ORIGINCLEAR, INC.
This Quarterly Report on Form 10-Q contains forward-looking statements that are
subject to a number of risks and uncertainties, many of which are beyond our
control, which may include statements about our:
? business strategy;
? financial strategy;
? intellectual property;
? production;
? future operating results; and
? plans, objectives, expectations, and intentions contained in this
report that are not historical.
All statements, other than statements of historical fact included in this
report, regarding our strategy, intellectual property, future operations,
financial position, estimated revenues and losses, projected costs, prospects,
plans and objectives of management are forward-looking statements. When used in
this report, the words "could," "believe," "anticipate," "intend," "estimate,"
"expect," "project" and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements contain
such identifying words. All forward-looking statements speak only as of the date
of this report. You should not place undue reliance on these forward-looking
statements. Although we believe that our plans, intentions and expectations
reflected in or suggested by the forward-looking statements we make in this
report are reasonable, we can give no assurance that these plans, intentions or
expectations will be achieved. These statements may be found under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as in this report generally. Actual events or results may
differ materially from those discussed in forward-looking statements as a result
of various factors. In light of these risks and uncertainties, there can be no
assurance that the forward-looking statements contained in this filing will in
fact occur.
Organizational History
OriginClear, Inc. ("we", "us", "our", the "Company" or "OriginClear") was
incorporated on June 1, 2007 under the laws of the State of Nevada . We have been
engaged in business operations since June 2007 . In 2015, we moved into the
commercialization phase of our business plan having previously been primarily
involved in research, development and licensing activities. Our principal
offices are located at 13575 58th Street North , Suite 200, Clearwater, FL 33760.
Our main telephone number is (727) 440-4603. Our website address is
www.OriginClear.com. The information contained on, connected to or that can be
accessed via our website is not part of this report.
Overview of Business
OriginClear is a company that today, develops unique water assets for eventual
launch as their own companies. This new role was indicated water technology
company which has developed in-depth capabilities over the eight years since it
began to operate in the water industry.
Pursuant to this new mission,
? The Intellectual Property of
consisting of five patents and related knowhow and trade secrets, which
are intended to take the place of the applications for the company's
original technology developments.
? The brand, Modular Water Systems (MWS), featuring products
differentiated by the Early IP and complemented with additional knowhow
and trade secrets. MWS is in commercial operation and operates as a
division of Progressive Water Treatment, Inc. ("PWT"), a wholly owned
subsidiary of the Company based in McKinney, Texas . The Company is
currently developing MWS as a discrete line of business for an eventual
spinoff. In addition, the Company intends to separate theEveraMOD Pump
Station product line as a standalone business.
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? PWT is responsible for a significant percentage of the company's
revenue, specializing in engineered water treatment solutions and
custom treatment systems. We believe that PWT has knowhow with
intellectual property potential.
?
called Water On Demand ("WOD").
o The WOD model intends to offer private businesses water
self-sustainability as a service - the ability to pay for water
treatment and purification services on a per-gallon basis. This is
commonly known as Design-Build-Own-Operate or "DBOO".
o Four subsidiaries have been established to house capital dedicated
to this program ("the WOD Subsidiaries"). For efficiency, the
Company is reorganizing these subsidiaries into a single WOD
Subsidiary.
o On April 13, 2022 , the Company's Board of Directors approved the
plan to spin off its Water On Demand business into a newly formed
wholly-owned subsidiary, Water On Demand Inc. ("WODI"), which will
hold the assets, liabilities, intellectual property and business
operations of the Water On Demand business. WODI is designed to
select projects, fully qualify them, provide financing for DBOO
service contracts, and thereafter manage assets, contracts, clients,
investors, strategic partners and vendors.
As they are subject to a security guaranty by the Company, the WOD Subsidiaries,
and the capital raised for them through the Company's Series Y offering, shall
continue to be held by the Company. This capital will be made available to WODI
to be deployed, subject to a planned management contract.
Developing Water Businesses
The Company develops and incubates businesses in its role as the Clean Water
Innovation Hub™ ("CWIB"). The mission of CWIB in general, is to create valuable
properties through an incubation process that results in the launching of
valuable spinoffs that add value to the world's water industry.
The first such spinoff was on April 13, 2022 , when the Company's Board of
Directors approved the plan to spin off its Water On Demand business into a
newly formed wholly-owned subsidiary, Water On Demand Inc. , which will hold the
assets, liabilities, intellectual property and business operations of the Water
On Demand business.
