waterpure10k.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the Fiscal Year Ended June 30, 2008
Commission
File Number 333-135783
WATERPURE
INTERNATIONAL, INC.
(Exact
name of registrant as specified in its charter)
Florida
|
20-3217152
|
(State
or other jurisdiction of incorporation
or
organization)
|
(IRS
Employer Identification No.)
|
525
Plymouth Road, Suite 310
Plymouth
Meeting, PA
|
19462 (954)
728-2405
|
(Address
of principal executive office)
|
(Zip
Code) (Registrant’s
telephone number including area
code)
|
Securities
registered pursuant to Section 12(b) of the Exchange
Act: None
Securities
registered pursuant to Section 12(g) of the Exchange Act: None
Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes
o No x
Indicate by checkmark if the registrant
is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes
o No x
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 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
o
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of the
registrant’s knowledge, in definitive proxy or
information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer or a smaller reporting company. See definitions of
“large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer o
|
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
o No x
The
aggregate market value of the voting common equity held by non-affiliates as of
December 31, 2007, based on the closing sales price of the Common Stock as
quoted on the Nasdaq Over-the-Counter Bulletin Board was $2,212,700. For
purposes of this computation, all officers, directors, and 5 percent beneficial
owners of the registrant are deemed to be affiliates. Such determination
should not be deemed an admission that such directors, officers, or 5 percent
beneficial owners are, in fact, affiliates of the registrant.
As of
October 6, 2008, there were 38,262,987 shares of registrant’s common stock
outstanding.
FORWARD
LOOKING STATEMENTS
This
Annual Report of WaterPure International, Inc. on Form 10-K contains
forward-looking statements, particularly those identified with the words,
“anticipates,” “believes,” “expects,” “plans,” “intends”, “objectives” and
similar expressions. These statements reflect management's best judgment based
on factors known at the time of such statements. The reader may find discussions
containing such forward-looking statements in the material set forth under
"Legal Proceedings" and "Management's Discussion and Analysis and Plan of
Operations," generally, and specifically therein under the captions "Liquidity
and Capital Resources" as well as elsewhere in this Annual Report on Form 10-K.
Actual events or results may differ materially from those discussed
herein.
Although forward-looking statements
in this Annual Report on Form 10-K reflect the good faith judgment of our
Management, such statements can only be based on facts and factors currently
known by us. Consequently, forward-looking statements are inherently subject to
risks and uncertainties and actual results and outcomes may differ materially
from the results and outcomes discussed in or anticipated by the forward-looking
statements. Factors that could cause or contribute to such differences in
results and outcomes include, without limitation, those specifically addressed
under the heading "Risks Related to Our Business" below, as well as those
discussed elsewhere in this Annual Report on Form 10-K. Readers are urged not to
place undue reliance on these forward-looking statements, which speak only as of
the date of this Annual Report on Form 10-K. We file reports with the Securities
and Exchange Commission ("SEC"). We make available on our website under
"Investor Relations/SEC Filings," free of charge, our annual reports on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments
to those reports as soon as reasonably practicable after we electronically file
such materials with or furnish them to the SEC. Our website address is
http://www.waterpureinternational.com. You can also read and copy any materials
we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE,
Washington, DC 20549. You can obtain additional information about the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In
addition, the SEC maintains an Internet site (www.sec.gov) that contains
reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC, including us.
We
undertake no obligation to revise or update any forward-looking statements in
order to reflect any event or circumstance that may arise after the date of this
Annual Report on Form 10-K. Readers are urged to carefully review and consider
the various disclosures made throughout the entirety of this annual Report,
which attempt to advise interested parties of the risks and factors that may
affect our business, financial condition, results of operations and
prospects.
References to Company Abbreviations
(“we”, “our”, etc.) refer to WaterPure International, Inc.
References
to the “Bulletin Board,” the “OTCBB” or the “OTC Bulletin Board” are to the
Over-the-Counter Bulletin Board, a securities quotation service, which is
accessible at the website www.otcbb.com.
WATERPURE
INTERNATIONAL, INC.
FORM
10-K
For
the Fiscal Year Ended June 30, 2008
TABLE OF
CONTENTS
|
|
|
|
PAGE
|
|
PART I
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
9
|
|
|
|
|
|
14
|
|
|
|
|
|
14
|
|
|
|
|
|
14
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
PART II
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
16
|
|
|
|
|
|
17
|
|
|
|
|
|
21
|
|
|
|
|
|
22
|
|
|
|
|
|
23
|
|
|
|
|
|
23
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
PART III
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
26
|
|
|
|
|
|
28
|
|
|
|
|
|
29
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
PART IV
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
PART I
Overview
WaterPure
International, Inc. was organized under the laws of the state of Florida on July
22, 2005 and conducts business as a marketer of the WaterPure Atmospheric Water
Generator (“AWG”), a
branded product of ours. We are structured expressly as a marketing entity and
therefore we do not engage in the design, development or manufacturing of
products, however, we do intend to manufacture our own licensed products in the
future. We intend to operate in North America, South America and the Caribbean
providing various versions of our devices, which produce drinking water from
ambient air.
We want
to be identified as an environmentally sustainable business. Clean drinking
water is becoming a scarce commodity as our population increases. Pollution from
sewage, industry, agriculture and acid rain has destroyed surface water
reservoirs and aquifers. Water generation treatment and filtration is poised to
be an important humanitarian industry as we learn more about global
warming.
