|
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ______
Commission File Number: 000-53443
COOL TECHNOLOGIES, INC. |
(Exact name of registrant as specified in its charter) |
Nevada |
75-3076597 |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
8875 Hidden River Parkway, Suite 300
Tampa, Florida 33637
(Address of principal executive office)
Registrant's telephone number, including area code: (813) 975-7467
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
¨ |
Accelerated filer |
¨ |
Non-accelerated filer |
¨ |
Smaller reporting company |
x |
|
Emerging growth company |
¨ |
If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
The aggregate market value of the shares of voting and non-voting common stock held by non-affiliates of the Registrant as of June 29, 2018, the last business day of the Registrant’s last completed second quarter, based upon the closing price of $0.07 per share as reported by the OTCQB Stock Market on such date was $12,400,311. This computation is based on the number of issued and outstanding shares held by persons other than officers, directors and shareholders of 5% or more of the registrant’s common stock.
As of April 1, 2019, 220,183,916 shares of common stock are issued and outstanding excluding 1,000,000 shares held in escrow.
Documents incorporated by reference: None
|
|
2 |
|
Table of Contents |
Forward-Looking Statements
This Report contains predictions, estimates and other forward-looking statements that relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue" or the negative of these terms or other comparable terminology.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Forward-looking statements represent our management's beliefs and assumptions only as of the date of this Annual Report. You should read this Report and the documents that we have filed as exhibits to this Report completely and with the understanding that our actual future results may be materially different from what we expect.
All forward-looking statements speak only as of the date on which they are made. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made, except as required by federal securities and any other applicable law.
3 |
|
Table of Contents |
As used in this Annual Report on Form 10-K (this "Report"), references to the "Company," the "registrant," "we," "our" or "us" refer to Cool Technologies, Inc. and our 95% owned subsidiary, Ultimate Power Truck, LLC ("UPT"), unless the context otherwise indicates.
Corporate History
We were incorporated on July 22, 2002 in the State of Nevada under the name Bibb Corporation. On September 3, 2010, we changed our name to Z3 Enterprises, Inc. ("Z3"), and on April 5, 2012, to HPEV, Inc. ("HPEV") and on August 19, 2015 our stockholders voted to approve a name change to Cool Technologies, Inc. Our 95% owned subsidiary, Ultimate Power Truck, LLC ("UPT"), was formed on April 17, 2014 in the State of Florida.
On March 29, 2011, we entered into a share exchange agreement (which was amended on June 14, 2011) with HPEV, Inc., a Delaware corporation ("the Share Exchange Agreement") to acquire 100 shares, constituting all of the issued and outstanding shares of HPEV, Inc. in consideration for the issuance of 22,000,000 shares of common stock. Upon closing of the share exchange on April 15, 2011, HPEV, Inc. became our wholly owned subsidiary. There was a change of control of our company on April 15, 2011 as a result of the issuance of 21,880,000 shares of our common stock to the original shareholders of HPEV, Inc. pursuant to the terms of the Share Exchange Agreement. An additional 120,000 shares were issued during the fourth quarter of 2011 which completed the issuance of 22,000,000 shares of common stock under the terms of the amended Share Exchange Agreement.
We filed an amendment to our Articles of Incorporation with the Secretary of State of the State of Nevada increasing our authorized shares of common stock, from 140,000,000 shares to 350,000,000 shares, effective March 22, 2017.
As of April 1, 2019, we have seven US patents, one Mexican patent and five pending applications (2 in Canada, 1 in Brazil, 2 US) covering composite heat structures, motors, and related structures, heat pipe architecture, applications (commonly referred to as "thermal" or "heat dispersion technology") and a parallel power vehicle platform system. We also have one Patent Cooperation Treaty ("PCT") application pending that covers integrated electrical power generation methods and systems.
The Company intends to sell a mobile electric power system powered by the Company's proprietary gearing system to commercial vehicle and fleet owners. It intends to commercialize its patents by licensing its thermal technologies and applications to electric motor, pump and vehicle component manufacturers. It may license its mobile electric power system as well.
Business Description
Cool Technologies has spent years designing and developing its technologies. The core technologies are:
Thermal Dispersion - patented technologies (totally enclosed heat pipe cooled and radial vent) that deliver liquid-cooled results for rotating equipment, multi-plate clutches, brakes and rotors without the use of liquid. Liquid cooling is the best, most effective cooling system for electric motors, however, it is also the most expensive. Our technologies reduce the cost of rotating equipment by eliminating the active material and, otherwise, extra components that liquid cooling requires. Our technologies also reduce production costs by increasing the power densities of the rotating equipment which enables them to output the same power from a smaller package.
Mobile Power Generation -- a patented and patents pending in-chassis system that outputs electrical power in amounts equal to or greater than skid-mounted generators or tow-behind generators from a smaller, lighter, more efficient package.
4 |
|
Table of Contents |
The markets for products utilizing our technology include consumer, industrial and military markets, both in the U.S. and worldwide. Our initial target markets include those involved in moving materials and moving people, such as:
|
· |
Motors/Generators, |
|
· |
Mobile auxiliary power, |
|
· |
Compressors, |
|
· |
Turbines (Wind, Micro), |
|
· |
Bearings, |
|
· |
Electric Vehicles: rail, off-highway, mining, delivery, refuse, |
|
· |
Brakes/rotors/calipers, |
|
· |
Pumps/fans, |
|
· |
Passenger vehicles: autos, RVs, buses, trains, aircraft, |
|
· |
Commercial vehicles: SUV, light trucks, trams, bucket trucks |
|
· |
Military: boats, Humvees, trucks, aircraft, and |
|
· |
Marine: boats ranging in size from 30 feet to 120 feet and beyond. |
Our Technologies
Our technologies are divided into two distinct but complementary categories: heat dispersion technology and mobile power generation (MG).
Totally Enclosed Heat Pipe and Radial Vent Heat Pipe
The Company has developed, designed, manufactured and third party tested Totally Enclosed Heat Pipe Cooled (TEHPC) designs. It also owns the patents on the designs. The designs apply to drypit submersible motors and
650kVA marine duty generators.
Our patent portfolio covers the application and integration of our heat pipes into various other cooling schemes for enhanced heat removal in motors (i.e. electric motorcycles, cars and trucks), generators (i.e. e-axles and the MG system) and numerous other industrial applications including multi-clutches for vehicles and brakes and rotors for vehicles marine, aviation and military. We believe that our technologies have the potential to deliver power output increases and cost reductions, depending on the machine type or motor/generator size, as follows:
1. |
Increase power density of current motor platforms by 20% to 40%, |
2. |
Reduce total product cost by 12.5% to 25%, |
3. |
Increase motor and generator efficiency by 1% to 2%, and |
4. |
Increase motor and generator life. |
We also believe that products produced with our technologies have the potential to deliver operational savings as well, including savings from:
- |
reduced maintenance costs, |
- |
the standardization of multiple platforms down to a single platform, |
- |
the standardization of drawings and data around existing platforms, |
- |
the ability to use standard designs and standard insulation systems versus customization, and |
- |
the ability to integrate and produce on existing production lines with no retooling and no additional, or minimal, capital investment. |
Testing conducted by independent laboratories showed a 200% increase in horsepower capability for a dry pit submersible pump and a 25 to 35% increase in power density for a 650 kVA generator.
Our revenue model for the heat dispersion technology is to license the technology in exchange for royalties. Our design and manufacturing experience will be put to use by taking current product in the market, retrofitting with our TEHPC and radial vent heat pipes and handing back to the OEM a third party tested and validated, manufacturable product that increases performance and lowers cost.
5 |
|
Table of Contents |
The electric motorcycle industry which includes brands such as Harley Davidson, Zero and others, relies on both air- cooled and liquid-cooled motors. We believe our technology can result in the production of smaller, lighter weight motors as well as cooler motors, batteries and controls. We believe it will also address common performance issues such as overheating which shuts down the motor and forces the rider to stop and let the motor cool.
Mobile Power Generation (MG)
The Company has a patent pending gearing system, which is used to power an in-chassis generator, eliminating the need for some commercial vehicles to tow a mobile generator to a work site. Management believes that there is a need for on-board, continuous generation of up to 350 to 400 kilowatts (kW) of power to remote jobsites, charge electric vehicles and generate emergency power in the event of an outage or disaster. Recent meetings with Mexican farmers, military personnel and electric vehicle companies have validated the need for such applications. We offer an in-chassis generator installation kit as a stand-alone (Mobile Generator or MG) for third parties and may create an in-house brand (Ultimate Work Truck) with the system installed.
Management, along with key directors and members of the Board of Advisors utilized 2018 to establish production centers, expand business relationships in the USA, Mexico, the Middle East and Australia. The Company also signed supplier agreements and purchase components, joined industry trade associations and generated 10 purchase orders to go with the 269 sales commitments which previously confirmed revenues for the Company. They also increased electrical output for the MG, added new technical capabilities (such as enabling it to output both single and three phase power simultaneously from the Company’s planned no-idle system), updated software, finalized data packs, models and schematics to enable third party up-fitting, and defined the steps of the purchase cycle with our manufacturing partner, Craftsmen Industries. We also launched our MG30-MG125 products in the first quarter of 2019. First article build-to-print is currently underway and will be completed in Q2 of 2019, enabling our pre-production and production runs to start in Q2 and ramp up in Q3.
In May 2018 we demonstrated an MG80 mobile electric power system in Fort Collins, Colorado before Mexican representatives from a variety of government and industry sectors generated interest for several applications in the country including water purification and deep well pumping.
A review of a first run MG80 production vehicle was held at Craftsmen Industries in St. Louis on March 27 th , 2019.
Our revenue model for an in-chassis mobile electric power generation system is driven by the efforts of partner up-fitters and truck body builders along with regional sales teams and independent representatives as well as potential strategic alliances and joint ventures.
We believe that in head-to-head competition with tow behind generators, our mobile generation technology should prove very disruptive. Operators in such markets as the military, utilities and agriculture, to name a few, will be able to work in remote locations without having to tow or drop in a generator. We believe that the reduction in overall weight and size should also deliver significant operating efficiencies and savings to government and work truck fleets.
6 |
|
Table of Contents |
Truck mounted electric vehicle charging systems provide a distinctive way for electric vehicle manufacturers to separate themselves from the competition and a way to help address the financial needs of their smaller market dealers: Mobile charging vehicles don’t require permits or build out of infrastructure which, depending on the type of charging required can cost $300,000 to $400,000 per dealer ( http://electrek.co/2018/10/16/porsche-taycan-dealers-charging-stations/ ). Our technology can provide Level 2 and DC Fast Charging (up to and including 350 kVA on a Class 7 13 liter) and deliver even more power in the future. That’s because the system is retrofittable. It can be uninstalled and reinstalled on a larger truck that generates more torque.
For small market dealers, the truck can act as an interim solution to postpone or minimize the installation costs until sales justify expenditures. In fact, the Company intends to make acquisition easier by offering vehicle leasing through our network of truck up-fitters.
Mobile charging can also be offered as a service to new vehicle owners on a complementary or service contract basis. If a home charger fails or a vehicle gets stuck on the road the owner is covered, the dealer can send out a truck.
The mobile electric vehicle charging trucks could also be branded as a service of the charging networks growing along transportation corridors around the world and the cost shared among their members.
Cool Technologies can integrate water purification and desalination units with the MG to offer water treatment as well as delivery if a rolling tank is hitched to the truck. The truck-mounted systems cleanse contaminated, polluted and waste water or remove saline from saltwater to produce 2,500 to 20,000 gallons of water per day. The desalination unit can output either clean potable water for drinking and cooking or non-potable water for agricultural use.
Both disaster relief agencies and agricultural entities can benefit. In disaster areas, four-wheel drive vehicles can traverse downed trees ,blocked roads and forbidding terrains to bring aid quickly to those in need. Whereas, in farming regions throughout the world, industrial pollution has affected the aquifers and other water sources. In coastal areas, excessive pumping has led to saltwater intrusion in the aquifers.
Cool Technologies offers our patent-pending no-idle option that enables the MG system to operate solely through battery and solar power without the need to idle the truck’s engine. An MG outfitted with a solar or battery-powered no idle system could output clean drinkable water for virtually no cost.
Competition
Heat Dispersion Technologies (Totally Enclosed Heat Pipe Cooled and Radial Vent Heat Pipe)
Cooling solutions to remove or control heat produced by industrial electric motors, generators and alternators are provided by the manufacturers. Their current best practices are based on technology that's over 50 years old. They either add a liquid cooling system to the motor or build an extra large frame around the motor to provide additional surface area to help dissipate the heat. Both practices increase the cost and complexity of their products.
The Company is not aware of any new alternatives on the market.
Mobile Electric Power (MG30-MG200)
Management believes that the Company can compete in the mobile electric power market because there is a need for in-chassis generators, as opposed to trailer-mounted generators towed behind a vehicle. A primary benefit is that the in-chassis installation enables a truck to tow other trailers and equipment, however, we believe the greatest selling point is value. In comparison to the purchase price of a new Doosan towable generator, we can provide up to 200 kilowatts ("kW") of auxiliary mobile power to any location for less than half the production cost of a towable, trailer-mounted generator, which may weigh over 10,000 pounds. We deliver the same power at under 3,000 pounds. Our Mobile Generation system also offers the same features of a tow behind generator including single and three phase outputs as well as a full function generator panel with enhanced capabilities including a touchscreen, digital controls and optional telematics.
7 |
|
Table of Contents |
We believe our competition in the mobile generator market will be from well-established companies such as Cummins, Caterpillar Inc. (“Caterpillar”), Doosan Group (“Doosan”), Wacker Neuson SE (“Wacker Neuson”), Multi Quip Inc. (“Multi Quip”) and Generac Power Systems (“Generac”). All of them offer towable, trailer-mounted generators. Only Cummins Onan offers an onboard generator and it is specifically engineered for mobile emergency vehicle use.
Portable generators also address a need for mobile electric power in the commercial, leisure and residential markets. As outputs tend to range from 1 to 20 kilowatts, the competition they provide is only at the lowest end of our power output spectrum and only from the higher power, higher quality and higher price commercial level units. Onan, Honda and Kohler are among the well-established brand names in the market.
A standard option that is usually ordered from the manufacturer when purchasing a truck is a power take-off or PTO. PTOs are mounted to a truck’s drivetrain and redirect engine power to operate onboard equipment. Integrated power systems use the PTO to run an alternating current generator. Cool Tech has the capability to power the generator directly from the drivetrain or from a PTO.
Real Power from Contour Hardening, Inc. offers one and three phase AC power systems driven by a PTO. According to their website, system voltages range from 10 to 200 kW. Systems under up to 30kW retrofit under the beds of class 3 to 5 diesel trucks. Systems larger than 100 kW require Class 6 diesel trucks and a side mount. An important difference between the Real Power and the MG systems is that MG can generate up to 125 kW on class 3 to 5 trucks and it does so independently from the transmission.
Modular integrated systems offer varying combinations of air compressors, welders, hydraulics and generators. Vanair Manufacturing, Inc’s Underdeck uses a PTO to power air compressors, hydraulics and either 6.6 or 9.6 kW generators, according to the Company’s website. A generator-only version outputs up to 25 kW of single-phase power.
HIPPO Multipower packages hydraulic, air, electric and welding into a single unit. The Company website showcases two models, one which connects to a truck’s PTO. The other is powered by a separate diesel engine. Power exported ranges from 5.2 to 9 kW.
The Miller Enpak from Miller Electric Manufacturing Company which is owned by Illinois Tool Works, Inc. offers the same package powered by a separate diesel engine that exports 6 kW of power, according to Miller’s website.
Many electric vehicles (“EV”) and plug-in hybrid electric vehicles (“PHEV”) can use excess battery capacity to provide exportable power with no idling. Most can be recharged from either the electrical grid or the vehicle’s engine.
Via Motors’ website highlights sales of plug-in hybrid electric vans into hybrids. The optional power export module provides 14.4 kW at 60 amps through 120 and 240 volt outlets. The Company is also working on a utility-grade output module to deliver 50 kW. In January of 2018, Via announced it was partnering with China-based Zhejiang Geely New Energy Vehicle Co. Ltd., a subsidiary of Zhejiang Geely Commercial Vehicle Group, to co-develop a medium-duty extended range electric truck.
Workhouse Group, Inc. has announced on their website plans to offer 7.2 Kilowatts of exportable power with an option for 14.4 kilowatts from their W-15 Plug-in Electric Pickup Truck. The Company is taking pre-orders. According to a May 2017 article on MotorTrend.com, the Workhorse W-15 will go into production in late 2018 at a price of $52,500, however, as of January 2019, the Workhouse website was still taking pre-orders.
Odyne Systems, LLC, is a manufacturer of hybrid systems for medium and heavy-duty work trucks over 14,000 pounds. According to their website, the systems are capable of exporting 6 to 18 kW of AC power.
8 |
|
Table of Contents |
Another way EV and PHEV can power onboard equipment is through an ePTO or electric power take-off which is essentially a battery-powered version of a PTO.
Terex’s Corporation’s hybrid-electric system, HyPower, targets the utility industry, specifically aerial lift, bucket truck and digger derrick applications. According to the Company’s website, it features a plug-in ePTO that harnesses stored energy from rechargeable batteries to power onboard equipment and export up to 3.8 kW of power for up to six hours before needing to be recharged.
Efficient Drivetrains, Inc. (“EDI”) develops and markets a range of PHEV and EV drivetrain systems. The drivetrain integrates with light, medium, or heavy-duty vehicle designs. Their exportable power options provide 50 up to 160 kW of power for up to 12 hours. As noted in their website, the Company recently introduced a Class 6 plug-in hybrid electric truck that exports as much as 160 kW of power. On July 2, 2018, Cummins, Inc. announced that it had acquired Efficient Drivetrains.
EDI is one of the few companies that offers an option to export synchronized power that enables the vehicle to connect directly to the utility power grid (V2G).
Electric Vehicles International, a subsidiary of First Priority Greenfleet, replaces stock transmissions with a drive system that operates in hybrid or electric modes. According to the Company’s website, a V2G option exports up to a 120 kW of grid-synchronized power.
Allison Transmission partnered with another company to offer a generator integrated with the transmission into a single casing. The TITAN On-Board Vehicle Power produces electrical power from 30 to 125 kW for medium tactical and combat vehicles which can weigh as much as 40,000 pounds.
While both the MG and the Titan are retrofittable, there are important differences. The Titan is limited to new vehicles that incorporate the Allison 3,000 Series Transmission and is not available as a retrofit. The MG can produce up to 125 kW on an 8,000 pound as opposed to a 40,000-pound vehicle. Also, the MG’s power is produced independently from the transmission, consequently, the truck can still operate if the generator stops working.
Other companies use a vehicle's engine to charge on-board batteries, which then run the generator when the vehicle is stopped. While this eliminates idling, output tends to be less than 50 kilowatts (kW) and lithium-ion batteries typically power the system. The batteries have limited runtimes and a shorter lifespan than acid batteries. In addition, they must be cooled to operate properly.
Altec Inc. JEMS (Jobsite Energy Management System) is an integrated plug-in system that uses stored electrical energy to power equipment and provide up to 4 kW of exportable power, according to the Company’s website.
Two companies dominate belt driven systems: Aura Systems, Inc. and Mobile Electric Power Solutions, Inc. ("MEPS"). Both systems use a vehicle's engine to power a generator and produce electricity whenever the engine is running. The interface to the vehicle is under the hood via a separate belt system.
Aura Systems generates up to 20 kW whereas MEPS provides up to 15 kW. Both companies provide clean power to operate sophisticated electronic equipment. MEPS delivers alternating current ("AC") power, whereas Aura Systems outputs both AC and direct current ("DC").
A variety of MEPS engine or transmission-based electrical power take-off systems also provide exportable power. They tend to output small amounts in the range of 7 kW of 110/220 volt power. MEPS is able to align two generators to double the output to 15 kW.
Our Mobile Generation system can also be used as a Level 2 charging unit for electric vehicles. ‘Levels’ indicate the charging power. The higher the level, the higher the power. More power equals shorter charging times. Level 2 is typically 240 volt AC current. It is compatible with most electric and plug-in hybrid vehicles. Depending on the battery technology, it takes about 4 to 6 hours to fully charge an electric vehicle. By utilizing the system’s telematics capability and its associated connection to the Internet, an MG retrofitted truck can be alerted by either the driver or the electric vehicle itself.
9 |
|
Table of Contents |
We currently intend to offer Level 3 charging which relies on 480 volt DC (direct current) power within a year. Most Level 3 chargers provide an 80% charge in 30 minutes. At that point, we believe that the system should become a viable and cost-effective substitute for a standard charging station.
The only competition for mobile electric vehicle charging of which we are aware is Real Power, a division of Contour Hardening, Inc. Their self-contained system allows for Level 3 DC fast charging of compatible electric vehicles and uses a PTO driven generator. As noted above, Real Power cannot output more than 30 kW on Class 3-5 trucks. To achieve Level 3 DC fast charging, their system requires a class 6 vehicle.
Mobi EV Charger offers a battery powered electric chargers that are essentially batteries on wheels with a built-in drive system operated by a joystick. It is designed for fixed locations such as parking lots and dealerships and, consequently, it is not street legal. The Level 3 fast charger is equipped with a 160-kilowatt-hour battery and will charge at around 50 kilowatts. The charger is due to enter beta trials in the second quarter of 2019.
Another variation on mobile charging relies on a self-contained unit that is dropped into place. EVgo launched Fast Start, which incorporates a pair of 50-kilowatt fast chargers on a metal sled.
EV Safe Charge offers EV Charge Mobile, a temporary Level 2 and DC fast charging systems delivered to locations on demand Volkswagen intends to offer a similar system with up to 360 kWh charging capacity. According to a press release, the first charging stations will be set up in first half of 2019.
Both the battery-on-wheels and the delivery and drop-off systems aim to address the problems with permitting, construction and electrical infrastructure upgrades common to permanent charging installations.
Some of our potential competitors are significantly larger than we are, have been in business much longer than we have, and have significantly more resources at their disposal and may be able to respond more quickly and efficiently to changes in the marketplace, whether as a result of technological, economic or customer requirements or preferences.
This also enhances their ability to obtain top engineering talent as well as sales representatives with strong industry ties. Plus, their greater market clout could effectively overwhelm our promotional and marketing efforts.
Equipment
As a company that intends to commercialize or license its proprietary technology for others to install, manufacture and/or distribute, our equipment needs are project specific and temporary. We do not intend to purchase any production equipment to implement our business operations, but instead we will rent, lease or outsource as needed.
Manufacturing
We do not plan to manufacture in-house. The Company works with Craftsmen Industries utilizing its assets and system integrators to up-fit our Mobile Generation technology. For our thermal technologies, the Company plans to rely on product development agreements with manufacturers who will then pay a license or royalty per unit. We anticipate that such agreements will delineate the respective intellectual property owned by both companies, describe the goal of the testing to verify the savings and value to a particular company, the equipment to be modified, the criteria that constitute successful testing, how and where the tests will be conducted and the next steps to be taken in the event of successful testing.
Suppliers
For mobile power generation, the required software and its vehicle integration will be supplied by Czero, Inc. along with partner truck up-fitter, Craftsman Industries and others to be named later.
10 |
|
Table of Contents |
Production level quantities of system components will be handled by a variety of suppliers such as Panasonic, Nidec Motor Corporation and Woodward, an independent designer, manufacturer, and service provider of control solutions for the aerospace and industrial markets.
Panasonic System Communications Company of North America supplies Panasonic Toughpad tablets, equipped with the CoolTech software to function as the Human Machine Interfaces. Field technicians control and calibrate the Mobile Generation systems through the touchscreens. The Toughpads are deployed in the trucks’ cabs.
For the thermal technology applications in electric motors, Aavid Thermacore, a division of Boyd Corporation, will supply the heat pipes and mechanical structure, which combine to make the heat exchangers. We will coordinate with them to combine our thermal technology with Aavid Thermacore technology in the creation of heat exchangers.
For dry pit submersibles (a type of submersible pump which can also operate in a dry environment), we intend to purchase the wound stator and the rotor-shaft from Nidec Motor Corporation or other partner sources such as Baldor Electric, Regal Beloit and others. We intend to purchase the fully-machined castings from the Quality Castings Company, located in Orville, Ohio. We intend that these components will then be assembled and tested by Consulting Point, Inc. located in Brownsville, Texas or another partner assembler in the USA.
Intellectual Property
Our success depends in part on our ability to protect our technology and intellectual property. To accomplish this, we rely on a combination of patents, patent applications, trade secrets, copyright laws, trademarks, intellectual property licenses and other contractual rights to establish and protect our proprietary rights. Currently, we have no licenses or contractual rights in place to protect our technology and intellectual property, only patents or patents pending.
As of April 1, 2019, we have seven US patents, one Mexican patent and five pending patent applications (2 in Canada, 1 in Brazil, 2 in US) covering composite heat structures, motors and related structures, heat pipe architecture, applications (commonly referred to as "thermal" or "heat dispersion technology") and a parallel vehicle platform system. We also have a Patent Cooperation Treaty (“PCT”) application pending that covers integrated electrical power generation methods and systems. In addition, we have applied for and received a trademark for an acronym for one of our technologies: "TEHPC"
Our success will likely depend upon our ability to preserve our proprietary technologies and operate without infringing the proprietary rights of other parties. However, we may also rely on certain proprietary technologies and know-how that are not patentable.
We strive to protect such proprietary information, in part, by the use of confidentiality agreements with our employees, consultants and contractors. The Company has a policy of not disclosing its patent applications in order to protect the underlying technology.
The following table sets forth the patents we own or license which we believe support our technology.
Patent Number |
|
|
Country |
|
Filing Date |
|
Issue Date |
|
Expiration Date |
|
Title |
8,283,818 B2 |
|
|
US |
|
February 4, 2010 |
|
October 9, 2012 |
|
October 9, 2032 |
|
Electric Motor with Heat Pipes |
8,134,260 B2 |
|
|
US |
|
July 31, 2009 |
|
March 13, 2012 |
|
March 13, 2032 |
|
Electric Motor with Heat Pipes |
8,148,858 B2 |
|
|
US |
|
August 6, 2009 |
|
April 3, 2012 |
|
April 3, 2032 |
|
Totally Enclosed Heat Pipe Cooled Motor |
8,198,770 B2 |
|
|
US |
|
April 3, 2009 |
|
June 12, 2012 |
|
June 12, 2032 |
|
Heat Pipe Bearing Cooler Systems and Methods |
7,569,955 B2 |
|
|
US |
|
June 19, 2007 |
|
August 4, 2009 |
|
August 4, 2029 |
|
Electric Motor with Heat Pipes |
9,618,068 |
|
|
US |
|
December 18, 2014 |
|
April 11, 2017 |
|
April 11, 2037 |
|
Heat Pipe Cooled Wet Brake |
9,543,809 |
|
|
US |
|
February 25, 2014 |
|
January 10, 2017 |
|
January 10, 2037 |
|
Radial Vent Composite Heat Pipe |
346856 |
|
|
Mexico |
|
August 25, 2015 |
|
April 3, 2017 |
|
February 25, 2034 |
|
Radial Vent Composite Heat Pipe |
11 |
|
Table of Contents |
Government and Industry Regulation
We intend to conduct business worldwide and, therefore, we must comply with local, state, federal, and international regulations, both in operations and for our products.
As a company, we do not plan to manufacture any of our products. Therefore, the government regulations we will be subject to will be limited to storage and involve rotating the shafts of stored electric motors on a regular basis.
Applicable laws and regulations include those governing, among other things, the handling, storage and transportation of materials and products as well as noise and employee safety.
In addition, some of our products are subject to various laws and regulations relating to, among other things, emissions and fuel requirements.
Accordingly, we may be required or may voluntarily determine to obtain approval of our products from one or more of the organizations engaged in regulating product or environmental safety. These approvals could require significant time and resources from our technical staff and, if redesign were necessary, could result in a delay in the introduction of our products in various markets and applications.
Although we believe that our operations and products are in material compliance with current applicable regulations noted within this section, there can be no assurance that changes in such laws and regulations will not impose costly compliance requirements on us or otherwise subject us to future liabilities. New regulations could also require our licensees to redesign their products which could cause us to redesign our technologies which, consequently, could affect market growth for our products.
As our thermal technologies are incorporated in existing motors, generators and other manufactured products that are already subject to regulation. The regulatory burden will fall on the original equipment manufacturers that license our technology.
The Company adds a mobile power generation system to Class 3-8 work trucks. In addition to an existing generator incorporating our thermal technology, the stand-alone version of our auxiliary mobile power system will include a specialized gearing package, which connects the drive train to a generator that will be added on-board. The vehicle and drive train operate normally in accordance with manufacturer's specifications. No regulations are violated or exceeded. Nonetheless, in some markets, the Company will have to certify that it meets federal, state or local noise and emission regulations.
Our designs comply with current EPA emission standards and we believe they will comply with future requirements.
No original vehicle parts will be significantly modified in the retrofitting process. There will be some additional parts (generator, gearing system, touchscreens, software, sensors and controls) added, but these parts will not change how the vehicle operates in any way. Although we will be adding a gearing package to connect the drive train to the generator, the rest of the drive train will operate according to the manufacturer's specifications. Therefore, we believe that the original warranty will remain in effect and we do not believe that the conversion will violate the Magnuson-Moss Act.
The Magnuson-Moss Warranty Act is a federal law that protects consumers by barring a vehicle manufacturer from voiding the warranty on a vehicle due to an aftermarket part unless the manufacturer can prove that the aftermarket part caused or contributed to the failure in the vehicle. The Company will warranty the MG System with an industry standard warranty. All of our other components (generator, human machine interface, software, controller/sensors) will be warranted by their respective manufacturers.
12 |
|
Table of Contents |
The Department of Transportation, National Highway Traffic Safety Administration ("NHTSA") is charged with writing and enforcing safety and fuel economy standards for motor vehicles through their Federal Motor Vehicle Safety Standards. These standards require manufacturers to design their electrically powered vehicles so that, in the event of a crash, the electrical energy storage, conversion, and traction systems are either electrically isolated from the vehicle's chassis or their voltage is below specified levels considered safe from electric shock hazards. Our planned no-idle version of our Mobile Generation system will be designed to meet or exceed these requirements.
In addition, the total weight of the additional components should remain within the vehicle's gross vehicle weight rating. As a result, we believe that our retrofits will comply with federal and state transportation regulations.
While we do not create and market our products around government subsidies and tax incentives, an MG truck equipped with a charger can provide a Level II charge to one or more electric vehicles. Our 200 kVA truck will enable Level III DC fast charging capability. Assuming the MG truck qualifies as a charging station at least 27 states and a number of municipalities offer tax credits or rebates for electric vehicle charging stations.
If we fulfill all elements of our business plan, we will have to prepare for, understand and ultimately meet emerging product environmental regulations around the world. Our products will have to comply with the current emission standards that went into effect in the European Union in 2015, as well as the standards in other international markets, including Japan, Mexico, Australia, Brazil, Russia, India, and China that are becoming more stringent.
Employees
As of April 1, 2019, we had three full time employees and no part time employees. We hope to hire additional employees, on an as-needed basis, subject to sufficient funding, as products and services are developed.
Research and Development
During the years 2018 and 2017, we incurred research and development costs of $501,342 and $348,424, respectively. Such costs were not borne directly by customers.
RISKS RELATED TO OUR BUSINESS AND INDUSTRY
Our independent auditors have expressed their concern as to our ability to continue as a going concern.
As a result of our financial condition, we have received a report from our independent registered public accounting firm for our consolidated financial statements for the years ended December 31, 2018 and 2017 that includes an explanatory paragraph describing the uncertainty as to our ability to continue as a going concern. As of December 31, 2018, we have incurred net losses of $49,866,128 since inception and have only recently commenced full operations, raising substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to generate revenue, achieve profitable operations and repay our obligations when they come due. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty. We are pursuing various financing alternatives to support the sales and manufacture of our mobile power generation systems driven by our proprietary gearing system as well as the completion of the secondary elements of our business plan: to license its thermal technologies and applications, including submersible dry-pit applications. There can be no assurance, however, that we will obtain adequate funding or that we will be successful in accomplishing any of our objectives.
13 |
|
Table of Contents |
Our limited operating history makes evaluating our business and future prospects difficult, and may increase the risk of your investment.
We have a very limited operating history on which investors can base an evaluation of our business, operating results and prospects. We have no operating history with respect to commercializing our heat pipe technology and licensing it to motor and generator manufacturers or selling mobile generators or translating our thermal technology from testing and one-off applications into mass market production. Consequently, it is difficult to predict our future revenues, if any, and appropriately budget for our expenses, and we have limited insight into trends that may emerge and affect our business.
We have only recently commercialized our mobile power generation system. Sufficient funds from recent bridge financing are available to fund a pilot run by Craftsmen Industries who is our manufacturing partner. We also have reason to believe from current negotiations that funds will be available for the transition from pilot run to full production of the mobile generation system. However, there are risks that what is learned from the pilot run may delay full production which might delay funding. If we are unable to obtain additional funding in a timely manner it will have a negative impact.
We have a history of operating losses
From incorporation in 2002 to December 31, 2018, we have incurred net losses of $49,866,128. Going into 2019, we are now in a position to reverse this history of operating losses and have reason to believe that positive cash flow may be achieved as early as the fourth quarter 2019. This assumes the pilot run of the mobile generation is successful and that the anticipated financing becomes available. The risk is that the pilot run identifies problems or that funding for production is not available.
The anticipated financing is based upon a third-party assessment of the historically demonstrated or contractually committed profit-earning capacities of our IP. In the event that the financing fails to close, we will likely rely on customer letters of credit or deposits to fund orders and we may issue additional equity securities, convertible or non-convertible debt to raise needed capital. We may be unable to secure such funding when needed in adequate amounts or on acceptable terms, if at all. Any additional equity financing may involve substantial dilution to our then existing stockholders. The inability to raise the additional capital will restrict our ability to develop and conduct business operations.
The market for mobile power generation is changing.
Although tow-behind generators have been the standard for more than 60 years, the market is changing. A greater number of hybrid and electric vehicles are being sold and low power generation systems are being incorporated in internal combustion trucks. As the MG System produces power equal to tow behinds from a smaller, lighter package, it is reflective of that change. Significant increases in the electrical output of existing mobile power systems, new government regulations or changes in consumer demand and behavior may slow the growth of our business and negatively impact our financial results.
Many of our potential competitors are better established and have significantly greater resources.
The market for the products we develop is highly competitive. Many of our potential competitors are well established with larger and better resources, longer relationships with customers and suppliers, greater name recognition and greater financial, technical and marketing resources than we have. Increased competition may result in price reductions, reduced gross margins, loss of market share and loss of licensees, any of which could materially and adversely affect our business, operating results and financial condition. We cannot ensure that prospective competitors will not adopt technologies or business plans similar to ours or develop products which may be superior to ours or which may prove to be more popular. It is possible that new competitors will emerge and rapidly acquire market share. We cannot ensure that we will be able to compete successfully against future competitors or that the competitive pressures will not materially and adversely affect our business, operating results and financial condition.
14 |
|
Table of Contents |
We may experience significant delays in the design and implementation of our thermal technology into the motors and/or generators of the companies with which we have research and development agreements which could harm our business and prospects.
Motor manufacturers often experience delays in the design, manufacture and commercial release of new product lines. Any delay in the financing, design, and implementation of our thermal technology into the motor and/or generator lines of companies with which we may have research and development agreements could materially damage our brand, business, prospects, financial condition and operating results.
If we are unable to adequately control the costs associated with operating our business, including our costs of sales and materials, our business, financial condition, operating results and prospects will suffer.
If we are unable to maintain a sufficiently low level of costs for designing, marketing, selling and distributing our conversion system and thermal technologies relative to their selling prices, our operating results, gross margins, business and prospects could be adversely impacted. We have made, and will be required to continue to make, significant investments for the design and sales of our system and technologies. There can be no assurances that our costs of producing and delivering our system and technologies will be less than the revenue, if any, we may generate from sales and/or licensing. We may be required to incur substantial marketing costs and expenses to promote our systems and technologies, even though our marketing expenses to date have been relatively limited. Many of the factors that impact our operating costs are beyond our control. For example, the costs of our components could increase due to shortages if global demand for such components increases.
We will be dependent on our suppliers. The inability or refusal of these suppliers to deliver components at prices and volumes acceptable to us would have an adverse effect on our business.
We have selected suppliers, issued purchase orders and received products for our mobile power generation system. We source globally from a number of suppliers, none of which are single source suppliers for these components.
Failure to obtain reliable sources of component supply that will enable us to meet quality, price, engineering, design and production standards, as well as the production volumes required to successfully market our conversion system could negatively affect our Company's revenues and business operations. Even if we are successful in developing a high-volume mobile power manufacturing platform and reliable sources of component supply, we do not know whether we will be able to do so in a manner that avoids significant delays and cost overruns.
If we experience significant increased demand, or need to replace our existing suppliers, there can be no assurance that additional supplies of component parts will be available when required on terms that are favorable to us, or that a supplier would allocate sufficient supplies to us in order to meet our requirements or fill our orders in a timely manner. The loss of any single or limited source supplier or the disruption in the supply of components from these suppliers could lead to delays to our customers, which could hurt our relationships with our customers, result in negative publicity, damage our brand and adversely affect our business, prospects and operating results.
Any significant disruption in our supplier relationships, particularly relationships with sole source suppliers, could harm our business. Furthermore, some of our suppliers may not be able to handle any commodity cost volatility and/or sharply changing volumes while still performing as we expect. To the extent our suppliers experience supply disruptions, there is a risk for delivery delays, production delays, production issues or delivery of non-conforming products by our suppliers. Even where these risks do not materialize, we may incur costs as we try to make contingency plans for such risks.
Our research and commercialization efforts may not be sufficient to adapt to technological changes.
As technologies change, we plan to upgrade or adapt our mobile power generation system in order to continue to provide vehicles with the latest technology. However, our installations or retrofits may not compete effectively with alternative vehicles if we are not able to source and integrate the latest technology into our mobile power generation system. We plan to offer a no-idle system, however, since we do not plan to manufacture battery cells, we are dependent on suppliers of battery cell technology for our battery packs. Any failure to keep up with advances in electric or hybrid vehicle technology would result in a decline in our competitive position which would adversely affect our business, prospects, operating results and financial condition.
15 |
|
Table of Contents |
A prolonged economic downturn or economic uncertainty could adversely affect our business and cause us to require additional sources of financing, which may not be available.
Economic cycles and any related fluctuation in the businesses of our potential fleet customers, electric motor manufacturers or income of the general public may have a material adverse effect on our financial condition, results of operations or cash flows. If global economic conditions deteriorate or economic uncertainty increases, our potential customers may experience lowered incomes or deterioration of their businesses, which may result in the delay or cancellation of plans to convert their vehicles, reduced license sales or reduced royalties from sales by licensees. As a consequence, our cash flow could be adversely impacted.
Any changes in business credit availability or cost of borrowing could adversely affect our business.
Declines in the availability of business credit and increases in corporate borrowing costs could negatively impact the number of mobile generators installed and the number of electric motors and generators manufactured. Substantial declines in the number of installations or retrofits by our customers could have a material adverse effect on our business, results of operations and financial condition.
If we lose any of our key management personnel, we may not be able to successfully manage our business or achieve our objectives.
Our future success depends in large part upon the leadership and performance of our management and consultants. The Company's operations and business strategy are dependent upon the knowledge and business contacts of our executive officers and our consultants. We have employment agreements with our Chief Executive Officer, Vice President and Chief Technical Officer and a consulting agreement for the services of Quentin Ponder, our Chief Financial Officer. Although, we hope to retain the services of all of our officers, if an officer should choose to leave us for any reason before we have hired additional personnel, our operations may suffer. If we should lose their services before we are able to engage and retain qualified employees and consultants to execute our business plan, we may not be able to continue to develop our business as quickly or efficiently.
In addition, we must be able to attract, train, motivate and retain highly skilled and experienced technical employees in order to successfully develop our business. Qualified technical employees often are in great demand and may be unavailable in the time frame required to satisfy our business requirements. We may not be able to attract and retain sufficient numbers of highly skilled technical employees in the future. The loss of technical personnel or our inability to hire or retain sufficient technical personnel at competitive rates of compensation could impair our ability to successfully grow our business. If we lose the services of any of our consultants, we may not be able to replace them with similarly qualified personnel, which could harm our business.
We may incur material losses and costs as a result of product defects, warranty claims or product liability actions that may be brought against us.
We face an inherent business risk of exposure to product liability if our mobile power generation system or other products fail to perform as expected or failure of our products results in bodily injury or property damage.
If flaws in the design of our products were to occur, we could experience a rate of failure in our mobile power generation system or other products that could result in significant charges for product re-work or replacement costs. Although we plan to engage in extensive quality programs and processes, these may not be sufficient to avoid conversion or product failures, which could cause us to:
· |
lose net revenue; |
|
· |
incur increased costs such as costs associated with customer support; |
|
· |
experience delays, cancellations or rescheduling of retrofits or orders for our products; |
|
· |
experience increased product returns or discounts; or |
|
· |
damage our reputation; |
all of which could negatively affect our financial condition and results of operations.
16 |
|
Table of Contents |
If any of our mobile power generation systems or other products are or are alleged to be defective, we may be required to participate in a recall involving such installations or retrofits or products. A recall claim brought against us, or a product liability claim brought against us in excess of our insurance, may have a material adverse effect on our business.
Depending on the terms under which we supply products to a vehicle component or engine manufacturer, a manufacturer may attempt to hold us responsible for some or all of the repair or replacement costs of defective products under their warranties when the manufacturer asserts that the product supplied did not perform as warranted.
Developments or assertions by us or against us relating to intellectual property rights could materially impact our business.
We own significant intellectual property, including a number of patents, and intend to be involved in numerous licensing arrangements. Our intellectual property should play an important role in maintaining our competitive position in a number of the markets we intend to serve.
We will attempt to protect proprietary and intellectual property rights to our products and conversion system through available patent laws and licensing and distribution arrangements with reputable domestic and international companies. Despite these precautions, patent laws afford only limited practical protection in certain countries.
Litigation may also be necessary in the future to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others or to defend against claims of invalidity. Such litigation could result in substantial costs and the diversion of resources.
As we create or adopt new technology, we will also face an inherent risk of exposure to the claims of others that we have allegedly violated their intellectual property rights.
Our products could infringe on the intellectual property rights of others which may result in costly litigation and, if we do not prevail, could also cause us to pay substantial damages and prohibit us from selling or licensing our products.
Third parties may assert infringement or other intellectual property claims against us. We may have to pay substantial damages, including damages for past infringement if it is ultimately determined that our products or technology infringe a third party's proprietary rights. Further, we may be prohibited from selling or providing products before we obtain additional licenses, which, if available at all, may require us to pay substantial royalties or licensing fees. Even if claims are determined to be without merit, defending a lawsuit takes significant time, may be expensive and may divert management's attention from our other business concerns. Any public announcements related to litigation or interference proceedings initiated or threatened against us could cause our business to be negatively impacted and our stock price to decline.
We may incur losses, additional costs or even interruption of business operations as a result of fines or sanctions brought by government regulators.
Our business will be subject to various U.S. federal, state and local, and non-U.S. environmental, transportation and safety laws and regulations.
We cannot assure you that we will be at all times in complete compliance with such laws, regulations and permits. If we violate or fail to comply with these laws, regulations or certifications, we could be fined or otherwise sanctioned by regulators.
17 |
|
Table of Contents |
We may face risks from doing business internationally.
The initial sales of our mobile power generation systems were to Mexican buyers. It’s likely that there will be further sales, licensing and distribution of products and technologies outside the United States, and that we will derive revenues from these sources. Consequently, our revenues and results of operations will be vulnerable to currency fluctuations. We will report our revenues and results of operations in United States dollars, but a significant portion of our revenues may be earned outside of the United States. We cannot accurately predict the impact of future exchange rate fluctuations on revenues and operating margins. Such fluctuations could have an adverse effect on our business, results of operations and financial condition.
Our business will also be subject to other risks inherent in the international marketplace, many of which are beyond our control. These risks include:
· |
laws and policies affecting trade, investment and taxes, including laws and policies relating to the repatriation of funds and withholding taxes, and changes in these laws; |
|
· |
changes in local regulatory requirements, including restrictions on installations or retrofits; |
|
· |
differing cultural tastes and attitudes; |
|
· |
differing degrees of protection for intellectual property; |
|
· |
the instability of foreign economies and governments; |
|
· |
war and acts of terrorism. |
Any of the foregoing could have an adverse effect on our business, financial condition and results of operations.
I f we are unable to effectively implement or maintain a system of internal control over financial reporting, we may not be able to accurately or timely report our financial results and our stock price could be adversely affected.
Section 404 of the Sarbanes-Oxley Act of 2002 and related regulations require us to evaluate the effectiveness of our internal control over financial reporting as of the end of each fiscal year, and to include a management report assessing the effectiveness of our internal control over financial reporting in our Annual Report on Form 10-K for that fiscal year. Management determined that as of December 31, 2018, our disclosure controls and procedures and internal control over financial reporting were not effective to ensure that information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act were recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Act Commission's rules and forms and that our disclosure controls are not effectively designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our internal controls are not effective for the following reasons, (1) we have limited entity-level controls because of the limited time and abilities of the four officers, (2) we have not implemented adequate system and manual controls, and (3) there is no separate audit committee.
Any failure to implement new or improved controls necessary to remedy the material weaknesses described above, or difficulties encountered in the implementation or operation of these controls, could harm our operations, decrease the reliability of our financial reporting, and cause us to fail to meet our financial reporting obligations, which could adversely affect our business and reduce our stock price.
We may be at risk to accurately report financial results or detect fraud if we fail to maintain an effective system of internal controls.
As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring public companies to include a report that contains an assessment by management on the Company's internal control over financial reporting in their annual and quarterly reports on Form 10-K and 10-Q. We cannot assure you that significant deficiencies or material weaknesses in our disclosure controls and internal control over financial reporting will not be identified in the future. Also, future changes in our accounting, financial reporting, and regulatory environment may create new areas of risk exposure. Failure to modify our existing control environment accordingly may impair our controls over financial reporting and cause our investors to lose confidence in the reliability of our financial reporting, which may adversely affect our stock price.
18 |
|
Table of Contents |
RISKS ASSOCIATED WITH OUR COMMON STOCK
The issuance of shares upon conversion of our preferred stock and exercise of outstanding warrants and options will cause immediate and substantial dilution to our existing stockholders.
As of December 31, 2018, there are 20 shares of Series A preferred stock (“Series A Stock”) issued and outstanding (each such share of Series A Stock has the voting right of 50,000 shares of common stock) convertible into an aggregate of 1,000,000 shares of common stock and 2,727,270 shares of Series B preferred stock (“Series B Stock”) issued and outstanding. For so long as the Series B Stock is issued and outstanding, the holders of Series B Stock shall vote together as a single class with the holders of the common stock and the holders of any other class or series of shares entitled to vote with the common stock, with the holders of Series B Stock being entitled to 66 2/3% of the total votes on all such matters. There are also warrants to purchase an aggregate of 80,641,440 shares of common stock and options to purchase an aggregate of 4,000,000 shares of common stock outstanding. The issuance of shares upon conversion of preferred stock and exercise of warrants and options will result in substantial dilution to the interests of other stockholders.
The holders of the Series B Stock have 66 2/3% of the voting rights of the Company .
