10-Q 1 cool_10q.htm FORM 10-Q cool_10q.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10‑Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  

For the quarterly period ended March 31, 2020

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  

For the transition period from _______________ to _______________.

 

Commission file number: 000-53443

 

COOL TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

 

75-3076597

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

8875 Hidden River Parkway, Suite 300

Tampa, FL

 

33637

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (813) 975-7467

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒    No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒     No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

  

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Securities registered pursuant to Section 12(b) of the Act: None.

 

As of August 18, 2020, there were 420,248,040 shares of common stock, $0.001 par value, issued and outstanding.

  

 

 

    

COOL TECHNOLOGIES, INC.

 

Table of Contents

  

Part I – FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements

 

4

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

21

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

32

 

Item 4.

Controls and Procedures

 

32

 

 

 

 

 

 

Part II – OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

34

 

Item 1A.

Risk Factors

 

34

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

34

 

Item 3.

Defaults Upon Senior Securities

 

35

 

Item 4.

Mine Safety Disclosures

 

35

 

Item 5.

Other information

 

35

 

Item 6.

Exhibits

 

36

 

 

 
2

 

    

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

 

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events, conditions or financial performance forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “anticipate,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements. We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Quarterly Report on Form 10-Q and include information concerning possible or assumed future results of our operations, including statements about potential sales and revenues; acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.

 

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of the Quarterly Report on Form 10-Q. All subsequent written and oral forward-looking statements concerning other matters addressed in this Quarterly Report on Form 10-Q and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Quarterly Report on Form 10-Q.

 

Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

 

The Company previously filed a Current Report on Form 8-K with the Securities and Exchange Commission on May 14, 2020 (the “Current Report”) to avail itself of the relief provided by the Securities and Exchange Commission (SEC) Order under Section 36 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), granting exemptions from specified provisions of the Exchange Act, as set forth in SEC Release No. 34-88465 (the “Order”). By filing the Current Report on Form 8-K, the Company relied on the Order to receive until June 29, 2020 to file its Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the “Quarterly Report”) due to the circumstances related to COVID-19. In particular, COVID-19 and the extraordinary measures undertaken to minimize its spread has caused severe disruptions in transportation, limited access to facilities resulting in limited support from its staff and professional advisors and interfered with the timely exchange of information.  

 

3

Table of Contents

    

PART I. Financial Information

 

Item 1. Condensed Consolidated Financial Statements

 

Cool Technologies, Inc. and Subsidiary

Condensed Consolidated Balance Sheets

 

 

 

March 31,

2020

 

 

December 31,

2019

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$ 131

 

 

$ 15,306

 

Inventory

 

 

149,744

 

 

 

149,744

 

Prepaid expenses and other assets

 

 

-

 

 

 

5,000

 

Total current assets

 

 

149,875

 

 

 

170,050

 

Intangibles

 

 

220,939

 

 

 

213,192

 

Equipment, net

 

 

65,972

 

 

 

76,280

 

Total assets

 

$ 436,786

 

 

$ 459,522

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$ 2,114,403

 

 

$ 1,931,543

 

Accrued liabilities – related party

 

 

996,448

 

 

 

913,948

 

Customer deposits – related party

 

 

400,000

 

 

 

400,000

 

Accrued payroll taxes

 

 

62,050

 

 

 

62,049

 

Debt, current portion

 

 

2,847,472

 

 

 

2,971,232

 

Derivative liability

 

 

759,429

 

 

 

712,921

 

Total current liabilities

 

 

7,179,802

 

 

 

6,991,693

 

 

 

 

 

 

 

 

 

 

Debt, long-term portion, net of debt discount

 

 

54,920

 

 

 

29,329

 

Total liabilities

 

 

7,234,722

 

 

 

7,021,022

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Preferred stock Series A, $.001 par value; 410 shares authorized; 3 issued and outstanding at March 31, 2020 and December 31, 2019

 

 

-

 

 

 

-

 

Preferred stock Series B, $.001 par value; 3,636,360 shares authorized; 2,727,270 issued and outstanding at March 31, 2020 and December 31, 2019

 

 

2,727

 

 

 

2,727

 

Common stock, $.001 par value; 500,000,000 shares authorized; 390,545,478 and 267,450,017 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively

 

 

390,546

 

 

 

267,450

 

Additional paid-in capital

 

 

46,722,426

 

 

 

46,265,016

 

Common stock issuable

 

 

58,670

 

 

 

58,670

 

Common stock held in escrow

 

 

8,441

 

 

 

8,441

 

Accumulated deficit

 

 

(53,923,864 )

 

 

(53,107,440 )

Non-controlling interest

 

 

(56,882 )

 

 

(56,364 )

Total stockholders’ deficit

 

 

(6,797,936 )

 

 

(6,561,500 )

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ deficit

 

$ 436,786

 

 

$ 459,522

 

  

See accompanying notes to condensed consolidated financial statements.

  

4

Table of Contents

 

Cool Technologies, Inc. and Subsidiary

Condensed Consolidated Statements of Operations

(Unaudited)

 

 

 

Three months ended March 31,

 

 

 

2020

 

 

2019

 

Revenues

 

$ --

 

 

$ --

 

Cost of revenues

 

 

--

 

 

 

--

 

Gross profit

 

 

--

 

 

 

--

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

Payroll and related expenses

 

 

82,750

 

 

 

126,460

 

Consulting

 

 

62,000

 

 

 

95,324

 

Professional fees

 

 

46,800

 

 

 

81,765

 

Research and development

 

 

10,308

 

 

 

14,702

 

General and administrative

 

 

9,909

 

 

 

85,864

 

Total operating expenses

 

 

211,767

 

 

 

404,115

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(211,767 )

 

 

(404,115 )

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense

 

 

(367,207 )

 

 

(619,975 )

Change in fair value of derivative liability

 

 

(237,968 )

 

 

(41,818 )

Gain (loss) on extinguishment of debt

 

 

--

 

 

 

234,186

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

(816,942 )

 

 

(831,722 )

Less: Noncontrolling interest in net loss

 

 

(518 )

 

 

(470 )

 

 

 

 

 

 

 

 

 

Net loss to stockholders

 

$ (816,424 )

 

$ (831,252 )

 

 

 

 

 

 

 

 

 

Net loss per common share:

 

 

 

 

 

 

 

 

Basic and diluted

 

$ (0.00 )

 

$ (0.00 )

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic and diluted

 

 

333,926,498

 

 

 

221,061,294

 

 

See accompanying notes to condensed consolidated financial statements

 

5

Table of Contents

     

Cool Technologies, Inc. and Subsidiary

Condensed Consolidated Statements of Stockholders’ Deficit

(Unaudited)

  

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Common

Stock

 

 

Preferred

Stock

 

 

Common Stock

Held in

 

 

Accumulated

 

 

Non-Controlling

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Issuable

 

 

Issuable

 

 

Escrow

 

 

Deficit

 

 

Interest

 

 

Total

 

December 31, 2018

 

 

2,727,290

 

 

$

2,727

 

 

 

214,705,916

 

 

$

214,705

 

 

$

45,160,994

 

 

$

123,670

 

 

 

-

 

 

$

8,441

 

 

(49,866,128 )

 

(54,764 )

 

$

(4,410,355 )

Conversion of Series A preferred stock to common stock

 

 

(17 )

 

 

-

 

 

 

850,000

 

 

 

850

 

 

 

(850 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock issued with debt

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

30,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

30,000

 

Warrants issued for services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

32,624

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

32,624

 

Warrants issued with debt

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

112,260

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

112,260

 

Debt converted

 

 

-

 

 

 

-

 

 

 

12,628,000

 

 

 

12,628

 

 

 

145,222

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

157,850

 

Debt issued with beneficial conversion feature

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

144,260

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

144,260

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(831,722 )

 

 

-

 

 

 

(831,722 )

Noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

470

 

 

 

(470 )

 

 

-

 

March 31, 2019

 

 

2,727,273

 

 

2,727

 

 

 

228,183,916

 

 

228,183

 

 

45,594,510

 

 

153,670

 

 

 

-

 

 

8,441

 

 

(50,697,380 )

 

(55,234 )

 

(4,765,083 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

2,727,270

 

 

$

2,727

 

 

 

267,450,017

 

 

$

267,450

 

 

$

46,265,016

 

 

$

58,670

 

 

 

-

 

 

$

8,441

 

 

$

(53,107,440 )

 

$

(56,364 )

 

$

(6,561,500 )

Warrants issued with debt

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

10,718

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

10,718

 

Debt converted

 

 

-

 

 

 

-

 

 

 

123,095,461

 

 

 

123,096

 

 

 

446,692

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

569,788

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(816,942 )

 

 

 -

 

 

 

(816,942 )

Noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

518

 

 

 

(518 )

 

 

-

 

March 31, 2020

 

 

2,727,270

 

 

2,727

 

 

 

390,545,478

 

 

390,546

 

 

46,722,426

 

 

$

58,670

 

 

 

 -

 

 

8,441

 

 

(53,923,864

)

 

(56,882

)

 

(6,797,936

)

   

See accompanying notes to condensed consolidated financial statements

 

6

Table of Contents

       

Cool Technologies, Inc. and Subsidiary

Condensed Consolidated Statements of Cash Flows

(Unaudited)

  

 

 

Three months ended March 31,

 

 

 

2020

 

 

2019

 

Operating Activities:

 

 

 

 

 

 

Net loss

 

$ (816,942 )

 

$ (831,722 )

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Warrants issued for services

 

 

--

 

 

 

32,624

 

(Gain) on extinguishment of debt

 

 

--

 

 

 

(234,186 )

Non-cash interest expense

 

 

--

 

 

 

32,942

 

Change in fair value of derivative liability

 

 

237,968

 

 

 

41,818

 

Amortization of debt discount

 

 

250,726

 

 

 

505,738

 

Depreciation expense

 

 

10,308

 

 

 

7,348

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Inventory

 

 

--

 

 

 

(8,674 )

Prepaid assets

 

 

5,000

 

 

 

(6,667 )

Accounts payable

 

 

201,312

 

 

 

166,600

 

Accrued liabilities – related party

 

 

82,500

 

 

 

5,161

 

Net cash from operating activities

 

 

(29,128 )

 

 

(289,018 )

 

 

 

 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

 

 

 

Intangible assets

 

 

(7,747 )

 

 

(1,047 )

Net cash from investing activities

 

 

(7,747 )

 

 

(1,047 )

 

 

 

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from debt

 

 

72,000

 

 

 

905,345

 

Payments on debt

 

 

(50,300 )

 

 

(149,514 )

Net cash from financing activities

 

 

21,700

 

 

755,831

 

 

 

 

 

 

 

 

 

 

Net (decrease) increase in cash

 

 

(15,175 )

 

 

465,766

 

 

 

 

 

 

 

 

 

 

Cash, beginning of period

 

 

15,306

 

 

 

24,435

 

 

 

 

 

 

 

 

 

 

Cash, end of period

 

$ 131

 

 

$ 490,201

 

 

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

Interest

 

$ 33,982

 

 

$ 3,678

 

Income taxes

 

$ --

 

 

$ --

 

 

 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Derivative liability offset by debt discount

 

$ -

 

 

$ 251,701

 

Debt and interest settled for common stock

 

 

569,788

 

 

 

157,850

 

Stock issued with debt

 

 

--

 

 

 

30,000

 

Stock issued for accrued liabilities – related party

 

 

--

 

 

 

130,000

 

  

See accompanying notes to condensed consolidated financial statements.

  

7

Table of Contents

  

Cool Technologies, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 1 – Description of Business and Summary of Significant Accounting Policies

 

Description of Business

 

Cool Technologies, Inc. and subsidiary, (“the Company” or “Cool Technologies” or “CoolTech”) was incorporated in the State of Nevada in July 2002. In April 2014, CoolTech formed Ultimate Power Truck, LLC (“Ultimate Power Truck” or “UPT”), of which the Company owns 95% and a shareholder of Cool Technologies owns 5%. Cool Technologies was formerly known as Bibb Corporation, as Z3 Enterprises, and as HPEV, Inc. On August 20, 2015, the Company changed its name to Cool Technologies, Inc.

