Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company. (Check One):
Large accelerated filer [ ]
Accelerated filer [ ]
Non-accelerated filer [ ]
Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
The aggregate market value of the voting and non-voting common equity held by non-affiliates as of the last business day of the registrant’s most recently completed second fiscal quarter was $5,869,515.
Number of shares of Common Stock outstanding as of June 30, 2008: 78,110,123
Documents incorporated by reference: None
WATAIRE INTERNATIONAL, INC.
INDEX
Page
PART I
This Annual Report on Form 10-K 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-K. 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 Annual Report on Form 10-K. 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 1. Business.
General
Wataire International, Inc. ("Wataire," the "Company," "us," or "we") was incorporated under the laws of the State of Washington on August 17, 2000 and has been a reporting issuer with the United States Securities and Exchange Commission (the "SEC") since November 2000.
On October 3, 2006, the Company changed its name to Wataire International, Inc. Previously, on August 26, 2003, the Company had changed its name from Corporate Development and Innovation, Inc. to Cimbix Corporation. The Company’s common stock traded in the Over-the-Counter Bulletin Board Market, but as a result of a late filing of the Company’s Form 10-KSB for its fiscal year ended September 30, 2007 (the filing date of which was subsequently corrected to be timely), our common stock now trades under the ticker symbol "WTAR" on the “Pink Sheets” market. In light of the corrected filing date, we have applied to the NASD to have our common stock re-admitted for trading in the Over-the-Counter Bulletin Board market.
The Company's business is still in its early developmental and promotional stages and to date, the Company's primary activities have involved significant re-structuring and re-organization. After involvement in Petsmobility and MBG businesses, in 2006 the Company entered into license agreement with Ecosafe Innotech Inc., (formerly Wataire Ecosafe Technologies Inc., formerly Wataire Industries Inc.)(“Ecosafe”) to market and distribute their commercial water generation machines. On April 25, 2007, we entered into an agreement with Ecosafe, Canadian Dew Technologies Inc. (“CanDew”), Terrence Nylander and Roland Wahlgren to acquire all of the intellectual property (“IP”) relating to 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. Mr. Nylander was, at the time, an officer and director of the Company.
Consideration for the purchase of the IP was $469,485 (CAD $500,000), which was paid at 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. 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 water treatment process and devices for water-from-air machines invention.
LIQUIDITY AND FINANCIAL RESOURCES
Through March 31, 2008, the Company had not carried on any significant operations and had not generated significant revenues. The Company has incurred losses since inception aggregating $9,715,025 and has working capital of $276,530 at March 31, 2008. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
We currently have minimal cash reserves. To date, the Company has covered operating deficits primarily through its financing activities. 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. As a result of its lack of operating success, the Company may not be able to raise additional financing to cover operating deficits.
BUSINESS
Our business plan is to fully exploit our products and technology by marketing and distributing our commercial and home/office water generation machines as well as their under-the-counter/over-the-counter units, and the water-producing greenhouse.
The atmospheric water generator produces purified water from the atmosphere by using a condensing surface and a special filtration system that removes dust, airborne particles and bacteria to generate clean drinking water and simultaneously cleaning the air. This method of extracting water vapor has been in use for many years. Some similar applications include air conditioners and dehumidifiers. The actual water production and cost per gallon varies with the humidity and temperature of the atmosphere at the specific site in which the unit is employed.
The Wataire water generation equipment is a water-from-air technology system developed by a team of specialized technicians incorporating patent pending technologies that control bacterial contamination. The Company currently sells two types of atmospheric units: (i) small-scale home/office units, which include a full-sized upright model and a countertop model and which can produce between four to seven gallons of water per day depending on humidity and temperature levels of the location of the unit, and (ii) commercial/industrial units capable of producing more than 5,000 liters (1320 gallons) of safe drinking water each day depending upon ambient conditions.
The home/office units are designed to replace bottled water and purified water dispensers, eliminating the need for replenishment and storage of plastic bottles. These units are intended for usage in residences, schools, offices, hospitals and restaurants. They can also serve as a personal disaster relief unit for consumers in circumstances such as hurricane Katrina where residents in the affected area had no drinking water.
