UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K


[X]	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the fiscal year ended December 31, ~~2015~~2016


[ ]	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period from __________ to __________.

Commission File Number: ~~333~~000-~~141927~~55408

AMBIENT WATER CORPORATION

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


Nevada		20-4047619
(State or other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.

7721 East Trent Avenue, Spokane Valley, WA 99212

(Address of Principal Executive Offices) (Zip Code)

Registrant’s Telephone Number, including Area Code: (509) 474-9451

Securities Registered Pursuant of Section 12(b) of the Act: None

Securities Registered Pursuant of Section 12(g) of the Act: Common Stock, par value $0.~~001~~0001

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark of the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes [ ] No [X]

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [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 if disclosure of delinquent filers in response to Item 405 of Regulation S-K (229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. [ x ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

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

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on June 30, ~~2015~~2016, the last business day of the registrant’s second completed fiscal quarter, based on the last reported trading price of the registrant’s common stock on the Over the Counter was $2294,~~168,039~~809.61. The sum excludes the shares held by officers, directors, and stockholders whose ownership exceeded 10% of the outstanding shares at June 30, ~~2015~~2016, in that such person may be deemed affiliates of the Company. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of March 24, ~~2016~~2017, there were ~~326~~1,~~580~~627,~~006~~316,181 common shares issued and outstanding.

AMBIENTWATER CORPORATION

FORM 10-K

December 31, ~~2015~~2016

TABLE OF CONTENTS

PART I

ITEM 1. Business

ITEM 1A. Risk Factors

ITEM 1 B. Unresolved Staff Comments

ITEM 2. Properties

ITEM 3. Legal Proceedings

1817

ITEM 4. Mine Safety Disclosures

1817

PART II

1918

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

1918

ITEM 6. Selected Financial Data

2019

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

2019

ITEM 7A. Quantitative and Qualitative Disclosure about Market Risk

2423

ITEM 8. Financial Statements and Supplementary Data

2524

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

4946

ITEM 9A. Controls and Procedures

4946

ITEM 9B. Other Information

5047

PART III

5147

ITEM 10. Directors, Executive Officers and Corporate Governance

5147

ITEM 11. Executive Compensation

5350

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

5752

ITEM 13. Certain Relationships and Related Transactions and Director Independence

5954

ITEM 14. Principal Accountants Fees and Services

6056

PART IV

6157

ITEM 15. Exhibits, Financial Statement Schedules

6157

SIGNATURES

6258

PART I

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K (“Annual Report”) contains forward looking statements that involve risks and uncertainties, principally in the sections entitled “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All statements other than statements of historical fact contained in this Annual Report, including statements regarding future events, our future financial performance, business strategy, and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of these terms or other comparable terminology. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under “Risk Factors” or elsewhere in this Report, which may cause our or our industry’s actual results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short term and long term business operations, and financial needs. These forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Report, and in particular, the risks discussed below and under the heading “Risk Factors” and those discussed in other documents we file with the Securities and Exchange Commission that are incorporated into this Report by reference. The following discussion should be read in conjunction with the consolidated financial statements and notes included herewith. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statement.

You should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this Report. You should be aware that the occurrence of the events described in the section entitled “Risk Factors” and elsewhere in this Report could negatively affect our business, operating results, financial condition and stock price. Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements after the date of this Annual Report to conform our statements to actual results or changed expectations.

ITEM 1. Business

History

Ambient Water Corporation, formerly AWG International Water Corporation, (the "Company" or "Ambient") was organized in the State of Nevada on December 19, 2005 as MIP Solutions, Inc. On June 23, 2014, the Company changed its corporate name to Ambient Water Corporation.

The Company was originally organized as MIP Solutions, Inc., to pursue the development of molecular imprinting technology.

On July 10, 2012, MIP Solutions, Inc. acquired AWG International, Inc., a Nevada corporation, as a wholly owned subsidiary. AWG International, Inc. focused its business development efforts on the design and manufacture of potable water generating appliances deriving water from atmospheric moisture.

AWG International, Inc. was organized in the State of Nevada on March 18, 2010. On June 23, 2014, AWG International, Inc. changed its corporate name to Ambient Water, Inc., ("Ambient Inc.").

The founders collaborated on the design and development of an air-to-water technology, which resulted in a patent being issued in 2007 by the U.S. Patent and Trademark Office. This patent technology is referred to as the “G2 design”. This patent was assigned to AWG. (See "Patents and Licenses")

Overview

Ambient designs and builds air-to-water appliances for residential and commercial drinking water applications based on patented, patent pending and proprietary technologies. The Company currently has ~~two~~three products for sale. Sales to date are for a countertop water generating and dispensing appliance, designated as the Model 2500. This model is manufactured in South Korea.

Also available for sale isare our ~~first~~ commercial ~~unit~~units, the Ambient Water 400 and Ambient Water 800. In 2014 we changed the name of our Water Pro Series to the Ambient Water Series. The Ambient Water 400 uses conventional 3-phase utility power to provide approximately 400 gallons of water generation capability per day. The Ambient Water 400 is based on the Company’s patent pending “G4/5 design” and is manufactured in Michigan, USA. ~~The~~Since 2015, an Ambient Water 400 ~~was~~has ~~initially~~been ~~deployed~~on todisplay ~~a field trial location~~ in Houston, Texas for validation of water production and energy usage., Inat the ~~summer~~California ofState ~~2015,~~Capital ~~the~~in ~~Ambient~~Sacramento, ~~Water~~and ~~400~~can ~~was~~currently ~~relocated~~be toviewed at the University of California ~~State~~at ~~Capital~~San inDiego ~~Sacramento~~campus. The design of the Ambient Water 400 can be easily applied to other capacity units in the same family of products, which will allow the Company to market other capacity and cost point units in the future.

The ~~Company~~Ambient ~~has~~Water ~~two~~800 ~~other~~uses ~~products~~conventional ~~currently~~3-phase ~~available~~utility aspower ~~Engineer~~ to ~~Order~~provide ~~due~~approximately to800 ~~the~~gallons ~~due~~of towater ~~the~~generation ~~degree~~capacity ofper ~~customization required~~day. The Ambient Water ~~20K~~800 ~~model~~ is ~~being~~also ~~designed~~based ~~for~~on anthe ~~oil~~Company’s ~~and~~patent ~~gas~~pending ~~industry~~“G4/5 ~~application. In addition, another~~ design” and is ~~available~~manufactured toin ~~simultaneously~~Houston, ~~provide~~Texas ~~both water recovery~~ and ~~climate~~is ~~control~~presently ~~for~~available ~~closed-loop greenhouses. All of the company’s products are constructed~~ for ~~worldwide~~viewing ~~distribution~~and demonstration.

The Company has two other products currently available as "Engineer to Order" due to the degree of customization required. The Ambient Water 20K model is being designed for an oil and gas industry application as well as other industries that require large amounts of water. In addition, another design is available to simultaneously provide both water recovery and climate control for closed-loop greenhouses. All of the company’s products are constructed for worldwide distribution and support.

Technology

The air-to-water technology systems are designed to produce water from the atmosphere by using a condensing surface and a unique and proprietary filtration system that removes dust, airborne particles and bacteria to generate clean drinking water.

These water generating systems produce clean drinking water by extracting moisture from the ambient air. The ambient air enters the appliance through an air filter, passing the moisture rich air across condensing coils where water condenses and is collected into a water treatment system that continuously filters, sterilizes and holds the water for dispensing. This is similar to the processes that occur naturally during nature’s water cycle. Moist air rises from the earth through sublimation, evapo-transpiration and evaporation. The water is then stored in the atmosphere until it precipitates in the form of dew, rain or snow. Once the moisture is removed from the air as precipitation, it is filtered through the ground and stored as ground water in rivers and lakes.

The technology of using a condensing surface to extract water from air has been proven and in use for many years. Some familiar applications include air conditioners and dehumidifiers. The process basically involves taking filtered moist air from the atmosphere and dehumidifying it for treatment by the water treatment module. This condensate water is then processed through filters and special cartridges which eliminate biological contaminants including bacteria and pollutants that may be in the air. The water production and cost per gallon varies with the relative humidity and temperature of the air and cost of the energy source, but is typically cost competitive with bottled water.

Since atmospheric water begins with less organic, inorganic, pharmaceutical, and/or biological impurities than ground water, safer and cleaner water may be produced by the Ambient Water technology with less processing and added chemicals required by most water utilities.

Atmospheric water vapor is an abundant resource that can be used ~~with~~without no negative environmental impacts. These products are powered by standard household or industrial electric supply from renewable or conventional generation sources. The performance of all products is based on the relative humidity and temperature of the atmosphere. Note that this atmosphere may be either outside air or that which is wholly within a greenhouse.

Our Product Line

Model 2500

[awg10kmar1517final002.gif]

The Model 2500 is a home/office appliance designed to produce up to 4.8 gallons per day (18 liters) of drinking water at 80% relative humidity at 75 degrees Fahrenheit. It operates on household power. It has an internal storage capacity of 3.5 gallons. It uses environmentally safe R134a refrigerant.

Ambient Water 400

[awg10kmar1517final003.jpg]

The Ambient Water 400 has commercial water generation capacity of up to 400 gallons per day at 80% relative humidity and 75 degrees Fahrenheit utilizing conventional electrical power sources. It operates at 208/230 VAC, 3-phase, 60Hz power and is available in several other 3-phase power variations for other countries worldwide. This unit may be customized and scaled up/down to meet community or project drinking water requirements. It may be used for military, disaster relief, mining, food and beverage industry, residential buildings, hospitals, schools, manufacturing, villages, hospitality industry and agriculture.

~~Engineer~~Ambient toWater ~~Order Models:~~800

[awg10kmar1517final004.jpg]

The Ambient Water ~~20K~~800 ishas ~~available~~a oncommercial anwater ~~Engineer~~generation tocapacity ~~Order~~of ~~basis~~up to ~~have~~800 agallons ~~default~~per ~~industrial~~day ~~water~~at ~~generation~~80% ~~capacity~~relative uphumidity toand 2075 degrees Fahrenheit utilizing conventional electrical power sources. It operates at 460 VAC,~~000~~ ~~gallons~~3-phase, ~~per~~60Hz ~~day~~power and ~~will~~is ~~operate~~available onin ~~conventional~~several other 3-phase power~~. For~~ ~~geographically~~variations ~~remote~~for ~~applications,~~other ~~alternate~~countries ~~power~~worldwide. ~~sources~~It may be used~~. Actual~~ ~~capacity~~for ismilitary, ~~dependent~~disaster onrelief, ~~the~~mining, ~~specific~~food ~~order~~and beverage industry, residential buildings, hospitals, schools, manufacturing, villages, hospitality industry and agriculture.

Engineer to Order Models

[awg10kmar1517final005.jpg]

The Ambient Water 20K is available on an "Engineer to Order" basis having a default industrial water generation capacity up to 20,000 gallons per day and will operate on conventional 3-phase power. For geographically remote applications, alternate power sources may be used. Actual capacity is dependent on the specific order.

The Ambient Water Vertical Farming unit is available on an Engineer to Order basis to simultaneously both recover the water transpired by plants and to control the growing environment (greenhouse temperature and humidity) at the optimum level for the target farm crop. These units are available sized to the specific greenhouse requirements for climate and water recovery.

Ambient Water ~~features~~Features

For all high volume commercial and industrial models, the Company offers optional remote unit monitoring via the Internet. Other features include automatic power down for filter changes, adaptable production for renewable energy powering, dispenser or utility connections, custom power options, direct tap dispenser for community needs, user payment options include credit card, coin or bills, quick connection to existing electric utility, water refrigeration and chilling systems, and automatic water dispenser controls.

The metallic condenser coils are treated with a special coating to eliminate the risk of metal oxides and bacterial contamination entering the drinking water. The anti-bacterial systems do not use any moving parts, or high maintenance items such as ultraviolet lights or ozone generators. A unique and proprietary water filter cartridge technology is utilized which destroys harmful microorganisms common to drinking water.

These water generating units are equipped with an electronic control system that will turn the machine off when the water reservoir is full. The control system will circulate the reservoir water to maintain clean drinking water 24 hours a day, 365 days a year. The equipment has a dynamic display which permits operation monitoring and display any needed maintenance functions such as filter replacement.

We believe these models can provide an independent, sustainable, safe water source for a wide variety of possible circumstances such as mining and petroleum exploration camps, food manufacturers, military camps, non-government organizations, humanitarian assistance organizations, emergency and disaster relief situations.

We believe these units are economically viable in temperate climates. The units work best in tropic and sub tropic climates due to the higher atmospheric water content resulting in the highest rate of water production at the lowest cost per gallon.

Manufacturing

Model 2500

The Model 2500 is manufactured in South Korea by AT Company (previously known as ATW) under a private label agreement.

The Company had sales of the Model 2500 outside of the United States beginning in 2012 and began sales inside the United States during the first quarter of 2013.

Ambient Water 400, 800, 20K, and Vertical Farming

The design and development of these models are based on a joint collaboration between Ambient Water and our world-class USA-based ~~manufacturer.~~manufacturers In January 2015, an Ambient Water 400 unit was delivered to Houston, Texas for field testing. The location was chosen for several reasons: 1) the company hosting the unit serves the oil and gas industry in ~~the~~Michigan ~~surrounding area~~ and has customers visiting the plant that are potential Ambient Water customers, 2) the temperature and humidity in the Houston area is nearly ideal from a climate perspective, and 3) the Houston area is a convenient meeting point for potential customers and distributors to view the unit in operationTexas.

After being displayed and demonstrated in Houston for half the year, this unit was relocated to California for display and demonstration. More sites throughout CA are currently under consideration.

Sales, Marketing and Distribution

We believe a clean and safe water market opportunity exists for our atmospheric water generators. This technology provides an alternative solution to the world's shortage of fresh water and can, in various geographical settings, provide cleaner, safer, and/or less expensive drinking water.

Our target markets for the air-to-water systems are businesses, governments, and people who are situated in the geographic regions where the ambient humidity is in a range of 40% to 90%, and in a temperature range of 50 to 90+ degrees Fahrenheit. Our models will reach the highest efficiency and highest yield within these ranges.

The Model 2500 targets consumers and small office applications. The home/office units are designed to replace bottled water and purified water dispensers, eliminating the need for replenishment and storage of plastic bottles. These units are intended for usage in residences, schools, offices, hospitals and restaurants. They can also serve as a personal disaster relief unit for consumers in circumstances such as hurricanes where residents in the affected area may have no safe drinking water. Sales of the Model 2500 have been increasing year over year. As we continue to promote and educate the community about this technology, we anticipate the sales volume to continue to increase. The replacement filters are cost effective for the unit owners and also provide an increasing recurring revenue stream for the Company.

The Ambient Water 400, 800, and 20K products target various markets including government facilities, military applications, oil and mining operations, new and existing tourist resorts, new condominium developments and humanitarian missions.

Ambient Water Vertical Farming products target the growing international market of commercial/ industrial greenhouses for crop research, grocery produce, fresh herbs, ornamental plants, and other specialty crops.

We currently market all of our products through multiple independent domestic and international wholesale distributors. We do not currently sell the Model 2500 directly to consumers or end-users. During ~~2015~~2016, we sold the Model 2500 internationally through multiple distributors and in the United States through our Florida ~~distributor~~and California distributors.

Sales of the larger products may be conducted directly with the Company due the unique engineering required. We also have several agent agreements in place, which compensate the agent for revenues directly associated with introductions and referrals to new distributors or significant customers. The Company is very careful in choosing distribution partners to make sure that they have the proper infrastructure for a positive customer experience.

Research and Development

The Company is dedicated to research and development and is continuing research and development efforts to create new products while improving the efficiencies associated with our water production, increasing water storage capacity, expanding the effectiveness of filtration devices and enhancing energy efficiency.

The Company plans to develop additional water generation capacity through leveraging significant portions of the existing Ambient Water 400, 800, 20K, and Vertical Farming technologies.

Costs and Expenses Related to Research and Development Activities

During the last two fiscal years, the Company spent $255,~~719~~523 and $41,536 in ~~2014~~2016 and 2015, respectively on research and development activities. The ~~2015~~2016 $1536,~~817~~918 ~~increase~~decrease was due to ana ~~increase~~decrease in research and warranty expense.

Competitive Advantage

Based on our research, the Company believes there are approximately ten companies experimenting with the technology of water generation, of which eight are direct, active competitors. Control of bacteria, metal oxides, and waterborne organisms in the field of atmospheric water generation creates a technological challenge and a substantial barrier for others to enter this field.

Our Model 2500 contains no moving parts in the bacteria control system. We believe this provides greater reliability than the competitive devices with moving parts as well as protection against abrupt failure modes such as UV bulb failure. Our models use a biostatic water filter cartridge technology to destroy harmful microorganisms common to drinking water in contrast to UV (ultra violet) light or ozone applications utilized by other competitive products. Our solution has a gradual degradation with ample warning for obtaining replacements before the water quality can become unhealthy.

Seawater Desalination Competition

Our current primary competition in many markets is Seawater Desalination (Desal), which benefits from a longer history of deployment. Our technology has significant advantages over Desal including; not requiring access to the sea coast via expensive real estate, no toxic byproducts, no permitting required, can be located at point of need – even if distant from the coast, no pipelines required, and can be redeployed for temporary or lease needs.

Atmospheric Water Generation Competition

The atmospheric water generator, water purification and bottled water industries are highly competitive. This market segment includes numerous manufacturers, distributors, marketers, and retailers that actively compete for the business of consumers both in the United States and abroad. In addition, the market is highly sensitive to the introduction of new products and technologies that may rapidly capture a significant share of the market. As a result, our ability to remain competitive depends in part upon its successful introduction and consumer acceptance of new products. Although our products bear our own exclusive branding, we expect that the competition will intensify in the future, since our competitors can and may duplicate similar products or services to those offered by us.

The principal competition within the atmospheric water generation industry comes from ten other manufacturers within the industry:

Air 2 Water, Inc. (also known as World Wide Water Company)

Fujian Yuxin Electronic Equipment Co. Ltd. (also known as HendrxWater)

Island Sky

AT Company

Water Maker India

Drinkable Air

Bravo Enterprises Ltd./Splash Water for Life

Water Technologies International/GR8 Water

Aqua Sciences

10.

Quest Water Global

A brief Internet search reveals many companies that claim to operate in the Atmospheric Water Industry. It is important to note that many of the web sites are for ~~company’s~~companies no longer in business. Unfortunately it can be a challenge for the consumer to find a reputable and suitable supplier.

Ambient Water recognizes that to be the industry leader it must continue to innovate and educate. Our bacteria control system is passive, not mechanical as used by the competition. The system is less expensive and saves energy. In terms of periodic maintenance, we believe our products are more user friendly than the standard UV and Ozone bacteria control systems used by others.

Our large commercial atmospheric water generating system has many key features which distinguish us from our competitors. We use a proprietary coil coating to avoid metal oxides from entering the water. Additionally, our system is engineered to utilize 100% outside air which enables maximum water production. Our units have the ability to operate in high ambient air temperatures. Traditional systems utilize a refrigeration system to condense water from the air and then to chill the water. Ambient Water products utilize the rejected cold air, which would normally be exhausted to the atmosphere, to chill the water in the storage tank thereby increasing energy efficiencies. Our bacteria control systems are passive and similar to those of the Model 2500.

Ambient Water products utilize the rejected cold air, which would normally be exhausted to the atmosphere, to chill the water in the storage tank thereby increasing energy efficiencies. Our bacteria control systems are passive and similar to those of the Model 2500.

Our exclusive bacteria control system has no expensive bulbs to replace and no bad-tasting chemicals. It works 24/7 to kill bacteria in every part of the unit including not only the storage tank but all internal piping and components. The technology is approved by the US Government (EPA) and NSF. Our bacteria control system uses no additional electrical energy.

Conventional UV lights used in competitive units have a service life of about 5000 hours after which the light must be replaced. It is difficult and expensive to accurately monitor the efficiency of the UV bulbs, the bulbs are somewhat fragile and sensitive to handling problems, and the UV light cannot control bacteria in the whole system, only where the water is in direct contact with the UV light. The UV light must run 24 hours a day with continuous circulation, and since the UV bulb generates heat, the water is then heated which promotes the growth of bacteria. UV lights also consume additional energy.

Additionally, as consumer awareness and concerns about the quality of original and refilled water bottles increases, our products’ water quality adds to the cost advantages further increasing the competitiveness of the Ambient Water models.

Patents and Licenses

G2 Patent and License Assignment Defects

The following discussion pertains to Ambient Water, Inc., formerly AWG International, Inc., a wholly owned subsidiary of Ambient Water Corporation. All references to AWG are references to Ambient Water, Inc. We have not changed the reference to AWG below in order to maintain name identity with filed supporting exhibits.

In August 2012, information came to our attention which raised questions about the enforceability, validity and scope of protection relating to the Everest Water patents, the Everest Water/CanAmera Management License Agreement and subsequent patent assignments ("G2 Assets") which were associated with the License Agreement. The G2 Assets will support our Model 2500 product sales in the U.S. and Canada.

These questions involved legal issues under the laws of the Commonwealth of the Bahamas. The Company engaged a Bahamian law firm to provide guidance and advice in regard to the legal questions associated with the G2 Asset.

The principal legal issue concerning the enforceability and validity of the G2 Asset transfers to AWG involved Everest Waters' ability to deal in its assets when it had been stricken from the Bahamas Companies Registry, (the “Everest Water Matter"). On January 2, 2007, Everest Water had been stricken for failure to pay its annual corporate fees. Bahamas statute law prohibits a company from dealing in its assets while stricken from the Registry. Therefore, the March 12, 2007 assignment of the G2 patent from Everest International, Ltd. and the April 13, 2010 Everest Water license would be considered invalid until such time as Everest Water, Ltd. would be reinstated with the Companies Registry. Upon reinstatement, all business activity would be restored retroactively, as though Everest Water had never been stricken.

On November 8, 2012, Keith White, through Bahamas legal counsel, filed a petition with the Supreme Court of the Commonwealth of the Bahamas requesting reinstatement of Everest Water, Ltd.

On February 12, 2013, Keith White, through Bahamas legal counsel, caused the reinstatement of Everest Water, Ltd. with the Bahamas Companies Registry. The Company was notified of the reinstatement on February 13, 2013.

The recent Everest Water, Ltd. reinstatement has caused the March 12, 2007 assignment of the G2 patent from Everest International, Inc. to Everest Water, Ltd. and the April 13, 2010 Everest Water License Agreement grant to CanAmera Management, Inc. to be deemed restored and validated, retroactively, as though Everest Water had never been stricken from the Registry.

The reinstatement has cured the defect with the CanAmera Management License Agreement assignment to AWG International, Inc. As a result, AWG International, Inc. was the assignee of the CanAmera Management License Agreement.

On February 14, 2013, AWG International, Inc., as assignee to the License Agreement, declared Everest Water, Ltd. insolvent under Paragraph VII (c) of the License Agreement. As a result of this insolvency declaration, AWG has taken the actions set forth in paragraphs (a) and (b) below and assigned the G2 patent assets as provided for pursuant to the terms of the License Agreement. Keith White, individually, as co-inventor, took the action set forth in paragraph (c). On February 14, 2013, the License Agreement was terminated.

(a)

On February 14, 2013, Keith White, on behalf of AWG, executed a Declaration of Assignment whereby the G2 patent assets owned by Everest Water were assigned to AWG.

(b)

On February 14, 2013, AWG assigned the G2 patent assets to the inventors, Rae Anderson and Keith White.

(c)

On February 14, 2013, Keith White, as co-inventor, assigned the G2 patent assets to AWG.

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

The assigned patents include U.S. Patent No. 7,272,947, U.S. Patent 7,886,557, PCT Patent Application No. PCT/US/2005/031948, and all patents and patent applications throughout the world, including any divisions, reissues or continuations. U.S. Patent 7,886,557 represents a patent derived from U.S. Patent No. 7,272,947 or an improvement U.S. Patent No. 7,272,947. These patents are associated with the Model 2500 product.

Patent number 7,272,947, a utility patent, has a duration of 20 years which expires on September 5, 2025. The CanAmera Management, Inc. license agreement term matched the patent's duration term

History

G2 Product

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

The “G2” product represented a “second generation design". This patent was developed by Rae Anderson and Keith White. The patent relates to a "Water Producing Method and Apparatus". This G2 was a water producing invention that produced drinking water. Its distinguishing features included external water plumbing circulation. It used ultraviolet (UV) light as a method to kill waterborne organisms. The Company no longer actively sells the G2 product, but does support sales of these units to distributors that previously sold the G2 product.

