UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 2012

 

or

 

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

 

For the transition period from ______________ to________________

 

Commission file number 333-168895

 

QUEST WATER GLOBAL, INC.

(Exact name of registrant as specified in its charter)

 

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

 

2030 Marine Drive, Suite 302 North Vancouver, British Columbia, Canada		V7P 1V7
(Address of principal executive offices)		(Zip Code)

 

(604) 986-2219

(Registrant’s telephone number, including area code)

 

N/A

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

APPLICABLE ONLY TO CORPORATE ISSURS:

 

As of November 19, 2012, the registrant’s outstanding common stock consisted of 84,833,860 shares.

 

  

 

TABLE OF CONTENTS

 

		PART I – FINANCIAL INFORMATION
Item 1.		Financial Statements		3
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		5
Item 3.		Quantitative and Qualitative Disclosures about Market Risk		11
Item 4.		Controls and Procedures		11
		PART II – OTHER INFORMATION
Item 1.		Legal Proceedings		12
Item 1A.		Risk Factors		12
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		12
Item 3.		Defaults Upon Senior Securities		12
Item 4.		Mine Safety Disclosures		12
Item 5.		Other Information		12
Item 6.		Exhibits		13

 

 

Item 1. Financial Statements

 

Quest Water Global, Inc.

(formerly RPM Dental, Inc.)

(A Development Stage Company)

Consolidated Financial Statements

September 30, 2012

(Expressed in US dollars)

(unaudited)

 

	Index
Consolidated Balance Sheets	F-1
Consolidated Statements of Operations	F-2
Consolidated Statement of Stockholders’ Deficit	F-3
Consolidated Statements of Cash Flows	F-4
Notes to the Consolidated Financial Statements	F-5

 

  

PRESENTATION OF INFORMATION

 

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

 

This quarterly report includes our interim unaudited consolidated financial statements as at and for the period ended September 30, 2012. These financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“US GAAP”). All financial information in this quarterly report is presented in U.S. dollars, unless otherwise indicated, and should be read in conjunction with the financial statements and the notes thereto included in this quarterly report.

 

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

 

FORWARD-LOOKING STATEMENTS

 

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

 

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

 

    

QUEST WATER GLOBAL, INC.

(formerly RPM Dental, Inc.)

(A Development Stage Company)

Consolidated Balance Sheets

(Expressed in US dollars)

 

		September 30, 2012				December 31, 2011
		$				$
		(unaudited)
ASSETS
Current assets
Cash			13,179				33,060
Prepaid expenses			7,835				12,429
Total current assets			21,014				45,489
Property and equipment (Note 3)			265,028				275,712
Total assets			286,042				321,201
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
Accounts payable			211,916				166,642
Accrued liabilities			–				29,158
Convertible notes payable, net of unamortized discount of $nil (2011 - $16,693) (Note 4)			–				262,807
Loan payable (Note 5)			–				200,000
Due to related parties (Note 6)			498,912				515,893
Total current liabilities			710,828				1,174,500
Convertible notes payable, net of unamortized discount of $93,125 (2011 - $nil)			81,875				–
Total liabilities			792,703				1,174,500
Stockholders’ deficit
Preferred stock, 5,000,000 shares authorized, $0.000001 par value, 2 and nil shares issued and outstanding, respectively			1				–
Common stock, 95,000,000 shares authorized, $0.0001 par value, 84,833,860 and 49,344,360 shares issued and outstanding, respectively			55				2,456
Common stock issuable (Note 7)			113,000				–
Additional paid-in capital			4,478,248				592,662
Deficit accumulated during the development stage			(5,097,965	)			(1,448,417	)
Total stockholders’ deficit			(506,661	)			(853,299	)
Total liabilities and stockholders’ deficit			286,042				321,201
Nature of operations and continuance of business (Note 1)
Commitments (Note 10)

 

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

 

 

QUEST WATER GLOBAL, INC.

(formerly RPM Dental, Inc.)

(A Development Stage Company)

Consolidated Statements of Operations

(Expressed in US dollars)

(unaudited)

 

