Executive Summary / Key Takeaways

• Strategic Transformation: OriginClear (OCLN) is undergoing a significant strategic pivot, shifting from a water equipment manufacturer to a "Clean Water Innovation Hub" focused on incubating and financing "Water-as-a-Service" (WaaS) solutions through its Water On Demand (WOD) subsidiary, including a new \$100 million Opportunity Zone fund.
• Operational Re-alignment: This pivot involves sunsetting the Modular Water Systems (MWS) unit to eliminate competition with equipment companies, making Progressive Water Treatment (PWT) the sole equipment revenue contributor, and concentrating resources on the WOD financing model.
• Improved Q1 Performance: The company demonstrated substantial operational improvement in Q1 2025, with revenue more than doubling to \$2.10 million and gross profit swinging to a positive \$692,614 from a prior-year loss, significantly reducing its net loss.
• Persistent Liquidity Challenges: Despite operational gains, OCLN faces substantial liquidity issues, including a \$44.49 million working capital deficit and auditors' expressed doubt about its ability to continue as a going concern, necessitating further capital raises.
• Technological Differentiators: OCLN's proprietary Electro Water Separation and Advanced Oxidation technologies offer quantifiable efficiency advantages in contaminant removal, forming a foundation for its DBOO model and differentiating it in niche water treatment applications.

The Clean Water Innovation Hub's Strategic Pivot

OriginClear, Inc. (OCLN), initially founded in 2007 as OriginOil, has evolved significantly since its 2015 rebranding, transitioning from research and development to a commercial focus in industrial water innovation. The company now positions itself as the "Clean Water Innovation Hub" (CWIH), aiming to incubate and accelerate scalable businesses within the global water industry. This strategic evolution culminates in a bold pivot towards a "Water-as-a-Service" (WaaS) model, primarily through its wholly-owned subsidiary, Water On Demand, Inc. (WODI).

The global water sector faces immense challenges, including aging infrastructure, increasing demand from industrial sectors like AI data centers, and a significant funding gap in U.S. water infrastructure. OCLN's WaaS approach, known as Design-Build-Own-Operate (DBOO), directly addresses these trends by offering decentralized water treatment solutions where customers pay on a per-gallon basis, circumventing large upfront capital expenditures. This model seeks to democratize access to advanced water treatment, fostering self-sufficiency for businesses and communities.

Technological Edge and the Water-as-a-Service Vision

OCLN's strategic shift is underpinned by its differentiated technological capabilities, historically housed within its operating units. While the Modular Water Systems (MWS) unit is being wound down to streamline operations and avoid competition with equipment providers, its proprietary technology, valued between \$26.6 million and \$53.2 million in April 2023, showcased OCLN's innovation in prefabricated, decentralized water solutions. The remaining core equipment expertise resides in Progressive Water Treatment (PWT), which designs and manufactures custom-engineered water treatment systems utilizing a range of technologies, including chemical injection, media filtration, membranes, ion exchange, and SCADA systems. PWT's 25 years of experience enable it to deliver comprehensive, customized solutions, serving as a key revenue driver.

OCLN's proprietary Electro Water Separation and Advanced Oxidation technologies are central to its value proposition. These technologies are claimed to offer 20-30% greater efficiency in contaminant removal compared to traditional methods. For instance, in high-solids wastewater, OCLN's catalytic processes can achieve 25% quicker contaminant elimination. While some of OCLN's technologies might entail a 15-20% higher upfront cost due to specialized equipment, the long-term benefits in efficiency and performance are compelling.

The WaaS model itself leverages technological innovation beyond physical equipment. OCLN has filed a patent application for a "System and Method for Water Treatment Incentive," incorporating blockchain and NFT technologies. This aims to facilitate automated payment distribution for outsourced water treatment services billed on a per-gallon basis, streamlining the financial mechanics of the DBOO model. For investors, this technological foundation provides a competitive moat, enabling OCLN to target niche applications with superior performance and potentially higher margins, while the DBOO model unlocks recurring revenue streams and addresses a critical market need for flexible water infrastructure financing.

