UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______________ to _______________.
Commission file number:
(Exact name of registrant as specified in its charter) |
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(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
| (Zip Code) |
Registrant’s telephone number, including area code: (
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.
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).
Indicate by check mark whether the registrant is a large, accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large, accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large, accelerated filer | ☐ | 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. ☐
Securities registered pursuant to Section 12(b) of the Act: None.
As of August 15, 2023, there were
COOL TECHNOLOGIES, INC.
Table of Contents
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| 2 |
| Table of Contents |
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events, conditions or financial performance forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “anticipate,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements. We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved, and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Quarterly Report on Form 10-Q and include information concerning possible or assumed future results of our operations, including statements about potential sales and revenues; acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.
These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of the Quarterly Report on Form 10-Q. All subsequent written and oral forward-looking statements concerning other matters addressed in this Quarterly Report on Form 10-Q and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Quarterly Report on Form 10-Q.
Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.
| 3 |
| Table of Contents |
PART I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Cool Technologies, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
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| June 30, 2023 |
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| December 31, 2022 |
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ASSETS |
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Current assets: |
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Cash |
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Inventory |
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Prepaid expenses and other assets |
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Total current assets |
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Intangibles |
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Equipment, net |
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Total assets |
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LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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Current liabilities: |
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Accounts payable |
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Accrued interest payable |
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Accrued liabilities – related party |
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Accrued payroll taxes |
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Customer deposits – related party |
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Debt, current portion, net of debt discount |
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Derivative liability |
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Total current liabilities |
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Debt, long-term portion |
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Total liabilities |
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Commitments and contingencies (Note 5) |
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Stockholders’ deficit: |
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Preferred stock Series A, $ |
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Preferred stock Series B, $ |
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Common stock, $ |
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Additional paid-in capital |
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Common stock issuable |
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Common stock held in escrow |
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Accumulated deficit |
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Non-controlling interest |
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Total stockholders’ deficit |
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Total liabilities and stockholders’ deficit |
| $ |
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See accompanying notes to condensed consolidated unaudited financial statements.
| 4 |
| Table of Contents |
Cool Technologies, Inc. and Subsidiary
Condensed Consolidated Statements of Operations
(Unaudited)
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| Three months ended June 30 |
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| Six months ended June 30 |
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Revenues |
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Cost of revenues |
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Gross profit |
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Operating expenses |
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Consulting |
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Payroll and related expenses |
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Professional fees |
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General and administrative |
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Research and development |
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Total operating expenses |
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Operating loss |
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Other income (expense): |
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Interest expense, net |
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Change in fair value of derivative liability |
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Loss on sale of inventory |
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Loss on settlement of debt |
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Net loss |
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Less: Noncontrolling interest in net loss |
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Net loss to shareholders |
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Net loss per common share: |
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Basic and diluted |
| $ | ( | ) |
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| $ | ( | ) |
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Weighted average common shares outstanding: |
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Basic and diluted |
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See accompanying notes to condensed consolidated unaudited financial statements
| 5 |
| Table of Contents |
Cool Technologies, Inc. and Subsidiary
Condensed Consolidated Statements of Stockholders’ Deficit
(Unaudited)
|
| Preferred Stock |
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| Common Stock |
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| Additional Paid-in |
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| Common Stock |
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| Common Stock Held in |
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| Accumulated |
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| Non- Controlling |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Capital |
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| Issuable |
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| Escrow |
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| Deficit |
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| Interest |
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| Total |
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March 31, 2022 |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ | ( |
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Debt converted |
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Stock issued for debt |
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Warrants issued for services |
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Net loss |
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Noncontrolling interest |
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| - |
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| - |
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June 30, 2022 |
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March 31, 2023 |
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| $ |
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| $ | ( |
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Debt converted |
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Net loss |
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Noncontrolling interest |
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June 30, 2023 |
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December 31, 2021 |
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Stock issued with debt |
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Debt converted |
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Net loss |
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Noncontrolling interest |
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June 30, 2022 |
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December 31, 2022 |
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Debt converted |
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Net loss |
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Noncontrolling interest |
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June 30, 2023 |
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| $ |
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| $ |
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| $ | ( |
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| $ | ( |
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| $ | ( |
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See accompanying notes to condensed consolidated unaudited financial statements
| 6 |
| Table of Contents |
Cool Technologies, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
| Six months ended June 30, |
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| 2023 |
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| 2022 |
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Operating Activities: |
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Net loss |
| $ | ( | ) |
| $ | ( | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Loss on Settlement |
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Change in fair value of derivative liability |
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Amortization of debt discount |
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Depreciation expense |
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Changes in operating assets and liabilities: |
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Inventory |
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Accounts payable |
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Accrued interest payable |
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Accrued liabilities – related party |
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Accrued payroll taxes |
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Net cash from operating activities |
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Investing Activities: |
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Intangible assets |
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Net cash from investing activities |
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Financing Activities: |
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Proceeds from debt |
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Payments on debt |
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Net cash from financing activities |
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Net (decrease) increase in cash |
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Cash, beginning of period |
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Cash, end of period |
| $ |
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| $ |
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|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
|
Interest |
| $ |
|
| $ |
| ||
Income taxes |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Debt and interest settled for common stock |
| $ |
|
| $ |
| ||
Stock and warrants issued with debt |
| $ |
|
| $ |
| ||
Derivative liability offset by debt discount |
| $ |
|
| $ |
| ||
See accompanying notes to condensed consolidated unaudited financial statements.
| 7 |
| Table of Contents |
Cool Technologies, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 – Description of Business and Summary of Significant Accounting Policies
Description of Business
Cool Technologies, Inc. and its subsidiary, (“the Company” or “Cool Technologies” or “CoolTech”) was incorporated in the State of Nevada in July 2002. In April 2014, CoolTech formed Ultimate Power Truck, LLC (“Ultimate Power Truck” or “UPT”), of which the Company owns
The Company’s technologies can be divided into two distinct but complementary categories: a) mobile power generation and b) heat dispersion technology.
The Company has developed and is commercializing a mobile power generation system that enables work trucks retrofitted with the system to generate electric power. The Company intends to sell the mobile power generator system to government, commercial and fleet vehicle owners. It may license its system as well.
CoolTech has also developed and intends to commercialize patented heat dispersion technologies by licensing them to electric motor, pump and vehicle component manufacturers. In preparation, CoolTech has applied for trademarks for a brand name for its mobile power generation system and for one of its technologies and its acronym. Cool Technologies currently owns two trademarks: eMGen and TEHPC (Totally Enclosed Heat Pipe Cooled).
The Company believes that its proprietary technologies, including the patent portfolio and trade secrets, can help increase efficiency and positively affect manufacturing cost structure in several large industries beginning with motors/generators and fleet vehicles. The markets for products utilizing the technologies include consumer, industrial, agricultural and military markets in the U.S. and worldwide.
As of June 30, 2023, the Company has seven US patents, two Canadian patents, one Mexican patent, one allowed Brazilian patent and one pending US patent application covering integrated electrical power generation methods and systems.
Basis of Presentation
The accompanying condensed consolidated financial statements as of June 30, 2023, have been derived from unaudited financial information. They include the accounts of Cool Technologies, Inc. and Ultimate Power Truck, LLC. Intercompany accounts and transactions have been eliminated. The accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the annual audited consolidated financial statements and in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. In the opinion of management, such unaudited information includes all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of this interim information.
Noncontrolling interest represents the
| 8 |
| Table of Contents |
Operating results and cash flows for interim periods are not necessarily indicative of results that can be expected for the entire year. The information included in this report should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2022.
Going Concern
The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. CoolTech has incurred net losses of $
As of the filing date of this Quarterly Report on Form 10-Q, management is negotiating additional non-dilutive funding arrangements to support completion of the initial phases of the Company’s business plan: to license its thermal technologies and applications, including submersible dry-pit applications and to license and sell mobile generation retrofit kits. There can be no assurance, however, that the Company will be successful in accomplishing these objectives. Consequently, it may have to curtail or cease operations if funding is not received by the end of the third quarter.
Recent Accounting Guidance Not Yet Adopted
Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying condensed consolidated financial statements.
