Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The
following discussion and analysis of our results of operations and financial condition has been derived from and should be read in conjunction
with our interim unaudited consolidated financial statements and the related notes thereto that appear elsewhere in this quarterly report,
as well as the “Presentation of Information” section that appears at the beginning of this quarterly report.
Overview
We
are an innovative water technology company that provides sustainable and environmentally sound solutions to water-scarce regions. We
use proven technologies to create economically viable products that address the critical shortage of clean drinking water in both domestic
and foreign emerging markets.
Our
goal is to address the vital issue of water quality and water supply by providing an alternative, sustainable source of pure water at
the smallest possible environmental cost to global areas in need, while becoming a leading company in providing decentralized, turn-key
solutions using alternative energy for the purification, desalination and distribution of clean drinking water.
To
date, we have focused our activities on the formation of safe water partnerships and the sale and installation of our products, with
emphasis on our AQUAtapTM Community Water Purification & Distribution systems throughout North America, Latin America,
the Caribbean and Africa, with specific attention to the Democratic Republic of the Congo (the “DRC”) and Angola.
Corporate
History and Background
We
were incorporated under the laws of Delaware on February 25, 2010. From our inception until the closing of the Share Exchange, we sought
to provide dental and other medical professionals with turn-key marketing solutions to generate referrals from existing clients and new
business from the general public through our wholly owned subsidiary RPM Dental Systems, LLC (“RPM Kentucky”). RPM Kentucky
was formed on September 15, 2009, under the laws of the Commonwealth of Kentucky, and we acquired RPM Kentucky on March 23, 2010.
Prior
to the Share Exchange, we had minimal revenue and our operations were limited to capital formation, organization and development of our
business plan. As a result of the Share Exchange, we ceased our prior operations and, through Quest NV, we now operate as an innovative
water technology company that provides sustainable and environmentally sound solutions to water-scarce regions.
Quest
NV was incorporated under the laws of Nevada on October 20, 2008 and commenced operations on February 20, 2009. Its operations to date
have consisted of business formation, strategic development, marketing, technologies development, negotiations with technologies companies
and capital raising activities. Prior to 2021, Quest NV had not generated any revenues since its inception.
Acquisition
of Quest NV
On
January 6, 2012, we completed the Share Exchange whereby we acquired all of the issued and outstanding capital stock of Quest NV in exchange
for 2,568,493 shares of our common stock (on a pre-forward split basis), or approximately 62.74% of our issued and outstanding common
stock as of the consummation of the Share Exchange. Subsequent to the Share Exchange, we completed a 20 for 1 forward split of our common
stock (the “Forward Split”) that became effective on March 1, 2012. Pursuant to the Forward Split, the 2,568,493 shares described
above increased to 51,369,860 shares.
As
a result of the Share Exchange, Quest NV became our wholly owned subsidiary and John Balanko and Peter Miele became our principal stockholders.
The Share Exchange was treated as a recapitalization effected through a share exchange, with Quest NV as the accounting acquirer and
the Company as the accounting acquiree.
In
connection with and effective upon the closing of the Share Exchange, Josh Morita, our former President, Chief Executive Officer, director
and principal stockholder, and Dr. Laura Sloan, our former director, resigned as members of our Board of Directors and Mr. Morita resigned
as our sole officer. Also effective upon the closing of the Share Exchange, John Balanko and Peter Miele were appointed to fill the vacancies
on our Board of Directors created by the resignations of Mr. Morita and Ms. Sloan. In addition, our Board of Directors appointed Mr.
Balanko as our President and Chief Executive Officer and Mr. Miele as our Vice President and Secretary, all effective upon the closing
of the Share Exchange. On April 13, 2012, we also appointed Mr. Miele as our Chief Financial Officer.
As
a result of our acquisition of Quest NV, Quest NV became our wholly owned subsidiary and we assumed the business and operations of Quest
NV. We then changed our name from RPM Dental, Inc. to Quest Water Global, Inc. to more accurately reflect our new business operations.
AQUAtap
Entities
In
July 2021, we incorporated a new operating subsidiary, AQUAtap Global, Inc., a Wyoming corporation, that subsequently established a wholly
owned subsidiary, AQUAtap Global Investments Inc., a British Columbia, Canada corporation, in November 2021. Through these entities,
we expect to coordinate, facilitate and manage our current, planned and future safe water partnerships throughout Africa, Latin America
and the Caribbean that provide clean water initiatives for underserved communities. The AQUAtap entities, together with their strategic
global partners, plan to establish subordinate partnerships in various countries and engage experienced local individuals and organizations
for operational expertise. We anticipate that this will enable the subordinate partnerships to enter into public-private partnerships
(commonly known as PPPs) with NGOs, strategic investors and various levels of government.
