Ocean Thermal Energy Corp - Quarter Report: 2020 September (Form 10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 2020

 

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

 

Commission File Number 033-19411-C

 

OCEAN THERMAL ENERGY CORPORATION

(Exact name of registrant as specified in its charter)

 

Nevada	20-5081381
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

 

800 South Queen Street, Lancaster, PA  17603

(Address of principal executive offices, including zip code)

(717) 299-1344

(Registrant’s telephone number, including area code)

n/a

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

 

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

 

Title of each class	Trading Symbol(s)	Name of each exchange on which registered

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

[X]

No

[  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

[X]

No

[  ]

 

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

 

	Large accelerated filer [  ]	Accelerated filer [  ]
	Non-accelerated filer [X]	Smaller reporting company [X]
	Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes

[  ]

No

[X]

 

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

As of November 5, 2020, issuer had 134,775,136 outstanding shares of common stock, par value $0.001.

 

 

 

TABLE OF CONTENTS

 

 

	Description	Page
	PART I—FINANCIAL INFORMATION
Item 1	Financial Statements	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Changes in Stockholders’ Deficiency	5
	Condensed Consolidated Statements of Cash Flows	7
	Notes to the Condensed Consolidated Financial Statements	8
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3	Quantitative and Qualitative Disclosures about Market Risk	22
Item 4	Controls and Procedures	22
	PART II—OTHER INFORMATION
Item 1	Legal Proceedings	24
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3	Defaults upon Senior Securities	24
Item 6	Exhibits	26
	Signature	27

 

 

	September 30, 2020	December 31, 2019
	(unaudited)
ASSETS
Current Assets
Cash	$8,500	$23,243
Prepaid expenses	10,000	20,000
Total Current Assets	18,500	43,243
Total Assets	$18,500	$43,243
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities
Accounts payable and accrued expense	$12,836,037	$11,176,751
Notes payable - related party	2,335,473	2,364,473
Convertible notes payable - related party	87,500	87,500
Notes payable	3,284,774	3,001,250
Convertible note payable	2,264,120	2,264,120
Derivative liability	5,879,051	3,032,056
Total Current Liabilities	26,686,955	21,926,150
Long-term Liabilities
Convertible note payable, net	156,790	14,124
Convertible notes payable - related party, net	12,160	1,292
Notes payable	173,404	168,334
Total Liabilities	27,029,309	22,109,900
Stockholders' deficiency
Preferred Stock, Series B, $0.001 par value; 1,250,000 shares authorized,
518,750 and 518,750 shares issued and outstanding, respectively	519	519
Preferred Stock, Series C, $0.001 par value; 2,700,000 shares authorized,
2,300,000 and 2,300,000 shares issued and outstanding, respectively	2,300	2,300
Common stock, $0.001 par value; 200,000,000 shares authorized,
134,775,136 and 134,775,136 shares issued and outstanding, respectively	134,775	134,775
Additional paid-in capital	58,259,171	58,259,171
Accumulated deficit	(85,407,574)	(80,463,422)
Total Stockholders' Deficiency	(27,010,809)	(22,066,657)
Total Liabilities and Stockholders' Deficiency	$18,500	$43,243

 

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

 

 

	For the three months ended		For the nine months ended
	September 30, 2020	September 30, 2019	September 30, 2020	September 30, 2019
Operating Expenses
Salaries and wages	$206,866	$331,790	$632,405	$647,635
Professional fees	98,250	110,036	420,450	411,607
General and administrative	53,340	83,866	181,136	214,031
Stock-based compensation	-	-	-	159,337
Total Operating Expenses	358,456	525,692	1,233,991	1,432,610
Loss from Operations	(358,456)	(525,692)	(1,233,991)	(1,432,610)
Other (Expenses) Income
Interest expense, net	(337,771)	(323,717)	(984,631)	(766,815)
Amortization of debt discount	(56,271)	(596)	(153,535)	(24,435)
Change in FV of derivative liability	(839,952)	156,031	(2,571,995)	608,040
Total Other Expense	(1,233,994)	(168,282)	(3,710,161)	(183,210)
Loss Before Income Taxes	(1,592,450)	(693,974)	(4,944,152)	(1,615,820)
Provision for Income Taxes	-	-	-	-
Net Loss	$(1,592,450)	$(693,974)	$(4,944,152)	$(1,615,820)
Net Loss per Common Share Basic and Diluted	$(0.01)	$(0.01)	$(0.04)	$(0.01)
Weighted Average Number of Common Shares Outstanding	134,775,136	134,062,862	134,775,136	133,300,484

 

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

 

 

	Preferred Stock				Common Stock
	Series B Preferred		Series C Preferred
	Number of Shares	$0.001 Par Value	Number of Shares	$0.001 Par Value	Number of Shares	$0.001 Par Value	Additional Paid-in capital	Accumulated Deficit	Stockholders' Deficiency
Balance December 31, 2018	-	$-	-	$-	131,038,944	$131,039	$57,683,015	$(75,583,231)	$(17,769,177)
Stock issued for conversions of notes payable	-	-	-	-	3,238,308	3,238	81,109	-	84,347
Reclassification of derivative liabilities	-	-	-	-	-	-	121,527	-	121,527
Preferred stock issued for cash	518,750	519	-	-	-	-	206,981	-	207,500
Preferred stock issued for services	-	-	2,300,000	2,300	-	-	157,037	-	159,337
Net Loss	-	-	-	-	-	-	-	(1,615,820)	(1,615,820)
Balance September 30, 2019 (unaudited)	518,750	$519	2,300,000	$2,300	134,277,252	$134,277	$58,249,669	$(77,199,051)	$(18,812,286)

