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.
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
other than existing licensing contract rights to Dr. Edward Gomez, a pre-Merger investor in PowerVerde and now a shareholder
of the Company. In exchange for the assignment of the Biotech IP to him, Dr. Gomez agreed to (i) pay all future costs and expenses
relating to the Biotech IP, including, but not limited to, patent fees, license fees and legal fees, and (ii) pay to the Company
20% of all net revenues received from the sale and/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 George Konrad and Fred Barker, who remain our two largest stockholders. Mr. Konrad served as an officer and director
of the Company until October 2012. Mr. Barker served as an officer and director until January 2015. See Item 10 “Directors,
Executive Officers and Corporate Governance.” 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. As a research and
development company, we have tested and continue to test other style drivers as well.
An initial prototype of the motor was created
and tested in early 2002, and, based on positive test results, Messrs. Barker and Konrad concluded that the concept could lead
to a commercial product. A new design was developed in early 2007, which resulted in a motor that produced more torque and horsepower,
as well as being easier to mass produce. The prototype was tested extensively, and substantial tooling and engineering with CAM/CNC
programming was completed at the facility of Mr. Konrad’s company, Arizona Research and Development (“ARD”),
for the possibility of an eventual mass production model.
Based on data learned from these earlier prototypes,
PowerVerde has manufactured three 25/50kW motors and additional next generation motors or drivers as well. The Company has been
testing these devices on a more powerful and advanced organic pressure-driven cycle (OPDC) referred to as the Liberator. During
2009, the Company also built and tested a 100kW pressure-driven motor at another machining and manufacturing facility, Global Machine
Works, in Arlington, WA. These two related but distinct systems are designed for two different markets. The 25/50kW system uses
low-grade heat (waste heat) as a fuel source, expanding a working fluid thereby driving the motor/generator, while the 100kW system
(without organic rankine cycle (“ORC”) or organic pressure driver cycle (“OPDC”) systems), uses wasted
energy (pressure) from natural gas pipeline and wellhead infrastructures to drive the motor/generator and create electric power.
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. The development of the natural gas pipeline system has been suspended due to our decision to
dedicate our limited human and financial resources to commercialize our waste heat/solar thermal system, which we believe has more
near term potential.
In January 2011, we entered into a Binding Letter
of Intent for European Distribution (the “BLOI”) with Newton Investments BV, a Dutch corporation based in Leeuwarden,
Netherlands (“Newton”). Pursuant to the BLOI, Newton purchased one Liberator system for a discounted price of $130,000,
which was delivered in July 2011. In September 2011, we entered into a definitive License Agreement with Newton as contemplated
by the BLOI. Under the Agreement, Newton was designated, for a period of 10 years, to be the exclusive manufacturer and distributor
of our proprietary emissions-free electrical power generation systems (the “Systems”) in the 27 countries which are
currently members of the European Union, subject to Newton achieving minimum sales of at least 100 Systems per year, beginning
in the second year of the Agreement. Pursuant to the Agreement, we were entitled to a royalty equal to 20% of the gross sale price
of each System sold by Newton. We authorized Newton to manufacture our Systems under a strict licensing agreement with a Dutch
foundry and machine shop, Autonational BV, based in Ijlst, Netherlands, and capable of producing hundreds of units per year. Of
the 27 European Union nations, we focused initially on the Netherlands, Belgium, Germany and the Scandinavian countries.
Despite our initial optimism, the PowerVerde
driver (motor) failed to demonstrate sufficient capacity for the uninterrupted hours of operation required for commercial performance.
Due to the ongoing technical problems, Newton did not sell any of our Systems and, in August 2014, Newton terminated the License
Agreement.
We have addressed the pending technical issues,
and we believe that by year end 2016 we will be able to deliver a commercial device capable of operation for 25,000 hours (almost
three years) without major mechanical failure. There can be no assurance, however, that these technical issues will be resolved
or that any of our Systems will ever be commercially viable.
