NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION
Ocean Thermal Energy Corporation is currently in the businesses of:
| · | OTEC and SWAC/LSC—designing ocean thermal energy conversion (“OTEC”) power plants and seawater air conditioning and lake water air conditioning (“SWAC/LSC”) plants for large commercial properties, utilities, and municipalities. These technologies provide practical solutions to mankind’s three oldest and most fundamental needs: clean drinking water, plentiful food, and sustainable, affordable energy without the use of fossil fuels. OTEC is a clean technology that continuously extracts energy from the temperature difference between warm surface ocean water and cold deep seawater. In addition to producing electricity, some of the seawater running through an OTEC plant can be efficiently desalinated using the power generated by the OTEC technology, producing thousands of cubic meters of fresh water every day for use in agriculture and human consumption in the communities served by its plants. This cold, deep, nutrient-rich water can also be used to cool buildings (SWAC/LSC) and for fish farming/aquaculture. In short, it is a technology with many benefits, and its versatility makes OTEC unique. |
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| · | EcoVillages—developing and commercializing our EcoVillages, as well as working to develop or acquire new complementary assets. EcoVillages are communities whose goal is to become more socially, economically, and ecologically sustainable and whose inhabitants seek to live according to ecological principles, causing as little impact on the environment as possible. We expect that our EcoVillage communities will range from a population of 50 to 150 individuals, although some may be smaller. We may also form larger EcoVillages, of up to 2,000 individuals, as networks of smaller subcommunities. We expect that our EcoVillages will grow by the addition of individuals, families, or other small groups. We expect to use our technology in the development of our EcoVillages, which should add significant value to this line of business. |
The consolidated financial statements include the accounts of the company and our wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, our financial statements reflect all adjustments that are of a normal recurring nature necessary for presentation of financial statements in accordance with U.S. generally accepted accounting principles (GAAP).
Note 2: Summary of Significant Accounting Policies
Principal Subsidiary Undertakings
Our consolidated financial statements for the years ended December 31, 2021 and 2020, include the following subsidiaries:
Name | | Place of Incorporation / Establishment | | Principal Activities | | Date Formed |
Ocean Thermal Energy Bahamas Ltd. | | Bahamas | | Intermediate holding company of OTE BM Ltd. and OTE Bahamas O&M Ltd. | | 07/04/2011 |
| | | | | | |
OTE BM Ltd. | | Bahamas | | OTEC/SDC development in the Bahamas | | 09/07/2011 |
| | | | | | |
OCEES International Inc. | | Hawaii, USA | | Research and development for the Pacific Rim | | 01/21/1998 |
We have an effective interest of 100% in each of our subsidiaries.
Use of Estimates
In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates. Significant estimates include the assumptions used in the valuation of equity-based transactions, valuation of derivative liabilities, and valuation of deferred tax assets.
Cash and Cash Equivalents
We consider all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. At December 31, 2021 and 2020, we had no cash equivalents.
Income Taxes
We use the liability method of accounting for income taxes. Under the liability method, deferred tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities and on the amount of operating loss carry-forwards and are measured using the enacted tax rates and laws that will be in effect when the temporary differences and carry-forwards are expected to reverse. An allowance against deferred tax assets is recorded when it is more likely than not that such tax benefits will not be realized.
Our ability to use our net operating loss carryforwards may be substantially limited due to ownership change limitations that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), as well as similar state provisions. These ownership changes may limit the amount of net operating loss that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50.0% of the outstanding stock of a company by certain stockholders or public groups.
We have not completed a study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since we became a “loss corporation” under the definition of Section 382. If we have experienced an ownership change, utilization of the net operating loss carryforwards would be subject to an annual limitation under Section 382 of the Code, which is determined by first multiplying the value of our stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the net operating loss carryforwards before utilization. Further, until a study is completed and any limitation known, no positions related to limitations are being considered as an uncertain tax position or disclosed as an unrecognized tax benefit. Any carryforwards that expire prior to utilization as a result of such limitations will be removed from deferred tax assets with a corresponding reduction of the valuation allowance. Due to the existence of the valuation allowance, it is not expected that any possible limitation will have an impact on our results of operations or financial position.
Business Segments
We operate in one segment and, therefore, segment information is not presented.
Fair Value
Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value under GAAP, and enhances disclosures about fair value measurements. ASC 820 describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:
| · | Level 1–Pricing inputs are quoted prices available in active markets for identical assets or liabilities as of the reporting date. |
| · | Level 2–Pricing inputs are quoted for similar assets or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration with observable market data. Level 2 includes assets or liabilities valued at quoted prices adjusted for legal or contractual restrictions specific to these investments. |
| · | Level 3–Pricing inputs are unobservable for the assets or liabilities; that is, the inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. |
Management believes the carrying amounts of the short-term financial instruments, including cash and cash equivalents, prepaid expenses, accounts payable, accrued liabilities, notes payable, deferred compensation, and other liabilities reflected in the accompanying balance sheets approximate fair value at December 31, 2021 and 2020, due to the relatively short-term nature of these instruments.
We accounted for derivative liability at fair value on a recurring basis under level 3 at December 31, 2021 and 2020 (see Note 5).
Concentrations
Cash, cash equivalents, and restricted cash are deposited with major financial institutions, and at times, such balances with any one financial institution may be in excess of FDIC-insured limits. As of December 31, 2021, and 2020, no balances exceeded FDIC-insured limits.
Loss per Share
Basic loss per share is calculated by dividing our net loss available to common shareholders by the weighted average number of common shares during the period. Diluted loss per share is calculated by dividing our net loss by the diluted weighted average number of shares outstanding during the period. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. We have 125,073 and 125,073 shares issuable upon the exercise of warrants for the years ended December 31, 2021 and 2020, respectively, 16,687,500 and 16,687,500 shares issuable upon the conversion of preferred stock at December 31, 2021 and 2020, respectively, and 925,654,995 and 179,823,249 shares issuable upon the conversion of convertible notes for the years ended December 31, 2021 and 2020, respectively, that were not included in the computation of dilutive loss per share because their inclusion is antidilutive.
Revenue Recognition
We account for our revenue in accordance with Accounting Standard Update 2014-09, Revenue from Contracts with Customers (Topic 606), which requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services.
Recent Accounting Pronouncements
We have reviewed all recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on our consolidated results of operations, financial position, and cash flows. Based on that review, we believe that none of these pronouncements will have a significant effect on current or future earnings or operations.
NOTE 3 – GOING CONCERN
The accompanying audited consolidated financial statements have been prepared on the assumption that we will continue as a going concern. As reflected in the accompanying consolidated financial statements, we had a net loss of $2,670,637 and used $542,630 of cash in operating activities for the year ended December 31, 2021. We had a working capital deficiency of $29,801,131 and a stockholders’ deficiency of $30,027,924 as of December 31, 2021. These factors raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to increase sales and obtain external funding for our projects under development. We continue to apply for grant funding from the US Department of Energy. Our applications focus on desalinated water, ammonia and hydrogen production from an OTEC facility. On March 11, 2022, President Biden signed a bill which provides $162 million for Water Power Technology Office (WPTO). About $112 million of that money is slated for marine energy. We plan to apply for funding to support projects where our technology would apply. The financial statements do not include any adjustments that may result from the outcome of this uncertainty.
NOTE 4 – CONVERTIBLE NOTES AND NOTES PAYABLE
On December 12, 2006, we borrowed funds from the Southeast Idaho Council of Governments (SICOG), the EDA-#180 loan. The interest rate is 6.25%, and the maturity date was January 5, 2013. The remaining loan principal of $3,779 was repaid in full during 2021.
On December 23, 2009, we borrowed funds from SICOG, the EDA-#273 loan. The interest rate is 7%, and the maturity date was December 23, 2014. The loan principal was $94,414 with accrued interest of $19,499 as of December 31, 2021. This note is in default.
On December 23, 2009, we borrowed funds from SICOG, the MICRO I-#274 loan and MICRO II-#275 loan. The interest rate is 7%, and the maturity date was December 23, 2014. The combined loan principal was $47,230 with accrued interest of $12,150 as of December 31, 2021. These notes are in default.
On December 1, 2007, we borrowed funds from the Eastern Idaho Development Corporation and the Economic Development Corporation. The interest rate is 7%, and the maturity date was September 1, 2015. The loan principal was $85,821 with accrued interest of $57,704 as of December 31, 2021. This note is in default.
On September 25, 2009, we borrowed funds from the Pocatello Development Authority. The interest rate is 5%, and the maturity date was October 25, 2011. The loan principal was $50,000 with accrued interest of $28,351 as of December 31, 2021. This note is in default.
