0001013762-16-001450.txt : 20160404 0001013762-16-001450.hdr.sgml : 20160404 20160404171333 ACCESSION NUMBER: 0001013762-16-001450 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 70 CONFORMED PERIOD OF REPORT: 20151231 FILED AS OF DATE: 20160404 DATE AS OF CHANGE: 20160404 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORIGINCLEAR, INC. CENTRAL INDEX KEY: 0001419793 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL ORGANIC CHEMICALS [2860] IRS NUMBER: 000000000 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-147980 FILM NUMBER: 161551726 BUSINESS ADDRESS: STREET 1: 5645 W ADAMS BLVD CITY: Los Angeles STATE: CA ZIP: 90016 BUSINESS PHONE: 323.939.6645 MAIL ADDRESS: STREET 1: 5645 W ADAMS BLVD CITY: Los Angeles STATE: CA ZIP: 90016 FORMER COMPANY: FORMER CONFORMED NAME: ORIGINOIL INC DATE OF NAME CHANGE: 20071129 10-K 1 f10k2015_originclearinc.htm ANNUAL REPORT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

x     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2015

Or

 

¨      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from   ___________ to ___________

 

Commission file number: 333-147980

 

ORIGINCLEAR, INC.

(Exact name of registrant as specified in charter)

 

Nevada   26-0287664
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

5645 West Adams Blvd, Los Angeles, CA 90016

(Address of principal executive offices) (Zip Code)

 

Registrant's telephone Number: (323) 939-6645

 

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

¨ Yes x  No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

¨ Yes x No

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, “non-accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer ¨ Accelerated Filer  ¨
Non-accelerated Filer ¨ (Do not check if a smaller reporting company) Smaller Reporting Company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ¨ Yes x No

 

The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $6,072,066 based upon the closing sales price of the registrant’s common stock on June 30, 2015 of $0.0415 per share.

 

At March 31, 2016, 288,905,273 shares of the registrant’s common stock were outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE: NONE

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
  PART I  
Item 1. Business 3
Item 1A Risk Factors 14
Item 1B Unresolved Staff Comments 21
Item 2. Properties 21
Item 3. Legal Proceedings 21
Item 4. Mine Safety Disclosures 21
     
  PART II  
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 21
Item 6 Selected Financial Data 22
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 26
Item 8. Financial Statements and Supplementary Data 26
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 26
Item 9A. Controls and Procedures 26
Item 9B. Other Information 27
     
  PART III  
Item 10. Directors, Executive Officers and Corporate Governance 27
Item 11. Executive Compensation 30
Item 12. Security Ownership of Certain Beneficial Owners and Management  
  and Related Stockholder Matters 32
Item 13. Certain Relationship and Related Transactions, and Director Independence 34
Item 14. Principal Accountant Fees and Services 34
Item 15. Exhibits, Financial Statement Schedules 35
 
SIGNATURES 36

 

 2 
 

 

PART I

 

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

 

  business strategy;
     
  financial strategy;
     
  intellectual property;
     
  production;
     
  future operating results; and
     
  plans, objectives, expectations and intentions contained in this report that are not historical.

 

All statements, other than statements of historical fact included in this report, regarding our strategy, intellectual property, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All forward-looking statements speak only as of the date of this report. You should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this report are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved.  These statements may be found under “Management's Discussion and Analysis of Financial Condition and Results of Operations,”  “Business,” “Properties,” as well as in this report generally.  Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in this report generally.  In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur.

 

ITEM 1. BUSINESS.

 

Organizational History

 

OriginClear, Inc. (“we”, “us”, “our”, the “Company” or “OriginClear”) was incorporated on June 1, 2007 under the laws of the State of Nevada.  We have been engaged in business operations since June 2007. We recently moved into the commercialization phase of our business plan having been primarily involved in research, development and licensing activities. Our principal offices are located at 5645 West Adams Blvd., Los Angeles, California 90016. Our main telephone number is (323) 939-6645. Our website address is www.OriginClear.com.  In addition to announcing material financial information through our investor relations website, press releases, SEC filings and webcasts, we also intend to use the following social media channels as a means of disclosing information about our products, our planned financial and other announcements, our attendance at upcoming investor and industry conferences, and other matters and for complying with our disclosure obligations under Regulation FD:

 

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

 

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

 

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

Overview of Business

 

OriginClear is a leading provider of water treatment solutions and the developer of a breakthrough water cleanup technology. Through its wholly owned subsidiaries, OriginClear provides systems and services to treat water in a wide range of industries, such as municipal, pharmaceutical, semiconductors, industrial, and oil & gas. To rapidly grow this segment of the business, we strategically acquire profitable and well-managed water treatment companies, which allow us to expand our global market presence and technical expertise. To enable a new era of clean and socially responsible water treatment solutions, we invented Electro Water Separation™, a breakthrough high-speed water cleanup technology using multi-stage electrochemistry, that we license worldwide to water treatment equipment manufacturers.Water is our most valuable resource, and the mission of The OriginClear Group™ is to improve the quality of water and help return it to its original and clear condition.

 3 
 

The Group

 

Outsourcing is a fast-growing reality in water treatment. Tougher regulations, water scarcities and general outsourcing trends are driving industrial and agricultural water treatment users to delegate their water problem to service providers. As Global Water Intelligence pointed out in their report on October 30, 2015, “Water is often perceived as a secondary importance, with end-users increasingly wanting to focus solely on their own core business. This is driving a move away from internal water personnel towards external service experts to take control of water aspects.” External service experts are typically small–privately owned and locally operated. Consolidating these companies could lead to enormous economies of scale through sharing of best practices, technologies, and customers. Again, Global Water Intelligence report, dated May 8, 2014 indicated, “…the market is incredibly fragmented…There needs to be some sort of aggregation of customers before it becomes a truly good business.” Therefore, OriginClear is assembling a group of such water treatment companies to create an opportunity for significant growth and increased company value for the stockholders.

 

Progressive Water Treatment

 

On October 1, 2015, Dallas-based Progressive Water Treatment, Inc. (“PWT”) became the first acquisition in The OriginClear Group. PWT is a fast-growing designer, builder and service provider for a wide range of industrial water treatment applications. PWT reported revenue of $4,831,788 in 2015, of which $773,699 was included in the consolidated financial statements for period ending December 31, 2015.

 

PWT’s Business

 

Since 1995, Progressive Water Treatment, Inc. of McKinney, Texas has been designing and manufacturing a complete line of water treatment systems for municipal, industrial and pure water applications. Known as an OEM (Original Equipment Manufacturer), PWT utilizes a wide range of technologies, including chemical injection, media filters, membrane, ion exchange and SCADA technology, in turnkey systems that it designs and builds. The Company also offers a broad range of services including maintenance contracts, retrofits and replacement assistance. In addition, PWT rents equipment in contracts of varying duration. Customers are primarily served in the United States and Canada, with the Company’s reach extending worldwide from Japan to Argentina to the Middle East. As OriginClear’s technology matures and enters commercial distribution channels, PWT intends to integrate it into applicable field situations, such as clarifying very oily, turbid water prior to processing with filters and membranes. OriginClear is currently in discussions for additional, accretive acquisitions of companies specializing in complementary markets and applications.

 

Technology Licensing

 

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

 

The Technology

 

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

 

In March of 2016, OriginClear announced that it had successfully developed and proved Advanced Oxidation for its breakthrough water cleanup system, Electro Water Separation™, or EWS. University laboratory tests have shown that EWS with Advanced Oxidation (EWS:AOx™) can now extract dissolved contaminants, which are otherwise difficult to remove without chemicals such as chlorine. Overall, the system has shown a dramatic reduction in Total Organic Compounds which includes all forms of organic contamination, solids, miscible or dissolved, to meet new stringent global discharge requirements. Even prior to this innovation, EWS, combined with an iSep ultrafiltration membrane, demonstrated up to a 99.9% removal of dispersed oil, 99.5% removal of suspended solids as well as successful treatment of chemical oxygen demand (COD), including specific contaminants such as ammonia, phosphorus and hydrogen sulfide. These results were presented at the International Water Conference in 2015. In 2016, OriginClear filed for a patent to protect the new AOx process and system configuration. Our technology integrates easily with other industry processes. We have begun to embed our technology into larger systems through licensing and joint ventures.

 4 
 

 

Recent Developments

 

We have been engaged in our business operations since June 2007, and to date, we have been primarily involved in research and development activities, with licensing to OEMs, and sales of pilot and demonstration equipment beginning in June of 2010. Commercial sales by both OriginClear and its licensees began in 2014. We are a joint venture partner in Ennesys, a system integrator focused on algae production to meet the European Union’s environmental regulations. In mid-2013, we installed a prototype EWS Waste unit at the Ennesys demonstration site which can process liquid waste, generating clean, nitrate-rich water to feed algae grown on the building’s roof as an energy source. In late 2013, we transferred three of our non-core patent applications to Ennesys. We continue to support Ennesys with technology and public communications. On October 1, 2015, OriginClear announced it had acquired 100 percent of Dallas-based Progressive Water Treatment Inc. (PWT), a profitable and fast-growing designer, builder and service provider for a wide range of industrial water treatment applications. This marks the first transaction in OriginClear’s corporate strategy to rapidly acquire leading U.S. water service companies focused on specialized water treatment. OriginClear aims to offer a complementary, end-to-end offering to serve growing corporate demand for outsourced water treatment. The Company acquired PWT through the transfer of all issued and outstanding shares of PWT in exchange (the “Exchange”) for 10,000 shares of a new series of preferred stock, the Series B Preferred Stock, filed with the State of Nevada by the Company on October 1, 2015.

 

In December 2014, OriginClear announced that it launched a subsidiary in Hong Kong and granted it a master license for the People’s Republic of China. On December 3, 2015, OriginClear, and its master licensee for China, OriginClear Hong Kong (OCHK), announced that OCHK had agreed to launch sales and manufacturing joint ventures (JVs) in the People’s Republic of China and the Republic of China (Taiwan). The JV partner is Mr. Ming Xu, an inventor and owner of a construction materials factory in mainland China. Mr. Xu and OCHK plan to form a joint venture in China, intended to be a licensee of OCHK. The JV will sell equipment using OriginClear technology for People’s Republic of China and Taiwan markets. The partners intend to name the company OriginClear (China) and the agreement calls for Xu Ming to transfer 25 percent of its ownership and profit share to OCHK, in addition to meeting a royalty schedule. Finally, the JV will continue the development of the China-based manufacturing capability with a separate manufacturing joint venture. Under the agreements, Mr. Xu committed to payments totaling $1 million to purchase the rights to the JVs, and completed payments totaling $150,000 in December. In March 2016, OCHK modified the payment schedule. The parties agreed to a modified payment schedule for the balance of $850,000, to be completed by May 25, 2016. The parties also agreed that all sums received by OCHK under the present MOU remain OCHK’s property and will not be subject to any reimbursement claim whatsoever, present and future, from Xu Ming or any of his affiliates. In March 2016, OCHK also agreed to launch a Joint Venture (JV) with Osmocell Malaysia SDN Bhd, a Malaysian engineering and manufacturing company for water purification systems. The JV company, OriginClear Water Solutions SDN Bhd (OWS) is now operational. OWS plans to target the Palm Oil Mill Effluent (POME) treatment market in Malaysia. Totaling more than 65 million tonnes annually, POME effluent is widely recognized as a major environmental concern because its contamination level can be 100 times higher than domestic sewage.

 

On March 25, 2016, by written consent the holders of the majority of the Company’s outstanding securities entitled to vote thereon approved an amendment to the Company’s Articles of Incorporation to increase the total number of shares of common stock that we are authorized to issue to 2,500,000,000 shares (from 1,000,000,000) and to increase the total number of authorized shares to 2,525,000,000 (there being no change to the number of previously authorized shares of preferred stock or par value) (the “Amendment”). The Amendment was filed with the Secretary of State of the State of Nevada on March 29, 2016.

 

Our Strategy

 

The Group

 

The OriginClear Group’s strategy is to grow incrementally by focusing on the $500 billion water treatment market, acquiring the hands on service suppliers in this market. It intends to develop a network of these wholly-owned water treatment companies to meet the needs of end users from all industries with a full range of treatment technologies. Due to increased regulation, water treatment recycling challenges and a need to focus on their own core business, many water users today are outsourcing their water treatment needs to outside experts. There will be significant synergies within the Group as technology, manufacturing expertise, market knowledge, projects and opportunities are shared. The target acquisitions must be accretive in nature with solid sales growth and profitability. The acquired companies must have a solid management team to accelerate their previous growth with excellent customer service. Initially, the acquisition focus is in the U.S. but will be expanded internationally in a few years.

 5 
 

  

Technology Licensing

 

We are licensors of our technology. We grant non-exclusive licenses to OEMs (Original Equipment Manufacturers), and participate in joint ventures, contributing our technology and our commitment to each joint venture’s business focus. We have also begun to grant Master Licenses, beginning with our wholly-owned subsidiary in Hong Kong.

 

Technology Applications

 

The Algae Industry

 

Much of the petroleum that powers our world comes from ancient algae that decomposed hundreds of millions of years ago. Like petroleum, algae can be turned into transportation fuels, chemicals, pharmaceuticals and plastics; but unlike petroleum, algae is a food as well; and absorbs CO2 in the growth process, about two tons of CO2 for every ton of algae produced. Algae is one of nature′s most efficient and versatile photosynthetic factories. It has a short growing cycle and does not require arable land or fresh water, which makes it very attractive as an energy feedstock, or as a healthy and natural feed or fertilizer. But a major barrier to commercialization is the difficulty in extracting small amounts of algae biomass from very large quantities of water at a reasonable cost and without using more energy than can be created. And the quantities of water required can be very large indeed: algae-to-water ratio can be as high as 1-to-1000. Conventional water separation technologies such as centrifuges and membranes may work on a limited basis, but can be too expensive for large-scale use. Additionally, centrifuges are typically a batch process.

Early Harvesting Technology: Single Step Extraction™

 

OriginClear’s early algae harvesting technology was Single Step Extraction™ (SSE). Today, SSE is the first stage in EWS and it powers our sanitation and growth optimizing applications.

 

Algae For Feed

 

In 2013, OriginClear developed demonstration systems for the aquaculture industry and showed these at a public event on December 18, 2013 at Aqua Farming Tech, a working fish farm in Thermal, California. Aqua Farming Tech remains a testing site for OriginClear’s aquaculture activities. In 2014, OriginClear assigned its aquaculture initiative to the algae division to focus on the growing opportunities in the Algae For Feed marketplace. In April 2014, OriginClear announced that it had agreed to a collaborative exchange of equipment and information with the Catalina Sea Ranch, the first offshore shellfish ranch in U.S. Federal waters. OriginClear provided a demonstration-scale Model 12 system to Catalina Sea Ranch, which has used it to treat incoming seawater and harvest algae to feed its shellfish nursery and selective breeding program. Catalina Sea Ranch provides independent data on the efficiency and use of the machine, and gives OriginClear access to its nursery for field research. OriginClear aims to continue to support the growing algae industry in the fast-growing animal and fish feed sector.

 

The Oil and Gas Industry

 

The oil and gas industry is one of the most water-intensive industries in the world. It is both a large consumer of fresh water and producer of contaminated water, which is also a potential asset for drought-affected regions. Water is produced and used in large quantities in oil and gas operations. According to the U.S. Department of Energy, an average of 3 barrels of contaminated water is generated for each 1 barrel of oil produced. In the United States, the average is 7 barrels of water. Greentech Media reports that energy companies pay between $3 to $12 to dispose of each barrel of produced water.  We believe OriginClear’s high speed, low energy and primarily chemical-free Electro Water Separation™ technology is ideally suited to help clean up the large quantities of water used in oil and gas operations. A 2009 report on modern shale gas by the Groundwater Protection Council, "Modern Shale Gas Development in the United States: A Primer," stated that “the amount of water needed to drill and fracture a horizontal shale gas well generally ranges from about 2 million to 4 million gallons, depending on the basin and formation characteristics.” While fracking technology promises to unleash an abundant supply of inexpensive natural gas to power the modern world, water is quickly becoming a serious limiting factor. Additionally, the water returns as “frack flowback” laced with petroleum and contaminants that require rapid and efficient removal for disposal and recycling.

 6 
 

  

Oil and Gas Water Cleanup Solutions

 

The Company has completed successful trials in the Niobrara gas fields of Colorado, the Permian light crude oil fields of West Texas and the Monterey heavy crude oil fields in California. The Bakersfield testing was particularly interesting because it demonstrated that produced water from heavy oil in California’s Monterey Shale Formation could technically and economically be reprocessed for Cyclic Steam Stimulation in oil wells and agricultural irrigation water. EWS removes up to 99.9% of all free and emulsified oil, and 99.5% of suspended solids from oil & gas wastewater, while also removing certain dissolved contaminants that will co-precipitate, and continuously disinfecting bacteria. In the oil and gas application, OriginClear’s core EWS technology is supplemented with ‘heavies’ removal on the front end, intelligent controls, and a final polishing system, for a complete solution.

 

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All systems can include a common SCADA control system with touch screen which will allow automatic control of the process as well as remote monitoring and alarms. Through its licensees and joint venture partners, OriginClear is making EWS available to customers such as: E&P operators, service companies, disposal well operators and water treatment companies.

 

Downstream Integration

 

 While OriginClear’s EWS is designed to deliver essentially “clear” water, additional processing is often needed to meet the requirements of specific applications. In such cases, OriginClear works with the manufacturers of downstream solutions, such as TriSep, Dow Chemical or their OEMs, and other manufacturers, to integrate processes such as Ultra- or Nano-Membrane Filtration, to achieve, for example, flowback water treatment to a standard acceptable for “new” frack water. This complete water treatment solution is available through OriginClear’s licensees and joint venture partners.

 

Industrial and agricultural Waste Water

 

Perhaps the largest of all opportunities for EWS is in cleaning up industrial, agricultural and urban effluents. Our breakthrough EWS technology is an efficient combination of flotation and advanced oxidation processes that can efficiently remove a wide range of contaminants and pathogens from incoming or outgoing water supplies. A prototype EWS unit has been demonstrated, processing liquid human waste at the Ennesys urban algae demonstration site near Paris, generating clean, nitrate-rich water to feed algae. The algae can then be converted onsite into energy for the building’s use. In this instance, EWS is turning liquid sewage into nutrition for algae that, in turn, can help make commercial buildings self-sufficient for energy. However, algae typically is not part of the process. EWS is an electrically-based technology that can target any application in waste water treatment, with a focus on the “clarity” stage of removing oils, suspended solids and bacteria. EWS technology has been shown to effectively clean organics such as petroleum, achieving up to 99.9% reduction in free oil and a 99.5% reduction in suspended solids, and reduction of up to 99% of bacteria and other invaders, for clean and sanitized effluents. Another EWS prototype has been demonstrated in China for landfill leachate treatment. EWS alone achieved a 75% reduction in leachate’s Chemical Oxygen Demand, a marker of contamination level that includes suspended solids and dissolved contamination as well, and 70% reduction in Ammonia.

  

Competitors 

 

 The Algae Industry

 

Companies in the new algae fuels industry tend to organize themselves as integrated producers and to keep their intellectual property to themselves.  Our strategy, on the other hand, is to share our technology widely through licensing and private labeling. With respect to our algae harvesting and sanitizing applications, we are aware that Alfa Laval, Algix, Aurora Algae, Cavitation Technologies, Evodos, New Oil Resources, Open Algae LLC, Perlemax, Valicor, Smartflow Technologies, Westfalia and World Water Works, among others, offer competing technologies. OriginClear believes there is synergy between its process and many of these competing technologies, where EWS Algae can do the “heavy lifting” as the first, high-speed concentration stage, with other processes offering further concentration.

 

 7 
 

 

The Oil and Gas Industry

 

Market and Trends

 

The oil and gas industry is a major source of waste water. In the US, it generates about seven barrels of produced water for each barrel of oil. More recently the flowback water from fracking operations is a short term, but intensive, source of waste water as well. Historically the solution to the treatment of produced and frack flowback water has primarily been to dispose it in permitted injection wells. Many technologies have existed for the “filtering” of these waters prior to injection, but with limited ability to remove contaminants. More recently, because of the cost of water management, environmental concerns and regulatory requirements, these “filtering” technologies are being reviewed and new technologies are being developed; the goal being to reduce water management costs and to dramatically reduce the volume of disposal. Not only can the oil and gas industry look forward to reduced water management costs, but environmental impacts will have been reduced; a win-win for all concerned. Accordingly, the industry is increasingly recycling its produced and frack flowback waters for use in water flooding, cyclic steam stimulation, enhanced oil recovery, new hydraulic fracturing operations, irrigation and even drinking water. Recycling is becoming the economic choice as technologies have advanced and the cost of water treatment has decreased; while at the same time, the cost of disposal has risen (according to Shale Play Water Management magazine, costing between $1.75 and $26.75 per barrel of water). In addition, intense lobbying by environmental groups in front-line regions like California and New York is driving treatment and reuse as a way to make fracking and drilling in general more acceptable, especially in the midst of California’s historic drought. Markets-and-markets reports that the global produced water treatment market size is estimated to exceed $8 billion by 2019. The major factors responsible driving the growth of this market include the energy sector growth in Africa and the Middle East, along with increasing strictness of environmental policies. According to Bluefield Research, wastewater treatment spending for hydraulic fracturing is expected to grow almost three-fold, from $138 million in 2014 to $357 million in 2020 in the U.S. Bluefield cites water supplies increasingly at risk, tighter regulations emerging in key states, and costs of disposal on the rise as factors contributing to the substantial rise in water treatment and reuse, which is expected to account for 27 percent of total produced and flowback water by 2020, about double current levels.

 

Competing Technologies

 

These “filtering” technologies range from simple decanting to distillation. They are typically implemented as a multi-stage process to attain water quality standards for the planned reuse. EWS can act as a pre-treatment stage for any of these multi-stage processes. While EWS can remove the emulsified and free oil, suspended solids and bacteria from the water stream, these subsequent stages can remove the heavy metals, scaling chemicals, salts and other natural and introduced chemicals. EWS can reduce fouling of these filters and membranes, making subsequent or downstream processes complementary to EWS and creating a strategic opportunity to collaborate. Direct competitors using some form of electro-coagulation technologies include: Halliburton, Watertectonics, Bosque, Ecolotron, Quantum-ionics, Kaselco, Baker Hughes, RecylClean and Ecosphere. Other companies also compete with EWS, but use other technologies that can involve chemical coagulants, batch operation or a high level of consumables. These include: Aqua-Tech, Aqua-Pure, CTI, Purifics, HydroZonics, Myclex, Osmonics, Filterboxx, MECO, Layne, 212 Resources, Veolia, Fountain Quail, Pall and Altela.

 

The Waste Industry

 

Waste water is a growing problem as industry, agriculture and communities expand, droughts force the need for reclamation, and aquifers and reservoirs become polluted. Meanwhile, previously lightly-regulated regions of the world are enforcing much stricter environmental regulations. Overall, water security is one of the greatest challenges of our time. According to analysts at McKinsey & Company (Charting our Water Future, November 2009 report), the world will see a 40 percent gap between water supply and demand by 2030. Industrial uses account for a startling amount of water consumed around the world. According to the United Nations (The World Business Council for Sustainable Development, March 2006 report) industry consumes nearly 60 percent of available water in high-income countries. Curbing fresh water consumption at the industrial level has the potential to significantly improve water security worldwide. In general, we believe that OriginClear has one or more advantages over some of the potential competitors, in that our process does not primarily use chemicals, is highly scalable on a continuous flow process, and may be significantly lower in energy consumption. We believe our technology may, in some cases, complement these companies’ offerings, however there is no guarantee that our technology will produce more efficiently or cost-effectively than these other technologies. To our knowledge, there is no company or technology available on the market providing a similar level of synergistic integration of the three processes that we implement under a single configuration: Electro Coagulation, Electro Flotation and Advanced Oxidation.

 

Taken separately, these processes are marketed as follows:

 

Electro Coagulation, though being a relatively new technology, has been known and available in the market for approximately 30 years. Companies like Watertectonics, Kaselco, Powel Water or H2O Technologies offer engineered electrocoagulation systems to the market. There are also a number of one-off electrocoagulation systems in operation worldwide. Electro Flotation is an emerging technology that is mostly seen in scientific publications, as an alternative to more conventional Dissolved Air Flotation (DAF) systems. DAF systems are available worldwide from numerous suppliers including but not limited to, Veolia Water, Ecologix, RWL Water, SAWater, WPL International, World Water Works, etc. Advanced Oxidation systems rely mostly on catalyst injection for their process and therefore are not as streamlined as EWS:AOx. MIOX, Blue Earth Labs are marketing similar systems for niche applications, without offering the additional suspended solids removal functions featured by EWS. Other identified competitors are Lenntech, SSWM, Esco International, and Spartan Water Treatment. In summary, while competitors exist for each of the three phases of our technology, we have not detected any that does all three in one synergistic system.

 8 
 

 

 Government and Environmental Regulation

 

We are not aware of any existing or probable government regulations that would negatively impact on our operations.  As a licensor and/or provider of water treatment equipment, we are not subject to government regulations for the removal of oils, solids and pathogens from water, other than normal safety standards and certifications (such as UL or CE) for goods that we manufacture for demonstrations and joint ventures, and our product lines. However, our prospective customers are subject to local, state and federal laws and regulations governing environmental quality and pollution control. To date, our compliance with government regulations has had no material effect on our operations, capital, earnings, or competitive position, and the cost of such compliance has not been material. We are unable to assess or predict at this time what effect additional regulations or legislation could have on our activities.

 

Intellectual Property 

Our business is also based on developing a strong intellectual property portfolio and establishing a network of OEM distributors and core technology licensees.  We have filed the following patent and trademark applications: 

 

· On July 28, 2007 we filed a utility patent application with the USPTO to protect the intellectual property rights for “Algae Growth System for Oil Production”. The inventors listed on the patent application are Nicholas Eckelberry and Riggs Eckelberry, our founders. We are listed as the assignee. On January 29, 2009 the application published with the publication number US 2009-0029445 A1.

 

· On May 23, 2008 we filed a utility patent application with the USPTO to protect the intellectual property rights for “Apparatus And Method For Optimizing Photosynthetic Growth In a Photo Bioreactor”. The inventors listed on the patent application are Steven Shigematsu and Nicholas Eckelberry. We are listed as the assignee. On November 26, 2009 the application published with the publication number US 2009-0291485 A1.

 

· On July 26, 2009 we filed a provisional patent application with the USPTO to protect the intellectual property rights for “Procedure For Extraction Of Lipids From Algae Without Cell Sacrifice”. The inventors listed on the patent application are Paul Reep and Michael Green. We are listed as the assignee. This application was re-filed as a provisional application on August 13, 2010.

 

· On April 20, 2010 we filed a PCT application with the USPTO to protect the intellectual property rights for “Systems, Apparatus and Methods for Obtaining Intracellular Products and Cellular Mass and Debris from Algae and Derivative Products and Process Use Thereof”. The inventors are Nicholas Eckelberry, Michael Green, and Scott Fraser. We are listed as the assignee. On October 10, 2010 the application published with the publication number WO/2010/123903.

 

· On June 18, 2010 we filed a provisional patent application with the USPTO to protect the intellectual property rights for “Bio-Energy Reactor”. The inventors listed on the patent application are Michael Green, and Nicholas Eckelberry. On December 22, 2011, the application was published with the publication number US 2011-0308962 A1. We are listed as the assignee.

 

· On October 17, 2010 we filed a provisional patent application with the USPTO to protect the intellectual property rights for “Methods and Apparatus for Dewatering, Flocculation and Harvesting of Algae Cells”. The inventors listed on the patent application are Michael Green, Nicholas Eckelberry, Scott Fraser and Brian Goodall. We are listed as the assignee. On May 24, 2012, the application was published with the publication number US 2012-0129244 A1. The application was converted to a utility application on October 14, 2011.

 

· On October 19, 2010 we filed a provisional patent application with the USPTO to protect the intellectual property rights for “Methods and Apparatus for Dewatering, Flocculation and Harvesting Algae Cells”. The inventors listed on the patent application are Michael Green, Nicholas Eckelberry, Scott Fraser, and Brian Goodall. We are listed as the assignee. The application was converted to a utility application on October 18, 2011. On April 28, 2011, the application was published with the publication number US 2011-0095225 A1.

 

· On October 19, 2010 we filed a PCT application with the Korean Receiving Office to protect the intellectual property rights for “Systems and Methods for Extracting Non-Polar Lipids from an Aqueous Algae Slurry and Lipids Produced There from”. The inventors are Nicholas Eckelberry, Michael Green, and Scott Fraser. We are listed as the assignee. On April 28, 2011, the application published with the publication number WO/2011/133181.

 

· On March 18, 2011 we filed a provisional patent application with the USPTO to protect the intellectual property rights for “Enhancing Algae Growth by Reducing Competing Microorganisms in a Growth Medium”. The inventors listed on the patent application are Michael Green, Scott Fraser, Nicholas Eckelberry, and Jose Sanchez Pina. We are listed as the assignee.

 

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· On May 20, 2011 we filed a provisional patent application with the USPTO to protect the intellectual property rights for “Systems and Methods for Monitoring and Controlling Process Chemistry Associated with Biomass Growth, Oil Product and Oil Separation in Aqueous Mediums”. The inventors listed on the patent application are Paul Reep and Gavin Grey. We are listed as the assignee.

 

· On June 16, 2011 we filed a utility patent application with the USPTO to protect the intellectual property rights for “Bio-Energy Reactor”. The inventors listed on the patent application are Michael Green and Nicholas Eckelberry. On April 28, 2011 the application published with the publication number US 2011-0095225 A1. We are listed as the assignee.

 

· On August 10, 2011 we filed a utility patent application with the USPTO to protect the intellectual property rights for “Procedure for Extracting of Lipids from Algae without Cell Sacrifice”. The inventors listed on the patent application are Michael Green and Paul Reep. We are listed as the assignee.

 

· On August 12, 2011 we filed a PCT application with the Korean Receiving Office to protect the intellectual property rights for “Procedure for Extracting of Lipids from Algae Without Cell Sacrifice”. The inventors listed on the patent application are Michael Green and Paul Reep. On February 16, 2012 the application published with the publication number WO/2012/021831. We are listed as the assignee.

 

· On September 7, 2011 we filed a provisional patent application with the USPTO to protect the intellectual property rights for “Apparatuses, Systems and Methods for Increasing Contact Between Solutes and Solvents in an Aqueous Medium”. The inventors listed on the patent application are Nicholas Eckelberry, Gavin Gray, Jose L Sanchez Pina and Maxwell Roth. We are listed as the assignee.

 

· On October 10, 2011 we filed a provisional patent application with the USPTO to protect the intellectual property rights for “Systems and Methods For Increasing Growth Of Biomass Feedstocks”. The inventors listed on the patent application are Nicholas Eckelberry, Jose L Sanchez Pina and Michael Green. We are listed as the assignee.

 

· On October 14, 2011 we filed a provisional patent application with the USPTO to protect the intellectual property rights for “Systems and Methods For Developing Terrestrial and Algal Biomass Feedstocks and Bio-Refining the Same”. The inventor listed on the patent application was Paul Reep. We are listed as the assignee.

 

· On October 14, 2011 we filed a utility patent application with the USPTO to protect the intellectual property rights for “Systems, Methods And Apparatuses For Dewatering, Flocculating And Harvesting Algae Cells”. The inventors listed on the patent application are Michael Green, Scott Frasier, Brian Goodall and Nickolas Eckelberry.  On May 24, 2012 the application published with the publication number US 2012/0129244 A1. We are listed as the assignee.

 

· On October 18, 2011 we filed a PCT application with the Korean Receiving Office to protect the intellectual property rights for “Systems, Methods and Apparatuses For Dewatering, Flocculating and Harvesting Algae Cells”. The inventors listed on the patent application are Michael Green, Scott Frasier, Brian Goodall and Nickolas Eckelberry.  On April 26, 2012 the application published with the publication number WO/2012/054404. We are listed as the assignee.

 

· On November 11, 2011 we filed a trademark application with the USPTO to protect the intellectual property rights for our company logo “O”. On February 11, 2013 the trademark was issued with Certificate Number 4,284,801.

 

· On November 11, 2011 we filed a trademark application with the USPTO to protect the intellectual property rights for our company logo “OriginOil”. On February 11, 2013 the trademark was issued with Certificate Number 4,284,800.

 

· On January 30, 2012 we filed a provisional patent application with the USPTO to protect the intellectual property rights for “Systems and Methods for Harvesting and Dewatering Algae”. The inventor listed on the patent application is Nicholas Eckelberry. We are listed as the assignee.

 

· On March 12, 2012 we filed a utility patent application and PCT applications with the Korean Receiving Office to protect the intellectual property rights for “Enhancing Algae Growth by Reducing Competing Microorganisms in a Growth Medium”. The inventors listed on the patent application are Michael Green, Scott Fraser, Nicholas Eckelberry, and Jose Sanchez Pina. We are listed as the assignee. On November 27, 2012, the application published with the publication number WO/2012/129031.

 

· On April 17, 2012 we filed a provisional patent application with the USPTO to protect the intellectual property rights for “Solute Extraction From an Aqueous Medium Using a Modular Device”. The inventor listed on the patent application is Nicholas Eckelberry. We are listed as the assignee.

 

· On May 18, 2012 we filed a provisional patent application with the USPTO to protect the intellectual property rights for “Modular Systems and Methods for Extracting a Contaminant from a Solution”. The inventor listed on the patent application is Nicholas Eckelberry. We are listed as the assignee.

 

· On May 18, 2012 we filed a utility patent application with the USPTO to protect the intellectual property rights for “Monitoring Systems for Biomass Processing Systems”. The inventors listed on the patent application are Paul Reep and Gavin Grey. We are listed as the assignee.

  

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· On May 21, 2012 we filed a PCT application with the Korean Receiving Office to protect the intellectual property rights for “Monitoring Systems for Biomass Processing Systems”. The inventors listed on the patent application are Paul Reep and Gavin Grey. We are listed as the assignee.

 

· On September 6, 2012 the Australian Patent Office issued patent 2010239380 titled “Systems, Apparatus and Methods for Obtaining Intracellular Products and Cellular Mass and Debris from Algae and Derivative Products and Process of Use Thereof”. This application was nationalized from PCT application PCT/US2010/031756.

 

· On September 7, 2012 we filed a utility patent application with the USPTO to protect the intellectual property rights for “Increasing Contact Between Solutes and Solvents in an Aqueous Medium”. The inventors listed on the patent application are Nicholas Eckelberry, Gavin Grey, Jose Sanchez Pina, and Maxwell Roth. We are listed as the assignee.

 

· On September 9, 2012 we filed a utility patent application with the USPTO to protect the intellectual property rights for “Systems and Methods for Increasing Growth of Biomass Feedstocks”. The inventors listed on the patent application are Nicholas Eckelberry, Mike Green, and Jose Sanchez Pina. We are listed as the assignee.

 

· On October 10, 2012 we filed a PCT application with the Korean Receiving Office to protect the intellectual property rights for “Systems and Methods for Increasing Growth of Biomass Feedstocks”. The inventors listed on the patent application are Nicholas Eckelberry, Mike Green, and Jose Sanchez Pina.  We are listed as the assignee.

 

· On October 15, 2012 we filed a utility patent application with the USPTO to protect the intellectual property rights for “Systems and methods for Developing Terrestrial and Algal Biomass Feedstocks and Bio-refining the Same”. The inventor listed on the patent application is Paul Reep. We are listed as the assignee.

 

· On October 18, 2012 we filed a utility patent application with the USPTO to protect the intellectual property rights for “Systems and methods for Extracting Non-polar Lipids from an Aqueous Algae Slurry and Lipids Produced There from”. The inventors listed on the patent application are Nicholas Eckelberry, Michael Green and Scott Fraser. We are listed as the assignee.

 

· On October 19, 2012 we filed national stage  application with the EPO to protect the intellectual property rights for “Systems and methods for Extracting Non-polar Lipids from an Aqueous Algae Slurry and Lipids Produced There from”. The inventors listed on the patent application are Nicholas Eckelberry, Michael Green and Scott Fraser. We are listed as the assignee.

 

· On January 29, 2013 we filed a utility patent application with the USPTO to protect the intellectual property rights for “Systems and Methods for Harvesting and Dewatering Algae”. The inventor listed on the patent application is Nicholas Eckelberry. We are listed as the assignee.

 

· On January 30, 2013 we filed a PCT application with the Korean Receiving Office to protect the intellectual property rights for “Systems and Methods for Harvesting and Dewatering Algae”. The inventor listed on the patent application is Nicholas Eckelberry. We are listed as the assignee.