Our
product line consists of three AWGs suitable for home and small office use and
for higher volume office or commercial use. In December 2007, we entered into
two worldwide license agreements with Everest Water Ltd. for the manufacturing
and marketing rights to advanced models of AWGs. One license is a non-exclusive
license for a stand-alone water generator and the second license is an exclusive
license for a mineral additive water generator process that will permit the
addition of organic minerals, flavors and other additives to the water produced
by the machine.
We have
previously purchased our products from a manufacturer in South Korea under an
Original Equipment Manufacturer arrangement. However, as a result of a lack of
financing to purchase AWGs and uncertainty regarding the manufacturer’s ability
to deliver in accordance with orders, we have chosen not to continue our supply
relationship with the Korean manufacturer, but we may reestablish the
relationship at any time. Currently, we are selling
the remaining inventory from our original purchases from the Korean Manufacturer
and purchasing additional AWGs from H2O Liquid Air-Florida and another supplier
in North Carolina on an as-needed basis.
We made
efforts to organize the distribution and marketing programs and intend to place
our products into the retail market through distributor
relationships. On July 5, 2007, we announced the appointment of
Midwest Future Technology, LLC as our master distributor for our atmospheric
water generator products in the Indiana, Ohio and Kentucky region for direct
sales to businesses and consumers. We have since terminated that distributorship
for lack of performance. Additional distributorships have been established in
Greece, Bermuda and the Cayman Islands.
For the year ended June 30, 2008, we had
revenue of approximately $66,000 and net loss of approximately $2.29
million.
Business
Strategy
We are
currently organizing our distribution and marketing programs, which consists of
placing these products in retail establishments and other distribution channels.
Our primary focus will be on establishing the defined sales channels and
supporting them with meaningful marketing programs to the extent that funds are
available. We have sold our first units and have generated minimum revenues from
operations.
We intend
to generate revenue from the sale of our products through three channels at the
present time:
|
•
|
Establish
effective marketing channels for our products through a network of
distributors and retailers in selected markets;
|
|
•
|
Support
revenue generation in these channels by effectively educating the consumer
marketplace and promoting the use of atmospheric water generators as a
means of assuring the delivery of safe, healthy water at low costs;
and
|
|
•
|
Have
our manufacturer provide the atmospheric water generator line under our
WaterPure Pro and Executive brand
labels.
|
Products
and Suppliers
The basic
technology employed by our product to produce water from air has been in use in
other applications for many decades. Looking very much like the traditional
water cooler (but without the inverted water bottle supplying the liquid), the
WaterPure Water Generator stands in a residential or office environment and
converts the water contained in the ambient air to water, providing a continuing
supply of fresh, pure, hot or cold water. The essential processes employed by
the water generator are simply evaporation and condensation. Water collected
from this processes is then treated through various specialized filters and
ultra violet light purification to obtain the desired degree of safe water
output. Water produced from AWGs is not currently regulated by government
authorities, however our water exceeds FDA standards for potable/drinking water.
Since there is no revolutionary or unproven technology utilized in our process,
we expect that the risks of failure of the product to perform as advertised are
nominal.
Our
current product line consists of three AWGs suitable for home and small office
use and for higher volume office or commercial use. These AWGs take the air we
breathe and transform it into fresh, safe drinking water. Our U.S. consumer and
office models operate on standard 110 volt power and look and operate similar to
typical water coolers but without the need for expensive delivery and heavy
lifting of 5 gallon water jugs. The AWGs condensation and purification process
takes water out of ambient air (humidity) and filters and purifies the water
from any foreign matter, bacterial, organic and other impurities.
Our
products bear our own exclusive WaterPure branding. We have registered WaterPure
brand as our registered trademark. The following are our three AWG
models:
|
•
|
Water
Workhorse;
|
|
•
|
Executive;
and
|
|
•
|
Executive
II.
|
The Water
Workhorse is the largest of our AWGs and can store up to nine gallons of water
at full capacity. The device utilizes a series of four filters and UV (Ultra
Violet) light to treat water. These devices are best suited for office
environments where higher volumes of water are generally called for. We
initially purchased this device from the Korean manufacturer and are currently
acquiring units for inventory from a supplier in North Carolina.
The
Executive is a smaller AWG and functions in much the same manner as the Water
Workhorse but is designed to have a more attractive appearance looking more like
an appliance suitable for placement in the home. The Executive can provide up to
five gallons of water at peak performance. We acquired the Executive from the
Korean manufacturer.
The
Executive II is similar in performance to the Executive model providing up to
five gallons of water at top operating levels. This device however utilizes only
one filter and the UV light to treat water. The Executive II is also less
attractive than the Executive model and resembles the typical water cooler in
appearance. This device is suitable for small office applications. We purchase
the Executive II from H2O Liquid Air-Florida from their existing
inventory.
We have
been engaged in the development of a new AWG in connection with the patent
license we acquired from Everest Water Ltd. This new device utilizes ozone to
eliminate microorganisms, has increased water producing ability, has a more
attractive appearance and uses fewer parts than the machines we are currently
marketing. The new AWG will also include an optional feature that will permit
the user to add flavors and natural herbal additives such as green
tea. We expect the new AWG will be available for purchase within the
next 12 months, although we are aiming to have it available within the next six
months.
As a
result of our delivery experience and a lack of financing to purchase AWGs, we
have chosen not to continue our supply relationship with the Korean
manufacturer, however, we may reestablish the relationship at any time. We have
been marketing three models of AWGs from our existing inventory as well as new
purchases from Liquid Air-Florida and have generated
minimal revenues from operations.
