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Note 8 - Commitments and Contingencies
 12 Months Ended
Dec. 31, 2011
Commitments and Contingencies Disclosure [Text Block]

Note 8 – Commitments and Contingencies


On January 31, 2011, the Company 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, the Company and Newton agreed to enter into a definitive agreement (which was entered into, as described below), pursuant to which Newton would, 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, the Company would receive as a royalty an amount equal to 20% of the gross sale price of each System sold by Newton. The Company authorized Newton to manufacture its Systems under a strict licensing agreement with a Dutch/German foundry and machine shop. Newton also agreed to purchase an initial System from the Company for a discounted price. In connection with the BLOI, an affiliate of Newton invested $250,000 in PowerVerde by privately purchasing 333,333 restricted shares of common stock at a price of $0.75 per share. In connection with this purchase, the Company issued to the investor a three-year warrant to buy an additional 333,333 unregistered shares at a price of $0.75 per share.


The Company’s initial System was delivered to Newton in July 2011, pursuant to the terms of the BLOI, as described above, and the balance of the purchase price was received upon delivery in July 2011. The full $130,000 sale price was recorded as revenue in the third quarter.


On April 7, 2011, in order to enhance the Company’s ability to raise capital and limit dilution of its stockholders, the Company entered into an agreement with its co-founder, President and then-Chief Executive Officer, George Konrad, pursuant to which Mr. Konrad agreed to surrender to the treasury 4,500,000 shares of common stock owned by him since inception in exchange for the Company agreeing to pay to Mr. Konrad’s company, Arizona Research and Development (“ARD”), a related party, $200,000 to be paid no later than April of 2013. A discount of approximately $30,000 was recognized on the long-term payable as imputed interest of 8%. Interest accreted for the year ended December 31, 2011 was $10,230.


In addition, on April 7, 2011, the Company entered into a two-year employment agreement with Mr. Konrad, pursuant to which Mr. Konrad serves as President. Pursuant to this employment agreement, the Company pays to Mr. Konrad’s company, ARD, $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.


On August 19, 2011, the Company’s Board of Directors (i) accepted the resignation of George Konrad as the Company’s Chief Executive Officer and Chief Financial Officer, although Mr. Konrad remains as the Company’s President; and (ii) elected Richard H. Davis and John L. Hofmann as the Company’s Chief Executive Officer and Chief Financial Officer, respectively, to fill the vacancies created by such resignations.


On August 19, 2011, the Company amended its agreement with George Konrad dated as of April 7, 2011, relating to Mr. Konrad’s surrender to the Company’s treasury of 4,500,000 shares of common stock (the “Original Agreement”). Pursuant to such amendment, the Company extended the timing of payments to be made to Mr. Konrad’s company, Arizona Research and Development (“ARD”), under the Original Agreement to on or before April 7, 2013, except that such payment shall be fully made within 30 days following the earlier of (i) a closing of a financing transaction by the Company which involves gross proceeds equal to or greater than $2 million; (ii) a closing of a Sale Transaction (as defined below); or (iii) a determination by the Company’s Board of Directors, in its sole and absolute discretion, that the Company has sufficient cash available for operations and appropriate reserves after making such payment to ARD. The term “Sale Transaction” as used herein means (i) a sale of all or substantially all of the assets of the Company; or (ii) any merger or consolidation of the Company with or into another entity or any other transaction or series of transactions, the result of which is that the holders of the Company’s voting stock immediately prior to such transaction or series of transactions continue to hold less than 50% of such stock following such transaction or series of transactions.


On June 3, 2011, the Company granted to Mr. Richard Davis a three-year warrant to purchase 600,000 unregistered shares of the Company’s common stock at an exercise price of $1.05 per share, in consideration for his service as a Director and for his substantial consulting services since inception, incorporated in the warrant section of Note 6 - Stockholder’s Equity. Since 2008, Richard H. Davis has served as a Director of the Company, and since August 2011 he has served as Chief Executive Officer of the Company. The Company’s Board of Directors will determine an appropriate compensation package for Mr. Davis in consideration of his serving as the Company’s Chief Executive Officer.


