UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED:  September 30, 2017March 31, 2022

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: ________________333-147980

ORIGINCLEAR, INC.

(Exact name of registrant as specified in its charter)

Nevada26-0287664
(State or other jurisdiction of
 
incorporation or organization)		(I.R.S. Employer
 
Identification No.)

525 S. Hewitt St.13575 58th Street North

Los Angeles, CA 90013Suite 200

Clearwater, FL 33760

(Address of principal executive offices, Zip Code)

(323) 939-6645(727) 440-4603

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTicker symbol(s)Name of each exchange on which
registered
N/AN/AN/A

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer☐Accelerated filer☐
Non-accelerated filer☐☒Smaller reporting company☒
Emerging growth company☐

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November 14, 2017,May 13, 2022 there were 99,756,011571,161,924 shares of common stock, par value $0.0001 per share, issued and outstanding.

 

 

 

TABLE OF CONTENTS

Page
PART I
PART I
Item 1.Financial Statements.1
Item 1.Financial Statements.1
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.1627
Item 3.Quantitative and Qualitative Disclosures About Market Risk.2339
Item 4.Controls and Procedures.2439
PART II
Item 1.Legal Proceedings.2540
Item 1A.Risk Factors.2540
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.2540
Item 3.Defaults Upon Senior Securities.2540
Item 4.Mine Safety Disclosures.2541
Item 5.Other Information.2541
Item 6.Exhibits.2541
SIGNATURES2642

i

 

PART I - FINANCIAL INFORMATION

This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based on management’s beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under the heading “Management’s Discussion and Analysis of Financial Condition or Plan of Operation.” Forward-looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider” or similar expressions are used.

Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. Our future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements.

ItemITEM 1. Financial Statements.FINANCIAL STATEMENTS

ORIGINCLEAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

  September 30, 2017  December 31, 2016 
  (Unaudited)    
ASSETS      
       
CURRENT ASSETS      
Cash $342,164  $351,321 
Contracts receivable, less allowance for doubtful accounts of $50,000 and $50,000 respectively  523,548   382,895 
Inventory  13,614   - 
Cost in excess of billing  9,238   47,612 
Work in progress  84,157   86,085 
Prepaid expenses  17,991   42,128 
         
TOTAL CURRENT ASSETS  990,712   910,041 
         
NET PROPERTY AND EQUIPMENT  156,252   161,912 
         
OTHER ASSETS        
Other asset  19,538   19,538 
Goodwill  682,145   682,145 
Trademark  4,467   4,467 
Security deposit  3,500   3,500 
TOTAL OTHER ASSETS  709,650   709,650 
TOTAL ASSETS $1,856,614  $1,781,603 
         
LIABILITIES AND SHAREHOLDERS’ DEFICIT        
         
Current Liabilities        
Accounts payable and other payable $830,539  $480,064 
Accrued expenses  847,114   715,281 
Billing in excess of cost  233,394   - 
Customer deposit  113,950   113,950 
Warranty reserve  20,000   20,000 
Loans payable, current portion  11,090   - 
Derivative liabilities  10,728,464   8,702,083 
Convertible promissory notes, net of discount of $54,440 and $591,835, respectively  296,722   1,935,233 
Total Current Liabilities  13,081,273   11,966,611 
         
Long Term Liabilities        
Loan payable, long term portion  12,282   - 
Convertible promissory notes, net of discount of $235,268 and $11,429, respectively  3,080,628   1,613,571 
Total Long Term Liabilities  3,092,910   1,613,571 
Total Liabilities  16,174,183   13,580,182 
         
SHAREHOLDERS’ DEFICIT        
Preferred stock, $0.0001 par value, 25,000,000 shares authorized 6,666 shares of Series B issued and outstanding, respectively  1   1 
1,000 shares of Series C issued and outstanding, respectively  -   - 
Common stock, $0.0001 par value, 300,000,000 shares authorized 78,151,781 and 21,428,454 equity shares issued and outstanding, respectively  7,815   2,143 
Preferred treasury stock, 1,000  and 1,000 shares of Series C outstanding, respectively  -   - 
Additional paid in capital  57,564,158   51,428,976 
Accumulated other comprehensive loss  (134)  (92)
Accumulated deficit  (71,889,409)  (63,229,607)
TOTAL SHAREHOLDERS’ DEFICIT  (14,317,569)  (11,798,579)
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT $1,856,614  $1,781,603 
  March 31,
2022		  December 31,
2021		 
  (Unaudited)    
ASSETS      
CURRENT ASSETS      
Cash $793,188  $272,470 
Restricted cash  1,061,227   433,951 
Contracts receivable  1,039,746   2,150,967 
Fair value investment in securities, current  94,940   198,918 
Contract assets  781,967   378,932 
Inventory assets  2,850   2,850 
Prepaid expenses  12,363   13,111 
TOTAL CURRENT ASSETS  3,786,281   3,451,199 
NET PROPERTY AND EQUIPMENT  202,658   213,391 
         
OTHER ASSETS        
Long term assets held for sale  514,000   514,000 
Fair value investment-securities  8,800   17,600 
Trademark  4,467   4,467 
TOTAL OTHER ASSETS  527,267   536,067 
TOTAL ASSETS $4,516,206  $4,200,657 
         
LIABILITIES AND SHAREHOLDERS’ DEFICIT        
Current Liabilities        
Accounts payable and other payable $1,434,056  $1,452,229 
Accrued expenses  1,531,544   1,533,404 
Cumulative preferred stock dividends payable  352,359   356,728 
Contract liabilities  2,494,825   1,886,946 
Capital lease, current portion  5,713   7,985 
Customer deposit  146,453   146,453 
Warranty reserve  20,000   20,000 
Loan payable, merchant cash advance  30,646   80,646 
Loans payable, SBA  150,000   150,000 
Derivative liabilities  7,852,842   6,526,129 
Series F 8% Preferred Stock, 160 and 160 shares issued and outstanding, redeemable value of $160,000 and $175,000 respectively  160,000   160,000 
Series F 8% Preferred Stock, 0 and 100 shares issued and outstanding, respectively redeemable value of $0 and $100,000 respectively  -   100,000 
Series G 8% Preferred Stock, 25 and 25 shares issued and outstanding, respectively, redeemable value of $25,000 and $25,000, respectively  25,000   25,000 
Series I 8% Preferred Stock, 235 and 235 shares issued and outstanding, respectively, redeemable value of $235,000 and $235,000, respectively  235,000   235,000 
Series K 8% Preferred Stock, 482 and 581 shares issued and outstanding, respectively, redeemable value of $482,150 and $580,650, respectively  482,150   580,650 
Convertible promissory notes, net of discount of $0 and $3,743, respectively  1,596,008   3,016,037 
Total Current Liabilities  16,516,596   16,277,207 
         
Long Term Liabilities        
Capital lease, long term portion  -   - 
Convertible promissory notes, net of discount of $0 and $0, respectively  1,416,147   62,275 
Total Long Term Liabilities  1,416,147   62,275 
Total  Liabilities  17,932,743   16,339,482 
         
COMMITMENTS AND CONTINGENCIES (See Note 11)        
Series J Convertible Preferred Stock, 215 and 215 shares of issued and outstanding, respectively, redeemable value of $215,000 and $215,000, respectively  215,000   215,000 
Series L Convertible Preferred Stock, 486 and 610 shares of issued and outstanding, respectively redeemable value of $486,245 and $609,825, respectively  486,245   609,825 
Series M Preferred Stock, 40,300 and 40,300 shares issued and outstanding, respectively, redeemable value of $1,007,500 and $1,007,500, respectively  1,007,500   1,007,500 
Series O 8% Convertible Preferred Stock, 615 and 615 shares issued and outstanding, respectively, redeemable value of $615,000 and $615,000, respectively  615,000   615,000 
Series P Convertible Preferred Stock, 57.5 and 57.5 shares issued and outstanding, respectively redeemable value of $57,500 and $57,500, respectively  57,500   57,500 
Series Q 12% Convertible Preferred Stock, 615 and 515 shares issued and outstanding, respectively, redeemable value of $615,000 and $515,000, respectively  615,000   515,000 
Series R 10% Convertible Preferred Stock, 3,054 and 3,432 shares issued and outstanding, respectively, redeemable value of $3,054,000 and $3,432,267, respectively  3,054,000   3,432,267 
Series S 12% Convertible Preferred Stock, 170 and 170 shares issued and outstanding, respectively, redeemable value of $170,000 and $170,000, respectively  170,000   170,000 
Series T 10% Convertible Preferred Stock, 485 and 630 shares issued and outstanding, respectively, redeemable value of $485,000 and $630,000, respectively  485,000   630,000 
Series U Convertible Preferred Stock, 635 and 1,066.5 shares issued and outstanding, respectively, redeemable value of $635,000 and $1,066,500, respectively  635,000   1,066,500 
Series V Convertible Preferred Stock, 0 and 4 shares issued and outstanding, respectively, redeemable value of $0 and $400,000, respectively  -   400,000 
Series W 12% Convertible Preferred Stock, 769.5 and 744.5 shares issued and outstanding, respectively, redeemable value of $769,500 and $744,500, respectively  769,500   744,500 
Series X Convertible Preferred Stock, 250 and 250 shares issued and outstanding, respectively, redeemable value of $250,000 and $250,000, respectively  250,000   250,000 
Series Y Convertible Preferred Stock, 21.1 and 4.7 shares issued and outstanding, respectively, redeemable value of $2,114,200 and $470,000, respectively  2,114,200   470,000 
Series Z Convertible Preferred Stock, 25 and 0 shares issued and outstanding, respectively, redeemable value of $250,000 and $0, respectively  250,000   - 
   10,723,945   10,183,092 
         
SHAREHOLDERS’ DEFICIT        
Preferred stock, $0.0001 par value, 550,000,000 shares authorized 1,000 shares of Series C issued and outstanding, respectively  -   - 
31,500,000 and 31,500,000 shares of Series D-1 issued and outstanding, respectively  3,150   3,150 
1,537,213 and 1,537,213 shares of Series E issued and outstanding, respectively  154   154 
Subscription payable to purchase  100,000   100,000 
Preferred treasury stock, 1,000 and 1,000 shares outstanding, respectively Common stock, $0.0001 par value, 16,000,000,000 shares authorized        
526,305,492 and 306,883,932 equity shares issued and outstanding, respectively  52,630   30,688 
Additional paid in capital - Common stock  77,455,906   75,720,147 
Accumulated other comprehensive loss  (132)  (132)
Accumulated deficit  (101,752,190)  (98,175,924)
TOTAL SHAREHOLDERS’ DEFICIT  (24,140,482)  (22,321,917)
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT $4,516,206  $4,200,657 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

1

1

 

ORIGINCLEAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30, 2017MARCH 31, 2022 AND 20162021

(Unaudited)

  Three Months Ended  Nine Months Ended 
  September 30, 2017  September 30, 2016  September 30, 2017  September 30, 2016 
             
Sales $1,112,438  $1,019,919  $2,294,891  $4,321,378 
                 
Cost of Goods Sold  949,657   574,105   2,031,334   2,899,507 
                 
Gross Profit  162,781   445,814   263,557   1,421,871 
                 
Operating Expenses                
Selling and marketing expenses  539,975   303,496   2,165,213   1,419,566 
General and administrative expenses  830,444   629,455   1,842,815   1,860,239 
Research and development  53,939   106,259   136,582   447,034 
Depreciation and amortization expense  12,961   11,331   39,506   33,902 
                 
Total Operating Expenses  1,437,319   1,050,541   4,184,116   3,760,741 
                 
Loss from Operations  (1,274,538)  (604,727)  (3,920,559)  (2,338,870)
                 
OTHER INCOME (EXPENSE)                
Foreign exchange (loss)  -   (6)  -   (6)
Commitment fee  (736,052)  (787,971)  (1,409,655)  (787,971)
Loss on net change in derivative liability and settlement of debt  (2,693,599)  (7,417,750)  (2,787,138)  (1,959,230)
Interest expense  (173,448)  (206,164)  (542,450)  (641,977)
                 
TOTAL OTHER INCOME (EXPENSE)  (3,603,099)  (8,411,891)  (4,739,243)  (3,389,184)
                 
NET (LOSS) INCOME $(4,877,637) $(9,016,618) $(8,659,802) $(5,728,054)
                 
BASIC AND DILUTED (LOSS) EARNING PER SHARE ATTRIBUTABLE TO SHAREHOLDERS’ $(0.090) $(0.657) $(0.222) $(0.492)
                 
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING, BASIC AND DILUTED  54,334,415   13,724,144   38,977,842   11,644,611 
  Three Months Ended 
  March 31,
2022		  March 31,
2021		 
       
Sales $1,234,105  $796,178 
         
Cost of Goods Sold  1,458,855   691,521 
         
Gross Profit  (224,750)  104,657 
         
Operating Expenses        
Selling and marketing expenses  646,184   431,508 
General and administrative expenses  880,260   818,553 
Depreciation and amortization expense  10,733   11,631 
         
Total Operating Expenses  1,537,177   1,261,692 
         
Loss from Operations  (1,761,927)  (1,157,035)
         
OTHER INCOME (EXPENSE)        
Other income  -   1 
Gain on write of loans payable  75,000   - 
Loss on conversion of preferred stock  (210,997)  (790,812)
Loss on exchange of preferred stock  -   (40,000)
Unrealized gain (loss) on investment securities  (112,778)  45,200 
Loss on net change in derivative liability and conversion of debt  (1,326,713)  (15,651,708)
Interest expense  (238,852)  (263,221)
         
TOTAL OTHER (EXPENSE) INCOME  (1,814,340)  (16,700,540)
         
NET INCOME (LOSS) $(3,576,267) $(17,857,575)
         
WARRANTS DEEMED DIVIDENDS  -   (2,037,849)
         
NET (LOSS) ATTRIBUTABLE TO SHAREHOLDERS INCOME $(3,576,267) $(19,895,424)
         
BASIC EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO SHAREHOLDERS’ $(0.01) $(0.19)
         
DILUTED EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO SHAREHOLDERS’ $(0.01) $(0.19)
         
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING,        
BASIC  416,397,236   91,595,414 
         
DILUTED  416,397,236   91,595,414 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

2

2

 

ORIGINCLEAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF SHAREHOLDERS’ DEFICIT

FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30, 2017MARCH 31, 2022 AND 2021

