Overview
Cool Technologies, Inc. and subsidiary, ("the Company" or "Cool Technologies" or
"CoolTech") was incorporated in the State of Nevada in July 2002. In April 2014,
CoolTech formed Ultimate Power Truck, LLC ("Ultimate Power Truck" or "UPT"), of
which the Company owns 95% and a shareholder of Cool Technologies owns 5%. Cool
Technologies was formerly known as Bibb Corporation, as Z3 Enterprises, and as
HPEV, Inc. On August 20, 2015, the Company changed its name to Cool
Technologies, Inc.
The Company's technologies are divided into two distinct but complementary
categories: mobile power generation and heat dispersion technology.
The Company has developed a mobile power generation system (MG) that enables
work trucks to generate electric power by running an in-chassis generator. The
MG system can be manufactured into or retrofitted onto new and existing global
truck platforms. CoolTech intends to market and sell the mobile power generation
systems to government, commercial and fleet vehicle owners as well as original
equipment manufacturers and individual users. Sales are expected to occur
through the direct efforts of the Company, its sales agents and its joint
venture partners. CoolTech may also license the MG system as well.
The markets targeted include consumer, agricultural, industrial, military and
emergency responders, both in the U.S. and worldwide.
CoolTech has also developed heat dispersion technologies based on proprietary
composite heat structures and heat pipe architecture in various product
platforms such as electric motors, pumps, turbines, bearings and vehicle
components. In preparation, Cool Technologies filed for and received a trademark
for Totally Enclosed Heat Pipe Cooled: TEHPC.
When a generator is enhanced by CoolTech's patented thermal technologies, it
should be able to output more power than any other generator of its size on the
market. That's because third party testing has demonstrated that the cooling
provided by the thermal technologies can help increase the efficiency of
electric motors.
Furthermore, management believes that the technologies will increase the
lifespan as well as help meet regulatory emissions standards for electric motors
and other heat producing equipment and components. The simplicity of the heat
pipe architecture as well as the fact that it provides effective new
applications for existing manufacturing processes should enhance the cost
structure in several large industries including motor/generator and engine
manufacturing.
As of September 30, 2021, we have seven US patents, two Canadian patents, one
Mexican patent, and two pending applications (1 in the US, 1 in Brazil) covering
composite heat structures, motors, and related structures, heat pipe
architecture, and applications (commonly referred to as "thermal" or "heat
dispersion technology"). We also have one Patent Cooperation Treaty ("PCT")
application pending that covers integrated electrical power generation methods
and systems.
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The Company intends to commercialize its patents by integrating the thermal
technologies and applications with Original Equipment Manufacturer (OEM)
partners and by licensing them to electric motor, generator, pump and vehicle
component (brake, resistor, caliper) manufacturers.
We believe the benefits of our mobile power generation systems are quickly
realized once potential customers see it in operation. Public demonstrations of
the MG systems began in April 2017. An inspection and performance demonstration
for Mexican government officials and business leaders occurred in May 2018.
Feedback from initial viewers resulted in more government officials and fruit
growers coming to see the MG power equipment and to learn about the water
purification options in March 2019. Even more officials and growers followed --
flying to St. Louis for a review in May 2019.
We generated our first Mobile Generation order during the quarter ended June 30,
2014 and received a partial deposit in advance of completing the sale. On June
9, 2017, the Company received a purchase order for 10 MG systems from Craftsmen
Industries. As Craftsmen builds custom vehicles designed to the individual
specifications of their customers whose businesses and technical requirements
vary widely, it is impossible to estimate when the order will be fulfilled.
In November 2017, the Company received a purchase commitment for 234 MG systems
from a Mexican Producers' Union. That was followed by a purchase commitment for
24 to 50 MG units from a second Mexican Producers' Union in December 2017. On
April 9, 2018, the first Mexican Producers' Union executed a purchase order with
the Company for 10 Ford F350s with MG80 kVA systems installed. On May 7, 2019,
Turkish technology company Belirti Teknoloji, A.S. delivered a purchase order
for six hundred MG80, MG125 and MG200 Mobile Generation systems. As of the
September 30, 2021, the Company does not have the funds available to fulfill the
orders. To address the issue, the Company is working to close on non-dilutive
funding, however, there can be no assurance that its efforts will be successful.
Craftsmen Industries was selected to produce the first systems due to its
engineering capabilities and extensive facilities. In January 2019, it began
production on the initial vehicles and completed an initial production run
vehicle two months later.
We have not generated any revenues to date. Consequently, there can be no
assurances that the Company will be able to generate new orders, nor fulfill the
existing ones, nor address all the requirements of all the interested parties.
Management is pursuing various financing alternatives, based upon a third-party
assessment of the historically demonstrated or contractually committed
profit-earning capacities of our IP. We see this as the best path forward for
non-dilutive funding. To that end, the Company signed a Memorandum of Terms for
Debt Financing with 3&1 Capital Partners, LLC ("3&1") in March of 2020. Five
months later, the Company signed an agreement in which 3&1 agreed to
definitively provide insurance related debt, surety bond financing and/or
standby letter of credit financing as per the terms of the memorandum.
