The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
The accompanying notes are
an integral part of these unaudited condensed consolidated financial statements
The accompanying notes are
an integral part of these unaudited condensed consolidated financial statements
The accompanying notes are
an integral part of these unaudited condensed consolidated financial statements
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
MARCH 31, 2023
The accompanying
unaudited condensed consolidated financial statements of OriginClear, Inc. (the “Company”) have been prepared in accordance
with accounting principles generally accepted in the United States of America for interim financial information and with the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments
considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2023
are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. 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, 2022.
The Company operates an outsourced
water treatment business called Water On Demand (“WOD”), which it conducts through its wholly owned subsidiary, Water on Demand,
Inc. (“WODI”). The WOD model offers private businesses water self-sustainability as a service, the ability to pay for
water treatment and purification services on a per-gallon basis, with a percentage of net profits paid to investors and stakeholders.
This is commonly known as Design-Build-Own-Operate or “DBOO”. In addition to WODI, four
subsidiaries were originally established to house capital dedicated to this program. For efficiency, during the three months ended
March 31, 2023, the Company reorganized these subsidiaries into a single WOD Subsidiary. As of the period ended March 31, 2023, the Company
received aggregate funding in the amount of $345,000 through the sale of its Series Y Preferred
Stock dedicated to the Water on Demand program. The Company is currently evaluating opportunities
to contract with commercial customers to outsource water treatment as a managed service and pay by the gallon for the treatment of its
dirty water as an alternative to having to come up with significant up-front capital. While these evaluations are ongoing, without guarantee
as to when or if these will take place, the Company is placing funds from the sale of Series Y Preferred Stock into various company initiatives
to support WOD. While there is no obligation to do so, the Company has made special distributions of funds to Series Y holders in lieu
of share of profits, paid after the end of each quarter.
Going Concern
The accompanying financial statements have been
prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and
commitments in the normal course of business. The accompanying financial statements do not reflect any adjustments that might result if
the Company is unable to continue as a going concern. These factors, among others raise substantial doubt about the Company’s
ability to continue as a going concern. Our independent auditors, in their report on our audited financial statements for the year ended
December 31, 2022 expressed substantial doubt about our ability to continue as a going concern.
The ability of the Company to continue as a going
concern and appropriateness of using the going concern basis is dependent upon, among other things, achieving a level of profitable operations
and receiving additional cash infusions. During the three months ended March 31, 2023, the Company obtained funds from the issuance
of convertible note agreements and from sale of its preferred stock. Management believes this funding will continue from its’ current
investors and from new investors. The Company also generated revenue of $2,006,394 and has standing purchase orders and open invoices
with customers, which will provide funds for operations. Management believes the existing shareholders, the prospective new investors
and future sales will provide the additional cash needed to meet the Company’s obligations as they become due and will allow the
development of its core business operations. No assurance can be given that any future financing will be available or, if available, that
it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain restrictions
on our operations, in the case of debt financing or cause substantial dilution for our stockholders, in case of equity financing.
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICES |
This summary of significant accounting policies
of the Company is presented to assist in understanding the Company’s financial statements. The financial statements and notes are
representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies
conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation
of the financial statements.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of OriginClear, Inc. and its wholly owned operating subsidiaries, Progressive Water Treatment, Inc., Water on Demand Inc., Water On Demand1,
Inc., Water On Demand2, Inc., Water On Demand3, Inc. and OriginClear Technologies, Ltd. All material intercompany transactions have been
eliminated upon consolidation of these entities. As of March 31, 2023, the Company reorganized Water On Demand2, Inc. and Water On Demand3,
Inc and combined the subsidiaries into Water On Demand1, Inc.
Cash and Cash Equivalent
The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents. During the reorganization of Water On Demand1, Inc., Water On Demand2, Inc., and Water On Demand3, Inc., the restricted cash balance on
the financial statements as of December 31, 2022 was combined with the overall cash balance of the consolidated Company during the three
months ended March 31, 2023.
Use of Estimates
The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant
estimates include estimates used to review the Company’s impairments and estimations of long-lived assets, revenue recognition on
percentage of completion type contracts, allowances for uncollectible accounts, warranty reserves, inventory valuation, derivative liabilities
and other conversion features, fair value investments, valuations of non-cash capital stock issuances and the valuation allowance on deferred
tax assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable
in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Net Earnings (Loss) per Share Calculations
Basic loss per share calculation is
computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares available. Diluted
earnings per share is computed similarly to basic earnings per share except that the denominator is increased to include securities or
other contracts to issue common stock that would have been outstanding if the potential common shares had been issued and if the additional
common shares were dilutive. The Company’s diluted earnings per share were not the same as the basic loss per share for the three
months ended March 31, 2023 and 2022, respectively, as the inclusion of any potential shares would have had an anti-dilutive effect due
to the Company generating a loss.
| |
For the Three Months
Ended March 31, | |
| |
2023 | | |
2022 | |
Loss to common shareholders (Numerator) | |
$ | (2,201,253 | ) | |
$ | (3,576,267 | ) |
| |
| | | |
| | |
Basic weighted average number of common shares outstanding (Denominator) | |
| 1,062,100,064 | | |
| 416,397,236 | |
| |
| | | |
| | |
Diluted weighted average number of common shares outstanding (Denominator) | |
| 1,062,100,064 | | |
| 416,397,236 | |
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.
Revenue Recognition
We recognize revenue when services are performed,
and at the time of shipment of products, provided that evidence of an arrangement exists, title and risk of loss have passed to the customer,
fees are fixed or determinable, and collection of the related receivable is reasonably assured.
Revenues and related costs on construction contracts
are recognized as the performance obligations for work are satisfied over time in accordance with Accounting Standards Codification (“ASC”)
606, Revenue from Contracts with Customers. Under ASC 606, revenue and associated profit, will be recognized as the customer obtains control
of the goods and services promised in the contract (i.e., performance obligations). All un-allocable indirect costs and corporate general
and administrative costs are charged to the periods as incurred. However, in the event a loss on a contract is foreseen, the Company will
recognize the loss as it is determined.
Revisions in cost and profit estimates during
the course of the contract are reflected in the accounting period in which the facts for the revisions become known. Provisions for estimated
losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions,
and estimated profitability, including those arising from contract penalty provisions, and final contract settlements, may result in revisions
to costs and income, which are recognized in the period the revisions are determined.
Contract receivables are recorded on contracts
for amounts currently due based upon progress billings, as well as retention, which are collectible upon completion of the contracts.
Accounts payable to material suppliers and subcontractors are recorded for amounts currently due based upon work completed or materials
received, as are retention due subcontractors, which are payable upon completion of the contract. General and administrative expenses
are charged to operations as incurred and are not allocated to contract costs.
Contract Receivable
The Company bills its customers in
accordance with contractual agreements. The agreements generally require billing to be on a progressive basis as work is completed. Credit
is extended based on evaluation of clients financial condition and collateral is not required. The Company maintains an allowance for
doubtful accounts for estimated losses that may arise if any customer is unable to make required payments. Management performs a quantitative
and qualitative review of the receivables past due from customers on a monthly basis. The Company records an allowance against uncollectible
items for each customer after all reasonable means of collection have been exhausted, and the potential for recovery is considered remote.
The allowance for doubtful accounts was $17,315 and $17,315 as of March 31, 2023 and December 31, 2022, respectively. The net contract
receivable balance was $2,132,326 and $2,479,123 at March 31, 2023 and December 31, 2022, respectively.
Indefinite Lived Intangibles and Goodwill Assets
The Company accounts for business combinations
under the acquisition method of accounting in accordance with ASC 805, “Business Combinations,” where the total purchase price
is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values. The
purchase price is allocated using the information currently available, and may be adjusted, up to one year from acquisition date, after
obtaining more information regarding, among other things, asset valuations, liabilities assumed and revisions to preliminary estimates.
The purchase price in excess of the fair value of the tangible and identified intangible assets acquired less liabilities assumed is recognized
as goodwill.
The Company tests for indefinite lived intangibles
and goodwill impairment in the fourth quarter of each year and whenever events or circumstances indicate that the carrying amount of the
asset exceeds its fair value and may not be recoverable. In accordance with its policies, the Company performed a qualitative assessment
of indefinite lived intangibles and goodwill at March 31, 2023 and 2022, respectively, and determined there was no impairment of indefinite
lived intangibles and goodwill.
Prepaid Expenses
The Company
records expenditures that have been paid in advance as prepaid expenses. The prepaid expenses are initially recorded as assets, because
they have future economic benefits, and are expensed at the time the benefits are realized. The prepaid expenses balance was $11,372 and
$25,000 at March 31, 2023 and December 31, 2022, respectively.
Property and Equipment
Property and equipment are stated at cost. Gain
or loss is recognized upon disposal of property and equipment, and the asset and related accumulated depreciation are removed from the
accounts. Expenditures for maintenance and repairs are charged to expense as incurred, while expenditures for addition and betterment
are capitalized. Furniture and equipment are depreciated on the straight-line method and include the following categories:
Estimated Life | |
|
Machinery and equipment | |
5-10 years |
Furniture, fixtures and computer equipment | |
5-7 years |
Vehicles | |
3-5 years |
Leasehold improvements | |
2-5 years |
|
|
3/31/2023 |
|
|
12/31/22 |
|
Machinery and Equipment |
|
$ |
383,569 |
|
|
$ |
383,569 |
|
Computer Equipment |
|
|
66,493 |
|
|
|
66,493 |
|
Furniture |
|
|
29,810 |
|
|
|
29,810 |
|
Leasehold Improvements |
|
|
26,725 |
|
|
|
26,725 |
|
Vehicles |
|
|
64,276 |
|
|
|
64,276 |
|
Demo Units |
|
|
36,139 |
|
|
|
36,139 |
|
|
|
|
607,012 |
|
|
|
607,012 |
|
Less accumulated depreciation |
|
|
(437,771 |
) |
|
|
(429,943 |
) |
Net Property and Equipment |
|
$ |
169,241 |
|
|
$ |
177,069 |
|
Long-lived assets held and used by the Company
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
In the event that the facts and circumstances indicate that the cost of any long-lived assets may be impaired, an evaluation of recoverability
would be performed following generally accepted accounting principles.
Depreciation expense during the three months ended
March 31, 2023 and 2022, was $7,829 and $10,733, respectively.
