As filed with the U.S. Securities and Exchange Commission on
January 29, 2018
Registration No. 333-222529
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1/A TO
FORM S-1
(Amendment No. 1)
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933
OCEAN THERMAL ENERGY CORPORATION
(Exact
name of registrant as specified in its charter)
Nevada
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4931
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20-5081381
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(State
or other jurisdiction of incorporation or
organization)
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(Primary
Standard Industrial Classification Code Number)
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(I.R.S.
Employer Identification No.)
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800 South Queen Street, Lancaster, Pennsylvania 17603
Telephone (717) 299-1344
(Address,
including zip code and telephone number, including area code, of
registrant’s principal executive offices)
Jeremy P. Feakins, Chief Executive Officer
Ocean Thermal Energy Corporation
800 South Queen Street, Lancaster, Pennsylvania 17603
Telephone (717) 299-1344
(Name,
address, including zip code and telephone number, including area
code, of agent for service)
Copy to:
James R. Kruse
Kevin C. Timken
Michael Best Friedrich LLP
170 South Main Street, Suite 1000, Salt Lake City, Utah
84101
Telephone: (385) 695-6450
From time to time after the effectiveness of this registration
statement.
(Approximate
date of commencement of proposed sale to the public)
If any
of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box.
☒
If this
Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. ☐
If this
Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same offering.
☐
If this
Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same offering.
☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer ☐
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Accelerated
filer ☐
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Non-accelerated
filer ☐
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Smaller
reporting company
☒
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Emerging
growth company ☐
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The Registrant hereby amends this registration statement on such
date or dates as may be necessary to delay its effective date until
the Registrant files a further amendment that specifically states
that this registration statement will thereafter become effective
in accordance with Section 8(a) of the Securities Act of 1933 or
until the registration statement becomes effective on such date as
the Securities and Exchange Commission, acting pursuant to Section
8(a), may determine.
EXPLANATORY NOTE
This
Amendment No. 1 to Post-Effective Amendment No. 1/A to the
Registration Statement on Form S-1 (File No. 333-222529) (the
“Registration Statement”) of Ocean Thermal Energy
Corporation is being filed: (i) pursuant to the undertakings
in Item 17 of the Registration Statement to update and supplement
the information contained in the Registration Statement, as
originally declared effective by the U.S. Securities and Exchange
Commission (“SEC”) on January 29, 2018, to include
the information contained in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2017, that was filed with the SEC on
April 2, 2018, and the information contained in our Quarterly
Report on Form 10-Q for the quarter ended September 30, 2018, that
was filed with the SEC on November 13, 2018; and (ii) to
update certain other information in the Registration
Statement.
No
additional securities are being registered under this
Post-Effective Amendment No. 1/A. All applicable registration fees
were paid at the time of the original filing of the Registration
Statement.
The information in this prospectus is not complete and may be
changed. We may not sell these securities until the post-effective
amendment to the registration statement filed with the U.S.
Securities and Exchange Commission is effective. This prospectus is
not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale
is not permitted.
SUBJECT TO COMPLETION, DATED DECEMBER 31, 2018
PRELIMINARY PROSPECTUS
Ocean Thermal Energy Corporation
52,631,578
Shares of Common Stock
_____________________________________
This
prospectus relates to the offer and resale of up to 52,631,578
shares of our common stock, par value $0.001 per share, by the
selling stockholder identified on page 18. All such shares
represent shares that L2 Capital, LLC (“L2 Capital”)
has agreed to purchase from us pursuant to the terms and conditions
of an Equity Purchase Agreement we entered into with it on December
18, 2017 (the “Equity Purchase Agreement”). Subject to
the terms and conditions of the Equity Purchase Agreement, we have
the right to “put,” or sell, up to $15,000,000 worth of
shares of our common stock to L2 Capital. This arrangement is also
sometimes referred to herein as the “Equity Line.” As
of December 31, 2018, we have sold 2,300,000 shares to L2 Capital
under the Equity Line for a total of $135,575.
For
more information about the selling stockholder, please see the
section of this prospectus entitled “Selling
Stockholder” beginning on page 18.
The
selling stockholder may sell any shares offered under this
prospectus at fixed prices, prevailing market prices at the time of
sale, varying prices, or negotiated prices.
L2
Capital is an “underwriter” within the meaning of the
Securities Act of 1933, as amended (the “Securities
Act”), in connection with the resale of our common stock
under the Equity Line, and any broker-dealers or agents that are
involved in such resales may be deemed to be
“underwriters” within the meaning of the Securities Act
in connection therewith. In such event, any commissions received by
the broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. For more
information, please see the section of this prospectus titled
“Plan of Distribution” beginning on page
18.
We will
not receive any proceeds from the resale of shares of common stock
by the selling stockholder. We will, however, receive proceeds from
the sale of shares directly to L2 Capital pursuant to the Equity
Line.
Our
common stock is quoted on the OTCQB Marketplace operated by the OTC
Markets Group, Inc., or “OTCQB,” under the ticker
symbol “CPWR.” On January 9, 2018, the average of the
high and low sales prices of our common stock was $0.285 per share.
On December 31, 2018, the average of the high and low sales prices
of our common stock was $0.59 per share.
Investing in our
common stock involves risks that are described in the “Risk
Factors” section beginning on page 3 of this
prospectus.
Neither
the U.S. Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus is
.
TABLE OF CONTENTS
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Page
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PROSPECTUS
SUMMARY
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1
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OFFERING
SUMMARY
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2
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RISK
FACTORS
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3
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CAUTIONARY
STATEMENT ON FORWARD-LOOKING STATEMENTS
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14
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USE OF
PROCEEDS
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15
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THE
OFFERING
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15
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SELLING
STOCKHOLDER
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18
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PLAN
OF DISTRIBUTION
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18
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DESCRIPTION
OF SECURITIES
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19
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EXPERTS
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22
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LEGAL
MATTERS
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22
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INTERESTS
OF NAMED EXPERTS AND COUNSEL
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22
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BUSINESS
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23
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LEGAL
PROCEEDINGS
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36
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MARKET
PRICE OF AND DIVIDENDS ON OUR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
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36
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MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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36
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DIRECTORS
AND EXECUTIVE OFFICERS
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43
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EXECUTIVE
COMPENSATION
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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45
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TRANSACTIONS
WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS AND
CORPORATE GOVERNANCE
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WHERE
YOU CAN FIND MORE INFORMATION
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DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
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48
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INDEX
TO FINANCIAL STATEMENTS
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F-1
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_____________________________________________
You
should rely only on the information contained in this prospectus or
in any free writing prospectus we may authorize to be delivered or
made available to you. We have not authorized anyone to provide you
with different information. We are offering to sell, and seeking
offers to buy, shares of common stock only in jurisdictions where
offers and sales are permitted. The information in this prospectus
is accurate only as of the date of this prospectus, regardless of
the time of delivery of this prospectus or of any sale of shares of
our common stock. Our business, financial condition, operating
results and prospects may have changed since that
date.
Ocean
Thermal Energy Corporation, the Ocean Thermal Energy Corporation
logo, and other trademarks or service marks of Ocean Thermal
appearing in this prospectus are the property of Ocean Thermal
Energy Corporation. This prospectus also includes trademarks,
tradenames, and service marks that are the property of other
organizations. Solely for convenience, trademarks and tradenames
referred to in this prospectus appear without the ® and
™ symbols, but those references are not intended to indicate,
in any way, that we will not assert, to the fullest extent under
applicable law, our rights, or that the applicable owner will not
assert its rights, to these trademarks and tradenames.
PROSPECTUS SUMMARY
The following summary highlights information contained elsewhere in
this prospectus and does not contain all of the information that
you should consider in making your investment decision in our
common stock. Before investing in our common stock, you should
carefully read this entire prospectus, including our financial
statements and the related notes included in this prospectus and
the information set forth under the headings “Risk
Factors” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
As used in this prospectus, unless the context otherwise requires,
references to “we,” “us,” and
“our” refer to Ocean Thermal Energy
Corporation.
Our Business
Ocean
Thermal Energy Corporation, a Nevada corporation, is currently in
the business of designing Ocean Thermal Energy Conversion
(“OTEC”) power plants and Seawater Air Conditioning
(“SWAC”) plants for large commercial properties,
utilities, and municipalities. These technologies provide practical
solutions to mankind’s three oldest and most fundamental
needs: clean drinking water, plentiful food, and sustainable,
affordable energy without the use of fossil fuels. OTEC is a clean
technology that continuously extracts energy from the temperature
difference between warm surface ocean water and cold deep seawater.
In addition to producing electricity, some of the seawater running
through an OTEC plant can be efficiently desalinated using the
power generated by the OTEC technology, producing thousands of
cubic meters of fresh water every day for the communities served by
its plants for use in agriculture and human consumption. This cold
deep nutrient-rich water can also be used to cool buildings (SWAC)
and for fish farming/ aquaculture. In short, it’s a
technology with many benefits, and its versatility makes OTEC
unique.
We
previously operated under the corporate name of TetriDyn Solutions,
Inc. (“TetriDyn”). On March 10, 2017, TetriDyn entered
into an Agreement and Plan of Merger (the “Merger
Agreement”) with Ocean Thermal Energy Corporation, a Delaware
corporation (“OTE”). On May 9, 2017, TetriDyn
consummated the acquisition of all outstanding equity interests of
OTE pursuant to the terms of the Merger Agreement, with a newly
created Delaware corporation that is wholly owned by TetriDyn
(“TetriDyn Merger Sub”), merging with and into OTE (the
“Merger”) and OTE continuing as the surviving
corporation and a wholly owned subsidiary of TetriDyn. Effective
upon the consummation of the Merger (the “Closing”),
the OTE stock issued and outstanding or existing immediately prior
to the Closing was converted into the right to receive newly issued
shares of TetriDyn common stock. As a result of the Merger,
TetriDyn succeeded to the business and operations of OTE. In
connection with the consummation of the Merger and upon the consent
of the holders of a majority of the outstanding common shares,
TetriDyn filed with the Nevada Secretary of State an amendment to
its articles of incorporation changing its name to “Ocean
Thermal Energy Corporation.”
Our
principal executive office is located at 800 South Queen Street,
Lancaster, PA 17603. Our telephone number is (717) 299-1344 and our
website is www.otecorporation.com. Unless expressly noted, none of
the information on our website is part of this prospectus or any
prospectus supplement. Our common stock is quoted on the OTCQB
Marketplace operated by the OTC Markets Group, Inc., or
“OTCQB,” under the ticker symbol
“CPWR.”
OFFERING SUMMARY
Common
stock that may be offered by selling stockholder:
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52,631,578
shares, 2,300,000 shares of which have been sold as of December 31,
2018
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Common
stock outstanding before this offering:
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131,038,944
shares as of December 31, 2018
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Common
stock to be outstanding after this offering:
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181,370,522
shares
(1)
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Use of
proceeds:
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We will
not receive any proceeds from the resale or other disposition of
the shares covered by this prospectus by the selling stockholder.
We will receive proceeds from the sale of shares to L2 Capital and
L2 Capital has committed to purchase up to $15,000,000 worth of
shares of our common stock over a period terminating on the earlier
of the date on which L2 Capital has purchased shares under the
Equity Purchase Agreement for an aggregate purchase price of
$15,000,000 or December 11, 2020.
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L2
Capital will pay a purchase price equal to 85% of the “Market
Price,” which is defined as the lowest traded price on the
OTCQB Marketplace, as reported by Bloomberg Finance L.P., during
the five consecutive trading days including and immediately prior
to the “Put Date” (as defined herein) or the date on
which the applicable put notice is delivered to L2 Capital. In
order to exercise the put, certain conditions must be met at each
put notice date including, but not limited to: (i) we must
have an effective registration statement; (ii) our common
stock must be deposit/withdrawal at custodian (“DWAC”)
eligible; (iii) the minimum price must exceed $0.01; and
(iv) the number of shares to be purchased by L2 Capital may
not exceed the number of shares that, when added to the number of
shares of our common stock then beneficially owned by L2 Capital,
would exceed 4.99% of our shares of common stock
outstanding.
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For
further information, see “The Offering” beginning on
page 15.
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Plan of
distribution:
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The
selling stockholder may, from time to time, sell any or all of its
shares of common stock on the stock exchange, market, or trading
facility on which the shares are traded, or in private
transactions. These sales may be at fixed or negotiated
prices.
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For
further information, see “Plan of Distribution”
beginning on page 18.
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Risk
factors:
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You
should read the “Risk Factors” section of this
prospectus and the other information in this prospectus for a
discussion of factors to consider carefully before deciding to
invest in shares of our common stock.
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_______________
(1)
Assumes the issuance of 52,631,578
shares offered hereby that are issuable under our Equity Purchase
Agreement with L2 Capital.
RISK FACTORS
Investing in our common stock involves a high degree of risk. You
should carefully consider the risks described below, as well as the
other information in this prospectus, including our financial
statements and the related notes and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations,” before deciding whether to invest in our common
stock. The occurrence of any of the events or developments
described below could harm our business, financial condition,
operating results, and growth prospects. In such an event, the
market price of our common stock could decline, and you may lose
all or part of your investment. Additional risks and uncertainties
not presently known to us or that we currently deem immaterial also
may impair our business operations.
Risks Related to Our Financial Condition
The auditors’ report for the years ended December 31, 2017
and 2016, contains an explanatory paragraph about our ability to
continue as a going concern.
The
report of our auditors on our consolidated financial statements for
the years ended December 31, 2017 and 2016, as well as for prior
years, contains an explanatory paragraph raising substantial doubt
about our ability to continue as a going concern. We had a net loss
of $14,591,675 and $6,108,117, respectively, and used cash in
operations of $1,469,169 and $2,057,879, respectively, and had a
working capital deficiency of $10,716,255 and $7,865,177,
respectively, and an accumulated deficit of $67,703,218 and
$53,111,543, respectively, at December 31, 2017 and 2016. This
raises substantial doubt about our ability to continue as a going
concern. Unless we raise additional capital by December 31, 2019,
we will be unable to continue as a going concern. Our ability to
continue as a going concern beyond December 31, 2019, is dependent
on our ability to raise additional capital through the sale of debt
or equity securities or stockholder loans and to implement our
business plan during the next 12 months. The financial statements
do not include any adjustments that might be necessary if we are
unable to continue as a going concern. Management believes that
actions presently being taken to obtain additional funding through
implementing our strategic plans, broadly based marketing strategy,
and sales incentives to expand operations will provide the
opportunity for us to continue as a going concern.
We have no current project that will generate revenues in the near
future.
None of
our several projects is to the development stage at which it will
generate revenues in the near future. Our project development
cycles are relatively long, extending over several years as we
identify a potential project site, complete negotiations with third
parties, complete permitting, obtain financing, complete
construction, and place a plant into service. We expect to receive
a development fee of approximately 3% of the project cost from our
projects, payable upon the close of project financing. Operating
revenues from projects are expected to be received when the plant
has been built and placed into operation. We are currently focusing
on developing a U.S. Virgin Island project, but even if we develop
it successfully, it will not generate revenues until several years
in the future. Until we receive revenues from this or another
project, we will be dependent on raising funds from external
sources.
We will require substantial amounts of additional capital from
external sources.
We do
not have any current source of revenues or sufficient cash or other
liquid resources to fund our planned activities until we receive
development fees from new contracts. Accordingly, as in the past,
we will need substantial amounts of capital from external sources
to fund day-to-day operations and project development. We have no
arrangements or commitment for such capital. We plan to continue
our practice of seeking external capital through the sale of debt
or equity, although we cannot assure that such efforts will be
successful. Any new investments will dilute the interest of the
current stockholders. Further, new investors may require
preferential financial returns, security, voting rights, or other
preferences that will be superior to the rights of the holders of
common stock. Alternatively, as project development advances, we
may be required to sell all or a portion of our interest in one or
more projects, which could reduce our retained financial interest
and potential return.
Risks Related to Our Business
Our efforts to develop OTEC and SWAC plants are subject to many
financial, technical, managerial, and sales risks that may make us
unsuccessful.
We
incur substantial costs that we may not recover developing a new
project that we may not build, operate, or sell. The identification
of suitable locations, the investigation of the applicable
regulatory and economic framework, the identification of potential
purchasers, the completion of preliminary engineering and planning,
and the funding of related administrative and support costs
ordinarily require several years to complete before we determine to
further develop or abandon a project. Each of these steps is
fraught with risks and uncertainties, such as:
●
limited market due
to low demand, existing competitive energy sources, low power
costs, or the absence of a single or few large potential output
purchasers;
●
a regulatory scheme
suggesting that the development and operation of a plant would be
subject to excessively stringent utility regulations, burdensome
zoning or permitting practices and requirements, unusually
stringent environmental requirements, or similar
factors;
●
shortage of
suitable onshore locations, lack of available cold water with
near-shore accessibility, sea wave and current conditions, and
exposure to hurricanes, typhoons, earthquakes, or similar extreme
events;
●
the unavailability
of favorable tax or other incentives or excessively stringent
applicable incentive requirements;
●
the high cost and
potential regulatory difficulties in integrating into new
markets;
●
the possibility
that new markets may be limited or unstable or exposed to
competition from other sources of existing or potentially new
energy sources;
●
difficulties in
negotiating power purchase agreements (PPAs) with potential
customers, including in some instances, the necessity to assist in
the formation of a power purchasing group; and
●
educating the
market as well as investors regarding the reliability and
economical and environmental benefits of ocean thermal
technologies.
We
cannot assure that we will be able to overcome these risks as we
initiate the development of a project. We may incur substantial
costs in advancing a project through the early stages, only to
conclude eventually that the project is not economically or
technically feasible, in which case we may be unable to recover the
costs that we have then incurred. When we elect to proceed with a
project, we may continue to incur substantial costs and be unable
to complete the development, sell the project, or otherwise recover
our investment. Even when a project is developed, constructed, and
placed into operation, we cannot assure that we will be able to
operate at a profit sufficient to recover our total
investment.
We are dependent on the
performance of counterparties to our
agreements
.
Our
projects are and will be complex, with a number of agreements among
several parties that purchase plant outputs; provide financing;
complete design, construction, and other services; design and
perform regulatory compliance; and fulfill other requirements. The
failure of any participant in one of our projects due to its own
management, financial, operating, or other deficiencies, all of
which may be outside our control, can materially and adversely
affect our operations and financial results. In circumstances in
which we are not the prime developer of a large-scale project
involving many large components in addition to our OTEC, SWAC, or
other components, we would have little ability to address problems
resulting from performance failures by others or implement
project-wide remedial measures. The foregoing is illustrated in our
Baha Mar project, which is now on hold because of contract
performance and financing disputes by others and may never
resume.
Ongoing world economic, currency-exchange, energy-price, and
political circumstances adversely affect our project development
activities.
Recent
and ongoing world events outside of our control or influence
adversely affect our development activities. Economic uncertainties
have resulted in the unpredictable availability of credit, debt,
and equity financing; volatile interest rates; currency
exchange-rate fluctuations that add risk to international projects;
restrictions on the availability of borrowing; concerns respecting
inflation and deflation; economic turmoil resulting from
unpredictable political events and tensions in international
relations; substantial reductions in hydrocarbon energy prices and
the impact of such declines on the cost of energy generally; shifts
in the economic feasibility of competitive energy sources; and
similar factors. These adverse factors frequently have a
particularly intense effect on emerging markets and developing
countries, which we believe provide the greatest opportunity for
our development of our projects. The possibility that principal
energy prices will continue at current or even higher levels, which
could reduce the projected cost at which power could be generated
by hydrocarbon-fueled power plants, could make our relatively
higher-cost plants less competitive. These emerging and developing
markets are particularly vulnerable to the negative impacts of
these adverse circumstances. The economic feasibility of
alternative energy, including the process we develop and propose to
operate, as compared to hydrocarbon energy is adversely affected as
the prices for hydrocarbon fuels decline. Accordingly, possible
continuing low hydrocarbon prices may retard the potential increase
in the economic feasibility of alternative energy. The decline in
crude oil prices from over $100 per barrel several years ago to
approximately half that in mid-2016 has adversely affected
alternative energy development. Our ability to develop and operate
alternative energy plants and our ability to generate revenue will
be adversely affected by continuing, relatively soft hydrocarbon
energy prices. Further, alternative energy development may be
adversely affected by uncertainty in hydrocarbon prices or public
expectations that hydrocarbon prices may decline
again.
We require substantial amounts of capital for all phases of our
proposed activities.
We
require substantial amounts of capital to fund efforts to identify,
research, preliminarily engineer, permit, and design our projects
and negotiate PPAs for them. These costs may not be recovered,
because we may not elect to complete the development of the project
or because the development and operation of the project are not
successful. We will rely on external capital to fund all of our
operations, and we cannot assure that such capital will be
available. Our efforts to access capital markets will be limited,
particularly at the outset, because we have not yet developed and
placed into operation our first plant. Accordingly, we expect that
we will have to provide the potential for a significant economic
return for the initial capital we obtain, which will likely dilute
the interests of our existing stockholders. We expect that each
project that we are able to fully develop, construct, and place
into operation will require several stages and levels of debt and
equity financing. For example, we expect that a 17.2-megawatt (MW)
OTEC plant may require total capital expenditures of approximately
$445 million, consisting of $365 million in project debt financing
and $80 million in equity. We cannot assure that we will be able to
obtain financing, and if obtained, such financing may be on terms
that we will retain only a minority financial interest in the
completed project and its operations. Our inability to obtain
required financing for any activity or project could have a
material adverse effect on our activities and
operations.
We are reliant on our key executives and personnel.
Our
business, development, and prospects are highly dependent upon the
continued services and performance of our directors and other key
personnel, on whom we rely for experience, technical skills, and
commercial relationships. We believe that the loss of services of
any existing key executives, for any reason, or failure to attract
and retain necessary personnel, could have a material adverse
impact on our business, development, financial condition, results
of operations, and prospects. Although we have entered into
employment agreements with our key executives, we may not be able
to retain our key executives. We do not maintain key-man life
insurance on any of our executive employees.
Regulations and policies governing energy projects, power
generation, desalinated water sales, and other aspects of our OTEC
and SWAC plants may adversely affect our ability to develop
projects, and any changes in the applicable regulatory schemes may
adversely affect projects that we are constructing or have
constructed and are operating.
In
identifying possible plant locations and undertaking preliminary
development, an important factor in the overall economic
feasibility of a project will be the governing regulatory regime.
Such regulation includes the way the local jurisdiction regulates
the power, cooling energy, or water output from a plant. Any change
in that regulatory scheme after we determine to develop a plant
based on existing circumstances could have a material adverse
effect on our proposed operations. Generally, we will seek to
structure plant output sales agreements as privately negotiated
contracts not subject to utility or similar regulation, but we
cannot assure that we will be able to do so. Some PPAs that we may
seek to enter into may be subject to public utility commission
approval, which may not be obtained or may be delayed. In some
jurisdictions, the sale of output from a plant may be subject to
public service commission or regulation by a similar authority as a
public utility, even though we attempt to negotiate a private
purchaser agreement for that output. In these circumstances, we may
encounter delays in obtaining any required approval, approval may
be conditioned on specified prices or other operating conditions,
or the existence of the regulatory framework may delay or limit our
ability to seek price increases.
The financial model for our proposed projects has not been tested
and may not be successful.
We are
proposing a financial model for the development of individual
projects that includes development financing provided by us,
construction financing provided by equity investors in the specific
projects, and project debt financing; the payment of a development
fee to us at the time of construction; and continuing equity
participation by us throughout the plant’s operation. We have
not used this model in the financing or completion of any plant,
and we cannot assure that the financial model and, therefore, the
anticipated financial return to us will be acceptable to those that
might provide the requisite external capital. We may need to revise
extensively our financing structure for each project, and we cannot
assure that any restructured proposal would not substantially
reduce our financial return or increase our risk. The financial,
investment, and credit community are generally unfamiliar with OTEC
and SWAC projects, which will adversely affect our financing
efforts. We have no existing relationships with potential sources
of debt or equity capital, and any financing sources that we may
develop may be inadequate to support the anticipated capital needs
of our business. Our efforts to obtain financing may be adversely
affected by the fact that our projects will likely be located in
developing or emerging markets. Our inability to obtain financing
may force us to abandon projects in which we have invested
substantial costs, which we may be unable to recover. The process
of identifying new sources of debt and equity financing and
agreeing on all relevant business and legal terms could be lengthy
and could require us to limit the rate at which we can develop
projects or reduce our financial return.
We may be exposed to political and legal risks in the developing or
emerging markets in which we propose to locate plants.
Many of
the emerging and developing markets that may be suitable for a
potential OTEC or SWAC plants are located in emerging or developing
countries that may have developing and untested regulatory and
legal environments for large-scale, international, commercial
enterprises. Further, political instability, regime change, or
other political factors may increase uncertainty and instability,
which in turn may adversely affect our ability to secure necessary
regulatory approvals and obtain required project financing, which
increases related costs and reduces our financial return. Any
changes in applicable laws and regulations, including any
governmental incentives, environmental requirements or
restrictions, safety requirements, and similar matters, may change,
and the risk or likelihood of such a change could adversely affect
the availability and cost of financing. Further, in some
jurisdictions, applicable legal requirements may not have been
fully tested and are still being developed in the face of modern
international commercial transactions and environmental
requirements, which may lead to changes in interpretation or
application that may be adverse to us. Our expectations regarding
the size of the potential OTEC and SWAC markets and the number of
possible suitable locations may not be accurate.
Our
business plan and models are based on our identification of
potential suitable locations for OTEC or SWAC plants based on a
preliminary evaluation of public information respecting demographic
data, current power-generation costs, and local seafloor contours
and seawater temperatures, which may be inaccurate. Any material
inaccuracy could substantially reduce the total market available to
us for plant development.
We may
be unable to arrange or complete future construction projects on
time, within expected budgets, or without interruption due to
materials availability and disruptions in supply, labor, or other
factors. If any project reaches the point at which we undertake
construction, such construction may be subject to actual prices
higher than the amount budgeted, the limited or delayed
availability of components or materials, shortages or interruptions
of labor or materials, or similar circumstances. In the case we
have insufficient budget flexibility to pay increased construction
costs, corresponding delays could result to construction completion
and the commencement of operations.
Emerging markets
are often associated with high growth rates that may not be
sustainable and may be accompanied by periods of high inflation.
Rising inflation or related government monetary and economic
policies in certain project jurisdictions may affect our ability to
obtain external financing and reduce our ability to implement our
expansion strategy. We can give no assurances that a local
government will not implement general or project-specific measures
to tighten external financing standards, or that if any such
measure is implemented, it will not adversely affect our future
operating results and profitability.
We are subject to changing attitudes about environmental
risks.
Our
projects may face opposition from environmental groups that may
oppose our development, construction, or operation of OTEC or SWAC
plants. Each project is expected to have different environmental
issues, especially as many of our projects are based in different
settings having a wide range of environmental standards. We intend
to solicit input from environmental organizations and activists
early in our design process in relation to our projects in an
effort to consider appropriately these organizations’
recommendations in order to mitigate subsequent conflict or
opposition, but we cannot assure that such outreach will be
effective in all cases, and if it is not, opposition to our
projects could increase our cost and adversely affect the results
of our operations.
We may be unable to find land suitable for our
projects.
Each
project site requires land of differing characteristics to permit
the cost-effective construction of OTEC or SWAC plants, and
suitable land may not always be available. Even if available, such
land may be difficult to obtain in a timely or cost-effective
manner. For example, we would prefer to place OTEC power systems
and facilities as close to the ocean as possible. We hope to
mitigate this risk by using land owned by local governments, rather
than private individuals or entities, as targeting local
governments with favorable energy policies or mandates should
reduce land rights risks. Our inability to secure appropriate land
at a reasonable cost may render certain of our future projects
economically unfeasible.
We have a limited number of suppliers for certain materials, which
could increase our costs or delay completion of
projects.
In our
systems, the two most important components are heat exchangers and
deep-water intake pipes. Although there are multiple providers of
each of these components, the supply of the best components comes
from just a few companies globally. Should these resources become
unavailable for any reason or too costly, we would be required to
seek alternative suppliers. The products from such suppliers could
be of a lower quality or more costly, in any event requiring us to
expend additional monies or time to complete our projects as
planned. This could result in financial penalties or other costs to
us.
There may be greater cost in building OTEC plants that generate
over 10 MWs of electricity.
In
order to successfully obtain debt financing for OTEC facilities, we
must find engineering, procurement, and construction contractors
willing to enter into fixed-price contracts at a pricing that is
economically viable for us. Based on our preliminary discussions,
we believe that engineering, procurement, and construction
contractors may be willing to consider fixed-price arrangements for
up to 10-MW OTEC facilities, but we have not yet discussed
performance risk guarantees for OTEC plants greater than 10 MW. The
cost of construction for larger OTEC power systems may vary
considerably. Such variances could include increased costs for
construction, design, and component procurement. As we gain more
experience, we may improve upon efficiencies and accuracy in
pricing. Failure to procure engineering, procurement, and
construction contractors willing to perform fixed-price contracts
on facilities that produce more than 10 MWs may have a material
adverse effect on our operations.
Technological advances may render our technologies, products, and
services obsolete.
We
operate in a fast-moving sector in which new forms of power
generation and new energy sources are continuously being
researched. New technologies may be able to provide power, coolant,
desalinated seawater, or other outputs at a lower cost, including
amortization of capital costs, or with less environmental impact.
We will remain subject to these risks for the useful life of our
projects, which could extend for 20 to 30 years or more. Any such
technological improvements could render our projects
obsolete.
We may not successfully manage growth.
We
intend to continue to develop the projects in our project pipeline
and to construct and operate plants as we deem warranted and as we
are able to finance. This is an ambitious growth strategy. Our
growth and future success will depend on the successful completion
of the expansion strategies and the sufficiency of demand for our
energy products. The execution of our expansion strategies may also
place a strain on our managerial, operational, and financial
reserves. Should we fail to effectively implement such expansion
strategies or should there be insufficient demand for our products
and services, our business operations, financial performance, and
prospects would be adversely affected.
There will likely be a single or limited number of power purchasers
from each plant, so we will be dependent on their economic
viability and stability and continued operations.
We
expect that any plant that we operate will provide power, cooling,
desalinated water, or other products to a few or a limited number
of key power purchasers that will use the power for specific
commercial enterprises, such as resorts, manufacturing or
processing plants, or similar large-scale operations. Accordingly,
our ability to sell power and other outputs will be dependent on
the economic viability of these purchasers. If one or more key
purchasers were to fail, we would be required to obtain alternative
purchasers for our power and other outputs, and there may be no or
a limited number of alternative purchasers in the merging and
developing markets where we anticipate our plants may be located.
Accordingly, a failure of an output purchaser may result in the
failure of our power plant project. We do not anticipate that we
will be able to obtain insurance to protect us against such a loss
on acceptable terms. Further, our project output purchasers may not
comply with contractual payment obligations or may otherwise fail
to perform their contracts, and they may have greater economic
bargaining power and negotiating leverage as we seek to enforce our
contractual rights. To the extent that any of our project power
purchasers are, or are controlled by, governmental entities, our
projects may also be subject to legislative, administrative, or
other political action or policies that impair their contractual
performance. Any failure of any key power purchasers to meet their
contractual obligations for any reason could have a material
adverse effect on our business and operations.
Operational problems, natural events or catastrophes, casualty
loss, or other events may impair the commercial operation of our
projects.
Our
ability to meet our delivery obligations under power-generation
contracts, as well as our ability to meet economic projections,
will depend on our ability to maintain the efficient working order
of our plants. Severe weather, natural disasters, accidents,
failure of significant equipment components, inability to obtain
replacement parts, failure of power transmission facilities, or
other catastrophes or occurrences could materially interrupt our
activities and consequently reduce our economic return. Since all
of our plants will be located on the shore within close proximity
to deep-ocean or lake water, our plants will be subject to
extraordinary natural occurrences, such as wave surges from
hurricanes or typhoons, tsunamis, earthquakes, and other events,
over which we will have absolutely no control. We cannot assure
that we can obtain sufficient insurance to protect us from all
risks resulting from such catastrophes. Further, we cannot assure
that any design features or operating policies that we may use will
mitigate the risks to which our plants may be exposed. Any
threatened or actual events could expose us to plant shutdowns,
substantial repairs, interruptions of operations, damages to our
power purchasers, and similar events that could require us to incur
substantial costs and significantly impair our revenues and results
of operations.
We may be adversely affected by climate change.
Climate
change may result in changes in ocean currents and water
temperatures that could have a material adverse effect on our
results of operations. These changes may require additional capital
costs or impair the efficiency of our operations. Because of the
size and cost of major components of our power plants, we typically
will not inventory spare components, so that any substantial damage
may require that we await the custom manufacture and delivery of
such items, which may involve substantial delays. Significant
changes may render any plant inefficient and
uneconomical.
Our projects will be subject to substantial
regulation.
Our
projects likely will be significant commercial or industrial
enterprises in each of their locations and, as such, will be
subject to numerous environmental, health and safety,
antidiscrimination, and similar laws and regulations in each of the
jurisdictions governing our locations. These laws and regulations
will require our projects to obtain and maintain permits and
approvals; complete environmental impact assessments or statements
prior to construction; and review processes and operations to
implement environmental, health and safety, antidiscrimination, and
other programs and procedures to control risks associated with our
operations.
Our
in-water facilities and operations may be deemed to threaten living
coral, sea plants and animals, shoreline contours, and similar
items. In some circumstances, we may encounter environmental
problems that we may unable to overcome, which may force us to
relocate our facilities, at considerable additional
costs.
If our
projects do not comply with applicable laws, regulations, or permit
conditions, or if there are endangered or threatened species
fatalities on our projects, we may be required to pay penalties or
fines or curtail or cease operations of the affected projects. In
addition, violations of environmental and other laws, including
certain violations of laws protecting wetlands, shorelines and
land, and sea plant and animal life, may result in civil fines,
criminal sanctions, or injunctions.
Some
environmental laws impose liability on current and previous owners
and operators of real property for the cost of removal or
remediation of hazardous substances, without regard to whether the
owner or operator knew of, or was responsible for, the release of
such hazardous substance. In some jurisdictions, private plaintiffs
may also bring claims arising from the presence of hazardous
substances or their unlawful release or exposure. We will likely be
unable to purchase insurance against these risks at all or on
acceptable terms.
Environmental
health and safety laws, regulations, and permit requirements
applicable to any specific project at the time of construction may
change or become more stringent during the life of the operation.
Any such changes could require that our projects incur substantial
additional costs, alter their operations, or limit or curtail their
operations in order to comply, which would have a material adverse
effect on our operations. We may not be able to pass on any
additional costs that we incur to our power purchasers,
particularly in those cases in which we sell power pursuant to a
long-term, fixed-price agreement. The OTEC and SWAC industry may be
subject to increased regulatory oversight.
As the
OTEC and SWAC industries develop, new regulatory schemes may be
adopted by one or more jurisdictions in which we develop or operate
plants in order to address actual or perceived threats or problems.
In addition to more stringent environmental, safety, and other
regulations that may be applicable to us generally under the
current regulatory scheme, whole new areas of regulation may be
adopted, which could have a material adverse effect on our results
of operations. New regulations may specifically regulate, for
example, the price at which power that is generated from different
seawater temperatures may be sold, even to private purchasers. We
may have plants in various locations subject to different governing
jurisdictions, so the complexity of this developing and expanding
regulatory pattern may be particularly cumbersome and
expensive.
Insurance to cover anticipated risks may become more
expensive.
There
are no known commercial OTEC and SWAC plants in operation, so the
nature and cost of insurance is difficult to predict. Insurance
costs may substantially exceed the costs forecast during the
planning process or budgeted during actual operations. We cannot
assure that adequate insurance coverage will be available to
protect us against all risks or that any related costs will be
economical. Accordingly, if we are unable or cannot afford to
purchase insurance against specific risks, our projects may be
fully exposed to those risks, which also could have a material
adverse effect on the viability of any affected plant.
Risks Related to Our International Operations
Certain risks of loss arise from our need to conduct transactions
in foreign currencies.
Our
business activities outside the United States and its territories
may be conducted in foreign currencies. In the future, our capital
costs and financial results may be affected by fluctuations in
exchange rates between the applicable currency and the dollar.
Other currencies used by us may not be convertible at satisfactory
rates. In addition, the official conversion rates between a
particular foreign currency and the U.S. dollar may not accurately
reflect the relative value of goods and services available or
required in other countries. Further, inflation may lead to the
devaluation of such other currencies.
Foreign governmental entities may have the authority to alter the
terms of our rights or agreements if we do not comply with the
terms and obligations indicated in such agreements.
Pursuant to the
laws in some jurisdictions in which we may develop or operate
plants, foreign governmental entities may have the authority to
alter the terms of our contractual or financial rights or override
the terms of privately negotiated agreements. In extreme
circumstances, some foreign governments have taken the extreme step
of confiscating private property on the assertion that such action
is necessary in the public interest of the country. If this were to
occur, we may not be compensated fairly or at all. We cannot assure
that we have complied, and will comply, with all the terms and
obligations imposed on us under all foreign laws to which one or
more of our operations and assets may be subject.
Our operations will require our compliance with the Foreign Corrupt
Practices Act.
We must
conduct our activities in or related to foreign companies in
compliance with the U.S. Foreign Corrupt Practices Act, or FCPA,
and similar anti-bribery laws that generally prohibit companies and
their intermediaries from making improper payments to foreign
government officials for the purpose of obtaining or retaining
business. Enforcement officials interpret the FCPA’s
prohibition on improper payments to government officials to apply
to officials of state-owned enterprises, including state-owned
enterprises with which we may develop or operate projects or to
which we may sell plant outputs. While our employees and agents are
required to acknowledge and comply with these laws, we cannot
assure that our internal policies and procedures will always
protect us from violations of these laws, despite our commitment to
legal compliance and corporate ethics. The occurrence or allegation
of these types of risks may adversely affect our business,
performance, prospects, value, financial condition, reputation, and
results of operations.
Our competitors may not be subject to laws similar to the FCPA,
which may give them an advantage in negotiating with underdeveloped
countries and the government agencies.
Our
competitors outside the United States may not be subject to
anti-bribery or corruption laws as encompassing or stringent as the
U.S. laws to which we are subject, which may place us at a
competitive disadvantage.
We may encounter difficulties repatriating income from foreign
jurisdictions.
As we
develop and place plants into operation, we intend to enter into
only revenue-generating agreements in which we are paid in U.S.
dollars directly to our U.S. banks or through countries in which
repatriation of the funds to our U.S. accounts is unrestricted.
However, situations could arise in which we agree to accept payment
in foreign jurisdictions and for which restrictions make it
difficult or costly to transfer these funds to our U.S. accounts.
In this event, we could incur costs and expenses from our U.S.
assets for which we cannot recover income directly. This could
require us to obtain additional working capital from other sources,
which may not be readily available, resulting in increased costs
and decreased profits, if any.
Risks Related to Our Common Stock
Our common stock is thinly traded, and there is no guarantee of the
prices at which the shares will trade.
Trading
of our common stock is conducted on the OTCQB Marketplace operated
by the OTC Markets Group, Inc., or “OTCQB,” under the
ticker symbol “CPWR.” Not being listed for trading on
an established securities exchange has an adverse effect on the
liquidity of our common stock, not only in terms of the number of
shares that can be bought and sold at a given price, but also
through delays in the timing of transactions and reduction in
security analysts’ and the media’s coverage of our
company. This may result in lower prices for your common stock than
might otherwise be obtained and could also result in a larger
spread between the bid and asked prices for our common stock.
Historically, our common stock has been thinly traded, and there is
no guarantee of the prices at which the shares will trade or of the
ability of stockholders to sell their shares without having an
adverse effect on market prices.
We have never paid dividends on our common stock and we do not
anticipate paying any dividends in the foreseeable
future.
We have
not paid dividends on our common stock to date, and we may not be
in a position to pay dividends in the foreseeable future. Our
ability to pay dividends depends on our ability to successfully
develop our OTEC business and generate revenue from future
operations. Further, our initial earnings, if any, will likely be
retained to finance our growth. Any future dividends will depend
upon our earnings, our then-existing financial requirements, and
other factors and will be at the discretion of our board of
directors.
Because our common stock is a “penny stock,” it may be
difficult to sell shares of our common stock at times and prices
that are acceptable.
Our
common stock is a “penny stock.” Broker-dealers who
sell penny stocks must provide purchasers of these stocks with a
standardized risk disclosure document prepared by the U.S.
Securities and Exchange Commission (“SEC”). This
document provides information about penny stocks and the nature and
level of risks involved in investing in the penny stock market. A
broker must also give a purchaser, orally or in writing, bid and
offer quotations and information regarding broker and salesperson
compensation, make a written determination that the penny stock is
a suitable investment for the purchaser, and obtain the
purchaser’s written agreement to the purchase. The penny
stock rules may make it difficult for you to sell your shares of
our common stock. Because of these rules, many brokers choose not
to participate in penny stock transactions and there is less
trading in penny stocks. Accordingly, you may not always be able to
resell shares of our common stock publicly at times and prices that
you feel are appropriate.
In
addition to the “penny stock” rules described above,
the Financial Industry Regulatory Authority (known as
“FINRA”) has adopted rules that require that in
recommending an investment to a customer, a broker-dealer must have
reasonable grounds for believing that the investment is suitable
for that customer. Prior to recommending speculative, low-priced
securities to their noninstitutional customers, broker-dealers must
make reasonable efforts to obtain information about the
customer’s financial status, tax status, investment
objectives and other information. Under interpretations of these
rules, FINRA believes that there is a high probability that
speculative low priced securities will not be suitable for at least
some customers. FINRA requirements make it more difficult for
broker-dealers to recommend that their customers buy our common
shares, which may limit your ability to buy and sell our stock and
have an adverse effect on the market for our shares.
Our management concluded that our internal control over financial
reporting was not effective as of December 31, 2017. Compliance
with public company regulatory requirements, including those
relating to our internal control over financial reporting, have and
will likely continue to result in significant expenses and, if we
are unable to maintain effective internal control over financial
reporting in the future, investors may lose confidence in the
accuracy and completeness of our financial reports and the market
price of our common stock may be negatively affected.
As a
public reporting company, we are subject to the Sarbanes-Oxley Act
of 2002, or Sarbanes-Oxley, as well as to the information and
reporting requirements of the Securities Exchange Act of 1934, as
amended, or the Exchange Act, and other federal securities laws. As
a result, we incur significant legal, accounting, and other
expenses, including costs associated with our public company
reporting requirements and corporate governance requirements. As an
example of public reporting company requirements, we evaluate the
effectiveness of disclosure controls and procedures and of our
internal control over financing reporting in order to allow
management to report on such controls.
