Indicate by check mark
if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
Indicate by check mark
if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No
Indicate by check mark
whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark
whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files). ☒ Yes ☐ No
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated
filer,” “smaller reporting company,” and “emerging growth company in Rule 12b-2 of the Exchange Act.
If an emerging growth
company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark
whether the registrant has fi led a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report. ☐
If the securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error
corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
The aggregate market
value of the voting stock held by non-affiliates of the registrant was approximately $8,134,211 based upon the closing sales price
of the registrant’s common stock on June 30, 2022 of $0.0134 per share.
At April 14, 2023, 1,118,939,374 shares
of the registrant’s common stock, par value $0.0001 were outstanding.
This
Form 10-K 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:
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,” and “Business,” 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, including,
without limitation, the risks outlined under “Risk Factors” and matters described in this report generally. 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.
PART I
ITEM 1. BUSINESS.
Organizational History
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.
Overview of Business
OriginClear is a water technology
company which has developed in-depth capabilities over its 14-year lifespan. Those technology capabilities have now been organized under
the umbrella brand of OriginClear Tech Group™ (www.originclear.tech). OriginClear, under the brand of OriginClear Tech Group (“OTG”),
designs, engineers, manufactures, and distributes water treatment solutions for commercial, industrial, and municipal end markets.
OriginClear’s
assets, subsidiaries and product offerings consist of:
|
● |
A worldwide, exclusive master license to the intellectual property of Daniel M. Early, consisting of five patents and related intellectual property, know-how and trade secrets (“Early IP”). |
|
● |
The brand, Modular Water Systems (MWS), featuring products differentiated by the Early IP and complemented with additional knowhow and trade secrets. MWS is in commercial operation and operates as a division of the Company. |
|
● |
Progressive Water Treatment Inc. (“PWT”) is a wholly-owned subsidiary based in Dallas, Texas, which is responsible for a significant percentage of the Company’s revenue, specializing in engineered water treatment solutions and custom treatment systems. |
|
● |
OriginClear has incubated a new outsourced water treatment business called Water On Demand (“WOD”). The WOD model intends to offer private businesses water self-sustainability as a service - 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, 2022, the Company’s Board of Directors
approved the plan to spin off its WOD 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 WOD business. WODI is designed to select
projects, fully qualify them, provide financing for DBOO service contracts, and thereafter manage assets, contracts, clients, investors,
strategic partners and vendors. |
| ● | On January 5, 2023, WODI signed a non-binding Letter of Intent
with Fortune Rise Acquisition Corporation, a Delaware corporation (the “Fortune Rise”), under which Fortune Rise proposes
to acquire all the outstanding securities of WODI, based on certain material financial and business terms and conditions being met. |
Water Businesses
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 WOD 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 WOD business.
CWIB’s
ongoing operations include:
|
1. |
Building a network of customer-facing water brands to expand global market presence and technical expertise. These include the wholly-owned subsidiary, Progressive Water Treatment, Inc., and the Modular Water Systems brand. |
|
2. |
Managing relationships with partners worldwide who are licensees and business partners. |
|
3. |
Developing the capability of partners to build systems and to deliver Operation & Maintenance (“O&M”) capability at scale, to support Water On Demand outsourced treatment and purification programs. |
|
4. |
Continue to study the streamlining of water assets and royalties through the blockchain, as part of the $H2O™ concept. At this time there is no plan to actively develop a blockchain-based asset. |
|
5. |
Prepare properties for eventual spinoff. |
Milestones
Progressive Water Treatment Inc.
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.
PWT’s Business
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.
PWT Milestones
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.
Modular Water Systems
On
June 22, 2018, OriginClear signed an exclusive worldwide licensing agreement with Daniel “Dan” Early P. E. 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
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 pilot Pondster™ brand modular lagoon treatment system at a Mobile
Home Park (MHP) or trailer park, in Troy, Alabama.
On
June 16, 2022 the Company announced that MWS received purchase orders for approximately $1.5 Million in May of 2022. This compared to
$1,774,880 in purchase orders for the entire year 2021.
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.
On
August 12, 2022 the Company announced the inaugural delivery and installation of its pre-engineered EveraBOX™ to implement a low-risk
Liquid Ammonium Sulfate (LAS) disinfectant system for Pennsylvania’s Beaver Falls Municipal Water Authority (BFMA). Typical of MWS
products, EveraBOX is manufactured using inexpensive, long-lasting High-Density Polyethylene (HDPE) or Polypropylene (PP) materials. These
materials have proven to be less affected by supply chain issues currently impacting metal and fiberglass construction.
On
April 14, 2023, the Company announced the transfer of the MWS assets to WODI, for which WODI issued an aggregate of 6,000,000 shares of
WODI common stock.
Water on Demand™: a new strategic direction
OriginClear has developed 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”. WOD is designed to select projects, fully qualify them, provide financing for Design-Build-Own-Operate
service contracts, and thereafter manage assets, contracts, clients, investors, strategic partners and vendors.
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. The Company is now simplifying this structure by placing all funds in WOD #1 and tracking the partnerships
within that company. 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 and made available for use by WODI, to be deployed,
subject to a planned management contract.
On April 13, 2022, the Company’s Board of Directors approved
the plan to spin off its WOD business into a newly formed wholly-owned subsidiary, Water On Demand Inc., (“WODI”), as a result,
WODI holds all of the assets, liabilities, intellectual property and business operations of the Water On Demand business. In connection
with the spin off, the Company stipulated that it would exclude the WOD Subsidiaries, and the capital raised, and to be raised in the
future with respect to those entities through the sale of its Series Y offering, from the assignment of assets and will make the capital
available as part of a planned management contract. WODI is conducting an offering under Regulation A by which WODI is raising capital
to direct toward WOD projects.
To enable rapid scaling, WODI
does not itself intend to build, maintain or service the water treatment systems it finances, but instead contract with regional water
service companies to carry out these functions. On April 6, 2022, an agreement in principle was reached to work with the first of these
intended contractors, Envirogen Technologies (www.envirogen.com), a 30-year international provider of environmental technology and process
solutions (www.originclear.com/company-news/originclear-and-envirogen-to-partner-on-water-on-demand). Future resources to build, maintain
and service these financed systems may come from acquisitions; however, these are not actively being planned.
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.
At the time of this filing,
WODI has no staff or independent resources. The Board of Directors of OriginClear serves as the Board for WODI, the CEO of OriginClear
serves as CEO of WODI., and the CFO of OriginClear also serves as CFO of WODI. Under a prospective management services contract, OCLN
is providing all staffing and administrative resources, as well as access to the funds it has raised for WOD investments.
The Decentralization Megatrend
According to a 2021 report
by McKinsey & Co., US water infrastructure: Making funding count (https://www.mckinsey.com/industries/electric-power-and-natural-gas/our-insights/us-water-infrastructure-making-funding-count):
“The need for investment
in the US water system is at an unprecedented level. On average, 14 to 18 percent of total daily treated potable water in the United States
is lost through leaks, with some water systems reporting water-loss rates exceeding 60 percent. Much of the nation’s water and wastewater
infrastructure was built in the 1970s and 1980s. Since then, the share of federal capital investment has declined, putting the majority
of capital-funding responsibility on state and local governments, which are increasingly juggling funding priorities.”
“According to the American
Water Works Association’s State of the water industry report, 31 percent of utilities surveyed in 2019 expressed doubt in their
ability to cover the full cost of providing services, a figure that rose to 42 percent during the 2020 COVID-19 lockdown.
“Simply raising rates
is not a practical solution because water bills are already too high for many US households. Even before the COVID-19 pandemic, 20.0 percent
of US households in 2019 were paying more than 4.5 percent of their household income on water bills—a level that is considered unaffordable.
This figure rose to 24 percent in the first seven months of 2021 (Exhibit 3).
Figure
1: Water rates rise but utilities remain underfunded.
As municipalities continue
to be underfunded with rising water rates (Figure 1), 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).
According to the Lux Research data, the unmet infrastructure
needs of America’s 150,000+ water systems will exceed $100 billion per year by 2025. And the recent Infrastructure
Investment and Jobs Act only provided one-time funding of $55 billion, which is less than one year’s deficit.
It is this underfunding that is creating the
water quality problems we are seeing in places like Flint, Michigan and Jackson, Mississippi.
It is not realistic to expect this underfunding
of central water to be resolved anytime soon. The alternative is to simply reduce the load on these central systems. Since industry and
agriculture together account for 89% of all water demand in the United States (https://ourworldindata.org/water-use-stress), we can enable
commercial users to purify their own wastewater, thereby enabling water districts to focus on serving residential users – achieving
a major social justice victory by simply unburdening the central facilities.
Self-treatment is a win-win, too – because
businesses can do better by treating their own water; for instance, implementing recycling of the water they pay for, and controlling
their own costs.
But to make such a decentralization program work,
capital is needed. Most businesses simply do not have it in their capital plan to treat their own water. Now, with Water On Demand, they
can forget about investing in capital and expertise: they can simply continue to pay on the meter as they always have, but to a micro-utility
that sits on their own premises.
Reducing Risk through Outsourcing
Inflation of water rates greatly exceeds core inflation,
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 Water on Demand means that these companies do not have to worry about financing or managing the project.
As an example, in information technology sector,
few companies operate their own server in-house powering their website. Rather, such servers are typically managed by professionals through
a service level agreement. We believe this same concept can be applied towards water treatment, using outsourced water treatment solutions
whereby the vendor retains ownership of the equipment. This concept is expanded to “Own and Operate”, an extension of the
basic “Design and Build”, for a full offering known as “Design Build Own and Operate” or “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 and avoid significant capital expenses and management responsibilities which can be a distraction from their core
business.
We believe this is financially and operationally
attractive to industrial, agricultural and commercial water users and can potentially drive additional revenue streams for WODI by providing
water treatment as a service.
Technology specifically developed for decentralization.
In 2018, OriginClear launched its Modular Water
Systems (MWS) division (www.modularwater.com), headed by Daniel M. Early, P.E., a pioneer of on-site or decentralized water treatment
in this country. Supported by its proprietary technology, this division already serves businesses doing their own water treatment. These
modular systems can be easily put to work for pre-funded, pay-per-gallon applications, potentially creating a barrier to entry for other
companies wanting to do the same.
Also, the portable nature of some 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 may license MWS
technology to Water On Demand and other operating partners under contract to design, build and operate systems, thus achieving both acceptance
of such technology and a standardized “fleet” of installed systems.
Implementation of Water On Demand
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) which were each separately created to permit optional segmenting of capital
pools according to strategic partnerships. The Company simplified this structure by placing all funds in WOD #1 and tracks the partnerships
within that company. As they are subject to a security guaranty by the Company, the WOD Subsidiaries, and the capital raised for them
through the sale of 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.
On
April 6, 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 which will
hold the assets, liabilities, intellectual property and business operations of the Water On Demand business. Water On Demand is designed
to offer clean water systems to businesses and communities as a managed service without any capital requirement.
On
June 29, 2022, WODI announced the launch of its $300 Million offering (the “Reg D Offering”). The offering of the securities
is made pursuant to an exemption from registration under Rule 506(c) of Regulation D, to accredited investors only.
The Company requires funding in order to
execute on its Water on Demand initiative. As of the period ended December 31, 2022, the Company received aggregate funding in the amount
of $5,067,777 through the sale of its Series Y Preferred Stock dedicated to the Water on Demand program. (see Notes to Financial
Statements- Sale of Preferred Stock).
On February 17, 2023, the
Securities and Exchange Commission qualified the Offering Circular for the offering of securities by WODI pursuant to Regulation A offering
(“Reg A Offering”). The Reg A Offering is intended to accumulate capital for WODI to direct toward WOD projects. The purpose
of this Offering is to create an independent funding base for WODI and to enable the Company to provide financing for Design Build Own
and Operate lifecycle projects internally without requiring direct financial support by OCLN. OCLN will continue to provide shared administrative
services. The Reg A Offering is administered by New York-based Castle Placement (“Castle”) as the placement agent.
On March 9, 2023, the Company
announced that it launched a limited preview Reg A Offering for WODI, administered by Castle. This preview will end on April 30, 2023.
In connection with the Reg A Offering, the Company
decided to limit the Reg D Offering to $20 million.
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. Also, the Company, as represented by OCLN, is in early stage talks with partners to deliver
DBOO services, with the Company providing financing and contract management services. In the event such talks do not succeed, the Company,
represented under contract by OCLN, would need to implement its own resources for such DBOO services.
In
order to enable WODI to implement its own such resources, on April 14, 2023, the Company sold all of the assets associated with the MWS
business to WODI in exchange for 6,000,000 shares of WODI common stock.
Advisory Support for OriginClear
In September, 2020, OriginClear
announced that Philanthroinvestors had entered a strategic agreement with OriginClear and had listed the Company on its new Water Philanthroinvestors
program. At the same time, OriginClear appointed Philanthroinvestors Founder, Ivan Anz and CEO, Arte Maren to OriginClear’s Board
of Advisors.
$H2O™
On May 10, 2021, OriginClear
filed a patent application for its “System And Method For Water Treatment Incentive”, which includes blockchain technology
and non-fungible tokens (“NFT(s)”) 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.
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, an OriginClear investor and veteran technologist, to the Company’s Board of Advisors. Mr. Garcia will
advise the management team as it sets up the roadmap and chooses the resources for the $H2O project.
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.
Potential Acquisitions
and Incubations
The
Company, in its role as the 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
Patents and Intellectual Property
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.
The
license to the Early IP was included as part of the sale of the MWS assets to WODI on April 14, 2023.
The Early IP consists of combined
protection on the materials and configurations of complete packaged water treatment systems, built into containers. The patents consist
of the following:
# |
|
Description |
|
Patent No. |
|
Date
Patent
Issued |
|
Expiration
Date |
1 |
|
Wastewater System & Method |
|
US 8,372,274 B2
Applications: WIPO, Mexico |
|
02/12/13 |
|
07/16/31 |
2 |
|
Steel Reinforced HDPE Rainwater Harvesting |
|
US 8,561,633 B2 |
|
10/22/13 |
|
05/16/32 |
3 |
|
Wastewater Treatment System CIP |
|
US 8,871,089 B2 |
|
10/28/14 |
|
05/07/32 |
4 |
|
Scum Removal System for Liquids |
|
US 9,205,353 B2 |
|
12/08/15 |
|
02/19/34 |
5 |
|
Portable, Steel Reinforced HDPE Pump Station CIP |
|
US 9,217,244 B2 |
|
12/22/15 |
|
10/20/31 |
On
May 10, 2021, OriginClear announced that it had filed a patent application titled “System And Method For Water Treatment Incentive”,
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:
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more durable: an estimated 75 to 100-year life
cycle as opposed to a few decades for metal, or 40 to 50
years maximum for concrete; |
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easier to manufacture: vessels manufacturing process can be automated; and |
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recyclable and can be made out of biomaterials |
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.
PRODUCTS, TECHNOLOGY
AND SERVICES
The
Company deploys advanced technologies at the point of use, with modular, prefabricated systems that create durable assets and water independence
for industry, commerce and agriculture.
Failing
infrastructure and the rising cost of water are driving businesses to treat their own water. The Company provides on-premise systems enabling
very high purification and recycling levels that centralized systems cannot achieve. Systems installed at the point of use become productive
assets for businesses that also increase property values. Furthermore, the Company’s products help corporations improve their environmental,
social and governance (ESG) standings with water management services.
Operations & Markets
The
Company focuses on meeting the needs of businesses looking for compact, advanced water treatment technologies that can be shipped to and
installed at the point of use. The Company manufactures and distributes its professional-grade water treatment and conveyance products
to commercial and industrial customers, fielding both direct and indirect sales channels to reach end-market clients such as hotels and
resorts, real estate housing developments, office buildings, military installations, schools, farms, food and beverage manufacturers,
industrial warehouse, oil and gas producers, and medical and pharmaceutical facilities.
From
its Texas-based factory, the Company designs and prefabricates an entire line of plug-n-play containerized units called Modular Water
Systems that enable water purification, recycling and wastewater management.
These
onsite modular products provide clients with water independence through ownership and operational control over water quality, enabling
them to increase productivity while reducing environmental, health and safety risks from pollution, contamination and corrosion. Modular
water products are trusted to balance performance with cost-effectiveness, enabling business users to go well beyond municipal standards
for water quality, therefore achieving high levels of satisfaction for their own customers, and improved sustainability for their properties.
The
Company’s water treatment equipment can boost real estate asset value as a fundamental capital improvement, combined with long-lasting
water savings for the corporate bottom line.
Product Portfolio
The Company
groups its products into three main categories:
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Water Treatment: achieving high grade purification; |
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Water Conveyance: water transportation and pumping; and |
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Advanced Technologies: commercialization of innovative technologies. |
The
Company’s complete line of compact, on-site, point-of-use products include: advanced purification systems that are skid, rack-mounted
and containerized for reverse osmosis, ultrafiltration, media filtration, disinfection, water softening, ion exchange and electrodeionization
(EDI), combined as needed in small to medium commercial and industrial applications, and custom-build projects. Water conveyance products
include pump and lifting stations, modular storage tanks, and control monitoring panels.
The
Company’s line of modular water products and systems create “instant infrastructure” – fully engineered, prefabricated
and prepackaged systems that use durable, sophisticated materials. The units are available in standard capacities for onsite closed-loop
systems at commercial business locations.