 

·

On April 17, 2013 we filed a patent application with the USPTO to protect the intellectual property rights for “Harvesting and Dewatering Algae Using a Two-Stage Process”. The inventors listed on the patent application are Nicholas Eckelberry and Jose L. Sanchez Pina. We are listed as the assignee.

 

· On April 17, 2013 we filed a PCT application with the USPTO to protect the intellectual property rights for “Harvesting and Dewatering Algae Using a Two-Stage Process”. The inventors listed on the patent application are Nicholas Eckelberry and Jose L. Sanchez Pina. We are listed as the assignee.

 

· On April 26, 2013 we filed a patent application with the USPTO to protect the intellectual property rights for “Producing Algae Biomass Having Reduced Concentration of Contaminants”. The inventor listed on the patent application is Jose L. Sanchez Pina. We are listed as the assignee.

 

· On July 15, 2013 we filed a patent application with the USPTO to protect the intellectual property rights for “Removing Ammonia from Water”. The inventors listed on the patent application are Nicholas Eckelberry, Jose L. Sanchez Pina and Andrew Davies. We are listed as the assignee.

 

· On September 9, 2013 we filed a patent application with the EPO, to protect the intellectual property rights for “Removing Compounds from Water Using a Series of Reactor Tubes Containing Cathodes Comprised of a Mixed Metal Oxide”. The inventors listed on the patent application are Nicholas Eckelberry, Jose L. Sanchez Pina and Scott Alexander Fraser. We are listed as the assignee.

 

· On December 17, 2013 we filed a patent application with the USPTO to protect the intellectual property rights for “Removing Compounds from Water Using a Series of Reactor Tubes Containing Cathodes Comprised of a Mixed Metal Oxide”. The inventors listed on the patent application are Nicholas Eckelberry, and Jose L. Sanchez Pina. We are listed as the assignee.
   
· On February 27, 2014 we filed a patent application with the USPTO to protect the intellectual property rights for “Electro Catalytic Process for Coalescing and Skimming Pollutants in Bodies of Water Prior to Filtration”. The inventor listed on the patent application is Nicholas Eckelberry. We are listed as the assignee.

  

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·

On April 17, 2014 we filed a PCT application with the USPTO to protect the intellectual property rights for “Removing Ammonia from Water”. The inventors listed on the patent application are Nicholas Eckelberry, Jose L. Sanchez Pina and Andrew Davies. We are listed as the assignee

.

· On April 17, 2014 we filed a PCT application with the USPTO, to protect the intellectual property rights for “Removing Compounds from Water Using a Series of Reactor Tubes Containing Cathodes Comprised of a Mixed Metal Oxide”. The inventors listed on the patent application are Nicholas Eckelberry and Jose L. Sanchez Pina. We are listed as the assignee.
   
· On April 17, 2014 we filed a PCT application with the USPTO to protect the intellectual property rights for “Producing Algae Biomass Having Reduced Concentration of Contaminants”. The inventors listed on the patent application are Nicholas Eckelberry and Jose L. Sanchez Pina. We are listed as the assignee.
   
· On June 24, 2014 we filed a patent application with the Australian Patent Office to protect the intellectual property rights for “Systems and Methods for Harvesting and Dewatering Algae”. The inventor listed on the patent application is Nicholas Eckelberry. We are listed as the assignee.
   
· On June 24, 2014 we filed a patent application with the European Patent Office to protect the intellectual property rights for “Systems and Methods for Harvesting and Dewatering Algae”. The inventor listed on the patent application is Nicholas Eckelberry. We are listed as the assignee.

 

· On July 23, 2014 we filed a patent application with the Chinese Patent Office to protect the intellectual property rights for “Systems and Methods for Harvesting and Dewatering Algae”. The inventor listed on the patent application is Nicholas Eckelberry. We are listed as the assignee.
   
· On July 25, 2014 we filed a patent application with the Korean Patent Office to protect the intellectual property rights for “Systems and Methods for Harvesting and Dewatering Algae”. The inventor listed on the patent application is Nicholas Eckelberry. We are listed as the assignee.
   
· On July 28, 2014 we filed a patent application with the Japanese Patent Office to protect the intellectual property rights for “Systems and Methods for Harvesting and Dewatering Algae”. The inventor listed on the patent application is Nicholas Eckelberry. We are listed as the assignee.
   
·

On October 13, 2014 we filed a patent application with the EPO to protect the intellectual property rights for “Harvesting and Dewatering Algae Using a Two-Stage Process”. The inventor listed on the patent application is Nicholas Eckelberry. We are listed as the assignee.

 

· On October 15, 2014 we filed a patent application with the Malaysian Patent Office to protect the intellectual property rights for “Harvesting and Dewatering Algae Using a Two-Stage Process”. The inventor listed on the patent application is Nicholas Eckelberry. We are listed as the assignee.
   
· On October 16, 2014 we filed a patent application with the Japanese Patent Office to protect the intellectual property rights for “Harvesting and Dewatering Algae Using a Two-Stage Process”. The inventor listed on the patent application is Nicholas Eckelberry. We are listed as the assignee.
   
· On October 16, 2014 we filed a patent application with the Indian Patent Office to protect the intellectual property rights for “Harvesting and Dewatering Algae Using a Two-Stage Process”. The inventor listed on the patent application is Nicholas Eckelberry. We are listed as the assignee.
   
· On October 17, 2014 we filed a patent application with the Mexican Patent Office to protect the intellectual property rights for “Harvesting and Dewatering Algae Using a Two-Stage Process”. The inventor listed on the patent application is Nicholas Eckelberry. We are listed as the assignee.
   
· On October 17, 2014 we filed a patent application with the Chinese Patent Office to protect the intellectual property rights for “Harvesting and Dewatering Algae Using a Two-Stage Process”. The inventor listed on the patent application is Nicholas Eckelberry. We are listed as the assignee.
   
· On November 12, 2014 we filed a patent application with the Korean Patent Office to protect the intellectual property rights for “Harvesting and Dewatering Algae Using a Two-Stage Process”. The inventor listed on the patent application is Nicholas Eckelberry. We are listed as the assignee.
   
· On November 17, 2014 we filed a utility patent application with the USPTO to protect the intellectual property rights for “System for removal of suspended solids and disinfection of water”. The inventors listed on the patent application are William Charneski, Nicholas Eckelberry and Dave Anderson. We are listed as the assignee.
   
· On December 11, 2014 we filed a utility patent application with the USPTO to protect the intellectual property rights for “Method for Treating Wastewater”. The inventors listed on the patent application are Nicholas Eckelberry and Andrew Davies. We are listed as the assignee.

 

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· On December 10, 2014 the Chinese Patent Office issued patent ZL201080023861.1 titled “Systems, Apparatus and Method for Obtaining Intracellular Products and Cellular Mass and Debris from Algae and Derivative Products and Process of Use Thereof”.
   
· On December 16, 2014 we filed a CIP application with the USPTO to protect the intellectual property rights for “Systems and Methods for Treating Wastewater”. The inventors listed on the patent application are Nicholas Eckelberry, William Charneski and Andrew Davies. We are listed as the assignee.
   
· On February 26, 2015 we filed a Utility Patent application with the USPTO to protect the intellectual property rights for “Electro Catalytic Process for Coalescing and Skimming Pollutants in Bodies of Water Prior to Filtration”. The inventor listed on the patent application is Nicholas Eckelberry. This application was published under the publication number US-20150191366-A1.

 

· On February 27, 2015 we filed a PCT application to protect our international priority rights on intellectual property for “Electro Catalytic Process for Coalescing and Skimming Pollutants in Bodies of Water Prior to Filtration”. The inventor listed on the patent application is Nicholas Eckelberry. The publication number is WO 2015-131111

 

· On June 5, 2015, we filed a provisional patent application with the USPTO to protect the intellectual property rights for “Systems and Methods for Base and Acid Reaction for Extraction”. The inventor listed on the patent application is Nicholas Eckelberry. We are listed as the assignee.

 

· On July 8, 2015, we filed a CIP application with the USPTO to protect the intellectual property rights for “Systems and methods for Extracting Non-polar Lipids from an Aqueous Algae Slurry and Lipids Produced Therefrom”. The inventors listed on the patent application are Nicholas Eckelberry, Michael Green and Scott Fraser. We are listed as the assignee.

 

· On October 15, 2015, we filed a patent application with the Malaysian patent office to protect the intellectual property rights for “Producing Algae Biomass Having Reduced Concentration of Contaminants”. The inventors listed on the patent application are Nicholas Eckelberry and Jose L. Sanchez Pina. We are listed as the assignee.

 

· On October 16, 2015, we filed a patent application with the Japanese patent office to protect the intellectual property rights for “Producing Algae Biomass Having Reduced Concentration of Contaminants”. The inventors listed on the patent application are Nicholas Eckelberry and Jose L. Sanchez Pina. We are listed as the assignee.

 

· On October 19, 2015, we filed a patent application with the Chinese patent office to protect the intellectual property rights for “Producing Algae Biomass Having Reduced Concentration of Contaminants”. The inventors listed on the patent application are Nicholas Eckelberry and Jose L. Sanchez Pina. We are listed as the assignee.

 

· On October 20, 2015, we filed a patent application with the EPO to protect the intellectual property rights for “Producing Algae Biomass Having Reduced Concentration of Contaminants”. The inventors listed on the patent application are Nicholas Eckelberry and Jose L. Sanchez Pina. We are listed as the assignee.

 

· On October 20, 2015, we filed a patent application with the Australian patent office to protect the intellectual property rights for “Harvesting and Dewatering Algae Using a Two-Stage Process”. The inventors listed on the patent application are Nicholas Eckelberry and Jose L. Sanchez Pina. We are listed as the assignee.

 

· On November 12, 2015, we filed a patent application with the Korean patent office to protect the intellectual property rights for “Producing Algae Biomass Having Reduced Concentration of Contaminants”. The inventors listed on the patent application are Nicholas Eckelberry and Jose L. Sanchez Pina. We are listed as the assignee.

 

· On November 13, 2015, we filed a patent application with the Indonesian patent office to protect the intellectual property rights for “Producing Algae Biomass Having Reduced Concentration of Contaminants”. The inventors listed on the patent application are Nicholas Eckelberry and Jose L. Sanchez Pina. We are listed as the assignee.

 

· On November 17, 2015, we filed a PCT application to protect our international priority rights on the intellectual property for “Systems for Removal of Suspended Solids and Disinfection of Water”. The inventors listed on the patent application are Nicholas Eckelberry, William Charneski and Dave Anderson. We are listed as the assignee.

 

· On November 17, 2015, we filed a patent application with the Indian patent office to protect the intellectual property rights for “Producing Algae Biomass Having Reduced Concentration of Contaminants”. The inventors listed on the patent application are Nicholas Eckelberry and Jose L. Sanchez Pina. We are listed as the assignee.

 

· On December 10, 2015 we filed a PCT application to protect our international priority rights on the intellectual property for “Systems and Methods for Treating Wastewater”. The inventors listed on the patent application are Nicholas Eckelberry, William Charneski and Andrew Davies. We are listed as the assignee

   

In 2008 we abandoned the pursuit of two provisional patent filings filed in relating to “In-Line Lysing And Extraction System for Microorganisms” and “Renewable Carbon Sequestering Method of Producing Pollution Free Electricity”. 

 

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In 2009 we abandoned the pursuit of a provisional patent related to “Modular Portable Photobioreactor System”.

 

In 2010 we abandoned the pursuit of utility patent application related to “Device and Method for Separation, Cell Lysing and Flocculation of Algae from Water” and provisional patent application “Methods and Apparatus for Growing Algae on a Solid Surface”.

 

In 2011 we abandoned the pursuit of provisional patent application related to “Algae Growth Lighting and Control System”.

 

In 2012 we abandoned the pursuit of provisional patent filings related to “Multi-Plane Growth Apparatus and Method”, “Systems and Methods for Monitoring and Controlling Algae Growth and Harvesting Cellular Mass and Intracellular Products”, “Method for Extracting Intracellular Products from Microorganisms Using Gas Embolism”, “Algae Harvest Appliance”, “A System, Method And Apparatus To Produce Dewatered And Densified Algae Biomass” and foreign rights for “Bio-Energy Reactor”.

 

In 2013, we transferred the rights to the patents related to "Bio Energy Reactor", "Algae Growth System for Oil Production" and "Apparatus and Method for Optimizing Photosynthetic Growth in a Photo Bioreactor" to our partner Ennesys in France.

 

In 2015, we abandoned the pursuit of Australian patent application for “Systems and Methods for Harvesting and Dewatering Algae”.

 

None of these abandoned or transferred patents are required for our business or products and we are focusing our efforts on the patent applications listed above.

 

Research and Development

 

During the years ended December 31, 2015 and 2014, we invested $814,014 and $1,284,611, respectively, on research and development of our technologies.  Research and development costs include activities related to development and innovations in the core Electro Water Separation™ (EWS) technology, fabrication and scale-up of products based on this technology, development of firmware and process automation, development of new applications in industries such as aquaculture, technical support of customers, agents, joint venture partners and licensees, on-site consulting and training activities, and miscellaneous research.

 

Employees

 

As of March 31, 2016, we have 28 full-time employees.  We have not experienced any work stoppages and we consider relations with our employees to be good. 

 

ITEM 1A. RISK FACTORS

 

Risks Relating to Our Business

 

We have a limited operating history which makes it difficult to evaluate our business and prospects.

 

We were formed in June 2007 and are currently developing a new technology that has not yet gained market acceptance. As such, we have a limited operating history upon which you can base an evaluation of our business and prospects. Since we have not been profitable, there are substantial risks, uncertainties, expenses and difficulties that we are subject to. To address these risks and uncertainties, we must do among the following:

 

  Successfully execute our business strategy;
     
  Respond to competitive developments; and
     
  Attract, integrate, retain and motivate qualified personnel;

 

There can be no assurance that at this time we will operate profitably or that we will have adequate working capital to meet our obligations as they become due. Investors must consider the risks and difficulties frequently encountered by early stage companies, particularly in rapidly evolving markets. We cannot be certain that our business strategy will be successful or that we will successfully address these risks. In the event that we do not successfully address these risks, our business, prospects, financial condition, and results of operations could be materially and adversely affected.

 

We have a history of losses and can provide no assurance of our future operating results.

 

We currently have limited product revenues, and may not succeed in commercializing any products which will generate product or licensing revenues. Until recently, our primary activity has been research and development. We have experienced net losses and negative cash flows from operating activities since inception and we expect such losses and negative cash flows to continue in the foreseeable future. As of December 31, 2015 and 2014, we had working capital (deficit) of $(13,471,476) and $(7,330,957), respectively, and shareholders' (deficit) of $(12,753,117) and $(7,200,317), respectively.  For the years ended December 31, 2015 and 2014, we incurred net losses of $(11,615,066) and $(11,138,608).  As of December 31, 2015, we had an aggregate accumulated deficit of $59,083,777.  We may never achieve profitability.  The opinion of our independent registered public accountants on our audited financial statements as of and for the year ended December 31, 2015 contains an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern.  Our ability to continue as a going concern is dependent upon raising capital from financing transactions and future sales.

 

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We will need significant additional capital, which we may be unable to obtain.

 

Revenues generated from our operations are not presently sufficient to sustain our operations. Therefore, we will need to raise additional capital to continue our operations. There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us. We may be required to pursue sources of additional capital through various means, including debt or equity financings. Future financings through equity investments are likely to be dilutive to existing stockholders. Also, the terms of securities we may issue in future capital transactions may be more favorable for new investors. Newly issued securities may include preferences, superior voting rights, the issuance of warrants or other derivative securities, and the issuances of incentive awards under equity employee incentive plans, which may have additional dilutive effects. Further, we may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition. Our ability to obtain needed financing may be impaired by such factors as the capital markets and our history of losses, which could impact the availability or cost of future financings. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that we reduce our operations accordingly, we may be required to cease operations.

 

We have incurred substantial indebtedness.

 

As of March 25, 2016, we have convertible notes with outstanding principal and accrued but unpaid interest of approximately $4,594,188. All such debt is payable within the following twelve months and is convertible at a significant discount to our market price of stock. Our level of indebtedness increases the possibility that we may be unable to generate cash sufficient to pay, when due, the principal of, interest on or other amounts due in respect of the indebtedness. Our indebtedness, combined with other financial obligations and contractual commitments, could:

 

·in the case of convertible debt that is converted into equity, result in a reduction in the overall percentage holdings of our stockholders, put downward pressure on the market price of our common stock, result in adjustments to conversion and exercise prices of outstanding notes and warrants and obligate us to issue additional shares of common stock to certain of our stockholders;

 

·make it more difficult for us to satisfy our obligations with respect to the indebtedness and any failure to comply with the obligations under any of our debt instruments, including restrictive covenants, could result in events of default under the loan agreements and instruments governing the indebtedness;

 

·require us to dedicate a substantial portion of our cash flow from operations to payments on  indebtedness, thereby reducing funds available for working capital, capital expenditures, acquisitions, research and development and other corporate purposes;

 

·increase our vulnerability to adverse economic and industry conditions, which could place us at a competitive disadvantage compared to competitors that have relatively less indebtedness;

 

·limit our flexibility in planning for, or reacting to, changes in business and the industry in which we operate; and

 

·limit our ability to borrow additional funds, or to dispose of assets to raise funds, if needed, for working capital, capital expenditures, acquisitions, research and development and other corporate purposes.

 

We may incur significant additional indebtedness in the future. If we incur a substantial amount of additional indebtedness, the related risks that we face could become more significant. Additionally, the terms of any future debt that we may incur may impose requirements or restrictions that further affect our financial and operating flexibility or subject us to other events of default.

 

Our revenues are dependent upon acceptance of our technology and products by the market; the failure of which would cause us to curtail or cease operations.

 

We believe that most of our future revenues will come from the sale or license of our technology and systems. As a result, we will continue to incur substantial operating losses until such time as we are able to generate revenues from the sale or license of our technology and systems. There can be no assurance that businesses and prospective customers will adopt our technology and systems, or that businesses and prospective customers will agree to pay for or license our technology and systems. In the event that we are not able to develop a customer base that purchases or licenses our technology and systems, or if we are unable to charge the necessary prices or license fees, our financial condition and results of operations will be materially and adversely affected.

 

 15 
 

 

We will need to increase the size of our organization, and may experience difficulties in managing growth.

 

We are a small company with a minimal number of employees. With the start of our planned principal activities, we expect to experience a period of significant expansion in headcount, facilities, infrastructure and overhead and anticipate that further expansion will be required to address potential growth and market opportunities. Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate managers. Our future financial performance and our ability to compete effectively will depend, in part, on our ability to manage any future growth effectively.

 

We may not be able to successfully develop and commercialize our technology and systems which would result in continued losses and may require us to curtail or cease operations.

 

We are currently commercializing our technology. We are unable to project when we will achieve profitability, if at all. As is the case with any new technology, we expect the research and development process to continue. We cannot assure that our engineering resources will be able to develop our technology and systems fast enough to meet market requirements. We can also not assure that our technology and systems will gain market acceptance and that we will be able to successfully commercialize the technologies. The failure to successfully develop and commercialize the technologies would result in continued losses and may require us to curtail or cease operations.

 

Our ability to produce and distribute commercially viable bio-fuel, clean-up oil and gas and waste water and aqua-feed on a commercially viable basis is unproven, which could have a detrimental effect on our ability to generate or sustain revenues.

 

The technologies we use to harvest algae, clean up oil and gas water, and waste water, have never been utilized on a full-scale commercial basis. Our Electro Water Separation (EWS) technology was only recently developed. All of the tests conducted to date by us with respect to the technology have been performed in a limited scale or small commercial scale environment and the same or similar results may not be obtainable at competitive costs on a large-scale commercial basis. We have never employed our technology under the conditions or in the volumes that will be required for us to be profitable and cannot predict all of the difficulties that may arise. Accordingly, our technology may not perform successfully on a commercial basis and may never generate any revenues or be profitable.

 

If a competitor were to achieve a technological breakthrough, our operations and business could be negatively impacted.

 

There currently exist a number of businesses that are pursuing novel processes to harvest algae, clean up oil and gas water, and waste water. Should a competitor achieve a research and development, technological or biological breakthrough where process costs are significantly reduced, efficiency greatly increased over ours, or if the costs of similar competing products were to fall substantially, we may have difficulty attracting customer licensees or sales. In addition, competition from other technologies considered “green” (environmental) or “blue” (water technology) could lessen the demand for the end-products produced by our technology. Furthermore, competitors may have access to larger resources (capital or otherwise) that provide them with an advantage in the marketplace, which could result in a negative impact on our business.

 

Any competing technology that harvests algae, cleans up oil and gas water, and waste water, at a superior scale and more cost efficient than ours, could render our technology obsolete. In addition, because we do not have any issued patents for all but one of our patent applications, we may not be able to preclude development of even directly competing technologies using the same methods, materials and procedures as we use to achieve our results. Any of these competitive forces may inhibit or materially adversely affect our ability to attract customer licensees, or to obtain royalties or other fees from our customer licensees. This could have a material adverse effect on our business, prospects, results of operation and financial condition.

 

Our long-term success depends on future royalties paid to us by licensees, and we face the risks inherent in a royalty-based business model.

 

We intend to generate revenue through the licensing of our technology and systems, and our long-term success depends on future royalties paid to us by prospective customer licensees. The amount of royalty payments we may receive is expected to be based upon the revenues generated by our prospective customer licensees’ operations, and so we will be dependent on the successful operations of our prospective customer licensees for a significant portion of our revenues. We face risks inherent in a royalty-based business model, many of which are outside of our control, including those arising from our reliance on the management and operating capabilities of our customer licensees and the cyclicality of supply and demand for end-products produced using our technology. Should our prospective customer licensees fail to achieve sufficient profitability in their operations, our royalty payments would be diminished and our results of operations, cash flows and financial condition could be adversely affected, and any such effects could be material.

 

 16 
 

  

We rely on strategic partners.

 

We rely on strategic partners to aid in the development and marketing of our technology and processes. Should our strategic partners not regard us as significant to their own businesses, they could reduce their commitment to us or terminate their relationship with us, pursue competing relationships or attempt to develop or acquire processes that compete with ours. Any such action could materially adversely affect our business.

 

A lack of government subsidies may hinder the usefulness of our technology.

 

While our long-term business model is based on licensing our technology to original equipment manufacturers (OEMs), distributors, resellers, service providers and other licensees, we also assemble and sell complete solutions based on EWS. Subsidies of any of the industries vary and may be reduced or eliminated, which could have a material adverse effect on our business. Likewise, regulations may become more onerous which also could have a material adverse effect on our business.

 

The industries in which we operate may endure deflationary cycles, affecting our ability to sell and license our systems.

 

If the current low cost of crude persists, it may become difficult or impossible to sell or license systems to the oil and gas industry, and the field of biofuels may become economically unviable. Such events and other deflationary events may impact our business materially. 

 

If we lose key employees and consultants or are unable to attract or retain qualified personnel, our business could suffer.

 

Our success is highly dependent on our ability to attract and retain qualified scientific, engineering and management personnel. We are highly dependent on our management, including T. Riggs Eckelberry, who has been critical to the development of our technology and business. The loss of the services of Mr. Eckelberry would have a material adverse effect on our operations. We do not have an employment agreement with Mr. Eckelberry. Accordingly, there can be no assurance that he will remain associated with us. His efforts will be critical to us as we continue to develop our technology and as we attempt to transition to a company with profitable company commercialized products and services. If we were to lose Mr. Eckelberry, or any other key employees or consultants, we may experience difficulties in competing effectively, developing our technology and implementing our business strategies.

 

Competition from other companies in our market may affect the market for our technology.

 

New companies are constantly entering the market, thus increasing the competition. This could also have a negative impact on us or our customers’ ability to obtain additional capital from investors. Larger foreign owned and domestic companies which have been engaged in water cleanup and algae harvesting for substantially longer periods of time may have access to greater financial and other resources. These companies may have greater success in the recruitment and retention of qualified employees, as well as in conducting their own fuel manufacturing and marketing operations, which may give them a competitive advantage. In addition, actual or potential competitors may be strengthened through the acquisition of additional assets and interests. If we or our customers are unable to compete effectively or adequately respond to competitive pressures, this may materially adversely affect our results of operation and financial condition.

 

Risks Related to Our Intellectual Property

 

If we fail to establish, maintain and enforce intellectual property rights with respect to our technology, our financial condition, results of operations and business could be negatively impacted.

 

Our ability to establish, maintain and enforce intellectual property rights with respect to the technology that we intend to license will be a significant factor in determining our future financial and operating performance. We seek to protect our intellectual property rights by relying on a combination of patent, trade secret and copyright laws. We also use confidentiality and other provisions in our agreements that restrict access to and disclosure of our confidential know-how and trade secrets.

 

We have filed patent applications with respect to many aspects of our technologies. However, we cannot provide any assurances that any of these applications will ultimately result in issued patents or, if patents are issued, that they will provide sufficient protections for our technology against competitors. Although we have filed various patent applications for some of our core technologies, we currently hold only five issued patents, one each in in the United States, Australia, Japan, China and Mexico and we may face delays and difficulties in obtaining our other filed patents, or we may not be able to obtain such patents at all. 

 

Outside of these patent applications, we seek to protect our technology as trade secrets and technical know-how. However, trade secrets and technical know-how are difficult to maintain and do not provide the same legal protections provided by patents. In particular, only patents will allow us to prohibit others from using independently developed technology that are similar. If competitors develop knowledge substantially equivalent or superior to our trade secrets and technical know-how, or gain access to our knowledge through other means such as observation of our technology that embodies trade secrets at customer sites which we do not control, the value of our trade secrets and technical know-how would be diminished.

 

While we strive to maintain systems and procedures to protect the confidentiality and security of our trade secrets and technical know-how, these systems and procedures may fail to provide an adequate degree of protection. For example, although we generally enter into agreements with our employees, consultants, advisors, and strategic partners restricting the disclosure and use of trade secrets, technical know-how and confidential information, we cannot provide any assurance that these agreements will be sufficient to prevent unauthorized use or disclosure. In addition, some of the technology deployed at customer sites in the future, which we do not control, may be readily observable by third parties who are not under contractual obligations of non-disclosure, which may limit or compromise our ability to continue to protect such technology as a trade secret.

 

 17 
 

 

Monitoring and policing unauthorized use and disclosure of intellectual property is difficult. If we learned that a third party was in fact infringing or otherwise violating our intellectual property, we may need to enforce our intellectual property rights through litigation. Litigation relating to our intellectual property may not prove successful and might result in substantial costs and diversion of resources and management attention.

 

From our customer licensee’s standpoint, the strength of the intellectual property under which we intend to grant licenses can be a critical determinant of the value of these licenses. If we are unable to secure, protect and enforce our intellectual property, it may become more difficult for us to attract new customers.  Any such development could have a material adverse effect on our business, prospects, financial condition and results of operations.

 

Although we have filed various patent applications for some of our core technologies, we currently hold only five issued patents, one each in the United States, Australia, Japan, China and Mexico, and we may face delays and difficulties in obtaining other filed patents, or we may not be able to obtain such patents at all.

 

Patents are a key element of our intellectual property strategy. We have over fifty currently pending patent applications in the United States and abroad but, to date, other than the five issued patents, no patents have been issued from these other applications. It may take a long time for any patents to issue from the applications, and we cannot provide any assurance that any patents will ultimately be issued or that any patents that do ultimately issue will issue in a form that will adequately protect our commercial advantage.

 

Our ability to obtain patent protection for our technologies is uncertain due to a number of factors, including that we may not have been the first to make the inventions covered by our pending patent applications or to file patent applications for these inventions.

 

Further, changes in U.S. and foreign patent law may also impact our ability to successfully prosecute our patent applications. For example, the United States Congress and other foreign legislative bodies may amend their respective patent laws in a manner that makes obtaining patents more difficult or costly. Courts may also render decisions that alter the application of patent laws and detrimentally affect our ability to obtain patent protection. 

 

Even if patents do ultimately issue from our patent applications, these patents may not provide meaningful protection or commercial advantage. In the US, patents only provide protection for a 20-year period starting from the filing date and the longer a patent application takes to issue the less time there is to enforce it. Further, the claims under any patents that issue from our applications may not be broad enough to prevent others from developing technologies that are similar or that achieve similar results. It is also possible that the intellectual property rights of others will bar us from licensing our technology and bar us or our future licensees from exploiting any patents that issue from our pending applications. Numerous U.S. and foreign issued patents and pending patent applications owned by others exist in the fields in which we have developed and are developing our technology. These patents and patent applications might have priority over our patent applications and could subject our patent applications to invalidation. Finally, in addition to those who may claim priority, any patents that issue from our applications may also be challenged by our competitors on the basis that they are otherwise invalid or unenforceable.

 

We may face claims that we are violating the intellectual property rights of others.

 

We may face claims, including from direct competitors, other energy companies, scientists or research universities, asserting that our technology or the commercial use of such technology infringes or otherwise violates the intellectual property rights of others. We have not conducted infringement, freedom to operate or landscape analyses, and as a result we cannot be certain that our technologies and processes do not violate the intellectual property rights of others. We expect that we may increasingly be subject to such claims as we begin to earn revenues and our market profile grows.

 

We may also face infringement claims from the employees, consultants, agents and outside organizations we have engaged to develop our technology. While we have sought to protect ourselves against such claims through contractual means, we cannot provide any assurance that such contractual provisions are adequate, and any of these parties might claim full or partial ownership of the intellectual property in the technology that they were engaged to develop.

 

 18 
 

 

If we were found to be infringing or otherwise violating the intellectual property rights of others, we could face significant costs to implement work-around methods, and we cannot provide any assurance that any such work-around would be available or technically equivalent to our current technology. In such cases, we might need to license a third party’s intellectual property, although any required license might not be available on acceptable terms, or at all. If we are unable to work around such infringement or obtain a license on acceptable terms, we might face substantial monetary judgments against us or an injunction against continuing to license our technology, which might cause us to cease operations.

 

In addition, even if we are not infringing or otherwise violating the intellectual property rights of others, we could nonetheless incur substantial costs in defending ourselves in suits brought against us for alleged infringement. Also, if any license agreements provide that we will defend and indemnify our customer licensees for claims against them relating to any alleged infringement of the intellectual property rights of third parties in connection with such customer licensees’ use of our technologies, we may incur substantial costs defending and indemnifying any customer licensees to the extent they are subject to these types of claims. Such suits, even if without merit, would likely require our management team to dedicate substantial time to addressing the issues presented. Any party bringing claims might have greater resources than we do, which could potentially lead to us settling claims against which we might otherwise prevail on the merits.

 

Any claims brought against us or any customer licensees alleging that we have violated the intellectual property of others could have negative consequences for our financial condition, results of operations and business, each of which could be materially adversely affected as a result.

 

Risks Related to Our Common Stock

   

Our common stock could be further diluted as the result of the issuance of additional shares of common stock, convertible securities, warrants or options.

 

In the past, we have issued common stock, convertible securities (such as convertible debentures and notes) and warrants in order to raise money, some of which have anti-dilution and other similar protections. We have also issued options and warrants as compensation for services and incentive compensation for our employees and directors. We have shares of common stock reserved for issuance upon the exercise of certain of these securities and may increase the shares reserved for these purposes in the future. Our issuance of additional common stock, convertible securities, options and warrants could affect the rights of our stockholders, result in a reduction in the overall percentage holdings of our stockholders, could put downward pressure on the market price of our common stock, could result in adjustments to conversion and exercise prices of outstanding notes and warrants, and could obligate us to issue additional shares of common stock to certain of our stockholders.

 

There may be a limited public market for our securities.

 

Trading in our common stock continues to be conducted on the electronic bulletin board in the over-the-counter market. As a result, an investor may find it difficult to dispose of or to obtain accurate quotations as to the market value of our common stock, and our common stock may be less attractive for margin loans, for investment by financial institutions, as consideration in future capital raising transactions or other purposes.

 

We may be unable to list our common stock on NASDAQ or on any securities exchange.

 

Our common stock currently does not meet all of the requirements for initial listing on a registered stock exchange. Although we may apply to list our common stock on NASDAQ or the NYSE MKT in the future, we cannot assure you that we will be able to meet the initial listing standards, including the minimum bid price per share and minimum capitalization requirements, or that we will be able to maintain a listing of our common stock on either of those or any other trading venue. Until such time as we qualify for listing on NASDAQ, the NYSE MKT or another trading venue, we expect our common stock will continue to trade on electronic bulletin board in the over-the-counter market.

 

The price of our common stock is volatile, which may cause investment losses for our stockholders.

 

The market for our common stock is highly volatile, having ranged during the fiscal year ended December 31, 2015 from a low of $0.02 to a high of $0.12 on the OTCQB. The trading price of our common stock on the OTCBB is subject to wide fluctuations in response to, among other things, quarterly variations in operating and financial results, and general economic and market conditions. In addition, statements or changes in opinions, ratings, or earnings estimates made by brokerage firms or industry analysts relating to our market or relating to us could result in an immediate and adverse effect on the market price of our common stock. The highly volatile nature of our stock price may cause investment losses for our shareholders. In the past, securities class action litigation has often been brought against companies following periods of volatility in the market price of their securities. If securities class action litigation is brought against us, such litigation could result in substantial costs while diverting management’s attention and resources.

 

 19 
 

  

Shares eligible for future sale may adversely affect the market.

 

From time to time, certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144 promulgated under the Securities Act, subject to certain limitations. In general, pursuant to Rule 144, non-affiliate stockholders may sell freely after six months subject only to the current public information requirement. Affiliates may sell after six months subject to the Rule 144 volume, manner of sale (for equity securities), current public information and notice requirements.  As of March 31, 2016, Mr. Eckelberry, our Chief Executive Officer and Chairman, beneficially owns 58,293,602 shares of our common stock (including 57,500,000 shares of our common stock issuable upon the exercise of stock options at a price of $0.0375 per share). Any substantial sales of our common stock pursuant to Rule 144 may have a material adverse effect on the market price of our common stock.

 

Our stock is subject to the penny stock rules, which impose significant restrictions on broker-dealers and may affect the resale of our stock.

 

Our common stock has been subject to the provisions of Section 15(g) and Rule 15g-9 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), commonly referred to as the “penny stock” rule. Section 15(g) sets forth certain requirements for transactions in penny stocks and Rule 15g-9(d)(1) incorporates the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act. The SEC generally defines penny stock to be any equity security that has a market price less than US$5.00 per share, subject to certain exceptions. Rule 3a51-1 provides that any equity security is considered to be penny stock unless that security is: registered and traded on a national securities exchange meeting specified criteria set by the SEC; issued by a registered investment company; excluded from the definition on the basis of price (at least US$5.00 per share) or the registrant’s net tangible assets; or exempted from the definition by the Commission. Our common stock is considered to be a “penny stock.” The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in “penny stocks.” As our common stock is considered to be “penny stock,” trading in our common stock will be subject to additional sales practice requirements on broker-dealers who sell penny stock to persons other than established customers and accredited investors. This may reduce the liquidity and trading volume of our shares.

 

Financial Industry Regulatory Authority, Inc. (“FINRA”) sales practice requirements may limit a shareholder’s ability to buy and sell our common shares.

 

In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

 

If we fail to maintain effective internal controls over financial reporting, the price of our common stock may be adversely affected.

 

Our internal control over financial reporting may have weaknesses and conditions that could require correction or remediation, the disclosure of which may have an adverse impact on the price of our common stock.  We are required to establish and maintain appropriate internal controls over financial reporting.  Failure to establish those controls, or any failure of those controls once established, could adversely affect our public disclosures regarding our business, prospects, financial condition or results of operations.  In addition, management’s assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors.  Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting or disclosure of management’s assessment of our internal controls over financial reporting may have an adverse impact on the price of our common stock.

 

We are required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act of 2002 and if we fail to comply in a timely manner, our business could be harmed and our stock price could decline.

 

Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require an annual assessment of internal controls over financial reporting, and for certain issuers an attestation of this assessment by the issuer’s independent registered public accounting firm.  The standards that must be met for management to assess the internal controls over financial reporting as effective are evolving and complex, and require significant documentation, testing, and possible remediation to meet the detailed standards.  We expect to incur significant expenses and to devote resources to Section 404 compliance on an ongoing basis.  It is difficult for us to predict how long it will take or costly it will be to complete the assessment of the effectiveness of our internal control over financial reporting for each year and to remediate any deficiencies in our internal control over financial reporting. As a result, we may not be able to complete the assessment and remediation process on a timely basis.  In addition, although attestation requirements by our independent registered public accounting firm are not presently applicable to us we could become subject to these requirements in the future and we may encounter problems or delays in completing the implementation of any resulting changes to internal controls over financial reporting.  In the event that our Chief Executive Officer or Chief Financial Officer determine that our internal control over financial reporting is not effective as defined under Section 404, we cannot predict how regulators will react or how the market prices of our shares will be affected; however, we believe that there is a risk that investor confidence and share value may be negatively affected.

