Originclear, Inc 10-Q for FY2021 Q2
Originclear, Inc. (OCLN)
About this 10-Q
Originclear, Inc filed this 10-Q on September 16, 2021, covering the quarter ended June 30, 2021 (FY2021 Q2).
Headline figures
Quarter ended June 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $931.42K
- down 11.7% from $1.06M a year earlier
- Net loss
- $10.9M
- compared with a net loss of $6.23M a year earlier
- Diluted EPS
- -$0.07
- compared with -$0.06 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
FOR THE QUARTERLY PERIOD ENDED:
For the transition period from __________ to __________
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices, Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Ticker symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
Indicate by check mark whether the registrant
(1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company | |||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of September 15, 2021 there were
TABLE OF CONTENTS
| Page | |||
| PART I | 1 | ||
| Item 1. | Financial Statements. | 1 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 27 | |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 39 | |
| Item 4. | Controls and Procedures. | 39 | |
| PART II | 40 | ||
| Item 1. | Legal Proceedings. | 40 | |
| Item 1A. | Risk Factors. | 40 | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | 40 | |
| Item 3. | Defaults Upon Senior Securities. | 41 | |
| Item 4. | Mine Safety Disclosures. | 41 | |
| Item 5. | Other Information. | 41 | |
| Item 6. | Exhibits. | 41 | |
| SIGNATURES | 42 | ||
i
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
| June 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash - Preferred shares | ||||||||
| Contracts receivable | ||||||||
| Contract assets | ||||||||
| Inventory assets | ||||||||
| Other receivable | ||||||||
| Prepaid expenses | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| NET PROPERTY AND EQUIPMENT | ||||||||
| OTHER ASSETS | ||||||||
| Long term asset for sale | ||||||||
| Fair value investment-securities | ||||||||
| Trademark | ||||||||
| TOTAL OTHER ASSETS | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and other payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Cumulative preferred stock dividends payable | ||||||||
| Contract liabilities | ||||||||
| Capital lease, current portion | ||||||||
| Customer deposit | ||||||||
| Warranty reserve | ||||||||
| Loan payable, merchant cash advance | ||||||||
| Loan payable, related party | ||||||||
| Loans payable, SBA | ||||||||
| Derivative liabilities | ||||||||
| Series F 8% Preferred Stock, | ||||||||
| Series F 8% Preferred Stock, | ||||||||
| Series G 8% Preferred Stock, | ||||||||
| Series I 8% Preferred Stock, | ||||||||
| Series K 8% Preferred Stock, | ||||||||
| Convertible promissory notes, net of discount of $ | ||||||||
| Total Current Liabilities | ||||||||
| Long Term Liabilities | ||||||||
| Capital lease, long term portion | ||||||||
| Convertible promissory notes, net of discount of $ | ||||||||
| Total Long Term Liabilities | ||||||||
| Total Liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES (See Note 11) | ||||||||
| 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 10% Convertible Preferred Stock, | ||||||||
| Series S 10% Convertible Preferred Stock, | ||||||||
| Series T 10% Convertible Preferred Stock, | - | |||||||
| Series U Convertible Preferred Stock, | - | |||||||
| Series W 12% Convertible Preferred Stock, | - | |||||||
| SHAREHOLDERS’ DEFICIT | ||||||||
| Preferred stock, $ | ||||||||
| Subscription payable to purchase | ||||||||
| Preferred treasury stock, | ||||||||
| Common stock, $ | ||||||||
| Additional paid in capital - Common stock | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL SHAREHOLDERS’ DEFICIT | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT | $ | $ | ||||||
1
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 | |||||||||||||
| Sales | $ | $ | $ | $ | ||||||||||||
| Cost of Goods Sold | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| Selling and marketing expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Research and development | ||||||||||||||||
| Depreciation and amortization expense | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Loss from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Other income | ||||||||||||||||
| Gain on write off of accounts payable | ||||||||||||||||
| Loss on exchange of preferred stock | ( | ) | ||||||||||||||
| Gain/(Loss) on conversion of preferred stock | ( | ) | ( | ) | ||||||||||||
| Unrealized gain(loss) on investment securities | ( | ) | ( | ) | ||||||||||||
| Gain/(Loss) on net change in derivative liability and conversion of debt | ( | ) | ( | ) | ( | ) | ||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| TOTAL OTHER (EXPENSE) INCOME | ( | ) | ( | ) | ( | ) | ||||||||||
| NET INCOME (LOSS) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| PREFERRED STOCK DIVIDENDS | ( | ) | ( | ) | ||||||||||||
| WARRANTS DEEMED DIVIDENDS | ( | ) | ||||||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO SHAREHOLDERS INCOME | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| BASIC EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO SHAREHOLDERS’ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| DILUTED EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO SHAREHOLDERS’ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING, | ||||||||||||||||
| BASIC | ||||||||||||||||
| DILUTED | ||||||||||||||||
2
| SIX MONTHS ENDED JUNE 30, 2020 | ||||||||||||||||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||||||||||||||
| Preferred stock | Common stock | Additional
Paid-in- | Subscription | Other Comprehensive | Accumulated | Mezzanine | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Payable | loss | Deficit | Total | Equity | |||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| 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 D-1 Preferred stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| 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 M Preferred stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Issuance of Series K Preferred stock through a private placement | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of Series L Preferred stock through a private placement associated with the Series k Preferred note | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of Series M Preferred stock through a private placement | - | - | ||||||||||||||||||||||||||||||||||||||
| Exchange of Series G Preferred stock to Series K Preferred stock | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Exchange of Series G Preferred stock to Series L Preferred stock | - | - | ||||||||||||||||||||||||||||||||||||||
| Reclassification of non-cash adjustment | - | - | ( | ) | ( | ) | - | |||||||||||||||||||||||||||||||||
| Cumulative preferred stock | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Reclassification to mezzanine | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Gain on conversion of Series L Preferred stock | - | - | ( | ) | ( | ) | - | |||||||||||||||||||||||||||||||||
| Subscription payable-common stock | - | - | ||||||||||||||||||||||||||||||||||||||
| Comprehensive gain | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net Income | - | - | - | |||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2020 | $ | $ | $ | $ | ( | ) | ( | ) | ( | ) | $ | |||||||||||||||||||||||||||||
3
| SIX MONTHS ENDED JUNE 30, 2021 | ||||||||||||||||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||||||||||||||
| Preferred stock | Common stock | Additional
Paid-in- |
Subscription | Other Comprehensive |
Accumulated | Mezzanine | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Payable | loss | Deficit | Total | Equity | |||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | ( |
) | ( |
) | ( |
) | $ | |||||||||||||||||||||||||||||||||
| Rounding | ||||||||||||||||||||||||||||||||||||||||
| - | ||||||||||||||||||||||||||||||||||||||||
| 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 D1 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 Series O Preferred stock dividends | - | ( |
) | |||||||||||||||||||||||||||||||||||||
| 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 S Preferred stock | - | ( |
) | |||||||||||||||||||||||||||||||||||||
| Issuance of Series M Preferred stock through a private placement | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of Series R Preferred stock through a private placement | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of Series T Preferred stock in exchange for property | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of Series U Preferred stock through a private placement | - | - | ||||||||||||||||||||||||||||||||||||||
| Exchange of Series F Preferred Stock for Series Q Preferred stock | - | - | ||||||||||||||||||||||||||||||||||||||
| Exchange of Series G Preferred Stock for Series R Preferred stock | - | - | ||||||||||||||||||||||||||||||||||||||
| Exchange of Series G Preferred Stock for Series S Preferred stock | - | - | ||||||||||||||||||||||||||||||||||||||
| Exchange of Series I Preferred Stock for Series R Preferred stock | - | - | ||||||||||||||||||||||||||||||||||||||
| Exchange of Series I Preferred Stock for Series W Preferred stock | - | - | ||||||||||||||||||||||||||||||||||||||
| Exchange of Series K Preferred Stock for Series R Preferred stock | - | - | ||||||||||||||||||||||||||||||||||||||
| Exchange of Series K Preferred Stock for Series W Preferred stock | - | - | ||||||||||||||||||||||||||||||||||||||
| Exchange of Series M Preferred Stock for Series R Preferred stock | - | - | - | |||||||||||||||||||||||||||||||||||||
| Loss on conversion of Preferred Stock | - | - | ||||||||||||||||||||||||||||||||||||||
| Adjustment to Series L Preferred stock | - | - | - | ( |
) | - | - | - | ( |
|||||||||||||||||||||||||||||||
| Issuance of common stock warrants deemed dividends | - | - | ( |
) | - | |||||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||||||
4
| Six Months Ended | ||||||||
| June 30, 2021 | June 30, 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Income (loss) | $ | ( | ) | $ | ||||
| Adjustment to reconcile net loss to net cash used in operating activities | ||||||||
| Depreciation and amortization | ||||||||
| Preferred stock dividends | ( | ) | ||||||
| Common and preferred stock issued for services | ||||||||
| (Gain) Loss on net change in valuation of derivative liability | ( | ) | ||||||
| Debt discount recognized as interest expense | ||||||||
| Net unrealized (gain)loss on fair value of security | ( | ) | ||||||
| Loss on exchange of preferred stock | ||||||||
| (Gain) Loss on conversion of preferred stock | ( | ) | ||||||
| Interest receivable on convertible note receivable | ( | ) | ||||||
| Change in Assets (Increase) Decrease in: | ||||||||
| Contracts receivable | ||||||||
| Contract asset | ( | ) | ( | ) | ||||
| Inventory asset | ( | ) | ||||||
| Prepaid expenses and other assets | ||||||||
| Other receivable | ||||||||
| Change in Liabilities Increase (Decrease) in: | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ||||||||
| Contract liabilities | ( | ) | ( | ) | ||||
| Customer deposit | ||||||||
| NET CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS USED FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of fixed assets | ( | ) | ( | ) | ||||
| CASH USED IN INVESTING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Payments on capital lease | ( | ) | ( | ) | ||||
| Proceeds from SBA loans | ||||||||
| Repayment of loans, net | ( | ) | ||||||
| Repayment of loans, related party | ( | ) | ( | ) | ||||
| Payments on cumulative preferred stock dividends | ||||||||
| Proceeds on convertible promissory notes | ( | ) | ||||||
| Net proceeds for issuance of preferred stock for cash - equity classification | ||||||||
| Net proceeds for issuance of preferred stock for cash - liability classification | - | |||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| NET INCREASE (DECREASE) IN CASH | ||||||||
| CASH BEGINNING OF PERIOD | ||||||||
| CASH END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Interest 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 | $ | $ | ||||||
| Other payable for fixed asset with common stock subscription | $ | $ | ||||||
| Issuance of Series T preferred shares in exchange for property | $ | $ | ||||||
| Issuance of Series O dividends | $ | $ | ||||||
| Preferred stock converted to common stock - mezzanine | $ | $ | ||||||
| Preferred stock converted to common stock - equity | $ | $ | ||||||
| Exchange from mezzanine to liability | $ | $ | ||||||
| Warrants deemed dividends | $ | $ | ||||||
| Derivative discount issued on notes payable | $ | $ | ||||||
| Reclassification of non-cash adjustment of preferred stock additional paid in capital | $ | $ | ||||||
5
ORIGINCLEAR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
JUNE 30, 2021
| 1. | The accompanying unaudited condensed consolidated financial statements of OriginClear, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. For further information refer to the financial statements and footnotes thereto included in the Company’s Form 10-K for the year ended December 31, 2020. |
We have taken initial steps in a new direction implementing Water On Demand
as a potential revenue source. During the period ended June 30, 2021, the Company ventured into acquiring real estate assets to finance
water projects. Ivan Anz, OriginClear advisor and founder of strategic partner PhilanthroInvestors Inc. invested certain
real estate assets through an asset purchase agreement. Per the asset purchase agreement, in exchange for preferred stock and warrants,
the Company received real property valued at $
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, 2020 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 profitable operations and receiving additional cash
infusions. During the six months ended June 30, 2021, the Company obtained funds from sales of its preferred stock. Management believes
this funding will continue from its current investors and from new investors. The Company also 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.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of OriginClear, Inc. and its wholly owned operating subsidiaries, Progressive Water Treatment, Inc., and OriginClear Technologies, Ltd. All material intercompany transactions have been eliminated upon consolidation of these entities.
