See accompanying condensed notes to the interim consolidated financial statements.
See accompanying condensed notes to the interim consolidated financial statements.
See accompanying condensed notes to the interim consolidated financial statements.
Notes to Financial Statements
June 30, 2016
(Unaudited)
NOTE 1: DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
On June 23, 2014, AWG International Water Corporation changed its corporate name to Ambient Water Corporation by amending articles of incorporation with the Nevada Secretary of State. This corporate action was recommended by the board of directors and approved by written consent of majority shareholders in lieu of a special meeting. The Company also changed the name of its wholly owned subsidiary to Ambient Water, Inc. from AWG International, Inc. Both name change amendments were filed with the Nevada Secretary of State's office on June 23, 2014.
Ambient Water Corporation (AWGI or the Company), designs and sells Atmospheric Water Generation products. These products harvest water from the humidity in the atmosphere to produce pure drinkable water. AWGI utilizes contract manufacturers to assemble its products. The Company markets and sells its products through a network of domestic and international distributors with clearly identified geographic territories. AWGI is one of the pioneers of atmospheric water generation technology for extracting water from humidity in the air. Drawing from the renewable ocean of water vapor in the air that we breathe, our patented technology cost effectively transforms humidity into an abundant source of clean water near the point of use. Our scalable and modular systems can be configured for a number of water-sensitive applications ranging from oil and gas exploration to drought relief to vertical farming. Our systems can also be configured to produce high quality drinking water for homes, offices, and communities.
On July 10, 2012, the Company entered into a Share Exchange Agreement (the "Share Exchange Agreement") by and among AWG International Water Corporation and AWG International, Inc. On July 10, 2012, AWG International Water Corporation acquired AWG International, Inc. (the Business Combination), which became a wholly owned subsidiary of AWG International Water Corporation. AWG International Water Corporation incorporated on December 19, 2005, under the laws of the State of Nevada, and is headquartered in Spokane Valley, Washington. The Companys previous name was MIP Solutions, Inc. MIP Solutions, Inc. was considered a shell company prior to the business combination.
The Company follows the accounting guidance outlined in the Financial Accounting Standards Board Codification guidelines. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted principles for interim financial information and with the instructions to Form 10-Q of Regulation S-K. They may not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended December 31, 2015 included in the Companys Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 25, 2016. The interim unaudited condensed consolidated financial statements as of and for the three (3) months and six (6) months ended June 30, 2016 and 2015, respectively should be read in conjunction with those financial statements included in the Form 10-K. In the opinion of management, all adjustments considered necessary to present fairly the financial position, results of operations and cash flows for the periods presented in accordance with the accounting principles generally accepted in the United States of America have been made. Operating results for the six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. The Company assumes that the users of the interim financial information herein have read, or have access to, the audited consolidated financial statements for the preceding period, and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context
The Companys financial statements include certain estimates and assumptions which affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results may differ from those estimates.
Certain amounts in the prior period financial statements have been reclassified to conform with the current period presentation. These reclassifications had no effect on previously reported losses, total assets, or stockholders equity.
Year End and Principles of Consolidation
These unaudited condensed consolidated financial statements and related notes are presented in accordance with generally accepted accounting principles (GAAP) in the United States, and are expressed in U.S. dollars. The Companys consolidated fiscal year-end is December 31.
6
Ambient Water Corporation
Notes to Financial Statements
June 30, 2016
(Unaudited)
The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All inter-company transactions are eliminated.
Going Concern
The Company has not generated positive cash flows since inception and has recognized approximately $14 million in net operating losses, which raises substantial doubt about the ability of the Company to continue as a going concern. The Company is dependent upon achieving positive cash flow from operations and obtaining additional external financing to fund ongoing operations.
To achieve these objectives, the Company continues to seek other sources of financing to support existing operations and expand the range and scope of its business. However, there are no assurances that such financing can be obtained on acceptable terms and in a timely manner, if at all. The failure to obtain the necessary working capital would have a material adverse effect on the business and, in the event the Company is unable to execute its business plan, the Company may be unable to continue as a going concern.
The accompanying financial statements do not include any adjustment to the recorded assets or liabilities that may be necessary should the Company have to curtail operations or be unable to continue operations.
Recent Accounting Pronouncements
In August 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-15 (ASU 2014-15),
Presentation of Financial Statements-Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern.
The objective of the amendments in this Update is to provide guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entitys ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entitys ability to continue as a going concern. The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The Company is evaluating the impact of ASU 2014-15 on its financial condition, results of operations and cash flows.
In May 2014, the FASB issued ASU No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers. The objective of ASU 2014-19 is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle of ASU 2014-09 is 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 entity expects to be entitled in exchange for those goods or services. The new guidance is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2016 for public companies. Early adoption is not permitted. The standard permits the use of either a retrospective or modified retrospective (cumulative effect) transition method. The Company is currently evaluating the new guidance and has not determined the impact this standard may have on its financial statements nor decided upon the method of adoption.
The Company is reviewing the effects of following recent updates. The Company has no expectation that any of these items will have a material effect upon the financial statements.
·
Update 2015-16 - Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments
·
Update 2015-15 Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (SEC Update)
·
Update 2015-14 - Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date
·
Update 2015-11 - Inventory (Topic 330): Simplifying the Measurement of Inventory
·
Update 2015-08 - Business Combinations (Topic 805): Pushdown Accounting - Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115 (SEC Update)
·
Update No. 2015-03 Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs
7
Ambient Water Corporation
Notes to Financial Statements
June 30, 2016
(Unaudited)
·
Update 2015-17 - Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
·
Update 2016-01 - Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
·
Update No. 2015-02 - Consolidation (Topic 810): Amendments to the Consolidation Analysis
·
Update 2016-09 - Compensation - Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting
Technology Acquisition
The technology supporting the Companys products (Technology Acquisition) was obtained from its founders and their related companies.
