10-Q: OriginClear Inc. Reports Q3 2024 Results, Focuses on Water On Demand Spinoff

OriginClear, Inc. reported its third quarter 2024 results, highlighting a net loss but also progress in its Water On Demand subsidiary and strategic partnerships.

Summary

• OriginClear, Inc. reported a net loss of $2.77 million for the three months ended September 30, 2024, compared to a net loss of $3.30 million for the same period in 2023.
• The company's revenue was minimal at $0 for the quarter, compared to $6,573 in the prior year, with a cost of sales of $6,439.
• Operating expenses were significant, with selling and marketing expenses at $731,792 and general and administrative expenses at $530,651 for the quarter.
• Other income and expenses showed a gain of $1.09 million, primarily due to changes in the fair value of derivative liabilities and stock conversion gains.
• For the nine months ended September 30, 2024, the net loss was $15.06 million, compared to a net loss of $8.08 million for the same period in 2023.
• The company's revenue for the nine-month period was $6,573, with a cost of sales of $19,573.
• The company is focused on its Water On Demand (WOD) subsidiary, which is developing a pay-per-gallon water treatment service.
• WODI is in the process of a potential merger with Fortune Rise Acquisition Corp. (FRLA), with a proforma equity valuation of approximately $72 million.
• The company has classified WODI's assets and liabilities as held-for-sale, reflecting the strategic shift towards the merger.
• OriginClear is also exploring new business ventures outside the water industry, leveraging its expertise in retail investor development.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While there are some positive developments, such as the potential merger and strategic partnerships, the company's financial performance is weak, and there are significant risks and uncertainties. The company's reliance on future capital raises and the unproven nature of its business model contribute to a negative sentiment.

Positives

• The net loss for Q3 2024 improved compared to the same period in 2023.
• The company recognized a significant gain in other income and expenses due to derivative liabilities and stock conversion.
• The company is actively developing its Water On Demand business model, which could provide recurring revenue.
• Strategic partnerships are being formed to support the Water On Demand pilot program.
• The company is exploring new business ventures, which could diversify its revenue streams.
• The company has secured $995,100 from the sale of preferred stock in private placements and $2,642,701 from WODI convertible secured promissory notes and warrants.

Negatives

• The company reported minimal revenue for the quarter and nine-month period.
• Operating expenses remain high, contributing to the net loss.
• The company has a significant working capital deficit of $44 million.
• The company has a history of losses and negative cash flows from operations.
• The company's ability to continue as a going concern is dependent on raising additional capital.
• The company has defaulted on the redemption of several series of preferred stock.
• The company has a significant derivative liability of $13,345,084 related to convertible promissory notes.

Risks

• The company's ability to continue as a going concern is dependent on raising additional capital and increasing sales.
• There is no assurance that the planned merger with FRLA will be completed.
• The company faces risks related to the development and commercialization of its Water On Demand business.
• The company's derivative liabilities are subject to significant fluctuations based on market conditions.
• The company has a history of losses and negative cash flows from operations.
• The company has defaulted on the redemption of several series of preferred stock, which could lead to legal challenges.
• The company's reliance on estimates and assumptions in its financial statements could lead to material misstatements.
• The company's new business ventures may not be successful.

Future Outlook

The company anticipates the need to raise additional funds to sustain and expand its operations in the future. The company is focused on the potential merger of WODI with FRLA and the development of its Water On Demand business model.

Management Comments

• Management believes that funds raised through convertible notes and preferred stock sales, 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.
• Management is focused on the post-merger rollout of WODI and facilitating WODI's acquisition strategy.
• Management is working to secure non-binding agreements for WODI or the post-merger entity to acquire related businesses.
• Management 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.

Industry Context

The company operates in the industrial water sector, which is experiencing increasing demand for innovative and sustainable solutions. The company's focus on decentralized water treatment and pay-per-gallon service models aligns with industry trends towards more efficient and cost-effective water management.

Comparison to Industry Standards

• OriginClear's financial performance is weak compared to established players in the water treatment industry, many of whom have consistent revenue and profitability.
• Companies like Danaher (DHR) and Xylem (XYL) have significantly higher revenue and profit margins, reflecting their established market positions and diverse product portfolios.
• OriginClear's focus on a pay-per-gallon model is innovative but unproven, while companies like Veolia (VE) and Suez (SZE) have established infrastructure and long-term contracts.
• The company's reliance on retail investors for funding is atypical compared to industry leaders who have access to institutional capital.
• The company's valuation is highly dependent on the success of the WODI merger and the Water On Demand business model, which are both subject to significant risks.

Legal Proceedings

• There are no material updates to the litigation matters with Process Solutions, Inc.

Related Party Transactions

• The company issued two promissory notes to its Chief Executive Officer, T. Riggs Eckelberry, for $98,000 and $208,000.
• 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 company issued 20,937,829 shares of common stock under alternative vesting arrangements to related parties, including employees and directors.

Stakeholder Impact

• Shareholders face the risk of dilution from future equity issuances.
• Employees may be impacted by the company's financial instability and potential restructuring.
• Customers may be affected by the company's ability to deliver on its contracts and services.
• Suppliers may face risks related to the company's ability to pay its obligations.
• Creditors face risks related to the company's ability to repay its debts.

Next Steps

• The company will continue to pursue the merger of WODI with FRLA.
• The company will focus on developing and commercializing its Water On Demand business model.
• The company will seek additional financing to support its operations and growth.
• The company will explore new business ventures outside the water industry.

Key Dates

Keywords

Water On Demand, WODI, water treatment, modular water systems, Progressive Water Treatment, SPAC merger, derivative liabilities, convertible notes, preferred stock, financial results, Regulation A, Clean Water Innovation Hub