Item 1. Financial Statements
QUEST WATER GLOBAL, INC.
(A Development Stage Company)
Consolidated Financial Statements
June 30, 2013
(Expressed in US dollars)
(unaudited)
QUEST WATER GLOBAL, INC.
(A Development Stage Company)
Consolidated Balance Sheets
(Expressed in US dollars)
|
|
June 30, 2013
|
|
|
December 31, 2012
|
|
|
|
$
|
|
|
$
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
–
|
|
|
|
1,732
|
|
Prepaid expenses
|
|
|
7,835
|
|
|
|
7,835
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
7,835
|
|
|
|
9,567
|
|
|
|
|
|
|
|
|
|
|
Equipment (Note 3)
|
|
|
246,059
|
|
|
|
275,343
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
253,894
|
|
|
|
284,910
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank indebtedness
|
|
|
35
|
|
|
|
–
|
|
Accounts payable
|
|
|
298,976
|
|
|
|
259,031
|
|
Accrued liabilities
|
|
|
6,120
|
|
|
|
9,098
|
|
Convertible notes payable, net of unamortized discount of $2,786 (2012 - $5,914) (Note 4)
|
|
|
34,034
|
|
|
|
30,906
|
|
Due to related parties (Note 5)
|
|
|
764,504
|
|
|
|
502,082
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,103,669
|
|
|
|
801,117
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable, net of unamortized discount of $51,042 (2012 - $79,792) (Note 4)
|
|
|
123,958
|
|
|
|
95,208
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,227,627
|
|
|
|
896,325
|
|
|
|
|
|
|
|
|
|
|
Nature of operations and continuance of business (Note 1)
|
|
|
|
|
|
|
|
|
Commitments (Note 9)
|
|
|
|
|
|
|
|
|
Subsequent event (Note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, 5,000,000 shares authorized, $0.000001 par value, 1 share issued and outstanding
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Common stock, 95,000,000 shares authorized, $0.000001 par value, 85,182,360 and 84,833,860 shares issued and outstanding, respectively
|
|
|
5,139
|
|
|
|
5,139
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
4,647,410
|
|
|
|
4,479,410
|
|
|
|
|
|
|
|
|
|
|
Common stock issuable (Note 6)
|
|
|
25,000
|
|
|
|
168,000
|
|
|
|
|
|
|
|
|
|
|
Deficit accumulated during the development stage
|
|
|
(5,651,283
|
)
|
|
|
(5,263,965
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders’ deficit
|
|
|
(973,733
|
)
|
|
|
(611,415
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ deficit
|
|
|
253,894
|
|
|
|
284,910
|
|
(The accompanying notes are an integral part
of these consolidated financial statements)
QUEST WATER GLOBAL, INC.
(A Development Stage Company)
Consolidated Statement of Operations
(Expressed in US dollars)
(unaudited)
|
|
Three months
ended
June 30, 2013
|
|
|
Three months
ended
June 30, 2012
|
|
|
Six months
ended
June 30, 2013
|
|
|
Six months
ended
June 30, 2012
|
|
|
Accumulated from
February 20, 2009 (date of inception) to
June 30, 2013
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and promotion
|
|
|
413
|
|
|
|
36,518
|
|
|
|
27,955
|
|
|
|
38,613
|
|
|
|
90,328
|
|
Amortization
|
|
|
14,642
|
|
|
|
12,716
|
|
|
|
29,284
|
|
|
|
16,496
|
|
|
|
103,773
|
|
Automotive
|
|
|
3,831
|
|
|
|
9,017
|
|
|
|
9,766
|
|
|
|
30,724
|
|
|
|
89,496
|
|
Consulting fees
|
|
|
7,008
|
|
|
|
880,247
|
|
|
|
18,217
|
|
|
|
887,649
|
|
|
|
1,105,226
|
|
Foreign exchange loss (gain)
|
|
|
(4,845
|
)
|
|
|
58
|
|
|
|
(8,029
|
)
|
|
|
12,854
|
|
|
|
(5,358
|
)
|
Management fees (Note 6)
|
|
|
75,000
|
|
|
|
2,014,525
|
|
|
|
150,000
|
|
|
|
2,089,525
|
|
|
|
2,949,525
|
|
Office and miscellaneous
|
|
|
4,402
|
|
|
|
9,311
|
|
|
|
11,154
|
|
|
|
69,762
|
|
|
|
99,960
|
|
Professional fees
|
|
|
36,571
|
|
|
|
92,816
|
|
|
|
71,386
|
|
|
|
187,387
|
|
|
|
629,833
|
|
Rent
|
|
|
7,427
|
|
|
|
7,508
|
|
|
|
14,980
|
|
|
|
15,049
|
|
|
|
131,360
|
|
Telephone
|
|
|
3,539
|
|
|
|
3,659
|
|
|
|
7,912
|
|
|
|
8,110
|
|
|
|
57,967
|
|
Transfer agent and filing fees
|
|
|
6
|
|
|
|
5,546
|
|
|
|
819
|
|
|
|
16,440
|
|
|
|
17,319
|
|
Travel
|
|
|
5,047
|
|
|
|
14,818
|
|
|
|
19,828
|
|
|
|
55,208
|
|
|
|
180,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
153,041
|
|
|
|
3,086,739
|
|
|
|
353,272
|
|
|
|
3,427,817
|
|
|
|
5,450,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before other income (expense)
|
|
|
(153,041
|
)
|
|
|
(3,086,739
|
)
|
|
|
(353,272
|
)
|
|
|
(3,427,817
|
)
|
|
|
(5,450,179
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of discounts on convertible notes payable
|
|
|
(15,938
|
)
|
|
|
(22,257
|
)
|
|
|
(31,878
|
)
|
|
|
(27,419
|
)
|
|
|
(201,528
|
)
|
Gain on settlement of debt
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
7,723
|
|
Interest expense
|
|
|
(1,260
|
)
|
|
|
–
|
|
|
|
(2,168
|
)
|
|
|
–
|
|
|
|
(8,374
|
)
|
Interest income
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(17,198
|
)
|
|
|
(22,257
|
)
|
|
|
(34,046
|
)
|
|
|
(27,419
|
)
|
|
|
(201,104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(170,239
|
)
|
|
|
(3,108,996
|
)
|
|
|
(387,318
|
)
|
|
|
(3,455,236
|
)
|
|
|
(5,651,283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
|
–
|
|
|
|
(0.04
|
)
|
|
|
–
|
|
|
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
85,182,360
|
|
|
|
84,651,367
|
|
|
|
85,135,962
|
|
|
|
82,492,060
|
|
|
|
|
|
(The accompanying notes are an integral part
of these consolidated financial statements)
QUEST WATER GLOBAL, INC.
