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:
? plans, objectives, expectations, and intentions contained in this report that
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.
OriginClear, Inc. ("we", "us", "our", the "Company" or "OriginClear") was incorporated on June 1, 2007 under the laws of the State of Nevada. We have been engaged in business operations since June 2007. In 2015, we moved into the commercialization phase of our business plan having previously been primarily involved in research, development and licensing activities. Our principal offices are located at 13575 58th Street North, Suite 200, Clearwater, FL 33760. Our main telephone number is (727) 440-4603. Our website address is www.OriginClear.com. The information contained on, connected to or that can be accessed via our website is not part of this report.
OriginClear is a company that today, develops unique water assets for eventual launch as their own companies. This new role was indicated water technology company which has developed in-depth capabilities over the eight years since it began to operate in the water industry.
Pursuant to this new mission, OriginClear's assets, subsidiaries and product offerings consist of:
? The Intellectual Property of Daniel M. Early (the "Early IP"), consisting of
five patents and related knowhow and trade secrets, which are intended to take
the place of the applications for the company's original technology
? OriginClear has incubated a new outsourced water treatment business called
o The WOD model intends to offer private businesses water self-sustainability as
o Four subsidiaries have been established to house capital dedicated to this
o On April 13, 2022, the Company's Board of Directors approved the plan to spin
off its Water On Demand business into a newly formed wholly-owned subsidiary,
Water On Demand Inc. ("WODI"), which will hold the assets, liabilities,
intellectual property and business operations of the Water On Demand business.
As they are subject to a security guaranty by the Company, the WOD Subsidiaries, and the capital raised for them through the Company's Series Y offering, shall continue to be held by the Company. This capital will be made available to WODI to be deployed, subject to a planned management contract.
The Company develops and incubates businesses in its role as the Clean Water Innovation Hub™ ("CWIB"). The mission of CWIB in general, is to create valuable properties through an incubation process that results in the launching of valuable spinoffs that add value to the world's water industry.
The first such spinoff was on April 13, 2022, when the Company's Board of Directors approved the plan to spin off its Water On Demand business into a newly formed wholly-owned subsidiary, Water On Demand Inc., which will hold the assets, liabilities, intellectual property and business operations of the Water On Demand business.
Further businesses can be expected to be spun off, as the Company announced on April 26, 2022:
"The launch of Water on Demand is the first of several anticipated business property spinoffs…Other Company business properties include Modular Water Systems, which owns a master license to five key international patents for prefabricated, highly-durable modular water treatment and pumping products. Being a proprietary technology, MWS frequently qualifies as "Basis of Design" for projects, which means that competitors cannot easily undercut MWS."
(https://www.originclear.com/company-news/originclear-to-launch-water-on-demand-fintech-startup)
Water is our most valuable resource, and the mission of CWIB is to improve the quality of water and help return it to its original and clear condition.
Daniel M. Early/Modular Water Systems™
On June 22, 2018, OriginClear signed an exclusive worldwide licensing agreement with Daniel "Dan" Early for his proprietary technology for prefabricated water transport and treatment systems. On July 19, 2018, the Company began incubating its Modular Water Treatment Division (MWS) around Mr. Early's technology and perspective customers. The Company has funded the development of this division with internal cash flow. In Q1 of 2020, the Company fully integrated MWS with wholly-owned Progressive Water Treatment Inc. The Company is currently developing MWS as a discrete line of business for an eventual spinoff. Mr. Early currently serves as Chief Engineer for OriginClear.
On October 1, 2015, the Company completed the acquisition of Dallas-based Progressive Water Treatment Inc. ("PWT"), a designer, builder and service provider for a wide range of industrial water treatment applications. PWT, together with MWS, other proprietary technologies and potential future acquisitions, aims to offer a complementary, end-to-end offering to serve growing corporate demand for outsourced water treatment.
Since 1995, PWT has been designing and manufacturing a complete line of water treatment systems for municipal, industrial and pure water applications. PWT designs and manufactures a complete line of water treatment systems for municipal, industrial and pure water applications. Its uniqueness is its ability to gain an in-depth understanding of customer's needs and then to design and build an integrated water treatment system using multiple technologies to provide a complete solution for its customers.
PWT utilizes a wide range of technologies, including chemical injection, media filters, membrane, ion exchange and SCADA (supervisory control and data acquisition) technology in turnkey systems. PWT also offers a broad range of services including maintenance contracts, retrofits and replacement assistance. In addition, PWT rents equipment in contracts of varying duration. Customers are primarily served in the United States and Canada, with the company's reach extending worldwide from Siberia to Argentina to the Middle East.
