Water Now, Inc. - Quarter Report: 2019 June (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2019
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No. 000-55825
WATER NOW, INC.
(Exact name of registrant as specified in its charter)
Texas | 81-1419236 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
5000 South Freeway, Suite 110, Fort Worth, Texas |
76115 | |
(Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code: (817) 900-9184
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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, and (2) has been subject to such filing requirements for the past 90 days. þ Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ | Accelerated filer ¨ | |
Non-accelerated filer ¨ | Smaller reporting company þ | |
Emerging growth company þ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ¨ No þ
At August 19, 2019, there were 40,026,635 shares outstanding of Common Stock, no par value.
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IMPORTANT INFORMATION REGARDING THIS FORM 10-Q
Unless otherwise indicated, references to “we,” “us,” and “our” in this Quarterly Report on Form 10-Q (“Report”) refer collectively to Water Now, Inc., a Texas corporation (“Water Now”).
Readers should consider the following information as they review this Report:
Forward-Looking Statements
There are statements in this Report that are not historical facts. These “forward-looking statements” can be identified by use of terminology suggesting a belief in future performance and similar expressions. You should be aware that these forward-looking statements are subject to risks and uncertainties that are beyond our control. For a discussion of these risks, you should read this entire Report carefully. Although management believes that the assumptions underlying the forward-looking statements included in this Report are reasonable, they do not guarantee our future performance, and actual results could differ from those contemplated by these forward-looking statements. The assumptions used for purposes of the forward-looking statements represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. In the light of these risks and uncertainties, there can be no assurance that the results and events contemplated by the forward-looking statements contained in this Report will in fact transpire. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their respective dates. We do not undertake any obligation to update or revise any forward-looking statements.
Document Summaries
Descriptions of documents and agreements contained in this Report are provided in summary form only, and such summaries are qualified in their entirety by reference to the actual documents and agreements filed as exhibits to our Registration Statement on Form 10 filed on October 13, 2017, other periodic and current reports we have filed with the SEC, or this Report.
Access to Filings
Access to our reports and amendments thereto, filed with or furnished to the SEC pursuant to Section 13(a) of the Exchange Act, as well as reports filed electronically pursuant to Section 16(a) of the Exchange Act, may be obtained through our website (http://www.waternowinc.com) as soon as reasonably practicable after we have filed or furnished such material with the SEC. The contents of our website are not, and shall not be deemed to be, incorporated into this Report.
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
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PART I. FINANCIAL INFORMATION
Water Now, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
June 30, | December 31, | |||||||
2019 | 2018 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | 12,335 | $ | 53,106 | ||||
Accounts receivable | 297,050 | 1,250 | ||||||
Other receivables | 15,000 | — | ||||||
Inventory | 478,969 | 506,845 | ||||||
Prepaid expenses | 24,611 | — | ||||||
Total Currents Assets | 827,965 | 561,201 | ||||||
Property and equipment - net | 1,949,533 | 382,551 | ||||||
Operating lease right-of-use assets | 871,879 | — | ||||||
Distributorship agreement, net | 866,667 | 966,667 | ||||||
Security deposit | 34,330 | 10,849 | ||||||
Total Assets | $ | 4,550,374 | $ | 1,921,268 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
Current Liabilities | ||||||||
Outstanding checks in excess of bank balance | $ | 71,474 | $ | — | ||||
Accounts payable | 1,162,848 | 417,972 | ||||||
Accrued expenses | 416,345 | 598,564 | ||||||
Distributorship accrued expense | 250,000 | 650,000 | ||||||
Advances from related parties | 62,532 | 302,497 | ||||||
Current portion of operating lease liabilities | 246,270 | — | ||||||
Current portion of convertible notes payable | 1,484,178 | 428,257 | ||||||
Notes payable – stockholders | 200,000 | — | ||||||
Total Current Liabilities | 3,893,647 | 2,397,290 | ||||||
Long-term convertible notes payable | — | 82,519 | ||||||
Operating lease liabilities | 639,827 | — | ||||||
Revenue sharing liabilities | 3,050,208 | 319,500 | ||||||
Total Liabilities | 7,583,682 | 2,799,309 | ||||||
Commitments and Contingencies | — | — | ||||||
Stockholders' Deficit | ||||||||
Preferred stock – no par value, 10,000,000 shares authorized, zero issued and outstanding at June 30, 2019 and December 31, 2018 | — | — | ||||||
Common stock - no par value, 90,000,000 shares authorized, 38,792,435 and 36,013,000 shares issued and 38,596,243 and 35,816,808 shares outstanding as of June 30, 2019 and December 31, 2018, respectively | 7,537,893 | 6,463,705 | ||||||
Additional paid-in capital | 1,165,203 | 687,431 | ||||||
Subscription receivable | (50,000 | ) | (50,000 | ) | ||||
Accumulated deficit | (11,686,404 | ) | (7,979,177 | ) | ||||
Total Stockholders' Deficit | (3,033,308 | ) | (878,041 | ) | ||||
Total Liabilities and Stockholders' Deficit | $ | 4,550,374 | $ | 1,921,268 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Water Now, Inc. and Subsidiary
Condensed Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Revenues, net | $ | 235,749 | $ | (68,935 | ) | $ | 314,301 | $ | 59,195 | |||||||
Cost of goods sold | 195,647 | (23,654 | ) | 264,527 | 36,677 | |||||||||||
Gross Profit (Loss) | 40,102 | (45,281 | ) | 49,774 | 22,518 | |||||||||||
Operating expenses | ||||||||||||||||
Salaries and wages | 588,842 | 320,008 | 911,470 | 618,936 | ||||||||||||
Professional fees | 247,112 | 476,946 | 540,756 | 788,989 | ||||||||||||
Selling, general and administrative | 336,019 | 127,452 | 701,899 | 398,632 | ||||||||||||
Gain on sale of assets | — | — | (4,070 | ) | — | |||||||||||
Total operating expenses | 1,171,973 | 924,406 | 2,150,055 | 1,806,557 | ||||||||||||
Loss from operations | (1,131,871 | ) | (969,687 | ) | (2,100,281 | ) | (1,784,039 | ) | ||||||||
Other expense | ||||||||||||||||
Interest expense | (980,341 | ) | (3,976 | ) | (1,585,937 | ) | (7,336 | ) | ||||||||
Loss on extinguishment of debt | (4,361 | ) | — | (25,924 | ) | — | ||||||||||
Total other expense | (984,702 | ) | (3,976 | ) | (1,611,861 | ) | (7,336 | ) | ||||||||
Loss before provision for income taxes | (2,116,573 | ) | (973,663 | ) | (3,712,142 | ) | (1,791,375 | ) | ||||||||
Provision for income taxes | — | — | — | — | ||||||||||||
Net Loss | $ | (2,116,573 | ) | $ | (973,663 | ) | $ | (3,712,142 | ) | $ | (1,791,375 | ) | ||||
Loss per share | ||||||||||||||||
basic and fully diluted | $ | (0.06 | ) | $ | (0.03 | ) | $ | (0.10 | ) | $ | (0.06 | ) | ||||
Weighted-average number of shares of common stock | ||||||||||||||||
basic and fully diluted | 38,001,547 | 32,728,308 | 36,982,233 | 32,057,453 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Water Now, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended | ||||||||
June 30, | ||||||||
2019 | 2018 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (3,712,142 | ) | $ | (1,791,375 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Common stock issued as payment for services and employees’ compensation | 255,500 | 690,000 | ||||||
Depreciation and amortization | 127,871 | 13,803 | ||||||
Non-cash interest expense | 1,216,646 | — | ||||||
Gain on sale of assets | (4,070 | ) | — | |||||
Loss on extinguishment of debt | 25,924 | — | ||||||
Changes in operating working capital items: | ||||||||
Accounts receivable | (295,800 | ) | (25,245 | ) | ||||
Other receivables | (15,000 | ) | — | |||||
Inventory | 27,876 | (51,073 | ) | |||||
Prepaid expenses | (24,611 | ) | — | |||||
Security deposit | (23,481 | ) | (1,700 | ) | ||||
Accounts payable | 744,876 | (40,338 | ) | |||||
Accrued expenses | (165,841 | ) | 110,586 | |||||
Net cash used in operating activities | (1,842,252 | ) | (1,095,342 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (1,650,783 | ) | — | |||||
Proceeds from sale of assets | 60,000 | — | ||||||
Payment for distributorship agreement | (400,000 | ) | — | |||||
Net cash used in investing activities | (1,990,783 | ) | — | |||||
Cash flows from financing activities: | ||||||||
Outstanding checks in excess of bank balance | 71,474 | (6,597 | ) | |||||
Net borrowings on notes payable stockholders | 200,000 | 187,500 | ||||||
Net repayments to related party | (239,965 | ) | (14,114 | ) | ||||
Borrowings on convertible notes payable | 1,835,500 | — | ||||||
Payments on convertible notes payable | (510,745 | ) | — | |||||
Issuances of common stock | — | 1,140,500 | ||||||
Repurchase of common stock | — | (150,000 | ) | |||||
Borrowings on revenue sharing liabilities | 2,436,000 | — | ||||||
Net cash provided by financing activities | 3,792,264 | 1,157,289 | ||||||
Net increase (decrease) in cash | (40,771 | ) | 61,947 | |||||
Cash at beginning of period | 53,106 | 2,049 | ||||||
Cash at end of period | $ | 12,335 | $ | 63,996 | ||||
Supplemental Disclosure of Interest and Income Taxes Paid: | ||||||||
Interest paid during the period | $ | 306,191 | $ | 5,600 | ||||
Income taxes paid during the period | $ | — | $ | — | ||||
Non-cash disclosures: | ||||||||
Conversion of convertible notes payable into common shares | $ | 290,844 | $ | — | ||||
Beneficial debt conversion feature | $ | 1,078,874 | $ | — | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Water Now, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements (unaudited)
June 30, 2019 and 2018
1. Basis of Presentation
The accompanying unaudited financial statements of Water Now, Inc. and subsidiary (collectively, the “Company”) have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or the SEC, including the instructions to Regulation S-X. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been or omitted from these statements pursuant to such rules and regulations and, accordingly, they do not include all the information and notes necessary for comprehensive financial statements and should be read in conjunction with our audited financial statements for the year ended December 31, 2018.