Our
management concluded that our internal control over financial
reporting was not effective as of December 31, 2017, due to a
failure to maintain an effective control environment, failure of
segregation of duties, failure of entity-level controls, and our
sole executive’s access to cash.
If
significant deficiencies or other material weaknesses are
identified in our internal control over financial reporting that we
cannot remediate in a timely manner, investors and others may lose
confidence in the reliability of our financial statements and the
trading price of our common stock, and our ability to obtain any
necessary equity or debt financing could suffer. This would likely
have an adverse effect on the trading price of our common stock and
our ability to secure any necessary additional equity or debt
financing.
Risks Relating to our Equity Line with L2 Capital
Resales of shares purchased by L2 Capital under the Equity Purchase
Agreement may cause the market price of our common stock to
decline.
Subject
to the terms and conditions of the Equity Purchase Agreement, we
have the right to “put,” or sell, up to $15,000,000
worth of shares of our common stock to L2 Capital. Unless
terminated earlier, L2 Capital’s purchase commitment will
automatically terminate on the earlier of the date on which L2
Capital has purchased shares pursuant to the Equity Purchase
Agreement for an aggregate purchase price of $15,000,000 or
December 11, 2020. The common stock to be issued to L2 Capital
pursuant to the Equity Purchase Agreement will be purchased at a
price equal to 85% of the “Market Price,” which is
defined as the lowest traded price on the OTCQB, as reported by
Bloomberg Finance L.P., during the five consecutive trading days
including and immediately prior to the settlement date of the sale,
which in most circumstances will be the trading day immediately
following the date that a put notice is delivered to L2 Capital (a
“Put Date”). L2 Capital will have the financial
incentive to sell the shares of our common stock issuable under the
Equity Purchase Agreement in advance of or upon receiving such
shares and to realize the profit equal to the difference between
the discounted price and the current market price of the shares.
This may cause the market price of our common stock to
decline.
The
foregoing description of the terms of the Equity Purchase Agreement
does not purport to be complete and is subject to and qualified in
its entirety by reference to the Equity Purchase Agreement
itself.
Puts under the Equity Purchase Agreement may cause dilution to
existing stockholders.
From
time to time during the term of the Equity Purchase Agreement, and
at our sole discretion, we may present L2 Capital with a put notice
requiring L2 Capital to purchase shares of our common stock. As a
result, our existing stockholders will experience immediate
dilution upon the purchase of any of the shares by L2 Capital. L2
Capital may resell some, if not all, of the shares that we issue to
it under the Equity Purchase Agreement and these sales could cause
the market price of our common stock to decline significantly. To
the extent of any such decline, any subsequent puts would require
us to issue and sell a greater number of shares to L2 Capital in
exchange for each dollar of the put amount. Under these
circumstances, our existing stockholders will experience greater
dilution. The effect of this dilution may, in turn, cause the price
of our common stock to decrease further, both because of the
downward pressure on the stock price that would be caused by a
large number of sales of our shares into the public market by L2
Capital, and because our existing stockholders may disagree with a
decision to sell shares to L2 Capital at a time when our stock
price is low and may, in response, decide to sell additional
shares, further decreasing our stock price. If we draw down amounts
under the Equity Line when our share price is decreasing, we will
need to issue more shares to raise the same amount of
funding.
There is no guarantee that we will satisfy the conditions to the
Equity Purchase Agreement.
Although the Equity
Purchase Agreement provides that we can require L2 Capital to
purchase, at our discretion, up to $15,000,000 worth of shares of
our common stock in the aggregate, our ability to put shares to L2
Capital and obtain funds when requested is limited by the terms and
conditions of the Equity Purchase Agreement, including restrictions
on when we may exercise our put rights, restrictions on the amount
we may put to L2 Capital at any one time, which is determined in
part by the trading volume of our common stock, and a limitation on
our ability to put shares to L2 Capital to the extent that it would
cause L2 Capital to beneficially own more than 4.99% of the
outstanding shares of our common stock.
We may not have access to the full amount available under the
Equity Purchase Agreement with L2 Capital.
Our
ability to draw down funds and sell shares under the Equity
Purchase Agreement requires that a registration statement be
declared effective and continue to be effective registering the
resale of shares issuable under the Equity Purchase Agreement. The
registration statement of which this prospectus is a part registers
the resale of 52,631,578 shares of our common stock issuable under
the Equity Line. Our ability to sell any additional shares under
the Equity Purchase Agreement will be contingent on our ability to
prepare and file one or more additional registration statements
registering the resale of such additional shares. These
registration statements (and any post-effective amendments thereto)
may be subject to review and comment by the staff of the SEC and
will require the consent of our independent registered public
accounting firm. Therefore, the timing of effectiveness of these
registration statements (and any post-effective amendments thereto)
cannot be assured. Even if we are successful in causing one or more
registration statements registering the resale of some or all of
the shares issuable under the Equity Purchase Agreement to be
declared effective by the SEC in a timely manner, we may not be
able to sell the shares unless certain other conditions are met.
For example, we might have to increase the number of our authorized
shares in order to issue the shares to L2 Capital. Increasing the
number of our authorized shares will require board and stockholder
approval. Accordingly, because our ability to draw down any amounts
under the Equity Purchase Agreement with L2 Capital is subject to a
number of conditions, there is no guarantee that we will be able to
draw down all of the proceeds of $15,000,000 under the Equity
Purchase Agreement. As of December 31, 2018, we have only drawn
down $135,575 under the Equity Line.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
This
prospectus may contain certain “forward-looking”
statements as such term is defined by the SEC in its rules,
regulations, and releases, which represent our expectations or
beliefs, including statements concerning our operations, economic
performance, financial condition, growth and acquisition
strategies, investments, and future operational plans. For this
purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements.
Without limiting the generality of the foregoing, words such as
“may,” “will,” “expect,”
“believe,”
“anticipate,”“intent,” “could,”
“estimate,” “might,” “plan,”
“predict,” or “continue,” or the negative
or other variations thereof or comparable terminology, are intended
to identify forward-looking statements. These statements by their
nature involve substantial risks and uncertainties, certain of
which are beyond our control, and actual results may differ
materially depending on a variety of important factors, including
uncertainty related to acquisitions, governmental regulation,
managing and maintaining growth, the operations of the company and
its subsidiaries, volatility of stock price, commercial viability
of OTEC systems, and any other factors discussed in this and our
other filings with the SEC.
These
risks, uncertainties, and other factors include those set forth
under
“Risk
Factors”
of this prospectus. Given these risks and
uncertainties, readers are cautioned not to place undue reliance on
our forward-looking statements. All subsequent written and oral
forward-looking statements attributable to us or to persons acting
on our behalf are expressly qualified in their entirety by these
cautionary statements. Except as otherwise required by applicable
law, we undertake no obligation to publicly update or revise any
forward-looking statements or the risk factors described in this
prospectus or in the documents we incorporate by reference, whether
as a result of new information, future events, changed
circumstances, or any other reason after the date of this
prospectus.
This
prospectus contains forward-looking statements, including
statements regarding, among other things:
●
our ability to
continue as a going concern;
●
our anticipated
needs for working capital;
●
our ability to
secure financing;
●
actual capital
costs, operating costs, production, and economic returns may differ
significantly from those that we have anticipated;
●
the financial model
for our proposed projects has not been tested and may not be
successful;
●
we are subject to
changing attitudes about environmental risks;
●
our projects will
be subject to substantial regulation;
●
our efforts to
develop OTEC and SWAC plants are subject to many financial,
technical, managerial, and sales risks that may make us
unsuccessful;
●
our exposure to
political and legal risks in developing or emerging markets where
we propose to locate our plants;
●
technological
advances may render our technologies obsolete; and
●
operational
problems, natural events or catastrophes, casualty loss, or other
events may impair the commercial operation of our
projects.
Actual
events or results may differ materially from those discussed in
forward-looking statements as a result of various factors,
including the risks outlined under “
Risk Factors,
” and matters
described in this prospectus generally. In light of these risks and
uncertainties, there can be no assurance that the forward-looking
statements contained in this prospectus will in fact occur. In
addition to the information expressly required to be included in
this prospectus, we will provide such further material information,
if any, as may be necessary to make the required statements, in
light of the circumstances under which they are made, not
misleading.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the common stock
by the selling stockholder. However, we will receive proceeds from
the sale of shares of our common stock to L2 Capital under the
Equity Purchase Agreement. We will use these proceeds for general
corporate and working capital purposes or for other purposes that
our board of directors, in its good faith, deems to be in our best
interest. We have agreed to bear the expenses relating to the
registration of the offer and resale by the selling stockholder of
the shares being offered hereby.
The
selling stockholder may offer and resale of up to 52,631,578 shares
of our common stock, par value $0.001 per share, pursuant to this
prospectus. All of these shares represent shares that L2 Capital
has agreed to purchase from us pursuant to the terms and conditions
of an Equity Purchase Agreement we entered into with it on December
11, 2017 (the “Equity Purchase Agreement”), which are
described below.
Equity Purchase Agreement and Registration Rights Agreement with L2
Capital, LLC
Subject
to the terms and conditions of the Equity Purchase Agreement, we
have the right to “put,” or sell, up to $15,000,000
worth of shares of our common stock to L2 Capital. Unless
terminated earlier, L2 Capital’s purchase commitment will
automatically terminate on the earlier of the date on which L2
Capital has purchased shares for an aggregate purchase price of
$15,000,000 or December 11, 2020. We have no obligation to sell any
shares under the Equity Purchase Agreement. This arrangement is
also sometimes referred to herein as the “Equity
Line.”
As
provided in the Equity Purchase Agreement, we may require L2
Capital to purchase shares of common stock from time to time by
delivering a put notice to L2 Capital specifying the total number
of shares to be purchased (such number of shares multiplied by the
purchase price described below, the “Investment
Amount”); provided there must be a minimum of 10 trading days
between delivery of each put notice. We may determine the
Investment Amount, provided that such amount may not be more than
300% of the average daily trading volume in dollar amount for our
common stock during the five trading days preceding the date on
which we deliver the applicable put notice. Additionally, the
amount may not be lower than $10,000 or higher than $1,000,000. L2
Capital will have no obligation to purchase shares under the Equity
Line to the extent that such purchase would cause L2 Capital to own
more than 4.99% of our common stock.
For
each share of the our common stock purchased under the Equity Line,
L2 Capital will pay a purchase price equal to 85% of the
“Market Price,” which is defined as the lowest closing
traded price on the OTCQB Marketplace, as reported by Bloomberg
Finance L.P., during the five consecutive trading days including
and immediately prior to the settlement date of the sale, which in
most circumstances will be the trading day immediately following
the Put Date or the date that a put notice is delivered to L2
Capital. On the settlement date, L2 Capital will purchase the
applicable number of shares subject to customary closing
conditions, including a requirement that a registration statement
remain effective registering the resale by L2 Capital of the shares
to be issued under the Equity Line as contemplated by the
Registration Rights Agreement described below. The Equity Purchase
Agreement is not transferable and any benefits attached thereto may
not be assigned.
The
Equity Purchase Agreement contains covenants, representations, and
warranties of us and L2 Capital that are typical for transactions
of this type. In addition, we and L2 Capital have granted each
other customary indemnification rights in connection with the
Equity Purchase Agreement. The Equity Purchase Agreement may be
terminated by us at any time.
In
connection with the Equity Purchase Agreement, we also entered into
Registration Rights Agreement with L2 Capital requiring us to
prepare and file a registration statement registering the resale by
L2 Capital of shares to be issued under the Equity Line, to use
commercially reasonable efforts to cause a registration statement
to become effective, and to keep such registration statement
effective until: (i) three months after the last closing of a
sale of shares under the Equity Line; (ii) the date when L2
Capital may sell all the shares under Rule 144 without volume
limitations; or (iii) the date L2 Capital no longer owns any
of the shares. In accordance with the Registration Rights
Agreement, we filed the registration statement, of which this
prospectus is a part, registering the resale by L2 Capital of up to
52,631,578 shares that may be issued and sold to L2 Capital under
the Equity Line. The registration statement was declared effective
on January 29, 2018.
The
52,631,578 shares being offered pursuant to this prospectus by L2
Capital will represent approximately 47% of our shares of common
stock issued and outstanding held by nonaffiliates as of the date
of this prospectus assuming the offering is fully
subscribed.
The
foregoing description of the terms of the Equity Purchase Agreement
and Registration Rights Agreement does not purport to be complete
and is subject to and qualified in its entirety by reference to the
agreements and instruments themselves, copies of which are filed as
Exhibits 10.1 and 10.2 to our Current Report on Form 8-K dated
December 21, 2017, and incorporated into this prospectus by
reference. The benefits and representations and warranties set
forth in these agreements and instruments are not intended to, and
do not, constitute continuing representations and warranties by us
or any other party to persons not a party thereto.
We
intend periodically to sell our common stock to L2 Capital under
the Equity Purchase Agreement and L2 Capital may, in turn, sell
such shares to investors in the market at the market price or at
negotiated prices. This may cause our stock price to decline, which
will require us to issue increasing numbers of common shares to L2
Capital to raise the intended amount of funds as our stock price
declines.
Likelihood of Accessing the Full Amount of the Equity
Line
Notwithstanding
that the Equity Line is $15,000,000, we anticipate that the actual
likelihood that we will be able access the full amount of the
Equity Line is low due to several factors, including that our
ability to access the Equity Line is impacted by our average daily
trading volume, which may limit the maximum dollar amount of each
put we deliver to L2 Capital, and our stock price. Our use of the
Equity Line will continue to be limited and restricted if our share
trading volume or and market price of our stock continue at their
current levels or decrease further in the future from the volume
and stock prices reported over the past year. Further, if the price
of our stock remains at $0.059 per share (which represents the
average of the high and low reported sales prices of our common
stock on December 31, 2018), the sale by L2 Capital of the
remaining 50,331,578 of the shares registered in this prospectus
would mean we would receive only $2,969,563 from our sale of shares
under the Equity Line. Our ability to issue shares in excess of the
52,631,578 shares covered by the registration statement of which
this prospectus is a part will be subject to our filing a
subsequent registration statement with the SEC and the SEC
declaring it effective.
In
addition, we may have to increase the number of our authorized
shares in order to issue shares to L2 Capital in the future.
Increasing the number of our authorized shares will require further
board and stockholder approval. Accordingly, because our ability to
deliver puts to L2 Capital under the Equity Purchase Agreement is
subject to a number of conditions, there is no guarantee that we
will receive all or any portion of the remaining $15,000,000 that
is available to us under the Equity Line.
December 28, 2017 Convertible Note and Warrant Financing
Transaction
Between
December 28, 2017, and September 30, 2018, we entered into a Note
and Warrant Purchase Agreements pursuant to which we issued a
series of unsecured promissory notes (the “Notes”) to
accredited investors, in the aggregate principal amount of
$979,156, as of September 30, 2018. The Notes accrue interest at a
rate of 10% per annum payable on a quarterly basis and are not
convertible into shares of our capital stock. The Notes are
payable, within five business days after receipt of funds from L2
Capital under the Equity Purchase Agreement, in an amount equal to
20% of the total funds received by us from L2 Capital payable on a
pro rata basis to all holders of the Notes. We may prepay the Notes
in whole or in part, without penalty or premium, on or before the
maturity date of July 30, 2019.
In
connection with the issuance of the Notes, for each Note purchased
the noteholder will receive a warrant to be exercised as
follows:
$10,000
note with a warrant to purchase 2,000 shares
$20,000
note with a warrant to purchase 5,000 shares
$25,000
note with a warrant to purchase 6,500 shares
$30,000
note with a warrant to purchase 8,000 shares
$40,000
note with a warrant to purchase 10,000 shares
$50,000
note with a warrant to purchase 14,000 shares
The
exercise price per share of the warrants is equal to 85% of the
closing price of our common stock on the day immediately preceding
the exercise of the relevant warrant, subject to adjustment as
provided in the warrant. The warrant includes a cashless net
exercise provision whereby the holder can elect to receive shares
equal to the value of the warrant minus the fair market value of
shares being surrendered to pay for the exercise. As of September
30, 2018, we had issued warrants to purchase 262,000 shares of
common stock.
SELLING STOCKHOLDER
This prospectus covers the resale by the selling stockholder or its
permitted transferees of the remaining 50,331,578 shares of our
common stock that may be issued by us to L2 Capital under the
Equity Purchase Agreement. L2 Capital is an
“underwriter” within the meaning of the Securities Act
in connection with its resale of our common stock pursuant to this
prospectus. The selling stockholder has not had any position or
office, or other material relationship, with us or any of our
affiliates over the past three years. The following table sets
forth certain information regarding the beneficial ownership of
shares of common stock by the selling stockholder as of
December 31, 2018, and the remaining number of shares of our
common stock being offered pursuant to this
prospectus:
|
|
|
Number of shares
to be beneficially owned and percentage of beneficial ownership
after the offering (1)(2)
|
Name of selling
stockholder
|
Shares
beneficially
owned as of the
date of this prospectus (1)
|
Number of
remaining
shares
to be
offered
|
|
|
L2 Capital LLC
(4)
|
900,000
|
50,331,578
|
900,000
|
*
|
_______________
(1)
Beneficial
ownership is determined in accordance with the SEC rules and
generally includes voting or investment power with respect to
shares of common stock. Shares of common stock subject to options
and warrants currently exercisable, or exercisable within 60 days,
are counted as outstanding for computing the percentage of the
person holding such options or warrants, but are not counted as
outstanding for computing the percentage of any other
person.
(2)
The amount and
percentage of shares of our common stock that will be beneficially
owned by the selling stockholder after completion of the offering
assume that it will sell all shares of our common stock being
offered pursuant to this prospectus.
(3)
Based on
131,038,944 shares of our common stock issued and outstanding as
December 31, 2018. All shares of our common stock being offered
pursuant to this prospectus by the selling stockholder are counted
as outstanding for computing the percentage beneficial ownership of
the selling stockholder.
(4)
Adam Long possesses
voting and investment control over shares owned by L2
Capital.
The selling stockholder or its respective permitted transferees
may, from time to time, sell any or all of the shares of our common
stock covered hereby on the OTCQB Marketplace operated by the OTC
Markets Group, Inc., or any other stock exchange, market, or
trading facility on which the shares are traded or in private
transactions. The selling stockholder may sell all or a portion of
the shares being offered pursuant to this prospectus at fixed
prices, prevailing market prices at the time of sale, varying
prices, or negotiated prices. The selling stockholder may use any
one or more of the following methods when selling
securities:
●
ordinary brokerage
transactions and transactions in which the broker-dealer solicits
purchasers;
●
block trades in
which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
●
purchases by a
broker-dealer as principal and resale by the broker-dealer for its
account;
●
an exchange
distribution in accordance with the rules of the applicable
exchange;
●
privately
negotiated transactions;
●
in transactions
through broker-dealers that agree with the selling stockholder to
sell a specified number of such securities at a stipulated price
per security;
●
through the writing
or settlement of options or other hedging transactions, whether
through an options exchange or otherwise;
●
a combination of
any such methods of sale; or
●
any other method
permitted pursuant to applicable law.
The
selling stockholder may also sell securities under Rule 144 under
the Securities Act, if available, rather than under this
prospectus.
Broker-dealers
engaged by the selling stockholder may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling stockholder (or, if any
broker-dealer acts as agent for the purchaser of securities, from
the purchaser) in amounts to be negotiated, provided such amounts
are in compliance with FINRA Rule 2121. Discounts, concessions,
commissions, and similar selling expenses, if any, that can be
attributed to the sale of common stock will be paid by the selling
stockholder and/or the purchasers.
L2
Capital, LLC is an underwriter within the meaning of the Securities
Act and any broker-dealers or agents that are involved in selling
the shares may be deemed to be “underwriters” within
the meaning of the Securities Act in connection with the sales. In
such event, any commissions received by the broker-dealers or
agents and any profit on the resale of the shares purchased by them
may be deemed to be underwriting commissions or discounts under the
Securities Act. Because L2 Capital is an underwriter within the
meaning of the Securities Act, it will be subject to the prospectus
delivery requirements of the Securities Act.
Under
applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the resale securities may not
simultaneously engage in market-making activities with respect to
the common stock for the applicable restricted period, as defined
in Regulation M, prior to the commencement of the distribution. In
addition, the selling stockholder will be subject to applicable
provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of
purchases and sales of securities of the common stock by the
selling stockholder or any other person. We will make copies of
this prospectus available to the selling security holders and have
informed them of the need to deliver a copy of this prospectus to
each purchaser at or prior to the time of the sale.
Although L2 Capital
has agreed not to enter into any “short sales” of our
common stock, sales after delivery of a put notice of a number of
shares reasonably expected to be purchased under a put notice will
not be deemed a “short sale.” Accordingly, L2 Capital
may enter into arrangements it deems appropriate with respect to
sales of shares of our common stock after it receives a put notice
under the Equity Purchase Agreement so long as such sales or
arrangements do not involve more than the number of put shares
reasonably expected to be purchased by L2 Capital under the put
notice.
DESCRIPTION OF
SECURITIES
Capital Stock
Pursuant to our
articles of incorporation, as amended to date, our authorized
capital stock consists of 205,000,000 shares, comprised of
200,000,000 shares of common stock, par value $0.001 per share, and
5,000,000 shares of preferred stock, par value $0.001 per share. As
of December 31, 2018, there were 131,038,944 shares of common stock
and 0 shares of preferred stock issued and outstanding. Our common
stock is quoted on the OTCQB Marketplace operated by the OTC
Markets Group, Inc., under the trading symbol
“CPWR.”
The
following description summarizes the material terms of our capital
stock. This summary is, however, subject to the provisions of our
articles of incorporation and bylaws. For greater detail about our
capital stock, please refer to our articles of incorporation and
bylaws.
Common Stock
Voting.
Holders of our common stock are
entitled to one vote for each outstanding share of common stock
owned by such stockholder on every matter properly submitted to the
stockholders for their vote. Stockholders are not entitled to vote
cumulatively for the election of directors. At any meeting of the
stockholders, a quorum as to any matter will consist of a majority
of the votes entitled to be cast on the matter, except when a
larger quorum is required by law, our articles of incorporation, or
our bylaws.
Dividend Rights.
Holders of our common
stock are entitled to receive ratably dividends and other
distributions of cash or any other right or property as may be
declared by our board of directors out of our assets or funds
legally available for such dividends or distributions. The dividend
rights of holders of common stock are subject to the dividend
rights of the holders of any series of preferred stock that may be
issued and outstanding from time to time.
Liquidation Rights.
In the event of any
voluntary or involuntary liquidation, dissolution, or winding up of
our affairs, holders of our common stock would be entitled to share
ratably in our assets that are legally available for distribution
to stockholders after payment of liabilities. If we have any
preferred stock outstanding at such time, the holders of the
preferred stock may be entitled to distribution and/or liquidation
preferences that require us to pay the applicable distribution to
the holders of preferred stock before paying distributions to the
holders of common stock.
Conversion, Redemption and Preemptive
Rights.
Holders of our common stock have no conversion,
redemption, preemptive, subscription, or similar
rights.
The
transfer agent and registrar for our common stock is Issuer Direct
Corporation, 500 Perimeter Park Drive, Suite D, Morrisville, NC
27560.
Preferred Stock
Pursuant to our
articles of incorporation, as amended to date, we are authorized to
issue up to 5,000,000 shares of preferred stock. We may issue these
shares without stockholder action, from time to time, in one or
more series, as may be determined by our board of directors. Our
board of directors is expressly granted authority, within the
limits set forth in the Nevada Revised Statutes, to:
(a)
designate,
in whole or in part, the voting powers, designations, preferences,
limitations, restrictions, and relative rights of each class of
shares before the issuance of any shares of that
class;
(b)
create
one or more series within a class of shares, fix the number of
shares of each such series, and designate in whole or in part the
voting powers, designations, preferences, limitations,
restrictions, and relative rights of the series, all before the
issuance of any shares of that series; or
(c)
alter
or revoke the preferences, limitations, and relative rights granted
to or imposed upon any wholly-unissued class of shares or any
wholly-unissued series of any class of shares.
At this
time, however, no shares of preferred stock are outstanding, and we
have not designated any series of preferred stock.
Anti-Takeover Provisions
Some
features of the Nevada Revised Statutes, which are further
described below, may have the effect of deterring third parties
from making takeover bids for control of our company or may be used
to hinder or delay a takeover bid.
This
would decrease the chance that our stockholders would realize a
premium over market price for their shares of common stock as a
result of a takeover bid.
Acquisition of Controlling Interest
The
Nevada Revised Statutes contain provisions governing acquisition of
controlling interest of a Nevada corporation. These provisions
provide generally that any person or entity that acquires a certain
percentage of the outstanding voting shares of a Nevada corporation
may be denied voting rights with respect to the acquired shares,
unless the holders of a majority of the voting power of the
corporation, excluding shares as to which any of such acquiring
person or entity, an officer or a director of the corporation, and
an employee of the corporation exercises voting rights, elect to
restore such voting rights in whole or in part. These provisions
apply whenever a person or entity acquires shares that, but for the
operation of these provisions, would bring voting power of such
person or entity in the election of directors within any of the
following three ranges:
●
20% or more but
less than 33.3%;
●
33.3% or more but
less than or equal to 50%; or
The
stockholders or board of directors of a corporation may elect to
exempt the stock of the corporation from these provisions through
adoption of a provision to that effect in the articles of
incorporation or bylaws of the corporation. Our articles of
incorporation and bylaws do not exempt our common stock from these
provisions.
These
provisions are applicable only to a Nevada corporation
that:
●
has 200 or more
stockholders of record, at least 100 of whom have addresses in
Nevada appearing on the stock ledger of the corporation;
and
●
does business in
Nevada directly or through an affiliated corporation.
At this
time, we do not believe that these provisions apply to acquisitions
of our shares and will not apply until such time as these
requirements have been met. At such time as they may apply to us,
these provisions may discourage companies or persons interested in
acquiring a significant interest in or control of our company,
regardless of whether the acquisition may be in the interest of our
stockholders.
Combination with Interested Stockholder
The
Nevada Revised Statutes contain provisions governing a combination
of a Nevada corporation that has 200 or more stockholders of record
with an interested stockholder. As of December 31, 2018, we had
approximately 1,500 stockholders of record. Therefore, we believe
that these provisions governing a combination of a Nevada
corporation apply to us and may have the effect of delaying or
making it more difficult to effect a change in control of our
company.
A
corporation affected by these provisions may not engage in a
combination within three years after the interested stockholder
acquires his, her, or its shares unless the combination or purchase
is approved by the board of directors before the interested
stockholder acquired such shares. Generally, if approval is not
obtained, then after the expiration of the three-year period, the
business combination may be consummated with the approval of the
board of directors before the person became an interested
stockholder or a majority of the voting power held by disinterested
stockholders, or if the consideration to be received per share by
disinterested stockholders is at least equal to the highest
of:
●
the highest price
per share paid by the interested stockholder within the three years
immediately preceding the date of the announcement of the
combination or within three years immediately before, or in, the
transaction in which he, she or it became an interested
stockholder, whichever is higher;
●
the market value
per share on the date of announcement of the combination or the
date the person became an interested stockholder, whichever is
higher; or
●
if higher for the
holders of preferred stock, the highest liquidation value of the
preferred stock, if any.
Generally, these
provisions define an interested stockholder as a person who is the
beneficial owner, directly or indirectly, of 10% or more of the
voting power of the outstanding voting shares of a corporation.
Generally, these provisions define combination to include any
merger or consolidation with an interested stockholder, or any
sale, lease, exchange, mortgage, pledge, transfer, or other
disposition in one transaction or a series of transactions with an
interested stockholder, of assets of the corporation:
●
having an aggregate
market value equal to 5% or more of the aggregate market value of
the assets of the corporation;
●
having an aggregate
market value equal to 5% or more of the aggregate market value of
all outstanding shares of the corporation; or
●
representing 10% or
more of the earning power or net income of the
corporation.
Articles of Incorporation and Bylaws
Our
articles of incorporation contains provisions for
“blank-check preferred stock” that may delay, defer, or
prevent a change in control of our company and that would operate
only with respect to an extraordinary corporate transaction
involving our company, such as merger, reorganization, tender
offer, sale or transfer of substantially all of its assets, or
liquidation.
The
consolidated financial statements of Ocean Thermal Energy
Corporation as of and for the years ended December 31, 2017 and
2016, appearing in this prospectus and the registration statement
of which it is a part, have been audited by Liggett & Webb
P.A., an independent registered public accounting firm, as set
forth in its report dated April 2, 2018 (which contains an
explanatory paragraph regarding our ability to continue as a going
concern) appearing elsewhere herein, and are included in reliance
upon such report given on the authority of such firm as experts in
accounting and auditing.
Procopio, Cory,
Hargreaves & Savitch, LLP has provided us with an opinion on
the validity of the shares of our common stock being offered
pursuant to this prospectus.
INTEREST OF NAMED EXPERTS
AND COUNSEL
No
expert named in the registration statement of which this prospectus
forms a part as having prepared or certified any part thereof (or
named as having prepared or certified a report or valuation for use
in connection with such registration statement) or counsel named in
this prospectus as having given an opinion upon the validity of the
securities being offered pursuant to this prospectus or upon other
legal matters in connection with the registration or offering of
such securities was employed for such purpose on a contingency
basis. Also at the time of the preparation, certification, or
opinion or at any time thereafter, through the date of
effectiveness of the registration statement or that part of the
registration statement to which such preparation, certification, or
opinion relates, no such person had, or is to receive, in
connection with the offering, a substantial interest, direct or
indirect, in our company or any of its parents or subsidiaries. Nor
was any such person connected with our company or any of its
parents or subsidiaries as a promoter, managing or principal
underwriter, voting trustee, director, officer, or
employee.
Overview
OCEES
International Inc. (“OCEES”) was formed under the laws
of Hawaii on January 21, 1998. Ocean Thermal Energy Corporation
(“OTE Delaware”) was a Delaware corporation formed on
October 18, 2010. In 2011, OCEES and OTE Delaware entered into a
share exchange agreement. The transaction was treated as a merger
of entities under common control as 100% of the stockholders of
OCEES exchanged their shares for 100% of the outstanding shares of
OTE Delaware.
OTE
Delaware used its proprietary technology to develop, build, own,
and operate renewable energy systems, primarily in the Eastern and
Western Caribbean Islands.
On
December 17, 2013, Broadband Network Affiliates, Inc.
(“BBNA”), a Nevada corporation, changed its state
domicile and became a Delaware corporation. On December 23, 2013,
BBNA entered into a merger agreement with OTE Delaware, which was
effective December 31, 2013. Upon completion of the merger, BBNA
changed its name to Ocean Thermal Energy Corporation
(“OTE”) and the former OTE Delaware ceased to exist.
The transaction was treated as a reverse merger and
recapitalization by OTE Delaware.
We
previously operated under the corporate name of TetriDyn Solutions,
Inc. (“TetriDyn”). On March 10, 2017, TetriDyn entered
into an Agreement and Plan of Merger (the “Merger
Agreement”) with OTE. On May 9, 2017, TetriDyn consummated
the acquisition of all outstanding equity interests of OTE pursuant
to the terms of the Merger Agreement, with a newly created Delaware
corporation that is wholly owned by TetriDyn (“TetriDyn
Merger Sub”), merging with and into OTE (the
“Merger”) and OTE continuing as the surviving
corporation and a wholly owned subsidiary of TetriDyn. Effective
upon the consummation of the Merger (the “Closing”),
the OTE stock issued and outstanding or existing immediately prior
to the Closing was converted at the Closing into the right to
receive newly issued shares of TetriDyn common stock. As a result
of the Merger, TetriDyn succeeded to the business and operations of
OTE. In connection with the consummation of the Merger and upon the
consent of the holders of a majority of the outstanding common
shares, TetriDyn filed with the Nevada Secretary of State an
amendment to its articles of incorporation changing its name to
“Ocean Thermal Energy Corporation.”
Our Business
We
develop projects for renewable power generation, desalinated water
production, and air conditioning using proprietary intellectual
property designed and developed by our own experienced
oceanographers, engineers, and marine scientists. Plants using our
technologies are designed to extract energy from the temperature
difference between warm surface ocean water and cold deep seawater
at a depth of approximately 3,000 feet. We believe these
technologies provide practical solutions to mankind’s
fundamental needs for sustainable, affordable energy; desalinated
water for domestic, agricultural, and aquaculture uses; and
cooling, all without the use of fossil fuels.
●
Ocean Thermal
Electrical Conversion, known in the industry as “OTEC,”
power plants are designed to produce electricity. In addition, some
of the seawater running through an OTEC plant can be desalinated
efficiently, producing fresh water for agriculture and human
consumption.
●
Seawater Air
Conditioning, known in its industry as SWAC, plants are designed to
use cold water from ocean depths to provide air conditioning for
large commercial buildings or other facilities. This same
technology can also use deep cold water from lakes, known as Lake
Water Air Conditioning or LWAC.
Both
OTEC and SWAC systems can be engineered to produce desalinated
water for potable, agricultural, and fish
farming/aquaculture.
Many
applications of technologies based on ocean temperature differences
between surface and deep seawater have been developed at the
Natural Energy Laboratory of Hawaii Authority, or NELHA, test
facility (http://nelha.hawaii.gov), including applications for
desalinated seawater, fish-farming, and agriculture. We believe our
proprietary advances to existing technologies developed by others
in the industry enhance their commercialization for the plants we
proposed to develop.
We
have recruited a scientific and engineering team that includes
oceanographers, engineers, and marine scientists who have worked
for a variety of organizations since the 1970s on several systems
based on extracting the energy from the temperature differences
between surface and deep seawater, including projects by NELHA, the
Argonne National Laboratory (http://www.anl.gov), and others. Note:
All URL addresses in this prospectus are inactive textual
references only. Our executive team members have complementary
experience in leading engineering and technical companies and
projects from start-up to commercialization.
In
addition, we expect to use our technology in the development of an
OTEC EcoVillage, which should add significant value to our
business. We will facilitate the development of sustainable living
communities by creating an ecologically sustainable “OTEC
EcoVillage” powered by 100% fossil-fuel free electricity. In
the development, buildings will be cooled by energy-efficient and
chemical-free systems, and water will be produced for drinking,
aquaculture, and agriculture onsite. The OTEC EcoVillage project
consists, in part, of an OTEC plant that will provide all power and
water to about 400 residences, a hotel, and a shopping center, as
well as models of sustainable agriculture, food production, and
other economic developments. Each sale of luxury EcoVillage
residences will support the development of environmentally
responsible affordable communities in tropical and subtropical
regions of the world (Affordable Communities), currently in
development. OTEC EcoVillage will be the first development in the
world offering a net-zero carbon footprint. This will be our pilot
project, launched to prove the viability of OTEC technology to
provide affordable renewable energy for entire communities. We
believe this project could be highly profitable and generate
significant value for our shareholders. The U.S. Virgin
Islands’ Public Service Commission has granted regulatory
approval to us for an OTEC plant, and we have identified the
specific plots of land for the site. The first draft of the master
plan for the entire development has been completed.
Our Vision
Our
vision is to bring these technologies to tropical and subtropical
regions of the world where about three billion people live. Our
market includes 68 countries and 29 territories with suitable sea
depth, shore configuration, and market need; we plan to be the
first company in the world to design and build a commercial scale
OTEC plant and, to that end, have several projects in the planning
stages. Our initial markets and potential projects include several
U.S. Department of Defense bases situated in the Asia Pacific and
other regions where energy independence is crucial. Currently, we
have projects in various planning and development stages in the
Caribbean, the South Pacific, Asia, Zanzibar, Guam, and other
island locations.
Our Technology
OTEC
is a self-sustaining energy source, with no supplemental power
required to generate continuous (24/7) electricity. It works by
converting heat from the sun, which has warmed ocean surface water,
into electric power, and then completing the process by cooling the
plant with cold water from deep in the ocean. The cold water can
also be used for very efficient air conditioning and desalinated to
produce fresh water. OTEC has worked in test settings where there
exists a natural temperature gradient of 20 degrees Celsius or
greater in the ocean. We believe OTEC can deliver sustainable
electricity in tropical and subtropical regions of the world at
rates approximately 20-40% lower than typical costs for electricity
produced by fossil fuels in those markets.
Further,
we believe that a small, commercial OTEC plant could offer
competitive returns even in a market where the cost of electricity
is as low as $0.30 per kilowatt-hour, or kWh. For example, the
Inter-American Development Bank, an international bank providing
development financing in Latin America and the Caribbean, reports
that energy prices for hydrocarbon-generated power during 2010-2012
for 15 Caribbean countries averaged $0.33 per kWh, with a high of
$0.43 per kWh in Antigua and Barbados. For the U.S. Virgin Islands,
Water and Power Authority of the Virgin Islands reported that as of
February 1, 2017, the average price for electricity for commercial
customers was nearly $0.40 per kWh. We believe that we have an
opportunity to offer base-load energy (the amount of energy
required to meet minimum requirements) pricing that is better than
our customer’s next best alternative in the markets where
electricity costs are $0.30 or more per kWh.
Technology
advancements have significantly brought the capital costs of OTEC
down to make it competitive compared to traditional energy sources
in the OTEC markets. Technology improvements include larger
diameter seawater pipes manufactured with improved materials,
increased pumping capabilities from OTEC depths, better
understanding of material requirements in the deep ocean
environment, more experience in deep water pipeline and cable
installation techniques, and more accurate sea bottom mapping
technology, which is required for platform positioning and pipe
installation. The cold-water pipes at a demonstration site in
Hawaii have been in continuous operation for more than 20 years,
and the technology has improved significantly since the Hawaiian
installation.
We
estimate that a small OTEC plant that delivers 13 megawatts (MWs)
per hour for 30 years would currently cost approximately $350
million. This is the plant size that we typically propose for our
initial target markets to meet 20% or more of their current demand
for electricity and a large portion of their need for fresh
drinking water and agricultural water. OTEC has been proven in test
settings at NELHA, where a Department of Energy-sponsored OTEC
plant operated successfully throughout the 1990s to produce
continuous, affordable electricity from the sea without the use of
fossil fuels. Spin-off technologies of desalination and seawater
cooling, developed from the OTEC plant at NELHA, have also become
economically and technically feasible.
Finally,
we believe the decreasing supply and increasing cost of
fossil-fuel-based energy has intensified the search for renewable
alternatives. We further believe that renewable energy sources,
although traditionally more expensive than comparable fossil-fuel
plants, have many advantages, including increased national energy
security, decreased carbon emissions, and compliance with renewable
energy mandates and air quality regulations. We believe these
market forces will continue and potentially increase. In remote
islands where shipping costs and limited economies of scale
substantially increase fossil-fuel-based energy, renewable energy
sources may be attractive. Many islands contain strategic military
bases with high-energy demands that we believe would greatly
benefit from a less expensive, reliable source of energy that is
produced locally, such as OTEC.
SWAC
is a process that uses cold water from locations such as the ocean
or deep lakes to provide the cooling capacity to replace
traditional electrical chillers in an air conditioning system. SWAC
applications can reduce the energy consumption of a traditional
air-conditioning system by as much as 90%. Even when the capital
cost amortization of building a typically sized SWAC system
providing 9,800 tons of cooling ($140-$150 million) are taken into
account, SWAC can save the customer approximately 25-40% when
compared to conventional systems—we estimate savings can be
as high as 50% in locations where air temperatures and electricity
costs are high. Cooling systems using seawater or groundwater for
large commercial structures are in use at numerous locations
developed and operated by others worldwide, including Heathrow
Airport, UK; Finland (Google Data Center); Cornell University, NY;
Stockholm, Sweden; and the City of Toronto, Canada.
How Our Technology Works
OTEC
uses the natural temperature difference between cooler deep ocean
water at a depth of approximately 3,000 feet and warmer shallow or
surface water to create energy. An OTEC plant project involves
installing about 6.0 feet diameter, deep-ocean intake pipes (which
can readily be purchased), together with surface water pipes, to
bring seawater onshore. OTEC uses a heat pump cycle to generate
power. In this application, an array of heat exchangers transfer
the energy from the warm ocean surface water as an energy source to
vaporize a liquid in a closed loop, driving a turbine, which in
turn drives a generator to produce electricity. The cold deep ocean
water provides the required temperature to condense vapor back into
a liquid, thus completing the thermodynamic cycle, which is
constantly and continuously repeated. The working fluid is
typically ammonia, as it has a low boiling point. Its high hydrogen
density makes ammonia a very promising green energy storage and
distribution media. Among practical fuels, ammonia has the highest
hydrogen density, including hydrogen itself, in either its low
temperature, or cryogenic, and compressed forms. Moreover, since
the ammonia molecule is free of carbon atoms (unlike many other
practical fuels), combustion of ammonia does not result in any
carbon dioxide emissions. The fact that ammonia is already a widely
produced and used commodity with well-established distribution and
handling procedures allows for its use as an alternative fuel. This
same general principle is used in steam turbines, internal
combustion engines, and, in reverse, refrigerators. Rather than
using heat energy from the burning of fossil fuels, OTEC power
draws on temperature differences of the ocean caused by the
sun’s warming of the ocean’s surface, providing an
unlimited and free source of energy.
OTEC
and SWAC infrastructure offers a modular design thatfacilitates
adding components to satisfy customer requirements and access to a
sufficient supply of cold water. These components include
reverse-osmosis desalination plants to produce drinkable water,
bottling plants to commercialize the drinkable water, and off-take
solutions for aquaculture uses (such as fish farms), which benefit
from the enhanced nutrient content of deep ocean water. A further
advantage of a modular design is that, depending on the patterns of
electricity demand and output of the OTEC plant, a desalination
plant can be run using the excess electricity
capacity.
Currently,
OTEC requires a minimum temperature difference of approximately 20
degrees Celsius to operate, with each degree greater than this
increasing output by approximately 10-15%. OTEC has potential
applications in tropical and subtropical zones. OTEC is
particularly well suited for tropical islands and coastal areas
with proximate access to both deep water and warm surface water.
These communities are typically subject to high and fluctuating
energy costs ranging from $0.28-$0.75 per kWh, as they rely on
importing fossil fuels for power generation. Data from the National
Renewable Energy Laboratory of the U.S. Department of Energy
website indicated that at least 68 countries and 29 territories
around the globe appear to meet these criteria.
The
world’s largest OTEC power plant to date is operational at
the NELHA facility in Hawaii and is connected to the electrical
grid. It provides base-load electricity produced by OTEC to about
150 homes. Around the world, a couple of other successful
developmental and experimental plants have been built, and the U.S.