If funding is received, it will be used to support completion of the initial
phases of our business plan, which is to license our thermal technologies and
applications; to license or sell a mobile electric power system; and to license
our submersible motor dry pit technologies and/or to bring to market our
technologies and applications through key distribution and joint venture
partners.
The occurrence of an uncontrollable event such as the COVID19 pandemic has
negatively affected our operations. A pandemic typically results in social
distancing, travel bans and quarantine. This has limited access to our
facilities, customers, management, support staff and professional advisors.
These, in turn, have impacted our operations and financial condition. The virus
and its variants may also impact demand for our products and may continue to
hamper our efforts to provide our investors with timely information and comply
with our filing obligations with the Securities and Exchange Commission.
Recent Developments
Amendment of Series B Preferred Stock
On October 31, 2016, the Company filed an amended and restated Series B
Preferred Stock Certificate of Designation (which was originally filed with the
Secretary of State of Nevada on April 19, 2016 and amended on August 12, 2016)
to designate 3,636,360 shares as Series B Preferred Stock and to provide for
supermajority 66 2/3% voting rights for the Series B Preferred Stock. The Series
B Preferred Stock will not bear dividends, will not be entitled to receive any
distributions in the event of any liquidation, dissolution or winding up of the
Company, and will have no other preferences, rights, restrictions, or
qualifications, except as otherwise provided by law or the articles of
incorporation of the Company. The holders of Class B Stock shall have the right,
at such holder's option, at any time to convert such shares into common stock,
in a conversion ratio of one share of common stock for each share of Class B
Stock. If the common stock trades or is quoted at a price per share in excess of
$2.25 for any twenty consecutive day trading period, (subject to appropriate
adjustment for forward or reverse stock splits, recapitalizations, stock
dividends and the like), the Series B Stock will automatically be convertible
into the common stock in a conversion ratio of one share of common stock for
each share of Series B Stock. The Series B Stock may not be sold, hypothecated,
transferred, assigned or disposed without the prior written consent of the
Company and the holders of the outstanding Series B Preferred Stock.
Amendment of Articles of Incorporation
On August 10, 2020, the Nevada Secretary of State accepted and filed the
Company's Certificate of Amendment to the Company's Articles of Incorporation.
The filing amends Article II of the Articles of Incorporation by increasing the
number of authorized shares of common stock from 500,000,000 to 1,000,000,000.
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Craftsmen Industries, Inc.
As a consequence of the first public demonstration of the MG 30 kilovolt amp
("kVA") system at the North America International Auto Show in Detroit in
January 2017, the Company entered into an agreement in principle, dated February
21, 2017, with Craftsmen Industries, Inc.("Craftsmen'), a company engaged in the
design, engineering and production of mobile marketing vehicles, experiential
marketing platforms and industrial mobile solutions.
On April 25, 2017, we delivered to Craftsmen Industries, a Class III Vehicle
(Ford F-350 dually) up-fitted with a production-ready MG 30 kVA (single
phase/three phase) system.
Subsequently, Craftsmen invited the Company to demonstrate its mobile generation
technology and the potential benefits for Craftsmen products at Craftsmen's 35th
Anniversary Party on April 27, 2017. Over 100 current and prospective Craftsmen
customers were in the audience for the demonstrations.
Since then the business relationship has expanded significantly. On June 9,
2017, the Company received a purchase order for 10 MG systems from Craftsmen and
Craftsmen agreed to produce the MG systems for the Company's initial orders from
two Mexican Producers Unions. In October 2018 we began ordering components for
the initial pilot production run which was completed in the first quarter of
2019 and showcased on March 27, 2019. In parallel, purchase orders were placed
for components to support increased production upon receipt of funding.
Craftsmen recently signed a manufacturing contract with Translux-Fair Play.
Translux' Hazelwood, Missouri facility encompasses over 45,000 square feet of
manufacturing space and offers extensive laser cutting and metal bending
machinery. The contract significantly enhances Craftsmen's capabilities to
produce boxes and control panels for the MG Systems and the vehicles they're
upfitted to, but also all the MG's optional tasks and capabilities, including
welding, water purification and solar power.
Not only will basic production be optimized and improved, but control panels and
displays should be upgraded. CoolTech is expected to benefit from Translux'
electronics expertise which has been refined through their years of
manufacturing digital scoring panels for sporting arenas and ball parks.
Order of Parts and Components
On July 15, 2018, the Company purchased a Ford F-450 Chassis Cab Truck.
Subsequently, a metal flatbed was manufactured and installed. The truck was
delivered to Craftsmen on September 15th. It will be used for the installation
and refinement of the MG 80 kVA system. A second F-450 will be used for the MG
125 kVA system.
During the week of October 7, 2018, the Company placed orders for System
Controllers, 80 and 125 kVA Generators, Voltage Regulators, Panasonic Toughpads,
Power Take-Offs (PTO) and Split Shaft PTOs.