The
Company’s rugged wastewater treatment plants, highly reliable pump stations, and premium water purification units typically offer
25 percent lower initial costs over conventional systems, with greater quality and full connectivity. These pump stations and wastewater
treatment products utilize high density thermo-plastics (HDPE) and proprietary, innovative prefabrication methods and materials that deliver
the longest life and strongest products.
Original Technologies
Electro
Water Separation™ (“EWS”) and Advanced Oxidation™ (“AOx”) were the Company’s original, filterless
water treatment technologies, which originated in the Company’s invention of an algae dewatering process before its transition into
the water industry.
EWS
is OriginClear’s breakthrough water cleanup technology which utilizes a catalytic process to concentrate and eliminate suspended
solids in the worst commercial and industrial wastewater.
AOx
is OriginClear’s advanced oxidation technology which generates a dense cloud of ozone, hydrogen peroxide and hydroxyl radicals,
dramatically reducing or eliminating dissolved organic microtoxins, including bacteria and viruses, hormones, drugs, pesticides such as
Roundup, and synthetics. AOx has also been shown to effectively reduce harmful chemicals such as ammonia and hydrogen sulfide –
the “rotten egg” smell in crude oil that reduces its value.
At
this time, the Company is strictly marketing the EWS/AOx technology in the context of turnkey integrators such as India’s Permionics
and Spain’s Depuporc. (Depuporc permanently terminated its operations in 2021 due to COVID-19 business disruptions and no future
business is expected). In addition, US-based Algeternal is our partner for the original algae-harvesting applications of this technology,
and reportedly continues to use Company equipment for this purpose. The Company does not maintain an internal technical staff to manage
this technology or its implementation and has no plans to do so.
Market Opportunity
On a global basis, only twenty
percent (20%) of all sewage and thirty percent (30%) of all industrial waste water are treated or recycled. Water leakage results in the
loss of thirty-five percent (35%) of all clean water across the planet. Cutting that number in half would provide clean water for 100
million people. This is a situation of great danger, but also great potential.
We believe businesses can no longer rely on giant,
centralized water utilities to meet the challenge. That is why more and more business users are doing their own water treatment and recycling.
Whether by choice or necessity, those businesses that invest in onsite water systems gain a tangible asset on their business and real
estate and can enjoy better water quality at a lower cost, especially if treated water is recycled.
We believe self-reliant businesses are quietly
building “decentralized water wealth” for themselves while also helping their communities. Environmental, social and governance
(ESG) investing guidelines, which drive about a quarter of all professionally managed assets around the world, specifically include the
key factor of how well corporations manage water.
As civil infrastructure ages and fails and
as the costs for new and replacement infrastructure increase year over year, we believe engineers and end-users will search for new ways
and methods of deploying water and wastewater systems that are less expensive to deliver and much less expensive to own and operate with
the mission intent of substantially increasing the replacement intervals currently experienced by conventional materials of construction
and conventional product delivery models.
Integration of Operating Divisions
Since being acquired by OriginClear
in 2015, Progressive Water Treatment, Inc. has evolved into the Company’s fabrication and manufacturing division for all
of the Company’s endeavors. The team at Modular Water Systems, headed by OriginClear Chief Engineer Daniel M. Early, is responsible
for design and high-level engineering, and is fully integrated with PWT for the fabrication and manufacturing division to add incremental
revenue for its modular product line, without requiring large increases in personnel.
Supplier Relationship
PWT has been purchasing equipment
from its many suppliers for over twenty years, with potential long-term benefits from the relationships.
MWS is positioned to take
advantage of PWT’s supplier relationships, but certain components are unique to MWS’s product line. In particular, SRTP pipe
is unique, for which the Company has four manufacturers, with the preferred SRTP supplier being approximately 40 miles south of PWT’s
facility.
Water On Demand
In addition to our MWS and
PWT lines of business, we also plan to expand our planned water outsourcing program known as “Design Build Own and Operate”
or “DBOO” through the launch of our Water on Demand business, which will largely be financed through our subsidiary, Water
on Demand, Inc.. Typically, DBOO has been done for very large municipal and national projects. If we are successful in raising the necessary
capital, we plan to deliver DBOO for smaller systems in the $250,000-$2,000,000 hardware range (treating between 5,000 and 100,000 gallons
per day). With a growing number of local businesses doing their own water treatment, we see this as a promising and underserved market.
CUSTOMERS AND MARKETS
Current
water and wastewater treatment infrastructure faces a crisis. The prohibitive cost of repairing buried and aging infrastructure and the
need to decrease energy use and waste in the water industry offers an opportunity for a complete design rethink. New technologies, often
utilizing membranes, can decentralize water and wastewater infrastructure while improving water reuse by treating to a high standard at
a small scale close to the source of generation. Additionally, new automated analytics offer solutions for these more complex decentralized
solutions. (Lux Research: The Future of Decentralized Water, June 28, 2016). PWT has designed and fabricated water treatment systems for
over twenty years. Major markets include:
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Potable Water for Small Communities |
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Recirculated and Makeup Boiler and Cooling Tower Water |
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Produced Water & Frac Flowback Water |
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Food and Beverage Feed and Effluent Waters |
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Mining Effluent |
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Ground Water Recovery |
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Agriculture Effluent |
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Environmental Water Treatment for Reuse |
Describing
the water and wastewater treatment market as a pyramid, we put the major cities at the top of the pyramid, medium size cities in the middle
and smaller towns, counties, cities, townships, state agencies, federal agencies, private individuals, commercial entities, industrial
facilities, agriculture facilities at the base of the pyramid.
We
believe there are more opportunities at the base of the pyramid where the market opportunities are decentralized. Focusing on this market
also helps us avoid the very competitive, low-profit and slow-growing market in the big city municipalities.
“The
decentralized packaged/containerized water and wastewater treatment systems market, covering end users segments such as municipal, industrial,
and commercial. The study forecasts the global market revenue to increase from $3.99 billion in 2016 to $6.08 billion in 2023, growing
at a compound annual growth rate (CAGR) of 6.2%”.1
This
is the market for MWS-engineered products and infrastructure solutions. As civil infrastructure ages and fails and as the costs for new
and replacement infrastructure increase year over year, we believe engineers and end-users will search for new ways and methods of deploying
water and wastewater systems that are less expensive to deliver and much less expensive to own and operate with the mission intent of
substantially increasing the replacement intervals currently experienced by conventional materials of construction and conventional product
delivery models.
Sales and Marketing
PWT’s
sales strategy differs from MWS’s efforts. PWT sales are dependent upon relationships with past end-use customers and certain manufacturers’
representatives who have relationships with their regional end use customers. MWS’s sales strategy is based on developing relationships
with consulting engineers and general contractors as opposed to end-use customers.
As
MWS sales strategies develop, PWT believes it will gain recognition with various consulting engineers and general contractors. PWT and
MWS are currently developing a stronger national representatives network to take advantage of the relationship the sales representatives
have gained with engineers, contractors and end use customers.
PWT
and MWS have substantial experience in the water & wastewater market and as well as: conventional technologies and their limitations,
new technologies, the size and demand of the market and how products are specified and implemented. They also have a strong customer focus
throughout the organization to discover and diagnose the customer needs, design and deliver comprehensive solutions.
We
believe the keys to capitalizing on the market are visibility, relationships, market understanding, and direct access to the opportunities.
Strong marketing programs are also essential, and include: websites with solutions & credibility, sales support tools like literature&
webinars and trade show presence.
Water
industry projects move slowly. Most product lines for each of PWT and MWS are considered “pipeline” products and have a gestational
period of 6 months to 3 years. We believe the best strategy to increase the pipeline of opportunities is to have more sales reps with
relationships with engineers, contractors and end users.
Competition
PWT
shares the market with a large number of suppliers which also provide system integration using multiple technologies. These include California’s
PureAqua, Florida’s Harn RO, and Illinois’ Membrane Specialists. We believe PWT’s market share differs from those competitors
in areas such as regional focus, customer loyalty, market focus, limited sales representation and other. For instance, 80%+ of PureAqua’s
business in the Middle East, Harn RO focuses on drinking water systems for medium to large cities in the SE, Membrane Specialist focuses
on tubular membranes and many more examples.
The
Company is not aware of any direct competitors to MWS that are building complete water, wastewater treatment systems, and pump stations
utilizing SRTP type materials. There are several manufacturers which build metal prepackaged systems, such as Georgia’s AdEdge;
however, such companies do not offer the range of hybrid treatment processes available through MWS. The major indirect competition continues
to be custom designed and on-site constructed concrete & steel systems. Some fiberglass is used but is very difficult to detail, is
brittle and again, has a limited life compared to SRTP systems.
While
manufacturers of SRTP pipe could be competitors, none of MWS’s suppliers, other than Contech, for a short period of time, has sold,
or intends to sell, comparable systems to MWS’s. Their focus is simply to sell miles of pipe.
| 1 | Global Decentralized Packaged/Containerized
Water and Wastewater Treatment Systems Market, Forecast to 2023, https://www.reportbuyer.com/product/4948731/global-decentralized-packaged-containerized-water-and-wastewater-treatment-systems-market-forecast-to-2023.html. |
Growth Opportunities
National Sales Rep
Network
In
the first quarter of 2019, the Company worked to help PWT and MWS identify seasoned sales representatives across the country through recommendations
from those with deep industry knowledge. Those particular representatives were contacted and meetings set to discuss the mutual opportunity.
On February 5, 2019, the Company reported on initial positive results.
By
early June of 2019, seven additional organizations had signed agreements. These additional organizations cover twenty-two additional states
with about thirty new representatives. Training has been completed and new potential projects have been presented to PWT and MWS.
Additional
sales managers, engineers and project managers will be needed for both PWT and MWS with additional production facilities necessary for
PWT. The process of hiring additional personnel and obtaining additional facilities is underway.
Domestic versus International
The
market opportunity for each of PWT and MWS is not limited to the United States. The US only represents 5% of the world’s population.
In addition, a great deal of that population resides in undeveloped regions or regions with poor treatment systems. We believe implementing
MWS’s and PWT’s decentralized technology throughout the world with joint ventures has the potential to have a significant
effect on our revenue growth.
Standardization
MWS
is developing standardized designs and commoditized product engineering (eliminating the custom consulting engineering work reduces overall
project costs), the goal being to design a single product once and use said design as a blueprint for future products. Our goal is to
continue driving the standardization and completion of each product’s engineer technical package, using computer design algorithms
and standard design approaches, so that engineering costs may potentially decrease to less than 1% for each unit sold, with a long-term
goal of less than 0.1%.
Sharing Technology
& Projects
PWT’s
systems remove suspended solids, oils, metals, and dissolved chemicals & salts. MWS’s focus is on the removal of organic contaminants.
It is not uncommon for a waste stream of water to be contaminated with both inorganics and organics, for example, many current animal
farms with large amounts of waste effluent that currently is pumped to lagoons that are no longer meeting environmental standards. In
the alternative, the water can be treated in-line with MWS products to remove the organics, then PWT’s systems used to remove dissolved
inorganics to create water suitable for irrigation or drinking water for the animals. In addition, OriginClear’s proprietary technologies
have been shown to successfully treat problems such as animal farm effluents.
By
combining these technologies, the offering to customers becomes stronger and more effective. And both companies benefit from a new opportunity.
More Specific Opportunities
for PWT
We
are interested in exploring the following opportunities, but we have no timeline for their implementation:
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Build and promote a fleet of rental treatment systems mounted on trailers or containers. It is very common for a rental to be purchased outright. As a result, PWT’s rental fleet must be continuously replenished. |
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Develop a standard digital product line through 3-D CAD programs and market it as virtual inventory, with components on hand and engineering already done. |
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Expand production capabilities with new equipment that would lower the labor cost of production. For instance, acquire tooling that would minimize the hand tool labor. |
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Develop more services business such as membrane cleaning or resin regeneration. |
More Specific Opportunities
for MWS
MWS
has developed a grey/black water treatment system for forward operating basis called Expeditionary Wastewater Recycling Systems (EWRS):
Patent pending, US Army Human Health Command approved, fully automated, certified wastewater recycling solution which can be sold to all
DOD divisions, FEMA and NGOs.
Another
new product still being incubated is building manholes utilizing SRTP versus the current precast concrete approach.
Organization
MWS has historically been integrated with PWT however,
on April 14, 2023, the Company sold certain assets related to its Modular Water Service business to its wholly owned subsidiary Water
on Demand, Inc. in exchange for 6,000,000 shares of Water on Demand, Inc. common shares. The assets included certain licenses, intellectual
property and contracts.
The Company supports PWT and
WODI including MWS with various administrative, accounting and marketing functions, from the Company’s headquarters in Florida.
MWS personnel are primarily located in Virginia remote locations.
Facilities and Equipment
Manufacturing
PWT
currently leases its facility. The facility is located at 2535 E. University Drive, McKinney, Texas 75069. There are five buildings totaling
12,400 square feet on the 1.7 acres of land. There is additional expansion space for several more assembly buildings when and if needed.
PWT’s
in-house engineers and designers utilize modern 3-D CAD programs to design all of the systems sold by PWT. They also design, program and
build all of the control systems and the Internet-connected Process Logic Control (PLC) video screen interfaces.
PWT
in-house craftsmen complete the metal and plastic machining, welding and assembly of PWT’s and MWS’s systems.
MWS
engineering resources are provided both internally and externally. Daniel Early leads the engineering program and relies on support from
engineering personnel and PWT to assist with manufacturing and engineering. MWS subcontracts engineering support to PWT, which employs
its own established and experienced engineering team. MWS also subcontracts 2D and 3D engineering design work to outside vendors to assist
in the development of standardized drawings and proposals.
MWS’s
specialized manufacturing is currently outsourced to PWT and others. PWT provides substantial critical manufacturing support to MWS; this
support takes the form of various sub assembly fabrication (membrane modules, equipment skids, MWS equipment buildings, etc.). PWT is
the sole source provider for MWS’s integrated control panels. In addition to PWT, heavy plastic and or custom plastic manufacturing
is provided by a company in Roanoke, Virginia and another in Ontario, Canada. Additional sub-contract manufacturing is available through
fabricators in Hopkins, MO, Corsicana, TX, and Vernon Hills, IL.
The
Company plans to transition the plastic fabrication of MWS’s pump stations and wastewater treatment systems to PWT from current
subcontractors. There is no timeline for this, as it will require an additional 2,400 to 3,000 square foot building for assembly, engineers
and project managers.
The
components such as pumps, membranes and instruments will be acquired either through PWT’s or MWS’s normal vendors. The large
diameter SRTP pipe will be acquired from a fabricator located about 40 miles south of Dallas.
The
building blocks of all systems are metal reinforced or structural profile wall reinforced thermoplastics pipe (SRTP) available from one
of over a half dozen pipe suppliers. Being pipes they are manufactured to be sold into high volume applications and are very economical
for MWS’s high value applications. MWS purchases these plastic cylinders up to 11’ in diameter and are utilized as the vessel
or housing part of the water treatment systems.
More
efficient fabrication and assembly equipment are available at relatively little cost to expedite the fabrication time and improve the
quality. Some of that equipment includes CNC waterjet, large diameter core drills, fusion welders and roto molders.
Acquisitions
The
Company’s strategy is to grow incrementally by focusing on the water treatment services market, acquiring the hands-on service suppliers
in this market. It intends to continue to develop a network of wholly owned water treatment companies to meet the needs of end users from
all industries with a full range of treatment technologies. Due to increased regulation, water treatment recycling challenges and a need
to focus on their own core business, many water users today are outsourcing their water treatment needs to outside experts. In addition,
we have identified a major trend in decentralization of water treatment, which we believe will cause small water service companies to
grow. There will be significant synergies within OTG as technology, manufacturing expertise, market knowledge, projects and opportunities
are shared. The target acquisitions must be accretive in nature with solid sales growth and profitability. The acquired companies must
have a solid management team to accelerate their previous growth with excellent customer service. Initially, the acquisition focus is
in the U.S. but will be expanded internationally in a few years.
The
Company believes that the policy of building business units from internal cash flow can be productive. It did so with the Daniel Early/MWS
project and is now beginning the process again with Water On Demand and potentially in the future, the $H2O blockchain system.
Intellectual Property
Status of Original
Inventions:
Early
developments of the Company’s intellectual property focused on algae harvesting. Beginning in 2015, the Company applied this knowledge
to water treatment and began development of EWS.
In
2018, OriginClear reorganized its intellectual property portfolio to focus exclusively on its electrochemical water treatment solution
with advanced oxidation (EWS plus AOx).
The
Company has chosen to protect certain intellectual property with trade secrets rather than patents. Accordingly, OriginClear no longer
actively maintains the patent applications and patents to its EWS and AOx technologies, willingly deeding them to the water industry as
an open resource. The Company intends to reserve to itself and its partners the protected communication of further discoveries and trade
secrets relative to the EWS and AOx technology domains.
At
this time, the Company is not actively pursuing the development of the EWS or AOx technologies.