Note 2 – Customer deposits – Related party
The customer deposits represent advance payments of $
Note 3 – Debt
Debt consists of the following:
|
| June 30, 2023 |
|
| December 31, 2022 |
| ||
Notes payable |
| $ |
|
| $ |
| ||
Notes payable in default |
|
|
|
|
|
| ||
Convertible notes payable |
|
|
|
|
|
| ||
Vehicle financing |
|
|
|
|
|
| ||
Advances from related parties |
|
|
|
|
|
| ||
Note payable – UPT minority owner |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Debt discount |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
| ||
Less: current portion |
|
|
|
|
|
| ||
Long-term portion |
| $ |
|
| $ |
| ||
| 9 |
| Table of Contents |
Notes Payable
From September 5 – 7, 2018, the Company entered into Promissory Note Agreements with two accredited investors. CoolTech received $
On September 11, 2018, the Company entered into Promissory Note Agreements with an accredited investor. CoolTech received $
On September 11, 2018, the Company entered into Promissory Note Agreements with an accredited investor. CoolTech received $250,000 in financing and promised to pay the principal amount together with simple interest of
From September 7 - 17, 2018, the Company entered into Promissory Note Agreements with three accredited investors. CoolTech received $
On September 25, 2018, the Company entered into Promissory Note Agreements with an accredited investor. CoolTech received $
On October 2, 2018, the Company entered into a Promissory Note Agreement with an accredited investor. It received $
| 10 |
| Table of Contents |
On December 19, 2018, the Company entered into a Promissory Note Agreement with an accredited investor. It received $
On March 13, 2019, the Company and a vendor agreed to convert an overdue $
On March 18, 2019, the Company entered into a Promissory Note Agreement with an accredited investor. It received $
On March 19, 2019, the Company entered into a Promissory Note Agreement with an accredited investor. It received $
On January 31, 2020, the Company entered into a Promissory Note Agreement with an accredited investor. It received $
On June 29, 2020, the Company entered into a Promissory Note Agreement with an accredited investor. It received $
On July 3, 2020, the Company entered into a Promissory Note Agreement with an accredited investor. It received $
| 11 |
| Table of Contents |
On January 11, 2023, the Company signed a promissory note agreement with an accredited investor for $
On February 15, 2023, the Company signed a promissory note agreement with an accredited investor. It received $
On March 6, 2023, the Company signed a promissory note agreement with an accredited investor. It received $
On May 15, 2023, the Company signed a promissory note agreement with an accredited investor. It received $
Convertible notes payable
February Convertible Note -- On February 25, 2021, the Company entered into a convertible note agreement with an accredited investor. It issued
March Convertible Note -- On March 24, 2021, the Company entered into a convertible note agreement with an accredited investor.
| 12 |
| Table of Contents |
July Convertible Note -- On July 22, 2022, the Company signed a promissory note agreement with an accredited investor. It received $
August Convertible Note -- On August 18, 2022, the Company signed a promissory note agreement with an accredited investor. It received $
September Convertible Note -- On September 21, 2022, the Company signed a promissory note agreement with an accredited investor. It received $
| 13 |
| Table of Contents |
October Convertible Note -- On October 31, 2022, the Company signed a promissory note agreement with an accredited investor. It received $
December Convertible Note -- On December 8, 2022, the Company signed a promissory note agreement with an accredited investor. It received $
January Convertible Note -- On January 12, 2023, the Company signed a promissory note agreement with an accredited investor. It received $
Test Vehicle Financing
In July 2018, CoolTech traded in one test vehicle and purchased another bearing an interest rate of
In June 2019, the Company traded in one test vehicle and purchased another with financing of approximately $
Note payable – UPT minority owner
A promissory note is held by the
| 14 |
| Table of Contents |
Warrants Issued with Debt
When the Company issues notes payable, it may also be required to issue warrants.
|
| Number of Warrants |
|
| Weighted- average Exercise Price |
|
| Weighted- average Remaining Life (Years) |
|
| Aggregate Intrinsic Value |
| ||||
Outstanding, December 31, 2022 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
Granted |
|
| -- |
|
|
|
|
|
|
| -- |
|
|
| -- |
|
Forfeited or expired |
|
| -- |
|
|
|
|
|
|
| -- |
|
|
| -- |
|
Exercised |
|
| -- |
|
|
| -- |
|
|
| -- |
|
|
| -- |
|
Outstanding, June 30, 2023 |
|
|
|
|
| 0.05 |
|
|
|
|
|
| -- |
| ||
Exercisable, June 30, 2023 |
|
|
|
| $ |
|
|
|
|
| $ | -- |
| |||
Transactions with Related Parties
The advances from related parties in the amounts of $
The note payable - UPT minority owner, in the amount of $
Future contractual maturities of debt are as follows:
Year ending December 31, |
|
|
| |
|
|
|
| |
2023 |
| $ |
| |
2024 |
|
|
| |
|
| $ |
| |
Note 4 – Derivative Liability
Under the terms of the December 2022 and January 2023 Convertible Notes, the Company identified derivative instruments arising from embedded conversion features.
The following summarizes the Black-Scholes assumptions used to estimate the fair value of the derivative liability at the dates of issuance and the revaluation dates:
Volatility |
| % | ||
Risk-free interest rate |
|
| % | |
Expected life (years) |
|
| ||
Dividend yield |
|
| -- |
|
| 15 |
| Table of Contents |
Changes in the derivative liability were as follows:
|
| Six Months Ended June 30, 2023 |
|
|
|
| ||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Convertible debt and other derivative liabilities at December 31, 2022 |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Conversions of convertible debt |
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | ||
Issuance of convertible debt and other derivatives |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Change in fair value |
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | ||
Convertible debt and other derivative liabilities at June 30, 2023 |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
| Six Months Ended June 30, 2022 |
|
|
|
| ||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Convertible debt and other derivative liabilities at December 31, 2021 |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Conversions of convertible debt |
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | ||
Issuance of convertible debt and other derivatives |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Change in fair value |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Convertible debt and other derivative liabilities at June 30, 2022 |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Note 5 – Commitments and Contingencies
Securities and Exchange Commission Settlement
On September 20, 2018, the Securities and Exchange Commission (SEC) approved an offer to settle the enforcement proceedings against the Company pursuant to Section 21C of the Securities Exchange Act of 1934. These proceedings arose out of the violation of the Regulation S-X requirement that interim financial statements filed as part of a Form 10-Q be reviewed by an independent public accounting firm prior to filing.
On three occasions, specifically, May 20, 2013, August 19, 2013, and August 22, 2016, Cool Technologies filed Form 10-Qs that contained financial statements that were not reviewed by an independent public accounting firm. In two cases, the Company properly disclosed that the 10Q’s were “unaudited and unreviewed” as set forth by the guidance in the Division of Corporation Finance Financial Reporting Manual Section 4410.3 and in each case, the Company subsequently filed a restated and amended Form 10-Q/A that complied with the Interim Review Requirement. In no instance were the filings ever subjected to audit challenge.
Pursuant to the enforcement proceeding instituted by the SEC, the Company settled for a fine of $
From time to time, the Company may be a party to other legal proceedings. Management currently believes that the ultimate resolution of these other matters, if any, and after consideration of amounts escrowed, will not have a material adverse effect on the consolidated results of operations, financial position, or cash flow.
| 16 |
| Table of Contents |
Note 6 – Equity
Preferred Stock
Cool Technologies has
On August 12, 2016, the Company entered into a Securities Purchase Agreement with four accredited investors pursuant to which it sold
In addition to the Preferred Stock, the Securities Purchase Agreement included warrants to purchase
In connection with the sale of the Preferred Stock, on October 20, 2016, the Company filed with the Secretary of the State of Nevada, an amended Certificate of Designations of the Rights, Preferences, Privileges and Restrictions, which have not been set forth in the Certificate of Designation of the Series B Convertible Preferred Stock nor the first Amendment to Certificate of Designation filed on August 12, 2016.
The preferred stock has the same rights as if each share of Series B Convertible Preferred Stock were converted into one share of common stock. For so long as the Series B Convertible Preferred Stock is issued and outstanding, the holders of such Series B Convertible Preferred Stock vote together as a single class with the holders of the common stock and the holders of any other class or series of shares entitled to vote with the common stock, with the holders of
In the event of the death of a holder of the Class B Preferred Stock, or a liquidation, winding up or bankruptcy of a holder which is an entity, all voting rights of the Class B Preferred Stock shall cease.
The holder of any shares of Class B Preferred Stock has the right to convert their shares into common stock at any time, in a conversion ratio of one share of common stock for each share of Class B Preferred. If the Company’s common stock trades or is quoted at a price per share in excess of $
The holders of Class B Preferred Stock are not entitled to receive any distributions in the event of any liquidation, dissolution or winding up of the Company.
The warrants cannot be exercised on a cashless basis.
On May 8, 2017, Inverom Corporation converted its
KHIC, Inc., a related party, holds the remaining 3 shares of Series A Preferred Stock. Each share of Series A Preferred Stock (“Preferred Stock”) is convertible into
| 17 |
| Table of Contents |
Common Stock
Common stock issuable on the condensed consolidated balance sheets represents common stock to be issued for either cash received, or services performed. As of June 30, 2023 and December 31, 2022, there were
Common stock warrants issued with the sale of common stock
|
| Number of Warrants |
|
| Weighted- average Exercise Price |
|
| Weighted- average Remaining Life (Years) |
|
| Aggregate Intrinsic Value |
| ||||
Outstanding, December 31, 2022 |
|
|
|
| $ |
|
|
|
|
| $ | -- |
| |||
Granted |
|
| -- |
|
|
| -- |
|
|
| -- |
|
|
| -- |
|
Forfeited or canceled |
|
| ( | ) |
|
| -- |
|
|
| -- |
|
|
| -- |
|
Outstanding, June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
| -- |
| |||
Exercisable, June 30, 2023 |
|
|
|
| $ |
|
|
|
|
| $ | -- |
| |||
Note 7 – Share-based payments
Nonemployee common stock warrants -- Fully-vested upon issuance
Cool Technologies may issue fully vested common stock warrants with a maximum contractual term of 5 years to non-employees in return for services or to satisfy liabilities, such as accrued interest. The following summarizes the activity for common stock warrants that were fully vested upon issuance:
|
| Number of Warrants |
|
| Weighted- average Exercise Price |
|
| Weighted- average Remaining Life (Years) |
|
| Aggregate Intrinsic Value |
| ||||
Outstanding, December 31, 2022 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
Granted |
|
| -- |
|
|
| -- |
|
|
| -- |
|
|
| -- |
|
Forfeited or expired |
|
| ( | ) |
|
| -- |
|
|
| -- |
|
|
| -- |
|
Outstanding, June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Exercisable, June 30, 2023 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
| 18 |
| Table of Contents |
Note 8 – Net Loss per Share
Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the reporting period. Diluted net loss per share is computed similarly to basic loss per share, except that it includes the potential dilution that could occur if dilutive securities are exercised.
