10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2018

OR

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

Commission File No. 000-55825

WATER NOW, INC.

(Exact name of registrant as specified in its charter)

Texas	81-1419236
(State or other jurisdiction of incorporation)	(I.R.S. Employer Identification No.)
2840 Bryan Avenue, Fort Worth, Texas	76104
(Address of Principal Executive Office)	(Zip Code)

Registrant’s telephone number, including area code: (817) 900-9184

Not applicable

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.   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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [X]

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

At November 8, 2018, there were 34,486,808 shares outstanding of Common Stock, no par value.

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IMPORTANT INFORMATION REGARDING THIS FORM 10-Q

Unless otherwise indicated, references to “we,” “us,” and “our” in this Quarterly Report on Form 10-Q (“Report”) refer collectively to Water Now, Inc., a Texas corporation (“Water Now”).

Readers should consider the following information as they review this Report:

Forward-Looking Statements

There are statements in this Report that are not historical facts. These “forward-looking statements” can be identified by use of terminology suggesting a belief in future performance and similar expressions. You should be aware that these forward-looking statements are subject to risks and uncertainties that are beyond our control. For a discussion of these risks, you should read this entire Report carefully. Although management believes that the assumptions underlying the forward-looking statements included in this Report are reasonable, they do not guarantee our future performance, and actual results could differ from those contemplated by these forward-looking statements. The assumptions used for purposes of the forward-looking statements represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. In the light of these risks and uncertainties, there can be no assurance that the results and events contemplated by the forward-looking statements contained in this Report will in fact transpire. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their respective dates. We do not undertake any obligation to update or revise any forward-looking statements.

Document Summaries

Descriptions of documents and agreements contained in this Report are provided in summary form only, and such summaries are qualified in their entirety by reference to the actual documents and agreements filed as exhibits to our Registration Statement on Form 10 filed on October 13, 2017, other periodic and current reports we have filed with the SEC or this Report.

Access to Filings

Access to our reports and amendments thereto, filed with or furnished to the SEC pursuant to Section 13(a) of the Exchange Act, as well as reports filed electronically pursuant to Section 16(a) of the Exchange Act, may be obtained through our website (http://www.waternowinc.com) as soon as reasonably practicable after we have filed or furnished such material with the SEC. The contents of our website are not, and shall not be deemed to be, incorporated into this Report.

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TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

		Page No.
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Balance Sheets as of September 30, 2018 (unaudited) and December 31, 2017	4
	Condensed Statements of Operations (unaudited) for the three and nine months ended September 30, 2018 and 2017	5
	Condensed Statements of Cash Flows (unaudited) for the three and nine months ended September 30, 2018 and 2017	6
	Notes to Condensed Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	27
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Signatures		29
Index to Exhibits		30

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Water Now, Inc.

Condensed Balance Sheets

	September 30,			December 31,
	2018			2017
		(Unaudited)
ASSETS
Current Assets
Cash	$	18,909		$	2,049
Inventory		435,138			346,101
Accounts receivable		5,250			—
Total Currents Assets		459,297			348,150
Plant and Machinery - Net		111,305			132,010
Security Deposit		10,849			9,149
Total Assets	$	581,451		$	489,309
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Outstanding checks in excess of bank balance	$	—		$	6,597
Accounts payable and accrued expenses		459,795			116,513
Advance from related party		52,501			32,115
Current portion of convertible notes payable		141,450			—
Note payable – stockholder		112,000			112,000
Total Current Liabilities		765,746			267,225
Long-term convertible notes payable		71,196			—
Total Liabilities		836,942			267,225
Commitments and Contingencies - Note 8		—			—
Stockholders' Equity
Preferred stock – no par value, 10,000,000 shares authorized, zero issued and outstanding at September 30, 2018 and December 31, 2017		—			—
Common Stock - no par value, 90,000,000 shares authorized, 34,433,000 shares and 30,522,000 shares issued and 34,236,808 shares and 30,325,808 shares outstanding as of September 30, 2018 and December 31, 2017, respectively		6,180,486			3,831,205
Subscription receivable		(50,000	)		—
Accumulated deficit		(6,385,977	)		(3,609,121	)
Total Stockholders' Equity (Deficit)		(255,491	)		222,084
Total Liabilities and Stockholders' Equity	$	581,451		$	489,309

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Water Now, Inc.

Condensed Statement of Operations

(Unaudited)

	For the three months ended						For the nine months ended
		September 30,			September 30,			September 30,			September 30,
		2018			2017			2018			2017
Revenues, net	$	(19,995	)	$	4,400		$	39,200		$	4,400
Cost of goods sold		(10,742	)		2,400			25,935			2,400
Gross Profit (Loss)		(9,253	)		2,000			13,265			2,000
Operating expenses
Research and development expenses		506,340			571,557			998,734			854,624
General and administrative expenses		380,616			326,615			1,694,779			440,681
Total operating expenses		886,956			898,172			2,693,513			1,295,305
Loss from operations		(896,209	)		(896,172	)		(2,680,248	)		(1,293,305	)
Other expense
Interest expense		(89,272	)		(1,000	)		(96,608	)		(7,000	)
Total other expense		(89,272	)		(1,000	)		(96,608	)		(7,000	)
Loss before provision for income taxes		(985,481	)		(897,172	)		(2,776,856	)		(1,300,305	)
Provision for income taxes		—			—			—			—
Net Loss	$	(985,481	)	$	(897,172	)	$	(2,776,856	)	$	(1,300,305	)
Loss per share
basic and fully diluted	$	(0.03	)	$	(0.03	)	$	(0.09	)	$	(0.04	)
Weighted-average number of shares of common stock
basic and fully diluted		33,572,678			29,372,413			32,563,861			29,382,240

The accompanying notes are an integral part of these condensed financial statements.

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Water Now, Inc.

Condensed Statement of Cash Flows

(Unaudited)

	For The Nine Months Ended
	September 30,
	2018			2017
Cash flows from operating activities:
Net loss	$	(2,776,856	)	$	(1,300,305	)
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock issued as payment for services and employees compensation		1,005,000			540,175
Depreciation of equipment		20,705			—
Non-cash interest expense		77,827			—
Changes in operating working capital items:
Accounts payable and accrued expenses		243,282			(6,553	)
Security deposit		(1,700	)		(9,149	)
Inventory		(89,037	)		(204,294	)
Accounts receivable		(5,250	)		(4,400	)
Net cash used in operating activities		(1,526,029	)		(984,526	)
Net cash used in investing activities		—			—
Cash flows from financing activities:
Outstanding checks in excess of bank balance		(6,597	)		(2,500	)
Net advances from related party		20,386			38,615
Borrowings on convertible notes payable		583,600			—
Issuances of common stock		1,470,500			1,250,030
Repurchase of common stock		(525,000	)		—
Net cash provided by financing activities		1,542,889			1,286,145
Net increase in cash		16,860			301,619
Cash at beginning of period		2,049			336
Cash at end of period	$	18,909		$	301,955
Supplemental Disclosure of Interest and Income Taxes Paid:
Interest paid during the period	$	15,705		$	7,000
Income taxes paid during the period	$	—		$	—
Non-cash disclosures:
Conversion of convertible notes payable to 200,000
common shares	$	—		$	100,000
Issuance of common stock for debt issuance costs	$	53,400		$	—

The accompanying notes are an integral part of these condensed financial statements.

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Water Now, Inc.

Notes to Condensed Financial Statements (unaudited)

September 30, 2018

1. Basis of presentation, Background and Description of Business

Basis of presentation

The accompanying unaudited financial statements of Water Now, Inc. (the “Company”) have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or the SEC, including the instructions to Regulation S-X. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been or omitted from these statements pursuant to such rules and regulations and, accordingly, they do not include all the information and notes necessary for comprehensive financial statements and should be read in conjunction with our audited financial statements for the period ended December 31, 2017.

In the opinion of the management of the Company, all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the three-month period have been made. Results for the interim period presented are not necessarily indicative of the results that might be expected for the entire fiscal year. When used in these notes, the terms “Company”, “we”, “us” or “our” mean Water Now, Inc.

Background and Description of Business

On September 27, 2016, we consummated a transaction whereby VCAB One Corporation, a Texas corporation (“VCAB”), merged with and into us. At the time of the merger VCAB was subject to a bankruptcy proceeding and had minimal assets, no equity owners and no liabilities, except for approximately 1,500 holders of Class 5 Allowed General Unsecured Claims and a holder of allowed administrative expenses (collectively, “Claim Holders”). Pursuant to the terms of the merger, and in accordance with the bankruptcy plan, we issued an aggregate of 703,808 shares of our common stock (the “Plan Shares”) to the Claim Holders whose claims had been approved as of the time of issuance as full settlement and satisfaction of their respective claims. As provided in the confirmed bankruptcy plan, the Plan Shares were issued pursuant to Section 1145 of the United States Bankruptcy Code. An additional 196,192 Plan Shares are held in reserve in the Company’s treasury for issuance to Claim Holders whose claims have yet to be either approved or denied by the court. The treasury shares will be issued once a Claim Holder’s claim has been approved or disapproved. If disapproved the shares will be distributed to approve Claim Holders on a pro rata basis. As a result of the merger, the separate corporate existence of VCAB was terminated. We entered into the merger in order to increase our shareholder base in order to, among other things, assist us in satisfying the listing standards of a national securities exchange. The Company recorded total restructuring expenses of $615,000, including $165,000 of consulting fees in cash and $450,000 for the issuance of the Plan Shares for settlement of claims held by the Claim Holders.

2. Going Concern

At September 30, 2018, the Company had approximately $19,000 in cash and had net working capital deficit of approximately $306,000. The Company, which generated a net loss of approximately $2,777,000 and $1,300,000 for the nine-months ended September 30, 2018 and 2017, respectively, may not have sufficient cash to fund its current and future operations. There is no assurance that future operations will result in profitability. No assurance can be given that management will be successful in its efforts to raise additional capital from present or future shareholders. The failure to raise additional capital needed to achieve its business plans will have a material adverse effect on the Company’s financial position, results of operations, and ability to continue as a going concern.

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3. Summary of Significant Accounting Policies and Recent Accounting Pronouncements

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of deposit accounts with original maturities of three months or less.

Inventory

Inventory includes manufacturing parts and work in process for the Company’s water purification equipment. Inventories are carried at the lower of cost (on a first-in, first-out (“FIFO”) basis), or net realizable value.

Use of Accounting Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

Actual results could differ from those estimates. The most significant estimates and assumptions made by management related to determining the value of stock-based expenses. 

Revenue

The Company had a reversal of sale totaling $23,995 during the three months ended September 30, 2018 due to the Company writing off the sale as a charitable donation.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities for a change in tax rate is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts more likely than not to be realized.

The Company accounts for uncertain tax positions in accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 740-10, “Income Taxes”. ASC 740-10 provides several clarifications related to uncertain tax positions. Most notably, a “more likely-than-not” standard for initial recognition of tax positions, a presumption of audit detection and a measurement of recognized tax benefits based on the largest amount that has a greater than 50 percent likelihood of realization. ASC 740-10 applies a two-step process to determine the amount of tax benefit to be recognized in the financial statements. First, the Company must determine whether any amount of the tax benefit may be recognized. Second, the Company determines how much of the tax benefit should be recognized (this would only apply to tax positions that qualify for recognition). No additional liabilities have been recognized as a result of the implementation. Accordingly, the Company has not recognized any penalty, interest or tax impact related to uncertain tax positions.

Stock-Based Expenses

The Company accounts for stock-based expenses under the provisions of ASC 718, “Compensation—Stock Compensation”, which requires the measurement and recognition of expense for stock-based awards made to employees and directors based on estimated fair values on the grant date. The stock-based compensation awards to employees, directors and non-employees during the nine months ended September 30, 2018 consisted of the grants of restricted stock. The restrictions on the shares granted related to regulatory restrictions as well as service

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and milestone based restrictions that prevented the sale of the stock granted. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the shorter of the period over which services are to be received or the vesting period.

The Company accounts for stock-based expenses awards to non-employees in accordance with ASC 505-50, “Equity-Based Payments to Non-Employees”. In accordance with ASC 505-50, the Company determines the fair value of stock-based expenses awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.

The Company estimated the fair value of stock-based awards issued to employees, directors and non-employees during the nine months ended September 30, 2018 and 2017 based on prices paid by unrelated third-parties for the purchases of its common stock during this period, which amounted to $0.50 per share.

The components of stock-based compensation related to stock awards in the Company’s Statement of Operations for the three months ended September 30, 2018 and 2017, and for the nine months ended September 30, 2018 and 2017 are as follows (rounded to nearest thousand):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Research and development expenses	$	265,000	$	362,500	$	440,000	$	437,500
General and administrative expenses		50,000		102,675		565,000		102,675
Total stock-based expense	$	315,000	$	465,175	$	1,005,000	$	540,175

Research and development costs

The Company expenses research and development costs as incurred in accordance with ASC 730, “Research and Development”. The Company’s research and development activities related to activities undertaken to adapt the water purification technology contributed by its founder for commercial-scale manufacturing and to develop new products. Research and development expenses were $506,340 and $571,557, for the three months ended September 30, 2018 and 2017, respectively. Research and development expenses were $998,734 and $854,624, for the nine months ended September 30, 2018 and 2017, respectively.

Earnings (Loss) Per Share

Basic earnings (loss) per share are computed by dividing the net income (loss) by the weighted-average number of shares of common stock and common stock equivalents such as outstanding stock options and warrants. Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options and warrants, using the treasury stock method. The calculation of fully diluted earnings (loss) per share assumes the dilutive effect of the exercise of outstanding options and warrants at either the beginning of the respective period presented or the date of issuance, whichever is later.

Recently Adopted Accounting Pronouncements

Going Concern — In August 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-15 – “Presentation of Financial Statements – Going Concern – Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”, which 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

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continue as a going concern. The updated accounting guidance was effective for the Company on December 31, 2016. We have implemented this new accounting standard and we will update our liquidity disclosures as necessary.

Revenue — In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers”, which outlines a single, comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU 2014-09 is effective for reporting periods beginning after December 15, 2017. The implementation of this standard did not have a material impact on the Company’s accompanying financial statements.