6
Cash and Cash Equivalent
The Company considers all highly liquid investments with an original maturity of six months or less to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include estimates used to review the Company’s impairments and estimations of long-lived assets, revenue recognition on percentage of completion type contracts, allowances for uncollectible accounts, warranty reserves, inventory valuation, derivative liabilities and other conversion features, fair value investments, valuations of non-cash capital stock issuances and the valuation allowance on deferred tax assets. The Company bases its estimates on historical experience and on various other assumptions that 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.
Net Earnings (Loss) per Share Calculations
Basic loss per share calculations are computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares available. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include securities or other contracts to issue common stock that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The Company’s diluted loss per share is the same as the basic loss per share for the six months ended June 30, 2021, as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss.
| For the Six months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| (Loss) Income to common shareholders (Numerator) | $ | ( | ) | $ | ||||
| Basic weighted average number of common shares outstanding (Denominator) | ||||||||
| Diluted weighted average number of common shares outstanding (Denominator) | ||||||||
The Company excludes issuable shares from warrants, convertible notes and preferred stock, if their impact on the loss per share is anti-dilutive and includes the issuable shares if their impact is dilutive.
| June 30, 2021 | Anti-dilutive shares | Dilutive shares | ||||||
| Warrant shares | ||||||||
| Convertible debt shares | ||||||||
| Preferred shares | ||||||||
| June 30, 2020 | ||||||||
| 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.
7
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.
There was no allowance for doubtful accounts as of June 30, 2021 and December 31, 2020, respectively. The net contract receivable balance
was $
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 at June 30, 2021 and December 31, 2020, and determined there was no impairment of indefinite lived intangibles and goodwill.
Research and Development
Research and development costs are
expensed as incurred. Total research and development costs were $
Advertising Costs
The Company expenses the cost of advertising
and promotional materials when incurred. The advertising costs were $
8
Property and Equipment
Property and equipment are stated at cost. Gain or loss is recognized upon disposal of property and equipment, and the asset and related accumulated depreciation are removed from the accounts. Expenditures for maintenance and repairs are charged to expense as incurred, while expenditures for addition and betterment are capitalized. Furniture and equipment are depreciated on the straight-line method and include the following categories:
| Estimated Life | ||||
| Machinery and equipment | ||||
| Furniture, fixtures and computer equipment | ||||
| Vehicles | ||||
| Leasehold improvements |
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 facts and circumstances indicate that the cost of any long-lived assets may be impaired, an evaluation of recoverability would be performed following generally accepted accounting principles.
Depreciation expense during the six
months ended June 30, 2021 and 2020, was $
Inventory
The Company expenses inventory on a
first in, first out basis, and had raw materials of $
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 are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.
Accounting for Derivatives
The Company evaluates all of 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 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 recognized in the balance sheet, where it is practicable to estimate that value. As of June 30, 2021, 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.
9
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
| ● | Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; |
| ● | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
| ● | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
The following table presents certain investments and liabilities of the Company’s financial assets measured and recorded at fair value on the Company’s balance sheets on a recurring basis and their level within the fair value hierarchy as of June 30, 2021.
| Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Investment at fair value-securities | $ | $ | $ | $ | ||||||||||||
| Total Assets measured at fair value | $ | $ | $ | $ | ||||||||||||
| Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Derivative Liability, June 30, 2021 | $ | $ | $ | $ | ||||||||||||
| Total liabilities measured at fair value | $ | $ | $ | $ | ||||||||||||
The following is a reconciliation of the derivative liability for which level 3 inputs were used in determining the approximate fair value:
| Balance as of January 1, 2021 | $ | |||
| Fair value at issuance | ||||
| Loss on conversion of debt and change in derivative liability | ||||
| Balance as of June 30, 2021 | $ |
For purpose of determining the fair market value of the derivative liability, the Company used Binomial lattice formula valuation model. The significant assumptions used in the Binomial lattice formula valuation of the derivative are as follows:
| 6/30/2021 | |||
| 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.
10
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.
Recently Issued Accounting Pronouncements
In August 2017, FASB issued accounting standards update ASU-2017-12, “D” (Topic 815) – “Targeted Improvements to Accounting for Hedging Activities”, to require an entity to present the earnings effect of the hedging instrument in the same statement line item in which the earnings effect of the hedged item is reported. The amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods with the fiscal years beginning after December 15, 2020. Early adoption is permitted in any interim period after issuance of the update. The Company has evaluated the impact of the adoption of ASU 2017-12 on the Company’s audited consolidated financial statements, which had no material impact.
In June 2018, FASB issued accounting standards update ASU 2018-07, (Topic 505) – “Shared-Based Payment Arrangements with Nonemployees”, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees will be aligned with the requirements for share-based payments granted to employees. Under the ASU 2018-07, the measurement of equity-classified nonemployee share-based payments will be fixed on the grant date, as defined in ASC 718, and will use the term nonemployee vesting period, rather than requisite service period. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted if financial statements have not yet been issued. The Company adopted ASU 2018-07 on the January 1, 2019. The adoption of the new standard did not have a material impact on the Company’s audited consolidated financial statements.
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. | CAPITAL STOCK |
Preferred Stock
Series C
On March 14, 2017, the Board of Directors
authorized the issuance of
11
Series D-1
On April 13, 2018, the Company designated
Series E
On August 14, 2018, the Company designated
Series F
On August 14, 2018, the Company designated
Series G
On January 16, 2019, the Company designated
12
Series I
On April 3, 2019, the Company
designated
Series J
On April 3, 2019, the Company designated
Series K
On June 3, 2019, the Company designated
Series L
On June 3, 2019, the Company designated
13
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
Series P
On April 27, 2020, the Company designated
14
Series Q
On August 21, 2020, the Company designated
Series R
On November 16, 2020, the Company designated
15
Series S
On February 5, 2021, the Company designated
Series T
On February 24, 2021, the Company designated
As of June 30, 2021, the real property
exchanged for
Series U
On May 26, 2021, the Company filed
a certificate of withdrawal of the Company’s certificate of designation of Series U Preferred Stock, and filed a certificate of
designation for a new series of Series U Preferred Stock, with the Secretary of State of Nevada. Pursuant to the certificate of designation
for the new series of Series U Preferred Stock, the Company designated
16
Series V
On April 19, 2021, the Company filed
a certificate of designation (the “Series V COD”) of Series V Preferred Stock (the “Series V”) with the Secretary
of State of Nevada. Pursuant to the Series V COD, the Company designated
Series W
On April 28, 2021, the Company filed
a certificate of designation of Series W Preferred Stock with the Secretary of State of Nevada. Pursuant to the certificate of designation,
the Company designated
As of June 30, 2021, the Company accrued
aggregate dividends in the amount of $
The Series J, Series L, Series M, Series O, Series P, Series Q, Series R, Series S, Series T, Series U, Series V, and Series W preferred stock are accounted for outside of permanent equity due to the terms of conversion at a market component or stated value of the preferred stock.
Common Stock
The Company has
Six months ended June 30, 2021
The Company issued
The Company issued
The Company issued
The Company issued
17
Six months ended June 30, 2020
The Company issued
The Company
issued
The Company
issued
The Company
issued
The Company
issued
The Company
issued
The Company
issued
| 4. | RESTRICTED STOCK AND WARRANTS |
Restricted Stock to CEO
Between May 12, 2016, and March 1,
2021, the Company entered into Restricted Stock Grant Agreements (“the RSGAs”) with its Chief Executive Officer, Riggs Eckelberry,
to create management incentives to improve the economic performance of the Company and to increase its value and stock price. All shares
issuable under the RSGAs are performance based shares. The RSGAs provides for the issuance of up to an aggregate of
Restricted Stock to Employees, Board and Consultants
Between May 12, 2016, and June 14,
2021, the Company entered into Restricted Stock Grant Agreements (“the E, B &C RSGAs”) with its employees, the Board and
consultants, to create management incentives to improve the economic performance of the Company and to increase its value and stock price.
All shares issuable under the E, B &C RSGAs are performance based shares. The E, B &C RSGAs provide for the issuance of up to
18
On August 14, 2019, the Board of Directors
approved an amendment to the RSGAs and E&C RSGAs to include an alternative vesting schedule for the Grantees. The Grantees can elect
to participate in the alternate vesting schedule for grants received at least
During the six months ended June 30,
2021, per electing and qualifying for the Restricted Stock Grant Agreement alternate vesting schedule, the Company issued to Mr. T. Riggs
Eckelberry, one employee and one consultant an aggregate of
Warrants
During the six months ended June 30,
2021, the Company issued warrants to purchase
| 2021 | ||||||||
| Weighted | ||||||||
| average | ||||||||
| Number of | exercise | |||||||
| Warrants | price | |||||||
| Outstanding - beginning of period | $ | |||||||
| Granted | | $ | ||||||
| Exercised | ||||||||
| Forfeited | ||||||||
| Outstanding - end of period | $ | |||||||
At June 30, 2021 and 2020, the weighted average remaining contractual life of warrants outstanding was as follows:
| 2021 | ||||||||||||||
| Weighted Average | ||||||||||||||
| Remaining | ||||||||||||||
| Exercise | Warrants | Warrants | Contractual | |||||||||||
| Prices | Outstanding | Exercisable | Life (years) | |||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
At June 30, 2021, the aggregate intrinsic
value of the warrants outstanding was $
19
| 5. | CONVERTIBLE PROMISSORY NOTES |
As of June 30, 2021, the outstanding convertible promissory notes are summarized as follows:
| Convertible Promissory Notes, net of discount | $ | |||
| Less current portion | ||||
| Total long-term liabilities | $ |
Maturities of long-term debt for the next three years are as follows:
| Year Ending June 30, | Amount | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| $ | ||||
At June 30, 2021, the Company had $
On various dates from 2014 through
May 2015, the Company issued unsecured convertible promissory notes (the “2014-2015 Notes”), that matured on various dates
and were extended sixty (60) months from the effective date of each Note.