 

The Company’s technologies can be divided into two distinct but complementary categories: a) mobile power generation and b) heat dispersion technology.

 

The Company has developed and is commercializing a mobile power generation system that enables work trucks retrofitted with the system to generate electric power. The Company intends to sell the mobile power generator system to government, commercial and fleet vehicle owners. It may license its system as well. CoolTech has also developed and intends to commercialize patented heat dispersion technologies by licensing them to electric motor, pump and vehicle component manufacturers. In preparation, CoolTech has applied for trademarks for one of its technologies and its acronym. Cool Technologies currently owns one trademark: TEHPC (Totally Enclosed Heat Pipe Cooled).

 

The Company believes that its proprietary technologies, including the patent portfolio and trade secrets, can help increase the efficiency and positively effect manufacturing cost structure in several large industries beginning with motors/generators and fleet vehicles. The markets for products utilizing the technologies include consumer, industrial, agricultural and military markets, both in the U.S. and worldwide.

 

As of July 1, 2020, we have seven US patents, one Canadian patent, two granted patents (1 Mexican, 1 Canadian) and two pending applications (1 in the US, 1 in Brazil) covering composite heat structures, motors, and related structures, heat pipe architecture, and applications (commonly referred to as “thermal” or “heat dispersion technology”). Cool Technologies also has Patent Cooperation Treaty (“PCT”) applications filed for a heat pipe cooled brake system and radial vent thermal technology as well as a pending PCT application that covers integrated electrical power generation methods and systems.

 

Basis of Presentation The accompanying condensed consolidated financial statements as of March 31, 2020, have been derived from unaudited financial statements. They include the accounts of Cool Technologies, Inc. and Ultimate Power Truck, LLC. Intercompany accounts and transactions have been eliminated. The accompanying unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual audited financial statements and in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. In the opinion of management, such unaudited information includes all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of this interim information.

 

Noncontrolling interest represents the 5% third-party interest in UPT. There are no restrictions on the transfer of funds or net assets from UPT to Cool Technologies.

 

Operating results and cash flows for interim periods are not necessarily indicative of results that can be expected for the entire year. The information included in this report should be read in conjunction with the audited financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2019.

 

Going Concern

 

The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. CoolTech has incurred net losses of $53,923,864 since inception and has not commenced operations, raising substantial doubt about its ability to continue as a going concern. Management believes that the Company’s ability to continue as a going concern is dependent on its ability to generate revenue, achieve profitable operations and repay obligations when they come due and raising additional capital. There cannot be any assurance that the Company will ever generate revenue or even if it does generate revenue that it will achieve profitable operations. Furthermore, no assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in case of equity financing.

 

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As of the filing date of this Quarterly Report on Form 10-Q, management is negotiating additional non-dilutive funding arrangements to support completion of the initial phases of the Company’s business plan: to license its thermal technologies and applications, including submersible dry-pit applications and to license and sell mobile generation retrofit kits. There can be no assurance, however, that the Company will be successful in accomplishing these objectives. Consequently, it may have to curtail or cease operations if funding is not received by the end of the third quarter.

 

Recently Adopted Accounting Guidance

  

Financial Accounting Standards Board, or FASB, Accounting Standards Update, or ASU 2016-02 “Leases (Topic 842)”– In February 2016, the FASB issued ASU 2016-02, which requires lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification is to be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar to the old model but updated to align with certain changes to the lessee model and the new revenue recognition standard. The company adopted this ASU on January 1, 2019. As the Company does not have outstanding leases, adopting this standard did not have a material impact on the Company’s condensed consolidated financial statement or financial statement disclosure.

 

Recent Accounting Guidance Not Yet Adopted

 

Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying condensed consolidated financial statements.

 

Note 2 – Customer deposits – Related party

 

These represent advance payments of $400,000 received on orders that have not yet been fulfilled, with companies controlled by the individual who is the 5% owner of UPT and a shareholder of Cool Technologies.

 

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Note 3 – Debt

 

Debt consists of the following:

   

 

 

March 31,

2020

 

 

December 31,

2019

 

Notes payable

 

$ 2,440,000

 

 

$ 2,400,000

 

Convertible notes payable

 

 

583,137

 

 

 

952,968

 

Test vehicle financing

 

 

70,418

 

 

 

70,418

 

Note payable – related party

 

 

21,641

 

 

 

21,641

 

Note payable – UPT minority owner

 

 

80,000

 

 

 

80,000

 

 

 

 

3,195,196

 

 

 

3,525,027

 

Debt discount

 

 

(292,804 )

 

 

(524,466

)

 

 

 

2,902,392

 

 

 

3,000,561

 

Less: current portion

 

 

(2,847,472 )

 

 

(2,971,232

)

Long-term portion

 

$ 54,920

 

 

$ 29,329

 

 

Notes Payable

 

From September 5 – 7, 2018, the Company entered into Promissory Note Agreements with two accredited investors. CoolTech received $250,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing. In exchange, the Company granted a security interest in all of the Company’s intellectual property as collateral and it issued cashless warrants to purchase 2,000,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years.

  

On September 11, 2018, the Company entered into Promissory Note Agreements with an accredited investor. CoolTech received $250,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum on or before the one-year anniversary. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing. In exchange, the Company granted a security interest in all of the Company’s intellectual property as collateral and it issued cashless warrants to purchase 2,000,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years. On March 16, 2020, the investor signed an amendment to the agreement extending the maturity date until April 30, 2020. As of the filing date, the Company has not received a notice of default.

 

From September 7 – 17, 2018, the Company entered into Promissory Note Agreements with three accredited investors. CoolTech received $125,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing. In exchange, the Company granted a security interest in all of the Company’s intellectual property as collateral and CoolTech issued cashless warrants to purchase 1,000,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years.

 

On September 25, 2018, the Company entered into Promissory Note Agreements with an accredited investor. CoolTech received $125,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum on or before the one-year anniversary. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing. In exchange, the Company granted a security interest in all of the Company’s intellectual property as collateral and CoolTech issued cashless warrants to purchase 1,000,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years. On March 16, 2020, the investor signed an amendment to the agreement extending the maturity date until April 30, 2020. As of the filing date, the Company has not received a notice of default.

    

On October 2, 2018, the Company entered into a Promissory Note Agreement with an accredited investor. It received $250,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing. In exchange, the Company granted a security interest in all of the Company’s intellectual property as collateral and Cool Technologies issued cashless warrants to purchase 2,000,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years.

 

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On October 26, 2018, the Company entered into a Promissory Note Agreement with an accredited investor. It received $250,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum on or before the one-year anniversary. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing. In exchange, the Company granted a security interest in all of the Company’s intellectual property as collateral and Cool Technologies issued cashless warrants to purchase 2,000,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years. On October 26, 2019, the investor signed an amendment to the agreement extending the maturity date for seven months. As of the filing date, the Company has not received a notice of default.

 

On December 19, 2018, the Company entered into a Promissory Note Agreement with an accredited investor. It received $50,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing. In exchange, the Company granted a security interest in all of the Company’s intellectual property as collateral and Cool Technologies issued cashless warrants to purchase 400,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years.

    

On February 1, 2019, the Company entered into a Promissory Note Agreement with an accredited investor. It received $75,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing. In exchange, the Company granted a security interest in all of the Company’s intellectual property as collateral and CoolTech agreed to issue 1,000,000 shares of restricted common stock.

    

On March 13, 2019, the Company and a vendor agreed to convert an overdue $25,000 account payable into a Promissory Note Agreement. CoolTech promised to pay the principal amount together with simple interest of 15% per annum. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing. In exchange, the Company granted a security interest in all of the Company’s intellectual property as collateral and CoolTech issued cashless warrants to purchase 200,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years.

    

On March 18, 2019, the Company entered into a Promissory Note Agreement with an accredited investor. It received $250,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum on or before the one-year anniversary. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing. In exchange, the Company granted a security interest in all of the Company’s intellectual property and CoolTech issued cashless warrants to purchase 2,000,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years.

    

On March 19, 2020, the Company defaulted on a note payable. The $250,000 note was purchased on March 18, 2019 by an accredited investor. The principal and interest as of May 19, 2020 total $287,603. As of the filing date, the Company has not received a notice of default for the note. As per the terms of the note, interest will continue to accrue at 15% per annum until paid in full.

    

On March 19, 2019, the Company entered into a Promissory Note Agreement with an accredited investor. It received $250,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum on or before the one-year anniversary. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing. In exchange, the Company granted a security interest in all of the Company’s intellectual property and CoolTech issued cashless warrants to purchase 2,000,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years. On March 19, 2020, the investor signed an amendment to the agreement extending the maturity date for four months.

 

On January 31, 2020, the Company entered into a Promissory Note Agreement with an accredited investor. It received $36,000 in financing and promised to pay the principal amount together with simple interest of 3% per annum. Furthermore, the Company issued cashless warrants to purchase 4,000,000 shares of common stock at an exercise price of $0.005. The warrants expire after five years.

 

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Convertible notes payable

 

February Convertible Note – On February 19, 2018, the Company entered into a convertible note agreement. It issued 2,000,000 inducement shares of restricted common stock and received $350,000, with an original issue discount of $35,000 in lieu of interest, for a total amount of $385,000 due on September 19, 2018. At the holder’s option, a portion or all the unpaid principal and interest may be converted into shares of CoolTech’s common stock at $0.05 per share. In the event of default, the outstanding balance will increase by 25% and a daily penalty of $100 will accrue until the default is remedied.

 

On May 22, 2018, the holder signed an amendment to the note which extended the maturity date to November 1, 2018. In exchange, the note was changed from promissory to convertible with a conversion price of $0.025 per share.

 

On September 14, 2018, the Company issued 2,000,000 shares on conversion of $50,000 in debt. On October 26, 2018, the holder signed an amendment to the note which extended the maturity date to January 1, 2019. On October 31, 2018, the Company issued 2,000,000 shares on conversion of $50,000 in debt.

 

On January 1, 2019, the holder signed an amendment to the note which extended the maturity date to May 1, 2019. In exchange, the conversion price was changed from $0.025 to $0.0125 per share. On February 26, 2019, CoolTech issued 7,500,000 shares of common stock to the holder upon partial conversion of $93,750 in debt. On April 23, 2019, Cool Technologies issued 7,500,000 shares of common stock to the holder upon conversion of $93,750 in debt.

  

On May 1, 2019, the holder signed an amendment to the note which extended the maturity date to August 1, 2019. All other terms and conditions remained the same. On July 30, 2019, the Company issued 4,000,000 shares of common stock to the holder upon partial conversion of $50,000 in debt.

    

On July 30, 2019, the holder signed an amendment to the note which extended the maturity date to November 1, 2019. On September 11, 2019, the Company issued 2,500,000 shares of common stock to the holder upon partial conversion of $31,250 in debt.

 

On October 31, 2019, the holder signed an amendment which extended the maturity date to December 31, 2019. All other terms and conditions remained the same. On December 2, 2019, Cool Technologies issued 2,224,000 shares of common stock to the holder upon final conversion of $27,800 and the note was retired.

 

February Convertible Note -- On February 11, 2019, the Company entered into a convertible note agreement. It received $140,000 with an original issue discount of $8,400 in lieu of interest, for a total amount of $132,500 due on February 11, 2020. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of CoolTech’s common stock at a 29% discount to the lowest VWAP during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 22% per annum, require the Company to redeem all or any portion of the note at a premium of 150%.