                       Accumulated       
  Preferred stock  Mezzanine  Common stock  

Additional

Paid-in-

  Subscription  Other Comprehensive  Accumulated    
  Shares  Amount  Equity  Shares  Amount  Capital  Payable  loss  Deficit  Total 
Balance at December 31, 2020  34,038,213  $3,404  $6,331,409   65,052,688  $6,505  $64,265,217  $100,000  $(132) $(94,020,294) $(29,645,300)
Rounding  -   -   -   -   -   -   -   -   -   - 
Common stock issuance for conversion of debt and accrued interest  -   -   -   6,354,895   635   60,371   -         -   -   61,006 
Common stock issued at fair value for services  -   -       4,766,280   477   338,642   -   -   -   339,119 
Common stock issued for conversion of Series J Preferred stock  -   -   (32,500)  978,726   98   32,402   -   -   -   32,500 
Common stock issued for conversion of Series L Preferred stock  -   -   (301,259)  9,988,447   999   300,260   -   -   -   301,259 
Common stock issued for Series O Preferred stock dividends  -   -   -   236,205   24   (24)  -   -   -   - 
Common stock issued for conversion of Series O Preferred stock  -   -   (469,500)  12,844,190   1,284   468,216   -   -   -   469,500 
Common stock issued for conversion of Series P Preferred stock  -   -   (126,000)  6,583,405   658   125,342   -   -   -   126,000 
Common stock issued for conversion of Series Q Preferred stock  -   -   (74,000)  2,052,526   205   73,795   -   -   -   74,000 
Common stock issued for conversion of Series R Preferred stock  -   -   (98,500)  2,891,618   289   98,211   -   -   -   98,500 
Common stock issued for conversion of Series S Preferred stock  -   -   (45,000)  1,149,050   115   44,885   -   -   -   45,000 
Issuance of Series M Preferred stock through a private placement  -   -   29,425   -   -   -   -   -   -   - 
Issuance of Series R Preferred stock through a private placement  -   -   1,080,000   -   -   -   -   -   -   - 
Issuance of Series T Preferred stock in exchange for property  -   -   630,000   -   -   -   -   -   -   - 
Exchange of Series G Preferred stock for Series S Preferred stock  -   -   210,000   -   -   -   -   -   -   - 
Exchange of Series I Preferred stock for Series R Preferred stock  -   -   72,400   -   -   -   -   -   -   - 
Exchange of Series K Preferred stock for Series R Preferred stock  -   -   483,767   -   -   -   -   -   -   - 
Exchange of Series M Preferred stock for Series R Preferred stock  -   -   40,000   -   -   -   -   -   -   - 
Loss on conversion of Preferred stock  -   -   -   -   -   790,812   -   -   -   790,812 
Issuance of Common stock warrants deemed dividends  -   -   -   -   -   2,037,849   -   -   -   2,037,849 
Net Income  -   -   -   -   -   -   -   -   (19,895,424)  (19,895,424)
Balance at March 31, 2021  34,038,213  $3,404   7,730,242   112,898,030  $11,289  $68,635,978  $100,000  $(132) $(113,915,718) $(45,165,179)

              Additional  Accumulated
Other		       
  Preferred stock  Common stock  Paid-in  Comprehensive  Accumulated    
  Shares  Amount  Shares  Amount  Capital  loss  Deficit  Total 
Balance at December 31, 2016  7,666  $1   21,433,571  $2,143  $51,428,976  $(92) $(63,229,607) $(11,798,579)
                                 
Common stock issuance for cash  -   -   10,775,722   1,078   1,296,672   -   -   1,297,750 
                                 
Common stock issuance for conversion of debt  -   -   9,321,555   932   1,234,040   -   -   1,234,972 
                                 
Common stock issuance for settlement of accounts payable  -   -   886,700   89   117,842   -   -   117,931 
                                 
Common stock issued at fair value for services and commitment fees  -   -   35,734,233   3,573   3,415,025   -   -   3,418,598 
                                 
Stock compensation cost  -   -   -   -   71,603   -   -   71,603 
                                 
Other comprehensive loss  -   -   -   -   -   (42)  -   (42)
                                 
Net loss for the nine months ended September 30, 2017  -   -   -   -   -   -   (8,659,802)  (8,659,802)
                                 
Balance at September 30, 2017 (unaudited)  7,666  $1   78,151,781  $7,815  $57,564,158  $(134) $(71,889,409) $(14,317,569)
                       Accumulated       
  Preferred stock  Mezzanine  Common stock  Additional
Paid-in-		  Subscription  Other Comprehensive  Accumulated    
  Shares  Amount  Equity  Shares  Amount  Capital  Payable  loss  Deficit  Total 
Balance at December 31, 2021  33,038,213   3,304  $10,183,092   306,883,932   30,688   75,720,147   100,000   (132)  (98,175,924)  (22,321,917)
Rounding  -   -   -   -   2   (3)  -   -   1   - 
Common stock issuance for conversion of debt and accrued interest  -   -   -   12,461,909   1,246   118,388   -   -   -   119,634 
Common stock issued at fair value for services  -   -   -   13,314,289   1,331   337,393   -   -   -   338,724 
Common stock issued for conversion of Series L Preferred stock  -       (123,580)  14,528,106   1,453   122,127   -   -   -   123,580 
Common stock issued for Series O Preferred stock dividends      -   -   261,707   26   (26)  -   -   -   - 
Common stock issued for conversion of Series R Preferred stock  -   -   (378,267)  26,120,791   2,612   375,655   -   -   -   378,267 
Common stock issued for conversion of Series T Preferred stock  -   -   (145,000)  17,193,676   1,719   143,281   -   -   -   145,000 
Common stock issued for conversion of Series U Preferred stock  -   -   (431,500)  22,794,493   2,279   429,221       -   -   431,500 
Common stock issued for conversion of Series W Preferred stock  -       (10,000)  694,446   69   9,931       -   -   10,000 
Common stock issued for make good shares for Series R Preferred stock      -   -   1,041,662   104   (104)              - 
Common stock issued for conversion settlement      -   -   111,010,481   11,101   (11,101)              - 
Issuance of Series Y Preferred stock through a private placement  -   -   1,244,200   -   -   -   -   -   -   - 
Issuance of Series Z Preferred stock through a private placement  -   -   250,000   -   -   -   -   -   -   - 
Exchange of Series F Preferred stock for Series Q Preferred stock  -   -   100,000   -   -   -   -   -   -   - 
Exchange of Series K Preferred stock for Series W Preferred stock  -   -   35,000   -   -   -   -   -   -   - 
Exchange of Series V Preferred stock for Series Y Preferred stock  -   -   -   -   -   -   -   -   -   - 
Loss on conversion of Preferred stock  -   -   -   -   -   210,997   -   -   -   210,997 
Net Loss  -   -   -   -   -   -   -   -   (3,576,267)  (3,576,267)
Balance at March 31, 2022 (unaudited)  33,038,213  $3,304   10,723,945   526,305,492  $52,630  $77,455,906  $100,000  $(132) $(101,752,190) $(24,140,482)

The accompany notes are an integral part of these unaudited condensed consolidated financial statements

3

3

 

ORIGINCLEAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(Unaudited)

  Nine Months Ended 
  September 30, 2017  September 30, 2016 
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net loss $(8,659,802) $(5,728,054)
Adjustment to reconcile net loss to net cash used in operating activities        
Depreciation and amortization  39,506   33,902 
Common stock and warrants issued for services  3,418,598   1,787,902 
Stock option and warrant compensation expense  71,603   155,112 
Loss on net change in valuation of derivative liability and conversion of debt  2,787,138   1,959,230 
Debt discount and original issue discount  recognized as interest expense  313,546   373,434 
Change in Assets (Increase) Decrease in:        
Contracts receivable  (140,653)  675,188 
Cost in excess of billing  38,374   (12,954)
Inventory asset  (13,614)  - 
Prepaid expenses  24,137   1,797 
Work in progress  1,928   518 
Other asset  -   (88,548)
Change in Liabilities Increase (Decrease) in:        
Accounts payable  468,406   299,584 
Accrued expenses  121,047   257,501 
Billing in excess of cost  209,294   (474,741)
Deferred income  24,100   (150,000)
         
NET CASH USED IN OPERATING ACTIVITIES  (1,296,392)  (910,129)
         
CASH FLOWS USED FROM INVESTING ACTIVITIES:        
Purchase of fixed assets  (33,845)  (5,699)
         
CASH USED IN INVESTING ACTIVITIES  (33,845)  (5,699)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Loans payable  23,372   - 
Proceeds from convertible promissory notes  -   125,000 
Proceeds for issuance of common stock for cash  1,297,750   963,217 
         
NET CASH PROVIDED BY FINANCING ACTIVITIES  1,321,122   1,088,217 
         
Foreign currency effect on cash flow  (42)  (23)
         
NET (DECREASE) INCREASE IN CASH  (9,157)  172,366 
         
CASH BEGINNING OF PERIOD  351,321   695,295 
         
CASH END OF PERIOD $342,164  $867,661 
         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION        
Interest paid $1,823  $2,199 
Taxes paid $-  $- 
         
SUPPLEMENTAL DISCLOSURES OF NON CASH TRANSACTIONS        
Common stock issued at fair value for conversion of debt and accrued interest $1,234,972  $878,040 
Common stock issued at fair value on settlement of accounts payable $117,931  $- 
Common stock issued at fair value for supplemental shares $1,409,655  $787,971 

Beneficial conversion feature on convertible note

 $-  $16,771 
Conversion of accounts payable into a convertible note $-  $430,896 
  Three Months Ended 
  March 31,
2022		  March 31,
2021		 
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net Income (Loss) $(3,576,267) $(17,857,575)
Adjustment to reconcile net loss to net cash used in operating activities        
Depreciation and amortization  10,733   11,631 
Common and preferred stock issued for services  338,724   339,120 
(Gain) Loss on net change in valuation of derivative liability  1,326,713   15,651,708 
Debt discount recognized as interest expense  3,743   14,729 
Net unrealized (gain) loss on fair value of securities  112,778   (45,200)
Loss on exchange of preferred stock  -   40,000 
(Gain) Loss on conversion of preferred stock  210,997   790,812 
Gain on write off of payable  (50,000)  - 
Change in Assets (Increase) Decrease in:        
Contracts receivable  1,111,221   (67,028)
Contract asset  (403,035)  78,301 
Inventory asset  -   (1,900)
Prepaid expenses and other assets  748   39,505 
Other receivable  -   (1,315)
Change in Liabilities Increase (Decrease) in:        
Accounts payable  (13,672)  5,723 
Accrued expenses  47,873   17,896 
Contract liabilities  607,879   (16,072)
NET CASH USED IN OPERATING ACTIVITIES  (271,565)  (999,665)
         
CASH FLOWS USED FROM INVESTING ACTIVITIES:        
Purchase of fixed assets  (4,500)  (4,500)
NET CASH USED IN INVESTING ACTIVITIES  (4,500)  (4,500)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Payments on capital lease  (2,272)  (2,272)
Repayment of loans, related party, net  -   (23,747)
Net payments on cumulative preferred stock dividends payable  (4,369)  17,595 
Proceeds on convertible promissory notes  -   60,000 
Payments on promissory notes  -   (14,800)
Net proceeds for issuance of preferred stock for cash - mezzanine classification  1,430,700   1,109,425 
NET CASH PROVIDED BY FINANCING ACTIVITIES  1,424,059   1,146,201 
         
NET INCREASE IN CASH  1,147,994   142,036 
CASH BEGINNING OF PERIOD  706,421   416,121 
CASH END OF PERIOD $1,854,415  $558,157 
         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION        
Interest and dividends paid $180,898  $2,281 
Taxes paid $-  $- 
         
SUPPLEMENTAL DISCLOSURES OF NON CASH TRANSACTIONS        
Common stock issued at fair value for conversion of debt, plus accrued interest, and other fees $119,634  $61,007 
Common stock issued for settlements $11,101   - 
Issuance of Series T preferred stock in exchange for property $-  $630,000 
Issuance of Series O dividends $26  $24 
Preferred stock converted to common stock     $1,146,759 
Conversion of debt to mezzanine preferred stock $135,000   - 
Conversion of mezzanine preferred stock to common $1,088,347   - 
Exchange from mezzanine to liability $-  $766,167 
Issuance of warrants deemed dividends $-  $2,037,849 
Fair value of derivative at issuance $-  $54,652 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

4

4

 

ORIGINCLEAR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

SEPTEMBER 30, 2017MARCH 31, 2022

1.The accompanying unaudited condensed financial statements1.Basis of OriginClear, Inc. (the “Company”) (formerly OriginOil, Inc.) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included.  Operating results for the nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.  For further information refer to the financial statements and footnotes thereto included in the Company’s Form 10-K for the year ended December 31, 2016.Presentation

Going Concern

The accompanying unaudited condensed consolidated financial statements of OriginClear, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included.  Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. For further information refer to the financial statements and footnotes thereto included in the Company’s Form 10-K for the year ended December 31, 2021.

The Company has implemented 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. Four subsidiaries have been established to house capital dedicated to this program. During the three months ended March 31, 2022, the Water On Demand business reached its first $1 million milestone in dedicated capital. The Company is evaluating the first pilot opportunity to enable a commercial customer to treat its dirty water by the gallon as a managed service, instead of the client having to come up with significant up-front capital. The Company has announced that it plans to spin off the WOD business into its newly formed wholly owned subsidiary, Water On Demand, Inc.

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 condensed financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The Company’s revenue is not yet sufficient to cover its operating expenditures and has negative cash flows from operations, whichThese 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, 2021 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 infusion.infusions. During the three months ended March 31, 2022, the Company obtained funds from the sales of its preferred stock. Management believes this funding will continue from its’ current investors and from new investors. For the three months ended March 31, 2022, the Company generated revenue of $1,234,105 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 current 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 undue 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.

5

 

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of OriginClear, Inc. and its wholly owned operating subsidiaries, Progressive Water Treatment, Inc., and OriginClear (HK) Company,Technologies, Ltd. All material intercompany transactions have been eliminated upon consolidation of these entities.

Cash and Cash Equivalent

Loss

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

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 calculations arecalculation 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 similarsimilarly 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 three months ended March 31, 2022 and 2021, respectively, as the inclusion of any potential shares in the three months ended March 31, 2022 and 2021, would have had an anti-dilutive effect due to the Company generating a loss.

  For the Three Months
Ended		 
  2022  2021 
Income (Loss) to common shareholders (Numerator) $(3,576,267) $(19,895,424)
         
Basic weighted average number of common shares outstanding (Denominator)  416,397,236   91,595,414 
         
Diluted weighted average number of common shares outstanding (Denominator)  416,397,236   91,595,414 

The Company has excluded 3,697,495 of stock options, 474,335excludes issuable shares from warrants, and the shares issuable from convertible debt of $3,667,068notes and shares issuable from convertible preferred stock, for the nine months ended September 30, 2017, becauseif their impact on the loss per share is anti-dilutive.anti-dilutive and includes the issuable shares if their impact is dilutive.

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.

6

 

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 has excluded 113,916,311 stock options, 17,824,259 warrants,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 shares issuablepotential for recovery is considered remote. The allowance for doubtful accounts was $0 and $0 as of March 31, 2022 and December 31, 2021, respectively. The net contract receivable balance was $1,039,746 and $2,150,967 at March 31, 2022 and December 31, 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 convertible debtacquisition date, after obtaining more information regarding, among other things, asset valuations, liabilities assumed and revisions to preliminary estimates. The purchase price in excess of $4,214,068the fair value of the tangible and shares issuableidentified 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 March 31, 2022 and determined there was no impairment of indefinite lived intangibles and goodwill.

