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EX-32 - CERTIFICATION - Ambient Water Corpex322.htm
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EX-32 - CERTIFICATION - Ambient Water Corpex321.htm




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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549


FORM 10-Q


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

EXCHANGE ACT OF 1934  


For the Quarterly Period ended March 31, 2016

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:      333-141927


AMBIENT WATER CORPORATION


(Exact name of registrant as specified in its charter)


NEVADA

 

20-4047619

(State or other jurisdiction of incorporation)

 

(IRS Employer Identification No.)


7721 East Trent Ave. Spokane Valley, WA

 

99212

(Address of principal executive offices)

 

(Zip Code)


(509) 474-9451



(Issuer's telephone number, including area code)

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


Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 at least the past 90 days.  Yes    [X]     No[   ]     


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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:


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 by Rule 12b-2 of the Exchange Act.)  

Yes    [   ]     No [X]


Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:  May 12, 2016 there were 524,489,792 shares of the Company’s common stock were issued and outstanding.



1




AMBIENT WATER CORPORATION

FORM 10-Q


For the Quarter Ended March 31, 2016


TABLE OF CONTENTS


PART I - FINANCIAL INFORMATION

3

ITEM 1.  FINANCIAL STATEMENTS

3

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

21

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

26

ITEM 4.  CONTROLS AND PROCEDURES

26

PART II – OTHER INFORMATION

27

ITEM 1.  LEGAL PROCEEDINGS

27

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

27

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

27

ITEM 4.  MINE SAFETY DISCLOSURES

27

ITEM 5.  OTHER INFORMATION

27

ITEM 6.  EXHIBITS

28

SIGNATURES

29








2



PART I - FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS


AMBIENT WATER CORPORATION

Consolidated Balance Sheets

As of March 31, 2016 and December 31, 2015

 

 

 

 

 

 

 

 

 

March 31, 2016

 

 

 

 

 

(unaudited)

 

December 31, 2015

ASSETS

 

 

 

 

 

Current assets

 

 

 

 

 

Cash

 

 

$                      9,271

 

$                           820

Accounts receivable

 

 

10,007

 

13,765

Deposit on product (Note 2)

 

 

49,693

 

51,959

Inventory (Note 3)

 

 

6,995

 

1,497

Prepaid asset

 

 

8,772

 

15,658

 

 

 

 

 

 

Total current assets

 

 

84,738

 

83,699

 

 

 

 

 

 

Fixed assets (Note 4)

 

 

29,383

 

33,789

 

 

 

 

 

 

Other assets

 

 

 

 

 

Technology acquisition (Note 1)

 

 

16,788

 

18,886

 

 

 

 

 

 

Total assets

 

 

$                 130,909

 

$                   136,374

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY(DEFICIT)

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

 

 

$                   73,482

 

$                     54,629

Accounts payable - related parties (Note 8)

 

 

12,955

 

2,485

Accrued liabilities (Note 5)

 

 

73,467

 

84,116

Accrued liabilities - related parties (Note 8)

 

 

122,368

 

370,000

Notes payable - current portion (Note 6)

 

 

56,371

 

142,529

Derivative liability - current portion (Note 6)

 

 

79,261

 

76,955

 

 

 

 

 

 

Total current liabilities

 

 

417,904

 

730,714

 

 

 

 

 

 

Notes payable (Note 6)

 

 

740,268

 

768,454

Accrued interest

 

 

116,225

 

102,884

Derivative liability (Note 6)

 

 

1,178,126

 

748,757

 

 

 

 

 

 

Total long-term liabilities

 

 

2,034,619

 

1,620,095

 

 

 

 

 

 

Total liabilities

 

 

2,452,523

 

2,350,809

 

 

 

 

 

 

Commitments & contingencies (Note 7)

 

 

-

 

-

 

 

 

 

 

 

SHAREHOLDERS' DEFICIT

 

 

 

 

 

Preferred stock, par value $0.0001, 400,000,000 shares authorized 72,800,920  and -0- shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively (Note 10)

 

7,280

 

-

Common stock, par value $0.0001, 2,000,000,000 shares authorized, 326,580,006 and 177,407,091 shares issued  and outstanding  at March 31, 2016 and December 31, 2015 respectively (Note 10)

 

32,659

 

17,741

Paid-in-capital

 

9,724,371

 

8,800,842

Retained deficit

 

(12,085,924)

 

(11,033,018)

Total shareholders' deficit

 

(2,321,614)

 

(2,214,435)

 

 

 

 

 

Total liabilities and shareholders' deficit

 

$                130,909

 

$                   136,374

 

 

 

 

 


See accompanying condensed notes to the interim consolidated financial statements.



3






AMBIENT WATER CORPORATION

Consolidated Statements of Operations

For the three months ended March 31, 2016 and 2015

 

Three Months Ended

 

Three Months Ended

 

March 31, 2016

 

March 31, 2015

 

(unaudited)

 

(unaudited)

 

 

 

 

Sales

$                                 1,125

 

$                               30,316

Cost of sales

520

 

19,338

 

 

 

 

Gross profit

605

 

10,978

 

 

 

 

GENERAL AND ADMINISTRATIVE EXPENSES:

 

 

 

Travel and entertainment

60

 

9,129

Professional fees

45,889

 

57,566

Executive compensation

60,000

 

87,500

Stock option compensation (non-cash)

157,007

 

582,543

Impairment loss on inventory

-

 

-

Other

32,457

 

75,597

 

 

 

 

Total General and Administrative Expenses

295,413

 

812,335

 

 

 

 

Operating loss

(294,808)

 

(801,357)

 

 

 

 

OTHER INCOME(EXPENSE):

 

 

 

Finance charge

-

 

(15)

Interest and penalties

(25,551)

 

(19,849)

Loss on derivative instruments

(732,547)

 

(182,644)

Net loss before income taxes

(1,052,906)

 

(1,003,865)

Income taxes

-

 

-

Net loss

$                         (1,052,906)

 

$                         (1,003,865)

 

 

 

 

Net loss per common share:

 

 

 

Basic and fully diluted

$                                         -

 

$                                  (0.01)

 

 

 

 

Weighted average number of common shares:

 

 

 

Basic and fully diluted

244,697,440

 

136,274,470

 

 

 

 






See accompanying condensed notes to the interim consolidated financial statements.



4




AMBIENT WATER CORPORATION

Consolidated Statements of Cash Flows

For the three month ended March 31, 2016 and 2015

 

 

 

 

 

 

 

Three Months Ended

 

Three Months Ended

 

 

March 31, 2016

 

March 31, 2015

 

 

(unaudited)

 

(unaudited)

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

Net loss

 

$                    (1,052,906)

 

$                    (1,003,865)

Adjustments to reconcile net loss:

 

 

 

 

Depreciation and amortization

 

6,504

 

7,184

Stock issued for accrued liability

 

310,132

 

-

Stock based compensation

 

157,007

 

582,544

Loss on derivative liability

 

732,547

 

182,644

Changes in assets and liabilities:

 

 

 

 

Accounts receivable

 

3,758

 

1,715

Deposits

 

9,152

 

15,703

Inventory

 

(5,498)

 

21,361

Accounts payable

 

29,323

 

(15,290)

Other accruals

 

(231,568)

 

51,698

 

 

 

 

 

Net cash used by operating activities

 

(41,549)

 

(156,306)

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

Fixed assets

 

-

 

(1,040)

 

 

 

 

 

Net cash used by investing activities

 

-

 

(1,040)

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Borrowings on notes payable

 

50,000

 

148,500

 

 

 

 

 

Net cash provided by financing activities

 

50,000

 

148,500

 

 

 

 

 

Increase (decrease) in cash

 

8,451

 

(8,846)

 

 

 

 

 

Cash, beginning of period

 

820

 

56,121

 

 

 

 

 

Cash, end of period

 

$                               9,271

 

$                             47,275

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

Interest paid

 

$                                       -

 

$                                       -

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

Stock issued for note and interest conversion

 

$                           478,588

 

$                                       -

Stock issued for accrued liability

 

$                           310,132

 

$                                       -

 

 

 

 

 


See accompanying condensed notes to the interim consolidated financial statements.



5



Ambient Water Corporation

Notes to Financial Statements

March 31, 2016

(Unaudited)




NOTE 1:  DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION


On June 23, 2014, AWG International Water Corporation changed its corporate name to Ambient Water Corporation by amending articles of incorporation with the Nevada Secretary of State.  This corporate action was recommended by the board of directors and approved by written consent of majority shareholders in lieu of a special meeting.  The Company also changed the name of its wholly owned subsidiary to Ambient Water, Inc. from AWG International, Inc.  Both name change amendments were filed with the Nevada Secretary of State's office on June 23, 2014.