Competitive
Advantage
The
atmospheric water generator and filtration system industry is relatively new and
rapidly evolving. Based on our research, there are possibly 10 entities
experimenting with the technology of water generation, of which five are 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, which
is a substantial barrier for others to enter this field.
Our
product has certain advantages over the bottled water competitors. AWGs can take
the air we breathe and transform it into fresh, safe drinking water. Operating
on standard 110v power in the U.S., consumer and office model AWGs look and
operate similar to typical water coolers but without the need for expensive
delivery and heavy lifting of five gallon water jugs. The AWGs condensation and
purification process takes water out of ambient air (humidity) and filters and
purifies the water from any foreign matter, bacterial, organic and other
impurities. Our products bear our own exclusive WaterPure branding, and we
registered WaterPure brand as our registered trademark.
The
principal competition within the AWG industry comes from Air to Water, Inc.,
also known as World Wide Water Company. This company holds a patent for
atmospheric water generators for various distributors, a similar water
generating device and has product manufactured in China. Yuxin, a Chinese
manufacturing company, also produces atmospheric water generators for various
distributors. Our previous AWG products are comparable to the others in the
industry utilizing similar technologies with certain differences consistent with
patented processes. Our new AWG, which will be manufactured under the Everest
patent licenses we have acquired, will provide a competitive advantage over the
others in our field. Our new AWG, which we call the 3-Z, contains 50% fewer
parts and has a higher reliability than the competitive devices. Additionally,
our 3-Z employs an ozone treatment to purify the water from all microorganisms
as opposed to the UV (ultra violet) light applications utilized by other AWGs.
This is an extremely effective method of eliminating all bacteria and other
microorganisms and has the additional benefit of being environmentally friendly
inasmuch as there is no UV lamp to be replaced and disposed of.
Today,
governments and health professionals are starting to realize and understand the
negative health effects of pollution, chemicals used to disinfect water
supplies, and residual salt in desalinated water, and how they affect human
bodies. We believe there is a robust market opportunity that exists for
atmospheric water generators and filtration systems. These technologies can
provide an alternative solution to the world’s shortage of fresh water and
provide clean, safe drinking water in various geographical
settings.
Customers
AWGs are
suitable for home/small office use and for higher volume office or commercial
use. They are currently sold in the United States (California, Florida, Georgia,
New Jersey and New York) as well as internationally (Bermuda, Cayman Islands and
Greece).
Sales,
Marketing and Distribution
We are
currently organizing our distribution and marketing programs and intend to place
our products into the retail market through distributor relationships. Our
intent is on establishing defined sales channels and supporting them with
meaningful marketing programs to the extent that funds are available. We have
sold a small number of units and have generated minimal revenues from
operations.
We
currently have contracts with six distributors, located in Florida, California,
Greece, Bermuda and the Cayman Islands, to sell our products. On July 5, 2007,
we appointed Midwest Future Technology as our master distributor for our AWGs
products in the Indiana, Ohio and Kentucky region for direct sales to businesses
and consumers in Indiana, Ohio and Kentucky. We have since terminated this
distributorship due to lack of performance.
On
December 7, 2007, we entered into two worldwide-license agreements with Everest
Water Ltd. for the manufacturing and marketing rights to advanced models of
AWGs.
Research
and Development
We have dedicated a significant amount
of time and resources to research and development activities and plan to
increase our research and development efforts to improve the efficiencies
associated with water production, increasing water storage capacity, expanding
the effectiveness of filtration devices, and enhancing energy efficiency. For
the year ended June 30, 2008, after acquiring the manufacturing and marketing license from Everest Water,
Ltd., our R & D expenses were approximately $15,000.
Patents,
Licenses and Royalty Agreements
Everest
Water, Ltd., the Licensor, has developed a new concept for a water-making
machine. Everest Water has filed for a United States Patent No. Serial Number
11/221,075 filed September 6, 2005, claiming priority over U.S. Provisional
application 60/607,369 filed September 3, 2004 now issued patent U.S. 7,272,947
and a United States Patent No. Serial Number 11/833,491 filed August 3,
2007.
On
December 7, 2007, we acquired rights to manufacture and market these patented
AWGs pursuant to two worldwide license agreements entered into with Everest
Water Ltd. One license is a non-exclusive license for a stand-alone water
generator and the second license is an exclusive license for a mineral additive
water generator process that will permit the addition of organic minerals,
flavors and other additives to water produced by the machine. We agreed to pay
$300,000 and issue 1,500,000 shares of our common stock valued at $330,000 as
consideration for this agreement. We made a cash payment of $50,000 with the
execution of the agreement and an additional $10,000 in March 2008. The stock
was to be issued in two allotments: 1,000,000 shares to be held until completion
of the prototype machine and an additional 500,000 shares 90 days later. We
agreed to pay Everest Water Ltd. an 8% royalty payment with a guaranteed minimum
annual payment of $100,000 beginning in 2007. This agreement terminates with the
expiration of the Everest patent, on September 3,
2024.
On August
1, 2008, we and Everest Water Ltd modified payment terms of the licensing
agreement. Under the modified terms, we shall pay Everest $430,000 over 33
months starting September 1, 2008 and shall make 8% royalty payments to Everest
within 20 days after the closing of each calendar quarter. The royalties have
guaranteed minimum payments as follows: $50,000 year one, $60,000 year two,
$70,000 year three, $90,000 year four and $100,000 each year after. The annual
periods commence August 1, 2008, the date of execution of the revised
agreement.
