802 N. Washington St.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
Notes to Consolidated Financial Statements
December 31, 2016
NOTE 1: NATURE OF OPERATIONS AND BASIS OF PRESENTATION
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
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 supply 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 commercial and industrial water-sensitive applications ranging from oil and gas exploration to vertical farming. Our systems are easily configured to produce high quality drinking water for homes, offices, and communities.
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.
BASIS OF PRESENTATION:
The accompanying consolidated financial statements of Ambient Water Corporation and its subsidiaries (Company) have been prepared in accordance with accounting principles generally accepted in the United States of America under the rules and regulations of the U.S. Securities and Exchange Commission (the "SEC") (See Management Statement regarding Going Concern in Note 3). In the opinion of management, the consolidated financial statements reflect all adjustments considered necessary for a fair presentation.
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. The Business Combination was accounted for as a reverse acquisition and recapitalization using accounting principles applicable to reverse acquisitions whereby the financial statements subsequent to the date of the Business Combination are presented as a continuation of AWG International, Inc. Under reverse acquisition accounting AWG International, Inc. (subsidiary) will be treated as the accounting parent (acquirer) and AWG International Water Corporation (parent) will be treated as the accounting subsidiary (acquiree). All outstanding shares have been restated to reflect the effect of the Business Combination, which includes a 67.1522 for 1 issuance of AWG International Water Corporation shares to AWG International, Inc. shareholders.
Although the Share Exchange Agreement was completed on July 10, 2012, the effective date for accounting purposes was June 30, 2012, and all of the necessary accounting adjustments were fully reflected in the June 30, 2012 financial statements.
The Companys year-end is December 31.
30
Ambient Water Corporation
Notes to Consolidated Financial Statements
December 31, 2016
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist in understanding the financial statements. The financial statements and notes are representations of the Companys management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America, and have been consistently applied in the preparation of the financial statements.
A. Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reported period. Actual results could differ materially from the estimates.
B. Reclassification
Certain amounts in the historical financial statements have been reclassified to conform to the current 2016 presentation. These reclassifications have no effect on net loss, total assets, or shareholders equity as previously reported.
C. Cash and cash equivalents
At December 31, 2016 and December 31, 2015, cash and cash equivalents consisted of checking accounts.
D. Technology Acquisition
The technology supporting the Companys products (Technology Acquisition) was obtained as described below.
Under the terms of the assignment, and subject to one exception discussed below concerning the G2 Assets, the Company owns exclusive and non-exclusive rights to manufacture, market and sell certain products covered under individual patents and/or patents pending. In return, the persons making the assignment received 500,000 common shares of the Company. The Company incurred no material costs related to the assignment and patent protection during 2016.
On or about April 13, 2010, Everest Water, Ltd., (Licensor) granted CanAmera Management, Inc. (Licensee), a corporation organized under the laws of the Republic of Panama, a non-exclusive, royalty bearing license to manufacture, use and sell products under U.S. Patent No. 7,272,947 including any and all U.S. or foreign patents derived and any patent on improvements on the patent, (the "License Agreement"). The patent describes a device that produces potable water by extracting water from the air and purifying it by way of cooling and condensing water and removing bacteria or preventing the formation of bacteria.
On the same date, April 13, 2010, Licensee assigned the License Agreement to AWG International, Inc., as successor Licensee. The consideration for the assignment was 250,000 common shares of AWG International, Inc. Mr. Keith White, a Company director, Chief Executive and Technology Officer and Robb Perkinson, a company director, have shared voting and dispositive control of Licensee.
During August 2012, information came to our attention which raised questions about the enforceability, validity and scope of protection relating to the Everest Water patents, the Everest Water/Licensee License Agreement and subsequent patent assignments ("G2 Assets") which were associated with the License Agreement. These questions involve legal issues under the laws of the Commonwealth of the Bahamas. The Company engaged a Bahamian law firm to provide guidance and advice in regard to the legal questions associated with these G2 Assets. The principal legal issue concerning the enforceability and validity of the G2 asset transfers to AWG involved Everest Waters' ability to deal in its assets when it had been stricken from the Bahamas Companies Registry. On January 2, 2007, Everest Water had been stricken for failure to pay its annual corporate fees. Bahamas law prohibits a company from dealing in its assets while stricken. Therefore, the March 12, 2007 assignment of the G2 patent from Everest International, Ltd. and the April 13, 2010 Everest Water license would be considered invalid until such time as Everest Water is reinstated with the Companies Registry. Upon reinstatement, all business activity would be restored retroactively, as though Everest had never been stricken. Until such time as Everest Water, Ltd. could be reinstated with the Bahamas Companies Registry, the G2 Asset transfers were to be considered defective and invalid under Bahamian corporate law.
