ORIGINCLEAR, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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



  ? business strategy;




  ? financial strategy;




  ? intellectual property;




  ? production;




  ? future operating results; and




       ?   plans, objectives, expectations, and intentions contained in this
           report that are not historical.




All statements, other than statements of historical fact included in this
report, regarding our strategy, intellectual property, future operations,
financial position, estimated revenues and losses, projected costs, prospects,
plans and objectives of management are forward-looking statements. When used in
this report, the words "could," "believe," "anticipate," "intend," "estimate,"
"expect," "project" and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements contain
such identifying words. All forward-looking statements speak only as of the date
of this report. You should not place undue reliance on these forward-looking
statements. Although we believe that our plans, intentions and expectations
reflected in or suggested by the forward-looking statements we make in this
report are reasonable, we can give no assurance that these plans, intentions or
expectations will be achieved.  These statements may be found under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as in this report generally. Actual events or results may
differ materially from those discussed in forward-looking statements as a result
of various factors.  In light of these risks and uncertainties, there can be no
assurance that the forward-looking statements contained in this filing will in
fact occur.



Organizational History



OriginClear, Inc. ("we", "us", "our", the "Company" or "OriginClear") was
incorporated on June 1, 2007 under the laws of the State of Nevada. We have been
engaged in business operations since June 2007. In 2015, we moved into the
commercialization phase of our business plan having previously been primarily
involved in research, development and licensing activities. Our principal
offices are located at 13575 58th Street North, Suite 200, Clearwater, FL 33760.
Our main telephone number is (727) 440-4603. Our website address is
www.OriginClear.com. The information contained on, connected to or that can be
accessed via our website is not part of this report.



Overview of Business



OriginClear is a company that today, develops unique water assets for eventual
launch as their own companies. This new role was indicated water technology
company which has developed in-depth capabilities over the eight years since it
began to operate in the water industry.



Pursuant to this new mission, OriginClear’s assets, subsidiaries and product
offerings consist of:

? The Intellectual Property of Daniel M. Early (the “Early IP”),

           consisting of five patents and related knowhow and trade 

secrets, which

           are intended to take the place of the applications for the company's
           original technology developments.




       ?   The brand, Modular Water Systems (MWS), featuring products
           differentiated by the Early IP and complemented with additional knowhow
           and trade secrets. MWS is in commercial operation and operates as a
           division of Progressive Water Treatment, Inc. ("PWT"), a wholly owned
           subsidiary of the Company based in McKinney, Texas. The Company is
           currently developing MWS as a discrete line of business for an eventual
           spinoff. In addition, the Company intends to separate the

EveraMOD Pump

           Station product line as a standalone business.




                                       26





       ?   PWT is responsible for a significant percentage of the company's
           revenue, specializing in engineered water treatment solutions and
           custom treatment systems. We believe that PWT has knowhow with
           intellectual property potential.



? OriginClear has incubated a new outsourced water treatment business

           called Water On Demand ("WOD").




          o   The WOD model intends to offer private businesses water
              self-sustainability as a service - the ability to pay for water
              treatment and purification services on a per-gallon basis. This is
              commonly known as Design-Build-Own-Operate or "DBOO".




          o   Four subsidiaries have been established to house capital dedicated
              to this program ("the WOD Subsidiaries"). For efficiency, the
              Company is reorganizing these subsidiaries into a single WOD
              Subsidiary.




          o   On April 13, 2022, the Company's Board of Directors approved the
              plan to spin off its Water On Demand business into a newly formed
              wholly-owned subsidiary, Water On Demand Inc. ("WODI"), which will
              hold the assets, liabilities, intellectual property and business
              operations of the Water On Demand business. WODI is designed to
              select projects, fully qualify them, provide financing for DBOO
              service contracts, and thereafter manage assets, contracts, clients,
              investors, strategic partners and vendors.




As they are subject to a security guaranty by the Company, the WOD Subsidiaries,
and the capital raised for them through the Company's Series Y offering, shall
continue to be held by the Company. This capital will be made available to WODI
to be deployed, subject to a planned management contract.



Developing Water Businesses



The Company develops and incubates businesses in its role as the Clean Water
Innovation Hub™ ("CWIB"). The mission of CWIB in general, is to create valuable
properties through an incubation process that results in the launching of
valuable spinoffs that add value to the world's water industry.



The first such spinoff was on April 13, 2022, when the Company's Board of
Directors approved the plan to spin off its Water On Demand business into a
newly formed wholly-owned subsidiary, Water On Demand Inc., which will hold the
assets, liabilities, intellectual property and business operations of the Water
On Demand business.


Further businesses can be expected to be spun off, as the Company announced on
April 26, 2022:

“The launch of Water on Demand is the first of several anticipated business
property spinoffs. Other Company business properties include Modular Water
Systems, which owns a master license to five key international patents for
prefabricated, highly-durable modular water treatment and pumping products.
Being a proprietary technology, MWS frequently qualifies as “Basis of Design”
for projects, which means that competitors cannot easily undercut MWS.”