Leases — In February 2016, the FASB issued ASU 2016-02, “Leases”. This standard will require entities that lease assets—referred to as “lessees”—to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The accounting by entities that own the assets leased by the lessee—also known as lessor accounting—will remain largely unchanged from current GAAP. ASU 2016-02 is effective for reporting periods beginning after December 15, 2018. Modified retrospective application is required, with optional practical expedients available. The Company is currently evaluating the impact of the new guidance.

Debt Issuance Costs — In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs”. The new standard will more closely align the presentation of debt issuance costs under U.S. generally accepted accounting principles with the presentation under comparable IFRS standards. Debt issuance costs related to a recognized debt liability will be presented on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts. The cost of issuing debt will no longer be recorded as a separate asset, except when incurred before receipt of the funding from the associated debt liability. Under current U.S. generally accepted accounting principles, debt issuance costs are reported on the balance sheet as assets and amortized as interest expense. The costs will continue to be amortized to interest expense using the effective interest method. Subsequent to the issuance of ASU 2015-03 the Securities and Exchange Commission staff made an announcement regarding the presentation of debt issuance costs associated with line-of-credit arrangements, which was codified by the FASB in ASU 2015-15. This guidance, which clarifies the exclusion of line-of-credit arrangements from the scope of ASU 2015-03, is effective upon adoption of ASU 2015-03. ASU 2015-03 is effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.

Stock Compensation — In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”, which will simplify the income tax consequences, accounting for forfeitures and classification on the Statement of Cash Flows (i) excess tax benefits be classified as cash inflows provided by operating activities, and (ii) cash paid to taxing authorities arising from the withholding of shares from employees be classified as cash outflows used in financing activities. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted. The implementation of this standard did not have a material impact on the Company’s accompanying financial statements.

Statement of Cash Flows — In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)” (“ASU No. 2016-15”). ASU No. 2016-15 clarifies how certain cash receipts and payments should be presented in the statement of cash flows. ASU No. 2016-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company will adopt ASU No. 2016-15 commencing in the first quarter of fiscal 2019. The Company does not believe this standard will have a material impact on its financial statements or the related footnote disclosures.

4. Note Payable – Stockholder

The Company borrowed $112,000 from a shareholder on November 2, 2017. The note bears interest at 12% and is payable monthly interest-only through April 30, 2019, at which time the entire amount of principal and any

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accrued interest is due and payable. The note is collateralized by all equipment owned by the Company and is guaranteed by the Company’s President. The interest expense incurred on the note payable - stockholder was $10,080 and $0, for the nine months ended September 30, 2018 and 2017, respectively.

5. Convertible Notes Payable

The Company borrowed $187,500 from three shareholders on June 18, 2018. The notes bear interest at 10% and are payable in one lump sum on June 18, 2019, at which time the entire amount of principal and accrued interest is due and payable. The notes are unsecured. The outstanding principal and interest amount is convertible by the holders into shares of the Company’s common stock at any time prior to the maturity date at a price per share equal to fifty percent of the average closing price of the Company’s common stock for the ten trading days prior to the conversion date. The principal balance at September 30, 2018 is $187,500. The interest expense incurred on the notes payable was approximately $5,500 and $0, for the nine months ended September 30, 2018 and 2017, respectively. The Company’s chief executive officer has guaranteed the shareholder notes. The value of the embedded beneficial conversion feature on the notes payable was estimated to be $187,500. For the nine months ended September 30, 2018, the Company recorded $54,687 of interest expense related to the value of the embedded beneficial conversion feature.

The Company borrowed $120,000 from a shareholder on August 27, 2018. The note bears interest at 8% and is payable in one lump sum on February 27, 2019, at which time the entire amount of principal and accrued interest is due and payable. The note is unsecured. The outstanding principal and interest amount is convertible by the holder into shares of the Company’s common stock at any time prior to the maturity date at the conversion price of $0.50 per share. The principal balance at September 30, 2018 is $120,000. The interest expense incurred on the note payable was approximately $800 and $0, for the nine months ended September 30, 2018 and 2017, respectively. The value of the embedded beneficial conversion feature on the note payable was estimated to be $88,800. For the nine months ended September 30, 2018, the Company recorded $14,800 of interest expense related to the value of the embedded beneficial conversion feature.

The Company borrowed $68,000 from a lender on September 4, 2018. The note bears interest at 8% and is payable in one lump sum on September 4, 2019, at which time the entire amount of principal and accrued interest is due and payable. The note is unsecured. The outstanding principal and interest amount is convertible by the holder into shares of the Company’s common stock beginning 170 days after the issuance date and prior to the maturity date at a price per share equal to sixty-five percent of the average of the lowest two trading prices of the Company’s common stock for the twenty trading days prior to the conversion date. The principal balance at September 30, 2018 is $68,000. The interest expense incurred on the note payable was approximately $450 and $0, for the nine months ended September 30, 2018 and 2017, respectively. The value of the embedded beneficial conversion feature on the note payable was estimated to be $39,748. For the nine months ended September 30, 2018, the Company recorded $3,510 of interest expense related to the value of the embedded beneficial conversion feature.

The Company borrowed $50,000 from a shareholder on September 13, 2018. The note bears interest at 10% and is payable in one lump sum on March 13, 2019, at which time the entire amount of principal and accrued interest is due and payable. The note is unsecured. The outstanding principal and interest amount is convertible by the holder into shares of the Company’s common stock at any time prior to the maturity date at the conversion price of $0.50 per share. The principal balance at September 30, 2018 is $50,000. The interest expense incurred on the note payable was approximately $200 and $0, for the nine months ended September 30, 2018 and 2017, respectively. The value of the embedded beneficial conversion feature on the note payable was estimated to be $42,000. For the nine months ended September 30, 2018, the Company recorded $3,500 of interest expense related to the value of the embedded beneficial conversion feature.

The Company borrowed $200,000 from a lender on September 17, 2018. The note bears interest at 10% and is payable monthly through the maturity date, September 17, 2021, at which time the entire amount of principal and accrued interest is due and payable. The note is unsecured. The outstanding principal and interest amount is convertible by the holder into shares of the Company’s common stock at any time prior to the maturity date at a

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price per share equal to $0.75 per share if before 180 days after the issuance date, or if 180 days after the issuance date, the lesser of $0.75 per share or seventy percent of the second lowest trading price of the Company’s common stock for the twenty trading days prior to the conversion date. The principal balance at September 30, 2018 is $200,000. The interest expense incurred on the note payable was approximately $800 and $0, for the nine months ended September 30, 2018 and 2017, respectively. The value of the embedded beneficial conversion feature on the note payable was estimated to be $37,333. In addition, the Company granted 60,000 shares of the Company’s common stock valued at $53,400 based on the Company’s share price on the date of the note agreement and paid $5,000 for debt issuance costs. For the nine months ended September 30, 2018, the Company recorded $1,330 of interest expense related to the value of the embedded beneficial conversion feature and debt issuance costs.

6. Advances From Related Party

The Company has received non-interest bearing advances without a specified maturity date from a stockholder of the Company. The Company owed approximately $53,000 and $32,000, respectively, at September 30, 2018 and December 31, 2017 to the stockholder.

7. Equity Transactions

From January 1, 2017 to December 31, 2017, the Company issued 2,922,000 shares to investors at $0.50 per share for cash, with total proceeds of $1,436,030.

The Company also issued 200,000 shares to shareholders to convert the Convertible Notes amounting to $100,000 in August 2017.

From July 1, 2017 to December 31, 2017, the Company issued 1,230,350 shares to executives, employees working in research and development at the Company and consultants. The value of these shares at $0.50 per share was $615,175. In addition, there were 600,000 shares of common stock issued in 2016 which vested in January, 2017.

In May 2017 and September 2017, the Company’s principal shareholder surrendered an aggregate of 2,779,850 shares of common stock to the Company, which were recorded as treasury stock with a $0 value. All surrendered shares were used to issue stock by the Company during the year.

From January 1, 2018 to March 31, 2018, the Company issued 1,656,000 shares to investors at $0.50 per share for cash, with total proceeds of $828,000. In addition, the Company issued 610,000 shares to executives, employees working in research and development at the Company and consultants. The value of these shares at $0.50 per share was $305,000.

From April 1, 2018 to June 30, 2018, the Company issued 625,000 shares to investors at $0.50 per share for cash, with total proceeds of $312,500. In addition, the Company issued 770,000 shares to executives, employees working in research and development at the Company and consultants. The value of these shares at $0.50 per share was $385,000. Also see Note 8 regarding shares returned during June 2018 as a result of a lawsuit settlement.

From July 1, 2018 to September 30, 2018, the Company issued 660,000 shares to investors at $0.50 per share for cash, with total proceeds of $330,000. In addition, the Company granted 705,000 shares to executives, employees working in research and development at the Company and consultants. The value of these shares at $0.50 per share was $352,500. Also see Note 5 regarding shares issued for debt issuance costs in September 2018.

8. Commitments and Contingencies

Lease Commitments

Operating Leases – Rental Property

On September 11, 2017, the Company signed a lease agreement with Peleton Properties LLC which commenced

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on October 15, 2017. The lease is for a term of 36.5 months ending on October 30, 2020, and requires monthly payments of approximately $9,000.

As of September 30, 2018, future minimum lease payments to Peleton Properties LLC required under the non-cancellable operating lease are as follows (rounded to nearest thousand):

Year ending December 31,
	2018		26,000
	2019		102,000
	2020		85,000
	Total minimum payments	$	213,000

Contractual Commitments

Effective as of May 1, 2016, the Company entered into a three-year employment agreement with the Company’s President. The agreement calls for monthly payments of $7,000 per month through April 2017 and $15,000 per month thereafter. The employment agreement also provided for the grant of 500,000 shares of common stock, which were fully vested on January 1, 2017. The Company expensed $250,000 for these shares during the period ended December 31, 2016 in accordance with ASC 718. The employment agreement provides for an additional grant of 500,000 shares of common stock subject to satisfactory employment through December 2017. These shares were issued in September 2017. The Company expensed $250,000 for these shares during the year ended December 31, 2017 in accordance with ASC 718.

The Company has entered into a two-year accounting consulting services agreement with a financial consultant. The accounting consulting services agreement provided for a grant of 100,000 shares of common stock, which fully vested at January 2, 2017. The Company expensed $50,000 for these shares during the period ended December 31, 2016 in accordance with ASC 505-50. The Company shall pay to the consultant 75,000 shares of common stock per each completed six months of satisfactory service. The first installment shall be payable at such time as the Company generates revenue from the sale of its products. These shares were issued in September 2017. The Company expensed $37,500 for these shares during the period ended December 31, 2016 in accordance with ASC 718.

We may become involved in, or have been involved in, arbitrations or various other legal proceedings that arise from the normal course of our business. We cannot predict the timing or outcome of these claims and other proceedings. The ultimate outcome of any litigation is uncertain, and either unfavorable or favorable outcomes could have a material negative impact on our results of operations, balance sheets and cash flows due to defense costs, and divert management resources. Currently, except as set forth below, we are not involved in any arbitration and/or other legal proceeding that could have a material effect on our business, financial condition, results of operations and cash flows.

We accrue for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Significant judgement is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. In addition, in the event we determine that a loss is not probable, but is reasonably possible, and it becomes possible to develop what we believe to be a reasonable range of possible loss, then we will include disclosure related to such a matter as appropriate and in compliance with ASC 450. The accruals or estimates, if any, are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular matter. To the extent there is a reasonable possibility that the losses could exceed the amounts already accrued, we will, as applicable, adjust the accrual in the period the determination is made, disclose an estimate of the additional loss or range of loss, indicate that the estimate is immaterial to our financial statements as a whole, or, if the amount of such adjustment cannot be reasonably estimated, disclose that an estimate cannot be made.

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Litigation

On May 30, 2018, the Company reached an amicable resolution by way of a settlement agreement and release (the “Settlement Agreement”) with Cloudburst Solutions, LLC (“CS”) with respect to the Manufacturing and Licensing Agreement entered into on July 1, 2016 (“Agreement”). Neither party admitted liability and each agreed to finally and forever, settle and compromise all disputes and matters of controversy between them.

CS has agreed to dismiss the lawsuit filed, fully release, acquit, and forever discharge the Company and David King from any claims related to the Agreement, render the Agreement null and void in all respects, and to cancel 1,250,000 shares held by CS in the Company’s stock. The Company has agreed to fully release, acquit, and forever discharge CS from any claims related to the Agreement and has agreed that the Agreement is null and void and neither party owes any duties or obligations thereunder. The Company has agreed to pay CS $700,000.00 in four installments. The first payment of $150,000 was paid on June 20, 2018. The second payment of $150,000 was paid to CS within 30 days of the first payment. The third payment of $150,000 was paid to CS within 30 days of the second payment. The final payment of $250,000 was to be paid to CS within 30 days of the third payment. At September 30, 2018, $175,000 remains to be paid by the Company to CS. The Settlement Agreement does not contain any admission of liability, wrongdoing, or responsibility by any of the parties.

9. Income Taxes

The Company accounts for income taxes under the liability method. Deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purpose, referred to as temporary differences. Deferred tax assets and liabilities at the end of each period are determined using the currently enacted tax rates applied to taxable income in the periods in which the deferred tax assets and liabilities are expected to be settled or realized.

The Company’s tax provision is determined using an estimate of an annual effective tax rate adjusted for discrete items, if any, that are taken into account in the relevant period. The 2018 and 2017 annual effective tax rate was 0% for the U.S. federal and state statutory tax rates. The Company reviews tax uncertainties in light of changing facts and circumstances and adjusts them accordingly. As of September 30, 2018 and December 31, 2017, there were no tax contingencies recorded.

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

We had a net operating loss carry-forward for federal and state tax purposes of approximately $6,400,000 at September 30, 2018, that is potentially available to offset future taxable income. The TCJA (Tax Cut and Jobs Act) changes the rules on NOL carryforwards. The 20-year limitation was eliminated, giving the taxpayer the ability to carry forward losses indefinitely. However, NOL carry forward arising after January 1, 2018, will now be limited to 80 percent of taxable income.