31
Ambient Water Corporation
Notes to Consolidated Financial Statements
December 31, 2016
On February 12, 2013, Keith White, through Bahamas legal counsel, caused the reinstatement of Everest Water, Ltd. with the Bahamas Companies Registry. The Company was notified of the reinstatement on February 13, 2013.
The fact that Everest Water had been stricken from the Bahamas Corporate registry on January 2, 2007 rendered the March 12, 2007 Everest International, Inc. patent assignment to Everest Water and the subsequent April 13, 2010 Everest Water grant of patent license agreement to CanAmera Management invalid, (the G2 Assets). These defects rendered the April 13, 2010 CanAmera Management license agreement assignment to AWG International, Inc. invalid as well.
The recent Everest Water, Ltd. reinstatement has caused the March 12, 2007 assignment of the G2 patent from Everest International, Inc. to Everest Water, Ltd. and the April 13, 2010 Everest Water License Agreement grant to CanAmera Management, Inc. to be deemed restored and validated, retroactively, as though Everest Water had never been stricken from the Registry.
The reinstatement has cured the defect with the CanAmera Management License Agreement assignment to AWG International, Inc. As a result, AWG International, Inc. is now the assignee of the CanAmera Management license agreement.
On February 14, 2013, AWG, as assignee to the License Agreement, declared Everest Water, Ltd. insolvent under Paragraph VII (c) of the License Agreement. As a result of this insolvency declaration, AWG took the actions set forth in paragraphs (a) and (b) below and assigned the G2 patent assets as provided for pursuant to the terms of the License Agreement. Keith White, individually, as co-inventor, took the action set forth in paragraph (c).
(a)
On February 14, 2013, Keith White, on behalf of AWG, executed a Declaration of Assignment whereby the G2 patent assets owned by Everest Water were assigned to AWG.
(b)
On February 14, 2013, AWG assigned the G2 patent assets to the inventors, Rae Anderson and Keith White.
(c)
On February 14, 2013, Keith White, as co-inventor, assigned the G2 patent assets to AWG.
As a result of these assignments, AWG and Rae Anderson each own a one-half undivided interest in the G2 patent assets.
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. 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.
The costs associated with curing the patent and assignment defects were paid by the Company. However, CanAmera Management had agreed to return for cancellation 355,525 of its Company common shares valued at $47,883, the estimated cost of curing the defects. The Company had placed an administrative "stop transfer" on the 16,788,057 AWG exchange shares which were issued to CanAmera Management pursuant to the Exchange Agreement, until such time as the Patent and License Agreement matters had been resolved in the Companys favor. The Company is satisfied that the matter has been resolved and has completed the issuance of the shares.
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.
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.
32
Ambient Water Corporation
Notes to Consolidated Financial Statements
December 31, 2016
Additionally, for the year ending December 31, 2016, the Company has capitalized $8,967 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.
At December 31, 2016 and December 31, 2015, the net Technology acquisition balance was $27,896 and $18,886, respectively. As of December 31, 2016 and December 31, 2015, the Company has recognized $31,931 and $23,083, respectively of accumulated amortization. As of December 31, 2016 and December 31, 2015, the Company recognized $8,848 and $8,394, 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. See discussion Note 2(I)
, Impairment of Long-Lived Assets
.
E. Revenue Recognition
The Company recognizes revenues when earned which shall be as products are shipped and services are delivered to customers or distributors. The Company shall also record accounts receivable for revenue earned but not yet collected.
F. Income Taxes
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.
G. Earnings (Loss) Per Share (EPS)
FASB ASC 260,
Earnings Per Share
provides for calculation of "basic" and "diluted" earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income (loss) available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity similar to fully diluted earnings per share. Basic and diluted losses per share were the same, at the reporting dates, as there were no dilutive common stock equivalents outstanding.
H. Derivative Instruments
FASB ASC 815,
Derivatives and Hedging
establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. They require that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value.
If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change.
At December 31, 2015 and 2016, the Company had engaged in transactions are considered derivative instruments or hedging activities.
