WATAIRE INTERNATIONAL, INC.
FORM 10-Q
(Quarterly Report)
Filed 11/18/09 for the Period Ending 09/30/09
Address 3rd Floor, 21900 Burbank Blvd.
Woodland Hills, CA 91367
Telephone 877-602-8985
CIK 0001127007
Symbol WTAR
SIC Code 4941 - Water Supply
Industry Conglomerates
Sector Conglomerates
Fiscal Year 03/31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2009
OR
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from _______ to ______
Commission File Number : 000 - 49955
WATAIRE INTERNATIONAL, INC.
( Exact name of registrant as specified in its charter )
Washington 91-2060082
- ----------------------------- --------------------
( State or other jurisdiction of ( I.R.S. Empl. Ident. No. )
incorporation or organization )
3rd Floor, 21900 Burbank Blvd, Woodland Hills, California 91367
- ----------------------------------------------------------
( Address of principal executive offices ) ( Zip Code )
877-602-8985
- ---------------------------------
( Issuer's telephone number )
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 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 ( ) No ( )
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer, or a small reporting
company. See definitions of "large accelerated filer," "accelerated filer,"
and "small reporting company" in Rule 12B-2 of the Exchange Act.
(Check one) :
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 in Rule 12b-2 of the Exchange Act). ( ) Yes ( X ) No
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding the issuer's common stock, $0.0001 par
value, was 98,710,123 as of September 30, 2009.
WATAIRE INTERNATIONAL, INC.
FORM 10-Q
For the Period Ended September 30, 2009
TABLE OF CONTENTS
FINANCIAL INFORMATION Pages
Item 1. Financial Statements ........................ 1 - 11
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations........................... 12 - 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk.. 19
Item 4T.Controls and Procedures....................... 19 - 20
PART II
Item 1. Legal Proceedings............................. 20 - 21
Item 1A.Risk Factors.................................. 21 - 28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.. 28
Item 3. Defaults Upon Senior Securities...................... 28
Item 4. Submission of Matters to a Vote of Security Holders.... 28
Item 5. Other Information............................. 28
Item 6. Exhibits and Certifications............ 29 - 35
Part 1. Item 1. Financial Statements
WATAIRE INTERNATIONAL, INC..
Page No.
Consolidated Balance Sheets as at September 30, 2009 and
March 31, 2009 1
Consolidated Statements of Operations
For the Three Months Ended September 30, 2009 and 2008
and for the Six Months Ended September 30, 2009 and 2009
and from the Period of Inception April 10, 1991
to September 30, 2009 2
Consolidated Statements of Cash Flows
For the Six Months Ended September 30, 2009 and 2008 and
For the Period from Inception April 10, 1991 to
September 30, 2009 3
Notes to Financial Statements 4 - 11
ATAIRE INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
(Stated in US Dollars)
WATAIRE INTERNATIONAL, INC.
(Formerly Cimbix Corporation)
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
as at September 30, 2009 and March 31, 2009
(Stated in US Dollars)
Unaudited Audited
Sept. 30, March 31,
2009 2009
Assets
Current Assets
Cash 65 35
Prepaid expenses & retainer 9,758 9,766
Advance on marketing agreements 250,000 250,000
Inventory 250,456 250,456
---------------------------
Total Current Assets 510,279 510,257
Capital assets, net 154 308
Patents, Trademarks 31,434 31,434
Acquisitions of intangibles 2,546,062 2,546,062
---------------------------
Total Assets 3,087,929 3,088,061
---------------------------
Liabilities
Current Liabilities
Accounts payable 427,385 353,854
Shareholder loan and interest - 106,589
Due to related parties 48,872 1,280
Deferred revenue 168,424 189,067
---------------------------
Total Current Liabilities 644,681 650,790
Long Term Liabilities
5% Convertible Debentures 125,000 -
---------------------------
Total Liabilities 769,681 650,790
Stockholders' Equity
Capital stock
Authorized:
100,000,000 common shares with a par
value of $0.0001
20,000,000 preferred shares with a
par value of $0.0001, redeemable at $0.005
Issued and outstanding:
98,710,123 common shares
(March 31, 2009: 87,110,123) 9,871 8,711
27,501 preferred shares
(March 31, 2009: 27,501) 3 3
Additional paid-in capital 13,051,104 12,880,264
Deferred Stock-Based Comp. (126,667) -
Deficit accumulated during the
development stage (10,616,063) (10,451,707)
----------------------------
Total Equity 2,318,248 2,437,271
----------------------------
Total Liabilities and Stockholders' Equity 3,087,929 3,088,061
The accompanying notes are an integral part of the financial statements
1
WATAIRE INTERNATIONAL, INC.
(Formerly Cimbix Corporation)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three months ended September 30, 2009 and 2008 and
for the six months ended September 30, 2009 and 2008 and
for the period August 17, 2000 (Inception) to September 30, 2009
(Stated in US Dollars)
(Unaudited)
August 17
2000
For the 3 months ended For the 6 months ended (Inception)
September 30, September 30, to Sept. 30,
2009 2008 2009 2008 2009
Sales - - - 154,540 488,102
Cost of sales - - - (102,104) (376,292)
Gross margin - - - 52,436 111,810
Other income - - - - 9,500
-------------------------------------------------------
- - - 52,436 121,310
Expenses
Advances written off - - - - 234,542
Amortization 77 77 154 154 70,897
Bad debt written off - - - - 2,800
Consulting fees 600 29,005 600 119,005 430,970
Donated services - - - - 11,250
Foreign exchange
(gain)/loss - 4,627 - 6,028 (42,356)
General and
administrative 9,513 8,810 15,632 44,705 252,067
Incorporation costs - - - - 2,005
Management fees 45,000 45,000 90,000 90,000 736,883
Marketing and
promotion 13,000 27,149 13,000 29,513 177,601
Professional fees 22,884 4,168 35,994 31,548 399,849
Research & Development - 25,000 - 105,000 202,143
Rent - 1,875 - 5,732 49,009
Settlement of
accounts payable - - - - (3,250)
Stock-based compensation - - - - 8,010,050
Travel - 2,373 976 6,634 71,222
Website development
costs 8,000 - 8,000 - 16,700
-------------------------------------------------------
Total Expenses 99,074 148,084 164,356 438,319 10,622,382
Loss from continuing
operations (99,074) (148,084) (164,356) (385,883) (10,501,072)
Loss from discontinued
operations - - - - (114,991)
Net loss for the
period (99,074) (148,084) (164,356) (385,883) (10,616,063)
Basic and diluted
loss per share (0.00) (0.00) (0.00) (0.00)
Weighted average
number of shares
outstanding 96,231,862 79,023,166 93,225,970 77,708,666
The accompanying notes are an integral part of the financial statements
2
WATAIRE INTERNATIONAL, INC.