 

	Preferred Stock				Common Stock
	Series B Preferred		Series C Preferred
	Number of Shares	$0.001 Par Value	Number of Shares	$0.001Par Value	Number of Shares	$0.001 Par Value	Additional Paid-in capital	Accumulated Deficit	Stockholders' Deficiency
Balance December 31, 2019	518,750	$519	2,300,000	$2,300	134,775,136	$134,775	$58,259,171	$(80,463,422)	$(22,066,657)
Net Loss	-	-	-	-	-	-	-	(4,944,152)	(4,944,152)
Balance September 30, 2020 (unaudited)	518,750	$519	2,300,000	$2,300	134,775,136	$134,775	$58,259,171	$(85,407,574)	$(27,010,809)

 

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

 

 

	Preferred Stock				Common Stock
	Series B Preferred		Series C Preferred
	Number of Shares	$0.001 Par Value	Number of Shares	$0.001 Par Value	Number of Shares	$0.001 Par Value	Additional Paid in capital	Accumulated Deficit	Stockholders' Deficiency
Balance June 30, 2019 (unaudited)	62,500	$63	2,300,000	$2,300	133,838,944	$133,839	$58,039,948	$(76,505,077)	$(18,328,927)
Common stock issued for conversions of notes payable	-	-	-	-	438,308	438	9,562	-	10,000
Preferred stock issued for cash	456,250	456	-	-	-	-	182,044	-	182,500
Reclassification of derivative liabilities	-	-	-	-	-	-	18,115	-	18,115
Net Loss	-	-	-	-	-	-	-	(693,974)	(693,974)
Balance September 30, 2019 (unaudited)	518,750	$519	2,300,000	$2,300	134,277,252	$134,277	$58,249,669	$(77,199,051)	$(18,812,286)

 

	Preferred Stock				Common Stock
	Series B Preferred		Series C Preferred
	Number of Shares	$0.001 Par Value	Number of Shares	$0.001 Par Value	Number of Shares	$0.001 Par Value	Additional Paid-in capital	Accumulated Deficit	Stockholders' Deficiency
Balance June 30, 2020 (unaudited)	518,750	$519	2,300,000	$2,300	134,775,136	$134,775	$58,259,171	$(83,815,124)	$(25,418,359)
Net Loss	-	-	-	-	-	-	-	(1,592,450)	(1,592,450)
Balance September 30, 2020 (unaudited)	518,750	$519	2,300,000	$2,300#	134,775,136	$134,775#	$58,259,171#	$(85,407,574)	$(27,010,809)

	2020	2019
Cash Flows From Operating Activities:
Net loss	$(4,944,152)	$(1,615,820)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	-	673
Change in derivative liability	2,571,995	(608,040)
Amortization of debt discount	153,535	24,435
Preferred stock issued for services	-	159,337
Changes in assets and liabilities
Prepaid expense	10,000	-
Accounts payable and accrued expenses	1,659,285	1,538,631
Net Cash Used In Operating Activities	(549,337)	(500,784)
Cash Flows From Financing Activities:
Repayment of notes payable - related party	(29,000)	(16,000)
Repayment of notes payable	(3,491)	(3,880)
Repayment of convertible notes payable	-	(15,000)
Advance from related party	-	32,000
Repayment of advance from related party	-	(32,000)
Proceeds from notes payable	275,000	310,000
Proceeds from convertible notes payable	265,000	26,000
Proceeds from convertible notes payable - related party	10,000	-
Proceeds from PPP loan	17,085	-
Proceeds from the sale of preferred stock	-	207,500
Net Cash Provided by Financing Activities	534,594	508,620
Net increase/decrease in cash and cash equivalents	(14,743)	7,836
Cash and cash equivalents at beginning of period	23,243	8,398
Cash and Cash Equivalents at End of Period	$8,500	$16,234
Supplemental disclosure of cash flow information
Cash paid for interest expense	$1,260	$6,814
Cash paid for income taxes	$-	$-
Supplemental disclosure of non-cash investing and financing activities:
Debt discount on convertible note payable	$275,000	$-
Reclassification of derivative liability	$-	$121,527
Convertible note payable and accrued interest into common stock	$-	$84,347

 

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

 

 

OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARIES

 

Notes to Condensed Consolidated September 30, 2020 Financial Statements

(Unaudited)

 

Note 1: Nature of Business and Business Presentation

 

Ocean Thermal Energy Corporation is currently in the businesses of:

 

● OTEC and SWAC/LWAC—designing ocean thermal energy conversion (“OTEC”) power plants and seawater air conditioning and lake water air conditioning (“SWAC/LWAC”) plants for large commercial properties, utilities, and municipalities. These technologies provide practical solutions to humanity’s three oldest and most fundamental needs: clean drinking water, plentiful food, and sustainable, affordable energy without the use of fossil fuels. OTEC is a clean technology that continuously extracts energy from the temperature difference between warm surface ocean water and cold deep seawater. In addition to producing electricity, some of the seawater running through an OTEC plant can be efficiently desalinated using the power generated by the OTEC technology, producing thousands of cubic meters of fresh water every day for use in agriculture and human consumption in the communities served by its plants. This cold, deep, nutrient-rich water can also be used to cool buildings (SWAC/LWAC) and for fish farming/aquaculture. In short, it is a technology with many benefits, and its versatility makes OTEC unique.

