WATAIRE INTERNATIONAL, INC.
FORM 10-Q
(Quarterly Report)
Filed 02/22/09 for the Period Ending 12/31/09
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 December 31, 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 February 1, 2010.
WATAIRE INTERNATIONAL, INC.
FORM 10-Q
For the Period Ended December 31, 2009
TABLE OF CONTENTS
FINANCIAL INFORMATION Pages
Item 1. Financial Statements .............. 1 - 12
Item 2. Management's Discussion and Analysis of Financial
Condition And Results of Operations..... 13 - 19
Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 20
Item 4T.Controls and Procedures.................... 20 - 21
PART II
Item 1. Legal Proceedings..................... 23 - 24
Item 1A.Risk Factors................... 24 - 31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.. 31
Item 3. Defaults Upon Senior Securities........... 31
Item 4. Submission of Matters to a Vote of Security Holders.... 31
Item 5. Other Information............. 32
Item 6. Exhibits and Certifications........ 32
Part 1. Item 1. Financial Statements
WATAIRE INTERNATIONAL, INC..
Page No.
Balance Sheets as at December 31, 2009 and
March 31, 2009 1
Statements of Operations for the Three Months
Ended December 31, 2009 and 2008 and for the
Nine Months Ended December 31, 2009 and 2008
and from the Period of Inception April 10, 1991
to December 31, 2009 2
Statements of Cash Flows for the Nine Months
Ended December 31, 2009 and 2008 and for the
Period from Inception April 10, 1991 to December 31, 2009 3
Notes to Financial Statements 4 - 11
WATAIRE INTERNATIONAL, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
December 31, 2009
(Stated in US Dollars)
WATAIRE INTERNATIONAL, INC.
(Formerly Cimbix Corporation)
(A Development Stage Company)
BALANCE SHEETS
as at December 31, 2009 and March 31, 2009
(Stated in US Dollars)
Unaudited Audited
Dec. 31, March 31,
2009 2009
Assets
Current Assets
Cash 4,263 35
Prepaid expenses & retainer 1,405 9,766
Advance on marketing agreements 250,000 250,000
Inventory 250,456 250,456
__________________________
Total Current Assets 506,124 510,257
Capital assets, net 77 308
Patents, Trademarks 31,434 31,434
Acquisitions of intangibles 2,546,062 2,546,062
__________________________
Total Assets 3,083,697 3,088,061
__________________________
Liabilities
Current Liabilities
Accounts payable 477,777 353,854
Shareholder loan and interest - 106,589
Due to related parties 47,293 1,280
Deferred revenue 160,924 189,067
__________________________
Total Current Liabilities 685,994 650,790
Long Term Liabilities
Derivative liability 197,158 -
Convertible Debenture, net 30,372 -
__________________________
Total Liabilities 914,124 650,790
__________________________
Stockholders' Equity
Preferred shares, $0.0001 par value,
redeemable at $0.005
Authorized 20,000,000 shares
issued and outstanding, 27,501
(March 31, 2009: 27,501) 3 3
Common shares, $0.0001 par value:
Authorized 100,000,000 shares
Issued and outstanding: 98,710,123
(March 31, 2009: 87,110,123) 9,871 8,711
Additional paid-in capital 13,145,346 12,880,264
Deferred Stock-Based Comp. (88,667) -
Deficit accumulated during the
development stage (10,896,980) (10,451,707)
___________________________
Total Equity 2,169,573 2,437,271
___________________________
Total Liabilities and
Stockholders' Equity 3,083,697 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)
STATEMENTS OF OPERATIONS
for the three months ended December 31, 2009 and 2008 and
for the nine months ended December 31, 2009 and 2008 and
for the period August 17, 2000 (Inception) to December 31, 2009
(Stated in US Dollars)
(Unaudited)
August 17
For the 3 months For the 9 months 2000
ended ended (Inception)
December 31, December 31, to Dec. 31,
2009 2008 2009 2008 2009
Sales - 20,000 - 174,540 488,102
Cost of sales - (47,619) - (149,724) (376,292)
_______________________________________________________
Gross margin - (27,619) - 24,816 111,810
Other income - - - - 9,500
_______________________________________________________
- (27,619) - 24,816 121,310
Expenses