Further businesses can be expected to be spun off, as the Company announced on
"The launch of Water on Demand is the first of several anticipated business property spinoffs. Other Company business properties include Modular Water Systems, which owns a master license to five key international patents for prefabricated, highly-durable modular water treatment and pumping products. Being a proprietary technology, MWS frequently qualifies as "Basis of Design" for projects, which means that competitors cannot easily undercut MWS."
(https://www.originclear.com/company-news/originclear-to-launch-water-on-demand-fintech-startup)
CWIB's ongoing operations include:
1. Building a line of customer-facing water brands to expand global market
presence and technical expertise. These include the wholly-owned
subsidiary, Progressive Water Treatment, Inc. , and the Modular Water
Systems brand.
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2. Managing relationships with partners worldwide who are licensees and
business partners.
3. Developing the capability of partners to build systems and to deliver
Operation & Maintenance ("O&M") capability at scale, to support Water
On Demand outsourced treatment and purification programs.
4. Continue to study the streamlining of water assets and royalties
through the blockchain, as part of the $H2O™ concept. At this time
there is no plan to actively develop a blockchain-based asset.
5. Prepare properties for eventual spinoff.
On July 8, 2022 , the Company announced that it booked combined purchase orders
in excess of $5 million in the first nine months of 2022, more than double the
order volume for the comparable period in 2021.
On
https://www.originclear.com/company-news/originclear-teams-up-with-real-estate-leader-for-off-grid-housing
OnOctober 18, 2022 , the Company announced that its pump station product line is showing commercial success. Known as EveraMOD in the Modular Water Systems (MWS) lineup, this durable, modular system is being adopted by customers, often as a simple yet vital retrofit for existing, obsolete installations.
In addition, the Company indicated that it may spin off EveraMOD as its next independent company as part of CWIB.
https://www.originclear.com/company-news/originclears-pump-station-line-rapidly-expands
OnOctober 25, 2022 , the Company announced that it entered an Equity Financing Agreement withGHS Investments (GHS). Pursuant to the Agreement, GHS has agreed to purchase up to$25.0 million in registered common stock, with timing and amounts of the purchases to be determined at the sole discretion of the Company. OnNovember 7, 2022 , the Company announced that it retainedThe Basile Law Firm, P.C. (www.thebasilelawfirm.com), to explore a potential business combination with a NASDAQ-listedSpecial Purpose Acquisition Corporation (SPAC).OriginClear cautions that a specific SPAC has not been definitively identified, the prospective terms are unknown, and there is no assurance any transaction may occur. Milestones
On
PWT's Business Since 1995, PWT has been designing and manufacturing a complete line of water treatment systems for municipal, industrial and pure water applications. PWT designs and manufactures a complete line of water treatment systems for municipal, industrial and pure water applications. Its uniqueness is its ability to gain an in-depth understanding of customer's needs and then to design and build an integrated water treatment system using multiple technologies to provide a complete solution for its customers. PWT utilizes a wide range of technologies, including chemical injection, media filters, membrane, ion exchange and SCADA (supervisory control and data acquisition) technology in turnkey systems. PWT also offers a broad range of services including maintenance contracts, retrofits and replacement assistance. In addition, PWT rents equipment in contracts of varying duration. Customers are primarily served inthe United States andCanada , with the company's reach extending worldwide fromSiberia toArgentina to theMiddle East . PWT Milestones
In the first quarter of 2019, the Company increased the number of the manufacturer's representatives for its operating units, PWT and Modular Water Systems ("MWS").
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On Nov 7, 2019 , the Company published a case study showing how its Modular Water
System may help automotive dealerships expand into rural land. The case study
shows how point-of-use treatment solves lack of access to the public sewer
system.
