CPWR 10-Q
Ocean Thermal Energy Corp (CPWR)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number
(Exact name of registrant as specified in its charter) |
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(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
(Address of principal executive offices, including zip code) |
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( |
(Registrant’s telephone number, including area code) |
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n/a |
(Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of October 2, 2025, issuer had
TABLE OF CONTENTS
| 2 |
| Table of Contents |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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| June 30, 2024 |
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| December 31, 2023 |
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ASSETS | ||||||||
Current Assets |
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Cash |
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Prepaid expenses |
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Total Current Assets |
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Total Assets |
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LIABILITIES AND STOCKHOLDERS' DEFICIENCY | ||||||||
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Current Liabilities |
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Accounts payable and accrued expense |
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Notes payable - related party |
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Convertible notes payable - related party, net |
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Notes payable |
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Convertible note payable, net |
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Advances payable - related party, net |
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Derivative liability |
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Total Current Liabilities |
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Total Liabilities |
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Commitments and contingencies (See Note 7) |
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Stockholders' deficiency |
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Preferred Stock, Series B, $ |
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Preferred Stock, Series C, $ |
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Preferred Stock, Series D, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total Stockholders' Deficiency |
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Total Liabilities and Stockholders' Deficiency |
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| $ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
| Table of Contents |
OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
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| For the three months ended |
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| For the six months ended |
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| June 30, 2024 |
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| June 30, 2023 |
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| June 30, 2024 |
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| June 30, 2023 |
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Operating Expenses |
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Salaries and compensation |
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Professional fees |
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General and administrative |
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Total Operating Expenses |
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Loss from Operations |
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Other Income (Expenses) |
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Service income |
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Interest expense, net |
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Amortization of debt discount |
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Change in FV of derivative liability |
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Gain on conversion of debt |
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Total Other Income (Expense) |
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Income (Loss) Before Income Taxes |
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Provision for Income Taxes |
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Net Income (Loss) |
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Net Loss per Common Share – Basic and Diluted |
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Weighted Average Number of Common Shares Outstanding |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
| Table of Contents |
OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIENCY
FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023
(Unaudited)
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| Preferred Stock |
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| Common Stock |
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| Additional |
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| Total |
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| Number of |
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| Paid-in |
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| Accumulated |
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| Stockholders’ |
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| Shares |
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| Value |
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| Value |
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| Capital |
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| Deficit |
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| Deficiency |
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Balance December 31, 2022 |
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Prior year accrued interest adjustment |
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| - |
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| - |
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Series D Preferred Stock issued for cash |
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| - |
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Series D Preferred Stock issued for conversion of notes and interest |
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| - |
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Net Loss |
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| - |
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| - |
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Balance March 31, 2023 |
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Series D Preferred Stock issued for cash |
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| - |
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Series D Preferred Stock issued for conversion of notes and interest |
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Net Loss |
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| - |
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Balance June 30, 2023 |
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| $ |
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| $ |
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| Preferred Stock |
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| Common Stock |
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| Additional |
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| Total |
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| Number of |
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| Accumulated |
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| Stockholders’ |
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| Shares |
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| Value |
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| Value |
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| Capital |
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| Deficit |
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| Deficiency |
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Balance December 31, 2023 |
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Common stock issued for conversion of note |
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Series D Preferred Stock issued for cash |
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Net Loss |
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Balance March 31, 2024 |
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Series D Preferred Stock issued for cash |
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Net Loss |
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Balance June 30, 2024 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
| Table of Contents |
OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023
(Unaudited)
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Cash Flows From Operating Activities: |
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Net loss |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Change in fair value of derivative liability |
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Amortization of debt discount |
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Gain on conversion of debt |
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Changes in assets and liabilities: |
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Accounts payable and accrued expenses |
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Net Cash Used In Operating Activities |
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Cash Flows From Financing Activities: |
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Advances from related parties |
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Repayment of notes payable |
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Proceeds from sale of preferred stock |
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Net Cash Provided by Financing Activities |
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Net increase in cash |
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Cash at beginning of period |
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Cash at End of Period |
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Supplemental disclosure of cash flow information |
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Cash paid for interest expense |
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Cash paid for income taxes |
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Supplemental disclosure of non-cash investing and financing activities: |
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Common stock issued upon conversion of note |
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Note payable converted to common stock |
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Derivative liability extinguished upon conversion on note payable |
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Convertible notes payable and accrued interest converted into preferred stock |
| $ |
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| $ |
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Related party note payable and accrued interest converted into preferred stock |
| $ |
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| $ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
| Table of Contents |
OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023
(UNAUDITED)
NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION
Ocean Thermal Energy Corporation (“OTEC” “Company” “us” “we”) is designing ocean thermal energy conversion power plants, seawater air conditioning and lake water air conditioning (“SWAC/LSC”) plants for large commercial properties, utilities, and municipalities. We believe 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. The Company plans to provide a clean technology that continuously extracts energy from the temperature differentials between warm surface ocean water and cold deep seawater. In addition to producing electricity, our technology can efficiently desalinate seawater producing thousands of cubic meters of fresh water every day for use in agriculture and human consumption. This cold, deep, nutrient-rich water can also be used to cool buildings and for fish farming or aquaculture.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) and presented in accordance with U. S. generally accepted accounting principles (“GAAP”).