Model 2500

The Model 2500 is a newer product which is distinguished from the G2 because it uses a biostatic water filter cartridge instead of the UV/ozone methodology for treating water borne organisms. Presently, Ambient offers and sells the Model 2500 product under the Private Label Agreement with ATW Co. ATW Co. makes a similar air-to-water device named the AD-5. The Model 2500 is a modified and we believe superior variant of the AD-5. The Private Label Agreement is governed by Washington State law; it includes an implied warranty of title and an express indemnity agreement at Section 6(c). Under the Private Label Agreement, ATW manufactures the devices pursuant to a purchase order from AWG International, Inc., ATW applies AWG’s trademarks and ATW ships the devices to the customers in the foreign countries. ATW is a sophisticated manufacturer that knows its intellectual property rights and which has agreed to indemnify AWG International, Inc. for devices ATW manufactures and ships to other countries. AWG International, Inc. has never been accused of intellectual property infringement in any foreign country, but the Private Label Agreement and its implied warranties/express indemnity provisions are what give AWG International, Inc. the contractual comfort to make foreign sales.

G3 Patent Application and Proposed Products

On November 19, 2009, Keith White filed U.S. provisional application no. 61/262862. On March 20, 2010, Keith White assigned the application to CanAmera Management, Inc. On November 19, 2010, CanAmera Management, Inc. filed Patent Cooperation Treaty (PCT) International Application No. PCT/US2010/57371, which claimed priority to the provisional application. On November 19, 2010, CanAmera Management, Inc., the patent application owner, assigned Patent Cooperation Treaty (PCT) application number PCT/US2010/57371 to AWG International, Inc. On May 18, 2012, AWG International, Inc. filed U.S. patent application number 13/510,757 claiming priority to PCT/US2010/57371.

This patent application differs from the G2 patent because it uses internal water plumbing circulation methodology as opposed to the external plumbing and incorporates a biostatic cartridge to control waterborne microorganisms. The technology covered by this patent is used in the Ambient Water 400 and may be used in variants of that model.

G4 and G5 Patent Application and Proposed Products

On April 19, 2012, Keith White, the inventor/applicant of provisional patent application titled, “Atmospheric Water Generation System” Application No. 61/489,588, assigned all right, title and interest to Ambient, Inc. The technology associated with this patent application will be used for a future line of G4 and G5 products for residential for water generating and air conditioning systems. It includes "off the electrical grid" AC/DC residential and commercial systems.

Current Ambient Water Inc. Patent Status

Based on the Keith White assignments of the G3, G4 and G5 patent applications, the Company's wholly owned subsidiary is the sole owner of these patent applications.

US National Stage Application No. 13/510,757 (G3) filed May18, 2012 has received a First Office Action from the U.S. Patent and Trademark Office examiner as anticipated and we are responding accordingly. Subsequently we have requested a phone conversation with the examiner. Additionally, we are requesting an examination of our co-pending application in Australia. On January 21,2016, Australian Patent Application No. 2010321841 application was accepted in response to the voluntary amendments we submitted in December 2015.

US National Stage Application No. 14/234, 614 (G4/G5) filed January 23, 2014 is pending and awaiting examination at the U.S. Patent and Trademark Office.

Government Regulation

The manufacturing, processing, testing, packaging, labeling and advertising of the products that we sell may be subject to regulation by one or more U.S. federal agencies, including the Food and Drug Administration, the Federal Trade Commission, the Community Supported Agriculture in North America, the United States Department of Agriculture, the Environmental Protection Agency, the standards provided by the United States Public Health Authority and the World Health Organization for drinking water. These activities may also be regulated by various agencies of the states, localities and foreign countries in which consumers reside. Currently, the Company’s products are not subject to any governmental regulation although it is possible that the FDA may choose to regulate the quality of water produced from atmospheric water generating machines.

Since the Company may be subject to a wide range of regulation covering every aspect of our business as mentioned above, it cannot predict the nature of any future U.S. laws, regulations, interpretations or applications, nor can it determine what effect additional governmental regulations or administrative orders, when and if promulgated, would have on the business in the future. Although the regulation of water is less restrictive than that of drugs and food additives, we cannot offer assurance that the current statutory scheme and regulations applicable to water will remain less restrictive. Further, we cannot assure you that, under existing laws and regulations, or if more stringent statutes are enacted, regulations are promulgated or enforcement policies are adopted, we are or will be in compliance with these existing or new statutes, regulations or enforcement policies without incurring material expenses or adjusting our business strategy. Any laws, regulations, enforcement policies, interpretations or applications applicable to our business could require the reformulation of certain products to meet new standards, the recall or discontinuance of certain products not capable of reformulation, additional record keeping, expanded documentation of the properties of certain products, expanded or different labeling or scientific substantiation.

Safety Compliance Marks

The sale of electrical devices in Europe and many other countries require the CE Mark. CE, an abbreviation for European Conformity, is a mark indicating that a manufacturer declares that a product conforms to all the legal requirements to achieve CE marking ensuring that the product may be sold throughout the Europe. The Model 2500 has completed the CE Certification.

Similarly, the ETL Listed Mark is proof of product compliance to electrical, gas and other safety standards applicable to North American safety standards. On February 8, 2013, the Model 2500 product was approved for the ETL Mark in connection with a multiple listing application submitted by our manufacturer, ~~ATW~~AT Co., Ltd. This ETL certification was a prerequisite to selling the product in the U.S. and Canada.

Employees

As of December 31, ~~2015~~2016, the Company has three employees, two of which are our named executive officers and one involved with inside sales. Staffing levels will be determined as the Company progresses and grows. The Board of Directors determines the compensation of executive level employees.

Access to Company Reports

We file periodic reports, information statements and other information with the SEC in accordance with the requirements of the Securities Exchange Act of 1934, as amended. We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to such reports available free of charge through our corporate website at www.ambientwater.com as soon as reasonably practicable after such reports are filed with, or furnished to, the SEC. Within the time period required by the SEC, we will post on our website any modifications to the code of ethics for our CEO and senior financial officers and any waivers applicable to senior officers as defined in the applicable code, as required by the Sarbanes-Oxley Act of 2002. You may also read and copy any document we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. One may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, our reports and information statements, and our other filings are also available to the public over the Internet at the SEC’s website at www.sec.gov. Unless specifically incorporated by reference in this Annual Report on Form 10-K, information that you may find on our website is not part of this report.

ITEM 1A. Risk Factors

YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND ALL OTHER INFORMATION CONTAINED IN THIS ANNUAL REPORT BEFORE PURCHASING OR INVESTING IN THE COMPANY. INVESTING IN OUR CAPITAL STOCK INVOLVES A HIGH DEGREE OF RISK. IF ANY OF THE FOLLOWING EVENTS OR OUTCOMES ACTUALLY OCCURS, OUR BUSINESS OPERATING RESULTS AND FINANCIAL CONDITION WOULD LIKELY SUFFER. AS A RESULT, THE TRADING PRICE OF OUR CAPITAL STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF THE MONEY YOU PAID TO PURCHASE OUR CAPITAL STOCK.

RISKS RELATED TO OUR BUSINESS

WE ARE SUBJECT TO STARTUP COMPANY RISKS.

The Company has a limited operating history and has primarily engaged in operations relating to the development of its atmospheric water generation technologies and business plan. We are subject to many of the risks common to such enterprises, including the ability of the Company to implement its business plan, market acceptance of its proposed business, under-capitalization, cash shortages, limitations with respect to personnel, financing and other resources, and uncertainty of the Company’s ability to generate revenues. There can be no assurance that the Company’s activities will be successful or result in significant revenues or profit for the Company, and the likelihood of the Company’s success must be considered in the light of the stage in its development. The Company believes it has engaged professionals and consultants experienced in the type of business contemplated by the Company; however, there can be no assurance that the predictions, opinions, analyses, or conclusions of such professionals will prove to be accurate. In addition, no assurance can be given that the Company will be able to consummate its business strategy and plans or that financial or other limitations may not force the Company to modify, alter, significantly delay, or significantly impede the implementation of such plans or the Company’s ability to continue operations. If the Company is unable to successfully implement its business strategy and plans, investors may lose their entire investment in the Company.

Potential investors should also be aware of the difficulties normally encountered developing water technology companies. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the inception of the enterprise that we plan to undertake. These potential problems include, but are not limited to, unanticipated problems relating to product development, manufacturing, operations and distribution, and additional costs and expenses that may exceed current estimates.

THERE IS SUBSTANTIAL DOUBT AS TO OUR ABILITY TO CONTINUE AS A GOING CONCERN.

Our financial results for the fiscal year ending December 31, ~~2015~~2016 show substantial losses. As of December 31, ~~2015~~2016, the Company had an Accumulated Deficit of ($1113,~~033~~306,~~018~~490). For the fiscal years ending December 31, ~~2014~~2016 and December 31, 2015, the Company had losses of $42,~~038~~273,~~497~~472 and $2,009,466, respectively. The accompanying financial statements have been prepared in conformity with the generally accepted accounting principles in the United States of America which contemplates the Company as a going concern. The Company has sought out additional investment to raise additional funds. However, there are no assurances that the Company will continue as a going concern without obtaining additional funding. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Our independent auditors, Frucci & Associates II, PLLC, have expressed substantial doubt about our ability to continue as a going concern given our recurring losses from operations and net stockholder's deficit. This opinion could materially limit our ability to raise additional funds by issuing new debt or equity securities or otherwise. We may be subject to product liability or breach of contract claims if our products do not work as represented.

PRODUCT SUCCESS IS UNCERTAIN

We have developed and are currently selling one product, the Model 2500. The Ambient Water 400 is being field tested and is ready for sale. We have two additional products available on an Engineer to Order basis, the Ambient Water 20K, and Ambient Water Vertical Farming product family. There is no assurance that these products will generate sufficient sales to ensure success. We cannot make any assurances that any of our models will generate sufficient revenues to enable us to be profitable. Furthermore, we cannot make any assurances that we will be successful in addressing these risks. If we are not, our business, results of operations and financial condition will be materially adversely affected.

Our independent auditors, Fruci & Associates II, PLLC, have expressed substantial doubt about our ability to continue as a going concern given our recurring losses from operations and net stockholder's deficit. This opinion could materially limit our ability to raise additional funds by issuing new debt or equity securities or otherwise. We may be subject to product liability or breach of contract claims if our products do not work as represented.

PRODUCT SUCCESS IS UNCERTAIN

We have developed and are currently offering for sale three products, the Model 2500, the Ambient Water 400, and the Ambient Water 800. We have two additional products available on an Engineer to Order basis, the Ambient Water 20K, and Ambient Water Vertical Farming product family. There is no assurance that these products will generate sufficient sales to ensure success. We cannot make any assurances that any of our models will generate sufficient revenues to enable us to be profitable. Furthermore, we cannot make any assurances that we will be successful in addressing these risks. If we are not, our business, results of operations and financial condition will be materially adversely affected.

IF WE ARE UNABLE TO ESTABLISH SALES AND MARKETING CAPABILITIES OR BUILD A PRODUCTIVE NETWORK OF DISTRIBUTORS TO SELL AND MARKET PRODUCTS WE DEVELOP, WE MAY NOT BE ABLE TO GENERATE PRODUCT REVENUE.

We currently have a minimal organization for the sales, marketing and distribution of our products. We anticipate that we will seek to enter into distribution agreements or other arrangements with third parties to market any products. ~~Presently, we have one distributor.~~ If we are unable to successfully build a productive network of distributors, we would have to build sales, marketing, managerial and other non-technical capabilities and develop, train and or manage a sales force, all of which would cause us to incur substantial additional expenses. If we are unable to establish adequate sales, marketing and distribution capabilities, whether independently or with third parties, we may not be able to generate product revenue and may not become profitable.

OUR PRODUCTS MAY BE SUBJECT TO FUTURE PRODUCT LIABILITY CLAIMS. SUCH PRODUCT LIABILITY CLAIMS COULD RESULT IN EXPENSIVE AND TIME-CONSUMING LITIGATION AND PAYMENT OF SUBSTANTIAL DAMAGES.

The development, testing, marketing, sale and use of new products runs a risk that product liability claims may be asserted against us if it is believed that the product has caused injury. We cannot make assurances that claims, suits or complaints relating to the use of our products will not be asserted against us in the future. If a product liability claim asserted against us was successful, we may be required to limit commercialization of our technology. Regardless of merit or outcome, claims against us may result in significant diversion of our management’s time and attention, expenditure of large amounts of cash on legal fees, expenses and damages and a decreased demand for our products. We cannot make any assurances that we will be able to acquire or maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us.

The atmospheric water generators are designed to facilitate potable safe drinking water. If the technology fails to work as designed, customers may bring claims against us. Despite limitations on such claims, such claims can be costly and time consuming which could have a material adverse effect on our operations, even if we are found not to have been at fault.

LOSS OF ANY ONE OR MORE OF OUR SUPPLIERS WOULD HAVE A NEGATIVE IMPACT ON OUR BUSINESS.

Our success is highly dependent upon the future support and services of suppliers. We will be solely dependent on their support to provide enough inventories to meet our purchase orders. If our suppliers are not able to supply our manufacturer with products to meet the demands of our purchase orders, our business will most likely fail.

DELAYS OR INTERRUPTIONS IN THE MANUFACTURING AND DELIVERY OF OUR MODEL 2500 APPLIANCES BY OUR SOLE SOURCE SOUTH KOREAN MANUFACTURER MAY HARM OUR BUSINESS.

The Model 2500 appliances are built by a single manufacturer in South Korea. Our reliance on a sole manufacturer, particularly a South Korean manufacturer, involves risk, including a potential inability to obtain an adequate supply of appliances and limited control over pricing, quality and timely delivery of products. In addition, replacing this manufacturer may be difficult and could result in an inability or delay in obtaining products. We cannot assure you that this manufacturer will be able to provide the products in quantities that are sufficient to meet demand or at all, in a timely manner, which could result in decreased revenues and loss of market share. Relations between South Korea and North Korea have been tense over most of South Korea’s history, and more recent concerns over North Korea’s nuclear capability, and relations between the U.S. and North Korea, have created a global security threat that may adversely affect South Korean business and economic conditions. We cannot assure you as to whether or when this situation will be resolved or change abruptly as a result of current or future events. An adverse change in economic or political conditions in South Korea or in its relations with North Korea could have a material adverse effect on our South Korean manufacturer and our Company.

THE COMPANY’S STRATEGIES FOR DEVELOPMENT OF THE BUSINESS MIGHT NOT BE SUCCESSFUL.

The Company is currently evaluating potential product development strategies for its business. It may take several years, if ever, for the Company to achieve cumulative positive cash flow. The Company could experience significant difficulties in executing its business plan, including: inability to successfully implement the Company’s business plan; changes in market conditions; inability to obtain necessary financing; delays in completion of the Company’s projects or their underlying technologies; inaccurate cost estimates; changes in government or political reform; or the Company may not benefit from the proposed projects as the Company expected. The Company’s inability to develop its proposed products will adversely affect the Company’s business cash flows and have a material adverse effect on the Company’s ability to meet the Company’s working capital requirements.

SIGNIFICANT REPAIR AND/OR REPLACEMENT WITH RESPECT TO PRODUCT WARRANTY CLAIMS OR PRODUCT RECALLS COULD HAVE A MATERIAL ADVERSE IMPACT ON THE RESULTS OF OPERATIONS.

We provide a limited warranty for our products for a period of one year. Significant warranty claims could have a material adverse effect on our results of operations.

LOSS OF KEY PERSONNEL CRITICAL FOR MANAGEMENT DECISIONS WOULD HAVE AN ADVERSE IMPACT ON OUR BUSINESS

Our success depends upon the continued contributions of our executive officers and/or key employees, particularly with respect to providing the critical management decisions and contacts necessary to manage product development, marketing, and growth within our industry. Competition for qualified personnel can be intense and there are a limited number of people with the requisite knowledge and experience. Under these conditions, we could be unable to attract and retain these personnel. The loss of the services of any of our executive officers or other key employees for any reason could have a material adverse effect on our business, operating results, financial condition and cash flows.

INTELLECTUAL PROPERTY RISKS

RESEARCH AND DEVELOPMENT ACTIVITIES MAY BE COMPROMISED

We have development work which we believe has the potential for patent protection. We will evaluate our business benefits in pursuing patents in the future. We plan to protect all of our development work with confidentiality agreements with our engineers, employees and any outside contractors. However, third parties may, in an unauthorized manner, attempt to use, copy or otherwise obtain and market or distribute our intellectual property or technology or otherwise develop a product with the same functionality. Policing unauthorized use of our intellectual property rights is difficult, and nearly impossible on a worldwide basis. Therefore, we cannot be certain that the steps we have taken or will take in the future will prevent misappropriation of our technology or intellectual property, particularly in foreign countries where we plan to do business or where our software will be sold or used, where the laws may not protect proprietary rights as fully as do the laws of the United States or where the enforcement of such laws is not common or effective.

IF WE ARE UNABLE TO ADEQUATELY PROTECT OUR TECHNOLOGY, OR IF WE INFRINGE THE RIGHTS OF OTHERS, WE MAY NOT BE ABLE TO DEFEND OUR MARKETS OR TO SELL OUR PRODUCTS.

The Company’s success may depend in part on its ability to continue and expand its patent protection both in the United States and in other countries for our products. Due to evolving legal issue and standards relating to the patentability, validity, and enforceability of patents covering the Company’s products and the scope of claims made under its patents, the Company’s ability to obtain and enforce patents is uncertain and involves complex legal and factual questions. Accordingly, rights under any assigned or issued patents may not provide the Company with sufficient protection for its products or provide sufficient protection to afford the Company a commercial advantage against competitive products or processes.

The Company’s success may also depend in part on its ability to operate without infringing the proprietary rights of third parties. The manufacture, use or sale of the Company’s products may infringe on the patent rights of others. Likewise, third parties may challenge or infringe upon the Company’s existing or future patents.

Proceedings involving the Company’s patents, patent applications, patents which have been assigned to the Company or those of others could result in adverse decisions regarding:

the patentability of the Company’s inventions relating to its products; and/or

the enforceability, validity, or scope of protection offered by the Company’s patents relating to its products.

There could also be existing patents of which the Company is unaware that its products may inadvertently infringe. If the Company loses a patent infringement lawsuit, the Company could be prevented from selling its products unless it can obtain a license to use technology or inventions covered by that patent or are able to redesign the product to avoid infringement. A license may not be available to the Company on acceptable terms, or at all, and the Company may not be able to redesign its product to avoid any infringement. If the Company is not successful in obtaining a license or redesigning our product, the Company may be unable to sell its product and the business would suffer.

Litigation may be necessary for the Company to enforce the patents owned and applied for (if they are awarded), copyrights, trademarks, or other intellectual property rights, to protect its trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement. This type of litigation could result in the expenditure of significant financial and managerial resources and could result in injunctions preventing the Company from distributing certain products. Such claims could materially adversely affect the business, financial condition, and results of operations.

INTERNATIONAL BUSINESS RISK

INTERNATIONAL REGULATION MAY ADVERSELY AFFECT OUR PLANNED PRODUCT SALES

As a part of our marketing strategy, we plan to market and sell our products internationally. In addition to regulation by the U.S. government, those products will be subject to environmental and safety regulations in each country in which we market and sell. Regulations will vary from country to country and will vary from those of the United States. The difference in regulations under U.S. law and the laws of foreign countries may be significant and, in order to comply with the laws of these foreign countries, we may have to implement manufacturing changes or alter product design or marketing efforts. Any changes in our business practices or products will require response to the laws of foreign countries and will result in additional expense to the Company and either reduce or delay product sales.

Additionally, we may be required to obtain certifications or approvals by foreign governments to market and sell the products in foreign countries. We may also be required to obtain approval from the U.S. government to export the products. If we are delayed in receiving, or are unable to obtain import or export clearances, or if we are unable to comply with foreign regulatory requirements, we will be unable to execute our complete marketing strategy.

CURRENCY FLUCTUATIONS MAY MAKE OUR PRODUCTS UNCOMPETITIVE IN SOME IMPORTANT GEOGRAPHIES

If the local currency of our contract manufacturers becomes too strong, it may not be possible to sell our products at a profit in regions where significant potential purchasers exist. Additionally, as the US Dollar gains strength in relationship to the local currency of potential purchasers, the cost of our equipment to the purchaser increases.

RISKS RELATED TO OUR SECURITIES

THERE IS LITTLE CURRENT TRADING OF OUR SHARES. OUR STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE.

Although prices for our shares of Common Stock are quoted Over-the-Counter on the Electronic Bulletin Board (OTCBB) and the OTC Markets Group ~~OTCQB~~OTC Pink, there is little current trading and no assurance can be given that an active public trading market will develop or, if developed, that it will be sustained. The OTC markets are generally regarded as a less efficient and less prestigious trading market than other national markets. There is no assurance if or when our Common Stock will be quoted on another more prestigious exchange or market. The market price of our stock is likely to be highly volatile because for some time there will likely be a thin trading market for the stock, which causes trades of small blocks of stock to have a significant impact on the stock price. Additionally, our recent trading prices have gone below the required $0.01 closing price requirement of the OTCQB. If our stock does not close above $0.01 for 10 consecutive trading days prior to July 3, 2016, we will no longer qualify for the OTCQB and will be moved to the OTC Pink marketplace.

BECAUSE OUR COMMON STOCK IS CONSIDERED A “PENNY STOCK,” OUR TRADING WILL BE SUBJECT TO REGULATORY RESTRICTIONS.

Our Common Stock is currently, and in the near future will likely continue to be, considered a “penny stock.” The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in “penny stocks.” Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which specifies information about penny stocks and the nature and significance of risks of the penny stock market. The broker-dealer also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and any salesperson in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure and other requirements may adversely affect the trading activity in the secondary market for our Common Stock. Additionally, management believes that many brokerage clearing firms have imposed rigorous requirements concerning the deposit of penny

and any salesperson in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure and other requirements may adversely affect the trading activity in the secondary market for our Common Stock. Additionally, management believes that many brokerage clearing firms have imposed rigorous requirements concerning the deposit of penny stocks into brokerage accounts. In many cases, it is not possible to deposit penny stocks into brokerage accounts. As a result, as long as our stock is classified as a penny stock, you may not be able to deposit Company shares into a brokerage account or sell Company shares in any public market.

WE HAVE NOT PAID DIVIDENDS IN THE PAST AND DO NOT EXPECT TO PAY DIVIDENDS FOR THE FORESEEABLE FUTURE, AND ANY RETURN ON INVESTMENT MAY BE LIMITED TO POTENTIAL FUTURE APPRECIATION ON THE VALUE OF OUR COMMON STOCK.

We currently intend to retain any future earnings to support the development and expansion of our business and do not anticipate paying cash dividends in the foreseeable future. Our payment of any future dividends will be at the discretion of our Board of Directors after taking into account various factors, including without limitation, our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. To the extent we do not pay dividends, our stock may be less valuable because a return on investment will only occur if and to the extent our stock price appreciates, which may never occur. In addition, investors must rely on sales of their Common Stock after price appreciation as the only way to realize their investment, and if the price of our stock does not appreciate, then there will be no return on investment. Investors seeking cash dividends should not purchase our Common Stock.

OUR OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS CAN EXERT SIGNIFICANT INFLUENCE OVER US AND MAY MAKE DECISIONS WHICH MAY NOT BE IN THE BEST INTERESTS OF ALL STOCKHOLDERS.

Our officers, directors and principal stockholders (greater than 5% stockholders) collectively own a majority of our outstanding Common Stock. As a result of such ownership, these stockholders will be able to affect the outcome of, or exert significant influence over, all matters requiring stockholder approval, including the election and removal of directors and any change in control. In particular, this concentration of ownership of our Common Stock could have the effect of delaying or preventing a change of control of us or otherwise discouraging or preventing a potential acquirer from attempting to obtain control of us. This, in turn, could have a negative effect on the market price of our Common Stock. It could also prevent our stockholders from realizing a premium over the market prices for their shares of Common Stock. Moreover, the interests of this concentration of ownership may not always coincide with our interests or the interests of other stockholders, and accordingly, they could cause us to enter into transactions or agreements that we would not otherwise consider.

WE MAY EXPERIENCE DIFFICULTIES IN THE FUTURE IN COMPLYING WITH SECTION 404 OF THE SARBANES-OXLEY ACT.

As a public company, we are required to evaluate our internal controls under Section 404 of the Sarbanes-Oxley Act of 2002. In this regard, we have and will continue to comply with the internal control requirements of Section 404 of the Sarbanes-Oxley Act. If we fail to maintain the adequacy of our internal controls, we could be subject to regulatory scrutiny, civil or criminal penalties and/or stockholder litigation. Any inability to provide reliable financial reports could harm our business. Furthermore, any failure to implement required new or improved controls, or difficulties encountered in the implementation of adequate controls over our financial processes and reporting in the future, could harm our operating results or cause us to fail to meet our reporting obligations.

If we fail to maintain proper and effective internal controls in future periods, it could adversely affect our operating results, financial condition and our ability to run our business effectively and could cause investors to lose confidence in our financial reporting.

FUTURE FINANCINGS WILL INVOLVE A DILUTION OF THE INTERESTS OF THE STOCKHOLDERS OF THE COMPANY UPON THE ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK OR OTHER SECURITIES.

