UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2022

 

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 033-19411-C

 

OCEAN THERMAL ENERGY CORPORATION

(Exact name of registrant as specified in its charter)

 

Nevada

 

20-5081381

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

800 South Queen Street, Lancaster, PA 17603

(Address of principal executive offices, including zip code)

 

(717) 299-1344

(Registrant’s telephone number, including area code)

 

n/a

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Exchange Act: None

 

Title of each class

Trading

Symbol(s)

Name of each exchange

on which registered

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated Filer

☒

Smaller reporting company

☒

Emerging growth company

☐

 

 

 

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. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

As of November 7, 2022, issuer had 184,370,469 outstanding shares of common stock, par value $0.001.

 

 

 

 

TABLE OF CONTENTS

 

 

Description

 

Page

 

 

 

 

 

 

PART I-FINANCIAL INFORMATION

 

 

 

 

 

Item 1

Financial Statements

 

3

 

 

Condensed Consolidated Balance Sheets

 

3

 

 

Condensed Consolidated Statements of Operations

 

4

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Deficiency

 

5

 

 

Condensed Consolidated Statements of Cash Flows

 

7

 

 

Notes to the Condensed Consolidated Financial Statements

 

8

 

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

15

 

Item 3

Quantitative and Qualitative Disclosures about Market Risk

 

16

 

Item 4

Controls and Procedures

 

16

 

 

 

 

 

 

PART II-OTHER INFORMATION

 

 

 

 

 

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

 

18

 

Item 3

Defaults upon Senior Securities

 

18

 

Item 6

Exhibits

 

20

 

 

Signature

 

21

 

 

 
2

Table of Contents

 

 

PART I - FINANCIAL INFORMATION 

 

ITEM 1. FINANCIAL STATEMENTS

 

 

OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

September 30,

2022

 

 

December 31,

2021

 

ASSETS

 

(Unaudited)

 

 

 

Current Assets

 

 

 

 

 

 

Cash

 

$7,314

 

 

$957

 

Prepaid expenses

 

 

5,000

 

 

 

5,000

 

Total Current Assets

 

 

12,314

 

 

 

5,957

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$12,314

 

 

$5,957

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIENCY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

 Accounts payable and accrued expense

 

$19,697,323

 

 

$17,553,723

 

 Notes payable - related party

 

 

2,329,473

 

 

 

2,329,473

 

 Convertible notes payable - related party, net

 

 

110,468

 

 

 

117,446

 

 Notes payable

 

 

3,511,620

 

 

 

3,631,620

 

 Convertible notes payable, net

 

 

2,513,799

 

 

 

2,405,515

 

 Advances payable - related party, net

 

 

38,100

 

 

 

100

 

 Derivative liability

 

 

6,947,525

 

 

 

3,769,211

 

Total Current Liabilities

 

 

35,148,308

 

 

 

29,807,088

 

 

 

 

 

 

 

 

 

 

Long-term Liabilities

 

 

 

 

 

 

 

 

Convertible notes payable, net

 

 

-

 

 

 

64,888

 

Convertible notes payable - related party, net

 

 

3,332

 

 

 

3,571

 

Notes payable

 

 

158,334

 

 

 

158,334

 

Total Liabilities

 

 

35,309,974

 

 

 

30,033,881

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (See Note 7)

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Stockholders’ Deficiency

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock, Series B, $0.001 par value; 1,250,000 shares authorized, 518,750 and 518,750 shares issued and outstanding, respectively

 

 

519

 

 

 

519

 

 

 

 

 

 

 

 

 

 

Preferred Stock, Series C, $0.001 par value; 2,700,000 shares authorized, 2,300,000 and 2,300,000 shares issued and outstanding, respectively

 

 

2,300

 

 

 

2,300

 

 

 

 

 

 

 

 

 

 

Preferred Stock, Series D, $0.001 par value; 1,000 shares authorized, 278 and no shares issued and outstanding, respectively

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized,184,370,469 and 174,370,469 shares issued and outstanding, respectively

 

 

184,371

 

 

 

174,371

 

Additional paid-in capital

 

 

60,110,402

 

 

 

59,379,402

 

Accumulated deficit

 

 

(95,595,252 )

 

 

(89,584,516 )

Total Stockholders’ Deficiency

 

 

(35,297,660 )

 

 

(30,027,924 )

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Deficiency

 

$12,314

 

 

$5,957

 

 

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 STATEMENT OF OPERATIONS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

For the nine months ended

 

 

 

 September 30,

2022

 

 

 September 30,

2021

 

 

 September 30,

2022

 

 

 September 30,

2021

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and compensation

 

$202,833

 

 

$206,146

 

 

$613,096

 

 

$624,377

 

Professional fees

 

 

148,990

 

 

 

100,895

 

 

 

423,418

 

 

 

664,508

 

General and administrative

 

 

38,367

 

 

 

53,538

 

 

 

130,019

 

 

 

148,839

 

Total Operating Expenses

 

 

390,190

 

 

 

360,579

 

 

 

1,166,533

 

 

 

1,437,724

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from Operations

 

 

(390,190 )

 

 

(360,579 )

 

 

(1,166,533 )

 

 

(1,437,724 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expenses) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(462,514 )

 

 

(414,085 )

 

 

(1,344,836 )

 

 

(1,293,740 )

Amortization of debt discount

 

 

(52,513 )

 

 

(106,949 )

 

 

(176,829 )

 

 

(253,425 )

Change in FV of derivative liability

 

 

(1,551,657 )

 

 

9,584

 

 

 

(3,374,400 )

 

 

1,074,932

 

Gain on conversion of debt

 

 

16,263

 

 

 

59,817

 

 

 

51,862

 

 

 

104,863

 

Total Other Income (Expense)

 

 

(2,050,421 )

 

 

(451,633 )

 

 

(4,844,203 )

 

 

(367,370 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss Before Income Taxes

 

 

(2,440,611 )

 

 

(812,212 )

 

 

(6,010,736 )

 

 

(1,805,094 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for Income Taxes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$(2,440,611 )

 

$(812,212 )

 

$(6,010,736 )

 

$(1,805,094 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss per Common Share – Basic and diluted

 

$(0.01 )

 

$(0.01 )

 

$(0.03 )

 

$(0.01 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Number of Common Shares Outstanding – Basic and diluted

 

 

180,566,121

 

 

 

167,087,860

 

 

 

177,136,037

 

 

 

154,833,765

 

 

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

(Unaudited)

 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional

 

 

 

 

 Total

 

 

 

Number of

 

 

Par

 

 

Number of

 

 

Par

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Value

 

 