The following table presents a reconciliation of the denominators used in the computation of net loss per share – basic and diluted:
|
| Three months ended June 30, |
|
| Six months ended June 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss available for shareholders |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Weighted average outstanding shares of common stock |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Dilutive effect of stock options and warrants |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Common stock and equivalents |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - Basic and diluted |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Outstanding stock options and common stock warrants are considered anti-dilutive because the Company is in a net loss position. The following summarizes equity instruments that may, in the future, have a dilutive effect on earnings per share:
|
| June 30 |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Stock options |
|
|
|
|
|
| ||
Common stock warrants |
|
|
|
|
|
| ||
Common stock issuable |
|
|
|
|
|
| ||
Convertible notes |
|
|
|
|
|
| ||
Convertible preferred stock |
|
|
|
|
|
| ||
Total |
|
|
|
|
|
| ||
Total exercisable at June 30 |
|
|
|
|
|
| ||
Note 9 – Subsequent Events
On July 20, 2023, the Company issued
On August 2, 2023, the Company issued
August 10, 2023, the Company issued
Effective August 15, 2023, Steven Wilburn resigned from the Board of Directors of Cool Technologies, Inc. for health reasons. He will remain a member of the Company’s Board of Advisors.
| 19 |
| Table of Contents |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Cool Technologies, Inc. and subsidiary, (“the Company” or “Cool Technologies” or “CoolTech”) was incorporated in the State of Nevada in July 2002. In April 2014, CoolTech formed Ultimate Power Truck, LLC (“Ultimate Power Truck” or “UPT”), of which the Company owns 95% and a shareholder of Cool Technologies owns 5%. Cool Technologies was formerly known as Bibb Corporation, Z3 Enterprises, and HPEV, Inc. On August 20, 2015, the Company changed its name to Cool Technologies, Inc.
The Company’s technologies are divided into two distinct but complementary categories: mobile power generation and heat dispersion technology.
The Company has developed a mobile power generation system (eMGen) that enables work trucks to generate electric power by running an in-chassis generator (or large external generator on Class 4 to 8). The eMGen system can be installed onto new and existing global truck platforms. CoolTech intends to market and sell the mobile power generation systems to government, commercial and fleet vehicle owners as well as original equipment manufacturers and individual users. Sales are expected to occur through the direct efforts of the Company, its sales agents and its joint venture partners. CoolTech may also license the eMGen system as well.
The markets targeted include consumer, agricultural, infrastructure, industrial, energy, mining services, military and emergency responders, both in the U.S. and worldwide.
CoolTech has also developed heat dispersion technologies based on proprietary composite heat structures and heat pipe architecture in various product platforms such as electric motors, pumps, turbines, bearings and vehicle controls as well as automobile, truck, motorcycle and battery components. In preparation, CoolTech has applied for trademarks for a brand name for its mobile power generation system and for one of its technologies and its acronym. Cool Technologies currently owns two trademarks: eMGen and TEHPC (Totally Enclosed Heat Pipe Cooled).
When a generator is enhanced by CoolTech’s patented thermal technologies, it should be able to output more power than any other generator of its size on the market. That’s because third party testing has demonstrated that the cooling provided by the thermal technologies can help increase the efficiency of electric motors. Simply put, the Company has achieved liquid cooled power densities in a totally enclosed, air cooled package.
Furthermore, management believes that the technologies will increase the lifespan as well as help meet regulatory emissions standards for electric motors and other heat producing equipment and components. The simplicity of the patented radial vent heat pipe architecture as well as the fact that it provides effective new applications for existing manufacturing processes should enhance the cost structure in several large industries including motor/generator and engine manufacturing.
As of June 30, 2023, we have seven US patents, two Canadian patents, one Mexican patent, one allowed Brazilian patent and one pending US patent application covering integrated electrical power generation methods and systems.
The Company intends to commercialize its patents by integrating the thermal technologies and applications with Original Equipment Manufacturer (OEM) partners and by licensing them to electric motor, generator, pump and vehicle component (brake, resistor, caliper) manufacturers.
We believe the benefits of our mobile power generation system will be quickly realized once potential customers see it in operation. Public demonstrations of the eMGen systems began in April 2017. An inspection and performance demonstration for Mexican government officials and business leaders occurred in May 2018. Feedback from initial viewers resulted in more government officials and fruit growers coming to see the eMGen power equipment and to learn about the water purification options in March 2019. Even more officials and growers followed -- flying to St. Louis for a review in May 2019.
| 20 |
| Table of Contents |
We generated our first Mobile Generation order during the quarter ended June 30, 2014 and received a partial deposit in advance of completing the sale. On June 9, 2017, the Company received a purchase order for 10 eMGen systems from Craftsmen Industries. As Craftsmen builds custom vehicles designed to the individual specifications of their customers whose businesses and technical requirements vary widely, it is impossible to estimate when the order will be fulfilled.
In November 2017, the Company received a purchase commitment for 234 eMGen systems from a Mexican Producers’ Union. That was followed by a purchase commitment for 24 to 50 eMGen units from a second Mexican Producers’ Union in December 2017. On April 9, 2018, the first Mexican Producers’ Union executed a purchase order with the Company for 10 Ford F350s with eMGen 80 kVA systems installed. On May 7, 2019, Turkish technology company Belirti Teknoloji, A.S. delivered a purchase order for six hundred eMGen 80, eMGen 125 and eMGen 200 Mobile Generation systems.
Craftsmen Industries was selected to produce the first systems due to their engineering capabilities and extensive facilities. In January 2019, it began production on the initial vehicles and completed an initial production run vehicle two months later. In anticipation of the successful completion of one of the Company’s funding initiatives (some of which is detailed below), the company has reaffirmed its relationship with Craftsmen in 2023. If funding arrives, the Company plans to produce 3 platforms of its mobile power systems at their facilities.
We have not generated any revenues to date. Consequently, there can be no assurances that the Company will be able to generate new orders, fulfill the existing ones, or address all the requirements of all the interested parties.
Management is pursuing various financing alternatives, based upon a third-party assessment of the historically demonstrated or contractually committed profit-earning capacities of our IP. We see this as the best path forward for non-dilutive funding.
To that end, on December 31, 2022, Cool Technologies, Inc. and 3&1 Capital Partners, LLC, updated their non-binding Memorandum of Terms for Debt Financing pursuant to which the Company is now due to receive gross proceeds of at least $15 million minus administration and origination fees as well as other expenses. The debt financing will be structured as a promissory note with a security interest. The first priority security interest will encompass all intellectual property (“IP”) owned by the Company on the closing date and all intellectual property acquired by or issued to the Company during the term of the 48-month note. Also included as collateral are all equipment and contracts related to the IP.
Pursuant to the Memorandum, the Company agreed to a cash prepayment equal to 24 months of interest that will fund an Interest Escrow Account from the proceeds. The 24 months of the prepayment interest shall be considered earned and nonrefundable.
Monthly interest payments based on a term loan rate of 6.15% per annum will be debited from the prepayment Interest Escrow Amount on the first day of the month for 24 months. One month later, the Company shall commence making 23 equal payments of principal and accrued and unpaid interest on the first day of the month. A final payment of all unpaid principal and accrued and unpaid interest shall be due on the Maturity Date.
For the first twenty-four months of the loan, the Company agreed to apply at least 25% of the profits from all sales, purchase orders, or any other revenue-generating transactions to the outstanding principal and interest, and then 50%, thereafter, until its obligations have been satisfied.
Since the signing of the Memorandum, definitive documents have been drawn up and additional financing instruments have been created and packaged. Central to the provision of the funds is the successful underwriting of the financial instruments. Buyers have signed subscription agreements. In addition, Cool Technologies and 3&1 Capital Partners have polished and perfected the final funding documents. As the signing of subscription agreements are definitive actions, the Company will likely receive some, if not all, of the funds promised.
The sales of A rated bond offerings by 3&1 are on-going and involve a number of commercial banks, investment banks and private wealth management firms. The process often involves months of extensive due diligence, document production and legal reviews followed by collateralization of assets or asset transfers; insurance, bank and regulatory approvals; and lines of credit negotiations. Delays, revisions, reconsiderations and rejections can hamper, slow, suspend or terminate an offering. Currently, 3&1 has a least 5 paths to funding in various stages of progress.
| 21 |
| Table of Contents |
In addition, Cool Technologies is pursuing non-dilutive funding agreements with at least two other entities. One of which is fully insured and supported by personal guarantees of cash, real estate, and personal assets.
The Company is also negotiating four joint ventures targeting electric vehicle charging, generator manufacturing, the US military and the oil, gas and mining industries. Grants offered by the Department of Energy and the Department of Defense are also being pursued through strategic alliances with retired first responders and military personnel and/or minority owned businesses.
Purchase orders from any of the joint venture partners would provide the Company with funding in excess of $1 million dollars. The rest of the offerings and agreements noted above could provide much more.
If funding is received, it will initially be used to complete the production of three vehicle platforms that will serve as demos and order generation catalysts for mobile electric power, power and water, and electric vehicle charging infrastructure. In addition, the vehicles will showcase the capabilities and benefits of the Company’s thermal dispersion and power generation technologies and, conceivably, stimulate interest in licensing opportunities.
While the Company awaits funding, it has continued to expand its contacts with potential clients -- meeting with government agencies, emergency responders and city officials as well as military engineers and procurement specialists. Specifications for custom applications have been noted and preliminary designs drawn up.