(A Development Stage Company)
Consolidated Statement of Cash Flows
(Expressed in US dollars)
(unaudited)
|
|
Six months
ended
June 30, 2013
|
|
|
Six months
ended
June 30, 2012
|
|
|
Accumulated from
February 20, 2009 (date of inception) to June 30, 2013
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
|
(387,318
|
)
|
|
|
(3,455,236
|
)
|
|
|
(5,651,283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of discount on convertible note payable
|
|
|
31,878
|
|
|
|
27,419
|
|
|
|
201,528
|
|
Amortization
|
|
|
29,284
|
|
|
|
16,496
|
|
|
|
103,773
|
|
Gain on settlement of debt
|
|
|
–
|
|
|
|
–
|
|
|
|
(7,902
|
)
|
Stock-based compensation
|
|
|
–
|
|
|
|
2,798,458
|
|
|
|
2,798,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
–
|
|
|
|
4,594
|
|
|
|
(7,835
|
)
|
Accounts payable
|
|
|
39,945
|
|
|
|
24,608
|
|
|
|
314,628
|
|
Accrued liabilities
|
|
|
(2,978
|
)
|
|
|
(29,158
|
)
|
|
|
7,367
|
|
Due to/from related parties
|
|
|
262,422
|
|
|
|
(15,577
|
)
|
|
|
764,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(26,767
|
)
|
|
|
(628,396
|
)
|
|
|
(1,476,965
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
–
|
|
|
|
(14,060
|
)
|
|
|
(349,832
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
–
|
|
|
|
(14,060
|
)
|
|
|
(349,832
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank indebtedness
|
|
|
35
|
|
|
|
–
|
|
|
|
35
|
|
Proceeds from convertible notes payable
|
|
|
–
|
|
|
|
160,000
|
|
|
|
601,320
|
|
Proceeds from loans payable
|
|
|
–
|
|
|
|
–
|
|
|
|
208,000
|
|
Repayment of loans payable
|
|
|
|
|
|
|
(200,000
|
)
|
|
|
|
|
Proceeds from issuance of preferred stock
|
|
|
–
|
|
|
|
–
|
|
|
|
(200,000
|
)
|
Proceeds from issuance of common stock/ share subscriptions received
|
|
|
25,000
|
|
|
|
677,000
|
|
|
|
1,217,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
25,035
|
|
|
|
637,000
|
|
|
|
1,826,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
|
|
|
(1,732
|
)
|
|
|
(5,456
|
)
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
|
1,732
|
|
|
|
33,060
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
|
–
|
|
|
|
27,604
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued to settle accounts payable
|
|
|
–
|
|
|
|
–
|
|
|
|
11,750
|
|
Quest notes conversion to common stock prior to recapitalization transaction
|
|
|
–
|
|
|
|
225,500
|
|
|
|
325,500
|
|
Common stock issued pursuant to the conversion of notes payable
|
|
|
–
|
|
|
|
64,000
|
|
|
|
64,000
|
|
Common stock issued to settle loans payable
|
|
|
–
|
|
|
|
–
|
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
|
–
|
|
|
|
–
|
|
|
|
1,586
|
|
Income tax paid
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
(The accompanying notes are an integral part
of these consolidated financial statements)
QUEST WATER GLOBAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2013
(Expressed in US dollars)
(unaudited)
1.
|
|
Nature of Operations and Continuance of Business
|
On January 6, 2012, Quest Water
Global, Inc. (the “Company”) entered into a series of transactions pursuant to which the Company acquired Quest Water
Solutions, Inc. (“Quest”), a Nevada corporation; spun-out its prior operations to the Company’s former principal
stockholders, directors and officers; and completed a private offering of the Company’s securities for an aggregate purchase
price of approximately $677,000. The following summarizes the foregoing transactions:
|
●
|
Acquisition of Quest.
The Company acquired all of the outstanding capital stock of
Quest in exchange for the issuance of 51,369,860 shares of the Company’s common stock pursuant to a Share Exchange Agreement
between the Company, the Company’s former principal stockholder, Quest and the former stockholders of Quest. As a result
of this transaction, Quest became the Company’s wholly owned subsidiary and the former shareholders of Quest became the Company’s
controlling stockholders. The transaction was accounted for as a reverse takeover/recapitalization effected by a share exchange,
wherein Quest is considered the acquirer for accounting and financial reporting purposes. Accordingly, the comparative financial
statements, including the disclosures from inception, are that of Quest.
|
Two former principal shareholders
of Quest each received one share of the Company’s newly designated Series A Voting Preferred Stock. Each share of Series
A Voting Preferred Stock entitles the holder thereof to approximately 35% of the voting power of the Company’s capital stock.