(https://www.originclear.com/company-news/originclear-to-launch-water-on-demand-fintech-startup)

CWIB’s ongoing operations include:




       1.  Building a line of customer-facing water brands to expand global market
           presence and technical expertise. These include the wholly-owned
           subsidiary, Progressive Water Treatment, Inc., and the Modular Water
           Systems brand.




                                       27





       2.  Managing relationships with partners worldwide who are licensees and
           business partners.

       3.  Developing the capability of partners to build systems and to deliver
           Operation & Maintenance ("O&M") capability at scale, to support Water
           On Demand outsourced treatment and purification programs.

       4.  Continue to study the streamlining of water assets and royalties
           through the blockchain, as part of the $H2O™ concept. At this time
           there is no plan to actively develop a blockchain-based asset.

       5.  Prepare properties for eventual spinoff.




On July 8, 2022, the Company announced that it booked combined purchase orders
in excess of $5 million in the first nine months of 2022, more than double the
order volume for the comparable period in 2021.



On September 21, 2022, the Company announced its collaboration with
PhilanthroInvestors™ to develop off-grid housing solutions. PhilanthroInvestors™
promotes human welfare while earning a financial return.

https://www.originclear.com/company-news/originclear-teams-up-with-real-estate-leader-for-off-grid-housing



On October 18, 2022, the Company announced that its pump station product line is
showing commercial success. Known as EveraMOD in the Modular Water Systems (MWS)
lineup, this durable, modular system is being adopted by customers, often as a
simple yet vital retrofit for existing, obsolete installations.



In addition, the Company indicated that it may spin off EveraMOD as its next
independent company as part of CWIB.

https://www.originclear.com/company-news/originclears-pump-station-line-rapidly-expands



On October 25, 2022, the Company announced that it entered an Equity Financing
Agreement with GHS Investments (GHS). Pursuant to the Agreement, GHS has agreed
to purchase up to $25.0 million in registered common stock, with timing and
amounts of the purchases to be determined at the sole discretion of the Company.

On November 7, 2022, the Company announced that it retained The Basile Law Firm,
P.C. (www.thebasilelawfirm.com), to explore a potential business combination
with a NASDAQ-listed Special Purpose Acquisition Corporation (SPAC). OriginClear
cautions that a specific SPAC has not been definitively identified, the
prospective terms are unknown, and there is no assurance any transaction may
occur.



Milestones


Progressive Water Treatment Inc.

On October 1, 2015, the Company completed the acquisition of Dallas-based
Progressive Water Treatment Inc. (“PWT”), a designer, builder and service
provider for a wide range of industrial water treatment applications. PWT,
together with MWS, other proprietary technologies and potential future
acquisitions, aims to offer a complementary, end-to-end offering to serve
growing corporate demand for outsourced water treatment.



PWT's Business



Since 1995, PWT has been designing and manufacturing a complete line of water
treatment systems for municipal, industrial and pure water applications. PWT
designs and manufactures a complete line of water treatment systems for
municipal, industrial and pure water applications. Its uniqueness is its ability
to gain an in-depth understanding of customer's needs and then to design and
build an integrated water treatment system using multiple technologies to
provide a complete solution for its customers.



PWT utilizes a wide range of technologies, including chemical injection, media
filters, membrane, ion exchange and SCADA (supervisory control and data
acquisition) technology in turnkey systems. PWT also offers a broad range of
services including maintenance contracts, retrofits and replacement assistance.
In addition, PWT rents equipment in contracts of varying duration. Customers are
primarily served in the United States and Canada, with the company's reach
extending worldwide from Siberia to Argentina to the Middle East.



PWT Milestones


In the first quarter of 2019, the Company increased the number of the
manufacturer’s representatives for its operating units, PWT and Modular Water
Systems (“MWS”).



                                       28





On Nov 7, 2019, the Company published a case study showing how its Modular Water
System may help automotive dealerships expand into rural land. The case study
shows how point-of-use treatment solves lack of access to the public sewer
system.



On March 5, 2020, the Company announced disruptive pump and lift station
pricing, stating that its prefabricated modules with a lifespan of up to 100
years now compete with precast concrete.




On April 15, 2021, the Company announced that its Progressive Water Treatment
division is now shipping BroncBoost™, its workhorse Booster Pump Station
equipment line. Engineered and built in Texas, BroncBoost allows customers to
control water flow rates and pressure for mission critical water distribution
systems.



On August 25, 2021, PWT entered into a Master Services Agreement (MSA) with a
large US public utility company for water filtration systems that will provide
process water at three power plants. The utility issued a purchase order for
approximately $1.8 million, for the first power plant. The total purchase price
payable to PWT under the MSA is approximately $5 million, subject to certain
conditions, including receipt and acceptance by PWT of additional purchase
orders. We expect the overall contract to take up to two years to deliver from
the date of the MSA.



