OriginClear (OCLN) Risk Analysis

23 Followers

Public companies are required to disclose risks that can affect the business and impact the stock. These disclosures are known as “Risk Factors”. Companies disclose these risks in their yearly (Form 10-K), quarterly earnings (Form 10-Q), or “foreign private issuer” reports (Form 20-F). Risk factors show the challenges a company faces. Investors can consider the worst-case scenarios before making an investment. TipRanks’ Risk Analysis categorizes risks based on proprietary classification algorithms and machine learning.

OriginClear disclosed 30 risk factors in its most recent earnings report. OriginClear reported the most risks in the “Finance & Corporate” category.

Risk Overview Q4, 2023

Risk Distribution

53% Finance & Corporate

13% Tech & Innovation

10% Legal & Regulatory

10% Ability to Sell

7% Production

7% Macro & Political

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.

Risk Change Over Time

2022

S&P500 Average

Sector Average

Risks removed

Risks added

Risks changed

OriginClear Risk Factors

New Risk (0)

Risk Changed (0)

Risk Removed (0)

No changes from previous report

The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.

The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.

Risk Highlights Q4, 2023

Main Risk Category

Finance & Corporate

With 16 Risks

Finance & Corporate

With 16 Risks

Number of Disclosed Risks

No changes from last report

S&P 500 Average: 31

No changes from last report

S&P 500 Average: 31

Recent Changes

0Risks added

0Risks removed

0Risks changed

Since Dec 2023

0Risks added

0Risks removed

0Risks changed

Since Dec 2023

Number of Risk Changed

-1

From last report

S&P 500 Average: 3

-1

From last report

S&P 500 Average: 3

See the risk highlights of OriginClear in the last period.

Risk Word Cloud

The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.

Risk Factors Full Breakdown - Total Risks 30

Finance & Corporate

Total Risks: 16/30 (53%)Above Sector Average

Share Price & Shareholder Rights8 | 26.7%

Share Price & Shareholder Rights - Risk 1

Shares eligible for future sale may adversely affect the market.

From time to time, certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended (the "Securities Act"), subject to certain limitations. In general, pursuant to Rule 144, non-affiliate stockholders may sell freely after six months subject only to the current public information requirement. Affiliates may sell after six months subject to the Rule 144 volume, manner of sale (for equity securities), and current public information and notice requirements. Any substantial sales of our common stock pursuant to Rule 144 may have a material adverse effect on the market price of our common stock.

Share Price & Shareholder Rights - Risk 2

The price of our common stock is volatile, which may cause investment losses for our stockholders.

The market for our common stock is highly volatile and subject to wide fluctuations in response to, among other things, quarterly variations in operating and financial results, and general economic and market conditions. In addition, statements or changes in opinions, ratings, or earnings estimates made by brokerage firms or industry analysts relating to our market or relating to us could result in an immediate and adverse effect on the market price of our common stock. The highly volatile nature of our stock price may cause investment losses for our shareholders. In the past, securities class action litigation has often been brought against companies following periods of volatility in the market price of their securities. If securities class action litigation is brought against us, such litigation could result in substantial costs while diverting management's attention and resources.

Share Price & Shareholder Rights - Risk 3

There is a limited public market for our common stock.

Our common stock is not listed on any national securities exchange. Accordingly, investors may find it more difficult to buy and sell our shares than if our common stock was traded on an exchange. Although our common stock is quoted on the OTC Pink, it is an unorganized, inter-dealer, over-the-counter market which provides significantly less liquidity than the NASDAQ Capital Market or other national securities exchange. These factors may have an adverse impact on the trading and price of our common stock. And our common stock may be less attractive for margin loans, for investment by financial institutions, as consideration in future capital raising transactions or other purposes.

Share Price & Shareholder Rights - Risk 4

Our issuance of common stock upon conversion of outstanding preferred stock will result in dilution to our stockholders.

We have outstanding various series of preferred stock that are convertible into common stock, including varies series that are convertible into common stock at variable conversion prices and which in some cases entitle certain prior investors to certain make-good shares (see Note 3 to the financial statements included in this report). Our issuance of common stock upon conversion of outstanding preferred stock will result in dilution to holders of our common stock, which may have a negative effect on the price of our common stock.