Accordingly, the two former principal shareholders of Quest, together, control more than 50% of the votes eligible to be cast by
stockholders in the election of directors and generally.
|
●
|
Spin-Out of RPM Dental Business.
Immediately prior to the acquisition of Quest, the
Company spun-out RPM Dental Systems, LLC, a limited liability company formed in Kentucky and a wholly owned subsidiary, to the
Company’s former officer and director and principal stockholder. As consideration the former director returned 80,000,000
shares of the Company’s common stock held by that person. These shares were cancelled immediately following the acquisition.
|
|
●
|
Financing Transaction.
Immediately following the acquisition of Quest, the Company
completed a private offering of units consisting of an aggregate of (i) 2,398,000 shares of common stock and (ii) warrants to purchase
2,398,000 shares of common stock. The warrants have a three-year term and a per share exercise price of $0.50. The aggregate purchase
price of the units was $599,500.
|
On the closing of the above
transactions, the Company entered into lock-up agreements with each of the former Quest shareholders who received common stock
of the Company in the share exchange, agreeing not to transfer any of the common stock of the Company for a one year period after
the closing. In addition, the Company entered into lock-up/leak-out agreements with the two officers of the Company, agreeing not
to transfer any of the common stock of the Company for a one year period after the closing and for the six months thereafter to
limit any transfers to 0.5% up to a maximum of 100,000 shares of common stock on any single day.
The Company is an innovative
water technology company that provides solutions to water scarce regions. The Company’s operations to date have been limited
primarily to capital formation, organization, and development of its business plan. As such, the Company is a development stage
company, as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
915, “Development Stage Entities”.
These consolidated financial
statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge
its liabilities in the normal course of business. As at June 30, 2013, the Company has a working capital deficiency of $1,095,834
of which $764,504 is owed to the two principal shareholders, and accumulated stockholders’ deficit of $5,651,283. The continuation
of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company
to obtain necessary equity financing to continue to develop its business and ultimately on the attainment of profitable operations.
The Company is in the process of arranging additional capital financing that may assist in addressing these issues; however, these
factors continue to raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial
statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification
of liabilities that might be necessary should the Company be unable to continue as a going concern.
QUEST WATER GLOBAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2013
(Expressed in US dollars)
(unaudited)
2.
|
|
Summary of Significant Accounting Policies
|
|
(a)
|
Basic of Presentation and Consolidation
|
These consolidated financial
statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and
are expressed in US dollars. These consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary,
Quest; Quest’s wholly owned subsidiary, Quest Water Solutions Inc., a company incorporated under the laws of the province
of British Columbia, Canada; and its 88% owned inactive subsidiaries Agua Cuilo Lda., Cuilo Embalnages, Lda., and Cuilo Comercial,
Lda. All inter-company balances and transactions have been eliminated on consolidation. The Company’s fiscal year-end is
December 31.
|
(b)
|
Interim Financial Statements
|
These interim consolidated financial
statements have been prepared on the same basis as the annual financial statements and in the opinion of management, reflect all
adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position,
results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative
of the results expected for a full year or for any future period.
The
preparation of these
consolidated financial statements in conformity with US generally accepted accounting principles 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 amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The Company regularly evaluates estimates and assumptions related to the useful life and recoverability
of long-lived assets, fair value of convertible notes payable, fair value of stock-based compensation, and deferred income tax
asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various
other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other
sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates.
To the extent there are material differences between the estimates and the actual results, future results of operations will be
affected.
|
(d)
|
Property and Equipment
|
Property and equipment are stated
at cost. The Company amortizes the cost of property and equipment over their estimated useful lives at the following annual rates:
|
Computer equipment
|
45%
|
|
declining balance basis
|
|
Demonstration equipment
|
20%
|
|
declining balance basis
|
|
Furniture and equipment
|
20%
|
|
declining balance basis
|
In accordance with ASC 360, “Property,
Plant, and Equipment”, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances
indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited
to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors;
accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset;
current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with
the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before
the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which
is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal
of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount exceeds
fair value.
QUEST WATER GLOBAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2013
(Expressed in US dollars)
(unaudited)
2.
|
|
Summary of Significant Accounting Policies (continued)
|
|
(f)
|
Financial Instruments and Fair Value Measures
|
ASC 820, “Fair Value Measurements
and Disclosures” (“ASC 820”), requires an entity to maximize the use of observable inputs and minimize the use
of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent,
objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the
fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes
the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or
liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or
liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices
for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient
volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable
or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or
liabilities for which there are no observable inputs to the valuation methodology that are relevant to the measurement of the fair
value of the assets or liabilities.
The Company’s financial
instruments consist principally of cash, accounts payable, accrued liabilities, convertible notes payable, loan payable, and amounts
due to related parties. Pursuant to ASC 820, the fair value of cash is determined based on “Level 1” inputs. The recorded
values of all other financial instruments approximate their current fair values because of their nature and respective maturity
dates or durations.
The Company computes net income
(loss) per share in accordance with ASC 260, “Earnings per Share” which requires presentation of both basic and diluted
earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss)
available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period.
Diluted EPS gives effect to all dilutive potential common stocks outstanding during the period using the treasury stock method
and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period
is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS
excludes all dilutive potential shares if their effect is anti-dilutive.
ASC 220, “Comprehensive
Income,” establishes standards for the reporting and presentation of comprehensive income (loss) and its components in the
financial statements. As at June 30, 2013, and December 31, 2012, the Company had no items representing comprehensive income or
loss.
