Exhibit 99.1

 

 

 

PROGRESSIVE WATER TREATMENT, INC.

INDEX TO FINANCIAL STATEMENTS

 

Report of Independent Registered Public Accounting Firm	F-2
Balance Sheets at December 31, 2014 and  2013	F-3
Statements of Operations for the Years Ended December 31, 2014 and 2013	F-4
Statements of Shareholder’s Equity for the Years Ended December 31, 2014 and 2013	F-5
Statements of Cash Flows for the Year Ended December 31, 2014 and 2013	F-6
Notes to the Financial Statements	F-7

 

Condensed Balance Sheets at June 30, 2015 and 2014	F-13
Condensed Statements of Operations for the Six Months Ended June 30, 2015 and 2014	F-14
Condensed Statements of Shareholder’s Equity for the Six Months Ended June 30, 2015 and 2014	F-15
Condensed Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014	F-16
Notes to the Financial Statements	F-17
Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2015	F-22
Unaudited Pro Forma Condensed Combined Statements of Operations for the Six Months Ended June 30, 2015	F-23
Unaudited Pro Forma Condensed Combined Statements of Operations for the Year Ended December 31, 2014	F-24
Notes to Unaudited Pro Forma Condensed Combined Financial Information	F-25

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholder of

Progressive Water Treatment, Inc.

 

We have audited the accompanying balance sheet of Progressive Water Treatment, Inc. (the "Company") as of December 31, 2014 and 2013, and the related statements of operations, shareholder’s equity, and cash flows for the years ended December 31, 2014 and 2013.  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 standards established by the Public Company Accounting Oversight Board (United States of America).  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 audits 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provide a reasonable basis for our opinion.

 

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2014 and 2013, and the results of its operations and its cash flows for the years ended December 31, 2014 and 2013, in conformity with U.S. generally accepted accounting principles.

 

As discussed in Note 12 to the financial statements, the Company sold substantially all of the assets on October 1, 2015.

 

	/s/ Liggett, Vogt & Webb, P.A.
New York, New York
October 30, 2015

 

 

PROGRESSIVE WATER TREATMENT, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 2014 AND 2013

 

		2014				2013
Assets
Current Assets
Cash and cash equivalents		$	12,424			$	30,070
Contracts receivable, net of allowance for doubtful accounts of $50,000, respectively			1,904,866				532,511
Costs in excess of billings			109,756				180,461
Total Current Assets			2,027,046				743,042
Furniture and equipment, net			65,399				87,472
Total Assets		$	2,092,445			$	830,514
Liabilities and Shareholder's Equity
Current Liabilities:
Accounts payable		$	758,509			$	319,373
Billings in excess of costs			99,668				113,950
Customer deposit			113,950				-
Warranty reserve			20,000				20,000
Other payable			35,018				13,324
Note payable, current portion			4,936				4,314
Line of credit			150,000				175,000
Total Current Liabilities			1,182,081				645,961
Long Term Liabilities
Note payable, long term portion			16,373				21,309
Total Long Term Liabilities			16,373				21,309
Total Liabilities			1,198,454				667,270
Shareholder's Equity
Common stock, $10 par value; 1,000,000 authorized common shares 10,000 and 10,000 shares issued and outstanding, respectively			1,000				1,000
Retained earnings			892,991				162,244
Total Shareholder's Equity			893,991				163,244
Total Liabilities and Shareholder's Equity		$	2,092,445			$	830,514

 

See accompanying notes to financial statements

 

 

PROGRESSIVE WATER TREATMENT, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013

 

		2014				2013
Revenues		$	6,075,108			$	3,708,613
Cost of Revenues:
Materials			3,622,964				2,095,253
Labor and subcontracts			538,072				488,114
Other costs			127,380				164,624
Total Cost of Revenues			4,288,416				2,747,991
Gross Profit			1,786,692				960,622
Operating Expenses
General and administrative expenses			968,054				858,151
Total Operating Expenses			968,054				858,151
Income before Other Income/(Expenses)			818,638				102,471
Other Income/(Expenses)
Interest and other income			-				471
Interest expense			(4,891	)			(1,611	)
Total Other Income/(Expenses)			(4,891	)			(1,140	)
Income before Provision for Income Taxes			813,747				101,331
Provision for income taxes			-				-
Net Income		$	813,747			$	101,331

 

See accompanying notes to financial statements

 

 

PROGRESSIVE WATER TREATMENT, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013

 

		Common Stock								Retained
		Shares				Amount				Earnings				Total
Beginning balance, January 1, 2013			10,000			$	1,000			$	356,418			$	357,418
Net income			-				-				101,331				101,331
Distributions			-				-				(295,505	)			(295,505	)
Ending balance, December 31, 2013			10,000				1,000				162,244				163,244
Net income			-				-				813,747				813,747
Distributions			-				-				(83,000	)			(83,000	)
Ending balance, December 31, 2014			10,000			$	1,000			$	892,991			$	893,991

 

See accompanying notes to financial statements

 

 

PROGRESSIVE WATER TREATMENT, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013

 