In recent years, our convertible debt financings have caused dilution to the interests of our stockholders. We will need to continue to engage in additional financings in the future. There can be no assurances that such financings will ever be completed, but any such financings will involve a dilution of the interests of our stockholders upon the issuance of additional shares convertible debt instruments, Common Stock, Preferred Stock or other securities. Attaining such additional financing may not be possible, or if additional capital may be otherwise available, the terms on which such capital may be available may not be commercially feasible or advantageous to investors participating in this offering. We expect to issue shares of our Common Stock and/or other securities in exchange for additional financing.

WE ANTICIPATE SIGNIFICANT FUTURE CAPITAL NEEDS AND THE AVAILABILITY OF FUTURE CAPITAL IS UNCERTAIN.

The Company has experienced negative cash flows from operations since its inception. The Company will be required to spend substantial funds to develop its products and associated product marketing strategies. The Company will need to raise additional capital. The Company’s capital requirements will depend on many factors, primarily relating to the problems, delays, expenses and complications frequently encountered by development stage companies; the progress of the Company’s research and development programs; the costs and timing of seeking regulatory approvals of the Company’s products under development; and changes in economic, regulatory, or competitive conditions or the Company’s planned business. To satisfy its capital requirements, the Company may seek to raise funds in the public or private capital markets. The Company may seek additional funding through corporate collaborations and other financing vehicles. There can be no assurance that any such funding will be available to the Company, or if available, that it will be available on acceptable terms. If adequate funds are not available, the Company may be required to curtail significantly one or more of its research or development programs or it may be required to obtain funds through arrangements with future collaborative partners or others that may require the Company to relinquish interests in its properties. If the Company is successful in obtaining additional financing, the terms of the financing may have the effect of diluting or adversely affecting the holdings or the rights of the holders of Common Stock.

APPLICATION OF GUIDANCE RELATED TO THE ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS INDEXED TO, AND POTENTIALLY SETTLED IN, A COMPANY’S OWN STOCK MAY NEGATIVELY IMPACT OUR STATEMENT OF OPERATIONS.

During ~~2014~~2015 and ~~2015~~2016, the Company entered into a series of Convertible Promissory Notes (the "Notes") which included conversion clauses which are deemed derivative liabilities. As of December 31, ~~2015~~2016 the estimated effect upon the fair market conversion of the outstanding balance on the notes of $~~919~~839,~~983~~235 and accrued interest was approximately $~~825~~1,~~712~~433,770 for the relative fair market conversion of the note to common stock.

Under FASB ASC 815-40 Contracts in Entity’s Own Equity, the Company must review the possible conversion features under the agreement’s variable price conversion options, which create a derivative in the possible settlement choices of the Lender under the terms of the Note. As of December 31, ~~2015~~2016, the stock pricing feature which provides a 50% discount to the market would have increased the stock necessary to settle the conversion if requested to approximately ~~417~~11,~~117~~365,~~892 shares. The Company has calculated the value of this additional liability to be $702~~022,~~369,~~410 and has recognized a change of earnings for the effect of such a conversion through December 31, 2015. The liability is classified as $-0- under current liabilities and $702,369 under long term liabilities. As of December 31, 2015, the stock pricing feature which provides a 42% discount to the market would have increased the stock necessary to settle the conversion if requested to approximately 44,250,000 shares. The Company has calculated the value of this additional liability to be $581,~~859~~433, ~~and has recognized a change of earnings for the effect of such a conversion through December 31~~770, ~~2015. The liability is classified as $12,471 under current liabilities~~ and $46,388 under long term liabilities. As of December 31, 2015, the stock pricing feature which provides a 40% discount to the market would have increased the stock necessary to settle the conversion if requested to approximately 54,007,000 shares. The Company has ~~calculated the value of this additional liability to be $64,484, and has~~ recognized a change of earnings for the effect of such a conversion through December 31, ~~2015~~2016. The liability is classified as $64473,~~484~~013 under current liabilities and $~~-0- under long term liabilities. The total effect of conversion of all notes has been calculated at $825~~960,~~712. The liability is classified as $76,955 under current liabilities and $748,~~757 under long term liabilities.

Under FASB ASC 505-10 Equity: Overall, the Company must disclose that the settlement alternatives are at the control of the Lender and that there is a potential for an infinite number of shares having to be issued, although the Lenders have elected to limit their beneficial ownership to less than five percent (5%) unless the Company receives proper notification that the Lender will at any time convert either part or all of the loan to shares. (See Financial Statement Footnotes)

ITEM 1 B. Unresolved Staff Comments

Not Applicable to Smaller Reporting Companies.

ITEM 2. Properties

The Company's executive offices are located at 7721 E. Trent Ave., Spokane Valley, Washington. They are provided on a rent free basis by 7721 E. Trent, LLC, a Washington limited liability company. The Company may enter into a month-to-month tenancy with 7721 E. Trent, LLC, during ~~2016~~2017.

ITEM 3. Legal Proceedings

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

ITEM 4. Mine Safety Disclosures

Not Applicable.

1817

PART II

(a) Market Information. The Company’s Common Stock was traded on the OTC Bulletin Board (OTC:BB) and OTC Markets Group OTCQB under the trading symbol “AWGI”. The following table sets forth, for the fiscal quarters indicated, the high and low closing prices as reported by the OTC Markets. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions. The prices quoted may or may not reflect actual trades on that day but are based on inter-dealer prices without retail mark-up, markdown or commission and may not represent actual transactions.

	High		Low
Fiscal 2015
First Quarter	$	0.040	$	0.016
Second Quarter	$	0.047	$	0.015
Third Quarter	$	0.085	$	0.024
Fourth Quarter	$	0.032	$	0.004
Fiscal 2014
Fiscal 2016
First Quarter	$	0.~~065~~0094	$	0.~~030~~0016
Second Quarter	$	0.~~040~~0020	$	0.~~018~~0003
Third Quarter	$	0.~~050~~0008	$	0.~~020~~0002
Fourth Quarter	$	0.~~070~~0006	$	0.~~029~~0002

(b) Holders. The Company has approximately ~~265~~270 shareholders of record holding common stock.

(c) Dividends. The Company has not paid any cash dividends to date, and has no intention of paying any cash dividends on the Common Stock in the foreseeable future. The declaration and payment of dividends is subject to the discretion of the Company’s Board of Directors and to certain limitations imposed under Nevada law. The timing, amount and form of dividends, if any, will depend upon, among other things, the Company’s results of operations, financial condition, cash requirements, and other factors deemed relevant by the Board of Directors. The Company intends to retain any future earnings for use in its business.

(d) Securities authorized for issuance under equity compensation plans. The Company’s Board of Directors approved the adoption of the “2008 Stock Plan” on September 9, 2008, pursuant to which the Company may grant stock options to employees and consultants, including directors and officers, from time to time. The Board of Directors of the Company reserved 2,500,000 shares of Company Common Stock for eventual issuance pursuant to the exercise of stock options granted under the Plan. On October 24, 2008, the Company filed a registration statement on Form S-8 registering the plan and its 2,500,000 shares.

The Company’s Board of Directors approved the adoption of the “2012 Stock Option Plan” on July 10, 2012, pursuant to which the Company may grant stock options to employees and consultants, including directors and officers, from time to time. The Board of Directors of the Company reserved 42,500,000 shares of Company Common Stock for issuance pursuant to the exercise of stock options granted under the Plan. The Company's majority shareholders approved and adopted the 2012 Stock Option Plan on July 10, 2012.

The table includes information as of the end of the most recently completed fiscal year with respect to compensation plans, including individual compensation arrangements, under which equity securities are authorized for issuance.

1918

Equity Compensation Plan Information
Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders		-	-
Equity compensation plans not approved by security holders	1516,~~242~~300,~~000~~750	$0.17	2928,~~758~~699,~~000~~250
Total	1516,~~242~~300,~~000~~750	$0.17	2928,~~758~~699,~~000~~250

On July 10, 2012, the Company granted to Jeff Stockdale and Jeff Mitchell 13,742,000 and 14,947,000 common stock options, respectively. These common stock options have an exercise price of $0.18. Jeff Mitchell’s options expired on October 6, 2015.

On May 1, 2013, the Company granted 1,500,000 common stock options to Gordon Myers. These common stock options expired on August 1, 2014.

On July 22, 2013, the Company granted to 750,000 common stock options to Keith White, Jeff Stockdale and Jeff Mitchell, collectively 2,250,000 common stock options. These common stock options have an exercise price of $0.11. Jeff Mitchell’s options expired on October 6, 2015.

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

(e) Recent Sales of unregistered securities. During the quarter ended December 31, ~~2015~~2016, the Company sold no common shares.

~~On October 14, 2015, the Company entered into a financing transaction with an accredited investor ("Lender) which loaned the Company $37,100 on a collateralized secured promissory note~~None. The note mature s on August 14, 2016 (the "Maturity Date") and to pay interest on the unpaid principal balance hereof at the rate of Eight (8%) percent. The Note shall initially be secured by the pledge of the $37,100 8% convertible promissory note issued to the Company by the Lender on even date herewith (the “Lender Note”).

On October 14, 2015, the Company entered into a financing transaction with a second accredited investor ("Lender) which loaned the Company $37,100 on a convertible redeemable promissory note. The note matures on October 14, 2017 (the "Maturity Date") and to pay interest on the unpaid principal balance hereof at the rate of Eight (8%) percent.

The Company relied on the transaction exemption afforded by Section 4(a)(2) of the Securities Act of 1933, as amended, and Regulation D Rule 506. The sales were private transactions which did not involve a public offering. The securities are restricted securities which may not be publicly sold unless registered for resale with the Securities and Exchange Commission or exempt from the registration requirements of the Securities Act of 1933, as amended.

ITEM 6. Selected Financial Data

Not applicable to small reporting company.

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read together with our financial statements audited by ~~Frucci~~Fruci & Associates II, PLLC, our independent registered public accounting firm and the related notes that are included elsewhere in this report. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the caption “Risk Factors” or in other parts of this report. See “Cautionary Note Regarding Forward-Looking Statements.”

Forward Looking Statements

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

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

our ability to attract and retain management, and to integrate and maintain technical information and management information systems;

the intensity of competition;

general economic conditions; and

other factors discussed in Risk Factors.

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

Company’s Plans

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

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

WeThe ~~are~~Ambient ~~actively~~Water ~~working~~800 towas ~~develop~~successfully ademonstrated ~~global~~in ~~distributor~~the ~~network,~~fourth ~~focusing~~quarter onof ~~highly~~2016 ~~qualified~~in ~~companies~~Houston, ~~with~~Texas. Several adistributors ~~history~~and ofother ~~business~~interested inparties ~~the~~have ~~drinking~~reviewed ~~water~~the ~~industry.~~working ~~Currently,~~unit weand have ~~one~~sampled ~~distributor in~~ the ~~Southern~~produced ~~United States~~water. Several Wesales ~~are~~leads ~~pursuing~~have ~~additional~~been ~~potential~~generated ~~distributors~~ and ~~have~~are ~~several~~being ~~active~~actively ~~agents helping to identify new distributors and customers~~cultivated.

We are actively working to develop a global distributor network, focusing on highly qualified companies with a history of business in the drinking water industry. Currently, we have approximately a dozen distributors and agents, a list of which we keep current on our website. We are pursuing additional potential distributors and have several active agents helping to identify new distributors and customers.

Discussion and Analysis of Financial Condition and Results of Operations

Revenues

~~Revenue~~Revenues from product sales to date ~~has~~have been modest. For the next few quarters we are projecting increasing, yet modest, sales as we build our distribution network. For the year ended December 31, 2015, we had $240,945 in revenue compared with $9640,~~993~~726 for the year ended December 31, ~~2014~~2016. This revenue was generated from the sale of the Model 2500 product and the maintenance items associated with this product line. We believe that the revenue ~~increase~~decrease was due to fewer stocking orders for the Model 2500 due to the educational nature of each sale, diminishing order volume from our ~~established~~Southern ~~distributors~~US ~~gaining~~distributor, ~~more~~and ~~traction~~the inCompany’s ~~their~~increased ~~territories~~focus on our Commercial and ~~general~~Industrial ~~market~~products ~~awareness~~in ~~improvement~~2016.

The Company anticipates that with the placement of the Ambient Water 400 in Houston and California, the activities surrounding the Vertical Farming unit development and testing, plus the growth of our Model 2500 business, our revenue stream should continue building during ~~2016~~2017. While it is difficult to predict specific revenue streams in a developing market, the Company is encouraged by the level of interest in our products and technology and the key engagements we have been making.

Costs and Expenses

Our primary costs going forward are related to ongoing sales and marketing, professional fees, and legal fees associated with patent maintenance. For the years ended December 31, 2015 and December 31, ~~2014~~2016, total general and administrative expenses were $2,063,663 and $2886,~~573~~840,~~638,~~ respectively. For the year ended December 31, 2015, we had $845,389, excluding $1,218,274 of non-cash amortization associated with stock option compensation, in general and administrative expenses compared to $~~895~~552,~~859~~203, excluding $1334,~~677,779~~637 of non-cash amortization associated with stock option compensation, in general and administrative expenses for the year ended December 31, ~~2014~~2016. This decrease in general and administrative expenses was primarily the result of decreased spending related to executive compensation ~~and impairment loss on inventory~~, ~~as well as, an increase in~~ travel and entertainment, professional fees and other general and administrative expenses. The research and development expenses for the years ending December 31, 2015 and December 31, ~~2014~~2016 were $41,536 and $255,~~719~~523, respectively. The $1536,~~817,~~013 ~~increase~~decrease was due primarily to ana ~~increase~~decrease in research and warranty expense. The legal and intellectual property expenses for the years ending December 31, 2015 and December 31, ~~2014~~2016 were $72,730 and $3045,~~686~~610, respectively. The $4227,~~044~~120 ~~increase~~decrease was primarily related to ~~increased~~capitalizing legal fees. The professional fees for the years ending December 31, 2015 and December 31, 2014 were $257,313 and $187,601, respectively. The $69,712 increase was primarily related to increases in public and filing fees, legal fees and other professional fees. The executive compensation for the years ending December 31, 2015 and December 31, 2014 was $350,000 and $481,250, respectively. The $121,250 decrease was due to one less executive in 2015. The accounting and public reporting expenses for the years ending December 31, 2015 and December 31, 2014 were $122,399 and $74,325, respectively. The $48,074 increase was due to a $30,642 increase in public and filing fees and a $17,432 increase in accounting fees. The other general and administrative operating costs for the years ending December 31, 2015 and December 31, 2014 were $202,202 and $182,706, respectively. The $19,496 increase was mostly related to an increase in research and development expenses of $15,817, an increase in advertising of $21,342 and administrative increases of $6,189 and a decrease in employee benefits of $23,852.

intellectual property expenses awaiting patent approval or denial. The professional fees for the years ending December 31, 2015 and December 31, 2016 were $257,313 and $154,775, respectively. The $102,538 decrease was primarily related to decreases in public and filing fees, legal fees, accounting and auditing fees, and other professional fees. The executive compensation for the years ending December 31, 2015 and December 31, 2016 was $350,000 and $240,000, respectively. The $110,000 decrease was due to lowering executive compensation by $55,000 per executive in 2016. The accounting and public reporting expenses for the years ending December 31, 2015 and December 31, 2016 were $122,399 and $69,978, respectively. The $52,421 decrease was due to a $26,526 decrease in public and filing fees and a $25,895 decrease in accounting fees. The other general and administrative operating costs for the years ending December 31, 2015 and December 31, 2016 were $202,202 and $147,919, respectively. The $54,283decrease was mostly related to a decrease in research and development expenses of $36,918, a decrease in advertising of $19,589, a decrease in payroll taxes of $7,305, and administrative increases of $9,529.

The Company has reported minimal gross profit since inception on March 18, 2010. The gross profit was the result of shipping units internationally and miscellaneous parts throughout the world.

Liquidity and Capital Resources

For the ~~period~~year ~~January~~ended 1,December ~~2014 through March 20~~31, ~~2014~~2016, the Company ~~funded its operations principally through the sale of equity. From March 21, 2014 through December 31, 2014, Ambient Water Corporation~~ has funded operations principally through ~~incurring~~ convertible debt financing totaling $~~800~~187,~~000~~100 and product sales.

For the year ended December 31, 2015, the Company has funded operations principally through sales and through incurring convertible debt totaling $432,233.

As of December 31, 2015, we had $820 cash, total current assets of $83,699, total current liabilities of $730,714 and total stockholders' deficit of $2,214,435, compared to $561,~~121~~823 cash, total current assets of $~~214~~59,~~166~~257, total current liabilities of $1,~~522~~149,~~794~~950 and total stockholders' deficit of $2,~~075~~684,~~332~~487 as of December 31, ~~2014~~2016.

The Company experienced negative cash flow used by operations during the fiscal year ended December 31, 2015 of $484,964 compared to negative cash flow used by operations during December 31, ~~2014~~2016 of $~~733~~168,~~415~~239. The Company experienced negative cash flows from investing activities of $2,570 for the year ended December 31, 2015 compared to negative cash flows from investing activities of $1517,~~328~~858 for the year ended December 31, ~~2014~~2016. The Company experienced positive cash flows from financing activities of $432,233 for the year ended December 31, 2015 compared to positive cash flows from financing activities of $~~800~~187,~~000~~100 for the year ended December 31, ~~2014~~2016.

The Company’s audited financial statements for the year ended December 31, ~~2015~~2016 contain a “going concern” qualification. As discussed in Note 3 of the Notes to Financial Statements, the Company has incurred losses and has not demonstrated the ability to generate cash flows from operations to satisfy its liabilities and sustain operations. Because of these conditions, our independent auditors have raised substantial doubt about our ability to continue as a going concern.

Our financial objective is to make sure the Company has the cash and debt capacity to fund on-going operating activities, investments and growth. We intend to fund future capital needs through our current cash position, additional credit facilities, future operating cash flow and debt or equity financing. We are continually evaluating these options to make sure we have capital resources to meet our needs.

Existing capital resources are insufficient to support continuing operations of the Company over the next 12 months. Therefore, the Company will need to obtain additional financing to support existing, as well as, continuing operations. We anticipate that the Company will need approximately $1,000,000 of additional capital over the next 12 months to execute ~~Management~~management’s plan of operations, including the purchase of inventory, general and administrative expenses and expenditures required for the delivery of the Model 2500, ~~and~~ Ambient Water 400, Ambient Water 800 and introduction of additional product models in ~~2016~~2017.

22Management makes no assurances that adequate capital resources will be available to support continuing operations over the next 12 months. Management plans to pursue additional capital funding through multiple sources. For the year ended December 31, 2016, the Company has funded operations principally through sales and through incurring convertible debt totaling $187,100. The Company plans to raise additional funds through various sources to support ongoing operations during 2017. Lastly, the Company forecasts cash flow from operations during 2017 may begin to provide capital to support on-going operations.

Management makes no assurances that adequate capital resources will be available to support continuing operations over the next 12 months. Management plans to pursue additional capital funding through multiple sources. For the year ended December 31, 2015, the Company has funded operations principally through sales and through incurring convertible debt totaling $432,233. The Company plans to raise additional funds through various sources to support ongoing operations during 2016. Lastly, the Company forecasts cash flow from operations during 2016 may begin to provide capital to support on-going operations.

While no assurances can be given regarding the achievement of future results as actual results may differ materially, management anticipates adequate capital resources to support continuing operations over the next 12 months through the combination of infused capital through exercised warrants, infused capital through non-public private placement, forecasted working capital from operations, and existing cash reserves.

Critical Accounting Policies

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

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

Income Taxes

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

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

At December 31, ~~2015~~2016, the Company had net operating loss carry forwards of approximately ($311,~~295~~870,000), which ~~will~~begin to expire in ~~2035~~the ~~and~~year ~~are~~2032. The deferred tax asset is calculated at an expected tax rate of approximately 34%.

FASB ASC 740 prescribes recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FASB ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. At December 31, ~~2015~~2016, the Company has not taken any tax positions that would require disclosure under FASB ASC 740.

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

Earnings (Loss) Per Share (“EPS”)

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

Derivative Instruments

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

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

At December 31, ~~2014~~2016 and 2015, the Company had engaged in transactions that would be considered derivative instruments or hedging activities.

During 2014 and 2015, the Company entered into a series of Convertible Promissory Notes which included conversion clauses which are deemed derivative liabilities. As of December 31, 2015 the estimated effect upon the fair market conversion of the outstanding note balances of $910,983 and accrued interest payable of $110,428 was approximately $825,712 for the relative fair market conversion of the note to common stock. As of December 31, 2014 the estimated effect upon the fair market conversion of the outstanding note balances of $735,000 and accrued interest payable of $37,542 was approximately $1,319,188 for the relative fair market conversion of the note to common stock. For further information see Note 9 to the financial statement.22

During 2016 and 2015, the Company entered into a series of Convertible Promissory Notes which included conversion clauses which are deemed derivative liabilities. As of December 31, 2015 the estimated effect upon the fair market conversion of the outstanding note balances of $910,983 and accrued interest payable of $110,428 was approximately $825,712 for the relative fair market conversion of the note to common stock. As of December 31, 2016 the estimated effect upon the fair market conversion of the outstanding note balances of $700,610 and accrued interest payable of $138,625 was approximately $1,433,770 for the relative fair market conversion of the note to common stock. For further information see Note 9 to the financial statement.

Impairment of Long-Lived Assets

Long-lived assets of the Company, including the Technology Rights, are reviewed for impairment when changes in circumstances indicate their carrying value has become impaired, pursuant to guidance established in the FASB ASC 360, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Management considers assets to be impaired if the carrying amount of an asset exceeds the future projected cash flows from related operations (undiscounted and without interest charges). If impairment is deemed to exist, the asset will be written down to fair value, and a loss is recorded as the difference between the carrying value and the fair value. Fair values are determined based on quoted market values, discounted cash flows, or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value. Management has determined that there was no impairment as of December 31, ~~2014~~2016 and December 31, 2015.

Fair Value of Financial Instruments

The Company's financial instruments as defined by FASB ASC 825-10-50 include cash, trade accounts receivable, and accounts payable and accrued expenses. All instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at December 31, ~~2014~~2016 and December 31, 2015.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Inflation

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

ITEM 7A. Quantitative and Qualitative Disclosure about Market Risk

Not applicable.

