Item
1. Financial Statements
QUEST
WATER GLOBAL, INC.
Consolidated
Financial Statements
June 30, 2014
(Expressed
in US dollars)
(unaudited)
QUEST
WATER GLOBAL, INC.
Consolidated
Balance Sheets
(Expressed
in US dollars)
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June 30, 2014
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December 31, 2013
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$
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$
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(unaudited)
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ASSETS
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Current assets
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Cash
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540
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1,605
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Amounts receivable
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–
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1,293
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Prepaid expenses and deposits
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7,237
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7,835
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Total current assets
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7,777
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10,733
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Equipment (Note 3)
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9,197
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11,269
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Total assets
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16,974
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22,002
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LIABILITIES AND STOCKHOLDERS’ DEFICIT
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Current liabilities
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Accounts payable
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381,311
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360,766
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Accrued liabilities
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–
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3,344
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Convertible notes payable, net of unamortized discount of $1,042 (2013 -
$22,292) (Note 4)
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173,958
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152,708
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Due to related parties (Note 5)
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578,080
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980,248
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Total liabilities
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1,133,349
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1,497,066
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Nature of operations and continuance of business (Note 1)
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Commitments (Note 9)
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Subsequent event (Note 10)
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Stockholders’ deficit
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Preferred stock, 5,000,000 shares authorized, $0.000001 par value, 2 shares
issued and outstanding
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1
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1
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Common stock, 95,000,000 shares authorized, $0.000001 par value, 86,479,860
and 85,749,860 shares issued and outstanding, respectively
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5,141
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5,140
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Additional paid-in capital
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5,455,692
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4,749,609
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Common stock issuable (Note 6)
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692,500
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23,000
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Deferred compensation (Note 6)
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(59,671
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)
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–
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Deficit
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(7,210,038
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)
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(6,252,814
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)
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Total stockholders’ deficit
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(1,116,375
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)
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(1,475,064
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)
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Total liabilities and stockholders’ deficit
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16,974
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22,002
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(The
accompanying notes are an integral part of these consolidated financial statements)
QUEST
WATER GLOBAL, INC.
Consolidated
Statements of Operations
(Expressed
in US dollars)
(unaudited)
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Three months
ended
June 30, 2014
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Three months
ended
June 30, 2013
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Six months
ended
June 30, 2014
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Six months
ended
June 30, 2013
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$
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$
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$
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$
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Expenses
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Advertising and promotion
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41,903
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413
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42,651
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27,955
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Amortization
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1,019
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14,642
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2,072
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29,284
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Automotive
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5,850
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3,831
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11,050
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9,766
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Consulting fees (Notes 6 and 8)
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27,425
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7,008
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307,681
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18,217
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Foreign exchange loss (gain)
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6,163
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(4,845
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)
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771
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(8,029
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)
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Management fees (Notes 5 and 8)
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75,000
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75,000
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482,731
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150,000
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Office and miscellaneous
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4,770
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4,402
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12,416
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11,154
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Professional fees
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36,338
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36,571
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56,351
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71,386
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Rent
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5,742
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7,427
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10,902
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14,980
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Telephone
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3,154
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3,539
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5,760
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7,912
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Transfer agent and filing fees
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5,343
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6
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6,676
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819
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Travel
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–
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5,047
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257
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19,828
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Total expenses
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212,707
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153,041
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939,318
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353,272
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Loss before other income (expense)
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(212,707
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)
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(153,041
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)
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(939,318
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)
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(353,272
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)
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Other income (expense)
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Accretion of discounts on convertible notes payable
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(6,875
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(15,938
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)
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(21,250
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)
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(31,878
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Gain on settlement of debt
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–
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–
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3,344
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–
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Interest expense
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–
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(1,260
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)
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–
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(2,168
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)
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Total other income (expense)
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(6,875
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)
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(17,198
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)
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(17,906
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)
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(34,046
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Net loss
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(219,582
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)
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(170,239
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)
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(957,224
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)
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(387,318
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)
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Net loss per share, basic and diluted
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(0.00
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)
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(0.00
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)
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(0.01
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)
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(0.00
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)
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Weighted average number of shares outstanding, basic and diluted
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86,479,860
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85,182,360
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86,282,236
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85,135,962
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(The
accompanying notes are an integral part of these consolidated financial statements)
QUEST
WATER GLOBAL, INC.