 

● EcoVillages—developing and commercializing our EcoVillages, as well as working to develop or acquire new complementary assets. EcoVillages are communities whose goal is to become more socially, economically, and ecologically sustainable and whose inhabitants seek to live according to ecological principles, causing as little impact on the environment as possible. We expect that our EcoVillage communities will range from a population of 50 to 150 individuals, although some may be smaller. We may also form larger EcoVillages, of up to 2,000 individuals, as networks of smaller subcommunities. We expect that our EcoVillages will grow by the addition of individuals, families, or other small groups.

 

We expect to use our technology in the development of our EcoVillages, which should add significant value to that line of business.

  

The condensed consolidated financial statements include the accounts of the company and our wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, our financial statements reflect all adjustments that are of a normal recurring nature necessary for presentation of financial statements in accordance with U.S. generally accepted accounting principles (GAAP).

 

We condensed or omitted certain information and footnote disclosures normally included in our annual audited financial statements, which we prepared in accordance with GAAP. The operating results for the nine months ended September 30, 2020, are not necessarily indicative of the results to be expected for the year. Our interim financial statements should be read in conjunction with our annual report on Form 10-K for the year ended December 31, 2019, including the financial statements and notes.

 

Note 2: Summary of Significant Accounting Policies

 

Principal Subsidiary Undertakings

 

Our condensed consolidated financial statements include the following subsidiaries:

 

Name	Place of Incorporation / Establishment	Principal Activities	Date Formed
Ocean Thermal Energy Bahamas Ltd.	Bahamas	Intermediate holding company of OTE BM Ltd. and OTE Bahamas O&M Ltd.	07/04/2011
OTE BM Ltd.	Bahamas	OTEC/SDC development in the Bahamas	09/07/2011
OCEES International Inc.	Hawaii, USA	Research and development for the Pacific Rim	01/21/1998

 

We have an effective interest of 100% in each of our subsidiaries.

 

Use of Estimates

 

In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates. Significant estimates include the assumptions used in the valuation of equity-based transactions, valuation of derivative liabilities, valuation of deferred tax assets, and depreciable lives of property and equipment.

 

 

Cash and Cash Equivalents

 

We consider all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. At September 30, 2020, and December 31, 2019, we had no cash equivalents.

 

Income Taxes

 

We use the liability method of accounting for income taxes. Under the liability method, deferred tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities and on the amount of operating loss carryforwards and are measured using the enacted tax rates and laws that will be in effect when the temporary differences and carryforwards are expected to reverse. An allowance against deferred tax assets is recorded when it is more likely than not that such tax benefits will not be realized.

 

Our ability to use our net operating loss carryforwards may be substantially limited due to ownership change limitations that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), as well as similar state provisions. These ownership changes may limit the amount of net operating loss that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50.0% of the outstanding stock of a company by certain stockholders or public groups.

 

We have not completed a study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since we became a “loss corporation” under the definition of Section 382. If we have experienced an ownership change, utilization of the net operating loss carryforwards would be subject to an annual limitation under Section 382 of the Code, which is determined by first multiplying the value of our stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the net operating loss carryforwards before utilization. Further, until a study is completed and any limitation known, no positions related to limitations are being considered as an uncertain tax position or disclosed as an unrecognized tax benefit. Any carryforwards that expire prior to utilization as a result of such limitations will be removed from deferred tax assets with a corresponding reduction of the valuation allowance. Due to the existence of the valuation allowance, it is not expected that any possible limitation will have an impact on our results of operations or financial position. 

 

  Business Segments

 

We operate in one segment and therefore segment information is not presented.

 

Fair Value

 

Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value under GAAP, and enhances disclosures about fair value measurements. ASC 820 describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

 

● Level 1–Pricing inputs are quoted prices available in active markets for identical assets or liabilities as of the reporting date.

 

● Level 2–Pricing inputs are quoted for similar assets or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration with observable market data. Level 2 includes assets or liabilities valued at quoted prices adjusted for legal or contractual restrictions specific to these investments.

 

● Level 3–Pricing inputs are unobservable for the assets or liabilities; that is, the inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability.

 

Management believes the carrying amounts of the short-term financial instruments, including cash and cash equivalents, prepaid expense, accounts payable, accrued liabilities, notes payable, deferred compensation, and other liabilities reflected in the accompanying balance sheets approximate fair value at September 30, 2020, and December 31, 2019, due to the relatively short-term nature of these instruments.

 

We account for derivative liability at fair value on a recurring basis under level 3 at September 30, 2020, and December 31, 2019 (see Note 5).