Ambient Water Corporation (“AWGI” or “the Company”), designs and sells Atmospheric Water Generation products.  These products harvest water from the humidity in the atmosphere to produce pure drinkable water.  AWGI utilizes contract manufacturers to assemble its products.  The Company markets and sells its products through a network of domestic and international distributors with clearly identified geographic territories.  AWGI is one of the pioneers of atmospheric water generation technology for extracting water from humidity in the air. Drawing from the renewable ocean of water vapor in the air that we breathe, our patented technology cost effectively transforms humidity into an abundant source of clean water near the point of use. Our scalable and modular systems can be configured for a number of water-sensitive applications ranging from oil and gas exploration to drought relief to vertical farming. Our systems can also be configured to produce high quality drinking water for homes, offices, and communities.


On July 10, 2012, the Company entered into a Share Exchange Agreement (the "Share Exchange Agreement") by and among AWG International Water Corporation and AWG International, Inc.  On July 10, 2012, AWG International Water Corporation acquired AWG International, Inc. (the “Business Combination”), which became a wholly owned subsidiary of AWG International Water Corporation. AWG International Water Corporation incorporated on December 19, 2005, under the laws of the State of Nevada, and is headquartered in Spokane Valley, Washington.  The Company’s previous name was MIP Solutions, Inc.  MIP Solutions, Inc. was considered a shell company prior to the business combination.


The Company follows the accounting guidance outlined in the Financial Accounting Standards Board Codification guidelines. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted principles for interim financial information and with the instructions to Form 10-Q of Regulation S-K. They may not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 25, 2016.  The interim unaudited condensed consolidated financial statements as of and for the three (3) months ended March 31, 2016 and 2015, respectively should be read in conjunction with those financial statements included in the Form 10-K.  In the opinion of management, all adjustments considered necessary to present fairly the financial position, results of operations and cash flows for the periods presented in accordance with the accounting principles generally accepted in the United States of America have been made.  Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.  The Company assumes that the users of the interim financial information herein have read, or have access to, the audited consolidated financial statements for the preceding period, and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context


The Company’s financial statements include certain estimates and assumptions which affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.  Accordingly, actual results may differ from those estimates.


Certain amounts in the prior period financial statements have been reclassified to conform with the current period presentation.  These reclassifications had no effect on previously reported losses, total assets, or stockholders equity.


Year End and Principles of Consolidation


These unaudited condensed consolidated financial statements and related notes are presented in accordance with generally accepted accounting principles (“GAAP”) in the United States, and are expressed in U.S. dollars. The Company’s consolidated fiscal year-end is December 31.



6



Ambient Water Corporation

Notes to Financial Statements

March 31, 2016

(Unaudited)




The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All inter-company transactions are eliminated.


Going Concern


The Company has not generated positive cash flows since inception and has recognized approximately $12 million in net operating losses, which raises doubt about the ability of the Company to continue as a going concern.  The Company is dependent upon achieving positive cash flow from operations and obtaining additional external financing to fund ongoing operations.  


To achieve these objectives, the Company continues to seek other sources of financing to support existing operations and expand the range and scope of its business.  However, there are no assurances that such financing can be obtained on acceptable terms and in a timely manner, if at all.  The failure to obtain the necessary working capital would have a material adverse effect on the business and, in the event the Company is unable to execute its business plan, the Company may be unable to continue as a going concern.  


The accompanying financial statements do not include any adjustment to the recorded assets or liabilities that may be necessary should the Company have to curtail operations or be unable to continue operations.


Recent Accounting Pronouncements


In August 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-15 (“ASU 2014-15”), Presentation of Financial Statements-Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The objective of the amendments in this Update is to provide guidance on determining when and how to disclose going-concern uncertainties in the financial statements.  The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if “conditions or events raise substantial doubt about the entity’s ability to continue as a going concern.”  The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted.  The Company is evaluating the impact of ASU 2014-15 on its financial condition, results of operations and cash flows.


In May 2014, the FASB issued ASU No. 2014-09 (“ASU 2014-09”), “Revenue from Contracts with Customers”. The objective of ASU 2014-19 is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle of ASU 2014-09 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2016 for public companies. Early adoption is not permitted. The standard permits the use of either a retrospective or modified retrospective (cumulative effect) transition method. The Company is currently evaluating the new guidance and has not determined the impact this standard may have on its financial statements nor decided upon the method of adoption.


The Company is reviewing the effects of following recent updates.  The Company has no expectation that any of these items will have a material effect upon the financial statements.


·

Update 2015-16 - Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments

·

Update 2015-15 – Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting  (SEC Update)

·

Update 2015-14 - Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date

·

Update 2015-11 - Inventory (Topic 330): Simplifying the Measurement of Inventory

·

Update 2015-08 - Business Combinations (Topic 805): Pushdown Accounting - Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115  (SEC Update)



7



Ambient Water Corporation

Notes to Financial Statements

March 31, 2016

(Unaudited)




·

Update No. 2015-03 – Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs 

·

Update 2015-17 - Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes

·

Update 2016-01 - Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities

·

Update No. 2015-02 - Consolidation (Topic 810): Amendments to the Consolidation Analysis

·

Update 2016-09 - Compensation - Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting


Technology Acquisition


The technology supporting the Company’s products (“Technology Acquisition”) was obtained from its founders and their related companies.


On November 19, 2010, Licensee, the patent application owner, assigned Patent Cooperation Treaty (PCT) application number PCT/US2010/57371 to AWG International, Inc.   On May 18, 2012, AWG filed U.S. patent application number 13/510,757 claiming priority to PCT/US2010/57371.  We refer to this patent as supporting the proposed G3 product line.  In consideration of this assignment, 250,000 shares of AWG common stock were issued to Licensee.  At the time of the technology acquisition, the Company determined the value of the Technology Acquisition to be $36,216 based upon the actual, verifiable costs associated with securing the patent.  


The Company’s technology rights also include the assignment of patents which included U.S. Patent No. 7,272,947, U.S. Patent 7,886,557, PCT Patent Application No. PCT/US/2005/031948, and all patents and patent applications throughout the world, including any divisions, reissues or continuations. U.S. Patent 7,886,557 represents a patent derived from U.S. Patent No. 7,272,947 or an improvement to the U.S. Patent No. 7,272,947.  These patents are associated with our Model 2500 product.


Also, the Company has additional shared patent and license rights which were clarified on February 14, 2013.  On February 14, 2013, AWG International, Inc. assigned the G2 patent assets to the inventors, Rae Anderson and Keith White.  


Thereafter, Keith White, as co-inventor, assigned the G2 patent assets to AWG International, Inc.


As a result of these assignments, AWG International, Inc. and Rae Anderson each own a one-half undivided interest in the G2 patent assets.


On April 19, 2012, Mr. Keith White, the patent owner, assigned Patent application number 61/489.588 titled “Atmospheric Water Generator” to AWG International, Inc.  We refer to this patent as supporting the proposed G4 and G5 product lines.


The technology rights are being amortized over an expected life of five years.


Long-lived assets of the Company, including Technology Acquisition, are reviewed for impairment when changes in circumstances indicate their carrying value has become impaired, pursuant to guidance established in FASB ASC 410-20.


Warranty Expense


In 2014, the Company established a product warranty reserve, set at five percent (5%) of sales. For the quarters ending March 31, 2016 and 2015, the Company charged $50 and $231, respectively to the expense line Sales Reserve and increased the corresponding liability - Product Warranty Reserve in the same amount.  At March 31, 2016 and December 31, 2015, there was a balance of $13,086 and $13,036, respectively in the product warranty reserve account which is shown in accrued liabilities. Additionally, during the quarters ended March 31, 2016 and 2015, the Company charged $636 and $8,362, respectively to the expense line warranty expense shown under other general and administrative expense.  




8



Ambient Water Corporation

Notes to Financial Statements

March 31, 2016

(Unaudited)




NOTE 2:  DEPOSITS ON PRODUCT


At March 31, 2016 and December 31, 2015, there was a balance of $49,693 and $51,959, respectively in deposits on product.  Deposits on product represent amounts paid to the Company’s Korean contract manufacturer.  


NOTE 3:  INVENTORY


At March 31, 2016 and December 31, 2015, the Inventory balance was $6,995 and $1,497, respectively, valued at the lower of cost or fair market value less any allowances for obsolescence.  The Company strives to maintain a small inventory of Model 2500 units and an inventory of filters that are used both in the manufacture of new units and as replacements in previously sold units.  The Company had no Model 2500 units in inventory at March 31, 2016 or at December 31, 2015.


NOTE 4:  FIXED ASSETS


At March 31, 2016 and December 31, 2015, the net Fixed Assets balance was $29,383 and $33,789, respectively.  The Company purchases demonstration units to be used in soliciting new distributors and marketing efforts.  The Company is depreciating these assets over the appropriately determined estimated useful life of 3 years.  As of March 31, 2016 and December 31, 2015, the Company has recognized $34,735 and $30,3285, respectively, of accumulated depreciation.  As of March 31, 2016 and 2015, the Company recognized $4,407 and $5,085 for depreciation expenses, respectively.


