UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010
Commission File No. 000-27866
PowerVerde, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 88-0271109 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 23429 N. 35th Drive, Glendale, Arizona | 85310 | |
| (Address of principal executive offices) | (Zip Code) | |
(623) 780-3321
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.0001 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company as defined in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
| Non-accelerated filer | ¨ | Smaller reporting company | x | |||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and ask prices of such stock equity, as of June 30, 2010, the last business day of the issuer’s most recently completed second fiscal quarter: $7,820,210.
As of April 7, 2011, the number of outstanding shares of common stock, $0.0001 par value per share, of the registrant was 24,876,398.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Annual Report on Form 10-K
Year Ended December 31, 2010
INDEX
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INDEX
(Continued)
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| ITEM 1. | BUSINESS. |
General
Vyrex Corporation (“Vyrex” or the “Company”) was incorporated in Nevada in 1991, and operated as a research and development stage company seeking to discover and develop pharmaceuticals, nutraceuticals and cosmeceuticals for the treatment and prevention of respiratory, cardiovascular and neurodegenerative diseases and conditions associated with aging (the “Biotech Business”). The Biotech Business was unsuccessful and, as a result, the Company ceased material operations relating to that business in October 2005; however, the Company retained its intellectual property rights and contract rights relating to that business (the “Biotech IP”). On October 17, 2005, the Company reincorporated in Delaware.
On February 11, 2008, Vyrex, PowerVerde, Inc. (“PowerVerde”) and Vyrex Acquisition Corporation (“VAC”), a wholly-owned subsidiary of Vyrex, all Delaware corporations, entered into an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, on February 12, 2008, VAC merged with and into PowerVerde, with PowerVerde remaining as the surviving corporation and a wholly-owned subsidiary of Vyrex (the “Merger”). As consideration for the Merger, as of the closing of the Merger, each issued and outstanding share of common stock of PowerVerde was converted into the right to receive 1.2053301 shares of the common stock of Vyrex and each share of VAC was converted into one share of PowerVerde common stock. As a result of the Merger, the former shareholders of PowerVerde hold 95% of the common stock of Vyrex. Pursuant to the Merger Agreement, PowerVerde paid $233,000 in accounts payable and other liabilities owed by Vyrex.
On August 6, 2008, at a special meeting of shareholders, Vyrex’s name was changed to “PowerVerde, Inc.” Simultaneously, the name of our operating company, PowerVerde, Inc., was changed to “PowerVerde Systems, Inc.”
In March 2009, we sold all of the Biotech IP to Dr. Edward Gomez, a pre-Merger investor in PowerVerde and now a shareholder of the Company. In exchange for the assignment of the Biotech IP to him, Dr. Gomez agreed to (i) pay all future costs and expenses relating to the Biotech IP, including, but not limited to, patent fees, license fees and legal fees, and (ii) pay to the Company 20% of all net revenues received from the sale and/or licensing of any of the Biotech IP.
Please note that the information provided below relates to the combined company after the Merger. Since our operations after the Merger consist solely of PowerVerde operations, except where the context otherwise requires, references throughout this Report hereafter to “PowerVerde,” “we,” “us,” “our” and the “Company” will mean or refer to PowerVerde’s business and operations.
The Company is a Delaware corporation formed in March 2007 by its two principal owners and officers: George Konrad and Fred Barker. The Company was formed in order to further develop, commercialize and market a series of unique electric generating power systems designed to produce electrical power with zero emissions or waste byproducts, based on a patented pressure-driven motor and related organic pressure-driven cycle components. The design of the motor was conceived by Mr. Barker in January 2001. Mr. Barker previously had a working relationship with Mr. Konrad and enlisted Mr. Konrad and his manufacturing expertise, together with Mr. Barker’s own engineering expertise, to co-develop the motor.
An initial prototype of the motor was created and tested in early 2002, and, based on positive test results, Messrs. Barker and Konrad concluded that the concept could lead to a commercial product. A new design was developed in early 2007, which resulted in a motor that produced more torque and horsepower, as well as being easier to mass produce. The prototype was tested extensively, and substantial tooling and engineering with CAM/CNC programming was completed at the facility of Mr. Konrad’s company, Arizona Research and Development (“ARD”), for the eventual mass production model.
Based on data learned from these earlier prototypes, PowerVerde has manufactured three 25/50kW motors
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and has been testing these devices on a more powerful and advanced organic rankine cycle (ORC) currently referred to as an organic pressure-driven cycle (OPDC) designed and built by PowerVerde. During 2009, the Company also built and tested a 100kW pressure-driven motor at another machining and manufacturing facility, Global Machine Works, in Arlington, WA. These two related but distinct systems are designed for two different markets. The 25/50kW system uses low-grade heat as a fuel source, expanding a working fluid thereby driving the motor/generator, while the 100kW system (without ORC), uses wasted energy (pressure) from natural gas pipeline and wellhead infrastructures to drive the motor/generator and create electric power.
We are completing the final design and are currently building two next-generation waste heat/solar units capable of producing between 50 and 100 kW’s of electric power. In late 2010, we demonstrated this type of system for several interested parties, including the Department of Engineering of North New Mexico College (NNMC). This successful demonstration resulted in a formal collaboration between PowerVerde and NNMC’s SERPA program. A similar relationship is developing with Arizona State University as well. We hosted this research institution in February 2011, leading to a second presentation held in late March 2011. We anticipate that the manufacture of this new design will be accomplished by the end of 2011. There can be no assurance, however, that we will be able to successfully complete the final design and testing of our systems or that we will be able to commercialize them and commence sales. Work on our second generation natural gas pipeline/wellhead system is being delayed to focus on our primary market: waste heat/solar or thermal-powered systems.
On January 31, 2011, we entered into a Binding Letter of Intent for European Distribution (the “BLOI”) with Newton Investments BV, a Dutch corporation based in Leeuwarden, Netherlands (“Newton”). Pursuant to the BLOI, we and Newton agreed to enter into a definitive agreement within 60 days (since extended to 90 days), pursuant to which Newton will, for a period of 10 years, be the exclusive manufacturer and distributor of the Company’s proprietary emissions-free electrical power generation systems (the “Systems”) in the 27 countries which are currently members of the European Union, subject to Newton achieving minimum sales of at least 100 Systems per year and investing at least $750,000 in establishing its manufacturing facility and distribution network. Pursuant to the BLOI, we will receive as a royalty an amount equal to 20% of the gross sale price of each System sold by Newton. We have authorized Newton to manufacture our Systems under a strict licensing agreement with a Dutch/German foundry and machine shop capable of producing hundreds of units per year. Of the 27 European Union nations, we are initially focusing on the Netherlands, Belgium, Germany and Scandinavian countries. Newton also agreed to purchase an initial System from us for a discounted price of $90,000. In connection with the BLOI, an affiliate of Newton invested $250,000 in PowerVerde by privately purchasing 333,333 restricted shares of our common stock at a price of $.75 per share. In connection with this purchase, we issued to the investor a three-year warrant to buy an additional 333,333 shares at a price of $.75 per share.
In early 2010, our Board of Directors created two separate product lines: waste heat/solar organic rankine cycle powered systems; and gas pipeline/wellhead waste energy recovery systems. Because the markets and customers for these two systems are entirely different and the design and manufacturing are geographically separate, we believe that this bifurcation will result in a more streamlined and efficient business structure. As noted above, the natural gas pipeline system is being delayed primarily due to our decision to dedicate our limited human and financial resources to commercialize our waste heat/solar thermal system.
In March 2009, we entered into a non-binding letter of intent (the “LOI”) with Keahole Solar Power LLC (“KSP”), a subsidiary of Sopogy, Inc. (“Sopogy”), based in Honolulu, Hawaii. Sopogy has developed a modular and scalable solar energy solution designed for on-site energy generation in the range of 250kW-20MW. The LOI reflects the parties’ intent to work together on development of smaller Sopogy systems in the 50kW to 500kW range. Under the terms contemplated by the LOI, we would install a 25/50kW PowerVerde motor for use at KSP’s solar thermal power generation facility at the Natural Energy Laboratory of Hawaii located in Kona, Hawaii. We would operate the system and the parties would share performance data for five years. After two years of working with Sopogy, we believe that the contemplated 25/50kW system may be too small for Sopogy’s market, and designs for up to a 250kW system have been developed; however, these designs are in the early stages. While we are optimistic about our relationship with Sopogy and KSP, there can be no assurance that we will ever enter into a definitive agreement with Sopogy or KSP, that we will ever install our motor as contemplated in the LOI or that we will ever generate any revenues from this relationship.
Messrs. Barker and Konrad together obtained U.S. Patent No. 6,840,151 for a “push-push type fluid
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pressure actuated motor,” which was issued on January 11, 2005. On June 6, 2007, Messrs. Barker and Konrad and the Company’s predecessor, PowerVerde, LLC, permanently and exclusively assigned to PowerVerde all rights to the patent and the other intellectual property relating to the PowerVerde systems. On July 16, 2008, Messrs. Barker and Konrad filed U.S. Patent application No. 61/081,298 for a “system to produce electricity using waste energy in natural gas pipelines.” This application was assigned to the Company; however, it was abandoned in 2009 because we decided to replace it with a new and improved provisional patent application regarding the natural gas pipeline technology. Mr. Barker filed on behalf of PowerVerde a new provisional patent application regarding this technology on April 7, 2010. On October 17, 2008, Mr. Konrad and Mr. Brian K. Gray filed U.S. Patent application No. 12/253,580 for a “low temperature organic rankine cycle system.” This application was assigned to the Company. There can be no assurance that this patent will be issued.
In late 2010, we began filing several provisional patents covering our new organic pressure-driven cycle technology. In January 2011, we hired the inventor of this technology, Keith Johnson, as a specialist in advanced pressure-driven systems. He has assigned to PowerVerde his patent application in this field, U.S. Patent Application 61/424,249 filed on December 17, 2010. There can be no assurance that these patents will be issued.
By the end of 2011 or the first quarter of 2012, we plan to manufacture (directly or through contractors) and market our waste heat/solar power systems to end users in the U.S. market. Meanwhile, we expect Newton to proceed with commercialization in the European market. We continue discussions with certain manufacturers of integrated components and service providers in the oil, natural gas and manufacturing industries, as well as with electric utility companies. There can be no assurance that any manufacturing, distribution or marketing agreements will be successfully consummated.
We currently have two full-time employees, Messrs. Johnson and Gray, both hired in January 2011. Mr. Gray has requested to change his engagement with us from an employment relationship to a part-time consulting relationship to accommodate his schedule. We expect to make this change in April 2011.
Product Description
The 2007 advanced generation PowerVerde motor, with its related organic rankine cycle (ORC) system, produced 10kW of net power. Our larger 25/50kW waste heat/solar design is a next generation system This system was designed to be installed in single- or multiple-stacked units for businesses, factories, schools, hospitals, ships and other users of electric power. These non-combustion motors are fueled by heat, via an ORC related system, and create a pressure source powering the PowerVerde motor/generator while emitting zero carbon emissions or waste stream byproducts. This system operates with relatively low pressure (100-300psi) producing substantial torque and horsepower. The second PowerVerde system is designed to operate on wellhead or natural gas pipeline infrastructure and lacks the ORC component, but uses wasted latent energy (pressure) inherent in “city gate” letdowns or wellheads as its fuel source. Both systems are designed to operate on pressure. The latter system is designed to operate on relatively high pressure (1000 psi) associated with pipeline or wellhead infrastructure. The PowerVerde gas expansion and pressure driven motors have been tested over the past three years, and we believe have demonstrated the durability and reliability necessary to function as commercial renewable electric power generation systems. As noted above, in 2008, we decided to scale the ORC waste heat/solar system to 25/50kW and the natural gas pressure motor (without ORC) to 100kW. We anticipate, and have designed systems, that will be scaled even larger in the future.
Our ORC or OPDC system requires:
| • | A heat source (solar, waste heat, geothermal or bio-mass); |
| • | An Organic Rankine Cycle (ORC) style system to convert heat into pressure; |
| • | PowerVerde patented motor to convert the pressure into horsepower; and |
| • | A generator to convert the horsepower into electricity. |
We have built and tested the 25/50kW and ORC system, and believe that the overall design meets or exceeds performance parameters. We believe that we have successfully enhanced the system’s power capacity to 50kW or more of gross electrical power.
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PowerVerde’s other electric power system, the gas pressure motor, is engineered to operate on any adequate pressure source without an ORC system. This 100kW system expands wasted energy or pressure from natural gas pipelines or wellheads into mechanical energy and requires:
| • | Natural Gas Pipeline or Natural Gas utility infrastructure, specifically “City Gates” or gas wellheads; |
| • | Any adequate wellhead or pressure release infrastructure such as pumping stations; |
| • | PowerVerde’s patented engine to convert the pressure into horsepower; and |
| • | A generator to convert the horsepower into electricity. |
We have built a 100kW system and hope to build a next generation 150kW system in the future. It is anticipated the first commercial beta test will be delayed until 2012, focusing our efforts on the waste heat/solar markets throughout 2011.
Government Regulations and Incentives
We believe that the time is right for the PowerVerde systems. Regulatory proposals to limit greenhouse gases are moving forward. One such measure would be a carbon tax placed on fuels in proportion to their carbon content. Another would be a tax on oil. Yet another would be a “cap and trade” system. All of these would drive up the price of electricity from fossil fuel sources, yet have no impact on carbon-free renewable sources such as those offered by us; however, due to the weak economy and strong political opposition, there can be no assurance that any of these measures will be implemented.
Governments, utilities, businesses, and consumers alike are acutely aware of the negative effects of pollution and use of fossil fuels. Fossil fuel-based emissions contribute to serious health and environmental conditions such as acid rain, particulate pollution, nitrogen deposition, and global climate change. Consequently, government agencies at the federal, state and local levels have implemented and proposed various economic incentives in the form of tax credits, rebates, deductions, accelerated depreciation and other subsidies designed to enhance the use of energy-efficient and clean power sources. We believe that these incentives will have a substantial positive impact on demand for the PowerVerde systems; however, there can be no assurance that, even with these incentives, our systems will be economically competitive or that the incentives will continue to be available.
We have applied and continue to apply for federal grants, loans and/or other programs designed to assist development of renewable “green” energy sources, including incentives provided in the U.S. Government’s economic stimulus package approved in February 2009, and we have retained specialized consultants to assist in this endeavor; however, we have not been successful in these ongoing efforts, and there can be no assurance that we will ever receive any governmental assistance.
Competition
We face substantial competition from numerous other companies, most of whom have financial and other resources substantially greater than ours. Our competition is worldwide, ranging from solo inventors and small businesses all the way to major utility companies and multinational corporations, all of whom are attempting to design, develop and market clean and efficient methods for the generation and delivery of electricity. This competition is expected to increase due to pressures arising from anticipated high prices of oil and natural gas, environmental concerns and the increased availability of governmental incentives and subsidies. These competitors may prove more successful in offering similar products and/or may offer alternative products which prove superior in performance and/or more popular with potential customers than our products. Our ability to commercialize our products and grow and achieve profitability in accordance with our business plan will depend on our ability to satisfy our customers and withstand increasing competition by providing high-quality products at reasonable prices. There can be no assurance that we will be able to achieve or maintain a successful competitive position.
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| ITEM 1A. | RISK FACTORS. |
Investing in our common stock is speculative and involves a high degree of risk. Prospective investors should carefully consider the following risks and uncertainties and all other information contained or referred to in this Report before making an investment decision. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we are unaware of, or that we currently deem immaterial, also may become important factors that affect us. Our business, financial condition or results of operations could be materially and adversely affected by some or all of the matters described below or other currently unknown factors. In that case, the trading price of our common stock could decline, and you could lose all of your investment.
Risks Related to General Economic Conditions
The current general economic and market conditions and the volatility and disruption in the financial and capital markets has impacted us and could materially and adversely affect our business and financial results in future periods.
The United States economy continues to suffer from very unfavorable economic conditions, including a weak recovery from a severe recession in the general economy which continues to impair the banking system and the financial markets, all accompanied by huge federal and state budget deficits and a ballooning national debt. These negative conditions could persist or become even worse. General economic conditions have deteriorated due to reduced credit resulting from weak economic conditions, resulting in slower economic activity, concerns about inflation, deflation and government debt and deficits, volatility in energy prices, decreased consumer confidence, reduced corporate profits and capital spending, adverse business conditions and liquidity concerns in our markets and other adverse effects on our potential customers and markets. These poor economic conditions continue to make it very difficult for us to raise the capital we need to complete the development and testing of our products so that we can begin sales. In the event that we are able to begin sales of our products, these poor economic conditions may adversely affect our business and our financial condition and results of operations by extending the length of the sales cycle and causing potential customers to delay, defer or decline to make purchases of our products due to limitations on their capital expenditures and the adverse effects of the economy and the credit markets on them.
The weak economy is projected by many economic experts to continue or deteriorate further throughout 2011 or longer. These conditions may make it extremely difficult for our customers, our vendors and us to accurately forecast and plan future business activities. We cannot predict the timing, strength or duration of this current weak economy or of a subsequent economic recovery, or the effects thereof on our customers and our markets. Our results of operations may be negatively impacted in future periods and experience substantial fluctuations from period to period as a consequence of these factors, and such conditions and other factors affecting capital spending may affect the timing of orders from major customers. These factors could adversely affect our ability to meet our capital requirements, support our working capital requirements and growth objectives, maintain our existing or secure new financing arrangements, or otherwise materially and adversely affect our business, financial condition and results of operations.
An increase in interest rates or lending rates or tightening of the supply of capital in the global financial markets could make it difficult for end-users to finance the cost of a PowerVerde system and could reduce the demand for our products and/or lead to a reduction in the average selling price for our products.
We believe that, in the event that we are able to commercialize our products, many of our end-users will depend on debt financing to fund the initial capital expenditure required to purchase and install a PowerVerde system. As a result, an increase in interest rates or lending rates could make it difficult for our end-users to secure the financing necessary to purchase and install PowerVerde systems on favorable terms, or at all and thus lower demand and reduce our net sales. Due to the overall economic outlook, our end-users may change their decision or change the timing of their decision to purchase and install PowerVerde systems. In addition, we believe that a significant percentage of our end-users will install PowerVerde systems as an investment, funding the initial capital expenditure through a combination of equity and debt. An increase in interest rates and/or lending rates could lower an investor’s return on investment in PowerVerde systems, or make alternative investments more attractive relative to PowerVerde systems, and, in each case, could cause these end-users to seek alternative investments. A reduction
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in the supply of project debt financing or equity investments could reduce the number of our projects that receive financing and thus lower demand for PowerVerde system.
Reduced growth in or the reduction, elimination or expiration of government subsidies, economic incentives and other support for renewable energy-sourced electricity applications could reduce demand for our systems.
Reduced growth in or the reduction, elimination or expiration of government subsidies, economic incentives and other support for renewable-sourced electricity may result in the diminished competitiveness of our systems relative to conventional and non-renewable sources of energy, and could materially and adversely affect our business.
Electric utility companies or generators of electricity from fossil fuels or other renewable energy sources could also lobby for a change in the relevant legislation in their markets to protect their revenue streams. Reduced growth in or the reduction, elimination or expiration of government subsidies and economic incentives for renewable electricity generation applications, especially those in our target markets, could cause our net sales to decline and materially and adversely affect our business, financial condition and results of operations.
Existing regulations and policies and changes to these regulations and policies may present technical, regulatory and economic barriers to the purchase and use of our renewable electricity generation systems, which may significantly reduce demand for our systems.
