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 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, as Z3 Enterprises, and as HPEV, Inc. On August 20, 2015, the Company changed its name to Cool Technologies, Inc.
CoolTech has developed and intends to commercialize heat dispersion technologies in various product platforms. The Company has also developed and is commercializing a mobile power generation system that enables work trucks retrofitted with the system to generate electric power. In preparation, CoolTech has applied for trademarks for one of its technologies and its acronym. Cool Technologies currently owns one trademark: TEHPC. The Company believes that its proprietary technologies, including the patent portfolio and trade secrets, can help increase the efficiency and positively affect manufacturing cost structure in several large industries beginning with motors/generators and fleet vehicles. The markets for products utilizing the technology include consumer, industrial and military markets, both in the U.S. and worldwide.
The Company’s technologies are divided into two distinct but complementary categories: a) mobile power generation and b) heat dispersion technology. As of March 31, 2019, CoolTech has seven US patents, one granted Mexican patent, one allowed Canadian patent, three pending applications (1 in Canada, 1 in Brazil, 1 in US) and one US filed provisional application pending in the area of composite heat structures, motors, and related structures, heat pipe architecture, applications (commonly referred to as “thermal” or “heat dispersion technology”) and a parallel vehicle power platform. Cool Technologies also has Patent Cooperation Treaty (“PCT”) applications filed for a heat pipe cooled brake system, a parallel power input gearing system (PPIG) and radial vent thermal technology.
The Company intends to sell a mobile electric power system powered by the Company’s proprietary gearing system to commercial vehicle and fleet owners. It intends to commercialize its patents by licensing its thermal technologies and applications to electric motor, pump and vehicle component manufacturers. It may license its mobile electric power system as well.
Basis of Presentation
The accompanying condensed consolidated balance sheet as of March 31, 2019, has been derived from unaudited financial statements. They include the accounts of Cool Technologies, Inc. and Ultimate Power Truck, LLC. Intercompany accounts and transactions have been eliminated. The accompanying unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual audited 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. All intercompany transactions have been eliminated in consolidation.
Noncontrolling interest represents the 5% third-party interest in UPT. There are no restrictions on the transfer of funds or net assets from UPT to Cool Technologies.
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 financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2018.
Going Concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. CoolTech has incurred net losses of $50,697,380 since inception and has 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 generate revenue, achieve profitable operations and repay obligations when they come due and raising additional capital. There cannot be any assurance that the Company will ever generate revenue or even if it does generate revenue that it will achieve profitable operations. Furthermore, no assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in case of equity financing.
Recently Adopted Accounting Guidance
Financial Accounting Standards Board, or FASB, Accounting Standards Update, or ASU 2016-02 “Leases (Topic 842)”–
In February 2016, the FASB issued ASU 2016-02, which will require lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. This ASU is effective for fiscal years beginning after December 18, 2018, including interim periods within those fiscal years. The Company adopted ASU 2016-02 on January 1, 2019. Adopting this standard did not have a material impact on the Company’s consolidated financial statements or financial statement disclosures.
FASB ASU 2014-09 “Revenue from Contracts with Customers (Topic 606),” or ASU 2014-09
- In May 2014, the FASB issued ASU 2014-09, which supersedes the revenue recognition requirements of Accounting Standards Codification, or ASC, Topic 605 “Revenue Recognition.” ASU 2014-09 requires revenue recognition to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new revenue recognition model requires identifying the contract, identifying the performance obligations, determining the transaction price, allocating the transaction price to performance obligations and recognizing the revenue upon satisfaction of the performance obligations. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and change in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 can be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the update recognized at the date of the initial application along with additional disclosures. This ASU is effective for annual reporting periods beginning after December 15, 2017, with the option to adopt as early as December 15, 2016. The Company adopted the new revenue guidance effective January 1, 2018. As the Company has not previously generated any revenues, there was no material impact to the Company’s financial statements or financial statement disclosures.
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
These represent advance payments of $400,000 received on orders that have not yet been fulfilled, with companies controlled by the individual who is the 5% owner of UPT and a shareholder of Cool Technologies.
