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.
20
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.
21
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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