On March 12, 2015, we combined convertible notes issued in 2010, 2011, and 2012, payable to our officers and directors, in the aggregate principal amount of $320,246, plus accrued but unpaid interest of $74,134, into a single, $394,380 consolidated convertible note (the “Consolidated Note”). The Consolidated Note was assigned to JPF Venture Group, Inc., an investment entity that is majority-owned by Jeremy Feakins, our director, chief executive officer, and chief financial officer. The Consolidated Note was convertible to common stock at $0.025 per share, the approximate market price of our common stock as of the date of the issuance. On February 24, 2017, the Consolidated Note was amended to eliminate the conversion feature. The Consolidated Note bears interest at 6% per annum and is due and payable within 90 days after demand. As of December 31, 2021, the outstanding loan balance was $394,380 and the accrued but unpaid interest was $167,245 on the Consolidated Note.
During 2016 and 2015, we borrowed $75,000 from JPF Venture Group, Inc. pursuant to promissory notes. The terms of the notes are as follows: (i) interest is payable at 6% per annum; (ii) the notes are payable 90 days after demand; and (iii) payee is authorized to convert part or all of the note balance and accrued interest, if any, into shares of our common stock at the rate of one share each for $0.03 of principal amount of the note. This conversion share price was adjusted to $0.01384 for the reverse stock splits. We have recorded a debt discount of $75,000 for the fair value derivative liability and fully amortized the debt discount. As of December 31, 2021, the outstanding balance of these notes was $75,000, plus accrued interest of $25,874.
During 2016, we borrowed $112,500 from JPF Venture Group, Inc. pursuant to promissory notes. The terms of each note are as follows: (i) interest is payable at 6% per annum; (ii) the notes are payable 90 days after demand; and (iii) payee is authorized to convert part or all of the note balance and accrued interest, if any, into shares of our common stock at the rate of one share for each $0.03 of principal amount of the note. On February 24, 2017, the notes were amended to eliminate the conversion features. As of December 31, 2021, the outstanding balance of these notes was $112,500, plus accrued interest of $38,747.
On October 20, 2016, we borrowed $12,500 from our independent director pursuant to a promissory note. The terms of the note are as follows: (i) interest is payable at 6% per annum; (ii) the note is payable 90 days after demand; and (iii) the payee is authorized to convert part or all of the note balance and accrued interest, if any, into shares of our common stock at the rate of one share for each $0.03 of principal amount of the note. This conversion share price was adjusted to $0.01384 for the reverse stock splits. We have recorded a debt discount of $12,500 for the fair value of derivative liability and fully amortized the debt discount. As of December 31, 2021, the outstanding note balance was $12,500, plus accrued interest of $4,038.
During 2012, we issued a note payable for $1,000,000. The note had an interest rate of 10% per annum, was secured by a first lien on our assets, and was due on February 3, 2015. On March 6, 2018, the note was amended to extend the due date to December 31, 2018. On March 29, 2019, the maturity date of the note was extended to December 31, 2019. As of December 31, 2021, the outstanding note balance was $1,000,000, plus accrued interest of $941,393. This note is in default.
During 2013, we issued Series B units. Each unit is comprised of a note agreement, a $50,000 promissory note that matures on September 30, 2023, and bears interest at 10% per annum payable annually in arrears, and a security agreement. During 2013, we issued $525,000 of 10% promissory notes. As of December 31, 2021, the loan balances were $158,334 and the accrued interest was $133,151.
During 2013, we issued a note payable for $290,000 in connection with the reverse merger transaction with Broadband Network Affiliates, Inc. We have determined that no further payment of principal or interest on this note should be made because the note holder failed to perform his underlying obligations giving rise to this note. As described in Note 8, the note holder filed suit on May 21, 2019, and we remain confident that the court will decide in our favor by either voiding the note or awarding damages sufficient to offset the note value. As of December 31, 2021, the balance outstanding was $130,000, and the accrued interest as of that date was $82,520. This note is in default.
On January 18, 2018, Jeremy P. Feakins & Associates, LLC, an investment entity owned by our chief executive, chief financial officer, and a director, agreed to extend the due date for repayment of a $2,265,000 note issued in 2014 to the earlier of December 31, 2018, or the date of the financial closings of our Baha Mar project (or any other project of $25 million or more), whichever occurs first. As of December 31, 2021, the note balance was $1,102,500 and the accrued interest was $852,916. This note is in default.
We have $300,000 in principal amount of outstanding notes due to unrelated parties, issued in 2014, in default since 2015, accruing interest at a default rate of 22%. We intend to repay the notes and accrued interest upon the Baha Mar SWAC/LSC project’s financial closing. Accrued interest totaled $447,979 as of December 31, 2021. These notes are in default.
We have a $50,000 promissory note with an unaffiliated investor that was payable on April 7, 2019. The note and accrued interest can be converted into our common stock at a conversion rate of $0.75 per share at any time prior to the repayment. This conversion price is not required to adjust for the reverse stock split as per the note agreement. Accrued interest totaled $34,139 as of December 31, 2021. The note is in default.
On March 9, 2017, an entity owned and controlled by our chief executive officer agreed to provide up to $200,000 in working capital. The note bears interest of 10% and is due and payable within 90 days of demand. During the year ended December 31, 2017, we received an additional $2,000 and repaid $25,000. As of December 31, 2021, the balance outstanding was $177,000, plus accrued interest of $86,738.
During the third quarter of 2017, we completed a $2,000,000 convertible promissory note private placement offering. The terms of the notes are as follows: (i) interest is payable at 6% per annum; (ii) the notes are payable two years after purchase; and (iii) all principal and interest on each note automatically converts on the conversion maturity date into shares of our common stock at a conversion price of $4.00 per share, as long as the closing share price of our common stock on the trading day immediately preceding the conversion maturity date is at least $4.00, as adjusted for stock splits, stock dividends, reclassification, and the like. If the price of our shares on such date is less than $4.00 per share, the notes (principal and interest) will be repaid in full. As of December 31, 2021, the outstanding balance for the remaining three notes was $65,000, plus accrued interest of $17,410. These notes are in default.
On November 6, 2017, we entered into an agreement and promissory note with JPF Venture Group, Inc. to loan up to $2,000,000 to us. The terms of the note are as follows: (i) interest is payable at 10% per annum; (ii) all unpaid principal and all accrued and unpaid interest is due and payable at the earliest of a resolution of the Memphis litigation (as defined therein), December 31, 2018, or when we are otherwise able to pay. During the year ended December 31, 2020, we repaid $35,000. As of December 31, 2021, the outstanding note balance was $543,093 and the accrued interest was $254,362. This note is in default.
In December 2017, we entered into a series of unsecured promissory notes and warrant purchase agreements with accredited investors. These notes accrue interest at a rate of 10% per annum payable on a quarterly basis and are not convertible into shares of our capital stock. The notes are payable within five business days after receipt of gross proceeds of at least $1,500,000 from L2 Capital, LLC, an unaffiliated Kansas limited liability company (“L2 Capital”). We may prepay the notes in whole or in part, without penalty or premium, on or before the maturity date of July 30, 2019. As of December 31, 2021, the balance of the outstanding loans was $979,156 and the accrued interest was $350,730. These notes are in default.
On February 15, 2018, we entered into an agreement with L2 Capital for a loan of up to $565,555, together with interest at the rate of 8% per annum, which consists of up to $500,000, a prorated original issuance discount of $55,555, and $10,000 for transactional expenses to L2 Capital. L2 Capital has the right at any time to convert all or any part of the note into fully paid and nonassessable shares of our common stock at the fixed conversion price, which is equal to $0.50 per share; however, at any time on or after the occurrence of any event of default under the note, the conversion price will adjust to the lesser of $0.50 or 65% multiplied by the lowest volume weighted average price of the common stock during the 20-trading-day period ending, in L2 Capital’s sole discretion on each conversion, on either the last complete trading day prior to the conversion date or the conversion date. During the year ended December 31, 2018, we received five tranches totaling $482,222. As of December 31, 2018, we have issued warrants to purchase 56,073 shares of common stock in accordance with a nonexclusive finder’s fee arrangement. These warrants have a fair value of $2,668 based on the Black-Scholes option-pricing model. The fair value was recorded as a discount on the notes payable and is being amortized over the life of the notes payable. As of December 31, 2018, we had fully amortized $91,222 of the debt issuance cost and have recorded a debt discount of $749,026 for the fair value of derivative liability and fully amortized the debt discount. During the year ended December 31, 2019, we issued 1,936,192 shares of common stock to L2 Capital for the conversion of a portion of our notes payable in the amount of $44,733. As of December 31, 2021, we have outstanding warrants to purchase 56,073 shares of common stock. As of December 31, 2021, the outstanding balance of the original loan was $323,412, plus a default penalty and fees of $837,724, for a total of $1,161,136, and accrued interest was $885,489. On August 1, 2019, L2 Capital, LLC sold the outstanding loan balance and accrued interest on our note to Oasis Capital, LLC. The terms and conditions of the original note remain in place. This note is in default.
On September 19, 2018, we executed a note payable for $10,000 with an unrelated party that bears interest at 6% per annum, which is due quarterly beginning as of September 30, 2018. The maturity date for the note is three years after date of issuance. In addition, the lender received warrants to purchase 2,000 shares of common stock upon signing the promissory note. The warrant can be exercised at a price per share equal to a 15% discount from the price of common stock on the last trading day before such purchase. As of December 31, 2021, we have outstanding warrants to purchase 2,000 shares of common stock. As of December 31, 2021, the balance outstanding was $10,000 and the accrued interest was $1,998. We have defaulted in payment of the note principal and the quarterly interest payments.
