CPWR Ocean Thermal Energy Corporation (CE)

PART I

 

ITEM 1. BUSINESS

 

Overview

 

We previously operated under the corporate name of TetriDyn Solutions, Inc. (“TetriDyn”). On March 10, 2017, TetriDyn entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Ocean Thermal Energy Corporation (“OTE”), a Nevada corporation that used its proprietary technology to develop, build, own, and operate renewable energy systems, primarily in the Eastern and Western Caribbean Islands. On May 9, 2017, TetriDyn consummated the acquisition of all outstanding equity interests of OTE pursuant to the terms of the Merger Agreement, with a newly created Delaware corporation that is wholly owned by TetriDyn (“TetriDyn Merger Sub”), merging with and into OTE (the “Merger”) and OTE continuing as the surviving corporation and a wholly owned subsidiary of TetriDyn. Effective upon the consummation of the Merger, the OTE stock issued and outstanding or existing immediately prior to the closing was converted into the right to receive newly issued shares of TetriDyn common stock. As a result of the Merger, TetriDyn succeeded to the business and operations of OTE. In connection with the consummation of the Merger and upon the consent of the holders of a majority of the outstanding common shares, TetriDyn filed with the Nevada Secretary of State an amendment to its articles of incorporation changing its name to “Ocean Thermal Energy Corporation.”

 

Our Business

 

We develop projects for renewable power generation, desalinated water production, and air conditioning using proprietary intellectual property designed and developed by our own experienced oceanographers, engineers, and marine scientists. Plants using our technologies are designed to extract energy from the temperature difference between warm surface ocean water and cold deep seawater at a depth of approximately 3,000 feet. We believe these technologies provide practical solutions to the fundamental human needs for sustainable, affordable energy; desalinated water for domestic, agricultural, and aquaculture uses; and cooling, all without the use of fossil fuels.

 

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Ocean Thermal Electrical Conversion, known in the industry as “OTEC,” power plants are designed to produce electricity. In addition, some of the seawater running through an OTEC plant can be desalinated efficiently, producing fresh water for agriculture and human consumption.

 

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Seawater Air Conditioning, known in its industry as SWAC, plants are designed to use cold water from ocean depths to provide air conditioning for large commercial buildings or other facilities. This same technology can also use deep cold water from lakes, known as Lakewater Air Conditioning or LWAC.

 

Both OTEC and SWAC/LWAC systems can be engineered to produce desalinated water for potable, agricultural, and fish farming/aquaculture uses.

  

Many applications of technologies based on ocean temperature differences between surface and deep seawater have been developed at the Natural Energy Laboratory of Hawaii Authority, or NELHA, test facility (http://nelha.hawaii.gov), including applications for desalinated seawater, fish-farming, and agriculture. Note: All URL addresses in this report are inactive textual references only. We believe our proprietary advances to existing technologies developed by others in the industry enhance their commercialization for the plants we propose to develop.

 

We have recruited a scientific and engineering team that includes oceanographers, engineers, and marine scientists who have worked for a variety of organizations since the 1970s on several systems based on extracting the energy from the temperature differences between surface and deep seawater, including projects by NELHA, the Argonne National Laboratory (http://www.anl.gov), and others. Our executive team members have complementary experience in leading engineering and technical companies and projects from start-up to commercialization.

 

In addition, we expect to use our technology in the development of an OTEC EcoVillage, which should add significant value to our business. We will facilitate the development of sustainable living communities by creating an ecologically sustainable “OTEC EcoVillage” powered by 100% fossil-fuel free electricity. In the development, buildings will be cooled by energy-efficient and chemical-free systems, and water for drinking, aquaculture, and agriculture will be produced onsite. The OTEC EcoVillage project consists, in part, of an OTEC plant that will provide all power and water to about 400 residences, a hotel, and a shopping center, as well as models of sustainable agriculture, food production, and other economic developments. Each sale of luxury EcoVillage residences will support the development of environmentally responsible affordable communities currently in development in tropical and subtropical regions of the world. We believe our OTEC EcoVillage will be the first development in the world offering a net-zero carbon footprint. This will be our pilot project, launched to prove the viability of OTEC technology to provide affordable renewable energy for entire communities. We believe this project could be highly profitable and generate significant value for our shareholders. The U.S. Virgin Islands’ Public Service Commission has granted regulatory approval to us for an OTEC plant. The specific plots of land for the site have been identified and inspected, and negotiations have been entered into with agents for the owners. A meeting has been held with the Chief Legal Counsel to the Governor of the U.S. Virgin Islands to further the support for the project. Local consultants have been engaged, and a permitting plan is being finalized based on the draft of the master plan for the entire development.

 

 

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Our Vision

 

Our vision is to bring our technologies to tropical and subtropical regions of the world where about three billion people live. Our market includes 68 countries and 29 territories with suitable sea depth, shore configuration, and market need; we plan to be the first company in the world to design and build a commercial-scale OTEC plant and, to that end, have several projects in the planning stages. Our initial markets and potential projects include several U.S. Department of Defense bases situated in the Asia Pacific and other regions where energy independence is crucial. Currently, we have projects in the planning and development stages in Puerto Rico and the U.S. Virgin Islands.

 

Our Technology

 

OTEC is a self-sustaining energy source, with no supplemental power required to generate continuous (24/7) electricity. It works by converting heat from the sun, which has warmed ocean surface water, into electric power, and then completing the process by cooling the plant with cold water from deep in the ocean. The cold water can also be used for very efficient air conditioning and desalinated to produce fresh water. OTEC has worked in test settings where there exists a natural temperature gradient of 20 degrees Celsius or greater in the ocean. We believe OTEC can deliver sustainable electricity in tropical and subtropical regions of the world at rates approximately 20-40% lower than typical costs for electricity produced by fossil fuels in those markets.

 

Further, we believe that a small, commercial OTEC plant could offer competitive returns even in a market where the cost of electricity is as low as $0.30 per kilowatt-hour, or kWh. The Caribbean depends on imported oil for approximately 90% of its energy needs. The electricity prices in the Caribbean are extremely high, with an average of $0.34 per kWh and as high as $0.50 per kWh, which is nearly four times the price paid in the United States, according to a 2017 renewable energy report, when oil prices were lower. For the U.S. Virgin Islands, the Water and Power Authority of the Virgin Islands reported that as of February 1, 2019, the average price for electricity for commercial customers was nearly $0.4374 per kWh. We believe that we have an opportunity to offer base-load energy (the amount of energy required to meet minimum requirements) pricing that is better than our customer’s next best alternative in the markets where electricity costs are $0.30 or more per kWh.

 

Technology advancements have significantly reduced the capital costs of OTEC to make it competitive compared to traditional energy sources. Technology improvements include larger diameter seawater pipes manufactured with improved materials, increased pumping capabilities from OTEC depths, better understanding of material requirements in the deep ocean environment, more experience in deep water pipeline and cable installation techniques, and more accurate sea bottom mapping technology, which is required for platform positioning and pipe installation. The cold-water pipes at a demonstration site in Hawaii have been in continuous operation for more than 20 years, and the technology has improved significantly since the Hawaiian installation.

 

We estimate that a small OTEC plant that delivers 13 megawatts (MWs) per hour for 30 years would currently cost approximately $350 million. This is the plant size that we typically propose for our initial target markets to meet 20% or more of their current demand for electricity and a large portion of their need for fresh drinking water and agricultural water. OTEC has been proven in test settings at NELHA, where a Department of Energy-sponsored OTEC plant operated successfully throughout the 1990s to produce continuous, affordable electricity from the sea without the use of fossil fuels. Spin-off technologies of desalination and seawater cooling, developed from the OTEC plant at NELHA, have also become economically and technically feasible.

 

Finally, we believe the decreasing supply and increasing cost of fossil-fuel-based energy has intensified the search for renewable alternatives. We further believe that renewable energy sources, although traditionally more expensive than comparable fossil-fuel plants, have many advantages, including increased national energy security, decreased carbon emissions, and compliance with renewable energy mandates and air quality regulations. We believe these market forces will continue and potentially increase. In remote islands where shipping costs and limited economies of scale substantially increase fossil-fuel-based energy, renewable energy sources may be attractive. Many islands contain strategic military bases with high-energy demands that we believe would greatly benefit from a less expensive, reliable source of energy that is produced locally, such as OTEC.

 

SWAC/LWAC is a process that uses cold water from locations such as the ocean or deep lakes to provide the cooling capacity to replace traditional electrical chillers in an air conditioning system. SWAC/LWAC applications can reduce the energy consumption of a traditional air-conditioning system by as much as 90%. Even when the capital cost amortization of building a typically sized SWAC/LWAC system providing 9,800 tons of cooling ($140-$150 million) are taken into account, SWAC/LWAC can save the customer approximately 25-40% when compared to conventional systems—we estimate savings can be as high as 50% in locations where air temperatures and electricity costs are high. Cooling systems using seawater or groundwater for large commercial structures are in use at numerous locations developed and operated by others worldwide, including Heathrow Airport, UK; Finland (Google Data Center); Cornell University, NY; Stockholm, Sweden; and the City of Toronto, Canada.

 

 

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How Our Technology Works

 

OTEC uses the natural temperature difference between cooler deep ocean water at a depth of approximately 3,000 feet and warmer shallow or surface water to create energy. An OTEC plant project involves installing about 6.0 feet diameter, deep-ocean intake pipes (which can readily be purchased), together with surface water pipes, to bring seawater onshore. OTEC uses a heat pump cycle to generate power. In this application, an array of heat exchangers transfer the warm ocean surface water as an energy source to vaporize a liquid in a closed loop, driving a turbine, which in turn drives a generator to produce electricity. The cold deep ocean water provides the required temperature to condense vapor back into a liquid, thus completing the thermodynamic cycle, which is constantly and continuously repeated. The working fluid is typically ammonia, as it has a low boiling point. Its high hydrogen density makes ammonia a very promising green energy storage and distribution media. Among practical fuels, ammonia has the highest hydrogen density, including hydrogen itself, in either its low temperature, or cryogenic, and compressed forms. Moreover, since the ammonia molecule is free of carbon atoms (unlike many other practical fuels), combustion of ammonia does not result in any carbon dioxide emissions. The fact that ammonia is already a widely produced and used commodity with well-established distribution and handling procedures allows for its use as an alternative fuel. This same general principle is used in steam turbines, internal combustion engines, and, in reverse, refrigerators. Rather than using heat energy from the burning of fossil fuels, OTEC power draws on temperature differences of the ocean caused by the sun’s warming of the ocean’s surface, providing an unlimited and free source of energy.

 

OTEC and SWAC/LWAC infrastructure offers a modular design that facilitates adding components to satisfy customer requirements and access to a sufficient supply of cold water. These components include reverse-osmosis desalination plants to produce drinkable water, bottling plants to commercialize the drinkable water, and off-take solutions for aquaculture uses (such as fish farms), which benefit from the enhanced nutrient content of deep ocean water. A further advantage of a modular design is that, depending on the patterns of electricity demand and output of the OTEC plant, a desalination plant can be run using the excess electricity capacity.

 

 

Currently, OTEC requires a minimum temperature difference of approximately 20 degrees Celsius to operate, with each degree greater than this increasing output by approximately 10-15%. OTEC has potential applications in tropical and subtropical zones and is particularly well suited for tropical islands and coastal areas with proximate access to both cold deep water and warm surface water. These communities are typically subject to high and fluctuating energy costs ranging from $0.28-$0.75 per kWh, as they rely on importing fossil fuels for power generation. Data from the National Renewable Energy Laboratory of the U.S. Department of Energy website indicated that at least 68 countries and 29 territories around the globe appear to meet these criteria.

 

The world’s largest OTEC power plant to date is operational at the NELHA facility in Hawaii and is connected to the electrical grid. It provides base-load electricity produced by OTEC to about 150 homes. Around the world, a couple of other successful developmental and experimental plants have been built, and the U.S. National Oceanic and Atmospheric Administration, or NOAA, has stated that: “The qualitative analysis of the technical readiness of OTEC by experts at this workshop suggest that a <10 MWe floating, closed-cycle OTEC facility is technically feasible using current design, manufacturing, deployment techniques and materials” (https://coast.noaa.gov/data/czm/media/otec_nov09_tech.pdf). We believe that we have sufficient skill and knowledge to now commercialize 5-MW to 30-MW land-based OTEC plants, using off-the-shelf components, including the cold-water piping.

 

 

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SWAC/LWAC is a significantly more cost-effective and environmentally friendly way to implement air-conditioning using cold water sourced from lakes or, analogous with OTEC, deep ocean water, rather than from an electric chiller. Comparing Federal Energy Management Program engineering efficiency requirements of approximately 0.94 kilowatts of electricity per ton of cooling capacity with our own engineering estimates of 0.09 kilowatts of electricity per ton of cooling capacity, as calculated by DCO Energy, our engineering, procurement, and construction partner, we estimate that SWAC/LWAC systems can reduce electricity consumption by up to 80-90% over conventional systems. Therefore, we believe energy reductions may make SWAC/LWAC systems well-suited for large structures, such as office complexes, medical centers, resorts, data centers, airports, and shopping malls. We believe that other SWAC/LWAC plants we may develop will likely achieve similar efficiencies. There are examples of proven successful SWAC/LWAC systems in use, including a large 79,000-ton system used to cool buildings in the downtown area of the City of Toronto, Canada; a SWAC/LWAC system in Google’s data center in Finland that uses waters from the Baltic Sea to keep servers cool; and a system with more than 18,000 tons of cooling in operation at Cornell University, Ithaca, New York. On January 10, 2018, William S. (Lanny) Joyce joined our board of advisors. Mr. Joyce was the Director of Utilities and Energy Management in the Energy and Sustainability Department at Cornell University, Ithaca, New York. Mr. Joyce initiated and was project manager for innovative and award-winning Cornell University LWAC project completed in 2000 that provides all of the chilled water production on the central campus utilizing a renewable resource and 86% less energy.

 

OTEC Versus Other Energy Sources

 

The construction costs of power plants using any technology are much higher in remote locations, such as tropical islands, than on the mainland of the United States, principally due to the need to transport materials, components, and other construction supplies and labor not available locally. There are also considerations that make those other technologies less attractive in those areas. We believe the consistency of OTEC during its life provides clear advantages over other power-generation technology in the tropical and subtropical markets, because its base-load power (available at all times and not subject to fluctuations throughout the day) is an important asset to the small transmission grid, which is typical in these regions.

 

Combined-cycle natural gas plants typically need to be capable of generating several hundred MWs to attain the lower-cost, per-kilowatt installed values that make the plant economically feasible. Tropical locations do not have large enough grids and market demand to make that plant size reasonable. Further, tropical locations frequently do not have domestic fuel supplies, requiring fuel to be imported. In order to import natural gas, it must be liquefied for shipment and then vaporized at the location. There are initial cost and public safety concerns with such facilities. In addition, gas-fired plants emit undesirable nitrogen oxide, carbon dioxide, and volatile organic compounds.

 

Solar applications continue to increase as the cost and effectiveness of photovoltaic panels improve. However, we estimate that the cost to install solar panels in tropical regions remains high. Beyond the issues with shipping and labor costs that all construction must overcome, the design and building code requirements are tougher in storm-prone areas, which are subject to potential wind damage from hurricanes, earthquakes, and typhoons, than are typically encountered in mainland nontropical installations. Support structures must be more substantial in order to hold the solar panels in place in case of hurricane-force winds. Solar power, like wind power, places substantial stress on an electrical grid. Since the input of both of these sources is subject to weather conditions, they cannot be considered reliable suppliers of power, and back-up capacity is necessary. Further, instantaneous changes in output due to sporadic cloud cover create transient power flow to the grid and difficulties in maintaining proper voltages and stability. OTEC is a stabilizing source to the grid, providing constant and predictable power, and has no emissions. The ability of OTEC to provide constant, continuous power is a large benefit as compared to any of the other renewable options available.

 

Our estimated price for OTEC-generated power of approximately $0.30 per kWh under current economic conditions, which can be as low as $0.18 net per kWh with maximum efficiency and revenue from water production, is also constant both throughout the year and over a plant’s life. OTEC’s power price, determined almost entirely by the amortization of its initial cost, is a protection against inflation and rising interest rates, which greatly affect coal and oil. Customers in our target markets currently pay from $0.35 to as high as $0.60 per kWh for power from coal and oil-fueled power plants. However, imported fuels are subject to price volatility, which has a direct impact on the cost of electricity and adds operating risk during the life of a plant. The fuel handling to allow for the shipping, storage, and local transport is expensive, a potential source of damaging fuel spills and a basis for environmental concerns. Fossil-fuel plants create pollution, emit carbon dioxide, and are visually unappealing, which is of particular concern in tropical areas renowned for their clear, pristine air and beauty. We project OTEC can save these markets up to 40%, compared to their current electrical costs, and when revenues from fresh drinking water, aquaculture, and agriculture production are considered, the justification is even more compelling.

 

Overview of the Market and the Feasibility of OTEC in Current Market Conditions

 

We believe that OTEC is now an economically, technologically, and environmentally competitive power source, especially for developing or emerging countries in certain tropical and subtropical regions contiguous to oceans. Our natural target markets are communities in countries around the Caribbean, Asia, and the Pacific. These locations are typically characterized by limited infrastructure, high-energy costs, mostly imported or expensively generated electricity, and frequently with significant fresh water and food shortages. These are serious limitations on economic development, which we believe our OTEC technology can address. 

 

 

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Data presented to the Sustainable Use of Oceans in the Context of the Green Economy and the Eradication of Poverty workshop in Monaco in 2011 by Whitney Blanchard of the Office of Ocean and Coastal Resource Management, National Oceanic and Atmospheric Administration, show that at least 98 nations and territories using an estimated five terawatts of potential OTEC net power are candidates for OTEC-power systems. Blanchard specifically notes that Hawaii, Guam, Florida, Puerto Rico, and the U.S. Virgin Islands are suitable for OTEC.

 

Over the past 15 years, there have been substantial changes in many areas that have now made the commercialization of OTEC a reality. First and foremost is the price of oil, which until 2006/2007 had been relatively inexpensive.

 

Recent oil prices have been volatile, owing in large part to political instability in the Middle East and elsewhere. OPEC crude oil prices averaged $64.05 in 2019, with a peak of over $74. Over the last decade oil prices have varied from a low of $26 to a peak of over $111.

 

Facts like these have resulted in increased attention and interest in OTEC in the commercial sector and among candidates. With OTEC power, customers can decouple the price of electricity from the price of oil.

 

The International Energy Agency’s World Energy Outlook expects liquid natural gas export capacity to grow rapidly in the short term, with major new sources of supply coming mostly from Australia and the United States.

 

Liquid natural gas prices have collapsed, in part because demand is turning out to be weaker than some previously anticipated. Additionally, many rules and regulations are in effect to mitigate the environmental issues associated with liquid natural gas extraction, transportation, and storage, adding significant costs.

