Originclear, Inc 10-K for FY2023
Originclear, Inc. (OCLN)
About this 10-K
Originclear, Inc filed this 10-K on April 18, 2024, covering the fiscal year ended December 31, 2023 (FY2023).
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At April 17, 2024,
DOCUMENTS INCORPORATED
BY REFERENCE:
TABLE OF CONTENTS
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NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Form 10-K contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control, which may include statements about our:
| ● | business strategy; | |
| ● | financial strategy; | |
| ● | intellectual property; | |
| ● | 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,” and “Business,” as well as in this report generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in this report generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur.
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PART I
ITEM 1. BUSINESS.
Organizational History
OriginClear, Inc. (“we”, “us”, “our”, the “Company”, “OCLN” or “OriginClear”) was incorporated on June 1, 2007 under the laws of the State of Nevada. We have been engaged in business operations since June 2007. In 2015, we moved into the commercialization phase of our business plan having previously been primarily involved in research, development and licensing activities. Our principal offices are located at 13575 58th Street North, Suite 200, Clearwater, FL 33760. Our main telephone number is (727) 440-4603. Our website address is www.OriginClear.com. The information contained on, connected to or that can be accessed via our website is not part of this report.
Overview of Business
OriginClear was founded as OriginOil® in 2007 and began trading on the OTC in 2008. In 2015, it was renamed as OriginClear® to reflect its new mission to develop breakthrough businesses in the industrial water sector. Today, OriginClear structures itself as the Clean Water Innovation Hub™ (“CWIB”) and intends to use its well-developed retail investor development capabilities to help bring potentially disruptive companies to market. For the foreseeable future, however, OriginClear intends to devote its entire capabilities to the success of its subsidiary, Water On Demand, Inc. (WODI).
In 2023, OriginClear combined three of its operating divisions into the single WODI subsidiary, in anticipation of a merger of such subsidiary with Fortune Rise Acquisition Corp (“FRLA”) a Special Purpose Acquisition Company. The definitive merger agreement between WODI and FRLA was announced on October 24, 2023: https://www.originclear.com/company-news/originclears-water-on-demand-and-fortune-rise-acquisition-corporation-announce-business-combination-to-create-nasdaq-listed-company.
WODI is composed of three operating units, Modular Water Systems (“MWS”), Progressive Water Treatment (“PWT”), and Water on Demand (“WOD”), the last being a development stage business.
| ● | PWT is responsible for a significant percentage of the Company’s revenue, specializing in engineered water treatment solutions and custom treatment systems. |
| ● | MWS houses a worldwide, exclusive master license to the intellectual property of Daniel M. Early, consisting of five patents and related intellectual property, know-how and trade secrets (“Early IP”). In April 2023, OriginClear commissioned a valuation of the Early IP, which yielded a nominal value between $26,637,185 and $53,224,807. MWS features products differentiated by the Early IP and complemented with additional knowhow and trade secrets. |
| ● | WOD is an incubation of the Company which intends to offer private businesses water self-sustainability as a service - the ability to pay for water treatment and purification services on a per-gallon basis. This is commonly known as Design-Build-Own-Operate (“DBOO”). |
Water Businesses
The Company develops and incubates businesses in its role as the Clean Water Innovation Hub™ (“CWIB”). The mission of CWIB in general, is to create valuable properties through an incubation process that results in the launching of valuable spinoffs that add value to the world’s water industry, among others.
Currently, OriginClear’s mission as the CWIB is the following:
1. Support the rollout of the WODI post-merger entity (by retaining name). OriginClear has proposed a post-merger management services contract with WODI, which over time will be phased out as WODI builds its own internal team and capabilities;
2. In particular, OriginClear is assisting WODI with its aggressive acquisitions plan, starting now and to be finalized post the SPAC merger (there is no assurance of success for the merger or for the planned acquisitions);
3. Initiate non-binding agreements for the acquisition of related businesses by WODI or the post-merger entity, which will depend on the outcome of the BCA process; and
4. For its own account, to accelerate new businesses that it may create (as it did with MWS in 2018 and with WOD in 2021), acquire (as it did with PWT in 2015) or partner with strategically. For this new phase, the Company may also engage in projects outside the water industry.
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On April 2, 2024 OCLN announced a strategic partnership with entrepreneur Kevin Harrington, a co-founding board member of the Entrepreneur’s Organization, to bring critical global attention to OriginClear's crowdfunding campaign, now in a preview invitational stage. https://www.originclear.com/company-news/original-shark-kevin-harrington-brings-his-star-power-to-originclear-crowdfunding-campaign.
Water On Demand
The Company is developing an outsourced water treatment business called Water On Demand (“WOD”), which it conducts through its subsidiary, Water on Demand, Inc. (“WODI”). The WOD model intends to offer private businesses water self-sustainability as a service, the ability to pay for water treatment and purification services on a per-gallon basis, with a percentage of net profits paid to investors and stakeholders. This is commonly known as Design-Build-Own-Operate or “DBOO”. The Company is currently evaluating pilot opportunities to enable outsourced water treatment as a managed service and that is paid by the gallon as an alternative to having to come up with significant up-front capital for in-house wastewater treatment. Recently, the Company announced agreements with water services company Enviromaintenance and utility network software provider Klir, to help develop a WOD commercial pilot in the Mobile Home Park sector.
WODI may build, maintain and service the water treatment systems it finances, but as these expand it intends to contract with regional water service companies to carry out these functions. On April 6, 2022, an agreement in principle was reached to work with the first of these intended contractors, Envirogen Technologies (www.envirogen.com), a 30-year international provider of environmental technology and process solutions (www.originclear.com/company-news/originclear-and-envirogen-to-partner-on-water-on-demand). Future resources to build, maintain and service these financed systems may come from acquisitions; however, these are not actively being planned.
WODI delegates 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. This is expected to enable rapid scale-up of the WOD program, and the partner network would create a high barrier to entry for competitors.
At the time of this filing, the WOD division of WODI has no staff or independent resources. WODI’s PWT and MWS divisions have a total of 32 employees. The Board of Directors of OriginClear serves as the Board for WODI, the CEO of OriginClear serves as CEO of WODI, and the CFO of OriginClear also serves as CFO of WODI. Under a management services arrangement, OCLN provides WODI with staffing and administrative resources in return for the funding for WODI’s prospective merger with FRLA and the making of certain special distributions.
On February 15, 2024, the Company and Fortune Rise Acquisition Corporation (Nasdaq: FRLA), a Special Purpose Acquisition Company (SPAC), announced the filing of a registration statement on Form S-4 with the SEC which includes a preliminary proxy statement and prospectus in connection with the proposed business combination with OCLN subsidiary Water On Demand (WODI), an investor-funded service offering decentralized water management solutions and technologies to businesses and communities, potentially without the burden of upfront capital expenditures. WODI is a subsidiary of OriginClear, Inc. (OTC Other: OCLN). https://www.originclear.com/company-news/originclears-water-on-demand-and-fortune-rise-acquisition-corporation-seek-to-combine-under-form-s-4-registration-statement.
On March 26, 2024, the Company announced the signing of a Memorandum of Understanding (MOU) between Modular Water Systems (MWS) and Enviromaintenance of Georgetown, TX to collaborate on its planned Water On Demand pilot program focusing on mobile home parks (MHP) in the Greater Central Texas Region. https://www.originclear.com/company-news/originclears-modular-water-systems-and-enviromaintenance-partner-for-water-on-demand-pilot-program
On April 9, 2024, the Company announced the selection of Klir, Inc. (www.klir.com) to support its planned Water On Demand pilot program focusing on mobile home parks (MHP) in the Greater Central Texas Region. https://www.originclear.com/company-news/modular-water-systems-and-klir-partner-for-water-on-demand-pilot-program.
Progressive Water Treatment Inc.
Progressive Water Treatment (“PWT”) is a Dallas-based designer, builder and service provider for a wide range of industrial water treatment applications. PWT aims to offer a complementary, end-to-end offering to serve growing corporate demand for outsourced water treatment.
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 a turnkey 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.
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Modular Water Systems
Modular Water Systems (“MWS”) offers a unique product line of prefabricated water transport and treatment systems. Daniel “Dan” Early P.E. (Professional Engineer) heads the 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.
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 August 12, 2022, the Company announced the inaugural delivery and installation of its pre-engineered EveraBOX™ to implement a low-risk Liquid Ammonium Sulfate (LAS) disinfectant system for Pennsylvania’s Beaver Falls Municipal Water Authority (BFMA). Typical of MWS products, EveraBOX is manufactured using inexpensive, long-lasting High-Density Polyethylene (HDPE) or Polypropylene (PP) materials. These are also classified as Structural Reinforced Thermoplastic Pipe (SRTP). These materials have proven to be less affected by supply chain issues currently impacting metal and fiberglass construction.
On January 10, 2024, OCLN and Buda, Texas-based Plastic Welding and Fabrication, Ltd. (PWF) jointly announced a Memorandum of Understanding (MOU) for a strategic partnership between OriginClear’s subsidiary, Water On Demand, Inc. (“WODI”), and PWF. https://www.originclear.com/company-news/originclears-water-on-demand-in-strategic-partnership-with-the-intent-to-acquire-manufacturer-for-its-proprietary-modular-products.
PWF is already a key fabricator of highly durable, patent-based enclosures for Modular Water Systems (MWS), the technology division of WODI that designs and develops highly scalable systems for self-contained water treatment and transportation. The MOU enhances the strategic relationship and enables MWS to build its complete water systems right where the enclosures are manufactured, for maximum efficiency and speed.
Additionally, the parties signed a Letter of Intent (LOI) which provides a framework for negotiating a definitive agreement for WODI to acquire PWF and, if executed, would establish the first in-house manufacturing facility for WODI’s Modular Water Systems division. The acquisition is expected to be accretive. The parties caution that talks are in an early stage and may not succeed.
On March 26, 2024, OCLN announced the signing of a Memorandum of Understanding (MOU) between Modular Water Systems (MWS) and Enviromaintenance of Georgetown, TX to collaborate on sales of standardized systems in the Greater Central Texas Region, from Waco to San Antonio. Enviromaintenance (www.enviromaintenance.com) is a leading provider of large community scale-on-site wastewater treatment and disposal systems, with a significant market presence in the Mobile Home Park (MHP) industry in the greater Austin area. The company plans to recommend MWS’s fully integrated, modular wastewater treatment systems to MHPs, thereby providing mobile home park owners an affordable, reliable and efficient way to treat their wastewater. https://www.originclear.com/company-news/originclears-modular-water-systems-and-enviromaintenance-partner-for-water-on-demand-pilot-program.
Patents and Intellectual Property
On June 25, 2018, Dan Early granted the Company a worldwide, exclusive non-transferable license to intellectual property consisting of five issued US patents, and design software, CAD, marketing, design and specification documents (“Early IP”).
On May 20, 2020, we agreed on a renewal of the license for an additional ten years, with three-year extensions. We also gained the right to sublicense, and, with approval, to create ISO-compliant manufacturing joint ventures.
The license to the Early IP was included as part of the sale of the MWS assets to WODI on April 14, 2023.
The Early IP consists of combined protection on the materials and configurations of complete packaged water treatment systems, built into containers. The patents consist of the following:
| # | Description | Patent No. | Date Patent Issued | Expiration Date | |||||
| 1 | Wastewater System & Method | US 8,372,274 B2 Applications: WIPO, Mexico | 02/12/13 | 07/16/31 | |||||
| 2 | Steel Reinforced HDPE Rainwater Harvesting | US 8,561,633 B2 | 10/22/13 | 05/16/32 | |||||
| 3 | Wastewater Treatment System CIP | US 8,871,089 B2 | 10/28/14 | 05/07/32 | |||||
| 4 | Scum Removal System for Liquids | US 9,205,353 B2 | 12/08/15 | 02/19/34 | |||||
| 5 | Portable, Steel Reinforced HDPE Pump Station CIP | US 9,217,244 B2 | 12/22/15 | 10/20/31 |
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On May 10, 2021, OriginClear announced that it had filed a patent application titled “System And Method For Water Treatment Incentive”, for using blockchain technology and non-fungible tokens (NFT) to simplify the distribution of payments on outsourced water treatment and purification services billed on a pay-per-gallon basis ahead of inflation.
With the rising need for local, point-of-use or point-of-discharge water treatment solutions, the Modular Water Systems licensed IP family is the core to a portable, integrated, transportable, plug-and-play system that, unlike other packaged solutions, can be manufactured in series, have a longer life and are more respectful of the environment.
The common feature of this IP family is the use of a construction material (Structural Reinforced ThermoPlastic), for the containers that is:
| ● |
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, Patent No. 8,372,274 relates to the use of vessels or containers made out of this material combined with a configuration of functional modules, or process, for general water treatment.
Patent Nos. 8,561,633 and 8,871,089 are currently expired, however the Company believes these may be reinstated. Patent No. 8,561,633 is a stormwater filtration patent that does not pertain to the MWS business model. Patent No. 8,871,089 is a Continuation-in-Part (CIP) on the original Patent No. 8,372,274. This original patent and Patent No. 9,217,244 are the basis for the current MWS business and therefore the status of the CIP is not considered material.
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.
PRODUCTS, TECHNOLOGY AND SERVICES
Failing infrastructure and the rising cost of water are driving businesses to treat their own water. The Company provides on-premise systems enabling very high purification and recycling levels that centralized systems cannot achieve. Systems installed at the point of use become productive assets for businesses that also increase property values. Furthermore, the Company’s products help corporations improve their environmental, social and governance (ESG) standings with water management services.
The Company deploys advanced technologies at the point of use, with modular, prefabricated systems that create durable assets and water independence for industry, commerce and agriculture.
Product Portfolio
The Company groups its products into three main categories which fall under its separate business divisions:
| ● | Water Treatment: achieving high grade purification; |
| ● | Water Conveyance: water transportation and pumping; |
| ● | Advanced Technologies: commercialization of innovative technologies; and |
| ● | Pay as you go financing for water treatment. |
The Company’s complete line of compact, on-site, point-of-use products include: advanced purification systems that are skid, rack-mounted and containerized for reverse osmosis, ultrafiltration, media filtration, disinfection, water softening, ion exchange and electrodeionization (EDI), combined as needed in small to medium commercial and industrial applications, and custom-build projects. Water conveyance products include pump and lifting stations, modular storage tanks, and control monitoring panels.
The Company’s line of modular water products and systems create “instant infrastructure” – fully engineered, prefabricated and prepackaged systems that use durable, sophisticated materials. The units are available in standard capacities for onsite closed-loop systems at commercial business locations.
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The Company’s rugged wastewater treatment plants, highly reliable pump stations, and premium water purification units typically offer 25 percent lower initial costs over conventional systems, with greater quality and full connectivity. These pump stations and wastewater treatment products utilize high density thermo-plastics (HDPE) and proprietary, innovative prefabrication methods and materials that deliver the longest life and strongest products.
Market Opportunity
On a global basis, only twenty percent (20%) of all sewage and thirty percent (30%) of all industrial waste water are treated or recycled. Water leakage results in the loss of thirty-five percent (35%) of all clean water across the planet. Cutting that number in half would provide clean water for 100 million people. This is a situation of great danger, but also great potential.
We believe businesses can no longer rely on giant, centralized water utilities to meet the challenge. That is why more and more business users are doing their own water treatment and recycling. Whether by choice or necessity, those businesses that invest in onsite water systems gain a tangible asset on their business and real estate and can enjoy better water quality at a lower cost, especially if treated water is recycled.
We believe self-reliant businesses are quietly building “decentralized water wealth” for themselves while also helping their communities. Environmental, social and governance (ESG) investing guidelines, which drive about a quarter of all professionally managed assets around the world, specifically include the key factor of how well corporations manage water.
As civil infrastructure ages and fails and as the costs for new and replacement infrastructure increase year over year, we believe engineers and end-users will search for new ways and methods of deploying water and wastewater systems that are less expensive to deliver and much less expensive to own and operate with the mission intent of substantially increasing the replacement intervals currently experienced by conventional materials of construction and conventional product delivery models.
Operations & Markets
The Company focuses on meeting the needs of businesses looking for compact, advanced water treatment technologies that can be shipped to and installed at the point of use. The Company manufactures and distributes its professional-grade water treatment and conveyance products to commercial and industrial customers, fielding both direct and indirect sales channels to reach end-market clients such as hotels and resorts, real estate housing developments, office buildings, military installations, schools, farms, food and beverage manufacturers, industrial warehouse, oil and gas producers, and medical and pharmaceutical facilities.
The Company designs and prefabricates an entire line of turnkey containerized units under the Modular Water Systems™ brand, that enable water conveyance, purification, recycling and wastewater management. The units are assembled at contract locations, typically where the high density polyurethane (HDPE) casings are molded.
These onsite modular products provide clients with water independence through ownership and operational control over water quality, enabling them to increase productivity while reducing environmental, health and safety risks from pollution, contamination and corrosion. A similar benefit is achieved with the Company's pump station products.
Modular water products are trusted to balance performance with cost-effectiveness, enabling business users to go well beyond municipal standards for water quality, therefore achieving high levels of satisfaction for their own customers, and improved sustainability for their properties.
The Company’s water treatment equipment can boost real estate asset value as a fundamental capital improvement, combined with long-lasting water savings for the corporate bottom line.