Note 3 – Debt
Debt consists of the following:
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
Notes payable
|
|
$
|
2,450,000
|
|
|
$
|
1,800,000
|
|
Convertible notes payable
|
|
|
634,800
|
|
|
|
581,950
|
|
Test vehicle financing
|
|
|
53,282
|
|
|
|
56,231
|
|
Note payable – related party
|
|
|
11,641
|
|
|
|
12,897
|
|
Note payable – UPT minority owner
|
|
|
160,000
|
|
|
|
190,000
|
|
|
|
|
3,309,723
|
|
|
|
2,641,078
|
|
Debt discount
|
|
|
(750,956
|
)
|
|
|
(513,245
|
)
|
|
|
|
2,558,767
|
|
|
|
2,127,833
|
|
Less: current portion
|
|
|
(1,972,679
|
)
|
|
|
(2,091,014
|
)
|
Long-term portion
|
|
$
|
586,088
|
|
|
$
|
36,819
|
|
Notes Payable
On July 5, 2018, the Company entered into a Secured Promissory Note Agreement with an accredited investor. CoolTech received $100,000 in financing and promised to pay the principal amount on or before the one year anniversary. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing. In exchange, it issued cashless warrants to purchase 200,000 shares of common stock at an exercise price of $0.065. The warrants expire after five years. The note was repaid and retired on September 28, 2018.
From September 1 – 11, 2018, the Company entered into Promissory Note Agreements with three accredited investors. CoolTech 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. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing. In exchange, it issued cashless warrants to purchase 2,000,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years.
From September 7 – 25, 2018, the Company entered into Promissory Note Agreements with four accredited investors. CoolTech received $125,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum on or before the one year anniversary. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing. In exchange, CoolTech issued cashless warrants to purchase 1,000,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years.
On October 2 and 26, 2018, the Company entered into Promissory Note Agreements with two accredited investors. 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. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing. In exchange, Cool Technologies issued cashless warrants to purchase 2,000,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years.
On December 19, 2018, the Company entered into a Promissory Note Agreement with an accredited investor. It received $50,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum on or before the one year anniversary. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing. In exchange, Cool Technologies issued cashless warrants to purchase 400,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years.
On January 7, 2019, the Company entered into a Promissory Note Agreement with an accredited investor. It received $50,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum on or before the one year anniversary. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing. In exchange, it issued cashless warrants to purchase 200,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years.
On February 1, 2019, the Company entered into a Promissory Note Agreement with an accredited investor. It received $75,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum on or before the one year anniversary. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing, In exchange, CoolTech agreed to issue1,000,000 shares of restricted common stock.
On March 13, 2019, the Company and a vendor agreed to convert an overdue $25,000 account payable into a Promissory Note Agreement. CoolTech promised to pay the principal amount together with simple interest of 15% per annum on or before the one year anniversary. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing. In exchange, CoolTech issued cashless warrants to purchase 200,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years.
On March 18, 2019, the Company entered into a Promissory Note Agreement with 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. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing. In exchange, CoolTech issued cashless warrants to purchase 2,000,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years.
On March 19, 2019, the Company entered into a Promissory Note Agreement with 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. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing. In exchange, CoolTech issued cashless warrants to purchase 2,000,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years.
Convertible notes payable
August 2016 Convertible Note–
In August 2016, the Company entered into a senior convertible note agreement. It received $400,000, bearing interest at 3%, with principal and interest payable on August 24, 2018. In addition, the Company received the right to require the buyer to purchase from the Company four million restricted shares of common stock at a purchase price of $0.05 per share and a warrant to purchase four million shares of common stock with an exercise price of $0.06 per share. At the same time, the Company granted the buyer the right to require the Company to sell to the buyer four million restricted shares of common stock at a purchase price of $0.05 per share and a warrant to purchase four million shares of common stock with an exercise price of $0.06 per share. In the event of default, the interest rate will be 18% per annum, require the Company to (i) redeem all or any portion of the note at a premium of 150% or (ii) convert any portion of this note then held by noteholder into shares of common stock at the conversion price of $0.025, equal to a number of shares of common stock equal to the principal amount outstanding on the note (divided by 0.025) and multiplied by the premium of 150%.