(Formerly Cimbix Corporation)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the six months ended September 30, 2009 and 2008 and
for the period August 17, 2000 (Inception) to September 30, 2009
(Stated in US Dollars)
(Unaudited)
August 17,
For the 6 months ended 2000 (Inception)
Sept. 30, to Sept. 30,
2009 2008 2009
Operating Activities
Loss from continuing
operations (164,356) (385,883) (10,616,063)
Adjustments to reconcile
loss to cash used
in operating activities :
Amortization 154 154 70,897
Donated services - - 11,250
Website development
costs written off - - 8,700
Shares issued for services - - 122,070
Advances written off - - 199,542
Change in non-cash
working capital items :
Accounts receivable - - -
Prepaid expenses and retainers 8 (12,853) (9,758)
Deferred revenue (20,643) 86,274 168,424
Advance on marketing agreements - - (250,000)
Stock-based compensation - - 8,010,050
Advance on inventory - 6,791 (149,541)
Inventory - 10,253 (246,361)
Accounts payable and
accrued liabilities 73,531 (135,600) 427,385
---------------------------------------
Net cash used in
operating activities (111,306) (430,864) (2,253,405)
---------------------------------------
Investing Activities
License payment advanced - - (50,000)
Capital assets - - (922)
Advanced to subsidiaries - - (115,091)
Acquisition of intangibles-net - (10,689) (1,467,624)
Website development costs - - (8,700)
Proceeds from disposition
of subsibiaries - - 100
---------------------------------------
Net cash used in
investing activities - (10,689) (1,642,237)
---------------------------------------
Financing Activities
Bank indebtedness - (5,885) -
Shareholder loan & interest (106,589) 104,096 -
Due to related parties 47,592 53,717 48,872
Shares issued for cash - 180,000 1,792,102
Shares issued for Intangibles - - 960,000
Shares issued for Debt 172,000 110,000 731,313
5% Convertible debentures 125,000 - 125,000
Deferred stock-based comp. (126,667) - (126,667)
Shares issued for
Promissory Notes - - 365,087
---------------------------------------
Net cash provided by
financing activities 111,336 441,928 3,895,707
---------------------------------------
Increase/(Decrease) in Cash 30 375 65
Cash, beginning 35 - -
Cash, ending 65 375 65
The accompanying notes are an integral part of the financial statements
3
WATAIRE INTERNATIONAL, INC.
(Formerly Cimbix Corporation)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
(Stated in US Dollars)
Note 1. General Organization And Business
The Company was incorporated on August 17, 2000 in the State of Washington,
USA and the Company's common shares are publicly traded on the OTC
Bulletin Board. On September 26, 2006, the Company approved a name change
from Cimbix Corporationto Wataire International, Inc.
The Company markets and distributes atmospheric water generator machines.
It also owns all of the intellectual property relating to a water treatment
process and devices for water-from-air machines. Management plans to further
evaluate, develop and manage the commercialization, sub-license and/or
commercial sale of these products.
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles applicable to a going concern,
which assumes that the Company will be able to meet its obligations and
continue its operations for its operations for its next fiscal year.
Realization values may be substantially different from carrying values as
shown and these financial statements do not give effect to adjustments
that would be necessary to the carrying values and classification of assets
and liabilities should the Company be unable to continue as a going concern.
At September 30, 2009, the Company had not yet achieved profitable operations,
has accumulated losses of $10,616,063 since its inception and expects to
incur further losses in the development of its business, all of which cast
substantial doubt about the Company's ability to continue as a going concern.
The Company's ability to continue as a going concern is dependent upon future
profitable operations and/or the necessary financing to meet its obligations
and repay its liabilities arising from normal business operations when they
come due. Management has obtained additional funds by related party advances,
however there is no assurance that this additional funding is adequate and
further funding may be necessary.
Note 2. Significant Accounting Policies
These consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America and
are stated in US dollars. 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. Actual results may differ from these
estimates.
The financial statements have, in management's opinion, been properly
prepared within the framework of the significant accounting policies
summarized below :
4
(a) Development Stage Company
The Company is a development stage company as defined in the Statements of
Financial Accounting Standards ("SFAS") No. 7. The Company is devoting
substantially all of its present efforts to establish a new business and none
of its planned principal operations have commenced. All losses accumulated
since inception has been considered as part of the Company's development stage
activities.
(b) Consolidation
These consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Petsmo Inc. and Aqua Technologies, Inc. All
inter-company transactions and balances have been eliminated.
(c) Financial Instruments
The carrying values of cash, accounts receivable, accounts payable, promissory
notes payable and due to related parties approximate fair value because of
the short-term nature of these instruments. Management is of the opinion that
the Company is not exposed to significant interest, currency or credit risks
arising from these financial instruments.
(d) Inventory
Inventory, which consists of finished goods, is valued at the lower of cost net
realizable value using the first in first out (FIFO) method.
(e) Website Development Costs
Under the provisions of Statement of Position No. 98-1 "Accounting for the
Costs of Computer Software Development or Obtained for Internal Use," the
Company previously capitalized costs of design, configuration, coding,
installation and testing of the Company's website up to its initial
implementation. Costs are amortized to expense over an estimated useful life
of three years using the straight-line method. Ongoing website post-
implementation cost of operations, including training and application, are
expensed as incurred. The Company evaluates the recoverability of website
development costs in accordance with Financial Accounting
Standards No. 121 " Accounting of the Impairment of Long Lived Assets."
(f) Intangible Assets and Amortization
The Company has adopted SFAS No. 142 "Goodwill and Other Intangible Assets",
which requires that goodwill not be amortized, but that goodwill and other
intangible assets be tested annually for impairment. Intangible assets with
a finite life will be amortized over the estimated useful life of the asset.
The Company's operational policy for the assessment and measurement of any
impairment in the intangible assets, which primarily relates to contract-
based intangibles such as license agreements and extensions, is to evaluate
annually, the recoverability and remaining life of its intangible assets
to determine the fair value of these assets.
(g) Revenue Recognition
The Company receives revenues from the sale of water generator machines.
The Company recognizes revenues when persuasive evidence of an arrangement
exists, the product is delivered and collection is reasonably assured. A
one-year warranty is provided by the Company on all its products.
5
(h) Income Taxes
The Company follows SFAS No. 109, "Accounting for Income Taxes" which
requires the use of the asset and liability method of accounting for
income taxes. Under the asset and liability method of SFAS 109, deferred
tax assets and liabilities are recognized for future tax consequences
attributable to temporary differences between the financial statements
carrying amounts of existing assets and liabilities and loss carry forwards
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
the year in which those temporary differences are expected to be recovered
or settled.