National Oceanic and Atmospheric Administration, or NOAA, has
stated that: “The qualitative analysis of the technical
readiness of OTEC by experts at this workshop suggest that a <10
MWe floating, closed-cycle OTEC facility is technically feasible
using current design, manufacturing, deployment techniques and
materials.” We believe that we have sufficient skill and
knowledge to now commercialize 5-MW to 30-MW land-based OTEC
plants, using off-the-shelf components, including the cold-water
piping.
SWAC
(or LWAC) is a significantly more cost-effective and
environmentally friendly way to implement air-conditioning using
cold water sourced from lakes or, analogous with OTEC, deep ocean
water, rather than from an electric chiller. Comparing Federal
Energy Management Program engineering efficiency requirements of
approximately 0.94 kilowatts of electricity per ton of cooling
capacity with our own engineering estimates of 0.09 kilowatts of
electricity per ton of cooling capacity, as calculated by DCO
Energy, our engineering, procurement, and construction partner, we
estimate that SWAC systems can reduce electricity consumption by up
to 80-90% when compared to conventional systems. Therefore, OTE
believes such energy reductions may make SWAC systems well-suited
for large structures, such as office complexes, medical centers,
resorts, data centers, airports, and shopping malls. We believe
that other SWAC plants we may develop will likely achieve similar
efficiencies. There are examples of proven successful SWAC/LWAC
systems in use, including a large 79,000-ton system used to cool
buildings in the downtown area of the City of Toronto, Canada;
Google’s data center in Finland operates a SWAC system that
uses waters from the Baltic Sea to keep servers cool; and a system
with more than 18,000 tons of cooling is in operation at Cornell
University, Ithaca, New York.
OTEC Versus Other Energy Sources
The
construction costs of power plants using any technology are much
higher in remote locations, such as tropical islands, than on the
mainland of the United States, principally due to the need to
transport materials, components, other construction supplies, and
labor not available locally. There are also considerations that
make those other technologies less attractive in those areas. We
believe the consistency of OTEC over its life provides clear
advantages over other generation technology in the tropical and
subtropical markets, because its base-load power (available at all
times and not subject to fluctuations throughout the day) is an
important asset to the small transmission grid, which is typical in
these regions.
Combined-cycle
natural gas plants typically need to be capable of generating
several hundred MWs to attain the lower cost per kilowatt installed
values to make the plant economically feasible. Tropical locations
do not have large enough grids and market demand to make that plant
size reasonable. Further, tropical locations frequently do not have
domestic fuel supplies, requiring fuel to be imported. In order to
import natural gas, it must be liquefied for shipment and then
vaporized at the location. There are initial cost and public safety
concerns with such facilities. In addition, gas-fired plants emit
undesirable nitrogen oxide, carbon dioxide, and volatile organic
compounds.
Solar
applications continue to increase as the cost and effectiveness of
photovoltaic panels improve. However, we estimate that the cost to
install solar panels in tropical regions remains high. Beyond the
issues with shipping and labor costs that all construction must
overcome, the design and building code requirements are tougher in
storm-prone areas subject to potential wind damage from hurricanes,
earthquakes, and typhoons than are typically encountered in
mainland nontropical installations. Support structures must be more
substantial in order to hold the solar panels in place in case of
hurricane-force winds. Solar power, like wind power, places
substantial stress on an electrical grid. Since the input of both
of these sources is subject to weather conditions, they cannot be
considered a reliable supply of power, and back-up capacity is
necessary. Further, instantaneous changes in output due to sporadic
cloud cover create transient power flow to the grid, creating
difficulties in maintaining proper voltages and stability. OTEC is
a stabilizing source to the grid, providing constant and
predictable power, and has no emissions. The ability of OTEC to
provide constant, continuous power is a large benefit as compared
to any of the other renewable options available.
Our
estimated price for OTEC-generated power of approximately $0.30 per
kWh under current economic conditions, which can be as low as $0.18
net per kWh with maximum efficiency and revenue from water
production, is also constant both throughout the year and over a
plant’s life. OTEC’s power price, determined almost
entirely by the amortization of its initial cost, is a protection
against inflation and rising interest rates, which greatly affect
coal and oil. Customers in our target markets currently pay from
$0.35 to as high as $0.60 per kWh for power from coal and
oil-fueled power plants. However, imported fuels are subject to
price volatility, which has a direct impact on the cost of
electricity and adds operating risk during the life of a plant. The
fuel handling to allow for the shipping, storage, and local
transport is expensive, a potential source of damaging fuel spills
and a basis for environmental concerns. Fossil-fuel plants create
pollution, emit carbon dioxide, and are visually unappealing, which
is of particular concern in tropical areas renowned for their
clear, pristine air and beauty. We project OTEC can save these
markets up to 40%, compared to their current electrical costs, and
when revenues from fresh drinking water, aquaculture, and
agriculture production are considered, the justification is even
more compelling.
Overview of the Market and the Feasibility of OTEC in Current
Market Conditions
We
believe that OTEC is now an economically, technologically, and
environmentally competitive power source, especially for developing
or emerging countries in certain tropical and subtropical regions
contiguous to oceans. Our natural target markets are communities in
countries around the Caribbean, Asia, and the Pacific. These
locations are typically characterized by limited infrastructure,
high-energy costs, mostly imported or expensively generated
electricity, and frequently with significant fresh water and food
shortages. These are serious limitations on economic development,
which we believe our OTEC technology can address.
Data
presented to the Sustainable Use of Oceans in the Context of the
Green Economy and the Eradication of Poverty workshop in Monaco in
2011 by Whitney Blanchard of the Office of Ocean and Coastal
Resource Management, National Oceanic and Atmospheric
Administration, show that at least 98 nations and territories using
an estimated five terawatts of potential OTEC net power are
candidates for OTEC-power systems. Blanchard specifically notes
that Hawaii, Guam, Florida, Puerto Rico, and the U.S. Virgin
Islands are suitable for OTEC.
Over
the past decade, there have been substantial changes in many areas
that have now made the commercialization of OTEC a reality. First
and foremost is the price of oil, which until 2006/2007 had been
relatively inexpensive. It is generally accepted within the OTEC
community that OTEC approaches competitive pricing as oil exceeds
$50 – $70 per barrel (bbl). Recent oil prices have been
volatile, owing in large part to political instability in the
Middle East and elsewhere.
Crude
oil prices averaged $71.40 in 2018. Oil prices are almost triple
the 13-year low of $26.55/bbl on January 20, 2016. Six months
before that, oil had been $60/bbl (June 2015). A year earlier, it
had been $100.26/bbl (June 2014).
Facts
like these have resulted in increased attention and interest in
OTEC in the commercial sector and among candidates. It is generally
accepted within the OTEC community that OTEC approaches competitive
pricing when oil exceeds $40 per barrel. With OTEC power, customers
can decouple the price of electricity from the price of
oil.
The
International Energy Agency’s World Energy Outlook expects
liquid natural gas export capacity to grow rapidly in the short
term, with major new sources of supply coming mostly from Australia
and the United States.
Liquid
natural gas prices have collapsed, in part because demand is
turning out to be weaker than some previously anticipated.
Additionally, many rules and regulations are in effect to mitigate
the environmental issues associated with liquid natural gas
extraction, transportation, and storage, adding significant
costs.
According
to the U.S. Environmental Protection Agency, the electric power
sector accounted for 30% of total greenhouse gas emissions by the
United States in 2014. Greenhouse gas emissions from electricity
have increased by about 12% since 1990 as electricity demand has
grown and fossil fuels have remained the dominant source for
generations.
Fossil-fuel-fired
power plants are a significant source of domestic carbon dioxide
emissions, the primary cause of global warming. To generate
electricity, fossil-fuel-fired power plants use natural gas,
petroleum, coal, or any form of solid, liquid, or gaseous fuel
derived from such materials.
Scientific
American, a respected U.S. scientific journal, recently reported
that scientists have determined that both money and lives would be
saved if rising fossil-fuel and biofuel emissions that are warming
the planet are stopped and power generation is switched to an
entirely renewable energy system.
People
in many countries today, including the United States, are concerned
with environmental issues caused by fossil-fuel
-
generated power. Gallup
surveys find public acceptance of climate change is rising. The
number of Americans that the organization terms “concerned
believers” on climate change has risen from 37% in 2015 to
47% in 2016 and to 50% in the spring of 2017. NASA has long
confirmed the scientific consensus that the Earth’s climate
is warming
.
The
international concern about the harmful effects of climate change
led to the negotiation of the Paris Agreement in December 2015 as
the culmination of the 2015 United Nations Climate Change
Conference. The agreement provides for members to reduce their
carbon output as soon as possible and to do their best to keep
global warming to no more than two degrees Celsius, or 3.6 degrees
Fahrenheit. In order to achieve the desired results, there would
have to be a worldwide reduction in emissions from fossil fuels and
a shift to renewable resources. President Donald Trump has pulled
the United States out of the Paris accord
,
but other Americans are
standing with the world to help fight the ‘existential
crisis’ of global warming, A coalition of 14 U
.
S
.
states, including
California and New York, have said they are on track to meet the
U
.
S
.
target of a 26-28%
reduction in greenhouse gas emissions by 2025, compared to 2005
levels.
In
November 2017, the United Nations Climate Conference opened in
Bonn, Germany, with the aim of a greater ambition for climate
action, as the world body’s weather agency issued a stark
warning that 2017 is set to be among the three hottest years on
record.
We
believe the ongoing concern about environmental issues and the
price instability of fossil-fuel prices are motivation for
increased commercial interest in OTEC, renewed activity in the
commercial sector, and increased interest among communities and
agencies that recognize the potential benefits of this technology,
including the U.S. Department of Defense and U.S. Department of the
Interior territories.
In
the last four years, several large companies have used their OTEC
technology experience to introduce OTEC systems worldwide,
supporting the argument that the technology is now at the point
where it can be introduced at a commercial level:
●
In June 2014, the
French companies, Akuo Energy and DCNS (now Naval Energies), were
funded to construct and install a number of OTEC plants adding up
to 16 MWs of power generation outside the coastline of Martinique
in the Caribbean. This is by far the biggest OTEC project announced
to date, and the European Union has allocated €72 million
(about $82 million at current exchange rates) for this purpose.
DCNS (now Naval Energies) is our teaming partner for potential
projects in the Caribbean.
●
Since early 2014,
we have begun working with several industrialized and developing
countries for investigating suitable OTEC sites, infrastructural
solutions, and funding opportunities. These include the U.S. Virgin
Islands, The Bahamas, Cayman Islands, and other
countries.
●
In May 2017, at the
request of Lockheed Martin Corporation, we presented to the U.S.
Navy a detailed Preliminary Assessment (“PA”),
including design, technical, and financial justification details,
for a SWAC system. Our SWAC system as described in the PA is
intended to be the anchor project of an energy saving program
requested by the U.S. Navy for a military base in the Indian Ocean.
Lockheed Martin is reliant upon us for our expertise and hands-on
knowledge of both the technology and the military base in question.
Our significant experience in this area includes our many years of
designing sustainable energy and energy saving systems for the U.S.
Navy pursuant to our qualification under the U.S. Department of
Defense Small Business Innovation Research (“SBIR”)
program. The project has been presented to the U.S. Navy (January
2018) and a ‘Notice of Intent to Award’ for the entire
project has now been received by Lockheed Martin.
●
Two nongovernmental
organizations promoting OTEC have been created in recent years:
OTEC Foundation (based in The Netherlands) and OTEC Africa (based
in Sweden).
●
In 2014, the
world’s first international conference dedicated to OTEC was
held in Borås, Sweden. A conference report was
published.
●
New technological
advances for larger and more robust deep seawater pipes and more
efficient and cost-effective heat exchangers, pumps, and other
components have, in our opinion, further improved the economics for
OTEC.
●
Many countries,
including a large number of Caribbean nations, now have renewable
energy standards and are looking at ways to reduce their carbon
footprint, decouple the price of electricity from the volatile
price of oil, and increase energy security. Along with these
countries, we are aware that Hawaii, U.S. territories, and the U.S.
Department of Defense are looking at OTEC as a possible source of
renewable energy and water for drinking, fish farming, and
agriculture.
●
The NELHA
demonstration OTEC plant in Hawaii is producing 100 kilowatts of
sustainable, continuous electricity annually and is powering a
neighborhood of 120 homes. A potential next phase for OTEC
development at NELHA is being considered by an international
consortium under the recently signed Okinawa-Hawaii clean energy
agreement.
●
BARDOT Group, a
French SME specialized in subsea engineering and equipment
manufacturing for offshore energy, stated it has signed a contract
for the first commercial OTEC system to be installed in an
eco-resort in Maldives.
Global
acceptance of man’s influence on climate change may also
contribute to a shift in the demand for OTEC. As evidenced by the
Paris Agreement reached in December 2015 to combat climate change,
195 nations have expressly recognized that conventional fossil-fuel
powered energy technologies affect global climate change and the
need to embrace a sustainable future in energy and water. Low-lying
coastal countries (sometimes referred to as small island developing
states) that tend to share similar sustainable development
challenges, including small but growing populations, limited
resources, remoteness, susceptibility to natural disasters,
vulnerability to external shocks, excessive dependence on
international trade, and fragile environments, have embraced this
recognition and are keenly aware that they are on the frontline of
early impact of sea level rise and are aggressively trying to
embrace sustainable-energy alternatives. This is a major driving
force for OTEC in primary early markets.
Recent
international political instability in fossil-fuel-producing
regions and oil price volatility have exposed the criticality of
energy security and independence for all countries. The need to
have a tighter control of domestic energy requirements is a matter
of increasing international concern. Continued reliance on other
countries (particularly those in oil-producing regions) is not a
favorable option any longer. We believe these considerations will
continue to drive renewable research and commercialization efforts
that benefit technologies with global potential to replace
fossil-fuel-based energy systems and benefit from base-load
capabilities like OTEC.
Our
current management team has led the development of the business
since 2010 and has established a pipeline of potential projects,
which include one signed 20-year energy services agreement
(“ESA”), six signed memoranda of understanding
(“MoU”) and a written agreement to support Lockheed
Martin Corporation in proposing to the U.S. Navy a SWAC system for
a military base in the Indian Ocean. The projects under the ESA,
Lockheed Agreement, and MoUs are to design, build, own, and operate
OTEC, SWAC, or a combination of both plants in the United States
Virgin Islands, Bahamas, an Island in the Indian Ocean, and in East
Africa. The Public Services Commission of the U.S. Virgin Islands
has approved our application to be a “qualified
facility” and build a 15MW OTEC plant on the island of St.
Croix. In addition to the OTEC plant, we are negotiating additional
opportunities to supply potable water to the U.S. Virgin Islands
government.
Discussions
are ongoing with Lockheed Martin Corporation to continue our
relationship with it for the SWAC project for the U.S. Department
of Defense, Department of the Navy. We are discussing both OTEC and
SWAC projects with the U.S. Department of Agriculture. Secretary of
Commerce for Puerto Rico. Currently, two projects are in the
planning and discussion phase:
●
SWAC plant for a
U.S. Navy Base in Diego Garcia, British Indian Ocean Territories;
and
●
an EcoVillage
powered by an OTEC plant for Puerto Rico and/or the U.S. Virgin
Islands.
We
have provided a detailed study and designs for OTEC and/or SWAC
to:
●
Lockheed Martin
Corporation for an SWAC system to be built for the U.S. Navy Base
in Diego Garcia. We completed our preliminary assessment and in
early 2018, we briefed the preliminary assessment to the U.S. Navy
at a design charrette meeting.
●
The U.S. Department
of Agriculture for a combined OTEC/SWAC plant for
Guam.
●
The Legislature of
the U.S. Virgin Islands for an OTEC plant for the island of St.
Croix.
Having
successfully developed this pipeline of opportunities, we believe
that it is now appropriate to seek additional funding to further
progress and build up our engineering and technical teams, further
develop our intellectual property, file patents for several OTEC
technical systems, and advance our pipeline of current
opportunities to support our growth strategy.
Our Competition
We
compete in the development, construction, and operation of OTEC and
SWAC plants with other operators that develop similar facilities
powered by other energy sources, primarily oil, natural gas,
nuclear energy, and solar power. These traditional energy sources
have well-established infrastructures for production, delivery, and
supply, with well-known commercial terms. In developing our OTEC
and SWAC plants, we will need to satisfy our customers that these
technologies are sound and economical, which may be a challenge
until and unless we have an established successful operating
history. The energy industry is dominated by an array of companies
of all sizes that have proven technologies and well-established
fuel sources from a number of suppliers.
We
expect that we will encounter increasing competition for OTEC and
SWAC plants. Other firms with greater financial and technical
resources are focusing commercialization of these technologies.
This includes, for example, Akuo Energy and DCNS (now Naval
Energies), which were funded to construct and install a number of
OTEC plants adding up to 16 MWs of power generation outside the
coastline of Martinique in the Caribbean, and Lockheed Martin,
which has recently designed a 10-MW OTEC plant and has partnered
with China-based Reignwood Group, which intends to build the plant
in Hainan, China.
Our
competitors may benefit from collaborative relationships with
countries, including a large number of Caribbean nations that now
have renewable energy standards and are looking at ways to reduce
their carbon footprint, decouple the price of electricity from the
volatile price of oil, and increase energy security. Other
competitors may have advantageous relationships with authorities
such as Hawaii, U.S. territories, and the U.S. Department of
Defense, which are looking at OTEC as a possible source of
renewable energy and water for drinking, fish farming, and
agriculture.
We
cannot assure that we will be able to compete effectively as the
industry grows and becomes more established and as OTEC and SWAC
plants become more accepted as viable and economic energy
solutions.
We
believe competition in this industry is and will be based on
technical soundness and viability, the economics of plant outputs
as compared to other energy sources, developmental reputation and
expertise, financial capability, and ability to develop
relationships with potential customers. All of these factors are
outside our control.
Our Operational Strategy and Economic Models
We
have developed economic models of costs and potential revenue
structures that we will seek to implement as we develop OTEC and
SWAC projects.
OTEC Projects
The
estimated construction costs for a 20-MW plant are approximately
$445 million. The hard costs of approximately $301 million consist
of the power system and platform construction and piping, which
make up 68% of the total. The remaining 32% consists of other
construction costs and the deployment of the cold water pipe. The
soft costs of approximately $58 million consist of design, permits
and licensing, environmental impact assessment, bathymetry,
contractor fees, and insurance.
Once
operational, the capacity factor, which is the projected percent of
time that a power system will be fully operational, considering
maintenance, inspections, and estimated unforeseen events, is
expected to be 95% annually. This factor is used in our financial
calculations, which means the plant will not be generating revenue
for 5% of the year. Most fossil-fuel plants have capacity factors
around 90%, as a result of the major maintenance for
high-temperature boilers, fossil-fuel feed in systems, safety
inspections, cleaning, etc. The normal maintenance cycle for the
pumps, turbine, and generators used in the OTEC plant is typically
every five years. This includes the cleaning of the heat exchangers
and installation of new seals.
We
anticipate that project returns will be comprised of two
components: First, as the project developer, we will seek a
lump-sum payment as a development fee at the time of closing the
project financing for each project. These payments will be
allocated toward reimbursement of development costs and perhaps a
financial return at the early stage of each project. The
development fee will vary, but initially we will seek a fee of
approximately 3% of the project cost, payable upon closing project
financing. Second, we will retain a percentage of equity in the
project, with a goal to retain a minimum of 51% of the equity in
any OTEC project in order to participate in operating
revenues.
We
will seek to generate revenue from OTEC plants from contract
pricing charged on an energy-only price per kWh or on the basis of
a generating capacity payment priced per kilowatt per month and an
energy usage price per kWh. In addition to revenue from power
generation, in many of the countries of the world where we intend
to build OTEC and SWAC plants, water is in short supply. In some
locations, water is considered the more important commodity.
Depending on the part of the world in which the plant is built,
supplying water for drinking, fish farming, and agriculture would
significantly increase plant revenue.
We
cannot assure that we can maintain the revenue points noted above,
that any fees received will offset development costs incurred to
date, or that any operating plant will generate
revenue.
SWAC Projects
The
estimated construction costs are approximately $150 million. The
hard costs of approximately $91 million consist of piping and
installation, which make up 60% of the total. The remaining 40%
consists of the pump house, central utility plant (CUP), mechanical
and engineering equipment, design, and other contingency costs. The
soft costs of approximately $30 million consist of the CUP license,
permits, environmental impact assessment, bathymetry, and
insurance.
Under
our economic model, we will seek to generate revenue at two stages
of the project. First, as the project developer, we will seek a
lump-sum payment of a development fee equal to approximately 3% of
the project cost at the time of closing the project financing for
each project. These payments would provide us with income at the
early stage of each project. If we are able to negotiate a
development fee, we estimate that it will vary, but typically will
be in the $2,500,000-$3,500,000 range. The second component of
project returns is based upon the percentage of equity we will
retain in the project.
SWAC
contract revenue will be based typically on three
charges:
●
Fixed
Price–this is based upon the capital costs of the project
paid over the term of the debt and with the intention of covering
the costs of debt.
●
Operation and
Maintenance–this payment covers the cost of the labor and
fixed overhead needed to run the SWAC system, as well as any
traditional chiller plant operating to fulfill back-up or peak-load
requirements.
●
Chilled Water
Payment–this is a variable charge based on the actual chilled
water use and chilled water generated both by the SWAC and
conventional system at the agreed upon conversion factors of
kilowatt/ton and current electricity costs in U.S. dollars per
kWh.
We
will seek to structure project financing with the goal of retaining
100% of the equity in any SWAC project. We cannot assure that we
will recover project development costs or realize a financial
return over the life of the project.
Our Project Timeline
We
have not developed, designed, constructed, and placed into
operation any OTEC or SWAC plants. However, based on our planning
process and early development experience to date, we estimate that
it will take approximately two to four years or more, depending on
local conditions, including regulatory and permitting requirements,
to take a project from a preliminary memorandum of understanding
with a potential power or other product purchaser to completion and
commencement of operation.
Our Strategic Relationships
We
have strategic relationships with each of the following parties for
potential plant construction, design and architectural services,
and the funding of projects.
●
DCO Energy, LLC,
Mays Landing, New Jersey, is an American energy development company
specializing in the development, engineering, construction,
start-up, commissioning, operation, maintenance and management, as
well as ownership of central energy centers, renewable energy
projects, and combined heat, chilling, and power-production
facilities. DCO Energy was formed in 2000 and has independently
developed and/or operated energy producing facilities of
approximately 275 MW of electric, 400 MMBtu/hr of heat recovery,
1,500 MMBtu/hr of boiler capacity, and 130,000 tons of chilled
water capacity, totaling over $1 billion of assets. DCO Energy
provides financing, engineering and design, construction
management, start-up and commissioning resources, and long-term
operating and maintenance services for its own projects as well as
third-party clients.
●
Naval Energies
(f/k/a DCNS) Paris, France, is a French naval defense company and
one of Europe’s largest ship builders. It employs 12,500
people and generates annual revenues of around $3.9 billion. In
2009, Naval Energies set up an incubator dedicated to marine
renewable energies and has stated its intention to be a leader in
this market, which includes marine turbines, floating wind
turbines, OTEC, and tidal stream turbines.
●
The Sky Institute
for the Future seeks to implement pragmatic and sustainable
strategies in design, energy, town planning, and agricultural
production, and to create and incubate transformational ideas that
will nourish healthy communities and educate current and future
generations.
Our Construction and Components
Once
we have designed the system, we will review the design with our
engineering, procurement, and construction partner to maximize the
chances that the project can be delivered according to plan and on
budget. We expect our construction contracts to be at a fixed price
and to include penalties if the construction timetable is missed.
We may, but are not obligated to, engage DCO Energy to construct
our plants or serve as our owners’ engineer.
In
our systems, the two most important components are heat exchangers
and deep-water intake pipes. Although there are multiple providers
of each of these components, the supply of the best components
comes from just a few companies globally. We expect to source our
deep-water intake pipes from Pipelife of Norway, the only company
we know of that makes pipes of sufficient quality, strength, and
diameter (2.5 meters) to support our planned OTEC plants. However,
we expect that we could work around a lack of supply from Pipelife
by using multiple smaller pipes that are widely available on the
market, although this would increase our construction
costs.
We
will also need the highest quality, large heat exchangers for our
systems; heat exchangers represent a large percentage of the
projected costs of our OTEC and SWAC systems and also account for a
significant portion of the design complexity inherent in commercial
OTEC and SWAC designs. Our relationship with Alfa Laval for heat
exchangers provides us with the size and quality heat exchangers
that we expect to need, although we believe there are several other
companies that could provide us with adequate supply of these
devices meeting our specifications if we need to source from
them.
Other
major components, such as ammonia turbines, generators, and pumps,
are manufactured by several multinational companies, including
General Electric and Siemens.
Our Operations
For
OTEC electricity-generating facilities, we intend to enter into 20-
to 30-year PPAs, pursuant to which the project would supply
fixed-price, baseload electricity to satisfy the minimum demand of
the purchaser’s customers. This PPA structure allows
customers to plan and budget their energy costs over the life of
the contract. For our SWAC systems, we intend to enter into 20- to
30-year ESAs to supply minimum quantities of chilled water for use
in a customer’s air conditioning system.
We
anticipate that operations of OTEC and SWAC plants will be
subcontracted to third parties that will take responsibility for
ensuring the efficient operation of the plants. These arrangements
may reduce our exposure to operational risk, although they may
reduce our financial return if actual operating costs are less than
the subcontract payments. We cannot assure that any OTEC and SWAC
plants will permit the PPAs and ESAs to yield minimum target
internal rates of return. Our first projects are likely to have
lower returns than subsequent projects. Variances in internal rates
of return may occur due to a range of factors, including
availability and structure of project financing and localized
issues such as taxes, some of which may be outside of our
control.
We
expect our OTEC contract pricing will be charged either on an
energy-only price per kWh or on the basis of a capacity payment
priced per kilowatt per month and an energy usage price per kWh. We
cannot assure that this pricing will enable us to recoup our
funding costs and capital repayments and allow us to earn a
profit.
Marketing Strategies
Our marketing and sales efforts are managed and
directed by
our
chairman and chief executive officer,
Jeremy P. Feakins, who has 35 years’ experience of
senior-level sales in both commercial and governmental markets. Our
marketing campaign has focused on explaining to potential customers
the economic, environmental, and other benefits of OTEC and SWAC
through personal contacts, industry interactions, and our
website.
Our
target markets are comprised of large institutional customers that
typically include governments, utilities, large resorts, hospitals,
educational institutions, and municipalities. We market to them
directly through personal meetings and contact by our chief
executive officer and other key members of our team. We also make
extensive use of centers of influence either to heighten awareness
of our products in the minds of key customers’
decision-makers or to secure face-to-face meetings and preliminary
agreements between our customers and our chief executive
officer.
Sales
cycles in our business are extremely long and complex and often
involve multiple meetings with governmental, regulatory, electric
utility, and corporate entities. Therefore, we cannot predict when
or if any of the projects we currently have under development will
progress to the signed contract or operational phase and generate
revenue. We do not expect sales to be seasonal or
cyclical.
Material Regulation
Our
business and products are subject to material regulation. However,
because we contemplate offering our products and services in
different countries, the specific nature of the regulation will be
wholly dependent on the nation where the project will be located.
The precise nature of the regulatory requirements for each project
is wholly dependent on the specific location, and the national,
state, and local regulations apply at that location.
In
all cases, we expect the level of regulation will be material and
will require significant permitting and ongoing compliance during
the life of the project. The most significant regulations will
likely be environmental and will include mitigating possible
adverse effects during both the construction and operational phases
of the project.
However,
we believe that the limited plant site disturbance of both SWAC and
OTEC projects, together with the significantly lower emissions that
result from these projects as compared to fossil-fuel electrical
generation, will make compliance with all such regulation
manageable in the normal course.
The
second most significant regulations will likely involve
coordination with existing infrastructure. We believe compliance
with this type of regulation is a routine civil engineering
coordination process that exists for all new buildings and
infrastructure projects of all types. Again, we believe that the
design of both SWAC and OTEC projects can readily be modified to
avoid interference with existing infrastructure in most
cases.
Facilities
Our
principal executive offices are located at 800 South Queen Street,
Lancaster, Pennsylvania 17603. Our telephone number at that address
is (717) 299-1344.
Intellectual Property
We
use, or intend to employ in the performance of our material
contracts, intellectual property rights in relation to the design
and development of OTEC plants. Our intellectual property rights
can be categorized broadly as proprietary know-how, technical
databases, and trade secrets comprising concept designs, plant
design, and economic models. Additionally, we have applied to
register the trademark TOO DEEP® at the U.S. Patent and
Trademark Office for the provision of desalinated deep ocean water
for consumption. The trademark has been granted, subject to using
it in commerce.
We
may apply for patents for components of our intellectual property
for OTEC and SWAC systems, including novel or new methodologies for
cold-water piping, heat exchanges, and computer-aided design
programs. We cannot assure that any patents we seek will be
granted.
Our
intellectual property has been developed by our employees and is
protected under employee agreements confirming that the rights in
the inventions and developments made by the employees are our
property. Confidential information is protected by nondisclosure
agreements we entered into with prospective partners or other third
parties with which we do business.
We
have not received any notification from third parties that our
processes or designs infringe any third-party rights, and we are
not aware of any valid and enforceable third-party intellectual
property rights that infringe our intellectual property rights.
Currently, there is no patent for any company for OTEC
technology.
Employees
We
currently have five employees, consisting of one officer, three
engineers/technicians, and one general and administrative employee,
and three consultants. There are no collective-bargaining
agreements with our employees, and we have not experienced work
interruptions or strikes. We believe our relationship with
employees is good, and we provide health and life insurance for all
employees.
L
EGAL PROCEEDINGS
From
time to time, we are involved in legal proceedings and regulatory
proceedings arising from operations. We establish reserves for
specific liabilities in connection with legal actions that
management deems to be probable and estimable.
On May
4, 2018, we reached a settlement of the claims at issue in
Ocean Thermal Energy Corp. v.
Robert Coe, et al.
, Case No. 2:17-cv-02343SHL-cgc, before
the United States District Court for the Western District of
Tennessee. On August 8, 2018, an $8 million judgment was entered
against the defendants and in our favor. We have reason to believe
the defendants have adequate assets to satisfy this judgment in
full. The collection process is ongoing.
MARKET PRICE OF AND DIVIDENDS ON OUR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Our
common stock trades on the OTCQB Marketplace operated by the OTC
Markets Group, Inc., or “OTCQB,” under the ticker
symbol “CPWR.”
As of
December 31, 2018, there were approximately 1,500 stockholders of
record.
We have
not paid, nor declared, any cash dividends since our inception and
do not intend to declare or pay any such dividends in the
foreseeable future. Our ability to pay cash dividends is subject to
limitations imposed by state law.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our
financial condition and operating results together with our
financial statements and related notes included elsewhere in this
prospectus. This discussion and analysis and other parts of this
report contain forward-looking statements based upon current
beliefs, plans, and expectations that involve risks, uncertainties,
and assumptions. Our actual results may differ materially from
those anticipated in these forward-looking statements as a result
of various factors, including those set forth under “Risk
Factors” or in other parts of this prospectus. The last day
of our fiscal year is December 31. Our fiscal quarters end on March
31, June 30, September 30, and December 31, and our current fiscal
year ended on December 31, 2017.
Overview
We
develop projects for renewable power generation, desalinated water
production, and air conditioning using our proprietary technologies
designed to extract energy from the temperature differences between
warm surface water and cold deep water. In addition, our projects
provide ancillary products such as potable/bottle water and
high-profit aquaculture, mariculture, and agriculture
opportunities.
We
currently have no source of revenue, so as we continue to incur
costs we are dependent on external funding in order to continue. We
cannot assure that such funding will be available or, if available,
can be obtained on acceptable or favorable terms.
Our
operating expenses consist principally of expenses associated with
the development of our projects until we determine that a
particular project is feasible. Salaries and wages consist
primarily of employee salaries and wages, payroll taxes, and health
insurance. Our professional fees are related to consulting,
engineering, legal, investor relations, outside accounting, and
auditing expenses. General and administrative expenses include
travel, insurance, rent, marketing, and miscellaneous office
expenses. The interest expense includes interest and discounts
related to our loans and notes payable.
Description of Expenses
General
and administrative expenses consist primarily of salaries and
related costs for accounting, administration, finance, human
resources, and information systems. Professional fees expenses
consist primarily of fees related to legal, outside accounting,
auditing, and investor relations services.
Results of Operations
Comparison of Three Months Ended September 30, 2018 and
2017
Revenues and Costs of Revenue
We had
no revenue in the three months ended September 30, 2018 and
2017.
During
the three months ended September 30, 2018, we had salaries and
wages of $257,776, compared to salaries and wages of $768,226
during the same three-month period for 2017, a decrease of 66.4%,
which can be attributed to decreasing our staff due to the lack of
revenue.
During
the three months ended September 30, 2018 and 2017, we recorded
professional fees of $185,220 and $416,484, respectively, a
decrease of 55.5%, due primarily to consulting fees paid to outside
consultants for analyses done for potential acquisitions in the
third quarter of 2017.
We
incurred general and administrative expenses of $91,302 during the
three months ended September 30, 2018, compared to $98,519 for the
same three-month period for 2017, a 7.3% decrease. This is a very
minimal change in general and administrative expenses.
Our
interest expense was $190,417 for the three months ended September
30, 2018, compared to $239,384 for the same period of the previous
year, a decrease of 20.5% due to the loans converted to common
stock.
Our
debt discount amortization was $254,191 for the three months ended
September 30, 2018, compared to $0 for the same period of the
previous year due to the amortization of original issue discount
fees on two new loans. In addition, there was change in the fair
value of the derivative liability of $72,065 during the three
months ending September 30, 2018, and $0 for the same period in
2017.
Comparison of Nine Months Ended September 30, 2018 and
2017
Revenues and Costs of Revenue
We had
no revenue in the nine months ended September 30, 2018 and
2017.
During
the nine months ended September 30, 2018, we had salaries and wages
of $876,723, compared to salaries and wages of $1,322,053 during
the same period for 2017, a decrease of 33.7%, which is
attributable to a decrease in staff because of cost-cutting
measures due to our lack of revenue.
During
the nine months ended September 30, 2018 and 2017, we recorded
professional fees of $1,056,188 and $920,257, respectively, an
increase of 14.8%, due primarily to consulting fees paid to outside
consultants for due diligence on potential
acquisitions.
General
and administrative expenses were $510,361 during the nine months
ended September 30, 2018, and $351,474 for the same period in 2017,
a 45.2% increase. This increase is due to travel expenses incurred
for due diligence on a potential acquisition and for increased
marketing expense incurred in trying to increase our
visibility.
Our
interest expense was $526,342 for the nine months ended September
30, 2018, compared to $477,484 for the same period of the previous
year, an increase of 10.2%, due to the increase in outstanding
notes and loans payable.
During
the nine months ended September 30, 2017, we repriced warrants to
purchase 14,692,500 shares of common stock and options to purchase
100,000 shares of common stock to $0. The warrants and options were
then exercised, and we issued 14,792,500 shares of common stock.
These warrants had a fair value of $6,769,562, which we recognized
as an expense in operations.
Our
debt discount and loan fee expenses were $343,731 for the nine
months ended September 30, 2018, compared to $44,960 for the same
period of the previous year, an increase of 665%. Debt discount
amortization for the 2018 period increased due to our payments of
original discount fees and transaction fees for L2 Capital, LLC and
Collier Investments, LLC. The expense also reflects the fair value
of warrants issued with notes payable and recorded as discount,
which we amortized during the period. In addition, there was change
in the fair value of the derivative liability of $72,065 during the
nine months ended September 30, 2018, and $0 for the same period in
2017.
Liquidity and Capital Resources
At
September 30, 2018, our principal source of liquidity consisted of
$18,174 of cash, as compared to $425,015 of cash at December 31,
2017. In addition, our stockholders’ deficiency was
$13,458,783 at September 30, 2018, compared to stockholders’
deficiency of $10,509,554 at December 31, 2017, an increase in the
deficiency of $2,949,229.
Our
operations used net cash of $1,553,488 during the nine months ended
September 30, 2018, as compared to using net cash of $1,086,784
during the nine months ended September 30, 2017. The change was
primarily due to the $6,769,562 warrant expense that impacted
2017.
Investing
activities for the nine months ended September 30, 2018 and 2017,
used cash of $30,000 and $118,114, respectively. All of the cash
used in investing during the first nine months of 2018 was an
increase in our assets under construction. Of cash used in the
first nine months of 2017, $72,853 was an increase in our assets
under construction and the balance represents cash paid in
connection with the Merger.
Financing
activities provided cash of $1,176,647 for our operations during
the nine months ended September 30, 2018, as compared to
$1,218,841, a decrease of 3.5%. One of the major factors was the
decrease in proceeds from warrants that were exercised of
approximately $740,000 in 2017; however, some of this was offset by
notes payable proceeds from unrelated parties. In 2017, we received
approximately $482,000 as proceeds from related parties’
notes payable as compared to $0 in 2018.
Our Capital Resources and Anticipated Requirements
As
noted above, at September 30, 2018, we had negative working capital
(current assets minus current liabilities) of $14,213,930. We are
now focusing our efforts on promoting and marketing our technology
by developing and executing contracts. We are exploring external
funding alternatives, as our current cash is insufficient to fund
operations for the next 12 months.
On May
4, 2018, we reached a settlement of the claims at issue in
Ocean Thermal Energy Corp. v.
Robert Coe, et al.,
Case No. 2:17-cv-02343SHL-cgc, before
the United States District Court for the Western District of
Tennessee. On August 8, 2018, an $8 million federal court judgment
was entered against the defendants and in our favor. We believe the
defendants have adequate assets to satisfy this judgment in full.
Between May 30 and July 19, 2018, we received three payments
totaling $100,000 from the defendants. The collection process is
ongoing and defendants are cooperating in proceeding with
payments.
Our
condensed consolidated financial statements have been prepared
assuming we will continue as a going concern. We have experienced
recurring losses from operations and have an accumulated deficit.
Our ability to continue our operations as a going concern is
dependent on management’s plans, which include the raising of
capital through debt and/or equity markets, until such time that
funds provided by operations are sufficient to fund working capital
requirements. We will require additional funding to finance the
growth of our current and expected future operations as well as to
achieve our strategic objectives. If we are unable to access the L2
Capital equity line as described above, we believe our current
available cash may be insufficient to meet our cash needs for the
near future. We cannot assure that the L2 Capital equity line or
other financing will be available in amounts or terms acceptable to
us, if at all. Further, we cannot assure that we will be able to
collect all or any portion of our judgment against third parties as
discussed above. The accompanying financial statements have been
prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. These financial statements do not
include any adjustments relating to the recovery of the recorded
assets or the classification of the liabilities that might be
necessary should we be unable to continue as a going
concern.
We have
no significant contractual obligations or commercial commitments
not reflected on our balance sheet as of this date.
Comparison of the Years Ended December 31, 2017 and
2016
Revenues and Costs of Revenue
We had
no revenue for the years ended December 31, 2017 or
2016.
We had
no cost of revenue for the years ended December 31, 2017 and
2016.
Although the net
changes and percent changes for our revenues and our cost of
revenue for 2017 and 2016 are summarized above, these trends should
not be viewed as a definitive indication of our future
results.
Operating Expenses and Other Expenses
During
the year ended December 31, 2017, we had salaries and wages of
$2,044,882, as compared to $1,237,438 during the same period for
2016. This 65.3% increase of $807,444 was primarily due to employee
bonuses of $920,399 that were recorded as salaries, but paid in
common stock calculated at the fair value on date of
commitment.
During
the year ended December 31, 2017, we had professional fees of
$1,669,202, as compared $1,505,586 during the same period for 2016.
This is a 10.9% increase as compared to the prior
year.
General
and administrative expenses of $2,169,577 during the year ended
December 31, 2017, as compared to $442,394 during the year ended
December 31, 2016, is a 390.4% increase when compared to the prior
year. This increase of $1,727,183 is due primarily to fees paid to
marketing consulting firms for $1,575,767. In addition, we incurred
a debt placement fee of $514,286. These were recorded as general
expenses, but paid in common stock calculated at fair value on date
of commitment.
During
the year ended December 31, 2017, we repriced 14,692,500 warrants
and 100,000 options to $0.00 and exercised the warrants and options
and issued 14,792,500 shares of common stock. These warrants had a
fair value of $6,769,562, which we recognized as an expense in
operations.
The
above factors resulted in an operating loss of $12,702,221 during
the year ended December 31, 2017, as compared to $3,429,702 during
the same period of 2016, an increase of $9,272,519, or 270.4%. Had
our expenses not included a write-off of $6,769,562 related to the
exercising of warrant and options during year ended
December 31, 2017, and our debt placement and consulting fees
of $2,090,052, our loss from operations would have been $3,842,607
for that period, as compared to $3,429,702 for the same period in
2016, an increase of 12%.
Our
interest and debt discount expenses of $659,709 for the year ended
December 31, 2017, as compared to $2,678,415 for the year ended
December 31, 2016, was decreased by 75.4% due to reduced
amortization of debt discount. In the year of 2016, we expensed
$1,644,957 for the amortization of notes payable discount. In 2017,
we expensed $1,105,203 as a loss on the settlement of debt and
$124,542 as a change in the fair value of a liability.
Liquidity and Capital Resources
At
December 31, 2017, our principal source of liquidity consisted of
$425,015 of cash, as compared to $7,495 of cash at December 31,
2016. In addition, our stockholders’ deficiency was
$10,509,554 at December 31, 2017, compared to stockholders’
deficit of $8,664,237 at December 31, 2016, an increase in the
deficiency of $1,845,317. Our operating loss and retained earnings
for the year was impacted greatly by the $6,769,562 warrant expense
we incurred when we repriced 14,692,500 warrants and 100,000
options at $0.00.
Our
operations used net cash of $1,469,169 during the year ended
December 31, 2017, as compared to using net cash of $2,057,879
during the year ended December 31, 2016. Major changes between the
years 2017 and 2016 were the decrease in the amortization of debt
discount of $1,599,997, a decrease of $195,286 in the value of
capital assets that were written off because of impairment, an
increase the fair value of stock issued for services of $1,884,674,
an increase of $920,399 in the fair value of stock issued for
employee bonuses, an increase in warrant expense of $6,769,562
incurred when warrants were exercised at zero value, and an
increase in accounts payable and accrued expenses of
$476,405.
Investing
activities for the years ended December 31, 2017 and 2016, used
cash of $140,613 and $119,722, respectively. Of the amount of cash
used, $49,773 reflects the cash paid to TetriDyn Solutions at the
time of the merger with Ocean Thermal Energy Corporation. The
remaining amount was an increase in our assets under
construction.