The market for electricity generation products is heavily influenced by foreign, federal, state and local government regulations and policies concerning the electric utility industry, as well as policies promulgated by electric utilities. These regulations and policies often relate to electricity pricing and technical interconnection of customer-owned electricity generation. In the United States and in a number of other countries, these regulations and policies have been modified in the past and may be modified again in the future. These regulations and policies could deter end-user purchases of our systems.
We anticipate that our systems and their installation will be subject to oversight and regulation in accordance with national and local ordinances relating to building codes, safety, environmental protection, utility interconnection and metering and related matters. It is difficult to track the requirements of individual states and design equipment to comply with the varying standards. Any new government regulations or utility policies pertaining to our systems may result in significant additional expenses to us and our potential customers and, as a result, could cause a significant reduction in demand for our systems.
Risks Related to Our Business
We need to raise substantial additional capital to fund our business.
We will need to raise substantial additional funds. Without such additional funds, we may have to cease operations. We will require substantial additional funding for our contemplated research and development activities, commercialization of our products and ordinary operating expenses. Adequate funds for these purposes may not be available when needed or on terms acceptable to us, especially due to the ongoing weak economy. Insufficient funds may require us to delay or scale back our activities or to cease operations.
We face substantial competition in our industry, and we may be unable to attract customers and maintain a viable business.
We face substantial competition from numerous other companies, most of whom have financial and other resources substantially greater than ours. Our competition is worldwide, ranging from solo inventors and small businesses all the way to major utility companies and multinational corporations, all of whom are attempting to design, develop and market clean and efficient methods for the generation and delivery of electricity. This competition is expected to increase due to pressures arising from anticipated high prices of oil and natural gas, environmental concerns and the availability of governmental incentives and subsidies. These competitors may prove more successful in offering similar products and/or may offer alternative products which prove superior in
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performance and/or more popular with potential customers than our products. Our ability to commercialize our products and grow and achieve profitability in accordance with our business plan will depend on our ability to satisfy our customers and withstand increasing competition by providing high-quality products at reasonable prices. There can be no assurance that we will be able to achieve or maintain a successful competitive position.
Our success is dependent on the services of our key management and personnel.
Our success will depend in large part upon the skill and efforts of our founders and executive officers, George Konrad and Fred Barker, and other key personnel who may be hired, including our system specialists, Keith Johnson and Brian Gray. Loss of any such personnel, whether due to resignation, death, and disability or otherwise, could have a material adverse effect on our business. In addition, Messrs. Konrad, Barker and Gray do not intend to work for PowerVerde on a full-time basis, as they have substantial other business activities. They intend to dedicate the time they deem appropriate to meet PowerVerde’s needs; however, there can be no assurance that they will be willing or able to dedicate such time and attention as would maximize PowerVerde’s chances for success.
We have a limited operating history.
We have only a limited operating history. We have yet to generate any material revenues, and the commercial value of our products is uncertain. There can be no assurance that we will ever be profitable. Further, we are subject to all the risks inherent in a new business including, but not limited to: intense competition; lack of sufficient capital; loss of protection of proprietary technology and trade secrets; difficulties in commercializing its products, managing growth and hiring and retaining key employees; adverse changes in costs and general business and economic conditions; and the need to achieve product acceptance, to enter and develop new markets and to develop and maintain successful relationships with customers, third party suppliers and contractors.
We may have difficulty in protecting our intellectual property and may incur substantial costs to defend ourselves in patent infringement litigation.
We rely primarily on a combination of trade secrets, patents, copyright and trademark laws, and confidentiality procedures to protect our proprietary technology, which is our principal asset.
Our ability to compete effectively will depend to a large extent on our success in protecting our proprietary technology, both in the United States and abroad. There can be no assurance that (i) any patent that we apply for will be issued, (ii) any patents issued, including our existing U.S. Patent No. 6,840,151, on which our current products are based, will not be challenged, invalidated, or circumvented, (iii) that we will have the financial resources to enforce our patents or (iv) the patent rights granted will provide any competitive advantage. We could incur substantial costs in defending any patent infringement suits or in asserting our patent rights, including those granted by third parties, and we might not be able to afford such expenditures.
We have limited protection over our trade secrets and know-how.
Although we have entered into confidentiality and invention agreements with our key personnel, there can be no assurance that these agreements will be honored or that we will be able to protect our rights to our non-patented trade secrets and know-how effectively. There can be no assurance that competitors will not independently develop substantially equivalent or superior proprietary information and techniques or otherwise gain access to our trade secrets and know-how.
We may be unable to obtain required licenses from third-parties for product development.
We may be required to obtain licenses to patents or other proprietary rights from third parties. If we do not obtain required licenses, we could encounter delays in product development or find that the development, manufacture or sale of products requiring these licenses could be foreclosed.
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The reduction, elimination or unavailability of contemplated government incentives may force our business plan to be changed and may materially adversely affect our business.
Our business plan relies to a significant extent on the availability of substantial federal, state and local governmental incentives for the development, production and purchase of energy-saving, environmentally-friendly products such as our systems. These incentives include, among others, tax deductions, tax credits, rebates, accelerated depreciation and government loans, grants and other subsidies. There can be no assurance that some or all of these incentives will not be substantially reduced or eliminated, nor can there be any assurance that any currently proposed incentives will actually take effect. Similarly, there can be no assurance that we will ever receive any government loans, grants or other subsidies.
Lower energy prices may hinder our ability to attract customers and be profitable.
Our products are energy-efficient electric generators which compete primarily with conventional oil and natural gas-generated electricity produced and delivered by conventional utility companies. A significant decrease in the price of oil and/or natural gas could therefore materially adversely affect our competitive position. We were adversely affected by the substantial drop in oil and natural gas prices following the onset of the financial crisis in September 2008. While these prices have risen substantially in recent months due to increased global demand, Middle East tension and inflation fears, they remain well below their pre-crisis peaks. A repeat of substantial decreases in these prices, as experienced in 2008 and 2009, could be very detrimental to our business.
We may be unable to purchase materials and parts on commercially reasonable terms from suppliers.
If we are unable to commercialize our systems, our success will depend to a large extent on our ability to obtain a reliable supply of materials and parts from our suppliers on commercially reasonable terms. This may not prove possible due to competition, inflation, shortages, international crises, adverse economic and political conditions and business failures of suppliers or other reasons.
Our insurance may not provide adequate coverage.
Although we maintain general and product liability, property and commercial crime insurance coverage which we consider prudent, there can be no assurance that such insurance will prove adequate in the event of actual casualty losses or broader calamities such as terrorist attacks, earthquakes, financial crises, economic depressions or other catastrophic events, which are either uninsurable or not economically insurable. Any such losses could have a material adverse effect on the Company.
We may be unable to obtain or maintain insurance for our commercial products.
The design, development and manufacture of our products involve an inherent risk of product liability claims and associated adverse publicity. There can be no assurance we will be able to obtain or maintain insurance for any of our proposed commercial products. Such insurance is expensive, difficult to obtain and may not be available in the future on acceptable terms or at all. We are also exposed to product liability claims in the event the use of our proposed products result in injury.
Risks Related to Our Common Stock; Liquidity Risks
Our stock price is highly volatile.
The market prices for securities of emerging and development stage companies such as ours have historically been highly volatile, and our limited history has reflected this volatility. Difficulty in raising capital as well as future announcements concerning us or our competitors, including the results of testing, technological innovations or new commercial products, government regulations, developments concerning proprietary rights, litigation or public concern as to safety of potential products developed by us or others, may have a significant adverse impact on the market price of our stock.
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We do not pay dividends on our common stock, and we have no intention to do so in the future.
For the near-term, we intend to retain remaining future earnings, if any, to finance our operations and do not anticipate paying any cash dividends with respect to our common stock or may be unable to sell at a fair price.
There has been limited trading in our stock.
Our common stock is currently quoted on the OTCBB under the symbol “PWVI.” Since our February 2008 Merger with our predecessor Vyrex Corporation, our stock has been thinly traded, and no assurance can be given as to when, if ever, an active trading market will develop or, if developed, that it will be sustained. As a result, investors may be unable to sell their shares of our common stock.
We may issue additional shares of our stock which may dilute the value of our stock.
Shares which we issue pursuant to private placements generally may be sold in the public market after they have been held for six months, pursuant to Rule 144. The sale or availability for sale of substantial amounts of common stock in the public market under Rule 144 or otherwise could materially adversely affect the prevailing market prices of our common stock and could impair our ability to raise additional capital through the sale of our equity securities.
We may issue shares of preferred stock that could defer a change of control or dilute the interests of holders of our common stock shareholders.
Our Board of Directors is authorized to issue up to 50,000,000 shares of preferred stock. The Board of Directors has the power to establish the dividend rates, liquidation preferences, voting rights, redemption and conversion terms and privileges with respect to any series of preferred stock. The issuance of any series of preferred stock having rights superior to those of the common stock may result in a decrease in the value or market price of the common stock and could further be used by the Board of Directors as a device to prevent a change in control favorable to the Company. Holders of preferred stock to be issued in the future may have the right to receive dividends and certain preferences in liquidation and conversion rights. The issuance of such preferred stock could make the possible takeover of the Company or the removal of management of the Company more difficult, and adversely affect the voting and other rights of the holder of the common stock, or depress the market price of the common stock.
Our common stock is covered by SEC “penny stock” rules which may make it more difficult for you to sell or dispose of our common stock.
Since we have net tangible assets of less than $1,000,000, transactions in our securities are subject to Rule 15g-9 under the Exchange Act which imposes additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000 or $300,000 together with their spouses). For transactions covered by this Rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to the sale. Consequently, this Rule may affect the ability of broker-dealers to sell our securities, and may affect the ability of shareholders to sell any of our securities in the secondary market.
The Commission has adopted regulations which generally define a “penny stock” to be any non-NASDAQ equity security of a small company that has a market price (as therein defined) less than $5.00 per share, or with an exercise price of less than $5.00 per share subject to certain exceptions, and which is not traded on any exchange or quoted on NASDAQ. For any transaction by broker-dealers involving a penny stock (unless exempt), the rules require delivery, prior to a transaction in a penny stock, of a risk disclosure document relating to the penny stock market. Disclosure is also required to be made about compensation payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in an account and information on the limited market in penny stocks.
9
FORWARD-LOOKING STATEMENTS
Prospective investors are cautioned that the statements in this Report that are not descriptions of historical facts may be forward-looking statements that are subject to risks and uncertainties. This Report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are based on the beliefs of our management as well as on assumptions made by and information currently available to us as of the date of this Report. When used in this Report, the words “plan,” “will,” “may,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “project” and similar expressions, as they relate to PowerVerde, are intended to identify such forward-looking statements. Although PowerVerde believes these statements are reasonable, actual actions, operations and results could differ materially from those indicated by such forward-looking statements as a result of the risk factors included in this Report or other factors. We must caution, however, that this list of factors may not be exhaustive and that these or other factors, many of which are outside of our control, could have a material adverse effect on PowerVerde and our ability to achieve our objectives. All forward-looking statements attributable to PowerVerde or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above.
| ITEM 1B. | UNRESOLVED STAFF COMMENTS. |
None.
| ITEM 2. | PROPERTIES. |
We do not own any real property. Through December 31, 2010, we shared use of a full-service machining and manufacturing facility located at 21615 N. 2nd Avenue, Phoenix, Arizona, owned by Arizona Research and Development, Inc. (“ARD”), a company wholly-owned by George Konrad, the Company’s co-founder and President and Chief Executive Officer. We paid monthly rent to ARD in addition to our proportional share of the facility’s utilities. The lease terms with ARD were month to month and renewed monthly. No formal rent or lease agreement existed between ARD and the Company. Effective January 2011, we entered into a lease agreement with Konrad Holdings, LLC, a limited liability company wholly-owned by Mr. Konrad, for the use of approximately 5,000 square feet of our new facility located at 23429 N. 35th Drive, Glendale, Arizona (the “Facility”) at a monthly base rent of approximately $3,500. The term of this agreement is one year. We expect to substantially increase our use of the Facility by the end of 2011, and we believe that the Facility will be adequate to satisfy our needs through that time; however, in the event that we begin material sales, we may need to move to a larger facility.
| ITEM 3. | LEGAL PROCEEDINGS. |
We are not party to any disputes or legal proceedings at the time of this Report.
| ITEM 4. | (REMOVED AND RESERVED). |
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| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. |
Vyrex’s common stock began trading on the Over-The-Counter Bulletin Board (“OTCBB”) on October 22, 1998 under the symbol “VYRX,” which was changed to “VXYC” on June 30, 2006. Prior to that date, the common stock was traded on the Nasdaq Small Cap Market. As a result of our post-Merger name change on August 6, 2008, our common stock began trading under the symbol “PWVI” as of September 30, 2008. The over-the-counter market quotations provided below reflect inter-dealer prices, without retail mark-ups, mark-down or commission and may not represent actual transactions. The following table sets forth the range of high and low sales prices on the OTCBB for the periods indicated.
| Period Beginning |
Period Ending |
High |
Low |
|||||||
| January 1, 2008 |
March 26, 2008 | $ | 2.75 | $ | 0.30 | |||||
| April 2, 2008 |
June 30, 2008 | $ | 2.70 | $ | 1.75 | |||||
| July 1, 2008 |
September 30, 2008 | $ | 4.30 | $ | 2.20 | |||||
| October 1, 2008 |
December 31, 2008 | $ | 3.25 | $ | 1.75 | |||||
| January 1, 2009 |
March 31, 2009 | $ | 2.00 | $ | 0.51 | |||||
| April 1, 2009 |
June 30, 2009 | $ | 1.50 | $ | 0.75 | |||||
| July 1, 2009 |
September 30, 2009 | $ | 1.20 | $ | 0.51 | |||||
| October 1, 2009 |
December 31, 2009 | $ | 1.05 | $ | 0.31 | |||||
| January 1, 2010 |
March 29, 2010 | $ | 0.90 | $ | 0.30 | |||||
| April 2, 2010 |
June 30, 2010 | $ | 0.67 | $ | 0.25 | |||||
| July 1, 2010 |
September 30, 2010 | $ | 0.80 | $ | 0.51 | |||||
| October 1, 2010 |
December 31, 2010 | $ | 0.75 | $ | 0.35 | |||||
| January 1, 2011 |
March 31, 2011 | $ | 1.48 | $ | 0.35 | |||||
Dividends
We have never declared or paid any cash dividends on our common stock, nor do we intend to declare or pay any cash dividends on our common stock in the foreseeable future. Subject to the limitations described below, the holders of the Company’s common stock are entitled to receive only such dividends (cash or otherwise) as may (or may not) be declared by the Company’s Board of Directors.
Recent Sales of Unregistered Securities
In connection with the February 12, 2008 Merger, Vyrex sold the following securities without registering the securities under the Securities Act: (i) 24,588,734 shares of common stock issued to former PowerVerde shareholders in connection with the Merger, (ii) 250,000 shares issued on February 11, 2008 to Don Leach in payment of Vyrex’s March 10, 2003, $200,000 promissory note held by him, (iii) 20,000 shares issued on February 11, 2008, to Richard G. McKee, Jr. for consulting services, and (iv) 5,000 shares issued on February 11, 2008, to Mary Jane Dean for financial and administrative services. These shares were issued pursuant to an exemption from registration requirements under Regulation D and/or Section 4(2) of the Securities Act of 1933, as amended.
All of PowerVerde’s sales of unregistered securities since inception have been made pursuant to private offerings to accredited investors. These sales, which are set forth below, were made pursuant to an exemption from registration requirements under Regulation D and/or Section 4(2) of the Securities Act of 1933, as amended. Except as otherwise noted below, we paid a placement agent fee of 10% of the gross price of each offering to Martinez-Ayme Securities (“MAS”), and net proceeds were used for working capital.
From June through August 2007, PowerVerde sold to accredited investors in a private placement 4,000,000 shares of common stock (equal to 4,821,320 shares post-Merger) at a price of $.125 per share, yielding gross proceeds of $500,000.
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From September 2007 to January 2008, PowerVerde sold to accredited investors in a private placement 400,000 shares of common stock (equal to 482,132 shares post-Merger) at a price of $.50 per share, yielding gross proceeds of $200,000.
From April through July 2008, PowerVerde completed a private placement of $250,000 in principal amount of Series A Promissory Notes (the “Notes”). The Notes were due on July 31, 2009, and bore interest at the rate of 10% per annum. In consideration for the purchase of the Notes, each investor received three-year warrants to purchase shares of our common stock at an exercise price of $1.50 per share (25,000 shares for each $25,000 invested).
From March through October 2009, we raised $950,000 through private placements of an aggregate of 1,266,667 shares of our common stock to accredited investors at $.75 per share. The net proceeds from these offerings were $865,000. The Company paid a placement agent fee of 10% to MAS with respect to $625,000 of the gross proceeds, a finder’s fee of 6% and a placement agent fee to MAS of 4% with respect to $250,000, and there was no placement agent fee or finder’s fee with respect to $100,000 of these proceeds. The net proceeds of these offerings were used (i) to pay $81,500 principal amount of our Series A Promissory Notes due July 31, 2009, together with $8,717 in accrued interest thereon; (ii) to pay in full a $50,000 loan made by our founder and CEO, George Konrad, to the Company in 2008 (See “Item 13. Certain Relationships and Related Transactions, and Director Independence.”); and (iii) for working capital.
The remaining $168,500 principal amount of Notes, together with accrued interest thereon of $20,761, was converted in July 2009 into 378,521 shares of our common stock, reflecting a conversion price of $.50 per share.
In October 2009, we issued 75,000 shares of our common stock, valued at $56,250, to Del Mar Corporate Consulting, LLC (the “Consultant”) pursuant to a Market Awareness Consulting Agreement, dated October 20, 2009. Pursuant to this agreement, we also paid the Consultant $25,000 upon signing; however, we have declined to pay the additional $25,000 due under this agreement due to our belief that the Consultant has failed to perform under this agreement. We have also asserted an unresolved claim that the Consultant is entitled to only 12,500 of the 75,000 shares due to its failure to perform.
During 2010, we raised gross proceeds of $330,000 through the private placement of 439,999 shares of our common stock to accredited investors at $.75 per share, $85,000 of which was raised in the first quarter through the private placement of 113,333 shares, $130,000 of which was raised in the second quarter through the private placement of 173,333 shares, $75,000 of which was raised in the third quarter through the private placement of 100,000 shares, and $40,000 of which was raised in the fourth quarter through the private placement of 53,333 shares. Each investor received a three-year warrant to purchase stock at $.75 per share for a number of shares of common stock equal to the number of shares purchased by the investor in this offering.
During the first quarter of 2011, we raised gross proceeds of $1,000,000 through the private placement of 1,333,333 shares of our common stock to accredited investors at $0.75 per share. Each investor received a three-year warrant to purchase stock at $.75 per share for a number of shares of common stock equal to the number of shares purchased by the investor in this offering. The $1,000,000 included $250,000 purchased by a Newton affiliate in conjunction with the Newton BLOI, as noted above. We paid a placement agent fee of 10% to MAS with respect to the gross proceeds of this offering.
| ITEM 6. | SELECTED FINANCIAL DATA. |
Not required for smaller reporting companies.
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
The following discussion and analysis should be read in conjunction with the financial statements and notes thereto appearing elsewhere herein.
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Critical Accounting Policies
The consolidated financial statements of PowerVerde, Inc. are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these consolidated financial statements requires our management to make estimates and assumptions about future events that effect the amounts reported in the financial statements and related notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. We believe the following critical accounting policies affect its more significant judgments and estimates used in the preparation of financial statements.
