Ocean Thermal Energy (CPWR) posts Q1 2026 profit but flags going concern risk

Rhea-AI Filing Summary

Ocean Thermal Energy Corporation reported first-quarter 2026 revenue of $403,517, more than double the prior year, driven by its U.S. Department of Defense engineering contract for an OTEC unit at Kwajalein Atoll. Higher project costs produced a gross loss of $259,467 and a loss from operations of $487,672.

GAAP net income was $62.0M, entirely from a non-cash $63.3M decrease in the fair value of derivative liabilities; core operations remained unprofitable. Cash was $166,220 with negative operating cash flow of $237,177, a working capital and stockholders’ deficit of about $51M, substantial loan defaults, and a going concern warning alongside material weaknesses in internal controls.

Positive

• None.

Negative

• Going concern uncertainty: Management reports a working capital and stockholders’ deficit of approximately $51M, negative operating cash flow, and explicitly states substantial doubt about the company’s ability to continue as a going concern.
• Extensive loan defaults: The company discloses it is in default on numerous loans totaling $18.3M in combined principal and interest, including obligations to related parties and high-interest notes, increasing refinancing and legal risk.
• Weak liquidity: Cash of $166,220 at March 31, 2026 is minimal compared with $51.8M of current liabilities, leaving the company highly dependent on new external funding and contract progress.
• Internal control weaknesses: Disclosure controls and procedures were deemed not effective due to material weaknesses, including limited personnel and lack of segregation of duties, which can increase the risk of reporting errors.

Insights

Credit & capital structure analyst

Heavy leverage, defaults, and going concern risk dominate despite non-cash profit.

Ocean Thermal Energy shows stronger activity through its Kwajalein Atoll contract, with Q1 2026 revenue of $403,517. However, the business still generated a loss from operations of $487,672 and used $237,177 of cash in operating activities.

Headline net income of $62.0M stems almost entirely from a $63.3M drop in derivative liability, not from improved fundamentals. The derivative liability fell from $75.7M to $12.4M, driven by valuation changes linked to the company’s capital structure.

Liquidity remains strained: cash was only $166,220, while current liabilities totaled $51.8M, producing a working capital deficiency of roughly $51M. Management discloses numerous defaulted loans aggregating $18.3M of principal and interest and explicitly raises substantial doubt about the company’s ability to continue as a going concern.

Key Figures

Revenue: $403,517 Loss from operations: $487,672 Net income: $62,013,922 +5 more

8 metrics

Revenue $403,517 Three months ended March 31, 2026

Loss from operations $487,672 Three months ended March 31, 2026

Net income $62,013,922 Three months ended March 31, 2026; driven by derivative liability revaluation

Change in fair value of derivative liability $63,254,425 decrease Other income in Q1 2026

Derivative liability balance $12,434,498 As of March 31, 2026

Cash balance $166,220 As of March 31, 2026

Working capital deficiency Approximately $51 million As of March 31, 2026

Defaulted loans $18.3 million Combined principal and interest in default as disclosed in Item 3

Key Terms

Ocean Thermal Energy Conversion (OTEC), derivative liability, going concern, material weaknesses, +2 more

6 terms

Ocean Thermal Energy Conversion (OTEC) technical

"develops and commercializes renewable energy, desalinated water, and sustainable cooling solutions using its proprietary Ocean Thermal Energy Conversion (OTEC)"

derivative liability financial

"We identified conversion features embedded within convertible debt issued. We have determined that the features associated with the embedded conversion option should be accounted for at fair value as a derivative liability."

A derivative liability is an obligation a company owes because of a derivatives contract—such as an option, future, swap, or forward—that has moved against it and now has negative value. Think of it like a settled bet that turned into a bill: if market moves go the other way, the company may have to pay cash or deliver assets. Investors care because these liabilities can create sudden losses, add leverage or counterparty risk, and change a company’s true financial exposure beyond its everyday operations.

going concern financial

"These factors raise substantial doubt about our ability to continue as a going concern."

A going concern is a business that is expected to continue its operations and meet its obligations for the foreseeable future, rather than shutting down or selling off assets. This assumption matters to investors because it indicates stability and ongoing profitability, making the business a more reliable investment. Think of it as believing a restaurant will stay open and serve customers, rather than closing down suddenly.

material weaknesses regulatory

"our Certifying Officer concluded that, as of March 31, 2026, our disclosure controls and procedures were not effective to provide reasonable assurance because certain deficiencies involving internal controls constituted material weaknesses."

Material weaknesses are significant flaws in a company’s systems for ensuring its financial reports are accurate and reliable. Like a broken lock on a safe, they increase the chance that financial statements contain big errors or omissions, which can mislead investors about performance and risk; discovering one often raises questions about management oversight, may lead to restated results, and can affect investor confidence and a company’s valuation.

cost-to-cost input method financial

"Revenue is recognized over time using the cost-to-cost input method."

binomial option pricing-valuation model financial

"We value the derivative liabilities using a binomial option pricing-valuation model."

Earnings Snapshot

Revenue: $403,517

Q1 2026

Revenue $403,517

Loss from operations $487,672

Net income $62,013,922

Cash from operating activities ($237,177)

10-Q Quarterly Reports: What Changes Quarter to Quarter →

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2026

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

Commission File Number 033-19411-C

OCEAN THERMAL ENERGY CORPORATION

(Exact name of registrant as specified in its charter)

Nevada		20-5081381
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3675 Market Street, Suite 200, Philadelphia, PA 19104

(Address of principal executive offices, including zip code)

(717) 299-1344

(Registrant’s telephone number, including area code)

n/a

(Former name, former address and former fiscal year, if changed since last report)

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

Title of each class Trading Symbol(s) Name of each exchange on which registered

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐     No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of May 12, 2026, issuer had 190,012,124 outstanding shares of common stock, par value $0.001.