		2014				2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income		$	813,747			$	101,331
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation			28,760				26,876
Changes in Assets and Liabilities
(Increase) Decrease in:
Accounts receivable			(1,372,355	)			774,438
Prepaid expenses			-				2,700
Costs in excess of billings			70,705				(67,074	)
Increase (Decrease) in:
Accounts payable			439,136				10,984
Billings in excess of costs			(14,282	)			(553,543	)
Customer deposit			113,950				-
Other liabilities			21,694				10,143
NET CASH PROVIDED BY OPERATING ACTIVITIES			101,355				305,855
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment			(6,688	)			(19,050	)
NET CASH USED IN INVESTING ACTIVITIES			(6,688	)			(19,050	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Shareholder distribution			(83,000	)			(295,506	)
Proceeds from credit line			225,000				-
Payments on credit line			(250,000	)			-
Payments on loan payable			(4,313	)			(4,847	)
NET CASH USED IN FINANCING ACTIVITIES			(112,313	)			(300,353	)
NET DECREASE IN CASH IN CASH AND CASH EQUIVALENTS			(17,646	)			(13,548	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR			30,070				43,618
CASH AND CASH EQUIVALENTS, END OF YEAR		$	12,424			$	30,070
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid		$	4,891			$	1,611
Income taxes		$	8,937			$	9,446

 

See accompanying notes to financial statements

 

 

PROGRESSIVE WATER TREATMENT, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS

 

Progressive Water Treatment, Inc. (“the Company”) was formed as an S-Corporation under the laws of the State of Texas on March 20, 2001. The Company is primarily engaged in providing water treatment systems and services for a wide variety of applications and component sales.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

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.

 

Revenue Recognition

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.

 

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.

 

Revisions in cost and profit estimates during the course of the contract are reflected in the accounting period in which the facts for the revisions become known. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions, and final contract settlements, may result in revisions to costs and income, which are recognized in the period the revisions are determined.

 

Contract 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 as of December 31, 2014 and 2013, respectively. The net contract receivable balance was $1,904,866 and $532,511 at December 31, 2014 and December 31, 2013, respectively.

 

Cash Equivalents

For purposes of the statements of cash flows, the Company considers all highly liquid investment instruments purchased with an original maturity of three months or less to be cash equivalents. At December 31, 2014 and 2013, there were no cash equivalents.

 

Furniture and equipment

Furniture 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:

 

 

PROGRESSIVE WATER TREATMENT, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Furniture and equipment (continued)

 

			Estimated Life
Machinery and equipment			3-5 years
Furniture, fixtures and computer equipment			3 years
Transportation equipment			3 years
Leasehold improvements			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.

 

Fair Value of Financial Instruments

The carrying amount of cash, contract receivable and accounts payable, as applicable, approximates fair value due to the short term nature of these items in relation to current market conditions.

 

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Assets and liabilities that are measured at fair value are reported using a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

 

Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date of identical, unrestricted assets or liabilities.

 

Level 2 – Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

 

Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

 

As of December 31, 2014 and 2013, the Company did not identify any other non-recurring assets and liabilities that are required to be presented in the balance sheets at fair value in accordance with ASC Topic 825, Financial Instruments.

 

Income Taxes

The Company made an election as an S-Corporation and files tax returns on a cash basis. The Company has adopted ASC 740-10, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Temporary differences between taxable income reported for financial reporting purposes and income tax purposes consist primarily of accrual financial reporting versus cash basis tax reporting.

 

Since the Company is a pass through entity, the effect of the timing differences and related deferred tax assets and liabilities at December 31, 2014 and 2013 were deemed to be immaterial.

 

Advertising Costs

The Company has the policy of expensing advertising costs as incurred. The Company advertising costs charged to expense was $1,356 and $1,122 at December 31, 2014 and December 31, 2013, respectively.

 

 

PROGRESSIVE WATER TREATMENT, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Use of Estimates

Financial statements prepared in conformity with generally accepted accounting principles require management to make estimates and assumptions that affect certain reported amounts and disclosures. Significant items subject to such estimates and assumptions include the allowance for doubtful accounts; recognition of revenue for costs and estimated earnings in excess of billings on uncompleted contract and revenue recognition of contract change order claims. Actual results may differ from those estimates. There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s financial position, results of operations or cash flows.

 

Recently Issued Accounting Pronouncements

The FASB has issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of 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. This ASU is effective on January 1, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The Company has not yet determined the effect of the adoption of this standard and it is expected to have an immaterial impact on the Company’s consolidated financial statements.

 

There are various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's financial position, results of operations or cash flows.