Other Assets
Long
Term Asset Held for Sale
On March
1, 2021, the Company issued an aggregate of 630 shares of Series T Preferred Stock to an accredited investor (the “Purchaser’’)
per terms of a Securities Purchase Agreement (the “SPA”). Per the SPA, the Company agreed to sell to Purchaser, and Purchaser
agreed to purchase from the Company, 630 shares of the Company’s Series T, and two-year cashless warrants to acquire 25,200,000 shares
of the Company’s common stock, valued at $0.05 per share per terms of the SPA, which may be exercised at any time in whole
or in part. The purchaser and the Company agreed that in lieu of the purchase price for the Series T, the Purchaser transferred to the
Company real property, with an aggregate value agreed to be $630,000 based on an appraisal from an international independent company.
The real property consists of residential real estate in Buenos Aires Argentina valued at $580,000, and eight undeveloped lots valued
at $50,000 in Terralta private neighborhood development. The real property exchanged for 630 shares of Series T was recorded
at $630,000 and reflected on the balance sheet as a long term asset for sale.
The Company
has actively listed the residential real property for sale since July 2021. However, based on indicator of impairment, during the
year ended December 31, 2021, the Company adjusted the original value of the long term asset for sale from $630,000 to $514,000 on the
balance sheet and recorded an impairment of $116,000 in the consolidated financial statements.
Throughout
the year 2022, the Company continued its efforts to sell the residential real property and after evaluating several offers, it is now
actively pursuing an offer for $400,000, which is $114,000 below the previously adjusted value and is indicative of the current real estate
market conditions in Buenos Aires, Argentina. Based on that indicator of impairment, during the year ended December 31, 2022, the Company
further adjusted the previous value of the long term asset for sale from $514,000 to $400,000 on the balance sheet and recorded an impairment
of $114,000 in the consolidated financial statements.
Stock-Based Compensation
The Company periodically issues stock options
and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts
for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting
Standards Board whereas the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts
for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the Financial
Accounting Standards Board whereas the value of the stock compensation is based upon the measurement date as determined at either a) the
date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments
is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In
certain circumstances where there are no future performance requirements by the non-employee, option grants vest immediately and the total
stock-based compensation charge is recorded in the period of the measurement date.
Accounting for Derivatives
The Company evaluates all its financial instruments
to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments
that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each
reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments,
the Company uses a probability weighted average series Binomial lattice option pricing models to value the derivative instruments at inception
and on subsequent valuation dates.
The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative
instrument liabilities are classified in the balance sheet as current or non-current based on whether or not the net-cash settlement of
the derivative instrument could be required within 12 months of the balance sheet date.
Fair Value of Financial Instruments
Fair Value of Financial Instruments requires disclosure
of the fair value information, whether or not to recognized in the balance sheet, where it is practicable to estimate that value. As of
March 31, 2023, the balances reported for cash, contract receivables, cost in excess of billing, prepaid expenses, accounts payable, billing
in excess of cost, and accrued expenses approximate the fair value because of their short maturities.
We adopted ASC Topic 820 for financial
instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair
value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.
Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and
the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
|
● |
Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; |
|
|
|
|
● |
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
|
|
|
|
● |
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
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 March 31, 2023.
| |
| Total | | |
| (Level 1) | | |
| (Level 2) | | |
| (Level 3) | |
Investment at fair value-securities, March 31, 2023 | |
$ | 25,004 | | |
$ | 25,004 | | |
$ | - | | |
$ | - | |
| |
| Total | | |
| (Level 1) | | |
| (Level 2) | | |
| (Level 3) | |
Derivative Liability, March 31, 2023 | |
$ | 5,703,527 | | |
$ | - | | |
$ | - | | |
$ | 5,703,527 | |
The derivative liabilities consist
of $4,331,635 for convertible notes outstanding and $1,371,892 for warrants outstanding for an aggregate of $5,703,527.
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 December 31, 2022 | |
$ | 9,578,904 | |
Net loss on conversion of debt and change in derivative liabilities | |
| (3,875,377 | ) |
Balance as of March 31, 2023 | |
$ | 5,703,527 | |
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:
| |
3/31/2023 |
Risk free interest rate | |
4.64% - 4.97% |
Stock volatility factor | |
7.02% - 152.0% |
Weighted average expected option life | |
6 mos - 5 yrs |
Expected dividend yield | |
None |
Segment Reporting
The Company’s business currently operates
in one segment based upon the Company’s organizational structure and the way in which the operations are managed and evaluated.
Marketable Securities
The Company adopted ASU 2016-01, “Financial
Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 requires investments
(except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured
at fair value with changes in fair value recognized in net income. It requires public business entities to use the exit price notion when
measuring the fair value of financial instruments for disclosure purpose, and separate presentation of financial assets and financial
liabilities by measurement category and form of financial asset. It eliminates the requirement for public business entities to disclose
the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured
at amortized cost. The Company has evaluated the potential impact this standard may have on the condensed consolidated financial statements
and determined that it had a significant impact on the condensed consolidated financial statements. The Company accounts for its investment
in Water Technologies International, Inc. as available-for-sale securities, and the unrealized gain on the available-for-sale securities
is recognized in net income.
Licensing agreement
The Company analyzed the licensing agreement using
ASU 606 to determine the timing of revenue recognition. The licensing of the intellectual property (IP) is distinct from the non-license
goods or services and has significant standalone functionality that provides a benefit or value. The functionality will not change during
the license period due to the licensor’s activities. Because the significant standalone functionality is delivered immediately,
the revenue is generally recognized when the license is delivered.
Reclassification
Certain amounts in the prior period financial
statements have been reclassified to conform to the presentation used in the current financial statements for comparative purpose. There
was no material effect on the Company’s previously issued financial statements.
Work-in-Process
The Company recognizes as an asset the accumulated
costs for work-in-process on projects expected to be delivered to customers. Work in Process includes the cost price of materials and
labor related to the construction of equipment to be sold to customers.
Recently Issued Accounting Pronouncements
Management reviewed currently issued pronouncements
and does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material
effect on the accompanying condensed financial statements.
OriginClear, Inc Preferred
Stock
Series C
On March 14, 2017, the Board of Directors
authorized the issuance of 1,000 shares of Series C preferred stock, par value $0.0001 per share, to T. Riggs Eckelberry in exchange for
his continued employment with the Company. The holder of Series C preferred stock is not entitled to receive dividends, is not entitled
to any liquidation preference and shares of Series C preferred stock does not have any conversion rights. The Series C Preferred Stock
entitles the holder to 51% of the total voting power of our stockholders. The purchase price of the Series C preferred stock was $0.0001
per share representing a total purchase price of $0.10 for 1,000 shares. As of March 31, 2023, there were 1,000 shares of Series C preferred
stock outstanding held by Mr. Eckelberry.
Series D-1
On April 13, 2018, the Company designated
50,000,000 shares of its authorized preferred stock as Series D-1 preferred stock. The shares of Series D-1 preferred stock are not entitled
to dividends and do not have a liquidation preference. Each share of Series D-1 preferred stock is convertible into 0.0005 of one share
of common stock. The Series D-1 preferred stock may not be converted to common stock to the extent such conversion would result in the
holder beneficially owning more than 4.99% of our outstanding common stock, which amount may be increased to 9.99% at the holders discretion
upon 61 days’ written notice. As of March 31, 2023, there were 31,500,000 shares of Series D-1 preferred stock issued and outstanding.
Series E
On August 14, 2018, the Company designated
4,000,000 shares of its authorized preferred stock as Series E preferred stock. The shares of Series E preferred stock are not entitled
to dividends and not have a liquidation preference. Each share of Series E preferred stock is convertible into 0.05 shares of common
stock. The shares of Series E preferred stock do not carry any voting rights. The Series E preferred stock may not be converted to
common stock to the extent such conversion would result in the holder beneficially owning more than 4.99% of our outstanding common stock
which amount may be increased to 9.99% at the holder’s discretion. During the year ended December
31, 2022, the Company issued an aggregate of 76,865 shares of common stock upon conversion of 1,537,213 shares of Series
E preferred stock. The shares were issued and exchanged within the terms of the agreement and no gain or loss was recognized. As of March
31, 2023, there were no shares of Series E preferred stock issued and outstanding.
Series F
On August 14, 2018, the Company designated
6,000 shares as Series F preferred stock. The shares of Series F preferred stock have a liquidation preference equal to the stated value
of $1,000 per share plus any accrued but unpaid dividends. The Series F preferred stock is not convertible into common stock. The holders
of outstanding shares of Series F preferred stock are entitled to quarterly dividends at the annual rate of 8% of the stated value, in
preference to any dividends on the common stock. The shares of Series F preferred stock do not carry any voting rights. The Company may,
in its sole discretion, at any time while the Series F preferred stock is outstanding, redeem all or any portion of the outstanding Series
preferred stock at a price equal to the stated value, plus any accrued but unpaid dividends. The Company was required to redeem all outstanding
shares of Series F preferred stock on September 1, 2020. As of March 31, 2023, the Company had 60
outstanding shares of Series F preferred stock, which the Company was required to, and failed to redeem on September 1, 2020, and remains
in default for an aggregate redemption price (equal to the stated value) of $60,000.
Series G
On January 16, 2019, the Company designated 6,000 shares
as Series G preferred stock, each share having a stated value of $1,000 per share and holders of Series G preferred stock are entitled
to cumulative dividends at the annual rate of 8% of the stated value, payable quarterly. The Series G preferred stock does not have
voting rights, except as required by law and is not convertible into common stock. The Company may, in its sole discretion, at any time
while the Series G preferred stock is outstanding, redeem all or any portion of the outstanding Series G preferred stock at a price equal
to the stated value plus any accrued but unpaid dividends. The Company was required to redeem such shares of Series G preferred stock
on April 30, 2021, at a price equal to the stated value plus any accrued but unpaid dividends. Pursuant to certain subscription agreements
entered into with purchasers of the Series G preferred stock, each purchaser received shares of the Company’s common stock equal
to an amount of, for each share of Series G preferred stock purchased, five hundred dollars ($500) divided by the closing price on the
date the Company receives the executed subscription documents and purchase price from such investor. As of March 31, 2023, there were 25 shares
of Series G preferred stock issued and outstanding, which the Company was required to, and failed to redeem on April 30, 2021, for an
aggregate redemption price (equal to the stated value) of $25,000.
Series I
On April 3, 2019, the Company designated 4,000 shares
of preferred stock as Series I. The Series I has a stated value of $1,000 per share. Series I holders are entitled to cumulative
dividends at the annual rate of 8% of the stated value, payable quarterly within 60 days from the end of each fiscal quarter. The
Series I is not entitled to any voting rights except as may be required by applicable law, and are not convertible into common stock.