The unsecured convertible promissory
notes (the “OID Notes”) had an aggregate remaining balance of $
The Company issued various unsecured
convertible promissory notes (the “2015-2016 Notes”), on various dates ending on May 19, 2016. The 2015-2016 Notes matured
and were extended from the date of each tranche through maturity dates ending on
20
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 $
21
We evaluated the financing transactions in accordance with ASC Topic 815, Derivatives and Hedging, and determined that the conversion feature of the convertible promissory notes was not afforded the exemption for conventional convertible instruments due to its variable conversion rate. The note has no explicit limit on the number of shares issuable, so they did not meet the conditions set forth in current accounting standards for equity classification. The Company elected to recognize the note under paragraph 815-15-25-4, whereby, there would be a separation into a host contract and derivative instrument. The Company elected to initially and subsequently measure the note in its entirety at fair value, with changes in fair value recognized in earnings. The Company recorded a derivative liability representing the imputed interest associated with the embedded derivative. The derivative liability is adjusted periodically according to the stock price fluctuations.
The derivative liability recognized
in the financial statements as of June 30, 2021 was $
| 6. | REVENUE FROM CONTRACTS WITH CUSTOMERS |
Equipment Contracts
Revenues and related costs on equipment contracts are recognized as the performance obligations for work are satisfied over time in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. Under ASC 606, revenue and associated profit will be recognized as the customer obtains control of the goods and services promised in the contract (i.e., performance obligations). All un-allocable indirect costs and corporate general and administrative costs are charged to the periods as incurred. However, in the event a loss on a contract is foreseen, the Company will recognize the loss as it is determined.
The following table represents a disaggregation of revenue by type of good or service from contracts with customers for the six months ended June 30, 2021 and 2020.
| Six months Ended | ||||||||
| June 30, | ||||||||
| 2021 | 2020 | |||||||
| Equipment Contracts | $ | $ | ||||||
| Component Sales | ||||||||
| Services Sales | ||||||||
| Rental Income | ||||||||
| $ | $ | |||||||
Revenue recognition for other sales arrangements, such as sales for components, service and licensing fees 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 six months ended June 30, 2021 and for the year ended December 31, 2020, was $
22
| 7. | FINANCIAL ASSETS |
Convertible Note Receivable
The Company purchased a
Fair value investment in Securities
On May 15, 2018,
| 8. | LOANS PAYABLE |
Secured Loans Payable
The Company entered into
Loan Payable-Related Party
The Company’s CEO loaned the
Company $
Small Business Administration Loans
Between April 30, 2020 and June 12,
2020, the Company received total loan proceeds in the amount of $
23
| 9. | CAPITAL LEASES |
The Company entered into a capital
lease for the purchase of equipment during the year ended December 31, 2018. The lease is for a
As of June 30, 2021, the maturities are summarized as follows:
| Capital lease | $ | |||
| Less current portion | ||||
| Total long-term liabilities | $ |
| 10. | FOREIGN SUBSIDIARY |
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. This strategic partnership assists the Company with overcoming the typical hurdles in commercializing a technology overseas with engineering support, developing customer proposals, infrastructure to handle logistics and purchasing, inventory and shipping from and into foreign countries, customer training, startup assistance and service.
The Company believes that Permionics is best suited to accomplish all of the above for its customers in the Asia-Pacific countries and as a result, has terminated all activities of its fully owned subsidiary, OriginClear Technologies Limited, in Hong Kong, China, working instead with Permionics when applicable.
| 11. | COMMITMENTS AND CONTINGENCIES |
Facility Rental – Related Party
The Company rents from its subsidiary
on a month-to-month basis a
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 $
Litigation
As of the period ended June 30, 2021, there are no material updates to the settlement of the dispute between OriginClear, Inc., and its developmental subsidiary, WaterChain, Inc., and RDI Financial, LLC, an alleged assignee of Interdependence, Inc., as disclosed in greater detail in the Form 10-Q for the period ended March 31, 2021, filed by OriginClear on August 4, 2021. All parties are fully and timely performing under the settlement agreement, and no further issues or proceedings, or fees and costs, are anticipated.
There are no material updates to the settlement of the dispute between OriginClear, Inc., Progressive Water Treatment, Inc., and T. Riggs Eckelberry, individually, and iKAHN Capital LLC, as disclosed in greater detail in the Form 10-Q for the period ended March 31, 2021, filed by OriginClear on August 4, 2021. As of the period ended June 30, 2021, the iKahn matter has been fully settled and closed.
For the period ended June 30, 2021, there are no material updates to the litigation between Progressive Water Treatment, Inc., OriginClear, Inc. and T. Riggs Eckelberry, individually, and Yellowstone Capital, LLC, as disclosed in greater detail in the Form 10-Q for the period ended March 31, 2021, filed by OriginClear on August 4, 2021.
24
For the period ended June 30, 2021, there are no material updates to the ongoing litigation between OriginClear, Inc., Progressive Water Treatment, Inc., and T. Riggs Eckelberry, individually, and GTR Source LLC, as disclosed in greater detail in the Form 10-Q for the period ended March 31, 2021, filed by OriginClear on August 4, 2021.
For the period ended June 30, 2021, there are no material updates to the settlement of the dispute between OriginClear, Inc., Progressive Water Treatment, Inc., and T. Riggs Eckelberry, individually, and C6 Capital LLC, as disclosed in greater detail in the Form 10-Q for the period ended March 31, 2021, filed by OriginClear on August 4, 2021.
For the period ended June 30, 2021, there are no material updates to the settlement of the dispute between Progressive Water Treatment, Inc., T. Riggs Eckelberry, individually, and Marc Stevens, individually, and Expansion Capital Group, LLC, as disclosed in greater detail in the Form 10-Q for the period ended March 31, 2021, filed by OriginClear on August 4, 2021.
For the period ended June 30, 2021, there are no material updates to the ongoing litigation between OriginClear, Inc. and Auctus Fund, LLC, as disclosed in greater detail in the Form 10-Q for the period ended March 31, 2021, filed by OriginClear on August 4, 2021.
| 12. | 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 July 1, 2021 and August 26,
2021, the Company issued an aggregate of
Between July 7, 2021 and September
13, 2021,
Between July 19, 2021 and September 15, 2021, the Company issued to consultants an aggregate of 4,529,647 shares of the Company’s common stock for services including an aggregate of 540,873 shares of common stock for settlement of prior consulting agreement.
Between July 20, 2021 and July 22,
2021, holders of Series Q preferred stock converted an aggregate of
Between July 20, 2021 and August 25,
2021, holders of Series U preferred stock converted an aggregate of
Between July 20, 2021 and July 22,
2021, holders of Series W preferred stock converted an aggregate of
Between July 22, 2021 and August 25,
2021, holders of Series R preferred stock converted an aggregate of
On July 22, 2021, holders of Series
S preferred stock converted an aggregate of
25
On July 26, 2021, Progressive Water Treatment, Inc., OriginClear, Inc., T. Riggs Eckelberry, individually, and Marc Stevens, individually (collectively, the “Expansion Plaintiffs”) and Expansion Capital Group, LLC (“Expansion”) settled a dispute between the parties relating to a prior agreement the parties entered into on December 30, 2019. Pursuant to the terms of the confidential settlement, the Expansion Plaintiffs filed a Notice of Nonsuit with Prejudice in the action commenced by the Expansion Plaintiffs in District Court for the 429th Judicial District, Collin County, Texas and on August 25, 2021, Expansion terminated the UCC-1 security interest filed against the Expansion Plaintiffs.
On August 2, 2021, upon electing and
qualifying per the Restricted Stock Grant Agreement alternate vesting schedule, the Company issued to a consultant an aggregate of
On August 10, 2021, the Company filed
a certificate of designation of Series X Preferred Stock with the Secretary of State of Nevada. Pursuant to the Series X COD,
On August 10, 2021, Progressive Water Treatment, Inc., OriginClear, Inc., and T. Riggs Eckelberry, individually (collectively, the “Yellowstone Plaintiffs”) and Yellowstone Capital, LLC (“Yellowstone”) settled a dispute between the parties relating to a secured merchant agreement that the Yellowstone Plaintiffs and Yellowstone entered into on July 19, 2018. Pursuant to the terms of the confidential settlement, the Yellowstone Plaintiffs have dismissed with prejudice the action commenced by the Yellowstone Plaintiffs in Supreme Court for the State of New York in and for the County of Erie and the appeal in the New York Supreme Court Appellate Division, Fourth Department, and on September 1, 2021, Yellowstone terminated the UCC-1 security interest filed against the Yellowstone Plaintiffs.
On August 20, 2021, the Company submitted a request for forgiveness
of the PPP loans and provided documentation regarding its compliance with applicable requirements for forgiveness. On September 13, 2021,
the Company received a decision from the Small Business Administration confirming that the PPP loans in the aggregate amount of $
On August 25, 2021, the Company issued
an aggregate of
On September 1, 2021, the Company received
proceeds of $
On September 16, 2021,
26
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control, which may include statements about our:
| ● | business strategy; |
| ● | financial strategy; |
| ● | intellectual property; |
| ● | production; |
| ● | future operating results; and |
| ● | plans, objectives, expectations and intentions contained in this report that are not historical. |
All statements, other than statements of historical fact included in this report, regarding our strategy, intellectual property, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All forward-looking statements speak only as of the date of this report. You should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this report are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved. These statements may be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as in this report generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur.
Organizational History
OriginClear, Inc. (“we”, “us”, “our”, the “Company” or “OriginClear”) was incorporated on June 1, 2007 under the laws of the State of Nevada. We have been engaged in business operations since June 2007. In 2015, we moved into the commercialization phase of our business plan having previously been primarily involved in research, development and licensing activities. Our principal offices are located at 13575 58th Street North, Suite 200, Clearwater, FL 33760. Our main telephone number is (727) 440-4603. Our website address is www.OriginClear.com. The information contained on, connected to or that can be accessed via our website is not part of this report.
Overview of Business
OriginClear is a water technology company which has developed in-depth capabilities over its 14-year lifespan. Those technology capabilities have now been organized under the umbrella of OriginClear Tech Group™ (www.originclear.tech).
These capabilities include:
| - | The Company’s original technology developments, known as Electro Water Separation™ and Advanced Oxidation (AOx™), which are not being pursued commercially at this time. |
| - | The Intellectual Property of Daniel M. Early, consisting of five patents and related knowhow and trade secrets, which are intended to take the place of the applications for the company’s original technology developments. |
| - | Progressive Water Treatment Inc. (“PWT”) a wholly-owned subsidiary based in Dallas, Texas which is responsible for the bulk of the company’s revenue, specializing in Engineered Solutions (custom treatment systems). |
| - | Modular Water Systems (“MWS”), a division based at PWT, which implements the Daniel M. Early Intellectual Property. |
27
Water on Demand™: a new strategic direction.