For financial reporting purposes, no deferred tax asset was recognized at September 30, 2018 and December 31, 2017 because management estimates that it is more likely than not that substantially all of the net operating losses will expire unused. As a result, the amount of the deferred tax assets considered realizable was reduced 100% by a valuation allowance. The change in the valuation allowances were approximately $207,000 and $442,000 for the three months ended September 30, 2018 and 2017, respectively.

10. Subsequent Events

The Company has evaluated all material events or transactions that occurred after September 30, 2018 up to November 14, 2018, the date these financial statements were available to be issued and noted no material subsequent events which would require disclosure.

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On October 28, 2018, the Company entered into an Exclusive Sales Distribution Agreement (the Distribution Agreement) with African Horizon Technologies (Pty) Ltd (AHT), a South African company. The Distribution Agreement provides that the Company will become an exclusive distributor in the United States for the Hydraspin technology owned by AHT. The Hydraspin technology removes oil from water. The cost of the distributor rights will be $500,000 in cash, plus 500,000 shares of the Company’s common stock, with an additional 500,000 common shares upon the earlier of 24 months from the execution of the agreement or the sale of 50 units to the Company. The common shares may not be sold for a period of 12 months from date of issuance. Also payable under the agreement will be a royalty of 2% of total net profits, as defined, generated by the Company from sale of oil generated by the products acquired during the term of the agreement. The agreement has a 5-year term, and it automatically renews for five years unless terminated earlier by mutual agreement of the parties. The agreement contains certain quotas during each 12-month period during the term.

The Company formed a new subsidiary, Hydraspin USA, Inc., on October 24, 2018, as the entity to be the distributor of the products.

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

The following discussion and analysis should be read in conjunction with our financial statements and the related notes. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Forward-Looking Statements and Business sections in this registration statement. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

Overview

Water Now, Inc. was incorporated in Texas on February 10, 2016 to develop and commercialize a patent-pending, gas/diesel powered, portable device that processes and purifies contaminated water. Our business strategy was conceived as a result of the growing global water crisis. Today, many countries and regions are experiencing acute water shortages and we believe our technology and products are capable of generating safe drinking water from many available water sources.

Our product lines are designed to consist of portable units capable of providing a cost-effective, safe and efficient method of water purification. Our products require no pre- or post-treatment of the source water, no filters, no membranes and no chemicals. The quality of water purified by our products has been tested to meet or exceed the World Health Organization’s (“WHO”) drinking water standards.

In addition to the water technology products explained above, we also will begin to sell the following products:

On October 28, 2018, we entered into an Exclusive Sales Distribution Agreement (the Distribution Agreement) with African Horizon Technologies (Pty) Ltd (AHT), a South African company. The Distribution Agreement provides that we will become an exclusive distributor in the United States for the Hydraspin technology owned by AHT. The Hydraspin technology removes oil from water. The cost of the distributor rights will be $500,000 in cash, plus 500,000 shares of our common stock, with an additional 500,000 common shares upon the earlier of 24 months from the execution of the agreement or the sale of 50 units to us. The common shares may not be sold for a period of 12 months from date of issuance. Also payable under the agreement will be a royalty of 2% of total net profits, as defined, generated by us from sale of oil generated by the products acquired during the term of the agreement. The agreement has a 5-year term, and it automatically renews for five years unless terminated earlier by mutual agreement of the parties. The agreement contains certain quotas during each 12-month period during the term.

We have also developed a “Flameless Heating Technology.” This has been accomplished by capitalizing on our unique and patented Heating Reactor Technology that rapidly heats water with speed and efficiency. Our technology is a completely self-contained, electrically powered, portable heating platform that uses no combustion or electric heating elements. Our technology uses only our patented Flameless Heating Technology thereby eliminating the need for resistive electric elements. As other heating units require natural gas, liquid fuel or electricity to produce heat they are also candidates for fire and explosion. We believe that our technology will be the go-to choice for heating environments that are at high risk due to association with explosive vapors or dust such as paint and body shops, furniture shops, nail salons, fuel depots, and grain elevators.

In addition, the unit has lower operating cost and higher heating capabilities that result in money saving efficiency. We believe buyers will look at heating product offerings as a quality alternative for heating larger home garages, basements, and home-based workshop environments.

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Financial Overview

Revenue

From February 10, 2016 (date of inception) through September 30, 2018, we had generated revenues of approximately $74,770. Our ability to increase revenues will depend on the successful manufacturing and commercialization of our water purification units.

Research and Development Expenses

The Company expenses R&D costs as incurred. The Company’s R&D efforts related to activities undertaken to adapt the water purification technology contributed by David King for commercial-scale manufacturing and the development of multiple product offerings.

General and Administrative Expenses

General and administrative (“G&A”) expenses consist primarily of salaries and related costs for personnel, including stock-based compensation expense. To date, we have estimated the fair value of stock-based awards issued to employees, directors and non-employees based on prices paid by unrelated third-parties for the purchases of our common stock. Other G&A expenses include patent costs, and professional fees for legal, finance, accounting services and a legal settlement in 2018.

We anticipate that our G&A expenses will increase in future periods to support increases in our research and development activities and as a result of increased headcount, expanded infrastructure, increased legal, compliance, accounting and investor and public relations expenses associated with being a public company and increased insurance premiums, among other factors.

Interest Expense

Interest expense consists of interest incurred on borrowings.

Significant Accounting Policies and Recent Accounting Pronouncements

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, stock-based compensation, impairment of financing receivables and long-lived assets, valuation of warrants, income taxes and contingencies and litigation, among others. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties. For a discussion of our significant accounting policies, refer to Note 3 – “Summary of Significant Accounting Policies” in the Notes to our condensed Financial Statements for the nine months ended September 30, 2018, included in this Annual Report.

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of deposit accounts with original maturities of three months or less.

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Inventories

Inventory includes manufacturing parts and work in process for the Company’s water purification equipment. Inventories are carried at the lower of cost (on a first-in, first-out (“FIFO”)) basis, or net realizable value.

Use of Accounting Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The most significant estimates and assumptions made by management related to determining the value of stock-based expenses.

Revenue

We had a reversal of sale totaling $23,995 during the three months ended September 30, 2018 due to writing off the sale as a charitable donation.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities for a change in tax rate is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts more likely than not to be realized.

We account for uncertain tax positions in accordance with FASB Accounting Standards Codification (“ASC”) 740-10, “Income Taxes.” ASC 740-10 provides several clarifications related to uncertain tax positions. Most notably, a “more likely-than-not” standard for initial recognition of tax positions, a presumption of audit detection and a measurement of recognized tax benefits based on the largest amount that has a greater than 50 percent likelihood of realization. ASC 740-10 applies a two-step process to determine the amount of tax benefit to be recognized in the financial statements. First, we must determine whether any amount of the tax benefit may be recognized. Second, we determine how much of the tax benefit should be recognized (this would only apply to tax positions that qualify for recognition). No additional liabilities have been recognized as a result of the implementation. Accordingly, we have not recognized any penalty, interest or tax impact related to uncertain tax positions.

Stock-Based Expenses

We account for stock-based expenses under the provisions of ASC 718, “Compensation—Stock Compensation”, which requires the measurement and recognition of expense for stock-based awards made to employees and directors based on estimated fair values on the grant date. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the shorter of the period over which services are to be received or the vesting period.

We account for stock-based expenses awards to non-employees in accordance with ASC 505-50, “Equity-Based Payments to Non-Employees.” In accordance with ASC 505-50, we determine the fair value of stock-based expenses awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.

We estimated the fair value of stock-based awards issued to employees, directors and non-employees based on prices paid by unrelated third-parties for the purchases of our common stock during the applicable period.

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Research and development costs

We expense research and development costs as incurred in accordance with ASC 730, “Research and Development.” Our research and development activities related to activities undertaken to adapt the water purification technology contributed by David King for commercial-scale manufacturing and the development of additional offerings.

Earnings (Loss) Per Share

Basic earnings (loss) per share are computed by dividing the net income (loss) by the weighted-average number of shares of common stock and common stock equivalents such as outstanding stock options and warrants. Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options and warrants, using the treasury stock method. The calculation of fully diluted earnings (loss) per share assumes the dilutive effect of the exercise of outstanding options and warrants at either the beginning of the respective period presented or the date of issuance, whichever is later.

Recently Adopted Accounting Pronouncements

Going Concern — In August 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-15 – “Presentation of Financial Statements – Going Concern – Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”, which 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 updated accounting guidance was effective for the Company on December 31, 2016. We have implemented this new accounting standard and we will update our liquidity disclosures as necessary.

Revenue — In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which outlines a single, comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU 2014-09 is effective for reporting periods beginning after December 15, 2017. The implementation of this standard did not have a material impact on the Company’s accompanying financial statements.

Leases — In February 2016, the FASB issued ASU 2016-02 “Leases”. This standard will require entities that lease assets—referred to as “lessees”—to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The accounting by entities that own the assets leased by the lessee—also known as lessor accounting—will remain largely unchanged from current GAAP. ASU 2016-02 is effective for reporting periods beginning after December 15, 2018. Modified retrospective application is required, with optional practical expedients available. The Company is currently evaluating the impact of the new guidance.

Debt Issuance Costs — In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs”. The new standard will more closely align the presentation of debt issuance costs under U.S. generally accepted accounting principles with the presentation under comparable IFRS standards. Debt issuance costs related to a recognized debt liability will be presented on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts. The cost of issuing debt will no longer be recorded as a separate asset, except when incurred before receipt of the funding from the associated debt liability. Under current U.S. generally accepted accounting principles, debt issuance costs are reported on the balance sheet as assets and amortized as interest expense. The costs will continue to be amortized to interest expense using the effective interest method. Subsequent to the issuance of ASU 2015-03 the Securities and Exchange Commission staff made an announcement regarding the presentation of debt issuance costs associated with line-of-credit arrangements, which was codified by the FASB in ASU 2015-15. This guidance, which clarifies the exclusion of line-of-credit arrangements from the scope of ASU 2015-03, is effective upon adoption of ASU 2015-03. ASU 2015-03 is effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.

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Stock Compensation — In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which will simplify the income tax consequences, accounting for forfeitures and classification on the Statement of Cash Flows (i) excess tax benefits be classified as cash inflows provided by operating activities, and (ii) cash paid to taxing authorities arising from the withholding of shares from employees be classified as cash outflows used in financing activities. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted. The implementation of this standard did not have a material impact on the Company’s accompanying financial statements.

In June 2014, the FASB issued ASU 2014-12, Compensation - Stock Compensation. The amendments in this ASU apply to reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target can be achieved after the requisite service period. This ASU is the final version of Proposed ASU EITF-13D--Compensation--Stock Compensation (Topic 718): Accounting for Share-Based Payments When the terms of an award provide that a performance target could be achieved after the requisite service period, which has been deleted. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. As indicated in the definition of vest, the stated vesting period (which includes the period in which the performance target could be achieved) may differ from the requisite service period. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. The implementation of this standard did not have a material impact on the Company’s accompanying financial statements.

Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.

Results of Operations

For the three months ended September 30, 2018 and 2017 (unaudited)

Revenue

We generated nominal revenues and incurred operating expenses of $886,956 and $898,172 for the three months ended September 30, 2018 and 2017, respectively. We had a reversal of sale totaling $23,995 during the three months ended September 30, 2018 due to writing off the sale as a charitable donation.

Research and development expenses    

Below is a summary of our research and development expenses for the three months ended September 30, 2018 and 2017, respectively:

	For the three months ended
	September 30,
	2018		2017		2018 vs. 2017
						$		%
Payroll expense	$	226,739	$	117,215		109,524		93	%
Stock-based compensation expense		265,000		362,500		(97,500	)	(27	)%
Travel expense and other miscellaneous expense		14,601		91,842		(77,241	)	(84	)%
Total	$	506,340	$	571,557		(65,217	)	(11	)%

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Payroll expenses related to our R&D function increased during the three months ended September 30, 2018 primarily related to increases in the salaries, payroll taxes and benefits for our employees engaged in research and development.

Stock-based compensation expenses decreased during the three months ended September 30, 2018 due to a reduction in granting stock awards to our employees and advisors during the period.

Travel expense and other miscellaneous expenses decreased during the three months ended September 30, 2018 due to a reduction in spending during the period.

General and administrative expenses

The following is a summary of our general and administrative expenses for the three months ended September 30, 2018 and 2017, respectively:

	For the three months ended
	September 30,
	2018		2017		2018 vs. 2017
						$		%
Payroll expenses	$	94,747	$	37,530		57,217		152	%
Stock-based compensation expense		87,500		102,675		(15,175	)	(15	)%
Other G&A		115,663		87,370		28,293		32	%
Audit, legal and professional fees		82,706		99,040		(16,334	)	(16	)%
Total	$	380,616	$	326,615		54,001		17	%

Payroll expenses increased during the three months ended September 30, 2018 primarily related to increases in salaries, payroll taxes and benefits for certain of our employees.

Stock-based compensation expenses decreased during the three months ended September 30, 2018 due to a reduction in granting stock awards to our employees and advisors during the period.

Other general and administrative expenses increased during the three months ended September 30, 2018 primarily related to increases in depreciation, marketing, insurance, rent, and tools and supplies.

Audit, legal and professional fees decreased during the three months ended September 30, 2018 primarily related to a decrease in legal fees offset by an increase in consulting expenses.

Other Income (Expense)

Below is a summary of our other income (expense) for the three months ended September 30, 2018 and 2017, respectively.

	September 30,		September 30,
	2018		2017		2018 vs. 2017
						$	%
Interest Expense	$	89,272	$	1,000		88,272	8,827	%

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Interest expense increased primarily related to amortization of beneficial conversion features on the convertible debt issued during the period. See Note 5 of the Notes to Condensed Financial Statements (unaudited) for the period ended September 30, 2018.

Net Losses

We incurred net losses of $985,481 and $897,172 for the three months ended September 30, 2018 and 2017, respectively, because of the factors discussed above. 