The occurrence of an uncontrollable event such as the COVID19 pandemic negatively affected our operations. The pandemic resulted in social distancing, travel bans and quarantines. This limited access to our facilities, customers, management, support staff and professional advisors. These, in turn, impacted our operations and financial condition. While the pandemic phase of COVID19 has receded and the virus is now considered to be endemic in the US as of this filing, the evolution of an acute and more contagious variant is possible. In such a case, it may impact demand for our products and may again hamper our efforts to provide our investors with timely information and comply with our filing obligations with the Securities and Exchange Commission.
Real GDP growth, inflation, employment levels, oil prices, interest rates, tax rates, availability of customer financing, foreign currency exchange rate fluctuations, and other macroeconomic trends can adversely affect demand for the products that we offer. Geopolitical issues around the world and how our markets are positioned can also impact macroeconomic conditions and could have a material adverse impact on our financial results.
Recent Developments
Amendment of Series B Preferred Stock
On October 31, 2016, the Company filed an amended and restated Series B Preferred Stock Certificate of Designation (which was originally filed with the Secretary of State of Nevada on April 19, 2016 and amended on August 12, 2016) to designate 3,636,360 shares as Series B Preferred Stock and to provide for supermajority 66 2/3% voting rights for the Series B Preferred Stock. The Series B Preferred Stock will not bear dividends, will not be entitled to receive any distributions in the event of any liquidation, dissolution or winding up of the Company, and will have no other preferences, rights, restrictions, or qualifications, except as otherwise provided by law or the articles of incorporation of the Company. The holders of Class B Stock shall have the right, at such holder’s option, at any time to convert such shares into common stock, in a conversion ratio of one share of common stock for each share of Class B Stock. If the common stock trades or is quoted at a price per share in excess of $2.25 for any twenty consecutive day trading period, (subject to appropriate adjustment for forward or reverse stock splits, recapitalizations, stock dividends and the like), the Series B Stock will automatically be convertible into the common stock in a conversion ratio of one share of common stock for each share of Series B Stock. The Series B Stock may not be sold, hypothecated, transferred, assigned or disposed of without the prior written consent of the Company and the holders of the outstanding Series B Preferred Stock.
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| Table of Contents |
Craftsmen Industries, Inc.
As a consequence of the first public demonstration of the eMGen 30 kilovolt amp (“kVA”) system at the North America International Auto Show in Detroit in January 2017, the Company entered into an agreement in principle, dated February 21, 2017, with Craftsmen Industries, Inc. (“Craftsmen’), a company engaged in the design, engineering and production of mobile marketing vehicles, experiential marketing platforms and industrial mobile solutions.
On April 25, 2017, we delivered to Craftsmen Industries, a Class III Vehicle (Ford F-350 dually) up-fitted with a production-ready eMGen 30 kVA (single phase/three phase) system.
Subsequently, Craftsmen invited the Company to demonstrate its mobile generation technology and the potential benefits for Craftsmen products at Craftsmen’s 35th Anniversary Party on April 27, 2017. Over 100 current and prospective Craftsmen customers were in the audience for the demonstrations.
Craftsmen recently signed a manufacturing contract with Translux-Fair Play. Translux’ Hazelwood, Missouri facility encompasses over 45,000 square feet of manufacturing space and offers extensive laser cutting and metal bending machinery. The contract significantly enhances Craftsmen’s capabilities to produce boxes and control panels for the eMGen Systems and the vehicles they’re upfitted to, but also all the eMGen’s optional tasks and capabilities, including welding, water purification and solar power.
Not only will basic production be optimized and improved, but control panels and displays should be upgraded. CoolTech is expected to benefit from Translux’ electronics expertise which has been refined through their years of manufacturing digital scoring panels for sporting arenas and ball parks.
Aon Risk Services Central, Inc and Lee and Hayes, PLLC
On January 18, 2018, the Company entered into an agreement with Aon Risk Services Central, Inc. and Lee and Hayes, PLLC, through its operating unit, 601West, which provides intellectual property (“IP”) analytics, to assess the value of the Company’s IP. As set forth in the agreement, the assessment will be founded on historically demonstrated or contractually committed profit-earning capacities of our IP and may be used to obtain financing, including but not limited to, non-dilutive financing. Since then, significant progress has been achieved. As noted above, definitive actions have occurred which indicate that the Company will receive funding in the near future.
Live eMGen 80 Demonstration in Fort Collins, Colorado
On May 4, 2018, nine representatives from Mexico’s farming, banking, and government sectors flew to Fort Collins, Colorado for a live demonstration of CoolTech’s generator-equipped truck. The demonstration showcased the capabilities and ease of operation of the system. The Company demonstrated how an operator is able to control the generator from the comfort and safety of the truck’s cab using a Panasonic Toughpad. The Company also used the electricity from the truck to power a screw compressor, an industrial fan, and an industrial load bank. Additional capabilities, such as purifying water and using batteries and solar power to make operations more sustainable and environmentally friendly were discussed with the attendees.
A representative from one of the Mexican farming producers’ unions approved the generator-equipped truck. CoolTech plans to put this into production as soon as final funding is secured.
Order of Parts and Components
As of September 2021, the Company has acquired enough parts and components to build 5 eMGen 80s and 2 eMGen 125s. It is currently procuring two mobile water purification systems and components for mobile electric vehicle charging systems.
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Unveiling of Initial Production Run Vehicle
On March 27, 2019, the Company unveiled the initial production run of its mobile power generation (eMGen) work trucks for inspection by an audience of agricultural and community leaders from Latin America at Craftsmen Industries.
The itinerary for the showcase event included a tour of the St. Louis manufacturing facility and inspection of the first production run eMGen vehicle in operation as it powered a variety of equipment.
The purpose of the viewing was not only to show the truck’s capabilities but to get feedback from the attendees.
Mexico’s population is expected to grow from 129 million to nearly 150 million by 2050. As a result, energy and water demand should increase significantly.
Increased water demand for both human consumption and agricultural production, along with lagging water management practices have resulted in a rapid depletion of water reserves in Mexico, particularly in Northern Mexico. The forecast of high temperatures in the summer combined with a developing La Nina weather pattern could prolong an existing drought and spread water shortages.
According to an article in the NYTimes (https://tinyurl.com/2n76rjy7), Mexico’s National Water Commission (CONAGUA) determined that in July 2022, eight of Mexico’s 32 states were experiencing extreme to moderate drought, resulting in 1,546 of the country’s 2,463 municipalities confronting water shortages, By mid-July, about 48 percent of Mexico’s territory was suffering drought, according to the commission, compared with about 28 percent of the country’s territory during the same period last year. In June of 2021, 77 of Mexico’s 210 principal water reservoirs were below 25% capacity. For the region encompassing Western North America, this period is now the driest two decades in 1,200 years.
With reservoirs drying and ground water levels declining, water is at a premium. In many locations, sewage water is reused for irrigation. Water treatment is scarce and pollution regulations are rarely enforced.
As long as investment in wastewater treatment lags behind population growth, large numbers of consumers eating raw produce face heightened threats to food safety from diseases such as salmonella, E Coli and roundworm. Add unchecked or minimally treated industrial pollution and unusually large numbers of cases of cancer and kidney problems have been documented in consumers living near polluted waterways.
While access to electricity is high across the nation, in rural areas, power can be sporadic or even non-existent. Many communities, particularly in regions populated by indigenous people, are still not connected to the grid. They rely on diesel generators to light homes and draw water from shrinking aquifers.
Interest from Mexican authorities is high in the eMGen systems as they seek to mitigate the effects of drought and guarantee access to drinking water as well as provide a consistent source of electricity and mobile medical services for underserved populations.
Through the efforts of its representatives in the country, the Company has been in contact with and in some cases made presentations to CONAQUA as well as cabinet secretaries, senators, representatives and deputies at the federal level; to governors, legislators, commissioners and municipal presidents at the state level and to mayors and county and local politicians in cities and towns beset by energy and water problems. Private entities such as distilleries, fruit growers, cattle rancher’s associations and mining companies have also requested information.
Conversations are ongoing and interested politicians are helping to promote, coordinate and refine the Company’s approach to secure funding for pilot programs, full blown projects and purchases of eMGen systems and vehicles.
Mexican Government
On May 13, 2019, government officials and fruit growers were at Craftsmen Industries in St. Louis for a review of a first run eMGen 80 production vehicle and water purification/desalination options.
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Among the politicians in attendance was Congressman Efraín Rocha Vega who is Secretary of the Commission of Development and Rural, Agricultural and Food Self-sufficiency Conservation, a member of the commission of Livestock and the commission of Environment, Sustainability, Climate Change and Natural Resources. Subsequent to the event, in an official Congressional Letter of Support, dated May 20, 2019, Congressman Rocha wrote: “The successful demonstration of these technologies further strengthens the Mexican Government’s support of Mexican entities that desire to purchase CoolTech products, as well as affirms our position to provide financial assistance to such entities.”
Introduction of options
During the fourth quarter of 2019, the Company has introduced options, which include an eMGen System that generates up to 200 kVA of electric power, water purification and desalination systems.
The Company’s mobile electric generation system (“eMGen”) offers optional 30 to 125 kVA water purification and desalination units capable of producing 2,800 to 14,000 gallons of potable water per day. Assuming the average person needs 2 liters per day, 10,000 gallons is enough for 26,498 people. If delivery is required, an eMGen truck can also tow a water tanker.