On November 19, 2010, Licensee, the patent application owner, assigned Patent Cooperation Treaty (PCT) application number PCT/US2010/57371 to AWG International, Inc. On May 18, 2012, AWG filed U.S. patent application number 13/510,757 claiming priority to PCT/US2010/57371. We refer to this patent as supporting the proposed G3 product line. In consideration of this assignment, 250,000 shares of AWG common stock were issued to Licensee. At the time of the technology acquisition, the Company determined the value of the Technology Acquisition to be $36,216 based upon the actual, verifiable costs associated with securing the patent.
The Companys technology rights also include the assignment of patents which included U.S. Patent No. 7,272,947, U.S. Patent 7,886,557, PCT Patent Application No. PCT/US/2005/031948, and all patents and patent applications throughout the world, including any divisions, reissues or continuations. U.S. Patent 7,886,557 represents a patent derived from U.S. Patent No. 7,272,947 or an improvement to the U.S. Patent No. 7,272,947. These patents are associated with our Model 2500 product.
Also, the Company has additional shared patent and license rights which were clarified on February 14, 2013. On February 14, 2013, AWG International, Inc. assigned the G2 patent assets to the inventors, Rae Anderson and Keith White.
Thereafter, Keith White, as co-inventor, assigned the G2 patent assets to AWG International, Inc.
As a result of these assignments, AWG International, Inc. and Rae Anderson each own a one-half undivided interest in the G2 patent assets.
On April 19, 2012, Mr. Keith White, the patent owner, assigned Patent application number 61/489.588 titled Atmospheric Water Generator to AWG International, Inc. We refer to this patent as supporting the proposed G4 and G5 product lines.
On January 12, 2016, the Australian Government, accepted Patent application Number 2010321841. The Patent is effective from November 19, 2010 through November 19, 2030. The cost to acquire the Patent was $8,891. Amortization expense for the quarter ended June 30, 2016 was $152. The Patent will be amortized over the remaining effective life.
The technology rights are being amortized over an expected lives of five to twenty years.
Long-lived assets of the Company, including Technology Acquisition, are reviewed for impairment when changes in circumstances indicate their carrying value has become impaired, pursuant to guidance established in FASB ASC 410-20.
Warranty Expense
In 2014, the Company established a product warranty reserve, set at five percent (5%) of sales. For the six month periods ending June 30, 2016 and 2015, the Company charged $309 and $933, respectively to the expense line Sales Reserve and increased the corresponding liability - Product Warranty Reserve in the same amount. At June 30, 2016 and December 31, 2015, there was a balance of $13,345 and $13,036, respectively in the product warranty reserve account which is shown in accrued liabilities. Additionally, during the six month periods ended June 30, 2016 and 2015, the Company charged $610 and 11,522, respectively to the expense line warranty expense shown under other general and administrative expense.
8
Ambient Water Corporation
Notes to Financial Statements
June 30, 2016
(Unaudited)
NOTE 2: DEPOSITS ON PRODUCT
At June 30, 2016 and December 31, 2015, there was a balance of $49,700 and $51,959, respectively in deposits on product. Deposits on product represent amounts paid to the Companys Korean contract manufacturer.
NOTE 3: INVENTORY
At June 30, 2016 and December 31, 2015, the Inventory balance was $6,181 and $1,497, respectively, valued at the lower of cost or fair market value less any allowances for obsolescence. The Company strives to maintain a small inventory of Model 2500 units and an inventory of filters that are used both in the manufacture of new units and as replacements in previously sold units. The Company had no Model 2500 units in inventory at June 30, 2016 or at December 31, 2015.
NOTE 4: FIXED ASSETS
At June 30, 2016 and December 31, 2015, the net Fixed Assets balance was $24,976 and $33,789, respectively. The Company purchases demonstration units to be used in soliciting new distributors and marketing efforts. The Company is depreciating these assets over the appropriately determined estimated useful life of 3 years. As of June 30, 2016 and December 31, 2015, the Company has recognized $39,142 and $30,329, respectively, of accumulated depreciation. As of June 30, 2016 and 2015, the Company recognized $13,010 and $14,454 for depreciation expenses, respectively.
NOTE 5: ACCRUED LIABILITIES
At June 30, 2016 and December 31, 2015, the Accrued Liabilities balance was $85,631 and $84,116, respectively. The Company accrues unpaid wages, consulting costs, accrued notes payable interest and accrued Internal Revenue Service penalty and interest in Accrued Liabilities
. See Note 8 - Related Party Transactions.
NOTE 6: CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITIES
On March 21, 2014, the Company entered into a financing transaction with an accredited investor (Lender) under which the Company may borrow up to Nine Hundred Thousand ($900,000) dollars. The transaction was structured as a Convertible Promissory Note (the "Note") bearing interest at the rate of Ten (10%) percent per year. The maturity date was extended from18 months to 60 months as described below. This Note is referred to as Note A in the table below.
The Lender has loaned the Company $900,000 through March 31, 2015. On October 6, 2014, The Lender converted $65,000 of the outstanding principal and associated interest into 5,585,006 common shares. Additionally, on April 9, 2015, the Lender converted $40,000 of the outstanding principal and associated interest into 4,728,152 common shares. Again on June 11, 2015 the Lender converted $30,000 of the outstanding principal and associated interest into 4,401,826 common shares. Also, on August 28, 2015 the Lender converted $58,000 of the outstanding principal and associated interest into 4,413,024 common shares. Again on December 22, 2015 the Lender converted $9,000 of the outstanding principal and associated interest into 5,237,586 common shares. During the quarter ended March 31, 2016, the Lender converted $28,710 of the outstanding principal and associated interest into 36,000,713 common shares. During the quarter ended June 30, 2016, the Lender converted $55,710 of the outstanding principal and associated interest into 232,401,697 common shares The outstanding principal on this Note is $613,580 and $698,000, at June 30, 2016 and December 31, 2015, respectively. The current portion of this note payable is $-0- and $-0-, at June 30, 2016 and December 31, 2015, respectively. The Lender has the right, at any time, at its election, to convert all or part of the Note amount into shares of fully paid and non-assessable shares of common stock of the Company. The conversion price (the Conversion Price) shall be the lesser of (a) $0.04 per share of common stock, (b) fifty Percent (50%) of the average of the three (3) lowest trade prices of three (3) separate trading days of Common Stock recorded during the twenty five (25) previous trading days prior to conversion, or (c) the lowest effective price per share granted to any person or entity after the effective date to acquire Common Stock, or adjust, whether by operation of purchase price adjustment, settlement agreements, exchange agreements, reset provision, floating conversion or otherwise, any outstanding warrant, option or other right to acquire Common Stock or outstanding Common Stock equivalents, excluding any outstanding warrants or options that have been disclosed in SEC filings prior to the effective date.
