Net Losses

We incurred net losses of $4.4 million and $1.7 million for the fiscal year ended December 31, 2018 and 2017, respectively, because of the factors discussed above.
Net loss per share for the fiscal year ended December 31, 2018 and 2017 was approximately $(0.13) and $(0.06), respectively, based on the weighted-average number of shares issued and outstanding during the periods.
Liquidity and Capital Resources
Sources of Liquidity
Through December 31, 2018, we have generated revenues of $204,000. From February 10, 2016 (inception) through December 31, 2018, we have incurred losses aggregating $8.0 million. As of December 31, 2018, we had cash and cash equivalents of $53,000. Our auditors issued a going concern opinion with respect to our financial statements as of and for the year ended December 31, 2018 due to the incurrence of significant operating losses, which raise substantial doubt about our ability to continue as a going concern.
We have financed our operations to date primarily through private placements of our common stock and borrowings. During the fiscal year ended December 31, 2018, we received approximately $1.5 million in net proceeds from the issuance of our common stock. As of December 31, 2018, we had total liabilities of $2.8 million. We expect to continue to utilize debt and equity to finance our operations until we become profitable.
Cash Flows
The following table sets forth the primary sources and uses of cash for the fiscal year ended December 31, 2018 and 2017, respectively.
2018 2017
Net cash used in operating activities $ (2,464,000) $ (1,423,000 )
Net cash used in investing activities (378,000) (138,000)
Net cash provided by financing activities 2,893,000 1,563,000

Net increase in cash $ 51,000 $ 2,000
Operating activities. Our use of cash in operating activities resulted primarily from our net loss, as adjusted for certain non-cash items and changes in operating assets and liabilities. For the fiscal year ended December 31, 2018, non-cash items consisted of non-cash interest expense, common stock issued as payment for services and employee compensation and changes in operating assets and liabilities consisted of an increase in inventory and an increase in accounts payable and accrued expenses.
Investing activities. Cash used in investing activities consisted of additions to plant and current machinery and a payment on the distributorship agreement with AHT.
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Financing activities.Cash provided by financing activities consisted primarily of proceeds from the issuance of our common stock in private placements and borrowing in the form of notes payable, advances from related parties and borrowings on revenue sharing liabilities.
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 our other products;
•
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.
We expect that we will require additional capital to fund operations, including hiring additional employees and increasing inventory levels, during the next twelve (12) month period.
Because of the numerous risks and uncertainties associated with the development and commercialization of our products, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with successfully commercializing such products. Our future capital requirements will depend on many factors, including:
•
the costs and timing of commercialization activities for our products, 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
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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.

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”~~Policies and Recent Accounting Pronouncements” in the Notes to our Consolidated Financial Statements for the year ended December 31, ~~2017,~~2018, included in this Annual Report.

Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. Intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents

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

~~Inventories~~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 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.
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Plant and Machinery
Plant and machinery are stated at cost less accumulated depreciation and depreciated on a straight-line basis over the estimated useful lives of the assets. Such lives vary from 5 to 7 years. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Repair and maintenance costs are expensed as incurred. Depreciation expense totaled approximately $28,000 and $6,000 for the years ended December 31, 2018 and 2017, respectively.
Revenue Recognition
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09,Revenue from Contracts with Customers(“ASU 2014-09”), which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP. The standard’s effective date has been deferred by the issuance of ASU No. 2015-14, and is effective for annual periods beginning after December 15, 2017, and interim periods therein. The guidance permits using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). Early application is permitted but not before December 15, 2016, the ASU’s original effective date. The Company adopted the new revenue recognition standard as of January 1, 2018 using the cumulative effect method, which did not have a material impact on its consolidated financial statements.
The Company recognizes revenue and related costs from the sale of its products at the time the products are shipped to the customer. Provisions for returns are established in the same period the related product sales are recorded.
The Company establishes sales return accruals for anticipated product returns. The Company records the return amounts as a deduction to arrive at our net product sales. Consistent with revenue recognition accounting guidance, the Company estimates a reserve when the sales occur for future product returns related to those sales. This estimate is primarily based on historical return rates as well as specifically identified anticipated returns due to known business conditions and product expiry dates. There were no product returns as of December 31, 2018 and 2017.
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
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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.
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We account 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, 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. Subsequent to the active trading date of our common stock on August 14, 2018, we have based the fair value of awards from August 14, 2018 through December 31, 2018 on the quoted closing bid price of our common stock on the OTC Markets on the date of grant.

Research and development costs

~~We expense~~The Company expenses research and development costs as incurred in accordance with ASC 730 “Research and ~~Development.~~Development” ~~Our~~. The Company’s research and development activities related to activities undertaken to adapt the water purification technology contributed by ~~David King~~its founder for commercial-scale ~~manufacturing~~manufacturing. Research and development expenses were approximately $1,370,000 and $957,000 for the ~~development of additional products.~~years ended December 31, 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~~Issued 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 Company is currently evaluating the impact of the new guidance.

Leases— In February 2016, the FASB issued ASU 2016-02, ~~“Leases”~~“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 —~~ Stock Compensation --In ~~April 2015,~~June 2018, 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 related2018-07,Compensation—Stock Compensation (Topic 718): Improvements 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 ofNonemployee Share-Based Payment Accounting.This 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 fromexpands the scope of Topic 718, which currently only includes share-based payments issued to employees, to include share-based payments issued to nonemployees for goods and services. This ASU ~~2015-03, is effective upon adoption of ASU 2015-03. ASU 2015-03~~ is effective for ~~public business entities~~the Company for fiscal years beginning after December 15, ~~2015, and~~2018, including interim periods within ~~those~~that fiscal ~~years. The implementation~~year. Early adoption is permitted, but no earlier than the Company’s adoption of ASU 2014-09. We are still evaluating the impact of this ~~standard did not have a material impact~~ASU on the Company’s ~~accompanying~~consolidated financial statements.

