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.

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.




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Results of Operations

Comparison of Three Months Ended September 30, 2020 and 2019

We had no revenue in the three months ended September 30, 2020 and 2019.

During the three months ended September 30, 2020, we had salaries and wages of $206,866, compared to salaries and wages of $331,790 during the same three-month period for 2019, a decrease of 37.7%, which is partially attributed to management's efforts to reduce expenses due to lack of cash flow.

During the three months ended September 30, 2020 and 2019, we recorded professional fees of $98,250 and $110,036, respectively, a decrease of 10.7%. During the third quarter of 2020, our legal fees were lower due to fewer litigation issues.

We incurred general and administrative expenses of $53,340 during the three months ended September 30, 2020, compared to $83,866 for the same three-month period for 2019, a decrease of 36.4%. Because of the Covid-19 pandemic, we had less travel and related expenses, and management made a concerted effort to reduce general and administrative expenses due to lack of cash flow.

Our interest expense was $337,771 for the three months ended September 30, 2020, compared to $323,717 for the same period of the previous year, an increase of 4.3%. This change was due to increased debt and higher interest rates on defaulted notes.

Our debt discount amortization was $56,271 for the three months ended September 30, 2020, compared to $596 for the same period of the previous year. There was a significant increase due to debt discount recorded on additional loans that were obtained during the fourth quarter of 2019 and the first three quarters of 2020. There was an increase in the fair value of the derivative liability of $839,952 during the three months ended September 30, 2020, compared to a $156,031 decrease in the fair value of derivative liability for the same period in 2019.

Comparison of Nine Months Ended September 30, 2020 and 2019

We had no revenue in the nine months ended September 30, 2020 and 2019.

During the nine months ended September 30, 2020, we had salaries and wages of $632,405, compared to salaries and wages of $647,635 during the same nine-month period for 2019, a decrease of 2.4%, which is partially attributed to management's efforts to reduce expenses due to lack of cash flow.

During the nine months ended September 30, 2020 and 2019, we recorded professional fees of $420,450 and $411,607, respectively, a small increase of 2.1%. Our legal fees for the nine-month periods were higher due to the continuing Memphis litigation issues.

We incurred general and administrative expenses of $181,136 during the nine months ended September 30, 2020, compared to $214,031 for the same nine-month period for 2019, a 15.4% decrease. Management made a concerted effort to reduce general and administrative expenses due to lack of cash flow.

Our interest expense was $984,631 for the nine months ended September 30, 2020, compared to $766,815 for the same period of the previous year, an increase of 28.4% due to increased debt and higher interest rates on defaulted notes.

Our debt discount amortization was $153,535 for the nine months ended September 30, 2020, compared to $24,435 for the same period of the previous year. The increase of 529.3% is due to the fact that debt discount was fully amortized in the previous year. This was due to the increase in the amount of convertible loans in the fourth quarter of 2019 and the first three quarters of 2020. There was an increase in the fair value of the derivative liability of $2,571,995 during the nine months ended September 30, 2020, compared to a $608,040 decrease in the fair value of the derivative liability for the same period in 2019.


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Liquidity and Capital Resources

At September 30, 2020, our principal source of liquidity consisted of $8,500 of cash, as compared to $23,243 of cash at December 31, 2019. In addition, our stockholders' deficiency was $27,010,809 at September 30, 2020, compared to stockholders' deficiency of $22,066,657 at December 31, 2019, an increase in the deficiency of $4,944,152, which is attributable to the net loss during the period.

Our operations used net cash of $549,337 during the nine months ended September 30, 2020, as compared to using net cash of $500,784 during the nine months ended September 30, 2019, an increase of 9.7%. The increase in net cash used in operations is due to the overall increase in net loss of approximately $3.3 million in the nine months of 2020, which was offset by the change in the derivative liability of $3.2 million during the same period 2019.

Financing activities provided cash of $534,594 for our operations during the nine months ended September 30, 2020, as compared to $508,620 for the first nine months in 2019, an increase of 5.1%. In the first nine months of 2020, we received $567,085 from notes payable from unrelated and related parties and PPP loan. as compared to $336,000 in the same period of 2019. This was offset by the proceeds received from the sale of preferred stock of $207,500 in 2019 compared to none in 2020.

Our Capital Resources and Anticipated Requirements

As noted above, at September 30, 2020, we had negative working capital (current assets minus current liabilities) of $26,668,455. 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.

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 Pennsylvania Department of Health guidelines for social distancing and cleaning. The pandemic continues to have a negative impact on our ability to access the capital markets for additional working capital. We cannot assure that we will not experience further adverse impacts 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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