OriginClear is planning a new business, which is outsourced water treatment, intending to offer private businesses the ability to pay for their water treatment and purification services on a pay-per-gallon basis. In the water industry, this is commonly known as Design-Build-Own-Operate or DBOO. On April 13, 2021, we announced formation of a wholly-owned subsidiary called Water On Demand #1, Inc. (WOD #1) to pursue capitalization of the equipment required.
At this time, the Company does not have the ability to carry out at scale the Operation & Maintenance (O&M) activities which are required to fulfill the service obligations of DBOO contracts. Our current plan is to pursue a first DBOO contract as a use case, and thereafter either develop, contract or acquire the O&M capability. The Company is currently in discussions with prospective clients for this test DBOO contract. However, no commitments have been made, and the talks may not succeed. The outsourcing program known as Water On Demand requires both funding for WOD #1, and such a first client, to launch commercially.
Reducing Risk through Outsourcing
Inflation of water rates greatly exceeds core inflation (see Figure 2), creating a risk for managers of businesses served by municipalities. We believe this creates an incentive for self-treatment; but these businesses may lack the capital for large water plant expenditures, and the in-house expertise to manage them. Outsourcing through what we call Water on Demand™ means that these companies do not have to worry about the problem, either financing it or managing it.
As an example, in Information Technology, few companies operate their own server in-house powering their website. Rather, such servers are typically managed by professionals through a service level agreement. In the water industry, when applied to outsourced water treatment, a service level agreement is known as O&M agreement. When the vendor retains ownership of the equipment, the concept is expanded to “Own and Operate”, an extension of the basic “Design and Build”, for a full offering known as DBOO, which is very similar to the solar energy programs known as Power Purchase Agreements (PPAs).
Under such a plan, a business can outsource its wastewater treatment by simply signing on the dotted line; instantly avoiding most capital expense, and the trouble of managing something that is a distraction from their core business.
We believe this is financially and operationally attractive to industrial, agricultural and commercial water users, while OriginClear’s Water On Demand program can potentially drive speeded-up deals and more revenue streams from providing water treatment as a service.
The scale of these systems is relatively small: a recent analysis showed that the 74 quotes that Modular Water Systems™ has at various stages of negotiation for 2021 average only $232,246 each. But capital is scarce for such private systems, and therefore we believe a fully outsourced solution is attractive to these businesses.
Based on its analysis, the Company believes that half of its prospective clients for Modular Water Systems would approve its quotes if they could pay for their water as a monthly bill and not a capital expense.
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The Decentralization Megatrend
An updated report of October 2018, “Public Spending on Transportation and Water Infrastructure, 1956 to 2017” (https://www.cbo.gov/system/files?file=2018-10/54539-Infrastructure.pdf), stated that The Federal Government’s and State and Local Governments’ Spending on Water Utilities, including water supply and wastewater treatment facilities, was $4 billion in 2016.
As municipalities continue to be underfunded (Figure 1) with rising water rates (Figure 2), businesses are increasingly choosing to treat and purify their own water, in a trend known as Decentralized Water, first described in the Lux Research presentation of June 28, 2016. (https://members.luxresearchinc.com/research/report/20060).
Figure 2
Small, modular systems as sold by our Modular Water Systems division meet the needs of this new segment. Indeed, an estimated two-thirds of the Modular Water Systems bidding backlog consists of such private (vs. municipal) customers.
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A Company internal analysis has shown that as many as two-thirds of these prospective private customers (in other words, half of the overall backlog) could be candidates for outsourced water treatment which they would pay for by the gallon purified or treated, instead of paying for the capital expense up front. In other words, the Company believes such financing has the potential to increase the Company’s revenues substantially, with additional service fees potentially improving profits.
This is known in the water industry as Design/Build/Own/Operate (“DBOO”), or colloquially as water equipment as a service. The Company is working to develop its own DBOO capabilities under the branding Water on Demand™ (https://www.originclear.com/water-on-demand).
The bulk of such sales opportunities are in the small size systems, averaging $250,000 and larger. We believe that our ability to deliver modular systems gives us a competitive advantage over larger water companies that we believe have difficulty scaling down into these smaller DBOO projects.
Also, the portable nature of these prefabricated, drop-in-place Modular Water Systems may provide a competitive benefit for a pure service model where the equipment remains the property of the Company, because their mobility enables repossession in the event the client fails to pay their monthly bill. We believe this is a key competitive advantage.
Implementation of Water On Demand
We have taken initial steps in this new direction. On February 23, 2021, we agreed to acquire our first real estate asset to finance water projects. Ivan Anz, OriginClear advisor and founder of strategic partner PhilanthroInvestors Inc. invested certain real estate assets through a securities purchase agreement. Per the agreement, in exchange for preferred stock and warrants, the Company received real property valued at $630,000. The real property has been transferred to the Company through an irrevocable power of attorney, subject to certain rights of rescission. The real property includes residential real estate in Buenos Aires, Argentina valued at $580,000, and eight undeveloped lots valued at $50,000 in Terralta private neighborhood development. There is no prospective date of sale, however, the real property has been listed actively on the market to be sold. We intend to apply the proceeds received from the sale of the real property, if and when we receive such proceeds, to finance water systems either in support of standard equipment sales by our subsidiary Progressive Water Treatment (“PWT”), or for the newer Water On Demand pre-funded water systems, or any combination thereof.
On March 17, 2021, OriginClear incorporated Water On Demand #1 Inc. (“WOD#1”) in Nevada to offer private businesses the ability to pay for their water treatment and purification services on a pay-per-gallon basis. However, the Company cautions that efforts to obtain capital to underwrite WOD #1 may not succeed.
The Company is now actively evaluating potential clients for a test of water treatment and purification services on a pay-per-gallon basis, but a first agreement has not been reached.
Advisory Support for Water On Demand
In September, 2020, PhilanthroInvestors entered a strategic agreement with OriginClear and listed the Company on its new Water PhilanthroInvestors program. At the same time, the Company appointed PhilanthroInvestors Founder, Ivan Anz and CEO, Arte Maren to OriginClear’s Board of Advisors.
The Water PhilanthroInvestors program includes support for Water On Demand.
$H2O™
On May 10, 2021, OriginClear filed “System And Method For Water Treatment Incentive”, a patent application for using blockchain technology and non-fungible tokens (NFT) to simplify the distribution of payments on outsourced water treatment and purification services billed on a pay-per-gallon basis ahead of inflation, or Water On Demand.
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)).
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On June 10, 2021, the Company named Ricardo Fabiani Garcia, key OriginClear investor and a veteran technologist, to the Company’s Board of Advisors. Garcia will advise the management team as it sets up the roadmap and chooses the resources for the $H2O project.
The basic intended use of the blockchain system is to streamline payments and eliminate human error. In this respect we believe it is very similar to J.P. Morgan’s JPM Coin:
“In 2019, J.P. Morgan became the first global bank to design a network to facilitate instantaneous payments using blockchain technology - enabling 24/7, business-to-business money movement by unveiling JPM Coin.” (https://www.jpmorgan.com/solutions/cib/news/digital-coin-payments).
Like JPM Coin, we plan to streamline the delivery of payment contracts that, in our case, could last for decades.
Our patent application is the first step in our development process for this blockchain system, which we expect to last at least several months. We are not currently a blockchain or cryptocurrency developer and would need to develop or contract for this capability. There is no guarantee that this effort would succeed.
Depending on the final form that H2O takes, we may encounter regulatory concerns that we cannot guarantee we will overcome. In that event, we would fall back on ordinary financial payment systems.
Future Potential of H2O
We believe $H2O could be a way to package continuous contractual profit-share income for that investor or stakeholder’s share of the life of the water equipment, adjusted for inflation. To allow the holder to transfer or “swap” it anytime and ultimately, OriginClear could accept $H2O for the funding of new Water On Demand projects, with the potential for subsidized Impact Investment.
All these scenarios are highly speculative, and none may come about. In addition, there may be regulatory restrictions on the issuance and transfer of $H2O.
Prior to the commercialization of $H2O, we would need to fully address all regulatory requirements, and as covered above, this may not be possible; in which case we would use ordinary financial systems for payments to investments and stakeholders.
Water On Demand outsourced water treatment does not rely on any blockchain system for its operation, and can accomplish its operational goals using ordinary financial and currency channels.
ClearAqua™
OriginClear is currently exploring a utility coin, or token, named ClearAqua, The Water Coin For The World™, which would implement a grassroots network for alerts, leading to actionable proposals for water projects. There is no assurance this token will be issued or if issued, will be successful. ClearAqua is not required for OriginClear’s core business.
We filed, on an intent-to-use basis, US Trademark applications on July 21, 2021 for the Mark, CLEARAQUA, and the phrase “THE WATER COIN FOR THE WORLD”.
OriginClear Tech Group
As stated above, all of our technology and operations activities have been centralized under OriginClear Tech Group (“OTG”), enabling a total focus at the corporate level on the Water On Demand strategy.
The mission of OTG is to provide expertise and technology to help make clean water available for all. Specifically, OTG houses the following initiatives:
| 1. | We are building a network of customer-facing water brands to expand our global market presence and our technical expertise. These include the wholly-owned subsidiary, Progressive Water Treatment, and the Modular Water Systems brand. |
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| 2. | We manage relationships with partners worldwide who are licensees and business partners. |
| 3. | We develop new technology approaches and business models in the lab, such as Investor Water™ and WaterChain™, both of which are designed to help achieve funding for water treatment and management systems. Both projects are in a research and development phase. OTG also is actively working on the ability to deliver O&M capability at scale, to support Water On Demand outsourced treatment and purification programs, and is evaluating a pilot program to achieve this. OTG intends to support the development of the $H2O blockchain system, which may replace WaterChain altogether. In 2020, the Company also completed a pilot program with a rental program of a product known as Pool Preserver™, and developed a career-building program for entrepreneurs termed Waterpreneurs™. Water As A Career remains a pilot program and the Company does not plan to expand it at this time. |
Water is our most valuable resource, and the mission of OTG is to improve the quality of water and help return it to its original and clear condition.
Potential Acquisitions
Outsourcing is a fast-growing reality in water treatment. Tougher regulations, water scarcities and general outsourcing trends are driving industrial and agricultural water treatment users to delegate their water problem to service providers. As Global Water Intelligence pointed out in their report on October 30, 2015, “Water is often perceived as a secondary importance, with end-users increasingly wanting to focus solely on their own core business. This is driving a move away from internal water personnel towards external service experts to take control of water aspects.” External service experts are typically small–privately owned and locally operated. Consolidating these companies, and creating new players where appropriate, could lead to enormous economies of scale through sharing of best practices, technologies, and customers.