 

On August 13, 2019, the Company issued 423,729 shares of common stock to the holder upon partial conversion of $15,000 in debt. On August 23, 2019, the Company issued 545,455 shares of common stock to the holder upon partial conversion of $15,000 in debt. On August 29, 2019, the Company issued 604,839 shares of common stock to the holder upon partial conversion of $15,000 in debt. On September 3, 2019, the Company issued 819,672 shares of common stock to the holder upon partial conversion of $20,000 in debt. On September 5, 2019, the Company issued 833,333 shares of common stock to upon partial conversion of $20,000 in debt. On September 11, 2019, the Company issued 1,005,025 shares of common stock to upon partial conversion of $20,000 in debt. On September 17, 2019, the Company issued 1,005,025 shares of common stock to upon partial conversion of $20,000 in debt. On September 24, 2019, the Company issued 1,119,558 shares of common stock to the holder upon final conversion of $15,000 in debt and the note was retired.

    

March Convertible Note -- On March 13, 2019, the Company entered into a convertible note agreement. It received $140,000 with an original issue discount of $7,500 in lieu of interest, for a total amount of $131,600 due on February 11, 2020. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of common stock at a 29% discount to the lowest VWAP during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 18% per annum, require the Company to pay the product of the then outstanding principal amount, plus accrued interest and default interest, divided by the conversion price multiplied by the highest price at which the common stock traded at any time between the issuance date and the date of the event of default.

 

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On September 16, 2019, the Company issued 2,012,072 shares of common stock to the holder upon partial conversion of $40,000 in debt. On October 1, 2019, the Company issued 2,695,599 shares of common stock to the holder upon partial conversion of $40,000 in debt. On October 14, 2019, the Company issued 2,859,758 shares of common stock to the holder upon partial conversion of $40,000 in debt. On November 12, 2019, the Company issued 2,886,674 shares of common stock to the holder upon final conversion of $20,000 in debt and the note was retired.

   

May Convertible Note -- On May 13, 2019, the Company entered into a convertible note agreement. It received $150,000 after an original issue discount of $15,000 in lieu of interest, for a total amount of $165,000 due on December 13, 2019. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of common stock at a 29% discount to the lowest VWAP during the 10 trading days preceding the conversion date. In the event of default, the outstanding balance will increase by 25% and a daily penalty of $100 will accrue until the default is remedied.

    

The note also included a clause which stated that if the effective conversion price is less than $0.01 at any time, the principal amount of the note shall increase by $10,000 and that the conversion price will be permanently redefined to equal 40% of the lowest traded price that occurred during the 15 consecutive trading days immediately preceding the date on which the note holder elects to convert all or part of the note. On December 20, 2019, the effective conversion price reached sub-penny threshold. The principal amount and the subsequent conversion price were adjusted as noted above. Therefore, as of December 31, 2019, the convertible balance remaining totaled $179,950.

    

On January 7, 2020, Cool Technologies issued 5,000,000 shares of common stock to LGH Investments, LLC upon partial conversion of $17,920 on convertible debt of $179,950. On January 21, 2020, Cool Technologies issued 10,000,000 shares of common stock to LGH Investments, LLC upon partial conversion of $22,400 on convertible debt of $179,950. On February 24, 2020, Cool Technologies issued 15,000,000 shares of common stock to LGH Investments, LLC upon partial conversion of $17,400 on convertible debt of $179,630. On March 5, 2020, Cool Technologies issued 6,500,000 shares of common stock to LGH Investments, LLC upon partial conversion of $8,840 on convertible debt of $179,630. On March 24, 2020, Cool Technologies issued 8,500,000 shares of common stock to LGH Investments, LLC upon partial conversion of $23,120 on convertible debt of $179,950. As of March 31, 2020, the convertible balance remaining totaled approximately $80,270.

   

June Convertible Note -- On June 6, 2019, the Company entered into a convertible note agreement. It received $130,000 with an original issue discount of $13,000 and an annual interest rate of 8%. The principal ($143,000) and interest will be due on June 6, 2020. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of common stock at a 29% discount to the lowest VWAP during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 24% per annum, require the Company to pay the product of the then outstanding principal amount, plus accrued interest and default interest, divided by the conversion price multiplied by the highest price at which the common stock traded at any time between the issuance date and the date of the event of default.

    

On December 19, 2019, Cool Technologies issued 1,128,687 shares of common stock to the holder upon partial conversion of $10,418 in debt. On December 24, 2019, the Company issued 2,674,064 shares of common stock to the holder upon partial conversion of $20,884 in debt.

    

On January 13, 2020, Cool Technologies issued 4,220,881 shares of common stock to Eagle Equities, LLC upon partial conversion of $20,978 on convertible debt of $143,300. On January 28, 2020, Cool Technologies issued 6,173,709 shares of common stock to Eagles Equities, LLC upon partial conversion of $21,040 on convertible debt of $143,300. On February 3, 2020, Cool Technologies issued 9,573,426 shares of common stock to Eagle Equities, LLC upon partial conversion of $21,071 on convertible debt of $143,300. On February 13, 2020, Cool Technologies issued 11,992,022 shares of common stock to Eagle Equities, LLC upon partial conversion of $26,394 on convertible debt of $143,300. On March 2, 2020, Cool Technologies issued 9,820,030 shares of common stock to Eagle Equities, LLC upon partial conversion of $26,494 on convertible debt of $143,300. As of March 31, 2020, the balance remaining totals approximately $2,000.

  

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July Convertible Note – On July 3, 2019, the Company entered into a convertible note agreement. It received $150,000 with an original issue discount of $15,300 in lieu of interest, for a total amount of $168,300 plus 8% annual interest due on July 3, 2020. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of CoolTech’s common stock at a 29% discount to the lowest VWAP during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 22% per annum, require the Company to redeem all or any portion of the note at a premium of 150%.

    

On January 3, 2020, Cool Technologies issued 2,238,806 shares of common stock to PowerUp Lending Group Ltd. upon partial conversion of $15,000 on convertible debt of $168,300. On January 8, 2020, Cool Technologies issued 3,174,603 shares of common stock to PowerUp Lending Group Ltd. upon partial conversion of $20,000 on convertible debt of $168,300. On January 14, 2020, Cool Technologies issued 3,921,569 shares of common stock to PowerUp Lending Group, Ltd. upon partial conversion of $20,000 on convertible debt of $168,300. On January 16, 2020, Cool Technologies issued 4,444,444 shares of common stock to PowerUp Lending Group, Ltd. upon partial conversion of $20,000 on convertible debt of $168,300. On January 21, 2020, Cool Technologies issued 5,111,111 shares of common stock to PowerUp Lending Group, Ltd. upon partial conversion of $23,000 on convertible debt of $168,300. On January 30, 2020, Cool Technologies issued 7,142,857 shares of common stock to PowerUp Lending Group, Ltd. upon partial conversion of $20,000 on convertible debt of $168,300. On February 3, 2020, Cool Technologies wired $72,000 to PowerUp Lending Group, Ltd. and the note with convertible debt of $168,300 was retired.

    

August Convertible Note On August 28, 2019, the Company entered into a convertible note agreement. It received $115,000 with an original issue discount of $11,500 and an annual interest rate of 8%. The principal ($126,500) and interest will be due on August 28, 2020. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of common stock at a 29% discount to the lowest VWAP during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 24% per annum or the highest rate of interest permitted by law.

   

On March 10, 2020, Cool Technologies issued 10,282,003 shares of common stock to Eagle Equities, LLC upon partial conversion of $40,151 on convertible debt of $126,500. As of March 31, 2020, the remaining balance totaled approximately $88,000.

    

October Convertible Note -- On October 3, 2019, the Company entered into a convertible note agreement. It issued 350,000 inducement shares of restricted common stock and received $115,000 with an original issue discount of $11,500 and an annual interest rate of 8%. The principal ($126,500) and interest will be due on October 2, 2020. After 180 days, at the holder’s option, a portion or all the unpaid principal and interest may be converted into shares of common stock at a 29% discount to the lowest closing price during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 24% per annum or the highest rate of interest permitted by law. As of March 31, 2020, the remaining balance totaled approximately $126,500.

    

November Convertible Note -- On November 9, 2019, the Company entered into a convertible note agreement. It received $126,000 with an original issue discount of $13,000 and an annual interest rate of 8%. The principal ($141,000) and interest will be due on November 6, 2020. After 180 days, at the holder’s option, a portion or all the unpaid principal and interest may be converted into shares of common stock at a 29% discount to the lowest closing price during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 24% per annum or the highest rate of interest permitted by law. As of March 31, 2020, the remaining balance totaled approximately $141,000.

    

December Convertible Note On December 5, 2019, the Company entered into a convertible note agreement. It received $103,000 with an original issue discount of $6,000 and an annual interest rate of 8%. The principal ($109,000) and interest will be due on December 5, 2020. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of common stock at a 29% discount to the lowest Volume Weighted Average Price (VWAP) during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 18% per annum or the highest rate of interest permitted by law.

    

January Convertible Note -- On January 30, 2020, the Company entered into a convertible note agreement with an accredited investor. It received $36,000 after an original issue discount of $4,000 in lieu of interest, for a total amount of $40,000 due on July 30, 2020. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of common stock at a 29% discount to the lowest VWAP during the 10 trading days preceding the conversion date. In the event of default, the outstanding balance will increase by 25% and a daily penalty of $100 will accrue until the default is remedied. As of March 31, 2020, the remaining balance totaled $40,000.

 

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Test Vehicle Financing

 

In October 2014, the Company entered into financing agreements for the purchase of test vehicles, bearing interest at 5.99% payable monthly over five years, collateralized by the vehicles. In July 2018, CoolTech traded-in one test vehicle and purchased another bearing an interest rate of 9.92% payable monthly over 6 years.

 

In June 2019, the Company traded in one test vehicle and purchased another with financing of approximately $44,500, bearing an interest rate of 9.92% payable monthly over a 5-year period.

 

Note payable – UPT minority owner

 

A promissory note is held by the 5% minority owner of UPT. The terms of the note have not been finalized.

 

Warrants Issued with Debt

 

When the Company issues notes payable, it may also be required to issue warrants.

    

 

 

Number of

Warrants

 

 

Weighted-

average

Exercise

Price

 

 

Weighted-

average

Remaining

Life

(Years)

 

 

Aggregate

Intrinsic

Value

 

Outstanding, December 31, 2019

 

 

18,467,717

 

 

 

0.05

 

 

 

3.7

 

 

$ 941,144

 

Granted

 

 

4,000,000

 

 

 

0.05

 

 

 

--

 

 

 

--

 

Forfeited or expired

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

Exercised

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

Outstanding, March 31, 2020

 

 

22,467,717

 

 

 

0.04

 

 

 

3.8

 

 

$ --

 

Exercisable, March 31, 2020

 

 

22,467,717

 

 

 

0.04

 

 

 

3.8

 

 

$ --

 

 

Transactions with Related Parties

 

The note payable - related party, in the amount of $21,641, is held by the Company’s Chief Financial Officer and relates to unreimbursed expenses.

 

 

The note payable - UPT minority owner, in the amount of $80,000, is held by the 5% minority owner of UPT. The terms of the note have not been finalized.

 

Future contractual maturities of debt are as follows:

 

Year ending December 31,

 

 

 

 

 

 

 

2020

 

$ 3,140,276

 

2021

 

 

15,498

 

2022

 

 

15,498

 

2023

 

 

15,498

 

2024

 

 

8,426

 

 

 

$ 3,195,196

 

 

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Note 4 – Derivative Liability

 

Under the terms of the May 2019, June 2019, July 2019, August 2019, October 2019, November 2019, December 2019 and January 2020 Convertible Notes, the Company identified derivative instruments arising from embedded conversion features.