Share Price & Shareholder Rights - Risk 5

We have created various series of preferred stock and our articles of incorporation allow for our board to create additional new series of preferred stock without further approval by our stockholders, which could adversely affect the rights of the holders of our common stock.

Our Board of Directors has the authority to fix and determine the relative rights and preferences of preferred stock. Our Board of Directors has the authority to issue additional shares of our preferred stock without further stockholder approval. Our board of directors has created various series of preferred stock and may create additional series in the future with various preferential rights over the common stock.

Share Price & Shareholder Rights - Risk 6

Our chief executive officer owns the majority of the voting power of our shareholders.

As the holder of our outstanding shares of Series C Preferred Stock, our chief executive officer, T. Riggs Eckelberry has 51% of the voting power of the Company's shareholders. As a result, Mr. Eckelberry has the ability to control all matters submitted to shareholders, and his interests may differ from those of other shareholders.

Share Price & Shareholder Rights - Risk 7

Our common stock could be further diluted as the result of the issuance of additional shares of common stock, convertible securities, warrants or options.

We have issued common stock, convertible securities (such as convertible debentures, convertible preferred stock, and notes) and warrants in order to raise money, some of which have anti-dilution and other similar protections. We have also issued incentive compensation for our employees and directors. We have shares of common stock reserved for issuance upon the exercise of certain of these securities and may increase the shares reserved for these purposes in the future. Our issuance of additional common stock, convertible securities, options and warrants could affect the rights of our stockholders, result in a reduction in the overall percentage holdings of our stockholders, could put downward pressure on the market price of our common stock, could result in adjustments to conversion and exercise prices of outstanding notes and warrants, and could obligate us to issue additional shares of common stock to certain of our stockholders.

Share Price & Shareholder Rights - Risk 8

We are required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act of 2002 and if we fail to comply in a timely manner, our business could be harmed, and our stock price could decline.

Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require an annual assessment of internal controls over financial reporting, and for certain issuers an attestation of this assessment by the issuer's independent registered public accounting firm. The standards that must be met for management to assess the internal controls over financial reporting as effective are evolving and complex, and require significant documentation, testing, and possible remediation to meet the detailed standards. We expect to incur significant expenses and to devote resources to Section 404 compliance on an ongoing basis. It is difficult for us to predict how long it will take or how costly it will be to complete the assessment of the effectiveness of our internal control over financial reporting for each year and to remediate any deficiencies, if any, in our internal controls over financial reporting. As a result, we may not be able to complete the assessment and remediation process on a timely basis. In addition, although attestation requirements by our independent registered public accounting firm are not presently applicable to us, we could become subject to these requirements in the future, and we may encounter problems or delays in completing the implementation of any resulting changes to internal controls over financial reporting. In the event that our Chief Executive Officer or Chief Financial Officer determine that our internal controls over financial reporting is not effective as defined under Section 404, we cannot predict how regulators will react or how the market prices of our shares will be affected; however, we believe that there is a risk that investor confidence and share value may be negatively affected.

Accounting & Financial Operations4 | 13.3%

Accounting & Financial Operations - Risk 1

If we fail to maintain effective internal controls over financial reporting, the price of our common stock may be adversely affected.

Our internal control over financial reporting may have weaknesses and conditions that could require correction or remediation, the disclosure of which may have an adverse impact on the price of our common stock. We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely affect our public disclosures regarding our business, prospects, financial condition or results of operations. In addition, management's assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting or disclosure of management's assessment of our internal controls over financial reporting may have an adverse impact on the price of our common stock.

Accounting & Financial Operations - Risk 2

We do not intend to pay dividends on our common stock.

We do not anticipate paying cash dividends on our common stock in the foreseeable future. We may not have sufficient funds to legally pay dividends. Even if funds are legally available to pay dividends, we may nevertheless decide in our sole discretion not to pay dividends. The declaration, payment and amount of any future dividends will be made at the discretion of our board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors our board of directors may consider relevant. In addition, we have outstanding various series of preferred stock that are entitled to dividends prior to payment of any dividends on our common stock.

