Quest Water Global, Inc. - Quarter Report: 2013 June (Form 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 June 30, 2013

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)

(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.

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 ISSUERS:

As of August 19, 2013, the registrant’s outstanding common stock consisted of 85,182,360 shares.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

QUEST WATER GLOBAL, INC.
(A Development Stage Company)
Consolidated Financial Statements
June 30, 2013
(Expressed in US dollars)
(unaudited)

QUEST WATER GLOBAL, INC.
(A Development Stage Company)
Consolidated Balance Sheets
(Expressed in US dollars)

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

QUEST WATER GLOBAL, INC.
(A Development Stage Company)
Consolidated Statement of Operations
(Expressed in US dollars)
(unaudited)

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

QUEST WATER GLOBAL, INC.
(A Development Stage Company)
Consolidated Statement of Cash Flows
(Expressed in US dollars)
(unaudited)

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

QUEST WATER GLOBAL, INC.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

June 30, 2013

(Expressed in US dollars)

(unaudited)

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:

Two former principal shareholders of Quest each received one share of the Company’s newly designated Series A Voting Preferred Stock. Each share of Series A Voting Preferred Stock entitles the holder thereof to approximately 35% of the voting power of the Company’s capital stock. Accordingly, the two former principal shareholders of Quest, together, control more than 50% of the votes eligible to be cast by stockholders in the election of directors and generally.

On the closing of the above transactions, the Company entered into lock-up agreements with each of the former Quest shareholders who received common stock of the Company in the share exchange, agreeing not to transfer any of the common stock of the Company for a one year period after the closing. In addition, the Company entered into lock-up/leak-out agreements with the two officers of the Company, agreeing not to transfer any of the common stock of the Company for a one year period after the closing and for the six months thereafter to limit any transfers to 0.5% up to a maximum of 100,000 shares of common stock on any single day.

The Company is an innovative water technology company that provides solutions to water scarce regions. The Company’s operations to date have been limited primarily to capital formation, organization, and development of its business plan. As such, the Company is a development stage company, as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915, “Development Stage Entities”.

These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As at June 30, 2013, the Company has a working capital deficiency of $1,095,834 of which $764,504 is owed to the two principal shareholders, and accumulated stockholders’ deficit of $5,651,283. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue to develop its business and ultimately on the attainment of profitable operations. The Company is in the process of arranging additional capital financing that may assist in addressing these issues; however, these factors continue to raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

QUEST WATER GLOBAL, INC.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

June 30, 2013

(Expressed in US dollars)

(unaudited)

These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in US dollars. These consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary, Quest; Quest’s wholly owned subsidiary, Quest Water Solutions Inc., a company incorporated under the laws of the province of British Columbia, Canada; and its 88% owned inactive subsidiaries Agua Cuilo Lda., Cuilo Embalnages, Lda., and Cuilo Comercial, Lda. All inter-company balances and transactions have been eliminated on consolidation. The Company’s fiscal year-end is December 31.

These interim consolidated financial statements have been prepared on the same basis as the annual financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period.

The preparation of these consolidated financial statements in conformity with US generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company regularly evaluates estimates and assumptions related to the useful life and recoverability of long-lived assets, fair value of convertible notes payable, fair value of stock-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Property and equipment are stated at cost. The Company amortizes the cost of property and equipment over their estimated useful lives at the following annual rates:

In accordance with ASC 360, “Property, Plant, and Equipment”, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount exceeds fair value.

QUEST WATER GLOBAL, INC.

 (A Development Stage Company)

 Notes to the Consolidated Financial Statements

 June 30, 2013

 (Expressed in US dollars)

 (unaudited)

ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:

Level 1

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3

Level 3 applies to assets or liabilities for which there are no observable inputs to the valuation methodology that are relevant to the measurement of the fair value of the assets or liabilities.

The Company’s financial instruments consist principally of cash, accounts payable, accrued liabilities, convertible notes payable, loan payable, and amounts due to related parties. Pursuant to ASC 820, the fair value of cash is determined based on “Level 1” inputs. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.