(i) Basic and Diluted Loss Per Share
The Company computes net loss per share in accordance with SFAS No. 128.
"Earnings Per Share". SFAS 128 requires presentation of both basic and
diluted earnings per share ("EPS") on the face of the income statement.
Basic loss per share is computed by dividing the net loss available to
common shareholders by the weighted average number of common shares
outstanding during the year. Diluted EPS gives effect to all dilative
potential common shares outstanding during the year including stock
options, using the treasury stock method, and convertible preferred stock,
using the if-converted method. In computing diluted EPS, the average stock
price for the year is used in determining the number of shares assumed to
be purchased from the exercise of stock options or warrants. Diluted EPS
excludes all dilative potential common shares if their effect is anti
dilative.
(j) Stock-based Compensation
In December 2004, the Financial Accounting Standards Board issued FAS 123R
"Share-Based Payment", a revision to FAS 123. FAS 123R replaces existing
requirements under FAS 123 and APB 25, and requires public companies to
recognize the cost of employee services received in exchange for equity
instruments, based on the grant-date fair value of those instruments, with
limited exceptions. FAS 123R also affects the pattern in which compensation
cost is recognized, the accounting for employee share purchase plans, and
the accounting for income tax effects of share-based payment transactions.
For small business filers, FAS 123R is effective for interim or annual
periods beginning after December 15, 2005. The Company adopted FAS 123R on
October 1, 2006.
(k) Foreign Currency Translation
The Company translates foreign currency transactions and balances to its
reporting currency, United States dollars, in accordance with SFAS No. 52,
"Foreign Currency Translation". Monetary assets and liabilities are
translated into the functional currency at the exchange rate in effect at
the end of the year. Non-monetary assets and liabilities are translated at
the exchange rate prevailing when the assets were acquired or the
liabilities assumed. Revenues and expenses are translated at the rate
approximating the rate of exchange on the transaction date. All exchange
gains and losses are included in the determinination of net income (loss)
for the year.
(l) Reclassifications
Certain items in the prior year financial statements have been reclassified
for comparative purposes to conform to the presentation in the current
period's presentation. These reclassifications have no effect to the
previously reported income (loss).
6
(m) Change in Reporting Year
The Company adopted March 31 as its fiscal year end from September 30
in 2008.
(n ) Recently Issued Accounting Pronouncements
In May 2008, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 162, The
Hierarchy of Generally Accepted Accounting Principles. SFAS No. 162
identifies the sources of accounting principles and the framework for
selecting the principles that are presented in conformity with generally
accepted accounting principles in the United States. SFAS No. 162 is
effective 60 days following the Securities and Exchange Commission's
approval of the Public Company Accounting Oversight Board amendments to
AU Section 411, The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles. The Company does not believe SFAS No. 162
will have a material impact on its financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosure about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement
No. 133. SFAS No. 161 changes the disclosure requirements for derivative
instruments and hedging activities. Entities are required to provide
enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under Statement No. 133 and its related interpretations
and (c) how derivative instruments and related hedged items affect an
entitys financial position, financial performance and cash flows. SFAS
No. 161 is effective for financial statements issued for fiscal years
and interim periods beginning after November 15, 2008, with early
application encouraged. The Company does not believe SFAS No. 161 will
have a material impact on its financial statements.
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations.
SFAS No. 141(R) retains the fundamental requirements in SFAS No. 141,
Business Combinations, that the acquisition method of accounting be used
for all business combinations and for an acquirer to be identified for
each business combination. SFAS No. 141(R) requires an acquirer to recognize
the assets acquired, the iabilities assumed, and any noncontrolling
interest in the acquiree at the acquisition date, measured at their fair
values as of that date, with limited exceptions specified in SFAS No. 141(R).
In addition, SFAS No. 141(R) requires acquisition costs and restructuring
costs that the acquirer expected but was not obligated to incur to be
recognized separately from the business combination, therefore, expensed
instead of part of the purchase price allocation. SFAS No. 141(R) will be
applied prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period
beginning on or after December 15, 2008. Early adoption is prohibited.
The Company expects to adopt SFAS No. 141(R) to any business combinations
with an acquisition date on or after January 1, 2009. The Company does
not believe SFAS No. 141(R) will have a material impact on its
financial statements.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests
in Consolidated Financial Statements, an amendment to ARB No. 51. SFAS No.
160 changes the accounting and reporting for minority interests, which
will be recharacterized as noncontrolling interests and classified as a
component of equity. SFAS No. 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December
15, 2008. Early adoption is prohibited. The Company does not believe
SFAS No. 160 will have a material impact on its financial statements.
7
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities. SFAS No. 159 permits an entity
to irrevocably elect fair value on a contract-by-contract basis as the
initial and subsequent measurement attribute for many financial assets and
liabilities and certain other items including insurance contracts. Entities
electing the fair value option would be required to recognize changes in
fair value in earnings and to expense upfront cost and fees associated
with the item for which the fair value option is elected. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007. Early
adoption is permitted as of the beginning of a fiscal year that begins on or
before November 15, 2007, provided the entity also elects to apply the
provisions of SFAS No. 157, Fair Value Measurements. The Company does not
expect the adoption of SFAS No. 159 to have a material impact on its
financial condition or results of operations.
Note 3. Related Party Transactions
During the period ended September 30, 2009, directors of the company charged
the following expenses to the Company:
Management fees $90,000
Loan interest $2,288
Note 4. Common Stock
For the Year Ended March 31, 2009
Share Subscriptions
On April 8, 2008, the Company entered into an agreement to issued 1,600,000
units at $0.05 per unit with Darfield Financial Corp. for an aggregate amount
of $80,000. Each unit consists of one common share and one half warrant
exercisable at $0.05 per share on or before April 7, 2011.
On May 30, 2008 the Company entered into a private placement agreement to
issued 1,111,112 common stock at $0.09 per share for proceeds of $100,000
to two accredited investors and to issued 555,556 common stock to each
investor.
Share For Debt Settlements
On June 17, 2008, the Company approved the issuance of 1,000,000 units at
$0.06 per share to settle amounts due to a director of the Company totaling
$60,000. Each unit contain one common share and one share warrant
exercisable at $0.06 per share on or before June 16, 2011.
On July 8, 2008, the Company approved the issuance of 1,000,000 units at
$0.05 per share to settle amounts due to a director of the Company
totaling $50,000. Each unit contain one common share and one share warrant
exercisable at $0.05 per share on or before July 7, 2011.
On January 9, 2009, the Company approved the issuance of 8,000,000 common
shares at $0.005 per share to settle amounts due to a director of the
Company totaling $40,000.
On February 26, 2009, the Company have signed agreement with existing
warrant options holders to cancel all existing warrant options available
to the Company.