 

Concentrations

 

Cash, cash equivalents, and restricted cash are deposited with major financial institutions, and at times, such balances with any one financial institution may be in excess of FDIC-insured limits. Management believes the risk in these situations to be minimal. As of September 30, 2020, and December 31, 2019, $0 and $0, respectively, were deposited in excess of FDIC-insured limits.

 

 

Loss per Share

 

The basic loss per share is calculated by dividing our net loss available to common shareholders by the weighted average number of common shares during the period. The diluted loss per share is calculated by dividing our net loss by the diluted weighted average number of shares outstanding during the period. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. We have 350,073 and 350,073 shares issuable upon the exercise of warrants and 150,541,644 and 65,591,841 shares issuable upon the conversion of convertible notes that were not included in the computation of dilutive loss per share because their inclusion is antidilutive for the nine months ended September 30, 2020 and 2019, respectively.

 

Revenue Recognition

 

We account for our revenue in accordance with Accounting Standard Update 2014-09, Revenue from Contracts with Customers (Topic 606), which requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services.

 

Recent Accounting Pronouncements

  

We have reviewed all recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on our consolidated results of operations, financial position, and cash flows. Based on that review, we believe that none of these pronouncements will have a significant effect on current or future earnings or operations.

 

Note 3: Going Concern

 

The accompanying unaudited condensed consolidated financial statements have been prepared on the assumption that we will continue as a going concern. As reflected in the accompanying condensed consolidated financial statements, we had a net loss of $4,944,152 and used $549,337 of cash in operating activities for the nine months ended September 30, 2020. We had a working capital deficiency of $26,668,455 and a stockholders’ deficiency of $27,010,809 as of September 30, 2020. These factors raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to generate revenue and obtain external funding for our projects under development. The financial statements do not include any adjustments that may result from the outcome of this uncertainty.

 

In recent months, the continued spread of COVID-19 has led to disruption and volatility in the global capital markets, which increases the cost of capital and adversely impacts access to capital. The members of our executive team and contract outside accountant live in different cities in Pennsylvania. On March 23, 2020, the Governor of Pennsylvania issued statewide stay-at-home orders to mitigate the spread of COVID-19. Non-life-sustaining physical businesses, like our company, were closed. Individuals were permitted to leave their residences only for tasks essential to maintaining health and safety. On June 26, 2020, Lancaster County, where we are located, finally moved into the least restrictive phase for reopening our business; however, we must still follow specific guidelines established by the Governor. These include continuing to telework as much as possible, updating our buildings to meet business and safety requirements, decreasing our office usage to 75% occupancy, and following CDC and Pennsylvania Department of Health guidelines for social distancing and cleaning. The pandemic continues to have a negative impact on our ability to access the capital markets for additional working capital. We cannot assure that we will not experience further adverse impacts on our ability to raise capital through debt and/or equity markets to fund working capital requirements or our ability to continue as a going concern as a result the COVID-19.

 

Note 4: Convertible Notes and Notes Payable

 

On December 12, 2006, we borrowed funds from the Southeast Idaho Council of Governments (SICOG), the EDA-#180 loan. The interest rate is 6.25%, and the maturity date was January 5, 2013. During the nine months ended September 30, 2020, we made a repayment of $3,491. The loan principal was $1,063 with accrued interest of $0 as of September 30, 2020. This note is in default.

 

On December 23, 2009, we borrowed funds from SICOG, the EDA-#273 loan. The interest rate is 7%, and the maturity date was December 23, 2014. The loan principal was $94,480 with accrued interest of $21,961 as of September 30, 2020. This note is in default.

 

On December 23, 2009, we borrowed funds from SICOG, the MICRO I-#274 loan and MICRO II-#275 loan. The interest rate is 7%, and the maturity date was December 23, 2014. The combined loan principal was $47,239 with accrued interest of $9,614 as of September 30, 2020. These notes are in default.

 

On December 1, 2007, we borrowed funds from the Eastern Idaho Development Corporation and the Economic Development Corporation. The interest rate is 7%, and the maturity date was September 1, 2015. The loan principal was $85,821 with accrued interest of $50,078 as of September 30, 2020. This note is in default.

 

 

On September 25, 2009, we borrowed funds from the Pocatello Development Authority. The interest rate is 5%, and the maturity date was October 25, 2011. The loan principal was $50,000 with accrued interest of $25,178 as of September 30, 2020. This note is in default.

 

On March 12, 2015, we combined convertible notes issued in 2010, 2011, and 2012, payable to our officers and directors in the aggregate principal amount of $320,246, plus accrued but unpaid interest of $74,134, into a single, $394,380 consolidated convertible note (the “Consolidated Note”). The Consolidated Note was assigned to JPF Venture Group, Inc., an investment entity that is majority-owned by Jeremy Feakins, our director, chief executive officer, and chief financial officer. The Consolidated Note was convertible to common stock at $0.025 per share, the approximate market price of our common stock as of the date of the issuance. On February 24, 2017, the Consolidated Note was amended to eliminate the conversion feature. The Consolidated Note bears interest at 6% per annum and is due and payable within 90 days after demand. As of September 30, 2020, the outstanding loan balance was $394,380 and the accrued but unpaid interest was $137,207 on the Consolidated Note.