In November 2011, we entered into a binding
letter of intent for the acquisition of all of the membership interests in Cornerstone Conservation Group LLC, Scottsdale, Arizona
(“Cornerstone”). The acquisition was consummated pursuant to a definitive agreement executed in March 2012. Cornerstone’s
main asset is its proprietary Combined Cooling, Heating and Power (“CCHP”) technology, which utilizes waste heat from
commercial and residential heating, ventilation air conditioning and refrigeration (“HVACR”) systems. Cornerstone also
has substantial experience and technology relating to geothermal or ground source heat pumps.
As consideration for the Cornerstone acquisition,
we issued (i) a total of 2,250,000 restricted shares of our common stock to Cornerstone’s members, Bryce Johnson (“Johnson”),
Paul Kelly (“Kelly”) and Vincent Hils (“Hils”) in the amounts of 1,575,000, 337,500 and 337,500 shares,
respectively, (ii) 10,000 restricted shares to a Cornerstone employee, and (iii) three-year warrants to purchase 150,000
shares each to Johnson and Kelly at exercise prices of $2.00-$4.00 per share. In November 2011, Johnson joined our Board of Directors,
and in January 2012 we moved our operations to a facility in Scottsdale, Arizona, owned by Johnson. See “Item 2 - Properties.”
Johnson also became our chief operating officer in January 2012. Johnson resigned from his officer and director positions in March
2013. As a result of Johnson’s resignation, Management decided to impair the goodwill entirely as of December 31, 2012. We
continue to operate our laboratory and test the Liberator within Mr. Johnson’s facility, where several infrastructure upgrades
have been completed. There can be no assurance that our good relationship with Mr. Johnson regarding use of his facility will continue.
See Item 2 “Properties.”
We believe that Cornerstone’s technology
is complementary to PowerVerde’s platform and existing markets – mainly through the conversion of thermal energy
into electric power generation. While we believe that the Cornerstone acquisition brings substantial opportunities for synergy,
there can be no assurance that the acquisition will prove successful.
Our focus for the remainder of 2016 is to commercialize
our waste heat power systems in our Phoenix facility for eventual commercial deployment. We plan to complete our development and
testing by mid-year 2016 and have a market-ready system by year end; however, there can be no assurance that we will meet this
timetable or ever have a market-ready system. We continue discussions with certain manufacturers of integrated components and service
providers in the oil/natural gas industries, methane plants, as well as with electric utility companies and government entities.
There can be no assurance that any manufacturing, distribution or marketing agreements will be successfully consummated or executed
or that we will ever achieve material sales.
Employees
We currently have one full-time employee: Mark
Prinz based in Scottsdale, Arizona. Mark was hired in 2011. Our chief engineer, Hank Leibowitz, was hired pursuant to a part-time
consulting agreement in October 2012.
Patents
Messrs. Barker and Konrad together obtained
U.S. Patent No. 6,840,151 for a “push-push type fluid pressure actuated motor,” which was issued on January 11, 2005.
On June 6, 2007, Messrs. Barker and Konrad and the Company’s predecessor, PowerVerde, LLC, permanently and exclusively assigned
to PowerVerde all rights 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 these patents will be issued or maintained.
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 or maintained.
Pursuant to the Cornerstone acquisition, we
acquired all rights to U.S. Patent Application No. 12,749,416 filed on March 29, 2010, entitled “Solar Photovoltaic
Closed Fluid Loop Evaporation Tower.” This application was filed by Bryce Johnson as inventor and assigned to Cornerstone
in connection with the acquisition. There can be no assurance that this patent will be issued or maintained.
On June 25, 2015, our consultant Hank Leibowitz
assigned to PowerVerde his U.S. Patent No. 62/172,616, issued on June 8, 2015 for a system and method using high temperature sources
in Rankine cycle power systems. We have agreed to pay Mr. Leibowitz a 2% royalty for any and all revenues of products and/or project
sales by us based on this patent.
We expect to file additional patent applications
pertaining to our advanced organic pressure driven cycle later in 2016. There can be no assurances that we will be able to do so
or that any patents will be issued based on these applications.
