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.

Agreement to Sell Subsidiary

On August 25, 2022, we entered into a Stock Purchase Agreement to sell OCEES International, Inc., our wholly owned subsidiary ("OCEES"), to Epaphus Global Energy, LLC ("Epaphus"). Epaphus is controlled by Jeremy Feakins, our Chief Executive Officer and a director. The transaction was approved unanimously by our directors who do not have an interest in the transaction.

In exchange for the sale of OCEES, we will receive:





   •   $1,000,000 in the form of canceled amounts owed by us to certain
       individuals, including Mr. Feakins, who have assigned their right to
       receive those payments to Epaphus;
   •   $75,000 in cash per month for 12 months following the date of the purchase
       agreement; and
   •   70% of the net profit of any currently contemplated project to build an
       ocean thermal energy conversion power plant entered into by OCEES.

Under the terms of the purchase agreement, Epaphus has the unilateral right to return OCEES to us and receive a full refund of all portions of the purchase price paid as of the return of OCEES at any time for year following the date of the purchase agreement.

The purchase agreement had not closed as of September 30, 2022, or through the date of filing of this form 10-Q. The transaction has not been reflected in our financial statements at September 30, 2022.





Results of Operations

Comparison of Three Months Ended September 30, 2022 and 2021

We had no revenue in the three months ended September 30, 2022 and 2021.

During the three months ended September 30, 2022, we had salaries and compensation of $202,833, compared to salaries and compensation of $206,146 during the same three-month period for 2021, a decrease of 1.6%.

During the three months ended September 30, 2022 and 2021, we recorded professional fees of $148,990 and $100,895, respectively, an increase of 47.7%. During the third quarter of 2022, our legal fees were higher due to the continuing Memphis litigation issues.

We incurred general and administrative expenses of $38,367 during the three months ended September 30, 2022, compared to $53,538 for the same three-month period for 2021, a decrease of 28.3% due to decreases in various corporate expenses.

Our interest expense was $462,514 for the three months ended September 30, 2022, compared to $414,085 for the same period for 2021, an increase of 11.7%. This change was due to an increase in debt and higher interest rates on defaulted notes.

Our debt discount amortization was $52,513 for the three months ended September 30, 2022, compared to $106,949 for the same period of the previous year. The decrease of 50.9% 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 $1,551,657 during the three months ended September 30, 2022, compared to a $9,584 decrease for the 2021 period, a 16,090% increase period over period, such increase resulting primarily from the changes in the market value of our common stock during the periods. There was a gain of $16,263 on the conversion of debt during the three months ended September 30, 2022, as compared to $59,817 in the same period of 2021.






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Comparison of Nine Months Ended September 30, 2022 and 2021

We had no revenue in the nine months ended September 30, 2022 and 2021.

During the nine months ended September 30, 2022, we had salaries and compensation of $613,096, compared to salaries and compensation of $624,377 during the same nine-month period for 2021, a decrease of 1.8%.

During the nine months ended September 30, 2022 and 2021, we recorded professional fees of $423,418 and $664,508, respectively, a decrease of 36.3%. During the first nine months of 2022, our legal fees were lower due to decreased fees related to the continuing Memphis litigation issues in the first half of 2022.

We incurred general and administrative expenses of $130,019 during the nine months ended September 30, 2022, compared to $148,839 for the same nine-month period for 2021, a decrease of 12.6% due to decreases in various corporate expenses.

Our interest expense was $1,344,836 for the nine months ended September 30, 2022, compared to $1,293,740 for the same period for 2021, an increase of 3.9%. This change was due to an increase in debt and higher interest rates on defaulted notes, partially offset by decrease in stock-based financing fee of $83,000.

Our debt discount amortization was $176,829 for the nine months ended September 30, 2022, compared to $253,425 for the same period of the previous year. The decrease of 30.2% 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 $3,374,400 during the nine months ended September 30, 2022, compared to a $1,074,932 decrease for the 2021 period, a 413.9% increase period over period, such increase resulting primarily from the changes in the market value of our common stock during the periods. There was a gain of $51,862 on the conversion of debt during the nine months ended September 30, 2022, as compared to $104,863 in the same period of 2021.

Liquidity and Capital Resources

At September 30, 2022, our principal source of liquidity consisted of $7,314 of cash, as compared to $957 of cash at December 31, 2021. At September 30, 2022, we had negative working capital (current assets minus current liabilities) of $35,135,994. In addition, our stockholders' deficiency was $35,297,660 at September 30, 2022, compared to stockholders" deficiency of $30,027,924 at December 31, 2021, an increase in the deficiency of $5,269,736, resulting from a loss of $6,010,736 for the nine-month period, partially offset by an increase in equity resulting from the issuance of preferred stock in the amount of $556,000 and the issuance of common stock in the amount of $185,000. 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 $301,643 during the nine months ended September 30, 2022, as compared to using net cash of $420,232 during the nine months ended September 30, 2021, a decrease of 28.2%. The decrease in net cash used in operations is due to a decrease in net loss of approximately $137,000 (after adjusting for non-cash items), partially offset by the decrease in the change in accounts payable and accrued expenses of approximately $18,000, as compared to the 2021 period.

Financing activities provided cash of $308,000 for our operations during the nine months ended September 30, 2022, as compared to $531,145 for the nine months ended September 30, 2021. During the nine months ended September 30, 2022, we received $270,000 in proceeds from the sale of preferred stock and $38,000 in working capital advances from related parties. Proceeds from new notes payable were $535,000 in the nine months ended September 30, 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 $6,010,736 and used $301,643 of cash in operating activities for the nine months ended September 30, 2022. We had a working capital deficiency of $35,135,994 and a stockholders' deficiency of $35,297,660 as of September 30, 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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