Effective September 21, 2015, we amended our $900,000 note dated March 21, 2014. The following terms were amended:
9
Ambient Water Corporation
Notes to Financial Statements
June 30, 2016
(Unaudited)
Section 1 of the Note is hereby revised and restated in its entirety as follows:
1.
Maturity Date
. The Maturity Date is eighteen (18) months from the Effective Date of each payment of Consideration (the Maturity Date) and is the date upon which the Principal Sum of this Note and unpaid interest and fees (the Note Amount) shall be due and payable. The Maturity Date is hereby extended, and the Note Amount is payable upon demand by the Lender, but in no event later than sixty (60) months from the Effective Date (the Extended Maturity Date). The Lender shall provide the Borrower with ten (10) days written notice to make a demand for payment (the Demand Payment Date), and the Demand Payment Date shall be considered to be the Extended Maturity Date.
Section 6 of the Note is hereby revised and restated in its entirety as follows:
6.
Payment.
The Borrower may not prepay this Note prior to the Maturity Date or the Extended Maturity Date. Within six (6) days prior to the Maturity Date or Extended Maturity Date, the Borrower shall provide the Lender with a written notice to pay the Note Amount on the Maturity Date or Extended Maturity Date. Within three (3) days of receiving written notice, the Lender shall elect to either (a) accept payment of the Note Amount or (b) convert any part of the Note Amount into shares of Common Stock. If the Lender elects to convert part of the Note Amount into shares of Common Stock, then the Borrower shall pay the remaining balance of the Note Amount by the Maturity Date or Extended Maturity Date. The Borrower may not prepay this Note prior to the Maturity Date or the Extended Maturity Date.
Section 11 of the Note is hereby revised and restated in its entirety as follows:
11.
Remedies.
In the event of any default, the Note Amount shall become immediately due and payable at the Mandatory Default Amount. The Mandatory Default Amount shall be 150% of the Note Amount. Commencing five (5) days after the occurrence of any event of default that results in the eventual acceleration of this Note, the interest rate on the Mandatory Default Amount shall accrue at a default interest rate equal to the lesser of ten percent (10%) per annum or the maximum rate permitted under applicable law. In connection with such acceleration described herein, the Lender need not provide, and the Borrower hereby waives, any presentment, demand, protest or other notice of any kind, and the Lender may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. While the Mandatory Default Amount is outstanding and default interest is accruing, the Lender shall have all rights as a holder of this Note until such time as the Lender receives full payment pursuant to this paragraph, or has converted all the remaining Mandatory Default Amount and any other outstanding fees and interest into Common Stock under the terms of this Note. In the event of any default and at the request of the Lender, the Borrower shall file a registration statement with the SEC to register all shares of Common Stock issuable upon conversion of this Note that are otherwise not eligible to have their restrictive transfer legend removed under Rule 144 of the Securities Act. Nothing herein shall limit Lenders right to pursue any other remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Borrowers failure to timely deliver certificates representing shares of Common Stock upon conversion of this Note as required pursuant to the terms hereof. The Borrower may only pay the full balance of the Mandatory Default Amount, and may not make partial payments unless agreed upon by the Lender. If the Borrower desires to pay the Mandatory Default Amount, then the Borrower shall provide the Lender with six (6) days prior written notice of payment. Within three (3) days of receiving written notice, the Lender shall elect to either (a) accept payment, or (b) convert any part of the payment into shares of Common Stock. If the Lender elects to convert part of the payment into shares of Common Stock, then the Borrower shall pay the remaining balance of the Mandatory Default Amount.
The effect of the Addendum is that the Note will remain in full force and effect except as specifically modified by the Addendum. In the event of a conflict between the Addendum and the Note, the terms of the Addendum will govern.
On March 27, May 6, and June 18, 2015, the Company entered into three financing transactions with an accredited investor ("Lender) which loaned the Company $48,500, $43,000 and $38,000, respectively, on three separate convertible promissory notes totaling $129,500. On October 1, 2015, The Lender converted $12,000 of the outstanding principal into 779,221 common shares. Additionally, on October 8, 2015, the Lender converted $15,000 of the outstanding principal into 1,111,111 common shares. Again on October 20, 2015, the Lender converted $15,000 of the outstanding principal into 1,470,488 common shares. Again on October 27, 2015, the Lender converted $6,500 of the outstanding principal and accrued interest into 897,872 common shares. Again on November 16, 2015, the Lender converted $20,000 of the
10
Ambient Water Corporation
Notes to Financial Statements
June 30, 2016
(Unaudited)
outstanding principal into 2,898,551 common shares. Again on November 24, 2015, the Lender converted $23,000 of the outstanding principal and accrued interest into 3,987,097 common shares. Again on December 28, 2015, the Lender converted $15,000 of the outstanding principal into 6,521,739 common shares. During the quarter ended March 31, 2016, the Lender converted the remaining $23,000 of outstanding principal and accrued interest into 12,094,236 common shares. This note is referred to as Note B in the table below.