 

During 2016 and 2015, we borrowed $75,000 from JPF Venture Group, Inc. pursuant to promissory notes. The terms of the notes are as follows: (i) interest is payable at 6% per annum; (ii) the notes are payable 90 days after demand; and (iii) payee is authorized to convert part or all of the note balance and accrued interest, if any, into shares of our common stock at the rate of one share each for $0.03 of principal amount of the note. This conversion share price was adjusted to $0.01384 for the reverse stock splits. As of December 31, 2018, we have recorded a debt discount of $75,000 for the fair value derivative liability and fully amortized the debt discount. As of September 30, 2020, the outstanding balance of these notes was $75,000, plus accrued interest of $20,161.

 

During 2016, we borrowed $112,500 from JPF Venture Group, Inc. pursuant to promissory notes. The terms of each note are as follows: (i) interest is payable at 6% per annum; (ii) the notes are payable 90 days after demand; and (iii) payee is authorized to convert part or all of the note balance and accrued interest, if any, into shares of our common stock at the rate of one share for each $0.03 of principal amount of the note. On February 24, 2017, the notes were amended to eliminate the conversion features. As of September 30, 2020, the outstanding balance of these notes was $112,500, plus accrued interest of $30,178.

 

On October 20, 2016, we borrowed $12,500 from our independent director pursuant to a promissory note. The terms of the note are as follows: (i) interest is payable at 6% per annum; (ii) the note is payable 90 days after demand; and (iii) the payee is authorized to convert part or all of the note balance and accrued interest, if any, into shares of our common stock at the rate of one share for each $0.03 of principal amount of the note. This conversion share price was adjusted to $0.01384 for the reverse stock splits. As of December 31, 2018, we have recorded a debt discount of $12,500 for the fair value of derivative liability and fully amortized the debt discount. As of September 30, 2020, the outstanding note balance was $12,500, plus accrued interest of $3,085.

 

During 2012, we issued a note payable for $1,000,000. The note had an interest rate of 10% per annum, was secured by a first lien in all of our assets, and was due on February 3, 2015. On March 6, 2018, the note was amended to extend the due date to December 31, 2018. On March 29, 2019, the maturity date of the note was extended to December 31, 2019. As of September 30, 2020, the outstanding note balance was $1,000,000, plus accrued interest of $814,488. This note is in default.

 

During 2013, we issued Series B units. Each unit is comprised of a note agreement, a $50,000 promissory note that matures on September 30, 2023, and bears interest at 10% per annum payable annually in arrears, and a security agreement. During 2013, we issued $525,000 of 10% promissory notes. As of September 30, 2020, the loan balances were $158,334 and the accrued interest was $113,051.

 

During 2013, we issued a note payable for $290,000 in connection with the reverse merger transaction with Broadband Network Affiliates, Inc. We have determined that no further payment of principal or interest on this note should be made because the note holder failed to perform his underlying obligations giving rise to this note. As described in Note 7, the note holder filed suit on May 21, 2019, and we remain confident that the court will decide in our favor by either voiding the note or awarding damages sufficient to offset the note value. As of September 30, 2020, the balance outstanding was $130,000, and the accrued interest as of that date was $69,317. This note is in default.

 

On January 18, 2018, Jeremy P. Feakins & Associates, LLC, an investment entity owned by our chief executive, chief financial officer, and a director, agreed to extend the due date for repayment of a $2,265,000 note issued in 2014 to the earlier of December 31, 2018, or the date of the financial closings of our Baha Mar project (or any other project of $25 million or more), whichever occurs first. As of September 30, 2020, the note balance was $1,102,500 and the accrued interest was $712,959. This note is in default.

 

We have $300,000 in principal amount of outstanding notes due to unrelated parties, issued in 2014, in default since 2015, accruing interest at a default rate of 22%. We intend to repay the notes and accrued interest upon the Baha Mar SWAC/LWAC project’s financial closing. Accrued interest totaled $364,195 as of September 30, 2020. These notes are in default.

 

 

The due date of April 7, 2017, on a $50,000 promissory note with an unaffiliated investor, was extended to April 7, 2019. The note and accrued interest can be converted into our common stock at a conversion rate of $0.75 per share at any time prior to the repayment. This conversion price is not required to adjust for the reverse stock split as per the note agreement. Accrued interest totaled $27,792 as of September 30, 2020. The note is in default.

 

On March 9, 2017, an entity owned and controlled by our chief executive officer agreed to provide up to $200,000 in working capital. The note bears interest of 10% and is due and payable within 90 days of demand. During the year ended December 31, 2017, we received an additional $2,000 and repaid $25,000. As of September 30, 2020, the balance outstanding was $177,000, plus accrued interest of $64,269.

 

During the third quarter of 2017, we completed a $2,000,000 convertible promissory note private placement offering. The terms of the notes are as follows: (i) interest is payable at 6% per annum; (ii) the notes are payable two years after purchase; and (iii) all principal and interest on each note automatically converts on the conversion maturity date into shares of our common stock at a conversion price of $4.00 per share, as long as the closing share price of our common stock on the trading day immediately preceding the conversion maturity date is at least $4.00, as adjusted for stock splits, stock dividends, reclassification, and the like. If the price of our shares on such date is less than $4.00 per share, the notes (principal and interest) will be repaid in full. During third quarter of 2019, $15,000 in notes was repaid. As of September 30, 2020, the outstanding balance for the remaining three notes was $65,000, plus accrued interest of $12,527. These notes are in default.