The accompanying consolidated balance sheet at December 31, 2023, has been derived from audited consolidated financial statements, but does not include all disclosures required by GAAP. The accompanying unaudited condensed consolidated financial statements as of June 30, 2024, and for the three and six months ended June 30, 2024 and 2023, have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and related notes to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC. In the opinion of management, all material adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been made to the unaudited condensed consolidated financial statements. The unaudited condensed consolidated financial statements include all material adjustments (consisting of normal recurring accruals) necessary to make the unaudited condensed consolidated financial statements not misleading as required by Regulation S-X Rule 10-01. Operating results for the three and six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024, or any future periods.
During the course of preparing the Company’s interim financial statements for the period ended June 30, 2024, the Company determined that a noncash accrual relating to default interest on certain notes payable was not properly reflected in the historical financial statements. Management evaluated this immaterial misstatement using the guidance provided by the SEC’s Staff Accounting Bulletin No. 99 (“SAB 99”) and determined that the misstatement was immaterial to the historical financial statements. The Company has recorded the additional accrued interest as of January 1, 2023, through an adjustment of $
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
Our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2024 and 2023 include the accounts of the Company and the following subsidiary:
Name |
| Place of Incorporation / Establishment |
| Principal Activities |
| Date Formed |
OCEES International Inc. (“OCEES”) |
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Intercompany balances and transactions have been eliminated in consolidation. We have an effective interest of
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.
Business Segments
We operate in one segment and, therefore, segment information is not presented.
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.
| 7 |
| Table of Contents |
The following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding for the three months ended June 30, 2023 and the six months ended June 30, 2024 and 2023, as they would be anti-dilutive:
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| 2024 |
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| 2023 |
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Shares underlying options and warrants outstanding |
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Shares underlying convertible notes outstanding |
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Shares underlying convertible preferred stock outstanding |
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Recent Accounting Pronouncements
In November 2024, the FASB issued Accounting Standards Update (ASU) 2024-04 - Debt with Conversion and Other Options (Subtopic 470-20). This ASU clarifies the requirements related to accounting for the settlement of a debt instrument as an induced conversion. An induced conversion is when a Company induces debt holders to convert their debt into equity shares under changed terms and involved additional consideration. The amendments in this Update are effective for all entities for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted for all entities that have adopted the amendments in ASU 2020-06. The Company is still evaluating the impact of the adoption of this ASU.
In November 2024, the FASB issued ASU 2024-03 - Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40). This ASU requires entities to disaggregate any relevant expense caption presented on the face of the income statement within continuing operations into the following required natural expense categories within the footnotes, as applicable: (1) purchases of inventory, (2) employee compensation, (3) depreciation, (4) intangible asset amortization, and (5) DD&A recognized as part of oil- and gas-producing activities or other depletion expenses. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. The Company is still evaluating the impact of the adoption of this ASU.