NOTE 5:  ACCRUED LIABILITIES


At March 31, 2016 and December 31, 2015, the Accrued Liabilities balance was $73,467 and $84,116, respectively.  The Company accrues unpaid wages, consulting costs, accrued notes payable interest and accrued Internal Revenue Service penalty and interest in Accrued Liabilities.  See Note 8 - Related Party Transactions.


NOTE 6:  CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITIES


On March 21, 2014, the Company entered into a financing transaction with an accredited investor (“Lender”) under which the Company may borrow up to Nine Hundred Thousand ($900,000) dollars. The transaction was structured as a Convertible Promissory Note (the "Note") bearing interest at the rate of Ten (10%) percent per year.  The maturity date was extended from18 months to 60 months as described below.  This Note is referred to as Note A in the table below.


The Lender has loaned the Company $900,000 through March 31, 2015.  On October 6, 2014, The Lender converted $65,000 of the outstanding principal and associated interest into 5,585,006 common shares.  Additionally, on April 9, 2015, the Lender converted $40,000 of the outstanding principal and associated interest into 4,728,152 common shares.  Again on June 11, 2015 the Lender converted $30,000 of the outstanding principal and associated interest into 4,401,826 common shares. Also, on August 28, 2015 the Lender converted $58,000 of the outstanding principal and associated interest into 4,413,024 common shares. Again on December 22, 2015 the Lender converted $9,000 of the outstanding principal and associated interest into 5,237,586 common shares. During the quarter ended March 31, 2016, the Lender converted $28,710 of the outstanding principal and associated interest into 36,000,713 common shares.  The outstanding principal on this Note is $669,290 and $698,000, at March 31, 2016 and December 31, 2015, respectively.  The current portion of this note payable is $-0- and $-0-, at March 31, 2016 and December 31, 2015, respectively.  The Lender has the right, at any time, at its election, to convert all or part of the Note amount into shares of fully paid and non-assessable shares of common stock of the Company. The conversion price (the “Conversion Price”) shall be the lesser of (a) $0.04 per share of common stock, (b) fifty Percent (50%) of the average of the three (3) lowest trade prices of three (3) separate trading days of Common Stock recorded during the twenty five (25) previous trading days prior to conversion, or (c) the lowest effective price per share granted to any person or entity after the effective date to acquire Common Stock, or adjust, whether by operation of purchase price adjustment, settlement agreements, exchange agreements, reset provision, floating conversion or otherwise, any outstanding warrant, option or other right to acquire Common Stock or outstanding Common Stock equivalents, excluding any outstanding warrants or options that have been disclosed in SEC filings prior to the effective date.


Effective September 21, 2015, we amended our $900,000 note dated March 21, 2014.  The following terms were amended:




9



Ambient Water Corporation

Notes to Financial Statements

March 31, 2016

(Unaudited)




Section 1 of the Note is hereby revised and restated in its entirety as follows:


1. Maturity Date. The Maturity Date is eighteen (18) months from the Effective Date of each payment of Consideration (the “Maturity Date”) and is the date upon which the Principal Sum of this Note and unpaid interest and fees (the “Note Amount”) shall be due and payable. The Maturity Date is hereby extended, and the Note Amount is payable upon demand by the Lender, but in no event later than sixty (60) months from the Effective Date (the ”Extended Maturity Date”). The Lender shall provide the Borrower with ten (10) days written notice to make a demand for payment (the “Demand Payment Date”), and the Demand Payment Date shall be considered to be the Extended Maturity Date.


Section 6 of the Note is hereby revised and restated in its entirety as follows:


6. Payment. The Borrower may not prepay this Note prior to the Maturity Date or the Extended Maturity Date. Within six (6) days prior to the Maturity Date or Extended Maturity Date, the Borrower shall provide the Lender with a written notice to pay the Note Amount on the Maturity Date or Extended Maturity Date. Within three (3) days of receiving written notice, the Lender shall elect to either (a) accept payment of the Note Amount or (b) convert any part of the Note Amount into shares of Common Stock. If the Lender elects to convert part of the Note Amount into shares of Common Stock, then the Borrower shall pay the remaining balance of the Note Amount by the Maturity Date or Extended Maturity Date.  The Borrower may not prepay this Note prior to the Maturity Date or the Extended Maturity Date.


Section 11 of the Note is hereby revised and restated in its entirety as follows:


11. Remedies. In the event of any default, the Note Amount shall become immediately due and payable at the Mandatory Default Amount. The Mandatory Default Amount shall be 150% of the Note Amount. Commencing five (5) days after the occurrence of any event of default that results in the eventual acceleration of this Note, the interest rate on the Mandatory Default Amount shall accrue at a default interest rate equal to the lesser of ten percent (10%) per annum or the maximum rate permitted under applicable law. In connection with such acceleration described herein, the Lender need not provide, and the Borrower hereby waives, any presentment, demand, protest or other notice of any kind, and the Lender may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. While the Mandatory Default Amount is outstanding and default interest is accruing, the Lender shall have all rights as a holder of this Note until such time as the Lender receives full payment pursuant to this paragraph, or has converted all the remaining Mandatory Default Amount and any other outstanding fees and interest into Common Stock under the terms of this Note. In the event of any default and at the request of the Lender, the Borrower shall file a registration statement with the SEC to register all shares of Common Stock issuable upon conversion of this Note that are otherwise not eligible to have their restrictive transfer legend removed under Rule 144of the Securities Act. Nothing herein shall limit Lender’s right to pursue any other remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Borrower’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Note as required pursuant to the terms hereof. The Borrower may only pay the full balance of the Mandatory Default Amount, and may not make partial payments unless agreed upon by the Lender. If the Borrower desires to pay the Mandatory Default Amount, then the Borrower shall provide the Lender with six (6) days prior written notice of payment. Within three (3) days of receiving written notice, the Lender shall elect to either (a) accept payment, or (b) convert any part of the payment into shares of Common Stock. If the Lender elects to convert part of the payment into shares of Common Stock, then the Borrower shall pay the remaining balance of the Mandatory Default Amount.


The effect of the Addendum is that the Note will remain in full force and effect except as specifically modified by the Addendum.  In the event of a conflict between the Addendum and the Note, the terms of the Addendum will govern.


On March 27, May 6, and June 18, 2015, the Company entered into three financing transactions with an accredited investor ("Lender”) which loaned the Company $48,500, $43,000 and $38,000, respectively, on three separate convertible promissory notes totaling $129,500.  On October 1, 2015, The Lender converted $12,000 of the outstanding principal into 779,221 common shares.  Additionally, on October 8, 2015, the Lender converted $15,000 of the outstanding principal into 1,111,111 common shares. Again on October 20, 2015, the Lender converted $15,000 of the outstanding principal into 1,470,488 common shares. Again on October 27, 2015, the Lender converted $6,500 of the outstanding principal and



10



Ambient Water Corporation

Notes to Financial Statements

March 31, 2016

(Unaudited)



accrued interest into 897,872 common shares. Again on November 16, 2015, the Lender converted $20,000 of the outstanding principal into 2,898,551 common shares. Again on November 24, 2015, the Lender converted $23,000 of the outstanding principal and accrued interest into 3,987,097 common shares. Again on December 28, 2015, the Lender converted $15,000 of the outstanding principal into 6,521,739 common shares.  During the quarter ended March 31, 2016, the Lender converted the remaining $23,000 of outstanding principal and accrued interest into 12,094,236 common shares.


The current portion of the notes payable is $-0- and $23,000, at March 31, 2016 and December 31, 2015, respectively. The remaining note matures on March 20, 2016 (the "Maturity Dates") and to pay interest on the unpaid principal balance hereof at the rate of Eight (8%) percent.  The Lender has the right to convert the outstanding principal and interest into common shares after 180 days.  The conversion price will be variable and based on a 42% discount to the market price.  The market price will be the average lowest five trading prices for the common stock during the ten day trading period ending on the latest complete trading day prior to conversion.  The Lender has limited its ability to convert the debt into common shares to no more than 4.99% of the Company’s outstanding common stock.  The Lender can waive this limitation upon 61 days advance notice.  This note is referred to as Note B in the table below.


On May 27, 2015, the Company entered into a financing transaction with an accredited investor ("Lender”) which loaned the Company $36,750 on a convertible promissory note. On December 4, 2015, the Lender converted $4,750 of the outstanding principal and interest into 952,331 common shares. Again on December 18, 2015, the Lender converted $4,000 of the outstanding principal and interest into 1,618,011 common shares. Again on December 28, 2015, the Lender converted $4,000 of the outstanding principal and interest into 1,743,012 common shares.  During the quarter ended March 31, 2016, the Lender converted the remaining $24,000 of outstanding principal and associated interest into 14,905,072 common shares.


The current portion of the note payable is $-0- and $24,000, at March 31, 2016 and December 31, 2015, respectively. The note matures on May 27, 2016 (the "Maturity Date") and to pay interest on the unpaid principal balance hereof at the rate of Eight (8%) percent.  The Lender has the right to convert the outstanding principal and interest into common shares at its option, at any time.  The conversion price will be variable and based on a 40% discount to the market price.  The market price will be the average of the two lowest closing prices for the common stock during the fourteen prior trading days including the day upon which a Notice of Conversion is received by the Company.  This note is referred to as Note C in the table below.