Accounting & Financial Operations - Risk 3

We have a history of losses and can provide no assurance of our future operating results.

We have experienced net losses and negative cash flows from operating activities since inception and we expect such losses and negative cash flows to continue in the foreseeable future. As of December 31, 2023, and 2022, we had working capital (deficit) of $(32,249,892) and $(14,245,179), respectively, and shareholders' (deficit) of $(39,263,958) and $(26,016,787), respectively. For the years ended December 31, 2023 and 2022, we incurred net loss of $(11,625,783) and $(10,790,721), respectively. During the year ended December 31, 2023, we had a loss from operations of $5,401,560. As of December 31, 2023, we had an aggregate accumulated deficit of $119,216,735. We may never achieve profitability. The opinion of our independent registered public accountants on our audited financial statements as of and for the year ended December 31, 2023 contains an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon raising capital from financing transactions and future sales.

Accounting & Financial Operations - Risk 4

We have not been profitable.

We were formed in June 2007 and are currently developing Water On Demand, a new business model to respond to identified market demand. Since we have not been profitable, there are substantial risks, uncertainties, expenses and difficulties that we are subject to. To address these risks and uncertainties, we must do among the following: - Successfully execute our business strategy; - Respond to competitive developments; and - Attract, integrate, retain and motivate qualified personnel. There can be no assurance we will operate profitably or that we will have adequate working capital to meet our obligations as they become due. Investors must consider the risks and difficulties frequently encountered by early stage companies, particularly in rapidly evolving markets. We cannot be certain that our business strategy will be successful or that we will successfully address these risks. In the event that we do not successfully address these risks, our business, prospects, financial condition, and results of operations could be materially and adversely affected.

Debt & Financing2 | 6.7%

Debt & Financing - Risk 1

We have incurred substantial indebtedness.

As of December 31, 2023, we had outstanding convertible promissory notes in the aggregate amount of $2,617,691. All such debt is payable within the following thirty-six months and is convertible at a significant discount to our market price of stock. Our level of indebtedness and insufficient cash on hand increases the possibility that we may be unable to generate cash sufficient to pay, when due, the principal of, interest on or other amounts due in respect of the indebtedness. Our indebtedness, combined with other financial obligations and contractual commitments, could: - in the case of convertible debt that is converted into equity, result in a reduction in the overall percentage holdings of our stockholders, put downward pressure on the market price of our common stock, result in adjustments to conversion and exercise prices of outstanding notes and warrants and obligate us to issue additional shares of common stock to certain of our stockholders; - make it more difficult for us to satisfy our obligations with respect to the indebtedness and any failure to comply with the obligations under any of our debt instruments, including restrictive covenants, could result in events of default under the loan agreements and instruments governing the indebtedness;- require us to dedicate a substantial portion of our cash flow from operations to payments on indebtedness, thereby reducing funds available for working capital, capital expenditures, acquisitions, research and development and other corporate purposes; - increase our vulnerability to adverse economic and industry conditions, which could place us at a competitive disadvantage compared to competitors that have relatively less indebtedness;- limit our flexibility in planning for, or reacting to, changes in business and the industry in which we operate; and - limit our ability to borrow additional funds, or to dispose of assets to raise funds, if needed, for working capital, capital expenditures, acquisitions, research and development and other corporate purposes. We may incur significant additional indebtedness in the future. If we incur a substantial amount of additional indebtedness, the related risks that we face could become more significant. Additionally, the terms of any future debt that we may incur may impose requirements or restrictions that further affect our financial and operating flexibility or subject us to other events of default.

Debt & Financing - Risk 2

We will need significant additional capital, which we may be unable to obtain.