Competitive Arena: A David vs. Goliath Battle

OriginClear operates in a competitive landscape dominated by much larger, established players like Xylem (XYL), Franklin Electric (FELE), and Energy Recovery (ERII). Xylem, a global leader in water technology, commands a significant market share (estimated 10-15%) and boasts robust financial performance, with 2024 revenue growth of 15-20% and net margins of 8-10%. Its strengths lie in its global presence, advanced R&D, and diversified portfolio, allowing it to achieve 10-15% lower operating costs per unit through integrated smart systems. OCLN's niche efficiency, while appealing to eco-focused clients, struggles against Xylem's operational dominance and scalability, potentially leading to market share erosion in shared segments.

Franklin Electric, a key player in pumps and motors, focuses on energy-efficient solutions with strong cost leadership. Its 2024 revenue grew 8-12%, with net margins of 7-9%. While OCLN's Advanced Oxidation technology offers 30-40% better removal of dissolved organics, it may entail 10-15% higher energy consumption per unit compared to Franklin Electric's efficient pump-based systems. OCLN's service-based model, generating 40-50% of its revenue from recurring contracts, contrasts with Franklin Electric's product sales focus. However, OCLN's financial lags, including lower net margins (0-5%) compared to Franklin Electric's, may limit its competitiveness in cost-sensitive segments.

Energy Recovery specializes in energy recovery devices for water treatment, particularly desalination, with impressive gross margins of 60-65% and net margins of 10-12%. Its devices offer 30-40% lower energy use per unit, making them highly attractive for cost-sensitive applications. OCLN's Electro Water Separation provides 20-25% greater solids removal efficiency, but it trails ERII in energy efficiency and overall profitability. OCLN's smaller scale and higher operating costs (10-15% higher than Xylem) and limited throughput (5-7% lower than Xylem) expose it to the efficiency of its larger rivals, risking revenue loss in competitive bids.

Indirect competitors, such as chemical treatment providers like Solenis, offer cheaper alternatives (20-30% less costly), though often less effective for microtoxins. This could erode OCLN's market share if customers prioritize cost over advanced treatment, further pressuring OCLN's revenue and margins. High R&D costs and stringent regulatory approvals (e.g., EPA standards) act as significant barriers to entry, protecting OCLN's niche but also highlighting its financial vulnerabilities compared to established players with deeper pockets.

Q1 2025 Performance: A Glimmer of Operational Improvement Amidst Transition

OriginClear's financial results for the three months ended March 31, 2025, show a notable improvement in operational performance, even as the company navigates a significant strategic transition. Revenue surged to \$2.10 million, a substantial increase of \$1.15 million (108.25%) from \$943,437 in the same period last year. This growth was primarily driven by equipment-contract revenue, which rose to \$1.51 million from \$363,358, as larger projects reached critical billing milestones. Pump-station sales also contributed positively, growing to \$316,564 from \$296,360, and component sales increased to \$258,864 from \$206,387.

The company achieved a significant turnaround in profitability, with gross profit improving to \$692,614 from a gross loss of \$112,503 in Q1 2024. This translated into a gross margin of 33.0%, a substantial improvement from -11.9% in the prior year, directly reflecting the higher sales volume and operational efficiencies within the PWT segment. Operating expenses saw a reduction, with selling and marketing expenses decreasing by 38% to \$362,992 due to lower commissions and reduced promotional activities. General and administrative expenses also slightly decreased by 3% to \$1.17 million, despite a \$126,746 bad-debt provision, primarily due to reduced legal and professional fees.

The net loss for the quarter dramatically narrowed to \$767,034, a \$15.34 million improvement from a \$16.11 million loss in Q1 2024. This impressive reduction was largely attributable to a \$1.37 million gain on the re-measurement of derivative liabilities (compared to a \$12.77 million loss in the prior year), a \$249,334 gain from the write-off of loans payable, and the absence of a \$590,000 SPAC-receivable impairment and a \$902,702 conversion-settlement charge recorded in 2024. While these gains are significant, the company notes that derivative values are highly sensitive to stock price, volatility, and interest rates, which can lead to substantial fluctuations in reported results.