The Company computes net income (loss) per share in accordance with ASC 260, “Earnings per Share” which requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common stocks outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.

ASC 220, “Comprehensive Income,” establishes standards for the reporting and presentation of comprehensive income (loss) and its components in the financial statements. As at June 30, 2013, and December 31, 2012, the Company had no items representing comprehensive income or loss.

QUEST WATER GLOBAL, INC.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

June 30, 2013

(Expressed in US dollars)

(unaudited)

The Company’s functional currency is U.S. Dollars. Transactions in foreign currencies are translated into the currency of measurement at the exchange rates in effect on the transaction date. Monetary balance sheet items expressed in foreign currencies are translated into US dollars at the exchange rates in effect at the balance sheet date. The resulting exchange gains and losses are recognized in income.

The Company’s integrated foreign subsidiaries are financially or operationally dependent on the Company. The Company uses the temporal method to translate the accounts of its integrated operations into US dollars. Monetary assets and liabilities are translated at the exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at average rates for the period, except for amortization, which is translated on the same basis as the related asset. The resulting exchange gains or losses are recognized in income.

The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Income Taxes”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. As of June 30, 2013 and December 31, 2012, the Company did not have any amounts recorded pertaining to uncertain tax positions.

The Company is required to file federal and provincial income tax returns in Canada and federal, state and local income tax returns in the US, as applicable. The Company may be subject to a reassessment of federal and provincial income taxes by Canadian tax authorities for a period of three years from the date of the original notice of assessment in respect of any particular taxation year. For Canadian and US income tax returns, the open taxation year is 2009. In certain circumstances, the US federal statute of limitations can reach beyond the standard three year period. US state statutes of limitations for income tax assessment vary from state to state. Tax authorities of Canada and US have not audited any of the Company’s, or its subsidiaries’, income tax returns for the open taxation year noted above.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. During the periods ended June 30, 2013 and 2012, there were no charges or provisions for interest or penalties.

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.

QUEST WATER GLOBAL, INC.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

June 30, 2013

(Expressed in US dollars)

(unaudited)

QUEST WATER GLOBAL, INC.

 (A Development Stage Company)

 Notes to the Consolidated Financial Statements

 June 30, 2013

 (Expressed in US dollars)

 (unaudited)

The following table summarizes the continuity of share purchase warrants:

As at June 30, 2013, the following share purchase warrants were outstanding:

Additional information regarding stock options outstanding as at June 30, 2013 is as follows:

As at June 30, 2013, the aggregate intrinsic value of stock options outstanding is $nil

QUEST WATER GLOBAL, INC.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

June 30, 2013

(Expressed in US dollars)

(unaudited)

The agreement may be terminated by written notice. Upon termination, the President shall receive a termination fee equal to the sum of:

The agreement may be terminated by written notice. Upon termination, the Vice-President shall receive a termination fee equal to the sum of:

Subsequent to June 30, 2013, the Company received share subscriptions proceeds of $5,000 for 83,334 shares of common stock at $0.06 per share to be issued.

PRESENTATION OF INFORMATION

As used in this quarterly report, the terms “we”, “us”, “our” and the “Company” mean Quest Water Global, Inc. and its consolidated subsidiaries, unless otherwise indicated.

This quarterly report includes our interim unaudited consolidated financial statements as at and for the period ended June 30, 2013. These financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“US GAAP”). All financial information in this quarterly report is presented in U.S. dollars, unless otherwise indicated, and should be read in conjunction with the financial statements and the notes thereto included in this quarterly report.

As disclosed in our current report on Form 8-K dated January 10, 2012, on January 6, 2012, we completed a share exchange with Quest Water Solutions, Inc. (“Quest”), a Nevada corporation that is now our wholly owned subsidiary and operating business (the “Share Exchange”). The Share Exchange was treated as a recapitalization effected through a share exchange, with Quest as the accounting acquirer and the Company as the accounting acquiree. Our consolidated financial statements are therefore, in substance, those of Quest.