Because the holders of the Series B Stock have 66 2/3% of the voting rights of the Company if they act together, may will be able to influence the outcome of all corporate actions requiring approval of our stockholders, including the election of directors and approval of significant corporate transactions, which may result in corporate action with which other stockholders do not agree. If the Series B stockholders vote in favor of the foregoing action, and have sufficient voting power to approve such actions through their ownership of Series B Stock, no other stockholder approvals will be required.
Our common stock is subject to the "penny stock" rules of the SEC and the trading market in our securities is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.
The SEC has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (i) that a broker or dealer approve a person's account for transactions in penny stocks; and (ii) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person's account for transactions in penny stocks, the broker or dealer must: (i) obtain financial information and investment experience objectives of the person; and (ii) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form: (i) sets forth the basis on which the broker or dealer made the suitability determination; and (ii) that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
19 |
|
Table of Contents |
Because we do not intend to pay any cash dividends on our shares of common stock, our stockholders will not be able to receive a return on their shares unless they sell them
We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them at a price higher than that which they initially paid for such shares.
The market price of our shares of common stock is subject to fluctuation.
The market prices of our shares may fluctuate significantly in response to factors, some of which are beyond our control, including:
· |
The announcement of new products by our competitors |
|
· |
The release of new products by our competitors |
|
· |
Developments in our industry or target markets |
|
· |
General market conditions including factors unrelated to our operating performance |
Recently, the stock market in general has experienced extreme price and volume fluctuations. Continued market fluctuations could result in extreme market volatility in the price of our shares of common stock which could cause a decline in the value of our shares.
There is a very limited trading market for our securities.
There is currently only a limited trading market for our common stock. We cannot predict the extent investor interest will lead to development of an active trading market or how liquid that trading market might become. If an active trading market does not develop or is not sustained, it may be difficult for investors to sell shares of our common stock at a price that is attractive or at all. In such a case, you may find that you are unable to achieve any benefit from your investment or liquidate your shares.
Because we are not subject to compliance with rules requiring the adoption of certain corporate governance measures, our stockholders have limited protections against interested director transactions, conflicts of interest and similar matters.
The Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by the SEC, the New York Stock Exchange, the Amex Equities Exchanges and NASDAQ, as a result of Sarbanes-Oxley, require the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities which are listed on those exchanges or the NASAQ. Because we will not be seeking to be listed on any of the exchanges, we are not presently required to comply with many of the corporate governance provisions.
Although our shareholders appointed independent directors to the board, we do not currently have independent audit or compensation committees. Until then, the directors who are part of management have the ability, among other things, to determine their own level of compensation. Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our stockholders without protections against interested director transactions, conflicts of interest and similar matters and investors may be reluctant to provide us with funds necessary to expand our operations.
Our Articles of Incorporation allow for our board of directors to create new series of preferred stock without further approval by our stockholders which could adversely affect the rights of the holders of our common stock.
Our Board has the authority to fix and determine the relative rights and preferences of preferred stock. As a result, our Board could authorize the issuance of a series of preferred stock that would grant to such holders (i) the preferred right to our assets upon liquidation, (ii) the right to receive dividend payments before dividends are distributed to the holders of common stock and (iii) the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock. In addition, our Board could authorize the issuance of a series of preferred stock that has greater voting power than our common stock or that is convertible into our common stock, which could decrease the relative voting power of our common stock or result in dilution to our existing common stockholders.
20 |
|
Table of Contents |
Any of the actions described in the preceding paragraph could significantly adversely affect the investment made by holders of our common stock. Holders of common stock could potentially not receive dividends that they might otherwise have received. In addition, holders of our common stock could receive less proceeds in connection with any future sale of the Company, whether in liquidation or on any other basis.
Our officers and directors own a substantial amount of our common stock and, therefore, exercise significant control over our corporate governance and affairs which may result in their taking actions with which other shareholders do not agree.
Our executive officers and directors control approximately 17% of our outstanding common stock. In addition, one of the directors owns Series B preferred shares which together with two other stockholders control 66 and 2/3 of the voting rights of the Company. These officers and directors, if they act together, may be able to exercise substantial influence over the outcome of all corporate actions requiring approval of our stockholders, including the election of directors and approval of significant corporate transactions, which may result in corporate action with which other stockholders do not agree. This concentration of ownership may also have the effect of delaying or preventing a change in control which might be in other stockholders' best interest but which might negatively affect the market price of our common stock.
We are in breach of our agreements with certain investors for failure to timely file a registration statement with the SEC registering shares offered and sold to such investors.
In connection with the offer and sale shares and warrants to purchase shares of common stock, the Company agreed to file a registration statement with the SEC including these shares once the Company sold an aggregate of 1 million shares. The Company sold 1 million shares in July 2013. In addition, our placement agents also have "piggyback" registration rights for shares underlying warrants issued to them. If an investor or placement agent decides to bring an action against the Company before this registration statement is deemed effective we may be faced with litigation and other costs and damages if unsuccessful in any such action.
We may, in the future, issue additional common shares, which would reduce investors' percent of ownership and may dilute our share value.
Our Articles of Incorporation authorizes the issuance of 350,000,000 shares of common stock, par value $0.001 per share, of which as of April 1, 2019, 220,183,916 shares are issued and outstanding excluding 1,000,000 shares held in escrow. The future issuance of common stock may result in substantial dilution in the percentage of our common stock held by our then existing stockholders. We may value any common stock issued in the future on an arbitrary basis. The issuance of common stock for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our investors, and may have an adverse effect on any trading market of our common stock.
Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.
If our stockholders sell substantial amounts of our common stock in the public market under Rule 144 or upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an "overhang" and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
21 |
|
Table of Contents |
Item 1B. Unresolved Staff Comments
Not applicable.
The Company rents a virtual office, which it uses as its corporate headquarters for a monthly rent of $300. The office is located at 8875 Hidden River Parkway, Suite 300, Tampa, Florida 33637. We believe this space is adequate for our current operations.
U.S. District Court, Eastern District of New York
On October 7, 2016, the Company received a complaint, Wang et al v. Cool Technologies, Inc. et al, filed on July 28, 2016 in the U.S. District Court for the Eastern District of New York (Brooklyn) Civil docket #1:16-CV-04101-RRM-PK against the Company and Timothy Hassett, the Company’s Chief Executive Officer, alleging damages of $1,100,000 for inter alia breach of contract for failing to register shares sold to the Plaintiffs in February and March 2014.
On March 30, 2017, the Company and Timothy Hassett, the Company’s Chief Executive Officer, requested leave of the court to move to dismiss the matter, on both Substantive and Jurisdictional grounds. On April 13, 2017, the Honorable Roslynn R. Mauskopf granted leave to renew our March 30, 2017 request for a pre-motion conference after the initial conference before Magistrate Judge Kuo. At the initial conference, Corporate counsel informed the court that the Company, in fact, filed a registration statement for said shares in July 2014 and the Warrants were in the possession of Plaintiff Gary Zse Kong J.D. and located on his computer and printed at his office in the Law Offices of Gary Park. Magistrate Judge Peggy Kuo directed plaintiff to file an amended complaint and directed plaintiff Gary Sze Kong to preserve all computer and other records which may still be at the Law Offices of Gary Park. Defendants were also granted leave to subpoena such records if they are no longer under the control of Plaintiff Kong. On June 30 th , Plaintiff amended their complaint inter alia admitting that the Company filed the registration statement with the SEC. On August 7, 2017, Corporate Counsel requested leave for a pre-motion conference to move to dismiss the matter.
On March 27, 2018, a Subpoena was issued and served upon the Law Offices of Gary S. Park P.C. On April 3, 2018 counsel for Plaintiffs withdrew and were replaced by Mr. Sang Joon Sim, Esq. of Sim & Record, LLP which shares an address with Mr. Park’s law offices. On April 3, 2018 plaintiffs obtained new counsel. On May 31, 2018 the parties entered into a settlement and on July 3, 2018 the Honorable Judge Mauskopf ordered the matter dismissed with prejudice without costs to either party. On July 9, 2018 the Order was entered dismissing the matter.
From time to time, the Company may be a party to other legal proceedings. Management currently believes that the ultimate resolution of these other matters, if any, and after consideration of amounts accrued, will not have a material adverse effect on our consolidated results of operations, financial position, or cash flow.
Securities and Exchange Commission Settlement
On September 20, 2018, the Securities and Exchange Commission (SEC) approved an offer to settle the enforcement proceedings against the Company pursuant to Section 21C of the Securities Exchange Act of 1934.
These proceedings arose out of the violation of the Regulation S-X requirement that interim financial statements filed as part of a Form 10-Q be reviewed by an independent public accounting firm prior to filing.
On three occasions, specifically, May 20, 2013, August 19, 2013 and August 22, 2016, Cool Technologies filed Form 10-Qs that contained financial statements that were not reviewed by an independent public accounting firm. In two cases, the Company properly disclosed that the 10Q’s were “unaudited and unreviewed” as set forth by the guidance in the Division of Corporation Finance Financial Reporting Manual Section 4410.3. And In each case, the Company subsequently filed a restated and amended Form 10-Q/A that complied with the Interim Review Requirement. In no instance were the filings ever subjected to audit challenge.
Pursuant to the enforcement proceeding instituted by the SEC, the Company settled for a fine of $75,000 and agreed to cease and desist from any future violations of Sections 13(a) of the Exchange Act and Rule 13a-13 thereunder, and Rule 8-03 of Regulation S-X.
Item 4. Mine Safety Disclosures
Not applicable.
22 |
|
Table of Contents |
Market Information
Our common stock was quoted on the OTC Bulletin Board from July 30, 2009 to March 26, 2010 under the symbol BIBB. Prior to September 2010, there was no active market for our common stock. Our common stock is currently quoted on the OTCQB under the trading symbol WARM.
The following table sets forth the high and low sales prices as reported on the OTCQB. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
Quarter Ended |
|
High |
|
|
Low |
|
||
|
|
|
|
|
|
|
||
March 31, 2018 |
|
$ | 0.07 |
|
|
$ | 0.04 |
|
June 30, 2018 |
|
$ | 0.09 |
|
|
$ | 0.06 |
|
September 30, 2018 |
|
$ | 0.08 |
|
|
$ | 0.03 |
|
December 31, 2018 |
|
$ | 0.06 |
|
|
$ | 0.02 |
|
March 31, 2017 |
|
$ | 0.15 |
|
|
$ | 0.08 |
|
June 30, 2017 |
|
$ | 0.26 |
|
|
$ | 0.07 |
|
September 30, 2017 |
|
$ | 0.09 |
|
|
$ | 0.05 |
|
December 31, 2017 |
|
$ | 0.09 |
|
|
$ | 0.06 |
|
The last reported sales price of our common stock on the OTCQB on April 11, 2019, was $0.04.
As of April 1, 2019, there were 210 stockholders of record of our common stock.
Dividend Policy
The Company has never paid dividends on its common stock and does not anticipate that it will pay dividends in the foreseeable future. It intends to use any future earnings for the expansion of its business. Any future determination of applicable dividends will be made at the discretion of the board of directors and will depend on the results of operations, financial condition, capital requirements and other factors deemed relevant.
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information regarding our equity compensation plans as of December 31, 2018:
Equity Compensation Plan Information
Plan category |
|
Number of securities to be issued upon exercise of outstanding options, warrants and rights |
|
Weighted-average exercise price of outstanding options, warrants and rights |
|
Number of securities remaining available for future issuance under equity compensation plans |
|
|||||
Equity compensation plans approved by security holders |
|
-- |
|
-- |
|
-- |
||||||
|
||||||||||||
Equity compensation plans not approved by security holders |
|
12,060,714 |
(1) |
|
$ |
0.74 |
|
-- |
____________
(1) |
Represents (i) options to purchase 1,000,000 shares of common stock at $2.00 per share to each of Timothy Hassett and Mark Hodowanec; (ii) options to purchase 2,000,000 shares of common stock at $2.00 per share to Judson Bibb; and (iii) warrants to purchase 8,060,714 shares of common stock as set forth in Note 7 to the financial statements under Item 8 of this Annual Report on Form 10-K. |
23 |
|
Table of Contents |
Recent Sales of Unregistered Securities
On January 2, 2018, we issued 500,000 shares of our common stock upon the partial conversion of $25,000 on convertible debt of $226,325 by Lucas Hoppel.
On January 5, 2018, we issued 1,500,000 shares of our common stock upon the partial conversion of $60,000 on convertible debt of $226,325 by Lucas Hoppel.
On January 8, 2018, we issued 1,000,000 shares of our common stock upon partial conversion of $40,000 on convertible debt of $141,625 by Lucas Hoppel.
On February 20, 2018, we issued 1,500,000 shares of our common stock upon the partial conversion of $37,500 on convertible debt of $226,325 by Lucas Hoppel.
On February 21, 2018, we issued 1,500,000 shares of our common stock upon the partial conversion of $37,500 on convertible debt of $226,325 by Lucas Hoppel.
On February 27, 2018, we issued 441,727 shares of our common stock to Lucas Hoppel pursuant to the terms of a securities purchase agreement entered into on August 25, 2017, which required the issuance of additional inducement shares if the price of our common stock decreased six months from the date of the agreement so that the aggregate value of the shares issued on the closing date would equal the aggregate value of the shares after six months.
On March 2, 2018, we sold a total of 200,000 shares of common stock and a three-year warrant to purchase 100,000 shares of our common stock at an exercise price of $0.05 per share to an accredited investor in a private offering. We received $10,000 as consideration for the sale of such securities.
On March 5, 2018, we issued 1,653,000 shares of our common stock upon the final conversion of $41,325 on convertible debt of $226,325 by Lucas Hoppel.
On March 5, 2018, we issued 1,565,000 shares of our common stock upon final conversion of $39,125 on convertible debt of $141,625 by Lucas Hoppel.
On March 23, 2018, we issued 1,500,000 shares of our common stock upon partial conversion of $37,500 on convertible debt of $169,950 by Lucas Hoppel.
On March 29, 2018, we issued 9,603,662 shares of common stock to Gemini Special Opportunities Fund upon the cashless exercise of a warrant to purchase 13,603,662 shares of common stock.
24 |
|
Table of Contents |
On April 2, 2018, we sold a total of 1,111,111 shares of common stock and a five-year warrant to purchase 1, 111,111 shares of our common stock at an exercise price of $0.045 per share to an accredited investor in a private offering. We received $50,000 as consideration for the sale of such securities.
On April 4, 2018, we sold a total of 200,000 shares of common stock and a three-year warrant to purchase 100,000 shares of our common stock at an exercise price of $0.05 per share to an accredited investor in a private offering. We received $10,000 as consideration for the sale of such securities.
On April 10, 2018, we issued 2,025,000 shares of our common stock upon partial conversion $50,625 on convertible debt of $374,873. by KHIC, LLC.
On April 19, 2018, we issued 2,000,000 shares of our common stock upon partial conversion of $50,000 on convertible debt of $169,950 by Lucas Hoppel.
On May 23, 2018, we issued 3,298,000 shares of our common stock upon final conversion of $82,450 on convertible debt of $169,950 by Lucas Hoppel.
On May 24, 2018, pursuant to the issuance of a convertible promissory note for $110,000 on May 22, 2018, we issued 400,000 shares of our common stock as inducement shares to Lucas Hoppel.
On June 18, 2018, we sold a total of 1,583,333 shares of common stock and a three-year warrant to purchase 1,187,499 shares of our common stock at an exercise price of $0.06 per share to an accredited investor in a private offering. We received $95,000 as consideration for the sale of such securities.
On August 27, 2018, we issued 650,000 shares of our common stock upon the conversion of 13 shares of Series A preferred stock by Spirit Bear.
On September 14, 2018, we issued 2,000,000 shares of our common stock upon partial conversion of $37,500 on convertible debt of $396,550 by Lucas Hoppel.
On September 26, 2018, we issued 2,000,000 shares of our common stock upon partial conversion of $50,000 on convertible debt of $226,600 by Lucas Hoppel.
On October 26, 2018, we issued 2,000,000 shares of our common stock upon partial conversion of $50,000 on convertible debt of $226,600 by Lucas Hoppel.
On October 31, 2018, we issued 2,000,000 shares of our common stock upon partial conversion of $50,000 on convertible debt of $396,550 by Lucas Hoppel.
On November 14, 2018, we issued 2,500,000 shares of our common stock upon partial conversion of $62,500 on convertible debt of $226,600 by Lucas Hoppel.
On November 26, 2018, we issued 330,343 shares of our common stock to Lucas Hoppel pursuant to the terms of a securities purchase agreement entered into on May 22, 2018, which required the issuance of additional inducement shares if the price of our common stock decreased six months from the date of the agreement so that the aggregate value of the shares issued on the closing date would equal the aggregate value of the shares after six months
On December 6, 2018, we issued 2,000,000 shares of our common stock upon partial conversion of $50,000 on convertible debt of $113,300 by Lucas Hoppel.
On December 6, 2018, we issued 2,532,000 shares of our common stock upon final conversion of $63,300 on convertible debt of $113,300 by Lucas Hoppel.
None of the above issuances involved any underwriters, underwriting discounts or commissions, or any public offering and we believe were exempt from the registration requirements of the Securities Act of 1933 by virtue of Section 4(2) thereof and/or Regulation D promulgated thereunder.
25 |
|
Table of Contents |
Item 6. Selected Financial Data
As a smaller reporting company, we are not required to provide the information required by this Item.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Our Management's Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking. Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the SEC.
Because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. The following discussion and analysis of financial condition and results of operations of the Company is based upon, and should be read in conjunction with, the audited financial statements and related notes elsewhere in this Annual Report on Form 10-K.
Plan of Operation
We have not generated any revenues to date. We generated our first Mobile Generation order during the quarter ended June 30, 2014 and received a partial deposit in advance of completing the sale. On June 9, 2017, the Company received a purchase order for 10 MG systems from Craftsmen Industries. We expect the order will be fulfilled in 2019. A 50% down payment will be received from Craftsmen at the time of customer acceptance.
We generated our third and fourth purchase commitments on November 7 and 27, 2017 from Jatropha, Inc and Veracruz Inc, respectively. Jatropha committed to purchase a total of 234 vehicles and Veracruz committed to purchase a minimum of 25 vehicles (maximum of 50 vehicles). An inspection and performance demonstration occurred in early May in Fort Collins, Colorado. The impressions made and connections established should grow into more business orders in 2019. Feedback from initial viewers has resulted in others coming to see the second demonstration in March 2019. A portion of their funding comes from the Mexican government which recently changed administrations in December.
Craftsmen Industries was selected to produce the first systems due to its engineering capabilities and extensive facilities. In January 2019, it began production on the initial vehicles.
In the meantime, we primarily incur expenses to commercialize our products, which include costs for research and development, professional fees and general operations.
We have developed and intend to commercialize thermal dispersion technologies in various product platforms and, a parallel power input gearbox around which we have designed a mobile generator system. As part of the commercialization efforts, we have applied for and received a trademark for our Totally Enclosed Heat Pipe Cooled technology or 'TEHPC'.
Management is pursuing various financing alternatives, based upon a third-party assessment of the historically demonstrated or contractually committed profit-earning capacities of our IP, with Aon Risk Services Central, Inc. and Catlys. We see this as the best path forward for non-dilutive funding.
The funding will be used to support completion of the initial phases of our business plan, which is to license our thermal technologies and applications; to license or sell a mobile electric power system powered by the Company's proprietary gearing system; and to license it submersible motor dry pit technologies and/or to bring to market its technologies and applications through key distribution partners.
26 |
|
Table of Contents |
Recent Developments
Amendment of Series B Preferred Stock
On October 31, 2016, the Company filed an amended and restated Series B Preferred Stock Certificate of Designation (which was originally filed with the Secretary of State of Nevada on April 19, 2016, and amended on August 12, 2016) to designate 3,636,360 shares as Series B Preferred Stock and to provide for supermajority 66 2/3% voting rights for the Series B Preferred Stock. The Series B Preferred Stock will not bear dividends, will not be entitled to receive any distributions in the event of any liquidation, dissolution or winding up of the Company, and will have no other preferences, rights, restrictions, or qualifications, except as otherwise provided by law or the articles of incorporation of the Company. The holders of Class B Stock shall have the right, at such holder’s option, at any time to convert such shares into common stock, in a conversion ratio of one share of common stock for each share of Class B Stock. If the common stock trades or is quoted at a price per share in excess of $2.25 for any twenty consecutive day trading period, (subject to appropriate adjustment for forward or reverse stock splits, recapitalizations, stock dividends and the like), the Series B Stock will automatically be convertible into the common stock in a conversion ratio of one share of common stock for each share of Series B Stock. The Series B Stock may not be sold, hypothecated, transferred, assigned or disposed without the prior written consent of the Company and the holders of the outstanding Series B Preferred Stock.
Amendment of Articles of Incorporation
We filed an amendment to our Articles of Incorporation with the Secretary of State of the State of Nevada increasing our authorized shares of common stock, from 140,000,000 shares to 350,000,000 shares, effective March 22, 2017.
Craftsmen Industries, Inc.
As a consequence of the first public demonstration of the MG 30 kilovolt amp (“kVA”) system at the North America International Auto Show in Detroit in January 2017, the Company entered into an agreement in principle, dated February 21, 2017, with Craftsmen Industries, Inc.(“Craftsmen’), a company engaged in the design, engineering and production of mobile marketing vehicles, experiential marketing platforms and industrial mobile solutions.
On April 25, 2017, we delivered to Craftsmen Industries, a Class III Vehicle (Ford F-350 dually) up-fitted with a production-ready MG 30 kVA (single phase/three phase) system.
Subsequently, Craftsmen invited the Company to demonstrate its mobile generation technology and the potential benefits for Craftsmen products at Craftsmen’s 35 th Anniversary Party on April 27, 2017. Over 100 current and prospective Craftsmen customers were in the audience for the demonstrations.
On June 9, 2017, the Company received a purchase order for 10 MG systems from Craftsmen, each in the amount of $29,500 with 50% paid as a down payment at the time of customer acceptance.
Furthermore, Craftsmen has agreed to produce the MG systems for the Company’s initial orders from Jatropha and Veracruz (See below). Since October 2018 we have been ordering components for the initial pilot production run which will be completed in the second quarter of 2019. In parallel, purchase orders will be placed for components to support increased production in the months that follow.
27 |
|
Table of Contents |
Veteran Technology Group
On May 26, 2017, the Company entered into a five-year strategic alliance agreement with Veteran Technology Group LLC (“Vet Tech”), a developer of artificial intelligence (“AI”) software for advanced troubleshooting of complex systems. The agreement automatically renews for successive one-year terms unless terminated by either party 30 days prior to its expiration. The agreement may be terminated earlier by either party upon 60 days prior notice. The parties agreed not to solicit the other parties’ employees or contractors for six months after the expiration or termination of the agreement.
The agreement provides that the Company market and provide its MG product and services to customers referred by Vet Tech and Vet Tech will market and provide GAIT software and other AI services for clients referred by the Company.
National Union of Jatropha Producers
In November 2017, the Company received a purchase commitment for 234 MG systems from the National Union of Producers of Jatropha in Mexico (Jatropha).
Jatropha has established a center for processing oil from Jatropha seeds for biofuel production. Through their union of producers, Jatropha plans to introduce the MG and promote the product to their supplier network.
The purchase commitment stipulates that CoolTech will furnish Jatropha with an MG80 retro-fitted onto a Ford F-350 truck within 60 business days. To ensure the system is optimized to meet Jatropha’s needs, CoolTech set the terms of the agreement to allow both teams to gather data and provide performance feedback another 30 to 60 days. Upon completion of this period, Jatropha will release the balance of the order for 233 units. Payment terms require 50% down and 50% at time of shipment, FOB (Freight on Board) from Cool Technologies’ dock.
On February 6 th , Jatropha signed an agreement to amend their previous purchase agreement. It eliminates the 60 business day deadline for the truck to be shipped to Mexico. Under the new agreement, representatives from Jatropha will come to Colorado for an inspection and live performance demonstration. If approved, the generator-equipped trucks will go into production as specified in the original purchase agreement.
A representative of the National Union of Jatropha Producers approved the generator-equipped truck. It will go into production as the Company secures final funding.
The value of the purchase commitment is expected to be between $17,000,000 and $22,000,000. On April 9, 2018, Jatropha executed a purchase order with the Company for 10 Ford F-350s with MG80 kVA systems installed. The value of the initial order is in excess of one million dollars.
National Union of Producers in Mexico for the state of Veracruz
In December 2017, the Company received a purchase commitment for 24 to 50 MG units from the National Union of Producers in Mexico for the state of Veracruz. Depending on the respective numbers of MG55 and MG80 kVA systems ordered, the Company expects the value of the commitment to range between $1,200,000 and $3,900,000.
The union represents farmers who grow labor and energy intensive crops such as sugar cane, tobacco, bananas, coffee, rice and vanilla. It expects that the MG systems will increase yields, exports and incomes for its members and their communities.
According to the contract, the Company will deliver an MG 80 retro-fitted onto a Ford F-350 truck within 60 business days. Then, to ensure the system fully addresses the application requirements, CoolTech, as a best practice of Six Sigma quality, will gather data and performance feedback. When CoolTech is satisfied that optimal performance has been achieved, the union will release the balance of the order and production begins.
28 |
|
Table of Contents |
On February 23, 2018, Veracruz signed an agreement to amend their previous purchase agreement. It eliminates the 60 business day deadline for the truck to be shipped to Mexico. Under the new agreement, representatives from Veracruz will come to Colorado for an inspection and live performance demonstration. If approved, the generator-equipped trucks will go into production as specified in the original purchase agreement.
A representative of the National Union of Jatropha Producers approved the generator-equipped truck. It will go into production as the Company secures final funding.
Payment terms require 50% down and 50% at time of shipment, each payable with a bank letter of credit. Product delivery will be considered FOB (Freight on Board) from Cool Technologies’ shipping dock.
The value of the purchase commitment is expected to commitment to range between $1.2M and $3.9M USD.
Panasonic System Communications Company of North America.
In January 2018, the Company announced that its Mobile Generation systems will incorporate Panasonic Toughpad tablets to run CoolTech’s software.
The association between the two companies dates back to April 2017 when Cool Technologies demonstrated its Mobile Generation (MG) system at Craftsman Industries in St. Louis. In attendance was the Executive Director-Product Planning Strategy and Innovation, Silicon Valley Center for Panasonic Corporation of North America. He received a demonstration of the MG technology as well as an overview of CoolTech’s thermal dispersion technologies. That led to several conversations and meetings regarding the ways in which the two companies could pursue joint initiatives and opportunities.
The first initiative resulted in CoolTech’s use of the Panasonic Toughpad tablet to provide a rugged touchscreen interface for field technicians to control and calibrate the Mobile Generation systems. The Toughpad will be deployed in the trucks’ cabs.
Aon Risk Services Central, Inc and Lee and Hayes, PLLC
In January 18, 2018, the Company entered into an agreement with Aon Risk Services Central, Inc. and Lee and Hayes, PLLC, through its operating unit, 601West, which provides intellectual property (“IP”) analytics, to assess the value of the Company’s IP. As set forth in the agreement, the assessment will be founded on historically demonstrated or contractually committed profit-earning capacities of our IP and may be used to obtain financing, including but not limited to, non-dilutive financing. Since then significant progress has been achieved. We expect the financing to close and fund in 2019.
Live MG80 Demonstration in Fort Collins, Colorado
On May 4, 2018, nine representatives from Mexico’s farming, banking, and government sectors flew to Fort Collins, Colorado for a live demonstration of CoolTech’s generator-equipped truck. The demonstration showcased the capabilities and ease of operation of the system. The Company demonstrated how an operator is able to control the generator from the comfort and safety of the truck’s cab using a Panasonic Toughpad. The Company also used the electricity from the truck to power a screw compressor, an industrial fan, and an industrial load bank. Additional capabilities, such as purifying water and using batteries and solar power to make operations more sustainable and environmentally friendly were discussed with the attendees.
A representative of the National Union of Jatropha Producers approved the generator-equipped truck. We plan to put this into production as soon as final funding is secured. Based on initial feedback and subsequent meetings and conversations with other attendees, the Company expects the demonstration will lead to more than $20 million worth of new orders.
29 |
|
Table of Contents |
Purchase and Delivery of Truck to Craftsman Industries
On July 15, 2018, the Company purchased a Ford F-450 Chassis Cab Truck. Subsequently, a metal flat bed was manufactured and installed. The truck was delivered to Craftsmen on September 15 th . It will be used for the installation and refinement of the MG 80 kVA system. A second F-450 will be used for the MG 125 kVA system.
Order of Parts and Components
During the week of October 7, 2018, the Company placed orders for System Controllers, 80 and 125 kVA Generators, Voltage Regulators, Panasonic Toughpads, Power Take-Offs (PTO) and Split Shaft PTOs.
CALSTART, Inc.
CoolTech joined CALSTART, Inc. (“CALSTART”) a non-profit, clean transportation technology coalition in November 2018. The coalition works with member companies and agencies to foster a high-tech clean-transportation industry by accelerating the adoption of emerging technologies and helping build markets.
Since then, the Company has been in contact with 4 utilities, 3 telecoms, 2 truck upfitters and 3 hybrid truck manufacturers. Proposals have been made for 3 MG systems of differing power to be installed on California Air Resources Board (CARB) certified vehicles, an MG No-idle system and an MG truck with a hydrogen-infused fuel system.
On Thursday, January 17, 2019, a representative of the Company attended a meeting of the CALSTART Leadership Circle at Porsche Cars North American Headquarters, in Atlanta, Among the topics covered were the infrastructure pathway for electric vehicles and electric vehicle market growth. At the event, the Company met with representatives from Southern Company, Duke Energy and Altec, Inc.
Creation and Delivery of Business Proposals
The Company has been very active in putting forth new business proposals in line with our strategy to target specific industry markets. We regularly review relevant press releases, major media articles and trade publications from various industries to keep up with trends and uncover opportunities. We also attend seminars and conferences to meet and network with prospective clients. Since the beginning of the year, we have delivered proposals to
major utilities (Southern Company, Duke Energy) and car manufacturers (Porsche) covering electric vehicle charging for dealers and customers.
TARDEC
On February 26, 2019, a representative of the Company attended a Collaboration Day with the U.S. Army’s Tank Automotive Research Development and Engineering Center (TARDEC) at Marine Corps Air Station, Miramar. TARDEC is the U.S. Army's Research, Development and Engineering Center for all Ground Vehicles and Ground Vehicle Systems technology and integration, as well as Fuels and Lubricants, Water Supply and Wastewater Treatment, Tactical Military Bridging, Construction Equipment, Material Handling Equipment, and Army Watercraft. The Company participated in one-on-one sessions with members from the Ground Vehicle Power and Mobility team which pursues advanced technologies to increase fleet energy flexibility and efficiency with the goal of providing more power output without adding weight that degrades system performance.
On February 27, 2019, the Company participated in Tardec’s Vehicle Electrification Forum which serves to advance electrification of Army combat and tactical systems by enabling industry to innovate products that meet Army needs and requirements. The Forum is a mechanism for industry to contribute to the formation of TARDEC's Vehicle Electrification Strategy. A representative from the Company participated in a session covering electric recharging and issues related to future powertrain configurations including improved system efficiency; requirements for hybrid, electric, and fuel cell configurations; energy storage; vehicle-to-grid and vehicle-to-vehicle capabilities; and engine/transmission improvements.
30 |
|
Table of Contents |
Unveiling of Initial Production Run Vehicle
On March 27th, the Company unveiled the initial production run of its Mobile Generation (MG) work trucks for inspection by an audience of agricultural and community leaders from Latin America at Craftsmen Industries.
The itinerary for the showcase event included a tour of the St Louis manufacturing facility and inspection of the first production run MG vehicle in operation as it powered a variety of equipment.
The purpose of the viewing was not only to show the truck’s capabilities, but to get feedback from the attendees and learn what are their specific needs and applications as well as what features and functions are important to them.
The Company believes Latin American politicians, factory owners and fruit growers will attend a similar inspection in St. Louis, Missouri in late April.
Going Concern
As a result of our financial condition, the consolidated financial statements for the years ended December 31, 2018 and 2017, include an explanatory paragraph describing the uncertainty as to our ability to continue as a going concern. To continue as a going concern, we must raise additional capital to implement production of our MG Systems and the sales and licensing of technologies covered by our patents. If we are not able to do this, we may not be able to continue as an operating company.
Results of Operations
The following table sets forth, for the periods indicated, consolidated statements of operations data. The table and the discussion below should be read in conjunction with the accompanying consolidated financial statements and the notes thereto, appearing elsewhere in this report.
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
2018 |
|
|
2017 |
|
|
Change |
|
|
% |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenues |
|
$ | -- |
|
|
$ | -- |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payroll and related expenses |
|
|
591,858 |
|
|
|
665,807 |
|
|
|
(73,949 | ) |
|
|
(11.1 | )% |
Consulting |
|
|
433,978 |
|
|
|
810,924 |
|
|
|
(376,946 | ) |
|
|
(46.5 | )% |
Professional fees |
|
|
305,778 |
|
|
|
228,829 |
|
|
|
76,949 |
|
|
|
33.6 | % |
Research and development |
|
|
501,342 |
|
|
|
348,424 |
|
|
|
152,918 |
|
|
|
44.0 | % |
General and administrative |
|
|
426,665 |
|
|
|
324,977 |
|
|
|
101,688 |
|
|
|
31.3 | % |
Total operating expenses |
|
|
2,259,621 |
|
|
|
2,378,961 |
|
|
|
(119,340 | ) |
|
|
(5.0 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(2,336,442 | ) |
|
|
(1,233,023 | ) |
|
|
(1,103,419 | ) |
|
|
89.5 | % |
Change in fair value of derivative liability |
|
|
83,963 |
|
|
|
(1,529,312 | ) |
|
|
1,613,275 |
|
|
|
(105.5 | )% |
Loss on extinguishment of debt |
|
|
(120,016 | ) |
|
|
70,079 |
|
|
|
(190,095 | ) |
|
|
N/A |
|
Gain on fixed asset disposal |
|
|
11,231 |
|
|
|
-- |
|
|
|
11,231 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(4,620,885 | ) |
|
|
(5,071,217 | ) |
|
|
450,332 |
|
|
|
(8.9 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Non controlling interest |
|
|
(2,497 | ) |
|
|
(11,891 | ) |
|
|
9,394 |
|
|
|
(79.0 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss to shareholders |
|
$ | (4,618,388 | ) |
|
$ | (5,059,326 | ) |
|
|
440,938 |
|
|
|
(8.7 | )% |
31 |
|
Table of Contents |
Revenues
During the years ended December 31, 2018 and 2017, and since inception, we have not generated any revenues. We generated our first Mobile Generation order during the quarter ended June 30, 2014, and received a partial deposit in advance of completing the sale with companies controlled by the individual who is a 5% owner of UPT and a shareholder of our Company. The order is in the production queue along with other existing orders.
Operating Expenses
Operating expenses decreased during the year ended December 31, 2018 compared to the year ended December 31, 2017, due primarily to a 46.5% reduction in consulting costs which exceeded the increases in professional fees, research and development as well as general and administrative. During the year ended December 31, 2018, payroll and related expenses and consulting expenses decreased by $73,949 and $376,946, respectively, due to limited funds.
The increase in professional fees was due primarily to overlapping payments to two auditors as the Company transitioned from one to the other. The increase in research and development was due to the final phase of commercialization of the Company’s MG system. The increase in general and administrative costs was due to payment of commissions on capital raises and installment payments of fees levied by the SEC.
Other Income and Expense
Interest expenses during the years ended December 31, 2018 and 2017 related primarily to our debt. The change in fair value of derivative liability reflects the change in fair value of the conversion features embedded in the convertible debt agreements entered into in May 2016, December 2016, March 2017, April 2018, May 2018, August 2018 and December 2018 and also includes the change in fair value of common share equivalents that were previously reclassified to derivative liability as a result of insufficient authorized but unissued shares.
Net Loss and Noncontrolling Interest
Since we have incurred losses since inception, we have not recorded any income tax expense or benefit. Accordingly, our net loss is driven by our operating and other expenses. Noncontrolling interest represents the 5% third-party ownership in UPT, which is subtracted to calculate net loss to shareholders.
Liquidity and Capital Resources
We have historically met our liquidity requirements primarily through the public sale and private placement of equity securities, debt financing, and exchanging common stock warrants and options for professional and consulting services. At December 31, 2018, we had cash and cash equivalents of $24,435.
Working capital is the amount by which current assets exceed current liabilities. We had negative working capital of $4,643,956 and $3,154,879 at December 31, 2018 and 2017, respectively. The decrease in working capital was due to a large decrease in derivative liability and smaller decreases in accounts payable and accrued payroll which offset an increase in accrued liabilities - related party.
August 2016 Convertible Note - In August 2016, the Company entered into a senior convertible note agreement with KHIC. We received $400,0000, bearing interest at 3%, with principal and interest payable on August 24, 2018. In addition, the Company received the right to require the buyer to purchase from the Company four million restricted shares of common stock at a purchase price of $0.05 per share and a warrant to purchase four million shares of common stock with an exercise price of $0.06 per share. At the same time, the Company granted the buyer the right to require the Company to sell to the buyer four million restricted shares of common stock at a purchase price of $0.05 per share and a warrant to purchase four million shares of common stock with an exercise price of $0.06 per share. In the event of default, the interest rate will be 18% per annum, require the Company to (i) redeem all or any portion of the note at a premium of 150% or (ii) convert any portion of this note then held by noteholder into shares of common stock at the conversion price of $0.025, equal to a number of shares of common stock equal to the principal amount outstanding on the note (divided by 0.025) and multiplied by the premium of 150%.
32 |
|
Table of Contents |
The note may be converted at any time into shares of the common stock at the conversion price pursuant to the terms of the note. The buyer may not, however, convert more than 50% of the note’s purchase price prior to September 30, 2016. We determined that the conversion feature meets the requirements for derivative treatment and have recorded a derivative liability and a corresponding debt discount on the condensed consolidated balance sheet.
On April 8, 2018, KHIC was issued 2,025,000 shares of common stock after converting $50,625 in debt at $0.025 per share.
An amendment was signed on August 24, 2018 which extended the maturity date of the note to December 15, 2018. In exchange, the outstanding balance of the note was increased to $455,544.
An amendment was signed on December 10, 2018 which extended the maturity date of the note to December 28, 2018. In exchange, the outstanding balance of the note was increased to $460,094.64 and a partial payment of $250,000 was made on the balance. On December 28, 2018, the outstanding balance of $210,094.64 was wired to KHIC and the note was retired.
September 2016 Promissory Notes - On September 30, 2016, we sold a promissory note in the principal amount of $180,000. The note bears the terms: 5% interest per annum with a maturity date of June 30, 2017. In the event of a default, the interest rate will increase to 18%. On November 10, 2016, we issued 800,000 shares of our common stock as partial consideration for the note to Gemini Master Fund, Ltd.
On June 30, 2017, the promissory note holder signed an extension agreement that extended the maturity date of the promissory notes to September 30, 2017 and then again until November 30, 2017. The terms and conditions remain the same.
On November 13, 2017, Lucas Hoppel purchased the note for $226,325 which included accrued and unpaid interest as well as additional charges.
On November 20, 2017, Lucas Hoppel signed an amendment to the note which extended the maturity date to December 31, 2017. In addition, the note was changed from promissory to convertible with a conversion price of $0.05 per share. On December 29, 2017 the note was amended and the maturity date was extended to February 16, 2017. In exchange the conversion price was reduced to $0.04.
On February 19, 2018, the Company signed an amendment to a convertible note for $226,325 originally issued on September 3, 2017. The amendment extended the maturity dated extended to March 31, 2018. In exchange, the conversion price was reduced from $0.04 to $0.025.
From December 7, 2017 to February 20, 2018, a total of $185,000 were converted into 4,750,000 shares of common stock. On March 5, 2018, the buyer converted $41,325 into 1,653,000 shares of common stock and the $226,325 note was retired.
August Convertible Note - On August 25, 2017, the Company entered into a convertible note agreement. We issued 300,000 inducement shares of restricted common stock and received $150,000, with an original issue discount of $15,000 in lieu of interest, for a total amount of $165,000 due on March 25, 2018. At the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of our common stock at $0.10 per share. In the event of default, the outstanding balance will increase by 25% and a daily penalty of $100 will accrue until the default is remedied.
On February 19, 2018, the Company signed an amendment to a convertible note for $165,000. The amendment extended the maturity dated extended to April 30, 2018. In exchange, the conversion price was reduced from $0.05 to $0.025.
Subsequent to the signing of the amendment, on March 23, 2018, $37,500 was converted into 1,500,000 shares of common stock. On April 18, 2018, $50,000 was converted into 2,000,000 shares of common stock.
33 |
|
Table of Contents |
On April 27, 2018, a second amendment was signed extending the maturity date until May 30, 2018. On May 23, 2018, we issued 3,298,000 shares on conversion of $82,450 and the note was retired.
January Convertible Note - On January 26, 2018, the Company entered into a convertible note agreement. We issued 800,000 inducement shares of restricted common stock and received $200,000, with an original issue discount of $20,000 in lieu of interest, for a total amount of $220,000 due on August 26, 2018. At the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of our common stock at $0.05 per share. In the event of default, the outstanding balance will increase by 25% and a daily penalty of $100 will accrue until the default is remedied.
On May 22, 2018, Lucas Hoppel signed an amendment to the note which extended the maturity date to October 1, 2018. In exchange, the note was changed from promissory to convertible with a conversion price of $0.025 per share.
On September 25, 2018, the Company issued 2,000,000 shares on conversion of $50,000 in debt. On October 1, 2018, Lucas Hoppel signed an amendment to the note which extended the maturity date to January 1, 2019. On October 25, 2018, the Company issued 2,000,000 shares on conversion of $50,000. On November 13, 2018, the Company issued 2,500,000 shares on conversion of $62,500.
On October 26, 2018, Lucas Hoppel signed an amendment to the note which extended the maturity date to January 1, 2019. All other terms and conditions remained the same. On January 1, 2019, Lucas Hoppel signed an amendment to the note which extended the maturity date to January 1, 2019. All other terms and conditions remained the same.
February Convertible Note - On February 19, 2018, the Company entered into a convertible note agreement. We issued 2,000,000 inducement shares of restricted common stock and received $350,000, with an original issue discount of $35,000 in lieu of interest, for a total amount of $385,000 due on September 19, 2018. At the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of our common stock at $0.05 per share. In the event of default, the outstanding balance will increase by 25% and a daily penalty of $100 will accrue until the default is remedied.
On May 22, 2018, Lucas Hoppel signed an amendment to the note which extended the maturity date to November 1, 2018. In exchange, the note was changed from promissory to convertible with a conversion price of $0.025 per share.
On October 26, 2018, Lucas Hoppel signed an amendment to the note which extended the maturity date to January 1, 2019. All other terms and conditions remained the same. On January 1, 2019, Lucas Hoppel signed an amendment to the note which extended the maturity date to January 1, 2019. All other terms and conditions remained the same.
On September 14, 2018, the Company issued 2,000,000 shares on conversion of $50,000 in debt. On October 26, 2018, Lucas Hoppel signed an amendment to the note which extended the maturity date to January 1, 2019. On October 31, 2018, the Company issued 2,000,000 shares on conversion of $50,000 in debt.
April Convertible Note -- On April 26, 2018, the Company entered into a convertible note agreement. We received $128,000 with an original issue discount of $12,800 in lieu of interest, for a total amount of $140,800 due on July 25, 2019. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of our common stock at a 29% discount to the average of the three lowest Volume Weighted Average Prices (VWAP) during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 22% per annum, require the Company to (i) redeem all or any portion of the note at a premium of 150%. On October 18, 2018, the Company wired $189,940 to the holder and the note was retired.
May Convertible Note - On May 22, 2018, the Company entered into a convertible note agreement. We issued 400,000 inducement shares of restricted common stock and received $110,000, with an original issue discount of $10,000 in lieu of interest, for a total amount of $100,000 due on December 22, 2018. At the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of our common stock at $0.05 per share. In the event of default, the outstanding balance will increase by 25% and a daily penalty of $100 will accrue until the default is remedied.
34 |
|
Table of Contents |
On December 5, 2018, the Company issued 2,000,000 shares on conversion of $50,000 in debt. On December 6, 2018, the Company issued 2,532,000 shares on conversion of $63,300 in debt and the note was retired.
May Convertible Note -- On May 31, 2018, the Company entered into a convertible note agreement. We received $53,000 with an original issue discount of $5,300 in lieu of interest, for a total amount of $58,300 due on May 31, 2019. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of our common stock at a 29% discount to the average of the three lowest Volume Weighted Average Prices (VWAP) during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 22% per annum, require the Company to (i) redeem all or any portion of the note at a premium of 150%. On November 13, 2018, the company wired $78,564 to the holder and the note was retired.
July Promissory Note - On July 5, 2018, the Company entered into a Promissory Note Agreement with a private individual. We received $100,000 in financing and promised to pay the principal amount on or before the one year anniversary. Furthermore, the Company committed to immediately pay the principal amount upon the receipt of funds from debt or surety bond financing, a bridge loan or payments received from product invoices or purchase contracts. In exchange, we issued cashless warrants to purchase 200,000 shares of common stock at an exercise price of $0.065. The warrants expire after five years. On September 28, 2018, the note was paid in full and retired.
August Convertible Note -- On August 17, 2018, the Company entered into a convertible note agreement. We received $63,000 with an original issue discount of $6,300 in lieu of interest, for a total amount of $58,300 due on August 17, 2019. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of our common stock at a 29% discount to the average of the three lowest Volume Weighted Average Prices (VWAP) during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 22% per annum, require the Company to (i) redeem all or any portion of the note at a premium of 150%.
December Convertible Note -- On December 10, 2018, the Company entered into a convertible note agreement. We received $152,000 with an original issue discount of $14,000.00 in lieu of interest, for a total amount of $138,000 due on December 10, 2019. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of our common stock at a 28% discount to the lowest Volume Weighted Average Prices (VWAP) during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 22% per annum, require the Company to (i) redeem all or any portion of the note at a premium of 150%.
Off Balance Sheet Arrangements
We currently have no off-balance sheet arrangements.
Cash Flows
Our cash flows from operating, investing and financing activities were as follows:
|
|
Year ended December 31, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
Net cash used in operating activities |
|
$ | (2,402,282 | ) |
|
$ | (1,605,734 | ) |
Net cash used in investing activities |
|
|
(22,486 | ) |
|
|
(17,086 | ) |
Net cash provided by financing activities |
|
|
2,275,860 |
|
|
|
1,733,872 |
|
Net cash used in operating activities increased due to changes in other current assets and other current liabilities and was primarily attributable to a reduction in outstanding accounts payable. Our investing activity relates to the development of patents, which has remained steady since inception, and the purchase of test vehicles. Net cash provided by financing activities increased primarily due to debt borrowings.
35 |
|
Table of Contents |
The Company's capital requirements for the next 12 months will consist of $3.4 million with anticipated expenses of $1.4 million for salaries, public company filings, and consultants and professional fees. An additional $2.0 million in working capital is expected to be needed for inventory and related costs for production of our mobile power generation systems as well as development and commercialization of our thermal dispersion technology applications.
Management believes the Company's funds are insufficient to provide for its projected needs for operations for the next 12 months. The Company is currently negotiating additional non-dilutive funding to support product development or for other purposes.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the amounts of revenues and expenses. Critical accounting policies are those that require the application of management's most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. In applying these critical accounting policies, our management uses its judgment to determine the appropriate assumptions to be used in making certain estimates. Actual results may differ from these estimates.
We define critical accounting policies as those that are reflective of significant judgments and uncertainties and which may potentially result in materially different results under different assumptions and conditions. In applying these critical accounting policies, our management uses its judgment to determine the appropriate assumptions to be used in making certain estimates. These estimates are subject to an inherent degree of uncertainty.
