Quarterly Report (10-q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2014

 

or

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______________ to ______________

 

Commission file number 333-168895

 

QUEST WATER GLOBAL, INC.

(Exact name of registrant as specified in its charter)

 

Delaware		27-1994359
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

1590 Bellevue Avenue, Suite 203 West Vancouver, British Columbia, Canada		V7V 1A7
(Address of principal executive offices)		(Zip Code)

 

( 604) 986-2219

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [  ] No [X]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ]		Accelerated filer [  ]
Non-accelerated filer [  ]		Smaller reporting company [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [  ] No [  ]

 

APPLICABLE ONLY TO CORPORATE ISSURS:

 

As of May 20, 2014, the registrant’s outstanding common stock consisted of 91,979,860 shares.

 

 

 

 

TABLE OF CONTENTS

 

		Pages
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements		3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		5
Item 3. Quantitative and Qualitative Disclosures about Market Risk		10
Item 4. Controls and Procedures		10
PART II – OTHER INFORMATION
Item 1. Legal Proceedings		11
Item 1A. Risk Factors		11
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		11
Item 3. Defaults Upon Senior Securities		11
Item 4. Mine Safety Disclosures		11
Item 5. Other Information		11
Item 6. Exhibits		12

 

2

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Quest Water Global, Inc.

(A Development Stage Company)

Consolidated Financial Statements
March 31, 2014

(Expressed in US dollars)

(unaudited)

 

		Index
Consolidated Balance Sheets		F-1
Consolidated Statements of Operations		F-2
Consolidated Statements of Cash Flows		F-3
Notes to the Consolidated Financial Statements		F-4

 

3

 

QUEST WATER GLOBAL, INC.

(A Development Stage Company)

Consolidated Balance Sheets

(Expressed in US dollars)

 

		March 31, 2014				December 31, 2013
		$				$
		(unaudited)
ASSETS
Current assets
Cash			2,482				1,605
Amounts receivable			–				1,293
Prepaid expenses and deposits			7,237				7,835
Total current assets			9,719				10,733
Equipment (Note 3)			10,216				11,269
Total assets			19,935				22,002
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
Accounts payable			350,968				360,766
Accrued liabilities			2,262				3,344
Convertible notes payable, net of unamortized discount of $7,917 (2013 - $22,292) (Note 4)			167,083				152,708
Due to related parties (Note 5)			1,111,340				980,248
Total liabilities			1,631,653				1,497,066
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, 2 shares issued and outstanding			1				1
Common stock, 95,000,000 shares authorized, $0.000001 par value, 86,479,860 and 85,749,860 shares issued and outstanding, respectively			5,141				5,140
Additional paid-in capital			5,455,692				4,749,609
Common stock issuable (Note 6)			5,000				23,000
Deferred compensation (Note 6)			(87,096	)			–
Deficit accumulated during the development stage			(6,990,456	)			(6,252,814	)
Total stockholders’ deficit			(1,611,718	)			(1,475,064	)
Total liabilities and stockholders’ deficit			19,935				22,002

 

(The accompanying notes are an integral part of these consolidated financial statements)

 

F- 1

 

QUEST WATER GLOBAL, INC.

(A Development Stage Company)

Consolidated Statements of Operations

(Expressed in US dollars)

(unaudited)

  

		Three months ended March 31, 2014				Three months ended March 31, 2013				Accumulated from February 20, 2009 (date of inception) to March 31, 2014
		$				$				$
Expenses
Advertising and promotion			748				27,542				104,342
Amortization			1,053				14,642				134,108
Automotive			5,200				5,935				105,043
Consulting fees (Notes 6 and 8)			280,256				11,209				1,468,103
Foreign exchange gain			(5,392	)			(3,184	)			(9,486	)
Management fees (Note 8)			407,731				75,000				3,507,256
Office and miscellaneous			7,646				6,752				133,927
Professional fees			20,013				34,815				680,277
Rent			5,160				7,553				144,220
Telephone			2,606				4,373				67,749
Transfer agent and filing fees			1,333				813				21,771
Travel			257				14,781				194,791
Total expenses			726,611				200,231				6,552,101
Loss before other income (expense)			(726,611	)			(200,231	)			(6,552,101	)
Other income (expense)
Accretion of discounts on convertible notes payable			(14,375	)			(15,940	)			(247,439	)
Gain on settlement of debt (Note 4)			3,344				–				22,887
Impairment of equipment			–				–				(205,508	)
Interest expense			–				(908	)			(9,370	)
Interest income			–				–				1,075
Total other income (expense)			(11,031	)			(16,848	)			(438,355	)
Net loss			(737,642	)			(217,079	)			(6,990,456	)
Net loss per share, basic and diluted			(0.01	)			–
Weighted average number of shares outstanding , basic and diluted			86,082,416				85,089,049