During 2015 and 2016, the Company entered into a series of Convertible Promissory Notes which included conversion clauses which are deemed derivative liabilities As of December 31, 2015 the estimated effect upon the fair market conversion of the outstanding note balances of $910,983 and accrued interest of $110,428 was approximately $825,712 for the relative fair market conversion of the note to common stock. As of December 31, 2016 the estimated effect upon the fair market conversion of the outstanding note balances of $700,610 and accrued interest of $138,624 was approximately $1,433,770 for the relative fair market conversion of the note to common stock. For further information see Note 9 to the financial statement.
33
Ambient Water Corporation
Notes to Consolidated Financial Statements
December 31, 2016
I. Impairment of Long-Lived Assets
Long-lived assets of the Company, including the Technology Rights, are reviewed at least annually for impairment or when changes in circumstances indicate their carrying value has become impaired, pursuant to guidance established in FASB ASC 410-20. Management considers assets to be impaired if the carrying amount of an asset exceeds the future projected cash flows from related operations (undiscounted and without interest charges). If impairment is deemed to exist, the asset will be written down to fair value, and a loss is recorded as the difference between the carrying value and the fair value. Fair values are determined based on quoted market values, discounted cash flows, or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value. Management has determined that there was no impairment as of December 31, 2015 and 2016.
J. Fair Value of Financial Instruments
The Company's financial instruments as defined by FASB ASC 825-10-50 include cash, trade accounts receivable, and accounts payable and accrued expenses. All instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at December 31, 2015 and 2016.
FASB ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. FASB ASC 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:
Level 1: Applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities; and
Level 2: Applies to assets or liabilities for which there are inputs other than the quoted prices in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions; or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data; and
Level 3: Applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities, which may include the reporting entity to develop its own assumptions.
The Company did have conversion feature of debt as a Level 3 valuation measured at fair value on a recurring basis at December 31, 2016 or 2015. The Company did have conversion feature of debt as a Level 3 valuation measured at fair value on a nonrecurring basis during the period ended December 31, 2015 or 2016.
K. Warranty Expense
The Company has established a product warranty reserve, set at five percent (5%) of sales, beginning for the quarter ending September 30, 2014. As such, the Company charged $2,089 and $11,236, to the expense line Sales Reserve for the years ending December 31, 2016 and 2015, respectively. Additionally, the Company set up a corresponding liability, Product Warranty Reserve, in the amount of $15,125 and $13,036 shown in accrued liabilities for the years ended December 31, 2016 and 2015, respectively.
L. Impact of New Accounting Standards
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 standards require 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 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 adopted ASU 2014-15 in the fourth quarter of 2016 see
Note 3 Going Concern Uncertainties.
34
Ambient Water Corporation
Notes to Consolidated Financial Statements
December 31, 2016
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.
In February 2015, the FASB issued new guidance to improve consolidation guidance for legal entities (Accounting Standards Update (ASU) 2015-02,
Consolidation (Topic 810): Amendments to the Consolidation Analysis
),
effective for fiscal years beginning after December 15, 2015 and interim periods within those years and early adoption is permitted. The new standard is intended to improve targeted areas of the consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures. The amendments in the ASU affect the consolidation evaluation for reporting organizations. In addition, the amendments in this ASU simplify and improve current GAAP by reducing the number of consolidation models. The Company adopted ASU 2015-02 in 2016 and this adoption did not have a material impact on its financial condition, results of operations or cash flows.
The FASB has issued ASU No. 2014-12,
Compensation Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period
. This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Company adopted ASU 2014-12 in 2016 and this adoption did not have a material impact on its financial condition, results of operations or cash flows. The Company has not yet determined the effect of the adoption of this standard and it is not expected to have a material impact on the Companys condensed consolidated financial position and results of operations.
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 2016-01 - Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
·
Update 2016-09 - Compensation - Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting
NOTE 3: GOING CONCERN UNCERTAINTIES
The Company has not generated positive cash flows since inception, 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 financing to fund ongoing operations.
35
Ambient Water Corporation
Notes to Consolidated Financial Statements
December 31, 2016
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 based on the sales pipeline as well as our relationship with our primary Convertible Note holder to continue to fund the Company.
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.
NOTE 4: BUSINESS COMBINATION
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. This company was considered a shell company prior to the Business Combination.
AWG International, Inc. was incorporated on March 18, 2010, under the laws of the State of Nevada, and is headquartered in Spokane Valley, Washington. This company is in the business of developing, patenting and marketing devices that harvest water from the atmosphere.