 

On November 6, 2017, we entered into an agreement and promissory note with JPF Venture Group, Inc. to loan up to $2,000,000 to us. The terms of the note are as follows: (i) interest is payable at 10% per annum; (ii) all unpaid principal and all accrued and unpaid interest is due and payable at the earliest of a resolution of the Memphis litigation (as defined therein), December 31, 2018, or when we are otherwise able to pay. During the nine months ended September 30, 2020, we repaid $29,000. As of September 30, 2020, the outstanding note balance was $549,093 and the accrued interest was $184,791. This note is in default.

 

In December 2017, we entered into a series of unsecured promissory notes and warrant purchase agreements with accredited investors. These notes accrue interest at a rate of 10% per annum payable on a quarterly basis and are not convertible into shares of our capital stock. The notes are payable within five business days after receipt of gross proceeds of at least $1,500,000 from L2 Capital, LLC, an unaffiliated Kansas limited liability company (“L2 Capital”). We may prepay the notes in whole or in part, without penalty or premium, on or before the maturity date of July 30, 2019. In connection with the issuance of the notes, for each note purchased, the note holder received a warrant as follows:

 

 

 

 

 

 

 

The exercise price per share of the warrants is equal to 85% of the closing price of our common stock on the day immediately preceding the exercise of the relevant warrant, subject to adjustment as provided in the warrant. The warrant includes a cashless net exercise provision whereby the holder can elect to receive shares equal to the value of the warrant minus the fair market value of shares being surrendered to pay the exercise price. As of September 30, 2020, the balance of the outstanding loans was $979,156 and the accrued interest was $234,395. During 2019, 98,000 warrants were transferred from a warrant holder to JPF Venture Group Inc. These warrants were issued in exchange for shares issued by JPF Venture Group to the warrant holders. The warrant terms remain the same. As of September 30, 2020, we have outstanding warrants to purchase 223,000 shares of common stock. These notes are in default.

 

On February 15, 2018, we entered into an agreement with L2 Capital for a loan of up to $565,555, together with interest at the rate of 8% per annum, which consists of up to $500,000, a prorated original issuance discount of $55,555, and $10,000 for transactional expenses to L2 Capital. L2 Capital has the right at any time to convert all or any part of the note into fully paid and nonassessable shares of our common stock at the fixed conversion price, which is equal to $0.50 per share; however, at any time on or after the occurrence of any event of default under the note, the conversion price will adjust to the lesser of $0.50 or 65% multiplied by the lowest volume weighted average price of the common stock during the 20-trading-day period ending, in L2 Capital’s sole discretion on each conversion, on either the last complete trading day prior to the conversion date or the conversion date. During the year ended December 31, 2018, we received five tranches totaling $482,222. As of December 31, 2018, we have issued warrants to purchase 56,073 shares of common stock in accordance with a nonexclusive finder’s fee arrangement. These warrants have a fair value of $2,668 based on the Black-Scholes option-pricing model. The fair value was recorded as a discount on the notes payable and is being amortized over the life of the notes payable. As of December 31, 2018, we have fully amortized $91,222 of the debt issuance cost and have recorded a debt discount of $749,026 for the fair value of derivative liability and fully amortized the debt discount. As of September 30, 2020, we have outstanding warrants to purchase 56,073 shares of common stock. As of September 30, 2020, the outstanding balance of the original loan was $323,412, plus a default penalty and fees of $837,724, for a total of $1,161,136, and accrued interest was $450,936. On August 1, 2019, L2 Capital, LLC sold the outstanding loan balance and accrued interest on our note to Oasis Capital, LLC. The terms and conditions of the original note remain in place. This note is in default.  

 

 

On September 19, 2018, we executed a note payable for $10,000 with an unrelated party that bears interest at 6% per annum, which is due quarterly beginning as of September 30, 2018. The maturity date for the note is three years after date of issuance. In addition, the lender received warrants to purchase 2,000 shares of common stock upon signing the promissory note. The warrant can be exercised at a price per share equal to a 15% discount from the price of common stock on the last trading day before such purchase. As of September 30, 2020, we have outstanding warrants to purchase 2,000 shares of common stock. As of September 30, 2020, the balance outstanding was $10,000 and the accrued interest was $1,237.

 

On December 14, 2018, L2 Capital LLC purchased our note payable from Collier Investments, LLC. The total consideration was $371,250, including the outstanding note balance of $281,250, the accrued interest of $33,750, and liquidated damages of $56,250. There was also a default penalty of $153,123. In addition, we issued 400,000 shares of common stock to L2 Capital as commitment shares with a fair value of $21,200 in connection with the purchase of the note. We executed a replacement convertible note with L2 Capital in the amount of $371,250 with an interest rate of 12% per annum. The maturity date of the note is December 22, 2018. The holder of the note can convert the note, or any portion of it, into shares of common stock at any time after the issuance date. The conversion price is 65% of the market price, which is defined as the lowest trading price for our common stock during the 20-trading-day period prior to the conversion date. As of December 31, 2018, we have recorded a debt discount of $665,690 for the fair value of derivative liability and fully amortized the debt discount. As of September 30, 2020, the outstanding note balance was $987,986, which includes a default penalty and fees of $665,550, and the accrued interest was $417,619. This note is in default.

