Originclear, Inc 10-Q for FY2021 Q3
Originclear, Inc. (OCLN)
About this 10-Q
Originclear, Inc filed this 10-Q on November 16, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.12M
- up 22.2% from $917.32K a year earlier
- Net income
- $18.4M
- up 266.6% from net income of $5.02M a year earlier
- Diluted EPS
- $0.02
- down 33.3% from $0.03 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 November 15, 2021 there were
TABLE OF CONTENTS
| Page | ||
| PART I | ||
| Item 1. | Financial Statements. | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 28 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 41 |
| Item 4. | Controls and Procedures. | 42 |
| PART II | ||
| Item 1. | Legal Proceedings. | 43 |
| Item 1A. | Risk Factors. | 44 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | 44 |
| Item 3. | Defaults Upon Senior Securities. | 44 |
| Item 4. | Mine Safety Disclosures. | 44 |
| Item 5. | Other Information. | 44 |
| Item 6. | Exhibits. | 44 |
| SIGNATURES | 45 | |
i
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORIGINCLEAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Contracts receivable | ||||||||
| Contract assets | ||||||||
| Inventory assets | ||||||||
| Other receivable | ||||||||
| Prepaid expenses | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| NET PROPERTY AND EQUIPMENT | ||||||||
| OTHER ASSETS | ||||||||
| Long term assets held 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 10% Convertible Preferred Stock, | - | |||||||
| Series W 10% Convertible Preferred Stock, | - | |||||||
| Series X 10% 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 | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
1
ORIGINCLEAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
AND 2020
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 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 | ||||||||||||||||
| Impairment of asset for sale | ( | ) | ( | ) | ||||||||||||
| Gain on write off loans payable | ||||||||||||||||
| Gain/(Loss) on conversion of preferred stock | ( | ) | ( | ) | ||||||||||||
| Loss on exchange of preferred stock | ( | ) | ||||||||||||||
| Unrealized gain(loss) on investment securities | ( | ) | ||||||||||||||
| Gain 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 (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 | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
2
ORIGINCLEAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2021 AND 2020
| NINE MONTHS ENDED SEPTEMBER 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 | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||||||
| 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 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 | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series O Preferred stock | ( |
) | ||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series P Preferred stock | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||
| Issuance of Series M Preferred stock through a private placement | - | - | ||||||||||||||||||||||||||||||||||||||
| Exchange of Series F Preferred stock to Series Q Preferred stock | - | - | ||||||||||||||||||||||||||||||||||||||
| Reclassification of non-cash adjustment | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
| Reclassification of preferred stock | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||
| Reclassification from equity to mezzanine | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
| Gain on conversion of Series L Preferred stock | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
| Subscription payable-common stock | - | - | ||||||||||||||||||||||||||||||||||||||
| Comprehensive gain | - | - | ||||||||||||||||||||||||||||||||||||||
| Net Income | - | - | ||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2020 (unaudited) | $ | $ | $ | $ | ( |
) | ( |
) | ( |
) | $ | |||||||||||||||||||||||||||||
| NINE MONTHS ENDED SEPTEMBER 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 | ( |
) | ||||||||||||||||||||||||||||||||||||||
| Common stock issued in conjunction with the sale of Series X Preferred stock | ( |
) | ||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series U Preferred stock | ( |
) | ||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series W Preferred stock | ( |
) | ||||||||||||||||||||||||||||||||||||||
| Common stock issued for make good shares for Series P Preferred Stock | - | - | ( |
- | - | - | - | - | ||||||||||||||||||||||||||||||||
| Issuance of Series M Preferred stock through a private placement | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of Series R Preferred stock through a private placement | - | - | ||||||||||||||||||||||||||||||||||||||
| Exercise of warrants purchased for cash | ||||||||||||||||||||||||||||||||||||||||
| Issuance of Series T Preferred stock in exchange for property | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of Series U Preferred stock through a private placement | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of Series X 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 issuance of Preferred Stock | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Loss on conversion of Preferred Stock | - | - | ||||||||||||||||||||||||||||||||||||||
| Adjustment to Series L Preferred stock | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
| Issuance of common stock warrants deemed dividends | - | - | ( |
) | ||||||||||||||||||||||||||||||||||||
| Stock based compensation | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Net Loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 (unaudited) | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||||||
The accompany notes are an integral part of these unaudited condensed consolidated financial statements
3
ORIGINCLEAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER, 2021 AND 2020
(Unaudited)
| Nine Months Ended | ||||||||
| September 30, 2021 | September 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 | ||||||||
| Stock compensation expense | - | |||||||
| 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 | ||||||||