The industrial units are intended for use in military camps, industrial applications such as factories, commercial applications such as hotels, humanitarian and disaster relief applications where fresh drinking water is scarce.
The water generation equipment is a water-from-air technology system developed by a team of specialized technicians incorporating patent pending technologies that control bacterial contamination. The water generating units are equipped with an electronic control system that turns the machine on and off when full and can circulate the water to maintain clean drinking water 24 hours a day, 365 days a year. It has a dynamic display to allow for monitoring the machine's operation, showing when a new filter is required.
The system provides an independent, sustainable, safe water source for a wide variety of possible circumstances such as mining and petroleum exploration camps, bottled water and beverage manufacturers, food manufacturers, military camps, non-government organizations, humanitarian assistance organizations, emergency and disaster relief situations. According to field trials recently held in Belize and Thailand, the system performed well in a tropical environment producing the design projected volume of water and achieving the desired water quality standards. While we believe the unit is also economically viable in temperate climates, the Wataire units work best in the tropics due to the high humidity levels,
which will produce the highest rate of water production at the lowest cost per gallon.
The patent pending water treatment system is comprised of a three-stage water treatment design that cleans water to meet World Health Organization guidelines. The unit consists of a filtration system, a food-grade dehumidifier water producing module, and a water treatment module. The water treatment process is proprietary and may be subject of various patent applications already filed.
The process basically involves taking filtered moist air from the atmosphere and dehumidifying it for treatment by the water treatment module. This produced water is then processed through sediment filters, ultra-fine filters, activated charcoal filters and ultraviolet light treatment that eliminate virtually all biological contaminants including bacteria, viruses, and pollutants that are in the air. Atmospheric water vapor is an abundant resource that can be used with virtually no negative environmental impacts. The machine should be situated in a space that can provide fresh flowing air to the machine intake as it dehumidifies the space. The water-from-air technology has received broad acceptance around the world as a new and sustainable source of potable water.
COMPETITION
Water purification and bottled water industries are highly competitive. According to past internal research, there were possibly nine entities experimenting with the technology of water generation, of which two or three were direct active competitors. Some of those companies have limited or no business activities while others have entered into strategic alliances with one another. The relatively high energy cost associated with changing water from its vapor phase in the air to the liquid phase appears to be an obstacle to making sales for a number of these competitors. Control of bacteria and viruses in the field of atmospheric water generation creates a technological challenge that our patent pending water treatment module has resolved. The atmospheric water generator and filtration system industry is new, rapidly evolving and can compete with more traditional water treatment systems that rely on surface and ground water supplies. In the future, our competitors can and may duplicate or surpass in efficacy many of the products or services offered by us.
REGULATORY ENVIRONMENT
The manufacturing, processing, testing, packaging, labeling and advertising of the products that we sell may be subject to regulation by one or more U.S. federal agencies, including the Food and Drug Administration, the Federal Trade Commission, the CSA and UL in North America, the United States Department of Agriculture, the Environmental Protection Agency, the standards provided by the United States Public Health authority and the World Health Organization for Drinking Water. These activities may also be regulated by various agencies of the states, localities and foreign countries in which consumers reside.
CERTIFICATION AND TESTING
All the products that we sell and plan to sell will go through stringent testing that will have the appropriate UL, CE or CSA certifications on the
products. The CSA Mark is an internationally recognized mark that appears on over one billion products worldwide. CSA International is a leader in standards development, certification and testing, and quality management registration. The CSA International marks are accepted by many electrical inspectors, gas inspectors, building inspectors and other governmental authorities that approve projects and products that are sold in Canada, the United States and all over the world. The Company uses the services of CSA International because they test, certify and ensure that products comply with applicable safety and/or performance standards applicable to the products for the sale in that country. These standards include UL, CSA, ANSI (American National Standards Institute), ASTM, NSF, OSHA (Occupational Safety and Health Administration under the US Department of Labor), NVLAP (National Voluntary Laboratory Accreditation Program), SCC (Standards Council of Canada), IAS (International Accreditation Service Inc.) and others.
At this time, the products carry the markings of CE and we are currently seeking CSA markings for Canada and UL markings the United States. These markings on the products indicate to governmental officials and consumers that the products may be legally placed on the market in the country for sale. It also indicates that the products met all safety requirements and tests, and such products are in conformity with the applicable standards.
