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
Overview of Business
These capabilities include: - The Intellectual Property ofDaniel M. Early , consisting of five patents and related knowhow and trade secrets, which are intended to take the place of the applications for the company's original technology developments. -Progressive Water Treatment Inc. ("PWT") a wholly-owned subsidiary based inDallas, Texas which is responsible for the bulk of the company's revenue, specializing in Engineered Solutions (custom treatment systems). - Modular Water Systems ("MWS"), a division based at PWT, which implements the Daniel M. Early Intellectual Property. 28
Water on Demand™: a new strategic direction.
At this time, the Company does not have the ability to carry out at scale the Operation & Maintenance (O&M) activities which are required to fulfill the service obligations of DBOO contracts. Our current plan is to pursue a first DBOO contract as a use case, and thereafter either develop, contract or acquire the O&M capability. The Company is currently in discussions with prospective clients for this test DBOO contract. However, no commitments have been made, and the talks may not succeed. The outsourcing program known as Water On Demand requires both funding for WOD #1, and such a first client, to launch commercially.
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Reducing Risk through Outsourcing
Inflation of water rates greatly exceeds core inflation (see Figure 2), creating a risk for managers of businesses served by municipalities. We believe this creates an incentive for self-treatment; but these businesses may lack the capital for large water plant expenditures, and the in-house expertise to manage them. Outsourcing through what we call Water on Demand™ means that these companies do not have to worry about the problem, either financing it or managing it.
As an example, in Information Technology, few companies operate their own server in-house powering their website. Rather, such servers are typically managed by professionals through a service level agreement. In the water industry, when applied to outsourced water treatment, a service level agreement is known as O&M agreement. When the vendor retains ownership of the equipment, the concept is expanded to "Own and Operate", an extension of the basic "Design and Build", for a full offering known as DBOO, which is very similar to the solar energy programs known as Power Purchase Agreements (PPAs).
Under such a plan, a business can outsource its wastewater treatment by simply signing on the dotted line; instantly avoiding most capital expense, and the trouble of managing something that is a distraction from their core business.
We believe this is financially and operationally attractive to industrial,
agricultural and commercial water users, while
The scale of these systems is relatively small: a recent analysis showed that
the 74 quotes that Modular Water Systems™ has at various stages of negotiation
for 2021 average only
Based on its analysis, the Company believes that half of its prospective clients for Modular Water Systems would approve its quotes if they could pay for their water as a monthly bill and not a capital expense.
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The Decentralization Megatrend
[[Image Removed]]
An updated report of
As municipalities continue to be underfunded (Figure 1) with rising water rates
(Figure 2), businesses are increasingly choosing to treat and purify their own
water, in a trend known as Decentralized Water, first described in the
[[Image Removed]] Figure 2 30
Small, modular systems as sold by our Modular Water Systems division meet the needs of this new segment. Indeed, an estimated two-thirds of the Modular Water Systems bidding backlog consists of such private (vs. municipal) customers.
Another benefit to pursuing private customers is that the private sector is relatively less regulated than the public sector.
A Company internal analysis has shown that as many as two-thirds of these prospective private customers (in other words, half of the overall backlog) could be candidates for outsourced water treatment which they would pay for by the gallon purified or treated, instead of paying for the capital expense up front. In other words, the Company believes such financing has the potential to increase the Company's revenues substantially, with additional service fees potentially improving profits.
This is known in the water industry as Design/Build/Own/Operate ("DBOO"), or colloquially as water equipment as a service. The Company is working to develop its own DBOO capabilities under the branding Water on Demand™ (https://www.originclear.com/water-on-demand).
The bulk of such sales opportunities are in the small size systems, averaging
Also, the portable nature of these prefabricated, drop-in-place Modular Water Systems may provide a competitive benefit for a pure service model where the equipment remains the property of the Company, because their mobility enables repossession in the event the client fails to pay their monthly bill. We believe this is a key competitive advantage.
Implementation of Water On Demand
We have taken initial steps in this new direction.