Advances written off - - - - 234,542
Amortization 77 77 231 231 70,974
Amortization of
notes discount 28,505 - 28,505 - 28,505
Bad debt written off - - - - 2,800
Consulting fees - - 600 119,005 430,970
Donated services - - - - 11,250
Foreign exchange
(gain)/loss - 13,055 - 19,083 (42,356)
General and
administrative 12,094 6,335 27,986 51,039 264,421
Incorporation costs - - - - 2,005
Management fees 45,000 45,000 135,000 135,000 781,883
Marketing and
promotion 19,500 726 32,500 30,239 197,101
Professional fees 36,742 22,290 94,199 53,838 458,054
Research & Development - - - 105,000 202,143
Rent 9,375 3,734 9,375 9,466 58,384
Settlement of
accounts payable - - - - (3,250)
Stock-based
compensation 94,242 - 94,242 - 8,104,292
Travel 4,444 956 6,012 7,590 76,258
Website development
cost 12,263 - 20,263 - 28,963
_______________________________________________________
Total Expenses 262,242 92,173 448,913 530,491 10,906,939
Loss from continuing
operations (262,242) (119,792) (448,913) (505,675) (10,785,629)
Gain/(Loss) from
discontinued
operations 3,640 - 3,640 - (114,991)
Net loss for the
period (258,602) (119,792) (445,273) (505,675) (10,896,980)
Basic and diluted
loss per share (0.01) (0.00) (0.00) (0.01)
Weighted average
number of shares
outstanding 98,710,123 79,066,645 95,060,668 78,177,517
The accompanying notes are an integral part of the financial statements
2
WATAIRE INTERNATIONAL, INC.
(Formerly Cimbix Corporation)
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
for the nine months ended December 31, 2009 and 2008 and
for the period August 17, 2000 (Inception) to December 31, 2009
(Stated in US Dollars)
(Unaudited)
August 17,
For the 9 months ended 2000 (Inception)
Dec. 31, to Dec. 31,
2009 2008 2009
Operating Activities
Loss from continuing operations (445,273) (505,675) (10,896,980)
Adjustments to reconcile
loss to cash used
in operating activities :
Amortization 231 231 70,974
Amortization of notes discounts 28,505 - 28,505
Donated services - - 11,250
Website development
costs written off - - 8,700
Shares issued for services - - 122,070
Stock-based compensation 157,575 - 8,167,625
Advances written off - - 199,542
Change in non-cash working
capital items :
Accounts receivable - - -
Prepaid expenses and retainers 8,361 (9,368) (1,405)
Deferred revenue (28,143) 66,274 160,924
Advance on marketing agreements - - (250,000)
Inventory - 57,872 (250,456)
Accounts payable and accrued
liabilities 143,923 36,178 1,276,731
_________________________________________
Net cash used in operating
activities (134,821) (354,488) (1,352,520)
_________________________________________
Investing Activities
License payment advanced - - (50,000)
Capital assets - - (922)
Advanced to subsidiaries - - (115,091)
Acquisition of intangibles-net - (10,689) (507,624)
Website development costs - - (8,700)
Proceeds from disposition
of subsibiaries - - 100
_________________________________________
Net cash used in investing
activities - (10,689) (682,237)
_________________________________________
Financing Activities
Bank indebtedness - (5,885) -
Shareholder loan & interest 18,411 105,356 125,000
Due to related parties 46,013 63,398 47,293
Shares issued for cash - 180,000 1,792,102
Proceeds from
Convertible debentures 74,625 - 74,625
_________________________________________
Net cash provided by
financing activities 139,049 342,869 2,039,020
_________________________________________
Increase/(Decrease) in Cash 4,228 484 4,263
Cash, beginning 35 - -
Cash, ending 4,263 484 4,263
3
Supplemental Disclosure of
Cash Flow Information
Cash paid during the
period for interest - - -
Cash paid during the
period for income taxes - - -
Supplemental Disclosure of
Non-Cash Items:
Shares issued for debt 172,000 110,000 731,313
Deferred stock-based
compensation (88,667) - (88,667)
Shares issued for
Promissory Notes - - 365,087
Shares issued for intangibles - - 960,000
Exchange of shareholder loan
for Convertible Debt 125,000 - 125,000
The accompanying notes are an integral part of the financial statements
4
WATAIRE INTERNATIONAL, INC.