 

According to the U.S. Environmental Protection Agency, in the United States, nearly 29% of 2017 greenhouse gas emissions was generated primarily from burning fossil fuel for our cars, trucks, ships, trains, and planes. Over 90% of the fuel used for transportation is petroleum-based, which includes gasoline and diesel. The electric power sector accounted for 28% of total greenhouse gas emissions in 2017.

 

According to the U.S. Environmental Protection Agency: “Global carbon emissions from fossil fuels have significantly increased since 1900. Since 1970, CO2 emissions have increased by about 90%, with emissions from fossil fuel combustion and industrial processes contributing about 78% of the total greenhouse gas emissions increase from 1970 to 2011.”

 

Greenhouse gas emissions from electricity have increased between 1990 and 2007 as electricity demand grew and fossil fuels remained the dominant source for generations. Fossil-fuel-fired power plants are a significant source of domestic carbon dioxide emissions, the primary cause of global warming. To generate electricity, fossil-fuel-fired power plants use natural gas, petroleum, coal, or any form of solid, liquid, or gaseous fuel derived from such materials. Along with the increasing use of renewable energy, the greenhouse emissions from power generation has decreased since 2007, approaching the 1990 levels.

 

The U.S. Energy Information Administration states that renewable energy plays an important role in reducing greenhouse gas emissions. Using renewable energy can reduce the use of fossil fuels, which are major sources of U.S. carbon dioxide emissions. The consumption of biofuels and other non-hydroelectric renewable energy sources more than doubled from 2000 to 2017, mainly because of state and federal government requirements and incentives to use renewable energy. The U.S. Energy Information Administration projects that U.S. renewable energy consumption will continue to increase through 2050.

 

People in many countries today, including the United States, are concerned with environmental issues caused by fossil-fuel-generated power. Gallup surveys find public acceptance of climate change is rising. The number of Americans that the organization terms “concerned believers” on climate change has risen from 37% in 2015 to 47% in 2016 and to 50% in the spring of 2017. NASA has long confirmed the scientific consensus that the Earth’s climate is warming.

 

The international concern about the harmful effects of climate change led to the negotiation of the Paris Agreement in December 2015 as the culmination of the 2015 United Nations Climate Change Conference. The agreement provides for members to reduce their carbon output as soon as possible and to do their best to keep global warming to no more than two degrees Celsius, or 3.6 degrees Fahrenheit. In order to achieve the desired results, there would have to be a worldwide reduction in emissions from fossil fuels and a shift to renewable resources.

 

Global acceptance of human influence on climate change may also contribute to a shift in the demand for OTEC. As evidenced by the Paris Agreement reached in December 2015 to combat climate change, 195 nations expressly recognized that conventional fossil-fuel powered energy technologies affect global climate change and the need to embrace a sustainable future in energy and water. Low-lying coastal countries (sometimes referred to as small island developing states) that tend to share similar sustainable development challenges, including small but growing populations, limited resources, remoteness, susceptibility to natural disasters, vulnerability to external shocks, excessive dependence on international trade, and fragile environments, have embraced this recognition and are keenly aware that they are on the frontline of early impact of sea level rise and are aggressively trying to embrace sustainable-energy alternatives. This is a major driving force for OTEC in primary early markets.

 

 

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In February 2021, the United States officially rejoined the Paris Climate Accord, standing with the world to help fight the ‘existential crisis’ of global warming. Even during the years the United States had withdrawn from the Paris Climate Accord, a coalition of 14 U.S. states, including California and New York, said they were on track to meet the U.S. target of a 26-28% reduction in greenhouse gas emissions by 2025, compared to 2005 level.

 

In November 2017, the United Nations Climate Conference opened in Bonn, Germany, with the aim of a greater ambition for climate action, as the world body’s weather agency issued a stark warning that 2017 was set to be among the three hottest years on record.

 

We believe the ongoing concerns about environmental issues and the price instability of fossil-fuel prices are motivation for increased commercial interest in OTEC, renewed activity in the commercial sector, and increased interest among communities and agencies that recognize the potential benefits of this technology, including the U.S. Department of Defense and U.S. Department of the Interior territories.

 

Several large companies have used their OTEC technology experience to introduce OTEC systems worldwide, supporting the argument that the technology is now at the point where it can be introduced at a commercial level:

 

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In June 2014, the French companies, Akuo Energy and DCNS (now Naval Energies), were funded to construct and install a number of OTEC plants adding up to 16 MWs of power generation outside the coastline of Martinique in the Caribbean. This is by far the biggest OTEC project announced to date, and the European Union has allocated €72 million (about $78 million at current exchange rates) for this purpose. DCNS (now Naval Energies) is our teaming partner for potential projects in the Caribbean.

 

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Since early 2014, we have been working with several industrialized and developing countries, including U.S. Virgin Islands, The Bahamas, Cayman Islands, and others, and investigating suitable OTEC sites, infrastructural solutions, and funding opportunities.

 

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Two nongovernmental organizations promoting OTEC have been created: OTEC Foundation (based in The Netherlands) and OTEC Africa (based in Sweden).

 

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New technological advances for larger and more robust deep seawater pipes and more efficient and cost-effective heat exchangers, pumps, and other components have, in our opinion, further improved the economics for OTEC.

 

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Many countries, including a large number of Caribbean nations, now have renewable energy standards and are looking at ways to reduce their carbon footprints, decouple the price of electricity from the volatile price of oil, and increase energy security. Along with these countries, we are aware that Hawaii, U.S. territories, and the U.S. Department of Defense are looking at OTEC as a possible source of renewable energy and water for drinking, fish farming, and agriculture.

 

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The NELHA demonstration OTEC plant in Hawaii is producing 100 kilowatts of sustainable, continuous electricity annually and is powering a neighborhood of 120 homes. A potential next phase for OTEC development at NELHA is being considered by an international consortium under 2010 Okinawa-Hawaii clean energy agreement, which was extended in 2015.

 

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BARDOT Group, a French SME specialized in subsea engineering and equipment manufacturing for offshore energy, stated it has signed a contract for the first commercial OTEC system to be installed in an eco-resort in Maldives.

  

Recent international political instability in fossil-fuel-producing regions and oil price volatility have exposed the criticality of energy security and independence for all countries. The need to have a tighter control of domestic energy requirements is a matter of increasing international concern. Continued reliance on other countries (particularly those in oil-producing regions) is no longer a favorable option. We believe these considerations will continue to drive renewable research and commercialization efforts that promote technologies with global potential to replace fossil-fuel-based energy systems and benefit from base-load capabilities like OTEC.

 

Our current management team has led the development of the business since 2010 and has established a pipeline of potential projects, which include one signed 20-year energy services agreement, and six signed memoranda of understanding. The projects under these agreements included the designs for OTEC, SWAC/LWAC, or a combination of both plants in the U.S. Virgin Islands, Bahamas, an island in the Indian Ocean, and in East Africa. The Public Services Commission of the U.S. Virgin Islands has approved our application to be a “qualified facility” and build a 15MW OTEC plant on the island of St. Croix. In addition to the OTEC plant, we are negotiating additional opportunities to supply potable water to the U.S. Virgin Islands government.

 

 

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We are discussing both OTEC and SWAC/LWAC projects with the U.S. Department of Agriculture and the Secretary of Commerce for Puerto Rico. Currently, two projects are in the planning and discussion phase:

 

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EcoVillage powered by an OTEC plant for Puerto Rico; and

 

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Eco Village powered by an OTEC plant for the U.S. Virgin Islands.

 

We have provided a detailed study and designs for OTEC and/or SWAC/LWAC to:

 

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The U.S. Department of Agriculture for a combined OTEC/SWAC/LWAC plant for Guam.

 

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The Legislature of the U.S. Virgin Islands for an OTEC plant for the island of St. Croix.

 

In light of the foregoing, we believe that it is now appropriate to seek additional funding to further progress and build our engineering and technical teams, develop our intellectual property, file patents for several OTEC technical systems, and advance our current opportunities to support our growth strategy.

 

Our Competition

 

We compete in the development, construction, and operation of OTEC and SWAC/LWAC plants with other operators that develop similar facilities powered by other energy sources, primarily oil, natural gas, nuclear energy, and solar power. These traditional energy sources have well-established infrastructures for production, delivery, and supply, with well-known commercial terms. In developing our OTEC and SWAC/LWAC plants, we will need to satisfy our customers that these technologies are sound and economical, which may be a challenge until and unless we have an established successful operating history. The energy industry is dominated by an array of companies of all sizes that have proven technologies and well-established fuel sources from a number of suppliers.

 

We expect that we will encounter increasing competition for OTEC and SWAC/LWAC plants. Other firms with greater financial and technical resources are focusing on commercialization of these technologies. This includes, for example, Akuo Energy and DCNS (now Naval Energies) and Bardot Energy of Paris, France. Our competitors may benefit from collaborative relationships with countries, including a large number of Caribbean nations, that now have renewable-energy standards and are looking at ways to reduce their carbon footprints, decouple the price of electricity from the volatile price of oil, and increase energy security. Other competitors may have advantageous relationships with authorities such as Hawaii, U.S. territories, and the U.S. Department of Defense, which are looking at OTEC as a possible source of renewable energy and water for drinking, fish farming, and agriculture. 

 

We cannot assure that we will be able to compete effectively as the industry grows and becomes more established and as OTEC and SWAC/LWAC plants become more accepted as viable and economic energy solutions. 

 

We believe competition in this industry is and will be based on technical soundness and viability, the economics of plant outputs as compared to other energy sources, developmental reputation and expertise, financial capability, and ability to develop relationships with potential customers. All of these factors are outside our control.

 

Our Operational Strategy and Economic Models

 

We have developed economic models of costs and potential revenue structures that we will seek to implement as we develop OTEC and SWAC/LWAC projects.

 

OTEC Projects

 

The estimated construction costs for a 20-MW plant are approximately $445 million with hard costs of approximately $301 million for the power system and platform construction and piping, which make up 68% of the total. The remaining 32% consists of other construction costs and the deployment of the cold water pipe and soft costs of approximately $144 million for design, permits and licensing, environmental impact assessment, bathymetry, contractor fees, and insurance.

 

Once operational, the capacity factor, which is the projected percent of time that a power system will be fully operational, considering maintenance, inspections, and estimated unforeseen events, is expected to be 95% annually. This factor is used in our financial calculations, which means the plant will not be generating revenue for 5% of the year. Most fossil-fuel plants have capacity factors around 90%, as a result of the major maintenance for high-temperature boilers, fossil-fuel feed in systems, safety inspections, cleaning, etc. The normal maintenance cycle for the pumps, turbine, and generators used in the OTEC plant is typically every five years. This includes the cleaning of the heat exchangers and installation of new seals.

 

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We anticipate that project returns will be comprised of two components: First, as the project developer, we will seek a lump-sum payment as a development fee at the time of closing the project financing for each project. These payments will be allocated toward reimbursement of development costs and perhaps a financial return at the early stage of each project. The development fee will vary, but initially we will seek a fee of approximately 3% of the project cost, payable upon closing the project financing. Second, we will retain a percentage of equity in the project, with a goal to retain a minimum of 51% of the equity in any OTEC project in order to participate in operating revenues.

 

We will seek revenue from OTEC plants from contract pricing charged on an energy-only price per kWh or on the basis of a generating capacity payment priced per kilowatt per month and an energy usage price per kWh. In many of the countries of the world where we intend to build OTEC and SWAC/LWAC plants, potable water is in short supply. In some locations, water is considered the more important commodity. Depending on the part of the world in which the plant is built, in addition to revenue from power generation, supplying water for drinking, fish farming, and agriculture would significantly increase plant revenue.

 

We cannot assure that we can maintain the revenue points noted above, that any fees received will offset development costs incurred to date, or that any operating plant will generate revenue.

 

SWAC/LWAC Projects

 

The estimated construction costs for a SWAC/LWAC plant are approximately $150 million with hard costs of approximately $91 million for piping and installation, which make up 60% of the total. The remaining 40% consists of the pump house, central utility plant (CUP), mechanical and engineering equipment, design, and other contingency costs and soft costs of approximately $59 million for the CUP license, permits, environmental impact assessment, bathymetry, and insurance.

 

Under our economic model, we will seek revenue at two stages of the project. First, as the project developer, we will seek a lump-sum payment of a development fee equal to approximately 3% of the project cost at the time of closing the project financing for each project. These payments would provide us with income at the early stage of each project. If we are able to negotiate a development fee, we estimate that it will vary, but typically will be in the $2,500,000-$3,500,000 range. The second component of project returns is based upon the percentage of equity we will retain in the project.

 

SWAC/LWAC contract revenue will be based typically on three charges:

 

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Fixed Price–this is based upon the capital costs of the project paid over the term of the debt and with the intention of covering the costs of debt.

 

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Operation and Maintenance–this payment covers the cost of the labor and fixed overhead needed to run the SWAC/LWAC system, as well as any traditional chiller plant operating to fulfill back-up or peak-load requirements.

 

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Chilled Water Payment–this is a variable charge based on the actual chilled water use and chilled water generated both by the SWAC/LWAC and conventional system at the agreed upon conversion factors of kilowatt/ton and current electricity costs in U.S. dollars per kWh.

 

We plan to structure project financing with the goal of retaining 100% of the equity in any SWAC/LWAC project. We cannot assure that we will recover project development costs or realize a financial return over the life of the project.

 

Our Project Timeline

 

We have not designed, constructed, and placed into operation any OTEC or SWAC/LWAC plants. However, based on our planning process and early development experience to date, we estimate that it will take approximately two years or more, depending on local conditions, including regulatory and permitting requirements, to take a project from a preliminary memorandum of understanding with a potential power or other product purchaser to completion and commencement of operation.

 

Our Strategic Relationships

 

We have strategic relationships with each of the following parties for potential plant construction, design and architectural services, and the funding of projects.

 

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DCO Energy, LLC, Mays Landing, New Jersey, is an American energy development company specializing in the development, engineering, construction, start-up, commissioning, operation, maintenance and management, as well as ownership of central energy centers, renewable energy projects, and combined heat, chilling, and power-production facilities. DCO Energy was formed in 2000 and has independently developed and/or operated energy producing facilities of approximately 275 MW of electric, 400 MMBtu/hr of heat recovery, 1,500 MMBtu/hr of boiler capacity, and 130,000 tons of chilled water capacity, totaling over $1 billion of assets. DCO Energy provides financing, engineering and design, construction management, start-up and commissioning resources, and long-term operating and maintenance services for its own projects as well as third-party clients.

 

 

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Naval Energies (f/k/a DCNS) Paris, France, is a French naval defense company and one of Europe’s largest ship builders. In 2019, it employed 15,168 people and generated annual revenues of around €3.7 billion (https://www.naval-group.com/en/group/en-profil/en-chiffres-cles/). In 2009, Naval Energies set up an incubator dedicated to marine renewable energies and has stated its intention to be a leader in this market, which includes marine turbines, floating wind turbines, OTEC, and tidal stream turbines.

 

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The Sky Institute for the Future seeks to implement pragmatic and sustainable strategies in design, energy, town planning, and agricultural production, and to create and incubate transformational ideas that will nourish healthy communities and educate current and future generations

 

Our Construction and Components

 

Once we have designed the system, we will review the design with our engineering, procurement, and construction partner to maximize the chances that the project can be delivered according to plan and on budget. We expect our construction contracts to be at a fixed price and to include penalties if the construction timetable is missed. We may, but are not obligated to, engage DCO Energy to construct our plants or serve as our owners’ engineer.

 

In our systems, the two most important components are heat exchangers and deep-water intake pipes. Although there are multiple providers of each of these components, the supply of the best components comes from just a few companies globally. We expect to source our deep-water intake pipes from Pipelife of Norway, the only company we know of that makes pipes of sufficient quality, strength, and diameter (2.5 meters) to support our planned OTEC plants. However, we expect that we could work around a lack of supply from Pipelife by using multiple smaller pipes that are widely available on the market, although this would increase our construction costs.

 

We will also need the highest quality, large heat exchangers for our systems; heat exchangers represent a large percentage of the projected costs of our OTEC and SWAC/LWAC systems and also account for a significant portion of the complexity inherent in commercial OTEC and SWAC/LWAC designs. Our relationship with Alfa Laval provides us with the size and quality of heat exchangers that we expect to need, although we believe there are several other companies that could provide us with adequate supply of these devices meeting our specifications if we need to source from them.

 

Other major components, such as ammonia turbines, generators, and pumps, are manufactured by several multinational companies, including General Electric and Siemens.

 

Our Operations

 

For OTEC electricity-generating facilities, we intend to enter into 20- to 30-year power purchase agreements, or PPAs, pursuant to which the project would supply fixed-price, baseload electricity to satisfy the minimum demand of the purchaser’s customers. This PPA structure allows customers to plan and budget their energy costs over the life of the contract. For our SWAC/LWAC systems, we intend to enter into 20- to 30-year energy service agreements, or ESAs, to supply minimum quantities of chilled water for use in a customer’s air conditioning system.

 

We anticipate that operations of OTEC and SWAC/LWAC plants will be subcontracted to third parties that will take responsibility for ensuring the efficient operation of the plants. These arrangements may reduce our exposure to operational risk, although they may also reduce our financial return if actual operating costs are less than the subcontract payments. We cannot assure that any OTEC and SWAC/LWAC plants will permit the PPAs and ESAs to yield minimum target internal rates of return. Our first projects are likely to have lower returns than subsequent projects. Variances in internal rates of return may occur due to a range of factors, including availability and structure of project financing and localized issues such as taxes, some of which may be outside of our control.

 

We expect our OTEC contract pricing will be charged either on an energy-only price per kWh or on the basis of a capacity payment priced per kilowatt per month and an energy usage price per kWh. We cannot assure that this pricing will enable us to recoup our funding and project costs and allow us to earn a profit. 

 

Marketing Strategies

 

Our marketing and sales efforts are managed and directed by our chairman and chief executive officer, Jeremy P. Feakins, who has 35 years’ experience of senior-level sales in both commercial and governmental markets. Our marketing campaign has focused on explaining to potential customers the economic, environmental, and other benefits of OTEC and SWAC/LWAC through personal contacts, industry interactions, and our website.

 

Our target markets are comprised of large institutional customers that typically include governments, utilities, large resorts, hospitals, educational institutions, and municipalities. We market to them directly through personal meetings and contact by our chief executive officer and other key members of our team. We also make extensive use of centers of influence either to heighten awareness of our products in the minds of key customers’ decision-makers or to secure face-to-face meetings and preliminary agreements between our customers and our chief executive officer.

 

 

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Sales cycles in our business are extremely long and complex and often involve multiple meetings with governmental, regulatory, electric utility, and corporate entities. Therefore, we cannot predict when or if any of the projects we currently have under development will progress to a signed contract or operational phase and generate revenue. We do not expect sales to be seasonal or cyclical.

 

Material Regulation

 

Our business and products are subject to material regulation. However, because we contemplate offering our products and services in different countries, the specific nature of the regulatory requirements will be wholly dependent on the nation where the project will be located and the national, state, and local regulations that apply at that location. In all cases, we expect the level of regulation will be material and will require significant permitting and ongoing compliance during the life of the project.