On June 3, 2011, the Company granted to Mr. John L. Hofmann a three-year warrant to purchase 200,000 unregistered shares of the Company’s common stock at an exercise price of $1.05 per share, in partial consideration for his firm’s financial consulting and accounting services since July 2010, incorporated in the warrant section of Note 6 - Stockholder’s Equity. Since August 2011, Mr. Hofmann has served as Chief Financial Officer of the Company. The Company’s Board of Directors will determine an appropriate compensation package for Mr. Hofmann in consideration of his serving as the Company’s Chief Financial Officer.


Effective January 1, 2011, the Company entered into an employment agreement with Keith Johnson, pursuant to which Mr. Johnson serves as Chief Technical Officer. The agreement was amended as of June 15, 2011. Pursuant to this agreement, Mr. Johnson receives a salary of $12,500 per month (which was increased from $10,000 effective June 15, 2011). The Company also paid Mr. Johnson a $5,000 signing bonus. This agreement is terminable by either party without cause upon 30 days’ prior written notice. In connection with the initial employment agreement, the Company granted Mr. Johnson, in January 2011, a 10-year option to purchase 1,350,000 shares of our common stock at a price of $.59 per share (the market price on the date of grant). One fourth of this option, i.e., 337,500, shares vested as of the date of the employment agreement and the balance vests in equal installments every six months thereafter until fully vested, provided that he is still employed by the Company at this time. In connection with the June 2011 amendment, the Company granted Mr. Johnson a 10-year option to purchase 100,000 shares of common stock at a price of $1.23 per share (the market price on the date of grant) and a 10-year option to purchase 100,000 shares of our common stock at an exercise price of $2.00 per share. One-fourth of these option shares, i.e., 50,000 shares, vested as of the date of the amended employment agreement and the balance vests in equal installments every six months thereafter until fully vested, provided that he is still employed by the Company at the time and subject to the Company achieving certain operational targets. Additionally, in connection with his 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.


Effective June 15, 2011, the Company entered into an employment agreement with Mark P. Prinz, pursuant to which Mr. Prinz serves as a Project Engineer of the Company. Pursuant to this agreement, the Company pays Mr. Prinz a salary of $11,250 per month, and paid him a one-time signing bonus of $5,000. This agreement is terminable by either party without cause upon 30 days’ prior written notice. In connection with this employment agreement, the Company granted Mr. Prinz (i) a 10-year option to purchase 100,000 shares of the Company’s common stock at a price of $1.23 per share; and (ii) a 10-year option to purchase 100,000 shares of the Company’s common stock at a price of $2.00 per share. In each case, one-fourth of the option shares, i.e. , 25,000 shares, vested as of the date of the employment agreement, and the balance vests in equal installments every six months thereafter until fully vested, provided that Mr. Prinz is still employed by the Company at the time and subject to the Company achieving certain operational targets. Additionally, in connection with this employment agreement, Mr. Prinz assigned certain intellectual property rights to the Company.   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 September 29, 2011, the Company entered into a license agreement (the “License Agreement”) with Newton. This is the definitive agreement contemplated by the BLOI, described above. Pursuant to the License Agreement, Newton will, for a period of 10 years, hold the exclusive manufacturing and distribution rights for the Systems in the 27 countries which are currently members of the European Union, subject to Newton’s achieving minimum sales of at least 100 Systems per year beginning in the second year of the License Agreement, payment of a royalty equal to 20% of the gross sales price of each System sold, and other terms and conditions set forth in the License Agreement.


On November 1, 2011, the Company entered into a binding letter of intent for the acquisition of all of the membership interests in Cornerstone Conservation Group LLC, Scottsdale, Arizona (“Cornerstone”). 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, the Company agreed to issue at closing upon execution of a definitive agreement (i) a total of 2,250,000 restricted shares of 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, with 50,000 each exercisable beginning January 1, 2012, at a price of $2.00 per share, 50,000 each exercisable beginning July 1, 2012, at a price of $3.00 per share, and 50,000 each exercisable beginning January 1, 2013, at a price of $4.00 per share. On November 1, 2011, pursuant to the letter of intent, Mr. Johnson joined the Company’s Board of Directors.