~~Stock Compensation~~Statement of Cash Flows — In ~~March~~August 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 StatementNo. 2016-15, “Statement of Cash Flows ~~(i) excess tax benefits~~(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 ~~classified as~~presented in the statement of 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 standardflows. ASU No. 2016-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted. This new pronouncement has been adopted on July 1, 2016 and did not have a material effect on the Company’s financial position, results of operations, but had an effect of the classification of cash paid to taxing authorities arising from the withholding of shares from employees (treasury stock), classified as cash outflows used in financing activities.

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, 2015.2017. The implementation of this new standard did not have a material impact on the Company’s accompanying consolidated financial statements.

~~Management does~~In August 2018, the FASB issued ASU No. 2018-13,Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements of Accounting Standards Codification (“ASC”) Topic 820 with certain removals, modifications, and additions. Eliminated disclosures that may affect the Company include (1) transfers between level 1 and level 2 of the fair value hierarchy, and (2) policies related to valuation processes and the timing of transfers between levels of the fair value hierarchy. Modified disclosures that may affect the Company include (1) a requirement to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse if the entity has communicated the timing publicly for investments in certain entities that calculate net asset value, and (2) clarification that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. Additional disclosures that may affect the Company include (1) disclosure of changes in unrealized gains and losses for the period included in other comprehensive income for recurring level 3 fair value measurements held at the end of the

reporting period, and (2) disclosure of the range and weighted average of significant unobservable inputs used to develop level 3 fair value measurements. The update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures upon issuance of the ASU and delay adoption of the additional disclosures until the effective date. We do not believe ~~that any recently issued, but not yet effective, accounting standards if currently adopted would~~this ASU will have a material effect on the ~~accompanying~~Company’s consolidated financial statements.

~~Results of Operations~~

~~Year Ended December 31, 2017, Compared to the period from February 10, 2016 (inception) through December 31, 2016~~

~~Revenue~~

We generated revenues of approximately $36,000 and $0 and incurred operating expenses of approximately $1,736,000 and $1,880,000 for the fiscal year ended December 31, 2017 and for the period from February 10, 2016 (inception) through December 31, 2016, respectively.

~~Research and development expenses~~

~~Below is a summary of our research and development expenses for the fiscal year ended December 31, 2017 and for the period from February 10, 2016 (inception) through December 31, 2016, respectively:~~

2017 2016

Payroll expense $ 410,000 $ 60,000
Stock-based compensation expense 513,000 675,000
Travel expense and other miscellaneous expense 34,000 3,000

Total $ 957,000 $ 738,000

Payroll expenses related to our R&D function increased during the year ended December 31, 2017 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 year ended December 31, 2017 due to granting fewer stock awards to our employees and advisors during 2017.~~

~~General and administrative expenses~~

The following is a summary of our general and administrative expenses for the year ended December 31, 2017 and for the period from February 10, 2016 (inception) through December 31, 2016, respectively:

2017 2016

Payroll expenses $ 125,000 $ 13,000
Stock-based compensation expense 65,000 385,000
Other G&A 464,000 71,000
Audit, legal and professional fees $ 125,000 $ 58,000
Total $ 779,000 $ 527,000

Payroll expenses increased during the fiscal year ended December 31, 2017 primarily related to increases in salaries, payroll taxes and benefits for our employees needed for the increased levels of operations.

~~Stock-based compensation expense decreased during the fiscal year 2017 as a limited number of issuances were made under new or existing arrangements.~~

Other general and administrative expenses increased during the fiscal year ended December 31, 2017 primarily related to increases in insurance, rental expenses, travel expenses, and professional fees due to the increase in operations.

~~Other Income (Expense)~~

~~Below is a summary of our other income (expense) for the fiscal year ended December 31, 2017 and for the period from February 10, 2016 (inception) through December 31, 2016, respectively.~~

2017 2016

Interest expense $ 9,000 $ 3,000

~~There was an increase in interest expenses paid on the note payable – related parties. See Note 4 of the Notes to Condensed Financial Statements for the period ended December 31, 2017.~~

~~Net Losses~~

We incurred net losses of $1,726,000 and $1,883,000 for the fiscal year ended December 31, 2017 and for the period from February 10, 2016 (inception) through December 31, 2016, respectively, because of the factors discussed above.

Net loss per share for the fiscal year ended December 31, 2017 and for the period from February 10, 2016 (inception) through December 31, 2016 was approximately $(0.06) and $(0.07), 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 effects 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~~

Through December 31, 2017, we have generated revenues of $36,000. From February 10, 2016 (inception) through December 31, 2016, we had a net loss of $1,883,000, resulting in an accumulated deficit as of December 31, 2017 of $3,609,000. As of December 31, 2017, we had cash and cash equivalents of $2,000. Our auditors issued a going concern opinion with respect to our financial statements as of and for the period 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. During the fiscal year ended December 31, 2017, we received approximately $1,436,000 in net proceeds from the issuance of our common stock. As of December 31, 2017, we had outstanding borrowings of $112,000 from the issuance of promissory notes.

~~Cash Flows~~

The following table sets forth the primary sources and uses of cash for the fiscal year ended December 31, 2017 and for the period from February 10, 2016 (inception) through December 31, 2016, respectively.