Accounting for Uncertainty in Income Taxes
We adopted the Standards in FASB ASC Topic 740 regarding accounting for uncertainty in income taxes. The standard 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. The standard 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 financial statements. Our evaluation was performed for the tax years ended December 31, 2007, 2008, 2009 and 2010, the tax years which remain subject to examination by major tax jurisdictions as of December 31, 2010.
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 financial statements as selling, general and administrative expense.
Revenue Recognition
Licensing and royalty revenue from royalty agreements is recognized in accordance with the terms of the specific agreement, which generally includes a quarterly minimum payment by the licensee.
Common Stock Purchase Warrants
The Company accounts for common stock purchase warrants in accordance with FASB ASC Topic 815-10, “Derivatives and Hedging” (ASC 815-10). Based on the provisions of ASC 815-10, 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).
Overview
From January 1991 until October 2005, the Company devoted substantially all of its efforts and resources to research and development related to its unsuccessful Biotech Business, in particular the study of biological oxidation and antioxidation directed to the development of potential therapeutic products for the treatment of various diseases and conditions. In the most recent years, the Company’s research focused mainly on targeted antioxidant therapeutics and nutraceuticals. The Company is a development stage company, has never generated any substantial revenue from product sales and has relied primarily on equity financing, licensing revenues, and various debt instruments for its working capital. The Company has been unprofitable since its inception.
Following the cessation of material Biotech Business operations in October 2005, the Company turned its primary focus to seeking an appropriate merger partner for its public shell. This resulted in the February 2008 Merger with Vyrex. In March 2009, we assigned 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
13
expenses relating to the Biotech IP and to pay us 20% of any net proceeds received from future sale and/or licensing of the Biotech IP. We do not expect this arrangement to generate material revenues.
Since the Merger, we have focused on the development and testing of our electric power systems, and since 2008 we have focused on their applicability to thermal and natural gas pipeline operations. The Company’s business is subject to significant risks, including the risks inherent in our research and development efforts, uncertainties associated with obtaining and enforcing patents and intense competition. See “Risk Factors.”
Except as specifically noted to the contrary, the following discussion relates only to PowerVerde since, as a result of the Merger, the only historical financial statements presented for the Company in periods following the Merger are those of the operating entity, PowerVerde.
Results of Operations
Year ended December 31, 2010 and 2009
During 2010 and 2009, we focused on the development and testing of our systems, in particular, our next generation waste heat/solar 25/50kW ORC. We had no material revenues in either year — just $33,842 and $33,860, in Biotech IP licensing fees at December 31, 2010 and 2009, respectively — while we had substantial expenses due to our ongoing research and development expenses, as well as substantial administrative expenses associated with our status as a public company. Our net loss was $308,352 in 2010 and $890,980 in 2009. The substantial decrease in our net loss in 2010 was due to our general cost-cutting efforts, as well as the absence of interest expense since our investor Notes were paid in full in 2009. Substantial net losses will continue until we are able to successfully commercialize and market our products, as to which there can be no assurance.
Year ended December 31, 2009 and 2008
During 2009 and 2008, we focused on the development and testing of our systems, including our next generation waste heat/solar 25/50kW ORC. We had no material revenues in either year — just $33,860 and $23,663, in Biotech IP licensing fees at December 31, 2009 and 2008, respectively — while we had substantial expenses due to our ongoing research and development expenses, as well as substantial administrative expenses associated with the Merger and our status as a public company. Our net loss was $890,980 in 2009 and $829,956 in 2008. Substantial net losses will continue unless and until we are able to successfully commercialize and market our products, as to which there can be no assurance.
Liquidity and Capital Resources
We have financed our operations since inception through the sale of debt and equity securities. As of December 31, 2010 and 2009, we had a working capital deficit of $132,895 and $123,692, respectively.
During 2010, we raised gross proceeds of $330,000 through the private placement of 439,999 shares of our common stock to accredited investors at $.75 per share, $85,000 of which was raised in the first quarter through the private placement of 113,333 shares, $130,000 of which was raised in the second quarter through the private placement of 173,333 shares, $75,000 of which was raised in the third quarter through the private placement of 100,000 shares, and $40,000 of which was raised in the fourth quarter through the private placement of 53,333
14
shares. Each investor received a three-year warrant to purchase stock at $.75 per share for a number of shares of common stock equal to the number of shares purchased by the investor in this offering.
By the end of 2010, we had spent all of our initial $20,457 cash balance plus the majority of the $330,000 raised during 2010, so that our year-end cash balance was only $15,646, while our accounts payable and accrued expenses were $153,891.
During the first quarter of 2011, we raised gross proceeds of $1,000,000 through the private placement of 1,333,333 shares of our common stock to accredited investors at $0.75 per share. Each investor received a three-year warrant to purchase stock at $.75 per share for a number of shares of common stock equal to the number of shares purchased by the investor in this offering. The $1,000,000 included $250,000 purchased by a Newton affiliate in conjunction with the Newton BLOI, as noted above. We paid a placement agent fee of 10% to MAS with respect to the gross proceeds of this offering.
We continue to seek more funding from private debt and equity investors, as well as governmental sources, as we will need to raise substantial additional capital in order to finance our plan of operations. There can be no assurance that we will be able to raise the necessary funds. If we do not raise the necessary funds, we will be forced to cease operations.
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
Not required for smaller reporting companies.
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
The financial statements of the Company and other information required by this Item are set forth herein in a separate section beginning with the Index to the Financial Statements on page F-1.
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
On January 6, 2011, we were informed by Robert P. Bedwell, CPA of our former auditing firm, Berenfeld, Spritzer, Shechter & Sheer LLP (“Berenfeld”), that Berenfeld had dissolved and Mr. Bedwell had joined Cherry, Bekaert & Holland, L.L.P. (“CBH”), and therefore, Berenfeld could not continue as the independent registered public accounting firm for the Company. Mr. Bedwell’s role as our audit engagement partner, however, has continued uninterrupted at CBH. As a result, CBH has become our independent registered public accounting firm. This change in our independent registered public accounting firm was accepted by our Board of Directors. Additional detailed information concerning this matter was disclosed in a Form 8-K filed on January 13, 2011.
| ITEM 9A. | 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.
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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 management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal controls over financial reporting as of December 31, 2010. In making its assessment of internal control over financial reporting, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this evaluation, our management concluded that, as of December 31, 2010, our internal controls over financial reporting were effective.
This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Changes in Internal Control Over Financial Reporting
Except for the change in our independent registered public accounting firm (described above), there were no significant changes in internal control over financial reporting during the fourth quarter of 2010 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| ITEM 9B. | OTHER INFORMATION. |
None.
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. |
The names of our officers and directors, as well as certain information about them are set forth below:
| Name |
Age | Position(s) |
Held Since | |||||
| George Konrad |
52 | President, Chief Executive Officer, Treasurer, Director | 2007 | |||||
| Fred Barker |
77 | Vice President, Secretary, Director | 2007 | |||||
| Richard H. Davis |
54 | Director | 2008 | |||||
George Konrad. Mr. Konrad is in charge of our operations. His company, ARD, is involved in various advanced technology projects. ARD is a full-service R & D machine shop with CNC and CAD-CAM capabilities. Mr. Konrad has substantially improved the design of the JimmyJib, a camera boom that is used by cinematographers all over the world. This boom has electronic remote capabilities and is utilized at most movie locations and major sporting events around the world. ARD manufactures all of the major components for the JimmyJib and turns out thousands of parts each month.
Fred Barker. Mr. Barker directs our engineering activities. He is a graduate of the University of Washington, with a degree in mechanical engineering, and has done advanced studies at the University of Puget Sound and the University of Arizona. He was awarded two National Defense Education Act (NDEA) scholarships
16
for science and math and was a Fulbright Scholar. From 1958 to 1972, Mr. Barker worked as an engineer for The Boeing Company, focusing on the structures, wing groups and instrumentation of the 737, 747, 757 and 767 aircraft. From 1987 to 2002, Mr. Barker owned and operated VertiFan, Inc., which designed and developed vertical take-off and landing aircraft under a U.S. Department of Defense contract. Mr. Barker has been honored for outstanding contributions by the Seattle chapters of the American Societies of Manufacturing Engineers and Automotive Engineers.
Richard H. Davis. Mr. Davis received a B.S degree in economics from Florida State University in 1982. He joined First Equity Corporation (“First Equity”) in Miami that same year. First Equity operated as a regional full-service brokerage and investment bank. Mr. Davis’ duties included equity deal structure and brokerage-related activities. After First Equity was acquired in 2001, Mr. Davis joined the corporate finance department of William R. Hough & Company (“Hough”), where he continued structuring equity finance and private acquisitions. Hough was acquired in 2004 by RBC Dain Rauscher (“Dain”), a global investment banking firm. Dain consolidated Hough’s corporate finance activities into its New York offices. Mr. Davis elected to remain in Miami and joined Martinez-Ayme Securities, assuming the newly-created position of managing director of corporate finance.
Election of Directors
Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of the stockholders, including the election of directors. Cumulative voting with respect to the election of directors is not permitted by our Certificate of Incorporation.
Our Board of Directors shall be elected at the annual meeting of the shareholders or at a special meeting called for that purpose. Each director shall hold office until the next annual meeting of shareholders and until the director’s successor is elected and qualified.
Committees
Our Board of Directors does not yet have any committees; however, we intend to establish an audit committee and a compensation/stock option committee in the near future.
Advisory Board Members
In March 2010, our Board of Directors created an Advisory Board to advise and recommend, on a non-legally-binding basis, certain directions or actions deemed to be beneficial to the Company’s success. The Advisory Board’s members may be shareholders or non-shareholders; however, each member represents a specific industry or vocation complementary to the Company’s anticipated markets, customers and technical needs. It is anticipated that the Advisory Board will meet once a year in person and meet by conference call quarterly. We expect to compensate the Advisory Board members with restricted stock and/or options; however, the compensation plan has not yet been established. The initial members of the Advisory Board are as follows:
| • | Stephen H. McKnight. Mr. McKnight is active in real estate investment and management. Through his firms, he has created a portfolio in excess of 2.0 million square feet of commercial property, mostly in the Southwest United States. Mr. McKnight is also active in both equity and debt holdings, managing both trusts and family estates. He received an MBA from the University of Pittsburg in 1975. |
| • | Robert Eakins. Mr. Eakins is founder and President of The Eakins Group, a privately owned company providing maintenance service to the oil, refining, pipeline, telecommunications and construction industry. This Chicago-based company operates in a multi-state footprint with operations in the Midwest, South, Southwest and Northwest United States. |
| • | Randy Hinson. Mr. Hinson founded and successfully operated a pump manufacturing business in Houston, Texas. Mr. Hinson recently sold the company to a publicly-traded oil company, and remains under a non-compete contract during an agreed-upon transition process. |
| • | Leon Breece. Mr. Breece has operated as an entrepreneur and CPA in the Los Angeles, California area for many years. Mr. Breece’s company, Breece and Associates, handles accounting and tax matters for established companies and high profile individuals. He is an active investor in both the stock market and early stage private companies. |
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| • | Mark Block MD. Dr. Block is a leading podiatrist in the South Florida area. Dr. Block is past President of the Florida Podiatric Medical Association. He is a diplomat of the American Board of Podiatric Surgery, and former President and/or Chairman of many medical associations, too numerous to name. Dr. Block is an author and lecturer, as well as a contributing writer of the Coding Committee APMA. He considers himself a professional investor, managing family portfolios of established large capitalization companies and early stage start-ups. |
| • | Dr. Robert F. Ehrman. Dr. Ehrman is an owner and manager of commercial real estate, and has owned and managed several successful businesses. He attended the University of Miami School of Medicine, Northwestern Chiropractic College, and the University of Minnesota. Mr. Ehrman is a resident of Miami, Florida. |
All of the initial Advisory Board Members are PowerVerde shareholders.
Compliance with Section 16(a) of the Securities and Exchange Act of 1934
Under the securities laws of the United States, our directors, executive officers and any persons holding more than 10% of the Company’s common stock are required to report their initial ownership of the Company’s common stock and any subsequent changes in that ownership to the Securities and Exchange Commission. Specific due dates for these reports have been established and the Company is required to identify in this Report those persons who failed to timely file these reports. All of the filing requirements were satisfied in 2010, except with respect to the following transaction: As of August 3, 2010, an aggregate of 900,000 shares of common stock beneficially owned by Mr. Barker were sold in a private transaction to two related (but unaffiliated to the Company) parties (450,000 shares each) at a sale price of $.50 per share to be paid on a deferred basis, and this sale was rescinded on December 6, 2010 prior to any payment to Mr. Barker. This transaction is reflected in the Form 5 filed with the SEC on March 2, 2011. In making this disclosure, we have relied solely on written representations of our directors and executive officers and copies of the reports that have been filed with the Commission.
Code of Ethics
We have not adopted a code of ethics for our management because of the costs involved and our lack of resources and limited operations.
| ITEM 11. | EXECUTIVE COMPENSATION. |
Through March 31, 2011, we have not paid any compensation to officers or directors in such capacity; however, we have periodically engaged the services of Messrs. Konrad (through ARD) and Barker to perform certain services at a rate of $60 per hour. On February 1, 2011, we entered into a Contracted Consulting Services Agreement with PowerVerde Consulting Services, Inc., which is wholly-owned by Mr. Barker, whereby his company received a $5,000 relocation fee, and receives $6,000 per month for his services beginning February 15, 2011, subject to termination at any time by either party upon written notice to the other. ARD and Mr. Barker received payments of $69,058 and $13,500 from us in 2010, respectively. We believe that the compensation provided to Mr. Konrad and Mr. Barker does not exceed the compensation that would be charged by an unaffiliated third-party rendering comparable services. See “Item 13. Certain Relationships and Related Transactions, and Director Independence.”
Employment Agreements
Effective January 1, 2011, we entered into an employment agreement with Keith Johnson, pursuant to which Mr. Johnson serves as our Chief Technical Officer. Pursuant to this agreement, we pay Mr. Johnson a salary of $10,000 per month. This agreement is terminable by either party without cause upon 30 days’ prior written notice. In connection with this employment agreement, we granted Mr. Johnson a 10-year option to purchase 1,350,000 shares of our common stock at a price of $0.59 per share (the market price on the date of grant). One-fourth of the option shares, i.e., 337,500 shares, vested as of the date of the employment agreement, and the balance would vest in equal installments every six months thereafter until fully vested, provided that he is still employed by us at the time. Additionally, in connection with this employment agreement, Mr. Johnson assigned certain intellectual
18
property rights to the Company, including rights under U.S. Patent Application 61/424,249 filed on December 17, 2010. The employment agreement contains standard confidentiality provisions, as well as standard non-competition and non-solicitation provisions which survive for two years following termination of employment.
On April 7, 2011, in order to enhance the Company’s ability to raise capital and limit dilution of its stockholders, we entered into an agreement with our co-founder and President and Chief Executive Officer, George Konrad, pursuant to which Mr. Konrad agreed to surrender to our treasury 4,500,000 shares of our common stock owned by him since inception in exchange for our (i) entering into an employment agreement with him; and (ii) agreeing to pay to Mr. Konrad’s company, ARD, $200,000, representing the cost of certain equipment owned by ARD which is principally used by us.
Consequently, on April 7, 2011, we entered into a two-year employment agreement with Mr. Konrad, pursuant to which Mr. Konrad serves as our President. Pursuant to this employment agreement, we pay Mr. Konrad a salary of $10,000 per month. The employment agreement contains standard confidentiality provisions, as well as standard non-competition and non-solicitation provisions which survive for two years following termination of employment.
We may also issue to our officers and directors stock options on terms and conditions to be determined by our Board of Directors or designated committee.
Compensation of Directors
We have not yet determined a compensation plan for our directors. We intend to provide our directors with reasonable compensation for their services in cash, stock and/or options.
Indemnification of Directors and Officers
Our Certificate of Incorporation allows us to indemnify our present and former officers and directors and other personnel against liabilities and expenses arising from their service to the full extent permitted by Delaware law. The persons indemnified include our (i) present or former directors or officers, (ii) any person who while serving in any of the capacities referred to in clause (i) who served at our request as a director, officer, partner, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, and (iii) any person nominated or designated by (or pursuant to authority granted by) our Board of Directors or any committee thereof to serve in any of the capacities referred to in clauses (i) or (ii).
19
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. |
The following table sets forth certain information as of April 7, 2011, regarding the beneficial ownership of our common stock by (i) each of our directors and “named executive officers”; and (ii) all of our executive officers and directors as a group. To our knowledge, no other person beneficially owns more than 5% of our common stock.
| Name and Address of Beneficial Owner |
Shares Owned | Percent of Class | ||||||
| George Konrad1 21615 N Second Avenue Phoenix, AZ 85027 |
7,054,074 | 28.4 | ||||||
| Fred Barker2 21615 N Second Avenue Phoenix, AZ 85027 |
2,615,990 | 10.5 | ||||||
| Richard H. Davis3 8365 SW 168 Terrace Palmetto Bay, FL l33157 |
403,033 | 1.6 | ||||||
| All Directors and Executive Officers as a group (3 persons) |
10,073,097 | 40.5 | ||||||
| 1 | Mr. Konrad transferred 500,000 shares that he owned with his ex-wife to his ex-wife pursuant to a domestic relations order (divorce settlement in 2010). On April 7, 2011, Mr. Konrad agreed to surrender 4,500,000 shares to our treasury. |
| 2 | Mr. Barker’s shares are owned jointly by Mr. Barker and his wife indirectly through their joint ownership of PowerVerde Holdings, LLC (as to 600,000 shares) and PowerVerde Consulting Services, Inc. (as to 2,015,990 shares). Mr. Barker and his wife are the sole members of PowerVerde Holdings, LLC and PowerVerde Consulting LLC, and have complete voting and investment power over the PowerVerde shares owned by those companies. |
| 3 | Mr. Davis’ shares include 114,033 shares owned by Mr. Davis’ wife, as to which he disclaims beneficial ownership, and 10,000 shares owned by Darby Shore Management, Inc., a Florida corporation (“Darby”), for which Mr. Davis is an officer, director and 25% shareholder. Mr. Davis may be deemed to have voting and investment power over these shares held by Darby. |
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. |
Through December 31, 2010, we shared use of a full-service machining and manufacturing facility located at 21615 N. 2nd Avenue, Phoenix, Arizona, owned by Arizona Research and Development, Inc. (“ARD”), a company wholly-owned by George Konrad, the Company’s co-founder and President and Chief Executive Officer. We paid monthly rent to ARD in addition to our proportional share of the facility’s utilities. The lease terms with ARD were month to month and renewed monthly. No formal rent or lease agreement existed between ARD and the Company. Effective January 2011, we entered into a lease agreement with Konrad Holdings, LLC, a limited liability company wholly-owned by Mr. Konrad, for the use of approximately 5,000 square feet of our new facility located at 23429 N. 35th Drive, Glendale, Arizona (the “Facility”) at a monthly base rent of approximately $3,500. The term of this agreement is one year. We expect to substantially increase our use of the Facility by the end of 2011, and we believe that the Facility will be adequate to satisfy our needs through that time; however, in the event that we begin material sales, we may need to move to a larger facility.
Through December 31, 2010, Messrs. Konrad (through ARD) and Barker received $60 per hour for consulting services they provided to the Company. With respect to Mr. Barker, this arrangement has been superseded by the Contracted Consulting Services Agreement (described below). Mr. Barker received payments of $13,500 and $21,000 during the years ended December 31, 2010 and 2009, respectively, for these services. ARD received payments of $69,058 and $174,612 during the years ended December 31, 2010 and 2009, respectively, for these services.