The note may be converted at any time into shares of the common stock at the conversion price pursuant to the terms of the note. The buyer may not, however, convert more than 50% of the note’s purchase price prior to September 30, 2016.
On April 8, 2018, KHIC, Inc., a related party, was issued 2,025,000 shares of common stock after converting $50,625 in debt at $0.025 per share.
An amendment was signed on August 24, 2018 which extended the maturity date of the note to December 15, 2018. In exchange, the outstanding balance of the note was increased to $455,544.
An amendment was signed on December 10, 2018 which extended the maturity date of the note to December 28, 2018. In exchange, the outstanding balance of the note was increased to $460,094 and a partial payment of $250,000 was made on the balance. On December 28, 2018, the outstanding balance of $210,094 was paid in full and the note was retired.
August Convertible Note
– On August 25, 2017, the Company entered into a convertible note agreement. It issued 300,000 inducement shares of restricted common stock and received $150,000, with an original issue discount of $15,000 in lieu of interest, for a total amount of $165,000 due on March 25, 2018. At the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of common stock at $0.10 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.
On February 19, 2018, the convertible note agreement was amended and the maturity date was extended until April 30, 2018. In exchange, the holder’s debt conversion share price was reduced to $0.025 per share.
Subsequent to the signing of the amendment, from March 23 to April 19, 2018, a total of $87,500 were converted into 3,500,000 shares of common stock.
On April 27, 2018, a second amendment was signed extending the maturity date until May 30, 2018. On May 23, 2018, the Company issued 3,298,000 shares on conversion of $82,450 and the note was retired.
January Convertible Note
– On January 26, 2018, the Company entered into a convertible note agreement with Lucas Hoppel. It issued 800,000 inducement shares of restricted common stock and received $200,000, with an original issue discount of $20,000 in lieu of interest, for a total amount of $220,000 due on August 26, 2018. At the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of CoolTech’s common stock at $0.05 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.
On May 22, 2018, Lucas Hoppel signed an amendment to the note which extended the maturity date to October 1, 2018. In exchange, the note was changed from promissory to convertible with a conversion price of $0.025 per share.
On September 25, 2018, the Company issued 2,000,000 shares on conversion of $50,000 in debt.
On October 1, 2018, Lucas Hoppel signed an amendment to the note which extended the maturity date to January 1, 2019
On January 1, 2019, Lucas Hoppel signed an amendment to the note which extended the maturity date to May 1, 2019. In exchange, the conversion price was changed from $0.025 to $0.0125 per share.
On February 5, 2019, the buyer converted $64,100 into 5,128,000 shares of common stock and the $226,600 note was retired.
September 2016 Promissory Notes –
On September 30, 2016, the Company issued Gemini Master Fund, Ltd., a 5% stockholder, a secured promissory note in the original principal amount of $180,000. The note accrues interest at 5% (18% in the event of an event of default) and matures on June 30, 2017. In connection with the issuance of the note, Gemini Master Fund was issued 800,000 shares of common stock on November 10, 2016.
On June 30, 2017, the promissory note holder signed an extension agreement that extended the maturity date of the promissory notes to September 30, 2017 and then again until November 30, 2017. The terms and conditions remained the same.
On November 13, 2017, Lucas Hoppel purchased the note for $226,325 which included accrued and unpaid interest as well as additional charges.
On November 20, 2017, Lucas Hoppel signed an amendment to the note which extended the maturity date to December 31, 2017. In addition, the note was changed from promissory to convertible with a conversion price of $0.05 per share.
O
n December 29, 2017 the note was amended and the maturity date was extended to February 16, 2018. In exchange the conversion price was reduced to $0.04.
On February 19, 2018, the Company signed an amendment to a convertible note for $226,325 originally issued on September 3, 2017. The amendment extended the maturity dated extended to March 31, 2018. In exchange, the conversion price was reduced from $0.04 to $0.025.