Shares

 

 

Value

 

 

Capital

 

 

Deficit

 

 

Deficiency

 

Balance December 31, 2020

 

 

2,818,750

 

 

$2,819

 

 

 

137,847,005

 

 

$137,847

 

 

$58,360,044

 

 

$(86,913,879 )

 

$(28,413,169 )

Common Stock issued for conversions of notes payable

 

 

-

 

 

 

-

 

 

 

29,829,587

 

 

 

29,830

 

 

 

893,051

 

 

 

-

 

 

 

922,881

 

Common Stock issued for second commitment fee

 

 

-

 

 

 

-

 

 

 

1,693,877

 

 

 

1,694

 

 

 

81,306

 

 

 

-

 

 

 

83,000

 

Net Loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,805,094 )

 

 

(1,805,094 )

Balance September 30, 2021 (Unaudited)

 

 

2,818,750

 

 

$2,819

 

 

 

169,370,469

 

 

$169,371

 

 

$59,334,401

 

 

$(88,718,973 )

 

$(29,212,382 )

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional

 

 

 

 

 Total

 

 

 

Number of

 

 

Par

 

 

Number of

 

 

Par

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Value

 

 

Shares

 

 

Value

 

 

Capital

 

 

Deficit

 

 

Deficiency

 

Balance December 31, 2021

 

 

2,818,750

 

 

$2,819

 

 

 

174,370,469

 

 

$174,371

 

 

$59,379,402

 

 

$(89,584,516 )

 

$(30,027,924 )

Series D Preferred Stock issued for cash

 

 

135

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

270,000

 

 

 

-

 

 

 

270,000

 

Series D Preferred Stock issued for conversion of notes and interest

 

 

143

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

286,000

 

 

 

-

 

 

 

286,000

 

Common Stock issued for conversions of notes payable

 

 

-

 

 

 

-

 

 

 

10,000,000

 

 

 

10,000

 

 

 

175,000

 

 

 

-

 

 

 

185,000

 

Net Loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,010,736 )

 

 

(6,010,736 )

Balance September 30, 2022 (Unaudited)

 

 

2,819,028

 

 

$2,819

 

 

 

184,370,469

 

 

$184,371

 

 

$60,110,402

 

 

$(95,595,252 )

 

$(35,297,660 )

 

 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 CHANGES IN STOCKHOLDERS’ DEFICIENCY

(Unaudited)

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional

 

 

 

 

Total

 

 

 

Number of

Shares

 

 

Par 

Value

 

 

Number of

Shares

 

 

Par 

Value

 

 

Paid-in

Capital

 

 

Accumulated

Deficit

 

 

Stockholders’

Deficiency

 

Balance June 30, 2021 (Unaudited)

 

 

2,818,750

 

 

$2,819

 

 

 

159,370,469

 

 

$159,371

 

 

$59,124,401

 

 

$(87,906,761 )

 

$(28,620,170 )

Common Stock issued for conversions of notes payable

 

 

-

 

 

 

-

 

 

 

10,000,000

 

 

 

10,000

 

 

 

210,000

 

 

 

-

 

 

 

220,000

 

Net Loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(812,212 )

 

 

(812,212 )

Balance September 30, 2021 (Unaudited)

 

 

2,818,750

 

 

$2,819

 

 

 

169,370,469

 

 

$169,371

 

 

$59,334,401

 

 

$(88,718,973 )

 

$(29,212,382 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional

 

 

 Total

 

 

 

 

Number of

Shares

 

 

Par 

Value

 

 

Number of

Shares

 

 

Par 

Value

 

 

Paid-in

Capital

 

 

Accumulated

Deficit

 

 

Stockholders’

Deficiency

 

Balance June 30, 2022 (Unaudited)

 

 

2,819,028

 

 

$2,819

 

 

 

179,370,469

 

 

$179,371

 

 

$60,040,402

 

 

$(93,154,641 )

 

$(32,932,049 )

Common Stock issued for conversions of notes payable

 

 

-

 

 

 

-

 

 

 

5,000,000

 

 

 

5,000

 

 

 

70,000

 

 

 

-

 

 

 

75,000

 

Net Loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,440,611 )

 

 

(2,440,611 )

Balance September 30, 2022 (Unaudited)

 

 

2,819,028

 

 

$2,819

 

 

 

184,370,469

 

 

$184,371

 

 

$60,110,402

 

 

$(95,595,252 )

 

$(35,297,660 )

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
6

Table of Contents

 

OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(Unaudited)

 

 

 

2022

 

 

2021

 

Cash Flows From Operating Activities:

 

 

 

 

 

 

Net loss

 

$(6,010,736 )

 

$(1,805,094 )

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Change in fair value of derivative liability

 

 

3,374,400

 

 

 

(1,074,932 )

Amortization of debt discount

 

 

176,829

 

 

 

253,425

 

Gain on conversion of debt

 

 

(51,862 )

 

 

(104,863 )

Stock issued for second commitment fee

 

 

-

 

 

 

83,000

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

 

2,209,726

 

 

 

2,228,232

 

Net Cash Used In Operating Activities

 

 

(301,643 )

 

 

(420,232 )

 

 

 

 

 

 

 

 

 

Cash Flows From Financing Activities:

 

 

 

 

 

 

 

 

Repayment of notes payable

 

 

-

 

 

 

(3,855 )

Proceeds from notes payable

 

 

-

 

 

 

105,000

 

Proceeds from convertible notes payable

 

 

-

 

 

 

425,000

 

Proceeds from convertible notes payable – related party

 

 

-

 

 

 

5,000

 

Advances from related parties

 

 

38,000

 

 

 

-

 

Proceeds from sale of preferred stock

 

 

270,000

 

 

 

-

 

Net Cash Provided by Financing Activities

 

 

308,000

 

 

 

531,145

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

 

6,357

 

 

 

110,913

 

Cash at beginning of period

 

 

957

 

 

 

7,442

 

Cash at End of Period

 

$7,314

 

 

$118,355

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest expense

 

$15,440

 

 

$15,576

 

Cash paid for income taxes

 

$-

 

 

$-

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Preferred stock issued for conversion of notes and accrued interest

 

$286,000

 

 

$-

 

Common stock issued for conversion of notes payable

 

$185,000

 

 

$922,881

 

Convertible notes payable and accrued interest converted into common stock

 

$45,650

 

 

$399,625

 

Convertible notes payable and accrued interest converted into preferred stock

 

$100,945

 

 

$-

 

Related party convertible notes payable and accrued interest converted into preferred stock

 

$12,043

 

 

$-

 

Notes payable and accrued interest converted into preferred stock

 

$168,138

 

 

$-

 

Debt discount on notes payable

 

$-

 

 

$417,282

 

Derivative liability extinguished upon conversion of note payable

 

$196,086

 

 

$628,119

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
7

Table of Contents

  

OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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.

