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
September 30, 2017
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 continuously renewed 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, restaurants, beverage industry, 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, 2016 included in the Companys Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2017. The interim unaudited condensed consolidated financial statements as of and for the nine (9) months ended September 30, 2017 and 2016, 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 three and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. 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.
6
AMBIENT WATER CORPORATION
Notes to Financial Statements
September 30, 2017
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.
The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All inter-company transactions are eliminated.
7
AMBIENT WATER CORPORATION
Notes to Financial Statements
September 30, 2017
Going Concern Uncertainties
The Company has not generated positive cash flows since inception and has recognized approximately $14.2 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 Board of Directors has assessed the going concern issue and believes that the Company should be able to continue as a going concern for at least the next 12 months based on projected sales as well as our relationship with our primary Convertible Note holder and our expectation of its continued pattern of funding the Company. However, the Company can provide no assurance that sales pipeline will continue to provide sales or that the relationship with our primary Convertible Note holder will continue.
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.
Impact of New Accounting Standards
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. Update 2015-14 deferred the effective date of ASU 2014-09 to reporting periods beginning after December 15, 2017. Earlier adoption is permitted
8
AMBIENT WATER CORPORATION
Notes to Financial Statements
September 30, 2017
only as of annual reporting periods beginning after December 15, 2016. 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.
Issued In 2017
Update 2017-11Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception
Update 2017-10Service Concession Arrangements (Topic 853): Determining the Customer of the Operation Services (a consensus of the FASB Emerging Issues Task Force)
Update 2017-09CompensationStock Compensation (Topic 718): Scope of Modification Accounting
Update 2017-08ReceivablesNonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities
Update 2017-04IntangiblesGoodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
Update 2017-03Accounting Changes and Error Corrections (Topic 250) and InvestmentsEquity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings (SEC Update)
Update 2017-02Not-for-Profit EntitiesConsolidation (Subtopic 958-810): Clarifying When a Not-for-Profit Entity That Is a General Partner or a Limited Partner Should Consolidate a For-Profit Limited Partnership or Similar Entity
Update 2017-01Business Combinations (Topic 805): Clarifying the Definition of a Business
9
AMBIENT WATER CORPORATION
Notes to Financial Statements
September 30, 2017
10
AMBIENT WATER CORPORATION
Notes to Financial Statements
September 30, 2017
Issued In 2016
Update 2016-20Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers
Update 2016-19Technical Corrections and Improvements
Update 2016-18Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)
Update 2016-17Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control
Update 2016-16Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory
Update 2016-15Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)
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. The Patent will be amortized over the remaining effective life.
Additionally, through September 30, 2017, the Company has capitalized $13,649 of expenses in this account. The Company will continue to capitalize expenses in this account for Patents being pursued. At such time the patent is granted, the Company will begin to amortize over the useful life. If patents are denied, the Company will expense the costs associated with pursuing the patent.
11
AMBIENT WATER CORPORATION
Notes to Financial Statements
September 30, 2017
At September 30, 2017 and December 31, 2016, the net technology acquisition balance was $25,828 and $27,896, respectively. As of September 30, 2017 and December 31, 2016, the Company has recognized $36,431 and $31,931, respectively of accumulated amortization. For the nine months ended September 30, 2017 and 2016, the Company recognized $6,750 and $6,598, respectively of amortization expense.
The technology rights are being amortized over 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.
12
AMBIENT WATER CORPORATION
Notes to Financial Statements
September 30, 2017
Warranty Expense
In 2014, the Company established a product warranty reserve, set at five percent (5%) of sales. For the three month periods ending September 30, 2017 and 2016, the Company charged $787 and $1,052, respectively to the expense line Sales Reserve and increased the corresponding liability - Product Warranty Reserve in the same amount. At September 30, 2017 and December 31, 2016, there was a balance of $15,913 and $15,125, respectively in the product warranty reserve account which is shown in accrued liabilities.
NOTE 2: DEPOSITS ON PRODUCT
At September 30, 2017 and December 31, 2016, there was a balance of $33,187 and $33,481, respectively in deposits on product for each period. Deposits on product represent amounts paid to the Companys Korean contract manufacturer.
NOTE 3: INVENTORY
At September 30, 2017 and December 31, 2016, the Inventory balance was $5,187 and $6,321, 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 September 30, 2017 and only one Model 2500 unit in inventory at December 31, 2016.
NOTE 4: FIXED ASSETS
At September 30, 2017 and December 31, 2016, the net Fixed Assets balance was $4,728 and $16,630, respectively. The Company purchases demonstration units to be used in soliciting new distributors and marketing efforts. The Company is depreciating these assets and computer equipment over the appropriately determined estimated useful life of 3 years. As of September 30, 2017 and December 31, 2016, the Company has recognized $59,390 and $47,488, respectively, of accumulated depreciation. For the nine month periods ending September 30, 2017 and 2016, the Company recognized $11,903 and $13,093 for depreciation expenses, respectively.