(Formerly Cimbix Corporation)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 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
Corporation to 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 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
December 31, 2009, the Company had not yet achieved
profitable operations, has accumulated losses of
$10,896,980 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
5
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:
(a) Development Stage Company
The Company is a development stage company and has adopted
FASB ASC Topic 915, "Accounting and Reporting by
Development Stage Enterprises" (previously "SFAS 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 financial statements will exclude the consolidation
of its wholly owned subsidiaries, Petsmo Inc. and Aqua
Technologies, Inc. as these subsidiaries have been
dissolved and the investments to be written off and contra
with the amounts owing to the subsidiaries.
(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,
6
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
In July 2009, the Company adopted FASB ASC Topic 350,
"Accounting for the Costs of Computer Software Development
or Obtained for Internal Use" (previously SOP 98-1). 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.
(f) Impairment of long-lived assets
In July 2009, the Company adopted FASB ASC Topic 360,
"Accounting for the Impairment or Disposal of Long-Lived
Assets" (previously "SFAS 144"). This topic addresses
financial accounting and reporting for the impairment or
disposal of long-lived assets. The Company periodically
evaluates the carrying value of long-lived assets to be
held and used in accordance with this topic. This topic
requires impairment losses to be recorded 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 assets'
carrying amounts. In that event, a loss is recognized based
on the amount by which the carrying amount exceeds the fair
market value of the long-lived assets. Loss on long-lived
assets to be disposed of is determined in a similar manner,
except that fair market values are reduced for the cost of
disposal.
(g) Revenue Recognition
The Company receives revenues from the sale of water
generator machines. The Company recognizes revenues when
7
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.
(h) Income Taxes
In July 2009, the Company adopted FASB ASC 749 "Accounting
for Income Taxes" (previously SFAS 109), 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
Basic earnings per share is calculated using the weighted-
average number of common shares outstanding during the
period without consideration of the dilutive effect of
stock warrants and convertible notes. Diluted earnings per
share is calculated using the weighted-average number of
common shares outstanding during the period after
consideration of the dilutive effect of stock warrants,
stock options and convertible notes.
(j) Stock-based Compensation
In July 2009, the Company adopted FASB ASC Topic 718,
"Share-Based Payment" (previously "SFAS 123(R)"). This
topic requires that companies account for awards of equity
instruments issued to employees under the fair value method
of accounting and recognize such amounts in their
statements of operations. Under this topic, we are required
to measure compensation cost for all stock-based awards at
fair value on the date of grant and recognize compensation
expense in our consolidated statements of operations over
the service period that the awards are expected to vest.
The Company accounts for stock-based compensation issued to
8
non-employees and consultants in accordance with the
provisions of FASB ASC Topic 718, "Share-Based Payment"
(previously "SFAS 123(R)"). Under this topic Common stock
issued to non-employees in exchange for services is
accounted for based on the fair value of the services
received.
(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
determination 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).
(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
The adoption of these accounting standards had the
following impact on the Company's statements of income and
financial condition:
- - FASB ASC Topic 855, "Subsequent Events". In May
2009, the FASB issued FASB ASC Topic 855, which
establishes general standards of accounting and
disclosure of events that occur after the balance
9
sheet date but before financial statements are
issued or are available to be issued. In particular,
this Statement sets forth : (i) the period after the
balance sheet date during which management of a
reporting entity should evaluate events or
transactions that may occur for potential
recognition or disclosure in the financial
statements, (ii) the circumstances under which an
entity should recognize events or transactions
occurring after the balance sheet date in its
financial statements, (iii) the disclosures that an
entity should make about events or transactions that
occurred after the balance sheet date. This FASB ASC
Topic should be applied to the accounting and
disclosure of subsequent events. This FASB ASC Topic
does not apply to subsequent events or transactions
that are within the scope of other applicable
accounting standards that provide different guidance
on the accounting treatment for subsequent events or
transactions. This FASB ASC Topic was effective for
interim and annual periods ending after June 15,
2009, which was June 30, 2009 for the Corporation.
The adoption of this Topic did not have a material
impact on the Company's financial statements and
disclosures.
