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WARM Cool

Filed: 22 Nov 21, 10:23am

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended September 30, 2021

 

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

 

For the transition period from _______________ to _______________.

 

Commission file number: 000-53443

 

COOL TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

 

75-3076597

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

8875 Hidden River Parkway, Suite 300

Tampa, FL

 

33637

(Address of principal executive offices)

 

(Zip Code)

 

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

 

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

 

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

 

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

 

Large, accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

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

 

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

 

As of November 12, 2021, there were 586,975,708 shares of common stock, $0.001 par value, issued and outstanding.

 

 

 

 

COOL TECHNOLOGIES, INC.

 

Table of Contents

 

Part I – FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Consolidated Financial Statements

 

4

 

Item 2.

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

 

20

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

33

 

Item 4.

Controls and Procedures

 

33

 

 

 

 

 

 

Part II – OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

34

 

Item 1A.

Risk Factors

 

34

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

34

 

Item 3.

Defaults Upon Senior Securities

 

35

 

Item 4.

Mine Safety Disclosures

 

35

 

Item 5.

Other Information

 

35

 

Item 6.

Exhibits

 

36

 

 

 
2

Table of Contents

  

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

 

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

 

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

 

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

 

 
3

Table of Contents

 

PART I. Financial Information

 

Item 1.Consolidated Financial Statements

 

Cool Technologies, Inc. and Subsidiary

Consolidated Balance Sheets

 

 

 

September 30,

2021

 

 

December 31,

2020

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$301,934

 

 

$33

 

Inventory

 

 

253,539

 

 

 

179,593

 

Prepaid expenses and other assets

 

 

506,473

 

 

 

0

 

Total current assets

 

 

1,061,946

 

 

 

179,626

 

Intangibles

 

 

258,863

 

 

 

233,942

 

Equipment, net

 

 

42,321

 

 

 

57,211

 

Total assets

 

$1,363,130

 

 

$470,779

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$1,367,484

 

 

$1,473,513

 

Accrued interest payable

 

 

973,858

 

 

 

763,641

 

Accrued liabilities – related party

 

 

934,686

 

 

 

1,143,235

 

Customer deposits – related party

 

 

400,000

 

 

 

400,000

 

Accrued payroll taxes

 

 

259,707

 

 

 

106,742

 

Debt, current portion, net of debt discount

 

 

3,918,247

 

 

 

2,938,836

 

Derivative liability

 

 

210,313

 

 

 

396,143

 

Total current liabilities

 

 

8,064,295

 

 

 

7,222,110

 

 

 

 

 

 

 

 

 

 

Debt, long-term portion

 

 

35,343

 

 

 

37,581

 

Total liabilities

 

 

8,099,638

 

 

 

7,259,691

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Preferred stock Series A, $.001 par value; 410 shares authorized; 3 issued and outstanding

 

 

0

 

 

 

0

 

Preferred stock Series B, $.001 par value; 3,636,360 shares authorized; 2,727,270 issued and outstanding

 

 

2,727

 

 

 

2,727

 

Common stock, $.001par value; 1,000,000,000 shares authorized; 581,089,192 and 508,674,682 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively

 

 

581,089

 

 

 

508,675

 

Additional paid-in capital

 

 

51,444,372

 

 

 

48,520,062

 

Common stock issuable

 

 

58,670

 

 

 

58,670

 

Common stock held in escrow

 

 

8,441

 

 

 

8,441

 

Accumulated deficit

 

 

(58,775,275)

 

 

(55,830,210)

Non-controlling interest

 

 

(56,532)

 

 

(57,277)

Total stockholders’ deficit

 

 

(6,736,508)

 

 

(6,788,912)

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ deficit

 

$1,363,130

 

 

$470,779

 

 

See accompanying notes to consolidated financial statements.