Impairment of long-lived assets
When facts and circumstances indicate that the carrying value of long-lived assets may not be recoverable, management assesses the recoverability of the carrying value by preparing estimates of revenues and the resulting gross profit and cash flows. These estimated future cash flows are consistent with those we use in our internal planning. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount, we recognize an impairment loss. The impairment loss recognized, if any, is the amount by which the carrying amount of the asset (or asset group) exceeds the fair value. We may use a variety of methods to determine the fair value of these assets, including discounted cash flow models, which are consistent with the assumptions we believe hypothetical marketplace participants would use.
If actual results are not consistent with our assumptions and estimates, or our assumptions and estimates change due to new information, we may be exposed to an impairment charge in the future.
Derivative financial instruments
When we issue debt that contains a conversion feature, we first evaluate whether the conversion feature meets the requirements to be treated as a derivative: a) one or more underlying, typically the price of the Company's stock; b) one or more notional amounts or payment provisions or both, generally the number of shares upon conversion; c) no initial net investment, which typically excludes the amount borrowed; and d) net settlement provisions, which in the case of convertible debt generally means the stock received upon conversion can be readily sold for cash. There are certain scope exceptions from derivative treatment, but these typically exclude conversion features that provide for a variable number of shares.
When we issue warrants to purchase our common stock, we must evaluate whether they meet the requirements to be treated as a derivative. Generally, warrants would be treated as a derivative if the provisions of the warrant agreement create uncertainty as to a) the number of shares to be issued upon exercise; or b) whether shares may be issued upon exercise.
36 |
|
Table of Contents |
If the conversion feature within convertible debt or warrants meet the requirements to be treated as a derivative, we estimate the fair value of the derivative liability using the Black-Scholes Option Pricing Model upon the date of issuance. If the fair value of the derivative liability is higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the derivative liability is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. The derivative liability is revalued at the end of each reporting period and any change in fair value is recorded as a change in fair value in the consolidated statement of operations. The debt discount is amortized through interest expense over the life of the debt. Derivative instrument liabilities and the host debt agreement are classified on the balance sheet as current or non-current based on whether settlement of the derivative instrument could be required within twelve months of the balance sheet date.
The accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option and warrants at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. As a result of entering into warrant agreements, for which such instruments contained a variable conversion feature with no floor, the Company has adopted a sequencing policy in accordance with ASC 815-40-35-12 whereby all future instruments may be classified as a derivative liability with the exception of instruments related to share-based compensation issued to employees or directors.
Contingent liabilities
We accrue a loss for contingencies if it is probable that an asset has been impaired or a liability has been incurred, and when the amount of loss can be reasonably estimable. When no accrual is made because one or both of these conditions do not exist, we disclose the contingency if there is at least a reasonable possibility that a loss may be incurred. We estimate contingent liabilities based on the best information we have available at the time. If we have a range of possible outcomes, we accrue the low end of the range.
Share-based Payments
All of our share-based awards are classified as equity, as they may only be settled in shares of our common stock.
We recognize expense for fully-vested warrants at the time they are granted. For awards with service or performance conditions, we generally recognize expense when the service is complete; however, there may be circumstances in which we determine that the performance condition is probable before the actual performance condition is achieved. In such circumstances, the amount recognized as expense is the pro rata amount, depending on the estimated progress towards completion of the performance condition. Nonemployee share-based payments are measured at fair value, based on either the fair value of the equity instrument issued or on the fair value of the services received. Typically, it is not practical to value the services received, so we determine the fair value of common stock grants based on the price of the common stock on the measurement date, and the fair value of common stock warrants using the Black-Scholes option-pricing model ("Black-Scholes"). We use historical data to estimate the expected price volatility, the expected stock option life and expected forfeiture rate. The risk-free interest rate is based on the United States Treasury yield curve in effect at the time of grant for the estimated life of the stock option. For awards that are recognized when a performance condition is probable, the fair value is estimated at each reporting date. The cost ultimately recognized is the fair value of the equity award on the date the performance condition is achieved. Accordingly, the expense recognized may change between interim reporting dates and the date the performance condition is achieved.
We issue two types of common stock options to employees: 1) fully-vested at the time of grant and 2) market price-based vesting. We recognize expense for fully-vested stock options on the date of grant at the estimated fair value of the options using Black-Scholes. We recognize expense for market price-based options at the estimated fair value of the options using the lattice-based option valuation model ("Lattice Model") over the estimated life of the options used in the Lattice Model. We use historical data to estimate the expected price volatility, the expected stock option life and expected forfeiture rate. The risk-free interest rate is based on the United States Treasury yield curve in effect at the time of grant for the estimated life of the stock option. In the event, we modify the terms of a non-vested share-based payment award, we would incur additional expense for the excess of the fair value of the modified share-based payment award over the fair value of the original share-based payment award. The incremental expense would be recognized ratably over the remaining vesting period.
Income taxes
We recognize deferred income tax assets and liabilities for the expected future tax consequences of temporary differences between the income tax and financial reporting carrying amount of our assets and liabilities. We monitor our deferred tax assets and evaluate the need for a valuation allowance based on the estimate of the amount of such deferred tax assets that we believe do not meet the more-likely-than-not recognition criteria. We also evaluate whether we have any uncertain tax positions and would record a reserve if we believe it is more-likely-than-not our position would not prevail with the applicable tax authorities. We have significant net operating loss carryforwards, for which we have established a valuation allowance. If our estimate of the amount of such deferred tax assets change, we may recognize a benefit in the future. UPT is a limited liability company ("LLC"), which is treated as a partnership for income tax purposes, where all tax obligations flow through to the owners of the LLC during the period in which income taxes were incurred.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
38 |
|
Table of Contents |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Cool Technologies, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Cool Technologies, Inc. (the Company) as of December 31, 2018, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the year ended December 31, 2018, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for the year ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. 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 audit 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 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 control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the 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 financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1, the Company has incurred net losses and negative cash flow from operations since inception. These factors, and the need for additional financing in order for the Company to meet its business plans raises substantial doubt about the Company’s ability to continue as a going concern. Our opinion is not modified with respect to that matter.
/s/ Accell Audit & Compliance, P.A.
We have served as the Company’s auditor since 2019.
Tampa, Florida
April 16, 2019
4806 West Gandy Boulevard · Tampa, Florida 33611 · 813.440.6380 |
F-1 |
|
Table of Contents |
|
Green & Company, CPAs |
A PCAOB Registered Accounting Firm |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
Cool Technologies, Inc.
Opinion on the Financial Statements
We have audited the accompanying Consolidated Balance Sheets of Cool Technologies, Inc. (the Company) as of December 31, 2017, the related Consolidated Statements of Operations, Changes in Stockholders’ Deficit, and Cash Flows for the year ended December 31, 2017, 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, 2017 and the results of its operations and its cash flows for the year ended December 31, 2017 in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. 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 audit 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 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 control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the 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 financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has significant net losses and accumulated deficit. Those conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding those matters are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Green & Company, CPAs
Green & Company, CPAs
We have served as the Company’s auditor since 2018.
Tampa, FL 33618
April 17, 2018
13907 N Dale Mabry Hwy, Suite 102 |
Tampa, FL 33618 |
813.606.4388 |
F-2 |
|
Table of Contents |
Cool Technologies, Inc.
|
|
December 31, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
ASSETS |
|
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
|
||
Cash |
|
$ | 24,435 |
|
|
$ | 173,343 |
|
Inventory |
|
|
54,474 |
|
|
|
-- |
|
Prepaid expenses |
|
|
12,000 |
|
|
|
10,000 |
|
Total current assets |
|
|
90,909 |
|
|
|
183,343 |
|
Intangibles |
|
|
205,974 |
|
|
|
183,488 |
|
Equipment, net |
|
|
64,446 |
|
|
|
45,728 |
|
Total assets |
|
$ | 361,329 |
|
|
$ | 412,559 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
||||||||
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ | 1,288,175 |
|
|
$ | 1,222,775 |
|
Accrued liabilities - related party |
|
|
743,868 |
|
|
|
991,714 |
|
Customer deposits - related party |
|
|
400,000 |
|
|
|
400,000 |
|
Accrued payroll |
|
|
62,049 |
|
|
|
56,917 |
|
Debt, current portion |
|
|
2,091,014 |
|
|
|
659,312 |
|
Derivative liability |
|
|
149,759 |
|
|
|
7,504 |
|
Total current liabilities |
|
|
4,734,865 |
|
|
|
3,338,222 |
|
|
|
|
|
|
|
|
|
|
Debt, long-term portion |
|
|
36,819 |
|
|
|
97,009 |
|
Total liabilities |
|
4,771,684 |
|
|
3,435,231 |
|
||
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit: |
|
|
|
|
|
|
|
|
Preferred stock Series A, $.001 par value; 410 shares authorized; 20 and 33 shares issued and outstanding at December 31, 2018 and 2017, respectively |
|
|
-- |
|
|
|
-- |
|
Preferred stock Series B, $.001 par value; 3,636,360 shares authorized: 2,727,270 issued and outstanding on December 31, 2018 and 2017. |
|
|
2,727 |
|
|
|
2,727 |
|
Common stock, $.001 par value; 350,000,000 shares authorized; 214,705,916 and 152,836,983 shares issued and outstanding at December 31, 2018 and 2017, respectively. |
|
|
214,705 |
|
|
|
152,837 |
|
Additional paid-in capital |
|
|
45,160,994 |
|
|
|
41,401,330 |
|
Common stock issuable |
|
|
123,670 |
|
|
|
712,000 |
|
Common stock held in escrow |
|
|
8,441 |
|
|
|
8,441 |
|
Accumulated deficit |
|
|
(49,866,128 | ) |
|
|
(45,247,740 | ) |
Non controlling interest |
|
|
(54,764 | ) |
|
|
(52,267 | ) |
Total stockholders’ deficit |
|
|
(4,410,355 | ) |
|
|
(3,022,672 | ) |
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ deficit |
|
$ | 361,329 |
|
|
$ | 412,559 |
|
See accompanying notes to consolidated financial statements.
F-3 |
|
Table of Contents |
Cool Technologies, Inc.
Consolidated Statements of Operations
|
|
Year ended December 31, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
|
|
|
|
|
|
|
||
Revenues |
|
$ | -- |
|
|
$ | -- |
|
Cost of revenues |
|
|
-- |
|
|
|
-- |
|
Gross profit |
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
Payroll and related expenses |
|
|
591,858 |
|
|
|
665,807 |
|
Consulting |
|
|
433,978 |
|
|
|
810,924 |
|
Professional fees |
|
|
305,778 |
|
|
|
228,829 |
|
Research and development |
|
|
501,342 |
|
|
|
348,424 |
|
General and administrative |
|
|
426,665 |
|
|
|
324,977 |
|
Total operating expenses |
|
|
2,259,621 |
|
|
|
2,378,961 |
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(2,259,621 | ) |
|
|
(2,378,961 | ) |
|
|
|
|
|
|
|
|
|
Other income and (expense) |
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(2,336,442 | ) |
|
|
(1,233,023 | ) |
Change in fair value of derivative liability |
|
|
83,963 |
|
|
|
(1,529,312 | ) |
Gain (Loss) on extinguishment |
|
|
(120,016 | ) |
|
|
70,079 |
|
Gain (Loss) on fixed assets |
|
|
11,231 |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(4,620,885 | ) |
|
|
(5,071,217 | ) |
Net loss attributable to non-controlling interest |
|
|
(2,497 | ) |
|
|
(11,891 | ) |
|
|
|
|
|
|
|
|
|
Net loss attributable to Cool Technologies, Inc. |
|
$ | (4,618,388 | ) |
|
$ | (5,059,326 | ) |
|
|
|
|
|
|
|
|
|
Net loss per common share: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ | (0.02 | ) |
|
$ | (0.04 | ) |
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
191,539,568 |
|
|
|
130,188,614 |
|
See accompanying notes to consolidated financial statements
F-4 |
|
Table of Contents |
Cool Technologies, Inc.
Consolidated Statements of Changes in Stockholders’ Deficit
Years ended December 31, 2018 and 2017
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Additional Paid-in |
|
|
Common Stock |
|
|
Preferred Stock |
|
|
Common Stock Held in |
|
|
Accumulated |
|
|
Non- Controlling |
|
|
|
|
|||||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Issuable |
|
|
Issuable |
|
|
Escrow |
|
|
Deficit |
|
|
Interest |
|
|
Total |
|
|||||||||||
December 31, 2016 |
|
|
3,636,476 |
|
|
$ | 3,636 |
|
|
|
111,438,236 |
|
|
$ | 110,865 |
|
|
$ | 31,891,116 |
|
|
$ | 125,500 |
|
|
$ | 51,000 |
|
|
$ | 8,441 |
|
|
$ | (40,188,414 | ) |
|
$ | (40,376 | ) |
|
$ | (8,038,232 | ) |
Sale of stock |
|
|
-- |
|
|
|
-- |
|
|
|
9,518,183 |
|
|
|
10,090 |
|
|
|
485,910 |
|
|
|
675,000 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
1,171,000 |
|
Issuance of common stock issuable |
|
|
-- |
|
|
|
-- |
|
|
|
2,160,000 |
|
|
|
2,160 |
|
|
|
144,840 |
|
|
|
(147,000 | ) |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Issuance of preferred stock issuable as common stock |
|
|
-- |
|
|
|
-- |
|
|
|
927,270 |
|
|
|
927 |
|
|
|
50,073 |
|
|
|
-- |
|
|
|
(51,000 | ) |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Conversion of Series A preferred stock to common stock |
|
|
(83 | ) |
|
|
-- |
|
|
|
4,150,000 |
|
|
|
4,150 |
|
|
|
(4,150 | ) |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Conversion of Series B preferred stock to common stock |
|
|
(909,090 | ) |
|
|
(909 | ) |
|
|
909,090 |
|
|
|
909 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Common stock issued for services |
|
|
-- |
|
|
|
-- |
|
|
|
1,905,811 |
|
|
|
1,906 |
|
|
|
137,623 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
139,529 |
|
Stock issued with debt |
|
|
-- |
|
|
|
-- |
|
|
|
4,273,428 |
|
|
|
4,274 |
|
|
|
295,036 |
|
|
|
58,500 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
357,810 |
|
Warrants issued for services |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
404,516 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
404,516 |
|
Employee common stock |
|
|
-- |
|
|
|
-- |
|
|
|
2,685,714 |
|
|
|
2,686 |
|
|
|
185,314 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
188,000 |
|
Debt converted |
|
|
-- |
|
|
|
-- |
|
|
|
14,869,251 |
|
|
|
14,870 |
|
|
|
782,371 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
797,241 |
|
Debt issued with beneficial conversion feature |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
556,954 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
556,954 |
|
Reclassification of common share equivalents to derivative liabilities |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(208,742 | ) |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(208,742 | ) |
Reclassification of common share equivalents to equity |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
6,364,224 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
6,364,224 |
|
Reduction of derivative liability due to conversion of debt |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
316,245 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
316,245 |
|
Net loss |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(5,071,217 | ) |
|
|
-- |
|
|
|
(5,071,217 | ) |
Noncontrolling interest |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
11,891 |
|
|
|
(11,891 | ) |
|
|
|
|
December 31, 2017 |
|
|
2,727,303 |
|
|
|
2,727 |
|
|
|
152,836,983 |
|
|
|
152,837 |
|
|
|
41,401,330 |
|
|
|
712,000 |
|
|
|
-- |
|
|
|
8,441 |
|
|
|
(45,247,740 | ) |
|
|
(52,267 | ) |
|
|
(3,022,672 | ) |
Sale of stock |
|
|
-- |
|
|
|
-- |
|
|
|
3,561,110 |
|
|
|
3,560 |
|
|
|
184,780 |
|
|
|
11,670 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
200,010 |
|
Issuance of common stock issuable |
|
|
-- |
|
|
|
-- |
|
|
|
8,409,091 |
|
|
|
8,409 |
|
|
|
591,591 |
|
|
|
(600,000 | ) |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Cashless warrant exercises |
|
|
-- |
|
|
|
-- |
|
|
|
9,603,662 |
|
|
|
9,604 |
|
|
|
(9,604 | ) |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Conversion of Series A preferred stock to common stock |
|
|
(13 | ) |
|
|
-- |
|
|
|
650,000 |
|
|
|
650 |
|
|
|
(650 | ) |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Stock issued with debt |
|
|
-- |
|
|
|
-- |
|
|
|
3,972,070 |
|
|
|
3,972 |
|
|
|
182,911 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
186,883 |
|
Warrants issued for services |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
25,882 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
25,882 |
|
Warrants issued with debt |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
469,542 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
469,542 |
|
Employee common stock |
|
|
-- |
|
|
|
-- |
|
|
|
2,600,000 |
|
|
|
2,600 |
|
|
|
127,400 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
130,000 |
|
Debt converted |
|
|
|
|
|
|
|
|
|
|
33,073,000 |
|
|
|
33,073 |
|
|
|
776,553 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
809,626 |
|
Debt issued with beneficial conversion feature |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
1,351,274 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
1,351,274 |
|
Payment for stock previously issued |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
59,985 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
59,985 |
|
Net loss |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,620,885 | ) |
|
|
-- |
|
|
|
(4,620,885 | ) |
Noncontrolling interest |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
2,497 |
|
|
|
(2,497 | ) |
|
|
-- |
|
December 31, 2018 |
|
|
2,727,290 |
|
|
$ | 2,727 |
|
|
|
214,705,916 |
|
|
$ | 214,705 |
|
|
$ | 45,160,994 |
|
|
$ | 123,670 |
|
|
|
-- |
|
|
$ | 8,441 |
|
|
$ | (49,866,128 | ) |
|
$ | (54,764 | ) |
|
$ | (4,410,355 | ) |
See accompanying notes to consolidated financial statements
F-5 |
|
Table of Contents |
Cool Technologies, Inc.
Consolidated Statements of Cash Flows
|
|
Year ended December 31, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
Operating Activities: |
|
|
|
|
|
|
||
Net loss |
|
$ | (4,620,885 | ) |
|
$ | (5,071,217 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Stock issued for services |
|
|
-- |
|
|
|
139,529 |
|
Warrants issued for services |
|
|
25,882 |
|
|
|
404,516 |
|
Loss on extinguishment of debt |
|
|
120,016 |
|
|
|
(70,079 | ) |
Employee stock |
|
|
-- |
|
|
|
188,000 |
|
Non-cash interest expense |
|
|
8,918 |
|
|
|
77,951 |
|
Change in fair value of derivative liability |
|
|
(83,963 | ) |
|
|
1,529,312 |
|
Amortization of debt discount |
|
|
2,223,260 |
|
|
|
1,152,260 |
|
Depreciation expense |
|
|
27,376 |
|
|
|
25,936 |
|
(Gain) Loss on Fixed Assets |
|
|
(11,231 | ) |
|
|
-- |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Inventory |
|
|
(54,474 | ) |
|
|
-- |
|
Prepaid expenses |
|
|
(2,000 | ) |
|
|
(10,000 | ) |
Accounts payable |
|
|
77,533 |
|
|
|
(373,108 | ) |
Accrued liabilities - related party |
|
|
(117,846 | ) |
|
|
437,761 |
|
Accrued payroll |
|
|
5,132 |
|
|
|
(36,595 | ) |
Net cash used in operating activities |
|
|
(2,402,282 | ) |
|
|
(1,605,734 | ) |
|
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
Expenditure for Intangible assets |
|
|
(22,486 | ) |
|
|
(17,086 | ) |
Net cash used in investing activities |
|
|
(22,486 | ) |
|
|
(17,086 | ) |
|
|
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
Proceeds from sale of common stock, net |
|
|
259,995 |
|
|
|
1,171,000 |
|
Proceeds from debt |
|
|
2,975,669 |
|
|
|
582,238 |
|
Payments on debt |
|
|
(959,804 | ) |
|
|
(19,366 | ) |
Net cash provided by financing activities |
|
|
2,275,860 |
|
|
|
1,733,872 |
|
|
|
|
|
|
|
|
|
|
Net change in cash |
|
|
(148,908 | ) |
|
|
111,052 |
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period |
|
|
173,343 |
|
|
|
62,291 |
|
|
|
|
|
|
|
|
|
|
Cash, end of period |
|
$ | 24,435 |
|
|
$ | 173,343 |
|
|
|
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
|
Interest |
|
$ | 22,923 |
|
|
$ | 18,159 |
|
Income taxes |
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
Non-cash transactions: |
|
|
|
|
|
|
|
|
Derivative liability offset by debt discount |
|
$ | 346,821 |
|
|
$ | 54,985 |
|
Reduction of common stock issuable by issuing stock |
|
|
600,000 |
|
|
|
147,000 |
|
Reduction of preferred stock issuable by issuing stock |
|
|
-- |
|
|
|
51,000 |
|
Debt and interest settled for common stock |
|
|
896,825 |
|
|
|
797,241 |
|
|
|
|
|
|
|
|
|
|
Stock issued with debt |
|
|
186,883 |
|
|
|
357,810 |
|
Warrants issued with debt |
|
|
469,542 |
|
|
|
-- |
|
Reclassification of common shares equivalents to additional paid-in capital |
|
|
-- |
|
|
|
(6,364,224 | ) |
Reduction of derivative liability due to conversion of debt |
|
|
-- |
|
|
|
316,245 |
|
Reduction in test vehicle financing due to trade-in |
|
|
10,313 |
|
|
|
-- |
|
Increase in test vehicle financing due to trade-in |
|
|
45,176 |
|
|
|
-- |
|
Test vehicle acquired due to trade-in |
|
|
54,863 |
|
|
|
-- |
|
See accompanying notes to consolidated financial statements.
F-6 |
|
Table of Contents |
Cool Technologies, Inc. and subsidiary
Notes to Consolidated Financial Statements
Note 1 - Description of Business and Summary of Significant Accounting Policies
Description of Business
Cool Technologies, Inc. and subsidiary, (“the Company" or "Cool Technologies" or “CoolTech”) was incorporated in the State of Nevada in July 2002. In April 2014, CoolTechformed Ultimate Power Truck, LLC ("Ultimate Power Truck" or "UPT"), of which the Company owns 95% and a shareholder of Cool Technologies owns 5%. Cool Technologies was formerly known as Bibb Corporation, as Z3 Enterprises, and as HPEV, Inc. On August 20, 2015, the Company changed its name to Cool Technologies, Inc.
CoolTech has developed and intends to commercialize heat dispersion technologies in various product platforms. The Company has also developed and are commercializing a mobile power generation system that enables work trucks retrofitted with the system to generate electric power. In preparation, CoolTech has applied for trademarks for one of its technologies and its acronym. Cool Technologies currently owns one trademark: TEHPC. The Company believes that its proprietary technologies, including the patent portfolio and trade secrets, can help increase the efficiency and positively affect manufacturing cost structure in several large industries beginning with motors/generators and fleet vehicles. The markets for products utilizing the technology include consumer, industrial and military markets, both in the U.S. and worldwide.
The Company’s technologies are divided into three distinct, but complementary categories: a) mobile power generation, b) heat dispersion technology and c) electric load assist. As of December 31, 2018, CoolTech has seven US patents, one granted Mexican patent, four pending applications (2 in Canada, 1 in Brazil, 1 in US) and one US filed provisional application pending in the area of composite heat structures, motors, and related structures, heat pipe architecture, applications (commonly referred to as "thermal" or "heat dispersion technology") and a parallel vehicle power platform. Cool Technologies also has Patent Cooperation Treaty ("PCT") applications filed for a heat pipe cooled brake system, a parallel power input gearing system (PPIG) and radial vent thermal technology.
The Company intends to commercialize its patents by licensing its thermal technologies and applications to electric motor, pump and vehicle component manufacturers; by licensing or selling a mobile electric power system powered by a proprietary gearing system to commercial vehicle and fleet owners; and by licensing a plug-in hybrid conversion system for heavy duty trucks, buses and tractor trailers to fleet owners and service centers.
F-7 |
|
Table of Contents |
Basis of Presentation, Use of Estimates and Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Cool Technologies, Inc. and Ultimate Power Truck, LLC. Intercompany accounts and transactions have been eliminated. The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). The preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Although these estimates are based on management’s knowledge of current events and actions the Company may undertake in the future, actual results may ultimately differ from these estimates and assumptions. Furthermore, when testing assets for impairment in future periods, if management uses different assumptions or if different conditions occur, impairment charges may result.
Noncontrolling interest represents the 5% third-party interest in UPT. There are no restrictions on the transfer of funds or net assets from UPT to Cool Technologies.
Going Concern and Management’s Plan
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. CoolTech has incurred net losses of $49,866,128 since inception and has not fully commenced operations, raising substantial doubt about its ability to continue as a going concern. Management believes that the Company’s ability to continue as a going concern is dependent on its ability to generate revenue, achieve profitable operations and repay obligations when they come due. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty. As of the issuance date of these consolidated financial statements, management is negotiating additional non-dilutive funding arrangements to support completion of the initial phases of the Company’s business plan: to license its thermal technologies and applications, including submersible dry-pit applications and to license and sell mobile generation retrofit kits (the Ultimate Power Truck business) driven by CoolTech proprietary gearing system. There can be no assurance, however, that the Company will be successful in accomplishing these objectives.
Summary of Significant Accounting Policies
Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits with banks, and investments that are highly liquid and have maturities of three months or less at the date of purchase.
Inventory
Inventory consisting of mobile generation kit materials and parts is stated at the lower of cost (first in, first out method) or net realizable value.
F-8 |
|
Table of Contents |
Intangible assets
The Company’s intangible assets consist of patents on its technology, recorded at cost. Cost is based on third party expenditures for patent applications. CoolTech will begin amortizing the intangibles over their estimated remaining useful life when it begins revenue-producing activities. Cool Technologies will determine the useful lives of its intangible assets after considering the specific facts and circumstances related to each intangible asset. Factors that will be considered when determining useful lives include the contractual term of any agreement related to the asset, the historical performance of the asset, the long-term strategy for using the asset, any laws or other local regulations that could impact the useful life of the asset, and other economic factors, including competition and specific market conditions.
Equipment
Equipment consists of vehicles the Company uses for testing and demonstrating its technology to potential customers. Depreciation is recorded using the straight-line method over five years, the estimated useful life.
Impairment of long-lived assets
When facts and circumstances indicate that the carrying value of long-lived assets may not be recoverable, management assesses the recoverability of the carrying value by preparing estimates of revenues and the resulting gross profit and cash flows. These estimated future cash flows are consistent with those CoolTech uses in its internal planning. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount, it recognizes an impairment loss. The impairment loss recognized, if any, is the amount by which the carrying amount of the asset (or asset group) exceeds the fair value. Cool Technologies may use a variety of methods to determine the fair value of these assets, including discounted cash flow models, which are consistent with the assumptions management believes hypothetical marketplace participants would use. The Company has not recorded any impairment expense on its long-lived assets as of December 31, 2018.
Debt - original issue discount
When the Company issues notes payable with a face value higher than the proceeds it receives, CoolTech records the difference as a debt discount and amortize it through interest expense over the life of the underlying note payable.
Derivative financial instruments
When the Company issues debt that contains a conversion feature, it first evaluates whether the conversion feature meets the requirements to be treated as a derivative: a) one or more underlying, typically the price of the Company's stock; b) one or more notional amounts or payment provisions or both, generally the number of shares upon conversion; c) no initial net investment, which typically excludes the amount borrowed; and d) net settlement provisions, which in the case of convertible debt generally means the stock received upon conversion can be readily sold for cash. There are certain scope exceptions from derivative treatment, but these typically exclude conversion features that provide for a variable number of shares.
When Cool Technologies issues warrants to purchase its common stock, the Company must evaluate whether they meet the requirements to be treated as a derivative. Generally, warrants would be treated as a derivative if the provisions of the warrant agreement create uncertainty as to a) the number of shares to be issued upon exercise; or b) whether shares may be issued upon exercise.
If the conversion feature within convertible debt or warrants meet the requirements to be treated as a derivative, CoolTech estimates the fair value of the derivative liability using the Black-Scholes Option Pricing Model upon the date of issuance. If the fair value of the derivative liability is higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the derivative liability is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. The derivative liability is revalued at the end of each reporting period and any change in fair value is recorded as a change in fair value in the consolidated statements of operations. The debt discount is amortized through interest expense over the life of the debt. Derivative instrument liabilities and the host debt agreement are classified on the consolidated balance sheets as current or non-current based on whether settlement of the derivative instrument could be required within twelve months of the balance sheet date.
F-9 |
|
Table of Contents |
The accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option and warrants at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. As a result of entering into warrant agreements, for which such instruments contained a variable conversion feature with no floor, the Company has adopted a sequencing policy in accordance with ASC 815-40-35-12 “Derivatives and Hedging” (provides comprehensive guidance on derivative and hedging transactions) whereby all future instruments may be classified as a derivative liability with the exception of instruments related to share-based compensation issued to employees or directors.
Research and development costs
Internal costs related to research and development efforts on existing or potential products are expensed as incurred. External costs incurred for intangible assets, such as attorney fees for patents, are capitalized.
Share-based payments
All of the Company’s share-based awards are classified as equity. CoolTech does not have any liability classified share-based awards. Each warrant or stock option is exercisable for one share of common stock.
Nonemployees - Cool Technologies may enter into agreements with nonemployees to make share-based payments in return for services. These payments may be made in the form of common stock or common stock warrants. The Company recognizes expense for fully-vested warrants at the time they are granted. For awards with service or performance conditions, CoolTech generally recognizes expense over the service period or when the performance condition is met; however, there may be circumstances in which it determines that the performance condition is probable before the actual performance condition is achieved. In such circumstances, the amount recognized as expense is the pro rata amount, depending on the estimated progress towards completion of the performance condition. Nonemployee share-based payments are measured at fair value, based on either the fair value of the equity instrument issued or on the fair value of the services received. Typically, it is not practical to value the services received, so the Company determines the fair value of common stock grants based on the price of the common stock on the measurement date (which is the earlier of the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, if there are sufficient disincentives to ensure performance, or the date at which the counterparty's performance is complete), and the fair value of common stock warrants using the Black-Scholes option-pricing model ("Black-Scholes"). Cool Technologies uses historical data to estimate the expected price volatility, the expected stock option life and expected forfeiture rate. The risk-free interest rate is based on the United States Treasury yield curve in effect at the time of grant for the estimated life of the stock option. For awards that are recognized when a performance condition is probable, the fair value is estimated at each reporting date. The cost ultimately recognized is the fair value of the equity award on the date the performance condition is achieved. Accordingly, the expense recognized may change between interim reporting dates and the date the performance condition is achieved.
Employees - Cool Technologies issues two types of common stock options to employees: 1) fully-vested at the time of grant and 2) market price-based vesting. The Company recognizes expense for fully-vested stock options on the date of grant at the estimated fair value of the options using Black-Scholes. CoolTech recognizes expense for market price-based options at the estimated fair value of the options using the lattice-based option valuation model ("Lattice Model") over the estimated life of the options used in the Lattice Model. The Company uses historical data to estimate the expected price volatility, the expected stock option life and expected forfeiture rate. The risk-free interest rate is based on the United States Treasury yield curve in effect at the time of grant for the estimated life of the stock option.
F-10 |
|
Table of Contents |
Modification of share-based payment awards - In the event Cool Technologies modifies the terms of a non-vested share-based payment award, it would incur additional expense for the excess of the fair value of the modified share-based payment award, measured at the date of modification, over the fair value of the original share-based payment award. The incremental expense would be recognized ratably over the remaining vesting period.
Sale of common stock with warrants - When the Company sells common stock it may also issue common stock warrants. CoolTech treats the value of these warrants as equity issuance costs. Accordingly, the value of the common stock warrants is included as a component of additional paid-in capital upon recording the sale of common stock.
Cashless exercise - Most of the common stock warrants and stock options may be exercised on a cashless basis. The number of shares of common stock received upon exercising on a cashless basis is based on a) the volume weighted-average price of the common stock for three trading days immediately preceding the exercise date; b) the exercise price of the warrant or option; and c) the number of common shares issuable under the instrument.
Income taxes
Cool Technologies recognizes deferred income tax assets and liabilities for the expected future tax consequences of temporary differences between the income tax and financial reporting carrying amount of the Company’s assets and liabilities. The Company monitors its deferred tax assets and evaluate the need for a valuation allowance based on the estimate of the amount of such deferred tax assets that it believes do not meet the more-likely-than-not recognition criteria. CoolTech also evaluates whether it have any uncertain tax positions and would record a reserve if managementbelieves it is more-likely-than-not their position would not prevail with the applicable tax authorities. The Company’s assessment of tax positions as of December 31, 2018 and 2017, determined that there were no material uncertain tax positions.
UPT is a limited liability company ("LLC"), which is treated as a partnership for income tax purposes, where all tax obligations flow through to the owners of the LLC during the period in which income taxes were incurred.
Fair value of financial instruments
Cool Technologies financial instruments include cash and cash equivalents, accounts payable, accrued liabilities, and debt. The carrying value of these financial instruments is considered to be representative of their fair value due to the short maturity of these instruments. The carrying amount of the debt approximates fair value, because the interest rates on these instruments approximate the interest rate on debt with similar terms available to the Company. CoolTech’s derivative liabilities were adjusted to fair market value at the end of each reporting period, using Level 3 inputs.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities.
F-11 |
|
Table of Contents |
Reportable segments
Cool Technologies has identified its operating segments, its chief operating decision maker ("CODM"), and the discrete financial information reviewed by the CODM. After evaluating this information, the Company has determined that it has one reportable segment.
Recently Issued Accounting Pronouncements
Financial Accounting Standards Board, or FASB, Accounting Standards Update, or ASU 2016-02 "Leases (Topic 842)"- In February 2016, the FASB issued ASU 2016-02, which will require lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. This ASU is effective for fiscal years beginning after December 18, 2018, including interim periods within those fiscal years. Cool Technologies is currently evaluating the potential impact this standard will have on its consolidated financial statements and related disclosures.
FASB ASU 2015-17"Income Taxes (Topic 740)" - In November 2015, the FASB issued ASU 2015-17, which simplifies the presentation of deferred tax assets and liabilities on the balance sheet. Previous GAAP required an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts on the balance sheet. The amendment requires that deferred tax liabilities and assets be classified as noncurrent in a classified balance sheet. This ASU is effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. The Company has adopted ASU 2015-17 as of January 1, 2017 and has reported deferred tax assets and liabilities as noncurrent. Adopting this standard did not have a material impact on the Company's consolidated financial statements or financial statement disclosures.
FASB ASU 2015-11 "Inventory (Topic 330): Simplifying the Measurement of Inventory," or ASU 2015-11 - In July 2015, the FASB issued ASU 2015-11, which requires an entity to measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments apply to inventory that is measured using first-in, first-out (FIFO) or average cost. This ASU is effective for interim and annual reporting periods beginning after December 15, 2016, with the option to early adopt as of the beginning of an annual or interim period. The Company adopted ASU 2015-11 on January 1, 2017, the first day of the Company's first quarter for the fiscal year ending December 31, 2017. Adoption of this standard did not have a material impact on the Company's consolidated financial statements or financial statement disclosures.
FASB ASU 2014-09 "Revenue from Contracts with Customers (Topic 606)," or ASU 2014-09 - In May 2014, the FASB issued ASU 2014-09, which supersedes the revenue recognition requirements of Accounting Standards Codification, or ASC, Topic 605 "Revenue Recognition." ASU 2014-09 requires revenue recognition to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new revenue recognition model requires identifying the contract, identifying the performance obligations, determining the transaction price, allocating the transaction price to performance obligations and recognizing the revenue upon satisfaction of the performance obligations. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and change in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 can be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the update recognized at the date of the initial application along with additional disclosures. This ASU is effective for annual reporting periods beginning after December 15, 2017, with the option to adopt as early as December 15, 2016. The Company adopted the new revenue guidance effective January 1, 2018. As the Company has not previously generated any revenues, there was no material impact to the Company's consolidated financial statements or financial statement disclosures.
F-12 |
|
Table of Contents |
Equipment consists of the following:
|
|
December 31, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
Test vehicles |
|
$ | 141,969 |
|
|
$ | 124,687 |
|
Other |
|
|
5,000 |
|
|
|
5,000 |
|
|
|
|
146,969 |
|
|
|
129,687 |
|
Less: accumulated depreciation |
|
|
(82,523 | ) |
|
|
(83,959 | ) |
|
|
$ | 64,446 |
|
|
$ | 45,728 |
|
Depreciation expense for the years ended December 31, 2018 and 2017, was $27,376 and $25,936, respectively, and is included within general and administrative expenses in the consolidated statement of operations.
Note 3 - Customer deposits - Related party
These represent advance payments of $400,000 received on orders that have not yet been fulfilled, with companies controlled by the individual who is the 5% owner of UPT and is a shareholder of Cool Technologies.
Note 4 - Debt
Debt consists of the following:
|
|
December 31, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
Notes payable |
|
$ | 1,800,000 |
|
|
$ | -- |
|
Convertible notes payable |
|
|
581,950 |
|
|
|
795,803 |
|
Test vehicle financing |
|
|
56,231 |
|
|
|
42,444 |
|
Note payable - related party |
|
|
12,897 |
|
|
|
7,490 |
|
Note payable - UPT minority owner |
|
|
190,000 |
|
|
|
250,000 |
|
|
|
|
2,641,078 |
|
|
|
1,095,737 |
|
Debt discount |
|
|
(513,245 | ) |
|
|
(339,416 | ) |
|
|
|
2,127,833 |
|
|
|
756,321 |
|
Less: current portion |
|
|
2,091,014 |
|
|
|
659,312 |
|
Long-term portion |
|
$ | 36,819 |
|
|
$ | 97,009 |
|
Notes Payable
On July 5, 2018, the Company entered into a Secured Promissory Note Agreement with an accredited investor. CoolTech received $100,000 in financing and promised to pay the principal amount on or before the one year anniversary. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing, In exchange, it issued cashless warrants to purchase 200,000 shares of common stock at an exercise price of $0.065. The warrants expire after five years. The note was repaid and retired on September 28, 2018.
From September 1 - 11, 2018, the Company entered into a Promissory Note Agreements with three accredited investors. CoolTech received $250,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum on or before the one year anniversary. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing, In exchange, it issued cashless warrants to purchase 2,000,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years.
From September 7 - 25, 2018, the Company entered into a Promissory Note Agreements with four accredited investors. CoolTech received $125,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum on or before the one year anniversary. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing, In exchange, CoolTech issued cashless warrants to purchase 1,000,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years.
On October 2 and 26, 2018, the Company entered into a Promissory Note Agreements with two accredited investors. It received $250,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum on or before the one year anniversary. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing, In exchange, Cool Technologies issued cashless warrants to purchase 2,000,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years.
F-13 |
|
Table of Contents |
On December 19, 2018, the Company entered into a Promissory Note Agreement with an accredited investor. It received $50,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum on or before the one year anniversary. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing, In exchange, Cool Technologies issued cashless warrants to purchase 400,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years.
Convertible notes payable
August 2016 Convertible Note- In August 2016, the Company entered into a senior convertible note agreement. Itreceived $400,000, bearing interest at 3%, with principal and interest payable on August 24, 2018. In addition, the Company received the right to require the buyer to purchase from the company four million restricted shares of common stock at a purchase price of $0.05 per share and a warrant to purchase four million shares of common stock with an exercise price of $0.06 per share. At the same time, the Company granted the buyer the right to require the Company to sell to the buyer four million restricted shares of common stock at a purchase price of $0.05 per share and a warrant to purchase four million shares of common stock with an exercise price of $0.06 per share. In the event of default, the interest rate will be 18% per annum, require the Company to (i) redeem all or any portion of the note at a premium of 150% or (ii) convert any portion of this note then held by noteholder into shares of common stock at the conversion price of $0.025, equal to a number of shares of common stock equal to the principal amount outstanding on the note (divided by 0.025) and multiplied by the premium of 150%.
The note may be converted at any time into shares of the common stock at the conversion price pursuant to the terms of the note. The buyer may not, however, convert more than 50% of the note’s purchase price prior to September 30, 2016.
On April 18, 2017, KHIC, LLC, a 6% shareholder, was issued 1,132,000 shares of common stock after converting $28,300 in debt at $0.025 per share.
On May 30, 2017, the Company signed an amendment to the securities purchase agreement originally signed with KHIC on August 24, 2016. In exchange for $100,000, KHIC extended the KHIC’s right to require the Company to sell to the buyer, four million restricted shares of common stock at a purchase price of $0.05 per share and a warrant to purchase four million shares of common stock with an exercise price of $0.06 per share until June 7, 2017. The right was originally due to expire on May 31, 2017. On June 7, 2017, KHIC exercised the right and was issued the requisite shares and warrants.
On April 8, 2018, KHIC was issued 2,025,000 shares of common stock after converting $50,625 in debt at $0.025 per share.
An amendment was signed on August 24, 2018 which extended the maturity date of the note to December 15, 2018. In exchange, the outstanding balance of the note was increased to $455,544.
An amendment was signed on December 10, 2018 which extended the maturity date of the note to December 28, 2018. In exchange, the outstanding balance of the note was increased to $460,094 and a partial payment of $250,000 was made on the balance. On December 28, 2018, the outstanding balance of $210,094 was paid in full and the note was retired.
August Convertible Note - On August 25, 2017, the Company entered into a convertible note agreement. It issued 300,000 inducement shares of restricted common stock and received $150,000, with an original issue discount of $15,000 in lieu of interest, for a total amount of $165,000 due on March 25, 2018. At the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of common stock at $0.10 per share. In the event of default, the outstanding balance will increase by 25% and a daily penalty of $100 will accrue until the default is remedied.
F-14 |
|
Table of Contents |
On February 19, 2018, the convertible note agreement was amended and the maturity date was extended until April 30, 2018. In exchange, the holder’s debt conversion share price was reduced to $0.025 per share.
Subsequent to the signing of the amendment, from March 23 to April 19, 2018, a total of $87,500 were converted into 3,500,000 shares of common stock.
On April 27, 2018, a second amendment was signed extending the maturity date until May 30, 2018. On May 23, 2018, the Company issued 3,298,000 shares on conversion of $82,450 and the note was retired.
January Convertible Note - On January 26, 2018, the Company entered into a convertible note agreement. It issued 800,000 inducement shares of restricted common stock and received $200,000, with an original issue discount of $20,000 in lieu of interest, for a total amount of $220,000 due on August 26, 2018. At the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of CoolTech’s common stock at $0.05 per share. In the event of default, the outstanding balance will increase by 25% and a daily penalty of $100 will accrue until the default is remedied.
On May 22, 2018, Lucas Hoppel signed an amendment to the note which extended the maturity date to October 1, 2018. In exchange, the note was changed from promissory to convertible with a conversion price of $0.025 per share.
On September 25, 2018, the Company issued 2,000,000 shares on conversion of $50,000 in debt.
On October 1, 2018, Lucas Hoppel signed an amendment to the note which extended the maturity date to January 1, 2019.
September 2016 Promissory Notes - On September 30, 2016, the Company issued Gemini Master Fund, Ltd., a 5% stockholder, a secured promissory note in the original principal amount of $180,000. The note accrues interest at 5% (18% in the event of an event of default) and matures on June 30, 2017. In connection with the issuance of the note, Gemini Master Fund was issued 800,000 shares of common stock on November 10, 2016.
On June 30, 2017, the promissory note holder signed an extension agreement that extended the maturity date of the promissory notes to September 30, 2017 and then again until November 30, 2017. The terms and conditions remained the same.
On November 13, 2017, Lucas Hoppel purchased the note for $226,325 which included accrued and unpaid interest as well as additional charges.
On November 20, 2017, Lucas Hoppel signed an amendment to the note which extended the maturity date to December 31, 2017. In addition, the note was changed from promissory to convertible with a conversion price of $0.05 per share. On December 29, 2017 the note was amended and the maturity date was extended to February 16, 2017. In exchange the conversion price was reduced to $0.04.
On February 19, 2018, the Company signed an amendment to a convertible note for $226,325 originally issued on September 3, 2017. The amendment extended the maturity dated extended to March 31, 2018. In exchange, the conversion price was reduced from $0.04 to $0.025.
From December 7 to December 31, 2017 a total of $62,500 were converted into 1,250,000 shares of common stock. From January 1 to February 20, 2018, a total of $122,500 were converted into 3,500,000 shares of common stock. On March 5, 2018, the buyer converted $41,325 into 1,653,000 shares of common stock and the $226,325 note was retired.
F-15 |
|
Table of Contents |
February Convertible Note - On February 19, 2018, the Company entered into a convertible note agreement. It issued 2,000,000 inducement shares of restricted common stock and received $350,000, with an original issue discount of $35,000 in lieu of interest, for a total amount of $385,000 due on September 19, 2018. At the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of CoolTech’s common stock at $0.05 per share. In the event of default, the outstanding balance will increase by 25% and a daily penalty of $100 will accrue until the default is remedied.
On May 22, 2018, Lucas Hoppel signed an amendment to the note which extended the maturity date to November 1, 2018. In exchange, the note was changed from promissory to convertible with a conversion price of $0.025 per share.
On September 14, 2018, the Company issued 2,000,000 shares on conversion of $50,000 in debt. On October 26, 2018, Lucas Hoppel signed an amendment to the note which extended the maturity date to January 1, 2019. On October 31, 2018, the Company issued 2,000,000 shares on conversion of $50,000 in debt.
April Convertible Note -- On April 26, 2018, the Company entered into a convertible note agreement. It received $128,000 with an original issue discount of $12,800 in lieu of interest, for a total amount of $140,800 due on July 25, 2019. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of CoolTech’s common stock at a 29% discount to the average of the three lowest Volume Weighted Average Prices (VWAP) during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 22% per annum, require the Company to (i) redeem all or any portion of the note at a premium of 150%.
On October 16, 2018, CoolTech sent a notice of pre-payment to the holder. On October 18, 2018, the Company wired $189,940 to the holder and the note was retired.
May Convertible Note - On May 22, 2018, the Company entered into a convertible note agreement. It issued 400,000 inducement shares of restricted common stock and received $110,000, with an original issue discount of $10,000 in lieu of interest, for a total amount of $100,000 due on December 22, 2018. At the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of CoolTech’s common stock at $0.05 per share. In the event of default, the outstanding balance will increase by 25% and a daily penalty of $100 will accrue until the default is remedied.
On December 5, 2018, the Company issued 2,000,000 shares on conversion of $50,000 in debt. On December 6, 2018, CoolTech issued 2,532,000 shares on conversion of $63,300 in debt and the note was retired.
May Convertible Note -- On May 31, 2018, the Company entered into a convertible note agreement. It received $53,000 with an original issue discount of $5,300 in lieu of interest, for a total amount of $58,300 due on May 31, 2019. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of CoolTech’s common stock at a 29% discount to the average of the three lowest Volume Weighted Average Prices (VWAP) during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 22% per annum, require the Company to (i) redeem all or any portion of the note at a premium of 150%. On November 13, 2018, CoolTech wired $78,564 to the holder and the note was retired.
August Convertible Note -- On August 17, 2018, the Company entered into a convertible note agreement. It received $63,000 with an original issue discount of $6,300.00 in lieu of interest, for a total amount of $58,300 due on August 17, 2019. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of CoolTech’s common stock at a 29% discount to the average of the three lowest Volume Weighted Average Prices (VWAP) during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 22% per annum, require the Company to (i) redeem all or any portion of the note at a premium of 150%.
