# Originclear, Inc.: Form 10-Q for the period ended Sep 30, 2024 - Company: [Originclear, Inc.](/companies/ocln.md) (CIK 1419793) - Form: 10-Q - Filed: 2024-11-19 - Accepted by EDGAR: Nov 19, 2024, 10:10 ET - Period: 2024-09-30 - Accession: 0001213900-24-099900 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/1419793/000121390024099900/ea0220672-10q_originclear.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1419793/000121390024099900/ ## Management's discussion and analysis As filed, 38,374 characters. 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. 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. 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. 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. 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. 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** - **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. 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. ### 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. ### 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. 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. ## Market risk As filed, 1,070 characters. 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. ## Controls and procedures As filed, 1,908 characters. #### 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. Filed Nov 19, 2024. Source: SEC EDGAR, the filing index for accession 0001213900-24-099900. Last ingested by Listed: Oct 24, 2026, 15:09 ET. No prices; not investment advice.