As of September 2021, the Company has acquired enough parts and components to
build 5 MG 80s and 2 MG 125s. It is currently procuring two mobile water
purification systems and components for mobile electric vehicle charging
systems.
In addition, the Company has purchased another Ford F-450 and is seeking to
acquire more F-450s and 550s for use in demonstrations of the capabilities noted
above and for initial order fulfillment.
Aon Risk Services Central, Inc and Lee and Hayes, PLLC
On January 18, 2018, the Company entered into an agreement with Aon Risk
Services Central, Inc., Lee, and Hayes, PLLC, through its operating unit,
601West, which provides intellectual property ("IP") analytics, to assess the
value of the Company's IP. As set forth in the agreement, the assessment will be
founded on historically demonstrated or contractually committed profit-earning
capacities of our IP and may be used to obtain financing, including but not
limited to, non-dilutive financing. Since then considerable progress has been
achieved, although at a pace much slower than anticipated.
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Live MG80 Demonstration in Fort Collins, Colorado
On May 4, 2018, nine representatives from Mexico's farming, banking, and
government sectors flew to Fort Collins, Colorado for a live demonstration of
CoolTech's generator-equipped truck. The demonstration showcased the
capabilities and ease of operation of the system. The Company demonstrated how
an operator is able to control the generator from the comfort and safety of the
truck's cab using a Panasonic Toughpad. The Company also used the electricity
from the truck to power a screw compressor, an industrial fan, and an industrial
load bank. Additional capabilities, such as purifying water and using batteries
and solar power to make operations more sustainable and environmentally friendly
were discussed with the attendees.
A representative of the National Union of Jatropha Producers approved the
generator-equipped truck. CoolTech plans to put this into production as soon as
final funding is secured.
Unveiling of Initial Production Run Vehicle
On March 27, 2019, the Company unveiled the initial production run of its Mobile
Generation (MG) work trucks for inspection by an audience of agricultural and
community leaders from Latin America at Craftsmen Industries. The itinerary for
the showcase event included a tour of the St. Louis manufacturing facility and
inspection of the first production run MG vehicle in operation as it powered a
variety of equipment.
The purpose of the viewing was not only to show the truck's capabilities, but to
get feedback from the attendees.
Mexican Government
On May 13, 2019, government officials and fruit growers were at Craftsmen
Industries in St. Louis for a review of a first run MG80 production vehicle and
water purification/desalination options.
Among the politicians in attendance was Congressman Efraín Rocha Vega who is
Secretary of the Commission of Development and Rural, Agricultural and Food
Self-sufficiency Conservation, a member of the commission of Livestock and the
commission of Environment, Sustainability, Climate Change and Natural Resources.
Subsequent to the event, in an official Congressional Letter of Support, dated
May 20, 2019, Congressman Rocha wrote: "The successful demonstration of these
technologies further strengthens the Mexican Government's support of Mexican
entities that desire to purchase CoolTech products, as well as affirms our
position to provide financial assistance to such entities." The letter can be
viewed in its entirety at:
http://www.cooltechnologiesinc.com/content/pdf/MexicanLegislationandFinancialAssistanceLetter.pdf.
Introduction of new options
During the fourth quarter of 2019, the Company has introduced new options, which
include an MG System that generates up to 200 kVA of electric power, water
purification and desalination systems.
The truck mounted water purification and desalination units can produce from
2,800 to 14,000 gallons of fresh water every day. Assuming the average person
needs 2 liters per day, 10,000 gallons is enough for 26,498 people.
A 30 kVA MG system could power any size unit as well as the pumps to deliver the
water or five units at once which would be enough to keep the population of
Santa Barbara hydrated. It could even tow a 1,250 gallon water tanker, if
needed.
The purification and desalinization units feature fully automated controls and
monitoring. When combined with the optional telematics offered in the vehicles,
each unit could be remotely controlled and monitored from distant locations.
Belirti Teknoloji
On May 7, 2019, the Company entered into a joint venture agreement ("JV") with
Turkish technology company Belirti Teknoloji, A.S. ("BelirtiTech"). To launch
the business, BelirtiTech awarded Cool Technologies a purchase order for up to
$42 million USD for the purchase of several different models of its Mobile
Generation kits. The purchase order will supply the JV with its initial
inventory for resale into the Middle East and some African nations. The Company
is actively working with the customer's bank in addition to insurance companies
and other financial entities to facilitate the financing of the orders. As of
the date of this filing, the funds to fulfill the orders are not in place.
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The initial purchase order is for six hundred MG80, MG125 and MG200 Mobile
Generation systems. The MG systems will be integrated into the end customer's
choice of vehicles.
The order also includes an additional MG80 installed in a Ford F-450 with the
2,500 gallon per day mobile water desalinization option included.
KeyOptions
On May 30, 2019, the Company entered into a joint venture agreement ("JV") with
KeyOptions Pty Ltd., a privately held technology and security provider based in
Victoria, Australia.