2017 2016
Net cash used in operating activities $ 1,423,000 $ (293,000)
Net cash used in investing activities (138,000)
Net cash provided by financing activities $ 1,563,000 $ 294,000

Net increase in cash $ 2,000 $ 1,000

~~Operating activities.~~ Our use of cash in operating activities resulted primarily from our net loss, as adjusted for certain non-cash items and changes in operating assets and liabilities. For the fiscal year ended December 31, 2017, non-cash items consisted of common stock issued as payment for services and employee compensation and changes in operating assets and liabilities consisted of an increase in inventory and a decrease in accounts payable and accrued expenses, partially offset by an increase in payroll tax liability. During the period from February 10, 2016 (inception) to December 31, 2016, non-cash items consisted primarily of common stock issued as payment for services and employee compensation.

~~Financing activities.~~Cash provided by financing activities consisted primarily of proceeds from the issuance of our common stock in private placements. During the fiscal year ended December 31, 2017 and the period from February 10, 2016 (inception) to December 31, 2016, we received $1,436,000 and $170,000, 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 this registration statement.~~

We expect that we will require approximately $5,000,000 in additional capital to fund operations, including hiring additional employees and increasing inventory levels, during the next twelve (12) month period. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. 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.

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 ~~$3,610,000~~$8 million at December 31, ~~2017,~~2018, that is potentially available to offset future taxable income, which ~~will begin to expire in the year 2036.~~no expiration. For financial reporting purposes, no deferred tax asset was recognized at December 31, ~~2017~~2018 and ~~December 31, 2016~~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 allowance was approximately ~~$42,000~~$918,000 and $716,000 for the fiscal ~~year~~years ended December 31, ~~2017~~2018 and ~~for the period from February 10, 2016 (inception) to December 31, 2016,~~2017, respectively.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company is a “smaller reporting company” as defined by Rule 12(b)-2 of the Exchange Act and, as such, is not required to provide the information required under this Item.

Item 8. Financial Statements and Supplementary Data

The financial statements are included herewith commencing on page F-1.

Item 9.Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

There are not and have not been any disagreements between the Company and its accountants on any matter of accounting principles, practices or financial statement disclosure.

Item 9A. Controls and Procedures

David King, our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of December 31, ~~2017,~~2018, pursuant to Exchange Act Rule 13a-15. Such disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company is accumulated and communicated to the appropriate management on a basis that permits

timely decisions regarding disclosure. Based upon that evaluation, Mr. King concluded that the Company's disclosure controls and procedures as of December 31, ~~2017~~2018 were not effective to provide reasonable assurance that information required to be disclosed in the Company’s periodic filings under the Exchange Act is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

Management's Annual Report on Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. The Company's internal control over financial reporting includes those policies and procedures that:

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In connection with the preparation of our annual financial statements, David King, our principal executive officer and principal financial officer, has assessed the effectiveness of internal control over financial reporting as of December 31, ~~2017,~~2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or the COSO Framework, and SEC guidance on conducting such assessments. Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls. Based on this evaluation and qualified by the “Limitations on Effectiveness of Controls” set forth in this Item 9A below, management has determined that as of December 31, ~~2017,~~2018, our internal controls over financial reporting were not effective and there are material weaknesses in our internal control over financial reporting.

The Company’s management has identified a material weakness in the effectiveness of internal control over financial reporting related to a shortage of resources in the accounting department required to assure appropriate segregation of duties with employees having appropriate accounting qualifications.

Attestation Report of the Registered Public Accounting Firm

This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company’s registered public accounting firm pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, wherein non-accelerated filers are exempt from Sarbanes-Oxley internal control audit requirements.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal controls over financial reporting during the fourth quarter of the year ended December 31, ~~2017~~2018 that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

Limitations on the Effectiveness of Controls

Our disclosure controls and procedures provide our principal executive officer and principal financial officer with reasonable assurances that our disclosure controls and procedures will achieve their objectives. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting can or will prevent all human error. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Furthermore, the design of a control system must reflect the fact that there are internal resource constraints, and the benefit of controls must be weighed relative to their corresponding costs. Because of the limitations in all control systems, no evaluation of controls can provide complete assurance that all control issues and instances of error, if any, within our company are detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur due to human error or mistake. Additionally, controls, no matter how well designed, could be circumvented by the individual acts of specific persons within the organization. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all potential future conditions.

Management is aware that there is a lack of segregation of duties at the Company due to the fact that the Company only has one director and two executive officers dealing with general administrative and financial matters. This constitutes a significant deficiency in the internal controls. Management has decided that considering the officer/director involved, the control procedures in place, and the outsourcing of certain financial functions, the risks associated with such lack of segregation were low and the potential benefits of adding additional employees to clearly segregate duties did not justify the expenses associated with such increases. Management periodically reevaluates this situation. In light of the Company’s current cash flow situation, the Company does not intend to increase staffing to mitigate the current lack of segregation of duties within the general administrative and financial functions.

Item 9B. Other Information

None.

We failed to timely file a Current Report on Form 8-K containing disclosure required under Item 3.02 Unregistered Sales of Equity Securities. As a result of transactions consummated on February 13, 2018, the Company, from the period commencing October 1, 2017 and ending February 13, 2018, had sold in the aggregate that number of shares of its common equity that exceeded by 5% the number of shares of its common equity reported as issued and outstanding in its Quarterly Report on Form 10-Q for the period ended September 30, 2017.