RESEARCH AND DEVELOPMENTS
The Company does not have its own research and development department and will rely on Canadian Dew Technologies Inc. to furnish the Company with new technology and improvements on its existing applications, efficiency and theories of the underlying atmospheric water generators and filtration systems.
MARKET ANALYSIS AND STRATEGY
We believe a market opportunity exists for our atmospheric water generators and filtration systems. Our technology provides an alternative solution to the world’s shortage of fresh water and can provide clean, safe drinking water in various geographical settings. Today, governments and health professionals are increasingly conscious of the negative health effects of pollution, chemicals used to disinfect water supplies, and residual salt in desalinated water, and how they affect human health.
Our target markets for the water-from-air systems are businesses, governments, and people who are situated in the humid tropics. To date, our products have been sold in over 30 different countries and have received positive response from system users. Our systems, units and/or applications target various markets including military applications, oil and mining operations, new and existing tourist resorts, beverage bottling plants, new condominium developments and humanitarian missions.
The development of our marketing plan is still in its early stages; however, we anticipate having an outline of our marketing strategy in the fall of 2008. 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.
In December 2006, the Company retained Cucoloris Films Inc. (“Cucoloris”), a Los Angeles based multimedia and marketing company to help us with our marketing needs. 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 and have been returned to treasury. The Company is currently re-negotiating the terms of its agreements with the marketing firm.
EMPLOYEES
The Company currently has no employees but has contract staff. The Company anticipates entering into an employment contract with Robert Rosner, our Chief Executive Officer, but can provide no assurance that we will come to terms for such employment agreement. The Company looks to its directors and officers for their combined entrepreneurial skills and talents, and to outside subcontracted consultants. Management plans to use consultants, attorneys and accountants as necessary until the Company has sufficient funds to execute strategies for the Company. The Company’s performance and success is dependent on management’s ability to raise the necessary funds required to develop and promote the sale of its products.
PATENTS AND TRADEMAKS
The patent pending and/or trademarks and copyrights from Ecosafe, Terry Nylander, Roland Wahlgren and CanDew has now been transferred to our name. The Company has also filed other patents, trademarks and copyrights in other countries.
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, 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.
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 inventory 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 six months fiscal year ending March 31, 2008 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.
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.
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.
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.
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 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 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Properties.
Our principal executive offices are located at #300, Warner Center, 21550 Oxnard Street, Woodland Hills, California 91367. We pay a monthly rent of $1,500 for the offices. The Company's phone number is 310-728-6306.
Item 3. 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 Airborn 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.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
PART II
Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
The Company’s common stock traded in the Over-the-Counter Bulletin Board Market, but as a result of a late filing of the Company’s Form 10-KSB for its fiscal year ended September 30, 2007 (the filing date of which was subsequently corrected to be timely), our common stock now trades under the ticker symbol "WTAR" on the “Pink Sheets” market. In light of the corrected filing date, we have applied to the NASD to have our common stock readmitted for trading in the Over-the-Counter Bulletin Board market.
The following table sets forth for each period indicated the high and the low bid prices per share for the Company's Common Stock.
Bid Prices
Quarter Ended High Low
March 31, 2008
0.24
0.06
December 31, 2007
0.22
0.09
September 30, 2007
0.30
0.13
June 30, 2007
0.73
0.22
March 31, 2007
1.40
0.48
December 31, 2006
0.86
0.35
September 30, 2006
0.62
0.22
June 30, 2006
0.18
0.04
March 31, 2006
0.29
0.05
December 31, 2005
0.85
0.13
There were approximately 112 holders of record of the common stock as of March 31, 2008. The Company believes that an undefined number of shares of its common stock are held in either nominee name or street name brokerage accounts. Consequently, the Company is unable to determine the exact number of beneficial owners of its common stock.