 

NOTE 3 – CONTRACT RECEIVABLES:

 

As of December 31, 2014 and 2013, contract receivables consist of the following:

 

		2014				2013
Currently due:
Contracts in progress		$	1,697,415			$	-
Contracts completed			194,176				468,561
Subtotal			1,891,591				468,561
Retention:
Contracts in progress			63,275				113,950
Subtotal			1,954,866				582,511
Less, allowance for doubtful accounts			(50,000	)			(50,000	)
Total		$	1,904,866			$	532,511

  

NOTE 4 – COSTS IN EXCESS OF BILLINGS/BILLINGS IN EXCESS OF COSTS ON UNCOMPLETED CONTRACTS

 

As of December 31, 2014 and 2013, cost in excess of billings/billings in excess of costs on uncompleted contracts consists of the following;

 

		2014				2013
Costs and estimated earnings in excess of billings		$	109,756			$	180,461
Billings in excess of costs and estimated earnings			(99,668	)			(113,950	)
Net costs in excess of billings		$	10,088			$	66,511
Costs incurred on uncompleted contracts		$	3,193,716			$	286,871
Estimated earnings to date			702,508				18,708
Total costs and estimated earnings			3,896,224				305,579
Less billings to date			(3,886,136	)			(239,068	)
Net costs in excess of billings		$	10,088			$	66,511

 

 

PROGRESSIVE WATER TREATMENT, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

NOTE 5 – FURNITURE AND EQUIPMENT

 

As of December 31, 2014 and 2013, furniture and equipment are summarized as follows:

 

		2014				2013
Machinery and equipment		$	154,959			$	148,272
Furniture, fixtures and computer equipment			38,160				38,160
Transportation equipment			136,741				136,741
Leasehold improvements			55,643				55,643
			385,503				378,816
Less accumulated depreciation			(320,104	)			(291,344	)
Net fixed assets		$	65,399			$	87,472

 

Depreciation expense as of December 31, 2014 and 2013 was $28,761 and $26,876 respectively.

 

NOTE 6 – NOTE PAYABLE

 

As of December 31, 2014 and 2013, notes payable are summarized as follows:

 

Note payable is secured by transportation equipment, requiring approximate monthly payment of $491, including principal and interest at a rate of interest of 4.99% per annum. Principal and any accrued interest are payable until December 15, 2018.

 

		2014				2013
Notes payable		$	21,309			$	25,623
Less, current portion			(4,936	)			(4,314	)
Long term portion		$	16,373			$	21,309

 

For the year ending December, 31, aggregate maturities of long-term note payable are as follows:

 

2015		$	4,936
2016			5,188
2017			5,453
2018			5,732
		$	21,309

 

NOTE 7 – LINE OF CREDIT

 

The Company has a secured line of credit from Legacy Bank of Texas for $300,000 with a balance outstanding of $150,000 and $175,000 as of December 31, 2014 and December 31, 2013, respectively. The line of credit is secured by all inventory, accounts receivable, equipment and furniture and fixtures. The interest rate is 5.5% per annum and payable every month. Interest shall be calculated from the date of each advance until repayment of each advance or maturity, whichever occurs first. The note was renewed in June 2015 and matures in June 2016.

 

NOTE 8 – COMMITMENTS AND CONTINGENCIES

 

Operating Lease – Related Party

 

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

 

 

PROGRESSIVE WATER TREATMENT, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

NOTE 8 – COMMITMENTS AND CONTINGENCIES (CONTINUED)

 

Warranty Reserve

Generally, a 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 based on the opinion of management and based on Company history in the amount of $20,000 for the years ending December 31, 2014 and 2013.

 

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.

 

NOTE 9 – CONCENTRATIONS

 

Major Customers

The Company has four major customers for the period ended December 31, 2014. The customers represent 61.02% of billings in 2014. The contract receivable balance for the customers was $1,529,931, at December 30, 2014.

 

The Company has five major customers for the year ended December 31, 2013. The customers represent 50.44% of billings in 2013. The contract receivable balance for the customers was $327,830 at December 31, 2013.

 

Major Suppliers

The Company has four major vendors for the year ended December 31, 2014. The vendors represent 47.84% of total expenses in 2014. The accounts payable balance due to the vendors is $362,419, at December 31, 2014. Management believes no risk is present with the vendors due to other suppliers being readily available.

 

The Company has four major vendors for the year ended December 31, 2013. The vendors represent 41.66% of total expenses in 2013. The accounts payable balance due to the vendors is $175,680 at December 31, 2013.

 

NOTE 10 – INCOME TAXES

 

The Company is an S-Corporation and all items of income and expense are passed through to the shareholders to report on their individual income tax returns. The Company incurs and pays no federal income tax, only state taxes paid to the franchise tax board. For the year ended December 31, 2014 and 2013, state franchise taxes which are classified within general and administrative expenses were $8,937 and $9,446, respectively.

 

NOTE 11 – PROFIT SHARING PLAN

 

Effective 2010, the Company adopted a qualified profit sharing plan with a 401 (k) deferred compensation provision. All employees are eligible to participate in the Company's profit sharing plan and 401(k) plan when they reach an entry date of the plan coinciding with or next following their date of hire. The Company contributions to the plan are discretionary matching equal to a percentage of the amount of the salary deduction an employee elects to defer, to be determined each year by the Company. The Company elected to match 100% of employee-deferred salary up to 3% of employee deferrals. The Company may make a discretionary profit sharing contribution to be determined each year by the Company. The Company made no discretionary profit sharing contributions in 2014 and 2013. For the year ended December 31, 2014 and 2013, the matching expense allocated to general and administrative expenses for the plan were $25,334 and $26,515, respectively.