December Convertible Note -- On August 17, 2018, the Company entered into a convertible note agreement. It received $63,000 with an original issue discount of $6,300.00 in lieu of interest, for a total amount of $58,300 due on August 17, 2019. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of CoolTech’s common stock at a 29% discount to the lowest Volume Weighted Average Prices (VWAP) during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 22% per annum, require the Company to (i) redeem all or any portion of the note at a premium of 150%.
F-16 |
|
Table of Contents |
Test Vehicle Financing
In October 2014, the Company entered into financing agreements for the purchase of test vehicles, bearing interest at 5.99% payable monthly over five years, collateralized by the vehicles. In July 2018, CoolTech traded-in one test vehicle and purchased another bearing interest rate of 9.92% payable monthly over 6 years.
Note payable - UPT minority owner
Held by the 5% minority owner of UPT. The terms of the note have not been finalized.
Warrants Issued with Debt
When the Company issues notes payable, it may also be required to issue warrants.
|
|
Number of Warrants |
|
|
Weighted-average Exercise Price |
|
|
Weighted-average Remaining Life (Years) |
|
|
Aggregate Intrinsic Value |
|
||||
Outstanding, December 31, 2016 |
|
|
14,421,379 |
|
|
$ | 0.02 |
|
|
|
2.5 |
|
|
$ | 999,378 |
|
Granted |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Forfeited or expired |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Outstanding, December 31, 2017 |
|
|
14,421,379 |
|
|
|
0.02 |
|
|
|
1.5 |
|
|
|
725,950 |
|
Exercisable, December 31, 2017 |
|
|
14,421,379 |
|
|
|
0.02 |
|
|
|
1.5 |
|
|
|
725,950 |
|
Granted |
|
|
14,400,000 |
|
|
|
0.05 |
|
|
|
-- |
|
|
|
-- |
|
Forfeited or expired |
|
|
(750,000 | ) |
|
|
0.16 |
|
|
|
-- |
|
|
|
-- |
|
Exercised |
|
|
(13,603,662 | ) |
|
|
0.02 |
|
|
|
-- |
|
|
|
-- |
|
Outstanding, December 31, 2018 |
|
|
14,467,717 |
|
|
|
0.05 |
|
|
|
4.6 |
|
|
|
1,564 |
|
Exercisable, December 31, 2018 |
|
|
14,467,717 |
|
|
$ | 0.05 |
|
|
|
4.6 |
|
|
$ | 1,564 |
|
Future contractual maturities of debt are as follows:
Year ending December 31, |
|
|
|
|
2019 |
|
|
2,091,014 |
|
2020 |
|
|
6,656 |
|
2021 |
|
|
7,358 |
|
2022 |
|
|
8,134 |
|
2023 |
|
|
8,992 |
|
2024 |
|
|
5,679 |
|
|
|
$ | 2,127,833 |
|
Transactions with Related Parties
The note payable - related party, in the amount of $12,897, is held by the Company's Chief Financial Officer and relates to unreimbursed expenses.
The note payable - UPT minority owner, in the amount of $190,000, is held by the 5% minority owner of UPT. The terms of the note have not been finalized.
F-17 |
|
Table of Contents |
Note 5 - Derivative Liability
Under the terms of the May 2016, December 2016, March 2017, April 2018, May 2018, August 2018 and December 2018 Convertible Notes, the Company identified derivative instruments arising from embedded conversion features, as well as warrants issued with the December 2015 Convertible Note.
The following summarizes the Black-Scholes assumptions used to estimate the fair value of the derivative liability at the dates of issuance and the revaluation dates:
|
|
Year ended December 31, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
Volatility |
|
102%-119 |
% |
|
108%-199 |
% |
||
Risk-free interest rate |
|
1.7%-2.7 |
% |
|
0.5%-1.8 |
% |
||
Expected life (years) |
|
0.0 - 1.3 |
|
|
0.2 - 1.7 |
|
||
Dividend yield |
|
|
-- |
|
|
|
-- |
|
On March 22, 2017, Cool Technologies amended its certificate of incorporation to increase the number of authorized shares of its common stock. Subsequent to this amendment, the Company had a sufficient number of authorized but unissued shares of common stock available to settle all of its outstanding common share equivalents. Accordingly, the common share equivalents that were previously reclassified to derivative liabilities were subject to a final mark-to-market for their change in fair value as of the date of the increase in authorized shares and were then reclassified back to equity.
Changes in the derivative liability were as follows:
|
|
Twelve Months Ended December 31, 2018 |
|
|||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||
Convertible debt and other derivative liabilities at December 31, 2016 |
|
|
-- |
|
|
|
-- |
|
|
|
4,851,760 |
|
Conversions of convertible debt |
|
|
-- |
|
|
|
-- |
|
|
|
(316,245 | ) |
Issuance of convertible debt and other derivatives |
|
|
-- |
|
|
|
-- |
|
|
|
306,901 |
|
Reclassification of common share equivalents to additional paid-in capital |
|
|
-- |
|
|
|
-- |
|
|
|
(6,364,224 | ) |
Change in fair value |
|
|
-- |
|
|
|
-- |
|
|
|
1,529,312 |
|
Convertible debt and other derivative liabilities at December 31, 2017 |
|
|
-- |
|
|
|
-- |
|
|
|
7,504 |
|
Conversions of convertible debt |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Issuance of convertible debt and other derivatives |
|
|
-- |
|
|
|
-- |
|
|
|
346,821 |
|
Reclassification of common share equivalents to additional paid-in capital |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Extinguishment of convertible debt |
|
|
-- |
|
|
|
-- |
|
|
|
(120,603 | ) |
Change in fair value |
|
|
-- |
|
|
|
-- |
|
|
|
(83,963 | ) |
Convertible debt and other derivative liabilities at December 31, 2018 |
|
|
-- |
|
|
|
-- |
|
|
|
149,759 |
|
Note 6 - Commitments and Contingencies
On December 12, 2012, the Company concluded negotiations on a debt settlement agreement by and among the Company, Phoenix Productions and Entertainment Group ("PPEG"), Action Media Group, LLC ("Action Media") and Spirit Bear Limited ("Spirit Bear") (PPEG and Action Media collectively, the "Debt Holders"). PPEG and Action Media were significant shareholders in CoolTech’s predecessor company and Spirit Bear is a related party through voting rights. The debt holders were to return to escrow a total of 4,676,000 shares of common stock. 3,676,000 of these shares were returned and cancelled on January 14, 2013, following a filing a registration statement with the SEC on January 11, 2013. The remaining 1,000,000 shares will be purchased by the Company or a nominee of the Company at $0.40 per share (or $400,000) at the rate of $10,000 per month commencing within 90 days of the Company achieving $1,000,000 in gross revenues for products or services from business operations. PPEG and Action Media will divide the $400,000 on a pro rata basis, based on each company's respective amount of debt forgiven. The historical cost of the shares held in escrow are reflected in equity on the consolidated balance sheets as common stock held in escrow.
F-18 |
|
Table of Contents |
Effective May 1, 2015, the Company executed a First Amendment to Settlement Agreement (the "Amendment") with Spirit Bear and the parties identified as the assignees of Spirit Bear who are signatories to the Amendment, which amends certain provisions of the Settlement Agreement. In accordance with the terms of the Amendment, Jay Palmer, Carrie Dwyer and Donica Holt, the Spirit Bear holdover directors, tendered their resignation from the Board of Directors of the Company. Spirit Bear also agreed that it will no longer have any rights to appoint nominees to the Board of Directors. Pursuant to the Amendment, the Company agreed to file a registration statement on Form S-1 covering an aggregate of 14,845,072 shares of common stock, preferred stock and warrants on behalf of Spirit Bear and its assignees no later than July 15, 2015, which was filed with the SEC on July 15, 2015. A representative of Spirit Bear agreed that the obligation to register the shares on a Form S-1 need only include shares of common stock and shares of common stock issuable upon conversion of the Preferred Stock and exercise of the warrants held by Spirit Bear and its assignees. The Company agreed to issue replacement warrants for certain previously-issued warrants, which will be canceled in connection with the replacement issuance. Within 10 business days of June 1, 2015, the parties agreed to dismiss all of the pending litigation between and among them.
On November 4, 2016, Spirit Bear agreed to the withdrawal of the registration statement in exchange for confirmation that the warrants owned by Spirit Bear and its associate which were subject to a separate court action shall not expire even if the court action continued beyond the warrants’ initial expiration date. The registration had not been declared effective by the SEC and the Company filed a request to withdraw the Registration Statement on November 14, 2016.
On August 28, 2015, the parties filed a Stipulation to dismiss the direct claims of the Company against Spirit Bear and of Spirit Bear against the Company in the Nevada Lawsuit. By Order dated September 1, 2015 and filed September 2, 2015, the Court ordered dismissal of all direct claims in the Nevada Lawsuit.
Additionally, on February 20, 2015, the Court issued its preliminary approval to the derivative action settlement agreement (the "DASA") which would lead to the ultimate dismissal of the derivative suit also filed by Spirit Bear in the same action. The Court scheduled a fairness hearing for November 20, 2015 to consider giving its final approval to the DASA. No shareholder filed any objections to the DASA by April 30, 2015 which was the deadline established by the Court for filing objections. However, on October 22, 2015, Peak Finance, LLC filed a Motion to Intervene in the action seeking, among other things, approval to file a new derivative Complaint in this matter. The Company opposed this Motion.
On August 31, 2015, the Company received notice of a summons in the matter styled Peak Finance, Derivatively on Behalf of Nominal Defendant, HPEV, Inc. v. Hassett, et al., No. 2:15-cv-01590-GMN-CWH, filed in the United States District Court for the District of Nevada (the “Peak Finance Claim”). Plaintiff Peak Finance, LLC (“Peak Finance”) alleges that certain members of the Company’s Board of Directors and officers caused a misleading proxy statement to issue and breached alleged fiduciary duties from and after June 18, 2013. Peak Finance further alleges that its claim is related to the Spirit Bear Lawsuit described above. The Company has not determined that there is any merit to the allegations, and has decided to submit the claims to an Independent Director Committee consisting of Directors Christopher McKee, Richard J. “Dick” Schul, and Donald Bowman for their review and consideration. Additionally, on September 28, 2015, the Company filed a motion to dismiss the initial Complaint filed by Peak Finance. On October 22, 2015, rather than oppose the motion to dismiss, Peak Finance filed an amended complaint in this case in addition to the Motion to Intervene in the pending Spirit Bear litigation set forth above. On November 9, 2015, the Company filed a new motion to dismiss the first amended complaint filed by Peak Finance on October 22, 2015.
At the November 20, 2015 fairness hearing, the Court denied Peak Finance's Motion to Intervene. However, the Court did allow Peak Finance to formally argue its objections to the DASA. The Court ordered additional briefing on certain issues which has now been completed. The Court has ordered another hearing to consider the DASA on April 1, 2016.
F-19 |
|
Table of Contents |
On April 1, 2016, Peak Finance and the Company advised the Court that they had agreed in principle to a settlement that would include withdrawal of Peak Finance’s objection to the DASA. On April 20, 2016, the parties filed a Stipulation and Proposed Order for Withdrawal of Objection to DASA, which was granted by the Court on April 21, 2016. On May 3, 2016, the Court issued an Order, which fully and finally approved the DASA and dismissed the Peak Finance and the Spirit Bear cases, with prejudice. On May 17, 2016, the Company filed a document to show cause as to the effect of the Stipulation and Proposed Order Regarding Settlement on the pending Motion to Dismiss Amended Complaint.
Also on May 17, 2016, Peak Finance and the Company filed a Stipulation and Proposed Order to Modify Stay of Proceedings so that the stay issued on January 6, 2016 could be modified to permit the Court to consider the Stipulation and Proposed Order Regarding Settlement and for the Court and all parties to take all necessary actions to seek final approval of a settlement prior to the Court ruling on the pending Motion to Dismiss.
On October 11, 2016, the United States District Court, District of Nevada orally approved the derivative action settlement agreement (“Peak Settlement Agreement”) reached in Peak Finance, LLC v. Timothy J. Hassett et. al., Case No. 2:15-cv-01590-GMN-CWH. Noting that no non-party shareholder filed any objections to the Peak Settlement Agreement, the District Court specifically found that it is “fundamentally fair, reasonable and adequate” and serves the best interest of the Company. The Court further directed that counsel for the parties prepare a proposed formal written order finally approving the Peak Settlement Agreement and dismissing the case.
On October 20, 2016, the Derivative Action Settlement Agreement was formally approved and the case was formally dismissed with prejudice.
Subsequent to the dismissal, an Independent Directors Committee consisting of directors Christopher McKee, Richard J. "Dick" Schul and Donald Bowman reviewed the allegations made by Peak Finance, LLC to determine a proper corporate response. On December 6, 2016, a quorum of the members of the Independent Directors Committee met with Peak Finance, LLC in New York City, to fulfill the judges’ final orders. No further action is required by the Company in this matter.
On October 7, 2016, the Company received a complaint, Wang et al v. Cool Technologies, Inc. et al, filed on July 28, 2016 in the U.S. District Court for the Eastern District of New York (Brooklyn) Civil docket #1:16-CV-04101-RRM-PK against the Company and Timothy Hassett, the Company’s Chief Executive Officer, alleging damages of $1,100,000 for inter alia breach of contract for failing to register shares sold to the Plaintiffs in February and March 2014.
On March 30, 2017, the Company and Timothy Hassett, the Company’s Chief Executive Officer, requested leave of the court to move to dismiss the matter, on both Substantive and Jurisdictional grounds. On April 13, 2017, the Honorable Roslynn R. Mauskopf granted leave to renew the Company’s March 30, 2017 request for a pre-motion conference after the initial conference before Magistrate Judge Kuo. At the initial conference, Corporate counsel informed the court that the Company, in fact, filed a registration statement for said shares in July 2014 and the Warrants were in the possession of Plaintiff Gary Zse Kong J.D. and located on his computer and printed at his office in the Law Offices of Gary Park. Magistrate Judge Peggy Kuo directed plaintiff to file an amended complaint and directed plaintiff Gary Sze Kong to preserve all computer and other records which may still be at the Law Offices of Gary Park. Defendants were also granted leave to subpoena such records if they are no longer under the control of Plaintiff Kong. On June 30 th , Plaintiff amended their complaint inter alia admitting that the Company filed the registration statement with the SEC. On August 7, 2017, Corporate Counsel requested leave for a pre-motion conference to move to dismiss the matter.
On March 27, 2018, a Subpoena has been issued and served upon the Law Offices of Gary S. Park P.C. On April 3, 2018 counsel for Plaintiffs withdrew and were replaced by Mr. Sang Joon Sim, Esq. of Sim & Record, LLP which shares an address with Mr. Park’s law offices.
From time to time, Cool Technologies may be a party to other legal proceedings. Management currently believes that the ultimate resolution of these matters, and after consideration of amounts accrued, will not have a material adverse effect on consolidated results of operations, financial position, or cash flow.
F-20 |
|
Table of Contents |
Note 7 - Equity
Preferred Stock
Cool Technologies has 15,000,000 preferred shares authorized and 20 Series A and 2,727,270 Series B preferred shares issued and outstanding as of December 31, 2018.
In addition to the preferred stock, the Securities Purchase Agreement included warrants to purchase (i) 3,636,360 shares of the Company’s common stock at an exercise price of $0.07 per share. The aggregate purchase price of the preferred stock and warrants was $200,000, of which $150,000 was paid in cash and $50,000 was paid in services.
In connection with the sale of the Preferred Stock, on October 20, 2016, the Company filed with the Secretary of the State of Nevada, an amended Certificate of Designations of the Rights, Preferences, Privileges and Restrictions, which have not been set forth in the Certificate of Designation of the Series B Convertible Preferred Stock nor the first Amendment to Certificate of Designation filed on August 12, 2016.
The preferred stock has the same rights as if each share of Series B Convertible Preferred Stock were converted into one share of common stock. For so long as the Series B Convertible Preferred Stock is issued and outstanding, the holders of such Series B Convertible Preferred Stock vote together as a single class with the holders of the common stock and the holders of any other class or series of shares entitled to vote with the common stock, with the holders of Series B Stock being entitled to 66 2/3% of the total votes on all such matters.
In the event of the death of a holder of the Class B Preferred Stock, or a liquidation, winding up or bankruptcy of a holder which is an entity, all voting rights of the Class B Preferred Stock shall cease.
The holder of any shares of Class B Preferred Stock have the right to convert their shares into common stock at any time, in a conversion ratio of one share of common stock for each share of Class B Preferred. If the Company’s common stock trades or is quoted at a price per share in excess of $2.25 for any twenty consecutive day trading period, the Class B Preferred Stock will automatically be convertible into the common stock of the Company in a conversion ratio of one share of common stock for each share of Class B Preferred.
The holders of Class B Preferred Stock are not entitled to receive any distributions in the event of any liquidation, dissolution or winding up of the Company.
The warrants cannot be exercised on a cashless basis.
On October 31 and November 1, 2016, three of the accredited investors provided $51,000 to Cool Technologies and are due to receive an additional 927,270 Series B Preferred shares.
On October 31 and November 1, 2016, three of the accredited investors provided $51,000 to the Company. Pursuant to signed approval from the investors, on July 25, 2017, CoolTech issued 309,090 shares of common stock to each of the investors.
On May 8, 2017, Inverom Corporation converted its 909,090 Series B preferred shares into 909,090 shares of common stock. This represented all of the shares of Series B stock held by Inverom Corporation.
Preferred stock issuable on the consolidated balance sheets represents preferred stock to be issued for either cash received or services performed. As of December 31, 2018 and 2017, the number of shares of preferred stock to be issued was 0.
F-21 |
|
Table of Contents |
Spirit Bear holds 17 shares of Cool Technologies’ Series A Preferred Stock and KHIC, Inc., a related party holds the remaining 3 shares of Series A Preferred Stock. Each share of Series A Preferred Stock ("Preferred Stock") is convertible into 50,000 shares of common stock. Each share of preferred stock has voting rights as if they were converted into 50,000 shares of common stock. The holders of each share of preferred stock then outstanding shall be entitled to be paid out of the Available Funds and Assets (as defined in the "Certificate of Designation"), and prior and in preference to any payment or distribution (or any setting a part of any payment or distribution) of any Available Funds and Assets on any shares of common stock, an amount per preferred share equal to the Preferred Stock Liquidation Price ($2,500 per share). On January 25, 2019, Spirit Bear converted all of their shares of Series A Preferred Stock into 850,000 shares of the Company’s common stock.
Common stock
On February 10, 2017, stockholders holding shares that entitled them to exercise at least a majority of the voting power, voted in favor of increasing the number of authorized shares of common stock, from 140,000,000 shares to 350,000,000 shares.
Common stock issuable on the consolidated balance sheets represents common stock to be issued for either cash received or services performed. As of December 31, 2018 and 2017, the number of shares of common stock to be issued was 1,144,697 and 9,320,635 shares, respectively.
Common stock warrants issued with the sale of CoolTech’s common stock
When the Company sells shares of its common stock the buyer also typically receives fully-vested common stock warrants with a maximum contractual term of 3-5 years. A summary of common stock warrants issued with the sale of common stock as of December 31, 2018, and changes during the years then ended is presented below:
|
|
Number of Warrants |
|
|
Weighted-average Exercise Price |
|
|
Weighted-average Remaining Life (Years) |
|
|
Aggregate Intrinsic Value |
|
||||
Outstanding, December 31, 2016 |
|
|
34,045,467 |
|
|
$ | 0.30 |
|
|
|
|
|
|
|
||
Granted |
|
|
25,941,558 |
|
|
|
0.08 |
|
|
|
|
|
|
|
||
Forfeited or expired |
|
|
(12,549,437 | ) |
|
|
0.26 |
|
|
|
|
|
|
|
||
Outstanding, December 31, 2017 |
|
|
47,437,588 |
|
|
|
0.19 |
|
|
|
2.1 |
|
|
$ | 114,000 |
|
Exercisable, December 31, 2017 |
|
|
47,437,588 |
|
|
|
0.19 |
|
|
|
2.1 |
|
|
$ | 114,000 |
|
Granted |
|
|
5,431,944 |
|
|
|
0.06 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(501,645 | ) |
|
|
0.29 |
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2018 |
|
|
52,367,887 |
|
|
|
0.18 |
|
|
|
1.3 |
|
|
|
- |
|
Exercisable, December 31, 2018 |
|
|
52,367,887 |
|
|
$ | 0.18 |
|
|
|
1.3 |
|
|
$ | - |
|
Note 8 - Share-based payments
Amounts recognized as expense in the consolidated statements of operations related to share-based payments are as follows:
|
|
Year ended December 31, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
Nonemployee common stock |
|
$ | -- |
|
|
$ | 139,529 |
|
Nonemployee preferred stock (Series B) |
|
|
-- |
|
|
|
-- |
|
Nonemployee warrants - fully vested upon issuance |
|
|
25,882 |
|
|
|
398,398 |
|
Nonemployee warrants - service and performance conditions |
|
|
-- |
|
|
|
6,118 |
|
Employee common stock |
|
|
-- |
|
|
|
188,000 |
|
Employee stock options - market price-based |
|
|
-- |
|
|
|
-- |
|
Total share-based expense charged against income |
|
$ | 25,882 |
|
|
$ | 732,045 |
|
|
|
|
|
|
|
|
|
|
Impact on net loss per common share: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ | (0.00 | ) |
|
$ | (0.01 | ) |
F-22 |
|
Table of Contents |
UPT management agreement
In July, 2014, Cool Technologies entered into a three year agreement with the Company managing the operations of UPT, whereby it would issue common stock under the following conditions:
Condition |
|
Number of Shares |
|
|
UPT recognizes $100 million of revenue or a change in control |
|
|
500,000 |
|
UPT recognizes $100 million of revenue |
|
|
150,000 |
|
|
|
|
650,000 |
|
On June 30, 2017 the agreement expired. None of the conditions were met prior to expiration, so no expense will be recognized and no common stock will be issued under this agreement.
In July 2014, Cool Technologies entered into a three year agreement with the Company managing the operations of UPT, whereby CoolTech would issue common stock warrants under the following conditions:
|
|
|
|
Number of |
|
|
Vesting Condition |
|
Category |
|
Warrants |
|
|
Fully vest upon UPT generating $1 million of revenue |
|
Performance |
|
|
350,000 |
|
45,945 warrants for every $3 million of revenue generated by UPT up to $100 million |
|
Performance |
|
|
1,530,000 |
|
60,000 warrants for every three months of completed service managing UPT |
|
Service |
|
|
720,000 |
|
|
|
|
|
|
2,600,000 |
|
The common stock warrants have a three year life and an exercise price of $1.00 per share. The grant date fair value was $2,586,000. On June 30, 2017, the agreement expired. None of the performance conditions were met prior to expiration, so no expense will be recognized and no common stock warrants will vest under the performance conditions. During the year ended December 21, 2017, 120,000 of the common stock warrants under the service condition vested with the passage of time and the Company recognized expense of $6,118. There is no remaining service award expense to recognize.
Nonemployee common stock
Other
During the years ended December 31, 2018 and 2017, Cool Technologies issued or accrued an additional 2,600,000 and 4,651,525 shares of common stock in exchange for services, with a fair value of $130,000 and $364,530, respectively.
F-23 |
|
Table of Contents |
Nonemployee common stock warrants -- Fully-vested upon issuance
Cool Technologies may issue fully-vested common stock warrants with a maximum contractual term of 5 years to non-employees in return for services or to satisfy liabilities, such as accrued interest. The following summarizes the activity for common stock warrants that were fully-vested upon issuance:
|
|
Number of Warrants |
|
|
Weighted-average Exercise Price |
|
|
Weighted-average Remaining Life (Years) |
|
|
Aggregate Intrinsic Value |
|
||||
Outstanding, December 31, 2016 |
|
|
10,866,071 |
|
|
$ | 0.49 |
|
|
|
|
|
|
|
||
Granted |
|
|
5,550,000 |
|
|
|
0.08 |
|
|
|
|
|
|
|
||
Forfeited or expired |
|
|
(3,470,235 | ) |
|
|
0.59 |
|
|
|
|
|
|
|
||
Outstanding, December 31, 2017 |
|
|
12,945,836 |
|
|
|
0.29 |
|
|
|
2.3 |
|
|
$ | 46,000 |
|
Exercisable, December 31, 2017 |
|
|
12,945,836 |
|
|
|
0.29 |
|
|
|
2.3 |
|
|
$ | 46,000 |
|
Granted |
|
|
500,000 |
|
|
|
0.05 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2018 |
|
|
13,445,836 |
|
|
|
0.27 |
|
|
|
1.4 |
|
|
$ | 78,000 |
|
Exercisable, December 31, 2018 |
|
|
13,445,836 |
|
|
$ | 0.27 |
|
|
|
1.4 |
|
|
$ | 78,000 |
|
The following summarizes the Black-Scholes assumptions used to estimate the fair value of fully-vested common stock warrants:
|
|
Year ended December 31, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
Volatility |
|
|
143 | % |
|
144-155 |
% |
|
Risk-free interest rate |
|
|
2.6 | % |
|
1.2--2.2 |
% |
|
Expected life (years) |
|
|
5.0 |
|
|
2.4 -- 5.0 |
|
|
Dividend yield |
|
|
-- |
|
|
|
-- |
|
No fully-vested common stock warrants were exercised in 2018 and 2017.
Nonemployee common stock warrants -- Service and performance conditions
The following summarizes the terms for warrants the Company granted that are subject to performance and service conditions.
Summary
The following summarizes the activity for warrants that have performance and service conditions. There were no grants in 2018.
|
|
Number of Warrants |
|
|
Weighted-average Exercise Price |
|
|
Weighted-average Remaining Life (Years) |
|
|
Aggregate Intrinsic Value |
|
||||
Outstanding, December 31, 2016 |
|
|
3,400,000 |
|
|
$ | 0.84 |
|
|
|
|
|
|
|
||
Granted |
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
||
Forfeited or expired |
|
|
(120,000 | ) |
|
|
1.00 |
|
|
|
|
|
|
|
||
Outstanding, December 31, 2017 |
|
|
3,280,000 |
|
|
|
0.83 |
|
|
|
0.3 |
|
|
|
|
|
Exercisable, December 31, 2017 |
|
|
1,280,000 |
|
|
|
0.56 |
|
|
|
0.7 |
|
|
|
|
|
Granted |
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(2,120,000 | ) |
|
|
1.00 |
|
|
|
0.0 |
|
|
|
|
|
Outstanding, December 31, 2018 |
|
|
1,160,000 |
|
|
|
0.52 |
|
|
|
0.4 |
|
|
|
|
|
Exercisable, December 31, 2018 |
|
|
1,160,000 |
|
|
$ | 0.52 |
|
|
|
0.4 |
|
|
$ | -- |
|
F-24 |
|
Table of Contents |
The following summarizes of the status of the Company’s non-vested common stock warrants with performance and service conditions as of December 31, 2018, and changes during the year then ended:
|
|
Number of |
|
|
Weighted-average Grant Date |
|
||
|
|
Warrants |
|
|
Fair Value |
|
||
Non vested, December 31, 2016 |
|
|
2,000,000 |
|
|
$ | 0.99 |
|
Vested |
|
|
(120,000 | ) |
|
|
0.99 |
|
Non vested, December 31, 2017 |
|
|
1,880,000 |
|
|
|
0.99 |
|
Vested |
|
|
-- |
|
|
|
-- |
|
Forfeited |
|
|
(1,880,000 | ) |
|
|
0.99 |
|
Non vested, December 31, 2018 |
|
|
-- |
|
|
$ | -- |
|
The following summarizes the Black-Scholes assumptions used to estimate the fair value of warrants with performance and service conditions:
|
|
Year ended December 31, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
Volatility |
|
|
-- |
|
|
141--144 |
% |
|
Risk-free interest rate |
|
|
-- |
|
|
1.5--1.6 |
% |
|
Expected life (years) |
|
|
|
|
|
|
3.0 |
|
Dividend yield |
|
|
-- |
|
|
|
-- |
|
Legal settlement - Replacement warrants
Under the First Amendment to Settlement Agreement (the "Amendment") with Spirit Bear, Cool Technologies agreed to issue replacement warrants for certain previously-issued warrants. The 7,000,000 previously-issued warrants were issued in 2012, had exercise prices ranging from $0.35 to $0.75 per warrant, and expiration dates from April 2015 to April 2017. All of the replacement warrants have an exercise price of $0.25, while 6,000,000 expired in January 2017 and 1,000,000 expired in December 2015.
Under the terms of the February 2016 Waiver of Performance and Second Amendment to Settlement Agreement with Spirit Bear, the Company agreed to issued replacement warrants for previously amended and replaced warrants. Six million of the previously amended and replaced warrants owned by Spirit Bear and by Leonora Lorenzo had their expiration dates extended from January 29, 2017, until January 29, 2020, and had their exercise price reduced from $0.25 to $0.10 per share.
In addition, Spirit Bear consented to the withdrawal of a Registration Statement on Form S-1 that was pending before the Securities Exchange Commission (SEC). The proposed registration statement covered the common shares underlying the preferred shares owned by Spirit Bear and the common shares underlying the warrants owned by Spirit Bear and Leonora Lorenzo.
F-25 |
|
Table of Contents |
When a replacement equity instrument is issued, expense is recorded if the fair value of the new instruments is greater than the fair value of the original instruments. The Company recorded expense of $423,973 associated with the replacement warrants. The following summarizes the Black-Scholes assumptions used to estimate the fair value of the previously-issued warrants and the replacement warrants:
|
|
Previously-issued |
|
|
Replacement |
|
||
Volatility |
|
|
206 | % |
|
|
151 | % |
Risk-free interest rate |
|
|
0.5 | % |
|
|
1.3 | % |
Expected life (years) |
|
|
0.2 |
|
|
|
3.2 |
|
Dividend yield |
|
|
-- |
|
|
|
-- |
|
Employee stock options - Fully-vested upon grant
Cool Technologies granted stock options to certain members of management in 2014 that were fully-vested at the date of grant. There were no grants in 2017 or 2018. In 2016, one member resigned and released the Company from all incentive compensation it owed to him including stock options. The following is a summary of fully-vested stock option activity with the resigning member’s stock options removed for 2016:
|
|
Number of Shares |
|
|
Weighted-average Exercise Price per Share |
|
|
Weighted-average Remaining Contractual Term |
|
|
Aggregate Intrinsic Value |
|
||||
Outstanding, December 31, 2016 |
|
|
4,000,000 |
|
|
$ | 2.00 |
|
|
|
|
|
|
|
||
Outstanding, December 31, 2017 |
|
|
4,000,000 |
|
|
|
2.00 |
|
|
|
-- |
|
|
$ | -- |
|
Exercisable, December 31, 2017 |
|
|
4,000,000 |
|
|
|
2.00 |
|
|
|
-- |
|
|
|
-- |
|
Outstanding, December 31, 2018 |
|
|
4,000,000 |
|
|
|
2.00 |
|
|
|
-- |
|
|
|
-- |
|
Exercisable, December 31, 2018 |
|
|
4,000,000 |
|
|
$ | 2.00 |
|
|
|
-- |
|
|
$ | -- |
|
Note 9 - Income Taxes
The components of the Company’s deferred tax asset are as follows:
|
|
December 31, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
Net operating loss carryforwards |
|
$ | 6,836,322 |
|
|
$ | 6,140,045 |
|
Equity-based instruments |
|
|
6,465,537 |
|
|
|
6,458,977 |
|
Accrued liabilities |
|
|
112,795 |
|
|
|
133,105 |
|
Deferred Revenue |
|
|
96,311 |
|
|
|
96,311 |
|
Pass-through losses |
|
|
92,634 |
|
|
|
78,682 |
|
Valuation allowance |
|
|
(13,603,599 | ) |
|
|
(12,907,120 | ) |
Deferred tax asset |
|
$ | -- |
|
|
$ | -- |
|
Effective January 1, 2018, the Federal corporate income tax rate has been decreased from 34% to 21%. The effect of this change on deferred taxes and the valuation allowance at December 31, 2017 was approximately $6.5 million. The NOLs that have been generated 12/31/2017 and prior are going to be 100% allowable against future income, provided that they do not expire. NOLs generated 1/1/2018 and forward will be subject to the 80% limitation.
F-26 |
|
Table of Contents |
A reconciliation of income taxes computed at the statutory rate to the income tax amount recorded is as follows:
|
|
Year ended December 31, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
Income tax benefit at statutory rate |
|
$ | (970,386 | ) |
|
$ | (1,724,214 | ) |
State income tax, net of Federal benefit |
|
|
(200,777 | ) |
|
|
(184,085 | ) |
Tax Jobs and Cuts Act |
|
|
-- |
|
|
|
6,256,223 |
|
Convertible debt |
|
|
486,168 |
|
|
|
988,938 |
|
Other adjustments |
|
|
(11,686 | ) |
|
|
40,037 |
|
Meals and entertainment |
|
|
202 |
|
|
|
235 |
|
Increase in valuation allowance |
|
|
696,479 |
|
|
|
(5,377,133 | ) |
Income tax benefit |
|
$ | -- |
|
|
$ | -- |
|
Cool Technologies had no gross unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. It has not accrued any interest or penalties associated with income taxes. The Company files income tax returns in the United States federal jurisdiction. With few exceptions, it is no longer subject to U.S. federal, state or non-U.S. income tax examination by tax authorities on tax returns filed before January 31, 2012. No tax returns are currently under examination by any tax authorities.
Note 10 - Net Loss per Share
Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the reporting period. Diluted net loss per share is computed similarly to basic loss per share, except that it includes the potential dilution that could occur if dilutive securities are exercised.
The following table presents a reconciliation of the denominators used in the computation of net loss per share - basic and diluted:
|
|
Year ended December 31, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
Net loss available for stockholders |
|
$ | (4,618,388 | ) |
|
$ | (5,059,326 | ) |
Weighted average outstanding shares of common stock |
|
|
191,539,568 |
|
|
|
130,188,614 |
|
Dilutive effect of stock options and warrants |
|
|
-- |
|
|
|
-- |
|
Common stock and equivalents |
|
|
191,539,568 |
|
|
|
130,188,614 |
|
|
|
|
|
|
|
|
|
|
Net loss per share - Basic and diluted |
|
$ | (0.02 | ) |
|
$ | (0.04 | ) |
Outstanding stock options and common stock warrants are considered anti-dilutive because the Company is in a net loss position. The following summarizes equity instruments that may, in the future, have a dilutive effect on earnings per share:
|
|
December 31, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
Stock options |
|
|
4,000,000 |
|
|
|
4,000,000 |
|
Common stock warrants |
|
|
80,641,440 |
|
|
|
75,404,803 |
|
Common stock issuable |
|
|
1,144,697 |
|
|
|
9,320,635 |
|
Convertible notes |
|
|
24,369,057 |
|
|
|
24,359,499 |
|
Convertible preferred stock |
|
|
3,727,270 |
|
|
|
4,377,270 |
|
Convertible preferred stock issuable |
|
|
-- |
|
|
|
-- |
|
Total |
|
|
113,882,464 |
|
|
|
117,462,207 |
|
Total exercisable at December 31 |
|
|
112,737,767 |
|
|
|
108,141,572 |
|
F-27 |
|
Table of Contents |
Note 11 - Subsequent Events
The Company has evaluated all the events or transactions that have occurred since December 31, 2018 and determined that the following should be disclosed:
On January 7, 2019, the Company entered into a Promissory Note Agreement with an accredited investor. It received $50,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum on or before the one year anniversary. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing, In exchange, it issued cashless warrants to purchase 200,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years.
On January 25, 2019, Spirit Bear, Ltd. converted their remaining 17 shares of Series A preferred stock into 850,000 shares of common stock.
On February 5, 2019, Cool Technologies issued 5,128,000 shares of common stock to Lucas Hoppel upon final conversion of $64,100 on convertible debt of $226,600 and the note was retired
On February 11, 2019, the Company entered into a convertible note agreement. It received $140,000 with an original issue discount of $8,400 in lieu of interest, for a total amount of $131,600 due on February 11, 2020. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of CoolTech’s common stock at a 29% discount to the lowest Volume Weighted Average Price (VWAP) during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 22% per annum, require the Company to (i) redeem all or any portion of the note at a premium of 150%.
On February 14, 2019, the Company retired a convertible note with a pre-payment of $93,565 to the holder six months before the maturity date. The note agreement was entered into on August 17, 2018.
On February 26, 2019, CoolTech issued 7,500,000 shares of common stock to Lucas Hoppel upon partial conversion of $93,750 on convertible debt of $396,550.
On March 13, 2019, the Company entered into a convertible note agreement. It received $140,000 with an original issue discount of $7,500 in lieu of interest, for a total amount of $131,600 due on February 11, 2020. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of common stock at a 29% discount to the lowest Volume Weighted Average Price (VWAP) during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 18/% per annum, require the Company to (i) pay the product of the then outstanding principal amount, plus accrued interest and default interest, divided by the conversion price multiplied by the highest price at which the common stock traded at any time between the issuance date and the date of the event of default.
On March 18, 2019, the Company entered into a Promissory Note Agreement with an accredited investor. It received $250,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum on or before the one year anniversary. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing, In exchange, CoolTech issued cashless warrants to purchase 2,000,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years.
On March 19, 2019, the Company entered into a Promissory Note Agreement with an accredited investor. It received $250,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum on or before the one year anniversary. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing, In exchange, CoolTech issued cashless warrants to purchase 2,000,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years.
F-28 |
|
Table of Contents |
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosures
On January 31, 2018, Cool Technologies, Inc. (the “Registrant”) dismissed Anton and Chia, LLP ("Anton and Chia") as the Registrant’s independent registered public accounting firm. The dismissal of Anton and Chia was approved by the Registrant’s Board of Directors.
Anton and Chia, LLP was the independent registered public accounting firm for the Registrant from October 17, 2013 until its dismissal effective January 31, 2018.
The reports on the Company’s consolidated financial statements as of and for the years ended December 31, 2016 and 2015 did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles, except that the Company's audited consolidated financial statements contained in its Form 10-K for the years ended December 31, 2016 and 2015 included a going concern qualification.
During the interim period ended December 31, 2013 as well as the years ended December 31, 2014, 2015, 2016 and 2017 in the subsequent interim period through January 31, 2018, the date of dismissal of the former accountant, there were no (a) disagreements with the former accountants, Anton & Chia, LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the former accountant, would have caused it to make reference to the subject matter thereof in connection with its reports for such years or (b) reportable events, as described under Item 304(a)(1)(v) of Regulation S-K.
On December 31, 2018, Green & Co. (“G&C”) resigned as the independent registered public accounting firm for Cool Technologies, Inc. (the “Company”).
The report of G&C on the Company’s consolidated financial statements for the fiscal year ended December 31, 2017 did not contain an adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles except that the report of G&C pertaining to the fiscal year ended December 31, 2017 expressed substantial doubt about the Company’s ability to continue as a going concern. G&C was not the Company’s auditor during the fiscal year ended December 31, 2016.
During the Company’s fiscal year ended December 31, 2017, and during the subsequent interim period preceding the dismissal of G&C, there were: (i) no disagreements with G&C on any matter of accounting principles or practices, financial statement disclosures, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of A&C would have caused them to make reference to the subject matter of the disagreements in connection with its reports, and (ii) no reportable events of the type listed in Item 304(a)(1)(v) of Regulation S-K.
On January 2, 2019, the Company engaged Accell Audit and Compliance, P.A. (“Accell”) as the Company’s independent registered public accounting firm. During the two most recent fiscal years and in the subsequent interim period through January 2, 2019, the Company has not consulted with Accell with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that would have been rendered on the Company’s consolidated financial statements, or any other matters set forth in Item 304(a)(2)(i) or (ii) of Regulation S-K.
The decision to accept the resignation of G&C and engage Accell was approved by the Company’s Board of Directors.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company's management does not expect that its internal controls over financial reporting will prevent all error and all fraud. Control systems, no matter how well conceived and managed, can provide only reasonable assurance that the objectives of the control system are met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
39 |
|
Table of Contents |
(a) Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of management, including the principal executive officer and principal financial officer, Cool Technologies conducted an evaluation of its disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of December 31, 2018. Based on this evaluation, the principal executive officer and principal financial officer have concluded that, based on the material weaknesses discussed below, the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act were recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Act Commission's rules and forms and that the Company’s disclosure controls are not effectively designed to ensure that information required to be disclosed in the reports that Cool Technologies files or submits under the Securities Exchange Act is accumulated and communicated to management, including the principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
(b) Management's Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act.
Internal control over financial reporting is defined under the Exchange Act as a process designed by, or under the supervision of, the CEO and CFO, and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
|
-- |
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of theCompany’s assets; |
|
|
|
|
-- |
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and directors; and |
|
|
|
|
-- |
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company assets that could have a material effect on the financial statements. |
Because Cool Technologies has only four officers and limited personnel, the Company's internal controls are not effective for the following reasons, (1) there are limited entity-level controls because of the limited time and abilities of the four officers, (2) it has not implemented adequate system and manual controls, and (3) there is no separate audit committee. As a result, the Company's internal controls have inherent material weaknesses which may increase the risks of errors in financial reporting under current operations and, accordingly, are not effective as evaluated against the criteria set forth in "Internal Control - Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in 2013. Based on this evaluation, management concluded that Cool Technologies’ internal controls over financial reporting were not effective as of December 31, 2018.
Even though there are inherent weaknesses, management has taken steps to minimize the risk. The Company uses a third party consultant to review transactions for appropriate technical accounting, reconcile accounts, review significant transactions and prepare financial statements. Invoices and other bookkeeping matters are reviewed by a third party Certified Fraud Examiner. Any deviation or errors are reported to management.
(c) Remediation of Material Weaknesses
Cool Technologies can provide no assurance that its internal controls over financial reporting will be compliant in the near future. As revenues permit, the Company will enhance its internal controls through additional software and other means. If and when it becomes a listed company under SEC rules, the Company will create an audit committee comprised of independent directors.
(d) Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal controls over financial reporting during the fourth quarter that have materially affected, or are reasonably likely to materially affect CoolTech’s our internal control over financial reporting.
None.
40 |
|
Table of Contents |
Item 10. Directors, Executive Officers and Corporate Governance.
The following table sets forth the names, ages and positions of our current board members and executive officers:
Name |
|
Age |
|
Position(s) |
|
||||
Timothy Hassett |
|
58 |
|
Chairman and Chief Executive Officer and Director |
Quentin Ponder |
|
89 |
|
Vice Chairman Chief Financial Officer and Director |
Judson Bibb |
|
62 |
|
Vice President, Secretary and Director |
Mark Hodowanec |
|
54 |
|
Chief Technical Officer |
Christopher McKee |
|
50 |
|
Director |
Richard "Dick" Schul |
|
72 |
|
Director |
Donald Bowman |
|
50 |
|
Director |
Daniel Ustian |
|
68 |
|
Director |
Our directors are elected for a term of one year and serve such director's successor is duly elected and qualified. Each executive officer serves at the pleasure of the Board.
The Company has no nominating, audit or compensation committees at this time.
BACKGROUND INFORMATION
The following summarizes the occupational and business experience of our officers and directors.
Timothy Hassett is a co-founder of the Company and has been its Chairman since its inception and Chief Executive Officer since April 5, 2012. Mr. Hassett began his career as a marketing and business manager, for Rockwell Automation Incorporated's Motor Special Products division from 1990 to 1995, where he launched new product platforms and developed and implemented global distribution initiatives and channels. Mr. Hassett worked at General Electric from January 1996 to February 1998, as a general manager of Distribution Services in the Industrial Systems Division and from February 1998 to March 2000, in the Electric Motors Unit of the Industrial Systems Division where he restructured the unit, consolidated product lines and grew the business. From March 2000 to August 2003, he served as President of Hawk Motors and Rotors, a division of Hawk Corporation, a brake manufacturer, where he restructured the Company. From August 2003 to October 2005, Mr. Hassett served as Vice President and General Manager of Wavecrest Laboratories, a propulsion systems and controls start-up, where he led the development and launch of four new product platforms. From June 2006 to October 2010, Mr. Hassett served as President and Managing Director of LEMO USA, a Swiss-based connector company, where he restructured the Company, helped contain costs and improved operating margins and business. From December 2010 to October 2011, Mr. Hassett served as President of Cavometrix, a connector company serving the medical, energy and alternative energy industries. Mr. Hassett has a BS in Mechanical Engineering from Cleveland State University and a BS in Physics from Youngstown State University. Mr. Hassett's patents and patents pending and his extensive experience and professional contacts in the electric motor industry led to the decision to appoint him to the Board.
41 |
|
Table of Contents |
Quentin Ponder has served as President from October 20, 2011 until April 5, 2012, Secretary from October 20, 2011 until November 11, 2011 and Treasurer of the Company since October 20, 2011. On April 5, 2012, Mr. Ponder was appointed Chief Financial Officer and Vice Chairman. Mr. Ponder is a seasoned executive with over 40 years of management experience. From November 1962 to July 1967, Mr. Ponder served as Senior Manufacturing Engineer at General Electric where he worked in the development of a flow manufacturing system. From July 1980 to June 1985, he was President of Franklin Electric, Inc., an electric motor company, where he restructured the Company which became a global leader in submersible motors for water wells. From July 1985 to March 1990, Mr. Ponder was President of Baldor Electric, Inc., an electric motor company, where he restructured the Company. From April 1990 to May 1997, Mr. Ponder worked for Lincoln Electric, Inc., as a consultant. From May 1990 to the present, Mr. Ponder has worked as an independent management consultant. Mr. Ponder serves as a director and is a 33.3% owner of Reliable Electric Motor Company, Inc., an electric motor importer. Mr. Ponder is the sole owner and a director of Summit Management Consulting, Inc. and Capital Alternatives, Inc., a semi-trailer leasing company. Mr. Ponder earned a Ph.D. from Columbia University in general management, accounting, and economics. Mr. Ponder's extensive experience in the electric motor industry led to the decision to appoint him to the Board.
Judson W. Bibb has been a director of the Company since April 15, 2011. Mr. Bibb was appointed Secretary on November 11, 2011 and Vice President on April 5, 2012. He has worked exclusively for the Company since 2013. Prior to that, Mr. Bibb was a self-employed freelance multi-media producer since 1983. His services included: producer, writer, director, cinematographer, videographer, still photographer, audio and video editor, voiceover talent, marketer, ad designer and Internet search engine optimizer. His client list included KPMG, T. Rowe Price, Briggs & Stratton, Caterpillar, Toyota, Georgia-Pacific, Alcoa Aluminum, Lowes, Office Depot, Pepsico, Hewlett-Packard, Bayer, Caremark, and T-Mobile. Mr. Bibb graduated cum laude from the University of South Florida with a B.A. in mass communications-film. Mr. Bibb's broad background and wide variety of resources, including experience in marketing and public relations and business experience in automotive, trucking, electronics, retail, direct response and the Internet led to the decision to appoint him to the Board.
Mark Hodowanec has been Chief Technical Officer of the Company since February 14, 2014. Mr. Hodowanec was a program manager and lead engineer for Curtiss-Wright Corporation from September 2006 through February 2014. From May 2004 through September 2006 he operated his own consulting firm, MMH Consulting, assisting research and development, and product development companies develop custom motors solutions. From September 2004 through October 2005, Mr. Hodowanec worked at Wavecrest Laboratories. From May 1994 through February 2004, Mr. Hodowanec was at Siemens Energy & Automation as a Manager, Mechanical Engineering. Mr. Hodowanec received a B.S. and M.S. degree in mechanical engineering from the University of Akron and his M.B.A. from Xavier University.