 

 20 
 

 

We do not intend to pay dividends.

 

We do not anticipate paying cash dividends on our common stock in the foreseeable future. We may not have sufficient funds to legally pay dividends. Even if funds are legally available to pay dividends, we may nevertheless decide in our sole discretion not to pay dividends. The declaration, payment and amount of any future dividends will be made at the discretion of our board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors our board of directors may consider relevant. There is no assurance that we will pay any dividends in the future, and, if dividends are paid, there is no assurance with respect to the amount of any such dividend.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

ITEM 2. PROPERTIES.

 

Our principal offices are located at 5645 West Adams Blvd., Los Angeles, CA 90016. We rent 7,500 square feet of space in a corporate building at a current monthly rent of $11,390. Our lease expires August 31, 2016.

 

ITEM 3. LEGAL PROCEEDINGS.

 

From time to time we may be a defendant and plaintiff in various legal proceedings arising in the normal course of our business. We are currently not a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

  

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS ISSUER PURCHASES OF EQUITY SECURITIES.

 

Our common stock is quoted on the OTC Bulletin Board under the symbol “OOIL”.

 

For the periods indicated, the following table sets forth the high and low bid prices per share of common stock. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions. Where applicable, the prices set forth below give retroactive effect to our one-for-thirty reverse stock split which became effective on August 11, 2011.

 

 

 

Fiscal Year

2014

 
   High    Low 
First Quarter  $0.28   $0.16 
Second Quarter  $0.23   $0.12 
Third Quarter  $0.24   $0.13 
Fourth Quarter  $0.20   $0.09 

 

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Fiscal Year

2015

 
   High    Low 
First Quarter  $0.12    0.07 
Second Quarter  $0.08    0.04 
Third Quarter  $0.06    0.03 
Fourth Quarter  $0.04    0.02 

 

The market price of our common stock, like that of other technology companies, is highly volatile and is subject to fluctuations in response to variations in operating results, announcements of technological innovations or new products, or other events or factors. Our stock price may also be affected by broader market trends unrelated to our performance.

 

Holders

As of March 30, 2016, we had approximately 423 holders of record of our common stock.  This number does not include beneficial owners whose shares are held in the names of various security brokers, dealers, and registered clearing agencies.

 

Dividend Policy

 

We have never paid any cash dividends on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future. We intend to retain future earnings to fund ongoing operations and future capital requirements of our business. Any future determination to pay cash dividends will be at the discretion of the board of directors and will be dependent upon our financial condition, results of operations, capital requirements and such other factors as the board of directors deems relevant.

 

Recent Sales of Unregistered Securities

 

There were no sales of unregistered securities during the fiscal year ended December 31, 2015 other than those transactions previously reported to the SEC on our quarterly reports on Form 10-Q and current reports on Form 8-K.

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

None.

 

ITEM 6. SELECTED FINANCIAL DATA

 

N/A

 

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

 

The following discussion and analysis should be read together with our financial statements and the related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. See “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under “Risk Factors” and elsewhere in this Annual Report on Form 10-K.

 

Overview of Business

 

OriginClear is a leading provider of water treatment solutions and the developer of a breakthrough water cleanup technology serving the rapidly growing $500 billion world market.

Through its wholly owned subsidiaries, OriginClear provides systems and services to treat water in a wide range of industries, such as municipal, pharmaceutical, semiconductors, industrial, and oil & gas. To rapidly grow this segment of the business, we have started to strategically acquire profitable and well-managed water treatment companies, which allow us to expand our global market presence and technical expertise.

To enable a new era of clean and socially responsible water treatment solutions, we invented Electro Water Separation™, a breakthrough high-speed water cleanup technology using multi-stage electrochemistry, that we license worldwide to water treatment equipment manufacturers.

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

 

 22 
 

 

The Group

 

In 2015, OriginClear embarked on a corporate strategy to rapidly acquire leading U.S. water service companies focused on specialized water treatment. OriginClear aims to offer a complementary, end-to-end offering to serve growing corporate demand for outsourced water treatment.

 

On October 1, 2015, Dallas-based Progressive Water Treatment, Inc. (“PWT”) became the first acquisition in The OriginClear Group. PWT is a fast-growing designer, builder and service provider for a wide range of industrial water treatment applications. PWT reported revenue of $4,831,788 in 2015 of which $773,699 was included in the consolidated financial statements for period ending December 31, 2015.

 

The Technology

 

OriginClear is the proprietary developer of Electro Water Separation™ (EWS), the high-speed, primarily chemical-free technology to clean up large quantities of water. It removes oils, suspended solids, certain dissolved solids, and pathogens, in a continuous and energy-efficient process. EWS is designed to be an early step in removal of oils, solids and pathogens; reducing the work that more expensive, downstream processes such as Ultra Filtration or Reverse Osmosis must do, therefore enabling more cost-efficient and high-volume water cleanup overall. A major advance as announced in March of 2016: In 2016, OriginClear announced that it successfully developed and proved Advanced Oxidation for its breakthrough water cleanup system, Electro Water Separation™, or EWS. University laboratory tests have shown that EWS with Advanced Oxidation (EWS:AOx™) can now extract dissolved contaminants, which are otherwise difficult to remove without chemicals such as chlorine. Overall, the system has shown a dramatic reduction in Total Organic Compounds which includes all forms of organic contamination, solids, miscible or dissolved, to meet new stringent global discharge requirements. Our technology integrates easily with other industry processes. We have begun to embed our technology into larger systems through licensing and joint ventures.

Technology Licensing

For its first eight years of existence, OriginClear focused uniquely on development and commercialization of its breakthrough Electro Water Separation™ technology. In 2015, the technology team became self-sufficient and the Company launched it as OriginClear Technologies, operating in parallel to the OriginClear Group. The mission of OriginClear Technologies is to develop Electro Water Separation™ and achieve its full recognition as an international industry standard in treating the increasingly complex wastewater treatment challenges. A key element of this strategy is OriginClear (HK), OriginClear’s wholly-owned subsidiary in Hong Kong that manages Asia-Pacific market development, with a special focus on China sales and manufacturing.

 

Critical Accounting Policies

 

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

 

Revenue Recognition

 

We recognize revenue when services are performed, and at the time of shipment of products, provided that evidence of an arrangement exists, title and risk of loss have passed to the customer, fees are fixed or determinable, and collection of the related receivable is reasonably assured.

 

Revenues and related costs on construction contracts are recognized using the “percentage of completion method” of accounting in accordance with ASC 605-35, Accounting for Performance of Construction-Type and Certain Production Type Contracts (“ASC 605-35”). Under this method, contract revenues and related expenses are recognized over the performance period of the contract in direct proportion to the costs incurred as a percentage of total estimated costs for the entirety of the contract. Costs include direct material, direct labor, subcontract labor and any allocable indirect costs. All un-allocable indirect costs and corporate general and administrative costs are charged to the periods as incurred. However, in the event a loss on a contract is foreseen, the Company will recognize the loss, as it is determined. The Asset, “Costs and estimated earnings in excess of billings”, represents revenues recognized in excess of amounts billed on contracts in progress. The Liability, “Billings in excess of costs and estimated earnings”, represents billings in excess of revenues recognized on contracts in progress.

 

Use of Estimates

 

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

 

Fair Value of Financial Instruments

 

Fair value of financial instruments requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of December 31, 2015, the amounts reported for cash, prepaid expenses, accounts payable and accrued expenses approximate the fair value because of their short maturities.

 

 23 
 

  

Recently Issued Accounting Pronouncements

 

Management adopted a recently issued accounting pronouncement during the year ended December 31, 2015, as disclosed in the Notes to the financial statements included in this report.

 

Results of Operations for the years ended December 31, 2015 and 2014.

 

   Year Ended 
   December 31,
2015
   December 31,
2014
 
Revenue  $954,470    166,195 
Cost Of Goods Sold   841,903    106,919 
Operating Expenses, Depreciation and Amortization   7,079,124    7,041,630 
           
Loss from Operations before Other Income/(Expense)   (6,966,557)   (6,982,354)
           
Other Income/(Expense)   (4,648,509)   (4,156,254)
           
Net Loss  $(11,615,066)   (11,138,608)

 

Revenue and Cost of Sales

 

Revenue for the year ended December 31, 2015 and 2014 was $954,470 and $166,195, respectively. Cost of sales for the year ended December 31, 2015 and 2014, was $841,903 and $106,919, respectively. The revenue and cost of sales for 2015 included 3 months of activity from PWT, which we acquired on October 1, 2015 and full year activity from OriginClear Hong Kong subsidiary. The increase in revenue and cost of sales was due to the acquisition of PWT.

 

To date we have had minimal revenues due to our focus on product development and testing. In addition, we are not focused on immediate sales of equipment, but on acquisitions, licensing and private labeling type transactions, which we believe have the potential to yield stronger long term revenue.

 

Operating Expenses

 

Selling and Marketing Expenses

 

Selling and Marketing (“S&M”) expenses for the years ended December 31, 2015 and 2014, were $2,042,312 and $2,643,779, respectively, which included 3 months of activity from PWT, which we acquired on October 1, 2015 and full year activity from OriginClear Hong Kong subsidiary. 

 

General Administrative Expenses

 

General administrative (“G&A”) expenses for the years ended December 31, 2015 and 2014, were $4,200,200 and $3,096,693, respectively, which included 3 months of activity from PWT, which we acquired on October 1, 2015 and full year activity from OriginClear Hong Kong subsidiary.

 

Research and Development Cost

 

Research and development (“R&D”) costs decreased by $470,597 to $814,014 for the year ended December 31, 2015, compared to $1,284,611 for the year ended December 31, 2014.  The decrease in overall R&D costs was primarily due to an decrease in the purchase of durable items for testing. R&D costs have consisted of material supplies and testing for EWS appliances.

 

Other Income and Expenses

 

Other income and (expenses) increased by $492,255 to $(4,648,509) for the year ended December 31, 2015, compared to $(4,156,254) for the year ended December 31, 2014. The increase was the result of an increase in non-cash accounts associated with the fair value of the derivatives in the amount of $1,155,511, fair value of financing cost of $143,172, gain on sale of assets of $14,318, other income of $9,796, offset by a decrease in commitment fees of $77,065, and gain on investment of $6,353, and interest expense of $711,602, which includes amortization of debt discount.

 

 24 
 

    

Net Loss

 

Our net loss for December 31, 2015 and 2014, was $11,615,066 and $11,138,608, respectively. The majority of the increase in net loss was due primarily to an increase in other income and (expenses) associated with the derivatives.  Currently operating costs exceed revenue because sales are not yet sufficient to cover costs.  We cannot assure of when or if revenue will exceed operating costs.

 

Liquidity and Capital Resources

 

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

 

The financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The accompanying condensed financial statements do not reflect any adjustments that might result if we are unable to continue as a going concern. During the year ended December 31, 2015, we did not generate significant revenue, incurred a net loss of $11,615,066 and cash used in operations of $3,010,710. As of December 31, 2015, we had a working capital deficiency of $13,471,476 and a shareholders’ deficit of $12,753,117. These factors, among others raise substantial doubt about our ability to continue as a going concern. Our independent auditors, in their report on our audited financial statements for the year ended December 31, 2015 expressed substantial doubt about our ability to continue as a going concern. The ability of us to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, additional cash infusion. We have obtained funds from our shareholders in the year ended December 31, 2015, and have standing purchase orders and open invoices with customers. Management believes this funding will continue from our current investors and has also obtained funding from new investors. Management believes the existing shareholders, the prospective new investors and future revenue will provide the additional cash needed to meet our obligations as they become due, and will allow the development of our core business operations.

 

At December 31, 2015 and December 31, 2014, we had cash of $695,295 and $198,384, respectively and working capital deficit of $13,471,476 and $7,330,957 respectively.  The increase in working capital deficit was due primarily to an increase in non-cash derivative liabilities, convertible notes, work-in-process, accrued expenses and accounts payable with a decrease in cash and other assets.

 

During the year ended December 31, 2015, we raised an aggregate of $1,815,000 in an offering of unsecured convertible notes.  During the subsequent period, we raised an aggregate of $100,000 of unsecured convertible notes. Our ability to continue as a going concern is dependent upon raising capital from financing transactions and future revenue, however, there cannot be any assurance that we will be able to raise additional capital from financings.

 

Net cash used in operating activities was $(3,010,710) for the year ended December 31, 2015, compared to $(4,455,648) for the prior period December 31, 2014. The decrease of $1,444,938 in cash used in operating activities was due primarily to the net decrease in prepaid expenses, work in process and deferred income, with an increase in accrued expenses, accounts payable and net loss due to an increase in non-cash accounts associated with the derivatives. Currently operating costs exceed revenue because sales are not yet significant.

 

Net cash flows provided by (used) in investing activities for the year ended December 31, 2015 and 2014 were $346,843 and $(7,416) respectively.  The net increase in cash provided in investing activities was due to the acquisition of our subsidiary PWT.

 

Net cash flows provided by financing activities was $3,160,731 for the year ended December 31, 2015, as compared to $3,840,000 for the prior period December 31, 2014.  The decrease in cash provided by financing activities was due to a decrease in debt financing with the issuance of convertible notes offset by an increase in equity financing. To date we have principally financed our operations through the sale of our common stock and the issuance of debt.

  

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

 

We have estimated our current average burn, and believe that we have assets to ensure that we can function without liquidation over the next nine months, due to our cash on hand, growing revenue, and our ability to raise money from our investor base.  Based on the aforesaid, we believe we have the ability to continue our operations for the foreseeable future and will be able to realize assets and discharge liabilities in the normal course of operations.

 

 25 
 

  

Additional Information

 

On March 29, 2016, the Company issued to consultants an aggregate of 5,000,000 shares of the Company’s common stock in lieu of cash consideration.  

 

On March 29, 2016, the Board approved the issuance of $10,000 in shares of the Company’s common stock per month beginning April 1, 2016 for an initial six month term, and then month to month after the initial term, to a consultant for services.

 

On March 29, 2016, the Board approved the issuance of options under the Company’s 2015 Equity Incentive Plan to purchase up to 1,000,000 shares of the Company’s common stock to certain non-executive officers of the company at an exercise price equal to $0.02 per share.

 

On March 31, the Company issued to consultants an aggregate of 1,996,094 shares of the Company’s common stock in lieu of cash consideration.

 

The issuances of the securities under the caption Other Information, were offered and sold pursuant to an exemption from the registration requirements under Section 4(a)(2) of the Securities Act 1933, as amended and Rule 506 of Regulation D promulgated thereunder since, among other things, the transactions did not involve a public offering and the securities were acquired for investment purposes only and not with a view to or for sale in connection with any distribution thereof. 

 

Off-Balance Sheet Arrangements

 

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

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not applicable.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

All financial information required by this Item is attached hereto at the end of this report beginning on page F-1 and is hereby incorporated by reference.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

None

 

ITEM 9A. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)).  Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the required time periods specified in the Commission’s rules and forms and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

Our management, including our principal executive officer and principal financial officer, do not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs.  Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. During the quarter ended December 31, 2015, we carried out an evaluation, under the supervision and with the participation of our management, including the principal executive officer and the principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation and due to the lack of segregation of duties and failure to implement accounting controls of acquired businesses, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this report.

 

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

 

 26 
 

 

Management’s Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended.  Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2015.  In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework (2013).  A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.  

 

Management has identified control deficiencies regarding the lack of segregation of duties and the need for a stronger internal control environment. Management of the Company believes that these material weaknesses are primarily due to the continued integration of the 2015 acquisitions of Progressive Water Treatment, Inc., specifically as pertains to revenue recognition. The small size of the Company’s accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of such remediation.  

 

The Company intends to add additional resources and controls during the year 2016 to mitigate the above weaknesses.

 

Because of the above material weakness, management has concluded that we did not maintain effective internal control over financial reporting as of December 31, 2015, based on the criteria established in “Internal Control-Integrated Framework” issued by the COSO.

 

Changes in Internal Control Over Financial Reporting

 

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended December 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

No Attestation Report by Independent Registered Accountant

 

The effectiveness of our internal control over financial reporting as of December 31, 2015 has not been audited by our independent registered public accounting firm by virtue of our exemption from such requirement as a smaller reporting company.

 

ITEM 9B. OTHER INFORMATION

 

None

  

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

 

The following table sets forth the names and ages of the members of our board of directors and our executive officers and the positions held by each. There are no family relationships among any of our directors and executive officers.

 

Name   Age   Position
T. Riggs Eckelberry   64   Chief Executive Officer, Chairman of the Board of Directors, Secretary, Treasurer, President and acting Chief Financial Officer.
         
Anthony Fidaleo   57   Director
         
Jean-Louis Kindler   53   Chief Commercial Officer and Director
         
Byron Elton   61   Director

 

 27 
 

 

T. Riggs Eckelberry - Chief Executive Officer, Chairman of the Board of Directors, Secretary, Treasurer, President and acting Chief Financial Officer.

 

Mr. Eckelberry has served as our Chief Executive Officer, Chairman, Secretary, Treasurer, President and acting Chief Financial Officer since our inception in June 2007. Mr. Eckelberry, co-inventor of the Company’s technology, brings his veteran technology management skills to the alternative energy sector. In 2007, he developed and launched OriginOil. As President and COO of CyberDefender Corporation from 2005 to 2006, he was instrumental in building the company and its innovative product line, helping to achieve initial funding and a public company filing at the end of 2006. Previously, as founder and President of TechTransform, a technology consulting firm, he specialized in high tech launches and turnarounds, helping to turn around YellowPages.com in 2004, resulting in its sale for $100 million to SBC/BellSouth, and in 2003 helping to make Panda Software a key player in the US market as the General Manager of its US unit. During the high tech boom of the 1990s, he was responsible for the global brand success of the software product, CleanSweep; as Chief Operating Officer of MicroHouse Technologies, he drove record sales and a modernization of the company’s technology, helping to achieve a successful sale of the company to Earthweb; and as VP Marketing of venture-backed TriVida, he was a key member of the team that commercialized the company’s technology and achieved the sale of this technology company to BeFree, Inc. (now part of ValueClick: VCLK).  As one of the founders of the Company and a recognized expert in the algae oil area, Mr. Eckelberry’s experience and qualifications are essential to the board of directors.

 

Anthony Fidaleo – Director

 

Mr. Fidaleo has served as our director since June 2012. Mr. Fidaleo has run his own accounting and consulting practice since 1992, primarily as an acting Chief Financial Officer or Senior Consultant for publicly traded companies ranging from start-ups to Fortune 500’s.  From November 2005 to February 2009 Mr. Fidaleo was the Chief Financial Officer, Chief Operating Officer, Executive Vice President and Member of the Board of Directors and Operating Committee for iMedia International, Inc. an early stage publicly traded interactive content solutions company.  Mr. Fidaleo is a California CPA (inactive) and was in public accounting from 1982 through 1992, primarily with BDO Seidman, LLP where he attained the level of audit senior manager. Mr. Fidaleo holds a B.S. degree in Accounting from California State University at Long Beach. Mr. Fidaleo’s accounting and financial experience qualifies him to serve as a member of our board of directors.

 

Jean-Louis Kindler – Chief Commercial Officer and Director

 

Mr. Kindler has served as our Chief Commercial Officer since April 1, 2014 and director since January 2014. Mr. Kindler is a veteran of 25 years as both a top executive and engineer in environmental technologies. He joins us after three years as co-founder in 2010 of Ennesys, the company’s French joint venture, where he designed its acclaimed patent-pending waste-to-energy system. Prior to that from 2006 to 2009, he served as CEO of MHS Equipment, a French nanotechnologies equipment manufacturing firm, where he led the development of a revolutionary fuel cell process. Earlier in his career he spent twenty years in Japan which gave him a unique insight into the fast-growing Asian markets. There, as principal of incubator Pacific Junction Corporation, Mr. Kindler completed various assignments such as technology sourcing for the French industrial group Alstom, implementing a hydrogen production system using waste biomass as feedstock, and developing the market for a fluids mixing technology that helped inspire early the Company inventions. Mr. Kindler holds a Masters in Economics and Public Policies from the Institute of Political Sciences in Lyon, France, and an MBA in International Management. Mr. Kindler’s executive and management experience qualifies him to serve as a member of our board of directors.

 

Byron Elton – Director

 

Mr. Elton has served as our director since January 2014. Mr. Elton is an experienced media and marketing executive with a proven record in pioneering new business development strategies and building top-flight marketing organizations. Since June, 2013, Mr. Elton is a partner of Clear Search, an executive search firm. Prior to that, from January 2009 until May 2013, Mr. Elton served as President and Chief Executive Officer of Carbon Sciences, Inc. (OTCBB: CABN) and has served as Chairman of Carbon Sciences since March 2009. Carbon Sciences is an early stage company developing a technology to convert earth destroying carbon dioxide into a useful form that will not contribute to greenhouse gas. Mr. Elton previously served as Senior Vice President of Sales for Univision Online from 2007 to 2008. Mr. Elton also served for eight years as an executive at AOL Media Networks from 2000 to 2007, where his assignments included Regional Vice President of Sales for AOL and Senior Vice President of E-Commerce for AOL Canada. His broadcast media experience includes leading the ABC affiliate in Santa Barbara, California in 1995 to 2000 and the CBS affiliate in Monterrey, California, from 1998 to 1999, in addition to serving as President of the Alaskan Television Network from 1995 to 1999. Mr. Elton studied Advertising and Marketing Communications at Brigham Young University. Mr. Elton’s executive and management experience qualifies him to serve as a member of our board of directors.

 

 28 
 

 

Election of Directors

 

Our directors are elected by the vote of a majority in interest of the holders of our voting stock and hold office until the expiration of the term for which he or she was elected and until a successor has been elected and qualified.

 

A majority of the authorized number of directors constitutes a quorum of the board of directors for the transaction of business.  The directors must be present at the meeting to constitute a quorum.  However, any action required or permitted to be taken by the board of directors may be taken without a meeting if all members of the board of directors individually or collectively consent in writing to the action.

 

Board Independence

 

We currently have four directors serving on our board of directors. We are not a listed issuer and, as such, are not subject to any director independence standards. Using the definition of “independent director,” as defined by Section 5605(a)(2) of the rules of the Nasdaq Stock Market, Anthony Fidaleo and Byron Elton would be considered an independent director.

 

Committees of the Board of Directors

 

We have established an audit committee and compensation committee however we have not yet nominated any members to such committees, which we intend to do in the near future. To date, our entire board has performed all of the duties and responsibilities which might be contemplated by a committee.

 

Audit Committee. The audit committee will be composed of three independent directors, one of whom that meets the requirements of an “Audit Committee Financial Expert.”  The audit committee's duties will be to recommend to the board of directors the engagement of independent auditors to audit our financial statements and to review our accounting and auditing principles.  The audit committee will review the scope and fees for the annual audit and the results of audit examinations performed by the internal auditors and independent public accountants, including their recommendations to improve the system of accounting and internal controls.  The audit committee will at all times to be composed exclusively of directors who are, in the opinion of the board of directors, free from any relationship which would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial statements and generally accepted accounting principles.

 

Compensation Committee. The compensation committee will be composed of at least two independent directors.  The compensation committee will review and approve our compensation policies, including compensation of executive officers.  The compensation committee will also review and administer our stock option plans, and recommend and approve grants of stock options under that plan.

 

We do not have a standing nominating committee nor are we required to have one. We do not currently have any established procedures by which security holders may recommend nominees to our Board of directors, however, any suggestions on directors, and discussions of board nominees in general, is handled by the entire board of directors.

 

Compensation Committee Interlocks and Insider Participation

 

None of our executive officers serves as a member of the board of directors or compensation committee of any other entity that has one or more of its executive officers serving as a member of our board of directors.

 

Code of Ethics

 

We have adopted a code of business conduct and ethics that applies to all our directors, officers (including our chief executive officer, chief financial officer and any person performing similar functions) and employees. We have made our Code of Ethics available on our website at www.originclear.com.

 

Board Leadership Structure and Role in Risk Oversight

 

Although we have not adopted a formal policy on whether the Chairman and Chief Executive Officer positions should be separate or combined, we have traditionally determined that it is in our best interests and our shareholders to combine these roles. Mr. Eckelberry has served as our Chairman since our inception in 2007. Due to the small size and early stage of the Company, we believe it is currently most effective to have the Chairman and Chief Executive Officer positions combined. Our board of directors receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our company’s assessment of risks.

 

Our board of directors focuses on the most significant risks facing us and our general risk management strategy, and also ensures that risks undertaken by us are consistent with the Board’s appetite for risk. While the Board oversees our risk management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing us.

 

 29 
 

  

ITEM 11. EXECUTIVE COMPENSATION.

  

The following table sets forth the compensation to our Chief Executive Officer and Chief Commercial Officer for the years ended 2015 and 2014:

 

Name and Principal Position  Year   Salary   Bonus   Stock Awards   Option Awards   Non-Equity Incentive Plan Compensation   Non-qualified Deferred Compensation Earnings   All Other Compensation   Total 
         ($)    ($)    ($)    ($)    ($)    ($)    ($)    ($) 

T. Riggs Eckelberry,

Chairman of the Board, Acting CFO, President,

   2015    260,000    190,000                            450,000 
Secretary & Treasurer and CEO   2014    260,000    184,000                        444,000 
                                              
Jean Louis Kindler   2015    144,000    20,900                            164,900 
Chief Commercial Officer   2014    104,182                            104,182 

  

Outstanding Equity Awards at 2015 Fiscal Year-End

 

The following table sets forth certain information concerning option awards and stock awards held by our named executive officers as of December 31, 2015.

 

    Option Awards   Stock Awards  
Name  

Number of

Securities

Underlying

Unexercised

Options

(#)

Exercisable

   

Number of

Securities

Underlying

Unexercised

Options

(#)

Unexercisable

   

Equity

Incentive

Plan

Awards:

Number of

Securities

Underlying

Unexercised

Unearned

Options

(#)

   

Option

Exercise

Price

($)

 

Option

Expiration

Date

 

Number of

Shares or

Units of

Stock that

Have Not

Vested

(#)

   

Market

Value of

Shares or

Units of

Stock that

Have Not

Vested

($)

   

Equity

Incentive

Plan

Awards:

Number of

Unearned

Shares,

Units or

Other

Rights that

Have Not

Vested

(#)

   

Equity

Incentive

Plan

Awards:

Market or

Payout

Value of

Unearned

Shares,

Units or

Other

Rights that

Have Not

Vested

($)

 
                                                   
T. Riggs Eckelberry (1)(2)(3)         759,645                   0.43   April 12, 2018                                
       5,000,000                    0.04  

October 6,

2020

                               
      55,000,000                   0.04  

October 6,

2020

                               
                                                                   
Jean Louis Kindler (4)(5)       5,000,000                   0.04  

October 6,

2020

                               
        5,000,000                   0.04  

October 6,

2020

                               

 

 30 
 

 

(1)On April 12, 2013, Mr. Eckelberry was granted options to purchase 759,645 shares of our common stock which are fully vested, exercisable at $0.43 per share and expire 5 years from the date of grant.
(2)On October 6, 2015, Mr. Eckelberry was granted options to purchase 5,000,000 shares of our common stock under the Company’s 2015 Equity Incentive Plan. 50% of these options vested on option grant date and 50% vest on the one year anniversary of grant date. These options are exercisable at $0.0375 per share and expire 5 years from the date of grant.
(3)On October 6, 2015, Mr. Eckelberry was granted options to purchase 55,000,000 shares of our common stock under the Company’s 2015 Equity Incentive Plan. These options are fully vested, exercisable at $0.0375 per share and expire 5 years from the date of grant.
(4)On October 6, 2015, Mr. Kindler was granted options to purchase 5,000,000 shares of our common stock under the Company’s 2015 Equity Incentive Plan, of which 50% vested on the option grant date and 50% vest on the one year anniversary of the grant date. These options are exercisable at $0.0375 per share and expire 5 years from the date of grant.
(5)On October 6, 2015, Mr. Kindler was granted options to purchase 5,000,000 shares of our common stock under the Company’s 2015 Equity Incentive Plan which will vest upon specific milestones being met, exercisable at $0.0375 per share and expiring 5 years from the date of grant.

 

Employment Agreements

 

We currently do not have an employment agreement with our Chief Executive Officer, Mr. Eckelberry, who is paid an annual salary of $260,000. Bonus payments, if any, are determined by the Board of Directors. For the year ended 2015, our Chief Executive Officer received bonus payments of $190,000. 

 

Employee Benefit Plans

 

Beginning June 1, 2008, we implemented a company health plan for our employees.

 

Compensation of Directors

 

Except as set forth below, our current directors presently do not receive monetary compensation for their service on the board of directors.  Directors may receive compensation for their services in the future and reimbursement for their expenses as shall be determined from time to time by resolution of the board of directors.

 

The following table reflects all compensation awarded to or earned by our directors for the fiscal year ended December 31, 2015.

 

Name  

Fees Earned

($)

   

Stock Awards

($) (1)

   

Options Awards

($)

   

Non-Equity Incentive Plan Compensation

($)

   

Nonqualified Deferred Compensation Earnings

($)

   

All Other Compensation

($)

 

Total

($)

T. Riggs Eckelberry                                                  
Jean Louis Kindler                                                  
Anthony Fidaleo (2)             25,000                                    
Byron Elton (3)             25,000                                    

 

 

(1) Reflects the aggregate grant date fair value of stock awards granted during the relevant fiscal year calculated in accordance with FASB ASC Topic 718.

(2)

(3)

On February 4, 2015, Mr. Fidaleo was issued 250,000 shares of our common stock.

On February 4, 2015, Mr. Elton was issued 250,000 shares of our common stock.

 

 31 
 

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

 

The following table sets forth certain information regarding the beneficial ownership of our common stock as of March 31, 2016 by (i) each director, (ii) each named executive officer, (iii) all directors and executive officers as a group, and (iv) each person who beneficially owns more than five percent of our common stock. Beneficial ownership is determined in accordance with the rules of the SEC. The percentage ownership of each beneficial owner is based on 286,909,179 outstanding shares of common stock. Except as indicated, each person listed below has sole voting and investment power with respect to the shares set forth opposite such person’s name.

 

Name and Title of Beneficial Owner  Number of 
Shares
Beneficially
Owned (1)
   Percentage
of Shares
 
T. Riggs Eckelberry,
Chief Executive Officer, Chairman, Secretary, Treasurer, President
and acting Chief Financial Officer (2)
   58,293,602    17%
           
Jean-Louis Kindler, Director (3)   2,503,333    * % 
           
Anthony Fidaleo, Director (4)   1,000,000     * % 
           
Byron Elton, Director (5)   850,000     * % 
           
Directors and executive officers as a group (4 persons) (6)   62,646,935    18%

 

* Less than 1%

(1) The address of each director and named executive officer listed above is c/o OriginClear, Inc., 5645 W Adams Blvd, Los Angeles, CA 90016.
(2) Includes 57,500,000 common stock issuable upon exercise of stock options at a price of $0.0375 per share and 759,645 shares of common stock issuable upon exercise of stock options at a price of $0.43 per share.

(3)

(4)

(5)

Includes 2,500,000 common stock issuable upon exercise of stock options at a price of $0.0375 per share.

Includes 250,000 common stock issuable upon exercise of stock options at a price of $0.0375 per share.

Includes 250,000 common stock issuable upon exercise of stock options at a price of $0.0375 per share.

(6) Includes 60,500,000 common stock issuable upon exercise of stock options at a price of $0.0375 per share and 759,645 shares of common stock issuable upon exercise of stock options at a price of $0.43 per shares.

 

On October 1, 2015, the Company filed a Certificate of Designation for its Series A Preferred Stock with the Secretary of State of Nevada designating 1,000 shares of its authorized preferred stock as Series A Preferred Stock (the “New Series A Preferred Stock”). The shares of New Series A Preferred Stock have a par value of $0.0001 per share. The New Series A Preferred Shares do not have a dividend rate or liquidation preference and are not convertible into shares of common stock. 

 

 32 
 

 

For so long as any shares of the New Series A Preferred Stock remain issued and outstanding, the holders thereof, voting separately as a class, shall have the right to vote on all shareholder matters equal to 51% of the total vote (representing a super majority voting power) on all matters related to equity incentive plans of the Company, including, among other things, adoption, amendment, cancellation of any equity incentive plans of the Company. Such vote shall be determined by the holder(s) of a majority of the then issued and outstanding shares of New Series A Preferred Stock. For example, if there are 10,000 shares of the Company’s common stock issued and outstanding at the time of a shareholder vote, the holders of the New Series A Preferred Stock, voting separately as a class, will have the right to vote an aggregate of 10,400 shares, out of a total number of 20,400 shares voting.

 

The shares of the New Series A Preferred Stock shall be automatically redeemed by the Company at their par value on the first to occur of the following triggering events: (i) on the date that Mr. Eckelberry ceases, for any reason, to serve as officer, director or consultant of the Company, or (ii) on the date that the Company’s shares of common stock first trade on any national securities exchange provided that the listing rules of any such exchange prohibit preferential voting rights of a class of securities of the Company, or listing on any such national securities exchange is conditioned upon the elimination of the preferential voting rights of the New Series A Preferred Stock set forth in the Certificate of Designation.

 

Additionally, the Company is prohibited from adopting any amendments to the Company’s Bylaws, Articles of Incorporation, as amended, making any changes to the Certificate of Designation establishing the New Series A Preferred Stock, or effecting any reclassification of the New Series A Preferred Stock, without the affirmative vote of at least 66-2/3% of the outstanding shares of New Series A Preferred Stock. However, the Company may, by any means authorized by law and without any vote of the holders of shares of New Series A Preferred Stock, make technical, corrective, administrative or similar changes to such Certificate of Designation that do not, individually or in the aggregate, adversely affect the rights or preferences of the holders of shares of New Series A Preferred Stock.

 

On July 31, 2015, the Board of Directors of the Company adopted a Certificate of Designation establishing the rights, preferences, privileges and other terms of Series B Preferred Stock, par value $0.0001 per share which consist of 10,000 shares (the “Series B Preferred Stock”). On October 1, 2015, the Company filed the Certificate of Designation for the Series B Preferred Stock with the Secretary of State of Nevada and Series B Shares were issued to the shareholders of Progressive Water Treatment, Inc. in connection with the share exchange agreement. One third (1/3) of the shares received by the holder may be converted into common stock beginning one (1) year after the first date on which a share of Series B Preferred Stock was issued (the “Original Issue Date); one third (1/3) may be converted beginning two (2) years after the original issue date; and the remaining one third (1/3) may be converted beginning three years after the original issue date. The number of shares of common stock issuable for each share of converted Series B Preferred Stock shall be calculated by dividing the stated value by the market price, the market price shall be the average of the closing trade prices of the twenty-five (25) days prior to the date of the conversion notice.

The Series B Preferred Stock has redemption features that are redeemable solely at the option of the Company. Each share of Series B Preferred Stock has a stated value of $150 per share and is convertible into shares of the Company’s common stock at a conversion price of $0.03 per share, which may be converted to the Company’s common stock in three annual increments beginning 12 months from closing. The conversion price is subject to adjustment in the case of reverse splits, stock dividends, reclassifications and the like. In addition, the conversion price is subject to certain full ratchet anti-dilution protection.

 

Equity Compensation Plan Information

 

On July 1, 2009, we instituted the OriginOil 2009 Incentive Stock Plan (the “2009 Plan”), after approval by the board of directors and a majority of our shareholders.  Under the 2009 Plan, 500,000 shares of our common stock were reserved for use.

 

 On May 25, 2012, we instituted the OriginOil 2012 Incentive Stock Plan (the “2012 Plan”), after approval by the board of directors and a majority of our shareholders.  Under the 2012 Plan, 1,000,000 shares of our common stock were reserved for use.  

 

On June 14, 2013, we instituted the OriginOil 2013 Incentive Stock Plan (the “2013 Plan”), after approval by the board of directors.  Under the 2013 Plan, 4,000,000 shares of our common stock were reserved for use.  

 

On October 2, 2015, we instituted the OriginClear, Inc. 2015 Equity Incentive Plan (the “2015 Plan”), after approval by the board of directors.  Under the 2015 Plan, 160,000,000 shares of our common stock were reserved for use.  

 

The purpose of the 2009 Plan, 2012 Plan, 2013 Plan and 2015 Plan is to retain executives and selected employees and consultants and reward them for making contributions to our success.  These objectives are accomplished by making long-term incentive awards under thereby providing participants with a proprietary interest in our growth and performance. Each of the plans are administered by our board of directors.

