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.
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.
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.
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.
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.
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.
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.
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
|
|
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.
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).
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
|
)
|
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.
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.