- - FASB ASC Topic 105, "The FASB Accounting Standard
Codification and the Hierarchy of Generally Accepted
Accounting Principles". In June 2009, the FASB
issued FASB ASC Topic 105, which became the source
of authoritative GAAP recognized by the FASB to be
applied by nongovernmental entities. Rules and
interpretive releases of the SEC under authority of
federal securities laws are also sources of
authoritative GAAP for SEC registrants. On the
effective date of this FASB ASC Topic, the
Codification will supersede all then-existing non-
SEC accounting and reporting standards. All other
non-SEC accounting literature not included in the
Codification will become non-authoritative. This
FASB ASC Topic identify the sources of accounting
principles and the framework for selecting the
principles used in preparing the financial
statements of nongovernmental entities that are
presented in conformity with GAAP. Also, arranged
these sources of GAAP in a hierarchy for users to
10
apply accordingly. In other words, the GAAP
hierarchy will be modified to include only two
levels of GAAP: authoritative and non-authoritative.
This FASB ASC Topic is effective for financial
statements issued for interim and annual periods
ending after September 15, 2009. The adoption of
this topic did not have a material impact on the
Company's disclosure of the financial statements
- - FASB ASC Topic 320, "Recognition and Presentation of
Other-Than-Temporary Impairments". In April 2009,
the FASB issued FASB ASC Topic 320 amends the other-
than-temporary impairment guidance in GAAP for debt
securities to make the guidance more operational and
to improve the presentation and disclosure of other-
than-temporary impairments on debt and equity
securities in the financial statements. This FASB
ASC Topic does not amend existing recognition and
measurement guidance related to other-than-temporary
impairments of equity securities. The FASB ASC Topic
shall be effective for interim and annual reporting
periods ending after June 15, 2009, with early
adoption permitted for periods ending after March
15, 2009. Earlier adoption for periods ending before
March 15, 2009, is not permitted. This FASB ASC
Topic does not require disclosures for earlier
periods presented for comparative purposes at
initial adoption. In periods after initial adoption,
this FASB ASC Topic requires comparative disclosures
only for periods ending after initial adoption. The
adoption of this Topic did not have a material
impact on the Company's financial statements and
disclosures.
The Company is evaluating the impact that the
following recently issued accounting pronouncements
may have on its financial statements and disclosures.
- - FASB ASC Topic 860, "Accounting for Transfer of
Financial Asset"., In June 2009, the FASB issued
additional guidance under FASB ASC Topic 860,
"Accounting for Transfer and Servicing of Financial
Assets and Extinguishment of Liabilities", which
improves the relevance, representational
faithfulness, and comparability of the information
that a reporting entity provides in its financial
11
statements about a transfer of financial assets; the
effects of a transfer on its financial position,
financial performance, and cash flows; and a
transferor's continuing involvement, if any, in
transferred financial assets. The Board undertook this
project to address (i) practices that have developed
since the issuance of FASB ASC Topic 860, that are not
consistent with the original intent and key
requirements of that statement and (ii) concerns of
financial statement users that many of the financial
assets (and related obligations) that have been
derecognized should continue to be reported in the
financial statements of transferors. This additional
guidance requires that a transferor recognize and
initially measure at fair value all assets obtained
(including a transferor's beneficial interest) and
liabilities incurred as a result of a transfer of
financial assets accounted for as a sale. Enhanced
disclosures are required to provide financial
statement users with greater transparency about
transfers of financial assets and a transferor's
continuing involvement with transferred financial
assets. This additional guidance must be applied as of
the beginning of each reporting entity's first annual
reporting period that begins after November 15, 2009,
for interim periods within that first annual reporting
period and for interim and annual reporting periods
thereafter. Earlier application is prohibited. This
additional guidance must be applied to transfers
occurring on or after the effective date.
- - FASB ASC Topic 810, "Variables Interest Entities".
In June 2009, the FASB issued FASB ASC Topic 810,
which requires an enterprise to perform an analysis
to determine whether the enterprise's variable
interest or interests give it a controlling
financial interest in a variable interest entity.