		Three months ended September 30, 2012				Three months ended September 30, 2011				Nine months ended September 30, 2012				Nine months ended September 30, 2011				Accumulated from February 20, 2009 (date of inception) to September 30, 2012
		$				$				$				$				$
Revenue			–				–				–				–				–
Expenses
Advertising and promotion			4,129				3,035				42,742				5,938				59,897
Amortization			8,248				1,012				24,744				3,037				34,768
Automotive			4,140				4,126				34,864				15,869				73,199
Consulting fees			20,628				32,740				908,277				44,290				1,075,800
Foreign exchange loss (gain)			379				(2,948	)			13,233				(4,503	)			1,565
Management fees (Note 6)			75,000				45,000				2,164,525				135,000				2,724,525
Office and miscellaneous			3,504				4,938				73,266				13,131				126,230
Professional fees			52,651				26,258				240,038				88,420				514,397
Rent			7,630				7,788				22,679				23,263				108,722
Telephone			3,836				2,215				11,946				8,783				48,256
Transfer agent and filing fees			34				–				16,474				–				16,474
Travel			(242	)			1				54,966				2,957				160,922
Total expenses			179,937				124,165				3,607,754				336,185				4,944,755
Loss before other income (expense)			(179,937	)			(124,165	)			(3,607,754	)			(336,185	)			(4,944,755	)
Other income (expense)
Accretion of discounts on convertible notes payable			(14,375	)			(30,054	)			(41,794	)			(65,205	)			(155,981	)
Gain on settlement of debt			–				–				–				–				7,902
Interest expense			–				(3,562	)			–				(7,671	)			(6,206	)
Interest income			–				–				–				–				1,075
Total other income (expense)			(14,375	)			(33,616	)			(41,794	)			(72,876	)			(153,210	)
Net loss			(194,312	)			(157,781	)			(3,649,548	)			(409,061	)			(5,097,965	)
Net loss per share, basic and diluted			–				(0.01	)			(0.04	)			(0.02	)
Weighted average shares outstanding			84,883,860				26,001,263				83,278,358				23,098,066

 

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

 

 

QUEST WATER GLOBAL, INC.

(formerly RPM Dental, Inc.)
(A Development Stage Company)

Consolidated Statement of Stockholders’ Deficit

(Expressed in US dollars)

(unaudited)

 

		Preferred stock								Common stock								Additional paid-in				Common stock				Deficit accumulated during the development
		Number				Amount				Number				Amount				capital				issuable				stage				Total
						$								$				$				$				$				$
Balance, December 31, 2011			–				–				110,500,000				111				80,390				–				(87,291	)			(6,790	)
January 6, 2012, recapitalization transactions: (Note 1)
Common stock returned and cancelled for spin out of RPM Dental, Inc.			–				–				(80,000,000	)			(80	)			(49,890	)			–				56,791				6,821
Recapitalization			–				–				–				(31	)			(30,500	)			–				30,500				(31	)
Shares issued for Quest Water Solutions, Inc.			–				–				51,369,860				51				823,794				–				(1,448,417	)			(624,572	)
Preferred stock issued			2				1				–				–				–				–				–				1
Common stock issued for cash at $0.25 per share			–				–				2,398,000				2				599,498				–				–				599,500
Common stock issued for cash at $0.25 per share			–				–				310,000				1				77,499				–				–				77,500
Common stock issued for conversion of notes payable			–				–				256,000				1				63,999				–				–				64,000
Stock-based compensation for options granted			–				–				–				–				2,798,458				–				–				2,798,458
Fair value of beneficial conversion features for convertible notes payable			–				–				–				–				115,000				–				–				115,000
Common stock issuable			–				–				–				–				–				113,000				–				113,000
Net loss for the period			–				–				–				–				–				–				(3,649,548	)			(3,649,548	)
Balance, September 30, 2012			2				1				84,833,860				55				4,478,248				113,000				(5,097,965	)			(506,661	)

 

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

 

  

QUEST WATER GLOBAL, INC.

(formerly RPM Dental, Inc.)

(A Development Stage Company)

Consolidated Statement of Cash Flows

(Expressed in US dollars)

(unaudited)

 

		Nine months ended September 30, 2012				Nine months ended September 30, 2011				Accumulated from February 20, 2009 (date of inception) to September 30, 2012
		$				$				$
Operating Activities:
Net loss for the period			(3,649,548	)			(409,061	)			(5,097,965	)
Adjustments to reconcile net loss to net cash used in operating activities:
Accretion of discount on convertible note payable			41,794				65,205				155,981
Amortization			24,744				3,036				34,768
Gain on settlement of debt			–				–				(7,902	)
Stock-based compensation			2,798,458				–				2,798,458
Changes in operating assets and liabilities:
Prepaid expenses			4,594				12,398				(7,835	)
Accounts payable			45,274				(970	)			227,367
Accrued liabilities			(29,158	)			(1,330	)			1,247
Due to/from related parties			(16,979	)			45,928				498,914
Net cash used in operating activities			(780,821	)			(284,794	)			(1,396,967	)
Investing Activities:
Purchase of property and equipment			(14,060	)			(204,069	)			(299,796	)
Net cash used in investing activities			(14,060	)			(204,069	)			(299,796	)
Financing Activities:
Proceeds from convertible notes payable			185,000				250,000				564,500
Proceeds from loans payable			–				–				208,000
Repayment of loans payable			(200,000	)			–				(200,000	)
Proceeds from issuance of common stock			677,000				315,000				1,024,442
Common shares issuable			113,000				-				113,000
Net cash provided by financing activities			775,000				565,000				1,709,942
Increase (decrease) in cash			(19,881	)			76,137				13,179
Cash, beginning of period			33,060				11,076				–
Cash, end of period			13,179				87,213				13,179
Non-cash investing and financing activities:
Common stock issued to settle accounts payable			–				–				11,750
Quest notes conversion to common stock prior to recapitalization transaction (Notes 4(a) and (b))			225,500				–				325,500
Common stock issued pursuant to the conversion of notes payable			64,000				–				64,000
Common stock issued to settle loans payable			–				–				4,000
Supplemental disclosures:
Interest paid			–				–				1,586
Income tax paid			–				–				–