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Customers
Current water and wastewater treatment infrastructure faces a crisis. The prohibitive cost of repairing buried and aging infrastructure and the need to decrease energy use and waste in the water industry offers an opportunity for a complete design rethink. New technologies, often utilizing membranes, can decentralize water and wastewater infrastructure while improving water reuse by treating to a high standard at a small scale close to the source of generation. Additionally, new automated analytics offer solutions for these more complex decentralized solutions. (Lux Research: The Future of Decentralized Water, June 28, 2016). PWT has designed and fabricated water treatment systems for over twenty years. Major markets include:
| ● | Potable Water for Small Communities | |
| ● | Recirculated and Makeup Boiler and Cooling Tower Water | |
| ● | Produced Water & Frac Flowback Water | |
| ● | Food and Beverage Feed and Effluent Waters | |
| ● | Mining Effluent | |
| ● | Ground Water Recovery | |
| ● | Agriculture Effluent | |
| ● | Environmental Water Treatment for Reuse |
Describing the water and wastewater treatment market as a pyramid, we put the major cities at the top of the pyramid, medium size cities in the middle and smaller towns, counties, cities, townships, state agencies, federal agencies, private individuals, commercial entities, industrial facilities, agriculture facilities at the base of the pyramid.
Sales and Marketing
PWT’s sales strategy differs from MWS’s efforts. PWT sales are dependent upon relationships with past end-use customers and certain manufacturers’ representatives who have relationships with their regional end use customers. MWS’s sales strategy is based on developing relationships with consulting engineers and general contractors as opposed to end-use customers.
As MWS sales strategies develop, PWT believes it will gain recognition with various consulting engineers and general contractors. PWT and MWS are currently developing a stronger national representatives network to take advantage of the relationship the sales representatives have gained with engineers, contractors and end use customers.
PWT and MWS have substantial experience in the water & wastewater market and as well as: conventional technologies and their limitations, new technologies, the size and demand of the market and how products are specified and implemented. They also have a strong customer focus throughout the organization to discover and diagnose the customer needs, design and deliver comprehensive solutions.
We believe the keys to capitalizing on the market are visibility, relationships, market understanding, and direct access to the opportunities. Strong marketing programs are also essential, and include: websites with solutions & credibility, sales support tools like literature& webinars and trade show presence.
Water industry projects move slowly. Most product lines for each of PWT and MWS are considered “pipeline” products and have a gestational period of 6 months to 3 years. We believe the best strategy to increase the pipeline of opportunities is to have more sales reps with relationships with engineers, contractors and end users.
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Competition
PWT shares the market with a large number of suppliers which also provide system integration using multiple technologies. These include California’s PureAqua, Florida’s Harn RO, and Illinois’ Membrane Specialists. We believe PWT’s market share differs from those competitors in areas such as regional focus, customer loyalty, market focus, limited sales representation and other. For instance, 80%+ of PureAqua’s business in the Middle East, Harn RO focuses on drinking water systems for medium to large cities in the SE, Membrane Specialist focuses on tubular membranes and many more examples.
The Company is not aware of any direct competitors to MWS that are building complete water, wastewater treatment systems, and pump stations utilizing SRTP type materials. There are several manufacturers which build metal prepackaged systems, such as Georgia’s AdEdge; however, such companies do not offer the range of hybrid treatment processes available through MWS. The major indirect competition continues to be custom designed and on-site constructed concrete & steel systems. Some fiberglass is used but is very difficult to detail, is brittle and again, has a limited life compared to SRTP systems.
While manufacturers of SRTP pipe could be competitors, none of MWS’s suppliers, other than Contech, for a short period of time, has sold, or intends to sell, comparable systems to MWS’s. Their focus is simply to sell miles of pipe.
Growth Opportunities
Domestic versus International
The market opportunity for each of WOD, PWT and MWS is not limited to the United States. The US only represents 5% of the world’s population. In addition, a great deal of that population resides in undeveloped regions or regions with poor treatment systems. We believe implementing the Company’s decentralized technology and products throughout the world with joint ventures has the potential to have a significant effect on our revenue growth.
Standardization
MWS is developing standardized designs and commoditized product engineering (eliminating the custom consulting engineering work reduces overall project costs), the goal being to design a single product once and use said design as a blueprint for future products. Our goal is to continue driving the standardization and completion of each product’s engineer technical package, using computer design algorithms and standard design approaches, so that engineering costs may potentially decrease to less than 1% for each unit sold, with a long-term goal of less than 0.1%.
Sharing Technology & Projects
PWT’s systems remove suspended solids, oils, metals, and dissolved chemicals & salts. MWS’s focus is on the removal of organic contaminants. It is not uncommon for a waste stream of water to be contaminated with both inorganics and organics, for example, many current animal farms with large amounts of waste effluent that currently is pumped to lagoons that are no longer meeting environmental standards. In the alternative, the water can be treated in-line with MWS products to remove the organics, then PWT’s systems used to remove dissolved inorganics to create water suitable for irrigation or drinking water for the animals. In addition, OriginClear’s proprietary technologies have been shown to successfully treat problems such as animal farm effluents.
By combining these technologies, the offering to customers becomes stronger and more effective. And both companies benefit from a new opportunity.
Facilities and Equipment
Manufacturing
PWT currently leases its facility. The facility is located at 2535 E. University Drive, McKinney, Texas 75069. There are five buildings totaling 12,400 square feet on the 1.7 acres of land. There is additional expansion space for several more assembly buildings when and if needed.
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PWT’s in-house engineers and designers utilize modern 3-D CAD programs to design all of the systems sold by PWT. They also design, program and build all of the control systems and the Internet-connected Process Logic Control (PLC) video screen interfaces.
PWT in-house craftsmen complete the metal and plastic machining, welding and assembly of PWT’s systems.
MWS engineering resources are provided both internally and externally. Daniel Early leads the engineering program and relies on support from engineering personnel and PWT to assist with manufacturing and engineering. MWS subcontracts engineering support to PWT, which employs its own established and experienced engineering team. MWS also subcontracts 2D and 3D engineering design work to outside vendors to assist in the development of standardized drawings and proposals.
MWS’s specialized manufacturing is currently outsourced to PWT and, increasingly, to contractors, typically the manufacturers of its proprietary HDPE enclosures. They provide substantial critical manufacturing support to MWS; this support takes the form of various sub assembly fabrication (membrane modules, equipment skids, MWS equipment buildings, etc.), and MWS’s integrated control panels. Heavy plastic (such as HDPE) and/or custom plastic manufacturing are provided by contract manufacturers in Roanoke, Virginia and in Ontario, Canada. Additional sub-contract manufacturing is available through fabricators in Hopkins, MO, Corsicana, TX, and Vernon Hills, IL.
The components such as pumps, membranes and instruments are acquired through MWS’s normal vendors.
The building blocks of all systems are metal reinforced or structural profile wall reinforced thermoplastic pipe (SRTP) available from one of over a half dozen pipe suppliers. Being pipes they are manufactured to be sold into high volume applications and are very economical for MWS’s high value applications. MWS purchases these plastic cylinders up to 11’ in diameter and are utilized as the vessel or housing part of the water treatment systems.
More efficient fabrication and assembly equipment are available at relatively little cost to expedite the fabrication time and improve the quality. Some of that equipment includes CNC waterjet, large diameter core drills, fusion welders and roto molders.
Advisory Support for OriginClear
In September 2020, OriginClear announced that PhilanthroInvestors® had entered a strategic agreement with OriginClear and had listed the Company on its new Water PhilanthroInvestors program. At the same time, OriginClear appointed PhilanthroInvestors Founder, Ivan Anz and CEO, Arte Maren to OriginClear’s Board of Advisors. Recently, Mr. Maren was replaced by Mr. Skye Dayton as CEO and will continue to serve PhilanthroInvestors in an advisory role.
$H2O™
On May 10, 2021, OriginClear filed a patent application for its “System And Method For Water Treatment Incentive”, which includes blockchain technology and non-fungible tokens (“NFT(s)”) to simplify the distribution of payments on outsourced water treatment and purification services billed on a pay-per-gallon basis ahead of inflation, or Water On Demand.
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On May 16, 2021, the Company applied for a registered trademark for the mark $H2O (also referred to as H2O) as the blockchain system representing this activity. The current filing basis is “Intent-to-use basis” (under Trademark Act Section 1(b)).
On June 10, 2021, the Company named Ricardo Fabiani Garcia, an OriginClear investor and veteran technologist, to the Company’s Board of Advisors. Mr. Garcia will advise the management team as it sets up the roadmap and chooses the resources for the $H2O project.
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.
New Role of the Company
The Company, in its role as the CWIB, seeks to create, incubate or accelerate businesses in the water industry, and potentially outside of it.
Having achieved a spinoff of its three major properties into a company that achieved a $32 million valuation at the time of the Business Combination of October 24, 2023, the Company now intends to achieve similar results with other companies, in which it may take an equity position in addition to charging management fees.
We believe that our main strength is in helping to capitalize such companies through retail corporate development activities; and to help them achieve commercial proof of concept and scale; and to assist with mergers and acquisitions.
The Company cautions that suitable candidates for this new role may not be identified and even if identified, may not become partners or achieve commercial successes. The Company's focus for the foreseeable future remains the financing, development and support of its WODI subsidiary.
Employees
As of the date of this filing, the Company had 32 full-time employees.
Intellectual Property
With the spinoff of Water On Demand Inc and its operating divisions, the Company holds no patents directly, but indirectly has access to the licensed patents through MWS. The licensed intellectual property consists of five issued US patents, and design software, CAD, marketing, design and specification documents.
On May 10, 2021, the Company announced that it filed “System And Method For Water Treatment Incentive”, a patent application for using blockchain technology and non-fungible tokens (NFT) to simplify the distribution of payments on outsourced water treatment and purification services billed on a pay-per-gallon basis ahead of inflation. The application status is provisional.
The ORIGINCLEAR trademark application has newly registered as US Trademark Registration 7,296,730 issued on February 6, 2024. The ORIGINCLEAR logo trademark application has registered as US Trademark Registration 7,296,731 issued on February 6, 2024.
Other trademarks in process of registration include:
Trademarks: $H2O, WATERPRENEUR, CLEARAQUA, THE WATER COIN FOR THE WORLD, WATER - THE BLUE GOLD, THE CLEAN WATER INNOVATION HUB.
The Company relies and expects to continue to rely on a combination of confidentiality agreements with its employees, consultants, and third parties with whom it has relationships, as well as trademark, copyright, patent, trade secret, and domain name protection laws, to protect its proprietary rights.
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ITEM 1A. RISK FACTORS
Risks Relating to Our Business
We have not been profitable.
We were formed in June 2007 and are currently developing Water On Demand, a new business model to respond to identified market demand. Since we have not been profitable, there are substantial risks, uncertainties, expenses and difficulties that we are subject to. To address these risks and uncertainties, we must do among the following:
| ● | Successfully execute our business strategy; | |
| ● | Respond to competitive developments; and | |
| ● | Attract, integrate, retain and motivate qualified personnel. |
There can be no assurance we will operate profitably or that we will have adequate working capital to meet our obligations as they become due. Investors must consider the risks and difficulties frequently encountered by early stage companies, particularly in rapidly evolving markets. We cannot be certain that our business strategy will be successful or that we will successfully address these risks. In the event that we do not successfully address these risks, our business, prospects, financial condition, and results of operations could be materially and adversely affected.
We have a history of losses and can provide no assurance of our future operating results.
We have experienced net losses and negative cash flows from operating activities since inception and we expect such losses and negative cash flows to continue in the foreseeable future. As of December 31, 2023, and 2022, we had working capital (deficit) of $(32,249,892) and $(14,245,179), respectively, and shareholders’ (deficit) of $(39,263,958) and $(26,016,787), respectively. For the years ended December 31, 2023 and 2022, we incurred net loss of $(11,625,783) and $(10,790,721), respectively. During the year ended December 31, 2023, we had a loss from operations of $5,401,560. As of December 31, 2023, we had an aggregate accumulated deficit of $119,216,735. We may never achieve profitability. The opinion of our independent registered public accountants on our audited financial statements as of and for the year ended December 31, 2023 contains an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon raising capital from financing transactions and future sales.
We will need significant additional capital, which we may be unable to obtain.
Revenues generated from our operations are not presently sufficient to sustain our operations. Therefore, we will need to raise additional capital to continue our operations. There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us. We may be required to pursue sources of additional capital through various means, including debt or equity financings. Future financings through equity investments are likely to be dilutive to existing stockholders. Also, the terms of securities we may issue in future capital transactions may be more favorable for new investors. Newly issued securities may include preferences, superior voting rights, the issuance of warrants or other derivative securities, and the issuances of incentive awards under equity employee incentive plans, which may have additional dilutive effects. Further, we may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition. Our ability to obtain needed financing may be impaired by such factors as the capital markets and our history of losses, which could impact the availability or cost of future financings. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that we reduce our operations accordingly, we may be required to cease operations. In addition, we have outstanding convertible preferred stock that are convertible into common stock at variable conversion prices and in addition, in some cases entitle certain prior investors to certain make-good shares. Our issuance of common stock upon conversion of such preferred stock will result in further dilution to our stockholders.
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We have incurred substantial indebtedness.
As of December 31, 2023, we had outstanding convertible promissory notes in the aggregate amount of $2,617,691. All such debt is payable within the following thirty-six months and is convertible at a significant discount to our market price of stock. Our level of indebtedness and insufficient cash on hand increases the possibility that we may be unable to generate cash sufficient to pay, when due, the principal of, interest on or other amounts due in respect of the indebtedness. Our indebtedness, combined with other financial obligations and contractual commitments, could:
| ● | in the case of convertible debt that is converted into equity, result in a reduction in the overall percentage holdings of our stockholders, put downward pressure on the market price of our common stock, result in adjustments to conversion and exercise prices of outstanding notes and warrants and obligate us to issue additional shares of common stock to certain of our stockholders; | |
| ● | make it more difficult for us to satisfy our obligations with respect to the indebtedness and any failure to comply with the obligations under any of our debt instruments, including restrictive covenants, could result in events of default under the loan agreements and instruments governing the indebtedness; |
| ● | require us to dedicate a substantial portion of our cash flow from operations to payments on indebtedness, thereby reducing funds available for working capital, capital expenditures, acquisitions, research and development and other corporate purposes; | |
| ● | increase our vulnerability to adverse economic and industry conditions, which could place us at a competitive disadvantage compared to competitors that have relatively less indebtedness; |
| ● | limit our flexibility in planning for, or reacting to, changes in business and the industry in which we operate; and | |
| ● | limit our ability to borrow additional funds, or to dispose of assets to raise funds, if needed, for working capital, capital expenditures, acquisitions, research and development and other corporate purposes. |
We may incur significant additional indebtedness in the future. If we incur a substantial amount of additional indebtedness, the related risks that we face could become more significant. Additionally, the terms of any future debt that we may incur may impose requirements or restrictions that further affect our financial and operating flexibility or subject us to other events of default.
Our revenues are dependent upon acceptance of our technology and products by the market; the failure of which would cause us to curtail or cease operations.
We believe that most of our future revenues will come from the sale or license of our technology and systems. As a result, we will continue to incur substantial operating losses until such time as we are able to generate revenues from the sale or license of our technology and systems. There can be no assurance that businesses and prospective customers will adopt our technology and systems, or that businesses and prospective customers will agree to pay for or license our technology and systems. In the event that we are not able to develop a customer base that purchases or licenses our technology and systems, or if we are unable to charge the necessary prices or license fees, our financial condition and results of operations will be materially and adversely affected.
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We will need to increase the size of our organization and may experience difficulties in managing growth.
We are a small company with a minimal number of employees. We expect to experience a period of significant expansion in headcount, facilities, infrastructure and overhead and anticipate that further expansion will be required to address potential growth and market opportunities. Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate managers. Our future financial performance and our ability to compete effectively will depend, in part, on our ability to manage any future growth effectively.
We may not be able to successfully license our technology and commercialize our products which would result in continued losses and may require us to curtail or cease operations.
We are currently developing our new business model, Water On Demand. We are unable to project when we will achieve profitability, if at all. We cannot assure that our executive resources will be able to develop our systems fast enough to meet market requirements. We can also not assure that our systems will gain market acceptance and that we will be able to successfully commercialize the business model. The failure to successfully develop and commercialize the business model would result in continued losses and may require us to curtail or cease operations.
If a competitor were to achieve a business breakthrough, our operations and business could be negatively impacted.
There currently exist a number of businesses that are in the business of delivering turnkey “water-as-a-service” systems. Should a competitor achieve a breakthrough, we may have difficulty attracting sales. Furthermore, competitors may have access to larger resources (capital or otherwise) that provide them with an advantage in the marketplace, which could result in a negative impact on our business.
In addition, because we are the master licensee of only five issued patents, we may not be able to preclude development of even directly competing technologies using the same methods, materials and procedures as we use to achieve our results. Any of these competitive forces may inhibit or materially adversely affect our ability to attract customer licensees, or to obtain royalties or other fees from our customer licensees. This could have a material adverse effect on our business, prospects, results of operation and financial condition.
Our long-term success depends on developing a novel outsourcing model, and we face the risks inherent in a performance-based business model.