Net loss per share for the three months ended September 30, 2018 and 2017 was $(0.03) and $(0.03), respectively, based on the weighted-average number of shares issued and outstanding during the period.

It is anticipated that future operating expenses will increase as the Company complies with its periodic reporting requirements. Such expenses would also increase if the Company were to effect a business combination, although there can be no assurance that the Company will be successful in effecting a business combination.

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For the nine months ended September 30, 2018 and 2017 (unaudited)

Revenue

We generated nominal revenues and incurred operating expenses of $2,693,513 and $1,295,305 for the nine months ended September 30, 2018 and 2017, respectively.

Research and development expenses    

Below is a summary of our research and development expenses for the nine months ended September 30, 2018 and 2017, respectively:

	For the nine months ended
	September 30,
	2018		2017		2018 vs. 2017
						$		%
Payroll expense	$	537,325	$	311,839		225,486		72	%
Stock-based compensation expense		440,000		437,500		2,500		1	%
Travel expense and other miscellaneous expense		21,409		105,285		(83,876	)	(80	)%
Total	$	998,734	$	854,624		144,110		17	%

Payroll expenses related to R&D increased during the nine months ended September 30, 2018 primarily related to increase in the salaries, payroll taxes and benefits for our employees engaged in research and development.

Travel expense and other miscellaneous expenses decreased during the nine months ended September 30, 2018 due to a reduction in spending during the period.

General and administrative expenses

The following is a summary of our general and administrative expenses for the nine months ended September 30, 2018 and 2017, respectively:

	For the nine months ended
	September 30,
	2018		2017		2018 vs. 2017
						$	%
Payroll expenses	$	226,031	$	101,885		124,146	122	%
Stock-based compensation expense		602,500		102,675		499,825	487	%
Other G&A		510,552		114,784		395,768	345	%
Audit, legal and professional fees		280,696		121,337		159,359	131	%
Lawsuit settlement, net		75,000		—		75,000	—	%
Total	$	1,694,779	$	440,681		1,254,098	285	%

Payroll expenses increased during the nine months ended September 30, 2018 primarily related to increases in salaries, payroll taxes and benefits for certain of our employees.

Stock-based compensation expenses increased during the nine months ended September 30, 2018 due to granting additional stock awards to our employees and advisors during the period.

Other general and administrative expenses increased during the nine months ended September 30, 2018 primarily related to increases in depreciation, advertising and marketing, transfer agent expenses, insurance, rent, tools and supplies, and travel expenses.

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Audit, legal and professional fees increased during the nine months ended September 30, 2018 primarily related to increases in legal fees and consulting expenses. Also affecting legal expenses was the net effect of the settlement of the lawsuit against Cloudburst Solutions (see Note 8 of Notes to Financial Statements).

Other Income (Expense)

Below is a summary of our other income (expense) for the nine months ended September 30, 2018 and 2017, respectively.

	For the nine months ended
	September 30,
	2018		2017		2018 vs. 2017
						$	%
Interest Expense	$	96,608	$	7,000		89,608	1,280	%

Interest expense increased primarily related to amortization of beneficial conversion features on the convertible debt issued during the period. See Note 5 of the Notes to Condensed Financial Statements (unaudited) for the period ended September 30, 2018.

Net Losses

We incurred net losses of $2,776,856 and $1,300,305 for the nine months ended September 30, 2018 and 2017, respectively, because of the factors set forth above. 

Net loss per share for the nine months ended September 30, 2018 and 2017 was approximately $(0.09) and $(0.04), respectively, based on the weighted-average number of shares issued and outstanding.

It is anticipated that future operating expenses will increase as the Company complies with its periodic reporting requirements. Such expenses would also increase if the Company were to effect a business combination, although there can be no assurance that the Company will be successful in effecting a business combination.

Liquidity and Capital Resources

Sources of Liquidity

To date, we have generated nominal revenues. For fiscal 2017, we had a net loss of $1,725,957, resulting in an accumulated deficit as of December 31, 2017 of $3,609,121. As of September 30, 2018, we had cash and cash equivalents of $18,909. Our auditors issued a going concern opinion with respect to our financial statements as of and for the fiscal year ended December 31, 2017 due to the incurrence of significant operating losses, which raise substantial doubt about our ability to continue as a going concern. We have financed our operations to date primarily through private placements of our common stock and borrowings. For the nine months ended September 30, 2018, we received $1,470,500 in net proceeds from the issuance of our common stock.

Cash Flows

The following table sets forth the primary sources and uses of cash for the period set forth below.

	Nine months ended September 30,
	2018			2017
Net cash used in operating activities	$	(1,526,029	)	$	(984,526	)
Net cash provided by financing activities	$	1,542,889		$	1,286,145
Net increase in cash	$	16,860		$	301,619

Operating activities. Our use of cash in operating activities resulted primarily from our net loss, as adjusted for certain non-

24 

cash items and changes in operating assets and liabilities. For the nine months ended September 30, 2018, non-cash items consisted of common stock issued as payment for services and employee compensation, depreciation, and non-cash interest expense, and changes in operating assets and liabilities consisted of an increase in accounts receivable and inventory and a decrease in accounts payable and accrued expenses.

Financing activities. Cash provided by financing activities consisted primarily of proceeds from the issuance of our common stock in private placements. During the nine months ended September 30, 2018 and 2017, we received $1,470,500 and $1,250,030, respectively, from the issuance of our common stock.

Funding Requirements

We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially if and as we:

• establish a sales, marketing and distribution infrastructure to commercialize our water purification units and any other products we successfully develop;  

• maintain, expand and protect our intellectual property portfolio; and  

• add operational and financial personnel to handle the public company reporting and other requirements to which we will be subject following effectiveness of our Registration Statement on Form 10 filed with the SEC on October 13, 2017.  

We expect that we will require a significant amount of additional capital to fund operations during the next twelve (12) month period. Because of the numerous risks and uncertainties associated with the development and commercialization of our water purification units, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with successfully commercializing such products. Our future capital requirements will depend on many factors, including:

• the costs and timing of commercialization activities for our water purification units, including manufacturing, sales, marketing and distribution;  

• revenues received from sales of our products;  

• the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; and  

• our ability to maintain manufacturing and distribution relationships on favorable terms, if at all.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, and strategic alliances. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common shareholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies and future revenue streams or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to commercialize products that we would otherwise prefer to develop and market ourselves.

Quantitative and Qualitative Disclosures About Market Risk

We have not utilized any derivative financial instruments such as futures contracts, options and swaps, forward foreign exchange contracts or interest rate swaps and futures. We do not have any borrowings and, consequently, we are not affected by changes in market interest rates. We do not currently have any sales or own assets and operate facilities in countries outside the United States and, consequently, we are not effected by foreign currency fluctuations or exchange rate changes. Overall, at this time, we believe that our exposure to interest rate risk and foreign currency exchange rate changes is not material to our financial condition or results of operations.

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Off-Balance Sheet Arrangements

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

Tax Loss Carryforwards

We had a net operating loss carry-forward for federal and state tax purposes of approximately $6,400,000 at September 30, 2018, that is potentially available to offset future taxable income, which will begin to expire in the year 2036. For financial reporting purposes, no deferred tax asset was recognized because at September 30, 2018 and December 31, 2017 because management estimates that it is more likely than not that substantially all of the net operating losses will expire unused. As a result, the amount of the deferred tax assets considered realizable was reduced 100% by a valuation allowance.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

No Applicable

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. The Company’s disclosure controls and procedures are designed to ensure that such information required to be disclosed by the Company in reports filed or submitted under the Exchange Act, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The Company’s disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management, including the principal executive and the principal financial officer, as appropriate to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance that control objectives are attained. The Company’s disclosure controls and procedures are designed to provide such reasonable assurance.

The Company’s management, with the participation of the principal executive and principal financial officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2018, as required by Rule 13a-15(e) of the Exchange Act. Based upon that evaluation, the principal executive and the principal financial officer have concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2018.

Management’s Report on Internal Control Over Financial Reporting. The Company’s management is responsible for establishing and maintaining adequate internal controls over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act. Although the internal controls over financial reporting were not audited, the Company’s management, including the principal executive and principal financial officer, assessed the effectiveness of internal controls over financial reporting as of September 30, 2018, based on criteria issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) entitled “Internal Control-Integrated Framework.” Upon evaluation, the Company’s management has concluded that the Company’s internal controls over financial reporting were effective as of September 30, 2018.

Changes in Internal Control Over Financial Reporting. The Company’s management, with the participation of the principal executive and principal financial officer, have concluded there were no changes in internal control during the fiscal quarter ended September 30, 2018.

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PART II. – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We may become involved in, or have been involved in, arbitrations or various other legal proceedings that arise from the normal course of our business. We cannot predict the timing or outcome of these claims and other proceedings. The ultimate outcome of any litigation is uncertain, and either unfavorable or favorable outcomes could have a material negative impact on our results of operations, balance sheets and cash flows due to defense costs, and divert management resources. Currently, except as set forth below, we are not involved in any arbitration and/or other legal proceeding that could have a material effect on our business, financial condition, results of operations and cash flows.

On May 30, 2018, The Company reached an amicable resolution by way of a settlement agreement and release (the “Settlement Agreement”) with Cloudburst Solutions, LLC (“CS”) with respect to the Manufacturing and Licensing Agreement entered into on July 1, 2016 (“Agreement”). Neither party admitted liability and each agreed to finally and forever, settle and compromise all disputes and matters of controversy between them.

CS has agreed to dismiss the lawsuit filed, fully release, acquit, and forever discharge the Company and David King from any claims related to the Agreement, render the Agreement null and void in all respects, and to cancel 1,250,000 shares held by CS in the Company’s stock. The Company has agreed to fully release, acquit, and forever discharge CS from any claims related to the Agreement and has agreed that the Agreement is null and void and neither party owes any duties or obligations thereunder. The Company has agreed to pay CS $700,000 in four installments. The first payment of $150,000 was paid on June 20, 2018. The second payment of $150,000 was paid to CS within 30 days of the first payment. The third payment of $150,000 was paid to CS within 30 days of the second payment. The final payment of $250,000 was to be paid to CS within 30 days of the third payment. At September 30, 2018, $175,000 remains to be paid by the Company to CS. The Settlement Agreement does not contain any admission of liability, wrongdoing, or responsibility by any of the parties.

A copy of the Settlement Agreement was filed as Exhibit 33 to the Form 8-K filed on June 1, 2018 and is incorporated herein by reference. The description of the Settlement Agreement does not purport to be a complete description and is qualified in its entirety by reference to the full text of the Settlement Agreement. Additional information about the lawsuit can be found under the caption “Litigation” in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018 as filed with the Securities and Exchange Commission on May 15, 2018.

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

The following is a summary of our issuances of common stock during the quarter ended September 30, 2018:

On various dates from January 1, 2018 to September 30, 2018, the Company issued an aggregate of 2,465,000 shares to various investors at $0.50 per share for cash, generating total proceeds of $1,232,500. The issuance of such shares was in reliance on Section 4(a)(2) of the Securities Act of 1933. We believe that Section 4(a)(2) was available because none of such issuances involved underwriters, underwriting discounts or commissions; restrictive legends were placed on the certificates representing the shares purchases; and none of such sales were made by general solicitation.

On various dates from January 1, 2018 to September 30, 2018, the Company issued 1,010,000 shares to executives, employees and consultants. The issuance of such shares was in reliance on Section 4(a)(2) of the Securities Act of 1933. We believe that Section 4(a)(2) was available because none of such issuances involved underwriters, underwriting discounts or commissions; restrictive legends were placed on the certificates representing the shares purchases; and none of such sales were made by general solicitation.

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SIGNATURES

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

                                                                            WATER NOW, INC.                                                                         

(Registrant)

Date: November 14, 2018

By: /s/ David King                                                                    

David King

Chief Executive Officer and Chief Financial Officer

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INDEX TO EXHIBITS

Exhibit 10.10*  Exclusive Sales Distribution Agreement Entered into Agreement between African Horizon Technologies (Pty) Ltd Registration number 2013/230512/07 And Water Now, Inc. (USA) Registration number 802389157 (The Sole Distributor)

Exhibit 31* Certification of David King, Chief Executive Officer and Chief Financial Officer, furnished pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.

Exhibit 32* Statement of David King, Chief Executive Officer, furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

EX-101.INS* XBRL Instance Document

EX-101.SCH* XBRL Schema Document

EX-101.CAL* XBRL Calculation Linkbase Document

EX-101.DEF* XBRL Definition Linkbase Document

EX-101.LAB* XBRL Label Linkbase Document

EX-101.PRE* XBRL Presentation Linkbase Document

______________________________

* Filed or furnished herewith.

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Exhibit 31.1

CERTIFICATION

I, David King, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Water Now, Inc. (the “registrant”) for the quarterly period ended September 30, 2018;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. As the sole certifying officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. As the sole certifying officer, I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 14, 2018

/s/ David King                                                                       

David King

Chief Executive Officer and Chief Financial Officer

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Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Water Now, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, David King, Chief Executive Officer and Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 14, 2018

/s/ David King                                                                       

David King

Chief Executive Officer and Chief Financial Officer

EX-10

	Exclusive Sales Distribution Agreement – Territory USA

EXCLUSIVE SALES DISTRIBUTION AGREEMENT

Entered into and between

African Horizon Technologies (Pty) Ltd

Registration number: 2013/230512/07

(The Principle)

And

Water Now, Inc. (USA)

Registration number: 802389157

(The Sole Distributor)

1 

1. PARTIES

The parties to this Exclusive sales distribution Agreement are:

119 Roeline Street

Alphen Park

0081

Pretoria

1.2 Water Now, Inc.

2840 Bryan Ave.

Fort Worth, TX 76104

2. APPOINTMENT & AGREEMENT

2.1 Purpose of appointment and agreement: The parties intend to market and distribute the technologies of African Horizon Technologies Pty Ltd (AHT), specifically the Hydraspin Hydro Cyclone which is a Trade secret technology, within the United States of America through the actions of Water Now, Inc., also referred to herein as the “Distributor”. The Hydraspin technology Trade secret will be protected by the Distributor. The Hydraspin technology removes oil from water. The parties hereby agree to a long term mutual beneficial agreement, wherein AHT will manufacture the Hydraspin solutions in South Africa and export same to the USA. Hydraspin Pty Ltd is a company owned by JS Steyn and has formal agreement with AHT whom is the Holding company of all the water treatment technologies that AHT sells globally. Any agreement that is made with AHT also applies to Hydraspin Pty Ltd. AHT and Hydraspin Pty Ltd. are at times collectively referred to herein as the “Principal”

With effect from the commencement date, as determined in clause 3 hereunder, the Principal hereby grants to the Distributor the exclusive right to purchase and in turn commercialize the services and products identified in Annexure A hereto (collectively the “Products”) in the United States of America.