Christopher McKee has been a director of the Company since August 19, 2015. Mr. McKee joined GTT Communications, Inc. ("GTT") (NYSE GTT) in 2008 and is GTT's General Counsel and EVP, Corporate Development and Corporate Secretary for the GTT Board. Mr. McKee is responsible for all the Company's corporate legal requirements, human resources and supplier management. Mr. McKee also oversees the development of strategic business opportunities for the Company, including all merger and acquisition activities. Mr. McKee has over 20 years of broad legal experience in the telecommunications industry. Prior to joining GTT, he served as General Counsel for StarVox Communications where he was responsible for the Company's legal department, mergers and acquisitions, employment law, litigation, and legal support for the sales teams. Mr. McKee also formerly served as Vice President and Assistant General Counsel for Covad Communications where he headed its Washington, DC office and directed its federal and state regulatory compliance and advocacy efforts. Mr. McKee previously worked for XO Communications, Net2000 Communications and was in private practice in Washington, DC as an associate at Dickstein Shapiro and Cooley LLP. Mr. McKee earned a law degree from Syracuse University and received his Bachelor of Arts from Colby College. Mr. McKee's background of supply chain, micro-cap and small cap as well as his M&A background and his knowledge and experience of regulatory compliance and company legal structure led to the decision to appoint Mr. McKee to the board.
42 |
|
Table of Contents |
Richard J. "Dick" Schul has been a director of the Company since August 19, 2015. Since November 2013, Mr. Schul has been an independent management consultant providing management and strategic planning services to company executives. Mr. Schul started his career with Emerson Electric in St. Louis in 1981, where he held positions of increasing responsibility throughout, including marketing manager, director of marketing and vice president of marketing for Emerson Motors (a global leader in generator technology) through 1989. In 1990, Mr. Schul was named president of Alco Controls Division of Emerson in Maryland Heights. In 1997, Mr. Schul was named president of Emerson's Air Moving Motors Division. In 1998 Mr. Schul was named president of Specialty and Air Moving Motors and in 2000 was named group vice president of Emerson's Commercial Industrial Motors group. In 2004, Mr. Schul was named group vice president of Emerson Climate Technologies. Mr. Shul received the Richard Schultz award and the Distinguished Service Award (highest award given by the Air Conditioning, Heating, and Refrigeration Institute in November 2011. Mr. Schul retired from Emerson in November 2011 after 43 years in the HVACR industry. Mr. Schul continued to work part-time as a consultant for Emerson through 2013. Mr. Schul graduated from Indiana Institute of Technology with a BS in Mechanical Engineering in 1969 and an MBA from the University of Dayton in 1976. Mr. Schul's background in the motor and generator industries as well as his business relationships led to the decision to appoint Mr. Schul to the board.
Donald L. Bowman has been a director of the Company since August 19, 2015. Mr. Bowman has been Chief Executive Officer of BVU Authority (formerly known as Bristol Virginia Utilities) since November 2013. BVU Authority is a utility system that provides electric, water, wastewater and fiber optic telecommunication and information services to the City of Bristol and the surrounding area. From 2011 to November 2013, Mr. Bowman provided consulting services to the legal industry and various California businesses. Mr. Bowman served as Operations and Business Development Manager and consultant to the General Manager of Lemo USA Inc., from 2006-2011. Prior thereto from 2004 to 2006, Mr. Bowman served as Vice President and General Counsel of WaveCrest Laboratories LLC, a technology company in Northern Virginia ("WaveCrest"). Prior to WaveCrest, Mr. Bowman served as Associate General Corporate Counsel of MeadWestvaco from 2001 to 2004. Mr. Bowman was an associate at the law firm of Dickstein Shapiro in Washington D.C. from 1999 to 2001. Mr. Bowman's has a Juris Doctorate from the University of Virginia School of Law (1998), a Master in Engineering Management from the Florida Institute of Technology (1993), a Master in Civil and Environmental Engineering from Old Dominion University (1992), and a Bachelor of Science in Civil Engineering with Highest Honors from Virginia Military Institute (1990). He is a licensed professional engineer in the state of Virginia. He has been a registered patent attorney with the U.S. Patent and Trademark Office for over fourteen years. Mr. Bowman served five years on active duty as an officer with the United States Navy and retired as Commander from the U.S. Naval Reserves in 2011. Mr. Bowman's business and legal background led to the decision to appoint Mr. Bowman to the board.
Daniel C. Ustian has been a director of the Company since August 19, 2015. Mr. Ustian served as the Chairman of the Board of Navistar International Corporation, a holding company of Navistar, Inc. from February 17, 2004 until August 2012 and its Chief Executive Officer since February 19, 2003 and President from April 2002 to August 2012. Mr. Ustian served as the Chief Operating Officer of Navistar, Inc. and Navistar International Corporation from April 2002 to February 2003. Prior to this, Mr. Ustian served as the President of the Engine Group of Navistar, Inc. from 1999 to 2002. He served as Group Vice President and General Manager of Engine & Foundry from 1990 to 1999. Mr. Ustian served as a Director of AGCO Corporation from March 17, 2011 to October 25, 2012. Mr. Ustian served as a Director of Monaco Coach Corp. from June 2003 to June 4, 2009. He is a Member of the Society of Automotive Engineers and the American Foundry Association and participates in the Electrical Council for the Economy. He was a Member of the Business Roundtable, Society of Automotive Engineers. Mr. Ustian holds a Bachelor's degree in Business Administration from DePaul University in 1972. Mr. Ustian's business experience led to the decision to appoint Mr. Ustian to the board.
Family relationships
There are no family relationships among any of our officers or directors.
Involvement in legal proceedings
Other than described above in "Legal Proceedings", there are no legal proceedings that have occurred within the past ten years concerning our directors, or control persons which involved a criminal conviction, a criminal proceeding, an administrative or civil proceeding limiting one's participation in the securities or banking industries, or a finding of securities or commodities law violations, except for one of our directors, Daniel Ustian.
43 |
|
Table of Contents |
Mr. Ustian was Chairman and CEO of Navistar International Corporation from 2003 to 2012. The SEC filed a claim against Navistar and Mr. Ustian in March 2016 regarding proper disclosure of the difficulty Navistar was having in meeting emissions regulations on one of their truck models.
Navistar chose to settle this claim, without admitting or denying the charges, by paying a penalty. Mr. Ustian disagrees with the claims and decided not to settle.
The complaint alleges that Ustian violated Section 10(b) of the Exchange Act and Rules 10b-5 and 13a-14 thereunder and Section 17(a) of the Securities Act and that he is liable as a control person under Section 20(a) of the Exchange Act and for aiding and abetting Navistar's uncharged violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Section 17(a)(1) of the Securities Act, and its separately charged violations set forth in a settled order with Navistar.
Mr. Ustian is contesting all of these claims. Discovery on this civil action is on-going. A trial date has not been set.
Committees of the Board of Directors
The Company does not have an audit committee. We are not a "listed company" under SEC rules and are therefore not required to have an audit committee comprised of independent directors.
We do not currently have a "financial expert" within the meaning of the rules and regulations of the SEC.
The Company has no nominating or compensation committees at this time. The entire Board participates in the nomination and audit oversight processes and considers executive and director compensation. Given the size of the Company and its stage of development, the entire Board is involved in such decision making processes. Thus, there is a potential conflict of interest in that our directors and officers have the authority to determine issues concerning management compensation, nominations, and audit issues that may affect management decisions. We are not aware of any other conflicts of interest with any of our executive officers or directors.
Board of Advisors
The Company has a Board of Advisors which currently consists of seven members. Scott Van Dorn (appointed March 18, 2014), currently engineering director at Navistar Corporation, has more than 20 years of experience in global engineering and management in vehicles, engines electronics and design. Richard Schul (appointed December 31, 2013) is a veteran of the motor/generator industry. The other members include: Bill Finley (appointed July 7, 2014), Chief Technology Officer of Siemens Industry Drive Technology; Dan Ustian (appointed September 10, 2014), a former chief executive officer of Navistar; Chris McKee (appointed June 1, 2014), executive vice president and general counsel of GTT; Andrew Scherr (appointed May 21, 2014), an investor, entrepreneur and strategic consultant; Gurminder Bedi (appointed January 1, 2016), managing partner at Compass Acquisitions, LLC; and Mark Steele (appointed May 9, 2017), CEO, president and co-owner of Craftsmen Industries, Inc.
Upon the execution of an Advisory Board Agreement, the Company issues a non-qualified 30-month warrant to purchase 200,000 shares of the Company's common stock at an exercise price that has varied from $0.24 to $0.80 per share depending on the Company's current share price. The warrant is immediately exercisable.
Code of Ethics
The Company has adopted a Code of Ethics that establishes the standards of ethical conduct applicable to all directors, officers and employees of the Company, including our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. A copy of our Code of Ethics is available on our web site at www.cooltechnologiesinc.com. We will provide a copy of our Code of Ethics free of charge to any person who requests a copy. Requests should be directed to the Secretary at Cool Technologies, Inc., 8875 Hidden River Parkway, Suite 300, Tampa, Florida 33637, or by telephone at (813) 975-7467.
44 |
|
Table of Contents |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors, and persons who beneficially own more than 10% percent of our equity securities ("Reporting Persons") to file reports of ownership and changes in ownership with the SEC. Based solely on our review of copies of such reports and representations from the Reporting Persons, we believe that occurred during the fiscal year ended December 31, 2018:
·
KHIC LLC failed to timely file Forms 4 to report:
|
o | the purchase of 650,000 shares of common stock, |
|
o |
the acquisition of 3 shares of Series A Preferred Stock, |
|
o | the purchase of call right to purchase 4,000,000 shares of common stock at an exercise price of $0.05 per share, |
|
o | the purchase of warrants to purchase 4,000,000 shares of common stock at an exercise price of $0.06 per share, |
|
o | the purchase of warrants to purchase 650,000 shares of common stock at an exercise price of $0.12 per share, and |
|
o | the purchase of warrants to purchase 650,000 shares of common stock at an exercise price of $0.15 per share. |
|
o |
The sale of an aggregate of 1,132,000 shares of common stock |
|
o |
The acquisition of 2,025,000 shares of common stock |
·
Judson Bibb failed to timely file one Form 4 to report:
|
o |
the purchase of 1,000,000 shares of common stock, and
the acquisition of warrants to purchase 1,000,000 shares of common stock at an exercise price of $0.07 per share. |
·
Quentin Ponder failed to timely file two Forms 4 to report:
|
o | the acquisition of 1,000,000 shares of common stock, and |
|
|
|
|
o | the acquisition of warrants to purchase 1,000,000 shares of common stock at an exercise price of $0.07 per share, and |
|
|
|
|
o | the acquisition of 600,000 shares of common stock, and |
|
|
|
|
o | the acquisition of warrants to purchase 600,000 shares of common stock at an exercise price of $0.07 per share. |
·
Daniel Ustian failed to timely file Forms 3 and 4 to report:
|
o | the acquisition of 222,222 shares of common stock, |
|
|
|
|
o | the acquisition of warrants to purchase 200,000 shares of common stock at an exercise price of $0.8 per share, Filed Form 3 1.8.2018 Acquired 9.10.2015 |
|
|
|
|
o | the acquisition of warrants to purchase 222,222 shares of common stock at an exercise price of $0.57 per share, and Filed Form 3 1.8.2018 Acquired 4.29.2015 |
|
|
|
|
o | the acquisition of warrants to purchase 450,000 shares of common stock at an exercise price of $0.0854 per share. Filed Form 4 1.18.2018 |
|
|
|
|
o | the acquisition of warrants to purchase 2,000,000 shares of common stock at an exercise price of $0.05 per share. |
·
Donald Bowman failed to timely file Forms 3 and 4 to report:
|
o | the acquisition of warrants to purchase 250,000 shares of common stock at an exercise price of $0.60 per share. |
|
|
|
|
o | the acquisition of warrants to purchase 200,000 shares of common stock at an exercise price of $0.8 per share, |
Changes in Nominating Process
There are no material changes to the procedures by which security holders may recommend nominees to our Board.
45 |
|
Table of Contents |
Item 11. Executive Compensation
Summary Compensation Table
The following table provides certain information regarding compensation awarded to, earned by or paid to persons serving as our Chief Executive Officer during fiscal 2018 and 2017 and our two other most highly compensated officers who had total compensation exceeding $100,000 for fiscal 2017 (each a "named executive officer").
Note: our CFO, Quentin Ponder, works under a consulting contract and, consequently, is not considered an employee. More information regarding his compensation can be found under “Consulting Agreements” below.
Name and Principal Position |
Fiscal Year Ended 12/31 |
Salary ($) |
Bonus ($) |
Stock Awards ($) |
Warrant Awards ($) |
|
Option Awards ($) |
All Other ($) |
Total ($) |
|||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Timothy Hassett |
2018 |
210,000 |
(3) |
-- |
-- |
-- |
|
-- |
12,553 |
(1) |
212,553 |
|||||||||||||||||
CEO and Chairman |
2017 |
210,000 |
(4) |
100,000 |
-- |
-- |
|
-- |
11,904 |
(1) |
321,904 |
|||||||||||||||||
|
||||||||||||||||||||||||||||
Quentin Ponder |
|
2018 |
|
144,000 |
|
-- |
|
-- |
|
-- |
|
-- |
-- |
|
144,000 |
|
||||||||||||
CFO |
|
2017 |
|
144,000 |
-- |
-- |
13,537 |
(2) |
-- |
-- |
|
157,537 |
||||||||||||||||
|
||||||||||||||||||||||||||||
Judson Bibb |
2018 |
120,000 |
(5) |
-- |
-- |
-- |
|
-- |
12,553 |
(1) |
132,553 |
|||||||||||||||||
Vice President, Secretary and Director |
|
2017 |
|
120,000 |
(6) |
|
-- |
|
-- |
|
13,537 |
(2) |
|
-- |
|
11,904 |
(1) |
|
145,441 |
|||||||||
|
||||||||||||||||||||||||||||
Mark Hodowanec, |
2018 |
175,000 |
(7) |
-- |
-- |
-- |
|
-- |
12,553 |
(1) |
187,553 |
|||||||||||||||||
Chief Technical Officer |
|
2017 |
|
175,000 |
(8) |
100,000 |
-- |
13,537 |
(2) |
-- |
|
11,904 |
(1) |
|
300,441 |
___________
(1) |
Represents health care insurance premiums paid by the Company. |
|
|
(2) |
Value of the warrants $13,537 received in consideration of extraordinary efforts. |
|
|
(3) |
Mr. Hassett was paid $210,000. |
|
|
(4) |
Mr. Hassett was paid $152,927 with the balance of $57,073 being earned and accrued. |
|
|
(5) |
Mr. Bibb was paid $120,000. |
|
|
(6) |
Mr. Bibb was paid $34,250 with the balance of $85,750 being earned and accrued. |
|
|
(7) |
Mr. Hodowanec was paid $175,000. |
|
|
(8) |
Mr. Hodowanec was paid $85,800 with the balance of $89,200 being earned and accrued. |
Employment Agreements
We entered into an employment agreement, dated March 5, 2014, with Timothy Hassett to serve as our Chief Executive Officer for an initial annual salary of $210,000, to be paid in equal monthly installments. If the Company is cash flow positive for three consecutive months, the monthly compensation will increase to $25,000 per month. If the Company maintains profitability for four consecutive quarters, the monthly compensation will increase to $30,000 per month. The Company also agreed to reimburse Mr. Hassett for his healthcare costs until the Company adopts a healthcare plan (As of June 15, 2014, the Company contracted with United Healthcare to provide a healthcare plan for its employees. Consequently, the Company is no longer reimbursing Mr. Hassett for his healthcare costs). If Mr. Hassett's employment is terminated without cause, he will be entitled to severance in the amount of two years' salary in effect at such time to be paid by the Company in one payment or in four equal installments at the end of each quarter following termination, at the Company's discretion. Such severance obligation shall accelerate and become immediately payable upon change of control of the Company. The Company will also pay any excise tax on Mr. Hassett's behalf that may be triggered under the Internal Revenue Code as a result. Mr. Hassett will not compete with the Company during the term of the agreement.
46 |
|
Table of Contents |
We entered into an employment agreement, dated February 10, 2014, with Mark Hodowanec to serve as our Chief Technical Officer for an initial annual salary of $175,000, to be paid in equal monthly installments. Mr. Hodowanec's annual salary shall be increased to $210,000 upon commercialization of the 25/50 kW mobile generators; to $240,000 upon the Company generating $100,000 in revenues or $1,000,000 in new financing; to $300,000 upon the Company achieving profitability; and to $360,000 upon the Company maintaining profitability for four consecutive quarters. The Company also agreed to reimburse Mr. Hodowanec for his healthcare costs until the Company adopts a healthcare plan (As of June 15, 2014, the Company contracted with United Healthcare to provide a healthcare plan for its employees. Consequently, the Company is no longer reimbursing Mr. Hodowanec for his healthcare costs). If Mr. Hodowanec's employment is terminated without cause, he will be entitled to severance in the amount of two years' salary in effect at such time to be paid by the Company in one payment or in four equal installments at the end of each quarter following termination, at the Company's discretion. Such severance obligation shall accelerate and become immediately payable upon change of control of the Company. The Company will also pay any excise tax on Mr. Hodowanec's behalf that may be triggered under the Internal Revenue Code as a result. Mr. Hodowanec will not compete with the Company during the term of the agreement.
On August 9, 2016, we entered into an employment agreement with Judson Bibb to serve as our Vice President for an initial annual salary of $120,000, to be paid in equal monthly installments. Mr. Bibb's annual salary shall be increased to $150,000 upon the Company remaining cash flow positive for three consecutive months and to $180,000 upon the Company maintaining profitability for four consecutive quarters. The Company also agreed to include Mr. Bibb on its healthcare plan (As of June 15, 2016, the Company contracted with Freedom Life Insurance Company of America to provide a healthcare plan for its employees.). If Mr. Bibb's employment is terminated without cause, he will be entitled to severance in the amount of two years' salary in effect at such time to be paid by the Company in one payment or in four equal installments at the end of each quarter following termination, at the Company's discretion. Such severance obligation shall accelerate and become immediately payable upon change of control of the Company. The Company will also pay any excise tax on Mr. Bibb's behalf that may be triggered under the Internal Revenue Code as a result. Mr. Bibb will not compete with the Company during the term of the agreement.
Consulting Agreements
We entered into a consulting agreement with Summit Management in April 2011 for services provided by Quentin Ponder to the Company for a consulting fee of $5,000 per month which was increased to $7,500 per month effective January 1, 2012. During 2012, Mr. Ponder agreed to forgo four months' payment under the consulting agreement due to the financial condition of the Company. Mr. Ponder was paid $7,500 per month from January 2013 through July 2013 and accrued $2,500 during those months (except for the first month in which he accrued $1,250); was paid $10,000 per month from August 2013 through April 2014; and was paid $12,000 per month from May 2014 through December 2016. On December 28, 2016, the Company entered into a new consulting agreement with Summit, effective January 1, 2017 to provide Mr. Ponder’s services for so long as they are needed by the Company.
We entered into a consulting agreement with Timothy Hassett in April 2011 pursuant to which he received $5,000 per month. The consulting fee was increased to $10,000 per month effective January 1, 2012. During 2012, Mr. Hassett agreed to forgo four months' payment on the agreement due to the financial condition of the Company. Mr. Hassett was paid $10,000 per month from January 2013 through July 2013 and accrued $3,500 during those months (except for the first month in which he accrued $1,750) and was paid $13,500 per month from August 2013 through October 2013. Such consulting agreement terminated on November 1, 2013, the date Mr. Hassett became a full-time, salaried employee of the Company.
On May 1, 2012, we entered into a consulting agreement with Bibb Productions & Consulting for Judson Bibb's services for a monthly consulting fee of $6,000 conditional upon the financial ability of the Company. Mr. Bibb's monthly consulting fee under this agreement was accrued but unpaid from May 2012 through April 2013 and was paid to Mr. Bibb for the months of May, June, July and August 2013. Such consulting agreement terminated on January 1, 2014, the date Mr. Bibb became a full-time, salaried employee of the Company and was paid $8,000 per month. Mr. Bibb's compensation increased to $10,000 per month in May 2014.
47 |
|
Table of Contents |
Outstanding Equity Awards
The table below reflects all outstanding equity awards made to any named executive officer that were outstanding at December 31, 2018.
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2018
|
|
Option Awards |
|
|||||||||||||||
|
|
|
|
Number of |
|
|
Number of |
|
|
|
|
|
|
|
||||
|
|
|
|
Securities |
|
|
Securities |
|
|
|
|
|
|
|
||||
|
|
|
|
Underlying |
|
|
Underlying |
|
|
|
|
|
|
|
||||
|
|
|
|
Unexercised |
|
|
Unexercised |
|
|
Option |
|
|
Option |
|
||||
|
|
|
|
Options (#) |
|
|
Options (#) |
|
|
Exercise |
|
|
Expiration |
|
||||
Name |
|
Grant Date |
|
Exercisable |
|
|
Unexercisable |
|
|
Price ($) |
|
|
Date |
|
||||
Timothy Hassett |
|
3/31/14 |
|
|
1,000,000 |
|
|
|
-- |
|
|
|
2.00 |
|
|
|
(1 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Judson Bibb |
|
3/31/14 |
|
|
2,000,000 |
|
|
|
-- |
|
|
|
2.00 |
|
|
|
(1 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark Hodowanec |
|
3/31/14 |
|
|
1,000,000 |
|
|
|
-- |
|
|
|
2.00 |
|
|
|
(1 | ) |
___________
(1) |
No expiration date. |
Compensation of Officers
On January 13, 2014, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), and Section 14A of the Securities Exchange Act of 1934, as amended, our stockholders voted, on an advisory basis, to approve the compensation of the management team. This proposal, commonly known as a "say-on-pay" proposal, gave the Company's stockholders the opportunity to express their views on the compensation of the Chairman and Chief Executive Officer, Timothy Hassett, and the rest of the management team.
The compensation of the management team was approved by 77.46% of the shares voted.
On February 20, 2013, the Board approved the following compensation for its officers: (i) $13,500 per month for Timothy Hassett, as Chief Executive Officer, (ii) $10,000 per month for Quentin Ponder, as Chief Financial Officer and Treasurer, (iii) $12,500 per month for Theodore Banzhaf, as President, (iv) $14,500 per month for a still undesignated Chief Technical Officer and (v) $8,000 per month for Judson Bibb, as Vice-President and Secretary. Such compensation accrued commencing January 15, 2013 until July 2013 when the Company raised $1 million.
On February 20, 2013, the Board also approved increased compensation if and when the Company achieves certain milestones as follows: (1) generating $1 million in additional funding, (2) generating $100,000 in revenue or an additional $1 million in funding, (3) achieving profitability (being cash flow positive for three consecutive months) and (4) maintaining profitability for four consecutive quarters. With the achievement of the first milestone, the compensation for the President and the Chief Technical Officer will increase to $17,500 per month. With the achievement of the second milestone, the compensation for the Chief Executive Officer shall increase to $17,500 per month, the compensation for the Chief Financial Officer and Treasurer shall increase to $12,000 per month, the compensation for the President and the Chief Technical Officer shall increase to $20,000 per month, and the compensation for the Vice President and Secretary shall increase to $10,000 per month. With the achievement of the third milestone, the compensation for the Chief Executive Officer shall increase to $25,000 per month, the compensation for the Chief Financial Officer and Treasurer shall increase to $18,000 per month, the compensation for the President shall increase to $24,000 per month, the compensation for the Chief Technical Officer shall increase to $25,000 per month, and the compensation for the Vice President and Secretary shall increase to $12,000 per month. With the achievement of the fourth milestone, the compensation for the Chief Executive Officer shall increase to $30,000 per month, the compensation for the Chief Financial Officer and Treasurer shall increase to $24,000 per month, the compensation for the President shall increase to $29,000 per month, the compensation for the Chief Technical Officer shall increase to $30,000 per month, and the compensation for the Vice President and Secretary shall increase to $15,000 per month. The validity of the compensation is no longer an issue as litigation with Spirit Bear has been settled at described above in Item 3. Legal Proceedings.
48 |
|
Table of Contents |
In addition, the Board authorized the Chief Executive Officer to make quarterly bonuses of $50,000 and/or 50,000 shares of, or options for Common Stock available for each officer in addition to performance payments from 5% of the Company's net income to be given for individual contributions, such as the awarding of patents or the signing of major customer contracts.
The Board also approved the decrease in the exercise price of the five outstanding options to purchase 1,000,000 shares held by Theodore Banzhaf, and to provide for cashless exercise of these options. The milestone stock prices were reduced to $2.00, $3.00, $4.00, $4.50 and $5.00 for 20 consecutive trading days each. These milestone stock prices had been changed from $2.00, $3.00, $5.00, $7.50 and $10.00. Once the stock has traded at these prices for 20 consecutive trading days, Mr. Banzhaf has the right to exercise an option to purchase 1,000,000 shares of common stock at each milestone stock price. These options expire one year after Mr. Banzhaf has been terminated without cause. In connection with Mr. Banzhaf’s resignation as President of the Company on October 1, 2016, he waived all rights to such options.
On March 31, 2014, the Board approved the grant of options to Judson Bibb to purchase 2,000,000 shares of common stock at an exercise price of $2.00 per share and the grant of options to purchase 1,000,000 shares of common stock at $2.00 per share to each of Messrs. Hassett, Hodowanec and Banzhaf. In connection with Mr. Banzhaf’s resignation as President of the Company on October 1, 2016, he waived all rights to such options.
Compensation of Directors
The Company has not yet established a compensation plan for its directors, however on September 20, 2017, each of our directors were issued three-year warrants to purchase 200,000 shares of the Company’s common stock at $0.08536 per share for serving on the board of directors. The warrants may be exercised on a cashless basis.
In 2011, Judson Bibb received a gift of 5,000,000 shares from PPEG. For accounting purposes, the shares are being classified as compensation. The shares were subsequently returned on April 13, 2012 and no financial benefit was accrued.
On February 20, 2013, the Board granted Judson Bibb an option to purchase 2,000,000 shares of common stock, at a purchase price of par value, or $0.001 per share. The option was not exercised and on March 21, 2013, the Company and Judson Bibb signed an agreement rescinding such option grant.
On March 8, 2015, Christopher McKee was granted a 2.5 year warrant to purchase 200,000 shares of the Company's common stock at $0.80 per share for his participation on the Company's Board of Advisors. On February 3, 2016, Mr. McKee was granted a three-year warrant to purchase 100,000 shares of the Company's common stock at purchase price of $0.27 per share for his assistance in the Company's business development. The warrant may be exercised on a cashless basis.
On December 31, 2013, Richard J. "Dick" Schul was granted a warrant to purchase 200,000 shares of the Company's common stock at $0.50 per share for his participation on the Company's Board of Advisors. On February 22, 2016, Mr. Schul was granted a three-year warrant to purchase 100,000 shares of the Company's common stock at purchase price of $0.27 per share for his assistance in the Company's business development. The warrant may be exercised on a cashless basis.
On September 10, 2014, Dan Ustian was granted a warrant to purchase 200,000 shares of the Company's common stock at $0.80 per share for his participation on the Company's Board of Advisors. On February 3, 2016, Mr. Ustian was granted a three-year warrant to purchase 100,000 shares of the Company's common stock at purchase price of $0.27 per share for his assistance in the Company's business development. The warrant may be exercised on a cashless basis.
49 |
|
Table of Contents |
On March 14, 2014, Don Bowman was granted a five-year warrant to purchase 250,000 shares of the Company's common stock at $0.60 per share for legal services provided to the Company. The warrant may be exercised on a cashless basis.
On September 20, 2017, Christopher McKee and Richard Schul were each granted three-year warrants to purchase 100,000 shares of the Company’s common stock at $0.08536 per share for assistance and services provided to the Company. The warrants may be exercised on a cashless basis.
On September 20, 2017, Daniel Ustian was granted a three-year warrant to purchase 250,000 shares of the Company’s common stock at $0.08536 per share for assistance and services provided to the Company. The warrants may be exercised on a cashless basis.
On September 20, 2017, Quentin Ponder and Judson Bibb were each granted three-year warrants to purchase 200,000 shares of the Company’s common stock at $0.08536 per share in recognition for their efforts for maintain and advance the Company since inception. The warrants may be exercised on a cashless basis.
On September 20, 2017, Timothy Hassett was awarded $100,000 in consideration for the two patents he and Mark Hodowanec received in 2017 and, subsequently, assigned to the Company. The award was added to his accrued salary.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table lists, as of April 1, 2019, the number of shares of common stock beneficially owned by (i) each person, entity or group (as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934) known to the Company to be the beneficial owner of more than 5% of the outstanding common stock; (ii) each of our named executive officers and (iii) all officers and directors as a group. Information relating to beneficial ownership of common stock by our principal stockholders and management is based upon information furnished by each person using "beneficial ownership" concepts under the rules of the SEC. Under these rules, a person is deemed to be a beneficial owner of a security if that person directly or indirectly has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to dispose or direct the disposition of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the SEC rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary interest. Except as noted below, each person has sole voting and investment power with respect to the shares beneficially owned and each stockholder's address is c/o Cool Technologies, Inc., 8875 Hidden River Parkway, Suite 300, Tampa, Florida 33637.
50 |
|
Table of Contents |
The percentages below are calculated based on 220,183,916 issued and outstanding shares of common stock and 3 issued and outstanding shares of Series A Stock (each such share of Series A Stock has the voting right of 50,000 shares of Common Stock) and 2,272,270 issued and outstanding shares of Series B Stock (collectively, the 3 holders of the shares are entitled to 66 2/3% of the total votes), as of April 1, 2019.
Name of Beneficial Owner |
|
Number of Shares Beneficially Owned |
|
Percentage |
|
|||
|
||||||||
5% or Greater Stockholders Eric Paul Brown 1877 S. Wiesbrook Road Wheaton, Illinois 60189 |
|
4,786,359 |
(1) |
|
66.66 |
%(2) |
||
|
||||||||
Christopher J. Jones 1314 E. Forest Avenue Wheaton, Illinois 60189 |
|
5,059,086 |
(3) |
|
66.66 |
%(2) |
||
|
||||||||
KHIC, LLC(4) 120 West 45 th Street New York, New York 10036 |
|
16,125,000 |
(5) |
|
6.13 |
% |
||
|
||||||||
Directors and Executive Officers |
||||||||
|
||||||||
Timothy Hassett |
|
8,387,928 |
(6) |
|
3.32 |
% |
||
|
||||||||
Quentin Ponder |
|
8,400,000 |
(7) |
|
2.92 |
% |
||
|
||||||||
Judson Bibb |
|
9,170,000 |
(8) |
|
3.63 |
% |
||
|
||||||||
Christopher McKee |
|
744,444 |
(9) |
|
* |
|||
|
||||||||
Richard J. "Dick" Schul |
|
500,000 |
(10) |
|
* |
|||
|
||||||||
Donald Bowman |
|
450,000 |
(11) |
|
* |
|||
|
||||||||
Daniel C. Ustian |
|
8,239,894 |
(12) |
|
66.66 |
%(2) |
||
|
||||||||
All executive officers and directors as a group (8 persons)(13) |
|
42,942,266 |
|
17.0 |
% |
____________
* |
less than 1% |
(1) |
Includes (i) 909,090 shares of Series B Stock which are convertible by the Series B stockholder into Common Stock on a one-to-one basis and automatically convert into Common Stock on a one-to-one basis if the Common Stock trades in excess of $2.25 for any consecutive 20-day period, (ii) a warrant to purchase 909,090 shares of Common Stock at $0.07 per share (iii) a warrant to purchase 309,090 shares of Common Stock at $0.07 per share, (iv) a warrant to purchase. 116,667 shares of Common Stock at $0.05 per share, and (v) a warrant to purchase 1,000,000 shares of Common Stock at $0.05 per share. |
(2) |
The Series B Stock votes together as a single class with the holders of the Common Stock, with the holders of Series B Stock being entitled to 66 2/3% of the total votes. |
(3) |
Includes (i) 909,090 shares of Series B Stock which are convertible by the Series B stockholder into Common Stock on a one-to-one basis and automatically convert into Common Stock on a one-to-one basis if the Common Stock trades in excess of $2.25 for any consecutive 20-day period, (ii) a warrant to purchase 909,090 shares of Common Stock at $0.07 per share (iii) a warrant to purchase 309,090 shares of Common Stock at $0.07 per share, (iv) a warrant to purchase 116,667 shares of Common Stock at $0.05 per share, and (v) a warrant to purchase 1,000,000 shares of common stock at $0.05 per share. |
(4) |
Eric Hess, member and Secretary of KHIC, LLC, has sole voting and dispositive power over the shares held by KHIC, LLC. |
(5) |
Includes (i) 150,000 shares of common stock underlying 3 shares of Series A Preferred Stock (having voting rights to 50,000 shares of common stock for each share of Series A Stock), (ii) currently exercisable warrants to purchase 8,000,000 shares of common stock at $0.06 per share, (iii) a currently exercisable warrant to purchase 650,000 shares of common stock at $0.15 per share, (iv) a currently exercisable warrant to purchase 650,000 shares of common stock at $0.12 per share. |
(6)
|
Includes (i) an option to purchase 1,000,000 shares of Common Stock at $2.00 per share, (ii) a currently exercisable warrant to purchase 625,000 shares of Common Stock at $0.22 per share and (iii) a currently exercisable warrant to purchase 285,714 shares of common stock at $0.10 per share which expires on July 20, 2022. Does not include an aggregate of 90,000 shares held by Mr. Hassett’s minor children. |
(7) |
Includes (i) a currently exercisable warrant to purchase 400,000 shares of Common Stock at $0.22 per share (ii) a currently exercisable warrant to purchase 1,000,000 shares of Common Stock at $0.10 per share, (iii) currently exercisable warrants to purchase 400,000 shares of Common Stock at $0.08536 per share, and (iv) current exercisable warrants to purchase 1,600,000 shares of Common Stock at $0.0714 per share. |
51 |
|
Table of Contents |
(8) |
Includes (i) options to purchase 2,000,000 shares of Common Stock at $2.00 per share, and (ii) a currently exercisable warrant to purchase 750,000 shares of Common Stock at $0.22 per share, (iii) a currently exercisable warrant to purchase 1,400,000 shares of Common Stock at $0.10 per share, (iv) currently exercisable warrants to purchase 400,000 shares of Common Stock at $0.08536 per share, and (v) a currently exercisable warrant to purchase 1,000,000 shares of Common Stock at $0.0714 per share. |
(9)
|
Includes (i) a currently exercisable warrant to purchase 222,222 shares of Common Stock at $0.57 per share, and (ii) currently exercisable warrants to purchase 300,000 shares of Common Stock at $0.08536 per share. |
(10) |
Includes (i) a currently exercisable warrant to purchase 100,000 shares of common stock at $0.22 and (ii) currently exercisable warrants to purchase 300,000 shares of Common Stock at $0.08536 per share. |
(11) |
Represents (i) a currently exercisable warrant to purchase 200,000 shares of Common Stock at $0.08536 per share. |
(12) |
Includes (i) 909,090 shares of Series B Stock which are convertible by Mr. Ustian into Common Stock on a one-to-one basis and automatically convert into Common Stock on a one-to-one basis if the Company’s common stock trades in excess of $2.25 for any consecutive 20-day period, (ii) a currently exercisable warrant to purchase 909,090 shares of Common Stock at $0.07 per share, (iii) a currently exercisable warrant to purchase 222,222 shares of Common Stock at $0.57 per share; (iv) (v) a currently exercisable warrant to purchase 1,000,000 shares of Common Stock at $0.22 per share, (vi) currently exercisable warrants to purchase 450,000 shares of Common Stock at $0.08536 per share, (vii) a currently exercisable warrant to purchase 309,090 shares of Common Stock at $0.07 per share, and (viii) a currently exercisable warrant to purchase 2,000,000 shares of Common Stock at $0.05 per share.. |
(13) |
Includes Mark Hodowanec, Chief Technology Officer. |
Change-in-Control Agreements
The Company does not have any change-in-control agreements with any of its executive officers, except that severance payments, if any, to which Messrs. Hodowanec, Hassett and Bibb may be entitled under their employment agreements as described above in "Employment Agreements", accelerate in the event of a change of control.
Item 13. Certain Relationships and Related Transactions and Director Independence.
Certain Relationships and Related Transactions
On February 12, 2018, we sold a total of 1,000,000 shares of common stock and a five-year warrant to purchase 1,000,000 shares of our common stock at an exercise price of $0.0714 per share, to Summit Management Consulting, the Company who provides the services of our Chief Financial Officer, Quentin Ponder, in exchange for $50,000 in accrued salary. The warrant may be exercised on a cashless basis.
On February 12, 2018, we sold a total of 1,000,000 shares of common stock and a five-year warrant to purchase 1,000,000 shares of our common stock at an exercise price of $0.0714 per share, to our Secretary and Vice President, Judson Bibb, in exchange for $50,000 in accrued salary. The warrant may be exercised on a cashless basis
On February 21, 2018, we issued for consideration of $17,000, 233,333 shares of our common stock and a three year warrant to purchase 116,667 shares of our common stock at a an exercise price of $0.05 to Eric Brown, a 5% stockholder. The warrant expires on February 21, 2021 and may be exercised on a cashless basis.
On February 21, 2018, we issued for consideration of $11,670, 233,333 shares of our common stock and a three year warrant to purchase 116,667 shares of our common stock at a an exercise price of $0.05 to Christopher Jones, a 5% stockholder. The warrant expires on February 21, 2021 and may be exercised on a cashless basis.
On February 25, 2018, we sold a total of 600,000 shares of common stock and a five-year warrant to purchase 600,000 shares of our common stock at an exercise price of $0.0714 per share, to Summit Management Consulting, the Company who provides the services of our Chief Financial Officer, Quentin Ponder, in exchange for $30,000 in accrued salary. The warrant may be exercised on a cashless basis.
52 |
|
Table of Contents |
On March 27, 2018, Gemini Master Fund, a 10% shareholder, exercised a warrant to purchase 13,671,379 shares via cashless exercise which resulted in the issuance of 9,603,662 shares of common stock. Gemini has no more warrants outstanding.
On March 28. 2018, we sold a total of 1,111,111 shares of our common stock and a five-year warrant to purchase 1,111,111 shares of our common stock at an exercise price of $0.10 per share to Abdalla Bamashmus, a 5% shareholder, in a private offering. We received $50,000 as consideration for the sale of such securities.
On April 10, 2018 KHIC, LLC, a 6% shareholder, was issued 2,025,000 shares of common stock upon partial conversion of $50,625 on convertible debt of $374,883
On September 1, 2018, we issued for consideration of $250,000, a five year warrant to purchase 2,000,000 shares of our common stock at a an exercise price of $0.05 to Daniel Ustian, a director. The warrant expires on September 1, 2023 and may be exercised on a cashless basis.
On September 7, 2018, we issued for consideration of $125,000, a five year warrant to purchase 1,000,000 shares of our common stock at a an exercise price of $0.05 to Christopher Jones, a 5% stockholder. The warrant expires on September 7, 2023 and may be exercised on a cashless basis.
On September 17, 2018, we issued for consideration of $125,000, a five year warrant to purchase 1,000,000 shares of our common stock at a an exercise price of $0.05 to Eric Brown, a 5% stockholder. The warrant expires on September 17, 2023 and may be exercised on a cashless basis.
Spirit Bear Limited
See "Item 3. Legal Proceedings" above for a description of the legal proceedings between the Company and Spirit Bear.
Insider Transactions Policies and Procedures
The Company does not currently have an insider transaction policy.
Director Independence
We currently do not have any independent directors as the term “independent” is defined by the rules of the American Stock Exchange.
While four of our seven directors do not receive on-going consideration from the Company for their service as directors or officers, on September 20, 2017, each of the directors were awarded a warrant to purchase 200,000 shares of common stock and three of the four outside directors have received consideration for their service on the Company's Board of Advisor. As the entire Board of Directors has yet to affirm that the respective individual directors do not have relationships that would interfere with the exercise of independent judgement in carrying out their directors' responsibilities, none of our directors can be defined as "independent".
53 |
|
Table of Contents |
Item 14. Principal Accounting Fees and Services.
Audit Fees
Audit fees consist of fees for professional services rendered for the audit of the Company's consolidated financial statements included in the Company's Annual Report on Form 10-K and the review of financial statements included in the Company's Quarterly Reports on Form 10-Q. The aggregate fees billed for professional services rendered by our accountant, Anton and Chia, LLP, for audit and review services for the fiscal year ended December 31, 2017 were $113,555.
We incurred no non-audit related fees, tax fees or other fees for professional services rendered by our principal accountant for the years ended December 31, 2018 and 2017.
It should be noted that on February 2, 2018, the board of directors voted to terminate the services of Anton and Chia, LLP and engage the services of Green and Company, CPAs as the Company’s independent registered public accounting firm. Green and Company audited the Company’s annual report on Form 10-K for the year ended December 31, 2017. The aggregate fees billed for professional services rendered by Green and Company, CPAs for audit and review services for the fiscal year ended December 31, 2017 were $134,198
On December 31, 2018, Green & Co. (“G&C”) resigned as the independent registered public accounting firm for Cool Technologies, Inc. (the “Company”). On January 2, 2019, the Company engaged Accell Audit and Compliance, P.A. (“Accell”) as the Company’s independent registered public accounting firm. Accell Audit and Compliance audited the Company’s annual report on Form 10-K for the year ended December 31, 2018.
Administration of the Engagement; Pre-Approval of Audit and Permissible Non-Audit Services
We have not yet established an audit committee. Until then, there are no formal pre-approval policies and procedures. Nonetheless, the auditors engaged for these services are required to provide and uphold estimates for the cost of services to be rendered. The percentage of hours expended on Accel Audit and Compliance, PA, respective engagement to audit our financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was 0%.
54 |
|
Table of Contents |
Item 15. Exhibits, Financial Statement Schedules.
Exhibit Number |
|
Description of Exhibit |
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
55 |
|
Table of Contents |
* Filed herewith
Item 16. Form 10-K Summary.
Not applicable.
56 |
|
Table of Contents |
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.
Cool Technologies, Inc. |
|||
Date: April 15, 2019 |
By: |
/s/ Timothy Hassett |
|
Timothy Hassett Chairman and Chief Executive Officer, (Principal Executive 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.
Signature |
|
Capacity |
|
Date |
|
||||
/s/ Timothy Hassett |
|
Chairman and Chief Executive Officer (Principal Executive Officer) |
|
April 15, 2019 |
Timothy Hassett |
||||
|
||||
/s/ Quentin Ponder |
|
Vice-Chairman, Chief Financial Officer, |
|
April 15, 2019 |
Quentin Ponder |
|
Treasurer and director (Principal Financial and Accounting Officer) |
||
|
||||
/s/ Judson Bibb |
Vice-President, Secretary and director |
April 15, 2019 |
||
Judson Bibb |
||||
|
||||
/s/ Donald Bowman |
Director |
April 15, 2019 |
||
Donald Bowman |
||||
/s/ Christopher McKee |
Director |
April 15, 2019 |
||
Christopher McKee |
||||
/s/ Richard Schul |
Director |
April 15, 2019 |
||
Richard Schul |
||||
/s/ Daniel Ustian |
Director |
April 15, 2019 |
||
Daniel Ustian |
57 |
EXHIBIT 10.77
INDEPENDENT AGENT AGREEMENT
THIS AGREEMENT effective as of the 26th day of October, 2017 by and between Cool Technologies, Inc. , a Nevada corporation with offices at 8875 Hidden River Parkway, #300, Tampa, FL 33637 (collectively hereinafter the "Company") and Barron and Associates, LLC., a Nevada Corporation located at 5636 Donald Road, Las Vegas , Nevada 89131 USA (collectively hereinafter "Agent").