In the opinion of the management of the Company, all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the three-month period have been made. Results for the interim period presented are not necessarily indicative of the results that might be expected for the entire fiscal year. When used in these notes, the terms “Company”, “we”, “us” or “our” mean Water Now, Inc. and subsidiary.
Certain amounts in our Condensed Consolidated Statement of Operations for the period ended June 30, 2018 have been reclassified to conform with the current period presentation.
Recently Adopted Accounting Pronouncements
Effective January 1, 2019, we adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02, Leases, which requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The original guidance required application on a modified retrospective basis with the earliest period presented. In August 2018, the FASB issued ASU 2018-11, Targeted Improvements to ASC 842, which included an option to not restate comparative periods in transition and elect to use the effective date of ASC 842, Leases, as the date of initial application of transition, which we elected. As a result of the adoption of ASC 842 on January 1, 2019, we recorded both operating lease right-of-use (“ROU”) assets of $159,433 and lease liabilities of $154,518. The adoption of ASC 842 had an immaterial impact on our Condensed Consolidated Statement of Operations and Condensed Consolidated Statement of Cash Flows for the six-month period ended June 30, 2019. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard which allowed us to carry forward the historical lease classification.
Additional information and disclosures required by this new standard are contained in Note 10.
2. Going Concern
At June 30, 2019, the Company had approximately $12,000 in cash and had net working capital deficit of approximately $3,066,000. The Company, which generated a net loss of approximately $3,712,000 and $1,791,000 for the six months ended June 30, 2019 and 2018, respectively, may not have sufficient cash to fund its current and future operations. There is no assurance that future operations will result in profitability. No assurance can be given that management will be successful in its efforts to raise additional capital. The failure to raise additional capital needed to achieve its business plans will have a material adverse effect on the Company’s financial position, results of operations, and ability to continue as a going concern.
3. Revenues
The Company’s revenues are generated from the sales of water purification products and from its oil recovery systems. The Company obtains purchase orders from its customers for the sale of its products which sets forth the general terms and conditions including line item pricing and payment terms (generally due upon receipt). The
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Company recognizes revenue when its customers obtain control over the assets (generally when the title passes upon shipment) and it is probable that the Company will collect substantially all the amounts due. Individual promised goods are the Company’s only performance obligation.
The Company earns revenue each month that the oil recovery systems are in place and operating. The Company generally receives 50% of the proceeds of the oil sales recovered using its systems.
Products that have been sold are not subject to returns unless the product is deemed defective. Credits or refunds are recognized when they are probable and reasonably estimated. The Company’s management reduces revenue to account for estimates of the Company’s credits and refunds.
The Company included shipping and handling fees in net revenues. Shipping and handling costs are associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of goods sold.
Revenues, as disaggregated by revenue type and reportable segment (see Note 12), are shown below.
For the three months ended | For the six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Revenues | ||||||||||||||||
Water purification products | $ | 230,192 | $ | (68,935 | ) | $ | 308,744 | $ | 59,195 | |||||||
Oil recovery systems | 5,557 | — | 5,557 | — | ||||||||||||
$ | 235,749 | $ | (68,935 | ) | $ | 314,301 | $ | 59,195 | ||||||||
4. Distributorship Agreement
On October 31, 2018, the Company entered into an Exclusive Sales Distribution Agreement (the “Agreement”) with African Horizon Technologies (Pty) Ltd (“AHT”) whereby the Company serves as AHT’s exclusive distributor of the Hydraspin Hydro Cyclone technology in the United States of America. The Company was obligated to pay AHT $500,000 and issue AHT 500,000 shares valued at $250,000 based on the closing price of the Company’s shares of $0.50 on the date of the Agreement. In addition, the Company will issue AHT 500,000 shares at the earlier of 24 months from the commencement date of the Agreement or the sale of 50 units to the Company. The Company will also pay AHT a royalty of 2% of total net profits generated by the Company from the sale of oil generated using the Hydraspin units. The term of the Agreement is for five years with an automatic renewal term of five years unless terminated prior to the expiration of the current term. The Company recorded the value of the Agreement of $1,000,000 as an other asset and is amortizing the asset to expense over the life of the Agreement of five years. As of June 30, 2019, $500,000 was paid and the remaining 500,000 shares to be issued is included as an accrued expense.
5. Notes Payable – Stockholders
The Company borrowed $200,000 and $100,000 from two stockholders on March 25, 2019. The notes bear interest at 18% and are payable beginning on April 25, 2019, at which time the entire amount of principal and any accrued interest was due and payable. The notes are unsecured, and the $200,000 note is guaranteed by the Company’s Chief Executive Officer. As of June 30, 2019, the $100,000 note was paid and the $200,000 note remains outstanding.
6. Convertible Notes Payable
The Company borrowed $68,000 from a lender on September 4, 2018. The note bears interest at 8% and matures on September 4, 2019, at which time the entire amount of principal and accrued interest is due and payable. The note is unsecured. The outstanding principal and interest amount is convertible by the holder into shares of the
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Company’s common stock beginning 170 days after the issuance date and prior to the maturity date at a price per share equal to sixty-five percent of the average of the lowest two trading prices of the Company’s common stock for the twenty trading days prior to the conversion date. The value of the embedded beneficial conversion feature on the note payable was estimated to be $39,748. In addition, the Company paid $2,500 for debt issuance costs. This note was paid in full on January 3, 2019 and the Company recorded a gain on extinguishment of this debt of $14,351.
The Company borrowed $200,000 from a lender on September 17, 2018. The note does not bear interest and matures September 17, 2021, at which time the entire amount of principal is due and payable. The note is unsecured. The outstanding principal amount is convertible by the holder into shares of the Company’s common stock at any time prior to the maturity date at a price per share equal to $0.75 per share if before 180 days after the issuance date, or if 180 days after the issuance date, the lesser of $0.75 per share or seventy percent of the second lowest trading price of the Company’s common stock for the twenty trading days prior to the conversion date. The value of the embedded beneficial conversion feature on the note payable was estimated to be $37,333. In addition, the Company granted 60,000 shares of the Company’s common stock valued at $53,400 based on the Company’s share price on the date of the note agreement, paid $34,400 as a discount for interest on the note, and paid $5,000 for debt issuance costs. For the six-month period ended June 30, 2019, the Company recorded $86,370 of interest expense related to the value of the embedded beneficial conversion feature and debt issuance costs. Through June 30, 2019, the Company paid $142,000 of principal, prepayment penalties of $58,000 recorded as interest expense, and recorded a loss on extinguishment of this debt of $31,111. The lender converted the remaining $58,000 of principal into 332,500 shares of the Company’s common stock.