   

(The accompanying notes are an integral part of these consolidated financial statements)

 

F- 2

 

QUEST WATER GLOBAL, INC.

(A Development Stage Company)

Consolidated Statement of Cash Flows

(Expressed in US dollars)

(unaudited)

 

		Three months ended March 31, 2014				Three months ended March 31, 2013				Accumulated from February 20, 2009 (date of inception) to March 31, 2014
		$				$				$
Operating Activities:
Net loss for the period			(737,642	)			(217,079	)			(6,990,456	)
Adjustments to reconcile net loss to net cash used in operating activities:
Accretion of discount on convertible note payable			14,375				15,940				247,439
Amortization			1,053				14,642				134,108
Gain on settlement of debt			(3,165	)			–				(22,887	)
Impairment of equipment			–				–				205,508
Stock-based compensation			600,988				–				3,469,643
Changes in operating assets and liabilities:
Accounts receivable			1,293				–				–
Prepaid expenses			598				–				(7,237	)
Accounts payable			(9,798	)			34,360				366,620
Accrued liabilities			2,083				21,264				6,674
Due to related parties			93,818				104,382				1,073,866
Net cash provided by (used in) operating activities			(36,397	)			(26,491	)			(1,516,722	)
Investing Activities:
Purchase of equipment			–				–				(349,832	)
Net cash used in investing activities			–				–				(349,832	)
Financing Activities:
Proceeds from convertible notes payable			–				–				601,320
Proceeds from loans payable			–				–				208,000
Repayment of loans payable			–				–				(200,000	)
Advances from related parties			37,274				–				37,274
Proceeds from issuance of common stock			–				25,000				1,222,442
Net cash provided by financing activities			37,274				25,000				1,869,036
Increase (decrease) in cash			877				(1,491	)			2,482
Cash, beginning of period			1,605				1,732				–
Cash, end of period			2,482				241				2,482
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			–				–				325,500
Common stock issued pursuant to the conversion of notes payable			–				–				89,000
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)

 

F- 3

 

QUEST WATER GLOBAL, INC.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

March 31, 2014

(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 to that date, including the disclosures from inception, are those of Quest.
		Two former 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) 2,708,000 shares of common stock and (ii) warrants to purchase 2,708,000 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 $677,000.

 

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 March 31, 2014, the Company has a working capital deficiency of $1,621,934 of which $1,111,340 is owed to the two principal shareholders (Notes 5 and 10), and an accumulated deficit of $6,990,456. 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.

 

F- 4

 

QUEST WATER GLOBAL, INC.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

March 31, 2014

(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 (“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.

 

(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.

 

(c)

Use of Estimates

 

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.

 

(d)

Equipment

  

Equipment is stated at cost. The Company amortizes the cost of equipment over its estimated useful life at the following annual rates:

 

	Computer equipment		45%		declining balance basis
	Demonstration equipment and furniture		20%		declining balance basis
	Furniture and equipment		20%		declining balance basis

 

(e)

Long-lived Assets

 

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.

 

F- 5

 

QUEST WATER GLOBAL, INC.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

March 31, 2014

(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, 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.

 

(g)

Loss Per Share

 

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.

 

(h)

Comprehensive Loss

 

ASC 220, “Comprehensive Income”, establishes standards for the reporting and presentation of comprehensive income (loss) and its components in the financial statements. As at March 31, 2014 and December 31, 2013, the Company had no items representing comprehensive income or loss.

 

F- 6

 

QUEST WATER GLOBAL, INC.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

March 31, 2014

(Expressed in US dollars)

(unaudited)

 

2.	Summary of Significant Accounting Policies (continued)

 

(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.