1. | Engagement of Agent . The Company hereby engages the Agent to perform the services that are described in Section 2, and the Agent hereby accepts such engagement. |
|
|
2. | Duties of Agent . |
|
a. | Description of Duties . The Company hereby engages the Agent as its agent for generating Revenue, and Investment Funding, for Company from various organizations including investment funds, end-users, channel partners, integrators, and OEMs (“Customers”). Revenue shall be defined as invoiced Net Revenue (invoiced Total Revenue minus taxes, duties, shipping, and return material authorizations “RMA’s”). Company shall enter into a direct relationship with Customers, determine their creditworthiness, and shall have the sole discretion on whether to accept or reject any transaction. All purchase orders shall be made payable to Company at its place of business. |
|
|
|
|
b. | Agent Support . Company will provide the following support for the benefit of Agent as requested and mutually agreed upon: sales tools, including price lists, product literature, corporate identity tools and presentation materials; e-mail on Company’s system, business cards; copies of customer orders, invoices, and reports upon request; commission statements. |
|
|
|
|
c. | Company Support . Agent must adhere to any applicable customer registration programs, status reports, and forecasting requirements. |
|
|
|
|
d. | Advertising . The Agent shall not solicit through any paid or unpaid advertising in media of any kind using the Company name or logo, whether in electronic or printed format, without the prior approval of the Company. |
3. | Independent Agent Status . The Agent is an independent Agent. The Agent shall be free to exercise its own judgment as to the persons whom it will use to assist it in the performance of its services and whom it will hire as employees or agents, and the time, place and manner of rendering its services, including arranging for others to provide services directly to the Company. Agent shall be liable for all general and indirect expenses which it incurs in connection with the performance of its duties hereunder and for any and all damages which may arise from its conduct and that of its agents and employees. None of the agents and employees of the Agent shall be construed as agents, employees or representatives of the Company. The Agent shall have no authority to bind the Company in any manner whatsoever. |
|
|
4. | Compensation . Subject to the terms and conditions hereof, the Company shall pay Agent per the terms in Exhibit A. |
|
|
5. | Representations and Covenants of Agent and Company to each Other . |
1 | Barron and Associates, LLC. |
Independent Agent Agreement |
October 26, 2017 |
|
|
|
a. | The Agent and Company shall each comply with all rules and regulations of any domestic and/or foreign regulatory authorities which may be applicable to the activities of the Agent and the Company. Furthermore, the Agent shall comply with all reasonable policies, practices and procedures established by Company. |
|
|
|
|
b. | The Agent represents that none of the events described below have occurred during the past ten (10) years with respect to the Agent or any of his agents or employees: (i) a petition under any foreign or federal bankruptcy laws or any foreign or state insolvency law was filed by or against, or a receiver or fiscal agent was appointed by a court for the business or property of, (A) such person (B) any partnership in which either was a general partner (or an executive officer of a general partner) at or within two (2) years before the time of such filing, or (C) any corporation or business association of which either was an executive officer at or within two (2) years before the time of such filing; (ii) such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses). The foregoing representations shall not include all offenses previously disclosed. |
6. | Termination of Agreement . Either party may terminate this Agreement at any time upon actual breach or default by the other party in the performance of its obligations and duties under this Agreement and failure of the defaulting party to cure the same with fifteen (15) day "cure period". Either party may terminate this agreement at any time without cause. Upon termination of this Agreement by either party, Agent shall accrue and receive commissions to which Agent would normally be entitled according to the provisions of Exhibits A. Upon termination, Agent shall immediately return or destroy all copies of the Confidential Information, and any other materials provided, but the remaining terms and obligations of these Terms and Conditions shall otherwise survive. |
|
|
7. | Nondisclosure and Nonuse of Confidential Information . During the term of this Agreement, it may be necessary for the Company to provide the Agent with access to certain proprietary information, the nature of the services and products offered by the Company, and the manner in which the Company operates (collectively the "Proprietary Information"). Such information is confidential and is considered a trade secret by the Company. It is expressly understood that the existence of this Agreement, and the terms and conditions negotiated with sourced entities, shall be considered Confidential Information. The Company and the Agent shall: (a) not disclose the Proprietary Information of each other to others; (b) not use the Proprietary Information for any reason except as necessary for the performance of their respective duties; (c) not copy or otherwise produce any documents regarding the Proprietary Information except as necessary for the performance of their respective duties, or divulge such documents to others; (d) upon the termination of this Agreement, the Company and the Agent shall promptly deliver to each other all documents, letters, notes, notebooks, reports and other materials of a confidential nature relating to the business of each other which is in their possession or control; and (e) take additional reasonable actions necessary to ensure the confidentiality of the Proprietary Information, including, without limitation, obtaining written non-disclosure agreements from employees, agents and third parties to whom the Proprietary Information is disclosed. Notwithstanding anything to the contrary that is contained in this Agreement, the Agent and the Company may disclose Proprietary Information solely to the extent that: (a) the Agent or the Company is authorized in writing to do so by the other; (b) disclosure is required by any applicable law, in the reasonable opinion of legal counsel to the parties, or court decision or other regulatory or competent authority; (c) the Proprietary Information is otherwise public information. The Agent and the Company will promptly notify each other in the event that any Proprietary Information is no longer confidential. The obligations of confidentiality contained in this Section 5 shall survive the termination of this Agreement. The Agent and the Company acknowledge and agree that the other party would be irreparably damaged in the event that the provisions of this Section 5 were not performed in accordance with their respective terms or were otherwise breached and monetary damages would not provide an adequate or sufficient remedy in such event. Accordingly, it is agreed that the Company or the Agent, as the case may be, shall be entitled to equitable relief ( e.g. , injunctive relief and specific performance) to enforce the provisions contained in this Section 5 in addition to any other remedy, including monetary damages, that may be available at law or in equity. |
2 | Barron and Associates, LLC. |
Independent Agent Agreement |
October 26, 2017 |
|
|
|
|
8. | Indemnification . Agent and Company shall promptly indemnify and hold the other party harmless from any liability, including any attorneys' fees and any and all other expenses, incurred by the other party as a result of the breach of this Agreement by the other party or any negligent acts or omissions of the other party and its employees and agents. |
|
|
9. | Notices . Whenever any notice or other communication is required to be given pursuant to this Agreement, such notice shall be given in writing and shall be delivered, in person, by electronic means, and/or by courier, return receipt requested, to the address of the party set forth at the beginning of this Agreement, or to such other address as either party hereto may give in accordance with the provisions of this Agreement. |
|
|
10. | Governing Law and Venue . This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada, and any dispute arising under this Agreement shall lie solely with the federal or state courts in and for Clark County, Nevada, USA. |
|
|
11. | Entire Agreement; Waiver . This Agreement contains the entire agreement and understanding of the parties hereto and supersedes all prior agreements and understandings relating to the subject matter hereof. No modification, amendment, waiver or alteration of this Agreement or any of the provisions hereof shall in any event be effective unless the same shall be in a written document executed by both parties. Any such waiver shall be effective only in the specific instance and for the specific purpose for which given. |
|
|
12. | Successors and Assigns; Assignment . This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto, and their heirs, successors, assigns and legal representatives. The rights and duties of the Agent are not assignable without the prior written consent of the Company. |
|
|
13. | Severability . Every provision of this Agreement is intended to be severable. If any term or provision hereof is illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the validity of the remainder of the Agreement. |
|
|
14. | Waiver of Jury Trial . As part of the consideration for entering into this Agreement, the Company and the Agent each waive their rights to trial by jury. |
|
|
15. | Litigation Costs . In the event of any litigation arising out of this Agreement or the transactions contemplated hereby, all reasonable costs and expenses incurred in connection with such litigations, including, without limitation, costs and attorneys' fees incurred at the trial court level, in pursuance of costs and attorneys' fees, witnesses' traveling expenses and expert witness fees of the prevailing party following and including any and all appeals, shall be reimbursed by the non-prevailing party promptly upon demand. |
3 | Barron and Associates, LLC. |
Independent Agent Agreement |
October 26, 2017 |
|
16. | Dispute Resolution/ Mediation/Arbitration . Each party will allow the other reasonable opportunity to comply before it claims that the other has not met its obligations under this Agreement. The parties will attempt in good faith to resolve all disputes, disagreements, or claims between the parties relating to this Agreement before taking legal action. Furthermore, both parties will identify and agree upon a mediator within 30 days or petition the Superior Court of Clark County, Nevada to appoint a mediator to settle the claim. Any party that fails to participate in this process in good faith waives their right to any attorneys' fees, litigation fees, cost of expert services and any and all other expenses, incurred by the other party as a result of the breach of this Agreement by the other party or any negligent acts or omissions of the other party and its employees and Agents. |
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
Company |
|
Agent |
|
||
|
|
||||
By: |
/s/ Timothy Hassett |
By: |
/s/ Elizabeth F. Myers | ||
|
Timothy Hassett |
|
Elizabeth F. Myers | ||
Title: |
CEO |
Title: |
Managing Partner |
4 | Barron and Associates, LLC. |
Independent Agent Agreement |
October 26, 2017 |
|
|
EXHIBIT A - COMPENSATION
1. | Commissions . Company agrees to pay Agent a portion of the cash proceeds from a customer as a percentage of the Net Revenue (“Commissions”). Specific Commissions rates are defined as follows: |
Commission Rate for Registered Opportunities after date of initial order |
|
Months 1-18 |
Months 19+ |
10% |
5% |
Commissions will be earned on the date invoice is paid in full to the company. | |
|
|
2. | The Agent will be eligible to receive blocks of warrants on a sliding scale for each agreement in principle accepted and signed by the Company. For each of the first two agreements accepted by the Company, the Agent will be eligible to receive a warrant to purchase 1,000,000 shares of restricted common stock. For each subsequent agreement, the block of warrants that the Agent will be eligible to receive will be reduced by half. Upon signing this agreement and signing of the Jatropha |
|
|
Therefore, for the third agreement in principle accepted by the Company, the agent will be eligible to receive a warrant for 500,000 shares of restricted common stock. For the fourth agreement, he will be eligible to receive a warrant for 250,000 shares of restricted common stock. The scale shall continue to slide downward until a floor of 25,000 shares is reached. For each agreement in principle accepted after the floor is reached, the Agent will be eligible to receive a warrant for 25,000 shares of restricted common stock. | |
|
|
The exercise price of the first warrant will be $0.05. The exercise price for each subsequent warrant will equal the closing price of the Company’s common stock on the day the agreement in principle is accepted and signed by the Company’s CEO. The warrants will be paid out on each $250,000 of net revenue shipped by the company in fulfillment of the respective agreement in principle | |
|
|
3. | Compensation after Termination . Upon termination of this Agreement by either party (“Effective Date of Termination”), Agent shall accrue commissions to which Agent would normally be entitled for all orders invoiced up to six (6) months after the Effective Date of Termination (“Period of Termination”). |
|
|
Payment shall be made on accrued commissions only after receipt of payment by Company. | |
|
|
Company agrees to reimburse Agent for approved expenses within 30 days of termination. |
5 | Barron and Associates, LLC. |
Independent Agent Agreement |
October 26, 2017 |
|
EXHIBIT 10.78
AMENDMENT
TO THE $110,000 PROMISORRY NOTE DATED February 3, 2017
This Amendment (this “ Agreement ” ) is entered into as of November 1, 2017 (the “ Effective Date ”), by and between Cool Technologies, Inc., a Nevada corporation (the “ Company ”) and Lucas Hoppel (the “ Holder ”) collectively, the Company and Holder shall be referred to as the “ Parties ” and each a “ Party.”
RECITALS:
WHEREAS , on February 3, 2017 (the “ Issuance Date ”), the Company and the Black Mountain Equities, Inc. entered into a Convertible Note (the “ Note ”) pursuant to which the Company promised to pay $110,000 (the “ Original Principal Amount ”).
WHEREAS , Lucas Hoppel purchased the Note from Black Mountain Equities, Inc. on November 1, 2017
WHEREAS , The Note has a current outstanding balance of $141,625, consisting of $110,000.00 of principal, $3,300 of accrued and unpaid interest and $28,325 of additional charges;
WHEREAS , the parties hereto desire to enter into this Amendment to the Note.
NOW, THEREFORE , for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the Parties hereby agree as follows:
|
1) | The Maturity Date of the Note is hereby extended to December 31, 2017 (“Extended Maturity Date”). |
|
|
|
|
2) | This Note balance is hereby convertible at any time into shares of the Company's Common Stock at $0.05 per share according to the terms and conditions attached hereto as Exhibit A . |
ALL OTHER TERMS AND CONDITIONS OF THE $110,500 NOTE REMAIN IN FULL FORCE AND EFFECT.
[Signature Page to Follow]
1 |
|
Please indicate acceptance and approval of this amendment dated November 1, 2017 by signing below:
/s/ Timothy Hassett |
|
/s/ Lucas Hoppel |
|
Timothy Hassett |
|
Lucas Hoppel |
|
Cool Technologies, Inc. |
|
|
|
Chief Executive Officer |
|
|
|
2 |
|
EXHIBIT A
(1) CONVERSION OF NOTE . This Note shall be convertible into shares of the Company's Common Stock, on the terms and conditions set forth in this Section 1.
(a) Conversion Right . Subject to the provisions of Section 1(c), at any time or times on or after the Issuance Date, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount (as defined below) into fully paid and nonassessable shares of Common Stock in accordance with Section 1(b), at the Conversion Price (as defined below). The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to this Section 1(a) shall be equal to the quotient of dividing the Conversion Amount by the Conversion Price. The Company shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share. The Company shall pay any and all transfer agent fees, legal fees, costs and any other fees or costs that may be incurred or charged in connection with the issuance of shares of the Company’s Common Stock to the Holder arising out of or relating to the conversion of this Note.
(i) " Conversion Amount " means the portion of the Original Principal Amount and Interest to be converted, plus any penalties, redeemed or otherwise with respect to which this determination is being made.
(ii) " Conversion Price " shall equal $0.05.
(b) Mechanics of Conversion .
(i) Optional Conversion . To convert any Conversion Amount into shares of Common Stock on any date (a " Conversion Date "), the Holder shall (A) transmit by email, facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., New York, NY Time, on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit A (the " Conversion Notice ") to the Company. On or before the third Business Day following the date of receipt of a Conversion Notice (the " Share Delivery Date "), the Company shall (A) if legends are not required to be placed on certificates of Common Stock pursuant to the then existing provisions of Rule 144 of the Securities Act of 1933 (“Rule 144”) and provided that the Transfer Agent is participating in the Depository Trust Company's (" DTC ") Fast Automated Securities Transfer Program, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent Commission system or (B) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled which certificates shall not bear any restrictive legends unless required pursuant the Rule 144. If this Note is physically surrendered for conversion and the outstanding Principal of this Note is greater than the Principal portion of the Conversion Amount being converted, then the Company shall, upon request of the Holder, as soon as practicable and in no event later than three (3) Business Days after receipt of this Note and at its own expense, issue and deliver to the holder a new Note representing the outstanding Principal not converted. The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock upon the transmission of a Conversion Notice.
3 |
|
(ii) Company's Failure to Timely Convert . If within two (2) Trading Days after the Company's receipt of the facsimile or email copy of a Conversion Notice the Company shall fail to issue and deliver to Holder via “DWAC/FAST” electronic transfer the number of shares of Common Stock to which the Holder is entitled upon such holder's conversion of any Conversion Amount (a " Conversion Failure "), the Original Principal Amount of the Note shall increase by $2,000 per day until the Company issues and delivers a certificate to the Holder or credit the Holder's balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon such holder's conversion of any Conversion Amount (under Holder’s and Company’s expectation that any damages will tack back to the Issuance Date). Company will not be subject to any penalties once its transfer agent processes the shares to the DWAC system. If the Company fails to deliver shares in accordance with the timeframe stated in this Section, resulting in a Conversion Failure, the Holder, at any time prior to selling all of those shares, may rescind any portion, in whole or in part, of that particular conversion attributable to the unsold shares and have the rescinded conversion amount returned to the Outstanding Balance with the rescinded conversion shares returned to the Company (under Holder’s and Company’s expectations that any returned conversion amounts will tack back to the original date of the Note).
(iii) DWAC/FAST Eligibility . If the Company fails for any reason to deliver to the Holder the Shares by DWAC/FAST electronic transfer (such as by delivering a physical stock certificate), or if there is a Conversion Failure as defined in Section 1(b)(ii), and if the Holder incurs a Market Price Loss, then at any time subsequent to incurring the loss the Holder may provide the Company written notice indicating the amounts payable to the Holder in respect of the Market Price Loss and the Company must make the Holder whole by either of the following options at Holder’s election:
Market Price Loss = [(High trade price for the period between the day of conversion and the day the shares clear in the Holder’s brokerage account) x (Number of shares receivable from the conversion)] – [(Net Sales price realized by Holder) x (Number of shares receivable from the conversion)].
Option A – Pay Market Price Loss in Cash. The Company must pay the Market Price Loss by cash payment, and any such cash payment must be made by the third business day from the time of the Holder’s written notice to the Company.
Option B – Add Market Price Loss to Outstanding Balance. The Company must pay the Market Price Loss by adding the Market Price Loss to the Outstanding Balance (under Holder’s and the Company’s expectation that any Market Price Loss amounts will tack back to the Issuance Date).
In the case that conversion shares are not deliverable by DWAC/FAST electronic transfer an additional 10% discount to the Conversion Price will apply.
(iv) [BLANK]
(v) [BLANK]
(vi) Book-Entry . Notwithstanding anything to the contrary set forth herein, upon conversion of any portion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Company unless (A) the full Conversion Amount represented by this Note is being converted or (B) the Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting reissuance of this Note upon physical surrender of this Note. The Holder and the Company shall maintain records showing the Principal and Interest converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Note upon conversion.
4 |
|
(c) Limitations on Conversions or Trading .
(i) Beneficial Ownership. The Company shall not effect any conversions of this Note and the Holder shall not have the right to convert any portion of this Note or receive shares of Common Stock as payment of interest hereunder to the extent that after giving effect to such conversion or receipt of such interest payment, the Holder, together with any affiliate thereof, would beneficially own (as determined in accordance with Section 1(d) of the Exchange Act and the rules promulgated thereunder) in excess of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to such conversion or receipt of shares as payment of interest. Since the Holder will not be obligated to report to the Company the number of shares of Common Stock it may hold at the time of a conversion hereunder, unless the conversion at issue would result in the issuance of shares of Common Stock in excess of 4.99% of the then outstanding shares of Common Stock without regard to any other shares which may be beneficially owned by the Holder or an affiliate thereof, the Holder shall have the authority and obligation to determine whether the restriction contained in this Section will limit any particular conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section applies, the determination of which portion of the principal amount of this Note is convertible shall be the responsibility and obligation of the Holder. If the Holder has delivered a Conversion Notice for a principal amount of this Note that, without regard to any other shares that the Holder or its affiliates may beneficially own, would result in the issuance in excess of the permitted amount hereunder, the Company shall notify the Holder of this fact and shall honor the conversion for the maximum principal amount permitted to be converted on such Conversion Date in accordance with Section 1(a) and, any principal amount tendered for conversion in excess of the permitted amount hereunder shall remain outstanding under this Note. In the event that the Market Capitalization of the Company falls below $2,500,000, the term “4.99%” above shall be permanently replaced with “9.99%”. “Market Capitalization” shall be defined as the product of (a) the closing price of the Common Stock of the Common stock multiplied by (b) the number of shares of Common Stock outstanding as reported on the Company’s most recently filed Form 10-K or Form 10-Q. The provisions of this Section may be waived by Holder upon not less than 65 days prior written notification to the Company.
(ii) Capitalization . So long as this as this Note is outstanding, upon written request of the Holder, the Company shall furnish to the Holder the then-current number of common shares issued and outstanding, the then-current number of common shares authorized, and the then-current number of shares reserved for third parties.
(d) Other Provisions .
(i) Share Reservation . The Company shall at all times reserve and keep available out of its authorized Common Stock a number of shares equal to the full number of shares of Common Stock issuable upon conversion of all outstanding amounts under this Note. The Company will at all times reserve at least 3,000,000 shares of Common Stock for conversion.
5 |
EXHIBIT 10.79
AMENDMENT
TO THE $180,000 PROMISORRY NOTE DATED SEPTEMBER 30, 2017
This Amendment (this “ Agreement ” ) is entered into as of November 20, 2017 (the “ Effective Date ”), by and between Cool Technologies, Inc., a Nevada corporation (the “ Company ”) and Lucas Hoppel (the “ Holder ”) collectively, the Company and Holder shall be referred to as the “ Parties ” and each a “ Party.”
RECITALS:
WHEREAS , on September 30, 2017 (the “ Issuance Date ”), the Company and the Gemini Master Fund, Ltd. (" Gemini ") entered into a Promissory Note (the “ Note ”) pursuant to which the Company promised to pay $180,000 (the “ Original Principal Amount ”).
WHEREAS , Lucas Hoppel purchased the Note from Gemini Master Fund, Ltd. on November 13, 2017
WHEREAS , The Note has a current outstanding balance of $190,325, consisting of $180,000.00 of principal and $10,325 of accrued and unpaid interest;
WHEREAS , to induce Gemini to sign this agreement, the Company has agreed to issue 450,000 inducement shares of the Company’s $0.001 par value common stock (the ”Shares”) ;
WHEREAS , the parties hereto desire to enter into this Amendment to the Note.
NOW, THEREFORE , for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the Parties hereby agree as follows:
|
1) | The Maturity Date of the Note is hereby extended to December 31, 2017 (“Extended Maturity Date”). |
|
|
|
|
2) | This Note balance is hereby convertible at any time into shares of the Company's Common Stock at $0.05 per share according to the terms and conditions attached hereto as Exhibit A . |
ALL OTHER TERMS AND CONDITIONS OF THE $180,000 NOTE REMAIN IN FULL FORCE AND EFFECT.
[Signature Page to Follow]
1 |
|
Please indicate acceptance and approval of this amendment dated November 18, 2017 by signing below:
/s/ Timothy Hassett |
/s/ Lucas Hoppel | ||
Timothy Hassett | Lucas Hoppel | ||
Cool Technologies, Inc. Chief Executive Officer |
2 |
|
EXHIBIT A
(1) CONVERSION OF NOTE . This Note shall be convertible into shares of the Company's Common Stock, on the terms and conditions set forth in this Section 1.
(a) Conversion Right . Subject to the provisions of Section 1(c), at any time or times on or after the Issuance Date, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount (as defined below) into fully paid and nonassessable shares of Common Stock in accordance with Section 1(b), at the Conversion Price (as defined below). The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to this Section 1(a) shall be equal to the quotient of dividing the Conversion Amount by the Conversion Price. The Company shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share. The Company shall pay any and all transfer agent fees, legal fees, costs and any other fees or costs that may be incurred or charged in connection with the issuance of shares of the Company’s Common Stock to the Holder arising out of or relating to the conversion of this Note.
(i) " Conversion Amount " means the portion of the Original Principal Amount and Interest to be converted, plus any penalties, redeemed or otherwise with respect to which this determination is being made.
(ii) " Conversion Price " shall equal $0.05.
(b) Mechanics of Conversion .
(i) Optional Conversion . To convert any Conversion Amount into shares of Common Stock on any date (a " Conversion Date "), the Holder shall (A) transmit by email, facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., New York, NY Time, on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit A (the " Conversion Notice ") to the Company. On or before the third Business Day following the date of receipt of a Conversion Notice (the " Share Delivery Date "), the Company shall (A) if legends are not required to be placed on certificates of Common Stock pursuant to the then existing provisions of Rule 144 of the Securities Act of 1933 (“Rule 144”) and provided that the Transfer Agent is participating in the Depository Trust Company's (" DTC ") Fast Automated Securities Transfer Program, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent Commission system or (B) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled which certificates shall not bear any restrictive legends unless required pursuant the Rule 144. If this Note is physically surrendered for conversion and the outstanding Principal of this Note is greater than the Principal portion of the Conversion Amount being converted, then the Company shall, upon request of the Holder, as soon as practicable and in no event later than three (3) Business Days after receipt of this Note and at its own expense, issue and deliver to the holder a new Note representing the outstanding Principal not converted. The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock upon the transmission of a Conversion Notice.
3 |
|
(ii) Company's Failure to Timely Convert. If within two (2) Trading Days after the Company's receipt of the facsimile or email copy of a Conversion Notice the Company shall fail to issue and deliver to Holder via “DWAC/FAST” electronic transfer the number of shares of Common Stock to which the Holder is entitled upon such holder's conversion of any Conversion Amount (a " Conversion Failure "), the Original Principal Amount of the Note shall increase by $2,000 per day until the Company issues and delivers a certificate to the Holder or credit the Holder's balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon such holder's conversion of any Conversion Amount (under Holder’s and Company’s expectation that any damages will tack back to the Issuance Date). Company will not be subject to any penalties once its transfer agent processes the shares to the DWAC system. If the Company fails to deliver shares in accordance with the timeframe stated in this Section, resulting in a Conversion Failure, the Holder, at any time prior to selling all of those shares, may rescind any portion, in whole or in part, of that particular conversion attributable to the unsold shares and have the rescinded conversion amount returned to the Outstanding Balance with the rescinded conversion shares returned to the Company (under Holder’s and Company’s expectations that any returned conversion amounts will tack back to the original date of the Note).
(iii) DWAC/FAST Eligibility . If the Company fails for any reason to deliver to the Holder the Shares by DWAC/FAST electronic transfer (such as by delivering a physical stock certificate), or if there is a Conversion Failure as defined in Section 1(b)(ii), and if the Holder incurs a Market Price Loss, then at any time subsequent to incurring the loss the Holder may provide the Company written notice indicating the amounts payable to the Holder in respect of the Market Price Loss and the Company must make the Holder whole by either of the following options at Holder’s election:
Market Price Loss = [(High trade price for the period between the day of conversion and the day the shares clear in the Holder’s brokerage account) x (Number of shares receivable from the conversion)] – [(Net Sales price realized by Holder) x (Number of shares receivable from the conversion)].
Option A – Pay Market Price Loss in Cash. The Company must pay the Market Price Loss by cash payment, and any such cash payment must be made by the third business day from the time of the Holder’s written notice to the Company.
Option B – Add Market Price Loss to Outstanding Balance. The Company must pay the Market Price Loss by adding the Market Price Loss to the Outstanding Balance (under Holder’s and the Company’s expectation that any Market Price Loss amounts will tack back to the Issuance Date).
In the case that conversion shares are not deliverable by DWAC/FAST electronic transfer an additional 10% discount to the Conversion Price will apply.
(iv) [BLANK]
(v) [BLANK]
(vi) Book-Entry. Notwithstanding anything to the contrary set forth herein, upon conversion of any portion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Company unless (A) the full Conversion Amount represented by this Note is being converted or (B) the Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting reissuance of this Note upon physical surrender of this Note. The Holder and the Company shall maintain records showing the Principal and Interest converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Note upon conversion.
4 |
|
(c) Limitations on Conversions or Trading.
(i) Beneficial Ownership. The Company shall not effect any conversions of this Note and the Holder shall not have the right to convert any portion of this Note or receive shares of Common Stock as payment of interest hereunder to the extent that after giving effect to such conversion or receipt of such interest payment, the Holder, together with any affiliate thereof, would beneficially own (as determined in accordance with Section 1(d) of the Exchange Act and the rules promulgated thereunder) in excess of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to such conversion or receipt of shares as payment of interest. Since the Holder will not be obligated to report to the Company the number of shares of Common Stock it may hold at the time of a conversion hereunder, unless the conversion at issue would result in the issuance of shares of Common Stock in excess of 4.99% of the then outstanding shares of Common Stock without regard to any other shares which may be beneficially owned by the Holder or an affiliate thereof, the Holder shall have the authority and obligation to determine whether the restriction contained in this Section will limit any particular conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section applies, the determination of which portion of the principal amount of this Note is convertible shall be the responsibility and obligation of the Holder. If the Holder has delivered a Conversion Notice for a principal amount of this Note that, without regard to any other shares that the Holder or its affiliates may beneficially own, would result in the issuance in excess of the permitted amount hereunder, the Company shall notify the Holder of this fact and shall honor the conversion for the maximum principal amount permitted to be converted on such Conversion Date in accordance with Section 1(a) and, any principal amount tendered for conversion in excess of the permitted amount hereunder shall remain outstanding under this Note. In the event that the Market Capitalization of the Company falls below $2,500,000, the term “4.99%” above shall be permanently replaced with “9.99%”. “Market Capitalization” shall be defined as the product of (a) the closing price of the Common Stock of the Common stock multiplied by (b) the number of shares of Common Stock outstanding as reported on the Company’s most recently filed Form 10-K or Form 10-Q. The provisions of this Section may be waived by Holder upon not less than 65 days prior written notification to the Company.
(ii) Capitalization. So long as this as this Note is outstanding, upon written request of the Holder, the Company shall furnish to the Holder the then-current number of common shares issued and outstanding, the then-current number of common shares authorized, and the then-current number of shares reserved for third parties.
(d) Other Provisions.
(i) Share Reservation. The Company shall at all times reserve and keep available out of its authorized Common Stock a number of shares equal to the full number of shares of Common Stock issuable upon conversion of all outstanding amounts under this Note. The Company will at all times reserve at least 4,500,000 shares of Common Stock for conversion.
5 |
EXHIBIT 10.80
AMENDMENT
TO THE $110,000 PROMISORRY NOTE DATED February 3, 2017
This Amendment (this “ Agreement ” ) is entered into as of December 29, 2017 (the “ Effective Date ”), by and between Cool Technologies, Inc., a Nevada corporation (the “ Company ”) and Lucas Hoppel (the “ Holder ”) collectively, the Company and Holder shall be referred to as the “ Parties ” and each a “ Party.”
RECITALS:
WHEREAS , on February 3, 2017 (the “ Issuance Date ”), the Company and the Black Mountain Equities, Inc. entered into a Convertible Note (the “ Note ”) pursuant to which the Company promised to pay $110,000 (the “ Original Principal Amount ”).
WHEREAS , Lucas Hoppel purchased the Note from Black Mountain Equities, Inc. on November 1, 2017
WHEREAS , The Note has a current outstanding balance of $141,625, consisting of $110,000.00 of principal, $3,300 of accrued and unpaid interest and $28,325 of Default charges;
WHEREAS , the parties hereto desire to enter into this Amendment to the Note.
NOW, THEREFORE , for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the Parties hereby agree as follows:
|
1) | The Maturity Date of the Note is hereby extended to February 16, 2018 (“Extended Maturity Date”). |
|
|
|
|
2) | This Note balance is hereby convertible at any time into shares of the Company's Common Stock at $0.04 per share. |
ALL OTHER TERMS AND CONDITIONS OF THE $110,500 NOTE REMAIN IN FULL FORCE AND EFFECT.
[Signature Page to Follow]
1 |
|
Please indicate acceptance and approval of this amendment dated December 29, 2017 by signing below:
/s/Tim Hassett |
|
/s/ Lucas Hoppel |
|
Timothy Hassett |
|
Lucas Hoppel |
|
Cool Technologies, Inc. Chief Executive Officer |
|
|
|
2 |
EXHIBIT 10.81
NEITHER THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE. THESE SECURITIES HAVE BEEN SOLD IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
COOL TECHNOLOGIES, INC.
P ROMISSORY N OTE
Issuance Date: January 26, 2018 |
|
Original Principal Amount: $220,000 |
Note No. WARM-7 |
|
Consideration Paid at Close: $200,000 |
FOR VALUE RECEIVED, Cool Technologies, Inc. , a Nevada corporation with a par value of $0.001 per common share (“Par Value”) (the " Company "), hereby promises to pay to the order of Lucas Hoppel or registered assigns (the " Holder ") the amount set out above as the Original Principal Amount (as reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise, the " Principal ") when due, whether upon the Maturity Date (as defined below), acceleration, redemption or otherwise (in each case in accordance with the terms hereof) and to pay interest (" Interest ") on any outstanding Principal at the applicable Interest Rate from the date set out above as the Issuance Date (the " Issuance Date ") until the same becomes due and payable, upon the Maturity Date or acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof).
The Original Principal Amount is $220,000 (two hundred twenty thousand) plus accrued and unpaid interest and any other fees. The Consideration is $200,000 (two hundred thousand) payable by wire transfer (there exists a $20,000 original issue discount (the “OID”)). The Holder shall pay $200,000 of Consideration upon closing of this Note.
(1) GENERAL TERMS
(a) Payment of Principal. The " Maturity Date " shall be seven months from the date of each payment of Consideration, as may be extended at the option of the Holder in the event that, and for so long as, an Event of Default (as defined below) shall not have occurred and be continuing on the Maturity Date (as may be extended pursuant to this Section 1) or any event shall not have occurred and be continuing on the Maturity Date (as may be extended pursuant to this Section 1) that with the passage of time and the failure to cure would result in an Event of Default.
(b) Interest . A one-time interest charge of three percent (3%) (“ Interest Rate ”) shall be applied on the Issuance Date to the Original Principal Amount. Interest hereunder shall be paid on the Maturity Date (or sooner as provided herein) to the Holder or its assignee in whose name this Note is registered on the records of the Company regarding registration and transfers of Notes in cash or converted into Common Stock at the Conversion Price provided the Equity Conditions are satisfied.
1 |
|
(c) Security . This Note shall not be secured by any collateral or any assets pledged to the Holder
(2) EVENTS OF DEFAULT .
(a) An “ Event of Default ”, wherever used herein, means any one of the following events (whatever the reason and whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):
(i) The Company's failure to pay to the Holder any amount of Principal, Interest, or other amounts when and as due under this Note (including, without limitation, the Company's failure to pay any redemption payments or amounts hereunder);
(ii) A Conversion Failure as defined in section 3(b)(ii)
(iii) The Company or any subsidiary of the Company shall commence, or there shall be commenced against the Company or any subsidiary of the Company under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or the Company or any subsidiary of the Company commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Company or any subsidiary of the Company or there is commenced against the Company or any subsidiary of the Company any such bankruptcy, insolvency or other proceeding which remains undismissed for a period of 180 days; or the Company or any subsidiary of the Company is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Company or any subsidiary of the Company suffers any appointment of any custodian, private or court appointed receiver or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of sixty one (180) days; or the Company or any subsidiary of the Company makes a general assignment for the benefit of creditors; or the Company or any subsidiary of the Company shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or the Company or any subsidiary of the Company shall call a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or the Company or any subsidiary of the Company shall by any act or failure to act expressly indicate its consent to, approval of or acquiescence in any of the foregoing; or any corporate or other action is taken by the Company or any subsidiary of the Company for the purpose of effecting any of the foregoing;
(iv) The Company or any subsidiary of the Company shall default in any of its obligations under any other Note or any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement of the Company or any subsidiary of the Company in an amount exceeding $50,000, whether such indebtedness now exists or shall hereafter be created; and
(v) The Common Stock is suspended or delisted for trading on the Over the Counter OTCQB Venture Marketplace or OTCPink Open Marketplace (the “ Primary Market ”).
(vi) The Company loses its ability to deliver shares via “DWAC/FAST” electronic transfer.
(vii) The Company loses its status as “DTC Eligible.”
2 |
|
(viii) The Company shall become late or delinquent in its filing requirements as a fully-reporting issuer registered with the Securities & Exchange Commission.
(ix) The Company shall fail to reserve and keep available out of its authorized Common Stock a number of shares equal to at least 1 (one) times the full number of shares of Common Stock issuable upon conversion of all outstanding amounts under this Note.
(b) Upon the occurrence of any Event of Default that has not been cured within five calendar days, the Outstanding Balance shall immediately increase to 125% of the Outstanding Balance immediately prior to the occurrence of the Event of Default (the “Default Effect”) and a daily penalty of $100 (one hundred) will accrue until the default is remedied. The Default Effect shall automatically apply upon the occurrence of an Event of Default without the need for any party to give any notice or take any other action. In addition, all amounts due and payable under the Note shall, at the election of the holder, accelerate and become immediately due and payable upon notice from the Holder to the Company.
(3) CONVERSION OF NOTE . The Holder shall have the right, but not the obligation, to convert the Outstanding Balance into shares of the Company’s Common Stock, on the terms and conditions set forth in this Section 3.
(a) Conversion Right. Subject to the provisions of Section 3(c), at any time or times, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount (as defined below) into fully paid and nonassessable shares of Common Stock in accordance with Section 3(b), at the Conversion Price (as defined below). The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to this Section 3(a) shall be equal to the quotient of dividing the Conversion Amount by the Conversion Price. The Company shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share. The Company shall pay any and all transfer agent fees, legal fees, costs and any other fees or costs that may be incurred or charged in connection with the issuance of shares of the Company’s Common Stock to the Holder arising out of or relating to the conversion of this Note.
(i) " Conversion Amount " means the portion of the Original Principal Amount and Interest to be converted, plus any penalties, redeemed or otherwise with respect to which this determination is being made.
(ii) " Conversion Price " shall equal $0.05 (five cents).
|
(b) Mechanics of Conversion .
(i) Optional Conversion . To convert any Conversion Amount into shares of Common Stock on any date (a " Conversion Date "), the Holder shall (A) transmit by email, facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., New York, NY Time, on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit A (the " Conversion Notice ") to the Company. On or before the third Business Day following the date of receipt of a Conversion Notice (the " Share Delivery Date "), the Company shall (A) if legends are not required to be placed on certificates of Common Stock pursuant to the then existing provisions of Rule 144 of the Securities Act of 1933 (“Rule 144”) and provided that the Transfer Agent is participating in the Depository Trust Company's (" DTC ") Fast Automated Securities Transfer Program, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent Commission system or (B) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled which certificates shall not bear any restrictive legends unless required pursuant the Rule 144. If this Note is physically surrendered for conversion and the outstanding Principal of this Note is greater than the Principal portion of the Conversion Amount being converted, then the Company shall, upon request of the Holder, as soon as practicable and in no event later than three (3) Business Days after receipt of this Note and at its own expense, issue and deliver to the holder a new Note representing the outstanding Principal not converted. The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock upon the transmission of a Conversion Notice.
(ii) Company's Failure to Timely Convert . If within three (3) Trading Days after the Company's receipt of the facsimile or email copy of a Conversion Notice the Company shall fail to issue and deliver to Holder via “DWAC/FAST” electronic transfer the number of shares of Common Stock to which the Holder is entitled upon such holder's conversion of any Conversion Amount (a " Conversion Failure "), the Original Principal Amount of the Note shall increase by $1,000 per day until the Company issues and delivers a certificate to the Holder or credit the Holder's balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon such holder's conversion of any Conversion Amount (under Holder’s and Company’s expectation that any damages will tack back to the Issuance Date). Company will not be subject to any penalties once its transfer agent processes the shares to the DWAC system. If the Company fails to deliver shares in accordance with the timeframe stated in this Section, resulting in a Conversion Failure, the Holder, at any time prior to selling all of those shares, may rescind any portion, in whole or in part, of that particular conversion attributable to the unsold shares and have the rescinded conversion amount returned to the Outstanding Balance with the rescinded conversion shares returned to the Company (under Holder’s and Company’s expectations that any returned conversion amounts will tack back to the original date of the Note).
(iii) Terms of Future Financings . So long as this Note is outstanding, upon any issuance by the Company or any of its subsidiaries of any security with any term more favorable to the holder of such security or with a term in favor of the holder of such security that was not similarly provided to the Holder in this Note, then the Company shall notify the Holder of such additional or more favorable term and such term, at Holder’s option, shall become a part of the transaction documents with the Holder. The types of terms contained in another security that may be more favorable to the holder of such security include, but are not limited to, terms addressing conversion discounts, conversion lookback periods, interest rates, original issue discounts, stock sale price, private placement price per share, and warrant coverage. Financings in which the Company receives proceeds of one million dollars or greater or excluded from the Terms of Future Financings.
(iv) DTC Eligibility & Sub-Penny . If the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the effective Conversion Price as calculated in Section 3(a)(ii) is less than $0.01 at any time (regardless of whether or not a Conversion Notice has been submitted to the Company), the Principal Amount of the Note shall increase by ten thousand dollars ($10,000) (under Holder’s and Company’s expectation that any Principal Amount increase will tack back to the Issuance Date). In addition, the Conversion Price shall be permanently redefined to equal 40% of the lowest traded price occurring during the fifteen (15) consecutive Trading Days immediately preceding the applicable Conversion Date on which the Holder elects to convert all or part of this Note, subject to adjustment as provided in this Note.
3 |
|
(c) Limitations on Conversions or Trading .
(i) Beneficial Ownership . The Company shall not effect any conversions of this Note and the Holder shall not have the right to convert any portion of this Note or receive shares of Common Stock as payment of interest hereunder to the extent that after giving effect to such conversion or receipt of such interest payment, the Holder, together with any affiliate thereof, would beneficially own (as determined in accordance with Section 13(d) of the Exchange Act and the rules promulgated thereunder) in excess of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to such conversion or receipt of shares as payment of interest. Since the Holder will not be obligated to report to the Company the number of shares of Common Stock it may hold at the time of a conversion hereunder, unless the conversion at issue would result in the issuance of shares of Common Stock in excess of 4.99% of the then outstanding shares of Common Stock without regard to any other shares which may be beneficially owned by the Holder or an affiliate thereof, the Holder shall have the authority and obligation to determine whether the restriction contained in this Section will limit any particular conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section applies, the determination of which portion of the principal amount of this Note is convertible shall be the responsibility and obligation of the Holder. If the Holder has delivered a Conversion Notice for a principal amount of this Note that, without regard to any other shares that the Holder or its affiliates may beneficially own, would result in the issuance in excess of the permitted amount hereunder, the Company shall notify the Holder of this fact and shall honor the conversion for the maximum principal amount permitted to be converted on such Conversion Date in accordance with Section 3(a) and, any principal amount tendered for conversion in excess of the permitted amount hereunder shall remain outstanding under this Note. In the event that the Market Capitalization of the Company falls below $2,500,000, the term “4.99%” above shall be permanently replaced with “9.99%”. “Market Capitalization” shall be defined as the product of (a) the closing price of the Common Stock of the Common stock multiplied by (b) the number of shares of Common Stock outstanding as reported on the Company’s most recently filed Form 10-K or Form 10-Q. The provisions of this Section may be waived by Holder upon not less than 65 days prior written notification to the Company.
(ii) Capitalization . So long as this as this Note is outstanding, upon written request of the Holder, the Company shall furnish to the Holder the then-current number of common shares issued and outstanding, the then-current number of common shares authorized, and the then-current number of shares reserved for third parties.
(d) Other Provisions .
(i) Share Reservation . The Company shall at all times reserve and keep available out of its authorized Common Stock a number of shares equal to at least the full number of shares of Common Stock issuable upon conversion of all outstanding amounts under this Note; and within 3 (three) Business Days following the receipt by the Company of a Holder's notice that such minimum number of shares of Common Stock is not so reserved, the Company shall promptly reserve a sufficient number of shares of Common Stock to comply with such requirement. The Company will at all times reserve at least 7,000,000 shares of Common Stock for conversion.
(ii) Redemption . During the first seven months this Note is in effect, upon 10 business days’ notice to Holder (“Notice Period”), the Company may redeem this Note by paying to the Holder an amount as follows (“Redemption Amount”): (i) if the redemption is within the first seven months this Note is in effect, then for an amount equal to 100% of the Outstanding Balance of this Note along with any interest that has accrued during that period. The redemption must be closed and paid for within 3 business days following the Notice Period. The Holder may convert this Note pursuant to the terms hereof at all times, including during the Notice Period, until the Redemption Amount has been received in full.
(iii) All calculations under this Section 3 shall be rounded up to the nearest $0.00001 or whole share.
4 |
|
(iv) Nothing herein shall limit a Holder's right to pursue actual damages or declare an Event of Default pursuant to Section 2 herein for the Company's failure to deliver certificates representing shares of Common Stock upon conversion within the period specified herein and such Holder shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief, in each case without the need to post a bond or provide other security. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.
(4) PIGGYBACK REGISTRATION RIGHTS . The Company shall include on the current registration statement the Company has with SEC (or on the subsequent registration statement if such registration statement is withdrawn) all shares issuable upon conversion of this Note. Failure to do so will result in liquidated damages of 15% of the outstanding principal balance of this Note, but not less than $15,000, being immediately due and payable to the Holder at its election in the form of cash payment or addition to the balance of this Note.
(5) REISSUANCE OF THIS NOTE .
(a) Assignability . The Company may not assign this Note. This Note will be binding upon the Company and its successors and will inure to the benefit of the Holder and its successors and assigns and may be assigned by the Holder to anyone of its choosing without Company’s approval.
(b) Lost, Stolen or Mutilated Note . Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note representing the outstanding Principal.
(6) NOTICES . Any notices, consents, waivers or other communications required or permitted to be given under the terms hereof must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party) (iii) upon receipt, when sent by email; or (iv) one (1) Trading Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be those set forth in the communications and documents that each party has provided the other immediately preceding the issuance of this Note or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party three (3) Business Days prior to the effectiveness of such change. Written confirmation of receipt (i) given by the recipient of such notice, consent, waiver or other communication, (ii) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (iii) provided by a nationally recognized overnight delivery service, shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.
5 |
|
The addresses for such communications shall be:
If to the Company, to: | |||
|
|
|
|
|
Cool Technologies,Inc. |
|
|
|
|
|
|
|
8875Hidden River Parkway |
|
|
|
|
|
|
|
|
Suite 300 |
|
|
|
|
|
|
Tampa, FL 33637 |
|
|
|
|
|
|
If to the Holder: |
|
||
|
|
|
|
|
|
Lucas Hoppel Phone: 858-232-5110 Email: Luke@LukeHoppel.com |
|
(7) APPLICABLE LAW AND VENUE . This Note shall be governed by and construed in accordance with the laws of the State of Nevada, without giving effect to conflicts of laws thereof. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of California or in the federal courts located in the city of San Diego, in the State of California. Both parties and the individuals signing this Agreement agree to submit to the jurisdiction of such courts.
(8) WAIVER . Any waiver by the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note. The failure of the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note. Any waiver must be in writing.
(9) LIQUIDATED DAMAGES . Holder and Company agree that in the event Company fails to comply with any of the terms or provisions of this Note, Holder's damages would be uncertain and difficult (if not impossible) to accurately estimate because of the parties' inability to predict future interest rates, future share prices, future trading volumes and other relevant factors. Accordingly, Holder and Company agree that any fees, balance adjustments, default interest or other charges assessed under this Note are not penalties but instead are intended by the parties to be, and shall be deemed, liquidated damages (under Holder's and Company's expectations that any such liquidated damages will tack back to the Closing Date for purposes of determining the holding period under Rule 144).
[Signature Page Follows]
6 |
|
IN WITNESS WHEREOF , the Company has caused this Convertible Note to be duly executed by a duly authorized officer as of the date set forth above.
COMPANY: Cool Technologies, Inc. |
|||
By: | /s/ Tim Hassett | ||
|
|
|
|
|
Name: |
Tim Hassett |
|
|
|
|
|
Title: |
Chief Executive Officer |
||
|
HOLDER: |
|
|
|
|
|
|
|
Lucas Hoppel |
|
|
|
|
|
|
|
By: |
/s/ Lucas Hoppel |
|
[Signature Page to Convertible Note No. WARM-7]
7 |
|
EXHIBIT A
CONVERSION NOTICE
[Company Contact, Position]
[Company Name]
[Company Address]
[Contact Email Address}
The undersigned hereby elects to convert a portion of the $ Convertible Note issued to Lucas Hoppel on ____________ into Shares of Common Stock of ____________ according to the conditions set forth in such Note as of the date written below.
By accepting this notice of conversion, you are acknowledging that the number of shares to be delivered represents less than 10% (ten percent) of the common stock outstanding. If the number of shares to be delivered represents more than 9.99% of the common stock outstanding, this conversion notice shall immediately automatically extinguish and debenture Holder must be immediately notified.
Date of Conversion: ______________________ |
|
|
|
Conversion Amount: ______________________ |
|
|
|
Conversion Price: ______________________ |
|
|
|
Shares to be Delivered: ______________________ |
|
Shares delivered in name of:
Lucas Hoppel
Signature: ______________________
8 |
EXHIBIT 10.82
NEITHER THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE. THESE SECURITIES HAVE BEEN SOLD IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
COOL TECHNOLOGIES, INC.
P ROMISSORY N OTE
Issuance Date: February 19, 2018 |
|
Original Principal Amount: $385,000 |
Note No. WARM-8 |
|
Consideration Paid at Close: $350,000 |
FOR VALUE RECEIVED, Cool Technologies, Inc. , a Nevada corporation with a par value of $0.001 per common share (“Par Value”) (the “ Company ”), hereby promises to pay to the order of Lucas Hoppel or registered assigns (the “ Holder ”) the amount set out above as the Original Principal Amount (as reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise, the “ Principal ”) when due, whether upon the Maturity Date (as defined below), acceleration, redemption or otherwise (in each case in accordance with the terms hereof) and to pay interest (“ Interest ”) on any outstanding Principal at the applicable Interest Rate from the date set out above as the Issuance Date (the “ Issuance Date ”) until the same becomes due and payable, upon the Maturity Date or acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof).
The Original Principal Amount is $385,000 (three hundred eighty five thousand) plus accrued and unpaid interest and any other fees. The Consideration is $350,000 (three hundred fifty thousand) payable by wire transfer (there exists a $35,000 original issue discount (the “OID”)). The Holder shall pay $350,000 of Consideration upon closing of this Note.
(1) GENERAL TERMS
(a) Payment of Principal . The “ Maturity Date ” shall be seven months from the date of each payment of Consideration, as may be extended at the option of the Holder in the event that, and for so long as, an Event of Default (as defined below) shall not have occurred and be continuing on the Maturity Date (as may be extended pursuant to this Section 1) or any event shall not have occurred and be continuing on the Maturity Date (as may be extended pursuant to this Section 1) that with the passage of time and the failure to cure would result in an Event of Default.
(b) Interest . A one-time interest charge of three percent (3%) (“ Interest Rate ”) shall be applied on the Issuance Date to the Original Principal Amount. Interest hereunder shall be paid on the Maturity Date (or sooner as provided herein) to the Holder or its assignee in whose name this Note is registered on the records of the Company regarding registration and transfers of Notes in cash or converted into Common Stock at the Conversion Price provided the Equity Conditions are satisfied.
(c) Security . This Note shall not be secured by any collateral or any assets pledged to the Holder
1 |
|
(2) EVENTS OF DEFAULT .
(a) An “ Event of Default ”, wherever used herein, means any one of the following events (whatever the reason and whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):
(i) The Company’s failure to pay to the Holder any amount of Principal, Interest, or other amounts when and as due under this Note (including, without limitation, the Company’s failure to pay any redemption payments or amounts hereunder);
(ii) A Conversion Failure as defined in section 3(b)(ii)
(iii) The Company or any subsidiary of the Company shall commence, or there shall be commenced against the Company or any subsidiary of the Company under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or the Company or any subsidiary of the Company commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Company or any subsidiary of the Company or there is commenced against the Company or any subsidiary of the Company any such bankruptcy, insolvency or other proceeding which remains undismissed for a period of 180 days; or the Company or any subsidiary of the Company is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Company or any subsidiary of the Company suffers any appointment of any custodian, private or court appointed receiver or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of sixty one (180) days; or the Company or any subsidiary of the Company makes a general assignment for the benefit of creditors; or the Company or any subsidiary of the Company shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or the Company or any subsidiary of the Company shall call a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or the Company or any subsidiary of the Company shall by any act or failure to act expressly indicate its consent to, approval of or acquiescence in any of the foregoing; or any corporate or other action is taken by the Company or any subsidiary of the Company for the purpose of effecting any of the foregoing;
(iv) The Company or any subsidiary of the Company shall default in any of its obligations under any other Note or any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement of the Company or any subsidiary of the Company in an amount exceeding $50,000, whether such indebtedness now exists or shall hereafter be created; and
(v) The Common Stock is suspended or delisted for trading on the Over the Counter OTCQB Venture Marketplace or OTCPink Open Marketplace (the “ Primary Market ”).