From December 7 to December 31, 2017 a total of $62,500 were converted into 1,250,000 shares of common stock. From January 1 to February 20, 2018, a total of $122,500 were converted into 3,500,000 shares of common stock. On March 5, 2018, the buyer converted $41,325 into 1,653,000 shares of common stock and the $226,325 note was retired.
February Convertible Note
– On February 19, 2018, the Company entered into a convertible note agreement. It issued 2,000,000 inducement shares of restricted common stock and received $350,000, with an original issue discount of $35,000 in lieu of interest, for a total amount of $385,000 due on September 19, 2018. At the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of CoolTech’s common stock at $0.05 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.
On May 22, 2018, Lucas Hoppel signed an amendment to the note which extended the maturity date to November 1, 2018. In exchange, the note was changed from promissory to convertible with a conversion price of $0.025 per share.
On September 14, 2018, the Company issued 2,000,000 shares on conversion of $50,000 in debt. On October 26, 2018, Lucas Hoppel signed an amendment to the note which extended the maturity date to January 1, 2019. On October 31, 2018, the Company issued 2,000,000 shares on conversion of $50,000 in debt.
On January 1, 2019, Lucas Hoppel signed an amendment to the note which extended the maturity date to May 1, 2019. In exchange, the conversion price was changed from $0.025 to $0.0125 per share. On February 26, 2019, CoolTech issued 7,500,000 shares of common stock to Lucas Hoppel upon partial conversion of $93,750 on convertible debt of $396,550. On April 23, 2019, Cool Technologies issued 7,500,000 shares of common stock to Lucas Hoppel upon conversion of $93,750 on convertible debt of $396,550.
On May 1, 2019, Lucas Hoppel signed an amendment to the note which extended the maturity date to August 1, 2019. All other terms and conditions remained the same.
April Convertible Note
-- On April 26, 2018, the Company entered into a convertible note agreement. It received $128,000 with an original issue discount of $12,800 in lieu of interest, for a total amount of $140,800 due on July 25, 2019. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of CoolTech’s common stock at a 29% discount to the average of the three lowest Volume Weighted Average Prices (VWAP) during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 22% per annum, require the Company to (i) redeem all or any portion of the note at a premium of 150%.
On October 16, 2018, CoolTech sent a notice of pre-payment to the holder. On October 18, 2018, the Company wired a pre-payments of $189,940 for all outstanding principal, interest and pre-payment fees to the holder and the note was retired.
May Convertible Note –
On May 22, 2018, the Company entered into a convertible note agreement. It issued 400,000 inducement shares of restricted common stock and received $110,000, with an original issue discount of $10,000 in lieu of interest, for a total amount of $100,000 due on December 22, 2018. At the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of CoolTech’s common stock at $0.05 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.
On December 5, 2018, the Company issued 2,000,000 shares on conversion of $50,000 in debt. On December 6, 2018, CoolTech issued 2,532,000 shares on conversion of $63,300 in debt and the note was retired.
May Convertible Note
-- On May 31, 2018, the Company entered into a convertible note agreement. It received $53,000 with an original issue discount of $5,300 in lieu of interest, for a total amount of $58,300 due on May 31, 2019. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of CoolTech’s common stock at a 29% discount to the average of the three lowest Volume Weighted Average Prices (VWAP) during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 22% per annum, require the Company to (i) redeem all or any portion of the note at a premium of 150%. On November 13, 2018, CoolTech wired $78,564 to the holder and the note was retired.
August Convertible Note --
On August 17, 2018, the Company entered into a convertible note agreement. It received $63,000 with an original issue discount of $6,300.00 in lieu of interest, for a total amount of $69,300 due on August 17, 2019. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of CoolTech’s common stock at a 29% discount to the average of the three lowest Volume Weighted Average Prices (VWAP) during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 22% per annum, require the Company to (i) redeem all or any portion of the note at a premium of 150%.
On February 14, 2019, CoolTech wired $93,565 to the holder and the note was retired.