On December 14, 2018, L2 Capital LLC purchased our note payable from Collier Investments, LLC. The total consideration was $371,250, including the outstanding note balance of $281,250, the accrued interest of $33,750, and liquidated damages of $56,250. There was also a default penalty of $153,123. In addition, we issued 400,000 shares of common stock to L2 Capital as commitment shares with a fair value of $21,200 in connection with the purchase of the note. We executed a replacement convertible note with L2 Capital in the amount of $371,250 with an interest rate of 12% per annum. The maturity date of the note is December 22, 2018. The holder of the note can convert the note, or any portion of it, into shares of common stock at any time after the issuance date. The conversion price is 65% of the market price, which is defined as the lowest trading price for our common stock during the 20-trading-day period prior to the conversion date. As of December 31, 2018, we have recorded a debt discount of $665,690 for the fair value of derivative liability and fully amortized the debt discount. On August 1, 2019, Oasis Capital, LLC purchased our note payable from L2 Capital LLC. The terms and conditions of the original note remain in place. During the year ended December 31, 2019, we issued 1,800,000 shares of common stock to L2 Capital for the conversion of a portion of our notes payable in the amount of $49,614. During the year ended December 31, 2020, we issued 3,071,869 shares of common stock to Oasis Capital, LLC, with a fair value of $103,945, for the conversion of a portion of our notes payable in the amount of $50,000. We recorded a gain on conversion of $14,382. During the year ended December 31, 2021, we issued 34,829,587 shares of common stock to Oasis Capital, LLC, with a fair value of $972,882, for the conversion of a portion of our notes payable in the amount of $419,179. We recorded a gain on conversion of $113,215. As of December 31, 2021, the outstanding note balance was $623,725 and the accrued interest was $738,713. This note is in default.
On January 2, 2019, we issued a series of promissory notes totaling $310,000 to accredited investors. Proceeds from these notes were used to support the administrative and legal expenses of our lawsuit before the United District Court for the Western District of Tennessee, Ocean Thermal Energy Corporation v. Robert Coe, et al., Case No. 2:17-cv-02343SHL-cgc, and any subsequent actions brought about as a result of or in connection with this litigation. These notes are secured against the proceeds from the litigation. The notes bear an interest rate of 17%, plus one quarter of one percent of the actual funds received from the litigation. The repayment of the principal, accrued interest, and the percentage of the litigation funds received will be paid immediately following the receipt of sufficient funds from this litigation. As of December 31, 2021, the outstanding balance of these loans is $310,000 and the accrued interest was $157,793.
On August 14, 2019, we executed a note payable for $26,200 with an unrelated party that bears interest at 8% per annum and has a maturity date of October 31, 2021. The note automatically converts into 1,310,000 shares of our common stock either at the time the closing sale price for our common stock is equal to or greater than $1.00 per share, as adjusted for stock splits, stock dividends, reclassification, and the like, or at the maturity date of October 31, 2021, whichever occurs first. We have recorded a debt discount of $26,200 for the fair value of derivative liability which has been fully amortized. As of December 31, 2021, the balance outstanding was $26,200, and the accrued interest was $6,043. This note is in default.
In 2019, we issued a series of convertible promissory notes to accredited investors that totaled $105,000. Of the amount received, $10,000 was from our chief executive officer and our independent director. The notes bear simple interest on outstanding principal at the rate of 8% per annum, computed based on the actual number of days elapsed in a year of 365 days. Each $5,000 loan automatically converts into 250,000 shares of our common stock, either at the time the closing sale price for our common stock is equal to or greater than $1.00 per share, as adjusted for stock splits, stock dividends, reclassification, and the like, or at the maturity date of October 31, 2021, whichever comes first. We have recorded a debt discount of $105,000 for the fair value of derivative liability which has been fully amortized. As of December 31, 2021, the total outstanding balances of all these loans are $95,000 to unrelated parties, and $10,000 to related parties. The accrued interest was $18,314 as of December 31, 2021. These notes are in default.
In 2020 and 2019, we issued a series of convertible promissory notes to accredited investors aggregating $306,750. Of the amount received, $20,000 was from our chief executive officer and an independent director. The notes bear simple interest on outstanding principal at the rate of 8% per annum, computed based on the actual number of days elapsed in a year of 365 days. Each $5,000 loan automatically converts into 250,000 shares of our common stock, either at the time the closing sale price for our common stock is equal to or greater than $1.00 per share, as adjusted for stock splits, stock dividends, reclassification, and the like, or at the maturity date of January 2, 2022, whichever comes first. We have recorded a debt discount of $306,750 for the fair value of derivative liability and amortized $305,865 of the debt discount. As of December 31, 2021, the total outstanding value of these loans was $285,919, net of debt discount of $831, to unrelated parties and $19,946, net of debt discount of $54, to related parties. As of December 31, 2021, the accrued interest was $47,264.
During the year ended December 31, 2020, we issued a series of convertible promissory notes to accredited investors, which totaled $15,000. The notes bear simple interest on outstanding principal at the rate of 8% per annum, computed based on the actual number of days elapsed in a year of 365 days. Each $5,000 loan automatically converts into 250,000 shares of our common stock, either at the time the closing sale price for our common stock is equal to or greater than $1.00 per share, as adjusted for stock splits, stock dividends, reclassification, and the like, or at the maturity date of May 12, 2022, whichever comes first. We have recorded debt discount of $15,000 for the fair value of derivative liability and amortized $12,076 of debt discount. As of December 31, 2021, the total outstanding value of these loans was $12,076, net of debt discount of $2,924. The accrued interest was $1,433 as of December 31, 2021.
During the year ended December 31, 2020, we issued a series of convertible promissory notes to accredited investors, which totaled $15,000. During the year ended December 30, 2021, we issued a series of convertible promissory notes, which totaled $145,000, and the total outstanding as of December 31, 2021, is $160,000. The notes bear simple interest on outstanding principal at the rate of 8% per annum, computed based on the actual number of days elapsed in a year of 365 days. Each $5,000 loan automatically converts into 250,000 shares of our common stock, either at the time the closing sale price for our common stock is equal to or greater than $1.00 per share, as adjusted for stock splits, stock dividends, reclassification, and the like, or at the maturity date of September 1, 2022, whichever comes first. We have recorded a debt discount of $160,000 for the fair value of derivative liability and amortized $86,458 of debt discount. As of December 31, 2021, the total outstanding value of these loans was $86,458, net of debt discount of $73,542. The accrued interest was $10,257 as of December 31, 2021.
During the year ended December 31, 2020, we issued a series of promissory notes to accredited investors, which totaled $520,000. During the year ended December 31, 2021, we issued a series of promissory notes to accredited investors, which totaled $105,000. The notes bear simple interest on outstanding principal at the rate of 10% per annum, computed based on the actual number of days elapsed in a year of 360 days and, for each additional of $20,000 (prorated), an additional payment of 0.00125% (one eighth of one-percent) of the actual funds received (as settlement, collection, or otherwise) from possible future litigation based on fraud in the inducement claims (such future litigation hereinafter referred to as the “Phase Two Litigation”) arising from the current litigation before the United States District Court for the Western District of Tennessee and Central District of California, Ocean Thermal Energy Corp. v. Robert Coe, et al. (Case No. 2:17-cv-02343SHL-cgc and Case No. 2:19-cv-05299-VAP-JPR, respectively) (this current litigation hereinafter is referred to as the “Phase One Litigation”). Repayment will be made as follows: (i) the principal and interest within five business days following our receipt of $25.5 million from the Phase One Litigation; and (ii) the additional payment within five business days following our actual receipt of any funds from the Phase Two Litigation, less legal fees accrued up to that date. Payment will be made as such funds are actually received by us and after deductions of accrued legal fees up to that date. The outstanding balance of these notes as of December 31, 2021, was $625,000 and the accrued interest was $81,486.
During the year ended December 31, 2021, we issued a series of convertible promissory notes to accredited investors, that totaled $285,000. The notes bear simple interest on outstanding principal at the rate of 8% per annum, computed based on the actual number of days elapsed in a year of 365 days. Each $5,000 loan automatically converts into 250,000 shares of our common stock, either at the time the closing sale price for our common stock is equal to or greater than $1.00 per share, as adjusted for stock splits, stock dividends, reclassification, and the like, or at the maturity date of August 30, 2023, whichever comes first. We have recorded a debt discount of $272,282 for the fair value of derivative liability and amortized $53,477 of debt discount. As of December 31, 2021, the total outstanding value of these loans was $64,888, net of debt discount of $215,112 to unrelated parties and $1,307, net of debt discount of $3,693 to related parties. The accrued interest was $9,318 as of December 31, 2021.
