10-Q: Watair Inc. Reports Increased Losses Amidst Going Concern Uncertainty in Q2 2011

Watair Inc. reports increased net losses for the six months ended September 30, 2011, and expresses substantial doubt about its ability to continue as a going concern.

Summary

• Watair Inc. reported its financial results for the quarter ended September 30, 2011.
• The company's revenue increased slightly to $3,570 from $3,322 compared to the same period in 2010.
• Operating expenses increased significantly to $367,537 from $158,899 in the prior year, primarily due to amortization and impairment of assets.
• The net loss for the six months ended September 30, 2011, was $366,573, compared to a net loss of $171,818 for the same period in 2010.
• The company had $175 in cash as of September 30, 2011, compared to $87 at March 31, 2011.
• The company had convertible notes payable of $62,500 at September 30, 2011, compared to $0 at March 31, 2011.
• The report indicates substantial doubt about the company's ability to continue as a going concern, citing accumulated losses of $12,022,482 since inception.
• Management is seeking additional funding sources to mitigate these concerns.

Sentiment

Score: 2

Explanation: The document presents a negative outlook due to increased losses, a weak cash position, and substantial doubt about the company's ability to continue as a going concern. The company's dependence on external financing and the competitive landscape further contribute to the negative sentiment.

Positives

• Revenue saw a slight increase, rising to $3,570 from $3,322 compared to the same period last year.

Negatives

• The company experienced a significant increase in operating expenses, reaching $367,537.
• The net loss for the period was $366,573, substantially higher than the $171,818 loss in the same period last year.
• The company's cash position is extremely weak, with only $175 on hand.
• Accumulated losses since inception have reached $12,022,482.
• There is substantial doubt about the company's ability to continue as a going concern.

Risks

• The company is dependent on external financing and may not be able to secure additional funding.
• Failure to obtain additional financing could force the company to curtail or discontinue operations.
• The company is in the early stages of development and faces a risk of business failure.
• The company faces competition from larger and better-financed companies.
• The company's success depends on receiving inventory and advertising materials from suppliers.
• Demand for the company's products and services may fail to materialize.
• The company is dependent on key management and personnel.
• The company may be subject to product liability or breach of contract claims.
• The company's business is subject to risks associated with offshore manufacturing.
• The company's international operations expose it to political, economic, and currency risks.

Future Outlook

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.

Management Comments

• Management plans to further evaluate, develop and manage the commercialization, sub-license and/or commercial sale of these products.
• Management has obtained additional funds by related party advances, however there is no assurance that this additional funding is adequate and further funding may be necessary.

Industry Context

The atmospheric water generator market is relatively new, and Watair faces competition from larger, better-financed companies. The company's success depends on market acceptance of its products and its ability to establish a distribution infrastructure.

Comparison to Industry Standards

• It is difficult to compare Watair's performance to industry standards due to its early stage of development and limited operating history.
• Larger companies in the water purification and distribution industry, such as Pentair or Danaher, have significantly greater resources and established market presence.
• Watair's financial performance is significantly weaker than established players, reflecting its development stage and challenges in commercializing its technology.

Management Changes

Legal Proceedings

• 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.
• 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.

Related Party Transactions

• During the six months ended September 30, 2011, directors of the company charged the Company with Management fees of $10,000.
• During the six months ended September 30, 2011, The Company issued additional capital of common shares of 250,000,000 Common stock at a price of $0.01 per share.

Stakeholder Impact

• Shareholders face significant risk of dilution due to potential capital raises.
• Employees face uncertainty due to the company's going concern issues.
• Customers may be concerned about the company's ability to fulfill orders and provide warranty support.
• Suppliers may be hesitant to extend credit to the company due to its financial difficulties.
• Creditors face increased risk of non-payment due to the company's financial instability.

Next Steps

• The company plans to sell its products to distributors and also through multiple indirect channels, such as resellers.
• The company is seeking additional funding sources to continue operations.

Key Dates

Keywords

Watair, financial results, going concern, net loss, revenue, operating expenses, cash flow, atmospheric water generator, liquidity, capital resources