OTG seeks to incubate or acquire businesses that help industrial water users treat their water themselves, and often reuse it. We believe that assembling a group of such water treatment and water management businesses is potentially an opportunity for significant growth and increased Company value for the stockholders.
We are particularly interested in companies which successfully execute on Design-Build-Own-Operate or DBOO.
The Company cautions that suitable acquisition candidates may not be identified and even if identified, the Company may not have adequate capital to complete the acquisition and/or definitive agreement may not be reached. Internally-incubated businesses, similarly, may not become commercial successes.
To support the new DBOO and acquisition goals, on June 15, 2021 the Company named Prasad Tare as the Company’s Chief Financial Officer.
Prasad brings over 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.
OTG Milestones
Daniel M. Early/Modular Water Systems™
On June 22, 2018, OriginClear signed an exclusive worldwide licensing agreement with Daniel “Dan” Early for his proprietary technology for prefabricated water transport and treatment systems. On July 19, 2018, the Company began incubating its Modular Water Treatment Division (MWS) around Mr. Early’s technology and perspective customers. The Company has funded the development of this division with internal cash flow. In Q1 of 2020, the Company fully integrated MWS with wholly-owned Progressive Water Treatment Inc. Mr. Early is titled Chief Engineer of OriginClear.
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WaterChain, Inc.
WaterChain, Inc. was incorporated in December, 2017 and is today a research and development project of the Company.
Progressive Water Treatment Inc.
On October 1, 2015, the Company completed its acquisition of Dallas-based Progressive Water Treatment Inc. (“PWT”), a designer, builder and service provider for a wide range of industrial water treatment applications.
With the PWT and future potential acquisitions, the creation of the Modular Water Systems division as an integral part of PWT, and integrating its proprietary technology, OTG aims to offer a complementary, end-to-end offering to serve growing corporate demand for outsourced water treatment.
PWT’s Business
Since 1995, PWT has been designing and manufacturing a complete line of water treatment systems for municipal, industrial and pure water applications. PWT designs and manufactures a complete line of water treatment systems for municipal, industrial and pure water applications. Its uniqueness is its ability to gain an in-depth understanding of customer’s needs and then to design and build an integrated water treatment system using multiple technologies to provide a complete, not partial solution.
To help address customer needs, 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. The Company also offers a broad range of services including maintenance contracts, retrofits and replacement assistance. In addition, PWT rents equipment in contracts of varying duration. Customers are primarily served in the United States and Canada, with the company’s reach extending worldwide from Siberia to Argentina to the Middle East.
PWT Milestones
In the first quarter of 2019, the Company increased the number of the manufacturer’s representatives for its operating units, PWT and Modular Water Systems (“MWS”).
On Nov 7, 2019, OriginClear published a case study showing how its Modular Water System may help automotive dealership expand into rural land. The case study shows how point-of-use treatment solves lack of access to the public sewer system.
On March 5, 2020, OriginClear announced disruptive pump and lift station pricing, stating that its prefabricated modules with a lifespan of up to 100 years now compete with precast concrete.
On April 15, 2021, OriginClear announced that its Progressive Water Treatment division is now shipping BroncBoost™, its workhorse Booster Pump Station equipment line. Engineered and built in Texas, BroncBoost allows customers to control water flow rates and pressure for mission critical water distribution systems.
On August 25, 2021, a large US power utility signed a Master Services Agreement (MSA) with our subsidiary, Progressive Water Treatment (PWT), for water filtration systems that will provide process water at three power plants. The utility has now issued a purchase order for about $1.8 million, for the first power plant. The total purchase price payable to PWT under the MSA is about $5 million, subject to certain conditions, including receipt and acceptance by PWT of additional purchase orders. There is no assurance as to whether, or when, PWT will receive $5 million under the PWT. We expect the overall contract to take up to two years to deliver. We believe this contract reflects the excellent reputation enjoyed by PWT over 25 years for versatility in water engineering. For PWT, this contract represents a return to large power plant contracts.
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Modular Water Systems
On July 19, 2018, the Company launched its Modular Water Treatment Division, offering a unique product line of prefabricated water transport and treatment systems. Daniel “Dan” Early P.E. (Professional Engineer) heads the division and along with the intellectual property which the Company licensed exclusively worldwide for three years, brought a following of prospective customers. On July 25, 2018, MWS received its first order, for a brewery wastewater treatment plant.
With PWT and other companies as fabricators and assemblers, MWS designs, manufactures and delivers prefabricated water transport (pump stations) and wastewater treatment plant (“WWTP”) products to customers and end-users that have to clean their own wastewater. It uses Structurally Reinforced Thermoplastic (“SRTP”) materials to focus on patented developing water and wastewater collection, conveyance, and treatment systems that have high performance and sustainability. Typical customers may include schools, small communities, institutional facilities, real estate developments, factories, and industrial parks. Dan Early has pioneered the use of heavy reinforced plastic materials to create modular “water-systems-in-a-box”. Not only is reinforced thermoplastic faster and cheaper to build, but it can have three times the lifespan, or more, compared with concrete-and-steel construction. Mr. Early’s inventions have led to the patented Wastewater System & Method and four other patents, which OriginClear has licensed exclusively for the world.
Dan Early has been designing and building prepackaged pump stations and municipal wastewater treatment systems for over five years, with a career background of more than two decades of water engineering experience.
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.
Today, MWS is fully integrated with PWT in Texas.
In the first half of 2021, MWS received $1,001,760 in firm orders, of which $839,810 was received in the Second Quarter. This contrasts with $735,150 received in firm orders by MWS for the entirety of 2020.
Orders are only an indication of future revenue.
Patents
On May 10, 2021, OriginClear announced that it had filed “System And Method For Water Treatment Incentive”, a patent application for using blockchain technology and non-fungible tokens (NFT) to simplify the distribution of payments on outsourced water treatment and purification services billed on a pay-per-gallon basis ahead of inflation.
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. All royalties surviving the 2018 license were settled.
We may contract with distribution channels (equipment distributors, oil service companies, water treatment companies, system integrators and engineering companies) of our choice to act on our behalf for the purpose of selling and integrating the Early IP.
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The Early IP consists of combined protection on the materials and configurations of complete packaged water treatment systems, built into containers. The parents 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 |
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 (SRTP or 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, patents US 8,372,274 and US 8,871,089 (1 and 3) relate to the use of vessels or containers made out of this material combined with a configuration of functional modules, or process, for general water treatment.
Other subsequent patents, while keeping the original claims and therefore making them stronger, focus on more targeted applications. These patents outline a given combination of modules engineered inside the vessel to address a specific water treatment challenge.
Expansion of the PWT and MWS Business-Lines
Beginning with its first installation, PWT built MWS components. PWT and MWS are now fully integrated as a single profit and manufacturing center.
In April 2019, we completed the expansion of our manufacturer’s representative network to serve both PWT and MWS for customer lead generation.
Critical Accounting Policies
The Securities and Exchange Commission (“SEC”) defines “critical accounting policies” as those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Not all of the accounting policies require management to make difficult, subjective or complex judgments or estimates. However, the following policies could be deemed to be critical within the SEC definition.
Revenue Recognition
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.
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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 are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Fair Value of Financial Instruments
Fair value of financial instruments requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As June 30, 2021, the amounts reported for cash, prepaid expenses, accounts payable and accrued expenses approximate the fair value because of their short maturities.
Results of Operations for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.
Revenue and Cost of Sales
For the three months ended June 30, 2021, we had revenue of $931,422 compared to $1,055,000 for the three months ended June 30, 2020. Cost of sales for the three months ended June 30, 2021 was $754,922 compared to $902,729 for the three months ended June 30, 2020. Revenue and cost of sales decreased primarily due to our subsidiary’s decrease in revenue due to the impact of the Covid-19 pandemic.
Our gross profit was $176,500 and $152,271 for the three months ended June 30, 2021 and 2020, respectively.
Selling and Marketing Expenses
For the three months ended June 30, 2021, we had selling and marketing expenses of $1,133,056 compared to $338,877 for the three months ended June 30, 2020. The increase in selling and marketing expenses was primarily due to an increase in non-cash marketing and investor relations shares for services expense.
General and Administrative Expenses
For the three months ended June 30, 2021, we had general and administrative expenses of $961,623 compared to $522,238 for the three months ended June 30, 2020. The increase in general and administrative expenses was primarily due to an increase in professional and legal fees including non-cash, shares for services expense and outside services.
Research and Development Cost
For the three months ended June 30, 2021, our research and development cost was $0 compared to $25,085 for the three months ended June 30, 2020. The decrease in research and development costs was primarily due to decrease in salary expense.
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Other Income and (Expenses)
Other income and (expenses) increased by $3,488,016 to $(8,973,824) for the three months ended June 30, 2021, compared to $(5,485,808) for the three months ended June 30, 2020. The increase was due primarily to an increase in loss on non-cash accounts associated with the change in fair value of the derivatives in the amount of $2,980,820, increase in interest expense of $172,320, an increase in loss on conversion of preferred stock in the amount of $333,306, an increase in unrealized gain on investment securities in the amount of $6,800, and a gain on write off of accounts payable in the amount of $6,250.
Net Income/(Loss)
Our net loss increased by $4,669,665 to $10,903,503 for the three months ended June 30, 2021, compared to net loss of $6,233,838 for the three months ended June 30, 2020. The majority of the increase in net loss was due primarily to an increase in other expenses associated with the loss on net change in fair value of derivative instruments estimated each period. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price, volatility, variable conversion prices based on market prices defined in the respective agreements and probabilities of certain outcomes based on managements’ estimates. These inputs are subject to significant changes from period to period, therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.
Results of Operations for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.
Revenue and Cost of Sales
For the six months ended June 30, 2021, we had revenue of $1,727,600 compared to $2,147,438 for the six months ended June 30, 2020. The cost of sales for the six months ended June 30, 2021 was $1,446,946 compared to $1,781,874 for the six months ended June 30, 2020. Revenue and cost of sales decreased primarily due to our subsidiary’s decrease in revenue, due to the impact of the Covid-19 pandemic.
Our gross profit was $280,654 and $365,564 for the six months ended June 30, 2021 and 2020, respectively.
Selling and Marketing Expenses
For the six months ended June 30, 2021, we had selling and marketing expenses of $1,564,564, compared to $713,800 for the six months ended June 30, 2020. The increase in selling and marketing expenses was primarily due to an increase in non-cash marketing and investor relations shares for services expense.
General and Administrative Expenses
General and administrative expenses were $1,779,673 for the six months ended June 30, 2021, compared to $1,072,149 for the six months ended June 30, 2020. The increase in general and administrative expenses was primarily due to an increase in professional and legal fees including non-cash, shares for services expense and outside services.
Research and Development Cost
Research and development cost for the six months ended June 30, 2021 and 2020, were $0 and $54,067, respectively. The decrease in research and development costs was primarily due to decrease in salary expense.