20
On February 1, 2011, we entered into a Contracted Consulting Services Agreement with PowerVerde Consulting Services, Inc., which is wholly-owned by Mr. Barker, whereby his company received a $5,000 relocation fee, and receives $6,000 per month for his services beginning February 15, 2011, subject to termination at any time by either party upon written notice to the other.
We do not have any independent directors, as Messrs. Konrad and Barker are officers and principal shareholders, and Mr. Davis works for our investment banking firm. We intend to seek qualified independent directors to serve on our Board of Directors by the end of 2011.
In November 2008, we entered into a Line of Credit Agreement in the amount of $50,000 with Mr. Konrad. The agreement expired on November 13, 2009, and bore interest at the rate of 12.25% per annum. The full amount of the line of credit was drawn in the fourth quarter of 2008. On April 3, 2009, we paid the line of credit in full, including accrued interest thereon with the proceeds of a private placement of common stock. See “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities - Recent Sales of Unregistered Securities.” No further draws have been made on the line of credit.
On April 7, 2011, in order to enhance the Company’s ability to raise capital and limit dilution of its stockholders, we entered into an agreement with our co-founder and President and Chief Executive Officer, George Konrad, pursuant to which Mr. Konrad agreed to surrender to our treasury 4,500,000 shares of our common stock owned by him since inception in exchange for our (i) entering into an employment agreement with him; and (ii) agreeing to pay to Mr. Konrad’s company, ARD, $200,000, representing the cost of certain equipment owned by ARD which is principally used by us.
Consequently, on April 7, 2011, we entered into a two-year employment agreement with Mr. Konrad, pursuant to which Mr. Konrad serves as our President. Pursuant to this employment agreement, we pay Mr. Konrad a salary of $10,000 per month. The employment agreement contains standard confidentiality provisions, as well as standard non-competition and non-solicitation provisions which survive for two years following termination of employment.
| ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES. |
The firm of Cherry, Bekaert & Holland, L.L.P., Certified Public Accountants (“CBH”) was designated by our Board of Directors to audit the financial statements of our company for the fiscal year ended December 31, 2010. This auditor was appointed by our Board of Directors to replace our prior auditor, Berenfeld Spritzer Shechter & Sheer L.L.P. (“Berenfeld”), as this firm elected to cease operations.
The following table summarizes the aggregate fees billed and expected to be billed to us by CBH and Berenfeld for fiscal years ended December 31, 2010 and 2009, respectively:
Principal Accountant Fees and Service
| 2010 | 2009 | |||||||
| Audit Fees |
$ | 45,000 | $ | 56,000 | ||||
| Tax Fees |
$ | 500 | 0 | |||||
| Total |
$ | 45,500 | $ | 56,000 | ||||
Audit Fees
The aggregate fees billed by CBH and Berenfeld for professional services rendered for the fiscal years ended 2010 and 2009, respectively, including fees associated with the annual audit, the reviews of the consolidated financial statements included in our Forms 10-K, the reviews of the quarterly reports on Form 10-Q, fees related to filings with the Securities and Exchange Commission and consultations on accounting issues and the application on new accounting pronouncements were approximately $45,500 and $56,000, respectively.
21
Tax Fees
The aggregate fees billed by Estes Avellone, CPA for tax compliance, tax advice and tax planning rendered to the Company for the fiscal years ended December 31, 2010 and 2009 were approximately $500 and $0, respectively.
| ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES. |
See Exhibit Index and Financial Statements Index, below.
22
PowerVerde, Inc.
Annual Report on Form 10-K
Year Ended December 31, 2010
EXHIBIT INDEX
| Exhibit No. |
Description | |
| 3.1 | Certificate of Incorporation of Vyrex Corporation as filed with the Delaware Secretary of State on September 8, 2005.1 | |
| 3.2 | Bylaws of Vyrex Corporation, dated as of September 9, 2005.1 | |
| 3.3 | Amended and Restated Certificate of Incorporation of Vyrex Corporation as filed with the Delaware Secretary of State on August 14, 2008.2 | |
| 10.1 | Agreement and Plan of Merger, dated as of February 11, 2008 by and among Vyrex Corporation, Vyrex Acquisition Corporation and PowerVerde, Inc.1,3 | |
| 10.2 | Services Agreement dated as of February 11, 2008, between PowerVerde, Inc., and Fred Barker d/b/a Barker Engineering.1 | |
| 10.3 | Services Agreement dated as of February 11, 2008, between PowerVerde, Inc. and Arizona Research and Development, Inc.1 | |
| 10.4 | Intellectual Property Transfer Agreement dated as of March 4, 2009, between PowerVerde, Inc. and Edward C. Gomez.6 | |
| 10.5 | Market Awareness Consulting Agreement dated October 20, 2009, between the Company and Del Mar Corporate Consulting, LLC.5 | |
| 10.6 | Contracted Consulting Services Agreement dated February 1, 2011, between the Company and PowerVerde Consulting Services, Inc. | |
| 10.7 | Binding Letter of Intent for European Distribution dated January 31, 2011, between the Company and Newton Investments BV.7 | |
| 10.8 | Employment Agreement dated January 1, 2011, between the Company and Keith Johnson. | |
| 10.9 | Agreement dated April 7, 2011, between the Company and George Konrad. | |
| 10.10 | Employment Agreement dated April 7, 2011, between the Company and George Konrad. | |
| 21.1 | Subsidiaries of the Company.1 | |
| 31.1 | Certification of the Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2 | Certification of the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1 | Certification of the Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002. | |
23
| Exhibit No. |
Description | |
| 32.2 | Certification of the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002. |
| 1 | Previously filed on Form 8-K filed with the SEC on February 11, 2008. |
| 2 | Previously filed on Schedule 14A filed with the SEC on July 21, 2008. |
| 3 | Nonmaterial schedules and exhibits identified in the Agreement and Plan of Merger have been omitted pursuant to Item 601(b)(2) of Regulation S-B. The Company agrees to furnish supplementally to the SEC upon request by the SEC a copy of any omitted schedule(s) or exhibit(s). |
| 4 | Previously filed on Form 10-K for the year ended December 31, 2008 filed with the SEC on April 15, 2009. |
| 5 | Previously filed on Form 10-Q for the quarter ended September 30, 2009 as filed with the SEC on November 17, 2009. |
| 6 | Previously filed on Form 10-K for the year ended December 31, 2009 filed with the SEC on April 14, 2010. |
| 7 | Previously filed on Form 8-K filed with the SEC on February 4, 2011. |
24
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| POWERVERDE, INC. | ||||
| Dated: April 7, 2011 | by: | /s/ George Konrad | ||
| George Konrad | ||||
| President and Principal Executive Officer | ||||
In accordance with the Exchange Act, this Report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| Signature |
Title |
Date | ||
| /S/ George Konrad |
President, Chief Executive Officer, Chief Financial Officer, Treasurer and Director (principal executive, financial and accounting officer) | April 7, 2011 | ||
| /S/ Fred Barker |
Vice President, Secretary and Director | April 7, 2011 | ||
| /S/ Richard H. Davis. |
Director | April 7, 2011 | ||
25
PowerVerde, Inc. and Subsidiary
Annual Report on Form 10-K
Year Ended December 31, 2010
INDEX TO FINANCIAL STATEMENTS
| Page | ||||
| F-2 | ||||
| F-3 | ||||
| F-4 | ||||
| F-5 | ||||
| F-6 | ||||
| F-7 | ||||
| F-8 | ||||
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
PowerVerde, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of PowerVerde, Inc. and Subsidiary (collectively, the “Company”) as of December 31, 2010, and the related consolidated statement of operations, changes in stockholders’ equity, and cash flows for the year ended December 31, 2010 and the period from March 9, 2007 (date of Inception) to December 31, 2010. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated financial statements of the Company as of and for the year ended December 31, 2009 were audited by other auditors who have ceased operations, and who expressed an unqualified opinion on those financial statements in their report dated April 14, 2010.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2010, and the consolidated results of its operations and its cash flows for the year ended December 31, 2010 and the period from March 9, 2007 (Date of Inception) to December 31, 2010, in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
As shown in the consolidated financial statements, the Company incurred a net loss of $308,352 for 2010. At December 31, 2010, current liabilities exceed current assets by $132,895. These factors, and others discussed in Note 2, raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustment relating to the recoverability and classification of recorded assets, or the amount and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
/s/ Cherry, Bekaert & Holland, L.L.P.
Certified Public Accountants
Fort Lauderdale, Florida
April 7, 2011
F-2
Provided below is a copy of the accountant’s report issued by Berenfeld, Spritzer, Schechter & Sheer, LLP (“Berenfeld”), our former independent public accountants, in connection with the filing of our Annual report of Form 10-K for the year ended December 31, 2009. This audit report has not been reissued by Berenfeld in connection with the filing of this Annual report on Form 10-K for the year ended December 31, 2010. We are unable to obtain a reissued accountant’s report from Berenfeld, and we will be unable to obtain future accountant’s reports from Berenfeld, because Berenfeld has discontinued its auditing practice and ceased operations. This means that we will also be unable to obtain consents to incorporate any financial statements audited by Berenfeld into registration statements that we may file or amend in the future. Accordingly, investors may not be able to bring an action against Berenfeld pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934 with respect to any such registration statements or with respect to this Annual Report and, therefore, any recovery from Berenfeld may be limited. The ability of investors to recover from Berenfeld may also be limited as a result of Berenfeld’s financial condition.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
PowerVerde, Inc. and Subsidiary
We have audited the consolidated balance sheets of PowerVerde, Inc. and Subsidiary (the Company), as of December 31, 2009 and 2008, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the year ended December 31, 2009 and the period from March 9, 2007 (Date of Inception) to December 31, 2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of PowerVerde, Inc. and Subsidiary as of December 31, 2009 and 2008, and the consolidated results of its operations and its consolidated cash flows for the year ended December 31, 2009 and the period from March 9, 2007 (Date of Inception) to December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.
As shown in the consolidated financial statements, the Company incurred a net loss of $890,980 and $829,556 for 2009 and 2008, respectively. At December 31, 2009, current liabilities exceed current assets by $123,692. These factors, and others discussed in Note 2, raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustment relating to the recoverability and classification of recorded assets, or the amount and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
Berenfeld Spritzer Shechter & Sheer LLP
Certified Public Accountants
Fort Lauderdale, Florida
April 14, 2010
F-3
PowerVerde, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Balance Sheets
December 31, 2010 and December 31, 2009
| December | ||||||||
| 2010 | 2009 | |||||||
| Assets |
||||||||
| Current Assets: |
||||||||
| Cash and cash equivalents |
$ | 15,646 | $ | 20,457 | ||||
| Accounts receivable |
5,350 | 7,626 | ||||||
| Total Current Assets |
20,996 | 28,083 | ||||||
| Property and Equipment |
||||||||
| Property and equipment, net of accumulated depreciation of $13,103 and $7,416, respectively |
12,034 | 14,182 | ||||||
| Total Assets |
$ | 33,030 | $ | 42,265 | ||||
| Liabilities and Stockholders’ Equity |
||||||||
| Current Liabilities |
||||||||
| Accounts payable and accrued expenses |
$ | 153,891 | $ | 151,775 | ||||
| Total Current Liabilities |
153,891 | 151,775 | ||||||
| Commitments and Contingencies |
||||||||
| Stockholders’ Equity |
||||||||
| Preferred stock: |
||||||||
| 50,000,000 preferred shares authorized, par value $0.0001 no shares issued and outstanding at December 31, 2010 and 2009 |
— | — | ||||||
| Common stock: |
||||||||
| 100,000,000 common shares authorized, par value $0.0001 per share, 28,043,065 common shares issued and outstanding at December 31, 2010, and 27,603,066 common shares issued and outstanding at December 31, 2009 |
2,804 | 2,761 | ||||||
| Additional paid-in capital |
2,179,625 | 1,882,667 | ||||||
| Deficit accumulated in the development stage |
(2,303,290 | ) | (1,994,938 | ) | ||||
| Total Stockholders’ Equity |
(120,861 | ) | (109,510 | ) | ||||
| Total Liabilities and Stockholders’ Equity |
$ | 33,030 | $ | 42,265 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
F-4
PowerVerde, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Operations
For the years ended December 31, 2010 and 2009, and the
period from March 9, 2007 (Date of Inception) to December 31, 2010
| 2010 | 2009 | Cumulative
from inception through December 31, 2010 |
||||||||||
| Licensing and Royalty Revenue |
$ | 33,842 | $ | 33,860 | $ | 91,365 | ||||||
| Operating Expenses |
||||||||||||
| Research and development |
169,665 | 386,868 | 1,013,064 | |||||||||
| General and administrative |
198,900 | 357,640 | 1,042,871 | |||||||||
| Total Operating Expenses |
368,565 | 744,508 | 2,055,935 | |||||||||
| Loss from Operations |
(334,723 | ) | (710,648 | ) | (1,964,570 | ) | ||||||
| Other Income (Expenses) |
||||||||||||
| Interest income |
— | — | 2,401 | |||||||||
| Interest expense |
— | (180,332 | ) | (333,475 | ) | |||||||
| Other |
26,371 | — | (7,646 | ) | ||||||||
| Total Other Income (Expenses) |
26,371 | (180,332 | ) | (338,720 | ) | |||||||
| Loss before Income Taxes |
(308,352 | ) | (890,980 | ) | (2,303,290 | ) | ||||||
| Provision for Income Taxes |
— | — | — | |||||||||
| Net Loss |
$ | (308,352 | ) | $ | (890,980 | ) | $ | (2,303,290 | ) | |||
| Net Loss per Share - Basic and Diluted |
$ | (0.01 | ) | $ | (0.03 | ) | ||||||
| Weighted Average Common Shares Outstanding - Basic and Diluted |
27,821,111 | 27,565,214 | ||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-5
PowerVerde, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Changes in Stockholders’ Equity
Inception through December 31, 2010
| Common Shares |
Common Stock |
Additional Paid in Capital |
Deficit Accumulated during the Development Stage |
Total Stockholders’ Equity |
||||||||||||||||
| Balance at March 9, 2007 (date of inception) |
— | $ | — | $ | — | $ | — | $ | — | |||||||||||
| Common Stock issued for cash, net of stock issuance costs of $45,398 |
20,350,000 | 20,350 | 659,252 | — | 679,602 | |||||||||||||||
| Net Loss |
— | — | — | (274,402 | ) | (274,402 | ) | |||||||||||||
| Balances, December 31, 2007 |
20,350,000 | $ | 20,350 | $ | 659,252 | $ | (274,402 | ) | $ | 405,200 | ||||||||||
| Sale of common stock at $.50 per share |
50,000 | 50 | 24,950 | — | 25,000 | |||||||||||||||
| Stockholder Equity of Vyrex Corporation at merger |
1,019,144 | 102 | (479,771 | ) | — | (479,669 | ) | |||||||||||||
| Recapitalization of PowerVerde stockholders’ equity |
(20,400,000 | ) | (20,400 | ) | 20,400 | — | — | |||||||||||||
| Shares issued related to forgiveness of debt and issued for services |
275,000 | 28 | 249,972 | — | 250,000 | |||||||||||||||
| Shares issued in exchange for PowerVerde shares |
24,588,734 | 2,459 | (2,459 | ) | — | — | ||||||||||||||
| Warrants issued with debt |
— | — | 299,984 | — | 299,984 | |||||||||||||||
| Net loss |
— | — | — | (829,556 | ) | (829,556 | ) | |||||||||||||
| Balances, December 31, 2008 |
25,882,878 | $ | 2,589 | $ | 772,328 | $ | (1,103,958 | ) | $ | (329,041 | ) | |||||||||
| Sale of common stock at $.75 per share, net of stock issuance costs of $85,000 |
1,266,667 | 126 | 864,874 | — | 865,000 | |||||||||||||||
| Common stock issued on conversion of debt |
378,521 | 38 | 189,223 | — | 189,261 | |||||||||||||||
| Common stock issued for services |
75,000 | 8 | 56,242 | 56,250 | ||||||||||||||||
| Net loss |
— | — | — | (890,980 | ) | (890,980 | ) | |||||||||||||
| Balances, December 31, 2009 |
27,603,066 | $ | 2,761 | $ | 1,882,667 | $ | (1,994,938 | ) | $ | (109,510 | ) | |||||||||
| Sale of common stock at $.75 per share, net of stock issuance costs of $85,000 |
439,999 | 43 | 296,958 | — | 297,001 | |||||||||||||||
| Net loss |
— | — | — | (308,352 | ) | (308,352 | ) | |||||||||||||
| Balances, December 31, 2010 |
28,043,065 | $ | 2,804 | $ | 2,179,625 | $ | (2,303,290 | ) | $ | (120,861 | ) | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
PowerVerde, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the years ended December 31, 2010 and 2009, and the
period from March 9, 2007 (Date of Inception) to December 31, 2010
| 2010 | 2009 | Cumulative
from inception through December 31, 2010 |
||||||||||
| Cash Flows from Operating Activities |
||||||||||||
| Net loss |
$ | (308,352 | ) | $ | (890,980 | ) | $ | (2,303,290 | ) | |||
| Adjustments to reconcile net loss to net cash used by operating activities: |
||||||||||||
| Depreciation |
5,687 | 3,683 | 13,103 | |||||||||
| Amortization of discount Stock based compensation |
— |
|
192,519 56,250 |
|
|
329,462 56,250 |
| |||||
| Changes in operating assets and liabilities: |
— | |||||||||||
| Accounts receivable and other assets |
2,276 | (5,126 | ) | (5,350 | ) | |||||||
| Accounts payable and accrued liabilities |
2,116 | (62,975 | ) | (76,650 | ) | |||||||
| Cash Used in Operating Activities |
(298,273 | ) | (706,629 | ) | (1,986,475 | ) | ||||||
| Cash Flows From Investing Activities |
||||||||||||
| Purchase of fixed assets |
(3,538 | ) | (7,900 | ) | (25,136 | ) | ||||||
| Cash acquired in business acquisition |
— | — | 872 | |||||||||
| Cash Used in Investing Activities |
(3,538 | ) | (7,900 | ) | (24,264 | ) | ||||||
| Cash Flows from Financing Activities |
||||||||||||
| Net proceeds from issuance of common stock |
330,000 | 950,000 | 2,030,000 | |||||||||
| Proceeds from notes payable |
— | — | 300,000 | |||||||||
| Payment of line of credit |
— | (50,000 | ) | (50,000 | ) | |||||||
| Payment of note payable |
— | (90,217 | ) | (90,217 | ) | |||||||
| Payment of stock issuance costs |
(33,000 | ) | (85,000 | ) | (163,398 | ) | ||||||
| Cash Provided by Financing Activities |
297,000 | 724,783 | 2,026,385 | |||||||||
| Net (Decrease) Increase in Cash |
(4,811 | ) | 10,254 | 15,646 | ||||||||
| Cash, at Beginning of Period |
20,457 | 10,203 | — | |||||||||
| Cash, at End of Period |
$ | 15,646 | $ | 20,457 | $ | 15,646 | ||||||
| Supplemental Disclosure of Cash Flow Information |
||||||||||||
| Cash Paid for Interest |
$ | — | $ | 8,717 | $ | 24,221 | ||||||
| Cash Paid for Income Taxes |
$ | — | $ | — | $ | — | ||||||
| Supplemental Schedule of Non-Cash Financing and Investment Transactions |
||||||||||||
| Common stock issued for convertible debt |
$ | — | $ | 189,261 | $ | 189,261 | ||||||
| Common stock issued for services |
$ | — | $ | 56,250 | $ | 56,250 | ||||||
| Warrants issued in connection with debt |
$ | — | $ | — | $ | 299,984 | ||||||
| Common stock issued in connection with debt forgiveness and services rendered |
$ | — | $ | — | $ | 250,000 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-7
PowerVerde, Inc. and Subsidiary
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Except where the context otherwise requires, references throughout this Report hereafter to “PowerVerde,” “we,” “us,” “our” and the “Company” will mean or refer to PowerVerde’s business and operations.