Patents:
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On May 10, 2021, OriginClear announced that it 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. The application status is provisional. |
Trademarks:
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On April 2, 2015, we filed a trademark application with the USPTO to protect the intellectual property rights for our wordmark “OriginClear”. On August 16, 2016, the wordmark was registered with Registration Number 5023444. The registration is current. |
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On April 8, 2015, we filed a trademark application with the USPTO to protect the intellectual property rights for our current company logo “OriginClear” with the stylized “O”. On August 16, 2016, the mark was registered with Registration Number 5027992. The registration is current. |
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On January 17, 2021, we filed a trademark application with the USPTO to protect the intellectual property rights for “Waterpreneur”. The current filing basis is “Use in commerce” (under Trademark Act Section 1(a)). Worldwide registration is in process of completion. |
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On May 16, 2021, we filed a trademark application with the USPTO for the mark “$H2O”. The current filing basis is “Intent-to-use basis” (under Trademark Act Section 1(b)). Worldwide registration is in process of completion. |
Licensed Patents:
On
June 25, 2018, Daniel 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. See “Products, Technology and Services—Patents”.
Employees
As of April 17, 2023, we had
35 employees, all of whom are full-time.
ITEM 1A. RISK FACTORS
Risks Relating to Our
Business
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:
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Successfully execute our business strategy; |
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Respond to competitive developments; and |
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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.
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, 2022, and 2021, we had working capital (deficit) of $(14,245,179) and
$(12,826,008), respectively, and shareholders’ (deficit) of $(26,016,787) and $(22,321,917), respectively. For the years ended December
31, 2022 and 2021, we incurred net loss of $(10,790,721) and $(2,117,781), respectively. During the year ended December 31, 2022, we had
a loss from operations of $6,582,722. As of December 31, 2022, we had an aggregate accumulated deficit of $108,966,645. 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, 2022 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.
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.
We have incurred substantial indebtedness.
As
of December 31, 2022, we had outstanding convertible promissory notes in the aggregate amount of $4,274,255. 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:
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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; |
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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; |
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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; |
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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; |
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limit our flexibility in planning for, or reacting to, changes in business and the industry in which we operate; and |
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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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Risks Related to Our
Intellectual Property
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.
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.
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.
Risks Related to Our
Common Stock
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
ITEM 1B. UNRESOLVED
STAFF COMMENTS.
Not
applicable.
ITEM 2. PROPERTIES.
Our
principal corporate offices are located at 13575 58th Street North, Suite 200, Clearwater, FL 33760. Our Dallas based subsidiary, PWT,
rents an approximately 12,000 square foot facility located at 2535 E. University Drive, McKinney, TX 75069, with a current monthly rent
of $8,150. We believe these facilities are suitable and adequate to meet our current business requirements.
ITEM 3. LEGAL PROCEEDINGS.
On March
12, 2021, OriginClear, Inc. Progressive Water Treatment, Inc. and T. Riggs Eckelberry, individually (collectively, the “C6 Plaintiffs”),
and C6 Capital LLC (“C6 Capital”) agreed to settle the dispute between the parties relating to a merchant cash advance agreement
entered into on July 17, 2018. Pursuant to the terms of the settlement agreement, (i) C6 has vacated the judgment obtained by C6
Capital against the C6 Plaintiffs; (ii) C6 has released any and all bank levies, liens, security interests, powers of attorney, and
other encumbrances its has against the C6 Plaintiffs; (iii) the C6 Plaintiffs have dismissed the plenary action commenced in the
Supreme Court for the State of New York in and for the County of Broome against C6 Capital with prejudice and; (iv) the sister-state
judgment C6 Capital obtained against the C6 Plaintiffs in California is currently in the process of being vacated by stipulation. Accordingly,
the C6 Plaintiffs no longer owe any further amounts to C6 Capital with respect to the settlement agreement.
On February 12, 2019, Auctus
Fund, LLC (“Auctus”) filed a complaint against OriginClear in the United States District Court for the District of
Massachusetts for numerous claims arising from two convertible promissory notes and accompanying securities purchase agreements. On March
13, 2019, Auctus and OriginClear entered into a Settlement Agreement and Mutual General Release, under which Auctus would be permitted
to convert $570,000 into OriginClear securities pursuant to the terms set forth in the convertible promissory notes. On February 2, 2021,
OriginClear filed a Motion to Set Aside the Settlement Agreement as Void under Section 29(b) of the Securities Exchange Act of 1934 (the
“Act”) for Auctus’ violation of Section 15(a) of the Act. On February 21, 2023, the Court denied OriginClear’s
Motion to Set Aside the Settlement Agreement. On March 8, 2023, OriginClear appealed the Court’s decision to the United States Court
of Appeals for the First Circuit.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
The accompanying notes are an integral part of these audited consolidated financial statements
The accompanying notes are an integral part of these audited consolidated financial statements
The accompany notes are an integral part of these audited consolidated financial statements
The accompany notes are an integral part of these audited consolidated financial statements
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
AUDITED
DECEMBER 31, 2022 AND 2021
1. |
ORGANIZATION AND LINE OF BUSINESS |
Organization
OriginClear, Inc. (the “Company”)
was incorporated in the state of Nevada on June 1, 2007 . The Company, which was then based in Los Angeles, California, began operations
on June 1, 2007. The Company began its planned principal operations in December, 2010, at which time it exited the development stage.
In December 2014, the Company
formed a wholly owned subsidiary, OriginClear Technologies Limited (OCT), formerly OriginClear (HK) Limited in Hong Kong, China. The Company
granted OCT a master license for the People’s Republic of China. In turn, OCT was expected to license regional joint ventures for
water treatment. On January 22, 2020 the Company entered into a strategic partnership with Permionics Separations Solutions,
Inc., a unit of India’s Permionics Group (“Permionics”) for the Asia-Pacific Region and terminated all activities of
OCT in Hong Kong, China, working instead with Permionics when applicable. As of December 31, 2022, OCT has limited assets and no current
operations.
On October 1, 2015, the Company completed
the acquisition of 100% of the total issued and outstanding stock of Progressive Water Treatment, Inc. (“PWT”). PWT, which
is based in Dallas, Texas, is responsible for a significant percentage of the Company’s revenue, specializing in engineered water
treatment solutions and custom treatment systems and is included in these consolidated financial statements as a wholly owned subsidiary.
On July 19, 2018, the Company announced
the launch of its Modular Water Treatment Division - Modular Water Systems (“MWS”).
MWS designs, manufactures and implements advanced prepackaged wastewater treatment, pump stations and custom systems with primary focus
on decentralized opportunities away from the very competitive large municipal wastewater treatment plants. These decentralized opportunities
include: rural communities, housing developments, industrial sites, schools and many more. MWS is
a division of PWT.
In May 2020, the Company relocated
its principal offices to 13575 58th Street North, Suite 200, Clearwater, FL 33760.
On April 13, 2021, the Company announced
formation of a wholly-owned subsidiary called Water On Demand #1, Inc. (“WOD #1”) to launch its newly incubated outsourced
water treatment business called Water On Demand (“WOD”). The WOD model intends to offer private businesses water self-sustainability
as a service - 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 May 10, 2021, the Company 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. On May 16, 2021, the Company applied for a registered trademark for the mark $H2O as the
blockchain system representing this activity. As of December 31, 2022, there is no plan to actively develop a blockchain-based asset.
The Company is aware of a high level of regulatory oversight in this area, and if implementation of $H20 is delayed or terminated altogether
by reason of regulatory issues, it will employ traditional payment systems.
In November 2021, the Company created
additional Water on Demand (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 in November 2021 to permit optional segmenting of
capital pools according to strategic partnerships. The Company is now simplifying this structure by placing all funds in WOD #1 and tracking
the partnerships within that company.
On April 13, 2022, the Company’s
Board of Directors approved the plan to spin off its WOD 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 WOD business. WODI is designed to select
projects, fully qualify them, provide financing for DBOO service contracts, and thereafter manage assets, contracts, clients, investors,
strategic partners and vendors.
On December 22, 2022, WODI entered
into a Membership Interest Purchase and Transfer Agreement (the “Purchase Agreement”) with Ka Wai Cheung, Koon Lin Chan, and
Koon Keung Chan (each a “Seller”, and collectively, the “Sellers”) and Fortune Rise Sponsor LLC, a Delaware limited
liability company (the “Sponsor”), pursuant to which WODI purchased 100 membership interests in the Sponsor (“Purchased
Interests”) from the Sellers, which constitutes 100% of the membership interests in the Sponsor. The Sponsor owns 2,343,750 shares
out of 2,443,750 shares of the issued and outstanding shares of Class B common stock (the “Class B Common Stock”) of Fortune
Rise Acquisition Corporation, a Delaware Corporation (the “SPAC”). On December 29, 2022, the Company announced that its subsidiary,
Water On Demand, Inc. has closed the acquisition of Fortune Rise Sponsor, LLC, which is the sponsor of Fortune Rise Acquisition Corp.
On January 5, 2023, WODI signed a non-binding
Letter of Intent with Fortune Rise Acquisition Corporation, a Delaware corporation (“Fortune Rise”), under which Fortune Rise
proposes to acquire all the outstanding securities of WODI, based on certain material financial and business terms and conditions being
met.
On February 7, 2023, Fortune Rise Acquisition
Corporation (Nasdaq: FRLA) and OriginClear Inc. announced that WODI deposited $977,500 (the "Second Extension Payment") into
the Company's trust account for its public shareholders, representing $0.10 per public share, which enables FRAC to extend the period
of time it has to consummate its initial business combination by an additional three months from February 5, 2023 to May 5, 2023 (the
"Second Extension").
In a meeting on April 10, 2023, FRAC
shareholders agreed to a final extension of the period of time it has to consummate its initial business combination by an additional
six months from May 5, 2023 to November 5, 2023.
Line of Business
OriginClear is a water technology company
and a provider of water treatment solutions as a master licensee of a breakthrough water equipment technology. The Company has developed
in-depth capabilities under the umbrella brand of OriginClear Tech Group™ (www.originclear.tech). OTG designs, engineers, manufactures,
and distributes water treatment solutions for commercial, industrial, and municipal end markets. This technology enables the Company to
offer prefabricated, modular water systems, which are suited for local businesses. The Company also plans to deploy this technology for
outsourced water treatment programs in which the customer pays by the gallon, without capital expenditure. Blockchain technology may be
employed to streamline payments. Through the acquisition of Progressive Water Treatment Inc., the Company is primarily engaged in providing
water treatment systems and services for a wide variety of applications and component sales.
Going Concern
The accompanying 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 financial statements do not reflect any adjustments that might result
if the Company is unable to continue as a going concern. These factors, among others raise substantial doubt about the Company’s
ability to continue as a going concern. Our independent auditors, in their report on our audited financial statements for the year ended
December 31, 2022 expressed substantial doubt about our 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, achieving a level of profitable
operations and receiving additional cash infusions. During the year ended December 31, 2022, the Company obtained funds from the
issuance of convertible note agreements and from sale of its preferred stock. Management believes this funding will continue from its’
current investors and from new investors. The Company also generated revenue of $10,376,573 and has standing purchase orders and open
invoices with customers, which will provide funds for operations. Management believes the existing shareholders, the prospective new investors
and future sales will provide the additional cash needed to meet the Company’s obligations as they become due and will allow the
development of its core business operations. 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.
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICES |
This summary of significant accounting
policies of the Company is presented to assist in understanding the Company’s financial statements. The financial statements and
notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting
policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the
preparation of the financial statements.
Principles of Consolidation
The accompanying consolidated financial
statements include the accounts of OriginClear, Inc. and its wholly owned operating subsidiaries, Progressive Water Treatment, Inc., Water
on Demand Inc., Water On Demand1, Inc., Water On Demand2, Inc., Water On Demand3, Inc. and OriginClear Technologies, Ltd. All material
intercompany transactions have been eliminated upon consolidation of these entities.
Cash and Cash Equivalent
The Company considers all highly liquid
investments with an original maturity of three months or less to be cash equivalents.
Concentration Risk
Cash includes amounts deposited in
financial institutions in excess of insurable Federal Deposit Insurance Company (FDIC) limits. At times throughout the year, the Company
may maintain cash balances in certain bank accounts in excess of FDIC limits. As of December 31, 2022, the cash balance in excess of the
FDIC limits was $1,104,814. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant
credit risk in these accounts.
Use of Estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America 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 impairments and estimations of long-lived
assets, revenue recognition on percentage of completion type contracts, allowances for uncollectible accounts, warranty reserves, inventory
valuation, derivative liabilities and other conversion features, fair value investments, 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.
Net Earnings (Loss) per Share Calculations
Basic loss per share calculation is
computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares available. Diluted
earnings per share is computed similarly to basic earnings per share except that the denominator is increased to include securities or
other contracts to issue common stock that would have been outstanding if the potential common shares had been issued and if the additional
common shares were dilutive. The Company’s diluted earnings per share were not the same as the basic loss per share for the years
ended December 31, 2022 and 2021, respectively, as the inclusion of any potential shares in the year ended December 31, 2022, would have
had an anti-dilutive effect due to the Company generating a loss.
| |
For the Years Ended | |
| |
2022 | | |
2021 | |
Loss to common shareholders (Numerator) | |
$ | (10,790,721 | ) | |
$ | (4,155,630 | ) |
| |
| | | |
| | |
Basic weighted average number of common shares outstanding (Denominator) | |
| 679,049,314 | | |
| 180,500,778 | |
| |
| | | |
| | |
Diluted weighted average number of common shares outstanding (Denominator) | |
| 1,565,960,918 | | |
| 180,500,778 | |
The Company excludes issuable shares
from warrants, convertible notes and preferred stock, if their impact on the loss per share is anti-dilutive and includes the issuable
shares if their impact is dilutive.
| |
Anti-dilutive shares | | |
Dilutive shares | |
December 31, 2022 | |
| | |
| |
Warrant shares | |
| 94,973,989 | | |
| | |
Convertible debt shares | |
| 1,416,717 | | |
| 886,911,604 | |
Preferred shares | |
| 31,500,000 | | |
| | |
| |
| | | |
| | |
December 31, 2021 | |
| | | |
| | |
Warrant shares | |
| 206,638,283 | | |
| | |
Convertible debt shares | |
| 407,916,803 | | |
| | |
Preferred shares | |
| 33,037,213 | | |
| | |
Revenue Recognition
We recognize revenue when services
are performed, and at the time of shipment of products, provided that evidence of an arrangement exists, title and risk of loss have passed
to the customer, fees are fixed or determinable, and collection of the related receivable is reasonably assured.
Revenues and related costs on construction
contracts are recognized as the performance obligations for work are satisfied over time in accordance with Accounting Standards Codification
(“ASC”) 606, Revenue from Contracts with Customers. Under ASC 606, revenue and associated profit, will be recognized as the
customer obtains control of the goods and services promised in the contract (i.e., performance obligations). All un-allocable indirect
costs and corporate general and administrative costs are charged to the periods as incurred. However, in the event a loss on a contract
is foreseen, the Company will recognize the loss as it is determined.
Revisions in cost and profit estimates
during the course of the contract are reflected in the accounting period in which the facts for the revisions become known. Provisions
for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance,
job conditions, and estimated profitability, including those arising from contract penalty provisions, and final contract settlements,
may result in revisions to costs and income, which are recognized in the period the revisions are determined.
Contract receivables are recorded on
contracts for amounts currently due based upon progress billings, as well as retention, which are collectible upon completion of the contracts.
Accounts payable to material suppliers and subcontractors are recorded for amounts currently due based upon work completed or materials
received, as are retention due subcontractors, which are payable upon completion of the contract. General and administrative expenses
are charged to operations as incurred and are not allocated to contract costs.
Contract Receivable
The Company bills its customers in
accordance with contractual agreements. The agreements generally require billing to be on a progressive basis as work is completed. Credit
is extended based on evaluation of clients financial condition and collateral is not required. The Company maintains an allowance for
doubtful accounts for estimated losses that may arise if any customer is unable to make required payments. Management performs a quantitative
and qualitative review of the receivables past due from customers on a monthly basis. The Company records an allowance against uncollectible
items for each customer after all reasonable means of collection have been exhausted, and the potential for recovery is considered remote.
The allowance for doubtful accounts was $17,315 and $0 as of December 31, 2022 and 2021, respectively. The net contract receivable balance
was $2,479,123 and $2,150,967 at December 31, 2022 and 2021, respectively.
Indefinite Lived Intangibles and
Goodwill Assets
The Company accounts for business combinations
under the acquisition method of accounting in accordance with ASC 805, “Business Combinations,” where the total purchase price
is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values. The
purchase price is allocated using the information currently available, and may be adjusted, up to one year from acquisition date, after
obtaining more information regarding, among other things, asset valuations, liabilities assumed and revisions to preliminary estimates.
The purchase price in excess of the fair value of the tangible and identified intangible assets acquired less liabilities assumed is recognized
as goodwill.
The Company tests for indefinite lived
intangibles and goodwill impairment in the fourth quarter of each year and whenever events or circumstances indicate that the carrying
amount of the asset exceeds its fair value and may not be recoverable. In accordance with its policies, the Company performed a qualitative
assessment of indefinite lived intangibles and goodwill at December 31, 2022 and 2021, and determined there was no impairment of indefinite
lived intangibles and goodwill.
Prepaid Expenses
The
Company records expenditures that have been paid in advance as prepaid expenses. The prepaid expenses are initially recorded as assets,
because they have future economic benefits, and are expensed at the time the benefits are realized. The prepaid expenses balance was $25,000
and $13,111 at December 31, 2022 and December 31, 2021, respectively.