The Company has the right to redeem the Series I at any time while the Series I are outstanding at a price equal to the stated value plus
any accrued but unpaid dividends. The Company is required to redeem the Series I two years following the date that is the later of the
(i) final closing of the tranche (as designated in the applicable subscription agreement) or (ii) the expiration date of the tranche that
such shares to be redeemed were a part of. The Company was required to redeem such shares of Series I between May 2, 2021 and June 10,
2021, at a price equal to the stated value plus any accrued but unpaid dividends. The issuances of the shares were accounted for under
ASC 480-10-25-4, which requires liability treatment for certain mandatorily redeemable financial instruments, and the cumulative dividends
are recorded as interest expense. As of March 31, 2023,
there were 25 shares of Series I preferred stock issued and outstanding which the Company was required to, and failed to redeem
by June 10, 2021, and was and remains in default for an aggregate redemption price (equal to the stated value) of $25,000.
Series J
On April 3, 2019, the Company designated 100,000 shares
of preferred stock as Series J. The Series J has a stated value of $1,000 per share and holders are entitled to receive dividends
on an as-converted basis with the Company’s common stock. The Series J preferred stock is convertible into shares of the Company’s
common stock, on the terms and conditions set forth in the Series J COD, which includes certain make-good shares for certain prior investors.
As of March 31, 2023, there were 210 shares
of Series J preferred stock issued and outstanding.
Series K
On June 3, 2019, the Company designated 4,000 shares
of preferred stock as Series K. The Series K has a stated value of $1,000 per share. Series K holders are entitled to cumulative
dividends at the annual rate of 8% of the stated value, payable quarterly within 60 days from the end of each fiscal quarter. The
Series K is not entitled to any voting rights except as may be required by applicable law, and is not convertible into common stock. The
Company has the right to redeem the Series K at any time while the Series K are outstanding at a price equal to the stated value plus
any accrued but unpaid dividends. The Company is required to redeem the Series K two years following the date that is the later of the
(i) final closing of the tranche (as designated in the applicable subscription agreement) or (ii) the expiration date of the tranche that
such shares to be redeemed were a part of. The Company is required to redeem such shares of Series K between August 5, 2021 and April
24, 2022, at a price equal to the stated value plus any accrued but unpaid dividends. The issuances of the shares were accounted for under
ASC 480-10-25-4, which requires liability treatment for certain mandatorily redeemable financial instruments, and the cumulative dividends
are recorded as interest expense. As of March 31, 2023,
there were 407 shares of Series K preferred stock issued and outstanding which the Company was required to, and failed to redeem
by April 24, 2022, and was and remains in default for an aggregate redemption price (equal to the stated value) of $407,150.
Series L
On June 3,
2019, the Company designated 100,000 shares of preferred stock as Series L. The Series L has a stated value of $1,000 per
share and holders are entitled to receive dividends on an as-converted basis with the Company’s common stock. The Series L preferred
stock is convertible into shares of the Company’s common stock, on the terms and conditions set forth in the Series L COD, which
includes certain make-good shares for certain prior investors. As of March 31, 2023,
there were 321 shares of Series L preferred stock issued and outstanding.
Series M
Pursuant to the Amended and Restated
Certificate of Designation of Series M Preferred Stock filed with the Secretary of State of Nevada on July 1, 2020, the Company designated
800,000 shares of its preferred stock as Series M Preferred Stock. Each share of Series M Preferred Stock has a stated value of $25. The
Series M Preferred Stock is not convertible into common stock. The holders of outstanding shares of Series M Preferred Stock are entitled
to receive dividends, at the annual rate of 10%, payable monthly, payable in preference and priority to any payment of any dividend on
the common stock. The Series M Preferred Stock is entitled to a liquidation preference in an amount equal to $25 per share plus any declared
but unpaid dividends, before any payments to holders of common stock. The Series M Preferred Stock have no pre-emptive or subscription
rights, and there are no sinking fund provisions applicable to the Series M Preferred Stock. The Series M Preferred Stock does not have
voting rights, except as required by law and with respect to certain protective provisions set forth in the Certificate of Designation
of Series M Preferred Stock. To the extent it may lawfully do so, the Company may, in its sole discretion, at any time when there are
outstanding shares of Series M Preferred Stock, redeem any or all of the then outstanding shares of Series M Preferred Stock at a redemption
price of $37.50 per share (150% of the stated value) plus any accrued but unpaid dividends. As of March 31, 2023, there were 40,300 shares
of Series M preferred stock issued and outstanding.
Series O
On April 27, 2020, the Company designated 2,000 shares
of preferred stock as Series O preferred stock. The Series O preferred stock has a stated value of $1,000 per share, and entitles
holders to receive cumulative dividends (i) in cash at an annual rate of 8% of the stated value, and (ii) in shares of common stock
of the Company (valued based on the conversion price as in effect on the last trading day of the applicable fiscal quarter) at an annual
rate of 4% of the stated value, payable quarterly within 60 days from the end of such fiscal quarter. The Series O preferred stock
has a liquidation preference equal to the stated value plus any accrued but unpaid dividends, in preference to the common stock. The Series
O preferred stock has no preemptive or subscription rights, and there is no sinking fund provision applicable to the Series O preferred
stock. The Series O preferred stock does not have voting rights except as required by law. The Series O preferred stock is convertible
into common stock of the Company in an amount determined by dividing 200% of the stated value of the Series O preferred stock being
converted by the conversion price, provided that, the Series O may not be converted into common stock to the extent such conversion would
result in the holder beneficially owning more than 4.99% of the Company’s outstanding common stock (which may be increased
up to 9.99% upon 61 days’ written notice). The conversion price is equal to the average closing sale price of the common stock
for the five trading days prior to the conversion date. The Company has the right (but no obligation) to redeem the Series O preferred
stock at any time while the Series O preferred stock are outstanding at a redemption price equal to the stated value plus any accrued
but unpaid dividends. The cumulative dividends are recorded as interest expense. During the three
months ended March 31, 2023, the Company issued an aggregate of 7,722,008 shares of
common stock upon conversion of 40 shares of Series O preferred stock and issued an aggregate of 238,003 shares of common
stock in prorated 4% annualized dividends which were recorded as interest expense. The shares were issued within the terms of the
agreement and no gain or loss was recognized. As of March 31, 2023, there were 190 shares
of Series O preferred stock issued and outstanding.
Series P
On April 27, 2020, the Company designated 500 shares of preferred
stock as Series P preferred stock. The Series P preferred stock has a stated value of $1,000 per share, and entitles holders to receive
dividends on an as-converted basis with the Company’s common stock. The Series P preferred stock is convertible into shares of the
Company’s common stock, on the terms and conditions set forth in the Certificate of Designation of Series P preferred stock, which
includes certain make-good shares for certain prior investors, and provided that, the Series P preferred stock may not be converted into
common stock to the extent such conversion would result in the holder beneficially owning more than 4.99% of the Company’s
outstanding common stock (which may be increased up to 9.99% upon 61 days’ written notice). The Series P preferred stock entitles
the holders to a payment on an as-converted and pari-passu basis with the common stock upon any liquidation. The Series P preferred stock
has no preemptive or subscription rights, and there is no sinking fund or redemption provisions applicable to the Series P preferred stock.
The Series P preferred stock votes on an as-converted basis with the common stock, subject to the beneficial ownership limitation. As
of March 31, 2023, there were 30 shares of Series P preferred stock issued and
outstanding.
Series Q
On August 21, 2020, the Company designated
2,000 shares of preferred stock as Series Q Preferred Stock. The Series Q Preferred Stock has a stated value of $1,000 per share, and
entitles holders to receive cumulative dividends in cash at an annual rate of 12% of the stated value, payable quarterly within 60 days
from the end of such fiscal quarter. The Series Q Preferred Stock has a liquidation preference equal to the stated value plus any accrued
but unpaid dividends, in preference to the common stock. The Series Q Preferred Stock has no preemptive or subscription rights, and there
is no sinking fund provision applicable to the Series Q Preferred Stock. The Series Q Preferred Stock does not have voting rights except
as required by law. The Series Q Preferred Stock is convertible into common stock of the Company in an amount determined by dividing 200%
of the stated value of the Series Q Preferred Stock being converted by the conversion price, provided that, the Series Q may not be converted
into common stock to the extent such conversion would result in the holder beneficially owning more than 4.99% of the Company’s
outstanding common stock (which may be increased up to 9.99% upon 61 days’ written notice). The conversion price will be equal to
the average closing sale price of the common stock for the five trading days prior to the conversion date. The Company has the right (but
no obligation) to redeem the Series Q Preferred Stock at any time while the Series Q Preferred Stock are outstanding at a redemption price
equal to the stated value plus any accrued but unpaid dividends. The cumulative dividends are recorded as interest expense. During
the three months ended March 31, 2023, the Company issued an aggregate of 4,208,756
shares of common stock upon conversion of 25 shares of Series Q preferred stock. The shares were issued and exchanged within the
terms of the agreement and no gain or loss was recognized. As of March 31, 2023, there were 590 shares
of Series Q preferred stock issued and outstanding.
Series R
On November 16, 2020, the Company designated
5,000 shares of preferred stock as Series R. The Series R has a stated value of $1,000 per share, and entitles holders to receive cumulative
dividends in cash at an annual rate of 10% of the stated value, payable quarterly within 60 days from the end of such fiscal quarter.
The Series R holders are not entitled to any voting rights except as may be required by applicable law. The Series R is convertible into
common stock of the Company in an amount determined by dividing 200% of the stated value of the Series R being converted by the conversion
price; certain prior investors will also be entitled to certain make-good shares; provided that, the Series R may not be converted into
common stock to the extent such conversion would result in the holder beneficially owning more than 4.99% of the Company’s outstanding
common stock (which may be increased up to 9.99% upon 61 days’ written notice). The conversion price will be equal to the average
closing sale price of the common stock for the five trading days prior to the conversion date. The Company has the right (but no obligation)
to redeem the Series R at any time while the Series R are outstanding at a redemption price equal to, if paid in cash, the stated value
plus any accrued but unpaid cash dividends, or, if paid in shares of common stock, in an amount of shares determined by dividing the stated
value being redeemed by the conversion price. The subscribers were offered warrants with the purchase of Series R. During
the three months ended March 31, 2023, the Company issued an aggregate of 70,652,445 shares
of common stock upon conversion of 365 shares of Series R preferred stock and the Company’s subsidiary, Water On Demand,
Inc., executed a Secured Note Purchase Agreement upon redemption of an aggregate of 100 shares of Series R preferred stock. The shares
were issued and exchanged within the terms of the agreement and no gain or loss was recognized. As of March 31, 2023,
there were 2,363 shares of Series R preferred stock issued and outstanding.
Series S
On February 5, 2021, the Company designated
430 shares of preferred stock as Series S. The Series S has a stated value of $1,000 per share, and entitles holders to receive cumulative
dividends in cash at an annual rate of 12% of the stated value, payable quarterly within 60 days from the end of such fiscal quarter.