While our engineering and technology divisions are profitable, we are developing a new business in the Design-Build-Own-Operate sector, known as Water On Demand. We may not be able to generate revenue through the financing and management of these systems, and our long-term success depends on the performance and oversight of these systems. We expect that the amount of payments we may receive will be based upon the performance of our operating partners, and so we will be dependent on the successful operations of these partners for a significant portion of our revenues. We face risks inherent in such a delegated business model, many of which are outside of our control, including those arising from our reliance on the management and operating capabilities of our operating partners and the cyclicality of supply and demand for end-products produced using this business model. Should our managed contracts fail to achieve sufficient profitability in their operations, our payments would be diminished and our results of operations, cash flows and financial condition could be adversely affected, and any such effects could be material.
We rely on strategic partners.
We rely on strategic partners to manage our planned outsourced systems. Should our strategic partners not regard us as significant to their own businesses, they could reduce their commitment to us or terminate their relationship with us, pursue competing relationships or attempt to develop or acquire processes that compete with ours. Any such action could materially adversely affect our business.
A lack of government subsidies may hinder the usefulness of our technology.
We assemble and sell complete engineered solutions, and products, using the expertise and knowhow of PWT and MWS. Subsidies of any of the industries vary and may be reduced or eliminated, which could have a material adverse effect on our business. Likewise, regulations may become more onerous which also could have a material adverse effect on our business.
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The industries in which we operate may endure deflationary cycles, affecting our ability to sell and license our systems.
It is possible that industry sector collapses and other deflationary events may impact our business materially and adversely.
If we lose key employees and consultants or are unable to attract or retain qualified personnel, our business could suffer.
Our success is highly dependent on our ability to attract and retain qualified scientific, engineering and management personnel. We are highly dependent on our management, including T. Riggs Eckelberry, who has been critical to the development of our technology and business. The loss of the services of Mr. Eckelberry would have a material adverse effect on our operations. We do not have an employment agreement with Mr. Eckelberry. Accordingly, there can be no assurance that he will remain associated with us. His efforts will be critical to us as we continue to develop our technology and as we attempt to transition to a company with profitable commercialized products and services. If we were to lose Mr. Eckelberry, or any other key employees or consultants, we may experience difficulties in competing effectively, developing our technology and implementing our business strategies.
Competition from other companies in our market may affect the market for our technology.
New companies are constantly entering the market, thus increasing the competition. Larger foreign owned and domestic companies which have been engaged in prefabricated or modular water systems or Design-Build-Own-Operate (DBOO) for substantially longer periods of time may have access to greater financial and other resources. These companies may have greater success in the recruitment and retention of qualified employees, as well as in conducting their own manufacturing and marketing operations, which may give them a competitive advantage. In addition, actual or potential competitors may be strengthened through the acquisition of additional assets and interests. If we or our customers are unable to compete effectively or adequately respond to competitive pressures, this may materially adversely affect our results of operation and financial condition.
An occurrence of an uncontrollable event such as the COVID-19 pandemic may negatively affect our operations.
On March 11, 2020, the World Health Organization declared the current outbreak of a novel coronavirus disease 2019 (“COVID-19”) to be a global pandemic. The COVID-19 outbreak led (and may continue to lead) to disruptions in the global economy, including extreme volatility in the stock market and capital markets.
The occurrence of an uncontrollable event such as the COVID-19 pandemic may negatively affect our operations. A pandemic typically results in social distancing, travel bans and quarantine, and this may limit access to our facilities, customers, management, support staff and professional advisors. These factors, in turn, may not only impact our operations, financial condition and demand for our goods and services but our overall ability to react timely to mitigate the impact of this event. Also, it may hamper our efforts to comply with our filing obligations with the Securities and Exchange Commission.
Risks Related to Our Intellectual Property
If we fail to establish, maintain and enforce intellectual property rights with respect to our technology, our financial condition, results of operations and business could be negatively impacted.
Our ability to establish, maintain and enforce intellectual property rights with respect to the technology that we have acquired under master license will be a significant factor in determining our future financial and operating performance. We seek to protect our intellectual property rights by relying on a combination of trade secret and copyright laws, and the licensing of external patents. We also use confidentiality and other provisions in our agreements that restrict access to and disclosure of our confidential know-how and trade secrets.
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Outside of licensed patents, we seek to protect our technology and business model as trade secrets and technical know-how. However, trade secrets and technical know-how are difficult to maintain and do not provide the same legal protections provided by patents. In particular, only patents will allow us to prohibit others from using independently developed technology that is similar. If competitors develop knowledge substantially equivalent or superior to our trade secrets and technical know-how, or gain access to our knowledge through other means such as observation of our technology that embodies trade secrets at customer sites which we do not control, the value of our trade secrets and technical know-how would be diminished.
While we strive to maintain systems and procedures to protect the confidentiality and security of our trade secrets and technical know-how, these systems and procedures may fail to provide an adequate degree of protection. For example, although we generally enter into agreements with our employees, consultants, advisors, and strategic partners restricting the disclosure and use of trade secrets, technical know-how and confidential information, we cannot provide any assurance that these agreements will be sufficient to prevent unauthorized use or disclosure. In addition, some of the technology deployed at customer sites in the future, which we do not control, may be readily observable by third parties who are not under contractual obligations of non-disclosure, which may limit or compromise our ability to continue to protect such technology as a trade secret.
Monitoring and policing unauthorized use and disclosure of intellectual property is difficult. If we learned that a third party was in fact infringing or otherwise violating our intellectual property, we may need to enforce our intellectual property rights through litigation. Litigation relating to our intellectual property may not prove successful and might result in substantial costs and diversion of resources and management attention.
From our customer licensees’ standpoint, the strength of the intellectual property under which we intend to grant licenses can be a critical determinant of the value of these licenses. If we are unable to secure, protect and enforce our intellectual property, it may become more difficult for us to attract new customers. Any such development could have a material adverse effect on our business, prospects, financial condition and results of operations.
Although we have filed various patent applications for some of our original technologies, some have been abandoned or transferred. In some cases we have opted to protect our intellectual property through a trade secrets policy.
We protect our intellectual property through a combination of patents and trade secrets. Trade secrets do not provide the same level of protection as patents and patents may not provide meaningful protection or commercial advantage. In the US, patents only provide protection for a 20-year period starting from the filing date and the longer a patent application takes to issue the less time there is to enforce it. Further, the claims under any patents that issue from our applications may not be broad enough to prevent others from developing technologies that are similar or that achieve similar results. It is also possible that the intellectual property rights of others will bar us from licensing our technology and bar us or our future licensees from exploiting any patents that issue from our pending applications. Numerous U.S. and foreign issued patents and pending patent applications owned by others exist in the fields in which we have developed and are developing our technology. These patents and patent applications might have priority over our patent applications and could subject our patent applications to invalidation. Finally, in addition to those who may claim priority, any patents that issue from our applications may also be challenged by our competitors on the basis that they are otherwise invalid or unenforceable.
We may face claims that we are violating the intellectual property rights of others.
We may face claims, including from direct competitors, other water companies, scientists or research universities, asserting that our business models, technology or the commercial use of such technology infringe or otherwise violate the intellectual property rights of others. We have not conducted infringement, freedom to operate or landscape analyses, and as a result we cannot be certain that our technologies and processes do not violate the intellectual property rights of others. We expect that we may increasingly be subject to such claims as we begin to earn revenues and our market profile grows.
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We may also face infringement claims from the employees, consultants, agents and outside organizations we have engaged to develop our technology. While we have sought to protect ourselves against such claims through contractual means, we cannot provide any assurance that such contractual provisions are adequate, and any of these parties might claim full or partial ownership of the intellectual property in the technology that they were engaged to develop.
If we were found to be infringing or otherwise violating the intellectual property rights of others, we could face significant costs to implement work-around methods, and we cannot provide any assurance that any such work-around would be available or technically equivalent to our current technology. In such cases, we might need to license a third party’s intellectual property, although any required license might not be available on acceptable terms, or at all. If we are unable to work around such infringement or obtain a license on acceptable terms, we might face substantial monetary judgments against us or an injunction against continuing to license our technology, which might cause us to cease operations.
In addition, even if we are not infringing or otherwise violating the intellectual property rights of others, we could nonetheless incur substantial costs in defending ourselves in suits brought against us for alleged infringement. Also, if any license agreements provide that we will defend and indemnify our customer licensees for claims against them relating to any alleged infringement of the intellectual property rights of third parties in connection with such customer licensees’ use of our technologies, we may incur substantial costs defending and indemnifying any customer licensees to the extent they are subject to these types of claims. Such suits, even if without merit, would likely require our management team to dedicate substantial time to addressing the issues presented. Any party bringing claims might have greater resources than we do, which could potentially lead to us settling claims against which we might otherwise prevail on the merits.
Any claims brought against us or any customer licensees alleging that we have violated the intellectual property of others could have negative consequences for our financial condition, results of operations and business, each of which could be materially adversely affected as a result.
Risks Related to Our Common Stock
Our common stock could be further diluted as the result of the issuance of additional shares of common stock, convertible securities, warrants or options.
We have issued common stock, convertible securities (such as convertible debentures, convertible preferred stock, and notes) and warrants in order to raise money, some of which have anti-dilution and other similar protections. We have also issued incentive compensation for our employees and directors. We have shares of common stock reserved for issuance upon the exercise of certain of these securities and may increase the shares reserved for these purposes in the future. Our issuance of additional common stock, convertible securities, options and warrants could affect the rights of our stockholders, result in a reduction in the overall percentage holdings of our stockholders, could put downward pressure on the market price of our common stock, could result in adjustments to conversion and exercise prices of outstanding notes and warrants, and could obligate us to issue additional shares of common stock to certain of our stockholders.
Our chief executive officer owns the majority of the voting power of our shareholders.
As the holder of our outstanding shares of Series C Preferred Stock, our chief executive officer, T. Riggs Eckelberry has 51% of the voting power of the Company’s shareholders. As a result, Mr. Eckelberry has the ability to control all matters submitted to shareholders, and his interests may differ from those of other shareholders.
We have created various series of preferred stock and our articles of incorporation allow for our board to create additional new series of preferred stock without further approval by our stockholders, which could adversely affect the rights of the holders of our common stock.
Our Board of Directors has the authority to fix and determine the relative rights and preferences of preferred stock. Our Board of Directors has the authority to issue additional shares of our preferred stock without further stockholder approval. Our board of directors has created various series of preferred stock and may create additional series in the future with various preferential rights over the common stock.
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Our issuance of common stock upon conversion of outstanding preferred stock will result in dilution to our stockholders.
We have outstanding various series of preferred stock that are convertible into common stock, including varies series that are convertible into common stock at variable conversion prices and which in some cases entitle certain prior investors to certain make-good shares (see Note 3 to the financial statements included in this report). Our issuance of common stock upon conversion of outstanding preferred stock will result in dilution to holders of our common stock, which may have a negative effect on the price of our common stock.
There is a limited public market for our common stock.
Our common stock is not listed on any national securities exchange. Accordingly, investors may find it more difficult to buy and sell our shares than if our common stock was traded on an exchange. Although our common stock is quoted on the OTC Pink, it is an unorganized, inter-dealer, over-the-counter market which provides significantly less liquidity than the NASDAQ Capital Market or other national securities exchange. These factors may have an adverse impact on the trading and price of our common stock. And our common stock may be less attractive for margin loans, for investment by financial institutions, as consideration in future capital raising transactions or other purposes.
The price of our common stock is volatile, which may cause investment losses for our stockholders.
The market for our common stock is highly volatile and subject to wide fluctuations in response to, among other things, quarterly variations in operating and financial results, and general economic and market conditions. In addition, statements or changes in opinions, ratings, or earnings estimates made by brokerage firms or industry analysts relating to our market or relating to us could result in an immediate and adverse effect on the market price of our common stock. The highly volatile nature of our stock price may cause investment losses for our shareholders. In the past, securities class action litigation has often been brought against companies following periods of volatility in the market price of their securities. If securities class action litigation is brought against us, such litigation could result in substantial costs while diverting management’s attention and resources.
Shares eligible for future sale may adversely affect the market.
From time to time, certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), subject to certain limitations. In general, pursuant to Rule 144, non-affiliate stockholders may sell freely after six months subject only to the current public information requirement. Affiliates may sell after six months subject to the Rule 144 volume, manner of sale (for equity securities), and current public information and notice requirements. Any substantial sales of our common stock pursuant to Rule 144 may have a material adverse effect on the market price of our common stock.
Our stock is subject to the penny stock rules, which impose significant restrictions on broker-dealers and may affect the resale of our stock.
Our common stock has been subject to the provisions of Section 15(g) and Rule 15g-9 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), commonly referred to as the “penny stock” rule. Section 15(g) sets forth certain requirements for transactions in penny stocks and Rule 15g-9(d)(1) incorporates the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act. The SEC generally defines penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. Rule 3a51-1 provides that any equity security is considered to be penny stock unless that security is: registered and traded on a national securities exchange meeting specified criteria set by the SEC; issued by a registered investment company; excluded from the definition on the basis of price (at least US $5.00 per share) or the registrant’s net tangible assets; or exempted from the definition by the Securities and Exchange Commission (“SEC”). Our common stock is considered to be a “penny stock.” The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in “penny stocks.” As our common stock is considered to be “penny stock,” trading in our common stock is subject to additional sales practice requirements on broker-dealers who sell penny stock to persons other than established customers and accredited investors. This may reduce the liquidity and trading volume of our shares.
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Financial Industry Regulatory Authority, Inc. (“FINRA”) sales practice requirements may limit a shareholder’s ability to buy and sell our common shares.
In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
If we fail to maintain effective internal controls over financial reporting, the price of our common stock may be adversely affected.
Our internal control over financial reporting may have weaknesses and conditions that could require correction or remediation, the disclosure of which may have an adverse impact on the price of our common stock. We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely affect our public disclosures regarding our business, prospects, financial condition or results of operations. In addition, management’s assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting or disclosure of management’s assessment of our internal controls over financial reporting may have an adverse impact on the price of our common stock.
We are required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act of 2002 and if we fail to comply in a timely manner, our business could be harmed, and our stock price could decline.
Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require an annual assessment of internal controls over financial reporting, and for certain issuers an attestation of this assessment by the issuer’s independent registered public accounting firm. The standards that must be met for management to assess the internal controls over financial reporting as effective are evolving and complex, and require significant documentation, testing, and possible remediation to meet the detailed standards. We expect to incur significant expenses and to devote resources to Section 404 compliance on an ongoing basis. It is difficult for us to predict how long it will take or how costly it will be to complete the assessment of the effectiveness of our internal control over financial reporting for each year and to remediate any deficiencies, if any, in our internal controls over financial reporting. As a result, we may not be able to complete the assessment and remediation process on a timely basis. In addition, although attestation requirements by our independent registered public accounting firm are not presently applicable to us, we could become subject to these requirements in the future, and we may encounter problems or delays in completing the implementation of any resulting changes to internal controls over financial reporting. In the event that our Chief Executive Officer or Chief Financial Officer determine that our internal controls over financial reporting is not effective as defined under Section 404, we cannot predict how regulators will react or how the market prices of our shares will be affected; however, we believe that there is a risk that investor confidence and share value may be negatively affected.
We do not intend to pay dividends on our common stock.
We do not anticipate paying cash dividends on our common stock in the foreseeable future. We may not have sufficient funds to legally pay dividends. Even if funds are legally available to pay dividends, we may nevertheless decide in our sole discretion not to pay dividends. The declaration, payment and amount of any future dividends will be made at the discretion of our board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors our board of directors may consider relevant. In addition, we have outstanding various series of preferred stock that are entitled to dividends prior to payment of any dividends on our common stock.
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ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM 2. PROPERTIES.
Our principal corporate offices are located at 13575 58th Street North, Suite 200, Clearwater, FL 33760. Our Dallas based subsidiary, PWT, rents an approximately 12,000 square foot facility located at 2535 E. University Drive, McKinney, TX 75069, with a current monthly rent of $8,500. We believe these facilities are suitable and adequate to meet our current business requirements.
ITEM 3. LEGAL PROCEEDINGS.
On July 12, 2023, the Company entered into a Confidential Settlement and Mutual Release Agreement (the “Settlement Agreement”) with Auctus Fund, LLC (“Auctus”) relating to the settlement and release of certain pending legal actions arising out of various loans and agreements between the Company and Auctus. Pursuant to the terms of the Settlement Agreement, the Company and Auctus have resolved all outstanding legal disputes and claims between them. The appeal that was pending in the United States Court of Appeals for the First Circuit and trial matter in the United States District Court for the District of Massachusetts have been terminated and all transactions and obligations thereunder between the Company and Auctus are null and void. The terms and conditions of the Settlement Agreement are confidential and have no impact on the financial condition or operations of the Company.
On or around March 5, 2024, Progressive Water Treatment, Inc. was named as a defendant in a case filed by Process Solutions, Inc (“PSI”). The case was filed in the Court of Common Pleas in Hamilton County, Ohio. The complaint alleges that PWT breached a contract with PSI and alleges damages of $143,674.82 plus attorneys fees. PWT has removed the case to federal court, denies the claims in the complaint and intends to enforce a binding arbitration provision between the parties and to bring counter claims against PSI for failing to pay PWT for services rendered.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock is quoted on the OTC Markets Pink Open Market under the symbol “OCLN”.
The market price of our common stock, like that of other technology companies, is highly volatile and is subject to fluctuations in response to variations in operating results, announcements of technological innovations or new products, or other events or factors. Our stock price may also be affected by broader market trends unrelated to our performance.
