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
Pursuant to this new mission,
? The Intellectual Property of
five patents and related knowhow and trade secrets, which are intended to take
the place of the applications for the company's original technology
developments. ? The brand, Modular Water Systems (MWS), featuring products differentiated by the Early IP and complemented with additional knowhow and trade secrets. MWS is in commercial operation and operates as a division ofProgressive Water Treatment, Inc. ("PWT"), a wholly owned subsidiary of the Company based inMcKinney, Texas . The Company is currently developing MWS as a discrete line of business for an eventual spinoff. In addition, the Company intends to separate theEveraMOD Pump Station product line as a standalone business. ? PWT is responsible for the bulk of the company's revenue, specializing in engineered water treatment solutions and custom treatment systems. We believe that PWT has knowhow with intellectual property potential. 28
?
Water On Demand ("WOD").
o The WOD model intends to offer private businesses water self-sustainability as
a service.
o Four subsidiaries have been established to house capital dedicated to this
program ("the WOD Subsidiaries").
o On
off its Water On Demand business into a newly formed wholly-owned subsidiary,
intellectual property and business operations of the Water On Demand business.
As they are subject to a security guaranty by the Company, the WOD Subsidiaries, and the capital raised for them through the Company's Series Y offering, shall continue to be held by the Company. This capital will be made available to WODI to be deployed, subject to a planned management contract.
Developing Water Businesses
The Company develops and incubates businesses in its role as the Clean Water Innovation Hub™ ("CWIB"). The mission of CWIB in general, is to create valuable properties through an incubation process that results in the launching of valuable spinoffs that add value to the world's water industry.
The first such spinoff was on
Further businesses can be expected to be spun off, as the Company announced on
"The launch of Water on Demand is the first of several anticipated business property spinoffs…Other Company business properties include Modular Water Systems, which owns a master license to five key international patents for prefabricated, highly-durable modular water treatment and pumping products. Being a proprietary technology, MWS frequently qualifies as "Basis of Design" for projects, which means that competitors cannot easily undercut MWS."
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(https://www.originclear.com/company-news/originclear-to-launch-water-on-demand-fintech-startup)
CWIB ongoing operations include:
1. Building a line of customer-facing water brands to expand global market presence and technical expertise. These include the wholly-owned subsidiary,Progressive Water Treatment, Inc. , and the Modular Water Systems brand. 2. Managing relationships with partners worldwide who are licensees and business partners. 3. Developing the capability of partners to build systems and to deliver Operation & Maintenance ("O&M") capability at scale, to support Water On Demand outsourced treatment and purification programs. 4. Continue to study the streamlining of water assets and royalties through the blockchain, as part of the $H2O™ concept. 5. Prepare properties for eventual spinoff.
Water is our most valuable resource, and the mission of CWIB is to improve the quality of water and help return it to its original and clear condition.
Milestones
On
On
PWT's Business
Since 1995, PWT has been designing and manufacturing a complete line of water treatment systems for municipal, industrial and pure water applications. PWT designs and manufactures a complete line of water treatment systems for municipal, industrial and pure water applications. Its uniqueness is its ability to gain an in-depth understanding of customer's needs and then to design and build an integrated water treatment system using multiple technologies to provide a complete solution for its customers.
PWT utilizes a wide range of technologies, including chemical injection, media
filters, membrane, ion exchange and SCADA (supervisory control and data
acquisition) technology in turnkey systems. PWT also offers a broad range of
services including maintenance contracts, retrofits and replacement assistance.
In addition, PWT rents equipment in contracts of varying duration. Customers are
primarily served 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").
30
On
On
On
On
In the first half of 2022, PWT and MWS in combination, received
Modular Water Systems
On
With PWT and other companies as fabricators and assemblers, MWS designs, manufactures and delivers prefabricated water transport (pump and lift stations) under the EveraMOD™ brand; and wastewater treatment plant ("WWTP") products under the EveraSKID™ and EveraTREAT™ brands to customers and end-users which are required to clean their own wastewater, such as schools, small communities, institutional facilities, real estate developments, factories, and industrial parks.
On
In 2021, MWS received
In the first half of 2022, MWS received
On
Water on Demand™: a new strategic direction.
31
The Company intends to pilot a first DBOO contract and thereafter, work with regional water service companies to build and operate the water treatment systems it finances. Additional financing hubs could be set up in world financial centers.
Delegating the building and operating of WOD-financed systems to regional water companies under performance contract, with the aim of developing a network of such partners, is expected to enable rapid scale-up of the WOD program, and the partner network would create a high barrier to entry for competitors.
On
The Company stipulates that it has excluded the WOD Subsidiaries, and all capital already raised and to be raised in the future in its Series Y offering, from this assignment of assets and will make the capital available as part of a planned management contract. The Company intends to also register a Regulation A offering by WODI which is intended to accumulate capital for WODI to direct toward WOD projects.
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
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The Decentralization Megatrend
[[Image Removed]] Figure 1
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
33 [[Image Removed]] Figure 2
Small, modular systems as sold by our Modular Water Systems division meet the needs of this new segment.
We believe that our ability to deliver modular systems gives us a competitive advantage over larger water companies when it comes to DBOO for smaller systems.
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 some degree of repossession in the event the client fails to pay their monthly bill. We believe this is a key competitive advantage.
Finally, we could license MWS technology to Water On Demand operating partners under contract to design, build and operate systems, thus achieving both acceptance of such technology and a standardized "fleet" of installed systems. While desirable, the Company does not consider this licensing to be mission-critical to the success of WOD.
Implementation of Water On Demand
We have taken initial steps in this new direction.