| Loss on issuance of preferred stock | - | |||||||
| SBA loans forgiven | ( | ) | ||||||
| Impairment of assets held for sale | ||||||||
| (Gain) Loss on conversion of preferred stock | ( | ) | ||||||
| (Gain) on write off of other payables | ( | ) | ||||||
| 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 | ( | ) | ( | ) | ||||
| NET 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, net | ( | ) | ( | ) | ||||
| Net payments on cumulative preferred stock dividends payable | ||||||||
| Payoff on convertible promissory notes | ( | ) | - | |||||
| Proceeds for the purchase of warrants | - | |||||||
| Net proceeds for issuance of preferred stock for cash - mezzanine classification | ||||||||
| Net proceeds for issuance of preferred stock for cash – liability classification | - | |||||||
| Proceeds from convertible notes | - | |||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| NET INCREASE 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 | $ | $ | ||||||
| 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 | $ | $ | ( | ) | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
4
ORIGINCLEAR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
SEPTEMBER 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 nine months ended September 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 (‘WOD’) as a potential revenue source. The WOD model intends 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. 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. WOD requires both funding for WOD #1, and such a first client, to launch commercially. On October 29, 2021, the Company received initial funding for WOD #1 and began talks with a prospective client for a pilot DBOO project.
During the nine month period ended
September 30, 2021, the Company ventured into acquiring real estate assets to finance water projects. An 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. The real property
has been listed actively on the market to be sold. On September 13, 2021, the Company received an offer for the residential property
for $
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 nine months ended September 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 $
5
| 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.
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 nine months ended September 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 Nine months Ended September 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.
6
| September 30, 2021 | Anti-dilutive shares | Dilutive shares | ||||||
| Warrant shares | ||||||||
| Convertible debt shares | ||||||||
| Preferred shares | ||||||||
| September 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.
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 September 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.
7
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 September 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 $
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 nine
months ended September 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.
8
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 September 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.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
| ● | Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; |
| ● | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
| ● | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
The following table presents certain investments and liabilities of the Company’s financial assets measured and recorded at fair value on the Company’s balance sheets on a recurring basis and their level within the fair value hierarchy as of September 30, 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, September 30, 2021 | $ | $ | $ | $ | ||||||||||||
| Total liabilities measured at fair value | $ | $ | $ | $ | ||||||||||||
9
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 September 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:
| 9/30/2021 | |||
| 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.
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.
10
In September 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 condensed 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
Series D-1
On April 13, 2018, the Company designated
Series E
On August 14, 2018, the Company designated
11
Series F
On August 14, 2018, the Company designated
Series G
On January 16, 2019, the Company designated
Series I
On April 3, 2019, the Company designated
12
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
The Company has actively listed the residential real property for sale and on September 13, 2021, received an offer for the property for $464,000, which is $116,000 below the original independent appraisal of $580,000. The offer was accepted and the Company is currently completing all formalities required to close the transaction. Based on the above indicator of impairment, during the quarter ended September 30, 2021, the Company adjusted the original value of the long term asset for sale from $630,000 to $514,000 on the balance sheet and recorded an impairment of $116,000 in the consolidated statement of operations.
16
Series U
On May 26, 2021, the Company designated
Series V
On
September 16, 2021, the Company filed a certificate of withdrawal of the Company’s certificate of designation of Series V preferred
stock, and filed a certificate of designation for a new series of Series V preferred stock with the Secretary of State of Nevada. Pursuant
to the Series V COD, the Company designated
Series W
On April 28, 2021, the Company designated
17
Series X
On August 10, 2021, the Company designated
As of September 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
Nine months ended September 30, 2021
The Company issued
The Company issued
The Company issued
The Company issued
The Company issued
The Company issued
Nine months ended September 30, 2020
The Company issued
The Company
issued
The Company
issued
The Company
issued
The Company
issued
18
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.