This analysis identifies the primary beneficiary of
a variable interest entity as the enterprise that
has both of the following characteristics: (i)The
power to direct the activities of a variable
interest entity that most significantly impact the
entity's economic performance and (ii)The obligation
to absorb losses of the entity that could
potentially be significant to the variable interest
entity or the right to receive benefits from the
12
entity that could potentially be significant to the
variable interest entity. Additionally, an enterprise
is required to assess whether it has an implicit
financial responsibility to ensure that a variable
interest entity operates as designed when determining
whether it has the power to direct the activities of
the variable interest entity that most significantly
impact the entity's economic performance. This FASB
Topic requires ongoing reassessments of whether an
enterprise is the primary beneficiary of a variable
interest entity and eliminate the quantitative
approach previously required for determining the
primary beneficiary of a variable interest entity,
which was based on determining which enterprise
absorbs the majority of the entity's expected losses,
receives a majority of the entity's expected residual
returns, or both. This FASB ASC Topic shall be
effective as of the beginning of each reporting
entity's first annual reporting period that begins
after November 15, 2009, for interim periods within
that first annual reporting period, and for interim
and annual reporting periods thereafter. Earlier
application is prohibited.
- - FASB ASC Topic 820, "Fair Value measurement and
Disclosures", an Accounting Standard Update. In
September 2009, the FASB issued this Update to
amendments to Subtopic 82010, "Fair Value
Measurements and Disclosures". Overall, for the fair
value measurement of investments in certain entities
that calculates net asset value per share (or its
equivalent). The amendments in this Update permit,
as a practical expedient, a reporting entity to
measure the fair value of an investment that is
within the scope of the amendments in this Update on
the basis of the net asset value per share of the
investment (or its equivalent) if the net asset
value of the investment (or its equivalent) is
calculated in a manner consistent with the
measurement principles of Topic 946 as of the
reporting entity's measurement date, including
measurement of all or substantially all of the
underlying investments of the investee in accordance
with Topic 820. The amendments in this Update also
require disclosures by major category of investment
13
about the attributes of investments within the scope
of the amendments in this Update, such as the nature
of any restrictions on the investor's ability to
redeem its investments at the measurement date, any
unfunded commitments (for example, a contractual
commitment by the investor to invest a specified
amount of additional capital at a future date to fund
investments that will be made by the investee), and
the investment strategies of the investees. The major
category of investment is required to be determined on
the basis of the nature and risks of the investment in
a manner consistent with the guidance for major
security types in GAAP on investments in debt and
equity securities in paragraph 320-10-50-lB. The
disclosures are required for all investments within
the scope of the amendments in this Update regardless
of whether the fair value of the investment is
measured using the practical expedient. The amendments
in this Update apply to all reporting entities that
hold an investment that is required or permitted to be
measured or disclosed at fair value on a recurring or
non recurring basis and, as of the reporting entity's
measurement date, if the investment meets certain
criteria The amendments in this Update are effective
for the interim and annual periods ending after
December 15, 2009. Early application is permitted in
financial statements for earlier interim and annual
periods that have not been issued.
- - FASB ASC Topic 740, "Income Taxes", an Accounting
Standard Update. In September 2009, the FASB issued
this Update to address the need for additional
implementation guidance on accounting for
uncertainty in income taxes. The guidance answers
the following questions: (i) Is the income tax paid
by the entity attributable to the entity or its
owners? (ii) What constitutes a tax position for a
pass-through entity or a tax-exempt not-for-profit
entity? (iii) How should accounting for uncertainty
in income taxes be applied when a group of related
entities comprise both taxable and nontaxable
entities? In addition, this Updated decided to
eliminate the disclosures required by paragraph 740-
10-50-15(a) through (b) for nonpublic entities. The
implementation guidance will apply to financial
statements of nongovernmental entities that are
14
presented in conformity with GAAP. The disclosure
amendments will apply only to nonpublic entities as
defined in Section 740-10-20. For entities that are
currently applying the standards for accounting for
uncertainty in income taxes, the guidance and
disclosure amendments are effective for financial
statements issued for interim and annual periods
ending after September 15, 2009.
Note 3. Related Party Transactions
During the period ended December 31, 2009, directors of the
company charged the following expenses to the Company:
Management fees $135,000
Loan interest 4,755
Note 4. Common Stock
For the Year Ended March 31, 2009
Shares 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 issue 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.
Shares 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
contains one common share and one share warrant exercisable
at $0.06 per share on or before June 16, 2011.