Other Income and (Expenses)
Other income and (expenses) increased by $42,541,854 to $(25,674,364) for the six months ended June 30, 2021, compared to $16,867,490 for the six months ended June 30, 2020. The increase was due primarily to an increase in loss on non-cash accounts associated with the change in fair value of the derivatives in the amount of $41,163,398, increase in interest expense of $257,940, an increase in loss on conversion and exchange of preferred stock in the amount of $1,125,347, offset by an increase in unrealized gain on investment securities in the amount of $43,600, and a gain on write off of accounts payable in the amount of $6,250.
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Net Income/(Loss)
Our net loss for the six months ended June 30, 2021 was $(28,761,078), compared to net income of $15,367,576 for the six months ended June 30, 2020. The majority of the increase in net loss was due primarily to an increase in other expenses associated with the loss on net change in derivative instruments estimated each period. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price, volatility, variable conversion prices based on market prices defined in the respective agreements and probabilities of certain outcomes based on managements’ estimates. These inputs are subject to significant changes from period to period, therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.
The condensed consolidated financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The accompanying condensed consolidated financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The Company has not generated significant revenue, and has negative cash flows from operations, which raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, raising additional capital and increasing sales. We obtained funds from investors during the six months ending June 30, 2021. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in case of equity financing.
In connection with our sale of Series M Preferred Stock conducted under Regulation A under the Securities Act, we may be subject to claims for rescission. If this occurs, it may have a negative effect on our liquidity.
At June 30, 2021 and December 31, 2020, we had cash of $537,209 and $409,591, respectively, and a working capital deficit of $43,327,041 and $21,699,304, respectively. The increase in working capital deficit was due primarily to an increase in non-cash derivative liabilities, an increase in cash, and contract assets, offset by a decrease in loans payables, accounts payable, contract receivable, prepaid expenses, and accrued expenses.
During the six months ended June 30, 2021, we raised an aggregate of $2,560,175 from the sale of preferred stock in private placements. Our ability to continue as a going concern is dependent upon raising capital from financing transactions and future revenue.
Net cash used in operating activities was $2,459,382 for the six months ended June 30, 2021, compared to $1,393,670 for the period ended June 30, 2020. The increase in cash used in operating activities was primarily due to an increase in accounts payable and a decrease in contract liabilities.
Net cash flows used in investing activities for the six months ended June 30, 2021 and 2020, were $9,000 and $1,500, respectively. The increase in investing activities was due to payment of accounts payable for purchase of fixed assets.
Net cash flows provided by financing activities was $2,591,070 for the six months ended June 30, 2021, as compared to $1,691,242 for the six months ended June 30, 2020. The net increase in cash provided by financing activities was due primarily to an increase in proceeds from issuance of preferred stock, increase in payments of preferred dividends and repayment of loan to related party. To date we have principally financed our operations through the sale of our common and preferred stock and the issuance of debt.
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We do not have any material commitments for capital expenditures during the next twelve months. Although our proceeds from the issuance of securities together with revenue from operations are currently sufficient to fund our operating expenses in the near future, we will need to raise additional funds in the future so that we can maintain and expand our operations. Therefore, our future operations are dependent on our ability to secure additional financing, which may not be available on acceptable terms, or at all. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we may have to curtail our marketing and development plans and possibly cease our operations.
We have estimated our current average burn, and believe that we have assets to ensure that we can function without liquidation for a limited time, due to our cash on hand, growing revenue, and our ability to raise money from our investor base. Based on the aforesaid, we believe we have the ability to continue our operations for the immediate future and will be able to realize assets and discharge liabilities in the normal course of operations. However, there cannot be any assurance that any of the aforementioned assumptions will come to fruition and as such we may only be able to function for a short time.
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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, due to small staff size, our disclosure controls and procedures were ineffective to ensure that information required to be disclosed in reports filed under the Exchange Act, is recorded, processed, summarized and reported within the required time periods specified in the SEC’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 quarterly 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.
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 fiscal quarter ended June 30, 2021 that has materially affected, or are reasonably likely to materially affect, the 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.
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PART II
Item 1. Legal Proceedings.
As of filing date, there are no material updates to the settlement of the dispute between OriginClear, Inc., and its developmental subsidiary, WaterChain, Inc., and RDI Financial, LLC, an alleged assignee of Interdependence, Inc., as disclosed in greater detail in the Form 10-Q for the period ended March 31, 2021, filed by OriginClear on August 4, 2021. All parties are fully and timely performing under the settlement agreement, and no further issues or proceedings, or fees and costs, are anticipated.
As of filing date, there are no material updates to the ongoing litigation between OriginClear, Inc., Progressive Water Treatment, Inc., and T. Riggs Eckelberry, individually, and GTR Source LLC, as disclosed in greater detail in the Form 10-Q for the period ended March 31, 2021, filed by OriginClear on August 4, 2021.
As of filing date, there are no material updates to the settlement of the dispute between OriginClear, Inc., Progressive Water Treatment, Inc., and T. Riggs Eckelberry, individually, and C6 Capital LLC, as disclosed in greater detail in the Form 10-Q for the period ended March 31, 2021, filed by OriginClear on August 4, 2021.
As of filing date, there are no material updates to the ongoing litigation between OriginClear, Inc. and Auctus Fund, LLC, as disclosed in greater detail in the Form 10-Q for the period ended March 31, 2021, filed by OriginClear on August 4, 2021.
There are no material updates to the settlement of the dispute between OriginClear, Inc., Progressive Water Treatment, Inc., and T. Riggs Eckelberry, individually, and iKAHN Capital LLC, as disclosed in greater detail in the Form 10-Q for the period ended March 31, 2021, filed by OriginClear on August 4, 2021. As of the period ended June 30, 2021, the iKahn matter has been fully settled and closed.
On July 26, 2021, Progressive Water Treatment, Inc., OriginClear, Inc., T. Riggs Eckelberry, individually, and Marc Stevens, individually (collectively, the “Expansion Plaintiffs”) and Expansion Capital Group, LLC (“Expansion”) settled a dispute between the parties relating to a prior agreement the parties entered into on December 30, 2019. Pursuant to the terms of the confidential settlement, the Expansion Plaintiffs filed a Notice of Nonsuit with Prejudice in the action commenced by the Expansion Plaintiffs in District Court for the 429th Judicial District, Collin County, Texas and on August 25, 2021, Expansion terminated the UCC-1 security interest filed against the Expansion Plaintiffs.
On August 10, 2021, Progressive Water Treatment, Inc., OriginClear, Inc., and T. Riggs Eckelberry, individually (collectively, the “Yellowstone Plaintiffs”) and Yellowstone Capital, LLC (“Yellowstone”) settled a dispute between the parties relating to a secured merchant agreement that the Yellowstone Plaintiffs and Yellowstone entered into on July 19, 2018. Pursuant to the terms of the confidential settlement, the Yellowstone Plaintiffs have dismissed with prejudice the action commenced by the Yellowstone Plaintiffs in Supreme Court for the State of New York in and for the County of Erie and the appeal in the New York Supreme Court Appellate Division, Fourth Department, and on September 1, 2021, Yellowstone terminated the UCC-1 security interest filed against the Yellowstone Plaintiffs.
Item 1A. Risk Factors.
Not required for a smaller reporting company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the three months ended June 30, 2021, we issued and sold an aggregate of 1,401 shares of Series R Preferred Stock, 64,975,000 Series A Warrants, and 37,825,000_Series B Warrants, to accredited investors for an aggregate purchase price of $1,400,750.
During the three months ended June 30, 2021, we issued and sold an aggregate of 50 shares of Series U Preferred Stock, 500,000 Series A Warrants, 200,000_Series B Warrants, and 50,000 Series C Warrants, to accredited investors for an aggregate purchase price of $50,000.
In connection with the foregoing, the Company relied upon the exemption from registration provided by Section 4(a)(2) under the Securities Act of 1933, as amended, for transactions not involving a public offering.
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Item 3. Defaults Upon Senior Securities.
As of the date of the filing of this report, the Company has 260 shares of Series F preferred stock outstanding, 160 of which the Company was required to, and failed to redeem on September 1, 2020, for an aggregate redemption price (equal to the stated value) of $160,000.
As of the date of the filing of this report, the Company has 25 shares of Series G preferred stock outstanding which the Company was required to, and failed to redeem on April 30, 2021, for an aggregate redemption price (equal to the stated value) of $25,000.
As of the date of the filing of this report, the Company has 235 shares of Series I preferred stock outstanding which the Company was required to, and failed to redeem between May 2, 2021 and June 10, 2021, for an aggregate redemption price (equal to the stated value) of $235,000.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information.
None
Item 6. Exhibits.
| * | Filed herewith. |
| ** | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| September 16, 2021 | ORIGINCLEAR, INC. |
| /s/ T. Riggs Eckelberry | |
| T. Riggs Eckelberry | |
| Chief Executive Officer | |
| (Principal Executive Officer) and |
| /s/ Prasad Tare | |
| Prasad Tare | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
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Exhibit 3.1
SECOND AMENDED AND RESTATED
CERTIFICATE OF DESIGNATION OF
RIGHTS, POWERS,
PREFERENCES, PRIVILEGES AND RESTRICTIONS OF THE
SERIES V CONVERTIBLE STOCK OF
ORIGINCLEAR, INC.
I, T. Riggs Eckelberry, hereby certify that I am the Chief Executive Officer of OriginClear, Inc. (the “Company”), a corporation organized and existing under the Nevada Revised Statutes (the “NRS”), and further do hereby certify:
That, pursuant to the authority expressly conferred upon the Board of Directors of the Company (the “Board”) by the Company’s Articles of Incorporation, as amended (the “Articles of Incorporation”), the Board on September 13, 2021 adopted the following resolutions creating a series of shares of Preferred Stock designated as Series V Convertible Preferred Stock, none of which shares has been issued:
RESOLVED, that the Board designates the Series V Convertible Preferred Stock and the number of shares constituting such series, and fixes the rights, powers, preferences, privileges and restrictions relating to such series in addition to any set forth in the Articles of Incorporation as follows:
SECTION 1. DESIGNATION OF SERIES. There shall hereby be created and established by this Certificate of Designation of Rights, Powers, Preferences, Privileges and Restrictions (this “Certificate of Designation”) a series of preferred stock of the Company designated as “Series V Convertible Preferred Stock” (the “Preferred Shares”). The authorized number of Preferred Shares initially constituting such series shall be Three Thousand (3,000). Each share of the Series V shall have a stated face value of $100,000 (the "Stated Value"). Each share of Series V Preferred Stock is convertible into shares of Common Stock of the Corporation at the conversion rate set forth in Section 6(a)(i) below, as adjusted in accordance with Section 6 and Section 7 below. Capitalized terms not defined herein shall have the meaning as set forth in Section 11. The Series V Preferred Stock shall have the rights, preferences and privileges set forth below:
SECTION 2. DIVIDENDS. The holders of Series V Preferred Stock (the "Holders") shall not be entitled to receive dividends on any outstanding shares of Series V Preferred Stock.
