Ocean Thermal Energy Corp's Net Loss Skyrockets Amid Derivative Liability Surge

TL;DR

**CPWR is a burning dumpster fire; derivative liabilities are crushing it, avoid at all costs.**

AI Summary

Ocean Thermal Energy Corporation (CPWR) reported a significant increase in net loss for the three months ended March 31, 2024, reaching $11,485,723, a substantial rise from the $655,351 net loss in the same period of 2023. This deterioration was primarily driven by a massive $10,482,106 change in the fair value of derivative liability, compared to a $273,411 gain in the prior year. The company's cash position plummeted from $115,149 at December 31, 2023, to just $431 by March 31, 2024, reflecting a net decrease in cash of $114,718. Total liabilities surged to $55,203,895 from $44,052,140, largely due to the increase in derivative liability. CPWR continues to operate with a substantial working capital deficiency and stockholders' deficit, both at $55,198,464 as of March 31, 2024, raising significant going concern doubts. Operating expenses increased to $408,364 from $363,825, with professional fees rising to $154,870 from $91,337. The company is actively seeking grant funding from the U.S. Department of Energy for its ocean thermal energy conversion projects.

Why It Matters

This filing reveals a company in severe financial distress, with a net loss that has ballooned over 1600% year-over-year, primarily due to derivative liabilities. For investors, this signals extreme risk and potential for further dilution, as evidenced by the conversion of $30,747 of notes into 5,641,655 common shares. Employees face job insecurity given the 'going concern' warning and minimal cash reserves. Customers and the broader market should view CPWR's ambitious clean energy projects with skepticism, as the company's financial instability makes successful project execution highly improbable, potentially hindering the advancement of ocean thermal energy technology in the competitive renewable energy sector.

Risk Assessment

Risk Level: high — The company explicitly states 'These factors raise substantial doubt about our ability to continue as a going concern.' This is supported by a net loss of $11,485,723 for the quarter, a cash balance of only $431, and a working capital deficiency of $55,198,464 as of March 31, 2024. All notes payable and convertible notes payable were in default as of March 31, 2024.

Analyst Insight

Investors should immediately divest any holdings in CPWR due to the severe going concern risk, massive net losses, and precarious cash position. The company's reliance on future grant funding and inability to manage existing debt obligations indicate a high probability of further financial deterioration or bankruptcy.

Financial Highlights

debt To Equity

N/A

revenue

N/A

operating Margin

N/A

total Assets

$5,431

total Debt

$55,203,895

net Income

-$11,485,723

eps

-$0.06

gross Margin

N/A

cash Position

$431

revenue Growth

N/A

Key Numbers

• $11.49M — Net Loss (Increased from $0.66M in Q1 2023, a 1640% increase)
• $431 — Cash Balance (Decreased from $115,149 at Dec 31, 2023, indicating severe liquidity issues)
• $10.48M — Change in Fair Value of Derivative Liability (A significant expense in Q1 2024, compared to a $0.27M gain in Q1 2023)
• $55.20M — Total Liabilities (Increased from $44.05M at Dec 31, 2023, primarily due to derivative liability)
• $55.20M — Stockholders' Deficit (Increased from $43.93M at Dec 31, 2023, highlighting negative equity)
• 190,012,124 — Common Shares Outstanding (Increased from 184,370,469 at Dec 31, 2023, due to note conversions)
• $0.06 — Net Loss per Common Share (Increased from $0.00 in Q1 2023)
• $163,148 — Cash Used in Operating Activities (Increased from $94,599 in Q1 2023, showing higher cash burn)

Key Players & Entities

• Ocean Thermal Energy Corporation (company) — registrant
• U.S. Department of Energy (regulator) — potential grant funding source
• $11,485,723 (dollar_amount) — net loss for Q1 2024
• $655,351 (dollar_amount) — net loss for Q1 2023
• $10,482,106 (dollar_amount) — change in fair value of derivative liability for Q1 2024
• $431 (dollar_amount) — cash at end of Q1 2024
• $115,149 (dollar_amount) — cash at end of Q4 2023
• $55,203,895 (dollar_amount) — total liabilities at end of Q1 2024
• $55,198,464 (dollar_amount) — stockholders' deficit and working capital deficiency at end of Q1 2024
• 5,641,655 (dollar_amount) — common shares issued for note conversion