7

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 convertible preferred stockthe 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 equipment5-10 years
Furniture, fixtures and computer equipment5-7 years
Vehicles3-5 years
Leasehold improvements2-5 years

    
  3/31/2022  12/31/21 
Machinery and Equipment $383,569  $383,569 
Computer Equipment  62,854   62,854 
Furniture  29,810   29,810 
Leasehold Improvements  26,725   26,725 
Vehicles  64,276   64,276 
Demo Units  36,139   36,139 
   603,373   603,373 
Less accumulated depreciation  (400,715)  (389,982)
Net Property and Equipment $202,658  $213,391 

Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the ninecarrying 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 three months ended September 30, 2016, because their impact on the earnings per share is anti-dilutive.March 31, 2022 and March 31, 2021, was $10,733 and $11,631, respectively.

Inventory

Work-in-Process

The Company recognizesexpenses inventory on a first in, first out basis, and had raw materials of $2,850 and $2,850 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 materialsMarch 31, 2022 and labor related to the construction of equipment to be sold to customers.December 31, 2021, respectively.

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 arevest immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.

5

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.

8

 

ORIGINCLEAR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

SEPTEMBER 30, 2017

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (Continued)

Revenue Recognition

Equipment sales

We recognize revenue upon delivery of equipment, 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.  Title to the equipment is transferred to the customer once the last payment is received. We record revenue as goods are shipped, and the equipment has been fully accepted by the customer. Generally, we extend credit to our customers and do not require collateral.  We do not ship a product until we have a purchase agreement signed by the customer with a payment arrangement.  

Percentage of completion

Revenues and related costs on construction contracts are recognized using the “percentage of completion method” of accounting in accordance with ASC 605-35 – “Accounting for Performance of Construction-Type and Certain Production Type Contracts”.Under this method, contract revenues and related expenses are recognized over the performance period of the contract in direct proportion to the costs incurred as a percentage of total estimated costs for the entirety of the contract. Costs include direct material, direct labor, subcontract labor and any allocable indirect costs. 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 asset “Costs in excess of billings” represents revenues recognized in excess of amounts billed on contracts in progress. The liability “Billings in excess of costs” 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 cost in excess of billings for the nine months ending September 30, 2017 was $9,238 and at December 31, 2016 was $47,612. The billing in excess of cost for the nine months ending September 30, 2017, was $209,294 and at December 31, 2016 was $0.

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 approximately $50,000 as of September 30, 2017 and December 31, 2016, respectively. The net contract receivable balance was $523,548 and $382,895 at September 30, 2017 and December 31, 2016, respectively.

6

ORIGINCLEAR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

SEPTEMBER 30, 2017

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (Continued)

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 September 30, 2017,March 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 September 30, 2017.March 31, 2022.

   Total  (Level 1)  (Level 2)  (Level 3) 
              
 Derivative Liability $10,728,464  $-  $-  $10,728,464 
                  
 Total liabilities measured at fair value $10,728,464  $-  $-  $10,728,464 
  Total  (Level 1)  (Level 2)  (Level 3) 
Investment at fair value-securities $94,940  $94,940  $-  $- 
Total Assets measured at fair value $94,940  $94,940  $-  $- 
                 
   Total    (Level 1)      (Level 2)      (Level 3)   
Derivative Liability, March 31, 2022 $7,852,842  $-  $-  $7,852,842 
Total liabilities measured at fair value $7,852,842  $-  $-  $7,852,842 

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, 2017 $8,702,083 
 Fair Value of derivative liabilities issued  - 
 Change in derivative liability, excluding loss on settlement of debt  2,026,381 
 Balance as of September 30, 2017  10,728,464 
Balance as of January 1, 2022 $6,526,129 
Fair value at issuance  - 
Loss on conversion of debt and change in derivative liability  1,326,713 
Balance as of March 31, 2022 $7,852,842 

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:

09/30/20173/31/22
Risk free interest rate.01%0.17% - 1.922.45 %%
Stock volatility factor4.72%20.0% - 189.09190.0 %%
Weighted average expected option life6 months - 5 years
Expected dividend yieldNoneNaN

7

9

 

ORIGINCLEAR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

SEPTEMBER 30, 2017

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (Continued)

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.

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

In February 2016, the FASB issued ASU No. 2016-2, which creates ASC Topic 842, “Leases.” This update increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018. We are evaluating what impact, if any, the adoption of this guidance will have on our financial condition, results of operations, cash flows or financial disclosures.

In August 2016, the FASB issued ASU No. 2016-15 which amends ASC Topic 230, “Classification of Certain Cash Receipts and Cash Payments.” The amendments in this Update address eight specific cash flow issues with the objective of reducing the existing diversity in practice. The update outlines the classification of specific transactions as either cash inflows or outflows from financing activities, operating activities, investing activities or non-cash activities. This guidance is effective for interim and annual reporting periods beginning after December 15, 2017. We are evaluating what impact, if any, the adoption of this guidance will have on our financial condition, results of operations, cash flows or financial disclosures.

In May 2017, FASB issued accounting standards update ASU-2017-09, “Compensation-Stock Compensation” (Topic 718) –Modification Accounting”, to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation-Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in this ASU are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period for public entities for reporting periods for which financial statements have not yet been issued, and all other entities for reporting periods for which financial statements have not yet been made available for issuance. The Company is currently evaluating the impact of the adoption of ASU 2017-09 on the Company’s financial statements.

In August 2017, FASB issued accounting standards update ASU-2017-12, “D” (Topic 815) – “Targeted Improvements to Accounting for Hedging Activities”, to require an entity to present the earnings effect of the hedging instrument in the same statement line item in which the earnings effect of the hedged item is reported. The amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods with the fiscal years beginning after December 15, 2020. Early adoption is permitted in any interim period after issuance of the update. The Company is currently evaluating the impact of the adoption of ASU 2017-12 on the Company’s financial statements.

Management reviewed currently issued pronouncements during the period ended September 30, 2017, 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.

3.8

ORIGINCLEAR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

SEPTEMBER 30, 2017

3.CAPITAL STOCK

Preferred Stock

Series A

On March 30, 2017, the Board of Directors of the Company authorized the withdrawal of the Series A preferred stock. As of September 30, 2017, no shares of Series A preferred stock were outstanding.

Series B

On October 1, 2015, the Company filed a Certificate of Designation for Series B preferred stock with the Secretary of State of Nevada and the shares of Series B preferred stock were issued to the shareholders of Progressive Water Treatment, Inc. in connection with the share exchange agreement. One third (1/3) of the shares received by the holder may be converted into common stock beginning one (1) year after the first date on which a share of Series B Preferred Stock was issued (the “Original Issue Date); one third (1/3) may be converted beginning two (2) years after the Original Issue Date; and the remaining one third (1/3) may be converted beginning three years after the Original Issue Date. The number of shares of common stock issuable for each share of converted Series B preferred stock shall be calculated by dividing the stated value by the market price, the market price shall be the average of the closing trade prices of the twenty-five (25) days prior to the date of the conversion notice. On August 12, 2016, the agreement was amended to include make-good-shares. The conversion price set forth in Section 1.2 of the agreement shall be adjusted to reflect the lower of $1.05 or the price of the Company’s common stock calculated using the average closing prices of the Company’s common stock on the last three (3) trading days prior to the date of conversion, provided, however, if the Average Closing Price is less than $0.35 per share, the adjusted conversion price shall be $0.35 per share. See Note 3. The conversion price is subject to adjustment in the case of reverse splits, stock dividends, reclassifications and the like. In addition, the conversion price is subject to certain full ratchet anti-dilution protection. Accordingly, the preferred stock is valued under the provision of ASC Topic 815, Derivatives and Hedging, because the conversion feature of the preferred stock was not afforded the exemption for conventional convertible instruments due to its variable conversion rate. The Series B preferred stock shall have the rights, preferences and privileges as set forth in the exchange agreement. As of September 30, 2017, there are 6,666 shares of Series B preferred stock outstanding.

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 March 31, 2022, there were 1,000 shares of Series C preferred stock outstanding held by Mr. Eckelberry.

10

 

Common StockSeries D-1

On April 7, 2017,13, 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 March 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. As of March 31, 2022, there were 1,537,213 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. As of December 31, 2021, there were 260 shares of Series F preferred stock issued and outstanding. As of December 31, 2021, a holder of 100 of such outstanding shares of Series F preferred stock, agreed that the Company would have no obligation to redeem such holder’s shares of Series F preferred stock prior to September 1, 2022. On February 14, 2022, the Company exchanged those 100 shares of the holder’s Series F preferred stock for 100 shares of Series Q preferred stock. As of March 31, 2022, the Company had 160 outstanding shares of Series F preferred stock, which the Company was required to, and failed to redeem on September 1, 2020, and was and remains in default for an aggregate redemption price (equal to the stated value) of $160,000.

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 March 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, and was and remains in default for an aggregate redemption price (equal to the stated value) of $25,000.

11

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. As of March 31, 2022, there were 235 shares of Series I preferred stock issued and outstanding which the Company was required to, and failed to redeem between May 2, 2021, and June 10, 2021, and was and remains in default for an aggregate redemption price (equal to the stated value) of $235,000. 

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. As of March 31, 2022, there were 215 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 three months ended March 31, 2022, the Company redeemed 63.5 shares of Series K preferred stock equal to the stated value of $63,500 and exchanged an aggregate of 35 shares of Series K preferred stock for 35 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 March 31, 2022, there were 482 shares of Series K preferred stock issued and outstanding which the Company was required to, and failed to redeem between August 5, 2021 and March 26, 2022, and was and remains in default for an aggregate redemption price (equal to the stated value) of $482,150.

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 three months ended March 31, 2022, the Company issued an aggregate of 14,528,106 shares of common stock upon conversion of 124 shares of Series L preferred stock, for a loss in the amount of $210,997. As of March 31, 2022, there were 486 shares of Series L preferred stock issued and outstanding.  

12

Series M

On July 1, 2020, the Company designated 800,000 shares of its preferred stock as Series M. Each share of Series M has a stated value of $25. The Series M is not convertible into common stock. The holders of outstanding shares of Series M 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 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 have no pre-emptive or subscription rights, and there are no sinking fund provisions applicable to the Series M. The Series M 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, redeem any or all of the then outstanding shares of Series M at a redemption price of $37.50 per share (150% of the stated value) plus any accrued but unpaid dividends. As of March 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. The Series O 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 has a liquidation preference equal to the stated value plus any accrued but unpaid dividends, in preference to the common stock. The Series O has no preemptive or subscription rights, and there is no sinking fund provision applicable to the Series O. The Series O does not have voting rights except as required by law. The Series O is convertible into common stock of the Company in an amount determined by dividing 200% of the stated value of the Series O 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 at any time while the Series O are outstanding at a redemption price equal to the stated value plus any accrued but unpaid dividends. During the three months ended March 31, 2022, the Company issued an aggregate of 261,707 shares of common stock in prorated 4% annualized dividends which are recorded as interest expense. As of March 31, 2022, there were 615 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. The Series P 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 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 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 entitles the holders to a payment on an as-converted and pari passu basis with the common stock upon any liquidation. The Series P has no preemptive or subscription rights, and there is no sinking fund or redemption provisions applicable to the Series P. The Series P votes on an as-converted basis with the common stock, subject to the beneficial ownership limitation. As of March 31, 2022, there were 57.5 shares of Series P preferred stock issued and outstanding.

13

Series Q

On August 21, 2020, the Company designated 2,000 shares of preferred stock as Series Q. The Series Q 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 has a liquidation preference equal to the stated value plus any accrued but unpaid dividends, in preference to the common stock. The Series Q has no preemptive or subscription rights, and there is no sinking fund provision applicable to the Series Q. The Series Q does not have voting rights except as required by law. The Series Q is convertible into common stock of the Company in an amount determined by dividing 200% of the stated value of the Series Q 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 has the right (but no obligation) to redeem the Series Q at any time while the Series Q 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 three months ended March 31, 2022, the Company exchanged 100 shares of Series F preferred stock for 100 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 March 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 are also 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 has 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 three months ended March 31, 2022, the Company issued an aggregate of 27,162,453 shares of common stock upon conversion of 378 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 March 31, 2022, there were 3,054 shares of Series R preferred stock along with 101,498,340 Series A warrants (with an exercise price of $0.05) and 49,177,670 Series B warrants (with an exercise price of $0.10) issued and outstanding with a fair value of $11,181,822 on the original issuance. The warrants were valued using the Black Scholes model (see additional information under warrants footnote).

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 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 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 March 31, 2022, there were 170 shares of Series S preferred stock issued and outstanding. 

14

Series T

On February 24, 2021, the Company designated 630 shares of preferred stock as Series T. The Series T 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 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. On September 13, 2021, the Company received an offer for the property for $464,000, which was $116,000 below the original independent appraisal of $580,000. Based on that 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. During the three months ended March 31, 2022, the Company issued an aggregate of 17,193,676 shares of common stock upon conversion of 145 shares of Series T preferred stock. As of March 31, 2022, there were 485 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 are also 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 is 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 three months ended March 31, 2022, the Company issued an aggregate of 22,794,493 shares of common stock upon conversion of 432 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 March 31, 2022, there were 635 shares of Series U preferred stock issued and outstanding, along with 18,115,000 Series A warrants (with an exercise price of $0.05), 6,246,000 Series B warrants (with an exercise price of $0.10), and 1,561,000 Series C warrants (with an exercise price of $1.00) issued and outstanding with a fair value of $828,186 on the original issuance. The warrants were valued using the Black Scholes model (see additional information under warrants footnote). 

15

Series V

On December 1, 2021, the Company filed a certificate of amendment to its articleswithdrawal of incorporationthe 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 effectuatingNevada. 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 reverse splitredemption 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 three months ended March 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 March 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 three months ended March 31, 2022, the Company issued 35 shares of Series W preferred stock in exchange for 35 shares of Series K preferred stock and issued an aggregate of 694,446 shares of common stock upon conversion of 10 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 March 31, 2022, there were 770 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 atin 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. On August 10, 2021, the Company issued and sold to an accredited investor an aggregate of 25 shares of Series X preferred stock for a ratiopurchase price of 1 for 35 (the “Reverse Split”).$250,000. Per the Series X COD, as of March 31, 2022, $140,000 of the $250,000 was classified as restricted cash. As of March 31, 2022, there were 25 shares of Series X preferred stock issued and outstanding.

16

Series Y

On December 6, 2021, the Company designated 3,000 shares of preferred stock as Series Y. The Reverse Split became effective in the StateSeries Y has an original issue price of Nevada on April 12, 2017. Unless otherwise indicated, all share amounts,$100,000 per share, data, share prices, exercise prices, and conversion rates set forth in this Quarterly Reportholders are entitled to receive, on a pro rata and the accompanying unaudited condensed consolidated financial statement have, wherepari passu basis, annual distribution of 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 been adjusted retroactively to reflect this reverselaw. The Series Y is convertible into common stock split.