Revenues generated from our operations are not presently sufficient to sustain our operations. Therefore, we will need to raise additional capital to continue our operations. There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us. We may be required to pursue sources of additional capital through various means, including debt or equity financings. Future financings through equity investments are likely to be dilutive to existing stockholders. Also, the terms of securities we may issue in future capital transactions may be more favorable for new investors. Newly issued securities may include preferences, superior voting rights, the issuance of warrants or other derivative securities, and the issuances of incentive awards under equity employee incentive plans, which may have additional dilutive effects. Further, we may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition. Our ability to obtain needed financing may be impaired by such factors as the capital markets and our history of losses, which could impact the availability or cost of future financings. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that we reduce our operations accordingly, we may be required to cease operations. In addition, we have outstanding convertible preferred stock that are convertible into common stock at variable conversion prices and in addition, in some cases entitle certain prior investors to certain make-good shares. Our issuance of common stock upon conversion of such preferred stock will result in further dilution to our stockholders.

Corporate Activity and Growth2 | 6.7%

Corporate Activity and Growth - Risk 1

We will need to increase the size of our organization and may experience difficulties in managing growth.

We are a small company with a minimal number of employees. We expect to experience a period of significant expansion in headcount, facilities, infrastructure and overhead and anticipate that further expansion will be required to address potential growth and market opportunities. Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate managers. Our future financial performance and our ability to compete effectively will depend, in part, on our ability to manage any future growth effectively.

Corporate Activity and Growth - Risk 2

We rely on strategic partners.

We rely on strategic partners to manage our planned outsourced systems. Should our strategic partners not regard us as significant to their own businesses, they could reduce their commitment to us or terminate their relationship with us, pursue competing relationships or attempt to develop or acquire processes that compete with ours. Any such action could materially adversely affect our business.

Tech & Innovation

Total Risks: 4/30 (13%)Above Sector Average

Innovation / R&D1 | 3.3%

Innovation / R&D - Risk 1

We may not be able to successfully license our technology and commercialize our products which would result in continued losses and may require us to curtail or cease operations.

We are currently developing our new business model, Water On Demand. We are unable to project when we will achieve profitability, if at all. We cannot assure that our executive resources will be able to develop our systems fast enough to meet market requirements. We can also not assure that our systems will gain market acceptance and that we will be able to successfully commercialize the business model. The failure to successfully develop and commercialize the business model would result in continued losses and may require us to curtail or cease operations.

Trade Secrets3 | 10.0%

Trade Secrets - Risk 1

We may face claims that we are violating the intellectual property rights of others.

We may face claims, including from direct competitors, other water companies, scientists or research universities, asserting that our business models, technology or the commercial use of such technology infringe or otherwise violate the intellectual property rights of others. We have not conducted infringement, freedom to operate or landscape analyses, and as a result we cannot be certain that our technologies and processes do not violate the intellectual property rights of others. We expect that we may increasingly be subject to such claims as we begin to earn revenues and our market profile grows. We may also face infringement claims from the employees, consultants, agents and outside organizations we have engaged to develop our technology. While we have sought to protect ourselves against such claims through contractual means, we cannot provide any assurance that such contractual provisions are adequate, and any of these parties might claim full or partial ownership of the intellectual property in the technology that they were engaged to develop. If we were found to be infringing or otherwise violating the intellectual property rights of others, we could face significant costs to implement work-around methods, and we cannot provide any assurance that any such work-around would be available or technically equivalent to our current technology. In such cases, we might need to license a third party's intellectual property, although any required license might not be available on acceptable terms, or at all. If we are unable to work around such infringement or obtain a license on acceptable terms, we might face substantial monetary judgments against us or an injunction against continuing to license our technology, which might cause us to cease operations. In addition, even if we are not infringing or otherwise violating the intellectual property rights of others, we could nonetheless incur substantial costs in defending ourselves in suits brought against us for alleged infringement. Also, if any license agreements provide that we will defend and indemnify our customer licensees for claims against them relating to any alleged infringement of the intellectual property rights of third parties in connection with such customer licensees' use of our technologies, we may incur substantial costs defending and indemnifying any customer licensees to the extent they are subject to these types of claims. Such suits, even if without merit, would likely require our management team to dedicate substantial time to addressing the issues presented. Any party bringing claims might have greater resources than we do, which could potentially lead to us settling claims against which we might otherwise prevail on the merits. Any claims brought against us or any customer licensees alleging that we have violated the intellectual property of others could have negative consequences for our financial condition, results of operations and business, each of which could be materially adversely affected as a result.