Holders
As of April 17, 2024, we had approximately 564 holders of record of our common stock. This number does not include beneficial owners whose shares are held in the names of various security brokers, dealers, and registered clearing agencies.
Dividend Policy
We have never paid any cash dividends on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future. We intend to retain future earnings, if any, to fund ongoing operations and future capital requirements of our business. Any future determination to pay cash dividends will be at the discretion of the board of directors and will be dependent upon our financial condition, results of operations, capital requirements and such other factors as the board of directors deems relevant. In addition, we have outstanding various series of preferred stock that are entitled to dividends prior to any payment of dividends on the common stock.
Recent Sales of Unregistered Securities
There were no sales of unregistered securities during the fiscal year ended December 31, 2023 other than those transactions previously reported to the SEC on our quarterly reports on Form 10-Q and current reports on Form 8-K.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
ITEM 6. RESERVED.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
The following discussion and analysis should be read together with our financial statements and the related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. See “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under “Risk Factors” and elsewhere in this Annual Report on Form 10-K.
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.
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Recently Issued Accounting Pronouncements
Management adopted a recently issued accounting pronouncement during the year ended December 31, 2023, as disclosed in the Notes to the financial statements included in this report.
Revenue Recognition
We recognize revenue when services are performed, and at the time of shipment of products, provided that evidence of an arrangement exists, title and risk of loss have passed to the customer, fees are fixed or determinable, and collection of the related receivable is reasonably assured.
Revenues and related costs on construction contracts are recognized as the performance obligations for work are satisfied over time in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. Under ASC 606, revenue and associated profit, will be recognized as the customer obtains control of the goods and services promised in the contract (i.e., performance obligations). All un-allocable indirect costs and corporate general and administrative costs are charged to the periods as incurred. However, in the event a loss on a contract is foreseen, the Company will recognize the loss as it is determined. Revisions in cost and profit estimates during the course of the contract are reflected in the accounting period in which the facts for the revisions become known. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions, and final contract settlements, may result in revisions to costs and income, which are recognized in the period the revisions are determined.
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 of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include estimates used to review the Company’s goodwill, impairments and estimations of long-lived assets, revenue recognition on percentage of completion type contracts, allowances for uncollectible accounts, inventory valuation, valuations of non-cash capital stock issuances and the valuation allowance on deferred tax assets. The Company bases its estimates on historical experience and on various other assumptions that the Company believes 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 December 31, 2023, the amounts reported for cash, prepaid expenses, accounts payable and accrued expenses approximate the fair value because of their short maturities.
Presentation of Financial Statements - Discontinued Operations
In accordance with ASC 205-20, a disposal of a component or a group of components should be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when a component of or group of components meets the initial criteria for classification of held for sale to be classified as held for sale.
Since the proposed business combination of WODI with FRLA meets all the initial criteria for classification of held for sale, the assets, liabilities and operating results of WODI have been classified as held-for-sale in the periods ending December 31, 2023 and financial statements of the prior year ending in December 31, 2022 have been adjusted to reflect comparable. (See Note 3).
The following discussion relates to the Company’s comparative analysis of the continuing operations only for the years ended December 31, 2023 and December 31, 2022.
Results of Continuing Operations for the years ended December 31, 2023 and 2022.
| Year Ended | ||||||||
| December 31, 2023 |
December 31, 2022 |
|||||||
| Revenue | $ | 26,292 | $ | 26,292 | ||||
| Cost of Goods Sold | - | - | ||||||
| Operating Expenses, Depreciation and Amortization | 5,427,852 | 5,978,415 | ||||||
| Loss from Continuing Operations before Other Income (Expense) | (5,401,560 | ) | (5,952,123 | ) | ||||
| Other Income (Expense) | 8,707,253 | (4,514,272 | ) | |||||
| Net Income (Loss) from continuing operations | $ | (11,625,783 | ) | $ | (10,790,721 | ) | ||
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Revenue and Cost of Sales
Revenue for the year ended December 31, 2023 and 2022 was $26,292 and $26,292, respectively. There was no cost of sales for the year ended December 31, 2023 and 2022, respectively.
Operating Expenses
Selling and Marketing Expenses
Selling and Marketing (“S&M”) expenses for the years ended December 31, 2023 and 2022, were $2,382,753 and $2,618,083, respectively. The decrease in selling and marketing expenses was primarily due to a decrease in marketing and investor relations expense.
General Administrative Expenses
General administrative (“G&A”) expenses for the years ended December 31, 2023 and 2022, were $3,018,782 and $3,215,934, respectively. General and administrative expenses decreased primarily due to a decrease in non-cash outside services expense.
Depreciation Expense
Depreciation expense for the years ended December 31, 2023 and 2022, were $26,317 and $30,398, respectively.
Other Income and Expenses
Other income and (expenses) increased by $13,221,525 to $8,707,253 for the year ended December 31, 2023, compared to $(4,514,272) for the year ended December 31, 2022. The increase was predominantly the result of an increase in gain on redemption of common stock in the amount of $7,499,390, an increase in the fair value of the derivatives in the amount of $4,888,920, a gain on write off of loans payable in the amount of $143,064, unrealized gain on investment securities in the amount of $196,836, settlement for non-conversion of common stock in the amount of $13,500, gain on conversion of preferred in the amount of $434,380, and interest expense of $95,435, with a decrease in impairment of receivable in the amount of $50,000.
Net Income (Loss)
Our net loss increased by $835,062 to $(11,625,783) for the year ended December 31, 2023, compared to net loss of $(10,790,721) for the year ended December 31, 2022. The majority of the increase in net loss was due primarily to an increase in other income and expenses and net change in derivative instruments estimated each period. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price, volatility, variable conversion prices based on market prices defined in the respective agreements and probabilities of certain outcomes based on managements’ estimates. These inputs are subject to significant changes from period to period, therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.
Liquidity 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.
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The 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 consolidated financial statements do not reflect any adjustments that might result if we are unable to continue as a going concern. During the year ended December 31, 2023, total cash used in operations was $5,513,658. As of December 31, 2023, we had a working capital deficit of $32,249,892 and a shareholders’ deficit of $39,263,958. These factors, among others raise substantial doubt about our ability to continue as a going concern. Our independent auditors, in their report on our audited financial statements for the year ended December 31, 2023 expressed substantial doubt about our ability to continue as a going concern. The ability of us to continue as a going concern and the appropriateness of using the going concern basis is dependent upon, among other things, additional cash infusion. We have obtained funds from investors in the year ended December 31, 2023, and have standing purchase orders and open invoices with customers and we are pursuing various financing alternatives to fund the Company’s operations so it can continue as a going concern in the medium to long term. Management believes this funding will continue from our current investors and new investors. There can be no assurance that such funding will be available to the Company in the amount required at any time or, if available, that it can be obtained on terms satisfactory to the Company. Management believes the existing shareholders, the prospective new investors and current and future revenue will provide the additional cash needed to meet our obligations as they become due and will allow the development of our core business operations.
At December 31, 2023 and December 31, 2022, we had cash of $114,640 and $790,697, respectively, and working capital deficit of $32,249,892 and $14,245,179, respectively. The increase in working capital deficit was due primarily to an increase in convertible promissory notes.
During the year ended December 31, 2023, we raised a net aggregate of $610,450 in offerings of preferred stock and $6,923,000 in convertible secured promissory notes. Our ability to continue as a going concern is dependent upon raising capital from financing transactions and future revenue, however, there cannot be any assurance that we will be able to raise additional capital from financings.
Net cash used in operating activities was $(5,513,658) for the year ended December 31, 2023, compared to $(4,648,365) for the year ended December 31, 2022. The increase in cash used in operating activities was due primarily to an increase in accrued expenses.
Net cash flows (used in) investing activities for the year ended December 31, 2023 and 2022 were $(3,746,985) and $(1,158,904), respectively. The net decrease in cash used in investing activities was primarily due to an increase in purchase of SPAC notes payable.
Net cash flows provided by financing activities was $8,394,659 for the year ended December 31, 2023, as compared to $6,455,662 for the prior year ended December 31, 2022. The increase in cash provided by financing activities was primarily due to proceeds from secured promissory notes.
We do not have any material commitments for capital expenditures during the next twelve months. Although our proceeds from the issuance of convertible debt 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 expand our operations. Therefore, our future operations are dependent on our ability to secure additional financing. 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, we may have to curtail our marketing and development plans and possibly cease our operations.
We have estimated our current average burn and believe that we have assets to ensure that we can function without liquidation for a limited time, due to our cash on hand, growing revenue, and our ability to raise money from our investor base. Based on the aforesaid, we believe we have the ability to continue our operations for the immediate future and will be able to realize assets and discharge liabilities in the normal course of operations. However, there cannot be any assurance that any of the aforementioned assumptions will come to fruition and as such we may only be able to function for a short time.
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Recent Trends
Known trends, demands, commitments, events, or uncertainties that are reasonably likely to cause reported financial information not to be necessarily indicative of future operating results is set forth throughout this Report.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required for smaller reporting companies.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
All financial information required by this Item is attached hereto at the end of this report beginning on page F-1 and is hereby incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Pursuant to Rules 13a-15(b) and 15-d-15(b) under the Exchange Act, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the principal executive officer and principal financial officer of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. The term “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 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 recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls 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’s management, including its principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Based on that evaluation and due to the lack of segregation of duties due to small Company staff size, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were ineffective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the required time periods specified in the Commission’s rules and forms and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. To address the deficiency, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
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Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2023. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013). A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the registrant’s financial reporting.
Management identified control deficiencies regarding the lack of segregation of duties due to small staff size and the need for a stronger internal control environment. The small size of the Company’s staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of such remediation. The Company added additional resources and internal controls to help mitigate the above deficiency.
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 year ended December 31, 2023 that has materially affected, or are reasonably likely to materially affect, our 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.
No Attestation Report by Independent Registered Accountant
The effectiveness of our internal control over financial reporting as of December 31, 2023 has not been audited by our independent registered public accounting firm by virtue of our exemption from such requirement as a smaller reporting company.
ITEM 9B. OTHER INFORMATION.
ITEM 9C. DISCLORES REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth the names and ages of the members of our board of directors and our executive officers and the positions held by each.
| Name | Age | Position | ||
| T. Riggs Eckelberry | 72 | Chief Executive Officer, Chairman of the Board of Directors, Secretary, Treasurer, and President | ||
| Prasad Tare | 49 | Chief Financial Officer | ||
| Tom Marchesello | 54 | Chief Operating Officer | ||
| Anthony Fidaleo | 65 | Director | ||
| Jean-Louis Kindler | 61 | Director | ||
| Byron Elton | 69 | Director |
T. Riggs Eckelberry - Chief Executive Officer, Chairman of the Board of Directors, Secretary, Treasurer, and President
Mr. Eckelberry has served as our Chief Executive Officer, Chairman, Secretary, Treasurer, and President since our inception in June 2007. As co-founder, Mr. Eckelberry brings his veteran technology management skills to the Blue Technology sector. As President and COO of CyberDefender Corporation from 2005 to 2006, he was instrumental in building the company and its innovative product line, helping to achieve initial funding and a NASDAQ IPO. From 2001 to mid-2005, he helped launch and turn around technology companies as founder and President of TechTransform, a technology consulting firm. In 2004, he was a key member of the team that commercialized YellowPages.com, resulting in its sale for $100 million to SBC/BellSouth. In 2003, he helped make Panda Software a key player in the US market as the General Manager of its US unit. During the high-tech boom of the 1990s, he was responsible for the global brand success of the software product, CleanSweep; as Chief Operating Officer of MicroHouse Technologies, he helped to achieve a successful sale of the company to Earthweb; and he was a key member of the team that sale of venture-backed TriVida to what is now a division of ValueClick: (VCLK). During Mr. Eckelberry’s early career in the non-profit sector, he received a master’s license for oceangoing vessels. As one of the founders of the Company and a veteran executive, Mr. Eckelberry’s experience and qualifications are essential to the board of directors.
Prasad Tare – Chief Financial Officer
Mr. Tare was named CFO in June 2021. Mr. Tare brings 15+ years of experience in public accounting, financial reporting, risk and internal controls advisory services. His skillset includes company-wide risk assessments to improve focus to critical areas as well as more efficient and effective audit activities. Mr. Tare started his career with PwC India, where he was part of the financial statements’ assurance teams for various multi-national companies. In 2004, he moved to the United States where he has worked for top regional and national public accounting and consulting firms. He also led external audit engagements for large public companies like Steve Madden, The United Retail Group, and Double-Take Software.
Tom Marchesello – Chief Operating Officer
Mr. Marchesello was named COO in June 2019. For the five years prior to joining the Company, Mr. Marchesello operated as an executive-level Business Consultant, specializing in environmental, social and governance (ESG) corporate strategy, operations, & investor relations to private-equity funded portfolio companies in high technology & industrial manufacturing industries. Prior to that, he was Director of M&A with Bainbridge. Mr. Marchesello served in the U.S. Air Force as a Captain at Air Force Space Command headquarters, leading aerospace operations and strategic planning for satellite communications, earth science monitoring and Geographic Information (GIS) and Positioning (GPS) Systems. After leaving the service, Mr. Marchesello worked in finance and high technology operations for 20 years with such companies as Sony Electronics, Thompson Reuters, Morgan Stanley, Bainbridge and CME Group. Mr. Marchesello holds a BS in Finance from Pennsylvania State University and an MBA from San Diego State University and holds US Patent #7,613,634, for performing Electronic Retailing. He received two Air Force Achievement Medals, two Air Force Commendation Medals and a Gulf War Service Medal.
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Anthony Fidaleo – Director
Mr. Fidaleo has served as our director since June 2012. Mr. Fidaleo has run his own accounting and consulting practice since 1992, primarily as an acting Chief Financial Officer or Senior Consultant for publicly traded companies ranging from start-ups to Fortune 500 companies. From November 2005 to February 2009 Mr. Fidaleo was the Chief Financial Officer, Chief Operating Officer, Executive Vice President and Member of the Board of Directors and Operating Committee for iMedia International, Inc. an early stage publicly traded interactive content solutions company. Mr. Fidaleo is a California CPA (inactive) and was in public accounting from 1982 through 1992, primarily with BDO Seidman, LLP where he attained the level of audit senior manager. Mr. Fidaleo holds a B.S. degree in Accounting from California State University at Long Beach. Mr. Fidaleo’s accounting and financial experience qualifies him to serve as a member of our board of directors.
Jean-Louis Kindler – Director
Mr. (“JL”) Kindler has served as our director since December 2013. As President of OriginClear Technologies, he led the commercialization of OriginClear’s breakthrough water treatment technology. Since 2019, he has been the CEO of Clean Energy Enterprises Inc., established to commercialize the Blue Tower biomass-to-hydrogen system he helped develop two decades ago in Japan. Mr. Kindler is a veteran of 25 years as both a top executive and engineer in environmental technologies. Before OriginClear, JL was co-founder and Chief Technology Officer of Ennesys, the company’s French joint venture, where he designed its patent-pending waste-to-energy system. Earlier, as founding CEO of MHS Equipment, a French nanotechnologies equipment manufacturing firm (42 M€, 360 employees in 2008), he led the development of a breakthrough fuel cell process. And earlier still, his twenty-year career in Japan gave him unique insight into fast-growing Asian markets. There, as principal of technology incubator Pacific Junction, JL completed various assignments. These included technology sourcing for the French industrial group GEC-Altshom, building the first commercial unit of the Blue Tower (to which he has recently returned in its now-fourth generation), and market development for a fluids mixing technology that helped inspire early OriginClear inventions. Mr. Kindler holds a Master’s in Economics and Public Policy from the Institute of Political Science in Lyon, France, and an MBA in International Management in Paris. Mr. Kindler’s executive and management experience, and past involvement in the company’s technology and operations, qualifies him to serve as a member of our board of directors.
Byron Elton – Director
Mr. Elton has served as our director since January 2014. Mr. Elton is an experienced media and marketing executive with a proven record in pioneering new business development strategies and building top-flight marketing organizations. Since June 2018, he has been President of Elton Enterprises, Inc., which is involved in the wellness, fitness and health sector. Elton is currently opening six StretchLab Studios in the Los Angeles and Seattle markets (stretchlab.com). He is a co-founder since June 2017 of Pardue Associates, operating monsho, a brand-centric, creative communications agency focused on delivering results. From 2013 to 2017, Mr. Elton was a partner of Clear Search, an executive search firm. Prior to that, from 2009 until 2013, Mr. Elton served as President and Chief Executive Officer of Carbon Sciences, Inc. (“Carbon Sciences”) (OTCBB: CABN) and has served as Chairman of Carbon Sciences since March 2009. Carbon Sciences is an early stage company developing a technology to convert earth destroying carbon dioxide into a useful form that will not contribute to greenhouse gas. Mr. Elton previously served as Senior Vice President of Sales for Univision Online from 2007 to 2008. Mr. Elton also served for eight years as an executive at AOL Media Networks from 2000 to 2007, where his assignments included Regional Vice President of Sales for AOL and Senior Vice President of E-Commerce for AOL Canada. His broadcast media experience includes leading the ABC affiliate in Santa Barbara, California in 1995 to 2000 and the CBS affiliate in Monterrey, California, from 1998 to 1999, in addition to serving as President of the Alaskan Television Network from 1995 to 1999. Mr. Elton studied Advertising and Marketing Communications at Brigham Young University. Mr. Elton’s executive and management experience qualifies him to serve as a member of our board of directors.
