.
| 13 |
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 effective.
Management’s Annual Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate control over financial reporting. Our internal control system was designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of financial statements.
All internal controls over financial reporting, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding of controls. Therefore, even effective internal control over financial reporting can provide only reasonable, and not absolute, assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of internal controls over financial reporting may vary over time. Because of its inherent limitations, internal controls over financial reporting may also fail to prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.
Our Chief Executive Officer and Chief Financial Officer assessed the effectiveness of our internal control over financial reporting as of December 31, 2017. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—An Integrated Framework. Based on this evaluation, our management concluded that, as of September 30, 2018, our internal control over financial reporting was effective.
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 third quarter of 2018 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting
| 14 |
None.
There are no material changes to the risk factors set forth in Part I, Item 1A, “Risk Factors,” of the 2017 Annual Report. Please refer to that section for disclosure regarding the risks and uncertainties related to our business.
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.
Not applicable.
| 15 |
| (a) | Exhibits |
| 31.1 | Certification of Principal Executive Officer and Principal Accounting 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 Principal 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 |
| 16 |
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.
| Dated: November 9, 2018 | POWERVERDE, INC. | |
| By: | /s/ Richard H. Davis | |
| Richard H. Davis | ||
| Chief Executive Officer | ||
| Dated: November 9, 2018 | By: | /s/ John L. Hofmann |
| John L. Hofmann | ||
| Chief Financial Officer | ||
| 17 |
Exhibit Index
| Exhibit No. |
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 | |
18
Exhibit 31.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Richard H. Davis, certify that:
| 1. | I have reviewed this Form 10-Q of PowerVerde, Inc. |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Dated: | November 9, 2018 | /s/ Richard H. Davis |
| Richard H. Davis, Chief Executive Officer |
Exhibit 31.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John L. Hofmann, certify that:
| 1. | I have reviewed this Form 10-Q of PowerVerde, Inc. |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Dated: | November 9, 2018 | /s/ John L. Hofmann |
| John L. Hofmann, Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Richard H. Davis, certify as follows:
| 1. | To the best of my knowledge, the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, fully complies in all material respects with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and |
| 2. | To the best of my knowledge, based upon a review of the report, the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| By: | /s/ Richard H. Davis | |
| Richard H. Davis | ||
| Chief Executive Officer November 9, 2018 | ||
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, John L. Hofmann, certify as follows:
| 1. | To the best of my knowledge, the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, fully complies in all material respects with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and |
| 2. | To the best of my knowledge, based upon a review of the report, the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| By: | /s/ John L. Hofmann | |
| John L. Hofmann | ||
| Chief Financial Officer November 9, 2018 | ||
Document and Entity Information - shares |
9 Months Ended | |
|---|---|---|
Sep. 30, 2018 |
Nov. 09, 2018 |
|
| Document and Entity Information: | ||
| Entity Registrant Name | POWERVERDE, INC. | |
| Document Type | 10-Q | |
| Document Period End Date | Sep. 30, 2018 | |
| Amendment Flag | false | |
| Entity Central Index Key | 0000933972 | |
| Current Fiscal Year End Date | --12-31 | |
| Entity Common Stock, Shares Outstanding | 31,750,106 | |
| Entity's Reporting Status Current | Yes | |
| Entity Filer Category | Non-accelerated Filer | |
| Entity Emerging Growth Company | false | |
| Entity Small Business | true | |
| Document Fiscal Year Focus | 2018 | |
| Document Fiscal Period Focus | Q3 |
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Property and equipment, net of accumulated depreciation | $ 106,327 | $ 99,418 |
| Intellectual Property, net of accumulated amortization | 692,274 | 689,900 |
| License, net of accumulated amortization | $ 23,322 | $ 15,822 |
| Preferred stock, shares authorized | 50,000,000 | 50,000,000 |
| Preferred stock, shares issued | 0 | 0 |