 

 
4

Table of Contents

  

Cool Technologies, Inc. and Subsidiary

Consolidated Statements of Operations

(Unaudited)

 

 

 

Three months ended

September 30

 

 

Nine months ended

September 30

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$0

 

 

$0

 

 

$0

 

 

$0

 

Cost of revenues

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Gross profit

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consulting

 

 

120,125

 

 

 

60,000

 

 

 

354,341

 

 

 

173,000

 

Payroll and related expenses

 

 

99,971

 

 

 

102,484

 

 

 

275,840

 

 

 

268,642

 

Professional fees

 

 

45,266

 

 

 

83,975

 

 

 

224,240

 

 

 

183,084

 

General and administrative

 

 

26,003

 

 

 

17,256

 

 

 

50,332

 

 

 

30,709

 

Research and development

 

 

4,963

 

 

 

3,797

 

 

 

14,890

 

 

 

14,105

 

Total operating expenses

 

 

296,328

 

 

 

267,512

 

 

 

919,643

 

 

 

669,540

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(296,328)

 

 

(267,512)

 

 

(919,643)

 

 

(669,540)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(390,419)

 

 

(301,182)

 

 

(1,340,458)

 

 

(1,190,582)

Change in fair value of derivative liability

 

 

24,234

 

 

 

127,186

 

 

 

(737,182)

 

 

(46,679)

Gain on settlement of debt

 

 

52,963

 

 

 

0

 

 

 

52,963

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

(609,550)

 

 

(441,508)

 

 

(2,944,320)

 

 

(1,906,801)

Less: Noncontrolling interest in net loss

 

 

(328)

 

 

(190)

 

 

(168)

 

 

(715)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss to shareholders

 

$(609,222)

 

$(441,318)

 

$(2,944,152)

 

$(1,906,086)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$(0.00)

 

$(0.00)

 

$(0.01)

 

$(0.01)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

578,179,773

 

 

 

421,676,611

 

 

 

563,695,497

 

 

 

384,569,242

 

 

See accompanying notes to consolidated financial statements

 

 
5

Table of Contents

 

Cool Technologies, Inc. and Subsidiary

Consolidated Statements of Stockholders’ Deficit

(Unaudited)

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Common Stock

 

 

Common Stock

Held in

 

 

Accumulated

 

 

Non-

Controlling

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Issuable

 

 

Escrow

 

 

Deficit

 

 

Interest

 

 

Total

 

June 30, 2020

 

 

2,727,273

 

 

$2,727

 

 

 

421,676,611

 

 

$421,677

 

 

$47,358,001

 

 

$58,670

 

 

$8,441

 

 

$(54,572,208)

 

$(56,889)

 

$(6,779,581)

Stock issued with debt

 

 

-

 

 

 

0

 

 

 

1,000,000

 

 

 

1,000

 

 

 

17,000

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

18,000

 

Net loss

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(441,508)

 

 

0

 

 

 

(441,508)

Noncontrolling interest

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

190

 

 

 

(190)

 

 

0

 

September 30, 2020

 

 

2,727,273

 

 

$2,727

 

 

 

422,676,611

 

 

$422,677

 

 

$47,375,001

 

 

$58,670

 

 

$8,441

 

 

$(55,013,526)

 

$(57,079)

 

$(7,203,089)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2021

 

 

2,727,273

 

 

$2,727

 

 

 

576,798,277

 

 

$576,798

 

 

$51,183,915

 

 

$58,670

 

 

$8,441

 

 

$(58,165,476)

 

$(56,781)

 

$(6,391,706)

Debt converted

 

 

-

 

 

 

0

 

 

 

4,290,915

 

 

 

4,291

 

 

 

260,457

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

264,748

 

Net loss

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(609,550)

 

 

0

 

 

 

(609,550)

Noncontrolling interest

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(249)

 

 

249

 

 

 

0

 

September 30, 2021

 

 

2,727,273

 

 

$2,727

 

 

 

581,089,192

 

 

$581,089

 

 

$51,444,372

 

 

$58,670

 

 

$8,441

 

 

$(58,775,275)

 

$(56,532)

 

$(6,736,508)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

2,727,273

 

 

$2,727

 

 

 

267,450,017

 

 

$267,450

 

 

$46,265,016

 

 

$58,670

 

 

$8,441

 

 

$(53,107,440)

 

$(56,364)

 

$(6,561,500)

Warrants issued with debt

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

12,654

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

12,654

 

Debt converted

 

 

-

 

 

 

0

 

 

 

154,226,594

 

 

 

154,227

 

 

 

1,080,331

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

1,234,558

 