KeyOptions develops and markets products for governments, defense contractors
and other commercial applications to counter security and cyber threats. The
Company will provide a license for the JV to market and sell CoolTech's entire
product platform in Australia and neighboring countries in Southeast Asia.
New Strategic Alliance
On December 16, 2019, the Company signed a cross marketing and licensing
agreement with VerdeWatts, LLC., an energy generation and storage company
encompassing everything from mobile solar power generation systems to large
scale biogas turbine installations. Pursuant to the agreement VerdeWatts and the
Company each granted the other a royalty free non-exclusive license to certain
patents which license is subject to certain future negotiation.
Like CoolTech's Mobile Generation systems ("MG"), VerdeWatts' products are
scalable and offer the ability to bring power anywhere it is needed. Their
proprietary Smart Solar Power Generation Units and energy storage systems
combine to deliver sustainable power long after the sun has set.
The agreement with VerdeWatts also included a cross marketing and royalty free
non-exclusive licensing agreement with FirmGreen, Inc., a water treatment
facilities developer that works closely with VerdeWatts to create a suite of
synergistic products that address significant needs in the global marketplace.
FirmGreen specializes in water purification and desalination technologies. Their
mobile, solar and container applications feature 6 levels of water purification
for unrivaled drinkability. Pursuant to the agreement FirmGreen and the Company
each granted the other a royalty free non-exclusive license to certain patents
which license is subject to certain future negotiation.
CoolTech's MG platform makes the companies' product offering complete with
mobile power generation. It provides the capability to power everything from
irrigation for farms and water purification for rural areas to electric vehicle
charging and fast charging in the urban ones.
Consider the solar-powered generator system with a built-in water purification
unit that makes seawater desalination sustainable. The system pumps and purifies
up to 3,000 gallons per day and interfaces with CoolTech's MG system for 24-hour
operation. The solar panels collapse and fold together, so the entire system
fits easily in the bed of a work truck. It can be set up and operate anywhere a
four-wheel drive vehicle can reach. All of these systems are patent protected
and cross licensed to each of the three companies.
FirmGreen and VerdeWatts have a global presence with projects on 3 continents.
The largest encompasses the installation of 14 natural gas generators to produce
over 60 megawatts (MW) of power. The generators will be integrated with 50
megawatt hours of battery storage and another 6 MW of solar to ensure a
consistent flow of power. VerdeWatts intends to replace most of the legacy
on-site generators with CoolTech's MG systems, however the Company has not
received any orders and there cannot be any assurance that any orders will be
placed.
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Together the companies can create an energy or utility ecosystem that can enable
less developed countries to leapfrog non-existent, inadequate or failing
infrastructure to deliver reliable power and water quickly, sustainably and cost
effectively to their citizens, agriculture and other businesses. The scale and
impact can reach from the individual farms and villages to cities and regions.
In fact, by combining their respective technologies: energy generation, energy
storage and load management controls into a single suite of products, the
companies create a "microgrid". Varying combinations of energy sources such as
solar, wind, biogas and MG systems both backup and supplement one another to
provide consistent, uninterrupted primary power even during severe weather or
other emergency situations.
The synergies between the companies extend beyond water purification and power
generation. VerdeWatts' wind and gas turbines and generators which produce
electric power can all be improved by CoolTech's thermal reduction technologies.
Request for Collaboration Sent to US Government Officials
On December 11, 2019, letters signed by 13 government officials and Congressmen
in Mexico were mailed to their counterparts in the US, specifically Governor
Gavin Newsom, Secretary Rick Perry, Secretary Wilbur Ross, Senator Mitch
McConnell and Speaker of the House Nancy Pelosi.
The letters were a request for collaborative support between the two countries
to accelerate CoolTech's product deployment into Mexico to help solve urgent
rural power and water purification problems that are hurting rural communities.
Those problems include irregular and faulty power in rural areas which hinders
crop irrigation and water pollution which affects crops farmed for sale to the
US.
The letters also detail the Mexican officials' satisfaction with CoolTech's
solutions and management team and that they have met with the Company on several
occasions for product demonstrations as well as strategic and technical advice.
They highlight the benefits of CoolTech products, how they could quickly and
efficiently address the problems noted, and how they expect them to become a
viable part of the country's infrastructure.
Export Import Bank of the United States
With the help of VerdeWatts and FirmGreen, CoolTech has initiated a relationship
with the Export-Import Bank of the United States (EXIM), a U.S. government
agency whose sole mission is to support U.S. exports. The bank fulfills its
mission by offering very cost-effective financing for international customers
and project developers to purchase U.S.-made services and purchase or lease
U.S.-made goods.
To that end, the two companies applied to finance the Mexican projects
referenced above. CoolTech also sent product information for due diligence
review by the technical team at EXIM bank. Subsequently, CoolTech has received a
Letter of Interest from EXIM, however, there cannot be any assurance that EXIM
will provide any funding to the Company.