Financing
activities provided cash of $2,027,302 for our operations during
the year ended December 31, 2017, due to the proceeds we received
from issuing common stock for exercised warrants of $748,535, notes
payable to related party of $844,178, and notes payable to
unrelated parties $490,000.
Our Capital Resources and Anticipated Requirements
As
noted above, at December 31, 2017, we had negative working capital
(current assets minus current liabilities) of $10,716,255. We are
now focusing our efforts on promoting and marketing our technology
by developing and executing contracts. We are exploring external
funding alternatives, as our current cash is insufficient to fund
operations for the next 12 months. Upon the consummation of the
merger with TetriDyn Solutions, Inc., which was consummated on May
9, 2017, we gained access to the public markets.
In
December 2017, we entered into a Note and Warrant Purchase
Agreement pursuant to which we issued a series of unsecured
promissory notes (the “Notes”) to accredited investors,
in the aggregate principal amount of $490,000 as of December 31,
2017. The Notes accrue interest at a rate of 10% per annum payable
on a quarterly basis and are not convertible into shares of our
capital stock. The Notes are payable, within five business days
after receipt of funds from L2 Capital under the Equity Purchase
Agreement, in an amount equal to 20% of the total funds received by
us from L2 Capital payable on a pro rata basis to all holders of
the Notes. We may prepay the Notes in whole or in part, without
penalty or premium, on or before the maturity date of July 30,
2019. In connection with the issuance of the Notes, for each Note
purchased the noteholder will receive a warrant exercised as
follows:
$10,000
note with a warrant to purchase 2,000 shares
$20,000
note with a warrant to purchase 5,000 shares
$25,000
note with a warrant to purchase 6,500 shares
$30,000
note with a warrant to purchase 8,000 shares
$40,000
note with a warrant to purchase 10,000 shares
$50,000
note with a warrant to purchase 14,000 shares
The
exercise price per share of the warrants is equal to 85% of the
closing price of our common stock on the day immediately preceding
the exercise of the relevant warrant, subject to adjustment as
provided in the warrant. The warrant includes a cashless net
exercise provision whereby the holder can elect to receive shares
equal to the value of the warrant minus the fair market value of
shares being surrendered to pay for the exercise. As of
December 31, 2017, the balance outstanding was $490,000, the
accrued interest was $613, and we had issued warrants to purchase
134,000 shares of common stock. We determined that the warrants had
a fair value of $41,044 based on the Black-Scholes option-pricing
model. The fair value was recorded as a discount on the notes
payable and is being amortized over the life of the notes payable.
On January 16, 2018, 28,000 warrants were exercised at an average
value of $0.2805 per share for a total of $7,854. On February 27,
2018, 2,000 warrants were exercised at an average value of $0.1785
per share for a total of $357.
On
December 11, 2017, we entered into the Equity Purchase Agreement
with L2 Capital, LLC for up to $15,000,000. On January 5, 2018, we
issued 1,714,285 shares of common stock valued at $514,286 as a
commitment fee in connection with the agreement. The shares to be
issued pursuant to this agreement are covered by a Registration
Statement on Form S-1 approved the Securities and Exchange
Commission and effective on January 29, 2018. As of December 31,
2017, no “put” options were exercised.
On
February 15, 2018, we entered into an agreement with L2 Capital,
LLC, a Kansas limited liability company, for a loan of up to
$565,555, together with interest at the rate of 8% per annum (with
the understanding that the initial six months of such interest of
each tranche funded would be guaranteed), at maturity or upon
acceleration or otherwise, as set forth therein. The consideration
to us for this note is up to $500,000 due to the prorated original
issuance discount of up to $55,555 and a $10,000 credit for L2
Capital’s transaction expenses. As of December 31, 2017, we
had received two tranches totaling $204,444, which were allocated
as follows: original issuance discount $19,444, L2 Capital’s
transaction fee $10,000, broker-dealer’s fee $14,000, and net
proceeds $161,000.
We are
pursuing the acquisition of a leading international engineering and
technology company in our industry that designs and manufactures
patented accessories to provide better stability, protection, and
securitization of floating offshore structures, such as those we
have designed for use with our OTEC and desalination systems. On
February 8, 2018, we made an offer to acquire this company, which
has been accepted, and we are currently in the due diligence stage
and securing the funding for the acquisition.
We have
no significant contractual obligations or commercial commitments
not reflected on our balance sheet as of this date.
Critical Accounting Policies
We have
identified the policies outlined below as critical to our business
operations and an understanding of our results of operations. The
list is not intended to be a comprehensive list of all of our
accounting policies. In many cases, the accounting treatment of a
particular transaction is specifically dictated by accounting
principles generally accepted in the United States, with no need
for management’s judgment in their application. The impact
and any associated risks related to these policies on our business
operations is discussed throughout Management’s Discussion
and Analysis of Financial Condition and Results of Operations when
such policies affect our reported and expected financial results.
For a detailed discussion on the application of these and other
accounting policies, see the notes to our December 31, 2017
consolidated financial statements. Note that our preparation of the
consolidated financial statements requires us to make estimates and
assumptions that affect the reported amount of assets and
liabilities, disclosure of contingent assets and liabilities at the
date of our consolidated financial statements, and the reported
amounts of revenue and expenses during the reporting period. We
cannot assure that actual results will not differ from those
estimates.
Revenue Recognition
We will
recognize revenue on arrangements in accordance with Financial
Accounting Standards Board (“FASB), Accounting Standards
Codification Topic 605, “
Revenue Recognition
.” In all
cases, revenue is recognized only when the price is fixed and
determinable, persuasive evidence of an arrangement exists, the
service is performed, and collectability of the resulting
receivable is reasonably assured.
Income Taxes
We use
the liability method of accounting for income taxes. Under the
liability method, deferred tax assets and liabilities are
determined based on temporary differences between financial
reporting and tax bases of assets and liabilities and on the amount
of operating loss carry-forwards and are measured using the enacted
tax rates and laws that will be in effect when the temporary
differences and carry-forwards are expected to reverse. An
allowance against deferred tax assets is recorded when it is more
likely than not that such tax benefits will not be
realized.
Capitalization Policy
Furniture,
vehicles, equipment, and software are recorded at cost and include
major expenditures, which increase productivity or substantially
increase useful lives. Maintenance, repairs, and minor replacements
are charged to expenses when incurred. When furniture, vehicles,
and equipment are sold or otherwise disposed of, the asset and
related accumulated depreciation are removed from this account, and
any gain or loss is included in the statement of operations. The
cost of furniture, vehicles, equipment, and software is depreciated
over the estimated useful lives of the related assets.
Assets
under construction represent costs incurred by us for our renewable
energy systems currently in process. We capitalize costs incurred
once the project has met the project feasibility stage. Costs
include environmental engineering, permits, government approval
costs, and site engineering costs. We currently have two projects
in the development stage and one project in the construction phase.
We capitalize direct interest costs associated with the
projects.
Recent Accounting Pronouncements
In
August 2016, the FASB issued Accounting Standard Update 2016-15,
Statement of Cash Flows (Topic
230): Classification of Certain Cash Receipts and Cash
Payments.
Historically, there has been diversity in practice
in how certain cash receipts/payments are presented and classified
in the statement of cash flows under Topic 230. The purpose of the
update is to reduce the existing diversity in practice by
clarifying the presentation of certain types of transactions. The
amendments in this update are effective for public business
entities for fiscal years beginning after December 15, 2017, and
interim periods within those fiscal years. Early adoption is
permitted. We notes that this guidance applies to our` reporting
requirements and will implement the new guidance
accordingly.
We have
reviewed all recently issued, but not yet adopted, accounting
standards in order to determine their effects, if any, on our
consolidated results of operations, financial position, and cash
flows. Based on that review, we believe that none of these
pronouncements will have a significant effect on current or future
earnings or operations.
Off-Balance Sheet Arrangements
We do
not have any off-balance sheet arrangements, financings, or other
relationships with unconsolidated entities or other persons, also
known as “special purpose entities.”
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The
following table sets forth the names, ages, and positions of our
executive officers and directors as of December 31,
2018:
Name
|
Age
|
Position
|
Jeremy
P. Feakins
|
65
|
Chairman
of the Board, Chief Executive Officer, Chief Financial Officer and
Secretary/Treasurer
|
Peter
H. Wolfson
|
54
|
Director
|
Antoinette
K. Hempstead
|
54
|
Director
|
Jeremy P. Feakins
has served as our chief executive
officer, chief financial officer, and secretary/treasurer since
March 2015. Mr. Feakins has over 35 years of experience as an
entrepreneur and investor, having founded two technology-based
companies. Between 1990 and 2006, Mr. Feakins was the chairman and
chief executive officer of Medical Technology & Innovations,
Inc. (MTI), a developer and manufacturer of a microprocessor-based,
vision-screening device and other medical devices located in
Lancaster, PA. In 1996, he managed the public listing of MTI on the
over-the-counter markets and subsequently structured the sale of
the rights to MTI’s vision-screening product to a major
international eyewear company. Between 1998 and 2006, he was a
managing member of Growth Capital Resources LLC, a venture capital
company located in Lancaster, PA, where he successfully managed the
public listings for four small companies on the over-the-counter
market. Between 2005 and 2008, he served as executive vice chairman
and member of the board of directors of Caspian International Oil
Corporation (OTC: COIC), an oil exploration and services company
located in Houston, TX and Almaty, KZ, where he managed its public
listing. Since 2008, Mr. Feakins has been the chairman and managing
partner of the JPF Venture Fund 1, LP, an early-stage venture
capital company located in Lancaster, PA, focused on companies
involved with humanitarian and/or sustainability projects. Since
2014, Mr. Feakins has been chairman and chief executive officer of
JPF Venture Group, Inc. JPF Venture Group, Inc., provides strategic
and operational business assistance to start-up, early-stage, and
middle-market high-growth businesses and is a principal stockholder
of our stock. Mr. Feakins graduated from the Defence College of
Logistics and Personnel Administration, Shrivenham, UK, and served
seven years in the British Royal Navy. He is a member of the
Institute of Directors in the United Kingdom and the British
American Business Council in the United States. Based on his
background in the technology industry and his financial and
management background, the board of directors has concluded that
Mr. Feakins is qualified to serve as a
director.
Peter Wolfson
has served as one of our directors
since March 2015. Mr. Wolfson is also the founder, president, and
chief executive officer of Hans Construction, a developer and
builder of upscale homes located in Lancaster, PA. Mr. Wolfson is a
qualified commercial pilot at a major U.S.-owned international
airline company and has over 30 years’ experience in the
aviation business. He also has 10 years’ experience as a
financial consultant with a subsidiary of Mass Mutual, developing
financial strategies and tax planning. Based on his financial
background, the board of directors has concluded that Mr. Wolfson
is qualified to serve as director.
Antoinette Knapp
Hempstead
was appointed as a
director in February 2017. Prior to that, Ms. Hempstead served as
our chief executive officer and president from April 2013 until
March 2015 and as our deputy chief executive officer and vice
president since August 2002. Ms. Hempstead has over 30 years’
experience in management, software management, software
development, and finance. Ms. Hempstead has also served as adjunct
faculty for University of Idaho where she taught Computer Science
courses. Ms. Hempstead has a Master’s degree in Computer
Science from the University of Idaho and a Bachelor’s of
Science Degree in Applied Mathematics from the University of Idaho.
Ms. Hempstead provides experience in software development and
project management, as well as experience in financial statement
preparation and regulatory reporting, to our board of directors.
Based on her technical background, the board of directors has
concluded that Ms. Hempstead is qualified to serve as a
director.
Director Independence and Board of Directors’
Committees
Other
than Peter Wolfson, none of our directors is considered to be an
independent member of our board of directors under the rules of
Nasdaq. Our board as a whole has acted as our audit committee,
compensation committee, and nominating committee. The board of
directors has not established any committees.
Code of Ethics
We have
adopted a code of ethics that applies to all of our employees,
including our executive officers, a copy of which is included as an
exhibit to the registration statement.
Family Relationships
There
are no family relationships between any director and executive
officer.
Involvement in Certain Legal Proceedings
During
the past 10 years, none of our directors and executive officers has
been involved in any of the events described in Item 401(f) of
Regulation S-K.
EXECUTIVE COMPENSATION
The
following table sets forth, for the fiscal years ended December 31,
2017 and 2016, the dollar value of all cash and noncash
compensation earned by any person that was our principal executive
officer, or PEO, during the preceding fiscal year:
Name and
Principal Position
|
|
|
|
|
|
|
Non-
Equity
Incentive
Plan
Com-
pensation
($)
|
Nonqualified
Deferred
Compen-
sation
Earnings
($)
|
All
Other
Compen-sation
($)
|
|
Jeremy
Feakins
|
|
2017
|
381,110
|
0
|
581,571
|
0
|
0
|
0
|
0
|
962,681
|
Principal
Executive Officer and Principal Financial Officer
|
|
2016
|
247,917
|
0
|
0
|
0
|
0
|
0
|
0
|
247,917
|
The
table above does not include prerequisites and other personal
benefits in amounts less than 10% of the total annual salary and
other compensation.
Narrative Disclosure to Summary Compensation Table
On
January 1, 2011, we entered into a five-year employment agreement
with an individual to serve as our chief executive officer. The
employment agreement provides for successive one-year term renewals
unless it is expressly cancelled by either party 100 days prior to
the end of the term. Under the agreement, the chief executive
officer will receive an annual salary of $350,000, a car allowance
of $12,000, and company-paid health insurance. The agreement also
provides for bonuses equal to one times annual salary plus 500,000
shares of common stock for each additional project that generates
$25 million or more revenue to us. The chief executive officer is
entitled to receive severance pay in the lesser amount of three
years’ salary or 100% of the remaining salary if the
remaining term is less than three years. As of December 31, 2017,
we issued 258,476 shares of common stock, with a fair value of
$581,571, to compensate the chief executive officer for his
performance.
On June
29, 2017, the board of directors approved extending the employment
agreement for the chief executive officer for an additional five
years. The salary and other compensation will be increased to
account for inflation since the original employment agreement was
executed.
Outstanding Equity Awards at Fiscal Year-End
No stock option awards were exercisable or unexercisable as of
December 31, 2017, for any executive officer.
Director Compensation
Mr.
Feakins, who is our chief executive officer, did not receive
compensation for his service as a director. The compensation
received by Mr. Feakins as an officer is presented in the above
summary compensation table.
For
the year ending December 31, 2017, no compensation was awarded to,
earned by, or paid to our nonemployee directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information
regarding the beneficial ownership of our outstanding common stock,
as of
December 31, 2018, by:
(i) each of our directors; (ii) each of our named
executive officers (as defined by Item 402(a)(3) of Regulation S-K
promulgated under the Exchange Act); (iii) all of our
directors and named executive officers as a group; and
(iv) each person known to us to beneficially own more than 5%
of our outstanding common stock.
Name and Address
of Person or Group (1)
|
Number of Shares
of Common
Stock Beneficially
Owned
|
Percent
of Common
Stock Beneficially
Owned
|
|
|
|
Principal Stockholders:
|
|
|
Steve Oney
|
7,648,000
|
5.8
%
|
Jeremy P. Feakins
(2)
|
17,608,771
|
13.4
|
|
|
|
Directors and Executive Officers:
|
|
|
Jeremy P. Feakins
(2)
|
17,608,771
|
13.4
|
Antoinette Hempstead
(3)
|
115,151
|
*
|
Peter H. Wolfson
(4)
|
2,088,981
|
1.6
|
|
|
|
Executive Officers and Directors as
a Group (3 persons):
|
19,812,903
|
15.1
%
|
_________________________
(1)
800 South Queen
Street, Lancaster, PA 17603, is the address for all stockholders in
the table. Applicable percentages are based on 131,038,944 shares
of our common stock outstanding on December 31, 2018, and are
calculated as required by rules promulgated by the
SEC.
(2)
Consists of
(i) 8,288,051 shares of common stock owned of record by Jeremy
P. Feakins; (ii) 3,901,645 shares of common stock owned of
record by JPF Venture Group, Inc., which is an investment entity
that is majority-owned and controlled by Jeremy P. Feakins, and, as
such, is deemed to be beneficially owned by Mr. Feakins; and
(iii) 5,419,075 shares of common stock issuable to JPF Venture
Group, Inc. on the conversion of $75,000 in promissory notes,
convertible at $0.01384 per share. All calculations in this
footnote are based on conversion of the principal
only.
(3)
Consists of:
(i) 452 shares of common stock owned of record by Antoinette
Hempstead; and (ii) 114,699 shares of common stock owned of
record by A.R. Hempstead Revocable Trust, which is owned and
controlled by Ms. Hempstead and, as such, is deemed to be the
beneficial owner of record. Ms. Hempstead is a member of the board
of directors.
(4)
Consists of:
(i) 1,185,833 shares of common stock owned of record by Peter
H. Wolfson; and (ii) 903,148 shares of common stock issuable
to Mr. Wolfson on the conversion of a $12,500 promissory note dated
October 2016, convertible at $0.01384 per share into shares of
common stock. Mr. Wolfson is a member of the board of
directors.
Beneficial
ownership has been determined in accordance with Rule 13d-3 under
the Exchange Act. The percentages in the table have been calculated
on the basis of treating as outstanding for a particular person,
all shares of our common stock outstanding on that date and all
shares of our common stock issuable to that holder in the event of
exercise of outstanding options, warrants, rights, or conversion
privileges owned by that person at that date which are exercisable
within 60 days of that date. Except as otherwise indicated, the
persons listed below have sole voting and investment power with
respect to all shares of our common stock owned by them, except to
the extent that power may be shared with a spouse. We do not know
of any arrangements the operation of which may at a subsequent date
result in a change of control of our company.
TRANSACTIONS WITH RELATED PERSONS, PROMOTOERS, AND
CERTAIN CONTROL PERSONS AND CORPORATE GOVERNANCE
Related-Party Transactions
We pay
rent to a company controlled by our chief executive officer under
an operating lease agreement. For the year ended December 31, 2016,
we paid rent of 60,000. For the year ended December 31, 2017, we
paid rent of $95,000. For the nine months ended September 30, 2018,
we paid rent of $90,000.
In
April 2016, we issued 28,000 shares of our common stock awarded
pursuant to our 2016 Long Term Incentive Plan (LTIP). We filed a
Registration Statement on Form-8, no. 333-210640, with the U.S
Securities and Exchange Commission on April 7, 2016, covering
48,000 shares under the LTIP. The shares were issued to six
officers and advisers.
On
October 20, 2016, we borrowed $12,500 from an independent director
pursuant to a promissory note. The terms of the note are as
follows: (i) interest is payable at 6% per annum; (ii) the note is
payable 90 days after demand; and (iii) the payee is authorized to
convert part or all of the note balance and accrued interest, if
any, into shares of our common stock at the rate of one share for
each $0.03 of principal amount of the note. This conversion share
price was adjusted to $0.01384 for the reverse stock
splits.
On
December 8, 2016, we entered into an asset purchase agreement with
JPF Venture Group, Inc. to acquire certain assets related to a
project comprised of the development of a sustainable living
community by creating an ecologically sustainable
“EcoVillage” powered by 100% fossil-fuel free
electricity, buildings cooled by energy efficient and chemical free
systems, and on-site water produced for drinking, aquaculture (the
“Business”). The assets purchased, primarily used in
the Business, includes designs, conceptual plans, blueprints,
drawings, sketches, outlines, maps, plots, diagrams, drafts,
representations, schemes, models and other similar items related to
the business. The purchase price to be paid by us to JPF Venture
Group, Inc. is equal to 5,000 shares of our restricted common
stock; this purchase price was adjusted for the 250:1 reverse stock
split (see Note 9). The assets were recorded on our books at $0.00
value. As of December 31, 2016, we had 246,616 shares of common
stock and no options outstanding.
On
December 29, 2016, an entity in which our chief executive officer
is an officer and director, agreed to provide a short-term advance
to us for working capital in the amount of $36,822. This was
subsequently repaid in 2017.
We have
$300,000 in principal amount of outstanding notes, including
$100,000 due to a related party, issued in 2014, in default since
2015, accruing interest at a default rate of 22%. We intend to
repay the notes and accrued interest upon the Baha Mar SWAC
project’s financial closing. Accrued interest totaled
$230,179 as of September 30, 2018.
On May
8, 2017, an investment entity that is majority-owned by our
director, chief executive officer, and chief financial officer
transferred 148,588 shares of common stock for $111,440 to us to
fulfill an over-commitment of “D”
warrants.
We
remain liable for the loans by an investment entity that is
majority-owned by our director, chief executive officer, and chief
financial officer to TetriDyn Solutions, Inc. before the merger on
May 9, 2017. As of September 30, 2018, the outstanding balance of
these loans was $581,880 and the accrued interest was
$117,363.
On June
5, 2017, a note holder elected to convert a $25,000 convertible
note payable for 1,806,298 shares of common stock ($0.014 per
share).
On
September 8, 2017, an investment entity that is majority-owned by
our director, chief executive officer, and chief financial officer
elected to convert $50,000 in notes payable for 3,612,596 shares of
common stock at a conversion rate of $0.014. In addition, accrued
interest in the amount of $6,342 was converted to 458,198
shares.
On
November 6, 2017, we entered into an agreement with a promissory
note with an investment entity that is majority-owned by our
director, chief executive officer, and chief financial officer, to
loan up to $2,000,000 to us. The terms of the note are as follows:
(i) interest is payable at 10% per annum; (ii) all unpaid
principal and all accrued and unpaid interest shall be due and
payable at the earliest of a resolution of the Memphis litigation,
June 30, 2018, or when we are otherwise able to pay. As of
September 30, 2018, the outstanding balance was $612,193 and the
accrued interest was $64,196. For the nine months ended September
30, 2018, we repaid $19,374. On September 30, 2018, the note was
amended to extend the maturity date to the earliest of a resolution
of the Memphis litigation, December 31, 2018, or when we are
otherwise able to pay.
On
November 8, 2017, an investment entity that is majority-owned by
our director, chief executive officer, and chief financial officer,
a Series B note holder, elected to convert $50,000 in notes payable
for 50,000 shares of common stock at a conversion rate of $1.00. In
addition, they converted accrued interest in the amount of $16,263
for 16,263 shares.
On
January 18, 2018, an investment entity that is majority owned by
our chief executive officer, chief financial officer, and a
director, agreed to extend the due date for repayment of a
$2,265,000 note issued in 2014 to the earlier of December 31, 2018,
or the date of the financial closings of our Baha Mar Project (or
any other project of $25 million or more), whichever occurs first.
During 2016, we prepaid $5,000. On August 15, 2017, principal of
$618,500 and accrued interest of $207,731 were converted to 826,231
shares at $1.00 per share, which was ratified by a disinterested
majority of the board of directors. The conversion was recorded at
historical cost due to the related-party nature of the transaction.
For the nine months ended September 30, 2018, we repaid $35,000. As
of September 30, 2018, the note balance was $1,102,500 and the
accrued interest was $483,642.
On
March 6, 2018, the due date of the related-party note payable in
the amount of $1,000,000 issued on February 3, 2012, was extended
to December 31, 2018. The balance on the note was $1,000,000 and
accrued interest was $611,393 as of September 30,
2018.
During
November 2018, our chief executive officer, chief financial
officer, and a director purchased 190,840 shares of common stock at
$0.0262 per share in three separate transactions.
WHERE
YOU CAN FIND MORE INFORMATION
We file
annual, quarterly, and current reports and other information with
the U.S. Securities and Exchange Commission (SEC). These filings
are available to the public over the Internet at the SEC’s
website at http://www.sec.gov.
We have
filed with the SEC a registration statement on Form S-1 under the
Securities Act respecting the securities offered under this
prospectus. This prospectus, which forms a part of that
registration statement, does not contain all information included
in the registration statement. Certain information is omitted and
you should refer to the registration statement and its
exhibits.
You may
review a copy of the registration statement, and the reports and
other information that we file with the SEC, at the SEC’s
public reference room at 100 F Street, N.E. Washington, D.C. 20549
on official business days during the hours between 10 a.m. and 3
p.m. You may obtain information on the operation of the public
reference room by calling the SEC at 1-800-SEC-0330. You may also
read and copy any materials we file with the SEC at the SEC’s
public reference room. Our filings and the registration statement
can also be reviewed by accessing the SEC’s website at
http://www.sec.gov.
Statements
contained in this prospectus as to the contents of any contract or
other document that we have filed as an exhibit to the registration
statement are qualified in their entirety by reference to the
exhibits for a complete statement of their terms and
conditions.
The
representations, warranties, and covenants made by us in any
agreement that is filed as an exhibit to the registration
statement, of which this prospectus is a part, were made solely for
the benefit of the parties to such agreement, including, in some
cases, for the purpose of allocating risk among the parties to such
agreements, and should not be deemed to be a representation,
warranty, or covenant to you. Moreover, such representations,
warranties, or covenants were made as of an earlier date.
Accordingly, such representations, warranties, and covenants should
not be relied on as accurately representing the current state of
our affairs.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Pursuant to our
articles of incorporation and bylaws, we may indemnify an officer
or director who is made a party to any proceeding because of his
position as such, to the fullest extent authorized by the
corporation laws of the state of Nevada, as the same exists or may
hereafter be amended. In certain cases, we may advance expenses
incurred in defending any such proceeding.
To the
extent that indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, or persons
controlling our company pursuant to the foregoing provisions, we
have been informed that, in the opinion of the SEC, such
indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. If a claim for
indemnification against such liabilities (other than the payment by
us of expenses incurred or paid by a director, officer, or
controlling person of our company in the successful defense of any
action, suit, or proceeding) is asserted by any of our directors,
officers, or controlling persons in connection with the securities
being registered, we will, unless in the opinion of our counsel the
matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such
indemnification by us is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of
that issue.
OCEAN THERMAL ENERGY CORPORATION
INDEX TO FINANCIAL STATEMENTS
|
|
|
Page
|
|
|
|
|
Condensed Consolidated Balance Sheets as of September 30, 2018
(unaudited)
and December 31, 2017
|
|
|
F-2
|
|
|
|
|
Condensed
Consolidated Statements of Operations for the
Three
and Nine Months Ended September 30, 2018 and 2017
(unaudited)
|
|
|
|
|
|
|
|
Condensed
Consolidated Statement of Changes in Stockholders’
Deficiency
for the Nine Months Ended September 30, 2018
(unaudited)
|
|
|
F-4
|
|
|
|
|
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2018 (unaudited)
|
|
|
F-5
|
|
|
|
|
Notes to Condensed Consolidated Unaudited Financial
Statements
|
|
|
F-6
|
|
|
|
|
Report of Independent Registered Public Accounting
Firm
|
|
|
F-2
0
|
|
|
|
|
Consolidated Balance Sheets as of December 31, 2017 and December
31, 2016
|
|
|
F-21
|
|
|
|
|
Consolidated Statements of Operations for the Years Ended December
31, 2017 and 2016
|
|
|
F-22
|
|
|
|
|
Consolidated Statements of Stockholders’ Deficiency for the
Years Ended December 31, 2017 and 2016
|
|
|
F-23
|
|
|
|
|
Consolidated Statements of Cash Flows for the Years Ended December
31, 2017 and 2016
|
|
|
F-24
|
|
|
|
|
Notes to Consolidated Financial Statements
|
|
|
F-25
|
PART I - FINANCIAL INFORMATION
I
TEM 1. FINANCIAL
STATEMENTS
OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
ASSETS
|
|
|
Current Assets
|
|
|
Cash
|
$
18,174
|
$
425,015
|
Prepaid
expenses
|
20,000
|
25,000
|
Total
Current Assets
|
38,174
|
450,015
|
|
|
|
Property and Equipment
|
|
|
Property
and equipment, net
|
842
|
1,352
|
Assets
under construction
|
922,639
|
892,639
|
Property
and Equipment, net
|
923,481
|
893,991
|
|
|
|
Total Assets
|
$
961,655
|
$
1,344,006
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' DEFICIENCY
|
|
|
|
|
|
Current Liabilities
|
|
|
Accounts
payables and accrued expense
|
$
8,017,640
|
$
6,846,010
|
Notes
payable - related party, net
|
3,528,573
|
3,592,948
|
Convertible
notes payable -related party- net
|
40,833
|
87,500
|
Notes
payable, net
|
1,518,352
|
589,812
|
Convertible
note payable, net
|
441,428
|
50,000
|
Derivative
Liability
|
705,278
|
-
|
Total
Current Liabilities
|
14,252,104
|
11,166,270
|
|
|
|
Notes
payable, net
|
168,334
|
607,290
|
Notes
payable, convertible
|
-
|
80,000
|
Total Liabilities
|
14,420,438
|
11,853,560
|
|
|
|
Stockholders'
deficiency
|
|
|
Preferred
Stock, $0.001 par value; 20,000,000 shares authorized,
|
|
|
0
and 0 shares issued and outstanding, respectively
|
-
|
-
|
Common
stock, $0.001 par value; 200,000,000 shares
authorized,
|
|
|
125,654,592
and 122,642,247 shares issued and outstanding,
respectively
|
125,654
|
122,642
|
Additional
paid-in capital
|
57,404,191
|
57,071,022
|
Accumulated
deficit
|
(70,988,628
)
|
(67,703,218
)
|
Total Stockholders' Deficiency
|
(13,458,783
)
|
(10,509,554
)
|
|
|
|
Total Liabilities and Stockholders' Deficiency
|
$
961,655
|
$
1,344,006
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
|
For
the three months ended
|
For
the nine months ended
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
Salaries
and wages
|
$
257,776
|
$
768,226
|
$
876,723
|
$
1,322,053
|
Professional
fees
|
185,220
|
416,484
|
1,056,188
|
920,257
|
General
and administrative
|
91,302
|
98,519
|
510,361
|
351,474
|
Warrant
expense
|
-
|
-
|
-
|
6,769,562
|
Total Operating Expenses
|
534,298
|
1,283,229
|
2,443,272
|
9,363,346
|
|
|
|
|
|
Loss from Operations
|
(534,298
)
|
(1,283,229
)
|
(2,443,272
)
|
(9,363,346
)
|
|
|
|
|
|
Other Income & Expenses
|
|
|
|
|
Interest
expense, net
|
(190,417
)
|
(239,384
)
|
(526,342
)
|
(477,484
)
|
Amortization
of debt discount
|
(254,191
)
|
-
|
(343,731
)
|
(44,960
)
|
Loss
on settlement of debt
|
-
|
(728,328
)
|
-
|
(728,328
)
|
Change
in fair value of derivative liability
|
(72,065
)
|
-
|
(72,065
)
|
-
|
Income
from legal settlement
|
50,000
|
-
|
100,000
|
-
|
Total Other expense
|
(466,673
)
|
(967,712
)
|
(842,138
)
|
(1,250,772
)
|
|
|
|
|
|
Loss Before Income Taxes
|
(1,000,971
)
|
(2,250,941
)
|
(3,285,410
)
|
(10,614,118
)
|
|
|
|
|
|
Provision for Income Taxes
|
-
|
-
|
-
|
-
|
|
|
|
|
|
Net Loss
|
$
(1,000,971
)
|
$
(2,250,941
)
|
$
(3,285,410
)
|
$
(10,614,118
)
|
|
|
|
|
|
Net Loss per Common Share
|
|
|
|
|
Basic and Diluted
|
$
(0.01
)
|
$
(0.02
)
|
$
(0.03
)
|
$
(0.10
)
|
|
|
|
|
|
Weighted Average Number of Common Shares Outstanding- Basic and
Diluted
|
124,361,407
|
114,366,529
|
123,370,391
|
109,857,231
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
DEFICIENCY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2017
|
-
|
$
-
|
122,642,247
|
$
122,642
|
$
57,071,022
|
$
(67,703,218
)
|
$
(10,509,554
)
|
Stock
issued for warrants
|
-
|
-
|
39,000
|
39
|
9,481
|
-
|
9,520
|
Stock
issued for services
|
-
|
-
|
673,345
|
673
|
138,313
|
-
|
138,986
|
Stock
issued for cash, net of offering costs
|
-
|
-
|
1,900,000
|
1,900
|
119,240
|
-
|
121,140
|
Stock
issued for conversions of notes payable
|
-
|
-
|
400,000
|
400
|
17,790
|
|
18,190
|
Beneficial
conversion features
|
-
|
-
|
-
|
-
|
34,975
|
-
|
34,975
|
Reclassification
of derivative liability
|
-
|
-
|
-
|
-
|
13,370
|
-
|
13,370
|
Net
Loss
|
-
|
-
|
-
|
-
|
-
|
(3,285,410
)
|
(3,285,410
)
|
Balance,
September 30, 2018 (unaudited)
|
-
|
$
-
|
125,654,592
|
$
125,654
|
$
57,404,191
|
$
(70,988,628
)
|
$
(13,458,783
)
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
|
|
|
|
|
Cash Flows From Operating Activities:
|
|
|
Net
loss
|
$
(3,285,410
)
|
$
(10,614,118
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
Depreciation
|
510
|
844
|
Change
in fair value derivative liability
|
72,065
|
-
|
Stock
issued for services
|
138,986
|
380,683
|
Loss
on settlement of debt
|
-
|
728,328
|
Warrant
expense
|
-
|
6,769,562
|
Amortization
of debt discount
|
343,731
|
44,960
|
Changes
in assets and liabilities:
|
|
|
Prepaid
expenses
|
5,000
|
28,808
|
Accounts
payable & accrued expenses
|
1,171,630
|
1,574,149
|
Net Cash Used In Operating Activities
|
(1,553,488
)
|
(1,086,784
)
|
|
|
|
Cash Flow From Investing Activities:
|
|
|
Cash
acquired from TetriDyn Solutions, Inc.
|
-
|
4,512
|
Assets
under construction
|
(30,000
)
|
(72,853
)
|
Cash
paid to TetriDyn Solutions, Inc.
|
-
|
(49,773
)
|
Net Cash Used In Investing Activities
|
(30,000
)
|
(118,114
)
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
Repayment
of notes payable - related party
|
(64,376
)
|
(25,000
)
|
Repayment
of notes payable
|
(3,880
)
|
-
|
Proceeds
from notes payable
|
499,156
|
-
|
Proceeds
from convertible notes payable
|
615,087
|
80,000
|
Proceeds
from notes payable - related party
|
-
|
200,000
|
Proceeds
from due to related party
|
-
|
281,746
|
Proceeds
from issuance of common stock, net of offering costs
|
121,140
|
45,000
|
Proceeds
from exercise of warrants
|
9,520
|
748,535
|
Stock
repurchased from related parties
|
-
|
(111,440
)
|
Net Cash Provided by Financing Activities
|
1,176,647
|
1,218,841
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
(406,841
)
|
13,943
|
Cash
and cash equivalents at beginning of period
|
425,015
|
7,495
|
Cash and Cash Equivalents at End of Period
|
$
18,174
|
$
21,438
|
|
|
|
Supplemental disclosure of cash flow
information
|
|
|
Cash
paid for interest expense
|
$
32,432
|
$
18,012
|
Cash
paid for income taxes
|
$
-
|
$
-
|
|
|
|
Supplemental disclosure of non-cash investing and financing
activities:
|
|
|
Debt
discount on note payable
|
$
34,975
|
$
-
|
Convertible
note payable and accrued interest - related party converted to
common stock
|
$
-
|
$
81,342
|
Note
payable and accrued interest converted to common stock
|
$
-
|
$
653,230
|
Note
payable and accrued interest - related party converted to common
stock
|
$
-
|
$
826,231
|
Convertible
note payable converted to common stock
|
$
18,190
|
$
-
|
Reclassification
of derivative liability
|
$
13,370
|
$
-
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
OCEAN
THERMAL ENERGY CORPORATION
AND
SUBSIDIARIES
Notes
to Condensed Consolidated September 30, 2018 Financial
Statements
(Unaudited)
Note
1: Source of Business and Basis of Presentation
Ocean Thermal
Energy Corporation is currently in the businesses of:
●
OTEC and
SWAC
—designing Ocean Thermal Energy Conversion
(“OTEC”) power plants and Seawater Air Conditioning
(“SWAC”) plants for large commercial properties,
utilities, and municipalities. These technologies provide practical
solutions to mankind’s three oldest and most fundamental
needs: clean drinking water, plentiful food, and sustainable,
affordable energy without the use of fossil fuels. OTEC is a clean
technology that continuously extracts energy from the temperature
difference between warm surface ocean water and cold deep seawater.
In addition to producing electricity, some of the seawater running
through an OTEC plant can be efficiently desalinated using the
power generated by the OTEC technology, producing thousands of
cubic meters of fresh water every day for use in agriculture and
human consumption in the communities served by its plants. This
cold, deep, nutrient-rich water can also be used to cool buildings
(SWAC) and for fish farming/aquaculture. In short, it is a
technology with many benefits, and its versatility makes OTEC
unique.
●
EcoVillages
—
developing
and commercializing our EcoVillages, as well as working to develop
or acquire new complementary assets. EcoVillages are communities
whose goal is to become more socially, economically, and
ecologically sustainable. EcoVillages are communities whose
inhabitants seek to live according to ecological principles,
causing as little impact on the environment as possible. We expect
that our EcoVillage communities will range from a population of 50
to 150 individuals, although some may be smaller. We may also form
larger EcoVillages, of up to 2,000 individuals, as networks of
smaller subcommunities. We expect that our EcoVillages will grow by
the addition of individuals, families, or other small
groups.
We
expect to use our technology in the development of our EcoVillages,
which should add significant value to our existing line of
business.
On May 25, 2017, we
received approval from the Financial Industry Regulatory Authority
(“FINRA”) to change the trading symbol for our common
stock to “CPWR,” pronounced “sea power” to
reflect our core technology, from “TDYS.” Our common
stock began formally trading under the symbol “CPWR” on
June 21, 2017.
On May 9, 2017,
TetriDyn Solutions, Inc. (“TDYS”) acquired Ocean
Thermal Energy Corporation (“OTE”) in a merger (the
“Merger”), in which outstanding securities of OTE were
converted into securities of TDYS, which changed its name to Ocean
Thermal Energy Corporation. For accounting purposes, this
transaction was accounted for as a reverse merger and has been
treated as a recapitalization of TDYS with OTE as the accounting
acquirer. The historical financial statements of the accounting
acquirer became the financial statements of the company. We did not
recognize goodwill or any intangible assets in connection with the
transaction. The 110,273,767 shares issued to the shareholders of
the accounting acquirer in conjunction with the share exchange
transaction have been presented as outstanding for all periods. The
historical financial statements include the operations of the
accounting acquirer for all periods presented and the accounting
acquiree for the period from May 9, 2017, through December 31,
2017. Our accounting year end is December 31, which was the
year-end of the accounting acquirer.
The condensed
consolidated financial statements include the accounts of the
company and our wholly owned subsidiaries. Intercompany accounts
and transactions have been eliminated in consolidation. In the
opinion of management, our financial statements reflect all
adjustments that are of a normal recurring nature necessary for
presentation of financial statements for interim periods in
accordance with U.S. generally accepted accounting principles
(GAAP) and with the instructions to Form 10-Q in Article 10 of SEC
Regulation S-X. The preparation of financial statements in
conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at
the date of our financial statements, and the reported amounts of
revenue and expenses during the reporting periods. Actual results
could differ from those estimates.
We condensed or
omitted certain information and footnote disclosures normally
included in our annual audited financial statements, which we
prepared in accordance with GAAP. The operating results for the
three and nine months ended September 30, 2018, are not necessarily
indicative of the results to be expected for the year. Our interim
financial statements should be read in conjunction with our annual
report on Form 10-K for the year ended December 31, 2017, including
the financial statements and notes.
Note
2: Going Concern
The accompanying
unaudited condensed consolidated financial statements have been
prepared on the assumption that we will continue as a going
concern. As reflected in the accompanying condensed consolidated
financial statements, we had a net loss of $3,285,410 and used
$1,553,488 of cash in operating activities for the nine months
ended September 30, 2018. We had a working capital deficiency of
$14,213,930 and a stockholders’ deficiency of $13,458,783 as
of September 30, 2018. These factors raise substantial doubt about
our ability to continue as a going concern. Our ability to continue
as a going concern is dependent on our ability to increase sales
and obtain external funding for our projects under development. The
financial statements do not include any adjustments that may result
from the outcome of this uncertainty.
Note
3: Income Taxes
The
Tax Cuts and Jobs Act (the “TCJA”) significantly
reforms the Internal Revenue Code of 1986, as amended (the
“Code”). The TCJA, among other things, reduced the
corporate tax rate from a top marginal rate of 35% to a flat rate
of 21%, effective as of January 1, 2018; limited the tax deduction
for interest expense; limited the deduction for net operating
losses to 80% of current year taxable income and eliminated net
operating loss carrybacks, in each case, for losses arising in
taxable years beginning after December 31, 2017 (though any such
tax losses may be carried forward indefinitely); modified or
repealed many business deductions and credits, including reducing
the business tax credit for certain clinical testing expenses
incurred in the testing of certain drugs for rare diseases or
conditions generally referred to as “orphan drugs”; and
repealed the federal alternative minimum tax.
The
staff of the U.S. Securities and Exchange Commission
(“SEC”) issued Staff Accounting Bulletin No. 118 to
address the application of GAAP in situations when a registrant
does not have the necessary information available, prepared, or
analyzed (including computations) in reasonable detail to complete
the accounting for certain income tax effects of the TCJA. In
connection with the initial analysis of the impact of the TCJA, we
remeasured our deferred tax assets and liabilities based on the
rates at which they are expected to reverse in the future, which is
generally 21%. The remeasurement of our deferred tax assets and
liabilities was offset by a change in the valuation
allowance.
We
are still in the process of analyzing the impact of the TCJA to us.
Where we have been able to make reasonable estimates of the effects
of the TCJA, we have recorded provisional amounts. However, our
analysis is not yet complete. The ultimate impact of the TCJA to
our consolidated financial statements may differ from the
provisional amounts due to, among other things, additional
analysis, changes in interpretations and assumptions we have made,
additional regulatory guidance that may be issued, and actions we
may take as a result of the TCJA.
No income tax
expense was recognized for the nine months ended September 30, 2018
and 2017, due to the net losses incurred in these periods. We are
subject to audit by the Internal Revenue Service, various states,
and foreign jurisdictions for the prior three years. There has not
been a change in our unrecognized tax positions since
December 31, 2017, and we do not believe there will be any
material changes in our unrecognized tax positions over the next 12
months. Our policy is to recognize interest and penalties accrued
on any unrecognized tax benefits as a component of income tax
expense. We do not have any accrued interest or penalties
associated with any unrecognized tax benefits, and no interest
expense related to unrecognized tax benefits was recognized during
the nine months ended September 30, 2018.