Note 1 – Nature of Business
PowerVerde, Inc. (the Company) is a “C” Corporation organized under the Laws of Delaware with operations in Phoenix, Arizona. The Company has two principal owners who have conceived and developed the use of a power systems patent. The Company is in the development stage and it is presently undertaking research and development on a power generating system.
On February 11, 2008, Vyrex Corporation (“Vyrex” or the “Company”); PowerVerde, Inc. (“PowerVerde”) and Vyrex Acquisition Corporation (“VAC”), a wholly-owned subsidiary of Vyrex, all Delaware corporations, entered into an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, on February 12, 2008, VAC merged with and into PowerVerde, with PowerVerde remaining as the surviving corporation and a wholly-owned subsidiary of Vyrex (the “Merger”). As consideration for the Merger, as of the closing of the Merger, each issued and outstanding share of common stock of PowerVerde was converted into the right to receive 1.2053301 shares of the common stock of Vyrex and each share of VAC was converted into one share of PowerVerde common stock. As a result of the Merger, the former shareholders of PowerVerde hold 24,588,734 shares, or 95%, of the common stock of Vyrex. Pursuant to the Merger Agreement, PowerVerde paid $233,000 in accounts payable and other liabilities owed by Vyrex. The total purchase price of the transaction of $401,894 includes $60,000 of transaction costs related to the Merger.
In addition, immediately prior to execution of the Merger Agreement, Vyrex paid a $200,000 promissory note through the issuance of 250,000 shares of common stock and issued an additional 25,000 shares of common stock as payment for certain consulting and administrative services.
At a stockholder meeting held on August 6, 2008, the Company’s stockholders approved (i) the change of the Company’s name to “PowerVerde, Inc.” and (ii) the Amended and Restated Certificate of Incorporation filed as an exhibit to the Company’s report on Form 10-Q for the quarter ended June 30, 2008. Immediately prior to the filing of the Certificate changing the Company’s name, the name of the Company’s operating subsidiary was changed from “PowerVerde, Inc.” to “PowerVerde Systems, Inc.”
Note 2 – Going Concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has had recurring operating losses and negative cash flows from operations. Those factors, as well as uncertainty in securing additional funds for continued operations, create an uncertainty about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
F-8
Note 3 – Summary of Significant Accounting Policies
Basis of Accounting
The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these 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.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and PowerVerde Systems, Inc., its wholly owned subsidiary. Intercompany balances and transactions have been eliminated in consolidation.
Development Stage Company
The Company is a development stage company as defined in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 915, “Development Stage Entities”. The Company is devoting substantially all of its present efforts to establish a new business and none of its planned principal operations have commenced. All losses accumulated since inception has been considered as part of the Company’s development stage activities.
Cash Equivalents
For purposes of reporting cash flows, cash equivalents include money market accounts and any highly liquid debt instruments purchased with a maturity of three months or less. At December 31, 2010 and December 31, 2009, the Company had cash equivalents in the amount of $15,646 and $20,457, respectively.
Revenue Recognition
Licensing and royalty revenue from royalty agreements is recognized in accordance with the terms of the specific agreement, which generally includes a quarterly minimum payment by the licensee.
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.
Accounting for Uncertainty in Income Taxes
Income taxes are accounted for in accordance with FASB ASC Topic 740, “Income Taxes” (“ASC 740”). Under ASC 740, income taxes are recognized for the amount of taxes payable for the current year and deferred tax assets and liabilities for the future tax consequence of events that have been recognized differently in the financial statements than for tax purposes. Deferred tax assets and liabilities are established using statutory tax rates and are adjusted for tax rate changes. We consider accounting for income taxes critical to our operations because management is required to make significant subjective judgments in developing our provision for income taxes, including the determination of deferred tax assets and liabilities, and any valuation allowances that may be required against deferred tax assets.
F-9
Note 3 – Summary of Significant Accounting Policies (Continued)
Accounting for Uncertainty in Income Taxes (Continued)
ASC 740 clarifies the accounting for uncertainty in income tax recognized in an entity’s financial statements and requires companies to determine whether it is “more likely than not” that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements. For those tax positions where it is not “more likely than not” that a tax benefit will be sustained, no tax benefit is recognized. Where applicable, associated interest and penalties are also recorded. This interpretation also provides guidance on de-recognition, classification, accounting in interim periods, and expanded disclosure requirements.
Based on our evaluation, we have concluded that there are no significant uncertain tax positions requiring recognition in our financial statements. Our evaluation was performed for the tax years ended December 31, 2007, 2008, 2009 and 2010, the tax years which remain subject to examination by major tax jurisdictions as of December 31, 2010. 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 financial statements as selling, general and administrative expense.
Research and Development Costs
The Company’s research and development costs are expensed in the period in which they are incurred. Such expenditures amounted to $169,665 and $386,868 for the year ended December 31, 2010 and 2009, respectively.
Earnings (Loss) Per Share
Earnings (loss) per share is computed in accordance with FASB ASC Topic 260, “Earnings per Share”. Basic earnings (loss) per share is computed by dividing net income (loss), after deducting preferred stock dividends accumulated during the period, by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net income by the weighted-average number of shares of common stock, common stock equivalents and other potentially dilutive securities outstanding during the period.
Common Stock Purchase Warrants
The Company accounts for common stock purchase warrants in accordance with FASB ASC Topic 815-10, “Derivatives and Hedging” (“ASC 815-10”). Based on the provisions of ASC 815-10, 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).
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
F-10
Note 3 – Summary of Significant Accounting Policies (Continued)
Stockholders’ Equity
Shares of common stock issued for other than cash have been assigned amounts equivalent to the fair value of the service or assets received in exchange.
Financial Instruments and Fair Values
The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time, based upon relevant market information about the financial instrument.
The carrying amount of cash and cash equivalents, trade receivables and other assets approximates fair value due to the short-term maturities of these instruments.
The fair values of all other financial instruments, including debt, approximate their book values as the instruments are short-term in nature or contain market rates of interest.
Note 4 – Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB) issued new accounting guidance on accounting for transfers of financial assets which removes the concept of a qualifying special-purpose entity (QSPE) and clarifies the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting. The Company adopted the new accounting guidance beginning January 1, 2010. This new accounting guidance did not have a significant impact on the Company’s financial position, cash flows or results of operations.
In June 2009, the FASB issued new accounting guidance which revises the approach to determining the primary beneficiary of a variable interest entity (VIE) to be more qualitative in nature and requires companies to more frequently reassess whether they must consolidate a VIE. The Company adopted the new accounting guidance beginning January 1, 2010. This new accounting guidance did not have a significant impact on the Company’s financial position, cash flows or results of operations.
In October 2009, the FASB issued authoritative guidance about the accounting for revenue contracts containing multiple elements, allowing the use of companies’ estimated selling prices as the value for deliverable elements under certain circumstances and to eliminate the use of the residual method for allocation of deliverable elements. This guidance is effective for the Company beginning January 1, 2011. The Company does not expect that this standard will have a significant impact on its financial position or results of operations.
In January 2010, the FASB issued guidance that requires reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements, including significant transfers into and out of Level 1 and Level 2 fair value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. The Company adopted the new accounting guidance beginning January 1, 2010. This update had no impact on the Company’s financial position, cash flows or results of operations.
In July 2010, the FASB issued Accounting Standards Update No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (“ASU 2010-20”). This ASU requires enhanced disclosures with disaggregated information regarding the credit quality of an entity’s financing receivables and its allowance for credit losses. The update also requires disclosure of credit quality indicators, past due information, and modifications of financing receivables. This ASU is effective for interim and annual reporting periods ending after December 15, 2010. The Company adopted this ASU beginning with its annual reporting period ended December 31, 2010. This new accounting guidance did not have a significant impact on the Company’s financial position, cash flows or results of operations.
F-11
Note 4 – Recent Accounting Pronouncements (Continued)
In December 2010, the FASB issued a new standard addressing the disclosure of supplemental pro forma information for business combinations that occur during the current year. The new standard requires public entities that present comparative financial statements to disclose the revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the prior annual reporting period. The standard is effective for the Company as of January 1, 2010. The Company does not expect it will have a material impact on its financial position or results of operations.
Note 5 – Notes Payable
Series A Promissory Notes
During 2008, the Company completed an offering of $250,000 in principal amount of Series A Promissory Notes (the “Notes”). The Notes were due on July 31, 2009, and interest in the Notes accrued at the rate of 10% per annum. In consideration of the purchase of the Notes, the investors received three-year warrants to purchase an aggregate of 250,000 shares of the Company’s common stock at an exercise price of $1.50 per share (one warrant share for each $1.00 invested). As of December 31, 2010, none of these warrants have been exercised. These warrants will expire on various dates in May 2011 through July 2011.
The fair value of these warrants of $249,985 was determined using the Black-Scholes option pricing model with the assumptions listed below:
| Risk free interest rate: |
Range of 2.50% to 3.27% | |
| Expected term: |
3 years | |
| Expected dividend yield |
0.00 | |
| Expected volatility |
99.56% |
The warrants were recorded at their fair value of $249,985, and a discount in the same amount was recorded against the carrying value of the notes payable. Full amortization of the discount was charged to interest expense in the accompanying Consolidated Statements of Operations for the year ended December 31, 2009.
In July 2009, $168,500 principal amount of the Notes, plus accrued interest thereon of $20,761, was converted into 378,521 shares of common stock, reflecting a conversion price of $.50 per share. The remaining $81,500 principal amount of Notes, together with $8,717 in accrued interest thereon, was paid in cash in August 2009. No debt remained after August 2009. Interest on the Notes was $11,604 for the year ended December 31, 2009.
Line of Credit Agreement
In November 2008, the Company entered into a Line of Credit Agreement in the amount of $50,000 with its principal executive officer. The agreement expired on November 13, 2009, and bore interest at the rate of 12.25% per annum. The full amount of the line of credit was drawn in the fourth quarter of 2008. On April 3, 2009, the Company paid the line of credit in full, including accrued interest thereon. No further draws have been made on the line of credit.
In consideration of the Line of Credit Agreement, the principal executive officer received a three-year warrant to purchase 50,000 shares of the Company’s common stock at an exercise price of $2.30 per share. As of December 31, 2010, this warrant has not been exercised. This warrant will expire on November 13, 2011.
The fair value of these warrants of $49,999 was determined using the Black-Scholes option pricing model with the assumptions listed below:
| Risk free interest rate: |
1.62% | |
| Expected term: |
3 years | |
| Expected dividend yield |
0.00 | |
| Expected volatility |
108.23% |
F-12
Note 5 – Notes Payable (Continued)
The warrants were recorded at their fair value of $49,999, and a discount in the same amount was recorded against the carrying value of the notes payable. Full amortization of the discount was charged to interest expense in the accompanying Consolidated Statements of Operations for the year ended December 31, 2009.
Note 6 – Property and Equipment
A summary of property and equipment at December 31, 2010 and 2009 is as follows:
| 2010 | 2009 | |||||||||||
| Estimated useful |
Estimated useful lives (in years) | |||||||||||
| Equipment |
$ | 22,339 | 5 | $ | 18,800 | 5 | ||||||
| Computer equipment (hardware) |
2,798 | 3 | 2,798 | 3 | ||||||||
| 25,137 | 21,598 | |||||||||||
| Accumulated depreciation |
13,103 | 7,416 | ||||||||||
| $ | 12,034 | $ | 14,182 | |||||||||
The amounts charged to operations for depreciation for the years ended December 31, 2010 and 2009 were $5,687 and $3,683, respectively.
Note 7 – Stockholders’ Equity
Warrants
In connection with the Notes and the Line of Credit Agreement entered into in 2008 and discussed in Note 5, above, the Company issued warrants to purchase 250,000 and 50,000 shares of the Company’s common stock at exercise prices of $1.50 and $2.30 per share, respectively. These warrants are still outstanding as of December 31, 2010. The warrants issued pursuant to the Notes expire on various dates in May 2011 through July 2011, and the warrants issued pursuant to the Line of Credit Agreement expire in November 2011. The fair value of these warrants was determined using the Black-Scholes option pricing model as discussed in Note 5, above.
A summary of warrants issued, exercised and expired for the years ended December 31, 2010 and 2009 is as follows:
| Amount | ||||
| Balance at December 31, 2008 |
490,000 | |||
| Issued |
— | |||
| Exercised |
— | |||
| Expired |
— | |||
| Balance at December 31, 2009 |
490,000 | |||
| Issued |
439,999 | |||
| Exercised |
— | |||
| Expired |
— | |||
| Balance at December 31, 2010 |
929,999 | |||
F-13
Note 7 – Stockholders’ Equity (Continued)
Private Placement of Common Stock
During 2010, we raised gross proceeds of $330,000 through the private placement of 439,999 shares of our common stock to accredited investors at $.75 per share, $85,000 of which was raised in the first quarter through the private placement of 113,333 shares, $130,000 of which was raised in the second quarter through the private placement of 173,333 shares, $75,000 of which was raised in the third quarter through the private placement of 100,000 shares, and $40,000 of which was raised in the fourth quarter through the private placement of 53,333 shares. Each investor received a three-year warrant to purchase stock at $.75 per share for a number of shares of common stock equal to the number of shares purchased by the investor in this offering.
From March through October 2009, we raised $950,000 through private placements of an aggregate of 1,266,667 shares of our common stock to accredited investors at $.75 per share. The net proceeds from these offerings were $865,000. The Company paid a placement agent fee of 10% to MAS with respect to $625,000 of the gross proceeds, a finder’s fee of 6% and a placement agent fee to MAS of 4% with respect to $250,000, and there was no placement agent fee or finder’s fee with respect to $100,000 of these proceeds. The net proceeds of these offerings were used (i) to pay $81,500 principal amount of our Series A Promissory Notes due July 31, 2009, together with $8,717 in accrued interest thereon; (ii) to pay in full a $50,000 loan made by our founder and CEO, George Konrad, to the Company in 2008 (See “Item 13. Certain Relationships and Related Transactions, and Director Independence.”); and (iii) for working capital.
The remaining $168,500 principal amount of Notes, together with accrued interest thereon of $20,761, was converted in July 2009 into 378,521 shares of our common stock, reflecting a conversion price of $.50 per share.
In October 2009, we issued 75,000 shares of our common stock, valued at $56,250, to Del Mar Corporate Consulting, LLC (the “Consultant”) pursuant to a Market Awareness Consulting Agreement, dated October 20, 2009. Pursuant to this agreement, we also paid the Consultant $25,000 upon signing; however, we have declined to pay the additional $25,000 due under this agreement due to our belief that the Consultant has failed to perform under this agreement. We have also asserted an unresolved claim that the Consultant is entitled to only 12,500 of the 75,000 shares due to its failure to perform.
Preferred Shares
The Company has 50,000,000 shares of authorized, $0.0001 par value preferred stock. At December 31, 2010 no shares had been issued.
Note 8 – Basic and Diluted Loss per Common Share
The computation of diluted loss per share for 2010 and 2009 does not include shares from potentially dilutive securities as the assumption of conversion or exercise of these would have an anti-dilutive effect on loss per share. In accordance with generally accepted accounting principles, diluted loss per share is calculated using the same number of potential common shares as used in the computation of loss per share before extraordinary items. There are 930,000 and 300,000 potentially dilutive shares outstanding at December 31, 2010 and 2009, respectively.
Note 9 – Income Taxes
The Company did not provide a current or deferred U.S. federal or state income tax provision or benefit for any of the periods presented because it has experienced recurring operating losses. The Company has provided a full valuation allowance on the deferred tax assets, consisting primarily of the net operating losses, because evidence does not indicate that the deferred tax assets will more likely than not be realized.
F-14
At December 31, 2010 and 2009, deferred tax assets, calculated at a tax rate of 35%, consisted of the following:
| 2010 | 2009 | |||||||
| Net Operating Loss Carryforward |
$ | 818,000 | $ | 710,000 | ||||
| Less: Valuation allowance |
(818,000 | ) | (710,000 | ) | ||||
| Net deferred tax asset |
$ | — | $ | — | ||||
The Company’s effective income tax rate is lower than what would be expected if the federal statutory rate were applied to the loss from operations primarily because of the effect of the state tax benefit, net of federal benefit, and the change in the valuation allowance provided against deferred tax assets.
At December 31, 2010, the Company had net operating losses of approximately $2,280,000 that can be carried forward for up to twenty years and deducted against future taxable income. The net operating loss carryforwards expire in various years through 2029 and may be subject to certain limitations under federal and state tax laws.
Note 10 – Related Parties
The Company shares use of a full-service machining and manufacturing facility located Arizona, owned by Arizona Research and Development, Inc. (“ARD”). ARD is wholly-owned by George Konrad, the Company’s President and largest shareholder. No formal rent or lease agreement exists between ARD and the Company. Monthly rental payments to ARD in addition to a proportional share of the facility’s utilities are paid on a month to month basis. Total rent expense for the years ended December 31, 2010 and 2009 were $3,500 and $16,500, respectively.
Through December 31, 2010, Messrs. Konrad (through ARD) and Barker received $60 per hour for consulting services they provided to the Company. With respect to Mr. Barker, this arrangement has been superseded by the Contracted Consulting Services Agreement (described below). ARD and Mr. Barker received payments of $69,058 and $13,500 from us in 2010, respectively.
In November 2008, we entered into a Line of Credit Agreement in the amount of $50,000 with Mr. Konrad. The agreement expired on November 13, 2009, and bore interest at the rate of 12.25% per annum. The full amount of the line of credit was drawn in the fourth quarter of 2008. On April 3, 2009, we paid the line of credit in full, including accrued interest thereon with the proceeds of a private placement of common stock. See “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities - Recent Sales of Unregistered Securities.” No further draws have been made on the line of credit.
Note 11 – Commitments and Contingencies
As disclosed in Note 10 – Related Parties, the Company shares use of a full-service machining and manufacturing facility located Arizona, owned by Arizona Research and Development, Inc. (“ARD”). ARD is wholly-owned by George Konrad, the Company’s Co-Founder and President and Chief Executive Officer. No formal rent or lease agreement exists between ARD and the Company. Monthly rental payments to ARD in addition to a proportional share of the facility’s utilities are paid on a month to month basis. Total rent expense for the years ended December 31, 2010 and 2009 were $3,500 and $16,500, respectively. The Company entered into a new lease agreement effective January 1, 2011 as disclosed in Note 12 – Subsequent Events.
Note 12 – Subsequent Events
During the first quarter of 2011, we raised gross proceeds of $1,000,000 through the private placement of 1,333,333 shares of our common stock to accredited investors at $0.75 per share. Each investor received a three-year warrant to purchase stock at $.75 per share for a number of shares of common stock equal to the number of shares purchased by the investor in this offering. The $1,000,000 included $250,000 purchased by a Newton affiliate in conjunction with the Newton BLOI, as noted above. We paid a placement agent fee of 10% to MAS with respect to the gross proceeds of this offering.