On May 27, 2015, the Company entered into a financing transaction with an accredited investor ("Lender) which loaned the Company $36,750 on a convertible promissory note. On December 4, 2015, the Lender converted $4,750 of the outstanding principal and interest into 952,331 common shares. Again on December 18, 2015, the Lender converted $4,000 of the outstanding principal and interest into 1,618,011 common shares. Again on December 28, 2015, the Lender converted $4,000 of the outstanding principal and interest into 1,743,012 common shares. During the quarter ended March 31, 2016, the Lender converted the remaining $24,000 of outstanding principal and associated interest into 14,905,072 common shares. The current portion of the note payable is $-0- and $24,000, at June 30, 2016 and December 31, 2015, respectively. This note is referred to as Note C in the table below.
On July 27, 2015, the Company executed a financing transaction dated July 23, 2015 with an accredited investor ("Lender) which loaned the Company $100,000 on a convertible promissory note less an original issue discount (OID) of $8,000. During the quarter ended March 31, 2016, the Lender converted $93,629 of outstanding principal and accrued interest into 86,172,894 common shares. During the quarter ended June 30, 2016, the Lender converted the remaining $6,371 of outstanding principal and associated interest into 14,040,790 common shares. The OID has an unamortized balance of -0- and $4,471 at June 30, 2016 and December 31, 2015, respectively. The current portion of the note payable (net of OID) is $-0- and $95,529, at June 30, 2016 and December 31, 2015, respectively. The note is referred to as Note D in the table below.
On October 14, 2015, the Company executed a financing transaction with an accredited investor ("Lender) which loaned the Company $37,100 on a convertible promissory note less an original issue discount (OID) of $2,100. During the quarter ended June 30, 2016, the Lender converted the entire $37,100 of outstanding principal and associated interest into 48,831,119 common shares. The OID has an unamortized balance of $-0- and $1,873 at June 30, 2016 and December 31, 2015, respectively. The current portion of the note payable (net of OID) is $-0- and $35,227, at June 30, 2016 and December 31, 2015, respectively. This note is referred to as Note E in the table below.
On October 14, 2015, the Company executed a financing transaction with an accredited investor ("Lender) which loaned the Company $37,100 on a convertible promissory note less an original issue discount (OID) of $2,100. During the quarter ended June 30, 2016, the Lender converted the entire $37,100 of outstanding principal and associated interest into 58,165,167 common shares. The OID has an unamortized balance of $-0- and $1,873 at June 30, 2016 and December 31, 2015, respectively. The current portion of the note payable (net of OID) is $-0- and $35,227, at June 30, 2016 and December 31, 2015, respectively. This note is referred to as Note F in the table below.
On February 2, 2016, the Company entered into a financing transaction with an accredited investor (Lender) under which the Company may borrow up to Two Hundred Fifty Thousand ($250,000) dollars. The transaction was structured as a Convertible Promissory Note (the "Note") bearing interest at the rate of Ten (10%) percent per year. The maturity date is twelve months from the Effective Date. The Lender has the right, at any time after the Effective Date, at its election, to convert all or part of the Note Amount into shares of common stock. The conversion price shall be the lesser of (a) $0.005 per share of common stock or (b) Fifty Percent (50%) of the average of the three lowest trade prices on three separate trading days, or (c) the lowest effective price per share granted to any person or entity, but excluding officers and directors of the Borrower. The Lender has loaned the Company $75,000 through June 30, 2016. The current portion of the note payable is $75,000 and $-0-, at June 30, 2016 and December 31, 2015, respectively. This Note is referred to as Note G in the table below.
On May 3, 2016 the Company received $37,100 on the back end convertible promissory note associated with Note E listed above, less an original issue discount (OID) of $2,100. During the quarter ended June 30, 2016, the Lender converted the entire $37,100 of outstanding principal and associated interest into 99,298,538 common shares. The OID has an unamortized balance of $-0- and $-0- at June 30, 2016 and December 31, 2015, respectively. The current portion of the note payable (net of OID) is $-0- and $-0- at June 30, 2016 and December 31, 2015, respectively. This note is referred to as Note H in the table below.
11
Ambient Water Corporation
Notes to Financial Statements
June 30, 2016
(Unaudited)
|
|
|
|
|
|
|
|
|
CONVERTIBLE NOTES PAYABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
Current
|
|
|
Payable
|
|
Portion
|
|
Payable
|
|
Portion
|
Description
|
|
at 6/30/16
|
|
at 6/30/16
|
|
at 12/31/15
|
|
at 12/31/15
|
Note A
|
|
$ 613,580
|
|
$ -
|
|
$ 698,000
|
|
$ -
|
Note B
|
|
-
|
|
-
|
|
23,000
|
|
23,000
|
Note C
|
|
-
|
|
-
|
|
24,000
|
|
24,000
|
Note D
|
|
-
|
|
-
|
|
95,529
|
|
95,529
|
Note E
|
|
-
|
|
-
|
|
35,227
|
|
-
|
Note F
|
|
-
|
|
-
|
|
35,227
|
|
-
|
Note G
|
|
75,000
|
|
75,000
|
|
-
|
|
-
|
Note H
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
$ 688,580
|
|
$ 75,000
|
|
$ 910,983
|
|
$ 142,529
|
Derivative liability
Under FASB ASC 815-40
Contracts in Entitys Own Equity,
the Company must review the possible conversion features under the agreements variable price conversion options, which create a derivative in the possible settlement choices of the Lender. As of June 30, 2016, the stock pricing feature for Note A above which provides a 50% discount to the market would have increased the stock necessary to settle the conversion if requested to approximately 7,310,460,000 shares. The Company has calculated the value of this additional liability to be $2,193,138 and has recognized a change of earnings for the effect of such a conversion through June 30, 2016. Additionally, the conversion features on Note G above would have increased the stock necessary to settle the conversion feature on this Note to approximately 767,880,000 shares. The Company has calculated the value of this additional liability to be $230,364 and has recognized a change of earnings for the effect of such a conversion through June 30, 2016. Total derivative liability was $2,423,502 and $825,712, as of June 30, 2016 and December 31, 2015, respectively. As of June 30, 2016, the derivative liability is classified as $230,364 under current liabilities and $2,193,138 under long-term liabilities. As of December 31, 2015, the derivative liability is classified as $76,955 under current liabilities and $748,757 under long-term liabilities.