On
OnApril 15, 2021 , the Company announced that its Progressive Water Treatment division is now shipping BroncBoost™, its workhorseBooster Pump Station equipment line. Engineered and built inTexas , BroncBoost allows customers to control water flow rates and pressure for mission critical water distribution systems. OnAugust 25, 2021 , PWT entered into a Master Services Agreement (MSA) with a large US public utility company for water filtration systems that will provide process water at three power plants. The utility issued a purchase order for approximately$1.8 million , for the first power plant. The total purchase price payable to PWT under the MSA is approximately$5 million , subject to certain conditions, including receipt and acceptance by PWT of additional purchase orders. We expect the overall contract to take up to two years to deliver from the date of the MSA. Modular Water Systems OnJune 22, 2018 ,OriginClear signed an exclusive worldwide licensing agreement withDaniel "Dan" Early P. E . for his proprietary technology for prefabricated water transport and treatment systems. OnJuly 19, 2018 , the Company began incubating its Modular Water Treatment Division (MWS) aroundMr. Early's technology and perspective customers. The Company has funded the development of this division with internal cash flow. In Q1 of 2020, the Company fully integrated MWS with wholly-ownedProgressive Water Treatment Inc. The Company is currently developing MWS as a discrete line of business for an eventual spinoff.Mr. Early currently serves as Chief Engineer forOriginClear . OnJuly 19, 2018 , the Company launched its Modular Water Treatment Division, offering a unique product line of prefabricated water transport and treatment systems.Daniel "Dan" Early P.E . (Professional Engineer) heads the Modular Water Systems ("MWS") division. OnJune 25, 2018 ,Dan Early granted the Company a worldwide, exclusive non-transferable license to the technology and knowhow behind MWS (See "Intellectual Property"). A ten-year renewal onMay 20, 2020 added the right to sublicense and create manufacturing joint ventures. OnJuly 25, 2018 , MWS received its first order, for a brewery wastewater treatment plant. With PWT and other companies as fabricators and assemblers, MWS designs, manufactures and delivers prefabricated water transport (pump and lift stations) under the EveraMOD™ brand; and wastewater treatment plant ("WWTP") products under the EveraSKID™ and EveraTREAT™ brands to customers and end-users which are required to clean their own wastewater, such as schools, small communities, institutional facilities, real estate developments, factories, and industrial parks.
On
On
OnJuly 25, 2022 the Company announced that decentralized water treatment, long pioneered byOriginClear's Modular Water Systems™ (MWS), is now being mandated by major US cities to recycle water in large new buildings. OnAugust 12, 2022 the Company announced the inaugural delivery and installation of its pre-engineered EveraBOX™ to implement a low-risk Liquid Ammonium Sulfate (LAS) disinfectant system forPennsylvania's Beaver Falls Municipal Water Authority (BFMA). Typical of MWS products, EveraBOX is manufactured using inexpensive, long-lasting High-Density Polyethylene (HDPE) or Polypropylene (PP) materials. These materials have proven to be less affected by supply chain issues currently impacting metal and fiberglass construction. 29
Water on Demand™: a new strategic direction.
OriginClear is also developing a new outsourced water treatment business called "Water On Demand": or "WOD" as a potential revenue source. The WOD model intends to offer private businesses the ability to pay for water treatment and purification services on a per-gallon basis. This is commonly known as Design-Build-Own-Operate or "DBOO". OnApril 13, 2021 , we announced formation of a wholly-owned subsidiary called Water On Demand #1, Inc. ("WOD #1") to pursue capitalization of the equipment required. The WOD Subsidiaries, Water On Demand #2, Inc. ("WOD #2"), Water On Demand #3, Inc. ("WOD #3"), Water On Demand #4, Inc. ("WOD #4") were separately created to permit optional segmenting of capital pools according to strategic partnerships. The Company is now simplifying this structure by placing all funds in WOD #1 and tracking the partnerships within that company. As they are subject to a security guaranty by the Company, the WOD Subsidiaries, and the capital raised for them through the Company's Series Y offering, shall continue to be held by the Company. This capital will be made available to WODI to be deployed, subject to a planned management contract.
The Company intends to pilot a first DBOO contract and thereafter, work with regional water service companies to build and operate the water treatment systems it finances. Additional financing hubs could be set up in world financial centers.