2423

ITEM 8. Financial Statements and Supplementary Data

Ambient Water Corporation

Consolidated Financial Statements

Year ended December 31, ~~2015~~2016

2524

[awg10kmar1517final006.jpg]

802 N. Washington St.

Spokane, WA 99201

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
Ambient Water Corporation

We have audited the accompanying consolidated balance sheets of Ambient Water Corporation as of December 31, ~~2015~~2016 and ~~2014~~2015, and the related consolidated statements of operations, shareholders’ equity and deficit, and cash flows for each of the years in the two -year period ended December 31, ~~2015~~2016. Ambient Water Corporation’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the ~~audit~~audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our ~~audit~~audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ambient Water Corporation as of December 31, ~~2015~~2016 and ~~2014~~2015, and the results of its operations and its cash flows for each of the years in the two -year period ended December 31, ~~2015~~2016, 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 3 to the consolidated financial statements, the Company has not generated positive operating cash flows since inception. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans ~~regarding~~in ~~this~~regard ~~matter~~to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

AsFruci ~~discussed~~& inAssociates ~~Note~~II, 15PLLC ~~to the financial statements~~Spokane, ~~the~~WA ~~2014~~March ~~financial statements have been restated to correct an identified misstatement which resulted in the overstatement of derivative liabilities in the amount of $772~~31,~~543~~ ~~and the overstatement of net loss by the same amount.~~2017

~~Fruci & Associates II, PLLC Spokane, Washington March~~ 25~~, 2016~~


AMBIENT WATER CORPORATION Consolidated Balance Sheets As of December 31, 2016 and December 31, 2015 (Audited)
	December 31, 2016	December 31, 2015
ASSETS
Current assets
Cash	$ 1,823	$ 820
Accounts receivable (net of allowance for doubtful accounts of $10,007 and $-0-)	-	13,765
Deposit on product (Note 5)	33,481	51,959
Inventory (Note 6)	6,321	1,497
Prepaid asset	17,632	15,658

Total current assets	59,257	83,699

Fixed assets (Note 7)	16,630	33,789

Other assets
Technology acquisition (Note 2)	27,896	18,886

Total assets	$ 103,783	$ 136,374


LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable	$ 106,012	$ 54,629
Accounts payable - related parties (Note 11)	23,772	2,485
Accrued liabilities (Note 8)	108,585	84,116
Accrued liabilities - related parties (Note 11)	284,568	370,000
Notes payable - current portion (Note 9)	150,000	142,529
Derivative liability - current portion (Note 9)	473,013	76,955

Total current liabilities	1,145,950	730,714
Long-term liabilities
Notes payable (Note 9)	550,610	768,454
Accrued interest	130,953	102,884
Derivative liability (Note 9)	960,757	748,757

Total long-term liabilities	1,642,320	1,620,095

Total liabilities	2,788,270	2,350,809

Commitments and contingencies (Note 10)	-	-

SHAREHOLDERS' DEFICIT
Preferred stock, Series A par value $0.0001, 400,000,000 shares authorized 72,800,920 and -0- shares issued and outstanding at December 31, 2016 and December 31, 2015, respectively (Note 13)	7,280	-

Preferred stock, Series B, par value $10.00, 1 share authorized 1 and -0- shares issued and outstanding at December 31, 2016 and December 31, 2015, respectively (Note 13)	10	-

Common stock, par value $0.0001, 12,000,000,000 shares authorized, 1,492,558,483 and 177,407,091 shares issued and outstanding at December 31, 2016 and December 31, 2015 respectively (Note 13)	149,257	17,741
Paid-in-capital	10,465,456	8,800,842
Retained deficit	(13,306,490)	(11,033,018)
Total shareholders' deficit	(2,684,487)	(2,214,435)

Total liabilities and shareholders' deficit	$ 103,783	$ 136,374

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

AMBIENT WATER CORPORATION Consolidated Balance Sheets As of December 31, 2015 and December 31, 2014 (Audited)
AMBIENT WATER CORPORATION Consolidated Statements of Operations For the years ended December 31, 2016 and 2015 (Audited)
	December 31, 2015	December 31, 2014 (Restated)
		Year Ended December 31,2016	Year Ended December 31, 2015
ASSETS
Sales		$ 40,726	$ 240,945
Current assets
Cost of sales		27,836	149,706
Cash	$ 820	$ 56,121
Gross profit		12,890	91,239
Accounts receivable	13,765	5,051
GENERAL AND ADMINISTRATIVE EXPENSES:
Deposit on product (Note 5)	51,959	74,170
Travel and entertainment		9,509	35,874
Inventory (Note 6)	1,497	62,697
Professional fees		154,775	257,313
Prepaid asset	15,658	16,127
Executive compensation		240,000	350,000
Total current assets	83,699	214,166
Stock option compensation (non-cash)		334,637	1,218,274
Fixed assets (Note 7)	33,789	51,692
Other		147,919	202,202
Other assets
Total General and Administrative Expenses		886,840	2,063,663
Technology acquisition (Note 2)	18,886	27,280
Operating loss		(873,950)	(1,972,424)
Total assets	$ 136,374	$ 293,138
OTHER INCOME (EXPENSE):
LIABILITIES AND SHAREHOLDERS' EQUITY(DEFICIT)
Finance charge		-	(15)
Current liabilities
Interest and penalties		(82,270)	(98,866)
Accounts payable Accounts payable - related parties (Note 11)	$ 54,629 2,485	$ 26,440 500
Loss on deposit cancellation		-	(57,795)
Accrued liabilities (Note 8) Accrued liabilities -related parties (Note 11)	84,116 370,000	80,110 200,000
Gain (loss) on derivative instruments		(1,317,252)	119,634
Notes payable - current portion (Note 9)	142,529	435,000
Net loss before income taxes		(2,273,472)	(2,009,466)
Derivative liability - current portion (Note 9)	76,955	780,744
Income taxes		-	-
Total current liabilities	730,714	1,522,794
Net loss		$ (2,273,472)	$ (2,009,466)
Notes payable (Note 9)	768,454	300,000
Net loss per common share:
Accrued interest	102,884	7,232
Basic and fully diluted		$ -	$ (0.02)
Derivative liability (Note 9)	748,757	538,444
Weighted average number of common shares:
Total long-term liabilities	1,620,095	845,676
Basic and fully diluted		761,441,529	145,961,260
Total liabilities	2,350,809	2,368,470
Commitments and contingencies (Note 10)	-	-
SHAREHOLDERS' DEFICIT
Preferred stock, par value $0.0001, 400,000,000 shares authorized no shares issued or outstanding at December 31, 2015 and 2014, respectively (Note 13)	-	-
Common stock, par value $0.0001, 2,000,000,000 shares authorized, 177,407,091 and 129,941,970 shares issued and outstanding at December 31, 2015 and 2014 respectively (Note 13)	17,741	12,994
Paid-in-capital	8,800,842	6,935,226
Accumulated deficit	(11,033,018)	(9,023,552)
Total shareholders' deficit	(2,214,435)	(2,075,332)
Total liabilities and shareholders' deficit	$ 136,374	$ 293,138

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

AMBIENT WATER CORPORATION Consolidated Statements of Operations For the years ended December 31, 2015 and 2014 (Audited)
AMBIENT WATER CORPORATION Consolidated Statement of Shareholders' Equity and Deficit For the Years ended December 31, 2016 and 2015 (Audited)
	Year Ended			Year Ended
		Common Shares	Preferred "A" Shares	Preferred "B" Shares	Amount	Additional Paid-In-Capital	Retained Deficit	Total Shareholders' Deficit
	December 31, 2015			December 31, 2014 (Restated)
Balance - December 31, 2014 (Restated)		129,941,970	-	-	$ 12,994	$ 6,935,226	$ (9,023,552)	$ (2,073,332)
Sales	$ 240,945			$ 96,993
January 5, 2015 - Shares issued to two Executives per grants authorized on December 31, 2013 at $.0389 per share.		6,705,000	-	-	671	260,154	-	260,825
Cost of sales	149,706			59,403
April 9, 2015 - Shares issued for note and interest conversion at $0.0196 per share		4,728,152	-	-	473	92,199	-	92,672
Gross profit	91,239			37,590
June 11, 2015 - Shares issued for note and interest conversion at $0.0288 per share		4,401,826	-	-	440	126,333	-	126,773
GENERAL AND ADMINISTRATIVE EXPENSES:
August 28, 2015 - Shares issued for note and interest conversion at $0.0401 per share		4,413,024	-	-	441	176,521	-	176,962
Travel and entertainment	35,874			18,918
October 1, 2015 - Shares issued for note and interest conversion at $0.0262 per share		779,221	-	-	78	20,338	-	20,416
Professional fees	257,313			187,061
October 8, 2015 - Shares issued for note and interest conversion at $0.0237 per share		1,111,111	-	-	111	26,222	-	26,333
Executive compensation	350,000			481,250
October 20, 2015 - Shares issued for note and interest conversion at $0.0165 per share		1,470,588	-	-	147	24,116	-	24,263
Stock option compensation (non-cash)	1,218,274			1,677,779
October 27, 2015 - Shares issued for note and interest conversion at $0.0112 per share		897,872	-	-	90	9,966	-	10,056
Impairment loss on inventory	-			25,924
November 16, 2015 - Shares issued for note and interest conversion at $0.0178 per share		2,898,551	-	-	290	51,305	-	51,595
Other	202,202			182,706
November 24, 2015 - Shares issued for note and interest conversion at $0.01 per share		3,987,097	-	-	399	39,472	-	39,871
Total General and Administrative Expenses	2,063,663			2,573,638
December 4, 2015 - Shares issued for note and interest conversion at $0.0105 per share		952,331	-	-	95	9,904	-	9,999
Operating loss	(1,972,424)			(2,536,048)
December 18, 2015 - Shares issued for note and interest conversion at $0.0057 per share		1,618,011	-	-	162	9,061	-	9,223
OTHER INCOME(EXPENSE):
December 22, 2015 - Shares issued for note and interest conversion at $0.0040 per share		5,237,586	-	-	524	20,426	-	20,950
Miscellaneous income	-			250
December 28, 2015 - Shares issued for note and interest conversion at $0.0052 per share		6,521,739	-	-	652	33,261	-	33,913
Deposit cancellation	(57,795)			-
December 28, 2015 - Shares issued for note and interest conversion at $0.0052 per share		1,743,012	-	-	174	8,888	-	9,062
Finance charge	(15)			(397)
Stock Options Amortization		-	-	-		957,450	-	-
Interest and penalties	(98,866)			(41,070)
Net loss - 2015		-	-	-	-	-	(2,009,466)	(2,009,466)
Gain (loss) on derivative instruments	119,634			(1,461,232)
Balance - December 31, 2015		177,407,091			$ 17,741	$ 8,800,842	$(11,033,018)	$ (2,214,435)
Net loss before income taxes	(2,009,466)			(4,038,497)
January 12, 2016 - Shares issued to two Executives in lieu of accrued compensation at $0.0001 per share		-	72,800,920	-	7,280	302,852	-	310,132
Income taxes	-			-
First quarter 2016 - Shares issued for note and interest conversion at $0.000770 to $0.002100 per share		149,172,915	-	-	14,917	463,671	-	478,588
Net loss	$ (2,009,466)			$ (4,038,497)
Second quarter 2016 - Shares issued for note and interest conversion at $0.00010 to $0.000880 per share		452,737,311	-	-	45,274	389,527	-	434,801
Net loss per common share:
Third quarter 2016 - Shares issued for note and interest conversion at $0.0001 per share		353,461,713	-	-	35,346	98,095	-	133,441
Basic and fully diluted	$ (0.02)			$ (0.03)
Fourth quarter 2016 - Shares issued for note and interest conversion at $0.0001 to $0.00015 per share		359,779,453	-	-	35,979	75,832	-	111,811
Weighted average number of common shares:
November 30, 2016 - Shares issued to an Executive for the November 30, 2016 - Shares issued to an Executive for the sole purpose of increasing the Company's authorized common shares at $10.00 par value		-	-	1	10	-	-	10
Basic and fully diluted	145,961,260			120,240,539
Stock Options Amortization		-	-	-	-	334,637		334,637
Net loss - 2016		-	-	-	-	-	(2,273,472)	(2,273,472)
Balance - December 31, 2016		1,492,558,483	72,800,920	1	$156,547	$10,465,456	$(13,306,490)	$(2,684,487)

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

AMBIENT WATER CORPORATION
AMBIENT WATER CORPORATION Consolidated Statements of Cash Flows For the years ended December 31, 2016 and 2015 (Audited)
Consolidated Statement of Shareholders' Equity and Deficit
	Year Ended		Year Ended
For the Years ended December 31, 2015 and 2014
	December 31, 2016		December 31, 2015
(Audited)
Cash flows from operating activities:
						Total
Net loss	$ (2,273,472)		$ (2,009,466)
					Retained	Shareholders'
Adjustments to reconcile net loss:
		Shares	Amount	Paid-In-Capital	Deficit	Deficit
Depreciation and amortization	26,007		28,867
Balance - December 31, 2013		113,881,018	$ 11,388	$ 5,033,480	$ (4,985,055)	$ 59,813
Stock issued for accrued liability	310,132		-
January 14, 2014 - Shares issued to an Executive in lieu of accrued compensation at $0.03631 /share		826,446	83	29,925		30,008
Stock based compensation	334,637		1,218,274
March 26, 2014 - Shares issued to an Executive per a grant authorized on December 31, 2013 at $0.03/share		3,352,500	335	100,241		100,576
Loss on deposit cancellation	-		57,795
September 12, 2014 - Shares previously cancelled were reissued to an affiliate of the Company at $0.03/share		2,517,500	252	75,274		75,526
(Gain) loss on derivative liability	1,317,252		(119,634)
September 12,2014 - Shares previously cancelled were reissued to an Executive of the Company at $0.03/share		3,782,500	378	113,097		113,475
Changes in assets and liabilities:
October 6, 2014 - Shares issued for note and interest conversion at $0.01227 per share		5,582,006	558	210,014		210,572
Accounts receivable	13,765		(8,714)
Stock Options Amortization		-	-	1,373,195		1,373,195
Deposits	16,504		(35,115)
Net loss - 2014 (Restated)		-	-	-	(4,038,497)	(4,038,497)
Inventory	(4,824)		61,200
Balance - December 31, 2014 (Restated)		129,941,970	12,994	6,935,226	(9,023,552)	(2,075,332)
Accounts payable	72,670		30,174
January 5, 2015 - Shares issued to two Executives per grants authorized on December 31. 2013 at .0389 per share.		6,705,000	671	260,154		260,825
Other accruals	19,090		291,655
April 9, 2015 - Shares issued for note and interest conversion at $0.0196 per share		4,728,152	473	92,199		92,672
Net cash used by operating activities	(168,239)		(484,964)
June 11, 2015 - Shares issued for note and interest conversion at $0.0288 per share		4,401,826	440	126,333		126,773
Cash flows from investing activities:
August 28, 2015 - Shares issued for note and interest conversion at $0.0401 per share		4,413,024	441	176,521		176,962
Fixed assets	-		(2,570)
October 1, 2015 - Shares issued for note and interest conversion at $0.0262 per share		779,221	78	20,338		20,416
Technology acquisition	(17,858)		-
October 8, 2015 - Shares issued for note and interest conversion at $0.0237 per share		1,111,111	111	26,222		26,333
Net cash used by investing activities	(17,858)		(2,570)
October 20, 2015 - Shares issued for note and interest conversion at $0.0165 per share		1,470,588	147	24,116		24,263
Cash flows from financing activities:
October 27, 2015 - Shares issued for note and interest conversion at $0.0112 per share		897,872	90	9,966		10,056
Borrowings on notes payable	187,100		432,233
November 16, 2015 - Shares issued for note and interest conversion at $0.0178 per share		2,898,551	290	51,305		51,595
Net cash provided by financing activities	187,100		432,233
November 24, 2015 - Shares issued for note and interest conversion at $0.01 per share		3,987,097	399	39,472		39,871
Increase (decrease) in cash	1,003		(55,301)
December 4, 2015 - Shares issued for note and interest conversion at $0.0105 per share		952,331	95	9,904		9,999
Cash, beginning of period	820		56,121
December 18, 2015 - Shares issued for note and interest conversion at $0.0057 per share		1,618,011	162	9,061		9,223
Cash, end of period	$ 1,823		$ 820
December 22, 2015 - Shares issued for note and interest conversion at $0.0040 per share		5,237,586	524	20,426		20,950
Supplemental disclosure of cash flow information:
December 28, 2015 - Shares issued for note and interest conversion at $0.0052 per share		6,521,739	652	33,261		33,913
Interest paid	$ -		$ -
December 28, 2015 - Shares issued for note and interest conversion at $0.0052 per share		1,743,012	174	8,888		9,062
Non-cash investing and financing activities:
Stock Options Amortization		-	-	957,450		957,450
Stock issued for note and interest conversion	$ 1,158,640		$ 652,088
Net loss - 2015		-	-	-	(2,009,466)	(2,009,466)
Balance - December 31, 2015		177,407,091	$ 17,741	$ 8,800,842	$ (11,033,018)	$ (2,214,435)

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

AMBIENT WATER CORPORATION Consolidated Statements of Cash Flows For the years ended December 31, 2015 and 2014 (Audited)
	Year Ended	Year Ended
	December 31, 2015	December 31, 2014 (Restated)
Cash flows from operating activities:
Net loss	$ (2,009,466)	$ (4,038,497)
Adjustments to reconcile net loss:
Depreciation and amortization	28,867	13,829
Stock issued for services	-	15,000
Stock based compensation	1,218,274	1,677,779
Impairment loss on inventory	-	25,924
Loss on deposit cancellation	57,795	-
(Gain) loss on derivative liability	(119,634)	1,461,232
Changes in assets and liabilities:
Accounts receivable	(8,714)	(1,884)
Deposits	(35,115)	(4,906)
Inventory	61,200	9,113
Accounts payable	30,174	7,625
Other accruals	291,655	101,370
Net cash used by operating activities	(484,964)	(733,415)
Cash flows from investing activities:
Fixed assets	(2,570)	(15,328)
Net cash used by investing activities	(2,570)	(15,328)
Cash flows from financing activities:
Common stock issued for cash	-	-
Payments on notes payable	-	-
Borrowings on notes payable	432,233	800,000
Net cash provided by financing activities	432,233	800,000
Increase (decrease) in cash	(55,301)	51,257
Cash, beginning of period	56,121	4,864
Cash, end of period	$ 820	$ 56,121
Supplemental disclosure of cash flow information:
Interest paid	$ -	$ 397
Non-cash investing and financing activities:
Stock issued for note and interest conversion	$ 652,088	$ 210,572
Stock issued for accrued liability	$ -	$ 15,000
Demonstration units placed in service	$ -	$ 31,430

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

Ambient Water Corporation

Notes to Consolidated Financial Statements

December 31, ~~2015~~2016

NOTE 1: NATURE OF OPERATIONS AND BASIS OF PRESENTATION

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

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

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

BASIS OF PRESENTATION:

The accompanying consolidated financial statements of Ambient Water Corporation and its subsidiaries (“Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America under the rules and regulations of the U.S. Securities and Exchange Commission (the "SEC") (See Management Statement regarding Going Concern in Note 3). In the opinion of management, the consolidated financial statements reflect all adjustments considered necessary for a fair presentation.

On July 10, 2012, the Company entered into a Share Exchange Agreement (the "Share Exchange Agreement") by and among AWG International Water Corporation and AWG International, Inc. On July 10, 2012, AWG International Water Corporation acquired AWG International, Inc. (the “Business Combination”), which became a wholly owned subsidiary of AWG International Water Corporation. The Business Combination was accounted for as a reverse acquisition and recapitalization using accounting principles applicable to reverse acquisitions whereby the financial statements subsequent to the date of the Business Combination are presented as a continuation of AWG International, Inc. Under reverse acquisition accounting AWG International, Inc. (subsidiary) will be treated as the accounting parent (acquirer) and AWG International Water Corporation (parent) will be treated as the accounting subsidiary (acquiree). All outstanding shares have been restated to reflect the effect of the Business Combination, which includes a 67.1522 for 1 issuance of AWG International Water Corporation shares to AWG International, Inc. shareholders.

Although the Share Exchange Agreement was completed on July 10, 2012, the effective date for accounting purposes was June 30, 2012, and all of the necessary accounting adjustments were fully reflected in the June 30, 2012 financial statements.

The Company’s year-end is December 31.

3130

Ambient Water Corporation

Notes to Consolidated Financial Statements

December 31, ~~2015~~2016

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies is presented to assist in understanding the financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America, and have been consistently applied in the preparation of the financial statements.

A. Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reported period. Actual results could differ materially from the estimates.

B. Reclassification

Certain amounts in the historical financial statements have been reclassified to conform to the current ~~2015~~2016 presentation. These reclassifications have no effect on net loss, total assets, or shareholders’ equity as previously reported.

C. Cash and cash equivalents

At December 31, ~~2015~~2016 and December 31, ~~2014~~2015, cash and cash equivalents consisted of checking accounts.

D. Technology Acquisition

The technology supporting the Company’s products (“Technology Acquisition”) was obtained as described below.

Under the terms of the assignment, and subject to one exception discussed below concerning the G2 Assets, the Company owns exclusive and non-exclusive rights to manufacture, market and sell certain products covered under individual patents and/or patents pending. In return, the persons making the assignment received 500,000 common shares of the Company. The Company incurred no material costs related to the assignment and patent protection during ~~2015~~2016.

On or about April 13, 2010, Everest Water, Ltd., (“Licensor”) granted CanAmera Management, Inc. (“Licensee”), a corporation organized under the laws of the Republic of Panama, a non-exclusive, royalty bearing license to manufacture, use and sell products under U.S. Patent No. 7,272,947 including any and all U.S. or foreign patents derived and any patent on improvements on the patent, (the "License Agreement"). The patent describes a device that produces potable water by extracting water from the air and purifying it by way of cooling and condensing water and removing bacteria or preventing the formation of bacteria.

On the same date, April 13, 2010, Licensee assigned the License Agreement to AWG International, Inc., as successor Licensee. The consideration for the assignment was 250,000 common shares of AWG International, Inc. Mr. Keith White, a Company director, Chief Executive and Technology Officer and Robb Perkinson, a company director, have shared voting and dispositive control of Licensee.

During August 2012, information came to our attention which raised questions about the enforceability, validity and scope of protection relating to the Everest Water patents, the Everest Water/Licensee License Agreement and subsequent patent assignments ("G2 Assets") which were associated with the License Agreement. These questions involve legal issues under the laws of the Commonwealth of the Bahamas. The Company engaged a Bahamian law firm to provide guidance and advice in regard to the legal questions associated with these G2 Assets. The principal legal issue concerning the enforceability and validity of the G2 asset transfers to AWG involved Everest Waters' ability to deal in its assets when it had been stricken from the Bahamas Companies Registry. On January 2, 2007, Everest Water had been stricken for failure to pay its annual corporate fees. Bahamas law prohibits a company from dealing in its assets while stricken. Therefore, the March 12, 2007 assignment of the G2 patent from Everest International, Ltd. and the April 13, 2010 Everest Water license would be considered invalid until such time as Everest Water is reinstated with the Companies Registry. Upon reinstatement, all business activity would be restored retroactively, as though Everest had never been stricken. Until such time as Everest Water, Ltd. could be reinstated with the Bahamas Companies Registry, the G2 Asset transfers were to be considered defective and invalid under Bahamian corporate law.

3231

Ambient Water Corporation

Notes to Consolidated Financial Statements

December 31, ~~2015~~2016

The fact that Everest Water had been stricken from the Bahamas Corporate registry on January 2, 2007 rendered the March 12, 2007 Everest International, Inc. patent assignment to Everest Water and the subsequent April 13, 2010 Everest Water grant of patent license agreement to CanAmera Management invalid, (the “G2 Assets”). These defects rendered the April 13, 2010 CanAmera Management license agreement assignment to AWG International, Inc. invalid as well.

The reinstatement has cured the defect with the CanAmera Management License Agreement assignment to AWG International, Inc. As a result, AWG International, Inc. is now the assignee of the CanAmera Management license agreement.

On February 14, 2013, AWG, as assignee to the License Agreement, declared Everest Water, Ltd. insolvent under Paragraph VII (c) of the License Agreement. As a result of this insolvency declaration, AWG took the actions set forth in paragraphs (a) and (b) below and assigned the G2 patent assets as provided for pursuant to the terms of the License Agreement. Keith White, individually, as co-inventor, took the action set forth in paragraph (c).

(a)

On February 14, 2013, Keith White, on behalf of AWG, executed a Declaration of Assignment whereby the G2 patent assets owned by Everest Water were assigned to AWG.

(b)

On February 14, 2013, AWG assigned the G2 patent assets to the inventors, Rae Anderson and Keith White.

(c)

On February 14, 2013, Keith White, as co-inventor, assigned the G2 patent assets to AWG.

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

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

The costs associated with curing the patent and assignment defects were paid by the Company. However, CanAmera Management had agreed to return for cancellation 355,525 of its Company common shares valued at $47,883, the estimated cost of curing the defects. The Company had placed an administrative "stop transfer" on the 16,788,057 AWG exchange shares which were issued to CanAmera Management pursuant to the Exchange Agreement, until such time as the Patent and License Agreement matters had been resolved in the Company’s favor. The Company is satisfied that the matter has been resolved and ~~will~~has ~~now~~completed ~~proceed with~~ the issuance of the shares.

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

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

~~Long-lived~~On ~~assets~~January of12, ~~the Company~~2016, ~~including~~the ~~Technology~~Australian ~~Acquisition~~Government, ~~are~~accepted ~~reviewed~~Patent ~~for~~application ~~impairment~~Number ~~when~~2010321841. The ~~changes~~Patent inis ~~circumstances~~effective ~~indicate~~from ~~their~~November ~~carrying~~19, ~~value~~2010 ~~has~~through ~~become~~November ~~impaired~~19, ~~pursuant~~2030. The cost to ~~guidance~~acquire ~~established~~the inPatent ~~FASB~~was ~~ASC 410-20~~$8,891. ~~See~~. ~~discussion~~The ~~Note~~Patent ~~2(I),~~will ~~Impairment~~be ofamortized ~~Long-Lived~~over ~~Assets~~the remaining effective life.

3332

Ambient Water Corporation

Notes to Consolidated Financial Statements

December 31, ~~2015~~2016

Additionally, for the year ending December 31, 2016, the Company has capitalized $8,967 of expenses in this account. The Company will continue to capitalize expenses in this account for Patents being pursued. At such time the patent is granted, the Company will begin to amortize over the useful life. If patents are denied, the Company will expense the costs associated with pursuing the patent.

At December 31, 2016 and December 31, 2015, the net Technology acquisition balance was $27,896 and $18,886, respectively. As of December 31, 2016 and December 31, 2015, the Company has recognized $31,931 and $23,083, respectively of accumulated amortization. As of December 31, 2016 and December 31, 2015, the Company recognized $8,848 and $8,394, respectively of amortization expense.

The technology rights are being amortized over expected lives of five to twenty years.

Long-lived assets of the Company, including Technology Acquisition, are reviewed for impairment when changes in circumstances indicate their carrying value has become impaired, pursuant to guidance established in FASB ASC 410-20. See discussion Note 2(I), Impairment of Long-Lived Assets.