The Company borrowed $100,000 from a shareholder on August 30, 2018. The note bears interest at 10% and is payable in one lump sum on March 4, 2019, at which time the entire amount of principal and accrued interest is due and payable. The note is unsecured. The outstanding principal and interest amount is convertible by the holder into shares of the Company’s common stock at any time prior to the maturity date at the conversion price of $0.50 per share. The value of the embedded beneficial conversion feature on the note payable was estimated to be $72,000. For the six-month period ended June 30, 2019, the Company recorded $26,557 of interest expense related to the value of the embedded beneficial conversion feature. This note was converted into 200,000 shares of the Company’s common stock on March 28, 2019.
The Company borrowed $42,500 from a lender on October 15, 2018. The note bears interest at 8% and is payable in one lump sum on October 15, 2019, at which time the entire amount of principal and accrued interest is due and payable. The note is unsecured. The outstanding principal and interest amount is convertible by the holder into shares of the Company’s common stock beginning 170 days after the issuance date and prior to the maturity date at a price per share equal to sixty-five percent of the average of the lowest two trading prices of the Company’s common stock for the twenty trading days prior to the conversion date. The value of the embedded beneficial conversion feature on the note payable was estimated to be $24,160. In addition, the Company paid $2,500 for debt issuance costs. For the six-month period ended June 30, 2019, the Company recorded $5,554 of interest expense related to the value of the embedded beneficial conversion feature and debt issuance costs. This note was paid in full on March 26, 2019 and the Company recorded a loss on extinguishment of this debt of $4,803.
The Company borrowed $86,500 from a lender on January 2, 2019. The note bears interest at 8% and is payable in one lump sum on January 2, 2020, at which time the entire amount of principal and accrued interest is due and payable. The note is unsecured. The outstanding principal and interest amount is convertible by the holder into shares of the Company’s common stock beginning 180 days after the issuance date and prior to the maturity date at a price per share equal to sixty-five percent of the average of the lowest two trading prices of the Company’s common stock for the twenty trading days prior to the conversion date. The principal balance at June 30, 2019 is $86,500. The interest expense incurred on the note payable was approximately $3,460 for the six-month period ended June 30, 2019. The value of the embedded beneficial conversion feature on the note payable was estimated to be $72,334. In addition, the Company paid $2,500 for debt issuance costs. For the six-month period ended June 30, 2019, the Company recorded $37,417 of interest expense related to the value of the embedded beneficial conversion feature and debt issuance costs.
The Company borrowed $102,500 from a lender on February 14, 2019. The note bears interest at 8% and is payable
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in one lump sum on February 14, 2020, at which time the entire amount of principal and accrued interest is due and payable. The note is unsecured. The outstanding principal and interest amount is convertible by the holder into shares of the Company’s common stock beginning 180 days after the issuance date and prior to the maturity date at a price per share equal to sixty-five percent of the average of the lowest two trading prices of the Company’s common stock for the twenty trading days prior to the conversion date. The principal balance at June 30, 2019 is $102,500. The interest expense incurred on the note payable was approximately $3,075 for the six-month period ended June 30, 2019. The value of the embedded beneficial conversion feature on the note payable was estimated to be $102,500. In addition, the Company paid $2,500 for debt issuance costs. For the six-month period ended June 30, 2019, the Company recorded $39,375 of interest expense related to the value of the embedded beneficial conversion feature and debt issuance costs.
The Company borrowed $100,000 from a lender on February 20, 2019. The note bears interest at 10%, and is payable in one lump sum on February 20, 2020, at which time the entire amount of principal and accrued interest is due and payable. The note is unsecured. The outstanding principal amount is convertible by the holder into shares of the Company’s common stock beginning six months after the issuance date and prior to the maturity date at a price per share equal to sixty percent of the lowest trading price of the Company’s common stock for the fifteen trading days prior to the conversion date. The principal balance at June 30, 2019 is $100,000. The interest expense incurred on the note payable was approximately $3,750 for the six-month period ended June 30, 2019. The value of the embedded beneficial conversion feature on the note payable was estimated to be $100,000. In addition, the Company paid $5,000 for debt issuance costs. For the six-month period ended June 30, 2019, the Company recorded $39,212 of interest expense related to the value of the embedded beneficial conversion feature and debt issuance costs.
The Company borrowed $560,000 from a lender on February 21, 2019. The note bears interest at 12% and is payable in one lump sum on September 20, 2019, at which time the entire amount of principal and accrued interest is due and payable. The note is unsecured. The outstanding principal and interest amount is convertible by the holder into shares of the Company’s common stock beginning 180 days after the issuance date and prior to the maturity date at a price per share equal to sixty-five percent of the second lowest trade price of the Company’s common stock for the twenty trading days prior to the conversion date. The principal balance at June 30, 2019 is $560,000. The interest expense incurred on the note payable was approximately $25,200 for the six-month period ended June 30, 2019. The value of the embedded beneficial conversion feature on the note payable was estimated to be $560,000. In addition, the Company granted the lender 450,000 shares of the Company’s common stock, paid $56,000 as a discount on the note, and paid $4,000 for debt issuance costs. The shares granted must be returned if the note is fully repaid and satisfied prior to the maturity date. The Company recorded the value of the shares at $400,455, based on the Company’s share price on the date of the note agreement, as a decrease to additional paid-in capital. For the six-month period ended June 30, 2019, the Company recorded $465,000 of interest expense related to the value of the embedded beneficial conversion feature and debt issuance costs.
The Company borrowed $42,500 from a lender on March 11, 2019. The note bears interest at 8% and is payable in one lump sum on March 11, 2020, at which time the entire amount of principal and accrued interest is due and payable. The note is unsecured. The outstanding principal and interest amount is convertible by the holder into shares of the Company’s common stock beginning 180 days after the issuance date and prior to the maturity date at a price per share equal to sixty-five percent of the average of the lowest two trading prices of the Company’s common stock for the twenty trading days prior to the conversion date. The principal balance at June 30, 2019 is $42,500. The interest expense incurred on the note payable was approximately $992 for the six-month period ended June 30, 2019. The value of the embedded beneficial conversion feature on the note payable was estimated to be $31,556. In addition, the Company paid $2,500 for debt issuance costs. For the six-month period ended June 30, 2019, the Company recorded $9,933 of interest expense related to the value of the embedded beneficial conversion feature and debt issuance costs.
The Company borrowed $150,000 from a lender on March 18, 2019. The note bears interest at 12% and is payable in one lump sum on September 18, 2019, at which time the entire amount of principal and accrued interest is due and payable. The note is unsecured. The outstanding principal and interest amount is convertible by the holder into shares of the Company’s common stock beginning 180 days after the issuance date and prior to the maturity date at a price per share equal to sixty-five percent of the second lowest trade price of the Company’s common stock
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for the twenty trading days prior to the conversion date. The principal balance at June 30, 2019 is $150,000. The interest expense incurred on the note payable was approximately $5,250 for the six-month period ended June 30, 2019. The value of the embedded beneficial conversion feature on the note payable was estimated to be $93,077. In addition, the Company granted 115,384 shares of the Company’s common stock and paid $15,000 as a discount on the note. The shares granted must be returned if the note is fully repaid and satisfied prior to 180 days after the issuance date. The Company recorded the value of the shares at $91,153, based on the Company’s share price on the date of the note agreement, as a decrease to additional paid-in capital. For the six-month period ended June 30, 2019, the Company recorded $64,795 of interest expense related to the value of the embedded beneficial conversion feature and debt issuance costs.
The Company borrowed $45,000 from a lender on November 6, 2018. The note bears interest at 8% and is payable in one lump sum on November 6, 2019, at which time the entire amount of principal and accrued interest is due and payable. The note is unsecured. The outstanding principal and interest amount is convertible by the holder into shares of the Company’s common stock beginning 170 days after the issuance date and prior to the maturity date at a price per share equal to sixty-five percent of the average of the lowest two trading prices of the Company’s common stock for the twenty trading days prior to the conversion date. The value of the embedded beneficial conversion feature on the note payable was estimated to be $24,231. In addition, the Company paid $2,500 for debt issuance costs. For the six-month period ended June 30, 2019, the Company recorded $7,054 of interest expense related to the value of the embedded beneficial conversion feature and debt issuance costs. This note was paid in full on April 5, 2019 and the Company recorded a loss on extinguishment of this debt of $4,361.