In the first quarter of 2019, the Company increased the number of the manufacturer's representatives for its operating units, PWT and Modular Water Systems ("MWS").
On Nov 7, 2019, the Company published a case study showing how its Modular Water System may help automotive dealerships expand into rural land. The case study shows how point-of-use treatment solves lack of access to the public sewer system.
On March 5, 2020, the Company announced disruptive pump and lift station pricing, stating that its prefabricated modules with a lifespan of up to 100 years now compete with precast concrete.
On April 15, 2021, the Company announced that its Progressive Water Treatment division is now shipping BroncBoost™, its workhorse Booster Pump Station equipment line. Engineered and built in Texas, BroncBoost allows customers to control water flow rates and pressure for mission critical water distribution systems.
On August 25, 2021, PWT entered into a Master Services Agreement (MSA) with a large US public utility company for water filtration systems that will provide process water at three power plants. The utility issued a purchase order for approximately $1.8 million, for the first power plant. The total purchase price payable to PWT under the MSA is approximately $5 million, subject to certain conditions, including receipt and acceptance by PWT of additional purchase orders. We expect the overall contract to take up to two years to deliver from the date of the MSA.
In the first half of 2022, PWT and MWS in combination, received $2,880,594 in firm orders. This contrasts with $1,463,331 received in firm orders in the first half of 2021. Orders are only a potential indication of future sales and revenue.
On July 19, 2018, the Company launched its Modular Water Treatment Division, offering a unique product line of prefabricated water transport and treatment systems. Daniel "Dan" Early P.E. (Professional Engineer) heads the Modular Water Systems ("MWS") division. On June 25, 2018, Dan Early granted the Company a worldwide, exclusive non-transferable license to the technology and knowhow behind MWS (See "Intellectual Property"). A ten-year renewal on May 20, 2020 added the right to sublicense and create manufacturing joint ventures. On July 25, 2018, MWS received its first order, for a brewery wastewater treatment plant.
With PWT and other companies as fabricators and assemblers, MWS designs, manufactures and delivers prefabricated water transport (pump and lift stations) under the EveraMOD™ brand; and wastewater treatment plant ("WWTP") products under the EveraSKID™ and EveraTREAT™ brands to customers and end-users which are required to clean their own wastewater, such as schools, small communities, institutional facilities, real estate developments, factories, and industrial parks.
On September 28, 2021, the Company announced that MWS deployed its first Pondster™ brand modular lagoon treatment system at a Mobile Home Park (MHP) or trailer park, in Troy, Alabama. At the heart of the system is an innovative biofilm treatment process which holds promise as a technology offering of the Company.
In 2021, MWS received $1,774,880 in firm orders. This contrasts with $735,150 received in firm orders by MWS for the entirety of 2020.
In the first half of 2022, MWS received $2,478,155 in firm orders. This contrasts with $1,001,160 received in firm orders in the first half of 2021. Orders are only a potential indication of future sales and revenue.
On July 25, 2022 the Company announced that decentralized water treatment, long pioneered by OriginClear's Modular Water Systems™(MWS), is now being mandated by major US cities to recycle water in large new buildings.
Water on Demand™: a new strategic direction.
OriginClear is also developing a new outsourced water treatment business called "Water On Demand": or "WOD" as a potential revenue source. The WOD model intends to offer private businesses the ability to pay for water treatment and purification services on a per-gallon basis. This is commonly known as Design-Build-Own-Operate or "DBOO". On April 13, 2021, we announced formation of a wholly-owned subsidiary called Water On Demand #1, Inc. ("WOD #1") to pursue capitalization of the equipment required. The WOD Subsidiaries, Water On Demand #2, Inc. ("WOD #2"), Water On Demand #3, Inc. ("WOD #3"), Water On Demand #4, Inc. ("WOD #4") were separately created to permit optional segmenting of capital pools according to strategic partnerships. As they are subject to a security guaranty by the Company, the WOD Subsidiaries, and the capital raised for them through the Company's Series Y offering, shall continue to be held by the Company. This capital will be made available to WODI to be deployed, subject to a planned management contract.
The Company intends to pilot a first DBOO contract and thereafter, work with regional water service companies to build and operate the water treatment systems it finances. Additional financing hubs could be set up in world financial centers.