TABLE OF CONTENTS

	Description		Page
PART I-FINANCIAL INFORMATION
Item 1	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		12
Item 3	Quantitative and Qualitative Disclosures about Market Risk		14
Item 4	Controls and Procedures		14
Item 1	Legal Proceedings		15
Item 1A	Risk Factors		15
Item 2	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities		15
Item 3	Defaults upon Senior Securities		15
Item 6	Exhibits		19
	Signature		20

2

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

		March 31, 2026				December 31, 2025
ASSETS
Current Assets
Cash		$	166,220			$	403,667
Accounts receivable			259,196				1,076,108
Prepaid expenses			5,000				5,000
Total Current Assets			430,416				1,484,775
Total Assets		$	430,416			$	1,484,775
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable and accrued expense		$	23,524,128			$	23,470,504
Accrued compensation			7,146,821				7,001,790
Contract liabilities			-				25,851
Notes payable - related party			2,304,170				2,304,170
Convertible notes payable - related party, net			117,500				117,500
Notes payable			3,633,131				3,633,131
Convertible note payable, net			2,618,835				2,534,665
Advances payable - related party, net			38,538				38,808
Derivative liability			12,434,498				75,688,923
Total Current Liabilities			51,817,621				114,815,342
Convertible notes payable due after one year, net			-				70,560
Total Liabilities			51,817,621				114,885,902
Commitments and contingencies (See Note 7)			-				-
Stockholders' deficit
Preferred Stock, Series B, $0.001 par value; 1,250,000 shares authorized, 518,750 shares issued and outstanding as of March 31, 2026 and December 31, 2025			519				519
Preferred Stock, Series C, $0.001 par value; 2,700,000 shares authorized, 2,300,000 shares issued and outstanding as of March 31, 2026 and December 31, 2025			2,300				2,300
Preferred Stock, Series D, $0.001 par value; 1,400 shares authorized, 1,400 shares issued and outstanding as of March 31, 2026 and December 31, 2025			1				1
Common stock, $0.001 par value; 200,000,000 shares authorized, 190,012,124 shares issued and outstanding as of March 31, 2026 and December 31, 2025			190,013				190,013
Common stock subscribed			447,500				447,500
Additional paid-in capital			62,521,759				62,521,759
Accumulated deficit			(114,549,297	)			(176,563,219	)
Total Stockholders' Deficit			(51,387,205	)			(113,401,127	)
Total Liabilities and Stockholders' Deficit		$	430,416			$	1,484,775

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

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OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2026 AND 2025

(Unaudited)

		2026				2025
Revenue		$	403,517			$	173,037
Direct costs of contracts			662,984				128,763
Gross Profit (Loss)			(259,467	)			44,274
Operating Expenses
Salaries and compensation			64,915				201,955
Professional fees			128,801				82,618
General and administrative			34,489				6,505
Total Operating Expenses			228,205				291,078
Loss from Operations			(487,672	)			(246,804	)
Other (Expenses) Income
Interest expense, net			(739,221	)			(655,809	)
Amortization of debt discount			(13,610	)			(13,610	)
Change in fair value of derivative liability			63,254,425				(498,404	)
Gain on conversion of debt			-				11,898
Total Other (Expense) Income			62,501,594				(1,155,925	)
Income (Loss) Before Income Taxes			62,013,922				(1,402,729	)
Provision for Income Taxes			-				-
Net Income (Loss)		$	62,013,922			$	(1,402,729	)
Net Income (Loss) per Common Share Basic		$	0.27			$	(0.01	)
Net Income (Loss) per Common Share Diluted		$	0.00			$	(0.01	)
Weighted Average Number of Common Shares Outstanding Basic			225,637,124				190,995,457
Weighted Average Number of Common Shares Outstanding Diluted			2,432,371,471				190,995,457

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

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OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE THREE MONTHS ENDED MARCH 31, 2026 AND 2025

(Unaudited)

		Preferred Stock								Common Stock								Common				Additional								Total
		Number of Shares				Par value				Number of Shares				Par value				Stock Subscribed				Paid- in capital				Accumulated Deficit				Stockholders’ Deficit
Balance December 31, 2024			2,820,150			$	2,820				190,012,124			$	190,013			$	-			$	62,521,759			$	(107,266,496	)		$	(44,551,904	)
Common stock Subscribed			-				-				-				-				95,500				-				-				95,500
Net Loss			-				-				-				-				-				-				(1,402,729	)			(1,402,729	)
Balance March 31, 2025			2,819,977			$	2,820				190,012,124			$	190,013			$	95,500			$	62,521,759			$	(108,669,225	)		$	(45,859,133	)
Balance December 31, 2025			2,820,150			$	2,820				190,012,124			$	190,013			$	447,500			$	62,521,759			$	(176,563,219	)		$	(113,401,127	)
Net Income			-				-				-				-				-				-				62,013,922				62,013,922
Balance March 31, 2026			2,820,150			$	2,820				190,012,124			$	190,013				447,500			$	62,521,759			$	(114,549,297	)		$	(51,387,205	)

 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

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OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

FOR THE THREE MONTHS ENDED MARCH 31, 2026 AND 2025

(Unaudited)

		2026				2025
Cash Flows From Operating Activities:
Net income (loss)		$	62,013,922			$	(1,402,729	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Change in fair value of derivative liability			(63,254,425	)			498,404
Gain on extinguishment of derivative liability			-				(11,898	)
Amortization of debt discount			13,610				13,610
Changes in assets and liabilities:
Accounts receivable			816,912				(539,200	)
Contract liabilities			(25,851	)			366,163
Accounts payable and accrued expenses			198,655				913,743
Net Cash Used In Operating Activities			(237,177	)			(161,907	)
Cash Flows From Financing Activities:
Advances from related parties			(270	)			(270	)
Common stock subscribed			-				95,500
Proceeds from issuance of convertible notes			-				55,000
Net Cash (Used In) Provided by Financing Activities			(270	)			150,230
Net decrease in cash			(237,447	)			(11,677	)
Cash at beginning of period			403,667				16,142
Cash at End of Period		$	166,220			$	4,465
Supplemental disclosure of cash flow information
Cash paid for interest expense		$	236,508			$	2,521
Cash paid for income taxes		$	-			$	-
Supplemental disclosure of non-cash investing and financing activities:
Initial value of derivative liability		$	-			$	67,895
Note payable converted to common stock		$	-			$	10,000
Accrued interest converted to common stock		$	-			$	2,047
Derivative liability extinguished upon conversion of note payable		$	-			$	20

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6

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OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2026 AND 2025

(UNAUDITED)

NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION

Ocean Thermal Energy Corporation (the “Company” “us” or “we”) is designing ocean thermal energy conversion power plants, seawater air conditioning and lake water air conditioning (“SWAC/LSC”) plants for large commercial properties, utilities, and municipalities. We believe these technologies provide practical solutions to mankind’s three oldest and most fundamental needs: clean drinking water, plentiful food, and sustainable, affordable energy without the use of fossil fuels. The Company plans to provide a clean technology that continuously extracts energy from the temperature differentials between warm surface ocean water and cold deep seawater. In addition to producing electricity, our technology can efficiently desalinate seawater producing thousands of cubic meters of fresh water every day for use in agriculture and human consumption. This cold, deep, nutrient-rich water can also be used to cool buildings and for fish farming or aquaculture.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) and presented in accordance with U. S. generally accepted accounting principles (“GAAP”).