Our ability to use
our net operating loss carryforwards may be substantially limited
due to ownership change limitations that may have occurred or that
could occur in the future, as required by Section 382 of the Code,
as well as similar state provisions. These ownership changes may
limit the amount of net operating loss that can be utilized
annually to offset future taxable income and tax, respectively. In
general, an “ownership change” as defined by Section
382 of the Code results from a transaction or series of
transactions over a three-year period resulting in an ownership
change of more than 50.0% of the outstanding stock of a company by
certain stockholders or public groups.
We have not
completed a study to assess whether an ownership change has
occurred or whether there have been multiple ownership changes
since we became a “loss corporation” under the
definition of Section 382. If we have experienced an ownership
change, utilization of the net operating loss carryforwards would
be subject to an annual limitation under Section 382 of the Code,
which is determined by first multiplying the value of our stock at
the time of the ownership change by the applicable long-term,
tax-exempt rate, and then could be subject to additional
adjustments, as required. Any limitation may result in expiration
of a portion of the net operating loss carryforwards before
utilization. Further, until a study is completed and any limitation
known, no positions related to limitations are being considered as
an uncertain tax position or disclosed as an unrecognized tax
benefit. Any carryforwards that expire prior to utilization as a
result of such limitations will be removed from deferred tax assets
with a corresponding reduction of the valuation allowance. Due to
the existence of the valuation allowance, it is not expected that
any possible limitation will have an impact on our results of
operations or financial position.
Note
4: Fair Value of Financial Instruments
Financial
Accounting Standards Board (“FASB”) Accounting Standard
Codification (“ASC”) Topic 820,
Fair Value Measurements and
Disclosures
, defines fair value, establishes a framework for
measuring fair value under GAAP, and enhances disclosures about
fair value measurements. ASC 820 describes a fair value hierarchy
based on three levels of inputs, of which the first two are
considered observable and the last unobservable, that may be used
to measure fair value, which are the following:
●
Level
1–Pricing inputs are quoted prices available in active
markets for identical assets or liabilities as of the reporting
date.
●
Level
2–Pricing inputs are quoted for similar assets or inputs that
are observable, either directly or indirectly, for substantially
the full term through corroboration with observable market data.
Level 2 includes assets or liabilities valued at quoted prices
adjusted for legal or contractual restrictions specific to these
investments.
●
Level
3–Pricing inputs are unobservable for the assets or
liabilities; that is, the inputs reflect the reporting
entity’s own assumptions about the assumptions market
participants would use in pricing the asset or
liability.
Management believes
the carrying amounts of the short-term financial instruments,
including cash and cash equivalents, prepaid expense and other
assets, accounts payable, accrued liabilities, notes payable,
deferred compensation, and other liabilities reflected in the
accompanying balance sheets approximate fair value at September 30,
2018, and December 31, 2017, due to the relatively short-term
nature of these instruments.
We account for
derivative liability at fair value, on a recurring basis under
level 3 at September 30, 2018 (see Note 9).
Note
5: Net Loss per Common Share
The basic loss per
share is calculated by dividing our net loss available to common
shareholders by the weighted average number of common shares during
the period. The diluted loss per share is calculated by dividing
our net loss by the diluted weighted average number of shares
outstanding during the period. The diluted weighted average number
of shares outstanding is the basic weighted number of shares
adjusted for any potentially dilutive debt or equity. We have
333,573 and 0 shares issuable upon the exercise of warrants and
options and 20,798,618 and 7,576,778 shares issuable upon the
conversion of convertible notes that were not included in the
computation of dilutive loss per share because their inclusion is
antidilutive for the interim periods ended September 30, 2018 and
2017, respectively.
Note
6: Recent Accounting Pronouncements
In June 2018, the
FASB issued Accounting Standard Update (“ASU”) 2018-07,
Compensation – Stock
Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting
. This ASU relates to the accounting for
non-employee share-based payments. The amendment in this update
expands the scope of Topic 718 to include all share-based payment
transactions in which a grantor acquired goods or services to be
used or consumed in a grantor’s own operations by issuing
share-based payment awards. The ASU excludes share-based payment
awards that relate to (1) financing to the issuer or (2) awards
granted in conjunction with selling goods or services to customers
as part of a contract accounted for under Topic 606,
Revenue from Contracts from Customers
.
The share-based payments are to be measured at grant-date fair
value of the equity instruments that the entity is obligated to
issue when the good or service has been delivered or rendered and
all other conditions necessary to earn the right to benefit from
the equity instruments have been satisfied. This standard will be
effective for public business entities for fiscal years beginning
after December 15, 2018, including interim periods within that
fiscal year. For all other entities, the amendments are effective
for fiscal years beginning after December 15, 2019, and interim
periods within fiscal years beginning after December 15, 2020.
Early adoption is permitted, but no earlier than an entity’s
adoption of Topic 606. We are currently reviewing the provisions of
this ASU to determine if there will be any impact on our results of
operations, cash flows, or financial condition.
We have reviewed
all recently issued, but not yet adopted, accounting standards in
order to determine their effects, if any, on our consolidated
results of operations, financial position, and cash flows. Based on
that review, we believe that none of these pronouncements will have
a significant effect on current or future earnings or
operations.
Note
7: Business Segments
We conduct
operations in various foreign jurisdictions where we are developing
projects to use our technology. Our segments are based on the
location of these projects. The U.S. territories segment consists
of projects in the U.S. Virgin Islands and Guam and the other
segment currently consists of projects in the Cayman Islands.
Direct revenues and costs, depreciation, depletion, and
amortization costs, general and administrative costs, and other
income directly associated with their respective segments are
detailed within the following discussion. Identifiable net property
and equipment are reported by business segment for management
reporting and reportable business segment disclosure purposes.
Current assets, other assets, current liabilities, and long-term
debt are not allocated to business segments for management
reporting or business segment disclosure purposes.
Reportable business
segment information is as follows:
|
|
|
|
|
|
|
Revenue
|
$
-
|
$
-
|
$
-
|
$
-
|
Assets
|
$
39,016
|
$
757,738
|
$
164,901
|
$
961,655
|
Net
Loss
|
$
(3,285,410
)
|
$
-
|
$
-
|
$
(3,285,410
)
|
Property
and equipment
|
$
842
|
$
-
|
$
-
|
$
842
|
Capitalized
construction in process
|
$
-
|
$
757,738
|
$
164,901
|
$
922,639
|
Depreciation
|
$
510
|
$
-
|
$
-
|
$
510
|
Addtions
to capitalized construction in process
|
$
-
|
$
30,000
|
$
-
|
$
30,000
|
|
|
|
|
|
|
|
Revenue
|
$
-
|
$
-
|
$
-
|
$
-
|
Assets
|
$
24,701
|
$
870,140
|
$
48,998
|
$
943,839
|
Net
loss
|
$
(10,614,118
)
|
$
-
|
$
-
|
$
(10,614,118
)
|
Property
and equipment
|
$
1,522
|
$
-
|
$
-
|
$
1,522
|
Capitalized construction
in process
|
$
-
|
$
870,140
|
$
48,998
|
$
919,138
|
Depreciation
|
$
844
|
$
-
|
$
-
|
$
844
|
Additions
to capitalized construction in process
|
$
-
|
$
72,853
|
$
-
|
$
72,853
|
For the period
ended September 30, 2018, the U.S. territories are comprised of the
U.S. Virgin Islands project (approx. $750,000) and the Guam project
(approx. $165,000). Other territories are comprised of the Cayman
Islands project; however
during the
year ended December 31, 2017, $48,998 of Cayman Islands assets
under construction were considered to be impaired due to the
uncertainty of the project and were written off
. There were
$30,000 additions and no write offs to assets under construction in
the nine months of 2018.
Note
8: Convertible Notes and Notes Payable
On December 12,
2006, we borrowed funds from the Southeast Idaho Council of
Governments (SICOG) (the “EDA-#180 loan”). The
remaining balance on the loan at the date of the Merger was
$14,974. The interest rate is 6.25%, and the maturity date was
January 5, 2013. The loan principal was $8,392 with accrued
interest of $0 as of September 30, 2018. This note is in
default.
On December 23,
2009, we borrowed funds from SICOG (the “EDA-#273
loan”). The remaining balance on the loan at the date of the
Merger was $94,480. The interest rate is 7%, and the maturity date
was December 23, 2014. The loan principal was $94,480 with accrued
interest of $21,174 as of September 30, 2018. This note is in
default.
On December 23,
2009, we borrowed funds from SICOG (the “MICRO I-#274
loan”). The remaining balance on the loan at the date of the
Merger was $23,619. The interest rate is 7%, and the maturity date
was December 23, 2014. The loan principal was $23,619 with accrued
interest of $4,601 as of September 30, 2018. This note is in
default.
On December 23,
2009, we borrowed funds from SICOG (the “MICRO II-#275
loan”). The remaining balance on the loan at the date of the
Merger was $23,620. The interest rate is 7%, and the maturity date
was December 23, 2014. The loan principal was $23,620 with accrued
interest of $5,903 as of September 30, 2018. This note is in
default.
On December 1,
2007, we borrowed funds from the Eastern Idaho Development
Corporation (the “EIDC loan”). The remaining balance on
the loan at the date of the Merger was $85,821. The interest rate
is 7%, and the maturity date was September 1, 2015. The loan
principal was $85,821 with accrued interest of $37,879 as of
September 30, 2018. This note is in default.
On September 25,
2009, we borrowed funds from the Pocatello Development Authority.
The remaining balance on the loan at the date of the Merger was
$50,000. The interest rate is 5%, and the maturity date was October
25, 2011. The loan principal was $50,000 with accrued interest of
$20,101 as of September 30, 2018. This note is in
default.
On March 12, 2015,
we combined convertible notes issued in 2010, 2011, and 2012,
payable to our officers and directors in the aggregate principal
amount of $320,246, plus accrued but unpaid interest of $74,134,
into a single, $394,380 consolidated convertible note (the
“Consolidated Note”). The Consolidated Note was
assigned to JPF Venture Group, Inc. (“JPF”), an
investment entity that is majority-owned by Jeremy Feakins, our
director, chief executive officer, and chief financial officer. The
Consolidated Note was convertible to common stock at $0.025 per
share, the approximate market price of our common stock as of the
date of the issuance. On February 24, 2017, the Consolidated Note
was amended to eliminate the conversion feature. The Consolidated
Note bears interest at 6% per annum and is due and payable within
90 days after demand. As of September 30, 2018, the outstanding
loan balance was $394,380 and the accrued but unpaid interest was
$88,964 on the Consolidated Note.
On November 23,
2015, we borrowed $50,000 from JPF pursuant to a promissory note.
We received $37,500 before December 31, 2015, and $12,500 after the
year-end. The terms of the note are as follows: (i) interest
is payable at 6% per annum; (ii) the note is payable 90 days
after demand; and (iii) payee is authorized to convert part or
all of the note balance and accrued interest, if any, into shares
of our common stock at the rate of one share each for $0.03 of
principal amount of the note. This conversion share price was
adjusted to $0.01384 for the reverse stock splits. As of September
30, 2018, the outstanding balance was $50,000, plus accrued
interest of $8,323. We have recorded a debt discount of $50,000 for
the fair value of derivative liability and amortized $23,333 of
debt discount as of September 30, 2018 (see Note 9).
On February 25,
2016, we borrowed $50,000 from JPF pursuant to a promissory note.
The terms of the note are as follows: (i) interest is payable
at 6% per annum; (ii) the note is payable 90 days after
demand; and (iii) payee is authorized to convert part or all
of the note balance and accrued interest, if any, into shares of
our common stock at the rate of one share for each $0.03 of
principal amount of the note. This conversion price is not required
to adjust for the reverse stock split as per the note agreement. On
February 24, 2017, the note was amended to eliminate the conversion
feature. As of September 30, 2018, the outstanding balance was
$50,000, plus accrued interest of $7,911.
On May 20, 2016, we
borrowed $50,000 from JPF pursuant to a promissory note. The terms
of the note are as follows: (i) interest is payable at 6% per
annum; (ii) the note is payable 90 days after demand; and
(iii) the payee is authorized to convert part or all of the
note balance and accrued interest, if any, into shares of our
common stock at the rate of one share for each $0.03 of principal
amount of the note. This conversion price is not required to adjust
for the reverse stock split as per the note agreement. On February
24, 2017, the note was amended to eliminate the conversion feature.
As of September 30, 2018, the outstanding balance was $50,000, plus
accrued interest of $7,063.
On October 20,
2016, we borrowed $12,500 from JPF pursuant to a promissory note.
The terms of the note are as follows: (i) interest is payable
at 6% per annum; (ii) the note is payable 90 days after
demand; and (iii) the payee is authorized to convert part or
all of the note balance and accrued interest, if any, into shares
of our common stock at the rate of one share for each $0.03 of
principal amount of the note. This conversion price is not required
to adjust for the reverse stock split as per the note agreement. On
February 24, 2017, the note was amended to eliminate the conversion
feature. As of September 30, 2018, the outstanding balance was
$12,500, plus accrued interest of $1,497.
On October 20,
2016, we borrowed $12,500 from an independent director pursuant to
a promissory note. The terms of the note are as follows:
(i) interest is payable at 6% per annum; (ii) the note is
payable 90 days after demand; and (iii) the payee is
authorized to convert part or all of the note balance and accrued
interest, if any, into shares of our common stock at the rate of
one share for each $0.03 of principal amount of the note. This
conversion share price was adjusted to $0.01384 for the reverse
stock splits. As of September 30, 2018, the outstanding balance was
$12,500, plus accrued interest of $1,563. We have recorded a debt
discount of $12,500 for the fair value of derivative liability and
amortized $5,833 of debt discount as of September 30, 2018 (see
Note 9).
On October 20,
2016, we borrowed $25,000 from a stockholder pursuant to a
promissory note. The terms of the note are as follows:
(i) interest is payable at 6% per annum; (ii) the note is
payable 90 days after demand; and (iii) the payee is
authorized to convert part or all of the note balance and accrued
interest, if any, into shares of our common stock at the rate of
one share for each $0.03 of principal amount of the note. This
conversion share price was adjusted to $0.01384 for the reverse
stock splits. As of September 5, 2017, the note holder converted
the note principal of $25,000 into 1,806,298 shares common stock.
As of September 30, 2018, there was an outstanding balance of
accrued interest of $904.
On December 21,
2016, we borrowed $25,000 from JPF pursuant to a promissory note.
The terms of the note are as follows: (i) interest is payable
at 6% per annum; (ii) the note is payable 90 days after
demand; and (iii) the payee is authorized to convert part or
all of the note balance and accrued interest, if any, into shares
of our common stock at the rate of one share for each $0.03 of
principal amount of the note. This conversion share price was
adjusted to $0.01384 for the reverse stock splits. As of September
30, 2018, the outstanding balance was $25,000, plus accrued
interest of $2,700. We have recorded a debt discount of $25,000 for
the fair value of derivative liability and amortized $11,667 of
debt discount as of September 30, 2018 (see Note 9).
During 2012, we
issued a note payable for $1,000,000 and three-year warrants to
purchase 3,295,761 shares of common stock with an exercise price of
$0.50 per share. The note had an interest rate of 10% per annum,
was secured by a first lien in all of our assets, and was due on
February 3, 2015. We determined the warrants had a fair value of
$378,500 based on the Black-Scholes option-pricing model. The fair
value was recorded as a discount on the note payable and was being
amortized over the life of the note. We repriced the warrants
during 2013 and took an additional charge to earnings of $1,269,380
related to the repricing. The warrants were exercised upon the
repricing. On March 6, 2018, the note was amended to extend the due
date to December 31, 2018. As of September 30, 2018, the
outstanding balance was $1,000,000, plus accrued interest of
$611,393.
During 2013, we
issued Series B units. Each unit is comprised of a note agreement,
a $50,000 promissory note that matures on September 30, 2023, and
bears interest at 10% per annum payable annually in arrears, a
security agreement, and a warrant to purchase 10,000 shares of
common stock at an exercise price to be determined pursuant to a
specified formula and expires on September 30, 2023. During 2013,
we issued $525,000 of 10% promissory notes and warrants to purchase
105,000 shares of common stock. We determined the warrants had a
fair value of $60,068 based on the Black-Scholes option-pricing
model. As part of our agreement with a proposed external financing
source, the board repriced the warrants to $0.00, exercised the
warrants, and issued shares of common stock. On August 15, 2017,
loans of $316,666 and accrued interest of $120,898 were converted
to 437,564 shares at $1.00 per share, which was ratified by a
disinterested majority of the board of directors. The shares were
recorded at fair value of $1,165,892, which resulted in a loss on
settlement of debt of $728,328 on the conversion date. As of
September 30, 2018, the loan balance was $158,334 and the accrued
interest was $80,901.
During 2013, we
issued a note payable for $290,000 in connection with the reverse
merger transaction. We have determined that no further payment of
principal or interest on this note should be made because the note
holder failed to perform his underlying obligations giving rise to
this note. As such, we are confident that if the note holder were
to seek legal redress, a court would decide in our favor by either
voiding the note or awarding damages sufficient to offset the note
value. As of September 30, 2018, the balance outstanding was
$130,000, and the accrued interest as of that date was
$48,200.
On January 18,
2018, the holder of a $2,265,000 note issued in 2014 agreed to
extend the due date for repayment to the earlier of December 31,
2018, or the date of the financial closings of our Baha Mar Project
(or any other project of $25 million or more), whichever occurs
first. The holder is the investment entity owned by our Chief
Executive Officer, Chief Financial Officer and Director. On August
15, 2017, principal of $618,500 and accrued interest of $207,731
were converted to 826,231 shares at $1.00 per share, which was
ratified by a disinterested majority of the board of directors. The
conversion was recorded at historical cost due to the related-party
nature of the transaction. For the nine months ended September 30,
2018, we repaid $35,000. As of September 30, 2018, the note balance
was $1,102,500 and the accrued interest was $483,642.
We have $300,000 in
principal amount of outstanding notes, including $100,000 due to a
related party, issued in 2014, in default since 2015, accruing
interest at a default rate of 22%. We intend to repay the notes and
accrued interest upon the Baha Mar SWAC project’s financial
closing. Accrued interest totaled $230,179 as of September 30,
2018.
The due date of
April 17, 2017, on a $50,000 promissory note, has been extended to
April 7, 2019. The note and accrued interest can be converted into
our common stock at a conversion rate of $0.75 per share at any
time prior to the repayment. This conversion price is not required
to adjust for the reverse stock split as per the note agreement.
Accrued interest totaled $17,639 as of September 30, 2018. We have
recorded $149 of debt discount for the fair value derivative
liability and fully amortized $149 of the debt discount as of
September 30, 2018.
On March 9, 2017,
an entity owned and controlled by our chief executive officer
agreed to provide up to $200,000 in working capital. The note bears
interest of 10% and is due and payable within 90 days of demand. As
of September 30, 2018, the balance outstanding was $177,000, plus
accrued interest of $28,328.
During the third
quarter of 2017, we completed a $2,000,000 convertible promissory
note private placement offering. The terms of the note are as
follows: (i) interest is payable at 6% per annum;
(ii) the note is payable two years after purchase; and (iii)
all principal and interest on each note automatically converts on
the conversion maturity date into shares of our common stock at a
conversion price of $4.00 per share, as long as the closing share
price of our common stock on the trading day immediately preceding
the conversion maturity date is at least $4.00, as adjusted for
stock splits, stock dividends, reclassification, and the like. If
the price of our shares on such date is less than $4.00 per share,
the note (principal and interest) will be repaid in full. As of
September 30, 2018, the outstanding balance for all four notes
was $80,000, plus accrued interest of $5,793.
On November 6,
2017, we entered into an agreement and promissory note with JPF to
loan up to $2,000,000 to us. The terms of the note are as follows:
(i) interest is payable at 10% per annum; (ii) all unpaid
principal and all accrued and unpaid interest is due and payable at
the earliest of a resolution of the Memphis litigation, September
30, 2018, or when we are otherwise able to pay. For the nine months
ended September 30, 2018, we repaid $18,500. As of September 30,
2018, the outstanding balance was $612,193 and the accrued interest
was $64,926. On September 30, 2018, the note was amended to extend
the maturity date to the earliest of a resolution of the Memphis
litigation, December 31, 2018, or when we are otherwise able to
pay.
In December 2017,
we entered into a note and warrant purchase agreement pursuant to
which we issued a series of unsecured promissory notes to
accredited investors, in the aggregate principal amount of $979,156
as of September 30, 2018. These notes accrue interest at a rate of
10% per annum payable on a quarterly basis and are not convertible
into shares of our capital stock. The notes are payable within five
business days after receipt of gross proceeds of at least
$1,500,000 from L2 Capital, LLC, an unaffiliated Kansas limited
liability company (“L2 Capital). We may prepay the notes in
whole or in part, without penalty or premium, on or before the
maturity date of July 30, 2019. In connection with the issuance of
the notes, for each note purchased, the note holder will receive a
warrant as follows:
$10,000 note with a
warrant to purchase 2,000 shares
$20,000 note with a
warrant to purchase 5,000 shares
$25,000 note with a
warrant to purchase 6,500 shares
$30,000 note with a
warrant to purchase 8,000 shares
$40,000 note with a
warrant to purchase 10,000 shares
$50,000 note with a
warrant to purchase 14,000 shares
The exercise price
per share of the warrants is equal to 85% of the closing price of
our common stock on the day immediately preceding the exercise of
the relevant warrant, subject to adjustment as provided in the
warrant. The warrant includes a cashless net exercise provision
whereby the holder can elect to receive shares equal to the value
of the warrant minus the fair market value of shares being
surrendered to pay the exercise price. As of September 30, 2018,
and December 31, 2017, the balance outstanding was $979,156 and
$490,000, respectively. As of September 30, 2018, and December 31,
2017, the accrued interest was $47,798 and $613, respectively. As
of September 30, 2018, and December 31, 2017, we had issued
warrants to purchase 262,000 and 134,000 shares of common stock,
respectively. As of September 30, 2018, and December 31, 2017, we
determined that the warrants had a fair value of $34,975 and
$41,044, respectively, based on the Black-Scholes pricing model.
The fair value was recorded as a discount on the notes payable and
is being amortized over the life of the notes payable. As of
September 30, 2018, we have amortized $41,153 of debt discount. As
of September 30, 2018, warrants to purchase 39,000 shares have been
exercised (see Note 9) and the debt discount related to the
exercised warrants has been fully expensed. As of September 30,
2018, we have recorded a debt discount of $13,514 for the fair
value of derivative liability and amortized $1,645 of debt
discount. As of September 30, 2018, $21,367 of the principal
payments of two notes is due and in default.
On February 15,
2018, we entered into an agreement with L2 Capital for a loan of up
to $565,555, together with interest at the rate of 8% per annum,
which consists of up to $500,000 to us and a prorated original
issuance discount of $55,555 and $10,000 for transactional expenses
to L2 Capital. L2 Capital has the right at any time to convert all
or any part of the note into fully paid and nonassessable shares of
our common stock at the fixed conversion price, which is equal to
$0.50 per share;
however
,
at any time on or after the occurrence of any event of default
under the note, the conversion price will adjust to the lesser of
$0.50 or 65% multiplied by the lowest volume weighted average price
of the common stock during the 20-trading-day period ending, in L2
Capital’s sole discretion on each conversion, on either the
last complete trading day prior to the conversion date or the
conversion date. As of the September 30, 2018, we have received
five tranches totaling $482,222 with debt issuance cost of $91,222.
The debt issuance cost is amortized over the life of the note. In
addition, we also issued warrants to purchase 56,073 shares of
common stock in accordance with a non-exclusive finder’s fee
arrangement (see Note 10). These warrants have a fair value of
$13,280 based on the Black-Scholes option-pricing model. The fair
value was recorded as a discount on the notes payable and is being
amortized over the life of the notes payable. As of September 30,
2018, we have amortized $87,628 of the debt issuance cost. During
the quarter ended September 30, 2018, L2 Capital converted $18,190
of the note into 400,000 shares of common stock at an average
conversion price of $0.045 per share. As of September 30, 2018, we
have recorded a debt discount of $475,503 for the fair value of
derivative liability and amortized $114,388 of debt discount. As of
September 30, 2018, the outstanding balance was $464,032 and the
accrued interest was $19,319. A total of $186,254 of the notes is
in default as of September 30, 2018.
On May 22, 2018, we
executed a convertible note with Collier Investments, LLC, an
unaffiliated California company, in the amount of $281,250 with an
interest rate of 12% per annum. The maturity date of the note is
the earlier of: (i) seven months after the issuance date; or (ii)
the date on which we consummate a capital-raising transaction for
$6,000,000 or more primarily from the sale of equity in the
company. The note, or any portion of it, can be convertible by the
holder into shares of our common stock at any time after the
issuance date. The conversion price is equal to the lesser of 80%
multiplied by the price per share paid by the investors in a
“qualified financing” (as defined in the note) or
$0.20, subject to certain adjustments. At any time within a 90-day
period following the issuance date, we have the option to prepay
145% of the outstanding balance. There was an original issue
discount and transaction fees of $36,250, yielding net proceeds of
$245,000 to us. In addition, we paid a finder’s fee of
$20,914. The original issue discount and transaction and finder
fees are being amortized over the life of the notes payable as debt
issuance cost. For the nine months ended September 30, 2018, we
amortized $34,459 of debt issuance cost. The accrued interest as of
September 30, 2018, was $12,094. We have recorded a debt discount
of $69,941 for the fair value of derivative liability and amortized
$23,500 of debt discount as of September 30,
2018.
On September 19,
2018, we executed a note payable for $10,000 with an unrelated
party that bears interest at 6% per annum, which is due quarterly
beginning as of September 30, 2018. The maturity date for the note
is three years after date of issuance. In addition, the lender
received warrants to purchase 2,000 shares of common stock upon
signing the promissory note. The warrant can be exercised at a
price per share equal to a 15% discount from the price of common
stock on the last trading day before such purchase. As of September
30, 2018, we have recorded $125 of debt discount for the fair value
derivative liability and fully amortized $125 of the debt discount.
As of September 30, 2018 the balance outstanding was $10,000 and
the accrued interest was $18.
The following
convertible notes and notes payable were outstanding at September
30, 2018:
|
|
|
|
|
|
|
|
|
|
Issuance
Date
|
|
|
In
Default
|
|
Principal
at September 30, 2018
|
Debt
Discount at September 30, 2018
|
Carrying
Amount at September 30, 2018
|
|
|
|
|
12/12/2006
|
|
6.25
%
|
Yes
|
58,670
|
8,392
|
-
|
8,392
|
-
|
-
|
8,392
|
-
|
12/1/2007
|
|
7.00
%
|
Yes
|
125,000
|
85,821
|
-
|
85,821
|
-
|
-
|
85,821
|
-
|
9/25/2009
|
|
5.00
%
|
Yes
|
50,000
|
50,000
|
-
|
50,000
|
-
|
-
|
50,000
|
-
|
12/23/2009
|
|
7.00
%
|
Yes
|
100,000
|
94,480
|
-
|
94,480
|
-
|
-
|
94,480
|
-
|
12/23/2009
|
|
7.00
%
|
Yes
|
25,000
|
23,619
|
-
|
23,619
|
-
|
-
|
23,619
|
-
|
12/23/2009
|
|
7.00
%
|
Yes
|
25,000
|
23,620
|
-
|
23,620
|
-
|
-
|
23,620
|
-
|
02/03/12
|
|
10.00
%
|
No
|
1,000,000
|
1,000,000
|
-
|
1,000,000
|
1,000,000
|
-
|
-
|
-
|
08/15/13
|
|
10.00
%
|
No
|
525,000
|
158,334
|
-
|
158,334
|
-
|
-
|
-
|
158,334
|
12/31/13
|
|
8.00
%
|
Yes
|
290,000
|
130,000
|
-
|
130,000
|
130,000
|
-
|
-
|
-
|
04/01/14
|
|
10.00
%
|
No
|
2,265,000
|
1,102,500
|
-
|
1,102,500
|
1,102,500
|
-
|
-
|
-
|
12/22/14
|
|
12.00
%
|
Yes
|
200,000
|
200,000
|
-
|
200,000
|
-
|
-
|
200,000
|
-
|
12/26/14
|
|
12.00
%
|
Yes
|
100,000
|
100,000
|
-
|
100,000
|
-
|
-
|
100,000
|
-
|
3/12/2015
|
(1
)
|
6.00
%
|
No
|
394,380
|
394,380
|
-
|
394,380
|
394,380
|
-
|
-
|
-
|
4/7/15
|
|
10.00
%
|
No
|
50,000
|
50,000
|
-
|
50,000
|
-
|
-
|
50,000
|
-
|
11/23/2015
|
(1
)
|
6.00
%
|
No
|
50,000
|
50,000
|
26,667
|
23,333
|
23,333
|
-
|
-
|
-
|
2/25/2016
|
(1
)
|
6.00
%
|
No
|
50,000
|
50,000
|
-
|
50,000
|
50,000
|
-
|
-
|
-
|
5/20/2016
|
(1
)
|
6.00
%
|
No
|
50,000
|
50,000
|
-
|
50,000
|
50,000
|
-
|
-
|
-
|
10/20/2016
|
(1
)
|
6.00
%
|
No
|
50,000
|
12,500
|
-
|
12,500
|
12,500
|
-
|
-
|
-
|
10/20/2016
|
(1
)
|
6.00
%
|
No
|
12,500
|
12,500
|
6,667
|
5,833
|
5,833
|
-
|
-
|
-
|
12/21/2016
|
(1
)
|
6.00
%
|
No
|
25,000
|
25,000
|
13,333
|
11,667
|
11,667
|
-
|
-
|
-
|
3/9/2017
|
(1
)
|
10.00
%
|
No
|
200,000
|
177,000
|
-
|
177,000
|
177,000
|
-
|
-
|
-
|
7/13/2017
|
|
6.00
%
|
No
|
25,000
|
25,000
|
-
|
25,000
|
-
|
-
|
25,000
|
-
|
7/18/2017
|
|
6.00
%
|
No
|
25,000
|
25,000
|
-
|
25,000
|
-
|
-
|
25,000
|
-
|
7/26/2017
|
|
6.00
%
|
No
|
15,000
|
15,000
|
-
|
15,000
|
-
|
-
|
15,000
|
-
|
7/27/2017
|
|
6.00
%
|
No
|
15,000
|
15,000
|
-
|
15,000
|
-
|
-
|
15,000
|
-
|
12/20/2017
|
(2
)
|
10.00
%
|
Yes**
|
979,156
|
979,156
|
46,735
|
932,421
|
-
|
-
|
932,421
|
-
|
11/6/2017
|
(3
)
|
10.00
%
|
No
|
646,568
|
612,193
|
-
|
612,193
|
612,193
|
-
|
-
|
-
|
2/19/2018
|
(4
)
|
8.00
%
|
Yes**
|
464,032
|
464,032
|
364,709
|
99,323
|
-
|
-
|
99,323
|
-
|
5/24/2018
|
|
12.00
%
|
No
|
281,250
|
281,250
|
69,146
|
212,104
|
-
|
-
|
212,104
|
-
|
9/19/2018
|
|
6.00
%
|
No
|
10,000
|
10,000
|
-
|
10,000
|
-
|
-
|
-
|
10,000
|
|
|
|
|
$
6,224,777
|
$
527,257
|
$
5,697,520
|
$
3,569,406
|
$
-
|
$
1,959,780
|
$
168,334
|
(1)
Maturity date is 90 days after demand.
(2)
Note payables were issued on various dates between December 2017
and May 2018. Principal is due on the earlier of 18 months from the
anniversary date or the completion of L2 financing with a gross
proceeds of a minimum of $1.5 million.
(3)
Principal and accrued interest will be due and payable at the
earliest of A). resolution of Memphis litigation; B). December 31,
2018 , or C). when OTE is able to pay.
(4)
Note payables were issued on various dates between February and May
2018 and are due in 6 months from issuance date.
**
Partially in default as of September 30, 2018
The following
convertible notes and notes payable were outstanding at December
31, 2017:
|
|
|
|
|
|
|
|
|
|
Issuance
Date
|
|
|
In Default
|
|
Principal at
December
31, 2017
|
Debt Discount at
December 31,
2017
|
Carrying Amount at
December 31,
2017
|
|
|
|
|
12/12/2006
|
|
6.25
%
|
Yes
|
58,670
|
12,272
|
-
|
12,272
|
-
|
-
|
12,272
|
-
|
12/1/2007
|
|
7.00
%
|
Yes
|
125,000
|
85,821
|
-
|
85,821
|
-
|
-
|
85,821
|
-
|
9/25/2009
|
|
5.00
%
|
Yes
|
50,000
|
50,000
|
-
|
50,000
|
-
|
-
|
50,000
|
-
|
12/23/2009
|
|
7.00
%
|
Yes
|
100,000
|
94,480
|
-
|
94,480
|
-
|
-
|
94,480
|
-
|
12/23/2009
|
|
7.00
%
|
Yes
|
25,000
|
23,619
|
-
|
23,619
|
-
|
-
|
23,619
|
-
|
12/23/2009
|
|
7.00
%
|
Yes
|
25,000
|
23,620
|
-
|
23,620
|
-
|
-
|
23,620
|
-
|
02/03/12
|
|
10.00
%
|
No
|
1,000,000
|
1,000,000
|
-
|
1,000,000
|
1,000,000
|
-
|
-
|
-
|
08/15/13
|
|
10.00
%
|
No
|
525,000
|
158,334
|
-
|
158,334
|
-
|
-
|
-
|
158,334
|
12/31/13
|
|
8.00
%
|
Yes
|
290,000
|
130,000
|
-
|
130,000
|
130,000
|
-
|
-
|
-
|
04/01/14
|
|
10.00
%
|
No
|
2,265,000
|
1,137,500
|
-
|
1,137,500
|
1,137,500
|
-
|
-
|
-
|
12/22/14
|
|
12.00
%
|
Yes
|
200,000
|
200,000
|
-
|
200,000
|
-
|
-
|
200,000
|
-
|
12/26/14
|
|
12.00
%
|
Yes
|
100,000
|
100,000
|
-
|
100,000
|
-
|
-
|
100,000
|
-
|
3/12/2015
|
(1
)
|
6.00
%
|
No
|
394,380
|
394,380
|
-
|
394,380
|
394,380
|
-
|
-
|
-
|
4/7/15
|
|
10.00
%
|
No
|
50,000
|
50,000
|
-
|
50,000
|
-
|
-
|
50,000
|
|
11/23/2015
|
(1
)
|
6.00
%
|
No
|
50,000
|
50,000
|
-
|
50,000
|
50,000
|
-
|
-
|
-
|
2/25/2016
|
(1
)
|
6.00
%
|
No
|
50,000
|
50,000
|
-
|
50,000
|
50,000
|
-
|
-
|
-
|
5/20/2016
|
(1
)
|
6.00
%
|
No
|
50,000
|
50,000
|
-
|
50,000
|
50,000
|
-
|
-
|
-
|
10/20/2016
|
(1
)
|
6.00
%
|
No
|
50,000
|
12,500
|
-
|
12,500
|
12,500
|
-
|
-
|
-
|
10/20/2016
|
(1
)
|
6.00
%
|
No
|
12,500
|
12,500
|
-
|
12,500
|
12,500
|
-
|
-
|
-
|
12/21/2016
|
(1
)
|
6.00
%
|
No
|
25,000
|
25,000
|
-
|
25,000
|
25,000
|
-
|
-
|
-
|
3/9/2017
|
(1
)
|
10.00
%
|
No
|
200,000
|
177,000
|
-
|
177,000
|
177,000
|
-
|
-
|
-
|
7/13/2017
|
|
6.00
%
|
No
|
25,000
|
25,000
|
-
|
25,000
|
-
|
-
|
-
|
25,000
|
7/18/2017
|
|
6.00
%
|
No
|
25,000
|
25,000
|
-
|
25,000
|
-
|
-
|
-
|
25,000
|
7/26/2017
|
|
6.00
%
|
No
|
15,000
|
15,000
|
-
|
15,000
|
-
|
-
|
-
|
15,000
|
7/27/2017
|
|
6.00
%
|
No
|
15,000
|
15,000
|
-
|
15,000
|
-
|
-
|
-
|
15,000
|
12/20/2017
|
(2
)
|
10.00
%
|
No
|
490,000
|
490,000
|
41,044
|
448,956
|
-
|
-
|
-
|
448,956
|
11/6/2017
|
|
10.00
%
|
No
|
646,568
|
641,568
|
-
|
641,568
|
641,568
|
-
|
-
|
-
|
|
|
|
|
$
5,048,594
|
$
41,044
|
$
5,007,550
|
$
3,680,448
|
$
-
|
$
639,812
|
$
687,290
|
(1)
Maturity date is 90 days after demand.
(2)
Note payables were issued on various dates between December 2017
and May 2018. Principal is due on the earlier of 18 months from the
anniversary date or the completion of L2 financing with a gross
proceeds of a minimum of $1.5 million.
(3)
Principal and accrued interest will be due and payable at the
earliest of A). resolution of Memphis litigation; B). December 31,
2018 , or C). when OTE is able to pay.
Note
9:
Derivative
Liability
We measure the fair value of our assets and
liabilities under the guidance of ASC 820,
Fair Value Measurements and
Disclosures
, which defines fair
value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles, and
expands disclosures about fair value measurements. ASC 820 does not
require any new fair value measurements, but its provisions apply
to all other accounting pronouncements that require or permit fair
value measurement.
On August 19, 2018, the note issued to L2 Capital
on February 19, 2018 went into default. In accordance with the
terms of note,
at any time on or after the occurrence of any
event of default, the conversion price per share will adjust to the
lesser of $0.50 or 65% multiplied by the lowest volume weighted
average price of the common stock during the 20-trading-day period
ending, in L2 Capital’s sole discretion on each conversion,
on either the last complete trading day prior to the conversion
date or the conversion date.
We
identified conversion features embedded within convertible debt
issued. We have determined that the features associated with the
embedded conversion option should be accounted for at fair value,
as a derivative liability. We have elected to account for these
instruments together with fixed conversion price instruments as
derivative liabilities as we cannot determine if a sufficient
number of shares would be available to settle all potential future
conversion transactions.
Following
is a description of the valuation methodologies used to determine
the fair value of our financial liabilities, including the general
classification of such instruments pursuant to the valuation
hierarchy:
|
Fair
value at
September
30,
2018
|
Quoted
prices in active markets for
identical
assets/liabilities
(Level
1)
|
Significant other
observable
inputs
(Level
2)
|
Significant unobservable
inputs
(Level
3)
|
|
|
|
|
|
Derivative
Liability
|
$
705,278
|
$
-
|
$
-
|
$
705,278
|
The
tables below set forth a summary of changes in fair value of our
Level 3 financial liabilities for the nine months ended September
30, 2018. The tables reflect changes for all financial liabilities
at fair value categorized as Level 3 as of September 30,
2018:
|
|
Derivative
liability as of December 31, 2017
|
$
-
|
Fair
value at the commitment date for convertible
instruments
|
1,093,095
|
Change
in fair value of derivative liability
|
(374,447
)
|
Reclassification
to additional paid-in capital for financial instruments that ceased
to be a derivative liability
|
(13,370
)
|
Derivative
liability as of September 30, 2018
|
$
705,278
|
|
|
|
Change in Fair Value of Derivative Liability*
|
Change
in fair value of derivative liability at the beginning of
period
|
$
-
|
Day
one gains/(losses) on valuation
|
446,512
|
Gains/(losses)
from the change in fair value of derivative liability
|
(374,447
)
|
Change
in fair value of derivative liability at the end of
period
|
$
72,065
|
_________________
*
Gains/(losses)
related to the revaluation of Level 3 financial liabilities is
included in “Change in fair value of derivative
liability” in the accompanying condensed consolidated
unaudited statement of operations.
The
fair value of the derivative liability was estimated using the
income approach and the Black-Scholes option-pricing model. The
fair values at the commitment and remeasurement dates for our
derivative liabilities were based upon the following management
assumptions:
|
Commitment Date
|
|
Remeasurement Date**
|
Expected
dividends
|
0%
|
|
0%
|
Expected
volatility
|
81%
to 499%
|
|
87%
to 502%
|
Risk
free interest rate
|
2.05%
to 2.96%
|
|
2.19%
to 2.94%
|
Expected
term (in years)
|
0.25
to 5.0
|
|
0.23
to 4.98
|
_________________
**
The
fair value at the remeasurement date is equal to the carrying value
on the balance sheet.
Note
10: Stockholders’ Equity
Common Stock
For the nine months
ended September 30, 2018, we issued 673,345 shares of common stock
for services performed with a fair value of $138,986.
For the nine months
ended September 30, 2018, we issued 1,500,000 shares of common
stock for financing to L2 Capital with a fair value of $81,140 in
cash, net of offering cost.
For the nine months
ended September 30, 2018, we issued 400,000 shares of common stock
for to L2 Capital for the conversion of a portion of L2
Capital’s notes payable in the amount of
$18,190.
For nine months
ended September 30, 2018, note holders elected to exercise warrants
to purchase 39,000 shares of common stock for $9,520 in
cash.
For the nine months
ended September 30, 2018, we sold 400,000 shares of common stock
for $40,000 in cash.
Warrants and Options
The following table
summarizes all warrants outstanding and exercisable for the nine
months ended September 30, 2018:
|
|
|
Warrants
|
|
Weighted
Average
Exercise
Price
|
Balance at December
31, 2017
|
134,000
|
$
0.27
|
Granted
|
238,573
|
$
0.22
|
Exercised
|
(39,000
)
|
$
0.24
|
Forfeited
|
-
|
|
Balance at
September 30, 2018
|
333,573
|
$
0.19
|
The aggregate
intrinsic value represents the excess amount over the exercise
price that optionees would have received if all options had been
exercised on the last business day of the period indicated, based
on our closing stock price of $0.06 per share on September 30,
2018. The intrinsic value of warrants to purchase 333,573 shares on
that date was $2,210.
We calculated the
fair value of the options by using the Black-Scholes option-pricing
model with the following weighted average assumptions: no dividend
yield for all the years; expected volatility ranging from 466-509%;
risk-free interest rate ranging from 2.01-2.85%, and an expected
life of three years.
During the quarter
ended September 30, 2018, we issued warrants to purchase 108,573
shares of our common stock, none of which has been exercised, to
Craft Capital Management, LLC, as a finder’s fee for debt and
equity transactions between L2 Capital and us.