Delegating the building and operating of WOD-financed systems to regional water companies under performance contract, with the aim of developing a network of such partners, is expected to enable rapid scale-up of the WOD program, and the partner network would create a high barrier to entry for competitors. OnApril 13, 2022 , the Company's Board of Directors approved the plan to spin off its Water On Demand business into a newly formed wholly-owned subsidiary,Water On Demand Inc. , which will hold the assets, liabilities, intellectual property and business operations of the Water On Demand business. The Company stipulates that it has excluded the WOD Subsidiaries, and all capital already raised and to be raised in the future in its Series Y offering, from this assignment of assets and will make the capital available as part of a planned management contract. The Company intends to also register a Regulation A offering by WODI which is intended to accumulate capital for WODI to direct toward WOD projects. To enable rapid scaling, WODI does not initially intend to build, maintain or service the water treatment systems it finances, but instead contract with regional water service companies to carry out these functions. OnApril 6, 2022 , an agreement in principle was reached to work with the first of these intended contractors,Envirogen Technologies (www.envirogen.com), a 30-year international provider of environmental technology and process solutions (www.originclear.com/company-news/originclear-and-envirogen-to-partner-on-water-on-demand). Future resources to build, maintain and service these financed systems may come from acquisitions; however, these are not actively being planned. At the time of this filing, WODI had no staff or independent resources. Under a prospective management services contract, OCLN is providing all staffing and administrative resources, as well as access to the funds it has raised for WOD investments. 30 Market Opportunity On a global basis, only twenty percent (20%) of all sewage and thirty percent (30%) of all industrial waste are ever treated. Water leakage results in the loss of thirty-five percent (35%) of all clean water across the planet. Cutting that number in half would provide clean water for 100 million people. This is a situation of great danger, but also great potential. We believe businesses can no longer rely on giant, centralized water utilities to meet the challenge. That is why more and more business users are doing their own water treatment and recycling. Whether by choice or necessity, those businesses that invest in onsite water systems gain a tangible asset on their business and real estate and can enjoy better water quality at a lower cost, especially if treated water is recycled. We believe self-reliant businesses are quietly building "decentralized water wealth" for themselves while also helping their communities. Environmental, social and governance (ESG) investing guidelines, which drive about a quarter of all professionally managed assets around the world, specifically include the key factor of how well corporations manage water. As civil infrastructure ages and fails and as the costs for new and replacement infrastructure increase year over year, we believe engineers and end-users will search for new ways and methods of deploying water and wastewater systems that are less expensive to deliver and much less expensive to own and operate with the mission intent of substantially increasing the replacement intervals currently experienced by conventional materials of construction and conventional product delivery models.
Reducing Risk through Outsourcing
Inflation of water rates greatly exceeds core inflation (see Figure 2), creating
a risk for managers of businesses served by municipalities. We believe this
creates an incentive for self-treatment; but these businesses may lack the
capital for large water plant expenditures, and the in-house expertise to manage
them. Outsourcing through what we call Water on Demand™ means that these
companies do not have to worry about the problem, either financing it or
managing it.
As an example, in information technology, few companies operate their own server
in-house powering their website. Rather, such servers are typically managed by
professionals through a service level agreement. In the water industry, when
applied to outsourced water treatment, a service level agreement is known as O&M
agreement. When the vendor retains ownership of the equipment, the concept is
expanded to "Own and Operate", an extension of the basic "Design and Build", for
a full offering known as DBOO, which is very similar to the solar energy
programs known as Power Purchase Agreements ("PPAs").
Under such a plan, a business can outsource its wastewater treatment by simply
signing on the dotted line; instantly avoiding most capital expense, and the
trouble of managing something that is a distraction from their core business.
We believe this is financially and operationally attractive to industrial,
agricultural and commercial water users, while OriginClear's Water On Demand
program can potentially drive speeded-up deals and more revenue streams from
providing water treatment as a service.
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The Decentralization Megatrend
[[Image Removed]]
Figure 1
An updated report of October 2018 , "Public Spending on Transportation and Water
Infrastructure, 1956 to 2017"
(www.cbo.gov/system/files?file=2018-10/54539-Infrastructure.pdf), stated that
The Federal Government's and State and Local Governments' Spending on Water
Utilities , including water supply and wastewater treatment facilities, was $4
billion in 2016 - a drop of about $13 billion since 1976!
As municipalities continue to be underfunded (Figure 1) with rising water rates
(Figure 2), businesses are increasingly choosing to treat and purify their own
water, in a trend known as Decentralized Water, first described in the Lux
Research presentation of June 28, 2016 .
(https://members.luxresearchinc.com/research/report/20060).
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[[Image Removed]]
Figure 2
According to the Lux Research data, the unmet infrastructure needs of America's
150,000+ water systems will exceed $100 billion per year by 2025. And the recent
Infrastructure Investment and Jobs Act only provided one-time funding of $55
billion , which is less than one year's deficit.
It is this underfunding that is creating the water quality problems we are
seeing in places like
It is not realistic to expect this underfunding of central water to be resolved anytime soon. The alternative is to simply reduce the load on these central systems. Since industry and agriculture together account for 89% of all water demand inthe United States (https://ourworldindata.org/water-use-stress), we can enable commercial users to purify their own wastewater, thereby enabling water districts to focus on serving residential users - achieving a major social justice victory by simply unburdening the central facilities. Self-treatment is a win-win, too - because businesses can do better by treating their own water; for instance, implementing recycling of the water they pay for, and controlling their own costs. But to make such a decentralization program work, capital is needed. Most businesses simply do not have it in their capital plan to treat their own water. Now, with Water On Demand, they can forget about investing in capital and expertise: they can simply continue to pay on the meter as they always have, but to a micro-utility that sits on their own premises.