The accompanying condensed consolidated balance sheet at December 31, 2025 has been derived from audited consolidated financial statements, but does not include all disclosures required by GAAP. The accompanying unaudited condensed consolidated financial statements as of March 31, 2026, and for the three months ended March 31, 2026 and 2025, have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and related notes to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the SEC. In the opinion of management, all material adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been made to the unaudited condensed consolidated financial statements. The unaudited condensed consolidated financial statements include all material adjustments (consisting of normal recurring accruals) necessary to make the unaudited condensed consolidated financial statements not misleading as required by Regulation S-X Rule 10-01. Operating results for the three months ended March 31, 2026 are not necessarily indicative of the results that may be expected for the year ending December 31, 2026, or any future periods.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

Our unaudited condensed consolidated financial statements for the three months ended March 31, 2026 and 2025 include the accounts of the Company and its wholly owned subsidiary OCEES International Inc. (“OCEES”). Intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates. Significant estimates include the assumptions used in the valuation of equity-based transactions, valuation of derivative liabilities, and valuation of deferred tax assets.

7

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Accounts Receivable

Accounts receivable consist of amounts invoiced to customers but not yet collected by the Company. The Company records an allowance for doubtful accounts to allow for any amounts that may not be recoverable, which is based on an analysis of the Company’s prior collection experience, customer creditworthiness, expected future losses and current economic trends. Accounts are considered delinquent when payments have not been received within the contractual payment terms and are written off when management determines that collection is not probable. There were no doubtful accounts as of March 31, 2026 and December 31, 2025.

Revenue recognition

The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers. The Company’s primary source of revenue is a long-term fixed-price contract to provide engineering and technical development services related to the design and delivery of a renewable energy system.

The contract includes a series of activities such as site-specific modeling, mechanical and structural integration, and engineering validation that are delivered as part of a single, combined project outcome. These services are highly interrelated and not separately identifiable within the context of the contract. Accordingly, the Company determined that the arrangement contains a single performance obligation.

Revenue is recognized over time using the cost-to-cost input method. This method compares actual costs incurred to total estimated costs to determine the percentage of completion and is used to calculate revenue earned to date. The cost-to-cost method reflects the Company’s progress toward satisfying its performance obligation and is consistent with how the project is managed internally.

Contract assets are recorded when revenue recognized exceeds billings to date (contract assets). Contract liabilities are recorded when billings exceed revenue recognized (contract liabilities). These amounts are presented separately on the condensed consolidated balance sheets. There were no contract assets at March 31, 2026 or December 31, 2025.

 Business Segments

We operate in one segment and, therefore, segment information is not presented.

Income (Loss) per Share

Basic income (loss) per share is calculated by dividing our net loss available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted loss per share is calculated by dividing our net loss by the diluted weighted average number of shares outstanding during the period. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity.

The following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding for the three months ended March 31, 2026 and 2025 as they would be anti-dilutive:

		Three Months Ended March 31,
		2026				2025
Shares underlying options and warrants outstanding			625,000				625,000
Shares underlying convertible notes outstanding			2,206,734,347				33,387,171,013
Shares underlying convertible preferred stock outstanding			16,687,500				16,687,500
			2,224,046,847				33,404,483,513

Diluted weighted average shares outstanding for the three months ended March 31, 2026 include the shares underlying convertible notes outstanding. A reconciliation of the numerator and denominator of the Company’s earnings per share calculation is not provided as after giving effect to the reversal of the gain from the change in fair value of derivative liabilities the Company would have a net loss.

Recent Accounting Pronouncements

In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures. The standard requires disclosure of certain prescribed costs and expenses within the notes to consolidated financial statements. ASU No. 2024-03 becomes effective for the Company’s 2027 Annual Report on Form 10-K. The standard only impacts required disclosures and will not impact the Company’s financial position, results of operations, or cash flows. The Company is currently evaluating the impact of ASU No. 2024-03 on its disclosures.

The Company currently believes there are no other issued and not yet effective accounting standards that are materially relevant to our condensed consolidated financial statements.

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NOTE 3 – GOING CONCERN

The accompanying unaudited condensed consolidated financial statements have been prepared on the assumption that we will continue as a going concern. As reflected in the accompanying unaudited condensed consolidated financial statements, we had a net loss from operations of $487,672 and used $237,177 of cash in operating activities for the three months ended March 31, 2026. Although we had net income for the three months ended March 31, 2026, the income resulted from a non-cash gain on the change in fair value of our derivative liabilities. We had a working capital deficiency of approximately $51 million and a stockholders’ deficiency of approximately $51 million as of March 31, 2026. These factors raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to increase sales and obtain external funding for our projects under development. We continue to apply for grant funding from the U.S. Department of Energy. Our applications focus on desalinated water, ammonia, and hydrogen production from an ocean thermal energy conversion (“OTEC”) facility. We plan to apply for funding to support projects where our technology would apply. The condensed consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.

NOTE 4 – CONVERTIBLE NOTES AND NOTES PAYABLE

During January and February 2025, we sold an aggregate of $55,000 of convertible note units. Each unit costs $5,000 and consists of one convertible promissory note in the amount of $5,000 and one warrant to purchase 5,000 shares of the Company’s common stock at an exercise price of $0.01 per share. The Notes bear interest at the rate of 10% per year, compounded annually, and are due on January 4, 2027 (the “Maturity Date”). The Notes will be converted into common stock of the Company automatically upon the Maturity Date at the lower of (a) $0.10 per share, or (b) 90% of the Market Price, which shall be the average closing price of the Company’s common stock on the ten trading days immediately preceding the date of conversion. However, if the United States Army has issued a contract for the supply of sustainable power and water from the Company-designed and built OTEC system prior to the Maturity Date, within five business days the Notes will automatically be converted depending on the amount of Notes purchased by each holder.

