10-Q: Watair Inc. Reports Q1 2011 Results: Revenue Declines, Net Loss Widens Amid Going Concern Uncertainty

Watair Inc. reports a decrease in revenue and an increased net loss for the quarter ended June 30, 2011, while also expressing substantial doubt about its ability to continue as a going concern.

Summary

• Watair Inc., a development stage company marketing atmospheric water generator machines, reported its financial results for the quarter ended June 30, 2011.
• The company's revenue decreased to $2,633 from $3,322 compared to the same period in 2010.
• Operating expenses increased significantly to $214,227 from $98,995 in the prior year, primarily due to amortization and impairment of assets.
• The net loss for the quarter widened to $214,156 from $111,914 in 2010.
• The company had a cash balance of $108 as of June 30, 2011, compared to $87 at March 31, 2011.
• The company had convertible notes payable of $62,500 at June 30, 2011, compared to $0 at March 31, 2011.
• The report expresses substantial doubt about the company's ability to continue as a going concern, citing accumulated losses of $11,870,065 since inception and the need for additional financing.
• Management plans to secure additional funding sources to mitigate these concerns, but there is no assurance that such funding will be available.

Sentiment

Score: 2

Explanation: The document presents a negative outlook due to declining revenue, increasing losses, and concerns about the company's ability to continue as a going concern. The need for additional funding and the risks associated with the company's business further contribute to the low sentiment score.

Positives

• The company is actively seeking additional funding sources to address its financial challenges.
• The company has completed its acquisition of all of the intellectual property relating a water treatment process and devices for water-from-air machines.

Negatives

• The company has a history of losses and expects to incur further losses.
• The company has a significant accumulated deficit of $11,870,065 since its inception.
• The company's independent auditors have expressed substantial doubt about its ability to continue as a going concern.
• The company's cash position is very low, with only $108 in cash as of June 30, 2011.
• The company's revenue decreased compared to the same period last year.
• The company's operating expenses increased significantly compared to the same period last year.
• The company's net loss widened compared to the same period last year.
• The company is dependent on external financing and may not be able to obtain it on favorable terms.

Risks

• The company's ability to continue as a going concern is uncertain.
• The company is dependent on external financing, which may not be available.
• The company is in its early stages of development and faces a risk of business failure.
• The company faces competition from larger and better-financed companies.
• The company's business could be harmed if it is unable to maintain its brand image.
• The company is dependent on its 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 is subject to government regulation.
• The company has limited experience to market its products.
• 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.
• The company may suffer from infringements or piracy of its trademarks, designs, brands, or products.
• Unfair trade practices or government subsidization may impact the company's ability to compete profitably.
• If the company markets and sells its products in international markets, it will be subject to additional regulations.

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, and management plans to further evaluate, develop and manage the commercialization, sub-license and/or commercial sale of these products.

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 company operates in the atmospheric water generator market, which is relatively new and competitive. The company faces competition from larger and better-financed companies.

Comparison to Industry Standards

• It is difficult to compare Watair's results to industry standards due to its development stage and unique product offering.
• However, the company's financial performance is significantly weaker than established companies in the water treatment and purification industry.
• Companies like Pentair and Xylem have significantly higher revenues and profitability, reflecting their established market positions and diversified product portfolios.

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 three months ended June 30, 2011, directors of the company charged the Company with Management fees of $10,000.
• During the three months ended June 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 if the company raises additional capital.
• 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 the risk of non-payment if the company is unable to continue as a going concern.

Next Steps

• The company plans to sell its products to distributors and also through multiple indirect channels, such as resellers.
• The company plans to seek additional funding sources.
• The company anticipates entering into employment contract with Mr. Rosner.

Key Dates

Keywords

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