 

The most significant regulations will likely be environmental and will include mitigating possible adverse effects during both the construction and operational phases of the project. However, we believe that the limited plant site disturbance of both SWAC/LWAC and OTEC projects, together with the significantly lower emissions that result from these projects as compared to fossil-fuel electrical generation, will make compliance with all such regulation manageable in the normal course.

 

The second most significant regulations will likely involve coordination with existing infrastructure. We believe compliance with this type of regulation is a routine civil engineering coordination process that exists for all new buildings and infrastructure projects of all types. Again, we believe that the design of both SWAC/LWAC and OTEC projects can readily be modified to avoid interference with existing infrastructure in most cases.

 

Facilities

 

Our principal executive offices are located at 800 South Queen Street, Lancaster, Pennsylvania 17603. Our telephone number at that address is (717) 299-1344.

 

Intellectual Property

 

We use, or intend to employ in the performance of our material contracts, intellectual property rights in relation to the design and development of OTEC plants. Our intellectual property rights can be categorized broadly as proprietary know-how, technical databases, and trade secrets comprising concept designs, plant design, and economic models. Additionally, we have applied to register the trademark TOO DEEP® at the U.S. Patent and Trademark Office for the provision of desalinated deep ocean water for consumption. The U.S. Patent and Trademark Office has approved an extension of our Notice of Allowance until April 9, 2020.

 

We may apply for patents for components of our intellectual property for OTEC and SWAC/LWAC systems, including novel or new methodologies for cold-water piping, heat exchanges, and computer-aided design programs. We cannot assure that any patents we seek will be granted.

 

Our intellectual property has been developed by our employees and is protected under employee agreements confirming that the rights in the inventions and developments made by the employees are our property. Confidential information is protected by nondisclosure agreements we entered into with prospective partners or other third parties with which we do business.

 

We have not received any notification from third parties that our processes or designs infringe any third-party rights, and we are not aware of any valid and enforceable third-party intellectual property rights that infringe our intellectual property rights. Currently, there is no patent for any company for OTEC technology.

 

Employees

 

We currently have five employees, consisting of one officer, one engineer, two finance/accounting, one general and administrative, and two consultants. There are no collective-bargaining agreements with our employees, and we have not experienced work interruptions or strikes. We believe our relationship with employees is good, and we provide health and life insurance for all employees.

 

 

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ITEM 1A. RISK FACTORS

 

Investing in our common stock involves a high degree of risk. Investors should carefully consider the risks described below, as well as the other information in this report, including our financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below could harm our business, financial condition, operating results, and growth prospects. In such an event, the market price of our common stock could decline, and investors may lose all or part of their investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.

 

Risks Related to Our Financial Condition

 

The auditors’ report for the years ended December 31, 2020 and 2019, contains an explanatory paragraph about our ability to continue as a going concern.

 

The report of our auditors on our consolidated financial statements for the years ended December 31, 2020 and 2019, as well as for prior years, contains an explanatory paragraph raising substantial doubt about our ability to continue as a going concern. We had a net loss of $6,450,457 and $4,880,191, respectively; used cash in operations of $827,111 and $616,780, respectively; had a working capital deficiency of $28,027,820 and $21,882,907, respectively; and had an accumulated deficit of $86,913,879 and $80,463,422, respectively, at December 31, 2020 and 2019. This raises substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern beyond December 31, 2020, is dependent on our ability to raise additional capital through the sale of debt or equity securities or stockholder loans and to implement our business plan during the next 12 months. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. Management believes that actions presently being taken to obtain additional funding through implementing our strategic plans, broadly based marketing strategy, and sales incentives to expand operations will provide the opportunity for us to continue as a going concern.

 

We have no current project that will generate revenues in the near future.

 

None of our several projects is to the development stage at which it will generate revenues in the near future. Our project development cycles are relatively long, extending over several years as we identify a potential project site, complete negotiations with third parties, complete permitting, obtain financing, complete construction, and place a plant into service. We expect to receive a development fee of approximately 3% of the project cost from our projects, payable upon the close of project financing. Operating revenues from projects are expected to be received when the plant has been built and placed into operation. We are currently focusing on developing a U.S. Virgin Island project, but even if we develop it successfully, it will not generate revenues until several years in the future. Until we receive revenues from this or another project, we will be dependent on raising funds from external sources.

 

We will require substantial amounts of additional capital from external sources.

 

We do not have any current source of revenues or sufficient cash or other liquid resources to fund our planned activities until we receive development fees from new contracts. Accordingly, as in the past, we will need substantial amounts of capital from external sources to fund day-to-day operations and project development. We have no arrangements or commitment for such capital. We plan to continue our practice of seeking external capital through the sale of debt or equity, although we cannot assure that such efforts will be successful and the current coronavirus disease 2019 (“COVID-19”) pandemic may make it more difficult to raise additional capital. Any new investments will dilute the interests of the current stockholders. Further, new investors may require preferential financial returns, security, voting rights, or other preferences that will be superior to the rights of the holders of common stock. Alternatively, as project development advances, we may be required to sell all or a portion of our interest in one or more projects, which could reduce our retained financial interest and potential return.

 

Risks Related to Our Business

  

Our efforts to develop OTEC and SWAC/LWAC plants are subject to many financial, technical, managerial, and sales risks that may make us unsuccessful.

 

We incur substantial costs that we may not recover developing a new project that we may not build, operate, or sell. The identification of suitable locations, the investigation of the applicable regulatory and economic framework, the identification of potential purchasers, the completion of preliminary engineering and planning, and the funding of related administrative and support costs ordinarily require several years to complete before we determine to further develop or abandon a project. Each of these steps is fraught with risks and uncertainties, such as:

 

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limited market due to low demand, existing competitive energy sources, low power costs, or the absence of a single or few large potential output purchasers;

 

 

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a regulatory scheme suggesting that the development and operation of a plant would be subject to excessively stringent utility regulations or environmental requirements, burdensome zoning or permitting practices and requirements, or similar factors;

 

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shortage of suitable onshore locations, lack of available cold water with near-shore accessibility, sea wave and current conditions, and exposure to hurricanes, typhoons, earthquakes, or similar extreme events;

 

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the unavailability of favorable tax or other incentives or excessively stringent applicable incentive requirements;

 

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the high cost and potential regulatory difficulties in integrating into new markets;

 

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the possibility that new markets may be limited or unstable or our exposure to competition from other sources of existing or potentially new energy sources;

 

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difficulties in negotiating power purchase agreements (PPAs) with potential customers, including in some instances, the necessity to assist in the formation of a power purchasing group; and

 

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the need to educate the market as well as investors regarding the reliability and economical and environmental benefits of ocean thermal technologies.

 

We cannot assure that we will be able to overcome these risks as we initiate the development of a project. We may incur substantial costs in advancing a project through the early stages, only to conclude eventually that the project is not economically or technically feasible, in which case we may be unable to recover the costs that we have then incurred. When we elect to proceed with a project, we may continue to incur substantial costs and be unable to complete the development, sell the project, or otherwise recover our investment. Even when a project is developed, constructed, and placed into operation, we cannot assure that we will be able to operate at a profit sufficient to recover our total investment.

 

We are dependent on the performance of counterparties to our agreements.

 

Our projects are and will be complex, with a number of agreements among several parties that purchase plant outputs; provide financing; complete design, construction, and other services; design and perform regulatory compliance; and fulfill other requirements. The failure of any participant in one of our projects due to its own management, financial, operating, or other deficiencies, all of which may be outside our control, can materially and adversely affect our operations and financial results. In circumstances in which we are not the prime developer of a large-scale project involving many components in addition to our OTEC, SWAC/LWAC, or other components, we would have little ability to address problems resulting from performance failures by others or implement project-wide remedial measures. The foregoing is illustrated in our Baha Mar project, which is now on hold, and may never resume, because of contract performance and financing disputes by others.

 

Ongoing world economic, currency-exchange, energy-price, contagious disease, and political circumstances adversely affect our project development activities.

 

Recent and ongoing world events outside of our control or influence adversely affect our development activities. Economic uncertainties have resulted in the unpredictable availability of credit, debt, and equity financing; volatile interest rates; currency exchange-rate fluctuations that add risk to international projects; restrictions on the availability of borrowing; concerns respecting inflation and deflation; economic turmoil resulting from unpredictable political events and tensions in international relations and the current COVID-19 pandemic; substantial reductions in hydrocarbon energy prices and the impact of such declines on the cost of energy generally; shifts in the economic feasibility of competitive energy sources; and similar factors. These adverse factors frequently have a particularly intense effect on emerging markets and developing countries, which we believe provide the greatest opportunity for our development of our projects. It now appears that emerging markets and developing countries may be slower in vaccinating their populations against the coronavirus, which may make it more difficult for us to operate in our target markets. The possibility that principal energy prices will continue at current or even lower levels, which could reduce the projected cost at which power could be generated by hydrocarbon-fueled power plants, could make our relatively higher-cost plants less competitive. These emerging and developing markets are particularly vulnerable to the negative impacts of these adverse circumstances. The economic feasibility of alternative energy, including the process we develop and propose to operate, as compared to hydrocarbon energy is adversely affected as the prices for hydrocarbon fuels decline. Accordingly, possible continuing low hydrocarbon prices may retard the potential increase in the economic feasibility of alternative energy. The decline in crude oil prices from over $100 per barrel several years ago to approximately one quarter of that today has adversely affected alternative energy development. Our ability to develop and operate alternative energy plants and our ability to generate revenue will be adversely affected by continuing, relatively soft hydrocarbon energy prices. Further, alternative energy development may be adversely affected by uncertainty in hydrocarbon prices or public expectations that hydrocarbon prices may continue to decline.

 

 

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We require substantial amounts of capital for all phases of our proposed activities.

 

We require substantial amounts of capital to fund efforts to identify, research, preliminarily engineer, permit, and design our projects and to negotiate PPAs for them. These costs may not be recovered, because we may not elect to complete the development of the project or because the development and operation of the project are not successful. We will rely on external capital to fund all of our operations, and we cannot assure that such capital will be available. In recent weeks, 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. Our efforts to access capital markets will be limited, particularly at the outset, because we have not yet developed and placed into operation our first plant. Accordingly, we expect that we will have to provide the potential for a significant economic return for the initial capital we obtain, which will likely dilute the interests of our existing stockholders. We expect that each project that we are able to fully develop, construct, and place into operation will require several stages and levels of debt and equity financing. For example, we expect that a 20-MW OTEC plant may require total capital expenditures of approximately $445 million, consisting of $365 million in project debt financing and $80 million in equity. We cannot assure that we will be able to obtain financing, and if obtained, such financing may be on terms that we will retain only a minority financial interest in the completed project and its operations. Our inability to obtain required financing for any activity or project could have a material adverse effect on our activities and operations.

 

We are reliant on our key executives and personnel.

 

Our business, development, and prospects are highly dependent upon the continued services and performance of our directors and other key personnel, on whom we rely for experience, technical skills, and commercial relationships. We believe that the loss of services for any reason of any existing key executives, or failure to attract and retain necessary personnel, could have a material adverse impact on our business, development, financial condition, results of operations, and prospects. Although we have entered into employment agreements with our key executives, we may not be able to retain them. We do not maintain key-man life insurance on any of our executive employees.

 

Our projects will be subject to substantial regulations and policies governing energy projects, power generation, desalinated water sales, and other aspects of our OTEC and SWAC/LWAC plants, which may adversely affect our ability to develop projects, and any changes in the applicable regulatory schemes may adversely affect projects that we are constructing or have constructed and are operating.

 

Our projects likely will be significant commercial or industrial enterprises in each of their locations and, as such, will be subject to numerous environmental, health and safety, antidiscrimination, and similar laws and regulations in each of the jurisdictions governing our locations. These laws and regulations will require our projects to obtain and maintain permits and approvals; complete environmental impact assessments or statements prior to construction; and review processes and operations to implement environmental, health and safety, antidiscrimination, and other programs and procedures to control risks associated with our operations.

 

Environmental health and safety laws, regulations, and permit requirements applicable to any specific project at the time of construction may change or become more stringent during the life of the operation. Any such changes could require that our projects incur substantial additional costs, alter their operations, or limit or curtail their operations in order to comply, which would have a material adverse effect on our operations. We may not be able to pass on any additional costs that we incur to our power purchasers, particularly in those cases in which we sell power pursuant to a long-term, fixed-price agreement.

 

The financial model for our proposed projects has not been tested and may not be successful.

 

We are proposing a financial model for the development of individual projects that includes development financing provided by us, construction financing provided by equity investors in the specific projects, and project debt financing; the payment of a development fee to us at the time of construction; and continuing equity participation by us throughout the plant’s operation. We have not used this model in the financing or completion of any plant, and we cannot assure that the financial model and, therefore, the anticipated financial return to us will be acceptable to those that might provide the requisite external capital.

 

We may need to revise extensively our financing structure for each project, and we cannot assure that any restructured proposal would not substantially reduce our financial return or increase our risk. The financial, investment, and credit community are generally unfamiliar with OTEC and SWAC/LWAC projects, which will adversely affect our financing efforts. We have no existing relationships with potential sources of debt or equity capital, and any financing sources that we may develop may be inadequate to support the anticipated capital needs of our business. Our efforts to obtain financing may be adversely affected by the fact that our projects will likely be located in developing or emerging markets. Our inability to obtain financing may force us to abandon projects in which we have invested substantial costs, which we may be unable to recover. The process of identifying new sources of debt and equity financing and agreeing on all relevant business and legal terms could be lengthy and could require us to limit the rate at which we can develop projects or reduce our financial return.

 

 

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We may be exposed to political and legal risks in the developing or emerging markets in which we propose to locate plants.

 

Many of the markets that may be suitable for a potential OTEC or SWAC/LWAC plants are located in emerging or developing countries that may have evolving and untested regulatory and legal environments for large-scale, international, commercial enterprises. Further, political instability, regime change, or other factors may increase uncertainty and instability, which in turn may adversely affect our ability to secure necessary regulatory approvals and obtain required project financing, which increases related costs and reduces our financial return. Any changes in applicable laws and regulations, including any governmental incentives, environmental requirements or restrictions, safety requirements, and similar matters, and the risk or likelihood of such a change could adversely affect the availability and cost of financing. Further, in some jurisdictions, applicable legal requirements may not have been fully tested and are still being developed in the face of modern international commercial transactions and environmental requirements, which may lead to changes in interpretation or application that may be adverse to us. Our expectations regarding the size of the potential OTEC and SWAC/LWAC markets and the number of possible suitable locations may not be accurate.

 

Our business plan and models are based on our identification of potential suitable locations for OTEC or SWAC/LWAC plants based on a preliminary evaluation of public information respecting demographic data, current power-generation costs, and local seafloor contours and seawater temperatures, which may be inaccurate. Any material inaccuracy could substantially reduce the total market available to us for plant development.

 

We may be unable to arrange or complete future construction projects on time, within expected budgets, or without interruption due to materials availability and disruptions in supply, labor, or other factors. If any project reaches the point at which we undertake construction, such construction may be subject to actual prices higher than the amount budgeted, the limited or delayed availability of components or materials, shortages or interruptions of labor or materials, or similar circumstances. In the case we have insufficient budget flexibility to pay increased construction costs, corresponding delays could result to construction completion and the commencement of operations.

 

Emerging markets are often associated with growth rates that may not be sustainable and may be accompanied by periods of high inflation. Rising inflation or related government monetary and economic policies in certain project jurisdictions may affect our ability to obtain external financing and reduce our ability to implement our expansion strategy. We can give no assurances that a local government will not implement general or project-specific measures to tighten external financing standards, or that if any such measure is implemented, it will not adversely affect our future operating results and profitability.

 

We are subject to changing attitudes about environmental risks.

 

Our projects may face opposition from environmental groups that may oppose our development, construction, or operation of OTEC or SWAC/LWAC plants. Each project is expected to have different environmental issues, especially as many of our projects are based in different settings having a wide range of environmental standards. We intend to solicit input from environmental organizations and activists early in our design process for our projects in an effort to consider appropriately these organizations’ recommendations in order to mitigate subsequent conflict or opposition, but we cannot assure that such outreach will be effective in all cases, and if it is not, opposition to our projects could increase our cost and adversely affect the results of our operations.

 

We may be unable to find land suitable for our projects.

 

Each project site requires land of differing characteristics to permit the cost-effective construction of OTEC or SWAC/LWAC plants, and suitable land may not always be available. Even if available, such land may be difficult to obtain in a timely or cost-effective manner. For example, we would prefer to place OTEC power systems and facilities as close to the ocean as possible. We hope to mitigate this risk by using land owned by local governments, rather than private individuals or entities, as targeting local governments with favorable energy policies or mandates should reduce land rights risks. Our inability to secure appropriate land at a reasonable cost may render certain of our future projects economically unfeasible.

 

We have a limited number of suppliers for certain materials, which could increase our costs or delay completion of projects.

 

In our systems, the two most important components are heat exchangers and deep-water intake pipes. Although there are multiple providers of each of these components, the supply of the best components comes from just a few companies globally. Should these resources become unavailable for any reason or too costly, we would be required to seek alternative suppliers. The products from such suppliers could be of a lower quality or more costly, in any event requiring us to expend additional monies or time to complete our projects as planned. This could result in financial penalties or other costs to us.

 

 

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There may be greater cost in building OTEC plants that generate over 10 MWs of electricity.

 

In order to successfully obtain debt financing for OTEC facilities, we must find engineering, procurement, and construction contractors willing to enter into fixed-price contracts at a pricing that is economically viable for us. Based on our preliminary discussions, we believe that engineering, procurement, and construction contractors may be willing to consider fixed-price arrangements for up to 10-MW OTEC facilities, but we have not yet discussed performance risk guarantees for OTEC plants greater than 10 MWs. The cost of construction for larger OTEC power systems may vary considerably, and these variances could include increased costs for construction, design, and component procurement. As we gain more experience, we may improve upon efficiencies and accuracy in pricing. Failure to procure engineering, procurement, and construction contractors willing to perform fixed-price contracts on facilities that produce more than 20 MWs may have a material adverse effect on our operations.

 

Technological advances may render our technologies, products, and services obsolete.

 

We operate in a fast-moving sector in which innovative forms of power generation and new energy sources are continuously being researched. New technologies may be able to provide power, coolant, desalinated seawater, or other outputs at a lower cost, including amortization of capital costs, or with less environmental impact. We will remain subject to these risks for the useful life of our projects, which could extend for 20 years or more. Any such technological improvements could render our projects obsolete.

 

We may not successfully manage growth.

 

We intend to continue to develop the projects in our pipeline of opportunities and to construct and operate plants as we deem warranted and as we are able to finance. This is an ambitious growth strategy. Our growth and future success will depend on the successful completion of the expansion strategies and the sufficiency of demand for our energy products. The execution of our expansion strategies may also place a strain on our managerial, operational, and financial reserves. Should we fail to effectively implement such expansion strategies or should there be insufficient demand for our products and services, our business operations, financial performance, and prospects would be adversely affected.