Product Description
The 2007 advanced generation PowerVerde motor,
with its related organic rankine cycle (ORC) system, produced 10kW of net power. Our subsequent larger 25/50kW waste heat/solar
design was a next generation system. This system was designed to be installed in single- or multiple-stacked units for businesses,
factories, or any waste heat or solar application such as schools, hospitals, ships and other users of electric power. These non-combustion
motors are fueled by heat (waste 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. The other PowerVerde system was designed to operate on wellhead
or natural gas pipeline infrastructure and lacks the ORC component, but uses wasted latent energy (pressure) inherent in “city
gate” letdowns or wellheads as its pressure source. This project (well head or natural gas pipeline applications) has been
suspended so that we can focus exclusively on waste heat applications. To this end we anticipate and have designed systems that
will be scaled even larger in the future.
Our ORC system requires:
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A heat source (solar, waste heat, geothermal or bio-mass);
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An organic rankine cycle (ORC) or organic pressure driven cycle (OPDC) style system to convert heat into pressure;
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PowerVerde motor to convert the pressure into horsepower; and
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A generator to convert the horsepower into electricity.
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We have built and tested the 25/50kW ORC systems,
and we believe that the overall design meets or exceeds performance metrics when compared to the industry at large. We have, however,
remained challenged with our inability to thus far generate the continuous hours of operation that we believe necessary for commercial
quality expectations. We continue to work toward our goal of a system capable of 25,000 hours (almost three years) of continuous
operation. Meanwhile, we believe that we have made great strides in the evolution of the Liberator waste heat energy system and
expect to achieve a successful test by year end 2016. There can be no assurance, however, that our ongoing technical issues will
be resolved or that any of our Systems will ever be commercially viable.
Government Regulations and Incentives
We believe that the time may be right for the
PowerVerde systems. Regulatory proposals to limit greenhouse gases are under consideration, particularly in Europe. One such measure
would be a carbon tax placed on fuels in proportion to their carbon content. Another would be a tax on oil. Yet another would be
a “cap and trade” system. All of these would drive up the price of electricity from fossil fuel sources, yet have no
impact on carbon-free renewable sources such as those offered by us; however, due to the weak economy in the United States and
Europe and strong political opposition, there can be no assurance that any of these measures will be implemented.
Governments, utilities, businesses, and consumers
alike are acutely aware of the negative effects of pollution and use of fossil fuels. Fossil fuel-based emissions contribute to
serious health and environmental conditions such as acid rain, particulate pollution, nitrogen deposition, and global climate change.
Consequently, government agencies in the United States and Europe at the national, state/provincial and local levels have implemented
and proposed various economic incentives in the form of tax credits, rebates, deductions, accelerated depreciation and other subsidies
designed to enhance the use of energy-efficient and clean power sources. We believe that these incentives will have a substantial
positive impact on demand for the PowerVerde systems; however, there can be no assurance that, even with these incentives, our
systems will be economically competitive or that the incentives will continue to be available.
We have applied and continue to apply for federal
grants, loans and/or other programs designed to assist development of renewable “green” energy sources, and we have
previously 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 high prices of fossil fuels, 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.
Where You Can Find Additional Information
The Company is subject to the reporting requirements
under the Exchange Act. The Company files with, or furnishes to, the SEC quarterly reports on Form 10-Q, current reports on Form
8-K, and amendments to those reports and will furnish its proxy statement. These filings are available free of charge on the Company’s
website,
http://www.powerverdeenergy.com
shortly after they are filed with, or furnished to, the SEC.
The SEC maintains an Internet website,
http://www.sec.gov
,
that contains reports, proxy and information statements and other information regarding issuers.
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 unfavorable economic conditions, including a weak recovery from a severe recession in the general economy, accompanied by
large federal and state budget deficits and an increasing national debt. These negative conditions could persist or become even
worse. These poor economic conditions continue to make it very difficult for us to raise the capital we need to complete the development
and testing of our products so that we can begin sales. In the event that we are able to begin sales of our products, poor economic
conditions may adversely affect our business and our financial condition and results of operations by extending the length of the
sales cycle and causing potential customers to delay, defer or decline to make purchases of our products due to limitations on
their capital expenditures and the adverse effects of the economy and the credit markets on them.
