QWTR Quest Water Global Inc (PK)

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 AQUAtap^TM 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 (“AQUAtap Global”). Through this entity, 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. AQUAtap Global, together with its strategic global partners, plans 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 WEPS^TM that produces potable water from humidity in the atmosphere. WEPS^TM technology works by converting humidity into water, otherwise known as atmospheric water extraction.

Results of Operations

For the Three Months Ended September 30, 2022

Revenue

We did not generate any revenue during the three months ended September 30, 2022, whereas we generated $790 in revenue during the same period in the prior year. That 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, 2022, we incurred $939,297 in total expenses, including $801,102 in stock-based compensation, $112,500 in management fees, $12,291 in professional fees, $5,470 in rent, $4,120 in transfer agent and filing fees, $2,417 in automotive expenses, $762 in telephone expenses and $5 in office and miscellaneous expenses. During the same period in the prior year, 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 reversal in office and miscellaneous expenses. Except for a significant increase in our stock-based compensation expense, which was entirely attributable to the granting of an aggregate of 8,500,000 options, substantially all of which vested during the recent quarter, our expenses were relatively consistent between the two periods.

Net Loss

During the three months ended September 30, 2022, we incurred a net loss of $939,297, whereas we incurred a net loss of $131,291 during the same period in the prior year. Our net loss per share during the three months ended September 30, 2022 and 2021 was $0.008 and $0.002, respectively.

For the Nine Months Ended September 30, 2022

Revenue

We did not generate any revenue during the nine months ended September 30, 2022, whereas we generated $150,000 in revenue during the same period in the prior year. 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. As described above, 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 June 30, 2022, we incurred $1,226,653 in total expenses, including $801,102 in stock-based compensation expense, $337,500 in management fees, $40,078 in professional fees, $18,124 in transfer agent and filing fees, $16,259 in rent, $7,732 in automotive expenses, $3,256 in office and miscellaneous expenses and $2,602 in telephone expenses. During the same period in the prior year, 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. Other than the significant increase in our stock-based compensation expense as described above, and increases in our professional fees and transfer agent and filing fees, both of which were associated with the revocation application in respect of the cease trade order previously in effect against us in the Province of British Columbia, Canada, our expenses were largely consistent from period-to-period.

Net Loss

During the nine months ended September 30, 2022, we incurred a net loss of $1,226,653 and a net loss per share of $0.012, whereas we incurred a net loss of $331,198 and a net loss per share of $0.004 during the same period in the prior year.

Liquidity and Capital Resources

As of September 30, 2022 we had $54 in cash, $13,019 in total assets, $1,070,945 in total liabilities and a working capital deficiency of $1,066,438. As of that date, we also had an accumulated deficit of $11,229,862.

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, 2022, we spent $2,673 in net cash on operating activities, whereas we spent $431 in net cash spending on operating activities during the same period in the prior year. Although our net loss in the current period increased as described above, it was offset by certain changes in our operating assets and liabilities, notably the “due to related company” and “unbilled costs” balances.

We spent $1,500 in net cash on investing activities during the nine months ended September 30, 2022, all of which was attributable to equipment purchases. We did not spend or receive any cash in respect of investing activities during the same period in the prior year.

We did not spend or receive any cash in respect of financing activities during the nine months ended September 30, 2022 or 2021.

During the nine months ended September 30, 2022, our cash decreased by $4,173 as a result of our operating activities, from $4,227 to $54. As of September 30, 2022, 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 AQUAtap^TM Community Water Purification & Distribution systems as well as the employment of our WEPS^TM 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. On July 13, 2022, the British Columbia Securities Commission revoked the cease trade order previously in effect against us in the Province of British Columbia, Canada, and we are presently in the process of contacting broker/dealers in Canada and elsewhere regarding possible financing arrangements. 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:

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, 2022, we had a working capital deficiency of $1,066,438 and an accumulated deficit of $11,229,862. 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; the Company’s wholly-owned subsidiaries Quest Water Solutions, Inc., a company incorporated under the laws of the State of Nevada (“Quest Nevada”), and AQUAtap Global, Inc., a company incorporated under the laws of the State of Wyoming; and Quest Nevada’s wholly owned subsidiary, Quest Water Solutions Inc., a company incorporated under the laws of the province of British Columbia, Canada. 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.