 

On January 2, 2019, we issued a series of promissory notes totaling $310,000 to accredited investors. Proceeds from these notes were used to support the administrative and legal expenses of our lawsuit before the United District Court for the Western District of Tennessee, Ocean Thermal Energy Corporation v. Robert Coe, et al., Case No. 2:17-cv-02343SHL-cgc, and any subsequent actions brought about as a result of or in connection with this litigation. These notes are secured against the proceeds from the litigation. The notes bear an interest rate of 17%, plus one quarter of one percent of the actual funds received from the litigation. The repayment of the principal, accrued interest, and the percentage of the litigation funds received will be paid immediately following the receipt of sufficient funds from this litigation. As of September 30, 2020, the outstanding balance of these loans is $310,000 and the accrued interest was $90,893.

 

On August 14, 2019, we executed a note payable for $26,200 with an unrelated party that bears interest at 8% per annum and has a maturity date of October 31, 2021. The note automatically converts into 1,310,000 shares of our common stock either at the time the closing sale price for our common stock is equal to or greater than $1.00 per share, as adjusted for stock splits, stock dividends, reclassification, and the like, or at the maturity date of October 31, 2021, whichever occurs first. As of September 30, 2020, we have recorded a debt discount of $26,200 for the fair value of derivative liability and amortized $13,861 of the debt discount. As of September 30, 2020, the balance outstanding was $26,200 and the accrued interest was $2,763.

 

In the fourth quarter of 2019, we issued a series of convertible promissory notes to accredited investors that totaled $105,000. Of the amount received, $10,000 was from our chief executive officer and our independent director. The notes bear simple interest on outstanding principal at the rate of 8% per annum, computed on the basis of the actual number of days elapsed in a year of 365 days. Each $5,000 loan automatically converts into 250,000 shares of our common stock, either at the time the closing sale price for our common stock is equal to or greater than $1.00 per share, as adjusted for stock splits, stock dividends, reclassification, and the like, or at the maturity date of October 31, 2021, whichever comes first. As of September 30, 2020, we have recorded a debt discount of $105,000 for the fair value of derivative liability and amortized $48,517 the debt discount. As of September 30, 2020, the total outstanding balances of all these loans are $43,837, net of debt discount of $51,163 to unrelated parties, and $4,680 net of debt discount of $5,320, to related parties. The accrued interest was $7,797.

 

In the fourth quarter of 2019 and the first three quarters of 2020, we issued a series of convertible promissory notes to accredited investors, which totaled $311,750. Of the amount received, $20,000 was from our chief executive officer and an independent director. The notes bear simple interest on outstanding principal at the rate of 8% per annum, computed on the basis of the actual number of days elapsed in a year of 365 days. Each $5,000 loan automatically converts into 250,000 shares of our common stock, either at the time the closing sale price for our common stock is equal to or greater than $1.00 per share, as adjusted for stock splits, stock dividends, reclassification, and the like, or at the maturity date of January 2, 2022, whichever comes first. As of September 30, 2020, we have recorded a debt discount of $311,750 for the fair value of derivative liability and amortized $106,572 of the debt discount. As of September 30, 2020, the total outstanding value of these loans was $99,092, net of debt discount of $202,658 to unrelated parties and $7,480, net of debt discount of $2,520, to related parties. The outstanding balance of the notes as of September 30, 2020 was $311,750 and the accrued interest was $16,576.

 

During the quarter ending September 30, 2020, we issued a series of promissory notes to accredited investors, which totaled $150,000. The notes bear simple interest on outstanding principal at the rate of 10% per annum, computed on the basis of the actual number of days elapsed in a year of 360 days and an additional payment of 0.00125% (one eighth of one-percent) of the actual funds received (as settlement, collection, or otherwise) from possible future litigation based on fraud in the inducement claims (such future litigation hereinafter referred to as the “Phase Two Litigation”) arising from the current litigation before the United States District Court for the Western District of Tennessee and Central District of California, Ocean Thermal Energy Corp. v. Robert Coe, et al. (Case No. 2:17-cv-02343SHL-cgc and Case No. 2:19-cv-05299-VAP-JPR, respectively) (this current litigation hereinafter is referred to as the “Phase One Litigation”). Repayment will be made as follows: (i) the principal and interest within five business days following our receipt of $25.5 million from the Phase One Litigation; and (ii) the additional payment within five business days following our actual receipt of any funds from the Phase Two Litigation, less legal fees accrued up to that date. If any such funds are received on more than one date, payment will be made as such funds are actually received by us and after deduction of accrued legal fees up to that date. The outstanding balance of these notes as of September 30, 2020, was $275,000 and the accrued interest was $6,829.