2 

The Distributor shall acquire the sole sales & distributor rights for the distribution of the Products within the territory defined as the entirety of the United States of America for USD $500,000 and 500,000 shares of the common stock, no par value, of the Distributor, with an additional 500,000 shares of the Distributor’s common stock to be transferred to the Principal upon the earlier of 24 months from commencement date of this agreement or the sale of 50 units to the Distributor. The initial 500,000 shares will be transferred to the Principal within 14 days of signature of the agreement. Any shares or common stock issued to and held by the Principal may not be sold, transferred or otherwise encumbered for a period of twelve (12) months from date of issuance.

The Distributor further agrees to pay the Principal a royalty of 2% of total net profits generated by Distributor from sale of oil generated by Products acquired by Distributor during the term of this Agreement. Net profit is defined as the gross income generated from the oil recovered by and sold within the USA less the costs associated with the generation of the gross revenue.

3. PERIOD OF AGREEMENT

The appointment of the Distributor by the Principal in terms of this agreement shall commence on date of signature (“commencement date”), and shall thereafter endure for a period of 5 years, sixty (60) months, whereupon it shall automatically renew for 5 years unless terminated earlier in accordance with its terms or extended by mutual agreement of the parties. Any renewal or extension of this agreement will require negotiations at least one (1) month prior to the expiry date of this agreement.

4. Quotas

It is agreed that a minimum of 12-15 Product units will be ordered during the twelve (12) month period following the commencement date, with a minimum of 15 units every year following during the term of this Agreement. Should the orders exceed 2 Product units per month a 60-90 day early notice will be given to ensure the manufacturing process can be enhanced to meet the demand. There is no limit to the manufacturing capacity of the Principal as long as suitable notice is given for an order exceeding 2 Product units per month.

5. RIGHTS AND OBLIGATIONS OF THE PRINCIPAL

The Principal undertakes:

3 

5.1 to grant to the Distributor the right, at its own cost and expense, to have its employees or designees perform continual inspections of the Products purchased by the Distributor and to conduct periodic quality control testing of same for a period of 12 months following delivery so as to ensure proper performance of the purchased Products. All deficiencies noted in the initial and any subsequent inspections of the Products shall be immediately brought to the attention of the Principal, with the Principal to immediately exercise a good faith effort to remedy all defects in a commercially reasonable fashion. The Distributor shall have the right to reject Products upon initial inspection and at any time during the 12 months following delivery of same should a post installation defect arise. If the Principal fails to cure any defect or provide a replacement machine within 30 days of notice of a defect, the Principal shall immediately refund the purchase price of the defective Product to the Distributor within five business days of demand therefor by the Distributor;

5.2 to provide the Products as requested and purchased by the Distributor;

5.3 to facilitate timely and efficient delivery of the Products; and

5.4 to maintain, at all times, the highest degree of good faith towards the Distributor and to ensure that no conflict of interest materializes, and in the event of a conflict of interest arising, to immediately advise the Distributor of same, upon which the Principal shall consult with the Distributor to find the best solution for all.

6. RIGHTS AND OBLIGATIONS OF THE DISTRIBUTORS

The Distributor undertakes:

6.1 to devote the necessary time and attention to introducing capable clients requiring the Products, and not to engage in any business or activity that will prevent or hinder the Principal from providing the Products;

6.2 to maintain, at all times, the highest degree of good faith towards the Principal and to ensure that no conflict of interest materializes, and in the event of a conflict of in arising, to immediately advise the Principal of same, upon which advice in the Principal shall consult with the Distributor to find the best solution for all;

6.3 to assist the Principal with the rendering of the Products in accordance with the deliverables and timeframes as set out in Annexure A hereto as may amended by written agreement of the parties from time to time;

6.4 to respect and observe all applicable laws and the rules of any applicable professional regulatory body;

4 

6.5 to provide the Principal with any information, documentation and reports reasonably requested by the Principal in connection with the prospective clients requiring the Products;

6.6 to appoint sales agents to assist in achieving super growth; and

6.7 to have freight costs from factory in Johannesburg/Pretoria to Distributor designated locations in the USA be USA. Inco terms of EXW – Ex works Johannesburg

7. FINANCIAL PROVISIONS

7.1 During the term of this agreement and in consideration for the Products provided by the Principal, the Distributor will pay the Principal as follows

7.1.1 The Distributor will tender payment of 100% of the cost of the Products ordered at time of order or alternatively 50% at time of order followed by 50% upon completion and availability for shipment.

7.2 It is recorded that the payment to the Principal as provided herein is not inclusive of Value Added Tax (VAT).

7.3 The remuneration payable in terms of this clause shall be payable into such bank account provided by the Principal Accounts may include:

(a)       Bank Accounts of AHT Pty Ltd – Nedbank, account nr 1697 091 598, Branch Menlyn Maine, Branch Code 198765;

(b)       Bank Account of Hydraspin Pty Ltd – Nedbank; account nr 1077 172 745 Branch Menlyn Maine; Branch Code 198765.

8. STATUS OF PARTIES

It is recorded that, notwithstanding any provision to the contrary in this agreement shall not be construed as creating a partnership or a contract of employment between the Principal and the Distributor, and the Distributor will not be, or deemed to be, an authorized party of the Principal or hold itself out as having authority of power to bind the Principal in any way.

9. ALLOWANCE OF AUTHORITY

The Distributor shall at all times strictly execute their tasks, duties and obligations in terms of this agreement in accordance with instructions given by the Principal through any representative of the Principal being duly authorized thereto.

5 

10. BREACH OF CONTRACT

Should a party hereto commit any breach of any term or condition of this agreement and fail to remedy such breach within 7 (seven) days of receipt of a notice from the Principal non-breaching party to rectify such breach, the non-breaching party shall without prejudice to any other rights which it may have, be entitled to immediately cancel this agreement. If the breach is by the Principal prior to the expiration or the first anniversary of this agreement, the Principal shall return to Distributor all shares of the Distributor’s commons shares held by it or its transferees.

11. CONFIDENTIALITY

11.1 The Distributor acknowledges that it may, in the course of the performance of this agreement, gain access to and become acquainted with the techniques, methods and processes, trace secrets, data information technology, software, business associates, clients and other private, sensitive and confidential information (“Confidential Information”) of the Principal.

11.2 The Distributor accordingly undertakes, for the duration of the agreement as well as after the termination thereof, not to directly or indirectly, utilize, disclose or make public to any third party any Confidential Information of the Principal and to keep any Confidential information secret an confidential at all times, unless disclosure takes place in the ordinary course of the rendering of the products in terms of the agreement. The Distributor shall protect the trade secret of the Hydraspin process and technology.

11.3 The Confidential Information shall not include:

11.3.1 information which was known to the Distributor prior to its receipt from the Principal;

11.3.2 information which is or lawfully becomes generally available to the public;

11.3.3 information which is lawfully acquired from third parties who have a right to disclose such information;

11.3.4 information which by mutual agreement is released from confidential status; and

11.3.5 information which is required to disclosed in response to a valid order of court or other governmental agency or if disclosure is otherwise required by law, and the Distributor will provide the Principal with the

6 

prompt written notice if such disclosure is required, and shall limit the disclosure to the minimum necessary to comply with the law.

12. MISCELLANEOUS

12.1 The Distributor shall not, without the prior written approval of the Principal assign, cede delegate transfer or otherwise dispose of any right or obligation under this agreement to any other person.

12.2 No provision of this agreement (including, without limitation, the provisions of the clause) may be amended, substituted or otherwise varied, and no provision may be added to or incorporated in this agreement, except (in any such case) by an agreement in writing signed by the duly authorized representatives of the parties,

12.3 Any relaxation, indulgence or delay (collectively referred to as “Indulgence”) by either party in exercising, or any failure by either party to exercise, any right under the agreement shall not be construed as a waiver of that right and shall not affect the ability of that party subsequently to exercise that right or to pursue any remedy, nor shall any indulgence constitute a waiver of any other right (whether against that party or any other person).

12.4 The waiver of any right under this agreement shall be binding on the waiving party only to the extent that the waiver has been reduced to writing and signed by the duly authorized representative(s) of the waiving party.

12.5 This agreement supersedes all prior agreements, representations, communications, negotiations and understandings between the parties concerning the subject matter of this agreement.

12.6 Whenever possible each provision of this agreement shall be interpreted in a manner which makes it effective and valid under applicable law but if any provision of this agreement is held to be illegal invalid or unenforceable under applicable law that illegality, invalidity, or unenforceability shall not affect the other provisions of this agreement all of which shall remain in full force.

12.7 This agreement may be executed in any number of identical counterparts, all of which when taken together shall constitute one agreement. Any single counterpart of a set of counterparts taken together which, in either case, are executed by the parties shall constitute a full original of this agreement for all purposes.

12.8 All notices and any other communications whatsoever (including, without limitation, any approval, consent, demand, query or request) by either party in

7 

12.8 terms of this agreement or relating to it shall be given in writing, and shall be sent by registered post, or delivered by and, or transmitted electronic mail to the recipient party at its relevant address set out below.

12.9 It is agreed that email will be the preferred method of communication. For purpose of ordinary mail the following is recorded:

12.9.1 if to the Principal at:

Address: 119 Roeline Street,

Alphen Park,

0081, Pretoria

Postal Address: Postnet Suite 394

Private Bag X10

Elarduspark, 0047

Electronic mail address: jsteyn@ahtech.co.za

Marked for attention of: Jacques Steyn

12.9.2 if to the Distributor at:

Address: 2840 Bryon Avenue

Fort Worth, Texas 76104

Postal Address: xxxxxxx

Xxxxxxx

Xxxxxxx

Electronic mail address: David@waternowinc.com

Marked for attention of: David King

12.10 Either party may by written notice to the other party, change any of the addresses at which, or the designated person for whose attention those notices or other communications are to be given.

12.11 Any notice or other communication given by any party to the other party which is transmitted by electronic mail to the addressee at the addressee’s specified electronic mail address shall be presumed to have received by the addressee on the date of transmission as reflected on the sender’s electronic records.

8 

12.12 The parties choose their respective physical addresses in clause 12.8 as their respective domiciliary at which all documentation relating to any legal proceedings to which they are a party may be served.

12.13 The parties agree to perform, or procure the performance, of all father things, and execute and deliver (or procure the execution and delivery) of all further document, as may be required by law or as may be desirable or necessary to implement or give effect to this agreement and the transactions contemplated therein.

13. COSTS

Each party shall pay its own costs relating to and in connection with the negotiation, preparation, drafting and signature of this agreement, and any amendments thereto.

14. AMENDMENTS

Any changes or amendment to this agreement, including oral modifications supported by new consideration must be reduced to writing and signed by all Parties before it will be effective.

15. ARBITRATION

Any controversy or claim arising out of this agreement which is not settled between the parties themselves, shall be settled by arbitration in accordance with Republic of South Africa Rules of arbitration.

16. FORCE AND EFFECT OF DOCUMENTS

The parties hereto agree that an Adobe Echo sign copy of this Agreement shall have force and effect as the original of this document.

For and on behalf of African Horizon Technologies by: Jacques Steyn as CEO Who warrants his authority hereto

28/10/2018	/s/ Jacques Steyn
Date of Signature ………………	Jacqyes Steyn

9 

For and on behalf of (The Distributor) by David King as CEO

Who warrants his authority hereto

10/31/2018	/s/ David King
Date of Signature ………………	David King

10 

ANNEXURE A

“Services and Products”

· African Horizon Technologies Hydraspin

· African Horizon Technologies TOC

· African Horizon Technologies Water Quality Probe

· African Horizon Technologies Crystal Clear Separator

· African Horizon Technologies Instralink and Website dashboard client portal

· African Horizon Technologies DissOil

· African Horizon Technologies Microba

· African Horizon Technologies Waste water systems

· African Horizon Technologies Sewerage Treatment Plants

· African Horizon Technologies Reverse Osmosis

11 

ANNEXURE B

Agreed on process of order to be attached once it has been clearly defined by both parties.

AHT follows a client qualification and process qualification process to ensure commercial and technical viability and feasibility of solution provided to end user

It is agreed that this process shall be included in this contract within 90 days of signature of this agreement

12 

Annexture C – Pricing Schedule

Hydraspin Pricing based on dollar exchange rate – for the purpose of reference pricing will be shown in dollar – USD.