PART III

Item 10. Directors, ~~and~~ Executive Officers and Corporate Governance

Identification of Directors, Executive Officers and Significant Consultant

Our officers and directors, and significant consultant, and additional information concerning them, are as follows:

	Name		Age	Position(s)
David King		50	51	Chief Executive Officer, Chief Financial Officer and Director
Mark Dyos		54	55	President
Phillip Marshall		68	69	Consultant

David King, Chief Executive Officer, Chief Financial Officer and Director

Mr. King has been our Chief Executive Officer and Director since inception in February 2016, and has been elected for a term expiring at the next annual meeting of shareholders, or until his successor has been elected. ~~Since~~From August 2012 until December 2018, Mr. King ~~has~~ operated Drink Robust Inc. ~~Drink Robust serves as the exclusive U.S. distributor of Robust Energy Drink~~^TM~~. Robust Energy Drink was developed by Sun Mark, Ltd., and has current global sales in excess of $100 million.~~ From 1996 to 2012, Mr. King was involved in the real estate industry focusing on sub-division development, re-conditioning distressed property and building high-end homes. Mr. King was a principal in real estate transactions having an aggregate value in excess of $32 million. Mr. King served in the United States Air Force and was honorably discharged.

Mr. King is qualified for service on our Board due to his extensive business background, his experience with the products being developed and marketed by the Company, and his significant equity ownership in the Company.

~~Mr. King continues to devote an insignificant amount of time to the operations of Drink Robust Inc.~~

Mark Dyos, President

Mr. Dyos became President of the Company in May ~~2017.~~2017 and is under contract with us through April 2019. Prior to joining the Company, Mr. Dyos served in various capacities with Maruyama US, Inc., a wholly owned subsidiary of Maruyama Manufacturing Company, initially as General Manager and from 2010 to April 30, 2017 as Executive Vice President. From 2005 until joining Maruyama, Mr. Dyos took a 50% stake in AVID Telecom and helped grow that company into the largest national Samsung Business Telecom reseller in the US. Mr. Dyos is a graduate of London University City and Guilds Engineering program.

Phillip Marshall, Consultant

Mr. Marshall serves as a consultant to the Company. Since May 2007, Mr. Marshall has served as Chief Financial Officer of RCI Hospitality Holdings Inc., an operator of adult entertainment businesses. Mr. Marshall was previously controller of Dorado Exploration, Inc., an oil and gas exploration and production company, from February 2007 to May 2007. He previously served as Chief Financial Officer of CDT Systems, Inc., a publicly held water technology company, from July 2003 to January 2007. Mr. Marshall graduated from Texas State University in 1972. He began

his public accounting career with the international accounting firm, KMG Main Hurdman and became a Certified Public Accountant in 1974. After the firm’s merger with Peat Marwick, Mr. Marshall served as an audit partner at KPMG for several years. After leaving KPMG, Mr. Marshall was partner in charge of the audit practice at Jackson & Rhodes in Dallas from 1992 to 2003, where he specialized in small publicly held companies.

Mr. Marshall currently serves in a part-time capacity. The Company estimates that during ~~2017,~~2018 Mr. Marshall devoted an average of approximately five hours per week to the Company.

Involvement in Legal Proceedings

No officer or director has been involved in the last ten years in any of the following:

Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and

Being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

Committees of the Board

The Board of Directors currently consists only of Mr. King. Therefore, the Board of Directors has no separate committees. The Company has no qualified financial expert at this time because it has not been able to hire a qualified candidate. Further, the Company believes that it has inadequate financial resources at this time to hire such an expert. The Company intends to continue to search for a qualified individual for hire.

Code of Ethics

We do not currently have a code of ethics.

Compensation Committee Interlocks and Insider Participation

Because the Board of Directors consists only of Mr. King, the Company has no compensation committee. During ~~2017,~~2018, none of our executive officers or director served as a member of the board of directors or compensation committee of any other entity that has or has had one or more executive officers serving as a member of our Board.

Item 11. Executive Compensation

Summary Compensation Table

The table below summarizes the total compensation earned by each of our executive officers during the last two fiscal years.

Name and Principal Position	Year		Salary		Stock Awards			Total		Year		Salary		Stock Awards		Total
David King, CEO and CFO		2017	$	120,000		$	—	$	—		2018	$	130,000⁽¹⁾	$	—	$	130,000
		2016	$	-0-		$	—	$	—		2017	$	120,000	$	—	$	—
Mark Dyos, President⁽¹⁾		2017	$	141,346		$	—	$	—		2018	$	180,000	$	500,000	$	680,000
		2016	$	56,000		$	250,000	$	306,000		2017	$	141,346	$	250,000	$	391,346

⁽¹⁾

~~Consists~~Pursuant to the terms of ~~500,000 shares with an aggregate estimated value at~~his Employment Agreement, Mr. King was entitled to receive $240,000 in base compensation for fiscal 2018. To facilitate the Company’s ongoing operations Mr. King elected to waive the right to receive $110,000 of the compensation he was owed in 2018. On December 31, ~~2016~~2018, the Board of ~~$250,000.~~Directors awarded Mr. King a bonus of $150,000 that can be paid in either cash or shares of Common Stock. It is anticipated that the bonus shall be paid in the second quarter of fiscal 2019.

~~Outstanding Equity Awards~~

~~The following table below summarizes stock awards during the last two fiscal years that was not vested as of the end of such fiscal year.~~

Name

Year
Number of Shares
that Have
not Vested

Market Value of
Shares that
Have not Vested⁽¹⁾
David King 2017 — —
2016 — —
Mark Dyos 2017 — —
2016 500,000 $250,000

~~(1)~~ ~~Calculated based on the value at which shares were most recently issued in private placements as of December 31, 2017 and 2016, respectively.~~

Material Terms of Employment and Consulting Agreements

Commencing January 20, 2017, Mr. King was entitled to receive a salary of $10,000 per month. Beginning the month following the time that the Company first generates revenues, Mr. King is entitled to receive a salary of $20,000 per month. Mr. King’s employment relationship with the Company is not written. A summary of the material terms of his employment relationship is filed as an exhibit hereto.