Advertising Costs
The Company expenses the cost of advertising
and promotional materials when incurred. The advertising costs were $206,285 and $184,017 for the years ended December 31, 2022 and 2021,
respectively.
Property and Equipment
Property and equipment are stated at
cost. Gain or loss is recognized upon disposal of property and equipment, and the asset and related accumulated depreciation are removed
from the accounts. Expenditures for maintenance and repairs are charged to expense as incurred, while expenditures for addition and betterment
are capitalized. Furniture and equipment are depreciated on the straight-line method and include the following categories:
Estimated Life | |
|
Machinery and equipment | |
5-10 years |
Furniture, fixtures and computer equipment | |
5-7 years |
Vehicles | |
3-5 years |
Leasehold improvements | |
2-5 years |
| |
December 31, | |
| |
2022 | | |
2021 | |
Machinery and Equipment | |
$ | 383,569 | | |
$ | 383,569 | |
Computer Equipment | |
| 66,493 | | |
| 62,854 | |
Furniture | |
| 29,810 | | |
| 29,810 | |
Leasehold Improvements | |
| 26,725 | | |
| 26,725 | |
Vehicles | |
| 64,276 | | |
| 64,276 | |
Demo Units | |
| 36,139 | | |
| 36,139 | |
| |
| 607,012 | | |
| 603,373 | |
Less accumulated depreciation | |
| (429,943 | ) | |
| (389,982 | ) |
Net Property and Equipment | |
$ | 177,069 | | |
$ | 213,391 | |
Long-lived assets held and used by
the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. In the event that the facts and circumstances indicate that the cost of any long-lived assets may be impaired, an
evaluation of recoverability would be performed following generally accepted accounting principles.
Depreciation expense during the year
ended December 31, 2022 and 2021, was $39,959 and $44,817, respectively.
Other Assets
1. | Long Term Asset Held for Sale |
On
March 1, 2021, the Company issued an aggregate of 630 shares of Series T Preferred Stock to an accredited investor (the “Purchaser’’)
per terms of a Securities Purchase Agreement (the “SPA”). Per the SPA, the Company agreed to sell to Purchaser, and Purchaser
agreed to purchase from the Company, 630 shares of the Company’s Series T, and two-year cashless warrants to acquire 25,200,000 shares
of the Company’s common stock, valued at $0.05 per share per terms of the SPA, which may be exercised at any time in whole
or in part. The purchaser and the Company agreed that in lieu of the purchase price for the Series T, the Purchaser transferred to the
Company real property, with an aggregate value agreed to be $630,000 based on an appraisal from an international independent company.
The real property consists of residential real estate in Buenos Aires Argentina valued at $580,000, and eight undeveloped lots valued
at $50,000 in Terralta private neighborhood development. The real property exchanged for 630 shares of Series T was recorded
at $630,000 and reflected on the balance sheet as a long term asset for sale.
The
Company has actively listed the residential real property for sale since July 2021. However, based on indicator of impairment, during
the year ended December 31, 2021, the Company adjusted the original value of the long term asset for sale from $630,000 to $514,000 on
the balance sheet and recorded an impairment of $116,000 in the consolidated financial statements.
Throughout
the year 2022, the Company continued its efforts to sell the residential real property and after evaluating several offers, it is now
actively pursuing an offer for $400,000, which is $114,000 below the previously adjusted value and is indicative of the current real estate
market conditions in Buenos Aires, Argentina. Based on that indicator of impairment, during the year ended December 31, 2022, the Company
further adjusted the previous value of the long term asset for sale from $514,000 to $400,000 on the balance sheet and recorded an impairment
of $114,000 in the consolidated financial statements.
2. | Stock-Based Compensation |
The Company periodically issues stock
options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company
accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial
Accounting Standards Board whereas the value of the award is measured on the date of grant and recognized over the vesting period. The
Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance
of the Financial Accounting Standards Board whereas the value of the stock compensation is based upon the measurement date as determined
at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity
instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line
basis. In certain circumstances where there are no future performance requirements by the non-employee, option grants vest immediately
and the total stock-based compensation charge is recorded in the period of the measurement date.
Accounting for Derivatives
The Company evaluates all its financial
instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative
financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is
then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative
financial instruments, the Company uses a probability weighted average series Binomial lattice option pricing models to value the derivative
instruments at inception and on subsequent valuation dates.
The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative
instrument liabilities are classified in the balance sheet as current or non-current based on whether or not the net-cash settlement of
the derivative instrument could be required within 12 months of the balance sheet date.
Fair Value of Financial Instruments
Fair Value of Financial Instruments
requires disclosure of the fair value information, whether or not to recognized in the balance sheet, where it is practicable to estimate
that value. As of December 31, 2022, the balances reported for cash, contract receivables, cost in excess of billing, prepaid expenses,
accounts payable, billing in excess of cost, and accrued expenses approximate the fair value because of their short maturities.
We adopted ASC Topic 820 for financial
instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair
value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.
Fair value is defined as the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and
the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
|
● |
Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; |
|
|
|
|
● |
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
|
|
|
|
● |
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
The following table presents certain
investments and liabilities of the Company’s financial assets measured and recorded at fair value on the Company’s balance
sheets on a recurring basis and their level within the fair value hierarchy as of December 31, 2022 and 2021.
| |
Total | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
Investment at fair value-securities, December 31, 2022 | |
$ | 29,525 | | |
$ | 29,525 | | |
$ | - | | |
$ | - | |
Investment at fair value-securities, December 31, 2021 | |
$ | 216,518 | | |
$ | 216,518 | | |
$ | - | | |
$ | - | |
| |
Total | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
Derivative Liability, December 31, 2022 | |
$ | 9,578,904 | | |
$ | - | | |
$ | - | | |
$ | 9,578,904 | |
Derivative Liability, December 31, 2021 | |
$ | 6,526,129 | | |
$ | - | | |
$ | - | | |
$ | 6,526,129 | |
The derivative liabilities consist of $8,112,220
for convertible notes outstanding and $1,466,684 for warrants outstanding for an aggregate of $9,578,904.
The following is a reconciliation of
the derivative liability for which level 3 inputs were used in determining the approximate fair value:
Balance as of January 1, 2021 | |
$ | 12,310,307 | |
Fair value of derivative liabilities issued | |
| 54,652 | |
Net loss on conversion of debt and change in derivative liabilities | |
| (5,838,830 | ) |
Balance as of December 31, 2021 | |
| 6,526,129 | |
Net gain on conversion of debt and change in derivative liabilities | |
| 3,052,775 | |
Balance as of December 31, 2022 | |
$ | 9,578,904 | |
For purpose of determining the fair
market value of the derivative liability, the Company used Binomial lattice formula valuation model. The significant assumptions used
in the Binomial lattice formula valuation of the derivative are as follows:
| |
| 12/31/2022 | | |
| 12/31/2021 | |
Risk free interest rate | |
| 4.12% - 4.76 % | | |
| 0.05% - 0.73% | |
Stock volatility factor | |
| 91.0% - 154.0 % | | |
| 94.0% - 199.0% | |
Weighted average expected option life | |
| 6 mos - 5 yrs | | |
| 6 mos - 5 yrs | |
Expected dividend yield | |
| None | | |
| None | |
Segment Reporting
The Company’s business currently
operates in one segment based upon the Company’s organizational structure and the way in which the operations are managed and evaluated.
Marketable Securities
The Company adopted ASU 2016-01, “Financial
Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 requires investments
(except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured
at fair value with changes in fair value recognized in net income. It requires public business entities to use the exit price notion when
measuring the fair value of financial instruments for disclosure purpose, and separate presentation of financial assets and financial
liabilities by measurement category and form of financial asset. It eliminates the requirement for public business entities to disclose
the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured
at amortized cost. The Company has evaluated the potential impact this standard may have on the condensed consolidated financial statements
and determined that it had a significant impact on the condensed consolidated financial statements. The Company accounts for its investment
in Water Technologies International, Inc. as available-for-sale securities, and the unrealized gain on the available-for-sale securities
is recognized in net income.
Licensing agreement
The Company analyzed the licensing
agreement using ASU 606 to determine the timing of revenue recognition. The licensing of the intellectual property (IP) is distinct from
the non-license goods or services and has significant standalone functionality that provides a benefit or value. The functionality will
not change during the license period due to the licensor’s activities. Because the significant standalone functionality is delivered
immediately, the revenue is generally recognized when the license is delivered.
Reclassification
Certain amounts in the prior period
financial statements have been reclassified to conform to the presentation used in the current financial statements for comparative purpose.
There was no material effect on the Company’s previously issued financial statements.
Work-in-Process
The Company recognizes as an asset
the accumulated costs for work-in-process on projects expected to be delivered to customers. Work in Process includes the cost price of
materials and labor related to the construction of equipment to be sold to customers.
Recently Issued Accounting Pronouncements
Management reviewed currently issued
pronouncements and does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted,
would have a material effect on the accompanying condensed financial statements.
OriginClear, Inc Preferred
Stock
Series C
On March 14, 2017, the Board of Directors
authorized the issuance of 1,000 shares of Series C preferred stock, par value $0.0001 per share, to T. Riggs Eckelberry in exchange for
his continued employment with the Company. The holder of Series C preferred stock is not entitled to receive dividends, is not entitled
to any liquidation preference and shares of Series C preferred stock does not have any conversion rights. The Series C Preferred Stock
entitles the holder to 51% of the total voting power of our stockholders. The purchase price of the Series C preferred stock was $0.0001
per share representing a total purchase price of $0.10 for 1,000 shares. As of December 31, 2022, there were 1,000 shares of Series C
preferred stock outstanding held by Mr. Eckelberry.
Series D-1
On April 13, 2018, the Company designated
50,000,000 shares of its authorized preferred stock as Series D-1 preferred stock. The shares of Series D-1 preferred stock are not entitled
to dividends and do not have a liquidation preference. Each share of Series D-1 preferred stock is convertible into 0.0005 of one share
of common stock. The Series D-1 preferred stock may not be converted to common stock to the extent such conversion would result in the
holder beneficially owning more than 4.99% of our outstanding common stock, which amount may be increased to 9.99% at the holders discretion
upon 61 days’ written notice. As of December 31, 2022, there were 31,500,000 shares of Series D-1 preferred stock issued and outstanding.
Series E
On August 14, 2018, the Company designated
4,000,000 shares of its authorized preferred stock as Series E preferred stock. The shares of Series E preferred stock are not entitled
to dividends and not have a liquidation preference. Each share of Series E preferred stock is convertible into 0.05 shares of common
stock. The shares of Series E preferred stock do not carry any voting rights. The Series E preferred stock may not be converted to
common stock to the extent such conversion would result in the holder beneficially owning more than 4.99% of our outstanding common stock
which amount may be increased to 9.99% at the holder’s discretion. During the year ended December
31, 2022, the Company issued an aggregate of 76,865 shares of common stock upon conversion of 1,537,213 shares of Series
E preferred stock. The shares were issued and exchanged within the terms of the agreement and no gain or loss was recognized. As of December
31, 2022, there were no shares of Series E preferred stock issued and outstanding.
Series F
On August 14, 2018, the Company designated
6,000 shares as Series F preferred stock. The shares of Series F preferred stock have a liquidation preference equal to the stated value
of $1,000 per share plus any accrued but unpaid dividends. The Series F preferred stock is not convertible into common stock. The holders
of outstanding shares of Series F preferred stock are entitled to quarterly dividends at the annual rate of 8% of the stated value, in
preference to any dividends on the common stock. The shares of Series F preferred stock do not carry any voting rights. The Company may,
in its sole discretion, at any time while the Series F preferred stock is outstanding, redeem all or any portion of the outstanding Series
preferred stock at a price equal to the stated value, plus any accrued but unpaid dividends. The Company was required to redeem all outstanding
shares of Series F preferred stock on September 1, 2020. During the year ended December 31, 2022, the Company exchanged 200 shares of
Series F preferred stock for 200 shares of Series Q preferred stock. As of December 31, 2022, the
Company had 60 outstanding shares of Series F preferred stock, which the Company was required to, and failed to redeem on September 1,
2020, and remains in default for an aggregate redemption price (equal to the stated value) of $60,000.
Series G
On January 16, 2019, the Company designated 6,000 shares
as Series G preferred stock, each share having a stated value of $1,000 per share and holders of Series G preferred stock are entitled
to cumulative dividends at the annual rate of 8% of the stated value, payable quarterly. The Series G preferred stock does not have
voting rights, except as required by law and is not convertible into common stock. The Company may, in its sole discretion, at any time
while the Series G preferred stock is outstanding, redeem all or any portion of the outstanding Series G preferred stock at a price equal
to the stated value plus any accrued but unpaid dividends. The Company was required to redeem such shares of Series G preferred stock
on April 30, 2021, at a price equal to the stated value plus any accrued but unpaid dividends. Pursuant to certain subscription agreements
entered into with purchasers of the Series G preferred stock, each purchaser received shares of the Company’s common stock equal
to an amount of, for each share of Series G preferred stock purchased, five hundred dollars ($500) divided by the closing price on the
date the Company receives the executed subscription documents and purchase price from such investor. As of December 31, 2022, there were 25 shares
of Series G preferred stock issued and outstanding, which the Company was required to, and failed to redeem on April 30, 2021, for an
aggregate redemption price (equal to the stated value) of $25,000.
Series I
On April 3, 2019, the Company designated 4,000 shares
of preferred stock as Series I. The Series I has a stated value of $1,000 per share. Series I holders are entitled to cumulative
dividends at the annual rate of 8% of the stated value, payable quarterly within 60 days from the end of each fiscal quarter. The
Series I is not entitled to any voting rights except as may be required by applicable law, and are not convertible into common stock.
The Company has the right to redeem the Series I at any time while the Series I are outstanding at a price equal to the stated value plus
any accrued but unpaid dividends. The Company is required to redeem the Series I two years following the date that is the later of the
(i) final closing of the tranche (as designated in the applicable subscription agreement) or (ii) the expiration date of the tranche that
such shares to be redeemed were a part of. The Company was required to redeem such shares of Series I between May 2, 2021 and June 10,
2021, at a price equal to the stated value plus any accrued but unpaid dividends. The issuances of the shares were accounted for under
ASC 480-10-25-4, which requires liability treatment for certain mandatorily redeemable financial instruments, and the cumulative dividends
are recorded as interest expense. During the year ended December 31, 2022, the Company exchanged
an aggregate of 210 shares of Series I preferred stock for 210 shares of Series W preferred stock. The shares were issued and
exchanged within the terms of the agreement and no gain or loss was recognized. As of December 31, 2022, there were 25 shares
of Series I preferred stock issued and outstanding which the Company was required to, and failed to redeem by June 10, 2021, and was and
remains in default for an aggregate redemption price (equal to the stated value) of $25,000.
Series J
On April 3, 2019, the Company designated 100,000 shares
of preferred stock as Series J. The Series J has a stated value of $1,000 per share and holders are entitled to receive dividends
on an as-converted basis with the Company’s common stock. The Series J preferred stock is convertible into shares of the Company’s
common stock, on the terms and conditions set forth in the Series J COD, which includes certain make-good shares for certain prior investors.
During the year ended December 31, 2022, the Company issued an aggregate of 512,737 shares
of common stock upon conversion of 5 shares of Series J preferred stock, for a loss in the amount of $5,203. As of December
31, 2022, there were 210 shares of Series J preferred stock issued and outstanding.
Series K
On June 3, 2019, the Company designated 4,000 shares
of preferred stock as Series K. The Series K has a stated value of $1,000 per share. Series K holders are entitled to cumulative
dividends at the annual rate of 8% of the stated value, payable quarterly within 60 days from the end of each fiscal quarter. The
Series K is not entitled to any voting rights except as may be required by applicable law, and is not convertible into common stock. The
Company has the right to redeem the Series K at any time while the Series K are outstanding at a price equal to the stated value plus
any accrued but unpaid dividends. The Company is required to redeem the Series K two years following the date that is the later of the
(i) final closing of the tranche (as designated in the applicable subscription agreement) or (ii) the expiration date of the tranche that
such shares to be redeemed were a part of. The Company is required to redeem such shares of Series K between August 5, 2021 and April
24, 2022, at a price equal to the stated value plus any accrued but unpaid dividends. The issuances of the shares were accounted for under
ASC 480-10-25-4, which requires liability treatment for certain mandatorily redeemable financial instruments, and the cumulative dividends
are recorded as interest expense. During the year ended December 31, 2022, the Company redeemed
an aggregate of 63.5 shares of Series K preferred stock equal to the stated value of $63,500 and exchanged an aggregate of 110 shares
of Series K preferred stock for 110 shares of Series W preferred stock. The shares were issued and exchanged within the terms
of the agreement and no gain or loss was recognized. As of December 31, 2022, there were 407 shares of Series K preferred stock
issued and outstanding which the Company was required to, and failed to redeem by April 24, 2022, and was and remains in default for an
aggregate redemption price (equal to the stated value) of $407,150.