The Company borrowed $82,500 from a shareholder on October 11, 2018. The note bears interest at 8% and is payable in one lump sum on April 11, 2019, at which time the entire amount of principal and accrued interest is due and payable. The note is unsecured. The outstanding principal and interest amount is convertible by the holder into shares of the Company’s common stock at any time prior to the maturity date at the conversion price of $0.50 per share. The value of the embedded beneficial conversion feature on the note payable was estimated to be $4,653. In addition, the Company paid $13,500 for debt issuance costs. For the six-month period ended June 30, 2019, the Company recorded $10,589 of interest expense related to the value of the embedded beneficial conversion feature and debt issuance costs. This note was paid in full on April 12, 2019 and the Company recorded additional interest expense of $38,940.
The Company borrowed $100,000 from a lender on December 13, 2018. The note bears interest at 10%, and is payable in one lump sum on December 13, 2019, at which time the entire amount of principal and accrued interest is due and payable. The note is unsecured. The outstanding principal and interest amount is convertible by the holder into shares of the Company’s common stock beginning six months after the issuance date and prior to the maturity date at a price per share equal to sixty percent of the lowest trading price of the Company’s common stock for the fifteen trading days prior to the conversion date. The value of the embedded beneficial conversion feature on the note payable was estimated to be $93,548. In addition, the Company paid $5,000 for debt issuance costs. For the six-month period ended June 30, 2019, the Company recorded $74,732 of interest expense related to the value of the embedded beneficial conversion feature and debt issuance costs. Through June 30, 2019, the Company paid $65,745 of principal and prepayment penalties of $29,255 recorded as interest expense. The lender converted $14,997 of principal and accrued interest into 82,275 shares of the Company’s common stock. The principal balance remaining on the note as of June 30, 2019 was $20,000.
The Company borrowed $77,000 from a lender on October 12, 2018. The note allows borrowing up to $231,000, bears interest at 12%, and is payable in one lump sum on October 12, 2019, at which time the entire amount of principal and accrued interest is due and payable. The note is unsecured. The outstanding principal and interest amount is convertible by the holder into shares of the Company’s common stock prior to the maturity date at a price per share equal to sixty-five percent of the lowest trading price of the Company’s common stock for the twenty trading days prior to the conversion date. If at any time while this note is outstanding, the conversion price is equal to or lower than $0.50, then an additional fifteen percent discount shall be factored into the conversion price until the note is no longer outstanding. The value of the embedded beneficial conversion feature on the note payable was estimated to be $77,000. In addition, the Company paid $2,000 for debt issuance costs. For the six-month period ended June 30, 2019, the Company recorded $59,042 of interest expense related to the value of the embedded beneficial conversion feature and debt issuance costs. The lender converted $76,089 of principal and
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fees into 632,000 shares of the Company’s common stock. On May 20, 2019, the Company borrowed an additional $51,500 on this note. The value of the embedded beneficial conversion feature on the note payable was estimated to be $51,500. In addition, the Company paid $1,500 for debt issuance costs. For the six-month period ended June 30, 2019, the Company recorded $6,625 of interest expense related to the value of the embedded beneficial conversion feature and debt issuance costs. The principal balance remaining on the note as of June 30, 2019 was $53,911.
The Company borrowed $80,000 from a lender on December 17, 2018. The note bears interest at 10%, and is payable in one lump sum on December 17, 2019, at which time the entire amount of principal and accrued interest is due and payable. The note is unsecured. The outstanding principal and interest amount is convertible by the holder into shares of the Company’s common stock prior to the maturity date at a price per share equal to sixty-five percent of the lowest trading price of the Company’s common stock for the fifteen trading days prior to the conversion date. The value of the embedded beneficial conversion feature on the note payable was estimated to be $58,958. In addition, the Company paid $4,000 for debt issuance costs. In addition, the Company paid $2,000 for debt issuance costs. For the six-month period ended June 30, 2019, the Company recorded $32,791 of interest expense related to the value of the embedded beneficial conversion feature and debt issuance costs. The lender converted $47,244 of principal and accrued interest into 242,276 shares of the Company’s common stock. The principal balance remaining on the note as of June 30, 2019 was $35,000.
The Company borrowed $175,000 from a lender on April 9, 2019. The note bears interest at 12%, and is payable in one lump sum on January 9, 2020, at which time the entire amount of principal and accrued interest is due and payable. The note is unsecured. The outstanding principal and interest amount is convertible by the holder into shares of the Company’s common stock beginning 180 days after the issuance date and prior to the maturity date at a price per share equal to the lesser of the lowest trading price of the Company’s common stock for the twenty-five trading days prior to the note issuance date, and the Variable Conversion Price equal to fifty-five percent of the lowest trading price of the Company’s common stock for the twenty-five trading days prior to the conversion date. If at any time while this note is outstanding a 3rd party has the right to convert at a discount to market greater than the conversion price in effect at that time, the lender may utilize such greater discount percentage until the note is no longer outstanding. If at any time while this note is outstanding a 3rd party has a look back period greater than the look back period in effect at that time, the lender may utilize such greater number of look back days until the note is no longer outstanding. The principal balance at June 30, 2018 is $175,000. The interest expense incurred on the note payable was approximately $5,250 for the six-month period ended June 30, 2019. The value of the embedded beneficial conversion feature on the note payable was estimated to be $15,000. In addition, the Company paid $16,250 for debt issuance costs. For the six-month period ended June 30, 2019, the Company recorded $10,417 of interest expense related to the value of the embedded beneficial conversion feature and debt issuance costs.
The Company borrowed $102,500 from a lender on April 10, 2019. The note bears interest at 8% and is payable in one lump sum on April 10, 2020, at which time the entire amount of principal and accrued interest is due and payable. The note is unsecured. The outstanding principal and interest amount is convertible by the holder into shares of the Company’s common stock beginning 180 days after the issuance date and prior to the maturity date at a price per share equal to sixty-five percent of the average of the lowest two trading prices of the Company’s common stock for the twenty trading days prior to the conversion date. The principal balance at June 30, 2019 is $102,500. The interest expense incurred on the note payable was approximately $2,050 for the six-month period ended June 30, 2019. The value of the embedded beneficial conversion feature on the note payable was estimated to be $52,907. In addition, the Company paid $2,500 for debt issuance costs. For the six-month period ended June 30, 2019, the Company recorded $13,852 of interest expense related to the value of the embedded beneficial conversion feature and debt issuance costs.
The Company borrowed $400,000 from five lenders on May 20, 2019. The notes bear interest at 10% and are payable in one lump sum on May 20, 2020, at which time the entire amount of principal and accrued interest is due and payable. The notes are unsecured. The outstanding principal and interest amount is convertible by the holders into shares of the Company’s common stock at any time after the closing price of the Company’s common stock exceeds $0.75 for 10 consecutive trading days at a price equal to $0.50 per share. The principal balance at June 30, 2019 is $400,000. The interest expense incurred on the note payable was approximately $4,183 for the
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six-month period ended June 30, 2019. There was no value assigned to the beneficial conversion feature on the issuance date of the notes due to the Company’s common stock price being less than $0.75 per share. In addition, the Company paid $20,000 for debt issuance costs. For the six-month period ended June 30, 2019, the Company recorded $1,667 of interest expense related to the amortization of debt issuance costs.
7. Advances From Related Parties
The Company has received non-interest bearing advances without a specified maturity date from certain stockholders of the Company. The Company owed approximately $63,000 and $302,000, respectively, at June 30, 2019 and December 31, 2018 to the stockholders.
8. Revenue Sharing Agreements
The Company borrowed $50,000 from a lender on November 29, 2018, whereby the proceeds are to be used to purchase a certain HydraSpin unit in exchange for the lender to receive five percent of the revenues net of costs generated from the HydraSpin unit. On March 3, 2019, the Company cancelled this original agreement and entered into a new agreement whereby the lender is to receive fifty percent of the revenues net of costs and has guaranteed that the lender would receive $150,000 in net revenues by March 3, 2021, or the Company would pay the lender the difference between the $150,000 and the purchase price of $50,000 on or before March 31, 2021. For the six-month period ended June 30, 2019, the Company recorded $25,000 of interest expense related to the value of the revenue sharing liability. The agreement remains in full force and effect until the earlier of (a) the Company is unable to satisfy its obligations under the terms of the agreement and action is brought by the lender to enforce same, (b) the expiration of the operating life of the unit, as confirmed by the manufacturer (five years), or (c) the mutual written agreement of the parties.