FORWARD-LOOKING STATEMENTS

This quarterly report, any supplement to this quarterly report, and any documents incorporated by reference in this quarterly report, include “forward-looking statements”. To the extent that the information presented in this quarterly report discusses financial projections, information or expectations about our business plans, results of operations, products or markets, or otherwise makes statements about future events, such statements are forward-looking. Such forward-looking statements can be identified by the use of words such as “intends”, “anticipates”, “believes”, “estimates”, “projects”, “forecasts”, “expects”, “plans” and “proposes”. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements.

The forward-looking statements made in this quarterly report relate only to events or information as of the date on which the statements are made. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this quarterly report and the documents that we reference in this quarterly report and have filed as exhibits with the understanding that our actual future results may be materially different from what we expect. You should not rely upon forward-looking statements as predictions of future events.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our results of operations and financial condition has been derived from and should be read in conjunction with our interim unaudited consolidated financial statements and the related notes thereto that appear elsewhere in this quarterly report, as well as the “Presentation of Information” section that appears at the beginning of this quarterly report.

Corporate History and Background

We were incorporated under the laws of Delaware on February 25, 2010. From our inception until the closing of the Share Exchange, we sought to provide dental and other medical professionals with turn-key marketing solutions to generate referrals from existing clients and new business from the general public through our wholly owned subsidiary RPM Dental Systems, LLC (“RPM Kentucky”). RPM Kentucky was formed on September 15, 2009, under the laws of the Commonwealth of Kentucky, and we acquired RPM Kentucky on March 23, 2010.

Prior to the Share Exchange, we had minimal revenue and our operations were limited to capital formation, organization and development of our business plan. As a result of the Share Exchange, we ceased our prior operations and, through Quest, we now operate as an innovative water technology company that provides sustainable and environmentally sound solutions to water-scarce regions.

Quest was incorporated under the laws of Nevada on October 20, 2008 and commenced operations on February 20, 2009. Its operations to date have consisted of business formation, strategic development, marketing, technologies development, negotiations with technologies companies and capital raising activities. Quest has not generated any revenues since its inception.

Acquisition of Quest

On January 6, 2012, we completed the Share Exchange whereby we acquired all of the issued and outstanding capital stock of Quest in exchange for 2,568,493 shares of our common stock (on a pre-forward split basis), or approximately 62.74% of our issued and outstanding common stock as of the consummation of the Share Exchange. Subsequent to the Share Exchange, we completed a 20 for 1 forward split of our common stock (the “Forward Split”) that became effective on March 1, 2012. Pursuant to the Forward Split, the 2,568,493 shares described above increased to 51,369,860 shares.

As a result of the Share Exchange, Quest became our wholly owned subsidiary and John Balanko and Peter Miele became our principal stockholders. The Share Exchange was treated as a recapitalization effected through a share exchange, with Quest as the accounting acquirer and the Company as the accounting acquiree.

In connection with and effective upon the closing of the Share Exchange, Josh Morita, our former President, Chief Executive Officer, director and principal stockholder, and Dr. Laura Sloan, our former director, resigned as members of our Board of Directors and Mr. Morita resigned as our sole officer. Also effective upon the closing of the Share Exchange, John Balanko and Peter Miele were appointed to fill the vacancies on our Board of Directors created by the resignations of Mr. Morita and Ms. Sloan. In addition, our Board of Directors appointed Mr. Balanko as our President and Chief Executive Officer and Mr. Miele as our Vice President and Secretary, all effective upon the closing of the Share Exchange. On April 13, 2012, we also appointed Mr. Miele as our Chief Financial Officer.

As a result of our acquisition of Quest, Quest became our wholly owned subsidiary and we assumed the business and operations of Quest. We then changed our name from RPM Dental, Inc. to Quest Water Global Inc. to more accurately reflect our new business operations.

Business Overview

We provide sustainable and environmentally sound solutions to water scarce regions. Our goal is to address the vital issue of water quality and water supply by providing an alternative, sustainable source of pure water at the smallest possible environmental cost to global areas in need, while becoming a leading company in providing turn-key solutions using alternative energy for the purification, desalination and distribution of clean drinking water.