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about reportable segment’s profit or loss and assets that are currently required annually. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company adopted this ASU on July 1, 2024. The adoption of this ASU had no impact on the Company’s condensed consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which enhances the transparency and decision usefulness of income tax disclosures by requiring; (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. ASU 2023-09 is effective for fiscal years beginning after December 15, 2025, with early adoption permitted. These amendments are to be applied prospectively, with retrospective application permitted. The Company is currently evaluating the impact this standard will have on its condensed consolidated financial statements.
The Company currently believes there are no other issued and not yet effective accounting standards that are materially relevant to our condensed consolidated financial statements.
NOTE 3 – GOING CONCERN
The accompanying unaudited condensed consolidated financial statements have been prepared on the assumption that we will continue as a going concern. As reflected in the accompanying unaudited condensed consolidated financial statements, we had a net loss of $
NOTE 4 – CONVERTIBLE NOTES AND NOTES PAYABLE
During the six months ended June 30, 2024, $
During the six months ended June 30, 2023, $
During the six months ended June 30, 2023, $
There were no new notes payable issued during the six months ended June 30, 2024. All notes payable and convertible notes payable were in past due and in default as of June 30, 2024. See our audited consolidated financial statements and related notes to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC for additional details concerning our outstanding notes payable and convertible notes payable.
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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 a binomial option pricing-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:
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| Quoted market prices for identical assets/liabilities (Level 1) |
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| Significant other observable inputs (Level 2) |
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| Significant unobservable inputs (Level 3) |
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Derivative Liability, June 30, 2024 |
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Derivative Liability, December 31, 2023 |
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| $ |
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The reconciliation of the derivative liability for the six months ended June 30, 2024 and 2023 is as follows:
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Derivative liability as of December 31 |
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Addition to derivative instruments |
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Derivative liability extinguished upon conversion of notes payable |
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Change in fair value of derivative liability* |
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Derivative liability as of June 30 |
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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:
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Expected dividends |
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Expected volatility |
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Risk free interest rate |
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Expected term (in years) |
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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 six months ended June 30, 2024, we issued
Preferred Stock
During the six months ended June 30, 2024, we issued
NOTE 7 – 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.
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Litigation
From time to time, the Company may be involved in legal proceedings and regulatory proceedings arising from its operations. Management established reserves for specific liabilities in connection with legal actions that management deems to be probable and estimable. Certain lawsuits, claims and proceedings are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. While the outcome of litigation cannot be predicted with certainty, and some of these lawsuits, claims or proceedings may be determined adversely to the Company, management does not believe that the disposition of any such pending matters is likely to have a material adverse effect on the Company’s financial condition or operation, although the resolution in any reporting period of one or more of these matters could have a material adverse effect on the Company’s results of operations for that period.
NOTE 8 – RELATED-PARTY TRANSACTIONS
Through May 31, 2023, we incurred monthly rent of $
In May 2023, we entered into a month-to-month agreement with a company controlled by our chief executive officer for shared use of an office and facilities at $
For the six months ended June 30, 2024 and 2023, we recorded charges incurred to a company controlled by our chief executive officer for reimbursement of accounting and administrative services provided to us by an employee of that company. For the three months ended June 30, 2024 and 2023, we recorded expense of $
Accrued interest on related-party notes was $
During the six months ended June 30, 2024, we repaid $
During the six months ended June 30, 2023, we issued
During 2022, an aggregate of
NOTE 9 – SUBSEQUENT EVENTS
During November and December 2024, we sold an aggregate of $
During January and February 2025, we sold an additional $
During 2025, we entered into stock purchase agreements with a number of investors. The investors agreed to purchase
In January 2025, the Company, as a subcontractor to Johnson Controls Government Systems, received a contract award to provide engineering designs and feasibility analysis for an Ocean Thermal Energy Conversion (OTEC) power system at U.S. Army Garrison – Kwajalein Atoll. The scope of work includes technical assessments and design studies for a 17.2 MW OTEC facility coupled with desalinated water production. The contract is valued at approximately $
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes to our financial statements included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors discussed elsewhere in this report.