Delegating the building and operating of WOD-financed systems to regional water companies under performance contract, with the aim of developing a network of such partners, is expected to enable rapid scale-up of the WOD program, and the partner network would create a high barrier to entry for competitors.
On April 13, 2022, the Company's Board of Directors approved the plan to spin off its Water On Demand business into a newly formed wholly-owned subsidiary, Water On Demand Inc., which will hold the assets, liabilities, intellectual property and business operations of the Water On Demand business.
The Company stipulates that it has excluded the WOD Subsidiaries, and all capital already raised and to be raised in the future in its Series Y offering, from this assignment of assets and will make the capital available as part of a planned management contract. The Company intends to also register a Regulation A offering by WODI which is intended to accumulate capital for WODI to direct toward WOD projects.
Inflation of water rates greatly exceeds core inflation (see Figure 2), creating a risk for managers of businesses served by municipalities. We believe this creates an incentive for self-treatment; but these businesses may lack the capital for large water plant expenditures, and the in-house expertise to manage them. Outsourcing through what we call Water on Demand™ means that these companies do not have to worry about the problem, either financing it or managing it.
As an example, in information technology, few companies operate their own server in-house powering their website. Rather, such servers are typically managed by professionals through a service level agreement. In the water industry, when applied to outsourced water treatment, a service level agreement is known as O&M agreement. When the vendor retains ownership of the equipment, the concept is expanded to "Own and Operate", an extension of the basic "Design and Build", for a full offering known as DBOO, which is very similar to the solar energy programs known as Power Purchase Agreements ("PPAs").
Under such a plan, a business can outsource its wastewater treatment by simply signing on the dotted line; instantly avoiding most capital expense, and the trouble of managing something that is a distraction from their core business.
We believe this is financially and operationally attractive to industrial, agricultural and commercial water users, while OriginClear's Water On Demand program can potentially drive speeded-up deals and more revenue streams from providing water treatment as a service.
An updated report of October 2018, "Public Spending on Transportation and Water Infrastructure, 1956 to 2017" (https://www.cbo.gov/system/files?file=2018-10/54539-Infrastructure.pdf), stated that The Federal Government's and State and Local Governments' Spending on Water Utilities, including water supply and wastewater treatment facilities, was $4 billion in 2016.
As municipalities continue to be underfunded (Figure 1) with rising water rates (Figure 2), businesses are increasingly choosing to treat and purify their own water, in a trend known as Decentralized Water, first described in the Lux Research presentation of June 28, 2016. (https://members.luxresearchinc.com/research/report/20060).
Small, modular systems as sold by our Modular Water Systems division meet the needs of this new segment.
We believe that our ability to deliver modular systems gives us a competitive advantage over larger water companies when it comes to DBOO for smaller systems.
Also, the portable nature of these prefabricated, drop-in-place Modular Water Systems may provide a competitive benefit for a pure service model where the equipment remains the property of the Company, because their mobility enables some degree of repossession in the event the client fails to pay their monthly bill. We believe this is a key competitive advantage.
Finally, we could license MWS technology to Water On Demand operating partners under contract to design, build and operate systems, thus achieving both acceptance of such technology and a standardized "fleet" of installed systems. While desirable, the Company does not consider this licensing to be mission-critical to the success of WOD.
Implementation of Water On Demand
We have taken initial steps in this new direction.
On March 17, 2021, OriginClear incorporated Water On Demand #1 Inc. ("WOD#1") in Nevada as a wholly owned subsidiary to operate and manage our Water on Demand business.
In November 2021, the Company created additional Water on Demand subsidiaries - Water on Demand # 2, Inc. (WOD # 2), Water on Demand # 3, Inc. (WOD # 3) and Water on Demand # 4, Inc. (WOD # 4). Each subsidiary (each a "WOD Subsidiary", and collectively the "WOD Subsidiaries") is wholly owned by OriginClear, Inc. These WOD Subsidiaries were created in order to align with the incentives of the Company's various strategic partners. Each WOD Subsidiary (other than WOD #1), is associated with a different strategic partner and will be compensated based on the profitability of that WOD Subsidiary.
The Company requires funding in order to execute on its Water on Demand initiative. As of the period ended June 30, 2022, the Company received aggregate funding in the amount of $1,763,600 through the sale of its Series Y Preferred Stock dedicated to the Water on Demand program.
The Company is now actively evaluating potential clients for a test of water treatment and purification services on a pay-per-gallon basis, but a first agreement has not been reached.