 

The following table summarizes information concerning the 2009 Plan, 2012 Plan, 2013 Plan, 2015 Plan and other options outstanding as of December 31, 2015.

 

Plan category 

Number of
securities to be
issued upon
exercise of
outstanding
options
(a)

  

Weighted-average

exercise
price of
outstanding
options
(b)

  

Securities
remaining
available
for future
issuance
under equity
compensation
plans
(excluding
securities
reflected in
column
(a))(c)

 
Equity compensation plans approved by security holders   73,609,937    .05    45,794,707 
Equity compensation plans not approved by security holders               
Total   73,609,937    .05    45,794,707 

 

 33 
 

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Except as set forth in Item 11 under “Executive Compensation”, since January 1, 2015 there has not been, nor is there any proposed transaction where we were or will be a party in which the amount involved exceeded or will exceed $120,000 and in which any director, executive officer, holder of more than 5% of any class of our voting securities, or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest. 

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

 

Audit Fees

 

The aggregate fees billed by our principal accountant for the audit of our annual financial statements, review of financial statements included in the quarterly reports and other fees that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal years ended December 31, 2015 and 2014 were $64,572 and $101,725 respectively. The fees for the year ended December 31, 2014 included $61,725 billed by Weinberg & Company, P.A. who served as our independent registered public accountants until July 5, 2014 and $40,000 in fees billed by Liggett & Webb,, P.A., our current independent registered public accountants.

 

Tax Fees

 

There were no fees billed for professional services rendered by our principal accountant for tax compliance, tax advice and tax planning for the fiscal years ended December 31, 2015 and 2014.

 

All Other Fees

 

There were no other fees billed for products or services provided by our principal accountant for the fiscal years ended December 31, 2015 and 2014.

 

 34 
 

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

SEC Ref. No.    
 3.1   Articles of Incorporation of OriginOil, Inc. filed with the Secretary of State of Nevada on June 1, 2007 (1)
 3.2   Certificate of Change of OriginOil, Inc. filed with the Secretary of State of Nevada on July 19, 2011 (2)
 3.3   Certificate of Amendment of OriginOil, Inc. filed with the Secretary of State of Nevada on  June 14, 2012 (3)
 3.4   By-laws of OriginOil, Inc. (1)
 3.5   Form of Certificate of Amendment of OriginOil, Inc. filed with the Secretary of State of Nevada on  August 14, 2014 (4)
 3.6   Certificate of Amendment of OriginOil, Inc. (5)
 3.7   Series A Certificate of Designation of OriginClear, Inc. filed with the Secretary of State of Nevada on October 1, 2015 (6)
 3.8   Series B Certificate of Designation of OriginClear, Inc. filed with the Secretary of State of Nevada on October 1, 2015 (6)
 3.9   Certificate of Amendment of OriginClear, Inc. filed with the Secretary of State of Nevada on March 29, 2016.*
 10.1   Non-Statutory Stock Option Agreement dated October 6, 2015 (7)
 10.2   OriginClear, Inc. 2015 Equity Incentive Plan (8)
 10.3   Amended and Restated Non-Statutory Stock Option Agreement dated October 6, 2015 between T. Riggs Eckelberry and the Company (9)
 31   Certification of Chief Executive Officer pursuant to Sec. 302 of the Sarbanes-Oxley Act of 2002 (10)
 32   Certification of Chief Executive Officer pursuant to 18 U.S.C. SECTION 1350 (10)
 101   The following materials from OriginClear Inc.’s Annual Report on Form 10-K for the year ended December 31, 2015 are formatted in XBRL (eXtensible Business Reporting Language):  (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) Consolidated Statement of Shareholders' Equity/ (Deficit), (iv) the Consolidated Statements of Cash Flow, and (iv) Notes to Consolidated Financial Statements tagged as blocks of text.

 

* Filed herewith

 

(1) Incorporated by reference to the Company’s Form SB-2 filed with the SEC on December 11, 2007.
(2) Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on July 20, 2011.
(3) Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on June 14, 2012.
(4) Incorporated by reference to the Company’s Current Report on Form 10-Q filed with the SEC on August 14, 2014.
(5) Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on April 16, 2015.

(6)

Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on October 6, 2015.

(7) Incorporated by reference to the Company’s 10-Q for the Quarter ended September 30, 2015 filed with the SEC on November 16, 2015.
(8) Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on October 6, 2015.
(9) Incorporated by reference to the Company’s Current Report on From 8-K filed with the SEC on January 8, 2016.
(10) In accordance with Item 601of Regulation S-K, this Exhibit is hereby furnished to the SEC as an accompanying document and is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933.

 

 35 
 

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on April 4, 2016.

 

  ORIGINCLEAR, INC.  
       
  By: /s/ T Riggs Eckelberry  
    T Riggs Eckelberry  
    Chief Executive Officer
(Principal Executive Officer)
 
    and Acting Chief Financial Officer  
    (Principal Accounting and Financial Officer)  

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this registration report has been signed below by the following persons in the capacities and on the dates indicated.

 

Date: April 4, 2016 By: /s/ T Riggs Eckelberry  
    T Riggs Eckelberry  
    Director  

 

Date: April 4, 2016 By: /s/ Anthony Fidaleo  
    Anthony Fidaleo  
    Director  

 

Date: April 4, 2016 By: /s/ Jean-Louis Kindler  
    Jean-Louis Kindler  
    Director  

 

Date: April 4, 2016 By: /s/ Byron Elton  
    Byron Elton  
    Director  

 

 36 
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Shareholders

OriginClear, Inc.

Los Angeles, California

 

We have audited the accompanying consolidated balance sheets of OriginClear, Inc. (the “Company”) as of December 31, 2015 and 2014 and the related consolidated statements of operations, shareholders’ deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provides a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of OriginClear, Inc. as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1, the Company has experienced recurring operating losses and negative cash flows from operating activities, which have resulted in a negative working capital and a stockholders’ deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 

  /s/ Liggett & Webb, P.A.
  Liggett & Webb, P.A.

  

New York, New York

April 4, 2016

 

 F-1 
 

 

ORIGINCLEAR, INC. AND SUBSIDIARIES

(formerly ORIGINOIL, INC.)

CONSOLIDATED BALANCE SHEETS

 

   December 31, 2015   December 31, 2014 
         
ASSETS 
         
CURRENT ASSETS        
Cash  $695,295   $198,384 
Contracts receivable, less allowance for doubtful accounts of $50,000 and $0, respectively   1,066,223    - 
Cost in excess of billing   16,748    - 
Other receivable   100,000    - 
Work in progress   95,366    87,123 
Prepaid expenses   30,477    46,482 
           
TOTAL CURRENT ASSETS   2,004,109    331,989 
           
NET PROPERTY AND EQUIPMENT   197,257    78,888 
           
OTHER ASSETS          
Other asset   19,538    37,038 
Goodwill   487,447    - 
Trademark   4,467    4,467 
Security deposit   9,650    10,247 
           
TOTAL OTHER ASSETS   521,102    51,752 
           
TOTAL ASSETS  $2,722,468   $462,629 
           
LIABILITIES AND SHAREHOLDERS' DEFICIT 
           
Current Liabilities          
Accounts payable and other payable  $604,393   $203,082 
Accrued expenses   487,734    272,291 
Billing in excess of cost   503,718    - 
Customer deposit   113,950    - 
Warrant reserve   20,000    - 
Deferred income   150,000    47,570 
Derivative liabilities   9,317,475    4,052,401 
Convertible promissory notes, net of discount of $161,857 and $454,054, respectively   4,278,315    3,087,602 
           
Total Current Liabilities   15,475,585    7,662,946 
           
Commitments and contingencies          
           
SHAREHOLDERS' DEFICIT          
Preferred stock, $0.0001 par value, 25,000,000 shares authorized;   -    - 

Designated 1,000 shares of Series A, 1,000 and 0 issued and outstanding, respectively;

   -    - 
Designated 10,000 shares of Series B, 10,000 and 0 issued and outstanding, respectively   1    - 
Common stock, $0.0001 par value, 1,000,000,000 shares authorized 232,588,828 and 99,748,172 shares issued and outstanding, respectively   23,258    9,975 
Preferred Series A treasury shares, 1,000 shares outstanding at no cost   -    - 
Additional paid in capital   46,307,448    40,258,419 
Accumulated other comprehensive loss   (47)   - 
Accumulated deficit   (59,083,777)   (47,468,711)
           
TOTAL SHAREHOLDERS' DEFICIT   (12,753,117)   (7,200,317)
           
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT  $2,722,468   $462,629 

 

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

 

 F-2 
 

 

ORIGINCLEAR, INC. AND SUBSIDIARIES

(formerly ORIGINOIL, INC.)

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014

 

   Years Ended 
   2015   2014 
         
Sales  $954,470   $166,195 
           
Cost of Goods Sold   841,903    106,919 
           
Gross Profit   112,567    59,276 
           
Operating Expenses          

Selling and marketing expenses

   2,042,312    2,643,779 
General and administrative expenses   4,200,200    3,096,693 
Research and development   814,014    1,284,611 
Depreciation and amortization expense   22,598    16,547 
           
Total Operating Expenses   7,079,124    7,041,630 
           
Loss from Operations   (6,966,557)   (6,982,354)
           
OTHER (EXPENSE) INCOME          
Realized gain on investment   -    6,353 
Other income   9,796      
Gain on sale of asset   14,318    - 
Fair value of financing cost   (143,172)   - 
(Loss) on net change in derivative liability   (2,856,917)   (1,701,406)
Commitment fee   (51,697)   (128,762)
Interest expense   (1,620,837)   (2,332,439)
           
TOTAL OTHER (EXPENSE) INCOME   (4,648,509)   (4,156,254)
           
NET LOSS  $(11,615,066)  $(11,138,608)
           
BASIC AND DILUTED LOSS PER SHARE  $(0.07)  $(0.15)
           
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING, BASIC AND DILUTED   159,667,650    74,966,622 

 

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

 

 F-3 
 

 

ORIGINCLEAR, INC. AND SUBSIDIARIES

(formerly ORIGINOIL, INC.)

STATEMENTS OF SHAREHOLDERS' DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014

 

                   Additional   Accumulated
Other
         
   Preferred stock   Common stock   Paid-in   Comprehensive   Accumulated     
   Shares   Amount   Shares   Amount   Capital   loss   Deficit   Total 
Balance at December 31, 2013   -   $-    53,664,505   $5,366   $34,811,538   $-   $(36,330,103)  $(1,513,199)
                                         
Common stock issued at fair value for services   -    -    11,251,903    1,125    1,997,596    -    -    1,998,721 
                                         
Common stock issuance for conversion of debt   -    -    28,459,517    2,846    1,984,347    -    -    1,987,193 
                                         
Common stock issued upon exercise of warrants for cash   -    -    5,000,000    500    749,500    -    -    750,000 
                                         
Common stock issuance of supplemental shares   -    -    1,326,881    133    234,383    -    -    234,516 
                                         
Preferred A shares issued   1,000    -    -    -    -    -    -    - 
                                         
Preferred A treasury shares   (1,000)   -    -    -    -    -    -    - 
                                         
Common stock issued for purchase of asset   -    -    45,366    5    6,995    -    -    7,000 
                                         
Beneficial conversion feature   -    -    -    -    277,160    -    -    277,160 
                                         
Stock and warrant compensation cost   -    -    -    -    196,900    -    -    196,900 
                                         
Net loss for the year ended December 31, 2014   -    -    -    -    -    -    (11,138,608)   (11,138,608)
                                         
Balance at December 31, 2014   -    -    99,748,172    9,975    40,258,419    -    (47,468,711)   (7,200,317)
                                         
Common stock issued for exercise of warrants for cash   -    -    6,840,291    684    302,997    -    -    303,681 
                                         
Common stock issued in a private placement for cash   -    -    35,568,348    3,557    1,038,493    -    -    1,042,050 
                                         
Common stock issuance for conversion of debt   -    -    61,363,210    6,136    

1,450,837

    -    -    

1,456,973

 
                                         
Common stock issuance of supplemental shares   -    -    3,857,206    385    51,312    -    -    51,697 
                                         
Common stock issued at fair value for services   -    -    25,211,601    2,521    1,258,000    -    -    1,260,521 
                                         
Stock based compensation   -    -    -    -    1,739,620    -    -    1,739,620 
                                         
Beneficial conversion feature   -    -    -    -    

28,924

    -    -    

28,924

 
                                         
Accumulated comprehensive loss   -    -    -    -    -    (47)   -    (47)
                                         
Preferred A shares issued   

1,000

    -    -    -    -    -    -    - 
                                         

Preferred B shares issued in connection with PWT acquisition

   10,000    1            

1,499,999

           

1,500,000

 
                                         
Derivative liability - Preferred B shares   -    -    -    -    

(1,321,152)

    -    -    

(1,321,152

) 
                                         
Net loss for the years ended December 31, 2015   -    -    -    -    -    -    

(11,615,066

)   

(11,615,066

)
                                         
Balance at December 31, 2015   

11,000

   $

1

    232,588,828   $23,258   $

46,307,448

   $(47)  $

(59,083,777

)  $

(12,753,117

)

 

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

 

 F-4 
 

 

ORIGINCLEAR, INC. AND SUBSIDIARIES

(formerly ORIGINOIL, INC.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

   Years Ended 
   December 31, 2015   December 31, 2014 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss  $(11,615,066)  $(11,138,608)
Adjustment to reconcile net loss to net cash used in operating activities          
Depreciation & amortization expense   22,598    16,547 
Gain on sale of investment   -    (6,353)
Gain on sale of asset   (14,318)   - 
Common stock and warrants issued for services   1,260,521    1,998,721 
Stock based compensation   1,739,620    196,900 
Fair value of debt financing cost   143,172    - 
Loss on net change in valuation of derivative liability   2,856,917    1,701,406 
Debt discount and original issue discount recognized as interest expense   1,264,844    2,114,582 
Non cash commitment fee expense   51,697    128,762 
Changes in Assets and Liabilities          
(Increase) Decrease in:          
Contracts receivable   (93,466)   - 
Cost in excess of billing   68,811    - 
Other receivable   (100,000)   - 
Prepaid expenses   16,005    (11,951)
Work in progress   (8,243)   (66,074)
Other asset   18,097    1,903 
Increase (Decrease) in:          
Accounts payable   652,715    471,810 
Accrued expenses   267,839    139,137 
Billing in excess of cost   355,117    - 
Deferred income   102,430    (2,430)
NET CASH USED IN OPERATING ACTIVITIES   (3,010,710)   (4,455,648)
           
CASH FLOWS USED FROM INVESTING ACTIVITIES:          
Proceeds from sale of investment, at cost   -    6,815 
Proceeds from sale of fixed assets   9,100    - 
Cash from acquisition of subsidiary   451,431    - 
Purchase of fixed assets   (113,688)   (14,231)
CASH PROVIDED  BY (USED IN) INVESTING ACTIVITIES   346,843    (7,416)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from convertible promissory notes   1,815,000    3,090,000 

Proceeds for issuance of common stock and exercise of warrants

   1,345,731    750,000 
NET CASH PROVIDED BY FINANCING ACTIVITIES   3,160,731    3,840,000 
     Effect of exchange rate changes on cash   47    - 
NET INCREASE (DECREASE) IN CASH   496,911    (623,064)
           
CASH BEGINNING OF YEAR   198,384    821,448 
CASH END OF YEAR  $695,295   $198,384 
           
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION          
Interest paid  $878   $1,776 
Taxes paid  $-   $- 
           
SUPPLEMENTAL DISCLOSURES OF NON CASH TRANSACTIONS          
Conversion of accounts payable into a convertible note  $432,048   $- 
Beneficial conversion feature on convertible note  $-   $277,160 
Common stock issued for supplemental shares  $51,696   $234,516 
Common stock issued for fixed asset  $-   $7,000 
Common stock issued for conversion of debt  $1,456,973   $1,987,193 
Preferred stock issued for acquisition of PWT  $1,500,000   $- 

 

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

 F-5 
 

 

ORIGINCLEAR, INC. AND SUBSIDIARIES

(formerly ORIGINOIL, INC.)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2015 AND 2014

 

1. ORGANIZATION AND LINE OF BUSINESS

 

Organization

OriginClear, Inc. (formerly OriginOil, Inc), the ("Company") was incorporated in the state of Nevada on June 1, 2007. The Company, based in Los Angeles, California, began operations on June 1, 2007 to develop and market a renewable oil technology. The Company began its’ planned principle operations in December, 2010, at which time it exited the development stage. 

In December 2014, the Company formed a wholly owned subsidiary, OriginOil (HK) Limited (OOHK), in Hong Kong, China. The Company plans to grant OOHK a master license for the People’s Republic of China. In turn, OOHK is expected to license regional joint ventures for frack and waste treatment. A research and manufacturing center is also planned. As of December 31, 2015, OOHK has limited assets and operations. 

On October 1, 2015, the Company completed the acquisition of 100% of the total issued and outstanding stock of Progressive Water Treatment, Inc. (“PWT”) and is included in these consolidated financial statements as a wholly owned subsidiary. See Note 3. 

Line of Business

OriginClear is a pure technology company and is the developer of Electro Water Separation™ (EWS), the high-speed, primarily chemical-free technology to clean up large quantities of water.  The Company’s technology integrates easily with other industry processes and can be embedded into larger systems through licensing and joint ventures.   Through the acquisition of PWT, the Company is primarily engaged in providing water treatment systems and services for a wide variety of applications and component sales. 

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. During the year ended December 31, 2015, the Company did not generate significant revenue, incurred a net loss of $11,615,066 and used cash in operations of $3,010,710.  As of December 31, 2015, the Company had a working capital deficiency of $13,471,476 and a shareholders’ deficit of $12,753,117.   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, 2014 expressed substantial doubt about our ability to continue as a going concern. 

The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, achieving a level of profitable operations and receiving additional cash infusions. During the year ended December 31, 2015, the Company obtained funds from the issuance of convertible note agreements and from sales of its common stock and warrants. The Company also has standing purchase orders and open invoices with customers which will provide funds for operations. Management believes this funding will continue from its’ current investors and from new investors. 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 undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stock holders, 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., and OriginOil (HK), Ltd. All material intercompany transactions have been eliminated upon consolidation of these entities. 

Cash and Cash Equivalent

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

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. Significant estimates include estimates used to review the Company’s goodwill, revenue recognition on percentage of completion type contracts, allowances for uncollectible accounts, inventory valuation, derivative liabilities, debt beneficial conversion features, 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.

   

 F-6 
 

 

ORIGINCLEAR, INC. AND SUBSIDIARIES

(formerly ORIGINOIL, INC.)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2015 AND 2014

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (Continued)

 

Concentration Risk

Cash includes amounts deposited in financial institutions in excess of insurable Federal Deposit Insurance Company (FDIC) limits. At times throughout the year, the Company may maintain cash balances in certain bank accounts in excess of FDIC limits. As of December 31, 2015, the cash balance in excess of the FDIC limits was $250,929. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in these accounts.

 

Loss per Share Calculations

Basic loss per share calculations are computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares available. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include securities or other contracts to issue common stock that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The Company’s diluted loss per share is the same as the basic loss per share for the years ended December 31, 2015 and 2014, respectively, as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss.

 

     For the years ended 
     2015   2014 
  (Loss) to common shareholders (Numerator)  $(11,615,066)  $(11,138,608)
             
  Basic and diluted weighted average number of common shares outstanding denominator   159,667,650    74,966,622 

 

The Company has excluded 119,404,644 stock options, 23,297,108 warrants, shares issuable from convertible debt of $4,440,172 and shares issued from potentially convertible preferred stock for the year ended December 31, 2015 because their impact on the loss per share is anti-dilutive.

 

The Company has excluded 4,404,643 stock options, 30,946,563 warrants and shares issuable from convertible debt of $3,541,656 for the year ended December 31, 2014 because their impact on the loss per share is anti-dilutive.

 

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.

 

Revenue Recognition

 

Equipment sales

We recognize revenue upon delivery of equipment, provided that evidence of an arrangement exists, title, and risk of loss have passed to the customer, fees are fixed or determinable, and collection of the related receivable is reasonably assured.  Title to the equipment is transferred to the customer once the last payment is received. We record revenue as goods are shipped, and the equipment has been fully accepted by the customer. Generally, we extend credit to our customers and do not require collateral.  We do not ship a product until we have a purchase agreement signed by the customer with a payment arrangement.  

 

Percentage of completion

Revenues and related costs on construction contracts are recognized using the “percentage of completion method” of accounting in accordance with ASC 605-35 – “Accounting for Performance of Construction-Type and Certain Production Type Contracts”. Under this method, contract revenues and related expenses are recognized over the performance period of the contract in direct proportion to the costs incurred as a percentage of total estimated costs for the entirety of the contract. Costs include direct material, direct labor, subcontract labor and any allocable indirect costs. All un-allocable indirect costs and corporate general and administrative costs are charged to the periods as incurred. However, in the event a loss on a contract is foreseen, the Company will recognize the loss as it is determined.

 

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.

 

The asset “Costs in excess of billings” represents revenues recognized in excess of amounts billed on contracts in progress. The liability “Billings in excess of costs” represents billings in excess of revenues recognized on contracts in progress. Assets and liabilities related to long-term contracts are included in current assets and current liabilities in the accompanying balance sheets, as they will be liquidated in the normal course of the contract completion. At December 31, 2015 and December 31, 2014, the costs in excess of billings balance were $16,748 and $0, and the billings in excess of costs balance were $503,718 and $0, respectively.

  

 F-7 
 

 

ORIGINCLEAR, INC. AND SUBSIDIARIES

(formerly ORIGINOIL, INC.)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2015 AND 2014

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (Continued)

 

Contract receivables are recorded on contracts for amounts currently due based upon progress billings, as well as retention, which are collectible upon completion of the contracts. Accounts payable to material suppliers and subcontractors are recorded for amounts currently due based upon work completed or materials received, as are retention due subcontractors, which are payable upon completion of the contract. General and administrative expenses are charged to operations as incurred and are not allocated to contract costs.

 

Contract Receivable

The Company bills its customers in accordance with contractual agreements. The agreements generally require billing to be on a progressive basis as work is completed. Credit is extended based on evaluation of clients financial condition and collateral is not required. The Company maintains an allowance for doubtful accounts for estimated losses that may arise if any customer is unable to make required payments. Management performs a quantitative and qualitative review of the receivables past due from customers on a monthly basis. The Company records an allowance against uncollectible items for each customer after all reasonable means of collection have been exhausted, and the potential for recovery is considered remote. The allowance for doubtful accounts was approximately $50,000 and $0 as of December 31, 2015 and 2014, respectively. The net contract receivable balance was $1,066,223 and $0 at December 31, 2015 and 2014, 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 December 31, 2015 and 2014, and determined there was no impairment of indefinite lived intangibles and goodwill.

 

Research and Development

Research and development costs are expensed as incurred. Total research and development costs were $814,014 and $1,284,611 for the years ended December 31, 2015 and 2014, respectively.

 

Advertising Costs

The Company expenses the cost of advertising and promotional materials when incurred. The advertising costs were $164,463 and $248,129 for the years ended December 31, 2015 and 2014, 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

 

Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the event that facts and circumstances indicate that the cost of any long-lived assets may be impaired, an evaluation of recoverability would be performed following generally accepted accounting principles.

 

Stock-Based Compensation

The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board whereas the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the Financial Accounting Standards Board whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.

 

 F-8 
 

 

ORIGINCLEAR, INC. AND SUBSIDIARIES

(formerly ORIGINOIL, INC.)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2015 AND 2014

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (Continued)

 

Accounting for Derivatives

The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a probability weighted average series Black-Scholes-Merton option pricing models to value the derivative instruments at inception and on subsequent valuation dates.

 

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

 

Fair Value of Financial Instruments

Fair Value of Financial Instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of December 31, 2015, 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 1measurements) 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 December 31, 2015 and 2014.

 

     (Level 1)   (Level 2)   (Level 3) 
               
  Derivative Liability, December 31, 2015  $-   $-   $9,317,475 
  Derivative Liability, December 31, 2014  $-   $-   $4,052,401 

 

The following is a reconciliation of the derivative liability for which level 3 inputs were used in determining the approximate fair value:

 

  Balance as of January 1, 2014  $1,031,484 
  Fair Value of derivative liabilities issued   1,319,512 
  Conversion of notes payable   (3,396,556)
  Loss on change in derivative liability   5,097,961 
  Balance as of December 31, 2014  $4,052,401 
  Fair Value of derivative liabilities issued   2,408,157 
  Conversion of notes payable   (1,565,765)
  Loss on change in derivative liability   4,422,682 
  Balance as of December 31, 2015   9,317,475 

 

 F-9 
 

ORIGINCLEAR, INC. AND SUBSIDIARIES

(formerly ORIGINOIL, INC.)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2015 AND 2014 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (Continued)

 

For purpose of determining the fair market value of the derivative liability, the Company used Black Scholes option valuation model. The significant assumptions used in the Black Scholes valuation of the derivative are as follows: 

 

      12/31/2015    12/31/2014 
  Risk free interest rate   .14% - 1.31%   .02% - .26%
  Stock volatility factor   35.80% - 103.83%   68.29% - 111.86%
  Weighted average expected option life   6 months – 2.75 years    6 months - 2 years 
  Expected dividend yield   None     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.

 

Recently Issued Accounting Pronouncements

On June 19, 2014, the Company adopted the amendment to (Topic 718) Stock Compensation: Accounting for Share-Based Payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The amendment for accounting for share based payments, when an award provides that a performance target that affects vesting could be achieved after an employee completes the requisite service period shall be accounted for as a performance condition. The performance target shall not be reflected in estimating the fair value of the award at the grant date, and compensation cost shall be recognized in the period in which it becomes probable that the performance target will be achieved and will represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost shall be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period shall reflect the number of awards that are expected to vest and shall be adjusted to reflect the awards that ultimately vest. The Company does not believe the accounting standards currently adopted will have a material effect on the accompanying condensed financial statements. 

 

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (Topic 606). This ASU provides guidance for revenue recognition and affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets and supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” and most industry specific guidance. The standard’s core principle is the recognition of revenue when a company transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under the current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers" (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 to fiscal years beginning after December 15, 2017, including interim reporting periods within that reporting period. Early adoption is permitted for fiscal years beginning after December 15, 2016. The Company is currently evaluating the method and impact the adoption of ASU 2014-09 will have on the Company’s consolidated financial statements and disclosures. 

 

In August 2014, FASB issued ASU 2014-15, “Presentation of Financial Statements Going Concern (Subtopic 205-40) – Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. Currently, there is no guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments in this ASU provide that guidance. In doing so, the amendments are intended to reduce diversity in the timing and content of footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this ASU are effective for public and nonpublic entities for annual periods ending after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2014-15 on the Company’s financial statements. 

 

 F-10 
 

 

ORIGINCLEAR, INC. AND SUBSIDIARIES

(formerly ORIGINOIL, INC.)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2015 AND 2014

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (Continued)

 

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs” this Update as part of its initiative to reduce complexity in accounting standards (the Simplification Initiative). The Board received feedback that having different balance sheet presentation requirements for debt issuance costs and debt discount and premium creates unnecessary complexity. Recognizing debt issuance costs as a deferred charge (that is, an asset) also is different from the guidance in International Financial Reporting Standards (IFRS), which requires that transaction costs be deducted from the carrying value of the financial liability and not recorded as separate assets. Additionally, the requirement to recognize debt issuance costs as deferred charges conflicts with the guidance in FASB Concepts Statement No. 6, Elements of Financial Statements, which states that debt issuance costs are similar to debt discounts and in effect reduce the proceeds of borrowing, thereby increasing the effective interest rate. Concepts Statement 6 further states that debt issuance costs cannot be an asset because they provide no future economic benefit. To simplify presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. The Company is currently evaluating the effects of adopting this ASU, if it is deemed to be applicable.

 

Management reviewed currently issued pronouncements during the twelve months ended December 31, 2015, 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 accompany consolidated financial statements.

 

3. BUSINESS ACQUISITION

 

On October 1, 2015, the Company”), closed the transaction contemplated by the Share Exchange Agreement (the “Agreement”) with Progressive Water Treatment, Inc., a Texas corporation (“PWT”) and Marc Stevens, PWT’s sole shareholder (“Stevens”), dated July 31, 2015 (the “Agreement”).

 

The Company acquired PWT from Stevens through the transfer of all issued and outstanding shares of PWT in exchange (the “Exchange”) for 10,000 shares of a new series of preferred stock, the Series B Preferred Stock, filed with the State of Nevada by the Company on October 1, 2015.

 

Each share of Series B Preferred Stock has a stated value of $150 per share and is convertible into shares of the Company’s common stock at a conversion price of $0.03 per share, which may be converted to the Company’s common stock in three annual increments beginning 12 months from closing. The conversion price is subject to adjustment in the case of reverse splits, stock dividends, reclassifications and the like. In addition, the conversion price is subject to certain full ratchet anti-dilution protection. The Series B Preferred Stock is entitled to vote with holders of the Company’s common stock on all corporate actions, including the election of the Company’s directors. The holders of the Series B Preferred Stock are entitled to cast one vote for each share of Series B Preferred Stock owned. This brief description of the Certificate of Designation is only a summary of the material terms and is qualified in its entirety by reference to the full text of the form of the Certificate of Designation as attached to this Current Report on as Exhibit 3.8.

 

The acquisition was accounted for under ASC 805. PWT is engaged in providing water treatment systems and services for a wide variety of applications and component sales. The acquisition is designed to enhance our services in water treatment. PWT became a wholly-owned subsidiary of the Company.

 

Under the purchase method of accounting, the transactions were valued for accounting purposes at $1,500,000, which was the fair value of PWT at the time of acquisition. The assets and liabilities of PWT were recorded at their respective fair values as of the date of acquisition. Since, the Company determined there were no other separately identifiable intangible assets, any difference between the cost of the acquired entity and the fair value of the assets acquired and liabilities assumed is recorded as goodwill. The acquisition date estimated fair value of the consideration transferred consisted of the following:

 

  Convertible promissory note  $1,500,000 
  Total purchase price  $1,500,000 
        
  Tangible assets acquired  $1,549,700 
  Liabilities assumed   (537,147)
     $1,012,553 
  Goodwill   487,447 
  Total purchase price  $1,500,000 

  

 F-11 
 

 

ORIGINCLEAR, INC. AND SUBSIDIARIES

(formerly ORIGINOIL, INC.)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2015 AND 2014  

3. BUSINESS ACQUISITION (Continued)

 

As of December 31, 2015, the Company has not identified any intangible assets other than goodwill. However, the above estimated fair value of the intangible assets of PWT is based on a preliminary purchase price allocation prepared by management. As a result, during the preliminary purchase price allocation period, which may be up to one year from the business combination date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. After the preliminary purchase price allocation period, we record adjustments to assets acquired or liabilities assumed subsequent to the purchase price allocation period in our operating results in the period in which the adjustments were determined. 

 

Pro forma results

The following tables set forth the unaudited pro forma results of the Company as if the acquisition of PWT had taken place on the first day of the periods presented. These combined results are not necessarily indicative of the results that may have been achieved had the companies been combined as of the first day of the periods presented.

 

     Year Ended   Year Ended 
    

December 31, 2015

(unaudited)

  

December 31, 2014

(unaudited)

 
  Total Revenues  $4,999,834   $6,241,303 
  Net (Loss)  $(11,545,002)  $(10,324,861)
  Basic and Diluted Net (Loss) Per Common Share  $(0.07)  $(0.15)

 

4. PROPERTY & EQUIPMENT

 

Property and Equipment consists of the following as of December 31, 2015 and 2014:

 

     2015   2014 
           
  Machinery & equipment  $155,019    86,855 
  Furniture & fixtures   27,452    29,593 
  Computer equipment   53,594    39,293 
  Vehicles   31,358    - 
  Leasehold improvements   121,639    94,914 
     389,062    250,655 
  Less accumulated depreciation and amortization   (191,805)   (171,767)
             
     $197,257    78,888 

 

During the years ended December 31, 2015 and 2014, depreciation and amortization expense was $22,598 and $16,547, respectively.

 

 F-12 
 

 

ORIGINCLEAR, INC. AND SUBSIDIARIES

(formerly ORIGINOIL, INC.)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2015 AND 2014

 

5. CAPITAL STOCK

 

Preferred Stock

 

On April 10, 2015, the Corporation filed a Certificate of Designation for its Series A Preferred Stock with the Secretary of State of Nevada (the “Old Series A Certificate of Designation”) designating 1,000 shares of its authorized preferred stock as Series A Preferred Stock, par value $0.0001 per share. On July 9, 2015, the 1,000 shares of Old Series A Preferred Stock issued to T. Riggs Eckelberry were automatically redeemed by the Corporation, and there are no shares of Old Series A Preferred Stock outstanding. The Board of Directors approved the cancellation of the Old Series A Shares and withdrawal of the Old Series A Certificate of Designation.

 

On July 31, 2015, the Board of Directors of the Company adopted a Certificate of Designation establishing the rights, preferences, privileges and other terms of Series B Preferred Stock, par value $0.0001 per share which will consist of 10,000 shares (the “Series B Preferred Stock”). On October 1, 2015, the Company filed the Certificate of Designation for the Series B Preferred Stock with the Secretary of State of Nevada and Series B Shares were issued to the shareholders of Progressive Water Treatment, Inc. in connection with the share exchange agreement. One third (1/3) of the shares received by the holder may be converted into common stock beginning one (1) year after the first date on which a share of Series B Preferred Stock was issued (the “Original Issue Date); one third (1/3) may be converted beginning two (2) years after the original issue date; and the remaining one third (1/3) may be converted beginning three years after the original issue date. The number of shares of common stock issuable for each share of converted Series B Preferred Stock shall be calculated by dividing the stated value by the market price, the market price shall be the average of the closing trade prices of the twenty-five (25) days prior to the date of the conversion notice. See Note 3. 

 

The Series B Preferred Stock has redemption features that are redeemable solely at the option of the Company. Each share of Series B Preferred Stock has a stated value of $150 per share and is convertible into shares of the Company’s common stock at a conversion price of $0.03 per share, which may be converted to the Company’s common stock in three annual increments beginning 12 months from closing. The conversion price is subject to adjustment in the case of reverse splits, stock dividends, reclassifications and the like. In addition, the conversion price is subject to certain full ratchet anti-dilution protection. Accordingly, the preferred stock is valued under the provision of ASC Topic 815, Derivatives and Hedging, because the conversion feature of the preferred stock was not afforded the exemption for conventional convertible instruments due to its variable conversion rate. The Series B Preferred Stock shall have the rights, preferences and privileges as set forth in the exchange agreement.

 

On September 29, 2015, the Board of Directors of the Company adopted a Certificate of Designation establishing the rights, preferences, privileges and other terms of Series A Preferred Stock, par value $0.0001 per share, (“New Series A Preferred Stock”) providing for supermajority voting rights to holders of New Series A Preferred Stock. The Board believes that it is in the best interest of the stockholders of the Corporation that the New Series A Preferred Stock be issued to the Company’s Chief Executive Officer and Director, T. Riggs Eckelberry. Upon filing of the New Series A Preferred Stock Certificate of Designation in accordance with the provisions of Nevada law, the Board authorized the Corporation to issue 1,000 shares of New Series A Preferred Stock to Mr. Eckelberry.

 

 F-13 
 

 

ORIGINCLEAR, INC. AND SUBSIDIARIES

(formerly ORIGINOIL, INC.)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2015 AND 2014

 

5. CAPITAL STOCK (Continued)

 

Common Stock

 

On August 13, 2014, the Company filed an amendment to its Articles of Incorporation to increase its authorized shares of common stock to 1,000,000,000 shares. There was no change to the 25,000,000 authorized shares of preferred stock or par value. The total number of authorized shares increased to 1,025,000,000.

 

Year ended December 31, 2015

 

The Company issued 35,568,348 shares of common stock through a private placement at a price of $0.03 per share for cash in the amount of $1,042,050.

 

The Company issued 6,840,291 shares of common stock for exercise of 6,840,291 warrants for prices ranging from $0.02 to $0.05 per share for cash in the amount of $303,681.

 

The Company issued 49,163,259 shares of common stock for the settlement of convertible promissory notes in an aggregate principal in the amount of $965,000, plus interest in the amount of $108,442, based upon conversion prices of $0.00975 up to $0.04.

 

The Company issued 12,199,951 shares of common stock for the settlement of accounts payable with a fair value of $383, 531.