 

The following summarizes the Black-Scholes assumptions used to estimate the fair value of the derivative liability at the dates of issuance and the revaluation dates:

 

 

 

Three Months

Ended

March 31,

2020

 

 

 

 

Volatility

 

124.2-554.8

%

Risk-free interest rate

 

0.01–1.57

%

Expected life (years)

 

0.08–1.0

 

Dividend yield

 

 

--

 

 

Changes in the derivative liability were as follows:

 

 

 

Three Months Ended March 31, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Convertible debt and other derivative liabilities at December 31, 2019

 

$ --

 

 

$ --

 

 

$ 712,921

 

Conversions of convertible debt

 

 

--

 

 

 

--

 

 

 

(206,079 )

Issuance of convertible debt and other derivatives

 

 

--

 

 

 

--

 

 

 

14,619

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value

 

 

--

 

 

 

--

 

 

 

237,968

 

Convertible debt and other derivative liabilities at March 31, 2020

 

$ --

 

 

$ --

 

 

$ 759,429

 

 

Note 5 – Commitments and Contingencies

 

Securities and Exchange Commission Settlement

    

On September 20, 2018, the Securities and Exchange Commission (SEC) approved an offer to settle the enforcement proceedings against the Company pursuant to Section 21C of the Securities Exchange Act of 1934.

    

These proceedings arose out of the violation of the Regulation S-X requirement that interim financial statements filed as part of a Form 10-Q be reviewed by an independent public accounting firm prior to filing.

 

On three occasions, specifically, May 20, 2013, August 19, 2013 and August 22, 2016, Cool Technologies filed Form 10-Qs that contained financial statements that were not reviewed by an independent public accounting firm. In two cases, the Company properly disclosed that the 10Q’s were “unaudited and unreviewed” as set forth by the guidance in the Division of Corporation Finance Financial Reporting Manual Section 4410.3 and in each case, the Company subsequently filed a restated and amended Form 10-Q/A that complied with the Interim Review Requirement. In no instance were the filings ever subjected to audit challenge.

 

Pursuant to the enforcement proceeding instituted by the SEC, the Company settled for a fine of $75,000 and agreed to cease and desist from any future violations of Sections 13(a) of the Exchange Act and Rule 13a-13 thereunder, and Rule 8-03 of Regulation S-X. As of the date of this filing, the Company still owes the SEC $50,000, which is included within accounts payable on the condensed consolidated balance sheets.

 

From time to time, the Company may be a party to other legal proceedings. Management currently believes that the ultimate resolution of these other matters, if any, and after consideration of amounts accrued, will not have a material adverse effect on the consolidated results of operations, financial position, or cash flow.

  

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Note 6 – Equity

 

Preferred Stock

 

Cool Technologies has 15,000,000 preferred shares authorized and 3 Series A and 2,727,270 Series B preferred shares issued and outstanding as of March 31, 2020.

 

On August 12, 2016, the Company entered into a Securities Purchase Agreement with four accredited investors pursuant to which it sold 3,636,360 shares of the Company’s Series B Convertible Preferred Stock. Each share of the preferred stock is convertible into one share of the Company’s common stock. The conversion price of the preferred stock is equal to the $0.055.

 

In addition to the preferred stock, the Securities Purchase Agreement included warrants to purchase 3,636,360 shares of the Company’s common stock at an exercise price of $0.07 per share. The warrants cannot be exercised on a cashless basis. The aggregate purchase price of the preferred stock and warrants was $200,000, of which $150,000 was paid in cash and $50,000 was paid in services.

 

In connection with the sale of the Preferred Stock, on October 20, 2016, the Company filed with the Secretary of the State of Nevada, an amended Certificate of Designations of the Rights, Preferences, Privileges and Restrictions, which have not been set forth in the Certificate of Designation of the Series B Convertible Preferred Stock nor the first Amendment to Certificate of Designation filed on August 12, 2016.

 

The preferred stock has the same rights as if each share of Series B Convertible Preferred Stock were converted into one share of common stock. For so long as the Series B Convertible Preferred Stock is issued and outstanding, the holders of such Series B Convertible Preferred Stock vote together as a single class with the holders of the common stock and the holders of any other class or series of shares entitled to vote with the common stock, with the holders of Series B Stock being entitled to 66 2/3% of the total votes on all such matters.

 

In the event of the death of a holder of the Class B Preferred Stock, or a liquidation, winding up or bankruptcy of a holder which is an entity, all voting rights of the Class B Preferred Stock shall cease.

 

The holder of any shares of Class B Preferred Stock have the right to convert their shares into common stock at any time, in a conversion ratio of one share of common stock for each share of Class B Preferred. If the Company’s common stock trades or is quoted at a price per share in excess of $2.25 for any twenty consecutive day trading period, the Class B Preferred Stock will automatically be convertible into the common stock of the Company in a conversion ratio of one share of common stock for each share of Class B Preferred.

 

The holders of Class B Preferred Stock are not entitled to receive any distributions in the event of any liquidation, dissolution or winding up of the Company.

 

The warrants cannot be exercised on a cashless basis.

 

On October 31 and November 1, 2016, three of the accredited investors provided $51,000 to Cool Technologies and are due to receive an additional 927,270 Series B Preferred shares. In lieu of issuing the additional 927,270 Series B Preferred shares and pursuant to signed approval from the investors, on July 25, 2017, CoolTech issued 309,090 shares of common stock to each of the investors.

 

On May 8, 2017, Inverom Corporation converted its 909,090 Series B preferred shares into 909,090 shares of common stock. This represented all of the shares of Series B stock held by Inverom Corporation.

 

Preferred stock issuable on the consolidated balance sheets represents preferred stock to be issued for either cash received, or services performed. As of March 31, 2020, and 2019, the number of shares of preferred stock to be issued was 0 and the number of shares of Series B preferred stock was 2,727,270.

 

On January 25, 2019, Spirit Bear, Ltd. converted their remaining 17 shares of Series A preferred stock into 850,000 shares of common stock. KHIC, Inc., a related party holds the remaining 3 shares of Series A Preferred Stock. Each share of Series A Preferred Stock (“Preferred Stock”) is convertible into 50,000 shares of common stock. Each share of preferred stock has voting rights as if they were converted into 50,000 shares of common stock. The holders of each share of preferred stock then outstanding shall be entitled to be paid out of the Available Funds and Assets (as defined in the “Certificate of Designation”), and prior and in preference to any payment or distribution (or any setting a part of any payment or distribution) of any Available Funds and Assets on any shares of common stock, an amount per preferred share equal to the Preferred Stock Liquidation Price ($2,500 per share).

 

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Common Stock

 

On September 13, 2019, stockholders holding shares that entitled them to exercise at least a majority of the voting power, voted in favor of increasing the number of authorized shares of common stock, from 350,000,000 shares to 500,000,000 shares.

 

On February 13, 2020, stockholders holding shares that entitled them to exercise at least a majority of the voting power, voted in favor of increasing the number of authorized shares of common stock, from 500,000,000 shares to 1,000,000,000 shares.

 

Common stock issuable on the condensed consolidated balance sheets represents common stock to be issued for either cash received, or services performed. As of March 31, 2020 and December 31, 2019, the number of shares of common stock to be issued was 494,697 shares.

 

Common stock warrants issued with the sale of common stock

 

When the Company sells shares of its common stock the buyer also typically receives fully vested common stock warrants with a maximum contractual term of 3-5 years. A summary of common stock warrants issued with the sale of common stock as of March 31, 2020, and changes during the period then ended is presented below:

 

 

 

Number of Warrants

 

 

Weighted-

average

Exercise Price

 

 

Weighted-

average

Remaining

Life

(Years)

 

 

Aggregate

Intrinsic

Value

 

Outstanding, December 31, 2019

 

 

45,514,168

 

 

$ 0.12

 

 

 

1.1

 

 

$ --

 

Granted

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

Forfeited or cancelled

 

 

(11,400,000 )

 

 

0.10

 

 

 

--

 

 

 

--

 

Outstanding, March 31, 2020

 

 

34,114,168

 

 

 

0.12

 

 

 

1.0

 

 

$ --

 

Exercisable, March 31, 2020

 

 

34,114,168

 

 

$ 0.12

 

 

 

1.0

 

 

$ --

 

 

Note 7 – Share-based payments

 

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

 

 

 

Three months ended March 31,

 

 

 

2020

 

 

2019

 

Nonemployee warrants – fully-vested upon issuance

 

$ --

 

 

$ 32,624

 

 

 

 

 

 

 

 

 

 

Total share-based expense charged against income

 

$ --

 

 

$ 32,624

 

 

 

 

 

 

 

 

 

 

Impact on net loss per common share:

 

 

 

 

 

 

 

 

Basic and diluted

 

$ (0.00 )

 

$ (0.00 )

 

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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, 2019

 

 

9,735,836

 

 

 

0.36

 

 

 

1.3

 

 

$ 2,000

 

Granted

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

Forfeited or expired

 

 

 --

 

 

 

 --

 

 

 

 --

 

 

 

 --

 

Outstanding, March 31, 2020

 

 

9,735,836

 

 

 

0.13

 

 

 

1.8

 

 

$ 78,000

 

Exercisable, March 31, 2020

 

 

9,735,836

 

 

 

0.13

 

 

 

1.8

 

 

$ 78,000

 

 

Note 8 – Net Loss per Share

 

Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the reporting period. Diluted net loss per share is computed similarly to basic loss per share, except that it includes the potential dilution that could occur if dilutive securities are exercised.

 

The following table presents a reconciliation of the denominators used in the computation of net loss per share – basic and diluted:

 

 

 

Three months ended March 31,

 

 

 

2020

 

 

2019

 

Net loss available for stockholders

 

$ (816,424 )

 

$ (831,252 )

Weighted average outstanding shares of common stock

 

 

333,926,498

 

 

 

221,061,294

 

Dilutive effect of stock options and warrants

 

 

--

 

 

 

--

 

Common stock and equivalents

 

 

333,926,498

 

 

 

221,061,294

 

 

 

 

 

 

 

 

 

 

Net loss per share – Basic and diluted

 

$ (0.00 )

 

$ (0.00 )

 

Outstanding stock options and common stock warrants are considered anti-dilutive because the Company is in a net loss position. The following summarizes equity instruments that may, in the future, have a dilutive effect on earnings per share:

 

 

 

March 31

 

 

 

2020

 

 

2019

 

Stock options

 

 

4,000,000

 

 

 

4,000,000

 

Common stock warrants

 

 

72,027,721

 

 

 

72,829,084

 

Common stock issuable

 

 

494,697

 

 

 

2,144,697

 

Convertible notes

 

 

117,025,451

 

 

 

34,118,958

 

Convertible preferred stock

 

 

2,877,270

 

 

 

2,877,270

 

Total

 

 

196,425,139

 

 

 

115,970,009

 

Total exercisable at March 31

 

 

120,636,050

 

 

 

115,825,312

 

 

Note 9 – Subsequent Events

 

On May 1, 2020, the Company defaulted on 2 notes payable. A $250,000 note was purchased on September 11, 2018 and a $125,000 note was purchased on September 25, 2018 by the same accredited investor. The principal and interest as of May 1, 2020 total $311,541 and $155,051, respectively. As of the filing date, the Company has not received a notice of default for either note. As per the terms of the note, interest will continue to accrue at 15% per annum until paid in full.

 

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On May 4, 2020, the Company received loan proceeds of $52,612 (the “PPP Loan”) under the Paycheck Protection Program (“PPP” under the Coronavirus Aid, Relief and Economic Security Act).

 

The PPL Loan is evidenced by a promissory note (the “Note”), between the Company and Small Business Administration (the “Lender”). The Note has a two-year term, bears interest at the rate of 1.00% per annum, and may be prepaid at any time without payment of any premium. No payments of principal or interest are due during the six-month period beginning on the date of the Note (the “Deferral Period”).