| Preferred stock, shares outstanding | 0 | 0 |
| Common Stock, par value | $ 0.0001 | $ 0.0001 |
| Common Stock, shares authorized | 200,000,000 | 200,000,000 |
| Common Stock, shares issued | 40,300,106 | 40,300,106 |
| Common Stock, shares outstanding | 31,750,106 | 31,750,106 |
| Treasury stock | 8,550,000 | 8,550,000 |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Revenues [Abstract] | ||||
| Revenue | $ 8,000 | $ 133,686 | $ 173,094 | $ 473,485 |
| Operating Expenses | ||||
| Research and development | 71,415 | 78,371 | 596,128 | 172,760 |
| General and administrative | 47,511 | 45,635 | 181,832 | 160,533 |
| Total Operating Expenses | 118,926 | 124,006 | 777,960 | 333,293 |
| Income (Loss) from Operations | (110,926) | 9,680 | (604,866) | 140,192 |
| Other Income (Expenses) | ||||
| Interest income | 0 | 0 | 1,621 | 50 |
| Interest expense | 0 | (5,589) | (699) | (23,726) |
| Total Other Income (Expenses) | 0 | (5,589) | 922 | (23,676) |
| Income (Loss) before Income Taxes | (110,926) | 4,090 | (603,944) | 116,516 |
| Provision for Income Taxes | 0 | 0 | 0 | 0 |
| Net Income (Loss) | $ (110,926) | $ 4,090 | $ (603,944) | $ 116,516 |
| Net Income (Loss) per Share - Basic and Diluted | $ 0.00 | $ 0.00 | $ 0.02 | $ 0.00 |
| Weighted Average Common Shares Outstanding - Basic and Diluted | 31,750,106 | 31,750,106 | 31,750,106 | 31,750,106 |
Condensed Consolidated Financial Statements |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Financial Statements | |
| Condensed Consolidated Financial Statements | 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 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 PowerVerde, Inc. (“PowerVerde,” “we,” “us,” “our,” or the “Company”) as of and for the year ended December 31, 2017. The results of operations for the three and nine months ended September 30, 2018, 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. |
Going Concern |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Going Concern: | |
| Going Concern | 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. As of September 30, 2018, we had working capital of $62,167 compared to working capital of $168,679 at December 31, 2017. This decrease in working capital is due primarily to the expiration of our Biotech IP licensing revenues in March 2018 and the repayment of long-term related party note payables.
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 in prior years and through March 31, 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 funds on commercially acceptable terms, if at all. If the Company does not raise the necessary funds, it may be forced to cease operations. |
Summary of Significant Accounting Policies |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Summary of Significant Accounting Policies | |
| Summary of Significant Accounting Policies | 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 development and commercialization of clean energy electric power generation systems, and none of its planned principal operations have commenced. However, royalties from licenses unrelated to planned principal operations were recognized as revenue through March 2018, when the underlying license agreement terminated. No revenues from this planned principal operation have been generated.
Accounts Receivable
Accounts receivable consist of balances due for royalties (2017) and assembly services (2018). The Company monitors accounts receivable and provides allowances when considered necessary. At September 30, 2018, accounts receivable were considered to be fully collectible. Accordingly, no allowance for doubtful accounts was provided.
Note Receivable
Note receivable consisted of amounts due from a customer in connection with the assembly agreement dated April 15, 2017. The note was paid in full in June 2018, along with accrued interest in the amount of $371.
Revenue Recognition
Revenue from royalties and assembly services are unrelated to the Company’s planned operations. Royalties were recognized as earned in the period the sales to which the royalties relate occur. Manufacturing assembly services are recognized as revenue when the assembled product is delivered to the customer. Revenues recognized under these agreements amount to 100% of total revenues for the nine months ended September 30, 2018 and 2017.
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, license 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, 2018 or 2017.
Stock-based Compensation
The Company has accounted for stock-based compensation under the provisions of 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, 2017 and September 30, 2018 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.
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 $596,128 and $172,760 for the nine months ended September 30, 2018 and 2017, 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 1,375,000 shares and options for 11,180,500 shares were excluded from weighted average common shares outstanding on a diluted basis.