Stock issued with debt

 

 

-

 

 

 

0

 

 

 

1,000,000

 

 

 

1,000

 

 

 

17,000

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

18,000

 

Net loss

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(1,906,801)

 

 

0

 

 

 

(1,906,801)

Noncontrolling interest

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

715

 

 

 

(715)

 

 

0

 

September 30, 2020

 

 

2,727,273

 

 

$2,727

 

 

 

422,676,611

 

 

$422,677

 

 

$47,375,001

 

 

$58,670

 

 

$8,441

 

 

$(55,013,526)

 

$(57,079)

 

$(7,203,089)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

2,727,273

 

 

$2,727

 

 

 

508,674,682

 

 

$508,675

 

 

$48,520,062

 

 

$58,670

 

 

$8,441

 

 

$(55,830,210)

 

$(57,277)

 

$(6,788,912)

Sale of common shares

 

 

-

 

 

 

0

 

 

 

2,500,000

 

 

 

2,500

 

 

 

22,500

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

25,000

 

Stock issued with debt

 

 

-

 

 

 

0

 

 

 

10,000,000

 

 

 

10,000

 

 

 

487,000

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

497,000

 

Stock issued for services

 

 

-

 

 

 

0

 

 

 

45,471

 

 

 

45

 

 

 

1,905

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

1,950

 

Warrants issued with debt

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

70,133

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

70,133

 

Debt converted

 

 

-

 

 

 

0

 

 

 

57,673,917

 

 

 

57,674

 

 

 

2,340,211

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

2,397,885

 

Warrants exercised

 

 

-

 

 

 

0

 

 

 

2,195,122

 

 

 

2,195

 

 

 

(2,195)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Warrants issued for services

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

4,756

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

4,756

 

Net loss

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(2,944,320)

 

 

0

 

 

 

(2,944,320)

Noncontrolling interest

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(745)

 

 

745

 

 

 

0

 

September 30, 2021

 

 

2,727,273

 

 

$2,727

 

 

 

581,089,192

 

 

$581,089

 

 

$51,444,372

 

 

$58,670

 

 

$8,441

 

 

$(58,775,275)

 

$(56,532)

 

$(6,736,508)

  

See accompanying notes to consolidated financial statements

 

 
6

Table of Contents

 

Cool Technologies, Inc. and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Nine months ended

September 30,

 

 

 

2021

 

 

2020

 

Operating Activities:

 

 

 

 

 

 

Net loss

 

$(2,944,320)

 

$(1,906,801)

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

 

 

 

 

 

 

 

 

Warrants issued for services

 

 

4,756

 

 

 

0

 

Stock issued for services

 

 

1,950

 

 

 

0

 

Non-cash interest expense

 

 

463,023

 

 

 

0

 

Change in fair value of derivative liability

 

 

737,182

 

 

 

55,784

 

Amortization of debt discount

 

 

671,933

 

 

 

902,680

 

Forgiveness of PPP loan

 

 

(52,963)

 

 

0

 

Depreciation expense

 

 

14,890

 

 

 

14,105

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Inventory

 

 

(73,946)

 

 

(29,849)

Prepaid assets

 

 

(181,473)

 

 

5,000

 

Accounts payable

 

 

(106,029)

 

 

118,420

 

Accrued interest payable

 

 

190,403

 

 

 

275,127

 

Accrued liabilities – related party

 

 

(208,549)

 

 

208,937

 

Accrued payroll taxes

 

 

152,965

 

 

 

46,000

 

Net cash from operating activities

 

 

(1,330,178)

 

 

(310,597)

 

 

 

 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

 

 

 

Intangible assets

 

 

(24,921)

 

 

(20,413)

Net cash from investing activities

 

 

(24,921)

 

 

(20,413)

 

 

 

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from debt

 

 

1,632,000

 

 

 

384,800

 

Payments on debt

 

 

0

 

 

 

(60,146)

Proceeds from sale of common stock

 

 

25,000

 

 

 

0

 

Net cash from financing activities

 

 

1,657,000

 

 

 

324,654

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

 

301,901

 

 

 

(6,356)

 

 

 

 

 

 

 

 

 

Cash, beginning of period

 

 

33

 

 

 

15,306

 

 

 

 

 

 

 

 

 

 

Cash, end of period

 

$301,934

 

 

$8,950

 

 

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

Interest

 

$34,745

 

 

$12,775

 

Income taxes

 

$0

 

 

$0

 

 

 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Debt and interest settled for common stock

 

$2,397,885

 

 

$1,234,558

 

Stock and warrants issued with debt

 

 

567,133

 

 

 

30,654

 

Derivative liability offset by debt discount

 

 

592,074

 

 

 

347,437

 

 

See accompanying notes to consolidated financial statements.