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Family Relationships
There are no family relationships among any of our directors and executive officers.
Legal Proceedings
During the past ten years, none of our directors or executive officers has been:
| ● | the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; |
| ● | convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
| ● | subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or any Federal or State authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; |
| ● | found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law; |
| ● | the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of (a) any Federal or State securities or commodities law or regulation; (b) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or (c) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
| ● | the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Election of Directors
Our directors hold office until the expiration of the term for which he or she was elected and until a successor has been elected and qualified.
Board Independence
We currently have four directors serving on our board of directors. We are not a listed issuer and, as such, are not subject to any director independence standards. Using the definition of “independent director,” as defined by Section 5605(a)(2) of the rules of the NASDAQ Capital Market, Anthony Fidaleo, Jean-Louis Kindler and Byron Elton would be considered independent directors.
Board of Directors Meetings and Attendance
The Board of Directors held four meetings in 2023, as well as acted by unanimous written consent. All Board members were present at all of the meetings. We have no formal policy regarding director attendance at the annual meeting of stockholders.
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Committees of the Board of Directors
We have established an audit committee and compensation committee however we have not yet nominated any members to such committees. To date, our entire board has performed all of the duties and responsibilities which might be contemplated by a committee.
Code of Ethics
We have adopted a code of business conduct and ethics that applies to all our directors, officers (including our Chief Executive Officer, Chief Financial Officer and any person performing similar functions) and employees. We have made our Code of Ethics available on our website at https://www.originclear.com/investing#codeofethics.
Board Leadership Structure and Role in Risk Oversight
Although we have not adopted a formal policy on whether the Chairman and Chief Executive Officer positions should be separate or combined, we have traditionally determined that it is in our best interests and our shareholders to combine these roles. Mr. Eckelberry has served as our Chairman since our inception in 2007. Due to the small size of the Company, we believe it is currently most effective to have the Chairman and Chief Executive Officer positions combined. Our board of directors receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our company’s assessment of risks.
Our board of directors focuses on the most significant risks facing us and our general risk management strategy, and also ensures that risks undertaken by us are consistent with the Board’s appetite for risk. While the Board oversees our risk management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing us.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the compensation to our Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer for the years ended 2023 and 2022:
| Salary | Bonus | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | Non-qualified Deferred Compensation Earnings | All Other Compensation | Total | ||||||||||||||||||||||||||||
| Name and Principal Position | Year | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ||||||||||||||||||||||||||
| T. Riggs Eckelberry, | 2023 | 370,000 | 50,000 | - | - | - | - | 3,000 | 423,000 | ||||||||||||||||||||||||||
| Chairman of the Board, Secretary & Treasurer, President and CEO | 2022 | 360,000 | - | - | - | - | - | 3,000 | 363,000 | ||||||||||||||||||||||||||
| Prasad Tare, (1) | 2023 | 180,000 | 18,750 | - | - | - | - | 3,000 | 201,750 | ||||||||||||||||||||||||||
| Chief Financial Officer | 2022 | 180,000 | 10,000 | - | - | - | - | 3,000 | 193,000 | ||||||||||||||||||||||||||
| Tom Marchesello, | 2023 | 150,000 | - | - | - | - | - | - | 150,000 | ||||||||||||||||||||||||||
| Chief Operating Officer | 2022 | 150,000 | - | - | - | - | - | - | 150,000 | ||||||||||||||||||||||||||
28
Outstanding Equity Awards at 2023 Fiscal Year-End
There were no stock options outstanding as of December 31, 2023.
Employment Agreements
We currently do not have an employment agreement with our Chief Executive Officer, Mr. Eckelberry, who was paid an annual salary of $360,000, increased to $420,000 as of November 1, 2023. Bonus payments, if any, are determined by the Board of Directors. For the year ended 2023, our Chief Executive Officer received a bonus in the amount of $50,000. We currently do not have an employment agreement with our Chief Financial Officer, Mr. Tare who is paid an annual salary of $180,000. For the year ended 2023, our Chief Financial Officer received a bonus in the amount of $18,750. We currently do not have an employment agreement with our Chief Operating Officer, Mr. Marchesello, who is paid an annual salary of $150,000.
Employee Benefit Plans
Beginning June 1, 2008, we implemented a company health plan for our employees.
Compensation of Directors
Our current directors presently do not receive monetary compensation for their service on the board of directors. Directors may receive compensation for their services in the future and reimbursement for their expenses as shall be determined from time to time by resolution of the board of directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth certain information regarding the beneficial ownership of our common stock as of April 17, 2024, by (i) each director, (ii) each named executive officer, (iii) all directors and executive officers as a group, and (iv) each person who beneficially owns more than five percent of our common stock. Beneficial ownership is determined in accordance with the rules of the SEC. The percentage ownership of each beneficial owner is based on 1,517,699,125 outstanding shares of common stock. Except as indicated, each person listed below has sole voting and investment power with respect to the shares set forth opposite such person’s name.
| Name and Title of Beneficial Owner (1) | Number of Shares Beneficially Owned | Percentage of Shares | ||||||
| T. Riggs Eckelberry, Chief Executive Officer, Chairman, Secretary, Treasurer, President (2) | 4,657,515 | * | ||||||
| Prasad Tare, Chief Financial Officer | 1,903,439 | * | ||||||
| Tom Marchesello, Chief Operating Officer | 4,540,662 | * | ||||||
| Anthony Fidaleo, Director | 168 | * | ||||||
| Byron Elton, Director | 166 | * | ||||||
| Jean-Louis Kindler, Director | 1 | * | ||||||
| Directors and executive officers as a group (5 persons) | 11,101,951 | * | ||||||
| Ronald Von Soosten | 101,700,224 | 6.8 | % | |||||
| Marc Stevens | 107,988,978 | 7.2 | % | |||||
| Stephen St Angelo | 77,943,662 | 5.2 | % | |||||
| * | Less than 1% |
| (1) | The address of each director and named executive officer listed above is c/o OriginClear, Inc., 13575 58th Street North, Suite 200, Clearwater, FL 33760. |
| (2) | Mr. Eckelberry also owns all the 1,000 outstanding shares of our Series C preferred stock which entitles Mr. Eckelberry to 51% of the total voting power on all shareholder matters of the Company. The ownership of these shares is conditioned on the holder’s continued position as CEO. |
29
On March 15, 2017, the Company filed a Certificate of Designation for its Series C preferred stock with the Secretary of State of Nevada (the “Certificate of Designation”) designating 1,000 shares of its authorized preferred stock as Series C preferred stock. The shares of Series C preferred stock have a par value of $0.0001 per share. The Series C preferred shares do not have a dividend rate or liquidation preference and are not convertible into shares of common stock.
For so long as any shares of the Series C preferred stock remain issued and outstanding, the holders thereof, voting separately as a class, shall have voting power equal to 51% of the total vote (representing a super majority voting power) on all shareholder matters of the Company. Such vote shall be determined by the holder(s) of a majority of the then issued and outstanding shares of Series C preferred stock.
The shares of the Series C preferred stock shall be automatically redeemed by the Company at their par value on the first to occur of the following triggering events: (i) on the date that Mr. Eckelberry ceases, for any reason, to serve as officer, director or consultant of the Company, or (ii) on the date that the Company’s shares of common stock first trade on any national securities exchange provided that the listing rules of any such exchange prohibit preferential voting rights of a class of securities of the Company, or listing on any such national securities exchange is conditioned upon the elimination of the preferential voting rights of the Series C preferred stock set forth in the Certificate of Designation.
Equity Compensation Plan Information
There were no stock option incentive plans outstanding as of December 31, 2023.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Except as set forth in Item 11 under “Executive Compensation”, since January 1, 2020, there has not been, nor is there any proposed transaction where we were or will be a party in which the amount involved exceeded or will exceed $120,000 and in which any director, executive officer, holder of more than 5% of any class of our voting securities, or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit Fees
The following table shows fees that were billed by our independent registered public accounting firm for professional services rendered, including services rendered for Company subsidiaries, in 2023 and 2022. Audit fees represent fees for professional services performed by M&K CPAS, PLLC (“M&K”) for the audit of our financial statements and the review of our quarterly financial statements, as well as services that are normally provided in connection with statutory and regulatory filings or engagements. We engaged M&K as our independent registered public accounting firm on September 30, 2019.
| Fiscal Year | Audit Fees | Audit- Related Fees | Tax Fees | All Other Fees | ||||||||||||
| 2023 – M&K CPAS, PLLC | $ | 113,250 | $ | - | $ | - | $ | - | ||||||||
| 2022 – M&K CPAS, PLLC | $ | 98,550 | $ | - | $ | - | $ | - | ||||||||
Audit-Related Fees
We did not incur assurance and audit-related fees during 2023 and 2022, to M&K CPAS, as applicable, nor in connection with the audit of our financial statements for the reviews of registration statements and issuance of related consents and assistance with SEC comment letters except for fees incurred relating to Company’s regulation A offering included in Audit Fees above.
Tax Fees
We did not incur fees for tax compliance, tax advice, or tax planning for the fiscal years ended December 31, 2023 and 2022, respectively.
All Other Fees
There were no fees billed to us by M&K CPAS, as applicable, for services rendered to us during the fiscal years ended December 31, 2023 and 2022, respectively, other than the services described above under “Audit Fees” and “Audit-Related Fees.”
As of the date of this filing, our current policy is to not engage our independent registered public accounting firm to provide, among other things, bookkeeping services, appraisal or valuation services, or international audit services. The policy provides that we engage our independent registered public accounting firm to provide audit and other assurance services, such as review of SEC reports or filings, as set forth above.
30
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
| * | Filed herewith |
| ** | Furnished herewith |
| (1) | Incorporated by reference to the Company’s Form SB-2 filed with the SEC on December 11, 2007. |
| (2) | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on July 20, 2011. |
31
| (3) | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on June 14, 2012. |
| (4) | Incorporated by reference to the Company’s Current Report on Form 10-Q filed with the SEC on August 14, 2014. |
| (5) | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on April 16, 2015. |
| (6) | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on October 6, 2015. |
| (7) | Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on April 4, 2016. |
| (8) | Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2016 filed with the SEC on August 15, 2016. |
| (9) | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2017. |
| (10) | Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2017. |
| (11) | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on April 12, 2017. |
| (12) | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on June 30, 2017. |
| (13) | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on December 6, 2017. |
| (14) | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on March 2, 2021. |
| (15) | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on June 2, 2021. |
| (16) | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on May 4, 2021. |
| (17) | Incorporated by reference to the Company’s Annual Report on Form 10-K filed for the Fiscal Year ended December 31, 2017 filed with the SEC on April 17, 2018. |
| (18) | Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2018 and filed with the SEC on August 14, 2018. |
| (19) | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on August 20, 2018. |
| (20) | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on January 22, 2019. |
| (21) | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on April 9, 2019. |
| (22) | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on October 31, 2019. |
| (23) | Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2019 filed with the SEC on August 19, 2019. |
| (24) | Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the Quarter ended March 31, 2020 filed with the SEC on July 6, 2020. |
| (25) | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on May 1, 2020. |
| (26) | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on August 27, 2020. |
| (27) | Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2020 filed with the SEC on November 23, 2020. |
| (28) | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on February 10, 2021. |
| (29) | Incorporated by reference to the Company’s Annual Report on Form 10-K for the Year ended December 31, 2018 filed with the SEC on April 25, 2019. |
| (30) | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on December 7, 2021. |
| (31) | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on August 17, 2021. |
| (32) | Incorporated by reference to the Company’s Annual Report on Form 10-K for the Year ended December 31, 2022 filed with the SEC on April 7, 2022. |
| (33) | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on February 17, 2022. |
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
| ORIGINCLEAR, INC. | ||
| By: | /s/ T Riggs Eckelberry | |
| T Riggs Eckelberry | ||
| Chief Executive Officer (Principal Executive Officer) | ||
| By: | /s/ Prasad Tare | |
| Prasad Tare | ||
| Chief Financial Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.
| Date: April 18, 2024 | By: | /s/ T Riggs Eckelberry |
| T Riggs Eckelberry | ||
| Director and Chief Executive Officer |
| Date: April 18, 2024 | By: | /s/ Prasad Tare |
| Prasad Tare | ||
| Chief Financial Officer |
| Date: April 18, 2024 | By: | /s/ Anthony Fidaleo |
| Anthony Fidaleo | ||
| Director |
| Date: April 18, 2024 | By: | /s/ Jean-Louis Kindler |
| Jean-Louis Kindler | ||
| Director |
| Date: April 18, 2024 | By: | /s/ Byron Elton |
| Byron Elton | ||
| Director |
33
INDEX TO FINANCIAL STATEMENTS
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of OriginClear, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of OriginClear, Inc. (the Company) as of December 31, 2023 and 2022, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2023, and the related consolidated notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company suffered a net loss from operations and used cash in operations, which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition
As discussed in Note 2, the Company recognizes revenue upon transfer of control of promised services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services.
Auditing management’s evaluation of agreements with customers involves significant judgment, given the fact that some agreements require management’s evaluation and allocation of the standalone transaction prices to the performance obligations.
To evaluate the appropriateness and accuracy of the assessment by management, we evaluated management’s assessment in relationship to the relevant agreements.
/s/
We have served as the Company’s auditor since 2019.