Quest
Water Solutions Inc., a British Columbia, Canada corporation and wholly owned subsidiary of Quest NV (“Quest BC”), will remain
as the technology provider to our safe water initiatives. Quest BC is responsible for designing, engineering and manufacturing our range
of products, and it also sells these water technology products directly to end users through our corporate sales & marketing divisions
and through global distributors and agents.
Business
Overview
We
provide sustainable and environmentally sound solutions to water scarce regions. Our goal is to address the vital issue of water quality
and water supply by providing an alternative, sustainable source of pure water at the smallest possible environmental cost to global
areas in need, while becoming a leading company in providing turn-key solutions using alternative energy for the purification, desalination
and distribution of clean drinking water.
We
have developed a proprietary AQUAtap™ Community Water Purification and Distribution System consisting of a self-contained water
purification system using either a reverse osmosis membrane or ultrafiltration membrane, powered by photovoltaic solar panels and hosted
in modified shipping containers. Each unit is energy self-sufficient with minimal operational and maintenance costs. We believe that
this product represents the first truly environmentally sound solution to drinking water shortages as it is autonomous, decentralized
and sustainable, and because each unit is capable of converting brackish, sea or contaminated surface water into high quality drinking
water at a rate of up to 100,000 litres per day.
In
addition to the solar-powered water purification systems, we have also developed a technology known as WEPSTM that produces
potable water from humidity in the atmosphere. WEPSTM technology works by converting humidity into water, otherwise known
as atmospheric water extraction.
Results
of Operations
For
the Three Months Ended September 30, 2021
Revenue
We
generated $790 in revenue during the three months ended September 30, 2021, whereas we did not generate any revenue during the same period
in the prior year. The revenue was offset by $1,050 in cost of goods sold, for a gross margin of $(260). We anticipate that we will incur
substantial losses for the foreseeable future and our ability to generate any revenues in the next 12 months continues to be uncertain.
Expenses
During
the three months ended September 30, 2021, we incurred $131,031 in total expenses, including $107,500 in management fees, $8,884 in professional
fees, $6,487 in transfer agent and filing fees, $5,250 in rent, $2,307 in automotive expenses, $771 in consulting fees and $712 in telephone
expenses, as offset by an $880 office and miscellaneous expense recovery. During the same period in the prior year, we incurred $116,006
in total expenses, including $102,500 in management fees, $5,640 office and miscellaneous expenses, $5,250 in rent, $1,611 in automotive
expenses, $722 in telephone expenses $146 in transfer agent and filing fees and $137 in advertising and promotion expenses. Except for
the minor increases in our professional fees and transfer agent and filing fees, our expenses were relatively consistent between the
two periods.
Net
Loss
During
the three months ended September 30, 2021, we incurred a net loss of $131,291, whereas we incurred a net loss of $116,006 during the
same period in the prior year. We did not experience any net loss per share during the three months ended September 30, 2021 or 2020.
For
the Nine Months Ended September 30, 2021
Revenue
We
generated $150,790 in revenue during the nine months ended September 30, 2021, whereas we did not generate any revenue during the same
period in the prior year. Substantially all of the revenue was attributable to a sales order and advance payment from AQUAtap Oasis Partnership
S.A.R.L., and was offset by $113,774 in cost of goods sold, for a gross margin of $37,016. Notwithstanding the foregoing, we anticipate
that we will incur substantial losses for the foreseeable future and our ability to generate any revenues in the next 12 months continues
to be uncertain.
Expenses
During
the nine months ended September 30, 2021, we incurred $368,214 in total expenses, including $322,500 in management fees, $15,750 in rent,
$9,271 in professional fees, $7,119 in transfer agent and filing fees, $7,111 in automotive expenses, $3,342 in office and miscellaneous
expenses, $2,350 in telephone expenses and $771 in consulting fees. During the same period in the prior year, we incurred $346,490 in
total expenses, including $307,500 in management fees, $15,750 in rent, $6,034 in automotive expenses, $7,781 in office and miscellaneous
expenses, $3,006 in travel expenses, $2,528 in professional fees, $1,995 in transfer agent and filing fees, $1,423 in telephone expenses
and $473 in advertising and promotion expenses. Our expenses were therefore relatively consistent between the two periods.
Net
Loss
During
the nine months ended September 30, 2021, we incurred a net loss of $331,198, whereas we incurred a net loss of $346,490 during the same
period in the prior year. We did not experience any net loss per share during the nine months ended September 30, 2021 or 2020
Liquidity
and Capital Resources
As
of September 30, 2021, we had $4,284 in cash, $19,045 in total assets, $3,758,574 in total liabilities and a working capital deficiency
of $3,746,749. As of that date, we also had an accumulated deficit of $10,112,388.
