Share-based payments

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Note 8 - Share-based payments

Amounts recognized as expense in the consolidated statements of operations related to share-based payments are as follows:

	Year ended December 31,
	2018			2017
Nonemployee common stock	$	--		$	139,529
Nonemployee preferred stock (Series B)		--			--
Nonemployee warrants - fully vested upon issuance		25,882			398,398
Nonemployee warrants - service and performance conditions		--			6,118
Employee common stock		--			188,000
Employee stock options - market price-based		--			--
Total share-based expense charged against income	$	25,882		$	732,045
Impact on net loss per common share:
Basic and diluted	$	(0.00	)	$	(0.01	)

UPT management agreement

In July, 2014, Cool Technologies entered into a three year agreement with the Company managing the operations of UPT, whereby it would issue common stock under the following conditions:

Condition	Number of Shares
UPT recognizes $100 million of revenue or a change in control		500,000
UPT recognizes $100 million of revenue		150,000
		650,000

On June 30, 2017 the agreement expired. None of the conditions were met prior to expiration, so no expense will be recognized and no common stock will be issued under this agreement.

In July 2014, Cool Technologies entered into a three year agreement with the Company managing the operations of UPT, whereby CoolTech would issue common stock warrants under the following conditions:

		Number of
Vesting Condition	Category	Warrants
Fully vest upon UPT generating $1 million of revenue	Performance		350,000
45,945 warrants for every $3 million of revenue generated by UPT up to $100 million	Performance		1,530,000
60,000 warrants for every three months of completed service managing UPT	Service		720,000
			2,600,000

The common stock warrants have a three year life and an exercise price of $1.00 per share. The grant date fair value was $2,586,000. On June 30, 2017, the agreement expired. None of the performance conditions were met prior to expiration, so no expense will be recognized and no common stock warrants will vest under the performance conditions. During the year ended December 21, 2017, 120,000 of the common stock warrants under the service condition vested with the passage of time and the Company recognized expense of $6,118. There is no remaining service award expense to recognize.

Nonemployee common stock

Other

During the years ended December 31, 2018 and 2017, Cool Technologies issued or accrued an additional 2,600,000 and 4,651,525 shares of common stock in exchange for services, with a fair value of $130,000 and $364,530, respectively.

Nonemployee common stock warrants -- Fully-vested upon issuance

Cool Technologies may issue fully-vested common stock warrants with a maximum contractual term of 5 years to non-employees in return for services or to satisfy liabilities, such as accrued interest. The following summarizes the activity for common stock warrants that were fully-vested upon issuance:

	Number of Warrants			Weighted-average Exercise Price		Weighted-average Remaining Life (Years)		Aggregate Intrinsic Value
Outstanding, December 31, 2016		10,866,071		$	0.49
Granted		5,550,000			0.08
Forfeited or expired		(3,470,235	)		0.59
Outstanding, December 31, 2017		12,945,836			0.29		2.3	$	46,000
Exercisable, December 31, 2017		12,945,836			0.29		2.3	$	46,000
Granted		500,000			0.05
Exercised		--			--
Forfeited or expired		--			--
Outstanding, December 31, 2018		13,445,836			0.27		1.4	$	78,000
Exercisable, December 31, 2018		13,445,836		$	0.27		1.4	$	78,000

The following summarizes the Black-Scholes assumptions used to estimate the fair value of fully-vested common stock warrants:

	Year ended December 31,
	2018			2017
Volatility		143	%	144-155		%
Risk-free interest rate		2.6	%	1.2--2.2		%
Expected life (years)		5.0		2.4 -- 5.0
Dividend yield		--			--

No fully-vested common stock warrants were exercised in 2018 and 2017.

Nonemployee common stock warrants -- Service and performance conditions

The following summarizes the terms for warrants the Company granted that are subject to performance and service conditions.

Summary

The following summarizes the activity for warrants that have performance and service conditions. There were no grants in 2018.