 

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

 

 

QUEST WATER GLOBAL, INC.

(formerly RPM Dental, Inc.)

(A Development Stage Company)

Notes to the Consolidated Financial Statements

September 30, 2012

(Expressed in US dollars)

(unaudited)

 

1.

Nature of Operations and Continuance of Business

 

On January 6, 2012, Quest Water Global, Inc. (formerly RPM Dental, Inc.) (the “Company”) entered into a series of transactions pursuant to which the Company acquired Quest Water Solutions, Inc., a Nevada corporation (“Quest”); spun-out its prior operations to the Company’s former principal stockholders, directors and officers; and completed a private offering of the Company’s securities for an aggregate purchase price of approximately $677,000. The following summarizes the foregoing transactions:

 

●

Acquisition of Quest. The Company acquired all of the outstanding capital stock of Quest in exchange for the issuance of 51,369,860 shares of the Company’s common stock pursuant to a Share Exchange Agreement between the Company, the Company’s former principal stockholder, Quest and the former stockholders of Quest. As a result of this transaction, Quest became the Company’s wholly owned subsidiary and the former shareholders of Quest became the Company’s controlling stockholders. The transaction was accounted for as a reverse takeover/recapitalization effected by a share exchange, wherein Quest is considered the acquirer for accounting and financial reporting purposes.

 

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

 

●

Spin-Out of RPM Dental Business. Immediately prior to the acquisition of Quest, the Company spun-out RPM Dental Systems, LLC, a limited liability company formed in Kentucky and a wholly owned subsidiary, to the Company’s former officer and director and principal stockholder. As consideration the former director returned 80,000,000 shares of the Company’s common stock held by that person. These shares were cancelled immediately following the acquisition.

 

●

Financing Transaction. Immediately following the acquisition of Quest, the Company completed a private offering of units consisting of an aggregate of (i) 2,398,000 shares of common stock and (ii) warrants to purchase 2,398,000 shares of common stock. The warrants have a three-year term and a per share exercise price of $0.50. The aggregate purchase price of the units was $599,500.

 

On the closing of the above transactions, the Company entered into lock-up agreements with each of the former Quest shareholders who received common stock of the Company in the share exchange, agreeing not to transfer any of the common stock of the Company for a 12 month period after the closing. In addition, the Company entered into lock-up/leak-out agreements with the two officers of the Company, agreeing not to transfer any of the common stock of the Company for a 12 month period after the closing and for the six months thereafter to limit any transfers to 0.5% up to a maximum of 100,000 shares of common stock on any single day.

 

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

 

These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As at September 30, 2012, the Company has a working capital deficiency of $689,814 of which $498,912 is owed to the two principal shareholders, and accumulated stockholders’ deficit of $5,097,965. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue to develop its business and ultimately on the attainment of profitable operations. The Company is in the process of arranging additional capital financing that may assist in addressing these issues; however, these factors continue to raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

 

QUEST WATER GLOBAL, INC.

(formerly RPM Dental, Inc.)

(A Development Stage Company)

Notes to the Consolidated Financial Statements

September 30, 2012

(Expressed in US dollars)

(unaudited)

 

2.

Summary of Significant Accounting Policies

 

(a)

Basic of Presentation and Consolidation

 

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

 

(b)

Use of Estimates

 

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

 

(c)

Property and Equipment

 

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

 

	Computer equipment	45%	declining balance basis
	Computer software	100%	declining balance basis
	Furniture and equipment	20%	declining balance basis

 

(d)

Long-lived Assets

 

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

 

  

QUEST WATER GLOBAL, INC.

(formerly RPM Dental, Inc.)

(A Development Stage Company)

Notes to the Consolidated Financial Statements

September 30, 2012

(Expressed in US dollars)

(unaudited)

 

2.