The weak economy is projected by many economic
experts to continue or deteriorate further throughout 2016 or longer. These conditions may make it extremely difficult for our
customers, our vendors and us to accurately forecast and plan future business activities. We cannot predict the timing, strength
or duration of this current weak economy or of a subsequent stronger economic recovery, or the effects thereof on our customers
and our markets. Our results of operations may be negatively impacted in future periods and experience substantial fluctuations
from period to period as a consequence of these factors, and such conditions and other factors affecting capital spending may affect
the timing of orders from major customers. These factors could adversely affect our ability to meet our capital requirements, support
our working capital requirements and growth objectives, maintain our existing or secure new financing arrangements, or otherwise
materially and adversely affect our business, financial condition and results of operations.
An increase in interest rates or lending rates or tightening
of the supply of capital in the global financial markets could make it difficult for end-users to finance the cost of a PowerVerde
system and could reduce the demand for our products and/or lead to a reduction in the average selling price for our products.
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 in the supply of project debt financing or equity investments could
reduce the number of our projects that receive financing and thus lower demand for PowerVerde systems.
Reduced growth in or the reduction, elimination or expiration
of government subsidies, economic incentives and other support for renewable energy-sourced electricity applications could reduce
demand for our systems.
Reduced growth in or the reduction, elimination
or expiration of government subsidies, economic incentives and other support for renewable-sourced electricity may result in the
diminished competitiveness of our systems relative to conventional and non-renewable sources of energy, and could materially and
adversely affect our business.
Electric utility companies or generators of
electricity from fossil fuels or other renewable energy sources could also lobby for a change in the relevant legislation in their
markets to protect their revenue streams. Reduced growth in or the reduction, elimination or expiration of government subsidies
and economic incentives for renewable electricity generation applications, especially those in our target markets, could impede
our sales efforts and materially and adversely affect our business, financial condition and results of operations.
Existing regulations and policies and changes to these regulations
and policies may present technical, regulatory and economic barriers to the purchase and use of our renewable electricity generation
systems, which may significantly reduce demand for our systems.
The market for electricity generation products
is heavily influenced by foreign, federal, state and local government regulations and policies concerning the electric utility
industry, as well as policies promulgated by electric utilities. These regulations and policies often relate to electricity pricing
and technical interconnection of customer-owned electricity generation. In the United States and in a number of other countries,
these regulations and policies have been modified in the past and may be modified again in the future. These regulations and policies
could deter end-user purchases of our systems.
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 promptly substantial additional
funds. Without such additional funds, we may have to cease operations. We will require substantial additional funding for our contemplated
research and development activities, commercialization of our products and ordinary operating expenses. Adequate funds for these
purposes may not be available when needed or on terms acceptable to us, especially due to the ongoing weak economy. Insufficient
funds may require us to delay or scale back our activities or to cease operations. Our sole source of material revenues is Biotech
IP licensing fees.
We face substantial competition in our industry, and we may
be unable to attract customers and maintain a viable business.
We face substantial competition from numerous
other companies, most of whom have financial and other resources substantially greater than ours. Our competition is worldwide,
ranging from solo inventors and small businesses all the way to major utility companies and multinational corporations, all of
whom are attempting to design, develop and market clean and efficient methods for the generation and delivery of electricity. This
competition is expected to increase due to pressures arising from high prices of fossil fuels, environmental concerns and the availability
of governmental incentives and subsidies. These competitors may prove more successful in offering similar products and/or may offer
alternative products which prove superior in performance and/or more popular with potential customers than our products. Our ability
to commercialize our products and grow and achieve profitability in accordance with our business plan will depend on our ability
to satisfy our customers and withstand increasing competition by providing high-quality products at reasonable prices. There can
be no assurance that we will be able to achieve or maintain a successful competitive position.
Our success is dependent on the services of our key management
and personnel.
Our success will depend in large part upon the
skill and efforts of our key personnel hired or who may be hired, including our chief engineer, Hank Leibowitz, and our system
specialist, Mark Prinz. Loss of any such personnel, whether due to resignation, death, and disability or otherwise, could have
a material adverse effect on our business. In addition, Mr. Leibowitz does not intend to work for PowerVerde on a full-time basis,
as he has substantial other business activities. He intends to dedicate the time he deems appropriate to meet PowerVerde’s
needs; however, there can be no assurance that he will be willing or able to dedicate such time and attention as would maximize
PowerVerde’s chances for success.
We have a limited operating history.