Consolidated
Statement of Cash Flows
(Expressed
in US dollars)
(unaudited)
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Six months ended
June 30, 2014
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Six months ended
June 30, 2013
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$
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$
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Operating Activities:
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Net loss for the period
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(957,224
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)
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(387,318
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)
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Adjustments to reconcile net loss to net cash used in operating activities:
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Accretion of discount on convertible note payable
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21,250
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31,878
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Amortization
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2,072
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29,284
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Gain on settlement of debt
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(3,344
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)
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–
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Stock-based compensation
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655,913
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–
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Changes in operating assets and liabilities:
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Accounts receivable
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1,293
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–
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Prepaid expenses
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598
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–
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Accounts payable
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20,545
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39,945
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Accrued liabilities
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–
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(2,978
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)
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Due to related parties
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214,705
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262,422
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Net cash used in operating activities
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(44,192
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)
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(26,767
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)
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Financing Activities:
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Bank indebtedness
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–
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35
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Advances from related parties
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43,127
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–
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Proceeds from issuance of common stock
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–
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25,000
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Net cash provided by financing activities
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43,127
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25,035
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Decrease in cash
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(1,065
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)
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(1,732
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)
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Cash, beginning of period
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1,605
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1,732
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Cash, end of period
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540
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–
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Non-cash investing and financing activities:
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|
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Common stock issuable to settle amounts due to related
parties
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660,000
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–
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Supplemental disclosures:
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Interest paid
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–
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–
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Income tax paid
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|
–
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|
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|
–
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|
(The
accompanying notes are an integral part of these consolidated financial statements)
QUEST
WATER GLOBAL, INC.
Notes to
the Consolidated Financial Statements
June 30,
2014
(Expressed
in US dollars)
(unaudited)
1.
|
Nature of Operations
and Continuance of Business
|
Quest
Water Global, Inc. (the “Company”) was incorporated on February 25, 2010 under the laws of the State of Delaware.
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.
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, 2014, the Company has a working capital
deficiency of $1,125,572 of which $578,080 is owed to the two principal shareholders (Note 5), and an accumulated deficit of $7,210,038.
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.
2.
|
Summary
of Significant Accounting Policies
|
|
(a)
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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 (“US GAAP”), 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.
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(b)
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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 GAAP 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 equipment, 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.
QUEST
WATER GLOBAL, INC.
Notes to
the Consolidated Financial Statements
June 30,
2014
(Expressed
in US dollars)
(unaudited)
2.
|
Summary
of Significant Accounting Policies (continued)
|
Equipment
is stated at cost. The Company amortizes the cost of equipment over its estimated useful life at the following annual rates:
Computer equipment
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45
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%
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declining balance basis
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Demonstration equipment and furniture
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20
|
%
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|
declining balance basis
|
Furniture and equipment
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|
|
20
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%
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|
declining balance basis
|
In
accordance with Accounting Standards Codification (“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.
|
(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,
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.
QUEST
WATER GLOBAL, INC.
Notes to
the Consolidated Financial Statements
June 30,
2014
(Expressed
in US dollars)
(unaudited)
2.
|
Summary
of Significant Accounting Policies (continued)
|
The
Company computes net loss per share in accordance with ASC 260, “Earnings per Share“, which requires presentation
of both basic and diluted loss per share (“LPS”) on the face of the income statement. Basic LPS is computed by dividing
net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during
the period. Diluted LPS gives effect to all dilutive potential common stock outstanding during the period using the treasury stock
method and convertible preferred stock using the if-converted method. In computing diluted LPS, 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
LPS 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, 2014 and December 31, 2013, the Company had no items representing
comprehensive income or loss.
|
(i)
|
Foreign
Currency Translation
|
The
Company’s 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.
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, 2014 and December 31, 2013, 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 2010. 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 years noted above.
