OCLN 10-Q
Originclear, Inc. (OCLN)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
FOR THE QUARTERLY PERIOD
ENDED:
For the transition period from __________ to __________
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices, Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Ticker symbol(s) | Name of each exchange on which registered | ||
| N/A |
Indicate by check mark
whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Indicate by check mark
whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company | |||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of November 13, 2024,
there were
TABLE OF CONTENTS
| Page | ||
| PART I | 1 | |
| Item 1. | Financial Statements. | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 30 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 41 |
| Item 4. | Controls and Procedures. | 41 |
| PART II | 42 | |
| Item 1. | Legal Proceedings. | 42 |
| Item 1A. | Risk Factors. | 42 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | 42 |
| Item 3. | Defaults Upon Senior Securities. | 42 |
| Item 4. | Mine Safety Disclosures. | 42 |
| Item 5. | Other Information. | 42 |
| Item 6. | Exhibits. | 42 |
| SIGNATURES | 43 | |
i
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORIGINCLEAR, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Current assets held-for-sale | ||||||||
| Fair value investment in securities | ||||||||
| Prepaid expenses | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| Net property and equipment | ||||||||
| Net property and equipment held-for-sale | ||||||||
| NET PROPERTY AND EQUIPMENT | ||||||||
| OTHER ASSETS | ||||||||
| Receivable on sale of asset | ||||||||
| Non-current assets held for sale | ||||||||
| Fair value investment-securities | ||||||||
| Trademark | ||||||||
| TOTAL OTHER ASSETS | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and other payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Cumulative preferred stock dividends payable | ||||||||
| Customer deposit | ||||||||
| Secured loans payable | ||||||||
| Loans payable, current | ||||||||
| Related party loan | ||||||||
| Derivative liabilities | ||||||||
| Series F 8% Preferred Stock, | ||||||||
| Series G 8% Preferred Stock, | ||||||||
| Series I 8% Preferred Stock, | ||||||||
| Series K 8% Preferred Stock, | ||||||||
| Convertible promissory notes, net of discount of $ | ||||||||
| Current liabilities held-for-sale | ||||||||
| TOTAL CURRENT LIABILTIES | ||||||||
| Long Term Liabilities | ||||||||
| Convertible promissory notes, net of discount of $ | ||||||||
| Non-current liabilities held-for-sale | ||||||||
| TOTAL LONG TERM LIABILITIES | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES (Note 13) | ||||||||
| Series J Convertible Preferred Stock, | ||||||||
| Series L Convertible Preferred Stock, | ||||||||
| Series M Preferred Stock, | ||||||||
| Series O 8% Convertible Preferred Stock, | ||||||||
| Series P Convertible Preferred Stock, | ||||||||
| Series Q 12% Convertible Preferred Stock, | ||||||||
| Series R 12% Convertible Preferred Stock, | ||||||||
| Series S 12% Convertible Preferred Stock, | ||||||||
| Series U Convertible Preferred Stock, | ||||||||
| Series W 12% Convertible Preferred Stock, | ||||||||
| SHAREHOLDERS’ DEFICIT | ||||||||
| Subscription payable for purchase of equipment | ||||||||
| Additional paid in capital - Common stock | ||||||||
| Noncontrolling interest | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL SHAREHOLDERS’ DEFICIT | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT | $ | $ | ||||||
See accompanying Notes to Consolidated Financial Statements.
1
ORIGINCLEAR, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross (loss) profit | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Operating expenses | ||||||||||||||||
| Selling and marketing expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total Operating expenses | ||||||||||||||||
| Loss from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Other income (expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Impairment of receivable from SPAC | ( | ) | ||||||||||||||
| Gain on write off of loans payable | ||||||||||||||||
| Unrealized loss on investment securities | ( | ) | ( | ) | ||||||||||||
| (Loss) gain on conversion of stock | ||||||||||||||||
| Gain (loss) on net change in derivative liability and conversion of debt | ( | ) | ( | ) | ||||||||||||
| Interest and dividend expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| TOTAL OTHER INCOME (EXPENSE) | ( | ) | ||||||||||||||
| Net income (loss) from continued operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss from assets held-for-sale | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and fully diluted earnings (loss) per share from continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ) | |||||
| Basic and fully diluted (loss) earnings per share from assets held-for-sale | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| BASIC AND DILUTED | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING, | ||||||||||||||||
| BASIC AND DILUTED | ||||||||||||||||
See accompanying Notes to Consolidated Financial Statements.
2
ORIGINCLEAR, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Shareholders’ Deficit
(Unaudited)
| NINE MONTHS ENDED SEPTEMBER 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock | Mezzanine | Common Stock | Additional Paid-in- | Subscription | Other Comprehensive | Noncontrolling | Accumulated | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Equity | Shares | Amount | Capital | Payable | Loss | Interest | Deficit | Total | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | ( | ) | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Common stock issued for cash per equity financing agreement | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Common stock issued upon conversion of convertible promissory note | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Common stock issued at fair value for services | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series O Preferred stock | - | - | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series Q Preferred stock | - | - | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series R Preferred stock | - | - | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series S Preferred stock | - | - | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series U Preferred stock | - | - | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series W Preferred stock | - | - | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series Y Preferred stock | - | - | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series Z Preferred stock | - | - | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Common stock issued for Series O Preferred stock dividends | - | - | - | ( | ) | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Common stock issued for conversion settlement agreements | - | - | - | ( | ) | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Common stock issued for alternate vesting | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Common stock issued through a Reg A to investors for cash | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Issuance of Series A and B Preferred stock granted to Series Y investors at fair value | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Cancellation of RegA common and Series A and B Preferred shares | ( | ) | ( | ) | - | ( | ) | - | ( | ) | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||
| Exchange of Series K Preferred Stock for Series W Preferred stock | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Issuance of Series Y Preferred stock through a private placement | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Exchange of Series R Preferred Stock for WODI secured convertible note | - | - | ( | ) | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Exchange of Series X Preferred Stock for WODI secured convertible note | - | - | ( | ) | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Return of investment for Series Y Preferred stock | - | - | ( | ) | - | ( | ) | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Redemption of common stock for note purchase agreements | - | - | - | ( | ) | ( | ) | ( | ) | - | - | - | - | ( | ) | |||||||||||||||||||||||||||||
| Issuance of 1000:1 split of common stock through a merger with subsidiary | - | - | - | ( | ) | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Issuance of common stock to investors after merger | - | - | - | ( | ) | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 (unaudited) | $ | $ | $ | $ | $ | $ | ( | ) | $ | - | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||
See accompanying Notes to Consolidated Financial Statements.
3
ORIGINCLEAR, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Shareholders’ Deficit
(Unaudited)
| NINE MONTHS ENDED SEPTEMBER 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock | Mezzanine | Common stock | Additional Paid-in | Subscription | Other Comprehensive | Noncontrolling | Accumulated | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Equity | Shares | Amount | Capital | Payable | loss | Interest | Deficit | Total | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Rounding | - | - | - | - | - | - | - | ( | ) | - | ||||||||||||||||||||||||||||||||||
| Shares redeemed/cancelled for Note Purchase Agreement | - | - | - | ( | ) | ( | ) | ( | ) | - | - | - | - | ( | ) | |||||||||||||||||||||||||||||
| Common stock issued for alternative vesting | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion settlement | - | - | - | ( | ) | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series O Preferred stock | - | - | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series Q Preferred stock | - | - | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series R Preferred stock | - | - | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series S Preferred stock | - | - | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Common stock issued for converison of Series W Preferred stock | - | - | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series Y Preferred stock | - | - | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Common stock issued at fair value for services | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Common stock issued for Series O Preferred stockdividends | - | - | - | ( | ) | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Common stock issued through a Reg A to investors for cash | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Issuances of Series Y Preferred stock through private placement | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Exchange of Series F Preferred stock for Series Q preferred stock | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Exchange of Series K Preferred Stock for Series W Preferred stock | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Issuance of warrants | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance at September 30, 2024 (unaudited) | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
See accompanying Notes to Consolidated Financial Statements.