Competition
The
atmospheric water generator, water purification and bottled water industries are
highly competitive. This market segment includes numerous manufacturers,
distributors, marketers, and retailers that actively compete for the business of
consumers both in the United States and abroad. In addition, the market is
highly sensitive to the introduction of new products and technologies that may
rapidly capture a significant share of the market. As a result, our ability to
remain competitive depends in part upon its successful introduction and consumer
acceptance of new products. Although our products bear our own exclusive
WaterPure branding, we expect that the competition will intensify in the future,
since our competitors can and may duplicate many of the products or services
offered by us.
The
following are our competitors:
Hyflux (www.hyflux.com) is a publicly
traded company based in Singapore. Hyflux’s main business is in extremely
large-scale water filtration and purification through membrane technology such
as reverse osmosis and desalination. In January 2003, they announced that they
had purchased a portion of a U.S. company, World Wide Water/Air2Water, and also entered into
a licensing agreement to manufacture air to water generators called the
Dragonfly. Hyflux contracted the manufacturing of the Dragonfly units to a
multi-billion dollar appliance manufacturer located in Qing Dao, China, called Haier.
Dong Yang Co. Ltd., (www.dywater.net) is
based in Kimpo, South Korea. The company has been involved with the
manufacturing of residential/office water purification devices using reverse
osmosis for 20 years. They entered the AWG water industry in 2002 with an upright full
size unit known today as the M-10.
Wataire Industries
(www.wataireindustries.com) is a publicly traded company with its corporate
office in Vancouver, Canada. Having been in the atmospheric water business for a
number of years, the
company has kept a very low profile, only to rise again in the past year by
revamping and redesigning their products. Wataire’s full-sized upright AWG is called the
WII-4010. According to the website, Wataire’s manufacturing facility is
located in Sydney, Australia. Additionally,
Wataire also offers industrial/commercial water generators.
Government
Regulation
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 Community Supported Agriculture 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. Currently, our AWGs are not subject to any governmental
regulation although it is possible that the FDA may choose to regulate the
quality of water that AWGs produce.
Since we
are subject to a wide range of regulation covering every aspect of our business
as mentioned above, we cannot predict the nature of any future U.S. laws,
regulations, interpretations or applications, nor can we determine what effect
additional governmental regulations or administrative orders, when and if
promulgated, would have on our business in the future. Although the regulation
of water is less restrictive than that of drugs and food additives, we cannot
assure you that the current statutory scheme and regulations applicable to water
will remain less restrictive. Further, we cannot assure you that, under existing
laws and regulations, or if more stringent statutes are enacted, regulations are
promulgated or enforcement policies are adopted, we are or will be in compliance
with these existing or new statutes, regulations or enforcement policies without
incurring material expenses or adjusting our business strategy. Any laws,
regulations, enforcement policies, interpretations or applications applicable to
our business could require the reformulation of certain products to meet new
standards, the recall or discontinuance of certain products not capable of
reformulation, additional record keeping, expanded documentation of the
properties of certain products, expanded or different labeling or scientific
substantiation.
Employees
As of
September 16, 2008, we had three employees, all of whom are either officers
and/or shareholders. The employees have received no cash compensation to date.
We are accruing the annual salary to our CEO, which is $150,000. Staffing levels
will be determined as we progress and grow. Our Board of Directors determines
the compensation of all new employees based upon job descriptions.
Our company has limited operating
history and therefore we cannot ensure the long-term successful
operation of our business
or the execution of our business plan.
We have
only been in existence and engaged in our current and proposed business
operations since July 2005. As a result, we have only a limited operating
history upon which you may evaluate our proposed business and prospects. Our
proposed business operations will be subject to numerous risks, uncertainties, expenses and
difficulties associated with early stage enterprises and the development,
production and sale of the types of products and services that we offer. You should consider an investment in our
company in light of these risks, uncertainties, expenses and difficulties. Such
risks include:
• the absence of an operating
history;
• insufficient
capital;
• expected continual losses for the foreseeable
future;
• our ability to anticipate and adapt to a
developing market(s);
• acceptance by consumers of our
products;
• limited marketing
experience;
• reliance on our license agreement with
Everest Water
Ltd.;
• reliance on third party manufacturers
for our AWGs;
• a competitive environment characterized
by numerous, well-established and well-capitalized
competitors;
• our ability to identify, attract and
retain qualified personnel;
• our ability to provide superior customer
service; and
• reliance on key
personnel.
Because we are subject to these risks,
you may have a difficult time evaluating our business and your investment in our
company. We may be unable to successfully overcome these risks which
could harm our business.
Our prospects must be considered in
light of the risks, expenses and difficulties frequently encountered by new and
growing companies in the medical and wellness fields in which we operate.
We must meet many
challenges including:
• establishing and maintaining broad
market acceptance of products and converting that acceptance into
customers;
• establishing and maintaining our brand
name;
• timely and successfully
introducing new products
and increasing the functionality and features of existing products;
and
• successfully responding to
competition.
Our business strategy may be
unsuccessful and we may be unable to address the risks we face in a
cost-effective manner, if
at all. If we are unable to successfully address these risks our business will
be harmed.
We
have a history of losses which may continue, which may negatively impact our
ability to achieve our business objectives.