The truck-mounted units cleanse contaminated, polluted and wastewater or remove saline from saltwater. Submerge the input pipe into any water source. Chemicals, particulates, salts, heavy metals, bacteria, viruses and other impurities are removed. Six levels of water purification output a range of water qualities from clean potable water for drinking and cooking tor non-potable water for agricultural or other commercial and emergency usage.
The eMGen systems as well as the purification and desalinization units feature fully automated controls and monitoring. A Panasonic Toughpad tablet provides a rugged touchscreen interface for operation from the truck cab or anywhere within a 300 foot radius. When outfitted with the optional telematics package, the systems can be remotely controlled and monitored from distant locations.
The next generation of eMGens will include a solar-powered generator system with a built-in water purification unit that makes seawater desalination sustainable. The system pumps and purifies up to 4,500 gallons of potable water per day. It can be set up and operated anywhere a four-wheel drive vehicle can go. Once the batteries are drained, the systems shift to fuel power for 24 hour operation. The solar panels collapse and fold, so the entire system fits easily in the bed of a work truck.
Rugged, reliable and versatile, the eMGen trucks are designed to operate in extreme environments. A variety of capabilities handle a variety of needs including:
| · | agriculture, |
| · | municipalities, |
| · | mining, |
| · | emergency response, |
| · | and disaster relief. |
The applications for hurricanes, floods, earthquakes and other natural disasters are obvious, others less so.
Here are a few common yet relatively unknown problems the system and units address:
| · | In poorly served or third world countries, irregular power service prevents farmers from irrigating on a regular schedule which reduces the size of the harvest. |
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|
|
| · | In areas where water tables are dropping, powerful pumps are required to pull water up from deep underground. A mobile pump is far more cost effective than permanent ones positioned out in the fields. |
|
|
|
| · | Use of polluted irrigation water stunts crops and restricts sales which limit farmers’ incomes. |
|
|
|
| · | Over-pumping of aquifers enables saltwater intrusion to contaminate coastal water supplies. Water must either be pumped and transported from further away or very expensive desalination plants must be built to remove the salt. The plants can take years to build. |
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Consider the Texas Freeze in February of 2021. Power failures at water treatment plants necessitated boil water orders. Burst pipes and dripping faucets dropped water reserves to dangerously low levels.
More than 800 public water systems serving 162 of the state’s 254 counties were disrupted. Over 13 million people were left without safe drinking water. The town of Kyle almost went dry.
Cities opened water distribution sites, water was trucked in to flush toilets, homeowners melted icicles and snow for drinking water, medical workers resorted to using bottled water for chemotherapy treatments.
As the number of natural disasters (severe storms, extreme heat, flooding, droughts and wildfires as well as tropical, subtropical, and extratropical cyclones) increase in frequency and intensity, the Company sees increasing opportunities for mobile power generation particularly for medium and high voltage outputs.
KeyOptions
On May 30, 2019, the Company entered into a joint venture agreement (“JV”) with KeyOptions Pty Ltd., a privately held technology and security provider based in Victoria, Australia.
KeyOptions develops and markets products for governments, defense contractors and other commercial applications to counter security and cyber threats. The Company will provide a license for the JV to market and sell CoolTech’s entire product platform in Australia and neighboring countries in Southeast Asia.
Strategic Alliance:
On December 16, 2019, the Company signed a cross marketing and licensing agreement with VerdeWatts, LLC., an energy generation and storage company encompassing everything from mobile solar power generation systems to large scale biogas turbine installations. Pursuant to the agreement VerdeWatts and the Company each granted the other a royalty free non-exclusive license to certain patents which license is subject to certain future negotiation.
Like CoolTech’s mobile power generation systems (“eMGen”), VerdeWatts’ products are scalable and offer the ability to bring power nearly anywhere it is needed. Their proprietary Smart Solar Power Generation Units and energy storage systems combine to deliver sustainable power long after the sun has set.
The agreement with VerdeWatts also included a cross marketing and royalty free non-exclusive licensing agreement with FirmGreen, Inc., a water treatment facilities developer that works closely with VerdeWatts to create a suite of synergistic products that address significant needs in the global marketplace. FirmGreen specializes in water purification and desalination technologies. Their mobile, solar and container applications feature 6 levels of water purification for unrivaled drinkability. Pursuant to the agreement FirmGreen and the Company each granted the other a royalty free non-exclusive license to certain patents which license is subject to certain future negotiation.
CoolTech’s eMGen platform makes the companies’ product offering complete with mobile power generation. It provides the capability to power everything from irrigation for farms and water purification for rural areas to electric vehicle charging and fast charging in the urban ones.
Consider the solar-powered generator system with a built-in water purification unit that makes seawater desalination sustainable. The system pumps and purifies up to 3,000 gallons per day and interfaces with CoolTech’s eMGen system for 24-hour operation. The solar panels collapse and fold together, so the entire system fits easily in the bed of a work truck. It can be set up and operated anywhere a four-wheel drive vehicle can reach. All of these systems are patent protected and cross licensed to each of the three companies.
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FirmGreen and VerdeWatts have a global presence with projects on 3 continents. The largest encompasses the installation of 14 natural gas generators to produce over 60 megawatts (MW) of power. The generators will be integrated with 50 megawatt hours of battery storage and another 6 MW of solar to ensure a consistent flow of power. VerdeWatts intend to replace most of the legacy on-site generators with CoolTech’s eMGen systems, however the Company has not received any orders and there cannot be any assurance that any orders will be placed.
Together the companies can create an energy or utility ecosystem that can enable less developed countries to leapfrog non-existent, inadequate or failing infrastructure to deliver reliable power and water quickly, sustainably and cost effectively to their citizens, agriculture and other businesses. The scale and impact can reach from the individual farms and villages to cities and regions.
In fact, by combining their respective technologies: energy generation, energy storage and load management controls into a single suite of products, the companies create what is called a “microgrid”. Varying combinations of energy sources such as solar, wind, biogas and eMGen systems both backup and supplement one another to provide consistent, uninterrupted primary power even during severe weather or other emergency situations.
The synergies between the companies extend beyond water purification and power generation. VerdeWatts’ wind and gas turbines and generators which produce electric power can all be improved by CoolTech’s thermal reduction technologies.
Export Import Bank of the United States
With the help of VerdeWatts and FirmGreen, CoolTech has initiated a relationship with the Export-Import Bank of the United States (EXIM), a U.S. government agency whose sole mission is to support U.S. exports. The bank fulfills its mission by offering very cost-effective financing for international customers and project developers to purchase U.S.-made services and purchase or lease U.S.-made goods.
To that end, the two companies applied to finance the Mexican projects referenced above. CoolTech also sent product information for due diligence review by the technical team at EXIM bank. Subsequently, CoolTech has received a Letter of Interest from EXIM, however, there cannot be any assurance that EXIM will provide any funding to the Company.
Sales Agent
In January 2021, the Company terminated its independent agent agreement with Gaia Energy of Gdansk, Poland.
On January 26, 2021, the Company signed an independent agent agreement with H&K Ventures, LLC of Morganhill, California. H&K will act as the Company’s independent agent.
The principals of H&K were also part of Gaia Energy. Consequently, the agreement and the expertise provided by H&K are essentially the same. H&K will concentrate on developing markets in Eastern Europe, the Middle East and Africa. The agreement describes the agent’s duties as “generating revenue, and investment funding, for the Company from various organizations including investment funds, end-users, channel partners, integrators, and OEMs.” To that end, H&K has requested quotes from the Company for eMGen 200 to 300 kVA systems with mobile water desalination capabilities of up to 900,000 gallons per day.
Team members of H&K Ventures include executives with more than twenty-five years’ experience with Panasonic, Ford Motor Company, Electronic Data Systems and the US Air Force in the fields of advanced technologies and an African diplomat with a thirty-year background working with and for diplomatic missions, non-governmental organizations and international disasters and aid management services.
The former has joined the Company’s advisory board while the diplomat introduced CoolTech products at an African technical summit attended by representatives from 54 countries.
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| Table of Contents |
Order and Delivery of Water Units and Charger
The Company has ordered two reverse osmosis water purification units and an electric vehicles charger.
In May of 2021, the Company ordered a reverse osmosis system capable of treating 4,500 gallons of brackish water per day. That was followed by a 100 kW, mode 4 DC, electric vehicle charger capable of simultaneous charging and dynamic load distribution. The Company ordered a second reverse osmosis system capable of treating 4,500 gallons of brackish water per day in July of 2021.
A reverse osmosis system and an electric vehicle charger were delivered to Craftsmen Industries for installation in the beds of the test vehicles referenced in Note 3. The Company is awaiting the delivery of the second reverse osmosis system.