Summary of Significant Accounting Policies (continued)

 

(e)

Financial Instruments and Fair Value Measures

 

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

 

Level 1

 

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

 

Level 2

 

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

 

Level 3

 

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

 

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

 

(f)

Loss Per Share

 

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

 

(g)

Comprehensive Loss

 

ASC 220, “Comprehensive Income,” establishes standards for the reporting and presentation of comprehensive income (loss) and its components in the financial statements. As at September 30, 2012, and 2011, the Company had no items representing comprehensive income or loss.

 

(h)

Reclassifications

 

Certain of the figures presented for comparative purposes have been reclassified to conform to the presentation adopted in the current period.

 

  

QUEST WATER GLOBAL, INC.

(formerly RPM Dental, Inc.)

(A Development Stage Company)

Notes to the Consolidated Financial Statements

September 30, 2012

(Expressed in US dollars)

(unaudited)

 

2.

Summary of Significant Accounting Policies (continued)

 

(i)

Foreign Currency Translation

 

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

 

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

 

(j)

Income Taxes

 

The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Income Taxes”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. As of September 30, 2012 and December 31, 2011, the Company did not have any amounts recorded pertaining to uncertain tax positions.

 

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

 

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. During the periods ended September 30, 2012 and 2011, there were no charges or provisions for interest or penalties.

 

(k)

Recent Accounting Pronouncements

 

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

 

3.

Property and Equipment

 

				Cost				Accumulated Amortization				Net Carrying Value September 30, 2012				Net Carrying Value December 31, 2011
				$				$				$				$
	Computer equipment			25,421				10,519				14,902				4,853
	Computer software			1,673				1,673				–				–
	Demonstration equipment			265,275				19,895				245,380				265,275
	Furniture and equipment			7,426				2,680				4,746				5,584
				299,795				34,767				265,028				275,712

 

  

QUEST WATER GLOBAL, INC.

(formerly RPM Dental, Inc.)

(A Development Stage Company)

Notes to the Consolidated Financial Statements

September 30, 2012

(Expressed in US dollars)

(unaudited)

 

4.

Convertible Notes Payable

 

(a)

On September 11, 2011, Quest received proceeds of $200,000 and issued a convertible promissory note for $200,000, which bears interest at 10% per annum, is unsecured, and due on demand. The unpaid amount of principal and accrued interest can be converted at any time at the holder’s option at $0.20 per share of common stock. In accordance with ASC 470-20, “Debt with Conversion and Other Options” (“ASC 470-20”), the Company recognized the intrinsic value of the embedded beneficial conversion feature of $50,000 as additional paid-in capital and an equivalent discount which will be charged to operations over the term of the convertible note up to its face value of $200,000. As at September 30, 2012, $50,000 has been accreted increasing the carrying value of the convertible note to $200,000. On January 5, 2012, Quest issued 2,000,000 shares of common stock pursuant to the conversion of the $200,000 note.

 

(b)

On October 3, 2011, Quest received proceeds of $25,500 and issued three separate convertible notes which are non-interest bearing, unsecured, and due on demand. The unpaid amount can be converted at any time at the holders’ option at $0.20 per share of common stock. In accordance with ASC 470-20, Quest recognized the intrinsic value of the embedded beneficial conversion feature of $6,375 as additional paid-in capital and charged to operations over the term of the convertible notes up to their face value of $25,500. For the period ended December 31, 2011, $6,375 had been accreted, increasing the carrying value of the convertible notes to $25,500. On January 5, 2012, Quest issued 255,000 shares of common stock pursuant to the conversion of the $25,500 note.

 

(c)

During December 2011, Quest received proceeds of $54,000 and issued three separate convertible notes which are non-interest bearing, unsecured, and due on demand. The unpaid amount can be converted at any time at the holders’ option at $0.25 per unit. Each unit includes one share of common stock of the Company and one three-year share purchase warrant with an exercise price of $0.50. In accordance with ASC 470-20, the Company recognized an embedded beneficial conversion feature of $17,419 as additional paid-in capital and charged to operations over the term of the convertible notes to accrete to their face value of $54,000. For the three month period ended March 31, 2012, $4,355 (December 31, 2011 - $726) had been accreted. On May 4, 2012, the Company issued 216,000 shares of common stock pursuant to the conversion of the notes; $12,338 had been accreted, increasing the carrying value of the convertible notes to $54,000 prior to conversion.