December Convertible Note --
On December 10, 2018, the Company entered into a convertible note agreement. It received $138,000 with an original issue discount of $14,000 in lieu of interest, for a total amount of $152,000 due on December 10, 2019. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of CoolTech’s common stock at a 28% discount to the lowest Volume Weighted Average Prices (VWAP) during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 22% per annum, require the Company to (i) redeem all or any portion of the note at a premium of 150%.
February Convertible Note
-- On February 11, 2019, the Company entered into a convertible note agreement. It received $140,000 with an original issue discount of $8,400 in lieu of interest, for a total amount of $132,500 due on February 11, 2020. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of CoolTech’s common stock at a 29% discount to the lowest Volume Weighted Average Price (VWAP) during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 22% per annum, require the Company to (i) redeem all or any portion of the note at a premium of 150%.
March Convertible Note
-- On March 13, 2019, the Company entered into a convertible note agreement. It received $140,000 with an original issue discount of $7,500 in lieu of interest, for a total amount of $131,600 due on February 11, 2020. 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 Volume Weighted Average Price (VWAP) during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 18% per annum, require the Company to (i) pay the product of the then outstanding principal amount, plus accrued interest and default interest, divided by the conversion price multiplied by the highest price at which the common stock traded at any time between the issuance date and the date of the event of default.
Test Vehicle Financing
In October 2014, the Company entered into financing agreements for the purchase of test vehicles, bearing interest at 5.99% payable monthly over five years, collateralized by the vehicles. In July 2018, CoolTech traded-in one test vehicle and purchased another bearing interest rate of 9.92% payable monthly over 6 years.
Note payable – UPT minority owner
Held by the 5% minority owner of UPT. The terms of the note have not been finalized.
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, 2018
|
|
|
14,467,717
|
|
|
|
0.05
|
|
|
|
4.6
|
|
|
$
|
1,564
|
|
Granted
|
|
|
4,400,000
|
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2019
|
|
|
18,867,717
|
|
|
|
0.05
|
|
|
|
4.5
|
|
|
$
|
1,564
|
|
Exercisable, March 31, 2019
|
|
|
18,867,717
|
|
|
|
0.05
|
|
|
|
4.5
|
|
|
$
|
1,564
|
|
Future contractual maturities of debt are as follows:
Year ending December 31,
|
|
|
|
2019
|
|
$
|
1,972,679
|
|
2020
|
|
|
555,925
|
|
2021
|
|
|
7,358
|
|
2022
|
|
|
8,134
|
|
2023
|
|
|
8,992
|
|
2024
|
|
|
5,679
|
|
|
|
$
|
2,558,767
|
|
Transactions with Related Parties
The note payable - related party, in the amount of $11,641 as of March 31, 2019, is held by the Company’s Chief Financial Officer and relates to unreimbursed expenses.
The note payable - UPT minority owner, in the amount of $160,000 as of March 31, 2019, is held by the 5% minority owner of UPT. The terms of the note have not been finalized.
Note 4 – Derivative Liability
Under the terms of the April 2018, May 2018, August 2018, December 2018, February 2019 and March 2019 Convertible Notes, the Company identified derivative instruments arising from embedded conversion features, as well as warrants issued with the December 2015 Convertible Note.
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:
|
|
Three Months
Ended
March 31,
2019
|
|
|
|
|
|
Volatility
|
|
114.1-122.5
|
%
|
Risk-free interest rate
|
|
2.4–2.5
|
%
|
Expected life (years)
|
|
0.4–1.0
|
|
Dividend yield
|
|
|
--
|
|
Changes in the derivative liability were as follows:
|
|
Three Months Ended
March 31, 2019
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Convertible debt and other derivative liabilities at December 31, 2018
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
149,759
|
|
Conversions of convertible debt
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Issuance of convertible debt and other derivatives
|
|
|
--
|
|
|
|
--
|
|
|
|
284,643
|
|
Extinguishment of convertible debt
|
|
|
--
|
|
|
|
--
|
|
|
|
(71,888
|
)
|
Change in fair value
|
|
|
--
|
|
|
|
--
|
|
|
|
41,818
|
|
Convertible debt and other derivative liabilities at March 31, 2019
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
404,332
|
|
Note 5 -- Commitments and Contingencies
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. 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 the consolidated results of operations, financial position, or cash flow.