The Company has never paid a cash dividend on its Common Stock and does not anticipate paying dividends in the foreseeable future. It is the present policy of the Company's Board of Directors to retain earnings, if any, to finance the expansion of the Company's business. The payment of dividends in the future will depend on the results of operations, financial condition, capital expenditure plans and other cash obligations of the Company and will be at the sole discretion of the Board of Directors
Section 15(g) of the Securities Exchange Act of 1934:
The Company’s shares are covered by Section 15(g) of the Securities Exchange Act of 1934, as amended that imposes additional sales practice requirements on broker/dealers who sell such securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouses). For transactions covered by this Section 15(g), the
broker/dealer must make a special suitability determination for the purchase and have received the purchaser's written agreement to the transaction prior to the sale. Consequently, Section 15(g) may affect the ability of broker/dealers to sell the Company’s securities and also may affect your ability to sell your shares in the secondary market.
Section 15(g) also imposes additional sales practice requirements on broker/dealers who sell penny securities. These rules require a one page summary of certain essential items. The items include the risk of investing in penny stocks in both public offerings and secondary marketing; terms important to an understanding of the function of the penny stock market, such as "bid" and "offer" quotes, a dealers "spread" and broker/dealer compensation; the broker/dealer compensation, the broker/dealers duties to its customers, including the disclosures required by any other penny stock disclosure rules; the customers rights and remedies in causes of fraud in penny stock transactions; and, the NASD's toll free telephone number and the central number of the North American Administrators Association, for information on the disciplinary history of broker/dealers and their associated persons.
RECENT SALES OF UNREGISTERED SECURITIES
In July 2006, the Company issued to Ecosafe 10,000,000 restricted shares of its common stock, $0.0001 par value per share which were not registered under the Act in consideration for the exclusive world wide license agreement with Ecosafe relating to commercial units valued at approximately $620,000. The Company claims an exemption from registration of these securities pursuant to Section 4(2) of the Act.
In August 2006, the Company issued to an accredited investor 440,000 restricted shares of its common stock, $.0001 par value per share, which were not registered under the Act in consideration for $110,000 pursuant to a private placement. The Company claims an exemption from registration of these securities pursuant to Section 4(2) of the Act.
In September 2006, the Company issued to Ecosafe 1,000,000 restricted shares of its common stock, $0.0001 par value per share, which were not registered under the Act in consideration for the exclusive worldwide license agreement with Ecosafe relating to home/office units valued at approximately $560,000. The Company claims an exemption from registration of these securities pursuant to Section 4(2) of the Act.
In October 2006, the Company’s Board of Directors adopted the 2006 Stock Option Plan (the “2006 Plan”), reserving 8,000,000 shares for issuance under the 2006 Plan, and granted a total of 1,475,000 non-qualified stock options to the following individuals: Terrance Nylander (250,000 options), Roland Walgreen (175,000 options), Nand Shankar (250,000 options), Bruce H. Haglund (100,000 options), Maribel Jordan (150,000 options), Philip Fraser (300,000 options), Nicole Fraser (75,000 options), and Russ Lombardo (175,000 options). These non-qualified stock options are exercisable at $.50 per share, expire on September 30, 2013, and are fully vested. The Company claims an exemption from registration of these securities pursuant to Section 4(2) of the Act.
In October 2006, the Company agreed to issue to P204 Enterprises Ltd. 2,083,333 restricted shares of its Common Stock, $0.0001 par value per
share, in consideration for $1,000,000. In connection with the sale of the Shares, the Company issued to P204 Enterprises Ltd. a warrant to purchase 2,083,333 shares of common stock of the Company. On the condition that the Warrant is exercised on or before April 30, 2007, the exercise price of the warrants is $0.85 per share; on the condition that the warrant is exercised on or before October 31, 2007, the exercise price of the warrant is $1.00 per share; and on the condition that the warrant is exercised on or before April 30, 2008, the exercise price of the Warrant is $1.15 per share. The Warrant expires on April 30, 2008. This transaction closed in January 2007. The Company claims an exemption from registration of these securities pursuant to Section 4(2) of the Act.
In November 2006, the Company granted a total of 4,925,000 non-qualified stock options under the 2006 Plan to the following individuals: Robert Rosner (2,000,000 options), William Robertson (1,500,000 options), Philip Fraser (1,200,000 options), and Russ Lombardo (225,000 options). These non-qualified stock options are exercisable at $.62 per share, expire on September 30, 2013, and are fully vested. The Company claims an exemption from registration of these securities pursuant to Section 4(2) of the Act.