 

The principal and accrued interest under the Note is forgivable after 24 weeks if the Company uses the PPP Loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and otherwise complies with PPP requirements. In order to obtain forgiveness of the PPP Loan, the Company must submit a request and provide satisfactory documentation regarding its compliance with applicable requirements through its bank. The bank has stated that it will notify the Company when it is ready to proceed. As of the filing date, no notification has been received. The Company must repay any unforgiven principal amount of the Note, with interest, on a monthly basis following the Deferral Period. The Company intends to use the proceeds of the PPP Loan for eligible purposes and to pursue forgiveness, although the Company may take action that could cause some or all of the PPP Loan to become ineligible for forgiveness. No assurance is provided that forgiveness for all or any portion of the PPP Loan will be obtained.

 

The Note contains customary events of default relating to, among other things, payment defaults and breaches of representations, warranties or covenants. The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts owing from the Company, or filing suit and obtaining judgment against the Company.

 

On May 7, 2020, Cool Technologies issued 4,460,094 shares of common stock to Eagle Equities, LLC upon partial conversion of $31,667 on convertible debt of $126,500.

   

On May 8, 2020, Cool Technologies issued 2,352,841 shares of common stock to PowerUp Lending Group, Ltd., upon partial conversion of $20,000 on convertible debt of $141,000.

    

As of May 26, 2020, Danial Ustian resigned from Cool Technologies’ Board of Directors. Daniel had been a member of the board since 2015.

  

On June 1, 2020, Cool Technologies issued 15,000,000 shares of common stock to LGH Investments, LLC upon partial conversion of $69,000 on convertible debt of $179,630.

    

On June 5, 2020, Cool Technologies issued 3,325,335 shares of common stock to Eagle Equities, LLC upon partial conversion of $26,561 on convertible debt of $126,500.

    

On June 15, 2020, Cool Technologies issued 3,924,883 shares of common stock to Eagle Equities, LLC upon partial conversion of $23,408 on convertible debt of $126,500.

    

On June 29, 2020, the Company entered into a promissory note agreement with an accredited investor. CoolTech received $85,000 with an original issue discount of $10,000 in lieu of interest. The total amount ($95,000) will be due by July 29, 2020. Additional compensation included one million warrant shares which enable the Lender to acquire an equivalent amount of common stock of Cool Technologies, Inc. In exchange, Cool Technologies issued cashless warrants to purchase 1,000,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years. At any time following the occurrence of an event of default, the lender may declare all unpaid principal, plus all accrued interest and other amounts due hereunder to be immediately due and payable.

   

On June 30, 2020, Cool Technologies issued 2,067,880 shares of common stock to Eagle Equities, LLC upon final conversion of $11,746 convertible debt of $126,500.

 

On July 3, 2020, the Company entered into a promissory note agreement with an accredited investor. CoolTech received $85,000 with an original issue discount of $8,500 in lieu of interest. The total amount ($93,500) will be due by August 2, 2020. In the event of default, the interest rate will be 18% per annum or the highest rate of interest permitted by law.

  

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Overview

 

Cool Technologies, Inc. and subsidiary, (“the Company” or “Cool Technologies” or “CoolTech”) was incorporated in the State of Nevada in July 2002. In April 2014, CoolTech formed Ultimate Power Truck, LLC (“Ultimate Power Truck” or “UPT”), of which the Company owns 95% and a shareholder of Cool Technologies owns 5%. Cool Technologies was formerly known as Bibb Corporation, as Z3 Enterprises, and as HPEV, Inc. On August 20, 2015, the Company changed its name to Cool Technologies, Inc.

 

The Company’s technologies are divided into two distinct but complementary categories: mobile power generation and heat dispersion technology.

 

The Company has developed a mobile power generation system (MG) that enables work trucks to generate electric power by running an in-chassis generator. The MG system can be retrofit onto new and existing American trucks. CoolTech intends to sell the mobile electric power system to government, commercial and fleet vehicle owners. Sales are expected to occur through the direct efforts of the Company, its sales agents and its joint venture partners. CoolTech may also license the MG system as well.

 

The markets targeted include consumer, agricultural, industrial, military and emergency responders, both in the U.S. and worldwide.

 

CoolTech has also developed heat dispersion technologies based on proprietary composite heat structures and heat pipe architecture in various product platforms such as electric motors, pumps, turbines, bearings and vehicle components. In preparation, Cool Technologies filed for and received a trademark for Totally Enclosed Heat Pipe Cooled: TEHPC.

 

When a generator is enhanced by CoolTech’s patented thermal technologies, it should be able to output more power than any other generator of its size on the market. That’s because third party testing has demonstrated that the cooling provided by the thermal technologies can help increase the efficiency of electric motors.

    

Furthermore, management believes that the technologies will increase the lifespan as well as help meet regulatory emissions standards for electric motors and other heat producing equipment and components. The simplicity of the heat pipe architecture as well as the fact that it provides effective new applications for existing manufacturing processes should enhance the cost structure in several large industries including motor/generator and engine manufacturing.

 

As of July 1, 2020, we have seven US patents, one Canadian patent, two granted patents (1 Mexican, 1 Canadian) and two pending applications (1 in the US, 1 in Brazil) covering composite heat structures, motors, and related structures, heat pipe architecture, and applications (commonly referred to as “thermal” or “heat dispersion technology”). We also have one Patent Cooperation Treaty (“PCT”) application pending that covers integrated electrical power generation methods and systems.

 

The Company intends to commercialize its patents by integrating the thermal technologies and applications with Original Equipment Manufacturer (OEM) partners and by licensing them to electric motor, generator, pump and vehicle component (brake, resistor, caliper) manufacturers.

 

We believe the benefits of our mobile power generation systems are quickly realized once potential customers see it in operation. Public demonstrations of the MG systems began in April 2017. An inspection and performance demonstration for Mexican government officials and business leaders occurred in May 2018. Feedback from initial viewers resulted in more government officials and fruit growers coming to see the MG power equipment and to learn about the water purification options in March 2019. Even more officials and growers followed -- flying to St. Louis for a review in May 2019.

 

We generated our first Mobile Generation order during the quarter ended June 30, 2014 and received a partial deposit in advance of completing the sale. On June 9, 2017, the Company received a purchase order for 10 MG systems from Craftsmen Industries. As Craftsmen builds custom vehicles designed to the individual specifications of their customers whose businesses and technical requirements vary widely, it is impossible to estimate when the order will be fulfilled.

 

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In November 2017, the Company received a purchase commitment for 234 MG systems from a Mexican Producers’ Union. That was followed by a purchase commitment for 24 to 50 MG units from a second Mexican Producers’ Union in December 2017. On April 9, 2018, the first Mexican Producers’ Union executed a purchase order with the Company for 10 Ford F350s with MG80 kVA systems installed. On May 7, 2019, Turkish technology company Belirti Teknoloji, A.S. delivered a purchase order for six hundred MG80, MG125 and MG200 Mobile Generation systems. As of the June 1, 2020, the Company does not have the funds available to fulfill the orders.

 

Craftsmen Industries was selected to produce the first systems due to its engineering capabilities and extensive facilities. In January 2019, it began production on the initial vehicles and completed an initial production run vehicle two months later.

 

We have not generated any revenues to date. Consequently, there can be no assurances that the Company will be able to generate new orders nor fulfill the existing ones nor address all the requirements of all the interested parties.

 

Management is pursuing various financing alternatives, based upon a third-party assessment of the historically demonstrated or contractually committed profit-earning capacities of our IP. We see this as the best path forward for non-dilutive funding.

 

If funding is received, it will be used to support completion of the initial phases of our business plan, which is to license our thermal technologies and applications; to license or sell a mobile electric power system; and to license our submersible motor dry pit technologies and/or to bring to market our technologies and applications through key distribution and joint venture partners. As of the filing date, it is uncertain whether COVID-19 will have a significant impact on production and distribution of Company products.

 

The occurrence of an uncontrollable event such as the COVID19 pandemic has negatively affected our operations. A pandemic typically results in social distancing, travel bans and quarantine. This has limited access to our facilities, customers, management, support staff and professional advisors. These, in turn, have impacted our operations and financial condition. It may also impact demand for our products and may continue to hamper our efforts to provide our investors with timely information and comply with our filing obligations with the Securities and Exchange Commission.

 

Recent Developments

 

National Union of Jatropha Producers

 

In November 2017, the Company received a purchase commitment for 234 MG systems from the National Union of Producers of Jatropha in Mexico (Jatropha).

 

Jatropha has established a center for processing oil from Jatropha seeds for biofuel production. Through their union of producers, Jatropha plans to introduce the MG and promote the product to their supplier network.

    

The purchase commitment stipulates that CoolTech will furnish Jatropha with an MG80 retro-fitted onto a Ford F-350 truck within 60 business days of the signed of the agreement. To ensure the system is optimized to meet Jatropha’s needs, CoolTech set the terms of the agreement to allow both teams to gather data and provide performance feedback another 30 to 60 days. Upon completion of this period, Jatropha will release the balance of the order for 233 units. Payment terms require 50% down and 50% at time of shipment, FOB (Freight on Board) from Cool Technologies’ dock.

 

On February 6, 2018, Jatropha signed an agreement to amend their previous purchase agreement. It eliminates the 60 business day deadline for the truck to be shipped to Mexico. Under the new agreement, representatives from Jatropha will come to Colorado for an inspection and live performance demonstration. If approved, the generator-equipped trucks will go into production as specified in the original purchase agreement.

  

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A representative of the National Union of Jatropha Producers approved the generator-equipped truck. It will go into production as the Company and Jatropha secure final funding.

 

On April 11, 2019, Jatropha signed an addendum to update the terms and conditions originally set forth in the Agreement of Principal Terms dated November 7, 2017. In light of the higher electrical output and new options offered by the Company, Jatropha amended its purchase commitment to include 50 MG80 (80 kVA) Systems with mobile desalination units capable of producing 2500 gallons of fresh water per day, 100 MG125 (125 kVA) systems, 50 MG200 (200 kVA) Systems and 50 HydroQubes (a hydrogen infusion system that improves fuel economy) composed of 2 cells. The addendum states that CoolTech shall start production and fulfillment of the orders no later than the 3rd Quarter of 2019.

 

The value of the purchase commitment is expected to be between $17,000,000 and $22,000,000. On April 9, 2018, Jatropha executed a purchase order with the Company for 10 Ford F-350s with MG80 kVA systems installed. The value of the initial order is in excess of one million dollars. Completion of the order is dependent upon Jatropha securing a letter of credit within 45 days of the order. The process of securing the letter of credit is underway (See ‘Mexican Government’ heading below) and the Company is not enforcing the timeline set forth in the order.

 

National Union of Producers in Mexico for the state of Veracruz

 

In December 2017, the Company received a purchase commitment for 24 to 50 MG units from the National Union of Producers in Mexico for the state of Veracruz. Depending on the respective numbers of MG55 and MG80 kVA systems ordered, the Company expects the value of the commitment to range between $1,200,000 and $3,900,000.

 

The union represents farmers who grow labor and energy intensive crops such as sugar cane, tobacco, bananas, coffee, rice and vanilla. It expects that the MG systems will increase yields, exports and incomes for its members and their communities.

 

According to the contract, the Company will deliver an MG 80 retro-fitted onto a Ford F-350 truck within 60 business days.

    

On February 23, 2018, Veracruz signed an agreement to amend their previous purchase agreement. It eliminates the 60 business day deadline for the truck to be shipped to Mexico. Under the new agreement, representatives from Veracruz will come to Colorado for an inspection and live performance demonstration. If approved, the generator-equipped trucks will go into production as specified in the original purchase agreement.

 

A representative of the National Union of Jatropha Producers approved the generator-equipped truck. It will go into production as the Company and Veracruz secure final funding.

 

Payment terms require 50% down and 50% at time of shipment, each payable with a bank letter of credit. Product delivery will be considered FOB (Freight on Board) from Cool Technologies’ shipping dock.