 

There will likely be a single or limited number of power purchasers from each plant, so we will be dependent on their economic viability and stability and continued operations.

 

We expect that any plant that we operate will provide power, cooling, desalinated water, or other products to a few or a limited number of key power purchasers that will use the power for specific commercial enterprises, such as resorts, manufacturing or processing plants, or similar large-scale operations. Accordingly, our ability to sell power and other outputs will be dependent on the economic viability of these purchasers. If one or more key purchasers were to fail, we would be required to obtain alternative purchasers for our power and other outputs, and there may be no or a limited number of alternative purchasers in the merging and developing markets where we anticipate our plants may be located. Accordingly, a failure of an output purchaser may result in the failure of our power plant project. We do not anticipate that we will be able to obtain insurance on acceptable terms to protect us against such a loss. Further, our project output purchasers may not comply with contractual payment obligations or may otherwise fail to perform their contracts, and they may have greater economic bargaining power and negotiating leverage as we seek to enforce our contractual rights. To the extent that any of our project power purchasers are, or are controlled by, governmental entities, our projects may also be subject to legislative, administrative, or other political action or policies that impair their contractual performance. Any failure of any key power purchasers to meet their contractual obligations for any reason could have a material adverse effect on our business and operations.

 

Operational problems, natural events or catastrophes, casualty loss, or other events may impair the commercial operation of our projects.

 

Our ability to meet our delivery obligations under power-generation contracts, as well as our ability to meet economic projections, will depend on our ability to maintain the efficient working order of our plants. Severe weather, natural disasters, accidents, failure of significant equipment components, inability to obtain replacement parts, failure of power transmission facilities, or other catastrophes or occurrences could materially interrupt our activities and consequently reduce our economic return. Since all of our plants will be located on the shore within close proximity to deep-ocean or lake water, our plants will be subject to extraordinary natural occurrences, such as wave surges from hurricanes or typhoons, tsunamis, earthquakes, and other events, over which we will have absolutely no control. We cannot assure that we can obtain sufficient insurance to protect us from all risks resulting from such catastrophes. Further, we cannot assure that any design features or operating policies that we may use will mitigate the risks to which our plants may be exposed. Any threatened or actual events could expose us to plant shutdowns, substantial repairs, interruptions of operations, damages to our power purchasers, and similar events that could require us to incur substantial costs and significantly impair our revenues and results of operations.

 

 

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We may be adversely affected by climate change.

 

Climate change may result in changes in ocean currents and water temperatures that could have a material adverse effect on our results of operations. These changes may require additional capital costs or impair the efficiency of our operations. Because of the size and cost of major components of our power plants, we typically will not inventory spare components, so that any substantial damage may require that we await the custom manufacture and delivery of such items, which may involve substantial delays. Significant changes may render any plant inefficient and uneconomical.

 

Insurance to cover anticipated risks may become more expensive.

 

There are no known commercial OTEC and SWAC/LWAC plants in operation, so the nature and cost of insurance is difficult to predict. Insurance costs may substantially exceed the costs forecast during the planning process or budgeted during actual operations. We cannot assure that adequate insurance coverage will be available to protect us against all risks or that any related costs will be economical. Accordingly, if we are unable or cannot afford to purchase insurance against specific risks, our projects may be fully exposed to those risks, which also could have a material adverse effect on the viability of any affected plant.

 

Risks Related to Our International Operations

 

Certain risks of loss arise from our need to conduct transactions in foreign currencies.

 

Our business activities outside the United States and its territories may be conducted in foreign currencies. In the future, our capital costs and financial results may be affected by fluctuations in exchange rates between the applicable currency and the dollar. Other currencies used by us may not be convertible at satisfactory rates. In addition, the official conversion rates between a particular foreign currency and the U.S. dollar may not accurately reflect the relative value of goods and services available or required in other countries. Further, inflation may lead to the devaluation of such other currencies.

 

Foreign governmental entities may have the authority to alter the terms of our rights or agreements if we do not comply with the terms and obligations indicated in such agreements.

 

Pursuant to the laws in some jurisdictions in which we may develop or operate plants, foreign governmental entities may have the authority to alter the terms of our contractual or financial rights or override the terms of privately negotiated agreements. In extreme circumstances, some foreign governments have taken the step of confiscating private property on the assertion that such action is necessary in the public interest of the country. If this were to occur, we may not be compensated fairly or at all. We cannot assure that we have complied, and will comply, with all the terms and obligations imposed on us under all foreign laws to which one or more of our operations and assets may be subject.

 

Our operations will require our compliance with the Foreign Corrupt Practices Act.

 

We must conduct our activities in or related to foreign companies in compliance with the U.S. Foreign Corrupt Practices Act, or FCPA, and similar anti-bribery laws that generally prohibit companies and their intermediaries from making improper payments to foreign government officials for the purpose of obtaining or retaining business. Enforcement officials interpret the FCPA’s prohibition on improper payments to government officials to apply to officials of state-owned enterprises, including state-owned enterprises with which we may develop or operate projects or to which we may sell plant outputs. While our employees and agents are required to acknowledge and comply with these laws, we cannot assure that our internal policies and procedures will always protect us from violations of these laws, despite our commitment to legal compliance and corporate ethics. The occurrence or allegation of these activities may adversely affect our business, performance, prospects, value, financial condition, reputation, and results of operations.

 

Our competitors may not be subject to laws similar to the FCPA, which may give them an advantage in negotiating with underdeveloped countries and the government agencies.

 

Our competitors outside the United States may not be subject to anti-bribery or corruption laws as encompassing or stringent as the U.S. laws to which we are subject, which may place us at a competitive disadvantage.

 

We may encounter difficulties repatriating income from foreign jurisdictions.

 

As we develop and place plants into operation, we intend to enter into revenue-generating agreements in which we are paid only in U.S. dollars directly to our U.S. banks or through countries in which repatriation of the funds to our U.S. accounts is unrestricted. However, situations could arise in which we agree to accept payment in foreign jurisdictions and for which restrictions make it difficult or costly to transfer these funds to our U.S. accounts. In this event, we could incur costs and expenses from our U.S. assets for which we cannot recover income directly. This could require us to obtain additional working capital from other sources, which may not be readily available, resulting in increased costs and decreased profits, if any.

 

 

19

 

 

Risks Related to Our Common Stock

 

Our common stock is thinly traded, and there is no guarantee of the prices at which the shares will trade.

 

Our common stock is quoted on the OTCQB Marketplace operated by the OTC Markets Group, Inc., under the ticker symbol “CPWR.” Not being listed on an established securities exchange has an adverse effect on the liquidity of our common stock, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions and reduction in security analysts’ and the media’s coverage of our company. This may result in lower prices for our common stock than might otherwise be obtained and could also result in a larger spread between the bid and asked prices for our common stock. Historically, our common stock has been thinly traded, and there is no guarantee of the prices at which the shares will trade or of the ability of stockholders to sell their shares without having an adverse effect on market prices. 

 

We have never paid dividends on our common stock and we do not anticipate paying any dividends in the foreseeable future.

 

We have not paid dividends on our common stock to date, and we may not be in a position to pay dividends in the foreseeable future. Our ability to pay dividends depends on our ability to successfully develop our OTEC business and generate revenue from future operations. Further, our initial earnings, if any, will likely be retained to finance our growth. Any future dividends will depend upon our earnings, our then-existing financial requirements, and other factors and will be at the discretion of our board of directors.

 

Because our common stock is a “penny stock,” it may be difficult to sell shares of our common stock at times and prices that are acceptable.

 

Our common stock is a “penny stock.” Broker-dealers that sell penny stocks must provide purchasers of these stocks with a standardized risk disclosure document prepared by the SEC. This document provides information about penny stocks and the nature and level of risks involved in investing in the penny stock market. A broker must also give a purchaser, orally or in writing, bid and offer quotations and information regarding broker and salesperson compensation, make a written determination that the penny stock is a suitable investment for the purchaser, and obtain the purchaser’s written agreement to the purchase. The penny stock rules may make it difficult for investors to sell their shares of our common stock. Because of these rules, many brokers choose not to participate in penny stock transactions and there is less trading in penny stocks. Accordingly, investors may not always be able to resell shares of our common stock publicly at times and prices that they feel are appropriate.

 

In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (known as “FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative, low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives, and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative, low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit an investor’s ability to buy and sell our stock and have an adverse effect on the market for our shares.

 

Investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may be negatively affected.

 

As a public reporting company, we are subject to the Sarbanes-Oxley Act of 2002 as well as to the information and reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and other federal securities laws. As a result, we incur significant legal, accounting, and other expenses, including costs associated with our public company reporting requirements and corporate governance requirements. As an example of public reporting company requirements, we evaluate the effectiveness of disclosure controls and procedures and of our internal control over financing reporting in order to allow management to report on such controls.

 

Our management concluded that our internal control over financial reporting was not effective as of December 31, 2020, due to a failure to maintain an effective control environment, failure of segregation of duties, failure of entity-level controls, and our sole executive’s access to cash.

 

If significant deficiencies or other material weaknesses are identified in our internal control over financial reporting that we cannot remediate in a timely manner, investors and others may lose confidence in the reliability of our financial statements. This would likely have an adverse effect on the trading price of our common stock and our ability to secure any necessary additional equity or debt financing.

 

20

 

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2. PROPERTIES

 

Our principal corporate offices located at 800 South Queen Street, Lancaster, PA contain approximately 28,000 square feet and are leased from Queen Street Development Partners 1, LP at $10,000 per month. Our lease is a month-to-month basis. Queen Street Development Partners 1, LP is owned by our chief executive officer and director. We believe the terms of this lease are similar to those that we could negotiate in an arm’s-length transaction with an unrelated third party. The facilities and equipment described above are generally in good condition, well maintained, and suitable and adequate for our current and projected operating needs.

 

ITEM 3. LEGAL PROCEEDINGS

 

From time to time, we are involved in legal proceedings and regulatory proceedings arising from operations. We establish reserves for specific liabilities in connection with legal actions that management deems to be probable and estimable.

 

On May 4, 2018, we reached a settlement of the claims at issue in Ocean Thermal Energy Corp. v. Robert Coe, et al., Case No. 2:17-cv-02343SHL-cgc, before the United States District Court for the Western District of Tennessee. Between May 30 and July 19, 2018, we received three payments totaling $100,000 from the defendants. On August 8, 2018, an $8 million judgment was entered against the defendants and in our favor. On May 28, 2019, we further settled the claims at issue with two of the defendants, Brett M Regal and his company, Trade Base Sales, Inc., for $17,500,000. The combined judgment and settlement amounts owed to us total $25,500,000. On July 1, 2019, the United States District Judge for the Central District of California (case number: 2:19-cv-05299-VAP-JPR), approved our stipulated application for an order permitting us to levy on property, including, but not limited to, certain gemstone and mineral specimens, known as the “Ophir Collection,” owned by judgment debtors Brett M. Regal and Trade Base Sales, Inc. (“Regal Debtors”) and appointing a receiver to carry out the levy on Regal Debtors’ property, such that it may be sold (subject to further order of the court approving and confirming such sales), to satisfy the $25,500,000 settlement and judgment amounts in our favor. On August 15, 2019, the court-appointed receiver notified the court that he has taken custody, possession, and control of the “Ophir Collection” and 350,000 pounds of unrefined gold and other precious metal bearing ore. By order of the court, the receiver has the authority to assign, sell, and transfer the debtors’ property. The proceeds of any sales will be used to satisfy the judgment and settlement agreement, receivership’s reasonable costs and fees, as well as any other claims as determined by the court. Various parties have come forward asserting ownership and priority lien rights to the property. In our ongoing efforts to collect the $25,500,000 judgment obtained, a third party has intervened in our case in the Central District of California (case number: 2:19-cv-05299-VAP-JPR), asserting that it is the rightful owner of the “Ophir Collection” of gems and mineral specimens that is now in possession of the court-appointed receiver. The claims of that third party have not yet been addressed by the court.

 

On May 21, 2019, Theodore T. Herman filed a complaint against us in Theodore T. Herman v. Ocean Thermal Energy Corporation, Case No. CI-19-04780, in the Court of Common Pleas of Lancaster County, Pennsylvania, asserting that he is entitled to payment on the promissory note described in Note 4: Convertible Notes and Notes Payable. On July 1, 2019, we filed preliminary objections to the complaint, and subsequently filed an answer and new matter on August 20, 2019, to which the plaintiff filed a reply on September 9, 2019. We will continue to defend our position that no further payment of principal or interest on this note is owed.

 

On August 22, 2018, Fugro USA Maine, Inc. (“Fugro”), filed suit against us in Fugro USA Marine, Inc. v. Ocean Thermal Energy Corp., Cause No. 2018-56396, in the District Court for Harris County, TX, 165th Judicial District, seeking approximately $500,000 allegedly owed for engineering services provided. On June 23, 2020, a settlement was reached under which we would pay Fugro $375,000 by December 31, 2020. We have recorded the amount of accrued legal settlement as of December 31, 2020. We have paid $70,000 through the end of the year; however, we were unable to pay the remaining $305,000 by December 31, 2020, and therefore, entered into an amendment to the settlement agreement on December 29, 2020, extending the deadline for full payment, with 18% interest per annum, until March 31, 2021. 


 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

 

21

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Our common stock is quoted on the OTCQB Marketplace operated by the OTC Markets Group, Inc., under the ticker symbol “CPWR.” The following table sets forth the range of high and low closing prices of our common stock per quarter as reported by the OTCQB for the past two fiscal years ended December 31, 2020 and 2019, respectively, and subsequent fiscal quarter ending March 31, 2021 (through March 26, 2021). All quoted prices reflect interdealer prices without retail mark-up, mark-down, or commission, adjusted to account for past stock splits, and may not necessarily represent actual transactions:

 

	Low	High
Year Ending December 31, 2020
First Quarter (through March 26, 2021)	$0.023	$0.063
Year Ending December 31, 2020
Fourth Quarter	$0.023	$0.036
Third Quarter	$0.026	$0.041
Second Quarter	$0.035	$0.070
First Quarter	$0.026	$0.099
Year Ending December 31, 2019
Fourth Quarter	$0.025	$0.049
Third Quarter	$0.035	$0.050
Second Quarter	$0.038	$0.055
First Quarter	$0.038	$0.065

 

On March 26, 2021, the closing price per share of our common stock as quoted on the OTCQB was $0.031685. As of March 26, 2021, there were approximately 1,488 stockholders of record of our common stock.

 

Dividends

 

We have not paid or declared any cash dividends since our inception and do not intend to declare or pay any such dividends in the foreseeable future. Our ability to pay cash dividends is subject to limitations imposed by state law.

  

Equity Compensation Plan

 

We do not have any securities authorized under equity compensation plans.

 

Recent Sales of Unregistered Securities

  

During the year ended December 31, 2020, we issued 3,071,869 shares of common stock to Oasis Capital, LLC, valued at $103,945, for the conversion of a portion of our notes payable to them in the amount of $50,000.

 

Subsequent to December 31, 2020, we issued 7,329,507 shares of common stock to Oasis Capital, LLC for the conversion of a portion of our notes payable to them in the amount of $115,000.

 

These securities were issued in reliance on the exemption from registration provided in Section 4(a)(2) of the Securities Act of 1933, as amended, for transactions not involving any public offering. Oasis Capital LLC is an “accredited investor,” as that term is defined in Rule 501(a) of Regulation D, and confirmed the foregoing and acknowledged, in writing, that the securities were acquired and will be held for investment. No underwriter participated in the offer and sale of these securities, and no commission or other remuneration was paid or given directly or indirectly in connection therewith.

 

ITEM 6. SELECTED FINANCIAL DATA

 

Not applicable.

 

 

22

 

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and operating results should be read together with our financial statements and related notes included elsewhere in this report. This discussion and analysis and other parts of this report contain forward-looking statements based upon current beliefs, plans, and expectations that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this report. Our fiscal quarters end on March 31, June 30, September 30, and December 31, and our current fiscal year ended on December 31, 2020.

 

Overview

 

We develop projects for renewable power generation, desalinated water production, and air conditioning using our proprietary technologies designed to extract energy from the temperature differences between warm surface water and cold deep water. In addition, our projects provide ancillary products such as potable/bottle water and high-profit aquaculture, mariculture, and agriculture opportunities.

 

We currently have no source of revenue, so as we continue to incur costs we are dependent on external funding for operations. We cannot assure that such funding will be available or, if available, can be obtained on acceptable or favorable terms.

 

Our operating expenses consist principally of expenses associated with the development of our projects until we determine that a particular project is feasible. Salaries and wages consist primarily of employee salaries and wages, payroll taxes, and health insurance. Our professional fees are related to consulting, engineering, legal, investor relations, outside accounting, and auditing expenses. General and administrative expenses include travel, insurance, rent, marketing, and miscellaneous office expenses. The interest expense includes interest and discounts related to our loans and notes payable.

 

Results of Operations

 

Comparison of Years Ended December 31, 2020 and 2019

 

We had no revenue in the years ended December 31, 2020 and 2019.

 

During the year ended December 31, 2020, we had salaries and wages of $856,331, compared to salaries and wages of $861,443 during the same period for 2019, a decrease of 0.6%, which is attributable to a reduction in staff because of cost-cutting measures due to our lack of revenue and funding.

 

During the years ended December 31, 2020 and 2019, we recorded professional fees of $1,672,119 and $505,636, respectively, an increase of 230.7% year over year, which is attributable to an increase in legal expenses related to the Memphis litigation in 2020.

 

General and administrative expenses were $255,500 during the year ended December 31, 2020, compared to $271,621 for the same period in 2019, a decrease of 5.9%. This decrease is attributable to a reduction in staff because of cost-cutting measures due to our lack of revenue and funding.

 

For the year ended December 31, 2019, we issued Preferred Stock - Series C and incurred compensation expense of $159,337. We did not issue any stock for compensation during the year ended December 31, 2020.

 

Our interest expense was $1,428,710 for the year ended December 31, 2020, compared to $2,348,923 for the same period of the previous year, a decrease of 39.2%. In addition to interest on our notes payable of $1,323,791 for the year ended December 31, 2020, we also incurred default penalties of $104,919 on two of our notes during the year ended December 31, 2020.  

 

 In addition to interest on our notes payable of $1,263,598 for the year ended December 31, 2019, we also incurred default penalties of $1,089,643 on two of our notes during the year ended December 31, 2019. Our loan default penalties in 2020 were $984,724 less than in 2019.

 

Our amortization of debt discount and loan fee expenses was $212,087 for the year ended December 31, 2020, compared to $39,851 for the same period of the previous year. The increase reflects the fair value of embedded conversion options related with convertible notes payable and recorded as discount, which we amortized over the life of the convertible note payable. In addition, there was a change in the fair value of the derivative liability of $2,057,177 during the year ended December 31, 2020, and $693,380 for the same period in 2019. Also, we recorded the gain on conversion of convertible notes of $14,382 and a Paycheck Protection Program loan of $17,085 were recognized as gain on the forgiveness of debt upon forgiveness.