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The Company is now actively evaluating potential clients for a test of water treatment and purification services on a pay-per-gallon basis, but a first agreement has not been reached.
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$H2O™
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The basic intended use of the blockchain system is to streamline payments and eliminate human error. In this respect we believe it is very similar to J.P. Morgan's JPM Coin:
"In 2019, J.P. Morgan became the first global bank to design a network to facilitate instantaneous payments using blockchain technology - enabling 24/7, business-to-business money movement by unveiling JPM Coin." (https://www.jpmorgan.com/solutions/cib/news/digital-coin-payments).
Like JPM Coin, we plan to streamline the delivery of payment contracts that, in our case, could last for decades.
Our patent application is the first step in our development process for this blockchain system, which we expect to last at least several months. We are not currently a blockchain or cryptocurrency developer and would need to develop or contract for this capability. There is no guarantee that this effort would succeed.
Depending on the final form that H2O takes, we may encounter regulatory concerns that we cannot guarantee we will overcome. In that event, we would fall back on ordinary financial payment systems.
Future Potential of H2O
We believe $H2O could be a way to package continuous contractual profit-share
income for that investor or stakeholder's share of the life of the water
equipment, adjusted for inflation. To allow the holder to transfer or "swap" it
anytime and ultimately,
All these scenarios are highly speculative, and none may come about. In addition, there may be regulatory restrictions on the issuance and transfer of $H2O.
Prior to the commercialization of $H2O, we would need to fully address all regulatory requirements, and as covered above, this may not be possible; in which case we would use ordinary financial systems for payments to investments and stakeholders.
Water On Demand outsourced water treatment does not rely on any blockchain system for its operation, and can accomplish its operational goals using ordinary financial and currency channels.
ClearAqua™
We filed, on an intent-to-use basis, US Trademark applications on
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OriginClear Tech Group
As stated above, all of our technology and operations activities have been
centralized under
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The mission of OTG is to provide expertise and technology to help make clean water available for all. Specifically, OTG houses the following initiatives:
1. We are building a network of customer-facing water brands to expand our global market presence and our technical expertise. These include the wholly-owned subsidiary, Progressive Water Treatment, and the Modular Water Systems brand. 2. We manage relationships with partners worldwide who are licensees and business partners. 3. OTG is actively working on the ability to deliver O&M capability at scale, to support Water On Demand outsourced treatment and purification programs, and is evaluating a pilot program to achieve this. OTG intends to support the development of the $H2O blockchain system, which may replace WaterChain altogether. In 2020, the Company also completed a pilot program with a rental program of a product known as Pool Preserver™, and developed a career-building program for entrepreneurs termed Waterpreneurs™. Water As A Career remains a pilot program and the Company does not plan to expand it at this time.
Water is our most valuable resource, and the mission of OTG is to improve the quality of water and help return it to its original and clear condition.
Potential Acquisitions
Outsourcing is a fast-growing reality in water treatment. Tougher regulations,
water scarcities and general outsourcing trends are driving industrial and
agricultural water treatment users to delegate their water problem to service
providers. As Global Water Intelligence pointed out in their report on
OTG seeks to incubate or acquire businesses that help industrial water users treat their water themselves, and often reuse it. We believe that assembling a group of such water treatment and water management businesses is potentially an opportunity for significant growth and increased Company value for the stockholders.
We are particularly interested in companies which successfully execute on Design-Build-Own-Operate or DBOO.
The Company cautions that suitable acquisition candidates may not be identified and even if identified, the Company may not have adequate capital to complete the acquisition and/or definitive agreement may not be reached. Internally-incubated businesses, similarly, may not become commercial successes.
To support the new DBOO and acquisition goals, on
Prasad brings over 15 years of experience in public accounting, financial reporting, risk and internal controls advisory services. His skillset includes Company-wide risk assessments to improve focus to critical areas as well as more efficient and effective audit activities.
OTG Milestones
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With the PWT and future potential acquisitions, the creation of the Modular Water Systems division as an integral part of PWT, and integrating its proprietary technology, OTG aims to offer a complementary, end-to-end offering to serve growing corporate demand for outsourced water treatment.
