BIOSHAFT WATER TECHNOLOGY : Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

Posted on Sep 19, 2016


Forward Looking Statements

This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors”, that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Our financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles.

In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars. All references to “common shares” refer to the common shares in our capital stock.

As used in this quarterly report, the terms “Bioshaft”, “we”, “us”, “our” and “our company” mean Bioshaft Water Technology, Inc., a Nevada corporation, unless otherwise indicated.

   Corporate History    

We were incorporated on March 8, 2006, under the laws of the State of Nevada as “Pointstar Entertainment Corp.”. Effective September 28, 2007, we completed a merger with our subsidiary, “Bioshaft Water Technology, Inc.”, also a Nevada corporation. As a result, we changed our name from “Pointstar Entertainment Corp.” to “Bioshaft Water Technology, Inc.”. Our stock symbol is “BSHF”.

Our principal executive offices are located at 222 West 6th Street, #400, San Pedro, CA 90731 and our telephone number is (310) 707-2553.

We do not have any subsidiaries.

Other than as set out herein, we have not been involved in any bankruptcy, receivership or similar proceedings, nor have we been a party to any material reclassification, merger, consolidation or purchase or sale of a significant amount of assets not in the ordinary course of our business.

Our Current Business

We are currently engaged in treating both industrial waste-water, primarily from the food and beverage sector and domestic waste-water where containerized/modular plants can be deployed on a permanent or temporary basis along with our technology’s ability to provide expansion (upgrade/retrofit) to existing domestic activated sludge wastewater plants worldwide.

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  Results of Operations   Three Months Summary                                                   Three Months Ended                                                      July 31,                                                2016            2015                Total revenue                $           -     $      13,764                 Cost of revenues                       -               -                Total operating expenses         147,282         160,315                Total other (income) expense      26,550          27,307                Net loss                     $   (173,832)$   (173,858) 

Revenues and Cost of Revenues

During the three months ended we earned revenues of $ 0, a decrease of $ 13,764, compared to the prior year’s comparable period. The decrease in revenues for the three months ended July 31, 2016 is directly related to our Company recognizing revenues based upon the completed contract method. During the three months ended July 31, 2016, no projects were completed and thus no revenues were recognized.

During the current fiscal year, our Company has five projects which are being accounted for under the completed contract method as all are based upon the delivery of equipment and limited installation services. As of July 31, 2016, our Company has deferred revenues of $ 1,078,182 and deferred costs of $ 827,832 in connection with the five projects. Our Company expects to record the revenues and costs related to these projects in Q2 or Q3 of fiscal 2017. The Company’s revenues will continue to be inconsistent until a pipeline of such contacts is established.

  Expenses                                                       Three Months Ended                                                          July 31,                                                     2016          2015             Selling, general and administrative   $    46,180$    51,697             Advertising, marketing and promotions     2,702           218             Consulting fees                          98,400       108,400             Depreciation                                  -             -             Total operating expenses              $   147,282$   160,315 

Total operating expenses during the three months ended July 31, 2016 decreased as compared to the comparative period in 2015 primarily due to decreases in selling, general and administrative expenses, consulting fees and depreciation. The decrease in operating loss during the three months ended July 31, 2016 was primarily due to the Company’s emphasis on reducing general and administrative costs and consulting fees. The comparable prior period includes salary paid to one additional consultant for which services were discontinued in the middle of fiscal 2016.

Liquidity and Financial Condition

Working Capital

As of July 31, 2016, our total current assets were $ 836,273 and our total current liabilities were $ 4,351,028 and we had a working capital deficit of $ 3,514,755.

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 Cash Flows                                                                 Three Months Ended                                                                    July 31,                                                               2016           2015  Net cash flows used in operating activities               $   (11,078)$   (70,895) 

Net cash flows provided by (used in) investing activities $ Nil $ Nil

  Net cash flows provided by financing activities           $    (3,831)$     50,000  Net decrease in cash during period                        $   (14,909)$   (20,895) 

The decrease in cash used in operating activities primarily relates to our continued net loss from operations as cash flows generated from operations is not yet sufficient enough to cover our expenditures. The decrease in cash flow from financing activities is a direct result of proceeds from notes payable, proceeds from related party notes payable and the sales of common stock to fund operations in the prior year.

   Future Financing    

We have recently had significant increases in revenues and accounts receivable, however, the continuance of such cannot be assured. If revenues were to decrease, we would have significant difficulty sustaining our operations without additional support. The ability of our company to meet our financial liabilities and commitments is primarily dependent upon the continued financial support of our directors and shareholders, the continued issuance of equity to new stockholders and our ability to maintain profitable operations.