SECTION 3. DISTRIBUTION OF NET PROFITS FROM SUBSIDIARY. The Holders shall be entitled to receive, on a pro rata and pari passu basis, an annual distribution of twenty-five percent (25%) of the annual net profits one of the Company's wholly-owned "Water On Demand" subsidiaries designated by each Holder in that Holder's Series V Convertible Preferred Stock Subscription Agreement (the "Subsidiary"), paid within three (3) months of Subsidiary's accounting year-end. In the event the Company causes Subsidiary's business operations to be terminated, or sells Subsidiary or substantially all of its assets, in addition to the distribution of net profits of Subsidiary for the period of Subsidiary's accounting year prior to such termination or sale, the Holders shall be entitled to receive the distribution of, on a pro rata, pari passu basis, 25% of the proceeds, net of the Subsidiary’s liabilities, from the liquidation of Subsidiary's assets following such termination, or 25% of the proceeds, net of the Subsidiary’s liabilities, derived from any such sale of Subsidiary or substantially all of its assets.
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SECTION 4. LIQUIDATION PREFERENCE. In the event of any liquidation, dissolution or winding up of the Company, wither voluntary or involuntary, the holder of each outstanding share of the Series V Preferred Stock shall be entitled to receive, out of the assets of the Company legally available for distribution to its shareholders upon such liquidation, whether such assets are capital or surplus of any nature, for each share of Series V Preferred Stock an amount equal to the Stated Value per share (as adjusted for any combinations, consolidations, stock distributions or stock dividends with respect to such shares), plus any accrued but unpaid distributions of the annual net profits of Subsidiary as provided in Section 3 above, before any distribution or payment may be made to the holders of any Common Stock.
SECTION 5. VOTING. The Series V Preferred Stock will not entitle the Holders to any voting rights except as required under applicable law.
SECTION 6. CONVERSION. Each Preferred Share shall be convertible into validly issued, fully paid and non-assessable shares of Common Stock on the terms and conditions set forth in this Section 6.
(a) Holder’s Conversion Right. At any time or times on or after the Initial Issuance Date, each Holder shall be entitled to convert any whole number of Series V Preferred Shares into validly issued, fully paid and non-assessable shares of Common Stock at the Conversion Rate (as defined below).
(i) Conversion Rate. The number of validly issued, fully paid and non-assessable shares of Common Stock issuable upon conversion of each Preferred Share pursuant to 6(a) shall be calculated by dividing that number that is the Stated Value of a share of Series V Preferred Stock, multiplied by the product of (1) the number of shares of Series V Preferred Stock being converted and (2) the sum of the Investment Priority Multiplier (the "IPM," as defined below) and the Investment Tier Multiplier (the "ITM," as defined below), divided by the lesser of (1) the Closing Price of the Company's Common Shares (as defined below) and (2) the Conversion Price Lock (as defined below) (the “Conversion Rate”). The Conversion Rate is represented by this equation:
(Stated Value) x (Number of Preferred Shares being Converted) x (IPM + ITM)
The lesser of the Closing Price and the Conversion Price Lock
(A) Closing Price. The Closing Price ("Closing Price"), for any date, shall be calculated as follows: (i) if the Company’s shares of common stock are listed or quoted on the OTCQB or a registered national securities exchange, the most recent bid price per share of the Company's common stock as reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (ii) if the Company’s common stock is not then listed or quoted on the OTCQB and if prices for the Company’s common stock are then reported by the OTC Pink tier of the OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Company’s common stock so reported; or (iii) in all other cases, the fair market value of a share of the Company’s common stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company.
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(B) Conversion Price Lock. The Conversion Price Lock shall initially be set at $0.25 for the initial investors in the Company's current Series V offering (the "Series V Offering"); however, the Company may at its sole discretion at any times during the Series V Offering increase the Conversion Price Lock in any increments for subsequent Series V investors.
(C) Investment Priority Multiplier. It is the Company's intent to incentivize and reward earlier Series V investors through a higher conversion rate than the Conversion Rate that may be offered to later Series V investors. This multiplier shall initially be set at (1.5), and at the Company's sole discretion may be reduced for subsequent Series V investors in any increments down to no lower than (1.0) at any time during the current Series V offering (the "Series V Offering").
(D) Investment Tier Multiplier. It is the Company's intent to incentivize and reward Series V investors making larger investments in the Series V Offering. Accordingly, a further increase of the Conversion Rate for Series V investors based on certain investment tiers shall be applied according to the following table:
| Size of Series V Investment | Investment Tier Multiplier | |||
| Up to $4,999,999 | 1 | |||
| $5,000,000 to $19,999,999 | 1.1 | |||
| $20,000,000 to $49,999,999 | 1.2 | |||
| $50,000,000 to $74,999,999 | 1.3 | |||
| $75,000,000 to $99,999,999 | 1.4 | |||
| $100,000,000 and above | 1.5 | |||
(ii) Fractional Shares. No fractional shares of Common Stock are to be issued upon the conversion of any Preferred Shares. If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share.
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(b) Mechanics of Conversion. The conversion of each Preferred Share shall be conducted in the following manner:
(i) Holder’s Conversion. To convert a Preferred Share into validly issued, fully paid and non-assessable shares of Common Stock on any date (a “Conversion Date”), a Holder shall deliver (whether via facsimile or otherwise), for receipt on or prior to 11:59 p.m., New York time, on such date, a copy of an executed notice of conversion of the share(s) of Preferred Shares subject to such conversion in the form attached hereto as Exhibit I (the “Conversion Notice”) to the Company. If required under any provision of this Section 6, within five (5) Trading Days following a conversion of any such Preferred Shares as aforesaid, such Holder shall surrender to a nationally recognized overnight delivery service for delivery to the Company the original certificates representing the share(s) of Preferred Shares so converted as aforesaid.
(ii) Company’s Response. On or before the second (2nd) Trading Day following the date of receipt of a Conversion Notice, the Company shall transmit by facsimile an acknowledgment of confirmation, in the form attached hereto as Exhibit II, of receipt of such Conversion Notice to such Holder and the transfer agent for the Company’s Common Stock (the “Transfer Agent”), which confirmation shall constitute an instruction to the Transfer Agent to process such Conversion Notice in accordance with the terms herein. On or before the second (2nd) Trading Day following the date of receipt by the Company of such Conversion Notice, the Company shall (1) provided that the Transfer Agent is participating in DTC Fast Automated Securities Transfer Program, credit such aggregate number of shares of Common Stock to which such Holder shall be entitled to such Holder’s or its designee’s balance account with DTC through its Deposit and Withdrawal at Custodian system, or (2) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver (via reputable overnight courier) to the address as specified in such Conversion Notice, a certificate, registered in the name of such Holder or its designee, for the number of shares of Common Stock to which such Holder shall be entitled. If the number of Preferred Shares represented by the Preferred Share Certificate(s) submitted for conversion is greater than the number of Preferred Shares being converted, then the Company shall, if requested by such Holder, as soon as practicable and in no event later than three (3) Trading Days after receipt of the Preferred Share Certificate(s) and at its own expense, issue and deliver to such Holder (or its designee) a new Preferred Share Certificate representing the number of Preferred Shares not converted.
(iii) Record Holder. The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of Preferred Shares shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date.
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(iv) Company’s Failure to Timely Convert. If the Company shall fail, for any reason or for no reason, except in the case that the relevant Preferred Share Certificate is required to be and shall not have been timely received by the Transfer Agent, to issue to a Holder within three (3) Trading Days after the Company’s receipt of a Conversion Notice (whether via facsimile or otherwise) (the “Share Delivery Deadline”), a certificate for the number of shares of Common Stock to which such Holder is entitled and register such shares of Common Stock on the Company’s share register or to credit such Holder’s or its designee’s balance account with DTC for such number of shares of Common Stock to which such Holder is entitled upon such Holder’s conversion of any Preferred Shares (as the case may be) (a “Conversion Failure”), then, in addition to all other remedies available to such Holder, such Holder, upon written notice to the Company, (x) may void its Conversion Notice with respect to, and retain or have returned (as the case may be) any Preferred Shares that have not been converted pursuant to such Holder’s Conversion Notice, provided that the voiding of a Conversion Notice shall not affect the Company’s obligations to make any payments that have accrued prior to the date of such notice pursuant to the terms of this Certificate of Designation or otherwise and (y) the Company shall pay in cash to such Holder on each day after such second (2nd) Trading Day that the issuance of such shares of Common Stock is not timely effected an amount equal to 1.0 % of the product of (A) the aggregate number of shares of Common Stock not issued to such Holder on a timely basis and to which the Holder is entitled and the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the last possible date on which the Company could have issued such shares of Common Stock to the Holder. In addition to the foregoing, if within three (3) Trading Days after the Company’s receipt of a Conversion Notice (whether via facsimile or otherwise), the Company shall fail to issue and deliver a certificate to such Holder and register such shares of Common Stock on the Company’s share register or credit such Holder’s or its designee’s balance account with DTC for the number of shares of Common Stock to which such Holder is entitled upon such Holder’s conversion hereunder (as the case may be), and, if on or after such second (2nd) Trading Day, such Holder (or any other Person in respect, or on behalf, of such Holder) purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Holder of all or any portion of the number of shares of Common Stock, or a sale of a number of shares of Common Stock equal to all or any portion of the number of shares of Common Stock, issuable upon such conversion that such Holder so anticipated receiving from the Company, then, in addition to all other remedies available to such Holder, the Company shall, within three (3) Business Days after such Holder’s request and in such Holder’s discretion, either pay cash to such Holder in an amount equal to such Holder’s total purchase price (including brokerage commissions and other out-of-pocket expenses, if any) for the shares of Common Stock so purchased (including, without limitation, by any other Person in respect, or on behalf, of such Holder) (the “Buy-In Price”), at which point the Company’s obligation to so issue and deliver such certificate or credit such Holder’s balance account with DTC for the number of shares of Common Stock to which such Holder is entitled upon such Holder’s conversion hereunder (as the case may be) (and to issue such shares of Common Stock) shall terminate, or (ii) promptly honor its obligation to so issue and deliver to such Holder a certificate or certificates representing such shares of Common Stock or credit such Holder’s balance account with DTC for the number of shares of Common Stock to which such Holder is entitled upon such Holder’s conversion hereunder (as the case may be) and pay cash to such Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock multiplied by (B) the lowest Closing Sale Price of the Common Stock on any Trading Day during the period commencing on the date of the applicable Conversion Notice and ending on the date of such issuance and payment under this clause (ii).
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(v) Pro Rata Conversion; Disputes. In the event the Company receives a Conversion Notice from more than one Holder for the same Conversion Date and the Company can convert some, but not all, of such Preferred Shares submitted for conversion, the Company shall convert from each Holder electing to have Preferred Shares converted on such date a pro rata amount of such Holder’s Preferred Shares submitted for conversion on such date based on the number of Preferred Shares submitted for conversion on such date by such Holder relative to the aggregate number of Preferred Shares submitted for conversion on such date.