Results of Operations
The following table sets forth, for the periods indicated, condensed consolidated statements of operations data. The table and the discussion below should be read in conjunction with the accompanying condensed consolidated financial statements and the notes thereto, appearing elsewhere in this report.
|
| Three months ended June 30, |
|
|
|
|
|
| ||||||||
|
| 2023 |
|
| 2022 |
|
| Change |
|
| % |
| ||||
Revenues |
| $ | -- |
|
| $ | -- |
|
|
| N/A |
|
|
| N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting |
|
| 80,000 |
|
|
| 155,894 |
|
|
| (75,894 | ) |
|
| (48.7 | )% |
Payroll and related expenses |
|
| 97,424 |
|
|
| 88,862 |
|
|
| 8,562 |
|
|
| 9.6 | % |
Professional fees |
|
| 90,561 |
|
|
| 38,660 |
|
|
| 51,901 |
|
|
| 134.2 | % |
General and administrative |
|
| 35,351 |
|
|
| 32,252 |
|
|
| 3,099 |
|
|
| 9.6 | % |
Research and development |
|
| 4,964 |
|
|
| 4,963 |
|
|
| 1 |
|
|
| 0.0 | % |
Total operating expenses |
|
| 308,300 |
|
|
| 320,631 |
|
|
| (12,331 | ) |
|
| (3.8 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
| (167,674 | ) |
|
| (141,638 | ) |
|
| (26,036 | ) |
|
| 18.4 | % |
Change in fair value of derivative liability |
|
| (35,066 | ) |
|
| (115,167 | ) |
|
| 80,101 |
|
|
| (69.6 | )% |
Loss on sale of inventory |
|
| (11,484 | ) |
|
| -- |
|
|
| (11,484 | ) |
|
| 100.0 | % |
Loss on settlement of debt |
|
| -- |
|
|
| (14,495 | ) |
|
| 14,495 |
|
|
| (100.0 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| (522,524 | ) |
|
| (591,931 | ) |
|
| 69,407 |
|
|
| (11.7 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Noncontrolling interest |
|
| 744 |
|
|
| 1,221 |
|
|
| (477 | ) |
|
| (39.1 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss to shareholders |
| $ | (521,780 | ) |
| $ | (590,710 | ) |
| $ | 68,930 |
|
|
| (11.7 | )% |
| 28 |
| Table of Contents |
|
| Six months ended June 30, |
|
|
|
|
|
| ||||||||
|
| 2023 |
|
| 2022 |
|
| Change |
|
| % |
| ||||
Revenues |
| $ | -- |
|
| $ | -- |
|
|
| N/A |
|
|
| N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting |
|
| 186,000 |
|
|
| 236,894 |
|
|
| (50,894 | ) |
|
| (21.5 | )% |
Payroll and related expenses |
|
| 186,270 |
|
|
| 178,359 |
|
|
| 7,911 |
|
|
| 4.4 | % |
Professional fees |
|
| 117,945 |
|
|
| 131,877 |
|
|
| (13,932 | ) |
|
| (10.6 | )% |
General and administrative |
|
| 44,831 |
|
|
| 58,048 |
|
|
| (13,217 | ) |
|
| (22.8 | )% |
Research and development |
|
| 9,928 |
|
|
| 9,927 |
|
|
| 1 |
|
|
| 0.0 | % |
Total operating expenses |
|
| 544,974 |
|
|
| 615,105 |
|
|
| (70,131 | ) |
|
| (11.4 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
| (364,086 | ) |
|
| (387,302 | ) |
|
| 23,216 |
|
|
| (6.0 | )% |
Change in fair value of derivative liability |
|
| 12,011 |
|
|
| (151,584 | ) |
|
| 163,595 |
|
|
| (107.9 | )% |
Loss on sale of inventory |
|
| (11,484 | ) |
|
| -- |
|
|
| (11,484 | ) |
|
| (100.0 | )% |
Loss on settlement of debt |
|
| -- |
|
|
| (14,495 | ) |
|
| 14,495 |
|
|
| (100.0 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| (908,533 | ) |
|
| (1,168,486 | ) |
|
| 259,953 |
|
|
| (22.2 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Noncontrolling interest |
|
| 496 |
|
|
| 1,053 |
|
|
| (557 | ) |
|
| (52.9 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss to shareholders |
| $ | (908,037 | ) |
| $ | (1,167,433 | ) |
| $ | 259,936 |
|
|
| (22.2 | )% |
Revenues
During the three months ended June 30, 2023, and since inception, the Company has not generated any revenues. Cool Technologies generated its first Mobile Generation order during the quarter ended June 30, 2014 and received a partial deposit in advance of completing the sale with companies controlled by the individual who is a 5% owner of UPT and a shareholder of the Company. The order is in the production queue along with other existing orders.
Operating Expenses
Consulting expense decreased from $155,894 for the three months ended June 30, 2022 to $80,000 for the three months ended June 30, 2023 and during the six months ended June 30 from $236,894 in 2022 to $186,000 in 2023. The primary reason for the decrease during both periods was that as of April 2023, due to the death of Quentin Ponder, the Company stopped accruing payments to Summit Management. In addition, there was a one-time payment of $10,500 to a funding consultant during the second quarter of 2022.
Payroll and related expenses increased from $88,862 for the three months ended June 30, 2022 to $97,424 for the three months ended June 30, 2023 and during the six months ended June 30 from $178,359 in 2022 to $186,270 in 2023 due to an increase in the salary accrued for one of the officers.
Professional fees increased from $38,660 for the three months ended June 30, 2022 to $90,561 for the three months ended June 30, 2023, yet they decreased during the six months ended June 30 from $131,877 in 2022 to $117,945 in 2023. The increase in professional fees during the three month period reflects the timing of an invoice to the auditors for their services on the Company’s annual report. The decrease in professional fees during the six month period reflects a decrease in legal fees due to reduced activity leading up to the settlement of the litigation and arbitration with PGC Investments, LLC.
General and administrative expenses increased by $3,099 from $32,252 for the three months ended June 30, 2022 to $35,351 for the three months ended June 30, 2023. They decreased during the six months ended June 30 from $58,048 in 2022 to $44,831 in 2023 due primarily to a reduction in the services provided by the Company’s transfer agent which resulted in a reduction in fees charged.
Research and development expenses remained the same for the respective periods during both years. For the three months ended June 30, 2022, it totaled $4,963 and for the three months ended June 30, 2023, it totaled $4,964. For the six months ended June 30, 2022 and 2023, it totaled $9,927 and $9,928, respectively, as the Company continued to focus on the commercialization of the Company’s eMGen system.
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| Table of Contents |
Other Income and Expense
Interest expense increased from $141,638 for the three months ended June 30, 2022 to $167,674 for the three months ended June 30, 2023 and decreased during the six months ended June 30 from $387,302 in 2022 to $364,086 in 2023 due to a variance in the amortization of the debt discount during their respective time periods covered. Specifically, there was more amortization of debt discount in the first quarter of 2022 and more amortization during the second quarter of 2023. The change in fair value of derivative liability decreased from $115,167 for the three months ended June 30, 2022 to $35,066 for the three months ended June 30, 2023 and during the six months ended June 30 from $151,584 to ($12,011) due to a reduction in derivative liabilities and stock price.
Net Loss and Noncontrolling interest
As Cool Technologies has incurred losses since inception, it has not recorded any income tax expense or benefit. Accordingly, the Company’s net loss is driven by operating and other expenses. Noncontrolling interest represents the 5% third-party ownership in UPT, which is subtracted to calculate net loss to shareholders.
Liquidity and Capital Resources
We have historically met our liquidity requirements primarily through the public sale and private placement of equity securities, debt financing, and exchanging common stock warrants and options for professional and consulting services. On June 30, 2023, we had cash and cash equivalents of $142.
Working capital is the amount by which current assets exceed current liabilities. We had negative working capital of $8,238,361 and $7,792,632 on June 30, 2023 and December 31, 2022, respectively. The increase in negative working capital was due to increases in accounts payable, accrued interest payable, accrued liabilities - related party, and accrued payroll taxes. To that end, we owe approximately $949,357 for convertible notes that mature in the next nine months and we owe another $1,359,000 in notes payable and currently have another $1,078,500 in promissory notes in default. Based on its current forecast and budget, management believes that its cash resources will not be sufficient to fund its operations through the end of the third quarter. Unless the Company can generate sufficient revenue from the execution of the Company’s business plan, it will need to obtain additional capital to continue to fund the Company’s operations. There is no assurance that capital in any form would be available to us, and if available, on terms and conditions that are acceptable. If we are unable to obtain sufficient funds, we may be forced to curtail and/or cease operations.
February Convertible Note -- On February 25, 2021, the Company entered into a convertible note agreement with an accredited investor. It issued 2,000,000 inducement shares of restricted common stock and received $150,000 after an original issue discount of $15,000 in lieu of interest. The total amount of $165,000 plus 3% interest or $4,950 will be due on November 25, 2021. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of common stock at a fixed price of $0.025 per share. In the event of default, the outstanding balance will increase by 25% and a daily penalty of $100 will accrue until the default is remedied. Beginning November 22, 2021, the investor has amended the agreement, extending the maturity date through June 15, 2023. As of June 30, 2023, the remaining balance totaled $169,950.
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March Convertible Note -- On March 24, 2021, the Company entered into a convertible note agreement with an accredited investor. It issued two sets of commitment shares: a block of 500,000 and a block of 2,500,000 shares of restricted common stock as well as warrants to purchase 1,000,000 shares of common stock at an exercise price of $0.10 per share. In return, the Company received $250,000 after an original issue discount of $25,000 in lieu of interest. The total amount of $275,000 plus 8% interest or $22,000 will be due on December 24, 2021. After 60 days, if the note has not been paid in full, the investor will have the right to purchase up to 6 million additional warrant shares. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of common stock at a fixed price of $0.055 per share. If the note is repaid by the maturity date, the investor will forfeit the block of 2,500,000 shares of restricted common stock and the shares will be returned to the Company’s treasury. In the event of default, the outstanding balance will increase by 25% and a daily penalty of $1,000 will accrue until the default is remedied. Beginning November 22, 2021, the investor has amended the agreement, extending the maturity date through June 15, 2023. As of June 30, 2023, the remaining balance totaled $297,000.