We have only a limited operating history. We
have yet to generate any material revenues from our systems, as we have sold only one system, in a discounted sale to Newton, and
the commercial value of our products is uncertain. There can be no assurance that we will ever be profitable. Further, we are subject
to all the risks inherent in a new business including, but not limited to: intense competition; lack of sufficient capital; loss
of protection of proprietary technology and trade secrets; difficulties in commercializing its products, managing growth and hiring
and retaining key employees; adverse changes in costs and general business and economic conditions; and the need to achieve product
acceptance, to enter and develop new markets and to develop and maintain successful relationships with customers, third party suppliers
and contractors.
We may have difficulty in protecting our intellectual property
and may incur substantial costs to defend ourselves in patent infringement litigation.
We rely primarily on a combination of trade
secrets, patents, copyright and trademark laws, and confidentiality procedures to protect our proprietary technology, which is
our principal asset.
Our ability to compete effectively will depend
to a large extent on our success in protecting our proprietary technology, both in the United States and abroad. There can be no
assurance that (i) any patents that we have applied or apply for will be issued, (ii) any patents issued, including our existing
U.S. Patent No. 6,840,151, on which our current products are based, will not be challenged, invalidated, or circumvented, (iii)
that we will have the financial resources to enforce our patents or (iv) the patent rights granted will provide any competitive
advantage. We could incur substantial costs in defending any patent infringement suits or in asserting our patent rights, including
those granted by third parties, and we might not be able to afford such expenditures.
We have limited protection over our trade secrets and know-how.
Although we have entered into confidentiality
and invention agreements with our key personnel, there can be no assurance that these agreements will be honored or that we will
be able to protect our rights to our non-patented trade secrets and know-how effectively. There can be no assurance that competitors
will not independently develop substantially equivalent or superior proprietary information and techniques or otherwise gain access
to our trade secrets and know-how.
We may be unable to obtain required licenses from third-parties
for product development.
We may be required to obtain licenses to patents
or other proprietary rights from third parties. If we do not obtain required licenses, we could encounter delays in product development
or find that the development, manufacture or sale of products requiring these licenses could be prevented.
The reduction, elimination or unavailability of contemplated
government incentives may force our business plan to be changed and may materially adversely affect our business.
Our business plan relies to a significant extent
on the availability of substantial federal, state and local governmental incentives for the development, production and purchase
of energy-saving, environmentally-friendly products such as our systems. These incentives include, among others, tax deductions,
tax credits, rebates, accelerated depreciation and government loans, grants and other subsidies. There can be no assurance that
some or all of these incentives will not be substantially reduced or eliminated, nor can there be any assurance that any currently
proposed incentives will actually take effect. Similarly, we have never received, and there can be no assurance that we will ever
receive, any government loans, grants or other subsidies.
Lower energy prices may hinder our ability to attract customers
and become profitable.
Our products are energy-efficient electric generators
which compete primarily with conventional fossil fuel-generated electricity produced and delivered by conventional utility companies.
The significant decreases in the prices of oil and natural gas since mid-2014 have materially adversely affected our competitive
position. If sustained, these lower fossil fuel prices and the corresponding lower cost of fossil fuel-generated electricity could
materially adversely affect our business.
We may be unable to purchase materials and parts on commercially
reasonable terms from suppliers.
If we are able to commercialize our systems,
our success will depend to a large extent on our ability to obtain a reliable supply of materials and parts from our suppliers
on commercially reasonable terms. This may not prove possible due to competition, inflation, shortages, international crises, adverse
economic and political conditions and business failures of suppliers or other reasons.
Our insurance may not provide adequate coverage.
Although we maintain general and product liability,
property and commercial crime insurance coverage which we consider prudent, there can be no assurance that such insurance will
prove adequate in the event of actual casualty losses or broader calamities such as terrorist attacks, earthquakes, financial crises,
economic depressions or other catastrophic events, which are either uninsurable or not economically insurable. Any such losses
could have a material adverse effect on PowerVerde.
We may be unable to obtain or maintain insurance for our
commercial products.
The design, development and manufacture of our
products involve an inherent risk of product liability claims and associated adverse publicity. There can be no assurance we will
be able to maintain insurance for any of our proposed commercial products. Such insurance is expensive, difficult to obtain and
may not be available in the future on acceptable terms or at all. We are also exposed to product liability claims in the event
the use of our proposed products result in injury.