The Series S holders are not entitled to any voting rights except as may be required by applicable law. The Series S is convertible into
common stock of the Company in an amount determined by dividing 200% of the stated value of the Series S being converted by the conversion
price, provided that, the Series S may not be converted into common stock to the extent such conversion would result in the holder beneficially
owning more than 4.99% of the Company’s outstanding common stock (which may be increased up to 9.99% upon 61 days’ written
notice). The conversion price will be equal to the average closing sale price of the common stock for the five trading days prior to the
conversion date. The Company has the right (but no obligation) to redeem the Series S at any time while the Series S are outstanding at
a redemption price equal to the stated value plus any accrued but unpaid dividends. During the three
months ended March 31, 2023, the Company issued an aggregate of 4,208,756 shares
of common stock upon conversion of 25 shares of Series S preferred stock. As of March 31, 2023, there were 145 shares of Series
S preferred stock issued and outstanding.
Series T
On
February 24, 2021, the Company designated 630 shares of preferred stock as Series T. The Series T had a stated value of $1,000 per
share. The Series T holders were not entitled to any voting rights except as may be required by applicable law. The Series T was convertible
into common stock of the Company pursuant to the Series T COD, provided that, the Series T was not to be converted into common stock to
the extent such conversion would result in the holder beneficially owning more than 4.99% of the Company’s outstanding common
stock (which may have been increased up to 9.99% upon 61 days’ written notice). On March 1, 2021, the Company issued an aggregate
of 630 shares of Series T Preferred Stock to an accredited investor (the “Purchaser’’) per terms of a Securities
Purchase Agreement (the “SPA”). Per the SPA, the Company agreed to sell to Purchaser, and Purchaser agreed to purchase
from the Company, 630 shares of the Company’s Series T, and two-year cashless warrants to acquire 25,200,000 shares
of the Company’s common stock, valued at $0.05 per share per terms of the SPA, which expired on March 1, 2023. The purchaser
of the Series T and the Company agreed that in lieu of the purchase price for the Series T, the Purchaser transferred to the Company real
property, with an aggregate value agreed to be $630,000 based on an appraisal from an international independent company. The real
property consists of residential real estate in Buenos Aires Argentina originally valued at $580,000, and eight undeveloped lots originally
valued at $50,000 in Terralta private neighborhood development. The real property exchanged for 630 shares of Series T
was recorded originally at $630,000 and reflected on the balance sheet as a long term asset for sale. The Company has actively listed
the residential real property for sale since July 2021. However, based on indicator of impairment, during the year ended December
31, 2021, the Company adjusted the original value of the long term asset for sale from $630,000 to $514,000 on the balance sheet and recorded
an impairment of $116,000 in the consolidated financial statements.
During
the period ended December 31, 2022, after evaluating several offers, the Company was considering an offer for $400,000, which is $114,000
below the previously adjusted value and is indicative of the current real estate market conditions in Buenos Aires Argentina. Based on
that indicator of impairment, during the year ended December 31, 2022, the Company further adjusted the previous value of the long term
asset for sale from $514,000 to $400,000 on the balance sheet and recorded an impairment of $114,000 in the consolidated financial statements.
The Company expects the sale to be completed in Q2, 2023. The warrants associated with Series T expired during the three months ended
March 31, 2023 and as of March 31, 2023, there were no shares of Series T preferred stock issued and outstanding.
Series U
On May 26, 2021, the Company designated 5,000 shares of preferred stock
as Series U. The Series U has a stated value of $1,000 per share. The Series U holders are not entitled to any dividends and do not have
any voting rights except as may be required by applicable law. The Series U is convertible into common stock of the Company in an amount
determined by dividing 150% of the stated value of the Series U being converted by the conversion price; certain prior investors will
also be entitled to certain make-good shares; provided that, the Series U may not be converted into common stock to the extent such conversion
would result in the holder beneficially owning more than 4.99% of the Company’s outstanding common stock (which may be increased
up to 9.99% upon 61 days’ written notice). The conversion price will be equal to the lesser of $0.20 or the average closing sale
price of the common stock for the five trading days prior to the conversion date. The Company has the right (but no obligation) to redeem
the Series U at any time at a redemption price equal to, if paid in cash, the stated value, or, if paid in shares of common stock, in
an amount of shares determined by dividing 200% of the stated value being redeemed by the conversion price then in effect, and adding
any applicable make-good shares. As of March 31, 2023, there were 385 shares of Series
U preferred stock issued and outstanding, along with 6,246,000 Series B warrants (with an exercise price of $0.25), and 1,561,500 Series
C warrants (with an exercise price of $1.00) issued and outstanding with a fair value of $10.34 on the original issuance. These warrants
associated with Series U were valued using the Black Scholes model (See Note 4).
Series W
On April 28, 2021, the Company designated
3,390 shares of preferred stock as Series W. The Series W has a stated value of $1,000 per share, and Series W holders are entitled to
cumulative dividends in cash at an annual rate of 12% of the stated value, payable quarterly. The Series W holders are not entitled to
any voting rights except as may be required by applicable law. The Series W is convertible into common stock of the Company in an amount
determined by dividing 200% of the stated value of the Series W being converted by the conversion price; provided that, the Series W may
not be converted into common stock to the extent such conversion would result in the holder beneficially owning more than 4.99% of the
Company’s outstanding common stock. The conversion price will be equal to the average closing sale price of the common stock for
the five trading days prior to the conversion date. The Company has the right (but no obligation) to redeem the Series W at any time at
a redemption price equal to the stated value plus any accrued but unpaid dividends. As of March
31, 2023, there were 820 shares of Series W preferred stock issued and outstanding.
Series X
On August 10, 2021, the Company designated
25 shares of preferred stock as Series X. The Series X had a stated value of $10,000 per share. The Series X holders were not entitled
to any dividends and did not have any voting rights except as may have been required by applicable law. The Series X was convertible into
common stock of the Company pursuant to the Series X COD, provided that, the Series X was not to be converted into common stock to the
extent such conversion would have resulted in the holder beneficially owning more than 4.99% of the Company’s outstanding common
stock (which amount may have been increased up to 9.99% upon 61 days’ written notice). Beginning on the one year anniversary of
the subscription agreement for the Series X Preferred Stock, until the two year anniversary of the subscription agreement, the holders
had the right to require the Company to redeem all of the Series X purchased by the subscriber at a price equal to 125% of the $250,000
original purchase price, or $312,500. The holders also had the right, exercisable at any time, to require the Company to redeem all of
the holder’s Series X in exchange for the issuance of shares of the Company’s common stock in an amount equal to 250% of the
original $250,000 purchase price, or $625,000, divided by the closing price of the Company’s common stock as of the date the holders
executed the subscription agreement. During the three months ended March 31, 2023,
the Company’s subsidiary, Water On Demand, Inc., executed a Secured Note Purchase Agreement upon redemption of an aggregate of 25
shares of Series X preferred stock, which had a stated value of $250,000. The shares were redeemed within the terms of the agreement and
no gain or loss was recognized. As of March 31, 2023, there were no shares of Series
X preferred stock issued and outstanding.
Series Y
On December 6, 2021, the Company
designated 3,000 shares of preferred stock as Series Y. The Series Y has an original issue price of $100,000 per share,
and holders are entitled to receive, on a pro rata and pari passu basis, annual distribution of up to 25% of annual net profits of
newly established, wholly-owned, Water On Demand subsidiaries, designated by each holder, paid within 3 months of subsidiary’s accounting
year-end. The Series Y holders are not entitled to any voting rights except as may be required by applicable law. The Series Y is convertible
into common stock of the Company pursuant to the Series Y COD, provided that, the Series Y may not be converted into common stock to the
extent such conversion would result in the holder beneficially owning more than 4.99% of the Company’s outstanding common stock
(which may be increased up to 9.99% upon 61 days’ written notice). The Company has the right (but no obligation) to redeem
the Series Y at any time at a redemption price equal to, if paid in cash, the original issue price plus any accrued but unpaid distributions
of 25% of the subsidiary’s annual net profits. In addition, the Series Y holders are entitled to receive shares of Series A
preferred stock in the Company’s subsidiary Water On Demand, Inc. During the three months ended March 31, 2023, the
Company received aggregate funding in the amount of $345,000 through the sale of Series Y preferred stock and issued an aggregate
of 63,656,525 shares of common stock upon conversion of 4.2 shares of Series Y preferred stock. As of March 31, 2023, there were 36.8 shares
of Series Y preferred stock along with 48,410,216 warrants with a fair value of $470,438 (with exercise prices between $0.13
and $0.25) issued and outstanding. The warrants were valued using the Black Scholes model (See Note 4).
Series
Z
On
February 11, 2022, the Company designated 25 shares of preferred stock as Series Z. The Series Z has an original issue
price of $10,000 per share. The Series Z holders are not entitled to dividends or any voting rights except as may be required by
applicable law. The Series Z is convertible into common stock of the Company pursuant to the Series Z COD, provided that, the Series Z
may not be converted into common stock to the extent such conversion would result in the holder beneficially owning more than 4.99%
of the Company’s outstanding common stock (which amount may be increased up to 9.99% upon 61 days’ written notice). The
Company has the right (but no obligation) to redeem the Series Z at any time at a redemption price equal to the original issue price plus
any accrued but unpaid distributions of 25% of Subsidiary’s annual net profits. On February 18, 2022, the Company issued and
sold to an accredited investor an aggregate of 25 shares of Series Z preferred stock for a purchase price of
$250,000 and issued an aggregate of 2,500,000 warrants with a fair value of $17,594 (with an exercise price of $0.10) to
Series Z holders. As of March 31, 2023, there were 25 shares of Series Z preferred
stock issued and outstanding.
As of March 31, 2023, the Company accrued
aggregate dividends in the amount of $418,807 for all series of preferred stock.
During the three months ended March
31, 2023, the Company redeemed an aggregate of 182,145,203 shares of common stock at a price of $0.01 per share with a value of $18,214
relating to Series R and Series Y conversions and settlement agreements with certain WODI convertible secured promissory note holders.
The Series J, Series L, Series M, Series
O, Series P, Series Q Series R, Series S, Series T, Series U, Series V, Series W, Series X, Series Y, and Series Z preferred stock are
accounted for outside of permanent equity due to the terms of conversion at a market component or stated value of the preferred stock.
Water On Demand, Inc. (“WODI”)
Preferred Stock
On April 22, 2022, WODI designated
50,000,000 shares of authorized Preferred Stock at $0.0001 par value per share.