April 18, 2024
F-2
ORIGINCLEAR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| December 31, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Fair value investment in securities | ||||||||
| Prepaid expenses | ||||||||
| Current assets held-for-sale | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| Net property and equipment | ||||||||
| Net property and equipment held-for-sale | ||||||||
| NET PROPERTY AND EQUIPMENT | ||||||||
| OTHER ASSETS | ||||||||
| Long term assets held for sale | ||||||||
| Receivable on sale of asset | ||||||||
| Fair value investment-securities | ||||||||
| Trademark | ||||||||
| Non-current assets held for sale | ||||||||
| TOTAL OTHER ASSETS | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and other payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Cumulative preferred stock dividends payable | ||||||||
| Customer deposit | ||||||||
| Secured Loans payable | ||||||||
| Loan payable, SBA | ||||||||
| Derivative liabilities | ||||||||
| Series F 8% Preferred Stock, | ||||||||
| Series G 8% Preferred Stock, | ||||||||
| Series I 8% Preferred Stock, | ||||||||
| Series K 8% Preferred Stock, | ||||||||
| Convertible secured promissory notes (Note 5) | ||||||||
| Convertible promissory notes, net of discount of $ | ||||||||
| Current liabilities held-for-sale | ||||||||
| Total Current Liabilities | ||||||||
| Long Term Liabilities | ||||||||
| Convertible promissory notes, net of discount of $ | ||||||||
| Total Long Term Liabilities | ||||||||
| Total Liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES (See Note 13) | ||||||||
| Series J Convertible Preferred Stock, | ||||||||
| Series L Convertible Preferred Stock, | ||||||||
| Series M Preferred Stock, | ||||||||
| Series O 8% Convertible Preferred Stock, | ||||||||
| Series P Convertible Preferred Stock, | ||||||||
| Series Q 12% Convertible Preferred Stock, | ||||||||
| Series R 12% Convertible Preferred Stock, | ||||||||
| Series S 12% Convertible Preferred Stock, | ||||||||
| Series U Convertible Preferred Stock, | ||||||||
| Series W 12% Convertible Preferred Stock, | ||||||||
| Series X Convertible Preferred Stock, | ||||||||
| Series Y Convertible Preferred Stock, | ||||||||
| Series Z Convertible Preferred Stock, | ||||||||
| SHAREHOLDERS’ DEFICIT | ||||||||
| 1,000 and 1,000 shares of Series C issued and outstanding, respectively | - | - | ||||||
| Subscription payable for purchase of equipment | ||||||||
| Preferred treasury stock, | ||||||||
| Common stock, $ | ||||||||
| Additional paid in capital - Common stock | ||||||||
| Noncontrolling Interest | ( | ) | ||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL SHAREHOLDERS’ DEFICIT | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
F-3
ORIGINCLEAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
| Twelve Months Ended | ||||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Sales | $ | $ | ||||||
| Cost of Goods Sold | ||||||||
| Gross Profit | ||||||||
| Operating Expenses | ||||||||
| Selling and marketing expenses | ||||||||
| General and administrative expenses | ||||||||
| Impairment of asset for sale | ||||||||
| Depreciation and amortization expense | ||||||||
| Total Operating Expenses | ||||||||
| Loss from Operations | ( | ) | ( | ) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Impairment of receivable from SPAC | ( | ) | ||||||
| Gain on write off of loans payable | ||||||||
| Unrealized gain (loss) on investment securities | ( | ) | ||||||
| Gain (Loss) on conversion of preferred stock | ( | ) | ||||||
| Cash settlement for non-conversion of common stock | ( | ) | ||||||
| Gain (Loss) on redemption of common stock | - | |||||||
| Gain (Loss) on net change in derivative liability and conversion of debt | ( | ) | ||||||
| Interest and dividend expense | ( | ) | ( | ) | ||||
| TOTAL OTHER (EXPENSE) INCOME | ( | ) | ||||||
| Net income (loss) from continued operations | ( | ) | ||||||
| Net loss from assets held-for-sale | ( | ) | ( | ) | ||||
| NET LOSS | $ | ( | ) | $ | ( | ) | ||
| $ | $ | ( | ) | |||||
| $ | ( | ) | $ | ( | ) | |||
| $ | ( | ) | $ | ( | ) | |||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
F-4
ORIGINCLEAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
| TWELVE MONTHS ENDED DECEMBER 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock | Mezzanine | Common stock | Additional Paid-in- | Subscription | Other Comprehensive | Noncontrolling | Accumulated | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Equity | Shares | Amount | Capital | Payable | loss | Interest | Deficit | Total | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| Common stock issuance for conversion of debt and accrued interest | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued at fair value for services | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series E Preferred stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series J Preferred stock | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series L Preferred stock | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series O Preferred stock | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series P Preferred stock | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series Q Preferred stock | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series R Preferred stock | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series T Preferred stock | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series U Preferred stock | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series W Preferred stock | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series Y Preferred stock | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for Series O Preferred stock dividends | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for make good shares for Series P Preferred stock | ( | ) | - | - | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued for make good shares for Series R Preferred stock | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion settlement | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Common stock returned from non conversion | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Common stock forfeited | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series Y Preferred stock through a private placement | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series Z Preferred stock through a private placement | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Exchange of Series F Preferred stock for Series Q Preferred stock | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Exchange of Series I Preferred stock for Series W Preferred stock | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Exchange of Series K Preferred stock for Series W Preferred stock | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Loss on conversion of Preferred stock | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Net Loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
F-5
| TWELVE MONTHS ENDED DECEMBER 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||||||||||||||||||||||
| Preferred stock | Mezzanine | Common stock | Paid-in- | Subscription | Comprehensive | Noncontrolling | Accumulated | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Equity | Shares | Amount | Capital | Payable | loss | Interest | Deficit | Total | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| Rounding | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for cash per equity financing agreement | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued upon conversion of convertible promissory note | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||
| Common stock issued at fair value for services | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series O Preferred stock | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series Q Preferred stock | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series R Preferred stock | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series S Preferred stock | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series U Preferred stock | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series W Preferred stock | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series Y Preferred stock | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series Z Preferred stock | ( | ) | - | |||||||||||||||||||||||||||||||||||||||||
| Common stock issued for Series O Preferred stock dividends | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of settlement agreements | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for alternative vesting | ||||||||||||||||||||||||||||||||||||||||||||
| Redemption of common stock for note purchase agreements | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Issuance of Series A and B Preferred stock granted to Series Y investors at fair value | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares for Reg A for cash | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Issuance of Series Y Preferred stock through a private placement | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Exchange of Series K Preferred stock for Series W Preferred stock | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Exchange of Series R Preferred stock for WODI secured convertible note | - | ( | ) | - | ||||||||||||||||||||||||||||||||||||||||
| Exchange of Series X Preferred stock for WODI secured convertible note | - | - | ( | ) | - | |||||||||||||||||||||||||||||||||||||||
| Return of investment for Series Y Preferred stock | - | ( | ) | - | ||||||||||||||||||||||||||||||||||||||||
| Issuance of warrants | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| - | ||||||||||||||||||||||||||||||||||||||||||||
| Net Loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
The accompany notes are an integral part of these unaudited condensed consolidated financial statements
F-6
ORIGINCLEAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
| Twelve Months Ended | ||||||||
| December 31, 2023 | December 31, 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Income (loss) from continuing operations | $ | $ | ( | ) | ||||
| Net loss related to assets held-for-sale | ( | ) | ( | ) | ||||
| Adjustment to reconcile net loss to net cash used in operating activities | ||||||||
| Depreciation and amortization | ||||||||
| Common and preferred stock issued for services | ||||||||
| Change in fair value of derivative liability | ( | ) | ||||||
| Shares issued for services, related party | ||||||||
| Preferred stock incentive compensation expense | ||||||||
| Debt discount recognized as interest expense | ||||||||
| Net unrealized (gain) loss on fair value of securities | ( | ) | ||||||
| Impairment of assets held for sale | ||||||||
| Impairment of receivable from SPAC | ||||||||
| Conversion and settlement value loss on WODI | ||||||||
| (Gain) Loss on conversion of preferred stock | ||||||||
| Gain on write off of payable | ( | ) | ( | ) | ||||
| Change in Assets (Increase) Decrease in: | ||||||||
| Contracts receivable | ( | ) | ||||||
| Contract asset | ( | ) | ||||||
| Inventory asset | ||||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Change in Liabilities Increase (Decrease) in: | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ||||||||
| Contract liabilities | ( | ) | ||||||
| Tax liability 83(b) | ( | ) | ||||||
| NET CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS USED FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of Class B Common Shares in SPAC | ( | ) | ||||||
| Purchase of SPAC notes payable | ( | ) | ( | ) | ||||
| Payments received on long term asset | ||||||||
| Purchase of fixed assets | ( | ) | ( | ) | ||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Payments on capital lease | ( | ) | ||||||
| Payments on loan payable, SBA | ( | ) | ||||||
| Proceeds from Line of credit | ||||||||
| Payments on Line of credit | ( | ) | ||||||
| Proceeds from loans, merchant cash advance | ||||||||
| Payments on loans, merchant cash advance | ( | ) | ||||||
| Equity financing purchase agreement | ||||||||
| Net payments on cumulative preferred stock dividends and distributions | ||||||||
| Convertible secured promissory notes | ||||||||
| Common stock issued for Reg A for cash | ||||||||
| Proceeds from issuance of warrants | ||||||||
| Net proceeds for issuance of preferred stock for cash - mezzanine classification | ||||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| NET (DECREASE) INCREASE IN CASH | ( | ) | ||||||
| CASH BEGINNING OF PERIOD | ||||||||
| CASH END OF PERIOD | $ | |||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Interest and dividends paid | $ | - | $ | |||||
| Taxes paid | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF NON CASH TRANSACTIONS | ||||||||
| Common stock issued at fair value for conversion of debt, plus accrued interest, and other fees | $ | $ | ||||||
| Issuance of Series O dividends | $ | $ | ||||||
| Preferred stock converted to common stock - mezzanine | $ | $ | ||||||
| Exchange of Series R preferred stock for WODI secured convertible note | $ | $ | ||||||
| Exchange of Series X preferred stock for WODI secured convertible note | $ | $ | ||||||
| Exchange from mezzanine to liability | $ | $ | ||||||
| Common stock issued as settlement | $ | $ | ||||||
| Conversion of preferred stock to common stock | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
F-7
ORIGINCLEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - AUDITED
DECEMBER 31, 2023 AND 2022
| 1. | ORGANIZATION AND LINE OF BUSINESS |
Organization
OriginClear, Inc. (the “Company”) was incorporated in the state of Nevada on June 1, 2007. The Company, which was then based in Los Angeles, California, began operations on June 1, 2007. The Company began its planned principal operations in December 2010, at which time it exited the development stage.
In December 2014, the Company formed a wholly owned subsidiary, OriginClear Technologies Limited (OCT), formerly OriginClear (HK) Limited in Hong Kong, China. The Company granted OCT a master license for the People’s Republic of China. In turn, OCT was expected to license regional joint ventures for water treatment. On January 22, 2020 the Company entered into a strategic partnership with Permionics Separations Solutions, Inc., a unit of India’s Permionics Group (“Permionics”) for the Asia-Pacific Region and terminated all activities of OCT in Hong Kong, China, working instead with Permionics when applicable. As of December 31, 2023, OCT has limited assets and no current operations.
On October 1, 2015, the Company completed
the acquisition of
On July 19, 2018, the Company announced the launch of its Modular Water Treatment Division - Modular Water Systems (“MWS”). MWS designs, manufactures and implements advanced prepackaged wastewater treatment, pump stations and custom systems with primary focus on decentralized opportunities away from the very competitive large municipal wastewater treatment plants. These decentralized opportunities include: rural communities, housing developments, industrial sites, schools and many more.
In May 2020, the Company relocated its principal offices to 13575 58th Street North, Suite 200, Clearwater, FL 33760.
On April 13, 2021, the Company announced formation of a wholly-owned subsidiary called Water On Demand #1, Inc. (“WOD #1”) to launch its newly incubated outsourced water treatment business called Water On Demand (“WOD”). The WOD model intends to offer private businesses water self-sustainability as a service - the ability to pay for water treatment and purification services on a per-gallon basis. This is commonly known as Design-Build-Own-Operate or “DBOO”.
On May 10, 2021, the Company announced that it had filed “System And Method For Water Treatment Incentive”, a patent application for using blockchain technology and non-fungible tokens (NFT) to simplify the distribution of payments on outsourced water treatment and purification services billed on a pay-per-gallon basis ahead of inflation. On May 16, 2021, the Company applied for a registered trademark for the mark $H2O as the blockchain system representing this activity. As of December 31, 2023, there is no plan to actively develop a blockchain-based asset. The Company is aware of a high level of regulatory oversight in this area, and if implementation of $H20 is delayed or terminated altogether by reason of regulatory issues, it will employ traditional payment systems.
In November 2021, additional Water on Demand (WOD) subsidiaries - Water On Demand #2, Inc. (“WOD #2”), Water On Demand #3, Inc. (“WOD #3”), Water On Demand #4, Inc. (“WOD #4”) were separately created to permit optional segmenting of capital pools according to strategic partnerships. The Company has now simplified this structure by placing all funds in WOD #1 and tracking the partnerships within that company. As they are subject to a security guaranty by the Company, the WOD Subsidiaries, and the capital raised for them through the Company’s Series Y offering, shall continue to be held by the Company and made available for use by WODI, to be deployed, subject to a planned management contract.
F-8
On April 13, 2022, the Company’s Board of Directors approved the plan to spin off its WOD business into a newly formed wholly-owned subsidiary, Water On Demand Inc. (“WODI”), which will hold the assets, liabilities, intellectual property and business operations of the WOD business. WODI is designed to select projects, fully qualify them, provide financing for DBOO service contracts, and thereafter manage assets, contracts, clients, investors, strategic partners and vendors.
On December 22, 2022, WODI entered
into a Membership Interest Purchase and Transfer Agreement (the “Purchase Agreement”) with Ka Wai Cheung, Koon Lin Chan, and
Koon Keung Chan (each a “Seller”, and collectively, the “Sellers”) and Fortune Rise Sponsor LLC, a Delaware limited
liability company (the “Sponsor”), pursuant to which WODI purchased 100 membership interests in the Sponsor (“Purchased
Interests”) from the Sellers, which constitutes
On January 5, 2023, WODI signed a non-binding Letter of Intent with Fortune Rise Acquisition Corporation, a Delaware corporation (“Fortune Rise”), under which Fortune Rise proposes to acquire all the outstanding securities of WODI, based on certain material financial and business terms and conditions being met.
On February 7, 2023, Fortune Rise Acquisition
Corporation (Nasdaq: FRLA) and OriginClear Inc. announced that WODI deposited $
In a meeting on April 10, 2023, FRLA shareholders agreed to a final extension of the period of time it has to consummate its initial business combination by an additional six months from May 5, 2023 to November 5, 2023.
On September 21, 2023, WODI entered into a merger agreement with PWT whereby WODI was merged with PWT. The merger of these entities was completed to create better enterprise value for a potential merger opportunity with FRLA. In connection with the merger with WODI, PWT changed its name to Water on Demand, Inc.
On September 28, 2023, the Letter of Intent (“LOI”) executed on January 5, 2023 with WODI was amended to designate PWT as the new target of the acquisition. Under the amended LOI, FRLA proposed to acquire all the outstanding securities of the new combined WODI/PWT entity, based on certain material financial and business terms and conditions being met. The LOI is not binding on the parties and is intended solely to guide good-faith negotiations toward definitive agreements.
On October
24, 2023 FRLA and WODI entered into a definitive business combination agreement (the “BCA”). The transaction represents a
pro forma equity valuation of approximately $
On October 25, 2023, at the Special Meeting, FRLA shareholders approved a proposal to extend the period of time FRLA has to consummate its initial business combination by an additional one year from November 5, 2023 to November 5, 2024, by up to twelve one-month extensions, subject to certain conditions.
On February 14, 2024, WODI and Fortune Rise Acquisition Corporation (Nasdaq: FRLA), filed a registration statement on Form S-4 with the SEC which includes a preliminary proxy statement and prospectus in connection with the proposed business combination with WODI.
F-9
Line of Business
OriginClear was founded as OriginOil® in 2007 and began trading on the OTC in 2008. In 2015, it was renamed as OriginClear® to reflect its new mission to develop breakthrough businesses in the industrial water sector. Today, OriginClear structures itself as the Clean Water Innovation Hub™ and intends to use its well-developed retail investor development capabilities to help bring potentially disruptive companies to market. For the foreseeable future, however, OriginClear intends to devote its entire capabilities to the success of its subsidiary, Water On Demand, Inc. (WODI).
In 2023, OriginClear combined three of its operating divisions into the single WODI subsidiary, in anticipation of a merger of such subsidiary with Fortune Rise Acquisition Corp (“FRLA”) a Special Purpose Acquisition Company. The definitive merger agreement between WODI and FRLA was announced on October 24, 2023: https://www.originclear.com/company-news/originclears-water-on-demand-and-fortune-rise-acquisition-corporation-announce-business-combination-to-create-nasdaq-listed-company.
WODI is composed of three operating units, Modular Water Systems (“MWS”), Progressive Water Treatment (“PWT”), and Water on Demand (“WOD”), the last being a development stage business.
| ● | PWT is responsible for a significant percentage of the Company’s revenue, specializing in engineered water treatment solutions and custom treatment systems. |
| ● | MWS houses a worldwide, exclusive master license to the intellectual property of Daniel M. Early, consisting of five patents and related intellectual property, know-how and trade secrets (“Early IP”). In April 2023, OriginClear commissioned a valuation of the Early IP. MWS, features products differentiated by the Early IP and complemented with additional knowhow and trade secrets. |
| ● | WOD is an incubation of the Company which intends to offer private businesses water self-sustainability as a service - the ability to pay for water treatment and purification services on a per-gallon basis. This is commonly known as Design-Build-Own-Operate (“DBOO”). |
Going Concern
The accompanying financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The accompanying financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. These factors, among others raise substantial doubt about the Company’s ability to continue as a going concern. Our independent auditors, in their report on our audited financial statements for the year ended December 31, 2023 expressed substantial doubt about our ability to continue as a going concern.
The
ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other
things, achieving a level of profitable operations and receiving additional cash infusions. During the year ended December 31, 2023,
the Company obtained funds from the issuance of convertible note agreements and from sale of its preferred stock. Management believes
this funding will continue from its’ current investors and from new investors. The Company generated revenue of $
| 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.
F-10
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of OriginClear, Inc. and its subsidiaries Water On Demand, Inc. (‘WODI’), (which consists of operating divisions Progressive Water Treatment, Modular Water Systems and Water On Demand), Water On Demand #1, Inc., and OriginClear Technologies, Ltd. All material intercompany transactions have been eliminated upon consolidation of these entities.
Cash and Cash Equivalent
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Concentration Risk
Cash includes amounts deposited in financial institutions in excess of insurable Federal Deposit Insurance Company (FDIC) limits. At times throughout the year, the Company may maintain cash balances in certain bank accounts in excess of FDIC limits. As of December 31, 2023, there was no cash balance in excess of the FDIC limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in these accounts.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include estimates used to review the Company’s impairments and estimations of long-lived assets, revenue recognition on percentage of completion type contracts, allowances for uncollectible accounts, warranty reserves, inventory valuation, derivative liabilities and other conversion features, fair value investments, valuations of non-cash capital stock issuances and the valuation allowance on deferred tax assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Net Earnings (Loss) per Share Calculations
Basic loss per share calculation is
computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares available. Diluted
earnings per share is computed similarly to basic earnings per share except that the denominator is increased to include securities or
other contracts to issue common stock that would have been outstanding if the potential common shares had been issued and if the additional
common shares were dilutive.
Loss per share
| For the Years Ended | ||||||||
| 2023 | 2022 | |||||||
| Income (Loss) to common shareholders (Numerator) – continuing operations | $ | $ | ( | ) | ||||
| Loss to common shareholders (Numerator) – related to assets held-for sale | $ | ( | ) | ( | ) | |||
F-11
| Anti-dilutive shares | Dilutive shares | |||||||
| December 31, 2023 | ||||||||
| Warrant shares | ||||||||
| Convertible debt shares | ||||||||
| Preferred shares | ||||||||
| December 31, 2022 | ||||||||
| Warrant shares | ||||||||
| Convertible debt shares | ||||||||
| Preferred shares | ||||||||
Revenue Recognition
We recognize revenue when services are performed, and at the time of shipment of products, provided that evidence of an arrangement exists, title and risk of loss have passed to the customer, fees are fixed or determinable, and collection of the related receivable is reasonably assured.
Revenues and related costs on construction contracts are recognized as the performance obligations for work are satisfied over time in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. Under ASC 606, revenue and associated profit, will be recognized as the customer obtains control of the goods and services promised in the contract (i.e., performance obligations). All un-allocable indirect costs and corporate general and administrative costs are charged to the periods as incurred. However, in the event a loss on a contract is foreseen, the Company will recognize the loss as it is determined.
Revisions in cost and profit estimates during the course of the contract are reflected in the accounting period in which the facts for the revisions become known. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions, and final contract settlements, may result in revisions to costs and income, which are recognized in the period the revisions are determined.