QUEST WATER GLOBAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2013
(Expressed in US dollars)
(unaudited)
2.
|
|
Summary of Significant Accounting Policies (continued)
|
|
(i)
|
Foreign Currency Translation
|
The Company’s functional
currency is U.S. Dollars. Transactions in foreign currencies are translated into the currency of measurement at the exchange rates
in effect on the transaction date. Monetary balance sheet items expressed in foreign currencies are translated into US dollars
at the exchange rates in effect at the balance sheet date. The resulting exchange gains and losses are recognized in income.
The Company’s integrated
foreign subsidiaries are financially or operationally dependent on the Company. The Company uses the temporal method to translate
the accounts of its integrated operations into US dollars. Monetary assets and liabilities are translated at the exchange rates
in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses
are translated at average rates for the period, except for amortization, which is translated on the same basis as the related asset.
The resulting exchange gains or losses are recognized in income.
The Company accounts for income
taxes using the asset and liability method in accordance with ASC 740, “Income Taxes”. The asset and liability method
provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences
between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences
are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed
more likely than not to be realized. As of June 30, 2013 and December 31, 2012, the Company did not have any amounts recorded pertaining
to uncertain tax positions.
The Company is required to file
federal and provincial income tax returns in Canada and federal, state and local income tax returns in the US, as applicable. The
Company may be subject to a reassessment of federal and provincial income taxes by Canadian tax authorities for a period of three
years from the date of the original notice of assessment in respect of any particular taxation year. For Canadian and US income
tax returns, the open taxation year is 2009. In certain circumstances, the US federal statute of limitations can reach beyond the
standard three year period. US state statutes of limitations for income tax assessment vary from state to state. Tax authorities
of Canada and US have not audited any of the Company’s, or its subsidiaries’, income tax returns for the open taxation
year noted above.
The Company recognizes interest
and penalties related to uncertain tax positions in income tax expense. During the periods ended June 30, 2013 and 2012, there
were no charges or provisions for interest or penalties.
|
(k)
|
Recent Accounting Pronouncements
|
The Company has implemented all
new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are
any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results
of operations.
3.
|
|
Property and Equipment
|
|
|
Cost
|
|
|
Accumulated Amortization
|
|
|
Net Carrying
Value
June 30, 2013
|
|
Net Carrying
Value
December 31,
2012
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computer equipment
|
|
|
25,971
|
|
|
|
15,128
|
|
|
10,843
|
|
|
13,991
|
|
Demonstration equipment
|
|
|
314,762
|
|
|
|
83,566
|
|
|
231,196
|
|
|
256,885
|
|
Furniture and equipment
|
|
|
7,426
|
|
|
|
3,406
|
|
|
4,020
|
|
|
4,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
348,159
|
|
|
|
102,100
|
|
|
246,059
|
|
|
275,343
|
|
QUEST WATER GLOBAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2013
(Expressed in US dollars)
(unaudited)
4.
|
|
Convertible Notes Payable
|
|
(a)
|
On May 9, 2012, the Company received proceeds of $150,000 and issued a convertible note which is
non-interest bearing, unsecured, and due on May 9, 2014. The unpaid amount can be converted at any time at the holder’s option
at $0.50 per share of common stock, which must not be less than $25,000 of unpaid principal. In accordance with ASC 470-20, the
Company recognized the intrinsic value of the embedded beneficial conversion feature of $90,000 as additional paid-in capital and
an equivalent discount which will be charged to operations over the term of the convertible note up to its face value of $150,000.
For the six months ended June 30, 2013, $22,500 (2012 - $7,500) had been accreted, increasing the carrying value to $112,500 (December
31, 2012 - $90,000).
|
|
(b)
|
On July 30, 2012, the Company received proceeds of $25,000 and issued a convertible note which
is non-interest bearing, unsecured, and due on July 30, 2014. The unpaid amount can be converted at any time at the holder’s
option at $0.50 per share of common stock. In accordance with ASC 470-20, the Company recognized the intrinsic value of the embedded
beneficial conversion feature of $25,000 as additional paid-in capital and an equivalent discount which will be charged to operations
over the term of the convertible note up to its face value of $25,000. For the six months ended June 30, 2013, $6,250 (2012 - $nil)
had been accreted, increasing the carrying value to $11,458 (December 31, 2012 - $5,208).
|
|
(c)
|
On December 11, 2012, the Company received proceeds of $25,000 and issued a convertible note which
bears interest at 10% per annum, is unsecured, and due on December 11, 2013. The unpaid amount can be converted six months after
the date of issuance at the holder’s option at $0.40 per share of common stock. In accordance with ASC 470-20, the Company
recognized the intrinsic value of the embedded beneficial conversion feature of $6,250 as additional paid-in capital and an equivalent
discount which will be charged to operations over the term of the convertible note up to its face value of $25,000. For the six
months ended June 30, 2013, $3,128 (2012 - $nil) had been accreted, increasing the carrying value to $22,214 (December 31, 2012
- $19,086).
|
|
(d)
|
On December 18, 2012, the Company received proceeds of $11,820 and issued a convertible note which
bears interest at 10% per annum, is unsecured, and due on December 11, 2013. The unpaid amount can be converted six months after
the date of issuance at the holder’s option at $0.40 per share of common stock. In accordance with ASC 470-20, the Company
determined there was no embedded beneficial conversion feature.
|
5.
|
|
Related Party Transactions
|
|
(a)
|
As at June 30, 2013, the amount of $291,698 (December 31, 2012 - $182,189) is owed to the President
of the Company, which is non-interest bearing, unsecured, and due on demand.
|
|
(b)
|
As at June 30, 2013, the amount of $472,806 (December 31, 2012 - $319,891) is owed to the Vice
President of the Company, which is non-interest bearing, unsecured, and due on demand.