 

 

·

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 (“U.S. GAAP”).

 

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 U.S. GAAP. The accompanying unaudited condensed consolidated financial statements as of September 30, 2022, and for the three and nine months ended September 30, 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 and nine months ended September 30, 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.

 

Agreement to Sell Subsidiary

 

On August 25, 2022, we entered into a Stock Purchase Agreement  to sell OCEES International, Inc., our wholly owned subsidiary (“OCEES”), to Epaphus Global Energy, LLC (“Epaphus”). Epaphus is controlled by Jeremy Feakins, our Chief Executive Officer and a director. The transaction was approved unanimously by our directors who do not have an interest in the transaction.

 

In exchange for the sale of OCEES, we will receive:

 

 

•

$1,000,000 in the form of canceled amounts owed by us to certain individuals, including Mr. Feakins, who have assigned their right to receive those payments to Epaphus;

 

•

$75,000 in cash per month for 12 months following the date of the purchase agreement; and

 

•

70% of the net profit of any currently contemplated project to build an ocean thermal energy conversion power plantx entered into by OCEES.

 

Under the terms of the purchase agreement, Epaphus has the unilateral right to return OCEES to us and receive a full refund of all portions of the purchase price paid as of the return of OCEES at any time for year following the date of the purchase agreement.

 

The purchase agreement had not closed as of September 30, 2022, or through the date of filing of this form 10-Q. The transaction has not been reflected in these financial statements.

 

 
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Table of Contents

 

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 September 30, 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 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:

 

 

·

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, and other liabilities, reflected in the accompanying balance sheets, approximate fair value at September 30, 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 September 30, 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 September 30, 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 September 30, 2022 and 2021, as they would be anti-dilutive:

 

 

 

Nine Months Ended

September 30,

 

 

 

2022

 

 

2021

 

Shares underlying warrants outstanding

 

 

125,073

 

 

 

125,073

 

Shares underlying convertible notes outstanding

 

 

648,510,042

 

 

 

402,101,029

 

Shares underlying convertible preferred stock outstanding

 

 

16,687,500

 

 

 

16,687,500

 

 

 

 

665,322,615

 

 

 

418,913,602

 

 

Reclassifications

 

Certain prior-year amounts have been reclassified to conform to the current period presentation.

 

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.

 

 
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Table of Contents

 

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 $6,010,736 and used $301,643 of cash in operating activities for the nine months ended September 30, 2022. We had a working capital deficiency of $35,135,994 and a stockholders’ deficiency of $35,297,660 as of September 30, 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 increase 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 the 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.

 

NOTE 4 - CONVERTIBLE NOTES AND NOTES PAYABLE

 

During the nine months ended September 30, 2022, $215,000 of notes and $66,126 of related accrued interest were converted into 143 shares of Series D Preferred Stock.

 

During the nine months ended September 30, 2022, $45,650 of notes were converted into 10,000,000 shares of common stock.

 

During the nine months ended September 30, 2021, $399,625 of notes were converted into 29,829,587 shares of common stock.

 

The following convertible notes and notes payable were outstanding at September 30, 2022:

 

 Date of

 

 

Maturity

 

 

Interest

 

 

In

 

Original

 

 

Principal

 at

September 30,

 

 

Discount

at

September 30,

 

 

Carrying

Amount

at

September 30,

 

 

Related Party

 

 

Non Related Party

 

Issuance

 

 

Date

 

 

Rate

 

 

 Default

 

Principal

 

 

2022

 

 

2022

 

 

2022

 

 

Current

 

 

Long-Term

 

 

Current

 

 

Long-Term

 

12/01/07

 

 

09/01/15

 

 

 

7.00

%

 

Yes

 

 

125,000

 

 

 

85,821

 

 

 

-

 

 

 

85,821

 

 

 

-

 

 

 

-

 

 

 

85,821

 

 

 

-

 

09/25/09

 

 

10/25/11

 

 

 

5.00

%

 

Yes

 

 

50,000

 

 

 

50,000

 

 

 

-

 

 

 

50,000

 

 

 

-

 

 

 

-

 

 

 

50,000

 

 

 

-

 

12/23/09

 

 

12/23/14

 

 

 

7.00

%

 

Yes

 

 

100,000

 

 

 

94,414

 

 

 

-

 

 

 

94,414

 

 

 

-

 

 

 

-

 

 

 

94,414

 

 

 

-

 

12/23/09

 

 

12/23/14

 

 

 

7.00

%

 

Yes

 

 

25,000

 

 

 

23,620

 

 

 

-

 

 

 

23,620

 

 

 

-

 

 

 

-

 

 

 

23,620

 

 

 

-

 

12/23/09

 

 

12/23/14

 

 

 

7.00

%

 

Yes

 

 

25,000

 

 

 

23,610

 

 

 

-

 

 

 

23,610

 

 

 

-

 

 

 

-

 

 

 

23,610

 

 

 

-

 

02/03/12

 

 

12/31/19

 

 

 

10.00

%

 

Yes

 

 

1,000,000

 

 

 

1,000,000

 

 

 

-

 

 

 

1,000,000

 

 

 

-

 

 

 

-

 

 

 

1,000,000

 

 

 

-

 

08/15/13

 

 

10/31/23

 

 

 

10.00

%

 

No

 

 

158,334

 

 

 

158,334

 

 

 

-

 

 

 

158,334

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

158,334

 

12/31/13

 

 

12/31/15

 

 

 

8.00

%

 

Yes

 

 

290,000

 

 

 

130,000

 

 

 

-

 

 

 

130,000

 

 

 

-

 

 

 

-

 

 

 

130,000

 

 

 

-

 

04/01/14

 

 

12/31/18

 

 

 

10.00

%

 

Yes

 

 

2,265,000

 

 

 

1,102,500

 

 

 

-

 

 

 

1,102,500

 

 

 

1,102,500

 

 

 

-

 

 

 

-

 

 

 

-

 

12/22/14

 

 

03/31/15

 

 

 

22.00

%*

 

Yes

 

 

200,000

 

 

 

200,000

 

 

 

-

 

 

 

200,000

 

 

 

-

 

 

 

-

 

 

 

200,000

 

 

 

-

 

12/26/14

 

 

12/26/15

 

 

 

22.00

%*

 

Yes

 

 

100,000

 

 

 

100,000

 

 

 

-

 

 

 

100,000

 