4
ORIGINCLEAR, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ||||
| Net loss from assets held-for sale | ( | ) | ( | ) | ||||
| Adjustment to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Common and preferred stock issued for services | ||||||||
| Loss (gain) on net change in valuation of derivative liability | ||||||||
| Stock based compensation expense | ||||||||
| Debt discount recognized as interest expense | ||||||||
| Net unrealized loss on fair value of securities | ||||||||
| Impairment of receivable from SPAC | ||||||||
| Conversion and settlement value loss on WODI | ||||||||
| Gain on redemption of common stock | ( | ) | ( | ) | ||||
| Gain on write off of payable | ( | ) | ( | ) | ||||
| Change in Assets (Increase) Decrease in: | ||||||||
| Contracts receivable | ||||||||
| Contract asset | ( | ) | ||||||
| Right of use asset | ( | ) | ||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Other assets | ( | ) | ||||||
| Change in Liabilities Increase (Decrease) in: | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ||||||||
| Contract liabilities | ||||||||
| Tax liability 83(b) | ( | ) | ||||||
| Trust escrow | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS USED IN INVESTING ACTIVITIES: | ||||||||
| Purchase of SPAC notes payable | ( | ) | ( | ) | ||||
| Payments received on long term asset | ||||||||
| Purchase of fixed assets | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Payments on loan payable, SBA | ( | ) | ( | ) | ||||
| Proceeds from line of credit | ||||||||
| Payments on line of credit | ( | ) | ||||||
| Proceeds from loans, merchant cash advance | ||||||||
| Payments on loans, merchant cash advance | ( | ) | ||||||
| Proceeds from loans, related party | ||||||||
| Equity financing through the purchase of common shares | ||||||||
| Net payments on cumulative preferred stock dividends | ||||||||
| Proceeds from convertible secured promissory notes | ||||||||
| Common stock issued for RegA cash | ||||||||
| Proceeds from issuance of warrants | ||||||||
| Net proceeds for issuance of preferred stock for cash - mezzanine classification | ||||||||
| Net cash provided by financing activities | ||||||||
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD | ||||||||
| CASH AND CASH EQUIVALAENTS END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Interest and dividends paid | $ | $ | ||||||
| Taxes paid | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF NON CASH TRANSACTIONS | ||||||||
| Common stock issued at fair value for conversion of debt, plus accrued interest, and other fees | $ | $ | ||||||
| Issuance of Series O dividends | $ | $ | ||||||
| Preferred stock converted to common stock - mezzanine | $ | $ | ||||||
| Exchange of Series R Preferred Stock for WODI secured convertible note | $ | $ | ||||||
| Exchange from liability to mezzanine | $ | $ | ||||||
| Common stock issued as settlement | $ | $ | ||||||
| Exchange of Series X Preferred Stock for WODI secured convertible note | $ | $ | ||||||
| Adoption of ASC 842 | $ | $ | ||||||
See accompanying Notes to Consolidated Financial Statements.
5
ORIGINCLEAR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
| 1. | Company Overview, Basis of Presentation, and Summary of Significant Accounting Policies |
Company Overview
OriginClear, Inc (the “Company”) was founded in 2007 as OriginOil® and rebranded in 2015 to focus on the industrial water sector. The Company operates as the Clean Water Innovation Hub™, leveraging retail investor development capabilities to bring potentially disruptive water technology companies to market. Its main subsidiary, Water on Demand, Inc. (“WODI”), operates three operating divisions:
| ● | Progressive Water Treatment (“PWT”), specializes in engineered water treatment solutions and custom treatment systems, contributing significantly to the Company’s revenue. |
| ● | Modular Water Systems (“MWS”), which holds a worldwide, exclusive master license to the intellectual property of Daniel M. Early P.E. This includes five patents and related intellectual property, know-how, and trade secrets (“Early IP”). |
| ● | Water on Demand (“WOD”), which offers private businesses a model to pay for water treatment services on a per-gallon basis through Design-Build-Own-Operate (“DBOO”) contracts. | |
In 2023, the Company combined these divisions under WODI, and on October 24, 2023, announced a planned merger with Fortune Rise Acquisition Corp. (“FRLA”).
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for the interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), specifically Rule 10-01 of Regulation S-X. These financial statements included all normal recurring adjustments necessary to present fairly the Company’s consolidated financial position, results of operations, and cash flows for the periods presented.
These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full fiscal year.
All intercompany balances and transactions have been eliminated in consolidation.
Going concern
These consolidated financial statements have been prepared on a going concern basis, which assumes the Company will continue to operate and meet its obligations in the ordinary course of business. However, recurring losses from operations and an accumulated deficit raise substantial doubt about the Company to continue as a going concern. Our auditors expressed similar concern in their report for the year ended December 31, 2023.
During the nine months ended September 30, 2024, the Company raised funds through convertible notes and preferred stock sales. Management believes these funds, along with anticipated revenue and further financing, will allow the Company to meet its obligations.
Management plans to alleviate the going concern by pursuing additional financing through debt or equity. However, there is no assurance that such financing will be available on acceptable terms, and any such financing could result in restrictions or operations or dilution to existing shareholders.
6
Principles of consolidation
The consolidated financial statements include OriginClear, Inc. and its subsidiaries: WODI, Water On Demand #1, Inc., and OriginClear Technologies, Ltd. All material intercompany transactions are eliminated.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses during the reporting period, as well as the disclosure of contingent assets and liabilities. Significant estimates include those related to impairments of long-lived assets, revenue recognition, valuation of inventories, the fair value of derivative liabilities, stock-based compensation, and deferred tax assets. Actual results may differ from these estimates, and any revisions to estimates are recognized in the period the estimate is revised.
Revenue recognition
The company recognizes revenue in accordance with ASC 606, “Revenue from Contract with Customers,” when control of the promised goods or services is transferred to the customer. Revenue from equipment contracts is recognized over time, as performance obligations are satisfied based on the cost-to-cost method. The transaction price is determined at contact inception and adjusted for any variable consideration that is constrained to avoid significant revenue reversals.
Net Loss per share
Basic loss per share is calculated by dividing net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted loss per share includes the effect of potentially dilutive securities, such as warrants and convertible securities, only when they are dilutive. For the periods presented, all potential shares were excluded from diluted loss per share calculations because they were anti-dilutive due to net losses.
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Income (loss) to common shareholders (Numerator)- continuing operations | $ | ( | ) | $ | ) | |||
| Loss to common shareholders (Numerator) - related to assets held-for-sale | ( | ) | ( | ) | ||||
| Basic and diluted weighted average number of common shares outstanding (Denominator) | ||||||||
The Company excludes issuable shares from warrants, convertible notes and preferred stock, if their impact on the loss per share is anti-dilutive and includes the issuable shares if their impact is dilutive.
7
Cash and cash equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Contract receivables
Contract receivables are recorded based on progress billings, representing amounts billed to customers under contractual arrangements for goods and services provided The Company assesses contract receivables for collectability and establishes an allowance for doubtful accounts to reflect amounts estimated to be uncollectible.
The allowance for doubtful accounts is based on a periodic review of aged receivables and the creditworthiness of each customer. Factors considered include historical collection experience, customer credit risk, and current economic conditions. Adjustments to the allowance are made based on management’s assessment of collection efforts and the likelihood of recovery.
As of September 30, 2024, and December
31, 2023, the allowance for doubtful accounts was $
Indefinite lived intangibles and goodwill assets
The Company accounts for business combinations using the acquisition method in accordance with ASC 805, “Business Combinations.” The purchase price is allocated to identifiable tangible and intangible assets acquired, and liabilities assumed, based on their estimated fair values at the acquisition date. Any excess of the purchase price over the fair value of the acquired net assets is recorded as goodwill. The purchase price allocation may be adjusted within one year as new information becomes available.
Goodwill and indefinite lived intangibles assets are tested for impairment annually in the fourth quarter, or more frequently if events indicate potential impairment, in accordance with ASC 350, “Intangibles – Goodwill and Other.” The impairment test involves a qualitative or quantitative assessment to determine if the carrying amount exceeds the asset’s fair value.
As of September 30, 2024, and 2023, the Company determined that no impairment existed.
Prepaid expenses
Prepaid expenses represent payments made by the Company in advance for goods or services that provide future economic benefits. These amounts are recorded as assets upon payment and subsequently expensed over the periods in which the related benefits are realized, in accordance with the matching principle.
As of September 30, 2024, and December
31, 2023, the prepaid expenses balance was $
Property and equipment
Property and equipment are recorded at cost. Upon disposal, the asset’s cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in the income statement. Maintenance and repairs costs are expensed as incurred, while expenditures that significantly improve or extend the useful life of the assets are capitalized.
| Estimated Life | ||
| Machinery and equipment | ||
| Furniture, fixtures and computer equipment | ||
| Computer software | ||
| Vehicles | ||
| Leasehold improvements |
8
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Machinery and equipment | $ | $ | ||||||
| Computer equipment and software | ||||||||
| Vehicles | ||||||||
| Demo Units | ||||||||
| Furniture and fixtures | ||||||||
| Leasehold improvements | ||||||||
| Gross property and equipment | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Net property and equipment | $ | $ | ||||||
The Company reviews long-lived assets for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. If indicators are present, the carry value is compared to fair value, and any excess is recognized as an impairment charge in accordance with ASC 360, “Property, Plant, and Equipment.”