|
|
(c)
|
For the six months ended June 30, 2013, the Company incurred a total of $150,000 (2012 - $75,000)
in management fees to the President and the Vice President of the Company. For the six months ended June 30, 2012, the Company
incurred stock-based compensation of $2,276,096 for stock options granted to the President and the Vice President of the Company
during the six months ended June 30, 2012, which was included in management fees.
|
|
(a)
|
On January 18, 2013, the Company issued 286,000 units at a price of $0.50 per unit for proceeds
of $143,000, which was included in common stock issuable as at December 31, 2012. Each unit consisted of one share of common stock
and one share purchase warrant exercisable at $0.75 per share expiring on July 15, 2015.
|
|
(b)
|
On February 21, 2013, the Company issued 62,500 units at a price of $0.40 per unit for proceeds
of $25,000, which was included in common stock issuable as at December 31, 2012. Each unit consisted of one share of common stock
and one share purchase warrant exercisable at $0.65 per share expiring on October 15, 2015.
|
|
(c)
|
As at June 30, 2013, the Company had received share subscriptions of $25,000 for 250,000 shares
of common stock at a price of $0.10 per share.
|
QUEST WATER GLOBAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2013
(Expressed in US dollars)
(unaudited)
7.
|
|
Share Purchase Warrants
|
The following table summarizes
the continuity of share purchase warrants:
|
|
Number of
warrants
|
|
|
Weighted
average
exercise
price
$
|
|
|
|
|
|
|
|
|
Balance, December 31, 2012
|
|
|
2,708,000
|
|
|
|
0.50
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
348,500
|
|
|
|
0.73
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2013
|
|
|
3,056,500
|
|
|
|
0.53
|
|
As at June 30, 2013, the following share purchase
warrants were outstanding:
Number of
warrants
outstanding
|
|
|
Exercise
price
$
|
|
|
|
Expiry date
|
|
|
|
|
|
|
|
|
2,398,000
|
|
|
|
0.50
|
|
|
|
January 6, 2015
|
310,000
|
|
|
|
0.50
|
|
|
|
February 10, 2015
|
286,000
|
|
|
|
0.75
|
|
|
|
July 15, 2015
|
62,500
|
|
|
|
0.65
|
|
|
|
October 15, 2015
|
|
|
|
|
|
|
|
|
|
3,056,500
|
|
|
|
|
|
|
|
|
|
|
|
Number
of options
|
|
|
Weighted
average
exercise
price
$
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2012 and June 30, 2013
|
|
|
|
5,050,000
|
|
|
|
0.90
|
|
Additional information
regarding stock options outstanding as at June 30, 2013 is as follows:
|
|
Outstanding and exercisable
|
|
Range of
exercise prices
$
|
|
Number of
shares
|
|
|
Weighted
average
remaining
contractual life
(years)
|
|
|
Weighted
average
exercise
price
$
|
|
|
|
|
|
|
|
|
|
0.90
|
|
|
5,050,000
|
|
|
|
1.91
|
|
|
0.90
|
As at June 30, 2013, the aggregate intrinsic
value of stock options outstanding is $nil
QUEST WATER GLOBAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2013
(Expressed in US dollars)
(unaudited)
|
(a)
|
In January 2011, the Company signed a lease for office premises and agreed to pay annual basic
rent of $12,024 plus taxes up to January 2014.
|
|
(b)
|
On November 1, 2011, the Company entered into a management agreement with the President of the
Company whereby it is obligated to pay $12,500 per month starting on October 3, 2011 to November 1, 2016.
|
The agreement may be terminated
by written notice. Upon termination, the President shall receive a termination fee equal to the sum of:
|
(i)
|
Buy-out of any outstanding stock options for a price equal to the fair market value of the Company’s
common stock multiplied by the number of shares under options and less the exercise price; plus
|
|
●
|
The aggregate remaining fees for the unexpired remainder of the term; or
|
|
●
|
One annual fee plus one month fee for each year served after November 1, 2011.
|
|
(c)
|
On November 1, 2011, the Company entered into a management agreement with the Vice-President of
the Company whereby it is obligated to pay $12,500 per month starting on October 3, 2011 to November 1, 2016.
|
The agreement may be terminated
by written notice. Upon termination, the Vice-President shall receive a termination fee equal to the sum of:
|
(i)
|
Buy-out of any outstanding stock options for a price equal to the fair market value of the Company’s
common stock multiplied by the number of shares under options and less the exercise price; plus
|
|
●
|
The aggregate remaining fees for the unexpired remainder of the term; or
|
|
●
|
One annual fee plus one month fee for each year served after November 1, 2011.
|
Subsequent to June 30, 2013,
the Company received share subscriptions proceeds of $5,000 for 83,334 shares of common stock at $0.06 per share to be issued.
PRESENTATION
OF INFORMATION
As
used in this quarterly report, the terms “we”, “us”, “our” and the “Company” mean
Quest Water Global, Inc. and its consolidated subsidiaries, unless otherwise indicated.
This
quarterly report includes our interim unaudited consolidated financial statements as at and for the period ended June 30, 2013.
These financial statements have been prepared in accordance with generally accepted accounting principles in the United States
(“US GAAP”). All financial information in this quarterly report is presented in U.S. dollars, unless otherwise indicated,
and should be read in conjunction with the financial statements and the notes thereto included in this quarterly report.
As
disclosed in our current report on Form 8-K dated January 10, 2012, on January 6, 2012, we completed a share exchange with Quest
Water Solutions, Inc. (“Quest”), a Nevada corporation that is now our wholly owned subsidiary and operating business
(the “Share Exchange”). The Share Exchange was treated as a recapitalization effected through a share exchange, with
Quest as the accounting acquirer and the Company as the accounting acquiree. Our consolidated financial statements are therefore,
in substance, those of Quest.