 

(d)

On January 3, 2012, Quest received proceeds of $10,000 and issued a convertible note which is non-interest bearing, unsecured, and due on demand. The unpaid amount can be converted at any time at the holder’s option at $0.25 per unit. Each unit includes one share of common stock of the Company and one three-year share purchase warrant with an exercise price of $0.50. In accordance with ASC 470-20, the Company recognized an embedded beneficial conversion feature of $3,226 as additional paid-in capital and charged to operations over the term of the convertible notes to accrete to their face value of $10,000. For the three month period ended March 31, 2012, $807 had been accreted. On May 4, 2012, the Company issued 40,000 shares of common stock pursuant to the conversion of the note; $2,419 had been accreted, increasing the carrying value of the convertible note to $10,000 prior to conversion.

 

(e)

On May 9, 2012, the Company received proceeds of $150,000 and issued a convertible note which is non-interest bearing, unsecured, and due on May 9, 2014. The unpaid amount can be converted at any time at the holder’s option at $0.50 per share of common stock, which must not be less than $25,000 of unpaid principal. In accordance with ASC 470-20, the Company recognized the intrinsic value of the embedded beneficial conversion feature of $90,000 as additional paid-in capital and an equivalent discount which will be charged to operations over the term of the convertible note up to its face value of $150,000. For the period ended September 30, 2012, $18,750 had been accreted, increasing the carrying value to $78,750.

 

(f)

On July 30, 2012, the Company received proceeds of $25,000 and issued a convertible note which is non-interest bearing, unsecured, and due on July 30, 2014. The unpaid amount can be converted at any time at the holder’s option at $0.50 per share of common stock. In accordance with ASC 470-20, the Company recognized the intrinsic value of the embedded beneficial conversion feature of $25,000 as additional paid-in capital and an equivalent discount which will be charged to operations over the term of the convertible note up to its face value of $25,000. For the period ended September 30, 2012, $3,125 had been accreted, increasing the carrying value to $3,125.

 

 

QUEST WATER GLOBAL, INC.

(formerly RPM Dental, Inc.)

(A Development Stage Company)

Notes to the Consolidated Financial Statements

September 30, 2012

(Expressed in US dollars)

(unaudited)

 

5.

Loan Payable

 

On November 12, 2009, the Company received $200,000 from a non-related company in the form of a non-interest bearing loan, secured by a promissory note, and personally guaranteed by the President and Vice President of the Company. During the nine months ended September 30, 2012, the Company repaid the loan.

 

6.

Related Party Transactions

 

(a)

As at September 30, 2012, a total of $192,563 (December 31, 2011 - $302,421) is owed to the President of the Company, which is non-interest bearing, unsecured, and due on demand.

 

(b)

As at September 30, 2012, a total of $306,349 (December 31, 2011 - $213,472) is owed to the Vice President of the Company, which is non-interest bearing, unsecured, and due on demand.

 

(c)

For the nine months ended September 30, 2012, the Company incurred a total of $225,000 (2011 - $135,000) in management fees to the President and the Vice President of the Company. The Company also incurred stock-based compensation of $1,939,525 for stock options granted to the President and the Vice President of the Company during the nine months ended September 30, 2012, which is included in management fees.

 

7.

Common Stock

 

(a)

On January 5, 2012, Quest issued 2,025,500 shares of common stock pursuant to the conversion of $225,500 in notes payable. Refer to Notes 4(a) and (b).

 

(b)

On January 6, 2012, the Company issued 51,369,860 shares of common stock for the acquisition of Quest.

 

(c)

On January 6, 2012, the Company issued 2,398,000 units at a price of $0.25 per unit for proceeds of $599,500. Each unit consisted of one share of common stock and one share purchase warrant exercisable at $0.50 per share expiring on January 6, 2015.

 

(d)

On February 10, 2012, the Company issued 310,000 units at a price of $0.25 per unit for proceeds of $77,500. Each unit consisted of one share of common stock and one share purchase warrant exercisable at $0.50 per share expiring on February 10, 2015.

 

(e)

On February 20, 2012, the Company completed a 20 for 1 forward split of its common stock. All share amounts have been retroactively adjusted for all periods presented.

 

(f)

On May 4, 2012, the Company issued 216,000 shares of common stock at $0.25 per share pursuant to the conversion of the $54,000 note payable. Refer to Note 4(c).

 

(g)

On May 4, 2012, the Company issued 40,000 shares of common stock at $0.25 per share pursuant to the conversion of the $10,000 note payable. Refer to Note 4(d).

 

(h)

As at September 30, 2012, the Company received proceeds of $113,000 for 226,000 units at $0.50 per unit. Each unit consists of one share of common stock and one share purchase warrant exercisable at $0.75 per share expiring on July 15, 2015. The shares have yet to be issued.

 

  

QUEST WATER GLOBAL, INC.

(formerly RPM Dental, Inc.)