 

 

-

 

 

 

-

 

 

 

100,000

 

 

 

-

 

03/12/15

 

 

(1)

 

 

6.00

%

 

No

 

 

394,380

 

 

 

394,380

 

 

 

-

 

 

 

394,380

 

 

 

394,380

 

 

 

-

 

 

 

-

 

 

 

-

 

04/07/15

 

 

04/07/18

 

 

 

10.00

%

 

Yes

 

 

50,000

 

 

 

50,000

 

 

 

-

 

 

 

50,000

 

 

 

-

 

 

 

-

 

 

 

50,000

 

 

 

-

 

11/23/15

 

 

(1)

 

 

6.00

%

 

No

 

 

50,000

 

 

 

50,000

 

 

 

-

 

 

 

50,000

 

 

 

50,000

 

 

 

-

 

 

 

-

 

 

 

-

 

02/25/16

 

 

(1)

 

 

6.00

%

 

No

 

 

50,000

 

 

 

50,000

 

 

 

-

 

 

 

50,000

 

 

 

50,000

 

 

 

-

 

 

 

-

 

 

 

-

 

05/20/16

 

 

(1)

 

 

6.00

%

 

No

 

 

50,000

 

 

 

50,000

 

 

 

-

 

 

 

50,000

 

 

 

50,000

 

 

 

-

 

 

 

-

 

 

 

-

 

10/20/16

 

 

(1)

 

 

6.00

%

 

No

 

 

37,500

 

 

 

12,500

 

 

 

-

 

 

 

12,500

 

 

 

12,500

 

 

 

-

 

 

 

-

 

 

 

-

 

10/20/16

 

 

(1)

 

 

6.00

%

 

No

 

 

12,500

 

 

 

12,500

 

 

 

-

 

 

 

12,500

 

 

 

12,500

 

 

 

-

 

 

 

-

 

 

 

-

 

12/21/16

 

 

(1)

 

 

6.00

%

 

No

 

 

25,000

 

 

 

25,000

 

 

 

-

 

 

 

25,000

 

 

 

25,000

 

 

 

-

 

 

 

-

 

 

 

-

 

03/09/17

 

 

(1)

 

 

10.00

%

 

No

 

 

200,000

 

 

 

177,000

 

 

 

-

 

 

 

177,000

 

 

 

177,000

 

 

 

-

 

 

 

-

 

 

 

-

 

07/13/17

 

 

07/13/19

 

 

 

6.00

%

 

Yes

 

 

25,000

 

 

 

25,000

 

 

 

-

 

 

 

25,000

 

 

 

-

 

 

 

-

 

 

 

25,000

 

 

 

-

 

07/18/17

 

 

07/18/19

 

 

 

6.00

%

 

Yes

 

 

25,000

 

 

 

25,000

 

 

 

-

 

 

 

25,000

 

 

 

-

 

 

 

-

 

 

 

25,000

 

 

 

-

 

07/26/17

 

 

07/26/19

 

 

 

6.00

%

 

Yes

 

 

15,000

 

 

 

15,000

 

 

 

-

 

 

 

15,000

 

 

 

-

 

 

 

-

 

 

 

15,000

 

 

 

-

 

12/20/17

 

 

(2)

 

 

10.00

%

 

Yes

 

 

979,156

 

 

 

859,156

 

 

 

-

 

 

 

859,156

 

 

 

-

 

 

 

-

 

 

 

859,156

 

 

 

-

 

11/06/17

 

 

12/31/18

 

 

 

10.00

%

 

Yes

 

 

646,568

 

 

 

543,093

 

 

 

-

 

 

 

543,093

 

 

 

543,093

 

 

 

-

 

 

 

-

 

 

 

-

 

02/19/18

 

 

(3)

 

 

18.00

%*

 

Yes

 

 

629,451

 

 

 

1,161,136

 

 

 

-

 

 

 

1,161,136

 

 

 

-

 

 

 

-

 

 

 

1,161,136

 

 

 

-

 

09/19/18

 

 

09/28/21

 

 

 

6.00

%

 

Yes

 

 

10,000

 

 

 

10,000

 

 

 

-

 

 

 

10,000

 

 

 

-

 

 

 

-

 

 

 

10,000

 

 

 

-

 

12/14/18

 

 

12/22/18

 

 

 

24.00

%*

 

Yes

 

 

474,759

 

 

 

578,075

 

 

 

-

 

 

 

578,075

 

 

 

-

 

 

 

-

 

 

 

578,075

 

 

 

-

 

01/02/19

 

 

(4)

 

 

17.00

%

 

No

 

 

310,000

 

 

 

310,000

 

 

 

-

 

 

 

310,000

 

 

 

-

 

 

 

-

 

 

 

310,000

 

 

 

-

 

08/14/19

 

 

10/31/2021

 

 

 

8.00

%

 

Yes

 

 

26,200

 

 

 

26,200

 

 

 

-

 

 

 

26,200

 

 

 

-

 

 

 

-

 

 

 

26,200

 

 

 

-

 

 

(5)

 

10/31/2021

 

 

 

8.00

%

 

Yes

 

 

105,000

 

 

 

75,000

 

 

 

-

 

 

 

75,000

 

 

 

5,000

 

 

 

-

 

 

 

70,000

 

 

 

-

 

 

(6)

 

01/02/22

 

 

 

8.00

%

 

Yes

 

 

296,750

 

 

 

231,750

 

 

 

-

 

 

 

231,750

 

 

 

15,000

 

 

 

-

 

 

 

216,750

 

 

 

-

 

 

(8)

 

05/12/22

 

 

 

8.00

%

 

Yes

 

 

15,000

 

 

 

15,000

 

 

 

-

 

 

 

15,000

 

 

 

-

 

 

 

-

 

 

 

15,000

 

 

 

-

 

 

(9)

 

09/01/22

 

 

 

8.00

%

 

Yes

 

 

170,000

 

 

 

170,000

 

 

 

-

 

 

 

170,000

 

 

 

-

 

 

 

-

 

 

 

170,000

 

 

 

-

 

 

(10)

 

08/30/23

 

 

 

8.00

%

 

No

 

 

285,000

 

 

 

285,000

 

 

 

120,395

 

 

 

164,605

 

 

 

2,968

 

 

 

-

 

 

 

161,637

 

 

 

-

 

 

(11)

 

11/30/23

 

 

 

8.00

%

 

No

 

 

5,000

 

 

 

5,000

 

 

 

1,668

 

 

 

3,332

 

 

 

-

 

 

 

3,332

 

 

 

-

 

 

 

-

 

 

(7)

 

(7)

 

 

10.00

%

 

No

 

 

625,000

 

 

 

625,000

 

 

 

-

 

 

 

625,000

 

 

 

-

 

 

 

-

 

 

 

625,000

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

9,850,598

 

 

$

8,749,089

 

 

$

122,063

 

 

$

8,627,026

 

 

$

2,439,941

 

 

$

3,332

 

 

$

6,025,419

 

 

$

158,334

 

 

(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.