8
For The Six Months Ended September 30, 2009
Shares For Debt and Service Settlements
On April 22, 2009, the Company approved the issuance of 4,000,000 common
shares at $0.005 per share to settle amounts due to a debtor of the Company
totaling $20,000.
On July 31, 2009, the Company approved the issuance of 7,600,000 common
shares at $0.02 per share for services provided by several professionals
for a 12 months period totaling $152,000.
On September 14, 2009, the Company entered into a definitive agreement
with the Chief Executive Officer and director of the Company for the
issuance of share purchase warrants for executive compensation, with a
term of five years, exercisable at $0.01 per share, for 7,500,000 shares
of common stock with a cashless exercise provision.
Note 5. Warrants
During February 2009, the Company received signed consent agreements with
all existing warrant holders that cancel the entire balance of 7,058,823
outstanding warrants.
Note 6. Stock Options and Stock Based Compensation
During 2006, the Company authorized a share option plan under which
employees were granted options to purchase shares of authorized but
unissued, common shares. During the years ended March 31, 2009
and 2008, all options issued in this plan were either forfeited as
options went unexercised due to employee terminations or cancelled via
signed consent agreements with all remaining option holders.
There was no compensation charge associated with stock options included
in the statement of operations for the six months ended September 30,
2009 and 2008.
Note 7. Contingencies
Agreement
On December 11, 2006 and December 12, 2006, the Company entered into two
marketing agreements in which the Company would pay $1,000,000 and issue
1,000,000 common shares. During the year ended March 31, 2008, the
Company paid $250,000 in respect to the cash portion of the agreements
and had issued 1,000,000 common shares of the Company. The 1,000,000
shares issued were not released to the marketing company as it has not
commenced its branding and marketing efforts and the contract has
expired. The 1,000,000 shares have been returned back to treasury. The
$250,000 is classified as an Advance on Marketing Agreements on the
balance sheet. The Company is currently re-negotiating new terms on
this agreement.
Legal
On October 11, 2006, the Company was named as a co-defendant in a lawsuit
whereby The plaintiffs were claiming general damages, with respect to funds
totaling approximately $94,000 which were allegedly misappropriated,
interest, costs and such further and other relief as the court may deem just.
Management of the Company believed the claim was without merit and was
unlikely to succeed. The Company filed a statement of defense denying the
allegations and a counterclaim for defamation. The court ordered a severance
of the action, and required the plaintiffs to prove their damages, before
proceeding to trial on issues of liability. The lawsuit by the plaintiffs
was dismissed on October 6, 2008.
9
Aquaduct International. LLC v. Wataire International, Inc. et. Al.
This litigation was commenced on December 11, 2008 by the Company's former
distributor over the alleged purchase of certain atmospheric water machines.
On July 20, 2009, the Company answered the lawsuit and filed a cross-
complaint against the plaintiff. Both parties are interested in resolving
this dispute informally rather than proceeding further into litigation.
To that end, mediation has been scheduled for August 20, 2009 in Los
Angeles County with a private mediator. We cannot provide a reasonable
evaluation of the likelihood of an unfavorable outcome at this time since
no discovery has commenced on the Company's cross-complaint and only very
basic discovery has been performed in connection with the complaint. No
loss provision has been recorded as of March 31, 2009.
Note 8. Inventory
At September 30, 2009 and March 31, 2009, inventories are comprised of
finished water-from-air machines totaling $250,456, and $250,456, respectively.
Note 9. Intangibles
On April 25, 2007, the Company entered into an agreement to acquire all of the
intellectual property ("IP") relating to a water treatment process and related
devices for water-from-air machines from Wataire Industries Inc., Canadian
Dew Technologies Inc., Terrence Nylander and Roland Wahlgren. Mr. Nylander was
at the time of signing the agreement and currently, the President of the
Company. Consideration for the purchase of the IP was $476,190
(CAD $500,000), which was paid on March 31, 2007, the issuance of 4,800,000
shares of common stock of the Company, the agreement by the Company to pay a
royalty equal to 5% of the gross profits from the sales of all apparatus or
products relating to the IP for a period of 30 years from April 25, 2007 and
a royalty equal to 5% of gross licensing revenues on the IP. This
consideration is in addition to the 11,000,000 shares of common stock
previously issued for the license rights as disclosed in the Company's annual
September 30, 2006 audited consolidated financial statements. The IP
acquisition was completed in July 2007.
The IP acquired by the Company includes all copyrights, patent rights, trade
secret rights, trade names, trademark rights, process information, technical
information, contract rights and obligations, designs, drawings, inventions
and all other intellectual and industrial property rights of any sort
related to or associated with the invention. The intangibles consist of
patents and trademark applications of $31,434 and the cost of the
acquisition of IP Technology of $2,546,062 as described above.
Patents, Trademark applications $ 31,434
4,800,000 shares issued to Wataire Ecosafe
and Canadian Dew Technologies $ 960,000
Cash consideration 476,190
Remaining license rights including
11,000,000 shares issued to Wataire Ecosafe 1,109,872
---------
$ 2,546,062
10
Note 10. Deferred Revenue
As of September 30, 2009 and March 31, 2009, deferred revenue totaled
$168,424 and $189,067, respectively, consisting of cash payments made by
customers in advance of product shipment. Revenue will be recognized when
finished goods are shipped to the customer.
Note 11. 5% Convertible Debentures
On September 14, 2009, the Company entered into a definitive agreement with
the Chief Executive Officer and director of the Company to convert the loan
of $100,000 plus interest and debt balance totaling $125,000 into a Two Year
5% Convertible Debentures. The Debentures accrue interest at a rate of 5% per
annum. The Debentures are automatically convertible into shares of the
Companys Common Stock at a per share conversion price of $0.01, upon
increase in the Companys authorized common stock.
Note 12. Income Taxes
The Company has losses for tax purposes totaling $10,616,063 which may be
applied against future taxable income. These losses begin to expire in 2027.
The potential tax benefit arising from these losses has not been recorded
in the consolidated financial statements. The Company evaluates its valuation
allowance requirements on an annual basis based on projected future operations.
When circumstances change and this causes a change in managements judgement
about the realizability of deferred tax assets, the impact of the change on
the valuation allowance is reflected in current operations.
11
PART I
This Interim Report on Form 10-Q contains forward-looking statements
that have been made pursuant to the provisions of Section 27A of the
Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934,
and the Private Securities Litigation Reform Act of 1995 and concern
matters that involve risks and uncertainties that could cause actual
results to differ materially from historical results or from those
projected in the forward-looking statements. Discussions containing forward
- -looking statements may be found in the material set forth under "Business,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and in other sections of this Form 10-Q. Words such as "may,"
"will," "should," "could," "expect," "plan," "anticipate," "believe,"
"estimate," "predict," "potential," "continue" or similar words are intended
to identify forward-looking statements, although not all forward-looking
statements contain these words. Although we believe that our opinions and
expectations reflected in the forward-looking statements are reasonable as
of the date of this Report, we cannot guarantee future results, levels of
activity, performance or achievements, and our actual results may differ
substantially from the views and expectations set forth in this Interim
Report on Form 10-Q. We expressly disclaim any intent or obligation to update
any forward-looking statements after the date hereof to conform such
statements to actual results or to changes in our opinions or expectations.