(A Development Stage Company)

Notes to the Consolidated Financial Statements

September 30, 2012

(Expressed in US dollars)

(unaudited)

 

8.

Share Purchase Warrants

 

The following table summarizes the continuity of share purchase warrants:

 

		Number of warrants				Weighted average exercise price
						$
Balance, December 31, 2011			–				–
Issued			2,708,000				0.50
Balance, September 30, 2012			2,708,000				0.50

 

As at September 30, 2012, the following share purchase warrants were outstanding:

 

	Number of warrants outstanding			Exercise price				Expiry date
				$
		2,398,000			0.50			January 6, 2015
		310,000			0.50			February 10, 2015
		2,708,000

 

9.

Stock Options

 

In May 2012, the Company implemented a stock option plan pursuant to which stock options may be granted to directors, officers, employees and consultants of the Company to a maximum of 10% of the issued and outstanding common stock of the Company. The exercise price of each stock option will be equal to the market price at the date of grant. Stock options are exercisable over periods up to five years and vesting periods can be imposed at the discretion by the Board of Directors.

 

On May 9, 2012, the Company granted 5,050,000 stock options at an exercise price of $0.90 per share expiring on May 9, 2015 to officers, directors, employees and consultants. The fair value for these stock options was estimated at the date of grant using the Black-Scholes option-pricing model assuming a weighted average expected life of 3 years, a risk-free rate of 0.38%, an expected volatility of 100%, and a 0% dividend yield. The weighted average fair value of stock options granted was $0.54 per option. For the total fair value of $2,798,458, $1,939,525 was expensed as management fees and $858,933 was expensed as consulting fees.

 

				Number of options				Weighted average exercise price
								$
	Outstanding, December 31, 2011				–				–
	Granted				5,050,000				0.90
	Outstanding, September 30, 2012				5,050,000				0.90

 

 

QUEST WATER GLOBAL, INC.

(formerly RPM Dental, Inc.)

(A Development Stage Company)

Notes to the Consolidated Financial Statements

September 30, 2012

(Expressed in US dollars)

(unaudited)

 

9.

Stock Options (continued)

 

Additional information regarding stock options outstanding as at September 30, 2012 is as follows:

 

				Outstanding and exercisable
Range of exercise prices				Number of shares				Weighted average remaining contractual life (years)				Weighted average exercise price
	$												$
	0.90				5,050,000				2.7				0.90

 

10.

Commitments

 

	(a)	In January 2011, the Company signed a lease for office premises and agreed to pay annual basic rent of $12,024 plus taxes up to January 2014.

	(b)	On November 1, 2011, the Company entered into a management agreement with the President of the Company whereby it is obligated to pay $12,500 per month starting on October 3, 2011 to November 1, 2016.

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

 

	(i)	Buy-out of any outstanding stock options for a price equal to the fair market value of the Company’s common stock multiplied by the number of shares under options and less the exercise price; plus

(ii)

The greater of:

●

The aggregate remaining fees for the unexpired remainder of the term; or

●

One annual fee plus one month fee for each year served after November 1, 2011.

 

(c)

On November 1, 2011, the Company entered into a management agreement with the Vice-President of the Company whereby it is obligated to pay $12,500 per month starting on October 3, 2011 to November 1, 2016.

 

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

 

	(i)	Buy-out of any outstanding stock options for a price equal to the fair market value of the Company’s common stock multiplied by the number of shares under options and less the exercise price; plus

(ii)

The greater of:

●

The aggregate remaining fees for the unexpired remainder of the term; or

●

One annual fee plus one month fee for each year served after November 1, 2011.

 

  

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

 

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

 

Corporate History and Background

 

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

 

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

 

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

 

Acquisition of Quest

 

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

 

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

 

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

 

 

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

 

Business Overview

 

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

 

We have developed a proprietary community drinking water station consisting of a self-contained water purification system using either a reverse osmosis membrane or ultra filtration membrane, powered by photovoltaic solar panels and hosted in modified shipping containers. Each unit is energy self-sufficient with minimal operational and maintenance costs. We believe that this product represents the first truly environmentally sound solution to drinking water shortages as it is autonomous, decentralized and sustainable, and because each unit is capable of converting brackish, sea or contaminated surface water into 10,000 to 25,000 litres of high quality drinking water each day.