Depreciation expenses for the nine
months ended September 30, 2024, and 2023, were $
Leases
The Company accounts for leases in accordance with ASC 842, “Leases”. At lease inception, the Company determines whether an arrangement contains a lease. Operating leases are recorded as Right-Of-Use (“ROU”) assets, current lease liabilities, and non-current lease liabilities on the consolidated balance sheets.
ROU assets represent the Company’s right to use an asset for the lease term, while lease liabilities represent the obligations to
make lease payments. These assets and liabilities are recognized at the lease commencement date, measured by the present value of the
lease payments. As the implicit rate is not readily determinable, the Company uses the incremental borrowing rate.
Lease expense is recognized on a straight-line basis over the lease term. Short-term leases (12 months or less) do not result in recognition of ROU asset or lease liability recognition, provided no purchase option is reasonably certain to be exercised.
Certain lease agreements include variable lease payments, such as those adjusted for inflation or usage, which are recognized in the period in which the triggering event occurs and are not included in the initial lease liability measurement.
Further details regarding the Company’s leases, including future lease payments, and lease liabilities, are provided in Footnote 4 - Leases.
Long term asset held for sale
The Company recognized the sale of real property in Buenos Aires, Argentina, which was transferred to the Company in 2021 in exchange for Series T Preferred Stock issued under a Securities Purchase Agreement (“SPA”). For further details on the transaction, including the initial recognition, impairments, and final sales terms, refer to Footnote 12- Assets Held for Sale – Continuing Operations.
As of September 30, 2024, the outstanding
receivable balance related to the sale was $
9
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation.” Stock options and warrants issued to employees and non-employees for services and financing costs are measured at fair value.
For employees, the fair value is determined at the grant date and recognized as expense over the vesting period, typically using the Black-Scholes model.
For non-employees, the fair value is measured at the earlier of (a) the performance commitment date or (b) when the performance is complete. Compensation is recognized over the vesting period, or immediately if there are no future performance obligations.
Derivatives
The Company evaluates all financial instruments to determine if they qualify as derivatives or contain embedded derivative features. Derivatives are initially recorded at fair value and are revalued at each reporting date, with changes in fair value recognized in the consolidated statements of operations.
For stock-based derivatives, the Company uses a Binomial lattice option pricing model to value the instruments at inception and on subsequent valuation dates.
The classification of derivatives as liabilities or equity is reassessed at each reporting period. Derivative liabilities are classified as current or non-current based on the likelihood of net-cash settlement within 12 months of the balance sheet date.
Fair value of financial instruments
The Company measures certain financial instruments at fair value in accordance with ASC 820, which provides a framework for measuring fair value. Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date.
ASC 820 outlines a three-tier fair value hierarchy that prioritizes the inputs used in valuations:
| ● | Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities. | |
| ● | Level 2: Inputs other than quoted prices, including observable market data for similar assets or liabilities in active or inactive markets. | |
| ● | Level 3: Unobservable inputs requiring the use of significant assumptions or models. |
| Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Investment at fair value-securities, September 30, 2024 | $ | $ | $ | $ | ||||||||||||
| Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Convertible notes liability | $ | $ | $ | $ | ||||||||||||
| Warrants liability | ||||||||||||||||
| Total derivative liability, September 30, 2024 | ||||||||||||||||
10
| Balance as of January 1, 2024 | $ | |||
| Net loss on conversion of debt and change in derivative liabilities | ||||
| Balance as of September 30, 2024 | $ |
| September 30, 2024 | ||
| Risk free interest rate | ||
| Stock volatility factor | ||
| Weighted average expected option life (in years) | ||
| Expected dividend yield |
Segment Reporting
The Company operates in a single reporting segment, as its organizational structure and management approach evaluate the business as a unified operation. This single-segment manger reflects the manner in which the Company’s Chief Operating Decision Maker assesses performance and allocates resources.
Marketable Securities
The Company adopted ASU 2016-01, “Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities.” This standard requires investments, except those under the equity method or resulting in consolidation of the investee, to be measured at fair value, with changes in fair value recognized in net income. It also mandates the use of the exit price notion for fair value measurement and requires separate presentation of the financial assets and liabilities by measurement category and form.
The Company evaluated the impact of this standard and determined it had a significant effect on the condensed consolidated financial statements. The Company accounts for its investment in Water Technologies International, Inc. as available-for-sale securities, with unrealized gains recognized in net income.
Licensing agreement
The Company evaluated its licensing agreement under ASU 606 to determine the timing of revenue recognition. The licensing of intellectual property (“IP”) is distinct from the non-license goods or services, with significant standalone functionality that provides value to the customer. Since this functionality is delivered immediately, and does not change during the license period, revenue is generally recognized upon delivery of the license.
11
Reclassification
Certain amounts from prior period financial statements have been reclassified to align with the presentation used in the current condensed consolidated financial statements for comparative purposes. These reclassifications had no material effect on the Company’s previously issued financial statements.
Work-in-process
The Company records accumulated costs for work-in-process as an asset for projects expected to be delivered to customers. These costs include materials and labor related to the construction of equipment to be sold.
Recently issued accounting pronouncements
Management has reviewed recently issued, but not yet effective, accounting standards and does not expect them to have a material impact on the accompanying condensed financial statements if adopted.
| 2. | WODI Assets and Liabilities Held-for-Sale, Discontinuing Operations |
On September 21, 2023, WODI entered into a merger agreement with PWT, to enhance enterprise value in anticipation of a potential merger with FRLA. As part of the merger, PWT rebranded to Water on Demand and entered discussions with FRLA to acquire all outstanding securities of the combined WODI/PWT entity, subject to certain financial and business conditions. The preliminary LOI is non-binding and provides a framework for good faith negotiations.
On October
24, 2023, WODI and FRLA executed a definitive Business Combination Agreement (the “BCA”), estimated a proforma equity valuation
of approximately $
On February 14, 2024, the Company and FRLA filed a registration statement on Form S-4 with the SEC, which includes a preliminary proxy statement and prospectus for the proposed business combination with WODI.
Classification ad Held-For-Sale and Discontinued Operations
In accordance with ASC 205-20, the assets, liabilities, and operating results of WODI, including those associated with the lease of Sherman, Texas facility (See Footnote 3 – Leases for lease specifics) are classified as held-for-sale and discontinued operations as of September 30, 2024. This classification reflects a strategic shift expected to significantly impact the Company’s financial results The classification meets all held-for-sale criteria under ASC 205-20, as follows:
| ● | Management has committed to a plan to sell the entity. |
| ● | The entity is available for immediate sale in its current condition |
| ● | An active program to locate a buyer and finalize the sale is underway. |
| ● | The sale is probable, withing one year. |
| ● | The entity is marked for sale at a reasonable price relative to fair value. |
12
Financial Statement Impact and Comparability Adjustments
As a result of the held-for-sale classification, WODI’s assets, liabilities, and operating results have been reclassified as held-for-sale and discontinued operations on the balance sheet and income statement as of September 30, 2024. The prior period condensed consolidated financial statements as of December 31, 2023, have been restated for comparability. Net losses for held-for-sale operations are presented as a sperate line item in both the current and prior periods to facilitate comparability.
As the proposed business combination meets all these criteria, WODI’s assets, liabilities, and operating results have been reclassified as held-for-sale as of September 30, 2024. The prior period condensed consolidated financial statements, ending December 31, 2023, have been adjusted for comparability.
Assets and Liabilities Held-for-Sale
Major categories of assets and liabilities included
in the held-for-sale classification are separately presented on the balance sheet.