Liquidity, Capital, and the Going Concern Challenge

Despite the operational improvements in Q1 2025, OriginClear continues to grapple with significant liquidity and capital resource challenges. As of March 31, 2025, the company held \$1.90 million in cash and cash equivalents, an increase from \$550,884 at the end of 2024. However, its working-capital deficit remained substantial at \$44.49 million, albeit an improvement from \$45.44 million at year-end 2024. The shareholders' deficit also improved to \$53.94 million from \$54.86 million.

Net cash used in operating activities for the quarter was \$221,342, reflecting the adjusted net loss and working capital movements, including a \$1.83 million increase in contracts receivable. Financing activities provided \$1.58 million, primarily from the issuance of Series A preferred stock and common stock through a Regulation A offering. This highlights the company's ongoing reliance on external financing to fund operations.

The auditors have expressed substantial doubt about OriginClear's ability to continue as a going concern due to recurring losses and limited cash resources. The company anticipates negative operating cash flows to persist over the next 12 months, with scheduled debt-service and lease obligations totaling approximately \$3.20 million during that period. Management's strategy to meet these obligations involves securing additional equity or convertible-debt financings, though no binding commitments are currently in place. Should these financing efforts prove insufficient, management plans to reduce discretionary spending and defer expansion projects. Furthermore, the company remains in default on \$397,150 in cumulative unpaid redemption obligations for several preferred stock series, an issue management intends to address through ongoing capital-raising and liability-management efforts.

Outlook: Forging a New Path in Water Fintech

OriginClear's future is firmly anchored in its strategic refocus on Water On Demand (WOD) as a water infrastructure financing service. This pivot, announced in May 2025, signifies a departure from competing with water equipment companies, with PWT now serving as the sole equipment revenue contributor. The company's primary focus for the foreseeable future is the development and support of WODI's financial services mission.

A key initiative in this new direction is the launch of the \$100 million Opportunity Zone Private Water Infrastructure Fund, announced in April 2025. This fund is designed to finance decentralized water treatment projects in designated Opportunity Zones, offering potential tax advantages to investors. WOD will act as the servicing organization, responsible for business development, contract origination, and project management. This strategic move aims to address the significant funding gap in U.S. water infrastructure by facilitating private investment, leveraging OCLN's expertise in the DBOO model.

The success of this new "water fintech" strategy hinges on OCLN's ability to secure the necessary capital for its fund and effectively scale its network of regional water service providers. While the termination of the SPAC merger with FRLA (FRLA) was a setback, it has allowed OCLN to refine its focus. The company intends to scale by acquiring additional staff or independent resources, building a network of partners to enable rapid expansion and establish a competitive barrier to entry in the WaaS market. The outlook, while ambitious, is fraught with the inherent risks of securing substantial financing and executing a novel business model in a capital-intensive industry.

Conclusion

OriginClear stands at a critical juncture, undergoing a profound strategic transformation from a diversified water equipment provider to a specialized water infrastructure financing entity. The recent operational improvements in Q1 2025, marked by significant revenue growth and a dramatic reduction in net loss, offer a glimpse of the potential efficiencies from this streamlined focus. The company's proprietary technologies, particularly in advanced water treatment and its innovative blockchain-enabled payment system for WaaS, provide a unique competitive edge in a market hungry for decentralized, efficient solutions.

However, the path forward is challenging. OCLN's persistent liquidity issues, substantial debt obligations, and the "going concern" doubt underscore the urgent need for successful capital raises. Its ability to execute on the \$100 million Opportunity Zone fund and scale the WOD financing model will be paramount. While OCLN is a smaller player in a field dominated by giants like Xylem and Franklin Electric, its pivot to a financing-centric, service-based model, coupled with its technological differentiators, positions it to capture a distinct segment of the burgeoning water infrastructure market. Investors should closely monitor OCLN's progress in securing financing and its execution of the WOD strategy, as these will be the ultimate determinants of its long-term viability and growth.