UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
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n/a |
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Securities registered pursuant to Section 12(b) of the Exchange Act: None
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Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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As of May 10, 2021, issuer had
TABLE OF CONTENTS
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| Condensed Consolidated Statements of Changes in Stockholders’ Deficiency |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 13 |
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| Table Of Contents |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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| March 31, 2022 |
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| December 31, 2021 |
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ASSETS |
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Current Assets |
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Cash |
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Prepaid expenses |
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Total Current Assets |
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Total Assets |
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LIABILITIES AND STOCKHOLDERS’ DEFICIENCY |
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Current Liabilities |
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Accounts payable and accrued expense |
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Notes payable - related party |
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Convertible notes payable - related party, net |
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Notes payable |
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Convertible notes payable, net |
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Derivative liability |
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Total Current Liabilities |
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Long-term Liabilities |
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Convertible notes payable, net |
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Convertible notes payable - related party, net |
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Notes payable |
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Total Liabilities |
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Commitments and contingencies (See Note 7) |
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Stockholders’ Deficiency |
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Preferred Stock, Series B, $ |
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Preferred Stock, Series C, $ |
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Preferred Stock, Series D, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total Stockholders’ Deficiency |
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Total Liabilities and Stockholders’ Deficiency |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
| Table Of Contents |
OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
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Operating Expenses |
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Salaries and wages |
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Professional fees |
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General and administrative |
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Total Operating Expenses |
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Loss from Operations |
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Other (Expenses) Income |
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Interest expense, net |
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Amortization of debt discount |
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Change in fair value of derivative liability |
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Gain on conversion of debt |
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Total Other Expense |
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Loss Before Income Taxes |
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Provision for Income Taxes |
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Net Loss |
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Net Loss per Common Share Basic and Diluted |
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Weighted Average Number of Common Shares Outstanding |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
| Table Of Contents |
OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIENCY
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
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| Number of |
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| Par Value |
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| Capital |
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| Deficiency |
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Balance December 31, 2020 |
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Common Stock issued for conversions of notes payable |
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Common Stock issued for second commitment fee |
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Net Loss |
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Balance March 31, 2021 (Unaudited) |
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| Additional |
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Balance December 31, 2021 |
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Series D Preferred Stock issued for cash |
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Series D Preferred Stock issued for conversion of notes and interest |
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Net Loss |
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Balance March 31, 2022 (Unaudited) |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
| Table Of Contents |
OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
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| 2021 |
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Cash Flows From Operating Activities: |
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Net loss |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Change in fair value of derivative liability |
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Amortization of debt discount |
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Gain on conversion of debt |
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Stock issued for second commitment fee |
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Changes in assets and liabilities: |
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Accounts payable and accrued expenses |
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Net Cash Used In Operating Activities |
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Cash Flows From Financing Activities: |
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Repayment of notes payable |
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Proceeds from notes payable |
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Proceeds from convertible notes payable |
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Proceeds from sale of preferred stock |
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Net Cash Provided by Financing Activities |
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Net increase in cash |
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Cash at beginning of period |
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Cash at End of Period |
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Supplemental disclosure of cash flow information |
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Cash paid for interest expense |
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Cash paid for income taxes |
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Supplemental disclosure of non-cash investing and financing activities: |
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Preferred stock issued for conversion of notes and accrued interest |
| $ |
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Convertible notes payable and accrued interest converted into common stock |
| $ |
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Convertible notes payable and accrued interest converted into preferred stock |
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Notes payable and accrued interest converted into preferred stock |
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Debt discount on notes payable |
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Common stock issued for conversion of notes payable |
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Derivative liability extinguished upon conversion of note payable |
| $ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
| Table Of Contents |
OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(UNAUDITED)
NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION
We are currently in the businesses of:
· | OTEC and SWAC/LSC—designing ocean thermal energy conversion (“OTEC”) power plants and seawater air conditioning and lake water air conditioning (“SWAC/LSC”) plants for large commercial properties, utilities, and municipalities. These technologies provide practical solutions to mankind’s three oldest and most fundamental needs: clean drinking water, plentiful food, and sustainable, affordable energy without the use of fossil fuels. OTEC is a clean technology that continuously extracts energy from the temperature difference between warm surface ocean water and cold deep seawater. In addition to producing electricity, some of the seawater running through an OTEC plant can be efficiently desalinated using the power generated by the OTEC technology, producing thousands of cubic meters of fresh water every day for use in agriculture and human consumption in the communities served by its plants. This cold, deep, nutrient-rich water can also be used to cool buildings (SWAC/LSC) and for fish farming/aquaculture. In short, it is a technology with many benefits, and its versatility makes OTEC unique. |
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· | EcoVillages—developing and commercializing our EcoVillages, as well as working to develop or acquire new complementary assets. EcoVillages are communities whose goal is to become more socially, economically, and ecologically sustainable and whose inhabitants seek to live according to ecological principles, causing as little impact on the environment as possible. We expect that our EcoVillage communities will range from a population of 50 to 150 individuals, although some may be smaller. We may also form larger EcoVillages, of up to 2,000 individuals, as networks of smaller subcommunities. We expect that our EcoVillages will grow by the addition of individuals, families, or other small groups. We expect to use our technology in the development of our EcoVillages, which should add significant value to this line of business. |
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) and presented in accordance with accounting principles generally accepted in the United States of America.