On
In
34
The Company requires funding in order to execute on its Water on Demand
initiative. As of the period ended
The Company is now actively evaluating potential clients for a test of water treatment and purification services on a pay-per-gallon basis, but a first agreement has not been reached.
On
(https://www.originclear.com/company-news/originclear-and-envirogen-to-partner-on-water-on-demand)
On
On
Advisory Support for
In
$H2O™
On
On
On
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).
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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 crypto currency developer and would need to develop or contract for this capability. There is no guarantee that this effort would succeed. There is no active development effort for $H2O. Depending on the final form that $H2O takes, we may encounter regulatory concerns that we cannot guarantee we will overcome. In that event, we would fall back on ordinary financial payment systems. Neither our Water on Demand or other current business models rely on any blockchain system for operation, and we can accomplish our operational goals using ordinary financial and currency channels. The Company does not intend to incorporate a blockchain system in any registered offering.
ClearAqua™
We filed, on an intent-to-use basis, US Trademark applications on
Potential Acquisitions and Incubations
CWIB seeks to incubate or acquire businesses that help industrial water users achieve water self-sustainability. We believe that assembling a group of such water treatment and water management businesses is potentially an opportunity for spinoffs and increased Company value for the stockholders.
We are particularly interested in companies which successfully execute on
Design-Build-Own-Operate or DBOO. These companies are growing fast, because
tougher regulations, water scarcities and general outsourcing trends are driving
industrial and agricultural water treatment users to delegate their water
problem to service providers. As Global Water Intelligence pointed out in their
report on
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.
Patents and Intellectual Property
On
On
36 The Early IP consists of combined protection on the materials and configurations of complete packaged water treatment systems, built into containers. The patents consist of the following: Date Patent Expiration # Description Patent No. Issued Date 1 Wastewater System & Method US 8,372,274 B2 02/12/13 07/16/31 Applications: WIPO, Mexico 2 Steel Reinforced HDPE US 8,561,633 B2 10/22/13 05/16/32 Rainwater Harvesting 3 Wastewater Treatment System US 8,871,089 B2 05/07/32 CIP 10/28/14 4 Scum Removal System for US 9,205,353 B2 12/08/15 02/19/34 Liquids 5 Portable, Steel Reinforced US 9,217,244 B2 12/22/15 10/20/31 HDPE Pump Station CIP
On
With the rising need for local, point-of-use or point-of-discharge water treatment solutions, the Modular Water Systems licensed IP family is the core to a portable, integrated, transportable, plug-and-play system that, unlike other packaged solutions, can be manufactured in series, have a longer life and are more respectful of the environment.
The common feature of this IP family is the use of a construction material (Structural Reinforced ThermoPlastic), for the containers that is:
? more durable: an estimated 75 to 100-year life cycle as opposed to a few decades for metal, or 40 to 50 years maximum for concrete; ? easier to manufacture: vessels manufacturing process can be automated; and ? recyclable and can be made out of biomaterials
In addition, patents US 8,372,274 and US 8,871,089 (1 and 3) relate to the use of vessels or containers made out of this material combined with a configuration of functional modules, or process, for general water treatment.
Other subsequent patents, which build upon the original claims, focus on more targeted applications. These patents outline a given combination of modules engineered inside the vessel to address a specific water treatment challenge.
Expansion of the PWT and MWS Business-Lines
In
Beginning with its first installation, PWT built MWS components. The Company is
currently developing MWS as a discrete line of business for an eventual spinoff,
and MWS systems are built and assembled by a network of fabrication partners. In
addition, the Company is developing the
Critical Accounting Policies
37 Revenue Recognition
We recognize revenue when services are performed, and at the time of shipment of products, provided that evidence of an arrangement exists, title and risk of loss have passed to the customer, fees are fixed or determinable, and collection of the related receivable is reasonably assured.
Revenues and related costs on construction contracts are recognized as the performance obligations for work are satisfied over time in accordance with Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers. Under ASC 606, revenue and associated profit, will be recognized as the customer obtains control of the goods and services promised in the contract (i.e., performance obligations). All un-allocable indirect costs and corporate general and administrative costs are charged to the periods as incurred. However, in the event a loss on a contract is foreseen, the Company will recognize the loss, as it is determined. Revisions in cost and profit estimates during the course of the contract are reflected in the accounting period in which the facts for the revisions become known. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions, and final contract settlements, may result in revisions to costs and income, which are recognized in the period the revisions are determined.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include estimates used to review the Company's goodwill, impairments and estimations of long-lived assets, revenue recognition on percentage of completion type contracts, allowances for uncollectible accounts, inventory valuation, valuations of non-cash capital stock issuances and the valuation allowance on deferred tax assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Fair Value of Financial Instruments
Fair value of financial instruments requires disclosure of the fair value
information, whether or not recognized in the balance sheet, where it is
practicable to estimate that value. As of
Results of Operations for the three months ended
Revenue and Cost of Sales
For the three months ended
Our gross profit was
Selling and Marketing Expenses
For the three months ended
38
General and Administrative Expenses
For the three months ended
Other Income and (Expenses)
Other income and (expenses) decreased by
Net Income/(Loss)
Our net loss decreased by
Results of Operations for the six months ended
Revenue and Cost of Sales
For the six months ended
Our gross profit was
Selling and Marketing Expenses
For the six months ended
General and Administrative Expenses
General and administrative expenses were
Other Income and (Expenses)
Other income and (expenses) decreased by
39 Net Income/(Loss)
Our net loss for the six 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 six 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
During the period ended
Net cash used in operating activities was
Net cash flows used in investing activities for the six months ended
Net cash flows provided by financing activities was
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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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