Trade Secrets - Risk 2

Although we have filed various patent applications for some of our original technologies, some have been abandoned or transferred. In some cases we have opted to protect our intellectual property through a trade secrets policy.

We protect our intellectual property through a combination of patents and trade secrets. Trade secrets do not provide the same level of protection as patents and patents may not provide meaningful protection or commercial advantage. In the US, patents only provide protection for a 20-year period starting from the filing date and the longer a patent application takes to issue the less time there is to enforce it. Further, the claims under any patents that issue from our applications may not be broad enough to prevent others from developing technologies that are similar or that achieve similar results. It is also possible that the intellectual property rights of others will bar us from licensing our technology and bar us or our future licensees from exploiting any patents that issue from our pending applications. Numerous U.S. and foreign issued patents and pending patent applications owned by others exist in the fields in which we have developed and are developing our technology. These patents and patent applications might have priority over our patent applications and could subject our patent applications to invalidation. Finally, in addition to those who may claim priority, any patents that issue from our applications may also be challenged by our competitors on the basis that they are otherwise invalid or unenforceable.

Trade Secrets - Risk 3

If we fail to establish, maintain and enforce intellectual property rights with respect to our technology, our financial condition, results of operations and business could be negatively impacted.

Our ability to establish, maintain and enforce intellectual property rights with respect to the technology that we have acquired under master license will be a significant factor in determining our future financial and operating performance. We seek to protect our intellectual property rights by relying on a combination of trade secret and copyright laws, and the licensing of external patents. We also use confidentiality and other provisions in our agreements that restrict access to and disclosure of our confidential know-how and trade secrets. Outside of licensed patents, we seek to protect our technology and business model as trade secrets and technical know-how. However, trade secrets and technical know-how are difficult to maintain and do not provide the same legal protections provided by patents. In particular, only patents will allow us to prohibit others from using independently developed technology that is similar. If competitors develop knowledge substantially equivalent or superior to our trade secrets and technical know-how, or gain access to our knowledge through other means such as observation of our technology that embodies trade secrets at customer sites which we do not control, the value of our trade secrets and technical know-how would be diminished. While we strive to maintain systems and procedures to protect the confidentiality and security of our trade secrets and technical know-how, these systems and procedures may fail to provide an adequate degree of protection. For example, although we generally enter into agreements with our employees, consultants, advisors, and strategic partners restricting the disclosure and use of trade secrets, technical know-how and confidential information, we cannot provide any assurance that these agreements will be sufficient to prevent unauthorized use or disclosure. In addition, some of the technology deployed at customer sites in the future, which we do not control, may be readily observable by third parties who are not under contractual obligations of non-disclosure, which may limit or compromise our ability to continue to protect such technology as a trade secret. Monitoring and policing unauthorized use and disclosure of intellectual property is difficult. If we learned that a third party was in fact infringing or otherwise violating our intellectual property, we may need to enforce our intellectual property rights through litigation. Litigation relating to our intellectual property may not prove successful and might result in substantial costs and diversion of resources and management attention. From our customer licensees' standpoint, the strength of the intellectual property under which we intend to grant licenses can be a critical determinant of the value of these licenses. If we are unable to secure, protect and enforce our intellectual property, it may become more difficult for us to attract new customers. Any such development could have a material adverse effect on our business, prospects, financial condition and results of operations.

Legal & Regulatory

Total Risks: 3/30 (10%)Below Sector Average

Regulation2 | 6.7%

Regulation - Risk 1

Financial Industry Regulatory Authority, Inc. ("FINRA") sales practice requirements may limit a shareholder's ability to buy and sell our common shares.

In addition to the "penny stock" rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

Regulation - Risk 2

Our stock is subject to the penny stock rules, which impose significant restrictions on broker-dealers and may affect the resale of our stock.