Series L
On June 3,
2019, the Company designated 100,000 shares of preferred stock as Series L. The Series L has a stated value of $1,000 per
share and holders are entitled to receive dividends on an as-converted basis with the Company’s common stock. The Series L preferred
stock is convertible into shares of the Company’s common stock, on the terms and conditions set forth in the Series L COD, which
includes certain make-good shares for certain prior investors. During the year ended December 31,
2022, the Company issued an aggregate of 25,145,849 shares of common stock upon conversion of 284 shares of Series
L preferred stock, for a loss in the amount of $358,585. As of December 31, 2022, there were 321 shares of Series L preferred
stock issued and outstanding.
Series M
Pursuant to the Amended and Restated
Certificate of Designation of Series M Preferred Stock filed with the Secretary of State of Nevada on July 1, 2020, the Company designated
800,000 shares of its preferred stock as Series M Preferred Stock. Each share of Series M Preferred Stock has a stated value of $25. The
Series M Preferred Stock is not convertible into common stock. The holders of outstanding shares of Series M Preferred Stock are entitled
to receive dividends, at the annual rate of 10%, payable monthly, payable in preference and priority to any payment of any dividend on
the common stock. The Series M Preferred Stock is entitled to a liquidation preference in an amount equal to $25 per share plus any declared
but unpaid dividends, before any payments to holders of common stock. The Series M Preferred Stock have no pre-emptive or subscription
rights, and there are no sinking fund provisions applicable to the Series M Preferred Stock. The Series M Preferred Stock does not have
voting rights, except as required by law and with respect to certain protective provisions set forth in the Certificate of Designation
of Series M Preferred Stock. To the extent it may lawfully do so, the Company may, in its sole discretion, at any time when there are
outstanding shares of Series M Preferred Stock, redeem any or all of the then outstanding shares of Series M Preferred Stock at a redemption
price of $37.50 per share (150% of the stated value) plus any accrued but unpaid dividends. As of December 31, 2022, there were 40,300 shares
of Series M preferred stock issued and outstanding.
Series O
On April 27, 2020, the Company designated 2,000 shares
of preferred stock as Series O preferred stock. The Series O preferred stock has a stated value of $1,000 per share, and entitles
holders to receive cumulative dividends (i) in cash at an annual rate of 8% of the stated value, and (ii) in shares of common stock
of the Company (valued based on the conversion price as in effect on the last trading day of the applicable fiscal quarter) at an annual
rate of 4% of the stated value, payable quarterly within 60 days from the end of such fiscal quarter. The Series O preferred stock
has a liquidation preference equal to the stated value plus any accrued but unpaid dividends, in preference to the common stock. The Series
O preferred stock has no preemptive or subscription rights, and there is no sinking fund provision applicable to the Series O preferred
stock. The Series O preferred stock does not have voting rights except as required by law. The Series O preferred stock is convertible
into common stock of the Company in an amount determined by dividing 200% of the stated value of the Series O preferred stock being
converted by the conversion price, provided that, the Series O may not be converted into common stock to the extent such conversion would
result in the holder beneficially owning more than 4.99% of the Company’s outstanding common stock (which may be increased
up to 9.99% upon 61 days’ written notice). The conversion price is equal to the average closing sale price of the common stock
for the five trading days prior to the conversion date. The Company has the right (but no obligation) to redeem the Series O preferred
stock at any time while the Series O preferred stock are outstanding at a redemption price equal to the stated value plus any accrued
but unpaid dividends. The cumulative dividends are recorded as interest expense. During the year
ended December 31, 2022, the Company issued an aggregate of 40,646,122 shares of common
stock upon conversion of 385 shares of Series O preferred stock and issued an aggregate of 1,256,639 shares of common stock
in prorated 4% annualized dividends which were recorded as interest expense. The shares were issued within the terms of the agreement
and no gain or loss was recognized. As of December 31, 2022, there were 230 shares
of Series O preferred stock issued and outstanding.
Series P
On April 27, 2020, the Company designated 500 shares
of preferred stock as Series P preferred stock. The Series P preferred stock has a stated value of $1,000 per share, and entitles
holders to receive dividends on an as-converted basis with the Company’s common stock. The Series P preferred stock is convertible
into shares of the Company’s common stock, on the terms and conditions set forth in the Certificate of Designation of Series P preferred
stock, which includes certain make-good shares for certain prior investors, and provided that, the Series P preferred stock may not be
converted into common stock to the extent such conversion would result in the holder beneficially owning more than 4.99% of the Company’s
outstanding common stock (which may be increased up to 9.99% upon 61 days’ written notice). The Series P preferred stock entitles
the holders to a payment on an as-converted and pari passu basis with the common stock upon any liquidation. The Series P preferred stock
has no preemptive or subscription rights, and there is no sinking fund or redemption provisions applicable to the Series P preferred stock.
The Series P preferred stock votes on an as-converted basis with the common stock, subject to the beneficial ownership limitation. During
the year ended December 31, 2022, the Company issued an aggregate of 3,527,317 shares of common stock upon conversion of 28
shares of Series P preferred stock, for a loss in the amount of $70,592. As of December 31, 2022,
there were 30 shares of Series P preferred stock issued and outstanding.
Series Q
On August 21, 2020, the Company designated
2,000 shares of preferred stock as Series Q Preferred Stock. The Series Q Preferred Stock has a stated value of $1,000 per share, and
entitles holders to receive cumulative dividends in cash at an annual rate of 12% of the stated value, payable quarterly within 60 days
from the end of such fiscal quarter. The Series Q Preferred Stock has a liquidation preference equal to the stated value plus any accrued
but unpaid dividends, in preference to the common stock. The Series Q Preferred Stock has no preemptive or subscription rights, and there
is no sinking fund provision applicable to the Series Q Preferred Stock. The Series Q Preferred Stock does not have voting rights except
as required by law. The Series Q Preferred Stock is convertible into common stock of the Company in an amount determined by dividing 200%
of the stated value of the Series Q Preferred Stock being converted by the conversion price, provided that, the Series Q may not be converted
into common stock to the extent such conversion would result in the holder beneficially owning more than 4.99% of the Company’s
outstanding common stock (which may be increased up to 9.99% upon 61 days’ written notice). The conversion price will be equal to
the average closing sale price of the common stock for the five trading days prior to the conversion date. The Company will have the right
(but no obligation) to redeem the Series Q Preferred Stock at any time while the Series Q Preferred Stock are outstanding at a redemption
price equal to the stated value plus any accrued but unpaid dividends. The cumulative dividends are recorded as interest expense. During
the year ended December 31, 2022, the Company issued an aggregate of 12,642,226 shares of common stock upon conversion of 100
shares of Series Q preferred stock and exchanged 200 shares of Series F preferred stock for 200 shares of Series Q
preferred stock. The shares were issued and exchanged within the terms of the agreement and no gain or loss was recognized. As of December
31, 2022, there were 615 shares of Series Q preferred stock issued and outstanding.
Series R
On November 16, 2020, the Company designated
5,000 shares of preferred stock as Series R. The Series R has a stated value of $1,000 per share, and entitles holders to receive cumulative
dividends in cash at an annual rate of 10% of the stated value, payable quarterly within 60 days from the end of such fiscal quarter.
The Series R holders are not entitled to any voting rights except as may be required by applicable law. The Series R is convertible into
common stock of the Company in an amount determined by dividing 200% of the stated value of the Series R being converted by the conversion
price; certain prior investors will also be entitled to certain make-good shares; provided that, the Series R may not be converted into
common stock to the extent such conversion would result in the holder beneficially owning more than 4.99% of the Company’s outstanding
common stock (which may be increased up to 9.99% upon 61 days’ written notice). The conversion price will be equal to the average
closing sale price of the common stock for the five trading days prior to the conversion date. The Company will have the right (but no
obligation) to redeem the Series R at any time while the Series R are outstanding at a redemption price equal to, if paid in cash, the
stated value plus any accrued but unpaid cash dividends, or, if paid in shares of common stock, in an amount of shares determined by dividing
the stated value being redeemed by the conversion price. The subscribers were offered warrants with the purchase of Series R. During
the year ended December 31, 2022, the Company issued an aggregate of 44,494,096 shares of common stock upon conversion of 604 shares
of Series R preferred stock. The shares were issued and exchanged within the terms of the agreement and no gain or loss was recognized.
As of December 31, 2022, there were 2,828 shares of Series R preferred stock issued
and outstanding.
Series S
On February 5, 2021, the Company designated
430 shares of preferred stock as Series S. The Series S has a stated value of $1,000 per share, and entitles holders to receive cumulative
dividends in cash at an annual rate of 12% of the stated value, payable quarterly within 60 days from the end of such fiscal quarter.
The Series S holders are not entitled to any voting rights except as may be required by applicable law. The Series S is convertible into
common stock of the Company in an amount determined by dividing 200% of the stated value of the Series S being converted by the conversion
price, provided that, the Series S may not be converted into common stock to the extent such conversion would result in the holder beneficially
owning more than 4.99% of the Company’s outstanding common stock (which may be increased up to 9.99% upon 61 days’ written
notice). The conversion price will be equal to the average closing sale price of the common stock for the five trading days prior to the
conversion date. The Company has the right (but no obligation) to redeem the Series S at any time while the Series S are outstanding at
a redemption price equal to the stated value plus any accrued but unpaid dividends. As of December 31, 2022, there were 170 shares of
Series S preferred stock issued and outstanding.
Series T
On
February 24, 2021, the Company designated 630 shares of preferred stock as Series T. The Series T had a stated value of $1,000 per
share, and entitled holders to receive cumulative dividends in cash at an annual rate of 10% of the stated value, payable monthly.
The Series T holders are not entitled to any voting rights except as may be required by applicable law. The Series T is convertible into
common stock of the Company pursuant to the Series T COD, provided that, the Series T may not be converted into common stock to the extent
such conversion would result in the holder beneficially owning more than 4.99% of the Company’s outstanding common stock (which
may be increased up to 9.99% upon 61 days’ written notice). The Company will have the right (but no obligation) to redeem the
Series T at any time while the Series T are outstanding at a redemption price equal to the stated value plus any accrued but unpaid dividends.
On March 1, 2021, the Company issued an aggregate of 630 shares of Series T Preferred Stock to an accredited investor (the “Purchaser’’)
per terms of a Securities Purchase Agreement (the “SPA”). Per the SPA, the Company agreed to sell to Purchaser, and Purchaser
agreed to purchase from the Company, 630 shares of the Company’s Series T, and two-year cashless warrants to acquire 25,200,000 shares
of the Company’s common stock, valued at $0.05 per share per terms of the SPA, which may be exercised at any time in whole
or in part. Per the SPA, the Series T, including any convertible shares acquired pursuant to exercise of the warrants, the Company shall
pay 10% annual dividends in cash, paid monthly. Purchaser may convert any portion of the Series T, including convertible shares acquired
pursuant to exercise of the warrants, at any time into shares of the Company’s common stock at an agreed upon conversion rate per
terms of the SPA. The purchaser and the Company agreed that in lieu of the purchase price for the Series T, the Purchaser transferred
to the Company real property, with an aggregate value agreed to be $630,000 based on an appraisal from an international independent
company. The real property consists of residential real estate in Buenos Aires Argentina valued at $580,000, and eight undeveloped lots
valued at $50,000 in Terralta private neighborhood development. The real property exchanged for 630 shares of Series T
was recorded at $630,000 and reflected on the balance sheet as a long term asset for sale. The fair value of the warrants associated
with acquiring 25,200,000 preferred shares were valued at $2,037,849, using the Black Scholes model and accounted for as deemed
dividends and reflected in stockholder’s equity as accumulated paid in capital.
The
Company has actively listed the residential real property for sale since July 2021. However, based on indicator of impairment, during
the year ended December 31, 2021, the Company adjusted the original value of the long term asset for sale from $630,000 to $514,000 on
the balance sheet and recorded an impairment of $116,000 in the consolidated financial statements.
Throughout
the year 2022, the Company continued its efforts to sell the residential real property and after evaluating several offers it is now actively
pursuing an offer for $400,000, which is $114,000 below the previously adjusted value and is indicative of the current real estate market
conditions in Buenos Aires Argentina. Based on that indicator of impairment, during the year ended December 31, 2022, the Company further
adjusted the previous value of the long term asset for sale from $514,000 to $400,000 on the balance sheet and recorded an impairment
of $114,000 in the consolidated financial statements. The Company expects the sale to be completed in Q1, 2023. During the year ended
December 31, 2022, the Company issued an aggregate of 86,281,921 shares of common stock upon conversion of 630 shares
of Series T preferred stock. As of December 31, 2022, there were no shares of Series T preferred stock issued and outstanding.
Series U
On May 26, 2021, the Company designated
5,000 shares of preferred stock as Series U. The Series U has a stated value of $1,000 per share. The Series U holders are not entitled
to any dividends and do not have any voting rights except as may be required by applicable law. The Series U is convertible into common
stock of the Company in an amount determined by dividing 150% of the stated value of the Series U being converted by the conversion price;
certain prior investors will also be entitled to certain make-good shares; provided that, the Series U may not be converted into common
stock to the extent such conversion would result in the holder beneficially owning more than 4.99% of the Company’s outstanding
common stock (which may be increased up to 9.99% upon 61 days’ written notice). The conversion price will be equal to the lesser
of $0.20 or the average closing sale price of the common stock for the five trading days prior to the conversion date. The Company has
the right (but no obligation) to redeem the Series U at any time at a redemption price equal to, if paid in cash, the stated value, or,
if paid in shares of common stock, in an amount of shares determined by dividing 200% of the stated value being redeemed by the conversion
price then in effect, and adding any applicable make-good shares. During the year ended December
31, 2022, the Company issued an aggregate of 36,497,792 shares of common stock upon conversion of 682 shares of Series
U preferred stock. The shares were issued within the terms of the agreement and no gain or loss was recognized. As of December 31, 2022,
there were 385 shares of Series U preferred stock issued and outstanding, along with 6,246,000 Series B warrants (with
an exercise price of $0.25), and 1,561,500 Series C warrants (with an exercise price of $1.00) issued and outstanding with a
fair value of $16,482 on the original issuance. The warrants were valued using the Black Scholes model (See Note 4).
Series V
On
December 1, 2021, the Company filed a certificate of withdrawal of the Company’s certificate of designation of Series V preferred
stock and filed a certificate of designation for a new series of Series V preferred stock with the Secretary of State of Nevada. Pursuant
to the Series V COD, the Company designated 3,000 shares of preferred stock as Series V. The Series V has an original issue
price of $100,000 per share, and holders are entitled to an annual distribution of 25% of annual net profits of newly established
Company wholly-owned, Water On Demand subsidiaries, designated by each holder, paid within 3 months of subsidiary’s accounting year-end.
The Series V holders are not entitled to any dividends and do not have any voting rights except as may be required by applicable
law. The Series V is convertible into common stock of the Company pursuant to the Series V COD, provided that, the Series V may not be
converted into common stock to the extent such conversion would result in the holder beneficially owning more than 4.99% of the Company’s
outstanding common stock (which may be increased up to 9.99% upon 61 days’ written notice). The Company has the right (but
no obligation) to redeem the Series V at any time at a redemption price equal to, if paid in cash, the stated value plus any accrued but
unpaid distributions of 25% of subsidiary’s annual net profits. During the year ended December 31, 2022, the Company exchanged 4 shares
of Series V preferred stock for 4 shares of Series Y preferred stock, and exchanged an aggregate of 3,200,000 warrants
associated with the Series V into Series Y. The shares were issued and exchanged within the terms of the agreement and no gain or loss
was recognized. As of December 31, 2022, there were no shares of Series V preferred stock issued and outstanding.
Series W
On April 28, 2021, the Company designated
3,390 shares of preferred stock as Series W. The Series W has a stated value of $1,000 per share, and Series W holders are entitled to
cumulative dividends in cash at an annual rate of 12% of the stated value, payable quarterly. The Series W holders are not entitled to
any voting rights except as may be required by applicable law. The Series W is convertible into common stock of the Company in an amount
determined by dividing 200% of the stated value of the Series W being converted by the conversion price; provided that, the Series W may
not be converted into common stock to the extent such conversion would result in the holder beneficially owning more than 4.99% of the
Company’s outstanding common stock. The conversion price will be equal to the average closing sale price of the common stock for
the five trading days prior to the conversion date. The Company has the right (but no obligation) to redeem the Series W at any time at
a redemption price equal to the stated value plus any accrued but unpaid dividends. During the year
ended December 31, 2022, the Company issued 110 shares of Series W preferred stock in exchange for 110 shares of Series K preferred
stock, issued 210 shares of Series W preferred stock in exchange for 210 shares of Series I preferred stock and issued
an aggregate of 21,489,284 shares of common stock upon conversion of 245 shares of Series W preferred stock. The shares
were issued within the terms of the agreement and no gain or loss was recognized. As of December 31, 2022, there were 820 shares
of Series W preferred stock issued and outstanding.