NOTE 5 – DERIVATIVE LIABILITY

We measure the fair value of our assets and liabilities under the guidance of ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but its provisions apply to all other accounting pronouncements that require or permit fair value measurement.

We identified conversion features embedded within convertible debt issued. We have determined that the features associated with the embedded conversion option should be accounted for at fair value as a derivative liability. We have elected to account for these instruments together with our warrants and other fixed conversion price instruments as derivative liabilities as we cannot determine if a sufficient number of shares would be available to settle all potential future conversion transactions. We value the derivative liabilities using a binomial option pricing-valuation model. The derivative liabilities are valued at each reporting date and the change in fair value is reflected as change in fair value of derivative liability.

Following is a description of the valuation methodologies used to determine the fair value of our financial liabilities, including the general classification of such instruments pursuant to the valuation hierarchy:

		Fair Value				Quoted market prices for identical assets/liabilities (Level 1)				Significant other observable inputs (Level 2)				Significant unobservable inputs (Level 3)
Derivative Liability, March 31, 2026		$	12,434,498			$	-			$	-			$	12,434,498
Derivative Liability, December 31, 2025		$	75,688,923			$	-			$	-			$	75,688,923

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The reconciliation of the derivative liability for the three months ended March 31, 2026 and 2025 is as follows:

		For the Three Months Ended March 31,
		2026				2025
Derivative liability as of December 31		$	75,688,923			$	9,423,915
Addition to derivative instruments			-				55,000
Derivative liability extinguished upon conversion of notes payable			-				(20	)
Change in fair value of derivative liability			(63,254,425	)			498,404
Derivative liability as of March 31		$	12,434,498			$	9,977,299

The fair value of the derivative liability was estimated using a Black-Sholes option valuation model. The fair value at the commitment and remeasurement dates for our derivative liabilities were based upon the following significant inputs:

		For the Three Months Ended March 31,
		2026				2025
Expected dividends			0	%			0	%
Expected volatility		377%-731		%		400%-599		%
Risk free interest rate		3.68%-3.92		%		3.89%-4.32		%
Expected term (in years)		0.25– 3.76 years				0.25– 4.76 years

NOTE 6 – STOCKHOLDERS’ EQUITY

Common Stock and Common Stock Subscribed

During the three months ended March 31, 2025, we entered into stock purchase agreements with a number of investors. The investors agreed to purchase 4,775,000 shares of common stock, and we received aggregate proceeds of $95,500.

As of March 31, 2026, we have entered into stock purchase agreements to purchase 35,625,000 shares and have received aggregate proceeds of $447,500. To date, no shares of common stock have been issued pursuant to these agreements.

NOTE 7 – COMMITMENTS AND CONTINGENCIES

From time to time, the Company may be involved in legal proceedings and regulatory proceedings arising from its operations. Management established reserves for specific liabilities in connection with legal actions that management deems to be probable and estimable. Certain lawsuits, claims and proceedings are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. While the outcome of litigation cannot be predicted with certainty, and some of these lawsuits, claims or proceedings may be determined adversely to the Company, management does not believe that the disposition of any such pending matters is likely to have a material adverse effect on the Company’s financial condition or operation, although the resolution in any reporting period of one or more of these matters could have a material adverse effect on the Company’s results of operations for that period.

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Accrued Salaries and Related Taxes

As of March 31, 2026, the Company has $7,146,821 in accrued payroll attributable to previous periods that has not been paid due to cash flow constraints. It is possible, at a future date, that some or all of this amount may be derecognized and result in a gain on the extinguishment of these liabilities in a future period.

Professional Services Agreement

On January 7, 2025 the Company entered into a Professional Services Agreement with Johnson Controls Government Systems, LLC, which provided for the design, engineering and pricing estimation for an Ocean Thermal Energy Conversion and Ocean Water Desalinization Potable Water solution on the island of Kwajalein. The contract includes a fixed fee of $3,504,796 and is expected to be completed by September 30, 2026.

NOTE 8 – RELATED-PARTY TRANSACTIONS

In May 2023, we entered into a 36-month agreement with a company controlled by our chief executive officer for shared use of an office and facilities at $1,000 per month, increasing to $1,200 per month on May 1, 2024 and $1,400 per month on May 1, 2025. For the three months ended March 31, 2026 and 2025, rent expense was $4,200 and $3,600, respectively.

For the three months ended March 31, 2026 and 2025, we recorded charges incurred to a company controlled by our chief executive officer for reimbursement of accounting and administrative services provided to us by an employee of that company. For the three months ended March 31, 2026 and 2025, we recorded expense of $39,411 and $34,628, respectively, to this company. At March 31, 2026 and December 31, 2025 we had a payable to the entity of $0 and $1,400, respectively. 

Accrued interest on related-party notes was $1,418,646 and $1,364,032 at March 31, 2026 and December 31, 2025, respectively.

During each of the three months ended March 31, 2026 and 2025, we repaid $270 of net working capital advances from related parties.

During 2022, an aggregate of 847,262 shares of common stock were borrowed from our chief executive officer to enable conversions of $15,000 of notes and $1,946 of related accrued interest. We have accrued a liability for the shares to be reissued to our chief executive officer in the amount of $11,014, the fair value of the shares on the date of conversion. The replacement shares have not been issued at March 31, 2026.

During March 2025, an aggregate of 563,611 shares of common stock were borrowed from our chief executive officer to enable settlements of $10,000 of notes and $2,047 of related accrued interest. We have accrued a liability for the shares to be reissued to our chief executive officer in the amount of $169, the fair value of the shares on the date of conversion. The replacement shares have not been issued at March 31, 2026.

 NOTE 9 – INCOME TAXES

There is no provision for income taxes for the three months ended March 31, 2026 because the income for the period results solely from the change in fair value of derivative liabilities, which is a permanent difference and has no effect on income tax expense.