Technology specifically developed for decentralization.
In 2018,OriginClear launched its Modular Water Systems (MWS) division (www.modularwater.com), headed by Daniel M. Early, P.E., a pioneer of on-site or decentralized water treatment in this country. Supported by its proprietary technology, this division already serves businesses doing their own water treatment. These modular systems can be easily put to work for pre-funded, pay-per-gallon applications, potentially creating a barrier to entry for other companies wanting to do the same. 33 Also, the portable nature of some of these prefabricated, drop-in-place Modular Water Systems may provide a competitive benefit for a pure service model where the equipment remains the property of the Company, because their mobility enables some degree of repossession in the event the client fails to pay their monthly bill. We believe this is a key competitive advantage.
Finally, we could license MWS technology to Water On Demand operating partners under contract to design, build and operate systems, thus achieving both acceptance of such technology and a standardized "fleet" of installed systems.
Implementation of Water On Demand
OnMarch 17, 2021 ,OriginClear incorporated Water On Demand #1 Inc. ("WOD#1") inNevada as a wholly owned subsidiary to operate and manage our Water on Demand business. InNovember 2021 , the Company created additional Water on Demand subsidiaries - Water on Demand # 2, Inc. (WOD # 2), Water on Demand # 3, Inc. (WOD # 3) and Water on Demand # 4, Inc. (WOD # 4) were separately created to permit optional segmenting of capital pools according to strategic partnerships. The Company is now simplifying this structure by placing all funds in WOD #1 and tracking the partnerships within that company. As they are subject to a security guaranty by the Company, the WOD Subsidiaries, and the capital raised for them through the Company's Series Y offering, shall continue to be held by the Company. This capital will be made available to WODI to be deployed, subject to a planned management contract.
The Company requires funding in order to execute on its Water on Demand
initiative. As of the period ended
The Company is now actively evaluating potential clients for a test of water treatment and purification services on a pay-per-gallon basis, but a first agreement has not been reached. Also, the Company, as represented by OCLN, is in early stage talks with partners to deliver DBOO services, with the Company providing financing and contract management services. In the event such talks do not succeed, the Company, represented under contract by OCLN, would need to implement its own resources for such DBOO services. OnApril 6, 2022 , the Company agreed in principle to an arrangement withHouston -based, international water service companyEnvirogen Technologies for certain operations and maintenance (O&M) functions, the first of a potential series of such partnerships, intended to enable Water On Demand to focus on finance and asset management while the water industry benefits from a steady stream of pre-capitalized projects.
(https://www.originclear.com/company-news/originclear-and-envirogen-to-partner-on-water-on-demand)
OnApril 13, 2022 , the Company announced the formation ofWater On Demand, Inc. ("WODI") as a wholly owned subsidiary and its plans to transfer each of the WOD subsidiaries and all assets, intellectual property and operations related to the Water On Demand business to WODI. The Company now stipulates that it has excluded the WOD Subsidiaries, and all capital already raised and to be raised in the future in its Series Y offering, from this assignment of assets and will make the capital available as part of a planned management contract. The Company intends to also register a Regulation A offering by WODI which is intended to accumulate capital for WODI to direct toward WOD projects. OnJune 29, 2022 the Company announced the launch of its$300 Million offering (the "Reg D Offering") to be conducted on behalf of its wholly-owned subsidiary, Water onDemand, Inc. ("WODI"). The offering of the securities is made pursuant to an exemption from registration under Rule 506(c) of Regulation D, to accredited investors only. Water On Demand is designed to offer clean water systems to businesses and communities as a managed service without any capital requirement. Due to a planned separate filing of a Regulation A+ Offering (the "Reg A Offering"), the Company has decided to limit the Reg D Offering to$20 million in total. 34
Advisory Support for
InSeptember 2020 ,OriginClear announced that Philanthroinvestors had entered a strategic agreement with the Company and had listed the Company on its new Water Philanthroinvestors program. At the same time, the Company appointed Philanthroinvestors Founder,Ivan Anz and CEO,Arte Maren toOriginClear's Board of Advisors . $H2O™ OnMay 10, 2021 ,OriginClear filed "System And Method For Water Treatment Incentive", a patent application for using blockchain technology and non-fungible tokens ("NFT") to simplify the distribution of payments on outsourced water treatment and purification services billed on a pay-per-gallon basis ahead of inflation, or Water On Demand. The Company recently filed a PCT application pertaining to the invention. OnMay 16, 2021 , the Company applied for a registered trademark for the mark $H2O (also referred to as H2O) as the blockchain system representing this activity. The current filing basis is "Intent-to-use basis" (under Trademark Act Section 1(b)).