On April 5, 2022, the Company agreed in principle to an arrangement with Houston-based, international water service company Envirogen Technologies for certain operations and maintenance (O&M) functions, the first of a potential series of such partnerships, intended to enable Water On Demand to focus on finance and asset management while the water industry benefits from a steady stream of pre-capitalized projects.
(https://www.originclear.com/company-news/originclear-and-envirogen-to-partner-on-water-on-demand)
On April 13, 2022, the Company announced the formation of Water On Demand, Inc. ("WODI") as a wholly owned subsidiary and its plans to transfer each of the WOD subsidiaries and all assets, intellectual property and operations related to the Water On Demand business to WODI. The Company now stipulates that it has excluded the WOD Subsidiaries, and all capital already raised and to be raised in the future in its Series Y offering, from this assignment of assets and will make the capital available as part of a planned management contract. The Company intends to also register a Regulation A offering by WODI which is intended to accumulate capital for WODI to direct toward WOD projects.
On June 29, 2022 the Company announced the launch of its $300 Million offering to be conducted on behalf of its wholly-owned subsidiary, Water on Demand, Inc. ("WODI"). The offering of the securities is made pursuant to an exemption from registration under Rule 506(c) of Regulation D, to accredited investors only. Water On Demand is designed to offer clean water systems to businesses and communities as a managed service without any capital requirement.
In September 2020, OriginClear announced that Philanthroinvestors had entered a strategic agreement with the Company and had listed the Company on its new Water Philanthroinvestors program. At the same time, the Company appointed Philanthroinvestors Founder, Ivan Anz and CEO, Arte Maren to OriginClear's Board of Advisors.
On May 10, 2021, OriginClear filed "System And Method For Water Treatment Incentive", a patent application for using blockchain technology and non-fungible tokens ("NFT") to simplify the distribution of payments on outsourced water treatment and purification services billed on a pay-per-gallon basis ahead of inflation, or Water On Demand. The Company recently filed a PCT application pertaining to the invention.
On May 16, 2021, the Company applied for a registered trademark for the mark $H2O (also referred to as H2O) as the blockchain system representing this activity. The current filing basis is "Intent-to-use basis" (under Trademark Act Section 1(b)).
On June 10, 2021, the Company named Ricardo Fabiani Garcia, key OriginClear investor and a veteran technologist, to the Company's Board of Advisors. Mr. Garcia is advising the management team as it sets up the roadmap and chooses the resources for the $H2O project.
The basic intended use of the blockchain system is to streamline payments and eliminate human error. In this respect we believe it is very similar to J.P. Morgan's JPM Coin:
"In 2019, J.P. Morgan became the first global bank to design a network to facilitate instantaneous payments using blockchain technology - enabling 24/7, business-to-business money movement by unveiling JPM Coin." (https://www.jpmorgan.com/solutions/cib/news/digital-coin-payments).
Our patent application is the first step in our development process for this blockchain system, which we expect to last at least several months. We are not currently a blockchain or crypto currency developer and would need to develop or contract for this capability. There is no guarantee that this effort would succeed. There is no active development effort for $H2O. Depending on the final form that $H2O takes, we may encounter regulatory concerns that we cannot guarantee we will overcome. In that event, we would fall back on ordinary financial payment systems. Neither our Water on Demand or other current business models rely on any blockchain system for operation, and we can accomplish our operational goals using ordinary financial and currency channels. The Company does not intend to incorporate a blockchain system in any registered offering.
OriginClear is currently exploring a utility coin, or token, named ClearAqua, The Water Coin For The World™, which would implement a grassroots network for alerts, leading to actionable proposals for water projects. There is no assurance this token will be issued or if issued, will be successful. ClearAqua is not required for OriginClear's core business.
We filed, on an intent-to-use basis, US Trademark applications on July 21, 2021, for the Mark, CLEARAQUA. We also engaged San Diego-based Baja Technologies Inc. ("Baja") who wrote a preliminary white paper, but no other action has been taken and ClearAqua is not in active development at this time. The Company does not intend to incorporate a coin, token or cryptocurrency in any registered offering.
CWIB seeks to incubate or acquire businesses that help industrial water users achieve water self-sustainability. We believe that assembling a group of such water treatment and water management businesses is potentially an opportunity for spinoffs and increased Company value for the stockholders.