 

The Company issued 3,857,206 shares of common stock for supplemental shares based on an agreement entered into with the subscribers of the original subscription agreement. Under the terms of the supplemental agreement, if at any time within eighteen (18) months following the issuance of shares to the subscriber (the “Adjustment Period”) the market price (as defined below) of the Company's common stock is less than the price per share,  then the price per  share shall be reduced one time to the market price (the "Adjusted Price") such that the Company shall promptly issue additional shares of the Company's common stock to the Subscriber for no additional  consideration, in an amount sufficient that the aggregate purchase price, when divided by the total number of shares purchased thereunder plus those shares of common stock issued as a result of the dilutive Issuance will equal the adjusted price.  For the purposes hereof: the ''Market Price" shall mean the average closing price of the Company's common stock for any ten (10)  consecutive trading days during the Adjustment Period.

 

The Company issued 25,211,601 shares of common stock for services at fair value of $1,260,521.

 

Year ended December 31, 2014

 

The Company issued 11,251,903 shares of common stock for services at fair value of $1,998,721.

 

The Company issued 28,459,517 shares of common stock for the settlement of convertible promissory notes in an aggregate principal in the amount of $1,857,828, plus interest in the amount of $129,365, based upon conversion prices of $0.049 up to $0.14.

 

The Company issued 5,000,000 shares of common stock upon exercise of the purchase warrants in the amount of 5,000,000 for cash in the amount of $750,000.

 

The Company issued 45,366 shares for the purchase of a fixed asset with a fair value of $7,000.

 

The Company issued 1,326,881 supplemental shares of common stock for the agreement entered into subsequent to the sale of the common stock during the year ended December 31, 2013. The supplemental shares had a fair value of $234,516, which reduced the liability recorded in the previous year.

 

 F-14 
 

ORIGINCLEAR, INC. AND SUBSIDIARIES

(formerly ORIGINOIL, INC.)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2015 AND 2014 

6. CONVERTIBLE PROMISSORY NOTES

Convertible promissory notes payable consist of the following as of December 31, 2015 and 2014: 

     2015   2014 
           
  Convertible Promissory Notes  $3,735,000   $2,885,000 
  OID Notes   273,125    273,125 
  Convertible Note   432,047    383,531 
  Total Notes   4,440,172    3,541,656 
  Debt Discount   (161,857)   (454,054)
             
     $4,278,315   $3,087,602 

On various dates the Company entered into unsecured convertible Notes (the “Convertible Promissory Notes” or “Notes”), that mature between six and nine months from the date of issuance and bear interest at 10% per annum. The Notes mature on various dates through January 25, 2016. The Notes may be converted into shares of the Company’s common stock at conversion prices ranging from the lesser of $0.06 to $0.14 (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 Notes. The Notes include customary default provisions related to payment of principal and interest and bankruptcy or creditor assignment.  In the event of default, the Notes shall become immediately due and payable at the mandatory default amount. The mandatory default amount is 150% of the Note amount and such mandatory default amount shall bear interest at 10% per annum.  In addition, for as long as the 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 Notes or such other convertible notes or a term was not similarly provided to the purchaser of the Notes or such other convertible notes, then such more favorable or additional term shall, at the purchaser’s option, become part of the Notes and such other convertible notes. The conversion feature of the Notes was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the Notes. As of December 31, 2014, the outstanding principal balance was $2,885,000. During the year ended December 31, 2015, the Company issued an additional $615,000 of these Notes, and converted $965,000 in aggregate principal, plus accrued interest of $108,442 into 49,163,474 shares of common stock. As of December 31, 2015, the Notes had an aggregate remaining balance of $2,535,000. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $498,898 during the year ended December 31, 2015. 

On February 24, 2015, the OID Notes with an aggregate remaining principle balance of $273,125, plus accrued interest of $13,334 were amended. The Notes are unsecured convertible promissory notes (the “OID Notes”), that included an original issue discount and one time interest, which has been fully amortized. The OID Notes were extended and matured on various dates through September 19, 2014. On each maturity date, each note was extended one year from its maturity date through September 19, 2015. On February 24, 2015, the Notes were amended with a maturity date of December 31, 2015. On December 30, 2015, the Notes were amended and have a maturity date of December 31, 2016. The Notes were analyzed under ASC 470 (Extinguishment & Modification of debt) to determine if there was a 10% change between the fair value of the embedded conversion option immediately before and after the modification or exchange. The change of the fair value of the conversion feature was greater than 10% of the carrying value of the debt. As a result, in accordance with ASC 470-50, the Company deemed the terms of the amendment to be substantially different and treated the convertible note as an extinguishment. The OID Notes were convertible into shares of the Company’s common stock at a conversion price initially of $0.4375. After the amendment the conversion price changed to the lesser of $0.08 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. On May 19, 2015, a holder of a note with a more favorable term converted a note at a price of $0.02, which became part of this note due to the reset provision mentioned above. The conversion feature of the notes was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the notes. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $286,459 during the year ended December 31, 2015. 

During the year ended December 31, 2015, the Company entered into various unsecured convertible Notes (the “Convertible Promissory Notes” or “Notes”), for an aggregate amount of $1,200,000. The notes mature nine months from the date of issuance and bear interest at 10% per annum. The Notes mature on various dates ending on May 27, 2016. The Notes may be converted into shares of the Company’s common stock at conversion prices ranging from the lesser of $0.04 to $0.08 (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 Notes.  The Notes include customary default provisions related to payment of principal and interest and bankruptcy or creditor assignment.  In the event of default, the Notes shall become immediately due and payable at the mandatory default amount. The mandatory default amount is 150% of the Note amount and such mandatory default amount shall bear interest at 10% per annum.  In addition, for as long as the 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 Notes or such other convertible notes or a term was not similarly provided to the purchaser of the Notes or such other convertible notes, then such more favorable or additional term shall, at the purchaser’s  option, become part of the Notes and such other convertible notes. The conversion feature of the Notes was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the Notes. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $311,885 during the year ended December 31, 2015. 

 F-15 
 

ORIGINCLEAR, INC. AND SUBSIDIARIES

(formerly ORIGINOIL, INC.)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2015 AND 2014 

 

6. CONVERTIBLE PROMISSORY NOTES (Continued)

 

On September 29, 2014, the Company issued a convertible note in exchange for an accounts payable in the amount of $383,531, which can be converted into shares of the Company’s common stock after March 29, 2015. The note was accounted for under ASC 470, and will be re-evaluated after March 29, 2015. The note has a 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 note did not meet the criteria of a derivative, and was accounted for as a beneficial conversion feature, which will be amortized over the life of the note and recognized as interest expense in the financial statements. During the year ended December 31, 2015 the note was fully converted into 12,199,736 shares of common stock. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $144,891 during the year ended December 31, 2015.

 

On June 30, 2015, the Company issued a convertible note in exchange for an accounts payable in the amount of $432,048, which can be converted into shares of the Company’s common stock after December 31, 2015. The note was accounted for under ASC 470, and will be re-evaluated after December 31, 2015. The note has a 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 note did not meet the criteria of a derivative, and was accounted for as a beneficial conversion feature, which will be amortized over the life of the note and recognized as interest expense in the financial statements. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $28,924 during the year ended December 31, 2015.

 

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. As of December 31, 2015 and 2014, the derivative liability recognized in the financial statements was $9,317,475 and $4,052,401, respectively.

 

7. OPTIONS AND WARRANTS

Options

The Board of Directors adopted the OriginOil, Inc., 2009 Incentive Stock Option Plan (the “2009 Plan”) for the purposes of granting stock options to its employees and others providing services to the Company, which reserves and sets aside for the granting of options for Five Hundred Thousand (500,000) shares of Common Stock.   

On May 25, 2012, the Board of Directors adopted a new OriginOil, Inc., 2012 Incentive Stock Option Plan (the “2012 Plan”) for the purposes of granting stock options to its employees and others providing services to the Company, which reserves and sets aside for the granting of options for One Million (1,000,000) shares of Common Stock.  Options granted under these Plans may be either incentive options or nonqualified options and shall be administered by the Company's Board.  Each Option shall be exercisable to the nearest whole share, in installments or otherwise, as the respective option agreements may provide. Notwithstanding any other provision of the Plan or of any option agreement, each Option shall expire on the date specified in the option agreement, which date shall not be later than the tenth (10th) anniversary from the effective date of grant. 

On June 14, 2013, the Board of Directors adopted a new OriginOil, Inc., 2013 Incentive Stock Option Plan (the “2013 Plan”) for the purposes of granting stock options to its employees and others providing services to the Company, which reserves and sets aside for the granting of options for Four Million (4,000,000) shares of Common Stock.  Options granted under the Plan may be either incentive options or nonqualified options and shall be administered by the Company's Board.  Each Option shall state the number of shares to which it pertains. The exercise price will be determined by the holders percentage owned as follows: If the holder owns more than 10% of the total combined voting power or value of all classes of stock of the Company, then the exercise price will be no less than 110% of the fair market value of the stock as of the date of grant; if the person is not a 10% holder, then the exercise price will be no less than 100% of the fair market value of the stock as of the date of grant. Notwithstanding any other provision of the 2013 Plan or of any option agreement, each Option shall expire on the date specified in the option agreement, which date shall not be later than the tenth (10th) anniversary from the date of grant. If the status of an employee terminates for any reason other than disability or death, then the Optionee or their representative shall have the right to exercise the portion of any Options which were exercisable as of the date of such termination, in whole or in part, not less than 30 days nor more than three (3) months after such termination. 

On October 2, 2015, the Board of Directors adopted a new OriginClear, Inc., 2015 Equity Incentive Stock Option Plan (the “2015 Plan”) for the purposes of granting stock options to its employees and others providing services to the Company, which reserves and sets aside for the granting of options for One Hundred Sixty Million (160,000,000) shares of Common Stock.  Options granted under these Plans may be either incentive options or nonqualified options and shall be administered by the Company's Board.  Each Option shall be exercisable to the nearest whole share, in installments or otherwise, as the respective option agreements may provide. Notwithstanding any other provision of the Plan or of any option agreement, each Option shall expire on the date specified in the option agreement, which date shall not be later than the fifth (5th) anniversary from the effective date of grant.

 

 F-16 
 

 

ORIGINCLEAR, INC. AND SUBSIDIARIES

(formerly ORIGINOIL, INC.)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2015 AND 2014

 

7. OPTIONS AND WARRANTS (Continued)

 

With respect to Non-statutory Options granted to employees, directors or consultants, the Board or Committee may specify such period for exercise that the Option shall automatically terminate following the termination of employment or services as to shares covered by the Option as the Board or Committee deems reasonable and appropriate.

 

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

     December 31, 2015   December 31, 2014 
         Weighted       Weighted 
     Number   average   Number   average 
     of   exercise   of   exercise 
     Options   price   Options   price 
  Outstanding, beginning of year   4,404,643   $0.43    4,684,643   $0.53 
  Granted   116,050,000   $0.04    750,000   $0.19 
  Exercised   -   $-    -   $- 
  Forfeited/Expired   (1,049,999)  $0.41    (1,030,000)  $0.47 
  Outstanding, end of year   119,404,644   $0.05    4,404,643   $0.43 
  Exercisable at the end of year   73,609,937   $0.05    2,240,370   $0.47 
  Weighted average fair value of options granted during the year       $0.04        $0.19 

 

The weighted average remaining contractual life of options outstanding issued under the 2012 Plan, 2013 Plan, and 2015 Plan as of December 31, 2015 was as follows:

 

              Weighted Average 
  Exercisable   Stock Options   Stock Options   Remaining Contractual 
  Prices   Outstanding   Exercisable   Life (years) 
  $0.19 - 7.20     1,971,978    1,391,562    1.54 - 9.77 
  $0.29 - 0.44     1,382,666    777,750    8.71 
  $0.04    116,050,000    71,440,625    4.77 
        119,404,644    73,609,937      

 

Stock-based compensation expense recognized during the year is based on the value of the portion of stock-based payment awards that is ultimately expected to vest. Stock-based compensation expense recognized in the financial statements of operations during the years ended December 31, 2015 and 2014 were $1,739,620 and $196,900, respectively.

 

Warrants

During the year ended December 31, 2015, no warrants were issued by the Company. A summary of the Company’s warrant activity and related information follows for the years ended December 31, 2015 and 2014:

 

     December 31, 2015   December 31, 2014 
         Weighted       Weighted 
         average       average 
         exercise       exercise 
     Options   price   Options   price 
  Outstanding -beginning of year   30,946,563   $0.27    42,033,596   $0.27 
  Granted   -   $-    -   $- 
  Exercised   (4,923,624)  $0.15    (5,000,000)  $0.15 
  Forfeited   (2,725,831)  $0.68    (6,087,033)  $0.61 
  Outstanding - end of year   23,297,108   $0.21    30,946,563   $0.27 

  

 F-17 
 

 

ORIGINCLEAR, INC. AND SUBSIDIARIES

(formerly ORIGINOIL, INC.)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2015 AND 2014

 

7. OPTIONS AND WARRANTS (Continued)

 

At December 31, 2015, the weighted average remaining contractual life of warrants outstanding:

 

              Weighted Average
  Exercisable   Warrants   Warrants   Remaining Contractual
  Prices   Outstanding   Exercisable   Life (years)
  $0.15 - 0.65    22,163,079    22,163,079   0.21 - 2.45
  $0.90 - 8.70    288,336    288,336   0.21 - 6.88
  $0.90 - 10.21    845,693    845,693    0.21 - 2.72
        23,297,108    23,297,108    

 

At December 31, 2015 and 2014, the aggregate intrinsic value of the warrants outstanding was $23,297,108 and $30,946,563.

 

Restricted Stock to CEO

On November 13, 2014, the Company entered into a Restricted Stock Grant Agreement (“the RSGA”) with its Chief Executive Officer, Riggs Eckelberry, to create management incentives to improve the economic performance of the Company and to increase its value and stock price. All shares issuable under the RSGA are performance based shares and none have yet vested nor have any been issued. The RSGA provides for the issuance of up to 40,000,000 shares of the Company’s common stock to the CEO provided certain milestones are met in certain stages; a) If the Company’s Market Capitalization (the market capitalization shall mean the total number of shares of issued and outstanding common stock, multiplied by the average closing trade price of the Company’s common stock on the 10 trading days immediately prior to the date of determination) exceeds $15,000,000, the Company will issue up to 16,000,000 shares of its common stock; b) If the Company’s Market Capitalization exceeds $20,000,000, the Company will issue up to 24,000,000 shares of its common stock. The Company has not recognized any costs associated with the milestones, due to not being able to estimate the probability of it being achieved. As the performance goals are achieved, the shares shall become eligible for vesting and issuance beginning upon the earlier of July 1, 2015 or the first date that any other eligible individual’s shares of restricted stock become eligible. On October 6, 2015, the RSGA’s were cancelled.

 

Restricted Stock to Employees

On November 13, 2014, the Company entered into RSGAs with the employees of OriginOil, for the economic performance of the Company. All shares issuable under the RSGAs are performance based shares and none have yet vested nor have any been issued. The RSGAs provides for the issuance of up to 26,050,000 shares of the Company’s common stock to the Employees provided certain milestones are met in certain stages; a) If the Company’s consolidated gross revenue, calculated in accordance with generally accepted accounting principles, consistently applied, equals or exceeds $2,500,000 for the trailing twelve month period as reported in the Company’s quarterly or annual financial statements, the Company will issue up to 10,420,000 shares of its common stock; b) If the Company’s consolidated net profit, calculated in accordance with generally accepted accounting principles, consistently applied, equals or exceeds $500,000 for the trailing twelve month period as reported in the Company’s quarterly or annual financial statements, the Company will issue up to 15,630,000 shares of its common stock. The Company has not recognized any costs associated with the milestones, due to not being able to estimate the probability of it being achieved. As the performance goals are achieved, the shares shall become eligible for vesting and issuance. On October 6, 2015, the RSGA’s were cancelled.

 

8. INCOME TAXES

 

The Company files income tax returns in the U.S. Federal jurisdiction, and the state of California. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2012.

 

Deferred income taxes have been provided by temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. To the extent allowed by GAAP, we provide valuation allowances against the deferred tax assets for amounts when the realization is uncertain. Included in the balance at December 31, 2015 and 2014, are no tax positions for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.

 

The Company's policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. During the periods ended December 31, 2015 and 2014, the Company did not recognize interest and penalties.

  

At December 31, 2015, the Company had net operating loss carry-forwards of approximately $29,588,000 which expire at dates that have not been determined. No tax benefit has been reported in the December 31, 2015 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.

 

 

 F-18 
 

 

ORIGINCLEAR, INC. AND SUBSIDIARIES

(formerly ORIGINOIL, INC.)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2015 AND 2014

 

8. INCOME TAXES (Continued)

 

The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state income tax rate to pretax income from continuing operations for the years ended December 31, 2015 and 2014 due to the following:

 

      2015     2014  
  Book income   $ (4,646,020 )   $ (4,453,900 )
  Tax to book differences for deductible expenses     21,920       23,200  
  Tax non deductible expenses     2,926,750       2,454,600  
                   
  Valuation Allowance     1,697,350       1,976,100  
                   
  Income tax expense   $ -     $ -  

 

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible differences and operating loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the difference between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

 

Net deferred tax liabilities consist of the following components as of December 31,

 

      2015     2014  
  Deferred tax assets:            
  NOL carryover   $ 11,838,190     $ 10,191,770  
  Other carryovers     757,030       557,270  
                   
  Deferred tax liabilities:                
  Depreciation     830       (44,060 )
                   
  Less Valuation Allowance     (12,596,050 )     (10,704,980 )
                   
  Net deferred tax asset   $ -     $ -  

  

Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry-forwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carry-forwards may be limited as to use in future years. 

 

The Company’s tax returns for the previous three years remain open for audit by the respective tax jurisdictions.

 

9. COMMITMENTS AND CONTINGENCIES

 

Operating leases

The Company leases its principal offices located at 5645 West Adams Blvd., Los Angeles, CA 90016. The Company rent’s 7,500 square feet of space in a corporate building at a current monthly rent of $11,390 with the lease expiring on August 31, 2016.

 

Operating Lease – Related Party

The Company entered into a month-to-month lease agreement with a shareholder of the Company for office space in McKinney, Texas at a base rent of $4,000 per month.

 

 F-19 
 

 

ORIGINCLEAR, INC. AND SUBSIDIARIES

(formerly ORIGINOIL, INC.)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2015 AND 2014 

 

9. COMMITMENTS AND CONTINGENCIES (Continued)

 

Warranty Reserve

Generally, a PWT project is guaranteed against defects in material and workmanship for one year from the date of completion, while certain areas of construction and materials may have guarantees extending beyond one year. The Company has various insurance policies relating to the guarantee of completed work, which in the opinion of management will adequately cover any potential claims. A warranty reserve has been provided under PWT based on the opinion of management and based on Company history in the amount of $20,000 for the year ending December 31, 2015.

 

Litigation

From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. The Company is currently not party to any such legal proceedings that believes will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.

 

10. CONCENTRATIONS

 

Major Customers

PWT had three major customers for the three months ending December 31, 2015. The customers represented 72.6% of billings in the three months ending December 31, 2015. The contract receivable balance for the customers was $810,093 at December 31, 2015.

 

Major Suppliers

PWT had three major vendors for the three months ending December 31, 2015. The vendors represented 44.3% of total expenses in the three months ending December 31, 2015. The accounts payable balance due to the vendors was $51,643 at December 31, 2015. Management believes no risk is present with the vendors due to other suppliers being readily available.

 

11. RELATED PARTY TRANSACTIONS

 

The following related party equity compensation arrangements were issued in 2015 and 2014.

 

On February 4, 2015, two Director of the Board were issued 500,000 shares of our common stock.

 

On September 29, 2015, the Board of Directors of the Company adopted a Certificate of Designation establishing the rights, preferences, privileges and other terms of Series A Preferred Stock, par value $0.0001 per share, (“New Series A Preferred Stock”) providing for supermajority voting rights to holders of New Series A Preferred Stock. The New Series A Preferred Stock was issued to the Company’s Chief Executive Officer and Director, T. Riggs Eckelberry. Upon filing of the New Series A Preferred Stock Certificate of Designation in accordance with the provisions of Nevada law, the Board authorized the Corporation to issue 1,000 shares of New Series A Preferred Stock to Mr. Eckelberry.

 

On October 6, 2015, the Company’s Chief Executive Officer was granted options to purchase 5,000,000 shares of our common stock under the Company’s 2015 Equity Incentive Plan. 50% of these options vested on option grant date and 50% vest on the one year anniversary of grant date. These options are exercisable at $0.0375 per share and expire 5 years from the date of grant.

 

On October 6, 2015, the Company’s Chief Executive Officer was granted options to purchase 55,000,000 shares of our common stock under the Company’s 2015 Equity Incentive Plan. These options are fully vested, exercisable at $0.0375 per share and expire 5 years from the date of grant.

 

On October 6, 2015, a Director of the Board was granted options to purchase 5,000,000 shares of our common stock under the Company’s 2015 Equity Incentive Plan, of which 50% vested on the option grant date and 50% vest on the one year anniversary of the grant date. These options are exercisable at $0.0375 per share and expire 5 years from the date of grant.

 

On October 6, 2015, a Director of the Board was granted options to purchase 5,000,000 shares of our common stock under the Company’s 2015 Equity Incentive Plan which will vest upon specific milestones being met, exercisable at $0.0375 per share and expiring 5 years from the date of grant.

 

 F-20 
 

 

12. SUBSEQUENT EVENTS

 

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

 

As previously reported, on October 6, 2015, the Board of Directors of the Company approved the grant of four-year options to purchase an aggregate of 116,050,000 shares of common stock of the Company at an exercise price of $0.0375 per share to employees and contractors of the Company and its newly acquired subsidiary Progressive Water Treatment, Inc. (the “October 2015 Grant”). On January 5, 2016, the Board of Directors of the Company approved certain amendments to an aggregate of 86,000,000 non-qualified stock options that were part of the October 2015 Grant that were made to T. Riggs Eckelberry, Chief Executive Officer and director of the Company, Jean Louis Kindler, Chief Commercial Officer and director of the Company, William Charneski, Senior Vice President, Nicholas Eckelberry, co-founder and brother of T. Riggs Eckelberry, and Anthony Fidaeleo and Byron Elton, both directors of the Company. The foregoing amendments included among other things (i) extending the term of the stock options from four to five years, (ii) providing for the filing of a Form S-8 to cover the shares underlying the stock options, and (iii) placing certain transfer and exercise restrictions on the stock options.

 

Between January 7, 2016 and March 15, 2016, holders of convertible notes, known in our filings as “Convertible Promissory Notes” converted an aggregate outstanding principal amount of $389,000, plus unpaid interest of $37,114 into an aggregate of 43,078,706 shares of the Company’s common stock. 

 

Between January 15, 2016, and March 31, 2016, the Company issued 13,237,739 shares of common stock for services at a fair value of $299,296. 

 

On March 17, 2016, the Company received an advance of $100,000 upon entering into a convertible promissory note ("Note") for an aggregate principal amount of $500,000. The Note matures twelve months from the date of issuance and bear interest at 10% per annum. The Note may be converted into shares of the Company’s common stock at a conversion price range of the lesser of $0.02 (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 Note.  The Notes include customary default provisions related to payment of principal and interest and bankruptcy or creditor assignment.  In the event of default, the Note shall become immediately due and payable at the mandatory default amount. The mandatory default amount is 150% of the Note amount and such mandatory default amount shall bear interest at 10% per annum.  In addition, for as long as the Note 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 Note or such other convertible notes or a term was not similarly provided to the purchaser of the Note or such other convertible notes, then such more favorable or additional term shall, at the purchaser’s option, become part of the Note and such other convertible notes. 

 

On March 25, 2016, by written consent the holders of the majority of the Company’s outstanding securities entitled to vote thereon approved an amendment to the Company’s Articles of Incorporation to increase the total number of shares of common stock that we are authorized to issue to 2,500,000,000 shares (from 1,000,000,000) and to increase the total number of authorized shares to 2,525,000,000 (there being no change to the number of previously authorized shares of preferred stock or par value) (the “Amendment”). The Amendment was filed with the Secretary of State of the State of Nevada on March 29, 2016.

 

On March 29, 2016, the Board approved the issuance of $10,000 per month in restricted shares of the Company’s common stock beginning April 1, 2016 for an initial six month term, and then month to month after the initial term, to a consultant for services.

 

On March 29, 2016 the Board approved the issuance of options under the Company’s 2015 Equity Incentive Plan to purchase up to 1,000,000 shares of the Company’s common stock to certain non-executive officers of the Company at an exercise price equal to $0.02 per share. 

 

 

F-21

 
EX-3.9 2 f10k2015ex3ix_originclearinc.htm CERTIFICATE OF AMENDMENT OF ORIGINCLEAR, INC.

 

Exhibit 3.9

 

 

 

 

 

 

 

USE BLACK INK ONLY - DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE USE ONLY
   

 

 

USE BLACK INK ONLY - DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE USE ONLY

Certificate of Amendment to Articles of Incorporation

For Nevada Profit Corporations

(Pursuant to NRS 78.385 and 78.390 - After Issuance of Stock)

 

 

1. Name of corporation:

OriginClear, Inc.

 

2. The articles have been amended as follows: (provide article numbers, if available)

Article 3. Shares. The aggregate number of shares which this corporation shall have the authority to issue is 2,525,000,000, consisting of 2,500,000,000 shares of Common Stock, par value $0.0001, and 25,000,000 shares of Preferred Stock, par value $0.0001. The Preferred Stock may be issued in one or more series at the discretion of the Board of Directors and the Board of Directors is hereby granted the authority to fix by resolutions the rights, preferences, privileges and other terms of the Preferred Stock or any series thereof, and to fix the number of shares of any such series (but not below the number of shares thereof then outstanding). All shares of any one series shall be alike except as otherwise provided by these Articles of Incorporation or the Nevada Business Corporation Act.

 

3.   The vote by which the stockholders holding shares in the corporation entitling them to exercise at least a majority of the voting power, or such greater proportion of the voting power as may be required in the case of a vote by classes or series, or as may be required by the provisions of the articles of incorporation* have voted in favor of the amendment is:

    51%

4. Effective date and time of filing: (optional) Date   Time  

 

  (must not be later than 90 days after the certificate is filed)
     

 

5.   Signature: (required)

Signature of Officer

 

  

 

 

 

 

*If any proposed amendment would alter or change any preference or any relative or other right given to any class or series of the holders of shares representing a majority of the voting power of each class or series affected by the amendment regardless to outstanding shares, then the amendment must be approved by the vote, in addition to the affirmative vote otherwise required, of limitations or restrictions on the voting power thereof.

IMPORTANT: Failure to include any of the above information and submit with the proper fees may cause this filing to be rejected.

Nevada Secretary of State Amend Profit-After

This form must be accompanied by appropriate fees. Revised: 1-5-15

 

EX-31.1 3 f10k2015ex31i_originclearinc.htm CERTIFICATION

 

EXHIBIT 31

 

 

Certifications

I, T Riggs Eckelberry, certify that:

 

1.       I have reviewed this Annual Report on Form 10-K of OriginClear, Inc.;

 

2.       Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.       Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.       I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)         Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)         Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)         Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)         Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.       I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)         All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)         Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: April 4, 2016

 

/s/ T Riggs Eckelberry  
T Riggs Eckelberry
Chief Executive Officer (Principal Executive Officer Acting Chief Financial Officer
(Principal Accounting and Financial Officer)

 

 

EX-32.1 4 f10k2015ex32i_originclearinc.htm CERTIFICATION

EXHIBIT 32

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with this Annual Report of OriginClear, Inc. (the “Company”) on Form 10-K filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, T Riggs Eckelberry, Chairman, Chief Executive Officer AND Acting Chief financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ T Riggs Eckelberry  
T Riggs Eckelberry

Chief Executive Officer (Principal Executive Officer

Acting Chief Financial Officer

(Principal Accounting and Financial Officer)

 

Date: April 4, 2016

 