 

 
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Cool Technologies, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Unaudited)

 

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

 

Description of Business

 

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

 

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

 

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

 

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

 

As of 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”). Cool Technologies also has a pending Patent Cooperation Treaty (“PCT”) application that covers integrated electrical power generation methods and systems.

 

Basis of Presentation and Consolidation

 

The accompanying consolidated financial statements as of September 30, 2021 have been derived from unaudited financial statements. They include the accounts of Cool Technologies, Inc. and Ultimate Power Truck, LLC. Intercompany accounts and transactions have been eliminated. The accompanying unaudited interim consolidated financial statements have been prepared on the same basis as the annual audited financial statements and in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. In the opinion of management, such unaudited information includes all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of this interim information.

 

 
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Table of Contents

 

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

 

Operating results and cash flows for interim periods are not necessarily indicative of results that can be expected for the entire year. The information included in this report should be read in conjunction with the audited financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2020.

 

Going Concern

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. CoolTech has incurred net losses of $58,775,275 since inception and has not commenced operations, raising substantial doubt about its ability to continue as a going concern. Management believes that the Company’s ability to continue as a going concern is dependent on its ability to generate revenue, achieve profitable operations and repay obligations when they come due and raising additional capital. There cannot be any assurance that the Company will ever generate revenue or even if it does generate revenue that it will achieve profitable operations. Furthermore, no assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in case of equity financing.

  

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

 

Recent Accounting Guidance Not Yet Adopted

 

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

 

Note 2 – Customer deposits – Related party

 

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

 

 
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Table of Contents

  

Note 3 – Debt

 

Debt consists of the following:

 

 

 

September 30,

2021

 

 

December 31,

2020

 

Notes payable

 

$2,322,238

 

 

$2,639,500

 

Convertible notes payable

 

 

1,643,000

 

 

 

319,000

 

PPP Loan

 

 

0

 

 

 

52,612

 

Vehicle financing

 

 

42,703

 

 

 

55,918

 

Related party advances

 

 

48,537

 

 

 

49,887

 

Note payable – UPT minority owner

 

 

110,000

 

 

 

110,000

 

 

 

 

4,166,478

 

 

 

3,226,917

 

Debt discount

 

 

(212,888)

 

 

(250,500)

 

 

 

3,953,590

 

 

 

2,976,417

 

Less: current portion

 

 

(3,918,247)

 

 

(2,938,836)

Long-term portion

 

$35,343

 

 

$37,581

 

 

Notes Payable

 

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

 

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

 

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

 

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

 

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

 

On October 26, 2018, the Company entered into a Promissory Note Agreement with an accredited investor. It received $250,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum on or before the one-year anniversary. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing. In exchange, the Company granted a security interest in all of the Company’s intellectual property as collateral and Cool Technologies issued cashless warrants to purchase 2,000,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years. On October 26, 2019, the Company and the investor signed an amendment to the agreement extending the maturity date for seven months. On November 20, 2020, they signed another amendment to the agreement in which they agreed that in the event there are any amounts outstanding under the Note on January 1, 2021, the investor shall be able to convert, any amounts outstanding under the Note into shares of common stock, at a conversion price of seventy one percent of the lowest Volume Weighted Average Price (VWAP) over the previous ten trading days prior to the delivery of a conversion notice. On January 20, 2021, the Company issued 15,000,000 shares of common stock to LGH Investments, LLC upon partial conversion of $137,385 on convertible debt and interest of $333,938. On January 22, 2021, the Company issued 15,000,000 shares of common stock to LGH Investments, LLC upon partial conversion of $137,385 on convertible debt and interest of $333,938. On February 3, 2021, the Company issued 2,653,125 shares of common stock to LGH Investments, LLC upon final conversion of $38,205 (minus an adjustment of $20,963 for a previous conversion overage) on convertible debt and interest of $333,938.

