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 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 for operations. 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, 2022 and 2021

We had no revenue in the three months ended March 31, 2022 and 2021.

During the three months ended March 31, 2022, we had salaries and wages of $202,778, compared to salaries and wages of $194,343 during the same three-month period for 2021, an increase of 4.3%.

During the three months ended March 31, 2022 and 2021, we recorded professional fees of $130,789 and $357,057, respectively, a decrease of 63.4%. During the first quarter of 2021, our legal fees were higher due to the continuing Memphis litigation issues.

We incurred general and administrative expenses of $53,013 during the three months ended March 31, 2022, compared to $52,567 for the same three-month period for 2021.

Our interest expense was $434,253 for the three months ended March 31, 2022, compared to $470,766 for the same period for 2021, a decrease of 7.8%. This change was due to a decrease in stock-based financing fee of $83,000, partially offset by increased debt and higher interest rates on defaulted notes.

Our debt discount amortization was $62,799 for the three months ended March 31, 2022, compared to $70,250 for the same period of the previous year. The decrease of 10.6% is due to full amortization of discount on debt that became due during the periods. There was an increase in the fair value of the derivative liability of $1,768,654 during the three months ended March 31, 2022, compared to a $295,642 increase for the 2021 period, a 498.2% increase period over period, such increases resulting primarily from the changes in the market value of our common stock during the periods. There was a gain of $2,267 on the conversion of debt during the three months ended March 31, 2022, as compared to $7,527 in the same period of 2021.






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Liquidity and Capital Resources

At March 31, 2022, our principal source of liquidity consisted of $31,450 of cash, as compared to $957 of cash at December 31, 2021. At March 31, 2022, we had negative working capital (current assets minus current liabilities) of $32,072,356. In addition, our stockholders' deficiency was $32,331,943 at March 31, 2022, compared to stockholders" deficiency of $30,027,924 at December 31, 2021, an increase in the deficiency of $2,304,019, resulting from a loss of $2,650,019 for the three-month period, partially offset by an increase in equity resulting from the issuance of preferred stock in the amount of $346,000. 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 $209,507 during the three months ended March 31, 2022, as compared to using net cash of $116,364 during the three months ended March 31, 2021, an increase of 80%. The increase in net cash used in operations is due to the overall increase in net loss of approximately $1.2 million and the change in accounts payable and accrued expenses of $0.3 million, offset by the increase in the change in the fair value of derivative liability and other noncash items of $1.4 million, as compared to the 2021 period.

Financing activities provided cash of $240,000 for our operations during the three months ended March 31, 2022, as compared to $186,145 for the three months ended March 31, 2021. During the three months ended March 31, 2022, we received $240,000 in proceeds from the sale of preferred stock. Proceeds from new notes payable were $190,000 in the three months ended March 31, 2021, and repayments of notes payable were $3,855 for the 2021 period.

The accompanying unaudited condensed consolidated financial statements have been prepared on the assumption that we will continue as a going concern. We have experienced recurring losses and we had a net loss of $2,650,019 and used $209,507 of cash in operating activities for the three months ended March 31, 2022. We had a working capital deficiency of $32,072,356 and a stockholders' deficiency of $32,331,943 as of March 31, 2022. 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 generate sales and obtain external funding for our projects under development. We continue to apply for grant funding from the US Department of Energy. Our applications focus on desalinated water, ammonia and hydrogen production from an OTEC facility. On March 11, 2022, President Biden signed a bill that provides $162 million for Water Power Technologies Office budget. About $112 million of that money is slated for marine energy. We plan to apply for funding to support projects where our technology would apply. The financial statements do not include any adjustments that may result from the outcome of this uncertainty.

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

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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