We have developed a proprietary community drinking water station consisting of a self-contained water purification system using either a reverse osmosis membrane or ultra filtration membrane, powered by photovoltaic solar panels and hosted in modified shipping containers. Each AQUAtap^TM unit is energy self-sufficient with minimal operational and maintenance costs. We believe that this product represents the first truly environmentally sound solution to drinking water shortages as it is autonomous, decentralized and sustainable, and because each unit is capable of converting brackish, sea or contaminated surface water into 20,000 litres of high quality drinking water each day, suitable for 1,000 people.

In addition to the solar-powered water purification systems, we have also developed a technology known as WEPS^TM (water extraction and purification system) that produces potable water from humidity in the atmosphere. WEPS^TM technology works by converting humidity into water, otherwise known as atmospheric water extraction.

To date, we have focused our activities on the fifteen countries of the Southern African Development Community (“SADC”), with specific attention to Angola. There is a vast and increasing demand for a sustainable, cost-effective and decentralized continuous supply of clean drinking water in most areas of the SADC. We provide clean drinking water to end-users utilizing various formats of our water purification and distribution systems that include inexpensive bulk drinking water and government-subsidized community level drinking water. Applications of our systems include rural and urban community water supply, water supply for household needs, remote work site camps and water supply for disaster relief.

We are in the process of negotiating a formal agreement with the Ministry of Industry and Ministry of Energy & Water regarding becoming an official registered supplier for the government of Angola’s $650 million “Water for All” program and for the construction of a facility to assemble the AQUAtap™ stations in that country. In June 2012, our management met with the African Development (“AfDB”) to discuss financing the proposed AQUAtap™ assembly plant(s) to be built in Angola and the level of funding required to carry out such an undertaking. These discussions established that we would require between $5.5-6 million per facility, including construction, inventory and working capital. As a result of the meetings, we received a non-binding letter of intent from the AfDB regarding the funding of the proposed project and the Angolan government indicated that once an agreement had been consummated, they would in turn submit a request for funding to the AfDB on our behalf.

Our operations to date have consisted of business formation, strategic development, marketing, technologies development, negotiations with technology companies and capital raising activities.

Results of Operations

For the Three Months Ended June 30, 2013 and from February 20, 2009 (Date of Inception) to June 30, 2013

Revenue

We have not generated any revenues since our inception. We anticipate that we will incur substantial losses for the foreseeable future and our ability to generate any revenues in the next 12 months continues to be uncertain.

Expenses

During the three months ended June 30, 2013, we incurred $153,041 in total expenses, including $75,000 in management fees, $36,571 in professional fees, $413 in advertising and promotion expenses $5,047 in travel expenses, $14,642 in amortization, $7,008 in consulting fees, $7,427 in rent, $4,402 in office and miscellaneous expenses, $3,831 in automotive expenses, $3,539 in telephone expenses and $6 in transfer agent and filing fees, as offset by $4,845 in foreign exchange gain. During the same period in the prior year, we incurred $3,086,739 in total expenses, including $2,014,525 in management fees, $92,816 in professional fees, $36,518 in advertising and promotion expenses, $14,818 in travel expenses, $12,716 in amortization, $880,247 in consulting fees, $7,508 in rent, $9,311 in office and miscellaneous expenses, $9,017 in automotive expenses, $3,659 in telephone expenses, $5,546 in transfer agent and filing fees and $58 in foreign exchange loss. The 2017% decrease in our total expenses during the most recent period resulted from decreases in our expenses in several major categories, including our professional fees and consulting fees, which were attributable to the closing of the Share Exchange and the costs associated with becoming a public company. In addition, our management fees and consulting fees decreased significantly between the two periods as a result of $1,939,525 and $858,933, respectively, in stock-based compensation expense that we incurred during the three months ended June 30, 2012.