On July 27, 2015, the Company executed a financing transaction dated July 23, 2015 with an accredited investor ("Lender”) which loaned the Company $100,000 on a convertible promissory note less an original issue discount (OID) of $8,000. During the quarter ended March 31, 2016, the Lender converted $93,629 of outstanding principal and accrued interest into 86,172,894 common shares. The OID has an unamortized balance of -0- and $4,471 at March 31, 2016 and December 31, 2015, respectively.  The current portion of the note payable (net of OID) is $6,371 and $95,529, at March 31, 2016 and December 31, 2015, respectively.  The note matures on July 23, 2016 (the "Maturity Date") and to pay interest on the unpaid principal balance hereof at the rate of Ten (10%) percent.  The Lender has the right to convert the outstanding principal and interest into common shares at its option, at any time.  The conversion price will be variable and based on a 40% discount to the market price.  The market price will be the average of the four lowest trades, tossing out the lowest of the four, for the common stock during the twenty prior trading days to the date of conversion.  The note is referred to as Note D in the table below.


On October 14, 2015, the Company executed a financing transaction with an accredited investor ("Lender”) which loaned the Company $37,100 on a convertible promissory note less an original issue discount (OID) of $2,100.  The OID has an unamortized balance of $1,612 and $1,873 at March 31, 2016 and December 31, 2015, respectively.  The current portion of the note payable (net of OID) is $35,489 and $35,227, at March 31, 2016 and December 31, 2015, respectively.  The note matures on October 14, 2017 (the "Maturity Date") and to pay interest on the unpaid principal balance hereof at the rate of Eight (8%) percent.  The Lender has the right to convert the outstanding principal and interest into common shares at its option, at any time.  The conversion price will be variable and based on a 42% discount to the market price.  The market price will be the average of the three lowest trading prices for the common stock during the fifteen prior trading days.  This note is referred to as Note E in the table below.




11



Ambient Water Corporation

Notes to Financial Statements

March 31, 2016

(Unaudited)




On October 14, 2015, the Company executed a financing transaction with an accredited investor ("Lender”) which loaned the Company $37,100 on a convertible promissory note less an original issue discount (OID) of $2,100.  The OID has an unamortized balance of $1,612 and $1,873 at March 31, 2016 and December 31, 2015, respectively.  The current portion of the note payable (net of OID) is $35,489 and $35,227, at March 31, 2016 and December 31, 2015, respectively.  The note matures on October 14, 2017 (the "Maturity Date") and to pay interest on the unpaid principal balance hereof at the rate of Eight (8%) percent.  The Lender has the right to convert the outstanding principal and interest into common shares at its option, at any time.  The conversion price will be variable and based on a 42% discount to the market price.  The market price will be the average of the three lowest trading prices for the common stock during the fifteen prior trading days.  This note is referred to as Note F in the table below.


On February 2, 2016, the Company entered into a financing transaction with an accredited investor (“Lender”) under which the Company may borrow up to Two Hundred Fifty Thousand ($250,000) dollars. The transaction was structured as a Convertible Promissory Note (the "Note") bearing interest at the rate of Ten (10%) percent per year. The maturity date is twelve months from the Effective Date. The Lender has the right, at any time after the Effective Date, at its election, to convert all or part of the Note Amount into shares of common stock.  The conversion price shall be the lesser of (a) $0.005 per share of common stock or (b) Fifty Percent (50%) of the average of the three lowest trade prices on three separate trading days, or (c) the lowest effective price per share granted to any person or entity, but excluding officers and directors of the Borrower.  The Lender has loaned the Company $50,000 through March 31, 2016. The current portion of the note payable is $50,000 and $-0-, at March 31, 2016 and December 31, 2015, respectively.  This Note is referred to as Note G in the table below.


CONVERTIBLE NOTES PAYABLE

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

Current

 

 

Payable

 

Portion

 

Payable

 

Portion

Description

 

at 3/31/16

 

at 3/31/16

 

at 12/31/15

 

at 12/31/15

Note A

 

$          669,290

 

$                      -

 

$          698,000

 

$                     -

Note B

 

-

 

-

 

23,000

 

23,000

Note C

 

-

 

-

 

24,000

 

24,000

Note D

 

6,371

 

6,371

 

95,529

 

95,529

Note E

 

35,489

 

-

 

35,227

 

-

Note F

 

35,489

 

-

 

35,227

 

-

Note G

 

50,000

 

50,000

 

-

 

-

 

 

$          796,639

 

$            56,371

 

$          910,983

 

$          142,529


Derivative liability


Under FASB ASC 815-40 Contracts in Entity’s Own Equity, the Company must review the possible conversion features under the agreement’s variable price conversion options, which create a derivative in the possible settlement choices of the Lender.   As of March 31, 2016, the stock pricing feature for Note A above which provides a 50% discount to the market would have increased the stock necessary to settle the conversion if requested to approximately 1,043,688,000 shares.  The Company has calculated the value of this additional liability to be $1,095,872 and has recognized a change of earnings for the effect of such a conversion through March 31, 2016.  Additionally, the conversion features on Notes B through G above would have increased the stock necessary to settle the conversion feature on these Notes to approximately 169,682,768 shares.  The Company has calculated the value of this additional liability to be $161,515 and has recognized a change of earnings for the effect of such a conversion through March 31, 2016.  Total derivative liability was $1,257,387 and $825,712, as of March 31, 2016 and December 31, 2015, respectively.  As of March 31, 2016, the derivative liability is classified as $79,261 under current liabilities and $1,178,126 under long-term liabilities.  As of December 31, 2015, the derivative liability is classified as $76,955 under current liabilities and $748,757 under long-term liabilities.




12



Ambient Water Corporation

Notes to Financial Statements

March 31, 2016

(Unaudited)




Under FASB ASC 505-10 Equity: Overall, the Company must disclose that the settlement alternatives are at the control of the Lender and that there is a potential for an infinite number of shares having to be issued, although the Lender has elected to limit its beneficial ownership to less than five percent unless the Company receives proper notification that the Lender will at any time convert either part or all of the loan to shares.


NOTE 7:  COMMITMENTS AND CONTINGENCIES


On July 29, 2010, the Company entered into a memorandum of understanding to acquire the exclusive rights to utilize a proprietary coating technology in atmospheric water generation applications.  Subsequently, the July 29, 2010 memorandum of understanding was replaced on June 17, 2011.  Under the terms of the agreement, the Company secured the exclusive rights to the coating technology for atmospheric water generation applications.  The term of the agreement is three years and, unless terminated, shall automatically renew for an additional three years on each three year anniversary.  The agreement called for the payment of a license and exclusivity fee of $10,000 in two payments of $5,000 each.  The first payment has been paid.  Effective September 30, 2012, the parties entered into an amendment to the original agreement in which both parties acknowledged there had been no breaches of the original agreement, the remaining $5,000 payment was due on or before June 1, 2013, and all previous and/or future minimum purchase requirements were waived.  The Company has accrued the $5,000 in Accrued Liabilities for this obligation.  See discussion Note 5 – Accrued Liabilities.


In August 2012, information came to the Company’s attention which raised questions about the enforceability, validity and scope of protection relating to the Everest Water patents, the Everest Water/CanAmera Management License Agreement and subsequent patent assignments ("G2 Asset") which were associated with the License Agreement. For further discussion, see Note 1 on Technology Acquisition.


On September 18, 2015, Ambient Water Corporation (the “Company”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) and a Registration Rights Agreement (the “Registration Rights Agreement”) with accredited investor, River North Equity, LLC (“River North”). Under the Purchase Agreement, the River North has agreed to purchase from the Company up to an aggregate of $5 million worth of shares of common stock, par value $0.0001 per share (“Common Stock”), of the Company, from time to time, subject to limitations. These agreements were updated and revised on December 11, 2015.


In accordance with the Registration Rights Agreement, the Company has agreed to file with the Securities and Exchange Commission (the “SEC”) a registration statement (the “Registration Statement”) to register for resale under the Securities Act of 1933, as amended (the “Securities Act”), the shares of Common Stock that may be issued to River North under the Purchase Agreement.   We will not be registering 100% of the registerable securities under the Purchase Agreement.  We will be subject to a registration cap which will not exceed 30% of our issued and outstanding common shares, less any shares held by Affiliates of the Company, under Registration Rights Agreement.  Therefore, the Company has elected to register 20,000,000 common shares which will represent approximately $600,000 Dollars of the $5 Million Dollars under the Purchase Agreement.


Convertible notes E and F see Note 6: Convertible Notes Payable and Derivative Liabilities have back end notes available to the Company.


NOTE 8:  RELATED PARTY TRANSACTIONS


The technology behind the Company’s products, (“Technology Acquisition”) was acquired through an exclusive Irrevocable Patent Assignment.  See discussion Note 1 – Technology Acquisition, Note 7 – Commitments and Contingencies.