Under FASB ASC 505-10
Equity
: Overall, the Company must disclose that the settlement alternatives are at the control of the Lender and that there is a potential for an infinite number of shares having to be issued, although the Lender has elected to limit its beneficial ownership to less than five percent unless the Company receives proper notification that the Lender will at any time convert either part or all of the loan to shares. The Lender must give the Company 60 days notice to waive the beneficial ownership limit of less than five percent, which the Company has not received as of this filing. The amount of shares necessary to settle the conversion features of these Notes is subject to change with the trading price of our common stock and by the lowest price of common stock issued to other parties which is currently $0.00017.
NOTE 7: COMMITMENTS AND CONTINGENCIES
On July 29, 2010, the Company entered into a memorandum of understanding to acquire the exclusive rights to utilize a proprietary coating technology in atmospheric water generation applications. Subsequently, the July 29, 2010 memorandum of understanding was replaced on June 17, 2011. Under the terms of the agreement, the Company secured the exclusive rights to the coating technology for atmospheric water generation applications. The term of the agreement is three years and, unless terminated, shall automatically renew for an additional three years on each three year anniversary. The agreement called for the payment of a license and exclusivity fee of $10,000 in two payments of $5,000 each. The first payment has been paid. Effective September 30, 2012, the parties entered into an amendment to the original agreement in which both parties acknowledged there had been no breaches of the original agreement, the remaining $5,000 payment was due on or before June 1, 2013, and all previous and/or future minimum purchase requirements were waived. The Company has accrued the $5,000 in Accrued Liabilities for this obligation. See discussion Note 5 Accrued Liabilities.
12
Ambient Water Corporation
Notes to Financial Statements
June 30, 2016
(Unaudited)
In August 2012, information came to the Companys attention which raised questions about the enforceability, validity and scope of protection relating to the Everest Water patents, the Everest Water/CanAmera Management License Agreement and subsequent patent assignments ("G2 Asset") which were associated with the License Agreement. For further discussion, see Note 1 on Technology Acquisition.
On September 18, 2015, Ambient Water Corporation (the Company) entered into a Securities Purchase Agreement (the Purchase Agreement) and a Registration Rights Agreement (the Registration Rights Agreement) with accredited investor, River North Equity, LLC (River North). Under the Purchase Agreement, the River North has agreed to purchase from the Company up to an aggregate of $5 million worth of shares of common stock, par value $0.0001 per share (Common Stock), of the Company, from time to time, subject to limitations. These agreements were updated and revised on December 11, 2015.
In accordance with the Registration Rights Agreement, the Company has filed with the Securities and Exchange Commission (the SEC) a registration statement (the Registration Statement) to register for resale under the Securities Act of 1933, as amended (the Securities Act), the shares of Common Stock that may be issued to River North under the Purchase Agreement. We did not register 100% of the registerable securities under the Purchase Agreement. We are subject to a registration cap which cannot exceed 30% of our issued and outstanding common shares, less any shares held by Affiliates of the Company, under Registration Rights Agreement. Therefore, the Company has elected to register 20,000,000 common shares which represents approximately $600,000 Dollars of the $5 Million Dollars under the Purchase Agreement.
NOTE 8: RELATED PARTY TRANSACTIONS
The technology behind the Companys products, (Technology Acquisition) was acquired through an exclusive Irrevocable Patent Assignment. See discussion Note 1 Technology Acquisition, Note 7 Commitments and Contingencies.
On February 14, 2013, Keith White, as co-inventor, assigned the G2 patents to AWG International, Inc. The assigned patents include U.S. Patent No. 7,272,947, U.S. Patent 7,886,557, PCT Patent Application No. PCT/US/2005/031948, and all patents and patent applications throughout the world, including any divisions, reissues or continuations. The U.S. Patent 7,886,557 represents a patent derived from U.S. Patent No. 7,272,947, or an improvement to U.S. Patent No. 7,272,947.
On April 19, 2012, the inventor/applicant of provisional patent application titled, Atmospheric Water Generation System Application No. 61/489,588, assigned all rights, title and interests to the Company. The technology associated with this patent application will be used for a future line of proposed G4 and G5 products.
Effective July 10, 2012, the initial base compensation of the named executive officers, Chief Executive Officer, Chief Operating Officer and Financial Officer was set at $120,000 annually. In December 2013, the Board of Directors raised the annual salary for each officer to $175,000. On January 12, 2016, the Board of Directors voted a reduction in annual executive compensation to $120,000 effective January 1, 2016. There are no formal employment agreements with the named executive officers.
On July 10, 2012, the Board of Directors authorized the issuance of 13,742,000 common stock options to Jeff Stockdale, the Companys President and Chief Operating Officer and 14,947,000 common stock options to Jeff Mitchell, the Companys then Chief Financial Officer and Secretary. These common stock options have an exercise price of $0.18. Mr. Mitchells common stock options expired on September 29, 2015.
On July 22, 2013, the Board of Directors authorized the issuance of 750,000 common stock options to Keith White, the Companys Chief Executive Officer and Chief Technology Officer, Jeff Stockdale, the Company's President and Chief Operating Officer, and Jeff Mitchell, the Company's then Chief Financial Officer and Secretary, collectively 2,250,000 common stock options. These common stock options have an exercise price of $0.11. Mr. Mitchells common stock options expired on October 6, 2015.