During the year ended December 31, 2021, we issued a convertible promissory note to a related party in the amount of $5,000. The note bears simple interest on outstanding principal at the rate of 8% per annum, computed based on the actual number of days elapsed in a year of 365 days. The loan automatically converts into 250,000 shares of our common stock, either at the time the closing sale price for our common stock is equal to or greater than $1.00 per share, as adjusted for stock splits, stock dividends, reclassification, and the like, or at the maturity date of November 30, 2023, whichever comes first. We have recorded a debt discount of $2,932 for the fair value of derivative liability and amortized $196 of debt discount. As of December 31, 2021, the total outstanding value of this loan was $2,264, net of debt discount of $2,736 to related parties. The accrued interest was $56 as of December 31, 2021.
On April 28, 2020, we received the proceeds from an unsecured $17,085 loan (the “PPP Loan”) through LinkBank under the Paycheck Protection Program (the “PPP”) pursuant to the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which is administered by the United States Small Business Administration. In accordance with the requirements of the CARES Act, we will use proceeds from the PPP Loan primarily for payroll costs. The PPP Loan is scheduled to mature on April 28, 2022 (the “Maturity Date”), and has a 1% interest rate. Commencing on October 28, 2020, and continuing on the same day of each following month, we must pay principal and interest payments until the Maturity Date, at which time the remaining principal and accrued interest is due in full; however, the monthly payment will not be calculated until such time as the application for forgiveness has been processed and the remaining loan amount can be determined. The PPP Loan may be prepaid by us at any time prior to maturity with no prepayment penalties. The PPP Loan is unsecured and is a nonrecourse obligation. All or a portion of the PPP Loan may be forgiven upon application to the lender during the eight-week period beginning on the date of first disbursement for certain expenditure amounts, including payroll costs, in accordance with the requirements under the PPP. We received notice of our PPP loan and interest payments forgiveness from the Small Business Administration as of November 10, 2020. The outstanding loan balance as of December 31, 2020, was $0 and the accrued interest was $0. The forgiveness of this loan is recorded as gain on forgiveness of debt during the year ended December 31, 2020.
The following convertible note and notes payable were outstanding at December 31, 2021:
Date of | | Maturity | | | | | | | | Original | | | Principal at December 31, | | | Discount at December 31, | | | Carrying Amount at December 301 | | | Related Party | | | Non Related Party | |
Issuance | | Date | | | Interest Rate | | | In Default | | Principal | | | 2021 | | | 2021 | | | 2021 | | | Current | | | Long-Term | | | Current | | | Long-Term | |
12/01/07 | | 09/01/15 | | | | 7.00 | % | | Yes | | | 125,000 | | | | 85,821 | | | | - | | | | 85,821 | | | | - | | | | - | | | | 85,821 | | | | - | |
09/25/09 | | 10/25/11 | | | | 5.00 | % | | Yes | | | 50,000 | | | | 50,000 | | | | - | | | | 50,000 | | | | - | | | | - | | | | 50,000 | | | | - | |
12/23/09 | | 12/23/14 | | | | 7.00 | % | | Yes | | | 100,000 | | | | 94,414 | | | | - | | | | 94,414 | | | | - | | | | - | | | | 94,414 | | | | - | |
12/23/09 | | 12/23/14 | | | | 7.00 | % | | Yes | | | 25,000 | | | | 23,620 | | | | - | | | | 23,620 | | | | - | | | | - | | | | 23,620 | | | | - | |
12/23/09 | | 12/23/14 | | | | 7.00 | % | | Yes | | | 25,000 | | | | 23,610 | | | | - | | | | 23,610 | | | | - | | | | - | | | | 23,610 | | | | - | |
02/03/12 | | 12/31/19 | | | | 10.00 | % | | Yes | | | 1,000,000 | | | | 1,000,000 | | | | - | | | | 1,000,000 | | | | - | | | | - | | | | 1,000,000 | | | | - | |
08/15/13 | | 10/31/23 | | | | 10.00 | % | | No | | | 158,334 | | | | 158,334 | | | | - | | | | 158,334 | | | | - | | | | - | | | | - | | | | 158,334 | |
12/31/13 | | 12/31/15 | | | | 8.00 | % | | Yes | | | 290,000 | | | | 130,000 | | | | - | | | | 130,000 | | | | - | | | | - | | | | 130,000 | | | | - | |
04/01/14 | | 12/31/18 | | | | 10.00 | % | | Yes | | | 2,265,000 | | | | 1,102,500 | | | | - | | | | 1,102,500 | | | | 1,102,500 | | | | - | | | | - | | | | - | |
12/22/14 | | 03/31/15 | | | | 22.00 | %* | | Yes | | | 200,000 | | | | 200,000 | | | | - | | | | 200,000 | | | | - | | | | - | | | | 200,000 | | | | - | |
12/26/14 | | 12/26/15 | | | | 22.00 | %* | | Yes | | | 100,000 | | | | 100,000 | | | | - | | | | 100,000 | | | | - | | | | - | | | | 100,000 | | | | - | |
03/12/15 | | | (1) | | | | 6.00 | % | | No | | | 394,380 | | | | 394,380 | | | | - | | | | 394,380 | | | | 394,380 | | | | - | | | | - | | | | - | |
04/07/15 | | 04/07/18 | | | | 10.00 | % | | Yes | | | 50,000 | | | | 50,000 | | | | - | | | | 50,000 | | | | - | | | | - | | | | 50,000 | | | | - | |
11/23/15 | | | (1) | | | | 6.00 | % | | No | | | 50,000 | | | | 50,000 | | | | - | | | | 50,000 | | | | 50,000 | | | | - | | | | - | | | | - | |
02/25/16 | | | (1) | | | | 6.00 | % | | No | | | 50,000 | | | | 50,000 | | | | - | | | | 50,000 | | | | 50,000 | | | | - | | | | - | | | | - | |
05/20/16 | | | (1) | | | | 6.00 | % | | No | | | 50,000 | | | | 50,000 | | | | - | | | | 50,000 | | | | 50,000 | | | | - | | | | - | | | | - | |
10/20/16 | | | (1) | | | | 6.00 | % | | No | | | 37,500 | | | | 12,500 | | | | - | | | | 12,500 | | | | 12,500 | | | | - | | | | - | | | | - | |
10/20/16 | | | (1) | | | | 6.00 | % | | No | | | 12,500 | | | | 12,500 | | | | - | | | | 12,500 | | | | 12,500 | | | | - | | | | - | | | | - | |
12/21/16 | | | (1) | | | | 6.00 | % | | No | | | 25,000 | | | | 25,000 | | | | - | | | | 25,000 | | | | 25,000 | | | | - | | | | - | | | | - | |
03/09/17 | | | (1) | | | | 10.00 | % | | No | | | 200,000 | | | | 177,000 | | | | - | | | | 177,000 | | | | 177,000 | | | | - | | | | - | | | | - | |
07/13/17 | | 07/13/19 | | | | 6.00 | % | | Yes | | | 25,000 | | | | 25,000 | | | | - | | | | 25,000 | | | | - | | | | - | | | | 25,000 | | | | - | |
07/18/17 | | 07/18/19 | | | | 6.00 | % | | Yes | | | 25,000 | | | | 25,000 | | | | - | | | | 25,000 | | | | - | | | | - | | | | 25,000 | | | | - | |
07/26/17 | | 07/26/19 | | | | 6.00 | % | | Yes | | | 15,000 | | | | 15,000 | | | | - | | | | 15,000 | | | | - | | | | - | | | | 15,000 | | | | - | |
12/20/17 | | | (2) | | | | 10.00 | % | | Yes | | | 979,156 | | | | 979,156 | | | | - | | | | 979,156 | | | | - | | | | - | | | | 979,156 | | | | - | |
11/06/17 | | 12/31/18 | | | | 10.00 | % | | Yes | | | 646,568 | | | | 543,093 | | | | - | | | | 543,093 | | | | 543,093 | | | | - | | | | - | | | | - | |
02/19/18 | | | (3) | | | | 18.00 | %* | | Yes | | | 629,451 | | | | 1,161,136 | | | | - | | | | 1,161,136 | | | | - | | | | - | | | | 1,161,136 | | | | - | |
09/19/18 | | 09/28/21 | | | | 6.00 | % | | Yes | | | 10,000 | | | | 10,000 | | | | - | | | | 10,000 | | | | - | | | | - | | | | 10,000 | | | | - | |
12/14/18 | | 12/22/18 | | | | 24.00 | %* | | Yes | | | 474,759 | | | | 623,725 | | | | - | | | | 623,725 | | | | - | | | | - | | | | 623,725 | | | | - | |
01/02/19 | | | (4) | | | | 17.00 | % | | No | | | 310,000 | | | | 310,000 | | | | - | | | | 310,000 | | | | - | | | | - | | | | 310,000 | | | | - | |
08/14/19 | | 10/31/2021 | | | | 8.00 | % | | Yes | | | 26,200 | | | | 26,200 | | | | - | | | | 26,200 | | | | - | | | | - | | | | 26,200 | | | | - | |
| (5) | | 10/31/2021 | | | | 8.00 | % | | Yes | | | 105,000 | | | | 105,000 | | | | - | | | | 105,000 | | | | 10,000 | | | | - | | | | 95,000 | | | | - | |
| (6) | | 01/02/22 | | | | 8.00 | % | | No | | | 306,750 | | | | 306,750 | | | | 885 | | | | 305,865 | | | | 19,946 | | | | - | | | | 285,919 | | | | - | |