We
incurred net losses of $2,289,370 and $1,113,231 for the years ended June 30,
2008 and 2007, respectively. In addition, at June 30, 2008, we had an
accumulated deficit of $3,466,962 and a working capital deficit of $671,406. We
cannot assure you that we can achieve or sustain profitability on a quarterly or
annual basis in the future. Our operations are subject to the risks
and competition inherent in the establishment of a business enterprise. There
can be no assurance that future operations will be profitable. Revenues and
profits, if any, will depend upon various factors, including whether we will be
able to continue expansion of our revenue. We may not achieve our business
objectives and the failure to achieve such goals would have an adverse impact on
us.
Our
independent auditors have expressed substantial doubt about our ability to
continue as a going concern, which may hinder our ability to obtain future
financing.
In their
report dated October 14, 2008, our independent auditors stated that our
financial statements for the year ended June 30, 2008 were prepared assuming
that we would continue as a going concern. Our ability to continue as a going
concern is an issue raised as a result of recurring losses from operations, a
working capital deficiency and an accumulated deficit. Our ability to continue
as a going concern is subject to our ability to generate a profit and/or obtain
necessary funding from outside sources, including obtaining additional funding
from the sale of our securities, increasing sales or obtaining loans and grants
from various financial institutions where possible. Our continued net operating
losses increase the difficulty in meeting such goals and there can be no
assurances that such methods will prove successful.
If
we are unable to obtain additional funding our business operations will be
harmed.
Our
business plan contemplates a rapid rollout of our AWGs through multiple
channels, which will require significant capital. We will require additional
funds to sustain our operations and institute our business plan. We
anticipate that we will require up to approximately $2,000,000 to fund our
anticipated operations for the next twelve months. Additional capital will be
required to effectively support the operations and to otherwise implement our
overall business strategy. Even if we do receive additional
financing, it may not be sufficient to sustain or expand our development
operations or continue our business operations.
If
we do obtain additional financing our then existing shareholders may suffer
substantial dilution.
We do not
have any contracts or commitments for additional funding, and there can be no
assurance that financing will be available in amounts or on terms acceptable to
us, if at all. The inability to obtain additional capital will restrict our
ability to grow and may reduce our ability to continue to conduct business
operations. If we cannot raise the additional capital required to implement our
business plan, we may be required to curtail operations or develop a different
business strategy, which could adversely affect our financial condition and
results of operations. Further additional debt financing must be repaid regardless
of whether or not we generate profits or cash flows from our business
activities. Equity financing may result in dilution to existing stockholders and may
involve securities that have rights, preferences, or privileges that are senior
to our common stock.
Failure
to achieve market acceptance of our products would result in lack of
revenues.
Our
business is primarily based on a new concept of atmospheric water generators.
There is no assurance that our products will gain wide consumer acceptance or
any acceptance. Market acceptance of our products may take a long time. The
introduction of a new brand generally requires a minimum of twelve to eighteen
months before a new product will receive market acceptance from consumers and
retailers. If our products do not gain a sufficient level of consumer
acceptance, our revenues could be adversely affected which would have a material
impact on our business.
Our
licensing agreement with Everest Water Ltd. is subject to termination in certain
instances, which could result in a substantial loss of revenues from our
products.
We have
entered into a licensing arrangement with Everest Water Ltd., which grants us a
worldwide, non-exclusive license for a stand-alone atmospheric water generator
and an exclusive license for a mineral additive atmospheric water generator
process that will permit the addition of organic minerals, flavors and other
additives to the water produced by the machine. Under the terms of this
arrangement, we are obligated to make certain minimum payments to Everest
Water. Failure to meet these payments would result in a default under
the contract. If the license terminates, we would no longer have the right to
market and sell the atmospheric water generators, which we expect to account for
substantially all of our products in the immediate future. If this
were to occur, we could likely experience a substantial loss of revenues from
our products.
Inability
to satisfy demand for our product would reduce our ability to gain a foothold in
the market.
Even if
our AWGs do gain consumer and retail acceptance, there is no assurance that we
will be able to successfully meet the market's demand should our manufacturers’
capacity become limited or if we do not have sufficient capital to pay
manufacturing costs. If we cannot meet the demand for our products, our ability
to gain a foothold in the market may be compromised, with consumers turning to
other products that are available in sufficient numbers.
A
manufacturer's inability to produce our goods on time and to our specifications
could result in lost revenue and net losses.
We do not
own or operate any manufacturing facilities and therefore depend upon
independent third parties for the manufacture of all of our products. Our
products are manufactured to our specifications by international manufacturers.
The inability of a manufacturer to ship orders of our products in a timely
manner or to meet our quality standards could cause us to miss the delivery date
requirements of our customers for those items, which could result in
cancellation of orders, refusal to accept deliveries or a reduction in purchase
prices, any of which could have a material adverse effect as our revenues would
decrease and we would incur net losses as a result of sales of the product, if
any sales could be made. Because quality is a leading factor when customers and
retailers accept or reject goods, any decline in quality by our third-party
manufacturers could be detrimental not only to a particular order, but also to
our future relationship with that particular customer.
If
we need to replace manufacturers, our expenses could increase resulting in
smaller profit margins.
