Friday, November 08, 2019

OriginClear: Shareholder Calls Time


Earlier this week OriginClear (OCLND:  OTC) announced the sale of a modular water system to a customer planning to set up retail operations in a rural area with no connection to municipal services.  The water treatment technology developer has struggled to gain traction for its products, so the headline was welcome news.  However, a comment posted with the news article sounded a different tone.  The poster rather snarkily points to the low price point of the water system and that after so many years in development, OriginClear needs many more than just one system sale to deliver respectable returns.
Point taken, but let’s get some facts before we dismiss OriginClear altogether.

The 'origins' of OriginClear go back twelve years to 2007 when the company was first incorporated and went by the name OriginOil.  In those early days the company’s scientists and engineers were trying to extract bio-fuel from algae.  The team developed and applied for patents on a technology they called ‘quantum fracturing.’ 
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OriginClear continued to work on a biofuel product, but by 2013 interests had shifted to clearing organic matter from large bodies of water.  The company’s Electro Water Separation process was developed to clean up the company’s algae crop, but applications in oil and gas or other water intensive industries offered even more lucrative commercial opportunities.  OriginClear began signing up original equipment manufacturers to license the technology. 
By 2015, algae-based biofuel seemed farther away than ever and the company name was changed to OriginClear to align more closely with the new objective of ‘clearing’ water of contaminants.  To accelerate penetration of the water clean-up market, OriginClear acquired Texas-based Progressive Water Treatment, a manufacturer of turn-key water treatment systems.  In the full year 2015, revenue totaled $954,470, most of which was contributed by Progress in the final two months of the year it was under the OriginClear umbrella.  
With the addition of Progressive, with its $4 million revenue run-rate, it seemed OriginClear could step up to a new level as an operating company.  The year 2016 did get off to a promising start with the signing of a contract with the Minnesota-based public utility Xcel Energy (XEL:  NYSE) for one of Progressive’s boiler feedwater treatment system.  By year-end 2016, OriginClear recorded $5.1 million in total sales  -  a record for the company.
OriginClear issued 10,000 shares of preferred stock to pay for Progressive Water Treatment.  Indeed, the company has been a frequent flyer on the stock issuance express.  Starting out with 144.2 million shares in 2007, the company now has 4.5 billion shares outstanding.  Unfortunately, the shareholder deficit has gapped to $22.2 million even after taking in a total of $64.4 million in capital from equity investors.
The equity deficit arises from the company’s accumulated losses.  Even in that year of record-breaking revenue in 2016, the net loss was $4.1 million.  Of course, cash usage by operations was a more modest $1.6 million, leaving the company’s cash balance at $351,321 at the end of 2016.  Fast forward to the most recently reported twelve months, the earnings situation has not changed for the better.  OriginClear reported a net loss of $7.9 million on $3.8 million in total sales in the twelve months ending June 2019.  Operations have become a bit more needy, requiring $3.8 million in cash from the company’s bank account to keep things moving along during those twelve months. 
Snark aside, that shareholder may have exposed an important argument in considering a position in OriginClear.  The company is not the only developer to find algae an uncooperative partner in biofuel production.  The switch to a more reasonable product line of water treatment solutions is understandable.  It is much more difficult to accept the perpetual losses and steady dilution of owners’ equity.  If OriginClear’s product line is marketable then it is time to adjust its cost structure to deliver a profit from those products.  

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.



2 comments:

GLMS said...


Such an informative post. Thank you for sharing
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