Contract receivables are recorded on contracts for amounts currently due based upon progress billings, as well as retention, which are collectible upon completion of the contracts. Accounts payable to material suppliers and subcontractors are recorded for amounts currently due based upon work completed or materials received, as are retention due subcontractors, which are payable upon completion of the contract. General and administrative expenses are charged to operations as incurred and are not allocated to contract costs.
Contract Receivable
The Company bills its customers in
accordance with contractual agreements. The agreements generally require billing to be on a progressive basis as work is completed. Credit
is extended based on evaluation of clients financial condition and collateral is not required. The Company maintains an allowance for
doubtful accounts for estimated losses that may arise if any customer is unable to make required payments. Management performs a quantitative
and qualitative review of the receivables past due from customers on a monthly basis. The Company records an allowance against uncollectible
items for each customer after all reasonable means of collection have been exhausted, and the potential for recovery is considered remote.
The allowance for doubtful accounts was $
F-12
Indefinite Lived Intangibles and Goodwill Assets
The Company accounts for business combinations under the acquisition method of accounting in accordance with ASC 805, “Business Combinations,” where the total purchase price is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values. The purchase price is allocated using the information currently available, and may be adjusted, up to one year from acquisition date, after obtaining more information regarding, among other things, asset valuations, liabilities assumed and revisions to preliminary estimates. The purchase price in excess of the fair value of the tangible and identified intangible assets acquired less liabilities assumed is recognized as goodwill.
The Company tests for indefinite lived intangibles and goodwill impairment in the fourth quarter of each year and whenever events or circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable. In accordance with its policies, the Company performed a qualitative assessment of indefinite lived intangibles and goodwill at December 31, 2023 and 2022, and determined there was no impairment of indefinite lived intangibles and goodwill.
Prepaid Expenses
The
Company records expenditures that have been paid in advance as prepaid expenses. The prepaid expenses are initially recorded as assets,
because they have future economic benefits, and are expensed at the time the benefits are realized. The prepaid expenses balance was $
Advertising Costs
The Company expenses the cost of advertising
and promotional materials when incurred. The advertising costs were $
Property and Equipment
Property and equipment are stated at
cost. Gain or loss is recognized upon disposal of property and equipment, and the asset and related accumulated depreciation are removed
from the accounts.
| Estimated Life | ||
| Machinery and equipment | ||
| Furniture, fixtures and computer equipment | ||
| Vehicles | ||
| Leasehold improvements |
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Machinery and Equipment | $ | $ | ||||||
| Computer Equipment | ||||||||
| Furniture | ||||||||
| Leasehold Improvements | ||||||||
| Vehicles | ||||||||
| Demo Units | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Net Property and Equipment | $ | $ | ||||||
Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the event that the facts and circumstances indicate that the cost of any long-lived assets may be impaired, an evaluation of recoverability would be performed following generally accepted accounting principles.
F-13
Depreciation
expense during the year ended December 31, 2023 and 2022, was $
Other Assets
| Assets Held for Sale – Continuing Operations |
On
March 1, 2021, the Company issued an aggregate of
The
real property was listed for sale beginning in July 2021. However, based on indicators of impairment, during the year ended December
31, 2021, the Company adjusted the original value of the asset for sale from $
During
the period ended December 31, 2022, after evaluating several offers, the Company considered an offer for $
In
January 2023, the Company accepted the offer and on April 8, 2023, a deed was executed for the sale of the property for $
| Stock-Based Compensation |
The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board whereas the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the Financial Accounting Standards Board whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option grants vest immediately and the total stock-based compensation charge is recorded in the period of the measurement date.
F-14
Accounting for Derivatives
The Company evaluates all its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a probability weighted average series Binomial lattice option pricing models to value the derivative instruments at inception and on subsequent valuation dates.
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not the net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Fair Value of Financial Instruments
Fair Value of Financial Instruments requires disclosure of the fair value information, whether or not to recognized in the balance sheet, where it is practicable to estimate that value. As of December 31, 2023, 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. |
| Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Investment at fair value-securities, December 31, 2023 | $ | $ | $ | $ | ||||||||||||
| Investment at fair value-securities, December 31, 2022 | $ | $ | $ | $ | ||||||||||||
F-15
| Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Derivative Liability, December 31, 2023 | $ | $ | $ | $ | ||||||||||||
| Derivative Liability, December 31, 2022 | $ | $ | $ | $ | ||||||||||||
The derivative liabilities consist
of $
| Balance as of January 1, 2023 | $ | |||
| Net loss on conversion of debt and change in derivative liabilities | ( | ) | ||
| Balance as of December 31, 2023 | $ |
| 12/31/2023 | 12/31/2022 | |||||||
| Risk free interest rate | ||||||||
| Stock volatility factor | ||||||||
| Weighted average expected option life | ||||||||
| Expected dividend yield |
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.
F-16
Reclassification
Certain amounts in the prior period financial statements have been reclassified to conform to the presentation used in the current financial statements for comparative purpose. There was no material effect on the Company’s previously issued financial statements.
Work-in-Process
The Company recognizes as an asset the accumulated costs for work-in-process on projects expected to be delivered to customers. Work in Process includes the cost price of materials and labor related to the construction of equipment to be sold to customers.
Recently Issued Accounting Pronouncements
Management reviewed currently issued pronouncements and does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the accompanying condensed financial statements.
| 3. | WODI Assets and Liabilities Held-for-Sale – Discontinuing Operations |
On September 21, 2023, WODI entered into a merger agreement with PWT whereby WODI was merged with PWT. The merger of these entities was completed to create better enterprise value for a potential merger opportunity with FRLA. In connection with the merger with WODI, PWT changed its name to Water on Demand, Inc.
On September 28, 2023,, the Letter of Intent (“LOI”) executed on January 5, 2023 with WODI was amended to designate PWT as the new target of the acquisition. Under the amended LOI, FRLA proposed to acquire all the outstanding securities of the new combined WODI/PWT entity, based on certain material financial and business terms and conditions being met. The LOI is not binding on the parties and is intended solely to guide good-faith negotiations toward definitive agreements.
On October
24, 2023 FRLA and WODI entered into a definitive business combination agreement (the “BCA”). The transaction represents a
pro forma equity valuation of approximately $
On October 25, 2023, at the Special Meeting, FRLA shareholders approved a proposal to extend the period of time FRLA has to consummate its initial business combination by an additional one year from November 5, 2023 to November 5, 2024, by up to twelve one-month extensions, subject to certain conditions.
On February 14, 2024, the Company and Fortune Rise Acquisition Corporation (Nasdaq: FRLA), filed a registration statement on Form S-4 with the SEC which includes a preliminary proxy statement and prospectus in connection with the proposed business combination with WODI.
In accordance with ASC 205-20, a disposal of a component or a group of components should be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when a component of or group of components meets the initial criteria for classification of held for sale to be classified as held for sale. Per the initial criteria for classification of held for sale, a component or a group of components, or a business or nonprofit activity (the entity to be sold), should be classified as held for sale in the period in which all of the following criteria are met:
| ● | Management, having the authority to approve the action, commits to a plan to sell the entity to be sold. |
| ● | The entity to be sold is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such entities to be sold. |
| ● | An active program to locate a buyer or buyers and other actions required to complete the plan to sell the entity to be sold have been initiated. |
| ● | The sale of the entity to be sold is probable (the future event or events are likely to occur), and transfer of the entity to be sold is expected to qualify for recognition as a completed sale, within one year, unless events or circumstances beyond an entity’s control extend the period required to complete the sale as discussed below. |
| ● | The entity to be sold is being actively marketed for sale at a price that is reasonable in relation to its current fair value. |
| ● | Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. |
F-17
Since the proposed business combination of WODI with FRLA, meets all the initial criteria for classification of held for sale, the assets, liabilities and operating results of WODI have been classified as held for sale in the period ending December 31, 2023 and financial statements of the prior year ending in December 31, 2022 have been adjusted to reflect comparable as follows:
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Contracts receivable, net allowance of $379,335 and $17,315, respectively (See Note 2) | ||||||||
| Contract assets (See Note 7) | ||||||||
| Total Current Assets Held-For-Sale | ||||||||
| NET PROPERTY AND EQUIPMENT HELD-FOR-SALE (See Note 2) | ||||||||
| NON-CURRENT ASSETS HELD-FOR SALE | ||||||||
| SPAC Class B common shares purchase cost (See Note 12) | ||||||||
| CURRENT LIABILITIES HELD-FOR-SALE | ||||||||
| Accounts payable and other payable | $ | $ | ||||||
| Accrued expenses (See Note 17) | ||||||||
| Contract liabilities (See Note 7) | ||||||||
| Tax liability 83(b) | ||||||||
| Customer deposit | ||||||||
| Warranty reserve | ||||||||
| Line of credit (See Note 13) | ||||||||
| Secured Loans payable (See Note 9) | ||||||||
| Convertible secured promissory notes (See Note 6) | ||||||||
| Total Current Liabilities Held-For-Sale | $ | $ | ||||||
Net Loss from Assets Held-For-Sale
| Twelve Months Ended | ||||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Sales (See Note 7) | $ | $ | ||||||
| Cost of Goods Sold | ||||||||
| Gross Profit | ||||||||
| Operating Expenses | ||||||||
| Selling and marketing expenses | ||||||||
| General and administrative expenses | ||||||||
| Depreciation and amortization expense | ||||||||
| Total Operating Expenses | ||||||||
| Income (Loss) from Operations | ( | ) | ||||||
| OTHER INCOME (EXPENSE) | ||||||||
| Other income | ||||||||
| Impairment of receivable from SPAC (See Note 12) | ( | ) | ( | ) | ||||
| Preferred stock incentive compensation (See Note 4) | ( | ) | ||||||
| Conversion and settlement value added to note purchase agreements (See Note 6) | ( | ) | ||||||
| Interest expense (See Note 6) | ( | ) | ( | ) | ||||
| TOTAL OTHER (EXPENSE) INCOME | ( | ) | ( | ) | ||||
| NET LOSS FROM ASSETS-HELD-FOR-SALE | $ | ( | ) | $ | ( | ) | ||
F-18
| 4. | CAPITAL STOCK |
OriginClear, Inc. Preferred Stock
Series C
On March 14, 2017, the Board of Directors
authorized the issuance of
Series D-1
On April 13, 2018, the Company designated
Series F
On August 14, 2018, the Company designated
F-19
Series G
On January 16, 2019, the Company designated
Series I
On April 3, 2019,
Series J
On April 3, 2019, the Company designated
Series K
On June 3, 2019, the Company designated
F-20
Series L
On June 3, 2019, the Company designated
Series M
Pursuant to the Amended and Restated
Certificate of Designation of Series M Preferred Stock filed with the Secretary of State of Nevada on July 1, 2020, the Company designated
Series O
On April 27, 2020, the Company designated
F-21
Series P
On April 27, 2020, the Company designated
Series Q
On August 21, 2020, the Company designated
Series R
On November 16, 2020, the Company designated
F-22
Series S
On February 5, 2021, the Company designated
Series U
On May 26, 2021, the Company designated
Series W
On April 28, 2021, the Company designated
F-23
Series X
On August 10, 2021, the Company designated
Series Y
On December 6, 2021, the Company
designated
Series Z
On
February 11, 2022, the Company designated
F-24
As of December 31, 2023, the Company
accrued aggregate dividends in the amount of $
During the year ended December 31,
2023, the Company redeemed an aggregate of
The Series J, Series L, Series M, Series O, Series P, Series Q, Series R, Series S, Series U, Series W, Series X, Series Y, and Series Z preferred stock are accounted for outside of permanent equity due to the terms of conversion at a market component or stated value of the preferred stock.
Water On Demand, Inc. (“WODI”) Preferred Stock
On April 22, 2022, WODI designated
Series A
On October 13, 2022, WODI designated
During the year ended December 31,
2023, WODI issued shares of its Series A preferred stock to certain holders of the Company’s Series Y preferred stock at par value
of $
Valuation
The Series A preferred shares were valued by an independent valuation expert based on a Probability Weighted Expected Return Methodology (“PWERM”) with an underlying Discounted Cash Flow (“DCF”) analysis.
The following parameters were considered in this analysis:
| 1. | Two settlement options – either a merger occurs with the SPAC and the likelihood of it occurring or the merger does not occur. |
F-25
| 2. | Three main tranches of valuation dates were considered based on the dates of bulk issuances of shares. |
| 3. | SPAC offer value – which was based on management’s representations of the terms under negotiation during the time of issuances. |
| 4. | Base value of WODI – which was supported by a market analysis completed by management at the time of implementing the Reg A offering and a subsequent increase in base value in Q3, 2023 based on the estimated fair value of the Modular Water Systems assets contributed to the business and merger with PWT. |
| 5. | Timing of a settlement event/conversion event for the Series A shares under the two settlement options. |
| 6. | The expected outstanding issuance of Series Y and convertible debt as of settlement |
| Valuation Date | Fair Value of shares | |||
| 12/28/2022 | $ | |||
| 02/08/2023 | $ | |||
| 06/15/2023 | $ | |||
| 08/21/2023 | $ | |||
For the shares issued during the year
ended December 31, 2023, an aggregate expense of $
Due to WODI’s merger with PWT on September 21, 2023 (See Note 11), all Series A preferred shares were fully converted to common stock in WODI. The shares were converted within the terms of the agreement and no gain or loss was recognized. As of December 31, 2023, there were 0 shares of Series A preferred stock issued and outstanding.
Series B
On April 28, 2023, WODI designated
F-26
Valuation
The Series B preferred shares were valued by an independent valuation expert based on a Probability Weighted Expected Return Methodology (“PWERM”) with an underlying Discounted Cash Flow (“DCF”) analysis.
The following parameters were considered in this analysis:
| 1. | Two settlement options - either a merger occurs with the SPAC and the likelihood of it occurring or the merger does not occur. |
| 2. | SPAC offer value – which was based on management’s representations of the terms under negotiation during the time of issuances. |
| 3. | Base value of WODI – which was supported by a market analysis completed by management at the time of implementing the Reg A offering and a subsequent increase in base value in Q3, 2023 based on the estimated fair value of the Modular Water Systems assets contributed to the business and the merger with PWT. |
| 4. | Timing of a settlement event/conversion event for the Series B shares under the two settlement options. |
| 5. | The expected outstanding issuance of Series Y and convertible debt as of settlement |
| Valuation Date | Fair Value of shares | |||
| 06/27/2023 | $ | |||
| 08/21/2023 | $ | |||
For the year ended December 31, 2023,
the shares granted in Q2 and Q3 were valued at $
Due to WODI’s merger with PWT
on September 21, 2023 (See Note 11), all Series B preferred shares were fully converted to common stock in WODI. The
shares were converted within the terms of the agreement and no gain or loss was recognized. As of December 31, 2023, there were
Series C
On October 13, 2022, the Board of Directors
authorized the issuance of
F-27
OriginClear, Inc. Common Stock
On October 20, 2022, the Company entered
into an Equity Financing Agreement (“Financing Agreement”) with GHS Investments, LLC (“GHS”), whereby GHS agreed
to purchase, at the Company’s sole discretion, up to $
Year ended December 31, 2023
The Company issued
The
Company issued
The
Company issued
The
Company issued
The Company issued 306,434,197 shares of common stock at par value for settlement of conversion agreements at a fair value of $30,644. These issuances were made to settle shareholder disputes regarding timing of the conversion of preferred shares into common shares. The shares were issued within the terms of the agreement and no gain or loss was recognized.
The
Company issued
The Company redeemed
Year ended December 31, 2022
The
Company issued
The
Company issued
F-28
The Company issued 179,090,390 shares of common stock for settlement of conversion agreements at a fair value of $17,909. These issuances were made to settle shareholder disputes regarding timing of the conversion of preferred shares into common shares. The shares were issued within the terms of the agreement and no gain or loss was recognized.
The
Company issued
Water On Demand, Inc. (‘WODI’) Common Stock
On February 17, 2023, the Securities and Exchange Commission qualified the Offering Circular for the offering of securities by WODI pursuant to Regulation A offering (the “Reg A offering”). The Reg A Offering was intended to accumulate capital for WODI to direct toward WOD projects.
On March 9, 2023, the Company announced that it launched a limited preview of the Reg A offering for WODI.
As of June 26, 2023 (the “Termination
date”), the Company suspended the sale of securities under the Reg A offering for WODI. As of the Termination Date, shares under
the Reg A offering were sold for total proceeds of $
Non-controlling Interest
| WODI common stock holders | Ownership % | |||
| OriginClear, Inc. | % | |||
| Prior Reg A Holders | % | |||
| Prior Series A Holders | % | |||
| Prior Series B Holders | % | |||
| Total | % | |||
F-29
| 5. | RESTRICTED STOCK GRANTS AND WARRANTS |
Restricted Stock Grants to CEO, the Board, Employees and Consultants
Between
On August 14, 2019, the Board of Directors approved an amendment to the RSGAs to include an alternative vesting schedule for the Grantees and on January 26, 2022, the Company amended the procedures for processing the RSGAs. 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 RSGAs, then the number of vested shares issuable (assuming all conditions are satisfied per terms of the alternative vesting schedule) 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 RSGAs. Shares are issued under the alternate vesting schedule per terms of the agreements after electing and qualifying requirements are met.