In December 2006, the Company agreed to pay $1,000,000 and issue 1,000,000 shares of its common stock to Cucoloris Films, Inc. (“Cucoloris”) pursuant to a Form S-8 registration statement as partial consideration for the services of Cucoloris to the Company. The agreement provided for the registration of the shares prior to December 31, 2006, but the parties have agreed to the filing of the registration statement as soon as practicable. The Company issued 1,000,000 shares and has paid $250,000. 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 Company is currently re-negotiating the terms of the remaining $750,000. The common shares have been returned back to treasury.
In January 2007, the Company agreed to issue to James Marsden 133,333 units, each unit consisting of a share of common stock and a warrant to purchase a share of common stock, for a consideration of $100,000 ($.75 per unit). The warrants stock expire in January 2009 and are exercisable at $.85 per share if the warrant is exercised on or before June 30, 2007, at $1.00 if the warrant is exercised on or before December 31, 2007, and at $1.15 if the warrant is exercised on or before December 31, 2008. The subscription was not completed.
In January 2007, the Company agreed to issue to Robert Rosner, our Chief Executive Officer, up to 200,000 units, each unit consisting of a share of common stock and a warrant to purchase a share of common stock, in consideration for the forgiveness of up to $150,000 of indebtedness of the Company to Mr. Rosner ($.75 per unit). The warrants stock expire in January 2009 and are exercisable at $.85 per share if the warrant is exercised on or before June 30, 2007, at $1.00 if the warrant is exercised on or before December 31, 2007, and at $1.15 if the warrant is exercised on or before December 31, 2008. The Company issued 195,334 units to Robert Rosner. The Company claims an exemption from registration of these securities pursuant to Section 4(2) of the Act.
In January 2007, the Company agreed to issue to Donald Walker, a former officer and director of the Company, up to 80,000 units, each unit consisting of a share of common stock and a warrant to purchase a share of common stock, in consideration for the forgiveness of up to $60,000 of
indebtedness of the Company to Mr. Walker ($.75 per unit). The warrants stock expire in January 2009 and are exercisable at $.85 per share if the warrant is exercised on or before June 30, 2007, at $1.00 if the warrant is exercised on or before December 31, 2007, and at $1.15 if the warrant is exercised on or before December 31, 2008. The Company issued 77,202 units to Donald Walker. The Company claims an exemption from registration of these securities pursuant to Section 4(2) of the Act.
In January 2007, the Board of Directors approved an amendment to the 2006 Stock Option Plan to increase the number of shares issuable upon exercise of options to 11,000,000 shares and approved the grant of 875,000 non-qualified stock options under the 2006 Plan to the following individuals: James Marsden (750,000 options), Adriana Mihalos (75,000 options), and Gary Tacon (50,000 options). These non-qualified stock options are exercisable at $1.10 per share, expire on September 30, 2013, and are fully vested. The Company claims an exemption from registration of these securities pursuant to Section 4(2) of the Act.
In January 2007, the Board of Directors approved the grant of 2,000,000 non-qualified stock options outside of the plan to two consultants (1,000,000 options each) with whom the Company is presently negotiating consulting agreements. Neither the consulting agreements nor the stock option agreements have been executed as of the date of this Annual Report. The Company was unable to reach amicable terms with the two consultants for services. These non-qualified stock options were cancelled.
In April 2007, the Board of Directors approved the grant of 1,700,000 non-qualified stock options under the 2006 Amended Stock Option Plan to Robert Rosner (1,500,000 options) and Richard Jordan (200,000 options). These non-qualified stock options are exercisable at $0.57 per share, expire on September 30, 2013, and are fully vested. The Company claims an exemption from registration of these securities pursuant to Section 4(2) of the Act.
In May 2007, the Board of Directors approved the grant of 1,295,000 non-qualified stock options under the 2006 Amended Stock Option Plan to the following individuals: Connect Corporate Communications (300,000 options), Connect Capital (700,000 options), Gary Tacon (20,000 options), Adriana Mihalos (25,000 options) and James Marsden (250,000 options). These non-qualified stock options are exercisable at $0.65 per share, expire on September 30, 2013, and are fully vested. The Company claims an exemption from registration of these securities pursuant to Section 4(2) of the Act.