 

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

 

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

 

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

 

 

Results of Operations

 

For the Three Months Ended September 30, 2012 and from February 20, 2009 (Date of Inception) to September 30, 2012

 

Revenue

 

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

 

Expenses

 

During the three months ended September 30, 2012, we incurred $179,937 in total expenses, including $52,651 in professional fees, $75,000 in management fees, $3,504 in office and miscellaneous expenses, $4,140 in automotive expenses, $379 in foreign exchange loss, $34 in transfer agent and filing fees, $7,630 in rent, $20,628 in consulting fees, $3,836 in telephone expenses, $8,248 in amortization and $4,129 in advertising and promotion expenses, as offset by a $242 reversal in our travel expenses. During the same period in the prior year, we incurred $124,165 in total expenses, including $26,258 in professional fees, $45,000 in management fees, $4,938 in office and miscellaneous expenses, $4,126 in automotive expenses, $7,788 in rent, $32,740 in consulting fees, $2,215 in telephone expenses, $1,012 in amortization, $3,035 in advertising and promotion expenses and $1 in travel expenses, as offset by $2,948 in foreign exchange gain. The increase of approximately 44% in our total expenses during the most recent period resulted from increases in our expenses in most major categories, including our management fees and consulting fees, which were in turn attributable to the increase in our business operations and the costs associated with maintaining our status as a public company.

 

From our inception on February 20, 2009 to September 30, 2012, we incurred $4,944,755 in total expenses, including $514,397 in professional fees, $2,724,525 in management fees, $126,230 in office and miscellaneous expenses, $160,922 in travel expenses, $73,199 in automotive expenses, $1,565 in foreign exchange loss, $16,474 in transfer agent and filing fees, $108,722 in rent, $1,075,800 in consulting fees, $48,256 in telephone expenses, $34,768 in amortization and $59,897 in advertising and promotion expenses. Importantly, a significant portion of the management fees and consulting fees represent stock-based compensation expense of $1,939,525 and $858,933, respectively, that we incurred during the three months ended June 30, 2012

 

Net Loss

 

During the three months ended September 30, 2012, we incurred a loss before other expense of $179,936 and a net loss of $194,312, whereas we incurred a loss before other expense of $124,165 and a net loss of $157,781 during the same period in the prior year. Our net loss per share during the two periods was $Nil and $0.01, respectively.

 

From our inception on February 20, 2009 to September 30, 2012, we incurred a loss before other expense of $4,994,755 and a net loss of $5,097,965. The majority of our other expense during each of the periods referenced above was related to the accretion of discount on our convertible notes payable.

 

 

For the Nine Months Ended September 30, 2012

 

Expenses

 

During the nine months ended September 30, 2012, we incurred $3,607,754 in total expenses, including $240,038 in professional fees, $2,614,525 in management fees, $73,266 in office and miscellaneous expenses, $54,966 in travel expenses, $34,864 in automotive expenses, $13,233 in foreign exchange loss, $16,474 in transfer agent and filing fees, $22,679 in rent, $908,277 in consulting fees, $11,946 in telephone expenses, $24,744 in amortization and $42,742 in advertising and promotion expenses. During the same period in the prior year, we incurred $336,185 in total expenses, including $88,420 in professional fees, $135,000 in management fees, $13,131 in office and miscellaneous expenses, $2,957 in travel expenses, $15,869 in automotive expenses, $23,263 in rent, $44,290 in consulting fees, $8,783 in telephone expenses, $3,037 in amortization and $5,938 in advertising and promotion expenses, as offset by $4,503 in foreign exchange gain. The increase of approximately 1073% in our total expenses during the most recent period resulted from increases in our expenses in every major category, which were in turn attributable to the increase in our business operations, the closing of the Share Exchange and the costs associated with becoming a public company. In addition, the management fee and consulting fee increases due to the stock-based compensation expense described above accounted for a significant portion of the overall increase.

 

Net Loss

 

During the nine months ended September 30, 2012, we incurred a loss before other expense of $3,607,754 and a net loss of $3,649,548, whereas we incurred a loss before other expense of $336,185 and a net loss of $409,061 during the same period in the prior year. Our net loss per share during the two periods was also $0.04 and $0.02, respectively.

 

Liquidity and Capital Resources

 

As of September 30, 2012, we had $13,179 in cash, $286,042 in total assets, $792,703 in total liabilities and a working capital deficit of $689,814. As of September 30, 2012 we had an accumulated deficit of $5,097,965.

 

To date, we have experienced negative cash flows from operations and we have been dependent on sales of our common stock and capital contributions to fund our operations. We expect this situation to continue for the foreseeable future, and we anticipate that we will experience negative cash flows during the year ended December 31, 2012.

 

During the nine months ended September 30, 2012, we spent $780,821 in cash on operating activities, compared to $284,794 in cash spending on operating activities during the same period in the prior year. The 274% increase in our cash spending on operating activities during the nine months ended September 30, 2012 was primarily attributable to the increase in our net loss as described above, as adjusted for the aforementioned stock-based compensation expense, as well as decreases in our operating assets and liabilities, and in particular amounts due to related parties. From our inception on February 20, 2009 to September 30, 2012 we spent $1,396,967 in cash on operating activities.