 

 

23

 

 

Our operations used net cash of $827,111 in 2020, as compared to $616,780 in the prior year. The increase was primarily due to the $2,057,177 of change in the derivative liability in 2020 when compared to $693,580 in 2019. Also in 2020, we had a default penalty of $104,919 on one loan, and in 2019, we had default penalties of $1,089,643 on two loans that impacted our cash flows from operations.

 

Investing activities for the years ended December 31, 2020 and 2019, used cash of $0 and $0, respectively.

 

Financing activities provided cash of $811,310 for our operations during the year ended December 31, 2020, as compared to providing cash of $631,625 in the prior year, an increase of 28.9%. Proceeds from new notes payable were $830,000 in 2020, as compared to $477,950 in the prior year. We did not sell any preferred stock in 2020, as compared to our selling $207,500 of preferred stock in 2019.

 

Liquidity and Capital Resources

 

At December 31, 2020, our principal source of liquidity consisted of $7,442 of cash, as compared to $23,243 of cash at December 31, 2019. At December 31, 2020, we had negative working capital (current assets minus current liabilities) of $28,027,820. In addition, our stockholders’ deficiency was $28,413,169 at December 31, 2020, compared to stockholders’ deficiency of $22,066,657 at December 31, 2019, an increase in the deficiency of $6,346,512. We are focusing our efforts on promoting and marketing our technology by developing and executing contracts. We are exploring external funding alternatives, as our current cash is insufficient to fund operations for the next 12 months.

  

Our consolidated financial statements have been prepared assuming we will continue as a going concern. We have experienced recurring losses from operations and have an accumulated deficit. Our ability to continue our operations as a going concern is dependent on the success of management’s plans, which include the raising of capital through debt and/or equity markets until such time that revenue provided by operations is sufficient to fund working capital requirements. We will require additional funding to finance the growth of our current and expected future operations as well as to achieve our strategic objectives The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

 

We have no significant contractual obligations or commercial commitments not reflected on our balance sheet as of this date.

  

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities. 

 

Critical Accounting Policies and Estimates

 

We have identified the policies outlined below as critical to our business operations and an understanding of our results of operations. The list is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States, with no need for management’s judgment in their application. The impact and any associated risks related to these policies on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations when such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see the notes to our consolidated financial statements for the year ended December 31, 2020. Note that our preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. We cannot assure that actual results will not differ from those estimates.

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 carry-forwards and are measured using the enacted tax rates and laws that will be in effect when the temporary differences and carry-forwards 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.

 

Fair Value of Derivative LIability

 

We identified conversion features embedded within convertible debt issued. We have determined that the features associated with the embedded conversion option should be accounted for at fair value as a derivative liability. We have elected to account for these instruments together with fixed conversion price instruments as derivative liabilities as we cannot determine if a sufficient number of shares would be available to settle all potential future conversion transactions. We value the derivative liabilities using the Black-Scholes option valuation model. The derivative liabilities are valued at each reporting date and the change in fair value is reflected as change in fair value of derivative liablity.

 

 

24

 

   

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 (see Note 1 of the notes to our consolidated financial statements for the year ended December 31, 2020).

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Our consolidated financial statements, including the Report of Independent Registered Public Accounting Firm on our consolidated financial statements, are included beginning on page F-1 of this report, which are incorporated herein by reference.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us, in the reports that we file or submit to the SEC under the Exchange Act, is recorded, processed, summarized, and reported within the periods specified by the SEC’s rules and forms and that information is accumulated and communicated to our management, including our principal executive and principal financial officer (whom we refer to in this periodic report as our Certifying Officer), as appropriate to allow timely decisions regarding required disclosure. Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our management evaluated, with the participation of our Certifying Officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of December 31, 2020, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officer concluded that, as of December 31, 2020, our disclosure controls and procedures were not effective to provide reasonable assurance because certain deficiencies involving internal controls constituted material weaknesses, as discussed below. The material weaknesses identified did not result in the restatement of any previously reported financial statements or any other related financial disclosure, and management does not believe that the material weaknesses had any effect on the accuracy of our financial statements for the current reporting period.

 

Limitations on Effectiveness of Controls

 

A system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the system will meet its objectives. The design of a control system is based, in part, upon the benefits of the control system relative to its costs. Control systems can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. In addition, over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Also, the design of any control system is based in part upon assumptions about the likelihood of future events. 

 

 

25

 

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended December 31, 2020, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Management’s Annual Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. We have assessed the effectiveness of those internal controls as of December 31, 2020, using the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) Internal Control—Integrated Framework (2013) as a basis for our assessment.

 

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance respecting financial statement preparation and presentation. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.

 

A material weakness in internal controls is a deficiency in internal control, or combination of control deficiencies, that adversely affects our ability to initiate, authorize, record, process, or report external financial data reliably in accordance with accounting principles generally accepted in the United States of America such that there is more than a remote likelihood that a material misstatement of our annual or interim financial statements that is more than inconsequential will not be prevented or detected.

 

Based on our evaluation of internal control over financial reporting, our management concluded that our internal control over financial reporting was not effective as of December 31, 2020.

 

As of December 31, 2020, management identified the following material weaknesses:

 

●

Control Environment - We did not maintain an effective control environment for internal control over financial reporting.

 

●

Segregation of Duties - As a result of limited resources and staff, we did not maintain proper segregation of incompatible duties. The effect of the lack of segregation of duties potentially affects multiple processes and procedures.

 

●

Entity Level Controls - We failed to maintain certain entity-level controls as defined by the 2013 framework issued by COSO. Specifically, our lack of staff does not allow us to effectively maintain a sufficient number of adequately trained personnel necessary to anticipate and identify risks critical to financial reporting. There is a risk that a material misstatement of the financial statements could be caused, or at least not be detected in a timely manner, due to lack of adequate staff with such expertise.

 

●

Access to Cash - One executive had the ability to transfer from our bank accounts.

 

These weaknesses are continuing. Management and the board of directors are aware of these weaknesses that result because of limited resources and staff. Management has begun the process of formally documenting our key processes as a starting point for improved internal control over financial reporting. Efforts to fully implement the processes we have designed have been put on hold due to limited resources, but we anticipate a renewed focus on this effort in the near future. Due to our limited financial and managerial resources, we cannot assure when we will be able to implement effective internal controls over financial reporting.

 

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report.

 

ITEM 9B. OTHER INFORMATION

 

None.

 

 

26

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

The following table sets forth the names, ages, and positions of our executive officers and directors as of December 31, 2020:

 

Name	Age	Position
Jeremy P. Feakins	67	Chairman of the Board, Chief Executive Officer, Chief Financial Officer and Secretary/Treasurer
Peter H. Wolfson	56	Director
Antoinette K. Hempstead	56	Director

 

Jeremy P. Feakins has served as chairman of our board and our chief executive officer, chief financial officer, and secretary/treasurer since March 2015. Mr. Feakins has over 35 years of experience as an entrepreneur and investor, having founded two technology-based companies. Between 1990 and 2006, Mr. Feakins was the chairman and chief executive officer of Medical Technology & Innovations, Inc. (MTI), a developer and manufacturer of a microprocessor-based, vision-screening device and other medical devices located in Lancaster, PA. In 1996, he managed the public listing of MTI on the over-the-counter markets and subsequently structured the sale of the rights to MTI’s vision-screening product to a major international eyewear company. Between 1998 and 2006, he was a managing member of Growth Capital Resources LLC, a venture capital company located in Lancaster, PA, where he successfully managed the public listings for four small companies on the over-the-counter market. Between 2005 and 2008, he served as executive vice chairman and member of the board of directors of Caspian International Oil Corporation (OTC: COIC), an oil exploration and services company located in Houston, TX and Almaty, KZ, where he managed its public listing. Since 2008, Mr. Feakins has been the chairman and managing partner of the JPF Venture Fund 1, LP, a venture capital company located in Lancaster, PA, focused on companies involved with humanitarian and/or sustainability projects. Since 2014, Mr. Feakins has been chairman and chief executive officer of JPF Venture Group, Inc., which provides strategic and operational business assistance to start-up, early-stage, and middle-market high-growth businesses and is a principal stockholder of our stock. Mr. Feakins graduated from the Defence College of Logistics and Personnel Administration, Shrivenham, UK, and served seven years in the British Royal Navy. He is a member of the Institute of Directors in the United Kingdom and the British American Business Council in the United States. Based on his background in the technology industry and his financial and management background, the board of directors has concluded that Mr. Feakins is qualified to serve as a director.

 

Peter Wolfson has served as one of our directors since March 2015. Mr. Wolfson is a qualified commercial pilot and has been actively flying with Delta Airlines, a major U.S.-owned international airline company, since 1996. In addition, Mr. Wolfson is the founder and currently involved as president, and chief executive officer of Hans Construction, a developer and builder of upscale homes located in Lancaster, PA, organized in 2005. He also has 10 years’ experience as a financial consultant with a subsidiary of Mass Mutual, developing financial strategies and tax planning. He holds a Bachelor’s of Science Degree in Science, Technology, and Business from Embry Riddle Aeronautical University and Edison State College. Based on his financial background, the board of directors has concluded that Mr. Wolfson is qualified to serve as director.

 

Antoinette Knapp Hempstead was appointed as a director in February 2017. Prior to that, Ms. Hempstead served as our chief executive officer and president from April 2013 until March 2015 and as our deputy chief executive officer and vice president from August 2002 until March 2015. Currently, she is an IT Project Management Professional for Hexcel Corporation, an international carbon fiber manufacturing company. Ms. Hempstead has over 30 years’ experience in management, software management, software development, and finance. Ms. Hempstead has also served as adjunct faculty for University of Idaho where she taught Computer Science courses. Ms. Hempstead has a Master’s degree in Computer Science from the University of Idaho and a Bachelor’s of Science Degree in Applied Mathematics from the University of Idaho. Ms. Hempstead provides experience in software development and project management, as well as experience in financial statement preparation and regulatory reporting, to our board of directors. Based on her technical background, the board of directors has concluded that Ms. Hempstead is qualified to serve as a director.

 

Family Relationships

 

There are no family relationships between any director and executive officer.

 

Involvement in Certain Legal Proceedings

 

During the past 10 years, none of our directors and executive officers has been involved in any of the events described in Item 401(f) of Regulation S-K.

 

Shareholder Nominations to the Board

 

Our board of directors, acting as the nominating committee, will consider shareholder nominations to the board of directors.

 

 

27

 

 

Committees of the Board

 

We currently do not have nominating, compensation, or audit committees or committees performing similar functions, and we do not have a written nominating, compensation, or audit committee charter. Our board of directors believes that it is not necessary to have these committees, at this time, because the directors can adequately perform the functions of such committees.

 

Code of Ethics

 

We have adopted a code of ethics that applies to all of our employees, including our executive officers, a copy of which is included as an exhibit to this report.

 

 

ITEM 11. EXECUTIVE COMPENSATION

 

The following table sets forth, for the fiscal years ended December 31, 2020 and 2019, the dollar value of all cash and noncash compensation earned by any person that was our principal executive officer, or PEO, during the preceding fiscal year:

 

							Non-Equity	Non-Qualified
							Incentive	Deferred	All
		Year			Stock	Option	Plan	Compensation	Other
		Ended	Salary	Bonus	Awards	Awards	Compensation	Earnings	Compensation	Total
Name and Principal Position		31-Dec	$	$	$	$	$	$	$	$
Jeremy P. Feakins		2020	388,220(1)	-	-	-	-	-	-	388,320
Principal Executive Officer
Principal Financial Oficer		2019	388,220(2)	-	69,277(3)	-	-	-	-	457,597

 

(1). For the fiscial year ended December 31, 2020, $273,144 of Mr. Feakins' was accrued, but unpaid.

(2). For the fiscial year ended December 31, 2019, $388,320 of Mr. Feakins' was accrued, but unpaid.

(3). For the fiscial year ended December 31, 2019, Mr. Feakins' was awarded 1,000,000 shares of Series C Preferred stock valued at $69,277.

 

The table above does not include prerequisites and other personal benefits in amounts less than 10% of the total annual salary and other compensation.

 

Narrative Disclosure to Summary Compensation Table

 

On January 1, 2011, we entered into a five-year employment agreement with an individual to serve as our chief executive officer. The employment agreement provides for successive one-year term renewals unless it is expressly cancelled by either party 100 days prior to the end of the term. Under the agreement, the chief executive officer will receive an annual salary of $350,000, a car allowance of $12,000, and company-paid health insurance. The agreement also provides for bonuses equal to one times annual salary plus 500,000 shares of common stock for each additional project that generates $25 million or more revenue to us. The chief executive officer is entitled to receive severance pay in the lesser amount of three years’ salary or 100% of the remaining salary if the remaining term is less than three years. On June 3, 2019, we issued 1,000,000 shares of Series C Preferred Stock to the chief executive officer, with a fair value of $69,277, to compensate him for his performance.

 

On June 29, 2017, the board of directors approved extending the employment agreement for the chief executive officer for an additional five years. The salary and other compensation will be increased to account for inflation since the original employment agreement was executed.

 

Outstanding Equity Awards at Fiscal Year-End

 

No stock option awards were exercisable or unexercisable as of December 31, 2020, for any executive officer.

 

Director Compensation

 

For the year ended December 31, 2020, no compensation was awarded to, earned by, or paid to our nonemployee directors. Mr. Feakins, who is our chief executive officer, did not receive compensation for his service as a director. The compensation received by Mr. Feakins as an officer is presented in the above summary compensation table.

 

For the year ended December 31, 2019, our two independent directors each received 200,000 shares of Series C Preferred Stock valued at $13,855.

  

 

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth certain information regarding the beneficial ownership of our outstanding common stock and Series C Preferred Stock (which is convertible into our common stock at one share of preferred stock to five shares of common stock), as of March 26, 2021, by: (i) each of our directors; (ii) each of our named executive officers (as defined by Item 402(a)(3) of Regulation S-K promulgated under the Exchange Act); (iii) all of our directors and named executive officers as a group; and (iv) each person known to us to beneficially own more than 5% of our outstanding common stock:

 

				Beneficial Common Stock Ownership
Name and Address (1)		Nature of Ownership	Number	Shares of Common Stock	Percentage of Common Stock
Principal Stockholders
Jeremy P. Feakins		Common stock (2)	8,641,644	8,641,644	5.95%
		Preferred stock (3)	1,000,000	5,000,000	3.33%
		Conversion shares (3)	6,169,075	6,169,075	4.08%
				19,810,719	12.67%
Directors and Executive Officers
Jeremy P. Feakins		Common stock (2)	8,751,136	8,751,136	6.03%
		Preferred stock (3)	1,000,000	5,000,000	3.33%
		Conversion shares (3)	6,169,075	6,169,075	4.08%
				19,920,211	12.74%
Antoinette Hempstead		Common stock (4)	115,151	115,151	*
		Preferred stock (4)	200,000	1,000,000	*
				1,115,151	*
Peter H. Wolfson		Common stock (5)	1,448,668	1,448,668	1.00%
		Preferred stock (5)	200,000	1,000,000	0.68%
		Conversion shares (5)	1,653,179	1,653,179	1.13%
				4,101,847	2.77%
Executive Officers and Directors as a Group (3 persons)		Common stock	10,314,955	10,314,955	7.11%
		Preferred stock	1,400,000	7,000,000	4.60%
		Conversion shares	7,822,254	7,822,254	5.11%
				25,137,209	15.71%

 _______________

* Less than 1%

(1) 

800 South Queen Street, Lancaster, PA 17603, is the address for all stockholders in the table. Applicable percentages are based on 145,176,592 shares of our common stock outstanding on March 26, 2021, and are calculated as required by rules promulgated by the SEC.

(2) 

Consists of 8,288,051 shares of common stock owned of record by Jeremy P. Feakins and 353,593 shares of common stock owned of record by JPF Venture Group, Inc., which is an investment entity that is majority-owned and controlled by Mr. Feakins and, as such, is deemed to be beneficially owned by him.

(3) 

Consists of 750,000 shares of common stock issuable on the conversion of $15,000 in promissory notes issued in 2019 and 2020, convertible at 250,000 shares per $5,000 loan, and 5,419,075 shares of common stock issuable to JPF Venture Group, Inc. on the conversion of $75,000 in promissory notes, convertible at $0.01384 per share. JPF Venture Group has warrants to purchase 98,000 shares of our common stock.

(4) 

Consists of 452 shares of common stock owned of record by Antoinette Hempstead and 114,699 shares of common stock owned of record by A.R. Hempstead Revocable Trust, which is owned and controlled by Ms. Hempstead and, as such, is deemed to be the beneficial owner of record.

(5) 

Consists of 903,179 shares of common stock issuable to Mr. Wolfson on the conversion of a $12,500 promissory note dated October 2016, convertible at $0.01384 per share into shares of common stock, 750,000 shares of common stock issuable on the conversion of $15,000 notes issued in 2019 and 2020, convertible at 250,000 shares per $5,000 loan.

 

Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act. The percentages in the table have been calculated on the basis of treating as outstanding for a particular person, all shares of our common stock outstanding on that date and all shares of our common stock issuable to that holder in the event of exercise of outstanding options, warrants, rights, or conversion privileges owned by that person at that date which are exercisable within 60 days of that date. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent that power may be shared with a spouse. We do not know of any arrangements, the operation of which at a subsequent date, would result in a change of control of our company.

 

 

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PERSONS, AND DIRECTOR INDEPENDENCE

 

Related-Party Transactions

 

For the years ended December 31, 2020 and 2019, we paid rent of $120,000 and $120,000, respectively, to a company controlled by our chief executive officer under an operating lease agreement.

 

On October 20, 2016, we borrowed $12,500 from an 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, 2020, the outstanding balance was $12,500, plus accrued interest of $3,277.

 

On March 9, 2017, we issued a promissory note payable of $200,000 to a related party in which our chief executive officer is an officer and director. The note bears interest of 10% and is due and payable within 90 days after demand. During the year ended December 31, 2018, we received an additional $2,000 and repaid $25,000. The outstanding balance was $177,000 and accrued interest was $68,791 as of December 31, 2020.

 

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 resolution of the Memphis litigation (as defined therein), December 31, 2020, or when we are otherwise able to pay. As of December 31, 2020, the outstanding balance was $543,093 and the accrued interest was $199,298. For the years ended December 31, 2020 and 2019, we repaid $35,000 and $34,000 respectively. On September 30, 2018, the note was amended to extend the maturity date to the earliest of a resolution of the Memphis litigation, December 31, 2020, or when we are otherwise able to pay. 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, 2020, or the date of the financial closings of our Baha Mar project (or any other project of $25 million or more), whichever occurs first. On August 15, 2018, principal of $618,500 and accrued interest of $207,731 were converted to 826,231 shares at $1.00 per share, which was ratified by a disinterested majority of the board of directors. The conversion was recorded at historical cost due to the related-party nature of the transaction. As of December 31, 2020, the note balance was $1,102,500 and the accrued interest was $741,134. This note is in default.