 

 
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Table of Contents

 

(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.

 

The following convertible notes and notes payable were outstanding at December 31, 2021:

 

 Date of

 

 

Maturity

 

 

 Interest

 

 

 In

 

Original

 

 

Principal

at

December 31,

 

 

Discount

at

December 31,

 

 

Carrying

Amount

 at

December 31

 

 

Related Party

 

 

Non Related Party

 

Issuance

 

 

Date

 

 

 Rate

 

 

Default

 

Principal

 

 

2021

 

 

2021

 

 

2021

 

 

Current

 

 

Long-Term

 

 

Current

 

 

Long-Term

 

12/01/07

 

 

09/01/15

 

 

 

7.00

%

 

Yes

 

 

125,000

 

 

 

85,821

 

 

 

-

 

 

 

85,821

 

 

 

-

 

 

 

-

 

 

 

85,821

 

 

 

-

 

09/25/09

 

 

10/25/11

 

 

 

5.00

%

 

Yes

 

 

50,000

 

 

 

50,000

 

 

 

-

 

 

 

50,000

 

 

 

-

 

 

 

-

 

 

 

50,000

 

 

 

-

 

12/23/09

 

 

12/23/14

 

 

 

7.00

%

 

Yes

 

 

100,000

 

 

 

94,414

 

 

 

-

 

 

 

94,414

 

 

 

-

 

 

 

-

 

 

 

94,414

 

 

 

-

 

12/23/09

 

 

12/23/14

 

 

 

7.00

%

 

Yes

 

 

25,000

 

 

 

23,620

 

 

 

-

 

 

 

23,620

 

 

 

-

 

 

 

-

 

 

 

23,620

 

 

 

-

 

12/23/09

 

 

12/23/14

 

 

 

7.00

%

 

Yes

 

 

25,000

 

 

 

23,610

 

 

 

-

 

 

 

23,610

 

 

 

-

 

 

 

-

 

 

 

23,610

 

 

 

-

 

02/03/12

 

 

12/31/19

 

 

 

10.00

%

 

Yes

 

 

1,000,000

 

 

 

1,000,000

 

 

 

-

 

 

 

1,000,000

 

 

 

-

 

 

 

-

 

 

 

1,000,000

 

 

 

-

 

08/15/13

 

 

10/31/23

 

 

 

10.00

%

 

No

 

 

158,334

 

 

 

158,334

 

 

 

-

 

 

 

158,334

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

158,334

 

12/31/13

 

 

12/31/15

 

 

 

8.00

%

 

Yes

 

 

290,000

 

 

 

130,000

 

 

 

-

 

 

 

130,000

 

 

 

-

 

 

 

-

 

 

 

130,000

 

 

 

-

 

04/01/14

 

 

12/31/18

 

 

 

10.00

%

 

Yes

 

 

2,265,000

 

 

 

1,102,500

 

 

 

-

 

 

 

1,102,500

 

 

 

1,102,500

 

 

 

-

 

 

 

-

 

 

 

-

 

12/22/14

 

 

03/31/15

 

 

 

22.00

%*

 

Yes

 

 

200,000

 

 

 

200,000

 

 

 

-

 

 

 

200,000

 

 

 

-

 

 

 

-

 

 

 

200,000

 

 

 

-

 

12/26/14

 

 

12/26/15

 

 

 

22.00

%*

 

Yes

 

 

100,000

 

 

 

100,000

 

 

 

-

 

 

 

100,000

 

 

 

-

 

 

 

-

 

 

 

100,000

 

 

 

-

 

03/12/15

 

 

(1)

 

 

 

6.00

%

 

No

 

 

394,380

 

 

 

394,380

 

 

 

-

 

 

 

394,380

 

 

 

394,380

 

 

 

-

 

 

 

-

 

 

 

-

 

04/07/15

 

 

04/07/18

 

 

 

10.00

%

 

Yes

 

 

50,000

 

 

 

50,000

 

 

 

-

 

 

 

50,000

 

 

 

-

 

 

 

-

 

 

 

50,000

 

 

 

-

 

11/23/15

 

 

(1)

 

 

 

6.00

%

 

No

 

 

50,000

 

 

 

50,000

 

 

 

-

 

 

 

50,000

 

 

 

50,000

 

 

 

-

 

 

 

-

 

 

 

-

 

02/25/16

 

 

(1)

 

 

 

6.00

%

 

No

 

 

50,000

 

 

 

50,000

 

 

 

-

 

 

 

50,000

 

 

 

50,000

 

 

 

-

 

 

 

-

 

 

 

-

 

05/20/16

 

 

(1)

 

 

 

6.00

%

 

No

 

 

50,000

 

 

 

50,000

 

 

 

-

 

 

 

50,000

 

 

 

50,000

 

 

 

-

 

 

 

-

 

 

 

-

 

10/20/16

 

 

(1)

 

 

 

6.00

%

 

No

 

 

37,500

 

 

 

12,500

 

 

 

-

 

 

 

12,500

 

 

 

12,500

 

 

 

-

 

 

 

-

 

 

 

-

 

10/20/16

 

 

(1)

 

 

 

6.00

%

 

No

 

 

12,500

 

 

 

12,500

 

 

 

-

 

 

 

12,500

 

 

 

12,500

 

 

 

-

 

 

 

-

 

 

 

-

 

12/21/16

 

 

(1)

 

 

 

6.00

%

 

No

 

 

25,000

 

 

 

25,000

 

 

 

-

 

 

 

25,000

 

 

 

25,000

 

 

 

-

 

 

 

-

 

 

 

-

 

03/09/17

 

 

(1)

 

 

 

10.00

%

 

No

 

 

200,000

 

 

 

177,000

 

 

 

-

 

 

 

177,000

 

 

 

177,000

 

 

 

-

 

 

 

-

 

 

 

-

 

07/13/17

 

 

07/13/19

 

 

 

6.00

%

 

Yes

 

 

25,000

 

 

 

25,000

 

 

 

-

 

 

 

25,000

 

 

 

-

 

 

 

-

 

 

 

25,000

 

 

 

-

 

07/18/17

 

 

07/18/19

 

 

 

6.00

%

 

Yes

 

 

25,000

 

 

 