Note 6 – Equity
Preferred Stock
Cool Technologies has 15,000,000 preferred shares authorized and 3 Series A and 2,727,270 Series B preferred shares issued and outstanding as of March 31, 2019.
On August 12, 2016, the Company entered into a Securities Purchase Agreement with four accredited investors pursuant to which it sold 3,636,360 shares of the Company’s Series B Convertible Preferred Stock. Each share of the preferred stock is convertible into one share of the Company’s common stock. The conversion price of the preferred stock is equal to the $0.055.
In addition to the preferred stock, the Securities Purchase Agreement included warrants to purchase (i) 3,636,360 shares of the Company’s common stock at an exercise price of $0.07 per share. The aggregate purchase price of the preferred stock and warrants was $200,000, of which $150,000 was paid in cash and $50,000 was paid in services.
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 Series B Stock being entitled to 66 2/3% of the total votes on all such matters.
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 have 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 $2.25 for any twenty consecutive day trading period, the Class B Preferred Stock will automatically be convertible into the common stock of the Company in a conversion ratio of one share of common stock for each share of Class B Preferred.
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.
Preferred stock issuable on the consolidated balance sheets represents preferred stock to be issued for either cash received or services performed. As of March 31, 2019 and 2018, the number of shares of preferred stock to be issued was 0 and the number of shares of Series B preferred stock was 2,727,270.
On January 25, 2019, Spirit Bear, Ltd. converted their remaining 17 shares of Series A preferred stock into 850,000 shares of common stock.
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 50,000 shares of common stock. Each share of preferred stock has voting rights as if they were converted into 50,000 shares of common stock. The holders of each share of preferred stock then outstanding shall be entitled to be paid out of the Available Funds and Assets (as defined in the “Certificate of Designation”), and prior and in preference to any payment or distribution (or any setting a part of any payment or distribution) of any Available Funds and Assets on any shares of common stock, an amount per preferred share equal to the Preferred Stock Liquidation Price ($2,500 per share).
Common Stock
Common stock issuable on the condensed consolidated balance sheet represents common stock to be issued for either cash received or services performed. As of March 31, 2019 and December 31, 2018, the number of shares of common stock to be issued was 2,144,697 and 1,144,697 shares, respectively.
Common stock warrants issued with the sale of common stock
When the Company sells shares of its common stock the buyer also typically receives fully-vested common stock warrants with a maximum contractual term of 3-5 years. A summary of common stock warrants issued with the sale of common stock as of March 31, 2019, and changes during the years then ended is presented below:
|
|
Number of Warrants
|
|
|
Weighted-average Exercise Price
|
|
|
Weighted-average Remaining Life (Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding, December 31, 2018
|
|
|
52,367,887
|
|
|
$
|
0.18
|
|
|
|
1.3
|
|
|
$
|
--
|
|
Granted
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Forfeited or cancelled
|
|
|
(6,167,356
|
)
|
|
|
0.57
|
|
|
|
--
|
|
|
|
--
|
|
Outstanding, March 31, 2019
|
|
|
46,200,531
|
|
|
|
0.12
|
|
|
|
1.8
|
|
|
$
|
--
|
|
Exercisable, March 31, 2019
|
|
|
46,200,531
|
|
|
$
|
0.12
|
|
|
|
1.8
|
|
|
$
|
--
|
|
Note 7 – Share-based payments
Amounts recognized as expense in the consolidated statements of operations related to share-based payments are as follows:
|
|
Three months ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Nonemployee warrants – fully-vested upon issuance
|
|
$
|
32,624
|
|
|
$
|
25,882
|
|
Nonemployee warrants – service and performance conditions
|
|
|
--
|
|
|
|
--
|
|
Total share-based expense charged against income
|
|
$
|
32,624
|
|
|
$
|
25,882
|
|
|
|
|
|
|
|
|
|
|
Impact on net loss per common share:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
Nonemployee common stock
Other
During the quarter ended March 31, 2019, the Company issued no shares of common stock in exchange for services. During the quarter ended March 31, 2018, a consulting expense of $80,000 accrued in accordance with CoolTech’s contract with Summit Management Consulting, Inc. for the services of the CFO, Quentin Ponder, was exchanged for 1,600,000 shares of common stock.