(vi) Book-Entry. Notwithstanding anything to the contrary set forth in this Section 6, upon conversion of any Preferred Shares in accordance with the terms hereof, no Holder thereof shall be required to physically surrender the certificate representing the Preferred Shares to the Company following conversion thereof unless (A) the full or remaining number of Preferred Shares represented by the certificate are being converted (in which event such certificate(s) shall be delivered to the Company as contemplated by this 6(b)(vi)) or (B) such Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting reissuance of Preferred Shares upon physical surrender of any Preferred Shares. Each Holder and the Company shall maintain records showing the number of Preferred Shares so converted by such Holder and the dates of such conversions or shall use such other method, reasonably satisfactory to such Holder and the Company, so as not to require physical surrender of the certificate representing the Preferred Shares upon each such conversion. In the event of any dispute or discrepancy, such records of the Company establishing the number of Preferred Shares to which the record holder is entitled shall be controlling and determinative in the absence of manifest error. A Holder and any transferee or assignee, by acceptance of a certificate, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of any Preferred Shares, the number of Preferred Shares represented by such certificate may be less than the number of Preferred Shares stated on the face thereof. Each certificate for Preferred Shares shall bear the following legend:
ANY TRANSFEREE OR ASSIGNEE OF THIS CERTIFICATE SHOULD CAREFULLY REVIEW THE TERMS OF THE CORPORATION’S CERTIFICATE OF DESIGNATION RELATING TO THE SHARES OF SERIES V PREFERRED STOCK THAT MAY BE REPRESENTED BY THIS CERTIFICATE, INCLUDING SECTION 6(b)(vi) THEREOF. THE NUMBER OF SHARES OF SERIES V PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE MAY BE LESS THAN THE NUMBER OF SHARES OF SERIES V PREFERRED STOCK STATED ON THE FACE HEREOF PURSUANT TO SECTION 6(b)(vi) OF THE CERTIFICATE OF DESIGNATION RELATING TO THE SHARES OF SERIES V PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE.
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(c) Taxes. The Company shall pay any and all documentary, stamp, transfer (but only in respect of the registered holder thereof), issuance and other similar taxes that may be payable with respect to the issuance and delivery of shares of Common Stock upon the conversion of Preferred Shares.
(d) Limitation on Beneficial Ownership. Notwithstanding anything to the contrary set forth in this Certificate of Designation, at no time may all or a portion of the Series V Preferred Stock be converted if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by the Holder at such time, the number of shares of Common Stock that would result in the Holder beneficially owning (as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and the rules thereunder) more than 4.99% of all of the Common Stock outstanding at such time (the "4.99% Beneficial Ownership Limitation"); provided, however, that, upon the Holder providing the Corporation with sixty-one (61) days' advance notice (the "4.99% Waiver Notice") that the Holder would like to waive this Section 6(d) with regard to any or all shares of Common Stock issuable upon conversion of the Series V Preferred Stock, this Section 6(d) will be of no force or effect with regard to all or a portion of the Series V Preferred Stock referenced in the 4.99% Waiver Notice but shall in no event waive the 9.99% Beneficial Ownership Limitation described below. Notwithstanding anything to the contrary set forth in this Certificate of Designation, at no time may all or a portion of the Series V Preferred Stock be converted if the number of shares of Common Stock to be issued pursuant to such conversion, when aggregated with all other shares of Common Stock owned by the Holder at such time, would result in the Holder beneficially owning (as determined in accordance with Section 13(d) of the 1934 Act and the rules thereunder) in excess of 9.99% of the then-issued and outstanding shares of Common Stock outstanding at such time (the "9.99% Beneficial Ownership Limitation" and the lower of the 9.99% Beneficial Ownership Limitation and the 4.99% Beneficial Ownership Limitation then in effect, the "Maximum Percentage"). By written notice to the Company, a holder of Series V Preferred Stock may from time to time decrease the Maximum Percentage to any other percentage specified in such notice. For purposes hereof, in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (1) the Company's most recent Annual Report on Form I 0-K, Quarterly Report on Form l0-Q, Current Report on Form 8-K or other public filing wi1h the Securities and Exchange Commission, as the case may be, (2) a more recent public announcement by the Company or (3) any other notice by the Company setting forth the number of shares of Common Stock outstanding. For any reason at any time, upon the written or oral request of a holder of Series V Preferred Stock, the Company shall within three (3) Business Days confirm orally and in writing to such holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including the Series V Preferred Stock, by the Holder and its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported, that in any event are convertible or exercisable, as the case may be, into shares of the Company's Common Stock within 60 days' of such calculation and that are not subject to a limitation on conversion or exercise analogous to the limitation contained herein. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 6(d) to correct this paragraph (or any portion hereof) that may be defective or inconsistent with the intended beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation.
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SECTION 7. REDEMPTION RIGHTS. The Company may, in its sole discretion, at any time while the Series V Preferred Stock is outstanding, redeem all or any portion of the outstanding Series V Preferred Stock upon the issuance to the Holders of such number of the Company's common shares, valued at the Closing Price on the effective date of such redemption (as calculated in Section 6(a)(i)(A) herein), as shall equal the Stated Value (as adjusted for any combinations, consolidations, stock distributions or stock dividends with respect to such shares) plus any accrued but unpaid distributions of 25% of Subsidiary's annual net profits. In the event the Company exercises such redemption right for less than all of the then-outstanding shares of Series V Preferred Stock, the Company shall redeem the outstanding shares of the Holders on a pro rata basis.
SECTION 8. AUTHORIZED COMMON SHARES. So long as any of the Preferred Shares are outstanding, the Company shall take all action necessary to keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Preferred Shares, as of any given date, 100% of the number of shares of Common Stock as shall from time to time be necessary to effect the conversion of all of the Preferred Shares.
SECTION 9. NOTICES. Any notice required hereby to be given to the Holders shall be deemed given if deposited in the United States mail, postage prepaid, or provided by fax or e-mail, to each Holder of record at his, her or its address appearing on the books of the Company.
SECTION 10. SHAREHOLDER MATTERS; AMENDMENT.
(a) Shareholder Matters. Any shareholder action, approval or consent required, desired or otherwise sought by the Company pursuant to the NRS, the Articles of Incorporation, this Certificate of Designation or otherwise with respect to the issuance of Preferred Shares may be effected by written consent of the Company’s shareholders or at a duly called meeting of the Company’s shareholders, all in accordance with the applicable rules and regulations of the NRS. This provision is intended to comply with the applicable sections of the NRS permitting shareholder action, approval and consent affected by written consent in lieu of a meeting.
(b) Amendment. This Certificate of Designation or any provision hereof may be amended by obtaining the affirmative vote at a meeting duly called for such purpose, or written consent without a meeting in accordance with the NRS, of the Holders owning a majority of the Preferred Shares remaining at the time of the vote, voting separate as a single class, and with such other shareholder approval, if any, as may then be required pursuant to the NRS and the Articles of Incorporation.
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SECTION 11. CERTAIN DEFINED TERMS. For purposes of this Certificate of Designation, the following terms shall have the following meanings:
(a) “1934 Act” means the Securities Exchange Act of 1934, as amended.
(b) “Affiliate” as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, “control” (including, with correlative meanings, the terms “controlling”, “controlled by” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise. For purposes of this definition, a Person shall be deemed to be “controlled by” a Person if such latter Person possesses, directly or indirectly, power to vote 10% or more of the securities having ordinary voting power for the election of directors of such former Person.
(c) “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.
(d) “Common Stock” means (i) the Company’s shares of common stock, par value $0.0001 per share, and (ii) any capital stock into which such common stock shall have been changed or any share capital resulting from a reclassification of such common stock.
(e) “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity or a government or any department or agency thereof.
(f) “Principal Market” means The OTCQB, OTCQX, Pink Sheets, the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange or NYSE American.
(g) “Subscription Agreement” means that certain Subscription Agreement by and among the Company and the initial holders of Preferred Shares, dated as of the Initial Issuance Date, as may be amended from time in accordance with the terms thereof.
(h) “Subsidiaries” shall have the meaning as set forth in the Subscription Agreement.
(i) “Successor Entity” means the Person or Entity formed by, resulting from or surviving any Fundamental Transaction or the Person or Entity with which such Fundamental Transaction shall have been entered into.
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(j) “Trading Day” means, as applicable, (i) with respect to all price determinations relating to the Common Stock, any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded, provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time) or (ii) with respect to all determinations other than price determinations relating to the Common Stock, any day on which The New York Stock Exchange (or any successor thereto) is open for trading of securities.
(k) “Transaction Document” means the Subscription Agreement and any other document related thereto.
(l) “Voting Stock” of a Person means capital stock of such Person of the class or classes pursuant to which the holders thereof have the general voting power to elect, or the general power to appoint, at least a majority of the board of directors, managers, trustees or other similar governing body of such Person (irrespective of whether or not at the time capital stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency).
SECTION 12. MISCELLANEOUS.
(a) The headings of the various sections and subsections of this Certificate of Designation are for convenience of reference only and shall not affect the interpretation of any of the provisions of this Certificate of Designation.
(b) Whenever possible, each provision of this Certificate of Designation shall be interpreted in a manner as to be effective and valid under applicable law and public policy. If any provision set forth herein is held to be invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or otherwise adversely affecting the remaining provisions of this Certificate of Designation. No provision herein set forth shall be deemed dependent upon any other provision unless so expressed herein. If a court of competent jurisdiction should determine that a provision of this Certificate of Designation would be valid or enforceable if a period of time were provision in question effective and valid under applicable law.
(c) Except as may otherwise be required by law, the shares of the Series V Preferred Stock shall not have any powers, designations, preferences or other special rights, other than those specifically set forth in this Certificate of Designation.
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Exhibit 31.1
CERTIFICATION
I, T. Riggs Eckelberry, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of OriginClear, Inc., for the quarter ended June 30, 2021; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others, particularly during the period in which this report is being prepared; |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function): |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| September 16, 2021 | /s/ T. Riggs Eckelberry |
| T. Riggs Eckelberry | |
| Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Prasad Tare, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of OriginClear, Inc., for the quarter ended June 30, 2021; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others, particularly during the period in which this report is being prepared; |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function): |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| September 16, 2021 | /s/ Prasad Tare |
| Prasad Tare | |
|
Chief Financial Officer
|
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of OriginClear, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, T. Riggs Eckelberry, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
| September 16, 2021 | By: | /s/ T. Riggs Eckelberry |
| T. Riggs Eckelberry | ||
| Chief Executive Officer (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of OriginClear, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Prasad Tare, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
| September 16, 2021 | By: | /s/ Prasad Tare |
| Prasad Tare | ||
| Chief Financial Officer (Principal Financial Officer) |