F-15
Note 12 – Subsequent Events (Continued)
Effective January 1, 2011, we entered into a lease agreement with Konrad Holdings, LLC, a limited liability company wholly-owned by our co-founder and President and Chief Executive Officer, George Konrad. The lease term is for one year for the use of approximately 5,000 square feet at approximately $3,500 per month.
Effective January 1, 2011, we entered into an employment agreement with Keith Johnson, pursuant to which Mr. Johnson serves as our Chief Technical Officer. Pursuant to this agreement, we pay Mr. Johnson a salary of $10,000 per month. This agreement is terminable by either party without cause upon 30 days’ prior written notice. In connection with this employment agreement, we granted Mr. Johnson a 10-year option to purchase 1,350,000 shares of our common stock at a price of $0.59 per share (the market price on the date of grant). One-fourth of the option shares, i.e., 337,500 shares, vested as of the date of the employment agreement, and the balance would vest every six months thereafter until fully vested, provided that he is still employed by us at the time. Additionally, in connection with this employment agreement, Mr. Johnson assigned certain intellectual property rights to the Company, including rights under U.S. Patent Application 61/424,249 filed on December 17, 2010. The employment agreement contains standard confidentiality provisions, as well as standard non-competition and non-solicitation provisions which survive for two years following termination of employment.
On January 31, 2011, we entered into a Binding Letter of Intent for European Distribution (the “BLOI”) with Newton Investments BV, a Dutch corporation based in Leeuwarden, Netherlands (“Newton”). Pursuant to the BLOI, we and Newton agreed to enter into a definitive agreement within 60 days (since extended to 90 days), pursuant to which Newton will, for a period of 10 years, be the exclusive manufacturer and distributor of the Company’s proprietary emissions-free electrical power generation systems (the “Systems”) in the 27 countries which are currently members of the European Union, subject to Newton achieving minimum sales of at least 100 Systems per year and investing at least $750,000 in establishing its manufacturing facility and distribution network. Pursuant to the BLOI, we will receive as a royalty an amount equal to 20% of the gross sale price of each System sold by Newton. We have authorized Newton to manufacture our Systems under a strict licensing agreement with a Dutch/German foundry and machine shop capable of producing hundreds of units per year. Of the 27 European Union nations, we are initially focusing on the Netherlands, Belgium, Germany and Scandinavian countries. Newton also agreed to purchase an initial System from us for a discounted price of $90,000. In connection with the BLOI, an affiliate of Newton invested $250,000 in PowerVerde by privately purchasing 333,333 restricted shares of our common stock at a price of $.75 per share. In connection with this purchase, we issued to the investor a three-year warrant to buy an additional 333,333 shares at a price of $.75 per share.
On February 1, 2011, we entered into a Contracted Consulting Services Agreement with PowerVerde Consulting Services, Inc., which is wholly-owned by Mr. Barker, whereby his company received a $5,000 relocation fee, and receives $6,000 per month for his services beginning February 15, 2011, subject to termination at any time by either party upon written notice to the other.
On April 7, 2011, in order to enhance the Company’s ability to raise capital and limit dilution of its stockholders, we entered into an agreement with our co-founder and President and Chief Executive Officer, George Konrad, pursuant to which Mr. Konrad agreed to surrender to our treasury 4,500,000 shares of our common stock owned by him since inception in exchange for our (i) entering into an employment agreement with him; and (ii) agreeing to pay to Mr. Konrad’s company, ARD, $200,000, representing the cost of certain equipment owned by ARD which is principally used by us.
Consequently, on April 7, 2011, we entered into a two-year employment agreement with Mr. Konrad, pursuant to which Mr. Konrad serves as our President. Pursuant to this employment agreement, we pay Mr. Konrad a salary of $10,000 per month. The employment agreement contains standard confidentiality provisions, as well as standard non-competition and non-solicitation provisions which survive for two years following termination of employment.
F-16
Exhibit 10.6
CONTRACTED CONSULTING SERVICES AGREEMENT
This Agreement is made effective as of 02/01/2011, by and between PowerVerde, Inc. of 35th St, Glendale, AZ 85310 and PowerVerde Consulting Services, Inc. of 19130 59th Dr NE, Arlington, WA 98223.
In this Agreement, the party who is contracting to receive services shall be referred to as “PWVI” and the party who will be providing the services shall be referred to as “Consultant”.
Consultant has a background in Engineering and Technical Writing and is willing to provide services to PWVI based on this background.
PWVI desires to have services provided by Consultant.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises herein contained, the parties hereto agree as follows:
1. Duties, Scope of Agreement, and Relationship of the Parties.
(a) PWVI hereby agrees to retain Consultant to provide services relating to the development of a “Turn Key” Organic Rankine Cycle system currently being developed by PWVI.
(b) The services rendered by Consultant to the PWVI pursuant to this Agreement shall be as an independent contractor, and this Agreement does not make Consultant the employee, agent, or legal representative of the Company for any purpose whatsoever, including without limitation, participation in any benefits or privileges given or extended by the Company to its employees. The company shall not withhold for Consultant any federal or state taxes from the amounts to be paid to consultant hereunder, and Consultant agrees that he will pay all taxes due on such amounts.
2. Contracted Services The contractor will provide the following services:
| (a) | Engineering consultation with PWVI personnel on ORC operation and design |
| (b) | Write Technical manuals for Manufacturing, Assembly, Startup Operations, Safety, Maintenance, Environmental Compliance, and others to be determined |
| (c) | Produce training DVS’s along with lesson plans |
3. Compensation. The Contractor will receive cash consideration of:
| (a) | $5,000 relocation fee plus $3,000 on February 15, 2011 |
| (b) | $3,000 to be paid semi-monthly from March 1, 2011 and April 1, 2011/ |
| (c) | If contract is extended beyond May 1, 2011 by mutual agreement, the semi- monthly payments of $3,000 will continue until termination of the contract. |
4. Expenses. The Contractor will pay all personal expenses. PWVI will provide:
| (a) | Office space |
| (b) | All supplies relating to the production of Technical Manuals and Training DVD’s |
5. Termination or Extension
| (a) | This Agreement shall continue in effect until terminated by either party upon written notice to the other |
| (b) | This Agreement may be extended by PWVI by notice to Consultant |
| (c) | Termination or expiration of this Agreement shall not extinguish any rights of compensation that shall accrue prior to termination |
6. Confidential Information.
| (a) | “Confidential Information”, as used in this Section 5, means information that is not generally known and that is proprietary to the PWVI or that the PWVI is obligated to treat as proprietary. This information includes, without limitation: |
(i) Trade secret information about PWVI and its products;
(ii) Information concerning PWVI’s business as PWVI has conducted it since the Company’s incorporation or as it may conduct it in the future; and
(iii) Information concerning any of the PWVI’s past, current, or possible future products, including (without limitation) information about PWVI research, development, engineering, purchasing, manufacturing, accounting, marketing, selling, or leasing efforts.
(b) Any information that Consultant reasonably considers Confidential Information, or that PWVI treats as Confidential Information, will be presumed to be Confidential Information (whether Consultant or others originated it and regardless of how it obtained it).
(c) Except as required in its duties to PWVI, Consultant will never, either during or after the term of this Agreement, use or disclose confidential Information to any person not authorized PWVI to receive it.
(d) If this Agreement is terminated, Consultant will promptly turn over to PWVI all records and any compositions, articles, devices, apparatus and other items that disclose, describe, or embody Confidential Information, including all copies, reproductions, and specimens of the Confidential Information in its possession, regardless of who prepared them. This Section 5 shall survive the termination or expiration of this Agreement.
7. General.
Entire Agreement and Amendments. This Agreement is the entire agreement between the parties and supersedes all earlier and simultaneous agreements regarding the subject matter. This Agreement may be amended only in a written document, signed by both parties beneficiary of this Agreement.
Governing Law and Forum. All claims regarding this Agreement are governed by and construed in accordance with the laws of Arizona.
Assignment. This Agreement binds and inures to the benefit of the parties’ successors and assigns. This Agreement is not assignable, or otherwise transferable by Consultant in whole or in part without the prior written consent of PWVI. Except if expressly stated otherwise, all remedies under this Agreement, at law or in equity, are cumulative and nonexclusive.
Notices. All notices, including notices of address changes, under this Agreement must be sent by registered or certified mail or by overnight commercial delivery to the address set forth in this Agreement by each party.
Captions and Plural Terms. All captions are for purposes of convenience only and are not to be used in interpretation or enforcement of this Agreement. Terms defined in the singular have the same meaning in the plural and vice versa.
IN WITNESS WHEREOF, the parties execute this Agreement. Each person who signs this Agreement below represents that such person is fully authorized to sign this Agreement on behalf of the applicable party.
| PowerVerde, Inc. | ||
| By: | /s/ Richard Davis | |
| Print Name: Richard Davis | ||
| Title: Chairman of the Board | ||
| PowerVerde Consulting Services, Inc | ||
| By: | /s/ Fred Barker | |
| Print Name: Fred Barker | ||
| Title: CEO | ||
Exhibit 10.8
EXECUTION COPY
EMPLOYMENT AGREEMENT
This Employment Agreement (“Agreement”) is made and entered into as of the 1st day of January, 2011 (the “Effective Date”), and is by and between POWERVERDE, INC., a Delaware corporation (the “Company”), and KEITH JOHNSON (the “Employee”).
RECITALS
| A. | The Employee possesses knowledge and skills which the Company believes will be of substantial benefit to its operations and success, and the Company desires to employ the Employee on the terms and conditions set forth below. |
| B. | The Employee is willing to make the Employee’s services available to the Company on the terms and conditions set forth below. |
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants set forth herein, the parties agree as follows:
1. Employment. The Company hereby agrees to employ the Employee and the Employee hereby agrees to serve the Company on the terms and conditions set forth herein.
2. Duties of Employee.
(a) In General. During the Employment Period (as defined in Section 3, below), the Employee shall serve as the “Chief Technical Officer” of the Company. The Employee shall diligently perform all services as may be assigned to the Employee by the President of the Company, and shall exercise such power and authority as may from time to time be delegated to the Employee by the President of the Company. The Employee’s duties will be described in a Company job description, or will otherwise be determined by the Company with consultation with the Employee. During the Employment Period (as defined in Section 3, below), the Employee will faithfully carry out his responsibilities, and provide services to the Company at such hours as may be necessary for the Employee to perform effectively the responsibilities of the position. In addition, the Employee shall act in accordance with (i) standing instructions for the position which may be issued by the Company from time to time; (ii) all reasonable and lawful requests, directions and/or restrictions imposed by the Company; and (iii) all policies of the Company as prescribed from time to time. Upon termination of employment, the Employee shall return all Company equipment and other Company property in the Employee’s possession, custody or control.
During the Employment Period, the Employee shall devote all of the Employee’s business time, attention and energies to the business of the Company; provided, however, that while employed by the Company, the Employee may be engaged in any other business activity, whether or not such business activity is pursued for gain, profit or other pecuniary advantage so long as such activity does not reasonably interfere or otherwise compete with the Company;
provided, further, that this provision shall not be construed as preventing the Employee from investing savings or other assets in such form or manner as will not require any services on the part of the Employee, nor shall it be construed as preventing the Employee from engaging in any charity or civic work approved in writing by the Company.
3. Term. The Employee shall be employed by the Company commencing on the Effective Date of this Agreement. The Employee’s employment by the Company shall continue for a period of one year (the Agreement’s “Initial Term”), unless this Agreement is terminated first pursuant to Article 6. If not previously terminated, at the end of the Initial Term the Agreement shall be automatically renewed for an additional term of one year, and it shall similarly be renewed on future one-year anniversary dates (“Renewal Terms”) until the Agreement is terminated pursuant to Article 6. The entire term of the Agreement (comprised of that part of the Initial Term, and any Renewal Terms, prior to termination) shall be referred to in this Agreement as the “Employment Period.” For all purposes of the Agreement, no termination of the Employee’s employment shall be deemed to have occurred if the Employee is transferred during the Employment Period to any business entity which is an Affiliate of the Company. An “Affiliate” shall mean any corporation or other entity that, directly or indirectly, controls, is controlled by, or is under common control with, the Company.
4. Compensation.
(a) Base Compensation. The Employee shall receive compensation of $10,000 per month by the Company during the Initial Term (the “Compensation”), with such Compensation payable in installments consistent with the Company’s normal payroll schedule, subject to applicable withholding and other taxes as shall be required by applicable law. Thereafter the Company may increase the Employee’s Compensation, in its sole discretion.
(b) Stock Options. The Employee shall be granted an option (“Option”) to purchase from the Company 1,350,000 shares of common stock, $0.0001 par value per share, of the Company, at an exercise price that is 100% of the fair market value of the stock, or is equivalent to the par value of the stock, if par value is greater than fair market value, as of the Effective Date. The parties shall execute a separate stock option agreement (the “Stock Option Agreement”) as of the Effective Date, and the Stock Option Agreement will more fully describe the Employee’s stock option rights. The shares of stock that may be purchased upon the exercise of the Option are referred to in this Agreement as the “Option Shares.” The Option will be exercisable with respect to all or a portion of the Option Shares (in full shares) in accordance with the following vesting schedule and assuming compliance with and upon the terms and conditions of the Stock Option Agreement:
| (i) | 25% of the Option Shares, i.e., 337,500 shares, shall vest as of the date of execution of both this Agreement and the Stock Option Agreement; |
| (ii) | an additional 25% thereof shall vest as of the six-month anniversary of the Effective Date; |
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| (iii) | an additional 25% thereof shall vest as of the first anniversary of the Effective Date; and |
| (iv) | the remaining 25% thereof shall vest as of the 18-month anniversary of the Effective Date. |
There shall be acceleration of all vesting in the event of a Change of Control, as that term is defined in, and pursuant to the terms and conditions of, the Stock Option Agreement. The Stock Option shall lapse immediately upon Employee’s voluntary termination of employment with the Company or termination of employment with the Company for Cause, and shall not if the Employee is terminated for any other reason. As used in this Agreement, the term “Cause” means:
(i) the continued failure by Employee to satisfactorily perform Employee’s duties (other than any such failure resulting from Employee’s disability), as set forth in this Agreement or in the Employee’s job description following receipt by the Employee of 30 days’ written notice thereof from the Company.
(ii) any serious act of misconduct in connection with work by the Employee, including, but not limited to, the following acts or omissions: falsification of Company or its affiliate’s documents; dishonesty in connection with Company or its affiliate’s business; misrepresentations to the Employee’s direct supervisor, or to any officer of the Company, or to the Board of Directors of the Company; breach of the Employee’s duty of loyalty to the Company through appropriation or attempted appropriation of corporate opportunities for the Employee’s own advantage, or through other conflicts of interest where the Employee acts for the Employee’s own personal benefit, instead of for the benefit of the Company or its Affiliates; conduct by the Employee that adversely affects, or could reasonably be expected to adversely affect, the business or reputation of the Company or any of its Affiliates; or any act or omission which is a material violation of any law, regulation or ordinance applicable to the Company or any of its affiliates, or which otherwise constitutes a material violation of any Code of Ethics promulgated by the Company or any of its affiliates;
(iii) an act or omission by Employee which would be either a felony under applicable law, or a misdemeanor involving moral turpitude under applicable law, regardless of whether or not the Employee is prosecuted for this crime, and if prosecuted, regardless of the eventual disposition of the case, as long as there is sufficient evidence, admissible in a court of law in the forum jurisdiction identified in Section 10 of this Agreement, to prove, by a preponderance of the evidence, that the Employee committed such crimes; or
(iv) the Employee’s inability to perform duties assigned by the Company due to physical or mental disability following receipt by the Employee of 30 days’ written notice thereof from the Company, but only after all leaves of absence provided to the Employee by the Company, or required by federal or state law, have been exhausted.
(c) Bonuses. During the Term of Employment, the Employee shall be eligible to receive bonuses pursuant to the bonus program of the Company then in effect, and in such amounts and at such times as the Company shall determine in its sole discretion pursuant to the terms of such program.
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5. Expense Reimbursement and Other Benefits.
(a) Reimbursement of Expenses. Subject to such reasonable rules and guidelines as the Company may from time to time adopt for its employees generally, the Company shall reimburse the Employee for all reasonable expenses actually paid or incurred by the Employee during the Term of Employment in the course of and pursuant to the business of the Company. The Employee shall account to the Company in writing for all expenses for which reimbursement is sought and shall supply to the Company copies of all relevant invoices, receipts or other evidence reasonably requested by the Company.
(b) Compensation/Benefit Programs. During the Term of Employment, the Employee shall be entitled to participate in all employee benefit plans as are presently or hereafter offered by the Company to its executive-level employees, including, without limitation, and to the extent existing, the Company’s group health insurance plan and any bonus, option or similar incentive compensation plan, 401(k) plan, group life and short- and long-term disability plans and automobile allowance program, subject to the general eligibility and participation provisions set forth in such plans and required by applicable law.
(c) Vacation. The Employee shall be entitled to such days of vacation during the Term of Employment as are reasonable and customary and in accordance with the Company’s existing policies, or as otherwise mutually agreed to by the parties.
6. Termination of Employment.
(a) Termination. The Company and/or Employee shall have the right to terminate this Agreement, and the Employee’s employment hereunder, at any time, without Cause and immediately upon 30 days’ prior written notice. The Employee’s employment and the Employment Period shall terminate automatically upon the Employee’s death, as of the date of death.
(b) Payment(s) to Employee Following Termination. Upon the termination of Employee’s employment hereunder for any reason and subject to Section 7(e), below, the Company shall only be obligated to pay to the Employee (i) on the date of such termination, the Employee’s Compensation through the date of termination; and (ii) within 30 days after the date of such termination, any pro rated bonus, if applicable, pursuant to Section 4(c) based on that portion of the relevant period during which the Employee was employed, if applicable, through the Initial Term. The Company shall have no further liability hereunder (other than for reimbursement for reasonable business expenses incurred prior to the date of termination, subject, however, to the provisions of Section 5(a), above).
(c) License of Employee’s Existing Patent. If, and to the extent that, Employee is terminated by the Company without Cause, then the Company shall be deemed to have granted to Employee as of the date of such termination a perpetual, non-exclusive, non-transferable, royalty-free license to use Employee’s Existing Patent and the Preexisting IP, as provided in
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Section 7(c)(3), below; provided, however, that Employee’s use thereof shall not be for any purpose that is, in any way, competitive with, or otherwise serves to the detriment of, the Company or is otherwise in violation of the terms and conditions set forth in this Agreement.
(d) Resignation. Upon any notice of termination of employment pursuant to this Article 6, the Employee shall automatically and without further action be deemed to have resigned as an officer, and if the Employee was then serving as a director of the Company, and if required by the Company, the Employee hereby agrees to immediately execute a resignation letter to the Company.
(e) Survival. The provisions of this Article 6 shall survive the termination of this Agreement, as applicable.
7. Restrictive Covenants.
(a) Confidentiality. Except as required in the performance of Employee’s work for the Company, Employee will not directly or indirectly use or disclose any Trade Secret Information (as defined below), either during or after employment with the Company for so long as such information remains Trade Secret Information as defined herein. Except as required in the performance of Employee’s work for the Company, Employee will not directly or indirectly use or disclose any Confidential Information (as defined below), either during employment with the Company or for a period of two years thereafter.