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Contracts receivable, net allowance of $ | ||||||||
| Contract assets (Note 7) | ||||||||
| Right-of-use asset, net | ||||||||
| Prepaid expenses | ||||||||
| Other receivable | ||||||||
| Total Current Assets Held-For-Sale | ||||||||
| NET PROPERTY AND EQUIPMENT HELD-FOR-SALE | ||||||||
| NON-CURRENT ASSETS HELD-FOR SALE | ||||||||
| SPAC Class B common shares purchase cost (Note 10) | ||||||||
| Security deposit | ||||||||
| Total Non-Current Liabilities Held-For-Sale | ||||||||
| CURRENT LIABILITIES HELD-FOR-SALE | ||||||||
| Accounts payable and other payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Customer deposit | ||||||||
| Secured loans payable | ||||||||
| Lease liabilities, current | ||||||||
| Contract liabilities (Note 7) | ||||||||
| Warranty reserve | ||||||||
| Tax Liability |
| |||||||
| Line of credit (Note 11) | ||||||||
| Convertible secured promissory notes (Note 6) | ||||||||
| Total Current Liabilities Held-For-Sale | $ | $ | ||||||
| NONCURRENT LIABILITIES HELD-FOR-SALE | ||||||||
| Lease liabilities, non current | ||||||||
| Total Non-Current Liabilities Held-For-Sale | $ | $ | ||||||
13
Net loss from Assets Held-for-Sale
The operating results and net loss from assets held-for-sale are reported in a separate line on the income statement. The presentation isolates the impact of the discontinued operations on overall financial performance for both the current and prior period comparatives.
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross Profit | ( | ) | ||||||||||||||
| Operating Expenses | ||||||||||||||||
| Selling and marketing expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Loss from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Other income | ||||||||||||||||
| Impairment of receivable from SPAC | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Conversion and settlement value added to note purchase agreements (see Note 6) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Preferred stock compensation expense | ( | ) | ( | ) | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| TOTAL OTHER (EXPENSE) INCOME | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET LOSS FROM ASSETS-HELD-FOR-SALE | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 3. | Leases |
The Company leases production facilities
under a non-cancelable operating lease agreement. The facility located at 5225 W Houston Sherman, Texas commenced on July 1, 2024, and
is classified as an operating lease, in accordance with ASC 842, Leases. The lease has a term of
As noted in Footnote 2, WODI Assets and Liabilities Held-for-Sale, this lease is included in the held-for-sale classification due to the Company’s strategic business combination plans. The lease details below remain relevant for the current period per ASC 205-20, until the completion of the sale.
Right-of-Use (ROU) Asset and Lease Liability
At lease commencement, the Company
recorded a Right-of-Use (ROU) asset and corresponding lease liability, both measured at the present value of lease payments over the lease
term, discounted using an incremental borrowing rate of
14
Lease balances as of September 30, 2024
| Description | Amount | |||
| Right of Use Asset, net | $ | |||
| Lease Liability - current portion | ||||
| Lease liability - non-current portion | ||||
| Total lease liability | $ | |||
Lease Expense
For the quarter ended September 30, 2024, the Company recognized the following lease-related expenses in COGS, as the facility is directly related to production:
| ● | Amortization of ROU Asset $ |
| ● | Interest expense $ |
Future Minimum Lease Payments
| Period | Amount | |||
| Remainder of 2024 | $ | |||
| Year 1 | ||||
| Year 2 | ||||
| Year 3 | ||||
| Year 4 | ||||
| Year 5 and thereafter | ||||
| Total Lease Payments | $ | |||
| Less: Present Value Discount | ( | ) | ||
| Total Lease Liability | $ | |||
Other Lease Disclosures
The Company has no significant options to extend or terminate the lease beyond its contractual terms. The lease agreement does not include any purchase options, nor are there any residual value guarantees associated with the lease.
| 4. | Capital Stock |
OriginClear, Inc. Preferred Stock
Series C Preferred Stock
On March 14, 2017, the Board of Directors
authorized the issuance of
15
Series D-1 Preferred Stock
On April 13, 2018,
Series F
On August 14, 2018,
Series G
On January 16, 2019,
Series I
On April 3, 2019,
Series J
On April 3, 2019,
Series K
On June 3, 2019,
Series L
On June 3, 2019,
16
Series M
On July 1, 2020,
Series O
On April 27, 2020,
During the nine months ended September
30, 2024, the Company issued
Series P
On April 27, 2020,
The Series P preferred stock entitles
holders to payment on an as-converted and pari-passu basis with common stock upon liquidation. The Series P preferred stock has no preemptive
or subscription rights, and there is no sinking fund or redemption provisions. These shares vote on as-converted basis with the common
stock, subject to the beneficial ownership limitation. As of September 30, 2024,
Series Q
On August 21, 2020,
17
During the nine months ended September
30, 2024, the Company issued
Series R
On November 16, 2020,
During the nine months ended September
30, 2024, the Company issued
Series S
On February 5, 2021,
During the nine months ended September
30, 2024, the Company issued
Series U
On May 26, 2021,
As of September 30, 2024, there were
18
Series W
On April 28, 2021,
During the nine months ended September
30, 2024, the Company issued
Series Y
On December 6, 2021,
During the nine months ended September
30, 2024, the Company received funding of $
The Company also issued
As of September 30, 2024, there were
Series Z
On February 11, 2022,
As of September 30, 2024, the Company
accrued dividends in the amount of $
During the nine months ended September 30, 2024, the Company
redeemed
The Series J, Series L, Series M, Series O, Series P, Series Q, Series R, Series S, Series U, Series W, Series Y, and Series Z preferred stock are accounted for outside of permanent equity due to the terms of conversion at a market component or stated value of the preferred stock.
19
WODI Preferred Stock
As a result of WODI’s merger with PWT on September 21,
2023 (See Note 10), all previously issued series of WODI preferred stock were fully converted into WODI common stock. As of December
31, 2023, and September 30, 2024, there were
OriginClear, Inc. Common Stock
Nine Months Ended September 30, 2024
The Company issued
The Company issued
The Company issued
The Company issued
The Company issued
The Company redeemed
The Company also issued
Nine Months Ended September 30, 2023
The Company
issued
The Company
issued
The Company
issued
The Company
issued
The Company issued
The Company
issued
The Company
issued
The Company redeemed
20
WODI Common Stock
As of September 30, 2024, WODI had
| WODI common stock holders | Ownership % | |||
| OriginClear, Inc. | % | |||
| Prior Reg A Holders | % | |||
| Prior Series A Holders | % | |||
| Prior Series B Holders | % | |||
| Total | % | |||
| 5. | Restricted Stock Grants and Warrants |
Restricted Stock Grants to CEO, the Board, Employees and Consultants
Between May 12, 2016, and August 4, 2022, the Company entered into Restricted Stock Grant Agreements (“RSGAs”) with its CEO, Board members, employees, and consultants as part of its performance incentive program. These shares are performance-based and are issued upon achieving the following milestones:
| ● | Consolidated
gross revenue of $ |
| ● | Consolidated
operating profit of $ |
The Company has not recognized any costs associated with these milestones, as achieving them is currently considered not probable.
On August 14, 2019, the Board approved an alternative vesting schedule, amended on January 26, 2022. This schedule adjusts the number of vested shares to maintain the original fair market value if the stock price on the vesting date is lower than on the RSGA’s effective date. Once performance milestone are met, vesting reverts to the original terms.
During the nine months ended September 30, 2024, the Company issued
Warrants
During the nine months ended September
30,2024, the Company issued a total of
As of September 30,2024, the derivative
liability for warrants was $
21
| Weighted | ||||||||
| average | ||||||||
| Number of | exercise | |||||||
| Warrants | price | |||||||
| Outstanding - beginning of period | $ | | ||||||
| Granted | $ | |||||||
| Exercised | $ | |||||||
| Expired | ( | ) | $ | |||||
| Outstanding - end of period | $ | |||||||
| Weighted | ||||||||||||||
| Average | ||||||||||||||
| Remaining | ||||||||||||||
| Exercisable | Warrants | Warrants | Contractual | |||||||||||
| Prices | Outstanding | Exercisable | Life (years) | |||||||||||
| $ | 0.0200 | |||||||||||||
| $ | 0.0275 | |||||||||||||
| $ | 0.1000 | |||||||||||||
| $ | 0.1250 | |||||||||||||
| $ | 0.2500 | |||||||||||||
| $ | 1.0000 | |||||||||||||
| $ | 0.0100 | |||||||||||||
| 6. | Convertible Promissory Notes |
OriginClear, Inc.