Pursuant to the terms and conditions of the Share Exchange Agreement, AWG International Water Corporation acquired 100% of the capital stock, 1,160,514 common shares, of AWG International, Inc. in exchange for 77,931,100 common shares. At the time the Share Exchange Agreement was executed, this common stock represented 67.38% of the Companys issued and outstanding capital stock.
Each of the outstanding shares of AWG International, Inc.s common stock prior to the Business Combination was converted into 67.1522 shares of AWG International Water Corporations common stock. Accordingly, an aggregate of 77,931,100 shares of common stock were issued to the shareholders of AWG International, Inc.
The shares of AWG International Water Corporations common stock issued to the former holders of AWG International, Inc.s
common stock in connection with the Business Combination, and the shares of the Company's common stock and warrants issued in the Private Placement, were issued in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended and Regulation D Rule 506 promulgated under that section, which exempts transactions by an issuer not involving a public offering. These securities may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. Certificates representing these shares display a legend stating the restrictions applicable to such shares.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the Business Combination transaction date:
|
|
Cash and cash equivalents
|
$ 157,597
|
Notes receivable AWGI
|
635,142
|
Prepaid
|
595
|
Total identifiable assets
|
$ 793,334
|
|
|
Accounts payable
|
$ (75,057)
|
Notes payable
|
(145,000)
|
Notes payable AWGI
|
(33,012)
|
Stock to be issued
|
(59,045)
|
Total identifiable liabilities
|
$ (312,114)
|
|
|
Net identifiable assets
|
$ 481,220
|
36
Ambient Water Corporation
Notes to Consolidated Financial Statements
December 31, 2016
As part of the accounting adjustments associated with the reverse acquisition, all intercompany balances were subsequently eliminated.
NOTE 5: DEPOSITS ON PRODUCT
At December 31, 2016 and December 31, 2015, there was a balance of $33,481 and $51,959, respectively in deposits on product. Deposits on product represent amounts paid to the Companys Korean contract manufacturer.
NOTE 6: INVENTORY
At December 31, 2016 and December 31, 2015, the Inventory balance was $6,321 and $1,497, respectively, valued at the lower of cost or fair market value less any allowances for obsolescence. The Company maintains an inventory of Model 2500 units and filters that are used both in the manufacture of new units and as replacements in previously sold units. The Company had one and zero Model 2500 units in inventory at December 31, 2016, and 2015, respectively.
NOTE 7: FIXED ASSETS
At December 31, 2016 and December 31, 2015, the net Fixed Asset balance was $16,630 and $33,789, respectively. The Company purchased additional 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 December 31, 2016 and December 31, 2015, the Company has recognized $47,487 and $30,328, respectively, of accumulated depreciation. As of December 31, 2016 and 2015, the Company recognized $17,159 and $20,473 for depreciation expenses, respectively.
NOTE 8:
ACCRUED LIABILITIES
At December 31, 2016 and December 31, 2015 the Accrued liabilities balance was $108,585 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 11 - Related Party Transactions.
NOTE 9: 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.
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. The outstanding principal on this Note is $698,000 and $735,000, at December 31, 2015 and December 31, 2014, respectively. The current portion of this note payable is $-0- and $435,000, at December 31, 2015 and December 31, 2014, 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:
37
Ambient Water Corporation
Notes to Consolidated Financial Statements
December 31, 2016
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 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. The current portion of the notes payable is $-0- and $23,000 at December 31, 2016 and 2015, respectively. This note is referred to as Note B in the table below.
38
Ambient Water Corporation
Notes to Consolidated Financial Statements
December 31, 2016
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 December 31, 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 December 31, 2016 and December 31, 2015, respectively. The current portion of the note payable (net of OID) is $-0- and $95,529, at December 31, 2016 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 December 31, 2016 and December 31, 2015, respectively. The current portion of the note payable (net of OID) is $-0- and $35,227, at December 31, 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 December 31, 2016 and December 31, 2015, respectively. The current portion of the note payable (net of OID) is $-0- and $35,227, at December 31, 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 of twelve months from the Effective Date was amended to sixty (60) months on January 12, 2017. The maturity date is February 2, 2021. 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 $150,000 through December 31, 2016. The current portion of the note payable is $150,000 and $-0-, at December 31, 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 December 31, 2016 and December 31, 2015, respectively. The current portion of the note payable (net of OID) is $-0- and $-0- at December 31, 2016 and December 31, 2015, respectively. This note is referred to as Note H in the table below.