    

Aon Risk Services Central, Inc and Lee and Hayes, PLLC

    

In January 18, 2018, the Company entered into an agreement with Aon Risk Services Central, Inc. and Lee and Hayes, PLLC, through its operating unit, 601West, which provides intellectual property (“IP”) analytics, to assess the value of the Company’s IP. As set forth in the agreement, the assessment will be founded on historically demonstrated or contractually committed profit-earning capacities of the IP and may be used to obtain financing, including but not limited to, non-dilutive financing. The Company is using the valuation to obtain non-dilutive funding.

   

Live MG80 Demonstration in Fort Collins, Colorado

    

On May 4, 2018, nine representatives from Mexico’s farming, banking, and government sectors flew to Fort Collins, Colorado for a live demonstration of CoolTech’s generator-equipped truck. The demonstration showcased the capabilities and ease of operation of the system. The Company demonstrated how an operator is able to control the generator from the comfort and safety of the truck’s cab using a Panasonic Toughpad. The Company also used the electricity from the truck to power a screw compressor, an industrial fan, and an industrial load bank. Additional capabilities, such as purifying water and using batteries and solar power to make operations more sustainable and environmentally friendly were discussed with the attendees.

 

A representative of the National Union of Jatropha Producers approved the generator-equipped truck. CoolTech plans to put this into production as soon as final funding is secured. Based on initial feedback and subsequent meetings and conversations with other attendees, the Company expects the demonstration will lead to new orders.

 

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Unveiling of Initial Production Run Vehicle

    

On March 27, 2019 the Company unveiled the initial production run of its Mobile Generation (MG) work trucks for inspection by an audience of agricultural and community leaders from Latin America at Craftsmen Industries.

   

The itinerary for the showcase event included a tour of the St Louis manufacturing facility and inspection of the first production run MG vehicle in operation as it powered a variety of equipment.

    

The purpose of the viewing was not only to show the truck’s capabilities, but to get feedback from the attendees and learn what are their specific needs and applications as well as what features and functions are important to them.

 

The Company believes Latin American politicians, factory owners and fruit growers will attend a similar inspection in St. Louis, Missouri in May.

 

Mexican Government

 

Fulfillment of payment terms for both the Jatropha orders and the Veracruz purchase commitment require the participation of the Mexican government as it is a major source of funding for both unions.

 

On April 25, 2019, the CEO of the Company flew to Mexico City to meet with the Secretaries of Energy, Agriculture and the Environment for the new administration as well as federal deputies and representatives.

 

On May 13, 2019, government officials and fruit growers were at Craftsmen Industries in St. Louis for a review of a first run MG80 production vehicle and water purification/desalination options.

 

Introduction of new options

 

During the past quarter, the Company has introduced new options which include an MG System that generates up to 200 kVA of electric power, water purification and desalination systems.

 

The truck-mounted water purification and desalination units can produce from 2,800 to 10,000 gallons of fresh water every day. Assuming the average person needs 2 liters per day, 10,000 gallons is enough for 18,927 people.

 

A 30 kVA MG system could power any size unit as well as the pumps to deliver the water or five units at once which would conceivably be enough to keep the population of Santa Barbara hydrated. It could even tow a 1,250 gallon water tanker, if needed.

 

The purification and desalinization units feature fully automated controls and monitoring. When combined with the optional telematics offered in the vehicles, each unit could be remotely controlled and monitored from distant locations.

 

Belirti Teknoloji

 

On May 7, 2019, the Company entered into a joint venture agreement (“JV”) with Turkish technology company Belirti Teknoloji, A.S. (“BelirtiTech”). To launch the business, BelirtiTech awarded Cool Technologies a purchase order for up to $42 million USD for the purchase of several different models of its Mobile Generation kits. The purchase order will supply the JV with its initial inventory for resale into the Middle East and some African nations. The Company is actively working with the customer’s bank in addition to insurance companies and other financial entities to facilitate the financing of the orders. As of the date of this filing, the funds to fulfill the orders are not in place.

 

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The initial purchase order is for six hundred MG80, MG125 and MG200 Mobile Generation systems. The MG systems will be integrated into the end customer’s choice of vehicles.

 

The order also includes an additional MG80 installed in a Ford F-450 with the 2,500 gallon per day mobile water desalinization option included.

 

KeyOptions

 

On May 30, 2019, the Company entered into a joint venture agreement (“JV”) with KeyOptions Pty Ltd., a privately held technology and security provider based in Victoria, Australia.

 

KeyOptions develops and markets products for governments, defense contractors and other commercial applications to counter security and cyber threats. The Company will provide a license for the JV to market and sell CoolTech’s entire product platform in Australia and neighboring countries in Southeast Asia.

 

New Strategic Alliance:

 

On December 16, 2019, the Company signed a cross marketing and licensing agreement with VerdeWatts, LLC., an energy generation and storage company encompassing everything from mobile solar power generation systems to large scale biogas turbine installations. Pursuant to the agreement VerdeWatts and the Company each granted the other a royalty free non-exclusive license to certain patents which license is subject to certain future negotiation.

 

Like CoolTech’s Mobile Generation systems (“MG”), VerdeWatts’ products are scalable and offer the ability to bring power nearly anywhere it is needed. Their proprietary Smart Solar Power Generation Units and energy storage systems combine to deliver sustainable power long after the sun has set.

 

The agreement with VerdeWatts also included a cross marketing and royalty free non-exclusive licensing agreement with FirmGreen, Inc., a water treatment facilities developer that works closely with VerdeWatts to create a suite of synergistic products that address significant needs in the global marketplace. FirmGreen specializes in water purification and desalination technologies. Their mobile, solar and container applications feature 6 levels of water purification for unrivaled drinkability. Pursuant to the agreement FirmGreen and the Company each granted the other a royalty free non-exclusive license to certain patents which license is subject to certain future negotiation.

 

CoolTech’s MG platform makes the companies’ product offering complete with mobile power generation. It provides the capability to power everything from irrigation for farms and water purification for rural areas to electric vehicle charging and fast charging in the urban ones.

 

Consider the solar-powered generator system with a built-in water purification unit that makes seawater desalination sustainable. The system pumps and purifies up to 3,000 gallons per day and interfaces with CoolTech’s MG system for 24-hour operation. The solar panels collapse and fold together, so the entire system fits easily in the bed of a work truck. It can be set up and operate anywhere a four-wheel drive vehicle can reach. All of these systems are patent protected and cross licensed to each of the three companies.

 

FirmGreen and VerdeWatts have a global presence with projects on 3 continents. The largest encompasses the installation of 14 natural gas generators to produce over 60 megawatts (MW) of power. The generators will be integrated with 50 megawatt hours of battery storage and another 6 MW of solar to ensure a consistent flow of power. VerdeWatts intend to replace most of the legacy on-site generators with CoolTech’s MG systems, however the Company has not received any orders and there cannot be any assurance that any orders will be placed.

 

Together the companies can create an energy or utility ecosystem that can enable less developed countries to leapfrog non-existent, inadequate or failing infrastructure to deliver reliable power and water quickly, sustainably and cost effectively to their citizens, agriculture and other businesses. The scale and impact can reach from the individual farms and villages to cities and regions.

 

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In fact, by combining their respective technologies: energy generation, energy storage and load management controls into a single suite of products, the companies create what is called a “microgrid”. Varying combinations of energy sources such as solar, wind, biogas and MG systems both backup and supplement one another to provide consistent, uninterrupted primary power even during severe weather or other emergency situations.

 

The synergies between the companies extend beyond water purification and power generation. VerdeWatts’ wind and gas turbines and generators which produce electric power can all be improved by CoolTech’s thermal reduction technologies.

 

New Sales Agent:

 

In early December 2019, the Company entered into an agreement with Gaia Energy of Gdansk, Poland to act as an independent agent for the Company by developing markets in Eastern Europe, the Middle East and Africa. The agreement describes the agent’s duties as “generating revenue, and investment funding, for the Company from various organizations including investment funds, end-users, channel partners, integrators, and OEMs.”

 

Team members of Gaia Energy include executives with more than twenty-five years’ experience with Panasonic, Ford Motor Company, Electronic Data Systems and the US Air Force in the fields of advanced technologies and an African diplomat with a thirty-year background working with and for diplomatic missions, non-governmental organizations and international disasters and aid management services.

 

The diplomat introduced CoolTech products at a recent African technical summit attended by representatives from 54 countries.

 

Request for Collaboration Sent to US Government Officials

 

On December 11, 2019, letters signed by 13 government officials and Congressmen in Mexico were mailed to their counterparts in the US, specifically Governor Gavin Newsom, Secretary Rick Perry, Secretary Wilbur Ross, Senator Mitch McConnell and Speaker of the House Nancy Pelosi.

 

The letters were a request for collaborative support between the two countries to accelerate CoolTech’s product deployment into Mexico to help solve urgent rural power and water purification problems that are hurting rural communities. Those problems include irregular and faulty power in rural areas which hinders crop irrigation and water pollution which affects crops farmed for sale to the US.

 

The letters also detail the Mexican officials’ satisfaction with CoolTech’s solutions and management team and that they have met with the Company on several occasions for product demonstrations as well as strategic and technical advice. They highlight the benefits of CoolTech products, how they could quickly and efficiently address the problems noted, and how they expect them to become a viable part of the country’s infrastructure.

 

Export Import Bank of the United States

 

With the help of VerdeWatts and FirmGreen, CoolTech has initiated a relationship with the Export-Import Bank of the United States (EXIM), a U.S. government agency whose sole mission is to support U.S. exports. The bank fulfills its mission by offering very cost-effective financing for international customers and project developers to purchase U.S.-made services and purchase or lease U.S.-made goods.

 

To that end, the two companies applied to finance the Mexican projects referenced above. CoolTech also sent product information for due diligence review by the technical team at EXIM bank. Subsequently, CoolTech has received a Letter of Interest from EXIM, however, there cannot be any assurance that EXIM will provide any funding to the Company.

 

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Results of Operations

 

The following table sets forth, for the periods indicated, condensed consolidated statements of operations data. The table and the discussion below should be read in conjunction with the accompanying condensed consolidated financial statements and the notes thereto, appearing elsewhere in this report.

  

 

 

Three months ended March 31,

 

 

 

 

 

 

 

 

2020

 

 

2019

 

 

Change

 

 

%

 

Revenues

 

$ --

 

 

$ --

 

 

 

N/A

 

 

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payroll and related expenses

 

 

82,750

 

 

 

126,460

 

 

 

(43,710 )

 

 

-34.6 %

Consulting

 

 

62,000

 

 

 

95,324

 

 

 

(33,324 )

 

 

-34.9 %

Professional fees

 

 

46,800

 

 

 

81,765

 

 

 

(34,965 )

 

 

-42.8 %

Research and development

 

 

10,308

 

 

 

14,702

 

 

 

(4,394 )

 

 

-29.9 %

General and administrative

 

 

9,909

 

 

 

85,864

 

 

 

(75,955 )

 

 

-88.5 %

Total operating expenses

 

 

211,767

 

 

 

404,115

 

 

 

(192,348 )

 

 

-47.6 %

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(367,207 )

 

 

(619,975 )

 

 

252,768

 

 

 

40.8 %

Change in fair value of derivative liability

 

 

(237,968 )

 

 

(41,818 )

 

 

(196,150 )

 

 

-469.1 %

Loss on extinguishment of debt

 

 

--

 

 

 

234,186

 

 

 

(234,186 )

 

 

-100.0 %

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

(816,942 )

 

 

(831,722 )

 

 

14,780

 

 

 

1.8 %

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Noncontrolling interest

 

 

(518 )

 

 

(470 )

 

 

(48 )

 

 

-10.2 %

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss to shareholders

 

$ (816,424 )

 

$ (831,252 )

 

$ 14,828

 

 

 

1.8 %

 

Revenues

 

During the three months ended March 31, 2020, and since inception, the Company has not generated any revenues. Cool Technologies generated its first Mobile Generation order during the quarter ended June 30, 2014 and received a partial deposit in advance of completing the sale with companies controlled by the individual who is a 5% owner of UPT and a shareholder of the Company. The order is in the production queue along with other existing orders.