 

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

 

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

 

On March 18, 2019, the Company entered into a Promissory Note Agreement with an accredited investor. It received $250,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum on or before the one-year anniversary. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing. In exchange, the Company granted a security interest in all of the Company’s intellectual property and CoolTech issued cashless warrants to purchase 2,000,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years. On March 19, 2020, the Company defaulted on the note payable. The principal and interest as of May 19, 2020, total $317,038. As of the filing date, the Company has not received a notice of default for the note. As per the terms of the note, interest will continue to accrue at 15% per annum until paid in full.

 

 
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On March 19, 2019, the Company entered into a Promissory Note Agreement with an accredited investor. It received $250,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum on or before the one-year anniversary. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing. In exchange, the Company granted a security interest in all of the Company’s intellectual property and CoolTech issued cashless warrants to purchase 2,000,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years. On March 19, 2020, the investor signed an amendment to the agreement extending the maturity date for four months. As of the filing date, the Company has not received a notice of default.

 

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.

 

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 Notes. 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 submitted a request and provided documentation regarding its compliance with applicable requirements. If and when the loan is forgiven, the principal and interest will be removed from the Company’s books. If forgiveness is not granted, the Company must repay any unforgiven principal amount of the Note, with interest, on a monthly basis following the Deferral Period

 

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.

 

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.

 

Convertible notes payable

 

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, plus 3% interest or $1,980. The total amount of $67,980 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 $67,980and 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 conversion price of $0.01. 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 $137,000will 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 2,000,000inducement 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 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.

 

Test Vehicle Financing

 

In July 2018, CoolTech traded-in one test vehicle and purchased another bearing an interest rate of 9.92% payable monthly over 6 years.

 

In June 2019, the Company entered into two finance agreements for the purchase of two test vehicles bearing an interest rate of 9.92% payable monthly over a 5-year period.

 

 
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As of September 30, 2021, the total amount owed for the vehicles is $42,703.

 

Note payable – UPT minority owner

 

A promissory note is held by the 5% minority owner of UPT. The terms of the note have not been finalized. As of September 30, 2021, the outstanding balance was $110,000.

 

Warrants Issued with Debt

 

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

 

 

 

Number of

Warrants

 

 

Weighted-

average

Exercise

Price

 

 

Weighted-

average

Remaining

Life

(Years)

 

 

Aggregate

Intrinsic

Value

 

Outstanding, December 31, 2020

 

 

23,467,717

 

 

$0.04

 

 

 

3.1

 

 

$36,800

 

Granted

 

 

2,000,000

 

 

 

0.10

 

 

 

--

 

 

 

--

 

Forfeited or expired

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

Exercised

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

Outstanding, September 30, 2021

 

 

25,467,717

 

 

 

0.05

 

 

 

2.5

 

 

 

172,479

 

Exercisable, September 30, 2021

 

 

25,467,717

 

 

$0.05

 

 

 

2.5

 

 

$172,479

 

 

Transactions with Related Parties

 

The related party advances, in the amount of $48,537 at September 30, 2021, and $49,887 at December 31, 2020, are held by two of the Company’s officers and relate to unreimbursed expenses which carry no interest and are due on demand.

 

The note payable - UPT minority owner, in the amount of $110,000 at September 30, 2021 and December 31, 2020, is held by the 5% minority owner of UPT. The terms of the note have not been finalized.

 

Future contractual maturities of debt are as follows:

 

Year ending December 31,

 

 

 

 

 

 

 

2021

 

$4,131,135

 

2022

 

 

14,234

 

2023

 

 

14,234

 

2024

 

 

6,875

 

 

 

$4,166,478

 

 

Note 4 – Derivative Liability

 

Under the terms of the August 16, 2021, and September 21, 2021 Convertible Notes, the Company identified derivative instruments arising from embedded conversion features.