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, 2018
|
|
|
13,445,836
|
|
|
|
0.27
|
|
|
|
1.4
|
|
|
$
|
78,000
|
|
Granted
|
|
|
1,300,000
|
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(5,285,000
|
)
|
|
|
0.48
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2019
|
|
|
9,460,836
|
|
|
|
0.13
|
|
|
|
1.8
|
|
|
$
|
78,000
|
|
Exercisable, March 31, 2019
|
|
|
9,460,836
|
|
|
|
0.13
|
|
|
|
1.8
|
|
|
$
|
78,000
|
|
The following summarizes the Black-Scholes assumptions used to estimate the fair value of fully-vested common stock warrants:
|
|
3 Months Ended
March 31,
2019
|
|
Volatility
|
|
133.5-133.7
|
%
|
Risk-free interest rate
|
|
|
2.4
|
%
|
Expected life (years)
|
|
|
5.0
|
|
Dividend yield
|
|
|
--
|
|
Nonemployee common stock warrants -- Service and performance conditions
The Company granted no additional fully-vested options during the three months ended March 31, 2019.
Employee stock options – Fully-vested
The Company granted no additional fully-vested options during the three months ended March 31, 2019.
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
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Net loss available for shareholders
|
|
$
|
(831,252
|
)
|
|
$
|
(1,188,811
|
)
|
Weighted average outstanding shares of common stock
|
|
|
221,061,294
|
|
|
|
163,346,083
|
|
Dilutive effect of stock options and warrants
|
|
|
--
|
|
|
|
--
|
|
Common stock and equivalents
|
|
|
221,061,294
|
|
|
|
163,346,083
|
|
|
|
|
|
|
|
|
|
|
Net loss per share – Basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
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:
|
|
March 31
|
|
|
|
2019
|
|
|
2018
|
|
Stock options
|
|
|
4,000,000
|
|
|
|
4,000,000
|
|
Common stock warrants
|
|
|
72,829,084
|
|
|
|
66,210,132
|
|
Common stock issuable
|
|
|
2,144,697
|
|
|
|
1,144,697
|
|
Convertible notes
|
|
|
34,118,958
|
|
|
|
33,080,280
|
|
Convertible preferred stock
|
|
|
2,877,270
|
|
|
|
4,377,270
|
|
Convertible preferred stock issuable
|
|
|
--
|
|
|
|
--
|
|
Total
|
|
|
115,970,009
|
|
|
|
108,812,379
|
|
Total exercisable at March 31
|
|
|
115,825,312
|
|
|
|
107,667,682
|
|
Note 9 – Subsequent Events
On April 11, 2019, Jatropha signed an addendum to update the terms and conditions originally set forth in the Agreement of Principal Terms dated November 7, 2017. In light of the higher electrical output and new options offered by the Company, Jatropha amended its purchase commitment to include 50 MG80 (80 kVA) Systems with mobile desalination units capable of producing 2500 gallons of fresh water per day, 100 MG125 (125 kVA) systems, 50 MG200 (200 kVA) Systems and 50 HydroQubes ( a hydrogen infusion system that improves fuel economy) composed of 2 cells. The addendum states that CoolTech shall start production and fulfillment of the orders no later than the 3
rd
Quarter of 2019.
On April 23, 2019, Cool Technologies issued 7,500,000 shares of common stock to Lucas Hoppel upon conversion of $93,750 on convertible debt of $396,550. On May 1, 2019, a fourth amendment was signed extending the maturity date until August 1, 2019. All other terms and conditions remained the same.