NOTE 10 – SUBSEQUENT EVENTS

No events have occurred subsequent to March 31, 2026 that would require adjustments to, or disclosure in, the financial statements.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes to our financial statements included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors discussed elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2025.

Certain information included herein contains statements that may be considered forward-looking statements such as statements relating to our anticipated revenues, gross margins and operating results, estimates used in the preparation of our financial statements, future performance and operations, plans for future expansion, capital spending, sources of liquidity, and financing sources. Forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future, and accordingly, such results may differ from those expressed in any forward-looking statements made herein. These risks and uncertainties include those relating to our liquidity requirements; the continued growth of our industry; the success of marketing and sales activity; the dependence on existing management; the availability and cost of substantial amounts of project capital; leverage and debt service (including sensitivity to fluctuations in interest rates); domestic and global economic conditions; the inherent uncertainty and costs of prolonged arbitration or litigation; and changes in federal or state tax laws or the administration of such laws.

Overview

Ocean Thermal Energy Corporation (“we,” “our”, and the “Company”) develops and commercializes renewable energy, desalinated water, and sustainable cooling solutions using its proprietary Ocean Thermal Energy Conversion (OTEC) and Seawater Air Conditioning (SWAC) technologies. These systems extract energy from the natural temperature differential between warm surface water and cold deep ocean water to deliver continuous baseload power and clean water without reliance on fossil fuels. Our solutions are particularly well suited for tropical island communities, coastal military installations, and developing nations where access to reliable energy and freshwater is limited.

Our OTEC systems are designed for scalability and rapid deployment, supporting a range of commercial, governmental, and humanitarian applications. In addition to providing 24/7 renewable energy and potable water, our platforms offer opportunities for sustainable agriculture, aquaculture, and mariculture, contributing to local food security and economic development. Recent system designs also integrate with SWAC technology to enable district-level air conditioning using deep ocean water, significantly reducing energy consumption and carbon emissions in urban and resort environments. 

We are currently executing a $3.5 million U.S. Army engineering and design contract in partnership with Johnson Controls for the U.S. Army Garrison-Kwajalein Atoll and are actively seeking to expand into additional Indo-Pacific markets such as Guam, Diego Garcia, and the Northern Marianas. Our potential project pipeline also includes commercial engagements in the Caribbean and Southeast Asia, including India and Indonesia. 

Although we have generated only limited revenue since inception, we are transitioning from research and development to contract execution and revenue-generating power purchase agreements. We continue to rely on external funding to support operations, project development, and corporate initiatives, including a planned NYSE uplisting. There can be no assurance that such funding will be available or that it can be obtained on acceptable terms or that we will successfully uplist.

Results of Operations

Comparison of Three Months Ended March 31, 2026 and 2025

During the three months ended March 31, 2026, the Company recognized revenue of $403,517 compared to $173,037 for the first quarter of 2025. The increase is solely due to the Company’s contract to provide services to the United States Department of Defense relative to the design and engineering of an OTEC unit on Kwajalein Atoll.

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During the three months ended March 31, 2026, we had $662,984 of direct cost of contracts compared to $128,763 for the 2025 period. The increase is solely due to costs incurred to service the Company’s contract to provide services to the United States Department of Defense relative to the design and engineering of an OTEC unit on Kwajalein Atoll.

During the three months ending March 31, 2026, we had salaries and compensation of $64,915, compared to salaries and compensation of $201,955 for the three months ended March 31, 2025, a decrease of 68%, primarily due to the allocation of costs to cost of contracts and management’s continued cost cutting efforts for areas which are not specific to the fulfilment of the Kwajalein Atoll contract. 

During the three months ending March 31, 2026 and 2025, we recorded professional fees of $128,801 and $82,618, respectively, an increase of 56%. The increase was primarily related to legal fees related to litigation and audit and accounting fees.

We incurred general and administrative expenses of $34,489 during the three months ending March 31, 2026, compared to $6,505 for the first quarter of 2025, an increase of 430% due to various increases in insurance and other ancillary services not directly related to the fulfilment of the Kwajalein Atoll contract.

Our interest expense was $739,221 for the three months ended March 31, 2026, compared to $655,809 for the first quarter 2025, an increase of 13%. This change was due to higher interest rates on defaulted notes payable.

There was $13,610 debt discount amortization for the three months ended March 31, 2026 and 2025

There was a decrease in the fair value of the derivative liability of approximately $63 million during the three months ended March 31, 2026, compared to a $498,404 increase for the 2025 period, a 12,740% decrease. This change results primarily from the reduction in the market value of our common stock in 2026 compared to 2025.

We recognized gain on conversion of notes payable of $11,998 during the three months ended March 31, 2025, with no similar item in the 2026 period.

Liquidity and Capital Resources

At March 31, 2026, our principal source of liquidity consisted of $166,220 of cash, as compared to $403,667 of cash at December 31, 2025. At March 31, 2026, we had negative working capital (current assets minus current liabilities) of approximately $51 million. In addition, our stockholders’ deficit was approximately $51 million at March 31, 2026. We are focusing our efforts on promoting and marketing our technology by developing and executing contracts. We are exploring external funding alternatives, as our current cash is insufficient to fund operations for the next 12 months.

Our operations used net cash of $237,177 during the three months ended March 31, 2026, as compared to using net cash of $161,907 during the three months ended March 31, 2025. The increase in net cash used in operations is primarily due to an increase in loss (after adjusting for non-cash items such as the change in the fair value of derivative liability) partially offset by a net increase attributable to working capital items such as accounts receivable and payable.

Financing activities used cash of $270 during the three months ended March 31, 2026, as compared to providing $150,230 of cash for the three months ended March 31, 2025. During the three months ending March 31, 2025, we received cash proceeds from the sale of common and preferred stock and issuance of notes payable which was the primary financing activity during the period.