FORWARD-LOOKING
STATEMENTS
This
quarterly report, any supplement to this quarterly report, and any documents incorporated by reference in this quarterly report,
include “forward-looking statements”. To the extent that the information presented in this quarterly report discusses
financial projections, information or expectations about our business plans, results of operations, products or markets, or otherwise
makes statements about future events, such statements are forward-looking. Such forward-looking statements can be identified by
the use of words such as “intends”, “anticipates”, “believes”, “estimates”, “projects”,
“forecasts”, “expects”, “plans” and “proposes”. Although we believe that the expectations
reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties
that could cause actual results to differ materially from such forward-looking statements.
The
forward-looking statements made in this quarterly report relate only to events or information as of the date on which the statements
are made. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information,
future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.
You should read this quarterly report and the documents that we reference in this quarterly report and have filed as exhibits
with the understanding that our actual future results may be materially different from what we expect. You should not rely upon
forward-looking statements as predictions of future events.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The
following discussion and analysis of our results of operations and financial condition has been derived from and should be read
in conjunction with our interim unaudited consolidated financial statements and the related notes thereto that appear elsewhere
in this quarterly report, as well as the “Presentation of Information” section that appears at the beginning of this
quarterly report.
Corporate
History and Background
We
were incorporated under the laws of Delaware on February 25, 2010. From our inception until the closing of the Share Exchange,
we sought to provide dental and other medical professionals with turn-key marketing solutions to generate referrals from existing
clients and new business from the general public through our wholly owned subsidiary RPM Dental Systems, LLC (“RPM Kentucky”).
RPM Kentucky was formed on September 15, 2009, under the laws of the Commonwealth of Kentucky, and we acquired RPM Kentucky on
March 23, 2010.
Prior
to the Share Exchange, we had minimal revenue and our operations were limited to capital formation, organization and development
of our business plan. As a result of the Share Exchange, we ceased our prior operations and, through Quest, we now operate as
an innovative water technology company that provides sustainable and environmentally sound solutions to water-scarce regions.
Quest
was incorporated under the laws of Nevada on October 20, 2008 and commenced operations on February 20, 2009. Its operations to
date have consisted of business formation, strategic development, marketing, technologies development, negotiations with technologies
companies and capital raising activities. Quest has not generated any revenues since its inception.
Acquisition
of Quest
On
January 6, 2012, we completed the Share Exchange whereby we acquired all of the issued and outstanding capital stock of Quest
in exchange for 2,568,493 shares of our common stock (on a pre-forward split basis), or approximately 62.74% of our issued and
outstanding common stock as of the consummation of the Share Exchange. Subsequent to the Share Exchange, we completed a 20 for
1 forward split of our common stock (the “Forward Split”) that became effective on March 1, 2012. Pursuant to the
Forward Split, the 2,568,493 shares described above increased to 51,369,860 shares.
As
a result of the Share Exchange, Quest became our
wholly owned subsidiary and John Balanko and Peter Miele became our principal
stockholders. The Share Exchange was treated as a recapitalization effected through a share exchange, with Quest as the accounting
acquirer and the Company as the accounting acquiree.
In
connection with and effective upon the closing of the Share Exchange, Josh Morita, our former President, Chief Executive Officer,
director and principal stockholder, and Dr. Laura Sloan, our former director, resigned as members of our Board of Directors and
Mr. Morita resigned as our sole officer. Also effective upon the closing of the Share Exchange, John Balanko and Peter Miele were
appointed to fill the vacancies on our Board of Directors created by the resignations of Mr. Morita and Ms. Sloan. In addition,
our Board of Directors appointed Mr. Balanko as our President and Chief Executive Officer and Mr. Miele as our Vice President
and Secretary, all effective upon the closing of the Share Exchange. On April 13, 2012, we also appointed Mr. Miele as our Chief
Financial Officer.
As
a result of our acquisition of Quest, Quest became our wholly owned subsidiary and we assumed the business and operations of Quest.
We then changed our name from RPM Dental, Inc. to Quest Water Global Inc. to more accurately reflect our new business operations.
Business
Overview
We
provide sustainable and environmentally sound solutions to water scarce regions. Our goal is to address the vital issue of water
quality and water supply by providing an alternative, sustainable source of pure water at the smallest possible environmental
cost to global areas in need, while becoming a leading company in providing turn-key solutions using alternative energy for the
purification, desalination and distribution of clean drinking water.
We
have developed a proprietary community drinking water station consisting of a self-contained water purification system using either
a reverse osmosis membrane or ultra filtration membrane, powered by photovoltaic solar panels and hosted in modified shipping
containers. Each AQUAtap
TM
unit is energy self-sufficient with minimal operational and maintenance costs. We believe
that this product represents the first truly environmentally sound solution to drinking water shortages as it is autonomous, decentralized
and sustainable, and because each unit is capable of converting brackish, sea or contaminated surface water into 20,000 litres
of high quality drinking water each day, suitable for 1,000 people.
In
addition to the solar-powered water purification systems, we have also developed a technology known as WEPS
TM
(water
extraction and purification system) that produces potable water from humidity in the atmosphere. WEPS
TM
technology
works by converting humidity into water, otherwise known as atmospheric water extraction.
To
date, we have focused our activities on the fifteen countries of the Southern African Development Community (“SADC”),
with specific attention to Angola. There is a vast and increasing demand for a sustainable, cost-effective and decentralized continuous
supply of clean drinking water in most areas of the SADC. We provide clean drinking water to end-users utilizing various formats
of our water purification and distribution systems that include inexpensive bulk drinking water and government-subsidized community
level drinking water. Applications of our systems include rural and urban community water supply, water supply for household needs,
remote work site camps and water supply for disaster relief.