 

(j)

Income Taxes

 

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 March 31, 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 March 31, 2014 and 2013, 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.

Equipment

 

		Cost				Accumulated Amortization				Net Carrying Value March 31, 2014				Net Carrying Value December 31, 2013
		$				$				$				$
Computer equipment		25,971				19,149				6,822				7,696
Furniture and equipment			7,426				4,032				3,394				3,573
			33,397				23,181				10,216				11,269

 

F- 7

 

QUEST WATER GLOBAL, INC.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

March 31, 2014

(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, “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 three months ended March 31, 2014, $11,250 (2013 - $41,250) had been accreted, increasing the carrying value to $146,250 (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 three months ended March 31, 2014, $3,125 (2013 - $17,708) had been accreted, increasing the carrying value to $20,833 (December 31, 2013 - $17,708).
	(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. On October 15, 2013, the Company issued 62,500 shares of common stock pursuant to the conversion of the note. During the three months ended March 31, 2014, the interest accrued was forgiven and the Company recorded a gain on settlement of $2,117.
	(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. During the year ended December 31, 2013, the Company settled the note in full for $nil payments and recorded a gain on settlement of $11,820. During the three months ended March 31, 2014, the Company recorded a gain on settlement of the interest accrued of $1,227.

 

5.	Related Party Transactions

 

	(a)	As at March 31, 2014, a total of $450,043 (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 Note 10.
	(b)	As at March 31, 2014, a total of $661,297 (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 Note 10.
	(c)	For the three months ended March 31, 2014, the Company incurred a total of $75,000 (2013 - $75,000) 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 three months ended March 31, 2014, which is included in management fees.

 

6.	Common Stock

 

	(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 $22,904 (2013 - $nil) was expensed as consulting fees which reflects the pro-rata portion of the services provided to March 31, 2014. As of March 31, 2014, the remaining amount of $87,096 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.

 

F- 8

 

QUEST WATER GLOBAL, INC.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

March 31, 2014

(Expressed in US dollars)

(unaudited)

 

6.	Common Stock (continued)

 

	(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. Refer to Note 9(c).
	(d)	As at March 31, 2014, the Company had received share subscriptions of $5,000 for 83,334 shares of common stock at a price of $0.06 per share.

 

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 March 31, 2014			3,056,500				0.53

 

As at March 31, 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

 

8.	Stock Options

 

		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, March 31, 2014			5,300,000				0.19

 

Additional information regarding stock options outstanding as at March 31, 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				1.2				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.

 

F- 9

 

QUEST WATER GLOBAL, INC.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

March 31, 2014

(Expressed in US dollars)

(unaudited)

 

8.	Stock Options (continued)

 

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:

 

		Three months ended March 31, 2014				Three months ended March 31, 2013
Risk-free Interest rate			0.11	%			–
Expected life (in years)			1.3				–
Expected volatility			162	%			–

 

During the three months ended March 31, 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 three months ended March 31, 2014 was $0.12 per option.

 

As at March 31, 2014, the weighted average remaining contractual life is 1.2 years and the aggregate intrinsic value of stock options outstanding is $nil.

 

9.	Commitments

 

(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.

 

(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 October 17, 2013, the Company entered into a six month agreement for consulting services whereby the Company agreed to pay $4,000 per month. The Company also agreed to issue 100,000 shares of common stock for each three month period that this agreement is in effect. Shares issued will be considered to have been earned at the beginning of each period that payment is due. Refer to Note 6(c).

 

F- 10

 

QUEST WATER GLOBAL, INC.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

March 31, 2014

(Expressed in US dollars)

(unaudited)

 

9.	Commitments (continued)

 

(d)

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 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.

 

	(e)	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.
	(f)	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				12,186
2015				16,248
2016				16,248
2017				2,031
				46,713

 

10.	Subsequent Event

 

On April 8, 2014, the Company issued 5,500,000 shares of common stock 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.

 

F- 11

  

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 March 31, 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.

 

4

 

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.

 

5

 

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.