The accompanying unaudited condensed consolidated financial statements have been prepared on the assumption that we will continue as a going concern. As reflected in the accompanying unaudited condensed consolidated financial statements, we had a net loss from operations of $487,622 and used approximately $237,000 of cash in operating activities for the three months ended March 31, 2026. We had a working capital deficiency of approximately $51 million and a stockholders’ deficiency of approximately $51 million as of March 31, 2026. These factors raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to increase sales and obtain external funding for our projects under development. We continue to apply for grant funding from the U.S. Department of Energy. Our applications focus on desalinated water, ammonia, and hydrogen production from an OTEC facility. We plan to apply for funding to support projects where our technology would apply. The condensed consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.

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We have no significant contractual obligations or commercial commitments not reflected on our balance sheet as of the date of this report.

Critical Accounting Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with those accounting principles requires management to use judgment in making estimates and assumptions based on the relevant information available at the end of each period. These estimates and assumptions have a significant effect on reported amounts of assets and liabilities, revenue and expenses, as well as the disclosure of contingent assets and liabilities because they result primarily from the need to make estimates and assumptions on matters that are inherently uncertain. Actual results may differ from these estimates. If updated information or actual amounts are different from previous estimates, the revisions are included in our results for the period in which they become known.

Management believes there have been no significant changes during the three months ended March 31, 2026 to the items that we disclosed as our critical accounting estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2025.

Recent Accounting Pronouncements

Information concerning recently issued accounting pronouncements is set forth in Note 2 of our notes to unaudited condensed consolidated financial statements appearing elsewhere in this report.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us, in the reports that we file or submit to the SEC under the Exchange Act, is recorded, processed, summarized, and reported within the periods specified by the SEC’s rules and forms and that information is accumulated and communicated to our management, including our principal executive and principal financial officer (whom we refer to in this periodic report as our Certifying Officer), as appropriate to allow timely decisions regarding required disclosure. Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our management evaluated, with the participation of our Certifying Officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of March 31, 2026, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officer concluded that, as of March 31, 2026, our disclosure controls and procedures were not effective to provide reasonable assurance because certain deficiencies involving internal controls constituted material weaknesses. Our controls were not effective due to the size of the Company and available resources. There are limited personnel to assist with the accounting and financial reporting function, which results in: (i) a lack of segregation of duties and (ii) controls that may not be adequately designed or operating effectively. The material weaknesses identified did not result in the restatement of any previously reported financial statements or any other related financial disclosure, and management does not believe that the material weaknesses had any effect on the accuracy of our financial statements for the current reporting period.

Limitations on Effectiveness of Controls

A system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the system will meet its objectives. The design of a control system is based, in part, upon the benefits of the control system relative to its costs. Control systems can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. In addition, over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Also, the design of any control system is based in part upon assumptions about the likelihood of future events. 

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2026 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The Company is in the process of seeking additional skilled financial employees to improve its internal controls and financial reporting.

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PART II-OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are involved in legal proceedings and regulatory proceedings arising from operations. We establish reserves for specific liabilities in connection with legal actions that management deems to be probable and estimable. Certain of such lawsuits, claims and proceedings are described in our Annual Report on Form 10-K for the year ended December 31, 2025. There were no material changes during the first quarter of 2026 in the status of the legal matters disclosed in our 2025 Annual Report on Form 10-K. While the outcome of litigation cannot be predicted with certainty, and some of these lawsuits, claims or proceedings may be determined adversely to the Company, management does not believe that the disposition of any such pending matters is likely to have a material adverse effect on the Company’s financial condition or liquidity, although the resolution in any reporting period of one or more of these matters could have a material adverse effect on the Company’s results of operations for that period.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

We are in default under and have failed to pay timely numerous loans, totaling $18.3 million in combined principal and interest, $2.5 million of which is owed to related parties. Several loans that are in default were automatically convertible into shares of our common stock when the loans came due. However, L2 Capital, one of our lenders, has instructed our transfer agent to reserve all of our remaining authorized shares for issuance to L2, effectively blocking us from paying our other defaulted loans in stock. We intend increase our authorized shares to complete the conversion of these defaulted loans, but cannot guarantee when or if we will be able to do that.

On December 1, 2007, we borrowed funds from the Eastern Idaho Development Corporation. The interest rate is 7%, and the maturity date was September 1, 2015. The loan principal is $85,821 and the accrued interest is $83,586 as of March 31, 2026. This note is in default.

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On September 25, 2009, we borrowed funds from the Pocatello Development Authority. The interest rate is 5%, and the maturity date was October 25, 2011. The loan principal is $50,000 and the accrued interest is $39,122 as of March 31, 2026. This note is in default.

On December 23, 2009, we borrowed funds from SICOG (EDA-#273 loan). The interest rate is 7%, and the maturity date was December 23, 2014. The loan principal is $77,030 and the accrued interest is $52,591 as of March 31, 2026. This note is in default.

On December 23, 2009, we borrowed funds from SICOG (MICRO I-#274 loan). The interest rate is 7%, and the maturity date was December 23, 2014. The loan principal is $21,401 and the accrued interest is $12,985 as of March 31, 2026. This note is in default.

On December 23, 2009, we borrowed funds from SICOG (MICRO II-#275 loan). The interest rate is 7%, and the maturity date was December 23, 2014. The loan principal is $21,391 and the accrued interest is $14,665 as of March 31, 2026. This note is in default.

During 2012, we issued a note payable for $1,000,000. The note had an interest rate of 10% per annum, was secured by a first lien in all of our assets, and was due on February 3, 2015. On March 6, 2018, the note was amended to extend the due date to December 31, 2018. On March 29, 2019, the maturity date of the note was extended to December 31, 2019. As of March 31, 2026, the outstanding note balance was $1,000,000, plus accrued interest of $1,411,111. This note is in default.

During 2013, we issued a note payable for $290,000 in connection with the reverse merger transaction with Broadband Network Affiliates, Inc. We have determined that no further payment of principal or interest on this note should be made because the note holder failed to perform his underlying obligations giving rise to this note. As described in Note 7, the note holder filed suit on May 21, 2019, and we remain confident that the court will decide in our favor by either voiding the note or awarding damages sufficient to offset the note value. As of March 31, 2026, the note balance outstanding was $130,000, and the accrued interest as of that date was $127,326. This note is in default.