 

We remain liable for the loans made to us by JPF Venture Group, Inc. before the Merger. As of December 31, 2020, the outstanding balance of these loans was $581,880 and the accrued interest was $196,468. All of these notes are in default.

 

On June 3, 2019, our board of directors approved the issuances of Series C Preferred Stock. We issued 1,000,000 shares to our chief executive officer and 400,000 shares to our two independent directors with a fair value of $96,987.

 

In June 2019, JPF Venture Group, Inc., a company in which our chief executive officer is an officer and director, provided a short-term advances totaling $32,000 to us for working capital. It was repaid in two payments in the third quarter of 2019.

 

In the fourth quarter of 2019, we issued a series of convertible promissory notes to accredited investors. 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. On October 14, 2019, we borrowed $5,000 from Jeremy P. Feakins, our chief executive officer. As of December 31, 2020, the outstanding balance of his loan was $5,000 and the accrued interest was $489. On October 14, 2019, we borrowed $5,000 from an independent director. As of December 31, 2020, the outstanding balance of his loan was $5,000 and the accrued interest was $479

 

In the fourth quarter of 2019 and during the year ended December 31, 2020, we issued a series of convertible promissory notes to accredited investors. 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. On December 9, 2019, we borrowed $5,000 from Jeremy P. Feakins, our chief executive officer. On January 21, 2020, we borrowed $5,000 from Jermy P. Feakins, our chief executive office. As of December 31, 2020, the outstanding balance of his loan was $10,000 and the accrued interest was $425. On December 7, 2019, we borrowed $5,000 from independent director. On January 21, 2020, we borrowed an additional $5,000 from an independant director. As of December 31, 2020, the outstanding balance of his loan was $10,000 and the accrued interest was $425.

 

 

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Director Independence

 

Peter Wolfson and Antoinette Hempstead are considered to be independent directors under Nasdaq Rule 5605.

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

Principal Accountant Fees and Services

 

The aggregate fees for professional services rendered to us by Liggett & Webb, P.A., our independent registered public accounting firm, for the fiscal years ended December 31, 2020 and 2019, were as follows:

 

	Year Ended December 31,
	2020	2019
Audit Fees (1)	$31,938	$36,922
Tax fees	-	-
Total Fees	$31,938	$36,922

_______________

(1) 

Includes fees for: (i) audits of our consolidated financial statements for the fiscal years ended December 31, 2020 and 2019; (ii) review of our interim period financial statements for fiscal year 2020; and (iii) fees related to services normally provided by the accountant in connection with statutory and regulatory filings or engagements.

 

Audit and Non-Audit Service Preapproval Policy

 

In accordance with the requirements of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated thereunder, our board of directors has adopted an informal approval policy that it believes will result in an effective and efficient procedure to preapprove services performed by the independent registered public accounting firm.

 

Audit Services. Audit services include the annual financial statement audit (including quarterly reviews) and other procedures required to be performed by the independent registered public accounting firm to be able to form an opinion on our consolidated financial statements. The board of directors preapproves specified annual audit services engagement terms and fees and other specified audit fees. All other audit services must be specifically preapproved by the board of directors. The board of directors monitors the audit services engagement and may approve, if necessary, any changes in terms, conditions, and fees resulting from changes in audit scope or other items.

 

Audit-Related Services. Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements, which historically have been provided to us by the independent registered public accounting firm and are consistent with the SEC’s rules on auditor independence. The board of directors has approved specified audit-related services within preapproved fee levels. All other audit-related services must be preapproved by the board of directors.

 

Tax Services. The board of directors preapproves specified tax services that the it believes would not impair the independence of the independent registered public accounting firm and that are consistent with SEC’s rules and guidance. The board of directors must specifically approve all other tax services.

 

All Other Services. Other services are services provided by the independent registered public accounting firm that do not fall within the established audit, audit-related, and tax services categories. The board of directors preapproves specified other services that do not fall within any of the specified prohibited categories of services.

 

Procedures. All proposals for services to be provided by the independent registered public accounting firm, which must include a detailed description of the services to be rendered and the amount of corresponding fees, are submitted to the chairman of the board of directors and the chief financial officer. The chief financial officer authorizes services that have been preapproved by the board of directors. The chief financial officer submits requests or applications to provide services that have not been preapproved by the board of directors, which must include an affirmation by the chief financial officer and the independent registered public accounting firm that the request or application is consistent with the SEC’s rules on auditor independence, to the board of directors (or its chair or any of its other members pursuant to delegated authority) for approval.

 

 

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PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

(a)            The following financial statements are filed as part of this report:

 

	Page
Audited Consolidated Financial Statements for the Years
Ended December 31, 2020 and 2019:
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2020 and 2019	F-3
Consolidated Statements of Operations for the Years Ended
December 31, 2020 and 2019	F-4
Consolidated Statements of Changes in Stockholders’ Deficiency
Years Ended December 31, 2020 and 2019	F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2020 and 2019	F-6
Notes to the Consolidated Financial Statements	F-7

  

(b)            The following exhibits are filed as part of this report:

 

Exhibit Number*		Title of Document		Location
Item 3		Articles of Incorporation and Bylaws
3.01		Articles of Incorporation of TetriDyn Solutions, Inc., dated May 15, 2006		Incorporated by reference from the Current Report on Form 8-K filed June 7, 2006
3.02		Bylaws		Incorporated by reference from the Current Report on Form 8-K filed June 7, 2006
3.03		Designation of Rights, Privileges, and Preferences of Series A Preferred Stock		Incorporated by reference from the Annual Report on Form 10-K for the year ended December 31, 2009, filed March 31, 2010
3.04		Certificate of Change Pursuant to NRS 78.209 of TetriDyn Solutions, Inc., filed with the Nevada Secretary of State on December 6, 2016		Incorporated by reference from the Current Report on Form 8-K filed December 12, 2016
3.05		Certificate of Correction of TetriDyn Solutions, Inc., filed with the Nevada Secretary of State on December 15, 2016		Incorporated by reference from the Current Report on Form 8-K filed December 12, 2016
3.06		Certificate of Amendment to Articles of Incorporation dated May 8, 2018		Incorporated by reference from the Current Report on Form 8-K filed May 12, 2018
3.07		Certificate of Designation filed with the Nevada Secretary of State on June 6, 2019		Incorporated by reference from the Quarterly Report for the quarter ended June 30, 2019, filed August 13, 2019
Item 4		Instruments Defining the Rights of Security Holders, including indentures
4.01		Specimen Stock Certificate		Incorporated by reference from the Registration Statement on Form S-8 filed August 25, 2018
Item 10		Material Contracts
10.07		Loan Agreement between TetriDyn Solutions, Inc., and Southeast Idaho Council of Governments, Inc., together with related promissory notes, dated December 23, 2009		Incorporated by reference from the Annual Report on Form 10-K for the year ended December 31, 2009, filed March 31, 2010
10.18		Consolidated Promissory Note for $394,350 dated December 31, 2014		Incorporated by reference from the Current Report on Form 8-K filed June 8, 2015
10.25		Promissory Note dated February 25, 2016		Incorporated by reference from the Current Report on Form 8-K filed March 1, 2016
10.26		Promissory Note dated November 23, 2015		Incorporated by reference from the Annual Report on Form 10-K for the year ended December 31, 2015, filed March 30, 2016
10.28		Asset Purchase Agreement between TetriDyn Solutions, Inc. and JPF Venture Group, Inc. dated December 8, 2016		Incorporated by reference from the Current Report on Form 8-K filed December 12, 2016
10.29		Promissory Note dated October 20, 2016		Incorporated by reference from the Current Report on Form 8-K filed October 20, 2016
10.30		Promissory Note dated May 20, 2016		Incorporated by reference from the Current Report on Form 8-K filed May 24, 2016

 

 

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10.31		Amendment to Convertible Promissory Notes dated February 24, 2018		Incorporated by reference from the Current Report on Form 8-K filed March 2, 2018
10.32		Agreement and Plan of Merger between TetriDyn Solutions, Inc. and Ocean Thermal Energy Corporation dated March 1, 2018		Incorporated by reference from the Current Report on Form 8-K filed March 10, 2018
10.33		Equity Purchase Agreement with L2 Capital, LLC dated December 18, 2018		Incorporated by reference from the Current Report on Form 8-K filed December 21, 2018
10.34		Registration Rights Agreement with L2 Capital, LLC dated December 18, 2018		Incorporated by reference from the Current Report on Form 8-K filed December 21, 2018
10.35		Common Stock Purchase Warrant (L2 Capital, LLC) dated December 18, 2018		Incorporated by reference from the Current Report on Form 8-K filed December 21, 2018
10.36		Note and Warrant Purchase Agreement dated December 28, 2018		Incorporated by reference from the Current Report on Form 8-K filed January 3, 2018
10.37		Form of Unsecured Promissory Note		Incorporated by reference from the Current Report on Form 8-K filed January 3, 2018
10.38		Form of Unsecured Common Stock Purchase Warrant		Incorporated by reference from the Current Report on Form 8-K filed January 3, 2018
10.39		Securities Purchase Agreement dated May 22, 2018, between Ocean Thermal Energy Corporation and Collier Investments, LLC		Incorporated by reference from the Current Report on Form 8-K filed June 1, 2018
10.40		Convertible Note dated May 22, 2018, issued to Collier Investments, LLC		Incorporated by reference from the Current Report on Form 8-K filed June 1, 2018
10.41		Security Agreement dated May 22, 2018, between Ocean Thermal Energy Corporation and Collier Investments, LLC		Incorporated by reference from the Current Report on Form 8-K filed June 1, 2018
10.42		Securities Purchase Agreement dated February 16, 2018, between Ocean Thermal Energy Corporation and L2 Capital, LLC		Incorporated by reference from the Current Report on Form 8-K filed February 23, 2018
10.43		Senior Secured Promissory Note dated February 16, 2018, issued to L2 Capital, LLC		Incorporated by reference from the Current Report on Form 8-K filed February 23, 2018
10.44		Security Agreement dated February 16, 2018, between Ocean Thermal Energy Corporation and L2 Capital, LLC		Incorporated by reference from the Current Report on Form 8-K filed February 23, 2018
10.45		Common Stock Purchase Warrant dated February 16, 2018, issued to L2 Capital, LLC		Incorporated by reference from the Current Report on Form 8-K filed February 23, 2018
10.46		Common Stock Purchase Warrant dated February 16, 2018, issued to Craft Capital Management, LLC		Incorporated by reference from the Current Report on Form 8-K filed February 23, 2018
10.47		Lease Agreement between Ocean Thermal Energy Corporation and Queen Street Development Partners 1, LP, as amended		Incorporated by reference from the Annual Report for the year ended December 31, 2018, filed March 22, 2019
10.48		Employment Agreement with Jeremy P. Feakins dated January 1, 2011**		Incorporated by reference from the Annual Report for the year ended December 31, 2018, filed March 22, 2019
10.49		Loan Agreement, Promissory Note, and Warrant to Purchase up to 3,295,761 Shares of Common Stock between Ocean Thermal Energy Corporation and DCO Energy, LLC, dated February 10, 2012, including Forbearance and Loan Extension Agreement dated April 1, 2016		Incorporated by reference from the Annual Report for the year ended December 31, 2018, filed March 22, 2019
10.50		Form of Loan Agreement, Promissory Note (Series B), Security Agreement, and Warrant (with related schedule) [2013]		Incorporated by reference from the Annual Report for the year ended December 31, 2018, filed March 22, 2019
10.51		Promissory Note for $290,000 payable to Theodore Herman dated December 31, 2013		Incorporated by reference from the Annual Report for the year ended December 31, 2018, filed March 22, 2019
10.52		Loan Agreement, Promissory Note, and Warrant to Purchase up to 12,912,500 Shares of Common Stock between Ocean Thermal Energy Corporation and Jeremy P. Feakins & Associates, LLC, dated April 1, 2014, including Forbearance and Loan Extension Agreement (Revised and Reformed) dated April 1, 2016		Incorporated by reference from the Annual Report for the year ended December 31, 2018, filed March 22, 2019
10.53		Loan Agreement, Promissory Note, and Warrant to Purchase up to 200,000 Shares of Common Stock between Ocean Thermal Energy Corporation and Mart Inn, Inc., dated December 22, 2014		Incorporated by reference from the Annual Report for the year ended December 31, 2018, filed March 22, 2019

 

 

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10.54		Loan Agreement, Promissory Note, and Warrant to Purchase up to 100,000 Shares of Common Stock between Ocean Thermal Energy Corporation and James G. Garner, Jr., dated December 26, 2014		Incorporated by reference from the Annual Report for the year ended December 31, 2018, filed March 22, 2019
10.55		Promissory Note dated April 17, 2015, with extensions		Incorporated by reference from the Annual Report for the year ended December 31, 2018, filed March 22, 2019
10.56		Promissory Note dated October 20, 2016, to Peter Wolfson		Incorporated by reference from the Current Report on Form 8-K filed October 20, 2016.
10.57		Promissory Note dated December 21, 2016, to JPF Venture Group		Incorporated by reference from the Annual Report for the year ended December 31, 2018, filed March 22, 2019
10.58		Promissory Note dated March 9, 2018, to Jeremy P. Feakins & Associates, LLC		Incorporated by reference from the Annual Report for the year ended December 31, 2018, filed March 22, 2019
10.59		Loan Agreement and Promissory Note with JPF Venture Group, Inc., dated November 6, 2018		Incorporated by reference from the Annual Report for the year ended December 31, 2018, filed March 22, 2019
10.60		Form of Bridge Loan, Warrant, and Promissory Note for December 2018, together with schedule of investors		Incorporated by reference from the Annual Report for the year ended December 31, 2018, filed March 22, 2019.
10.61		Replacement Convertible Promissory Note to L2 Capital, LLC, dated December 14, 2018		Incorporated by reference from the Annual Report for the year ended December 31, 2018, filed March 22, 2019
10.62		Form of Loan Agreement made January 2, 2019, between Ocean Thermal Energy Corporation and the lenders identified on the scheduled attached thereto		This filing
10.63		Form of Convertible Loan Agreement with a maturity date of October 31, 2021, between Ocean Thermal Energy Corporation and the lenders identified on the scheduled attached thereto		This filing
10.64		Form of Convertible Loan Agreement with a maturity date of December 31, 2022, between Ocean Thermal Energy Corporation and the lenders identified on the scheduled attached thereto		This filing
Item 14		Code of Ethics
14.01		TetriDyn Solutions, Inc. Code of Ethics		Incorporated by reference from the annual report on Form 10-KSB for the year ended December 31, 2006, filed April 2, 2007
Item 21		Subsidiaries of the Registrant
21.01		Schedule of Subsidiaries		Incorporated by reference from Post-Effective Amendment No. 1/A to the Registration Statement on Form S-1 (Amendment No. 1) filed January 10, 2019
Item 31		Rule 13a-14(a)/15d-14(a) Certifications
31.01		Certification of Principal Executive and Principal Financial Officer Pursuant to Rule 13a-14		This filing
Item 32		Section 1350 Certifications
32.01		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		This filing
Item 101		Interactive Data Files***
101.INS		XBRL Instance Document		This filing
101.SCH		XBRL Taxonomy Extension Schema		This filing
101.CAL		XBRL Taxonomy Extension Calculation Linkbase		This filing
101.DEF		XBRL Taxonomy Extension Definition Linkbase		This filing
101.LAB		XBRL Taxonomy Extension Label Linkbase		This filing
101.PRE		XBRL Taxonomy Extension Presentation Linkbase		This filing

___________________________

*	All exhibits are numbered with the number preceding the decimal indicating the applicable SEC reference number in Item 601 and the number following the decimal indicating the sequence of the particular document. Omitted numbers in the sequence refer to documents previously filed as an exhibit.
**	Identifies each management contract or compensatory plan or arrangement required to be filed as an exhibit, as required by Item 15(a)(3) of Form 10-K.
***	The XBRL related information in Exhibit 101 will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and will not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as will be expressly set forth by specific reference in such filing or document.

 

 

34

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

	OCEAN THERMAL ENERGY CORPORATION
Dated: March 30, 2021	By:	/s/ Jeremy P. Feakins
		Jeremy P. Feakins
		Principal Executive Officer and
		Principal Financial Officer

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Name		Title		Date
/s/ Jeremy P. Feakins		Director, Chief Executive Officer and Chief		March 30, 2021
Jeremy P. Feakins		Financial Officer (Principal Executive Officer and
		Principal Financial Officer)
/s/ Peter Wolfson		Director		March 30, 2021
Peter Wolfson
/s/ Antoinette K. Hempstead		Director		March 30, 2021
Antoinette K. Hempstead

 

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT

TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED

SECURITIES PURSUANT TO SECTION 12 OF THE ACT

 

We will furnish to the SEC, at the same time that it is sent to stockholders, any proxy or information statement that we send to our stockholders in connection with any annual stockholders’ meeting.

 

 

35

 

 

OCEAN THERMAL ENERGY CORPORATION

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

AND

CONSOLIDATED FINANCIAL STATEMENTS

 

DECEMBER 31, 2020 and 2019

 

  

Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019		F-4
Consolidated Statements of Operations for the Years Ended December 31, 2020 and 2019		F-5
Consolidated Statements of Stockholders’ Deficiency for the Years Ended December 31, 2020 and 2019		F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019		F-7
Notes to Consolidated Financial Statements		F-8

  

 

 

 

 

 

 

 

 

F-1

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and Board of Directors of:

Ocean Thermal Energy Corporation

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Ocean Thermal Energy Corporation and Subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, changes in stockholders’ deficiency and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as “the consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

 

Explanatory Paragraph – Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has a net loss, a working capital deficiency, and an accumulated deficit. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

F-2

 

 

Contingencies

 

As described in Note 8 to the consolidated financial statements, the Company is involved in a number of legal proceedings and has made accruals with respect to certain of these matters. For other matters, a liability is not probable, or the amount cannot be reasonably estimated and therefore an accrual has not been made. Where a liability is reasonably possible and may be material, such matters have been disclosed. Management assessed the probability of occurrence and the estimation of any potential loss based on the ability to predict the number of claims that may be filed or whether any loss or range of loss can be reasonably estimated. In assessing the probability of occurrence in a particular legal proceeding, management exercises judgment to determine if it can predict the number of claims that may be filed and whether it can reasonably estimate any loss or range of loss that may arise from that proceeding.

 

Auditing management’s accounting for, and disclosure of, loss or gain contingencies was highly judgmental as it involved our assessment of the significant judgments made by management when assessing the probability of occurrence or when determining whether an estimate of the loss or range of loss could be made.

 

To test the Company’s assessment of the probability of occurrence or determination of an estimate of loss, or range of loss, among other procedures, we read the legal documentations, reviewed opinions provided to the Company by certain outside legal counsel, read letters received directly by us from internal and external counsel, and evaluated the current status of contingencies based on discussions with internal legal counsel. We also evaluated the appropriateness of the related disclosures.