Financial Instruments
The Company carries cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and notes payable, at historical costs. The respective estimated fair values of these assets and liabilities approximate carrying values due to their current 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. |
Recent Accounting Pronouncements |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Recent Accounting Prouncements | |
| Recent Accounting Pronouncements | Note 4 – Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“Topic 606”). Topic 606 supersedes the revenue recognition requirements in ASU Topic 605, Revenue Recognition (“Topic 605”), and requires the recognition of revenue when promised goods or services are transferred to customers in an amount that reflects the considerations to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 also includes Subtopic 340-40, Other Assets and Deferred Costs- Contracts with Customers, which discussed the deferral of incremental costs of obtaining a contract with a customer, including the period of amortization of such costs. The new standard was adopted by the Company in our fiscal year beginning January 1, 2018.
The two permitted transition methods under the new standard were the full retrospective method, in which the new standard would be applied to each prior reporting period presented and the cumulative effect of applying the new standard would be recognized at the earliest period shown, or the modified retrospective method, in which the cumulative effect of applying the new standard would be recognized at the date of initial application. Based on our assessment, the impact of the new standard on our revenue recognition in prior periods was not significant; accordingly, while the Company would have used the modified retrospective method of adoption of the new standard, there was no cumulative effect of adoption on January 1, 2018 retained earnings.
We have reviewed each of our current contracts for the related performance obligations and related revenue and expense recognition implications. A performance obligation under the new revenue standard is defined as a promise to provide a “distinct” good or service to a customer. The Company has determined that the assembly services is a performance obligation for which a transaction price has been established in the manufacturing agreement. The assembly of each unit stands on its own. Revenue related to assembly services is recognized as revenue when the assembled product is delivered to the customer. The Company has also determined that the performance obligation associated with our royalty revenues was the ongoing delivery of the license to which the royalties relate. Royalty revenues were recognized based on the contract royalty rate applied to licensee sales in the periods during which such sales occur.
In February 2016, the FASB issued ASU 2016-02, “Leases,” which created a new Topic, ASC Topic 842 and established the core principle that a lessee should recognize the assets, representing rights-of-use, and liabilities to make lease payments that arise from leases. For leases with a term of 12 months or less, a lessee is permitted to make an election under which such assets and liabilities would not be recognized, and lease expense would be recognized generally on a straight-line basis over the lease term. This ASU is effective for public entities for interim and annual reporting periods beginning after December 15, 2018, and early application is permitted. The Company has evaluated the potential impact of this guidance and does not believe it will have a material impact on the Company’s financial statements.
In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718).” ASU 2018-07 simplifies the accounting for nonemployee stock-based payment transactions. This ASU is effective for public entities for interim and annual reporting periods beginning after December 15, 2018, and early application is permitted. The Company has evaluated the potential impact of this guidance and does not believe it will have a material impact on the Company’s financial statements. |
Intellectual Property and License Agreement |
9 Months Ended | ||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||||||||||||||||||||
| Business Combinations [Abstract] | |||||||||||||||||||||||||||||||
| Intellectual Property and License Agreement | Note 5 – Intellectual Property and License Agreement
Intellectual Property partially consists of technology acquired from the purchase 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, 2018 and December 31, 2017.
On June 30, 2015, the Company entered into an Assignment Agreement with VyrexIP Holdings Inc., a company owned by Company shareholder Edward Gomez, for the purchase of intellectual property. The net price of these assets was comprised of a down payment of $16,116 and a $58,436 promissory note to the seller due July 15, 2016, partially offset by assignment by the seller to the Company of a $38,000 promissory note due November 14, 2015, issued by the seller’s licensee Epalex Corporation, a company of which Mr. Gomez is chairman and a major stockholder. This note was paid in full in November 2015. Accumulated amortization with respect to this intellectual property was $32,834 and $30,460 at September 30, 2018 and December 31, 2017, 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.
For the nine months ended September 30, 2018 and 2017, amortization expense was $9,874 and $16,638, respectively, and accumulated amortization of the intangible assets of intellectual property and license agreement was $715,596 at September 30, 2018.
Future amortization of the intangible assets was as follows as of September 30, 2018:
Year ending December 31:
|
Stockholders' Deficiency |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholders' Deficiency | Note 6 – Stockholders’ Deficiency
Warrants
A summary of warrants issued, exercised and expired during the nine months ended September 30, 2018 is as follows:
|
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Stock Options |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Options | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Options | Note 7 – Stock Options
Stock option activity for the nine months ended September 30, 2018, is summarized as follows:
Total stock-based compensation for the nine months ended September 30, 2018 and 2017 was $480,649 and $0, respectively. There is no unrecognized compensation expense associated with the options.