Our common stock has been subject to the provisions of Section 15(g) and Rule 15g-9 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), commonly referred to as the "penny stock" rule. Section 15(g) sets forth certain requirements for transactions in penny stocks and Rule 15g-9(d)(1) incorporates the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act. The SEC generally defines penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. Rule 3a51-1 provides that any equity security is considered to be penny stock unless that security is: registered and traded on a national securities exchange meeting specified criteria set by the SEC; issued by a registered investment company; excluded from the definition on the basis of price (at least US $5.00 per share) or the registrant's net tangible assets; or exempted from the definition by the Securities and Exchange Commission ("SEC"). Our common stock is considered to be a "penny stock." The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in "penny stocks." As our common stock is considered to be "penny stock," trading in our common stock is subject to additional sales practice requirements on broker-dealers who sell penny stock to persons other than established customers and accredited investors. This may reduce the liquidity and trading volume of our shares.

Taxation & Government Incentives1 | 3.3%

Taxation & Government Incentives - Risk 1

A lack of government subsidies may hinder the usefulness of our technology.

We assemble and sell complete engineered solutions, and products, using the expertise and knowhow of PWT and MWS. Subsidies of any of the industries vary and may be reduced or eliminated, which could have a material adverse effect on our business. Likewise, regulations may become more onerous which also could have a material adverse effect on our business.

Ability to Sell

Total Risks: 3/30 (10%)Below Sector Average

Competition2 | 6.7%

Competition - Risk 1

If a competitor were to achieve a business breakthrough, our operations and business could be negatively impacted.

There currently exist a number of businesses that are in the business of delivering turnkey "water-as-a-service" systems. Should a competitor achieve a breakthrough, we may have difficulty attracting sales. Furthermore, competitors may have access to larger resources (capital or otherwise) that provide them with an advantage in the marketplace, which could result in a negative impact on our business. In addition, because we are the master licensee of only five issued patents, we may not be able to preclude development of even directly competing technologies using the same methods, materials and procedures as we use to achieve our results. Any of these competitive forces may inhibit or materially adversely affect our ability to attract customer licensees, or to obtain royalties or other fees from our customer licensees. This could have a material adverse effect on our business, prospects, results of operation and financial condition.

Competition - Risk 2

Competition from other companies in our market may affect the market for our technology.

New companies are constantly entering the market, thus increasing the competition. Larger foreign owned and domestic companies which have been engaged in prefabricated or modular water systems or Design-Build-Own-Operate (DBOO) for substantially longer periods of time may have access to greater financial and other resources. These companies may have greater success in the recruitment and retention of qualified employees, as well as in conducting their own manufacturing and marketing operations, which may give them a competitive advantage. In addition, actual or potential competitors may be strengthened through the acquisition of additional assets and interests. If we or our customers are unable to compete effectively or adequately respond to competitive pressures, this may materially adversely affect our results of operation and financial condition.

Demand1 | 3.3%

Demand - Risk 1

Our revenues are dependent upon acceptance of our technology and products by the market; the failure of which would cause us to curtail or cease operations.

We believe that most of our future revenues will come from the sale or license of our technology and systems. As a result, we will continue to incur substantial operating losses until such time as we are able to generate revenues from the sale or license of our technology and systems. There can be no assurance that businesses and prospective customers will adopt our technology and systems, or that businesses and prospective customers will agree to pay for or license our technology and systems. In the event that we are not able to develop a customer base that purchases or licenses our technology and systems, or if we are unable to charge the necessary prices or license fees, our financial condition and results of operations will be materially and adversely affected.

Production

Total Risks: 2/30 (7%)Below Sector Average

Employment / Personnel1 | 3.3%

Employment / Personnel - Risk 1

If we lose key employees and consultants or are unable to attract or retain qualified personnel, our business could suffer.

Our success is highly dependent on our ability to attract and retain qualified scientific, engineering and management personnel. We are highly dependent on our management, including T. Riggs Eckelberry, who has been critical to the development of our technology and business. The loss of the services of Mr. Eckelberry would have a material adverse effect on our operations. We do not have an employment agreement with Mr. Eckelberry. Accordingly, there can be no assurance that he will remain associated with us. His efforts will be critical to us as we continue to develop our technology and as we attempt to transition to a company with profitable commercialized products and services. If we were to lose Mr. Eckelberry, or any other key employees or consultants, we may experience difficulties in competing effectively, developing our technology and implementing our business strategies.