E. Revenue Recognition

F. Income Taxes

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

G. Earnings (Loss) Per Share (“EPS”)

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

H. Derivative Instruments

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

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

At December 31, ~~2014~~2015 and ~~2015~~2016, the Company had engaged in transactions are considered derivative instruments or hedging activities.

During ~~2014~~2015 and ~~2015~~2016, the Company entered into a series of Convertible Promissory Notes which included conversion clauses which are deemed derivative liabilities As of December 31, 2015 the estimated effect upon the fair market conversion of the outstanding note balances of $910,983 and accrued interest of $110,428 was approximately $825,712 for the relative fair market conversion of the note to common stock. As of December 31, ~~2014~~2016 the estimated effect upon the fair market conversion of the outstanding note balances of $~~735~~700,~~000~~610 and accrued interest of $37138,~~542~~624 was approximately $1,~~319~~433,~~188~~770 for the relative fair market conversion of the note to common stock. For further information see Note 9 to the financial statement.

~~I. Impairment of Long-Lived Assets~~33

Long-lived assets of the Company, including the Technology Rights, are reviewed at least annually for impairment or when changes in circumstances indicate their carrying value has become impaired, pursuant to guidance established in FASB ASC 410-20. Management considers assets to be impaired if the carrying amount of an asset exceeds the future projected cash flows from related operations (undiscounted and without interest charges). If impairment is deemed to exist, the asset will be written down to fair value, and a loss is recorded as the difference between the carrying value and the fair value. Fair values are determined based on quoted market values, discounted cash flows, or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value. Management has determined that there was no impairment as of December 31, 2014 and 2015.

J. Fair Value of Financial Instruments

Ambient Water Corporation

Notes to Consolidated Financial Statements

December 31, ~~2015~~2016

I. Impairment of Long-Lived Assets

J. Fair Value of Financial Instruments

FASB ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. FASB ASC 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

Level 1: Applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities; and

Level 2: Applies to assets or liabilities for which there are inputs other than the quoted prices in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions; or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data; and

Level 3: Applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities, which may include the reporting entity to develop its own assumptions.

The Company did ~~not~~ have ~~any~~conversion ~~assets~~feature orof ~~liabilities~~debt as a Level 3 valuation measured at fair value on a recurring basis at December 31, ~~2014~~2016 or 2015. The Company did ~~not~~ have ~~any~~conversion ~~fair~~feature ~~value~~of ~~adjustments~~debt ~~for~~as ~~assets~~a ~~and~~Level ~~liabilities~~3 valuation measured at fair value on a nonrecurring basis during the period ended December 31, ~~2014~~2015 or ~~2015~~2016.

K. Warranty Expense

The Company has established a product warranty reserve, set at five percent (5%) of sales, beginning for the quarter ending September 30, 2014. As such, the Company charged $12,~~800~~089 and $11,236, to the expense line Sales Reserve for the years ending December 31, ~~2014~~2016 and 2015, respectively. Additionally, the Company set up a corresponding liability, Product Warranty Reserve, in the amount of $115,~~800~~125 and $13,036 shown in accrued liabilities for the years ended December 31, ~~2014~~2016 and 2015, respectively.

L. Impact of New Accounting Standards

In ~~June~~August 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-1015 (“ASU 2014-1015”), ~~Development~~Presentation ~~Stage~~of ~~Entities~~Financial Statements-Going Concern (~~Topic~~Subtopic ~~915~~205-40), ~~Elimination~~Disclosure of ~~Certain~~Uncertainties ~~Financial~~about ~~Reporting Requirements, Including~~ an ~~Amendment~~Entity’s Ability to ~~Variable~~Continue ~~Interest~~as ~~Entities~~a ~~Guidance~~Going ~~in Topic 810, Consolidation~~Concern. The objective of the amendments in this Update is to ~~improve~~provide ~~financial~~guidance ~~reporting~~on bydetermining ~~reducing~~when ~~the cost~~ and ~~complexity~~how ~~associated~~to ~~with~~disclose ~~incremental~~going-concern ~~reporting~~uncertainties ~~requirements~~in ~~for~~the ~~development~~financial ~~stage entities~~statements. The ~~amendments~~new instandards ~~this~~require ~~Update~~management ~~also eliminate an exception provided~~ to ~~development~~perform ~~stage~~interim ~~entities~~and inannual ~~Topic~~assessments ~~810,~~of ~~Consolidation, for determining whether~~ an entity’s isability ato ~~variable~~continue ~~interest~~as ~~entity~~a ongoing ~~the~~concern ~~basis~~within ofone ~~the~~year ~~amount~~ of ~~investment equity at risk. The amendments related to~~ the ~~elimination of inception to-~~date ~~information and~~ the ~~other~~financial ~~remaining~~statements ~~disclosure~~are ~~requirements~~issued. ofAn ~~Topic~~entity ~~915~~must ~~should~~provide becertain ~~applied~~disclosures ~~retrospective~~if ~~except~~“conditions ~~for~~events ~~the~~raise ~~clarification~~substantial todoubt ~~Topic~~about ~~275,~~the ~~which~~entity’s ~~shall~~ability beto ~~applied~~continue ~~prospectively.~~as ~~These~~a ~~amendments~~going ~~are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein~~concern.” The ~~amendment~~ASU ~~eliminates~~applies ~~the exception~~ to ~~the~~all ~~sufficiency-of-equity-at-risk criterion for development stage~~ entities inand ~~paragraph~~is ~~810-10-15-16~~effective ~~should be applied retrospectively~~ for annual ~~reporting~~ periods ~~beginning~~ending after December 15, ~~2015~~2016, and interim ~~period~~periods ~~therein.~~thereafter, ~~Early~~with ~~application~~early ofadoption ~~each of the amendments is~~ permitted ~~for any annual reporting period or interim period for which the entity’s financial statements have not yet been issued~~. The Company adopted ASU 2014-1015 in the fourth quarter of ~~2014~~2016 ~~and~~– ~~this~~see ~~adoption~~Note ~~did~~3 ~~not~~– ~~have~~Going aConcern ~~material impact on its financial condition, results of operations or cash flows~~Uncertainties.

In August 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-15 (“ASU 2014-15”), Presentation of Financial Statements-Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The objective of the amendments in this Update is to provide guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standards require 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 events raise substantial doubt about the entity’s ability to continue as a going concern.” The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The Company is evaluating the impact of ASU 2014-15 on its financial condition, results of operations and cash flows.34

Ambient Water Corporation

Notes to Consolidated Financial Statements

December 31, ~~2015~~2016

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

In February 2015, the FASB issued new guidance to improve consolidation guidance for legal entities (Accounting Standards Update (“ASU”) 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis), effective for fiscal years beginning after December 15, 2015 and interim periods within those years and early adoption is permitted. The new standard is intended to improve targeted areas of the consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures. The amendments in the ASU affect the consolidation evaluation for reporting organizations. In addition, the amendments in this ASU simplify and improve current GAAP by reducing the number of consolidation models. The Company isadopted ~~currently~~ASU ~~evaluating~~2015-02 ~~the~~in ~~impact~~2016 ofand this ~~guidance~~adoption did not have a material impact on its ~~consolidated~~ financial ~~statements~~condition, results of operations or cash flows.

The FASB has issued ASU No. 2014-12, 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. This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that 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. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Company adopted ASU 2014-12 in 2016 and this adoption did not have a material impact on its financial condition, results of operations or cash flows. The Company has not yet determined the effect of the adoption of this standard and it is not expected to have a material impact on the Company’s condensed consolidated financial position and results of operations.

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

Update ~~2015~~2016-~~16—Business~~01 ~~Combinations~~- Financial Instruments-Overall (~~Topic~~Subtopic ~~805~~825-10): ~~Simplifying~~Recognition ~~the~~and ~~Accounting~~Measurement ~~for~~of ~~Measurement-Period~~Financial ~~Adjustments~~Assets and Financial Liabilities

Update ~~2015~~2016-~~15—Interest—Imputation~~09 ~~of Interest (Subtopic 835~~-~~30):~~ ~~Presentation~~Compensation ~~and Subsequent Measurement of Debt Issuance Costs Associated with Line~~-~~of-Credit~~ ~~Arrangements—Amendments~~Stock toCompensation ~~SEC~~(Topic ~~Paragraphs~~718) ~~Pursuant~~Improvements to ~~Staff~~Employee ~~Announcement~~Share-Based atPayment ~~June~~Accounting ~~18, 2015 EITF Meeting (SEC Update)~~

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

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

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

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

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

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

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

NOTE 3: GOING CONCERN UNCERTAINTIES

The Company has not generated positive cash flows since inception, which raises substantial doubt about the ability of the Company to continue as a going concern. The Company is dependent upon achieving positive cash flow from operations and obtaining additional financing to fund ongoing operations.

3635

Ambient Water Corporation

Notes to Consolidated Financial Statements

December 31, ~~2015~~2016

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

The Board of Directors has assessed the going concern issue and believes that the Company should be able to continue as a going concern based on the sales pipeline as well as our relationship with our primary Convertible Note holder to continue to fund the Company.

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

NOTE 4: BUSINESS COMBINATION

AWG International Water Corporation incorporated on December 19, 2005, under the laws of the State of Nevada, and is headquartered in Spokane Valley, Washington. The Company’s previous name was MIP Solutions, Inc. This company was considered a shell company prior to the Business Combination.

AWG International, Inc. was incorporated on March 18, 2010, under the laws of the State of Nevada, and is headquartered in Spokane Valley, Washington. This company is in the business of developing, patenting and marketing devices that harvest water from the atmosphere.

Pursuant to the terms and conditions of the Share Exchange Agreement, AWG International Water Corporation acquired 100% of the capital stock, 1,160,514 common shares, of AWG International, Inc. in exchange for 77,931,100 common shares. At the time the Share Exchange Agreement was executed, this common stock represented 67.38% of the Company’s issued and outstanding capital stock.

Each of the outstanding shares of AWG International, Inc.’s common stock prior to the Business Combination was converted into 67.1522 shares of AWG International Water Corporation’s common stock. Accordingly, an aggregate of 77,931,100 shares of common stock were issued to the shareholders of AWG International, Inc.

The shares of AWG International Water Corporation’s common stock issued to the former holders of AWG International, Inc.’s common stock in connection with the Business Combination, and the shares of the Company's common stock and warrants issued in the Private Placement, were issued in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended and Regulation D Rule 506 promulgated under that section, which exempts transactions by an issuer not involving a public offering. These securities may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. Certificates representing these shares display a legend stating the restrictions applicable to such shares.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the Business Combination transaction date:


Cash and cash equivalents	$ 157,597
Notes receivable – AWGI	635,142
Prepaid	595
Total identifiable assets	$ 793,334

Accounts payable	$ (75,057)
Notes payable	(145,000)
Notes payable – AWGI	(33,012)
Stock to be issued	(59,045)
Total identifiable liabilities	$ (312,114)

Net identifiable assets	$ 481,220

~~As part of the accounting adjustments associated with the reverse acquisition, all intercompany balances were subsequently eliminated.~~36

Ambient Water Corporation

Notes to Consolidated Financial Statements

December 31, ~~2015~~2016

As part of the accounting adjustments associated with the reverse acquisition, all intercompany balances were subsequently eliminated.

NOTE 5: DEPOSITS ON PRODUCT

At December 31, ~~2014~~2016 and December 31, 2015, there was a balance of $7433,~~170~~481 and $51,959, respectively in deposits on product. Deposits on product represent amounts paid to the Company’s Korean contract manufacturer.

NOTE 6: INVENTORY

At December 31, ~~2014~~2016 and December 31, 2015, the Inventory balance was $626,~~697~~321 and $1,497, respectively, valued at the lower of cost or fair market value less any allowances for obsolescence. The Company maintains an inventory of Model 2500 units and filters that are used both in the manufacture of new units and as replacements in previously sold units. The ~~change in the inventory is a result of sales of units. The~~ Company had noone and zero Model 2500 units in inventory at December 31, 2016, and 2015, respectively.

NOTE 7: FIXED ASSETS

At December 31, ~~2014~~2016 and December 31, 2015, the net Fixed Asset balance was $5116,~~692~~630 and $33,789, respectively. The Company purchased additional demonstration units to be used in soliciting new distributors and marketing efforts. The Company is depreciating these assets over the appropriately determined estimated useful life of 3 years. As of December 31, ~~2014~~2016 and December 31, 2015, the Company has recognized $947,~~856~~487 and $30,328, respectively, of accumulated depreciation. As of December 31, ~~2014~~2016 and 2015, the Company recognized $517,~~436~~159 and $20,473 for depreciation expenses, respectively.

NOTE 8: ACCRUED LIABILITIES

At December 31, ~~2014~~2016 and December 31, 2015 the Accrued liabilities balance was $80108,~~110~~585 and $84,116, respectively. The Company accrues unpaid wages, consulting costs, accrued notes payable interest, and accrued Internal Revenue Service penalty and interest in Accrued Liabilities. See Note 11 - Related Party Transactions.

NOTE 9: CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITIES

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

The Lender has loaned the Company $900,000 through March 31, 2015. On October 6, 2014, The Lender converted $65,000 of the outstanding principal and associated interest into 5,585,006 common shares. Additionally, on April 9, 2015, the Lender converted $40,000 of the outstanding principal and associated interest into 4,728,152 common shares. Again on June 11, 2015 the Lender converted $30,000 of the outstanding principal and associated interest into 4,401,826 common shares. Also, on August 28, 2015 the Lender converted $58,000 of the outstanding principal and associated interest into 4,413,024 common shares. Again on December 22, 2015 the Lender converted $9,000 of the outstanding principal and associated interest into 5,237,586 common shares. The outstanding principal on this Note is $698,000 and $735,000, at December 31, 2015 and December 31, 2014, respectively. The current portion of this note payable is $-0- and $435,000, at December 31, 2015 and December 31, 2014, respectively. The Lender has the right, at any time, at its election, to convert all or part of the Note amount into shares of fully paid and non-assessable shares of common stock of the Company. The conversion price (the “Conversion Price”) shall be the lesser of (a) $0.04 per share of common stock, (b) fifty Percent (50%) of the average of the three (3) lowest trade prices of three (3) separate trading days of Common Stock recorded during the twenty five (25) previous trading days prior to conversion, or (c) the lowest effective price per share granted to any person or entity after the effective date to acquire Common Stock, or adjust, whether by operation of purchase price adjustment, settlement agreements, exchange agreements, reset provision, floating conversion or otherwise, any outstanding warrant, option or other right to acquire Common Stock or outstanding Common Stock equivalents, excluding any outstanding warrants or options that have been disclosed in SEC filings prior to the effective date.

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

38Section 1 of the Note is hereby revised and restated in its entirety as follows:

Ambient Water Corporation

Notes to Consolidated Financial Statements

December 31, ~~2015~~2016

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

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

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

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

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

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

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

On March 27, May 6, and June 18, 2015, the Company entered into three financing transactions with an accredited investor ("Lender”) which loaned the Company $48,500, $43,000 and $38,000, respectively, on three separate convertible promissory notes totaling $129,500. On October 1, 2015, The Lender converted $12,000 of the outstanding principal into 779,221 common shares. Additionally, on October 8, 2015, the Lender converted $15,000 of the outstanding principal into 1,111,111 common shares. Again on October 20, 2015, the Lender converted $15,000 of the outstanding principal into 1,470,488 common shares. Again on October 27, 2015, the Lender converted $6,500 of the outstanding principal and accrued interest into 897,872 common shares. Again on November 16, 2015, the Lender converted $20,000 of the outstanding principal into 2,898,551 common shares. Again on November 24, 2015, the Lender converted $23,000 of the outstanding principal and accrued interest into 3,987,097 common shares. Again on December 28, 2015, the Lender converted $15,000 of the outstanding principal into 6,521,739 common shares. During the quarter ended March 31, 2016, the Lender converted the remaining $23,000 of outstanding principal and accrued interest into 12,094,236 common shares. The current portion of the notes payable is $-0- and $23,000 at December 31, 2016 and 2015, respectively. This note is referred to as Note B in the table below.

3938

Ambient Water Corporation

Notes to Consolidated Financial Statements

December 31, ~~2015~~2016

~~The~~On ~~current~~May ~~portion~~27, of2015, the ~~notes~~Company ~~payable~~entered isinto ~~$23,000~~a ~~and~~financing ~~$-0-,~~transaction atwith ~~December~~an ~~31,~~accredited ~~2015~~investor ~~and~~("Lender”) ~~December~~which ~~31,~~loaned ~~2014~~the Company $36,750 ~~respectively.~~on ~~The~~a ~~remaining~~convertible promissory note. ~~matures~~On onDecember ~~March~~4, 202015, ~~2016 (~~the ~~"Maturity~~Lender ~~Dates")~~converted ~~and~~$4,750 toof ~~pay interest on~~ the ~~unpaid~~outstanding principal ~~balance~~and ~~hereof~~interest atinto ~~the~~952,331 ~~rate~~common ofshares. ~~Eight~~Again ~~(8%)~~on ~~percent. The~~December ~~Lender~~18, ~~has~~2015, the ~~right~~Lender toconverted ~~convert~~$4,000 of the outstanding principal and interest into 1,618,011 common shares ~~after 180 days~~. ~~The~~ ~~conversion~~Again ~~price will be variable and based~~ on aDecember ~~42%~~28, ~~discount~~2015, to the ~~market~~Lender ~~price. The~~converted ~~market~~$4,000 ~~price~~of ~~will be~~ the ~~average~~outstanding ~~lowest~~principal ~~five~~and ~~trading~~interest ~~prices~~into ~~for~~1,743,012 ~~the~~ common ~~stock~~shares. During ~~during~~ the ~~ten~~quarter ~~day~~ended ~~trading~~March ~~period~~31, ~~ending~~2016, on the ~~latest~~Lender ~~complete~~converted ~~trading~~the ~~day~~remaining ~~prior~~$24,000 toof ~~conversion. The~~outstanding ~~Lender~~principal ~~has~~and ~~limited~~associated ~~its~~interest ~~ability to convert the debt~~ into 14,905,072 common shares. The tocurrent noportion ~~more than 4.99%~~ of the ~~Company’s~~note ~~outstanding~~payable ~~common~~is ~~stock. The~~$-0- ~~Lender~~and ~~can~~$24,000, ~~waive~~at ~~this~~December ~~limitation~~31, ~~upon~~2016 61and ~~days~~December ~~advance~~31, ~~notice~~2015, respectively. This note is referred to as Note BC in the table below.

On ~~May~~July 27, 2015, the Company ~~entered~~executed ~~into~~ a financing transaction dated July 23, 2015 with an accredited investor ("Lender”) which loaned the Company $36100,~~750~~000 on a convertible promissory note less an original issue discount (OID) of $8,000. OnDuring ~~December~~the 4quarter ended March 31, ~~2015~~2016, the Lender converted $493,~~750~~629 of ~~the~~ outstanding principal and accrued interest into ~~952~~86,~~331~~172,894 common shares. ~~Again~~During onthe ~~December~~quarter 18ended June 30, ~~2015~~2016, the Lender converted the remaining $46,~~000~~371 of ~~the~~ outstanding principal and associated interest into 114,~~618~~040,~~011~~790 common shares. ~~Again~~The onOID has an unamortized balance of -0- and $4,471 at December 2831, 2016 and December 31, 2015, respectively. The current portion of the ~~Lender~~note ~~converted~~payable ~~$4,000~~(net of ~~the~~OID) ~~outstanding~~is ~~principal~~$-0- and ~~interest~~$95,529, ~~into~~at 1December 31,~~743~~ 2016 December 31,~~012~~ ~~common~~2015, ~~shares~~respectively. The note is referred to as Note D in the table below.

~~The~~On ~~current~~October ~~portion~~14, of2015, the ~~note~~Company ~~payable~~executed isa ~~$24,000~~financing ~~and~~transaction ~~$-0-,~~with atan ~~December~~accredited ~~31,~~investor ~~2015~~("Lender”) ~~and~~which ~~December~~loaned ~~31,~~the ~~2014~~Company $37,100 ~~respectively.~~on ~~The~~a ~~note~~convertible ~~matures~~promissory onnote ~~May~~less ~~27,~~an ~~2016~~original ~~(the~~issue ~~"Maturity~~discount ~~Date"~~(OID) ~~and~~of to$2,100. During ~~pay interest on~~ the ~~unpaid~~quarter ~~principal~~ended ~~balance~~June ~~hereof~~30, at2016, the ~~rate of Eight (8%) percent. The~~ Lender ~~has~~converted the ~~right~~entire to$37,100 ~~convert~~of ~~the~~ outstanding principal and associated interest into 48,831,119 common shares. atThe ~~its~~OID ~~option,~~has atan ~~any~~unamortized ~~time. The~~balance ~~conversion~~of ~~price~~$-0- ~~will be variable~~ and ~~based~~$1,873 onat aDecember ~~40%~~31, ~~discount~~2016 toand ~~the~~December ~~market~~31, ~~price~~2015, respectively. The ~~market~~current ~~price~~portion ~~will be the average~~ of the ~~two~~note ~~lowest~~payable ~~closing~~(net ~~prices~~of ~~for~~OID) ~~the~~is ~~common~~$-0- ~~stock~~and ~~during~~$35,227, ~~the~~at ~~fourteen~~December ~~prior~~31, ~~trading~~2016 ~~days~~and ~~including~~December ~~the~~31, ~~day~~2015, ~~upon which a Notice of Conversion is received by the Company~~respectively. This note is referred to as Note CE in the table below.

On ~~July~~October 2714, 2015, the Company executed a financing transaction ~~dated July 23, 2015~~ with an accredited investor ("Lender”) which loaned the Company $~~100~~37,~~000~~100 on a convertible promissory note less an original issue discount (OID) of $82,~~000~~100. ~~The~~During ~~OID~~the ~~has~~quarter anended ~~unamortized~~June ~~balance~~30, ~~of $4~~2016,~~471~~ atthe ~~December~~Lender ~~31,~~converted ~~2015. The~~the ~~current~~entire ~~portion~~$37,100 of ~~the~~outstanding ~~note~~principal ~~payable~~and ~~(net~~associated ofinterest into 58,165,167 common shares. The OID) ishas ~~$95,529~~an ~~and~~unamortized balance of $-0- and $1,873 at December 31, ~~2015~~2016 and December 31, ~~2014~~2015, respectively. The ~~note~~current ~~matures~~portion onof ~~July~~the ~~23,~~note ~~2016~~payable (~~the~~net ~~"Maturity Date") and to pay interest on the unpaid principal balance hereof at the rate~~ of ~~Ten (10%~~OID) ~~percent. The~~is ~~Lender~~$-0- ~~has the right to convert the outstanding principal~~ and ~~interest~~$35,227, ~~into common shares~~ at ~~its~~December ~~option~~31, at2016 ~~any time. The conversion price will be variable~~ and ~~based~~December ~~on a 40% discount to the market price. The market price will be the average of the four lowest trades~~31, ~~tossing out the lowest of the four~~2015, ~~for the common stock during the twenty prior trading days to the date of conversion~~respectively. ~~The~~This note is referred to as Note DF in the table below.

On ~~October~~February 142, ~~2015~~2016, the Company ~~executed~~entered into a financing transaction with an accredited investor ("“Lender”) under which ~~loaned~~ the Company may borrow up to Two Hundred Fifty Thousand ($37250,~~100~~000) ondollars. aThe ~~convertible~~transaction ~~promissory~~was ~~note~~structured ~~less~~as ana ~~original~~Convertible ~~issue~~Promissory ~~discount~~Note (~~OID~~the "Note") ofbearing ~~$2,100. The~~interest ~~OID~~at ~~has~~the anrate ~~unamortized balance~~ of ~~$1,873~~Ten at(10%) ~~December~~percent ~~31,~~per ~~2015~~year. The ~~current~~maturity ~~portion~~date of twelve months from the ~~note~~Effective ~~payable~~Date ~~(net~~was ofamended ~~OID~~to sixty (60) ismonths ~~$35,227~~on ~~and~~January ~~$-0-~~12, at2017. ~~December~~The ~~31,~~maturity ~~2015~~date ~~and~~is ~~December~~February 312, ~~2014, respectively~~2021. The ~~note~~Lender ~~matures~~has onthe ~~October 14~~right, ~~2017~~at (any time after the ~~"Maturity~~Effective Date"), ~~and~~at its election, to ~~pay~~convert ~~interest~~all onor part of the ~~unpaid~~Note ~~principal~~Amount ~~balance~~into ~~hereof~~shares atof common stock. The conversion price shall be the ~~rate~~lesser of ~~Eight~~ (8%a) ~~percent~~$0. ~~The~~005 ~~Lender~~per ~~has~~share ~~the~~of ~~right~~common tostock ~~convert~~or (b) Fifty Percent (50%) of the ~~outstanding~~average ~~principal~~of ~~and~~the ~~interest~~three ~~into~~lowest ~~common~~trade ~~shares~~prices aton ~~its~~three ~~option~~separate trading days, ator ~~any~~(c) ~~time. The~~the ~~conversion~~lowest effective price ~~will~~per beshare ~~variable~~granted ~~and~~to ~~based~~any onperson aor ~~42%~~entity, ~~discount~~but toexcluding ~~the~~officers ~~market~~and ~~price~~directors of the Borrower. The ~~market~~Lender ~~price~~has ~~will~~loaned be the ~~average~~Company $150,000 through December 31, 2016. The current portion of the ~~three~~note ~~lowest~~payable ~~trading~~is ~~prices~~$150,000 ~~for~~and ~~the~~$-0-, ~~common~~at ~~stock~~December ~~during~~31, ~~the~~2016 ~~fifteen~~and ~~prior~~December ~~trading~~31, ~~days~~2015, respectively. This ~~note~~Note is referred to as Note EG in the table below.