On
There is no active development effort for $H2O. Depending on the final form that $H2O takes, we may encounter regulatory concerns that we cannot guarantee we will overcome. In that event, we would fall back on ordinary financial payment systems. Neither our Water on Demand or other current business models rely on any blockchain system for operation, and we can accomplish our operational goals using ordinary financial and currency channels. The Company does not intend to incorporate a blockchain system in any registered offering. ClearAqua™OriginClear is currently exploring a utility coin, or token, named ClearAqua, The Water Coin For The World™, which would implement a grassroots network for alerts, leading to actionable proposals for water projects. There is no assurance this token will be issued or if issued, will be successful. ClearAqua is not required forOriginClear's core business. We filed, on an intent-to-use basis, US Trademark applications onJuly 21, 2021 , for the Mark, CLEARAQUA. We also engagedSan Diego -basedBaja Technologies Inc. ("Baja") who wrote a preliminary white paper, but no other action has been taken and ClearAqua is not in active development at this time. The Company does not intend to incorporate a coin, token or cryptocurrency in any registered offering.
Potential Acquisitions and Incubations
The Company, in its role as the CWIB, seeks to incubate or acquire businesses that help industrial water users achieve water self-sustainability. We believe that assembling a group of such water treatment and water management businesses is potentially an opportunity for spinoffs and increased Company value for the stockholders. We are particularly interested in companies which successfully execute on Design-Build-Own-Operate or DBOO. These companies are growing fast, because tougher regulations, water scarcities and general outsourcing trends are driving industrial and agricultural water treatment users to delegate their water problem to service providers. As Global Water Intelligence pointed out in their report onOctober 30, 2015 , "Water is often perceived as a secondary importance, with end-users increasingly wanting to focus solely on their own core business. This is driving a move away from internal water personnel towards external service experts to take control of water aspects." External service experts are typically small-privately owned and locally operated. Creating a network of such providers could lead to enormous economies of scale through sharing of best practices, technologies, and customers and could represent a major barrier to entry for Water On Demand's competitors. The Company cautions that suitable acquisition candidates may not be identified and even if identified, the Company may not have adequate capital to complete the acquisition and/or definitive agreement may not be reached. Internally-incubated businesses, similarly, may not become commercial successes. 35
Patents and Intellectual Property
OnJune 25, 2018 ,Dan Early granted the Company a worldwide, exclusive non-transferable license to intellectual property consisting of five issued US patents, and design software, CAD, marketing, design and specification documents ("Early IP"). OnMay 20, 2020 , we agreed on a renewal of the license for an additional ten years, with three-year extensions. We also gained the right to sublicense, and, with approval, to create ISO-compliant manufacturing joint ventures. The Early IP consists of combined protection on the materials and configurations of complete packaged water treatment systems, built into containers. The patents consist of the following: Date Patent Expiration # Description Patent No. Issued Date 1 Wastewater System & Method US 8,372,274 B2
Applications: WIPO, Mexico
2 Steel Reinforced HDPE Rainwater US 8,561,633 B2 Harvesting
3 Wastewater Treatment System CIP US 8,871,089 B2 10/28/14 05/07/32
4 Scum Removal System for Liquids US 9,205,353 B2 12/08/15 02/19/34
5 Portable, Steel Reinforced HDPE US 9,217,244 B2 12/22/15 10/20/31
Pump Station CIP
On May 10, 2021 , OriginClear announced that it had filed "System And Method For
Water Treatment Incentive", a patent application for using blockchain technology
and non-fungible tokens (NFT) to simplify the distribution of payments on
outsourced water treatment and purification services billed on a pay-per-gallon
basis ahead of inflation.
With the rising need for local, point-of-use or point-of-discharge water
treatment solutions, the Modular Water Systems licensed IP family is the core to
a portable, integrated, transportable, plug-and-play system that, unlike other
packaged solutions, can be manufactured in series, have a longer life and are
more respectful of the environment.
The common feature of this IP family is the use of a construction material (Structural Reinforced ThermoPlastic), for the containers that is:
? more durable: an estimated 75 to 100-year life cycle as opposed to a
few decades for metal, or 40 to 50 years maximum for concrete;
? easier to manufacture: vessels manufacturing process can be automated;
and
? recyclable and can be made out of biomaterials
In addition, patents US 8,372,274 and US 8,871,089 (1 and 3) relate to the use
of vessels or containers made out of this material combined with a configuration
of functional modules, or process, for general water treatment.