It is agreed that included in the price are the following items:

· Hydraspin hydro cyclone skid

· Skimmer -S1 – small skimmer or S2 large skimmer – quantity will be defined by the Distributor in consultation with The Principal

· Decant process tank – size to system size (either PVC tank or steel tank built into container (if modular tank is required – up to 36m3/h flow rate (5500 barrels per day). For larger flow rates there may be a need for larger tanks which will be left out of this pricing schedule as this design and requirement will be determine at project kick off of large flow system (flows larger than 36m3/h or 5500 barrels per day)

1. Hydraspin ES 4 m3/h = HS 600 (600 Barrels per day) Price: $45 000.00

2. Hydraspin ES10 m3/h = HS 1500 (1500 Barrels per day) Price: $92 000.00

3. Hydraspin Es20 m3/h = HS 3000 – Price: $ 182 000.00

4. Hydraspin Es26 m3/h = HS 4000 – Price: $ 225 000.00

5. Hydraspin Es36 m3/h = HS 5500 – Price: $ 310 000.00

6. Hydraspin Es72 m3/h = HS 10800 – Price: $ 515 000.00

7. Hydraspin Es144m3/h = HS 22000 – Price: $ 1 210 000.00

8. Hydraspin Es250m3/h = HS 38000 – Price: $ 1 750 000.00

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Document and Entity Information - shares	3 Months Ended
	Sep. 30, 2018	Nov. 08, 2018
Document And Entity Information
Entity Registrant Name	Water Now, Inc.
Entity Central Index Key	0001713909
Document Type	10-Q
Document Period End Date	Sep. 30, 2018
Amendment Flag	false
Current Fiscal Year End Date	--06-30
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		34,486,808
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2018

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Condensed Balance Sheets (Unaudited) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Current Assets
Cash	$ 18,909	$ 2,049
Inventory	435,138	346,101
Accounts receivable	5,250
Total Currents Assets	459,297	348,150
Plant and machinery-net	111,305	132,010
Security deposit	10,849	9,149
Total Assets	581,451	489,309
Current Liabilities
Outstanding checks in excess of bank balance		6,597
Accounts payable and accrued expenses	459,795	116,513
Advance from related party	52,501	32,115
Current portion of convertible notes payable	141,450
Notes payable - stockholder	112,000	112,000
Total Current Liabilities	765,746	267,225
Long-term convertible notes payable	71,196
Total Liabilities	836,942	267,225
Commitments and Contingencies - Note 8
Stockholders' Equity (Deficit)
Preferred stock - no par value, 10,000,000 shares authorized, zero issued and outstanding at September 30, 2018 and December 31, 2017
Common Stock - no par value, 90,000,000 shares authorized, 34,433,000 shares and 30,522,000 shares issued and 34,236,808 shares and 30,325,808 shares outstanding as of September 30, 2018 and December 31, 2017, respectively	6,180,486	3,831,205
Subscription receivable	(50,000)
Accumulated deficit	(6,385,977)	(3,609,121)
Total Stockholders' Equity (Deficit)	(255,491)	222,084
Total Liabilities and Stockholders' Equity	$ 581,451	$ 489,309

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Condensed Balance Sheets (Unaudited) (Parenthetical) - shares	Sep. 30, 2018	Dec. 31, 2017
Statement of Financial Position [Abstract]
Common Stock, shares authorized	90,000,000	90,000,000
Common Stock, shares issued	34,433,000	30,522,000
Common Stock, shares outstanding	34,236,808	30,325,808
Preferred Stock, shares authorized	10,000,000	10,000,000
Preferred Stock, shares issued	0	0
Preferred Stock, shares outstanding	0	0

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Condensed Statements of Operations (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Income Statement [Abstract]
Revenues, net	$ (19,995)	$ 4,400	$ 39,200	$ 4,400
Cost of goods sold	(10,742)	2,400	25,935	2,400
Gross Profit (Loss)	(9,253)	2,000	13,265	2,000
Operating expenses
Research and development expenses	506,340	571,557	998,734	854,624
General and administrative expenses	380,616	326,615	1,694,779	440,681
Total operating expenses	886,956	898,172	2,693,513	1,295,305
Loss from operations	(896,209)	(896,172)	(2,680,248)	(1,293,305)
Other expense
Interest expense	(89,272)	(1,000)	(96,608)	(7,000)
Total other expense	(89,272)	(1,000)	(96,608)	(7,000)
Loss before provision for income taxes	(985,481)	(897,172)	(2,776,856)	(1,300,305)
Provision for income taxes
Net Loss	$ (985,481)	$ (897,172)	$ (2,776,856)	$ (1,300,305)
Loss per share - basic and fully diluted	$ (0.03)	$ (0.03)	$ (0.09)	$ (0.04)
Weighted-average number of shares of common stock - basic and fully diluted	33,572,678	29,372,413	32,563,861	29,382,240

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Condensed Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Cash flows from operating activities:
Net loss	$ (2,776,856)	$ (1,300,305)
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock issued as payment for services and employee compensation	1,005,000	540,175
Depreciation of equipment	20,705
Non-cash interest expense	77,827
Changes in operating working capital items:
Accounts payable and accrued expenses	243,282	(6,553)
Security deposit	(1,700)	(9,149)
Inventory	(89,037)	(204,294)
Accounts receivable	(5,250)	(4,400)
Net cash used in operating activities	(1,526,029)	(984,526)
Net cash used in investing activities
Cash flows from financing activities:
Outstanding checks in excess of bank balance	(6,597)	(2,500)
Net advances from related party	20,386	38,615
Borrowings on convertible notes payable	583,600
Issuances of common stock	1,470,500	1,250,030
Repurchase of common stock	(525,000)
Net cash provided by financing activities	1,542,889	1,286,145
Net increase in cash	16,860	301,619
Cash at beginning of period	2,049	336
Cash at end of period	18,909	301,955
Supplemental Disclosure of Interest and Income Taxes Paid:
Interest paid during the period	15,705	7,000
Income taxes paid during the period
Non-cash disclosures:
Conversion of convertible notes payable to 200,000 common shares		$ 100,000
Issuance of common stock for debt issuance costs	53,400

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1. Basis of Presentation, Background and Description of Business

9 Months Ended

Sep. 30, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation, Background and Description of Business

1. Basis of presentation, Background and Description of Business

Basis of presentation

The accompanying unaudited financial statements of Water Now, Inc. (the “Company”) have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or the SEC, including the instructions to Regulation S-X. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been or omitted from these statements pursuant to such rules and regulations and, accordingly, they do not include all the information and notes necessary for comprehensive financial statements and should be read in conjunction with our audited financial statements for the period ended December 31, 2017.

In the opinion of the management of the Company, all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the three-month period have been made. Results for the interim period presented are not necessarily indicative of the results that might be expected for the entire fiscal year. When used in these notes, the terms “Company”, “we”, “us” or “our” mean Water Now, Inc.

Background and Description of Business

On September 27, 2016, we consummated a transaction whereby VCAB One Corporation, a Texas corporation (“VCAB”), merged with and into us. At the time of the merger VCAB was subject to a bankruptcy proceeding and had minimal assets, no equity owners and no liabilities, except for approximately 1,500 holders of Class 5 Allowed General Unsecured Claims and a holder of allowed administrative expenses (collectively, “Claim Holders”). Pursuant to the terms of the merger, and in accordance with the bankruptcy plan, we issued an aggregate of 703,808 shares of our common stock (the “Plan Shares”) to the Claim Holders whose claims had been approved as of the time of issuance as full settlement and satisfaction of their respective claims. As provided in the confirmed bankruptcy plan, the Plan Shares were issued pursuant to Section 1145 of the United States Bankruptcy Code. An additional 196,192 Plan Shares are held in reserve in the Company’s treasury for issuance to Claim Holders whose claims have yet to be either approved or denied by the court. The treasury shares will be issued once a Claim Holder’s claim has been approved or disapproved. If disapproved the shares will be distributed to approve Claim Holders on a pro rata basis. As a result of the merger, the separate corporate existence of VCAB was terminated. We entered into the merger in order to increase our shareholder base in order to, among other things, assist us in satisfying the listing standards of a national securities exchange. The Company recorded total restructuring expenses of $615,000, including $165,000 of consulting fees in cash and $450,000 for the issuance of the Plan Shares for settlement of claims held by the Claim Holders.

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2. Going Concern

9 Months Ended

Sep. 30, 2018

Going Concern

Going Concern

2. Going Concern

At September 30, 2018, the Company had approximately $19,000 in cash and had net working capital deficit of approximately $306,000. The Company, which generated a net loss of approximately $2,777,000 and $1,300,000 for the nine-months ended September 30, 2018 and 2017, respectively, may not have sufficient cash to fund its current and future operations. There is no assurance that future operations will result in profitability. No assurance can be given that management will be successful in its efforts to raise additional capital from present or future shareholders. The failure to raise additional capital needed to achieve its business plans will have a material adverse effect on the Company’s financial position, results of operations, and ability to continue as a going concern.

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3. Summary of Significant Accounting Policies and Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Summary of Significant Accounting Policies and Recent Accounting Pronouncements

3. Summary of Significant Accounting Policies and Recent Accounting Pronouncements

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of deposit accounts with original maturities of three months or less.

Inventory

Inventory includes manufacturing parts and work in process for the Company’s water purification equipment. Inventories are carried at the lower of cost (on a first-in, first-out (“FIFO”) basis), or net realizable value.

Use of Accounting Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

Actual results could differ from those estimates. The most significant estimates and assumptions made by management related to determining the value of stock-based expenses. 

Revenue

The Company had a reversal of sale totaling $23,995 during the three months ended September 30, 2018 due to the Company writing off the sale as a charitable donation.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities for a change in tax rate is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts more likely than not to be realized.

The Company accounts for uncertain tax positions in accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 740-10, “Income Taxes”. ASC 740-10 provides several clarifications related to uncertain tax positions. Most notably, a “more likely-than-not” standard for initial recognition of tax positions, a presumption of audit detection and a measurement of recognized tax benefits based on the largest amount that has a greater than 50 percent likelihood of realization. ASC 740-10 applies a two-step process to determine the amount of tax benefit to be recognized in the financial statements. First, the Company must determine whether any amount of the tax benefit may be recognized. Second, the Company determines how much of the tax benefit should be recognized (this would only apply to tax positions that qualify for recognition). No additional liabilities have been recognized as a result of the implementation. Accordingly, the Company has not recognized any penalty, interest or tax impact related to uncertain tax positions.

Stock-Based Expenses

The Company accounts for stock-based expenses under the provisions of ASC 718, “Compensation—Stock Compensation”, which requires the measurement and recognition of expense for stock-based awards made to employees and directors based on estimated fair values on the grant date. The stock-based compensation awards to employees, directors and non-employees during the nine months ended September 30, 2018 consisted of the grants of restricted stock. The restrictions on the shares granted related to regulatory restrictions as well as service

and milestone based restrictions that prevented the sale of the stock granted. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the shorter of the period over which services are to be received or the vesting period.

The Company accounts for stock-based expenses awards to non-employees in accordance with ASC 505-50, “Equity-Based Payments to Non-Employees”. In accordance with ASC 505-50, the Company determines the fair value of stock-based expenses awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.

The Company estimated the fair value of stock-based awards issued to employees, directors and non-employees during the nine months ended September 30, 2018 and 2017 based on prices paid by unrelated third-parties for the purchases of its common stock during this period, which amounted to $0.50 per share.

The components of stock-based compensation related to stock awards in the Company’s Statement of Operations for the three months ended September 30, 2018 and 2017, and for the nine months ended September 30, 2018 and 2017 are as follows (rounded to nearest thousand):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Research and development expenses	$	265,000	$	362,500	$	440,000	$	437,500
General and administrative expenses		50,000		102,675		565,000		102,675
Total stock-based expense	$	315,000	$	465,175	$	1,005,000	$	540,175

Research and development costs

The Company expenses research and development costs as incurred in accordance with ASC 730, “Research and Development”. The Company’s research and development activities related to activities undertaken to adapt the water purification technology contributed by its founder for commercial-scale manufacturing and to develop new products. Research and development expenses were $506,340 and $571,557, for the three months ended September 30, 2018 and 2017, respectively. Research and development expenses were $998,734 and $854,624, for the nine months ended September 30, 2018 and 2017, respectively.

Earnings (Loss) Per Share

Basic earnings (loss) per share are computed by dividing the net income (loss) by the weighted-average number of shares of common stock and common stock equivalents such as outstanding stock options and warrants. Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options and warrants, using the treasury stock method. The calculation of fully diluted earnings (loss) per share assumes the dilutive effect of the exercise of outstanding options and warrants at either the beginning of the respective period presented or the date of issuance, whichever is later.

Recently Adopted Accounting Pronouncements

Going Concern — In August 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-15 – “Presentation of Financial Statements – Going Concern – Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”, which 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 updated accounting guidance was effective for the Company on December 31, 2016. We have implemented this new accounting standard and we will update our liquidity disclosures as necessary.

Revenue — In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers”, which outlines a single, comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU 2014-09 is effective for reporting periods beginning after December 15, 2017. The implementation of this standard did not have a material impact on the Company’s accompanying financial statements.

Leases — In February 2016, the FASB issued ASU 2016-02, “Leases”. This standard will require entities that lease assets—referred to as “lessees”—to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The accounting by entities that own the assets leased by the lessee—also known as lessor accounting—will remain largely unchanged from current GAAP. ASU 2016-02 is effective for reporting periods beginning after December 15, 2018. Modified retrospective application is required, with optional practical expedients available. The Company is currently evaluating the impact of the new guidance.

Debt Issuance Costs — In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs”. The new standard will more closely align the presentation of debt issuance costs under U.S. generally accepted accounting principles with the presentation under comparable IFRS standards. Debt issuance costs related to a recognized debt liability will be presented on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts. The cost of issuing debt will no longer be recorded as a separate asset, except when incurred before receipt of the funding from the associated debt liability. Under current U.S. generally accepted accounting principles, debt issuance costs are reported on the balance sheet as assets and amortized as interest expense. The costs will continue to be amortized to interest expense using the effective interest method. Subsequent to the issuance of ASU 2015-03 the Securities and Exchange Commission staff made an announcement regarding the presentation of debt issuance costs associated with line-of-credit arrangements, which was codified by the FASB in ASU 2015-15. This guidance, which clarifies the exclusion of line-of-credit arrangements from the scope of ASU 2015-03, is effective upon adoption of ASU 2015-03. ASU 2015-03 is effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.

Stock Compensation — In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”, which will simplify the income tax consequences, accounting for forfeitures and classification on the Statement of Cash Flows (i) excess tax benefits be classified as cash inflows provided by operating activities, and (ii) cash paid to taxing authorities arising from the withholding of shares from employees be classified as cash outflows used in financing activities. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted. The implementation of this standard did not have a material impact on the Company’s accompanying financial statements.

Statement of Cash Flows — In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)” (“ASU No. 2016-15”). ASU No. 2016-15 clarifies how certain cash receipts and payments should be presented in the statement of cash flows. ASU No. 2016-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company will adopt ASU No. 2016-15 commencing in the first quarter of fiscal 2019. The Company does not believe this standard will have a material impact on its financial statements or the related footnote disclosures.