| (8) | | 05/12/22 | | | | 8.00 | % | | No | | | 15,000 | | | | 15,000 | | | | 2,924 | | | | 12,076 | | | | - | | | | - | | | | 12,076 | | | | - | |
| (9) | | 09/01/22 | | | | 8.00 | % | | No | | | 160,000 | | | | 160,000 | | | | 73,542 | | | | 86,458 | | | | - | | | | - | | | | 86,458 | | | | - | |
| (10) | | 08/30/23 | | | | 8.00 | % | | No | | | 285,000 | | | | 285,000 | | | | 218,805 | | | | 66,195 | | | | - | | | | 1,307 | | | | - | | | | 64,888 | |
| (11) | | 11/30/23 | | | | 8.00 | % | | No | | | 5,000 | | | | 5,000 | | | | 2,736 | | | | 2,264 | | | | - | | | | 2,264 | | | | - | | | | - | |
| (7) | | | (7) | | | | 10.00 | % | | No | | | 625,000 | | | | 625,000 | | | | - | | | | 625,000 | | | | - | | | | - | | | | 625,000 | | | | - | |
| | | | | | | | | | | | | $ | 9,850,598 | | | $ | 9,009,739 | | | $ | 298,892 | | | $ | 8,710,847 | | | $ | 2,446,919 | | | $ | 3,571 | | | $ | 6,037,135 | | | $ | 223,222 | |
(1) | Maturity date is 90 days after demand. |
(2) | Bridge loans were issued at dates between December 2017 and May 2018. Principal is due on the earlier of 18 months from the anniversary date or the completion of L2 financing with gross proceeds of a minimum of $1.5 million. |
(3) | L2 - Note was drawn down in five tranches between 02/16/18 and 05/02/18. |
(4) | Loans were issued from January 2, 2019 to March 23, 2019. Principal and interest are due when funds are received from the litigation between Ocean Thermal Energy Corporation vs., Robert Coe et al. |
(5) | Notes were issued between 10/14/19 and 11/05/19. The notes bear an interest rate of 8% and mature 10/31/21. They can be converted into 250,000 shares of common stock. They can be converted when the stock closing price reaches $1 or on the maturity, whichever occurs first. |
(6) | Notes were issued between 12/09/19 and 11/25/20. The notes bear an interest rate of 8% and mature 01/02/22. They can be converted into 250,000 shares of common stock. They can be converted when the stock closing price reaches $1 or on the maturity, whichever occurs first. |
(7) | Notes were issued between 11/02/2020 and 03/18/21. The notes bear an interest rate of 10%. Repayment will be made as follows: (i) the principal and interest within five business days following our receipt of $25.5 million from the Phase One Litigation; and (ii) the additional payment within five business days following our actual receipt of any funds from the Phase Two Litigation, less legal fees accrued up to that date. Payment will be made as such funds are actually received by us and after deductions of accrued legal fees up to that date. |
(8) | Notes were issued between 05/14/20 and 08/11/20. The notes bear an interest rate of 8% and mature 05/12/22. They can be converted into 250,000 shares of common stock. They can be converted when the stock closing price reaches $1 or on the maturity, whichever occurs first. |
(9) | Notes were issued in November 2020 and during the first two quarters of 2021. The notes bear an interest rate of 8% and mature 09/01/22. They can be converted into 250,000 shares of common stock. They can be converted when the stock closing price reaches $1 or on the maturity, whichever occurs first. |
(10) | Notes were issued during the third quarter of 2021. The notes bear an interest rate of 8% and mature 08/30/23. They can be converted into 250,000 shares of common stock. They can be converted when the stock closing price reaches $1 or on the maturity, whichever occurs first. |
(11) | Note was issued during November of 2021. The note bears an interest rate of 8% and matures 11/30/23. It can be converted into 250,000 shares of common stock. It can be converted when the stock closing price reaches $1 or on the maturity, whichever occurs first. |
* | Default interest rate. |
The following convertible note and notes payable were outstanding at December 31, 2020:
| | | | | | | | | | | | | | Principal at | | | Discount at | | | Carrying Amount at | | | Related Party | | | Non Related Party | |
Date of Issuance | | | Maturity Date | | | Interest Rate | | | In Default | | Original Principal | | | December 31, 2020 | | | December 31, 2020 | | | December 31, 2020 | | | Current | | | Long-Term | | | Current | | | Long-Term | |
12/12/06 | | | 01/05/13 | | | | 6.25 | % | | Yes | | | 58,670 | | | | 3,779 | | | | - | | | | 3,779 | | | | - | | | | - | | | | 3,779 | | | | - | |
12/01/07 | | | 09/01/15 | | | | 7.00 | % | | Yes | | | 125,000 | | | | 85,821 | | | | - | | | | 85,821 | | | | - | | | | - | | | | 85,821 | | | | - | |
09/25/09 | | | 10/25/11 | | | | 5.00 | % | | Yes | | | 50,000 | | | | 50,000 | | | | - | | | | 50,000 | | | | - | | | | - | | | | 50,000 | | | | - | |
12/23/09 | | | 12/23/14 | | | | 7.00 | % | | Yes | | | 100,000 | | | | 94,480 | | | | - | | | | 94,480 | | | | - | | | | - | | | | 94,480 | | | | - | |
12/23/09 | | | 12/23/14 | | | | 7.00 | % | | Yes | | | 25,000 | | | | 23,619 | | | | - | | | | 23,619 | | | | - | | | | - | | | | 23,619 | | | | - | |
12/23/09 | | | 12/23/14 | | | | 7.00 | % | | Yes | | | 25,000 | | | | 23,620 | | | | - | | | | 23,620 | | | | - | | | | - | | | | 23,620 | | | | - | |
02/03/12 | | | 12/31/19 | | | | 10.00 | % | | Yes | | | 1,000,000 | | | | 1,000,000 | | | | - | | | | 1,000,000 | | | | | | | | - | | | | 1,000,000 | | | | - | |
08/15/13 | | | 10/31/23 | | | | 10.00 | % | | No | | | 158,334 | | | | 158,334 | | | | - | | | | 158,334 | | | | - | | | | - | | | | - | | | | 158,334 | |
12/31/13 | | | 12/31/15 | | | | 8.00 | % | | Yes | | | 290,000 | | | | 130,000 | | | | - | | | | 130,000 | | | | - | | | | - | | | | 130,000 | | | | - | |
04/01/14 | | | 12/31/18 | | | | 10.00 | % | | Yes | | | 2,265,000 | | | | 1,102,500 | | | | - | | | | 1,102,500 | | | | 1,102,500 | | | | - | | | | - | | | | - | |
12/22/14 | | | 03/31/15 | | | | 22.00 | %* | | Yes | | | 200,000 | | | | 200,000 | | | | - | | | | 200,000 | | | | - | | | | - | | | | 200,000 | | | | - | |
12/26/14 | | | 12/26/15 | | | | 22.00 | %* | | Yes | | | 100,000 | | | | 100,000 | | | | - | | | | 100,000 | | | | - | | | | - | | | | 100,000 | | | | - | |
03/12/15 | | | (1) | | | | 6.00 | % | | No | | | 394,380 | | | | 394,380 | | | | - | | | | 394,380 | | | | 394,380 | | | | - | | | | - | | | | - | |
04/07/15 | | | 04/07/18 | | | | 10.00 | % | | Yes | | | 50,000 | | | | 50,000 | | | | - | | | | 50,000 | | | | - | | | | - | | | | 50,000 | | | | - | |
11/23/15 | | | (1) | | | | 6.00 | % | | No | | | 50,000 | | | | 50,000 | | | | - | | | | 50,000 | | | | 50,000 | | | | - | | | | - | | | | - | |
02/25/16 | | | (1) | | | | 6.00 | % | | No | | | 50,000 | | | | 50,000 | | | | - | | | | 50,000 | | | | 50,000 | | | | - | | | | - | | | | - | |
05/20/16 | | | (1) | | | | 6.00 | % | | No | | | 50,000 | | | | 50,000 | | | | - | | | | 50,000 | | | | 50,000 | | | | - | | | | - | | | | - | |
10/20/16 | | | (1) | | | | 6.00 | % | | No | | | 50,000 | | | | 12,500 | | | | - | | | | 12,500 | | | | 12,500 | | | | - | | | | - | | | | - | |
10/20/16 | | | (1) | | | | 6.00 | % | | No | | | 12,500 | | | | 12,500 | | | | - | | | | 12,500 | | | | 12,500 | | | | - | | | | - | | | | - | |
12/21/16 | | | (1) | | | | 6.00 | % | | No | | | 25,000 | | | | 25,000 | | | | - | | | | 25,000 | | | | 25,000 | | | | - | | | | - | | | | - | |
03/09/17 | | | (1) | | | | 10.00 | % | | No | | | 200,000 | | | | 177,000 | | | | - | | | | 177,000 | | | | 177,000 | | | | - | | | | - | | | | - | |
07/13/17 | | | 07/13/19 | | | | 6.00 | % | | Yes | | | 25,000 | | | | 25,000 | | | | - | | | | 25,000 | | | | - | | | | - | | | | 25,000 | | | | - | |
07/18/17 | | | 07/18/19 | | | | 6.00 | % | | Yes | | | 25,000 | | | | 25,000 | | | | - | | | | 25,000 | | | | - | | | | - | | | | 25,000 | | | | - | |
07/26/17 | | | 07/26/19 | | | | 6.00 | % | | Yes | | | 15,000 | | | | 15,000 | | | | - | | | | 15,000 | | | | - | | | | - | | | | 15,000 | | | | - | |
12/20/17 | | | (2) | | | | 10.00 | % | | Yes | | | 979,156 | | | | 979,156 | | | | - | | | | 979,156 | | | | - | | | | - | | | | 979,156 | | | | - | |