We
are in the process of negotiating a formal agreement with the Ministry of Industry and Ministry of Energy & Water regarding
becoming an official registered supplier for the government of Angola’s $650 million “Water for All” program
and for the construction of a facility to assemble the AQUAtap™ stations in that country. In June 2012, our management met
with the African Development (“AfDB”) to discuss financing the proposed AQUAtap™ assembly plant(s) to be built
in Angola and the level of funding required to carry out such an undertaking. These discussions established that we would require
between $5.5-6 million per facility, including construction, inventory and working capital. As a result of the meetings, we received
a non-binding letter of intent from the AfDB regarding the funding of the proposed project and the Angolan government indicated
that once an agreement had been consummated, they would in turn submit a request for funding to the AfDB on our behalf.
Our
operations to date have consisted of business formation, strategic development, marketing, technologies development, negotiations
with technology companies and capital raising activities.
Results
of Operations
For
the Three Months Ended June 30, 2013 and from February 20, 2009 (Date of Inception) to June 30, 2013
Revenue
We
have not generated any revenues since our inception. We anticipate that we will incur substantial losses for the foreseeable future
and our ability to generate any revenues in the next 12 months continues to be uncertain.
Expenses
During
the three months ended June 30, 2013, we incurred $153,041 in total expenses, including $75,000 in management fees, $36,571 in
professional fees, $413 in advertising and promotion expenses $5,047 in travel expenses, $14,642 in amortization, $7,008 in consulting
fees, $7,427 in rent, $4,402 in office and miscellaneous expenses, $3,831 in automotive expenses, $3,539 in telephone expenses
and $6 in transfer agent and filing fees, as offset by $4,845 in foreign exchange gain. During the same period in the prior year,
we incurred $3,086,739 in total expenses, including $2,014,525 in management fees, $92,816 in professional fees, $36,518 in advertising
and promotion expenses, $14,818 in travel expenses, $12,716 in amortization, $880,247 in consulting fees, $7,508 in rent, $9,311
in office and miscellaneous expenses, $9,017 in automotive expenses, $3,659 in telephone expenses, $5,546 in transfer agent and
filing fees and $58 in foreign exchange loss. The 2017% decrease in our total expenses during the most recent period resulted
from decreases in our expenses in several major categories, including our professional fees and consulting fees, which were attributable
to the closing of the Share Exchange and the costs associated with becoming a public company. In addition, our management fees
and consulting fees decreased significantly between the two periods as a result of $1,939,525 and $858,933, respectively, in stock-based
compensation expense that we incurred during the three months ended June 30, 2012.
From
our inception on February 20, 2009 to June 30, 2013, we incurred $5,450,179 in total expenses, including $2,949,525 in management
fees, $629,833 in professional fees, $90,328 in advertising and promotion expenses $180,750 in travel expenses, $103,733 in amortization,
$1,105,226 in consulting fees, $131,360 in rent, $99,960 in office and miscellaneous expenses, $89,496 in automotive expenses,
$57,967 in telephone expenses and $17,319 in transfer agent and filing fees, as offset by $5,358 in foreign exchange gain.
Net
Loss
During
the three months ended June 30, 2013, we incurred a loss before other expense of $153,041 and a net loss of $170,239, whereas
we incurred a loss before other expense of $3,086,739 and a net loss of $3,108,996 during the same period in the prior year. We
did not experience any net loss per share during the three months ended June 30, 2013, whereas we experienced a net loss per share
of $0.04 during the same period in the prior year.
From
our inception on February 20, 2009 to June 30, 2013, we incurred a loss before other expense of $5,450,179 and a net loss of $5,651,283.
The majority of our other expense during each of the periods referenced above was related to the accretion of discount on our
convertible notes payable.
For
the Six Months Ended June 30, 2013
Expenses
During
the six months ended June 30, 2013, we incurred $353,272 in total expenses, including $150,000 in management fees, $71,386 in
professional fees, $27,955 in advertising and promotion expenses, $19,828 in travel expenses, $29,284 in amortization, $18,217
in consulting fees, $14,980 in rent, $11,154 in office and miscellaneous expenses, $9,766 in automotive expenses, $7,912 in telephone
expenses, $819 in transfer agent and filing fees, as offset by $8,029 in foreign exchange gain. During the same period in the
prior year, we incurred $3,427,817 in total expenses, including $2,089,525 in management fees, $187,387 in professional fees,
$38,613 in advertising and promotion expenses, $55,208 in travel expenses, $16,496 in amortization, $887,649 in consulting fees,
$15,049 in rent, $69,762 in office and miscellaneous expenses, $30,724 in automotive expenses, $8,110 in telephone expenses, $16,440
in transfer agent and filing fees and $12,854 in foreign exchange loss. The 970% decrease in our total expenses during the most
recent period resulted from decreases in our expenses in several major expense categories, including our professional fees and
consulting fees, which were attributable to the closing of the Share Exchange and the costs associated with becoming a public
company. In addition, the management fee and consulting fee decreases due to the one-time stock-based compensation expense described
above accounted for a significant portion of the overall decrease.
Net
Loss
During
the six months ended June 30, 2013, we incurred a loss before other expense of $353,272 and a net loss of $387,318, whereas we
incurred a loss before other expense of $3,427,817 and a net loss of $3,455,236 during the same period in the prior year. We did
not experience any net loss per share during the six months ended June 30, 2013, whereas we experienced a net loss per share of
$0.04 during the same period in the prior year.
Liquidity
and Capital Resources
As
of June 30, 2013, we had no cash, $253,894 in total assets, $1,227,627 in total liabilities and a working capital deficit of $1,095,834.
As of June 30, 2013 we had an accumulated deficit of $5,651,283.