Certain information included herein contains statements that may be considered forward-looking statements such as statements relating to our anticipated revenues, gross margins and operating results, estimates used in the preparation of our financial statements, future performance and operations, plans for future expansion, capital spending, sources of liquidity, and financing sources. Forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future, and accordingly, such results may differ from those expressed in any forward-looking statements made herein. These risks and uncertainties include those relating to our liquidity requirements; the continued growth of our industry; the success of marketing and sales activity; the dependence on existing management; the availability and cost of substantial amounts of project capital; leverage and debt service (including sensitivity to fluctuations in interest rates); domestic and global economic conditions; the inherent uncertainty and costs of prolonged arbitration or litigation; and changes in federal or state tax laws or the administration of such laws.
Overview
Ocean Thermal Energy Corporation (“OTEC”) develops and commercializes renewable energy, desalinated water, and sustainable cooling solutions using its proprietary Ocean Thermal Energy Conversion (OTEC) and Seawater Air Conditioning (SWAC) technologies. These systems extract energy from the natural temperature differential between warm surface water and cold deep ocean water to deliver continuous baseload power and clean water without reliance on fossil fuels. Our solutions are particularly well suited for tropical island communities, coastal military installations, and developing nations where access to reliable energy and freshwater is limited.
Our OTEC systems are designed for scalability and rapid deployment, supporting a range of commercial, governmental, and humanitarian applications. In addition to providing 24/7 renewable energy and potable water, our platforms offer opportunities for sustainable agriculture, aquaculture, and mariculture, contributing to local food security and economic development. Recent system designs also integrate with SWAC technology to enable district-level air conditioning using deep ocean water, significantly reducing energy consumption and carbon emissions in urban and resort environments.
We are currently executing a $3.5 million U.S. Army engineering and design contract in partnership with Johnson Controls for the U.S. Army Garrison-Kwajalein Atoll and are actively expanding into additional Indo-Pacific markets such as Guam, Diego Garcia, and the Northern Marianas. Our project pipeline also includes commercial engagements in the Caribbean and Southeast Asia, including India and Indonesia.
Although we have not generated any revenue since inception, we are transitioning from research and development to contract execution and revenue-generating power purchase agreements. We continue to rely on external funding to support operations, project development, and corporate initiatives, including a planned NYSE uplisting. There can be no assurance that such uplisting or funding will be available or that it can be obtained on acceptable terms.
Results of Operations
Comparison of Three Months Ended June 30, 2024 and 2023
During the three months ended June 30, 2024, we had salaries and compensation of $234,054, compared to salaries and compensation of $217,149 during the same three-month period for 2023, an increase of 7.78%.
During the three months ended June 30, 2024 and 2023, we recorded professional fees of $117,305 and $105,340, respectively, an increase of 11.36%. Beginning with the first quarter of 2024, our professional fees increased as the Company began pursuing completing its securities filings, continued development of existing projects and relationship development.
We incurred general and administrative expenses of $35,024 during the three months ended June 30, 2024, compared to $40,113 for the same three-month period for 2023, a decrease of 12.69% due to multiple factors including cost cutting efforts by management.
Our interest expense was $602,833 for the three months ended June 30, 2024, compared to $559,100 for the same period for 2023, an increase of 7.82%. This change was due to increased debt and higher interest rates on defaulted notes payable.
There was no debt discount amortization for the three months ended June 30, 2024, compared to $33,174 for the same period of the previous year. The decrease is due to full amortization of discount on debt that became due during the periods.
There was an decrease in the fair value of the derivative liability of $7,309,946 during the three months ended June 30, 2024, compared to a $1,662,631 increase for the 2023 period, a 539.66% increase period over period, such increase resulting primarily from the changes in the market value of our common stock during the periods.
Comparison of Six Months Ended June 30, 2024 and 2023
During the six months ended June 30, 2024, we had salaries and compensation of $466,864, compared to salaries and compensation of $444,077 during the same six-month period for 2023, an increase of 2.6%.
During the six months ended June 30, 2024 and 2023, we recorded professional fees of $272,175 and $196,677, respectively, an increase of 38.39%. Beginning with the first quarter of 2024, our professional fees increased as the Company began pursuing completing its securities filings, continued development of existing projects and relationship development.
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We incurred general and administrative expenses of $55,708 during the six months ended June 30, 2024, compared to $85,673 for the same six-month period for 2023, a decrease of 34.98% due to multiple factors including cost cutting efforts by management.