During
the year ended December 31, 2023, upon qualifying under the alternative vesting schedule, the Company issued an aggregate of
F-30
Warrants
| 2023 | 2022 | |||||||||||||||
| Number of Warrants | Weighted average exercise price | Number of Warrants | Weighted average exercise price | |||||||||||||
| Outstanding - beginning of year | $ | $ | ||||||||||||||
| Granted | $ | $ | ||||||||||||||
| Exercised | ||||||||||||||||
| Expired | ( | ) | $ | ( | ) | ( | ) | $ | ( | ) | ||||||
| Outstanding - end of year | $ | $ | ||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||
| Weighted Average | Weighted Average | |||||||||||||||||||||||||
| Remaining | Remaining | |||||||||||||||||||||||||
| Exercisable | Warrants | Warrants | Contractual | Warrants | Warrants | Contractual | ||||||||||||||||||||
| Prices | Outstanding | Exercisable | Life (years) | Outstanding | Exercisable | Life (years) | ||||||||||||||||||||
| $ | ||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||
At December 31, 2023 and 2022, the
aggregate intrinsic value of the warrants outstanding was $
During the year ended December 31,
2023, the Company sold an aggregate of
| 6. |
CONVERTIBLE PROMISSORY NOTES
OriginClear, Inc. |
| Convertible Promissory Notes | $ | |||
| Less current portion | ( | ) | ||
| Total long-term liabilities | $ |
F-31
On
various dates from November 2014 through April 2015, the Company issued unsecured convertible promissory notes (the “2014-2015 Notes”),
that matured on various dates and were extended for an additional sixty (60) months from the effective date of each Note. The 2014-2015
Notes bear interest at
The
unsecured convertible promissory notes (the “OID Notes”) had an aggregate remaining balance of $
The
Company issued various, unsecured convertible promissory notes (the “2015 Notes”), on various dates with the last of the 2015
Notes being issued in August 2015. The 2015 Notes matured and were extended from the date of each tranche through maturity dates ending
on February 2024 through March 2024, and April 2024 through August 2024. The 2015 Notes bear interest at
F-32
The
Company issued a convertible note (the “Dec 2015 Note”) in exchange for accounts payable in the amount of $
The
Company issued a convertible note (the “Sep 2016 Note”) in exchange for accounts payable in the amount of $
The
Company issued two (2) unsecured convertible promissory notes (the “Apr & May 2018 Notes”), in the aggregate amount of
$
The
Company entered into an unsecured convertible promissory note (the “Nov 20 Note”), on November 19, 2020 in the amount of $
F-33
The
Company entered into an unsecured convertible promissory note (the “Jan 21 Note”), on January 25, 2021 in the amount of $
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 for the convertible promissory notes as of December 31, 2023 was $
Water On Demand, Inc.
In
December 2022, WODI raised capital and issued convertible secured promissory notes in the amount of $
During the year ended December 31, 2023, WODI raised additional capital
of $
| 7. | REVENUE FROM CONTRACTS WITH CUSTOMERS |
Equipment Contracts
Revenues and related costs on equipment contracts are recognized as the performance obligations for work are satisfied over time in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. Under ASC 606, revenue and associated profit will be recognized as the customer obtains control of the goods and services promised in the contract (i.e., performance obligations). All un-allocable indirect costs and corporate general and administrative costs are charged to the periods as incurred. However, in the event a loss on a contract is foreseen, the Company will recognize the loss as it is determined.
F-34
| Years Ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Equipment Contracts | $ | $ | ||||||
| Component Sales | ||||||||
| Waste Water Treatment Systems | ||||||||
| Pump Stations | ||||||||
| Rental Income | ||||||||
| Services Sales | ||||||||
| Commission & Training | ||||||||
| $ | $ | |||||||
Revenue recognition for other sales arrangements, such as sales for components, and service sales will remain materially consistent.
Contract assets represents revenues
recognized in excess of amounts billed on contracts in progress. Contract liabilities represents billings in excess of revenues recognized
on contracts in progress. Assets and liabilities related to long-term contracts are included in current assets and current liabilities
in the accompanying balance sheets, as they will be liquidated in the normal course of the contract completion. The contract asset for
the years ending December 31, 2023 and 2022, was $
| 8. | FINANCIAL ASSETS |
Fair value investment in Securities
On May 15,
2018, the Company received
On
November 12, 2021, the Company served a conversion notice to WTII and was issued an aggregate of
| 9. | LOANS PAYABLE |
Secured Loans Payable
In
2018, the Company entered into short term loans with various lenders for capital expansion secured by the Company’s assets in the
amount of $
F-35
On
December 6, 2023, the Company entered into short term loan arrangement with a lender secured by the Company’s assets in the amount
of $
Small Business Administration Loan
On June 12, 2020, the Company received
an Economic Injury Disaster Loan (the “EIDL”) in the amount of $
| 10. | CAPITAL LEASES |
The Company entered into a capital
lease for the purchase of equipment during the year ended December 31, 2018. The lease was for a
| 11. | INCOME TAXES |
On December 22, 2017, the U.S. enacted
the Tax Cuts and Jobs Act (the “Act”), which significantly changed U.S. tax law. The Act lowered the Company’s U.S.
statutory federal income tax rate from
The Company files income tax returns in the U.S. Federal jurisdiction, and the state of California. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2019.
Included in the balance at December 31, 2023, are no tax positions for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.
The Company’s policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. During the periods ended December 31, 2023 and 2022, the Company did not recognize interest and penalties.
At December 31, 2023, the Company had net operating loss carry-forwards
of approximately $
| 2023 | 2022 | |||||||
| Book loss | $ | $ | ||||||
| Tax to book differences for deductible expenses | ( | ) | ||||||
| Tax non-deductible expenses | ( | ) | ( | ) | ||||
| Valuation Allowance | ( | ) | ( | ) | ||||
| Income tax expense | $ | $ | ||||||
F-36
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible differences and operating loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the difference between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
| 2023 | 2022 | |||||||
| Deferred tax assets: | ||||||||
| NOL carryover | $ | $ | ||||||
| Other carryovers | ||||||||
| Deferred tax liabilities: | ||||||||
| Depreciation | ( | ) | ( | ) | ||||
| Less Valuation Allowance | ( | ) | ( | ) | ||||
| Net deferred tax asset | $ | $ | ||||||
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry-forwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carry-forwards may be limited as to use in future years.
| 12. | WATER ON DEMAND INC. (‘WODI’) |
Water On Demand, Inc. (“WODI”) was incorporated in the state of Nevada on April 22, 2022. WODI, with the support of its parent, OriginClear, Inc (the “Company”), is developing a new outsourced water treatment business called “Water On Demand”: or “WOD”. The WOD model intends to offer private businesses the ability to pay for water treatment and purification services on a per-gallon basis. This is commonly known as Design-Build-Own-Operate or “DBOO”. WODI intends to work with regional water service companies to build and operate the water treatment systems it finances.
On
November 16, 2022, WODI filed a Form 1-A Offering Circular for an offering under Regulation A (the “Offering”) of the Securities
Act of 1933 with the U.S. Securities and Exchange Commission. The purpose of the Offering is to allow potential investors the opportunity
to invest directly in WODI. The Offering has a minimum investment of $
On
December 22, 2022, WODI entered into a Membership Interest Purchase and Transfer Agreement (the “Purchase Agreement”) with
Ka Wai Cheung, Koon Lin Chan, and Koon Keung Chan (each a “Seller”, and collectively, the “Sellers”) and Fortune
Rise Sponsor LLC, a Delaware limited liability company (the “Sponsor”), pursuant to which WODI purchased 100 membership interests
in the Sponsor (“Purchased Interests”) from the Sellers, which constitutes
On
December 22, 2022, WODI paid a total of $
F-37
FRLA is a blank check company incorporated in February 2021 as a Delaware corporation formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. FRLA is a “shell company” as defined under the Exchange Act of 1934, as amended, because it has no operations and nominal assets consisting almost entirely of cash. The SPAC will not generate any operating revenues until after the completion of its initial business combination, at the earliest.
On
December 29, 2022, pursuant to a Membership Interest Purchase and Transfer Agreement and Securities Transfer Agreement with the members
of the Sponsor, WODI acquired the membership interests of the Sponsor and became the beneficial owner of
On January 5, 2023, WODI signed a non-binding Letter of Intent (the “LOI”) with Fortune Rise Acquisition Corporation, (“FRLA” collectively with WODI, the “Parties”). The LOI is not binding on the Parties and is intended solely to guide good-faith negotiations toward a definitive business combination agreement. The Parties will work together in good faith with their respective advisors to agree on a structure for the business combination that is most expedient to the consummation of the acquisition, which may result in a new (merged) entity. Pursuant to the LOI, if a business combination were to be consummated and approved, all of the outstanding equity securities of WODI, including all shares of common stock, preferred stock, outstanding options and warrants will convert into new equity of the merged entity.
On
February 7, 2023, FRLA and OriginClear Inc. announced that WODI deposited $
WODI assumed the obligation to make any necessary extension payments in connection with the extension of the period of time in which the SPAC may consummate its initial business combination as described in the SPAC’s S-1 Registration Statement, including the three-month extension from November 5, 2022 to February 5, 2023, the Second Extension for an additional three months from February 5, 2023 to May 5, 2023 and a final extension for an additional six months from May 5, 2023 to November 5, 2023.
On
April 10, 2023, at the Special Meeting, a total of
On
April 14, 2023, WODI entered into an Asset Purchase Agreement with the Company, whereby it agreed to purchase all of the assets related
to the Company’s “Modular Water Service” business, including licenses, technology, intellectual property, contracts,
business models, patents and other assets in exchange for
F-38
On September 21, 2023, WODI entered into a merger agreement with PWT to create better enterprise value for a potential merger opportunity with FRLA and a plan of merger agreement (the “PWT-WODI merger agreement”) was entered into between WODI and PWT. Per the PWT-WODI merger agreement, all shares of WODI common and preferred stock were exchanged for shares of PWT common stock as merger consideration. WODI convertible notes and WODI Restricted Stock Grants were assumed by PWT and remain outstanding. WODI Series A and Series B were converted to WODI common stock prior to the merger.
In connection with the merger with WODI, PWT changed its name to Water on Demand, Inc.
Before issuing common stock to WODI
stockholders in the PWT Merger, PWT had
On September 28, 2023, the Letter of Intent (“LOI”) executed on January 5, 2023 with WODI was amended to designate PWT as the new target of the acquisition. Under the amended LOI, FRLA proposed to acquire all the outstanding securities of the new combined WODI/PWT entity, based on certain material financial and business terms and conditions being met. The LOI is not binding on the parties and is intended solely to guide good-faith negotiations toward definitive agreements.
On October 24, 2023 FRLA and WODI entered into a definitive business combination agreement (the “BCA”).
F-39
On
October 25, 2023, at the Special Meeting, a total of
Promissory Notes
Since
buying the sponsorship interest in the SPAC on December 22, 2022 through December 31, 2023, WODI and the Company made payments on behalf
of the SPAC in the aggregate amount of $
As
of the date of this filing, the SPAC has been extended through November 5, 2024, to give the Company adequate time to complete all the
necessary administrative and regulatory steps, including filing of the registration statement and timely respond to satisfy potential
comments, from regulatory bodies to consummate the business combination. Management estimates the likelihood of completing the business
combination at
Impairment of receivable
Although
the payments made on behalf of the SPAC are amounts receivable to WODI, for the period ended December 31, 2023, WODI considered the aggregate
amount of $
Impairment analysis for Class B Common Founder Shares as at December 31, 2023
The Company retained an independent valuation firm for the purpose of conducting a valuation of the fair value of Sponsor Founder Shares (Class B) of Fortune Rise Acquisition Corp. as of December 31, 2023 (the “Date of Valuation”).
The independent firm (i) evaluated and analyzed various Sponsor Founder Shares of Fortune Rise Acquisition Corp. (“FRLA”); (ii) assessed the terms including various redemption and liquidation features considering each of the Company’s financial plans and market conditions; and (iii) determined the underlying value to be assigned to the FRLA Sponsor Founder Shares as of the Date of Valuation and evaluated the FRLA Sponsor Founder Shares for impairment by performing the following procedures:
| ● | Analyzed the Company’s S-4 filing, business combination agreement and other documentation. |
| ● | Developed Monte Carlo Model that values the FRLA Sponsor Founder Shares based on a multipath random event model and future projections of the various potential outcomes. The Monte Carlo Model simulation included | |
| ● | Developed the discounted cash flow from the sale of the securities at the time the restrictions terminated. | |
| ● | Probability weighted the cash flow, discounted for lack of marketability. |
| ● | Valued the FRLA Sponsor Founder Shares as of the date of valuation. |
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Based on the procedures performed the independent valuation firm concluded that the value of FRLA Sponsor Founder Shares was not impaired.
Recording of membership interest:
As
of December 31, 2023, WODI recorded the purchase of Class B Founder Shares at lower of cost or market at $
Restricted Stock to WODI Board, Employees and Consultants
Between
August 12, 2022, and August 3, 2023, WODI entered into Restricted Stock Grant Agreements (the “WODI RSGAs”) with its members
of the Board, employees, and consultants to create management incentives to improve the economic performance of WODI and to increase its
value. WODI RSGAs provide for the issuance of up to
| 13. | LINE OF CREDIT |
During the
year ended December 31, 2023, the Company obtained 12 month credit lines in the aggregate amount of $
| 14. | ASSETS HELD FOR SALE – CONTINUING OPERATIONS |
On
March 1, 2021, the Company issued an aggregate of
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The
real property was listed for sale beginning in July 2021. However, based on indicator of impairment, during the year ended December
31, 2021, the Company adjusted the original value of the asset for sale from $
During
the period ended December 31, 2022, after evaluating several offers, the Company considered an offer for $
In
January 2023, the Company accepted the offer and on April 8, 2023, a deed was executed for the sale of the property for $
| 15. | EMPLOYEE RETENTION TAX CREDIT |
Under the
provisions of the extension of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) passed by the United
States Congress and signed by the President, the Company was eligible for a refundable employee retention credit (the “ERTC”)
subject to certain criteria. The Company’s subsidiary, Progressive Water Treatment applied for the ERTC and during the year ended
December 31, 2023, received an aggregate of $
| 16. | COMMITMENTS AND CONTINGENCIES |
Facility Rental – Related Party
Our Dallas based subsidiary, PWT, rents
an approximately
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 $
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Litigation
On July 12, 2023, the Company entered into a Confidential Settlement and Mutual Release Agreement (the “Settlement Agreement”) with Auctus Fund, LLC (“Auctus”) relating to the settlement and release of certain pending legal actions arising out of various loans and agreements between the Company and Auctus. Pursuant to the terms of the Settlement Agreement, the Company and Auctus have resolved all outstanding legal disputes and claims between them. The appeal that was pending in the United States Court of Appeals for the First Circuit and trial matter in the United States District Court for the District of Massachusetts have been terminated and all transactions and obligations thereunder between the Company and Auctus are null and void. The terms and conditions of the Settlement Agreement are confidential and have no impact on the financial condition or operations of the Company.
On or around March 5, 2024, PWT
was named as a defendant in a case filed by Process Solutions, Inc (“PSI”). The case was filed in the Court of Common Pleas
in Hamilton County, Ohio. The complaint alleges that PWT breached a contract with PSI and alleges damages of $
| 17. | ACCRUED EXPENSES |
| 2023 | 2022 | |||||||
| Payroll liabilities | $ | $ | ||||||
| Accrued interest on promissory notes | ||||||||
| Total accrued expenses | $ | $ | ||||||
| 18. | CONCENTRATIONS |
Major Customers
PWT had five major customers for the
year ended December 31, 2023. The customers represented
PWT had four major customers for the
year ended December 31, 2022. The customers represented
Major Suppliers
PWT had three major vendors for the
year ended December 31, 2023. The vendors represented
PWT had three major vendors for the
year ended December 31, 2022. The vendors represented
| 19. | 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:
Between
January 5, 2024 and April 5, 2024, WODI made payments on behalf of the SPAC in the aggregate amount of $
Between January 5, 2024 and April 1, 2024, the Company issued
to consultants an aggregate of
On January
8, 2024, holders of the Company’s Series K preferred stock exchanged an aggregate of
On January
8, 2024, holders of the Company’s Series F preferred stock exchanged an aggregate of
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Between
January 8, 2024 and April 15, 2024, an aggregate of
Between
January 8, 2024 and February 20, 2024, holders of the Company’s Series Q preferred stock converted an aggregate of
Between January
8, 2024 and April 12, 2024, the Company entered into subscription agreements with certain accredited investors pursuant to which
the Company sold an aggregate of
Between
January 11, 2024 and February 5, 2024, holders of the Company’s Series R preferred stock converted an aggregate of
On January
22, 2024, per electing and qualifying for the Restricted Stock Grant Agreement alternate vesting schedule, the Company issued to Mr. Eckelberry,
employees and consultants an aggregate of
Between
January 22, 2024 and April 3, 2024, holders of the Company’s Series Y preferred stock converted an aggregate of
On
February 5, 2024, holders of the Company’s Series S preferred stock converted an aggregate of
On
February 13, 2024, holders of the Company’s Series W preferred stock converted an aggregate of
On February 14, 2024, the Company and Fortune Rise Acquisition Corporation (Nasdaq: FRLA), filed a registration statement on Form S-4 with the SEC which includes a preliminary proxy statement and prospectus in connection with the proposed business combination with WODI.
Between
March 28, 2024 and April 15, 2024, the Company entered into settlement agreements with certain accredited investors pursuant to which
the Company issued an aggregate of
On March 28,
2024, the Company issued an aggregate of
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