The Company borrowed $264,000 from a lender on December 13, 2018, whereby the proceeds are to be used to purchase certain HydraSpin units. On February 27, 2019, the Company cancelled this original agreement and entered into a new agreement to borrow an additional $66,000, whereby the proceeds were used to purchase a certain HydraSpin unit in exchange for the lender to receive fifty percent of the revenues net of costs generated from the HydraSpin unit. The Company has guaranteed that the lender would receive $495,000 in net revenues by March 3, 2021, or the Company would pay the lender the difference between the $495,000 and the purchase price of $330,000 on or before March 31, 2021. For the six month period ended June 30, 2019, the Company recorded $22,000 of interest expense related to the value of the revenue sharing liability. The agreement remains in full force and effect until the earlier of (a) the Company is unable to satisfy its obligations under the terms of the agreement and action is brought by the lender to enforce same, (b) the expiration of the operating life of the unit, as confirmed by the manufacturer (five years), or (c) the mutual written agreement of the parties.
The Company borrowed $660,000 from a lender on January 2, 2019, whereby the proceeds were used to purchase certain HydraSpin units in exchange for the lender to receive fifty percent of the revenues net of costs generated from the HydraSpin units. The Company has guaranteed that the lender would receive $990,000 in net revenues by January 2, 2021, or the Company would pay the lender the difference between the $990,000 and the purchase price of $660,000 on or before January 15, 2021. For the six-month period ended June 30, 2019, the Company recorded $82,500 of interest expense related to the value of the revenue sharing liability. The agreement remains in full force and effect until the earlier of (a) the Company is unable to satisfy its obligations under the terms of the agreement and action is brought by the lender to enforce same, (b) the expiration of the operating life of the units, as confirmed by the manufacturer (five years), or (c) the mutual written agreement of the parties.
The Company borrowed $660,000 from a lender on January 16, 2019, whereby the proceeds were used to purchase certain HydraSpin units in exchange for the lender to receive fifty percent of the revenues net of costs generated from the HydraSpin units. The Company has guaranteed that the lender would receive $990,000 in net revenues by January 15, 2021, or the Company would pay the lender the difference between the $990,000 and the purchase price of $660,000 on or before January 17, 2021. For the six-month period ended June 30, 2019, the Company recorded $75,625 of interest expense related to the value of the revenue sharing liability. The agreement remains in full force and effect until the earlier of (a) the Company is unable to satisfy its obligations under the terms of
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the agreement and action is brought by the lender to enforce same, (b) the expiration of the operating life of the units, as confirmed by the manufacturer (five years), or (c) the mutual written agreement of the parties.
The Company borrowed $330,000 from a lender on January 30, 2019, whereby the proceeds were used to purchase a certain HydraSpin unit in exchange for the lender to receive sixty percent of the revenues net of forty percent of costs generated from the HydraSpin unit until the lender receives revenue equal to 120% of the $330,000 investment, then the lender shall receive fifty percent of the revenues net of costs generated from the HydraSpin unit. The Company has guaranteed that the lender would receive $495,000 in net revenues by January 30, 2021, or the Company would pay the lender the difference between the $495,000 and the purchase price of $330,000 on or before February 6, 2021. For the six-month period ended June 30, 2019, the Company recorded $34,375 of interest expense related to the value of the revenue sharing liability. The agreement remains in full force and effect until the earlier of (a) the Company is unable to satisfy its obligations under the terms of the agreement and action is brought by the lender to enforce same, (b) the expiration of the operating life of the unit, as confirmed by the manufacturer (five years), or (c) the mutual written agreement of the parties.
The Company borrowed $330,000 from a lender on January 30, 2019, whereby the proceeds were used to purchase a certain HydraSpin unit in exchange for the lender to receive sixty percent of the revenues net of forty percent of costs generated from the HydraSpin unit until the lender receives revenue equal to 120% of the $330,000 investment, then the lender shall receive fifty percent of the revenues net of costs generated from the HydraSpin unit. The Company has guaranteed that the lender would receive $495,000 in net revenues by January 30, 2021, or the Company would pay the lender the difference between the $495,000 and the purchase price of $330,000 on or before February 6, 2021. For the six-month period ended June 30, 2019, the Company recorded $34,375 of interest expense related to the value of the revenue sharing liability. The agreement remains in full force and effect until the earlier of (a) the Company is unable to satisfy its obligations under the terms of the agreement and action is brought by the lender to enforce same, (b) the expiration of the operating life of the unit, as confirmed by the manufacturer (five years), or (c) the mutual written agreement of the parties.
The Company borrowed $330,000 from a lender on April 1, 2019, whereby the proceeds were used to purchase a certain HydraSpin unit in exchange for the lender to receive fifty percent of the revenues net of costs generated from the HydraSpin unit. The Company has guaranteed that the lender would receive $495,000 in net revenues by April 8, 2021, or the Company would pay the lender the difference between the $495,000 and the purchase price of $330,000 on or before April 30, 2021. For the six-month period ended June 30, 2019, the Company recorded $20,625 of interest expense related to the value of the revenue sharing liability. The agreement remains in full force and effect until the earlier of (a) the Company is unable to satisfy its obligations under the terms of the agreement and action is brought by the lender to enforce same, (b) the expiration of the operating life of the units, as confirmed by the manufacturer (five years), or (c) the mutual written agreement of the parties.
The Company borrowed $60,000 from a lender on June 25, 2019, whereby the proceeds were used to purchase a certain HydraSpin unit in exchange for the lender to receive fifty percent of the revenues net of costs generated from the HydraSpin unit. The Company has guaranteed that the lender would receive $90,000 in net revenues by June 25, 2021, or the Company would pay the lender the difference between the $90,000 and the purchase price of $60,000 on or before July 25, 2021. For the six-month period ended June 30, 2019, the Company recorded $208 of interest expense related to the value of the revenue sharing liability. The agreement remains in full force and effect until the earlier of (a) the Company is unable to satisfy its obligations under the terms of the agreement and action is brought by the lender to enforce same, (b) the expiration of the operating life of the units, as confirmed by the manufacturer (five years), or (c) the mutual written agreement of the parties.
9. Equity Transactions
From January 1, 2018 to March 31, 2018, the Company issued 1,656,000 shares to investors at $0.50 per share for cash, with total proceeds of $828,000, including subscription receivable of $50,000. In addition, the Company issued 610,000 shares to executives, employees working in research and development at the Company, and consultants. The value of these shares at $0.50 per share was $305,000.
From April 1, 2018 to June 30, 2018, the Company issued 625,000 shares to investors at $0.50 per share for cash,
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with total proceeds of $312,500. In addition, the Company issued 770,000 shares to executives, employees working in research and development at the Company and consultants. The value of these shares at $0.50 per share was $385,000. The Company had 1,250,000 shares returned during June 2018 as a result of a lawsuit settlement.
From January 1, 2019 to March 31, 2019, the Company issued 200,000 shares to a lender upon receipt of a conversion notice. The Company also issued 565,384 shares to lenders for debt issuance costs. See Note 6.
From April 1, 2019 to June 30, 2019, the Company issued 1,289,051 shares to lenders upon receipt of conversion notices. See Note 5. In addition, the Company issued 825,000 shares to employees and consultants valued at the share price on the date the services were earned.
10. Operating Leases – Right of Use Assets
The Company has operating leases for office and warehouse space that expires in 2020 and 2023. Below is a summary of the Company’s right of use assets and liabilities as of June 30, 2019:
Right-of-use assets | $ | 871,879 | ||
Lease liability obligations, current | $ | 246,270 | ||
Lease liability obligations, less current portion | 639,827 | |||
Total lease liability obligations | $ | 886,097 | ||
Weighted-average remaining lease term | 3.7 years | |||
Weighted-average discount rate | 10 | % |
During the six months ended June 30, 2019, the Company recognized approximately $83,833 in operating lease costs and are included in selling, general and administrative expenses in our consolidated statement of operations. During the six months ended June 30, 2019, operating cash flows from operating leases was $64,700.
Approximate future minimum lease payments for the Company’s right of use assets over the remaining lease periods as of June 30, 2019, are as follows:
Year ending December 31, | ||||||
2019 | $ | 161,000 | ||||
2020 | 312,000 | |||||
2021 | 240,000 | |||||
2022 | 246,000 | |||||
2023 | 103,000 | |||||
Total minimum payments | $ | 1,062,000 |
11. Income Taxes
The Company accounts for income taxes under the liability method. Deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purpose, referred to as temporary differences. Deferred tax assets and liabilities at the end of each period are determined using the currently enacted tax rates applied to taxable income in the periods in which the deferred tax assets and liabilities are expected to be settled or realized.