Our interest expense was $1,228,389 for the six months ended June 30, 2024, compared to $1,096,242 for the same period for 2023, an increase of 12.05%. This change was due to increased debt and higher interest rates on defaulted notes payable.
There was no debt discount amortization for the six months ended June 30, 2024, compared to $65,969 for the same period of the previous year. The decrease is due to full amortization of discount on debt that became due during the periods.
There was an increase in the fair value of the derivative liability of $3,172,160 during the six months ended June 30, 2024, compared to a $1,389,220 increase for the 2023 period, a 128.34% increase period over period, such increase resulting primarily from the changes in the market value of our common stock during the periods.
We recognized gain on conversion of notes payable of $30,303 during the quarter ended June 30, 2024, compared to $22 in the 2023 period.
Liquidity and Capital Resources
At June 30, 2024, our principal source of liquidity consisted of $115,771 of cash, as compared to $115,149 of cash at December 31, 2023. At June 30, 2024, we had negative working capital (current assets minus current liabilities) of $48,611,734. In addition, our stockholders’ deficit was $48,611,734 at June 30, 2024, compared to stockholders” deficit of $43,931,991 at December 31, 2023. We are focusing our efforts on promoting and marketing our technology by developing and executing contracts. We are exploring external funding alternatives, as our current cash is insufficient to fund operations for the next 12 months.
Our operations used net cash of $313,538 during the six months ended June 30, 2024, as compared to using net cash of $297,955 during the six months ended June 30, 2023. The increase in net cash used in operations is primarily due to our net loss partially offset by the increase in the change in the fair value of derivative liability, a gain on debt conversion and an increase in accounts payable and accrued expenses.
Financing activities provided cash of $314,160 during the six months ended June 30, 2024, as compared to $351,648 for the six months ended June 30, 2023. During the six months ended June 30, 2024 and 2023, we received cash proceeds from the sale of preferred stock which was the primary financing activity during the period.
The accompanying unaudited condensed consolidated financial statements have been prepared on the assumption that we will continue as a going concern. We have experienced recurring operating losses since inception and we had a net loss of $5,164,993 and used $313,538 of cash in operating activities for the six months ended June 30, 2024. We had a working capital deficiency of $48,611,734 and a stockholders’ deficit of $111,246,326 as of June 30, 2024. 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 U.S. Department of Energy. Our applications focus on desalinated water, ammonia, and hydrogen production from an OTEC facility. The financial statements do not include any adjustments that may result from the outcome of this uncertainty.
We have no significant contractual obligations or commercial commitments not reflected on our balance sheet as of the date of this report.
Critical Accounting Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with those accounting principles requires management to use judgment in making estimates and assumptions based on the relevant information available at the end of each period. These estimates and assumptions have a significant effect on reported amounts of assets and liabilities, revenue and expenses, as well as the disclosure of contingent assets and liabilities because they result primarily from the need to make estimates and assumptions on matters that are inherently uncertain. Actual results may differ from these estimates. If updated information or actual amounts are different from previous estimates, the revisions are included in our results for the period in which they become known.
Management believes there have been no significant changes during the six months ended June 30, 2024, to the items that we disclosed as our critical accounting estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023.
Recent Accounting Pronouncements
Information concerning recently issued accounting pronouncements is set forth in Note 2 of our notes to unaudited condensed consolidated financial statements appearing elsewhere in this report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us, in the reports that we file or submit to the SEC under the Exchange Act, is recorded, processed, summarized, and reported within the periods specified by the SEC’s rules and forms and that information is accumulated and communicated to our management, including our principal executive and principal financial officer (whom we refer to in this periodic report as our Certifying Officer), as appropriate to allow timely decisions regarding required disclosure. Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our management evaluated, with the participation of our Certifying Officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of June 30, 2024, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officer concluded that, as of June 30, 2024, our disclosure controls and procedures were not effective to provide reasonable assurance because certain deficiencies involving internal controls constituted material weaknesses. The material weaknesses identified did not result in the restatement of any previously reported financial statements or any other related financial disclosure, and management does not believe that the material weaknesses had any effect on the accuracy of our financial statements for the current reporting period.