39
Ambient Water Corporation
Notes to Consolidated Financial Statements
December 31, 2016
|
|
|
|
|
|
|
|
|
CONVERTIBLE NOTES PAYABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
Current
|
|
|
Payable
|
|
Portion
|
|
Payable
|
|
Portion
|
Description
|
|
at 12/31/16
|
|
at 12/31/16
|
|
at 12/31/15
|
|
at 12/31/15
|
Note A
|
|
$ 550,610
|
|
$ -
|
|
$ 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
|
|
150,000
|
|
150,000
|
|
-
|
|
-
|
Note H
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
$ 700,610
|
|
$ 150,000
|
|
$ 910,983
|
|
$ 142,529
|
Derivative liabilities
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 December 31, 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 8,211,602,410 shares. The Company has calculated the value of this additional liability to be $960,757 and has recognized a change of earnings for the effect of such a conversion through December 31, 2016.
As of December 31, 2015, 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 417,117,892 shares. The Company has calculated the value of this additional liability to be $702,369 and has recognized a change of earnings for the effect of such a conversion through December 31, 2015. Additionally, the conversion features on Note G above would have increased the stock necessary to settle the conversion feature on this Note to approximately 3,153,420,000 shares. The Company has calculated the value of this additional liability to be $473,013 and has recognized a change of earnings for the effect of such a conversion through December 31, 2016. Additionally, the conversion features on Notes B, C, D, E and F above would have increased the stock necessary to settle the conversion feature on these Notes to approximately 98,253,949 shares. The Company has calculated the value of this additional liability to be $123,343 and has recognized a change of earnings for the effect of such a conversion through December 31, 2015. Total derivative liability was $825,712 and $1,433,770, as of December 31, 2015 and December 31, 2016, respectively. As of December 31, 2015, the derivative liability is classified as $76,955 under current liabilities and $748,757 under long-term liabilities. As of December 31, 2016, the derivative liability is classified as $473,013 under current liabilities and $960,757 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.
NOTE 10: 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 8
Accrued Liabilities
.
40
Ambient Water Corporation
Notes to Consolidated Financial Statements
December 31, 2016
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 2 Section D 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 $0.001 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.
NOTE 11: RELATED PARTY TRANSACTIONS
The technology behind the Companys products, (Technology Acquisition) was acquired through an exclusive Irrevocable Patent Assignment. See discussion Note 2(D)
Technology Acquisition
, Note 10
Commitments and Contingencies
and Note 15
Subsequent Events
.
On April 1, 2011, the Company acquired AWG International Manufacturing Ltd., from the Companys Chief Executive Officer by purchasing the one share issued and outstanding in AWG International Manufacturing Ltd. in exchange for one share of the Companys common stock. The Company controls AWG International Manufacturing Ltd., a non-operating subsidiary which has no value attributed to it and as such the financial statements are not considered to be consolidated. See discussion Note 13
Common Stock
.
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. 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 Chief Financial Officer and Secretary. These common stock options have an exercise price of $0.18. Mr. Mitchell's 14,947,000 common stock options expired on October 6, 2015.
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 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 Chief Financial Officer and Secretary, collectively 2,250,000 common stock options. These common stock options have an exercise price of $0.11. Mr. Mitchell's 750,000 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.
41
Ambient Water Corporation
Notes to Consolidated Financial Statements
December 31, 2016
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. After common stock option expirations listed above, the revised financial statement presentation impact of the value ascribed to the issuance of 15,242,000 stock options as approximately $2,512,095. The Company will recognize the expense of issuing these options using the straight-line method over the 4-year term vesting term of the options. The estimated annual expense to the Company associated with these options is:
As of December 31, 2016, 14,960,750 of these stock options had vested and were exercisable at an average exercise price of $0.18. As of December 31, 2016,281,250 were expected to be vested over the next year. On October 6, 2015, 10,622,189 of the options vested at September 30, 2015 expired.
Stock Grant - On December 30, 2013, the Companys Board of Directors adopted a stock grant program for officers and employees. Originally, shares under this grant were to be issued by June 15, 2014. Jeff Stockdale and Keith White have elected defer these grants (3,352,500 each) which will remain unissued. Therefore, on August 5, 2014, the board of directors deferred the stock grant to January 1, 2015. These shares were issued to Jeff Stockdale and Keith White on January 5, 2015 at $0.0389 per share.
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. 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 December 31, 2015 and 2016, the Company owed reimbursements to Officers of $2,485 and $23,772, respectively. These amounts are listed under the caption Accounts payable -related parties on the Balance Sheets.