On February 14, 2013, Keith White, as co-inventor, assigned the G2 patents to AWG International, Inc.  The assigned patents include U.S. Patent No. 7,272,947, U.S. Patent 7,886,557, PCT Patent Application No. PCT/US/2005/031948, and all patents and patent applications throughout the world, including any divisions, reissues or continuations. The U.S. Patent 7,886,557 represents a patent derived from U.S. Patent No. 7,272,947, or an improvement to U.S. Patent No. 7,272,947.  




13



Ambient Water Corporation

Notes to Financial Statements

March 31, 2016

(Unaudited)




On April 19, 2012, the inventor/applicant of provisional patent application titled, “Atmospheric Water Generation System” Application No. 61/489,588, assigned all rights, title and interests to the Company.  The technology associated with this patent application will be used for a future line of proposed G4 and G5 products.


Effective July 10, 2012, the initial base compensation of the named executive officers, Chief Executive Officer, Chief Operating Officer and Financial Officer was set at $120,000 annually. In December 2013, the Board of Directors raised the annual salary for each officer to $175,000.  On January 12, 2016, the Board of Directors voted a reduction in annual executive compensation to $120,000 effective January 1, 2016.  There are no formal employment agreements with the named executive officers.


On July 10, 2012, the Board of Directors authorized the issuance of 13,742,000 common stock options to Jeff Stockdale, the Company’s President and Chief Operating Officer and 14,947,000 common stock options to Jeff Mitchell, the Company’s then Chief Financial Officer and Secretary.  These common stock options have an exercise price of $0.18.  Mr. Mitchell’s common stock options expired on September 29, 2015.


On July 22, 2013, the Board of Directors authorized the issuance of 750,000 common stock options to Keith White, the Company’s Chief Executive Officer and Chief Technology Officer, Jeff Stockdale, the Company's President and Chief Operating Officer, and Jeff Mitchell, the Company's then Chief Financial Officer and Secretary, collectively 2,250,000 common stock options.  These common stock options have an exercise price of $0.11.  Mr. Mitchell’s common stock options expired on October 6, 2015.


The options vest over four (4) years.  After one year, one-quarter (25%) of the options vest.  Thereafter, the options vest 6.25% each quarter.  The options have a ten (10) year term.


Using the Black-Scholes model, the Company has assessed the financial statement presentation impact of the value ascribed to the issuance of 32,439,000 stock options to some of its executive management team members as approximately $5,402,500.  As of March 31, 2016, 17,197,000 of the original 32,439,000 stock options had expired.  The Company will recognize the expense of issuing these options using the straight-line method over the 4-year vesting term of the options.  The estimated annual expense to the Company associated with these options as of March 31, 2016 is:


 

2017                       $     24,059


As of March 31, 2016, 12,961,150 of these stock options had vested and were exercisable at an average exercise price of $0.18.  As of March 31, 2016, 2,280,851 were expected to be vested over the next two years.


Stock Grant - On December 30, 2013, the Company’s Board of Directors adopted a stock grant program for officers and employees.  The grants became effective in 2014 based upon either performance or employment requirements.  Originally, the share grants were to be issued by June 15, 2014, however Jeff Stockdale and Keith White elected defer their grants (3,352,500 each) until January 5, 2015 when these shares were issued to each of them.


On March 21, 2014, Jeff Mitchell, Chief Financial Officer and Secretary and the Company entered into a separation agreement whereby Mr. Mitchell resigned his executive officer positions. On March 21, 2014, the Board of Directors approved a separation agreement with Jeff Mitchell.  The separation agreement provides for the payment of $43,750 of unpaid executive compensation, and a termination fee of $87,500, payment of health insurance premiums and reimbursement of cell phone expenses.  See the Form 8K filed on March 21, 2014 for additional information.  On March 21, 2014, the Board of Directors nominated and appointed Jeff Mitchell to fill a vacancy on the Board of Directors.  On July 6, 2015, Jeff Mitchell tendered his resignation as a member of the Board of Directors effective June 30, 2015. Stock options for Jeff Mitchell vested through June 30, 2015.  All of Mr. Mitchell's unexercised stock options expired on October 6, 2015.


At March 31, 2016 and December 31, 2015, the Company owed reimbursements to Officers of $12,955 and $2,485, respectively.  These amounts are listed under the caption Accounts payable -related parties on the Balance Sheets.



14



Ambient Water Corporation

Notes to Financial Statements

March 31, 2016

(Unaudited)




Additionally, at March 31, 2016 and December 31, 2015, the Company owed Officer compensation of $122,368 and $370,000, respectively.  These amounts are listed under the caption Accrued liabilities - related parties on the Balance Sheets.


NOTE 9:  COMMON STOCK WARRANTS


The following warrants for our common stock were issued and outstanding for the three months and year ending March 31, 2016 and December 31, 2015, respectively:


 

 

March 31,

2016

 

December 31,

2015

Warrants outstanding at beginning of period

 

1,340,000

 

1,340,000

Issued

 

-

 

-

Cancelled

 

-

 

-

Exercised

 

-

 

-

Warrants outstanding at end of period

 

1,340,000

 

1,340,000


A detail of warrants outstanding on March 31, 2016 is as follows:


 

 

Number of Warrants

 

Expiration Date

Exercisable at $0.03 per share

 

1,340,000

 

2/1/2017


The Company used the Black-Scholes option price calculation to calculate the change in value of the warrants using the following assumptions:  risk-free interest rate of 1.5%; volatility of 150%; and various applicable terms.


NOTE 10:  PREFERRED STOCK AND COMMON STOCK


The Stockholders’ Equity section of the Company contains the following class of Common and Preferred Stock (par value $0.0001) as of:


December 31, 2015

 

Authorized:

400,000,000 preferred shares

 

2,000,000,000 common shares

 

 

Issued and outstanding:

177,407,091 common shares


On January 5, 2015, the Company issued 6,705,000 common shares to two Executives per grants authorized on December 31, 2013 at $0.0389 per share.


On April 9, 2015, the Company issued 4,728,152 common shares for partial note payable and accrued interest conversion at $0.0196 per share.


On June 11, 2015, the Company issued 4,401,826 common shares for partial note payable and accrued interest conversion at $0.0288 per share.


On August 28, 2015, the Company issued 4,413,024 common shares for partial note payable and accrued interest conversion at $0.0401 per share.


On October 1, 2015, the Company issued 779,221 common shares for partial note payable and accrued interest conversion at $0.0262 per share.




15



Ambient Water Corporation

Notes to Financial Statements

March 31, 2016

(Unaudited)





On October 8, 2015, the Company issued 1,111,111 common shares for partial note payable and accrued interest conversion at $0.0237 per share.


On October 20, 2015, the Company issued 1,470,588 common shares for partial note payable and accrued interest conversion at $0.0165 per share.


On October 27, 2015, the Company issued 897,872 common shares for partial note payable and accrued interest conversion at $0.0112 per share.


On November 16, 2015, the Company issued 2,898,551 common shares for partial note payable and accrued interest conversion at $0.0178 per share.


On November 24, 2015, the Company issued 3,987,097 common shares for partial note payable and accrued interest conversion at $0.0100 per share.


On December 4, 2015, the Company issued 952,331 common shares for partial note payable and accrued interest conversion at $0.0105 per share.


On December 18, 2015, the Company issued 1,618,011 common shares for partial note payable and accrued interest conversion at $0.0057 per share.


On December 22, 2015, the Company issued 5,237,586 common shares for a partial note payable and accrued interest conversion at $0.00202 per share.


On December 28, 2015, the Company issued 6,521,739 common shares for partial note payable and accrued interest conversion at $0.0052 per share.


On December 28, 2015, the Company issued 1,743,012 common shares for partial note payable and accrued interest conversion at $0.0052 per share.


March 31, 2016

 

Authorized:

400,000,000 preferred shares

 

2,000,000,000 common shares

Issued and outstanding:

72,800,920 preferred shares

326,580,006 common shares


On January 12, 2016, the Board of Directors authorized the issuance of 72,800,920 shares of Series “A” Preferred Stock in lieu of payment of $310,131.92 deferred accrued Executive Compensation.  


The following compensation was paid to Keith White and Jeff Stockdale:


 

Deferred Compensation

Share Price (1)

Number of Shares

Keith White

$130,065.96

$0.00426

30,531,915

Jeff Stockdale

$180,065.96

$0.00426

42,269,005


Note 1.  This $0.00426 represents the average market price per share of common stock as quoted over-the-counter for the preceding five (5) days.  The Series “A” Preferred has been priced based on the market price of the common stock thereby maintaining price parity.  


The accrued executive compensation was paid in the form of Series “A” Preferred shares because the utilization of common stock would have resulted in a deficit of unissued common shares reserved for various convertible notes.   