From our inception on February 20, 2009 to June 30, 2013, we incurred $5,450,179 in total expenses, including $2,949,525 in management fees, $629,833 in professional fees, $90,328 in advertising and promotion expenses $180,750 in travel expenses, $103,733 in amortization, $1,105,226 in consulting fees, $131,360 in rent, $99,960 in office and miscellaneous expenses, $89,496 in automotive expenses, $57,967 in telephone expenses and $17,319 in transfer agent and filing fees, as offset by $5,358 in foreign exchange gain.

Net Loss

During the three months ended June 30, 2013, we incurred a loss before other expense of $153,041 and a net loss of $170,239, whereas we incurred a loss before other expense of $3,086,739 and a net loss of $3,108,996 during the same period in the prior year. We did not experience any net loss per share during the three months ended June 30, 2013, whereas we experienced a net loss per share of $0.04 during the same period in the prior year.

From our inception on February 20, 2009 to June 30, 2013, we incurred a loss before other expense of $5,450,179 and a net loss of $5,651,283. The majority of our other expense during each of the periods referenced above was related to the accretion of discount on our convertible notes payable.

For the Six Months Ended June 30, 2013

Expenses

During the six months ended June 30, 2013, we incurred $353,272 in total expenses, including $150,000 in management fees, $71,386 in professional fees, $27,955 in advertising and promotion expenses, $19,828 in travel expenses, $29,284 in amortization, $18,217 in consulting fees, $14,980 in rent, $11,154 in office and miscellaneous expenses, $9,766 in automotive expenses, $7,912 in telephone expenses, $819 in transfer agent and filing fees, as offset by $8,029 in foreign exchange gain. During the same period in the prior year, we incurred $3,427,817 in total expenses, including $2,089,525 in management fees, $187,387 in professional fees, $38,613 in advertising and promotion expenses, $55,208 in travel expenses, $16,496 in amortization, $887,649 in consulting fees, $15,049 in rent, $69,762 in office and miscellaneous expenses, $30,724 in automotive expenses, $8,110 in telephone expenses, $16,440 in transfer agent and filing fees and $12,854 in foreign exchange loss. The 970% decrease in our total expenses during the most recent period resulted from decreases in our expenses in several major expense categories, including our professional fees and consulting fees, which were attributable to the closing of the Share Exchange and the costs associated with becoming a public company. In addition, the management fee and consulting fee decreases due to the one-time stock-based compensation expense described above accounted for a significant portion of the overall decrease.

Net Loss

During the six months ended June 30, 2013, we incurred a loss before other expense of $353,272 and a net loss of $387,318, whereas we incurred a loss before other expense of $3,427,817 and a net loss of $3,455,236 during the same period in the prior year. We did not experience any net loss per share during the six months ended June 30, 2013, whereas we experienced a net loss per share of $0.04 during the same period in the prior year.

Liquidity and Capital Resources

As of June 30, 2013, we had no cash, $253,894 in total assets, $1,227,627 in total liabilities and a working capital deficit of $1,095,834. As of June 30, 2013 we had an accumulated deficit of $5,651,283.

To date, we have experienced negative cash flows from operations and we have been dependent on sales of our common stock and capital contributions to fund our operations. We expect this situation to continue for the foreseeable future, and we anticipate that we will experience negative cash flows during the year ended December 31, 2013.

During the six months ended June 30, 2013, we spent $26,767 in cash on operating activities, compared to $628,396 in cash spending on operating activities during the same period in the prior year. The 2348% decrease in our cash spending on operating activities during the six months ended June 30, 2013 was primarily attributable to the decrease in our net loss as described above, as well as changes in our operating assets and liabilities, and in particular an increase in amounts due to related parties. From our inception on February 20, 2009 to June 30, 2013 we spent $1,476,965 in cash on operating activities.

During the six months ended June 30, 2013, we did not spend any cash on investing activities, whereas we spent $14,060 in cash on investing activities during the same period in the prior year, all of which was in the form of equipment purchases. Our investing activities decreased between the 2012 and 2013 periods largely because we are currently in the process of negotiating a formal agreement with the Government of Angola that we expect will require us to purchase additional equipment. From our inception on February 20, 2009 to June 30, 2013, we spent $349,832 in cash on the purchase of equipment, our only investing activities to date.