Note
11: Commitments and Contingencies
Commitments
On December 11,
2017, we entered into an equity purchase agreement with L2 Capital,
LLC, for up to $15,000,000. As provided in the agreement, we may
require L2 Capital to purchase shares of common stock from time to
time by delivering a “put” notice to L2 Capital
specifying the total number of shares to be purchased. L2 Capital
will pay a purchase price equal to 85% of the “market
price,” which is defined as the lowest traded price on the
OTCQB marketplace during the five consecutive trading days
following the “put date,” or the date on which the
applicable shares are delivered to L2 Capital. The number of shares
may not exceed 300% of the average daily trading volume for our
common stock during the five trading days preceding the date on
which we deliver the applicable put notice. Additionally, such
amount may not be lower than $10,000 or higher than $1,000,000. L2
Capital has no obligation to purchase shares under this agreement
to the extent that such purchase would cause L2 Capital to own more
than 4.99% of our common stock. Upon the execution of this
agreement, we issued 1,714,285 shares of common stock valued at
$514,286 as a commitment fee in connection with the agreement. The
shares to be issued pursuant to this agreement were covered by a
Registration Statement on Form S-1 effective on January 29, 2018.
During the nine months ended September 30, 2018, we executed nine
put options for L2 Capital to purchase 1,500,000 shares of common
stock (see Note 10).
On June 26, 2017,
we entered a nonexclusive finder’s arrangement with Craft
Capital Management LLC (“Craft”) in the event that
proceeds with a debt and/or equity transaction or to finance a
merger/acquisition and/or another transaction are arranged by
Craft. We have no obligation to consummate any transaction, and we
can choose to accept or reject any transaction in our sole and
absolute discretion. Upon the successful completion of a placement,
we will pay to Craft 8% of the gross proceeds from an equity
placement and 3% for a debt placement. In addition, we will issue
to Craft, at the time of closing, warrants with an aggregate
exercise price equal to 3% of the amount raised. These warrants
have a fair value of $13,280 based on the Black-Scholes
option-pricing model. The warrants have an exercise price ranging
from $0.0425 to $0.25 per share and are exercisable for a period of
five years after the closing of the placement. If we, at any time
while these warrants are outstanding, sell or grant any option to
purchase or sell or grant any right to reprice, or otherwise
dispose of or issue any common stock or securities entitling any
person or entity to acquire shares of common stock, at an effective
price per share less than the then-exercise price, then the
exercise price will be reduced to equal the lower share price, at
the option of Craft. Such adjustment will be made whenever such
common stock is issued. We will notify Craft in writing, no later
than the trading day following the issuance of any common stock, of
the applicable issuance price or applicable reset price, exchange
price, conversion price, and other pricing terms. As of September
30, 2018, we have issued to Craft warrants to purchase 108,573
shares of common stock, none of which has been exercised, as a
finder’s fee for debt and equity transactions between L2
Capital and us (see Note 8).
On August 7, 2018,
we signed a non-binding letter of intent proposing to acquire a
heavy-duty commercial air conditioning company. We believe that the
acquisition will help support our existing projects and enable us
to enter new markets. Closing is subject to additional due
diligence, the negotiation of definitive agreements, satisfaction
of agreed conditions, and financing. We continue to focus our
efforts on satisfying the above conditions.
Litigation
From time to time,
we are involved in legal proceedings and regulatory proceedings
arising from operations. We establish reserves for specific
liabilities in connection with legal actions that management deems
to be probable and estimable.
On May 4, 2018, we
reached a settlement of the claims at issue in
Ocean Thermal Energy Corp. v. Robert Coe, et
al.
, Case No. 2:17-cv-02343SHL-cgc, before the United States
District Court for the Western District of Tennessee. On August 8,
2018, an $8 million federal court judgment was entered against the
defendants and in our favor. We believe the defendants have
adequate assets to satisfy this judgment in full. Between May 30
and July 19, 2018, we received three payments totaling $100,000
from the defendants. The collection process is ongoing and
defendants are cooperating in proceeding with
payments.
Consulting Agreements
For the nine months
ended September 30, 2018, we issued 673,345 shares of common stock
for services performed with a fair value of $138,986.
On June 4, 2018, we
entered into a consulting agreement to pay 20,000 shares of common
stock when one of the conditions of the contract was satisfied.
Although this condition was satisfied on August 31, 2018, we have
not issued the shares. As of September 30, 2018, we have accrued
the share compensation at fair value totaling $1,600.
On August 14, 2018,
we entered into a consulting agreement to pay $40,000 by issuing
shares of common stock. As of September 30, 2018, we have not
issued the shares and have accrued the amount.
Employment Agreements
On January 1, 2011,
we entered into a five-year employment agreement with our chief
executive officer, which provides for successive one-year term
renewals unless it is expressly cancelled by either party 100 days
prior to the end of the term. Under the agreement, our chief
executive officer will receive an annual salary of $350,000, a car
allowance of $12,000, and company-paid health insurance. The
agreement also provides for bonuses equal to one times his annual
salary plus 500,000 shares of common stock for each additional
project that generates $25 million or more in revenue to us. Our
chief executive officer is entitled to receive severance pay in the
lesser amount of three years’ salary or 100% of the remaining
salary if the remaining term is less than three years.
On June 29, 2017,
the board of directors approved extending the employment agreements
for the chief executive officer and the senior financial advisor
for an additional five years. The salary and other compensation
were increased to account for inflation since the original
employment agreements were executed and became effective June 30,
2017. These modifications were never reduced to
writing.
Note
12: Related-Party Transactions
For the nine months
ended September 30, 2018, we paid rent of $90,000 to a company
controlled by our chief executive officer under an operating lease
agreement.
On January 18,
2018, the due date of a 2015 related-party note payable was
extended to the earlier of December 31, 2018, or the date of the
financial closings of our Baha Mar Project (or any other project of
$25 million or more), whichever occurs first. The balance on the
note payable was $1,102,500 and accrued interest was $483,642 as of
September 30, 2018.
On March 6, 2018,
the due date of a 2012 related-party note payable was extended to
December 31, 2018. The balance on the note payment was $1,000,000
and accrued interest was $611,393 as of September 30,
2018.
On March 9, 2017,
we issued a promissory note payable of $200,000 to a related party
in which our chief executive officer is an officer and director.
The note bears interest of 10% and is due and payable within 90
days after demand. The outstanding balance was $177,000 and accrued
interest was $28,328 as of September 30, 2018.
On November 6,
2017, we entered into an agreement and promissory note with JPF to
loan up to $2,000,000 to us. The terms of the note are as follows:
(i) interest is payable at 10% per annum; (ii) all unpaid
principal and all accrued and unpaid interest is due and payable at
the earliest of resolution of the Memphis litigation (as defined
therein), September 30, 2018, or when we are otherwise able to pay.
As of September 30, 2018, the outstanding balance was $612,193 and
the accrued interest was $64,196. For the nine months ended
September 30, 2018, we repaid $19,374. On September 30, 2018, the
note was amended to extend the maturity date to the earliest of a
resolution of the Memphis litigation, December 31, 2018, or when we
are otherwise able to pay.
We remain liable
for the loans made to TDYS by JPF before the Merger. As of
September 30, 2018, the outstanding balance of these loans was
$581,880 and the accrued interest was $117,363.
Note
13: Subsequent Events
Subsequent to
September 30, 2018, we executed three put options for L2 Capital to
purchase 800,000 shares of common stock for $25,764 in cash, net of
offering cost.
Subsequent to
September 30, 2018, we issued warrants to purchase 16,500 shares of
our common stock to Craft Capital as a finder’s fee for debt
and equity transactions between L2 Capital and us. None of the
warrants been exercised.
Subsequent to
September 30, 2018, we issued 900,000 shares of common stock to L2
Capital for the conversion of a portion of L2 Capital’s notes
payable in the amount of $25,197.
R
EPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the
Shareholders and Board of Directors of:
Ocean
Thermal Energy Corporation
Opinion on the Financial Statements
We have
audited the accompanying consolidated balance sheets of Ocean
Thermal Energy Corporation and Subsidiaries (the
“Company”) as of December 31, 2017 and 2016, the
related consolidated statements of operations, changes in
stockholders’ equity and cash flows for each of the two years
in the period ended December 31, 2017, and the related notes. 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 2016, and the results of its operations
and its cash flows for the years ended December 31, 2017 and 2016,
in conformity with accounting principles generally accepted in the
United States of America.
Explanatory Paragraph – Going Concern
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 2 to the financial statements, the
Company has a net loss of $14,591,675, a working capital deficiency
of $10,716,255, and an accumulated deficit of $67,703,218. These
factors raise substantial doubt about the Company's ability to
continue as a going concern.
Management’s plans in
regard to these matters are described in Note 2. The consolidated
financial statements do not include any adjustments that might
result from the outcome of this uncertainty
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 audits. We are a
public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal controls over financial
reporting. Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the 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 audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
/s/
Liggett & Webb, P.A.
LIGGETT
& WEBB, P.A.
Certified Public Accountants
We have
served as the Company’s auditor since 2008
Boynton
Beach, Florida
April
2, 2018
OCEAN
THERMAL ENERGY CORPORATION AND SUBSIDIARIES
|
(FOMERLY
KNOWN AS TETRIDYN SOLUTIONS, INC)
|
CONSOLIDATED
BALAN
C
E SHEETS
|
AS
OF DECEMBER 31, 2017 AND DECEMBER 31, 2016
|
|
|
|
|
|
|
ASSETS
|
|
|
Current
Assets
|
|
|
Cash
|
$
425,015
|
$
7,495
|
Prepaid
expenses
|
25,000
|
30,549
|
Total
Current Assets
|
450,015
|
38,044
|
|
|
|
Property
and Equipment
|
|
|
Property
and equipment, net
|
1,352
|
2,366
|
Assets
under construction
|
892,639
|
846,285
|
Property
and Equipment, net
|
893,991
|
848,651
|
|
|
|
Total
Assets
|
$
1,344,006
|
$
886,695
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' DEFICIENCY
|
|
|
|
|
|
Current
Liabilities
|
|
|
Accounts
payables and accrued expense
|
$
6,846,010
|
$
5,631,270
|
Due to related
party
|
-
|
36,822
|
Notes payable
- related party, net
|
3,592,948
|
1,886,000
|
Convertible notes
payable -related party- net
|
87,500
|
-
|
Notes
payable, net
|
589,812
|
300,000
|
Convertible notes
payable - net
|
50,000
|
49,129
|
Total
Current Liabilities
|
11,166,270
|
7,903,221
|
|
|
|
Notes payable
- related party, net
|
-
|
1,045,644
|
Notes
payable, net
|
607,290
|
602,067
|
Notes
payable, convertible
|
80,000
|
-
|
Total
Liabilities
|
11,853,560
|
9,550,932
|
|
|
|
Commitments and Contingencies (See Note 7)
|
|
|
|
|
|
Stockholders'
deficiency
|
|
|
Preferred
Stock, $0.001 par value; 5,000,000 shares authorized,
|
-
|
-
|
0
and 0 shares issued and outstanding, respectively
|
|
|
Common
stock, $0.001 par value; 200,000,000 shares
authorized,
|
|
|
122,642,247
and 94,343,776 shares issued and outstanding,
respectively
|
122,642
|
94,344
|
Additional
paid-in capital
|
57,071,022
|
44,352,962
|
Accumulated
deficit
|
(67,703,218
)
|
(53,111,543
)
|
Total
Stockholders' Deficiency
|
(10,509,554
)
|
(8,664,237
)
|
|
|
|
Total
Liabilities and Stockholders' Deficiency
|
$
1,344,006
|
$
886,695
|
|
|
|
The
accompanying notes are an integral part of these consolidated
financial statements.
|
OCEAN
THERMAL ENERGY CORPORATION AND SUBSIDARIES
|
(FOMERLY
KNOWN AS TETRIDYN SOLUTIONS, INC)
|
CONSOLIDATED
STATEME
N
TS OF OPERATIONS
|
FOR
THE YEARS ENDED DECEMBER 31, 2017 AND DECEMBER 31,
2016
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
Salaries
and wages
|
$
2,044,882
|
$
1,237,438
|
Professional
fees
|
1,669,202
|
1,505,586
|
General
and administrative
|
2,169,577
|
442,394
|
Warrant
Expense
|
6,769,562
|
-
|
Impairment
of Assets
|
48,998
|
244,284
|
Total
Operating Expenses
|
12,702,221
|
3,429,702
|
|
|
|
Loss
from Operations
|
(12,702,221
)
|
(3,429,702
)
|
|
|
|
Other
Expenses
|
|
|
Interest
Expense and amortization of debt discount
|
(659,709
)
|
(2,678,415
)
|
Loss on
settlement of debt and accounts payable
|
(1,105,203
)
|
-
|
Change
in fair value of liability
|
(124,542
)
|
-
|
Total
Other expenses
|
(1,889,454
)
|
(2,678,415
)
|
|
|
|
Loss
Before Income Taxes
|
(14,591,675
)
|
(6,108,117
)
|
|
|
|
Provision
for Income Taxes
|
-
|
-
|
|
|
|
Net
Loss
|
$
(14,591,675
)
|
$
(6,108,117
)
|
|
|
|
Net
Loss per Common Share
|
|
|
Basic
and Diluted
|
$
(0.13
)
|
$
(0.07
)
|
|
|
|
Weighted
Average Number of Common Shares Outstanding
|
111,735,383
|
83,236,245
|
|
|
|
The
accompanying notes are an integral part of these consolidated
financial statements.
|
OCEAN
THERMAL ENERGY CORPORATION AND SUBSIDIARIES
(FOMERLY
KNOWN AS
T
ETRIDYN SOLUTIONS,
INC)
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS'
DEFICIENCY
FOR
THE YEARS ENDED DECEMBER 31, 2017 AND DECEMBER 31,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders' Deficiency
|
Balance, December
31, 2015
|
-
|
$
-
|
82,623,066
|
$
82,623
|
$
38,722,035
|
$
(47,003,426
)
|
$
(8,198,768
)
|
Stock issued for $0.50
warrants
|
|
|
1,380,000
|
1,380
|
688,620
|
-
|
690,000
|
Stock issued for $0.75
warrants
|
|
|
455,666
|
456
|
341,294
|
-
|
341,750
|
Stock issued for $0.25
warrants
|
|
|
8,000,000
|
8,000
|
1,992,000
|
-
|
2,000,000
|
Stock issued for
services
|
|
|
1,197,753
|
1,198
|
1,016,892
|
-
|
1,018,090
|
Stock issued for accrued
interest
|
|
|
687,291
|
687
|
583,511
|
-
|
584,198
|
Debt discount on the JPF VF
note
|
|
|
-
|
-
|
1,008,610
|
-
|
1,008,610
|
Net Loss
|
|
|
-
|
-
|
-
|
(6,108,117
)
|
(6,108,117
)
|
Balance, December
31, 2016
|
-
|
$
-
|
94,343,776
|
$
94,344
|
$
44,352,962
|
$
(53,111,543
)
|
$
(8,664,237
)
|
Warrants and Options
Exercised at $0.00: 1/1/17 to 5/8/17 (prior to
merger)
|
|
|
14,792,500
|
14,793
|
(14,793
)
|
-
|
-
|
D
Warrants Exercised at $0.75: 1/1/17 to 5/8/17 (prior to
merger)
|
|
|
998,079
|
998
|
747,537
|
-
|
748,535
|
Stock issued for
services and commitment fee
|
|
|
3,887,802
|
3,888
|
2,898,876
|
-
|
2,902,764
|
Stock issued for
cash
|
|
|
11,250
|
11
|
44,989
|
-
|
45,000
|
Stock issued for
conversion of note payable and accrued
interest
|
|
|
7,386,872
|
7,387
|
2,348,008
|
-
|
2,355,395
|
Stock repurchased from
related parties
|
|
|
(148,588
)
|
(149
)
|
(111,291
)
|
-
|
(111,440
)
|
Stock issued for
conversion of accounts payable
|
|
|
425,000
|
425
|
702,700
|
-
|
703,125
|
Stock issued for
employee bonuses
|
|
|
409,066
|
409
|
919,990
|
-
|
920,399
|
Stock issued for
TetriDyn Solutions, Inc.
|
|
|
536,490
|
536
|
(1,628,562
)
|
-
|
(1,628,026
)
|
FV of warrant
modifications
|
|
|
-
|
-
|
6,769,562
|
-
|
6,769,562
|
Beneficial conversion
feature on notes payable
|
|
|
-
|
-
|
41,044
|
-
|
41,044
|
Net
Loss
|
|
|
-
|
-
|
-
|
(14,591,675
)
|
(14,591,675
)
|
Balance, December
31, 2017
|
-
|
$
-
|
122,642,247
|
$
122,642
|
$
57,071,022
|
$
(67,703,218
)
|
$
(10,509,554
)
|
The accompanying
notes are an integral part of these consolidated financial
statements.
OCEAN
THERMAL ENERGY CORPORATION AND SUBSIDIARIES
(FOMERLY KNOW AS TETRIDYN SOLUTIONS, INC)
CONSOLIDATED STATEMENT OF CASH
FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2017 AND DECEMBER 31,
2016
|
|
|
Cash
Flows From Operating Activities:
|
|
|
Net
loss
|
$
(14,591,675
)
|
$
(6,108,117
)
|
Adjustments to
reconcile net loss to net cash used in operating
activities
|
|
|
Depreciation
|
1,014
|
4,207
|
Impairment of
assets under construction
|
48,998
|
244,284
|
Stock issued for
services
|
2,902,764
|
1,018,090
|
Stock issued for
bonuses
|
920,399
|
-
|
Change in fair
value of liability
|
124,542
|
-
|
Loss on settlement
of debt
|
1,105,203
|
412,374
|
Warrant
Expense
|
6,769,562
|
-
|
Amortization of
debt discounts
|
44,960
|
1,644,957
|
Changes in assets
and liabilities:
|
|
|
Other
current assets
|
-
|
24,542
|
Prepaid
expenses
|
5,549
|
(21,326
)
|
Accounts
payable and accrued expenses
|
1,199,515
|
723,110
|
Net
Cash Used In Operating Activities
|
(1,469,169
)
|
(2,057,879
)
|
|
|
|
Cash
Flow From Investing Activities:
|
|
|
Cash
acquired in acquisition
|
4,512
|
-
|
Assets
under construction
|
(95,352
)
|
(119,722
)
|
Payments
for acquisition
|
(49,773
)
|
-
|
Net
Cash Used In Investing Activities
|
(140,613
)
|
(119,722
)
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
Repayment
of notes payable - related party
|
(64,432
)
|
(5,000
)
|
Repayment
of government loans
|
(4,539
)
|
-
|
Proceeds
from notes payable
|
490,000
|
999,025
|
Proceeds
from notes payable, convertible
|
80,000
|
-
|
Proceeds
from issuance of common stock for cash
|
45,000
|
1,031,750
|
Proceeds
from notes payable - related party
|
844,178
|
-
|
Proceeds
from due to related party
|
-
|
36,822
|
Stock
repurchased from related parties
|
(111,440
)
|
-
|
Stock
issued for exercise of warants for cash
|
748,535
|
-
|
Repayment
of capital lease
|
-
|
(2,530
)
|
Net
Cash Provided by Financing Activities
|
2,027,302
|
2,060,067
|
|
|
|
Net increase
(decrease) in cash and cash equivalents
|
417,520
|
(117,534
)
|
Cash
and cash equivalents at beginning of year
|
7,495
|
125,029
|
Cash
and Cash Equivalents at End of Period
|
$
425,015
|
$
7,495
|
|
|
|
Supplemental
disclosure of cash flow information
|
|
|
Cash
paid for interest expense
|
$
17,162
|
$
45,849
|
Cash
paid for income taxes
|
$
-
|
$
-
|
|
|
|
Supplemental
disclosure of non-cash investing and financing
activities:
|
|
|
Convertible note
payable and accrued interest -related party converted to common
stock
|
$
80,275
|
$
-
|
Accrued interest on
related-party note converted to common stock
|
$
-
|
$
171,823
|
Exercise of
warrants in lieu of repayment of related-party note
payable
|
$
-
|
$
2,000,000
|
Debt discount on
related-party note payable and extension of warrants
|
$
-
|
$
1,008,610
|
Note Payable and
accrued interest converted into common stock
|
$
878,292
|
$
-
|
Note Payable and
accrued interest - related party converted into common
stock
|
$
668,500
|
$
-
|
Due to related
party, converted into note payable - related party
|
$
38,822
|
$
-
|
Accounts payable
convertewd into common stock
|
$
326,250
|
$
-
|
Debt discount on
notes payable
|
$
41,044
|
$
-
|
On May 9, 2017,
the company issued 536,490 shares of common stock to the former
shareholders of TetriDyn Solutions Inc. for the assumption of
$617,032 of accrued expenses and $1,015,506 of convertible notes
and notes payable from related and unrelated parties. The
company recorded a debit of $1,628,026 to the additional paid in
capital.
The accompanying
notes are an integral part of these consolidated financial
statements.
OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARIES
(FORMERLY KNOWN AS TETRIDYN SOLUTIONS, INC)
NOTES TO CONSOLIDATED FINANCIA
L
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND DECEMBER 31,
2016
NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
ORGANIZATION
(
A) Source of Business and
Basis of Presentation
Ocean
Thermal Energy Corporation (“Ocean Thermal”, the
“Company”, “we”, and “us”) is
currently in the business of designing Ocean Thermal Energy
Conversion (“OTEC”) power plants and Seawater Air
Conditioning (“SWAC”) plants for large commercial
properties, utilities and municipalities. These technologies
provide practical solutions to mankind’s three oldest and
most fundamental needs: clean drinking water, plentiful food, and
sustainable, affordable energy without the use of fossil fuels.
OTEC is a clean technology that continuously extracts energy from
the temperature difference between warm surface ocean water and
cold deep seawater. In addition to producing electricity, some of
the seawater running through an OTEC plant can be efficiently
desalinated using the power generated by the OTEC technology,
producing thousands of cubic meters of fresh water every day for
the communities served by its plants for use in agriculture and
human consumption. This cold deep nutrient-rich water can also be
used to cool buildings (SWAC) and for fish farming/ aquaculture. In
short, it’s a technology with many benefits, and its
versatility makes OTEC unique.
The
Company previously operated under the corporate name of TetriDyn
Solutions, Inc. (“TetriDyn”). On March 10, 2017,
TetriDyn entered into an Agreement and Plan of Merger (the
“Merger Agreement”) with Ocean Thermal Energy
Corporation, a Delaware corporation (“OTE”). On May 9,
2017, TetriDyn consummated the acquisition of all outstanding
equity interests of OTE pursuant to the terms of the Merger
Agreement, with a newly-created Delaware corporation that is
wholly-owned by TetriDyn (“TetriDyn Merger Sub”),
merging with and into OTE (the “Merger”) and OTE
continuing as the surviving corporation and a wholly-owned
subsidiary of TetriDyn. Effective upon the consummation of the
Merger (the “Closing”), the OTE Stock issued and
outstanding or existing immediately prior to the Closing of the
Merger was converted at the Closing into the right to receive newly
issued shares of TetriDyn common stock. As a result of the Merger,
TetriDyn succeeded to the business and operations of OTE. In
connection with the consummation of the Merger and upon the consent
of the holders of a majority of the outstanding common shares,
TetriDyn filed with the Nevada Secretary of State an amendment to
its articles of incorporation changing its name to “Ocean
Thermal Energy Corporation”.
On
April 13, 2017, the Company filed a Schedule 14C Information
Statement with the Securities and Exchange Commission (the
“Commission”) to notify stockholders that the following
actions were approved without a meeting of the
stockholders:
●
An amendment to our
Articles of Incorporation, as amended, to effect a change in the
Company’s name from TetriDyn Solutions, Inc. to Ocean Thermal
Energy Corporation;
●
An amendment to our
Articles of Incorporation, as amended, to effect and authorize
5,000,000 shares of preferred stock and 200,000,000 shares of
common stock; and
●
An amendment to our
Articles of Incorporation, as amended, to effect a forward stock
split of the issued and outstanding shares of common stock of the
Company on an approximately 2.1676-for-1 basis.
On May
25, 2017, the Company received approval from the Financial Industry
Regulatory Authority (“FINRA”) to change the trading
symbol for the Company’s common stock to “CPWR”
from “TDYS.” The Company’s common stock began
formally trading under the symbol “CPWR” on June 21,
2017.
For
accounting purposes, this transaction is being accounted for as a
reverse merger and has been treated as a recapitalization of
Tetridyn Solutions, Inc. with Ocean Thermal Energy Corporation as
the accounting acquirer. The historical financial statements of the
accounting acquirer became the financial statements of the Company.
The Company did not recognize goodwill or any intangible assets in
connection with the transaction. The 110,273,767 shares issued to
the shareholder of OTE in conjunction with the share exchange
transaction has been presented as outstanding for all periods. The
historical financial statements include the operations of the
accounting acquirer for all periods presented and the accounting
acquiree for the period from May 9, 2017 through December 31, 2017.
The Company’s accounting year end is December 31, which was
the year end of Ocean Thermal Energy Corporation.
The
consolidated financial statements include the accounts of the
Company and our wholly-owned subsidiaries. Intercompany accounts
and transactions have been eliminated in consolidation. In the
opinion of management, our financial statements reflect all
adjustments that are of a normal recurring nature necessary for
presentation of financial statements for interim periods in
accordance with U.S. generally accepted accounting principles
(GAAP) and with the instructions to Form 10-K in Article 10 of SEC
Regulation S-X. The preparation of financial statements in
conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at
the date of our financial statements, and the reported amounts of
revenue and expenses during the reporting periods. Actual results
could differ from those estimates.
(B)
Principal Subsidiary Undertakings
Our
consolidated financial statements for the years ended December 31,
2017 and 2016, include the following subsidiaries:
Name
|
Place of
Incorporation / Establishment
|
Principal
Activities
|
Date
Formed
|
Ocean
Thermal Energy Bahamas Ltd.
|
Bahamas
|
Intermediate
holding company of OTE BM Ltd. and OTE Bahamas O&M
Ltd.
|
07/04/2011
|
|
|
|
|
OTE BM
Ltd.
|
Bahamas
|
OTEC/SDC
development in the Bahamas
|
09/07/2011
|
|
|
|
|
OCEES
International Inc.
|
Hawaii,
USA
|
Research and
development for the Pacific Rim
|
01/21/1998
|
|
|
|
|
Ocean
Thermal Energy UK Limited
|
England
and Wales
|
Dormant
|
07/22/2010
|
|
|
|
|
OTEC
Innovation Group Inc.
|
Delaware,
USA
|
Dormant
|
06/02/2011
|
|
|
|
|
OTE-BM
Energy Partners LLC
|
Delaware,
USA
|
Dormant
|
06/02/2011
|
|
|
|
|
OTE
Bahamas O&M Ltd.
|
Bahamas
|
Dormant
|
09/07/2011
|
|
|
|
|
Ocean
Thermal Energy Holdings Ltd.
|
Bahamas
|
Dormant
|
03/05/2012
|
|
|
|
|
Ocean
Thermal Energy Cayman Ltd.
|
Caymans
|
Dormant
|
03/26/2013
|
|
|
|
|
OTE HC
Ltd.
|
Caymans
|
Dormant
|
03/26/2013
|
|
|
|
|
Ocean
Thermal Energy USVI, Inc.
|
Virgin
Islands
|
Dormant
|
07/12/2016
|
We have
an effective interest of 100% in each of our
subsidiaries.
In
preparing financial statements in conformity with generally
accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues
and expenses during the reported period. Actual results could
differ from those estimates. Significant estimates include the
assumptions used in valuing equity investments and issuances,
valuation of deferred tax assets, and depreciable lives of property
and equipment.
(D)
Cash and Cash Equivalents
We
consider all highly liquid temporary cash investments with an
original maturity of three months or less to be cash equivalents.
At December 31, 2017 and 2016, we had no cash
equivalents.
We
account for income taxes under Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification
(“ASC”) Topic 740-10-25, “
Income
Taxes—Overall—Recognition
.” Under ASC
740-10-25, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences
are expected to be recovered or settled. Under ASC 740-10-25, the
effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date.
Our
2013 to 2017 tax years remain open to audit by the Internal Revenue
Service and state tax authorities.
We
conduct operations in various foreign jurisdictions that use our
technology. Our segments are based on the location of their
operations. The U.S. territories segment consists of operations in
the U.S. Virgin Islands and Guam; the Bahamas segment consists of
operations specific to the Bahamas; and the other segment currently
consists of operations in the Cayman Islands. Direct revenues and
costs, depreciation, depletion, and amortization costs, general and
administrative costs (“G&A”), and other income
directly associated with their respective segments are detailed
within the following discussion. Identifiable net property and
equipment are reported by business segment for management reporting
and reportable business segment disclosure purposes. Current
assets, other assets, current liabilities, and long-term debt are
not allocated to business segments for management reporting or
business segment disclosure purposes.
Reportable business
segment information for the years ended December 31, 2017, and
December 31, 2016, is as follows:
|
|
|
|
|
|
|
Revenue
|
$
-
|
$
-
|
$
-
|
$
-
|
$
-
|
Assets
|
451,367
|
892,639
|
|
-
|
1,344,006
|
Net
loss
|
(14,591,675
)
|
-
|
-
|
-
|
(14,591,675
)
|
Property and
equipment
|
1,352
|
-
|
-
|
-
|
1,352
|
Assets under
construction
|
|
892,639
|
|
-
|
892,639
|
Depreciation
|
1,014
|
-
|
-
|
-
|
1,014
|
Additions to
assets under construction
|
-
|
95,352
|
-
|
-
|
95,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
-
|
$
-
|
$
-
|
$
-
|
$
-
|
Assets
|
40,410
|
797,287
|
-
|
48,998
|
886,695
|
Net Loss
|
(5,837,007
)
|
-
|
(271,110
)
|
-
|
(6,108,117
)
|
Property and equipment
|
2,366
|
-
|
-
|
-
|
2,366
|
Capitalized construction in process
|
|
797,287
|
-
|
48,998
|
846,285
|
Depreciation
|
4,207
|
-
|
-
|
-
|
4,207
|
Additions to assets under construction
|
-
|
119,722
|
-
|
-
|
119,722
|
For the
year ended December 31, 2017, the U.S. territories are comprised of
U.S. Virgin Islands project (approx. $728,000) and Guam project
(approx. $165,000). Other territories are comprised of Cayman
Islands project); however
during the
year ended December 31, 2017, $48,998 of Cayman Islands assets
under construction was considered to be impaired due to the
uncertainty of the project and were written off
. The
additions to assets under construction in 2017 were primarily
salaries and consulting services.
For the
year ended December 31, 2016, the U.S. territories are comprised of
U.S. Virgin Islands project (approx. $632,000) and Guam project
(approx. $165,000). Other territories are comprised of Cayman
Islands project (approx. $49,000).
(G)
Property and Equipment
Furniture,
equipment, and software are recorded at cost and include major
expenditures that increase productivity or substantially increase
useful lives.
Maintenance,
repairs, and minor replacements are charged to expenses when
incurred. When furniture, vehicles, or equipment is sold or
otherwise disposed of, the asset and related accumulated
depreciation are removed from this account, and any gain or loss is
included in the statement of operations.
Assets
under construction represent costs incurred by us for our renewable
energy systems currently in process. Generally, all costs incurred
during the development stage of our projects are capitalized and
tracked on an individual project basis and are included in
construction in progress until the project has been placed into
service. If a project is abandoned, the associated costs that have
been capitalized are charged to expense in the year of abandonment.
Expenditures for repairs and maintenance are charged to expense as
incurred. Interest costs incurred during the construction period of
defined major projects from debt that is specifically incurred for
those projects are capitalized.
Direct labor costs
incurred for specific major projects expected to have long-term
benefits are capitalized. Direct labor costs subject to
capitalization include employee salaries, as well as related
payroll taxes and benefits. With respect to the allocation of
salaries to projects, salaries are allocated based on the
percentage of hours that our key managers, engineers, and
scientists work on each project. These individuals track their time
worked at each project. Major projects are generally defined as
projects expected to exceed $500,000. Direct labor includes all of
the time incurred by employees directly involved with construction
and development activities. Time spent in general and indirect
management and in evaluating the feasibility of potential projects
is expensed when incurred.
We capitalize costs
incurred once the project has met the project feasibility stage.
Costs include environmental engineering, permits, government
approval, and site engineering costs. We currently have four
projects in the development stage and one project in the
construction phase. We capitalize direct interest costs associated
with the projects. As of December 31, 2017 and 2016, we have no
interest costs capitalized.
The
cost of furniture, vehicles, equipment, and software is depreciated
over the estimated useful lives of the related assets.
Depreciation is
computed using the straight-line method for financial reporting
purposes. The estimated useful lives and accumulated depreciation
for land, buildings, furniture, vehicles, equipment, and software
are as follows:
|
|
Computer
Equipment
|
3
|
Software
|
5
|
(H)
Fair
Value
ASC
Topic 820, “
Fair Value
Measurements and Disclosures
,” defines fair value,
establishes a framework for measuring fair value under generally
accepted accounting principles in the United States, and enhances
disclosures about fair value measurements. ASC 820 describes a fair
value hierarchy based on three levels of inputs, of which the first
two are considered observable and the last unobservable, that may
be used to measure fair value, which are the
following:
●
Level
1–Pricing inputs are quoted prices available in active
markets for identical assets or liabilities as of the reporting
date.
●
Level
2–Pricing inputs are quoted for similar assets or inputs that
are observable, either directly or indirectly, for substantially
the full term through corroboration with observable market data.
Level 2 includes assets or liabilities valued at quoted prices
adjusted for legal or contractual restrictions specific to these
investments.
●
Level
3–Pricing inputs are unobservable for the assets or
liabilities; that is, the inputs reflect the reporting
entity’s own assumptions about the assumptions market
participants would use in pricing the asset or
liability.
Management believes
the carrying amounts of the short-term financial instruments,
including cash and cash equivalents, accounts receivable, prepaid
expense and other assets, accounts payable, accrued liabilities,
notes payable, deferred compensation, and other liabilities
reflected in the accompanying balance sheets approximate fair value
at December 31, 2017 and 2016, due to the relatively short-term
nature of these instruments.
Cash
and cash equivalents and restricted cash are deposited with major
financial institutions, and at times, such balances with any one
financial institution may be in excess of FDIC-insured limits. As
of December 31, 2017 and 2016, $179,855 and $0 were deposited in
excess of FDIC-insured limits. Management believes the risk in
these situations to be minimal.
The
basic loss per share is calculated by dividing our net loss
available to common shareholders by the weighted average number of
common shares during the period. The diluted loss per share is
calculated by dividing our net loss by the diluted weighted average
number of shares outstanding during the period. The diluted
weighted average number of shares outstanding is the basic weighted
number of shares adjusted for any potentially dilutive debt or
equity. We have 134,000 and 16,012,210 shares issuable upon the
exercise of warrants and options and 7,056,721 and 205,667 shares
issuable upon the conversion of the green energy bonds and
convertible notes that were not included in the computation of
dilutive loss per share because their inclusion is antidilutive for
the years ended December 31, 2017 and 2016,
respectively.
We will
recognize revenue on arrangements in accordance with FASB ASC Topic
605, “
Revenue
Recognition
.” In all cases, revenue is recognized only
when the price is fixed and determinable, persuasive evidence of an
arrangement exists, the service is performed, and collectability of
the resulting receivable is reasonably assured.
(L)
Recent Accounting Pronouncements
In
August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230):
Classification of Certain Cash Receipts and Cash Payments.
Historically, there has been a diversity in practice in how certain
cash receipts/payments are presented and classified in the
statement of cash flows under Topic 230. The purpose of the Update
is to reduce the existing diversity in practice by clarifying the
presentation of certain types of transactions. The amendments in
this Update are effective for public business entities for fiscal
years beginning after December 15, 2017, and interim periods within
those fiscal years. Early adoption is permitted. The Company notes
that this guidance applies to its reporting requirements and will
implement the new guidance accordingly.
We have
reviewed all recently issued, but not yet adopted, accounting
standards in order to determine their effects, if any, on our
consolidated results of operations, financial position, and cash
flows. Based on that review, we believe that none of these
pronouncements will have a significant effect on current or future
earnings or operations.
NOTE
2 – GOING CONCERN
We had
a net loss of $14,591,675 and used cash in operations of $1,469,169
for the year ended December 31, 2017, and had an accumulated
deficit of $67,703,218 and a working capital deficiency of
$10,716,255 as of December 31, 2017. This raises 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 raise
additional capital through the sale of debt or equity securities or
stockholder loans and to implement our business plan. The financial
statements do not include any adjustments that might be necessary
if we are unable to continue as a going concern.
Management
believes that we will be able to continue as a going concern
through additional affiliate loans, implementation of our strategic
operating plan, continuing a multi-focused plan to obtain external
capital, and offering sales incentives to accelerate ocean thermal
energy conversion (“OTEC”) project
development.
NOTE
3 – PROPERTY AND EQUIPMENT
Property
and equipment consist of the following at December 31,
2017:
Property & Equipment as of December 31, 2017
|
|
|
|
|
|
|
|
|
Computer
& Office Equipment
|
$
13,751
|
12,399
|
$
1,352
|
3
Years
|
Software
(Video System)
|
19,061
|
19,061
|
-
|
5
Years
|
Construction
in Process
|
892,639
|
-
|
892,639
|
|
|
$
925,451
|
31,460
|
$
893,991
|
|
Property
and equipment consist of the following at December 31,
2016:
Property & Equipment as of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computer
& Office Equipment
|
$
13,751
|
11,385
|
$
2,366
|
3
Years
|
Software
(Video System)
|
19,061
|
19,061
|
-
|
5
Years
|
Construction
in Process
|
846,285
|
-
|
846,285
|
|
|
$
879,097
|
30,446
|
$
848,651
|
|
Depreciation
expense for the years ended December 31, 2017 and 2016 was $1,014
and $4,207, respectively.
During the
year ended December 31, 2016, $244,284 of Clifton Pier assets under
construction were considered to be impaired due to the uncertainty
of the project. During the year ended December 31, 2017, $48,998 of
Cayman Islands assets under construction was considered to be
impaired due to the uncertainty of the project and were written
off.
NOTE
4 – CONVERTIBLE NOTES AND NOTES PAYABLE
On
December 12, 2006, TetriDyn Solutions, Inc. (TDYS) borrowed funds
from the Southeast Idaho Council of Governments (SICOG). This is
referred as the “EDA -#180” loan. At the time of the
merger between TDYS and Ocean Thermal Energy Corporation (OTE) on
May 8, 2017, OTE assumed the liability for this loan. The remaining
balance on the loan at the date of merger was $14,974. The interest
rate is 6.25% and the maturity date was January 5, 2013. The loan
principal was $12,272 with no accrued interest as of December 31,
2017. This note is in default.
On December 1, 2007, TetriDyn Solutions, Inc. (TDYS) borrowed funds
from the Eastern Idaho Development Corporation; this is referred as
the “EIDC ” loan. At the time of the merger between
TDYS and Ocean Thermal Energy Corporation (OTE) on May 8, 2017, OTE
assumed the liability for this loan. The remaining balance on the
loan at the date of merger was $85,821. The interest rate is 7% and
the maturity date was September 1, 2015. The loan principal was
$85,821 with accrued interest of $33,323 as of December 31, 2017.
This note is in default.
On
September 25, 2009, TetriDyn Solutions, Inc. (TDYS) borrowed funds
from the Pocatello Development Authority. At the time of the merger
between TDYS and Ocean Thermal Energy Corporation (OTE) on May 8,
2017, OTE assumed the liability for this loan. The remaining
balance on the loan at the date of merger was $50,000. The interest
rate is 5% and the maturity date was October 25, 2011. The loan
principal was $50,000 with accrued interest of $18,206 as of
December 31, 2017. This note is in default.
On
December 23, 2009, TetriDyn Solutions, Inc. (TDYS) borrowed funds
from the Southeast Idaho Council of Governments (SICOG). This is
referred as the “EDA - #273” loan. At the time of the
merger between TDYS and Ocean Thermal Energy Corporation (OTE) on
May 8, 2017, OTE assumed the liability for this loan. The remaining
balance on the loan at the date of merger was $94,480. The interest
rate is 7% and the maturity date was December 23, 2014. The loan
principal was $94,480 with accrued interest of $21,150 as of
December 31, 2017. This note is in default.
On
December 23, 2009, TetriDyn Solutions, Inc. (TDYS) borrowed funds
from the Southeast Idaho Council of Governments (SICOG). This is
referred as the “MICRO I - #274” loan. At the time of
the merger between TDYS and Ocean Thermal Energy Corporation (OTE)
on May 8, 2017, OTE assumed the liability for this loan. The
remaining balance on the loan at the date of merger was $23,619.
The interest rate is 7% and the maturity date was December 23,
2014. The loan principal was $23,619 with accrued interest of
$4,596 as of December 31, 2017. This note is in
default.
On
December 23, 2009, TetriDyn Solutions, Inc. (TDYS) borrowed funds
from the Southeast Idaho Council of Governments (SICOG). This is
referred as the “MICRO II - #275” loan. At the time of
the merger between TDYS and Ocean Thermal Energy Corporation (OTE)
on May 8, 2017, OTE assumed the liability for this loan. The
remaining balance on the loan at the date of merger was $23,620.
The interest rate is 7% and the maturity date was December 23,
2014. The loan principal was $23,620 with accrued interest of
$5,897 as of December 31, 2017. This note is in
default.
During
2012, we issued a note payable for $1,000,000 and three-year
warrants to purchase 3,295,761 shares of common stock with an
exercise price of $0.50 per share. The note had an interest rate of
10% per annum, was secured by a first lien in all of our assets and
was due on February 3, 2015. We determined the warrants had a fair
value of $378,500 based on the Black-Scholes option-pricing model.
The fair value was recorded as a discount on the note payable and
was being amortized over the life of the note. We repriced the
warrants during 2013 and took an additional charge to earnings of
$1,269,380 related to the repricing. The warrants were exercised
upon the repricing. On March 6, 2018, the note holder agreed to
amend the note to extend the due date of the note to December 31,
2018. As of December 31, 2017, the outstanding balance was
$1,000,000, plus accrued interest of $535,559.
During
2013, we issued Series B units. Each unit is comprised of a note
agreement, a $50,000 promissory note that matures on September 30,
2023, and bears interest at 10% per annum payable annually in
arrears, a security agreement, and a warrant to purchase 10,000
shares of common stock at an exercise price to be determined
pursuant to a specified formula. During 2013, we issued $525,000 of
10% promissory notes and warrants to purchase 105,000 shares of
common stock. The warrants have an expiration date of September 30,
2023. We determined the warrants had a fair value of $60,068 based
on the Black-Scholes option-pricing model. As part of our agreement
with the Memphis Investors, the Board repriced the warrants to
$0.00 and exercised the warrants and issued shares of common stock.