On May 30, 2018, the Board of Directors agreed to extend all outstanding management and non-employee stock options and warrants (covering 5,975,000 shares) to a common expiration date of June 30, 2026 and adjust the exercise prices to $0.12 (“adjusted terms”). The 2,300,000 warrants were cancelled and replaced with common stock options and the 3,675,000 options were terminated and reissued with the adjusted terms. These transactions were accounted for as modifications of the original instruments. The net effect of the change in the value of the repriced options and warrants was an incremental increase in stock-based compensation expense of $136,349.
The Company also issued new, immediately vesting, stock options with an exercise price of $0.12 and an expiration date of June 30, 2026, to Richard Davis for 1,300,000 shares; Hank Leibowitz for 500,000 shares; John Hofmann for 800,000 shares; Richard McKee for 500,000 shares and Michael McKee for 30,000 shares. The fair market value of these options was determined to be $0.11 per option, or $344,300, which was recognized as stock-based compensation expense of $344,300. |
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Notes Payable to Related Parties |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Notes Payable to Related Parties | |
| Notes Payable to Related Parties | Note 8 - Notes Payable to Related Parties
Notes payable to related parties at December 31, 2017 consisted of notes payable to stockholders of $150,000 (issued in 2012). The notes had been due in one principal payment on September 30, 2017, but were extended to April 30, 2018, after extensions granted by the Note holders in the third quarter of 2017. Interest was payable semiannually at 10%. The notes were collateralized by all receivables existing pursuant to the license agreement with VDF FutureCeuticals, Inc. discussed in Notes 3 and 9. In 2017, the Company made payments totaling $250,000 toward the principal balance of the Notes. The notes were paid in full in January 2018. |
Commitments and Contingencies |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Commitment and Contingencies: | |
| Commitments and Contingencies | 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 substantially all of the Company’s revenues since 2012, terminated in March 2018, when the underlying patents expired.
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, 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, in the third quarter of 2017, the Company wrote off the $38,750 paid to Helidyne.
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. As of September 30, 2018, the Company has built and shipped 48 Hydras. Revenue of $14,000 for these products is reflected in the net revenue on the Company’s condensed consolidated statement of operations for the nine months ended September 30, 2018.
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. On December 31, 2017, the Company converted an additional $9,000 from accounts receivable from Liberty to the principal balance of the Promissory Note and extended the maturity date of the Note to April 30, 2018. On May 1, 2018, the Company converted an additional $3,000 from accounts receivable from Liberty to the principal balance of the Promissory Note and extended the maturity date of the Note to June 30, 2018. The note was paid in full in June 2018, along with accrued interest in the amount of $371. |
Related Party Transactions |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Related Party Transactions | |
| Related Party Transactions | Note 10 - Related Party Transactions
Since July 2010, the accounting firm J.L. Hofmann & Associates, P.A. (“JLHPA”), whose principal is our CFO John L. Hofmann, has provided financial consulting and accounting services to the Company. In December 2017, J.L. Hofmann & Associates, P.A. merged with Kabat, Schertzer, De La Torre, Taraboulos & Co, LLC (“KSDT”). The Company paid $28,380 and $20,720 for KSDT’s and JLHPA’s services in the nine months ended September 30, 2018 and 2017, respectively |
Subsequent Events |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Subsequent Events: | |
| Subsequent Events | Note 11 – Subsequent Events
The Company’s management evaluated subsequent events through November 9, 2018, in connection with the preparation of these condensed consolidated financial statements, which is the date these financial statements were available to be issued. There are no subsequent events to report as of this date. |