Other subsequent patents, which build upon the original claims, focus on more targeted applications. These patents outline a given combination of modules engineered inside the vessel to address a specific water treatment challenge.
Expansion of the PWT and MWS Business-Lines
In
36
Beginning with its first installation, PWT built MWS components. The Company is
currently developing MWS as a discrete line of business for an eventual spinoff,
and MWS systems are built and assembled by a network of fabrication partners. In
addition, the Company is developing the EveraMOD Pump Station product line as a
standalone business.
Critical Accounting Policies
The Securities and Exchange Commission ("SEC") defines "critical accounting
policies" as those that require application of management's most difficult,
subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain and may change in
subsequent periods. Not all of the accounting policies require management to
make difficult, subjective or complex judgments or estimates. However, the
following policies could be deemed to be critical within the SEC definition.
Revenue Recognition
We recognize revenue when services are performed, and at the time of shipment of
products, provided that evidence of an arrangement exists, title and risk of
loss have passed to the customer, fees are fixed or determinable, and collection
of the related receivable is reasonably assured.
Revenues and related costs on construction contracts are recognized as the
performance obligations for work are satisfied over time in accordance with
Accounting Standards Codification ("ASC") 606, Revenue from Contracts with
Customers. Under ASC 606, revenue and associated profit, will be recognized as
the customer obtains control of the goods and services promised in the contract
(i.e., performance obligations). All un-allocable indirect costs and corporate
general and administrative costs are charged to the periods as incurred.
However, in the event a loss on a contract is foreseen, the Company will
recognize the loss, as it is determined. Revisions in cost and profit estimates
during the course of the contract are reflected in the accounting period in
which the facts for the revisions become known. Provisions for estimated losses
on uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, and estimated
profitability, including those arising from contract penalty provisions, and
final contract settlements, may result in revisions to costs and income, which
are recognized in the period the revisions are determined.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. Significant estimates include estimates used
to review the Company's goodwill, impairments and estimations of long-lived
assets, revenue recognition on percentage of completion type contracts,
allowances for uncollectible accounts, inventory valuation, valuations of
non-cash capital stock issuances and the valuation allowance on deferred tax
assets. The Company bases its estimates on historical experience and on various
other assumptions that are believed to be reasonable in the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
Fair Value of Financial Instruments
Fair value of financial instruments requires disclosure of the fair value
information, whether or not recognized in the balance sheet, where it is
practicable to estimate that value. As of
37
Results of Operations for the three months ended
Revenue and Cost of Sales For the three months endedSeptember 30, 2022 , we had revenue of$3,366,061 compared to$1,120,687 for the three months endedSeptember 30, 2021 . Cost of sales for the three months endedSeptember 30, 2022 was$2,542,887 compared to$790,336 for the three months endedSeptember 30, 2021 . Revenue and cost of sales increased primarily due to our subsidiary's increase in revenue.
Our gross profit was
Selling and Marketing Expenses
For the three months endedSeptember 30, 2022 , we had selling and marketing expenses of$712,420 , compared to$636,481 for the three months endedSeptember 30, 2021 . The increase in selling and marketing expenses was primarily due to an increase in marketing expense.
General and Administrative Expenses
For the three months ended
Other Income and (Expenses) Other income and (expenses) increased by$47,787,918 to$(28,067,729) for the three months endedSeptember 30, 2022 , compared to$19,720,189 for the three months endedSeptember 30, 2021 . The increase was due primarily to an increase in loss on non-cash accounts associated with the change in fair value of the derivatives in the amount of$47,405,884 , with an overall increase in other expenses in the amount of$382,034 . Net Income/(Loss) Our net loss increased by$47,468,166 to$(29,071,051) for the three months endedSeptember 30, 2022 , compared to net income of$18,397,115 for the three months endedSeptember 30, 2021 . The majority of the increase in net loss was due primarily to an increase in other expenses associated with the net change in fair value of derivative instruments estimated each period. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price, volatility, variable conversion prices based on market prices defined in the respective agreements and probabilities of certain outcomes based on managements' estimates. These inputs are subject to significant changes from period to period, therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.
Results of Operations for the nine months ended
Revenue and Cost of Sales For the nine months endedSeptember 30, 2022 , we had revenue of$7,768,133 compared to$2,848,287 for the nine months endedSeptember 30, 2021 . The cost of sales for the nine months endedSeptember 30, 2022 was$6,484,235 compared to$2,237,282 for the nine months endedSeptember 30, 2021 . Revenue and cost of sales increased primarily due to our subsidiary's increase in revenue.