On December 31, 2016, the accrued interest was $168,934. During
2015, one of the original note holders transferred its ownership of
the note in the amount of $50,000 to Jeremy P. Feakins &
Associates LLC through the JPF Venture Fund 1, LP. On August 15,
2017, loans in the amount of $316,666 and accrued interest of
$120,898 were converted to 437,564 shares at $1.00 per share, which
was ratified by the Board of Directors. The shares were recorded at
fair value of $1,165,892. The Company recorded a loss on settlement
of debt of $728,328 on conversion date. On November 8, 2017, Jeremy
P. Feakins & Associates LLC, converted loans in the amount of
$50,000 and accrued interest of $16,263 at $1.00 per share into
66,263 shares of common stock. As of December 31, 2017, the loan
balance was $158,334 and the accrued interest was
$68,894.
During
2013, we paid cash of $10,000 and issued a note payable for
$290,000 in connection with the reverse merger transaction. We
repurchased and retired 7,546,464 shares of common stock
simultaneously with the closing of the merger with Broad Band
Network Associates. The note is unsecured and due the earlier of
December 31, 2015, or upon our receiving $50,000 of proceeds from
the exercise of the Class A warrants, $50,000 from the exercise of
the Class B warrants, $60,000 from the exercise of the Class C
warrants, $60,000 from the exercise of Class D warrants, and
$70,000 from the exercise of the Class E warrants. During 2014, we
paid $100,000 and during 2015, we paid $60,000, leaving a balance
of $130,000. Accrued interest totaled $40,313 at December 31, 2017
and $29,769 at December 31, 2016. We have determined that no
further payment of principal or interest on this note should be
made because the note holder failed to perform his underlying
obligations giving rise to this note. As such, we are confident
that if the note holder were to seek legal redress, a court would
decide in our favor by either voiding the note or awarding damages
sufficient to offset the note value.
During
2014, we issued a note payable for $2,265,000 and warrants to
purchase 12,912,500 shares of common stock, with an exercise price
equal to the greater of a 50% discount of the stock price when our
shares are listed on a public exchange or $0.425 per share, to an
entity owned by our chief executive officer, together our principal
stockholders. The warrants expire one year after our shares are
listed on a recognized public exchange. The unsecured note has an
interest rate of 10% per annum and the balance was due on January
31, 2015. We determined the warrants had a fair value of $2,265,000
based on the Black-Scholes option-pricing model. The fair value was
recorded as a discount on the note payable and is being amortized
over the life of the note. As part of our agreement with the
Memphis Investors, the Board repriced the warrants to $0.00 and
exercised the warrants and issued shares of common stock. As of
December 31, 2015, principal of $152,500 has been repaid and
principal of $351,500 has been converted into 468,667 shares of
common stock, leaving a note balance of $1,761,000. During 2016, a
principal payment of $5,000 was made leaving a note balance of
$1,756,000 at December 31, 2016. On December 31, 2016, the accrued
interest was $453,093. On August 15, 2017, loans in the amount of
$618,500 and accrued interest of $207,731 were converted to 826,231
shares at $1.00 per share, which was ratified by the Board of
Directors. The conversion was recorded at historical cost due to
the related party nature of the transaction. As of December 31,
2017, the loan balance was $1,137,500 and the accrued interest was
$399,692. On January 18, 2018 the note holder agreed to extend the
due date for the repayment of the loan and interest to the earlier
of December 31, 2018 or the date for the Ocean Thermal Energy
Corporation’s financial closings of its Baha Mar Project (or
any other project of $25 million or more), or partial payments will
begin as the Company draws upon investment provided by L2 Capital.
whichever occurs first. (see note 9)
During
2014, we issued Secured Convertible Promissory Notes (Bonds)
totaling $166,800 through September 30, 2014. The bonds carry an
interest rate ranging from 7.86% to 9.86% and mature on April 30,
2019 and December 31, 2019. In addition, the bondholders are
entitled to convert each $1,200 bond into 1,000 shares of common
stock at a price of $1.20 per share. Should our shares trade for 10
consecutive days at $1.80 per share or higher. On August 15, 2017,
bonds in the amount of $166,800 and accrued interest of $48,866
were converted to 179,722 shares of common stock at $1.20 per
share.
During
2014, we issued a note payable of $100,000 to a related party and
$200,000 to a third party, for a total of $300,000, and warrants to
purchase 300,000 shares of common stock with an exercise price of
$1.00 per share. As part of our agreement with the Memphis
Investors, the Board repriced the warrants to $0.00 and exercised
the warrants and issued shares of common stock. These unsecured
notes have an interest rate of 12% per annum. The $100,000 note
with a related party is due the earlier of December 26, 2015; the
completion by us of an equity financing resulting in our receipt of
gross proceeds of at least $2,000,000; or the financial close of
the Baha Mar project and release of funds by the bank. The balance
on the $200,000 note is due the earlier of March 31, 2015; the
completion by us of an equity financing resulting in our receipt of
gross proceeds of at least $2,000,000; or the financial close of
the Baha Mar project and release of project financing funds by the
bank. As of December 31, 2016, the notes are in default. Due to the
delay in opening of the Baha Mar Resort, our Baha Mar SWAC
Project’s financial closing was delayed causing us to default
on the notes. We have accrued the interest at a default rate of
22%. We intend to repay the notes and accrued interest upon the
project’s financial closing. As of December 31, 2017, the
outstanding loan balance was $300,000. Accrued interest totaled
$180,129 as of December 31, 2017 and $113,119 as of December 31,
2016.
On
April 7, 2015, we issued an unsecured convertible promissory note
in the principal amount of $50,000 to an unrelated party. The note
bears interest of 10% and is due on April 17, 2017. On April 6,
2017, the note holder agreed to extend the maturity date to April
7, 2018. The note and accrued interest can be converted into our
common stock at a conversion rate of $0.75 per share at any time
prior to the repayment. We recorded a debt discount of $6,667 for
the fair value of the beneficial conversion feature. During the
year ended December 31, 2017, we amortized debt discount of $871.
As of December 31, 2017, the outstanding loan balance was $50,000.
Accrued interest totaled $13,847 as of December 31, 2017 and
$12,668 as of December 31, 2016.
On
March 12, 2015, the Company exchanged convertible notes issued in
2010, 2011, and 2012, payable to its officers and directors in the
aggregate principal amount of $320,246, plus accrued but unpaid
interest of $74,134, into a single, $394,380 consolidated
convertible note (the “Consolidated Note”). The
Consolidated Note was assigned to JPF Venture Group, Inc.
(“JPF”), an investment entity that is majority-owned by
Jeremy Feakins, the Company’s director, chief executive
officer, and chief financial officer. The Consolidated Note was
convertible to common stock at $0.025 per share, the approximate
market price of the Company’s common stock as of the date of
the issuance. On February 24, 2017 the Company completed an
amendment with JPF to eliminate the conversion feature of the
Consolidated Note. The Consolidated Note bears interest at 6% per
annum and is due and payable within 90 days after demand. As of
December 31, 2017, the outstanding loan balance was $394,380 and
the accrued but unpaid interest on the Consolidated Note was
$70,568.
On
March 12, 2015, the Company assigned the liabilities for unpaid
salaries of two of its former officers in the amount of $213,436 to
JPF. The assignment was evidenced by a consolidated promissory note
dated December 31, 2014. The note does not bear any interest. On
December 31, 2016, the $213,436 was reclassified to accrued
expenses.
On June
23, 2015, the Company borrowed $50,000 from JPF pursuant to a
promissory note. The Company received $25,000 on July 31, 2015, and
the remaining $25,000 on August 18, 2015. The terms of the note are
as follows: (i) interest is payable at 6% per annum;
(ii) the note is payable 90 days after demand; and
(iii) payee is authorized to convert part or all of the note
balance and accrued interest, if any, into shares of the
Company’s common stock at the rate of one share for each
$0.01384. On September 8, 2017, JPF elected to convert $50,000 of
notes payable and accrued interest of $6,342 into 3,612,596 and
458,198 shares of common stock, respectively.
On
November 23, 2015, the Company borrowed $50,000 from JPF pursuant
to a promissory note. The Company received $37,500 before December
31, 2015, and the remaining $12,500 was received after the
year-end. The terms of the note are as follows: (i) interest
is payable at 6% per annum; (ii) the note is payable 90 days
after demand; and (iii) payee is authorized to convert part or
all of the note balance and accrued interest, if any, into shares
of the Company’s common stock at the rate of one share each
for $0.01384. As of December 31, 2017, the outstanding balance was
$50,000, plus accrued interest of $6,049.
On
February 25, 2016, the Company borrowed $50,000 from JPF pursuant
to a promissory note. The terms of the note are as follows:
(i) interest is payable at 6% per annum; (ii) the note is
payable 90 days after demand; and (iii) payee is authorized to
convert part or all of the note balance and accrued interest, if
any, into shares of our common stock at the rate of one share for
each $0.01384. On February 24, 2017 the Company completed an
amendment with JPF to eliminate the conversion feature of the note.
As of December 31, 2017, the outstanding balance was $50,000, plus
accrued interest of $5,636
On May
20, 2016, the Company borrowed $50,000 from JPF pursuant to a
promissory note. The terms of the note are as follows:
(i) interest is payable at 6% per annum; (ii) the note is
payable 90 days after demand; and (iii) the payee is
authorized to convert part or all of the note balance and accrued
interest, if any, into shares of our common stock at the rate of
one share for each $0.01384. On February 24, 2017 the Company
completed an amendment with JPF to eliminate the conversion feature
of the note. As of December 31, 2017, the outstanding balance was
$50,000, plus accrued interest of $4,788.
On
October 20, 2016, the Company borrowed $12,500 from JPF pursuant to
a promissory note. The terms of the note are as follows:
(i) interest is payable at 6% per annum; (ii) the note is
payable 90 days after demand; and (iii) the payee is
authorized to convert part or all of the note balance and accrued
interest, if any, into shares of our common stock at the rate of
one share for each $0.01384. On February 24, 2017 the Company
completed an amendment with JPF to eliminate the conversion feature
of the note. As of December 31, 2017, the outstanding balance was
$12,500, plus accrued interest of $928.
On
October 20, 2016, the Company borrowed $12,500 from an independent
director pursuant to a promissory note. The terms of the note are
as follows: (i) interest is payable at 6% per annum;
(ii) the note is payable 90 days after demand; and
(iii) the payee is authorized to convert part or all of the
note balance and accrued interest, if any, into shares of our
common stock at the rate of one share for each $0.01384 of As of
December 31, 2017, the outstanding balance was $12,500, plus
accrued interest of $994.
On
October 20, 2016, the Company borrowed $25,000 from a stockholder
pursuant to a promissory note. The terms of the note are as
follows: (i) interest is payable at 6% per annum;
(ii) the note is payable 90 days after demand; and
(iii) the payee is authorized to convert part or all of the
note balance and accrued interest, if any, into shares of our
common stock at the rate of one share for each $0.01384. As of June
5, 2017 the note holder converted the note principal of $25,000
into 1,806,298 shares common stock. As of December 31, 2017, there
was no outstanding balance and accrued interest was
$904.
.
On
December 21, 2016, the Company borrowed $25,000 from JPF pursuant
to a promissory note. The terms of the note are as follows:
(i) interest is payable at 6% per annum; (ii) the note is
payable 90 days after demand; and (iii) the payee is
authorized to convert part or all of the note balance and accrued
interest, if any, into shares of our common stock at the rate of
one share for each $0.01384. As of December 31, 2017, the
outstanding balance was $25,000, plus accrued interest of
$1,563.
On
March 9, 2017, an entity owned by our chief executive officer is an
officer and director, agreed to provide up to $200,000 in working
capital. The note bears interest of 10% and is due and payable with
90 days of demand. As of December 31, 2017, the balance of the loan
outstanding was $177,000 and the accrued interest was
$14,905.
During
the third quarter of 2017, the Company launched a $2,000,000
convertible promissory note private placement offering. The terms
of the note are as follows: (i) interest is payable at 6% per
annum; (ii) the note is payable two years after purchase;
(iii) and all principal and interest on each Note shall
automatically convert on the Conversion Maturity Date into shares
of the Company’s common stock at a conversion price of $4.00
per share, as long as the closing share price of the
Company’s common stock on the trading day immediately
preceding the Conversion Maturity Date is at least $4.00, as
adjusted for stock splits, stock dividends, reclassification, and
the like. If the price of the Company’s shares on such date
is less than $4.00 per share, the Note (principal and interest)
will be repaid in full. As of December 31, 2017, the outstanding
balance for all four loans was $80,000, plus accrued interest of
$2,186.
On
November 6, 2017, the Company entered into an agreement with a
promissory note with JPF Venture Group, Inc. (“JPF”),
an investment entity that is majority-owned by Jeremy Feakins, the
Company’s director, chief executive officer, and chief
financial officer, to loan the Company up to $2,000,000. The terms
of the note are as follows: (i) interest is payable at 10% per
annum; (ii) all unpaid principal and all accrued and unpaid
interest shall be due and payable at the earliest of (a) resolution
of the Memphis litigation; (b) June 30, 2018; or (c) when the
company is otherwise able to pay. As of December 31, 2017, the
outstanding balance was $641,568 and the accrued interest was
$14,372.
In
December 2017, the Company entered into a Note and Warrant Purchase
Agreement pursuant to which we issued a series of unsecured
promissory notes (the “Notes”) to accredited investors,
in the aggregate principal amount of $490,000 as of December 31,
2017. The Notes accrue interest at a rate of 10% per annum payable
on a quarterly basis and are not convertible into shares of capital
stock of the Company. The Notes are payable within five business
days after receipt of funds from L2 Capital under the Equity
Purchase Agreement equal to 20% of the total funds received by the
Company from L2 payable on a pro rata basis to all holders of the
Notes. The Company may prepay the Notes in whole or in part without
penalty or premium on or before the maturity date of July 30, 2019.
In connection with the issuance of the Notes, for each Note
purchased the Noteholder will receive a warrant exercised as
follows:
$10,000
note with a warrant to purchase 2,000 shares
$20,000
note with a warrant to purchase 5,000 shares
$25,000
note with a warrant to purchase 6,500 shares
$30,000
note with a warrant to purchase 8,000 shares
$40,000
note with a warrant to purchase 10,000 shares
$50,000
note with a warrant to purchase 14,000 shares
The
exercise price per share of the Warrants is equal to Eighty-Five
Percent (85%) of the closing price of the Company’s common
stock on the day immediately preceding the exercise of the relevant
Warrant, subject to adjustment as provided in the Warrant. The
Warrant includes a cashless net exercise provision whereby the
holder can elect to receive shares equal to the value of the
Warrant minus the fair market value of shares being surrendered to
pay the exercise. As of December 31, 2017, the balance outstanding
was $490,000, the accrued interest was $613, and we had issued
Warrants to purchase 134,000 shares of common stock. We determined
that the warrants had a fair value of $41,044 based on the
Black-Scholes option-pricing model. The fair value was recorded as
a discount on the notes payable and is being amortized over the
life of the notes payable.
The
following convertible note and notes payable were outstanding at
December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
at December 31, 2017
|
Discount
at December 31 2017
|
Carrying
Amount at December 31, 2017
|
|
|
|
|
12/12/2006
|
1/5/2013
|
6.25
%
|
Yes
|
58,670
|
12,272
|
-
|
12,272
|
-
|
-
|
12,272
|
-
|
12/1/2007
|
9/1/2015
|
7.00
%
|
Yes
|
125,000
|
85,821
|
-
|
85,821
|
-
|
-
|
85,821
|
-
|
9/25/2009
|
10/25/2011
|
5.00
%
|
Yes
|
50,000
|
50,000
|
-
|
50,000
|
-
|
-
|
50,000
|
-
|
12/23/2009
|
12/23/2014
|
7.00
%
|
Yes
|
100,000
|
94,480
|
-
|
94,480
|
-
|
-
|
94,480
|
-
|
12/23/2009
|
12/23/2014
|
7.00
%
|
Yes
|
25,000
|
23,619
|
-
|
23,619
|
-
|
-
|
23,619
|
-
|
12/23/2009
|
12/23/2014
|
7.00
%
|
Yes
|
25,000
|
23,620
|
-
|
23,620
|
-
|
-
|
23,620
|
-
|
02/03/12
|
12/31/18
|
10.00
%
|
No
|
1,000,000
|
1,000,000
|
-
|
1,000,000
|
1,000,000
|
-
|
-
|
-
|
08/15/13
|
10/31/23
|
10.00
%
|
No
|
525,000
|
158,334
|
-
|
158,334
|
-
|
|
-
|
158,334
|
12/31/13
|
12/31/15
|
8.00
%
|
Yes
|
290,000
|
130,000
|
-
|
130,000
|
130,000
|
-
|
-
|
-
|
04/01/14
|
12/31/18
|
10.00
%
|
No
|
2,265,000
|
1,137,500
|
-
|
1,137,500
|
1,137,500
|
-
|
-
|
-
|
12/22/14
|
03/31/15
|
12.00
%
|
Yes
|
200,000
|
200,000
|
-
|
200,000
|
-
|
-
|
200,000
|
-
|
12/26/14
|
12/26/15
|
12.00
%
|
Yes
|
100,000
|
100,000
|
-
|
100,000
|
-
|
-
|
100,000
|
-
|
3/12/2015
|
90 days after
demand
|
6.00
%
|
No
|
394,380
|
394,380
|
-
|
394,380
|
394,380
|
-
|
-
|
-
|
4/7/15
|
04/17/18
|
10.00
%
|
No
|
50,000
|
50,000
|
-
|
50,000
|
-
|
-
|
50,000
|
|
11/23/2015
|
90 days after
demand
|
6.00
%
|
No
|
50,000
|
50,000
|
-
|
50,000
|
50,000
|
-
|
-
|
-
|
2/25/2016
|
90 days after
demand
|
6.00
%
|
No
|
50,000
|
50,000
|
-
|
50,000
|
50,000
|
-
|
-
|
-
|
5/20/2016
|
90 days after
demand
|
6.00
%
|
No
|
50,000
|
50,000
|
-
|
50,000
|
50,000
|
-
|
-
|
-
|
10/20/2016
|
90 days after
demand
|
6.00
%
|
No
|
50,000
|
12,500
|
-
|
12,500
|
12,500
|
-
|
-
|
-
|
10/20/2016
|
90 days after
demand
|
6.00
%
|
No
|
12,500
|
12,500
|
-
|
12,500
|
12,500
|
-
|
-
|
-
|
12/21/2016
|
90 days after
demand
|
6.00
%
|
No
|
25,000
|
25,000
|
-
|
25,000
|
25,000
|
-
|
-
|
-
|
3/9/2017
|
90 days after
demand
|
10.00
%
|
No
|
200,000
|
177,000
|
-
|
177,000
|
177,000
|
-
|
-
|
-
|
7/13/2017
|
7/13/2019
|
6.00
%
|
No
|
25,000
|
25,000
|
-
|
25,000
|
-
|
-
|
-
|
25,000
|
7/18/2017
|
7/18/2019
|
6.00
%
|
No
|
25,000
|
25,000
|
-
|
25,000
|
-
|
-
|
-
|
25,000
|
7/26/2017
|
7/26/2019
|
6.00
%
|
No
|
15,000
|
15,000
|
-
|
15,000
|
-
|
-
|
-
|
15,000
|
7/27/2017
|
7/27/2019
|
6.00
%
|
No
|
15,000
|
15,000
|
-
|
15,000
|
-
|
-
|
-
|
15,000
|
12/20/2017
|
7/30/2019
|
10.00
%
|
No
|
50,000
|
50,000
|
4,340
|
45,660
|
-
|
-
|
-
|
45,660
|
12/20/2017
|
7/30/2019
|
10.00
%
|
No
|
10,000
|
10,000
|
620
|
9,380
|
-
|
-
|
-
|
9,380
|
12/21/2017
|
7/30/2019
|
10.00
%
|
No
|
50,000
|
50,000
|
4,284
|
45,716
|
-
|
-
|
-
|
45,716
|
12/27/2017
|
7/30/2019
|
10.00
%
|
No
|
10,000
|
10,000
|
600
|
9,400
|
-
|
-
|
-
|
9,400
|
12/27/2017
|
7/30/2019
|
10.00
%
|
No
|
10,000
|
10,000
|
600
|
9,400
|
-
|
-
|
-
|
9,400
|
12/28/2017
|
7/30/2019
|
10.00
%
|
No
|
250,000
|
250,000
|
21,000
|
229,000
|
-
|
-
|
-
|
229,000
|
12/29/2017
|
7/30/2019
|
10.00
%
|
No
|
100,000
|
100,000
|
8,960
|
91,040
|
-
|
-
|
-
|
91,040
|
12/29/2017
|
7/30/2019
|
10.00
%
|
No
|
10,000
|
10,000
|
640
|
9,360
|
-
|
-
|
-
|
9,360
|
11/6/2017
|
* See note
below
|
10.00
%
|
No
|
646,568
|
641,568
|
-
|
641,568
|
641,568
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
$
5,048,594
|
$
41,044
|
$
5,007,550
|
$
3,680,448
|
$
-
|
$
639,812
|
$
687,290
|
|
|
|
|
|
|
|
|
|
|
|
* Note - Principal and accrued interest will be due and payable at
the earliest of A). resolution of Memphis litigation (see note 9);
B). June 30, 2018, or C). when OTE is able to pay
|
The
following convertible notes and notes payable were outstanding at
December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
at December 31, 2016
|
Discount
at December 31, 2016
|
Carrying
Amount at December 31, 2016
|
|
|
|
|
02/03/12
|
02/03/18
|
10.00
%
|
1,000,000
|
1,000,000
|
-
|
1,000,000
|
-
|
1,000,000
|
-
|
-
|
08/15/13
|
10/31/23
|
10.00
%
|
525,000
|
525,000
|
44,089
|
480,911
|
-
|
45,644
|
-
|
435,267
|
12/31/13
|
12/31/15
|
8.00
%
|
290,000
|
130,000
|
-
|
130,000
|
130,000
|
-
|
-
|
-
|
04/01/14
|
12/31/17
|
10.00
%
|
2,265,000
|
1,756,000
|
-
|
1,756,000
|
1,756,000
|
-
|
-
|
-
|
04/16/14
|
04/30/19
|
9.86
%
|
6,000
|
6,000
|
-
|
6,000
|
-
|
-
|
-
|
6,000
|
05/09/14
|
04/30/19
|
9.86
%
|
50,400
|
50,400
|
-
|
50,400
|
-
|
-
|
-
|
50,400
|
05/28/14
|
04/30/19
|
9.86
%
|
25,200
|
25,200
|
-
|
25,200
|
-
|
-
|
-
|
25,200
|
07/21/14
|
12/31/19
|
9.86
%
|
78,000
|
78,000
|
-
|
78,000
|
-
|
-
|
-
|
78,000
|
08/18/14
|
12/31/19
|
7.86
%
|
7,200
|
7,200
|
-
|
7,200
|
-
|
-
|
-
|
7,200
|
12/22/14
|
03/31/15
|
12.00
%
|
200,000
|
200,000
|
-
|
200,000
|
-
|
-
|
200,000
|
-
|
12/26/14
|
12/26/15
|
12.00
%
|
100,000
|
100,000
|
-
|
100,000
|
-
|
-
|
100,000
|
-
|
04/07/15
|
04/17/17
|
10.00
%
|
50,000
|
50,000
|
871
|
49,129
|
-
|
-
|
49,129
|
-
|
Totals
|
|
$
4,596,800
|
$
3,927,800
|
$
44,960
|
$
3,882,840
|
$
1,886,000
|
$
1,045,644
|
$
349,129
|
$
602,067
|
|
|
|
|
|
|
|
|
|
|
Maturities of Long-Term Obligations for Five Years and
Beyond
The
minimum principal payments of notes payable at December 31,
2017:
2018
|
$
4,320,260
|
2019
|
570,000
|
2020
|
-
|
2021
and thereafter
|
158,334
|
Total
|
$
5,048,594
|
NOTE 5 – STOCKHOLDERS’ EQUITY
For the
year ended December 31, 2017, individuals exercised Series D
warrants to purchase 998,079 shares of common stock at a price of
$0.75 per share for cash totaling $748,535. These warrants were
related to BBNA merger.
For the
year ended December 31, 2017, we issued 2,173,517 shares of common
stock for services performed with a fair value of
$2,388,478.
For the year ended
December 31, 2017, we issued 1,714,285 shares of common stock to
L2C Capital, LLC with a fair value of $514,286 under the equity
purchase agreement (see Note 9).
For the
year ended December 31, 2017, we issued 11,250 shares of common
stock pursuant to our Private Placement Memorandum with a fair
value of $45,000 ($4.00 per share).
As part
of the reverse merger on May 9, 2017, 94,343,776 shares of common
stock were issued to the shareholders of OTE in exchange for common
stock in the merged company.
As a
part of our agreement with the Memphis Investors, the Board
re-priced 14,792,500 warrants and 100,000 options to $0.00 and
exercised the warrants and options and issued 14,792,500 shares of
common stock. These warrants had a fair value of $6,769,562. Per
ASC Topic 718, this exchange is treated as a modification. The
incremental value of $6,769,562 measured as the excess of the fair
value of the modified award over the fair value of the original
award immediately before the modification using the Black-Scholes
option pricing model was expensed fully when they were
exercised.
We used
the following assumptions for warrants and options on December 31,
2017:
Expected
volatility:
|
77%
|
Expected
lives:
|
Various
(30 days – 7 years)
|
Risk-free
interest rate:
|
Various
(0.50%-2.27%)
|
Expected
dividend yield:
|
None
|
On May
8, 2017, JPF Venture Group, Inc. (“JPF”), an investment
entity that is majority-owned by Jeremy Feakins, the
Company’s director, chief executive officer, and chief
financial officer transferred 148,588 shares of common stock for
$111,440 to the Company to fulfill an over commitment of
“D” warrants.
On May
9, 2017, the company issued 536,490 shares of common stock to the
former shareholders of TetriDyn Solutions, Inc. for the assumption
of $617,032 of accrued expenses and $1,015,506 of convertible notes
and notes payable from related and unrelated parties. The company
recorded a debit of $1,628,026 to the additional paid in capital as
part of the recapitalization.
On June
5, 2017, a note holder elected to convert a $25,000 convertible
note payable for 1,806,298 shares of common stock ($0.014 per
share).
On June
29, 2017, the Board of Directors approved a stock bonus for the
Chief Executive Officer and Sr Financial Advisor of 258,476 and
150,590 shares of common stock, respectively at fair value of
$920,399. These shares were issued on November 1,
2017.
On
August 3, 2017, we entered into a compensation agreement with our
former legal counsel wherein we agreed to pay an outstanding legal
bill in the amount of $197,950 by issuance of 65,000 shares covered
by a Form S-8 Registration Statement filed with the Securities and
Exchange Commission (SEC) on August 25, 2017. The former legal
counsel may, at any time and from time to time following the filing
of the Form S-8, elect to call for the issuance of shares as
payment for the outstanding legal bill. As the shares are sold into
the market, the outstanding balance will be reduced. On October 17,
2017, the company issued 65,000 shares of common stock pursuant to
the agreement with a fair value of $146,250. As of December 31,
2017, our former legal counsel has sold 704 shares with a total
proceeds of $1,133. As of December 31, 2017, the fair value of the
64,296 shares of common stock was $20,575 and $124,542 was recorded
as a change in fair value of liability.
On
August 15, 2017, Series B note holders elected to convert $316,666
in notes payable for 316,666 shares of common stock at a conversion
rate of $1.00. In addition, they converted accrued interest in the
amount of $120,898 for 120,898 shares of common stock. The shares
were recorded at fair value of $1,165,892. The Company recorded a
loss on the settlement of debt of $728,328 on the conversion
date.
On
August 15, 2017, Clean Energy note holders elected to convert
$166,800 in notes payable for 139,000 shares of common stock at a
conversion rate of $1.20. In addition, they converted accrued
interest in the amount of $48,866 for 40,722 shares of common
stock.
On
August 15, 2017, Jeremy P. Feakins & Associates, LLC, an
investment entity that is majority-owned by Jeremy Feakins, the
Company’s director, chief executive officer, and chief
financial officer, elected to convert $618,500 in notes payable for
618,500 shares of common stock at a conversion rate of $1.00. In
addition, they converted accrued interest in the amount of $207,731
for 207,731 shares of common stock.
On
September 8, 2017, JPF Venture Group, Inc. (“JPF”), an
investment entity that is majority-owned by Jeremy Feakins, the
Company’s director, chief executive officer, and chief
financial officer, elected to convert $50,000 in notes payable for
3,612,596 shares of common stock at a conversion rate of $0.014. In
addition, they converted accrued interest in the amount of $6,342
for 458,198 shares of common stock.
The
Company entered into a settlement agreement to convert outstanding
payable balance totaling $180,000 into 360,000 shares of common
stock. The shares were recorded at fair value of $556,875. The
Company recorded a loss on settlement of debt of $376,875 on
settlement date.
On
November 8, 2017, Jeremy P. Feakins & Associates LLC, an
investment entity that is majority-owned by Jeremy Feakins, the
Company’s director, chief executive officer, and chief
financial officer, elected to convert $50,000 of Series B notes
payable into 50,000 shares of common stock at a conversion rate of
$1.00. In addition, accrued interest of $16,263 was converted into
16,263 shares of common stock.
(B)
Warrants and Options
We used
the following assumptions for options during the year ended
December 31, 2017:
Expected
volatility:
|
485%
|
Expected
lives:
|
3
years
|
Risk-free interest
rate:
|
1.98% -
2.01%
|
Expected dividend
yield:
|
None
|
We used
the following assumptions for options during the year ended
December 31, 2016:
Expected
volatility:
|
61%
|
Expected
lives:
|
Less
than 1 Year
|
Risk-free
interest rate:
|
0.62%
|
Expected
dividend yield:
|
None
|
During
2012, we issued warrants to purchase 1,075,000 shares of common
stock in conjunction with Series A notes payable that are
exercisable at a price of $3.00 per share and expire on March 31,
2017. The warrants were fully exercised at $0.00 upon Board of
Directors approval during the year ended December 31,
2017.
During
2013, we issued warrants to purchase 105,000 shares of common stock
in conjunction with Series B notes payable that are exercisable at
a price to be determined pursuant to a specified formula
(
see
Note 5). Effective
July 21, 2014, the Company was approved for listing on the GXG
Markets First Quote platform with an $0.85 per share price,
establishing a price of $0.68 per share for the warrants and making
them all exercisable. The warrants were fully exercised at $0.00
upon Board of Directors approval during the year ended December 31,
2017.
During
2013, we issued warrants to purchase 300,000 shares of common
stock, with an exercise price equal to the greater of a 50%
discount off of the stock price at our initial public offering of
shares in conjunction with a note payable to an entity owned by our
chief executive officer in the amount of $100,000. Effective July
21, 2014, the Company was approved for listing on the GXG Markets
First Quote platform with an $0.85 per share price, establishing a
price of $0.425 per share for the warrants and making them all
exercisable. The warrants were fully exercised at $0.00 upon Board
of Directors approval during the year ended December 31,
2017.
As part
of the merger with BBNA, we assumed outstanding warrants to
purchase 10,000,000 shares of common stock. These warrants are
grouped into five tranches of 2,000,000 shares. The pricing for
each tranche is as follows: Series A and Series B are $0.50 per
share; Series C is $0.75 per share; Series D is $1.00 per share;
and Series E is $1.25 per share. These warrants expire on December
31, 2018. During 2014, 5,786,635 of these warrants were exercised
and 1,157,989 were exercised during 2015. In addition, we repriced
the Series D warrants to $0.75 per share and Series E warrants to
$0.50 per share. 998,079 were exercised during the year ended
December 31, 2017.
During
2014, we issued warrants to purchase 12,912,500 shares of common
stock, with an exercise price equal to the greater of a 50%
discount off of the stock price at our initial public offering of
shares in conjunction with a note payable to an entity owned by our
chief executive officer in the amount of $2,265,000 (
see
Note 5). Effective July 21, 2014,
the Company was approved for listing on the GXG Markets First Quote
platform with an $0.85 per share price., establishing a price of
$0.425 per share for the warrants and making them all exercisable.
On April 4, 2016, the note holder agreed to amend the note to
extend the due date of the note to December 31, 2017. We did not
modify the terms of the warrants. The warrants were fully exercised
at $0.00 upon Board of Directors approval during the year ended
December 31, 2017.
During
2014, we issued warrants to purchase 300,000 shares of common
stock, with an exercise price of $1.00 per share, in conjunction
with notes payable to individuals, including a related party, in
the amount of $300,000. These warrants expire on December 31, 2018.
The warrants were fully exercised at $0.00 upon Board of Directors
approval during the year ended December 31, 2017 (
see
Note 4).
On July
28, 2015, we issued warrants to purchase 4,480,000 shares of common
stock with an exercise price of $0.25 per share in conjunction with
the loan agreement with a private venture fund, which is a related
party, to provide us up to $1,000,000 in working capital. The
warrants expire on April 30, 2016. We calculated the fair value of
the warrant using the Black-Scholes option-pricing model with the
following weighted average assumptions: no dividend yield for all
the years; expected volatility of 54%; risk-free interest rate of
0.32%; and an expected life of one year (
see
Notes 6 and 9). On March 15, 2016,
the note holder agreed to amend the note to increase the working
capital loan to up to $2,000,000 and extend the date of repayment
to the earlier of: (i) the first anniversary of the date of
issuance; (ii) the completion by us of equity financing
resulting in our receipt of gross proceeds of at least $2,000,000;
or (iii) the financial closing of the Baha Mar project, and we
agreed to increase the warrant to up to 8,000,000 shares and extend
the expiration date to December 31, 2016. On August 31, 2016, the
note holder exercised a warrant to purchase 8,000,000 shares of
common stock with an exercise price of $0.25 in lieu of repayment
of $2,000,000 of note payable. The note holder also converted
$171,824 of accrued interest into 687,291 shares of common stock
with a fair value of $584,198 ($0.85 per share). The total
conversion was 8,687,291 shares for $2,584,198.
The
following table summarizes all warrants outstanding and exercisable
for the years ended December 31, 2017 and 2016:
Warrants
|
|
Weighted
Average Exercise Price
|
Balance at December
31, 2015
|
22,227,876
|
$
0.64
|
Granted
|
3,520,000
|
$
0.25
|
Exercised
|
(9,835,666
)
|
$
0.31
|
Forfeited
|
-
|
-
|
Balance at December 31,
2016
|
15,912,210
|
$
0.76
|
Granted
|
134,000
|
*
|
Exercised
|
(998,079
)
|
$
0.75
|
Exercised
(re-priced to $0.00)
|
(14,692,500
)
|
$
0.00
|
Forfeited
|
(221,631
)
|
|
Balance
at December 31, 2017
|
134,000
|
$
0.27
|
Exercisable
December 31, 2017
|
134,000
|
$
0.27
|
*Discount of 15% of
CPWR closing price on OTCQB the day before the warrant is
exercised.
The
aggregate intrinsic value represents the excess amount over the
exercise price optionees would have received if all options had
been exercised on the last business day of the period indicated,
based on the Company’s closing stock price of $6,432 for such
day.
On,
January 1, 2015, we issued to our vice president shareholder
relations three-year options to purchase an aggregate of 100,000
shares of common stock at $0.75 per share. The options vest in four
segments of 25,000 shares per quarter commencing on: March 31,
2015; June 30, 2015; September 30, 2015, and December 31, 2015. The
options expire on January 1, 2018. We calculated the fair value of
the options by using the Black-Scholes option-pricing model with
the following weighted average assumptions: no dividend yield for
all the years; expected volatility of 54%; risk-free interest rate
of 0.25%; and an expected life of one year. The fair value of the
options was $22,440 or $0.2244 per option. These options were fully
exercised at $0.00 upon BOD approval during the year ended December
31, 2017.
The
following table summarizes all options outstanding and exercisable
for the years ended December 31, 2017 and 2016:
|
|
|
|
|
|
Balance
at December 31, 2015
|
100,000
|
$
0.75
|
Granted
|
-
|
-
|
Exercised
|
-
|
-
|
Forfeited
|
-
|
-
|
Balance at December 31, 2016
|
100,000
|
$
0.75
|
Granted
|
-
|
|
Exercised
|
(100,000
)
|
$
0.75
|
Forfeited
|
-
|
|
Balance
at December 31, 2017
|
-
|
|
Exercisable
December 31, 2017
|
-
|
|
NOTE 6 – INCOME TAX
On
December 22, 2017, President Trump signed into law the Tax Cuts and
Jobs Act (the “TCJA”) that significantly reforms the
Internal Revenue Code of 1986, as amended (the “Internal
Revenue Code”). The TCJA, among other things, contains
significant changes to corporate taxation, including reduction of
the corporate tax rate from a top marginal rate of 35% to a flat
rate of 21%, effective as of January 1, 2018; limitation of the tax
deduction for interest expense; limitation of the deduction for net
operating losses to 80% of current year taxable income and
elimination of net operating loss carrybacks, in each case, for
losses arising in taxable years beginning after December 31, 2017
(though any such tax losses may be carried forward indefinitely);
modifying or repealing many business deductions and credits,
including reducing the business tax credit for certain clinical
testing expenses incurred in the testing of certain drugs for rare
diseases or conditions generally referred to as “orphan
drugs”; and repeal of the federal Alternative Minimum Tax
(“AMT”).
The
staff of the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 118 to address the application of GAAP in
situations when a registrant does not have the necessary
information available, prepared or analyzed (including
computations) in reasonable detail to complete the accounting for
certain income tax effects of the TCJA. In connection with the
initial analysis of the impact of the TCJA, the Company remeasured
its deferred tax assets and liabilities based on the rates at which
they are expected to reverse in the future, which is generally 21%.
The remeasurement of the Company's deferred tax assets and
liabilities was offset by a change in the valuation
allowance.
The
Company is still in the process of analyzing the impact to the
Company of the TCJA. Where the Company has been able to make
reasonable estimates of the effects related to which its analysis
is not yet complete, the Company has recorded provisional amounts.
The ultimate impact to the Company’s consolidated financial
statements of the TCJA may differ from the provisional amounts due
to, among other things, additional analysis, changes in
interpretations and assumptions the Company has made, additional
regulatory guidance that may be issued, and actions the Company may
take as a result of the TCJA. The accounting is expected to be
complete when the Company’s 2017 U.S. corporate income tax
return is filed in 2018.
A
reconciliation of income tax expense and the amount computed by
applying the statutory federal income tax rate of 34% to the income
before provision for income taxes is as follows:
|
For
the Years Ended December 31
|
|
|
|
Statutory rate
applied to loss before income taxes
|
$
(5,903,355
)
|
$
(2,479,492
)
|
Increase (decrease)
in income taxes results from:
|
|
|
Nondeductible
permanent differences
|
4,446,014
|
1,251,476
|
Change
in tax rate estimates
|
3,566,781
|
-
|
Change
in valuation allowance
|
(2,109,440
)
|
1,228,016
|
Income
tax expense (benefit)
|
$
-
|
$
-
|
Deferred
income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of our deferred tax assets and
liabilities are as follows:
|
For
the Years Ended December 31
|
Deferred tax
assets
|
|
|
Depreciation
and impairment
|
$
2,100,958
|
$
2,931,956
|
Operating loss
carryforwards
|
6,705,907
|
7,984,349
|
Gross deferred tax
assets
|
8,806,865
|
10,916,305
|
Valuation
allowance
|
(8,806,865
)
|
(10,916,305
)
|
Net
deferred income tax asset
|
$
-
|
$
-
|
We have
net operating loss carryforwards for income tax purposes of
approximately $23,200,000. This loss is allowed to be offset
against future income. The tax benefits relating to all timing
differences have been fully reserved for in the valuation allowance
account due to the substantial losses incurred through December 31,
2017. The change in the valuation allowance for the years ended
December 31, 2017 and 2016 was an increase (decrease) of
($2,109,440) and $1,228,016, respectively.
Internal
Revenue Code Section 382 imposes limitations on the availability of
a company’s net operating
losses after certain ownership
changes occur. The Section 382 limitation is based upon
certain
conclusions
pertaining to the dates of ownership changes and the value of the
company on the dates of
the ownership changes. It was
determined that an ownership change occurred. The amount of our net
operating losses incurred prior to the ownership change is limited
based on the value of
the Company on the date of the
ownership change. Management has not determined the amount of
net
operating losses
generated prior to the ownership change available to offset taxable
income subsequent to
the ownership change.
NOTE
7 – COMMITMENTS AND CONTINGENCIES
Commitments
On
January 1, 2011, we entered into a five-year employment agreement
with an individual to serve as our chief executive officer. The
employment agreement provides for successive one-year term renewals
unless it is expressly cancelled by either party 100 days prior to
the end of the term. Under the agreement, the chief executive
officer will receive an annual salary of $350,000, a car allowance
of $12,000, and Company-paid health insurance. The agreement also
provides for bonuses equal to one times annual salary plus 500,000
shares of common stock for each additional project that generates
$25 million or more revenue to us. The chief executive officer is
entitled to receive severance pay in the lesser amount of three
years’ salary or 100% of the remaining salary if the
remaining term is less than three years.
On June
29, 2017, the Board of Directors approved extending the employment
agreements for the chief executive officer and the senior financial
advisor for an additional five (5) years. The salary and other
compensation shall be increased to account for inflation since the
original employment agreements were executed and became effective
June 30, 2017.
On June
29, 2017, the Board of Directors approved a stock bonus for the
Chief Executive Officer and Sr Financial Advisor of 258,476 and
150,590 shares of common stock, respectively at fair value of
$920,399. These shares were issued on November 1,
2017.
The
Company entered into a settlement agreement to convert outstanding
payable balance in the amount of $180,000 into 360,000 share at
$0.50 per share. These shares were recorded at fair value of
$556,875. The company recorded a loss on settlement of debt of
$376,875 on settlement date.
During
the year ended December 31, 2017, we issued 3,887,802 shares of
common stock to consultants for services and commitment fee with
fair value of $2,902,764.
On
December 11, 2017, the Company entered into an equity purchase
agreement with L2 Capital, LLC for up to $15,000,000. On January 5,
2018, we issued 1,714,285 shares of common stock valued at $514,286
as a commitment fee in connection with the agreement. The shares to
be issued pursuant to this agreement were covered by a Form S-1
Registration Statement approved the Securities and Exchange
Commission (SEC) and effective on January 29, 2018. As of the date
of this filing, no “put” options were
exercised.