Risks Related to Our Common Stock; Liquidity Risks
Our stock price is highly volatile.
The market prices for securities of emerging
and development stage companies such as ours have historically been highly volatile, and our limited history has reflected this
volatility. Difficulty in raising capital as well as future announcements concerning us or our competitors, including the results
of testing, technological innovations or new commercial products, government regulations, developments concerning proprietary rights,
litigation or public concern as to safety of potential products developed by us or others, may have a significant adverse impact
on the market price of our stock.
We do not pay dividends on our common stock, and we have
no intention to do so in the future.
For the near-term, we intend to retain remaining
future earnings, if any, to finance our operations and do not anticipate paying any cash dividends with respect to our common stock.
There has been limited trading in our stock.
Our common stock is currently quoted on the
OTCBB under the symbol “PWVI.” Since our February 2008 Merger with our predecessor Vyrex Corporation, our stock has
been thinly traded, and no assurance can be given as to when, if ever, an active trading market will develop or, if developed,
that it will be sustained. As a result, investors may be unable to sell their shares of our common stock at a fair price, if at
all.
We may issue additional shares of our stock which may dilute
the value of our stock.
Shares which we issue pursuant to private placements
generally may be sold in the public market after they have been held for six months, pursuant to Rule 144. The sale or availability
for sale of substantial amounts of common stock in the public market under Rule 144 or otherwise could materially adversely affect
the prevailing market prices of our common stock and could impair our ability to raise additional capital through the sale of our
equity securities.
We may issue shares of preferred stock that could defer a
change of control or dilute the interests of holders of our common stock shareholders.
Our Board of Directors is authorized to issue
up to 50,000,000 shares of preferred stock. The Board of Directors has the power to establish the dividend rates, liquidation preferences,
voting rights, redemption and conversion terms and privileges with respect to any series of preferred stock. The issuance of any
series of preferred stock having rights superior to those of the common stock may result in a decrease in the value or market price
of the common stock and further, they could be used by the Board of Directors as a device to prevent a change in control favorable
to the Company. Holders of preferred stock to be issued in the future may have the right to receive dividends and certain preferences
in liquidation and conversion rights. The issuance of such preferred stock could make the possible takeover of the Company or the
removal of management of the Company more difficult, and adversely affect the voting and other rights of the holder of the common
stock, or depress the market price of the common stock.
Our common stock is covered by SEC “penny stock”
rules which may make it more difficult for you to sell or dispose of our common stock.
Since we have net tangible assets of less than
$1,000,000, transactions in our securities are subject to Rule 15g-9 under the Exchange Act which imposes additional sales practice
requirements on broker-dealers who sell such securities to persons other than established customers and “accredited investors”
(generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000 or $300,000 together with
their spouses). For transactions covered by this Rule, a broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser’s written consent to the transaction prior to the sale. Consequently, this Rule may affect
the ability of broker-dealers to sell our securities, and may affect the ability of shareholders to sell any of our securities
in the secondary market.
The Commission has adopted regulations which
generally define a “penny stock” to be any non-NASDAQ equity security of a small company that has a market price (as
therein defined) less than $5.00 per share, or with an exercise price of less than $5.00 per share subject to certain exceptions,
and which is not traded on any exchange or quoted on NASDAQ. For any transaction by broker-dealers involving a penny stock (unless
exempt), the rules require delivery, prior to a transaction in a penny stock, of a risk disclosure document relating to the penny
stock market. Disclosure is also required to be made about compensation payable to both the broker-dealer and the registered representative
and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information
for the penny stock held in an account and information on the limited market in penny stocks.
FORWARD-LOOKING STATEMENTS
Prospective investors are cautioned that the
statements in this Report that are not descriptions of historical facts may be forward-looking statements that are subject to risks
and uncertainties. This Report contains certain forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are based on the beliefs of
our management as well as on assumptions made by and information currently available to us as of the date of this Report. When
used in this Report, the words “plan,” “will,” “may,” “anticipate,” “believe,”
“estimate,” “expect,” “intend,” “project” and similar expressions, as they relate
to PowerVerde, 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.