Readers should carefully review and consider the various disclosures made
by us in this Report, set forth in detail in Part I, under the heading "Risk
Factors," as well as those additional risks described in other documents we
file from time to time with the Securities and Exchange Commission, which
attempt to advise interested parties of the risks, uncertainties, and
other factors that affect our business. We undertake no obligation to
publicly release the results of any revisions to any forward-looking
statements to reflect anticipated or unanticipated events
or circumstances occurring after the date of such statements.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
General
Wataire is a Washington corporation incorporated on August 17,
2000. Wataire is currently in the development stage and has
completed its acquisition of all of the intellectual property
relating a water treatment process and devices for water-from-
air machines. The agreements previously executed between the
Company and Ecosafe have been terminated and cancelled and forms
part of the current agreement. To this end, the Company's
future results of operation will be highly dependent upon the
success of its efforts to sell and market its products
12
and technologies. The Company plans to sell its products to
distributors and also through multiple indirect channels, such
as resellers.
Results of Operations for the six months periods ended September
30, 2009 and 2008.
The operating results and cash flows are presented for the six
months periods ended September 30, 2009 and 2008 and for the
period of inception to September 30, 2009.
Revenues. For the six months period ended September 30,
2009, we had total nil revenue compared to $154,540 for the
six months period ended September 30, 2008, a decrease of
$154,540 from our sales of products.
Operating Expenses. For the six months period ended
September 30, 2009, we had total operating expenses of
$164,356 as compared to $438,319 for six months period
ended September 30, 2008. The decrease of $273,963.
Management Fees. For the six months periods ended
September 30, 2009 and 2008, we had same amount of
management fees of $90,000.
Professional Fees. For the six months period ended
September 30, 2009, we had professional fees of $35,994 as
compared to $31,548 for the six months period ended
September 30, 2008, an increase of $4,446.
Net Loss. The net loss for the six months period ended
September 30, 2009 was $164,356 as compared to $385,883 for
the six months period ended September 30, 2008, a decrease
of $221,527.
Plan of Operation
We currently have minimal cash reserves and a significant
working capital deficit. Accordingly, our ability to pursue
our plan of operations is contingent on our being able to obtain
funding for the development, marketing and commercialization of
our products and services. Management plans, as soon as finances
permit, to hire additional management and staff for its US-based
operations especially in the areas of finance, sales, marketing,
13
and investor/public relations. The Company may also choose to
outsource some of its marketing requirements by utilizing a
series of independent contractors based on the projected size of
the market and the compensation necessary to retain qualified
employees. The Company engaged a marketing firm to handle the
Company's branding, marketing, advertising, media and public
relations for the planned upcoming 2008 North American launch of
its consumer product line of atmospheric water generators. The
term of the engagement is for one year, and the Company has paid
the marketing firm $250,000 and issued 1,000,000 shares of
common stock that has been registered on Form S-8 for their
services. The marketing agreements expired and the Company has
not commenced its branding and marketing efforts and therefore
the shares were not released by the Company. The Company is
currently re-negotiating the terms of its agreements with the
marketing firm.
To achieve our new operational plan, we will need to raise
substantial additional capital for our operations through
licensing fees and product sales, sale of equity securities
and/or debt financing. We have no cash to fund our operations
at this time, so we plan to sell licenses and products, offer
common stock in private placements as well as seeking debt
financing during the next 12 months to raise up to $8,000,000.
We believe the proceeds from such efforts will enable us to
expand our operations, buy inventory and start our marketing
campaign.
Due to the "start up" nature of the Company's business, the
Company expects to incur losses as the Company conducts its
ongoing research, product and systems development programs. We
will require additional funding to continue our operations, for
marketing expenses, to pursue regulatory approvals for our
products, for any possible acquisitions or new technologies, and
we may require additional funding to establish manufacturing
capabilities in the future. We may seek to access the public or
private equity markets whenever conditions are favorable. We
may also seek additional funding through strategic alliances or
collaborate with others. We cannot assure you that adequate
funding will be available on terms acceptable to us, if at all.
Because we are presently in the early stages of development and
promotional stages of our business, we can provide no assurance
that we will be successful with our efforts to establish any
revenue. In order to pursue our existing operational plan, we
14
are dependent upon the continuing sales and financial support of
creditors and stockholders until such time when we are
successful in raising debt/equity capital to finance the
operations and capital requirements of the Company or until such
time that we can generate sufficient revenue from our various
divisions.
Liquidity and Financial Resources
The Company remains in the development stage since inception.
Operations were financed through proceeds from sales and the
issuance of equity and loans from directors. The directors have
also advanced funds into the Company to cover cash flow
deficiencies . The advances have no stated repayment terms.
These funds were used to pay inventory, services, legal and
accounting expenses along with several other miscellaneous
operational infrastructure costs.
The Company's financial statements are presented on a going
concern basis, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of
business. At June 30, 2009, we have been unsuccessful in our
efforts to raise additional capital to meet our plan of
operations. Our cash position as of June 30, 2009 was ($17).
Since inception, we have recognized no significant revenue. We
have accumulated operating losses of $10,506,425. At the present
time, and over the next twelve months, our primary focus will be
to develop our marketing plan, new initiatives and operational
plan to establish sales and to explore various methods for
raising additional funds.
Critical Accounting Policies
The Company's discussion and analysis of its financial condition
and results of operations are based upon the
Company's financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States of America. The preparation of the financial
statements requires the Company to make estimates and judgments
that affect the reported amount of assets, liabilities, and
expenses, and related disclosures of contingent assets and
liabilities. On an on-going basis, the Company evaluates its
estimates, including those related to intangible assets, income
taxes and contingencies and litigation. The Company bases its
estimates on historical experience and on various assumptions
that are believed to be reasonable under the circumstances, the
15
results of which form the basis for making judgments about
carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 141, Business
Combinations, and Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets. They also issued
Statement of Financial Accounting Standards No. 143, Accounting
for Obligations Associated with the Retirement of Long-Lived
Assets, and Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets,
in August and October 2001, respectively. SFAS 141 requires all
business combinations initiated after June 30, 2001 to be
accounted for under the purchase method. SFAS 141 supersedes APB
Opinion No. 16, Business Combinations, and Statement of
Financial Accounting Standards No. 38, Accounting for Pre-
acquisition Contingencies of Purchased Enterprises, and is
effective for all business combinations
initiated after June 30, 2001.