Modular Water Systems



On June 22, 2018, OriginClear signed an exclusive worldwide licensing agreement
with Daniel "Dan" Early P. E. for his proprietary technology for prefabricated
water transport and treatment systems. On July 19, 2018, the Company began
incubating its Modular Water Treatment Division (MWS) around Mr. Early's
technology and perspective customers. The Company has funded the development of
this division with internal cash flow. In Q1 of 2020, the Company fully
integrated MWS with wholly-owned Progressive Water Treatment Inc. The Company is
currently developing MWS as a discrete line of business for an eventual spinoff.
Mr. Early currently serves as Chief Engineer for OriginClear.



On July 19, 2018, the Company launched its Modular Water Treatment Division,
offering a unique product line of prefabricated water transport and treatment
systems. Daniel "Dan" Early P.E. (Professional Engineer) heads the Modular Water
Systems ("MWS") division. On June 25, 2018, Dan Early granted the Company a
worldwide, exclusive non-transferable license to the technology and knowhow
behind MWS (See "Intellectual Property"). A ten-year renewal on May 20, 2020
added the right to sublicense and create manufacturing joint ventures. On July
25, 2018, MWS received its first order, for a brewery wastewater treatment
plant.



With PWT and other companies as fabricators and assemblers, MWS designs,
manufactures and delivers prefabricated water transport (pump and lift stations)
under the EveraMOD™ brand; and wastewater treatment plant ("WWTP") products
under the EveraSKID™ and EveraTREAT™ brands to customers and end-users which are
required to clean their own wastewater, such as schools, small communities,
institutional facilities, real estate developments, factories, and industrial
parks.


On September 28, 2021, the Company announced that MWS deployed its pilot
Pondster™ brand modular lagoon treatment system at a Mobile Home Park (MHP) or
trailer park, in Troy, Alabama.

On June 16, 2022 the Company announced that MWS received purchase orders for
approximately $1.5 Million in May of 2022. This compared to $1,774,880 in
purchase orders for the entire year 2021.




On July 25, 2022 the Company announced that decentralized water treatment, long
pioneered by OriginClear's Modular Water Systems™ (MWS), is now being mandated
by major US cities to recycle water in large new buildings.



On August 12, 2022 the Company announced the inaugural delivery and installation
of its pre-engineered EveraBOX™ to implement a low-risk Liquid Ammonium Sulfate
(LAS) disinfectant system for Pennsylvania's Beaver Falls Municipal Water
Authority (BFMA). Typical of MWS products, EveraBOX is manufactured using
inexpensive, long-lasting High-Density Polyethylene (HDPE) or Polypropylene (PP)
materials. These materials have proven to be less affected by supply chain
issues currently impacting metal and fiberglass construction.



                                       29




Water on Demand™: a new strategic direction.




OriginClear is also developing a new outsourced water treatment business called
"Water On Demand": or "WOD" as a potential revenue source. The WOD model intends
to offer private businesses the ability to pay for water treatment and
purification services on a per-gallon basis. This is commonly known as
Design-Build-Own-Operate or "DBOO". On April 13, 2021, we announced formation of
a wholly-owned subsidiary called Water On Demand #1, Inc. ("WOD #1") to pursue
capitalization of the equipment required. The WOD Subsidiaries, Water On Demand
#2, Inc. ("WOD #2"), Water On Demand #3, Inc. ("WOD #3"), Water On Demand #4,
Inc. ("WOD #4") were separately created to permit optional segmenting of capital
pools according to strategic partnerships. The Company is now simplifying this
structure by placing all funds in WOD #1 and tracking the partnerships within
that company. As they are subject to a security guaranty by the Company, the WOD
Subsidiaries, and the capital raised for them through the Company's Series Y
offering, shall continue to be held by the Company. This capital will be made
available to WODI to be deployed, subject to a planned management contract.



The Company intends to pilot a first DBOO contract and thereafter, work with
regional water service companies to build and operate the water treatment
systems it finances. Additional financing hubs could be set up in world
financial centers.




Delegating the building and operating of WOD-financed systems to regional water
companies under performance contract, with the aim of developing a network of
such partners, is expected to enable rapid scale-up of the WOD program, and the
partner network would create a high barrier to entry for competitors.



On April 13, 2022, the Company's Board of Directors approved the plan to spin
off its Water On Demand business into a newly formed wholly-owned subsidiary,
Water On Demand Inc., which will hold the assets, liabilities, intellectual
property and business operations of the Water On Demand business.



The Company stipulates that it has excluded the WOD Subsidiaries, and all
capital already raised and to be raised in the future in its Series Y offering,
from this assignment of assets and will make the capital available as part of a
planned management contract. The Company intends to also register a Regulation A
offering by WODI which is intended to accumulate capital for WODI to direct
toward WOD projects.