To
date, we have experienced negative cash flows from operations and we have been dependent on sales of our common stock and capital contributions
to fund our operations. We expect this situation to continue for the foreseeable future, and we anticipate that we will experience negative
cash flows during the year ended December 31, 2022.
During
the nine months ended September 30, 2021, we spent $431 in net cash on operating activities, compared to $50,160 in net cash spending
on operating activities during the same period in the prior year. The significant decrease in our net cash spending on operating activities
during the nine months ended September 30, 2021 was primarily attributable to the decrease in our net loss as described above, as well
as certain changes in our operating assets and liabilities, notably the “due to related company” and “unbilled costs”
balances.
We
did not spend or receive any cash in respect of investing activities or financing activities during the nine months ended September 30,
2021 or 2020.
During
the nine months ended September 30, 2021, our cash decreased by $431 as a result of our operating activities, from $4,715 to $4,284.
As of September 30, 2021, we did not have sufficient cash resources to meet our operating expenses for the next month based on our then-current
burn rate.
Plan
of Operations
Our
plan of operations over the next 12 months is to continue to address water quality and supply issues in the DRC through the installation
of our AQUAtapTM Community Water Purification & Distribution systems as well as the employment of our WEPSTM
technology, and we anticipate that we will require a minimum of $946,000 to pursue those plans.
As
described above, we intend to meet the balance of our cash requirements for the next 12 months through advances from related parties
as well as a combination of debt financing and equity financing through private placements as circumstances allow. We are not presently
contacting broker/dealers in Canada and elsewhere regarding possible financing arrangements, but we intend to initiate such contact once
the current cease trade order in effect against us in the Province of British Columbia, Canada has been revoked. Regardless, there is
no assurance that we will be successful in completing any private placement or other financings. If we are unsuccessful in obtaining
sufficient funds through our capital raising efforts, we may review other financing options.
During
the next 12 months, we estimate that our planned expenditures will include the following:
Description | |
Amount ($) | |
Equipment purchases | |
| 250,000 | |
Management fees | |
| 430,000 | |
Consulting fees | |
| 120,000 | |
Professional fees | |
| 50,000 | |
Rent | |
| 21,000 | |
Advertising and promotion expenses | |
| 15,000 | |
Travel and automotive expenses | |
| 30,000 | |
Other general and administrative expenses | |
| 30,000 | |
Total | |
| 946,000 | |
Going
Concern
Our
financial statements have been prepared on a going concern basis, which implies we will continue to realize our assets and discharge
our liabilities in the normal course of business. As at September 30, 2021, we had a working capital deficiency of $3,746,749 and an
accumulated deficit of $10,112,388. Our continuation as a going concern is dependent upon the continued financial support from
our creditors, our ability to obtain necessary equity financing to continue operations, and ultimately on the attainment of profitable
operations. These factors raise substantial doubt regarding our ability to continue as a going concern. Our financial statements do not
include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might
be necessary should we be unable to continue as a going concern.
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources
that is material to investors.
Critical
Accounting Policies
We
have identified certain accounting policies, described below, that are important to the portrayal of our current financial condition
and results of operations.
Basis
of Presentation and Consolidation
The
Company’s consolidated financial statements and related notes are presented in accordance with accounting principles generally
accepted in the United States, and are expressed in US dollars. Our consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiary, Quest Water Solutions, Inc. (“Quest Nevada”), a company incorporated under the laws of the State
of Nevada, Quest Nevada’s wholly owned subsidiary, Quest Water Solutions Inc., a company incorporated under the laws of the province
of British Columbia, Canada; and its wholly-owned subsidiary, Heliosource, Inc., a company incorporated under the laws of the State of
Nevada. All inter-company balances and transactions have been eliminated on consolidation.
Foreign
Currency Translation
The
Company’s functional currency is US dollars. Transactions in foreign currencies are translated into the currency of measurement
at the exchange rates in effect on the transaction date. Monetary balance sheet items expressed in foreign currencies are translated
into US dollars at the exchange rates in effect at the balance sheet date. The resulting exchange gains and losses are recognized in
income.
The
Company’s integrated foreign subsidiaries are financially or operationally dependent on the Company. The Company uses the temporal
method to translate the accounts of its integrated operations into US dollars. Monetary assets and liabilities are translated at the
exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues
and expenses are translated at average rates for the period, except for amortization, which is translated on the same basis as the related
asset. The resulting exchange gains or losses are recognized in income.