Summary of Significant Accounting Policies (Policies) |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Summary of Significant Accounting Policies | |
| Nature of Business | Nature of Business
The Company is devoting substantially all of its present efforts to establish a new business involving the development and commercialization of clean energy electric power generation systems, and none of its planned principal operations have commenced. However, royalties from licenses unrelated to planned principal operations were recognized as revenue through March 2018, when the underlying license agreement terminated. No revenues from this planned principal operation have been generated. |
| Accounts Receivables | Accounts Receivable
Accounts receivable consist of balances due for royalties (2017) and assembly services (2018). The Company monitors accounts receivable and provides allowances when considered necessary. At September 30, 2018, accounts receivable were considered to be fully collectible. Accordingly, no allowance for doubtful accounts was provided. |
| Note Receivable | Note Receivable
Note receivable consisted of amounts due from a customer in connection with the assembly agreement dated April 15, 2017. The note was paid in full in June 2018, along with accrued interest in the amount of $371. |
| Revenue Recognition | Revenue Recognition
Revenue from royalties and assembly services are unrelated to the Company’s planned operations. Royalties were recognized as earned in the period the sales to which the royalties relate occur. Manufacturing assembly services are recognized as revenue when the assembled product is delivered to the customer. Revenues recognized under these agreements amount to 100% of total revenues for the nine months ended September 30, 2018 and 2017. |
| Property and Equipment | 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 of Long-Lived Assets
Impairment losses are recorded on long-lived assets (property, equipment, license 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, 2018 or 2017. |
| Stock-based Compensation | Stock-based Compensation
The Company has accounted for stock-based compensation under the provisions of 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 | 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, 2017 and September 30, 2018 were classified as equity. |
| Accounting for Uncertainty in Income Taxes | 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. |
| Research and Development Costs | 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 $596,128 and $172,760 for the nine months ended September 30, 2018 and 2017, respectively. |
| Earnings (Loss) Per Share | 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 1,375,000 shares and options for 11,180,500 shares were excluded from weighted average common shares outstanding on a diluted basis. |
| Financial Instruments | Financial Instruments
The Company carries cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and notes payable, at historical costs. The respective estimated fair values of these assets and liabilities approximate carrying values due to their current nature. |
| Use of Estimates | 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. |
Intellectual Property and License Agreement (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||||||||||||||||||||
| Business Combinations [Abstract] | |||||||||||||||||||||||||||||||
| Future amortization of the intangible asset | Future amortization of the intangible assets was as follows as of September 30, 2018:
Year ending December 31:
|
Stockholders' Deficiency (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of warrants | A summary of warrants issued, exercised and expired during the nine months ended September 30, 2018 is as follows:
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Stock Options (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Options | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Option | Stock option activity for the nine months ended September 30, 2018, is summarized as follows:
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Going Concerns (Details Narrative) - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Going Concerns Details Narrative | ||
| Working capital deficit | $ (62,167) | $ (168,679) |
Summary of Significant Accounting Policies (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Jun. 30, 2018 |
|
| Accrued interest | $ 371 | ||||
| Revenue percentage | 100.00% | 100.00% | |||
| Impairment losses | $ 0 | $ 0 | |||
| Research and development costs | $ 71,415 | $ 78,371 | $ 596,128 | $ 172,760 | |
| Warrants | |||||