 

Valuation of Derivative Liabilities

 

As described in Note 5 to the consolidated financial statements, the Company measures fair value of derivative liabilities at fair value using level three inputs. To determine fair value of derivative liabilities, the Company determines the appropriate valuation methodology and assumptions, including unobservable inputs. The derivative liabilities are measured at fair value using a Black-Scholes option valuation model that uses significant assumptions, including the Company's stock price, historical volatility of the Company's shares, risk-free interest rate and probability of conversion occurrence through maturity.

 

Auditing management's estimate for the fair value of derivative liabilities was complex and highly judgmental as it involved our assessment of the significant assumptions used by management because the fair value calculations were sensitive to changes in assumptions described above, and certain inputs used in the determination of fair values were based on unobservable data, including, but not limited to, the historical volatility and probability of conversion.

 

To test the fair value of the derivative liabilities, we performed audit procedures that included, among others, evaluating the methodologies used in the valuation model and the significant assumptions used by the Company.

 

 

/s/ Liggett & Webb, P.A.

LIGGETT & WEBB, P.A.

Certified Public Accountants

 

We have served as the Company’s auditor since 2008

 

Boynton Beach, Florida

March 30, 2021

  

F-3

 

OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARIES

 CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2019 AND DECEMBER 31, 2020

 

	December 31, 2020	December 31, 2019
ASSETS
Current Assets
Cash	$7,442	$23,243
Prepaid expenses	10,000	20,000
Total Current Assets	17,442	43,243
Total Assets	$17,442	$43,243
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities
Accounts payable and accrued expense	$14,457,379	$11,176,751
Notes payable - related party	2,329,473	2,364,473
Convertible notes payable - related party	87,500	87,500
Notes payable	3,530,475	3,001,250
Convertible note payable	2,319,040	2,264,120
Derivative liability	5,321,395	3,032,056
Total Current Liabilities	28,045,262	21,926,150
Long-term Liabilities
Convertible note payable, net	211,110	14,124
Convertible notes payable - related party, net	15,905	1,292
Notes payable	158,334	168,334
Total Liabilities	28,430,611	22,109,900
Commitments and contingencies (See Note 8)	-	-
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,
137,847,005 and 134,775,136 shares issued and outstanding, respectively	137,847	134,775
Additional paid-in capital	58,360,044	58,259,171
Accumulated deficit	(86,913,879)	(80,463,422)
Total Stockholders' Deficiency	(28,413,169)	(22,066,657)
Total Liabilities and Stockholders' Deficiency	$17,442	$43,243

 

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

 

F-4

 

 

OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2020 AND DECEMBER 31, 2019

 

	2020	2019
Operating Expenses
Salaries and wages	$856,331	$861,443
Professional fees	1,672,119	505,636
General and administrative	255,500	271,621
Stock-based compensation	-	159,337
Total Operating Expenses	2,783,950	1,798,037
Loss from Operations	(2,783,950)	(1,798,037)
Other (Expenses) Income
Interest expense, net and loan default penalty	(1,428,710)	(2,348,923)
Amortization of debt discount	(212,087)	(39,851)
Change in fair value of derivative liability and gain on conversion of debt	(2,042,795)	(693,380)
Gain on Forgiveness of debt	17,085	-
Total Other Expense	(3,666,507)	(3,082,154)
Loss Before Income Taxes	(6,450,457)	(4,880,191)
Provision for Income Taxes	-	-
Net Loss	$(6,450,457)	$(4,880,191)
Net Loss per Common Share Basic and Diluted	$(0.05)	$(0.04)
Weighted Average Number of Common Shares Outstanding	136,330,320	133,582,149

 

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

 

F-5

 

 

OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY

FOR THE YEARS ENDED DECEMBER 31, 2020 AND DECEMBER 31, 2019

 

	Preferred Stock				Common Stock
	Series B Preferred		Series C Preferred
	Number of		Number of		Number of		Additional	Accumulated	Stockholders'
	Shares	Par Value	Shares	Par Value	Shares	Par Value	Paid-in capital	Deficit	Deficiency
Balance December 31, 2018	-	$-	-	$-	131,038,944	$131,039	$57,683,015	$(75,583,231)	$(17,769,177)
Common Stock issued for conversions of notes payable	-	-	-	-	3,736,192	3,736	212,138	-	215,874
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	-	-	-	-	-	-	-	(4,880,191)	(4,880,191)
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)
Common stock issued for conversions of notes payable	-	-	-	$-	3,071,869	$3,072	$100,873	$-	$103,945
Net Loss	-	-	-	-	-	-	-	(6,450,457)	(6,450,457)
Balance December 31, 2020	518,750	$519	2,300,000	$2,300	137,847,005	$137,847	$58,360,044	$(86,913,879)	$(28,413,169)

 

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

 

F-6

 

 

OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW

FOR THE YEARS ENDED DECEMBER 31, 2020 AND DECEMBER 31, 2019

 

	2020	2019
Cash Flows From Operating Activities:
Net loss	$(6,450,457)	$(4,880,191)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	-	672
Change in derivative liability	2,057,177	693,380
Amortization of debt discount	212,087	39,851
Gain on conversion of debt	(14,382)	-
Gain on forgiveness of debt	(17,085)	-
Preferred stock issued for services	-	159,337
Penalties upon default	104,919	1,089,643
Changes in assets and liabilities
Prepaid expense	10,000	(20,000)
Accounts payable and accrued expenses	3,270,630	2,300,528
Net Cash Used In Operating Activities	(827,111)	(616,780)
Cash Flows From Financing Activities:
Repayment of notes payable - related party	(35,000)	(34,000)
Repayment of notes payable	(775)	(4,825)
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	520,000	310,000
Proceeds from convertible notes payable	300,000	147,950
Proceeds from convertible notes payable - related party	10,000	20,000
Proceeds from PPP loan	17,085	-
Proceeds from the sale of preferred stock	-	207,500
Net Cash Provided by Financing Activities	811,310	631,625
Net (decrease)/increase in cash and cash equivalents	(15,801)	14,845
Cash and cash equivalents at beginning of year	23,243	8,398
Cash and Cash Equivalents at End of Year	$7,442	$23,243
Supplemental disclosure of cash flow information
Cash paid for interest expense	$13,222	$23,333
Cash paid for income taxes	$-	$-
Supplemental disclosure of non-cash investing and financing activities:
Note payable and accrued interest converted into common stock	$50,000	$94,347
Debt discount on notes payable	$310,000	$167,950
Common stock issued for conversion of notes payable	$103,945	$215,874
Derivative liability extinguished upon conversion of note payable	$68,327	$121,527

 

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

 

F-7

 

 

OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020 AND DECEMBER 31, 2019

 

NOTE 1 – NATURE OF BUSINESS AND BASIS OF 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 mankind’s three oldest and most fundamental needs: clean drinking water, plentiful food, and sustainable, affordable energy without the use of fossil fuels. OTEC is a clean technology that continuously extracts energy from the temperature difference between warm surface ocean water and cold deep seawater. In addition to producing electricity, some of the seawater running through an OTEC plant can be efficiently desalinated using the power generated by the OTEC technology, producing thousands of cubic meters of fresh water every day for use in agriculture and human consumption in the communities served by its plants. This cold, deep, nutrient-rich water can also be used to cool buildings (SWAC/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 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).

 

Note 2: Summary of Significant Accounting Policies

 

Principal Subsidiary Undertakings

 

Our consolidated financial statements for the years ended December 31, 2020 and 2019, 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.

 

F-8

 

 

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 December 31, 2020 and 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 carry-forwards and are measured using the enacted tax rates and laws that will be in effect when the temporary differences and carry-forwards 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:

 

●

Reporting dates.

●

Valued at quoted prices adjusted for legal or contractual restrictions specific to these investments.

●

Own assumptions about the assumptions market participants would use in pricing the assets or liability.

 

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

 

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

 

F-9

 

 

Concentrations

 

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

 

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 125,073 and 350,073 shares issuable upon the exercise of warrants for the years ended December 31, 2020 and 2019, respectively, and 179,823,249 and 140,502,788 shares issuable upon the conversion of convertible notes for the years ended December 31, 2020 and 2019, respectively, that were not included in the computation of dilutive loss per share because their inclusion is antidilutive.

 

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 audited consolidated financial statements have been prepared on the assumption that we will continue as a going concern. As reflected in the accompanying consolidated financial statements, we had a net loss of $6,450,457 and used $827,111 of cash in operating activities for the year ended December 31, 2020. We had a working capital deficiency of $28,027,820 and a stockholders’ deficiency of $28,413,169 as of December 31, 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 increase sales 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.

 

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. The loan principal was $3,779 with accrued interest of $0 as of December 31, 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 $29,318 as of December 31, 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 $13,234 as of December 31, 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 $51,613 as of December 31, 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 $25,817 as of December 31, 2020. This note is in default.

 

F-10

 

 

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 December 31, 2020, the outstanding loan balance was $394,380 and the accrued but unpaid interest was $143,254 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 December 31, 2020, the outstanding balance of these notes was $75,000, plus accrued interest of $21,311.

 

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 December 31, 2020, the outstanding balance of these notes was $112,500, plus accrued interest of $31,903.

 

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 December 31, 2020, the outstanding note balance was $12,500, plus accrued interest of $3,277.

 

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 December 31, 2020, the outstanding note balance was $1,000,000, plus accrued interest of $840,004. 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 December 31, 2020, the loan balances were $158,334 and the accrued interest was $117,098.

 

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 December 31, 2020, the balance outstanding was $130,000, and the accrued interest as of that date was $71,975. 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 December 31, 2020, the note balance was $1,102,500 and the accrued interest was $741,134. 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 $381,062 as of December 31, 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 $29,070 as of December 31, 2020. The note is in default.

 

F-11

 

 

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 December 31, 2020, the balance outstanding was $177,000, plus accrued interest of $68,792.

 

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. As of December 31, 2020, the outstanding balance for the remaining three notes was $65,000, plus accrued interest of $13,510. 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 year ended December 31, 2020, we repaid $35,000. As of December 31, 2020, the outstanding note balance was $543,093 and the accrued interest was $199,298. 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:

 

●

$10,000 note with a warrant to purchase 2,000 shares

 

●

$20,000 note with a warrant to purchase 5,000 shares

 

●

$25,000 note with a warrant to purchase 6,500 shares

 

●

$30,000 note with a warrant to purchase 8,000 shares

 

●

$40,000 note with a warrant to purchase 10,000 shares

 

●

$50,000 note with a warrant to purchase 14,000 shares

 

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 December 31, 2020, the balance of the outstanding loans was $979,156 and the accrued interest was $257,815. 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 December 31, 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 had 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. During the year ended December 31, 2019, we issued 1,936,192 shares of common stock to L2 Capital for the conversion of a portion of our notes payable in the amount of $44,733. As of December 31, 2020, we have outstanding warrants to purchase 56,073 shares of common stock. As of December 31, 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 $555,085. 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.  

 

F-12

 

 

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 December 31, 2020, we have outstanding warrants to purchase 2,000 shares of common stock. As of December 31, 2020, the balance outstanding was $10,000 and the accrued interest was $1,390.

 

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. On August 1, 2019, Oasis Capital LLC purchased our note payable from L2 Capital LLC. The terms and conditions of the original note remain in place. During the year ended December 31, 2019, we issued 1,800,000 shares of common stock to L2 Capital for the conversion of a portion of our notes payable in the amount of $49,614. During the year ended December 31, 2020, we issued 3,071,869 shares of common stock to Oasis Capital, LLC, with a fair value of $103,945, for the conversion of a portion of our notes payable in the amount of $50,000. We recorded a gain on conversion of $14,382. As of December 31, 2020, the outstanding note balance was $1,042,905, which includes a default penalty and fees of $770,469, and the accrued interest was $415,906. 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 December 31, 2020, the outstanding balance of these loans is $310,000 and the accrued interest was $104,361.

 

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 December 31, 2020, we have recorded a debt discount of $26,200 for the fair value of derivative liability and amortized $16,355 of the debt discount. As of December 31, 2020, the balance outstanding was $16,355, net of debt discount of $9,845, and the accrued interest was $3,423.

 

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 December 31, 2020, we have recorded a debt discount of $105,000 for the fair value of derivative liability and amortized $61,639 the debt discount. As of December 31, 2020, the total outstanding balances of all these loans are $55,723, net of debt discount of $39,277 to unrelated parties, and $5,916 net of debt discount of $4,084, to related parties. The accrued interest was $9,915 as of December 31, 2020.

 

In the fourth quarter of 2019 and the fiscal year 2020, we issued a series of convertible promissory notes to accredited investors, which totaled $306,750. Of the amount received, $20,000 was from our chief executive officer and an independent director. The notes bear simple interest on outstanding principal at the rate of 8% per annum, computed 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 December 31, 2020, we have recorded a debt discount of $306,750 for the fair value of derivative liability and amortized $144,127 of the debt discount. As of December 31, 2020, the total outstanding value of these loans was $134,138, net of debt discount of $152,612, to unrelated parties and $9,989, net of debt discount of $10,011, to related parties. As of December 31, 2020, the accrued interest was $22,356.

 

F-13

 

 

During the year ended December 31, 2020, we issued a series of convertible promissory notes to accredited investors, which totaled $15,000. The notes bear simple interest on outstanding principal at the rate of 8% per annum, computed 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 May 12, 2022, whichever comes first. As of December 31, 2020, we have recorded debt discount of $15,000 for the fair value of derivative liability and amortized $3,991 of debt discount. As of December 31, 2020, the total outstanding value of these loans was $3,991, net of debt discount of $11,009. The accrued interest was $602 as of December 31, 2020,

 

During the year ended December 31, 2020, we issued a series of convertible promissory notes to accredited investors, which totaled $15,000. The notes bear simple interest on outstanding principal at the rate of 8% per annum, computed 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 September 1, 2022, whichever comes first. AS of December 31, 2020, we have recorded a debt discount of $15,000 for the fair value of derivative liability and amortized $903 of debt discount. As of December 31, 2020, the total outstanding value of these loans was $903, net of debt discount of $14,097. The accrued interest was $118 as of December 31, 2020

 

During the year ended December 31, 2020, we issued a series of promissory notes to accredited investors, which totaled $520,000. 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, for each additional of $20,000 (prorated), 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 December 31, 2020, was $520,000 and the accrued interest was $19,507.

 

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. We received notice of our PPP loan and interest payments forgiveness from the Small Business Administration as of November 10, 2020. The outstanding loan balance as of December 31, 2020, was $0 and the accrued interest was $0. The forgiveness of this loan is recorded as gain on forgiveness of debt.

 

F-14

 

 

The following convertible note and notes payable were outstanding at December 31, 2020:

 

								Related Party		Non Related Party
Date of Issuance	Maturity Date	Interest Rate	In Default	Original Principal	Principal at December 31, 2020	Discount at December 31, 2020	Carrying Amount at December 31, 2020	Current	Long-Term	Current	Long-Term
12/12/06	01/05/13	6.25%	Yes	58,670	3,779	-	3,779	-	-	3,779	-
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	543,093	-	543,093	543,093	-	-	-
02/19/18	(3)	18.00%*	Yes	629,451	1,161,136	-	1,161,136	-	-	1,161,136	-
09/19/18	09/28/21	6.00%	No	10,000	10,000	-	10,000	-	-	10,000
12/14/18	12/22/18	24.00%*	Yes	474,759	1,042,905	-	1,042,905	-	-	1,042,905	-
01/02/19	(4)	17.00%	No	310,000	310,000	-	310,000	-	-	310,000	-
08/14/19	10/31/21	8.00%	No	26,200	26,200	9,845	16,355	-	-	-	16,355
(5)	10/31/21	8.00%	No	105,000	105,000	43,361	61,639	-	5,916	-	55,723
(6)	(6)	8.00%	No	336,750	336,750	187,729	149,021	-	9,989	-	139,032
(7)	(7)	10.00%	No	520,000	520,000	-	520,000	-	-	520,000	-
				$ 9,381,768	$ 8,892,773	$ 240,935	$ 8,651,838	$ 2,416,973	$ 15,905	$ 5,849,516	$ 369,444

 

(1) Maturity date is 90 days after demand.

(2) Bridge loans were issued at dates between December 2017 and May 2018. Principal is due on the earlier of 18 months from the anniversary date or the completion of L2 financing with a gross proceeds of a minimum of $1.5 million.

(3). L2 - Note was drawn down in five tranches between 02/16/18 and 05/02/18.

(4). Loans were issued from January 2, 2019 to March 23, 2019. Principal and interest are due when funds are received from the litigation between Ocean Thermal Energy Corporation vs., Robert Coe el al.

(5). Notes were issued between 10/14/19 1nd 11/5/19. The notes bear an interest rate of 8% and mature 10/31/21.

They can be converted into 250,000 shares of common stock. They can be converted when the stock closing price reaches $1 or on the maturity, whichever occurs first.

(6). Notes were issued between 12/9/19 and 2/17/20. The notes bear an interest rate of 8% and $306,750 mature 1/2/22; $15,000 mature on 5/12/22; and $15,000 mature on 9/1/22..

They can be converted into 250,000 shares of common stock. They can be converted when the stock closing price reaches $1 or on the maturity, whichever occurs first.

(7). Notes were issued between 5/12/2020 and 6/25/2020. The notes bear an interest rate of 10%. Repayment will be made as follows: (i) the principal and interest within five business days

following our receipt of $25.5 million from the 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 actually received on more than one date, payment will be made as such funds are actually received by us and after deductions of accrued legal fees

up to that date.

* Default interest rate.

 

F-15

 

 

The following convertible notes and notes payable were outstanding at December 31, 2019: 

 

								Related Party		Non Related Party
Date of Issuance	Maturity Date	Interest Rate	In Default	Original Principal	Principal at December 31, 2019	Discount at December 31, 2019	Carrying Amount at December 31, 2019	Current	Long-Term	Current	Long-Term
12/12/06	01/05/13	6.25%	Yes	58,670	4,555	-	4,555	-	-	4,555	-
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	578,093	-	578,093	578,093	-	-	-
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	10/31/21	8.00%	No	26,200	26,200	21,211	4,989	-	-	-	4,989
(5)	10/31/21	8.00%	No	105,000	105,000	95,559	9,441	-	1,000	-	8,441
(6)	01/02/22	8.00%	No	36,750	36,750	35,764	986	-	292	-	694
				$ 8,561,768	$ 8,053,630	$ 152,534	$ 7,901,096	$ 2,451,973	$ 1,292	$ 5,265,373	$ 182,458

 

(1) Maturity date is 90 days after demand.

(2) Bridge loans were issued at dates between December 2017 and May 2018. Principal is due on the earlier of 18 months from the anniversary date or the completion of L2 financing with a gross proceeds of a minimum of $1.5 million.