 

6

 

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

 

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 March 31, 2014, we incurred $726,611 in total expenses, including $407,731 in management fees, $280,256 in consulting fees, $20,013 in professional fees, $7,646 in office and miscellaneous expenses, $5,200 in automotive expenses, $5,160 in rent, $2,606 in telephone expenses, $1,333 in transfer agent and filing fees, $1,053 in amortization, $748 in advertising and promotion expenses and $257 in travel expenses, as offset by a foreign exchange gain of $5,392. During the same period in the prior year, we incurred $200,231 in total expenses, including $75,000 in management fees, $11,209 in consulting fees, $34,815 in professional fees, $6,752 in office and miscellaneous expenses, $5,935 in automotive expenses, $7,553 in rent, $4,373 in telephone expenses, $813 in transfer agent and filing fees, $14,642 in amortization, $27,542 in advertising and promotion expenses and $14,781 in travel expenses, as offset by a foreign exchange gain of $3,184. The increase of approximately 263% in our total expenses during the most recent period resulted primarily from significant increases in our management fees and consulting fees, all of which were attributable to issuances of our common stock pursuant to consulting agreements and stock-based compensation associated with the granting of stock options during our most recent fiscal quarter. However, during the three months ended March 31, 2014 our advertising and promotion, amortization and travel expenses all decreased substantially on a period-to-period basis.

 

From our inception on February 20, 2009 to March 31, 2014, we incurred $6,552,101 in total expenses, including $3,507,256 in management fees, $1,468,103 in consulting fees, $680,277 in professional fees, $194,791 in travel expenses, $144,220 in rent, $134,108 in amortization, $133,927 in office and miscellaneous expenses, $105,043 in automotive expenses, $104,342 in advertising and promotion expenses, $67,749 in telephone expenses and $21,771 in transfer agent and filing fees, as offset by a foreign exchange gain of $9,486. Importantly, a significant portion of the management fees and consulting fees represent stock-based compensation expense of $1,939,525 and $858,933, respectively, that we incurred during the three months ended June 30, 2012.

 

Net Loss

 

During the three months ended March 31, 2014, we incurred a loss before other expense of $726,611 and a net loss of $737,642, whereas we incurred a loss before other expense of $200,131 and a net loss of $217,079 during the same period in the prior year. During our most recent fiscal quarter our net loss per share was $0.01, whereas we did not experience any net loss per share during the three months ended March 31, 2013.

 

From our inception on February 20, 2009 to March 31, 2014, we incurred a loss before other expense of $6,552,101 and a net loss of $6,990,456. The majority of our other expense during each of the periods referenced above was related to the accretion of discounts on our convertible notes payable.

 

7

 

Liquidity and Capital Resources

 

As of March 31, 2014, we had $2,482 in cash, $19,935 in total assets, $1,631,653 in total liabilities and a working capital deficit of $1,621,934. As of March 31, 2014 we had an accumulated deficit of $6,990,456.

 

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 three months ended March 31, 2014, we spent $36,397 in cash on operating activities, compared to $26,491 in cash spending on operating activities during the same period in the prior year. The 37% increase in our cash spending on operating activities during the three months ended March 31, 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. From our inception on February 20, 2009 to March 31, 2014 we spent $1,516,722 in cash on operating activities.

 

We did not spend any cash on investing activities during the three months ended March 31, 2014 or 2013. From our inception on February 20, 2009 to March 31, 2014, we spent $349,832 in cash on the purchase of equipment, our only investing activities to date.

 

We received $37,274 in cash from financing activities during the three months ended March 31, 2014, all of which was in the form of advances from related parties. During the three months ended March 31, 2013, we received $25,000 in cash from financing activities, all of which was in the form of proceeds from the issuance of our common stock. From our inception on February 20, 2009 to March 31, 2014 we received $1,869,036 in cash from financing activities, including the following proceeds: $1,222,442 from the issuance of our common stock, $601,320 from convertible notes payable and $208,000 from loans payable, as offset by a loan repayment of $200,000.

 

During the three months ended March 31, 2014, our cash increased by $877 as a result of our operating, investing and financing activities, from $1,605 to $2,482. As of March 31, 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.

 

8

 

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 March 31, 2014, we had a working capital deficit of $1,621,934 and an accumulated deficit of $6,990,456. 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.

 

9

 

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.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not required.

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

 

As of the end of the period covered by this report, management, with the participation of our Chief Executive and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures. Based upon this evaluation, management concluded that our disclosure controls and procedures were not effective due to certain deficiencies in our internal control over financial reporting.