| Antidilutive Excluded from Computation of Earnings Per Share, Amount | 1,375,000 | ||||
| Option | |||||
| Antidilutive Excluded from Computation of Earnings Per Share, Amount | 11,180,500 | ||||
Intellectual Property and License Agreement (Details) |
Sep. 30, 2018
USD ($)
|
|---|---|
| Year ending December 31: | |
| 2018 | $ 2,500 |
| 2019 | 10,000 |
| 2020 | 10,000 |
| Thereafter | 54,178 |
| Total | $ 76,678 |
Intellectual Property and License Agreement (Details Narrative) - USD ($) |
9 Months Ended | ||||||
|---|---|---|---|---|---|---|---|
Jun. 01, 2016 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Dec. 31, 2017 |
Nov. 14, 2015 |
Jun. 30, 2015 |
Mar. 30, 2012 |
|
| Amortization expense | $ 9,874 | $ 16,638 | |||||
| Accumulated amortization of the intangible asset- intellectual property | 692,274 | $ 689,900 | |||||
| Accumulated amortization of the intangible assets | 715,596 | $ 715,596 | |||||
| VyrexIP Holdings Inc | |||||||
| Accumulated amortization of the intangible asset- intellectual property | 32,834 | 30,460 | |||||
| Promissory note down payment | $ 16,116 | ||||||
| Promissory note due | $ 38,000 | $ 58,436 | |||||
| Helidyne LLC [Member] | |||||||
| Annual royalty | $ 50,000 | ||||||
| Commercial royalty obligation | $ 100,000 | ||||||
| Cornerstone | |||||||
| Percentage of membership interests purchased | 100.00% | ||||||
| Intellectual Property | $ 659,440 | ||||||
| Accumulated amortization of the intangible asset- intellectual property | $ 659,440 | $ 659,440 | |||||
Stockholders' Deficiency (Details) |
9 Months Ended |
|---|---|
|
Sep. 30, 2018
USD ($)
$ / shares
shares
| |
| Stockholders Deficiency Details | |
| Begining Balance | shares | 3,675,000 |
| Shares Issued | shares | shares | 0 |
| Cancelled (replaced with Common Stock Options) | shares | (2,300,000) |
| Ending Balance | shares | 1,375,000 |
| Weighted Average Exercise Price Balance at December 31, 2017 | $ / shares | $ 0.15 |
| Weighted Average Exercise Price Issued | $ / shares | 0.00 |
| Weighted Average Exercise Price Cancelled (replaced with Common Stock Options) | $ / shares | 0.15 |
| Weighted Average Exercise Price Balance at September 30, 2018 | $ / shares | $ 0.14 |
| Intrinsic Value Begining Balance | $ | $ 45,000 |
| Intrinsic Value Ending Balance | $ | $ 0 |
Stock Options (Details Narrative) - USD ($) |
1 Months Ended | 9 Months Ended | |
|---|---|---|---|
May 30, 2018 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Stock-based compensation expense | $ 344,300 | $ 480,649 | $ 0 |
| Unrecognized stock-based compensation | $ 0 | ||
| Srock options and warrants converted | 5,975,000 | ||
| Exercise price | $ 0.12 | ||
| Expiration date | Jun. 30, 2026 | ||
| Options terminated and reissued | 3,675,000 | ||
| Increase in stock-based compensation expense | $ 136,349 | ||
| Warrants cancelled and replaced with Common Stock Options | 2,300,000 | ||
| Fair market value of options | $ 344,300 | ||
| Richard Davis | |||
| Stock options vested | 1,300,000 | ||
| Hank Leibowitz | |||
| Stock options vested | 500,000 | ||
| John Hofmann | |||
| Stock options vested | 800,000 | ||
| Richard McKee | |||
| Stock options vested | 500,000 | ||
| Michael McKee | |||
| Stock options vested | 30,000 | ||
Notes Payable to Related Parties (Details Narrative) |
12 Months Ended |
|---|---|
|
Dec. 31, 2017
USD ($)
| |
| Promissory note interest rate | |
| Notes payable to stockholders | $ 150,000 |
| Maturity date | Apr. 30, 2018 |
| Interest rate | 10.00% |
| Principal balance | $ 250,000 |
Commitments and Contingencies (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Jun. 30, 2018 |
May 01, 2018 |
Dec. 31, 2017 |
Oct. 01, 2016 |
Jun. 01, 2016 |
Jun. 25, 2015 |
|
| Royalty percentage | 2.00% | ||||||||
| Company made payments | $ 38,750 | ||||||||
| Two monthly installments | $ 25,000 | ||||||||
| Revenue from product | $ 14,000 | ||||||||
| Accrued interest | $ 371 | ||||||||
| Helidyne LLC [Member] | |||||||||
| Royalty percentage | 3.00% | ||||||||
| Annual royalty | $ 50,000 | ||||||||
| Company made payments | $ 38,750 | ||||||||
| Two monthly installments | 50,000 | ||||||||
| Committed to purchase price | $ 25,000 | ||||||||
| Liberty [Member] | |||||||||
| Promissory note interest rate | 12.00% | ||||||||
| Maturity date | Jun. 30, 2018 | ||||||||
| Accounts receivable from related party | $ 25,000 | $ 25,000 | $ 3,000 | $ 9,000 |
Related Party Transactions (Details Narrative) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Related Party Transactions | ||
| Payments to related party | $ 28,380 | $ 20,720 |