We
compete with other companies for the production capacity of our manufacturers
and import quota capacity. Some of these competitors have greater financial and
other resources than we have, and thus may have an advantage in the competition
for production and import quota capacity. If we experience a significant
increase in demand, or if an existing manufacturer of ours must be replaced, we
may have to expand our third-party manufacturing capacity. We cannot assure you
that this additional capacity will be available when required on terms that are
acceptable to us or similar to existing terms which we have with our
manufacturers, either from a production standpoint or a financial standpoint. We
enter into purchase order commitments on an as-needed basis, specifying a time
for delivery, method of payment, design and quality specifications and other
standard industry provisions, but do not have long-term contracts with any
manufacturer. None of the manufacturers we use produces our products
exclusively.
Should we
be forced to replace one or more of our manufacturers, then we may experience an
adverse financial impact, or an adverse operational impact, such as being forced
to pay increased costs for such replacement manufacturing or delays upon
distribution and delivery of our products to our customers, which could cause us
to lose customers or lose revenues because of late shipments.
Our
trademark and other intellectual property rights may not be adequately protected
outside the United States, resulting in loss of revenue.
We
believe that our trademarks, whether licensed or owned by us, and other
proprietary rights are important to our success and our competitive position. In
the course of our international expansion, we may, however, experience conflict
with various third parties who acquire or claim ownership rights in certain
trademarks. We cannot assure that the actions we have taken to establish and
protect these trademarks and other proprietary rights will be adequate to
prevent imitation of our products by others or to prevent others from seeking to
block sales of our products as a violation of the trademarks and proprietary
rights of others. Also, we cannot assure you that others will not assert rights
in, or ownership of, trademarks and other proprietary rights of ours or that we
will be able to successfully resolve these types of conflicts to our
satisfaction. In addition, the laws of certain foreign countries may not protect
proprietary rights to the same extent as do the laws of the United
States.
Our
business is exposed to domestic and foreign currency fluctuations; negative
changes in exchange rates could result in greater costs.
We
generally purchase our products in U.S. dollars. However, we obtain most of our
products from overseas and the cost of these products may be affected by changes
in the value of the relevant currencies. Changes in currency exchange rates may
also affect the relative prices at which we and our foreign competitors sell
products in the same market, resulting in higher costs to us. We currently do
not hedge our exposure to changes in foreign currency exchange rates. We cannot
assure you that foreign currency fluctuations will not have a material adverse
impact on our financial condition and results of operations.
We
are highly dependent on our management and our business would be materially
adversely affected if any of our executives leave.
The
operations and financial success of our company are significantly dependent on
Paul S. Lipschutz, our Chief Executive Officer. We do not maintain key man life
insurance on Mr. Lipschutz. Also, should he become unable or
unwilling to continue to direct operations, we may lack the funds and financial
resources to replace departing management and we would be materially adversely
affected. Operations could be materially affected and under certain
circumstances, shareholders would lose their entire investment.
Risks Relating to Our Common
Stock:
If
we fail to remain current in our reporting requirements, we could be removed
from the OTC Bulletin Board, which would limit the ability of broker-dealers to
sell our securities and the ability of stockholders to sell their securities in
the secondary market.
Companies
trading on the OTC Bulletin Board, such as us, must be reporting issuers under
Section 12 of the Securities Exchange Act of 1934, as amended, and must be
current in their reports under Section 13, in order to maintain price quotation
privileges on the OTC Bulletin Board. If we fail to remain current on our
reporting requirements, we could be removed from the OTC Bulletin Board. As a
result, the market liquidity for our securities could be severely adversely
affected by limiting the ability of broker-dealers to sell our securities and
the ability of stockholders to sell their securities in the secondary
market.
We have not paid dividends in the
past and do not expect to pay dividends in the future. Any return on investment
may be limited to the value of our common stock.
We have
never paid cash dividends on our common stock and do not anticipate paying cash
dividends in the foreseeable future. The payment of dividends on our common
stock will depend on earnings, financial condition and other business and
economic factors affecting it at such time as the board of directors may
consider relevant.
Efforts
to comply with recently enacted changes in securities laws and regulations will
increase our costs and require additional management resources, and we still may
fail to comply.
As
directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules
requiring public companies to include a report of management on our internal
controls over financial reporting in their annual reports on Form 10-K. In
addition, the public accounting firm auditing our financial statements must
attest to and report on management’s assessment of the effectiveness of our
internal controls over financial reporting. While the requirements of section
404(a) are applicable this year, the section 404(b) requirements are not
presently applicable to us, but we are currently supposed to be subject to these
requirements for the fiscal year ending June 30, 2010. If or when these section
404(b) regulations become applicable to us, and if we are unable to conclude
that we have effective internal controls over financial reporting or if our
independent auditors are unable to provide us with an unqualified report as to
the effectiveness of our internal controls over financial reporting as required
by Section 404 of the Sarbanes-Oxley Act of 2002, investors could lose
confidence in the reliability of our financial statements, which could result in
a decrease in the value of our securities. We have not yet begun a formal
process to document and test our internal controls over financial reporting.
Given the status of our efforts, coupled with the fact that guidance from
regulatory authorities in the area of internal controls continues to evolve,
substantial uncertainty exists regarding our ability to comply by applicable
deadlines.
Our
common stock is subject to the "Penny Stock" rules of the SEC and the trading
market in our securities is limited, which makes transactions in our stock
cumbersome and may reduce the value of an investment in our stock.