SFAS No. 142 addresses the financial accounting and reporting
for acquired goodwill and other intangible assets. Under the new
rules, the Company is no longer required to amortize goodwill
and other intangible assets with indefinite lives, but will be
subject to periodic testing for impairment. SFAS 142 supersedes
APB Opinion No. 17, Intangible Assets. The Company's operational
policy for the assessment and measurement of any impairment in
the value of goodwill and intangible assets, which primarily
relates to contract-based intangibles such as
license agreements and extensions, is to evaluate annually, the
recoverability and remaining life of its intangible assets to
determine the fair value of these assets. The methodologies to
be used to estimate fair value include the use of estimates and
assumptions, including projected revenues, earnings and cash
flows. If the fair value of any of these assets is determined
to be less than its carrying value, the Company will reflect the
impairment of any such asset over its appraised value.
SFAS No. 143 establishes accounting standards for the
recognition and measurement of an asset retirement obligation
and its associated asset retirement cost. It also provides
accounting guidance for legal obligations associated with the
16
retirement of tangible long-lived assets. SFAS 143 is effective
in fiscal years beginning after June 15, 2002, with early
adoption permitted. The adoption of SFAS No. 143 is not expected
to have a material impact on the Company's financial statements.
SFAS 144 establishes a single accounting model for the
impairment or disposal of long-lived assets, including
discontinued operations. SFAS 144 superseded Statement of
Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of (SFAS 121), and APB Opinion No. 30, Reporting the
Results of Operations--Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions. The provisions
of SFAS 144 are effective in fiscal years beginning after
December 15, 2001, with early adoption permitted, and in general
are to be applied prospectively. The Company records impairment
losses on long lived assets used in operations when indicators
of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than
the asset's carrying amount. In such cases, the amount of the
impairment is determined on the relative values of the impaired
assets.
Financial Accounting Standards Board Interpretation No. 46,
Consolidation of Variable Interest Entities, an interpretation
of Accounting Research Bulletin No. 51, Financial Statements,
addresses consolidation by business enterprises of variable
interest entities. It is effective immediately for variable
interest entities created after January 31, 2003. It applies in
the first fiscal year or interim period beginning after June 15,
2003, to variable interest entities acquired before
February 1, 2003. The implementation of Interpretation No. 46
did not have a material effect on the Company's financial
statements.
SFAS No. 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities, amends and clarifies
accounting for derivative instruments under SFAS No. 133. It is
effective for contracts entered into after June 30, 2003. The
impact of adoption of this statement is not expected to be
significant.
SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity, establishes
17
standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liability and
equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset
in some circumstances). This statement is effective for
financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. The impact of
adoption of this statement is not expected to be significant.
In December 2004, the FASB issued SFAS 153, Exchanges of Non-
monetary Assets, an amendment of APB No. 29, Accounting for Non-
monetary Transactions. SFAS 153 requires exchanges of productive
assets to be accounted for at fair value, rather than at
carryover basis, unless (1) neither the asset received nor the
asset surrendered has a fair value that is determinable
within reasonable limits or (2) the transactions lack commercial
substance. SFAS 153 is effective for non-monetary asset
exchanges occurring in fiscal periods beginning after June 15,
2005. The Company does not expect the adoption of this standard
to have a material effect on its financial position,
results of operations or cash flows.
In December 2004, the FASB issued Statement 123 (revised 2004)
which is a revision of FASB Statement No. 123, Accounting for
Stock-Based Compensation. This Statement supersedes APB Opinion
No. 25, Accounting for Stock Issued to Employees, and its
related implementation guidance. This Statement establishes
standards for the accounting for transactions in which an entity
exchanges its equity instruments for goods or services.
It also addresses transactions in which an entity incurs
liabilities in exchange for goods or services that are based on
the fair value of the entity's equity instruments or that may be
settled by the issuance of those equity instruments. This
Statement focuses primarily on accounting for transactions in
which an entity obtains services in share-based payment
transactions. This Statement requires a public entity to measure
the cost of services received in exchange for an award of equity
instruments based on the grant-date fair value of the award
(with limited exceptions). That cost will be recognized over the
period during which an employee is required to provide service
in exchange for the award the requisite service period (usually
the vesting period).
18
Item 3. Quantitative and Qualitative Disclosures About Market
Risk.
We are primarily exposed to foreign currency risk, interest rate
risk and credit risk.
Foreign Currency Risk - We import products from foreign
countries into the United States and market our products in
North America. As a result, our financial results could be
affected by factors such as changes in foreign currency exchange
rates or, if we initiate our planned international operations,
weak economic conditions in foreign markets. Because our
revenues are currently denominated in U.S. dollars, a
strengthening of the dollar could make our products less
competitive in foreign markets that we plan to enter. We have
not hedged foreign currency exposures related to transactions
denominated in currencies other than U.S. dollars. We do not
engage in financial transactions for trading or speculative
purposes.
Interest Rate Risk - Interest rate risk refers to fluctuations
in the value of a security resulting from changes in the general
level of interest rates. Investments that are
classified as cash and cash equivalents have original
maturities of three months or less. Our interest income is
sensitive to changes in the general level of U.S. interest
rates. We do not have significant short-term investments, and
due to the short-term nature of our investments, we believe that
there is not a material risk exposure.
Credit Risk - Our accounts receivables are subject, in the
normal course of business, to collection risks. We regularly
assess these risks and have established policies and business
practices to protect against the adverse effects of collection
risks. As a result we do not anticipate any material losses in
this area.
Item 4T. Controls and Procedures.
The Company's Chief Executive Officer and its Chief Financial
Officer are primarily responsible for the accuracy of the
financial information that is presented in this quarterly
Report. These officers have as of the close of the period
covered by this Quarterly Report, evaluated the Company's
disclosure controls and procedures (as defined in Rules 13a-4c
19
and 15d-14c promulgated under the Securities Exchange Act of
1934 and determined that such controls and procedures were
effective in ensuring that material information relating to the
Company was made known to them during the period covered by this
Quarterly Report. There have been no significant changes in our
internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) during the
fourth quarter of our 2008 fiscal year that have materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
PART II
Item 1. Legal Proceedings.
We are a defendant in a case brought in October 2006 in the
Supreme Court of British Columbia, Canada entitled Atkinson et
al. v. Cimbix Corporation et al. The action relates to
allegations by plaintiffs that $94,000 was deposited into a law
firm's trust account for investment in On4 Communications Inc.,
formerly PetsMobility Network (Canada) Inc. ("On4"). The
plaintiffs allege that the law firm deducted legal fees from the
amount held in trust and transferred the balance of the funds to
On4. Both the law firm and On4 are also defendants in the case.