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The Board received feedback that having different balance sheet presentation requirements for debt issuance costs and debt discount and premium creates unnecessary complexity. Recognizing debt issuance costs as a deferred charge (that is, an asset) also is different from the guidance in International Financial Reporting Standards (IFRS), which requires that transaction costs be deducted from the carrying value of the financial liability and not recorded as separate assets. Additionally, the requirement to recognize debt issuance costs as deferred charges conflicts with the guidance in FASB Concepts Statement No. 6, Elements of Financial Statements, which states that debt issuance costs are similar to debt discounts and in effect reduce the proceeds of borrowing, thereby increasing the effective interest rate. Concepts Statement 6 further states that debt issuance costs cannot be an asset because they provide no future economic benefit. 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The Notes mature on various dates through January 25, 2016. The Notes may be converted into shares of the Company&#8217;s common stock at conversion prices ranging from the lesser of $0.06 to $0.14 (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 Notes.&#160;The Notes include customary default provisions related to payment of principal and interest and bankruptcy or creditor assignment.&#160;&#160;In the event of default, the Notes shall become immediately due and payable at the mandatory default amount. 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After the amendment the conversion price changed to the lesser of $0.08 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. On May 19, 2015, a holder of a note with a more favorable term converted a note at a price of $0.02, which became part of this note due to the reset provision mentioned above. The conversion feature of the notes was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the notes. 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The Notes may be converted into shares of the Company&#8217;s common stock at conversion prices ranging from the lesser of $0.04 to $0.08 (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 Notes.&#160;&#160;The Notes include customary default provisions related to payment of principal and interest and bankruptcy or creditor assignment.&#160;&#160;In the event of default, the Notes shall become immediately due and payable at the mandatory default amount. The mandatory default amount is 150% of the Note amount and such mandatory default amount shall bear interest at 10% per annum.&#160;&#160;In addition, for as long as the 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 Notes or such other convertible notes or a term was not similarly provided to the purchaser of the Notes or such other convertible notes, then such more favorable or additional term shall, at the purchaser&#8217;s &#160;option, become part of the Notes and such other convertible notes. The conversion feature of the Notes was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the Notes. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $311,885 during the year ended December 31, 2015.<font style="font-family: 'times new roman', times, serif; font-size: 10pt;">&#160;</font></p><p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px 0px 0px 0.25in; text-align: justify;">On September 29, 2014, the Company issued a convertible note in exchange for an accounts payable in the amount of $383,531, which can be converted into shares of the Company&#8217;s common stock after March 29, 2015. The note was accounted for under ASC 470, and will be re-evaluated after March 29, 2015. The note has a 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 note did not meet the criteria of a derivative, and was accounted for as a beneficial conversion feature, which will be amortized over the life of the note and recognized as interest expense in the financial statements. During the year ended December 31, 2015 the note was fully converted into 12,199,736 shares of common stock. 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The note was accounted for under ASC 470, and will be re-evaluated after December 31, 2015. The note has a 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. 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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. 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However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. 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Management believes no risk is present with the vendors due to other suppliers being readily available.</p> <table style="font: 10pt/normal 'times new roman', times, serif; width: 1039.33px; text-transform: none; text-indent: 0px; letter-spacing: normal; word-spacing: 0px; widows: 1; font-size-adjust: none; font-stretch: normal; -webkit-text-stroke-width: 0px;" cellspacing="0" cellpadding="0"><tr style="vertical-align: top;"><td style="width: 0.25in; padding: 0px; text-indent: 0px;">11.</td><td style="padding: 0px; text-indent: 0px;">RELATED PARTY TRANSACTIONS</td></tr></table><p style="color: #000000; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-family: 'times new roman', serif; margin: 0px;">&#160;</p><p style="color: #000000; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-family: 'times new roman', serif; margin: 0px; text-indent: 0.25in;">The following related party equity compensation arrangements were issued in 2015 and 2014.</p><p style="color: #000000; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-family: 'times new roman', serif; margin: 0px;">&#160;</p><p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; text-indent: 0.25in;">On February 4, 2015, two Director of the Board were issued 500,000 shares of our common stock.</p><p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;">&#160;</p><p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px 0px 0px 0.25in; text-align: justify;">On September 29, 2015, the Board of Directors of the Company adopted a Certificate of Designation establishing the rights, preferences, privileges and other terms of Series A Preferred Stock, par value $0.0001 per share, (&#8220;New Series A Preferred Stock&#8221;) providing for supermajority voting rights to holders of New Series A Preferred Stock. 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Upon filing of the New Series A Preferred Stock Certificate of Designation in accordance with the provisions of Nevada law, the Board authorized the Corporation to issue 1,000 shares of New Series A Preferred Stock to Mr. Eckelberry.</p><p style="color: #000000; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-family: 'times new roman', serif; margin: 0px;">&#160;</p><p style="color: #000000; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-family: 'times new roman', serif; margin: 0px 0px 0px 0.25in;">On October 6, 2015, the Company&#8217;s Chief Executive Officer was granted options to purchase 5,000,000 shares of our common stock under the Company&#8217;s 2015 Equity Incentive Plan. 50% of these options vested on option grant date and 50% vest on the one year anniversary of grant date. These options are exercisable at $0.0375 per share and expire 5 years from the date of grant.</p><p style="color: #000000; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-family: 'times new roman', serif; margin: 0px 0px 0px 0.25in;">&#160;</p><p style="color: #000000; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-family: 'times new roman', serif; margin: 0px 0px 0px 0.25in;">On October 6, 2015, the Company&#8217;s Chief Executive Officer was granted options to purchase 55,000,000 shares of our common stock under the Company&#8217;s 2015 Equity Incentive Plan. These options are fully vested, exercisable at $0.0375 per share and expire 5 years from the date of grant.</p><p style="color: #000000; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-family: 'times new roman', serif; margin: 0px 0px 0px 0.25in;">&#160;</p><p style="color: #000000; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-family: 'times new roman', serif; margin: 0px 0px 0px 0.25in;">On October 6, 2015, a Director of the Board was granted options to purchase 5,000,000 shares of our common stock under the Company&#8217;s 2015 Equity Incentive Plan, of which 50% vested on the option grant date and 50% vest on the one year anniversary of the grant date. These options are exercisable at $0.0375 per share and expire 5 years from the date of grant.</p><p style="color: #000000; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-family: 'times new roman', serif; margin: 0px 0px 0px 0.25in;">&#160;</p><p style="color: #000000; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-family: 'times new roman', serif; margin: 0px 0px 0px 0.25in;">On October 6, 2015, a Director of the Board was granted options to purchase 5,000,000 shares of our common stock under the Company&#8217;s 2015 Equity Incentive Plan which will vest upon specific milestones being met, exercisable at $0.0375 per share and expiring 5 years from the date of grant.</p> <table style="font: 10pt/normal 'times new roman', times, serif; width: 1039.33px; text-transform: none; text-indent: 0px; letter-spacing: normal; word-spacing: 0px; widows: 1; font-size-adjust: none; font-stretch: normal; -webkit-text-stroke-width: 0px;" border="0" cellspacing="0" cellpadding="0"><tr style="vertical-align: top;"><td style="padding-left: 0px; text-indent: 0px; width: 0.25in;"><font style="font-family: 'times new roman', times, serif; font-size: 10pt;">12.</font></td><td style="padding-left: 0px; text-indent: 0px;"><font style="font-family: 'times new roman', times, serif; font-size: 10pt;">SUBSEQUENT EVENTS</font></td></tr></table><p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;"></p><p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px 0px 0px 0.25in; text-align: justify;"><font style="font-family: 'times new roman', times, serif; font-size: 10pt;">Management has evaluated subsequent events according to the requirements of ASC TOPIC 855 and has determined that there are the following subsequent events:</font></p><p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px 0px 0px 0.25in; text-align: justify;"><font style="font-family: 'times new roman', times, serif; font-size: 10pt;">&#160;</font></p><p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px 0px 0px 0.25in; text-align: justify;"><font style="font-family: 'times new roman', times, serif; font-size: 10pt;">As previously reported, on October 6, 2015, the Board of Directors of the Company approved the grant of four-year options to purchase an aggregate of 116,050,000 shares of common stock of the Company at an exercise price of $0.0375 per share to employees and contractors of the Company and its newly acquired subsidiary Progressive Water Treatment, Inc. (the &#8220;October 2015 Grant&#8221;). On January 5, 2016, the Board of Directors of the Company approved certain amendments to an aggregate of 86,000,000 non-qualified stock options that were part of the October 2015 Grant that were made to T. Riggs Eckelberry, Chief Executive Officer and director of the Company, Jean Louis Kindler, Chief Commercial Officer and director of the Company, William Charneski, Senior Vice President, Nicholas Eckelberry, co-founder and brother of T. Riggs Eckelberry, and Anthony Fidaeleo and Byron Elton, both directors of the Company. The foregoing amendments included among other things (i) extending the term of the stock options from four to five years, (ii) providing for the filing of a Form S-8 to cover the shares underlying the stock options, and (iii) placing certain transfer and exercise restrictions on the stock options.</font></p><p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px 0px 0px 0.25in; text-align: justify;"><font style="font-family: 'times new roman', times, serif; font-size: 10pt;">&#160;</font></p><p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px 0px 0px 0.25in; text-align: justify;"><font style="font-family: 'times new roman', times, serif; font-size: 10pt;">Between January 7, 2016 and March 15, 2016, holders of convertible notes, known in our filings as &#8220;Convertible Promissory Notes&#8221; converted an aggregate outstanding principal amount of $389,000, plus unpaid interest of $37,114 into an aggregate of 43,078,706 shares of the Company&#8217;s common stock.&#160;</font></p><p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;"><font style="font-family: 'times new roman', times, serif; font-size: 10pt;">&#160;</font></p><p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px 0px 0px 0.25in; text-align: justify;">Between January 15, 2016, and March 31, 2016, the Company issued 13,237,739 shares of common stock for services at a fair value of $299,296.&#160;</p><p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;">&#160;</p><p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px 0px 0px 0.25in; text-align: justify;"><font style="font-family: 'times new roman', times, serif; font-size: 10pt;">On March 17, 2016, the Company received an advance of $100,000 upon entering into a convertible promissory note ("Note") for an aggregate principal amount of $500,000. The Note matures twelve months from the date of issuance and bear interest at 10% per annum. The Note may be converted into shares of the Company&#8217;s common stock at a conversion price range of the lesser of $0.02 (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 Note.&#160; The Notes include customary default provisions related to payment of principal and interest and bankruptcy or creditor assignment.&#160; In the event of default, the Note shall become immediately due and payable at the mandatory default amount. The mandatory default amount is 150% of the Note amount and such mandatory default amount shall bear interest at 10% per annum.&#160; In addition, for as long as the Note 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 Note or such other convertible notes or a term was not similarly provided to the purchaser of the Note or such other convertible notes, then such more favorable or additional term shall, at the purchaser&#8217;s option, become part of the Note and such other convertible notes.&#160;</font></p><p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px 0px 0px 0.25in; text-align: justify;"><font style="font-family: 'times new roman', times, serif; font-size: 10pt;">&#160;</font></p><p style="color: #000000; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-family: 'times new roman', serif; margin: 0px 0px 0px 18pt; text-align: justify;">On March 25, 2016, by written consent the holders of the majority of the Company&#8217;s outstanding securities entitled to vote thereon approved an amendment to the Company&#8217;s Articles of Incorporation to increase the total number of shares of common stock that we are authorized to issue to 2,500,000,000 shares (from 1,000,000,000) and to increase the total number of authorized shares to 2,525,000,000 (there being no change to the number of previously authorized shares of preferred stock or par value) (the &#8220;Amendment&#8221;). 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All material intercompany transactions have been eliminated upon consolidation of these entities.</p> <div><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0.25in; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;"><font style="font: 10pt/normal 'times new roman', times, serif; font-stretch: normal;"><u>Cash and Cash Equivalent</u></font></p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px 0px 0px 0.25in; text-align: justify; color: #000000; text-transform: none; text-indent: 0px; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;"><font style="font: 10pt/normal 'times new roman', times, serif; font-stretch: normal;">The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.</font></p></div> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; text-indent: 0.25in;"><font style="font-style: normal; font-variant: normal; font-weight: normal; font-stretch: normal; font-size: 10pt; line-height: normal; font-family: 'times new roman', times, serif;"><u>Use of Estimates</u></font></p><p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px 0px 0px 0.25in; text-align: justify;">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. Significant estimates include estimates used to review the Company&#8217;s goodwill, revenue recognition on percentage of completion type contracts, allowances for uncollectible accounts, inventory valuation, derivative liabilities, debt beneficial conversion features, 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.</p> <div><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px 0px 0px 0.25in; text-align: justify; color: #000000; text-transform: none; text-indent: 0px; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;"><font style="font: 10pt/normal 'times new roman', times, serif; font-stretch: normal;"><u>Concentration Risk</u></font></p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px 0px 0px 0.25in; text-align: justify; color: #000000; text-transform: none; text-indent: 0px; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;"><font style="font: 10pt/normal 'times new roman', times, serif; font-stretch: normal;">Cash includes amounts deposited in financial institutions in excess of insurable Federal Deposit Insurance Company (FDIC) limits. At times throughout the year, the Company may maintain cash balances in certain bank accounts in excess of FDIC limits. As of December 31, 2015, the cash balance in excess of the FDIC limits was $250,929. 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The purchase price is allocated using the information currently available, and may be adjusted, up to one year from acquisition date, after obtaining more information regarding, among other things, asset valuations, liabilities assumed and revisions to preliminary estimates. 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The amendment for accounting for share based payments, when an award provides that a performance target that affects vesting could be achieved after an employee completes the requisite service period shall be accounted for as a performance condition. The performance target shall not be reflected in estimating the fair value of the award at the grant date, and compensation cost shall be recognized in the period in which it becomes probable that the performance target will be achieved and will represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost shall be recognized prospectively over the remaining requisite service period. 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    Document and Entity Information - USD ($)
    12 Months Ended
    Dec. 31, 2015
    Mar. 31, 2016
    Jun. 30, 2015
    Document and Entity Information [Abstract]      
    Entity Registrant Name ORIGINCLEAR, INC.    
    Entity Central Index Key 0001419793    
    Amendment Flag false    
    Current Fiscal Year End Date --12-31    
    Document Type 10-K    
    Document Period End Date Dec. 31, 2015    
    Document Fiscal Period Focus FY    
    Document Fiscal Year Focus 2015    
    Entity Well-known Seasoned Issuer No    
    Entity Current Reporting Status Yes    
    Entity Voluntary Filers No    
    Entity Filer Category Smaller Reporting Company    
    Entity Public Float     $ 6,072,066
    Entity Common Stock, Shares Outstanding   288,905,273  
    XML 15 R2.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Consolidated Balance Sheets - USD ($)
    Dec. 31, 2015
    Dec. 31, 2014
    CURRENT ASSETS    
    Cash $ 695,295 $ 198,384
    Contracts receivable, less allowance for doubtful accounts of $50,000 and $0, respectively 1,066,223  
    Cost in excess of billing 16,748
    Other receivable 100,000
    Work in progress 95,366 $ 87,123
    Prepaid expenses 30,477 46,482
    TOTAL CURRENT ASSETS 2,004,109 331,989
    NET PROPERTY AND EQUIPMENT 197,257 78,888
    OTHER ASSETS    
    Other asset 19,538 37,038
    Goodwill 487,447  
    Trademark 4,467 4,467
    Security deposit 9,650 10,247
    TOTAL OTHER ASSETS 521,102 51,752
    TOTAL ASSETS 2,722,468 462,629
    Current Liabilities    
    Accounts payable and other payable 604,393 203,082
    Accrued expenses 487,734 $ 272,291
    Billing in excess of cost 503,718
    Customer deposit 113,950
    Warrant reserve 20,000
    Deferred income 150,000 $ 47,570
    Derivative liabilities 9,317,475 4,052,401
    Convertible promissory notes, net of discount of $161,857 and $454,054, respectively 4,278,315 3,087,602
    Total Current Liabilities $ 15,475,585 $ 7,662,946
    Commitments and contingencies
    SHAREHOLDERS' DEFICIT    
    Preferred stock value
    Common stock, $0.0001 par value, 1,000,000,000 shares authorized 232,588,828 and 99,748,172 shares issued and outstanding, respectively $ 23,258 $ 9,975
    Additional paid in capital 46,307,448 $ 40,258,419
    Accumulated other comprehensive loss (47)
    Accumulated deficit (59,083,777) $ (47,468,711)
    TOTAL SHAREHOLDERS' DEFICIT (12,753,117) (7,200,317)
    TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 2,722,468 $ 462,629
    Series A Preferred Stock    
    SHAREHOLDERS' DEFICIT    
    Preferred stock value
    Preferred Series A treasury shares, 1,000 shares outstanding at no cost
    Series B Preferred Stock    
    SHAREHOLDERS' DEFICIT    
    Preferred stock value $ 1
    XML 16 R3.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Consolidated Balance Sheets (Parenthetical) - USD ($)
    Dec. 31, 2015
    Dec. 31, 2014
    Allowance for doubtful accounts $ 50,000 $ 0
    Discount on debt $ 161,857 $ 454,054
    Preferred stock, par value $ 0.0001 $ 0.0001
    Preferred stock, shares authorized 25,000,000 25,000,000
    Common stock, par value $ 0.0001 $ 0.0001
    Common stock, shares authorized 1,000,000,000 1,000,000,000
    Common stock, shares issued 232,588,828 99,748,172
    Common stock, shares outstanding 232,588,828 99,748,172
    Series A Preferred Stock    
    Designated shares 1,000 1,000
    Preferred stock, shares issued 1,000 0
    Preferred stock, shares outstanding 1,000 0
    Preferred treasury stock shares outstanding 1,000 1,000
    Series B Preferred Stock    
    Designated shares 10,000 10,000
    Preferred stock, shares issued 10,000 0
    Preferred stock, shares outstanding 10,000 0
    XML 17 R4.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Consolidated Statements of Operations - USD ($)
    12 Months Ended
    Dec. 31, 2015
    Dec. 31, 2014
    Income Statement [Abstract]    
    Sales $ 954,470 $ 166,195
    Cost of Goods Sold 841,903 106,919
    Gross Profit 112,567 59,276
    Operating Expenses    
    Selling and marketing expenses 2,042,312 2,643,779
    General and administrative expenses 4,200,200 3,096,693
    Research and development 814,014 1,284,611
    Depreciation and amortization expense 22,598 16,547
    Total Operating Expenses 7,079,124 7,041,630
    Loss from Operations $ (6,966,557) (6,982,354)
    OTHER (EXPENSE) INCOME    
    Realized gain on investment $ 6,353
    Other income $ 9,796
    Gain on sale of asset 14,318
    Fair value of financing cost (143,172)
    (Loss) on net change in derivative liability (2,856,917) $ (1,701,406)
    Commitment fee (51,697) (128,762)
    Interest expense (1,620,837) (2,332,439)
    TOTAL OTHER (EXPENSE) INCOME (4,648,509) (4,156,254)
    NET LOSS $ (11,615,066) $ (11,138,608)
    BASIC AND DILUTED LOSS PER SHARE $ (0.07) $ (0.15)
    WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING, BASIC AND DILUTED 159,667,650 74,966,622
    XML 18 R5.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Statements of Shareholders' Equity Deficit - USD ($)
    Total
    Preferred stock
    Common stock
    Additional Paid-in Capital
    Accumulated Other Comprehensive Loss
    Accumulated Deficit
    Beginning balance at Dec. 31, 2013 $ (1,513,199) $ 5,366 $ 34,811,538 $ (36,330,103)
    Beginning balance (shares) at Dec. 31, 2013   53,664,505      
    Common stock issued for exercise of warrants for cash 750,000 $ 500 749,500
    Common stock issued upon exercise of warrants for cash, (shares)   5,000,000      
    Common stock issuance for conversion of debt 1,987,193 $ 2,846 1,984,347
    Common stock issuance for conversion of debt (shares)   28,459,517      
    Common stock issuance of supplemental shares 234,516 $ 133 234,383
    Common stock issuance of supplemental shares (shares)   1,326,881      
    Common stock issued at fair value for services 1,998,721 $ 1,125 1,997,596
    Common stock issued at fair value for services (shares)   11,251,903      
    Common stock issued for purchase of asset 7,000 $ 5 6,995
    Common stock issued for purchase of asset (shares)   45,366      
    Beneficial conversion feature 277,160 277,160
    Stock and warrant compensation cost $ 196,900 $ 196,900
    Preferred A shares issued        
    Preferred A shares issued (shares) 1,000
    Preferred A treasury shares (1,000)
    Net loss for the year ended $ (11,138,608) $ (11,138,608)
    Ending balance at Dec. 31, 2014 (7,200,317) $ 9,975 $ 40,258,419 $ (47,468,711)
    Ending balance (shares) at Dec. 31, 2014   99,748,172      
    Common stock issued for exercise of warrants for cash 303,681 $ 684 302,997
    Common stock issued upon exercise of warrants for cash, (shares)   6,840,291      
    Common stock issued in a private placement for cash 1,042,050 $ 3,557 1,038,493
    Common stock issued in a private placement for cash (shares)   35,568,348      
    Common stock issuance for conversion of debt 1,456,973 $ 6,136 1,450,837
    Common stock issuance for conversion of debt (shares)   61,363,210      
    Common stock issuance of supplemental shares 51,697 $ 385 51,312
    Common stock issuance of supplemental shares (shares)   3,857,206      
    Common stock issued at fair value for services 1,260,521 $ 2,521 1,258,000
    Common stock issued at fair value for services (shares)   25,211,601      
    Stock based compensation 1,739,620 1,739,620
    Beneficial conversion feature 28,924 $ 28,924
    Accumulated comprehensive loss $ (47) $ (47)
    Preferred A shares issued
    Preferred A shares issued (shares)   1,000        
    Preferred B shares issued in connection with PWT acquisition $ 1,500,000 $ 1 $ 1,499,999
    Preferred B shares issued in connection with PWT acquisition, shares   10,000        
    Derivative liability - Preferred B shares (1,321,152) $ (1,321,152)
    Net loss for the year ended (11,615,066) $ (11,615,066)
    Ending balance at Dec. 31, 2015 $ (12,753,117) $ 1 $ 23,258 $ 46,307,448 $ (47) $ (59,083,777)
    Ending balance (shares) at Dec. 31, 2015   11,000 232,588,828      
    XML 19 R6.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Consolidated Statements of Cash Flows - USD ($)
    12 Months Ended
    Dec. 31, 2015
    Dec. 31, 2014
    CASH FLOWS FROM OPERATING ACTIVITIES:    
    Net loss $ (11,615,066) $ (11,138,608)
    Adjustment to reconcile net loss to net cash used in operating activities    
    Depreciation & amortization expense $ 22,598 16,547
    Gain on sale of investment $ (6,353)
    Gain on sale of asset $ (14,318)
    Common stock and warrants issued for services 1,260,521 $ 1,998,721
    Stock and warrant compensation expense 1,739,620 $ 196,900
    Fair value of debt financing cost 143,172
    Loss on net change in valuation of derivative liability 2,856,917 $ 1,701,406
    Debt discount and original issue discount recognized as interest expense 1,264,844 2,114,582
    Non cash commitment fee expense 51,697 $ 128,762
    (Increase) Decrease in:    
    Contracts receivable (93,466)
    Cost in excess of billing 68,811
    Other receivable (100,000)
    Prepaid expenses 16,005 $ (11,951)
    Work in progress (8,243) (66,074)
    Other asset 18,097 1,903
    Increase (Decrease) in:    
    Accounts payable 652,715 471,810
    Accrued expenses 267,839 $ 139,137
    Billing in excess of cost 355,117
    Deferred income 102,430 $ (2,430)
    NET CASH USED IN OPERATING ACTIVITIES $ (3,010,710) (4,455,648)
    CASH FLOWS USED FROM INVESTING ACTIVITIES:    
    Proceeds from sale of investment, at cost $ 6,815
    Proceeds from sale of fixed assets $ 9,100
    Cash from acquisition of subsidiary 451,431
    Purchase of fixed assets (113,688) $ (14,231)
    CASH PROVIDED BY (USEDIN) INVESTING ACTIVITIES 346,843 (7,416)
    CASH FLOWS FROM FINANCING ACTIVITIES:    
    Proceeds from convertible promissory notes 1,815,000 3,090,000
    Proceeds for issuance of common stock and exercise of warrants 1,345,731 750,000
    NET CASH PROVIDED BY FINANCING ACTIVITIES 3,160,731 $ 3,840,000
    Effect of exchange rate changes on cash 47
    NET INCREASE (DECREASE) IN CASH 496,911 $ (623,064)
    CASH BEGINNING OF YEAR 198,384 821,448
    CASH END OF YEAR 695,295 198,384
    SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION    
    Interest paid $ 878 $ 1,776
    Taxes paid
    SUPPLEMENTAL DISCLOSURES OF NON CASH TRANSACTIONS    
    Conversion of accounts payable into a convertible note $ 432,048
    Beneficial conversion feature on convertible note $ 277,160
    Common stock issued for supplemental shares $ 51,696 234,516
    Common stock issued for fixed asset 7,000
    Common stock issued for conversion of debt $ 1,456,973 $ 1,987,193
    Preferred stock issued for acquisition of PWT $ 1,500,000
    XML 20 R7.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Organisation and Line of Business
    12 Months Ended
    Dec. 31, 2015
    Organization and Line of Business [Abstract]  
    ORGANIZATION AND LINE OF BUSINESS
    1.ORGANIZATION AND LINE OF BUSINESS

     

    Organization

    OriginClear, Inc. (formerly OriginOil, Inc), the ("Company") was incorporated in the state of Nevada on June 1, 2007. The Company, based in Los Angeles, California, began operations on June 1, 2007 to develop and market a renewable oil technology. The Company began its’ planned principle operations in December, 2010, at which time it exited the development stage. 

    In December 2014, the Company formed a wholly owned subsidiary, OriginOil (HK) Limited (OOHK), in Hong Kong, China. The Company plans to grant OOHK a master license for the People’s Republic of China. In turn, OOHK is expected to license regional joint ventures for frack and waste treatment. A research and manufacturing center is also planned. As of December 31, 2015, OOHK has limited assets and operations. 

    On October 1, 2015, the Company completed the acquisition of 100% of the total issued and outstanding stock of Progressive Water Treatment, Inc. (“PWT”) and is included in these consolidated financial statements as a wholly owned subsidiary. See Note 3. 

    Line of Business

    OriginClear is a pure technology company and is the developer of Electro Water Separation™ (EWS), the high-speed, primarily chemical-free technology to clean up large quantities of water.  The Company’s technology integrates easily with other industry processes and can be embedded into larger systems through licensing and joint ventures.   Through the acquisition of PWT, the Company is primarily engaged in providing water treatment systems and services for a wide variety of applications and component sales. 

    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. During the year ended December 31, 2015, the Company did not generate significant revenue, incurred a net loss of $11,615,066 and used cash in operations of $3,010,710.  As of December 31, 2015, the Company had a working capital deficiency of $13,471,476 and a shareholders’ deficit of $12,753,117.   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, 2014 expressed substantial doubt about our ability to continue as a going concern. 

    The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, achieving a level of profitable operations and receiving additional cash infusions. During the year ended December 31, 2015, the Company obtained funds from the issuance of convertible note agreements and from sales of its common stock and warrants. The Company also has standing purchase orders and open invoices with customers which will provide funds for operations. Management believes this funding will continue from its’ current investors and from new investors. 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 undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stock holders, in case of equity financing.

    XML 21 R8.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Summary of Significant Accounting Policies
    12 Months Ended
    Dec. 31, 2015
    Summary of Significant Accounting Policies [Abstract]  
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICES

     

    This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements. 

    Principles of Consolidation

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

    Cash and Cash Equivalent

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

    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. Significant estimates include estimates used to review the Company’s goodwill, revenue recognition on percentage of completion type contracts, allowances for uncollectible accounts, inventory valuation, derivative liabilities, debt beneficial conversion features, 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.

       

    Concentration Risk

    Cash includes amounts deposited in financial institutions in excess of insurable Federal Deposit Insurance Company (FDIC) limits. At times throughout the year, the Company may maintain cash balances in certain bank accounts in excess of FDIC limits. As of December 31, 2015, the cash balance in excess of the FDIC limits was $250,929. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in these accounts.

     

    Loss per Share Calculations

    Basic loss per share calculations are computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares available. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include securities or other contracts to issue common stock that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The Company’s diluted loss per share is the same as the basic loss per share for the years ended December 31, 2015 and 2014, respectively, as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss.

     

       For the years ended 
       2015  2014 
     (Loss) to common shareholders (Numerator) $(11,615,066) $(11,138,608)
              
     Basic and diluted weighted average number of common shares outstanding denominator  159,667,650   74,966,622 

     

    The Company has excluded 119,404,644 stock options, 23,297,108 warrants, shares issuable from convertible debt of $4,440,172 and shares issued from potentially convertible preferred stock for the year ended December 31, 2015 because their impact on the loss per share is anti-dilutive.

     

    The Company has excluded 4,404,643 stock options, 30,946,563 warrants and shares issuable from convertible debt of $3,541,656 for the year ended December 31, 2014 because their impact on the loss per share is anti-dilutive.

     

    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.

     

    Revenue Recognition

     

    Equipment sales

    We recognize revenue upon delivery of equipment, provided that evidence of an arrangement exists, title, and risk of loss have passed to the customer, fees are fixed or determinable, and collection of the related receivable is reasonably assured.  Title to the equipment is transferred to the customer once the last payment is received. We record revenue as goods are shipped, and the equipment has been fully accepted by the customer. Generally, we extend credit to our customers and do not require collateral.  We do not ship a product until we have a purchase agreement signed by the customer with a payment arrangement.  

     

    Percentage of completion

    Revenues and related costs on construction contracts are recognized using the “percentage of completion method” of accounting in accordance with ASC 605-35 – “Accounting for Performance of Construction-Type and Certain Production Type Contracts”. Under this method, contract revenues and related expenses are recognized over the performance period of the contract in direct proportion to the costs incurred as a percentage of total estimated costs for the entirety of the contract. Costs include direct material, direct labor, subcontract labor and any allocable indirect costs. All un-allocable indirect costs and corporate general and administrative costs are charged to the periods as incurred. However, in the event a loss on a contract is foreseen, the Company will recognize the loss as it is determined.

     

    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.

     

    The asset “Costs in excess of billings” represents revenues recognized in excess of amounts billed on contracts in progress. The liability“Billings in excess of costs” represents billings in excess of revenues recognized on contracts in progress. Assets and liabilities related to long-term contracts are included in current assets and current liabilities in the accompanying balance sheets, as they will be liquidated in the normal course of the contract completion. At December 31, 2015 and December 31, 2014, the costs in excess of billings balance were $16,748 and $0, and the billings in excess of costs balance were $503,718 and $0, respectively.

      

    Contract receivables are recorded on contracts for amounts currently due based upon progress billings, as well as retention, which are collectible upon completion of the contracts. Accounts payable to material suppliers and subcontractors are recorded for amounts currently due based upon work completed or materials received, as are retention due subcontractors, which are payable upon completion of the contract. General and administrative expenses are charged to operations as incurred and are not allocated to contract costs.

     

    Contract Receivable

    The Company bills its customers in accordance with contractual agreements. The agreements generally require billing to be on a progressive basis as work is completed. Credit is extended based on evaluation of clients financial condition and collateral is not required. The Company maintains an allowance for doubtful accounts for estimated losses that may arise if any customer is unable to make required payments. Management performs a quantitative and qualitative review of the receivables past due from customers on a monthly basis. The Company records an allowance against uncollectible items for each customer after all reasonable means of collection have been exhausted, and the potential for recovery is considered remote. The allowance for doubtful accounts was approximately $50,000 and $0 as of December 31, 2015 and 2014, respectively. The net contract receivable balance was $1,066,223 and $0 at December 31, 2015 and 2014, 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 December 31, 2015 and 2014, and determined there was no impairment of indefinite lived intangibles and goodwill.

     

    Research and Development

    Research and development costs are expensed as incurred. Total research and development costs were $814,014 and $1,284,611 for the years ended December 31, 2015 and 2014, respectively.

     

    Advertising Costs

    The Company expenses the cost of advertising and promotional materials when incurred. The advertising costs were $164,463 and $248,129 for the years ended December 31, 2015 and 2014, 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 equipment5-10  years
     Furniture, fixtures and computer equipment5-7  years
     Vehicles3-5  years
     Leasehold improvements2-5  years

     

    Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the event that facts and circumstances indicate that the cost of any long-lived assets may be impaired, an evaluation of recoverability would be performed following generally accepted accounting principles.

     

    Stock-Based Compensation

    The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board whereas the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the Financial Accounting Standards Board whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.

     

    Accounting for Derivatives

    The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a probability weighted average series Black-Scholes-Merton option pricing models to value the derivative instruments at inception and on subsequent valuation dates.

     

    The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

     

    Fair Value of Financial Instruments

    Fair Value of Financial Instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of December 31, 2015, 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 1measurements) 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 December 31, 2015 and 2014.

     

       (Level 1)  (Level 2)  (Level 3) 
               
     Derivative Liability, December 31, 2015 $-  $-  $9,317,475 
     Derivative Liability, December 31, 2014 $-  $-  $4,052,401 

     

    The following is a reconciliation of the derivative liability for which level 3 inputs were used in determining the approximate fair value:

     

     Balance as of January 1, 2014 $1,031,484 
     Fair Value of derivative liabilities issued  1,319,512 
     Conversion of notes payable  (3,396,556)
     Loss on change in derivative liability  5,097,961 
     Balance as of December 31, 2014 $4,052,401 
     Fair Value of derivative liabilities issued  2,408,157 
     Conversion of notes payable  (1,565,765)
     Loss on change in derivative liability  4,422,682 
     Balance as of December 31, 2015  9,317,475 

     

    For purpose of determining the fair market value of the derivative liability, the Company used Black Scholes option valuation model. The significant assumptions used in the Black Scholes valuation of the derivative are as follows: 

        12/31/2015   12/31/2014 
     Risk free interest rate  .14% - 1.31%  .02% - .26%
     Stock volatility factor  35.80% - 103.83%  68.29% - 111.86%
     Weighted average expected option life  6 months – 2.75 years   6 months - 2 years 
     Expected dividend yield  None    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.

     

    Recently Issued Accounting Pronouncements

    On June 19, 2014, the Company adopted the amendment to (Topic 718) Stock CompensationAccounting for Share-Based Payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The amendment for accounting for share based payments, when an award provides that a performance target that affects vesting could be achieved after an employee completes the requisite service period shall be accounted for as a performance condition. The performance target shall not be reflected in estimating the fair value of the award at the grant date, and compensation cost shall be recognized in the period in which it becomes probable that the performance target will be achieved and will represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost shall be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period shall reflect the number of awards that are expected to vest and shall be adjusted to reflect the awards that ultimately vest. The Company does not believe the accounting standards currently adopted will have a material effect on the accompanying condensed financial statements. 

     

    In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (Topic 606). This ASU provides guidance for revenue recognition and affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets and supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” and most industry specific guidance. The standard’s core principle is the recognition of revenue when a company transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under the current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers" (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 to fiscal years beginning after December 15, 2017, including interim reporting periods within that reporting period. Early adoption is permitted for fiscal years beginning after December 15, 2016. The Company is currently evaluating the method and impact the adoption of ASU 2014-09 will have on the Company’s consolidated financial statements and disclosures. 

     

    In August 2014, FASB issued ASU 2014-15, “Presentation of Financial Statements Going Concern (Subtopic 205-40) – Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. Currently, there is no guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments in this ASU provide that guidance. In doing so, the amendments are intended to reduce diversity in the timing and content of footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this ASU are effective for public and nonpublic entities for annual periods ending after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2014-15 on the Company’s financial statements. 

     

    In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs” this Update as part of its initiative to reduce complexity in accounting standards (the Simplification Initiative). The Board received feedback that having different balance sheet presentation requirements for debt issuance costs and debt discount and premium creates unnecessary complexity. Recognizing debt issuance costs as a deferred charge (that is, an asset) also is different from the guidance in International Financial Reporting Standards (IFRS), which requires that transaction costs be deducted from the carrying value of the financial liability and not recorded as separate assets. Additionally, the requirement to recognize debt issuance costs as deferred charges conflicts with the guidance in FASB Concepts Statement No. 6, Elements of Financial Statements, which states that debt issuance costs are similar to debt discounts and in effect reduce the proceeds of borrowing, thereby increasing the effective interest rate. Concepts Statement 6 further states that debt issuance costs cannot be an asset because they provide no future economic benefit. To simplify presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. The Company is currently evaluating the effects of adopting this ASU, if it is deemed to be applicable.

     

    Management reviewed currently issued pronouncements during the twelve months ended December 31, 2015, 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 accompany consolidated financial statements.

    XML 22 R9.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Business Acquisition
    12 Months Ended
    Dec. 31, 2015
    Business Acquisition [Abstract]  
    BUSINESS ACQUISITION
    3.BUSINESS ACQUISITION

     

    On October 1, 2015, the Company”), closed the transaction contemplated by the Share Exchange Agreement (the “Agreement”) with Progressive Water Treatment, Inc., a Texas corporation (“PWT”) and Marc Stevens, PWT’s sole shareholder (“Stevens”), dated July 31, 2015 (the “Agreement”).

     

    The Company acquired PWT from Stevens through the transfer of all issued and outstanding shares of PWT in exchange (the “Exchange”) for 10,000 shares of a new series of preferred stock, the Series B Preferred Stock, filed with the State of Nevada by the Company on October 1, 2015.

     

    Each share of Series B Preferred Stock has a stated value of $150 per share and is convertible into shares of the Company’s common stock at a conversion price of $0.03 per share, which may be converted to the Company’s common stock in three annual increments beginning 12 months from closing. The conversion price is subject to adjustment in the case of reverse splits, stock dividends, reclassifications and the like. In addition, the conversion price is subject to certain full ratchet anti-dilution protection. The Series B Preferred Stock is entitled to vote with holders of the Company’s common stock on all corporate actions, including the election of the Company’s directors. The holders of the Series B Preferred Stock are entitled to cast one vote for each share of Series B Preferred Stock owned. This brief description of the Certificate of Designation is only a summary of the material terms and is qualified in its entirety by reference to the full text of the form of the Certificate of Designation as attached to this Current Report on as Exhibit 3.8.

     

    The acquisition was accounted for under ASC 805. PWT is engaged in providing water treatment systems and services for a wide variety of applications and component sales. The acquisition is designed to enhance our services in water treatment. PWT became a wholly-owned subsidiary of the Company.

     

    Under the purchase method of accounting, the transactions were valued for accounting purposes at $1,500,000, which was the fair value of PWT at the time of acquisition. The assets and liabilities of PWT were recorded at their respective fair values as of the date of acquisition. Since, the Company determined there were no other separately identifiable intangible assets, any difference between the cost of the acquired entity and the fair value of the assets acquired and liabilities assumed is recorded as goodwill. The acquisition date estimated fair value of the consideration transferred consisted of the following:

     

     Convertible promissory note $1,500,000 
     Total purchase price $1,500,000 
          
     Tangible assets acquired $1,549,700 
     Liabilities assumed  (537,147)
       $1,012,553 
     Goodwill  487,447 
     Total purchase price $1,500,000 

      

    As of December 31, 2015, the Company has not identified any intangible assets other than goodwill. However, the above estimated fair value of the intangible assets of PWT is based on a preliminary purchase price allocation prepared by management. As a result, during the preliminary purchase price allocation period, which may be up to one year from the business combination date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. After the preliminary purchase price allocation period, we record adjustments to assets acquired or liabilities assumed subsequent to the purchase price allocation period in our operating results in the period in which the adjustments were determined. 

     

    Pro forma results

    The following tables set forth the unaudited pro forma results of the Company as if the acquisition of PWT had taken place on the first day of the periods presented. These combined results are not necessarily indicative of the results that may have been achieved had the companies been combined as of the first day of the periods presented.

     

       Year Ended  Year Ended 
       

    December 31, 2015

    (unaudited)

      

    December 31, 2014

    (unaudited)

     
     Total Revenues $4,999,834  $6,241,303 
     Net (Loss) $(11,545,002) $(10,324,861)
     Basic and Diluted Net (Loss) Per Common Share $(0.07) $(0.15)
     
    XML 23 R10.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Property and Equipment
    12 Months Ended
    Dec. 31, 2015
    Property and Equipment [Abstract]  
    PROPERTY & EQUIPMENT
    4.PROPERTY & EQUIPMENT

     

    Property and Equipment consists of the following as of December 31, 2015 and 2014:

     

       2015  2014 
            
     Machinery & equipment $155,019   86,855 
     Furniture & fixtures  27,452   29,593 
     Computer equipment  53,594   39,293 
     Vehicles  31,358   - 
     Leasehold improvements  121,639   94,914 
       389,062   250,655 
     Less accumulated depreciation and amortization  (191,805)  (171,767)
              
       $197,257   78,888 

     

    During the years ended December 31, 2015 and 2014, depreciation and amortization expense was $22,598 and $16,547, respectively.

    XML 24 R11.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Capital Stock
    12 Months Ended
    Dec. 31, 2015
    Capital Stock [Abstract]  
    CAPITAL STOCK
    5.CAPITAL STOCK

     

    Preferred Stock

     

    On April 10, 2015, the Corporation filed a Certificate of Designation for its Series A Preferred Stock with the Secretary of State of Nevada (the “Old Series A Certificate of Designation”) designating 1,000 shares of its authorized preferred stock as Series A Preferred Stock, par value $0.0001 per share. On July 9, 2015, the 1,000 shares of Old Series A Preferred Stock issued to T. Riggs Eckelberry were automatically redeemed by the Corporation, and there are no shares of Old Series A Preferred Stock outstanding. The Board of Directors approved the cancellation of the Old Series A Shares and withdrawal of the Old Series A Certificate of Designation.

     

    On July 31, 2015, the Board of Directors of the Company adopted a Certificate of Designation establishing the rights, preferences, privileges and other terms of Series B Preferred Stock, par value $0.0001 per share which will consist of 10,000 shares (the “Series B Preferred Stock”). On October 1, 2015, the Company filed the Certificate of Designation for the Series B Preferred Stock with the Secretary of State of Nevada and Series B Shares were issued to the shareholders of Progressive Water Treatment, Inc. in connection with the share exchange agreement. One third (1/3) of the shares received by the holder may be converted into common stock beginning one (1) year after the first date on which a share of Series B Preferred Stock was issued (the “Original Issue Date); one third (1/3) may be converted beginning two (2) years after the original issue date; and the remaining one third (1/3) may be converted beginning three years after the original issue date. The number of shares of common stock issuable for each share of converted Series B Preferred Stock shall be calculated by dividing the stated value by the market price, the market price shall be the average of the closing trade prices of the twenty-five (25) days prior to the date of the conversion notice. See Note 3. 

     

    The Series B Preferred Stock has redemption features that are redeemable solely at the option of the Company. Each share of Series B Preferred Stock has a stated value of $150 per share and is convertible into shares of the Company’s common stock at a conversion price of $0.03 per share, which may be converted to the Company’s common stock in three annual increments beginning 12 months from closing. The conversion price is subject to adjustment in the case of reverse splits, stock dividends, reclassifications and the like. In addition, the conversion price is subject to certain full ratchet anti-dilution protection. Accordingly, the preferred stock is valued under the provision of ASC Topic 815, Derivatives and Hedging, because the conversion feature of the preferred stock was not afforded the exemption for conventional convertible instruments due to its variable conversion rate. The Series B Preferred Stock shall have the rights, preferences and privileges as set forth in the exchange agreement.

     

    On September 29, 2015, the Board of Directors of the Company adopted a Certificate of Designation establishing the rights, preferences, privileges and other terms of Series A Preferred Stock, par value $0.0001 per share, (“New Series A Preferred Stock”) providing for supermajority voting rights to holders of New Series A Preferred Stock. The Board believes that it is in the best interest of the stockholders of the Corporation that the New Series A Preferred Stock be issued to the Company’s Chief Executive Officer and Director, T. Riggs Eckelberry. Upon filing of the New Series A Preferred Stock Certificate of Designation in accordance with the provisions of Nevada law, the Board authorized the Corporation to issue 1,000 shares of New Series A Preferred Stock to Mr. Eckelberry.

     

    Common Stock

     

    On August 13, 2014, the Company filed an amendment to its Articles of Incorporation to increase its authorized shares of common stock to 1,000,000,000 shares. There was no change to the 25,000,000 authorized shares of preferred stock or par value. The total number of authorized shares increased to 1,025,000,000.

     

    Year ended December 31, 2015

     

    The Company issued 35,568,348 shares of common stock through a private placement at a price of $0.03 per share for cash in the amount of $1,042,050.

     

    The Company issued 6,840,291 shares of common stock for exercise of 6,840,291 warrants for prices ranging from $0.02 to $0.05 per share for cash in the amount of $303,681.

     

    The Company issued 49,163,259 shares of common stock for the settlement of convertible promissory notes in an aggregate principal in the amount of $965,000, plus interest in the amount of $108,442, based upon conversion prices of $0.00975 up to $0.04.

     

    The Company issued 12,199,951 shares of common stock for the settlement of accounts payable with a fair value of $383, 531.