To enable rapid scaling, WODI does not initially intend to build, maintain or
service the water treatment systems it finances, but instead contract with
regional water service companies to carry out these functions. On April 6, 2022,
an agreement in principle was reached to work with the first of these intended
contractors, Envirogen Technologies (www.envirogen.com), a 30-year international
provider of environmental technology and process solutions
(www.originclear.com/company-news/originclear-and-envirogen-to-partner-on-water-on-demand).
Future resources to build, maintain and service these financed systems may come
from acquisitions; however, these are not actively being planned.



At the time of this filing, WODI had no staff or independent resources. Under a
prospective management services contract, OCLN is providing all staffing and
administrative resources, as well as access to the funds it has raised for WOD
investments.



                                       30





Market Opportunity



On a global basis, only twenty percent (20%) of all sewage and thirty percent
(30%) of all industrial waste are ever treated. Water leakage results in the
loss of thirty-five percent (35%) of all clean water across the planet. Cutting
that number in half would provide clean water for 100 million people. This is a
situation of great danger, but also great potential.



We believe businesses can no longer rely on giant, centralized water utilities
to meet the challenge. That is why more and more business users are doing their
own water treatment and recycling. Whether by choice or necessity, those
businesses that invest in onsite water systems gain a tangible asset on their
business and real estate and can enjoy better water quality at a lower cost,
especially if treated water is recycled.



We believe self-reliant businesses are quietly building "decentralized water
wealth" for themselves while also helping their communities. Environmental,
social and governance (ESG) investing guidelines, which drive about a quarter of
all professionally managed assets around the world, specifically include the key
factor of how well corporations manage water.



 As civil infrastructure ages and fails and as the costs for new and replacement
infrastructure increase year over year, we believe engineers and end-users will
search for new ways and methods of deploying water and wastewater systems that
are less expensive to deliver and much less expensive to own and operate with
the mission intent of substantially increasing the replacement intervals
currently experienced by conventional materials of construction and conventional
product delivery models.


Reducing Risk through Outsourcing




Inflation of water rates greatly exceeds core inflation (see Figure 2), creating
a risk for managers of businesses served by municipalities. We believe this
creates an incentive for self-treatment; but these businesses may lack the
capital for large water plant expenditures, and the in-house expertise to manage
them. Outsourcing through what we call Water on Demand™ means that these
companies do not have to worry about the problem, either financing it or
managing it.



As an example, in information technology, few companies operate their own server
in-house powering their website. Rather, such servers are typically managed by
professionals through a service level agreement. In the water industry, when
applied to outsourced water treatment, a service level agreement is known as O&M
agreement. When the vendor retains ownership of the equipment, the concept is
expanded to "Own and Operate", an extension of the basic "Design and Build", for
a full offering known as DBOO, which is very similar to the solar energy
programs known as Power Purchase Agreements ("PPAs").



Under such a plan, a business can outsource its wastewater treatment by simply
signing on the dotted line; instantly avoiding most capital expense, and the
trouble of managing something that is a distraction from their core business.



We believe this is financially and operationally attractive to industrial,
agricultural and commercial water users, while OriginClear's Water On Demand
program can potentially drive speeded-up deals and more revenue streams from
providing water treatment as a service.



                                       31




The Decentralization Megatrend



                               [[Image Removed]]



                                    Figure 1



An updated report of October 2018, "Public Spending on Transportation and Water
Infrastructure, 1956 to 2017"
(www.cbo.gov/system/files?file=2018-10/54539-Infrastructure.pdf), stated that
The Federal Government's and State and Local Governments' Spending on Water
Utilities, including water supply and wastewater treatment facilities, was $4
billion in 2016 - a drop of about $13 billion since 1976!



As municipalities continue to be underfunded (Figure 1) with rising water rates
(Figure 2), businesses are increasingly choosing to treat and purify their own
water, in a trend known as Decentralized Water, first described in the Lux
Research presentation of June 28, 2016.
(https://members.luxresearchinc.com/research/report/20060).



                                       32





                               [[Image Removed]]

                                    Figure 2



According to the Lux Research data, the unmet infrastructure needs of America's
150,000+ water systems will exceed $100 billion per year by 2025. And the recent
Infrastructure Investment and Jobs Act only provided one-time funding of $55
billion, which is less than one year's deficit.



It is this underfunding that is creating the water quality problems we are
seeing in places like Flint, Michigan and Jackson, Mississippi.




It is not realistic to expect this underfunding of central water to be resolved
anytime soon. The alternative is to simply reduce the load on these central
systems. Since industry and agriculture together account for 89% of all water
demand in the United States (https://ourworldindata.org/water-use-stress), we
can enable commercial users to purify their own wastewater, thereby enabling
water districts to focus on serving residential users - achieving a major social
justice victory by simply unburdening the central facilities.



Self-treatment is a win-win, too - because businesses can do better by treating
their own water; for instance, implementing recycling of the water they pay for,
and controlling their own costs.