On January 18, 2018, Jeremy P. Feakins & Associates, LLC, an investment entity owned by our chief executive, chief financial officer, and a director, agreed to extend the due date for repayment of a $2,265,000 note issued in 2014 to the earlier of December 31, 2018, or the date of the financial closings of our previous Baha Mar project (or any other project of $25 million or more), whichever occurs first. In January 2023 we issued 500 shares of preferred stock upon conversion of $35,303 of principal and $964,697 of accrued interest. As of March 31, 2026, the note balance was $1,067,197 and the accrued interest was $351,582. This note is in default.

During 2013, we issued notes payable aggregating $158,334 in principal and bearing interest at 13% per year with a maturity date of October 31, 2023. Outstand principal is $158,334 at March 31, 2026 and accrued interest totaled $213,004 as of March 31, 2026. As of March 31, 2026, the notes are in default. We intend to repay the notes and accrued interest upon the financial closings of our previous Baha Mar project (or any other project of $25 million or more).

During 2014, we issued notes payable of $300,000. Accrued interest totaled $732,329 as of March 31, 2026. As of March 31, 2026, the notes are in default. We intend to repay the notes and accrued interest upon the financial closings of our previous Baha Mar project (or any other project of $25 million or more).

We have a $50,000 promissory note with an unaffiliated investor that was payable on April 7, 2018. The note and accrued interest can be converted into our common stock at a conversion rate of $0.75 per share at any time prior to the repayment. This conversion price is not required to adjust for the reverse stock split as per the note agreement. Accrued interest totalled $96,167 as of March 31, 2026. As of the date of this report, the note is in default.

During the third quarter of 2017, we completed a $2,000,000 convertible promissory note private placement offering. The terms of the note are as follows: (i) interest is payable at 6% per annum; (ii) payable two years after purchase; and (iii) all principal and interest on each note automatically converts on the conversion maturity date into shares of our common stock at a conversion price of $4.00 per share, as long as the closing share price of our common stock on the trading day immediately preceding the conversion maturity date is at least $4.00, as adjusted for stock splits, stock dividends, reclassification, and the like. If the price of our shares on such date is less than $4.00 per share, the note (principal and interest) will be repaid in full. During the third quarter of 2019, $15,000 of the note was repaid. As of March 31, 2026, the outstanding balance of these notes was $65,000, plus accrued interest of $33,982. The notes are in default.

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On November 6, 2017, we entered into an agreement and promissory note with JPF Venture Group, Inc., an investment entity owned by our chief executive officer, to loan up to $2,000,000 to us. The terms of the note are as follows: (i) interest is payable at 10% per annum; (ii) all unpaid principal and all accrued and unpaid interest is due and payable at the earliest of a resolution of the Memphis litigation (as defined therein), December 31, 2018, or when we are otherwise able to pay. As of March 31, 2026, the outstanding note balance was $543,093 and the accrued interest was $488,344. This note is in default.

In December 2017, we entered into a series of unsecured promissory notes and warrant purchase agreements with accredited investors. These notes accrue interest at a rate of 20% per annum payable on a quarterly basis and are not convertible into shares of our capital stock. As of March 31, 2026, the balance of the notes outstanding was $859,156 and the accrued interest was $1,221,071. These notes are in default. 

During the year ended December 31, 2018, we borrowed $482,222 from L2 Capital in five separate tranches. The interest rate is 8%, and the maturity dates are three months from the date of issue. The outstanding loan balance was $1,161,136, which includes the default penalty, and the accrued interest was $3,218,271 as of March 31, 2026. These notes are in default.

On December 14, 2018, L2 Capital LLC purchased our note payable from Collier Investments, LLC. The total consideration was $371,250, including the outstanding note balance of $281,250, the accrued interest of $33,750, and liquidated damages of $56,250. There was also a default penalty of $153,123. In addition, we issued 400,000 shares of common stock to L2 Capital, LLC as commitment shares with a fair value of $21,200 in connection with the purchase of the note. We executed a convertible note with L2 Capital in the amount of $371,250 with an interest rate of 12% per annum. The maturity date of the note was December 22, 2018. The holder of the note can convert the note, or any portion of it, into shares of common stock at any time after the issuance date. The conversion price is 65% of the market price, which is defined as the lowest trading price for our common stock during the 20-trading-day period prior to the conversion date. As of March 31, 2026, the outstanding note balance was $547,328, which includes a default penalty, and the accrued interest was $3,003,183. This note is in default.

On September 19, 2018, we executed a note payable for $10,000 with an unrelated party that bears interest at 6% per annum, which is due quarterly beginning as of September 30, 2018. The maturity date for the note was three years after date of issuance. In addition, the lender received warrants to purchase 2,000 shares of common stock upon signing the promissory note. The warrant can be exercised at a price per share equal to a 15% discount from the price of common stock on the last trading day before such purchase. As of March 31, 2026, the balance outstanding was $10,000 and the accrued interest was $4,583. We have defaulted in payment of the note principal and the quarterly interest payments.

On August 14, 2019, we executed a note payable for $26,200 with an unrelated party that bears interest at 8% per annum and has a maturity date of October 31, 2021. The note automatically converts into 1,310,000 shares of our common stock either at the time the closing sale price for our common stock is equal to or greater than $1.00 per share, as adjusted for stock splits, stock dividends, reclassification, and the like, or at the maturity date of October 31, 2021, whichever occurs first. As of March 31, 2026, the balance outstanding was $26,200, and the accrued interest was $17,177. This note is in default.

In 2019, we issued a series of convertible promissory notes to accredited investors that totalled $105,000. Of the amount received, $10,000 was from our chief executive officer and our independent director. The notes bear simple interest on outstanding principal at the rate of 8% per annum, computed based on the actual number of days elapsed in a year of 365 days. Each $5,000 loan automatically converts into 250,000 shares of our common stock, either at the time the closing sale price for our common stock is equal to or greater than $1.00 per share, as adjusted for stock splits, stock dividends, reclassification, and the like, or at the maturity date of October 31, 2021, whichever comes first. As of March 31, 2026, the total outstanding balances of all these loans are $40,000 and accrued interest was $20,624. These notes are in default.