| Convertible promissory notes | $ | |||
| Less current portion | ||||
| Total long-term liabilities | $ |
22
| Period ending September 30, | Amount | |||
| 2024 (remaining 3 months) | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| $ | ||||
2014-2015 Notes
Issued between November 2014 through
April 2015, these unsecured convertible promissory notes (“2014-2015 Notes”) were extended to mature between November 2023
and April 2026. The notes bear interest at 10% per year and may be converted into common stock at the lesser of $
OID Notes
As of September 30, 2024, unsecured
original issue discount (“OID”) notes had a remaining balance of $
2015 Notes
The Company issued unsecured convertible
promissory notes (“2015 Notes”) on various dates, with the last issued in August 2015. The maturity dates were extended to
February 2026 through August 2026, with an interest rate of
Dec 2015 Note
The Company issued a convertible note
(“Dec 2015 Note”) in exchange for accounts payable totaling $
Sep 2016 Note
The Company issued a convertible note
(the “Sep 2016 Note”) in exchange for accounts payable of $
23
Nov 2020 Note
On November 19, 2020, the Company issued
an unsecured convertible promissory note (“Nov 2020 Note”) for $
Jan 2021 Note
On January 25, 2021, the Company issued
an unsecured convertible promissory note (“Jan 2021 Note”) for $
Evaluation of Convertible Promissory Notes
The Company assessed its convertible
promissory notes under ASC Topic
Derivative Liability
As of September 30, 2024, the derivative
liability related to the convertible promissory notes was $
WODI
During the nine months ended September 30, 2024, WODI raised $
| 7. | Revenue from Contracts with Customers |
Equipment Contracts
Revenue from equipment contracts is recognized over time as performance obligations are satisfied, in accordance with ASC 606, Revenue from Contracts with Customers. Under ASC 606, revenue and profit are recognized as t control of goods and services transfer to the customer. Un-allocable indirect costs and corporate general and administrative costs are charged as incurred, and any foreseeable losses are recognized when determined.
24
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Equipment Contracts | $ | $ | ||||||
| Component Sales | ||||||||
| Pump Stations | ||||||||
| Waste Water Treatment Systems | ||||||||
| Services Sales | ||||||||
| Commission & Training | ||||||||
| Rental Income | ||||||||
| Internet Sales | ||||||||
| $ | $ | |||||||
Revenue from continuing operations
was $
Revenue recognition for components and service sales remains materially consistent with prior periods.
Contract assets represent revenue recognized in excess of amounts billed, while contract liabilities represent billings in excess of recognized revenue. Both are classified as current on the balance sheet, as they are expected to be settled in the normal course of contract completion.
As of September 30, 2024, the contract
asset was $
| 8. | Financial Assets |
Fair value investment in Securities
On May 15, 2018, the Company received
On
November 12, 2021, the Company converted the preferred stock into
| 9. | Loans Payable |
Secured Loans Payable
In 2018, the Company entered into short-term
secured loans totaling $
On December 6, 2023, the Company obtained
an additional short-term secured loan of $
25
Settlement of Liability with C6 Capital LLC
On March 12, 2021, the Company, through
its subsidiary PWT, settled a dispute with C6 Capital LLC. As part of the settlement, C6 Capital vacated its judgement, released all encumbrances
fully discharging the Company from further obligations. A gain of $
Small Business Administration Loan
The Company received an Economic Injury Disaster Loan (“EIDL”)
of $
Receivables Financing Agreement
On May 13, 2024, the Company entered
into a Future Receivables Agreement with Lee Advance LLC, receiving $
Related Party Loans Payable
As of September 30,2024, the Company issued two-promissory notes to its Chief Executive Officer, reviewed and approved by the Board under the Company’s Related Party Transaction Policy for general corporate purposes.
The first note, issued on
The second note, issued on
For further information regarding these related party transactions, see Footnote 14 – Related Party.
| 10. | WODI |
WODI was incorporated in Nevada on April 22, 2022. Supported by its parent company, WODI is developing an outsourced water treatment business called WOD, which offers private businesses the ability to pay for water treatment services on a per-gallon basis (“DBOO:). WODI intends to work with regional water service companies to build and operate the water treatment systems it finances.
On November 16, 2022, WODI filed a
Form 1-A Offering Circular for a Regulation A offering (the “WODI Reg A Offering”) with the SEC. The minimum investment was
$
26
Acquisition of Fortune Rise Sponsor LLC
On December 22, 2022, WODI acquired
Business Combination with FRLA
On January
5, 2023, WODI and FRLA signed a non-binding LOI for a potential business combination. The LOI allowed for the negotiation of a definitive
agreement, which would result in a merger between WODI and FRLA. WODI funding two extensions of FRLA’s deadline to complete its
business combination; the second extension, requiring a $
On April 14, 2023, FRLA and WODI entered into a definitive Business Combination Agreement to acquire the newly combined WODI/PWT entity.
Asset Purchase Agreement
On April 14,
2023, WODI entered into an Asset Purchase Agreement with the Company to acquire all assets related to MWS business. The acquired assets
include licenses, technology, intellectual property, contracts, business models, patents and other assets, in exchange for
Merger with PWT
On September 21, 2023, WODI merged with its subsidiary PWT. As part
of this merger, all WODI common and preferred stock were exchanged for PWT shares. After the merger, OCLN, WODI’s parent company,
received
Promissory Notes
From
December 22, 2022, through September 30, 2024, WODI and the Company made payments of $
Recording of membership interest
As of September
30, 2024, WODI recorded the purchase of Class B Founder Shares at lower of cost or market value, of $
27
Impairment analysis for Class B Common Founder Shares
The Company engaged an independent valuation firm to assess the fair value of the FRLA Sponsor Shares as of as of December 31, 2023. The valuation firm undertook the following procedures:
| ● | Analyzed the Company’s S-4 filing, business combination agreement, and other relevant documents. |
| ● | Developed a Monte Carlo Model simulation model with | |
| ● | Developed the discounted cash flow model based on the sale of securities at the time the restrictions expire. | |
| ● | Applied probability-weighted the cash flows, discounting for lack of marketability. |
| ● | Valued the FRLA Sponsor Founder Shares as of the date of valuation. |
Based on the analysis, the independent firm concluded that there was no impairment in the value of the FRLA Sponsor Founder Shares.
Restricted Stock Grants
Between August 12, 2022, and August
3, 2023, WODI entered into RSGAs with its Board members, employees, and consultants, providing for the issuance of up to
| 11. | Line of Credit |
During the year ended December 31,
2023, the Company secured 12-month credit lines of $
| 12. | Assets Held for Sale – Continuing Operations |
On March 1,
2021, the Company issued
In 2022, after
evaluating market offers, the Company accepted an offer of $
In January
2023, the Company finalized the sale of the property for $
28
| 13. | Commitments and Contingencies |
Facility Rental
The Company’s subsidiary, PWT,
leases a
Warranty Reserve
PWT provides a warranty on its projects,
generally covering defects in materials and workmanship for one year from the project’s completion date. Certain components of construction
may have warranties extending beyond one year. The Company maintains insurance policies deemed sufficient by management to cover potential
warranty claims. A warranty reserve of $
Litigation
There are no material updates to the litigation matters with Process Solutions, Inc. as previously disclosed in the Form 10-K filed on April 18, 2024.
| 14. | Related Party |
As of September 30, 2024, the Company issued two promissory notes to its Chief Executive Officer, T. Riggs Eckleberry:
Promissory Note for $
On
Promissory Note for $
On
Both promissory notes were reviewed and approved by the Company’s Board of Directors in accordance with the Company’s Related Party Transaction Policy. The proceeds from the notes will be used for general corporate purposes.
Takeoff Services Inc
On September 9th, 2024, CEO T. Riggs Eckelberry, EVP Kenneth A. Berenger and VP Marking AJ Fikejs became partners in a separate company called Takeoff Services Inc. (TSI). The purpose of TSI is to assist early-stage companies in their funding. This is not a function of the Company and there is no transfer of assets intended. TSI and the Company are currently negotiating a collaboration under a non-binding MOU pursuant to which OCLN can select TSI client companies for incubation and acceleration, reinforcing its historical role. Additional benefits are expected to accrue to the Company, such as reduction in rents as the Pittsburg facility where funding activities take place and continuously improving market experience and leads for its own funding, all resulting from TSI’s work with other client companies.
Shares issued for Alternative Vesting
During the nine months ended September
30, 2024, the Company issued
| 15. | Subsequent Events |
Management has evaluated subsequent events in accordance with ASC Topic 855 and has identified the following subsequent events:
On October 4, 2024,
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 was founded in 2007 under the name OriginOil® and began trading on the OTC markets in 2008. In 2015, the company rebranded as OriginClear® to reflect its evolving mission of developing breakthrough businesses in the industrial water sector. Today, OriginClear operates as the Clean Water Innovation Hub™ (“CWIB”), leveraging its expertise in retail investor development to bring potentially disruptive water technologies s to market. Currently, OriginClear is focused on advancing the success of its subsidiary, Water On Demand, Inc. (WODI).