As used herein, “Trade Secret Information” means any information possessed by the Company which derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use. For purposes of this Agreement, “Trade Secret Information” includes both information disclosed to Employee by the Company, or by its other employees, agents or representatives, and information otherwise acquired or developed by Employee in the course of his employment with the Company. As used herein, “Confidential Information” means any information possessed by the Company which is not readily ascertainable by proper means by other persons, regardless of whether such Confidential Information has independent economic value. Any information that Employee can demonstrate is publicly available through no fault of Employee or others with a duty or other obligation of confidentiality to the Company (contractual or otherwise), is not Trade Secret Information or Confidential Information within the meaning of this Agreement.
Notwithstanding anything else in this Agreement, Trade Secret Information shall include, but is not limited to: (i) information concerning the Company’s management, financial condition, financial operation, purchasing activities, pricing formulas, existing and contemplated products and services, sales activities, marketing research, marketing plans, marketing activities, and business plans; (ii) information acquired or compiled by the Company concerning actual or prospective customers, including but, not limited to, their identities, their business operations, their finances, the identity and quantity of products or services purchased from the Company, and other unpublished information furnished by or about them to the Company; (iii) the Company’s software (including source code, object code and related documentation), its software requirements and design documentation, its product development plans, its security
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procedures, methods and vulnerabilities (including, without limitation, all passwords and user ids), the algorithms, methods and procedures used within the Company Software, and all ideas and proposals, whether generated internally or not, relating to the design, operation, implementation, use and maintenance of the Company’s software, (iv) all Inventions (as defined in Section 7(c) below), regardless of whether such Inventions have been reduced to practice or are subject to patent protection, and (v) all other types and categories of information (in whatever form) with respect to which, under all the circumstances, Employee knows or has reason to know that the Company intends or expects secrecy to be maintained and as to which the Company has made reasonable efforts to maintain secrecy.
The Company may, from time to time, inform Employee of restrictions upon the use or disclosure of specified information which has been licensed or otherwise disclosed to the Company by third parties pursuant to license or confidential disclosure agreements which contain restrictions upon the use or disclosure of such information. Employee agrees that such information shall be treated as Confidential Information under this Agreement, and, in addition, Employee agrees to abide by the restrictions upon use and/or disclosure contained in such agreements.
Employee will not use or disclose to the Company any confidential or proprietary information belonging to others, and Employee represents that his employment by the Company does not and will not require the use or disclosure of such information or the violation of any confidential relationship with any third party.
(b) Other Property of the Company. All documents, encoded media, and other tangible items provided or made accessible to Employee by the Company, or by its other employees, agents or representatives, or prepared, generated or created by Employee or others in connection with any business activity of the Company, are and shall remain the property of the Company.
Upon termination of his employment with the Company, Employee will promptly deliver to the Company all such documents, media, and other items in Employee’s possession, including all complete or partial copies, recordings, abstracts, notes or reproductions of any kind made from or about such documents, media, items or information contained therein.
Employee will neither have nor claim any right, title, or interest in any Invention, patent, copyright, trademark, service mark or trade name (or any application released thereto) owned or used by the Company.
(c) Ownership of Developments.
(1) Work Product. All work, writing, material, copyrights, patents, trade secrets, or other intellectual property rights associated with any ideas, concepts, techniques, Inventions (as defined below), processes, or works of authorship developed or created by Employee during the course of performing work for the Company or its clients (collectively, “Work Product”) shall belong exclusively to the Company and shall, to the extent possible, be considered a work made by the Employee for hire for the Company within the meaning of Title 17 of the United States Code. Subject to the
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limitations set forth in Section 6(c), above, to the extent the Work Product may not be considered work made by the Employee for hire for the Company, the Employee hereby assigns all right title and interest the Employee has or may have in such Work Product to the Company, and Employee further agrees to execute any assignments or similar documents requested by the Company in the future to further evidence and document the Company’s rights in and to any Work Product, and to do so without any requirement of further consideration, even if such request is made after this Agreement expires or terminates.
For the purposes of this Section 7(c), “Work Product” shall include, without limitation, all work relating in any way to the business of the Company that is conceived or created, in whole or in part, by the Employee during the term of Employment, regardless of whether such creation is performed during normal working hours or with the use of Company equipment, all copies of such work in any medium whatsoever in the Employee’s control or possession, and all derivative works of such work authored in whole or in part by the Employee.
(2) Inventions. As used herein, “Invention” means any discovery, improvement, innovation, idea, formula, or shop right (whether or not patentable, whether or not put into writing, and whether or not put into practice) made, generated, or conceived by Employee (whether alone or with others, whether or not patentable, whether or not put into writing, and whether or not reduced to practice) while employed with the Company that relates in any way to the Company’s products, services, market, employees, business methods, operations or product plans. For purposes of this Agreement, any Invention relating to the business of the Company or to the Company’s actual or demonstrably anticipated research or development with respect to which Employee files a patent application within one (1) year after termination of employment with the Company shall be presumed to be an Invention conceived by Employee during the period of his employment with the Company, rebuttable only by accurate, written and duly corroborated evidence that such Invention was not first conceived by Employee until after the termination of his employment with the Company.
Employee further agrees that all Inventions generated, made or conceived by Employee during the period of his employment with the Company shall also be solely owned by the Company, and Employee hereby irrevocably assigns to the Company all of his right, title and interest in and to any and all Inventions. Employee agrees to and shall promptly disclose all Inventions to the Company in writing.
Employee further agrees to execute any assignments or similar documents requested by the Company to further evidence and document the Company’s rights in and to any Inventions, and to cooperate with Company, at the Company’s expense, in obtaining letters patent or equivalent protection for such Inventions in any and all locations and jurisdictions Company may choose in its sole discretion throughout the world, and to do so without any requirement of further consideration, even if such request is made after this Agreement expires or terminates.
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(3) Preexisting IP. In addition to the foregoing, Employee agrees to execute the Assignment in the form attached hereto as Exhibit A, assigning to the Company all right, title and interest Employee has or may have in and to United States Patent Application 61/424,249 filed on December 17, 2010 (the “Existing Patent”), and all Inventions disclosed or claimed therein.
Employee further agrees that any and all right, title and interest Employee has or may have in any works of authorship, discoveries, improvements, innovations, ideas, or formulas, (whether or not patentable, whether or not put into writing, and whether or not put into practice) made, generated, or conceived by Employee (whether alone or with others) prior to the Effective Date that relate in any way to the Company’s products, services, market, employees, business methods, operations or product plans (the “Preexisting IP”) are hereby irrevocably assigned to the Company.
Employee agrees to execute any assignments or similar documents requested by the Company to further evidence and document the Company’s rights in and to the Existing Patent and/or any Preexisting IP, and to cooperate with Company, at the Company’s expense, in obtaining letters patent or equivalent protection for such Existing Patent and/or Preexisting IP in any and all locations and jurisdictions Company may choose in its sole discretion throughout the world, and to do so without any requirement of further consideration, even if such request is made after this Agreement expires or terminates.
(d) Definition of Company. Solely for purposes of this Article 7, the term “Company” also shall include any existing or future subsidiaries of the Company.
(e) Covenant Not to Compete. (i) During the period of Employee’s employment with the Company and for a period of two years thereafter (the “Non-Compete Period”), Employee will not, as an employee, officer, director, contractor, broker, distributor, advisor, consultant, or owner, or in any other capacity, directly or indirectly participate or assist in: (A) the design, development, production, marketing or sales of any product or service competitive with any product or service which the Company markets or plans to market at the time of termination of Employee’s employment with the Company; or (B) the management or financing of a business enterprise engaged in any such activities; provided, however, that if, and to the extent that, the Employee’s employment with the Company is terminated for any reason other than due to Employee’s voluntary termination of employment with the Company or termination of employment with the Company for Cause, then during such Non-Compete Period, the Company shall continue to pay the Compensation to Employee, unless and until such time as the Company unilaterally agrees to release the Employee from the non-competition obligations set forth in this Section 7(e). The geographic territory within which Employee will refrain from such activities shall be the United States of America, the countries which are members of the European Union and any other geographic territory within which the Company or any Company agent or representative markets or plans to market any such products or services at the time of termination of Employee’s employment (“Restricted Area”)
(f) Non-Solicitation of Customers. During the two-year period after the date of termination of Employee’s employment with the Company, Employee will not, directly or
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indirectly, either (i) solicit, divert, take away or accept, or attempt to solicit, divert, take away or accept, the business of any Restricted Customer (as defined below) for any product or service offered by the Company within the Restricted Area; or (ii) attempt or seek to cause any Restricted Customer to refrain, in any respect, from acquiring from or through the Company any product or services offered by the Company within the Restricted Area. As used herein, the term “Restricted Customer” means any customer to whom or to which goods or services were provided by the Company during the two-year period prior to the date of Employee’s employment, and any potential customer of the Company that the Company solicited during the one-year period prior to the date of termination of Employee’s employment with the Company.
(g) Non-Solicitation of Employees. During the two-year period after the date of termination of the Employee’s employment with the Company, Employee will not, as to work within the Restricted Area, directly or indirectly solicit, request or induce any employee of the Company to terminate employment with the Company and seek employment with another firm other than the Company; provided, however, that a general advertisement in a medium of general public circulation with respect to a particular employment position that is not targeted at any one or more the employees of the Company will not violate the covenants of this Section.
(h) Duty of Loyalty. Employee agrees that during the time that Employee is employed by the Company, Employee will owe the Company a duty of loyalty, and that as part of this duty of loyalty, Employee shall not engage in any form of business activity representing competition against the Company. Similarly, Employee, while employed by the Company, shall not appropriate for Employee’s own use any business opportunity of the Company, or otherwise engage in conduct where Employee’s own business interests are developed instead of the Company’s business interests.
(i) Requests for Clarification. In the event Employee is uncertain as to the meaning of any provision of this Agreement or its application to any particular information, item or activity, Employee will inquire in writing to the President of the Company, specifying any areas of uncertainty. The Company will respond in writing within a reasonable time and will endeavor to clarify any subject of uncertainty, including such things as whether it considers particular information to be its Trade Secret Information or whether it considers any particular activity or employment to be in violation of this Agreement.
(j) Notice to Subsequent Employers. For a period of two years after termination of his employment with the Company, Employee will inform any prospective new employer (before accepting employment) of the terms of this Agreement. In addition, it is agreed that the terms of this Agreement are not confidential, and that the Company may disclose the provisions of this Agreement, without any liability whatsoever, to any person, including, without limitation, one that is engaged in a business relationship with Employee, and may indicate that it is believed that Employee is in violation of this Agreement.
(k) Acknowledgment by Employee. The Employee acknowledges and confirms that (i) the restrictive covenants contained in this Article 7 are reasonably necessary to protect the legitimate business interests of the Company; and (ii) the restrictions contained in this Article 7 (including, without limitation, the length of the term of the provisions of this Article 7) are not overbroad, overlong, or unfair and are not the result of overreaching, duress or coercion of any kind.
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(l) Reformation by Court. In the event that a court of competent jurisdiction shall determine that any provision of this Article 7 is invalid or more restrictive than permitted under the governing law of such jurisdiction, then only as to enforcement of this Article 7 within the jurisdiction of such court, such provision shall be interpreted and enforced as if it provided for the maximum restriction permitted under such governing law.
(m) Survival. The provisions of this Article 7 shall survive the termination of this Agreement, as applicable.
8. Injunction. It is recognized and hereby acknowledged by the parties hereto that a breach by the Employee of any of the covenants contained in Article 7 of this Agreement will cause irreparable harm and damage to the Company, the monetary amount of which may be virtually impossible to ascertain. As a result, the Employee recognizes and hereby acknowledges that the Company shall be entitled to seek an injunction from any court of competent jurisdiction enjoining and restraining any violation of any or all of the covenants contained in Article 7 of this Agreement by the Employee or any of the Employee’s affiliates, associates, partners or agents, either directly or indirectly, and that such right to injunction shall be cumulative and in addition to whatever other remedies the Company may possess.
9. Assignment. Neither party shall have the right to assign or delegate the Employee’s rights or obligations hereunder, or any portion thereof, to any other person.
10. Governing Law. This Agreement is to be construed and enforced according to the laws of the State of Arizona. The parties agree to accept any service of process by mail and to the exclusive venue of courts of competent jurisdiction located in Maricopa County, Arizona in any dispute arising out of the employment by the Company of the Employee, compensation or any damages in respect thereof.
11. Entire Agreement; Amendment. This Agreement and the Stock Option agreement constitute the entire agreement between the parties hereto with respect to the subject matter hereof and, upon its effectiveness, shall supersede all prior agreements, understandings and arrangements, both oral and written, between the Employee and the Company (or any of its affiliates) with respect to such subject matter. This Agreement may not be modified in any way unless by a written instrument signed by both the Company and the Employee.
12. Notices. All notices required or permitted to be given hereunder shall be in writing and shall be personally delivered by courier, sent by registered or certified mail, return receipt requested or sent by confirmed facsimile transmission addressed as set forth herein. Notices personally delivered, sent by facsimile or sent by overnight courier shall be deemed given on the date of delivery and notices mailed in accordance with the foregoing shall be deemed given upon the earlier of receipt by the addressee, as evidenced by the return receipt thereof, or three days after deposit in the U.S. mail. Notice shall be sent: (i) if to the Company, addressed to PowerVerde, Inc., 23429 N. 35th Drive, Glendale, Arizona, Attention: George Konrad, President, and (ii) if to the Employee, to the Employee’s address as reflected on the payroll records of the Company, or to such other address as either party hereto may from time to time give notice of to the other.
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13. Benefits; Binding Effect. This Agreement shall be for the benefit of and binding upon the parties hereto and their respective heirs, personal representatives, legal representatives, successors and, where applicable, assigns, including, without limitation, any successor to the Company, whether by merger, consolidation, sale of stock, sale of assets or otherwise.
14. Severability. The invalidity of any one or more of the words, phrases, sentences, clauses or sections contained in this Agreement shall not affect the enforceability of the remaining portions of this Agreement or any part thereof, all of which are inserted conditionally on their being valid in law.
15. Waivers. The waiver by either party hereto of a breach or violation of any term or provision of this Agreement shall not operate nor be construed as a waiver of any subsequent breach or violation.
16. Damages. Nothing contained herein shall be construed to prevent the Company or the Employee from seeking and recovering from the other damages sustained by either or both of them as a result of its or his or her breach of any term or provision of this Agreement. In the event that either party hereto brings suit for the collection of any damages resulting from, or the injunction of any action constituting, a breach of any of the terms or provisions of this Agreement, then each party shall pay its own court costs and attorneys’ fees related thereto.
17. Section Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
[Signatures Begin on Following Page.]
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.
| COMPANY: | ||
| POWERVERDE, INC. | ||
| By: | /s/ George Konrad | |
| George Konrad, President | ||
| EMPLOYEE: | ||
| /s/ Keith Johnson | ||
| Keith Johnson | ||
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EXHIBIT A
ASSIGNMENT
Please see attached.
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Exhibit 10.9
AGREEMENT
THIS AGREEMENT (this “Agreement”), dated as of March 31, 2011, is by and between POWERVERDE, INC., a Delaware corporation (the “Company”), and GEORGE KONRAD, an individual (“Konrad”).
W I T N E S S E T H:
WHEREAS, Konrad is a stockholder of the Company; and
WHEREAS, in order to enhance the Company’s ability to raise capital and limit dilution of tis stockholders, Konrad has agreed to surrender to the Company’s treasury 4,500,000 shares of the Company’s common stock owned by him (the “Surrendered Stock”) in exchange for the Company (i) entering into an employment agreement with Konrad as of the date hereof, substantially in the form of Exhibit A, attached hereto (the “Employment Agreement”); and (ii) making a one-time payment to Konrad’s company, Arizona Research and Development (“ARD”), of $200,000, representing the costs of certain equipment owned by ARD which is principally used by the Company (the “ARD Payment”);
NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:
1. Surrender of Surrendered Stock. Konrad hereby surrenders the Surrendered Stock to the Company’s treasury, as of the date hereof.
2. Employment Agreement. The parties hereby agree to enter into the Employment Agreement as of the date hereof, substantially in the form of Exhibit A, attached hereto.
3. ARD Payment. The Company hereby agrees to pay to ARD the ARD Payment as of the date hereof, which ARD Payment shall be made by means of paying to ARD 20% of the gross proceeds the Company receives on the sale of its stock until the ARD Payment is satisfied in full, but in no event later than the first anniversary of the date hereof.
4. General Provisions.
a. Expenses. Except as otherwise specifically provided in this Agreement, all out-of-pocket costs and expenses, including, without limitation, fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses, whether or not the Closing shall have occurred.
b. Notices. All notices required or permitted to be given hereunder shall be in writing and shall be personally delivered by courier, sent by registered or certified mail, return receipt requested or sent by confirmed facsimile transmission addressed as set forth herein. Notices personally delivered, sent by facsimile or sent by overnight courier shall be deemed
given on the date of delivery and notices mailed in accordance with the foregoing shall be deemed given upon the earlier of receipt by the addressee, as evidenced by the return receipt thereof, or three days after deposit in the U.S. mail. Notice shall be sent: (i) if to the Company, addressed to PowerVerde, Inc., 23429 N. 35th Drive, Glendale, Arizona, Attention: George Konrad, President, and (ii) if to Konrad, to Konrad’s address as reflected on the stockholder records of the Company, or to such other address as either party hereto may from time to time give notice of to the other.
c. Benefit and Assignment. This Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. No party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other party.
e. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible.
f. Amendment. This Agreement may not be amended or modified except by an instrument in writing signed by the parties hereto.
g. Effect and Construction of this Agreement. This Agreement embodies the entire agreement and understanding of the parties with respect to the subject matter hereof and supersedes any and all prior agreements, arrangements and understandings, whether written or oral, relating to matters provided for herein. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual agreement, and this Agreement shall not be deemed to have been prepared by any single party hereto.
h. Headings. The headings of the sections and subsections of this Agreement are inserted as a matter of convenience and for reference purposes only and in no respect define, limit or describe the scope of this Agreement or the intent of any section or subsection.
i. Counterparts. This Agreement may be executed in one or more counterparts and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.
j. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Florida, which shall govern all matters arising out of or relating to this Agreement and all of the transactions it contemplates, including, without limitation, its validity, interpretation, construction, performance and enforcement.
k. Entire Agreement. This Agreement, along with the any exhibits and schedules and all other agreements, instruments or documents to be delivered in connection with this Agreement, constitutes the entire agreement between the parties hereto and supersedes all prior agreements, understandings, negotiations and discussions, both written and oral, between the parties hereto with respect to the subject matter hereof.
[Signatures appear on the following page.]
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.
| POWERVERDE, INC. | ||
| By: | /s/ George Konrad | |
| George Konrad, President | ||
| /s/ George Konrad | ||
| George Konrad | ||
EXHIBIT A
EMPLOYMENT AGREEMENT
(See attached.)
Exhibit 10.10
EMPLOYMENT AGREEMENT
This Employment Agreement (“Agreement”) is made and entered into as of the 31st day of March, 2011 (the “Effective Date”), and is by and between POWERVERDE, INC., a Delaware corporation (the “Company”), and GEORGE KONRAD (the “Employee”).
R E C I T A L S
| A. | The Employee possesses knowledge and skills which the Company believes will be of substantial benefit to its operations and success, and the Company desires to employ the Employee on the terms and conditions set forth below. |
| B. | The Employee is willing to make the Employee’s services available to the Company on the terms and conditions set forth below. |
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants set forth herein, the parties agree as follows:
1. Employment. The Company hereby agrees to employ the Employee and the Employee hereby agrees to serve the Company on the terms and conditions set forth herein.