Supply Chain1 | 3.3%

Supply Chain - Risk 1

Our long-term success depends on developing a novel outsourcing model, and we face the risks inherent in a performance-based business model.

While our engineering and technology divisions are profitable, we are developing a new business in the Design-Build-Own-Operate sector, known as Water On Demand. We may not be able to generate revenue through the financing and management of these systems, and our long-term success depends on the performance and oversight of these systems. We expect that the amount of payments we may receive will be based upon the performance of our operating partners, and so we will be dependent on the successful operations of these partners for a significant portion of our revenues. We face risks inherent in such a delegated business model, many of which are outside of our control, including those arising from our reliance on the management and operating capabilities of our operating partners and the cyclicality of supply and demand for end-products produced using this business model. Should our managed contracts fail to achieve sufficient profitability in their operations, our payments would be diminished and our results of operations, cash flows and financial condition could be adversely affected, and any such effects could be material.

Macro & Political

Total Risks: 2/30 (7%)Below Sector Average

Economy & Political Environment1 | 3.3%

Economy & Political Environment - Risk 1

The industries in which we operate may endure deflationary cycles, affecting our ability to sell and license our systems.

It is possible that industry sector collapses and other deflationary events may impact our business materially and adversely.

Natural and Human Disruptions1 | 3.3%

Natural and Human Disruptions - Risk 1

An occurrence of an uncontrollable event such as the COVID-19 pandemic may negatively affect our operations.

On March 11, 2020, the World Health Organization declared the current outbreak of a novel coronavirus disease 2019 ("COVID-19") to be a global pandemic. The COVID-19 outbreak led (and may continue to lead) to disruptions in the global economy, including extreme volatility in the stock market and capital markets. The occurrence of an uncontrollable event such as the COVID-19 pandemic may negatively affect our operations. A pandemic typically results in social distancing, travel bans and quarantine, and this may limit access to our facilities, customers, management, support staff and professional advisors. These factors, in turn, may not only impact our operations, financial condition and demand for our goods and services but our overall ability to react timely to mitigate the impact of this event. Also, it may hamper our efforts to comply with our filing obligations with the Securities and Exchange Commission.

See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.

FAQ

What are “Risk Factors”?

Risk factors are any situations or occurrences that could make investing in a company risky.

The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment.

They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result.

It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.

How do companies disclose their risk factors?

Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process.

Additionally, companies must provide a complete list of risk factors in their Annual Reports (Form 10-K) or (Form 20-F) for “foreign private issuers”.

Quarterly Reports also include a section on risk factors (Form 10-Q) where companies are only required to update any changes since the previous report.

According to the SEC, risk factors should be reported concisely, logically and in “plain English” so investors can understand them.

How can I use TipRanks risk factors in my stock research?

Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing.

You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector.

Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements.

A simplified analysis of risk factors is unique to TipRanks.

What are all the risk factor categories?

TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below.

1. Financial & Corporate

Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results.
Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing.
Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments.
Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances.

2. Legal & Regulatory

Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company.
Regulation – risks related to compliance, GDPR, and new legislation.
Environmental / Social – risks related to environmental regulation and to data privacy.
Taxation & Government Incentives – risks related to taxation and changes in government incentives.

3. Production

Costs – risks related to costs of production including commodity prices, future contracts, inventory.
Supply Chain – risks related to the company’s suppliers.
Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls.
Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation.

4. Technology & Innovation

Innovation / R&D – risks related to innovation and new product development.
Technology – risks related to the company’s reliance on technology.
Cyber Security – risks related to securing the company’s digital assets and from cyber attacks.
Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying.

5. Ability to Sell

Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers.
Competition – risks related to the company’s competition including substitutes.
Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration.
Brand & Reputation – risks related to the company’s brand and reputation.

6. Macro & Political

Economy & Political Environment – risks related to changes in economic and political conditions.
Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19.
International Operations – risks related to the global nature of the company.
Capital Markets – risks related to exchange rates and trade, cryptocurrency.