Limitations on Effectiveness of Controls
A system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the system will meet its objectives. The design of a control system is based, in part, upon the benefits of the control system relative to its costs. Control systems can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. In addition, over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Also, the design of any control system is based in part upon assumptions about the likelihood of future events.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2024, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are involved in legal proceedings and regulatory proceedings arising from operations. We establish reserves for specific liabilities in connection with legal actions that management deems to be probable and estimable. Certain of such lawsuits, claims and proceedings are described in our Annual Report on Form 10-K for the year ended December 31, 2023, and addressed in Note 7 to the unaudited interim financial statements included herein. While the outcome of litigation cannot be predicted with certainty, and some of these lawsuits, claims or proceedings may be determined adversely to the Company, management does not believe that the disposition of any such pending matters is likely to have a material adverse effect on the Company’s financial condition or liquidity, although the resolution in any reporting period of one or more of these matters could have a material adverse effect on the Company’s results of operations for that period.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
During the six months ended June 30, 2024, we issued 5,641,655 shares of common stock upon conversion of $30,747 of convertible notes payable.
During the six months ended June 30, 2024, we issued 158 shares of Series D Preferred Stock for cash proceeds of $316,000.
These securities were issued in reliance on the exemption from registration provided in Section 4(a)(2) of the Securities Act of 1933, as amended, for transactions not involving any public offering. The investor is an “accredited investor,” as that term is defined in Rule 501(a) of Regulation D, and confirmed the foregoing and acknowledged, in writing, that the securities were acquired and will be held for investment. No underwriter participated in the offer and sale of these securities, and no commission or other remuneration was paid or given directly or indirectly in connection therewith.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
On December 1, 2007, we borrowed funds from the Eastern Idaho Development Corporation (the EIDC loan). The interest rate is 7%, and the maturity date was September 1, 2015. The loan principal is $85,821 and the accrued interest is $71,404 as of June 30, 2024. 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 is $50,000 and the accrued interest is $34,503 as of June 30, 2024. This note is in default.
On December 23, 2009, we borrowed funds from SICOG (EDA-#273 loan). The interest rate is 7%, and the maturity date was December 23, 2014. The loan principal is $77,030 and the accrued interest is $41,657 as of June 30, 2024. This note is in default.
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On December 23, 2009, we borrowed funds from SICOG (MICRO I-#274 loan). The interest rate is 7%, and the maturity date was December 23, 2014. The loan principal is $21,401 and the accrued interest is $9,947 as of June 30, 2024. This note is in default.
On December 23, 2009, we borrowed funds from SICOG (MICRO II-#275 loan). The interest rate is 7%, and the maturity date was December 23, 2014. The loan principal is $21,391 and the accrued interest is $11,629 as of June 30, 2024. This note is in default.
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 in all of 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 June 30, 2024, the outstanding note balance was $1,000,000, plus accrued interest of $1,208,333. This note is in default.
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 7, 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 June 30, 2024, the note balance outstanding was $130,000, and the accrued interest as of that date was $106,237. 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. In January 2023 we issued 500 shares of preferred stock upon conversion of $35,303 of principal and $964,697 of accrued interest. As of June 30, 2024, the note balance was $1,067,197 and the accrued interest was $135,178. This note is in default.
During 2013, we issued notes payable aggregating $158,334 bearing interest at 13% per year with a maturity date of October 31, 2023. Outstand principal is $158,334 at June 30, 2024 and accrued interest totaled $171,265 as of June 30, 2024. As of June 30, 2024, the notes are in default. We intend to repay the notes and accrued interest upon the project’s financial closing.
During 2014, we issued notes payable of $300,000. Accrued interest totaled $598,495 as of June 30, 2024. As of June 30, 2024, the notes are in default. We intend to repay the notes and accrued interest upon the project’s financial closing.
We have a $50,000 promissory note with an unaffiliated investor that was payable on April 7, 2018. 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 $75,889 as of June 30, 2024. As of the date of this report, the note is in default.
During the third quarter of 2017, we completed a $2,000,000 convertible promissory note private placement offering. The terms of the note are as follows: (i) interest is payable at 6% per annum; (ii) 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 note (principal and interest) will be repaid in full. During the third quarter of 2019, $15,000 of the note was repaid. As of June 30, 2024, the outstanding balance of these notes was $65,000, plus accrued interest of $26,182. The notes are in default.