Series A
On October 13, 2022, WODI designated
1,000,000 shares of its authorized preferred stock as Series A preferred stock. The shares of Series A preferred stock are reserved for
issuance to the holders of parent Company’s, OriginClear, Inc., Series Y preferred shares and issuable to the holders of the Series
Y shares at a ratio of 500:1. The holders of Series A preferred shares shall not be entitled to dividends and shall not be entitled to
a vote until such time as the Series A preferred shares are converted to common shares. Each share of Series A preferred stock shall be
convertible, at any time at the conversion ratio of 50:1, or such other rate as determined by the Board, provided, however that at no
time shall the total number of issued and outstanding Series A preferred shares, on a converted basis, be less than ten percent (10%)
(‘Dilution Floor’) of the total authorized shares of common stock (on a fully diluted basis) based upon an anticipated sale
of $20,000,000 in Series Y shares. The dilution floor shall be adjusted proportionately based upon the actual number of Series Y shares
sold. On November 7, 2022, WODI filed an Amended and Restated Certificate of Incorporation and effected a 20:1 reverse stock split with
respect to the common shares and the Series A preferred shares. As of December 31, 2022, there were 1,475 split adjusted shares of Series
A preferred stock issued and outstanding.
During the three months ended March
31, 2023, WODI issued an aggregate of 202 shares of its Series A preferred stock to certain holders of the Company’s Series Y preferred
stock at par value of $0.0001. As of March 31, 2023, there were 1,677 shares of Series A
preferred stock issued and outstanding.
Series C
On October 13, 2022, the Board of Directors authorized the issuance of 1,000,000 shares of Series C preferred stock, par value $0.0001
per share, to T. Riggs Eckelberry (the “Holder”) in exchange for his continued employment with the Company. The Holder of
Series C preferred stock is not entitled to receive dividends, is not entitled to any liquidation preference and shares of Series C preferred
stock does not have any conversion rights. The Holder of Series C preferred shares shall vote with the holders of the common shares on
an as converted basis. However, as long as any shares of Series C preferred shares are outstanding, the Company shall not, without the
affirmative vote of the Holders of a majority of the then outstanding shares of the Series C preferred shares directly and/or indirectly
(a) alter or change adversely the powers, preferences or rights given to the Series C preferred shares or alter or amend this Certificate
of Designation, (b) amend its Articles of Incorporation or other charter documents in any manner that adversely affects any rights of
the Holders, (c) increase the number of authorized shares of Series C preferred shares, or (d) enter into any agreement with respect to
any of the foregoing. Notwithstanding the foregoing, the Holder shall be entitled to vote a number of shares equal to fifty-one percent
(51%) of the total number of voting shares. As of March 31, 2023, there were 1,000,000 shares of Series C preferred stock outstanding
with a value of $100, held by Mr. Eckelberry.
OriginClear,
Inc. Common Stock
On October 20, 2022, the Company entered
into an Equity Financing Agreement (“Financing Agreement”) with GHS Investments, LLC (“GHS”), whereby GHS agreed
to purchase, at the Company’s sole discretion, up to $25,000,000 worth of the shares of the Company’s common stock (the “Shares”),
par value $0.0001 per share. In accordance with the terms of the Financing Agreement and the Registration Rights Agreement (“Registration
Agreement”) dated October 20, 2022 between the Company and GHS, the Company was required to register the Shares on Form S-1 with
the Securities and Exchange Commission as a condition precedent to GHS’s obligation to close on the purchase of the Shares. On
December 27, 2022, the Securities and Exchange Commission issued a Notice of Effectiveness of the Registration Statement filed on Form
S-1 (File Number 333-268608) for OriginClear, Inc. Per Financing Agreement, during the three months ended March 31, 2023, the Company
received an aggregate of $130,584 in equity financing and issued an aggregate of 18,645,028 shares of the Company’s common stock
to GHS.
Three
Months Ended March 31, 2023
The
Company issued 18,645,028 shares of common stock for cash, through an equity financing agreement for a total aggregate of $130,584 based
upon conversion prices ranging from $0.0064 to $0.00816.
The
Company issued 23,716,123 shares of common stock for services at fair value of $253,210, at share prices ranging from $0.0051 - $0.0135.
The
Company issued 238,003 shares of common stock for Series O preferred stock dividends payable.
The
Company issued 85,836,889 shares of common stock for settlement of conversion agreements at a fair value of $8,584.
The
Company issued 150,448,490 shares of common stock upon conversion of $875,000 of preferred stock.
The Company redeemed 182,145,203
shares of common stock at a market price of $0.01 per share in the amount of $18,214.
Three
Months Ended March 31, 2022
The
Company issued 12,461,909 shares of common stock for the settlement of convertible promissory notes in an aggregate principal
amount of $69,900, plus interest in the amount of $49,734, for a total aggregate of $119,634 based upon a conversion price of $0.00955.
The
Company issued 13,314,289 shares of common stock for services at fair value of $338,724 at share prices ranging from $0.0235 -
$0.0319.
The
Company issued 261,707 shares of common stock for Series O preferred stock dividends payable.
The
Company issued 111,010,481 shares of common stock for settlement of conversion agreements at a fair value of $11,101.
The
Company issued 1,000,000 shares of common stock upon exercise of 1,000,000 warrants at an exercise price of $0.05 per share for $50,000.
The
Company issued 1,798,562 shares of common stock at a price of $0.0695 in conjunction with the sale of Series X preferred stock and recognized
a loss of $125,000 in the financial statements.
The
Company issued 633,282 shares of common stock for make good shares for Series P preferred stock.
Restricted
Stock to CEO
Between
May 12, 2016, and January 1, 2022, the Company entered into Restricted Stock Grant Agreements (“the RSGAs”) with its Chief
Executive Officer, Riggs Eckelberry, to create management incentives to improve the economic performance of the Company and to increase
its value and stock price. All shares issuable under the RSGAs are performance based shares. The RSGAs provides for the issuance
of up to an aggregate of 242,109,214 shares of the Company’s common stock to Mr. Eckelberry provided certain milestones are met
in certain stages; a) If the Company’s consolidated gross revenue, calculated in accordance with generally accepted accounting
principles, consistently applied, equals or exceeds $15,000,000 for the trailing twelve month period as reported in the Company’s
quarterly or annual financial statements, the Company will issue up to an aggregate of 121,054,607 shares of its common stock; b) If
the Company’s consolidated operating profit (Operating Profit = Operating Revenue - Cost of Goods Sold - Operating Expenses
- Depreciation & Amortization), calculated in accordance with generally accepted accounting principles, equals or exceeds $1,500,000
for the trailing twelve month period as reported in the Company’s SEC Reports, the Company will issue up to an aggregate of 121,054,607 shares
of its common stock. The Company has not recognized any costs associated with the milestones, because achievement is not probable.
As the performance goals are achieved, the shares shall become eligible for vesting and issuance.
Restricted
Stock to the Board, Employees and Consultants
Between
May 12, 2016, and August 4, 2022, the Company entered into Restricted Stock Grant Agreements (“the BEC RSGAs”) with its members
of the Board, employees, and consultants to create management incentives to improve the economic performance of the Company and to increase
its value and stock price. All shares issuable under the BEC RSGAs are performance based shares. The BEC RSGAs provide for the issuance of
up to 287,661,971 shares of the Company’s common stock to employees and consultants provided certain milestones are met
in certain stages; a) If the Company’s consolidated gross revenue, calculated in accordance with generally accepted accounting
principles, consistently applied, equals or exceeds $15,000,000 for the trailing twelve month period as reported in the Company’s
quarterly or annual financial statements, the Company will issue up to an aggregate of 143,830,985 shares of its common stock; b)
If the Company’s consolidated operating profit Operating Profit = Operating Revenue - Cost of Goods Sold - Operating Expenses
- Depreciation & Amortization), calculated in accordance with generally accepted accounting principles, equals or exceeds
$1,500,000 for the trailing twelve month period as reported as reported in the Company’s SEC reports, the Company will issue up
to an aggregate of 143,830,985 shares of its common stock. The Company has not recognized any costs associated with the milestones,
because achievement is not probable. As the performance goals are achieved, the shares shall become eligible for vesting and issuance.
On
August 14, 2019, the Board of Directors approved an amendment to the RSGAs and BEC RSGAs to include an alternative vesting schedule for
the Grantees and on January 26, 2022, the Company amended the procedures for processing the RSGAs and BEC RSGAs. Once a Grantee is eligible
to participate in alternate vesting, then they will be added to the list of alternate vestees, enlarging the pool of vestees among which, 10%
of stock sales that are allowed under the agreement is divided for the next year. The Company then (i) calculates the value of the
Company common stock traded in the year immediately prior to the vesting year, using daily adjusted close and volume, as quoted on the
public securities trading market on which the Company’s common stock is then traded (ii) determines the cost basis of the shares,
which shall be the closing price quoted on the public securities trading market, quoted on the first trading day of the vesting year
which will be the grantee’s cost basis, and (iii) applies the 10% calculation and divides it into the number of qualifying alternate
vestees, giving the gross number of shares available to each Grantee. For each alternate vestee for each year in which there occurs a
vesting or a potential vesting, the Company (i) does a 90-day lookback from the first day of the latest vesting month, to limit cumulative
vesting of shares for each alternate vestee for the 90-day period to 1% of total Company shares of common stock outstanding for the period,
using the then current figure for shares outstanding at the time of the lookback; (ii) places the excess shares (the “Overlimit
Shares”) in suspense for issuance in the next 90-day period so that in each future 90-day period they may be issued, and (iii)
if on the 90-day lookback, cumulative issuances are less than 1% of shares outstanding, the Company will add the shares from previous
90-day lookback, if any. For the avoidance of doubt, the Company will not record any Overlimit Shares as vested until such as time as
they have been finally issued. If the fair market value of the Company’s common stock on the date the shares are vested is
less than the fair market value of the Company’s common stock on the effective date of the RSGA or BEC RSGA, then the number of
vested shares issuable (assuming all conditions are satisfied) shall be increased so that the aggregate fair market value of vested shares
issuable on the vesting date equals the aggregate fair market value that such number of shares would have had on the effective date.
Upon the occurrence of a Company performance goal, the right to participate in the alternate vesting schedule will terminate, and the
vesting of the remaining unvested shares will be as set forth under the restricted stock award agreement.
During the three months ended March
31, 2023, per electing and qualifying under the alternative vesting schedule, the Company issued an aggregate of 2,754,073 shares of Company’s
common stock relating to the RSGAs and an aggregate of 6,076,786 shares of Company’s common stock relating to
the BEC RSGAs.