 

During the nine months ended September 30, 2012, we spent $14,060 in cash on investing activities, whereas we spent $204,069 in cash on investing activities during the same period in the prior year. All of our spending on those activities during both periods was in the form of property and equipment purchases. Our investing activities decreased between the 2011 and 2012 periods largely because we shipped our first two community drinking water stations to Angola earlier this year, installed and demonstrated one system, and are currently in the process of negotiating a formal agreement with the Government of Angola that we expect will require us to purchase additional equipment. Our second system is awaiting an installation location and is currently being held in storage in the Viana Industrial Park owned by the Ministry of Industry. From our inception on February 20, 2009 to September 30, 2012, we spent $299,796 in cash on the purchase of property and equipment, our only investing activities to date.

 

 

We received $775,000 in cash from financing activities during the nine months ended September 30, 2012, consisting of $677,000 in proceeds from the issuance of our common stock, $185,000 in proceeds from convertible notes payable and $113,000 in proceeds from our common stock that was unissued as of period end, as offset by the repayment of $200,000 in loans payable. During the nine months ended September 30, 2011, we received $565,000 in cash from financing activities, consisting of $315,000 in proceeds from the issuance of our common stock and $250,000 in proceeds from convertible notes payable. From our inception on February 20, 2009 to September 30, 2012 we received $1,709,942 in cash from financing activities, including the following proceeds: $1,024,442 from the issuance of our common stock, $564,500 from convertible notes payable, $208,000 from loans payable and $113,000 from our common stock that was unissued as of September 30, 2012.

 

During the nine months ended September 30, 2012, our cash decreased by $19,881 as a result of our operating, investing and financing activities, from $30,060 to $13,179. As of September 30, 2012, we only had sufficient cash resources to meet our operating expenses for the next two months based on our current burn rate. However, we anticipate that our burn rate will be significantly less going forward since a number of expenses associated with closing the Share Exchange were non-recurring. We therefore expect to spend less cash during future interim periods than we did during our most recent fiscal quarters.

 

Plan of Operations

 

Our plan of operations over the next 12 months is to continue to address water quality and supply issues in Angola through the installation of our community drinking water stations as well as the employment of our WEPSTM technology, and we anticipate that we will require approximately $745,000 to pursue those plans. We intend to meet the balance of our cash requirements for the next 12 months through a combination of debt financing and equity financing through private placements. Currently we are active in contacting broker/dealers in Canada and elsewhere regarding possible financing arrangements, and we recently received an investment of $113,000 in connection with our common stock that was unissued as of September 30, 2012. We do not currently have any arrangements in place to complete any further private placement financings and there is no assurance that we will be successful in completing any such financings. If we are unsuccessful in raising sufficient funds through our capital raising efforts, we may review other financing options.

 

During the next 12 months, we estimate that our planned expenditures will be as follows:

 

Description		Amount ($)
Equipment purchases			10,000
Rent			30,000
Management fees			300,000
Consulting fees			150,000
Professional fees			130,000
Advertising and promotion expenses			15,000
Travel and automotive expenses			60,000
General and administrative expenses			50,000
Total			745,000

 

 

Going Concern

 

Our financial statements have been prepared on a going concern basis, which implies we will continue to realize our assets and discharge our liabilities in the normal course of business. As at September 30, 2012, we had a working capital deficit of $689,814 and an accumulated deficit of $5,097,965. Our continuation as a going concern is dependent upon the continued financial support from our shareholders, our ability to obtain necessary equity financing to continue operations, and the attainment of profitable operations. These factors raise substantial doubt regarding our ability to continue as a going concern. Our financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

 

Off-Balance Sheet Arrangements

 

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

 

Critical Accounting Policies

 

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

 

Basis of Presentation and Consolidation

 

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

 

Foreign Currency Translation

 

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

 

 

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

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not required.

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

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

 

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

 

Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) during the period ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

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

 

Item 1A. Risk Factors

 

Not applicable.

 

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

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

 

Item 6. Exhibits

 

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

 

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

 

(1)

Incorporated by reference from our Current Report on Form 8-K filed with the SEC on January 10, 2012.

 

(2)

Incorporated by reference from our Registration Statement on Form S-1 filed with the SEC on August 17, 2010.

 

(3)

Incorporated by reference from our Annual Report on Form 10-K filed with the SEC on April 16, 2012

 

 

SIGNATURES

 

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

 

Date: November 19, 2012	QUEST WATER GLOBAL, INC.
	By:	/s/ John Balanko
		John Balanko
		Chairman, President, Chief Executive Officer, Director