11/06/17 | | | 12/31/18 | | | | 10.00 | % | | Yes | | | 646,568 | | | | 543,093 | | | | - | | | | 543,093 | | | | 543,093 | | | | - | | | | - | | | | - | |
02/19/18 | | | (3) | | | | 18.00 | %* | | Yes | | | 629,451 | | | | 1,161,136 | | | | - | | | | 1,161,136 | | | | - | | | | - | | | | 1,161,136 | | | | - | |
09/19/18 | | | 09/28/21 | | | | 6.00 | % | | No | | | 10,000 | | | | 10,000 | | | | - | | | | 10,000 | | | | - | | | | - | | | | 10,000 | | | | | |
12/14/18 | | | 12/22/18 | | | | 24.00 | %* | | Yes | | | 474,759 | | | | 1,042,905 | | | | - | | | | 1,042,905 | | | | - | | | | - | | | | 1,042,905 | | | | - | |
01/02/19 | | | (4) | | | | 17.00 | % | | No | | | 310,000 | | | | 310,000 | | | | - | | | | 310,000 | | | | - | | | | - | | | | 310,000 | | | | - | |
08/14/19 | | | 10/31/21 | | | | 8.00 | % | | No | | | 26,200 | | | | 26,200 | | | | 9,845 | | | | 16,355 | | | | - | | | | - | | | | - | | | | 16,355 | |
| (5) | | | 10/31/21 | | | | 8.00 | % | | No | | | 105,000 | | | | 105,000 | | | | 43,361 | | | | 61,639 | | | | - | | | | 5,916 | | | | - | | | | 55,723 | |
| (6) | | | (6) | | | | 8.00 | % | | No | | | 336,750 | | | | 336,750 | | | | 187,729 | | | | 149,021 | | | | - | | | | 9,989 | | | | - | | | | 139,032 | |
| (7) | | | (7) | | | | 10.00 | % | | No | | | 520,000 | | | | 520,000 | | | | - | | | | 520,000 | | | | - | | | | - | | | | 520,000 | | | | - | |
| | | | | | | | | | | | | | $ | 9,381,768 | | | $ | 8,892,773 | | | $ | 240,935 | | | $ | 8,651,838 | | | $ | 2,416,973 | | | $ | 15,905 | | | $ | 5,849,516 | | | $ | 369,444 | |
(1) | Maturity date is 90 days after demand. |
(2) | Bridge loans were issued at dates between December 2017 and May 2018. Principal is due on the earlier of 18 months from the anniversary date or the completion of L2 financing with gross proceeds of a minimum of $1.5 million. |
(3) | L2 - Note was drawn down in five tranches between 02/16/18 and 05/02/18. |
(4) | Loans were issued from January 2, 2019 to March 23, 2019. Principal and interest are due when funds are received from the litigation between Ocean Thermal Energy Corporation vs., Robert Coe et al. |
(5) | Notes were issued between 10/14/19 and 11/05/19. The notes bear an interest rate of 8% and mature 10/31/21. They can be converted into 250,000 shares of common stock. They can be converted when the stock closing price reaches $1 or on the maturity, whichever occurs first. |
(6) | Notes were issued between 12/09/19 and 02/17/20. The notes bear an interest rate of 8% and $306,750 mature 01/02/22; $15,000 mature on 05/12/22; and $15,000 mature on 09/01/22. They can be converted into 250,000 shares of common stock. They can be converted when the stock closing price reaches $1 or on the maturity, whichever occurs first. |
(7) | Notes were issued between 05/12/20 and 6/25/20. The notes bear an interest rate of 10%. Repayment will be made as follows: (i) the principal and interest within five business days following our receipt of $25.5 million from the Phase One Litigation; and (ii) the additional payment within five business days following our actual receipt of any funds from the Phase Two Litigation, less legal fees accrued up to that date. Payment will be made as such funds are actually received by us and after deductions of accrued legal fees up to that date. |
* | Default interest rate. |
Maturities of Long-Term Obligations for Five Years and Beyond
The minimum principal payments of convertible notes and notes payable at December 31, 2021:
2022 | | $ | 8,561,405 | |
2023 | | | 448,334 | |
Total | | $ | 9,009,739 | |
NOTE 5 – DERIVATIVE LIABILITY
We measure the fair value of our assets and liabilities under the guidance of ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but its provisions apply to all other accounting pronouncements that require or permit fair value measurement.
We identified conversion features embedded within convertible debt issued. We have determined that the features associated with the embedded conversion option should be accounted for at fair value as a derivative liability. We have elected to account for these instruments together with fixed conversion price instruments as derivative liabilities as we cannot determine if a sufficient number of shares would be available to settle all potential future conversion transactions. We value the derivative liabilities using the Black-Scholes option valuation model. The derivative liabilities are valued at each reporting date and the change in fair value is reflected as change in fair value of derivative liability.
Following is a description of the valuation methodologies used to determine the fair value of our financial liabilities, including the general classification of such instruments pursuant to the valuation hierarchy:
| | Fair Value at December 31, | | | Quoted market prices for identical assets/liabilities (Level 1) | | | Significant other observable inputs (Level 2) | | | Significant unobservable inputs (Level 3) | |
Derivative Liability, December 31, 2021 | | $ | 3,769,211 | | | $ | - | | | $ | - | | | $ | 3,769,211 | |
Derivative Liability, December 31, 2020 | | $ | 5,321,395 | | | $ | - | | | $ | - | | | $ | 5,321,395 | |
The reconciliation of the derivative liability for the years ended December 31, 2021 and 2020 is as follows:
| | For the Years Ended December 31 | |
| | 2021 | | | 2020 | |
Derivative liability as of January 1 | | $ | 5,321,395 | | | $ | 3,032,056 | |
Addition to derivative instruments | | | 420,214 | | | | 300,489 | |
Derivative liability extinguished upon conversion of notes payable | | | (666,916 | ) | | | (68,327 | ) |
Change in fair value of derivative liability | | | (1,305,482 | ) | | | 2,057,177 | |
Derivative liability as of December 31 | | $ | 3,769,211 | | | $ | 5,321,395 | |
The change in fair value of the derivative liability for the years ended December 31, 2021 and 2020 is comprised of the following:
| | For the Years Ended December 31 | |
| | 2021 | | | 2020 | |
Day one loss on valuation | | $ | 97,861 | | | $ | 659,885 | |
Gains/(losses) from the change in fair value of derivative liability | | | (1,403,343 | ) | | | 1,397,292 | |
Change in fair value of derivative liability* | | $ | (1,305,482 | ) | | $ | 2,057,177 | |
* Gains (losses) related to the revaluation of Level 3 financial liabilities is included in “Change in fair value of derivative liabilities” in the accompanying consolidated statement of operations.
The fair value of the derivative liability was estimated using the Black-Scholes option-valuation model. The fair values at the commitment and remeasurement dates for our derivative liabilities were based upon the following management assumptions:
| | For the Years Ended December 31 | |
| | 2021 | | | 2020 | |
Expected dividends | | | 0 | % | | | 0 | % |
Expected volatility | | 77% - 326 | % | | 110% - 342 | % |
Risk free interest rate | | 0.03% - 0.73 | % | | 0.09% - 0.17 | % |
Expected term (in years) | | 0.08– 2.56years | | | 0.25– 2.81 years | |
The fair value at the remeasurement date is equal to the carrying value on the balance sheet.
NOTE 6 – STOCKHOLDERS’ EQUITY
Common Stock
During the year ended December 31, 2021, we issued 34,829,587 shares of common stock to Oasis Capital, LLC with a fair value of $972,882 for the conversion of a portion of our notes payable in the amount of $419,179.
During the year ended December 31, 2021, we issued 1,693,877 shares of common stock to Oasis Capital, LLC valued at $83,000. This was a settlement of a second commitment for a convertible promissory note dated May 22, 2018. The initial commitment was 400,000 shares of common stock issued on May 22, 2018.
During the year ended December 31, 2020, we issued 3,071,869 shares of common stock to Oasis Capital, LLC with a fair value of $103,945, for the conversion of a portion of our notes payable in the amount of $50,000.