(vi) The Company loses its ability to deliver shares via “DWAC/FAST” electronic transfer.
(vii) The Company loses its status as “DTC Eligible.”
2 |
|
(viii) The Company shall become late or delinquent in its filing requirements as a fully-reporting issuer registered with the Securities & Exchange Commission.
(ix) The Company shall fail to reserve and keep available out of its authorized Common Stock a number of shares equal to at least 2 (two) times the full number of shares of Common Stock issuable upon conversion of all outstanding amounts under this Note.
(b) Upon the occurrence of any Event of Default that has not been cured within five calendar days, the Outstanding Balance shall immediately increase to 125% of the Outstanding Balance immediately prior to the occurrence of the Event of Default (the “Default Effect”) and a daily penalty of $100 (one hundred) will accrue until the default is remedied. The Default Effect shall automatically apply upon the occurrence of an Event of Default without the need for any party to give any notice or take any other action. In addition, all amounts due and payable under the Note shall, at the election of the holder, accelerate and become immediately due and payable upon notice from the Holder to the Company.
(3) CONVERSION OF NOTE . The Holder shall have the right, but not the obligation, to convert the Outstanding Balance into shares of the Company’s Common Stock, on the terms and conditions set forth in this Section 3.
(a) Conversion Right . Subject to the provisions of Section 3(c), at any time or times, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount (as defined below) into fully paid and nonassessable shares of Common Stock in accordance with Section 3(b), at the Conversion Price (as defined below). The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to this Section 3(a) shall be equal to the quotient of dividing the Conversion Amount by the Conversion Price. The Company shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share. The Company shall pay any and all transfer agent fees, legal fees, costs and any other fees or costs that may be incurred or charged in connection with the issuance of shares of the Company’s Common Stock to the Holder arising out of or relating to the conversion of this Note.
(i) “ Conversion Amount ” means the portion of the Original Principal Amount and Interest to be converted, plus any penalties, redeemed or otherwise with respect to which this determination is being made.
(ii) “ Conversion Price ” shall equal $0.05 (five cents).
3 |
|
(b) Mechanics of Conversion .
(i) Optional Conversion . To convert any Conversion Amount into shares of Common Stock on any date (a “ Conversion Date ”), the Holder shall (A) transmit by email, facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., New York, NY Time, on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit A (the “ Conversion Noti ce”) to the Company. On or before the third Business Day following the date of receipt of a Conversion Notice (the “ Share Delivery Date ”), the Company shall (A) if legends are not required to be placed on certificates of Common Stock pursuant to the then existing provisions of Rule 144 of the Securities Act of 1933 (“Rule 144”) and provided that the Transfer Agent is participating in the Depository Trust Company’s (“ DTC ”) Fast Automated Securities Transfer Program, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder’s or its designee’s balance account with DTC through its Deposit Withdrawal Agent Commission system or (B) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled which certificates shall not bear any restrictive legends unless required pursuant the Rule 144. If this Note is physically surrendered for conversion and the outstanding Principal of this Note is greater than the Principal portion of the Conversion Amount being converted, then the Company shall, upon request of the Holder, as soon as practicable and in no event later than three (3) Business Days after receipt of this Note and at its own expense, issue and deliver to the holder a new Note representing the outstanding Principal not converted. The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock upon the transmission of a Conversion Notice.
(ii) Company’s Failure to Timely Convert . If within three (3) Trading Days after the Company’s receipt of the facsimile or email copy of a Conversion Notice the Company shall fail to issue and deliver to Holder via “DWAC/FAST” electronic transfer the number of shares of Common Stock to which the Holder is entitled upon such holder’s conversion of any Conversion Amount (a “ Conversion Failure ”), the Original Principal Amount of the Note shall increase by $1,000 per day until the Company issues and delivers a certificate to the Holder or credit the Holder’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon such holder’s conversion of any Conversion Amount (under Holder’s and Company’s expectation that any damages will tack back to the Issuance Date). Company will not be subject to any penalties once its transfer agent processes the shares to the DWAC system. If the Company fails to deliver shares in accordance with the timeframe stated in this Section, resulting in a Conversion Failure, the Holder, at any time prior to selling all of those shares, may rescind any portion, in whole or in part, of that particular conversion attributable to the unsold shares and have the rescinded conversion amount returned to the Outstanding Balance with the rescinded conversion shares returned to the Company (under Holder’s and Company’s expectations that any returned conversion amounts will tack back to the original date of the Note).
(iii) Terms of Future Financings . So long as this Note is outstanding, upon any issuance by the Company or any of its subsidiaries of any security with any term more favorable to the holder of such security or with a term in favor of the holder of such security that was not similarly provided to the Holder in this Note, then the Company shall notify the Holder of such additional or more favorable term and such term, at Holder’s option, shall become a part of the transaction documents with the Holder. The types of terms contained in another security that may be more favorable to the holder of such security include, but are not limited to, terms addressing conversion discounts, conversion lookback periods, interest rates, original issue discounts, stock sale price, private placement price per share, and warrant coverage. Financings in which the Company receives proceeds of one million dollars or greater or excluded from the Terms of Future Financings.
(iv) DTC Eligibility & Sub-Penny . If the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the effective Conversion Price as calculated in Section 3(a)(ii) is less than $0.01 at any time (regardless of whether or not a Conversion Notice has been submitted to the Company), the Principal Amount of the Note shall increase by ten thousand dollars ($10,000) (under Holder’s and Company’s expectation that any Principal Amount increase will tack back to the Issuance Date). In addition, the Conversion Price shall be permanently redefined to equal 40% of the lowest traded price occurring during the fifteen (15) consecutive Trading Days immediately preceding the applicable Conversion Date on which the Holder elects to convert all or part of this Note, subject to adjustment as provided in this Note.
4 |
|
(c) Limitations on Conversions or Trading .
(i) Beneficial Ownership . The Company shall not effect any conversions of this Note and the Holder shall not have the right to convert any portion of this Note or receive shares of Common Stock as payment of interest hereunder to the extent that after giving effect to such conversion or receipt of such interest payment, the Holder, together with any affiliate thereof, would beneficially own (as determined in accordance with Section 13(d) of the Exchange Act and the rules promulgated thereunder) in excess of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to such conversion or receipt of shares as payment of interest. Since the Holder will not be obligated to report to the Company the number of shares of Common Stock it may hold at the time of a conversion hereunder, unless the conversion at issue would result in the issuance of shares of Common Stock in excess of 4.99% of the then outstanding shares of Common Stock without regard to any other shares which may be beneficially owned by the Holder or an affiliate thereof, the Holder shall have the authority and obligation to determine whether the restriction contained in this Section will limit any particular conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section applies, the determination of which portion of the principal amount of this Note is convertible shall be the responsibility and obligation of the Holder. If the Holder has delivered a Conversion Notice for a principal amount of this Note that, without regard to any other shares that the Holder or its affiliates may beneficially own, would result in the issuance in excess of the permitted amount hereunder, the Company shall notify the Holder of this fact and shall honor the conversion for the maximum principal amount permitted to be converted on such Conversion Date in accordance with Section 3(a) and, any principal amount tendered for conversion in excess of the permitted amount hereunder shall remain outstanding under this Note. In the event that the Market Capitalization of the Company falls below $2,500,000, the term “4.99%” above shall be permanently replaced with “9.99%”. “Market Capitalization” shall be defined as the product of (a) the closing price of the Common Stock of the Common stock multiplied by (b) the number of shares of Common Stock outstanding as reported on the Company’s most recently filed Form 10-K or Form 10-Q. The provisions of this Section may be waived by Holder upon not less than 65 days prior written notification to the Company.
(ii) Capitalization . So long as this as this Note is outstanding, upon written request of the Holder, the Company shall furnish to the Holder the then-current number of common shares issued and outstanding, the then-current number of common shares authorized, and the then-current number of shares reserved for third parties.
(d) Other Provisions .
(i) Share Reservation . The Company shall at all times reserve and keep available out of its authorized Common Stock a number of shares equal to two times the number of shares of Common Stock issuable upon conversion of all outstanding amounts under this Note; and within 3 (three) Business Days following the receipt by the Company of a Holder’s notice that such minimum number of shares of Common Stock is not so reserved, the Company shall promptly reserve a sufficient number of shares of Common Stock to comply with such requirement. The Company will at all times reserve at least 2 times the number of shares of Common Stock necessary for full conversion.
(ii) Prepayment . This Note may not be prepaid without the written consent of the Holder.
(iii) All calculations under this Section 3 shall be rounded up to the nearest $0.00001 or whole share.
(iv) Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 2 herein for the Company’s failure to deliver certificates representing shares of Common Stock upon conversion within the period specified herein and such Holder shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief, in each case without the need to post a bond or provide other security. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.
5 |
|
(4) PIGGYBACK REGISTRATION RIGHTS . The Company shall include on the current registration statement the Company has with SEC (or on the subsequent registration statement if such registration statement is withdrawn) all shares issuable upon conversion of this Note. Failure to do so will result in liquidated damages of 15% of the outstanding principal balance of this Note, but not less than $15,000, being immediately due and payable to the Holder at its election in the form of cash payment or addition to the balance of this Note.
(5) REISSUANCE OF THIS NOTE .
(a) Assignability . The Company may not assign this Note. This Note will be binding upon the Company and its successors and will inure to the benefit of the Holder and its successors and assigns and may be assigned by the Holder to anyone of its choosing without Company’s approval.
(b) Lost, Stolen or Mutilated Note . Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note representing the outstanding Principal.
(6) NOTICES . Any notices, consents, waivers or other communications required or permitted to be given under the terms hereof must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party) (iii) upon receipt, when sent by email; or (iv) one (1) Trading Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be those set forth in the communications and documents that each party has provided the other immediately preceding the issuance of this Note or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party three (3) Business Days prior to the effectiveness of such change. Written confirmation of receipt (i) given by the recipient of such notice, consent, waiver or other communication, (ii) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (iii) provided by a nationally recognized overnight delivery service, shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.
The addresses for such communications shall be:
If to the Company, to:
Cool Technologies, Inc
8875 Hidden River Parkway, Suite 300
Tampa, FL 33637
6 |
|
If to the Holder:
Lucas Hoppel
Phone: 858-232-5110
Email: Luke@LukeHoppel.com
(7) APPLICABLE LAW AND VENUE . This Note shall be governed by and construed in accordance with the laws of the State of Nevada, without giving effect to conflicts of laws thereof. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of California or in the federal courts located in the city of San Diego, in the State of California. Both parties and the individuals signing this Agreement agree to submit to the jurisdiction of such courts.
(8) WAIVER . Any waiver by the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note. The failure of the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note. Any waiver must be in writing.
(9) LIQUIDATED DAMAGES . Holder and Company agree that in the event Company fails to comply with any of the terms or provisions of this Note, Holder’s damages would be uncertain and difficult (if not impossible) to accurately estimate because of the parties’ inability to predict future interest rates, future share prices, future trading volumes and other relevant factors. Accordingly, Holder and Company agree that any fees, balance adjustments, default interest or other charges assessed under this Note are not penalties but instead are intended by the parties to be, and shall be deemed, liquidated damages (under Holder’s and Company’s expectations that any such liquidated damages will tack back to the Closing Date for purposes of determining the holding period under Rule 144).
[Signature Page Follows]
7 |
|
IN WITNESS WHEREOF , the Company has caused this Convertible Note to be duly executed by a duly authorized officer as of the date set forth above.
|
COMPANY: |
|
|
|
|
|
|
Cool Technologies, Inc. |
|||
By: | /s/ Tim Hassett | ||
|
Name: |
Tim Hassett | |
Title: | Chief Executive Officer | ||
|
HOLDER: |
|
|
|
|
|
|
|
Lucas Hoppel |
|
|
|
|
|
|
|
By: |
/s/ Lucas Hoppel |
|
[Signature Page to Convertible Note No. WARM-8]
8 |
|
EXHIBIT A
CONVERSION NOTICE
[Company Contact, Position]
[Company Name]
[Company Address]
[Contact Email Address}
The undersigned hereby elects to convert a portion of the $_____________ Convertible Note ___________ issued to Lucas Hoppel on ___________ into Shares of Common Stock of ___________ according to the conditions set forth in such Note as of the date written below.
By accepting this notice of conversion, you are acknowledging that the number of shares to be delivered represents less than 10% (ten percent) of the common stock outstanding. If the number of shares to be delivered represents more than 9.99% of the common stock outstanding, this conversion notice shall immediately automatically extinguish and debenture Holder must be immediately notified.
Date of Conversion: |
|
|
|
|
|
Conversion Amount: |
|
|
|
|
|
Conversion Price: |
|
|
|
|
|
Shares to be Delivered: |
|
|
Shares delivered in name of:
Lucas Hoppel
Signature: |
|
|
|
|
|
|
|
9 |
EXHIBIT 10.83
AMENDMENT
TO THE $180,000 PROMISORRY NOTE DATED SEPTEMBER 30, 2017
This Amendment (this “ Agreement ” ) is entered into as of February 19, 2018 (the “ Effective Date ”), by and between Cool Technologies, Inc., a Nevada corporation (the “ Company ”) and Lucas Hoppel (the “ Holder ”) collectively, the Company and Holder shall be referred to as the “ Parties ” and each a “ Party.”
RECITALS:
WHEREAS , on September 30, 2017 (the “ Issuance Date ”), the Company and the Gemini Master Fund, Ltd. entered into a Promissory Note (the “ Note ”) pursuant to which the Company promised to pay $180,000 (the “ Original Principal Amount ”).
WHEREAS , Lucas Hoppel purchased the Note from Gemini Master Fund, Ltd. on November 13, 2017
WHEREAS , The Note has a current outstanding balance of $78,825,
WHEREAS , the parties hereto desire to enter into this Amendment to the Note.
NOW, THEREFORE , for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the Parties hereby agree as follows:
|
1) | The Maturity Date of the Note is hereby extended to March 31, 2018 (“Extended Maturity Date”). |
|
|
|
|
2) | This Note balance is hereby convertible at any time into shares of the Company’s Common Stock at $0.025 per share according to the terms and conditions attached hereto as Exhibit A . |
ALL OTHER TERMS AND CONDITIONS OF THE $180,000 NOTE REMAIN IN FULL FORCE AND EFFECT.
[Signature Page to Follow]
1 |
|
Please indicate acceptance and approval of this amendment dated February 19 th , 2018 by signing below:
/s/ Timothy Hassett | /s/ Lucas Hoppel | ||
Timothy Hassett | Lucas Hoppel | ||
Cool Technologies, Inc. | |||
Chief Executive Officer |
|
|
|
2 |
|
EXHIBIT A
(1) CONVERSION OF NOTE . This Note shall be convertible into shares of the Company’s Common Stock, on the terms and conditions set forth in this Section 1.
(a) Conversion Right . Subject to the provisions of Section 1(c), at any time or times on or after the Issuance Date, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount (as defined below) into fully paid and nonassessable shares of Common Stock in accordance with Section 1(b), at the Conversion Price (as defined below). The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to this Section 1(a) shall be equal to the quotient of dividing the Conversion Amount by the Conversion Price. The Company shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share. The Company shall pay any and all transfer agent fees, legal fees, costs and any other fees or costs that may be incurred or charged in connection with the issuance of shares of the Company’s Common Stock to the Holder arising out of or relating to the conversion of this Note.
(i) “ Conversion Amount ” means the portion of the Original Principal Amount and Interest to be converted, plus any penalties, redeemed or otherwise with respect to which this determination is being made.
(ii) “ Conversion Price ” shall equal $0.05.
(b) Mechanics of Conversion .
(i) Optional Conversion . To convert any Conversion Amount into shares of Common Stock on any date (a “ Conversion Date ”), the Holder shall (A) transmit by email, facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., New York, NY Time, on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit A (the “ Conversion Notice ”) to the Company. On or before the third Business Day following the date of receipt of a Conversion Notice (the “ Share Delivery Date ”), the Company shall (A) if legends are not required to be placed on certificates of Common Stock pursuant to the then existing provisions of Rule 144 of the Securities Act of 1933 (“Rule 144”) and provided that the Transfer Agent is participating in the Depository Trust Company’s (“ DTC ”) Fast Automated Securities Transfer Program, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder’s or its designee’s balance account with DTC through its Deposit Withdrawal Agent Commission system or (B) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled which certificates shall not bear any restrictive legends unless required pursuant the Rule 144. If this Note is physically surrendered for conversion and the outstanding Principal of this Note is greater than the Principal portion of the Conversion Amount being converted, then the Company shall, upon request of the Holder, as soon as practicable and in no event later than three (3) Business Days after receipt of this Note and at its own expense, issue and deliver to the holder a new Note representing the outstanding Principal not converted. The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock upon the transmission of a Conversion Notice.
3 |
|
(ii) Company’s Failure to Timely Convert . If within two (2) Trading Days after the Company’s receipt of the facsimile or email copy of a Conversion Notice the Company shall fail to issue and deliver to Holder via “DWAC/FAST” electronic transfer the number of shares of Common Stock to which the Holder is entitled upon such holder’s conversion of any Conversion Amount (a “ Conversion Failure ”), the Original Principal Amount of the Note shall increase by $2,000 per day until the Company issues and delivers a certificate to the Holder or credit the Holder’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon such holder’s conversion of any Conversion Amount (under Holder’s and Company’s expectation that any damages will tack back to the Issuance Date). Company will not be subject to any penalties once its transfer agent processes the shares to the DWAC system. If the Company fails to deliver shares in accordance with the timeframe stated in this Section, resulting in a Conversion Failure, the Holder, at any time prior to selling all of those shares, may rescind any portion, in whole or in part, of that particular conversion attributable to the unsold shares and have the rescinded conversion amount returned to the Outstanding Balance with the rescinded conversion shares returned to the Company (under Holder’s and Company’s expectations that any returned conversion amounts will tack back to the original date of the Note).
(iii) DWAC/FAST Eligibility . If the Company fails for any reason to deliver to the Holder the Shares by DWAC/FAST electronic transfer (such as by delivering a physical stock certificate), or if there is a Conversion Failure as defined in Section 1(b)(ii), and if the Holder incurs a Market Price Loss, then at any time subsequent to incurring the loss the Holder may provide the Company written notice indicating the amounts payable to the Holder in respect of the Market Price Loss and the Company must make the Holder whole by either of the following options at Holder’s election:
Market Price Loss = [(High trade price for the period between the day of conversion and the day the shares clear in the Holder’s brokerage account) x (Number of shares receivable from the conversion)] – [(Net Sales price realized by Holder) x (Number of shares receivable from the conversion)].
Option A – Pay Market Price Loss in Cash. The Company must pay the Market Price Loss by cash payment, and any such cash payment must be made by the third business day from the time of the Holder’s written notice to the Company.
Option B – Add Market Price Loss to Outstanding Balance. The Company must pay the Market Price Loss by adding the Market Price Loss to the Outstanding Balance (under Holder’s and the Company’s expectation that any Market Price Loss amounts will tack back to the Issuance Date).
In the case that conversion shares are not deliverable by DWAC/FAST electronic transfer an additional 10% discount to the Conversion Price will apply.
(iv) [BLANK]
(v) [BLANK]
(vi) Book-Entry . Notwithstanding anything to the contrary set forth herein, upon conversion of any portion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Company unless (A) the full Conversion Amount represented by this Note is being converted or (B) the Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting reissuance of this Note upon physical surrender of this Note. The Holder and the Company shall maintain records showing the Principal and Interest converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Note upon conversion.
4 |
|
(c) Limitations on Conversions or Trading .
(i) Beneficial Ownership . The Company shall not effect any conversions of this Note and the Holder shall not have the right to convert any portion of this Note or receive shares of Common Stock as payment of interest hereunder to the extent that after giving effect to such conversion or receipt of such interest payment, the Holder, together with any affiliate thereof, would beneficially own (as determined in accordance with Section 1(d) of the Exchange Act and the rules promulgated thereunder) in excess of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to such conversion or receipt of shares as payment of interest. Since the Holder will not be obligated to report to the Company the number of shares of Common Stock it may hold at the time of a conversion hereunder, unless the conversion at issue would result in the issuance of shares of Common Stock in excess of 4.99% of the then outstanding shares of Common Stock without regard to any other shares which may be beneficially owned by the Holder or an affiliate thereof, the Holder shall have the authority and obligation to determine whether the restriction contained in this Section will limit any particular conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section applies, the determination of which portion of the principal amount of this Note is convertible shall be the responsibility and obligation of the Holder. If the Holder has delivered a Conversion Notice for a principal amount of this Note that, without regard to any other shares that the Holder or its affiliates may beneficially own, would result in the issuance in excess of the permitted amount hereunder, the Company shall notify the Holder of this fact and shall honor the conversion for the maximum principal amount permitted to be converted on such Conversion Date in accordance with Section 1(a) and, any principal amount tendered for conversion in excess of the permitted amount hereunder shall remain outstanding under this Note. In the event that the Market Capitalization of the Company falls below $2,500,000, the term “4.99%” above shall be permanently replaced with “9.99%”. “Market Capitalization” shall be defined as the product of (a) the closing price of the Common Stock of the Common stock multiplied by (b) the number of shares of Common Stock outstanding as reported on the Company’s most recently filed Form 10-K or Form 10-Q. The provisions of this Section may be waived by Holder upon not less than 65 days prior written notification to the Company.
(ii) Capitalization . So long as this as this Note is outstanding, upon written request of the Holder, the Company shall furnish to the Holder the then-current number of common shares issued and outstanding, the then-current number of common shares authorized, and the then-current number of shares reserved for third parties.
(d) Other Provisions .
(i) Share Reservation . The Company shall at all times reserve and keep available out of its authorized Common Stock a number of shares equal to the full number of shares of Common Stock issuable upon conversion of all outstanding amounts under this Note. The Company will at all times reserve at least 4,500,000 shares of Common Stock for conversion.
5 |
EXHIBIT 10.84
AMENDMENT
TO THE $165,000 PROMISSORY NOTE DATED August 24, 2018
The parties agree that $165,000 Promissory Note by and between Cool Technologies, Inc. (“Company”) and Lucas Hoppel (“Holder”) is hereby amended as follows:
Maturity Date: The Maturity Date shall be extended to April 30 th , 2018.
Conversion Price: The Conversion Price in section 3(a)(ii) shall permanently be changed to equal $0.025 cents.
ALL OTHER TERMS AND CONDITIONS OF THE $165,000 PROMISSORY NOTE REMAIN IN FULL FORCE AND EFFECT.
Please indicate acceptance and approval of this amendment dated February 19 th , 2018 by signing below:
/s/ Tim Hassett | /s/ Lucas Hoppel | ||
Tim Hassett | Lucas Hoppel | ||
Cool Technologies, Inc. Chief Executive Officer |
EXHIBIT 10.85
Dated as of March 7, 2018
Judson Bibb
Dear Mr. Bibb:
This is to confirm that on February 12, 2018, in payment of $50,000 of the accrued salary owed to Judson Bibb (“Employee”) by the Company, the Company issued Employee 1,000,000 shares (“Shares”) of the Company’s common stock and a warrant (the “Warrant”) to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $.0714 per share (the “Shares and Warrants are collectively referred to herein as “Securities”). A copy of the Warrant is attached to this letter agreement as exhibit A.
Employee acknowledges that the acquisition of the Securities involves a high degree of risk and an investment in the Securities is highly speculative.
Employee represents that the Securities are being acquired for investment, and not with a view to the resale or distribution of any part thereof, and that the Employee has no present intention of selling, granting any participation in, or otherwise distributing the same. Employee further represents that the Employee does not presently have any contract, undertaking, agreement or arrangement with any person to sell or transfer to such person or to any third person, with respect to any of the Securities.
Employee acknowledges that the Securities have not been, and will not when issued be, registered under the Securities Act of 1933, as amended. The Employee acknowledges that the Securities will be when issued “restricted securities” under applicable U.S. federal and state securities laws and that, pursuant to these laws, the Employee must hold the Securities indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities or an exemption from such registration and qualification requirements is available. Employee acknowledges that the certificates representing the Securities will bear a standard restrictive legend reflecting that they are “restricted securities”.
Please indicate your agreement with the foregoing by signing and returning a copy of this letter to us.
|
Very truly yours, |
|
|
|
|
|
|
Cool Technologies, Inc. |
|||
By: | /s/ Timothy Hassett | ||
|
Name: |
Timothy Hassett | |
Title: | Chairman and CEO |
Agreed and Accepted: |
|
|
|
/s/ Judson Bibb |
|
Judson Bibb |
|
|
Exhibit A
Warrant Agreement
|
EXHIBIT 10.86
March 3, 2014
Mr. Timothy J. Hassett
5712 Marsh Hawk Drive
Santa Rosa, CA 95409
|
Re: |
Employment Agreement |
Dear Mr. Hassett:
The Board of Directors of HPEV, Inc., a Nevada corporation (the “ Company ”) desires to memorialize the terms of your employment as its Chairman and Chief Executive Officer. In this position you will be expected to devote your full business time, attention and energies to the performance of your duties with the Company.
You will receive an annual salary of $210,000, to be paid monthly on the last business day in each month ($17,500 per month). If the Company is cash flow positive for three consecutive months, the monthly compensation will increase to $25,000 per month. If the Company maintains profitability for four (4) consecutive quarters, the monthly compensation will increase to $30,000 per month.
The Company will withhold from any compensation and benefits payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or governmental regulation or ruling.
As a Company employee, you will be eligible for paid vacation totaling 15 work days per year, sick leave and holiday time off. Currently there are no employee benefit plans in place, but you will be entitled to any employee benefits which will be implemented promptly. As an officer of the Company, you will have the opportunity to participate in the planning and timing for these additional benefits. In addition, the Company will reimburse you for your monthly healthcare costs until we adopt a health care plan, which we hope to have done by April 2014. You will also be able to participate in the Company’s ESOP, which is projected to be in place no later than April 2014.
The Company will also reimburse you for all reasonable, ordinary and necessary out- of-pocket business expenses incurred by you in conjunction with your services to the Company consistent with the Company’s standard reimbursement policies, including for phone, computer and basic travel expense related to Company business. All reimbursement will be made against original receipts and otherwise in accordance with the Company’s general expense reimbursement policies and procedures. The Company will reimburse you for your reasonable attorneys’ fees and costs incurred by you in connection with the negotiation, execution and delivery of this Agreement.
Page 1 of 3 |
|
Confidential
You should be aware that your employment with the Company constitutes “at-will” employment. This means that your employment relationship with the Company may be terminated at any time, with or without cause. However, upon a separation from service by termination without cause, the Company will pay to you, in addition to all other amounts to which you are otherwise entitled, a severance benefit equal to two (2) year’s salary in effect at the time of termination. This payment shall be paid at the Company’s discretion in one payment or in four (4) equal payments at the end of each calendar quarter following your termination, provided, however , that upon the consummation of any event whereby (i) the shareholders of the Company transfer in excess of 50% or more of their voting securities in the Company, (ii) the Company issues additional securities representing 50% or more of such interests which are outstanding on the date hereof (excluding issuances pursuant to a stock option plan), or (iii) the Company transfers or otherwise disposes of in excess of 50% of its assets, then two (2) year’s salary in effect at such time shall be due and payable in full to you in one payment. While it is not expected that payments made to you will be treated as payments subject to any excise tax under Internal Revenue Code Section 4999, to the extent they are, the Company shall pay you an amount which, net of any applicable taxes thereon, will provide you with sufficient cash to pay any excise tax payable by you by reason of all payments.
You agree that, during the term of your employment with the Company, you will not directly or indirectly engage in any other employment, occupation, consulting or other business activity directly related to the business in which the Company is now involved or becomes involved during the term of your employment, nor will you engage in any other activities that conflict with your obligations to the Company.
As a Company employee, you will be expected to abide by all federal or state laws and in accordance of normal industry practices. You also agree to maintain the confidentiality of all confidential and proprietary information of the Company and agree, as a condition of your employment, to enter into a standard non-disclosure, non-compete, and non-solicit provisions and be incorporated herein by reference, and the performance of which will be a condition to your employment.
You agree that any dispute or claim relating to or arising out of our employment relationship shall be fully and finally resolved by binding arbitration conducted by the American Arbitration Association in Pasco County, Florida. Disputes that you agree to arbitrate, and thereby agree to waive any right to a trial by jury, include contract claims, tort claims, claims relating to compensation and stock options, as well as any statutory claims under local, state or federal law, including, but not limited to claims under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act, the Sarbanes-Oxley Act, the Family and Medical Leave Act, claims of harassment, discrimination, and wrongful termination, and any statutory or common law claims. You understand that this agreement to arbitrate applies to any disputes that the Company may have with you. However, claims for unemployment benefits, worker’s compensation claims, and claims under the National Labor Relations Act shall not be subject to arbitration. Either the Company or you may bring an action in court to compel arbitration under this Agreement and to enforce an arbitration award. However, we agree that this arbitration provision shall not apply to disputes or claims relating to or arising out of the misuse or misappropriation of the Company’s trade secrets or proprietary information.
This letter and the documents incorporated herein by reference represent the entire agreement and understanding between you and the Company concerning your employment relationship with the Company and supersede in their entirety any and all prior agreements and understandings concerning your employment relationship with the Company, whether written or oral.
Page 2 of 3 |
|
Confidential
In accepting this offer, you represent and warrant to us that (a) you are not a party to any employment agreement or other contract or arrangement which prohibits your full-time employment with the Company, (b) you do not know of any conflict which would restrict your employment with the Company, and (c) you do not have and will not bring with you to your employment with the Company any document, record or other confidential information belonging to a former employer. Each of these representations and warranties is a material inducement to the making of this offer and a condition to your continued employment, and you agree that a termination of your employment by the Company in the event of a breach of any of them would be with cause and not subject to an opportunity to cure.
The terms of this letter may only be amended, canceled or discharged in writing signed by you and an authorized director or officer of the Company and with Board of Directors’ approval. As this letter relates to employment to be performed for a company with headquarters in the State of Florida, this letter shall be governed by the internal substantive laws, but not the choice of law rules, of the State of Florida. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable, or void, this letter shall continue in full force and effect without such provision.
To indicate your acceptance of the Company’s offer, please sign and date this letter in the space provided below and return it to me. A duplicate original is enclosed for your records. This letter will expire if not accepted and returned by you on or before March 10, 2014.
|
Sincerely, |
|
|
|
|
|
|
HPEV, Inc. |
|||
By: | /s/ Ted Banzhaf | ||
|
Ted Banzhaf, President |
ACCEPTED and AGREED TO this 5th day of March__, 2014
/s/ Timothy J. Hassett
Timothy J. Hassett
Page 3 of 3 |
EXHIBIT 10.87
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
THE ISSUE PRICE OF THIS NOTE IS $140,800.00
THE ORIGINAL ISSUE DISCOUNT IS $12,800.00
Principal Amount: $140,800.00 |
|
Issue Date: April 25, 2018 |
Purchase Price: $128,000.00 |
|
|
CONVERTIBLE PROMISSORY NOTE
FOR VALUE RECEIVED , COOL TECHNOLOGIES, INC. , a Nevada corporation (hereinafter called the “Borrower”), hereby promises to pay to the order of POWER UP LENDING GROUP LTD. , a Virginia corporation, or registered assigns (the “Holder”) the sum of $140,800.00 together with any interest as set forth herein, on July 25, 2019 (the “Maturity Date”), and to pay interest on the unpaid principal balance hereof at the rate of eight percent (8%) (the “Interest Rate”) per annum from the date hereof (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid (“Default Interest”). Interest shall be computed on the basis of a 365 day year and the actual number of days elapsed. Interest shall commence accruing on the Issue Date but shall not be payable until the Note becomes payable (whether at Maturity Date or upon acceleration or by prepayment). All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement dated the date hereof, pursuant to which this Note was originally issued (the “Purchase Agreement”).
This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof.
The following terms shall apply to this Note:
1 |
|
ARTICLE I. CONVERSION RIGHTS
1.1 Conversion Right . The Holder shall have the right from time to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following the date of this Note and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in Article III), each in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the “Conversion Price”) determined as provided herein (a “Conversion”); provided , however , that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso. The beneficial ownership limitations on conversion as set forth in the section may NOT be waived by the Holder . The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the “Conversion Date”); however, if the Notice of Conversion is sent after 6:00pm, New York, New York time the Conversion Date shall be the next business day. The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus (2) at the Holder’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, plus (3) at the Holder’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.4 hereof.
1.2 Conversion Price . The conversion price (the “Conversion Price”) shall equal the Variable Conversion Price (as defined herein) (subject to equitable adjustments by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The “Variable Conversion Price” shall mean 71% multiplied by the Market Price (as defined herein) (representing a discount rate of 29%). “Market Price” means the average of the lowest three (3) VWAP’s (as defined below) for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “VWAP” shall mean the daily dollar volume-weighted average sale price for the Common Stock on the Principal Market on any particular Trading Day during the period beginning at 9:30 a.m., New York City Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00 p.m., New York City Time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg through its “Volume at Price” functions or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30 a.m., New York City Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00 p.m., New York City Time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the OTCBB or the “pink sheets” by the National Quotation Bureau, Inc. If the VWAP cannot be calculated for such security on such date on any of the foregoing bases, the VWAP of such security on such date shall be the fair market value as mutually determined by the Company and the holder of the Note. All such determinations of VWAP shall to be appropriately and equitably adjusted in accordance with the provisions set forth herein for any stock dividend, stock split, stock combination or other similar transaction occurring during any period used to determine the Market Price (or other period utilizing VWAPs). “Trading Day” shall mean a day on which there is trading on the Principal Market. “Principal Market” shall mean the OTCBB or such other principal market, exchange or electronic quotation system on which the Common Stock is then listed for trading.
2 |
|
1.3 Authorized Shares . The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note issued pursuant to the Purchase Agreement. The Borrower is required at all times to have authorized and reserved five times the number of shares that is actually issuable upon full conversion of the Note (based on the Conversion Price of the Note in effect from time to time initially 13,771,518)(the “Reserved Amount”). The Reserved Amount shall be increased (or decreased) from time to time in accordance with the Borrower’s obligations hereunder. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Note. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.
If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.
1.4 Method of Conversion .
(a) Mechanics of Conversion . As set forth in Section 1.1 hereof, from time to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following the date of this Note and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the Default Amount, this Note may be converted by the Holder in whole or in part at any time from time to time after the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower (upon payment in full of any amounts owed hereunder).
3 |
|
(b) Surrender of Note Upon Conversion . Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion.
(c) Delivery of Common Stock Upon Conversion . Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof and the Purchase Agreement. Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations hereunder, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion.
(d) Delivery of Common Stock by Electronic Transfer . In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Borrower is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of the Holder and its compliance with the provisions set forth herein, the Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit and Withdrawal at Custodian (“DWAC”) system.
(e) Failure to Deliver Common Stock Prior to Deadline . Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline due to action and/or inaction of the Borrower, the Borrower shall pay to the Holder $2,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock (the “Fail to Deliver Fee”); provided; however that the Fail to Deliver Fee shall not be due if the failure is a result of a third party (i.e., transfer agent; and not the result of any failure to pay such transfer agent) despite the best efforts of the Borrower to effect delivery of such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossible to qualify. Accordingly, the parties acknowledge that the liquidated damages provision contained in this Section 1.4(e) are justified.
4 |
|
1.5 Concerning the Shares . The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless: (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration (such as Rule 144 or a successor rule) (“Rule 144”); or (iii) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement).
Any restrictive legend on certificates representing shares of Common Stock issuable upon conversion of this Note shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if the Borrower or its transfer agent shall have received an opinion of counsel from Holder’s counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that (i) a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Company so that the sale or transfer is effected; or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act; or otherwise may be sold pursuant to an exemption from registration. In the event that the Company does not reasonably accept the opinion of counsel provided by the Holder with respect to the transfer of Securities pursuant to an exemption from registration (such as Rule 144), at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.
1.6 Effect of Certain Events .
(a) Effect of Merger, Consolidation, Etc . At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Borrower, the effectuation by the Borrower of a transaction or series of related transactions in which more than 50% of the voting power of the Borrower is disposed of, or the consolidation, merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall be deemed to be an Event of Default (as defined in Article III) pursuant to which the Borrower shall be required to pay to the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in Article III). “Person” shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.
5 |
|
(b) Adjustment Due to Merger, Consolidation, Etc . If, at any time when this Note is issued and outstanding and prior to conversion of all of the Note, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. The Borrower shall not affect any transaction described in this Section 1.6(b) unless (a) it first gives, to the extent practicable, ten (10) days prior written notice (but in any event at least five (5) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations of this Note. The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.
(c) Adjustment Due to Distribution . If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.
1.7 Prepayment . Notwithstanding anything to the contrary contained in this Note, at any time during the periods set forth on the table immediately following this paragraph (the “Prepayment Periods”), the Borrower shall have the right, exercisable on not more than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.7. Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the date fixed for prepayment (the “Optional Prepayment Date”), the Borrower shall make payment of the Optional Prepayment Amount (as defined below) to Holder, or upon the direction of the Holder as specified by the Holder in a writing to the Borrower (which shall direction to be sent to Borrower by the Holder at least one (1) business day prior to the Optional Prepayment Date). If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash equal to the percentage (“Prepayment Percentage”) as set forth in the table immediately following this paragraph opposite the applicable Prepayment Period, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Section 1.4 hereof (the “Optional Prepayment Amount”). If the Borrower delivers an Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional
6 |
|
Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.7.
Prepayment Period |
Prepayment Percentage |
1. The period beginning on the Issue Date and ending on the date which is thirty (30) days following the Issue Date. |
105% |
2. The period beginning on the date which is thirty-one (31) days following the Issue Date and ending on the date which is sixty (60) days following the Issue Date. |
110% |
3. The period beginning on the date which is sixty-one (61) days following the Issue Date and ending on the date which is ninety (90) days following the Issue Date. |
115% |
4. The period beginning on the date that is ninety-one (91) day from the Issue Date and ending one hundred twenty (120) days following the Issue Date. |
120% |
5. The period beginning on the date that is one hundred twenty-one (121) day from the Issue Date and ending one hundred fifty (150) days following the Issue Date. |
125% |
6. The period beginning on the date that is one hundred fifty-one (151) day from the Issue Date and ending one hundred eighty (180) days following the Issue Date. |
130% |
After the expiration of one hundred eighty (180) days following the Issue Date, the Borrower shall have no right of prepayment.
ARTICLE II. CERTAIN COVENANTS
2.1 Sale of Assets . So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business. Any consent to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition.
ARTICLE III. EVENTS OF DEFAULT
If any of the following events of default (each, an “Event of Default”) shall occur:
3.1 Failure to Pay Principal and Interest . The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity or upon acceleration and such breach continues for a period of five (5) days after written notice from the Holder.
7 |
|
3.2 Conversion and the Shares . The Borrower fails to issue shares of Common Stock to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for three (3) business days after the Holder shall have delivered a Notice of Conversion. It is an obligation of the Borrower to remain current in its obligations to its transfer agent. It shall be an event of default of this Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer agent. If at the option of the Holder, the Holder advances any funds to the Borrower’s transfer agent in order to process a conversion, such advanced funds shall be paid by the Borrower to the Holder within forty-eight (48) hours of a demand from the Holder.
3.3 Breach of Covenants . The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents including but not limited to the Purchase Agreement and such breach continues for a period of twenty (20) days after written notice thereof to the Borrower from the Holder.
3.4 Breach of Representations and Warranties . Any representation or warranty of the Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith (including, without limitation, the Purchase Agreement), shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.
3.5 Receiver or Trustee . The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.
3.6 Bankruptcy . Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.
3.7 Delisting of Common Stock . The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTC (which specifically includes the quotation platforms maintained by the OTC Markets Group) or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock Exchange.
3.8 Failure to Comply with the Exchange Act . The Borrower shall fail to comply with the reporting requirements of the Exchange Act; and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act.
3.9 Liquidation . Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.
8 |
|
3.10 Cessation of Operations . Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due.
3.11 Financial Statement Restatement . The restatement of any financial statements filed by the Borrower with the SEC at any time after 180 days after the Issuance Date for any date or period until this Note is no longer outstanding, if the result of such restatement would, by comparison to the un-restated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.
3.12 Replacement of Transfer Agent . In the event that the Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the Purchase Agreement (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower.
3.13 Cross-Default . Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained in any of the Other Agreements, after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note and the Other Agreements, in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under said Other Agreement or hereunder. “Other Agreements” means, collectively, all agreements and instruments between, among or by: (1) the Borrower, and, or for the benefit of, (2) the Holder and any affiliate of the Holder, including, without limitation, promissory notes; provided, however, the term “Other Agreements” shall not include the related or companion documents to this Note. Each of the loan transactions will be cross-defaulted with each other loan transaction and with all other existing and future debt of Borrower to the Holder.
Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Amount (as defined herein). UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULT AMOUNT (AS DEFINED HEREIN); MULTIPLIED BY (Z) TWO (2). Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due on this Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon acceleration), 3.3, 3.4, 3.7, 3.8, 3.10, 3.11, 3.12, 3.13, and/or 3.14 exercisable through the delivery of written notice to the Borrower by such Holders (the “Default Notice”), and upon the occurrence of an Event of Default specified the remaining sections of Articles III (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.
9 |
|
If the Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Holder shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficient authorized shares), to require the Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect.
ARTICLE IV. MISCELLANEOUS
4.1 Failure or Indulgence Not Waiver . No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
4.2 Notices . All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
If to the Borrower, to:
COOL TECHNOLOGIES, INC.
8875 Hidden River Parkway, Suite 300
Tampa, Florida 33637
Attn: Quentin Ponder, Chief Financial Officer
Fax:
Email: qponder@cooltechnologiesinc.com
If to the Holder:
POWER UP LENDING GROUP LTD.
111 Great Neck Road, Suite 214
Great Neck, NY 11021
Attn: Curt Kramer, Chief Executive Officer
e-mail: info@poweruplending.com
10 |
|
With a copy by fax only to (which copy shall not constitute notice):
Naidich Wurman LLP
111 Great Neck Road, Suite 216
Great Neck, NY 11021
Attn: Allison Naidich
facsimile: 516-466-3555
e-mail: allison@nwlaw.com
4.3 Amendments . This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder. The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument (and the other Notes issued pursuant to the Purchase Agreement) as originally executed, or if later amended or supplemented, then as so amended or supplemented.
4.4 Most Favored Nation . During the period where any monies are owed to the Holder pursuant to this Note, if the Borrower engages in any future financing transactions with a third party investor, the Borrower will provide the Holder with written notice (the “MFN Notice”) thereof promptly but in no event less than 10 days prior to closing any financing transactions. Included with the MFN Notice shall be a copy of all documentation relating to such financing transaction and shall include, upon written request of the Holder, any additional information related to such subsequent investment as may be reasonably requested by the Holder. In the event the Holder determines that the terms of the subsequent investment are preferable to the terms of the securities of the Borrower issued to the Holder pursuant to the terms of the Purchase Agreement, the Holder will notify the Borrower in writing. Promptly after receipt of such written notice from the Holder, the Borrower agrees to amend and restate the Securities (which may include the conversion terms of this Note), to be identical to the instruments evidencing the subsequent investment. Notwithstanding the foregoing, this Section 4.4 shall not apply in respect of (i) an Exempt Issuance, or (ii) an underwritten public offering of Common Stock. “Exempt Issuance ” means the issuance of: (a) shares of Common Stock or options to employees, officers, consultants, advisors or directors of the Borrower pursuant to any stock or option plan duly adopted for such purpose by a majority of the members of the Board of Directors or a majority of the members of a committee of directors established for such purpose, (b) securities upon the exercise or exchange of or conversion of this Note and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date hereof, and (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Borrower, provided that any such issuance shall only be to a Person which is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Borrower and in which the Borrower receives benefits in addition to the investment of funds, but shall not include a transaction in which the Borrower is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.
4.5 Assignability . This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the Securities and Exchange Commission). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement; and may be assigned by the Holder without the consent of the Borrower.
11 |
|
4.6 Cost of Collection . If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of collection, including reasonable attorneys’ fees.
4.7 Governing Law . This Note shall be governed by and construed in accordance with the laws of the State of Virginia without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state courts of New York or in the federal courts located in the Eastern District of New York. The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens . The Borrower and Holder waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Note, any agreement or any other document delivered in connection with this Note by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
4.8 Purchase Agreement . By its acceptance of this Note, each party agrees to be bound by the applicable terms of the Purchase Agreement.
4.9 Remedies . The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this on April 25, 2018
COOL TECHNOLOGIES, INC. |
||
By: | /s/ Quentin Ponder | |
|
Quentin Ponder |
|
Chief Financial Officer |
12 |
|
EXHIBIT A -- NOTICE OF CONVERSION
The undersigned hereby elects to convert $______________ principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of COOL TECHNOLOGIES, INC., a Nevada corporation (the “Borrower”) according to the conditions of the convertible note of the Borrower dated as of April 25, 2018 (the “Note”), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.
Box Checked as to applicable instructions:
|
¨ | The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”). |
|
|
|
|
Name of DTC Prime Broker: |
|
|
|
Account Number: |
|
|
|
|
¨ | The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto: |
|
POWER UP LENDING GROUP LTD. 111 Great Neck Road, Suite 214 Great Neck, NY 11021 Attention: Certificate Delivery e-mail: info@poweruplendinggroup.com |
|
|
|
|
|
|
|
|
|
Date of conversion: |
|
|
|
|
Applicable Conversion Price: |
$ |
|
|
|
Number of shares of common stock to be issued |
|
|
|
|
pursuant to conversion of the Notes: |
|
|
|
|
Amount of Principal Balance due remaining |
|
|
|
|
under the Note after this conversion: |
|
|
|
|
|
|
|
|
|
POWER UP LENDING GROUP LTD. |
|
|
|
|
|
|
|
|
|
By: ____________________________________ |
|
|
|
|
Name: Curt Kramer |
|
|
|
|
Title: Chief Executive Officer |
|
|
|
|
Date: __________________________ |
|
|
|
13 |
EXHIBIT 10.88
NEITHER THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE. THESE SECURITIES HAVE BEEN SOLD IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
COOL TECHNOLOGIES, INC.
P ROMISSORY N OTE
Issuance Date: May 22, 2018 |
Original Principal Amount: $110,000 |
Note No. WARM-9 |
Consideration Paid at Close: $100,000 |
FOR VALUE RECEIVED, Cool Technologies, Inc. , a Nevada corporation with a par value of $0.001 per common share (“Par Value”) (the “ Company ”), hereby promises to pay to the order of Lucas Hoppel or registered assigns (the “ Holder ”) the amount set out above as the Original Principal Amount (as reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise, the “ Principal ”) when due, whether upon the Maturity Date (as defined below), acceleration, redemption or otherwise (in each case in accordance with the terms hereof) and to pay interest (“ Interest ”) on any outstanding Principal at the applicable Interest Rate from the date set out above as the Issuance Date (the “ Issuance Date ”) until the same becomes due and payable, upon the Maturity Date or acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof).
The Original Principal Amount is $110,000 (one hundred ten thousand) plus accrued and unpaid interest and any other fees. The Consideration is $100,000 (one hundred thousand) payable by wire transfer (there exists a $10,000 original issue discount (the “OID”)). The Holder shall pay $100,000 of Consideration upon closing of this Note.