The options vest over four (4) years. After one year, one-quarter (25%) of the options vest. Thereafter, the options vest 6.25% each quarter. The options have a ten (10) year term.
13
Ambient Water Corporation
Notes to Financial Statements
June 30, 2016
(Unaudited)
Using the Black-Scholes model, the Company has assessed the financial statement presentation impact of the value ascribed to the issuance of 32,439,000 stock options to some of its executive management team members as approximately $5,402,500. As of March 31, 2016, 17,197,000 of the original 32,439,000 stock options had expired. The Company will recognize the expense of issuing these options using the straight-line method over the 4-year vesting term of the options. The estimated annual expense to the Company associated with these options as of June 30, 2016 is:
|
2016 $ 20,625
|
2017 $ 24,059
|
As of June 30, 2016, 13,913,475 of these stock options had vested and were exercisable at an average exercise price of $0.18. As of June 30, 2016, 1,328,526 were expected to be vested over the next two years.
Stock Grant - On December 30, 2013, the Companys Board of Directors adopted a stock grant program for officers and employees. The grants became effective in 2014 based upon either performance or employment requirements. Originally, the share grants were to be issued by June 15, 2014, however Jeff Stockdale and Keith White elected defer their grants (3,352,500 each) until January 5, 2015 when these shares were issued to each of them.
On March 21, 2014, Jeff Mitchell, Chief Financial Officer and Secretary and the Company entered into a separation agreement whereby Mr. Mitchell resigned his executive officer positions. On March 21, 2014, the Board of Directors approved a separation agreement with Jeff Mitchell. The separation agreement provides for the payment of $43,750 of unpaid executive compensation, and a termination fee of $87,500, payment of health insurance premiums and reimbursement of cell phone expenses. See the Form 8K filed on March 21, 2014 for additional information. On March 21, 2014, the Board of Directors nominated and appointed Jeff Mitchell to fill a vacancy on the Board of Directors. On July 6, 2015, Jeff Mitchell tendered his resignation as a member of the Board of Directors effective June 30, 2015. Stock options for Jeff Mitchell vested through June 30, 2015. All of Mr. Mitchell's unexercised stock options expired on October
6, 2015.
At June 30, 2016 and December 31, 2015, the Company owed reimbursements to Officers of $24,453 and $2,485, respectively. These amounts are listed under the caption Accounts payable -related parties on the Balance Sheets.
Additionally, at June 30, 2016 and December 31, 2015, the Company owed Officer compensation of $164,868 and $370,000, respectively. These amounts are listed under the caption Accrued liabilities - related parties on the Balance Sheets.
NOTE 9: COMMON STOCK WARRANTS
The following warrants for our common stock were issued and outstanding for the six months and year ending June 30, 2016 and December 31, 2015, respectively:
|
|
|
|
|
|
|
June 30,
2016
|
|
December 31,
2015
|
Warrants outstanding at beginning of period
|
|
1,340,000
|
|
1,340,000
|
Issued
|
|
-
|
|
-
|
Cancelled
|
|
-
|
|
-
|
Exercised
|
|
-
|
|
-
|
Warrants outstanding at end of period
|
|
1,340,000
|
|
1,340,000
|
A detail of warrants outstanding on June 30, 2016 is as follows:
|
|
|
|
|
|
|
Number of Warrants
|
|
Expiration Date
|
Exercisable at $0.03 per share
|
|
1,340,000
|
|
2/1/2017
|
The Company used the Black-Scholes option price calculation to calculate the change in value of the warrants using the following assumptions: risk-free interest rate of 1.5%; volatility of 150%; and various applicable terms.
14
Ambient Water Corporation
Notes to Financial Statements
June 30, 2016
(Unaudited)
NOTE 10: PREFERRED STOCK AND COMMON STOCK
The Stockholders Equity section of the Company contains the following class of Common and Preferred Stock (par value $0.0001) as of:
|
|
December 31, 2015
|
|
Authorized:
|
400,000,000 preferred shares
|
|
2,000,000,000 common shares
|
|
|
Issued and outstanding:
|
177,407,091 common shares
|
On January 5, 2015, the Company issued 6,705,000 common shares to two Executives per grants authorized on December 31, 2013 at $0.0389 per share.
On April 9, 2015, the Company issued 4,728,152 common shares for partial note payable and accrued interest conversion at $0.0196 per share.
On June 11, 2015, the Company issued 4,401,826 common shares for partial note payable and accrued interest conversion at $0.0288 per share.
On August 28, 2015, the Company issued 4,413,024 common shares for partial note payable and accrued interest conversion at $0.0401 per share.
On October 1, 2015, the Company issued 779,221 common shares for partial note payable and accrued interest conversion at $0.0262 per share.
On October 8, 2015, the Company issued 1,111,111 common shares for partial note payable and accrued interest conversion at $0.0237 per share.
On October 20, 2015, the Company issued 1,470,588 common shares for partial note payable and accrued interest conversion at $0.0165 per share.
On October 27, 2015, the Company issued 897,872 common shares for partial note payable and accrued interest conversion at $0.0112 per share.
On November 16, 2015, the Company issued 2,898,551 common shares for partial note payable and accrued interest conversion at $0.0178 per share.
On November 24, 2015, the Company issued 3,987,097 common shares for partial note payable and accrued interest conversion at $0.0100 per share.
On December 4, 2015, the Company issued 952,331 common shares for partial note payable and accrued interest conversion at $0.0105 per share.
On December 18, 2015, the Company issued 1,618,011 common shares for partial note payable and accrued interest conversion at $0.0057 per share.
On December 22, 2015, the Company issued 5,237,586 common shares for a partial note payable and accrued interest conversion at $0.00202 per share.
On December 28, 2015, the Company issued 6,521,739 common shares for partial note payable and accrued interest conversion at $0.0052 per share.
On December 28, 2015, the Company issued 1,743,012 common shares for partial note payable and accrued interest conversion at $0.0052 per share.