In 2023, OriginClear consolidated three of its operating units into the WODI subsidiary in anticipation of a merger with Fortune Rise Acquisition Corp (“FRLA”) a Special Purpose Acquisition Company. The definitive merger agreement between WODI and FRLA was announced on October 24, 2023: https://www.originclear.com/company-news/originclears-water-on-demand-and-fortune-rise-acquisition-corporation-announce-business-combination-to-create-nasdaq-listed-company.
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WODI comprises three distinct operating units, Modular Water Systems (“MWS”), Progressive Water Treatment (“PWT”), and Water on Demand (“WOD”), the last being a development-stage business.
| ● | PWT: This unit generates the largest portion of the Company’s revenue by providing engineered water treatment solutions and custom treatment systems. |
| ● | MWS: Water On Demand Inc. holds an exclusive master license to the intellectual property (IP) of Daniel M. Early, which includes five patents and related intellectual property, know-how and trade secrets (“Early IP”). In April 2023, an independent valuation of the Early IP estimated its nominal value between $26.6 million and $53.2 million. MWS’s product offerings are uniquely differentiated by this IP, further enhanced by additional proprietary knowledge. . |
| ● | WOD: This unit in development aims to offer private businesses water self-sustainability as a service – allowing them to pay for water treatment and purification services on a per-gallon basis – a model commonly known as Design-Build-Own-Operate (“DBOO”). The Company is currently in active negotiations with two potential showcase sites for a DBOO installation. |
Water Businesses
As the Clean Water Innovation Hub™ (“CWIB”), the Company is focused on developing and incubating businesses that create valuable properties within the water industry and beyond. The mission of CWIB is to drive innovation through an incubation process that results in a launch of impactful spinoffs, contributing to the global water industry.
Currently, OriginClear’s mission as CWIB is to:
| 1. | Support the Post-Merger Rollout of the WODI: OriginClear will assist in the transition of WODI post-merger, including a proposed management services contract with WODI. This contract is intended to be phased out over time as WODI establishes its own internal team and capabilities. |
| 2. | Facilitate WODI’s Acquisition Strategy: OriginClear is actively supporting WODI in executing its planned aggressive acquisitions plan, both before and after the SPAC merger (noting that there is no assurance of success for either the merger or planned acquisitions); |
| 3. | Initiate Non-Binding Acquisition Agreements: OriginClear is working to secure non-binding agreements for WODI or the post-merger entity to acquire related businesses, contingent upon the outcome of the Business Combination Agreement (“BCA”) process. |
| 4. | Accelerate New Business Ventures: For its own account, OriginClear aims to accelerate the creation of new businesses, as it did with MWS in 2018 and with WOD in 2021, or through strategic acquisitions, as it did with PWT in 2015. In this new phase, the Company may also explore projects outside the water industry. |
On April 2, 2024, OCLN announced a strategic partnership with entrepreneur Kevin Harrington, a co-founding board member of the Entrepreneur’s Organization, to elevate global awareness of OriginClear’s Regulation A crowdfunding campaign, which is currently in registration. www.originclear.com/company-news/its-official-investors-can-now-join-kevin-harrington-the-original-shark-on-shark-tank-to-champion-water-innovation/ www.sec.gov/Archives/edgar/data/1419793/000109690624001442/ocln_1aa.htm Kevin Harrington, through Kevin Harrington Enterprises, is compensated with fees and options to purchase stock in OriginClear, Inc. and Water On Demand, Inc.
Water On Demand
The Company is developing an outsourced water treatment business called Water On Demand (“WOD”), which is operated through its subsidiary, Water on Demand, Inc. (“WODI”). The WOD model aims to provide private businesses with water self-sustainability as a service, allowing them to pay for water treatment and purification services on a per-gallon basis. A percentage of net profits from this service is planned to be distributed to investors and stakeholders. This model, commonly referred to as Design-Build-Own-Operate or “DBOO”, is currently under evaluation through pilot opportunities. These pilots will explore outsourced water treatment as a managed service, offering an alternative to significant up-front capital investment for in-house wastewater treatment. Recently, the Company announced agreements with Enviromaintenance, a water services company, and Klir, a utility network software provider, to develop a WOD commercial pilot in the Mobile Home Park (MHP) sector.
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WODI intends to delegate the servicing and maintaining of the units it builds, to established service organizations under long-term contracts. On April 6, 2022, WODI reached an agreement in principle with its first intended contractor, 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). A second partnership was initiated with service provider, Enviromaintenance (see below). While future resources for maintaining and servicing these systems may come from acquisitions, no such acquisitions are actively being planned at this time.
WODI believes the delegation of service and maintenance to long-term partners strategy could enable rapid scaling of the WOD program, while also creating a significant barrier to entry for potential competitors. WODI may also license its designs to local water equipment companies, reserving for itself what it believes is the highly-scalable (and profitable) fintech role. The Company is currently in active negotiations with two potential showcase sites for a DBOO installation.
At the time of this filing, the WOD division of WODI has no dedicated staff or independent resources. WODI’s other divisions, PWT and MWS, employ a total of 32 people. The Board of Directors of OriginClear serves as the Board for WODI, with OriginClear’s CEO and CFO also serving in those roles for WODI. Under a planned management services arrangement, OCLN plans to provide WODI with staffing and administrative resources, in exchange for funding related to WODI’s prospective merger with FRLA and certain special distributions.
On February 15, 2024, the Company and Fortune Rise Acquisition Corporation (Nasdaq: FRLA), a Special Purpose Acquisition Company (SPAC), announced the filing of a registration statement on Form S-4 with the SEC which includes a preliminary proxy statement and prospectus in connection with the proposed business combination with OCLN subsidiary Water On Demand (WODI), an investor-funded service offering decentralized water management solutions and technologies to businesses and communities, potentially without the burden of upfront capital expenditures. WODI is a subsidiary of OriginClear, Inc. (OTC Other: OCLN). https://www.originclear.com/company-news/originclears-water-on-demand-and-fortune-rise-acquisition-corporation-seek-to-combine-under-form-s-4-registration-statement.
On March 26, 2024, the Company announced the signing of a Memorandum of Understanding (MOU) between MWS and Enviromaintenance of Georgetown, TX, to collaborate on the planned Water On Demand pilot program focusing on MHP in the Greater Central Texas Region. https://www.originclear.com/company-news/originclears-modular-water-systems-and-enviromaintenance-partner-for-water-on-demand-pilot-program
On April 9, 2024, the Company announced the selection of Klir, Inc. (www.klir.com) to support its planned Water On Demand pilot program, also focusing on MHP in the Greater Central Texas Region. https://www.originclear.com/company-news/modular-water-systems-and-klir-partner-for-water-on-demand-pilot-program.
Progressive Water Treatment Inc.
PWT is a Dallas-area based company specializing in the design, construction and service of a wide range of industrial water treatment applications. PWT aims to provide a comprehensive, end-to-end solution to meet growing corporate demand for outsourced water treatment services. Recently, PWT moved from its McKinney, TX headquarters to a new headquarters located at 5225 W Houston St, Sherman TX 75092. A grand opening was held on Tuesday, October 8, as announced here: https://www.originclear.com/company-news/progressive-water-treatment-inc-announces-the-grand-opening-of-its-new-and-expanded-headquarters-in-sherman-texas/.
PWT designs and manufactures a complete line of water treatment systems for municipal, industrial and pure water applications. What sets PWT apart is its ability to thoroughly understand each customer’s unique needs and then design and deliver a turnkey water treatment system that integrates multiple technologies, resulting in a complete and tailored solution.
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PWT utilizes a diverse array of technologies in its turnkey systems, including chemical injection, media filtrations, membrane technology, ion exchange and SCADA (supervisory control and data acquisition) systems. In addition to system design and construction, PWT offers a broad range of services, including maintenance contracts, retrofits, and replacement assistance. PWT rents equipment under contracts of varying duration.
PWT primarily serves customers in the United States and Canada, but its reach extends globally with projects ranging from Siberia to Argentina to the Middle East.
Modular Water Systems
MWS offers a distinctive line of prefabricated water transport and treatment systems. The division is led by Daniel “Dan” Early, a Professional Engineer (“Early”). On June 25, 2018, Early granted the Company a worldwide, exclusive, non-transferable license to the technology and knowhow behind MWS (See “Intellectual Property”). A consulting agreement between the Company and Early also provided for assignment of inventions from that date. A ten-year renewal on May 20, 2020 expanded the right to include sublicensing rights and the ability to create manufacturing joint ventures. On 9 June 2023, Early signed a new, ten-year license agreement with WODI which assigned these rights to WODI and updated Early’s terms of compensation.