 

On April 28, 2020, we received the proceeds from an unsecured $17,085 loan (the “PPP Loan”) through LinkBank under the Paycheck Protection Program (the “PPP”) pursuant to the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which is administered by the United States Small Business Administration. In accordance with the requirements of the CARES Act, we will use proceeds from the PPP Loan primarily for payroll costs. The PPP Loan is scheduled to mature on April 28, 2022 (the “Maturity Date”) and has a 1% interest rate. Commencing on October 28, 2020, and continuing on the same day of each following month, we must pay principal and interest payments until the Maturity Date, at which time the remaining principal and accrued interest is due in full; however, the monthly payment will not be calculated until such time as the application for forgiveness has been processed and the remaining loan amount can be determined. The PPP Loan may be prepaid by us at any time prior to maturity with no prepayment penalties. The PPP Loan is unsecured and is a nonrecourse obligation. All or a portion of the PPP Loan may be forgiven upon application to the lender during the eight-week period beginning on the date of first disbursement for certain expenditure amounts, including payroll costs, in accordance with the requirements under the PPP. In the event all or any portion of the PPP Loan is forgiven, the amount forgiven is applied to outstanding principal. The outstanding loan balance as of September 30, 2020, was $17,085 and the accrued interest was $103. 

 

 

The following convertible note and notes payable were outstanding at September 30, 2020:

 

								Related Party		Non Related Party
Date of Issuance	Maturity Date	Interest Rate	In Default	Original Principal	Principal at September 30, 2020	Discount at September 30, 2020	Carrying Amount at September 30, 2010	Current	Long-Term	Current	Long-Term
12/12/06	01/05/13	6.25%	Yes	58,670	1,063	-	1,063	-	-	1,063	-
12/01/07	09/01/15	7.00%	Yes	125,000	85,821	-	85,821	-	-	85,821	-
09/25/09	10/25/11	5.00%	Yes	50,000	50,000	-	50,000	-	-	50,000	-
12/23/09	12/23/14	7.00%	Yes	100,000	94,480	-	94,480	-	-	94,480	-
12/23/09	12/23/14	7.00%	Yes	25,000	23,619	-	23,619	-	-	23,619	-
12/23/09	12/23/14	7.00%	Yes	25,000	23,620	-	23,620	-	-	23,620	-
02/03/12	12/31/19	10.00%	Yes	1,000,000	1,000,000	-	1,000,000		-	1,000,000	-
08/15/13	10/31/23	10.00%	No	158,334	158,334	-	158,334	-	-	-	158,334
12/31/13	12/31/15	8.00%	Yes	290,000	130,000	-	130,000	-	-	130,000	-
04/01/14	12/31/18	10.00%	Yes	2,265,000	1,102,500	-	1,102,500	1,102,500	-	-	-
12/22/14	03/31/15	22.00*%	Yes	200,000	200,000	-	200,000	-	-	200,000	-
12/26/14	12/26/15	22.00*%	Yes	100,000	100,000	-	100,000	-	-	100,000	-
03/12/15	(1)	6.00%	No	394,380	394,380	-	394,380	394,380	-	-	-
04/07/15	04/07/18	10.00%	Yes	50,000	50,000	-	50,000	-	-	50,000	-
11/23/15	(1)	6.00%	No	50,000	50,000	-	50,000	50,000	-	-	-
02/25/16	(1)	6.00%	No	50,000	50,000	-	50,000	50,000	-	-	-
05/20/16	(1)	6.00%	No	50,000	50,000	-	50,000	50,000	-	-	-
10/20/16	(1)	6.00%	No	50,000	12,500	-	12,500	12,500	-	-	-
10/20/16	(1)	6.00%	No	12,500	12,500	-	12,500	12,500	-	-	-
12/21/16	(1)	6.00%	No	25,000	25,000	-	25,000	25,000	-	-	-
03/09/17	(1)	10.00%	No	200,000	177,000	-	177,000	177,000	-	-	-
07/13/17	07/13/19	6.00%	Yes	25,000	25,000	-	25,000	-	-	25,000	-
07/18/17	07/18/19	6.00%	Yes	25,000	25,000	-	25,000	-	-	25,000	-
07/26/17	07/26/19	6.00%	Yes	15,000	15,000	-	15,000	-	-	15,000	-
12/20/17	(2)	10.00%	Yes	979,156	979,156	-	979,156	-	-	979,156	-
11/06/17	12/31/18	10.00%	Yes	646,568	549,093	-	549,093	549,093	-	-	-
02/19/18	(3)	18.00%*	Yes	629,451	1,161,136	-	1,161,136	-	-	1,161,136	-
09/19/18	09/28/21	6.00%	No	10,000	10,000	-	10,000	-	-	-	10,000
12/14/18	12/22/18	24.00%*	Yes	474,759	987,986	-	987,986	-	-	987,986	-
01/02/19	(4)	17.00%	No	310,000	310,000	-	310,000	-	-	310,000	-
08/14/19	10/31/2021	8.00%	No	26,200	26,200	12,339	13,861	-	-	-	13,861
(5)	10/31/2021	8.00%	No	105,000	105,000	56,483	48,517	-	4,680	-	43,837
(6)	01/02/22	8.00%	No	311,750	311,750	205,178	106,572	-	7,480	-	99,092
(7)	(7)	10.00%	No	275,000	275,000	-	275,000	-	-	275,000	-
04/28/20	04/28/22	1.00%	No	17,085	17,085	-	17,085	-	-	12,015	5,070
				$9,128,853	$8,588,223	$274,000	$8,314,223	$2,422,973	$12,160	$5,548,896	$330,194