Warrants
During
the three months ended March 31, 2023, the Company issued 2,680,000 purchase warrants, associated with the preferred stocks. A summary
of the Company’s warrant activity and related information follows for the three months ended March 31, 2023:
| |
3/31/2023 | |
| |
Number
of Warrants | | |
Weighted
average exercise price | |
Outstanding - beginning of period | |
| 93,344,989 | | |
$ | 0.1217 | |
Granted | |
| 2,680,000 | | |
$ | 0.125 | |
Exercised | |
| - | | |
| - | |
Expired | |
| (25,200,000 | ) | |
$ | (0.05 | ) |
Outstanding - end of period | |
| 70,824,989 | | |
$ | 0.1473 | |
At
March 31, 2023, the weighted average remaining contractual life of warrants outstanding:
| | |
2023 | |
| | |
| | |
| | |
Weighted
Average | |
| | |
| | |
| | |
Remaining | |
Exercisable | | |
Warrants | | |
Warrants | | |
Contractual | |
Prices | | |
Outstanding | | |
Exercisable | | |
Life
(years) | |
$ | 0.02 | | |
| 600,000 | | |
| 600,000 | | |
| 3.42 | |
$ | 0.10 | | |
| 5,000,000 | | |
| 5,000,000 | | |
| 0.64 - 3.89 | |
$ | 0.25 | | |
| 10,006,000 | | |
| 10,006,000 | | |
| 0.71 - 3.75 | |
$ | 0.0275 | | |
| 8,727,273 | | |
| 8,727,273 | | |
| 8.16 | |
$ | 0.125 | | |
| 44,930,216 | | |
| 44,930,216 | | |
| 3.75 - 4.75 | |
$ | 1.00 | | |
| 1,561,500 | | |
| 1,561,500 | | |
| 2.25 - 2.49 | |
| | | |
| 70,824,989 | | |
| 70,824,989 | | |
| | |
The
derivative liability recognized in the financial statements for the warrants as of March 31, 2023 was $1,371,892.
At
March 31, 2023, the aggregate intrinsic value of the warrants outstanding was $0.
5. |
CONVERTIBLE PROMISSORY
NOTES |
OriginClear,
Inc.
As
of March 31, 2023, the outstanding convertible promissory notes are summarized as follows:
Convertible
Promissory Notes | |
$ | 2,926,755 | |
Less
current portion | |
| 2,042,983 | |
Total
long-term liabilities | |
$ | 883,772 | |
Maturities
of long-term debt for the next three years are as follows:
Period
Ending March 31, | |
Amount | |
2023 | |
| 816,008 | |
2024 | |
| 1,226,975 | |
2025 | |
| 883,772 | |
| |
$ | 2,926,755 | |
On
various dates from November 2014 through April 2015, the Company issued unsecured convertible promissory notes (the “2014-2015
Notes”), that matured on various dates and were extended for an additional sixty (60) months from the effective date of each Note.
The 2014-2015 Notes bear interest at 10% per year. The maturity dates were extended to November 2023 through April 2024. The 2014-2015
Notes may be converted into shares of the Company’s common stock at conversion prices ranging from the lesser of $4,200 to $9,800
(subject to adjustment for stock splits, dividends, combinations and other similar transactions) or 50% of the lowest trade price on
any trade day following issuance of the 2014-2015 Notes. In addition, for as long as the 2014-2015 Notes or other convertible notes in
effect between the purchaser and the Company are outstanding, if the Company issues any security with terms more favorable than the terms
of the 2014-2015 Notes or such other convertible notes or a term was not similarly provided to the purchaser of the 2014-2015 Notes or
such other convertible notes, then such more favorable or additional term shall, at the purchaser’s option, become part of the
2014-2015 Notes and such other convertible notes. The conversion feature of the 2014-2015 Notes was considered a derivative in accordance
with current accounting guidelines because of the reset conversion features of the 2014-2015 Notes. As of March 31, 2023, the 2014-2015
Notes had an aggregate remaining balance of $774,700, which $684,700 is short term and $90,000 is long term.
The
unsecured convertible promissory notes (the “OID Notes”) had an aggregate remaining balance of $184,124, plus accrued interest
of $13,334. The OID Notes included an original issue discount and one-time interest, which has been fully amortized. The OID Notes matured
on December 31, 2017, which were extended to June 30, 2023. The OID Notes were convertible into shares of the Company’s common
stock at a conversion price initially of $30,620. After the amendment, the conversion price changed to the lesser of $5,600 per share,
or b) fifty percent (50%) of the lowest trade price of common stock recorded since the original effective date of this note, or c) the
lowest effective price per share granted to any person or entity after the effective date. The conversion feature of the OID Notes was
considered a derivative in accordance with current accounting guidelines, because of the reset conversion features of the OID Notes.
As of March 31, 2023, the remaining balance on the OID Notes was $62,275, which is short term.
The
Company issued various, unsecured convertible promissory notes (the “2015 Notes”), on various dates with the last of the
2015 Notes being issued in August 2015. The 2015 Notes matured and were extended from the date of each tranche through maturity dates
ending on February 2024 through March 2024, and April 2024 through August 2024. The 2015 Notes bear interest at 10% per year. The 2015
Notes are convertible into shares of the Company’s common stock at conversion prices ranging from the lesser of $1,400 to $5,600
(subject to adjustment for stock splits, dividends, combinations and other similar transactions) or 50% of the lowest trade price on
any trade day following issuance of the 2015 Notes. The conversion feature of the 2015 Notes was considered a derivative in accordance
with current accounting guidelines because of the reset conversion features of the 2015 Notes. As of March 31, 2023, the 2015 Notes had
an aggregate remaining balance of $1,200,000, of which $420,000 is short term and $780,000 is long term.
The
Company issued a convertible note (the “Dec 2015 Note”) in exchange for accounts payable in the amount of $432,048, which
could be converted into shares of the Company’s common stock after December 31, 2015. The Dec 2015 Note was accounted for under
ASC 470, whereby, a beneficial conversion feature was recorded at time of issuance. The Dec 2015 Note did not meet the criteria of a
derivative, and was accounted for as a beneficial conversion feature, which was amortized over the life of the Dec 2015 Note and recognized
as interest expense in the financial statements. On January 1, 2016, the Dec 2015 Note met the criteria of a derivative and was accounted
for under ASC 815. The Dec 2015 Note has zero stated interest rate, and the conversion price shall be equal to 75% of the average three
lowest last sale prices traded during the 25 trading days immediately prior to conversion. As of March 31, 2023, the remaining balance
on the Dec 2015 Note was $167,048, which is short term.
The
Company issued a convertible note (the “Sep 2016 Note”) in exchange for accounts payable in the amount of $430,896, which
could be converted into shares of the Company’s common stock after September 15, 2016. The Sep 2016 Note was accounted for under
ASC 470, whereby, a beneficial conversion feature was recorded at time of issuance. The Sep 2016 Note met the criteria of a derivative
and was accounted for under ASC 815. The Sep 2016 Note has zero stated interest rate, and the conversion price shall be equal to 75%
of the average three lowest last sale prices traded during the 25 trading days immediately prior to conversion. The Sep 2016 Note did
not meet the criteria of a derivative at the date of the issuance, and was accounted for as a beneficial conversion feature, which was
amortized over the life of the Sep 2016 Note and recognized as interest expense in the financial statements. The conversion feature of
the Sep 2016 Note was considered a derivative in accordance with current accounting guidelines because of the reset conversion feature
of the Sep 2016 Note. As of March 31, 2023, the remaining balance on the Sep 2016 Note was $430,896, which is short term.
The
Company issued two (2) unsecured convertible promissory notes (the “Apr & May 2018 Notes”), in the aggregate amount of
$300,000 on April 2, 2018 and May 31, 2018. The Apr & May 2018 Notes had maturity dates of April 2, 2019 and May 31, 2019, respectively.
The Apr & May 2018 Notes bear interest at 10% per year. The Apr & May 2018 Notes may be converted into shares of the Company’s
common stock at a variable conversion price of 50% of the lesser of the lowest trading price twenty-five (25) trading days prior to conversion.
The conversion feature of the Apr & May 2018 Notes was considered a derivative in accordance with current accounting guidelines because
of the reset conversion features of the Notes. On March 13, 2019, the Company entered into a settlement agreement with the investor in
the amount of $570,000, based on the outstanding balance due and payable under the Apr & May 2018 Notes. The Company set up a reserve
of 2,630,769 shares of common stock of the Company for issuance upon conversion by the investor of the amounts owed under the Notes,
in accordance with the terms of the Notes, including, but not limited to the beneficial ownership limitations contained in the Notes.
In addition to the foregoing, upon the sale by the investor of the settlement shares as delivered to the investor by the Company, resulting
in total net proceeds less than the settlement value, the investor is entitled to additional settlement shares of the Company’s
common stock. If after the investor has sold all settlement shares, the investor delivers a written notice to the Company certifying
that the investor is entitled to additional settlement shares of the Company’s common stock (the “Make-Whole Shares”).
The number of make-whole shares being equal to the greater of ((i) zero and (ii) the quotient of (1) the difference of (x) the settlement
value with respect to each sale of shares by the Investor after the delivery of the Settlement Shares, minus (y) the aggregate net consideration
received by the Investor from the resale of all shares of common stock issued by the Company, divided by (2) the average trailing closing
price for ten (10) trading days for the shares immediately preceding the date of delivery of the make-whole shares. As of March 31, 2023,
the remaining balance on the May 2018 Note was $218,064, which is short term.
The
Company entered into an unsecured convertible promissory note (the “Nov 20 Note”), on November 19, 2020 in the amount of
$50,000. The Company received funds in the amount of $50,000. The Nov 20 Note had an original maturity date of November 19, 2021 and
was extended for an additional sixty (60) months from the maturity date. The Nov 20 Note bears interest at 10% per year. The Nov 20 Note
may be converted into shares of the Company’s common stock at a lesser price of $0.05 per share or (b) fifty percent (50%) of the
lowest trade price of common stock recorded on any trade after the effective date, or (c) the lowest effective price per share granted.
In addition, for each conversion, in event that shares are not delivered by the fourth business day (inclusive of the day of conversion),
a penalty of $2,000 per day shall be assessed for each day after the third business day until the shares are delivered. The conversion
feature of the Nov 20 Note was considered a derivative in accordance with current accounting guidelines because of the reset conversion
features of the Note. As of March 31, 2023, the remaining balance on the Nov 20 Note was $13,772, which is long term.
The
Company entered into an unsecured convertible promissory note (the “Jan 21 Note”), on January 25, 2021 in the amount of $60,000.