Preferred Stock
On December 31, 2021, our board of directors approved a resolution authorizing the withdrawal of the certificate of designation of our Series A preferred stock. No shares were outstanding at the time of withdrawal.
Our board of directors has approved the following issuances of Preferred Stock:
Series B Preferred Stock (authorized June 3, 2019) – We are authorized to issue 1,250,000 shares of Series B Preferred Stock with a par value of $0.001. These shares will not have voting rights alongside the common stock and each share of Series B Preferred Stock will be convertible into ten shares of our common stock. As of December 31, 2021 and 2020, 518,750 shares of Series B Preferred Stock have been issued.
Series C Preferred Stock (authorized June 3, 2019) – We are authorized to issue 2,700,000 shares of Series C Preferred Stock with a par value of $0.001. These shares are a one-time grant and will have voting rights alongside the common stock. Each share of Series C Preferred Stock will be convertible into five shares of our common stock. As of December 31, 2021 and 2020, 2,300,000 shares of Series C Preferred Stock have been issued.
Series D Preferred Stock (authorized December 31, 2021) – We are authorized to issue 1,000 shares of Series D Preferred Stock with a par value of $0.001. These shares will have voting rights alongside the common stock and each share of Series D Preferred Stock will be convertible into 200,000 shares of our common stock as set forth in the certificate of designation. Each share of Series D Preferred Stock shall be converted automatically upon the effectiveness of a registration statement registering the resale of the common stock to be issued upon the conversion of the Series D Preferred Stock, or at any time following a merger or consolidation of the Corporation with or into an unaffiliated entity or the sale of all or substantially all of the assets of the Corporation to an unaffiliated third party, at the election of the holder. As of December 31, 2021, no shares of Series D Preferred Stock have been issued.
Warrants and Options
The following table summarizes all warrants outstanding and exercisable for the years ended December 31, 2021 and 2020:
| | Number of | | | Weighted Average | |
| | Warrants | | | Exercise Price | |
Balance at December 31, 2019 | | | 350,073 | | | $ | 0.18 | |
Granted | | | - | | | | - | |
Exercised | | | - | | | | - | |
Forfeited | | | (225,000 | ) | | | 0.03 | |
Balance at December 31, 2020 | | | 125,073 | | | $ | 0.13 | |
Granted | | | - | | | | - | |
Exercised | | | - | | | | - | |
Forfeited | | | - | | | | - | |
Balance at December 31, 2021 | | | 125,073 | | | $ | 0.13 | |
Exercisable at December 31, 2021 | | | 125,073 | | | $ | 0.13 | |
During the years ended December 31, 2021 and 2020, no warrants were exercised. The aggregate intrinsic value represents the excess amount over the exercise price that optionees would have received if all options had been exercised on the last business day of the period indicated, based on our closing stock price of $0.006 per share on December 31, 2021. Of the total warrants outstanding on December 31, 2021, warrants to purchase 125,073 shares had no intrinsic value, as the price of the stock on that date was lower than the exercise price.
NOTE 7 – INCOME TAX
Our ability to use our net operating loss carryforwards may be substantially limited due to ownership change limitations that may have occurred or that could occur in the future, as required by Section 382 of the Code, as well as similar state provisions. These ownership changes may limit the amount of net operating loss that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50.0% of the outstanding stock of a company by certain stockholders or public groups.
We have not completed a study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since we became a “loss corporation” under the definition of Section 382. If we have experienced an ownership change, utilization of the net operating loss carryforwards would be subject to an annual limitation under Section 382 of the Code, which is determined by first multiplying the value of our stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the net operating loss carryforwards before utilization. Further, until a study is completed, and any limitation known, no positions related to limitations are being considered as an uncertain tax position or disclosed as an unrecognized tax benefit. Any carryforwards that expire prior to utilization as a result of such limitations will be removed from deferred tax assets with a corresponding reduction of the valuation allowance. Due to the existence of the valuation allowance, it is not expected that any possible limitation will have an impact on our results of operations or financial position.
The actual tax benefit differs from the expected tax benefit for the years ended December 31, 2021 and 2020 (computed by applying the U.S. federal corporate tax rate of 21% to income before taxes) as follows:
| | 2021 | | | 2020 | |
Statutory federal income tax rate | | | (21.0 | )% | | | (21.0 | )% |
State income taxes, net of federal benefits | | | (7.9 | )% | | | (7.9 | )% |
Non-deductible items | | | (11.4 | )% | | | 10.0 | % |
Valuation allowance | | | 40.3 | % | | | 18.9 | % |
Effective income tax rate | | | — | % | | | — | % |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows:
| | For the Years Ended December 31 | |
| | 2021 | | | 2020 | |
Impairment | | $ | 2,358,860 | | | $ | 2,358,860 | |
Accrued Compensation | | | 1,335,457 | | | | 1,146,038 | |
Operating loss carryforwards | | | 10,028,500 | | | | 9,140,795 | |
Gross deferred tax assets | | | 13,722,817 | | | | 12,645,693 | |
Valuation allowance | | | (13,722,817 | ) | | | (12,645,693 | ) |
Net deferred income tax asset | | $ | - | | | $ | - | |
We have net operating loss carryforwards for income tax purposes of approximately $20.9 million. This loss is allowed to be offset against future income through 2037. We have net operating loss carryforwards of approximately $13.8 million that can be used indefinitely subject to limitations. The tax benefits relating to all timing differences have been fully reserved for in the valuation allowance account due to the substantial losses incurred through December 31, 2021. The change in the valuation allowance for the years ended December 31, 2021 and 2020, was an increase of $1.08 million and $1.22 million, respectively.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Commitments
On June 26, 2017, we entered a nonexclusive finder’s arrangement with Craft Capital Management LLC (“Craft”) in the event that proceeds with a debt and/or equity transaction or to finance a merger/acquisition and/or another transaction are arranged by Craft. We have no obligation to consummate any transaction, and we can choose to accept or reject any transaction in our sole and absolute discretion. Upon the successful completion of a placement, we will pay to Craft 8% of the gross proceeds from an equity placement and 3% for a debt placement. In addition, we will issue to Craft, at the time of closing, warrants with an aggregate exercise price equal to 3% of the amount raised. We have issued warrants to purchase 56,073 shares of common stock for L2 Capital equity transactions and warrants to purchase 69,000 shares of common stock for L2 Capital debt transactions for a total outstanding of warrants to purchase 125,073 shares of common stock, none of which has been exercised. These warrants have a fair value of $219 based on the Black-Scholes option-pricing model. The warrants have exercise prices ranging from $0.0425 to $0.25 per share and are exercisable for a period of five years after the closing of the placement. If we, at any time while these warrants are outstanding, sell or grant any option to purchase or sell or grant any right to reprice, or otherwise dispose of or issue any common stock or securities entitling any person or entity to acquire shares of common stock, at an effective price per share less than the then-exercise price, then the exercise price will be reduced to equal the lower share price, at the option of Craft. Such adjustment will be made whenever such common stock is issued. We will notify Craft in writing, no later than the trading day following the issuance of any common stock, of the applicable issuance price or applicable reset price, exchange price, conversion price, and other pricing terms.
Litigation
On May 4, 2018, we reached a settlement of the claims at issue in Ocean Thermal Energy Corp. v. Robert Coe, et al., Case No. 2:17-cv-02343SHL-cgc, before the United States District Court for the Western District of Tennessee. Between May 30 and July 19, 2018, we received three payments totaling $100,000 from the defendants. On August 8, 2018, an $8 million judgment was entered against the defendants and in our favor. On May 28, 2019, we further settled the claims at issue with two of the defendants, Brett M. Regal and his company, Trade Base Sales, Inc. (“Regal Debtors”), for $17,500,000, bringing the combined judgment and settlement amount owed to us is $25,500,000. On July 1, 2019, the United States District Judge for the Central District of California (case number: 2:19-cv-05299-VAP-JPR), approved our stipulated application for an order permitting us to levy on property and appointing a receiver to carry out the levy on Regal Debtors’ property, such that it may be sold (subject to further order of the court approving and confirming such sales), to satisfy the $25,500,000 settlement and judgment amounts in our favor. On August 15, 2019, the court-appointed receiver notified the court that he had taken custody, possession, and control of certain gemstone and mineral specimens, known as the “Ophir Collection” and 350,000 pounds of unrefined gold and other precious metal bearing ore. By order of the court, the receiver was given the authority to assign, sell, and transfer the debtor property. The proceeds of any sales will be used to satisfy the judgment and settlement agreement, receivership’s reasonable costs and fees, as well as any other claims as determined by the court. Various parties have come forward asserting ownership and priority lien rights to the property. In our ongoing efforts to collect the $25,500,000 judgment obtained, a third party has intervened in our case in the Central District of California (case number: 2:19-cv-05299-VAP-JPR), asserting that it is the rightful owner of the “Ophir Collection” of gems and mineral specimens that is now in possession of the court-appointed receiver. On February 25, 2022, all parties who have appeared in this case stipulated to dismiss all pending claims while leaving the Receivership established by the court in place. On the same date, the court ordered that upon a successful sale of the Ophir Collection, the net proceeds shall be distributed in accordance with the terms of the January 3, 2022 confidential settlement between the parties.