The
Company recognizes interest and penalties related to uncertain tax positions in income tax expense. During the periods ended June
30, 2014 and 2013, there were no charges or provisions for interest or penalties.
QUEST
WATER GLOBAL, INC.
Notes to
the Consolidated Financial Statements
June 30,
2014
(Expressed
in US dollars)
(unaudited)
2.
|
Summary
of Significant Accounting Policies (continued)
|
|
(k)
|
Recent
Accounting Pronouncements
|
The
Company has limited operations and is considered to be in the development stage. In the period ended June 30, 2014, the Company
elected to early adopt Accounting Standards Update No. 2014-10,
Development Stage Entities (Topic 915): Elimination of Certain
Financial Reporting Requirements
. The adoption of this ASU allows the Company to remove the inception to date information
and all references to development stage.
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.
|
|
Cost
|
|
|
Accumulated Amortization
|
|
|
Net Carrying
Value
June 30, 2014
|
|
|
Net Carrying
Value
December 31, 2013
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computer equipment
|
|
|
25,971
|
|
|
|
19,993
|
|
|
|
5,978
|
|
|
|
7,696
|
|
Furniture and equipment
|
|
|
7,426
|
|
|
|
4,207
|
|
|
|
3,219
|
|
|
|
3,573
|
|
|
|
|
33,397
|
|
|
|
24,200
|
|
|
|
9,197
|
|
|
|
11,269
|
|
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, “Debt with Conversion
and Other Options” (“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, 2014, $15,000 (2013
- $22,500) had been accreted, increasing the carrying value to $150,000 (December 31, 2013 - $135,000).
|
|
|
|
|
(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, 2014, $6,250 (2013 - $6,250) had
been accreted, increasing the carrying value to $23,958 (December 31, 2013 - $17,708).
|
5.
|
Related
Party Transactions
|
|
(a)
|
As
at June 30, 2014, a total of $162,737 (December 31, 2013 - $404,193) is owed to the President of the Company, which is non-interest
bearing, unsecured, and due on demand. Refer to Notes 6(e) and 10.
|
|
|
|
|
(b)
|
As
at June 30, 2014, a total of $415,343 (December 31, 2013 - $576,055) is owed to the Vice President of the Company, which is
non-interest bearing, unsecured, and due on demand. Refer to Notes 6(e) and 10.
|
|
|
|
|
(c)
|
For
the six months ended June 30, 2014, the Company incurred a total of $150,000 (2013 - $150,000) in management fees to the President
and the Vice President of the Company. The Company also incurred stock-based compensation of $332,731 (2013 - $nil) for stock
options granted to the President and the Vice President of the Company during the six months ended June 30, 2014, which is
included in management fees.
|
QUEST
WATER GLOBAL, INC.
Notes to
the Consolidated Financial Statements
June 30,
2014
(Expressed
in US dollars)
(unaudited)
|
(a)
|
On
February 18, 2014, the Company issued 30,000 shares of common stock with a fair value of $6,900 pursuant to a consulting agreement.
|
|
|
|
|
(b)
|
On
February 18, 2014, the Company issued 500,000 shares of common stock with a fair value of $110,000 pursuant to a consulting
agreement, of which $50,329 (2013 - $nil) was expensed as consulting fees which reflects the pro-rata portion of the services
provided to June 30, 2014. As of June 30, 2014, the remaining amount of $59,671 was recorded as deferred compensation and
will be expensed as consulting fees pro-rata over the term of the agreement which ends on January 14, 2015. The fair value
of the shares was determined based on the closing price of the Company’s common stock at $0.22 per share on February
18, 2014.
|
|
|
|
|
(c)
|
On
February 18, 2014, the Company issued 200,000 shares of common stock with a fair value of $38,280 pursuant to a consulting
agreement, of which 100,000 shares of common stock with a fair value of $18,000 was included in common stock issuable as at
December 31, 2013.
|
|
|
|
|
(d)
|
As
at June 30, 2014 and December 31, 2013, the Company had received share subscriptions of $5,000 for 83,334 shares of common
stock at a price of $0.06 per share.