Management believes that our cash on hand, cash equivalents, and any cash revenue provided by our operating activities will be insufficient to meet our working capital requirements for the next twelve month period. We estimate that we will require an additional $ 2,770,000 over the next twelve month period to fund our operating cash shortfall. We plan to raise the capital required to satisfy our immediate short-term needs and additional capital required to meet our estimated funding requirements for the next twelve months primarily through the private placement of our equity securities. There are no assurances that we will be able to obtain funds required for our continued operation. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will not be able to meet our other obligations as they become due and we will be forced to scale down or perhaps even cease the operation of our business.

There is substantial doubt about our ability to continue as a going concern as the continuation of our business is dependent upon obtaining further long-term financing, successful and sufficient market acceptance of our products and achieving a profitable level of operations. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

Plan of Operation

During the next twelve month period, we intend to:

(a)

penetrate the waste water treatment industry worldwide by stressing the cost advantages and space saving capabilities of the BioShaft System.

(b)

build up a network of strategic alliances with several types of companies, including contractors that specialize in the construction of water treatment plants, engineering firms that work with municipalities and firms that specialize in “build own operate” project utilities.

(c)

form a partnership with a Chinese manufacturer that we can outsource to, and fabricate up to two BioShaft units per month within the first three months.

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(d)

implement our pilot project in Southern California where we will setup and operate a packaged unit in order to complete the municipal permitting process for the California commission on environmental quality.

(e)

the small footprint and default generation of biogas gives BioShaft the unique ability among competitors to take on very high organic contaminant loads. Typically 400% to 500% of the maximum competitors quote.

(f)

BioShaft offering is most superior in:

  i.  brewery wastewater;  ii.  dairy wastewater;  iii.  

dairy processing wastewater – cheese, yogurt, etc.

(g)

fill the positions of vice president of marketing and three sales engineers.

Not accounting for our working capital deficit of $ 3,514,755, we have estimated that we will require an additional $ 2,770,000 based on our projected cash flow from existing and future revenues to carry out our business plan for the next twelve months. In the event we do not have the funds necessary to cover our projected operating expenses for the next twelve month period, we may be required to raise additional funds through the issuance of equity securities, through loans or through debt financing. There can be no assurance that we will be successful in raising any required capital or that actual cash requirements will not exceed our estimates. We intend to fulfill any additional cash requirement through the sale of our equity securities.

If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to scale down or perhaps even cease the operation of our business.

Capital Expenditures

We do not have any material commitments for capital expenditures and management does not anticipate that we will spend additional material amounts on capital expenditures in the near future.

Employees

As of July 31, 2016, our company has retained three (3) consultants which included Bashar Amin, our president, chief executive officer and director, Imad Kamel Yassine, our chief operating officer, chief financial officer, secretary, treasurer and director.

We plan to employ a number of executive officers including a vice president of marketing and three sales engineers by approximately January 2017. We anticipate that we may spend up to $ 108,000 per month to employee officers and employees and up to $ 50,000 in payroll taxes.

Off-Balance Sheet Arrangements

There are no 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

Our financial statements have been prepared in accordance with the U.S. GAAP. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates which have been made using careful judgment.

The financial statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and within the framework of significant accounting policies.

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Use of Estimates

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

   Revenue Recognition    

For contracts in which our company can reasonably estimate the costs and the percent complete, our company recognizes revenues based on the percentage-of-completion method, measured by the percentage of cost incurred to date to estimated total cost for each contract. That method is used because management considers total cost to be the best available measure of progress on contracts. Because of inherent uncertainties in estimating costs, it is at least reasonably possible that the estimates used will change within the near term.

For contracts in which our company can’t reasonably estimate the costs and the percent complete, our company recognizes revenues using the completed contract method. Typically, these contracts are isolated to international contracts whereby our company is providing equipment and limited installation. Under the completed contract basis, contract costs are recorded to a deferred asset account and billings and/or cash received are recorded to a deferred revenue liability account during the periods of construction. All revenues, costs, and profits are recognized in operations upon completion of the contract. A contract is considered completed when all costs except insignificant items have been incurred and the equipment is delivered to the end user.

Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and depreciation. Selling, general, and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability may result in revisions to costs and income, which are recognized in the period in which the revisions are determined. Changes in estimated job profitability resulting from job performance, job conditions, contract penalty provisions, claims, change orders, and settlements, are accounted for as changes in estimates in the current period. No profit is recognized on change orders until they have been approved by the customer. During the three months ended July 31, 2014, our company charged $ 47,620 to cost of revenues due to overruns on a project.

Recent Accounting Pronouncements

The FASB issues Accounting Standard Updates (“ASUs”) to amend the authoritative literature in the Accounting Standards Codification (“ASC”). There have been a number of ASUs to date that amend the original text of ASC. Our company believes those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to our company or (iv) are not expected to have a significant impact on our company.

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