On June 30, 2017,of the Company filed a certificate of amendment (the “Certificate of Amendment”) to amend Article 3 of its articles of incorporation with the State of Nevada, effectuating a decrease of the number of authorized shares of the Company. Pursuantpursuant to the Certificate of Amendment,Series Y COD, provided that, the Company reduced the number of authorized shares of itsSeries Y may not be converted into common stock to 300,000,000. The Certificate of Amendment became effective upon filing with the State of Nevada on June 30, 2017. The reductionextent such conversion would result in the number of authorized shares does not affect the sharesholder 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. During the three months ended March 31, 2022, the Company issued 12.5 shares of Series Y preferred stock at an original issue price of $1,244,200 and issued an aggregate of 9,953,600 warrants with a fair value of $270,385 to Series Y holders, and issued 4 shares of Series Y preferred stock in exchange for 4 shares of Series V for an aggregate value of $400,000 and issued an aggregate of 3,200,000 warrants with a fair value of $97,507 to those Series Y preferred stock investors. Per the Series Y COD, $622,100 of the $1,244,200 received was classified as restricted cash. As of March 31, 2022, there were 21.1 shares of Series Y preferred stock issued and outstanding.outstanding, along with 16,913,600 warrants (with an exercise price of $0.05) and 6,246,000 Series B warrants (with an exercise price of $0.10) issued and outstanding with a fair value of $1,561,500 on the original issuance. The warrants were valued using the Black Scholes model (see additional information under warrants footnote). 

Series Z

Nine months ended September 30, 2017

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 10,775,722and sold to an accredited investor an aggregate of 25 shares of commonSeries Z preferred stock through private placements at pricesfor a purchase price of $0.05$250,000 and issued an aggregate of 2,500,000 warrants with a fair value of $56,036 to $0.175 per share for cashSeries Z holders.

As of March 31, 2022, the Company accrued aggregate dividends in the amount of $1,297,750.$352,359 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.

Common Stock

Three Months Ended March 31, 2022

The Company issued 9,321,55512,461,909 shares of common stock for the settlement of convertible promissory notes in an aggregate principal in the amount of $485,000,$69,900, plus interest in the amount of $107,145, with an$49,734, for a total aggregate fair value loss on settlement of $732,826,$119,634 based upon a conversion pricesprice of $0.0651 to $0.2205.$0.00955.

The Company issued 886,700 shares of common stock for the settlement of accounts payable with a fair value of $90,000, with a fair value loss on settlement of $27,931.

The Company issued 35,734,23313,314,289 shares of common stock for services at fair value of $3,418,598.$338,724 at share prices ranging from $0.0235 - $0.0319.

9

The Company issued 261,707 shares of common stock for Series O preferred stock dividends payable.

The Company issued 111,010,481 shares of common stock for settlement of conversion agreements at a fair value of $11,101.

17

 

The Company issued shares of common stock upon conversion of 82,373,174 shares of preferred stock.

Three Months Ended March 31, 2021

The Company issued 6,354,895 shares of common stock for the settlement of convertible promissory notes in an aggregate principal amount of $37,500, plus interest in the amount of $23,507, at a conversion price of $0.00955.

The Company issued 4,766,280 shares of common stock for services at fair value of $339,119, at share prices ranging from $0.0351 - $0.124.

The Company issued 236,205 shares of common stock for preferred stock dividends payable.

The Company issued 36,487,963 shares of common stock upon conversion of 1,251 shares of preferred stock.

4.RESTRICTED STOCK AND WARRANTS

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 January 1, 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 356,141,542 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 178,070,771 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 178,070,771 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.

18

 

ORIGINCLEAR, INC. AND SUBSIDIARIES

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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

During the three months ended March 31, 2022, the Company did not issue any shares relating to the RSGAs nor the BEC RSGAs.

SEPTEMBER 30, 2017

Warrants

During the three months ended March 31, 2022, the Company granted 15,653,600 common stock purchase warrants, associated with the issuance of preferred stock. A summary of the Company’s warrant activity and related information follows for the three months ended March 31, 2022:

  3/31/2022 
  Number of
Warrants		  Weighted
average
exercise
price		 
Outstanding - beginning of period  217,085,783  $0.0868 
Granted  15,653,600  $0.1210 
Exercised  -   - 
Expired  (50,076,010) $0.0736 
Outstanding - end of period  182,663,373  $0.0893 

At March 31, 2022, the weighted average remaining contractual life of warrants outstanding:

   2022 
         Weighted
Average		 
         Remaining 
Exercisable  Warrants  Warrants  Contractual 
Prices  Outstanding  Exercisable  Life (years) 
$0.02   600,000   600,000   4.42 
$0.05   90,175,000   90,175,000   0.01 - 0.92 
$0.10   58,440,000   58,440,000   0.01 - 1.65 
$0.25   10,006,000   10,006,000   1.25 – 4.75 
$0.0275   8,727,273   8,727,273   9.16 
$0.125   13,153,600   13,153,600   4.77 - 4.99 
$1.00   1,561,500   1,561,500   2.25 - 2.72 
     182,663,373   182,663,373     

At March 31, 2022, the aggregate intrinsic value of the warrants outstanding was $0.

19

 

4.5.CONVERTIBLE PROMISSORY NOTES

As of September 30, 2017,March 31, 2022, the outstanding convertible promissory notes are summarized as follows:

Convertible Promissory Notes $3,012,155 
Less current portion  1,596,008 
Total long-term liabilities $1,416,147 

Maturities of long-term debt for the next two years are as follows:

 Convertible Promissory Notes $3,667,068 
 Less debt discount  289,718 
 Convertible Promissory Notes, net of discount $3,377,350 
 Less current portion  296,722 
 Long term portion $3,080,628 
Year Ending March 31, Amount 
2023  1,596,008 
2024  1,312,275 
2025  103,772 
  $3,012,155 

At September 30, 2017,On various dates from November 2014 through April 2015, the $3,667,068 inCompany issued unsecured convertible promissory notes has a remaining debt discount of $289,718, leaving a net balance of $3,377,350.

On various dates, the Company entered into unsecured convertible notes (the “Convertible Promissory“2014-2015 Notes” or “Notes”), that matured during the periodon various dates and were extended sixty (60) daysmonths from the effective date of each Note. The 2014-2015 Notes bear interest at 10% per annum.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 $2.10$4,200 to $4.90$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 ninethree months ended September 30, 2017,March 31, 2022, the Company issued 9,321,55512,461,909 shares of common stock, upon conversion of $395,000$69,900 in principal, plus accrued interest of $107,145, with a fair value loss on settlement of $732,826.$49,734. As of September 30, 2017,March 31, 2022, the 2014-2015 Notes had an aggregate remaining balance of $1,560,000.$860,100, which are long term.

As of September 30, 2017,The unsecured convertible promissory notes (the “OID Notes”) had an aggregate remaining principal balance of $184,124, plus accrued interest of $13,334 were amended.$13,334. The OID Notes included an original issue discount and one timeone-time interest, which has been fully amortized. The OID Notes matured on December 31, 2017, which were extended through December 31, 2017.to June 30, 2023. The OID Notes were convertible into shares of the Company’s common stock at a conversion price initially of $15.31.$30,620. After the amendment, the conversion price changed to the lesser of $2.80$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 notes was considered a derivative in accordance with current accounting guidelines, because of the reset conversion features of the notes. As of March 31, 2022, the remaining balance was $62,275, which is long term. 

The Company entered intoissued various, unsecured convertible promissory notes (the “Notes”“2015Notes”), on various dates ending on May 19, 2016.August 2015. The 2015 Notes matured and were extended from the date of each tranche through maturity dates ending on May 19, 2020.February 2024 through March 2024, and April 2022 through August 2022. The 2015 Notes bear interest at 10% per annum.year. The 2015 Notes may be converted into shares of the Company’s common stock at conversion prices ranging from the lesser of $0.70$1,400 to $2.80$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. TheAs of March 31, 2022, the 2015 Notes had an aggregate remaining balance of the note as$1,200,000, of September 30, 2017, was $1,325,000. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $11,479 during the nine months ended September 30, 2017. $780,000 is short term and $420,000 is long term.

10

20

 

ORIGINCLEAR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

SEPTEMBER 30, 2017

4.CONVERTIBLE PROMISSORY NOTES (Continued)

The Company issued a convertible note (the “Dec 2015 Note”) in exchange for an 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 noteDec 2015 Note was accounted for under ASC 470, whereby, a beneficial conversion feature was recorded at time of issuance. The noteDec 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 noteDec 2015 Note and recognized as interest expense in the financial statements. On January 1, 2016, the noteDec 2015 Note met the criteria of a derivative and was accounted for under ASC 815. The noteDec 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 DecemberMarch 31, 2016,2022, the remaining balance on the Dec 2015 Note was $257,048. During the nine months ended September 30, 2017, the Company issued 886,700 shares of common stock upon conversion of principal in the amount of $90,000, with a fair value loss on settlement of $27,931. As of September 30, 2017, the Note had a remaining balance of $167,048. The Company recorded amortization of debt discount,$167,048, which was recognized as interest expense in the amount of $161,574 during the nine months ended September 30, 2017. is short term.

The Company issued a convertible note (the “Sep 2016 Note”) in exchange for an 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 noteSep 2016 Note was accounted for under ASC 470, whereby, a beneficial conversion feature was recorded at time of issuance. On September 15,The Sep 2016 the noteNote met the criteria of a derivative and was accounted for under ASC 815. The noteSep 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 noteSep 2016 Note did not meet the criteria of a derivative at the time it was entered into,date of the issuance, and was accounted for as a beneficial conversion feature, which was amortized over the life of the noteSep 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 March 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 March 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 matures on November 19, 2021, twelve months from the effective date of the Note. The Note may be extended 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 March 31, 2022, the remaining balance on the Nov 20 Note was $13,772, which is long term.

21

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 matures on January 25, 2022, twelve months from the effective date of the Note. The Note may be extended 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 $140,543$3,743 during the ninethree months ended September 30, 2017.March 31, 2022. As of March 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 September 30, 2017March 31, 2022 was $10,728,464.$7,852,842.

5.6.OPTIONS AND WARRANTSREVENUE FROM CONTRACTS WITH CUSTOMERS

Equipment Contracts

Options

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 March 31, 2022 and 2021.

  Three Months Ended 
  March 31, 
  2022  2021 
Equipment Contracts $812,245  $502,441 
Component Sales  354,731   265,135 
Waste Water Treatment Systems  49,460   - 
Rental Income  6,573   8,114 
Services Sales  11,096   20,488 
  $1,234,105  $796,178 

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 three months ended March 31, 2022 and the year ended December 31, 2021, was $781,967 and $378,932, respectively. The contract liability for the three months ended March 31, 2022, and the year ended December 31, 2021, was $2,494,825 and $1,886,946, respectively.

22

7.FINANCIAL ASSETS

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 March 31, 2022, the investment in securities was recorded at fair value in the amount of $94,940, with an unrealized loss of $103,978.

On May 25, 2012,15, 2018, the BoardCompany received 4,000 shares of Directors adopted a new OriginOil, Inc. 2012 Incentive Stock Option Plan (the “2012 Plan”)WTII Series C convertible preferred stock for the purposesuse of grantingOriginClear, Inc. technology associated with their proprietary electro water separation system. Each share of Series C convertible preferred stock options to its employees and others providing services to the Company, which reserves and sets aside for the granting of options for 28,571is convertible into one thousand (1,000) shares of WTII common stock. Options granted under these plans may be either incentive options or nonqualified options and shall be administered by the Company’s Board of Directors.  Each option shall be exercisable to the nearest whole share, in installments or otherwise, as the respective option agreements may provide. Notwithstanding any other provision of the 2012 Plan or of any option agreement, each option shall expire on the date specified in the option agreement, which date shall not be later than the tenth (10th) anniversary from the effective date of grant.

On June 14, 2013, the Board of Directors adopted a new OriginOil, Inc. 2013 Incentive Stock Option Plan (the “2013 Plan”) for the purposes of grantingThe stock options to its employees and others providing services to the Company, which reserves and sets aside for the granting of options for 114,286 shares of common stock.  Options granted under the Plan may be either incentive options or nonqualified options and shall be administered by the Company’s Board of Directors.  Each option shall state the number of shares to which it pertains. The exercise price will be determined by the holders’ percentage owned as follows: If the holder owns more than 10% of the total combined voting power or value of all classes of stock of the Company, then the exercise price will be no less than 110% of thewas valued at fair market value of the stock as$0.0075 for a price of $30,000 on the date of grant; ifissuance. The Company analyzed the person is not a 10% holder, thenlicensing agreement using ASU 606 to determine the exercise price will be no less than 100%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 March 31, 2022, the fair market value of the stock as of the date of grant. Notwithstanding any other provision of the 2013 Plan or of any option agreement, each option shall expire on the date specified in the option agreement, which date shall not be later than the tenth (10th) anniversary from the date of grant. If the status of an employee terminates for any reason other than disability or death, then the optionee or their representative shall have the right to exercise the portion of any options which were exercisable as of the date of such termination, in whole or in part, not less than 30 days nor more than three (3) months after such termination.

preferred shares was $8,800.

8.11

ORIGINCLEAR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

SEPTEMBER 30, 2017

5.OPTIONS AND WARRANTS (Continued)LOANS PAYABLE

Secured Loans Payable

On September 29, 2015, the Board of Directors adopted a new OriginClear, Inc. 2015 Equity Incentive Stock Option Plan (the “2015 Plan”)

The Company entered into short term loans with various lenders for the purposes of granting stock options to its employees and others providing services to the Company, which reserves and sets aside for the granting of options for 3,315,714 shares of common stock. On October 2, 2015, the Board of Directors amended the number of shares to reserve for issuance to 4,571,429 shares. Options granted under these plans may be either incentive options or nonqualified options and shall be administeredcapital expansion secured by the Company’s Boardassets in the amount of Directors.  Each option shall be exercisable to$1,749,970, which included finance cost of $624,810. The finance cost was amortized over the nearest whole share, in installments or otherwise, as the respective option agreements may provide. Notwithstanding any other provisionterms of the 2015 Plan orloans, which have various maturity dates ranging from October 2018 through February 2019. As of any option agreement, each option shall expire onDecember 31, 2020, the date specified in the option agreement, which date shall not be later than the fifth (5th) anniversary from the effective date of grant.

finance cost was fully amortized. During the year ended December 31, 2016,2021, the Company granted 31,429 shares of incentive stock options to employees, and 428,571 shares of non-statutory options to consultants. Each option shall be exercisable tosettled the nearest whole share, in installments or otherwise, as the respective option agreements may provide. The stock options mature on March 29, 2021 and October 17, 2021, at prices of $0.29 and $1.31.

With respect to Non-Statutory Options granted to employees, directors or consultants, the Board of Directors or Committeemajority of the Boardloans in the amount of Directors may specify such$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 period ended March 31, 2022, the Company received $25,000 as a settlement and wrote off $50,000 of secured loans payable. The net balance as of March 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 exercise that the option shall automatically terminate followingEIDL. For the terminationperiod ended December 31, 2021, the aggregate amount of employment or services as to shares covered by the option as the Board of Directors or Committee of the Board of Directors deems reasonable and appropriate.