The accompanying condensed consolidated balance sheet at December 31, 2021 has been derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”). The accompanying unaudited condensed consolidated financial statements as of March 31, 2022 and for the three months ended March 31, 2022 and 2021, have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements, and should be read in conjunction with the audited consolidated financial statements and related notes to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the SEC. In the opinion of management, all material adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been made to the condensed consolidated financial statements. The unaudited condensed consolidated financial statements include all material adjustments (consisting of normal recurring accruals) necessary to make the condensed consolidated financial statements not misleading as required by Regulation S-X Rule 10-01. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or any future periods.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The financial statements include the accounts of the company and its wholly-owned subsidiaries Ocean Thermal Energy Bahamas Ltd., OTE BM Ltd. and OCEES International Inc. Intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
In preparing financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates. Significant estimates include the assumptions used in the valuation of equity-based transactions, valuation of derivative liabilities, and valuation of deferred tax assets.
Cash and Cash Equivalents
We consider all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. We had no cash equivalents at March 31, 2022 and December 31, 2021.
Business Segments
We operate in one segment and, therefore, segment information is not presented.
Fair Value
Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value under GAAP, and enhances disclosures about fair value measurements. ASC 820 describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:
| 7 |
| Table Of Contents |
· Level 1–Pricing inputs are quoted prices available in active markets for identical assets or liabilities as of the reporting date. · Level 2–Pricing inputs are quoted for similar assets or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration with observable market data. Level 2 includes assets or liabilities valued at quoted prices adjusted for legal or contractual restrictions specific to these investments. · Level 3–Pricing inputs are unobservable for the assets or liabilities; that is, the inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability.
Management believes the carrying amounts of the short-term financial instruments, including cash and cash equivalents, prepaid expenses, accounts payable, accrued liabilities, notes payable, deferred compensation, and other liabilities, reflected in the accompanying balance sheets, approximate fair value at March 31, 2022 and December 31, 2021, due to the relatively short-term nature of these instruments.
We accounted for derivative liability at fair value on a recurring basis under Level 3 at March 31, 2022 and December 31, 2021 (see Note 5).
Concentrations
Cash, cash equivalents, and restricted cash are deposited with major financial institutions, and at times, such balances with any one financial institution may be in excess of FDIC-insured limits. As of March 31, 2022 and December 31, 2021, no balances exceeded FDIC-insured limits.
Loss per Share
Basic loss per share is calculated by dividing our net loss available to common shareholders by the weighted average number of common shares during the period. Diluted loss per share is calculated by dividing our net loss by the diluted weighted average number of shares outstanding during the period. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity.
The following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding as of March 31, 2022 and 2021, as they would be anti-dilutive:
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Shares underlying warrants outstanding |
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Shares underlying convertible notes outstanding |
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Shares underlying convertible preferred stock outstanding |
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Recent Accounting Pronouncements
We have reviewed all recently issued, but not yet adopted, accounting standards to determine their effects, if any, on our consolidated results of operations, financial position, and cash flows. Based on that review, we believe that none of these pronouncements will have a significant effect on current or future earnings or operations.