The Company received funds in the amount of $60,000. The Jan 21 Note had an original maturity date of January 25, 2022 and was extended
for an additional sixty (60) months from the maturity date. The Jan 21 Note bears interest at 10% per year. The Jan 21 Note may be converted
into shares of the Company’s common stock at a conversion price equal to the lower of (a) $0.05 per share, (b) fifty percent (50%)
of the lowest trade price of common stock recorded on any trade after the effective date, or (c) the lowest effective price per share
granted. In addition, for each conversion, in event that shares are not delivered by the fourth business day (inclusive of the day of
conversion), a penalty of $2,000 per day shall be assessed for each day after the third business day until the shares are delivered.
The conversion feature of the Jan 25 Note was considered a derivative in accordance with current accounting guidelines because of the
reset conversion features of the Note. The Company recorded amortization of debt discount, which was recognized as interest expense in
the amount of $3,743 during the year ended December 31, 2022. As of March 31, 2023, the balance of the Jan 21 Note was $60,000, which
is short term.
We
evaluated the financing transactions in accordance with ASC Topic 815, Derivatives and Hedging, and determined that the conversion feature
of the convertible promissory notes was not afforded the exemption for conventional convertible instruments due to its variable conversion
rate. The note has no explicit limit on the number of shares issuable, so they did not meet the conditions set forth in current accounting
standards for equity classification. The Company elected to recognize the note under paragraph 815-15-25-4, whereby, there would be a
separation into a host contract and derivative instrument. The Company elected to initially and subsequently measure the note in its
entirety at fair value, with changes in fair value recognized in earnings. The Company recorded a derivative liability representing the
imputed interest associated with the embedded derivative. The derivative liability is adjusted periodically according to the stock price
fluctuations.
The
derivative liability recognized in the financial statements for the convertible promissory notes as of March 31, 2023 was $4,331,635.
Water
On Demand, Inc.
During the period ended December 31,
2022, WODI raised capital and issued convertible secured promissory notes in the amount of $1,347,500 to investors with 10% interest per
annum to acquire the equity interests in Fortune Rise Acquisition Corporation (the “SPAC”) for the purchase price of $400,000
and to pay off the promissory notes the SPAC owed to sellers. Per the terms and conditions of the convertible promissory notes, all unpaid
principal, together with any unpaid and accrued interest shall be due and payable on the earlier of the twelve (12) month of the date
of the Notes (the “Maturity Date”) provided, that WODI shall have the option to extend the Maturity Date for up to two (2)
six-month extensions, or (ii) when, upon the occurrence and during the continuance of an event of default. During the three months ended
March 31, 2023, WODI raised additional capital of $2,532,000 and an investor exchanged the Company’s Series X preferred stock in
the amount of $250,000 and Series R preferred stock in the amount of $100,000 for a WODI convertible secured promissory note. Also during
the period ended March 31, 2023, per settlement and conversion agreements with WODI shareholders, an aggregate of 182,145,203 shares of
the Company’s common stock were redeemed at a market price of $0.01, which was added to the cash value of the shareholders’
investment to purchase WODI convertible secured promissory notes. The loss relating to these settlement and conversion agreements of $2,505,339
was accounted for in the consolidated statements of operations. As of March 31, 2023, WODI had outstanding convertible secured promissory
notes in the amount of $6,734,839.
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 three months
ended March 31, 2023.
| |
Three Months
Ended | |
| |
March
31, | |
| |
2023 | | |
2022 | |
Equipment Contracts | |
$ | 926,190 | | |
$ | 812,245 | |
Component Sales | |
| 198,391 | | |
| 354,731 | |
Waste Water Treatment Systems | |
| 791,075 | | |
| 49,460 | |
Pump Stations | |
| 75,615 | | |
| - | |
Rental Income | |
| 6,573 | | |
| 6,573 | |
Services Sales | |
| 8,550 | | |
| 11,096 | |
Commission & Training | |
| - | | |
| - | |
| |
$ | 2,006,394 | | |
$ | 1,234,105 | |
Revenue
recognition for other sales arrangements, such as sales for components, and service sales will remain materially consistent.
Contract
assets represents revenues recognized in excess of amounts billed on contracts in progress. Contract liabilities represents billings
in excess of revenues recognized on contracts in progress. Assets and liabilities related to long-term contracts are included in current
assets and current liabilities in the accompanying balance sheets, as they will be liquidated in the normal course of the contract completion.
The contract asset for the three months ended March 31, 2023 and the year ended December 31, 2022, was $1,431,791 and $1,479,491, respectively.
The contract liability for the three months ended March 31, 2023 and the year ended December 31, 2022, was $916,935 and $932,458, respectively.
Fair
value investment in Securities
On
November 12, 2021, the Company served a conversion notice to WTII and recorded additional interest and fees of $15,988 through that date,
according to the terms of the securities purchase agreement for an aggregate of $149,867. The Note was converted into 45,208,649 shares
of WTII common stock. As of March 31, 2023, the investment in securities was recorded at fair value in the amount of $22,604, with an
unrealized loss of $4,521.
On
May 15, 2018, the Company received 4,000 shares of WTII Series C convertible preferred stock for the use of OriginClear, Inc. technology
associated with their proprietary electro water separation system. Each share of Series C convertible preferred stock is convertible
into one thousand (1,000) shares of WTII common stock. The stock was valued at fair market value of $0.0075 for a price of $30,000 on
the date of issuance. The Company analyzed the licensing agreement using ASU 606 to determine the timing of revenue recognition. The
licensing of the intellectual property (IP) is distinct from the non-license goods or services and has significant standalone functionality
that provides a benefit or value. The functionality will not change during the license period due to the licensor’s activities.
Because the significant standalone functionality was delivered immediately, the revenue was recognized in the financial statements as
of June 30, 2018. As of March 31, 2023, the fair value of the preferred shares was $2,400, and had a loss in fair value of $0.
Secured
Loans Payable
The
Company entered into short term loans with various lenders for capital expansion secured by the Company’s assets in the amount
of $1,749,970, which included finance cost of $624,810. The finance cost was amortized over the terms of the loans, which have various
maturity dates ranging from October 2018 through February 2019. As of December 31, 2020, the finance cost was fully amortized. The term
of the loans ranged from two months to six months. The net balance as of March 31, 2023 was $30,646.
Water On Demand, Inc. (“WODI”)
was incorporated in the state of Nevada on April 22, 2022. WODI, with the support of its parent, OriginClear, Inc (the “Company”),
is developing a new outsourced water treatment business called “Water On Demand”: or “WOD”. The WOD model
intends to offer private businesses the ability to pay for water treatment and purification services on a per-gallon basis. This is commonly
known as Design-Build-Own-Operate or “DBOO”. WODI intends to work with regional water service companies to build and operate
the water treatment systems it finances. On March 23, 2022, WODI announced that it was evaluating the first pilot opportunity, a
50,000 gallon per day wastewater treatment project.
On November 16, 2022, WODI filed a Form 1-A Offering Circular for an
offering under Regulation A (the “Offering”) of the Securities Act of 1933 with the U.S. Securities and Exchange Commission.
The purpose of the Offering is to allow potential investors the opportunity to invest directly in WODI. The Offering has a minimum investment
of $1,000 and will be on a best-efforts basis.
On December 22, 2022, WODI entered
into a Membership Interest Purchase and Transfer Agreement (the “Purchase Agreement”) with Ka Wai Cheung, Koon Lin Chan, and
Koon Keung Chan (each a “Seller”, and collectively, the “Sellers”) and Fortune Rise Sponsor LLC, a Delaware limited
liability company (the “Sponsor”), pursuant to which WODI purchased 100 membership interests in the Sponsor (“Purchased
Interests”) from the Sellers, which constitutes 100% of the membership interests in the Sponsor. The Sponsor owns 2,343,750 shares
out of 2,443,750 shares of the issued and outstanding shares of Class B common stock (the “Class B Common Stock”) of Fortune
Rise Acquisition Corporation, a Delaware Corporation (“FRLA” or the “SPAC”). On December 29, 2022, the Company
announced that its subsidiary, Water On Demand, Inc. has closed the acquisition of Fortune Rise Sponsor, LLC, which is the sponsor of
Fortune Rise Acquisition Corp.
On December 22, 2022, WODI paid a total
of $1,137,267 to the Sellers which included a total of $400,000 to purchase the membership interest in Class B Common Stock of the SPAC
and $737,267 for compensating the payment made by the Sellers on November 4, 2022, towards the first extension of the SPAC through February
5, 2023. In connection with the Extension Payment, the SPAC issued unsecured promissory notes to the Sellers. As of December 31, 2022,
the $737,267 amount was reflected as Notes Payable to related party on the consolidated balance sheet of the SPAC.
The SPAC is a blank check company incorporated
in February 2021 as a Delaware corporation formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock
purchase, reorganization or similar business combination with one or more businesses. The SPAC is a “shell company” as defined
under the Exchange Act of 1934, as amended, because it has no operations and nominal assets consisting almost entirely of cash. The SPAC
will not generate any operating revenues until after the completion of its initial business combination, at the earliest.
On December
29, 2022, pursuant to a Membership Interest Purchase and Transfer Agreement and Securities Transfer Agreement with the members of the
Sponsor, WODI acquired the membership interests of the Sponsor and became the beneficial owner of 2,343,750 shares of Class B Common Stock
of the SPAC, each of which is exercisable into one share of Class A Common Stock of the SPAC. The purchase price for the membership interests
was $400,000. To acquire the equity interests in the SPAC for the purchase price of $400,000, WODI issued convertible secured promissory
notes to investors at 10% interest per annum. Per the terms and conditions of the convertible promissory note, all unpaid principal, together
with any unpaid and accrued interest shall be due and payable on the earlier of the twelve (12) month of the date of the Note (the “Maturity
Date”) (provided, WODI shall have the option to extend the Maturity Date for up to two (2) six-month extensions, or (ii) when, upon
the occurrence and during the continuance of an Event of Default.
On January
5, 2023, WODI signed a non-binding Letter of Intent (the “LOI”) with Fortune Rise Acquisition Corporation, (“FRLA”
collectively with WODI, the “Parties”). The LOI is not binding on the Parties and is intended solely to guide good-faith negotiations
toward a definitive business combination agreement. The Parties will work together in good faith with their respective advisors to agree
on a structure for the business combination that is most expedient to the consummation of the acquisition, which may result in a new (merged)
entity.
Pursuant to the LOI, if a business
combination were to be consummated and approved, all of the outstanding equity securities of WODI, including all shares of common stock,
preferred stock, outstanding options and warrants will convert into new equity of the merged entity.
WODI also
assumed the obligation to make any necessary extension payments in connection with the extension of the period of time in which the SPAC
may consummate its initial business combination as described in the SPAC’s S-1 Registration Statement, including the three-month
extension from November 5, 2022 to February 5, 2023, the second extension for an additional three months from February 5, 2023 to May
5, 2023 and a final extension for an additional six months from May 5, 2023 to November 5, 2023.