But to make such a decentralization program work, capital is needed. Most
businesses simply do not have it in their capital plan to treat their own water.
Now, with Water On Demand, they can forget about investing in capital and
expertise: they can simply continue to pay on the meter as they always have, but
to a micro-utility that sits on their own premises.



Technology specifically developed for decentralization.




In 2018, OriginClear launched its Modular Water Systems (MWS) division
(www.modularwater.com), headed by Daniel M. Early, P.E., a pioneer of on-site or
decentralized water treatment in this country. Supported by its proprietary
technology, this division already serves businesses doing their own water
treatment. These modular systems can be easily put to work for pre-funded,
pay-per-gallon applications, potentially creating a barrier to entry for other
companies wanting to do the same.



                                       33





Also, the portable nature of some of these prefabricated, drop-in-place Modular
Water Systems may provide a competitive benefit for a pure service model where
the equipment remains the property of the Company, because their mobility
enables some degree of repossession in the event the client fails to pay their
monthly bill. We believe this is a key competitive advantage.



Finally, we could license MWS technology to Water On Demand operating partners
under contract to design, build and operate systems, thus achieving both
acceptance of such technology and a standardized “fleet” of installed systems.

Implementation of Water On Demand




On March 17, 2021, OriginClear incorporated Water On Demand #1 Inc. ("WOD#1") in
Nevada as a wholly owned subsidiary to operate and manage our Water on Demand
business.



In November 2021, the Company created additional Water on Demand subsidiaries -
Water on Demand # 2, Inc. (WOD # 2), Water on Demand # 3, Inc. (WOD # 3) and
Water on Demand # 4, Inc. (WOD # 4) were separately created to permit optional
segmenting of capital pools according to strategic partnerships. The Company is
now simplifying this structure by placing all funds in WOD #1 and tracking the
partnerships within that company. As they are subject to a security guaranty by
the Company, the WOD Subsidiaries, and the capital raised for them through the
Company's Series Y offering, shall continue to be held by the Company. This
capital will be made available to WODI to be deployed, subject to a planned
management contract.



The Company requires funding in order to execute on its Water on Demand
initiative. As of the period ended September 30, 2022, the Company received
aggregate funding in the amount of $2,604,639 through the sale of its Series Y
Preferred Stock dedicated to the Water on Demand program.




The Company is now actively evaluating potential clients for a test of water
treatment and purification services on a pay-per-gallon basis, but a first
agreement has not been reached. Also, the Company, as represented by OCLN, is in
early stage talks with partners to deliver DBOO services, with the Company
providing financing and contract management services. In the event such talks do
not succeed, the Company, represented under contract by OCLN, would need to
implement its own resources for such DBOO services.



On April 6, 2022, the Company agreed in principle to an arrangement with
Houston-based, international water service company Envirogen Technologies for
certain operations and maintenance (O&M) functions, the first of a potential
series of such partnerships, intended to enable Water On Demand to focus on
finance and asset management while the water industry benefits from a steady
stream of pre-capitalized projects.

(https://www.originclear.com/company-news/originclear-and-envirogen-to-partner-on-water-on-demand)



On April 13, 2022, the Company announced the formation of Water On Demand, Inc.
("WODI") as a wholly owned subsidiary and its plans to transfer each of the WOD
subsidiaries and all assets, intellectual property and operations related to the
Water On Demand business to WODI. The Company now stipulates that it has
excluded the WOD Subsidiaries, and all capital already raised and to be raised
in the future in its Series Y offering, from this assignment of assets and will
make the capital available as part of a planned management contract. The Company
intends to also register a Regulation A offering by WODI which is intended to
accumulate capital for WODI to direct toward WOD projects.



On June 29, 2022 the Company announced the launch of its $300 Million offering
(the "Reg D Offering") to be conducted on behalf of its wholly-owned subsidiary,
Water on Demand, Inc. ("WODI"). The offering of the securities is made pursuant
to an exemption from registration under Rule 506(c) of Regulation D, to
accredited investors only. Water On Demand is designed to offer clean water
systems to businesses and communities as a managed service without any capital
requirement.  Due to a planned separate filing of a Regulation A+ Offering (the
"Reg A Offering"), the Company has decided to limit the Reg D Offering to $20
million in total.



                                       34




Advisory Support for OriginClear




In September 2020, OriginClear announced that Philanthroinvestors had entered a
strategic agreement with the Company and had listed the Company on its new Water
Philanthroinvestors program. At the same time, the Company appointed
Philanthroinvestors Founder, Ivan Anz and CEO, Arte Maren to OriginClear's Board
of Advisors.



$H2O™



On May 10, 2021, OriginClear filed "System And Method For Water Treatment
Incentive", a patent application for using blockchain technology and
non-fungible tokens ("NFT") to simplify the distribution of payments on
outsourced water treatment and purification services billed on a pay-per-gallon
basis ahead of inflation, or Water On Demand. The Company recently filed a PCT
application pertaining to the invention.