NOTE 3 – GOING CONCERN
The accompanying unaudited condensed consolidated financial statements have been prepared on the assumption that we will continue as a going concern. As reflected in the accompanying unaudited condensed consolidated financial statements, we had a net loss of $
| 8 |
| Table Of Contents |
NOTE 4 – CONVERTIBLE NOTES AND NOTES PAYABLE
During the three months ended March 31, 2022, $
During the three months ended March 31, 2021, $
The following convertible notes and notes payable were outstanding at March 31, 2022:
Date of |
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| Maturity |
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| Original |
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| Principal at March 31, |
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| Discount at March 31, |
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| Carrying Amount at March 31 |
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| Non Related Party |
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Issuance |
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| Interest Rate |
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| In Default |
| Principal |
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| Current |
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| Long- Term |
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| ||||||||
(1) | Maturity date is 90 days after demand. |
(2) | Bridge loans were issued at dates between December 2017 and May 2018. Principal is due on the earlier of 18 months from the anniversary date or the completion of L2 financing with gross proceeds of a minimum of $1.5 million. |
(3) | L2 - Note was drawn down in five tranches between 02/16/18 and 05/02/18. |
(4) | Loans were issued from 01/02/19 to 03/23/19. Principal and interest are due when funds are received from the litigation between Ocean Thermal Energy Corporation vs., Robert Coe et al. |
(5) | Notes were issued between 10/14/19 and 11/05/19. The notes bear an interest rate of 8% and mature 10/31/21. They can be converted into 250,000 shares of common stock. They can be converted when the stock closing price reaches $1 or on the maturity, whichever occurs first. |
(6) | Notes were issued between 12/09/19 and 11/25/20. The notes bear an interest rate of 8% and mature 01/02/22. They can be converted into 250,000 shares of common stock. They can be converted when the stock closing price reaches $1 or on the maturity, whichever occurs first. |
(7) | Notes were issued between 11/02/2020 and 03/18/21. The notes bear an interest rate of 10%. Repayment will be made as follows: (i) the principal and interest within five business days following our receipt of $25.5 million from the Robert Coe, et al Phase One Litigation; and (ii) the additional payment within five business days following our actual receipt of any funds from the Robert Coe, et al Phase Two Litigation, less legal fees accrued up to that date. Payment will be made as such funds are actually received by us and after deductions of accrued legal fees up to that date. |
(8) | Notes were issued between 05/14/20 and 08/11/20. The notes bear an interest rate of 8% and mature 05/12/22. They can be converted into 250,000 shares of common stock. They can be converted when the stock closing price reaches $1 or on the maturity, whichever occurs first. |
(9) | Notes were issued in November 2020 and during the first two quarters of 2021. The notes bear an interest rate of 8% and mature 09/01/22. They can be converted into 250,000 shares of common stock. They can be converted when the stock closing price reaches $1 or on the maturity, whichever occurs first. |
(10) | Notes were issued during the third quarter of 2021. The notes bear an interest rate of 8% and mature 08/30/23. They can be converted into 250,000 shares of common stock. They can be converted when the stock closing price reaches $1 or on the maturity, whichever occurs first. |
(11) | Note was issued during November of 2021. The note bears an interest rate of 8% and matures 11/30/23. It can be converted into 250,000 shares of common stock. It can be converted when the stock closing price reaches $1 or on the maturity, whichever occurs first. |
* | Default interest rate. |
| 9 |
| Table Of Contents |
The following convertible notes and notes payable were outstanding at December 31, 2021:
Date of |
|
| Maturity |
|
|
|
|
| Original |
|
| Principal at December 31, |
|
| Discount at December 31, |
|
| Carrying Amount at December 31 |
|
| Related Party |
|
| Non Related Party |
| |||||||||||||||||||
Issuance |
|
| Date |
|
| Interest Rate |
|
| In Default |
| Principal |
|
| 2021 |
|
| 2021 |
|
| 2021 |
|
| Current |
|
| Long- Term |
|
| Current |
|
| Long- Term |
| |||||||||||
|
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| % |
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| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
(1) | Maturity date is 90 days after demand. |
(2) | Bridge loans were issued at dates between December 2017 and May 2018. Principal is due on the earlier of 18 months from the anniversary date or the completion of L2 financing with gross proceeds of a minimum of $1.5 million. |
(3) | L2 - Note was drawn down in five tranches between 02/16/18 and 05/02/18. |
(4) | Loans were issued from 01/02/19 to 03/23/19. Principal and interest are due when funds are received from the litigation between Ocean Thermal Energy Corporation vs. Robert Coe, et al. |
(5) | Notes were issued between 10/14/19 and 11/05/19. The notes bear an interest rate of 8% and mature 10/31/21. They can be converted into 250,000 shares of common stock. They can be converted when the stock closing price reaches $1 or on the maturity, whichever occurs first. |
(6) | Notes were issued between 12/09/19 and 11/25/20. The notes bear an interest rate of 8% and mature 01/02/22. They can be converted into 250,000 shares of common stock. They can be converted when the stock closing price reaches $1 or on the maturity, whichever occurs first. |
(7) | Notes were issued between 11/02/2020 and 03/18/21. The notes bear an interest rate of 10%. Repayment will be made as follows: (i) the principal and interest within five business days following our receipt of $25.5 million from the Robert Coe, et al Phase One Litigation; and (ii) the additional payment within five business days following our actual receipt of any funds from the Robert Coe, et al Phase Two Litigation, less legal fees accrued up to that date. Payment will be made as such funds are actually received by us and after deductions of accrued legal fees up to that date. |
(8) | Notes were issued between 05/14/20 and 08/11/20. The notes bear an interest rate of 8% and mature 05/12/22. They can be converted into 250,000 shares of common stock. They can be converted when the stock closing price reaches $1 or on the maturity, whichever occurs first. |
(9) | Notes were issued in November 2020 and during the first two quarters of 2021. The notes bear an interest rate of 8% and mature 09/01/22. They can be converted into 250,000 shares of common stock. They can be converted when the stock closing price reaches $1 or on the maturity, whichever occurs first. |
(10) | Notes were issued during the third quarter of 2021. The notes bear an interest rate of 8% and mature 08/30/23. They can be converted into 250,000 shares of common stock. They can be converted when the stock closing price reaches $1 or on the maturity, whichever occurs first. |
(11) | Note was issued during November of 2021. The note bears an interest rate of 8% and matures 11/30/23. It can be converted into 250,000 shares of common stock. It can be converted when the stock closing price reaches $1 or on the maturity, whichever occurs first. |
* | Default interest rate. |
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NOTE 5 – DERIVATIVE LIABILITY
We measure the fair value of our assets and liabilities under the guidance of ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value in accordance with U.S. GAAP, and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but its provisions apply to all other accounting pronouncements that require or permit fair value measurement.