 

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

 

 

 

Nine Months Ended September 30, 2021

 

Volatility

 

163.1-173.7%

 

Risk-free interest rate

 

0.07–0.09%

 

Expected life (years)

 

0.88–1.0

 

Dividend yield

 

 

--

 

 

Changes in the derivative liability were as follows:

 

 

 

Nine Months Ended September 30, 2021

 

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Convertible debt and other derivative liabilities at December 31, 2020

 

$--

 

 

$--

 

 

$396,143

 

 

$396,143

 

Conversions of convertible debt

 

 

--

 

 

 

--

 

 

 

(1,518,278)

 

 

(1,518,278)

Issuance of convertible debt and other derivatives

 

 

--

 

 

 

--

 

 

 

595,266

 

 

 

595,266

 

Change in fair value

 

 

--

 

 

 

--

 

 

 

737,182

 

 

 

737,182

 

Convertible debt and other derivative liabilities at September 30, 2021

 

$--

 

 

$--

 

 

$210,313

 

 

$210,313

 

 

Note 5 – Commitments and Contingencies

 

Securities and Exchange Commission Settlement

 

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

 

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

 

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

 

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

 

Cool Technologies’ subsidiary Ultimate Power Truck, LLC (“UPT”) is in pending litigation (PGC Investments, LLC, et al. v. Ultimate Power Truck, LLC, in the Circuit Court for the Sixth Judicial Circuit, Pinellas County, Florida). The litigation is a commercial landlord-tenant action wherein the Plaintiffs seek damages for nonpayment of rent arising out of a commercial lease agreement for which UPT was the tenant. The plaintiffs claim that UPT did not pay approximately $80,000 during the lease term. UPT is contesting the damages claim because it has paid the rent the plaintiff claims it owes. The matter is still in its initial stages. No amounts have been recorded as loss contingencies. No discovery has been conducted and there is no trial date. The plaintiffs are attempting to name Cool Technologies as a defendant.

 

 
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There is also a potential arbitration claim by PGC Investments, LLC against Cool Technologies seeking damages in the amount of $360,500 for breach of contract and breach of the implied covenant of good faith and fair dealing. The Company vigorously disputes that and believes it has the documentation and evidence to prevail.

 

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

 

Note 6 – Equity

 

Preferred Stock

 

Cool Technologies has 15,000,000 preferred shares authorized and 3 Series A and 2,727,270 Series B preferred shares issued and outstanding as of September 30, 2021.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

The warrants cannot be exercised on a cashless basis.

 

Preferred stock issuable on the consolidated balance sheets represents preferred stock to be issued for either cash received, or services performed. As of September 30, 2021 and December 31, 2020, the number of shares of preferred stock to be issued was 0 and the number of shares of Series B preferred stock was 2,727,270.

 

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

 

Common Stock

 

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

 

Common stock issuable on the consolidated balance sheets represents common stock to be issued for either cash received, or services performed. As of September 30, 2021 and December 31, 2020, the number of shares of common stock to be issued was 494,697 shares.

 

Common stock warrants issued with the sale of common stock

 

When the Company sells shares of its common stock the buyer also typically receives fully vested common stock warrants with a maximum contractual term of 3-5 years. A summary of common stock warrants issued with the sale of common stock as of September 30, 2021, and changes during the period then ended is presented below:

 

 

 

Number of Warrants

 

 

Weighted-

average

Exercise Price

 

 

Weighted-

average

Remaining

Life

(Years)

 

 

Aggregate

Intrinsic

Value

 

Outstanding, December 31, 2020

 

 

33,131,539

 

 

$0.08

 

 

 

1.0

 

 

$--

 

Granted

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

Forfeited or cancelled

 

 

(13,289,984)

 

 

0.11

 

 

 

--

 

 

 

--

 

Outstanding, September 30, 2021

 

 

19,841,555

 

 

 

0.07

 

 

 

0.7

 

 

 

113,250

 

Exercisable, September 30, 2021

 

 

19,841,555

 

 

$0.07

 

 

 

0.7

 

 

$113,250

 

 

Note 7 – Share-based payments

 

Nonemployee common stock warrants -- Fully-vested upon issuance

 

Cool Technologies may issue fully vested common stock warrants with a maximum contractual term of 5 years to non-employees in return for services or to satisfy liabilities, such as accrued interest. The following summarizes the activity for common stock warrants that were fully vested upon issuance:

 

 

 

Number of Warrants

 

 

Weighted-

average

Exercise Price

 

 

Weighted-

average

Remaining

Life

(Years)

 

 

Aggregate

Intrinsic

Value

 

Outstanding, December 31, 2020

 

 

11,916,503

 

 

$0.05

 

 

 

1.9

 

 

$10,500

 

Granted

 

 

100,000

 

 

 

0.08

 

 

 

--

 

 

 

--

 

Forfeited or expired

 

 

(1,266,503)

 

 

0.30

 

 

 

--

 

 

 

--

 

Outstanding, September 30, 2021

 

 

10,750,000

 

 

 

0.02

 

 

 

2.0

 

 

 

259,580

 

Exercisable, September 30, 2021

 

 

10,750,000

 

 

$0.02

 

 

 

2.0

 

 

$259,580

 

 

 
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Note 8 – Net Loss per Share

 

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

 

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

 

 

 

Three months ended

September 30,

 

 

Nine months ended

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss available for stockholders

 

$(609,222)

 

$(441,318

 

$(2,944,152)

 

$(1,906,086)

Weighted average outstanding shares of common stock

 

 

578,179,773

 

 

 

421,676,611

 

 

 

563,695,497

 

 

 

384,569,242

 

Dilutive effect of stock options and warrants

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

Common stock and equivalents

 

 

578,179,773

 

 

 

421,676,611

 

 

 

563,695,497

 

 

 

384,569,242

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share - Basic and diluted

 

$(0.00)

 

$(0.00)

 

$(0.01)

 

$(0.00)

 

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

 

 

 

September 30

 

 

 

2021

 

 

2020

 

Stock options

 

 

4,000,000

 

 

 

4,000,000

 

Common stock warrants

 

 

56,309,272

 

 

 

56,508,616

 

Common stock issuable

 

 

494,697

 

 

 

494,697

 

Convertible notes

 

 

43,085,229

 

 

 

81,227,095

 

Convertible preferred stock

 

 

2,877,270

 

 

 

2,877,270

 

Total

 

 

106,766,468

 

 

 

145,107,678

 

Total exercisable at September 30

 

 

71,570,468

 

 

 

145,107,678

 

 

Note 9 – Subsequent Events

 

On October 12, 2021, the Company issued 6,798,000 shares of common stock to LGH Investments, LLC upon final conversion of $135,960 on principal of $132,000.

    

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

 

Overview

 

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

 

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

 

The Company has developed a mobile power generation system (MG) that enables work trucks to generate electric power by running an in-chassis generator. The MG system can be 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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Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

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

 

Item 4. Controls and Procedures

 

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

 

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

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of management, including the principal executive officer and principal financial officer, as of September 30, 2021, Cool Technologies conducted an evaluation of its disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, the principal executive officer and principal financial officer have concluded that, based on the material weaknesses discussed below, the disclosure controls and procedures were not effective as of such date to ensure that information required to be disclosed by the Company in reports filed or submitted under the Securities Exchange Act were recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Act Commission’s rules and forms and that its disclosure controls are not effectively designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act is accumulated and communicated to management, including the principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Cool Technologies internal controls are not effective for the following reasons, (1) there are no entity level controls, because of the limited time and abilities of the Company’s three officers, (2) there is no separate audit committee, and (3) CoolTech has not implemented adequate system and manual controls. As a result, the Company’s internal controls have inherent weaknesses, which may increase the risks of errors in financial reporting under current operations and accordingly are not effective as evaluated against the criteria set forth in the Internal Control – Integrated Framework issued by the committee of Sponsoring Organizations of the Treadway Commission (1992 version). Based on the evaluation, management concluded that the Company’s internal controls over financial reporting were not effective as of September 30, 2021.

 

Even though there are inherent weaknesses, management has taken steps to minimize the risk. The Company uses a third-party consultant to review transactions for appropriate technical accounting, reconcile accounts, review significant transactions and prepare financial statements. Any deviation or errors are reported to management.