Effective as of May 1, 2016, the Company entered into a three-year employment agreement with Mr. Dyos. The agreement calls for 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 at May 1, 2017. The employment agreement provides for an additional grant of 500,000 shares of common stock on the first day following the second month during which the Company recognizes revenue pursuant to generally accepted accounting ~~principles.~~principles, which shares have been issued to Mr. Dyos.

The Company has entered into a two-year accounting consulting services agreement with Mr. Marshall. 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 paid to Mr. Marshall 75,000 shares of common stock per each completed six months of satisfactory service. The first installment was paid at such time as the Company generates revenue from the sale of its products.

Director Compensation

Mr. King, the sole director of the Company, does not receive compensation from the Company for his service in such capacity.

32
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth the ownership of our common stock by each person known by us to be the beneficial owner of more than 5% of our outstanding common stock, as well as our officers and directors, as of March 29, ~~2018.~~2019. There are not any pending arrangements that may cause a change in control. The information presented below has been presented in accordance with the rules of the SEC and is not necessarily indicative of ownership for any other purpose.

A person is deemed to be a “beneficial owner” of a security if that person has or shares the power to vote or direct the voting of the security or the power to dispose or direct the disposition of the security. A person is deemed to own beneficially any security as to which such person has the right to acquire sole or shared voting or investment power within 60 days through the conversion or exercise of any convertible security, warrant, option or other right. More than one person may be deemed to be a beneficial owner of the same securities. The percentage of beneficial ownership by any person as of a particular date is calculated by dividing the number of shares beneficially owned by such person, which includes the number of shares as to which such person has the right to acquire voting or investment power within 60 days, by the sum of the number of shares outstanding as of such date plus the number of shares as to which such person has the right to acquire voting or investment power within 60 days. Consequently, the denominator used for calculating such percentage may be different for each beneficial owner.
31

Name and Address
Amount and Nature
of
Beneficial Ownership

Percentage of Class
David King⁽¹⁾⁽²⁾ 10,311,650 32.9%
Mark Dyos    1,060,000   3.3%
All Officers and Directors as a group (2 persons) 11,371,650 36.2%

Other 5% holder:

Steve Clohessy⁽²⁾   4,000,000 12.4%
Name and Address
Amount and Nature
of
Beneficial Ownership
Percentage of Class
David King⁽¹⁾ 8,836,650 24.3
Mark Dyos⁽²⁾ 2,040,000 5.6
All Officers and Directors as a group (2 persons) 10,876,650 29.9

(1) Includes ~~1,000,000~~700,000 share held by Mr. King’s spouse.
(2) Includes ~~2,000,000 share~~500,000 shares held by ~~Royalty Wines LLC, an entity controlled by~~ Mr. ~~King and Mr. Clohessy.~~Dyos’ spouse.

The address for each person named in the table above is c/o the Company.

This table is based upon information derived from our stock records. We believe that each of the shareholders named in this table has sole or shared voting and investment power with respect to the shares indicated as beneficially owned.
33

Item 13.Certain Relationships and Related Transactions, and Director Independence
As disclosed above, Mr. King operates Drink Robust Inc., which markets an energy drink developed by Sun Mark. Except for Mr. King’s ongoing relationship with Drink Robust Inc., which has a manufacturing agreement with Sun Mark, Mr. King has no other relationship with Sun Mark.
We do not have a policy or procedures in place for the review, approval or ratification of any related-party transaction, other than, written consent in lieu of the meeting of the Board of Directors or shareholders, as the case may be, for the given transaction. The related party transactions described above were approved by the Board of Directors, but not approved pursuant to any written policy or procedure.

We do not have director independence under the requirements Item 407(a) of Regulation S-K.

Item 14. Principal Accounting Fees and Services

The Company does not currently maintain a separate audit committee. When necessary, the entire Board of Directors performs the tasks that would be required of an audit committee. Our Board of Director’s policy is to preapprove all audit, audit related and permissible non-audit fees and services provided by our independent registered public accounting firm. Our Board of Directors pre-approved all of the fees described below. Our Board of Directors also reviews any factors that could impact the independence of our independent registered public accounting firm in conducting the audit and receives certain representations from our independent registered public accounting firm towards that end.

Audit Fees

On November 18, 2016 we engaged Montgomery Coscia Greilich LLP Certified Public Accountants (“MCG”) as our independent registered accounting firm. The aggregate fees billed by MCG for professional services rendered for the audit of our annual financial statements for ~~2017~~fiscal 2018 and ~~2016~~2017 and the reviews of the financial statements included in our Forms 10-Q, or services normally provided by the accountant in connection with statutory and regulatory filings for those fiscal years were ~~$44,832.39~~$46,541 and ~~$15,282.13,~~$44,832, respectively.

32
Audit-Related Fees

No fees or expenses were billed by MCG in fiscal years ~~2017~~2018 or ~~2016~~2017 for professional services rendered, other than the fees disclosed above under the caption “Audit Fees” for assurance and related services relating to performance of the audit or review of our financial statements.

Tax Fees

No fees or expenses were billed by MCG in fiscal years ~~2017~~2018 or ~~2016~~2017 for professional services rendered for tax compliance, tax advice or tax planning.
34

All Other Fees

We incurred no other fees or expenses for the ~~2017~~2018 or ~~2016~~2017 fiscal years for any other products or professional services rendered by MCG other than as described above.

PART IV

Item 15.Exhibits, Financial Statement Schedules

(a) Financial Statements

The financial statements and related notes listed on p. F-1 are included as part of this Annual Report on Form 10-K.

(b) Exhibits

The following exhibits are filed with this Annual Report on Form 10-K or are incorporated by reference as described below.