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4. Notes Payable-Stockholder

9 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Notes Payable-Stockholders

4. Note Payable – Stockholder

The Company borrowed $112,000 from a shareholder on November 2, 2017. The note bears interest at 12% and is payable monthly interest-only through April 30, 2019, at which time the entire amount of principal and any

accrued interest is due and payable. The note is collateralized by all equipment owned by the Company and is guaranteed by the Company’s President. The interest expense incurred on the note payable - stockholder was $10,080 and $0, for the nine months ended September 30, 2018 and 2017, respectively.

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5. Convertible Notes Payable

3 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

5. Convertible Notes Payable

5. Convertible Notes Payable

The Company borrowed $187,500 from three shareholders on June 18, 2018. The notes bear interest at 10% and are payable in one lump sum on June 18, 2019, at which time the entire amount of principal and accrued interest is due and payable. The notes are unsecured. The outstanding principal and interest amount is convertible by the holders into shares of the Company’s common stock at any time prior to the maturity date at a price per share equal to fifty percent of the average closing price of the Company’s common stock for the ten trading days prior to the conversion date. The principal balance at September 30, 2018 is $187,500. The interest expense incurred on the notes payable was approximately $5,500 and $0, for the nine months ended September 30, 2018 and 2017, respectively. The Company’s chief executive officer has guaranteed the shareholder notes. The value of the embedded beneficial conversion feature on the notes payable was estimated to be $187,500. For the nine months ended September 30, 2018, the Company recorded $54,687 of interest expense related to the value of the embedded beneficial conversion feature.

The Company borrowed $120,000 from a shareholder on August 27, 2018. The note bears interest at 8% and is payable in one lump sum on February 27, 2019, at which time the entire amount of principal and accrued interest is due and payable. The note is unsecured. The outstanding principal and interest amount is convertible by the holder into shares of the Company’s common stock at any time prior to the maturity date at the conversion price of $0.50 per share. The principal balance at September 30, 2018 is $120,000. The interest expense incurred on the note payable was approximately $800 and $0, for the nine months ended September 30, 2018 and 2017, respectively. The value of the embedded beneficial conversion feature on the note payable was estimated to be $88,800. For the nine months ended September 30, 2018, the Company recorded $14,800 of interest expense related to the value of the embedded beneficial conversion feature.

The Company borrowed $68,000 from a lender on September 4, 2018. The note bears interest at 8% and is payable in one lump sum on September 4, 2019, at which time the entire amount of principal and accrued interest is due and payable. The note is unsecured. The outstanding principal and interest amount is convertible by the holder into shares of the Company’s common stock beginning 170 days after the issuance date and prior to the maturity date at a price per share equal to sixty-five percent of the average of the lowest two trading prices of the Company’s common stock for the twenty trading days prior to the conversion date. The principal balance at September 30, 2018 is $68,000. The interest expense incurred on the note payable was approximately $450 and $0, for the nine months ended September 30, 2018 and 2017, respectively. The value of the embedded beneficial conversion feature on the note payable was estimated to be $39,748. For the nine months ended September 30, 2018, the Company recorded $3,510 of interest expense related to the value of the embedded beneficial conversion feature.

The Company borrowed $50,000 from a shareholder on September 13, 2018. The note bears interest at 10% and is payable in one lump sum on March 13, 2019, at which time the entire amount of principal and accrued interest is due and payable. The note is unsecured. The outstanding principal and interest amount is convertible by the holder into shares of the Company’s common stock at any time prior to the maturity date at the conversion price of $0.50 per share. The principal balance at September 30, 2018 is $50,000. The interest expense incurred on the note payable was approximately $200 and $0, for the nine months ended September 30, 2018 and 2017, respectively. The value of the embedded beneficial conversion feature on the note payable was estimated to be $42,000. For the nine months ended September 30, 2018, the Company recorded $3,500 of interest expense related to the value of the embedded beneficial conversion feature.

The Company borrowed $200,000 from a lender on September 17, 2018. The note bears interest at 10% and is payable monthly through the maturity date, September 17, 2021, at which time the entire amount of principal and accrued interest is due and payable. The note is unsecured. The outstanding principal and interest amount is convertible by the holder into shares of the Company’s common stock at any time prior to the maturity date at a

price per share equal to $0.75 per share if before 180 days after the issuance date, or if 180 days after the issuance date, the lesser of $0.75 per share or seventy percent of the second lowest trading price of the Company’s common stock for the twenty trading days prior to the conversion date. The principal balance at September 30, 2018 is $200,000. The interest expense incurred on the note payable was approximately $800 and $0, for the nine months ended September 30, 2018 and 2017, respectively. The value of the embedded beneficial conversion feature on the note payable was estimated to be $37,333. In addition, the Company granted 60,000 shares of the Company’s common stock valued at $53,400 based on the Company’s share price on the date of the note agreement and paid $5,000 for debt issuance costs. For the nine months ended September 30, 2018, the Company recorded $1,330 of interest expense related to the value of the embedded beneficial conversion feature and debt issuance costs.

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6. Advances from Related Party

9 Months Ended

Sep. 30, 2018

Related Party Transactions [Abstract]

Advances from Related Party

6. Advances From Related Party

The Company has received non-interest bearing advances without a specified maturity date from a stockholder of the Company. The Company owed approximately $53,000 and $32,000, respectively, at September 30, 2018 and December 31, 2017 to the stockholder.

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7. Equity Transactions

9 Months Ended

Sep. 30, 2018

Equity [Abstract]

Equity Transactions

7. Equity Transactions

From January 1, 2017 to December 31, 2017, the Company issued 2,922,000 shares to investors at $0.50 per share for cash, with total proceeds of $1,436,030.

The Company also issued 200,000 shares to shareholders to convert the Convertible Notes amounting to $100,000 in August 2017.

From July 1, 2017 to December 31, 2017, the Company issued 1,230,350 shares to executives, employees working in research and development at the Company and consultants. The value of these shares at $0.50 per share was $615,175. In addition, there were 600,000 shares of common stock issued in 2016 which vested in January, 2017.

In May 2017 and September 2017, the Company’s principal shareholder surrendered an aggregate of 2,779,850 shares of common stock to the Company, which were recorded as treasury stock with a $0 value. All surrendered shares were used to issue stock by the Company during the year.

From January 1, 2018 to March 31, 2018, the Company issued 1,656,000 shares to investors at $0.50 per share for cash, with total proceeds of $828,000. In addition, the Company issued 610,000 shares to executives, employees working in research and development at the Company and consultants. The value of these shares at $0.50 per share was $305,000.

From April 1, 2018 to June 30, 2018, the Company issued 625,000 shares to investors at $0.50 per share for cash, with total proceeds of $312,500. In addition, the Company issued 770,000 shares to executives, employees working in research and development at the Company and consultants. The value of these shares at $0.50 per share was $385,000. Also see Note 8 regarding shares returned during June 2018 as a result of a lawsuit settlement.

From July 1, 2018 to September 30, 2018, the Company issued 660,000 shares to investors at $0.50 per share for cash, with total proceeds of $330,000. In addition, the Company granted 705,000 shares to executives, employees working in research and development at the Company and consultants. The value of these shares at $0.50 per share was $352,500. Also see Note 5 regarding shares issued for debt issuance costs in September 2018.

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8. Commitments and Contingencies

9 Months Ended

Sep. 30, 2018

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

8. Commitments and Contingencies

Lease Commitments

Operating Leases – Rental Property

On September 11, 2017, the Company signed a lease agreement with Peleton Properties LLC which commenced

on October 15, 2017. The lease is for a term of 36.5 months ending on October 30, 2020, and requires monthly payments of approximately $9,000.

As of September 30, 2018, future minimum lease payments to Peleton Properties LLC required under the non-cancellable operating lease are as follows (rounded to nearest thousand):

Year ending December 31,
	2018		26,000
	2019		102,000
	2020		85,000
	Total minimum payments	$	213,000

Contractual Commitments

Effective as of May 1, 2016, the Company entered into a three-year employment agreement with the Company’s President. The agreement calls for monthly payments of $7,000 per month through April 2017 and $15,000 per month thereafter. The employment agreement also provided for the grant of 500,000 shares of common stock, which were fully vested on January 1, 2017. The Company expensed $250,000 for these shares during the period ended December 31, 2016 in accordance with ASC 718. The employment agreement provides for an additional grant of 500,000 shares of common stock subject to satisfactory employment through December 2017. These shares were issued in September 2017. The Company expensed $250,000 for these shares during the year ended December 31, 2017 in accordance with ASC 718.

The Company has entered into a two-year accounting consulting services agreement with a financial consultant. The accounting consulting services agreement provided for a grant of 100,000 shares of common stock, which fully vested at January 2, 2017. The Company expensed $50,000 for these shares during the period ended December 31, 2016 in accordance with ASC 505-50. The Company shall pay to the consultant 75,000 shares of common stock per each completed six months of satisfactory service. The first installment shall be payable at such time as the Company generates revenue from the sale of its products. These shares were issued in September 2017. The Company expensed $37,500 for these shares during the period ended December 31, 2016 in accordance with ASC 718.

We may become involved in, or have been involved in, arbitrations or various other legal proceedings that arise from the normal course of our business. We cannot predict the timing or outcome of these claims and other proceedings. The ultimate outcome of any litigation is uncertain, and either unfavorable or favorable outcomes could have a material negative impact on our results of operations, balance sheets and cash flows due to defense costs, and divert management resources. Currently, except as set forth below, we are not involved in any arbitration and/or other legal proceeding that could have a material effect on our business, financial condition, results of operations and cash flows.

We accrue for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Significant judgement is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. In addition, in the event we determine that a loss is not probable, but is reasonably possible, and it becomes possible to develop what we believe to be a reasonable range of possible loss, then we will include disclosure related to such a matter as appropriate and in compliance with ASC 450. The accruals or estimates, if any, are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular matter. To the extent there is a reasonable possibility that the losses could exceed the amounts already accrued, we will, as applicable, adjust the accrual in the period the determination is made, disclose an estimate of the additional loss or range of loss, indicate that the estimate is immaterial to our financial statements as a whole, or, if the amount of such adjustment cannot be reasonably estimated, disclose that an estimate cannot be made.

Litigation

On May 30, 2018, the Company reached an amicable resolution by way of a settlement agreement and release (the “Settlement Agreement”) with Cloudburst Solutions, LLC (“CS”) with respect to the Manufacturing and Licensing Agreement entered into on July 1, 2016 (“Agreement”). Neither party admitted liability and each agreed to finally and forever, settle and compromise all disputes and matters of controversy between them.

CS has agreed to dismiss the lawsuit filed, fully release, acquit, and forever discharge the Company and David King from any claims related to the Agreement, render the Agreement null and void in all respects, and to cancel 1,250,000 shares held by CS in the Company’s stock. The Company has agreed to fully release, acquit, and forever discharge CS from any claims related to the Agreement and has agreed that the Agreement is null and void and neither party owes any duties or obligations thereunder. The Company has agreed to pay CS $700,000.00 in four installments. The first payment of $150,000 was paid on June 20, 2018. The second payment of $150,000 was paid to CS within 30 days of the first payment. The third payment of $150,000 was paid to CS within 30 days of the second payment. The final payment of $250,000 was to be paid to CS within 30 days of the third payment. At September 30, 2018, $175,000 remains to be paid by the Company to CS. The Settlement Agreement does not contain any admission of liability, wrongdoing, or responsibility by any of the parties.

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9. Income Taxes

9 Months Ended

Sep. 30, 2018

Income Tax Disclosure [Abstract]

Income Taxes

9. Income Taxes

The Company accounts for income taxes under the liability method. Deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purpose, referred to as temporary differences. Deferred tax assets and liabilities at the end of each period are determined using the currently enacted tax rates applied to taxable income in the periods in which the deferred tax assets and liabilities are expected to be settled or realized.

The Company’s tax provision is determined using an estimate of an annual effective tax rate adjusted for discrete items, if any, that are taken into account in the relevant period. The 2018 and 2017 annual effective tax rate was 0% for the U.S. federal and state statutory tax rates. The Company reviews tax uncertainties in light of changing facts and circumstances and adjusts them accordingly. As of September 30, 2018 and December 31, 2017, there were no tax contingencies recorded.

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

We had a net operating loss carry-forward for federal and state tax purposes of approximately $6,400,000 at September 30, 2018, that is potentially available to offset future taxable income. The TCJA (Tax Cut and Jobs Act) changes the rules on NOL carryforwards. The 20-year limitation was eliminated, giving the taxpayer the ability to carry forward losses indefinitely. However, NOL carry forward arising after January 1, 2018, will now be limited to 80 percent of taxable income.

For financial reporting purposes, no deferred tax asset was recognized at September 30, 2018 and December 31, 2017 because management estimates that it is more likely than not that substantially all of the net operating losses will expire unused. As a result, the amount of the deferred tax assets considered realizable was reduced 100% by a valuation allowance. The change in the valuation allowances were approximately $207,000 and $442,000 for the three months ended September 30, 2018 and 2017, respectively.

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10. Subsequent Events

9 Months Ended

Sep. 30, 2018

Subsequent Events [Abstract]

Subsequent Events

10. Subsequent Events

The Company has evaluated all material events or transactions that occurred after September 30, 2018 up to November 14, 2018, the date these financial statements were available to be issued and noted no material subsequent events which would require disclosure.

On October 28, 2018, the Company entered into an Exclusive Sales Distribution Agreement (the Distribution Agreement) with African Horizon Technologies (Pty) Ltd (AHT), a South African company. The Distribution Agreement provides that the Company will become an exclusive distributor in the United States for the Hydraspin technology owned by AHT. The Hydraspin technology removes oil from water. The cost of the distributor rights will be $500,000 in cash, plus 500,000 shares of the Company’s common stock, with an additional 500,000 common shares upon the earlier of 24 months from the execution of the agreement or the sale of 50 units to the Company. The common shares may not be sold for a period of 12 months from date of issuance. Also payable under the agreement will be a royalty of 2% of total net profits, as defined, generated by the Company from sale of oil generated by the products acquired during the term of the agreement. The agreement has a 5-year term, and it automatically renews for five years unless terminated earlier by mutual agreement of the parties. The agreement contains certain quotas during each 12-month period during the term.