We identified conversion features embedded within convertible debt issued. We have determined that the features associated with the embedded conversion option should be accounted for at fair value as a derivative liability. We have elected to account for these instruments together with fixed conversion price instruments as derivative liabilities as we cannot determine if a sufficient number of shares would be available to settle all potential future conversion transactions. We value the derivative liabilities using the Black-Scholes option valuation model. The derivative liabilities are valued at each reporting date and the change in fair value is reflected as change in fair value of derivative liability.
Following is a description of the valuation methodologies used to determine the fair value of our financial liabilities, including the general classification of such instruments pursuant to the valuation hierarchy:
|
| Fair Value
|
|
| Quoted market prices for identical assets/liabilities (Level 1) |
|
| Significant other observable inputs (Level 2) |
|
| Significant unobservable inputs (Level 3) |
| ||||
Derivative Liability, March 31, 2022 (Unaudited) |
| $ |
|
| $ | - |
|
| $ | - |
|
| $ |
| ||
Derivative Liability, December 31, 2021 |
| $ |
|
| $ | - |
|
| $ | - |
|
| $ |
| ||
The reconciliation of the derivative liability for the three months ended March 31, 2022 and 2021 is as follows:
|
| For the Three Months Ended March 31 |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Derivative liability, beginning of period |
| $ |
|
| $ |
| ||
Addition to derivative instruments |
|
| - |
|
|
|
| |
Derivative liability extinguished upon conversion of notes payable |
|
| ( | ) |
|
| ( | ) |
Change in fair value of derivative liability |
|
|
|
|
|
| ||
Derivative liability, end of period |
| $ |
|
| $ |
| ||
The change in fair value of the derivative liability for the three months ended March 31, 2022 and 2021 is comprised of the following:
|
| For the Three Months Ended March 31 |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Day one loss on valuation |
| $ | - |
|
| $ |
| |
Losses from the change in fair value of derivative liability |
|
|
|
|
|
| ||
Change in fair value of derivative liability* |
| $ |
|
| $ |
| ||
* Gains related to the revaluation of Level 3 financial liabilities is included in “Change in fair value of derivative liability” in the accompanying unaudited condensed consolidated statement of operations.
The fair value of the derivative liability was estimated using the Black-Scholes option-valuation model. The fair values at the commitment and remeasurement dates for our derivative liabilities were based upon the following management assumptions:
|
| For the Three Months Ended March 31 |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Expected dividends |
|
| % |
|
| % | ||
Expected volatility |
| % |
| % | ||||
Risk free interest rate |
| % |
| % | ||||
Expected term (in years) |
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|
|
| ||||
The fair value at the remeasurement date is equal to the carrying value on the balance sheet.
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NOTE 6 – STOCKHOLDERS’ EQUITY
Common Stock
For the three months ended March 31, 2021, we issued
On March 31, 2021, we issued
There were no common stock transactions during the three months ended March 31, 2022.
Preferred Stock
During the three months ended March 31, 2022, we issued
During the three months ended March 31, 2022, we issued
NOTE 7 – COMMITMENTS AND CONTINGENCIES
Litigation
On May 4, 2018, we reached a settlement of the claims at issue in Ocean Thermal Energy Corp. v. Robert Coe, et al., Case No. 2:17-cv-02343SHL-cgc, before the United States District Court for the Western District of Tennessee. Between May 30 and July 19, 2018, we received three payments totaling $
On May 21, 2019, Theodore T. Herman filed a complaint against us in Theodore T. Herman v. Ocean Thermal Energy Corporation, Case No. CI-19-04780, in the Court of Common Pleas of Lancaster County, Pennsylvania, asserting that he is entitled to payment on the promissory note described in Note 4: Convertible Notes and Notes Payable. On July 1, 2019, we filed preliminary objections to the complaint, and subsequently filed an answer and new matter on August 20, 2019, to which the plaintiff filed a reply on September 9, 2019. We will continue to defend our position that no further payment on this note is owed.
On August 22, 2018, Fugro USA Maine, Inc. (“Fugro”), filed suit against us in Fugro USA Marine, Inc. v. Ocean Thermal Energy Corp., Cause No. 2018-56396, in the District Court for Harris County, TX, 165th Judicial District, seeking approximately $
NOTE 8 – RELATED-PARTY TRANSACTIONS
For each of the three months ended March 31, 2022 and 2021, we paid rent of $
From time to time, the Company enters into loans and notes payable with related parties. Refer to Note 4 for details on notes payable and convertible notes payable to related parties.