Item 16.                   Form 10-K Summary

~~None.~~None
33

Exhibit Exhibit Description
35

+ Filed as an exhibit to the Company’s Registration Statement on Form 10 dated October 13, 2017.

+ + Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q dated November 14, 2018.

Pursuant to the requirements of Section 13 or 15(d) 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.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant and in the capacities and on the dates indicated.

Signature

Title

Date

/s/ David King

Chief Executive Officer and Secretary

April ~~2, 2018~~1, 2019

David King

~~and Secretary (Principal~~

(Principal Executive Officer and Principal

Financial and Accounting Officer)

Exhibit

Exhibit Description

2.5+

Certificate of Compliance with Merger, Combination or Acquisition Requirements, filed September 27, 2016

~~3.1+~~

3.1+

Certificate of Formation of Water Now, Inc., as amended

3.2+

Amended and Restated Certificate of Formation of Water Now, Inc.

3.3+

Bylaws of Water Now, Inc.

~~10.1+~~

10.1+

General Assembly Agreement between Source One International Co. Ltd. and Water Now, Inc., effective as of April 7, 2017

10.2*/+

Employment Agreement between Water Now, Inc. and Mark Dyos, effective as of May 1, 2016

~~10.3+~~

10.3+

Advisory Agreement between HFG Capital Investments, LLC and Water Now, Inc., entered into April 4, 2016

10.4+

Sales Agreement between Water Now, Inc. and Sun Mark (Gulf) JLT, dated March 1, 2017

10.5*/+

Contractor Agreement between Water Now, Inc. and Phil Marshall, effective as of September 16, 2016

10.6+

Administration Agreement between Datacom Warranty Corp. and Water Now, Inc. dated July 29, 2017

10.7+

Manufacturing and Distribution Agreement by and between Cloudburst Solutions, LLC and Water Now, Inc. dated July 1, 2016

10.8*/+

Summary Terms of Employment Arrangement between Water Now, Inc. and David King

10.9+

Commercial Lease Agreement between Peleton Properties LLC and Water Now, Inc., effective as of October 15, 2017

10.10++

Exclusive Sales Distribution Agreement entered into between African Horizon Technologies (Pty) Ltd, Registration Number 2013/230512/07 and Water Now, Inc. Registration Number 802389157, effective October 31, 2018

10.11**

Commercial Lease Agreement between TCRG Opportunity XVII, LLC and Water Now, Inc., effective December 28, 2018

23.1+

Consent of Independent Auditors

+ Filed as an exhibit to the Company’s Registration Statement on Form 10 dated October 13, 2017.

+ + Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q dated November 14, 2018.

We have audited the accompanying consolidated balance sheets of Water Now, Inc. (the Company) as of December 31, ~~2017~~2018 and ~~2016,~~2017, and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for each of the ~~year~~years ended December 31, ~~2017~~2018 and ~~period from February 10, 2016 (inception) to~~ December 31, ~~2016,~~2017, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, ~~2017~~2018 and ~~2016,~~2017, and the results of its operations and its cash flows for the year ended December 31, ~~2017~~2018 and ~~period from February 10, 2016 (inception) to~~ December 31, ~~2016,~~2017, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has generated net losses since inception and had a net working capital deficit at December 31, 2018. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

2500 Dallas Parkway, Suite 300

Plano, Texas 75093

300 Throckmorton Street, Suite 520

Fort Worth, Texas 76102

2901 Via Fortuna, Building 6, Suite 550

Austin, Texas 78746

~~TEXAS~~
Texas	81-1419236
(State or other jurisdiction of ~~incorporation~~ Incorporation or organization)	(IRS Employer Identification Number)

2840 Bryan Avenue Fort Worth, Texas	~~81-1419236~~76104 (~~I.R.S. Employer~~Zip Code) ~~Identification No.)~~
(Address of principal executive offices)


Title of Each Class	Name of each exchange on which registered
None	Common Stock, no par value

Large accelerated filer o		Accelerated filer o
Non-accelerated filer o ~~(Do not check if a smaller reporting company)~~		Smaller ~~reporting company~~Reporting Company x
		Emerging ~~growth company~~Growth Companyx

	Common Stock Bid Prices
Financial Quarter Ended	High ($)	Low ($)

December 31, 2018	.80	.17
September 30, 2018	1.25	.60
June 30, 2018	.75	.75
March 31, 2018	N/A	N/A
December 31, 2017	N/A	N/A
September 31, 2017	N/A	N/A
June 30, 2017	N/A	N/A
March 31, 2017	N/A	N/A

101.INS**	XBRL Instance Document
1.1.SCH**	1.1.SCH **	XBRL Schema Document
101.CAL**	101.CAL **	XBRL Calculation Linkbase Document
101.DEF**	101.DEF **	XBRL Definition Linkbase Document
101.LAB**	101.LAB **	XBRL Label Linkbase Document
101.PRE**	101.PRE **	XBRL Presentation Linkbase Document

			Page
PART I			1
~~PART I~~Item 1.	Business		1
~~Item1.~~Item 1A.	~~Business~~Risk Factors	1	5
~~Item 1A.~~	~~Risk Factors~~	5
Item 1B.	Unresolved Staff Comments	15	13
Item 2.	Properties	15	13
Item 3.	Legal Proceedings	16	14
Item 4.	Mine Safety Disclosures	16
		14
PART II			1614
Item 5.	Market for Registrant’s Common Equity, Related ~~Shareholder~~Stockholder Matters and Issuer Purchases of Equity Securities	16	14
Item 6.	Selected Financial Data	17	16
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17	16
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	27	16
Item 8.	Financial Statements and Supplementary Data	27	25
Item 9.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	27	25
Item 9A.	Controls and Procedures	27
~~Item 9B.~~	~~Other Information~~	29
		25
~~PART III~~Item 9B.	Other Information		2927
PART III			28
Item 10.	Directors, Executive Officers and Corporate Governance	29	28
Item 11.	Executive Compensation	31	30
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	33	31
Item 13.	Certain Relationships and Related Transactions, and Director Independence	34	32
Item 14.	Principal Accounting Fees and Services	34
		32
PART IV			3533
Item 15.	Exhibits, Financial Statement Schedules	35	33
Item 16.	Form 10-K Summary	35	33
Signatures		38	36
Exhibit Index		39	37