A summary of the Company’s stock option activity and related information follows:

   September 30, 2017 
      Weighted 
   Number of  average exercise 
   Options  price 
 Outstanding, beginning of period  3,697,495  $1.505 
 Granted  -   - 
 Exercised  -   - 
 Forfeited/Expired  -   - 
 Outstanding, end of period  3,697,495  $1.505 
 Exercisable at the end of the period  2,682,644  $1.035 
 Weighted average fair value of options granted during the period     $- 

The weighted average remaining contractual life of options outstanding issued$345,000 received under the 2009 Plan, 2012 Plan,PPP, and 2013 Planthe Economic Injury Disaster Grant in the amount of $10,000 was recognized in the statement of operations as of September 30, 2017 was as follows:other income due to forgiveness. 

23

 

          Weighted Average 
    Stock  Stock  Remaining 
 Exercisable  Options  Options  Contractual 
 Prices  Outstanding  Exercisable  Life (years) 
 $6.65 - 147.00   52,276   50,401   4.84 - 7.02 
 $10.15 - 15.40   32,362   32,362   5.96 
 $1.31   3,612,857   2,599,881   3.22 - 4.05 
      3,697,495   2,682,644     

9.CAPITAL LEASES

Stock-based compensation expense recognized

The Company entered into a capital lease for the purchase of equipment during the year ended December 31, 2018. The lease is based onfor a sixty (60) month term, with monthly payments of $757 per month, and a purchase option at the valueend of the portion of stock-based payment awards that is ultimately expected to vest. Stock-based compensation expense recognized in the financial statements of operations during the nine months ended September 30, 2017 and 2016 were $71,603 and $155,112, respectively.

lease for $1.00. As of September 30, 2017,March 31, 2022, there was no intrinsic value with regards to the outstanding options.

remain a current balance of $5,713.

10.12

ORIGINCLEAR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

SEPTEMBER 30, 2017

5.OPTIONS AND WARRANTS (Continued)FOREIGN SUBSIDIARY

Restricted Stock to CEO

On May 12, 2016,January 22, 2020 the Company entered into a Restricted Stock Grant Agreement (the “RSGA”strategic partnership with Permionics Separations Solutions, Inc., a unit of India’s Permionics Group (“Permionics”) for the Asia-Pacific Region. This strategic partnership assists the Company with its Chief Executive Officer, Riggs Eckelberry,overcoming the typical hurdles in commercializing a technology overseas with engineering support, developing customer proposals, infrastructure to create management incentiveshandle logistics and purchasing, inventory and shipping from and into foreign countries, customer training, startup assistance and service.

The Company believes that Permionics is best suited to improve the economic performanceaccomplish all of the Company and to increaseabove for its value and stock price. All shares issuable under the RSGA are performance based shares and none have yet vested nor have any been issued. The RSGA provides for the issuance of up to 1,714,286 shares of the Company’s common stock to the Employees 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 reportedcustomers in the Company’s quarterly or annual financial statements, the Company will issue up to 857,143 sharesAsia-Pacific countries and as a result, has terminated all activities 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 857,143 shares of its common stock. The Company has not recognized any costs associated with the milestones, due to not being able to estimate the probability of it being achieved. As the performance goals are achieved, the shares shall become eligible for vesting and issuance.

On August 10, 2016, the Company entered into a Restricted Stock Grant Agreement (the “August RSGA”) 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 August RSGA are performance based shares and none have yet vested nor have any been issued. The August RSGA provides for the issuance of up to 1,714,286 shares of the Company’s common stock to the CEO 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, the Company will issue up to 857,143 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 857,143 shares of its common stock. The Company has not recognized any costs associated with the milestones, due to not being able to estimate the probability of it being achieved. As the performance goals are achieved, the shares shall become eligible for vesting and issuance.

Restricted Stock to Employees and Consultants

On May 12, 2016, the Company entered into a Restricted Stock Grant Agreement (the “First Employee RSGA”) with an employee, 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 First Employee RSGA are performance based shares and none have yet vested nor have any been issued. The First Employee RSGA provides for the issuance of up to 857,143 shares of the Company’s common stock to the employee 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 428,571 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 428,571 shares of its common stock. The Company has not recognized any costs associated with the milestones, due to not being able to estimate the probability of it being achieved. As the performance goals are achieved, the shares shall become eligible for vesting and issuance.

On May 12, 2016, the Company entered into a Restricted Stock Grant Agreement (the “Second Employee RSGA”) with an employee, 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 Second Employee RSGA are performance based shares and none have yet vested nor have any been issued. The Second Employee RSGA provides for the issuance of up to 571,429 shares of the Company’s common stock to the employee 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 285,714 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 285,714 shares of its common stock. The Company has not recognized any costs associated with the milestones, due to not being able to estimate the probability of it being achieved. As the performance goals are achieved, the shares shall become eligible for vesting and issuance.

13

ORIGINCLEAR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

SEPTEMBER 30, 2017

5.OPTIONS AND WARRANTS (Continued)

Restricted Stock to Employees and Consultants (Continued)

On August 10, 2016, the Company entered into a Restricted Stock Grant Agreement (the “Consultants RSGA”) with two of its’ 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 Consultants RSGA are performance based shares and none have yet vested nor have any been issued. The Consultants RSGA provides to each of the consultants the issuance of up to 285,714 shares of the Company’s common stock 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, the Company will issue to each of the consultants up to 142,857 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 142,857 shares to each of the consultants, its common stock. The Company has not recognized any costs associated with the milestones, due to not being able to estimate the probability of it being achieved. As the performance goals are achieved, the shares shall become eligible for vesting and issuance.

Warrants

During the nine months ended September 30, 2017, the Company issued 22,825,000 purchase warrants to prospective investors in connection with a private offering pursuant to Section 4(2) of the Securities Act of 1933, as amended, Rule 506 promulgated under Regulation D of the Securities Act and Regulation S of the Securities Act. A summary of the Company’s warrant activity and related information follows for the nine months ended September 30, 2017:

   September 30, 2017 
      Weighted 
   Number  average 
   of  exercise 
   Warrants  price 
 Outstanding-beginning of the period  506,026  $5.25 
 Granted  22,825,000  $0.02 
 Exercised  -   - 
 Forfeited  (27,296) $(22.37)
 Outstanding - end of the period  23,303,730  $0.13 

At September 30, 2017, the weighted average remaining contractual life of warrants outstanding:

          Weighted 
          Average 
          Remaining 
 Exercisable  Warrants  Warrants  Contractual 
 Prices  Outstanding  Exercisable  Life (years) 
 $5.25 - 22.75   461,537   461,537   0.24 - 0.70 
 $0.35 - 0.12   22,825,000   22,825,000   0.67 – 1.17 
 $31.50   2,858   2,858   5.13 
 $8.75 - 22.75   14,335   14,335   0.05 – 0.97 
      23,303,730   23,303,730     

At September 30, 2017, the aggregate intrinsic value of the warrants outstanding was $253,930.

6.FOREIGN SUBSIDIARY

On December 31, 2014, the Company formed a whollyfully owned subsidiary, OriginClear (HK) Company, Ltd (OCHK),Technologies Limited, in Hong Kong, China. China, working instead with Permionics when applicable.

11.ASSETS HELD FOR SALE

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 granted OCHKbeen listed actively on the market to be sold. Based on the offers received and the market conditions, the Company adjusted the fair value by $116,000 leaving a master license for the People’s Republicfair value of China, and a non-exclusive license for the rest of Asia. In turn, OCHK is expected to license regional joint ventures for the commercial development of EWS:AOx Technology. A research and manufacturing center are also planned.

$514,000.

12.14

ORIGINCLEAR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

SEPTEMBER 30, 2017

7.COMMITMENTS AND CONTINGENCIES

Operating LeaseFacility Rental – Related Party

The Company entered into a month-to-month lease agreementOur Dallas based subsidiary, PWT, rents an approximately12,000 square foot facility located at 2535 E. University Drive, McKinney, TX 75069, with a shareholder of the Company for office space in McKinney, Texas at a basecurrent monthly rent of $4,750 per month.$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 three months ended March 31, 2022.

Litigation

On January 24, 2022, OriginClear, Inc., Progressive Water Treatment, Inc., OriginClear, Inc., and T. Riggs Eckelberry, individually (collectively, the “GTR Plaintiffs”), on the one hand, and GTR Source LLC and Tzvi “Steve” Reich (collectively, the “GTR Defendants”), on the other hand, settled a dispute between the parties relating to two distinct merchant funding agreements that were entered into on July 20, 2018 and August 28, 2018, and a settlement agreement entered into on December 13, 2018. Pursuant to the terms of settlement, all of which have been performed as of September 30, 2017.the filing date, (i) the GTR Defendants paid $25,000 to the GTR Plaintiffs, (ii) the parties mutually released each other from all claims, controversies, etc. that could have been asserted by any party against any other party pursuant to the aforesaid merchant funding agreements and settlement entered thereunder, and (iii) the GTR Plaintiffs dismissed with prejudice the action commenced by the GTR Plaintiffs in the Supreme Court for the State of New York in and for the County of Ontario and the appeal in the United States Court of Appeals for the Second Circuit. In addition the foregoing terms of settlement, on January 11, 2022, the GTR Defendants filed a vacatur of the judgment by confession, with prejudice, that was obtained in favor of the GTR Defendants and against the GTR Plaintiffs in the Supreme Court for the State of New York in and for the County of Ontario. As of the filing date, the Company views the aforesaid GTR matter as closed.

24

 

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, (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 C6 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. If granted, the Settlement Agreement would be declared void and unenforceable. As of the filing date, no decision has been rendered on OriginClear’s Motion to Set Aside the Settlement Agreement.

8.13.SUBSEQUENT EVENTS

Management has evaluated subsequent events according to the requirements of ASC TOPIC 855 and has determined that there are the following subsequent events:

On April 6, 2022, OriginClear agreed in principle to an arrangement with Houston-based, international water service company Envirogen Technologies (www.envirogen.com), a 30-year international provider of environmental technology and process solutions, to deliver and maintain OriginClear’s Water On Demand fully-outsourced industrial and agriculture systems. 

On October 3, 2017, a holder

Between April 6, 2022 and May 10, 2022, the Company entered into subscription agreements with certain accredited investors pursuant to which the Company sold an aggregate of Series B Preferred Stock converted 3,3336.25 shares of the Company’s Series B Preferred Stock intoY preferred stock for an aggregate purchase price of $625,000. The Company also issued an aggregate of 1,428,4295,000,000 warrants to these investors.

25

On April 13, 2022, the Company’s Board of Directors approved the plan to spin off its Water On Demand business into a newly formed wholly-owned subsidiary, Water On Demand Inc., which will hold the assets, liabilities, intellectual property and business operations of the Water On Demand business. The Board also approved the issuance of rights to receive shares in Water On Demand Inc. as a bonus to the purchasers of its Series Y Preferred Shares, which are currently being offering pursuant to a private placement.

On April 18, 2022, holders of the Company’s Series K preferred stock exchanged an aggregate of 50 shares of Series K preferred stock for 50 shares of the Company’s commonSeries W preferred stock. The shares of common stock issued included 476,143 shares issued upon conversion of the 3,333 shares of Series B Preferred Stock at $1.05 per share

Between April 18, 2022 and 952,286 shares as a one-time make good issuance as per the Certificate of Designation of Series B Preferred Stock and agreement between the Company and the holder.

As previously reported, the Company has commenced an offering under Regulation 506c of Regulation D (the “Private Placement”) of the Securities Act of 1933, as amended (the “Securities Act”) pursuant to which the Company shall sell units of its securities (the “Units”) with each Unit consisting of (i) one restricted share of its common stock, (ii) a Class A Warrant to purchase one share of its common stock, (iii) a Class B Warrant to purchase one share of its common stock, (iv) a Class C Warrant to purchase one share of its common stock and (v) a Class D Warrant to purchase one share of its common stock to qualified investors. Between October 12, 2017 and November 13, 2017, the Company sold, in the Private Placement, an aggregate of 11,100,000 shares of its common stock to accredited investors for an aggregate consideration of $277,500. 

On October 20, 2017, holders of convertible promissory notes converted an aggregate principal and interest amount of $31,410 into an aggregate of 2,052,968 shares of the Company’s common stock.

In connection with certain one-time make good agreements, between OctoberMay 2, 2017 and October 31, 2017, the Company issued an aggregate of 1,342,185 shares of its common stock to certain holders of its common stock.

On November 10, 2017, the Company entered into a Restricted Stock Grant Agreement (the “RSGA”) with Jean Louis Kindler, the Company’s Chief Commercial Officer and Director, to create management incentives to improve the economic performance of the Company and to increase its value and stock price. The RSGA provides for the issuance of up to 2,000,000 shares of the Company’s common stock provided certain milestones are met in certain stages. All shares issuable under the RSGA are performance based shares and none have yet vested nor have any been issued.

Between October 31, 2017 and November 13, 2017,2022, the Company issued to consultants an aggregate of 5,680,6484,565,014 shares of the Company’s common stock for services.

On April 18, 2022, the Company entered into settlement agreements with certain accredited investors pursuant to which the Company issued an aggregate of 18,731,644 shares of the Company’s common stock in lieusettlement of cash consideration. certain claims with such persons.

15

Between April 19, 2022 and May 11, 2022, holders of the Company’s Series W preferred stock converted an aggregate of 35 Series W shares into an aggregate of 3,117,364 shares of the Company’s common stock.

On April 19, 2022, a prior holder of the Company’s Series P preferred stock was issued an aggregate of 518,232 shares of the Company’s common stock as a make-good for a prior Series P conversion.

On April 25, 2022, holders of the Company’s Series T preferred stock converted an aggregate of 60 Series T shares into an aggregate of 9,230,770 shares of the Company’s common stock.

On April 25, 2022, holders of the Company’s Series Y preferred stock converted an aggregate of 50 Series Y shares into an aggregate of 4,230,769 shares of the Company’s common stock.

On April 26, 2022, holders of the Company’s Series L preferred stock converted an aggregate of 10 Series L shares into an aggregate of 1,445,086 shares, including make-good shares, of the Company’s common stock.

On April 26, 2022, holders of the Company’s Series R preferred stock converted an aggregate of 20 Series R shares into an aggregate of 2,504,816 shares, including make-good shares, of the Company’s common stock.

On May 10, 2022, holders of the Company’s Series I preferred stock exchanged an aggregate of 10 shares of Series I preferred stock for 10 shares of the Company’s Series W preferred stock.

On May 11, 2022, holders of the Company’s Series J preferred stock converted an aggregate of 5 Series J shares into an aggregate of 512,737 shares, including make-good shares, of the Company’s common stock.

26

 

ItemITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control, which may include statements about our:

●business strategy;

●
●financial strategy;

●
●intellectual property;

●production;

●production;
●future operating results; and

●
●plans, objectives, expectations, and intentions contained in this report that are not historical.