New Sales Agent
In January 2021, the Company terminated its independent agent agreement with
Gaia Energy of Gdansk, Poland.
On January 26, 2021, the Company signed an independent agent agreement with H&K
Ventures, LLC of Morganhill, California. H&K will act as the Company's
independent agent.
The principals of H&K were also part of Gaia Energy. Consequently, the agreement
and the expertise provide by H&K are the same. H&K will concentrate on
developing markets in Eastern Europe, the Middle East and Africa. The agreement
describes the agent's duties as "generating revenue, and investment funding, for
the Company from various organizations including investment funds, end-users,
channel partners, integrators, and OEMs." To that end, H&K has requested quotes
from the Company for MG 200 to 300 kVA systems with mobile water desalination
capabilities of up to 900,000 gallons per day.
Team members of H&K Ventures include executives with more than twenty-five
years' experience with Panasonic, Ford Motor Company, Electronic Data Systems
and the US Air Force in the fields of advanced technologies and an African
diplomat with a thirty-year background working with and for diplomatic missions,
non-governmental organizations and international disasters and aid management
services.
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The former has joined the Company's advisory board while the diplomat introduced
CoolTech products at a recent African technical summit attended by
representatives from 54 countries.
Order and Delivery of Water Units and Charger
Over the past six months, the Company has ordered two reverse osmosis water
purification units and an electric vehicles charger.
In May of 2021, the Company ordered a reverse osmosis system capable of treating
4,500 gallons of brackish water per day. That was followed by a 100 kW, mode 4
DC, electric vehicle charger capable of simultaneous charging and dynamic load
distribution. The Company ordered a second reverse osmosis system capable of
treating 4,500 gallons of brackish water per day in July of 2021.
The units were delivered to Craftsmen Industries for installation in the beds of
the three test vehicles referenced in Note 3.
Results of Operations
The following table sets forth, for the periods indicated, consolidated
statements of operations data. The table and the discussion below should be read
in conjunction with the accompanying consolidated financial statements and the
notes thereto, appearing elsewhere in this report.
Three months ended September 30,
2021 2020 Change %
Revenues $ -- $ -- N/A N/A
Operating expenses
Consulting 120,125 60,000 60,125 100.2 %
Payroll and related
expenses 99,971 102,484 (2,513 ) -2.5 %
Professional fees 45,266 83,975 (38,709 ) -46.1 %
General and
administrative 26,003 17,256 8,747 50.7 %
Research and
development 4,963 3,797 1,166 30.7 %
Total operating
expenses 296,328 267,512 28,816 10.8 %
Interest expense (390,419 ) (301,182 ) (89,237 ) 29.6 %
Change in fair value of
derivative liability 24,234 127,186 (102,952 ) -80.9 %
Gain on settlement of
debt 52,963 -- 52,963 100.0 %
Net loss (609,550 ) (441,508 ) (168,042 ) 38.1 %
Less: Noncontrolling
interest (328 ) (190 ) (138 ) 72.6 %
Net loss to
shareholders $ (609,222 ) $ (441,318 ) $ (167,904 ) 38.0 %
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Nine months ended
September 30,
2021 2020 Change %
Revenues $ -- $ -- N/A N/A
Operating expenses
Consulting 354,341 173,000 181,341 104.8 %
Payroll and related expenses 275,840 268,642 7,198 2.7 %
Professional fees 224,240 183,084 41,156 22.5 %
General and administrative 50,332 30,709 19,623 63.9 %
Research and development 14,890 14,105 785 5.6 %
Total operating expenses 919,643 669,540 250,103 37.4 %
Interest expense, net (1,340,458 ) (1,190,582 ) (149,876 ) 12.6 %
Change in fair value of
derivative liability (737,182 ) (46,679 ) (690,503 ) 1479.3 %
Gain on settlement of debt 52,963 -- 52,963 100.0 %
Net loss (2,944,320 ) (1,906,801 ) (1,037,519 ) 54.4 %
Less: Noncontrolling interest (168 ) (715 ) 547 -76.5 %
Net loss to shareholders $ (2,944,152 ) $ (1,906,086 ) $ (1,038,066 ) 54.5 %
Revenues
During the three months ended September 30, 2021, and since inception, the
Company has not generated any revenues. Cool Technologies generated its first
Mobile Generation order during the quarter ended June 30, 2014, and received a
partial deposit in advance of completing the sale with companies controlled by
the individual who is a 5% owner of UPT and a shareholder of the Company. The
order is in the production queue along with other existing orders.
Operating Expenses
Payroll and related expenses decreased during the three months ended September
30, 2021, from $102,484 in 2020 to $99,971 in 2021 and increased during the nine
months ended September 30 from $268,642 in 2020 to $275,840 in 2021 due to an
increase in the Company's portion of FICA taxes. Although payroll was the same
for both quarters, FICA taxes in 2020 were not expensed until later in the year.
FICA taxes in 2021 were expensed on a more timely basis. The difference in the
timing of recognition of the expenses shows up as a comparative increase in
2021.