PWT's Business
Since 1995, PWT has been designing and manufacturing a complete line of water treatment systems for municipal, industrial and pure water applications. PWT designs and manufactures a complete line of water treatment systems for municipal, industrial and pure water applications. Its uniqueness is its ability to gain an in-depth understanding of customer's needs and then to design and build an integrated water treatment system using multiple technologies to provide a complete, not partial solution.
To help address customer needs, PWT utilizes a wide range of technologies,
including chemical injection, media filters, membrane, ion exchange and SCADA
(supervisory control and data acquisition) technology in turnkey systems. The
Company also offers a broad range of services including maintenance contracts,
retrofits and replacement assistance. In addition, PWT rents equipment in
contracts of varying duration. Customers are primarily served in
PWT Milestones
In the first quarter of 2019, the Company increased the number of the manufacturer's representatives for its operating units, PWT and Modular Water Systems ("MWS").
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In the first nine months of 2021, PWT received
34 Modular Water Systems
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With PWT and other companies as fabricators and assemblers, MWS designs,
manufactures and delivers prefabricated water transport (pump stations) and
wastewater treatment plant ("WWTP") products to customers and end-users that
have to clean their own wastewater. It uses Structurally Reinforced
Thermoplastic ("SRTP") materials to focus on patented developing water and
wastewater collection, conveyance, and treatment systems that have high
performance and sustainability. Typical customers may include schools, small
communities, institutional facilities, real estate developments, factories, and
industrial parks.
MWS designs, manufactures and implements advanced prepackaged wastewater treatment, pump stations and custom systems with primary focus on decentralized opportunities away from the very competitive large municipal wastewater treatment plants. These decentralized opportunities include: rural communities, housing developments, industrial sites, schools and many more.
Today, MWS is fully integrated with PWT in
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After just eight days, the lagoon exhibited rapid improvement in water quality (see before and after image), which is continuing.
35 [[Image Removed]]
In the first nine months of 2021, MWS received
Orders are only an indication of future revenue.
Patents
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We may contract with distribution channels (equipment distributors, oil service companies, water treatment companies, system integrators and engineering companies) of our choice to act on our behalf for the purpose of selling and integrating the Early IP.
The Early IP consists of combined protection on the materials and configurations of complete packaged water treatment systems, built into containers. The parents consist of the following: Date Patent Expiration # Description Patent No. Issued Date 1 Wastewater System & Method US 8,372,274 B2 02/12/13 07/16/31 Applications: WIPO, Mexico 2 Steel Reinforced HDPE Rainwater US 8,561,633 B2 10/22/13 05/16/32 Harvesting 3 Wastewater Treatment System CIP US 8,871,089 B2 10/28/14 05/07/32 4 Scum Removal System for Liquids US 9,205,353 B2 12/08/15 02/19/34 5 Portable, Steel Reinforced HDPE US 9,217,244 B2 12/22/15 10/20/31 Pump Station CIP 36
With the rising need for local, point-of-use or point-of-discharge water treatment solutions, the Modular Water Systems licensed IP family is the core to a portable, integrated, transportable, plug-and-play system that, unlike other packaged solutions, can be manufactured in series, have a longer life and are more respectful of the environment.
The common feature of this IP family is the use of a construction material (SRTP or Structural Reinforced ThermoPlastic), for the containers that is:
? more durable: an estimated 75 to 100-year life cycle as opposed to a few decades for metal, or 40 to 50 years maximum for concrete; ? easier to manufacture: vessels manufacturing process can be automated; and ? recyclable and can be made out of biomaterials
In addition, patents US 8,372,274 and US 8,871,089 (1 and 3) relate to the use of vessels or containers made out of this material combined with a configuration of functional modules, or process, for general water treatment.
Other subsequent patents, while keeping the original claims and therefore making them stronger, focus on more targeted applications. These patents outline a given combination of modules engineered inside the vessel to address a specific water treatment challenge.