All statements, other than statements of historical fact included in this report, regarding our strategy, intellectual property, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All forward-looking statements speak only as of the date of this report. You should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this report are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved.  These statements may be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as in this report generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors.  In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur occur.

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. We are currently commercializingIn 2015, we moved into the commercialization phase of our technology through joint venturesbusiness plan having previously been primarily involved in research, development and licensing while operating a water treatment service company in Texas, which we have designated a certified manufacturer for our technology.activities. Our principal offices are located at 525 S. Hewitt St., Los Angeles, California 90013.13575 58th Street North, Suite 200, Clearwater, FL 33760. Our main telephone number is (323) 939-6645.(727) 440-4603. Our website address is www.OriginClear.com. In addition to announcing material financial information through our investor relations website, press releases, SEC filings and webcasts, we also intend to use the following social media channels as a means of disclosing information about our products, our planned financial and other announcements, our attendance at upcoming investor and industry conferences, and other matters and for complying with our disclosure obligations under Regulation FD:

●OriginClear’s Twitter Account (https://twitter.com/OriginClear)
●OriginClear’s Facebook Page (https://www.facebook.com/OriginClear)

The information we post through these social media channels may be deemed material. Accordingly, investors should monitor these accounts, in additioncontained on, connected to following the company’s press releases, SEC filings, public conference calls and webcasts. This list may be updated from time to time. 

We have not incorporated by reference into thisreport the information in, or that can be accessed through,via our website or social media channels, and you shouldis not consider it to be a part of this report.

Overview of Business

OriginClear is a company that today, develops unique water assets for eventual launch as their own companies. This new role was indicated water technology company which has developed in-depth capabilities over the eight years since It began to operate in the water industry. Those capabilities have now been organized under the umbrella 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.

27

16

 

OverviewOriginClear’s assets, subsidiaries and product offerings consist of:

●The Intellectual Property of Daniel M. Early (the “Early IP”), consisting of five patents and related knowhow and trade secrets, which are intended to take the place of the applications for the company’s original technology developments.

●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 Progressive Water Treatment (PWT). The Company is currently developing MWS as a discrete line of business for an eventual spinoff. In addition, the Company is evaluating the EveraMOD Pump Station product line as a potential standalone business.

●Progressive Water Treatment Inc. (“PWT”) a wholly-owned subsidiary based in Dallas, Texas which is responsible for the bulk of the company’s revenue, specializing in engineered water treatment solutions and custom treatment systems. We believe that PWT has knowhow with Intellectual property (IP) potential.
●OriginClear has incubated a new outsourced water treatment business called Water On Demand (“WOD”).

oThe WOD model intends to offer private businesses water self-sustainability as a service.

oFour subsidiaries have been established to house capital dedicated to this program.

oOn April 13, 2022, the Company’s Board of Directors approved the plan to spin off its Water On Demand business into a newly formed wholly-owned subsidiary, Water On Demand Inc., which will hold the assets, liabilities, intellectual property and business operations of the Water On Demand business.

(https://www.sec.gov/ix?doc=/Archives/edgar/data/1419793/000121390022019889/ea158479-8k_origin.htm)  

OriginClear Tech Group

The Company develops and incubates businesses under the name OriginClear Tech Group (“OTG”). The mission of Business

OriginClearOTG in general, is to create and valuable properties through an incubation process that results in the launching of valuable spinoffs that add value to the world’s water industry.

The first such spinoff was on April 13, 2022, when the Company’s Board of Directors approved the plan to spin off its Water On Demand business into a leading providernewly formed wholly-owned subsidiary, Water On Demand Inc., which will hold the assets, liabilities, intellectual property and business operations of the Water On Demand business.

Further businesses can be expected to be spun off, as the Company announced on April 26, 2022:

“The launch of Water on Demand is the first of several anticipated business property spinoffs…Other Company business properties include Modular Water Systems, which owns a master license to five key international patents for prefabricated, highly-durable modular water treatment solutions and the developerpumping products. Being a proprietary technology, MWS frequently qualifies as “Basis of a breakthrough water cleanup technology. Through its wholly owned subsidiaries, OriginClear provides systems and services to treat water in a wide range of industries, such as municipal, pharmaceutical, semiconductors, industrial, and oil & gas. To rapidly grow this segment of the business, we strategically acquire profitable and well-managed water treatment companies,Design” for projects, which allow us to expand our global market presence and technical expertise. To enable a new era of clean and socially responsible water treatment solutions, we invented Electro Water Separation™, a breakthrough high-speed water cleanup technology using multi-stage electrochemistry, which we license worldwide to water treatment equipment manufacturers. means that competitors cannot easily undercut MWS.”

(https://www.originclear.com/company-news/originclear-to-launch-water-on-demand-fintech-startup)

OTG ongoing operations include:

1.Building a line 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.Actively working on the ability to deliver Operation & Maintenance (“O&M”) capability at scale, to support Water On Demand outsourced treatment and purification programs.
4.Support the development of the $H2O blockchain system, a potential future project.
5.Prepare properties for eventual spinoff.

Water is our most valuable resource, and the mission of The OriginClear Group™ (the “Group”)OTG is to improve the quality of water and help return it to its original and clear condition.

28

 

Milestones

Daniel M. Early/Modular Water Systems™

On June 22, 2018, OriginClear signed an exclusive worldwide licensing agreement with Daniel “Dan” Early for his proprietary technology for prefabricated water transport and treatment systems. On July 19, 2018, the Company began incubating its Modular Water Treatment Division (MWS) around Mr. Early’s technology and perspective customers. The Company has funded the development of this division with internal cash flow. In Q1 of 2020, the Company fully integrated MWS with wholly-owned Progressive Water Treatment Inc. The Company is currently developing MWS as a discrete line of business for an eventual spinoff. Mr. Early currently serves as Chief Engineer for OriginClear.

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 Groupcase 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. 

29

 

On August 25, 2021, PWT entered into a Master Services Agreement (MSA) with a large US public utility company for water filtration systems that will provide process water at three power plants. The utility issued a purchase order for approximately $1.8 million, for the first power plant. The total purchase price payable to PWT under the MSA is approximately $5 million, subject to certain conditions, including receipt and acceptance by PWT of additional purchase orders. We expect the overall contract to take up to two years to deliver from the date of the MSA.

In 2021, PWT received $11,319,541 in firm orders. This contrasts with $3,506,020 received in firm orders by PWT for the entirety of 2020. Orders are only a potential indication of future sales and revenue.

In the first quarter ending March 31, 2022, PWT received $1,657,055 in firm orders. This contrasts with $1,065,491 received in firm orders in the first quarter ending March 31, 2021. Orders are only a potential indication of future sales and revenue.

Modular Water Systems

On July 19, 2018, the Company launched its Modular Water Treatment Division, offering a unique product line of prefabricated water transport and treatment systems. Daniel “Dan” Early P.E. (Professional Engineer) heads the Modular Water Systems (“MWS”) division. On June 25, 2018, Dan Early granted the Company a worldwide, exclusive non-transferable license to the technology and knowhow behind MWS (See “Intellectual Property”. A ten-year renewal on May 20, 2020 added the right to sublicense and create manufacturing joint ventures. On July 25, 2018, MWS received its first order, for a brewery wastewater treatment plant.

With PWT and other companies as fabricators and assemblers, MWS designs, manufactures and delivers prefabricated water transport (pump and lift stations) under the EveraMOD™ brand; and wastewater treatment plant (“WWTP”) products under the EveraSKID™ and EveraTREAT™ brands to customers and end-users which are required to clean their own wastewater, such as schools, small communities, institutional facilities, real estate developments, factories, and industrial parks.

On September 28, 2021, the Company announced that MWS deployed its first Pondster™ brand modular lagoon treatment system at a Mobile Home Park (MHP) or trailer park, in Troy, Alabama. At the heart of the system is an innovative biofilm treatment process which holds promise as a technology offering of the Company.

In 2021, MWS received $1,774,880 in firm orders. This contrasts with $735,150 received in firm orders by MWS for the entirety of 2020.

In the first quarter ending March 31, 2022, MWS received $787,000 in firm orders. This contrasts with $161,950 received in firm orders in the first quarter ending March 31, 2021. Orders are only a potential indication of future sales and revenue.

Water on Demand™: a new strategic direction.

OriginClear is also developing a new outsourced water treatment business called “Water On Demand”: or “WOD” as a potential revenue source. The WOD model intends to offer private businesses the ability to pay for water treatment and purification services on a per-gallon basis. This is commonly known as Design-Build-Own-Operate or “DBOO”. On April 13, 2021, we announced formation of a wholly-owned subsidiary called Water On Demand #1, Inc. (“WOD #1”) to pursue capitalization of the equipment required. Additional subsidiaries have since been created for the purposed of segmenting capital pools according to strategic partnerships.

The Company intends to pilot a first DBOO contract and thereafter, work with regional water service companies to build and operate the water treatment systems it finances. Additional financing hubs could be set up in world financial centers.

Delegating the building and operating of WOD-financed systems to regional water companies under performance contract, with the aim of developing a network of such partners, is expected to enable rapid scale-up of the WOD program, and the partner network would create a high barrier to entry for competitors.

30

On April 13, 2022, the Company’s Board of Directors approved the plan to spin off its Water On Demand business into a newly formed wholly-owned subsidiary, Water On Demand Inc., which will hold the assets, liabilities, intellectual property and business operations of the Water On Demand business, including all four WOD subsidiaries.

(https://www.sec.gov/ix?doc=/Archives/edgar/data/1419793/000121390022019889/ea158479-8k_origin.htm)

Reducing Risk through Outsourcing

Inflation of water rates greatly exceeds core inflation (see Figure 2), creating a risk for managers of businesses served by municipalities. We believe this creates an incentive for self-treatment; but these businesses may lack the capital for large water plant expenditures, and the in-house expertise to manage them. Outsourcing through what we call Water on Demand™ means that these companies do not have to worry about the problem, either financing it or managing it.

As an example, in information technology, few companies operate their own server in-house powering their website. Rather, such servers are typically managed by professionals through a service level agreement. In the water industry, when applied to outsourced water treatment, a service level agreement is known as O&M agreement. When the vendor retains ownership of the equipment, the concept is expanded to “Own and Operate”, an extension of the basic “Design and Build”, for a full offering known as DBOO, which is very similar to the solar energy programs known as Power Purchase Agreements (PPAs).

Under such a plan, a business can outsource its wastewater treatment by simply signing on the dotted line; instantly avoiding most capital expense, and the trouble of managing something that is a fast-growing realitydistraction from their core business.

We believe this is financially and operationally attractive to industrial, agricultural and commercial water users, while OriginClear’s Water On Demand program can potentially drive speeded-up deals and more revenue streams from providing water treatment as a service. 

The Decentralization Megatrend

Figure 1

An updated report of October 2018, “Public Spending on Transportation and Water Infrastructure, 1956 to 2017” (https://www.cbo.gov/system/files?file=2018-10/54539-Infrastructure.pdf), stated that The Federal Government’s and State and Local Governments’ Spending on Water Utilities, including water supply and wastewater treatment facilities, was $4 billion in 2016.

As municipalities continue to be underfunded (Figure 1) with rising water treatment. Tougherrates (Figure 2), businesses are increasingly choosing to treat and purify their own water, in a trend known as Decentralized Water, first described in the Lux Research presentation of June 28, 2016. (https://members.luxresearchinc.com/research/report/20060).

31

Figure 2

Small, modular systems as sold by our Modular Water Systems division meet the needs of this new segment.

We believe that our ability to deliver modular systems gives us a competitive advantage over larger water companies when it comes to DBOO for smaller systems.

Also, the portable nature of these prefabricated, drop-in-place Modular Water Systems may provide a competitive benefit for a pure service model where the equipment remains the property of the Company, because their mobility enables some degree of repossession in the event the client fails to pay their monthly bill. We believe this is a key competitive advantage.

Finally, we could license MWS technology to Water On Demand operating partners under contract to design, build and operate systems, thus achieving both acceptance of such technology and a standardized “fleet” of installed systems. 

Implementation of Water On Demand

We have taken initial steps in this new direction.

On March 17, 2021, OriginClear incorporated Water On Demand #1 Inc. (“WOD#1”) in Nevada as a wholly owned subsidiary to operate and manage our Water on Demand business.

In November 2021, the Company created additional Water on Demand subsidiaries – Water on Demand # 2, Inc. (WOD # 2), Water on Demand # 3, Inc. (WOD # 3) and Water on Demand # 4, Inc. (WOD # 4). Each subsidiary (each a “WOD Subsidiary”, and collectively the “WOD Subsidiaries”) is wholly owned by OriginClear, Inc. These WOD Subsidiaries were created in order to align with the incentives of the Company’s various strategic partners. Each WOD Subsidiary (other than WOD #1), is associated with a different strategic partner and will be compensated based on the profitability of that WOD Subsidiary.

32

The Company requires funding in order to execute on its Water on Demand initiative. As of the period ended March 31, 2022, the Company received aggregate funding in the amount of $1,057,100 through the sale of its Series Y Preferred Stock dedicated to the Water on Demand program.

The Company is now actively evaluating potential clients for a test of water treatment and purification services on a pay-per-gallon basis, but a first agreement has not been reached.

On April 5, 2022, the Company agreed in principle to an arrangement with Houston-based, international water service company Envirogen Technologies for certain operations and maintenance (O&M) functions, the first of a potential series of such partnerships, intended to enable Water On Demand to focus on finance and asset management while the water industry benefits from a steady stream of pre-capitalized projects.

(https://www.originclear.com/company-news/originclear-and-envirogen-to-partner-on-water-on-demand)

On April 13, 2022, the Company announced the formation of Water On Demand, Inc. (“WODI”) as a wholly owned subsidiary and its plans to transfer each of the WOD subsidiaries and all assets, intellectual property and operations related to the Water On Demand business to WODI.

Advisory Support for OriginClear

In September 2020, OriginClear announced that Philanthroinvestors had entered a strategic agreement with the Company and had listed the Company on its new Water Philanthroinvestors program. At the same time, the Company appointed Philanthroinvestors Founder, Ivan Anz and CEO, Arte Maren to OriginClear’s Board of Advisors.

$H2O™

On May 10, 2021, OriginClear filed “System And Method For Water Treatment Incentive”, a patent application for using blockchain technology and non-fungible tokens (NFT) to simplify the distribution of payments on outsourced water treatment and purification services billed on a pay-per-gallon basis ahead of inflation, or Water On Demand. The Company recently filed a PCT application pertaining to the invention.

On May 16, 2021, the Company applied for a registered trademark for the mark $H2O (also referred to as H2O) as the blockchain system representing this activity. The current filing basis is “Intent-to-use basis” (under Trademark Act Section 1(b)).

On June 10, 2021, the Company named Ricardo Fabiani Garcia, key OriginClear investor and a veteran technologist, to the Company’s Board of Advisors. Mr. Garcia is advising the management team as it sets up the roadmap and chooses the resources for the $H2O project.