 

 

PROGRESSIVE WATER TREATMENT, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

NOTE 12 – SUBSEQUENT EVENTS

 

Management has evaluated subsequent events through October 15, 2015, the date on which the financial statements were available to be issued.

 

On October 1, 2015, the Company closed a Share Exchange Agreement with OriginClear Inc. (“the Buyer”) for the sale and purchase of substantially all (100%) of Progressive Water Treatment, Inc. (PWT) shareholders common stock owned. As consideration for the sale of all of the Company’s common stock, the Buyer will pay $1,500,000 paid in the form of ten thousand (10,000) shares of the Company’s Series B Convertible Preferred Stock, with a stated value of one hundred fifty dollars ($150) per share (the stated value), which shall have the rights, preferences and privileges as set forth in a Certificate of Designation. The stated value of each share of Series B Preferred Stock is convertible, at a conversion price of three cents ($0.03) per share, into common stock of the Buyer. With respect to the public resale of the common stock, the PWT shareholder shall at all times be subject to the restrictions, conditions and requirements applicable to an affiliate of the Buyer, as described in Rule 144 of the Securities Act of 1933, as amended, even if the PWT shareholder or its assignees and successors are no longer affiliates of the Buyer.

 

 

PROGRESSIVE WATER TREATMENT, INC.

CONDENSED BALANCE SHEETS

		As of
		June 30, 2015				December 31, 2014
		(unaudited)
Assets
Current assets
Cash and cash equivalents		$	55,363			$	12,424
Contracts receivable, net of allowance for doubtful accounts			918,985				1,904,866
Costs in excess of billings			572,658				109,756
Total Current Assets			1,547,006				2,027,046
Furniture and equipment, net			59,436				65,399
Total Assets		$	1,606,442			$	2,092,445
Liabilities and Shareholder's Equity
Current Liabilities:
Accounts payable		$	672,415			$	758,509
Billings in excess of costs			-				99,668
Customer deposit			113,950				113,950
Warranty reserve			20,000				20,000
Other payable			22,040				35,018
Note payable, current portion			5,061				4,936
Line of credit			-				150,000
Total Current Liabilities			833,466				1,182,081
Long term liabilities
Note payable, long term portion			13,811				16,373
Total Long Term Liabilities			13,811				16,373
Total Liabilities			847,277				1,198,454
Shareholder's Equity
Common stock, $10 par value; 1,000,000 authorized common shares 10,000 and 10,000 shares issued and outstanding, respectively			1,000				1,000
Retained earnings			758,165				892,991
Total shareholder's Equity			759,165				893,991
Total Liabilities and Shareholder's Equity		$	1,606,442			$	2,092,445

 

See accompanying notes to condensed financial statements

 

 

PROGRESSIVE WATER TREATMENT, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(UNAUDITED)

 

		2015				2014
Revenues		$	2,638,384			$	1,697,828
Cost of Revenues:
Materials			1,913,902				991,312
Labor and subcontracts			278,875				227,257
Other costs			93,557				54,758
Total Cost of Revenues			2,286,334				1,273,327
Gross Profit			352,050				424,501
Operating Expenses
General and administrative expenses			485,976				427,297
Total Operating Expenses			485,976				427,297
Loss before Other Income/(Expenses)			(133,926	)			(2,796	)
Other Income/(Expenses)
Interest and other income			1,012				-
Interest expense			(1,912	)			(2,869	)
Total Other Income/(Expenses)			(900	)			(2,869	)
Loss before Provision for Income Taxes			(134,826	)			(5,665	)
Provision for income taxes			-				-
Net Loss		$	(134,826	)		$	(5,665	)

 

See accompanying notes to condensed financial statements

 

 

PROGRESSIVE WATER TREATMENT, INC.
CONDENSED STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(UNAUDITED)

 

		Common Stock								Retained
		Shares				Amount				Earnings				Total
Beginning balance, January 1, 2014			10,000			$	1,000			$	162,244			$	163,244
Net loss			-				-				(5,665	)			(5,665	)
Distributions			-				-				(83,000	)			(83,000	)
Ending balance, June 30, 2014			10,000				1,000				73,579				74,579
Net income			-				-				819,412				819,412
Distributions			-				-				-				-
Ending balance, December 31, 2014			10,000				1,000				892,991				893,991
Net loss			-				-				(134,826	)			(134,826	)
Distributions			-				-				-				-
Ending balance, June 30, 2015			10,000			$	1,000			$	758,165			$	759,165

 

See accompanying notes to condensed financial statements

 

 

PROGRESSIVE WATER TREATMENT, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(UNAUDITED)

 