Restricted Stock to Employees, Board and Consultants
Between May 12, 2016, and September
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
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
19
During the nine months ended September 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 nine months ended September 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 September 30, 2021 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) | |||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
During the period ended September 30,
2021, the Company issued
At September 30, 2021, the aggregate
intrinsic value of the warrants outstanding was $
20
| 5. | CONVERTIBLE PROMISSORY NOTES |
As of September 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 two years are as follows:
| Period Ended September | Amount | |||
| 2022 | $ | |||
| 2023 | ||||
| $ | ||||
At September 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 $
21
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
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 $
22
We evaluated the financing transactions in accordance with ASC Topic 815, Derivatives and Hedging, and determined that the conversion feature of the convertible promissory notes was not afforded the exemption for conventional convertible instruments due to its variable conversion rate. The note has no explicit limit on the number of shares issuable, so they did not meet the conditions set forth in current accounting standards for equity classification. The Company elected to recognize the note under paragraph 815-15-25-4, whereby, there would be a separation into a host contract and derivative instrument. The Company elected to initially and subsequently measure the note in its entirety at fair value, with changes in fair value recognized in earnings. The Company recorded a derivative liability representing the imputed interest associated with the embedded derivative. The derivative liability is adjusted periodically according to the stock price fluctuations.
The derivative liability recognized in the financial statements as
of September 30, 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 nine months ended September 30, 2021 and 2020.
| Nine months Ended | ||||||||
| September 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.
23
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 nine months ended September 30, 2021 and for the year ended December 31, 2020, was $
| 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 $
24
Small Business Administration Loans
Between April 30, 2020 and September 12, 2020, the Company received
total loan proceeds in the amount of $
| 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 September 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. | ASSETS HELD FOR SALE |
During the nine months ended September
30, 2021, the Company acquired real estate assets to be held for sale to finance their water projects, by issuing 630 shares of preferred
stock for a fair value of $
| 12. | 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 $
25
Litigation
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 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. As of September 30, 2021, the Expansion matter is fully closed.
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 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.
For the period ended September 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.
For the period ended September 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 September 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 September 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.
| 13. | SUBSEQUENT EVENTS |
Management has evaluated subsequent events according to the requirements of ASC TOPIC 855 and has determined that there are the following subsequent events:
Between October 1, 2021 and November 5, 2021, the Company entered
into subscription agreements with certain accredited investors pursuant to which the Company sold an aggregate of 255 shares of the Company’s
Series U preferred stock for an aggregate purchase price of $
Between November
1, 2021 and November 9, 2021, the Company entered into subscription agreements with certain accredited investors pursuant to which
the Company sold an aggregate of 1.5 shares of the Company’s Series V preferred stock for an aggregate purchase price of $150,000.
On November 2, 2021, holders of the Company’s Series
J Preferred Stock converted an aggregate of
Between October 4, 2021 and November
2, 2021, holders of the Company’s Series L Preferred Stock converted an aggregate of
Between October 4, 2021 and November
2, 2021, holders of the Company’s Series O Preferred Stock converted an aggregate of
26
On November 2, 2021, holders of the
Company’s Series P Preferred Stock converted an aggregate of
Between October 4, 2021 and November 2, holders of the Company’s
Series Q Preferred Stock converted an aggregate of
Between October 4, 2021 and November 2, 2021, holders of
the Company’s Series R Preferred Stock converted an aggregate of
Between October 4, 2021 and November
2, 2021, holders of Series U Preferred Stock converted an aggregate of
On November 2, 2021, holders of Series
W Preferred Stock converted an aggregate of
Between October 11, 2021 and November 15, 2021, the Company issued to consultants an aggregate of 2,312,237 shares of the Company’s common stock for services including an aggregate of 470,719 shares of common stock for settlement of prior consulting agreement.
27
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 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. |
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Water on Demand™: a new strategic direction.
OriginClear is developing 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.
On 29th October 2021, the Company received initial funding for WOD #1 and began talks with a prospective client for a pilot DBOO project.
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
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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.
Another benefit to pursuing private customers is that the private sector is relatively less regulated than the public sector.