We are particularly interested in companies which successfully execute on Design-Build-Own-Operate or DBOO. These companies are growing fast, because tougher regulations, water scarcities and general outsourcing trends are driving industrial and agricultural water treatment users to delegate their water problem to service providers. As Global Water Intelligence pointed out in their report on October 30, 2015, "Water is often perceived as a secondary importance, with end-users increasingly wanting to focus solely on their own core business. This is driving a move away from internal water personnel towards external service experts to take control of water aspects." External service experts are typically small-privately owned and locally operated. Creating a network of such providers could lead to enormous economies of scale through sharing of best practices, technologies, and customers and could represent a major barrier to entry for Water On Demand's competitors.
The Company cautions that suitable acquisition candidates may not be identified and even if identified, the Company may not have adequate capital to complete the acquisition and/or definitive agreement may not be reached. Internally-incubated businesses, similarly, may not become commercial successes.
On June 25, 2018, Dan Early granted the Company a worldwide, exclusive non-transferable license to intellectual property consisting of five issued US patents, and design software, CAD, marketing, design and specification documents ("Early IP").
On May 20, 2020, we agreed on a renewal of the license for an additional ten years, with three-year extensions. We also gained the right to sublicense, and, with approval, to create ISO-compliant manufacturing joint ventures.
On May 10, 2021, OriginClear announced that it had filed "System And Method For Water Treatment Incentive", a patent application for using blockchain technology and non-fungible tokens (NFT) to simplify the distribution of payments on outsourced water treatment and purification services billed on a pay-per-gallon basis ahead of inflation.
With the rising need for local, point-of-use or point-of-discharge water treatment solutions, the Modular Water Systems licensed IP family is the core to a portable, integrated, transportable, plug-and-play system that, unlike other packaged solutions, can be manufactured in series, have a longer life and are more respectful of the environment.
The common feature of this IP family is the use of a construction material (Structural Reinforced ThermoPlastic), for the containers that is:
In addition, patents US 8,372,274 and US 8,871,089 (1 and 3) relate to the use of vessels or containers made out of this material combined with a configuration of functional modules, or process, for general water treatment.
Other subsequent patents, which build upon the original claims, focus on more targeted applications. These patents outline a given combination of modules engineered inside the vessel to address a specific water treatment challenge.
Expansion of the PWT and MWS Business-Lines
In April 2019, we completed the expansion of our manufacturer's representative network to serve both PWT and MWS for customer lead generation.
Beginning with its first installation, PWT built MWS components. The Company is currently developing MWS as a discrete line of business for an eventual spinoff, and MWS systems are built and assembled by a network of fabrication partners. In addition, the Company is developing the EveraMOD Pump Station product line as a standalone business.
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.
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.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include estimates used to review the Company's goodwill, impairments and estimations of long-lived assets, revenue recognition on percentage of completion type contracts, allowances for uncollectible accounts, inventory valuation, valuations of non-cash capital stock issuances and the valuation allowance on deferred tax assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Fair Value of Financial Instruments
Fair value of financial instruments requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of June 30, 2022, 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 June 30, 2022 compared to the three months ended June 30, 2021.
For the three months ended June 30, 2022, we had revenue of $3,167,967 compared to $931,422 for the three months ended June 30, 2021. Cost of sales for the three months ended June 30, 2022 was $2,482,493 compared to $754,922 for the three months ended June 30, 2021. Revenue and cost of sales increased primarily due to our subsidiary's increase in revenue.
Our gross profit was $685,474 and $176,500 for the three months ended June 30, 2022 and 2021, respectively.
For the three months ended June 30, 2022, we had selling and marketing expenses of $466,566, compared to $1,133,056 for the three months ended June 30, 2021. The decrease in selling and marketing expenses was primarily due to a decrease in marketing and investor relations expense.
For the three months ended June 30, 2022, we had general and administrative expenses of $934,899 compared to $961,623 for the three months ended June 30, 2021. The decrease in general and administrative expenses was primarily due to a decrease in professional and legal fees and outside services.
Other income and (expenses) decreased by $8,434,568 to $(539,256) for the three months ended June 30, 2022, compared to $(8,973,824) for the three months ended June 30, 2021. The decrease was due primarily to a decrease in loss on non-cash accounts associated with the change in fair value of the derivatives in the amount of $8,050,943, decrease in interest expense of $125,018, decrease in loss on conversion of preferred stock of $293,484, a decrease in gain on write-off of loan payable of $6,250, an increase in unrealized loss on investment securities in the amount of $25,127, and a decrease in other income of $3,500.