16



Ambient Water Corporation

Notes to Financial Statements

March 31, 2016

(Unaudited)




On January 5, 2016, the Company issued 7,704,762 common shares for partial note payable conversion at $0.0021 per share.


On January 5, 2016, the Company issued 2,494,195 common shares for partial note payable and accrued interest conversion at $0.00189 per share.


On January 6, 2016, the Company issued 4,389,474 common shares for partial note payable and accrued interest conversion at $0.0019 per share.


On January 12, 2016, the Company issued 4,938,381 common shares for partial note payable and accrued interest conversion at $0.00165 per share.


On January 20, 2016, the Company issued 7,472,496 common shares for partial note payable and accrued interest conversion at $0.00165 per share.


On January 15, 2016, the Company issued 9,449,488 common shares for partial note payable and accrued interest conversion at $0.00122 per share.


On January 29, 2016, the Company issued  9,649,712 common shares for partial note payable conversion at $0.00156 per share.


On February 10, 2016, the Company issued 9,649,712 common shares for partial note payable conversion at $0.00132 per share.


On February 11, 2016, the Company issued 7,197,534 common shares for partial note payable and accrued interest conversion at $0.001030 per share.


On February 22, 2016, the Company issued 9,649,712 common shares for partial note payable conversion at $0.00108 per share.


On March 1, 2016, the Company issued 9,649,712 common shares for partial note payable conversion at $0.00102 per share.


On March 4, 2016, the Company issued 9,649,712 common shares for partial note payable conversion at $0.000974 per share.


On March 7, 2016, the Company issued 9,564,864 common shares for partial note payable and accrued interest conversion at $0.000780 per share.


On March 8, 2016, the Company issued 9,649,712 common shares for partial note payable conversion at $0.000974 per share.


On March 16, 2016, the Company issued 14,137,311 common shares for partial note payable conversion at $0.000994 per share.


On March 21, 2016, the Company issued 9,788,827 common shares for partial note payable and accrued interest conversion at $0.000770 per share.


On March 23, 2016, the Company issued 14,137,311 common shares for partial note payable conversion at $0.000900 per share.




17



Ambient Water Corporation

Notes to Financial Statements

March 31, 2016

(Unaudited)




NOTE 11:  Income Taxes


The Company is subject to taxation in the U.S. and the state of Washington.  At March 31, 2016 and December 31, 2015, Ambient Water Corporation had gross deferred tax assets calculated at the Federal Income Tax rate of 34% of approximately $3,685,000 and $3,295,000, respectively, principally arising from net operating loss carry-forwards for income tax purposes of approximately $10,830,000, which expire in the year 2035.  As management of the Company cannot determine that it is more likely than not that the Company will realize the benefit of the deferred tax asset, a valuation allowance of approximately $3,685,000 and $3,295,000 has been established at March 31, 2016 and December 31, 2015, respectively.


The significant components of the Company’s net deferred tax assets at March 31, 2106 and December 31, 2015 are as follows:


 

 

March 31, 2016

 

December 31,

2015

Net operating loss carry forwards

$

10,830,000

$

9,690,000

Deferred tax asset

$

3,685,000

$

3,295,000

Deferred tax asset valuation allowance

 

(3,685,000))

 

(3,295,000)

Net deferred tax asset

$

-

$

-


Due to the reverse acquisition, the Company is restricted in the future use of net operating loss and tax credit carry-forwards generated by Ambient Water Corporation before the effective date of the Business Combination. Both of the Companies’ separate loss years’ net operating losses will be subject to possible limitations concerning changes of control and other limitations under the Internal Revenue Code. The net operating loss carry-forwards are subject to annual limitations which are cumulative until they expire.  The Company is in the process of determining the annual allowable net operating loss deduction should the Company generate taxable income.  Since both of the companies which were parties to the share exchange have substantial valuation allowances against any components of deferred taxes, management believes that no material differences in tax allocations will arise from the share transaction.


The accounting for the tax benefits of acquired deductible temporary differences and net operating loss carry-forwards, which are not recognized at the acquisition date because a valuation allowance is established and which are recognized subsequent to the acquisition, will be applied first to reduce to zero any goodwill and other non-current intangible assets related to the acquisition. Any remaining benefits would be recognized as a reduction of income tax expense in future periods.


FASB ASC 740 prescribes recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  FASB ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  At March 31, 2016, the Company had not taken any tax positions that would require disclosure under FASB ASC 740.


Income taxes are provided based upon the liability method of accounting pursuant to ASC 740-10-25 Income Taxes – Recognition.  Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end.  A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the “more likely than not” standard imposed by FASB ASC 740-10-25-5.


The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had a $40,000 accrual for penalties on its balance sheets at March 31, 2016 and December 31, 2015, and has recognized this as interest and/or penalties in the statement of operations for the years ending December 31, 2014.  Further, the Company currently has no open tax years, subject to audit prior to December 31, 2012.  The Company is current on its federal returns and currently has no state income tax return requirements.



18



Ambient Water Corporation

Notes to Financial Statements

March 31, 2016

(Unaudited)




NOTE 12:  SUBSEQUENT EVENTS


The Company evaluated events occurring subsequent to March 31, 2016, identifying those that are required to be disclosed as follows:


On April 1, 2016, the Company issued 13,958,137 common shares for a partial note payable and accrued interest conversion at $0.00075 per share.


On April 7, 2016, the Company issued 16,065,753 common shares for a partial note payable and accrued interest conversion at $0.00075 per share.


On April 7, 2016, the Company entered into an updated and revised Securities Purchase Agreement and a Registration Rights Agreement with accredited investor, River North Equity, LLC. These two agreements replace the identically named agreements that we entered into with River North Equity, LLC on December 11, 2015. These agreements modified language in the Definitions section, updated information concerning our capital structure, our DWAC eligibility, financial information and other changes reflected in our Periodic Reports which we file with the Securities and Exchange Commission. Additionally, the Company has elected to register 90,000,000 common shares as stated in Note 7.


On April 8, 2016, the Company issued 14,040,790 common shares for a partial note payable and accrued interest conversion at $0.00088 per share.


On April 19, 2016, the Company issued 6,307,822 common shares for a partial note payable and accrued interest conversion at $0.0007927 per share.


On April 25, 2016, the Company issued 16,877,589 common shares for a partial note payable and accrued interest conversion at $0.00067 per share.


On May 2, 2016, the Company issued 15,264,929 common shares for a partial note payable and accrued interest conversion at $0.0007927 per share.


On May 2, 2016, the Company issued 17,631,411 common shares for a partial note payable and accrued interest conversion at $0.00067 per share.


On May 3, 2016, the Company issued 13,165,887 common shares for a partial note payable and accrued interest conversion at $0.0007927 per share.


On May 3, 2016, the Company issued 20,185,029 common shares for a partial note payable and accrued interest conversion at $0.0007927 per share.


On May 3, 2016 the Company received $37,100 on the back end convertible promissory note associated with Note E listed in Note 6 above, less an original issue discount (OID) of $2,100.  The note matures on October 14, 2017 (the "Maturity Date") and to pay interest on the unpaid principal balance hereof at the rate of Eight (8%) percent.  The Lender has the right to convert the outstanding principal and interest into common shares at its option, at any time.  The conversion price will be variable and based on a 42% discount to the market price.  The market price will be the average of the three lowest trading prices for the common stock during the fifteen prior trading days.


On May 4, 2016, the Company issued 7,073,339 common shares for a partial note payable and accrued interest conversion at $0.0007927 per share.


On May 4, 2016, the Company issued 14,886,459 common shares for a partial note payable and accrued interest conversion at $0.0007927 per share.


On May 4, 2016, the Company issued 12,857,820 common shares for a partial note payable and accrued interest conversion at $0.000812 per share.



19



Ambient Water Corporation

Notes to Financial Statements

March 31, 2016

(Unaudited)




On May 6, 2016, the Company issued 13,852,692 common shares for a partial note payable and accrued interest conversion at $0.000754 per share.


On May 10, 2016, the Company issued 15,742,129 common shares for a partial note payable and accrued interest conversion at $0.0004447 per share.


On May 12, 2016, the Company issued 18,288,768 common shares for a partial note payable and accrued interest conversion at $0.000406 per share.


On May 12, 2016, the Company issued 19,704,433 common shares for a partial note payable and accrued interest conversion at $0.000406 per share.





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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Forward Looking Statements

Some of the statements contained in this Quarterly Report on Form 10-Q that are not historical facts are “forward-looking statements” which can be identified by the use of terminology such as “estimates,” “projects,” “plans,” “believes,” “expects,” “anticipates,” “intends,” or the negative or other variations, or by discussions of strategy that involve risks and uncertainties. We urge you to be cautious of the forward-looking statements, that such statements, which are contained in this Quarterly Report, reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors affecting our operations, market growth, services, products and licenses.  No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of the risks we face, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events.  Factors that may cause actual results, our performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include without limitation:


·

our ability to raise capital when needed and on acceptable terms and conditions;

·

our ability to attract and retain management, and to integrate and maintain technical

information and management information systems;

·

the intensity of competition;

·

general economic conditions; and

·

other factors discussed in Risk Factors.