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 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.
The Company is now actively evaluating potential clients for a test of water treatment and purification services on a pay-per-gallon basis, but a first agreement has not been reached.
On November 1, 2021, the Company received initial funding for WOD #1 and began talks with a prospective client for a pilot DBOO project.
$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)).
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.
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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”.
On September 21, 2021, the Company announced it engaged San Diego-based Baja Technologies Inc. (“Baja”) to develop and help launch ClearAqua. The first step in the process is the white paper, which has been drafted and is currently being evaluated by counsel for regulatory compliance.
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.
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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. |
| 2. | We manage relationships with partners worldwide who are licensees and business partners. |
| 3. | OTG 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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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.
In the first nine months of 2021, PWT received $9,188,252 in firm orders. This contrasts with $3,506,020 received in firm orders by PWT for the entirety of 2020. Orders are only an indication of future revenue.
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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.
On September 28, 2021, the Company announced that MWS deployed its first Pondster™ brand modular lagoon treatment system at a Mobile Home Park (MHP) or trailer park, in Troy, Alabama. At the heart of the system is an innovative biofilm treatment process which holds promise as a core technology offering of the Company.
After just eight days, the lagoon exhibited rapid improvement in water quality (see before and after image), which is continuing.
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In the first nine months of 2021, MWS received $1,154,950 in firm orders. 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.
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 |
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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 September 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 September 30, 2021 compared to the three months ended September 30, 2020.
Revenue and Cost of Sales
For the three months ended September 30, 2021, we had revenue of $1,120,687 compared to $917,320 for the three months ended September 30, 2020. Cost of sales for the three months ended September 30, 2021, was $790,336 compared to $934,708 for the three months ended September 30, 2020. Revenue increased primarily due to increase in sales orders for both PWT and MWS business lines.
Our gross profit (loss) was $330,351 and $(17,388) for the three months ended September 30, 2021, and 2020, respectively.
Selling and Marketing Expenses
For the three months ended September 30, 2021, we had selling and marketing expenses of $636,481 compared to $339,759 for the three months ended September 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 September 30, 2021, we had general and administrative expenses of $1,006,041 compared to $782,810 for the three months ended September 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 September 30, 2021, our research and development cost was $0 compared to $29,334 for the three months ended September 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 $13,518,301 to $19,720,189 for the three months ended September 30, 2021, compared to $6,201,888 for the three months ended September 30, 2020. The increase was due primarily to an increase in gain on non-cash accounts associated with the change in fair value of the derivatives in the amount of $13,388,849, increase in other income by $352,437, which includes SBA loans and a grant forgiven in the amount of $355,000, an increase in gain on write off of accounts payables in the amount of $151,000, an increase in interest expense of $81,537, an increase in impairment of asset held for sale in the amount of $116,000, an increase in loss on conversion of preferred stock in the amount of $164,448 and an increase in unrealized loss on investment securities in the amount of $12,000.
Net Income/(Loss)
Our net income increased by $13,378,949 to $18,397,115 for the three months ended September 30, 2021, compared to net income of $5,018,166 for the three months ended September 30, 2020. The majority of the increase in net income was due primarily to an increase in other income associated with the gain 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 nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.
Revenue and Cost of Sales
For the nine months ended September 30, 2021, we had revenue of $2,848,287 compared to $3,064,758 for the nine months ended September 30, 2020. The cost of sales for the nine months ended September 30, 2021, was $2,237,282 compared to $2,716,582 for the nine months ended September 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 $611,005 and $348,176 for the nine months ended September 30, 2021, and 2020, respectively.
Selling and Marketing Expenses
For the nine months ended September 30, 2021, we had selling and marketing expenses of $2,201,045, compared to $1,053,559 for the nine months ended September 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 $2,785,713 for the nine months ended September 30, 2021, compared to $1,853,760 for the nine months ended September 30, 2020. The increase in general and administrative expenses was primarily due to an increase in professional and legal fees, including an increase in non-cash shares issued for services.