On February 7, 2023, FRLA and OriginClear
Inc. announced that WODI deposited $977,500 (the “Second Extension Payment”) into the Company’s trust account for its
public shareholders, representing $0.10 per public share, which enables FRLA to extend the period of time it has to consummate its initial
business combination by an additional three months from February 5, 2023 to May 5, 2023 (the “Second Extension”).
On April 10, 2023, at the Special Meeting,
a total of 10,514,410 (or 81.61%) of the Company’s issued and outstanding shares of Class A common stock and Class B common stock
held of record as of March 3, 2023, were present either in person or by proxy, which constituted a quorum. In that FRLA shareholders agreed
to a final extension of the period of time it has to consummate its initial business combination by an additional six months from May
5, 2023 to November 5, 2023. FRLA’s stockholders voted on to approve and adopt the extension amendment which received sufficient
votes (more than 65%) for approval.
On April 14, 2023, WODI entered into
an Asset Purchase Agreement with the Company, whereby it agreed to purchase all of the assets related to the Company’s “Modular
Water Service” business, including licenses, technology, intellectual property, contracts, business models, patents and other assets
in exchange for 6,000,000 shares of WODI common stock. The assets include an assignment of OriginClear’s existing global master
license to the five patents of inventor Daniel M. Early, P.E., who heads Modular Water, and the right to file patents for all additional
inventions since 2018, when OriginClear created the unit.
Accounting
of Class B Common Founder Shares as at December 31, 2022
The Company retained an independent
valuation firm for the purpose of conducting a valuation of the fair value of Sponsor Founder Shares (Class B) of FRLA as of December
31, 2022 (the “Date of Valuation”).
The independent firm (i) evaluated and analyzed various Sponsor Founder Shares of FRLA; (ii) assessed the terms including various redemption
and liquidation features considering each of FRLA’s financial plans and market conditions; and (iii) determined the underlying
value to be assigned to the FRLA Sponsor Founder Shares as of the Date of Valuation and evaluated the FRLA Sponsor Founder Shares for
impairment by performing the following procedures:
|
● |
Analyzed agreements and other documentation. |
| ● | Developed Monte Carlo Model that values the FRLA Sponsor Founder Shares based on a multipath random event model and future projections of the various potential outcomes and completed 50,000 iterations for each valuation. |
|
● |
Valued the FRLA Sponsor Founder Shares as of the Date of Valuation. |
Based on the
procedures performed the independent valuation firm concluded that the value of FRLA Sponsor Founder Shares was not impaired.
Recording
of membership interest:
As of December
31, 2022, WODI recorded the purchase of Class B Founder Shares at lower of cost or market at $400,000 on the consolidated balance sheet
as other asset.
Impairment
of receivable:
As of December 31, 2022, the amount
of $737,267 paid to compensate the Sellers (sponsors) towards the first extension of the SPAC through February 5, 2023 and which was reflected
as Notes Payable to related party on the consolidated balance sheet of the SPAC, was initially recorded as a receivable by WODI. However,
since the likelihood of the merger of WODI into the SPAC is estimated at 50%, the repayment of the amount is deemed not probable as the
SPAC may not have the funds to pay all of the A class investors back with interest if a merger is not consummated. Therefore, as of December
31, 2022, WODI considered the amount impaired and recorded it as an expense on the consolidated income statements.
Promissory Notes
During the three months ended March
31, 2023, WODI and the Company received an aggregate of $1,657,920 in unsecured promissory notes (the “SPAC Notes”) from the
SPAC for various payments made by WODI on behalf of the SPAC to meet its operating expenses and the extension payments. The
SPAC Notes are non-interest bearing and payable (subject to the waiver against SPAC trust provisions) on the earlier of (i) consummation
of the SPAC initial business combination; and (ii) the date of the liquidation of the SPAC. The principal balance of each SPAC Note
may be prepaid at any time, at the election of the SPAC.
Since buying the sponsorship interest
in the SPAC on December 22, 2022, WODI has made payments on behalf of the SPAC in the aggregate amount of $ 2,395,187.
Management continues to estimate the
likelihood of the merger at 50%. Therefore it is deemed probable that the SPAC may not have funds to pay all of the Class A shareholders
back with interest and WODI for the monies advanced to the SPAC, if a merger is not consummated.
Therefore, although the payments made on behalf of the SPAC are monies receivable to WODI, similar to the period ended December 31, 2022,
where WODI expensed the extension payment of $737,267, instead of recording it as a receivable; for the period ended March 31, 2023, WODI
considered the aggregate amount of $ 1,657,920 for the notes to be impaired as well and recorded it as an expense on the consolidated
income statements.
In the event of WODI successfully merging
with the SPAC, all monies paid by WODI on behalf of the SPAC, including any future payments made until such merger is fully consummated
will be received back by WODI.
Restricted
Stock to WODI Board, Employees and Consultants
Between August 12,
2022, and March 30, 2023, WODI entered into Restricted Stock Grant Agreements (the “WODI RSGAs”) with its members of the Board,
employees, and consultants to create management incentives to improve the economic performance of WODI and to increase its value. WODI
RSGAs provide for the issuance of up to 10,100,000 shares of WODI common stock provided certain milestones and vesting are met
in certain stages. The restricted shares may become fully vested and no longer subject to risk of forfeiture (“Vested Shares”)
if WODI shares are uplisted to a National Exchange, then upon such uplisting, 25% of the restricted shares that shall vest and become
Vested Shares and 6.25% each three-month period thereafter, subject to the following: (i) If WODI shares are traded on a National Exchange,
then the amount of restricted shares which shall become Vested Shares during any three-month period shall not exceed an amount representing
the greater of (a) 1% of the shares of common stock outstanding as shown by the most recent SEC Report published by WODI and (b) the average
weekly reported volume of trading in the common stock on a national securities exchange during the previous four calendar weeks. (ii)
If WODI shares are subsequently delisted and quoted on the over-the-counter market, including the OTCQB, then the amount of restricted
shares which shall become Vested Shares during any three month period shall not exceed an amount representing 1% of the shares of common
stock outstanding as shown by the most recent SEC Report published by WODI, or if WODI shares are traded on a national securities exchange,
the greater of (b)(i) and the average weekly reported volume of trading in the common stock on a national securities exchange during the
previous four calendar weeks. If WODI shares do not achieve listing on a national securities exchange within three years of the Effective
Date, then the restricted shares shall vest and become Vested Shares at a rate equal to 25% on the three-year anniversary of the Effective
Date and 6.25% each three-month period thereafter. WODI has not recognized any costs associated
the WODI RSGAs because milestones and vesting have not been achieved. As the milestones are achieved, the shares shall become eligible
for vesting and issuance.
During the three months ended March
31, 2023, the Company obtained a line of credit in the amount of $200,000 for one year, with an interest rate of 26.07%. No interest accrued
or was due until April 2023.
The Company acquired real estate assets
to be held for sale to finance their water projects, by issuing 630 shares of Series T preferred stock for a fair value of $630,000, in
conjunction with common stock purchase warrants, through an asset purchase agreement. The assets held for sale consisted of residential
property, plus eight (8) lots of undeveloped land. The real property has been listed actively on the market to be sold. Based on the offers
received and the market conditions, the Company adjusted the fair value and recognized a loss on impairment of the residential property
in the amount of $230,000. As of March 31, 2023, the carrying value of the property is $400,000.
12. |
EMPLOYEE RETENTION TAX CREDIT |
Under the provisions of the extension
of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) passed by the United States Congress and signed
by the President, the Company was eligible for a refundable employee retention credit (the “ERTC”) subject to certain criteria.
The Company’s subsidiary, Progressive Water Treatment applied for the ERTC and during the three months ended March 31, 2023, received
an aggregate of $126,879 which was recognized in the financial statements as other income.
13. |
COMMITMENTS AND CONTINGENCIES |
Facility Rental – Related Party
Our Dallas based subsidiary, PWT, rents
an approximately 12,000 square foot facility located at 2535 E. University Drive, McKinney, TX 75069, with a current monthly rent of $8,150.
Warranty Reserve
Generally, a PWT project is guaranteed
against defects in material and workmanship for one year from the date of completion, while certain areas of construction and materials
may have guarantees extending beyond one year. The Company has various insurance policies relating to the guarantee of completed work,
which in the opinion of management will adequately cover any potential claims. A warranty reserve has been provided under PWT based on
the opinion of management and based on Company history in the amount of $20,000 for three months ended March 31, 2023 and the year ending
December 31, 2022.
Litigation
There are
no material updates to the litigation matters with C6 Capital, LLC nor Auctus Fund, LLC as previously disclosed in the Form 10-K filed
on April 17, 2023.
Management has evaluated subsequent
events according to the requirements of ASC TOPIC 855 and has determined that there are the following subsequent events:
On April 14, 2023, WODI entered into an Asset Purchase Agreement with
the Company, whereby it agreed to purchase all of the assets related to the Company’s “Modular Water Service” business,
including licenses, technology, intellectual property, contracts, business models, patents and other assets in exchange for 6,000,000
shares of WODI common stock. The assets include an assignment of OriginClear’s existing global master license to the five patents
of inventor Daniel M. Early, P.E., who heads Modular Water, and the right to file patents for all additional inventions since 2018, when
OriginClear created the unit.
On
April 18, 2023, holders of convertible promissory notes converted an aggregate principal and interest amount of $167,365 into a total
of 55,788,402 shares of the Company’s common stock.
On April 25, 2023, holders of the Company’s
Series Y preferred stock converted an aggregate of 2.5 Series Y shares into an aggregate of 40,841,585 shares
of the Company’s common stock.
Between April
25, 2023 and May 2, 2023, the Company issued to consultants an aggregate of 5,120,749 shares of the Company’s common stock.
On April 25, 2023, per electing and
qualifying for the Restricted Stock Grant Agreement alternate vesting schedule, the Company issued to an employee an aggregate of 2,754,073
shares of the Company’s common stock.
Between April 26, 2023 and April 28, 2023, an aggregate of 40,841,585 shares of common stock were redeemed by the Company, and the redemption
amount, together with cash paid by the redeeming stockholders, were used by the stockholders to purchase convertible secured promissory
notes from WODI.
On April 28,
2023, the Company filed a certificate of designation for its WODI subsidiary for Series B Preferred Stock with the Secretary of State
of Nevada. Pursuant to the certificate of designation, WODI designated 1,000,000 shares of preferred stock as Series B Preferred Stock.
The Series B Preferred Stock has an initial issuance value of $5.00 per share and will be convertible into common stock of WODI per terms
of the certificate of designation.