     

    The Company issued 3,857,206 shares of common stock for supplemental shares based on an agreement entered into with the subscribers of the original subscription agreement. Under the terms of the supplemental agreement, if at any time within eighteen (18) months following the issuance of shares to the subscriber (the “Adjustment Period”) the market price (as defined below) of the Company's common stock is less than the price per share,  then the price per  share shall be reduced one time to the market price (the "Adjusted Price") such that the Company shall promptly issue additional shares of the Company's common stock to the Subscriber for no additional  consideration, in an amount sufficient that the aggregate purchase price, when divided by the total number of shares purchased thereunder plus those shares of common stock issued as a result of the dilutive Issuance will equal the adjusted price.  For the purposes hereof: the ''Market Price" shall mean the average closing price of the Company's common stock for any ten (10)  consecutive trading days during the Adjustment Period.

     

    The Company issued 25,211,601 shares of common stock for services at fair value of $1,260,521.

     

    Year ended December 31, 2014

     

    The Company issued 11,251,903 shares of common stock for services at fair value of $1,998,721.

     

    The Company issued 28,459,517 shares of common stock for the settlement of convertible promissory notes in an aggregate principal in the amount of $1,857,828, plus interest in the amount of $129,365, based upon conversion prices of $0.049 up to $0.14.

     

    The Company issued 5,000,000 shares of common stock upon exercise of the purchase warrants in the amount of 5,000,000 for cash in the amount of $750,000.

     

    The Company issued 45,366 shares for the purchase of a fixed asset with a fair value of $7,000.

     

    The Company issued 1,326,881 supplemental shares of common stock for the agreement entered into subsequent to the sale of the common stock during the year ended December 31, 2013. The supplemental shares had a fair value of $234,516, which reduced the liability recorded in the previous year.

    XML 25 R12.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Convertible Promissory Notes
    12 Months Ended
    Dec. 31, 2015
    Convertible Promissory Notes [Abstract]  
    CONVERTIBLE PROMISSORY NOTES
    6.CONVERTIBLE PROMISSORY NOTES

    Convertible promissory notes payable consist of the following as of December 31, 2015 and 2014: 

       2015  2014 
            
     Convertible Promissory Notes $3,735,000  $2,885,000 
     OID Notes  273,125   273,125 
     Convertible Note  432,047   383,531 
     Total Notes  4,440,172   3,541,656 
     Debt Discount  (161,857)  (454,054)
              
       $4,278,315  $3,087,602 

    On various dates the Company entered into unsecured convertible Notes (the “Convertible Promissory Notes” or “Notes”), that mature between six and nine months from the date of issuance and bear interest at 10% per annum. The Notes mature on various dates through January 25, 2016. The Notes may be converted into shares of the Company’s common stock at conversion prices ranging from the lesser of $0.06 to $0.14 (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 Notes. The Notes include customary default provisions related to payment of principal and interest and bankruptcy or creditor assignment.  In the event of default, the Notes shall become immediately due and payable at the mandatory default amount. The mandatory default amount is 150% of the Note amount and such mandatory default amount shall bear interest at 10% per annum.  In addition, for as long as the 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 Notes or such other convertible notes or a term was not similarly provided to the purchaser of the Notes or such other convertible notes, then such more favorable or additional term shall, at the purchaser’s option, become part of the Notes and such other convertible notes. The conversion feature of the Notes was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the Notes. As of December 31, 2014, the outstanding principal balance was $2,885,000. During the year ended December 31, 2015, the Company issued an additional $615,000 of these Notes, and converted $965,000 in aggregate principal, plus accrued interest of $108,442 into 49,163,474 shares of common stock. As of December 31, 2015, the Notes had an aggregate remaining balance of $2,535,000. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $498,898 during the year ended December 31, 2015. 

    On February 24, 2015, the OID Notes with an aggregate remaining principle balance of $273,125, plus accrued interest of $13,334 were amended. The Notes are unsecured convertible promissory notes (the “OID Notes”), that included an original issue discount and one time interest, which has been fully amortized. The OID Notes were extended and matured on various dates through September 19, 2014. On each maturity date, each note was extended one year from its maturity date through September 19, 2015. On February 24, 2015, the Notes were amended with a maturity date of December 31, 2015. On December 30, 2015, the Notes were amended and have a maturity date of December 31, 2016. The Notes were analyzed under ASC 470 (Extinguishment & Modification of debt) to determine if there was a 10% change between the fair value of the embedded conversion option immediately before and after the modification or exchange. The change of the fair value of the conversion feature was greater than 10% of the carrying value of the debt. As a result, in accordance with ASC 470-50, the Company deemed the terms of the amendment to be substantially different and treated the convertible note as an extinguishment. The OID Notes were convertible into shares of the Company’s common stock at a conversion price initially of $0.4375. After the amendment the conversion price changed to the lesser of $0.08 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. On May 19, 2015, a holder of a note with a more favorable term converted a note at a price of $0.02, which became part of this note due to the reset provision mentioned above. The conversion feature of the notes was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the notes. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $286,459 during the year ended December 31, 2015. 

    During the year ended December 31, 2015, the Company entered into various unsecured convertible Notes (the “Convertible Promissory Notes” or “Notes”), for an aggregate amount of $1,200,000. The notes mature nine months from the date of issuance and bear interest at 10% per annum. The Notes mature on various dates ending on May 27, 2016. The Notes may be converted into shares of the Company’s common stock at conversion prices ranging from the lesser of $0.04 to $0.08 (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 Notes.  The Notes include customary default provisions related to payment of principal and interest and bankruptcy or creditor assignment.  In the event of default, the Notes shall become immediately due and payable at the mandatory default amount. The mandatory default amount is 150% of the Note amount and such mandatory default amount shall bear interest at 10% per annum.  In addition, for as long as the 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 Notes or such other convertible notes or a term was not similarly provided to the purchaser of the Notes or such other convertible notes, then such more favorable or additional term shall, at the purchaser’s  option, become part of the Notes and such other convertible notes. The conversion feature of the Notes was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the Notes. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $311,885 during the year ended December 31, 2015. 

    On September 29, 2014, the Company issued a convertible note in exchange for an accounts payable in the amount of $383,531, which can be converted into shares of the Company’s common stock after March 29, 2015. The note was accounted for under ASC 470, and will be re-evaluated after March 29, 2015. The note has a 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 note did not meet the criteria of a derivative, and was accounted for as a beneficial conversion feature, which will be amortized over the life of the note and recognized as interest expense in the financial statements. During the year ended December 31, 2015 the note was fully converted into 12,199,736 shares of common stock. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $144,891 during the year ended December 31, 2015.

     

    On June 30, 2015, the Company issued a convertible note in exchange for an accounts payable in the amount of $432,048, which can be converted into shares of the Company’s common stock after December 31, 2015. The note was accounted for under ASC 470, and will be re-evaluated after December 31, 2015. The note has a 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 note did not meet the criteria of a derivative, and was accounted for as a beneficial conversion feature, which will be amortized over the life of the note and recognized as interest expense in the financial statements. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $28,924 during the year ended December 31, 2015.

     

    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. As of December 31, 2015 and 2014, the derivative liability recognized in the financial statements was $9,317,475 and $4,052,401, respectively.

    XML 26 R13.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Options and Warrants
    12 Months Ended
    Dec. 31, 2015
    Options and Warrants [Abstract]  
    OPTIONS AND WARRANTS
    7.OPTIONS AND WARRANTS

    Options

    The Board of Directors adopted the OriginOil, Inc., 2009 Incentive Stock Option Plan (the “2009 Plan”) for the purposes of granting stock options to its employees and others providing services to the Company, which reserves and sets aside for the granting of options for Five Hundred Thousand (500,000) shares of Common Stock.   

    On May 25, 2012, the Board of Directors adopted a new OriginOil, Inc., 2012 Incentive Stock Option Plan (the “2012 Plan”) for the purposes of granting stock options to its employees and others providing services to the Company, which reserves and sets aside for the granting of options for One Million (1,000,000) shares of Common Stock.  Options granted under these Plans may be either incentive options or nonqualified options and shall be administered by the Company's Board.  Each Option shall be exercisable to the nearest whole share, in installments or otherwise, as the respective option agreements may provide. Notwithstanding any other provision of the Plan or of any option agreement, each Option shall expire on the date specified in the option agreement, which date shall not be later than the tenth (10th) anniversary from the effective date of grant. 

    On June 14, 2013, the Board of Directors adopted a new OriginOil, Inc., 2013 Incentive Stock Option Plan (the “2013 Plan”) for the purposes of granting stock options to its employees and others providing services to the Company, which reserves and sets aside for the granting of options for Four Million (4,000,000) shares of Common Stock.  Options granted under the Plan may be either incentive options or nonqualified options and shall be administered by the Company's Board.  Each Option shall state the number of shares to which it pertains. The exercise price will be determined by the holders percentage owned as follows: If the holder owns more than 10% of the total combined voting power or value of all classes of stock of the Company, then the exercise price will be no less than 110% of the fair market value of the stock as of the date of grant; if the person is not a 10% holder, then the exercise price will be no less than 100% of the fair market value of the stock as of the date of grant. Notwithstanding any other provision of the 2013 Plan or of any option agreement, each Option shall expire on the date specified in the option agreement, which date shall not be later than the tenth (10th) anniversary from the date of grant. If the status of an employee terminates for any reason other than disability or death, then the Optionee or their representative shall have the right to exercise the portion of any Options which were exercisable as of the date of such termination, in whole or in part, not less than 30 days nor more than three (3) months after such termination. 

    On October 2, 2015, the Board of Directors adopted a new OriginClear, Inc., 2015 Equity Incentive Stock Option Plan (the “2015 Plan”) for the purposes of granting stock options to its employees and others providing services to the Company, which reserves and sets aside for the granting of options for One Hundred Sixty Million (160,000,000) shares of Common Stock.  Options granted under these Plans may be either incentive options or nonqualified options and shall be administered by the Company's Board.  Each Option shall be exercisable to the nearest whole share, in installments or otherwise, as the respective option agreements may provide. Notwithstanding any other provision of the Plan or of any option agreement, each Option shall expire on the date specified in the option agreement, which date shall not be later than the fifth (5th) anniversary from the effective date of grant.

     

    With respect to Non-statutory Options granted to employees, directors or consultants, the Board or Committee may specify such period for exercise that the Option shall automatically terminate following the termination of employment or services as to shares covered by the Option as the Board or Committee deems reasonable and appropriate.

     

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

       December 31, 2015  December 31, 2014 
          Weighted     Weighted 
       Number  average  Number  average 
       of  exercise  of  exercise 
       Options  price  Options  price 
     Outstanding, beginning of year  4,404,643  $0.43   4,684,643  $0.53 
     Granted  116,050,000  $0.04   750,000  $0.19 
     Exercised  -  $-   -  $- 
     Forfeited/Expired  (1,049,999) $0.41   (1,030,000) $0.47 
     Outstanding, end of year  119,404,644  $0.05   4,404,643  $0.43 
     Exercisable at the end of year  73,609,937  $0.05   2,240,370  $0.47 
     Weighted average fair value of options granted during the year     $0.04      $0.19 

     

    The weighted average remaining contractual life of options outstanding issued under the 2012 Plan, 2013 Plan, and 2015 Plan as of December 31, 2015 was as follows:

     

              Weighted Average 
     Exercisable  Stock Options  Stock Options  Remaining Contractual 
     Prices  Outstanding  Exercisable  Life (years) 
     $0.19 - 7.20    1,971,978   1,391,562   1.54 - 9.77 
     $0.29 - 0.44    1,382,666   777,750   8.71 
     $0.04   116,050,000   71,440,625   4.77 
          119,404,644   73,609,937     

     

    Stock-based compensation expense recognized during the year is based on the value of the portion of stock-based payment awards that is ultimately expected to vest. Stock-based compensation expense recognized in the financial statements of operations during the years ended December 31, 2015 and 2014 were $1,739,620 and $196,900, respectively.

     

    Warrants

    During the year ended December 31, 2015, no warrants were issued by the Company. A summary of the Company’s warrant activity and related information follows for the years ended December 31, 2015 and 2014:

     

       December 31, 2015  December 31, 2014 
          Weighted     Weighted 
          average     average 
          exercise     exercise 
       Options  price  Options  price 
     Outstanding -beginning of year  30,946,563  $0.27   42,033,596  $0.27 
     Granted  -  $-   -  $- 
     Exercised  (4,923,624) $0.15   (5,000,000) $0.15 
     Forfeited  (2,725,831) $0.68   (6,087,033) $0.61 
     Outstanding - end of year  23,297,108  $0.21   30,946,563  $0.27 

      

    At December 31, 2015, the weighted average remaining contractual life of warrants outstanding:

     

              Weighted Average
     Exercisable  Warrants  Warrants  Remaining Contractual
     Prices  Outstanding  Exercisable  Life (years)
     $0.15 - 0.65   22,163,079   22,163,079  0.21 - 2.45
     $0.90 - 8.70   288,336   288,336  0.21 - 6.88
     $0.90 - 10.21   845,693   845,693   0.21 - 2.72
          23,297,108   23,297,108   

     

    At December 31, 2015 and 2014, the aggregate intrinsic value of the warrants outstanding was $23,297,108 and $30,946,563.

     

    Restricted Stock to CEO

    On November 13, 2014, the Company entered into a Restricted Stock Grant Agreement (“the RSGA”) with its Chief Executive Officer, Riggs Eckelberry, to create management incentives to improve the economic performance of the Company and to increase its value and stock price. All shares issuable under the RSGA are performance based shares and none have yet vested nor have any been issued. The RSGA provides for the issuance of up to 40,000,000 shares of the Company’s common stock to the CEO provided certain milestones are met in certain stages; a) If the Company’s Market Capitalization (the market capitalization shall mean the total number of shares of issued and outstanding common stock, multiplied by the average closing trade price of the Company’s common stock on the 10 trading days immediately prior to the date of determination) exceeds $15,000,000, the Company will issue up to 16,000,000 shares of its common stock; b) If the Company’s Market Capitalization exceeds $20,000,000, the Company will issue up to 24,000,000 shares of its common stock. The Company has not recognized any costs associated with the milestones, due to not being able to estimate the probability of it being achieved. As the performance goals are achieved, the shares shall become eligible for vesting and issuance beginning upon the earlier of July 1, 2015 or the first date that any other eligible individual’s shares of restricted stock become eligible. On October 6, 2015, the RSGA’s were cancelled.

     

    Restricted Stock to Employees

    On November 13, 2014, the Company entered into RSGAs with the employees of OriginOil, for the economic performance of the Company. All shares issuable under the RSGAs are performance based shares and none have yet vested nor have any been issued. The RSGAs provides for the issuance of up to 26,050,000 shares of the Company’s common stock to the Employees provided certain milestones are met in certain stages; a) If the Company’s consolidated gross revenue, calculated in accordance with generally accepted accounting principles, consistently applied, equals or exceeds $2,500,000 for the trailing twelve month period as reported in the Company’s quarterly or annual financial statements, the Company will issue up to 10,420,000 shares of its common stock; b) If the Company’s consolidated net profit, calculated in accordance with generally accepted accounting principles, consistently applied, equals or exceeds $500,000 for the trailing twelve month period as reported in the Company’s quarterly or annual financial statements, the Company will issue up to 15,630,000 shares of its common stock. The Company has not recognized any costs associated with the milestones, due to not being able to estimate the probability of it being achieved. As the performance goals are achieved, the shares shall become eligible for vesting and issuance. On October 6, 2015, the RSGA’s were cancelled.

    XML 27 R14.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Income Taxes
    12 Months Ended
    Dec. 31, 2015
    Income Taxes [Abstract]  
    INCOME TAXES
    8.INCOME TAXES

     

    The Company files income tax returns in the U.S. Federal jurisdiction, and the state of California. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2012.

     

    Deferred income taxes have been provided by temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. To the extent allowed by GAAP, we provide valuation allowances against the deferred tax assets for amounts when the realization is uncertain. Included in the balance at December 31, 2015 and 2014, are no tax positions for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.

     

    The Company's policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. During the periods ended December 31, 2015 and 2014, the Company did not recognize interest and penalties.

      

    At December 31, 2015, the Company had net operating loss carry-forwards of approximately $29,588,000 which expire at dates that have not been determined. No tax benefit has been reported in the December 31, 2015 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.

      

    The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state income tax rate to pretax income from continuing operations for the years ended December 31, 2015 and 2014 due to the following:

     

       2015  2014 
     Book income $(4,646,020) $(4,453,900)
     Tax to book differences for deductible expenses  21,920   23,200 
     Tax non deductible expenses  2,926,750   2,454,600 
              
     Valuation Allowance  1,697,350   1,976,100 
              
     Income tax expense $-  $- 

     

    Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible differences and operating loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the difference between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

     

    Net deferred tax liabilities consist of the following components as of December 31,

     

       2015  2014 
     Deferred tax assets:      
     NOL carryover $11,838,190  $10,191,770 
     Other carryovers  757,030   557,270 
              
     Deferred tax liabilities:        
     Depreciation  830   (44,060)
              
     Less Valuation Allowance  (12,596,050)  (10,704,980)
              
     Net deferred tax asset $-  $- 

      

    Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry-forwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carry-forwards may be limited as to use in future years. 

     

    The Company’s tax returns for the previous three years remain open for audit by the respective tax jurisdictions.

    XML 28 R15.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Commitments and Contingencies
    12 Months Ended
    Dec. 31, 2015
    Commitments and Contingencies [Abstract]  
    COMMITMENTS AND CONTINGENCIES
    9.COMMITMENTS AND CONTINGENCIES

     

    Operating leases

    The Company leases its principal offices located at 5645 West Adams Blvd., Los Angeles, CA 90016. The Company rent’s 7,500 square feet of space in a corporate building at a current monthly rent of $11,390 with the lease expiring on August 31, 2016.

     

    Operating Lease – Related Party

    The Company entered into a month-to-month lease agreement with a shareholder of the Company for office space in McKinney, Texas at a base rent of $4,000 per month.

     

    Warranty Reserve

    Generally, a PWT project is guaranteed against defects in material and workmanship for one year from the date of completion, while certain areas of construction and materials may have guarantees extending beyond one year. The Company has various insurance policies relating to the guarantee of completed work, which in the opinion of management will adequately cover any potential claims. A warranty reserve has been provided under PWT based on the opinion of management and based on Company history in the amount of $20,000 for the year ending December 31, 2015.

     

    Litigation

    From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. The Company is currently not party to any such legal proceedings that believes will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.

    XML 29 R16.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Concentrations
    12 Months Ended
    Dec. 31, 2015
    Concentrations [Abstract]  
    CONCENTRATIONS
    10.CONCENTRATIONS

     

    Major Customers

    PWT had three major customers for the three months ending December 31, 2015. The customers represented 72.6% of billings in the three months ending December 31, 2015. The contract receivable balance for the customers was $810,093 at December 31, 2015.

     

    Major Suppliers

    PWT had three major vendors for the three months ending December 31, 2015. The vendors represented 44.3% of total expenses in the three months ending December 31, 2015. The accounts payable balance due to the vendors was $51,643 at December 31, 2015. Management believes no risk is present with the vendors due to other suppliers being readily available.

    XML 30 R17.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Related Party Transactions
    12 Months Ended
    Dec. 31, 2015
    Related Party Transactions [Abstract]  
    RELATED PARTY TRANSACTIONS
    11.RELATED PARTY TRANSACTIONS

     

    The following related party equity compensation arrangements were issued in 2015 and 2014.

     

    On February 4, 2015, two Director of the Board were issued 500,000 shares of our common stock.

     

    On September 29, 2015, the Board of Directors of the Company adopted a Certificate of Designation establishing the rights, preferences, privileges and other terms of Series A Preferred Stock, par value $0.0001 per share, (“New Series A Preferred Stock”) providing for supermajority voting rights to holders of New Series A Preferred Stock. The New Series A Preferred Stock was issued to the Company’s Chief Executive Officer and Director, T. Riggs Eckelberry. Upon filing of the New Series A Preferred Stock Certificate of Designation in accordance with the provisions of Nevada law, the Board authorized the Corporation to issue 1,000 shares of New Series A Preferred Stock to Mr. Eckelberry.

     

    On October 6, 2015, the Company’s Chief Executive Officer was granted options to purchase 5,000,000 shares of our common stock under the Company’s 2015 Equity Incentive Plan. 50% of these options vested on option grant date and 50% vest on the one year anniversary of grant date. These options are exercisable at $0.0375 per share and expire 5 years from the date of grant.

     

    On October 6, 2015, the Company’s Chief Executive Officer was granted options to purchase 55,000,000 shares of our common stock under the Company’s 2015 Equity Incentive Plan. These options are fully vested, exercisable at $0.0375 per share and expire 5 years from the date of grant.

     

    On October 6, 2015, a Director of the Board was granted options to purchase 5,000,000 shares of our common stock under the Company’s 2015 Equity Incentive Plan, of which 50% vested on the option grant date and 50% vest on the one year anniversary of the grant date. These options are exercisable at $0.0375 per share and expire 5 years from the date of grant.

     

    On October 6, 2015, a Director of the Board was granted options to purchase 5,000,000 shares of our common stock under the Company’s 2015 Equity Incentive Plan which will vest upon specific milestones being met, exercisable at $0.0375 per share and expiring 5 years from the date of grant.

    XML 31 R18.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Subsequent Events
    12 Months Ended
    Dec. 31, 2015
    Subsequent Events [Abstract]  
    SUBSEQUENT EVENTS
    12.SUBSEQUENT EVENTS

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

     

    As previously reported, on October 6, 2015, the Board of Directors of the Company approved the grant of four-year options to purchase an aggregate of 116,050,000 shares of common stock of the Company at an exercise price of $0.0375 per share to employees and contractors of the Company and its newly acquired subsidiary Progressive Water Treatment, Inc. (the “October 2015 Grant”). On January 5, 2016, the Board of Directors of the Company approved certain amendments to an aggregate of 86,000,000 non-qualified stock options that were part of the October 2015 Grant that were made to T. Riggs Eckelberry, Chief Executive Officer and director of the Company, Jean Louis Kindler, Chief Commercial Officer and director of the Company, William Charneski, Senior Vice President, Nicholas Eckelberry, co-founder and brother of T. Riggs Eckelberry, and Anthony Fidaeleo and Byron Elton, both directors of the Company. The foregoing amendments included among other things (i) extending the term of the stock options from four to five years, (ii) providing for the filing of a Form S-8 to cover the shares underlying the stock options, and (iii) placing certain transfer and exercise restrictions on the stock options.

     

    Between January 7, 2016 and March 15, 2016, holders of convertible notes, known in our filings as “Convertible Promissory Notes” converted an aggregate outstanding principal amount of $389,000, plus unpaid interest of $37,114 into an aggregate of 43,078,706 shares of the Company’s common stock. 

     

    Between January 15, 2016, and March 31, 2016, the Company issued 13,237,739 shares of common stock for services at a fair value of $299,296. 

     

    On March 17, 2016, the Company received an advance of $100,000 upon entering into a convertible promissory note ("Note") for an aggregate principal amount of $500,000. The Note matures twelve months from the date of issuance and bear interest at 10% per annum. The Note may be converted into shares of the Company’s common stock at a conversion price range of the lesser of $0.02 (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 Note.  The Notes include customary default provisions related to payment of principal and interest and bankruptcy or creditor assignment.  In the event of default, the Note shall become immediately due and payable at the mandatory default amount. The mandatory default amount is 150% of the Note amount and such mandatory default amount shall bear interest at 10% per annum.  In addition, for as long as the Note 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 Note or such other convertible notes or a term was not similarly provided to the purchaser of the Note or such other convertible notes, then such more favorable or additional term shall, at the purchaser’s option, become part of the Note and such other convertible notes. 

     

    On March 25, 2016, by written consent the holders of the majority of the Company’s outstanding securities entitled to vote thereon approved an amendment to the Company’s Articles of Incorporation to increase the total number of shares of common stock that we are authorized to issue to 2,500,000,000 shares (from 1,000,000,000) and to increase the total number of authorized shares to 2,525,000,000 (there being no change to the number of previously authorized shares of preferred stock or par value) (the “Amendment”). The Amendment was filed with the Secretary of State of the State of Nevada on March 29, 2016.

     

    On March 29, 2016, the Board approved the issuance of $10,000 per month in restricted shares of the Company’s common stock beginning April 1, 2016 for an initial six month term, and then month to month after the initial term, to a consultant for services.

     

    On March 29, 2016 the Board approved the issuance of options under the Company’s 2015 Equity Incentive Plan to purchase up to 1,000,000 shares of the Company’s common stock to certain non-executive officers of the Company at an exercise price equal to $0.02 per share. 

    XML 32 R19.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Summary of Significant Accounting Policies (Policies)
    12 Months Ended
    Dec. 31, 2015
    Summary of Significant Accounting Policies [Abstract]  
    Principles of Consolidation

    Principles of Consolidation

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

    Cash and Cash Equivalent

    Cash and Cash Equivalent

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

    Use of Estimates

    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. Significant estimates include estimates used to review the Company’s goodwill, revenue recognition on percentage of completion type contracts, allowances for uncollectible accounts, inventory valuation, derivative liabilities, debt beneficial conversion features, 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.

    Concentration Risk

    Concentration Risk

    Cash includes amounts deposited in financial institutions in excess of insurable Federal Deposit Insurance Company (FDIC) limits. At times throughout the year, the Company may maintain cash balances in certain bank accounts in excess of FDIC limits. As of December 31, 2015, the cash balance in excess of the FDIC limits was $250,929. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in these accounts.

    Loss per Share Calculations

    Loss per Share Calculations

    Basic loss per share calculations are computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares available. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include securities or other contracts to issue common stock that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The Company’s diluted loss per share is the same as the basic loss per share for the years ended December 31, 2015 and 2014, respectively, as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss.

     

       For the years ended 
       2015  2014 
     (Loss) to common shareholders (Numerator) $(11,615,066) $(11,138,608)
              
     Basic and diluted weighted average number of common shares outstanding denominator  159,667,650   74,966,622 

     

    The Company has excluded 119,404,644 stock options, 23,297,108 warrants, shares issuable from convertible debt of $4,440,172 and shares issued from potentially convertible preferred stock for the year ended December 31, 2015 because their impact on the loss per share is anti-dilutive.

     

    The Company has excluded 4,404,643 stock options, 30,946,563 warrants and shares issuable from convertible debt of $3,541,656 for the year ended December 31, 2014 because their impact on the loss per share is anti-dilutive.

    Work-in-Process

    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.

    Revenue Recognition

    Revenue Recognition

     

    Equipment sales

    We recognize revenue upon delivery of equipment, provided that evidence of an arrangement exists, title, and risk of loss have passed to the customer, fees are fixed or determinable, and collection of the related receivable is reasonably assured.  Title to the equipment is transferred to the customer once the last payment is received. We record revenue as goods are shipped, and the equipment has been fully accepted by the customer. Generally, we extend credit to our customers and do not require collateral.  We do not ship a product until we have a purchase agreement signed by the customer with a payment arrangement.  

     

    Percentage of completion

    Revenues and related costs on construction contracts are recognized using the “percentage of completion method” of accounting in accordance with ASC 605-35 – “Accounting for Performance of Construction-Type and Certain Production Type Contracts”. Under this method, contract revenues and related expenses are recognized over the performance period of the contract in direct proportion to the costs incurred as a percentage of total estimated costs for the entirety of the contract. Costs include direct material, direct labor, subcontract labor and any allocable indirect costs. All un-allocable indirect costs and corporate general and administrative costs are charged to the periods as incurred. However, in the event a loss on a contract is foreseen, the Company will recognize the loss as it is determined.

      

    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.

     

    The asset “Costs in excess of billings” represents revenues recognized in excess of amounts billed on contracts in progress. The liability “Billings in excess of costs” represents billings in excess of revenues recognized on contracts in progress. Assets and liabilities related to long-term contracts are included in current assets and current liabilities in the accompanying balance sheets, as they will be liquidated in the normal course of the contract completion. At December 31, 2015 and December 31, 2014, the costs in excess of billings balance were $16,748 and $0, and the billings in excess of costs balance were $503,718 and $0, respectively.

     

    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

    Contract Receivable

    The Company bills its customers in accordance with contractual agreements. The agreements generally require billing to be on a progressive basis as work is completed. Credit is extended based on evaluation of clients financial condition and collateral is not required. The Company maintains an allowance for doubtful accounts for estimated losses that may arise if any customer is unable to make required payments. Management performs a quantitative and qualitative review of the receivables past due from customers on a monthly basis. The Company records an allowance against uncollectible items for each customer after all reasonable means of collection have been exhausted, and the potential for recovery is considered remote. The allowance for doubtful accounts was approximately $50,000 and $0 as of December 31, 2015 and 2014, respectively. The net contract receivable balance was $1,066,223 and $0 at December 31, 2015 and 2014, respectively.

    Indefinite Lived Intangibles and Goodwill Assets

    Indefinite Lived Intangibles and Goodwill Assets

    The Company accounts for business combinations under the acquisition method of accounting in accordance with ASC 805, “Business Combinations,” where the total purchase price is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values. The purchase price is allocated using the information currently available, and may be adjusted, up to one year from acquisition date, after obtaining more information regarding, among other things, asset valuations, liabilities assumed and revisions to preliminary estimates. The purchase price in excess of the fair value of the tangible and identified intangible assets acquired less liabilities assumed is recognized as goodwill.

     

    The Company tests for indefinite lived intangibles and goodwill impairment in the fourth quarter of each year and whenever events or circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable. In accordance with its policies, the Company performed a qualitative assessment of indefinite lived intangibles and goodwill at December 31, 2015 and 2014, and determined there was no impairment of indefinite lived intangibles and goodwill.

    Research and Development

    Research and Development

    Research and development costs are expensed as incurred. Total research and development costs were $814,014 and $1,284,611 for the years ended December 31, 2015 and 2014, respectively.

    Advertising Costs

    Advertising Costs

    The Company expenses the cost of advertising and promotional materials when incurred. The advertising costs were $164,463 and $248,129 for the years ended December 31, 2015 and 2014, respectively.

    Property and Equipment

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

     

    Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the event that facts and circumstances indicate that the cost of any long-lived assets may be impaired, an evaluation of recoverability would be performed following generally accepted accounting principles.

    Stock-Based Compensation

    Stock-Based Compensation

    The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board whereas the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the Financial Accounting Standards Board whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.

    Accounting for Derivatives

    Accounting for Derivatives

    The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a probability weighted average series Black-Scholes-Merton option pricing models to value the derivative instruments at inception and on subsequent valuation dates.

     

    The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

    Fair Value of Financial Instruments

    Fair Value of Financial Instruments

    Fair Value of Financial Instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of December 31, 2015, 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 1measurements) 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 December 31, 2015 and 2014.

     

       (Level 1)  (Level 2)  (Level 3) 
               
     Derivative Liability, December 31, 2015 $-  $-  $9,317,475 
     Derivative Liability, December 31, 2014 $-  $-  $4,052,401 

     

    The following is a reconciliation of the derivative liability for which level 3 inputs were used in determining the approximate fair value:

     

     Balance as of January 1, 2014 $1,031,484 
     Fair Value of derivative liabilities issued  1,319,512 
     Conversion of notes payable  (3,396,556)
     Loss on change in derivative liability  5,097,961 
     Balance as of December 31, 2014 $4,052,401 
     Fair Value of derivative liabilities issued  2,408,157 
     Conversion of notes payable  (1,565,765)
     Loss on change in derivative liability  4,422,682 
     Balance as of December 31, 2015  9,317,475 

     

    For purpose of determining the fair market value of the derivative liability, the Company used Black Scholes option valuation model. The significant assumptions used in the Black Scholes valuation of the derivative are as follows: 

        12/31/2015   12/31/2014 
     Risk free interest rate  .14% - 1.31%  .02% - .26%
     Stock volatility factor  35.80% - 103.83%  68.29% - 111.86%
     Weighted average expected option life  6 months – 2.75 years   6 months - 2 years 
     Expected dividend yield  None    None  
     
    Segment Reporting

    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.

    Recently Issued Accounting Pronouncements

    Recently Issued Accounting Pronouncements

    On June 19, 2014, the Company adopted the amendment to (Topic 718) Stock CompensationAccounting for Share-Based Payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The amendment for accounting for share based payments, when an award provides that a performance target that affects vesting could be achieved after an employee completes the requisite service period shall be accounted for as a performance condition. The performance target shall not be reflected in estimating the fair value of the award at the grant date, and compensation cost shall be recognized in the period in which it becomes probable that the performance target will be achieved and will represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost shall be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period shall reflect the number of awards that are expected to vest and shall be adjusted to reflect the awards that ultimately vest. The Company does not believe the accounting standards currently adopted will have a material effect on the accompanying condensed financial statements. 

    In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (Topic 606). This ASU provides guidance for revenue recognition and affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets and supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” and most industry specific guidance. The standard’s core principle is the recognition of revenue when a company transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under the current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers" (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 to fiscal years beginning after December 15, 2017, including interim reporting periods within that reporting period. Early adoption is permitted for fiscal years beginning after December 15, 2016. The Company is currently evaluating the method and impact the adoption of ASU 2014-09 will have on the Company’s consolidated financial statements and disclosures. 

    In August 2014, FASB issued ASU 2014-15, “Presentation of Financial Statements Going Concern (Subtopic 205-40) – Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. Currently, there is no guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments in this ASU provide that guidance. In doing so, the amendments are intended to reduce diversity in the timing and content of footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this ASU are effective for public and nonpublic entities for annual periods ending after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2014-15 on the Company’s financial statements. 

    In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs” this Update as part of its initiative to reduce complexity in accounting standards (the Simplification Initiative). The Board received feedback that having different balance sheet presentation requirements for debt issuance costs and debt discount and premium creates unnecessary complexity. Recognizing debt issuance costs as a deferred charge (that is, an asset) also is different from the guidance in International Financial Reporting Standards (IFRS), which requires that transaction costs be deducted from the carrying value of the financial liability and not recorded as separate assets. Additionally, the requirement to recognize debt issuance costs as deferred charges conflicts with the guidance in FASB Concepts Statement No. 6, Elements of Financial Statements, which states that debt issuance costs are similar to debt discounts and in effect reduce the proceeds of borrowing, thereby increasing the effective interest rate. Concepts Statement 6 further states that debt issuance costs cannot be an asset because they provide no future economic benefit. To simplify presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. The Company is currently evaluating the effects of adopting this ASU, if it is deemed to be applicable. 

    Management reviewed currently issued pronouncements during the twelve months ended December 31, 2015, 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 accompany consolidated financial statements.