The
Securities and Exchange Commission has adopted Rule 15g-9, which establishes the
definition of a "penny stock," for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules
require:
·
|
that
a broker or dealer approve a person's account for transactions in penny
stocks; and
|
·
|
the
broker or dealer receive from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to
be purchasedIn
order to approve a person's account for transactions in penny stocks, the
broker or dealer must:
|
·
|
obtain
financial information and investment experience objectives of the person;
and
|
·
|
make
a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks
|
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form:
·
|
sets
forth the basis on which the broker or dealer made the suitability
determination; and
|
·
|
that
the broker or dealer received a signed, written agreement from the
investor prior to the transaction
|
Generally,
brokers may be less willing to execute transactions in securities subject to the
"penny stock" rules. This may make it more difficult for investors to dispose of
our common stock and cause a decline in the market value of our
stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
None.
Our
executive office is located at 525 Plymouth Road, Suite 310, Plymouth Meeting,
PA 19462. The rent for the office space is $500 a month and we have a
month-to-month lease.
In June 2007, we opened a regional
operations center at 1975 E Sunrise Boulevard, Fort Lauderdale,
Florida. We
entered into a month-to-month lease for $543 per month. This facility
accommodates our administrative, sales and customer relations
personnel.
We are
currently not a party to any material legal proceedings or claims.
None.
PART II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES PRICE
RANGE OF COMMON STOCK
Our
common stock is currently traded on the NASDAQ Over-the-Counter Bulletin Board
under the symbol “WPUR.” Prior to January 2007, there was no trading market for
our common stock. For the period from January 1, 2007 to date, the following
table sets forth the high and low sale prices of our common stock as reported by
the NASDAQ Over-the-Counter Bulletin Board.
Period
|
|
High
|
|
|
Low
|
|
Fiscal
Year Ended June 30, 2008:
|
|
|
|
|
|
|
First
Quarter
|
|
$ |
0.70 |
|
|
$ |
0.22 |
|
Second
Quarter
|
|
|
0.40 |
|
|
|
0.15 |
|
Third
Quarter
|
|
|
0.24 |
|
|
|
0.11 |
|
Fourth
Quarter
|
|
|
0.20 |
|
|
|
0.07 |
|
Fiscal
Year Ending June 30, 2007:
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$ |
- |
|
|
$ |
- |
|
Second
Quarter
|
|
|
- |
|
|
|
- |
|
Third
Quarter
|
|
|
1.00 |
|
|
|
0.51 |
|
Fourth
Quarter
|
|
|
1.05 |
|
|
|
0.31 |
|
On
October 6, 2008, the closing sale price of our common stock, as reported by the
NASDAQ Over-the-Counter Bulletin Board, was $0.02 per share. On October 6, 2008,
there were 166 holders of record of our common stock.
DIVIDEND
POLICY
We have
never paid any cash dividends on our capital stock and do not anticipate paying
any cash dividends on our common stock in the foreseeable
future. We intend to retain future earnings to fund ongoing
operations and future capital requirements of our business. Any future
determination to pay cash dividends will be at the discretion of the Board and
will be dependent upon our financial condition, results of operations, capital
requirements and such other factors as the Board deems relevant.
RECENT
SALE OF UNREGISTERED SECURITIES AND EQUITY PURCHASES BY THE COMPANY
During
the quarter ended June 30, 2008, we issued 2,655,750 shares of our common stock
for consulting services totaling $309,943.
During
the quarter ended June 30, 2008, in separate transactions, we sold in
private placements 1,375,000 shares at $.10 per share for a total of
$137,500 and 150,000 shares at $.09 per share
for a total of $13,500. The fair values of the shares were determined based on
the closing market price of the shares at the date of the
agreements.
Unless
otherwise noted in this section, with respect to the sale of unregistered
securities referenced above, all transactions were exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "1933
Act"), and Regulation D or Regulation S promulgated under the 1933 Act. In each
instance, the purchaser had access to sufficient information regarding WaterPure
International, Inc. so as to make an informed investment decision. More
specifically, we had a reasonable basis to believe that each purchaser was an
"accredited investor" as defined in Regulation D or Regulation S of the 1933 Act
and otherwise had the requisite sophistication to make an investment in our
securities.
Equity
Compensation Plan Information
We do not
have any equity compensation plans.
Not required under Regulation S-K for
“smaller reporting companies.”
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This
Management's Discussion and Analysis of Financial Condition and Results of
Operations includes a number of forward-looking statements that reflect
Management's current views with respect to future events and financial
performance. You can identify these statements by forward-looking words such as
“may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or
similar words. Those statements include statements regarding the intent, belief
or current expectations of us and members of its management team as well as the
assumptions on which such statements are based. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risk and uncertainties, and that actual results may
differ materially from those contemplated by such forward-looking
statements.
Readers
are urged to carefully review and consider the various disclosures made by us in
this report and in our other reports filed with the Securities and Exchange
Commission. Important factors currently known to
management could cause actual results to
differ materially from those in
forward-looking statements. We undertake no obligation to update or
revise forward-looking statements to reflect changed assumptions, the occurrence
of unanticipated events or changes in the future operating results over time. We
believe that our assumptions are based upon reasonable data derived from
and known about our business and operations. No assurances are made that actual
results of operations or the results of our future activities will not differ
materially from its assumptions. Factors that could cause differences include,
but are not limited to, expected market demand for our products, fluctuations in
pricing for materials, and competition.
General
We are a
development stage company, currently selling our products through our
distribution and marketing programs, which consists of placing our product in
retail establishments and through distributors. On December 2007, we entered
into an agreement with Everest Water Ltd. for the manufacturing and marketing
rights to advanced models of our product. Our primary focus will be on
strengthening the defined sales channels and supporting them with meaningful
marketing programs to the extent that funds are available. We have sold our
first units and have generated minimal revenues from operations.