Accrued interest on related party notes was $
NOTE 9 – SUBSEQUENT EVENTS
Subsequent to March 31, 2022:
We issued
We issued
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes to our financial statements included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors discussed elsewhere in this report.
Certain information included herein contains statements that may be considered forward-looking statements such as statements relating to our anticipated revenues, gross margins and operating results, estimates used in the preparation of our financial statements, future performance and operations, plans for future expansion, capital spending, sources of liquidity, and financing sources. Forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future, and accordingly, such results may differ from those expressed in any forward-looking statements made herein. These risks and uncertainties include those relating to our liquidity requirements; the continued growth of our industry; the success of marketing and sales activity; the dependence on existing management; the availability and cost of substantial amounts of project capital; leverage and debt service (including sensitivity to fluctuations in interest rates); domestic and global economic conditions; the inherent uncertainty and costs of prolonged arbitration or litigation; and changes in federal or state tax laws or the administration of such laws.
Overview
We develop projects for renewable power generation, desalinated water production, and air conditioning using our proprietary technologies designed to extract energy from the temperature differences between warm surface water and cold deep water. In addition, our projects provide ancillary products such as potable/bottle water and high-profit aquaculture, mariculture, and agriculture opportunities.
We currently have no source of revenue, so as we continue to incur costs, we are dependent on external funding for operations. We cannot assure that such funding will be available or, if available, can be obtained on acceptable or favorable terms.
Our operating expenses consist principally of expenses associated with the development of our projects until we determine that a particular project is feasible. Salaries and wages consist primarily of employee salaries and wages, payroll taxes, and health insurance. Our professional fees are related to consulting, engineering, legal, investor relations, outside accounting, and auditing expenses. General and administrative expenses include travel, insurance, rent, marketing, and miscellaneous office expenses. The interest expense includes interest and discounts related to our loans and notes payable.
Results of Operations
Comparison of Three Months Ended March 31, 2022 and 2021
We had no revenue in the three months ended March 31, 2022 and 2021.
During the three months ended March 31, 2022, we had salaries and wages of $202,778, compared to salaries and wages of $194,343 during the same three-month period for 2021, an increase of 4.3%.
During the three months ended March 31, 2022 and 2021, we recorded professional fees of $130,789 and $357,057, respectively, a decrease of 63.4%. During the first quarter of 2021, our legal fees were higher due to the continuing Memphis litigation issues.
We incurred general and administrative expenses of $53,013 during the three months ended March 31, 2022, compared to $52,567 for the same three-month period for 2021.
Our interest expense was $434,253 for the three months ended March 31, 2022, compared to $470,766 for the same period for 2021, a decrease of 7.8%. This change was due to a decrease in stock-based financing fee of $83,000, partially offset by increased debt and higher interest rates on defaulted notes.
Our debt discount amortization was $62,799 for the three months ended March 31, 2022, compared to $70,250 for the same period of the previous year. The decrease of 10.6% is due to full amortization of discount on debt that became due during the periods. There was an increase in the fair value of the derivative liability of $1,768,654 during the three months ended March 31, 2022, compared to a $295,642 increase for the 2021 period, a 498.2% increase period over period, such increases resulting primarily from the changes in the market value of our common stock during the periods. There was a gain of $2,267 on the conversion of debt during the three months ended March 31, 2022, as compared to $7,527 in the same period of 2021.
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Liquidity and Capital Resources
At March 31, 2022, our principal source of liquidity consisted of $31,450 of cash, as compared to $957 of cash at December 31, 2021. At March 31, 2022, we had negative working capital (current assets minus current liabilities) of $32,072,356. In addition, our stockholders’ deficiency was $32,331,943 at March 31, 2022, compared to stockholders” deficiency of $30,027,924 at December 31, 2021, an increase in the deficiency of $2,304,019, resulting from a loss of $2,650,019 for the three-month period, partially offset by an increase in equity resulting from the issuance of preferred stock in the amount of $346,000. We are focusing our efforts on promoting and marketing our technology by developing and executing contracts. We are exploring external funding alternatives, as our current cash is insufficient to fund operations for the next 12 months.
Our operations used net cash of $209,507 during the three months ended March 31, 2022, as compared to using net cash of $116,364 during the three months ended March 31, 2021, an increase of 80%. The increase in net cash used in operations is due to the overall increase in net loss of approximately $1.2 million and the change in accounts payable and accrued expenses of $0.3 million, offset by the increase in the change in the fair value of derivative liability and other noncash items of $1.4 million, as compared to the 2021 period.
Financing activities provided cash of $240,000 for our operations during the three months ended March 31, 2022, as compared to $186,145 for the three months ended March 31, 2021. During the three months ended March 31, 2022, we received $240,000 in proceeds from the sale of preferred stock. Proceeds from new notes payable were $190,000 in the three months ended March 31, 2021, and repayments of notes payable were $3,855 for the 2021 period.