MWS, with PWT and other companies as fabricators and assemblers, designs, manufactures, and delivers prefabricated water transport systems, including pump and lift stations under the EveraMOD™ brand, as well as wastewater treatment plant (“WWTP”) products under the EveraSKID™ and EveraTREAT™ brands. These systems serve customers and end-users who need to treat their own wastewater, such as schools, small communities, institutional facilities, real estate developments, factories, and industrial parks.
On August 12, 2022, the Company announced the inaugural delivery and installation of its pre-engineered EveraBOX™ , which implements a low-risk Liquid Ammonium Sulfate (LAS) disinfectant system for Pennsylvania’s Beaver Falls Municipal Water Authority (BFMA). As with other MWS products, EveraBOX is manufactured using cost-effective, durable materials such as High-Density Polyethylene (HDPE) or Polypropylene (PP) materials, also known as Structural Reinforced Thermoplastic Pipe (SRTP). These materials have shown resilience against supply chain challenges affecting metal and fiberglass construction.
On January 10, 2024, OCLN Plastic Welding and Fabrication, Ltd. (PWF) of Buda, Texas, jointly announced a MOU for a strategic partnership between OriginClear’s subsidiary, WODI, and PWF. https://www.originclear.com/company-news/originclears-water-on-demand-in-strategic-partnership-with-the-intent-to-acquire-manufacturer-for-its-proprietary-modular-products.
PWF is already a key fabricator of highly durable, patent-based enclosures for MWS, the technology division of WODI that designs and develops scalable systems for self-contained water treatment and transportation. This MOU strengthens the strategic relationship, enabling MWS to build its complete water systems on-site where the enclosures are manufactured, ensuring maximum efficiency and speed.
Additionally, the parties signed a Letter of Intent (LOI) outlining a framework to negotiate a definitive agreement for WODI to acquire PWF. If completed, this acquisition would establish the first in-house manufacturing facility for WODI’s MWS division, with the expectation that it be accretive. However, the parties caution that negotiations are in an early stage and may not succeed.
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On March 26, 2024, OCLN announced the signing of a MOU between MWS and Enviromaintenance of Georgetown, TX, to collaborate on the sales of standardized systems in the Greater Central Texas Region, from Waco to San Antonio. Enviromaintenance (www.enviromaintenance.com) is a leading provider of large community scale-on-site wastewater treatment and disposal systems, with a significant market presence in the MHP industry in the greater Austin area. The company plans to recommend MWS’s fully integrated, modular wastewater treatment systems to MHPs and other commercial water users, offering owners an affordable, reliable and efficient way to treat their wastewater. https://www.originclear.com/company-news/originclears-modular-water-systems-and-enviromaintenance-partner-for-water-on-demand-pilot-program.
On October 15, 2024, the Company announced that MWS delivered its highly durable EveraMOD™ pump station package to a large-scale wastewater upgrade project in Big Beaver Borough, Pennsylvania. https://www.originclear.com/company-news/revolutionary-pump-station-solution-solves-long-term-wastewater-infrastructure-challenge/
Patents and Intellectual Property
On June 25, 2018, Dan Early granted the Company a worldwide, exclusive, non-transferable license to intellectual property, which includes five issued U.S. patents, as well as design software, CAD files, marketing materials, and design and specification documents (collectively referred to as “Early IP”).
On May 20, 2020, the license was renewed for an additional ten years, with the possibility of three-year extensions. The renewal also granted the Company the rights to sublicense the Early IP, and, with approval, to establish ISO-compliant manufacturing joint ventures.
As part of the sale of MWS assets to WODI on April 14, 2023, the license to the Early IP was included. On 9 June 2023, Early signed a new, ten-year license agreement with WODI which assigned these rights to WODI and updated Early’s terms of compensation.
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:
| # | Description | Patent No. | Date Patent Issued |
Expiration Date | ||||
| 1 | Wastewater System & Method | US 8,372,274 B2 Applications: WIPO, Mexico |
02/12/13 | 07/16/31 | ||||
| 2 | Steel Reinforced HDPE Rainwater Harvesting | US 8,561,633 B2 | 10/22/13 | 05/16/32 | ||||
| 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 Pump Station CIP | US 9,217,244 B2 | 12/22/15 | 10/20/31 |
On May 10, 2021, OCLN announced the filing of a patent application titled “System And Method For Water Treatment Incentive”, which utilizes blockchain technology and non-fungible tokens (NFT) to streamline the distribution of payments for outsourced water treatment and purification services, billed on a pay-per-gallon basis ahead of inflation.
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As demand grows for localized, point-of-use or point-of-discharge water treatment solutions, the MWS licensed IP family has become the foundation for a portable, integrated, transportable, plug-and-play system. Unlike other packaged solutions, these systems can be manufactured in series, having a longer lifespan and are more environmentally friendly.
The common feature of this IP family is the use of Structural Reinforced ThermoPlastic, for the containers, that offers several advantages:
| ● | Durability: An estimated life cycle of 75 to 100-year life years, compared to a few decades for metal and r 40 to 50 years for concrete. | |
| ● | Ease of Manufacture: The manufacturing process for these vessels can be automated. | |
| ● | Reliability: The materials are recyclable and can be made out of biomaterials. |
Patent No. 8,372,274 specifically relates to the use of vessels or containers made from this material, combined with a configuration of functional modules or processes for general water treatment.
Although Patent Nos. 8,561,633 and 8,871,089 have expired, the Company believes they may be reinstated. Patent No. 8,561,633 is a stormwater filtration patent not directly related to the MWS business model, while Patent No. 8,871,089 is a Continuation-in-Part (CIP) of the original Patent No. 8,372,274. The original patent, along with Patent No. 9,217,244, forms the basis of the current MWS business, so the status of the CIP is not considered material.
Subsequent patents, which build upon the original claims, focus on more targeted applications. These patents describe specific combinations of modules engineered within the vessel to address specific water treatment challenges.
With the spinoff of WODI and its operating divisions, the Company no longer holds patents directly but retains access to the licensed patents through WODI. The licensed intellectual property includes five issued US patents, and design software, CAD files, marketing materials, and design and specification documents. In addition, a consulting agreement with Early provides for assignment of inventions made since 2018.
On May 10, 2021, the Company announced the filing of the “System And Method For Water Treatment Incentive” patent application, which uses blockchain technology and non-fungible tokens (NFT) to facilitate the distribution of payments for outsourced water treatment and purification services billed on a pay-per-gallon basis ahead of inflation. The application is currently provisional.
The ORIGINCLEAR trademark application was registered as U.S. Trademark Registration 7,296,730, issued on February 6, 2024. Additionally, the ORIGINCLEAR logo trademark application was registered as U.S. Trademark Registration 7,296,731, issued on February 6, 2024.
Other trademarks in process of registration include:
OriginClear Inc. filings
| ● | $H20 |
| ● | WATERPRNEUR |
| ● | CLEARAQUA |
| ● | THE WATER COIN FOR THE WORLD |
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| ● | WATER – THE BLUE GOLD |
| ● | THE CLEAN WATER INNOVATION HUB |
| ● | ARMY OF US |
| ● | WATER ON THE ROCKS |
Water on Demand Inc. filings
| ● | WATER LIKE AN OIL WELL |
The Company relies on, and expects to continue relying on, a combination of confidentiality agreements with employees, consultants, and third parties, as well as trademark, copyright, patent, trade secret, and domain name protection laws, to protect its proprietary rights.
New Role of the Company
In its role as the CWIB, the Company aims to create, incubate, and accelerate businesses in the water industry, and potentially expand into other sectors.
Following the successful spinoff of its three major properties into a company that achieved a $32 million valuation in the BCA on October 24, 2023, the Company now intends to replicate similar successes with other ventures. In these new ventures, the Company may take an equity position, in addition to charging management fees.
The Company’s primary strength lies in its ability to help capitalize these businesses through retail corporate development activities, guide them to achieve commercial proof of concept and scalability, and to assist with mergers and acquisitions.
However, the Company cautions that identifying suitable candidates for this new role may be challenging. Even if such candidates are identified, there is no guarantee they will become partners or achieve commercial success. For the foreseeable future, The Company remains focused on financing, developing, and supporting of its subsidiary, WODI.
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.
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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 the Company believes 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 December 31, 2023, the amounts reported for cash, prepaid expenses, accounts payable and accrued expenses approximate the fair value because of their short maturities.
Results of Operations for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.