		2015				2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss		$	(134,826	)		$	(5,665	)
Adjustments to reconcile net loss to net cash provided in operating activities
Depreciation			16,290				12,084
Changes in Assets and Liabilities
(Increase) Decrease in:
Accounts receivable			985,881				(23,307	)
Cost in excess of billings			(462,901	)			180,461
Increase (Decrease) in:
Accounts payable			(86,094	)			4,675
Billings in excess of cost			(99,668	)			489,547
Other liabilities			(12,978	)			27
NET CASH PROVIDED BY OPERATING ACTIVITIES			205,704				657,822
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment			(10,327	)			–
NET CASH USED IN INVESTING ACTIVITIES			(10,327	)			–
CASH FLOWS FROM FINANCING ACTIVITIES:
Shareholder distribution			–				(83,000	)
Payments on line of credit			(150,000	)			(175,000	)
Payments on note payable			(2,438	)			(1,936	)
NET CASH USED IN FINANCING ACTIVITIES			(152,438	)			(259,936	)
NET INCREASE IN CASH AND CASH EQUIVALENTS			42,939				397,886
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			12,424				30,070
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	55,363			$	427,956
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid		$	1,912			$	2,869
Income taxes		$	2,535			$	8,937

 

See accompanying notes to condensed financial statements

 

  

PROGRESSIVE WATER TREATMENT, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2015 AND 2014

 

NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS

 

Progressive Water Treatment, Inc. (“the Company”) was formed as an S-Corporation under the laws of the State of Texas on March 20, 2001. The Company is primarily engaged in providing water treatment systems, services for a wide variety of applications and component sales.

 

Basis of Presentation

The accompanying unaudited financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. For further information refer to the audited financial statements and footnotes thereto included in the Company's audited report for the year ended December 31, 2014 and 2013.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

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.

 

Revenue Recognition

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.

 

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.

 

Revisions in cost and profit estimates during the course of the contract are reflected in the accounting period in which the facts for the revisions become known. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions, and final contract settlements, may result in revisions to costs and income, which are recognized in the period the revisions are determined.

 

Contract 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 as of June 30, 2015. The net contract receivable balance was $918,985 at June 30, 2015.

 

Cash Equivalents

For purposes of the statements of cash flows, the Company considers all highly liquid investment instruments purchased with an original maturity of three months or less to be cash equivalents. At June 30, 2015, there were no cash equivalents.

 

 

PROGRESSIVE WATER TREATMENT, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2015 AND 2014

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Furniture and equipment

Furniture 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			3-5 years
Furniture, fixtures and computer equipment			3 years
Transportation equipment			3 years
Leasehold improvements			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.

 

Fair Value of Financial Instruments

The carrying amount of cash, contract receivable and accounts payable, as applicable, approximates fair value due to the short term nature of these items in relation to current market conditions.

 

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Assets and liabilities that are measured at fair value are reported using a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

 

Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date of identical, unrestricted assets or liabilities.

 

Level 2 – Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

 

Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

 

As of June 30, 2015, the Company did not identify any other non-recurring assets and liabilities that are required to be presented in the balance sheets at fair value in accordance with ASC Topic 825, Financial Instruments.

 

Use of Estimates

Financial statements prepared in conformity with generally accepted accounting principles require management to make estimates and assumptions that affect certain reported amounts and disclosures. Significant items subject to such estimates and assumptions include the allowance for doubtful accounts; recognition of revenue for costs and estimated earnings in excess of billings on uncompleted contract and revenue recognition of contract change order claims. Actual results may differ from those estimates. There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s financial position, results of operations or cash flows.

 

 

PROGRESSIVE WATER TREATMENT, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2015 AND 2014

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Recently Issued Accounting Pronouncements

The FASB has issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of 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. This ASU is effective on January 1, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The Company has not yet determined the effect of the adoption of this standard and it is expected to have an immaterial impact on the Company’s consolidated financial statements.

 

There are various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's financial position, results of operations or cash flows.

 

NOTE 3 – CONTRACT RECEIVABLES

 

As of June 30, 2015 and December 31, 2014, contract receivables consist of the following:

 

		June 30, 2015				December 31, 2014
Currently due:
Contracts in progress		$	157,251			$	1,697,415
Contracts completed			811,734				194,176
Subtotal			968,985				1,891,591
Retention:
Contracts in progress			-				63,275
Subtotal			968,985				1,954,866
Less, allowance for doubtful accounts			(50,000	)			(50,000	)
Total		$	918,985			$	1,904,866

 

NOTE 4 – COSTS IN EXCESS OF BILLINGS/ BILLINGS IN EXCESS OF COSTS ON UNCOMPLETED CONTRACTS:

 

As of June 30, 2015 and December 31, 2014, cost in excess of billings / billing in excess of costs on uncompleted contracts consist of the following:

 

		June 30, 2015				December 31, 2014
Costs and estimated earnings in excess of billings		$	572,658			$	109,757
Billings in excess of costs and estimated earnings			–				(99,668	)
Net costs in excess of billings		$	572,658			$	10,089
Costs incurred on uncompleted contracts		$	571,986			$	3,193,716
Estimated earnings to date			326,550				702,508
Total costs and estimated earnings			898,536				3,896,224
Less billings to date			(325,878	)			(3,886,135	)
Net costs in excess of billings		$	572,658			$	10,089

 

 

PROGRESSIVE WATER TREATMENT, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2015 AND 2014

 

NOTE 5 – NOTE PAYABLE

 

As of June 30, 2015, notes payable are summarized as follows:

 

		June 30, 2015				December 31, 2014
Notes payable		$	18,872			$	21,309
Less, current portion			(5,061	)			(4,936	)
Long term portion		$	13,811			$	16,373

  

For the twelve months ending June 30, aggregate maturites of long-term note payable are as follows:

 

2015		$	5,061
2016			5,319
2017			5,590
2018			2,902
		$	18,872

 

Note payable is secured by transportation equipment, requiring approximate monthly payment of $491, including principal and interest at a rate of interest of 4.99% per annum. Principal and any accrued interest are payable until December 15, 2018.