15
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
contains 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 has signed agreement with
existing warrant options holders to cancel all existing
warrant options available to the Company.
For The Nine Months Ended December 31, 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 expiring September 14, 2014, exercisable at $0.01 per
share, for 7,500,000 shares of common stock with a cashless
exercise provision. The Company recognized $94,242 in stock
based compensation expense for the issuance of these
warrants.
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 as of
February 2009.
16
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
nine months ended December 31, 2009 and 2008.
Note 7. Convertible Note
On September 14, 2009, the Company received $197,158 in
convertible subordinated notes from investors and a related
party. These notes carries an 5% annual interest rate with
both principle and accrued interest payable on October 1,
2011. At the holders discretion these notes and any accrued
interest may be converted into common shares at $0.01 per
share.
Under FASB ASC Topic 815, "Derivatives and Hedging", this
convertible note does not meet the definition of a
"conventional convertible debt instrument" since the debt
has a beneficial conversion feature. Therefore, the
convertible debenture is considered "non-conventional",
which means that the conversion feature must be bifurcated
from the debt and shown as a separate derivative liability.
The Company recognized a derivative liability of $197,158
during the period, with an offset to debt discount in the
same amount.
Note 8. 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
17
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.
Aquaduct International. LLC v. Wataire International, Inc.
et. AI. 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 for Breach of Contract and
Intentional Interference. On February 2, 2010 a
confidential settlement agreement and release was
effectuated between the parties. The Complaint and cross
complaint have been dismissed by the parties with
prejudice.
Note 9. Inventory
At December 31, 2009 and March 31, 2009, inventories are
comprised of finished water-from-air machines totaling
$250,456, and $250,456, respectively.
18
Note 10. 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 describe below.
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
19
Note 11. Deferred Revenue
As of December 31, 2009 and March 31, 2009, deferred
revenue totaled $160,924 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 12. Income Taxes
The Company has losses for tax purposes totaling
$10,896,980 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
management's judgement about the realizability of deferred
tax assets, the impact of the change on the valuation
allowance are reflected in current operations.
Note 13 - Subsequent Events Review
The Company has evaluated all subsequent events through
February 18, 2010, the date this Quarterly Report on Form
10-Q was filed with the SEC. There were no recognized or
unrecognized events that require disclosure as significant
subsequent events.
20
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.
21
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 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 nine months periods ended
December 31, 2009 and 2008.
The operating results and cash flows are presented for the
nine months periods ended December 31, 2009 and 2008 and
for the period of inception to December 31, 2009.
Revenues. For the nine months period ended December 31,
2009, we had total nil revenue compared to $174,540 for the
nine months period ended December 31, 2008, a decrease of
$174,540 from our sales of products.
Operating Expenses. For the nine months period ended
December 31, 2009, we had total operating expenses of
$448,913 as compared to $505,675 for nine months period
ended December 31, 2008. The decrease of $81,578.
Management Fees. For the nine months periods ended
December 31, 2009 and 2008, we had same amount of
management fees of $135,000.
Professional Fees. For the nine months period ended
December 31, 2009, we had professional fees of $94,199 as
compared to $53,838 for the nine months period ended
December 31, 2008, an increase of $40,361.
22
Net Loss. The net loss for the nine months period ended
December 31, 2009 was $445,273 as compared to $505,675 for
the nine months period ended December 31, 2008, a decrease
of $60,402.
Plan of Operation
We currently have minimal cash reserves. 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, 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
23
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 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 December 31, 2009, we have been unsuccessful
in our efforts to raise additional capital to meet our plan
of operations. Our cash position as of December 31, 2009
was $4,263. Since inception, we have recognized no
significant revenue. We have accumulated operating losses
of $10,896,980. 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
24
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 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.
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.
25
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 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 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 third quarter of
our 2009 fiscal year that have materially affected, or are
reasonably likely to materially affect, our internal
control over financial reporting.
26
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, 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.
27
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.
On February 2, 2010 a confidential settlement agreement and
release was effectuated between the parties. The Complaint
and cross complaint have been dismissed by the parties with
prejudice.
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 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,
28
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.
29
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
30
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.
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.
31
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.
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
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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 affects 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.
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.
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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.
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.
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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
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.
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Item 5. Other Information.
None
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: February 22, 2010
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
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