	2018		2017

Payroll expense	$	742,000	$	410,000
Stock-based compensation expense		558,000		513,000
Travel expense and other miscellaneous expense		70,000		34,000

Total	$	1,370,000	$	957,000

	2018		2017

Payroll expenses	$	437,000	$	125,000
Stock-based compensation expense		875,000		65,000
Other G&A		832,000		464,000
Audit, legal and professional fees		584,000		125,000
Total	$	2,728,000	$	779,000

	2018		2017
Net cash used in operating activities	$	(2,464,000)	$	(1,423,000	)
Net cash used in investing activities		(378,000)		(138,000)
Net cash provided by financing activities		2,893,000		1,563,000

Net increase in cash	$	51,000	$	2,000

	•	the costs and timing of commercialization activities for our products, 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.

Name	Year	Number of Shares that Have not Vested	Market Value of Shares that Have not Vested⁽¹⁾
David King	2017	—	—
	2016	—	—
Mark Dyos	2017	—	—
	2016	500,000	$250,000

Name and Address	Amount and Nature of Beneficial Ownership	Percentage of Class
David King⁽¹⁾⁽²⁾	10,311,650	32.9%
Mark Dyos	1,060,000	3.3%
All Officers and Directors as a group (2 persons)	11,371,650	36.2%
Other 5% holder:
Steve Clohessy⁽²⁾	4,000,000	12.4%

~~Exhibit~~		~~Exhibit Description~~

	2.5+		Certificate of Compliance with Merger, Combination or Acquisition Requirements, filed September 27, 2016
~~3.1+~~
	3.1+		Certificate of Formation of Water Now, Inc., as amended

	3.2+		Amended and Restated Certificate of Formation of Water Now, Inc.

	3.3+		Bylaws of Water Now, Inc.
~~10.1+~~
	10.1+		General Assembly Agreement between Source One International Co. Ltd. and Water Now, Inc., effective as of April 7, 2017

	10.2*/+		Employment Agreement between Water Now, Inc. and Mark Dyos, effective as of May 1, 2016
~~10.3+~~
	10.3+		Advisory Agreement between HFG Capital Investments, LLC and Water Now, Inc., entered into April 4, 2016

	10.4+		Sales Agreement between Water Now, Inc. and Sun Mark (Gulf) JLT, dated March 1, 2017

	10.5*/+		Contractor Agreement between Water Now, Inc. and Phil Marshall, effective as of September 16, 2016

	10.6+		Administration Agreement between Datacom Warranty Corp. and Water Now, Inc. dated July 29, 2017

	10.7+		Manufacturing and Distribution Agreement by and between Cloudburst Solutions, LLC and Water Now, Inc. dated July 1, 2016

	10.8*/+		Summary Terms of Employment Arrangement between Water Now, Inc. and David King

	10.9+		Commercial Lease Agreement between Peleton Properties LLC and Water Now, Inc., effective as of October 15, 2017

	10.10++		Exclusive Sales Distribution Agreement entered into between African Horizon Technologies (Pty) Ltd, Registration Number 2013/230512/07 and Water Now, Inc. Registration Number 802389157, effective October 31, 2018

	10.11**		Commercial Lease Agreement between TCRG Opportunity XVII, LLC and Water Now, Inc., effective December 28, 2018

	23.1+		Consent of Independent Auditors
31.1**

Date: April ~~2, 2018~~1, 2019			WATER NOW, INC.

			By: /s/ David King
			David King, Chief Executive Officer and Secretary (Principal Executive Officer and Principal Financial and Accounting Officer)

Report of Independent ~~Auditor’s Report~~Registered Public Accounting Firm	F-1

Consolidated Balance Sheets as of December 31, ~~2017~~2018 and ~~December 31, 2016~~2017	F-2

Consolidated Statements of Operations for the ~~fiscal year~~years ended December 31, ~~2017~~2018 and ~~from February 10, 2016 (inception) to December 31, 2016~~2017	F-3

Consolidated Statements of Changes in ~~Shareholders’ Deficit~~Stockholders’ Equity (Deficit) for the ~~period from February 10, 2016 (inception) to~~years ended December 31, 2018 and 2017	F-4

Consolidated Statements of Cash Flows for the ~~year~~years ended December 31, ~~2017~~2018 and ~~for the period from February 10, 2016 (inception) through December 31, 2016~~2017	F-5

Notes to Consolidated Financial Statements	F-6

	December 31,			December 31,
	2017			2016
ASSETS
Current Assets
Cash	$	2,049		$	336
Inventory		346,101			—
Total Currents Assets		348,150			336

Plant and machinery – net		132,010			—
Security deposit		9,149			-

Total Assets	$	489,309		$	336

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Outstanding checks in excess of bank balance	$	6,597		$	2,500
Accounts payable and accrued expenses		116,513			80,000
Advance from related party		32,115			21,000
Notes payable – stockholders		112,000			100,000