The Company’s tax provision is determined using an estimate of an annual effective tax rate adjusted for discrete items, if any, that are taken into account in the relevant period. The 2019 and 2018 annual effective tax rate was 0% for the U.S. federal and state statutory tax rates. The Company reviews tax uncertainties in light of changing facts and circumstances and adjusts them accordingly. As of June 30, 2019 and December 31, 2018, there were no tax contingencies recorded.
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Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities recognized for financial reporting, and the amounts recognized for income tax purposes.
The Company has a net operating loss carry-forward for federal and state tax purposes of approximately $11,686,000 at June 30, 2019, that is potentially available to offset future taxable income. The TCJA (Tax Cut and Jobs Act) changes the rules on NOL carryforwards. The 20-year limitation was eliminated, giving the taxpayer the ability to carry forward losses indefinitely. However, NOL carry forward arising after January 1, 2018, will now be limited to 80 percent of taxable income.
For financial reporting purposes, no deferred tax asset was recognized at June 30, 2019 and December 31, 2018 because management estimates that it is more likely than not that substantially all of the net operating losses will expire unused. As a result, the amount of the deferred tax assets considered realizable was reduced 100% by a valuation allowance. The change in the valuation allowances were approximately $779,000 and $376,000 for the six months ended June 30, 2019 and 2018, respectively.
12. Segment Information
The Company sells water purification products and operates oil recovery systems. The Company has identified such reportable segments based on management responsibility and the nature of the Company’s products, services, and costs. To date, the Company primarily sells its water purification products internationally and operates its oil recovery systems in the United States. The Company measures segment profit (loss) as income (loss) from operations. Segment assets are those assets controlled by each reportable segment.
Below is the financial information related to the Company’s segments:
For the three months ended | For the six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Revenues | ||||||||||||||||
Water purification products | $ | 230,192 | $ | (68,935 | ) | $ | 308,744 | $ | 59,195 | |||||||
Oil recovery systems | 5,557 | — | 5,557 | — | ||||||||||||
$ | 235,749 | $ | (68,935 | ) | $ | 314,301 | $ | 59,195 | ||||||||
Loss from operations | ||||||||||||||||
Water purification products | $ | 605,739 | $ | 680,403 | $ | 1,328,293 | $ | 1,398,688 | ||||||||
Oil recovery systems | 248,533 | — | 345,114 | — | ||||||||||||
General corporate | 277,599 | 289,284 | 426,874 | 385,351 | ||||||||||||
$ | 1,131,871 | $ | 969,687 | $ | 2,100,281 | $ | 1,784,039 | |||||||||
Capital expenditures | ||||||||||||||||
Water purification products | $ | — | $ | — | $ | 92,158 | $ | — | ||||||||
Oil recovery systems | 930,000 | — | 1,558,625 | — | ||||||||||||
General corporate | — | — | — | — | ||||||||||||
$ | 930,000 | $ | — | $ | 1,650,783 | $ | — | |||||||||
June 30, 2019 | December 31, 2018 | |||||||
Total assets | ||||||||
Water purification products | $ | 901,852 | $ | 612,498 | ||||
Oil recovery systems | 2,690,367 | 1,244,814 | ||||||
General corporate | 958,155 | 63,956 | ||||||
$ | 4,550,374 | $ | 1,921,268 |
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General corporate expenses include corporate salaries, health insurance and social security taxes for officers and corporate employees, corporate insurance, legal and accounting fees, and other corporate costs such as transfer agent and travel costs. Management considers these to be non-allocable costs for segment purposes.
13. Subsequent Events
The Company has evaluated all material events or transactions that occurred after June 30, 2019 up to August 19, 2019, the date these financial statements were available to be issued, and noted no material subsequent events which would require disclosure.
Financing
The Company borrowed $88,500 from a lender on July 8, 2019. The note bears interest at 8% and is payable in one lump sum on July 8, 2020, at which time the entire amount of principal and accrued interest is due and payable. The note is unsecured. The outstanding principal and interest amount is convertible by the holder into shares of the Company’s common stock beginning 180 days after the issuance date and prior to the maturity date at a price per share equal to sixty-five percent of the average of the lowest two trading prices of the Company’s common stock for the twenty trading days prior to the conversion date.
The Company borrowed $103,000 from a lender on July 24, 2019. The note bears interest at 10% and is payable in one lump sum on July 24, 2020, at which time the entire amount of principal and accrued interest is due and payable. The note is unsecured. The outstanding principal and interest amount is convertible by the holder into shares of the Company’s common stock beginning 180 days after the issuance date and prior to the maturity date at a price per share equal to the lesser of (1) $0.22 and (2) sixty-five percent of the lowest trading price of the Company’s common stock for the twenty trading days prior to the conversion date.
The Company borrowed $100,000 from two lenders on July 26, 2019. The notes bear interest at 10% and are payable in one lump sum on May 20, 2020, at which time the entire amount of principal and accrued interest is due and payable. The notes are unsecured. The outstanding principal and interest amount is convertible by the holders into shares of the Company’s common stock at any time after the closing price of the Company’s common stock exceeds $0.75 for 10 consecutive trading days at a price equal to $0.50 per share.
Stock Issuances
In July 2019 the Company issued 1,000,000 shares of common stock for total proceeds of $250,000.
On July 24, 2019 a lender provided the Company with a Notice of Conversion to convert $20,000 of principal and $1,194.52 of interest into 184,220 shares of common stock.
In August 2019 the Company issued 50,000 shares of common stock to an employee for compensation.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our consolidated financial statements and related notes thereto included in this quarterly report, and the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2018.
Overview
Water Now, Inc. was incorporated in Texas on February 10, 2016 to develop and commercialize a gas/diesel or electric powered, portable device that processes and purifies contaminated water. Our business strategy was conceived as a result of the growing global water crisis. Today, many countries and regions are experiencing acute water shortages and we believe our technology and products are capable of generating safe drinking water from many available water sources. We have two principal reportable segments: water purification products and oil recovery systems.
Our water purification product lines consist of portable units capable of providing a cost-effective, safe and efficient method of water purification. Our products require no pre- or post-treatment of the source water, no filters, no membranes and no chemicals. The quality of water purified by our products has been tested to meet or exceed the World Health Organization’s (“WHO”) drinking water standards.
We have also developed a flameless heating technology that allows us to manufacture an electronically powered portable heating platform. The platform uses no combustion or electronic heating elements. By avoiding traditional heating elements, the product is ideal for facilities that generate vapors or dust, such as paint and body shops, furniture manufacturers, fuel depots and grain elevators. Our technology is anticipated to allow for the efficient heating of large spaces such as warehouses and garages. We introduced to the market our initial product offering, HydraHeat, in June 2019. The first product that we will make available to the market will heat approximately 1,000 square feet.
On October 23, 2018, the Company formed HydraSpin USA, Inc., a Texas corporation (“HydraSpin”), as a wholly-owned subsidiary. HydraSpin is engaged in the installation and operation of oil recovery systems deployed at salt water disposal wells associated with the oil industry. The utilized technology developed by African Horizon Technologies (Pty) Ltd (“AHT”) allows for the separation of residual oil from water contained in the disposal sites so as to minimize environmental contamination from the fluids containing oil.
On October 31, 2018, the Company entered into an Exclusive Sales Distribution Agreement (the “Agreement”) with AHT whereby the Company serves as AHT’s exclusive distributor of the Hydraspin Hydro Cyclone technology in the United States of America. Pricing is established in accordance with the AHT Agreement. Products are paid 50% upon order and the balance being due FOB the port. Typical lead time to have a machine ready for deployment after it is ordered is sixty (60) days.
The Company, through HydraSpin, contracts with owners of saltwater injection wells to reclaim oil using systems manufactured by AHT but owned and operated by HydraSpin. We derive revenue from sharing the proceeds of the oil recovered and sold with the owner of the applicable disposal location, typically on a 50/50 basis. As of June 30, 2019, we have ordered 13 systems from AHT, of which one is in operation.
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Financial Overview
Revenue
From February 10, 2016 (date of inception) through June 30, 2019, we had generated revenues of approximately $513,000. Our ability to increase revenues will depend on the successful manufacturing and commercialization of our water purification and heater units and the continued development of contracts with our Hydraspin customers.
Research and Development Expenses
The Company expenses R&D costs as incurred. The Company’s R&D activities related to activities undertaken to commercialize our water purification and heater products.