Series X
On August 10, 2021, the Company designated
25 shares of preferred stock as Series X. The Series X has a stated value of $10,000 per share. The Series X holders are not entitled
to any dividends and do not have any voting rights except as may be required by applicable law. The Series X is convertible into common
stock of the Company pursuant to the Series X COD, provided that, the Series X may not be converted into common stock to the extent such
conversion would result in the holder beneficially owning more than 4.99% of the Company’s outstanding common stock (which amount
may be increased up to 9.99% upon 61 days’ written notice). Beginning on the one year anniversary of the subscription agreement
for the Series X Preferred Stock, until the two year anniversary of the subscription agreement, the holders will have the right to require
the Company to redeem all of the Series X purchased by the subscriber at a price equal to 125% of the $250,000 original purchase price,
or $312,500. The holders also have the right, exercisable at any time, to require the Company to redeem all of the holder’s Series
X in exchange for the issuance of shares of the Company’s common stock in an amount equal to 250% of the original $250,000 purchase
price, or $625,000, divided by the closing price of the Company’s common stock as of the date the holders executed the subscription
agreement. As of December 31, 2022, there were 25 shares of Series X preferred stock
issued and outstanding.
Series Y
On December 6, 2021, the Company
designated 3,000 shares of preferred stock as Series Y. The Series Y has an original issue price of $100,000 per share,
and holders are entitled to receive, on a pro rata and pari passu basis, annual distribution of up to 25% of annual net profits of
newly established, wholly-owned, Water On Demand subsidiaries, designated by each holder, paid within 3 months of subsidiary’s accounting
year-end. The Series Y holders are not entitled to any voting rights except as may be required by applicable law. The Series Y is convertible
into common stock of the Company pursuant to the Series Y COD, provided that, the Series Y may not be converted into common stock to the
extent such conversion would result in the holder beneficially owning more than 4.99% of the Company’s outstanding common stock
(which may be increased up to 9.99% upon 61 days’ written notice). The Company has the right (but no obligation) to redeem
the Series Y at any time at a redemption price equal to, if paid in cash, the original issue price plus any accrued but unpaid distributions
of 25% of the subsidiary’s annual net profits. In addition, the Series Y holders are entitled to receive shares of Series A
preferred stock in the Company’s subsidiary Water On Demand, Inc. Between January 20, 2022 and January 25, 2022, the Company issued 4 shares
of Series Y preferred stock in exchange for 4 shares of Series V preferred stock for an aggregate value of $400,000, and issued
an aggregate of 3,200,000 warrants with a fair value of $93,915 upon original issuance to the Series Y investors. During the
year ended December 31, 2022, the Company issued an aggregate of 150,578,177 shares of common stock upon conversion of 20 shares of Series
Y preferred stock. Per the Series Y COD, $2,640,639 of the $5,281,277 aggregate received for Series Y during the year ended
December 31, 2022 was classified as restricted cash. As of December 31, 2022, there were 37.5 shares
of Series Y preferred stock along with 45,650,216 warrants with a fair value of $514,153 (with exercise prices between $0.13
and $0.25) issued and outstanding. The warrants were valued using the Black Scholes model (See Note 4).
Series
Z
On
February 11, 2022, the Company designated 25 shares of preferred stock as Series Z. The Series Z has an original issue
price of $10,000 per share. The Series Z holders are not entitled to dividends or any voting rights except as may be required by
applicable law. The Series Z is convertible into common stock of the Company pursuant to the Series Z COD, provided that, the Series Z
may not be converted into common stock to the extent such conversion would result in the holder beneficially owning more than 4.99%
of the Company’s outstanding common stock (which amount may be increased up to 9.99% upon 61 days’ written notice). The
Company has the right (but no obligation) to redeem the Series Z at any time at a redemption price equal to the original issue price plus
any accrued but unpaid distributions of 25% of Subsidiary’s annual net profits. On February 18, 2022, the Company issued and
sold to an accredited investor an aggregate of 25 shares of Series Z preferred stock for a purchase price of
$250,000 and issued an aggregate of 2,500,000 warrants with a fair value of $27,589 (with an exercise price of $0.10) to
Series Z holders. As of December 31, 2022, there were 25 shares of Series Z preferred stock issued and outstanding.
As of December 31, 2022, the Company
accrued aggregate dividends in the amount of $415,597 for all series of preferred stock.
The Series J, Series L, Series M, Series
O, Series P, Series Q Series R, Series S, Series T, Series U, Series V, Series W, Series X, Series Y, and Series Z preferred stock are
accounted for outside of permanent equity due to the terms of conversion at a market component or stated value of the preferred stock.
Water On Demand, Inc. (‘WODI’)
Preferred Stock
On April 22, 2022, WODI designated 50,000,000 shares of authorized
Preferred Stock at $0.0001 par value per share.
On October 13, 2022, the Company filed certificates of designation
for the Series A Preferred Stock and Series C Preferred Stock. 1,000,000 shares are designated as Series A Preferred Stock and 1,000,000
shares are designated as Series C Preferred Stock.
Series A
On October 13, 2022, the Company designated
1,000,000 shares of its authorized preferred stock as Series A preferred stock. The shares of Series A preferred stock are reserved for
issuance to the holders of the Series Y preferred shares in WODI’s parent entity, Originclear, Inc. and shall be issued to the holders
of the Series Y shares at a ratio of 500:1. The holders of Series A preferred shares shall not be entitled to dividends and shall not
be entitled to a vote until such time as the Series A preferred shares are converted to common shares. Each share of Series A preferred
stock shall be convertible, at any time at the conversion ratio of 50:1, or such other rate as determined by the Board, provided, however
that at no time shall the total number of issued and outstanding Series A preferred shares, on a converted basis, be less than ten percent
(10%) (‘Dilution Floor’) of the total authorized shares of common stock (on a fully diluted basis) based upon an anticipated
sale of $20,000,000 Series Y shares. The dilution floor shall be adjusted proportionately based upon the actual number of Series Y shares
sold. On November 7, 2022, the Company filed an Amended and Restated Certificate of Incorporation and effected a 20:1 reverse stock split
with respect to the Common Shares and the Series A Preferred Shares.
On October 18, 2022, WODI issued an
aggregate of 28,756 shares of its Series A preferred stock, and was issued to certain holders of the Company’s Series Y preferred
stock at par value of $0.0001. After the 20:1 reverse stock split, there were 1,475 shares of Series A preferred stock issued and outstanding.
Series C
On October 13, 2022, the Board of
Directors authorized the issuance of 1,000,000 shares of Series C preferred stock, par value $0.0001 per share, to T. Riggs
Eckelberry in exchange for his continued employment with the Company. The holder of Series C preferred stock is not entitled to
receive dividends, is not entitled to any liquidation preference and shares of Series C preferred stock does not have any conversion
rights. The holder of Series C Preferred Shares (“Holder”) shall vote with the holders of the common shares on an as
converted basis. However, as long as any shares of Series C Preferred Shares are outstanding, the Company shall not, without the
affirmative vote of the Holders of a majority of the then outstanding shares of the Series C Preferred Shares directly and/or
indirectly (a) alter or change adversely the powers, preferences or rights given to the Series C Preferred Shares or alter or amend
this Certificate of Designation, (b) amend its Articles of Incorporation or other charter documents in any manner that adversely
affects any rights of the Holders, (c) increase the number of authorized shares of Series C Preferred Shares, or (d) enter into any
agreement with respect to any of the foregoing. Notwithstanding the foregoing, the Holder shall be entitled to vote a number of
shares equal to fifty-one percent (51%) of the total number of voting shares. As of December 31, 2022, there were 1,000,000 shares
of Series C preferred stock issued at par value of $0.0001. As of December 31, 2022, there were 1,000,000 shares of Series C
preferred stock outstanding with a value of $100, held by Mr. Eckelberry.
OriginClear, Inc. Common Stock
On October 20, 2022, the Company entered into
an Equity Financing Agreement (“Financing Agreement”) with GHS Investments, LLC (“GHS”), whereby GHS agreed to
purchase, at the Company’s sole discretion, up to $25,000,000 worth of the shares of the Company’s common stock (the “Shares”),
par value $0.0001 per share. In accordance with the terms of the Financing Agreement and the Registration Rights Agreement (“Registration
Agreement”) dated October 20, 2022 between the Company and GHS, the Company was required to register the Shares on Form S-1 with
the Securities and Exchange Commission as a condition precedent to GHS’s obligation to close on the purchase of the Shares. On
December 27, 2022, the Securities and Exchange Commission issued a Notice of Effectiveness of the Registration Statement filed on Form
S-1 (File Number 333-268608) for OriginClear, Inc. During the year ended December 31, 2022, the Company did not avail any financing pertaining
to this agreement and did not issue any shares to GHS.
Year ended December 31, 2022
The
Company issued 39,900,514 shares of common stock for the settlement of convertible promissory notes in an aggregate principal
amount of $155,300, plus interest in the amount of $115,246, for a total aggregate of $270,546 based upon a conversion price of
$0.00955.
The Company
issued 63,201,050 shares of common stock for services at fair value of $1,433,828, at share prices ranging from $0.0051 -
$0.0135.
The
Company issued 1,256,639 shares of common stock for Series O preferred stock dividends payable.
The Company
issued 180,650,284 shares of common stock for settlement of conversion agreements at a fair value of $18,065.
The
Company issued 421,892,206 shares of common stock upon conversion of $4,962,501 of preferred stock.
Year ended December 31, 2021
The Company issued 13,927,622 shares of common
stock for the settlement of convertible promissory notes in an aggregate principal amount of $81,150, plus interest in the amount of $52,555,
based upon a conversion price of $0.00955.
The Company issued 33,476,294 shares of common
stock for services at fair value of $2,229,695 at share prices ranging from $0.0229 - $0.124.
The Company issued 790,089 shares of common stock
for Series O preferred stock dividends payable.
The Company issued 190,205,395 shares of common
stock upon conversion of 5,550,861 shares of preferred stocks.
The Company issued 1,000,000 shares of common
stock upon exercise of 1,000,000 warrants at an exercise price of $0.05 per share for $50,000.
The Company issued 1,798,562 shares of common
stock at a price of $0.0695 in conjunction with the sale of Series X preferred stock and recognized a loss of $125,000 in the financial
statements.
The Company issued 633,282 shares of common stock
for make good shares for Series P preferred stock.
Water On Demand, Inc. (‘WODI’)
Common Stock
On April 22, 2022, the Company designated 500,000,000 shares of authorized
Common Stock at $0.0001 par value per share.
On August 12, 2022, WODI entered
into Restricted Stock Grant Agreement (“the RSGA”) with its Chief Executive Officer, Mr. T. Riggs Eckelberry, to create management
incentives to improve the economic performance of the Company. Pursuant to the agreement, Mr. T. Riggs Eckelberry was granted 80,000,000
(4,000,000 post reverse split) restricted stock awards.
On August 12, 2022, WODI entered
into Restricted Stock Grant Agreements (“the BEC RSGA”) with its members of the Board, employees, and consultants to create
management incentives to create management incentives to improve the economic performance of the Company. Pursuant to the agreements,
WODI granted an aggregate of 96,000,000 (4,800,000 post reverse split) restricted stock awards to the Board, Employees and
Consultants.
On August 19, 2022, the Company issued 100,000,000 (5,000,000 post-reverse
split) shares of Common Stock to OCLN, which is the Parent Company for $25,000 in cash.
On October 28, 2022, the Company filed a certificate of amendment to
increase the authorized shares of Common Stock to 3,000,000,000.
On November 7, 2022, the Company effected a 20:1 reverse stock split
with respect to the Common Shares pursuant to which 5,000,000 common shares remain outstanding and held by OCLN as of December 31, 2022.
Restricted
Stock to CEO
Between
May 12, 2016, and January 1, 2022, the Company entered into Restricted Stock Grant Agreements (“the RSGAs”) with its Chief
Executive Officer, Riggs Eckelberry, to create management incentives to improve the economic performance of the Company and to increase
its value and stock price. All shares issuable under the RSGAs are performance based shares. The RSGAs provides for the issuance
of up to an aggregate of 242,109,214 shares of the Company’s common stock to Mr. Eckelberry provided certain milestones are met
in certain stages; a) If the Company’s consolidated gross revenue, calculated in accordance with generally accepted accounting principles,
consistently applied, equals or exceeds $15,000,000 for the trailing twelve month period as reported in the Company’s quarterly
or annual financial statements, the Company will issue up to an aggregate of 121,054,607 shares of its common stock; b) If the Company’s
consolidated operating profit (Operating Profit = Operating Revenue - Cost of Goods Sold - Operating Expenses - Depreciation &
Amortization), calculated in accordance with generally accepted accounting principles, equals or exceeds $1,500,000 for the trailing
twelve month period as reported in the Company’s SEC Reports, the Company will issue up to an aggregate of 121,054,607 shares
of its common stock. The Company has not recognized any costs associated with the milestones, because achievement is not probable.
As the performance goals are achieved, the shares shall become eligible for vesting and issuance.
Restricted
Stock to the Board, Employees and Consultants
Between
May 12, 2016, and August 4, 2022, the Company entered into Restricted Stock Grant Agreements (“the BEC RSGAs”) with its members
of the Board, employees, and consultants to create management incentives to improve the economic performance of the Company and to increase
its value and stock price. All shares issuable under the BEC RSGAs are performance based shares. The BEC RSGAs provide for the issuance of
up to 296,678,542 shares of the Company’s common stock to employees and consultants provided certain milestones are met
in certain stages; a) If the Company’s consolidated gross revenue, calculated in accordance with generally accepted accounting principles,
consistently applied, equals or exceeds $15,000,000 for the trailing twelve month period as reported in the Company’s quarterly
or annual financial statements, the Company will issue up to an aggregate of 148,339,271 shares of its common stock; b) If the Company’s
consolidated operating profit Operating Profit = Operating Revenue - Cost of Goods Sold - Operating Expenses - Depreciation &
Amortization), calculated in accordance with generally accepted accounting principles, equals or exceeds $1,500,000 for the trailing
twelve month period as reported as reported in the Company’s SEC reports, the Company will issue up to an aggregate of 148,339,271 shares
of its common stock. The Company has not recognized any costs associated with the milestones, because achievement is not probable. As
the performance goals are achieved, the shares shall become eligible for vesting and issuance.
On August
14, 2019, the Board of Directors approved an amendment to the RSGAs and BEC RSGAs to include an alternative vesting schedule for the Grantees
and on January 26, 2022, the Company amended the procedures for processing the RSGAs and BEC RSGAs. Once a Grantee is eligible to participate
in alternate vesting, then they will be added to the list of alternate vestees, enlarging the pool of vestees among which, 10% of
stock sales that are allowed under the agreement is divided for the next year. The Company then (i) calculates the value of the Company
common stock traded in the year immediately prior to the vesting year, using daily adjusted close and volume, as quoted on the public
securities trading market on which the Company’s common stock is then traded (ii) determines the cost basis of the shares, which
shall be the closing price quoted on the public securities trading market, quoted on the first trading day of the vesting year which will
be the grantee’s cost basis, and (iii) applies the 10% calculation and divides it into the number of qualifying alternate vestees,
giving the gross number of shares available to each Grantee. For each alternate vestee for each year in which there occurs a vesting or
a potential vesting, the Company (i) does a 90-day lookback from the first day of the latest vesting month, to limit cumulative vesting
of shares for each alternate vestee for the 90-day period to 1% of total Company shares of common stock outstanding for the period, using
the then current figure for shares outstanding at the time of the lookback; (ii) places the excess shares (the “Overlimit Shares”)
in suspense for issuance in the next 90-day period so that in each future 90-day period they may be issued, and (iii) if on the 90-day
lookback, cumulative issuances are less than 1% of shares outstanding, the Company will add the shares from previous 90-day lookback,
if any. For the avoidance of doubt, the Company will not record any Overlimit Shares as vested until such as time as they have been finally
issued. If the fair market value of the Company’s common stock on the date the shares are vested is less than the fair market
value of the Company’s common stock on the effective date of the RSGA or BEC RSGA, then the number of vested shares issuable (assuming
all conditions are satisfied) shall be increased so that the aggregate fair market value of vested shares issuable on the vesting date
equals the aggregate fair market value that such number of shares would have had on the effective date. Upon the occurrence of a Company
performance goal, the right to participate in the alternate vesting schedule will terminate, and the vesting of the remaining unvested
shares will be as set forth under the restricted stock award agreement.
During the
year ended December 31, 2022, upon qualifying under the alternative vesting schedule, the Company issued an aggregate of 632,327 shares
relating to the RSGAs and an aggregate of 390,865 shares relating to the BEC RSGAs.