On May 16, 2021, the Company applied for a registered trademark for the mark
$H2O (also referred to as H2O) as the blockchain system representing this
activity. The current filing basis is "Intent-to-use basis" (under Trademark Act
Section 1(b)).


On June 10, 2021, the Company named Ricardo Fabiani Garcia, key OriginClear
investor and a veteran technologist, to the Company’s Board of Advisors. Mr.
Garcia
is helping to plan the eventual rollout of $H2O.




There is no active development effort for $H2O. Depending on the final form that
$H2O takes, we may encounter regulatory concerns that we cannot guarantee we
will overcome. In that event, we would fall back on ordinary financial payment
systems. Neither our Water on Demand or other current business models rely on
any blockchain system for operation, and we can accomplish our operational goals
using ordinary financial and currency channels. The Company does not intend to
incorporate a blockchain system in any registered offering.



ClearAqua™



OriginClear is currently exploring a utility coin, or token, named ClearAqua,
The Water Coin For The World™, which would implement a grassroots network for
alerts, leading to actionable proposals for water projects. There is no
assurance this token will be issued or if issued, will be successful. ClearAqua
is not required for OriginClear's core business.



We filed, on an intent-to-use basis, US Trademark applications on July 21, 2021,
for the Mark, CLEARAQUA. We also engaged San Diego-based Baja Technologies Inc.
("Baja") who wrote a preliminary white paper, but no other action has been taken
and ClearAqua is not in active development at this time. The Company does not
intend to incorporate a coin, token or cryptocurrency in any registered
offering.



Potential Acquisitions and Incubations




The Company, in its role as the CWIB, seeks to incubate or acquire businesses
that help industrial water users achieve water self-sustainability. We believe
that assembling a group of such water treatment and water management businesses
is potentially an opportunity for spinoffs and increased Company value for the
stockholders.



We are particularly interested in companies which successfully execute on
Design-Build-Own-Operate or DBOO. These companies are growing fast, because
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. Creating a network of such
providers could lead to enormous economies of scale through sharing of best
practices, technologies, and customers and could represent a major barrier to
entry for Water On Demand's competitors.



The Company cautions that suitable acquisition candidates may not be identified
and even if identified, the Company may not have adequate capital to complete
the acquisition and/or definitive agreement may not be reached.
Internally-incubated businesses, similarly, may not become commercial successes.



                                       35




Patents and Intellectual Property




On June 25, 2018, Dan Early granted the Company a worldwide, exclusive
non-transferable license to intellectual property consisting of five issued US
patents, and design software, CAD, marketing, design and specification documents
("Early IP").



On May 20, 2020, we agreed on a renewal of the license for an additional ten
years, with three-year extensions. We also gained the right to sublicense, and,
with approval, to create ISO-compliant manufacturing joint ventures.



The Early IP consists of combined protection on the materials and configurations
of complete packaged water treatment systems, built into containers. The patents
consist of the following:



                                                                        Date
                                                                       Patent    Expiration
#             Description                       Patent No.             Issued       Date
1   Wastewater System & Method         US 8,372,274 B2                

02/12/13 07/16/31

                                       Applications: WIPO, Mexico
2   Steel Reinforced HDPE Rainwater    US 8,561,633 B2                

10/22/13 05/16/32

Harvesting

3   Wastewater Treatment System CIP    US 8,871,089 B2                10/28/14    05/07/32
4   Scum Removal System for Liquids    US 9,205,353 B2                12/08/15    02/19/34
5   Portable, Steel Reinforced HDPE    US 9,217,244 B2                12/22/15    10/20/31
    Pump Station CIP




On May 10, 2021, OriginClear announced that it had filed "System And Method For
Water Treatment Incentive", a patent application for using blockchain technology
and non-fungible tokens (NFT) to simplify the distribution of payments on
outsourced water treatment and purification services billed on a pay-per-gallon
basis ahead of inflation.



With the rising need for local, point-of-use or point-of-discharge water
treatment solutions, the Modular Water Systems licensed IP family is the core to
a portable, integrated, transportable, plug-and-play system that, unlike other
packaged solutions, can be manufactured in series, have a longer life and are
more respectful of the environment.



The common feature of this IP family is the use of a construction material
(Structural Reinforced ThermoPlastic), for the containers that is:



       ?   more durable: an estimated 75 to 100-year life cycle as opposed to a
           few decades for metal, or 40 to 50 years maximum for concrete;

? easier to manufacture: vessels manufacturing process can be automated;

           and

       ?   recyclable and can be made out of biomaterials




In addition, patents US 8,372,274 and US 8,871,089 (1 and 3) relate to the use
of vessels or containers made out of this material combined with a configuration
of functional modules, or process, for general water treatment.



Other subsequent patents, which build upon the original claims, focus on more
targeted applications. These patents outline a given combination of modules
engineered inside the vessel to address a specific water treatment challenge.