	Number of Warrants			Weighted-average Exercise Price		Weighted-average Remaining Life (Years)		Aggregate Intrinsic Value
Outstanding, December 31, 2016		3,400,000		$	0.84
Granted		--			--
Forfeited or expired		(120,000	)		1.00
Outstanding, December 31, 2017		3,280,000			0.83		0.3
Exercisable, December 31, 2017		1,280,000			0.56		0.7
Granted		--			--
Forfeited or expired		(2,120,000	)		1.00		0.0
Outstanding, December 31, 2018		1,160,000			0.52		0.4
Exercisable, December 31, 2018		1,160,000		$	0.52		0.4	$	--

The following summarizes of the status of the Company’s non-vested common stock warrants with performance and service conditions as of December 31, 2018, and changes during the year then ended:

	Number of			Weighted-average Grant Date
	Warrants			Fair Value
Non vested, December 31, 2016		2,000,000		$	0.99
Vested		(120,000	)		0.99
Non vested, December 31, 2017		1,880,000			0.99
Vested		--			--
Forfeited		(1,880,000	)		0.99
Non vested, December 31, 2018		--		$	--

The following summarizes the Black-Scholes assumptions used to estimate the fair value of warrants with performance and service conditions:

	Year ended December 31,
	2018		2017
Volatility		--	141--144		%
Risk-free interest rate		--	1.5--1.6		%
Expected life (years)				3.0
Dividend yield		--		--

Legal settlement - Replacement warrants

Under the First Amendment to Settlement Agreement (the "Amendment") with Spirit Bear, Cool Technologies agreed to issue replacement warrants for certain previously-issued warrants. The 7,000,000 previously-issued warrants were issued in 2012, had exercise prices ranging from $0.35 to $0.75 per warrant, and expiration dates from April 2015 to April 2017. All of the replacement warrants have an exercise price of $0.25, while 6,000,000 expired in January 2017 and 1,000,000 expired in December 2015.

Under the terms of the February 2016 Waiver of Performance and Second Amendment to Settlement Agreement with Spirit Bear, the Company agreed to issued replacement warrants for previously amended and replaced warrants. Six million of the previously amended and replaced warrants owned by Spirit Bear and by Leonora Lorenzo had their expiration dates extended from January 29, 2017, until January 29, 2020, and had their exercise price reduced from $0.25 to $0.10 per share.

In addition, Spirit Bear consented to the withdrawal of a Registration Statement on Form S-1 that was pending before the Securities Exchange Commission (SEC). The proposed registration statement covered the common shares underlying the preferred shares owned by Spirit Bear and the common shares underlying the warrants owned by Spirit Bear and Leonora Lorenzo.

When a replacement equity instrument is issued, expense is recorded if the fair value of the new instruments is greater than the fair value of the original instruments. The Company recorded expense of $423,973 associated with the replacement warrants. The following summarizes the Black-Scholes assumptions used to estimate the fair value of the previously-issued warrants and the replacement warrants:

	Previously-issued			Replacement
Volatility		206	%		151	%
Risk-free interest rate		0.5	%		1.3	%
Expected life (years)		0.2			3.2
Dividend yield		--			--

Employee stock options - Fully-vested upon grant

Cool Technologies granted stock options to certain members of management in 2014 that were fully-vested at the date of grant. There were no grants in 2017 or 2018. In 2016, one member resigned and released the Company from all incentive compensation it owed to him including stock options. The following is a summary of fully-vested stock option activity with the resigning member’s stock options removed for 2016:

	Number of Shares		Weighted-average Exercise Price per Share		Weighted-average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding, December 31, 2016		4,000,000	$	2.00
Outstanding, December 31, 2017		4,000,000		2.00		--	$	--
Exercisable, December 31, 2017		4,000,000		2.00		--		--
Outstanding, December 31, 2018		4,000,000		2.00		--		--
Exercisable, December 31, 2018		4,000,000	$	2.00		--	$	--