    XML 33 R20.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Summary of Significant Accounting Policies (Tables)
    12 Months Ended
    Dec. 31, 2015
    Summary of Significant Accounting Policies [Abstract]  
    Schedule of loss per share anti-dilutive effect
       For the years ended 
       2015  2014 
     (Loss) to common shareholders (Numerator) $(11,615,066) $(11,138,608)
              
     Basic and diluted weighted average number of common shares outstanding denominator  159,667,650   74,966,622
    Schedule of estimated useful life

     

     Estimated Life 
     Machinery and equipment5-10  years
     Furniture, fixtures and computer equipment5-7  years
     Vehicles3-5  years
     Leasehold improvements2-5  years
    Schedule of fair value of financial instruments

       (Level 1)  (Level 2)  (Level 3) 
               
     Derivative Liability, December 31, 2015 $-  $-  $9,317,475 
     Derivative Liability, December 31, 2014 $-  $-  $4,052,401 
    Reconciliation of the derivative liability for which Level 3 inputs

     Balance as of January 1, 2014 $1,031,484 
     Fair Value of derivative liabilities issued  1,319,512 
     Conversion of notes payable  (3,396,556)
     Loss on change in derivative liability  5,097,961 
     Balance as of December 31, 2014 $4,052,401 
     Fair Value of derivative liabilities issued  2,408,157 
     Conversion of notes payable  (1,565,765)
     Loss on change in derivative liability  4,422,682 
     Balance as of December 31, 2015  9,317,475 
    Schedule of assumptions used in the Black Scholes valuation of the derivative
     
        12/31/2015   12/31/2014 
     Risk free interest rate  .14% - 1.31%  .02% - .26%
     Stock volatility factor  35.80% - 103.83%  68.29% - 111.86%
     Weighted average expected option life  6 months – 2.75 years   6 months - 2 years 
     Expected dividend yield  None    None  
     
    XML 34 R21.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Business Acquisition (Tables)
    12 Months Ended
    Dec. 31, 2015
    Business Acquisition [Abstract]  
    Schedule of business acquisitions

     

     Convertible promissory note $1,500,000 
     Total purchase price $1,500,000 
          
     Tangible assets acquired $1,549,700 
     Liabilities assumed  (537,147)
       $1,012,553 
     Goodwill  487,447 
     Total purchase price $1,500,000

     

    Schedule of pro forma results
     
       Year Ended  Year Ended 
       

    December 31, 2015

    (unaudited)

      

    December 31, 2014

    (unaudited)

     
     Total Revenues $4,999,834  $6,241,303 
     Net (Loss) $(11,545,002) $(10,324,861)
     Basic and Diluted Net (Loss) Per Common Share $(0.07) $(0.15)
     
    XML 35 R22.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Property and Equipment (Tables)
    12 Months Ended
    Dec. 31, 2015
    Property and Equipment [Abstract]  
    Summary of property and equipment

       2015  2014 
            
     Machinery & equipment $155,019   86,855 
     Furniture & fixtures  27,452   29,593 
     Computer equipment  53,594   39,293 
     Vehicles  31,358   - 
     Leasehold improvements  121,639   94,914 
       389,062   250,655 
     Less accumulated depreciation and amortization  (191,805)  (171,767)
              
       $197,257   78,888 
     
    XML 36 R23.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Convertible Promissory Notes (Tables)
    12 Months Ended
    Dec. 31, 2015
    Convertible Promissory Notes [Abstract]  
    Schedule of convertible promissory notes payable
       2015  2014 
            
     Convertible Promissory Notes $3,735,000  $2,885,000 
     OID Notes  273,125   273,125 
     Convertible Note  432,047   383,531 
     Total Notes  4,440,172   3,541,656 
     Debt Discount  (161,857)  (454,054)
              
       $4,278,315  $3,087,602 
     
    XML 37 R24.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Options and Warrants (Tables)
    12 Months Ended
    Dec. 31, 2015
    Options and Warrants [Abstract]  
    Schedule of company's stock option activity and related information
      December 31, 2015  December 31, 2014 
          Weighted     Weighted 
       Number  average  Number  average 
       of  exercise  of  exercise 
       Options  price  Options  price 
     Outstanding, beginning of year  4,404,643  $0.43   4,684,643  $0.53 
     Granted  116,050,000  $0.04   750,000  $0.19 
     Exercised -  $-   -  $- 
     Forfeited/Expired  (1,049,999) $0.41   (1,030,000) $0.47 
     Outstanding, end of year  119,404,644  $0.05   4,404,643  $0.43 
     Exercisable at the end of year  73,609,937  $0.05   2,240,370  $0.47 
     Weighted average fair value of options granted during the year     $0.04      $0.19 
    Schedule of weighted average remaining contractual life of options outstanding issued under the plan
              Weighted Average 
     Exercisable  Stock Options  Stock Options  Remaining Contractual 
     Prices  Outstanding  Exercisable  Life (years) 
     $0.19 - 7.20    1,971,978   1,391,562   1.54 - 9.77 
     $0.29 - 0.44    1,382,666   777,750   8.71 
     $0.04   116,050,000   71,440,625   4.77 
          119,404,644   73,609,937     

     

    Schedule of company's warrant activity and related information
       December 31, 2015  December 31, 2014 
          Weighted     Weighted 
          average     average 
          exercise     exercise 
       Options  price  Options  price 
     Outstanding -beginning of year  30,946,563  $0.27   42,033,596  $0.27 
     Granted  -  $-   -  $- 
     Exercised  (4,923,624) $0.15   (5,000,000) $0.15 
     Forfeited  (2,725,831) $0.68   (6,087,033) $0.61 
     Outstanding - end of year  23,297,108  $0.21   30,946,563  $0.27 
    Schedule of weighted average remaining contractual life of warrants outstanding
              Weighted Average
     Exercisable  Warrants  Warrants  Remaining Contractual
     Prices  Outstanding  Exercisable  Life (years)
     $0.15 - 0.65   22,163,079   22,163,079  0.21 - 2.45
     $0.90 - 8.70   288,336   288,336  0.21 - 6.88
     $0.90 - 10.21   845,693   845,693   0.21 - 2.72
          23,297,108   23,297,108   
    XML 38 R25.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Income Taxes (Tables)
    12 Months Ended
    Dec. 31, 2015
    Income Taxes [Abstract]  
    Schedule of income tax provision

     

       2015  2014 
     Book income $(4,646,020) $(4,453,900)
     Tax to book differences for deductible expenses  21,920   23,200 
     Tax non deductible expenses  2,926,750   2,454,600 
              
     Valuation Allowance  1,697,350   1,976,100 
              
     Income tax expense $-  $- 
    Schedule of deferred tax assets and liabilities

     

       2015  2014 
     Deferred tax assets:      
     NOL carryover $11,838,190  $10,191,770 
     Other carryovers  757,030   557,270 
              
     Deferred tax liabilities:        
     Depreciation  830   (44,060)
              
     Less Valuation Allowance  (12,596,050)  (10,704,980)
              
     Net deferred tax asset $-  $- 
    XML 39 R26.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Organisation and Line of Business (Details) - USD ($)
    12 Months Ended
    Dec. 31, 2015
    Dec. 31, 2014
    Oct. 01, 2015
    Dec. 31, 2013
    Organization and Line of Business (Textual)        
    Net loss $ (11,615,066) $ (11,138,608)    
    Net cash used in operating activities (3,010,710) (4,455,648)    
    Working capital deficiency 13,471,476      
    Shareholders' deficit $ (12,753,117) $ (7,200,317)   $ (1,513,199)
    Progressive Water Treatment, Inc.[Member]        
    Organization and Line of Business (Textual)        
    Percentage of stock issued and outstanding acquired     100.00%  
    XML 40 R27.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Summary of Significant Accounting Policies (Details) - USD ($)
    $ in Thousands
    12 Months Ended
    Dec. 31, 2015
    Dec. 31, 2014
    Summary of Significant Accounting Policies [Abstract]    
    (Loss) to common shareholders (Numerator) $ (11,615,066) $ (11,138,608)
    Basic and diluted weighted average number of common shares outstanding denominator 159,667,650 74,966,622
    XML 41 R28.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Summary of Significant Accounting Policies (Details 1)
    12 Months Ended
    Dec. 31, 2015
    Machinery and equipment [Member] | Maximum [Member]  
    Property, Plant and Equipment [Line Items]  
    Estimated Life 10 years
    Machinery and equipment [Member] | Minimum [Member]  
    Property, Plant and Equipment [Line Items]  
    Estimated Life 5 years
    Furniture, fixtures and computer equipment [Member] | Maximum [Member]  
    Property, Plant and Equipment [Line Items]  
    Estimated Life 7 years
    Furniture, fixtures and computer equipment [Member] | Minimum [Member]  
    Property, Plant and Equipment [Line Items]  
    Estimated Life 5 years
    Vehicles [Member] | Maximum [Member]  
    Property, Plant and Equipment [Line Items]  
    Estimated Life 5 years
    Vehicles [Member] | Minimum [Member]  
    Property, Plant and Equipment [Line Items]  
    Estimated Life 3 years
    Leasehold improvements [Member] | Maximum [Member]  
    Property, Plant and Equipment [Line Items]  
    Estimated Life 5 years
    Leasehold improvements [Member] | Minimum [Member]  
    Property, Plant and Equipment [Line Items]  
    Estimated Life 2 years
    XML 42 R29.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Summary of Significant Accounting Policies (Details 2) - USD ($)
    Dec. 31, 2015
    Dec. 31, 2014
    Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
    Derivative Liability $ 9,317,475 $ 4,052,401
    (Level 1)    
    Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
    Derivative Liability
    (Level 2)    
    Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
    Derivative Liability
    (Level 3)    
    Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
    Derivative Liability $ 9,317,475 $ 4,052,401
    XML 43 R30.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Summary of Significant Accounting Policies (Details 3) - Level 3 [Member] - USD ($)
    12 Months Ended
    Dec. 31, 2015
    Dec. 31, 2014
    Fair Value, Assets and Liabilities Measured On Recurring and Nonrecurring Basis [Line Items]    
    Beginning balance $ 4,052,401 $ 1,031,484
    Fair value of derivative liabilities issued 2,408,157 1,319,512
    Conversion of notes payable (1,565,765) (3,396,556)
    Loss on change in derivative liability 4,422,682 5,097,961
    Ending balance $ 9,317,475 $ 4,052,401
    XML 44 R31.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Summary of Significant Accounting Policies (Details 4)
    12 Months Ended
    Dec. 31, 2015
    Dec. 31, 2014
    Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]    
    Expected dividend yield
    Minimum [Member]    
    Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]    
    Risk free interest rate 0.14% 0.02%
    Stock volatility factor 35.80% 68.29%
    Weighted average expected option life 6 months 6 months
    Maximum [Member]    
    Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]    
    Risk free interest rate 1.31% 0.26%
    Stock volatility factor 103.83% 111.86%
    Weighted average expected option life 2 years 9 months 2 years
    XML 45 R32.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Summary of Significant Accounting Policies (Details Textual)
    12 Months Ended
    Dec. 31, 2015
    USD ($)
    Segment
    shares
    Dec. 31, 2014
    USD ($)
    shares
    Summary of Significant Accounting Policies (Textual)    
    Federal deposit insurance amount $ 250,929  
    Allowance for doubtful accounts 50,000 $ 0
    Contract receivable 1,066,223  
    Research and development 814,014 1,284,611
    Advertising costs 164,463 $ 248,129
    Cost in excess of billing 16,748
    Billing in excess of cost $ 503,718
    Number of segment reporting | Segment 1  
    Convertible Debt [Member]    
    Summary of Significant Accounting Policies (Textual)    
    Antidilutive securities excluded from computation of earnings per share | shares 4,440,172 3,541,656
    Stock Option [Member]    
    Summary of Significant Accounting Policies (Textual)    
    Antidilutive securities excluded from computation of earnings per share | shares 119,404,644 4,404,643
    Warrant [Member]    
    Summary of Significant Accounting Policies (Textual)    
    Antidilutive securities excluded from computation of earnings per share | shares 23,297,108 30,946,563
    XML 46 R33.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Business Acquisition (Details)
    Dec. 31, 2015
    USD ($)
    Business Acquisition [Abstract]  
    Convertible promissory note $ 1,500,000
    Total purchase price 1,500,000
    Tangible assets acquired 1,549,700
    Liabilities assumed (537,147)
    Total 1,012,553
    Goodwill 487,447
    Total purchase price $ 1,500,000
    XML 47 R34.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Business Acquisition (Details 1) - USD ($)
    12 Months Ended
    Dec. 31, 2015
    Dec. 31, 2014
    Business Acquisition [Abstract]    
    Total Revenues $ 4,999,834 $ 6,241,303
    Net (Loss) $ (11,545,002) $ (10,324,861)
    Basic and Diluted Net (Loss) Per Common Share $ (0.07) $ (0.15)
    XML 48 R35.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Business Acquisition (Details Textual) - USD ($)
    1 Months Ended
    Oct. 01, 2015
    Jul. 31, 2015
    Dec. 31, 2015
    Dec. 31, 2014
    Business Acquisition (Textual)        
    Purchase price     $ 1,500,000  
    Preferred stock, par value     $ 0.0001 $ 0.0001
    Series B Preferred Stock [Member]        
    Business Acquisition (Textual)        
    Conversion price $ 0.03 $ 0.03    
    Preferred B shares issued in connection with PWT acquisition, shares 10,000 10,000    
    Preferred stock, par value $ 150 $ 0.0001    
    XML 49 R36.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Property and Equipment (Details) - USD ($)
    Dec. 31, 2015
    Dec. 31, 2014
    Property, Plant and Equipment, Net [Abstract]    
    Property, plant and equipment, Gross $ 389,062 $ 250,655
    Less accumulated depreciation and amortization (191,805) (171,767)
    Net property and equipment 197,257 78,888
    Machinery & equipment [Member]    
    Property, Plant and Equipment, Net [Abstract]    
    Property, plant and equipment, Gross 155,019 86,855
    Furniture & fixtures [Member]    
    Property, Plant and Equipment, Net [Abstract]    
    Property, plant and equipment, Gross 27,452 29,593
    Computer equipment [Member]    
    Property, Plant and Equipment, Net [Abstract]    
    Property, plant and equipment, Gross 53,594 $ 39,293
    Vehicles [Member]    
    Property, Plant and Equipment, Net [Abstract]    
    Property, plant and equipment, Gross 31,358
    Leasehold improvements [Member]    
    Property, Plant and Equipment, Net [Abstract]    
    Property, plant and equipment, Gross $ 121,639 $ 94,914
    XML 50 R37.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Property and Equipment (Details Textual) - USD ($)
    12 Months Ended
    Dec. 31, 2015
    Dec. 31, 2014
    Property and Equipment (Textual)    
    Depreciation and amortization expense $ 22,598 $ 16,547
    XML 51 R38.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Capital Stock (Details) - USD ($)
    1 Months Ended 12 Months Ended
    Oct. 01, 2015
    Jul. 31, 2015
    Dec. 31, 2015
    Dec. 31, 2014
    Sep. 29, 2015
    Jul. 09, 2015
    Apr. 10, 2015
    Capital Stock (Textual)              
    Common stock issued in a private placement for cash     $ 1,042,050        
    Common stock issued for exercise of warrants for cash     303,681 $ 750,000      
    Aggregate principal amount     965,000 1,857,828      
    Interest amount     108,442 129,364      
    Common stock issued at fair value for services     1,260,521 1,998,721      
    Common stock issuance of supplemental shares     $ 51,697 $ 234,516      
    Supplemental agreement terms     Under the terms of the supplemental agreement, if at any time within eighteen (18) months following the issuance of shares        
    Preferred stock, shares authorized     25,000,000 25,000,000      
    Preferred stock, par value     $ 0.0001 $ 0.0001      
    Common stock issued for purchase of asset       $ 7,000      
    Consecutive trading days     10 days        
    Common stock issued for settlement of accounts payable     $ 383,531        
    Common stock issued for settlement of accounts payable (shares)     12,199,951        
    Series A Preferred Stock [Member]              
    Capital Stock (Textual)              
    Preferred stock, shares authorized             1,000
    Preferred stock, par value         $ 0.0001   $ 0.0001
    Preferred stock, shares issued     1,000 0 1,000 1,000  
    Series B Preferred Stock [Member]              
    Capital Stock (Textual)              
    Conversion price $ 0.03 $ 0.03          
    Preferred stock, par value $ 150 $ 0.0001          
    Preferred stock, shares issued     10,000 0      
    Preferred stock issued during period of acquisition, shares 10,000 10,000          
    Maximum [Member]              
    Capital Stock (Textual)              
    Conversion price     $ 0.14 $ 0.14      
    Share price     0.05        
    Minimum [Member]              
    Capital Stock (Textual)              
    Conversion price     0.00975 $ 0.049      
    Share price     $ 0.02        
    Common Stock [Member]              
    Capital Stock (Textual)              
    Common stock issued in a private placement for cash     $ 3,557        
    Common stock issued in a private placement for cash (shares)     35,568,348        
    Common stock issued for exercise of warrants for cash     $ 684 $ 500      
    Common stock issued upon exercise of warrants for cash, (shares)     6,840,291 5,000,000      
    Common stock issuance for conversion of debt (shares)     61,363,210 28,459,517      
    Common stock issued at fair value for services (shares)     25,211,601 11,251,903      
    Common stock issued at fair value for services     $ 2,521 $ 1,125      
    Common stock issuance of supplemental shares (shares)     3,857,206 1,326,881      
    Common stock issuance of supplemental shares     $ 385 $ 133      
    Share price     $ 0.03        
    Common stock issued for purchase of asset       $ 5      
    Common stock issued for purchase of asset (shares)       45,366      
    XML 52 R39.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Convertible Promissory Notes (Details) - USD ($)
    Dec. 31, 2015
    Dec. 31, 2014
    Short-term Debt [Line Items]    
    Total Notes $ 4,440,172 $ 3,541,656
    Debt Discount (161,857) (454,054)
    Convertible Promissory Notes 4,278,315 3,087,602
    Convertible Promissory Notes [Member]    
    Short-term Debt [Line Items]    
    Total Notes 3,735,000 2,885,000
    OID Notes [Member]    
    Short-term Debt [Line Items]    
    Total Notes 273,125 273,125
    Convertible Note [Member]    
    Short-term Debt [Line Items]    
    Total Notes $ 432,047 $ 383,531
    XML 53 R40.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Convertible Promissory Notes (Details Textual) - USD ($)
    1 Months Ended 12 Months Ended
    Dec. 30, 2015
    Feb. 24, 2015
    Sep. 29, 2014
    Dec. 31, 2015
    Dec. 31, 2014
    May. 19, 2015
    Short-term Debt [Line Items]            
    Debt instrument outstanding amount         $ 2,885,000  
    Converted an aggregate principal amount       $ 1,456,973 1,987,193  
    Derivative liabilities       9,317,475 $ 4,052,401  
    Recognized interest expense       144,891    
    Conversion of accounts payable into a convertible note     $ 383,531      
    Percentage of average of lowest closing prices     75.00%      
    Number of trading days previous to conversion     25 days      
    Preferred stock issued during period of acquisition, value       1,500,000    
    Face value amount       $ 1,500,000    
    Conversion into common stock       12,199,736    
    Maximum [Member]            
    Short-term Debt [Line Items]            
    Conversion price of debt       $ 0.14 $ 0.14  
    Share price       0.05    
    Minimum [Member]            
    Short-term Debt [Line Items]            
    Conversion price of debt       0.00975 $ 0.049  
    Share price       $ 0.02    
    Convertible Promissory Notes [Member]            
    Short-term Debt [Line Items]            
    Debt instrument interest rate       10.00%    
    Debt instrument, Maturity date       Jan. 25, 2016    
    Conversion price per share of debt, Description       50% of the lowest trade price on any trade day following issuance of the Notes.    
    Debt instrument debt default       The mandatory default amount is 150% of the Note amount and such mandatory default amount shall bear interest at 10% per annum.    
    Additional notes issuance       $ 615,000    
    Converted an aggregate principal amount       965,000    
    Interest and extension fee amount       $ 108,442    
    Number of shrares converted into common stock       49,163,474    
    Aggregate remaining amount       $ 2,535,000    
    Recognized interest expense       $ 498,898    
    Convertible Promissory Notes [Member] | Maximum [Member]            
    Short-term Debt [Line Items]            
    Conversion price of debt       $ 0.14    
    Convertible Promissory Notes [Member] | Minimum [Member]            
    Short-term Debt [Line Items]            
    Conversion price of debt       $ 0.06    
    OID Notes [Member]            
    Short-term Debt [Line Items]            
    Debt instrument, Maturity date Dec. 31, 2016 Sep. 19, 2014   Dec. 31, 2015    
    Conversion price of debt   $ 0.4375       $ 0.02
    Conversion price per share of debt, Description   After the amendment the conversion price changed to the lesser of $0.08 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.        
    Recognized interest expense       $ 286,459    
    Original issue discount on promissory notes   $ 273,125        
    Accrued interest   $ 13,334        
    Description of debt instrument   On each maturity date, each note was extended one year from its maturity date through September 19, 2015.        
    Unsecured convertible notes 2 [Member]            
    Short-term Debt [Line Items]            
    Debt instrument interest rate       10.00%    
    Debt instrument, Maturity date       May 27, 2016    
    Conversion price per share of debt, Description       50% of the lowest trade price on any trade day following issuance of the Notes.    
    Debt instrument debt default       The mandatory default amount is 150% of the Note amount and such mandatory default amount shall bear interest at 10% per annum.    
    Converted an aggregate principal amount       $ 1,200,000    
    Recognized interest expense       $ 311,885    
    Unsecured convertible notes 2 [Member] | Maximum [Member]            
    Short-term Debt [Line Items]            
    Conversion price of debt       $ 0.08    
    Unsecured convertible notes 2 [Member] | Minimum [Member]            
    Short-term Debt [Line Items]            
    Conversion price of debt       $ 0.04    
    Convertable promissory notes 3 [Member]            
    Short-term Debt [Line Items]            
    Conversion of accounts payable into a convertible note       $ 432,048    
    Percentage of average of lowest closing prices       75.00%    
    Number of trading days previous to conversion       25 days    
    Convertible Note [Member]            
    Short-term Debt [Line Items]            
    Recognized interest expense       $ 28,924    
    XML 54 R41.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Options and Warrants (Details) - Stock Options - $ / shares
    12 Months Ended
    Dec. 31, 2015
    Dec. 31, 2014
    Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]    
    Number of Options, outstanding, beginning of year 4,404,643 4,684,643
    Number of Options, granted 116,050,000 750,000
    Number of Options, exercised
    Number of Options, forfeited/expired 1,049,999 1,030,000
    Number of Options, outstanding, end of year 119,404,644 4,404,643
    Number of Options, exercisable at the end of year 73,609,937 2,240,370
    Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Roll Forward]    
    Weighted average exercise price, outstanding, beginning of year $ 0.43 $ 0.53
    Weighted average exercise price, granted $ 0.04 $ 0.19
    Weighted average exercise price, exercised
    Weighted average exercise price, forfeited/expired $ 0.04 $ 0.47
    Weighted average exercise price, outstanding, end of year 0.05 0.43
    Weighted average exercise price, exercisable at the end of year 0.05 0.47
    Weighted average fair value of options granted during the year $ 0.04 $ 0.19
    XML 55 R42.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Options and Warrants (Details 1) - Stock Options - 2012 Plan, 2013 Plan, and 2015 Plan [member]
    12 Months Ended
    Dec. 31, 2015
    $ / shares
    shares
    Share-Based Compensation, Shares Authorized Under Stock Option Plans, Exercise Price Range [Line Items]  
    Stock Options Outstanding 119,404,644
    Stock Options Exercisable 73,609,937
    0.19 - 7.20 [Member]  
    Share-Based Compensation, Shares Authorized Under Stock Option Plans, Exercise Price Range [Line Items]  
    Exercisable Prices Lower limit | $ / shares $ 0.19
    Exercisable Prices Upper limit | $ / shares $ 7.20
    Stock Options Outstanding 1,971,978
    Stock Options Exercisable 1,391,562
    0.19 - 7.20 [Member] | Minimum [Member]  
    Share-Based Compensation, Shares Authorized Under Stock Option Plans, Exercise Price Range [Line Items]  
    Weighted Average Remaining Contractual Life (years) 1 year 6 months 15 days
    0.19 - 7.20 [Member] | Maximum [Member]  
    Share-Based Compensation, Shares Authorized Under Stock Option Plans, Exercise Price Range [Line Items]  
    Weighted Average Remaining Contractual Life (years) 9 years 9 months 7 days
    0.29 - 0.44 [Member]  
    Share-Based Compensation, Shares Authorized Under Stock Option Plans, Exercise Price Range [Line Items]  
    Exercisable Prices Lower limit | $ / shares $ 0.29
    Exercisable Prices Upper limit | $ / shares $ 0.44
    Stock Options Outstanding 1,382,666
    Stock Options Exercisable 777,750
    Weighted Average Remaining Contractual Life (years) 8 years 8 months 16 days
    0.04 [Member]  
    Share-Based Compensation, Shares Authorized Under Stock Option Plans, Exercise Price Range [Line Items]  
    Exercisable Prices | $ / shares $ 0.04
    Stock Options Outstanding 116,050,000
    Stock Options Exercisable 71,440,625
    Weighted Average Remaining Contractual Life (years) 4 years 9 months 7 days
    XML 56 R43.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Options and Warrants (Details 2) - Warrant [Member] - $ / shares
    12 Months Ended
    Dec. 31, 2015
    Dec. 31, 2014
    Class of Warrant or Right [Roll Forward]    
    Warrants, outstanding -beginning of year 30,946,563 42,033,596
    Warrants, granted
    Warrants, exercised (4,923,624) (5,000,000)
    Warrants, forfeited (2,725,831) (6,087,033)
    Warrants, outstanding - end of year 23,297,108 30,946,563
    Class Of Warrant Or Right, Weighted Average Exercise Price [Roll Forward]    
    Weighted average exercise price, outstanding - beginning of year $ 0.27 $ 0.27
    Weighted average exercise price, granted
    Weighted average exercise price, exercised $ 0.15 $ 0.15
    Weighted average exercise price, forfeited 0.68 0.61
    Weighted average exercise price, outstanding - end of year $ 0.21 $ 0.27
    XML 57 R44.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Options and Warrants (Details 3) - Warrant [Member]
    12 Months Ended
    Dec. 31, 2015
    $ / shares
    shares
    Share-Based Compensation, Shares Authorized Under Stock Option Plans, Exercise Price Range [Line Items]  
    Warrants Outstanding 23,297,108
    Warrants Exercisable 23,297,108
    0.15 - 0.65 [Member]  
    Share-Based Compensation, Shares Authorized Under Stock Option Plans, Exercise Price Range [Line Items]  
    Exercisable Prices Lower limit | $ / shares $ 0.15
    Exercisable Prices Upper limit | $ / shares $ 0.65
    Warrants Outstanding 22,163,079
    Warrants Exercisable 22,163,079
    0.15 - 0.65 [Member] | Minimum [Member]  
    Share-Based Compensation, Shares Authorized Under Stock Option Plans, Exercise Price Range [Line Items]  
    Weighted Average Remaining Contractual Life (years) 2 months 16 days
    0.15 - 0.65 [Member] | Maximum [Member]  
    Share-Based Compensation, Shares Authorized Under Stock Option Plans, Exercise Price Range [Line Items]  
    Weighted Average Remaining Contractual Life (years) 2 years 5 months 12 days
    0.90 - 8.70 [Member]  
    Share-Based Compensation, Shares Authorized Under Stock Option Plans, Exercise Price Range [Line Items]  
    Exercisable Prices Lower limit | $ / shares $ 0.90
    Exercisable Prices Upper limit | $ / shares $ 8.70
    Warrants Outstanding 288,336
    Warrants Exercisable 288,336
    0.90 - 8.70 [Member] | Minimum [Member]  
    Share-Based Compensation, Shares Authorized Under Stock Option Plans, Exercise Price Range [Line Items]  
    Weighted Average Remaining Contractual Life (years) 2 months 16 days
    0.90 - 8.70 [Member] | Maximum [Member]  
    Share-Based Compensation, Shares Authorized Under Stock Option Plans, Exercise Price Range [Line Items]  
    Weighted Average Remaining Contractual Life (years) 6 years 10 months 17 days
    0.90 - 10.21 [Member]  
    Share-Based Compensation, Shares Authorized Under Stock Option Plans, Exercise Price Range [Line Items]  
    Exercisable Prices Lower limit | $ / shares $ 0.90
    Exercisable Prices Upper limit | $ / shares $ 10.21
    Warrants Outstanding 845,693
    Warrants Exercisable 845,693
    0.90 - 10.21 [Member] | Minimum [Member]  
    Share-Based Compensation, Shares Authorized Under Stock Option Plans, Exercise Price Range [Line Items]  
    Weighted Average Remaining Contractual Life (years) 2 months 16 days
    0.90 - 10.21 [Member] | Maximum [Member]  
    Share-Based Compensation, Shares Authorized Under Stock Option Plans, Exercise Price Range [Line Items]  
    Weighted Average Remaining Contractual Life (years) 2 years 8 months 19 days
    XML 58 R45.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Options and Warrants (Details Textual) - USD ($)
    12 Months Ended
    Nov. 13, 2014
    Jun. 14, 2013
    Dec. 31, 2015
    Dec. 31, 2014
    Oct. 02, 2015
    May. 25, 2012
    Options and Warrants (Textual)            
    Stock based compensation     $ 1,739,620 $ 196,900    
    Aggregate intrinsic value of the warrants outstanding     $ 23,297,108 $ 30,946,563    
    Issuance of common stock, shares          
    Restricted Stock Grant Agreement ("RSCA") [Member] | Chief Executive Officer [Member]            
    Options and Warrants (Textual)            
    Issuance of common stock, shares 40,000,000          
    Restricted stock grant agreement, Description a) If the Company's Market Capitalization (the market capitalization shall mean the total number of shares of issued and outstanding common stock, multiplied by the average closing trade price of the Company's common stock on the 10 trading days immediately prior to the date of determination) exceeds $15,000,000, the Company will issue up to 16,000,000 shares of its common stock; b) If the Company's Market Capitalization exceeds $20,000,000, the Company will issue up to 24,000,000 shares of its common stock. The Company has not recognized any costs associated with the milestones, due to not being able to estimate the probability of it being achieved.          
    Restricted Stock Grant Agreement ("RSCA") [Member] | Employees [Member]            
    Options and Warrants (Textual)            
    Issuance of common stock, shares 26,050,000          
    Restricted stock grant agreement, Description a) If the Company's consolidated gross revenue, calculated in accordance with generally accepted accounting principles, consistently applied, equals or exceeds $2,500,000 for the trailing twelve month period as reported in the Company's quarterly or annual financial statements, the Company will issue up to 10,420,000 shares of its common stock; b) If the Company's consolidated net profit, calculated in accordance with generally accepted accounting principles, consistently applied, equals or exceeds $500,000 for the trailing twelve month period as reported in the Company's quarterly or annual financial statements, the Company will issue up to 15,630,000 shares of its common stock.          
    2009 Incentive Stock Option Plan [Member]            
    Options and Warrants (Textual)            
    Common stock shares reserves and sets aside for the granting of options (in shares)     500,000      
    2012 Incentive Stock Option Plan [Member]            
    Options and Warrants (Textual)            
    Common stock shares reserves and sets aside for the granting of options (in shares)           1,000,000
    2013 Incentive Stock Option Plan [Member]            
    Options and Warrants (Textual)            
    Common stock shares reserves and sets aside for the granting of options (in shares)   4,000,000        
    Employee termination   Not less than 30 days nor more than three (3) months after such termination.        
    2015 Equity Incentive Stock Option Plan [Member]            
    Options and Warrants (Textual)            
    Common stock shares reserves and sets aside for the granting of options (in shares)         160,000,000  
    XML 59 R46.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Income Taxes (Details) - USD ($)
    12 Months Ended
    Dec. 31, 2015
    Dec. 31, 2014
    Income Taxes [Abstract]    
    Book income $ (4,646,020) $ (4,453,900)
    Tax to book differences for deductible expenses 21,920 23,200
    Tax non deductible expenses 2,926,750 2,454,600
    Valuation Allowance $ 1,697,350 $ 1,976,100
    Income tax expense
    XML 60 R47.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Income Taxes (Details 1) - USD ($)
    Dec. 31, 2015
    Dec. 31, 2014
    Deferred tax assets:    
    NOL carryover $ 11,838,190 $ 10,191,770
    Other carryovers 757,030 557,270
    Deferred tax liabilities:    
    Depreciation 830 (44,060)
    Less Valuation Allowance $ (12,596,050) $ (10,704,980)
    Net deferred tax asset
    XML 61 R48.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Income Taxes (Details Textual)
    Dec. 31, 2015
    USD ($)
    Income Taxes (Textual)  
    Net operating loss carry-forwards $ 29,588,000
    XML 62 R49.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Commitments and Contingencies (Details)
    12 Months Ended
    Dec. 31, 2015
    USD ($)
    ft²
    Dec. 31, 2014
    USD ($)
    Commitments And Contingencies Disclosure Textual [Abstract]    
    Area of real estate property | ft² 7,500  
    Payments for Rent $ 11,390  
    Lease expiration date Aug. 31, 2016  
    Warrant reserve $ 20,000
    Mckinney [Member]    
    Commitments And Contingencies Disclosure Textual [Abstract]    
    Payments for Rent $ 4,000  
    XML 63 R50.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Concentrations (Details)
    12 Months Ended
    Dec. 31, 2015
    USD ($)
    Customers
    Vendors
    Concentration Risk [Line Items]  
    Contract receivable $ 1,066,223
    Customers [Member]  
    Concentration Risk [Line Items]  
    Number of customers | Customers 3
    Contract receivable $ 810,093
    Percentage of billings 72.60%
    Vendors [Member]  
    Concentration Risk [Line Items]  
    Number of vendors | Vendors 3
    Percentage of total expenses 44.30%
    Accounts payable $ 51,643
    XML 64 R51.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Related Party Transactions (Details) - $ / shares
    Oct. 06, 2015
    Dec. 31, 2015
    Sep. 29, 2015
    Feb. 04, 2015
    Dec. 31, 2014
    Related Party Transactions (Textual)          
    Common stock, shares issued   232,588,828     99,748,172
    Series A preferred stock, par value   $ 0.0001     $ 0.0001
    Series A preferred stock, shares authorized   25,000,000     25,000,000
    Chief Executive Officer [Member]          
    Related Party Transactions (Textual)          
    Number of options granted 55,000,000        
    Chief Executive Officer [Member] | 2015 Equity Incentive Plan [Member]          
    Related Party Transactions (Textual)          
    Number of options granted 5,000,000        
    Exercisable price per share $ 0.0375        
    Term of exercisable stock options 5 years        
    Vesting, description 50% of these options vested on option grant date and 50% vest on the one year anniversary of grant date.        
    Director [Member] | 2015 Equity Incentive Plan [Member]          
    Related Party Transactions (Textual)          
    Number of options granted 5,000,000        
    Exercisable price per share $ 0.0375        
    Term of exercisable stock options 5 years        
    Vesting, description 50% vested on the option grant date and 50% vest on the one year anniversary of the grant date.        
    Board of Directors [Member]          
    Related Party Transactions (Textual)          
    Common stock, shares issued       500,000  
    Series A preferred stock, par value     $ 0.0001    
    Series A preferred stock, shares authorized     1,000    
    Number of options granted 116,050,000        
    XML 65 R52.htm IDEA: XBRL DOCUMENT v3.3.1.900
    Subsequent Events (Details) - USD ($)
    1 Months Ended 2 Months Ended 3 Months Ended 12 Months Ended
    Jan. 06, 2016
    Oct. 06, 2015
    Mar. 29, 2016
    Mar. 17, 2016
    Mar. 15, 2016
    Mar. 31, 2016
    Dec. 31, 2015
    Dec. 31, 2014
    Mar. 25, 2016
    Subsequent Event [Line Items]                  
    Issuance of common stock                
    Common stock issued at fair value for services             $ 1,260,521 $ 1,998,721  
    Issuance of common stock, shares                
    Common stock, shares authorized             1,000,000,000 1,000,000,000  
    Board of Directors [Member]                  
    Subsequent Event [Line Items]                  
    Number of options granted   116,050,000              
    Term of option granted   4 years              
    Exercise price   $ 0.0375              
    Minimum [Member]                  
    Subsequent Event [Line Items]                  
    Exercise price             $ 0.02    
    Maximum [Member]                  
    Subsequent Event [Line Items]                  
    Exercise price             $ 0.05    
    Convertible Promissory Notes [Member]                  
    Subsequent Event [Line Items]                  
    Advances received             $ 1,200,000    
    Subsequent Event [Member]                  
    Subsequent Event [Line Items]                  
    Common stock issued at fair value for services (shares)           13,237,739      
    Common stock issued at fair value for services           $ 299,296      
    Common stock value     $ 10,000            
    Subsequent Event [Member] | Board of Directors [Member] | Non-qualified Stock Options [Member]                  
    Subsequent Event [Line Items]                  
    Number of options granted 86,000,000                
    Term of stock option, Description (i) extending the term of the stock options from four to five years, (ii) providing for the filing of a Form S-8 to cover the shares underlying the stock options, and (iii) placing certain transfer and exercise restrictions on the stock options.                
    Subsequent Event [Member] | Non executive officer [Member] | 2015 Equity Incentive Stock Option Plan [Member]                  
    Subsequent Event [Line Items]                  
    Issuance of common stock, shares     1,000,000            
    Exercise price     $ 0.02            
    Subsequent Event [Member] | Minimum [Member]                  
    Subsequent Event [Line Items]                  
    Common stock, shares authorized                 2,500,000,000
    Subsequent Event [Member] | Maximum [Member]                  
    Subsequent Event [Line Items]                  
    Common stock, shares authorized                 2,525,000,000
    Subsequent Event [Member] | Convertible Promissory Notes [Member]                  
    Subsequent Event [Line Items]                  
    Convertible note outstanding principal amount       $ 500,000 $ 389,000        
    Unpaid interest         $ 37,144        
    Issuance of common stock, shares         43,078,706        
    Preferred stock issued during period of acquisition, shares       100,000          
    Advances received       $ 100,000          
    Promissory notes description       The Note matures twelve months from the date of issuance and bear interest at 10% per annum. The Note may be converted into shares of the Company's common stock at a conversion price range of the lesser of $0.02 (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 Note.          
    Debt instrument debt default       The mandatory default amount is 150% of the Note amount and such mandatory default amount shall bear interest at 10% per annum.          
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