On ~~October~~May 143, ~~2015,~~2016 the Company ~~executed~~received ~~a financing transaction with an accredited investor ("Lender) which loaned the Company~~ $37,100 on athe back end convertible promissory note associated with Note E listed above, less an original issue discount (OID) of $2,100. ~~The~~During ~~OID~~the ~~has~~quarter anended ~~unamortized~~June ~~balance~~30, ~~of $1~~2016,~~873~~ atthe ~~December~~Lender ~~31,~~converted ~~2015. The~~the ~~current~~entire ~~portion~~$37,100 of ~~the~~outstanding ~~note~~principal ~~payable~~and ~~(net~~associated ofinterest into 99,298,538 common shares. The OID) ishas an unamortized balance of $~~35,227~~-0- and $-0-, at December 31, ~~2015~~2016 and December 31, ~~2014~~2015, respectively. The ~~note~~current ~~matures~~portion onof ~~October~~the ~~14,~~note ~~2017~~payable (~~the~~net ~~"Maturity Date") and to pay interest on the unpaid principal balance hereof at the rate~~ of ~~Eight (8%~~OID) ~~percent. The~~is ~~Lender~~$-0- ~~has the right to convert the outstanding principal~~ and ~~interest~~$-0- ~~into common shares~~ at ~~its~~December ~~option~~31, at2016 ~~any time. The conversion price will be variable~~ and ~~based~~December on31, a2015, ~~42% discount to the market price~~respectively. ~~The market price will be the average of the three lowest trading prices for the common stock during the fifteen prior trading days.~~ This note is referred to as Note FH in the table below.

4039

Ambient Water Corporation

Notes to Consolidated Financial Statements

December 31, ~~2015~~2016

CONVERTIBLE NOTES PAYABLE
		Current		Current
	Payable	Portion	Payable	Portion
Description	at 12/31/1516	at 12/31/1516	at 12/31/1415	at 12/31/1415
Note A	$ ~~698~~550,~~000~~610	$ -	$ ~~735~~698,000	$ ~~435,000~~-
Note B	~~23,000~~-	~~23,000~~-	-23,000	-23,000
Note C	~~24,000~~-	~~24,000~~-	-24,000	-24,000
Note D	~~95,529~~-	~~95,529~~-	-95,529	-95,529
Note E	~~35,227~~-	-	-35,227	-
Note F	~~35,227~~-	-	-35,227	-
	$ 910,983	$ 142,529	$ 735,000	$ 435,000
Note G	150,000	150,000	-	-
Note H	-	-	-	-
	$ 700,610	$ 150,000	$ 910,983	$ 142,529

Derivative liabilities

Under FASB ASC 815-40 Contracts in Entity’s Own Equity, the Company must review the possible conversion features under the agreement’s variable price conversion options, which create a derivative in the possible settlement choices of the Lender. As of December 31, 2015, the stock pricing feature for Note A above which provides a 50% discount to the market would have increased the stock necessary to settle the conversion if requested to approximately 417,117,892 shares. The Company has calculated the value of this additional liability to be $702,369 and has recognized a change of earnings for the effect of such a conversion through December 31, 2015. Additionally, the conversion features on Notes B, C, D, E and F above would have increased the stock necessary to settle the conversion feature on these Notes to approximately 98,253,949 shares. The Company has calculated the value of this additional liability to be $123,343 and has recognized a change of earnings for the effect of such a conversion through December 31, 2015. Total derivative liability was $825,712 and $1,319,188, as of December 31, 2015 and December 31, 2014, respectively. As of December 31, 2015, the derivative liability is classified as $76,955 under current liabilities and $748,757 under long-term liabilities. As of December 31, 2014, the derivative liability is classified as $780,744 under current liabilities and $538,444 under long-term liabilities.

As of December 31, 2016, the stock pricing feature for Note A above which provides a 50% discount to the market would have increased the stock necessary to settle the conversion if requested to approximately 8,211,602,410 shares. The Company has calculated the value of this additional liability to be $960,757 and has recognized a change of earnings for the effect of such a conversion through December 31, 2016.

As of December 31, 2015, the stock pricing feature for Note A above which provides a 50% discount to the market would have increased the stock necessary to settle the conversion if requested to approximately 417,117,892 shares. The Company has calculated the value of this additional liability to be $702,369 and has recognized a change of earnings for the effect of such a conversion through December 31, 2015. Additionally, the conversion features on Note G above would have increased the stock necessary to settle the conversion feature on this Note to approximately 3,153,420,000 shares. The Company has calculated the value of this additional liability to be $473,013 and has recognized a change of earnings for the effect of such a conversion through December 31, 2016. Additionally, the conversion features on Notes B, C, D, E and F above would have increased the stock necessary to settle the conversion feature on these Notes to approximately 98,253,949 shares. The Company has calculated the value of this additional liability to be $123,343 and has recognized a change of earnings for the effect of such a conversion through December 31, 2015. Total derivative liability was $825,712 and $1,433,770, as of December 31, 2015 and December 31, 2016, respectively. As of December 31, 2015, the derivative liability is classified as $76,955 under current liabilities and $748,757 under long-term liabilities. As of December 31, 2016, the derivative liability is classified as $473,013 under current liabilities and $960,757 under long-term liabilities.

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

NOTE 10: COMMITMENTS AND CONTINGENCIES

On July 29, 2010, the Company entered into a memorandum of understanding to acquire the exclusive rights to utilize a proprietary coating technology in atmospheric water generation applications. Subsequently, the July 29, 2010 memorandum of understanding was replaced on June 17, 2011. Under the terms of the agreement, the Company secured the exclusive rights to the coating technology for atmospheric water generation applications. The term of the agreement is three years and, unless terminated, shall automatically renew for an additional three years on each three year anniversary. The agreement called for the payment of a license and exclusivity fee of $10,000 in two payments of $5,000 each. The first payment has been paid. Effective September 30, 2012, the parties entered into an amendment to the original agreement in which both parties acknowledged there had been no breaches of the original agreement, the remaining $5,000 payment was due on or before June 1, 2013, and all previous and/or future minimum purchase requirements were waived. The Company has accrued the $5,000 in Accrued liabilities for this obligation. See discussion Note 8 – Accrued Liabilities.

In August 2012, information came to the Company’s attention which raised questions about the enforceability, validity and scope of protection relating to the Everest Water patents, the Everest Water/CanAmera Management License Agreement and subsequent patent assignments ("G2 Asset") which were associated with the License Agreement. For further discussion, see Note 2 Section D on Technology Acquisition.40

Ambient Water Corporation

Notes to Consolidated Financial Statements

December 31, ~~2015~~2016

On September 18, 2015, Ambient Water Corporation (the “Company”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) and a Registration Rights Agreement (the “Registration Rights Agreement”) with accredited investor, River North Equity, LLC (“River North”). Under the Purchase Agreement, the River North has agreed to purchase from the Company up to an aggregate of $5 million worth of shares of common stock, par value $0.001 per share (“Common Stock”), of the Company, from time to time, subject to limitations.

InOn April 15, 2016, in accordance with the Registration Rights Agreement, the Company ~~has~~filed ~~agreed~~a toregistration ~~file~~statement with the Securities and Exchange Commission (the “SEC”), ~~a registration statement~~ (the “Registration Statement”) to register for resale under the Securities Act of 1933, as amended (the “Securities Act”), the 90,000,000 shares of Common Stock that may be issued to River North under the Purchase Agreement. We will not be registering 100% of the registerable securities under the Purchase Agreement. We will be subject to a registration cap which will not exceed 30% of our issued and outstanding common shares, less any shares held by Affiliates of the Company, under Registration Rights Agreement. Therefore, the Company has elected to register 2090,000,000 common shares which will represent approximately $~~600~~153,000 Dollars of the $5 Million Dollars under the Purchase Agreement. The Registration Statement was declared effective May 12, 2016. No shares have been sold under the Registration Statement.

Convertible notes E and F see Note 9: Convertible Notes Payable and Derivative Liabilities have back end notes available to the Company. The Company does not intend to exercise these notes payable.

NOTE 11: RELATED PARTY TRANSACTIONS

The technology behind the Company’s products, (“Technology Acquisition”) was acquired through an exclusive Irrevocable Patent Assignment. See discussion Note 2(D) – Technology Acquisition, Note 10 – Commitments and Contingencies and Note 15 – Subsequent Events.

On April 1, 2011, the Company acquired AWG International Manufacturing Ltd., from the Company’s Chief Executive Officer by purchasing the one share issued and outstanding in AWG International Manufacturing Ltd. in exchange for one share of the Company’s common stock. The Company controls AWG International Manufacturing Ltd., a non-operating subsidiary which has no value attributed to it and as such the financial statements are not considered to be consolidated. See discussion Note 13 – Common Stock.

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

Effective July 10, 2012, the initial base compensation of the named executive officers, Chief Executive Officer, Chief Operating Officer and Financial Officer was set at $120,000 annually. There are no formal employment agreements with the named executive officers.

On July 10, 2012, the board of directors authorized the issuance of 13,742,000 common stock options to Jeff Stockdale, the Company’s President and Chief Operating Officer and 14,947,000 common stock options to Jeff Mitchell, the Company’s Chief Financial Officer and Secretary. These common stock options have an exercise price of $0.18. Mr. Mitchell's 14,947,000 common stock options expired on October 6, 2015.

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

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

4241

Ambient Water Corporation

Notes to Consolidated Financial Statements

December 31, ~~2015~~2016

Using the Black Scholes model, the Company has assessed the financial statement presentation impact of the value ascribed to the issuance of 32,439,000 stock options to some of its executive management team members as approximately $5,402,500. After common stock option expirations listed above, the revised financial statement presentation impact of the value ascribed to the issuance of 15,242,000 stock options as approximately $32,~~902~~512,~~460~~095. The Company will recognize the expense of issuing these options using the straight-line method over the 4-year term vesting term of the options. The estimated annual expense to the Company associated with these options is:

~~2016 $ 334,637~~ 2017 $ 24,059

As of December 31, ~~2015~~2016, 1214,~~008~~960,~~825~~750 of these stock options had vested and were exercisable at an average exercise price of $0.18. As of December 31, ~~2015~~2016, 3281,~~233,176~~250 were expected to be vested over the next ~~two years~~year. On October 6, 2015, 10,622,189 of the options vested at September 30, 2015 expired.

Stock Grant - On December 30, 2013, the Company’s Board of Directors adopted a stock grant program for officers and employees. Originally, shares under this grant were to be issued by June 15, 2014. Jeff Stockdale and Keith White have elected defer these grants (3,352,500 each) which will remain unissued. Therefore, on August 5, 2014, the board of directors deferred the stock grant to January 1, 2015. These shares were issued to Jeff Stockdale and Keith White on January 5, 2015 at $0.0389 per share.

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

At December 31, 2015 and ~~2014~~2016, the Company owed reimbursements to Officers of $2,485 and $~~500~~23,772, respectively. These amounts are listed under the caption Accounts payable -related parties on the Balance Sheets.

Additionally, at December 31, 2015 and ~~2014~~2016, the Company owed Officer compensation of $370,000 and $~~200~~284,~~000~~568, respectively. These amounts are listed under the caption Accrued liabilities - related parties on the Balance Sheets.

NOTE 12: COMMON STOCK WARRANTS

The following warrants for our common stock were issued and outstanding for the years ending December 31, ~~2014~~2015 and December 31, ~~2015~~2016, respectively:

	December 31, 2014	December 31, 2015
	December 31, 2015	December 31, 2016
Warrants outstanding at beginning of period	21,340,000	1,340,000
Issued	-	-
Cancelled	~~(1,000,000)~~-	-
Exercised	-	-
Warrants outstanding at end of period	1,340,000	1,340,000

A detail of warrants outstanding on December 31, ~~2015~~2016 is as follows:


	Number of Warrants	Expiration Date
Exercisable at $0.03 per share	1,340,000	February 1, 2017

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

4342

Ambient Water Corporation

Notes to Consolidated Financial Statements

December 31, ~~2015~~2016

NOTE 13: COMMON & PREFERRED STOCK

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

December 31, 2014
Authorized:	400,000,000 preferred shares
	2,000,000,000 common shares
	12,000,000,000 common shares
Issued and outstanding:	129,941,970 common shares

See Subsequent Event Note 16 for changes to capitalization in 2016.

On January 14, 2014, the Company issued 826,446 common shares to an Executive in lieu of accrued compensation at $0.03631 per share.

On March 26, 2014, the Company issued 3,352,500 common shares to an Executive per a grant authorized on December 31, 2013 at $0.03 per share.

On September 12, 2014, the Company issued 2,517,500 previously cancelled common shares to an affiliate of the Company at $0.03 per share.

On September 12, 2014, the Company issued 3,782,500 previously cancelled common shares to an affiliate of the Company at $0.03 per share.

On October 6, 2014, the Company issued 5,582,006 common shares for partial note payable and accrued interest conversion at $0.01227 per share.

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

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

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

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

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

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

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

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

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

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

Ambient Water Corporation

Notes to Consolidated Financial Statements

December 31, 2015

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

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

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

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

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

~~As of December 31, 2015, there were 1,340,000 common stock purchase warrants outstanding. The common stock purchase warrants are exercisable at three cents ($0.03) per share.~~ 43

OnAmbient ~~June 12, 2012, AWG International~~ Water Corporation filed a Certificate of Amendment to Articles of Incorporation with the Secretary of State of Nevada changing its name from MIP Solutions, Inc. to AWG International Water Corporation and increasing the Capital Stock to consist of 500,000,000 shares of common stock, $0.001 par value and 100,000,000 of preferred stock, $0.001 par value.

December 31, 2015
Authorized:	400,000,000 preferred shares
	2,000,000,000 common shares
Issued and outstanding:	177,407,091 common shares

Notes to Consolidated Financial Statements

~~See~~December ~~Subsequent~~31, ~~Event Note 16 for changes to capitalization in~~ 2016.

On January 12, 2016, the Company issued 72,800,920 preferred shares to two Executives in lieu of accrued compensation at $0.0001 per share

First quarter 2016, the Company issued 149,172,915 common shares for partial note payable and accrued interest conversion at $0.000770 to $0.002100 per share

Second quarter 2016, the Company issued 452,737,311 common shares for partial note payable and accrued interest conversion at $0.00010 to $0.000880 per share

Third quarter 2016, the Company issued 353,461,713 common shares for partial note payable and accrued interest conversion at $0.0001 per share

Fourth quarter 2016, the Company issued 359,779,453 common shares for partial note payable and accrued interest conversion at $0.0001 to $0.00015 per share

On November 30, 2016, the Company issued one preferred “B” share to an Executive for the sole purpose of increasing the Company’s common shares at $10 par value

As of December 31, 2016, there were 1,340,000 common stock purchase warrants outstanding. The common stock purchase warrants are exercisable at three cents ($0.03) per share.

On March 7, 2016, the Company amended its Certificate of Incorporation increasing its authorized common stock capital from 500,000,000 common shares, par value $0.001 per share, to 2,000,000,000 common shares, par value $0.0001 and increasing its preferred stock capital from 100,000,000 preferred shares, par value $0.001 per share to 400,000,000 preferred shares, par value $0.0001.


December 31, 2016
Authorized:	400,000,000 preferred shares
	2,000,000,000 common shares

Issued and outstanding:	1,492,558,483common shares
	72,800,920 preferred “A” shares
	1 preferred “B” shares

See Subsequent Event Note 15 for changes to capitalization in 2016.

NOTE 14: INCOME TAXES

The Company is subject to taxation in the U.S. and the State of Washington. At December 31, ~~2014~~2016 and December 31, 2015, Ambient Water Corporation had gross deferred tax assets calculated at the Federal Income Tax rate of 34% of approximately $24,~~550~~035,000 and $3,295,000, respectively, principally arising from net operating loss carry-forwards for income tax purposes of approximately $911,~~690~~870,000, which begin to expire in the year ~~2035~~2032. As management of the Company cannot determine that it is more likely than not that the Company will realize the benefit of the deferred tax asset, a valuation allowance of approximately $24,~~550~~035,000 and $3,295,000 has been established at December 31, ~~2014~~2016 and December 31, 2015, respectively.

The significant components of the Company’s net deferred tax assets at December 31, ~~2014~~2016 and December 31, 2015 are as follows:

		December 31, 2014		December 31, 2015
		December 31, 2016		December 31, 2015
Net operating loss carry forwards	$	711,~~500~~870,000	$	9,690,000
Deferred tax asset		24,~~550~~035,000		3,295,000
Deferred tax asset valuation allowance		(24,~~550~~035,000)		(3,295,000)
Net deferred tax asset	$	-	$	-

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

4544

Ambient Water Corporation

Notes to Consolidated Financial Statements

December 31, ~~2015~~2016

which are cumulative until they expire. The Company is in the process of determining the annual allowable net operating loss deduction should the Company generate taxable income. Since both of the companies which were parties to the share exchange have substantial valuation allowances against any components of deferred taxes, management believes that no material differences in tax allocations will arise from the share transaction.

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

FASB ASC 740 prescribes recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FASB ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. At December 31, ~~2015~~2016, the Company had not taken any tax positions that would require disclosure under FASB ASC 740.

The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had a $40,000 accrual for penalties on its balance sheets at December 31, ~~2014~~2015 and 2016, and has recognized this as interest and/or penalties in the statement of operations for the years ending December 31, ~~2015~~2014. Further, the Company currently has no open tax years, subject to audit prior to December 31, ~~2008~~2013. The Company is current on its federal returns and ~~currently~~State ~~has~~of noIdaho state income tax return requirements.

NOTE 15: ~~CORRECTION~~SUBSEQUENT ~~OF AN ERROR~~EVENTS

~~During the current year, management discovered that the calculation for derivative liabilities was inappropriate.~~ The ~~value~~Company ofevaluated ~~the~~events ~~underlying~~occurring ~~debt~~subsequent ~~was not properly offset~~ to ~~the fair value of the derivative position. The derivative loss for the year ended~~ December 31, ~~2014 was overstated by $772~~2016,~~543.~~ ~~The~~identifying ~~correction~~those ~~for~~that ~~this~~are ~~amount~~required ~~reduced net loss~~ to ~~$1,561,232~~be ~~and~~disclosed ~~losses~~as ~~per share were reduced by $0.01. The accompanying 2014 financials have all been corrected and restated for this error.~~follows:

~~The~~On ~~quarterly~~January ~~financial~~9, ~~reports~~2017, ~~for~~ the ~~first~~Company ~~through~~received ~~third~~an ~~quarters~~additional ~~of 2015 had the same error. The correction for each quarter was~~ $~~150~~12,~~226,~~500 ~~$136,836~~consideration ~~and~~on ~~$19,226~~the ~~for~~convertible ~~quarters~~note ~~one,~~payable ~~two~~dated ~~and~~February ~~three~~2, ~~respectively~~2016. ~~For each of these quarters there was a decrease in derivative liability and a decrease in loss per quarter by the same amount.~~

~~NOTE~~On ~~16:~~January 19, 2017, the Lender of Note G extended the maturity date of the Note to no later than 60 months from the Effective Date. ~~SUBSEQUENT~~See ~~EVENTS~~Note 9.

~~The~~On January 25, 2017, the Company ~~evaluated~~amended ~~events~~its ~~occurring~~Certificate ~~subsequent~~of toIncorporation ~~December~~increasing 31its authorized common stock capital from Two Billion (2,000,000,000) ~~2015~~common shares, ~~identifying~~par ~~those~~value ~~that~~$0.0001 ~~are~~per ~~required~~share, to beTwelve ~~disclosed~~Billion as(12,000,000,000) ~~follows:~~common shares, par value $0.0001. The Four Hundred Million (400,000,000) preferred shares, par value $0.0001 remained unchanged.

On ~~January~~February 51, ~~2016~~2017, ~~the Company issued 7~~1,~~704~~340,~~762~~000 ~~common~~Warrants ~~shares~~exercisable at $0.~~0021~~03 per share ~~representing~~expired awithout ~~partial~~being ~~conversion of $16,180 of the principal amount on the $38,000 Promissory Note dated June 18, 2015 described in Note 9~~exercised.

On ~~January~~February 52, ~~2016~~2017, the Company issued 270,~~494~~812,~~195~~493 common shares atfor ~~$0.00189 per share representing~~ a partial ~~conversion~~note ofpayable ~~$4,500.00 of the principal amount~~ and ~~$214.03~~ accrued interest onconversion ~~the~~at $~~36,750~~0.0001 ~~Promissory~~per ~~Note dated May 27, 2015 described in Note 9~~share.

On ~~January~~February 69, ~~2016~~2017, the Company ~~issued~~received ~~4,389,474~~an ~~common~~additional ~~shares at~~ $~~0.0019 per share representing a partial conversion of $6~~20,~~820~~000 ofconsideration ~~the principal amount and $1,520 of the accrued and unpaid interest amount~~ on the ~~$38,000~~convertible ~~Promissory~~note ~~Note~~payable dated ~~June~~February 182, ~~2015 described in Note 9~~2016.

On ~~January~~March 1210, ~~2016~~2017, the Company issued 463,~~938~~945,~~381~~205 common shares atfor ~~$0.00165 per share representing~~ a partial ~~conversion~~note ofpayable ~~$7,767.00 of the principal amount~~ and ~~$381.33~~ accrued interest onconversion ~~the~~at $~~36,750~~0.0001 ~~Promissory~~per ~~Note dated May 27, 2015 described in Note 9~~share.

On January 12, 2016, by resolution of the Board of Directors pursuant to a provision in the articles of incorporation designated up to 90,000,000 shares as, "Series A Preferred Stock". The holders of the Series A Preferred Stock shall not be entitled to receive dividends paid on the Common Stock and shall not be entitled to any liquidation preference. The Series A Preferred Stock will have the same voting rights as the Common Stock, where each share represents a single vote. Additionally, the Series A Preferred Stock may be exchanged or converted to an equivalent number of Common Shares at any time by the shareholder so long as there is sufficient amount of unissued authorized common stock capital.45

On January 12, 2016, the Board of Directors voted a reduction in annual executive compensation to $120,000 effective January 1, 2016.

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

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

	Deferred Compensation	Share Price (1)	Number of Shares
Keith White	$130,065.96	$0.00426	30,531,915
Jeff Stockdale	$180,065.96	$0.00426	42,269,005

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

Ambient Water Corporation

Notes to Consolidated Financial Statements

December 31, 2015

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

On January 19, 2016, the Company acting by majority shareholder written consent authorized an additional 1,500,000,000 Common Shares of Ambient Water Corporation bringing the total authorized Common Shares to 2,000,000,000. Additionally, the par value for all authorized Common Shares is reduced to $0.0001 from $0.001. Also, by majority shareholder written consent, the Company authorized an additional 300,000,000 Preferred Shares of Ambient Water Corporation bringing the total authorized Preferred Shares to 400,000,000. Additionally, the par value for all authorized Preferred Shares is reduced to $0.0001 from $0.001. On March 7, 2016, the Company amended its Certificate of Incorporation with the Nevada Secretary of State's Office for the above changes.

On January 19, 2016, the Company issued 9,449,488 common shares at $0.00122 per share representing a partial conversion of $9,800 of the principal amount and $1,697 accrued interest on the $900,000 Promissory Note dated March 21, 2014 described in Note 9.

On January 20, 2016, the Company issued 7,472,496 common shares at $0.00165 per share representing a partial conversion of $11,733 of the principal amount and $597 accrued interest on the $36,750 Promissory Note dated May 27, 2015 described in Note 9.

On January 29, 2016, the Company issued 9,649,712 common shares at $0.00156 per share representing a partial conversion of $15,053.55 of the principal amount on the $100,000 Promissory Note dated July 23, 2015 described in Note 9.

On February 2, 2016, the Company entered into a financing transaction with an accredited investor (“Lender”) under which the Company may borrow up to Two Hundred Fifty Thousand ($250,000) dollars. The transaction was structured as a Convertible Promissory Note (the "Note") bearing interest at the rate of Ten (10%) percent per year. The maturity date is February 2, 2017.

