The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes to our financial statements included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors discussed elsewhere in this report.

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

Overview

We develop projects for renewable power generation, desalinated water production, and air conditioning using our proprietary technologies designed to extract energy from the temperature differences between warm surface water and cold deep water. In addition, our projects can provide ancillary products such as potable/bottle water and high-profit aquaculture, mariculture, and agriculture opportunities.





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We currently have no source of revenue, so as we continue to incur costs we are dependent on external funding in order to continue. We cannot assure that such funding will be available or, if available, can be obtained on acceptable or favorable terms.

Our operating expenses consist principally of expenses associated with the development of our projects until we determine that a particular project is feasible. Salaries and wages consist primarily of employee salaries and wages, payroll taxes, and health insurance. Our professional fees are related to consulting, engineering, legal, investor relations, outside accounting, and auditing expenses. General and administrative expenses include travel, insurance, rent, marketing, and miscellaneous office expenses. The interest expense includes interest and discounts related to our loans and notes payable.

Results of Operations

Comparison of Three Months Ended March 31, 2020 and 2019

We had no revenue in the three months ended March 31, 2020 and 2019.

During the three months ended March 31, 2020, we had salaries and wages of $217,028, compared to salaries and wages of $152,417 during the same three-month period for 2019, an increase of 42.4%, which is partially attributed to the salary, benefits, and payroll taxes for an additional employee added in the third quarter of 2019.

During the three months ended March 31, 2020 and 2019, we recorded professional fees of $119,237 and $204,565, respectively, a decrease of 41.7%. During the first quarter of 2019, our legal fees were higher due to S-1 post-amendment filings.

We incurred general and administrative expenses of $79,208 during the three months ended March 31, 2020, compared to $60,437 for the same three-month period for 2019, an increase of about $19,000., During the first quarter of 2020, our travel expenses were about $8,000 higher because of several trips to meet with legal counsel in Washington DC. These were related to our litigation. Our telephone costs were $2,500 higher due to many conference calls during our COVID-19 shutdown.

Our interest expense was $320,818 for the three months ended March 31, 2020, compared to $212,703 for the same period of the previous year, an increase of 50.8%. This change was due to increased debt and higher interest rates on defaulted notes.

Our debt discount amortization was $42,852 for the three months ended March 31, 2020, compared to $13,841 for the same period of the previous year. The increase of 209.6% is due to debt discount recorded on additional loans that were obtained during the first quarter of 2020. There was an increase in the fair value of the derivative liability of $1,730,623 during the three months ended March 31, 2020, and a $411,672 decrease in the fair value of derivative liability for the same period in 2019.

Liquidity and Capital Resources

At March 31, 2020, our principal source of liquidity consisted of $40,947 of cash, as compared to $23,243 of cash at December 31, 2019. In addition, our stockholders' deficiency was $24,576,423 at March 31, 2020, compared to stockholders' deficiency of $22,066,657 at December 31, 2019, an increase in the deficiency of $2,509,766, which is attributable to the net loss during the period.

Our operations used net cash of $227,133 during the three months ended March 31, 2020, as compared to using net cash of $235,190 during the three months ended March 31, 2019, a decrease of 3.4%. The slight decrease in net cash used in operations is due to the overall increase in net loss of approximately $2.3 million in the first quarter of 2020, which was offset by the change in the derivative liability of $2.2 million during the same period 2019.

Financing activities provided cash of $244,837 for our operations during the three months ended March 31, 2020, as compared to $303,836 for the first three months in 2019, a decrease of 19.4%. In the first three months of 2020, we received $260,000 from notes payable as compared to $310,000 in the same period of 2019.

Our Capital Resources and Anticipated Requirements

As noted above, at March 31, 2020, we had negative working capital (current assets minus current liabilities) of $24,349,821. We are now 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.





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Our condensed consolidated financial statements have been prepared assuming we will continue as a going concern. We have experienced recurring losses from operations and have an accumulated deficit. Our ability to continue our operations as a going concern is dependent on the success of management's plans, which include the raising of capital through debt and/or equity markets, until such time that revenue provided by operations is sufficient to fund working capital requirements. We will require additional funding to finance the growth of our current and expected future operations as well as to achieve our strategic objectives The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should we be unable to continue as a going concern. In recent months, the continued spread of COVID-19 has led to disruption and volatility in the global capital markets, which increases the cost of capital and adversely impacts access to capital. The members of our executive team and contract outside accountant live in different cities in Pennsylvania. On March 23, 2020, the Governor of Pennsylvania issued statewide stay-at-home orders to mitigate the spread of COVID-19. Non-life-sustaining physical businesses, like our company, were closed. Individuals were permitted to leave their residences only for tasks essential to maintaining health and safety. On June 26, 2020, Lancaster County, where we are located, finally moved into the least restrictive phase for reopening our business; however, we must still follow specific guidelines established by the Governor. These include continuing to telework as much as possible, updating our buildings to meet business and safety requirements, decreasing our office usage to 75% occupancy, and following CDC and DOH guidelines for social distancing and cleaning. This has negatively impacted our ability to access the capital markets for additional working capital. There are no assurances that we will not experience further adverse impact on our ability to raise capital through debt and/or equity markets to fund working capital requirements or our ability to continue as a going concern as a result the COVID-19.

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

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.

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