We received $25,035 in cash from financing activities during the six months ended June 30, 2013, substantially all of which was in the form of proceeds from the issuance of our common stock. During the six months ended June 30, 2012, we received $637,000 in cash from financing activities, including $677,000 in proceeds from the issuance of our common stock. From our inception on February 20, 2009 to June 30, 2013 we received $1,826,762 in cash from financing activities, including the following proceeds: $1,217,442 from the issuance of our common stock, $601,320 from convertible notes payable, $208,000 from loans payable and $35 in bank indebtedness, as offset by a loan repayment of $200,000.

During the six months ended June 30, 2013, our cash decreased by $1,732 as a result of our operating, investing and financing activities, from $1,732 to $0. As of June 30, 2013, we did not even have sufficient cash resources to meet our operating expenses for the next month based on our current burn rate.

Plan of Operations

Our plan of operations over the next 12 months is to continue to address water quality and supply issues in Angola through the installation of our AQUAtap^TM community drinking water stations as well as the employment of our WEPS^TM technology, and we anticipate that we will require a minimum of $745,000 to pursue those plans. However, as described above, we are currently in the process of negotiating a formal agreement with the Angolan Ministry of Industry and Ministry of Energy & Water regarding becoming an official registered supplier for the “Water for All” program and for the construction of a facility to assemble our AQUAtap™ stations. Our cash requirements will change substantially if we are able to successfully enter into such an agreement, but we expect that the AfDB will fund a large portion of the construction, inventory and working capital costs of the proposed project in those circumstances.

We intend to meet the balance of our cash requirements for the next 12 months through a combination of debt financing and equity financing through private placements. Currently we are active in contacting broker/dealers in Canada and elsewhere regarding possible financing arrangements. However, we do not currently have any arrangements in place to complete any further private placement financings and there is no assurance that we will be successful in completing any such financings. If we are unsuccessful in obtaining sufficient funds through our capital raising efforts, we may review other financing options.

During the next 12 months, we estimate that our planned expenditures will include the following:

Going Concern

Our financial statements have been prepared on a going concern basis, which implies we will continue to realize our assets and discharge our liabilities in the normal course of business. As at June 30, 2013, we had a working capital deficit of $1,095,834 and an accumulated deficit of $5,651,283. Our continuation as a going concern is dependent upon the continued financial support from our creditors, our ability to obtain necessary equity financing to continue operations, and ultimately on the attainment of profitable operations. These factors raise substantial doubt regarding our ability to continue as a going concern. Our financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Critical Accounting Policies

We have identified certain accounting policies, described below, that are important to the portrayal of our current financial condition and results of operations.

Basis of Presentation and Consolidation

Our consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in US dollars. Our consolidated financial statements include the accounts of the Company, our wholly-owned subsidiary, Quest; Quest’s wholly owned subsidiary, Quest Water Solutions Inc., a company incorporated under the laws of the province of British Columbia, Canada; and its 88% owned inactive subsidiaries Agua Cuilo Lda., Cuilo Embalnages, Lda., and Cuilo Comercial, Lda. All inter-company balances and transactions have been eliminated on consolidation. Our fiscal year-end is December 31.

Foreign Currency Translation

Our functional currency is US dollars. Transactions in foreign currencies are translated into the currency of measurement at the exchange rates in effect on the transaction date. Monetary balance sheet items expressed in foreign currencies are translated into US dollars at the exchange rates in effect at the balance sheet date. The resulting exchange gains and losses are recognized in income.

Our integrated foreign subsidiaries are financially or operationally dependent on us. We use the temporal method to translate the accounts of our integrated operations into US dollars. Monetary assets and liabilities are translated at the exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at average rates for the period, except for amortization, which is translated on the same basis as the related asset. The resulting exchange gains or losses are recognized in income.

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 June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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

None.

Item 6. Exhibits

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

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.