(3). L2 - Note was drawn down in five tranches between 02/16/18 and 05/02/18.

(4). Loans were issued from January 2, 2019 to March 23, 2019. Principal and interest are due when funds are received from the litigation between Ocean Thermal Energy Corporation vs., Robert Coe el al.

(5). Notes were issued between 10/14/19 1nd 11/5/19. The notes bear an interest rate of 8% and mature 10/31/21.

They can be converted into 250,000 shares of common stock. They can be converted when the stock closing price reaches $1 or on the maturity, whichever occurs first.

(6). Notes were issued between 12/9/19 and 12/31/19. The notes bear an interest rate of 8% and mature 1/2/22.

They can be converted into 250,000 shares of common stock. They can be converted when the stock closing price reaches $1 or on the maturity, whichever occurs first.

* Default interest rate

 

Maturities of Long-Term Obligations for Five Years and Beyond

 

The minimum principal payments of convertible notes and notes payable at December 31, 2020:

 

2021	$8,397,689
2022	336,750
2023 and thereafter	158,334
Total	$8,892,773

 

NOTE 5 – DERIVATIVE LIABILITY

 

We measure the fair value of our assets and liabilities under the guidance of ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but its provisions apply to all other accounting pronouncements that require or permit fair value measurement.

 

We identified conversion features embedded within convertible debt issued. We have determined that the features associated with the embedded conversion option should be accounted for at fair value as a derivative liability. We have elected to account for these instruments together with fixed conversion price instruments as derivative liabilities as we cannot determine if a sufficient number of shares would be available to settle all potential future conversion transactions. We value the derivative liabilities using the Black-Scholes option valuation model. The derivative liabilities are valued at each reporting date and the change in fair value is reflected as change in fair value of derivative liablity.

 

F-16

 

 

Following is a description of the valuation methodologies used to determine the fair value of our financial liabilities, including the general classification of such instruments pursuant to the valuation hierarchy:

 

	Fair value at December 31, 2020	Quoted market prices for identical assets/liabilities (Level 1)	Significant other observable inputs (Level 2)	Significant unobservable inputs (Level 3)
Derivative Liability	$5,321,395	$-	$-	$5,321,395

  

	Derivative Liability
Derivative liability as of December 31, 2019	$3,032,056
Addition to derivative instruments	300,489
Reclassification upon conversion	(68,327)
Loss on change in fair value of derivative liability	2,057,177
Derivative liability as of December 31, 2020	$5,321,395

 

	Change in
	Fair Value of
	Derivative Liability*
Change in fair value of derivative liability at the beginning of period	$-
Day one gains/(losses) on valuation	659,885
Gains/(losses) from the change in fair value of derivative liability	1,397,292
Change in fair value of derivative liability at the end of the period	$2,057,177

 

* Gains (losses) related to the revaluation of Level 3 financial liabilities is included in “Change in fair value of derivative liabilities” in the accompanying consolidated statement of operations.

 

The fair value of the derivative liability was estimated using the Black-Scholes option-valuation model. The fair values at the commitment and remeasurement dates for our derivative liabilities were based upon the following management assumptions:

 

	Measurement and
	Remeasurement Date**
Expected dividends	0%
Expected volatility	109.5% to 342.1%
Risk free interest rate	0.09% to 0.17%
Expected term (in years)	.025 to 2.81

 

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

 

NOTE 6 – STOCKHOLDERS’ EQUITY

 

Common Stock

 

For the year ended December 31, 2020, we issued 3,071,869 shares of common stock to Oasis Capital LLC, with a fair value of $103,945, for the conversion of a portion of our notes payable in the amount of $50,000. During the year ended December 31, 2019, we issued 3,736,192 shares of common stock to Oasis Capital, LLC with a fair value of $215,874 for the conversion of a portion of our notes payable in the amount of $94,347.

 

Preferred Stock

 

On June 3, 2019, our board of directors approved the following issuances of Preferred Stock:

 

Series B Preferred Stock – We are authorized to issue 1,250,000 shares of Series B Preferred Stock with a par value of $0.001. These shares will not have voting rights alongside the common stock and each share of Series B Preferred Stock will be convertible into ten shares of our common stock. As of December 31, 2020, 518,750 shares of Series B Preferred Stock have been issued for $207,500 in cash.

 

Series C Preferred Stock – We are authorized to issue 2,700,000 shares of Series C Preferred Stock with a par value of $0.001. These shares are a one-time grant and will have voting rights alongside the common stock. Each share of Series C Preferred Stock will be convertible into five shares of our common stock. As of December 31, 2020, 2,300,000 shares of Series C Preferred Stock have been issued for services with a fair value of $159,337. The shares were issued as follows: 1,000,000 shares to our chief executive officer, 400,000 shares to our two independent directors, and 900,000 shares to employees and consultants.

 

F-17

 

 

Warrants and Options

 

The following table summarizes all warrants outstanding and exercisable for the year ended December 31, 2020:

 

	Number of	Weighted Average
	Warrants	Exercise Price
Balance at December 31, 2018	350,073	$0.18
Granted	-	-
Exercised	-	-
Forfeited	-	-
Balance at December 31, 2019	350,073	$0.18
Granted	-	-
Exercised	-	-
Forfeited	(225,000)	-
Balance at December 31, 2020	125,073	$0.18
Exercisable at December 31, 2020	125,073	$0.18

 

During the year ended December 31, 2020, no warrants were exercised. The aggregate intrinsic value represents the excess amount over the exercise price that optionees would have received if all options had been exercised on the last business day of the period indicated, based on our closing stock price of $0.0268 per share on December 31, 2020. Of the total warrants outstanding on December 31, 2020, warrants to purchase 125,073 shares had no intrinsic value, as the price of the stock on that date was lower than the exercise price.

 

NOTE 7 – INCOME TAX

 

The Jobs Act significantly revised the U.S. corporate income tax law by lowering the corporate federal income tax rate from 35% to 21%.

 

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 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.

 

A reconciliation of income tax expense and the amount computed by applying the statutory federal income tax rate of 18.9% to the income before provision for income taxes is as follows:

 

	For the Years Ended December 31
	2020	2019
Statutory rate applied to loss before income taxes	$(1,863,672)	$(1,409,990)
Increase (decrease) in income taxes results from:
Nondeductible permanent differences	647,722	259,070
Change in valuation allowance	1,215,950	1,150,920
Income tax expense (benefit)	$-	$-

  

 

F-18

 

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows:

 

	For the Years Ended December 31
	2020	2019
Deferred tax assets	$2,358,860	$2,358,860
Operating loss carryforwards	10,284,021	9,068,070
Gross deferred tax assets	12,642,881	11,426,930
Valuation allowance	(12,642,881)	(11,426,930)
Net deferred income tax asset	$-	$-

 

We have net operating loss carryforwards for income tax purposes of approximately $23.2 million. This loss is allowed to be offset against future income through 2037. We have net operating loss carryforwards of approximately $12.3 million that can be used indefinitely subject to limitations. The tax benefits relating to all timing differences have been fully reserved for in the valuation allowance account due to the substantial losses incurred through December 31, 2020. The change in the valuation allowance for the years ended December 31, 2020 and 2019, was an increase of $1.22 million and $1.15 million, respectively.

 

NOTE 8 – COMMITMENTS AND CONTINGENCIES

 

Commitments

 

On December 11, 2017, we entered into an equity purchase agreement with L2 Capital, LLC, for up to $15,000,000. As provided in the agreement, we may require L2 Capital to purchase shares of common stock from time to time by delivering a “put” notice to L2 Capital specifying the total number of shares to be purchased. L2 Capital will pay a purchase price equal to 85% of the “market price,” which is defined as the lowest traded price on the OTCQB marketplace during the five consecutive trading days following the “put date” or the date on which the applicable shares are delivered to L2 Capital. The number of shares may not exceed 300% of the average daily trading volume for our common stock during the five trading days preceding the date on which we deliver the applicable put notice. Additionally, such amount may not be lower than $10,000 or higher than $1,000,000. L2 Capital has no obligation to purchase shares under this agreement to the extent that such purchase would cause L2 Capital to own more than 4.99% of our common stock. Upon the execution of this agreement, we issued 1,714,285 shares of common stock valued at $514,286 as a commitment fee in connection with the agreement. The shares to be issued pursuant to this agreement were covered by a Registration Statement on Form S-1 effective on January 29, 2018, with a post-effective amendment effective April 15, 2019. During year ended December 31, 2020, we did not execute any put options with L2 Capital to purchase any shares of common stock. The agreements expired on December 11, 2020, and are no longer in effect.

 

On June 26, 2017, we entered a nonexclusive finder’s arrangement with Craft Capital Management LLC (“Craft”) in the event that proceeds with a debt and/or equity transaction or to finance a merger/acquisition and/or another transaction are arranged by Craft. We have no obligation to consummate any transaction, and we can choose to accept or reject any transaction in our sole and absolute discretion. Upon the successful completion of a placement, we will pay to Craft 8% of the gross proceeds from an equity placement and 3% for a debt placement. In addition, we will issue to Craft, at the time of closing, warrants with an aggregate exercise price equal to 3% of the amount raised. As of December 31, 2020, we have issued warrants to purchase 56,073 shares of common stock for L2 Capital equity transactions and warrants to purchase 69,000 shares of common stock for L2 Capital debt transactions for a total outstanding of warrants to purchase 125,073 shares of common stock, none of which has been exercised. These warrants have a fair value of $0 based on the Black-Scholes option-pricing model as the exercise price is higher than the share value of our common stock on December 31, 2020. The warrants have exercise prices ranging from $0.0425 to $0.25 per share and are exercisable for a period of five years after the closing of the placement. If we, at any time while these warrants are outstanding, sell or grant any option to purchase or sell or grant any right to reprice, or otherwise dispose of or issue any common stock or securities entitling any person or entity to acquire shares of common stock, at an effective price per share less than the then-exercise price, then the exercise price will be reduced to equal the lower share price, at the option of Craft. Such adjustment will be made whenever such common stock is issued. We will notify Craft in writing, no later than the trading day following the issuance of any common stock, of the applicable issuance price or applicable reset price, exchange price, conversion price, and other pricing terms.

 

 

F-19

 

 

Litigation

 

On May 4, 2018, we reached a settlement of the claims at issue in Ocean Thermal Energy Corp. v. Robert Coe, et al., Case No. 2:17-cv-02343SHL-cgc, before the United States District Court for the Western District of Tennessee. Between May 30 and July 19, 2018, we received three payments totaling $100,000 from the defendants. On August 8, 2018, an $8 million judgment was entered against the defendants and in our favor. On May 28, 2019, we further settled the claims at issue with two of the defendants, Brett M Regal and his company, Trade Base Sales, Inc. (“Regal Debtors”), for $17,500,000, bringing the combined judgment and settlement amount owed to us is $25,500,000. On July 1, 2019, the United States District Judge for the Central District of California (case number: 2:19-cv-05299-VAP-JPR), approved our stipulated application for an order permitting us to levy on property and appointing a receiver to carry out the levy on Regal Debtors’ property, such that it may be sold (subject to further order of the court approving and confirming such sales), to satisfy the $25,500,000 settlement and judgment amounts in our favor. On August 15, 2019, the court-appointed receiver notified the court that he had taken custody, possession, and control of certain gemstone and mineral specimens, known as the “Ophir Collection” and 350,000 pounds of unrefined gold and other precious metal bearing ore. By order of the court, the receiver was given the authority to assign, sell, and transfer the debtor property. The proceeds of any sales will be used to satisfy the judgment and settlement agreement, receivership’s reasonable costs and fees, as well as any other claims as determined by the court. Various parties have come forward asserting ownership and priority lien rights to the property. In our ongoing efforts to collect the $25,500,000 judgment obtained, a third party has intervened in our case in the Central District of California (case number: 2:19-cv-05299-VAP-JPR), asserting that it is the rightful owner of the “Ophir Collection” of gems and mineral specimens that is now in possession of the court-appointed receiver. The court has not yet addressed the claims of that third party.

 

On May 21, 2019, Theodore T. Herman filed a complaint against us in Theodore T. Herman v. Ocean Thermal Energy Corporation, Case No. CI-19-04780, in the Court of Common Pleas of Lancaster County, Pennsylvania, asserting that he is entitled to payment on the promissory note described in Note 4: Convertible Notes and Notes Payable. On July 1, 2019, we filed preliminary objections to the complaint, and subsequently filed an answer and new matter on August 20, 2019, to which the plaintiff filed a reply on September 9, 2019. We will continue to defend our position that no further payment on this note is owed.

 

On August 22, 2018, Fugro USA Maine, Inc. (“Fugro”), filed suit against us in Fugro USA Marine, Inc. v. Ocean Thermal Energy Corp., Cause No. 2018-56396, in the District Court for Harris County, TX, 165th Judicial District, seeking approximately $500,000 allegedly owed for engineering services provided. On June 23, 2020, a settlement was reached under which we would pay Fugro $375,000 by December 31, 2020. We have recorded the amount of accrued legal settlement as of December 31, 2020. During 2020, we repaid $70,000 and the balance at December 31, 2020 was $305,000. We were unable to pay the remaining $305,000 by December 31, 2020, and therefore, entered into an amendment to the settlement agreement on December 29, 2020, extending the deadline for full payment, with 18% interest per annum, until March 31, 2021. 


 

NOTE 9 – CONSULTING AGREEMENTS

 

On June 4, 2018, we entered into a consulting agreement to pay 20,000 shares of common stock when one of the conditions of the contract was satisfied. Although this condition was satisfied on August 31, 2018, as of December 31, 2020, we have not issued the shares. As of December 31, 2020, and 2018, we have accrued the share compensation at fair value totaling $1,600.

 

On August 14, 2018, we entered into a consulting agreement to pay $40,000 by issuing shares of common stock. As of December 31, 2020, we have not issued the shares and have accrued the amount.

 

NOTE 10 – EMPLOYMENT AGREEMENTS

 

On January 1, 2011, we entered into a five-year employment agreement with our chief executive officer, which provides for successive one-year term renewals unless it is expressly cancelled by either party 100 days prior to the end of the term. Under the agreement, our chief executive officer will receive an annual salary of $350,000, a car allowance of $12,000, and company-paid health insurance. The agreement also provides for bonuses equal to one times his annual salary plus 500,000 shares of common stock for each additional project that generates $25 million or more in revenue to us. Our chief executive officer is entitled to receive severance pay in the lesser amount of three years’ salary or 100% of the remaining salary if the remaining term is less than three years. On September 15, 2017, an addendum was added to the employment agreement stating that effective June 30, 2017, his salary will be increased to $388,220 per year; that he will receive interest at a rate of 8% on his accrued unpaid wages; and that the term of employment agreement is extended for an additional five years.

 

NOTE 11 – RELATED-PARTY TRANSACTIONS

 

For the years ended December 31, 2020 and 2019, we paid rent of $120,000 and $120,000, respectively, to a company controlled by our chief executive officer under an operating lease agreement.

 

F-20

 

 

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, 2020, or the date of the financial closings of our Baha Mar project (or any other project of $25 million or more), whichever occurs first. On August 15, 2018, principal of $618,500 and accrued interest of $207,731 were converted to 826,231 shares at $1.00 per share, which was ratified by a disinterested majority of the board of directors. The conversion was recorded at historical cost due to the related-party nature of the transaction. As of December 31, 2020, the note balance was $1,102,500 and the accrued interest was $741,134. This note is in default.

 

On March 9, 2017, we issued a promissory note payable of $200,000 to a related party in which our chief executive officer is an officer and director. The note bears interest of 10% and is due and payable within 90 days after demand. During the year ended December 31, 2018, we received an additional $2,000 and repaid $25,000. The outstanding balance was $177,000 and accrued interest was $68,792 as of December 31, 2020.

 

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 resolution of the Memphis litigation (as defined therein), December 31, 2020, or when we are otherwise able to pay. As of December 31, 2020, the outstanding balance was $543,093 and the accrued interest was $199,298. For the years ended December 31, 2020 and 2019, we repaid $35,000 and $34,000 respectively. This note is in default.

 

We remain liable for the loans made to us by JPF Venture Group, Inc. before the Merger. As of December 31, 2020, the outstanding balance of these loans was $594,380 and the accrued interest was $200,649. All of these notes are in default.

 

On June 3, 2019, our board of directors approved the issuances of Series C Preferred Stock. We issued 1,000,000 shares to our chief executive officer and 400,000 shares to our two independent directors with a fair value of $96,987.

 

On October 20, 2016, we borrowed $12,500 from an 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, 2020, the outstanding balance was $12,500, plus accrued interest of $3,277.

 

In June 2019, JPF Venture Group, Inc., a company in which our chief executive officer is an officer and director, provided a short-term advances totaling $32,000 to us for working capital. It was repaid in two payments in the third quarter of 2019.

 

In the fourth quarter of 2019, we issued a series of convertible promissory notes to accredited investors. 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. On October 14, 2019, we borrowed $5,000 from Jeremy P. Feakins, our chief executive officer. As of December 31, 2020, the outstanding balance of his loan was $5,000 and the accrued interest was $487. On October 14, 2019, we borrowed $5,000 from an independent director. As of December 31, 2020, the outstanding balance of his loan was $5,000 and the accrued interest was $479 (see Note 4).

 

In the fourth quarter of 2019, and during the year ended December 31, 2020, we issued a series of convertible promissory notes to accredited investors. 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. On December 9, 2019, we borrowed $5,000 from Jeremy P. Feakins, our chief executive officer. On January 21, 2020, we borrowed an additional $5,000 from Jeremy P. Feakins, our chief executive officer. As of December 31, 2020, the outstanding balance of his loans was $10,000 and the accrued interest was $425. On December 7, 2019, we borrowed $5,000 from an independent director. On January 21, 2020, we borrowed an additional $5,000 from an independent director. As of December 31, 2020, the outstanding balance of his loans was $10,000 and the accrued interest was $425.

 

NOTE 12 – SUBSEQUENT EVENTS

 

On December 14, 2018, Oasis Capital, LLC (formerly, L2 Capital LLC) purchased our note payable from Collier Investments, LLC. 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. Subsequent to December 31, 2020, we issued 7,329,587 shares of common stock to Oasis Capital, LLC for the conversion of a portion of our notes payable in the amount of $115,000. The balance of the loan outstanding as the date of this filing is $927,905.

 

On March 29, 2020, Ocean Capital, LLC. has submitted a request for the issuance of 1,693,877 shares of common stock as additional second commitment shares related to the note purchased from Collier, LLC (see Note 4). As of the date of this report, the shares have not been issued.

 

F-21

 

 

Subsequent to December 31, 2020, we issued a series of convertible promissory notes to accredited investors in the amount of $85,000. The notes bear interest at 8% per annum. The maturity date for each note is January 2, 2022. Each note 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 occurs first.

 

Subsequent to December 31, 2020, we issued a series of promissory notes to accredited investors, which totaled $105,000. 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 the Phase Two Litigation arising from 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F-22

Ocean Thermal Energy (CE) (USOTC:CPWR)
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