In October 2007, the Company agreed to issue to Robert Rosner, our Chief Executive Officer, 696,494 units, each unit consisting of a share of common stock and a warrant to purchase a share of common stock, in consideration for the forgiveness of up to $118,404 of indebtedness of the Company to Mr. Rosner ($.17 per unit). The warrants stock will expire on September 30, 2010 and are exercisable at $0.17 per share. The Company claims an exemption from registration of these securities pursuant to Section 4(2) of the Act.
In October 2007, the Company agreed to issue to an accredited investor, 1,362,329 units, each unit consisting of a share of common stock and a warrant to purchase a share of common stock, in consideration for the forgiveness of up to $231,596 of indebtedness of the Company to the accredited investor ($.17 per unit). The warrants stock will expire on September 30, 2010 and are exercisable at $0.17 per share. The Company
claims an exemption from registration of these securities pursuant to Section 4(2) of the Act.
In December 2007, the Company entered into a private placement with an accredited investor of $100,000 for 588,235 common shares of the Company at $0.17 per share. The Company claims an exemption from registration of these securities pursuant to Section 4(2) of the Act.
In March 2008, the Company agreed to issue to Robert Rosner, our Chief Executive Officer, 4,400,000 units, each unit consisting of a share of common stock and one half of a warrant whereby each whole warrant entitles the holder to purchase a share of common stock, in consideration for the forgiveness of $220,000 of indebtedness of the Company to Mr. Rosner ($0.05 per unit). The warrants stock will expire on March 18, 2011 and are exercisable at $0.05 per share. As of the date of this annual report, the shares have not been issued. The Company claims an exemption from registration of these securities pursuant to Section 4(2) of the Act.
In March 2008, the Company agreed to issue to Robert Rosner, our Chief Executive Officer, 25,000 shares of Preferred stock, in consideration for the forgiveness of $5,000 of indebtedness of the Company to Mr. Rosner ($0.20 per share). As of the date of this annual report, the shares have not been issued. The Company claims an exemption from registration of these securities pursuant to Section 4(2) of the Act.
In April 2008, the Company entered into a private placement with an accredited investor of $80,000 for 1,600,000 units, each unit consisting of a share of common stock and one half of a warrant whereby each whole warrant entitles the holder to purchase a share of common stock of the Company. The warrants stock will expire on April 7, 2011 and are exercisable at $0.05 per share. As of the date of this annual report, the shares have not been issued. The Company claims an exemption from registration of these securities pursuant to Section 4(2) of the Act.
In May 2008, the Company entered into private placements with accredited investors of $100,000 for 1,111,112 common shares of the Company at $0.09 per share. As of the date of this annual report, the shares have not been issued. The Company claims an exemption from registration of these securities pursuant to Section 4(2) of the Act.
In June 2008, the Company agreed to issue to Robert Rosner, our Chief Executive Officer, 1,000,000 units, each unit consisting of a share of common stock and a warrant to purchase a share of common stock, in consideration for the forgiveness of $60,000 of indebtedness of the Company to Mr. Rosner ($0.06 per unit). The warrants stock will expire June 16, 2008 and exercisable at $0.06 per share. As of the date of this annual report, the shares have not been issued. The Company claims an exemption from registration of these securities pursuant to Section 4(2) of the Act.
Item 6. Selected Financial Data.
The following selected financial data has been derived from our audited financial statements and should be read in conjunction with such financial statements included herein.
For the six months ended March 31,
| 2008 | 2007 |
Statement of operations data: |
|
|
Operating revenues | - | 112,270 |
Gross profit | - | 29,667 |
Gain (loss) from continuing operations | (337,560) | (6,706,561) |
Gain (loss) from continuing operations per share | (0.01) | (0.11) |
|
|
|
Balance sheet data: |
|
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Total assets | 3,305,466 | 2,130,935 |
Long-term debt |
|
|
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and notes thereto and the other financial information included elsewhere in this report. Certain statements contained in this report, including, without limitation, statements containing the words “believes,” “anticipates,” “expects” and words of similar import, constitute “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including our ability to create, sustain, manage or forecast our growth; our ability to attract and retain key personnel; changes in our business strategy or development plans; competition; business disruptions; adverse publicity; and international, national and local general economic and market conditions.