NOTE 5: ACCRUED LIABILITIES
At September 30, 2017 and December 31, 2016, the Accrued Liabilities balance was $123,910 and $108,585, 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.
13
AMBIENT WATER CORPORATION
Notes to Financial Statements
September 30, 2017
The Lender has loaned the Company $900,000 through March 31, 2015. During 2014, The Lender converted $65,000 of the outstanding principal and associated interest into 5,585,006 common shares. Additionally, during 2015, the Lender converted $137,000 of the outstanding principal and associated interest into 18,780,588 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. During the quarter ended September 30, 2016, the Lender converted $28,480 of the outstanding principal and associated interest into 353,461,713 common shares. During the quarter ended December 31, 2016, the Lender converted $34,490 of the outstanding principal and associated interest into 359,779,453 common shares. During the quarter ended June 30, 2017, the Lender converted $54,423 of the outstanding principal and associated interest into 534,226,504 common shares. The outstanding principal on this Note is $492,570 and $550,610, at September 30, 2017 and December 31, 2016, respectively. There was no current portion of this note payable at September 30, 2017 and December 31, 2016, 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:
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
14
AMBIENT WATER CORPORATION
Notes to Financial Statements
September 30, 2017
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.
15
AMBIENT WATER CORPORATION
Notes to Financial Statements
September 30, 2017
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 $217,500 and $150,000 through September 30, 2017, and December 31, 2016, respectively. The current portion of the note payable is nothing and $150,000, at September 30, 2017 and December 31, 2016, respectively. On January 19, 2017, the Lender extended the maturity date of this Note to no later than 60 months form the Effective Date. This Note is referred to as Note B in the table below.
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CONVERTIBLE NOTES PAYABLE
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Current
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Current
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Payable
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Portion
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Payable
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Portion
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Description
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at 9/30/17
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at 9/30/17
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at 12/31/16
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at 12/31/16
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Note A
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$ 492,570
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$ -
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$ 550,610
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$ -
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Note B
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217,500
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-
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150,000
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150,000
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$ 710,070
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$ -
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$ 700,610
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$ 150,000
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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. The Company has valued the conversion feature of Note A using the Black-Scholes model and calculated the value of this additional liability as of September 30, 2017 as part of the $1,768,848 total derivative liability. The Company has recognized a change of earnings for the effect of such a conversion through September 30, 2017 as part of the loss on derivatives of $470,570. The Company also included in these changes the valued the conversion feature of Note B using the Black Scholes model as of September 30, 2017. The Company has recognized a change of earnings for the effect of such a conversion through September 30, 2017. Inputs used to determine the fair value of Notes A and B are: risk free interest rate .005%, stock price $0.0003 (fair market value as of September 30, 2017), Strike price $0.0001 (conversion price as of September 30, 2017), and maturity of 1.75 years for Note A and maturity of 5 years for Note B.
As of September 30, 2017 and December 31, 2016, the Company classified the derivative liability for both Notes A and B above as Level 3 in the fair value hierarchy.
The three levels of the fair value hierarchy are:
Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
Level 3 Inputs that are not based on observable market data.
16
AMBIENT WATER CORPORATION
Notes to Financial Statements
September 30, 2017
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.
17
AMBIENT WATER CORPORATION
Notes to Financial Statements
September 30, 2017
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
.
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.
On April 15, 2016, in accordance with the Registration Rights Agreement, the Company filed a registration statement with the Securities and Exchange Commission (the SEC), (the Registration Statement) to register for resale under the Securities Act of 1933, as amended (the Securities Act), the 90,000,000 shares of Common Stock that may be issued to River North under the Purchase Agreement. We will not be registering 100% of the registerable securities under the Purchase Agreement. We will be subject to a registration cap which will not 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 90,000,000 common shares which will represent approximately $153,000 Dollars of the $5 Million Dollars under the Purchase Agreement. The Registration Statement was declared effective May 12, 2016. No shares have been sold under the Registration Statement. The Registration Statement will need to be updated with a Post-Effective Amendment before the Company can put common shares to River North 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.
18
AMBIENT WATER CORPORATION
Notes to Financial Statements
September 30, 2017
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 remaining annual expense to the Company associated with these options as of September 30, 2017 is:
19
AMBIENT WATER CORPORATION
Notes to Financial Statements
September 30, 2017
As of September 30, 2017, 15,242,000 of these stock options had vested and were exercisable at an average exercise price of $0.18. As of September 30, 2017, no additional options were expected to vest.
At September 30, 2017 and December 31, 2016, the Company owed reimbursements to Officers of $81,200 and $23,772, respectively. These amounts are listed under the caption Accounts payable - related parties on the Balance Sheets.