The accompanying unaudited condensed consolidated financial statements have been prepared on the assumption that we will continue as a going concern. We have experienced recurring losses and we had a net loss of $2,650,019 and used $209,507 of cash in operating activities for the three months ended March 31, 2022. We had a working capital deficiency of $32,072,356 and a stockholders’ deficiency of $32,331,943 as of March 31, 2022. These factors raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to generate sales and obtain external funding for our projects under development. We continue to apply for grant funding from the US Department of Energy. Our applications focus on desalinated water, ammonia and hydrogen production from an OTEC facility. On March 11, 2022, President Biden signed a bill that provides $162 million for Water Power Technologies Office budget. About $112 million of that money is slated for marine energy. We plan to apply for funding to support projects where our technology would apply. The financial statements do not include any adjustments that may result from the outcome of this uncertainty.
We have no significant contractual obligations or commercial commitments not reflected on our balance sheet as of the date of this report.
Recent Accounting Pronouncements
Information concerning recently issued accounting pronouncements is set forth in Note 2 of our notes to unaudited condensed consolidated financial statements appearing elsewhere in this report.
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| Table Of Contents |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us, in the reports that we file or submit to the SEC under the Exchange Act, is recorded, processed, summarized, and reported within the periods specified by the SEC’s rules and forms and that information is accumulated and communicated to our management, including our principal executive and principal financial officer (whom we refer to in this periodic report as our Certifying Officer), as appropriate to allow timely decisions regarding required disclosure. Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our management evaluated, with the participation of our Certifying Officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of March 31, 2022, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officer concluded that, as of March 31, 2022, our disclosure controls and procedures were not effective to provide reasonable assurance because certain deficiencies involving internal controls constituted material weaknesses. The material weaknesses identified did not result in the restatement of any previously reported financial statements or any other related financial disclosure, and management does not believe that the material weaknesses had any effect on the accuracy of our financial statements for the current reporting period.
Limitations on Effectiveness of Controls
A system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the system will meet its objectives. The design of a control system is based, in part, upon the benefits of the control system relative to its costs. Control systems can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. In addition, over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Also, the design of any control system is based in part upon assumptions about the likelihood of future events.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2022, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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| Table Of Contents |
PART II–OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 4, 2018, we reached a settlement of the claims at issue in Ocean Thermal Energy Corp. v. Robert Coe, et al., Case No. 2:17-cv-02343SHL-cgc, before the United States District Court for the Western District of Tennessee. Between May 30 and July 19, 2018, we received three payments totaling $100,000 from the defendants. On August 8, 2018, an $8 million judgment was entered against the defendants and in our favor. On May 28, 2019, we further settled the claims at issue with two of the defendants, Brett M. Regal and his company, Trade Base Sales, Inc. (“Regal Debtors”), for $17,500,000, bringing the combined judgment and settlement amount owed to us is $25,500,000. On July 1, 2019, the United States District Judge for the Central District of California (case number: 2:19-cv-05299-VAP-JPR), approved our stipulated application for an order permitting us to levy on property and appointing a receiver to carry out the levy on Regal Debtors’ property, such that it may be sold (subject to further order of the court approving and confirming such sales), to satisfy the $25,500,000 settlement and judgment amounts in our favor. On August 15, 2019, the court-appointed receiver notified the court that he had taken custody, possession, and control of certain gemstone and mineral specimens, known as the “Ophir Collection” and 350,000 pounds of unrefined gold and other precious metal bearing ore. By order of the court, the receiver was given the authority to assign, sell, and transfer the debtor property. The proceeds of any sales will be used to satisfy the judgment and settlement agreement, receivership’s reasonable costs and fees, as well as any other claims as determined by the court. Various parties have come forward asserting ownership and priority lien rights to the property. In our ongoing efforts to collect the $25,500,000 judgment obtained, a third party has intervened in our case in the Central District of California (case number: 2:19-cv-05299-VAP-JPR), asserting that it is the rightful owner of the “Ophir Collection” of gems and mineral specimens that is now in possession of the court-appointed receiver. On February 25, 2022, all parties who have appeared in this case stipulated to dismiss all pending claims while leaving the receivership established by the court in place. On the same date, the court ordered that upon a successful sale of the Ophir Collection, the net proceeds shall be distributed in accordance with the terms of the January 3, 2022, confidential settlement between the parties.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended March 31, 2022, we issued 120 shares of Series D Preferred Stock for cash proceeds of $240,000.
During the three months ended March 31, 2022, we issued 53 shares of Series D Preferred Stock upon conversion of $80,000 of notes and $24,775 of related accrued interest.
These securities were issued in reliance on the exemption from registration provided in Section 4(a)(2) of the Securities Act of 1933, as amended, for transactions not involving any public offering. Each investor is an “accredited investor,” as that term is defined in Rule 501(a) of Regulation D, and confirmed the foregoing and acknowledged, in writing, that the securities were acquired and will be held for investment. No underwriter participated in the offer and sale of these securities, and no commission or other remuneration was paid or given directly or indirectly in connection therewith.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
On December 1, 2007, we borrowed funds from the Eastern Idaho Development Corporation (the EIDC loan). The interest rate is 7%, and the maturity date was September 1, 2015. The loan principal is $85,821 and the accrued interest is $59,206 as of March 31, 2022. This note is in default.