(1) GENERAL TERMS
(a) Payment of Principal . The “ Maturity Date ” shall be seven months from the date of each payment of Consideration, as may be extended at the option of the Holder in the event that, and for so long as, an Event of Default (as defined below) shall not have occurred and be continuing on the Maturity Date (as may be extended pursuant to this Section 1) or any event shall not have occurred and be continuing on the Maturity Date (as may be extended pursuant to this Section 1) that with the passage of time and the failure to cure would result in an Event of Default.
(b) Interest . A one-time interest charge of three percent (3%) (“ Interest Rate ”) shall be applied on the Issuance Date to the Original Principal Amount. Interest hereunder shall be paid on the Maturity Date (or sooner as provided herein) to the Holder or its assignee in whose name this Note is registered on the records of the Company regarding registration and transfers of Notes in cash or converted into Common Stock at the Conversion Price provided the Equity Conditions are satisfied.
(c) Security . This Note shall not be secured by any collateral or any assets pledged to the Holder
1 |
|
(2) EVENTS OF DEFAULT .
(a) An “ Event of Default ”, wherever used herein, means any one of the following events (whatever the reason and whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):
(i) The Company’s failure to pay to the Holder any amount of Principal, Interest, or other amounts when and as due under this Note (including, without limitation, the Company’s failure to pay any redemption payments or amounts hereunder);
(ii) A Conversion Failure as defined in section 3(b)(ii)
(iii) The Company or any subsidiary of the Company shall commence, or there shall be commenced against the Company or any subsidiary of the Company under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or the Company or any subsidiary of the Company commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Company or any subsidiary of the Company or there is commenced against the Company or any subsidiary of the Company any such bankruptcy, insolvency or other proceeding which remains undismissed for a period of 180 days; or the Company or any subsidiary of the Company is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Company or any subsidiary of the Company suffers any appointment of any custodian, private or court appointed receiver or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of sixty one (180) days; or the Company or any subsidiary of the Company makes a general assignment for the benefit of creditors; or the Company or any subsidiary of the Company shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or the Company or any subsidiary of the Company shall call a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or the Company or any subsidiary of the Company shall by any act or failure to act expressly indicate its consent to, approval of or acquiescence in any of the foregoing; or any corporate or other action is taken by the Company or any subsidiary of the Company for the purpose of effecting any of the foregoing;
(iv) The Company or any subsidiary of the Company shall default in any of its obligations under any other Note or any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement of the Company or any subsidiary of the Company in an amount exceeding $50,000, whether such indebtedness now exists or shall hereafter be created; and
(v) The Common Stock is suspended or delisted for trading on the Over the Counter OTCQB Venture Marketplace or OTCPink Open Marketplace (the “ Primary Market ”).
(vi) The Company loses its ability to deliver shares via “DWAC/FAST” electronic transfer.
(vii) The Company loses its status as “DTC Eligible.”
2 |
|
(viii) The Company shall become late or delinquent in its filing requirements as a fully-reporting issuer registered with the Securities & Exchange Commission.
(ix) The Company shall fail to reserve and keep available out of its authorized Common Stock a number of shares equal to at least 2 (two) times the full number of shares of Common Stock issuable upon conversion of all outstanding amounts under this Note.
(b) Upon the occurrence of any Event of Default that has not been cured within five calendar days, the Outstanding Balance shall immediately increase to 125% of the Outstanding Balance immediately prior to the occurrence of the Event of Default (the “Default Effect”) and a daily penalty of $100 (one hundred) will accrue until the default is remedied. The Default Effect shall automatically apply upon the occurrence of an Event of Default without the need for any party to give any notice or take any other action. In addition, all amounts due and payable under the Note shall, at the election of the holder, accelerate and become immediately due and payable upon notice from the Holder to the Company.
(3) CONVERSION OF NOTE . The Holder shall have the right, but not the obligation, to convert the Outstanding Balance into shares of the Company’s Common Stock, on the terms and conditions set forth in this Section 3.
(a) Conversion Right . Subject to the provisions of Section 3(c), at any time or times, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount (as defined below) into fully paid and nonassessable shares of Common Stock in accordance with Section 3(b), at the Conversion Price (as defined below). The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to this Section 3(a) shall be equal to the quotient of dividing the Conversion Amount by the Conversion Price. The Company shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share. The Company shall pay any and all transfer agent fees, legal fees, costs and any other fees or costs that may be incurred or charged in connection with the issuance of shares of the Company’s Common Stock to the Holder arising out of or relating to the conversion of this Note.
(i) “ Conversion Amount ” means the portion of the Original Principal Amount and Interest to be converted, plus any penalties, redeemed or otherwise with respect to which this determination is being made.
(ii) “ Conversion Price ” shall equal $0.025 (two and one half cents).
3 |
|
(b) Mechanics of Conversion .
(i) Optional Conversion . To convert any Conversion Amount into shares of Common Stock on any date (a “ Conversion Date ”), the Holder shall (A) transmit by email, facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., New York, NY Time, on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit A (the “ Conversion Notice ”) to the Company. On or before the third Business Day following the date of receipt of a Conversion Notice (the “ Share Delivery Date ”), the Company shall (A) if legends are not required to be placed on certificates of Common Stock pursuant to the then existing provisions of Rule 144 of the Securities Act of 1933 (“Rule 144”) and provided that the Transfer Agent is participating in the Depository Trust Company’s (“ DTC ”) Fast Automated Securities Transfer Program, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder’s or its designee’s balance account with DTC through its Deposit Withdrawal Agent Commission system or (B) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled which certificates shall not bear any restrictive legends unless required pursuant the Rule 144. If this Note is physically surrendered for conversion and the outstanding Principal of this Note is greater than the Principal portion of the Conversion Amount being converted, then the Company shall, upon request of the Holder, as soon as practicable and in no event later than three (3) Business Days after receipt of this Note and at its own expense, issue and deliver to the holder a new Note representing the outstanding Principal not converted. The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock upon the transmission of a Conversion Notice.
(ii) Company’s Failure to Timely Convert . If within three (3) Trading Days after the Company’s receipt of the facsimile or email copy of a Conversion Notice the Company shall fail to issue and deliver to Holder via “DWAC/FAST” electronic transfer the number of shares of Common Stock to which the Holder is entitled upon such holder’s conversion of any Conversion Amount (a “ Conversion Failure ”), the Original Principal Amount of the Note shall increase by $1,000 per day until the Company issues and delivers a certificate to the Holder or credit the Holder’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon such holder’s conversion of any Conversion Amount (under Holder’s and Company’s expectation that any damages will tack back to the Issuance Date). Company will not be subject to any penalties once its transfer agent processes the shares to the DWAC system. If the Company fails to deliver shares in accordance with the timeframe stated in this Section, resulting in a Conversion Failure, the Holder, at any time prior to selling all of those shares, may rescind any portion, in whole or in part, of that particular conversion attributable to the unsold shares and have the rescinded conversion amount returned to the Outstanding Balance with the rescinded conversion shares returned to the Company (under Holder’s and Company’s expectations that any returned conversion amounts will tack back to the original date of the Note).
(iii) Terms of Future Financings . So long as this Note is outstanding, upon any issuance by the Company or any of its subsidiaries of any security with any term more favorable to the holder of such security or with a term in favor of the holder of such security that was not similarly provided to the Holder in this Note, then the Company shall notify the Holder of such additional or more favorable term and such term, at Holder’s option, shall become a part of the transaction documents with the Holder. The types of terms contained in another security that may be more favorable to the holder of such security include, but are not limited to, terms addressing conversion discounts, conversion lookback periods, interest rates, original issue discounts, stock sale price, private placement price per share, and warrant coverage. Financings in which the Company receives proceeds of one million dollars or greater or excluded from the Terms of Future Financings.
(iv) DTC Eligibility & Sub-Penny . If the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the effective Conversion Price as calculated in Section 3(a)(ii) is less than $0.01 at any time (regardless of whether or not a Conversion Notice has been submitted to the Company), the Principal Amount of the Note shall increase by ten thousand dollars ($10,000) (under Holder’s and Company’s expectation that any Principal Amount increase will tack back to the Issuance Date). In addition, the Conversion Price shall be permanently redefined to equal 40% of the lowest traded price occurring during the fifteen (15) consecutive Trading Days immediately preceding the applicable Conversion Date on which the Holder elects to convert all or part of this Note, subject to adjustment as provided in this Note.
4 |
|
(c) Limitations on Conversions or Trading .
(i) Beneficial Ownership . The Company shall not effect any conversions of this Note and the Holder shall not have the right to convert any portion of this Note or receive shares of Common Stock as payment of interest hereunder to the extent that after giving effect to such conversion or receipt of such interest payment, the Holder, together with any affiliate thereof, would beneficially own (as determined in accordance with Section 13(d) of the Exchange Act and the rules promulgated thereunder) in excess of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to such conversion or receipt of shares as payment of interest. Since the Holder will not be obligated to report to the Company the number of shares of Common Stock it may hold at the time of a conversion hereunder, unless the conversion at issue would result in the issuance of shares of Common Stock in excess of 4.99% of the then outstanding shares of Common Stock without regard to any other shares which may be beneficially owned by the Holder or an affiliate thereof, the Holder shall have the authority and obligation to determine whether the restriction contained in this Section will limit any particular conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section applies, the determination of which portion of the principal amount of this Note is convertible shall be the responsibility and obligation of the Holder. If the Holder has delivered a Conversion Notice for a principal amount of this Note that, without regard to any other shares that the Holder or its affiliates may beneficially own, would result in the issuance in excess of the permitted amount hereunder, the Company shall notify the Holder of this fact and shall honor the conversion for the maximum principal amount permitted to be converted on such Conversion Date in accordance with Section 3(a) and, any principal amount tendered for conversion in excess of the permitted amount hereunder shall remain outstanding under this Note. In the event that the Market Capitalization of the Company falls below $2,500,000, the term “4.99%” above shall be permanently replaced with “9.99%”. “Market Capitalization” shall be defined as the product of (a) the closing price of the Common Stock of the Common stock multiplied by (b) the number of shares of Common Stock outstanding as reported on the Company’s most recently filed Form 10-K or Form 10-Q. The provisions of this Section may be waived by Holder upon not less than 65 days prior written notification to the Company.
(ii) Capitalization . So long as this as this Note is outstanding, upon written request of the Holder, the Company shall furnish to the Holder the then-current number of common shares issued and outstanding, the then-current number of common shares authorized, and the then-current number of shares reserved for third parties.
(d) Other Provisions .
(i) Share Reservation . The Company shall at all times reserve and keep available out of its authorized Common Stock a number of shares equal to two times the number of shares of Common Stock issuable upon conversion of all outstanding amounts under this Note; and within 3 (three) Business Days following the receipt by the Company of a Holder’s notice that such minimum number of shares of Common Stock is not so reserved, the Company shall promptly reserve a sufficient number of shares of Common Stock to comply with such requirement. The Company will at all times reserve at least 10,000,000 shares of Common Stock for conversion.
(ii) Prepayment . This Note may not be prepaid without the written consent of the Holder.
(iii) All calculations under this Section 3 shall be rounded up to the nearest $0.00001 or whole share.
(iv) Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 2 herein for the Company’s failure to deliver certificates representing shares of Common Stock upon conversion within the period specified herein and such Holder shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief, in each case without the need to post a bond or provide other security. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.
5 |
|
(4) PIGGYBACK REGISTRATION RIGHTS . The Company shall include on the current registration statement the Company has with SEC (or on the subsequent registration statement if such registration statement is withdrawn) all shares issuable upon conversion of this Note. Failure to do so will result in liquidated damages of 15% of the outstanding principal balance of this Note, but not less than $15,000, being immediately due and payable to the Holder at its election in the form of cash payment or addition to the balance of this Note.
(5) REISSUANCE OF THIS NOTE .
(a) Assignability . The Company may not assign this Note. This Note will be binding upon the Company and its successors and will inure to the benefit of the Holder and its successors and assigns and may be assigned by the Holder to anyone of its choosing without Company’s approval.
(b) Lost, Stolen or Mutilated Note . Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note representing the outstanding Principal.
(6) NOTICES . Any notices, consents, waivers or other communications required or permitted to be given under the terms hereof must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party) (iii) upon receipt, when sent by email; or (iv) one (1) Trading Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be those set forth in the communications and documents that each party has provided the other immediately preceding the issuance of this Note or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party three (3) Business Days prior to the effectiveness of such change. Written confirmation of receipt (i) given by the recipient of such notice, consent, waiver or other communication, (ii) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (iii) provided by a nationally recognized overnight delivery service, shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.
The addresses for such communications shall be:
If to the Company, to:
8875 Hidden River Parkway
Suite 300
Tampa, FL 33637
6 |
|
If to the Holder:
Lucas Hoppel
Phone: 858-232-5110
Email: Luke@LukeHoppel.com
(7) APPLICABLE LAW AND VENUE . This Note shall be governed by and construed in accordance with the laws of the State of Nevada, without giving effect to conflicts of laws thereof. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of California or in the federal courts located in the city of San Diego, in the State of California. Both parties and the individuals signing this Agreement agree to submit to the jurisdiction of such courts.
(8) WAIVER . Any waiver by the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note. The failure of the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note. Any waiver must be in writing.
(9) LIQUIDATED DAMAGES . Holder and Company agree that in the event Company fails to comply with any of the terms or provisions of this Note, Holder’s damages would be uncertain and difficult (if not impossible) to accurately estimate because of the parties’ inability to predict future interest rates, future share prices, future trading volumes and other relevant factors. Accordingly, Holder and Company agree that any fees, balance adjustments, default interest or other charges assessed under this Note are not penalties but instead are intended by the parties to be, and shall be deemed, liquidated damages (under Holder’s and Company’s expectations that any such liquidated damages will tack back to the Closing Date for purposes of determining the holding period under Rule 144).
[Signature Page Follows]
7 |
|
IN WITNESS WHEREOF , the Company has caused this Convertible Note to be duly executed by a duly authorized officer as of the date set forth above.
|
COMPANY: |
|
|
|
|
|
|
Cool Technologies, Inc. |
|||
By: | /s/ Tim Hassett | ||
|
Name: |
Tim Hassett | |
Title: | Chief Executive Officer | ||
|
HOLDER: |
|
|
|
|
|
|
|
Lucas Hoppel |
|
|
|
|
|
|
|
By: |
/s/ Lucas Hoppel |
|
[Signature Page to Convertible Note No. WARM-9]
8 |
|
EXHIBIT A
CONVERSION NOTICE
[Company Contact, Position]
[Company Name]
[Company Address]
[Contact Email Address}
The undersigned hereby elects to convert a portion of the $_______ Convertible Note ________ issued to Lucas Hoppel on ___________ into Shares of Common Stock of __________ according to the conditions set forth in such Note as of the date written below.
By accepting this notice of conversion, you are acknowledging that the number of shares to be delivered represents less than 10% (ten percent) of the common stock outstanding. If the number of shares to be delivered represents more than 9.99% of the common stock outstanding, this conversion notice shall immediately automatically extinguish and debenture Holder must be immediately notified.
Date of Conversion: |
|
|
|
|
|
Conversion Amount: |
|
|
|
|
|
Conversion Price: |
|
|
|
|
|
Shares to be Delivered: |
|
|
Shares delivered in name of:
Lucas Hoppel
Signature: |
|
|
|
9 |
EXHIBIT 10.89
AMENDMENT
TO THE $220,000 PROMISSORY NOTE DATED January 26, 2018
The parties agree that $220,000 Promissory Note by and between Cool Technologies, Inc. (“Company”) and Lucas Hoppel (“Holder”) is hereby amended as follows:
Maturity Date: The Maturity Date shall be extended to October 1 st , 2018.
Conversion Price: The Conversion Price in section 3(a)(ii) shall permanently be changed to equal $0.025 cents.
ALL OTHER TERMS AND CONDITIONS OF THE $220,000 PROMISSORY NOTE REMAIN IN FULL FORCE AND EFFECT.
Please indicate acceptance and approval of this amendment dated May 22 nd , 2018 by signing below:
/s/ Tim Hassett | /s/ Lucas Hoppel | ||
Tim Hassett |
Lucas Hoppel |
||
Cool Technologies, Inc. Chief Executive Officer |
EXHIBIT 10.90
AMENDMENT
TO THE $385,000 PROMISSORY NOTE DATED February 19, 2018
The parties agree that $385,000 Promissory Note by and between Cool Technologies, Inc. (“Company”) and Lucas Hoppel (“Holder”) is hereby amended as follows:
Maturity Date: The Maturity Date shall be extended to November 1 st , 2018.
Conversion Price: The Conversion Price in section 3(a)(ii) shall permanently be changed to equal $0.025 cents.
ALL OTHER TERMS AND CONDITIONS OF THE $385,000 PROMISSORY NOTE REMAIN IN FULL FORCE AND EFFECT.
Please indicate acceptance and approval of this amendment dated May 22 nd , 2018 by signing below:
/s/ Tim Hassett | /s/ Lucas Hoppel | ||
Tim Hassett |
Lucas Hoppel | ||
Cool Technologies, Inc. Chief Executive Officer |
EXHIBIT 10.91
THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
COOL TECHNOLOGIES, INC.
SECURED PROMISSORY NOTE
Issuance Date: July 5, 2018 |
Original Principal Amount: $100,000.00 |
FOR VALUE RECEIVED, Cool Technologies, Inc. , a Nevada corporation (the “ Company ”), hereby promises to pay to the order of Scott Fergus or his registered assigns (“ Holder ”) the amount set out above as the Original Principal Amount (the “ Principal ”) when due, whether upon the Maturity Date (as defined below), acceleration, early redemption or otherwise (in each case in accordance with the terms hereof). This Promissory Note (this “ Note ”, is issued pursuant to the mutual agreement between Scott Fergus and Cool Technologies, Inc. on the Closing Date (as defined below). Certain capitalized terms used herein are defined herein as applicable.
1. PAYMENTS OF PRINCIPAL . This Note shall be repaid in full on July 5, 2019 (the “ Maturity Date ”), if not sooner paid.
(a) Company promises to pay the Principal Amount to Holder on or before the one year anniversary of the execution date of this Note. Furthermore, during the period between execution of this Note and the one year anniversary, Company hereby commites to immediately pay all principal owed to the Holder upon receipt of proceeds from either 1) insurance related debt and/or surety bond financing received in relation to an insurance wrapper to be issued by Aon, plc., 2) a bridge loan to be issued by WestPark Capital, Kahuna Sugar or a private individual, or 3) deposits or payments received from product invoices and/or supply/purchase contracts. Payments or other credits are posted to the account when made or received. Payments are not credited until received.
1 |
|
2. RIGHTS UPON EVENT OF DEFAULT .
(a) Event of Default . Each of the following events shall constitute an “ Event of Default ”:
|
(i) | Failure to Pay. Company shall fail to pay when due, whether at stated maturity, upon acceleration or otherwise, any principal or interest payment, or any other payment required under the terms of this Note on the date due. ; |
|
|
|
|
(ii) | Voluntary Bankruptcy or Insolvency Proceedings. Company shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit in writing its inability, to pay its debts generally as they mature, (iii) make a general assignment for the benefit of its or any of its creditors, (iv) be dissolved or liquidated, or (v) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it.; |
|
|
|
|
(iii) | Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a receiver, trustee, liquidator, or custodian of Company or of all or a substantial part of its property, or an involuntary case or other proceedings seeking liquidation, reorganization, or other relief with respect to Company or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered or such proceeding shall not be dismissed or discharged within sixty (60) days of commencement; |
|
|
|
|
(iv) | A judgment or judgments for the payment of money in excess of the sum of $1,000,000.00 in the aggregate shall be rendered against Company and either (i) the judgment creditor executes on such judgment or (ii) such judgment remains unpaid or undischarged for more than sixty (60) days from the date of entry thereof or such longer period during which execution of such judgment shall be stayed during an appeal from such judgment; |
|
|
|
|
(v) | Government Action. If any governmental or regulatory authority takes or institutes any action that will materially affect Company’s financial condition, operations or ability to pay or perform Company’s obligations under this Note; |
|
|
|
|
(vi) | Judgment. A judgment or judgments for the payment of money in excess of the sum of $1,000,000.00 in the aggregate shall be rendered against Company and either (i) the judgment creditor executes on such judgment or (ii) such judgment remains unpaid or undischarged for more than sixty (60) days from the date of entry thereof or such longer period during which execution of such judgment shall be stayed during an appeal from such judgment. |
(b) Notice of an Event of Default; Redemption Right . Upon the occurrence of an Event of Default with respect to this Note, immediately and without notice, all outstanding unpaid principal, plus all accrued interest and other amounts due hereunder shall automatically become immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein to the contrary notwithstanding. In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default, Holder may exercise any other right, power or remedy permitted to it by law, either by suit in equity or by action at law, or both.
2 |
|
3. RIGHTS UPON FUNDAMENTAL TRANSACTION; OTHER CORPORATE EVENTS .
(a) Assumption . The Company shall not enter into or be party to a Fundamental Transaction unless (i) the Successor Entity assumes in writing all of the obligations of the Company under this Note and the other Transaction Documents in accordance with the provisions of this Section 3(a) pursuant to written agreements in form and substance satisfactory to the Holder and approved by the Holder prior to such Fundamental Transaction,
4. NONCIRCUMVENTION . The Company hereby covenants and agrees that the Company will not, by amendment of its certificate of incorporation, bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Note, and will at all times in good faith carry out all of the provisions of this Note and take all action as may be required to protect the rights of the Holder of this Note.
5. Company Optional Redemption . At any time after the Issuance Date the Company shall have the right to redeem in cash, in whole or in part, the then remaining balance due under this Note (and accrued and unpaid interest) with no pre-payment penalty.
6. VOTING RIGHTS . The Holder shall have no voting rights as the holder of this Note, except as required by law (including, without limitation, the Nevada Revised Statutes).
7. COVENANTS . Until all of the Notes have been redeemed or otherwise satisfied in accordance with their terms:
(a) Maintenance of Intellectual Property . The Company will, and will cause each of its Subsidiaries to, take all action necessary or advisable to maintain all of the Intellectual Property Rights of the Company and/or any of its Subsidiaries that are necessary or material to the conduct of its business in full force and effect.
(b) Maintenance of Insurance . The Company shall maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations with respect to its properties and business, in such amounts and covering such risks as is required by any governmental authority having jurisdiction with respect thereto or as is carried generally in accordance with sound business practice by companies in similar businesses similarly situated.
8. AMENDING THE TERMS OF THIS NOTE . The prior written consent of the Holder shall be required for any change or amendment to this Note.
3 |
|
9. TRANSFER . This Note may be offered, sold, assigned or transferred by the Holder only with the consent of the Company and in compliance with all applicable securities laws.
(a) Lost, Stolen or Mutilated Note . Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note (as to which a written certification and the indemnification contemplated below shall suffice as such evidence), and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary and reasonable form and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note representing the outstanding Principal. .
10. PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS . If (a) this Note is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this Note or to enforce the provisions of this Note or (b) there occurs any bankruptcy, reorganization, receivership of the Company or other proceedings affecting Company creditors’ rights and involving a claim under this Note, then the Company shall pay the costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, without limitation, attorneys’ fees and disbursements. The Company expressly acknowledges and agrees that no amounts due under this Note shall be affected, or limited, by the fact that the purchase price paid for this Note was less than the original Principal amount hereof.
11. HEADINGS . The headings of this Note are for convenience of reference and shall not form part of, or affect the interpretation of, this Note. Terms used in this Note but defined in the other Transaction Documents shall have the meanings ascribed to such terms in such other Transaction Documents, unless otherwise consented to in writing by the Holder.
12. NOTICES; CURRENCY; PAYMENTS .
(a) Payments . Whenever any payment of cash is to be made by the Company to any Person pursuant to this Note, unless otherwise expressly set forth herein, such payment shall be made in lawful money of the United States of America by a certified check drawn on the account of the Company and sent via overnight courier service to such Person at such address as previously provided to the Company in writing, provided that the Holder may elect to receive a payment of cash via wire transfer of immediately available funds by providing the Company with prior written notice setting out such request and the Holder’s wire transfer instructions.
13. CANCELLATION . After all Principal and other amounts at any time owed on this Note have been paid in full, this Note shall automatically be deemed canceled, shall be surrendered to the Company for cancellation and shall not be reissued.
4 |
|
14. GOVERNING LAW . This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of Florida, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Florida or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Florida. The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the State of Florida, county of Hillsborough, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof by certified mail, return receipt requested, postage prepaid to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. In the event that any provision of this Note is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Note. .
15. CERTAIN DEFINITIONS . For purposes of this Note, the following terms shall have the following meanings:
(a) “ Change of Control ” means any Fundamental Transaction other than (i) any merger of the Company or any of its, direct or indirect, wholly-owned Subsidiaries with or into any of the foregoing Persons, (ii) any reorganization, recapitalization or reclassification of the shares of Common Stock in which holders of the Company’s voting power immediately prior to such reorganization, recapitalization or reclassification continue after such reorganization, recapitalization or reclassification to hold publicly traded securities and, directly or indirectly, are, in all material respects, the holders of the voting power of the surviving entity (or entities with the authority or voting power to elect the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities) after such reorganization, recapitalization or reclassification, (iii) pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company or any of its Subsidiaries.
(f) “ Fundamental Transaction ” means that (i) the Company or any of its Subsidiaries shall, directly or indirectly, in one or more related transactions, (1) consolidate or merge with or into (whether or not the Company or any of its Subsidiaries is the surviving corporation) any other Person, or (2) sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of its respective properties or assets to any other Person, or (3) allow any other Person to make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the Company held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (4) consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with any other Person whereby such other Person acquires more than 50% of the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the Company held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination), or (ii) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations promulgated thereunder) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding Voting Stock of the Company.
5 |
|
( (i) “ Maturity Date ” shall mean July 5, 2019 provided, however, the Maturity Date may be extended at the option of the Holder (i) in the event that, and for so long as, an Event of Default shall have occurred and be continuing or any event shall have occurred and be continuing that with the passage of time and the failure to cure would result in an Event of Default or (ii) through the date that is twenty (20) Business Days after the consummation of a Fundamental Transaction in the event that a Fundamental Transaction is publicly announced or a Fundamental Transaction Notice is delivered prior to the Maturity Date.
(r) “ Subsidiary ” means any corporation or other entity of which at least a majority of the securities or other ownership interest having ordinary voting power for the election of directors or other persons performing similar functions are at the time owned directly or indirectly by the Company and/or any of its other Subsidiaries.
(s) “ Successor Entity ” means the Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or the Person (or, if so elected by the Holder, the Parent Entity) with which such Fundamental Transaction shall have been entered into.
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the Issuance Date set out above.
COOL TECHNOLOGIES, INC. |
|||
By: | /s/ Tim Hassett | ||
|
Name: |
Tim Hassett | |
Title: | CEO |
6 |
EXHIBIT 10.92
AMENDMENT
TO THE $220,000 PROMISSORY NOTE DATED January 26, 2018
The parties agree that $220,000 Promissory Note by and between Cool Technologies, Inc. (“Company”) and Lucas Hoppel (“Holder”) is hereby amended as follows:
Maturity Date: The Maturity Date shall be extended to January 1 st , 2019.
ALL OTHER TERMS AND CONDITIONS OF THE $220,000 PROMISSORY NOTE REMAIN IN FULL FORCE AND EFFECT.
Please indicate acceptance and approval of this amendment dated October 26 th , 2018 by signing below:
/s/ Tim Hassett | /s/ Lucas Hoppel | ||
Tim Hassett |
Lucas Hoppel |
||
Cool Technologies, Inc. Chief Executive Officer |
EXHIBIT 10.93
AMENDMENT
TO THE $385,000 PROMISSORY NOTE DATED February 19, 2018
The parties agree that $385,000 Promissory Note by and between Cool Technologies, Inc. (“Company”) and Lucas Hoppel (“Holder”) is hereby amended as follows:
Maturity Date: The Maturity Date shall be extended to January 1 st , 2019.
ALL OTHER TERMS AND CONDITIONS OF THE $385,000 PROMISSORY NOTE REMAIN IN FULL FORCE AND EFFECT.
Please indicate acceptance and approval of this amendment dated October 26 th , 2018 by signing below:
/s/ Tim Hasset | /s/ Lucas Hoppel | ||
Tim Hassett | Lucas Hoppel | ||
Cool Technologies, Inc.
Chief Executive Officer |
EXHIBIT 10.94
AMENDMENT
TO THE $110,000 PROMISSORY NOTE DATED May 22, 2018
The parties agree that $110,000 Promissory Note by and between Cool Technologies, Inc. (“Company”) and Lucas Hoppel (“Holder”) is hereby amended as follows:
Maturity Date: The Maturity Date shall be extended to February 28th, 2019.
Conversion Price: The Conversion Price in section 3(a)(ii) shall permanently be changed to equal $0.025 cents.
ALL OTHER TERMS AND CONDITIONS OF THE $110,000 PROMISSORY NOTE REMAIN IN FULL FORCE AND EFFECT.
Please indicate acceptance and approval of this amendment dated December 3rd, 2018 by signing below:
/s/ Tim Hassett |
/s/ Lucas Hoppel |
|
Tim Hassett |
Lucas Hoppel |
|
Cool Technologies, Inc. |
||
Chief Executive Officer |
|
|
EXHIBIT 10.95
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
THE ISSUE PRICE OF THIS NOTE IS $152,000.00
THE ORIGINAL ISSUE DISCOUNT IS $14,000.00
Issue Date: December 10, 2018
Purchase Price: $138,000.00
Principal Amount: $152,000.00
CONVERTIBLE PROMISSORY NOTE
FOR VALUE RECEIVED, COOL TECHNOLOGIES, INC., a Nevada corporation (hereinafter called the "Borrower"), hereby promises to pay to the order of POWER UP LENDING GROUP LTD., a Virginia corporation, or registered assigns (the "Holder") the sum of $152,000.00 together with any interest as set forth herein, on December 10, 2019 (the "Maturity Date"), and to pay interest on the unpaid principal balance hereof at the rate of eight percent (8%} (the "Interest Rate") per annum from the date hereof (the "Issue Date") until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty two percent (22%} per annum from the due date thereof until the same is paid ("Default Interest"). Interest shall be computed on the basis of a 365 day year and the actual numberof days elapsed. Interest shall commence accruing on the Issue Date but shall not be payable until the Note becomes payable (whether at Maturity Date or upon acceleration or by prepayment). All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share (the "Common Stock") in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement dated the date hereof, pursuant to which this Note was originally issued (the "Purchase Agreement").
This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder t hereof.
The following terms shall apply to this Note:
1 |
|
ARTICLE I. CONVERSION RIGHTS
1.1 Conversion Right . The Holder shall have the right from time to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following the date of this Note and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in Article Ill), each in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the "Conversion Price") determined as provided herein (a "Conversion"); provided, however , that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso. The beneficial ownership limitations on conversion as set forth in the section may NOT be waived by the Holder . The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the "Notice of Conversion"), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the "Conversion Date"); however, if the Notice of Conversion is sent after 6:00pm, New York, New York time the Conversion Date shall be the next business day. The term "Conversion Amount" means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion (2) at the Holder's option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, (3) at the Holder's option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) (4) at the Holder's option, any amounts owed to the Holder pursuant to Sections 1.4 hereof.
1.2 Conversion Price . The conversion price (the "Conversion Price") shall equal the Variable Conversion Price (as defined herein) (subject to equitable adjustments by the Borrower relating to the Borrower's securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable Conversion Price" shall mean 72% multiplied by the Market Price (as defined herein) (representing a discount rate of 28%). "Market Price" means the lowest VWAP (as defined below) for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. "VWAP" shall mean the daily dollar volume-weighted average sale price for the Common Stock on the Principal Market on any particular Trading Day during the period beginning at 9:30 a.m., New York City Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00 p.m., New York City Time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg through its "Volume at Price" functions or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30 a.m., New York City Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00 p.m., New York City Time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the OTCBB or the "pink sheets" by the National Quotation Bureau, Inc. If the VWAP cannot be calculated for such security on such date on any of the foregoing bases, the VWAP of such security on such date shall be the fair market value as mutually determined by the Company and the holder of the Note. All such determinations of VWAP shall to be appropriately and equitably adjusted in accordance with the provisions set forth herein for any stock dividend, stock split, stock combination or other similar transaction occurring during any period used to determine the Market Price (or other period utilizing VWAPs). "Trading Day" shall mean a day on which there is trading on the Principal Market. "Principal Market" shall mean the OTCBB or such other principal market, exchange or electronic quotation system on which the Common Stock is then listed for trading.
2 |
|
1.3 Authorized Shares . The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note issued pursuant to the Purchase Agreement. The Borrower is required at all times to have authorized and reserved five times the number of shares that is actually issuable upon full conversion of the Note (based on the Conversion Price of the Note in effect from time to time initially 27,142,857 shares)(the "Reserved Amount"). The Reserved Amount shall be increased (or decreased) from time to time in accordance with the Borrower's obligations hereunder. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Note. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.
If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.
1.4 Method of Conversion.
(a) Mechanics of Conversion. As set forth in Section 1.1 hereof, from time to time, and at any time during the period beginning on the date which is one hundred eighty {180) days following the date of this Note and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the Default Amount, this Note may be converted by the Holder in whole or in part at any time from time to time after the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower (upon payment in full of any amounts owed hereunder).
(b) Surrender of Note Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion.
3 |
|
(c) Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the "Deadline") (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof and the Purchase Agreement. Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations hereunder, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower's obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion.
(d) Delivery of Common Stock by Electron i c Transfer. In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Borrower is participating in the Depository Trust Company ("OTC") Fast Automated Securities Transfer ("FAST") program, upon request of the Holder and its compliance with the provisions set forth herein, the Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder's Prime Broker with OTC through its Deposit and Withdrawal at Cust odian ("DWAC") system.
(e) Failure to Deliver Common Stock Prior to Deadline . Without in any way limiting the Holder's right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline due to action and/or inaction of the Borrower, the Borrower shall pay to the Holder $2,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock (the "Fail to Deliver Fee"); provided; however that the Fail to Deliver Fee shall not be due if the failure is a result of a third party (i.e., transfer agent; and not the result of any failure to pay such transfer agent) despite the best efforts of the Borrower to effect delivery of such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossible to qualify. Accordingly, the parties acknowledge that the liquidated damages provision contained in this Section 1.4(e) are justified.
4 |
|
1.5 Concerning the Shares . The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless: (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration (such as Rule 144 or a successor rule) ("Rule 144"); or (iii) such shares are transferred to an "affiliate" (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement).
Any restrictive legend on certificates representing shares of Common Stock issuable upon conversion of this Note shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if the Borrower or its transfer agent shall have received an opinion of counsel from Holder's counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that (i) a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Company so that the sale or transfer is effected; or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act; or otherwise may be sold pursuant to an exemption from registration. In the event that the Company does not reasonably accept the opinion of counsel provided by the Holder with respect to the transfer of Securities pursuant to an exemption from registration (such as Rule 144), at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 ofthe Note.
1.6 Effect of Certain Events .
(a) Effect of Merger, Consolidation, Etc . At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Borrower, the effectuation by the Borrower of a transaction or series of related transactions in which more than 50% of the voting power of the Borrower is disposed of, or the consolidation, merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall be deemed to be an Event of Default (as defined in Article Ill) pursuant to which the Borrower shall be required to pay to the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in Article Ill). "Person" shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.
(b) Adjustment Due to Merger, Consolidation, Etc . If, at any time when this Note is issued and outstanding and prior to conversion of all of the Note, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such st ock, sec uritie s or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. The Borrower shall not aff ect any transaction described in this Section l.6(b) unless (a) it first gives, to the extent practicable, ten (10) days prior written notice (but in any event at least five (5) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitali zati on, reorganizati on or other similar event or sale of assets (during which t ime the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations of this Note. The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.
5 |
|
(c) Adjustment Due to Distribution . If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower's shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e ., a spin-off)) (a "Distribution"), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution .
1.7 Prepayment. Notwithstanding anything to the contrary contained in this Note, at any time during the periods set forth on the t able immediately following this paragraph (the "Prepayment Periods"), the Borrower shall have the right, exercisable on not more than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.7. Any notice of prepayment hereunder (an "Optional Prepayment Notice") shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the date fixed for prepayment (the "Optional Prepayment Date"), the Borrower shall make payment of the Optional Prepayment Amount (as defined below) to Holder, or upon the direction of the Holder as specified by the Holder in a writing to t he Borrower (which shall direction to be sent to Borrower by the Holder at least one (1) business day prior to the Optional Prepayment Date). If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash equal to the percentage {"Prepayment Percentage") as set forth in the table immediately following this paragraph opposite the applicable Prepayment Period, multiplied by the sum of: (w) the then outstanding principal amount of this Note (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) (z) any amounts owed to the Holder pursuant to Section 1.4 hereof (the "Optional Prepayment Amount"). If the Borrower delivers an Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.7.
PrePayment Period |
PrePayment Percentage |
1. The period beginning on the Issue Date and ending on the date which is thirty (30) days following the Issue Date. |
104% |
2. The period beginning on the date which is thirty-one (31) days following the Issue Date and ending on the date which is sixty (60) days following the Issue Date. |
109% |
3. The period beginning on the date which is sixty-one (61) days following the Issue Date and ending on the date which is ninety (90) days following the Issue Date. |
114% |
4. The period beginning on the date that is ninety-one (91) day from the Issue Date and ending one hundred twenty (120) days following the Issue Date. |
119% |
5. The period beginning on the date that is one hundred twenty-one (121) day from the Issue Date and ending one hundred fifty (150) days following the Issue Date. |
124% |
6. The period beginning on the date that is one hundred fifty-one (151) day from the Issue Date and ending one hundred eighty (180) days following the Issue Date. |
129% |
After the expiration of one hundred eighty (180) days following the Issue Date, the Borrower shall have no right of prepayment.
6 |
|
ARTICLE II. CERTAIN COVENANTS
2.1 Sale of Assets. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder's written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of busi ness. Any consent to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition.
ARTICLE Ill. EVENTS OF DEFAULT
If any of the following events of default (each, an "Event of Default") shall occur:
3.1 Failure to Pay Principal and Interest . The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity or upon acceleration and such breach continues for a period of five (S) days after written notice from the Holder.
3.2 Conversion and the Shares . The Borrower fails to issue shares of Common Stock to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or. threat not to honor its obligations shall not be rescinded in writing) for three (3) business days after the Holder shall have delivered a Notice of Conversion. It is an obligation of the Borrower to remain current in its obligations to its transfer agent. It shall be an event of default of this Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer agent . If at the option of the Holder, the Holder advances any funds to the Borrower's transfer agent in order to process a conversion, such advanced funds shall be paid by the Borrower to the Holder within forty-eight (48} hours of a demand from the Holder.
7 |
|
3.3 Breach of Covenants. The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents including but not limited to the Purchase Agreement and such breach continues for a period of twenty (20) days after written notice thereof to the Borrower from the Holder.
3.4 Breach of Representations and Warranties. Any representation or warranty of the Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith (including, without limitation, the Purchase Agreement}, shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.
3.5 Receiver or Trustee. The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.
3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.
3.7 Delisting of Common Stock . The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTC (which specifically includes the quotation platforms maintained by the OTC Markets Group) or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock Exchange.
3.8 Failure to Comply with the Exchange Act . The Borrower shall fail to comply with the reporting requirements of the Exchange Act; and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act.
3.9 Liquidation . Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.
3.10 Cessation of Operations . Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower's ability to continue as a 11 going concern" shall not be an admission that the Borrower cannot pay its debts as they become due.
3.11 Financial Statement Restatement. The restatement of any financia l statements filed by the Borrower with the SEC at any time after 180 days after the Issuance Date for any date or period until this Note is no longer outstanding, if the result of such restatement would, by comparison to the un-rest at ed financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.
8 |
|
3.12 Replacement of Transfer Agent. In the event that the Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the Purchase Agreement (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower.
3.13 Cross-Default . Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained in any of the Other Agreements, after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note and the Other Agreements, in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under said Other Agreement or hereunder. 11Other Agreements" means, collectively, all agreements and instruments between, among or by: (1) the Borrower, and, or for the benefit of, (2) the Holder and any affiliate of the Holder, including, without limitation, promissory notes; provided, however, the term 11Ot her Agreements" shall not include the related or companion documents to this Note. Each of the loan transactions will be cross-defaulted with each other loan transaction and with all other existing and future debt of Borrower to the Holder.
Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Amount (as defined herein). UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULT AMOUNT (AS DEFINED HEREIN); MULTIPLIED BY (Z) TWO (2). Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due on this Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon acceleration), 3.3, 3.4, 3.7, 3.8, 3.10, 3.11, 3.12, 3.13, and/or 3.14 exercisable through the delivery of written notice to the Borrower by such Holders (the "Default Notice"), and upon the occurrence of an Event of Default specified the remaining sections of Articles Ill (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to 150% times the sum of (w) the then outstanding principal amount of this Note (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the "Mandatory Prepayment Date") (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) (z) any amount s owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment the amounts referred to in clauses (x), (y) and (z) shall collectively be known as t he "Default Amount") and all ot her amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.
If the Borrower fails t o pay the Default Amount wit hin five (5) business days of written notice that such amount is due and payable, then the Holder shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficient authorized sha res), t o require the Borrower, upon written notice, to immediately issue, in lieu of the Defau lt Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect.
9 |
|
AR T I C L E IV . M I SCEL LAN EO U S
4.1 Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise availa ble.
4.2 Not i ces . All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below orto such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmat ion generated by the t ransmitt ing facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first busi ness day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shal l first occur. The addresses for such communications shall be:
If to the Borrower, to:
COOL TECHNOLOGIES, INC.
8875 Hidden River Parkway, Suite 300
Tampa, Florida 33637
Attn: Quentin Ponder, Chief Financial Officer
Fax:
Email: qponder@cooltechnologiesinc.com
If to the Holder:
POWER UP LENDING GROUP LTD.
111 Great Neck Road, Suite 214
Great Neck, NY 11021
Attn: Curt Kramer, Chief Executive Officer
e-mai l: info@poweruplending.com
With a copy by fax only to (which copy shal l not constitute notice):
Naidich Wurman LLP
111 Great Neck Road, Suite 216
Great Neck, NY 11021
Attn: Allison Naidich
facsimile: 516-466-3555
e-mail: allison@nwlaw.com
10 |
|
4.3 Amendments. This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder. The term "Note" and all reference thereto, as used throughout this instrument, shall mean this instrument (and the other Notes issued pursuant to the Purchase Agreement) as originally executed, or if later amended or supplemented, then as so amended or supplemented.
4.4 Most Favored Nation . During the period where any monies are owed to the Holder pursuant to this Note, if the Borrower engages in any future financing transactions with a third party investor, the Borrower will provide the Holder with written notice (the "MFN Notice") thereof promptly but in no event less than 10 days prior to closing any financing transactions. Included with the MFN Notice shall be a copy of all documentation relating to such financing transaction and shall include, upon written request of the Holder, any additional information related to such subsequent investment as may be reasonably requested by the Holder. In the event the Holder determines that the terms of the subsequent investment are preferable to the terms of the securities of the Borrower issued to the Holder pursuant to the terms of the Purchase Agreement , the Holder will notify the Borrower in writing. Promptly after receipt of such written notice from the Holder, the Borrower agrees to amend and restate the Securities (which may includ e the conversion terms of this Note), to be identical to the instruments evidencing the subsequent investment. Notwithstanding the foregoing, t his Section 4.4 shall not apply in respect of (i) an Exempt Issuance, or (ii) an underwritten public offering of Common Stock. "Exempt Issuance" means the issuance of: (a) shares of Common Stock or options to employees, officers, consultants, advisors or directors of the Borrower pursuant to any stock or option plan duly adopted for such purpose by a majority of the members of the Board of Directors or a majority of the members of a committee of directors established for such purpose, (b) securities upon the exercise or exchange of or conversion of this Note and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date hereof, and (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Borrower, provided that any such issuance shall only be to a Person which is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Borrower and in which the Borrower receives benefits in addition to the investment of funds, but shall not include a transaction in which the Borrower is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.
4.5 Assignability . This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an "accredited investor" (as defined in Rule 501(a) of the Securities and Exchange
Commission). Notwithstanding anything in this Note to the contrary , this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement; and may be assigned by the Holder without the consent of the Borrower.
4.6 Cost of Collection . If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of collection, including reasonable attorneys' fees.
11 |
|
4.7 Governing Law . This Note shall be governed by and construed in accordance with the laws of the State of Virginia without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state courts of New York or in the federal courts located in the Eastern District of New York. The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The Borrower and Holder waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs . In the event that any provision of this Note or any other agreement delivered in connect ion herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Note, any agreement or any other document delivered in connection with this Note by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
4.8 Purchase Agreement. By its acceptance of this Note, each party agrees to be bound by the applicable terms of the Purchase Agreement.
4.9 Remedies . The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or cur ing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this on December 10, 2018
COOL TECHNOLOGIES, INC.
By:
Quentin Ponder
Chief Finan cial Officer
12 |
|
EXHIBIT A-- NOTICE OF CONVERSION
The undersigned hereby elects to convert $ principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note ("Common Stock") as set forth below, of COOL TECHNOLOGIES, INC., a Nevada corporation (the "Borrower") according to the conditions of the convertible note of the Borrower dated as of December 10, 2018 (the "Note"), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.
Box Checked as to applicable instructions:
13 |
EXHIBIT 10.96
AMENDMENT
TO THE $385,000 PROMISSORY NOTE DATED February 19, 2018
The parties agree that $385,000 Promissory Note by and between Cool Technologies, Inc. (“Company”) and Lucas Hoppel (“Holder”) is hereby amended as follows:
Maturity Date: The Maturity Date shall be extended to May 1st, 2019.
ALL OTHER TERMS AND CONDITIONS OF THE $385,000 PROMISSORY NOTE REMAIN IN FULL FORCE AND EFFECT.
Please indicate acceptance and approval of this amendment dated December 28th, 2018 by signing below:
/s/ Tim Hassett |
/s/ Lucas Hoppel |
|
Tim Hassett |
Lucas Hoppel |
|
Cool Technologies, Inc. |
||
Chief Executive Officer |
|
|
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Timothy Hassett, certify that:
1. |
I have reviewed this Annual Report on Form 10-K of Cool Technologies, Inc (the “registrant”) for the year ended December 31, 2018; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exhibit Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Dated: April 15, 2019 |
By: |
/s/ Timothy Hassett |
|
|
Timothy Hassett |
|
|
Chief Executive Officer (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Quentin Ponder, certify that:
1. |
I have reviewed this Annual Report on Form 10-K of Cool Technologies, Inc. (the “registrant”) for the year ended December 31, 2018; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
2. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exhibit Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Dated: April 15, 2019 |
By: |
/s/ Quentin Ponder |
|
|
Quentin Ponder |
|
|
Chief Financial Officer (Principal Financial and Accounting Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 USC, SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Cool Technologies, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Timothy Hassett, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
|
(1) |
The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: April 15, 2019 |
By: |
/s/ Timothy Hassett |
|
|
Timothy Hassett |
|
|
Chief Executive Officer (Principal Executive Officer) |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 USC, SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Cool Technologies, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Quentin Ponder, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
|
(1) |
The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
(2) |
Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: April 15, 2019 |
By: |
/s/ Quentin Ponder |
|
|
Quentin Ponder |
|
|
Chief Financial Officer (Principal Financial and Accounting Officer) |