15
Ambient Water Corporation
Notes to Financial Statements
June 30, 2016
(Unaudited)
|
|
June 30, 2016
|
|
Authorized:
|
400,000,000 preferred shares
|
|
2,000,000,000 common shares
|
Issued and outstanding:
|
72,800,920 preferred shares
779,317,317 common shares
|
On January 12, 2016, the Board of Directors authorized the issuance of 72,800,920 shares of Series A Preferred Stock in lieu of payment of $310,131.92 deferred accrued Executive Compensation.
The following compensation was paid to Keith White and Jeff Stockdale:
|
|
|
|
|
Deferred Compensation
|
Share Price (1)
|
Number of Shares
|
Keith White
|
$130,065.96
|
$0.00426
|
30,531,915
|
Jeff Stockdale
|
$180,065.96
|
$0.00426
|
42,269,005
|
Note 1
. This $0.00426 represents the average market price per share of common stock as quoted over-the-counter for the preceding five (5) days. The Series A Preferred has been priced based on the market price of the common stock thereby maintaining price parity.
The accrued executive compensation was paid in the form of Series A Preferred shares because the utilization of common stock would have resulted in a deficit of unissued common shares reserved for various convertible notes.
On January 5, 2016, the Company issued 7,704,762 common shares for partial note payable conversion at $0.0021 per share.
On January 5, 2016, the Company issued 2,494,195 common shares for partial note payable and accrued interest conversion at $0.00189 per share.
On January 6, 2016, the Company issued 4,389,474 common shares for partial note payable and accrued interest conversion at $0.0019 per share.
On January 12, 2016, the Company issued 4,938,381 common shares for partial note payable and accrued interest conversion at $0.00165 per share.
On January 20, 2016, the Company issued 7,472,496 common shares for partial note payable and accrued interest conversion at $0.00165 per share.
On January 15, 2016, the Company issued 9,449,488 common shares for partial note payable and accrued interest conversion at $0.00122 per share.
On January 29, 2016, the Company issued 9,649,712 common shares for partial note payable conversion at $0.00156 per share.
On February 10, 2016, the Company issued 9,649,712 common shares for partial note payable conversion at $0.00132 per share.
On February 11, 2016, the Company issued 7,197,534 common shares for partial note payable and accrued interest conversion at $0.001030 per share.
On February 22, 2016, the Company issued 9,649,712 common shares for partial note payable conversion at $0.00108 per share.
On March 1, 2016, the Company issued 9,649,712 common shares for partial note payable conversion at $0.00102 per share.
16
Ambient Water Corporation
Notes to Financial Statements
June 30, 2016
(Unaudited)
On March 4, 2016, the Company issued 9,649,712 common shares for partial note payable conversion at $0.000974 per share.
On March 7, 2016, the Company issued 9,564,864 common shares for partial note payable and accrued interest conversion at $0.000780 per share.
On March 8, 2016, the Company issued 9,649,712 common shares for partial note payable conversion at $0.000974 per share.
On March 16, 2016, the Company issued 14,137,311 common shares for partial note payable conversion at $0.000994 per share.
On March 21, 2016, the Company issued 9,788,827 common shares for partial note payable and accrued interest conversion at $0.000770 per share.
On March 23, 2016, the Company issued 14,137,311 common shares for partial note payable conversion at $0.000900 per share.
On April 1, 2016, the Company issued 13,958,137 common shares for a partial note payable and accrued interest conversion at $0.00075 per share.
On April 7, 2016, the Company issued 16,065,753 common shares for a partial note payable and accrued interest conversion at $0.00075 per share.
On April 7, 2016, the Company entered into an updated and revised Securities Purchase Agreement and a Registration Rights Agreement with accredited investor, River North Equity, LLC. These two agreements replace the identically named agreements that we entered into with River North Equity, LLC on December 11, 2015. These agreements modified language in the Definitions section, updated information concerning our capital structure, our DWAC eligibility, financial information and other changes reflected in our Periodic Reports which we file with the Securities and Exchange Commission. Additionally, the Company has elected to register 90,000,000 common shares as stated in Note 7.
On April 8, 2016, the Company issued 14,040,790 common shares for a partial note payable and accrued interest conversion at $0.00088 per share.
On April 19, 2016, the Company issued 6,307,822 common shares for a partial note payable and accrued interest conversion at $0.0007927 per share.
On April 25, 2016, the Company issued 16,877,589 common shares for a partial note payable and accrued interest conversion at $0.00067 per share.
On May 2, 2016, the Company issued 15,264,929 common shares for a partial note payable and accrued interest conversion at $0.0007927 per share.
On May 2, 2016, the Company issued 17,631,411 common shares for a partial note payable and accrued interest conversion at $0.00067 per share.
On May 3, 2016, the Company issued 13,165,887 common shares for a partial note payable and accrued interest conversion at $0.0007927 per share.
On May 3, 2016, the Company issued 20,185,029 common shares for a partial note payable and accrued interest conversion at $0.0007927 per share.
17
Ambient Water Corporation
Notes to Financial Statements
June 30, 2016
(Unaudited)
On May 3, 2016 the Company received $37,100 on the back end convertible promissory note associated with Note E listed in Note 6 above, less an original issue discount (OID) of $2,100. The note matures on October 14, 2017 (the "Maturity Date") and to pay interest on the unpaid principal balance hereof at the rate of Eight (8%) percent. The Lender has the right to convert the outstanding principal and interest into common shares at its option, at any time. The conversion price will be variable and based on a 42% discount to the market price. The market price will be the average of the three lowest trading prices for the common stock during the fifteen prior trading days.
On May 4, 2016, the Company issued 7,073,339 common shares for a partial note payable and accrued interest conversion at $0.0007927 per share.
On May 4, 2016, the Company issued 14,886,459 common shares for a partial note payable and accrued interest conversion at $0.0007927 per share.