March Convertible Note -- On March 24, 2021, the Company entered into a convertible note agreement with an accredited investor. It issued two sets of commitment shares: a block of 500,000 and a block of 2,500,000 shares of restricted common stock as well as warrants to purchase 1,000,000 shares of common stock at an exercise price of $0.10 per share. In return, the Company received $750,000 after an original issue discount of $75,000 in lieu of interest. The total amount of $825,000 plus 8% interest or $66,000 will be due on December 24, 2021. After 60 days, if the note has not been paid in full, the investor will have the right to purchase up to 2 million additional warrant shares. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of common stock at a fixed price of $0.055 per share. If the note is repaid by the maturity date, the investor will forfeit the block of 2,500,000 shares of restricted common stock and the shares will be returned to the Company’s treasury. In the event of default, the outstanding balance will increase by 25% and a daily penalty of $1,000 will accrue until the default is remedied. Beginning December 21, 2021, the investor has amended the agreement, extending the maturity date through June 15, 2023. On August 22, 2022, the Company issued 10,000,000 shares of common stock to LGH Investments, LLC upon conversion of $121,410. On October 27, 2022, the Company issued 7,500,000 shares of common stock to LGH Investments, LLC upon conversion of $59,640. On December 5, 2022, the Company issued 10,000,000 shares of common stock to LGH Investments, LLC upon conversion of $68,373. On December 28, 2022, the Company issued 7,500,000 shares of common stock to LGH Investments, LLC upon conversion of $71,355. On March 8, 2023, the Company issued 7,500,000 shares of common stock to LGH Investments, LLC upon conversion of $43,665. As of June 30, 2023, the remaining balance totaled $526,557.
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July Convertible Note -- On July 22, 2022, the Company signed a promissory note agreement with an accredited investor. It received $30,000 after an original issue discount of $3,200 and reimbursement of $3,000 to cover the investor’s legal fees. The total amount of $56,200 will be due on July 22, 2023. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of common stock at a 29% discount to the lowest VWAP during the 10 trading days preceding the conversion date. In the event of default, the outstanding balance will increase by 50% and the interest rate will increase to 22% until the default is remedied. On January 27, 2023, the Company issued 2,352,941 shares of common stock to 1800 Diagonal Lending LLC upon conversion of $20,000 on principal of $56,200. On February 3, 2023, the Company issued 2,531,646 shares of common stock to 1800 Diagonal Lending LLC upon conversion of $20,000 on principal of $56,200. On February 14, 2023, the Company issued 2,673,623 shares of common stock to 1800 Diagonal Lending LLC upon final conversion of $18,448 on principal of $56,200 and accrued interest of $2,248. The note was then retired.
August Convertible Note -- On August 18, 2022, the Company signed a promissory note agreement with an accredited investor. It received $40,000 after an original issue discount of $2,600 and reimbursement of $3,000 to cover the investor’s legal fees. The total amount of $45,600 will be due on August 18, 2023. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of common stock at a 29% discount to the lowest VWAP during the 10 trading days preceding the conversion date. In the event of default, the outstanding balance will increase by 50% and the interest rate will increase to 22% until the default is remedied. On February 24, 2023, the Company issued 3,225,806 shares of common stock to 1800 Diagonal Lending LLC upon conversion of $20,000 on principal of $45,600. On March 2, 2023, the Company issued 4,570,667 shares of common stock to 1800 Diagonal Lending LLC upon final conversion of $27,424 on principal of $45,600 and accrued interest of $1,824. The note was then retired.
September Convertible Note -- On September 21, 2022, the Company signed a promissory note agreement with an accredited investor. It received $60,000 after an original issue discount of $3,750 and reimbursement of $3,000 to cover the investor’s legal fees. The total amount of $66,750 will be due on September 21, 2023. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of common stock at a 29% discount to the lowest VWAP during the 10 trading days preceding the conversion date. In the event of default, the outstanding balance will increase by 50% and the interest rate will increase to 22% until the default is remedied. On March 28, 2023, the Company issued 3,750,000 shares of common stock to 1800 Diagonal Lending LLC upon conversion of $15,000, leaving a principal balance remaining of $51,750. On March 30, 2023, the Company issued 5,263,158 shares of common stock to 1800 Diagonal Lending LLC upon conversion of $20,000, leaving a principal balance remaining of $31,750. On April 20, 2023, the Company issued 5,000,000 shares of common stock to 1800 Diagonal Lending LLC upon conversion of $15,000, leaving a principal balance remaining of $30,600. On April 24, 2023, the Company issued 6,696,552 shares of common stock to 1800 Diagonal Lending LLC upon final conversion of $16,750 in principal and $2,670 in accrued interest. The note was then retired.
October Convertible Note -- On October 24, 2022, the Company signed a promissory note agreement with an accredited investor. It received $40,000 after an original issue discount of $2,600 and reimbursement of $3,000 to cover the investor’s legal fees. The total amount of $45,600 will be due on October 24, 2023. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of common stock at a 29% discount to the lowest VWAP during the 10 trading days preceding the conversion date. In the event of default, the outstanding balance will increase by 50% and the interest rate will increase to 22% until the default is remedied. On May 1, 2023, the Company issued 5,555,556 shares of common stock to 1800 Diagonal Lending LLC upon conversion of $15,000, leaving a principal balance remaining of $30,600. On May 5, 2023, the Company issued 15,440,000 shares of common stock to 1800 Diagonal Lending LLC upon final conversion of $30,600 in principal and $1,824 in accrued interest. The note was then retired.
October Convertible Note -- On October 31, 2022, the Company signed a promissory note agreement with an accredited investor. It received $20,000 after an original issue discount of $2,000. The total amount of $22,000 will be due on July 31, 2023. On July 24, 2023, the investor amended the agreement, extending the maturity date through August 31, 2023.After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of common stock at a 29% discount to the lowest VWAP during the 10 trading days preceding the conversion date. In the event of default, the outstanding balance will increase by 25% and a daily pen penalty of $100 will accrue until the default is remedied. As of June 30, 2023, the remaining balance totaled $23,600.
December Convertible Note -- On December 8, 2022, the Company signed a promissory note agreement with an accredited investor. It received $45,000 after an original issue discount of $2,900 and reimbursement of $3,000 to cover the investor’s legal fees. The total amount of $50,900 will be due on December 8, 2023. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of common stock at a 29% discount to the lowest VWAP during the 10 trading days preceding the conversion date. In the event of default, the outstanding balance will increase by 50% and the interest rate will increase to 22% until the default is remedied. On June 13, 2023, the Company issued 11,538,462 shares of common stock to 1800 Diagonal Lending LLC upon conversion of $15,000, leaving a principal balance remaining of $30,600. On June 28, 2023, the Company issued 14,615,385 shares of common stock to 1800 Diagonal Lending LLC upon conversion of $19,000 in principal. As of June 30, 2023, the remaining principal balance totaled $16,900.
January Convertible Note -- On January 12, 2023, the Company signed a promissory note agreement with an accredited investor. It received $25,000 after an original issue discount of $1,700 and reimbursement of $3,000 to cover the investor’s legal fees. The total amount of $29,700 will be due on January 12, 2024. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of common stock at a 29% discount to the lowest VWAP during the 10 trading days preceding the conversion date. In the event of default, the outstanding balance will increase by 50% and the interest rate will increase to 22% until the default is remedied. As of June 30, 2023, the remaining balance totaled $29,700.
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Off Balance Sheet Arrangements
Currently, the Company has no off-balance sheet arrangements.
Cash Flows
Cash flows from operating, investing and financing activities were as follows:
|
| Six months ended June 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Net cash from operating activities |
| $ | (26,449 | ) |
| $ | (419,612 | ) |
Net cash from investing activities |
|
| (2,145 | ) |
|
| (25,392 | ) |
Net cash from financing activities |
|
| 28,594 |
|
|
| 386,913 |
|
Net cash used by operating activities decreased due to a $259,953 reduction in the net loss from year to year as increases for accounts payable, accrued interest payable, accrued payroll taxes and accrued liabilities – related party overwhelmed decreases in change in fair value of derivative liability, amortization of debt discount as well as inventory. The decrease in net cash outflow for investing activities was a result of a reduction in payments to the Company’s patent attorneys compared to the previous year. Cash provided by financing activities included debt borrowings of $172,175 during the first two quarters of 2023 which was a $225,825 decrease from the debt borrowings of $398,000 during the first two quarters of 2022. In addition, a $132,494 increase in payments on debt during the first quarter of 2023 was subtracted from the total net cash from financing activities during the same period.
The Company’s capital requirements for the next 12 months will total $4.3 million with anticipated expenses of $1.8 million for salaries, public company filings, and consultants and professional fees. An additional $2.5 million in working capital is expected to be needed for inventory and related costs for production of the mobile power generation systems as well as development and commercialization of the thermal dispersion technology applications.
Management believes the Company’s funds are insufficient to provide for its projected needs for operations for the next 12 months. The Company is currently working to close additional non-dilutive funding to support product development or for other purposes. As previously noted under Item 2 “Overview”, the Company signed a Memorandum of Terms for Debt Financing with 3&1 Capital Partners, LLC (“3&1”) in March of 2020. Five months later, the Company signed an agreement in which 3&1 agreed to definitively provide insurance related debt, surety bond financing and/or standby letter of credit financing as per the terms of the memorandum. In the event that 3&1 fails to deliver the financing, the Company may have to rely on equity or debt financing that may involve substantial dilution to our then existing stockholders. If it is unable to close additional equity financing, the Company may have to cease operations.