  

NOTE 6 – BANK LINE OF CREDIT

 

The Company has a secured line of credit from Legacy Bank of Texas for $300,000, with a balance outstanding of $0 and $150,000 as of June 30, 2015 and December 31, 2014, respectively. The line of credit is secured by all inventory, accounts, equipment and furniture and fixtures. The interest rate is 5.5% per annum and payable every month. Interest shall be calculated from the date of each advance until repayment of each advance or maturity, whichever occurs first. The note was renewed in June 2015 and matures in June 2016.

 

NOTE 8 – SUBSEQUENT EVENTS

 

Management has evaluated subsequent events through October 15, 2015, the date on which the financial statements were available to be issued.

 

On October 1, 2015, the Company closed a Share Exchange Agreement with OriginClear Inc. (“the Buyer”) for the sale and purchase of substantially all (100%) of Progressive Water Treatment, Inc. (PWT) shareholders common stock owned. As consideration for the sale of all of the Company’s common stock, the Buyer will pay $1,500,000 paid in the form of ten thousand (10,000) shares of the Company’s Series B Convertible Preferred Stock, with a stated value of one hundred fifty dollars ($150.00) per share (the stated value), which shall have the rights, preferences and privileges as set forth in a Certificate of Designation. The stated value of each share of Series B Preferred Stock is convertible, at a conversion price of three cents ($0.03) per share, into common stock of the Buyer. With respect to the public resale of the common stock, the PWT shareholder shall at all times be subject to the restrictions, conditions and requirements applicable to an affiliate of the Buyer, as described in Rule 144 of the Securities Act of 1933, as amended, even if the PWT shareholder or its assignees and successors are no longer affiliates of the Buyer.

 

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

  

The following unaudited pro forma condensed combined financial information is based on the historical financial statements of OriginClear, Inc. (the “Company”) and Progressive Water Treatment, Inc. (“PWT”) after entering into an agreement on July 31, 2015, giving effect to the Company’s acquisition of PWT which was consummated on October 1, 2015. The notes to the unaudited pro forma condensed financial information describes the reclassifications and adjustments to the financial information presented.

 

The unaudited pro forma condensed combined balance sheet as of June 30, 2015 is presented as if the acquisition of PWT had occurred on June 30, 2015. The unaudited pro forma condensed statement of operations for the six months ended June 30,2015 and year ended December 31, 2014 are presented as if the acquisition of PWT had occurred on beginning of each period presented.

 

The allocation of the purchase price used in the unaudited pro forma condensed combined financial information is based upon the respective fair values of the assets and liabilities of PWT as of the date of acquisition.

 

The unaudited pro forma condensed combined financial information is not intended to represent or be indicative of the Company’s consolidated results of operations or financial position that the Company would have reported had the PWT acquisition been completed as of the dates presented, and should not be taken as a representation of the Company’s future consolidated results of operation or financial position.

 

The unaudited pro forma condensed combined financial statements do not give effect to the potential impact of current financial conditions, regulatory matters or any anticipated synergies, operating efficiencies or cost savings that may be associated with the acquisition. The unaudited pro forma condensed combined financial data also do not include any integration costs, cost overlap or estimated future transaction costs, except for fixed contractual transaction costs that the companies expect to incur as a result of the acquisition.

 

The historical financial information has been adjusted to give effect to events that are directly attributable to the Acquisition, factually supportable and, with respect to the statements of operations, expected to have a continuing impact on the results of the combined company. These unaudited pro forma consolidated financial statements should be read in conjunction with the historical financial statements and

 

The unaudited pro forma condensed combined financial information should be read in conjunction with the historical consolidated financial statements and accompanying notes of the Company and PWT included in the annual report on form 10K for the year ended December 31, 2014 and contained elsewhere in this Form 8-K/A.

 

 

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF JUNE 30, 2015

 