25,000

 

 

 

-

 

 

 

25,000

 

 

 

-

 

 

 

-

 

 

 

25,000

 

 

 

-

 

07/26/17

 

 

07/26/19

 

 

 

6.00

%

 

Yes

 

 

15,000

 

 

 

15,000

 

 

 

-

 

 

 

15,000

 

 

 

-

 

 

 

-

 

 

 

15,000

 

 

 

-

 

12/20/17

 

 

(2)

 

 

 

10.00

%

 

Yes

 

 

979,156

 

 

 

979,156

 

 

 

-

 

 

 

979,156

 

 

 

-

 

 

 

-

 

 

 

979,156

 

 

 

-

 

11/06/17

 

 

12/31/18

 

 

 

10.00

%

 

Yes

 

 

646,568

 

 

 

543,093

 

 

 

-

 

 

 

543,093

 

 

 

543,093

 

 

 

-

 

 

 

-

 

 

 

-

 

02/19/18

 

 

(3)

 

 

 

18.00

% *

 

Yes

 

 

629,451

 

 

 

1,161,136

 

 

 

-

 

 

 

1,161,136

 

 

 

-

 

 

 

-

 

 

 

1,161,136

 

 

 

-

 

09/19/18

 

 

09/28/21

 

 

 

6.00

%

 

Yes

 

 

10,000

 

 

 

10,000

 

 

 

-

 

 

 

10,000

 

 

 

-

 

 

 

-

 

 

 

10,000

 

 

 

-

 

12/14/18

 

 

12/22/18

 

 

 

24.00

%*

 

Yes

 

 

474,759

 

 

 

623,725

 

 

 

-

 

 

 

623,725

 

 

 

-

 

 

 

-

 

 

 

623,725

 

 

 

-

 

01/02/19

 

 

(4)

 

 

 

17.00

%

 

No

 

 

310,000

 

 

 

310,000

 

 

 

-

 

 

 

310,000

 

 

 

-

 

 

 

-

 

 

 

310,000

 

 

 

-

 

08/14/19

 

 

10/31/2021

 

 

 

8.00

%

 

Yes

 

 

26,200

 

 

 

26,200

 

 

 

-

 

 

 

26,200

 

 

 

-

 

 

 

-

 

 

 

26,200

 

 

 

-

 

(5)

 

 

10/31/2021

 

 

 

8.00

%

 

Yes

 

 

105,000

 

 

 

105,000

 

 

 

-

 

 

 

105,000

 

 

 

10,000

 

 

 

-

 

 

 

95,000

 

 

 

-

 

(6)

 

 

01/02/22

 

 

 

8.00

%

 

No

 

 

306,750

 

 

 

306,750

 

 

 

885

 

 

 

305,865

 

 

 

19,946

 

 

 

-

 

 

 

285,919

 

 

 

-

 

(8)

 

 

05/12/22

 

 

 

8.00

%

 

No

 

 

15,000

 

 

 

15,000

 

 

 

2,924

 

 

 

12,076

 

 

 

-

 

 

 

-

 

 

 

12,076

 

 

 

-

 

(9)

 

 

09/01/22

 

 

 

8.00

%

 

No

 

 

160,000

 

 

 

160,000

 

 

 

73,542

 

 

 

86,458

 

 

 

-

 

 

 

-

 

 

 

86,458

 

 

 

-

 

(10)

 

 

08/30/23

 

 

 

8.00

%

 

No

 

 

285,000

 

 

 

285,000

 

 

 

218,805

 

 

 

66,195

 

 

 

-

 

 

 

1,307

 

 

 

-

 

 

 

64,888

 

(11)

 

 

11/30/23

 

 

 

8.00

%

 

No

 

 

5,000

 

 

 

5,000

 

 

 

2,736

 

 

 

2,264

 

 

 

-

 

 

 

2,264

 

 

 

-

 

 

 

-

 

(7)

 

 

(7)

 

 

 

10.00

%

 

No

 

 

625,000

 

 

 

625,000

 

 

 

-

 

 

 

625,000

 

 

 

-

 

 

 

-

 

 

 

625,000

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

9,850,598

 

 

$

9,009,739

 

 

$

298,892

 

 

$

8,710,847

 

 

$

2,446,919

 

 

$

3,571

 

 

$

6,037,135

 

 

$

223,222

 

 

(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 11/02/20 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.

 

 
11

Table of Contents

 

(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.

 

 

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, September 30, 2022 (Unaudited)

 

$6,947,525

 

 

$-

 

 

$-

 

 

$6,947,525

 

Derivative Liability, December 31, 2021

 

$3,769,211

 

 

$-

 

 

$-

 

 

$3,769,211

 

 

The reconciliation of the derivative liability for the nine months ended September 30, 2022 and 2021 is as follows:

 

 

 

For the Nine Months Ended

September 30,

 

 

 

2022

 

 

2021

 

Derivative liability, beginning of period

 

$3,769,211

 

 

$5,321,395

 

Addition to derivative instruments

 

 

-

 

 

 

515,143

 

Derivative liability extinguished upon conversion of notes payable

 

 

(196,086 )

 

 

(628,119 )

Change in fair value of derivative liability

 

 

3,374,400

 

 

 

(1,172,793 )

Derivative liability, end of period

 

$6,947,525

 

 

$4,035,626

 

 

The change in fair value of the derivative liability for the nine months ended September 30, 2022 and 2021 is comprised of the following:

 

 

 

For the Nine Months Ended

September 30,

 

 

 

2022

 

 

2021

 

Day one loss on valuation

 

$-

 

 

$97,861

 

Loss (gain) from the change in fair value of derivative liability

 

 

3,374,400

 

 

 

(1,172,793 )

Change in fair value of derivative liability*

 

$3,374,400

 

 

$(1,074,932 )

______________ 

* 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 Nine Months Ended

September 30,

 

 

 

2022

 

 

2021

 

Expected dividends

 

 

0%

 

 

0%

Expected volatility

 

184%-368

 %

 

153%-469

 %

Risk free interest rate

 

0.52%-4.05

 %

 

0.01%-0.29

 %

Expected term (in years)

 

0.25- 1.42 years

 

 

0.25- 3.56 years

 

 

The fair value at the remeasurement date is equal to the carrying value on the balance sheet.

 

 
12

Table of Contents

 

NOTE 6 - STOCKHOLDERS’ EQUITY

 

Common Stock

 

For the nine months ended September 30, 2022, we issued 10,000,000 shares of common stock with a fair value of $185,000 for the conversion of a portion of our notes payable in the amount of $45,650.