Going Concern
The Company has incurred net losses of $62,028,744 since inception and have not fully commenced operations, raising substantial doubt about its ability to continue as a going concern. Management believes that the Company’s ability to continue as a going concern is dependent on its ability to raise capital, generate revenue, achieve profitable operations and repay its obligations when they come due. As of June 30, 2023, we have $142 in cash and we owe approximately $949,357 for convertible notes, $1,359,000 in notes payable and currently have another $1,078,500 in promissory notes in default. We are pursuing various financing alternatives to address the payment of outstanding debt and to support the sales, component acquisition and assembly of our mobile power generation systems as well as the completion of the secondary elements of our business plan: to license its thermal technologies and applications, including submersible dry-pit applications. There can be no assurance, however, that we will obtain adequate funding or that we will be successful in accomplishing any of our objectives. Consequently, we may not be able to continue as an operating company.
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Critical Accounting Estimates
The condensed consolidated financial statements and the accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect reported amounts of assets, liabilities, and expenses. Cool Technologies continually evaluates the accounting policies and estimates used to prepare the condensed consolidated financial statements. The estimates are based on historical experience and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management. Certain accounting policies that require significant management estimates and are deemed critical to the results of operations and financial position are discussed in the Annual Report on Form 10-K for the year ended December 31, 2022 in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, Cool Technologies is not required to provide the information required by this Item.
Item 4. Controls and Procedures
Management does not expect that its internal controls over financial reporting will prevent all errors and all fraud. Control systems, no matter how well-conceived and managed, can provide only reasonable assurance that the objectives of the control system are met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes.
Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of management, including the principal executive officer and principal financial officer, as of June 30, 2023, Cool Technologies conducted an evaluation of its disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, the principal executive officer and principal financial officer have concluded that, based on the material weaknesses discussed below, the disclosure controls and procedures were not effective as of such date to ensure that information required to be disclosed by the Company in reports filed or submitted under the Securities Exchange Act were recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Act Commission’s rules and forms and that its disclosure controls are not effectively designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act is accumulated and communicated to management, including the principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Cool Technologies internal controls are not effective for the following reasons, (1) there are no entity level controls, because of the limited time and abilities of the Company’s two officers, (2) there is no separate audit committee, and (3) CoolTech has not implemented adequate system and manual controls. As a result, the Company’s internal controls have inherent weaknesses, which may increase the risks of errors in financial reporting under current operations and accordingly are not effective as evaluated against the criteria set forth in the Internal Control – Integrated Framework issued by the committee of Sponsoring Organizations of the Treadway Commission (1992 version). Based on the evaluation, management concluded that the Company’s internal controls over financial reporting were not effective as of June 30, 2023.
Even though there are inherent weaknesses, management has taken steps to minimize the risk. The Company uses a third-party consultant to review transactions for appropriate technical accounting, reconcile accounts, review significant transactions and prepare financial statements. Any deviation or errors are reported to management.
Cool Technologies can provide no assurance that its internal controls over financial reporting will be compliant in the near future. As revenues permit, the Company will enhance its internal controls through additional software and other means. If and when it becomes a listed company under SEC rules, the Company will create an audit committee comprised of independent directors.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the last quarterly period covered by this report that have materially affected, or are reasonably likely to affect, the internal control over financial reporting.
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Part II. Other Information
Item 1. Legal Proceedings
Securities and Exchange Commission Settlement
On September 20, 2018, the Securities and Exchange Commission (SEC) approved an offer to settle the enforcement proceedings against the Company pursuant to Section 21C of the Securities Exchange Act of 1934.
These proceedings arose out of the violation of the Regulation S-X requirement that interim financial statements filed as part of a Form 10-Q be reviewed by an independent public accounting firm prior to filing.
On three occasions, specifically, May 20, 2013, August 19, 2013, and August 22, 2016, Cool Technologies filed Form 10-Qs that contained financial statements that were not reviewed by an independent public accounting firm. In two cases, the Company properly disclosed that the 10Q’s were “unaudited and unreviewed” as set forth by the guidance in the Division of Corporation Finance Financial Reporting Manual Section 4410.3. And in each case, the Company subsequently filed a restated and amended Form 10-Q/A that complied with the Interim Review Requirement. In no instance were the filings ever subjected to audit challenge.
Pursuant to the enforcement proceeding instituted by the SEC, the Company settled for a fine of $75,000 and agreed to cease and desist from any future violations of Sections 13(a) of the Exchange Act and Rule 13a-13 thereunder, and Rule 8-03 of Regulation S-X.
From time to time, the Company may be a party to other legal proceedings. Management currently believes that the ultimate resolution of these other matters, if any, and after consideration of amounts accrued, will not have a material adverse effect on our consolidated results of operations, financial position, or cash flow.
Item 1A. Risk Factors
As a smaller reporting company, Cool Tech is not required to provide the information required by this Item.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On April 20, 2023, the Company issued 5,000,000 shares of common stock to 1800 Diagonal Lending LLC upon conversion of $15,000 on principal of $66,750.
On April 24, 2023, the Company issued 6,692,552 shares of common stock to 1800 Diagonal Lending LLC upon final conversion of $19,420 on principal of $66,750.
On May 1, 2023, the Company issued 5,555,556 shares of common stock to 1800 Diagonal Lending LLC upon conversion of $15,000 on principal of $45,600.
On May 5, 2023, the Company issued 15,440,000 shares of common stock to 1800 Diagonal Lending LLC upon final conversion of $32,424 on principal of $45,600.
On May 5, 2023, the Company issued 10,000,000 shares of common stock to LGH Investments LLC upon conversion of $21,300 on principal of $825,000.
On June 13, 2023, the Company issued 11,538,462 shares of common stock to 1800 Diagonal Lending LLC upon conversion of $15,000 on principal of $50,900.
On June 28, 2023, the Company issued 14,615,385 shares of common stock to 1800 Diagonal Lending LLC upon final conversion of $19,000 on principal of $50,900.
The securities above were offered and sold pursuant to an exemption from the registration requirements under Section 4(a)(2) of the Securities Act since, among other things, the transactions did not involve a public offering.
None of the above issuances involved any underwriters, underwriting discounts or commissions, or any public offering and we believe we are exempt from the registration requirements of the Securities Act of 1933 by virtue of Section 4(2) thereof and/or Regulation D promulgated thereunder.
Item 3. Defaults Upon Senior Securities
On March 19, 2020, the Company defaulted on a note payable. A $250,000 note was purchased on March 18, 2019. In return, the Company promised to pay the principal amount together with simple interest of 15% per annum on or before the one-year anniversary. As of the filing date, the Company has not received a notice of default for the note. As per the terms of the note, interest will continue to accrue at 15% per annum until paid in full.
On May 1, 2020, the Company defaulted on two notes payable. A $250,000 note was purchased on September 11, 2018 and a $125,000 note was purchased on September 25, 2018 by the same accredited investor. In return, the Company promised to pay the principal amount together with simple interest of 15% per annum on or before the one-year anniversaries. On March 16, 2020, the investor signed an amendment to the agreement extending the maturity dates until April 30, 2020. As of the filing date, the Company has not received a notice of default. As per the terms of the note, interest will continue to accrue at 15% per annum until paid in full.
On May 26, 2020, the Company defaulted on a Promissory Note Agreement. A $250,000 note was purchased on October 26, 2018 by an accredited investor. It received $250,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum on or before the one-year anniversary. On October 26, 2019, the investor signed an amendment to the agreement extending the maturity date for seven months. On November 20, 2020, they signed another amendment to the agreement in which they agreed that in the event there are any amounts outstanding under the Note on January 1, 2021, the investor shall be able to convert, any amounts outstanding under the Note into shares of common stock, at a conversion price of seventy one percent of the lowest Volume Weighted
Average Price (VWAP) over the previous ten trading days prior to the delivery of a conversion notice. The investor subsequently converted all amounts outstanding in a series of three conversions on January 20 and 22, and February 3, 2021.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
The occurrence of an uncontrollable event such as the COVID19 pandemic negatively affected our operations. The pandemic resulted in social distancing, travel bans and quarantines. This limited access to our facilities, customers, management, support staff and professional advisors. These, in turn, impacted our operations and financial condition.
While the pandemic phase of COVID19 has receded and the virus is now considered to be endemic in the US as of this filing, the evolution of an acute and more contagious variant is possible. In such a case, it may impact demand for our products and may again hamper our efforts to provide our investors with timely information and comply with our filing obligations with the Securities and Exchange Commission.
Real GDP growth, inflation, employment levels, oil prices, interest rates, tax rates, availability of customer financing, foreign currency exchange rate fluctuations, and other macroeconomic trends can adversely affect demand for the products that we offer. Geopolitical issues around the world and how our markets are positioned can also impact macroeconomic conditions and could have a material adverse impact on our financial results.
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Item 6. Exhibits
| Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer | |
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| Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer | |
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| Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
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| Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
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101.INS |
| Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). |
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101.SCH |
| Inline XBRL Taxonomy Extension Schema Document. |
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101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB |
| Inline XBRL Taxonomy Extension Labels Linkbase Document. |
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101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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104 |
| Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
*Filed Herewith
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SIGNATURES
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.
| Cool Technologies, Inc. |
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Dated: August 21, 2023 | By: | /s/ Timothy Hassett |
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| Timothy Hassett |
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| Chief Executive Officer (Principal Executive Officer) |
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Dated: August 21, 2023 | By: | /s/ Judson Bibb |
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| Judson Bibb |
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| Interim Chief Financial Officer (Principal Financial and Accounting Officer) |
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