Overview
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. The marketing and sales of these products are highly dependent
Results of Operations for the Years ended March 31, 2008
The Company has adopted a March 31 fiscal year end. The financial statements have been conformed to reflect the change in the yearend. The operating results and cash flows are presented for the six months ended March 31, 2008. The audited comparative information represents the results
of operations and cash for the years ended September 30. Unaudited information as of March 31, 2007 and for the six months then ended is presented for comparative purposes.
Results of operations for the six months year ended March 31, 2008, as compared to the unaudited six months ended March 31, 2007.
Revenues. For the six months ended March 31, 2008, we had total revenues of $NIL as compared to the total revenues of $112,270 for the six month period ended March 31, 2007, an decrease of $112,270 from our sales of products.
Operating Expenses. For the six months ended March 31, 2008, we had total operating expenses of $315,060 as compared to total operating expenses of $6,706,561 for the six months period ended March 31, 2007, a decrease of $6,391,501. The decrease was predominately due to the stock based compensation of $6,392,750.
Management Fees. For the six months ended March 31, 2008, we had management fees of $75,000 as compared to $49,273 for the six months period ended March 31, 2007, an increase of $25,727 in management fees.
Professional Expenses. For the six months ended March 31, 2008 we had professional expenses of $20,198 as compared to $72,202 for the six months period ended March 31, 2007, a decrease of $52,004.
Net Loss. For the six months ended March 31, 2008, we had a net loss of $315,060 as compared to a net loss of $6,676,894 for the six months period ended March 31, 2007, a decrease of $6,361,834. The decrease was generally due to the stock based compensation of $8,010,050.
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, 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 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 March 31, 2008, we have been unsuccessful in our efforts to raise additional capital to meet our plan of operations. Our cash position as of March 31, 2008 was $NIL. Since inception, we have recognized no significant revenue. We have accumulated operating losses of $9,715,025 and as of March 31, 2008 we had a working capital of $276,530. 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 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 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 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).
Item 7A. 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 8. Financial Statements and Supplementary Data.
The financial statements and supplementary data are located at the end of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable
Item 9A (T). Controls and Procedures.
As supervised by our board of directors and our principal executive and principal financial officers, management has established a system of disclosure controls and procedures and has evaluated the effectiveness of that system. The system and its evaluation are reported on in the below Management's Annual Report on Internal Control over Financial Reporting. Our principal executive and financial officer has concluded that our disclosure controls and procedures (as defined in the 1934 Securities Exchange Act Rule 13a-15(e)) as of March 31, 2008, are effective, based on the evaluation of these controls and procedures required by paragraph (b) of Rule 13a-15.
Management's Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Securities Exchange Act of 1934 (the "Exchange Act"). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Management assessed the effectiveness of internal control over financial reporting as of March 31, 2008. We carried out this assessment using the criteria of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm, pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report. Management concluded in this assessment that as of March 31, 2008, our internal control over financial reporting is effective.
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.
Item 9B. Other Information.
None.
PART III
Item 10. Directors, Executive Officers, Promoters, Control Persons and Corporate Governance.
UPDATE!
Directors and Executive Officers
The following sets forth-certain information with respect to the directors and executive officers of Wataire:
Name
Age
Position
Name | Age | Office Held |
Robert Rosner (1) | 43 | CEO, Secretary, Director, Chairman of the Board |
Richard Jordan (2) | 62 | Treasurer, CFO, Director |
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Notes:
(1)
Mr. Rosner was appointed a Director and Corporate Secretary on August, 2003; he resigned as Corporate Secretary on August 19, 2005 and was appointed Chief Executive Officer, Chairman of the Board and President. Mr. Rosner was appointed Corporate Secretary on March 13, 2007 and resigned as President on April 23, 2007.
(2)
Mr. Jordan was appointed a Director, Corporate Secretary, Treasurer and Chief Financial Officer on August 19, 2005; he resigned as Corporate Secret