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Consulting expenses increased during the three months ended September 30 from
$60,000 in 2020 to $120,125 in 2021 and during the nine months ended September
30 from $173,000 in 2020 to $354,341 in 2021. This was due primarily to the
addition of two consultants who provide applications engineering and sales
services.
Professional fees decreased during the three months ended September 30 from
$83,975 in 2020 to $45,266 in 2021 and increased during the nine months ended
September 30 from $183,084 in 2020 to $224,240 in 2021. The changes in
professional fees were due to fees to retain legal representation to defend the
Company against the eviction complaint. The respective decrease or increase is a
reflection of the timing and amounts of the invoices received from the law firm
representing the Company. In other words, more invoices in greater amounts were
received during the first two quarters of 2021.
Research and development expenses increased during both periods ended September
30. The expenses increased slightly during the three months ended September 30
from $3,797 in 2020 to $4,963 in 2021. During the nine months ended September
30, the expenses increased slightly from $14,105 in 2020 to $14,890 in 2021. The
comparatively small numbers, compared to previous years, are reflective of the
completion of the design of the MG system and the Company's focus on its
commercialization.
Other Income and Expense
Interest expense increased during the three months ended September 30 from
$301,182 in 2020 to $390,419 in 2021 due to the elimination of a debt discount
and a write off for extinguishment during the second quarter of 2020. Interest
expense increased during the nine months ended September 30 from $1,190,582 in
2020 to $1,340,458 in 2021 primarily due to increased amortization of derivative
debt discount in 2021.
The change in fair value of derivative liability decreased from income of
$127,186 during the three months ended September 30, 2020, to $24,234 in 2021.
During the nine month period ended September 30, the change in fair value
increased from an expense of $46,679 in 2020 to an expense of $737,182 in 2021
due to an increase in the Company's debt and its share price.
Net Loss and Noncontrolling interest
Since Cool Technologies has incurred losses since inception, it has not recorded
any income tax expense or benefit. Accordingly, the Company's net loss is driven
by operating and other expenses. Noncontrolling interest represents the 5%
third-party ownership in UPT, which is subtracted to calculate net loss to
shareholders. Increase in debt stock price
Liquidity and Capital Resources
The Company has historically met its liquidity requirements primarily through
the public sale and private placement of equity securities, debt financing, and
exchanging common stock warrants and options for professional and consulting
services. At September 30, 2021, CoolTech had cash of $301,934.
Working capital is the amount by which current assets exceed current
liabilities. The Company had negative working capital of $7,002,349 and
$7,042,484, respectively, at September 30, 2021 and December 31, 2020. The
decrease in negative working capital was due to the significant increase in cash
and prepaid expenses which more than offset a comparatively smaller increase in
overall current liabilities. To that end, we owe approximately $1,643,000 for
convertible notes and we owe another $2,322,238 in notes payable. Based on its
current forecast and budget, management believes that its cash resources will be
sufficient to fund its operations through the end of the fourth quarter. Unless
the Company can generate sufficient revenue from the execution of the Company's
business plan, it will need to obtain additional capital to continue to fund the
Company's operations. There is no assurance that capital in any form would be
available to us, and if available, on terms and conditions that are acceptable.
If we are unable to obtain sufficient funds, we may be forced to curtail and/or
cease operations.
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January Promissory Note -- 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.
May Government Loan -- 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 PPP 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 collateral or guarantees were provided in
connection with the PPP Note. 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 eight
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. The Company must repay any unforgiven principal
amount of the Note, with interest, on a monthly basis following the Deferral
Period. The Company used the proceeds of the PPP Loan for eligible purposes and
has applied for forgiveness.
On August 23, 2021, the Company received a letter from Bank of America stating
that the requested forgiveness had been approved by the Small Business
Administration and the outstanding loan amount had been remitted to Bank of
America. Therefore, as of September 30, 2021, the outstanding balance was $0.
June Promissory Note -- On June 29, 2020, the Company entered into a Promissory
Note Agreement with an accredited investor. It received $85,000 in financing and
promised to pay the principal amount together with interest of $10,000 by July
29, 2020. As additional compensation, the investor received cashless warrants to
purchase 1,000,000 shares of common stock at an exercise price of $0.05. The
warrants expire after five years. In the event of a default, the investor may,
upon written notice to the Company, declare all unpaid principal and interest
immediately due and payable. As of the filing date, the Company has not received
a notice of default.
September Convertible Note -- On September 15, 2020, the Company signed a
promissory note agreement with an accredited investor. It issued 1,000,000
inducement shares of restricted common stock and received $60,000 after an
original issue discount of $6,000. The total amount of $66,000 plus 3% interest
or $1.980 will be due on April 15, 2021. 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. On March 17, 2021, Cool Technologies issued
3,468,367 shares of common stock to LGH Investments, LLC upon conversion of
$67,980 and the note was retired.