Expansion of the PWT and MWS Business-Lines
Beginning with its first installation, PWT built MWS components. PWT and MWS are now fully integrated as a single profit and manufacturing center.
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Critical Accounting Policies
Revenue Recognition
We recognize revenue when services are performed, and at the time of shipment of products, provided that evidence of an arrangement exists, title and risk of loss have passed to the customer, fees are fixed or determinable, and collection of the related receivable is reasonably assured.
Revenues and related costs on construction contracts are recognized as the performance obligations for work are satisfied over time in accordance with Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers. Under ASC 606, revenue and associated profit, will be recognized as the customer obtains control of the goods and services promised in the contract (i.e., performance obligations). All un-allocable indirect costs and corporate general and administrative costs are charged to the periods as incurred. However, in the event a loss on a contract is foreseen, the Company will recognize the loss, as it is determined. Revisions in cost and profit estimates during the course of the contract are reflected in the accounting period in which the facts for the revisions become known. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions, and final contract settlements, may result in revisions to costs and income, which are recognized in the period the revisions are determined.
37 Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include estimates used to review the Company's goodwill, impairments and estimations of long-lived assets, revenue recognition on percentage of completion type contracts, allowances for uncollectible accounts, inventory valuation, valuations of non-cash capital stock issuances and the valuation allowance on deferred tax assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Fair Value of Financial Instruments
Fair value of financial instruments requires disclosure of the fair value
information, whether or not recognized in the balance sheet, where it is
practicable to estimate that value. As
Results of Operations for the three months ended
Revenue and Cost of Sales
For the three months ended
Our gross profit (loss) was
Selling and Marketing Expenses
For the three months ended
General and Administrative Expenses
For the three months ended
Research and Development Cost
For the three months ended
38 Other Income and (Expenses)
Other income and (expenses) increased by
Net Income/(Loss)
Our net income increased by
Results of Operations for the nine months ended
Revenue and Cost of Sales
For the nine months ended
Our gross profit was
Selling and Marketing Expenses
For the nine months ended
General and Administrative Expenses
General and administrative expenses were
Research and Development Cost
Research and development cost for the nine months ended
39 Other Income and (Expenses)
Other income and (expenses) increased by
Net Income/(Loss)
Our net loss for the nine months ended
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.
The condensed consolidated financial statements have been prepared on a going
concern basis of accounting, which contemplates continuity of operations,
realization of assets and liabilities and commitments in the normal course of
business. The accompanying condensed consolidated financial statements do not
reflect any adjustments that might result if the Company is unable to continue
as a going concern. The Company has not generated significant revenue, and has
negative cash flows from operations, which raise substantial doubt about the
Company's ability to continue as a going concern. The ability of the Company to
continue as a going concern and appropriateness of using the going concern basis
is dependent upon, among other things, raising additional capital and increasing
sales. We obtained funds from investors during the nine months ending
In connection with our sale of Series M Preferred Stock conducted under Regulation A under the Securities Act, we may be subject to claims for rescission. If this occurs, it may have a negative effect on our liquidity.
At
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During the nine months ended
Net cash used in operating activities was
Net cash flows used in investing activities for the nine months ended
Net cash flows provided by financing activities was
We do not have any material commitments for capital expenditures during the next twelve months. Although our proceeds from the issuance of securities together with revenue from operations are currently sufficient to fund our operating expenses in the near future, we will need to raise additional funds in the future so that we can maintain and expand our operations. Therefore, our future operations are dependent on our ability to secure additional financing, which may not be available on acceptable terms, or at all. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we may have to curtail our marketing and development plans and possibly cease our operations.
We have estimated our current average burn, and believe that we have assets to ensure that we can function without liquidation for a limited time, due to our cash on hand, growing revenue, and our ability to raise money from our investor base. Based on the aforesaid, we believe we have the ability to continue our operations for the immediate future and will be able to realize assets and discharge liabilities in the normal course of operations. However, there cannot be any assurance that any of the aforementioned assumptions will come to fruition and as such we may only be able to function for a short time.
Off-Balance Sheet Arrangements
We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity or capital expenditures.
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