The basic intended use of the blockchain system is to streamline payments and eliminate human error. In this respect we believe it is very similar to J.P. Morgan’s JPM Coin:

Our patent application is the first step in our development process for this blockchain system, which we expect to last at least several months. We are not currently a blockchain or crypto currency developer and would need to develop or contract for this capability. There is no guarantee that this effort would succeed. There is no active development effort for $H2O. Depending on the final form that $H2O takes, we may encounter regulatory concerns that we cannot guarantee we will overcome. In that event, we would fall back on ordinary financial payment systems. Neither our Water on Demand or other current business models rely on any blockchain system for operation, and we can accomplish our operational goals using ordinary financial and currency channels.

ClearAqua™

OriginClear is currently exploring a utility coin, or token, named ClearAqua, The Water Coin For The World™, which would implement a grassroots network for alerts, leading to actionable proposals for water projects. There is no assurance this token will be issued or if issued, will be successful. ClearAqua is not required for OriginClear’s core business.

33

“In 2019, J.P. Morgan became the first global bank to design a network to facilitate instantaneous payments using blockchain technology - enabling 24/7, business-to-business money movement by unveiling JPM Coin.” (https://www.jpmorgan.com/solutions/cib/news/digital-coin-payments).

We filed, on an intent-to-use basis, US Trademark applications on July 21, 2021, for the Mark, CLEARAQUA. We also engaged San Diego-based Baja Technologies Inc. (“Baja”) who wrote a preliminary white paper, but no other action has been taken and ClearAqua is not in active development at this time.

Potential Acquisitions and Incubations

OTG 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“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, small–privately owned and locally operated. Consolidating these companiesCreating a network of such providers could lead to enormous economies of scale through sharing of best practices, technologies, and customers. Decentralization iscustomers 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 even greater trend in water, similaradditional ten years, with three-year extensions. We also gained the right to what has been seen in energy decentralization through solarsublicense, and, wind off-grid generation. ​ Water is becoming increasingly scarcer. ​McKinsey’s Transforming ​Water Economies ​forecasts that ​“without ​action, global ​water demand ​could outstrip ​supply by upwith approval, to ​40 percent by ​2030.” ​Furthermore, existing water infrastructure increate ISO-compliant manufacturing joint ventures.

34

The Early IP consists of combined protection on the United States is agingmaterials and water loss is increasing. According to ​Lux Research, ​updating the country’s ​national water ​infrastructure ​will require an ​investmentconfigurations of $270 billion; money ​that will be ​hard to pull ​together for ​projects that ​could take ​decades to ​complete. ​In the meantime, centralized water systems are forcing water users to treat their own water with small, modular water treatment systems. OriginClear is acquiring companies to help industrial water users treat their ​water ​themselves, and often reuse ​it. We believe ​those companies ​are going to ​grow tremendously ​because of this ​“local ​water” ​growth trend. ​We believe that assembling a group of water treatment companies is an opportunity for significant growth and increased Company value for the stockholders.

Progressive Water Treatment

On October 1, 2015, Dallas-based Progressive Water Treatment, Inc. (“PWT”) became the first company in the Group. PWT is a fast-growing designer, builder and service provider for a wide range of industrial water treatment applications. PWT reported revenue of $4,794,637 for the period ending December 31, 2016. For the first nine months of 2017, PWT reported revenue of $2,215,491 which is included in the consolidated financial statements ending September 30, 2017.

PWT’s Business

Since 1995, PWT has been designing and manufacturing a complete line ofpackaged water treatment systems, for municipal, industrial and pure water applications. Known as an OEM (Original Equipment Manufacturer), PWT utilizes a wide range of technologies, including chemical injection, media filters, membrane, ion exchange and SCADA technology, in turnkey systems that it designs and builds. PWT also offers a broad range of services including maintenance contracts, retrofits and replacement assistance. In addition, PWT rents equipment through contracts of varying duration. Customers are primarily served in the United States and Canada, with PWT’s reach extending worldwide from Japan to Argentina to the Middle East.

OriginClear is currently in discussions for additional, accretive acquisitions of companies specializing in complementary markets and applications.

17

Technology Licensing

 For its first eight years of operations, OriginClear focused uniquely on development and commercialization of its breakthrough Electro Water Separation™ technology. In 2015, the technology wentbuilt into commercial phase, and the Company launched it as OriginClear Technologies, operating in parallel to the Group.containers. The mission of OriginClear Technologies is to develop Electro Water Separation™ and achieve its full recognition as an international industry standard in treating our increasingly complex wastewater treatment challenges. For this purpose, OriginClear Technologies relies on an ongoing strong R&D and engineering activity for the development of its technology, while actively building its network of partners, licensees and joint venture partners for commercial development. A key element of this strategy is OriginClear (HK), OriginClear’s wholly-owned subsidiary in Hong Kong that manages Asia-Pacific market development, with a special focus on China sales and manufacturing. While OriginClear Technologies focuses on developing and monetizing the Company’s internally-developed Intellectual Property, best practices and trade secrets, it is expected to do the same for technologies which may result in future from the Group’s acquisition of profitable water treatment companies.

The Technology

OriginClear is the proprietary developer of Electro Water Separation™ (EWS), the high-speed, primarily chemical-free technology to clean up large quantities of water. It removes oils, suspended solids, certain dissolved solids, and pathogens, in a continuous and energy-efficient process. The Company originally developed this technology to solve the challenge of removing microalgae from a highly dilute state. The EWS technology remains the most efficient non-chemical, continuous mechanism for the concentration of live algae cells from water. The electro-chemical process was then extended, first to cleaning up oil and gas waste water and most recently, to industrial, agricultural and urban effluents. These water treatment applications are entirely electrochemical in nature and do not rely on algae for its cleaning capabilities, which is a separate applicationpatents consist of the technology. EWS is designed to be an early step in removal of oils, solids and pathogens; reducing the work that more expensive, downstream processes such as Ultra Filtration or Reverse Osmosis must do, therefore enabling more cost-efficient and high-volume water cleanup overall. following:

#DescriptionPatent No.Date
Patent
Issued		Expiration
Date
1Wastewater System & MethodUS 8,372,274 B2 Applications: WIPO, Mexico02/12/1307/16/31
2Steel Reinforced HDPE Rainwater HarvestingUS 8,561,633 B210/22/1305/16/32
3Wastewater Treatment System CIPUS 8,871,089 B210/28/1405/07/32
4Scum Removal System for LiquidsUS 9,205,353 B212/08/1502/19/34
5Portable, Steel Reinforced HDPE Pump Station CIPUS 9,217,244 B212/22/1510/20/31

In March of 2016,

On May 10, 2021, OriginClear announced that it had successfully developedfiled “System And Method For Water Treatment Incentive”, a patent application for using blockchain technology and proved Advanced Oxidationnon-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 its breakthroughlocal, point-of-use or point-of-discharge water cleanuptreatment solutions, the Modular Water Systems licensed IP family is the core to a portable, integrated, transportable, plug-and-play system EWS. University laboratory teststhat, unlike other packaged solutions, can be manufactured in series, have showna 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 EWS with Advanced Oxidation (EWS:AOx™) can now extract dissolved contaminants, which are otherwise difficultis:

●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;
●easier to manufacture: vessels manufacturing process can be automated; and
●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 remove without chemicals such as chlorine. Overall, the system has shown a dramatic reduction in Total Organic Compounds which includes all formsuse of organic contamination, solids, misciblevessels or dissolved, to meet new stringent global discharge requirements. Even prior tocontainers made out of this innovation, EWS,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

Beginning with its first installation, PWT built MWS components. PWT and MWS are now fully integrated as a single profit and manufacturing center. The Company is currently developing MWS as a discrete line of business for an iSep ultrafiltration membrane, demonstrated upeventual spinoff. In addition, the Company is evaluating the EveraMOD Pump Station product line as a potential standalone business.

In April 2019, we completed the expansion of our manufacturer’s representative network to a 99.9% removal of dispersed oil, 99.5% removal of suspended solids as well as successful treatment of chemical oxygen demand (COD), including specific contaminants such as ammonia, phosphorusserve both PWT and hydrogen sulfide. These results were presented at the International Water Conference in 2015. In 2016, OriginClear filedMWS for a patent, which is still pending, to protect the new AOx process and system configuration.customer lead generation. 

35

Today, we are capable of pairing the two technologies as EWS:AOx™, or separately, as the application requires. OriginClear believes that its technology is valuable to the industry because it has the potential to greatly extend the life of membranes and filters by effectively treating very dirty, oily water, while reducing chemical use significantly. OriginClear also believes that its Advanced Oxidation technology will help neutralize harmful micro-contaminants, such as industrial solvents, which is difficult or impossible to achieve with other technologies. Overall, the system has shown a dramatic reduction in Total Organic Compounds which includes all forms of organic contamination, solids, miscible or dissolved, to meet new stringent global discharge requirements.

Recently, with our initial commercial contract for a landfill upgrade in Malaysia, we have shown that our systems can be retrofitted into existing installations, avoiding the time and expense of ground-up construction and enabling rapid compliance with new, stringent discharge regulations for treatment companies.

18

 

Targeting the microtoxins in drinking water

Nearly two-thirds of the human body is water. And that water (entering our bodies directly, or indirectly through food), is increasingly contaminated with a potent mix of chemicals, such as glyphosate or Roundup, atrazine, dioxane, estrogen, pharmaceutical drugs and much, much more. These chemicals are directly implicated in many disorders including cancer. Their effect may be greatly increased as a cocktail of chemicals, the destructiveness of which we can only guess at. Bottled water is often contaminated, too. In fact, it is very difficult to find truly pure water, whether in the water we drink, or in the water that irrigates our crops.

In the water treatment industry, Advanced Oxidation Process (AOP) is employed to create abundant reactive oxygen species (ROS), which kill all organic material, even many of the micro-toxins that are otherwise so difficult to remove. OriginClear believes it has invented the next generation of AOP, using electrical reaction efficiently, and capable of being applied to drinking water in a variety of settings including, ultimately, the home. Our breakthrough process, for which we filed our latest patent in March of 2016, is called AOx. We used this process in July of 2017 to demonstrate in the laboratory the ability to virtually eliminate the herbicide glyphosate from drinking water by up to 99.3%, according to independent test results.

We believe that AOx can be a simpler and effective way to treat water for many micro-toxins at city treatment plants, at irrigation districts, in bottling water plants and eventually in the home.

We are continuing to test for various contaminants, and to invent ways to effect the removal of microtoxins, real-time and in a number of settings.

Meanwhile, we are pursuing research alliances. And in the future, we plan to work with licensing and joint venture partners to take the technology to market.

Critical Accounting Policies

The Securities and Exchange Commission (“SEC”) defines “critical accounting policies” as those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Not all of the accounting policies require management to make difficult, subjective or complex judgments or estimates. However, the following policies could be deemed to be critical within the SEC definition.

Revenue Recognition

Equipment sales

We recognize revenue upon deliverywhen services are performed, and at the time of equipment,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.  Title to the equipment is transferred to the customer once the last payment is received. We record revenue as goods are shipped, and the equipment has been fully accepted by the customer. Generally, we extend credit to our customers and do not require collateral.  We do not ship a product until we have a purchase agreement signed by the customer with a payment arrangement.  

Percentage of completion

Revenues and related costs on construction contracts are recognized usingas the “percentage of completion method” of accountingperformance obligations for work are satisfied over time in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. Under ASC 605-35 – “Accounting for Performance of Construction-Type606, revenue and Certain Production Type Contracts”.Under this method, contract revenues and related expenses areassociated profit, will be recognized overas the performance periodcustomer obtains control of the goods and services promised in the contract in direct proportion to the costs incurred as a percentage of total estimated costs for the entirety of the contract. Costs include direct material, direct labor, subcontract labor and any allocable indirect costs.(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.

19

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts reported inof assets and liabilities, disclosure of contingent assets and liabilities at the accompanying financial statements. Significant estimates made in preparing thesedate of the financial statements, include the estimate of useful lives of property and equipment, the deferred tax valuation allowance, and the fair valuereported amounts of stock options, warrants, convertible notesrevenues and common stock for services.expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include estimates used to review the Company’s goodwill, impairments and estimations of long-lived assets, revenue recognition on percentage of completion type contracts, allowances for uncollectible accounts, inventory valuation, valuations of non-cash capital stock issuances and the valuation allowance on deferred tax assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.  

Fair Value of Financial Instruments

Fair value of financial instruments requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of Nine months,March 31, 2022, the amounts reported for cash, prepaid expenses, accounts payable and accrued expenses approximate the fair value because of their short maturities.

36

 

Recently Issued Accounting Pronouncements

Management reviewed accounting pronouncements issued during the three months ended September 30, 2017, and no pronouncements were believed by management to have a material impact on our present or future financial statements.

Results of Operation

Results of Operations for the three months ended September 30, 2017March 31, 2022 compared to the three months ended September 30, 2016. March 31, 2021.

Revenue and Cost of Sales

For the three months ended September 30, 2017,March 31, 2022, we had revenue of $1,112,438$1,234,105 compared to $1,019,919$796,178 for the three months ended September 30, 2016.March 31, 2021. Cost of sales for the three months ended September 30, 2017,March 31, 2022 was $949,657$1,458,855 compared to $574,105$691,521 for the three months ended September 30, 2016.March 31, 2021. Revenue and cost of sales increased primarily due to PWT’s focus on operations.our subsidiary’s increase in revenue.

Our gross profit was $162,781$(224,750) and $445,814$104,657 for the three months ended September 30, 2017March 31, 2022 and 2016,2021, respectively.

Selling and Marketing Expenses

 

For the three months ended September 30, 2017,March 31, 2022, we had selling and marketing expenses of $539,975,$646,184, compared to $303,496$431,508 for the three months ended September 30, 2016. SellingMarch 31, 2021.  The increase in selling and marketing expenses increasedwas primarily due to an increase in marketing and investor relations and marketing expense.

General and Administrative Expenses

GeneralFor the three months ended March 31, 2022, we had general and administrative expenses increasedof $880,260 compared to $830,444,$818,553 for the three months ended September 30, 2017, compared to $629,455 for the three months ended September 30, 2016. GeneralMarch 31, 2021. The increase in general and administrative expenses increasedwas primarily due to an increase in professional and legal fees and outside services.

Research

Other Income and Development Cost(Expenses)

ResearchOther income and development cost(expenses) decreased by $14,886,200 to $(1,814,340) for the three months ended September 30, 2017 and 2016, were $53,939 and $106,259, respectively.  The decrease in research and development costs was primarily dueMarch 31, 2022, compared to a decrease in outside services and other research and development costs.

Depreciation Expense

Depreciation expense$(16,700,540) for the three months ended September 30, 2017 and 2016 was $12,961 and $11,331, respectively. The increase was primarily due to the purchase of fixed assets.