October Convertible Note -- On October 8, 2020, the Company signed a promissory
note agreement with an accredited investor. It issued 1,000,000 inducement
shares of restricted common stock and received $58,000 after an original issue
discount of $6,000 and payment of $2,000 in legal fees. The total amount of
$66,000 will be due on October 8, 2021. 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 the interest rate will increase to
18% until the default is remedied. On April 23, 2021, Cool Technologies issued
911,197 shares of common stock to JSJ Investments, Inc. upon partial conversion
of $35,000. On April 27, 2021, Cool Technologies issued 880,675 shares of common
stock to JSJ Investments, Inc. upon conversion of $33,828 and the note was
retired.
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October Convertible Note -- On October 30, 2020, the Company signed a promissory
note agreement with an accredited investor. It issued 1,500,000 inducement
shares of restricted common stock as additional consideration and received
$45,000 after an original issue discount of $5,000. The total amount of $50,000
plus 3% interest or $1,500 will be due on May 30, 2021. 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. On May 3, 2021, Cool
Technologies issued 5,150,000 shares of common stock to LGH Investments, LLC
upon conversion of $51,500 and the note was retired.
November Convertible Note -- On November 18, 2020, the Company signed a
promissory note agreement with an accredited investor. It received $130,000
after an original issue discount of $7,000. The total amount of $137,000 will be
due on November 18, 2021. 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 50% and the interest rate will increase to 22% until the default is
remedied. On May 24, 2021, Cool Technologies issued 1,798,561 shares of common
stock to LGH Investments, LLC upon partial conversion of $75,000. On May 25,
2021, Cool Technologies issued 1,723,077 shares of common stock to LGH
Investments, LLC upon conversion of $67,200 and the note was retired.
January Convertible Note -- On January 18, 2021, the Company entered into a
convertible note agreement with an accredited investor. It issued 2,000,000
inducement shares of restricted common stock and received $120,000 after an
original issue discount of $12,000 in lieu of interest. The total amount of
$132,000 plus 3% interest or $3,960 will be due on October 18, 2021. 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 fixed price of $0.02
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. As of
September 30, 2021, the remaining balance totaled $132,000.
February Convertible Note -- On February 4, 2021, the Company signed a
promissory note agreement with an accredited investor. It received $70,000 after
an original issue discount of $4,000 and a reimbursement of $3,000 to cover the
investor's legal fees. The total amount of $77,000 will be due on February 4,
2022. 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 50% and
the interest rate will increase to 22% until the default is remedied. On August
10, 2021, Cool Technologies issued 1,108,647 shares of common stock to Power Up
Lending Group, Ltd. upon partial conversion of $50,000. On August 11, 2021, Cool
Technologies issued 765,217 shares of common stock to Power Up Lending Group,
Ltd. upon final conversion of $29,920 and the note was retired.
February Convertible Note -- On February 25, 2021, the Company entered into a
convertible note agreement with an accredited investor. It issued 2,000,000
inducement shares of restricted common stock and received $150,000 after an
original issue discount of $15,000 in lieu of interest. The total amount of
$165,000 plus 3% interest or $4,950 will be due on November 25, 2021. 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 fixed price of $0.025
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. As of
September 30, 2021, the remaining balance totaled $165,000.
March Convertible Note -- On March 12, 2021, the Company signed a promissory
note agreement with an accredited investor. It received $65,000 after an
original issue discount of $3,700 and reimbursement of $3,000 to cover the
investor's legal fees. The total amount of $71,700 will be due on March 12,
2022. 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 50% and
the interest rate will increase to 22% until the default is remedied. On
September 16, 2021, Cool Technologies issued 1,639,344 shares of common stock to
Power Up Lending Group, Ltd. upon partial conversion of $50,000. On September
17, 2021, Cool Technologies issued 777,707 shares of common stock to Power Up
Lending Group, Ltd. upon final conversion of $24,420 and the note was retired.
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March Convertible Note -- On March 24, 2021, the Company entered into a
convertible note agreement with an accredited investor. It issued two sets of
commitment shares: a block of 500,000 and a block of 2,500,000 shares of
restricted common stock as well as warrants to purchase 1,000,000 shares of
common stock at an exercise price of $0.10 per share. In return, the Company
received $250,000 after an original issue discount of $25,000 in lieu of
interest. The total amount of $275,000 plus 8% interest or $22,000 will be due
on December 24, 2021. After 60 days, if the note has not been paid in full, the
investor will have the right to purchase up to 6 million additional warrant
shares. 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 fixed
price of $0.055 per share. If the note is repaid by the maturity date, the
investor will forfeit the block of 2,500,000 shares of restricted common stock
and the shares will be returned to the Company's treasury. In the event of
default, the outstanding balance will increase by 25% and a daily penalty of
$1,000 will accrue until the default is remedied. As of September 30, 2021, the
remaining balance totaled $275,000.