Warrants
During the year ended December 31, 2022, the Company
issued 44,750,216 purchase warrants, associated with the preferred stocks. A summary of the Company’s warrant activity and related
information follows for the years ended December 31, 2022 and 2021:
| |
2022 | | |
2021 | |
| |
Number of
Warrants | | |
Weighted
average
exercise
price | | |
Number of
Warrants | | |
Weighted
average
exercise
price | |
Outstanding - beginning of year | |
| 217,085,783 | | |
$ | 0.0868 | | |
| 15,922,044 | | |
$ | 500.03 | |
Granted | |
| 44,750,216 | | |
$ | 0.1236 | | |
| 218,085,783 | | |
$ | 0.0868 | |
Exercised | |
| - | | |
| - | | |
| (1,000,000 | ) | |
| (0.05 | ) |
Expired | |
| (168,491,010 | ) | |
$ | (0.0686 | ) | |
| (15,922,044 | ) | |
| (500.03 | ) |
Outstanding - end of year | |
| 93,344,989 | | |
$ | 0.1217 | | |
| 217,085,783 | | |
$ | 0.0868 | |
At December 31, 2022 and 2021, the
weighted average remaining contractual life of warrants outstanding:
| | |
2022 | | |
2021 | |
| | |
| | |
| | |
Weighted Average | | |
| | |
| | |
Weighted Average | |
| | |
| | |
| | |
Remaining | | |
| | |
| | |
Remaining | |
Exercisable | | |
Warrants | | |
Warrants | | |
Contractual | | |
Warrants | | |
Warrants | | |
Contractual | |
Prices | | |
Outstanding | | |
Exercisable | | |
Life (years) | | |
Outstanding | | |
Exercisable | | |
Life (years) | |
$ | 0.02 | | |
| 600,000 | | |
| 600,000 | | |
| 3.67 | | |
| 600,000 | | |
| 600,000 | | |
| 4.67 | |
$ | 0.05 | | |
| 25,200,000 | | |
| 25,200,000 | | |
| 0.16 | | |
| 125,698,340 | | |
| 125,698,340 | | |
| 0.14 -1.16 | |
$ | 0.10 | | |
| 5,000,000 | | |
| 5,000,000 | | |
| 0.89 - 4.14 | | |
| 67,292,670 | | |
| 67,292,670 | | |
| 0.14 - 0.74 | |
$ | 0.25 | | |
| 10,006,000 | | |
| 10,006,000 | | |
| 0.96 - 4.0 | | |
| 13,206,000 | | |
| 13,206,000 | | |
| 1.50 - 5.00 | |
$ | 0.0275 | | |
| 8,727,273 | | |
| 8,727,273 | | |
| 8.41 | | |
| 8,727,273 | | |
| 8,727,273 | | |
| 9,41 | |
$ | 0.125 | | |
| 42,250,216 | | |
| 42,250,216 | | |
| 4.0 - 5.0 | | |
| - | | |
| - | | |
| - | |
$ | 1.00 | | |
| 1,561,500 | | |
| 1,561,500 | | |
| 2.50 - 2.74 | | |
| 1,561,500 | | |
| 1,561,500 | | |
| 2.50 - 2.74 | |
| | | |
| 93,344,989 | | |
| 93,344,989 | | |
| | | |
| 217,085,783 | | |
| 217,085,783 | | |
| | |
At December 31, 2022 and 2021, the
aggregate intrinsic value of the warrants outstanding was $0.
5. |
CONVERTIBLE PROMISSORY NOTES |
As of December 31, 2022, the outstanding
convertible promissory notes are summarized as follows:
Convertible Promissory Notes | |
$ | 4,274,255 | |
Less current portion | |
| 2,385,483 | |
Total long-term liabilities | |
$ | 1,888,772 | |
Maturities of long-term debt for the
next three years are as follows:
Year Ending December 31, | |
Amount | |
2023 | |
| 2,385,483 | |
2024 | |
| 1,875,000 | |
2025 | |
| 13,772 | |
| |
$ | 2,926,755 | |
To acquire the equity
interests in the SPAC for the purchase price of $400,000 and to pay off the promissory notes the SPAC owed to sellers, WODI raised capital
and issued convertible secured promissory notes in the amount of $1,347,500 to investors at 10% interest per annum. Per the terms and
conditions of the convertible promissory notes, all unpaid principal, together with any unpaid and accrued interest shall be due and payable
on the earlier of the twelve (12) month of the date of the Notes (the “Maturity Date”) (provided, WODI shall have the option
to extend the Maturity Date for up to two (2) six-month extensions, or (ii) when, upon the occurrence and during the continuance of an
Event of Default. As of December 31, 2022, the Company had convertible promissory notes in the amount of $1,347,500 outstanding.
On
various dates from November 2014 through April 2015, the Company issued unsecured convertible promissory notes (the “2014-2015 Notes”),
that matured on various dates and were extended for an additional sixty (60) months from the effective date of each Note. The 2014-2015
Notes bear interest at 10% per year. The maturity dates were extended to November 2023 through April 2024. The 2014-2015 Notes may be
converted into shares of the Company’s common stock at conversion prices ranging from the lesser of $4,200 to $9,800 (subject to
adjustment for stock splits, dividends, combinations and other similar transactions) or 50% of the lowest trade price on any trade day
following issuance of the 2014-2015 Notes. In addition, for as long as the 2014-2015 Notes or other convertible notes in effect
between the purchaser and the Company are outstanding, if the Company issues any security with terms more favorable than the terms of
the 2014-2015 Notes or such other convertible notes or a term was not similarly provided to the purchaser of the 2014-2015 Notes or such
other convertible notes, then such more favorable or additional term shall, at the purchaser’s option, become part of the 2014-2015
Notes and such other convertible notes. The conversion feature of the 2014-2015 Notes was considered a derivative in accordance with current
accounting guidelines because of the reset conversion features of the 2014-2015 Notes. During the year ended December 31, 2022, the Company
issued 39,900,514 shares of common stock, upon conversion of $155,300 in principal, plus accrued interest of $115,247.
As of December 31, 2022, the 2014-2015 Notes had an aggregate remaining balance of $774,700, which $159,700 is short term and $615,000
are long term.
The unsecured
convertible promissory notes (the “OID Notes”) had an aggregate remaining balance of $184,124, plus accrued interest of $13,334.
The OID Notes included an original issue discount and one-time interest, which has been fully amortized. The OID Notes matured on December
31, 2017, which were extended to June 30, 2023. The OID Notes were convertible into shares of the Company’s common stock at a conversion
price initially of $30,620. After the amendment, the conversion price changed to the lesser of $5,600 per share, or b) fifty percent
(50%) of the lowest trade price of common stock recorded since the original effective date of this note, or c) the lowest effective price
per share granted to any person or entity after the effective date. The conversion feature of the OID Notes was considered a derivative
in accordance with current accounting guidelines, because of the reset conversion features of the OID Notes. As of December 31, 2022,
the remaining balance on the OID Notes was $62,275, which is short term.
The Company
issued various, unsecured convertible promissory notes (the “2015 Notes”), on various dates with the last of the 2015 Notes
being issued in August 2015. The 2015 Notes matured and were extended from the date of each tranche through maturity dates ending on February
2024 through March 2024, and April 2024 through August 2024. The 2015 Notes bear interest at 10% per year. The 2015 Notes
are convertible into shares of the Company’s common stock at conversion prices ranging from the lesser of $1,400 to $5,600 (subject
to adjustment for stock splits, dividends, combinations and other similar transactions) or 50% of the lowest trade price on any trade
day following issuance of the 2015 Notes. The conversion feature of the 2015 Notes was considered a derivative in accordance with
current accounting guidelines because of the reset conversion features of the 2015 Notes. As of December 31, 2022, the 2015 Notes had
an aggregate remaining balance of $1,200,000, of which $1,200,000 is long term.
The Company
issued a convertible note (the “Dec 2015 Note”) in exchange for accounts payable in the amount of $432,048, which could be
converted into shares of the Company’s common stock after December 31, 2015. The Dec 2015 Note was accounted for under ASC 470,
whereby, a beneficial conversion feature was recorded at time of issuance. The Dec 2015 Note did not meet the criteria of a derivative,
and was accounted for as a beneficial conversion feature, which was amortized over the life of the Dec 2015 Note and recognized as interest
expense in the financial statements. On January 1, 2016, the Dec 2015 Note met the criteria of a derivative and was accounted for under
ASC 815. The Dec 2015 Note has zero stated interest rate, and the conversion price shall be equal to 75% of the average three lowest
last sale prices traded during the 25 trading days immediately prior to conversion. As of December 31, 2022, the remaining balance on
the Dec 2015 Note was $167,048, which is short term.
The Company
issued a convertible note (the “Sep 2016 Note”) in exchange for accounts payable in the amount of $430,896, which could be
converted into shares of the Company’s common stock after September 15, 2016. The Sep 2016 Note was accounted for under ASC 470,
whereby, a beneficial conversion feature was recorded at time of issuance. The Sep 2016 Note met the criteria of a derivative and was
accounted for under ASC 815. The Sep 2016 Note has zero stated interest rate, and the conversion price shall be equal to 75% of
the average three lowest last sale prices traded during the 25 trading days immediately prior to conversion. The Sep 2016 Note did not
meet the criteria of a derivative at the date of the issuance, and was accounted for as a beneficial conversion feature, which was amortized
over the life of the Sep 2016 Note and recognized as interest expense in the financial statements. The conversion feature of the Sep 2016
Note was considered a derivative in accordance with current accounting guidelines because of the reset conversion feature of the Sep 2016
Note. As of December 31, 2022, the remaining balance on the Sep 2016 Note was $430,896, which is short term.
The Company
issued two (2) unsecured convertible promissory notes (the “Apr & May 2018 Notes”), in the aggregate amount of $300,000 on
April 2, 2018 and May 31, 2018. The Apr & May 2018 Notes had maturity dates of April 2, 2019 and May 31, 2019, respectively.
The Apr & May 2018 Notes bear interest at 10% per year. The Apr & May 2018 Notes may be converted into shares of the Company’s
common stock at a variable conversion price of 50% of the lesser of the lowest trading price twenty-five (25) trading days prior to conversion. The
conversion feature of the Apr & May 2018 Notes was considered a derivative in accordance with current accounting guidelines because
of the reset conversion features of the Notes. On March 13, 2019, the Company entered into a settlement agreement with the investor in
the amount of $570,000, based on the outstanding balance due and payable under the Apr & May 2018 Notes. The Company set up a reserve
of 2,630,769 shares of common stock of the Company for issuance upon conversion by the investor of the amounts owed under
the Notes, in accordance with the terms of the Notes, including, but not limited to the beneficial ownership limitations contained in
the Notes. In addition to the foregoing, upon the sale by the investor of the settlement shares as delivered to the investor by the Company,
resulting in total net proceeds less than the settlement value, the investor is entitled to additional settlement shares of the Company’s
common stock. If after the investor has sold all settlement shares, the investor delivers a written notice to the Company certifying that
the investor is entitled to additional settlement shares of the Company’s common stock (the “Make-Whole Shares”). The
number of make-whole shares being equal to the greater of ((i) zero and (ii) the quotient of (1) the difference of (x) the settlement
value with respect to each sale of shares by the Investor after the delivery of the Settlement Shares, minus (y) the aggregate net consideration
received by the Investor from the resale of all shares of common stock issued by the Company, divided by (2) the average trailing closing
price for ten (10) trading days for the shares immediately preceding the date of delivery of the make-whole shares. As of December 31,
2022, the remaining balance on the May 2018 Note was $218,064, which is short term.
The Company
entered into an unsecured convertible promissory note (the “Nov 20 Note”), on November 19, 2020 in the amount of $50,000.
The Company received funds in the amount of $50,000. The Nov 20 Note had an original maturity date of November 19, 2021 and was
extended for an additional sixty (60) months from the maturity date. The Nov 20 Note bears interest at 10% per year. The Nov
20 Note may be converted into shares of the Company’s common stock at a lesser price of $0.05 per share or (b) fifty percent (50%)
of the lowest trade price of common stock recorded on any trade after the effective date, or (c) the lowest effective price per share
granted. In addition, for each conversion, in event that shares are not delivered by the fourth business day (inclusive of the day
of conversion), a penalty of $2,000 per day shall be assessed for each day after the third business day until the shares are delivered. The
conversion feature of the Nov 20 Note was considered a derivative in accordance with current accounting guidelines because of the reset
conversion features of the Note. As of December 31, 2022, the remaining balance on the Nov 20 Note was $13,772, which is long term.
The Company
entered into an unsecured convertible promissory note (the “Jan 21 Note”), on January 25, 2021 in the amount of $60,000. The
Company received funds in the amount of $60,000. The Jan 21 Note had an original maturity date of January 25, 2022 and was extended
for an additional sixty (60) months from the maturity date. The Jan 21 Note bears interest at 10% per year. The Jan 21 Note may be converted
into shares of the Company’s common stock at a conversion price equal to the lower of (a) $0.05 per share, (b) fifty percent (50%)
of the lowest trade price of common stock recorded on any trade after the effective date, or (c) the lowest effective price per share
granted. In addition, for each conversion, in event that shares are not delivered by the fourth business day (inclusive of the day
of conversion), a penalty of $2,000 per day shall be assessed for each day after the third business day until the shares are delivered. The
conversion feature of the Jan 25 Note was considered a derivative in accordance with current accounting guidelines because of the reset
conversion features of the Note. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount
of $3,743 during the year ended December 31, 2022. As of December 31, 2022, the balance of the Jan 21 Note was $60,000, which is
long term.
We evaluated
the financing transactions in accordance with ASC Topic 815, Derivatives and Hedging, and determined that the conversion feature of the
convertible promissory notes was not afforded the exemption for conventional convertible instruments due to its variable conversion rate.
The note has no explicit limit on the number of shares issuable, so they did not meet the conditions set forth in current accounting standards
for equity classification. The Company elected to recognize the note under paragraph 815-15-25-4, whereby, there would be a separation
into a host contract and derivative instrument. The Company elected to initially and subsequently measure the note in its entirety at
fair value, with changes in fair value recognized in earnings. The Company recorded a derivative liability representing the imputed interest
associated with the embedded derivative. The derivative liability is adjusted periodically according to the stock price fluctuations.
The derivative liability recognized in the financial
statements as of December 31, 2022 was $9,578,904.
6. |
REVENUE FROM CONTRACTS WITH CUSTOMERS |
Equipment Contracts
Revenues and related costs on equipment
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.
The following table represents a disaggregation
of revenue by type of good or service from contracts with customers for the year ended December 31, 2022 and 2021.
| |
Years Ended | |
| |
December 31, | |
| |
2022 | | |
2021 | |
Equipment Contracts | |
$ | 7,537,755 | | |
$ | 2,516,609 | |
Component Sales | |
| 1,548,760 | | |
| 1,149,861 | |
Waste Water Treatment Systems | |
| 886,005 | | |
| 57,729 | |
Pump Stations | |
| 288,555 | | |
| 285,323 | |
Rental Income | |
| 26,292 | | |
| 27,833 | |
Services Sales | |
| 85,043 | | |
| 70,200 | |
Commission & Training | |
| 4,163 | | |
| 36,189 | |
| |
$ | 10,376,573 | | |
$ | 4,143,744 | |
Revenue recognition for other sales
arrangements, such as sales for components, and service sales will remain materially consistent.
Contract assets represents revenues
recognized in excess of amounts billed on contracts in progress. Contract liabilities represents billings in excess of revenues recognized
on contracts in progress. Assets and liabilities related to long-term contracts are included in current assets and current liabilities
in the accompanying balance sheets, as they will be liquidated in the normal course of the contract completion. The contract asset for
the years ending December 31, 2022 and 2021, was $1,479,491 and $378,932, respectively. The contract liability for the years ended December
31, 2022 and 2021, was $932,458 and $1,886,946, respectively.
Fair value investment in Securities
On
November 12, 2021, the Company served a conversion notice to WTII and recorded additional interest and fees of $15,988 through that
date, according to the terms of the securities purchase agreement for an aggregate of $149,867. The Note was converted into 45,208,649 shares
of WTII common stock. As of December 31, 2022, the investment in securities was recorded at fair value in the amount of $27,125, with
an unrealized loss of $171,793.
On May 15, 2018, the Company received
4,000 shares of WTII Series C convertible preferred stock for the use of OriginClear, Inc. technology associated with their proprietary
electro water separation system. Each share of Series C convertible preferred stock is convertible into one thousand (1,000) shares of
WTII common stock. The stock was valued at fair market value of $0.0075 for a price of $30,000 on the date of issuance. The Company analyzed
the licensing agreement using ASU 606 to determine the timing of revenue recognition. The licensing of the intellectual property (IP)
is distinct from the non-license goods or services and has significant standalone functionality that provides a benefit or value. The
functionality will not change during the license period due to the licensor’s activities. Because the significant standalone functionality
was delivered immediately, the revenue was recognized in the financial statements as of June 30, 2018. As of December 31, 2022, the fair
value of the preferred shares was $2,400, and had a loss in fair value of $15,200.
Secured Loans Payable
The
Company entered into short term loans with various lenders for capital expansion secured by the Company’s assets in the amount
of $1,749,970, which included finance cost of $624,810. The finance cost was amortized over the terms of the loans, which have various
maturity dates ranging from October 2018 through February 2019. As of December 31, 2020, the finance cost was fully amortized. During
the year ended December 31, 2021, the Company settled the majority of the loans in the amount of $262,250, of which $157,250 was recognized
on the statement of operations as a gain on write-off of loan payable. The term of the loans ranged from two months to six months. During
the year ended December 31, 2022, the Company received $25,000 as a settlement and wrote off $50,000 of secured loans payable.
The net balance as of December 31, 2022 was $30,646.
Small Business Administration Loans
Between April 30, 2020 and September
12, 2020, the Company received total loan proceeds in the amount of $505,000, which included an aggregate of $345,000 under the Paycheck
Protection Program (the “PPP”) under the Coronavirus Aid, Relief and Economic Security Act, an Economic Injury Disaster Loan
(the “EIDL”) in the amount of $150,000, and an Economic Injury Disaster Grant in the amount of $10,000. The principal and
accrued interest under the PPP was forgivable if the Company used the PPP loan proceeds for eligible purposes, including payroll, benefits,
rent and utilities, and otherwise complied with PPP requirements. The Company used the full proceeds of the PPP loan specifically for
eligible purposes per requirements of the PPP and during the period ending December 31, 2021, the Company submitted satisfactory documentation
regarding its compliance with the applicable requirements and obtained forgiveness of the PPP loan. The Company must repay any unforgiven
principal amount, with interest, on a monthly basis following the deferral period for the EIDL. For the period ended December 31, 2021,
the aggregate amount of $345,000 received under the PPP, and the Economic Injury Disaster Grant in the amount of $10,000 was recognized
in the statement of operations as other income due to forgiveness.