The Lender has loaned the Company $25,000 through February 20, 2016. The Lender has the right, at any time, at its election, to convert all or part of the Note amount into shares of fully paid and non-assessable shares of common stock of the Company. The conversion price (the “Conversion Price”) shall be the lesser of (a) $0.005 per share of common stock, (b) fifty Percent (50%) of the average of the three (3) lowest trade prices of three (3) separate trading days of Common Stock recorded during the twenty five (25) previous trading days prior to conversion, or (c) the lowest effective price per share granted to any person or entity after the effective date to acquire Common Stock, or adjust, whether by operation of purchase price adjustment, settlement agreements, exchange agreements, reset provision, floating conversion or otherwise, any outstanding warrant, option or other right to acquire Common Stock or outstanding Common Stock equivalents, excluding any outstanding warrants or options that have been disclosed in SEC filings prior to the effective date.

On February 10, 2016, the Company issued 9,649,712 common shares at $0.00132 per share representing a partial conversion of $12,737.62 of the principal amount on the $100,000 Promissory Note dated July 23, 2015 described in Note 9.

On February 11, 2016, the Company issued 7,197,534 common shares at $0.00103 per share representing a partial conversion of $6,300.00 of the principal amount and $1,137.45 accrued interest on the $900,000 Promissory Note dated March 21, 2014 described in Note 9.

On February 22, 2016, the Company issued 9,649,712 common shares at $0.00108 per share representing a partial conversion of $10,421.69 of the principal amount on the $100,000 Promissory Note dated July 23, 2015 described in Note 9.

On March 1, 2016, the Company issued 9,649,712 common shares at $0.00102 per share representing a partial conversion of $9,842.71of the principal amount on the $100,000 Promissory Note dated July 23, 2015 described in Note 9.

On March 4, 2016, the Company issued 9,649,712 common shares at $0.000974 per share representing a partial conversion of $9,398.82 of the principal amount on the $100,000 Promissory Note dated July 23, 2015 described in Note 9.

On March 7, 2016, the Company issued 9,564,864 common shares at $0.00078 per share representing a partial conversion of $6,310.00 of the principal amount and $1,182.48 accrued interest on the $900,000 Promissory Note dated March 21, 2014 described in Note 9.

On March 8, 2016, the Company issued 9,649,712 common shares at $0.000974 per share representing a partial conversion of $9,398.82 of the principal amount on the $100,000 Promissory Note dated July 23, 2015 described in Note 9.

Ambient Water Corporation

Notes to Consolidated Financial Statements

December 31, 2015

On March 16, 2016, the Company issued 14,137,311 common shares at $0.000994 per share representing a partial conversion of $14,052.49 of the principal amount on the $100,000 Promissory Note dated July 23, 2015 described in Note 9.

On March 21, 2016, the Company issued 9,788,827 common shares at $0.00077 per share representing a partial conversion of $6,300.00 of the principal amount and $1,204.77 accrued interest on the $900,000 Promissory Note dated March 21, 2014 described in Note 9.

On March 23, 2016, the Company issued 14,137,311 common shares at $0.0009 per share representing a partial conversion of $12,723.58 of the principal amount on the $100,000 Promissory Note dated July 23, 2015 described in Note 9.

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

None.

ITEM 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this annual report, an evaluation was carried out by the Company’s management, with the participation of the chief executive officer and the chief financial officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) as of December 31, ~~2015~~2016. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to management, including the chief executive officer and the chief financial officer, to allow timely decisions regarding required disclosures.

During the evaluation of disclosure controls and procedures as of December 31, ~~2015~~2016, management identified material weaknesses in internal control over financial reporting, which management considers an integral component of disclosure controls and procedures. Material weaknesses identified include the ~~lack~~ineffective ofoversight ~~any segregation~~ of ~~duties~~financial reporting, ~~lack~~failure ofto ~~appropriate~~segregate ~~accounting~~duties, ~~policies~~ and ~~management’s~~insufficiency ~~assessment~~ of ~~internal~~accounting ~~control over financial reporting~~resources. As a result of the material weaknesses identified, management concluded that Company’s disclosure controls and procedures were not effective.

Notwithstanding the existence of these material weaknesses, management believes that the consolidated financial statements in this annual report on Form 10-K fairly present, in all material respects, Company’s financial condition as of December 31, ~~2014~~2015 and ~~2015~~2016, and results of its operations and cash flows for the years ended December 31, ~~2014~~2015 and ~~2015~~2016, in conformity with United States generally accepted accounting principles (GAAP).

Management’s Report on Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process, under the supervision of the chief executive officer and the chief financial officer, designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with United States generally accepted accounting principles (GAAP). 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 Company’s assets;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the board of directors; 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.

The Company’s management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, ~~2015~~2016, based on criteria established in ~~Internal~~the ~~Control~~2013 –COSO ~~Integrated~~framework ~~Framework~~ issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). As a result of this assessment, management identified material weaknesses in internal control over financial reporting.

A material weakness is a control deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

4946

The material weaknesses identified are disclosed below.

Ineffective Oversight of Financial Reporting. The Company has not provided an appropriate level of oversight of the financial reporting process and has not appropriately monitored the Company’s system of internal control. The Company’s monitoring of management’s assessment of internal control over financial reporting did not result in appropriate actions taken by management to remedy the deficiencies in the process to assess internal control over financial reporting. The Company has no independent audit committee overseeing the financial reporting process.

Failure to Segregate Duties. Management has not maintained any segregation of duties within the Company due to its reliance on individuals to fill multiple roles and responsibilities. Our failure to segregate duties has been a material weakness since inception through this annual report.

Sufficiency of Accounting Resources. The Company has limited accounting personnel to prepare its financial statements. The insufficiency of our accounting resources has been a material weakness since inception.

As a result of the material weaknesses in internal control over financial reporting described above, the Company's management has concluded that, as of December 31, ~~2015~~2016, the Company’s internal control over financial reporting was not effective based on the criteria in Internal Control – Integrated Framework issued by the COSO.

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. We were not required to have, nor have we, engaged the Company’s independent registered public accounting firm to perform an audit of internal control over financial reporting pursuant to the rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

Changes in Internal Controls over Financial Reporting

During the period ended December 31, ~~2015~~2016, there have been no changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

ITEM 9B. Other Information

None.

PART III

ITEM 10. Directors, Executive Officers and Corporate Governance

The following table sets forth the names of the Company’s directors, executive officers, and key employees, and their positions with the Company, as of the date of this Annual Report:

Name	Age	Position(s)	Term of Officers (Directors)
Keith White	5556	Chief Executive Officer	07/10/12 - Present
		Chief Technology Officer , Director
		Chief Technology Officer, Director
		Chief Financial Officer	03/21/14 - Present
Jeff Stockdale	5455	President, Chief Operating Officer, Director	07/10/12 - Present
Michael Wende	5859	Director	12/30/13 - Present
		Secretary	03/21/14 - Present

Except as set forth in the brief account of business experience below, none of the events listed in Item 401(f) of Regulation S-K has occurred during the past ten years and that is material to the evaluation of the ability or integrity of any of the Company’s directors, director nominees or executive officers.

Business Experience of Directors and Executive Officers

Keith White is the Chief Executive and Technology Officer and a member of the Board of Directors of the Company. He is a co-founder of AWG International, Inc. which was formed in March 2010.

During the past 13 years, Mr. White has designed and developed a number of air-to-water appliances and has gained extensive expertise in the technology. Additionally, Mr. White’s efforts have resulted in a number of patents and patent applications for air-to-water devices. Mr. White has worked with a number of different manufacturers and suppliers to develop and deliver cost effective and reliable designs for atmospheric water generators ranging from personal/residential use equipment to commercial equipment.

From January, 2008 to November 2009, Mr. White was a Project Manager for Ocean Park Mechanical, Ltd. From August 2006 to February 2008, Mr. White constructed a private residence. We believe that Mr. White's specific experience, skills and attributes in the air-to-water machine development and related business development qualifies him to lead the company as a member of our board of directors.

Jeff Stockdale is the President, Chief Operating Officer and a member of the Board of Directors. Mr. Stockdale holds a Bachelor of Science Degree in Electrical Engineering from Washington State University.

From March 2008 to April 2012, Mr. Stockdale was the Vice President of Hardware Systems for Isilon Systems of Seattle, a leading supplier of Network Attached Storage Devices, now a subsidiary of EMC Corporation of Hopkinton, MA. During his tenure at Isilon, Mr. Stockdale served as Vice-President of Hardware Systems. He was responsible for development and delivery of all hardware platforms for Isilon including firmware and manufacturing related test tools. He was responsible for all hardware related efforts at Isilon, a leader in scale-out Network Attached Storage solutions. Hardware included platform design, delivery, and support including chassis design, electrical design, manufacturing test environment, diagnostics and utilities. His team designed and delivered world-class storage platforms that lead the industry in performance and scalability. Isilon was acquired by EMC for $2.25 billion in 2011.

From August 2006 to March 2008, Mr. Stockdale was General Manager for Lockdown Networks of Seattle, Washington, a startup company in the Network Security sector, serving as General Manager of Platforms and also had responsibility for manufacturing operations. He was responsible for all aspects of the hardware platforms that Lockdown delivered including specifications, vendor selection, customization, branding implementation, regulatory compliance, cost/margin tracking and improvement, manufacturing test, manufacturing, and fulfillment. He was also responsible for inventory management driven by sales forecast, minimizing inventory on hand, maximizing inventory turns and ensuring reliable product delivery within 24 hours of Sales Order receipt. We believe that Mr. Stockdale's business and engineering experience and management attributes and skills qualifies him to be a member of our Board of Directors.

Michael Wende received his B.S. in Electrical Engineering from the University of Texas and a M.S in Electrical Engineering from the University of Idaho. From September 2013 to the present, Mr. Wende has been with Itron, Inc. He is currently an R&D manager for smart meter reading systems. From February 2011 through May 2013, he was the Engineering Project Manager for Flyback Energy, Inc., responsible for Flyback's first production product. From November 1999 through July 2010, he acted as an Engineering Product Manager, Lead Marketing Engineer and R&D Engineering Manager and strategic marketing leader on cellular equipment for Agilent Technologies, Inc. We believe that Mr. Wende's extensive leadership, managerial experience, attributes and skills during his engineering career qualify him to be a member of the Company's Board of Directors.

Shareholder Communications

Company shareholders who wish to communicate with the Board of Directors or an individual director may write to Ambient Water Corporation's offices located at 7721 East Trent Ave., Spokane Valley, WA 99212. Your letter should indicate that you are a shareholder and whether you own your shares in street name. Letters received will be retained until the next Board meeting when they will be available to the addressed director. Such communications may receive an initial evaluation to determine, based on the substance and nature of the communication, a suitable process for internal distribution, review and response or other appropriate treatment. There is no assurance that all communications will receive a response.

Reports to Shareholders

We intend to voluntarily send annual reports to our shareholders, which will include audited financial statements. We are a reporting company, and file reports with the Securities and Exchange Commission (SEC), including this Form 10-K as well as other reports on Form 8-K and quarterly reports on Form 10-Q. The public may read and copy any materials filed with the SEC at the SEC's Public Reference Room at 100 F St., NE., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The Company files its reports electronically and the SEC maintains an Internet site that contains reports, proxy and information statements and other information filed by the company with the SEC electronically. The address of that site is http://www.sec.gov.

Conflict of Interest Policy

Our policy was established to guard against any potential conflicts of interest. As the Company grows it will be the job of the audit committee to decide if additional controls need to be put in place.

Code of Ethics

On April 20, 2012, the Board of Directors adopted a Code of Ethical Conduct. The Code of Ethical Conduct was filed as Exhibit 14 to Form 10-K on May 10, 2012.

Meetings and Committees of the Board of Directors

We presently have no formal independent Board committees. Until further determination, the full Board of Directors will undertake the duties of the audit committee, compensation committee and nominating and governance committee. The members of the Board of Directors performing these functions as of December 31, ~~2015~~2016 are Keith White, Jeff Stockdale, and Michael Wende.

Compensation Committee

The Board of Directors, in its Compensation Committee role, will be responsible for recommendations to the Board of Directors respecting the compensation of our named executive officers.

Audit Committee

The Board of Directors, in its Audit Committee role, will be responsible for selecting the Company’s independent auditors, approve the scope of audit and related fees, and review financial reports, audit results, internal accounting procedures, related-party transactions, when appropriate, and programs to comply with applicable requirements relating to financial accountability. The Audit Committees function will include the development of policies and procedures for compliance by the Company and its officers and directors with applicable laws and regulations. The audit committee has reviewed and discussed the attached audited financial statements with management. The audit committee has received written disclosures from the independent accountant required by Independence Standard Board Standard No. 1, as amended, as adopted by the PCAOB in Rule 3600T and has discussed the independence of the company’s certifying accountant. Based on this review and discussion, the Board of Directors, in its audit committee role, recommended that the audited financial statements be included in this Annual Report.

Nomination and Governance Committee

The Board of Directors, in its Nomination and Governance Committee role, will be responsible for recommendations to the Board of Directors respecting corporate governance principles; prospective nominees for Director; Board member performance and composition; function, composition and performance of Board committees; succession planning; Director and Officer liability insurance coverage; and Director’s responsibilities.

Certain Provisions of the Company’s Articles of Incorporation and Nevada Law Relating to Indemnification of Directors and Officers

Nevada Law provides that each existing or former director and officer of a corporation may be indemnified in certain instances against certain liabilities which he or she may incur, inclusive of fees, costs and other expenses incurred in connection with such defense, by virtue of his or her relationship with the corporation or with another entity to the extent that such latter relationship shall have been undertaken at the request of the corporation; and may have advanced such expenses incurred in defending against such liabilities upon undertaking to repay the same in the event an ultimate determination is made denying entitlement to indemnification. The Company's bylaws incorporate the statutory form of indemnification by specific reference.

Insofar as indemnification for liabilities may be invoked to disclaim liability for damages arising under the Securities Act of 1933, as amended, or the Securities Act of 1934 (collectively, the "Acts"), as amended, it is the position of the Securities and Exchange Commission that such indemnification is against public policy as expressed in the Acts and are therefore, unenforceable.

Section 16(A) Beneficial Ownership Reporting Compliance.

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers and beneficial holders of more than 10% of our common stock to file with the Commission initial reports of ownership and reports of changes in ownership of our equity securities. ~~On October 23, 2014 a delinquent Form 4 was filed by 0967761 BC, Ltd. for the sale of 320,000 shares sold on June 5, 2015.~~

ITEM 11. Executive Compensation

On January 1, 2014, the Board of Directors authorized the payment of salaries to named executive officers. Their base compensation is $175,000 annually. On January 14, 2016, the Board of Directors voted a reduction in annual executive compensation to $120,000 effective January 1, 2016. The Board of Directors has authorized executive management to establish an incentive compensation plan for 2014 based on individual, team and Company goals and intends to provide additional base compensation up to $250,000 in the future to the named executive officers.


Name							Nonqualified
And						Non-Equity	Deferred	All
Principal				Stock (2)	Option	Incentive Plan	Compensation	Other
Position	Year	Salary	Bonus	Awards	Awards (1)	Compensation	Earnings	Compensation	Total
		($)(4)	($)	($)	($)	($)	($)	($)	($)
(m)	(n)	(o)	(p)	(q)	(r)	(s)	(t)	(u)	(v)

Keith White, CEO, CTO	2015	175,000	-0-	130,412	20,625	-0-	-0-	-0-	326,037
	2016	120,000	-0-	-0-	20,625	-0-	-0-	-0-	140,625

Jeff Stockdale, COO, Pres.	2015	175,000	-0-	130,412	607,399	-0-	-0-	13,649	912,811
	2016	120,000	-0-	-0-	314,012	-0-	-0-	1,790	435,802

Name							Nonqualified
And						Non-Equity	Deferred	All
Principal				Stock (2)	Option	Incentive Plan	Compensation	Other
Position	Year	Salary	Bonus	Awards	Awards (1)	Compensation	Earnings	Compensation	Total
		($)(4)	($)	($)	($)	($)	($)	($)	($)
(m)	(n)	(o)	(p)	(q)	(r)	(s)	(t)	(u)	(v)
Keith White, CEO, CTO	2015	175,000	-0-	130,412	20,625	-0-	-0-	-0-	326,037
	2014	175,000	-0-	-0-	20,625	-0-	-0-	-0-	195,625
Jeff Stockdale, COO, Pres.	2015	175,000	-0-	130,412	607,399	-0-	-0-	13,649	912,811
	2014	175,000	-0-	-0-	607,399	-0-	-0-	-0-	782,399
Jeff Mitchell, CFO, Sec.(3)	2015	-0-	-0-	-0-	-0-	-0-	-0-	-0-	-0-
	2014	131,250	-0-	100,575	688,851	-0-	-0-	12,022	932,698

(1)

This amount represents the prorated allocation of the non-cash expense associated with the valuation of the issuance of stock options using the Black Scholes model. The Company will recognize the expense of issuing these options using the straight-line method over the 4-year term vesting term of the options. The corresponding amount will be allocated to the recipients over the same 4-year term.

(2)

The Company authorized common stock grants of 3,352,500 common shares each to Keith White, ~~Jeff Stockdale~~ and Jeff ~~Mitchell on December 30, 2013~~Stockdale. On ~~March 26, 2014, the Company issued 3,352,500 common shares to Jeff Mitchell at $0.03 per share.~~ The common stock grants to Keith White and Jeff Stockdale were issued on January 5, 2015.

(3)

OnAs ~~March~~of ~~21,~~December ~~2014~~31, ~~Jeff Mitchell~~2016, ~~Chief~~accrued ~~Financial Officer~~ and Secretary and the Company entered into a separation agreement whereby Mr. Mitchell resigned his executive officer positions. On March 21, 2014, the Board of Directors approved a separation agreement with Jeff Mitchell. The separation agreement provides for the payment of $43,750 of unpaid executive compensation, ~~and~~totaled ~~a termination fee of~~ $87284,~~500, payment of health insurance premiums and reimbursement of cell phone expenses~~858. See the Form 8K filed on March 21, 2014 for additional information. On March 21, 2014, the Board of Directors nominated and appointed Jeff Mitchell to fill a vacancy on the Board of Directors. The above table Includes $12,022 in other compensation for Jeff Mitchell during 2014. This amount is medical insurance, dental insurance, vision insurance and cellular phone reimbursement paid by the Company while Jeff Mitchell served on the Board of Directors during 2014. On July 6, 2015, Jeff Mitchell tendered his resignation as a member of the Board of Directors effective June 30, 2015. Stock options for Jeff Mitchell vested through June 30, 2015. All of Mr. Mitchell's unexercised stock options expired on October 6, 2015.

(4)

As of December 31, 2015, accrued and unpaid executive compensation totaled $370,000.

(5)

During ~~2015~~2016, the Company paid no life insurance premiums for named executive officers

Compensatory Arrangements of Certain Officers

On December 30, 2013, the Board of Directors authorized the payment of accrued and unpaid executive compensation with common stock to its named executive officers. Additionally, to the extent that the Company does not have sufficient cash to pay executive compensation in the future, the Company is authorized to pay executive compensation in the form of common stock.

As of January 23, 2016, most of the accrued and unpaid executive compensation has been paid in the form of Series "A" Preferred stock, $60,000 remains accrued and unpaid. The Company is authorized to offer and issue stock to the executive officers, at each employee’s option, in lieu of cash compensation. The share price will be established by averaging the closing price of the stock, as quoted Over-the-Counter, for the five trading days prior to issuance. ~~See~~ ~~Note 15, Subsequent Events.~~

Stock Grants to Named Executive Officers

~~Subject~~The ~~to applicable law, the~~ Company was authorized to grant common stock as bonus executive compensation to Keith White, ~~Jeff Stockdale,~~ and Jeff ~~Mitchell~~Stockdale, named executive officers~~, on or before June 15, 2014~~. On ~~These grants may be awarded at an earlier date conditioned upon the Company achieving cash flow break-even for any two out of three contiguous calendar months, commencing~~ January 15, ~~2014 and ending May 31~~2015, 2014 or employment is terminated, the common stock will be awarded at the earlier date. On June 15, 2014, unless the stock is awarded earlier due to the aforementioned criteria, the common stock awards will be issued. However, Jeff Stockdale and Keith ~~White~~received ~~have~~stock ~~elected to defer these~~ grants (totaling 3,352,500 shares each) ~~which~~valued ~~will~~at ~~remain unissued~~$0.0389 ~~Therefore,~~per ~~on August 5, 2014, the board of directors formally deferred the stock grant to January 1, 2015~~share. ~~Mitchell was awarded his grant during 2014 and Stockdale and White were awarded theirs in January 2015. Each received 3,352,500 common shares.~~

The common stock grants were as follows:

Keith White

3,352,500 common shares

Jeff Stockdale

3,352,500 common shares

Jeff Mitchell

3,352,500 common shares

On March 26, 2014, the Company issued 3,352,500 common shares to Jeff Mitchell at $0.03 per share in connection with the termination of his role as CFO.

On January 5, 2015, the Company issued 3,352,500 common shares each to Keith White and Jeff Stockdale at $0.0389 per share.

These common shares will be deemed restricted and unavailable for resale unless registered or exempt from registration pursuant to the Securities Act of 1933, as amended.

Discussion, Analysis and Overview of Compensation Program

Compensation Philosophy: Our general compensation philosophy will be designed to link an employee’s total cash compensation with our performance, the employee’s department goals and individual performance. Given our limited operations and limited capital resources, we are subject to various financial restraints in our compensation practices. As an employee’s level of responsibility increases, there will be a more significant level of variability and compensation at risk. By linking incentive compensation to the performance of the Company, we believe that it will create an environment in which our employees will be stakeholders in our success and, thus, benefit all shareholders. As the Company moves from a development stage company to a revenue generating company we plan to bring on employees and develop written employee compensation guidelines.

Executive Compensation Philosophy: Our executive compensation philosophy will be designed to establish an appropriate relationship between executive pay and our annual performance, our long-term growth objectives, individual performance of the executive officer and our ability to attract and retain qualified executive officers. We will attempt to achieve these goals by integrating competitive annual base salaries with (a) bonuses based on corporate performance and on the achievement of specified performance objectives, and stock awards through some form of long term incentive plan. We believe that cash compensation in the form of salary and bonus provides our executives with short-term rewards for success in operations and stock awards will provide long-term incentives.

In making compensation decisions, the board of directors, in its compensation committee role, will compare each element of total compensation against companies referred to as a “compensation peer group.” The compensation peer group will be a group of companies that the compensation committee will select from readily available information about small companies engaged in similar businesses and with similar resources. As the Company moves from a development stage company to a revenue generating company we plan to bring develop written executive compensation guidelines.

Outstanding Equity Awards at Fiscal Year End

This table includes outstanding equity awards to Named Executive Officers on an award-by-award basis.

OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2015
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2016
	Option Awards					Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)	Option Exercise Price ($)	Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)	Market Value of Shares or Units of Stock That Have Not Vested ($)	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#)
Jeff Stockdale (1)	1113,~~165~~742,~~075~~000	~~2,576,925~~0	0	0.18	07/09/2022	0	0	0	0
Jeff Mitchell (2)	-0-	-0-	-0-	0.18	10/06/15	0	0	0	0
Keith White (2)	609,375	140,625	0	0.11	07/21/2023	0	0	0	0
Keith White (3)	421,875	328,125	0	0.11	07/21/2023	0	0	0	0
Jeff Stockdale (3)	609,375	140,625	0	0.11	07/21/2023	0	0	0	0
Jeff Stockdale (3)	421,875	328,125	0	0.11	07/21/2023	0	0	0	0
Jeff Mitchell (4)	0	0	0	0.11	10/06/15	0	0	0	0

(1)

Original award totaled 13,742,000. These common stock options vested at 25% on July 10, 2013 and will vest quarterly thereafter at 6.25% or 858,875 option shares quarterly. Vesting quarters are October 10, January 10, April 10 and July 10.

(2)

Original award totaled 14750,~~947,~~000. Common stock options vest at 25% on July 1022, ~~2013~~2014 and will vest quarterly thereafter at the rate of 6.25% or ~~934~~46,~~188~~875 option shares quarterly. Vesting quarters are October 1022, January 1022, April 1022 and July 1022. ~~On July 6, 2015, Jeff Mitchell tendered his resignation as a member of the Board of Directors effective June 30, 2015. Stock options for Jeff Mitchell vested through June 30, 2015.~~ ~~All of Mr. Mitchell's unexercised stock options expired on October 6, 2015.~~

(3)

Original award totaled 2750,~~250,~~000. Common stock options vest at 25% on July 22, 2014 and will vest quarterly thereafter at the rate of 6.25% or ~~140~~46,~~625~~875 option shares quarterly. Vesting quarters are October 22, January 22, April 22 and July 22. ~~On, October 6, 2015, Mr Mitchell's 750,000 common stock options expired.~~

(4)

On March 21, 2014, Jeff Mitchell, Chief Financial Officer and Secretary resigned his executive officer positions. On March 21, 2014 the Board of Directors nominated and appointed Jeff Mitchell to fill a vacancy on the Board of Directors. Jeff Mitchell had 2,858,438 common stock options vest during the period March 22, 2014 through December 31, 2014, while serving on the Board of Directors. On July 6, 2015, Jeff Mitchell tendered his resignation as a member of the Board of Directors effective June 30, 2015. Stock options for Jeff Mitchell vested through June 30, 2015. All of Mr. Mitchell's unexercised stock options expired on October 6, 2015.