On May 21, 2019, Theodore T. Herman filed a complaint against us in Theodore T. Herman v. Ocean Thermal Energy Corporation, Case No. CI-19-04780, in the Court of Common Pleas of Lancaster County, Pennsylvania, asserting that he is entitled to payment on the promissory note described in Note 4: Convertible Notes and Notes Payable. On July 1, 2019, we filed preliminary objections to the complaint, and subsequently filed an answer and new matter on August 20, 2019, to which the plaintiff filed a reply on September 9, 2019. We will continue to defend our position that no further payment on this note is owed.
On August 22, 2018, Fugro USA Maine, Inc. (“Fugro”), filed suit against us in Fugro USA Marine, Inc. v. Ocean Thermal Energy Corp., Cause No. 2018-56396, in the District Court for Harris County, TX, 165th Judicial District, seeking approximately $500,000 allegedly owed for engineering services provided. On June 23, 2020, a settlement was reached under which we would pay Fugro $375,000 by June 30, 2021. We have recorded the amount of accrued legal settlement as of December 31, 2021. We repaid $130,000 and the balance at December 31, 2021 was $245,000. We were unable to pay the remaining balance and therefore entered into a second amendment to the settlement agreement extending the deadline for full payment, with 18% interest per annum, to December 31, 2021. We will continue to make regular monthly payments to Fugro of $10,000 per month, until the balance owed has been paid.
NOTE 9 – CONSULTING AGREEMENTS
On June 4, 2018, we entered into a consulting agreement to pay 20,000 shares of common stock when one of the conditions of the contract was satisfied. Although this condition was satisfied on August 31, 2018, as of December 31, 2021, we have not issued the shares. As of December 31, 2021, and 2020, we have accrued the share compensation at fair value totaling $1,600.
On August 14, 2018, we entered into a consulting agreement to pay $40,000 by issuing shares of common stock. As of December 31, 2021, we have not issued the shares and have accrued the amount.
NOTE 10 – EMPLOYMENT AGREEMENTS
On January 1, 2011, we entered into a five-year employment agreement with our chief executive officer, which provides for successive one-year term renewals unless it is expressly cancelled by either party 100 days prior to the end of the term. Under the agreement, our chief executive officer will receive an annual salary of $350,000, a car allowance of $12,000, and company-paid health insurance. The agreement also provides for bonuses equal to one times his annual salary plus 500,000 shares of common stock for each additional project that generates $25 million or more in revenue to us. Our chief executive officer is entitled to receive severance pay in the lesser amount of three years’ salary or 100% of the remaining salary if the remaining term is less than three years. On September 15, 2017, an addendum was added to the employment agreement stating that effective June 30, 2017, his salary will be increased to $388,220 per year; that he will receive interest at a rate of 8% on his accrued unpaid wages; and that the term of employment agreement is extended for an additional five years.
NOTE 11 – RELATED-PARTY TRANSACTIONS
For the years ended December 31, 2021 and 2020, we paid rent of $120,000 and $120,000, respectively, to a company controlled by our chief executive officer under an operating lease agreement.
On January 18, 2018, Jeremy P. Feakins & Associates, LLC, an investment entity owned by our chief executive, chief financial officer, and a director, agreed to extend the due date for repayment of a $2,265,000 note issued in 2014 to the earlier of December 31, 2020, or the date of the financial closings of our Baha Mar project (or any other project of $25 million or more), whichever occurs first. On August 15, 2018, principal of $618,500 and accrued interest of $207,731 were converted to 826,231 shares at $1.00 per share, which was ratified by a disinterested majority of the board of directors. The conversion was recorded at historical cost due to the related-party nature of the transaction. As of December 31, 2021, the note balance was $1,102,500 and the accrued interest was $852,916. This note is in default.
On March 9, 2017, we issued a promissory note payable of $200,000 to a related party in which our chief executive officer is an officer and director. The note bears interest of 10% and is due and payable within 90 days after demand. During the year ended December 31, 2018, we received an additional $2,000 and repaid $25,000. The outstanding balance was $177,000 and accrued interest was $86,738 as of December 31, 2021.
On November 6, 2017, we entered into an agreement and promissory note with JPF Venture Group, Inc. to loan up to $2,000,000 to us. The terms of the note are as follows: (i) interest is payable at 10% per annum; (ii) all unpaid principal and all accrued and unpaid interest is due and payable at the earliest of resolution of the Memphis litigation (as defined therein), December 31, 2020, or when we are otherwise able to pay. As of December 31, 2021, the outstanding balance was $543,093 and the accrued interest was $254,362. During year ended December 31, 2020, we repaid $35,000. This note is in default.
We remain liable for the loans made to us by JPF Venture Group, Inc. before the Merger in 2017. As of December 31, 2021, the outstanding balance of these loans was $581,880 and the accrued interest was $231,866. All these notes are in default.
On October 20, 2016, we borrowed $12,500 from an independent director pursuant to a promissory note. The terms of the note are as follows: (i) interest is payable at 6% per annum; (ii) the note is payable 90 days after demand; and (iii) the payee is authorized to convert part or all of the note balance and accrued interest, if any, into shares of our common stock at the rate of one share for each $0.03 of principal amount of the note. This conversion share price was adjusted to $0.01384 for the reverse stock splits. As of December 31, 2021, the outstanding balance was $12,500, plus accrued interest of $4,038.
In the fourth quarter of 2019, we issued a series of convertible promissory notes to accredited investors. The notes bear simple interest on outstanding principal at the rate of 8% per annum, computed based on of the actual number of days elapsed in a year of 365 days. Each $5,000 loan automatically converts into 250,000 shares of our common stock, either at the time the closing sale price for our common stock is equal to or greater than $1.00 per share, as adjusted for stock splits, stock dividends, reclassification, and the like, or at the maturity date of October 31, 2021, whichever comes first. On October 14, 2019, we borrowed $5,000 from Jeremy P. Feakins, our chief executive officer. As of December 31, 2021, the outstanding balance of his loan was $5,000 and the accrued interest was $887. On October 14, 2019, we borrowed $5,000 from an independent director. As of December 31, 2021, the outstanding balance of his loan was $5,000 and the accrued interest was $879.
In the fourth quarter of 2019, and during the year ended December 31, 2020, we issued a series of convertible promissory notes to accredited investors. The notes bear simple interest on outstanding principal at the rate of 8% per annum, computed based on of the actual number of days elapsed in a year of 365 days. Each $5,000 loan automatically converts into 250,000 shares of our common stock, either at the time the closing sale price for our common stock is equal to or greater than $1.00 per share, as adjusted for stock splits, stock dividends, reclassification and the like, or at the maturity date of January 2, 2022, whichever comes first. On December 9, 2019, we borrowed $5,000 from Jeremy P. Feakins, our chief executive officer. On January 21, 2020, we borrowed an additional $5,000 from Jeremy P. Feakins, our chief executive officer. As of December 31, 2021, the outstanding balance of his loans was $10,000 and the accrued interest was $1,603. On December 7, 2019, we borrowed $5,000 from an independent director. On January 21, 2020, we borrowed an additional $5,000 from an independent director. As of December 31, 2021, the outstanding balance of his loans was $10,000 and the accrued interest was $1,604.
In the third quarter of 2021, we issued a series of convertible promissory notes to accredited investors. The notes bear simple interest on outstanding principal at the rate of 8% per annum, computed based on of the actual number of days elapsed in a year of 365 days. Each $5,000 loan automatically converts into 250,000 shares of our common stock, either at the time the closing sale price for our common stock is equal to or greater than $1.00 per share, as adjusted for stock splits, stock dividends, reclassification, and the like, or at the maturity date of August 30, 2023, whichever comes first. On July 27, 2021, we borrowed $5,000 from an independent director. As of December 31, 2021, the outstanding balance of his loan was $5,000 and the accrued interest was $173.
On November 11, 2021, we issued a convertible promissory note to an entity controlled by Jeremy P. Feakins, our chief executive officer, in the amount of $5,000. The note bears simple interest on outstanding principal at the rate of 8% per annum, computed based on of the actual number of days elapsed in a year of 365 days. Each $5,000 loan automatically converts into 250,000 shares of our common stock, either at the time the closing sale price for our common stock is equal to or greater than $1.00 per share, as adjusted for stock splits, stock dividends, reclassification, and the like, or at the maturity date of November 30, 2023, whichever comes first. As of December 31, 2021, the total outstanding value of this loan was $2,264, net of debt discount of $2,736. The accrued interest was $56 as of December 31, 2021.
NOTE 12 – SUBSEQUENT EVENTS
Subsequent to December 31, 2021:
· We sold 115 shares of our Series D Preferred Stock for cash proceeds of $230,000.
· We issued 35 shares of Series D Preferred Stock as payment for a loan of $50,000 and related accrued interest of $19,228.