In 2020 and 2019, we issued a series of convertible promissory notes to accredited investors aggregating $306,750. Of the amount received, $20,000 was from our chief executive officer and an independent director. The notes bear simple interest on outstanding principal at the rate of 8% per annum, computed based on the actual number of days elapsed in a year of 365 days. Each $5,000 loan automatically converts into 250,000 shares of our common stock, either at the time the closing sale price for our common stock is equal to or greater than $1.00 per share, as adjusted for stock splits, stock dividends, reclassification, and the like, or at the maturity date of January 2, 2022, whichever comes first. As March 31, 2026, the total outstanding balance of these loans was $225,000 and accrued interest was $111,092. These notes are in default.

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In 2020, we issued a series of convertible promissory notes to accredited investors, which totalled $15,000. The notes bear simple interest on outstanding principal at the rate of 8% per annum, computed based on the actual number of days elapsed in a year of 365 days. Each $5,000 loan automatically converts into 250,000 shares of our common stock, either at the time the closing sale price for our common stock is equal to or greater than $1.00 per share, as adjusted for stock splits, stock dividends, reclassification, and the like, or at the maturity date of May 12, 2022, whichever comes first. As of March 31, 2026, the total outstanding value of these loans was $10,000 and accrued interest was $6,478. These notes are in default.

In 2021 and 2020, we issued a series of convertible promissory notes to accredited investors aggregating $170,000. The notes bear simple interest on outstanding principal at the rate of 8% per annum, computed based on the actual number of days elapsed in a year of 365 days. Each $5,000 loan automatically converts into 250,000 shares of our common stock, either at the time the closing sale price for our common stock is equal to or greater than $1.00 per share, as adjusted for stock splits, stock dividends, reclassification, and the like, or at the maturity date of September 1, 2022, whichever comes first. At March 31, 2026, the total outstanding balance of these loans was $155,000 and accrued interest was $62,797. These notes are in default.

In 2021, we issued a series of convertible promissory notes to accredited investors aggregating $285,000. The notes bear simple interest on outstanding principal at the rate of 8% per annum, computed based on the actual number of days elapsed in a year of 365 days. Each $5,000 loan automatically converts into 250,000 shares of our common stock, either at the time the closing sale price for our common stock is equal to or greater than $1.00 per share, as adjusted for stock splits, stock dividends, reclassification, and the like, or at the maturity date of August 30, 2023, whichever comes first. At March 31, 2026, the total outstanding balance of these loans was $280,000 and accrued interest was $104,330. These notes are in default.  

In 2021, we issued a $5,000 convertible promissory note to a related party. The note bears simple interest on outstanding principal at the rate of 8% per annum, computed based on the actual number of days elapsed in a year of 365 days. The $5,000 loan automatically converts into 250,000 shares of our common stock, either at the time the closing sale price for our common stock is equal to or greater than $1.00 per share, as adjusted for stock splits, stock dividends, reclassification, and the like, or at the maturity date of November 11, 2023, whichever comes first. At March 31, 2026, the total outstanding balance of this note was $5,000 and accrued interest was $1,756. This note is in default. 

ITEM 4. MINE SAFETY DISCLOSURES

No applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

The following exhibits are filed as a part of this report:

Exhibit Number*		Title of Document		Location
Item 31		Rule 13a-14(a)/15d-14(a) Certifications
31.1		Certification of Principal Executive Officer Pursuant to Rule 13a-14		This filing.
31.2		Certification of Principal Financial Officer Pursuant to Rule 13a-14		This filing.
Item 32		Section 1350 Certifications
32.1		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		This filing.
32.2		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		This filing.
Item 101**		Interactive Data File
101.INS		XBRL Instance Document		This filing.
101.SCH		XBRL Taxonomy Extension Schema		This filing.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase		This filing.
101.DEF		XBRL Taxonomy Extension Definition Linkbase		This filing.
101.LAB		XBRL Taxonomy Extension Label Linkbase		This filing.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase		This filing.

*

All exhibits are numbered with the number preceding the decimal indicating the applicable SEC reference number in Item 601 and the number following the decimal indicating the sequence of the particular document.

**

The XBRL related information in Exhibit 101 will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and will not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as is expressly set forth by specific reference in such filing or document.

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SIGNATURE

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

	OCEAN THERMAL ENERGY CORPORATION
Date: May 12, 2026	By:	/s/ Jeremy P. Feakins
		Jeremy P. Feakins
		Chief Executive Officer and Chief Financial Officer
		(Principal Executive and Financial Officer)

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FAQ

How did Ocean Thermal Energy (CPWR) perform financially in Q1 2026?

Ocean Thermal Energy reported Q1 2026 revenue of $403,517 and a loss from operations of $487,672. GAAP net income of $62.0 million came almost entirely from a non-cash decrease in derivative liabilities, not from improved operating performance.

What is driving Ocean Thermal Energy’s revenue growth in 2026?

Revenue growth to $403,517 in Q1 2026 is solely attributed to a U.S. Department of Defense contract for design and engineering of an OTEC unit at Kwajalein Atoll. This long-term, fixed-fee services contract is currently the company’s primary revenue source.

Why did Ocean Thermal Energy report such a large net income in Q1 2026?

Net income of about $62.0 million is almost entirely due to a $63.3 million decrease in the fair value of derivative liabilities. Management notes this is a non-cash item; underlying operations still produced a loss from operations and negative operating cash flow.

What is Ocean Thermal Energy’s liquidity position as of March 31, 2026?

As of March 31, 2026, the company held $166,220 in cash and had current liabilities of $51.8 million, resulting in a working capital deficit of roughly $51 million. Operations used $237,177 of cash during the quarter, highlighting tight liquidity.

Does Ocean Thermal Energy face going concern risks?

Yes. Management cites a $51 million working capital deficiency, similar-sized stockholders’ deficit, recurring operating losses, and limited cash as conditions that raise substantial doubt about continuing as a going concern. Continued sales growth and external funding are described as crucial.

What debt and default issues does Ocean Thermal Energy disclose?

The company reports being in default on numerous loans totaling $18.3 million in principal and interest, including related-party and high-interest notes. Some defaulted convertible lenders have reserved remaining authorized shares, complicating settlements and contributing to financial strain.

What internal control weaknesses does Ocean Thermal Energy report?

Management concludes disclosure controls were not effective as of March 31, 2026. Material weaknesses include limited accounting staff, lack of segregation of duties, and controls that may not be adequately designed or operating effectively, though no restatements were required for this period.