General and Administrative Expenses
General and administrative (“G&A”) expenses consist primarily of salaries and related costs for personnel, including stock-based compensation expense. To date, we have estimated the fair value of stock-based awards issued to employees, directors and non-employees based on prices paid by unrelated third-parties for the purchases of our common stock. Subsequent to the active trading date of our common stock on August 14, 2018, we have based the fair value of awards on the quoted closing bid price of our common stock on the OTC Markets on the date of grant. Other G&A expenses include patent costs, and professional fees for legal, finance, accounting services, and a legal settlement in 2018.
We anticipate that our G&A expenses will increase in future periods to support increases in our research and development activities and as a result of increased headcount, expanded infrastructure, increased legal, compliance, accounting and investor and public relations expenses associated with being a public company and increased insurance premiums, among other factors.
Interest Expense
Interest expense consists of interest incurred on borrowings including amortization of beneficial conversation features and debt issue costs.
Critical Accounting Policies and Estimates
The preparation of the unaudited consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On a regular basis, we evaluate these estimates, including investment impairment. These estimates are based on management’s historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
For a description of the accounting policies that, in management’s opinion, involve the most significant application of judgment or involve complex estimation and which could, if different judgment or estimates were made, materially affect our reported financial position, results of operations, or cash flows, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Significant Accounting Policies and Recent Accounting Pronouncements” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed with the SEC on April 1, 2019.
During the six months ended June 30, 2019, there were no significant changes in our accounting policies and estimates other than the newly adopted accounting standards that are disclosed in Note 1 to our consolidated financial statements.
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Results of Operations
For the three months ended June 30, 2019 and 2018 (unaudited)
Revenue
We generated revenues of $235,749 and $(68,935) and incurred operating expenses of $1,171,973 and $924,406 for the three months ended June 30, 2019 and 2018, respectively. We generated $230,192 and $5,557 from our water purification products and oil recovery systems segments, respectively, for the three months ended June 30, 2019. We had a reversal of a sale totaling $116,880 during the three months ended June 30, 2018 due to the customer notifying us that it would not take possession of the goods because of customs related issues.
Operating expenses
Below is a summary of our operating expenses for the three months ended June 30, 2019 and 2018:
For the three months ended | ||||||||||||||||
June 30, | ||||||||||||||||
2019 | 2018 | 2019 vs. 2018 | ||||||||||||||
$ | % | |||||||||||||||
Salaries and wages | $ | 588,842 | $ | 320,008 | 268,834 | 84 | % | |||||||||
Professional fees | 247,112 | 476,946 | (229,834 | ) | (48 | )% | ||||||||||
Selling, general and administrative | 336,019 | 127,452 | 208,567 | 163 | % | |||||||||||
Total | $ | 1,171,973 | $ | 924,406 | 247,567 | 26 | % | |||||||||
Salaries and wages increased during the three months ended June 30, 2019 primarily related to increases in the salaries, payroll taxes and benefits due to an increase in number of employees.
Professional fees decreased during the three months ended June 30, 2019 primarily related to a decrease in consulting fees, legal fees, and a 2018 settlement of lawsuit offset by an increase in audit fees.
Selling, general and administrative increased during the three months ended June 30, 2019 primarily related to an increase in advertising and marketing, rent, shipping, and insurance.
Segment contribution to loss from operations is presented in the table below:
For the Three Months | ||||||||
Ended June 30, | ||||||||
2019 | 2018 | |||||||
Water purification products | $ | 605,739 | $ | 680,403 | ||||
Oil recovery systems | 248,533 | — | ||||||
General corporate | 277,599 | 289,284 | ||||||
$ | 1,131,871 | $ | 969,687 |
Water purification products loss from operations during the three months ended June 30, 2019 remained consistent with prior period. The increase in oil recovery systems loss from operations during the three months ended June 30, 2019 was due to the HydraSpin units being received during the quarter and expenses for setting up the unit, which mainly included payroll, supplies, and travel expenses, before revenues from the systems begin. General corporate loss from operations during the three months ended June 30, 2019 remained consistent with the prior period.
Other Expense
Below is a summary of our other expense for the three months ended June 30, 2019 and 2018:
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For the three months ended | ||||||||||||||||
June 30, | ||||||||||||||||
2019 | 2018 | 2019 vs. 2018 | ||||||||||||||
$ | % | |||||||||||||||
Interest expense | $ | 980,341 | $ | 3,976 | 976,365 | 24,556 | % | |||||||||
Loss on extinguishment of debt | 4,361 | — | 4,361 | 100 | % | |||||||||||
Total | $ | 984,702 | $ | 3,976 | 980,726 | 24,666 | % | |||||||||
Interest expense increased primarily related to amortization of beneficial conversion features on the convertible debt issued during the period. We recorded a loss on extinguishment of debt during the period due to paying off the convertible notes prior to maturity. See Note 6 of the Notes to Condensed Consolidated Financial Statements (unaudited) for the period ended June 30, 2019 and 2018.
Net Losses
We incurred net losses of $2,116,573 and $973,663 for the three months ended June 30, 2019 and 2018, respectively, because of the factors discussed above.
Net loss per share for the three months ended June 30, 2019 and 2018 was $(0.06) and $(0.03), respectively, based on the weighted-average number of shares issued and outstanding during the period.
For the six months ended June 30, 2019 and 2018 (unaudited)
Revenue
We generated revenues of $314,301 and $59,195 and incurred operating expenses of $2,150,055 and $1,806,557 for the six months ended June 30, 2019 and 2018, respectively. We generated $308,744 and $5,557 from our water purification products and oil recovery systems segments, respectively, for the six months ended June 30, 2019. We had a reversal of a sale totaling $116,880 during the six months ended June 30, 2018 due to the customer notifying us that it would not take possession of the goods because of customs related issues.
Operating expenses
Below is a summary of our operating expenses for the six months ended June 30, 2019 and 2018:
For the six months ended | ||||||||||||||||
June 30, | ||||||||||||||||
2019 | 2018 | 2019 vs. 2018 | ||||||||||||||
$ | % | |||||||||||||||
Salaries and wages | $ | 911,470 | $ | 618,936 | 292,534 | 47 | % | |||||||||
Professional fees | 540,756 | 788,989 | (248,233 | ) | (31 | )% | ||||||||||
Selling, general and administrative | 701,899 | 398,632 | 303,267 | 76 | % | |||||||||||
Gain on sale of assets | (4,070 | ) | — | (4,070 | ) | (100 | )% | |||||||||
Total | $ | 2,150,055 | $ | 1,806,557 | 343,498 | 19 | % | |||||||||
Salaries and wages increased during the six months ended June 30, 2019 primarily related to increases in the salaries, payroll taxes and benefits due to an increase in number of employees.
Professional fees decreased during the six months ended June 30, 2019 primarily related to a decrease in consulting fees, legal fees, and a 2018 settlement of lawsuit offset by an increase in audit and accounting fees.
Selling, general and administrative increased during the six months ended June 30, 2019 primarily related to an increase in advertising and marketing, rent, shipping, and insurance offset by a decrease in supplies and parts.
We recorded a gain on sale of assets during the six months ended June 30, 2019 from the sale of our equipment.
Segment contribution to loss from operations is presented in the table below:
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For the Six Months | ||||||||
Ended June 30, | ||||||||
2019 | 2018 | |||||||
Water purification products | $ | 1,328,293 | $ | 1,398,688 | ||||
Oil recovery systems | 345,114 | — | ||||||
General corporate | 426,874 | 385,351 | ||||||
$ | 2,100,281 | $ | 1,784,039 |
Water purification products loss from operations during the six months ended June 30, 2019 remained consistent with prior period. The increase in oil recovery systems loss from operations during the six months ended June 30, 2019 was due to the HydraSpin units being received during the quarter and expenses for setting up the unit, which mainly included payroll, supplies, and travel expenses, before revenues from the systems begin. General corporate loss from operations during the six months ended June 30, 2019 remained consistent with the prior period.
Other Expense
Below is a summary of our other expense for the six months ended June 30, 2019 and 2018:
For the six months ended | ||||||||||||||||
June 30, | ||||||||||||||||
2019 | 2018 | 2019 vs. 2018 | ||||||||||||||
$ | % | |||||||||||||||
Interest expense | $ | 1,585,937 | $ | 7,336 | 1,578,601 | 21,518 | % | |||||||||
Loss on extinguishment of debt | 25,924 | — | 25,924 | 100 | % | |||||||||||
Total | $ | 1,611,861 | $ | 7,336 | 1,604,525 | 21,871 | % | |||||||||
Interest expense increased primarily related to amortization of beneficial conversion features on the convertible debt issued during the period. We recorded a loss on extinguishment of debt during the period due to paying off the convertible notes prior to maturity. See Note 6 of the Notes to Condensed Consolidated Financial Statements (unaudited) for the period ended June 30, 2019 and 2018.