2. Duties of Employee.
(a) In General. During the Employment Period (as defined in Section 3, below), the Employee shall serve as “President” of the Company. The Employee shall serve as the Company’s principal executive officer and shall diligently perform all duties customarily associated with his position and as may be assigned to the Employee by the Board of Directors of the Company from time to time. During the Employment Period (as defined in Section 3, below), the Employee will faithfully carry out his responsibilities, and provide services to the Company at such hours as may be necessary for the Employee to perform effectively the responsibilities of the position. In addition, the Employee shall act in accordance with (i) standing instructions for the position which may be issued by the Company from time to time; (ii) all reasonable and lawful requests, directions and/or restrictions imposed by the Company; and (iii) all policies of the Company as prescribed from time to time. Upon termination of employment, the Employee shall return all Company equipment and other Company property in the Employee’s possession, custody or control.
During the Employment Period, the Employee shall devote the Employee’s business time, attention and energies to the business of the Company; provided, however, this provision shall not be construed as preventing the Employee from continuing, and devoting time, attention and energies to, his other businesses consistent with his existing practice, or otherwise investing savings or other assets in such form or manner as will not require any services on the part of the Employee, nor shall it be construed as preventing the Employee from engaging in any charity or civic work approved in writing by the Company.
3. Term. The Employee shall be employed by the Company commencing on the Effective Date of this Agreement. The Employee’s employment by the Company shall continue for a period of two years (the Agreement’s “Initial Term”), unless this Agreement is terminated first pursuant to Article 6. If not previously terminated, at the end of the Initial Term the Agreement shall be automatically renewed for an additional term of one year, and it shall similarly be renewed on future one-year anniversary dates (“Renewal Terms”) until the Agreement is terminated pursuant to Article 6. The entire term of the Agreement (comprised of that part of the Initial Term, and any Renewal Terms, prior to termination) shall be referred to in this Agreement as the “Employment Period.” For all purposes of the Agreement, no termination of the Employee’s employment shall be deemed to have occurred if the Employee is transferred during the Employment Period to any business entity which is an Affiliate of the Company. An “Affiliate” shall mean any corporation or other entity that, directly or indirectly, controls, is controlled by, or is under common control with, the Company.
4. Compensation.
(a) Base Compensation. The Employee shall receive compensation of $10,000 per month by the Company during the Initial Term (the “Compensation”), with such Compensation payable in installments consistent with the Company’s normal payroll schedule, subject to applicable withholding and other taxes as shall be required by applicable law. Thereafter the Company may increase the Employee’s Compensation, in its sole discretion.
(b) Bonuses. During the Term of Employment, the Employee shall be eligible to receive bonuses pursuant to the bonus program of the Company then in effect, and in such amounts and at such times as the Company shall determine in its sole discretion pursuant to the terms of such program.
5. Expense Reimbursement and Other Benefits.
(a) Reimbursement of Expenses. Subject to such reasonable rules and guidelines as the Company may from time to time adopt for its employees generally, the Company shall reimburse the Employee for all reasonable expenses actually paid or incurred by the Employee during the Term of Employment in the course of and pursuant to the business of the Company. The Employee shall account to the Company in writing for all expenses for which reimbursement is sought and shall supply to the Company copies of all relevant invoices, receipts or other evidence reasonably requested by the Company.
(b) Compensation/Benefit Programs. During the Term of Employment, the Employee shall be entitled to participate in all employee benefit plans as are presently or hereafter offered by the Company to its executive-level employees, including, without limitation, and to the extent existing, the Company’s group health insurance plan and any bonus, option or similar incentive compensation plan, 401(k) plan, group life and short- and long-term disability plans and automobile allowance program, subject to the general eligibility and participation provisions set forth in such plans and required by applicable law.
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(c) Vacation. The Employee shall be entitled to such days of vacation during the Term of Employment as are reasonable and customary and in accordance with the Company’s existing policies, or as otherwise mutually agreed to by the parties.
6. Termination of Employment.
(a) Termination. The Company and/or Employee shall have the right to terminate this Agreement, and the Employee’s employment hereunder, at any time, for cause. The Employee’s employment and the Employment Period shall terminate automatically upon the Employee’s death, as of the date of death.
(b) Payment(s) to Employee Following Termination. Upon the termination of Employee’s employment hereunder for any reason, the Company shall only be obligated to pay to the Employee (i) on the date of such termination, the Employee’s Compensation through the date of termination; and (ii) within 30 days after the date of such termination, any pro rated bonus, if applicable, pursuant to Section 4(b) based on that portion of the relevant period during which the Employee was employed, if applicable, through the Initial Term. The Company shall have no further liability hereunder (other than for reimbursement for reasonable business expenses incurred prior to the date of termination, subject, however, to the provisions of Section 5(a), above).
(c) Resignation. Upon any notice of termination of employment pursuant to this Article 6, the Employee shall automatically and without further action be deemed to have resigned as an officer, and if the Employee was then serving as a director of the Company, and if required by the Company, the Employee hereby agrees to immediately execute a resignation letter to the Company.
(e) Survival. The provisions of this Article 6 shall survive the termination of this Agreement, as applicable.
7. Restrictive Covenants.
(a) Confidentiality. Except as required in the performance of Employee's work for the Company, Employee will not directly or indirectly use or disclose any Trade Secret Information (as defined below), either during or after employment with the Company for so long as such information remains Trade Secret Information as defined herein. Except as required in the performance of Employee's work for the Company, Employee will not directly or indirectly use or disclose any Confidential Information (as defined below), either during employment with the Company or for a period of two years thereafter.
As used herein, “Trade Secret Information” means any information possessed by the Company which derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use. For purposes of this Agreement, “Trade
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Secret Information” includes both information disclosed to Employee by the Company, or by its other employees, agents or representatives, and information otherwise acquired or developed by Employee in the course of his employment with the Company. As used herein, “Confidential Information” means any information possessed by the Company which is not readily ascertainable by proper means by other persons, regardless of whether such Confidential Information has independent economic value. Any information that Employee can demonstrate is publicly available through no fault of Employee or others with a duty or other obligation of confidentiality to the Company (contractual or otherwise), is not Trade Secret Information or Confidential Information within the meaning of this Agreement.
Notwithstanding anything else in this Agreement, Trade Secret Information shall include, but is not limited to: (i) information concerning the Company's management, financial condition, financial operation, purchasing activities, pricing formulas, existing and contemplated products and services, sales activities, marketing research, marketing plans, marketing activities, and business plans; (ii) information acquired or compiled by the Company concerning actual or prospective customers, including but, not limited to, their identities, their business operations, their finances, the identity and quantity of products or services purchased from the Company, and other unpublished information furnished by or about them to the Company; (iii) the Company’s software (including source code, object code and related documentation), its software requirements and design documentation, its product development plans, its security procedures, methods and vulnerabilities (including, without limitation, all passwords and user ids), the algorithms, methods and procedures used within the Company Software, and all ideas and proposals, whether generated internally or not, relating to the design, operation, implementation, use and maintenance of the Company’s software, and (iv) all other types and categories of information (in whatever form) with respect to which, under all the circumstances, Employee knows or has reason to know that the Company intends or expects secrecy to be maintained and as to which the Company has made reasonable efforts to maintain secrecy.
The Company may, from time to time, inform Employee of restrictions upon the use or disclosure of specified information which has been licensed or otherwise disclosed to the Company by third parties pursuant to license or confidential disclosure agreements which contain restrictions upon the use or disclosure of such information. Employee agrees that such information shall be treated as Confidential Information under this Agreement, and, in addition, Employee agrees to abide by the restrictions upon use and/or disclosure contained in such agreements.
Employee will not use or disclose to the Company any confidential or proprietary information belonging to others, and Employee represents that his employment by the Company does not and will not require the use or disclosure of such information or the violation of any confidential relationship with any third party.
(b) Other Property of the Company. All documents, encoded media, and other tangible items provided or made accessible to Employee by the Company, or by its other employees, agents or representatives, or prepared, generated or created by Employee or others in connection with any business activity of the Company, are and shall remain the property of the Company.
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Upon termination of his employment with the Company, Employee will promptly deliver to the Company all such documents, media, and other items in Employee's possession, including all complete or partial copies, recordings, abstracts, notes or reproductions of any kind made from or about such documents, media, items or information contained therein.
Employee will neither have nor claim any right, title, or interest in any invention, patent, copyright, trademark, service mark or trade name (or any application released thereto) owned or used by the Company.
(c) Ownership of Developments. All work, writing, material, copyrights, patents, trade secrets, or other intellectual property rights associated with any ideas, concepts, techniques, Inventions (as defined below), processes, or works of authorship developed or created by Employee during the course of performing work for the Company or its clients (collectively, “Work Product”) shall belong exclusively to the Company and shall, to the extent possible, be considered a work made by the Employee for hire for the Company within the meaning of Title 17 of the United States Code. To the extent the Work Product may not be considered work made by the Employee for hire for the Company, the Employee hereby assigns all right title and interest the Employee has or may have in such Work Product to the Company, a Employee further agrees to execute any assignments or similar documents requested by the Company in the future to further evidence and document the Company’s rights in and to any Work Product, and to do so without any requirement of further consideration, even if such request is made after this Agreement expires or terminates. For purposes of this Agreement, any Invention relating to the business of the Company or to the Company's actual or demonstrably anticipated research or development with respect to which Employee files a patent application within one (1) year after termination of employment with the Company shall be presumed to be an Invention conceived by Employee during the period of his employment with the Company, rebuttable only by accurate, written and duly corroborated evidence that such Invention was not first conceived by Employee until after the termination of his employment with the Company.
For the purposes of this Section 7(c), “Work Product” shall include, without limitation, all work relating in any way to the business of the Company that is conceived or created, in whole or in part, by the Employee during the term of Employment, regardless of whether such creation is performed during normal working hours or with the use of Company equipment, all copies of such work in any medium whatsoever in the Employee’s control or possession, and all derivative works of such work authored in whole or in part by the Employee.
As used herein, “Invention” means any discovery, improvement, innovation, idea, formula, or shop right (whether or not patentable, whether or not put into writing, and whether or not put into practice) made, generated, or conceived by Employee (whether alone or with others, whether or not patentable, whether or not put into writing, and whether or not reduced to practice) while employed with the Company that relates in any way to the Company’s products, services, market, employees, business methods, operations or product plans. Employee further agrees that all Inventions generated, made or conceived by Employee during the period of his employment with the Company shall also be solely owned by the Company, and Employee hereby irrevocably assigns to the Company all of his right, title and interest in and to any and all Inventions. Employee agrees to and shall promptly disclose all Inventions to the Company in writing.
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Employee further agrees to execute any assignments or similar documents requested by the Company to further evidence and document the Company’s rights in and to any Inventions or, and to cooperate with Company, at the Company’s expense, in obtaining letters patent or equivalent protection for such Inventions throughout the world, and to do so without any requirement of further consideration, even if such request is made after this Agreement expires or terminates.
(d) Definition of Company. Solely for purposes of this Article 7, the term “Company” also shall include any existing or future subsidiaries of the Company.
(e) Covenant Not to Compete. During the period of Employee's employment with the Company and for a period of two years thereafter, Employee will not, as an employee, officer, director, contractor, broker, distributor, advisor, consultant, or owner, or in any other capacity, directly or indirectly participate or assist in: (i) the design, development, production, marketing or sales of any product or service competitive with any product or service which the Company markets or plans to market at the time of termination of Employee's employment with the Company; or (ii) the management or financing of a business enterprise engaged in any such activities. The geographic territory within which Employee will refrain from such activities shall be the United States of America, the countries which are members of the European Union and any other geographic territory within which the Company or any Company agent or representative markets or plans to market any such products or services at the time of termination of Employee's employment (“Restricted Area”).
(f) Non-Solicitation of Customers. During the two-year period after the date of termination of Employee’s employment with the Company, Employee will not, directly or indirectly, either (i) solicit, divert, take away or accept, or attempt to solicit, divert, take away or accept, the business of any Restricted Customer (as defined below) for any product or service offered by the Company within the Restricted Area; or (ii) attempt or seek to cause any Restricted Customer to refrain, in any respect, from acquiring from or through the Company any product or services offered by the Company within the Restricted Area. As used herein, the term “Restricted Customer” means any customer to whom or to which goods or services were provided by the Company during the two-year period prior to the date of Employee’s employment, and any potential customer of the Company that the Company solicited during the one-year period prior to the date of termination of Employee’s employment with the Company.
(g) Non-Solicitation of Employees. During the two-year period after the date of termination of the Employee’s employment with the Company, Employee will not, as to work within the Restricted Area, directly or indirectly solicit, request or induce any employee of the Company to terminate employment with the Company and seek employment with another firm other than the Company; provided, however, that a general advertisement in a medium of general public circulation with respect to a particular employment position that is not targeted at any one or more the employees of the Company will not violate the covenants of this Section.
(h) Duty of Loyalty. Employee agrees that during the time that Employee is employed by the Company, Employee will owe the Company a duty of loyalty, and that as part of this duty of loyalty, Employee shall not engage in any form of business activity representing competition against the Company. Similarly, Employee, while employed by the Company, shall
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not appropriate for Employee’s own use any business opportunity of the Company, or otherwise engage in conduct where Employee’s own business interests are developed instead of the Company’s business interests.
(i) Requests for Clarification. In the event Employee is uncertain as to the meaning of any provision of this Agreement or its application to any particular information, item or activity, Employee will inquire in writing to the President of the Company, specifying any areas of uncertainty. The Company will respond in writing within a reasonable time and will endeavor to clarify any subject of uncertainty, including such things as whether it considers particular information to be its Trade Secret Information or whether it considers any particular activity or employment to be in violation of this Agreement.
(j) Notice to Subsequent Employers. For a period of two years after termination of his employment with the Company, Employee will inform any prospective new employer (before accepting employment) of the terms of this Agreement. In addition, it is agreed that the terms of this Agreement are not confidential, and that the Company may disclose the provisions of this Agreement, without any liability whatsoever, to any person, including, without limitation, one that is engaged in a business relationship with Employee, and may indicate that it is believed that Employee is in violation of this Agreement.
(k) Acknowledgment by Employee. The Employee acknowledges and confirms that (i) the restrictive covenants contained in this Article 7 are reasonably necessary to protect the legitimate business interests of the Company; and (ii) the restrictions contained in this Article 7 (including, without limitation, the length of the term of the provisions of this Article 7) are not overbroad, overlong, or unfair and are not the result of overreaching, duress or coercion of any kind.
(l) Reformation by Court. In the event that a court of competent jurisdiction shall determine that any provision of this Article 7 is invalid or more restrictive than permitted under the governing law of such jurisdiction, then only as to enforcement of this Article 7 within the jurisdiction of such court, such provision shall be interpreted and enforced as if it provided for the maximum restriction permitted under such governing law.
(m) Survival. The provisions of this Article 7 shall survive the termination of this Agreement, as applicable.
8. Injunction. It is recognized and hereby acknowledged by the parties hereto that a breach by the Employee of any of the covenants contained in Article 7 of this Agreement will cause irreparable harm and damage to the Company, the monetary amount of which may be virtually impossible to ascertain. As a result, the Employee recognizes and hereby acknowledges that the Company shall be entitled to seek an injunction from any court of competent jurisdiction enjoining and restraining any violation of any or all of the covenants contained in Article 7 of this Agreement by the Employee or any of the Employee’s affiliates, associates, partners or agents, either directly or indirectly, and that such right to injunction shall be cumulative and in addition to whatever other remedies the Company may possess.
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9. Assignment. Neither party shall have the right to assign or delegate the Employee’s rights or obligations hereunder, or any portion thereof, to any other person.
10. Governing Law. This Agreement is to be construed and enforced according to the laws of the State of Florida. The parties agree to accept any service of process by mail and to the exclusive venue of courts of competent jurisdiction located in Miami-Dade County, Florida in any dispute arising out of the employment by the Company of the Employee, compensation or any damages in respect thereof.
11. Entire Agreement; Amendment. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and, upon its effectiveness, shall supersede all prior agreements, understandings and arrangements, both oral and written, between the Employee and the Company (or any of its affiliates) with respect to such subject matter. This Agreement may not be modified in any way unless by a written instrument signed by both the Company and the Employee.
12. Notices. All notices required or permitted to be given hereunder shall be in writing and shall be personally delivered by courier, sent by registered or certified mail, return receipt requested or sent by confirmed facsimile transmission addressed as set forth herein. Notices personally delivered, sent by facsimile or sent by overnight courier shall be deemed given on the date of delivery and notices mailed in accordance with the foregoing shall be deemed given upon the earlier of receipt by the addressee, as evidenced by the return receipt thereof, or three days after deposit in the U.S. mail. Notice shall be sent: (i) if to the Company, addressed to PowerVerde, Inc., 23429 N. 35th Drive, Glendale, Arizona, Attention: George Konrad, President, and (ii) if to the Employee, to the Employee’s address as reflected on the payroll records of the Company, or to such other address as either party hereto may from time to time give notice of to the other.
13. Benefits; Binding Effect. This Agreement shall be for the benefit of and binding upon the parties hereto and their respective heirs, personal representatives, legal representatives, successors and, where applicable, assigns, including, without limitation, any successor to the Company, whether by merger, consolidation, sale of stock, sale of assets or otherwise.
14. Severability. The invalidity of any one or more of the words, phrases, sentences, clauses or sections contained in this Agreement shall not affect the enforceability of the remaining portions of this Agreement or any part thereof, all of which are inserted conditionally on their being valid in law.
15. Waivers. The waiver by either party hereto of a breach or violation of any term or provision of this Agreement shall not operate nor be construed as a waiver of any subsequent breach or violation.
16. Damages. Nothing contained herein shall be construed to prevent the Company or the Employee from seeking and recovering from the other damages sustained by either or both of them as a result of its or his or her breach of any term or provision of this Agreement. In the event that either party hereto brings suit for the collection of any damages resulting from, or the injunction of any action constituting, a breach of any of the terms or provisions of this Agreement, then each party shall pay its own court costs and attorneys’ fees related thereto.
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17. Section Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
18. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE COMPANY ENTERING INTO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
[Signatures Begin on Following Page.]
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.
| COMPANY: | ||
| POWERVERDE, INC. | ||
| By: | /s/ George Konrad | |
| George Konrad, President | ||
| EMPLOYEE: | ||
| /s/ George Konrad | ||
| George Konrad | ||
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EXHIBIT 31.1
CERTIFICATION PURSUANT TO
18 USC, SECTION 1350, AS ADOPTED PURSUANT TO
SECTIONS 302 AND 906 OF THE SARBANES-OXLEY ACT OF 2002
I, George Konrad, certify that:
| 1. | I have reviewed this Form 10-K 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 officer(s) 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 officer(s) 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. |
| Date: April 7, 2011 | ||
| /s/ George Konrad |
/s/ George Konrad | |
| George Konrad, President | George Konrad, Chief Executive Officer | |
EXHIBIT 31.2
CERTIFICATION PURSUANT TO
18 USC, SECTION 1350, AS ADOPTED PURSUANT TO
SECTIONS 302 AND 906 OF THE SARBANES-OXLEY ACT OF 2002
I, George Konrad, certify that:
| 1. | I have reviewed this Form 10-K 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 officer(s) 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 officer(s) 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. |
| Date: April 7, 2011 | ||
| /s/ George Konrad |
/s/ George Konrad | |
| George Konrad, President | George Konrad, 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
In connection with the Annual Report of PowerVerde, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, George Konrad, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ George Konrad |
| George Konrad Chief Executive Officer April 7, 2011 |
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
In connection with the Annual Report of PowerVerde, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, George Konrad, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ George Konrad |
| George Konrad Chief Financial Officer April 7, 2011 |