 

For the nine months ended September 30, 2021, we issued 29,829,587 shares of common stock with a fair value of $922,881 for the conversion of a portion of our notes payable in the amount of $399,625.

 

On March 31, 2021, we issued 1,693,877 shares of common stock with a fair value of $83,000. This was a settlement of a second commitment for a convertible promissory note dated May 22, 2018. 

 

Preferred Stock

 

During the nine months ended September 30, 2022, we issued 135 shares of Series D Preferred Stock for cash proceeds of $270,000.

 

During the nine months ended September 30, 2022, we issued 143 shares of Series D Preferred Stock valued at $286,000 upon conversion of $215,000 of notes and $66,126 of related accrued interest.

 

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 $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.

 

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 $500,000 allegedly owed for engineering services provided. On June 23, 2020, a settlement was reached under which we would pay Fugro $375,000 by June 30, 2021. We were unable to pay the remaining balance and therefore entered into a second amendment to the settlement agreement extending the deadline for full payment, with 18% interest per annum, to December 31, 2021. We will continue to make regular monthly payments to Fugro of $10,000 per month, until the balance owed has been paid. We have recorded the amount of accrued legal settlement as of June 30, 2022. We have repaid $250,000 and the balance at June 30, 2022, was $125,000, with accrued interest of $46,472 at September 30, 2022.

 

Employment Contract

 

Effective June 9, 2022, we entered into a second addendum to the employment contract with its chief executive officer. Among other provisions, the addendum extends the employment agreement through December 31, 2025 and increases the annual salary to $454,738 from $388,220.

 

Office lease

 

We occupy or premises pursuant to a lease with a company controlled by our chief executive officer. Monthly lease payments are $10,000. The lease is for a one-year term and, unless either party shall give to the other written notice of termination, the term shall renew for a further period of one year, and so on from year to year until terminated by either party.

 

NOTE 8 - RELATED-PARTY TRANSACTIONS

 

For each of the three months ended September 30, 2022 and 2021, we paid rent of $30,000 to a company controlled by our chief executive officer under a lease agreement. For each of the nine months ended September 30, 2022 and 2021, we paid rent of $90,000 to this company. The lease is for a one-year term and, unless either party shall give to the other written notice of termination, the term shall renew for a further period of one year, and so on from year to year until terminated by either party.

 

For the three and nine months ended September 30, 2022 and 2021, we paid a company controlled by our chief executive officer reimbursement for accounting and administrative services provided to us by an employee of that company. For the three months ended September 30, 2022 and 2021, we paid $28,270 and $29,793, respectively, to this company. For the nine months ended September 30, 2022 and 2021, we paid $89,613 and $71,795, respectively, to this company.

 

 
13

Table of Contents

 

From time to time, we enter 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 $1,600,461 and $1,435,120 at September 30, 2022 and December 31, 2021, respectively.

 

During the nine months ended September 30, 2022, our chief executive officer converted $10,000 of notes and $2,043 of accrued interest into six shares of Series D Preferred Stock. He also purchased five shares of Series D Preferred Stock for cash proceeds of $10,000.

 

During the nine months ended September 30, 2022, entities controlled by our chief executive officer advanced $38,000 to us for working capital purposes.

 

NOTE 9 – SUBSEQUENT EVENTS

 

During October 2022, two noteholders converted an aggregate of $10,000 of notes and $1,298 of accrued interest into an aggregate of 564,878 shares of common stock. The common shares used for the conversions were transferred to the noteholders from the holdings of our chief executive officer, as an accommodation to the Company. The shares transferred will be reissued to our chief executive officer in the future.

 

 
14

Table of Contents

 

 

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. 

 

Agreement to Sell Subsidiary

 

On August 25, 2022, we entered into a Stock Purchase Agreement to sell OCEES International, Inc., our wholly owned subsidiary (“OCEES”), to Epaphus Global Energy, LLC (“Epaphus”). Epaphus is controlled by Jeremy Feakins, our Chief Executive Officer and a director. The transaction was approved unanimously by our directors who do not have an interest in the transaction.

 

In exchange for the sale of OCEES, we will receive:

 

 

•

$1,000,000 in the form of canceled amounts owed by us to certain individuals, including Mr. Feakins, who have assigned their right to receive those payments to Epaphus;

 

•

$75,000 in cash per month for 12 months following the date of the purchase agreement; and

 

•

70% of the net profit of any currently contemplated project to build an ocean thermal energy conversion power plant entered into by OCEES.

 

Under the terms of the purchase agreement, Epaphus has the unilateral right to return OCEES to us and receive a full refund of all portions of the purchase price paid as of the return of OCEES at any time for year following the date of the purchase agreement.

 

The purchase agreement had not closed as of September 30, 2022, or through the date of filing of this form 10-Q. The transaction has not been reflected in our financial statements at September 30, 2022.

 

Results of Operations

 

Comparison of Three Months Ended September 30, 2022 and 2021

 

We had no revenue in the three months ended September 30, 2022 and 2021.

 

During the three months ended September 30, 2022, we had salaries and compensation of $202,833, compared to salaries and compensation of $206,146 during the same three-month period for 2021, a decrease of 1.6%.

 

During the three months ended September 30, 2022 and 2021, we recorded professional fees of $148,990 and $100,895, respectively, an increase of 47.7%. During the third quarter of 2022, our legal fees were higher due to the continuing Memphis litigation issues. 

 

We incurred general and administrative expenses of $38,367 during the three months ended September 30, 2022, compared to $53,538 for the same three-month period for 2021, a decrease of 28.3% due to decreases in various corporate expenses.

 

Our interest expense was $462,514 for the three months ended September 30, 2022, compared to $414,085 for the same period for 2021, an increase of 11.7%. This change was due to an increase in debt and higher interest rates on defaulted notes.

 

Our debt discount amortization was $52,513 for the three months ended September 30, 2022, compared to $106,949 for the same period of the previous year. The decrease of 50.9% 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 $1,551,657 during the three months ended September 30, 2022, compared to a $9,584 decrease for the 2021 period, a 16,090% increase period over period, such increase resulting primarily from the changes in the market value of our common stock during the periods. There was a gain of $16,263 on the conversion of debt during the three months ended September 30, 2022, as compared to $59,817 in the same period of 2021.

 

 
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Comparison of Nine Months Ended September 30, 2022 and 2021

 

We had no revenue in the nine months ended September 30, 2022 and 2021.

 

During the nine months ended September 30, 2022, we had salaries and compensation of $613,096, compared to salaries and compensation of $624,377 during the same nine-month period for 2021, a decrease of 1.8%.