Grants of Plan-Based Awards

On July 10, 2012, the board of directors authorized the issuance of 13,742,000 common stock options to Jeff Stockdale, the Company's President and Chief Operating Officer, and 14,947,000 common stock options to Jeff Mitchell, at that time, the Company's Chief Financial Officer and Secretary. These common stock options have an exercise price of $0.18. On July 6, 2015, Jeff Mitchell tendered his resignation as a member of the Board of Directors effective June 30, 2015. Stock options for Jeff Mitchell vested through June 30, 2015. All of Mr. Mitchell's unexercised stock options expired on October 6, 2015.

On May 1, 2013, the board of directors authorized the issuance of 1,500,000 common stock options to Gordon Myers, the Company’s Director of Global Sales and Marketing. These common stock options have an exercise price of $0.17. The Myers options vest at 25% on May 1, 2014, thereafter, the remainder vests at 6.25% per quarter. The exercise term is 10 years. These common stock options expired on August 1, 2014.

On July 22, 2013, the board of directors authorized the issuance of 750,000 common stock options to Keith White, the Company’s Chief Executive Officer and Chief Technology Officer, Jeff Stockdale, the Company's President and Chief Operating Officer, and Jeff Mitchell, at that time the Company's Chief Financial Officer and Secretary, collectively 2,250,000 common stock options. These common stock options have an exercise price of $0.11. On July 22, 2014, twenty-five percent (25%) of the options vest. Thereafter, the options vest at six and a quarter percent (6.25%) each quarter. The common stock options have a ten (10) year exercise term. On July 6, 2015, Jeff Mitchell tendered his resignation as a member of the Board of Directors effective June 30, 2015. Stock options for Jeff Mitchell vested through June 30, 2015. All of Mr. Mitchell's unexercised stock options expired on October 6, 2015.

5651

Using the Black Scholes model, the Company has assessed the financial statement presentation impact of the value ascribed to the issuance of 32,439,000 stock options to some of its executive management team members as approximately $5,402,500. After common stock option expirations listed above., the revised financial presentation impact of the value ascribed to the issuance of 15,242,000 stock options as approximately $3,902,460. The Company will recognize the expense of issuing these options using the straight-line method over the 4-year term vesting term of the options. The estimated annual expense to the Company associated with these options is:

~~2016 $ 688,875~~ 2017 $ 3624,~~089~~059

Employment Agreements

The Company currently has no employment agreements with any named executive officer.

Director Compensation

During ~~2015~~2016, the Company did not pay compensation to any member of our Board of Directors for services as a Director.

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

The following tables set 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, our directors, and our executive officers and directors as a group. To the best of our knowledge, the persons named have sole voting and investment power with respect to such shares, except as otherwise noted. There are not any pending arrangements that may cause a change in control.

The information presented below regarding beneficial ownership of our voting securities has been presented in accordance with the rules of the U.S. Securities and Exchange Commission and is not necessarily indicative of ownership for any other purpose. Under these rules, 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. Except as otherwise indicated below, we believe that the beneficial owners of our common stock listed below have sole voting and investment power with respect to the shares shown.

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; except as set forth above, applicable percentages are based upon ~~177~~1,~~407~~492,~~091~~558,483 shares of common stock outstanding as of December 31, ~~2015~~2016. In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed outstanding shares of common stock subject to conversion of warrants and options held by that person that are currently exercisable or exercisable within 60 days of December 31, ~~2015~~2016. We did not deem those shares outstanding, however, for the purpose of computing the percentage ownership of any other person.

57(a)

~~(a)~~ Name of Beneficial Owner of Certain Beneficial Owners

Title of Class	Name and address of beneficial owner (1)	Amount and nature of beneficial ownership (2)	Percent of Class(8)
Common	Keith White	27,731,426 (3)	15.59%
Common	Robb Perkinson	23,185,903 (4)	13.07%
Common	Jeff Stockdale	17,779,450 (5)	9.41%
Common	Jeff Mitchell	4,178,946 (6)	2.36%
Common	Michael T. Wende	8,791,249 (7)	4.96%
Total		80,209,205	45.39%

Table 1. Common Stock


Title of Class	Name and address of beneficial owner (1)	Amount and nature of beneficial ownership (2)	Percent of Class (3)
Common	Keith White	27,918,926 (3) (4)	1.85%
Total		27,918,926	1.85%

(1)

Address is 7721 East Trent Ave., Spokane Valley, WA 99212

(2)

Ownership is direct unless stated otherwise in a footnote.

(3)

Includes 12,368,113 shares owned by 0967761 BC, Ltd. Keith White has voting and dispositive control over the 0967761 BC, Ltd. shares. Includes ~~421~~609,~~875~~375 common shares underlying vested exercisable $0.11 common stock options.

(4)

Includes 10,245,500 shares owned by XLR8 Marketing, Inc. Robb Perkinson has voting and dispositive authority over the XLR8 Marketing, Inc. shares.

(5)

Includes 6,192,500 common shares and 11.165,075 common shares underlying vested exercisable $0.18 common stock options and 421,875 common shares underlying vested exercisable $0.11 common stock options.

(6)

On July 6, 2015, Jeff Mitchell tendered his resignation as a member of the Board of Directors effective June 30, 2015. Stock options for Jeff Mitchell vested through June 30, 2015. All of Mr. Mitchell's unexercised stock options expired on October 6, 2015.

(7)

Includes 675,500 common shares held in the name of Michael T. and Joanne B. Wende.

(8)

Pursuant to Rule 13d-3(d)(1)(i) the percentage calculations use different totals of outstanding securities for the purpose of determining ownership. Any securities not outstanding which are subject to such options, warrants, rights or conversion privileges shall be deemed to be outstanding for the purpose of computing the percentage of outstanding securities of the class owned by such person but shall not be deemed to be outstanding for the purpose of computing the percentage of the class by any other person.

~~(b) Security Ownership of Management.~~52

Security Ownership of Management
Title of Class	Name of and Address of Beneficial Owner (1)	Amount and nature of Beneficial Ownership (2)	Percent of Class (6)
Common	Keith White	27,731,426 (3)	15.59%
Common	Jeff Stockdale	17,779,450 (4)	9.41%
Common	Michael Wende	8,791,249 (5)	4.96%

Table 2. Preferred Stock


Title of Class	Name and address of beneficial owner (1)	Amount and nature of beneficial ownership (2)	Percent of Class
Series “A” Preferred	0967761 BC, Ltd. (3)	30,531,915	41.93%
Total Series "A" Preferred			41.93%
Series "B" Preferred	Keith White	1 (4)	100%
Total Series "B" Preferred			100%

(1)

Address is 7721 East Trent Ave., Spokane Valley, WA 99212

(2)

Ownership is direct unless stated otherwise in a footnote.

(3)

White has voting and dispositive control over the 0967761 BC Ltd.

(4)

The single Series "B" Share is entitled to vote 51% of the then issued and outstanding capital stock. Therefore, the number of shares set forth above is an imputed voting total of 762,378,995 shares representing 51% as of December 12, 2016. This voting power is limited to the purposes stated in the Series "B" Certificate of Designation which include: Section 1. Designation of Series. The shares of such series shall be designated as the “Series B Preferred Stock” (the “Series B Preferred Stock”) and the number of shares initially constituting such series shall be One (1) share, par value $10.00 per share. Section 2. Voting. The Series B Preferred Stock will have continuing super voting rights which will always represent no less than Fifty-one (51%) percent of all the Company's voting capital stock. Section 3. Voting Limitation. The Series B Preferred Stock has limited voting rights in that it may only be voted for the purpose of increasing the Company's common stock capital so as to avoid any shortfall in the Company's authorized common stock capital relating to the two presently outstanding convertible promissory notes which contain a "Reservation of Shares" covenant. Section 4. Termination. At such time as the two referenced convertible promissory notes shall be discharged, the Series B Preferred Stock will be deemed cancelled and returned to the corporate treasury. Section 5. Miscellaneous. The holders of the Series B Preferred Stock shall not be entitled to receive dividends paid on the Common Stock, nor any liquidation preference, nor any conversion rights.

(b)

Security Ownership of Management.

Table 1. Common Stock


Title of Class	Name of and Address of Beneficial Owner (1)	Amount and nature of Beneficial Ownership (2)	Percent of Class (6)
Common	Keith White	27,918,926 (3)	1.85%
Common	Jeff Stockdale	20,543,875 (4)	1.36%
Common	Michael Wende	8,791,249 (5)	0.58%

(1)

Ownership is direct unless noted otherwise

(2)

Address is 7721 East Trent Ave., Spokane Valley, WA 99212

(3)

Includes 12,368,113 shares owned by 0967761 BC Ltd. Keith White has voting and dispositive control over the 0967761 BC, Ltd. shares. Includes ~~421~~609,~~875~~375 common shares underlying vested exercisable $0.11 common stock options.

(4)

Includes 6,192,500 common shares and ~~11.165~~13,~~075~~742,000 common shares underlying vested exercisable $0.18 common stock options and ~~421~~609,~~875~~375 common shares underlying vested exercisable $0.11 common stock options.

(5)

Includes 675,500 common shares held in the name of Michael T. and Joanne B. Wende.

(6)

Table 2. Preferred Stock


Title of Class	Name and address of beneficial owner (1)	Amount and nature of beneficial ownership (2)	Percent of Class
Series “A” Preferred	0967761 BC, Ltd. (3)	30,531,915	41.94%
Series “A” Preferred	Jeff Stockdale	42,269,005	58.06%
Total Series "A" Preferred			100%
Series "B" Preferred	Keith White	1 (4)	100%
Total Series "B" Preferred			100%

(1)

Address is 7721 East Trent Ave., Spokane Valley, WA 99212

(2)

Ownership is direct unless stated otherwise in a footnote.

(3)

White has voting and dispositive control over the 0967761 BC Ltd.

(4)

(c) Changes in control. Except as otherwise set forth in this Report, there are no arrangements, known to the Company, the operation of which may at a subsequent date result in a change in control of the Company.

Certain Transactions

Except as described below, during the past two years, there have been no transactions, whether directly or indirectly, between us and any of our respective officers, directors, beneficial owners of more than 5% of our outstanding common stock or their family members, that exceeded $120,000.

On November 30, 2016, the Company issued Keith White, the Company's Chief Executive Officer, One (1) share of Series B Preferred stock. The share was sold at par value, $10.00.

This single share of Series B Preferred Stock provides Mr. White with a limited and specific voting right representing Fifty-one (51%) percent of the Company's voting capital stock. The Series B shares may only be voted for the single purpose of increasing the Company's authorized common stock capital associated with our two outstanding convertible promissory notes.

The sole purpose of granting Mr. White this right is to enable the Company to expedite an increase in the authorized common stock by majority shareholder written consent in lieu of a special meeting of the board of directors. This consent process is much quicker and less costly than a shareholder proxy meeting process. This expedited process is intended to preserve operating cash and prevent a material default in the Company's existing convertible promissory notes. A material default would trigger a 150% mandatory default penalty. When the notes are discharged Mr. White's Preferred Stock will be deemed cancelled and returned to the corporate treasury.

The notes require a floating "Reservation of Shares" calculated by a formula which uses the Company's stock price. The promissory notes, in paragraph 3 titled "Reservation of Shares state: "At all times during which this Note is convertible, the Borrower shall reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note."

A copy of this $900,000 note was filed as an exhibit our Form 8-K filed on March 21, 2014. The same lender has extended an additional $250,000 line of credit convertible promissory note to the Company. The footnotes to our most recently filed quarterly Financial Statements, Note 6, titled "Convertible Notes Payable and Derivative Liabilities" contain additional details. The outstanding notes are Note A and G in the Table in Note 6.

Due to our low stock price we continue have insufficient common stock capital to satisfy the reservation of shares requirement. This deficiency has been waived by the lender with the understanding that the Company would cure this deficiency. The final cure will be implemented when Mr. White votes in favor of amending our articles of incorporation thereby increasing the Company's authorized common stock capital to a figure which satisfies the "Reservation of Shares" requirement.

This majority limited voting right granted to Mr. White was disclosed in the Company's Current Report on Form 8-K which was filed on September 13, 2016. The following paragraphs restate the preferences and limitations of the Series B Preferred Stock.

Section 1. Designation of Series. The shares of such series shall be designated as the “Series B Preferred Stock” (the “Series B Preferred Stock”) and the number of shares initially constituting such series shall be One (1) share, par value $10.00 per share.

Section 2. Voting. The Series B Preferred Stock will have continuing super voting rights which will always represent no less than Fifty-one (51%) percent of all the Company's voting capital stock.

Section 3. Voting Limitation. The Series B Preferred Stock has limited voting rights in that it may only be voted for the purpose of increasing the Company's common stock capital so as to avoid any shortfall in the Company's authorized common stock capital relating to the two presently outstanding convertible promissory notes which contain a "Reservation of Shares" covenant.

Section 4. Termination. At such time as the two referenced convertible promissory notes shall be discharged, the Series B Preferred Stock will be deemed cancelled and returned to the corporate treasury.

Section 5. Miscellaneous. The holders of the Series B Preferred Stock shall not be entitled to receive dividends paid on the Common Stock, nor any liquidation preference, nor any conversion rights.

These shares were issued to Mr. White under the transaction exemption provided for by Section 4(a)(2) of the Securities Act of 1933, as amended. The sale did not involve a public offering.

On January 5, 2015, Keith White and Jeff Stockdale were each issued 3,352,500 shares of common stock pursuant to a grant authorized on December 31, 2013.

On March 21, 2014, Jeff Mitchell, Chief Financial Officer and Secretary and the Company entered into a separation agreement whereby Mr. Mitchell resigned his executive officer positions. On March 21, 2014, the Board of Directors approved a separation agreement with Jeff Mitchell. The separation agreement provides for the payment of $43,750 of unpaid executive compensation, and a termination fee of $87,500, payment of health insurance premiums and reimbursement of cell phone expenses. See the Form 8K filed on March 21, 2014 for additional information. On March 21, 2014, the Board of Directors nominated and appointed Jeff Mitchell to fill a vacancy on the Board of Directors.

On December 30, 2013, the Board of Directors raised the annual salary for each officer to $175,000. There are no formal employment agreements with the named executive officers. On December 30, 2013, the Company’s Board of Directors adopted a stock grant program for officers and employees. The grants will take place in 2014 based upon either performance or employment requirements. Originally, shares under this grant were to be issued by June 15, 2014. The Board of Directors deferred Keith White's and Jeff Stockdale's common stock bonus grants (3,352,500 each) until January 1, 2015. Jeff Mitchell was issued the grant in connection with his departure from the office of Chief Financial Officer.

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

On February 20, 2013, the Company entered into a Stock Cancellation Agreement with CanAmera Management, Inc., (“CanAmera”) which was owned by Keith White (52.5%) and Robb Perkinson (47.5%), both affiliates of the Company. In connection with the Company’s February 2013 private placement transaction, CanAmera Management, Inc. cancelled 17,952,117 common shares to provide an appropriate pre-financing capital structure for the Company with an intent to offset any share dilution resulting from the private placement. This facilitated the Company proceeding with a non-public, private placement offering to raise approximately $1,500,000 from accredited investors through a non-dilutive offering. The Cancellation Agreement with Keith White, Robb Perkinson and CanAmera that entitled them to receive a prorated return of a portion of the cancelled shares if the Private Placement had not raised a minimum of $1,200,000. The private placement raised $970,000 through the end date of June 30, 2014. As a result, the Company reissued 5,300,000 common shares and returned to Keith White and CanAmera these shares which were restored to the issued and outstanding capital stock at current market value. The stock was reissued on September 12, 2014.

Certain and Related Transactions Involving Ambient Water, Inc. formerly, AWG International, Inc.

During fiscal years ending 2015 and ~~2014~~2016, the Company paid as reimbursements, Keith White, ~~Jeff Stockdale,~~ and Jeff ~~Mitchell~~Stockdale for expenses advanced on behalf of the Company. These expenses have been included in general and administrative expenses for the periods ending December 31, 2015 and December 31, ~~2014~~2016 and are expenses from related parties (through common ownership) totaling approximately $20,398 and $3134,~~194~~485, respectively.

On February 14, 2013, Keith White, as co-inventor, assigned the G2 patents to AWG, now known as Ambient Water, Inc. The assigned patents include U.S. Patent No. 7,272,947, U.S. Patent 7,886,557, PCT Patent Application No. PCT/US/2005/031948, and all patents and patent applications throughout the world, including any divisions, reissues or continuations. U.S. Patent 7,886,557 represents a patent derived from U.S. Patent No. 7,272,947 or an improvement U.S. Patent No. 7,272,947. The consideration for this assignment was not recorded because it cured a defect in intellectual property originally acquired by the Company's subsidiary, Ambient Water, Inc. fka AWG International, Inc.

Director Independence

As of December 31, ~~2015~~2016, the Company has three (3) Directors serving on the Board of Directors, Messrs. White, Stockdale and Wende. The Company is not currently a listed issuer and, as such, is not subject to any director independence standards using the definition of independence set forth in the Nasdaq Marketplace Rule 4200(a)(15).

ITEM 14. Principal Accountants Fees and Services

Audit Fees

The aggregate fees billed for professional services rendered by the Company’s public accounting firm for the audit and the reviews of the Company’s financial statements for the years ended December 31, ~~2014~~2016 and December 31, 2015, were $3417,~~250~~500 and $36,450, respectively.

Audit Related Fees

The Company incurred no fees during the last two fiscal years for assurance and related services by the Company’s principal accountant that were reasonably related to the performance of the audit or review of the Company’s financial statements, and not reported under “Audit Fees” above.

Tax Fees

During the last two fiscal years, the Company incurred $67,500 in fees for professional services rendered by the Company’s principal accountant for tax compliance, tax advice or tax planning.

All Other Fees

The Company incurred no other fees during the last two fiscal years for products and services rendered by the Company’s principal accountant.

Our pre-approval policies and procedures for the board, acting in lieu of a separately designated, independent audit committee, described in paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X were that the audit committee pre-approve all accounting related activities prior to the performance of any services by any accountant or auditor.

The Company’s ~~principle~~principal auditor and its affiliated firm completed all of the audit without the assistance of any other firms.

6056

PART IV

ITEM 15. Exhibits

Exhibit Number	Description of Exhibit	Location of Exhibit
2.1	Form of Share Exchange Agreement between AWG International Water Corporation and AWG International, Inc.	8-K filed July 16, 2012
2.2	Share Exchange Agreement between MIP Solutions, Inc. and AWG International, Inc. dated June 7, 2010	8-K filed June 10, 2010
3.1	Articles of Incorporation of MIP Solutions, Inc. now known as AWG International Water Corporation	SB-2 filed April 5, 2007
3.2	Articles of Amendment of MIP Solutions, Inc. dated June 12, 2012	8-K filed June 13, 2012
3.3	Articles of Incorporation of AWG International, Inc.	8-K filed July 16, 2012
3.4	Certificate of Amendment Ambient Water Corporation	8-K filed June 26, 2014
3.5	Certificate of Amendment Ambient Water, Inc.	8-K filed June 26, 2014
3.6	Certificate of ~~Designation~~Amendment Ambient Water, Inc.	8-K filed ~~January~~March 199, 2016
3.7	Certificate of ~~Amendment~~Designation Ambient Water, Inc. Series B	8-K filed ~~March~~September 913, 2016
3. 8	Bylaws of AWG International, Inc., now known as Ambient Water, Inc.	8-K filed July 16, 2012
3.8	Certificate of Amendment Ambient Water, Inc.	8-K filed January 30, 2017
3.9	~~Bylaws~~Certificate ~~MIP~~of ~~Solutions, Inc., now known as Ambient Water Corporation~~Designation	SB8-2K filed ~~April~~January 519, ~~2007~~2016
3.10	Certificate of Amendment	8-K filed March 9, 2016
3. 11	Bylaws of AWG International, Inc., now known as Ambient Water, Inc.	8-K filed July 16, 2012
3.12	Bylaws MIP Solutions, Inc., now known as Ambient Water Corporation	SB-2 filed April 5, 2007
10.1	MIP Solutions, Inc. 2008 Stock Plan	8-K filed September 17, 2008
10.2	Form of Warrant Agreement associated with Unit Equity Offering pursuant to Regulation D Rule 506	10-K filed May 10, 2012
10.3	Financial Advisory Agreement with Frontier Mutual, LLC dated January 12, 2012	10-K filed May 10, 2012
10.4	Form of Registration Rights Agreement	8-K/A filed December 18, 2015
10.5	Form of Securities Purchase Agreement	8-K/A filed December ~~185~~18, 2015
10.6	Form of Convertible Promissory Note	8-K filed March 21, 2014
10..7	2012 Stock Option Plan	8-K filed July 16, 2012
10.7	2012 Stock Option Plan	8-K filed July 16, 2012
10.8	White Stock Option Agreement	8-K filed July 25, 2013
10.9	Mitchell Stock Option Agreement	8-K filed July 16, 2012
10.10	Mitchell Stock Option Agreement	8-K filed July 25, 2013
10.11	Stockdale Stock Option Agreement	8-K filed July 16, 2012
10.12	Stockdale Stock Option Agreement	8-K filed July 25, 2013
10.13	Form of Resignation and Separation Agreement Mitchell	8-K filed March 21, 2014
10.14	License Agreement Everest Water to CanAmera Management dated April 13, 2010	8-K/A filed September 18, 2012
10.15	License Agreement CanAmera Mgmt to AWG International dated April 13, 2010	8-K/A filed September 18, 2012
10.16	G2 Patent Assignment from K. White to AWG International dated February 14, 2012	8-K/A filed September 18, 2012
10.17	G3 Patent Application Assignment from K. White to AWG International dated November 19, 2010	8-K/A filed September 18, 2012
10.18	G4/G5 Patent Application Assignment from K. White to AWG International dated April 19, 2012	8-K/A filed September 18, 2012
10.19	G2 Declaration of Assignment Everest to AWG dated February 17, 2012	8-K filed November 20, 2012
10.20	G2 Assignment from AWG to Keith White and Rae Anderson dated February 17, 2012	8-K filed November 20, 2012
10.21	Amended Coghlan Family Corporation Promissory Note titled Memorandum of Understanding dated August 1, 2012	8-K filed November 20, 2012
10.22	Form of Private Label Agreement	8-K filed November 20, 2012
10.23	Declaration of Assignment to Everest Water, Ltd. to AWG dated February 14, 2013	8-K filed February 19, 2013
10.24	Patent Assignment AWG to Inventors dated February 14, 2013	8-K filed February 19, 2013
10.25	Patent Assignment Keith White to AWG dated February 14, 2013	8-K filed February 19, 2013
10.26	Consulting Agreement with Frontier Mutual, LLC dated February 5, 2013	8-K filed February 8, 2013
10.27	Memorandum of Understanding Coghlan Family Corporation Promissory Note dated February 1, 2013	10-K filed April 11, 2013
14	Code of Ethics	10-K filed May 10, 2012
21	Subsidiaries of the registrant	8-K filed July 16, 2012
31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, White – CEO	Filed herewith
31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, White - CFO	Filed herewith
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, White - CEO	Filed herewith
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, White - CFO	Filed herewith
101.INS	XBRL Instance Document	Filed herewith
101.SCH	XBRL Taxonomy Extension Schema Document	Filed herewith
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	Filed herewith
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Filed herewith
101.LAB	XBRL Taxonomy Extension Label Linkbase Document	Filed herewith
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith

6157

SIGNATURES

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.

	AWG International Water Corporation
	Ambient Water Corporation
Date: March 25, 2016	/s/ Keith White _________________________
Date: March 31, 2017	/s/ Keith White _________________________
	By: Keith White Title: Chief Executive Officer (Principal Executive Officer)
Date: March 25, 2016	/s/ Keith White _________________________
Date: March 31, 2017	/s/ Keith White _________________________
	By: Keith White Title: Chief Financial Officer (Principal Financial Officer)

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

Date: March 25, 2016	/s/ Keith White _________________________
Date: March 31, 2017	/s/ Keith White _________________________
	By: Keith White
	Title: Director
Date: March 25, 2016	/s/ Jeff Stockdale _________________________
Date: March 31, 2017	/s/ Jeff Stockdale _________________________
	By: Jeff Stockdale
	Title: Director
Date: March 25, 2016	/s/ Michael Wende _________________________
Date: March 31, 2017	/s/ Michael Wende _________________________
	By: Michael Wende
	Title: Director

6258

Filing Compare · Ambient Water Corp