FAQ

Risk Factors

• Severe Liquidity Constraints [high — financial]: The company's cash balance has drastically reduced from $115,149 at December 31, 2023, to a mere $431 as of March 31, 2024. This severe liquidity shortage, coupled with a substantial working capital deficiency of $55,198,464, raises significant concerns about the company's ability to meet its short-term obligations.
• Deteriorating Net Loss and Increased Burn Rate [high — financial]: The net loss for the three months ended March 31, 2024, surged to $11,485,723, a stark increase from $655,351 in the prior year period. This is largely driven by a $10,482,106 adverse change in the fair value of derivative liability. Furthermore, cash used in operating activities increased to $163,148 from $94,599, indicating a higher cash burn.
• Surging Liabilities and Stockholders' Deficit [high — financial]: Total liabilities have increased to $55,203,895 from $44,052,140, primarily due to a significant rise in derivative liability to $22,718,007. This has also led to an expansion of the stockholders' deficit to $55,198,464, indicating negative equity and a precarious financial position.
• Increased Operating Expenses [medium — operational]: Total operating expenses rose to $408,364 from $363,825 in the comparable period. Notably, professional fees saw a substantial increase from $91,337 to $154,870, suggesting higher costs associated with legal, accounting, or consulting services.
• Dilution from Share Issuance [medium — financial]: The number of common shares outstanding increased from 184,370,469 at December 31, 2023, to 190,012,124 as of March 31, 2024. This 3.06% increase is attributed to the conversion of notes, which can dilute existing shareholders' ownership.

Industry Context

Ocean Thermal Energy Corporation operates in the renewable energy sector, specifically focusing on Ocean Thermal Energy Conversion (OTEC). This is a niche but potentially significant area for baseload renewable power. The company is actively seeking grant funding from the U.S. Department of Energy, indicating reliance on external support for project development in a capital-intensive industry.

Regulatory Implications

The company's reliance on grant funding from the U.S. Department of Energy suggests that regulatory approvals and compliance with DOE funding requirements are critical. Any changes in government energy policy or funding priorities could significantly impact the company's ability to secure necessary capital for its projects.

What Investors Should Do

1. Monitor DOE Grant Application Status
2. Assess Derivative Liability Management
3. Evaluate Cash Burn and Funding Needs

Glossary

Derivative Liability

A financial instrument whose value is derived from an underlying asset, group of assets, or benchmark. A derivative liability represents an obligation to deliver an asset or cash based on the derivative's terms. (A significant increase in the fair value of this liability ($10,482,106 adverse change) was the primary driver of the company's increased net loss in the current period.)

Stockholders' Deficit

The amount by which total liabilities exceed total assets, resulting in negative equity for the shareholders. (The company has a substantial stockholders' deficit of $55,198,464, indicating that its liabilities far outweigh its assets, a key indicator of financial distress.)

Working Capital Deficiency

Occurs when current liabilities exceed current assets, indicating a company may not have enough liquid assets to cover its short-term obligations. (The company has a significant working capital deficiency, highlighting its immediate liquidity challenges.)

Going Concern

An accounting assumption that a business will continue to operate for the foreseeable future. If there are substantial doubts about a company's ability to continue as a going concern, it must be disclosed. (The company's severe liquidity issues, negative equity, and substantial losses raise significant doubts about its ability to continue as a going concern.)

Year-Over-Year Comparison

Compared to the prior year period, Ocean Thermal Energy Corporation has experienced a dramatic increase in its net loss, from $655,351 to $11,485,723, primarily driven by a significant adverse change in the fair value of its derivative liability. Total liabilities have also grown substantially, largely due to this derivative liability, leading to an increased stockholders' deficit. Operating expenses have risen, with professional fees showing a notable increase. The company's cash position has deteriorated severely, from $115,149 to just $431, highlighting a worsening financial condition.