 

Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) during the period ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

10

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are currently not involved in any litigation that we believe could have a materially adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of our executive officers or any of our subsidiaries, threatened against or affecting us, our common stock, any of our subsidiaries or our officers or directors of those of our subsidiaries’ in their capacities as such, in which an adverse decision could have a material adverse effect.

 

Item 1A. Risk Factors

 

Not applicable.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

On April 8, 2013, we entered into debt conversion agreements with John Balanko, our Chairman, President, Chief Executive Officer and director, and Peter Miele, our Vice President, Chief Financial Officer, Secretary and director, pursuant to which each of Mr. Balanko and Mr. Miele converted $330,000 worth of debt into 2,750,000 shares of our common stock at a price of $0.12 per share. We issued the 5,500,000 shares in reliance upon the exemptions from registration provided by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 903 of Regulation S under the Securities Act.

 

Our reliance on Section 4(2) was based on the fact that the issuance to Mr. Balanko did not involve a “public offering” and he provided representations to us that he acquired the shares for investment purposes and not with a view to any resale, distribution or other disposition in violation of United States securities laws or applicable state securities laws. Our reliance on Rule 903 of Regulation S was based on the fact that the issuance to Mr. Miele occurred in an “offshore transaction”, as defined in Rule 902(h) of Regulation S. We did not engage in any directed selling efforts in the United States in connection with the issuance of these shares, and Mr. Miele is not a U.S. person and did not acquire the shares for the account or benefit of any U.S. person.

 

11

 

Item 6. Exhibits

 

The following documents are filed as a part of this quarterly report.

 

Exhibit Number		Description of Exhibit
2.1		Share Exchange Agreement dated January 6, 2012 with Josh Morita, Quest Water Solutions, Inc. and the shareholders of Quest Water Solutions, Inc. (1)
3.1		Articles of Incorporation (2)
3.2		Bylaws (2)
3.3		Certificate of Designation for Series A Voting Preferred Stock (1)
3.4		Certificate of Amendment filed with the Delaware Secretary of State on February 21, 2012 (3)
10.1		Agreement of Sale with Josh Morita dated January 6, 2012 (1)
10.2		Subscription Agreement dated January 6, 2012 (1)
10.3		Form of Warrant dated January 6, 2012 (1)
10.4		Registration Rights Agreement dated January 6, 2012 (1)
10.5		Form of Lock-Up Agreement dated January 6, 2012 (1)
10.6(a)		Lock-Up/Leak Out Agreement with John Balanko dated January 6, 2012 (1)
10.6(b)		Lock-Up/Leak Out Agreement with Peter Miele dated January 6, 2012 (1)
10.7		Management Agreement with John Balanko dated November 1, 2011 (1)
10.8		Management Agreement with Peter Miele dated November 1, 2011 (1)
10.9		Global Cooperation Partner Agreement between Quest Water Solutions, Inc. and Trunz Water Systems AG, dated June 29, 2011 (1)
31.1		Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
31.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
99.1		Audit Committee Charter (4)
101.INS		XBRL Instance Document **
101.SCH		XBRL Taxonomy Extension Schema **
101.CAL		XBRL Taxonomy Extension Calculation Linkbase**
101.DEF		XBRL Taxonomy Extension Definition Linkbase **
101.LAB		XBRL Taxonomy Extension Label Linkbase**
101.PRE		XBRL Taxonomy Presentation Linkbase**

 

(1)	Incorporated by reference from our Current Report on Form 8-K filed with the SEC on January 10, 2012.
(2)	Incorporated by reference from our Registration Statement on Form S-1 filed with the SEC on August 17, 2010.
(3)	Incorporated by reference from our Current Report on Form 8-K filed with the SEC on March 7, 2012.
(4)	Incorporated by reference from our Annual Report on Form 10-K filed with the SEC on April 16, 2012.
*	Filed Herewith.
**	In accordance with Regulation S-T, the XBRL related information on Exhibit No. 101 to this Quarterly Report on Form 10-Q shall be deemed “furnished” herewith not “filed”.

 

12

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: May 20, 2014	QUEST WATER GLOBAL, INC.
	By:	/s/ John Balanko
		John Balanko
		Chairman, President, Chief Executive Officer, Director

 

13