The Company believes the claims against it are without merit and
unlikely to succeed. The Company has filed a statement of
defense denying the allegations against it and has filed a
counter claim for defamation. The investors have been repaid
all of the funds by On4. The Company has not paid any amount to
the plaintiffs. The Company takes the position that it has done
nothing wrong and, in any event, the plaintiffs have recovered
the entirety of their loss from On4. The court has ordered a
severance of the action, and has required the plaintiffs to
prove their damages, before proceeding to trial on issues of
liability. The claim and counterclaim have been dismissed
without costs.
On March 25, 2008, we received a subpoena from the Securities
and Exchange Commission ("SEC") issued in an investigation
initiated by the SEC with respect to a number of companies
traded on the "pink sheets" market (Our Company is not one of
the companies that are the subject of the investigation). The
subpoena, inter alia, requested documents relating to: contacts
with personnel of and sales of our products to the U.S. Navy,
20
sales of our products generally, the Company's license agreement
with Airborne Water Company, and display of the Company's
products at a music festival in Florida. Our Chief Executive
Officer, Robert Rosner, has provided testimony to the SEC in
this matter.
The Company received an alleged claim in January 2009 from one
of its former distributors for failing to deliver merchandise
ordered and paid for by the Plaintiff. The Company has
subsequently filed a motion to dismiss the claim and is
considering separate legal recourse.
On July 20, 2009, the Company filed a cross-complaint for breach
of contract, intentional interference with contractual
relationship, intentional interference with prospective economic
relationship and accounting.
Item 1A. Risk Factors
We have sought to identify what we believe to be the most
significant risks to our business. However, we cannot predict
whether, or to what extent, any of such risks may be realized
nor can we guarantee that we have identified all possible risks
that might arise.
We are dependent on external financing.
It is imperative that we raise additional capital to complete
our operational plan to promote and commercialize our newly
acquired business combinations and activities. We will also
require funds to sustain our business operations if we are not
successful in earning revenues from our product sales and sub-
licensing. We estimate that we would require additional funding
of $8,000,000 to pursue our business strategy. If we are unable
to obtain equity financing upon terms that our management deems
sufficiently favorable, or at all, it would have a material
adverse impact upon our ability to expand our current
operational plan. Any sale of share capital will result in
dilution to existing shareholders.
To date, we have generated some revenues from sales but not
enough to sustain our business operations. The success of our
business depends on us receiving inventory and advertising
materials from our suppliers and manufacturers. The exact
amount of our current and future capital requirements will
depend on numerous factors, some of which are not within our
21
control, including the progress of our development efforts, the
costs of testing, supply of our products, demand of our products
and changes in governmental regulation. Our ability to raise
additional financing depends on many factors beyond our control,
including the state of capital markets, the market price of our
common stock and the development or prospects for development of
competitive technology by others. The necessary additional
financing may not be available to us or may be available only on
terms that would result in further dilution to the current
owners of our Common Stock. If we are unable to raise additional
funds when we need them, we may have to curtail or discontinue
our operations, in which case you could lose the entire amount
of your investment in the Company.
We are in our early stages of development and face a risk of
business failure.
We are in our early stages of development. We have no way to
evaluate the likelihood that we will be able to operate our
business successfully. The likelihood of success must be
considered in light of the problems, expenses, difficulties,
complications and delays encountered in connection with the
technology and sales industries. We recognize that if we are
unable to generate significant revenues from our sales, we will
not be able to earn profits or continue operations. There is
only a limited history upon which to base any assumption as to
the likelihood that we will prove successful, and we can provide
investors with no assurance that we will generate any additional
operating revenues or ever achieve profitable operations from
our current business initiatives. If we are unsuccessful in
addressing these risks, our business will most likely fail.
We are competing against larger and better-financed companies.
We operate in a highly competitive market with financial rewards
pending on market performance. Some of our competitors are
multi-million dollar enterprises with more resources for
marketing, distribution and development. We may be in a
disadvantage if any of our competitors focused on similar
products we sell. Because we don't have the infrastructure and
personnel in place to adequately implement our business plans
and operations, our business may fail.
22
Our business and the success of our products could be harmed if
we are unable to maintain our brand image.
Our success is heavily dependent upon the market acceptance of
our Wataire branded lines of atmospheric water generators. If
we are unable to timely and appropriately respond to changing
consumer demand, the brand Wataire distributes may be impaired.
Even if we react appropriately to changes in consumer
preferences, consumers may consider those brand images to be
outdated. Lack of acceptance of our brands will have a material
impact on the performance of the Company.
Dependence on our suppliers
Our success is highly dependent upon the continued support and
services of suppliers. We are solely dependent on their support
to provide enough inventories to meet our purchase orders. If
our suppliers are not able to manufacture enough products to
meet the demands of our purchase orders, our business will most
likely fail.
Demand for our products and services may fail to materialize
Our growth and success will depend on our success in
introducing and selling our products. The market for the
products and services we plan to offer is relatively new and
there is little hard data to validate market demand or predict
how this demand will be segmented. There could be much lower
demand than believed, or interest in our products and services
could decline or die out, which could adversely affect our
ability to sustain our operations.
There is substantial doubt as to our ability to continue as a
going concern
Our financial results for the fiscal year ending March 31, 2009
show substantial losses. The accompanying financial statements
have been prepared in conformity with the generally accepted
accounting principles in the United States of American 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 the successful completion of
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.
23
Our independent auditors, Gruber & Company LLC, 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.
Dependence on key management and personnel
Our success is highly dependent upon the continued services of
Robert Rosner, our Chief Executive Officer. If he were to leave
us this could have a materially adverse effect upon our business
and operations. We anticipate entering into employment contract
with Mr. Rosner but can provide no assurance that we will come
to terms for such employment agreement.
Our business also requires additional staff in all areas to
successfully bring our products to market. Our success depends
on our ability to attract and retain technical and management
personnel with expertise and experience in the technology field.
If we are unable to attract and retain qualified technical and
management personnel, we will suffer diminished
chances of future success.
We may be subject to product liability or breach of contract
claim if our products do not work as promised from our
Inventor(s) and predecessor
The atmospheric water generators are designed to facilitate
potable safe drinking water. If the technology fails to work as
manufactured by our inventor(s) and predecessor, 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. We currently do not have liability
insurance and anticipate that we will seek some coverage in the
future if such coverage is available at a reasonable cost.
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.
24
Government Regulation
Regulation by government authorities in the United States,
Canada and foreign countries may be a factor in the development,
manufacture and marketing of our products and in our research
and product development activities. The process of obtaining
these approvals and the subsequent compliance may require time
and financial resources.