All forward-looking statements made in connection with this Quarterly Report that may be attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given the uncertainties that surround such statements, you are cautioned not to place undue reliance on such forward-looking statements.

Company’s Plans


We began selling the Model 2500 Atmospheric Water Generator in August 2012 to our Philippine distributor.  In 2013, we initiated product sales to our primary U.S. distributor.  In 2014 we began marketing the Ambient Water 400 as it approached field trial testing. Our Philippine distributor ceased business operations at the end of 2014. We continue to service the Philippine market through a service contractor and are actively seeking new distribution partners for the territory.  We have added several distributors in many geographical areas including Latin America, the Caribbean, Indonesia, Malaysia, the Middle East, and Brazil.  We intend to follow with the introduction of two commercial/industrial products, Ambient Water 20K, Ambient Water Vertical Farming unit in the near future. Our goal is to generate positive cash flow from product sales to fund operations at the earliest opportunity.


The Ambient Water 400 was placed into field trial testing in the fourth quarter of 2014.  Testing in Houston, Texas was successful and additional data points were desired to augment the test data gathered.  The unit was moved to Sacramento, California where additional testing began but was terminated by Pacific Air Well, our California distribution partner who was conducting the testing.  Currently, the Ambient Water 400 is being prepared for relocation to another California location for additional testing.


We are actively working to develop a global distributor network, focusing on highly qualified companies with a history of business in the drinking water industry. Currently, we have one distributor in the Southern United States. We are pursuing additional potential distributors and have several active agents helping to identify new distributors and customers.

Discussion and Analysis of Financial Condition and Results of Operations

Revenues


Revenue from sales to date has been modest.  For the next few quarters we are projecting modest sales as we build our distribution network.  For the quarter ending March 31, 2015, we had $30,316 revenue compared to $1,125 revenue for the quarter ending March 31, 2016. We believe that the revenue decrease was due to natural fluctuations in order volume from our stocking distributors. This revenue was generated from the sale of the Model 2500 product and the maintenance items associated with this product line. We believe that the revenue decrease was due to seasonal influences on our sales which appear to be significantly lower in the winter months in North America which is still our primary market for our residential equipment.



21






Costs and Expenses

Our primary costs going forward are related to ongoing sales and marketing, professional fees, executive compensation, administrative payroll and legal fees associated with patent maintenance.

For the quarter ending March 31, 2015, we had $812,335 in general and administrative expenses compared with $295,413 for the quarter ending March 31, 2016.  This decrease of $516,922 in general and administrative expenses was primarily the result of professional fees decreasing in the amount of  $11,677, executive compensation decreasing in the amount of $27,500, stock option compensation (non-cash) decreasing $425,536, travel costs decreasing in the amount of $9,069 and other general and administrative operating costs decreasing by $43,140.  

Professional fees for the quarters ending March 31, 2015 and March 31, 2016 were $57,566 and $45,889, respectively.  The $11,677 decrease was due to legal and Intellectual property expenses decreasing by $5,546, accounting and auditing fees decreasing by $6,255, public and filing fees increasing by $1,071 and other professional fees decreasing by $947.

Executive compensation for the quarter ending March 31, 2015 and March 31, 2016 was $87,500 and $60,000, respectively.  The $27,500 decrease was mostly due to the Company reducing annual Executive compensation.


The legal and intellectual property expenses for the quarter ending March 31, 2015 and March 31, 2016 were $21,585 and $15,859, respectively. The $5,726 decrease for the quarter ending March 31, 2016 was primarily related to lower ongoing maintenance fees and expenses to maintain the Company’s patent portfolio in the current quarter ended March 31, 2016.


The stock option compensation (non-cash) expenses for the quarters ending March 31, 2015 and March 31, 2016 were $582,543 and $157,007, respectively.  The $425,536 decrease was primarily related to first quarter 2015 stock grants to executives of $260,825 and a $164,711 reduction in stock option compensation to Executives in the first quarter of 2016.


The Company’s travel expenses for the quarters ending March 31, 2015 and March 31, 2016 were $9,129 and $60, respectively.  The $9,069 decrease was primarily related to less travel in the quarter ending March 31, 2016.


The other general and administrative operating costs for the quarters ending March 31, 2015 and March 31, 2016 were $75,597 and $32,457, respectively.  The $43,140 decrease was related to a decrease in marketing expense of $12,460, an increase in administrative expense of $161, a decrease in research and development expense of $28,504 and other decreases of $2,337.


During the quarter ending of March 31, 2016, the Company recognized a derivative valuation charge of $70,556 related to the conversion value of new debt acquired during the quarter-referred to as Note G in Note 6 in the financial statements.  Additionally, the Company recognized a derivative valuation charge of $661,991 related to the conversion value of the financing transactions referred to as Notes A through F in Note 6 in the financial statements. (See Note 6 in the financial statements).

Liquidity and Capital Resources

During the first quarter of 2016 the Company funded operations primarily through borrowing on notes payable and increasing accounts payable.

As of March 31, 2016, we had $9,271 cash, total current assets of $84,738, total current liabilities of $417,904, and total stockholders' deficit of $2,321,614.  As of December 31, 2015 we had $820 cash, total current assets of $83,699, total current liabilities of $730,714 and total stockholders' deficit of $2,214,435.

The Company experienced negative cash flow used by operations during the three months ended March 31, 2016 of $41,549 compared to the three months ended March 31, 2015 of $156,306.  The Company experienced cash flows of $-0- from investing activities for the three months ended March 31, 2016 compared to negative cash flows from investing activity of $1,040 for the three months ended March 31, 2015.  The Company experienced positive cash flows from financing activities of $50,000 for the three months ended March 31, 2016 compared to positive cash flows from financing activity of  $148,500 for the three months ended March 31, 2015.  During the three months ended March 31, 2016, the Company raised $50,000 through draws on a convertible note payable.

The Company’s audited financial statements for the year ended December 31, 2015 contained a “going concern” qualification.  As discussed in Note 1of the Notes to financial statements, the Company has incurred losses and has not



22





demonstrated the ability to generate cash flows from operations to satisfy its liabilities and sustain operations.  Because of these conditions, our independent auditors have raised substantial doubt about our ability to continue as a going concern.

For the year ended December 31, 2015, the Company funded its operations principally through issuance of debt instruments.

Our financial objective is to make sure the Company has the cash and debt capacity to fund on-going operating activities, investments and growth.  We intend to fund future capital needs through our current cash position, future operating cash flow and debt or equity financing.   

At March 31, 2016, the Company had 1,340,000 outstanding warrants with an exercise price of $0.03. If the 1,340,000 vested warrants were exercised, upwards of $40,200 may be contributed to support ongoing capital needs. The Company cannot be assured that the warrant holders will exercise any warrants.  There are no warrants subject to the Company’s call.

Existing capital resources are insufficient to support continuing operations of the Company over the next 12 months.  Therefore, the Company will need to obtain additional financing to support existing, as well as, continuing operations.  We anticipate that the Company will need approximately $1,000,000 of additional capital over the next 12 months to execute Management’s plan of operations, including the purchase of inventory, general and administrative expenses and expenditures required for the delivery of the Model 2500 and introduction of additional product models in 2016.

During the quarter ended March 31, 2016, the Company raised no money through the sale of equity.

During the quarter ended March 31, 2016, the Company entered into a financing transaction with an accredited investor, ("Lender").  The transaction created a direct company financial obligation in the form of a convertible promissory note for $250,000, ("Loan").   

Through March 31, 2016, the Company owed $50,000 on the Note.  The Lender has the right to convert all or part of the Loan amount into common shares. (See Note 6 in the financial statements).

During the quarter ended March 31, 2015, the Company borrowed $148,500 from two different accredited investors. (See Note 6 in the financial statements).

While no assurances can be given regarding the achievement of future results as actual results may differ materially, management anticipates adequate capital resources to support continuing operations over the next 12 months through the combination of the Loan, the sale of equity, forecasted working capital from operations, and existing cash reserves.  


Critical Accounting Policies

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which 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.


Revenue Recognition

The Company recognizes revenues when earned which shall be as products are shipped and services are delivered to customers or distributors.  The Company shall also record accounts receivable for revenue earned but not yet collected.

Income Taxes

Income taxes are provided based upon the liability method of accounting pursuant to FASB ASC 740-10-25 “Income Taxes – Recognition”.  Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end.  A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the “more likely than not” standard imposed by FASB ASC 740-10-25-5.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes.



23





At March 31, 2016, the Company has net operating loss carry forwards of approximately $10,830,000, which will expire in 2035 and are calculated at an expected tax rate of approximately 34%.  

FASB ASC 740 prescribes recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  FASB ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  At March 31, 2016, the Company has not taken any tax positions that would require disclosure under FASB ASC 740.

Pursuant to FASB ASC 740, income taxes are provided for based upon the liability method of accounting.  Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end.  A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the “more likely than not” standard imposed by FASB ASC 740 to allow recognition of such assets.