Expansion of the PWT and MWS Business-Lines

In April 2019, we completed the expansion of our manufacturer’s representative
network to serve both PWT and MWS for customer lead generation.



                                       36





Beginning with its first installation, PWT built MWS components. The Company is
currently developing MWS as a discrete line of business for an eventual spinoff,
and MWS systems are built and assembled by a network of fabrication partners. In
addition, the Company is developing the EveraMOD Pump Station product line as a
standalone business.



Critical Accounting Policies



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



Revenue Recognition



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



Revenues and related costs on construction contracts are recognized as the
performance obligations for work are satisfied over time in accordance with
Accounting Standards Codification ("ASC") 606, Revenue from Contracts with
Customers. Under ASC 606, revenue and associated profit, will be recognized as
the customer obtains control of the goods and services promised in the contract
(i.e., performance obligations). All un-allocable indirect costs and corporate
general and administrative costs are charged to the periods as incurred.
However, in the event a loss on a contract is foreseen, the Company will
recognize the loss, as it is determined. Revisions in cost and profit estimates
during the course of the contract are reflected in the accounting period in
which the facts for the revisions become known. Provisions for estimated losses
on uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, and estimated
profitability, including those arising from contract penalty provisions, and
final contract settlements, may result in revisions to costs and income, which
are recognized in the period the revisions are determined.



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 September 30, 2022, the amounts
reported for cash, prepaid expenses, accounts payable and accrued expenses
approximate the fair value because of their short maturities.



                                       37




Results of Operations for the three months ended September 30, 2022 compared to
the three months ended September 30, 2021.



Revenue and Cost of Sales



For the three months ended September 30, 2022, we had revenue of $3,366,061
compared to $1,120,687 for the three months ended September 30, 2021. Cost of
sales for the three months ended September 30, 2022 was $2,542,887 compared to
$790,336 for the three months ended September 30, 2021. Revenue and cost of
sales increased primarily due to our subsidiary's increase in revenue.



Our gross profit was $823,174 and $330,351 for the three months ended September
30, 2022
and 2021, respectively.

Selling and Marketing Expenses




For the three months ended September 30, 2022, we had selling and marketing
expenses of $712,420, compared to $636,481 for the three months ended September
30, 2021.  The increase in selling and marketing expenses was primarily due to
an increase in marketing expense.



General and Administrative Expenses

For the three months ended September 30, 2022, we had general and administrative
expenses of $1,085,044 compared to $1,006,041 for the three months ended
September 30, 2021. The increase in general and administrative expenses was
primarily due to an increase in professional and legal fees and outside
services.




Other Income and (Expenses)



Other income and (expenses) increased by $47,787,918 to $(28,067,729) for the
three months ended September 30, 2022, compared to $19,720,189 for the three
months ended September 30, 2021. The increase was due primarily to an increase
in loss on non-cash accounts associated with the change in fair value of the
derivatives in the amount of $47,405,884, with an overall increase in other
expenses in the amount of $382,034.



Net Income/(Loss)



Our net loss increased by $47,468,166 to $(29,071,051) for the three months
ended September 30, 2022, compared to net income of $18,397,115 for the three
months ended September 30, 2021. The majority of the increase in net loss was
due primarily to an increase in other expenses associated with the net change in
fair value of derivative instruments estimated each period. These estimates are
based on multiple inputs, including the market price of our stock, interest
rates, our stock price, volatility, variable conversion prices based on market
prices defined in the respective agreements and probabilities of certain
outcomes based on managements' estimates. These inputs are subject to
significant changes from period to period, therefore, the estimated fair value
of the derivative liabilities will fluctuate from period to period, and the
fluctuation may be material.



Results of Operations for the nine months ended September 30, 2022 compared to
the nine months ended September30, 2021.



Revenue and Cost of Sales



For the nine months ended September 30, 2022, we had revenue of $7,768,133
compared to $2,848,287 for the nine months ended September 30, 2021. The cost of
sales for the nine months ended September 30, 2022 was $6,484,235 compared to
$2,237,282 for the nine months ended September 30, 2021. Revenue and cost of
sales increased primarily due to our subsidiary's increase in revenue.



Our gross profit was $1,283,898 and $611,005 for the nine months ended September
30, 2022
and 2021, respectively.

Selling and Marketing Expenses

For the nine months ended September 30, 2022, we had selling and marketing
expenses of $1,825,170, compared to $2,201,045 for the nine months ended
September 30, 2021. The decrease in selling and marketing expenses was primarily
due to a decrease in marketing and investor relations expense.



                                       38




General and Administrative Expenses




General and administrative expenses were $2,900,203 for the nine months ended
September 30, 2022, compared to $2,785,713 for the nine months ended September
30, 2021. The increase in general and administrative expenses was primarily due
to an increase in professional and legal fees.