Key Financial Figures

• $0.001 — nding shares of common stock, par value $0.001. TABLE OF CONTENTS Description Pag

Filing Documents

• cpwr_10q.htm (10-Q) — 414KB
• cpwr_ex311.htm (EX-31.1) — 10KB
• cpwr_ex312.htm (EX-31.2) — 10KB
• cpwr_ex321.htm (EX-32.1) — 5KB
• cpwr_ex322.htm (EX-32.2) — 5KB
• 0001654954-25-011351.txt ( ) — 2363KB
• cpwr-20240331.xsd (EX-101.SCH) — 26KB
• cpwr-20240331_lab.xml (EX-101.LAB) — 155KB
• cpwr-20240331_cal.xml (EX-101.CAL) — 30KB
• cpwr-20240331_pre.xml (EX-101.PRE) — 137KB
• cpwr-20240331_def.xml (EX-101.DEF) — 82KB
• cpwr_10q_htm.xml (XML) — 227KB

-FINANCIAL INFORMATION

PART I-FINANCIAL INFORMATION 3 Item 1

Financial Statements (unaudited)

Financial Statements (unaudited) 3 Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Operations 4 Condensed Consolidated Statements of Changes in Stockholders' Deficit 5 Condensed Consolidated Statements of Cash Flows 6 Notes to the Condensed Consolidated Financial Statements 7 Item 2

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

Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3

Quantitative and Qualitative Disclosures about Market Risk

Quantitative and Qualitative Disclosures about Market Risk 12 Item 4

Controls and Procedures

Controls and Procedures 12

-OTHER INFORMATION

PART II-OTHER INFORMATION Item 1

Legal Proceedings

Legal Proceedings 14 Item 1A

Risk Factors

Risk Factors 14 Item 2 Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities 14 Item 3 Defaults upon Senior Securities 14 Item 6 Exhibits 17 Signature 18 2 Table of Contents

- FINANCIAL INFORMATION

PART I - FINANCIAL INFORMATION

FINANCIAL STATEMENTS

ITEM 1. FINANCIAL STATEMENTS OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) March 31, 2024 December 31, 2023 ASSETS Current Assets Cash $ 431 $ 115,149 Prepaid expenses 5,000 5,000 Total Current Assets 5,431 120,149 Total Assets $ 5,431 $ 120,149 LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities Accounts payable and accrued expense $ 23,825,224 $ 22,954,452 Notes payable - related party 2,304,170 2,304,170 Convertible notes payable - related party, net 117,500 117,500 Notes payable 3,638,131 3,639,431 Convertible note payable, net 2,539,665 2,570,412 Advances payable - related party, net 61,198 61,468 Derivative liability 22,718,007 12,404,707 Total Current Liabilities 55,203,895 44,052,140 Total Liabilities 55,203,895 44,052,140 Commitments and contingencies (See Note 7) - - Stockholders' deficit Preferred Stock, Series B, $ 0.001 par value; 1,250,000 shares authorized, 518,750 and 518,750 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively 519 519 Preferred Stock, Series C, $ 0.001 par value; 2,700,000 shares authorized, 2,300,000 and 2,300,000 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively 2,300 2,300 Preferred Stock, Series D, $ 0.001 par value; 1,400 shares authorized, 1,227 and 1,202 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively 1 1 Common stock, $ 0.001 par value; 200,000,000 shares authorized, 190,012,124 and 184,370,469 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively 190,013 184,371 Additional paid-in capital 62,175,759 61,962,151 Accumulated deficit ( 117,567,056 ) ( 106,081,333 ) Total Stockholders' Deficit ( 55,198,464 ) ( 43,931,991 ) Total Liabilities and Stockholders' Deficit $ 5,431 $ 120,149 The accompan

View Full Filing

View this 10-Q filing on SEC EDGAR