The Company entered into a capital
lease for the purchase of equipment during the year ended December 31, 2018. The lease is for a sixty (60) month term, with monthly payments
of $757 per month, and a purchase option at the end of the lease for $1.00. As of December 31, 2022, the lease was paid in full.
On December 22, 2017, the U.S. enacted
the Tax Cuts and Jobs Act (the “Act”), which significantly changed U.S. tax law. The Act lowered the Company’s U.S.
statutory federal income tax rate from 35% to 21% effective January 1, 2018.
The Company files income tax returns
in the U.S. Federal jurisdiction, and the state of California. With few exceptions, the Company is no longer subject to U.S. federal,
state and local, or non-U.S. income tax examinations by tax authorities for years before 2019.
Included in the balance at December
31, 2022, are no tax positions for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing
of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter
deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to
an earlier period.
The Company’s policy is to recognize
interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. During the periods ended
December 31, 2022 and 2021, the Company did not recognize interest and penalties.
At December 31, 2022, the Company had
net operating loss carry-forwards of approximately $53,302,938, which expire at dates that have not been determined. No tax benefit has
been reported in the December 31, 2022 financial statements since the potential tax benefit is offset by a valuation allowance of the
same amount.
The income tax provision differs from
the amount of income tax determined by applying the U.S. federal and state income tax rate to pretax income from continuing operations
for the years ended December 31, 2022 and 2021 due to the following:
| |
2022 | | |
2021 | |
Book income (loss) | |
$ | 2,266,050 | | |
$ | 444,255 | |
Tax to book differences for deductible expenses | |
| 265 | | |
| 9,508 | |
Tax non-deductible expenses | |
| (1,078,110 | ) | |
| 1,166,218 | |
Valuation Allowance | |
| (1,188,205 | ) | |
| (1,619,981 | ) |
Income tax expense | |
$ | - | | |
$ | - | |
Deferred taxes are provided on a liability
method whereby deferred tax assets are recognized for deductible differences and operating loss and tax credit carry-forwards and deferred
tax liabilities are recognized for taxable temporary differences. Temporary differences are the difference between the reported amounts
of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Net deferred tax liabilities consist
of the following components as of December 31,
| |
2022 | | |
2021 | |
Deferred tax assets: | |
| | |
| |
NOL carryover | |
$ | 11,193,615 | | |
$ | 7,511,485 | |
Other carryovers | |
| 728,905 | | |
| 728,907 | |
| |
| | | |
| | |
Deferred tax liabilities: | |
| | | |
| | |
Depreciation | |
| (125,925 | ) | |
| (158,296 | ) |
Less Valuation Allowance | |
| (11,796,595 | ) | |
| (8,082,096 | ) |
Net deferred tax asset | |
$ | - | | |
$ | - | |
Due to the change in ownership provisions
of the Tax Reform Act of 1986, net operating loss carry-forwards for Federal income tax reporting purposes are subject to annual limitations.
Should a change in ownership occur, net operating loss carry-forwards may be limited as to use in future years.
11. | WATER ON DEMAND INC. (‘WODI’) |
Water On Demand, Inc. (“WODI”) was incorporated
in the state of Nevada on April 22, 2022. WODI, with the support of its parent, OriginClear, Inc (the “Company”), is developing
a new outsourced water treatment business called “Water On Demand”: or “WOD”. 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”. WODI intends to work with regional water service companies to build and operate the water treatment systems it
finances. On March 23, 2022, WODI announced that it was evaluating the first pilot opportunity, a 50,000 gallon per day wastewater
treatment project.
On November 16, 2022, WODI filed
a Form 1-A Offering Circular for an offering under Regulation A+ (the “Offering”) of the Securities Act of 1933 with the U.S.
Securities and Exchange Commission. The purpose of the Offering is to allow potential investors the opportunity to invest directly in
WODI. The Offering has a minimum investment of $1,000 and will be on a best-efforts basis.
On December 22, 2022, WODI entered
into a Membership Interest Purchase and Transfer Agreement (the “Purchase Agreement”) with Ka Wai Cheung, Koon Lin Chan, and
Koon Keung Chan (each a “Seller”, and collectively, the “Sellers”) and Fortune Rise Sponsor LLC, a Delaware limited
liability company (the “Sponsor”), pursuant to which WODI purchased 100 membership interests in the Sponsor (“Purchased
Interests”) from the Sellers, which constitutes 100% of the membership interests in the Sponsor. The Sponsor owns 2,343,750 shares
out of 2,443,750 shares of the issued and outstanding shares of Class B common stock (the “Class B Common Stock”) of Fortune
Rise Acquisition Corporation, a Delaware Corporation (the “SPAC”).
On December 22, 2022, WODI paid a total
of $1,137,267 to the Sellers which included a total of $400,000 to purchase the membership interest in Class B Common Stock of the SPAC
and $737,267 for compensating the payment made by the Sellers on November 4, 2022, towards the first extension of the SPAC through February
5, 2023. In connection with the Extension Payment, the SPAC issued unsecured promissory notes to the Sellers. As of December 31, 2022,
the $737,267 amount was reflected as Notes Payable to related party on the consolidated balance sheet of the SPAC.
The SPAC is a blank check company incorporated
in February 2021 as a Delaware corporation formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock
purchase, reorganization or similar business combination with one or more businesses. The SPAC is a “shell company” as defined
under the Exchange Act of 1934, as amended, because it has no operations and nominal assets consisting almost entirely of cash. The SPAC
will not generate any operating revenues until after the completion of its initial business combination, at the earliest.
On December
29, 2022, pursuant to a Membership Interest Purchase and Transfer Agreement and Securities Transfer Agreement with the members of the
Sponsor, WODI acquired the membership interests of the Sponsor and became the beneficial owner of 2,343,750 shares of Class B Common Stock
of the SPAC, each of which is exercisable into one share of Class A Common Stock of the SPAC. The purchase price for the membership interests
was $400,000. To acquire the equity interests in the SPAC for the purchase price of $400,000, WODI issued convertible secured promissory
notes to investors at 10% interest per annum. Per the terms and conditions of the convertible promissory note, all unpaid principal, together
with any unpaid and accrued interest shall be due and payable on the earlier of the twelve (12) month of the date of the Note (the “Maturity
Date”) (provided, WODI shall have the option to extend the Maturity Date for up to two (2) six-month extensions, or (ii) when, upon
the occurrence and during the continuance of an Event of Default.
WODI also
assumed the obligation to make any necessary extension payments in connection with the extension of the period of time in which the SPAC
may consummate its initial business combination as described in the SPAC’s S-1 Registration Statement, including the three-month
extension from November 5, 2022 to February 5, 2023, the second extension for an additional three months from February 5, 2023 to May
5, 2023 and a final extension for an additional six months from May 5, 2023 to November 5, 2023.
Accounting
of Class B Common Founder Shares as at December 31, 2022
The Company retained an independent valuation firm for the purpose
of conducting a valuation of the fair value of Sponsor Founder Shares (Class B) of Fortune Rise Acquisition Corp. as of December 31, 2022
(the “Date of Valuation”).
The independent firm (i) evaluated and analyzed various Sponsor Founder
Shares of Fortune Rise Acquisition Corp. (“FRLA”); (ii) assessed the terms including various redemption and liquidation features
considering each of the Company’s financial plans and market conditions; and (iii) determined the underlying value to be assigned
to the FRLA Sponsor Founder Shares as of the Date of Valuation and evaluated the FRLA Sponsor Founder Shares for impairment by performing
the following procedures:
|
● |
Analyzed the Company’s agreements and other documentation. |
| ● | Developed Monte Carlo Model that values the FRLA Sponsor Founder Shares based on a multipath random event model and future projections of the various potential outcomes. We completed 50,000 iterations for each valuation. |
|
● |
Valued the FRLA Sponsor Founder Shares as of the Date of Valuation. |
Based on the
procedures performed the independent valuation firm concluded that the value of FRLA Sponsor Founder Shares was not impaired.
Recording
of membership interest:
As of December
31, 2022, WODI recorded the purchase of Class B Founder Shares at lower of cost or market at $400,000 on the consolidated balance sheet
as other asset.
Impairment
of receivable:
As of December 31, 2022, the amount
of $737,267 paid to compensate the Sellers (sponsors) towards the first extension of the SPAC through February 5, 2023 and which was reflected
as Notes Payable to related party on the consolidated balance sheet of the SPAC, was initially recorded as a receivable by WODI. However,
since the likelihood of the merger of WODI into the SPAC is estimated at 50%, the repayment of the amount is deemed not probable as the
SPAC may not have the funds to pay all of the A class investors back with interest if a merger is not consummated. Therefore, as of December
31, 2022, WODI considered the amount impaired and recorded it as an expense on the consolidated income statements.
The Company acquired real estate assets
to be held for sale to finance their water projects, by issuing 630 shares of Series T preferred stock for a fair value of $630,000, in
conjunction with common stock purchase warrants, through an asset purchase agreement. The assets held for sale consisted of residential
property, plus eight (8) lots of undeveloped land. The real property has been listed actively on the market to be sold. Based on the offers
received and the market conditions, the Company adjusted the fair value and recognized a loss on impairment of the residential property
in the amount of $230,000. As of December 31, 2022, the carrying value of the property is $400,000.
13. |
COMMITMENTS AND CONTINGENCIES |
Facility Rental – Related Party
Our Dallas based subsidiary, PWT,
rents an approximately 12,000 square foot facility located at 2535 E. University Drive, McKinney, TX 75069, with a current monthly
rent of $7,900.
Warranty Reserve
Generally, a PWT project is guaranteed
against defects in material and workmanship for one year from the date of completion, while certain areas of construction and materials
may have guarantees extending beyond one year. The Company has various insurance policies relating to the guarantee of completed work,
which in the opinion of management will adequately cover any potential claims. A warranty reserve has been provided under PWT based on
the opinion of management and based on Company history in the amount of $20,000 for the year ending December 31, 2022.
Litigation
On March 12, 2021,
OriginClear, Inc. Progressive Water Treatment, Inc. and T. Riggs Eckelberry, individually (collectively, the “C6 Plaintiffs”),
and C6 Capital LLC (“C6 Capital”) agreed to settle the dispute between the parties relating to a merchant cash advance agreement
entered into on July 17, 2018. Pursuant to the terms of the settlement agreement, (i) C6 has vacated the judgment obtained by C6
Capital against the C6 Plaintiffs; (ii) C6 has released any and all bank levies, liens, security interests, powers of attorney, and
other encumbrances its has against the C6 Plaintiffs; (iii) the C6 Plaintiffs have dismissed the plenary action commenced in the
Supreme Court for the State of New York in and for the County of Broome against C6 Capital with prejudice and; (iv) the sister-state
judgment C6 Capital obtained against the C6 Plaintiffs in California is currently in the process of being vacated by stipulation. Accordingly,
the C6 Plaintiffs no longer owe any further amounts to C6 Capital with respect to the settlement agreement.
On February 12, 2019, Auctus Fund,
LLC (“Auctus”) filed a complaint against OriginClear in the United States District Court for the District of Massachusetts
for numerous claims arising from two convertible promissory notes and accompanying securities purchase agreements. On March 13, 2019,
Auctus and OriginClear entered into a Settlement Agreement and Mutual General Release, under which Auctus would be permitted to convert
$570,000 into OriginClear securities pursuant to the terms set forth in the convertible promissory notes. On February 2, 2021, OriginClear
filed a Motion to Set Aside the Settlement Agreement as Void under Section 29(b) of the Securities Exchange Act of 1934 (the “Act”)
for Auctus’ violation of Section 15(a) of the Act. On February 21, 2023, the Court denied OriginClear’s Motion to Set Aside
the Settlement Agreement. On March 8, 2023, OriginClear appealed the Court’s decision to the United States Court of Appeals for
the First Circuit.
Major Customers
PWT had four major customers for the
year ended December 31, 2022. The customers represented 71.1% of billings for the year ending December 31, 2022. The contract receivable
balance for the customers was $1,781,930 at December 31, 2022.
PWT had two major customers for the
year ended December 31, 2021. The customers represented 64.24% of billings for the year ending December 31, 2021. The contract receivable
balance for the customers was $1,381,875 at December 31, 2021.
Major Suppliers
PWT had three major vendors for the
year ended December 31, 2022. The vendors represented 38.11% of total expenses in the year ending December 31, 2022. The accounts payable
balance due to the vendors was $1,054,022 at December 31, 2022. Management believes no risk is present with the vendors due to other suppliers
being readily available.
PWT
had three major vendors for the year ended December 31, 2021. The vendors represented 40.1% of total expenses in the year ending December
31, 2021. The accounts payable balance due to the vendors was $279,082 at December 31, 2021. Management believes no risk is present with
the vendors due to other suppliers being readily available.
Management has evaluated subsequent
events according to the requirements of ASC TOPIC 855 and has determined that there are the following subsequent events:
On January 3, 2023, holders of the
Company’s Series Q preferred stock converted an aggregate of 25 Series Q shares into an aggregate of 4,208,756 shares
of the Company’s common stock.
On January 3, 2023, holders of the
Company’s Series S preferred stock converted an aggregate of 25 Series S shares into an aggregate of 4,208,756 shares
of the Company’s common stock.
Between January 4, 2023 and March 27,
2023, holders of the Company’s Series R preferred stock converted an aggregate of 365 Series R shares into an aggregate of 70,652,445
shares of the Company’s common stock of which, an aggregate of 65,610,428 of those common
shares were redeemed by the Company between March 25, 2023 and March 28, 2023, and the redemption amount, together with cash paid by the
redeeming stockholders, were used to purchase one or more convertible secured promissory notes from WODI.
Between January 5, 2023 and March 27,
2023, holders of the Company’s Series Y preferred stock converted an aggregate of 4.2 Series Y shares into an aggregate of 63,656,525
shares of the Company’s common stock of which, an aggregate of 53,275,963 of those common
shares were redeemed by the Company between March 25, 2023 and March 28, 2023, and the redemption amount, together with cash paid by the
redeeming stockholders, were used to purchase one or more convertible secured promissory notes from WODI.
Between January 6, 2023 and March 31,
2023, the Company issued to consultants and one employee an aggregate of 23,716,123 shares of the Company’s common stock for services.
On October 20, 2022, the Company entered into an Equity
Financing Agreement (“Financing Agreement”) with GHS Investments, LLC (“GHS”), whereby GHS agreed to purchase,
at the Company’s sole discretion, up to $25,000,000 worth of the shares of the Company’s common stock (the “Shares”),
par value $0.0001 per share. In accordance with the terms of the Financing Agreement and the Registration Rights Agreement (“Registration
Agreement”) dated October 20, 2022 between the Company and GHS, the Company registered the Shares on Form S-1 with the Securities
and Exchange Commission as a condition precedent to GHS’s obligation to close on the purchase of the Shares. On
December 27, 2022, the Securities and Exchange Commission issued a Notice of Effectiveness of the Registration Statement filed on Form
S-1 (File Number 333-268608) for OriginClear, Inc. Between January 10, 2023 and March 24, 2023, the Company received an aggregate net
amount of $130,583 in financing pertaining to this agreement and issued an aggregate of 18,645,028 shares of the Company’s common
stock to GHS.
Between January
6, 2023 and February 27, 2023, the Company entered into subscription agreements with certain accredited investors pursuant to which
the Company sold an aggregate of 3.5 shares of the Company’s Series Y preferred stock for an aggregate purchase price of $345,000.
The Company also issued an aggregate of 2,760,000 warrants to purchase shares of its common stock to these investors.
Between February
23, 2023 and March 3, 2023, per electing and qualifying for the Restricted Stock Grant Agreement alternate vesting schedule, the Company
issued to Mr. Eckelberry, employees and one consultant an aggregate of 8,830,859 shares of the Company’s common stock.
On February
24, 2023, holders of the Company’s Series O preferred stock converted an aggregate of 40 Series O shares into an aggregate of 7,722,008
shares of the Company’s common stock.
On
March 27, 2023, the Company entered into settlement agreements with certain accredited investors pursuant to which the Company issued
an aggregate of 85,836,889 shares of the Company’s common stock in settlement of certain claims with such persons of which, an aggregate
of 63,258,812 of those common shares were redeemed by the Company between March 28, 2023 and March 30, 2023, and the redemption amount,
together with cash paid by the redeeming stockholders, were used to purchase one or more convertible secured promissory notes from WODI.
On March 31, 2023, the Company issued
an aggregate of 238,003 shares of the Company’s common stock as dividends to certain holders of Series O preferred stock.
On April 14, 2023, the Company sold
certain assets related to its Modular Water Service business to its wholly owned subsidiary Water on Demand, Inc. in exchange for 6,000,000
shares of Water on Demand, Inc. common shares. The assets included certain licenses, intellectual property and contracts.
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