Revenue and Cost of Sales
Revenue for the three months ended September 30, 2024, and 2023 was $0 and $6,573, respectively. Cost of sales for the three months ended September 30, 2024, and 2023, was $6,439 and $6,582, respectively, resulting in a gross loss of $(6,439) in 2024 compared to $(9) in 2023.
Selling and Marketing Expenses
For the three months ended September 30, 2024, we incurred selling and marketing expenses of $731,792, compared to $470,231 for the three months ended September 30, 2023. The increase of $261,561 in selling and marketing expenses was primarily due to a expanded marketing activities during 2024.
General and Administrative Expenses
For the three months ended September 30, 2024, we incurred general and administrative expenses of $530,651 compared to $477,619 for the three months ended September 30, 2023. The increase of $53,032 was mainly driven by higher costs associated with outside services.
Other Income and (Expenses)
Other income and (expenses) was $1,092,372 for the three months ended September 30, 2024, compared to $(821,147) for the same period in 2023, representing an improvement of $1,913,519. This increase was primarily driven by a gain of $756,395 from changes in fair value of derivative liabilities and the conversion of debt, along with a $443,880 gain on stock conversion, offset by a minor unrealized loss on investment securities of $4,521.
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Net Income/(Loss)
Our net income (loss) improved by $528,473 to $(2,774,476) for the three months ended September 30, 2024, compared to net loss of $(3,302,949) for the three months ended September 30, 2023. This improvement in net income is primarily attributable to gains in other income, including a $756,395 gain from the net change in the fair value of derivative liabilities and conversion of debt, and a $443,880 gain on stock conversion.
The estimates for the fair value of derivative instruments are based on multiple inputs, including the market price of our stock, interest rates, stock price volatility, variable conversion prices defined in the respective agreements, and the 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 September 30, 2024 compared to the nine months ended September 30, 2023.
Revenue and Cost of Sales
For the nine months ended September 30, 2024, we generated revenue of $6,573 compared to $19,719 for same period in 2023. The cost of sales for the nine months ended September 30, 2024, was $19,573 compared to $19,735 for the nine months ended September 30, 2023.
Our gross loss was $13,000 and $16 for the nine months ended September 30, 2024, and 2023, respectively.
Selling and Marketing Expenses
For the nine months ended September 30, 2023, we incurred selling and marketing expenses of $1,864,350, compared to $1,872,486 for the same period in 2023. The $8,136 decrease in selling and marketing expenses was primarily due to a decrease in marketing expenses.
General and Administrative Expenses
General and administrative expenses were $2,154,524 for the nine months ended September 30, 2024, compared to $2,263,216 for the same period in 2023. The decrease of $108,692 in general and administrative expenses was primarily due to professional and legal fees including non-cash, shares for services expense and outside services.
Other Income and (Expenses)
Other income and (expenses) increased by $13,073,396 resulting in a total of ($4,567,880) for the nine months ended September 30, 2024, compared to $8,505,516 for the same period in 2023. The increase was primarily due to a $7,403,246 decline in the net change of derivative liability and conversion of debt. Additionally, there was a decrease of $5,389,415 in gains on conversion of stock. These were partially offset by a $30,646 gain on the write-off of loans payable.
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Net Income/(Loss)
Our net loss increased by $6,985,421 for the nine months ended September 30, 2024, compared to net loss of $(8,077,985) for the same period in 2023. The change in net loss was primarily due to a decrease in the gain on the net change in derivative liability and conversion of debt, which increased by $7,403,246. Additionally, there was a decrease in interest and dividend expense by $214,744, along with a gain on the write-off of loans payable $30,646 and a gain of $1,699,058 from the conversion of stock, both of which positively impacted other income (expense) for the nine months ended September 30, 2024.
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 expenditure.
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 raises 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 ending September 30, 2024. 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 the case of equity financing.
In connection with our prior 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.
As of September 30, 2024, and December 31, 2023, we had cash and cash equivalents of $44,182 and $114,640, respectively. The working capital deficit was $44,003,800 on September 30, 2024, compared to $32,249,892 on December 31, 2023. The increase in the working capital deficit was due primarily to an increase in non-cash derivative liabilities, current liabilities held-for-sale, and accrued expenses, partially offset with a decrease in convertible promissory notes.
During the period ended September 30, 2024, we raised an aggregate of $995,100 from the sale of preferred stock in private placements and $2,642,701 from WODI convertible secured promissory notes and warrants. Our ability to continue as a going concern is dependent upon raising capital from financing transactions and future revenue.
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Net cash used in operating activities was $(3,145,012) for the nine months ended September 30, 2024, compared to $(1,283,296) for the prior period ended September 30, 2023. The increase in net cash used in operating activities was primarily driven by a significant gain on the net change in valuation of derivative liabilities amounting to $5,837,116 in 2024 compared to $1,238,686 in 2023, contributing to reduced cash outflow. Additionally, the impairment of receivable from SPAC decreased to $1,580,508 in 2024 from $3,260,985 in 2023.
Net cash flows used in investing activities was $(1,495,008) for the nine months ended September 30, 2024, compared to $(3,006,485) for the same period in 2023. The decrease in cash used in investing activities was primarily due to a reduction in the purchase of SPAC notes payable, which decreased to $1,580,508 in 2024 from $3,260,985 in 2023. Additionally, there were payments received in long-term assets amounting to $99,000 in 2024 compared to $268,000 in 2023.
Net cash flows provided by financing activities was $4,395,719 for the nine months ended September 30, 2024, as compared to $7,222,992 for same period in 2023. The decrease in cash provided by financing activities was due to a reduction in proceeds from convertible secured promissory notes, which decreased to $2,642,701 in 2024 from $6,346,500 in 2023. Additionally, there was an increase in payments on the line of credit and loans, along with payments on cumulative preferred stock dividends and distributions.
Proceeds from the issues of warrants in 2024 amounted to $701,230, which were not present in 2023. Net proceeds from the issuance of preferred stock for cash increased to $995,100 in 2024 from $516,300 in 2023. 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. While the proceeds from the issuance of securities, combined with revenue from operations, are currently sufficient to fund our operating expenses in the near term, we anticipate the need to raise additional funds to sustain and expand our operations in the future. Therefore, our ability to continue operations is contingent upon securing additional financing, which may not be available on acceptable terms, or at all.
Potential financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. It’s important to note that if we do issue additional equity or debt securities, our 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 secure additional capital could significantly limit our ability to grow and might reduce our capacity to continue business operations. In the event we are unable to obtain necessary financing, we may be forced 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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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed in reports filed under the Exchange Act, is recorded, processed, summarized and reported within the required time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15f of the Exchange Act) that occurred during the fiscal quarter ended September 30, 2024 that has materially affected, or are reasonably likely to materially affect, the our internal control over financial reporting.
Limitations on Internal Controls
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
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PART II
Item 1. Legal Proceedings.
There are no material updates to the litigation matters with Process Solutions, Inc. as previously disclosed in the Form 10-K filed on April 18, 2024.
Item 1A. Risk Factors.
Not required for a smaller reporting company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
As of the date of the filing of this report, the Company has 50 shares of Series F preferred stock outstanding which the Company failed to redeem on September 1, 2020, for an aggregate redemption price (equal to the stated value) of $50,000.
As of the date of the filing of this report, the Company has 25 shares of Series G preferred stock outstanding which the Company was required to, and failed to redeem on April 30, 2021, for an aggregate redemption price (equal to the stated value) of $25,000.
As of the date of the filing of this report, the Company has 25 shares of Series I preferred stock outstanding which the Company was required to, and failed to redeem between May 2, 2021 and June 10, 2021, for an aggregate redemption price (equal to the stated value) of $25,000.
As of the date of the filing of this report, the Company has 297 shares of Series K preferred stock outstanding which the Company was required to, and failed to redeem between August 5, 2021 and March 26, 2022, for an aggregate redemption price (equal to the stated value) of $297,150.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information.
Item 6. Exhibits.
| Exhibit Number |
Description of Exhibit | |
| 31.1 | Certification by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.* | |
| 31.2 | Certification by Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.* | |
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | |
| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | |
| 101.INS | Inline XBRL Instance Document.* | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema.* | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase.* | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase.* | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase.* | |
| 101.PRE | Inline XBRL Extension Presentation Linkbase.* | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).* |
| * | Filed herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| November 19, 2024 | ORIGINCLEAR, INC. |
| /s/ T. Riggs Eckelberry | |
| T. Riggs Eckelberry | |
| Chief Executive Officer | |
| (Principal Executive Officer) and |
| /s/ Prasad Tare | |
| Prasad Tare | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
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