Contingencies
On June
29, 2015, with the Baha Mar resort an estimated 95% complete, Baha
Mar Ltd., the developer of the resort, filed for Chapter 11
bankruptcy protection in U.S. Bankruptcy Court in Wilmington,
Delaware. Baha Mar Ltd. is the entity with which our subsidiary
entered into the Energy Services Agreement to build a SWAC system.
The underlying cause of the filing was a commercial dispute between
Baha Mar Ltd. and its construction company. Neither we nor our
construction company is a party to the proceeding. At an early
stage of the proceedings, the U.S. Bankruptcy Court in Wilmington,
Delaware dismissed the action on September 15, 2015, agreeing with
the Bahamas Supreme Court in finding that the case should properly
be decided in Bahamian courts.
The
case is proceeding in the Bahamas Supreme Court with the September
2015 appointment of provisional liquidators (Bahamas-based KRyS
Global and UK-based AlixPartners) for the specific purpose of
preserving the assets of the unfinished resort pending a resolution
of the dispute. In November 2015, the Bahamas Supreme Court named
Deloitte & Touche LLP as a receiver to Baha Mar Ltd. at the
request of the Export-Import Bank of China, which is a primary
creditor having made a $2.45 billion loan to Baha Mar Ltd. in 2010.
In March 2016, the receiver engaged Colliers International, an
international real estate firm, to actively market the resort to a
new owner.
The
June 2015 bankruptcy of the developer constituted an event of
default under the Energy Services Agreement, but we have elected
not to assert that default in favor of attempting to pursue the
project. Under the terms of our Energy Services Agreement, in the
event of default of the developer, we have the right to recover
damages, including the amount invested in the project ($7.9 million
at December 31, 2015), plus any fees earned at the time of breach
and other direct damages, limited in aggregate amount to $25.0
million. The Energy Services Agreement is binding on any successor
developer that takes over the development and finished
construction.
We
believe that even though bankruptcy courts have substantial powers
to void contracts, the Energy Services Agreement is likely to
survive (either in full effect or with limited modifications) due
to the energy requirements of the project, but there can be no
guarantee that we will realize any future benefits from the
project.
Our
Baha Mar project will be delayed until the new owner takes control
of the resort and our ESA contract is either terminated or assumed
by the new ownership. According to Bahamas prime minister Perry
Christie, the Bahamas' long-delayed Baha Mar Resort will open under
the ownership of Hong Kong-based Chow Tai Fook Enterprises (CTFE),
whose companies include luxury-hotel operator Rosewood
Hotels.
We have
elected not to intervene in the Bahamas proceeding, which we
believe is in the nature of an equitable proceeding to preserve the
project and seek to reorganize so that the project can be completed
rather than liquidated. Our strategy is based on our conclusion
that the completion of the resort by any new owner will require it
to address the lack of capacity of the current electrical grid to
provide air conditioning through conventional means and the
projected energy cost savings derived from our SWAC system as
compared to conventional electricity at prevailing rates, even if
its lack of reliability in the Bahamas is discounted. By relying on
this strategy, we believe we are avoiding significant legal
representation costs. Further, we believe that we would have no
legal position to differentiate us from other unsecured creditors
with an aggregate of about $2.0 billion in claims.
Litigation
From
time to time, we are involved in legal proceedings and regulatory
proceedings arising from operations. We establish reserves for
specific liabilities in connection with legal actions that
management deems to be probable and estimable.
In
early 2016, three Principals from a family office based in Memphis,
Tennessee contacted us about investing in Ocean Thermal Energy
Corporation. After conducting extensive due diligence on our
Company and its technology, prospects, Officers, and Directors, the
investors presented us with a Term Sheet to invest $42.4 million in
our Company. The Investors insisted on exclusivity, which prevented
us from continuing our fundraising efforts. The Investors also
insisted on confidentiality, preventing us from communicating their
offer until closing. We, along with our lawyers, engaged in our own
due diligence on the Investors, and found that the Investors were
known in the Memphis community as having substantial net worths,
and good reputations in the financial industry. The point person
for the Investors is a Certified Financial Planner as well as a
licensed broker and investment advisor. Based on our due diligence,
we were comfortable and excited to move forward with these
Investors.
Despite
the Investors’ promises, the Investors did not live up to
their commitment and did not fund our Company as promised. In
February of 2017, we instructed our attorneys to pursue the matter
through the Courts and to seek significant damages from all
potentially responsible parties. On May 16, 2017, we filed a civil
suit in the United States District Court in the Western District of
Tennessee.
On
March 12, 2018, the Company reached a settlement of the claims
at issue in Ocean Thermal Energy Corp. v. Robert Coe et al.,
Case No. 2:17-cv-02343SHL-cgc, before the United States District
Court for the Western District of Tennessee. The settlement
requires the defendants to make a payment of $1,075,000 within 30
days and each side to pay its own legal costs.
NOTE
8 – RELATED-PARTY TRANSACTIONS
For the
year ended December 31, 2017, we paid rent of $95,000 to a company
controlled by our chief executive officer under an operating lease
agreement.
On
February 16, 2017, the due date of the Jeremy P. Feakins &
Associates, LLC, an investment entity that is majority-owned by
Jeremy Feakins, the Company’s director, chief executive
officer, and chief financial officer note payable in the amount of
$2,265,000 issued on January 31, 2015, was extended to December 31,
2018. On August 15, 2017, $618,500 of the note payable was
converted into 618,500 shares of common stock. In addition, they
converted accrued interest in the amount of $207,731 for 207,731
shares of common stock. The remaining balance on the note payable
as of December 31, 2017 is $1,137,500 and the accrued interest is
$399,692.
On
March 6, 2018, the due date of the related party note payable in
the amount of $1,000,000 issued on February 3, 2012, was extended
to December 31, 2018.
On
March 9, 2017, we issued a promissory note payable of $200,000 to a
related party in which our chief executive officer is an officer
and director. The note bears interest of 10% and is due and payable
within 90 days after demand. The balance outstanding on December
31, 2017, is $177,000.
On
March 31, 2017, we made a repayment of note payable to a related
party in the amount of $25,000.
On May
8, 2017, JPF Venture Group, Inc. (“JPF”), an investment
entity that is majority-owned by Jeremy Feakins, the
Company’s director, chief executive officer, and chief
financial officer transferred 148,588 shares of common stock for
$111,440 to the Company to fulfill an over commitment of
“D” warrants.
On June
5, 2017, a note holder elected to convert a $25,000 convertible
note payable for 1,806,298 shares of common stock ($0.014 per
share).
On
September 8, 2017, JPF Venture Group, Inc. (“JPF”), an
investment entity that is majority-owned by Jeremy Feakins, the
Company’s director, chief executive officer, and chief
financial officer, elected to convert $50,000 in notes payable for
3,612,596 shares of common stock at a conversion rate of $0.014. In
addition, accrued interest in the amount of $6,342 was converted to
458,198 shares.
On
November 6, 2017, the Company entered into an agreement with a
promissory note with JPF Venture Group, Inc. (“JPF”),
an investment entity that is majority-owned by Jeremy Feakins, the
Company’s director, chief executive officer, and chief
financial officer, to loan the Company up to $2,000,000. The terms
of the note are as follows: (i) interest is payable at 10% per
annum; (ii) all unpaid principal and all accrued and unpaid
interest shall be due and payable at the earliest of (a) resolution
of the Memphis litigation; (b) June 30, 2018; or (c) when the
company is otherwise able to pay. As of December 31, 2017, the
outstanding balance was $641,568 and the accrued interest was
$14,372.
On
November 8, 2017, Jeremy P. Feakins & Associates, LLC, an
investment entity that is majority-owned by Jeremy Feakins, the
Company’s director, chief executive officer, and chief
financial officer, a Series B note holder, elected to convert
$50,000 in notes payable for 50,000 shares of common stock at a
conversion rate of $1.00. In addition, they converted accrued
interest in the amount of $16,263 for 16,263 shares.
As part
of the merger between Ocean Thermal Energy Corporation and TetriDyn
Solutions, Inc. (“TDYS”) on May 8, 2017, the Company
assumed the loans made to “TDYS” by JPF Venture Group,
Inc., an investment entity that is majority owned by Jeremy
Feakins, the Company’s director, chief executive officer, and
chief financial officer. As of December 31, 2017, the outstanding
balance of all loans was $581,880.
NOTE 9 – SUBSEQUENT EVENTS
On
December 11, 2017, the Company entered into an equity purchase
agreement with L2 Capital, LLC for up to $15,000,000. We issued
1,714,285 shares of common stock valued at $514,286 as a commitment
fee in connection with the agreement. The shares to be issued
pursuant to this agreement were covered by a Form S-1 Registration
Statement approved the Securities and Exchange Commission (SEC) and
effective on January 29, 2018. As of the date of this filing, no
“put” options were exercised.
On
December 28, 2017, we entered into a Note and Warrant Purchase
Agreement pursuant to which we issued a series of unsecured
promissory notes (the “Notes”) to accredited investors.
See Note 5 – Convertible Notes Payable and Notes Payable.
Subsequent to December 31, 2017, the company has raised an
additional $444,156 and issued Warrants to purchase an additional
114,500 shares of common stock for a total of 248,500 shares. On
January 16, 2018, 28,000 warrants were exercised at an average
value of $0.2805 per share for a total of $7,854. On February 27,
2018, 2,000 warrants were exercised at an average value of $0.1785
per share for a total of $357.
On
February 15, 2018, the Company entered into an agreement with L2
Capital, LLC (L2), a Kansas limited liability company, for a loan
of up to $565,555, together with interest at the rate of eight
percent (8%) per annum (with the understanding that the initial six
months of such interest of each tranche funded shall be
guaranteed), at maturity or upon acceleration or otherwise, as set
forth herein (the “Note”). The consideration to the
Company for this Note is up to $500,000 due to the prorated
original issuance discount of up to $55,555 (the “OID”)
and a $10,000 credit for L2’s transactional expenses. L2
shall pay $100,000 of the Consideration (the “First
Tranche”) within a reasonable amount of time of the full
execution of the transactional documents related to this Note. At
the closing of the First Tranche, the outstanding principal amount
under this Note shall be $121,111, consisting of the First Tranche
plus the prorated portion of the OID (as defined herein) and a
$10,000 credit for L2’s transaction fees.
As of the date of
this filing, The Company has received two tranches totaling
$204,444, which were allocated as follows: Original Issuance
Discount - $19,444; L2’s Transaction Fee - $10,000;
Broker-Dealer’s Fee - $14,000; Net Proceeds to Company -
$161,000.
The Note dated February 16, 2017 to Jeremy P. Feakins &
Associates, LLC, an investment entity that is majority-owned by
Jeremy Feakins, the Company’s director, chief executive
officer, and chief financial officer was reduced by $15,000 for the
payment of principal on January 4, 2018, reducing the outstanding
balance to $1,122,500.
In late 2016, we entered into a
binding agreement with an investor group from Memphis, Tennessee to
invest a substantial amount of capital into our company (the
“Memphis Investors”). As part of the agreement, we were
restricted from making changes to our capital structure and,
consequently, suffered significant financial damages when the
investors did not honor their commitment and defaulted on the
agreement. On May 16, 2017, we filed a civil suit in the United
States District Court in the Western District of Tennessee.
On March 12, 2018, the Company reached a settlement of the
claims at issue in Ocean Thermal Energy Corp. v. Robert Coe et
al., Case No. 2:17-cv-02343SHL-cgc, before the United States
District Court for the Western District of Tennessee. The
settlement requires the defendants to make a payment of $1,075,000
within 30 days and each side to pay its own legal
costs.
PART II
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution
The
following table sets forth the costs and expenses payable by us in
connection with the issuance and distribution of the securities
being registered hereunder. The selling stockholder will bear no
expenses associated with this offering except for any broker
discounts and commissions or equivalent expenses and expenses of
the selling stockholder’s legal counsel applicable to the
sale of its shares. All of the amounts shown are estimates, except
for the U.S. Securities and Exchange Commission (“SEC”)
registration fees.
Item
|
|
SEC registration
fee
|
$
1,867.50
|
Legal fees and
expenses
|
15,000
|
Accounting fees and
expenses
|
10,000
|
Miscellaneous fees
and expenses
|
3,132.50
|
Total
|
$
30,000
|
Item 14. Indemnification of Directors and Officers
Nevada
law permits a company to indemnify its directors and officers,
except for any act of dishonesty. We have provided in our bylaws
for the indemnification of our officers and directors against
expenses actually and necessarily incurred in connection with the
defense of any action, suit, or proceeding in which they are a
party by reason of their status as an officer or director, except
in cases of negligence or misconduct in the performance of
duty.
Our
articles of incorporation limit, to the fullest extent permitted by
Nevada Law, the personal liability of our officers and directors
for monetary damages resulting from breaches of their fiduciary
duty, except for damages resulting from acts or omissions that
involve intentional misconduct, fraud, a knowing violation of law,
or the inappropriate payment of dividends in violation of Nevada
Revised Statutes.
The
above discussion of our bylaws and Nevada law is not intended to be
exhaustive and is respectively qualified in its entirety by such
bylaws and applicable Nevada law.
To the
extent that our directors and officers are indemnified under the
provisions contained in our bylaws, Nevada law, or contractual
arrangements against liabilities arising under the Securities Act
of 1933, as amended (the “Securities Act”), we have
been advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Securities Act and is,
therefore, unenforceable.
Item 15. Recent Sales of Unregistered Securities
On
March 19, 2015, we exchanged convertible notes issued in 2010,
2011, and 2012, payable to our officers and directors in the
aggregate principal amount of $320,246, plus accrued but unpaid
interest of $74,134, into a single, $394,380 consolidated
convertible note. The consolidated convertible note was assigned to
JPF Venture Group, Inc. (“JPF”), our principal
stockholder and an investment entity that is majority-owned by
Jeremy Feakins, our director, chief executive officer, and chief
financial officer. The new consolidated note was convertible to
common stock at $0.025 per share, the approximate market price of
our common stock as of the date of issuance, but the note was
amended to remove the conversion option in February 2017. The note
bears interest at 6% per annum and is due and payable within 90
days after demand.
On
March 23, 2015, we entered into an Investment Agreement dated March
12, 2015, with JPF and Antoinette Knapp Hempstead and the estate of
her late husband, David W. Hempstead (together, the
“Hempsteads”). Before entering into this agreement,
there was no material relationship between us, the Hempsteads, and
our respective affiliates, on the one hand, and JPF and its
affiliates, on the other. Under the terms of the Investment
Agreement, JPF purchased for $100,000 in cash 29,372,277 shares of
our common stock at $0.003405 per share (the “JPF
Stock”) and a warrant to purchase up to 1,033,585 shares of
our common stock at an exercise price of $0.003 per share. The JPF
Stock represented a 55% ownership interest by JPF in our common
stock, without giving effect to the issuance of additional shares
of our common stock on the conversion of outstanding convertible
notes.
On
April 7, 2015, we issued an unsecured convertible promissory note
in the principal amount of $50,000 to an unrelated party. The note
bears interest of 10% and was due on April 17, 2017. The note
holder agreed to extend the maturity date to April 7, 2019. The
note and accrued interest can be converted into our common stock at
a conversion rate of $0.75 per share at any time prior to the
repayment.
On June
23, 2015, we borrowed $50,000 from JPF pursuant to a promissory
note. We received $25,000 on July 31, 2015, and the remaining
$25,000 on August 18, 2015. The terms of the note are as follows:
(i) interest is payable at 6% per annum; (ii) the note is
payable 90 days after demand; and (iii) the payee is
authorized to convert part or all of the note balance and accrued
interest, if any, into shares of our common stock at the rate of
one share each for $0.03 of principal amount of the note. This note
was converted on September 8, 2017.
On
November 23, 2015, we borrowed $50,000 from JPF pursuant to a
promissory note. We received $37,500 before December 31, 2015, and
the remaining $12,500 was received after the year-end. The terms of
the note are as follows: (i) interest is payable at 6% per
annum; (ii) the note is payable 90 days after demand; and
(iii) the payee is authorized to convert part or all of the
note balance and accrued interest, if any, into shares of our
common stock at the rate of one share each for $0.03 of principal
amount of the note. This conversion share price was adjusted to
$0.01384 for the reverse stock splits.
On
February 25, 2016, we borrowed $50,000 from JPF pursuant to a
promissory note. The terms of the note are as follows:
(i) interest is payable at 6% per annum; (ii) the note is
payable 90 days after demand; and (iii) the payee is
authorized to convert part or all of the note balance and accrued
interest, if any, into shares of our common stock at the rate of
one share for each $0.03 of principal amount of the note. The note
was amended to remove the conversion option in February
2017.
On May 20, 2016, we issued a promissory note in the amount of
$50,000 to JPF. The terms of the note are as follows:
(i) interest is payable at 6% per annum; (ii) the note is
payable 90 days after demand; and (iii) the payee was
authorized to convert part or all of the note balance and accrued
interest, if any, into shares of our common stock at the rate of
one share for each $0.03 of principal amount of the note. The note
was amended to remove the conversion option in February
2017.
On
October 20, 2016, we issued a convertible note in the principal
amount of $12,500, payable to JPF. The terms of the note are as
follows: (i) interest is payable at 6% per annum; (ii) the note is
payable 90 days after demand; and (iii) payee was authorized to
convert part or all of the note balance and accrued interest, if
any, into shares of our common stock at the rate of one share each
for $0.03 of principal amount of the note.
The note was amended to remove the
conversion option in February 2017.
On
October 20, 2016, we borrowed $12,500 from an independent director
pursuant to a promissory note. The terms of the note are as
follows: (i) interest is payable at 6% per annum; (ii) the note is
payable 90 days after demand; and (iii) the payee is authorized to
convert part or all of the note balance and accrued interest, if
any, into shares of our common stock at the rate of one share for
each $0.03 of principal amount of the note. This conversion share
price was adjusted to $0.01384 for the reverse stock
splits.
On
December 8, 2016, we completed the purchase of all assets of JPF
used primarily in connection with the development of a sustainable
living community by creating an ecologically sustainable
“EcoVillage” powered by 100% fossil-fuel free
electricity, buildings cooled by energy efficient and chemical free
systems, and on-site water produced for drinking, aquaculture, and
agriculture, pursuant to the terms of an Asset Purchase Agreement.
Under the terms of the purchase agreement, the purchase price for
the assets was the issuance to JPF of 5,000 shares of our common
stock, after giving effect to an adjustment for stock
splits.
On
December 21, 2016, we borrowed $25,000 from JPF pursuant to a
promissory note. The terms of the note are as follows:
(i) interest is payable at 6% per annum; (ii) the note is
payable 90 days after demand; and (iii) the payee is
authorized to convert part or all of the note balance and accrued
interest, if any, into shares of our common stock at the rate of
one share for each $0.03 of principal amount of the note. This
conversion share price was adjusted to $0.01384 for the reverse
stock splits.
For the
year ended December 31, 2017, individuals exercised Series D
warrants to purchase 998,079 shares of common stock at a price of
$0.75 per share for cash totaling $748,535. These warrants were
related to BBNA merger.
For the
year ended December 31, 2017, we issued 2,173,517 shares of common
stock for services performed with a fair value of
$2,388,478.
For the
year ended December 31, 2017, we issued 1,714,285 shares of common
stock to L2 Capital, LLC with a fair value of $514,286 under the
equity purchase agreement (see Note 9).
For the
year ended December 31, 2017, we issued 11,250 shares of common
stock pursuant to our private placement memorandum with a fair
value of $45,000 ($4.00 per share).
On
May 8, 2017, JPF transferred 148,588 shares of common stock for
$111,440 to us to fulfill an over commitment of “D”
warrants.
On
May 9, 2017, we issued 536,490 shares of common stock to the former
shareholders of TetriDyn Solutions, Inc. for the assumption of
$617,032 of accrued expenses and $1,015,506 of convertible notes
and notes payable from related and unrelated parties. We recorded a
debit of $1,628,026 to the additional paid-in capital as part of
the recapitalization.
On
June 5, 2017, a note holder elected to convert a $25,000
convertible note payable for 1,806,298 shares of common stock
($0.014 per share).
On
June 29, 2017, the board of directors approved a stock bonus for
the Chief Executive Officer and Sr. Financial Advisor of 258,476
and 150,590 shares of common stock, respectively, at fair value of
$920,399. These shares were issued on November 1,
2017.
On
August 3, 2017, we entered into a compensation agreement with our
former legal counsel wherein we agreed to pay an outstanding legal
bill in the amount of $197,950 by issuance of 65,000 shares covered
by a registration statement on Form S-8 filed with the SEC on
August 25, 2017. The former legal counsel may, at any time and from
time to time following the filing of the Form S-8, elect to call
for the issuance of shares as payment for the outstanding legal
bill. As the shares are sold into the market, the outstanding
balance will be reduced. On October 17, 2017, we issued 65,000
shares of common stock pursuant to the agreement with a fair value
of $146,250. As of December 31, 2017, our former legal counsel has
sold 704 shares with a total proceeds of $1,133. As of December 31,
2017, the fair value of the 64,296 shares of common stock was
$20,575 and $124,542 was recorded as a change in fair value of
liability.
On
August 15, 2017, Series B note holders elected to convert $316,666
in notes payable for 316,666 shares of common stock at a conversion
rate of $1.00. In addition, they converted accrued interest in the
amount of $120,898 for 120,898 shares of common stock. The shares
were recorded at fair value of $1,165,892. We recorded a loss on
the settlement of debt of $728,328 on the conversion
date.
On
August 15, 2017, Clean Energy note holders elected to convert
$166,800 in notes payable for 139,000 shares of common stock at a
conversion rate of $1.20. In addition, they converted accrued
interest in the amount of $48,866 for 40,722 shares of common
stock.
On
August 15, 2017, Jeremy P. Feakins & Associates, LLC, an
investment entity that is majority-owned by Jeremy Feakins, our
director, chief executive officer, and chief financial officer,
elected to convert $618,500 in notes payable for 618,500 shares of
common stock at a conversion rate of $1.00. In addition, it
converted accrued interest in the amount of $207,731 for 207,731
shares of common stock.
On
September 8, 2017, JPF elected to convert $50,000 in notes payable
for 3,612,596 shares of common stock at a conversion rate of
$0.014. In addition, it converted accrued interest in the amount of
$6,342 for 458,198 shares of common stock.
We
entered into a settlement agreement to convert outstanding payable
balance totaling $180,000 into 360,000 shares of common stock. The
shares were recorded at fair value of $556,875. We recorded a loss
on settlement of debt of $376,875 on settlement date.
On
November 8, 2017, Jeremy P. Feakins & Associates LLC, an
investment entity that is majority-owned by Jeremy Feakins, our
director, chief executive officer, and chief financial officer,
elected to convert $50,000 of Series B notes payable into 50,000
shares of common stock at a conversion rate of $1.00. In addition,
accrued interest of $16,263 was converted into 16,263 shares of
common stock.
As a
part of our agreement with the Memphis Investors, the board
re-priced 14,792,500 warrants and 100,000 options to $0.00 and
exercised the warrants and options and issued 14,792,500 shares of
common stock. These warrants had a fair value of $6,769,562. Per
ASC Topic 718, this exchange is treated as a modification. The
incremental value of $6,769,562 measured as the excess of the fair
value of the modified award over the fair value of the original
award immediately before the modification using the Black-Scholes
option pricing model was expensed fully when they were
exercised.
During
the third quarter of 2017, we issued $80,000 in convertible
promissory notes in a private placement offering. The terms of each
note are as follows: (i) interest is payable at 6% per annum;
(ii) the note is payable two years after purchase; (iii) and
all principal and interest will automatically convert on the
Conversion Maturity Date into shares of our common stock at a
conversion price of $4.00 per share, as long as the closing share
price of our common stock on the trading day immediately preceding
the Conversion Maturity Date is at least $4.00, as adjusted for
stock splits, stock dividends, reclassification, and the like. If
the price of our shares on such date is less than $4.00 per share,
the note (principal and interest) will be repaid in
full.
On
December 18, 2017, we entered into an equity purchase agreement
with L2 Capital, LLC for its purchase of up to $15,000,000 worth of
shares of our common stock over a period terminating on the earlier
of the date on which L2 Capital has purchased shares under the
agreement for an aggregate purchase price of $15,000,000 or
December 11, 2020. Upon the execution of this agreement, we issued
1,714,285 shares of common stock valued at $514,286 as a commitment
fee in connection with the agreement. L2 Capital will pay a
purchase price equal to 85% of the market price (which is defined
as the lowest traded price on the OTCQB Marketplace, as reported by
Bloomberg Finance L.P.) during the five consecutive trading days
including and immediately prior to the “put date,” or
the date on which the applicable put notice is delivered to L2
Capital. In order to exercise the put, certain conditions must be
met at each put notice date, including: (i) we must have an
effective registration statement; (ii) our common stock must be
deposit/withdrawal at custodian (“DWAC”) eligible;
(iii) the minimum price must exceed $0.01; and (iv) the number
of shares to be purchased by L2 Capital may not exceed the number
of shares that, when added to the number of shares of our common
stock then beneficially owned by L2 Capital, would exceed 4.99% of
our shares of common stock outstanding.
In
December 2017, we entered into a note and warrant purchase
agreement pursuant to which we issued a series of unsecured
promissory notes (the “Notes”) to accredited investors,
in the aggregate principal amount of $979,156 and warrants to
purchase 262,000 shares of our common stock, as of September 30,
2018. The Notes accrue interest at a rate of 10% per annum payable
on a quarterly basis and are not convertible into shares of our
capital stock. The Notes are payable, within five business days
after receipt of funds from L2 Capital under the Equity Purchase
Agreement, in an amount equal to 20% of the total funds received by
us from L2 Capital payable on a pro rata basis to all holders of
the Notes. We may prepay the Notes in whole or in part, without
penalty or premium, on or before the maturity date of July 30,
2019. The exercise price per share of the warrants is equal to 85%
of the closing price of our common stock on the day immediately
preceding the exercise of the relevant warrant, subject to
adjustment as provided in the warrant. The warrant includes a
cashless net exercise provision whereby the holder can elect to
receive shares equal to the value of the warrant minus the fair
market value of shares being surrendered to pay the exercise
price.
On
February 15, 2018, we entered into an agreement with L2 Capital for
a loan of up to $565,555, together with interest at the rate of 8%
per annum, which consists of up to $500,000 to us and a prorated
original issuance discount of $55,555 and $10,000 for transactional
expenses to L2 Capital. L2 Capital has the right at any time to
convert all or any part of the note into fully paid and
nonassessable shares of our common stock at the fixed conversion
price, which is equal to $0.50 per share; however, at any time on
or after the occurrence of any event of default under the note, the
conversion price will adjust to the lesser of $0.50 or 65%
multiplied by the lowest volume weighted average price of the
common stock during the 20-trading-day period ending, in L2
Capital’s sole discretion on each conversion, on either the
last complete trading day prior to the conversion date or the
conversion date. In addition, we also issued warrants to purchase
56,073 shares of common stock in accordance with a nonexclusive
finder’s fee arrangement. During the quarter ended September
30, 2018, L2 Capital converted $18,190 of the note into 400,000
shares of common stock at an average conversion price of $0.045 per
share.
On May
22, 2018, we executed a convertible note with Collier Investments,
LLC, an unaffiliated California company, in the amount of $281,250
with an interest rate of 12% per annum. The maturity date of the
note is the earlier of: (i) seven months after the issuance date;
or (ii) the date on which we consummate a capital-raising
transaction for $6,000,000 or more primarily from the sale of
equity in the company. The note, or any portion of it, can be
convertible by the holder into shares of our common stock at any
time after the issuance date. The conversion price is equal to the
lesser of 80% multiplied by the price per share paid by the
investors in a “qualified financing” (as defined in the
note) or $0.20, subject to certain adjustments. At any time within
a 90-day period following the issuance date, we have the option to
prepay 145% of the outstanding balance. There was an original issue
discount and transaction fees of $36,250, yielding net proceeds of
$245,000 to us. In addition, we paid a finder’s fee of
$20,914.
For the
nine months ended September 30, 2018, we issued 673,345 shares of
common stock for services performed to unaffiliated
parties.
For the
nine months ended September 30, 2018, we sold 1,500,000 of common
stock to L2 Capital, LLC for cash per the equity agreement with a
fair value of $81,140 in cash, net of offering cost.
For the
nine months ended September 30, 2018, note holders elected to
exercise warrants to purchase 39,000 shares of common stock for
$9,520 in
cash.
For the
nine months ended September 30, 2018, we issued 400,000 shares of
common stock for to L2 Capital for the conversion of a portion of
L2 Capital’s notes payable in the amount of
$18,190.
For the
nine months ended September 30, 2018, we sold 400,000 shares of
common stock for $40,000 in cash.
On
September 19, 2018, we executed a note payable for $10,000 with an
unrelated party that bears interest at 6% per annum, which is due
quarterly beginning as of September 30, 2018. The maturity date for
the note is three years after date of issuance. In addition, the
lender received warrants to purchase 2,000 shares of common stock
upon signing the promissory note. The warrant can be exercised at a
price per share equal to a 15% discount from the price of common
stock on the last trading day before such purchase.
For the
nine months ended September 30, 2018, we issued warrants to
purchase 108,573 shares of common stock to Craft
Capital.
Subsequent to
September 30, 2018, we executed four put options for L2 Capital to
purchase 800,000 shares of common stock for $25,764 in cash, net of
offering cost.
Subsequent to
September 30, 2018, we issued warrants to purchase 16,500 shares of
our common stock to Craft Capital as a finder’s fee for debt
and equity transactions between L2 Capital and us. The warrants
have exercise prices ranging from $0.03205 to $0.034 per share and
are exercisable for a period of five years after the closing of the
placement. None of the warrants been exercised.
Subsequent to
September 30, 2018, we issued 3,600,000 shares of common stock to
L2 Capital for conversion of a portion of L2 Capital’s notes
payable in the amount of $95,887.
Subsequent to
September 30, 2018, we issued 393,512 shares of common stock for
$13,980 in seven transactions with investors, consisting of 50,000
shares at $0.10 per share and three transactions for the remaining
shares at $0.0262 per share.
During
November 2018, our chief executive officer, chief financial
officer, and a director purchased 190,840 shares of common stock
for $5,000 at $0.062 per share in three separate
transactions.
On
December 14, 2018, L2 Capital LLC purchased our note payable from
Collier Investments, LLC. We issued 400,000 shares of common stock
to L2 Capital, LLC as commitment shares in connection with the
purchase of the note.
Except
as otherwise noted, the securities in these transactions were sold
in reliance on the exemption from registration provided in Section
4(a)(2) of the Securities Act for transactions not involving any
public offering. Each of the persons acquiring the foregoing
securities was an accredited investor (as defined in Rule 501(a) of
Regulation D) and confirmed the foregoing and acknowledged, in
writing, that the securities must be acquired and held for
investment. All certificates evidencing the shares sold bore a
restrictive legend. No underwriter participated in the offer and
sale of these securities, and no commission or other remuneration
was paid or given directly or indirectly in connection
therewith.
The
proceeds from these sales were used for general corporate
purposes.
Item 16. Exhibits and Financial Statement Schedules
(a)
Exhibits.
The registrant has filed
the exhibits listed on the following exhibit index of this
registration statement.
Exhibit Number*
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Title of Document
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Location
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|
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|
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Item 3
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Articles
of Incorporation and Bylaws
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Articles of
Incorporation of TetriDyn Solutions, Inc., dated May 15,
2006
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Incorporated
by reference from the Current Report on Form 8-K filed June 7,
2006
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Bylaws
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Incorporated
by reference from the Current Report on Form 8-K filed June 7,
2006
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Designation of
Rights, Privileges, and Preferences of Series A Preferred
Stock
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Incorporated
by reference from the Annual Report on Form 10-K for the year ended
December 31, 2009, filed March 31, 2010
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|
|
Certificate of
Amendment to Articles of Incorporation dated May 8,
2017
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|
Incorporated
by reference from the Current Report on Form 8-K filed May 12,
2017
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Item 4
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Instruments
Defining the Rights of Security Holders, including
indentures
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|
|
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Specimen Stock
Certificate
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Incorporated
by reference from the Registration Statement on Form S-8 filed
August 25, 2017
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Item 5
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Opinion
re Legality
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Legal
Opinion of Procopio, Cory, Hargreaves & Savitch,
LLP
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Incorporated
by reference from Amendment No. 1 to the Registration Statement on
Form S-1 filed January 22, 2018
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Item 10
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Material
Contracts
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Loan
Agreement between TetriDyn Solutions, Inc., and Southeast Idaho
Council of Governments, Inc., together with related promissory
notes, dated December 23, 2009
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Incorporated
by reference from the Annual Report on Form 10-K for the year ended
December 31, 2009, filed March 31, 2010
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Consolidated
Promissory Note for $394,350 dated December 31, 2014
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Incorporated
by reference from the Current Report on Form 8-K filed June 8,
2015
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Investment
Agreement between and among TetriDyn Solutions, Inc., Antoinette
Knapp Hempstead, on behalf of herself and the estate of her late
husband, David W. Hempstead, and JPF Venture Group,
Inc.
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Incorporated
by reference from the Current Report on Form 8-K filed June 8,
2015
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Agreement and Plan
of Merger between TetriDyn Solutions, Inc. and Ocean Thermal Energy
Corporation dated March 12, 2015
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Incorporated
by reference from the Current Report on Form 8-K filed June 8,
2015
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Amendment to March
12, 2015 Merger Agreement
|
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Incorporated
by reference from the Quarterly Report on Form 10-Q for the Quarter
Ended June 30, 2015, filed October 2, 2015
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Promissory Note
dated June 23, 2015
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Incorporated
by reference from the Quarterly Report on Form 10-Q for the Quarter
Ended June 30, 2015, filed October 2, 2015
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Exhibit Number*
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Title of Document
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Location
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Agreement to
Terminate Agreement and Plan of Merger between TetriDyn Solutions,
Inc. and Ocean Thermal Energy Corporation
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Incorporated
by reference from the Current Report on Form 8-K filed December 10,
2015
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Promissory Note
dated February 25, 2016
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Incorporated
by reference from the Current Report on Form 8-K filed March 1,
2016
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Promissory Note
dated November 23, 2015
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Incorporated by reference from the Annual Report on Form 10-K for
the year ended December 31, 2015, filed March 30, 2016
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Summary of
Compensatory Arrangements with Directors and Named Executive
Officers
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Incorporated by reference from the Annual Report on Form 10-K for
the year ended December 31, 2015, filed March 30, 2016
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Asset
Purchase Agreement between TetriDyn Solutions, Inc. and JPF Venture
Group, Inc. dated December 8, 2016
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Incorporated
by reference from the Current Report on Form 8-K filed December 12,
2016
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Promissory Note
dated October 20, 2016
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Incorporated
by reference from the Current Report on Form 8-K filed October 20,
2016
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Promissory Note
dated May 20, 2016
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Incorporated
by reference from the Current Report on Form 8-K filed May 24,
2016
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Amendment to
Convertible Promissory Notes dated February 24, 2017
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Incorporated
by reference from the Current Report on Form 8-K filed March 2,
2017
|
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Agreement and Plan
of Merger between TetriDyn Solutions, Inc. and Ocean Thermal Energy
Corporation dated March 1, 2017
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|
Incorporated
by reference from the Current Report on Form 8-K filed March 10,
2017
|
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|
Equity
Purchase Agreement dated December 18, 2017
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|
Incorporated
by reference from the Current Report on Form 8-K filed December 21,
2017
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Registration Rights
Agreement dated December 18, 2017
|
|
Incorporated
by reference from the Current Report on Form 8-K filed December 21,
2017
|
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|
Common
Stock Purchase Warrant dated December 18, 2017
|
|
Incorporated
by reference from the Current Report on Form 8-K filed December 21,
2017
|
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Note
and Warrant Purchase Agreement dated December 28, 2017
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Incorporated
by reference from the Current Report on Form 8-K filed January 3,
2018
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Form of
Unsecured Promissory Note
|
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Incorporated
by reference from the Current Report on Form 8-K filed January 3,
2018
|
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|
Form of
Unsecured Common Stock Purchase Warrant
|
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Incorporated
by reference from the Current Report on Form 8-K filed January 3,
2018
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Securities Purchase
Agreement dated May 22, 2018, between Ocean Thermal Energy
Corporation and Collier Investments, LLC
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Incorporated
by reference from the Current Report on Form 8-K filed June 1,
2018
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Convertible Note
dated May 22, 2018, issued to Collier Investments, LLC
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Incorporated
by reference from the Current Report on Form 8-K filed June 1,
2018
|
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Security Agreement
dated May 22, 2018, between Ocean Thermal Energy Corporation and
Collier Investments, LLC
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|
Incorporated
by reference from the Current Report on Form 8-K filed June 1,
2018
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Securities Purchase
Agreement dated February 16, 2018, between Ocean Thermal Energy
Corporation and L2 Capital, LLC
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Incorporated
by reference from the Current Report on Form 8-K filed February 23,
2018
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Senior
Secured Promissory Note dated February 16, 2018, issued to L2
Capital, LLC
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|
Incorporated
by reference from the Current Report on Form 8-K filed February 23,
2018
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Security Agreement
dated February 16, 2018, between Ocean Thermal Energy Corporation
and L2 Capital, LLC
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Incorporated
by reference from the Current Report on Form 8-K filed February 23,
2018
|
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|
Common
Stock Purchase Warrant dated February 16, 2018, issued to L2
Capital, LLC
|
|
Incorporated
by reference from the Current Report on Form 8-K filed February 23,
2018
|
|
|
Common
Stock Purchase Warrant dated February 16, 2018, issued to
Craft Capital Management, LLC
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Incorporated
by reference from the Current Report on Form 8-K filed February 23,
2018
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Item 21
|
|
Subsidiaries
of the Registrant
|
|
|
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Schedule of
Subsidiaries
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This
filing.
|
Exhibit Number*
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Title of Document
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Location
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Item 23
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Consents
of Experts and Counsel
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Consent
of Liggett & Webb, P.A.
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This
filing.
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Consent
of Procopio, Cory, Hargreaves & Savitch, LLP
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Included
in exhibit 5.01.
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Item 24
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Power
of Attorney
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24.01
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Power
of Attorney
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Incorporated
by reference from Registration Statement on Form S-1 filed
January 12, 2018
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Item 101
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|
Interactive
Data Files**
|
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101.INS
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XBRL
Instance Document
|
|
Incorporated
by reference from Amendment No. 1 to the Registration Statement on
Form S-1 filed January 22, 2018
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101.SCH
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XBRL
Taxonomy Extension Schema
|
|
Incorporated
by reference from Amendment No. 1 to the Registration Statement on
Form S-1 filed January 22, 2018
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101.CAL
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XBRL
Taxonomy Extension Calculation Linkbase
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|
Incorporated
by reference from Amendment No. 1 to the Registration Statement on
Form S-1 filed January 22, 2018
|
101.DEF
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|
XBRL
Taxonomy Extension Definition Linkbase
|
|
Incorporated
by reference from Amendment No. 1 to the Registration Statement on
Form S-1 filed January 22, 2018
|
101.LAB
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|
XBRL
Taxonomy Extension Label Linkbase
|
|
Incorporated
by reference from Amendment No. 1 to the Registration Statement on
Form S-1 filed January 22, 2018
|
101.PRE
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|
XBRL
Taxonomy Extension Presentation Linkbase
|
|
Incorporated
by reference from Amendment No. 1 to the Registration Statement on
Form S-1 filed January 22, 2018
|
_______________________
* All
exhibits are numbered with the number preceding the decimal
indicating the applicable SEC reference number in Item 601 and the
number following the decimal indicating the sequence of the
particular document. Omitted numbers in the sequence refer to
documents previously filed as an exhibit.
** Users
of this data are advised that, pursuant to Rule 406T of Regulation
S-T, these interactive data files are deemed not filed or part of a
registration statement or Annual Report for purposes of Sections 11
or 12 of the Securities Act of 1933 or Section 18 of the Exchange
Act of 1934 and otherwise are not subject to
liability.
(b)
Financial Statement
Schedules.
All
financial statement schedules are omitted because the information
called for is not required or is shown either in the financial
statements or in the notes thereto.
Item 17. Undertakings
(a) The
undersigned registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration
statement:
(i) To
include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To
reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more
than 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To
include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That,
for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof;
(3) To
remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering; and
(5) That,
for the purpose of determining liability under the Securities Act
of 1933 to any purchaser, each prospectus filed pursuant to Rule
424(b) as part of a registration statement relating to an offering,
other than registration statements relying on 430B or other than
prospectuses filed in reliance on Rule 430A, shall be deemed to be
part of and included in the registration statement as of the date
it is first used after effectiveness. Provided, however, that no
statement made in a registration statement or prospectus that is
part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such
document immediately prior to such date of first use.
(6)
That,
for the purpose of determining liability under the Securities Act
of 1933 to any purchaser
in the initial distribution of
the securities, the undersigned registrant undertakes that in a
primary offering of securities of the undersigned registrant
pursuant to this registration statement, regardless of the
underwriting method used to sell the securities to the purchaser,
if the securities are offered or sold to such purchaser by means of
any of the following communications, the undersigned registrant
will be a seller to the purchaser and will be considered to offer
or sell such securities to such purchaser:
(i) Any
preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule
424;
(ii) Any
free writing prospectus relating to the offering prepared by or on
behalf of the undersigned registrant or used or referred to by the
undersigned registrant;
(iii) The
portion of any other free writing prospectus relating to the
offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the
undersigned registrant; and
(iv) Any
other communication that is an offer in the offering made by the
undersigned registrant to the purchaser.
Insofar
as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant
to the requirements of Securities Act of 1933, the registrant has
duly caused this amendment to post-effective amendment no. 1 to
registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Boynton, Florida, on the
10th day of January, 2019.
|
OCEAN THERMAL ENERGY CORPORATION
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Jeremy P. Feakins
|
|
|
Jeremy
P. Feakins
|
|
|
Chief
Executive Officer and
|
|
|
Chief
Financial Officer
|
|
|
(Principal
Executive and Financial Officer)
|
POWER OF ATTORNEY
Pursuant
to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Name and Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Jeremy P. Feakins
|
|
|
|
|
Jeremy
P. Feakins
|
|
Chief
Executive Officer (Principal Executive Officer)
|
|
January
10, 2019
|
|
|
Chief
Financial Officer (Principal Financial Officer)
|
|
|
|
|
|
|
|
/s/
Jeremy P. Feakins
|
|
|
|
|
attorney-in
fact
|
|
|
|
|
Peter
Wolfson
|
|
Director
|
|
January
10, 2019
|
|
|
|
|
|
/s/
Jeremy P. Feakins
|
|
|
|
|
attorney-in
fact
|
|
|
|
|
Antoinette
Hempstead
|
|
Director
|
|
January
10, 2019
|