										Unaudited				Unaudited
										ProForma				ProForma
		OriginClear				PWT				Adjustments				Combined
Assets
Current Assets
Cash and cash equivalents		$	180,699			$	55,363			$	-				$    236,062
Contracts receivable, net of allowance for doubtful accounts of $50,000			-				918,985				-				918,985
Work in progress			124,609												124,609
Costs in excess of billings			-				572,658				-				572,658
Prepaid expenses			83,747												83,747
Total Current Assets			389,055				1,547,006				-				1,936,061
Furniture and equipment, net			78,746				59,436				-				138,182
Other Assets
Other asset			37,038				-				-				37,038
Trademark			4,467				-				-				4,467
Security deposit			9,650				-				-				9,650
Goodwill			-				-				740,835	(A)			740,835
Total Other Assets			51,155				-				740,835				791,990
Total Assets		$	518,956			$	1,606,442			$	740,835				$ 2,866,233
Liabilities and Shareholders' Deficit
Current Liabilities:
Accounts payable and accrued expenses		$	22,833			$	672,415			$	-			$	695,248
Billings in excess of costs			347,122				-				-				347,122
Customer deposit			-				113,950				-				113,950
Deferred income			41,266				-				-				41,266
Derivative liabilities			4,611,398				-				1,200,540	(D)			5,811,938
Warranty reserve			-				20,000				-				20,000
Other payable			-				22,040				-				22,040
Convertible promissory notes, net of discount of $300,397			3,878,846				-								3,878,846
Note payable, current portion			-				5,061				-				5,061
Total Current Liabilities			8,901,465				833,466				1,200,540				10,935,471
Long term liabilities
Note payable, long term portion			-				13,811				-				13,811
Total Long Term Liabilities			-				13,811				-				13,811
Total liabilities			8,901,465				847,277				1,200,540				10,949,282
Shareholders' equity
Series B Preferred stock, $0.0001 par value, 25,000,000 shares authorized 10,000 shares issued and outstanding			-				-				1	(C)			1
Common stock, $0.0001 par value, 1,000,000,000 shares authorized 147,198,804 shares issued and outstanding			14,719				-				-				14,719
Common stock, $0.10 par value, 1,000,000 shares authorized, 10,000 shares issued and outstanding							1,000				(1,000	)(B)			-
Additional paid in capital, common stock			42,540,326				-				299,459	(D)			42,839,785
(Accumulated deficit)/Retained Earnings			(50,937,554	)			758,165				(758,165	)(B)			(50,937,554	)
Total Shareholders' deficit			(8,382,509	)			759,165				(459,705	)			(8,083,049	)
Total Liabilities and Shareholders' deficit		$	518,956			$	1,606,442			$	740,835			$	2,866,233

 

See notes to unaudited pro forma condensed combined financial information

 

 

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2015

										Unaudited				Unaudited
		Six Months Ended								ProForma				ProForma
		OriginClear				PWT				Adjustments				Combined
Sales		$	136,280			$	2,638,384			$	-			$	2,774,664
Cost of Sales			86,294				2,286,334				-			$	2,372,628
Gross Profit			49,986				352,050				-				402,036
Operating Expenses															-
Selling and general and administrative expenses			2,305,710				485,976				-				2,791,686
Research and development			460,742				-				-				460,742
Total Operating Expenses			2,766,452				-				-				3,252,428
(Loss) before Other Income/(Expenses)			(2,716,466	)			(133,926	)			-				(2,850,392	)
Other Income/(Expenses)
Interest and other income			-				1,012				-				1,012
Loss on sale of asset			(1,552	)			-				-				(1,552	)
Fair value of financing cost			(143,172	)			-				-				(143,172	)
Gain (Loss) on change in derivative liability			308,740				-				-				308,740
Commotment fee			(51,697	)			-				-				(51,697	)
Interest expense			(864,696	)			(1,912	)			-				(866,608	)
Total Other Income/(Expenses)			(752,377	)			(900	)			-				(753,277	)
Net Loss		$	(3,468,843	)		$	(134,826	)		$	-			$	(3,603,669	)
		$	(0.03	)										$	(0.03	)
			119,701,452												119,701,452

 

See notes to unaudited pro forma condensed combined financial information

 

 

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2014

 

										Unaudited				Unaudited
										ProForma				ProForma
		OriginClear				PWT				Adjustments				Combined
Sales		$	166,195			$	6,075,108				-			$	6,241,303
Cost of Sales			106,919				4,288,416				-				4,395,335
															-
Gross Profit			59,276				1,786,692				-				1,845,968
Operating Expenses
Selling and general and administrative expenses			5,757,019				968,054				-				6,725,073
Research and developmnent			1,284,611				-				-				1,284,611
															-
Total Operating Expenses			7,041,630				968,054				-				8,009,684
															-
Income before Other Income/(Expenses)			(6,982,354	)			818,638				-				(6,163,716	)
Other Income/(Expenses)
Realized gain on investment			6,353				-				-				6,353
Gain(Loss) on change in derivative liability			(1,701,406	)			-				-				(1,701,406	)
Commitment and other financing fees			(128,762	)			-				-				(128,762	)
Interest expense			(2,332,439	)			(4,891	)			-				(2,337,330	)
Total Other Income/(Expenses)			(4,156,254	)			(4,891	)							(4,161,145	)
Net Income (Loss)		$	(11,138,608	)		$	813,747				-			$	(10,324,861	)
Basic and diluted loss per share		$	(0.06	)			-							$	(0.14	)
Weighted-average common shares outstanding,
Basic and diluted			74,966,622												74,966,622

 

See notes to unaudited pro forma condensed combined financial information

 

 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

1.	BASIS OF PRO FORMA PRESENTATION

 

The unaudited pro forma condensed combined balance sheet and the unaudited pro forma condensed statements of operations for the six months ended June 30, 2015 and year ended December 31, 2014, are based on the historical financial statements of OriginClear, Inc. (the “Company”) and Progressive Water Treatment, Inc. (“PWT”) after giving effect to the Company’s  acquisition that was consummated on October 1, 2015 and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial information.