Our gross profit was
Selling and Marketing Expenses
For the nine months ended
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General and Administrative Expenses
General and administrative expenses were$2,900,203 for the nine months endedSeptember 30, 2022 , compared to$2,785,713 for the nine months endedSeptember 30, 2021 . The increase in general and administrative expenses was primarily due to an increase in professional and legal fees. Other Income and (Expenses) Other income and (expenses) increased by$24,467,149 to$(30,421,325) for the nine months endedSeptember 30, 2022 , compared to$(5,954,176) for the nine months endedSeptember 30, 2021 . The increase was due primarily to an increase in loss on non-cash accounts associated with the change in fair value of the derivatives in the amount of$25,029,945 , with an overall decrease in other expenses in the amount of$562,796 . Net Income/(Loss) Our net loss for the nine months endedSeptember 30, 2022 was$(33,894,246) , compared to net loss of$(10,363,963) for the nine months endedSeptember 30, 2021 . The majority of the increase in net loss was due primarily to an increase in other expenses associated with the loss on net change in derivative instruments estimated each period. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price, volatility, variable conversion prices based on market prices defined in the respective agreements and probabilities of certain outcomes based on managements' estimates. These inputs are subject to significant changes from period to period, therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures. The condensed consolidated financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The accompanying condensed consolidated financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The Company has not generated significant revenue, and has negative cash flows from operations, which raise substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, raising additional capital and increasing sales. We obtained funds from investors during the nine months endingSeptember 30, 2022 . No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in case of equity financing.
In connection with our sale of Series M Preferred Stock conducted under Regulation A under the Securities Act, we may be subject to claims for rescission. If this occurs, it may have a negative effect on our liquidity.
AtSeptember 30, 2022 andDecember 31, 2021 , we had cash of$1,751,226 and$706,421 , including restricted cash of$1,266,391 and$433,951 , respectively and a working capital deficit of$37,858,994 and$12,826,008 , respectively. The increase in working capital deficit was due primarily to an increase in non-cash derivative liabilities, accounts payable, contract assets, cash and accrued expenses, with a decrease in convertible promissory notes, contracts liabilities, loan payable and contract receivables. During the period endedSeptember 30, 2022 , we raised an aggregate of$4,525,782 from the sale of preferred stock in private placements. Our ability to continue as a going concern is dependent upon raising capital from financing transactions and future revenue. Net cash used in operating activities was$3,483,023 for the nine months endedSeptember 30, 2022 , compared to$3,560,033 for the prior period endedSeptember 30, 2021 . The decrease in cash used in operating activities was primarily due to a decrease in contract liabilities, contract assets, and prepaid expenses, with an increase in and accounts payable and accrued expenses.
Net cash flows used in investing activities was
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Net cash flows provided by financing activities was $4,554,966 for the nine
months ended September 30, 2022 , as compared to $3,716,241 for the nine months
ended September 30, 2021 . The increase in cash provided by financing activities
was due primarily to an increase in proceeds for issuance of preferred stock. To
date we have principally financed our operations through the sale of our common
and preferred stock and the issuance of debt.
We do not have any material commitments for capital expenditures during the next
twelve months. Although our proceeds from the issuance of securities together
with revenue from operations are currently sufficient to fund our operating
expenses in the near future, we will need to raise additional funds in the
future so that we can maintain and expand our operations. Therefore, our future
operations are dependent on our ability to secure additional financing, which
may not be available on acceptable terms, or at all. Financing transactions may
include the issuance of equity or debt securities, obtaining credit facilities,
or other financing mechanisms. Furthermore, if we issue additional equity or
debt securities, stockholders may experience additional dilution or the new
equity securities may have rights, preferences or privileges senior to those of
existing holders of our common stock. The inability to obtain additional capital
may restrict our ability to grow and may reduce our ability to continue to
conduct business operations. If we are unable to obtain additional financing, we
may have to curtail our marketing and development plans and possibly cease our
operations.
We have estimated our current average burn, and believe that we have assets to
ensure that we can function without liquidation for a limited time, due to our
cash on hand, growing revenue, and our ability to raise money from our investor
base. Based on the aforesaid, we believe we have the ability to continue our
operations for the immediate future and will be able to realize assets and
discharge liabilities in the normal course of operations. However, there cannot
be any assurance that any of the aforementioned assumptions will come to
fruition and as such we may only be able to function for a short time.
Off-Balance Sheet Arrangements
We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity or capital expenditures.
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