 

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

 

Changes in Internal Control over Financial Reporting

 

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

 

 
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Part II. Other Information

 

Item 1. Legal Proceedings

 

Securities and Exchange Commission Settlement

 

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

 

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

 

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

 

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

 

Cool Technologies’ subsidiary Ultimate Power Truck, LLC (“UPT”) is in pending litigation (PGC Investments, LLC, et al. v. Ultimate Power Truck, LLC, in the Circuit Court for the Sixth Judicial Circuit, Pinellas County, Florida). The litigation is a commercial landlord-tenant action wherein the Plaintiffs seek damages for nonpayment of rent arising out of a commercial lease agreement for which UPT was the tenant. The plaintiffs claim that UPT did not pay approximately $80,000 during the lease term. UPT is contesting the damages claim because it has paid the rent the plaintiff claims it owes. The matter is still in its initial stages. No discovery has been conducted and there is no trial date. The plaintiffs have also named Cool Technologies as a defendant through their amended complaint and are attempting to hold it liable for the rent under the lease that only UPT signed. Cool Technologies contends that it does not have liability for rent under a lease it did not sign and has filed a motion to dismiss for lack of personal jurisdiction and failure to state a viable cause of action The motion is pending and has not yet been scheduled for a hearing.

 

There is also a potential arbitration claim by PGC Investments, LLC against Cool Technologies seeking damages in the amount of $360,500 for breach of contract and breach of the implied covenant of good faith and fair dealing. The Company vigorously disputes that and believes it has the documentation and evidence to prevail. This arbitration claim has not been filed, and the parties are exploring the potential for an out-of-court settlement.

 

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

 

Item 1A. Risk Factors

 

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

 

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

 

On August 10, 2021, the Company issued 1,108,647 shares of common stock to PowerUp Lending Group, Ltd. upon partial conversion of $50,000 on convertible debt with a principal of $77,000.

 

 
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On August 11, 2021, the Company issued 765,217 shares of common stock to PowerUp Lending Group, Ltd. upon final conversion of $29,920 on convertible debt with a principal of $77,000.

 

On September 16, 2021, the Company issued 1,639,344 shares of our common stock to PowerUp Lending Group, Ltd. upon partial conversion of $50,000 on convertible debt with a principal of $71,700.

 

On September 17, 2021, the Company issued 777,707 shares of common stock to PowerUp Lending Group, Ltd. upon final conversion of $24,420 on convertible debt with a principal of $71,700.

 

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

 

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

 

Item 3. Defaults Upon Senior Securities

 

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

 

On May 26, 2020, the Company defaulted on a Promissory Note Agreement. A $250,000 note was purchased on October 26, 2018, by an accredited investor. It received $250,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum on or before the one-year anniversary. On October 26, 2019, the investor signed an amendment to the agreement extending the maturity date for seven months. On November 20, 2020, they signed another amendment to the agreement in which they agreed that in the event there are any amounts outstanding under the Note on January 1, 2021, the investor shall be able to convert, any amounts outstanding under the Note into shares of common stock, at a conversion price of seventy one percent of the lowest Volume Weighted Average Price (VWAP) over the previous ten trading days prior to the delivery of a conversion notice. The investor subsequently converted all amounts outstanding in a series of three conversions on January 20 and 22, and February 3, 2021.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

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

 

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

 

 
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Item 6. Exhibits

 

4.46*

 

$135,000 Convertible Promissory Note and Stock Purchase Agreement dated August 16, 2021, issued to PowerUp Lending Group, Ltd.

 

 

 

4.47*

 

$111,000 Convertible Promissory Note and Stock Purchase Agreement dated September 21, 2021, issued to PowerUp Lending Group, Ltd.

 

 

 

31.1*

 

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

 

 

 

31.2*

 

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

 

 

 

32.1*

 

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

 

 

 

32.2*

 

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

 

*Filed Herewith

 

 
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SIGNATURES

 

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

 

 

Cool Technologies, Inc.

 

 

 

 

 

Dated: November 22, 2021

By:

/s/ Timothy Hassett

 

 

Timothy Hassett

 

 

 

Chief Executive Officer

(Principal Executive Officer)

 

 

 

 

 

Dated: November 22, 2021

By:

/s/ Quentin Ponder

 

 

Quentin Ponder

 

 

 

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

   

 
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