 

The Company accounts for business combinations pursuant to Accounting Standards Codification ASC 805, Business Combinations.   In accordance with ASC 805, the Company uses it best estimates and assumptions to accurately assign fair value to the assets acquired and the liabilities assumed at the acquisition date. Goodwill as of the acquisition date is measured as the excess of the purchase consideration over the fair value of the assets acquired and the liabilities assumed.

 

The fair values assigned to PWT’s assets acquired and liabilities assumed are based on management’s estimates and assumptions. The estimated fair values of these assets acquired and liabilities assumed are considered preliminary and are based on the information that was available as of the date of acquisition. The Company believes that the information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but is waiting for additional information. The Company expects to finalize the valuation of the assets and liabilities as soon as practicable, but not later than one year from the acquisition date.

 

Accounting Periods Presented

 

The unaudited pro forma condensed combined balance sheet as of June 30, 2015 is presented as if the acquisition of PWT had occurred on June 30, 2015. The unaudited pro forma condensed statement of operations for the six months ended June 30,2015 and year ended December 31, 2014 are presented as if the acquisition of PWT had occurred on beginning of each period presented.

 

Reclassifications

 

The Company reclassified certain accounts in the presentation of PWT’s historical financial statements in order to conform to the Company’s presentation.

  

2.	ACQUISITION OF PROGRESSIVE WATER TREATMENT, INC.

 

On October 1, 2015, OriginClear, Inc., a Nevada corporation (the “Company”), closed the transactions 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, as follows:

 

a)

If, on the date of any conversion notice, the market price of the Corporation’s common stock is less than the conversion price, then the conversion price shall be adjusted to the lower market price for that conversion. The number of shares of common stock issuable for each share of converted Series B Preferred Stock shall be calculated by dividing the state value by the market price. For the purpose of this paragraph, the market price shall be defined as the average of the closing trade prices of the twenty-five (25) days prior to the date of the conversion notice.

 

 

2.	ACQUISITION OF PROGRESSIVE WATER TREATMENT, INC. (Continued)

 

b)

If the Corporation at any time after the first issuance of a share of the Series B Preferred Stock shall declare or pay on the common stock any dividend in shares of common stock, or effect a subdivision of the outstanding shares of the common stock into a greater number of the common stock, or shall combine or consolidate the outstanding shares of the common stock into a lesser number of shares of the common stock (by reclassification or otherwise), then, and in each such case, the conversion price (as previously adjusted) in effect immediately prior to such declaration, payment, subdivision, combination or consolidation shall, concurrently with the effectiveness of such declaration be proportionately adjusted.

 

c)

If the Corporation at any time after the first issuance of a share of the Series B Preferred Stock shall reclassify or otherwise change the outstanding shares of the common stock, whether by capital reorganization, reclassification or otherwise, or shall consolidate with or merge with or into any other corporation where the Corporation is not the surviving corporation, then immediately after the effectiveness of the reclassification, each outstanding share of the Series B Preferred Stock would be convertible into the type and amount of stock and other securities or property, which the holder of that number of shares would have been convertible into common stock immediately before the effectiveness of such reclassification.

 

d)

No fractional shares of the common stock shall be issuable upon the conversion of shares of the Series B Preferred Stock and the Corporation shall pay the cash equivalent of any fractional share upon such conversion.

 

Under the purchase method of accounting, the transactions will be valued for accounting purposes at $1,500,000, which will be the estimated fair value of the Company at date of acquisition. The assets and liabilities of PWT will be recorded at their respective fair values as of the date of acquisition, and the following table summarizes these unaudited values.

 

		Purchase Price Allocation
		Six Months Ended
		June 30, 2015
Assets acquired
Current Assets
Cash		$	55,363
Contract Receivables			918,985
Costs and Estimated Earnings in Excess of Billings			572,658
Total Current Assets			1,547,006
Tangible Assets subject to depreciation
Machinery and Equipment, net of depreciation			59,436
Other Assets
Goodwill			740,835
Total assets acquired		$	2,347,277
Liabilities assumed
Accounts Payable and Accrued Expenses		$	672,415
Billings in Excess of Costs and Estimated Earnings			113,950
Other Liabilities			60,912
Total liabilities acquired			847,277
Net assets acquired		$	1,500,000

 

 

3.	PRO FORMA ADJUSTMENTS

 

The following pro forma adjustments are included in the Company’s unaudited pro forma condensed combined financial information:

 

(A) To record the preliminary estimate of goodwill for the Company’s acquisition of PWT. The preliminary estimate of goodwill represents the excess of the purchase consideration over the estimated fair value of the assets acquired and the liabilities assumed.

 

(B) To eliminate PWT’s shareholder’s equity.

 

(C) Record the purchase of 100% of PWT’s equity through the issuance of 10,000 shares of a new series of preferred stock, the Series B Preferred Stock.

 

(D) To record estimated derivative liability related to the full ratchet dilution protection of the Series B Preferred Stock.

 

 

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