Research and Development Cost
Research and development cost for the nine months ended September 30, 2021, and 2020, were $0 and $83,400, respectively. 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 $(28,980,942) to $(5,954,176) for the nine months ended September 30, 2021, compared to $23,026,766 for the nine months ended September 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 $27,774,550, an increase in interest expense of $296,865, which includes non-cash amortization of debt discount of in the amount of $52,288, an increase in loss on conversion and exchange of preferred stock in the amount of $1,204,795, an increase in loss on issuance of preferred stock for services in the amount of $125,000, an increase in loss on impairment of an asset held for sale in the amount of $116,000, offset by an increase in unrealized gain on investment securities in the amount of $31,600, a gain on write off of accounts payable in the amount of $157,250 and an increase in other income by $347,418 due to SBA loans and grant forgiven.
Net Income/(Loss)
Our net loss for the nine months ended September 30, 2021, was $(10,363,963), compared to net income of $20,344,331 for the nine months ended September 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 nine months ending September 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 September 30, 2021, and December 31, 2020, we had cash of $558,829 and $416,121, respectively, and a working capital deficit of $23,017,681 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 long term asset held for sale, cash, contract receivable, offset by a decrease in loans payables, accounts payable, prepaid expenses, and accrued expenses.
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During the nine months ended September 30, 2021, we raised an aggregate of $3,725,175 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 $3,560,033 for the nine months ended September 30, 2021, compared to $2,636,761 for the period ended September 30, 2020. The increase in cash used in operating activities was primarily due to a decrease in accounts payable, with an increase in contract liabilities and contracts receivables.
Net cash flows used in investing activities for the nine months ended September 30, 2021, and 2020, were $13,500 and $9,386, 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 $3,716,241 for the nine months ended September 30, 2021, as compared to $2,913,478 for the nine months ended September 30, 2020. The net increase in cash provided by financing activities was due primarily to an increase in proceeds from issuance of preferred stock, offset by decrease due to repayment of loans. To date we have principally financed our operations through the sale of our common and preferred stock and the issuance of debt.
We do not have any material commitments for capital expenditures during the next twelve months. Although our proceeds from the issuance of securities together with revenue from operations are currently sufficient to fund our operating expenses in the near future, we will need to raise additional funds in the future so that we can maintain and expand our operations. Therefore, our future operations are dependent on our ability to secure additional financing, which may not be available on acceptable terms, or at all. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we may have to curtail our marketing and development plans and possibly cease our operations.
We have estimated our current average burn, and believe that we have assets to ensure that we can function without liquidation for a limited time, due to our cash on hand, growing revenue, and our ability to raise money from our investor base. Based on the aforesaid, we believe we have the ability to continue our operations for the immediate future and will be able to realize assets and discharge liabilities in the normal course of operations. However, there cannot be any assurance that any of the aforementioned assumptions will come to fruition and as such we may only be able to function for a short time.
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.
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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 September 30, 2021, that has materially affected, or are reasonably likely to materially affect, the 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.
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 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. As of September 30, 2021, the Expansion matter is fully closed.
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 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.
As of the 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 the 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 the 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 the 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.
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Item 1A. Risk Factors.
Not required for a smaller reporting company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
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 50 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 $50,000.
As of the date of the filing of this report, the Company has 235 shares of Series I preferred stock outstanding which the Company was required to, and failed to redeem between May 2, 2021, and June 10, 2021, for an aggregate redemption price (equal to the stated value) of $235,000.
As of the date of the filing of this report, the Company has 581 shares of Series K preferred stock issued and outstanding. Of these 581 shares, the Company was required to, but has filed to redeem an aggregate of 357 such shares of as of the date hereof, for an aggregate redemption price (equal to the stated value) of $357,150.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information.
None
Item 6. Exhibits.
| Exhibit Number |
Description of Exhibit | |
| 31.1 | Certification by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.* | |
| 31.2 | Certification by Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.* | |
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** | |
| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** | |
| 101.INS | Inline XBRL Instance Document.* | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document.* | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document.* | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document.* | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document.* | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document.* | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).* |
| * | 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.
| November 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 |
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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 September 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.
| November 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 September 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.
| November 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 September 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.
| November 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 September 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.
| November 16, 2021 | By: | /s/ Prasad Tare |
| Prasad Tare | ||
| Chief Financial Officer (Principal Financial Officer) |