Our net loss decreased by $9,637,747 to $(1,265,756) for the three months ended June 30, 2022, compared to net loss of $(10,903,503) for the three months ended June 30, 2021. The majority of the decrease in net loss was due primarily to a decrease in other expenses associated with the net change in fair value of derivative instruments estimated each period. 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.
Results of Operations for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.
For the six months ended June 30, 2022, we had revenue of $4,402,072 compared to $1,727,600 for the six months ended June 30, 2021. The cost of sales for the six months ended June 30, 2022 was $3,941,348 compared to $1,446,946 for the six months ended June 30, 2021. Revenue and cost of sales increased primarily due to our subsidiary's increase in revenue.
Our gross profit was $460,724 and $280,654 for the six months ended June 30, 2022 and 2021, respectively.
For the six months ended June 30, 2022, we had selling and marketing expenses of $1,112,750, compared to $1,564,564 for the six months ended June 30, 2021. The decrease in selling and marketing expenses was primarily due to a decrease in marketing and investor relations expense.
General and administrative expenses were $1,815,159 for the six months ended June 30, 2022, compared to $1,779,673 for the six months ended June 30, 2021. The increase in general and administrative expenses was primarily due to an increase in professional and legal fees including non-cash, shares for services expense and outside services.
Other income and (expenses) decreased by $23,320,768 to $(2,353,596) for the six months ended June 30, 2022, compared to $(25,674,364) for the six months ended June 30, 2021. The decrease was due primarily to a decrease in loss on non-cash accounts associated with the change in fair value of the derivatives in the amount of $22,375,938, a decrease in loss on conversion and exchange of preferred stock in the amount of $873,299, a decrease in interest expense of $149,387, an increase in gain on write off of accounts payable in the amount of $68,750, an increase in unrealized loss on investment securities in the amount of $183,105, and a decrease in other income of $3,501.
Our net loss for the six months ended June 30, 2022 was $(4,842,023), compared to net loss of $(28,761,078) for the six months ended June 30, 2021. The majority of the decrease in net loss was due primarily to a decrease in other expenses associated with the loss on net change in derivative instruments estimated each period. 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 is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.
The condensed consolidated financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The accompanying condensed consolidated financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The Company has not generated significant revenue, and has negative cash flows from operations, which raise substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, raising additional capital and increasing sales. We obtained funds from investors during the six months ending June 30, 2022. 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 case of equity financing.
In connection with our sale of Series M Preferred Stock conducted under Regulation A under the Securities Act, we may be subject to claims for rescission. If this occurs, it may have a negative effect on our liquidity.
At June 30, 2022 and December 31, 2021, we had cash of $1,701,068 and $706,421, including restricted cash of $1,066,391 and $433,951, respectively and a working capital deficit of $11,273,233 and $12,826,008, respectively. The decrease in working capital deficit was due primarily to a decrease in convertible promissory notes, contracts liabilities, loan payable and contract receivables, with an increase in cash, contract assets, non-cash derivative liabilities, accounts payable and accrued expenses.
During the period ended June 30, 2022, we raised an aggregate of $2,843,700 from the sale of preferred stock in private placements. 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 $1,850,644 for the six months ended June 30, 2022, compared to $2,459,382 for the prior period ended June 30, 2021. The decrease in cash used in operating activities was primarily due to a decrease in the net change in fair value of derivative liabilities, with an increase in contract liabilities and accounts payable.
Net cash flows used in investing activities for the six months ended June 30, 2022 and 2021, were unchanged at $9,000 and $9,000, respectively.
Net cash flows provided by financing activities was $2,854,291 for the six months ended June 30, 2022, as compared to $2,591,070 for the six months ended June 30, 2021. The increase in cash provided by financing activities was due primarily to an increase in proceeds for issuance of preferred stock. 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. Although our proceeds from the issuance of securities together with revenue from operations are currently sufficient to fund our operating expenses in the near future, we will need to raise additional funds in the future so that we can maintain and expand our operations. Therefore, our future operations are dependent on our ability to secure additional financing, which may not be available on acceptable terms, or at all. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we may have to curtail our marketing and development plans and possibly cease our operations.
We have estimated our current average burn, and believe that we have assets to ensure that we can function without liquidation for a limited time, due to our cash on hand, growing revenue, and our ability to raise money from our investor base. Based on the aforesaid, we believe we have the ability to continue our operations for the immediate future and will be able to realize assets and discharge liabilities in the normal course of operations. However, there cannot be any assurance that any of the aforementioned assumptions will come to fruition and as such we may only be able to function for a short time.
We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity or capital expenditures.
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