Additionally, at September 30, 2017 and December 31, 2016, the Company owed Officer Compensation of $464,858 and $284,568, 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 three months and year ending September 30, 2017 and December 31, 2016, respectively:
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September 30,
2017
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December 31,
2016
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Warrants outstanding at beginning of period
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1,340,000
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1,340,000
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Issued
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-
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-
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Expired
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(1,340,000)
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-
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Exercised
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-
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-
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Warrants outstanding at end of period
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-
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1,340,000
|
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.
On February 1, 2017, 1,340,000 Warrants exercisable at $0.03 per share expired without being exercised.
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, 2016
|
|
Authorized:
|
400,000,000 preferred shares, Series A
1 preferred share, Series B
|
|
12,000,000,000 common shares
|
Issued and outstanding:
|
72,800,920 preferred shares, Series A
1 preferred share, Series B
1,492,558,483 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.
20
AMBIENT WATER CORPORATION
Notes to Financial Statements
September 30, 2017
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.
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.
21
AMBIENT WATER CORPORATION
Notes to Financial Statements
September 30, 2017
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.
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.
22
AMBIENT WATER CORPORATION
Notes to Financial Statements
September 30, 2017
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.
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. The Company has increased the authorized shares to satisfy this requirement.
On August 16, 2016, the Company issued 46,220,616 common shares for a partial note payable and accrued interest conversion at $0.0001 per share.
On August 29, 2016, the Company issued 48,530,959 common shares for a partial note payable and accrued interest conversion at $0.0001 per share.
23
AMBIENT WATER CORPORATION
Notes to Financial Statements
September 30, 2017
On September 13, 2016, the Company filed a Certificate of Designation creating a Series B Preferred Share. Initially, the number of shares will be one (1) share, par value $10.00 per share. The Series B Preferred Stock will have continuing super voting rights which will always represent no less than Fifty-one (51%) percent of all the Companys voting capital stock. The share of Series B Preferred Stock will be issued to Keith White, at par value, who will vote from time to time in favor of increasing the common stock capital for the sole purpose of avoiding a default in any of the outstanding convertible promissory notes.
On September 15, 2016, the Company issued 51,210,685 common shares for a partial note payable and accrued interest conversion at $0.0001 per share.
On September 28, 2016, the Company issued 52,619,315 common shares for a partial note payable and accrued interest conversion at $0.0001 per share.
Fourth quarter 2016, the Company issued 359,779,453 common shares for partial note payable and accrued interest conversion at $0.0001 to $0.00015 per share
On November 30, 2016, the Company issued one preferred B share to an Executive for the sole purpose of increasing the Companys common shares at $10 par value
On January 25, 2017, the Company amended its Certificate of Incorporation increasing its authorized common stock capital from Two Billion (2,000,000,000) common shares, par value $0.0001 per share, to Twelve Billion (12,000,000,000) common shares, par value $0.0001. The Four Hundred Million (400,000,000) preferred shares, par value $0.0001 remained unchanged.
In the first quarter of 2017, the Company issued 215,691,123 common shares for partial conversions of note payables and accrued interest at $0.0001 per share.
In the second quarter 2017, the Company issued 534,226,054 common shares for partial note payable and accrued interest conversion at $0.0001 per share.
In the third quarter of 2017, the Company issued no common shares for partial note payable and accrued interest conversion.
|
|
September 30, 2017
|
|
Authorized:
|
400,000,000 preferred shares, Series A
1 preferred share, Series B
|
|
12,000,000,000 common shares
|
Issued and outstanding:
|
72,800,920 preferred shares, Series A
1 preferred share, Series B
2,242,475,661 common shares
|
NOTE 11: Income Taxes
The Company is subject to taxation in the U.S. and the state of Washington. At September 30, 2017 and December 31, 2016, Ambient Water Corporation had gross deferred tax assets calculated at the Federal Income Tax rate of 34% of approximately $4,250,000 and $4,035,000, respectively, principally arising from net operating loss carry-forwards for income tax purposes of approximately $12,450,000, 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 $4,250,000 and $4,035,000 has been established at September 30, 2017 and December 31, 2016, respectively.
24
AMBIENT WATER CORPORATION
Notes to Financial Statements
September 30, 2017
The significant components of the Companys net deferred tax assets at September 30, 2017 and December 31, 2016 are as follows:
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31,
2016
|
Net operating loss carry forwards
|
$
|
12,450,000
|
$
|
11,870,000
|
Deferred tax asset
|
$
|
4,250,000
|
$
|
4,035,000
|
Deferred tax asset valuation allowance
|
|
(4,250,000)
|
|
(4,035,000)
|
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.
25
AMBIENT WATER CORPORATION
Notes to Financial Statements
September 30, 2017
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 September 30, 2017, 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 September 30, 2017 and December 31, 2016, 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 return requirements.
NOTE 12: SUBSEQUENT EVENTS
The Company has analyzed its operation subsequent to September 31, 2017 through the date these financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these financial statements.
26