20

Other Income and (Expenses)

Other income and (expenses) for the three months ended September 30, 2017 and 2016, were $(3,603,099) and $(8,411,891), respectively.March 31, 2021. The decrease in other income and (expenses) was the result ofdue primarily to a changedecrease in loss of non-cash accounts associated with the change in fair value of the derivatives in the amount of $4,724,151, commitment fees of $51,919 and$14,324,996, decrease in interest expense of $32,716,$24,368, which includes non-cash amortization of debt discount of $(17,308).$3,743, decrease in loss on conversion of preferred stock of $579,815, an increase in gain on write-off of loan payable of $75,000, a decrease in loss on conversion of preferred stock in the amount of $40,000 offset by an increase in unrealized loss on investment securities in the amount of $157,978, and decrease in other income of $1. 

Net Income Income/(Loss)

Our net loss decreased by $14,281,308 to $(3,576,267) for the three months ended September 30, 2017 was $4,877,637,March 31, 2022, compared to a net loss of $9,016,618$(17,857,575) for the three months ended September 30, 2016.March 31, 2021. The majority of the decrease in net lossincome was due primarily to a decrease in other expenses consisting of a decrease in loss in non-cash accounts associated with derivatives along with an increase in revenue, offset by a decrease in gross profit.  

Results of Operations for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.

Revenue and Cost of Sales

For the nine months ended September 30, 2017, we had revenue of $2,294,891 compared to $ 4,321,378 for the nine months ended September 30, 2016. Cost of sales for the nine months ended September 30, 2017, was $2,031,334 compared to $2,899,507 for the nine months ended September 30, 2016. Revenue decreased primarily due to PWT’s focus on marketing.

Our gross profit was $263,557 and $1,421,871 for the nine months ended September 30, 2017 and 2016, respectively.

Selling and Marketing Expenses

For the nine months ended September 30, 2017, we had selling and marketing expenses of $2,165,213 compared to $1,419,566 for the nine months ended September 30, 2016. Selling and marketing expenses increased primarily due to an increase in investor relations and marketing expense.

General and Administrative Expenses

General and administrative expenses decreased to $1,842,815 for the nine months ended September 30, 2017, compared to $1,860,239 for the nine months ended September 30, 2016. General and administrative expenses decreased primarily due to our overall expense reduction efforts.

Research and Development Cost

Research and development cost for the nine months ended September 30, 2017 and 2016, were $136,582 and $447,034, respectively.  The decrease in research and development costs was primarily due to a decrease in salaries, outside services and other research and development costs.

Depreciation Expense

Depreciation expense for the nine months ended September 30, 2017 and 2016, was $39,506 and $33,902, respectively. The increase was primarily due to the purchase of fixed assets.

Other Income and (Expenses)

Other income (expense) for the nine months ended September 30, 2017 and 2016, was $(4,739,243) and $(3,389,184), respectively. The increase in other expenses was primarily a result of a net change in lossfair value of non-cash accounts associated withderivative instruments estimated each period. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price, volatility, variable conversion prices based on market prices defined in the respective agreements and probabilities of certain outcomes based on managements’ estimates. These inputs are subject to significant changes from period to period, therefore, the estimated fair value of the derivatives inderivative liabilities will fluctuate from period to period, and the amount of $827,908, and a decrease in interest expense of $99,527 which includes non-cash amortization of debt discount of $(59,888), offset by an increase in commitment fees of $621,684.fluctuation may be material. 

37

21

 

Net Income/(Loss)

Our net loss for the nine months ended September 30, 2017 was $8,659,802, compared to a net loss of $5,728,054 for the nine months ended September 30, 2016. The majority of the increase in net loss was due primarily to an increase in other expenses consisting of an increase in loss in non-cash accounts associated with derivatives and a decrease in revenue and gross profit.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.

The condensed consolidated financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The accompanying condensed consolidated financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The Company has not generated significant revenue, and has negative cash flows from operations, which raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, raising additional cash infusion.capital and increasing sales. We obtained funds from our shareholdersinvestors during the ninethree months ending September 30, 2017. 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.March 31, 2022. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in case of equity financing.

In connection with our sale of Series M Preferred Stock conducted under Regulation A under the Securities Act, we may be subject to claims for rescission. If this occurs, it may have a negative effect on our liquidity.

At September 30, 2017March 31, 2022 and December 31, 2016,2021, we had cash of $342,164$1,854,415 and $351,321,$706,421, respectively, and a working capital deficit of $12,090,561$12,730,315 and $11,056,570,$12,826,008, respectively.  The increasedecrease in working capital deficit was due primarily to an increasea decrease in non-cash derivative liabilities, cash, and convertible notes, contracts receivable, inventorycontract assets accounts payable, accrued expenses, billing in excess of cost, deferred income, and loan payable, with a decrease in cash, costcontract receivables, loan payable, prepaid expenses, accrued expenses, and contracts liabilities.

During the period ended March 31, 2022, we raised an aggregate of $1,494,200 from the sale of preferred stock in excess of billingprivate placements. Our ability to continue as a going concern is dependent upon raising capital from financing transactions and prepaid expenses.future revenue.

Net cash used in operating activities was $1,296,392$271,565 for the ninethree months ended September 30, 2017,March 31, 2022, compared to $910,129$999,665 for the prior period ended September 30, 2016.March 31, 2021. The increasedecrease in cash used in operating activities was primarily due to a decrease in the net change in fair value of derivative liabilities, with an increase in cost of goods sold. contract liabilities and contracts receivables.

Net cash flows used in investing activities was $33,845 for the ninethree months ended September 30, 2017, as compared to $5,699 for the prior period ended September 30, 2016. The net increase in cash used in investing activities was due to an increase in equipment purchases in the current period.March 31, 2022 and 2021, were unchanged at $4,500 and $4,500, respectively.

Net cash flows provided by financing activities was $1,321,122$1,424,059 for the ninethree months ended September 30, 2017,March 31, 2022, as compared to $1,088,217$1,146,201 for the prior periodthree months ended September 30, 2016.March 31, 2021. The increase in cash provided by financing activities was due primarily to an increase in equity financing through private placements.proceeds for issuance of preferred stock. To date we have principally financed our operations through the sale of our common and preferred stock and the issuance of debt.

We do not have any material commitments for capital expenditures during the next twelve months. Although our proceeds from the issuance of equitysecurities together with revenue from operations are currently sufficient to fund our operating expenses in the near future, we will need to raise additional funds in the future so that we can maintain and expand our operations. Therefore, our future operations are dependent on our ability to secure additional financing.financing, which may not be available on acceptable terms, or at all. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and a downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, or generate sufficient revenue, we may have to curtail our marketing and development plans and possibly cease our operations.

22

We have estimated our current average burn, and believe that we have assets to ensure that we can function without liquidation over the next twelve months,for a limited time, due to our cash on hand, growing revenue, and our ability to raise money from our investor base. Based on the aforesaid, we believe we have the ability to continue our operations for the foreseeableimmediate future and will be able to realize assets and discharge liabilities in the normal course of operations. However, there cannot be any assurance that any of the aforementioned assumptions will come to fruition and as such we may only be able to function for a short time.

38

 

Off-Balance Sheet Arrangements

We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity or capital expenditures.

ItemITEM 3. Quantitative and Qualitative Disclosures About Market Risk.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

23

ItemITEM 4. Controls and Procedures.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

 

Pursuant to Rules 13a-15(b) and 15-d-15(b) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), the CompanyWe carried out an evaluation, under the supervision and with the participation of the Company’sour management, including the Company’s Chief Executive Officerour principal executive officer and Chief Financial Officer (“CEO/CFO”)principal financial officer, of the effectiveness of the Company’sour disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered byin this report. The term “disclosurereport, our disclosure controls and procedures”, as defined under Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designedwere effective to ensure that information required to be disclosed by a company in the reports that it files or submitsfiled under the Exchange Act, is recorded, processed, summarized and reported within the required time periods specified in the SEC’s rules and forms. Disclosure controlsforms and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’sour management, including itsour principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

As disclosed in our annual report filing for the year ended December 31, 2016, there was a significant deficiency in the Company’s internal control over financial reporting due to a lack of segregation of duties due to small Company staff size. Based upon the evaluation of the disclosure controls and procedures at the end of the period covered by this report, the Company’s CEO/CFO concluded that the Company’s disclosure controls and procedures were ineffective due to the significant deficiency in the Company’s internal control over financial reporting.

To address the significant deficiency, we performed additional analysis and other post-closing procedures in an effort to ensure our condensed consolidated financial statements included in this review report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this quarterly report on Form 10-Q fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

Changes in Internal Control Over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15f of the Exchange Act) that occurred during the current period of 2017fiscal quarter ended March 31, 2021 that has materially affected, or are reasonably likely to materially affect, the Company’sour internal control over financial reporting.

 

Limitations on Internal Controls

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

39

24

 

PART II

Item 1. Legal Proceedings.

NoneOn January 24, 2022, OriginClear, Inc., Progressive Water Treatment, Inc., OriginClear, Inc., and T. Riggs Eckelberry, individually (collectively, the “GTR Plaintiffs”), on the one hand, and GTR Source LLC and Tzvi “Steve” Reich (collectively, the “GTR Defendants”), on the other hand, settled a dispute between the parties relating to two distinct merchant funding agreements that were entered into on July 20, 2018 and August 28, 2018, and a settlement agreement entered into on December 13, 2018. Pursuant to the terms of settlement, all of which have been performed as of the filing date, (i) the GTR Defendants paid $25,000 to the GTR Plaintiffs, (ii) the parties mutually released each other from all claims, controversies, etc. that could have been asserted by any party against any other party pursuant to the aforesaid merchant funding agreements and settlement entered thereunder, and (iii) the GTR Plaintiffs dismissed with prejudice the action commenced by the GTR Plaintiffs in the Supreme Court for the State of New York in and for the County of Ontario and the appeal in the United States Court of Appeals for the Second Circuit. In addition the foregoing terms of settlement, on January 11, 2022, the GTR Defendants filed a vacatur of the judgment by confession, with prejudice, that was obtained in favor of the GTR Defendants and against the GTR Plaintiffs in the Supreme Court for the State of New York in and for the County of Ontario. As of the filing date, the Company views the aforesaid GTR matter as closed.

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, (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 C6 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. If granted, the Settlement Agreement would be declared void and unenforceable. As of the filing date, no decision has been rendered on OriginClear’s Motion to Set Aside the Settlement Agreement.

Item 1A. Risk Factors.  

We areNot required for a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.company. 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

NoneNone.

Item 3. Defaults Upon Senior Securities.

As of the date of the filing of this report, the Company has 160 shares of Series F preferred stock outstanding which the Company failed to redeem on September 1, 2020, for an aggregate redemption price (equal to the stated value) of $160,000.

40

 

None

As of the date of the filing of this report, the Company has 25 shares of Series G preferred stock 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.

As of the date of the filing of this report, the Company has 235 shares of Series I preferred stock outstanding which the Company was required to, and failed to redeem between May 2, 2021 and June 10, 2021, for an aggregate redemption price (equal to the stated value) of $235,000.

As of the date of the filing of this report, the Company has 482 shares of Series K preferred stock outstanding which the Company was required to, and failed to redeem between August 5, 2021 and March 26, 2022, for an aggregate redemption price (equal to the stated value) of $482,150.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information.

None.

Private Placement

As previously reported, the Company has commenced an offering under Regulation 506c of Regulation D (the “Private Placement”) of the Securities Act of 1933, as amended (the “Securities Act”) pursuant to which the Company shall sell units of its securities (the “Units”) with each Unit consisting of (i) one restricted share of its common stock, (ii) a Class A Warrant to purchase one share of its common stock, (iii) a Class B Warrant to purchase one share of its common stock, (iv) a Class C Warrant to purchase one share of its common stock and (v) a Class D Warrant to purchase one share of its common stock to qualified investors. The Company may redeem the warrants, but only after one year from the investor’s initial subscription, and only if the average stock price over a ten day period after that time is double the applicable warrant’s exercise price. If accelerating, the Company must reduce each exercise price by 25%. The subscription documents contain a lock-up provision under which, subject to certain terms and conditions therein, the subscribers shall not sell any of their shares of common stock of the Company obtained in this Offering for a period of twelve months. The securities offered in the Private Placement will not be and have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

Between October 26, 2017 and November 13, 2017, the Company sold, in the Private Placement, an aggregate of 6,700,000 shares of its common stock to an accredited investor for an aggregate consideration of $167,500.

The securities referenced above were offered and sold pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act, and Rule 506(c) of Regulation D promulgated under the Securities Act.

Consultant Issuances

Between October 31, 2017 and November 13, 2017, the Company issued to consultants an aggregate of 5,680,648 shares of the Company’s common stock in lieu of cash consideration. 

The securities referenced above were offered and sold pursuant to an exemption from the registration requirements under Section 4(a)(2) of the Securities Act.

Make Good Issuances

In connection with certain one-time make good agreements, on October 31, 2017, the Company issued an aggregate of 399,328 shares of its common stock to certain holders of its common stock.

The securities above were offered and sold pursuant to an exemption from the registration requirements under Section 4(a)(2) of the Securities Act since, among other things, the transactions did not involve a public offering.

Restricted Stock Grant Agreement

On November 10, 2017, the Company entered into a Restricted Stock Grant Agreement (the “RSGA”) with Jean Louis Kindler, the Company’s Chief Commercial Officer and Director, to create management incentives to improve the economic performance of the Company and to increase its value and stock price. The RSGA provides for the issuance of up to 2,000,000 shares of the Company’s common stock provided certain milestones are met in certain stages. All shares issuable under the RSGA are performance based shares and none have yet vested nor have any been issued.

Item 6.  Exhibits.

Exhibit

Number		Description of Exhibit
3131.1Certification by Chief Executive Officer, andrequired by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.*
31.2Certification by Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.*
3232.1Certification byof Chief Executive Officer andpursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b)pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the ExchangeSarbanes-Oxley Act and Section 1350 of Chapter 63 of Title 18 of the United States Code.2002.*
101.INSInline XBRL Instance Document.*
101.SCHInline XBRL Taxonomy Extension Schema.*
101.CALInline XBRL Taxonomy Extension Calculation Linkbase.*
101.DEFInline XBRL Taxonomy Extension Definition Linkbase.*
101.LABInline XBRL Taxonomy Extension Label Linkbase.*
101.PREInline XBRL Extension Presentation Linkbase.*
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).*

*Attached as Exhibit 101 to this report are the following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 formatted in XBRL (eXtensible Business Reporting Language): (i) the Balance Sheets, (ii) the Statement of Operations, (iii) the Statement of Shareholders’ Equity, (iv) the Statement of Cash Flow, and (v) Notes to Financial Statements.Filed herewith.

25

41

 

SIGNATURES

In accordance withPursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

May 16, 2022ORIGINCLEAR, INC.
By:/s/ TT. Riggs Eckelberry
TT. Riggs Eckelberry
Chief Executive Officer
(Principal Executive Officer) and

/s/ Prasad Tare
Prasad Tare
Acting Chief Financial Officer
(Principal Accounting and Financial Officer)
November 14, 2017(Principal Financial and Accounting Officer)

26

42

 

iso4217:USD xbrli:shares