 

Operating Expenses

 

Payroll and related expenses decreased during the three months ended March 31, 2020 from $126,460 in 2019 to $82,750 in 2020 due to the elimination of Mark Hodowanec’s salary after he resigned in July 2019 and due to the fact that the remaining officers received no salary during the first quarter.

 

Consulting expense decreased during the three months ended March 31, 2020 from $95,324 in 2019 to $62,000 in 2020 primarily due to the reduced workload for consultants and the Company’s need to conserve cash. Professional fees decreased during the three months ended March 31, 2020 from $81,765 in 2019 to $46,800 in 2020 The decrease in professional fees was due primarily to the reduced requirements for accounting and legal and the need to conserve cash.

 

Research and development expenses decreased during the three months ended March 31, 2020 from $14,702 in 2019 to $10,308 in 2020 due to the focus on commercialization of the Company’s MG system.

 

General and administrative expense decreased during the three months ended March 31, 2020 from $85,864 in 2019 to $9,909 in 2020 due to limited funds.

 

Other Income and Expense

 

Interest expense decreased during the three months ended March 31, 2020 compared to the three months ended March 31, 2019 due to accelerated debt discount amortization upon the conversion of convertible notes.

 

Net Loss and Noncontrolling interest

 

Since Cool Technologies has incurred losses since inception, it has not recorded any income tax expense or benefit. Accordingly, the Company’s net loss is driven by operating and other expenses. Noncontrolling interest represents the 5% third-party ownership in UPT, which is subtracted to calculate net loss to shareholders.

 

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Liquidity and Capital Resources

 

The Company has historically met its liquidity requirements primarily through the public sale and private placement of equity securities, debt financing, and exchanging common stock warrants and options for professional and consulting services. At March 31, 2020, CoolTech had cash of $131.

 

Working capital is the amount by which current assets exceed current liabilities. The Company had negative working capital of $7,029,927 and $6,821,643, respectively, at March 31, 2020 and December 31, 2019. The decrease in working capital was due to large reduction in cash combined with increases in accounts payable, accrued liabilities – related party and derivative liability that more than offset a reduction in current debt. To that end, we owe approximately $583,137 for convertible notes and we owe another $2,612,059 in notes payable. Based on its current forecast and budget, management believes that its cash resources will not be sufficient to fund its operations through the end of the second quarter. Unless the Company can generate sufficient revenue from the execution of the Company’s business plan, it will need to obtain additional capital to continue to fund the Company’s operations. There is no assurance that capital in any form would be available to us, and if available, on terms and conditions that are acceptable. If we are unable to obtain sufficient funds, we may be forced to curtail and/or cease operations.

 

February Convertible Note – On February 19, 2018, the Company entered into a convertible note agreement. It issued 2,000,000 inducement shares of restricted common stock and received $350,000, with an original issue discount of $35,000 in lieu of interest, for a total amount of $385,000 due on September 19, 2018. At the holder’s option, a portion or all the unpaid principal and interest may be converted into shares of CoolTech’s common stock at $0.05 per share. In the event of default, the outstanding balance will increase by 25% and a daily penalty of $100 will accrue until the default is remedied.

 

On May 22, 2018, the holder signed an amendment to the note which extended the maturity date to November 1, 2018. In exchange, the note was changed from promissory to convertible with a conversion price of $0.025 per share.

 

On September 14, 2018, the Company issued 2,000,000 shares on conversion of $50,000 in debt. On October 26, 2018, the holder signed an amendment to the note which extended the maturity date to January 1, 2019. On October 31, 2018, the Company issued 2,000,000 shares on conversion of $50,000 in debt.

 

On January 1, 2019, the holder signed an amendment to the note which extended the maturity date to May 1, 2019. In exchange, the conversion price was changed from $0.025 to $0.0125 per share. On February 26, 2019, CoolTech issued 7,500,000 shares of common stock to the holder upon partial conversion of $93,750 in debt. On April 23, 2019, Cool Technologies issued 7,500,000 shares of common stock to the holder upon conversion of $93,750 in debt.

   

On May 1, 2019, the holder signed an amendment to the note which extended the maturity date to August 1, 2019. All other terms and conditions remained the same. On July 30, 2019, the Company issued 4,000,000 shares of common stock to the holder upon partial conversion of $50,000 in debt.

    

On July 30, 2019, the holder signed an amendment to the note which extended the maturity date to November 1, 2019. On September 11, 2019, the Company issued 2,500,000 shares of common stock to the holder upon partial conversion of $31,250 in debt.

    

On October 31, 2019, he signed an amendment which extended the maturity date to December 31, 2019. All other terms and conditions remained the same. On December 2, 2019, Cool Technologies issued 2,224,000 shares of common stock to the holder upon final conversion of $27,800 and the note was retired.

    

February Convertible Note -- On February 11, 2019, the Company entered into a convertible note agreement. It received $140,000 with an original issue discount of $8,400 in lieu of interest, for a total amount of $132,500 due on February 11, 2020. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of CoolTech’s common stock at a 29% discount to the lowest VWAP during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 22% per annum, require the Company to redeem all or any portion of the note at a premium of 150%.

    

On August 13, 2019, the Company issued 423,729 shares of common stock to the holder upon partial conversion of $15,000 in debt. On August 23, 2019, the Company issued 545,455 shares of common stock to the holder upon partial conversion of $15,000 in debt. On August 29, 2019, the Company issued 604,839 shares of common stock to the holder upon partial conversion of $15,000 in debt. On September 3, 2019, the Company issued 819,672 shares of common stock to the holder upon partial conversion of $20,000 in debt. On September 5, 2019, the Company issued 833,333 shares of common stock to upon partial conversion of $20,000 in debt. On September 11, 2019, the Company issued 1,005,025 shares of common stock to upon partial conversion of $20,000 in debt. On September 17, 2019, the Company issued 1,005,025 shares of common stock to upon partial conversion of $20,000 in debt. On September 24, 2019, the Company issued 1,119,558 shares of common stock to the holder upon final conversion of $15,000 in debt and the note was retired.

 

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March Convertible Note -- On March 13, 2019, the Company entered into a convertible note agreement. It received $140,000 with an original issue discount of $7,500 in lieu of interest, for a total amount of $131,600 due on February 11, 2020. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of common stock at a 29% discount to the lowest VWAP during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 18% per annum, require the Company to pay the product of the then outstanding principal amount, plus accrued interest and default interest, divided by the conversion price multiplied by the highest price at which the common stock traded at any time between the issuance date and the date of the event of default.

  

On September 16, 2019, the Company issued 2,012,072 shares of common stock to the holder upon partial conversion of $40,000 in debt. On October 1, 2019, the Company issued 2,695,599 shares of common stock to the holder upon partial conversion of $40,000 in debt. On October 14, 2019, the Company issued 2,859,758 shares of common stock to the holder upon partial conversion of $40,000 in debt. On November 12, 2019, the Company issued 2,886,674 shares of common stock to the holder upon final conversion of $20,000 in debt and the note was retired.

    

May Convertible Note -- On May 13, 2019, the Company entered into a convertible note agreement. It received $150,000 after an original issue discount of $15,000 in lieu of interest, for a total amount of $165,000 due on December 13, 2019. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of common stock at a 29% discount to the lowest VWAP during the 10 trading days preceding the conversion date. In the event of default, the outstanding balance will increase by 25% and a daily penalty of $100 will accrue until the default is remedied.

    

The note also included a clause which stated that if the effective conversion price is less than $0.01 at any time, the principal amount of the note shall increase by $10,000 and that the conversion price will be permanently redefined to equal 40% of the lowest traded price that occurred during the 15 consecutive trading days immediately preceding the date on which the note holder elects to convert all or part of the note. On December 20, 2019, the effective conversion price reached sub-penny threshold. The principal amount and the subsequent conversion price were adjusted as noted above. Therefore, as of December 31, 2019, the convertible balance remaining totaled $179,950.

    

On January 7, 2020, Cool Technologies issued 5,000,000 shares of common stock to LGH Investments, LLC upon partial conversion of $17,920 on convertible debt of $179,950. On January 21, 2020, Cool Technologies issued 10,000,000 shares of common stock to LGH Investments, LLC upon partial conversion of $22,400 on convertible debt of $179,950. On February 24, 2020, Cool Technologies issued 15,000,000 shares of common stock to LGH Investments, LLC upon partial conversion of $17,400 on convertible debt of $179,630. On March 5, 2020, Cool Technologies issued 6,500,000 shares of common stock to LGH Investments, LLC upon partial conversion of $8,840 on convertible debt of $179,630. On March 24, 2020, Cool Technologies issued 8,500,000 shares of common stock to LGH Investments, LLC upon partial conversion of $23,120 on convertible debt of $179,950. As of March 31, 2020, the convertible balance remaining totaled approximately $80,270.

    

June Convertible Note -- On June 6, 2019, the Company entered into a convertible note agreement. It received $130,000 with an original issue discount of $13,000 and an annual interest rate of 8%. The principal ($143,000) and interest will be due on June 6, 2020. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of common stock at a 29% discount to the lowest VWAP during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 24% per annum, require the Company to pay the product of the then outstanding principal amount, plus accrued interest and default interest, divided by the conversion price multiplied by the highest price at which the common stock traded at any time between the issuance date and the date of the event of default.

 

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On December 19, 2019, Cool Technologies issued 1,128,687 shares of common stock to the holder upon partial conversion of $10,418 in debt. On December 24, 2019, the Company issued 2,674,064 shares of common stock to the holder upon partial conversion of $20,884 in debt.

    

On January 13, 2020, Cool Technologies issued 4,220,881 shares of common stock to Eagle Equities, LLC upon partial conversion of $20,978 on convertible debt of $143,300. On January 28, 2020, Cool Technologies issued 6,173,709 shares of common stock to Eagles Equities, LLC upon partial conversion of $21,040 on convertible debt of $143,300. On February 3, 2020, Cool Technologies issued 9,573,426 shares of common stock to Eagle Equities, LLC upon partial conversion of $21,071 on convertible debt of $143,300. On February 13, 2020, Cool Technologies issued 11,992,022 shares of common stock to Eagle Equities, LLC upon partial conversion of $26,394 on convertible debt of $143,300. On March 2, 2020, Cool Technologies issued 9,820,030 shares of common stock to Eagle Equities, LLC upon partial conversion of $26,494 on convertible debt of $143,300. As of March 31, 2020, the balance remaining totals approximately $2,000.

    

July Convertible Note – On July 3, 2019, the Company entered into a convertible note agreement. It received $150,000 with an original issue discount of $15,300 in lieu of interest, for a total amount of $168,300 plus 8% annual interest due on July 3, 2020. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of CoolTech’s common stock at a 29% discount to the lowest VWAP during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 22% per annum, require the Company to redeem all or any portion of the note at a premium of 150%.

    

On January 3, 2020, Cool Technologies issued 2,238,806 shares of common stock to PowerUp Lending Group Ltd. upon partial conversion of $15,000 on convertible debt of $168,300. On January 8, 2020, Cool Technologies issued 3,174,603 shares of common stock to PowerUp Lending Group Ltd. upon partial conversion of $20,000 on convertible debt of $168,300. On January 14, 2020, Cool Technologies issued 3,921,569 shares of common stock to PowerUp Lending Group, Ltd. upon partial conversion of $20,000 on convertible debt of $168,300. On January 16, 2020, Cool Technologies issued 4,444,444 shares of common stock to PowerUp Lending Group, Ltd. upon partial conversion of $20,000 on convertible debt of $168,300. On January 21, 2020, Cool Technologies issued 5,111,111 shares of common stock to PowerUp Lending Group, Ltd. upon partial conversion of $23,000 on convertible debt of $168,300. On January 30, 2020, Cool Technologies issued 7,142,857 shares of common stock to PowerUp Lending Group, Ltd. upon partial conversion of $20,000 on convertible debt of $168,300. On February 3, 2020, Cool Technologies wired $72,000 to PowerUp Lending Group, Ltd. and the note was retired.