Net Losses
We incurred net losses of $3,712,142 and $1,791,375 for the six months ended June 30, 2019 and 2018, respectively, because of the factors discussed above.
Net loss per share for the six months ended June 30, 2019 and 2018 was $(0.10) and $(0.06), respectively, based on the weighted-average number of shares issued and outstanding during the period.
Liquidity and Capital Resources
Sources of Liquidity
To date, we have generated revenues of $513,000. For fiscal 2018, we had a net loss of $4,370,056, resulting in an accumulated deficit as of December 31, 2018 of $7,979,177. As of June 30, 2019, we had cash and cash equivalents of $12,335. Our auditors issued a going concern opinion with respect to our financial statements as of and for the fiscal year ended December 31, 2018 due to the incurrence of significant operating losses, which raise substantial doubt about our ability to continue as a going concern. We have financed our operations to date primarily through private placements of our common stock and borrowings. For the six months ended June 30, 2019, we received $2,035,500 in net proceeds from borrowings on notes payable and $2,436,000 in net proceeds from borrowings on revenue sharing agreements. As of June 30, 2019, we had total liabilities of approximately $7,600,000. We expect to continue to utilize debt and equity to finance our operations until we become profitable.
Cash Flows
The following table sets forth the primary sources and uses of cash for the period set forth below.
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Six months ended June 30, | ||||||||
2019 | 2018 | |||||||
Net cash used in operating activities | $ | (1,842,252 | ) | $ | (1,095,342 | ) | ||
Net cash used in investing activities | $ | (1,990,783 | ) | $ | — | |||
Net cash provided by financing activities | $ | 3,792,264 | $ | 1,157,289 | ||||
Net increase (decrease) in cash | $ | (40,771 | ) | $ | 61,947 |
Operating activities. Our use of cash in operating activities resulted primarily from our net loss, as adjusted for certain non-cash items and changes in operating assets and liabilities. For the six months ended June 30, 2019, non-cash items mainly consisted of common stock issued as payment for services and employee compensation, non-cash interest expense and depreciation and amortization, and changes in operating assets and liabilities mainly consisted of an increase in accounts receivable, prepaid expenses, security deposit, and accounts payable offset by decreases in inventory and accrued expenses.
Investing activities. Cash used in investing activities consisted of additions to property and equipment, proceeds from sale of assets, and a payment on the distributorship agreement with AHT.
Financing activities. Cash provided by financing activities consisted primarily of proceeds from the issuance of our note agreements and revenue sharing liabilities offset by payments on notes payable.
Funding Requirements
We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially if and as we:
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establish a sales, marketing and distribution infrastructure to commercialize our water purification units and our other products;
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maintain, expand and protect our intellectual property portfolio; and
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add operational and financial personnel to handle the public company reporting and other requirements to which we will be subject.
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We expect that we will require additional capital to fund operations, including hiring additional employees and increasing inventory levels, during the next twelve (12) month period.
Because of the numerous risks and uncertainties associated with the development and commercialization of our products, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with successfully commercializing such products. Our future capital requirements will depend on many factors, including:
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the costs and timing of commercialization activities for our products, including manufacturing, sales, marketing and distribution;
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• |
revenues received from sales of our products;
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• |
the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; and
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• | our ability to maintain manufacturing and distribution relationships on favorable terms, if at all. |
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, and strategic alliances. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common shareholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies and future revenue streams or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant
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rights to commercialize products that we would otherwise prefer to develop and market ourselves.
Quantitative and Qualitative Disclosures About Market Risk
We have not utilized any derivative financial instruments such as futures contracts, options and swaps, forward foreign exchange contracts or interest rate swaps and futures. We do not have any borrowings and, consequently, we are not affected by changes in market interest rates. We do not currently have any sales or own assets and operate facilities in countries outside the United States and, consequently, we are not effected by foreign currency fluctuations or exchange rate changes. Overall, at this time, we believe that our exposure to interest rate risk and foreign currency exchange rate changes is not material to our financial condition or results of operations.
Off-Balance Sheet Arrangements
We have not entered into 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 and would be considered material to investors.
Tax Loss Carryforwards
We had a net operating loss carry-forward for federal and state tax purposes of approximately $11,700,000 at June 30, 2019, that is potentially available to offset future taxable income, which will begin to expire in the year 2036. For financial reporting purposes, no deferred tax asset was recognized because at June 30, 2019 and December 31, 2018 management estimates that it is more likely than not that substantially all of the net operating losses will expire unused. As a result, the amount of the deferred tax assets considered realizable was reduced 100% by a valuation allowance.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
No Applicable
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. The Company’s disclosure controls and procedures are designed to ensure that such information required to be disclosed by the Company in reports filed or submitted under the Exchange Act, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The Company’s disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management, including the principal executive and the principal financial officer, as appropriate to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance that control objectives are attained. The Company’s disclosure controls and procedures are designed to provide such reasonable assurance.
The Company’s management, with the participation of the principal executive and principal financial officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of June 30, 2019, as required by Rule 13a-15(e) of the Exchange Act. Based upon that evaluation, the principal executive and the principal financial officer have concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2019.
Management’s Report on Internal Control Over Financial Reporting. The Company’s management is responsible for establishing and maintaining adequate internal controls over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act. Although the internal controls over financial reporting were not audited, the Company’s management, including the principal executive and principal financial officer, assessed the effectiveness of internal controls over financial reporting as of June 30, 2019, based on criteria issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) entitled “Internal Control-Integrated Framework.” Upon evaluation, the Company’s management has concluded that the Company’s internal controls over financial reporting were not effective as of June 30, 2019.
Changes in Internal Control Over Financial Reporting. The Company’s management, with the participation of the principal executive and principal financial officer, have concluded there were no changes in internal control during the fiscal quarter ended June 30, 2019.
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PART II. – OTHER INFORMATION
We may become involved in, or have been involved in, arbitrations or various other legal proceedings that arise from the normal course of our business. We cannot predict the timing or outcome of these claims and other proceedings. The ultimate outcome of any litigation is uncertain, and either unfavorable or favorable outcomes could have a material negative impact on our results of operations, balance sheets and cash flows due to defense costs, and divert management resources. Currently, except as set forth below, we are not involved in any arbitration and/or other legal proceeding that could have a material effect on our business, financial condition, results of operations and cash flows.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following is a summary of our issuances of common stock during the quarter ended June 30, 2019:
On various dates from January 1, 2019 to June 30, 2019, the Company issued 1,489,051 shares to lenders upon receipt of conversion notices, issued 450,000 and 115,384 shares, respectively, to lenders for debt issuance costs, and 825,000 shares to executives, employees and consultants. The issuance of such shares was in reliance on Section 4(a)(2) of the Securities Act of 1933. We believe that Section 4(a)(2) was available because none of such issuances involved underwriters, underwriting discounts or commissions; restrictive legends were placed on the certificates representing the shares purchases; and none of such sales were made by general solicitation.
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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.
WATER NOW, INC.
(Registrant)
Date: August 19, 2019 | ||
By: | /s/ David King | |
David King | ||
Chief Executive Officer and Chief Financial Officer |
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31.1* | Certification of David King, Chief Executive Officer and Chief Financial Officer, furnished pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended. |
32.1* | Statement of David King, Chief Executive Officer, furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
_______* XBRL Instance Document
_______* XBRL Schema Document
_______* XBRL Calculation Linkbase Document
_______* XBRL Definition Linkbase Document
_______* XBRL Label Linkbase Document
_______* XBRL Presentation Linkbase Document
______________________________
* Filed or furnished herewith.
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CERTIFICATION
I, David King, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Water Now, Inc. (the “registrant”) for the quarterly period ended June 30, 2019; |
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. As the sole certifying officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. As the sole certifying officer, I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 19, 2019 | ||
By: | /s/ David King | |
David King | ||
Chief Executive Officer and Chief Financial Officer |
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CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Water Now, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, David King, Chief Executive Officer and Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) | The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 19, 2019 | ||
By: | /s/ David King | |
David King | ||
Chief Executive Officer and Chief Financial Officer |