Additionally, at December 31, 2015 and 2016, the Company owed Officer compensation of $370,000 and $284,568, respectively. These amounts are listed under the caption Accrued liabilities - related parties on the Balance Sheets.
NOTE 12: COMMON STOCK WARRANTS
The following warrants for our common stock were issued and outstanding for the years ending December 31, 2015 and December 31, 2016, respectively:
|
|
|
|
|
|
|
December 31,
2015
|
|
December 31,
2016
|
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 December 31, 2016 is as follows:
|
|
|
|
|
|
|
Number of Warrants
|
|
Expiration Date
|
Exercisable at $0.03 per share
|
|
1,340,000
|
|
February 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.
42
Ambient Water Corporation
Notes to Consolidated Financial Statements
December 31, 2016
NOTE 13: COMMON & PREFERRED 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, 2014
|
|
Authorized:
|
400,000,000 preferred shares
|
|
12,000,000,000 common shares
|
|
|
Issued and outstanding:
|
129,941,970 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
43
Ambient Water Corporation
Notes to Consolidated Financial Statements
December 31, 2016
On January 12, 2016, the Company issued 72,800,920 preferred shares to two Executives in lieu of accrued compensation at $0.0001 per share
First quarter 2016, the Company issued 149,172,915 common shares for partial note payable and accrued interest conversion at $0.000770 to $0.002100 per share
Second quarter 2016, the Company issued 452,737,311 common shares for partial note payable and accrued interest conversion at $0.00010 to $0.000880 per share
Third quarter 2016, the Company issued 353,461,713 common shares for 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
As of December 31, 2016, there were 1,340,000 common stock purchase warrants outstanding. The common stock purchase warrants are exercisable at three cents ($0.03) per share.
On March 7, 2016, the Company amended its Certificate of Incorporation increasing its authorized common stock capital from 500,000,000 common shares, par value $0.001 per share, to 2,000,000,000 common shares, par value $0.0001 and increasing its preferred stock capital from 100,000,000 preferred shares, par value $0.001 per share to 400,000,000 preferred shares, par value $0.0001.
|
|
December 31, 2016
|
|
Authorized:
|
400,000,000 preferred shares
|
|
2,000,000,000 common shares
|
|
|
Issued and outstanding:
|
1,492,558,483common shares
|
|
72,800,920 preferred A shares
|
|
1 preferred B shares
|
See
Subsequent
Event Note 15
for changes to capitalization in 2016.
NOTE 14: INCOME TAXES
The Company is subject to taxation in the U.S. and the State of Washington. At December 31, 2016 and December 31, 2015, Ambient Water Corporation had gross deferred tax assets calculated at the Federal Income Tax rate of 34% of approximately $4,035,000 and $3,295,000, respectively, principally arising from net operating loss carry-forwards for income tax purposes of approximately $11,870,000, 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 $4,035,000 and $3,295,000 has been established at December 31, 2016 and December 31, 2015, respectively.
The significant components of the Companys net deferred tax assets at December 31, 2016 and December 31, 2015 are as follows:
|
|
|
|
|
|
|
December 31,
2016
|
|
December 31,
2015
|
Net operating loss carry forwards
|
$
|
11,870,000
|
$
|
9,690,000
|
Deferred tax asset
|
|
4,035,000
|
|
3,295,000
|
Deferred tax asset valuation allowance
|
|
(4,035,000)
|
|
(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 AWG International 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
44
Ambient Water Corporation
Notes to Consolidated Financial Statements
December 31, 2016
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 December 31, 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 December 31, 2015 and 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, 2013. The Company is current on its federal returns and State of Idaho state income tax return requirements.
NOTE 15: SUBSEQUENT EVENTS
The Company evaluated events occurring subsequent to December 31, 2016, identifying those that are required to be disclosed as follows:
On January 9, 2017, the Company received an additional $12,500 consideration on the convertible note payable dated February 2, 2016.
On January 19, 2017, the Lender of Note G extended the maturity date of the Note to no later than 60 months from the Effective Date. See Note 9.
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.
On February 1, 2017, 1,340,000 Warrants exercisable at $0.03 per share expired without being exercised.
On February 2, 2017, the Company issued 70,812,493 common shares for a partial note payable and accrued interest conversion at $0.0001 per share.
On February 9, 2017, the Company received an additional $20,000 consideration on the convertible note payable dated February 2, 2016.
On March 10, 2017, the Company issued 63,945,205 common shares for a partial note payable and accrued interest conversion at $0.0001 per share.
45