On November 6, 2017, we entered into an agreement and promissory note with JPF Venture Group, Inc.., an investment entity owned by our chief executive, chief financial officer, and a director, 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. As of June 30, 2024, the outstanding note balance was $543,093 and the accrued interest was $378,217. 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 20% per annum payable on a quarterly basis and are not convertible into shares of our capital stock. As of June 30, 2024, the balance of the notes outstanding was $859,156 and the accrued interest was $891,217. These notes are in default.
During the year ended December 31, 2018, we borrowed $482,222 from L2 Capital in five separate tranches. The interest rate is 8%, and the maturity dates are three months from the date of issue. The outstanding loan balance was $1,161,136, which includes the default penalty, and the accrued interest was $1,879,982 as of June 30, 2024. These notes are in default.
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, LLC as commitment shares with a fair value of $21,200 in connection with the purchase of the note. We executed a 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 was 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 June 30, 2024, the outstanding note balance was $547,328, which includes a default penalty, and the accrued interest was $1,658,780. This note is in default.
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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 was 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 June 30, 2024, the balance outstanding was $10,000 and the accrued interest was $3,367. We have defaulted in payment of the note principal and the quarterly interest payments.
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. As of June 30, 2024, the balance outstanding was $26,200, and the accrued interest was $11,937. 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. As of June 30, 2024, the total outstanding balances of all these loans are $40,000 and accrued interest was $14,224. 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. As June 30, 2024, the total outstanding balance of these loans was $225,000 and accrued interest was $75,092. These notes are in default.
In 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. As of June 30, 2024, the total outstanding value of these loans was $15,000 and accrued interest was $4,501. These notes are in default.
In 2021 and 2020, we issued a series of convertible promissory notes to accredited investors aggregating $170,000. 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. At June 30, 2024, the total outstanding balance of these loans was $155,000 and accrued interest was $37,997. These notes are in default.
In 2021, we issued a series of convertible promissory notes to accredited investors aggregating $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. At June 30, 2024, the total outstanding balance of these loans was $280,000 and accrued interest was $59,530. These notes are in default.
In 2021, we issued a $5,000 convertible promissory note to a related party. 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 $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 11, 2023, whichever comes first. At June 30, 2024, the total outstanding balance of this note was $5,000 and accrued interest was $956. This note is in default.
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| Table of Contents |
ITEM 6. EXHIBITS
The following exhibits are filed as a part of this report:
Exhibit Number* |
|
Title of Document |
|
Location |
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Item 31 |
| Rule 13a-14(a)/15d-14(a) Certifications |
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| Certification of Principal Executive Officer Pursuant to Rule 13a-14 |
| This filing. |
| |
| Certification of Principal Financial Officer Pursuant to Rule 13a-14 |
| This filing. |
| |
|
|
|
|
|
|
Item 32 |
| Section 1350 Certifications |
|
|
|
|
| This filing. |
| ||
|
| This filing. |
| ||
|
|
|
|
|
|
Item 101** |
| Interactive Data File |
|
|
|
101.INS |
| XBRL Instance Document |
| This filing. |
|
101.SCH |
| XBRL Taxonomy Extension Schema |
| This filing. |
|
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase |
| This filing. |
|
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase |
| This filing. |
|
101.LAB |
| XBRL Taxonomy Extension Label Linkbase |
| This filing. |
|
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase |
| This filing. |
|
* | All exhibits are numbered with the number preceding the decimal indicating the applicable SEC reference number in Item 601 and the number following the decimal indicating the sequence of the particular document. |
** | The XBRL related information in Exhibit 101 will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and will not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as is expressly set forth by specific reference in such filing or document. |
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| Table of Contents |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| OCEAN THERMAL ENERGY CORPORATION |
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Date: October 2, 2025 | By: | /s/ Jeremy P. Feakins |
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| Jeremy P. Feakins |
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| Chief Executive Officer and Chief Financial Officer |
|
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| (Principal Executive and Financial Officer) |
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| 18 |