|
|
|
|
|
(e)
|
As
at June 30, 2014, the Company had 5,500,000 shares of common stock issuable with a fair value of $0.12 per share to settle
accrued management fees of $660,000 owing to the President and the Vice President of the Company. Refer to Note 10.
|
|
|
|
|
(f)
|
As
at June 30, 2014, the Company had 250,000 shares of common stock issuable with a fair value of $27,500 pursuant to a marketing
agreement. Refer to Note 9(f).
|
7.
|
Share
Purchase Warrants
|
The
following table summarizes the continuity of share purchase warrants:
|
|
|
Number of
warrants
|
|
|
Weighted average exercise price
$
|
|
Balance,
December 31, 2013 and June 30, 2014
|
|
|
|
3,056,500
|
|
|
|
0.53
|
|
As
at June 30, 2014, 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, 2013
|
|
|
|
5,050,000
|
|
|
|
0.90
|
|
Granted
|
|
|
|
3,750,000
|
|
|
|
0.19
|
|
Forfeited
|
|
|
|
(3,500,000
|
)
|
|
|
0.90
|
|
Outstanding,
June 30, 2014
|
|
|
|
5,300,000
|
|
|
|
0.19
|
|
QUEST
WATER GLOBAL, INC.
Notes to
the Consolidated Financial Statements
June 30,
2014
(Expressed
in US dollars)
(unaudited)
8.
|
Stock
Options (continued)
|
Additional
information regarding stock options outstanding as at June 30, 2014 is as follows:
|
|
|
Outstanding and exercisable
|
|
Range of
exercise prices
$
|
|
|
Number of shares
|
|
|
Weighted average remaining contractual life (years)
|
|
|
Weighted average
exercise price
$
|
|
0.19
|
|
|
|
5,300,000
|
|
|
|
0.9
|
|
|
|
0.19
|
|
On
February 25, 2014, the Company amended the exercise price of 1,550,000 stock options granted on May 30, 2012 from $0.90 to $0.19
per share. Modifications to the terms of an award are treated as an exchange of the original award for a new award. Incremental
compensation cost is measured as the excess, if any, of the fair value of the original award immediately before its terms are
modified, measured on the share price and other pertinent factors at that date. The Company recognized an incremental compensation
cost of $97,240 for these modified stock options, which is included in consulting fees.
The
fair values for stock options granted have been estimated using the Black-Scholes option pricing model assuming no expected dividends
and the following weighted average assumptions:
|
|
Six months
ended
June 30, 2014
|
|
|
Six months
ended
June 30, 2013
|
|
|
|
|
|
|
|
|
Risk-free Interest rate
|
|
|
0.11
|
%
|
|
|
–
|
|
Expected life (in years)
|
|
|
1.3
|
|
|
|
–
|
|
Expected volatility
|
|
|
162
|
%
|
|
|
–
|
|
During
the six months ended June 30, 2014, the Company recorded stock-based compensation of $453,664 (2013 - $nil) for stock options
granted, of which $332,731 was included in management fees and $120,933 was included in consulting fees.
The
weighted average fair value of the stock options granted during the six months ended June 30, 2014 was $0.12 (2013 - $nil) per
option.
As
at June 30, 2014, the aggregate intrinsic value of stock options outstanding is $nil.
|
(a)
|
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
|
|
|
|
|
(ii)
|
The
greater of:
|
|
●
|
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.
|
QUEST
WATER GLOBAL, INC.