On September 25, 2009, we borrowed funds from the Pocatello Development Authority. The interest rate is 5%, and the maturity date was October 25, 2011. The loan principal is $50,000 and the accrued interest is $28,976 as of March 31, 2022. This note is in default.
On December 23, 2009, we borrowed funds from SICOG (EDA-#273 loan). The interest rate is 7%, and the maturity date was December 23, 2014. The loan principal is $94,414 and the accrued interest is $18,084 as of March 31, 2022. This note is in default.
On December 23, 2009, we borrowed funds from SICOG (MICRO I-#274 loan). The interest rate is 7%, and the maturity date was December 23, 2014. The loan principal is $23,620 and the accrued interest is $5,262 as of March 31, 2022. This note is in default.
On December 23, 2009, we borrowed funds from SICOG (MICRO II-#275 loan). The interest rate is 7%, and the maturity date was December 23, 2014. The loan principal is $23,610 and the accrued interest is $6,882 as of March 31, 2022. This note is in default.
During 2012, we issued a note payable for $1,000,000. The note had an interest rate of 10% per annum, was secured by a first lien in all of our assets, and was due on February 3, 2015. On March 6, 2018, the note was amended to extend the due date to December 31, 2018. On March 29, 2019, the maturity date of the note was extended to December 31, 2019. As of March 31, 2022, the outstanding note balance was $1,000,000, plus accrued interest of $966,393. This note is in default.
During 2013, we issued a note payable for $290,000 in connection with the reverse merger transaction with Broadband Network Affiliates, Inc. We have determined that no further payment of principal or interest on this note should be made because the note holder failed to perform his underlying obligations giving rise to this note. As described in Note 7, the note holder filed suit on May 21, 2019, and we remain confident that the court will decide in our favor by either voiding the note or awarding damages sufficient to offset the note value. As of March 31, 2022, the note balance outstanding was $130,000, and the accrued interest as of that date was $85,120. This note is in default.
On January 18, 2018, Jeremy P. Feakins & Associates, LLC, an investment entity owned by our chief executive, chief financial officer, and a director, agreed to extend the due date for repayment of a $2,265,000 note issued in 2014 to the earlier of December 31, 2018, or the date of the financial closings of our Baha Mar project (or any other project of $25 million or more), whichever occurs first. As of March 31, 2022, the note balance was $1,102,500 and the accrued interest was $880,478. This note is in default.
During 2014, we issued notes payable of $300,000. Accrued interest totaled $464,479 as of March 31, 2022. As of March 31, 2022, the notes are in default. We intend to repay the notes and accrued interest upon the project’s financial closing.
We have a $50,000 promissory note with an unaffiliated investor that was payable on April 7, 2019. The note and accrued interest can be converted into our common stock at a conversion rate of $0.75 per share at any time prior to the repayment. This conversion price is not required to adjust for the reverse stock split as per the note agreement. Accrued interest totaled $35,389 as of March 31, 2022. As of the date of this report, the note is in default
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During the third quarter of 2017, we completed a $2,000,000 convertible promissory note private placement offering. The terms of the note are as follows: (i) interest is payable at 6% per annum; (ii) payable two years after purchase; and (iii) all principal and interest on each note automatically converts on the conversion maturity date into shares of our common stock at a conversion price of $4.00 per share, as long as the closing share price of our common stock on the trading day immediately preceding the conversion maturity date is at least $4.00, as adjusted for stock splits, stock dividends, reclassification, and the like. If the price of our shares on such date is less than $4.00 per share, the note (principal and interest) will be repaid in full. During the third quarter of 2019, $15,000 of the note was repaid. As of March 31, 2022, the outstanding balance of these notes was $65,000, plus accrued interest of $18,372. The notes are in default.
On November 6, 2017, we entered into an agreement and promissory note with JPF Venture Group, Inc.., an investment entity owned by our chief executive, chief financial officer, and a director, to loan up to $2,000,000 to us. The terms of the note are as follows: (i) interest is payable at 10% per annum; (ii) all unpaid principal and all accrued and unpaid interest is due and payable at the earliest of a resolution of the Memphis litigation (as defined therein), December 31, 2018, or when we are otherwise able to pay. As of March 31, 2022, the outstanding note balance was $543,093 and the accrued interest was $267,939. This note is in default.
In December 2017, we entered into a series of unsecured promissory notes and warrant purchase agreements with accredited investors. These notes accrue interest at a rate of 10% per annum payable on a quarterly basis and are not convertible into shares of our capital stock. As of March 31, 2022, the balance of the notes outstanding was $929,156 and the accrued interest was $353,496. These notes are in default.