 

During the nine months ended September 30, 2022 and 2021, we recorded professional fees of $423,418 and $664,508, respectively, a decrease of 36.3%. During the first nine months of 2022, our legal fees were lower due to decreased fees related to the continuing Memphis litigation issues in the first half of 2022. 

 

We incurred general and administrative expenses of $130,019 during the nine months ended September 30, 2022, compared to $148,839 for the same nine-month period for 2021, a decrease of 12.6% due to decreases in various corporate expenses.

 

Our interest expense was $1,344,836 for the nine months ended September 30, 2022, compared to $1,293,740 for the same period for 2021, an increase of 3.9%. This change was due to an increase in debt and higher interest rates on defaulted notes, partially offset by decrease in stock-based financing fee of $83,000.

 

Our debt discount amortization was $176,829 for the nine months ended September 30, 2022, compared to $253,425 for the same period of the previous year. The decrease of 30.2% 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 $3,374,400 during the nine months ended September 30, 2022, compared to a $1,074,932 decrease for the 2021 period, a 413.9% increase period over period, such increase resulting primarily from the changes in the market value of our common stock during the periods. There was a gain of $51,862 on the conversion of debt during the nine months ended September 30, 2022, as compared to $104,863 in the same period of 2021.

 

Liquidity and Capital Resources

 

At September 30, 2022, our principal source of liquidity consisted of $7,314 of cash, as compared to $957 of cash at December 31, 2021. At September 30, 2022, we had negative working capital (current assets minus current liabilities) of $35,135,994. In addition, our stockholders’ deficiency was $35,297,660 at September 30, 2022, compared to stockholders” deficiency of $30,027,924 at December 31, 2021, an increase in the deficiency of $5,269,736, resulting from a loss of $6,010,736 for the nine-month period, partially offset by an increase in equity resulting from the issuance of preferred stock in the amount of $556,000 and the issuance of common stock in the amount of $185,000. 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 $301,643 during the nine months ended September 30, 2022, as compared to using net cash of $420,232 during the nine months ended September 30, 2021, a decrease of 28.2%. The decrease in net cash used in operations is due to a decrease in net loss of approximately $137,000 (after adjusting for non-cash items), partially offset by the decrease in the change in accounts payable and accrued expenses of approximately $18,000, as compared to the 2021 period.

 

Financing activities provided cash of $308,000 for our operations during the nine months ended September 30, 2022, as compared to $531,145 for the nine months ended September 30, 2021. During the nine months ended September 30, 2022, we received $270,000 in proceeds from the sale of preferred stock and $38,000 in working capital advances from related parties. Proceeds from new notes payable were $535,000 in the nine months ended September 30, 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 $6,010,736 and used $301,643 of cash in operating activities for the nine months ended September 30, 2022. We had a working capital deficiency of $35,135,994 and a stockholders’ deficiency of $35,297,660 as of September 30, 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.

 

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 September 30, 2022, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officer concluded that, as of September 30, 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.

 

 
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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 September 30, 2022, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

 

 
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PART II-OTHER INFORMATION

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

During the three months ended September 30, 2022, we issued 5,000,000 shares of common stock with a fair value of $75,000 for the conversion of a portion of our notes payable in the amount of $25,575.

 

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. The 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 $62,259 as of September 30, 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 $30,247 as of September 30, 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 $15,308 as of September 30, 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 $5,270 as of September 30, 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 $6,890 as of September 30, 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 September 30, 2022, the outstanding note balance was $1,000,000, plus accrued interest of $1,017,226. 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 September 30, 2022, the note balance outstanding was $130,000, and the accrued interest as of that date was $90,406. 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 September 30, 2022, the note balance was $1,102,500 and the accrued interest was $936,522. This note is in default.

 

During 2014, we issued notes payable of $300,000. Accrued interest totaled $498,029 as of September 30, 2022. As of September 30, 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 $37,931 as of September 30, 2022. As of the date of this report, the note is in default.

 

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 September 30, 2022, the outstanding balance of these notes was $65,000, plus accrued interest of $20,327. 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 September 30, 2022, the outstanding note balance was $543,093 and the accrued interest was $295,546. 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 September 30, 2022, the balance of the notes outstanding was $859,156 and the accrued interest was $365,927. These notes are in default.

 

 
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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 $1,173,576 as of September 30, 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 September 30, 2022, the outstanding note balance was $578,075, which includes a default penalty, and the accrued interest was $998,417. 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 September 30, 2022, the balance outstanding was $10,000 and the accrued interest was $2,453. 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 September 30, 2022, the balance outstanding was $26,200, and the accrued interest was $8,003. 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 September 30, 2022, the total outstanding balances of all these loans are $75,000 and accrued interest was $17,573. 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 September 30, 2022, the total outstanding balance of these loans was $231,750 and accrued interest was $49,580. These notes are in default.

 

In 2020, we issued a series of convertible promissory notes to accredited investors, which totaled $15,000. 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 May 12, 2022, whichever comes first. As of September 30, 2022, the total outstanding value of these loans was $15,000 and accrued interest was $2,699. These notes are in default.

 

In 2021 and 2020, we issued a series of convertible promissory notes to accredited investors aggregating $170,000. 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 September 1, 2022, whichever comes first. As September 30, 2022, the total outstanding balance of these loans was $170,000 and accrued interest was $21,325. 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*

 

 

Title of Document

 

 

Location

 

 

 

 

 

 

 

 Item 10

 

 Material Contract

 

 

 

 10.65

 

Stock Purchase Agreement between Ocean Thermal Energy Corporation and Epaphus Global Energy, LLC, dated August 23, 2022, and executed August 25, 2022

 

 Incorporated by reference from the Current Report on Form 8-K filed August 29, 2022.

 

 10.66

 

Addendum to Chief Executive Officer Employment Agreement Effective June 9, 2022

 

This filing

 

Item 31

 

Rule 13a-14(a)/15d-14(a) Certifications

 

This filling

 

31.1

 

Certification of Principal Executive Officer Pursuant to Rule 13a-14

 

This filing.

 

31.2

 

Certification of Principal Financial Officer Pursuant to Rule 13a-14

 

This filing.

 

 

 

 

 

 

 

Item 32

 

Section 1350 Certifications

 

 

 

32.1

 

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

This filing.

 

32.2

 

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

This filing.

 

 

 

 

 

 

 

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.

 

 

*

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.

 

 
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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

 

 

 

 

 

Date: November 8, 2022

By:

/s/ Jeremy P. Feakins

 

 

 

Jeremy P. Feakins

 

 

 

Chief Executive Officer and Chief Financial Officer

 

 

 

(Principal Executive and Financial Officer)

 

 

 
21

 

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