Quest Water Global, Inc. - 10-K

Item 7. 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 audited consolidated financial statements and the related notes thereto that appear elsewhere in this annual report, as well as Item 1 and the “Presentation of Information” section that appears at the beginning of this annual report.

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 decentralized, 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™ that produces potable water from humidity in the atmosphere. WEPS™ technology works by converting humidity into water, otherwise known as atmospheric water extraction.

Results of Operations

Revenue

We did not generate any revenue during years ended December 31, 2024 or 2023. 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 year ended December 31, 2024, we incurred $757,611 in total expenses, including $495,000 in management fees, $48,354 in professional fees, $18,794 in transfer agent and filing fees, $3,468 in automotive expenses, $2,981 in telephone expenses, $1,159 in office and miscellaneous expenses and $500 in depreciation, plus $187,355 in consulting fees.

During the prior year, we incurred $596,013 in total expenses, including $495,000 in management fees, $31,673 in professional fees, $20,674 in transfer agent and filing fees, $21,000 in rent, $9,021 in automotive expenses, $3,320 in telephone expenses, $14,825 in office and miscellaneous expenses and $500 in depreciation.

The increase of $161,598, or approximately 27%, in our total expenses between 2023 and 2024 was almost entirely attributable to the significant stock-based compensation expense we incurred in 2024.

Net Loss

During the year ended December 31, 2024, we incurred a net loss of $757,611, whereas we incurred a net loss of $596,013 during the prior year. Our net loss per share during those two years was $0.006 and $0.005, respectively.

Liquidity and Capital Resources

As of December 31, 2024, we had $4 in cash, $1,533 in total assets, $2,406,693 in total liabilities and a working capital deficit of $2,405,327. As of December 31, 2024 we had an accumulated deficit of $12,592,996.

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, 2025.

During the year ended December 31, 2024, we used net cash of $567,509 on operating activities, compared to $579,827 in net cash used on operating activities during the prior year. Our net cash spending on operating activities during the two fiscal years was therefore reasonably consistent.

We received $567,510 in net cash from financing activities during the year ended December 31, 2024, all of which was in the form of advances from related parties. During the year ended December 31, 2023, we received $579,830 in net cash from financing activities, all of which was also in the form of advances from related parties.

During the year ended December 31, 2024, our cash increased by $1 as a result of our operating and financing activities, from $3 to $4. As of December 31, 2024, we did not have sufficient cash resources to meet our operating expenses for even one month based on our then-current burn rate. However, we have relied on advances from related parties to continue operating and expect to do so for the foreseeable future.

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™ Community Water Purification & Distribution systems as well as the employment of our WEPS™ technology, and we anticipate that we will require a minimum of $1,011,000 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

Management fees

Consulting fees

Professional fees

Rent

Advertising and promotion expenses

Travel and automotive expenses

Other general and administrative expenses

Total

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 December 31, 2024, we had a working capital deficit of $2,405,327 and an accumulated deficit of $12,592,996. 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

Our 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 (“AQUAtap WY”); 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.

Investments

The Company accounts for its investments in other entities by following ASC 323, Investments, “Equity Method and Joint Ventures”, whereby equity investments of 20% or greater but less than control are accounted for using the equity method. Under this method, the carrying cost is initially recorded at cost and then increased or decreased by recording its percentage of gain or loss in its statement of operations and a corresponding charge or credit to the carrying value of the asset.

Should the Company exercise significant influence, the investment might be accounted for as a variable interest entity which would require consolidation and recognition of a non-controlling interest.

Stock-Based Compensation

The Company records stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation”, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.

The Company uses the Black-Scholes option pricing model to calculate the fair value of stock-based awards. This model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the consolidated statement of operations over the requisite service period.