During the year ended December 31, 2018, we borrowed $482,222 from L2 Capital in five separate tranches. The interest rate is 8%, and the maturity dates are three months from the date of issue. The outstanding loan balance was $1,161,136, which includes the default penalty, and the accrued interest was $976,325 as of March 31, 2022. These notes are in default.
On December 14, 2018, L2 Capital LLC purchased our note payable from Collier Investments, LLC. The total consideration was $371,250, including the outstanding note balance of $281,250, the accrued interest of $33,750, and liquidated damages of $56,250. There was also a default penalty of $153,123. In addition, we issued 400,000 shares of common stock to L2 Capital, LLC as commitment shares with a fair value of $21,200 in connection with the purchase of the note. We executed a convertible note with L2 Capital in the amount of $371,250 with an interest rate of 12% per annum. The maturity date of the note was December 22, 2018. The holder of the note can convert the note, or any portion of it, into shares of common stock at any time after the issuance date. The conversion price is 65% of the market price, which is defined as the lowest trading price for our common stock during the 20-trading-day period prior to the conversion date. As of March 31, 2022, the outstanding note balance was $623,725, which includes a default penalty, and the accrued interest was $819,340. This note is in default.
On September 19, 2018, we executed a note payable for $10,000 with an unrelated party that bears interest at 6% per annum, which is due quarterly beginning as of September 30, 2018. The maturity date for the note was three years after date of issuance. In addition, the lender received warrants to purchase 2,000 shares of common stock upon signing the promissory note. The warrant can be exercised at a price per share equal to a 15% discount from the price of common stock on the last trading day before such purchase. As of March 31, 2022, the balance outstanding was $10,000 and the accrued interest was $2,148. We have defaulted in payment of the note principal and the quarterly interest payments.
On August 14, 2019, we executed a note payable for $26,200 with an unrelated party that bears interest at 8% per annum and has a maturity date of October 31, 2021. The note automatically converts into 1,310,000 shares of our common stock either at the time the closing sale price for our common stock is equal to or greater than $1.00 per share, as adjusted for stock splits, stock dividends, reclassification, and the like, or at the maturity date of October 31, 2021, whichever occurs first. As of March 31, 2022, the balance outstanding was $26,200, and the accrued interest was $6,689. This note is in default.
In 2019, we issued a series of convertible promissory notes to accredited investors that totaled $105,000. Of the amount received, $10,000 was from our chief executive officer and our independent director. The notes bear simple interest on outstanding principal at the rate of 8% per annum, computed based on the actual number of days elapsed in a year of 365 days. Each $5,000 loan automatically converts into 250,000 shares of our common stock, either at the time the closing sale price for our common stock is equal to or greater than $1.00 per share, as adjusted for stock splits, stock dividends, reclassification, and the like, or at the maturity date of October 31, 2021, whichever comes first. As of March 31, 2022, the total outstanding balances of all these loans are $95,000 and accrued interest was $18,464. These notes are in default.
In 2020 and 2019, we issued a series of convertible promissory notes to accredited investors aggregating $306,750. Of the amount received, $20,000 was from our chief executive officer and an independent director. The notes bear simple interest on outstanding principal at the rate of 8% per annum, computed based on the actual number of days elapsed in a year of 365 days. Each $5,000 loan automatically converts into 250,000 shares of our common stock, either at the time the closing sale price for our common stock is equal to or greater than $1.00 per share, as adjusted for stock splits, stock dividends, reclassification, and the like, or at the maturity date of January 2, 2022, whichever comes first. As March 31, 2022, the total outstanding balance of these loans was $286,750 and accrued interest was $48,229. These notes are in default.
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ITEM 6. EXHIBITS
The following exhibits are filed as a part of this report:
Exhibit Number* |
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Title of Document |
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Location |
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Item 31 |
| Rule 13a-14(a)/15d-14(a) Certifications |
|
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| Certification of Principal Executive Officer Pursuant to Rule 13a-14 |
| This filing. | |
| Certification of Principal Financial Officer Pursuant to Rule 13a-14 |
| This filing. | |
|
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Item 32 |
| Section 1350 Certifications |
|
|
|
| This filing. | ||
|
| This filing. | ||
|
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Item 101** |
| Interactive Data File |
|
|
101.INS |
| XBRL Instance Document |
| This filing. |
101.SCH |
| XBRL Taxonomy Extension Schema |
| This filing. |
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase |
| This filing. |
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase |
| This filing. |
101.LAB |
| XBRL Taxonomy Extension Label Linkbase |
| This filing. |
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase |
| This filing. |
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* | All exhibits are numbered with the number preceding the decimal indicating the applicable SEC reference number in Item 601 and the number following the decimal indicating the sequence of the particular document. |
** | The XBRL related information in Exhibit 101 will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and will not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as is expressly set forth by specific reference in such filing or document. |
| 18 |
| Table Of Contents |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| OCEAN THERMAL ENERGY CORPORATION |
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Date: May 13, 2022 | By: | /s/ Jeremy P. Feakins |
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