Other Income and (Expenses)



Other income and (expenses) increased by $24,467,149 to $(30,421,325) for the
nine months ended September 30, 2022, compared to $(5,954,176) for the nine
months ended September 30, 2021. The increase was due primarily to an increase
in loss on non-cash accounts associated with the change in fair value of the
derivatives in the amount of $25,029,945, with an overall decrease in other
expenses in the amount of $562,796.



Net Income/(Loss)



Our net loss for the nine months ended September 30, 2022 was $(33,894,246),
compared to net loss of $(10,363,963) for the nine months ended September 30,
2021. The majority of the increase in net loss was due primarily to an increase
in other expenses associated with the loss on net change in derivative
instruments estimated each period. These estimates are based on multiple inputs,
including the market price of our stock, interest rates, our stock price,
volatility, variable conversion prices based on market prices defined in the
respective agreements and probabilities of certain outcomes based on
managements' estimates. These inputs are subject to significant changes from
period to period, therefore, the estimated fair value of the derivative
liabilities will fluctuate from period to period, and the fluctuation may be
material.


Liquidity and Capital Resources




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



The condensed consolidated financial statements have been prepared on a going
concern basis of accounting, which contemplates continuity of operations,
realization of assets and liabilities and commitments in the normal course of
business. The accompanying condensed consolidated financial statements do not
reflect any adjustments that might result if the Company is unable to continue
as a going concern. The Company has not generated significant revenue, and has
negative cash flows from operations, which raise substantial doubt about the
Company's ability to continue as a going concern. The ability of the Company to
continue as a going concern and appropriateness of using the going concern basis
is dependent upon, among other things, raising additional capital and increasing
sales. We obtained funds from investors during the nine months ending September
30, 2022. No assurance can be given that any future financing will be available
or, if available, that it will be on terms that are satisfactory to the Company.
Even if the Company is able to obtain additional financing, it may contain
restrictions on our operations, in the case of debt financing, or cause
substantial dilution for our stockholders, in case of equity financing.



In connection with our sale of Series M Preferred Stock conducted under
Regulation A under the Securities Act, we may be subject to claims for
rescission. If this occurs, it may have a negative effect on our liquidity.




At September 30, 2022 and December 31, 2021, we had cash of $1,751,226 and
$706,421, including restricted cash of $1,266,391 and $433,951, respectively and
a working capital deficit of $37,858,994 and $12,826,008, respectively.  The
increase in working capital deficit was due primarily to an increase in non-cash
derivative liabilities, accounts payable, contract assets, cash and accrued
expenses, with a decrease in convertible promissory notes, contracts
liabilities, loan payable and contract receivables.



During the period ended September 30, 2022, we raised an aggregate of $4,525,782
from the sale of preferred stock in private placements. Our ability to continue
as a going concern is dependent upon raising capital from financing transactions
and future revenue.



Net cash used in operating activities was $3,483,023 for the nine months ended
September 30, 2022, compared to $3,560,033 for the prior period ended September
30, 2021. The decrease in cash used in operating activities was primarily due to
a decrease in contract liabilities, contract assets, and prepaid expenses, with
an increase in and accounts payable and accrued expenses.



Net cash flows used in investing activities was $17,138 for the nine months
ended September 30, 2022, compared to $13,500 for the prior period ended
September 30, 2021. The increase in cash used in investing activities was
primarily due to the purchase of fixed assets during the current period.



                                       39





Net cash flows provided by financing activities was $4,554,966 for the nine
months ended September 30, 2022, as compared to $3,716,241 for the nine months
ended September 30, 2021. The increase in cash provided by financing activities
was due primarily to an increase in proceeds for issuance of preferred stock. To
date we have principally financed our operations through the sale of our common
and preferred stock and the issuance of debt.



We do not have any material commitments for capital expenditures during the next
twelve months. Although our proceeds from the issuance of securities together
with revenue from operations are currently sufficient to fund our operating
expenses in the near future, we will need to raise additional funds in the
future so that we can maintain and expand our operations. Therefore, our future
operations are dependent on our ability to secure additional financing, which
may not be available on acceptable terms, or at all. Financing transactions may
include the issuance of equity or debt securities, obtaining credit facilities,
or other financing mechanisms. Furthermore, if we issue additional equity or
debt securities, stockholders may experience additional dilution or the new
equity securities may have rights, preferences or privileges senior to those of
existing holders of our common stock. The inability to obtain additional capital
may restrict our ability to grow and may reduce our ability to continue to
conduct business operations. If we are unable to obtain additional financing, we
may have to curtail our marketing and development plans and possibly cease our
operations.



We have estimated our current average burn, and believe that we have assets to
ensure that we can function without liquidation for a limited time, due to our
cash on hand, growing revenue, and our ability to raise money from our investor
base. Based on the aforesaid, we believe we have the ability to continue our
operations for the immediate future and will be able to realize assets and
discharge liabilities in the normal course of operations. However, there cannot
be any assurance that any of the aforementioned assumptions will come to
fruition and as such we may only be able to function for a short time.



Off-Balance Sheet Arrangements

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

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