Earnings (Loss) Per Share (“EPS”)

FASB ASC 260, Earnings per Share provides for calculation of "basic" and "diluted" earnings per share.  Basic earnings per share includes no dilution and is computed by dividing net income (loss) available to common shareholders by the weighted average common shares outstanding for the period.  Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity similar to fully diluted earnings per share.  Basic and diluted losses per share were the same, at the reporting dates, as there were stock options and stock warrants outstanding that are considered anti dilutive in periods with a net loss.

Derivative Instruments

FASB ASC 815, Derivatives and Hedging establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities.  They require that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value.

If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction.  For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change.


During 2014, 2015 and the quarter ended March 31,2016, the Company had engaged in transactions that would be considered derivative instruments or hedging activities.


The Company entered into a series of Convertible Promissory Notes which included conversion clauses which are deemed derivative liabilities.  As of December 31, 2015 the estimated effect upon the fair market conversion of the outstanding note balances of $910,983 and accrued interest payable of $110,428 was approximately $825,712 for the relative fair market conversion of the note to common stock.  


As of March 31, 2016 the estimated effect upon the fair market conversion of the outstanding note balances of $796,639 and accrued interest payable of $122,607 was approximately $1,257,387 for the relative fair market conversion of the note to common stock.  For further information see Note 6 to the financial statement.


In March 2014, the Company entered in a financing transaction with an accredited investor which includes certain variable conversion rights attached to the convertible note debt structure.  In accordance with FASB ASC 815-40 Contracts in Entity’s Own Equity, the Company will need to review the possible conversion features under the agreement and disclose any additional derivative liability and the effect of changes in the derivative liability with the issuance of its financial statements. As of March 31, 2016, the value of the stock necessary to settle the contract was $1,095,872.


In July 2015, the Company entered in a different financing transaction with an accredited investor which includes certain variable conversion rights attached to the convertible note debt structure.  In accordance with FASB ASC 815-40 Contracts in Entity’s Own Equity, the Company will need to review the possible conversion features under the agreement and disclose any additional derivative liability and the effect of changes in the derivative liability with the issuance of its financial statements. As of March 31, 2016, the value of the stock necessary to settle the contract was $8,705.




24





In October 2015, the Company entered in a financing transaction with an accredited investor which includes certain variable conversion rights attached to the convertible note debt structure.  In accordance with FASB ASC 815-40 Contracts in Entity’s Own Equity, the Company will need to review the possible conversion features under the agreement and disclose any additional derivative liability and the effect of changes in the derivative liability with the issuance of its financial statements. As of March 31, 2016, the value of the stock necessary to settle the contract was $41,127.


In October 2015, the Company entered in a financing transaction with a different accredited investor which includes certain variable conversion rights attached to the convertible note debt structure.  In accordance with FASB ASC 815-40 Contracts in Entity’s Own Equity, the Company will need to review the possible conversion features under the agreement and disclose any additional derivative liability and the effect of changes in the derivative liability with the issuance of its financial statements. As of March 31, 2016, the value of the stock necessary to settle the contract was $41,127.


In February 2016, the Company entered in a financing transaction with a different accredited investor which includes certain variable conversion rights attached to the convertible note debt structure.  In accordance with FASB ASC 815-40 Contracts in Entity’s Own Equity, the Company will need to review the possible conversion features under the agreement and disclose any additional derivative liability and the effect of changes in the derivative liability with the issuance of its financial statements. As of March 31, 2016, the value of the stock necessary to settle the contract was $70,556.

Impairment of Long-Lived Assets

Long-lived assets of the Company, including the Technology Rights, are reviewed for impairment when changes in circumstances indicate their carrying value has become impaired, pursuant to guidance established in the FASB ASC 350-30.  Management considers assets to be impaired if the carrying amount of an asset exceeds the future projected cash flows from related operations (undiscounted and without interest charges).  If impairment is deemed to exist, the asset will be written down to fair value, and a loss is recorded as the difference between the carrying value and the fair value. Fair values are determined based on quoted market values, discounted cash flows, or internal and external appraisals, as applicable.  Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value.  Management has determined that there was no impairment as of March 31, 2016 and December 31, 2015.

Fair Value of Financial Instruments

The Company's financial instruments as defined by FASB ASC 825-10-50 include cash, trade accounts receivable, and accounts payable and accrued expenses.  All instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at March 31, 2016 and December 31, 2015.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Inflation

It is our opinion that inflation has not had a material effect on our operations.



25







ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Not required for smaller reporting companies.


ITEM 4.  CONTROLS AND PROCEDURES


Evaluation of Disclosure Controls and Procedures


In connection with the preparation of this report on Form 10-Q, an evaluation was carried out by management, with the participation of the chief executive officer and the chief financial officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)). Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms and that such information is accumulated and communicated to management, including the chief executive officer and the chief financial officer, to allow timely decisions regarding required disclosures.


Based on that evaluation, the Company’s management concluded, as of the end of the period covered by this report, that the Company’s disclosure controls and procedures were not effective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the Commission’s rules and forms, and that such information was not accumulated and communicated to management, including the chief executive officer and the chief financial officer, to allow timely decisions regarding required disclosures.


The certification required by Section 302 of the Sarbanes-Oxley Act of 2002 are filed as exhibits 31.1 and 31.2, respectively, to this quarterly report on Form 10-Q.


Changes in Internal Control Over Financial Reporting


During the period ended March 31, 2016, there has been no change in internal control over financial reporting that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.



26







PART II – OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS


There are no material legal proceedings pending against the Company to the knowledge of management.


ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


None.


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES


None.


ITEM 4.  MINE SAFETY DISCLOSURES


Not applicable.


ITEM 5.  OTHER INFORMATION


On April 1, 2016, the Company issued 13,958,137 common shares for a partial note payable and accrued interest conversion at $0.00075 per share.


On April 7, 2016, the Company issued 16,065,753 common shares for a partial note payable and accrued interest conversion at $0.00075 per share.


On April 8, 2016, the Company issued 14,040,790 common shares for a partial note payable and accrued interest conversion at $0.00088 per share.


On April 19, 2016, the Company issued 6,307,822 common shares for a partial note payable and accrued interest conversion at $0.0007927 per share.


On April 25, 2016, the Company issued 16,877,589 common shares for a partial note payable and accrued interest conversion at $0.00067 per share.


On May 2, 2016, the Company issued 15,264,929 common shares for a partial note payable and accrued interest conversion at $0.0007927 per share.


On May 2, 2016, the Company issued 17,631,411 common shares for a partial note payable and accrued interest conversion at $0.00067 per share.


On May 3, 2016, the Company issued 13,165,887 common shares for a partial note payable and accrued interest conversion at $0.0007927 per share.


On May 3, 2016, the Company issued 20,185,029 common shares for a partial note payable and accrued interest conversion at $0.0007927 per share.


On May 3, 2016 the Company received $37,100 on the back end convertible promissory note associated with Note E listed in Note 6 above, less an original issue discount (OID) of $2,100.  The note matures on October 14, 2017 (the "Maturity Date") and to pay interest on the unpaid principal balance hereof at the rate of Eight (8%) percent.  The Lender has the right to convert the outstanding principal and interest into common shares at its option, at any time.  The conversion price will be variable and based on a 42% discount to the market price.  The market price will be the average of the three lowest trading prices for the common stock during the fifteen prior trading days.


On May 4, 2016, the Company issued 7,073,339 common shares for a partial note payable and accrued interest conversion at $0.0007927 per share.




27





On May 4, 2016, the Company issued 14,886,459 common shares for a partial note payable and accrued interest conversion at $0.0007927 per share.


On May 4, 2016, the Company issued 12,857,820 common shares for a partial note payable and accrued interest conversion at $0.000812 per share.


On May 6, 2016, the Company issued 13,852,692 common shares for a partial note payable and accrued interest conversion at $0.000754 per share.


On May 10, 2016, the Company issued 15,742,129 common shares for a partial note payable and accrued interest conversion at $0.0004447 per share.


On May 12, 2016, the Company issued 18,288,768 common shares for a partial note payable and accrued interest conversion at $0.000406 per share.


On May 12, 2016, the Company issued 19,704,433 common shares for a partial note payable and accrued interest conversion at $0.000406 per share.


ITEM 6.  EXHIBITS


     31.1

 

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

     31.2

 

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

     32.1

 

Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

     32.2

 

Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

     101*

 

The following financial information from our Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 formatted in Extensible Business Reporting Language (XBRL): (i) the Balance Sheets, (ii) the Statements of Operations, (iii) the Statements of Cash Flows, and (iv) Notes to Financial Statements










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SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Date:  May 12, 2016


Ambient Water Corporation

(Registrant)



           /s/ Keith White

/s/ Keith White


By:________________________________

________________________________

           Keith White

Keith White

           Chief Executive Officer

Chief Financial Officer

           (Principal Executive Officer)

(Principal Accounting Officer)






29