    

August Convertible Note On August 28, 2019, the Company entered into a convertible note agreement. It received $115,000 with an original issue discount of $11,500 and an annual interest rate of 8%. The principal ($126,500) and interest will be due on August 28, 2020. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of common stock at a 29% discount to the lowest VWAP during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 24% per annum or the highest rate of interest permitted by law.

    

On March 10, 2020, Cool Technologies issued 10,282,003 shares of common stock to Eagle Equities, LLC upon partial conversion of $40,151 on convertible debt of $126,500. As of March 31, 2020, the remaining balance totaled approximately $88,000.

    

October Convertible Note -- On October 3, 2019, the Company entered into a convertible note agreement. It issued 350,000 inducement shares of restricted common stock and received $115,000 with an original issue discount of $11,500 and an annual interest rate of 8%. The principal ($126,500) and interest will be due on October 2, 2020. After 180 days, at the holder’s option, a portion or all the unpaid principal and interest may be converted into shares of common stock at a 29% discount to the lowest closing price during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 24% per annum or the highest rate of interest permitted by law. As of March 31, 2020, the remaining balance totaled approximately $126,500.

    

November Convertible Note -- On November 9, 2019, the Company entered into a convertible note agreement. It received $126,000 with an original issue discount of $13,000 and an annual interest rate of 8%. The principal ($141,000) and interest will be due on November 6, 2020. After 180 days, at the holder’s option, a portion or all the unpaid principal and interest may be converted into shares of common stock at a 29% discount to the lowest closing price during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 24% per annum or the highest rate of interest permitted by law. As of March 31, 2020, the remaining balance totaled approximately $141,000.

  

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December Convertible Note On December 5, 2019, the Company entered into a convertible note agreement. It received $103,000 with an original issue discount of $6,000 and an annual interest rate of 8%. The principal ($109,000) and interest will be due on December 5, 2020. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of common stock at a 29% discount to the lowest Volume Weighted Average Price (VWAP) during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 18% per annum or the highest rate of interest permitted by law.

 

January Convertible Note -- On January 30, 2020, the Company entered into a convertible note agreement with an accredited investor. It received $36,000 after an original issue discount of $4,000 in lieu of interest, for a total amount of $40,000 due on July 30, 2020. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of common stock at a 29% discount to the lowest VWAP during the 10 trading days preceding the conversion date. In the event of default, the outstanding balance will increase by 25% and a daily penalty of $100 will accrue until the default is remedied. As of March 31, 2020, the remaining balance totaled $40,000.

 

Off Balance Sheet Arrangements

 

Currently, the Company has no off-balance sheet arrangements.

 

Cash Flows

 

Cash flows from operating, investing and financing activities were as follows:

 

 

 

Three months ended March 31,

 

 

 

2020

 

 

2019

 

Net cash from operating activities

 

$ (29,128 )

 

$ (289,018 )

Net cash from investing activities

 

 

(7,747 )

 

 

(1,047 )

Net cash from financing activities

 

 

21,700

 

 

755,831

 

 

Net cash from operating activities decreased due to a 50.4% decrease in the amortization of debt discount. The elimination of the gain on extinguishment of debt was almost completely offset by the change in fair value of derivative liability. Cash provided by financing activities included debt borrowings of $72,000 during 2020 which was a significant reduction from the debt borrowings of $905,345 during the first quarter of 2019.

 

The Company’s capital requirements for the next 12 months will consist of $3.4 million with anticipated expenses of $1.4 million for salaries, public company filings, and consultants and professional fees. An additional $2.0 million in working capital is expected to be needed for inventory and related costs for production of the mobile power generation systems as well as development and commercialization of the thermal dispersion technology applications.

 

Management believes the Company’s funds are insufficient to provide for its projected needs for operations for the next 12 months. The Company is currently negotiating additional non-dilutive funding to support product development or for other purposes. In the event that the negotiations fail, the Company may have to rely on equity or debt financing that may involve substantial dilution to our then existing stockholders. If it is unable to close additional equity financing, the Company may have to cease operations.

  

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Going Concern

 

The Company has incurred net losses of $53,923,864 since inception and have not fully commenced operations, raising substantial doubt about its ability to continue as a going concern. Management believes that the Company’s ability to continue as a going concern is dependent on its ability to raise capital, generate revenue, achieve profitable operations and repay its obligations when they come due. As of March 31,2020, we have $131 in cash and we owe $583,137 and $2,612,059 for convertible and promissory notes, respectively We are pursuing various financing alternatives to address the payment of outstanding debt and to support the sales, component acquisition and assembly of our mobile power generation systems as well as the completion of the secondary elements of our business plan: to license its thermal technologies and applications, including submersible dry-pit applications. There can be no assurance, however, that we will obtain adequate funding or that we will be successful in accomplishing any of our objectives. Consequently, we may not be able to continue as an operating company.

 

Critical Accounting Estimates

 

The condensed consolidated financial statements and the accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect reported amounts of assets, liabilities, and expenses. Cool Technologies continually evaluates the accounting policies and estimates used to prepare the condensed consolidated financial statements. The estimates are based on historical experience and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management. Certain accounting policies that require significant management estimates and are deemed critical to the results of operations and financial position are discussed in the Annual Report on Form 10-K for the year ended December 31, 2019 in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

As a smaller reporting company, Cool Technologies is not required to provide the information required by this Item.

 

Item 4. Controls and Procedures

 

Management does not expect that its internal controls over financial reporting will prevent all errors and all fraud. Control systems, no matter how well conceived and managed, can provide only reasonable assurance that the objectives of the control system are met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.

 

Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

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Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of management, including the principal executive officer and principal financial officer, as of March 31, 2020, Cool Technologies conducted an evaluation of its disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, the principal executive officer and principal financial officer have concluded that, based on the material weaknesses discussed below, the disclosure controls and procedures were not effective as of such date to ensure that information required to be disclosed by the Company in reports filed or submitted under the Securities Exchange Act were recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Act Commission’s rules and forms and that its disclosure controls are not effectively designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act is accumulated and communicated to management, including the principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Cool Technologies internal controls are not effective for the following reasons, (1) there are no entity level controls, because of the limited time and abilities of the Company’s three officers, (2) there is no separate audit committee, and (3) CoolTech has not implemented adequate system and manual controls. As a result, the Company’s internal controls have inherent weaknesses, which may increase the risks of errors in financial reporting under current operations and accordingly are not effective as evaluated against the criteria set forth in the Internal Control – Integrated Framework issued by the committee of Sponsoring Organizations of the Treadway Commission (1992 version). Based on the evaluation, management concluded that the Company’s internal controls over financial reporting were not effective as of March 31, 2020.

 

Even though there are inherent weaknesses, management has taken steps to minimize the risk. The Company uses a third-party consultant to review transactions for appropriate technical accounting, reconcile accounts, review significant transactions and prepare financial statements. Invoices and other bookkeeping matters are reviewed by a third party

Certified Fraud Examiner. Any deviation or errors are reported to management.

 

Cool Technologies can provide no assurance that its internal controls over financial reporting will be compliant in the near future. As revenues permit, the Company will enhance its internal controls through additional software and other means. If and when it becomes a listed company under SEC rules, the Company will create an audit committee comprised of independent directors.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in the Company’s internal control over financial reporting during the last quarterly period covered by this report that have materially affected, or are reasonably likely to affect, the internal control over financial reporting.

 

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Part II. Other Information

 

Item 1. Legal Proceedings

 

Securities and Exchange Commission Settlement

    

On September 20, 2018, the Securities and Exchange Commission (SEC) approved an offer to settle the enforcement proceedings against the Company pursuant to Section 21C of the Securities Exchange Act of 1934.

    

These proceedings arose out of the violation of the Regulation S-X requirement that interim financial statements filed as part of a Form 10-Q be reviewed by an independent public accounting firm prior to filing.

 

On three occasions, specifically, May 20, 2013, August 19, 2013 and August 22, 2016, Cool Technologies filed Form 10-Qs that contained financial statements that were not reviewed by an independent public accounting firm. In two cases, the Company properly disclosed that the 10Q’s were “unaudited and unreviewed” as set forth by the guidance in the Division of Corporation Finance Financial Reporting Manual Section 4410.3. And in each case, the Company subsequently filed a restated and amended Form 10-Q/A that complied with the Interim Review Requirement. In no instance were the filings ever subjected to audit challenge.

 

Pursuant to the enforcement proceeding instituted by the SEC, the Company settled for a fine of $75,000 and agreed to cease and desist from any future violations of Sections 13(a) of the Exchange Act and Rule 13a-13 thereunder, and Rule 8-03 of Regulation S-X. As of the date of this filing, the Company still owes the SEC $50,000.

 

From time to time, the Company may be a party to other legal proceedings. Management currently believes that the ultimate resolution of these other matters, if any, and after consideration of amounts accrued, will not have a material adverse effect on our consolidated results of operations, financial position, or cash flow.

 

Item 1A. Risk Factors

 

As a smaller reporting company, Cool Tech is not required to provide the information required by this Item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

The securities above were offered and sold pursuant to an exemption from the registration requirements under Section 4(a)(2) of the Securities Act since, among other things, the transactions did not involve a public offering.

 

None of the above issuances involved any underwriters, underwriting discounts or commissions, or any public offering and we believe we are exempt from the registration requirements of the Securities Act of 1933 by virtue of Section 4(2) thereof and/or Regulation D promulgated thereunder.

 

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Item 3. Defaults Upon Senior Securities

 

On May 1, 2020, the Company defaulted on 2 notes payable. A $250,000 note was purchased on September 11, 2018 and a $125,000 note was purchased on September 25, 2018 by the same accredited investor. In return, the Company promised to pay the principal amount together with simple interest of 15% per annum on or before the one-year anniversaries. On March 16, 2020, the investor signed an amendment to the agreement extending the maturity dates until April 30, 2020. As of the filing date, the company has not received a notice of default. As per the terms of the note, interest will continue to accrue at 15% per annum until paid in full.

 

On May 26, 2020, the Company defaulted on a Promissory Note Agreement. A $250,000 note was purchased on October 26, 2018 by an accredited investor. It received $250,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum on or before the one-year anniversary. On October 26, 2019, the investor signed an amendment to the agreement extending the maturity date for seven months. As of the filing date, the Company has not received a notice of default for either note. As per the terms of the note, interest will continue to accrue at 15% per annum until paid in full.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

The occurrence of an uncontrollable event such as the COVID19 pandemic has negatively affected our operations. A pandemic typically results in social distancing, travel bans and quarantine. This has limited access to our facilities, customers, management, support staff and professional advisors. These, in turn, have impacted our operations and financial condition. It may also impact demand for our products and may continue to hamper our efforts to provide our investors with timely information and comply with our filing obligations with the Securities and Exchange Commission.

 

As of the filing date, it is uncertain whether COVID-19 will have a significant impact on production and distribution of Company products.

 

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Item 6. Exhibits

 

4.33* 

 

$40,000 Convertible Promissory Note dated January 30, 2020 issued to LGH Investments, LLC

 

 

 

31.1*

 

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

 

 

 

31.2*

 

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

 

 

 

32.1*

 

Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2*

 

Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

*Filed Herewith

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

Cool Technologies, Inc.

 

 

 

 

 

Dated: August 24, 2020

By:

/s/ Timothy Hassett

 

 

Timothy Hassett

 

 

 

Chief Executive Officer

(Principal Executive Officer)

 

 

 

 

 

Dated: August 24, 2020

By:

/s/ Quentin Ponder

 

 

Quentin Ponder

 

 

 

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

 

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