Limited experience to market our products
Even if we are able to develop our products and obtain the
necessary regulatory approvals, we have limited experience or
capabilities in marketing or commercializing our products. We
currently have some sales and just engaged a marketing agency.
We do not have a distribution infrastructure in place.
Accordingly, we are dependent on our ability to find
collaborative marketing partners or contract sales companies for
commercial sale of any of our products. Even if we find a
potential marketing partner, we may not be able to negotiate an
advertising and/or licensing contract on favorable terms to
justify our investment or achieve adequate revenues.
Our business is subject to risks associated with offshore
manufacturing.
We import some of our products into the United States and Canada
from foreign countries for resale. All of our import operations
are subject to tariffs and quotas set by the U.S. and other
countries' governments through mutual agreements or bilateral
actions. Adverse changes in these import costs and restrictions,
or our suppliers' failure to comply with customs regulations or
similar laws, could harm our business.
Our operations are also subject to the effects of international
trade agreements and regulations such as the North American Free
Trade Agreement, the Caribbean Basin Initiative and the European
Economic Area Agreement, and the activities and regulations of
the World Trade Organization. Trade agreements can also impose
requirements that adversely affect our business, such as setting
quotas on products that may be imported from a particular
country into our key market, the United States. In fact, some
trade agreements can provide our competitors with an advantage
over us, or increase our costs, either of which could have an
adverse effect on our business and financial condition.
25
In addition, the recent elimination of quotas on World Trade
Organization member countries by 2005 could result in increased
competition from developing countries which historically have
lower labor costs, including China. This increased competition,
including from competitors who can quickly create cost and
sourcing advantages from these changes in trade arrangements,
could have an adverse effect on our business and financial
condition.
Our ability to import products in a timely and cost-effective
manner may also be affected by problems at ports or issues that
otherwise affect transportation and warehousing providers, such
as labor disputes or increased U.S. homeland security
requirements. These issues could delay importation of products
or require us to locate alternative ports or warehousing
providers to avoid disruption to our customers. These
alternatives may not be available on short notice or could
result in higher transit costs, which could have an adverse
impact on our business and financial condition.
Our international operations expose us to political, economic
and currency risks.
All of our products came from sources outside of the United
States. As a result, we are subject to the risks of doing
business abroad, including:
currency fluctuations;
changes in tariffs and taxes;
political and economic instability; and
disruptions or delays in shipments.
Changes in currency exchange rates may affect the relative
prices at which we are able to manufacture products and may
affect the cost of certain items required in our operation, thus
possibly adversely affecting our profitability.
There are inherent risks of conducting business internationally.
Language barriers, foreign laws and customs and duties issues
all have a potential negative effect on our ability to transact
business in the United States. We may be subject to the
jurisdiction of the government and/or private litigants in
foreign countries where we transact business, and we may be
forced to expend funds to contest legal matters in those
countries in disputes with those governments or with customers
or suppliers.
26
We may suffer from infringements or piracy of our trademarks,
designs, brands or products.
We may suffer from infringements or piracy of our trademarks,
designs, brands or products in the U.S. or globally. Some
jurisdictions may not honor our claims to our intellectual
properties. In addition, we may not have sufficient legal
resources to police or enforce our rights in such circumstances.
Unfair trade practices or government subsidization may impact
our ability to compete profitably.
In an effort to penetrate markets in which the Company competes,
some competitors may sell products at very low margins, or below
cost, for sustained periods of time in order to gain market
share and sales. Additionally, some competitors may enjoy
certain governmental subsidies that allow them to compete at
substantially lower prices. These events could substantially
impact our ability to sell our product at profitable prices.
If we market and sell our products in international markets, we
will be subject to additional regulations relating to export
requirements, environmental and safety matters, and marketing of
the products and distributorships, and we will be subject to the
effects of currency fluctuations in those markets, all of which
could increase the cost of selling products and substantially
impair the ability to achieve profitability in foreign markets.
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.
Additionally, we may be required to obtain certifications or
approvals by foreign governments to market and sell the
27
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.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds.
On April 22, 2009, the Company approved the issuance of
4,000,000 common shares at $0.005 per share to settle amounts
due to a debtor of the Company totaling $20,000.
On July 31, 2009, the Company approved the issuance of 7,600,000
common shares at $0.02 per share for services provided by
several professionals for a 12 months period totaling $152,000.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 5. Other Information.
None
28
Item 6. Exhibits
31.1 Certification of the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
31.2 Certification of the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
32.1 Certification of the Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
32.1 Certification of the Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
SIGNATURES
In accordance with 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.
Dated: November 18, 2009
WATAIRE INTERNATIONAL, INC.
By: /S/ Robert Rosner
Robert Rosner
Chief Executive Officer
& Director
By: /S/ Thomas M. Braid
Thomas M. Braid
Chief Financial Officer
& Director
29
Exhibit 31.01
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
RULE 13A-14(A) OF THE SECURITIES EXCHANGE ACT AND
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert Rosner, Director and Chief Executive Officer of Wataire
International, Inc. certify that :
1. I have reviewed this Quarterly Report on Form 10-Q of Wataire
International, Inc. ;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have :
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b. Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purpose
in accordance with general accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting.
30
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions ):
a. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarized and report financial information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Dated : November 18, 2009
Signature : /s/ Robert Rosner
-------------
Robert Rosner
Director and Chief Executive Officer
31
Exhibit 31.02
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
RULE 13A-14(A) OF THE SECURITIES EXCHANGE ACT AND
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas M. Braid, Director and Chief Financial Officer of Wataire
International, Inc. certify that :
1. I have reviewed this Quarterly Report on Form 10-Q of Wataire
International, Inc. ;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have :
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b. Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purpose in accordance with general accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting.
32
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent functions ):
a. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarized and report financial information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Dated : November 18, 2009
Signature : /s/ Thomas M. Braid
-----------------
Thomas M. Braid
Director and Chief Financial Officer
33
EXHIBIT 32 .01
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Wataire International, Inc.
(the "Company") on Form 10-Q for the period ended September 30, 2009
as filed with the Securities and Exchange Commission on the date hereof
(the "Report"),
I, Robert Rosner, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents,
in all material respects, the financial condition and result of
operations of the Company.
/s/ Robert Rosner
----------------
Robert Rosner
Chief Executive Officer
November 18, 2009
34
EXHIBIT 32 .02
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Wataire International, Inc.
(the "Company") on Form 10-Q for the period ended September 30, 2009
as filed with the Securities and Exchange Commission on the date hereof
(the "Report"),
I, Thomas M. Braid, Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents,
in all material respects, the financial condition and result of
operations of the Company.
/s/ Thomas M. Braid
--------------
Thomas M. Braid
Chief Financial Officer
November 18, 2009
35