On May 4, 2016, the Company issued 12,857,820 common shares for a partial note payable and accrued interest conversion at $0.000812 per share.
On May 6, 2016, the Company issued 13,852,692 common shares for a partial note payable and accrued interest conversion at $0.000754 per share.
On May 10, 2016, the Company issued 15,742,129 common shares for a partial note payable and accrued interest conversion at $0.0004447 per share.
On May 12, 2016, the Company issued 18,288,768 common shares for a partial note payable and accrued interest conversion at $0.000406 per share.
On May 12, 2016, the Company issued 19,704,433 common shares for a partial note payable and accrued interest conversion at $0.000406 per share.
On May 17, 2016, the Company issued 21,551,724 common shares for a partial note payable and accrued interest conversion at $0.000232 per share.
On May 18, 2016, the Company issued 27,413,793 common shares for a partial note payable and accrued interest conversion at $0.0001933 per share.
On May 18, 2016, the Company issued 25,904,301 common shares for a partial note payable and accrued interest conversion at $0.0001700 per share.
On May 25, 2016, the Company issued 25,985,753 common shares for a partial note payable and accrued interest conversion at $0.0001500 per share.
On June 1, 2016, the Company issued 26,108,000 common shares for a partial note payable and accrued interest conversion at $0.0001500 per share.
On June 10, 2016, the Company issued 26,130,205 common shares for a partial note payable and accrued interest conversion at $0.0001000 per share.
On June 17, 2016, the Company issued 31,221,781 common shares for a partial note payable and accrued interest conversion at $0.0001000 per share.
On June 27, 2016, the Company issued 32,518,767 common shares for a partial note payable and accrued interest conversion at $0.0001000 per share.
18
Ambient Water Corporation
Notes to Financial Statements
June 30, 2016
(Unaudited)
NOTE 11: Income Taxes
The Company is subject to taxation in the U.S. and the state of Washington. At June 30, 2016 and December 31, 2015, Ambient Water Corporation had gross deferred tax assets calculated at the Federal Income Tax rate of 34% of approximately $3,880,000 and $3,295,000, respectively, principally arising from net operating loss carry-forwards for income tax purposes of approximately $11,400,000, which begin to expire in the year 2032. As management of the Company cannot determine that it is more likely than not that the Company will realize the benefit of the deferred tax asset, a valuation allowance of approximately $3,880,000 and $3,295,000 has been established at June 30, 2016 and December 31, 2015, respectively.
The significant components of the Companys net deferred tax assets at June 30, 2106 and December 31, 2015 are as follows:
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31,
2015
|
Net operating loss carry forwards
|
$
|
11,400,000
|
$
|
9,690,000
|
Deferred tax asset
|
$
|
3,880,000
|
$
|
3,295,000
|
Deferred tax asset valuation allowance
|
|
(3,880,000)
|
|
(3,295,000)
|
Net deferred tax asset
|
$
|
-
|
$
|
-
|
Due to the reverse acquisition, the Company is restricted in the future use of net operating loss and tax credit carry-forwards generated by Ambient Water Corporation before the effective date of the Business Combination. Both of the Companies separate loss years net operating losses will be subject to possible limitations concerning changes of control and other limitations under the Internal Revenue Code. The net operating loss carry-forwards are subject to annual limitations which are cumulative until they expire. The Company is in the process of determining the annual allowable net operating loss deduction should the Company generate taxable income. Since both of the companies which were parties to the share exchange have substantial valuation allowances against any components of deferred taxes, management believes that no material differences in tax allocations will arise from the share transaction.
The accounting for the tax benefits of acquired deductible temporary differences and net operating loss carry-forwards, which are not recognized at the acquisition date because a valuation allowance is established and which are recognized subsequent to the acquisition, will be applied first to reduce to zero any goodwill and other non-current intangible assets related to the acquisition. Any remaining benefits would be recognized as a reduction of income tax expense in future periods.
FASB ASC 740 prescribes recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FASB ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. At June 30, 2016, the Company had not taken any tax positions that would require disclosure under FASB ASC 740.
Income taxes are provided based upon the liability method of accounting pursuant to ASC 740-10-25
Income Taxes Recognition.
Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the more likely than not standard imposed by FASB ASC 740-10-25-5.
The Companys policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had a $40,000 accrual for penalties on its balance sheets at June 30, 2016 and December 31, 2015, and has recognized this as interest and/or penalties in the statement of operations for the years ending December 31, 2014. Further, the Company currently has no open tax years, subject to audit prior to December 31, 2012. The Company is current on its federal returns and currently has no state income tax return requirements.
19
Ambient Water Corporation
Notes to Financial Statements
June 30, 2016
(Unaudited)
NOTE 12: SUBSEQUENT EVENTS
The Company evaluated events occurring subsequent to June 30, 2016, identifying those that are required to be disclosed as follows:
On July 6, 2016, the Company issued 38,732,055 common shares for a partial note payable and accrued interest conversion at $0.0001 per share.
On July 18, 2016, the Company issued 38,712,329 common shares for a partial note payable and accrued interest conversion at $0.0001 per share.
On July 18, 2016, the Company received a $25,000 advance on the convertible promissory note associated with Note G listed in Note 6 above.
On July 26, 2016, the Company issued 38,657,644 common shares for a partial note payable and accrued interest conversion at $0.0001 per share.
On August 3, 2016, the Company issued 38,788,110 common shares for a partial note payable and accrued interest conversion at $0.0001 per share.
On August 11, 2016, our investor and lender of the $900,000 and $250,000 convertible promissory notes (Footnote 6: Notes A and G) waived the "Reservation of Shares" requirement for a period of sixty (60) days. Due to our falling share price, we presently have insufficient authorized common stock capital to meet the "Reservation of Shares" requirements under both notes. During this 60-day period, the company intends to formulate and implement an expedited corporate action which management believes will posture the Company to address the issue.
20