Notes to
the Consolidated Financial Statements
June 30,
2014
(Expressed
in US dollars)
(unaudited)
9.
|
Commitments
(continued)
|
|
(b)
|
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
|
|
|
|
|
(ii)
|
The
greater of:
|
|
●
|
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 19, 2013, the Company entered into a one year agreement for consulting services whereby the Company agreed to pay
an annual fee of $45,000 in shares of common stock based on a 40% monthly workload. In connection with this fee, the Company
issued 225,000 shares of common stock with a fair value of $49,500. This fee will be reviewed on a monthly basis and will
be increased proportionately if the consultant’s workload increases on behalf of the Company. The Company also agreed
to pay the consultant a finder’s fee at the following rates:
|
|
(i)
|
Based
on equity investment:
|
|
●
|
10%
on funds received from finder investors up to $1,000,000;
|
|
|
|
|
●
|
7.5%
on funds received from finder investors between $1,000,001 to $2,000,000;
|
|
|
|
|
●
|
5%
on funds received from finder investors over $2,000,000.
|
|
(ii)
|
Based
on debt investment:
|
|
●
|
5%
on funds received from finder investors up to $1,000,000;
|
|
|
|
|
●
|
3.75%
on funds received from finder investors between $1,000,001 to $2,000,000;
|
|
|
|
|
●
|
2.5%
on funds received from finder investors over $2,000,000.
|
The
finder’s fee shall be paid in cash, or as elected by the finder, a combination of cash and common stock of the Company at
the same price per share as the Company’s current financing round.
|
(d)
|
On
January 15, 2014, the Company entered into a six month agreement for consulting services whereby the Company agreed, for any
contract pursuant to which the Company receives monies, directly or indirectly, to pay the consultant a fee of 8% of the first
$1,000,000 in gross proceeds of such financing, 6.5% of the next $1,000,000, 5.5% of the next $2,000,000 and 4.5% of all sums
received above that. The fee is payable when the monies are received from the funding sources.
|
|
|
|
|
(e)
|
On
February 11, 2014, the Company signed a lease for office premises and agreed to pay annual basic rent of Cdn$16,248 plus operating
costs up to February 11, 2017. Minimum lease payments over the remaining term of the lease is as follows:
|
Year
|
|
|
Cdn$
|
|
|
|
|
|
|
2014
|
|
|
|
8,124
|
|
2015
|
|
|
|
16,248
|
|
2016
|
|
|
|
16,248
|
|
2017
|
|
|
|
2,031
|
|
|
|
|
|
42,651
|
|
QUEST
WATER GLOBAL, INC.
Notes to
the Consolidated Financial Statements
June 30,
2014
(Expressed
in US dollars)
(unaudited)
9.
|
Commitments
(continued)
|
|
(f)
|
On
May 22, 2014, the Company entered into a joint venture (“JV”) marketing agreement with a consultant for marketing
services whereby the Company agreed to issue 250,000 restricted shares of common stock to the consultant as a signing bonus.
Refer to Note 6(f). The Company also agreed to issue 5,000,000 restricted shares of common stock on an earnout basis based
on the JV achieving $20,000,000 in gross sales revenue over the initial three-year period, to be assessed and paid semi-annually.
Pursuant to the agreement, ownership of the JV is divided into 55% equity ownership by the Company and 45% equity ownership
by the consultant. The Company is committed to contributing $250,000 in a combination of cash and value of demonstration units
to the JV. The demonstration units will remain the ownership of the Company until such time that the consultant contributes
its $250,000, after which the ownership of the demonstration units become that of the JV. The initial term of the agreement
is for three years plus a day from the date the first demonstration unit is installed and properly functioning. The term will
renew for three subsequent one year periods unless terminated by either party.
|
On
July 14, 2014, the Company issued 5,500,000 shares of common stock to settle accrued management fees of $660,000 owing to the
President and the Vice President of the Company. Refer to Note 6(e).
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, 2014.
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 ultrafiltration membrane, powered by photovoltaic solar panels and hosted in modified shipping containers.