To
date, we have experienced negative cash flows from operations and we have been dependent on sales of our common stock and capital
contributions to fund our operations. We expect this situation to continue for the foreseeable future, and we anticipate that
we will experience negative cash flows during the year ended December 31, 2013.
During
the six months ended June 30, 2013, we spent $26,767 in cash on operating activities, compared to $628,396 in cash spending on
operating activities during the same period in the prior year. The 2348% decrease in our cash spending on operating activities
during the six months ended June 30, 2013 was primarily attributable to the decrease in our net loss as described above, as well
as changes in our operating assets and liabilities, and in particular an increase in amounts due to related parties. From our
inception on February 20, 2009 to June 30, 2013 we spent $1,476,965 in cash on operating activities.
During
the six months ended June 30, 2013, we did not spend any cash on investing activities, whereas we spent $14,060 in cash on investing
activities during the same period in the prior year, all of which was in the form of equipment purchases. Our investing activities
decreased between the 2012 and 2013 periods largely because we are currently in the process of negotiating a formal agreement
with the Government of Angola that we expect will require us to purchase additional equipment. From our inception on February
20, 2009 to June 30, 2013, we spent $349,832 in cash on the purchase of equipment, our only investing activities to date.
We
received $25,035 in cash from financing activities during the six months ended June 30, 2013, substantially all of which was in
the form of proceeds from the issuance of our common stock. During the six months ended June 30, 2012, we received $637,000 in
cash from financing activities, including $677,000 in proceeds from the issuance of our common stock. From our inception on February
20, 2009 to June 30, 2013 we received $1,826,762 in cash from financing activities, including the following proceeds: $1,217,442
from the issuance of our common stock, $601,320 from convertible notes payable, $208,000 from loans payable and $35 in bank indebtedness,
as offset by a loan repayment of $200,000.
During
the six months ended June 30, 2013, our cash decreased by $1,732 as a result of our operating, investing and financing activities,
from $1,732 to $0. As of June 30, 2013, we did not even have sufficient cash resources to meet our operating expenses for the
next month based on our current burn rate.
Plan
of Operations
Our
plan of operations over the next 12 months is to continue to address water quality and supply issues in Angola through the installation
of our AQUAtap
TM
community drinking water stations as well as the employment of our WEPS
TM
technology, and
we anticipate that we will require a minimum of $745,000 to pursue those plans. However, as described above, we are currently
in the process of negotiating a formal agreement with the Angolan Ministry of Industry and Ministry of Energy & Water regarding
becoming an official registered supplier for the “Water for All” program and for the construction of a facility to
assemble our AQUAtap™ stations. Our cash requirements will change substantially if we are able to successfully enter into
such an agreement, but we expect that the AfDB will fund a large portion of the construction, inventory and working capital costs
of the proposed project in those circumstances.
We
intend to meet the balance of our cash requirements for the next 12 months through a combination of debt financing and equity
financing through private placements. Currently we are active in contacting broker/dealers in Canada and elsewhere regarding possible
financing arrangements. However, we do not currently have any arrangements in place to complete any further private placement
financings and there is no assurance that we will be successful in completing any such financings. If we are unsuccessful in obtaining
sufficient funds through our capital raising efforts, we may review other financing options.
During
the next 12 months, we estimate that our planned expenditures will include the following:
Description
|
|
Amount ($)
|
|
Equipment purchases
|
|
|
10,000
|
|
Rent
|
|
|
30,000
|
|
Management fees
|
|
|
300,000
|
|
Consulting fees
|
|
|
150,000
|
|
Professional fees
|
|
|
130,000
|
|
Advertising and promotion expenses
|
|
|
15,000
|
|
Travel and automotive expenses
|
|
|
60,000
|
|
General and administrative expenses
|
|
|
50,000
|
|
Total
|
|
|
745,000
|
|
Going
Concern
Our
financial statements have been prepared on a going concern basis, which implies we will continue to realize our assets and discharge
our liabilities in the normal course of business. As at June 30, 2013, we had a working capital deficit of $1,095,834 and an accumulated
deficit of $5,651,283. Our continuation as a going concern is dependent upon the continued financial support from our creditors,
our ability to obtain necessary equity financing to continue operations, and ultimately on the attainment of profitable operations.
These factors raise substantial doubt regarding our ability to continue as a going concern. Our financial statements do not include
any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might
be necessary should we be unable to continue as a going concern.
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to investors.
Critical
Accounting Policies
We
have identified certain accounting policies, described below, that are important to the portrayal of our current financial condition
and results of operations.
Basis
of Presentation and Consolidation
Our
consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted
in the United States, and are expressed in US dollars. Our consolidated financial statements include the accounts of the Company,
our wholly-owned subsidiary, Quest; Quest’s wholly owned subsidiary, Quest Water Solutions Inc., a company incorporated
under the laws of the province of British Columbia, Canada; and its 88% owned inactive subsidiaries Agua Cuilo Lda., Cuilo Embalnages,
Lda., and Cuilo Comercial, Lda. All inter-company balances and transactions have been eliminated on consolidation. Our fiscal
year-end is December 31.
Foreign
Currency Translation
Our
functional currency is US dollars. Transactions in foreign currencies are translated into the currency of measurement at the exchange
rates in effect on the transaction date. Monetary balance sheet items expressed in foreign currencies are translated into US dollars
at the exchange rates in effect at the balance sheet date. The resulting exchange gains and losses are recognized in income.
Our
integrated foreign subsidiaries are financially or operationally dependent on us. We use the temporal method to translate the
accounts of our integrated operations into US dollars. Monetary assets and liabilities are translated at the exchange rates in
effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses
are translated at average rates for the period, except for amortization, which is translated on the same basis as the related
asset. The resulting exchange gains or losses are recognized in income.