March Convertible Note -- On March 24, 2021, the Company entered into a
convertible note agreement with an accredited investor. It issued two sets of
commitment shares: a block of 500,000 and a block of 2,500,000 shares of
restricted common stock as well as warrants to purchase 1,000,000 shares of
common stock at an exercise price of $0.10 per share. In return, the Company
received $750,000 after an original issue discount of $75,000 in lieu of
interest. The total amount of $825,000 plus 8% interest or $66,000 will be due
on December 24, 2021. After 60 days, if the note has not been paid in full, the
investor will have the right to purchase up to 2 million additional warrant
shares. 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 fixed
price of $0.055 per share. If the note is repaid by the maturity date, the
investor will forfeit the block of 2,500,000 shares of restricted common stock
and the shares will be returned to the Company's treasury. In the event of
default, the outstanding balance will increase by 25% and a daily penalty of
$1,000 will accrue until the default is remedied. As of September 30, 2021, the
remaining balance totaled $825,000.
August Convertible Note - On August 16, 2021, the Company signed a promissory
note agreement with an accredited investor. It received $125,000 after an
original issue discount of $7,000 and reimbursement of $3,000 to cover the
investor's legal fees. The total amount of $135,000 will be due on August 16,
2022. 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 50% and
the interest rate will increase to 22% until the default is remedied. As of
September 30, 2021, the remaining balance totaled $135,000.
September Convertible Note -- On September 21, 2021, the Company signed a
promissory note agreement with an accredited investor. It received $102,000
after an original issue discount of $6,000 and reimbursement of $3,000 to cover
the investor's legal fees. The total amount of $111,000 will be due on September
21, 2022. 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 50% and
the interest rate will increase to 22% until the default is remedied. As of
September 30, 2021, the remaining balance totaled $111,000.
Off Balance Sheet Arrangements
Currently, the Company has no off-balance sheet arrangements.
Cash Flows
Cash flows from operating, investing and financing activities were as follows:
Nine months ended September 30,
2021 2020
Net cash from operating activities $ (1,330,178 ) $ (310,597 )
Net cash from investing activities
(24,921 ) (20,413 )
Net cash from financing activities 1,657,000 324,654
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Net cash from operating activities decreased due to an increase in expenses,
specifically an increase of $463,023 in non-cash interest expense, a change in
the fair value of derivative liability of $737,182, an increase in accounts
payable of $224,449 and an increase in accrued payroll taxes of $106,965 which
offset a decrease in the amortization of debt discount of $230,747.
Cash provided by financing activities included debt borrowings of $1,632,000
during 2021 which was a significant increase from the debt borrowings of
$384,800 during the same period of 2020.
The Company's capital requirements for the next 12 months will consist of $3.4
million with anticipated expenses of $1.4 million for salaries, public company
filings, and consultants and professional fees. An additional $2.0 million in
working capital is expected to be needed for inventory and related costs for
production of the mobile power generation systems as well as development and
commercialization of the thermal dispersion technology applications.
Management believes the Company's funds are insufficient to provide for its
projected needs for operations for the next 12 months. The Company is currently
working to close additional non-dilutive funding to support product development
or for other purposes. As previously noted under Item 2 "Overview", the Company
signed a Memorandum of Terms for Debt Financing with 3&1 Capital Partners, LLC
("3&1") in March of 2020. Five months later, the Company signed an agreement in
which 3&1 agreed to definitively provide insurance related debt, surety bond
financing and/or standby letter of credit financing as per the terms of the
memorandum. In the event that 3&1 fails to deliver the financing, the Company
may have to rely on equity or debt financing that may involve substantial
dilution to our then existing stockholders. If it is unable to close additional
equity financing, the Company may have to cease operations.
Going Concern
The Company has incurred net losses of $58,775,275 since inception and have not
fully commenced operations, raising substantial doubt about its ability to
continue as a going concern. Management believes that the Company's ability to
continue as a going concern is dependent on its ability to raise capital,
generate revenue, achieve profitable operations and repay its obligations when
they come due. As of September 30, 2021, we have $301,934 in cash and we owe
$1,643,000 and $2,322,238 for convertible and promissory notes, respectively. We
are pursuing various financing alternatives to address the payment of
outstanding debt and to support the sales, component acquisition and assembly of
our mobile power generation systems as well as the completion of the secondary
elements of our business plan: to license its thermal technologies and
applications, including submersible dry-pit applications. There can be no
assurance, however, that we will obtain adequate funding or that we will be
successful in accomplishing any of our objectives. Consequently, we may not be
able to continue as an operating company.
Critical Accounting Estimates
The consolidated financial statements and the accompanying notes have been
prepared in accordance with U.S. GAAP. The preparation of these financial
statements requires management to make estimates, judgments and assumptions that
affect reported amounts of assets, liabilities, and expenses. Cool Technologies
continually evaluates the accounting policies and estimates used to prepare the
consolidated financial statements. The estimates are based on historical
experience and assumptions believed to be reasonable under current facts and
circumstances. Actual amounts and results could differ from these estimates made
by management. Certain accounting policies that require significant management
estimates and are deemed critical to the results of operations and financial
position are discussed in the Annual Report on Form 10-K for the year ended
December 31, 2020, in "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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