Each AQUAtapTM 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 WEPSTM (water extraction
and purification system) that produces potable water from humidity in the atmosphere. WEPSTM 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, 2014
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, 2014, we incurred $212,707 in total expenses, including $75,000 in management fees, $41,903 in
advertising and promotion expenses, $36,338 in professional fees, $27,425 in consulting fees, $6,163 in foreign exchange loss,
$5,850 in automotive expenses, $5,742 in rent, $5,343 in transfer agent and filing fees, $4,770 in office and miscellaneous expenses,
$3,154 in telephone expenses and $1,019 in amortization. During the same period in the prior year, we incurred $153,041 in total
expenses, including $75,000 in management fees, $36,571 in professional fees, $14,642 in amortization, $7,427 in rent, $7,008
in consulting fees, $5,047 in travel expenses, $4,402 in office and miscellaneous expenses, $3,831 in automotive expenses, $3,539
in telephone expenses, $413 in advertising and promotion expenses and $6 in transfer agent and filing fees, as offset by a foreign
exchange gain of $4,845. The 28% increase in our total expenses during the most recent period resulted primarily from significant
increases in two major expense categories, advertising and promotion expenses and consulting fees. However, during the three months
ended June 30, 2014 our amortization and travel expenses both decreased substantially on a period-to-period basis.
Net Loss
During
the three months ended June 30, 2014, we incurred a loss before other expense of $212,707 and a net loss of $219,582, whereas
we incurred a loss before other expense of $153,041 and a net loss of $170,239 during the same period in the prior year. The majority
of our other expense during each of those periods was related to the accretion of discounts on our convertible notes payable.
We did not experience any net loss per share during the three months ended June 30, 2014 or 2013.
For the
Six Months Ended June 30, 2014
Expenses
During
the six months ended June 30, 2014, we incurred $939,318 in total expenses, including $482,731 in management fees, $307,681 in
consulting fees, $56,351 in professional fees, $42,651 in advertising and promotion expenses, $12,416 in office and miscellaneous
expenses, $11,050 in automotive expenses, $10,902 in rent, $6,676 in transfer agent and filing fees, $5,760 in telephone expenses,
$2,072 in amortization, $771 in foreign exchange loss and $257 in travel expenses. During the same period in the prior year, we
incurred $353,272 in total expenses, including $150,000 in management fees, $71,386 in professional fees, $29,284 in amortization,
$27,955 in advertising and promotion expenses, $19,828 in travel expenses, $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 and $819 in transfer agent and
filing fees, as offset by $8,029 in foreign exchange gain. The 166% increase in our total expenses during the most recent period
also resulted primarily from significant increases in two major expense categories, management fees and consulting fees. However,
during the six months ended June 30, 2014 our amortization and travel expenses both decreased substantially on a period-to-period
basis.
Net Loss
During
the six months ended June 30, 2014, we incurred a loss before other expense of $939,318 and a net loss of $957,224, whereas we
incurred a loss before other expense of $353,272 and a net loss of $387,318 during the same period in the prior year. During the
six months ended June 30, 2014 we experienced a net loss per share of $0.01, whereas we did not experience any net loss per share
during the same period in the prior year.
Liquidity
and Capital Resources
As
of June 30, 2014, we had $540 in cash, $16,974 in total assets, $1,133,349 in total liabilities and a working capital deficiency
of $1,125,512. As of June 30, 2014 we had an accumulated deficit of $7,210,038.
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, 2014.
During
the six months ended June 30, 2014, we spent $44,192 in cash on operating activities, compared to $26,767 in cash spending on
operating activities during the same period in the prior year. The 39% increase in our cash spending on operating activities during
the six months ended June 30, 2014 was primarily attributable to the increase in our net loss as described above as well as certain
changes in our operating assets and liabilities and a significant stock-based compensation adjustment.
We
did not spend any cash on investing activities during the six months ended June 30, 2014 or 2013.
We
received $43,127 in cash from financing activities during the six months ended June 30, 2014, all of which was in the form of
advances from related parties. During the six months ended June 30, 2013, we received $25,035 in cash from financing activities,
substantially all of which was in the form of proceeds from the issuance of our common stock.
During
the six months ended June 30, 2014, our cash decreased by $1,065 as a result of our operating, investing and financing activities,
from $1,605 to $540. As of June 30, 2014, we did not 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 AQUAtapTM community drinking water stations as well as the employment of our WEPSTM 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, 2014, we had a working capital deficiency of $1,125,572 and an
accumulated deficit of $7,210,038. Our continuation as a going concern is dependent upon the continued financial support from
our shareholders, our ability to obtain necessary equity financing to continue operations, and 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,
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. 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.