The Company formed a new subsidiary, Hydraspin USA, Inc., on October 24, 2018, as the entity to be the distributor of the products.

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3. Summary of Significant Accounting Policies and Recent Accounting Pronouncements (Policies)

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Cash and Cash Equivalents

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of deposit accounts with original maturities of three months or less.

Inventory

Inventory

Inventory includes manufacturing parts and work in process for the Company’s water purification equipment. Inventories are carried at the lower of cost (on a first-in, first-out (“FIFO”) basis), or net realizable value.

Use of Accounting Estimates

Use of Accounting Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

Actual results could differ from those estimates. The most significant estimates and assumptions made by management related to determining the value of stock-based expenses. 

Revenue

Revenue

The Company had a reversal of sale totaling $23,995 during the three months ended September 30, 2018 due to the Company writing off the sale as a charitable donation.

Income Taxes

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities for a change in tax rate is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts more likely than not to be realized.

The Company accounts for uncertain tax positions in accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 740-10, “Income Taxes”. ASC 740-10 provides several clarifications related to uncertain tax positions. Most notably, a “more likely-than-not” standard for initial recognition of tax positions, a presumption of audit detection and a measurement of recognized tax benefits based on the largest amount that has a greater than 50 percent likelihood of realization. ASC 740-10 applies a two-step process to determine the amount of tax benefit to be recognized in the financial statements. First, the Company must determine whether any amount of the tax benefit may be recognized. Second, the Company determines how much of the tax benefit should be recognized (this would only apply to tax positions that qualify for recognition). No additional liabilities have been recognized as a result of the implementation. Accordingly, the Company has not recognized any penalty, interest or tax impact related to uncertain tax positions.

Stock-Based Expenses

Stock-Based Expenses

The Company accounts for stock-based expenses under the provisions of ASC 718, “Compensation—Stock Compensation”, which requires the measurement and recognition of expense for stock-based awards made to employees and directors based on estimated fair values on the grant date. The stock-based compensation awards to employees, directors and non-employees during the nine months ended September 30, 2018 consisted of the grants of restricted stock. The restrictions on the shares granted related to regulatory restrictions as well as service

and milestone based restrictions that prevented the sale of the stock granted. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the shorter of the period over which services are to be received or the vesting period.

The Company accounts for stock-based expenses awards to non-employees in accordance with ASC 505-50, “Equity-Based Payments to Non-Employees”. In accordance with ASC 505-50, the Company determines the fair value of stock-based expenses awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.

The Company estimated the fair value of stock-based awards issued to employees, directors and non-employees during the nine months ended September 30, 2018 and 2017 based on prices paid by unrelated third-parties for the purchases of its common stock during this period, which amounted to $0.50 per share.

The components of stock-based compensation related to stock awards in the Company’s Statement of Operations for the three months ended September 30, 2018 and 2017, and for the nine months ended September 30, 2018 and 2017 are as follows (rounded to nearest thousand):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Research and development expenses	$	265,000	$	362,500	$	440,000	$	437,500
General and administrative expenses		50,000		102,675		565,000		102,675
Total stock-based expense	$	315,000	$	465,175	$	1,005,000	$	540,175

Research and Development Costs

Research and development costs

The Company expenses research and development costs as incurred in accordance with ASC 730, “Research and Development”. The Company’s research and development activities related to activities undertaken to adapt the water purification technology contributed by its founder for commercial-scale manufacturing and to develop new products. Research and development expenses were $506,340 and $571,557, for the three months ended September 30, 2018 and 2017, respectively. Research and development expenses were $998,734 and $854,624, for the nine months ended September 30, 2018 and 2017, respectively.

Earnings (Loss) Per Share

Earnings (Loss) Per Share

Basic earnings (loss) per share are computed by dividing the net income (loss) by the weighted-average number of shares of common stock and common stock equivalents such as outstanding stock options and warrants. Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options and warrants, using the treasury stock method. The calculation of fully diluted earnings (loss) per share assumes the dilutive effect of the exercise of outstanding options and warrants at either the beginning of the respective period presented or the date of issuance, whichever is later.

Recently Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Going Concern — In August 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-15 – “Presentation of Financial Statements – Going Concern – Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”, which 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 updated accounting guidance was effective for the Company on December 31, 2016. We have implemented this new accounting standard and we will update our liquidity disclosures as necessary.

Revenue — In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers”, which outlines a single, comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU 2014-09 is effective for reporting periods beginning after December 15, 2017. The implementation of this standard did not have a material impact on the Company’s accompanying financial statements.

Leases — In February 2016, the FASB issued ASU 2016-02, “Leases”. This standard will require entities that lease assets—referred to as “lessees”—to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The accounting by entities that own the assets leased by the lessee—also known as lessor accounting—will remain largely unchanged from current GAAP. ASU 2016-02 is effective for reporting periods beginning after December 15, 2018. Modified retrospective application is required, with optional practical expedients available. The Company is currently evaluating the impact of the new guidance.

Debt Issuance Costs — In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs”. The new standard will more closely align the presentation of debt issuance costs under U.S. generally accepted accounting principles with the presentation under comparable IFRS standards. Debt issuance costs related to a recognized debt liability will be presented on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts. The cost of issuing debt will no longer be recorded as a separate asset, except when incurred before receipt of the funding from the associated debt liability. Under current U.S. generally accepted accounting principles, debt issuance costs are reported on the balance sheet as assets and amortized as interest expense. The costs will continue to be amortized to interest expense using the effective interest method. Subsequent to the issuance of ASU 2015-03 the Securities and Exchange Commission staff made an announcement regarding the presentation of debt issuance costs associated with line-of-credit arrangements, which was codified by the FASB in ASU 2015-15. This guidance, which clarifies the exclusion of line-of-credit arrangements from the scope of ASU 2015-03, is effective upon adoption of ASU 2015-03. ASU 2015-03 is effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.

Stock Compensation — In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”, which will simplify the income tax consequences, accounting for forfeitures and classification on the Statement of Cash Flows (i) excess tax benefits be classified as cash inflows provided by operating activities, and (ii) cash paid to taxing authorities arising from the withholding of shares from employees be classified as cash outflows used in financing activities. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted. The implementation of this standard did not have a material impact on the Company’s accompanying financial statements.

Statement of Cash Flows — In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)” (“ASU No. 2016-15”). ASU No. 2016-15 clarifies how certain cash receipts and payments should be presented in the statement of cash flows. ASU No. 2016-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company will adopt ASU No. 2016-15 commencing in the first quarter of fiscal 2019. The Company does not believe this standard will have a material impact on its financial statements or the related footnote disclosures.

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3. Summary of Significant Accounting Policies and Recent Accounting Pronouncements (Tables)

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Schedule of stock-based compensation

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Research and development expenses	$	265,000	$	362,500	$	440,000	$	437,500
General and administrative expenses		50,000		102,675		565,000		102,675
Total stock-based expense	$	315,000	$	465,175	$	1,005,000	$	540,175

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8. Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2018

Commitments and Contingencies Disclosure [Abstract]

Schedule of future minimum lease

Year ending December 31,
	2018		26,000
	2019		102,000
	2020		85,000
	Total minimum payments	$	213,000

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1. Basis of Presentation, Background and Description of Business (Details Narrative) - USD ($)	Sep. 30, 2018	Dec. 31, 2017	Sep. 27, 2016
Common Stock, shares issued	34,433,000	30,522,000
VCAB merger [Member]
Common Stock, shares issued			900,000
Restructing expense for merger with VCAB			$ 615,000
Consulting fees related to merger with VCAB			165,000
Issuance of plan shares for settlement of claims held by claim holders from VCAB merger			$ 450,000

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2. Going Concern (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017	Dec. 31, 2016
Going Concern
Cash	$ 18,909	$ 301,955	$ 18,909	$ 301,955	$ 2,049	$ 336
Working capital	(306,000)		(306,000)
Net Loss	$ (985,481)	$ (897,172)	$ (2,776,856)	$ (1,300,305)

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3. Summary of Significant Accounting Policies and Recent Accounting Pronouncements (Details - Share based compensation) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Total stock-based compensation expense	$ 315,000	$ 465,175	$ 1,005,000	$ 540,175
Research and Development Expense [Member]
Total stock-based compensation expense	265,000	362,500	440,000	437,500
General and Administrative Expense [Member]
Total stock-based compensation expense	$ 50,000	$ 102,675	$ 565,000	$ 102,675

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3. Summary of Significant Accounting Policies and Recent Accounting Pronouncements (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Research and development expenses	$ 506,340	$ 571,557	$ 998,734	$ 854,624
Reversal of revenue	(19,995)	$ 4,400	$ 39,200	$ 4,400
Reversal of Revenue [Member]
Reversal of revenue	$ 23,995

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4. Notes Payable-Stockholder (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Interest Expense	$ 89,272	$ 1,000	$ 96,608	$ 7,000
Note Payable - Stockholder [Member]
Debt face value	$ 112,000		$ 112,000
Debt issuance date			Nov. 02, 2017
Debt payment terms			monthly, interest-only
Debt maturity date			Apr. 30, 2019
Interest Expense			$ 10,080	$ 0
Debt interest rate			12.00%

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5. Convertible Notes Payable (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Interest Expense	$ 89,272	$ 1,000	$ 96,608	$ 7,000
Shares granted, shares	34,433,000		34,433,000		30,522,000
Shares granted, value	$ 6,180,486		$ 6,180,486		$ 3,831,205
Three Shareholders [Member]
Debt face value	$ 187,500		$ 187,500
Debt issuance date			Jun. 18, 2018
Debt stated interest rate	10.00%		10.00%
Debt payment terms			Lump sum
Debt maturity date			Jun. 18, 2019
Interest Expense			$ 5,500	0
Beneficial conversion			187,500
Interest expense on beneficial conversion			54,687
Shareholder 1 [Member]
Debt face value	$ 120,000		$ 120,000
Debt issuance date			Aug. 27, 2018
Debt stated interest rate	8.00%		8.00%
Debt payment terms			Lump sum
Debt maturity date			Feb. 27, 2019
Interest Expense			$ 800	0
Beneficial conversion			88,800
Interest expense on beneficial conversion			14,800
Lender [Member]
Debt face value	$ 68,000		$ 68,000
Debt issuance date			Sep. 04, 2018
Debt stated interest rate	8.00%		8.00%
Debt payment terms			Lump sum
Debt maturity date			Sep. 04, 2019
Interest Expense			$ 450	0
Beneficial conversion			39,748
Shareholder 2 [Member]
Debt face value	$ 50,000		$ 50,000
Debt issuance date			Sep. 13, 2018
Debt stated interest rate	10.00%		10.00%
Debt payment terms			Lump sum
Debt maturity date			Mar. 13, 2019
Interest Expense			$ 200	0
Beneficial conversion			42,000
Interest expense on beneficial conversion			3,500
Lender 2 [Member]
Debt face value	$ 200,000		$ 200,000
Debt issuance date			Sep. 17, 2018
Debt stated interest rate	10.00%		10.00%
Debt payment terms			Monthly
Debt maturity date			Sep. 17, 2021
Interest Expense			$ 800	$ 0
Beneficial conversion			37,333
Interest expense on beneficial conversion			$ 1,330
Shares granted, shares	60,000		60,000
Shares granted, value	$ 53,400		$ 53,400
Debt issuance paid	$ 5,000		$ 5,000

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6. Advances from Related Party (Details Narrative) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Related Party Transactions [Abstract]
Advance from related party	$ 52,501	$ 32,115

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7. Equity Transactions (Details Narrative) - USD ($)	3 Months Ended			6 Months Ended	9 Months Ended		12 Months Ended
	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Proceeds from issuance of stock					$ 1,470,500	$ 1,250,030
Principal Shareholder [Member]
Stock surrendered, shares							2,779,850
Stock surrendered, value							$ 0
Executives and Employees [Member]
Stock issued for services, shares	705,000	770,000	610,000	1,230,350
Stock issued for services, value	$ 352,500	$ 385,000	$ 305,000	$ 615,175
Convertible Notes [Member]
Debt converted, stock issued							200,000
Debt converted, amount converted							$ 100,000
Investors [Member]
Stock issued new, shares	660,000	625,000	1,656,000				2,922,000
Proceeds from issuance of stock	$ 330,000	$ 312,500	$ 828,000				$ 1,436,030

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8. Commitments and Contingencies (Details - Future minimum operating lease)	Jun. 30, 2018 USD ($)
Commitments and Contingencies Disclosure [Abstract]
2018	$ 26,000
2019	102,000
2020	85,000
Total minimum payments	$ 213,000

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8. Commitments and Contingencies (Details Narrative) - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2018	Dec. 31, 2017	Sep. 30, 2018
Settlement expenses	$ 150,000
Settlement payable			$ 175,000
Stock to be cancelled, shares			1,250,000
President [Member]
Stock issued for compensation, shares		500,000
Stock issued for compensation, value		$ 250,000
Rental property [Member]
Lease commencement date	Oct. 15, 2017
Lease expiration date	Oct. 30, 2020
Lease term	36 months 15 days
Lease payment terms	Monthly payments of $9,000 including triple net charges

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9. Income Taxes (Details Narrative) - USD ($)	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Income Tax Disclosure [Abstract]
Annual effective tax rate	0.00%	0.00%
Operating loss carry-forward	$ 6,400,000
Change in valuation allowance	207,000	$ 442,000
Deferred taxes	$ 0		$ 0

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10. Subsequent Events (Details Narrative) - USD ($)	60 Months Ended
	Oct. 28, 2023	Oct. 28, 2018
Contingency to get additional shares	24 months from execution or sale of 50 units to company
Agreement term	P5Y
Renewal term	P5Y
Hydraspin Technology [Member]
Distribution rights costs		$ 500,000
Stock issued for distribution rights, shares		500,000
Additional shares issued for compensation, shares		500,000
Royalty		200.00%