Total Liabilities		267,225			203,500

Commitments and Contingencies - Note 7		-			-

Stockholders' Equity (Deficit)
Preferred stock – no par value, 10,000,000 shares authorized, zero issued and outstanding at December 31, 2017 and December 31, 2016		—			—
Common Stock - no par value, 90,000,000 shares authorized, 30,522,000 shares and 28,349,500 shares issued and 30,325,808 and 28,153,308 outstanding as of December 31, 2017 and December 31, 2016, respectively		3,831,205			1,680,000
Accumulated deficit		(3,609,121	)		(1,883,164	)
Total Stockholders' Equity (Deficit)		222,084			(203,164	)

Total Liabilities and Stockholders' Equity (Deficit)	$	489,309		$	336

		For the year ended		For the period from February 10, 2016 (inception) through
		December 31,		December 31,
		2017		2016

Revenues, net	$	35,570	$	-

Cost of Goods Sold	$	16,328	$	-

Gross Profit		19,242		-

Operating expenses
Reorganization expenses		-		615,000
Research and development expenses		956,844		738,147
General and administrative expenses		779,115		527,017

Total operating expenses		1,735,959		1,880,164

Loss from operations		(1,716,717)		(1,880,164)

Other expense
Interest expense		(9,240)		(3,000)
Total other expense		(9,240)		(3,000)

Loss before provision for income taxes		(1,725,957)		(1,883,164)

Provision for income taxes		-		-

Net Loss	$	(1,725,957)	$	(1,883,164)

Loss per share
basic and fully diluted	$	(0.06)	$	(0.07)

Weighted-average number of shares of common stock
basic and fully diluted		29,385,675		27,034,552

	Years Ended December 31,
		2018		2017

Revenues, net	$	168,730	$	35,570

Cost of Goods Sold		104,826		16,328

Gross Profit		63,904		19,242

Operating expenses
Research and development expenses		1,370,313		956,844
General and administrative expenses		2,727,606		779,115

Total operating expenses		4,097,919		1,735,959

Loss from operations		(4,034,015)		(1,716,717)

Other expense
Interest expense		(336,041)		(9,240)
Total other expense		(336,041)		(9,240)

Loss before provision for income taxes		(4,370,056)		(1,725,957)

Provision for income taxes		-		-

Net Loss	$	(4,370,056)	$	(1,725,957)

Loss per share
basic and fully diluted	$	(0.13)	$	(0.06)

Weighted-average number of shares of common stock
basic and fully diluted		33,089,217		29,385,675

									Total
	Common Stock					Accumulated			Stockholders'
	Shares			Amount		Deficit			Equity (Deficit)


Balance, February 10, 2016 (Inception)		—		$	—	$	—			$	—

Common stock issuances to founder		25,589,500			—		—				—
Common stock issuances for cash		340,000			170,000		—				170,000
Common stock issuances for restructuring		703,808			450,000		—				450,000
Common stock issuances as payment for services compensation		1,520,000			1,060,000		—				1,060,000
Net loss		—			—		(1,883,164	)			(1,883,164	)

Balance, December 31, 2016		28,153,308		$	1,680,000	$	(1,883,164	)		$	(203,164	)

Common stock issuances for cash and conversion of notes payable		3,122,000			1,536,030		—				1,536,030
Common stock issuances as payment for services compensation		1,830,350			615,175		—				615,175
2,779,850 Treasury shares surrendered by major stockholder		(2,779,850	)		—		—				—
Net loss		—			—		(1,725,957	)			(1,725,957	)

Balance, December 31, 2017		30,325,808			$3,831,205		$(3,609,121	)			$ 222,084

							Additional								Total
	Common Stock						Paid-In		Subscription			Accumulated			Stockholders'
	Shares			Amount			Capital		Receivable			Deficit			Equity(Deficit)

Balance, December 31, 2016		28,153,308		$	1,680,000		$	—	$	—		$	(1,883,164	)	$	(203,164	)

Common stock issuances for cash and conversion of notes payable		3,122,000			1,536,030			—		—			—			1,536,030
Common stock issuances as payment for services and compensation		1,830,350			615,175			—		—			—			615,175
Treasury shares surrendered by major stockholder		(2,779,850	)		—			—		—			—			—
Net loss		—			—			—		—			(1,725,957	)		(1,725,957	)

Balance, December 31, 2017		30,325,808			3,831,205			—		—			(3,609,121	)		222,084

Common stock issuances for cash		2,941,000			1,470,500			—		—			—			1,470,500
Common stock issuances as payment for services, compensation and distributorship agreement		3,740,000			1,683,600			—		—			—			1,683,600
Common stock issuances for debt issuance costs		60,000			53,400			—		—			—			53,400
Common stock cancelled as payment for legal settlement		(1,250,000	)		(625,000	)		—		—			—			(625,000	)
Beneficial debt conversion feature		—			—			687,431		—			—			687,431
Shares subscribed for services		—			50,000			—		(50,000	)		—			—
Net loss		—			—			—		—			(4,370,056	)		(4,370,056	)

Balance, December 31, 2018		35,816,808		$	6,463,705		$	687,431	$	(50,000	)	$	(7,979,177	)	$	(878,041	)

			Year Ended		For the period from February 10, 2016 (inception) to
			December 31,		December 31,
			2017		2016
Stock-based compensation expense
	Reorganization expenses	$	-	$	450,000
	Research and development expenses		513,000		675,000
	General and administrative expenses		102,000		385,000

	Total stock-based compensation expense	$	615,000	$	1,510,000

Year ending December 31,

2018	$	89,000
2019		92,000
2020		78,000
Total minimum payments	$	259,000

Year ending December 31,
	2019	$	225,000
	2020		312,000
	2021		240,000
	2022		246,000
	2023		103,000
	Total minimum payments	$	1,126,000