In
December 2007, we initiated a private placement for 2,000,000 shares of our
common stock valued at $0.10 per share. At March 31, 2008, we had raised
$400,500 from this offering, and have raised an additional $5,000 subsequent to
March 31, 2008. However, we have a working capital deficiency of $671,406 at
June 30, 2008, and have not earned any significant revenues and have incurred a
net loss from our inception through June 30, 2008 totaling approximately $3.47
million.
Our
current burn rate of available capital is currently unable to support operations
for the next 12 months. This consists of approximately $1,000,000 for
manufacturing, accounting, legal, technical support, web maintenance and service
equipment, travel, telephone and office supplies. An additional $100,000 would
be utilized for the production and execution of our marketing support program.
We are currently working on raising enough capital to cover these
expenditures.
Our plan
of operations for the next 12 months will be the continued development of our
distribution and marketing channels in our selected launch markets and the
continued expansion of our product line to afford us a larger market into which
we may sell product. We plan to conduct additional product research and
development through manufacturing partnerships so we do not intend to purchase
any additional significant equipment at this time. In addition, we do not expect
a significant change in the number of employees.
Results
of Operations
For
the Fiscal Year ended June 30, 2008 Compared to the Fiscal Year ended June 30,
2007
Revenue
and Net Loss
Revenue
for the year ended June 30, 2008 was approximately $66,000, an increase of
approximately $60,000 or 1000% from approximately $6,000 for the comparable
period in 2007 and incurred a net loss of approximately $2.29 million for the
year ended June 30, 2008 as compared to a net loss of approximately $1.11
million for the year ended June 30, 2007. The increase in revenue for the year
was primarily attributable to strategic planning, raising capital and developing
revenue-generating opportunities.
Cost
of Goods Sold
Cost of
goods sold consists of direct costs on contracts, materials, direct labor, third
party subcontractor services, union benefits and other overhead
costs. Our cost of revenue was approximately $68,000 or approximately
103% of revenue for the year ended June 30, 2008, compared to approximately
$3,000 or approximately 54.3% for the prior year. The increase is due
to higher sales and freight charges from shipment of our AWGs.
General
and Administrative Expenses
General
and administrative expenses for the year ended June 30, 2008 were approximately
$2.2 million, an increase of approximately $1.1 million compared to
approximately $1.1 million for the comparable period in 2007. The increase was
primarily attributable to increases in officer compensation, from $231,300 to
$657,937 over the comparable periods of 2007 and 2008, an increase of $426,637
due to agreements we entered with the Chief Executive Officer and Chief
Financial Officer.
Interest
Expense
There was
$10,275 in interest expense for the year ended June 30, 2008 compared to $20,625
for the year ended June 30, 2007. The decrease is due to paying down of interest
bearing debt with proceeds from loans from shareholders and officers
which carry no interest.
Income
Tax Expenses
We have
incurred only losses to date and therefore, have no income tax
expense.
Liquidity
and Capital Resources
To date,
we have generated minimal revenues and have incurred operating losses in every
quarter. We are a development stage company, have not generated significant
revenues from operations and have incurred significant losses since inception.
These factors among others raise substantial doubt about our ability to continue
as a going concern.
As at
June 30, 2008, we had a working capital deficiency of $671,406. For the year
ended June 30, 2008, we had net cash outflow from operating activities of
$597,453. Cash used in investing activities totaled $63,000 for
the year ended June 30, 2008 relating to product license acquisitions. Cash
provided by financing activities totaled $654,956 for the twelve months ended
June 30, 2008.
We expect
significant capital expenditures during the next 12 months for manufacturing
products, license payments for current licenses and acquisitions. We are
currently seeking joint venture partners and equity financing to fund these
expenditures, although we do not have any contracts or commitments for either at
this time. We will have to raise additional funds to continue manufacturing our
AWGs and, while we have been successful in doing so in the past, there can be no
assurance that we will be able to do so in the future. Our continuation as a
going concern is dependent upon our ability to obtain necessary additional funds
to continue operations and the attainment of profitable operations.
By
adjusting our operations to the level of capitalization, we believe we have
sufficient capital resources to meet projected cash flow needs in the
near-term. However, if during that period, or thereafter, we are not successful
in generating sufficient liquidity from operations or in raising sufficient
capital resources, on terms acceptable to us, this could have a material adverse
effect on our business, results of operations, liquidity and financial
condition.
We
presently do not have any available credit, bank financing or other external
sources of liquidity. Due to our brief history and historical operating losses,
our operations have not been a source of liquidity. We will need to obtain
additional capital in order to expand operations and become profitable. In order
to obtain capital, we may need to sell additional shares of our common stock or
borrow funds from private lenders. There can be no assurance that we will be
successful in obtaining additional funding.
We will
still need additional capital in order to continue operations until we are able
to achieve positive operating cash flow. Additional capital is being sought, but
we cannot guarantee that we will be able to obtain such investments. Financing
transactions may include the issuance of equity or debt securities, obtaining
credit facilities, or other financing mechanisms. However, the trading price of
our common stock and a downturn in the U.S. stock and debt markets could make it
more difficult to obtain financing through the issuance of equity or debt
securities. Even if we are able to raise the funds required, it is possible that
we could incur unexpected costs and expenses, fail to collect significant
amounts owed to us, or experience unexpected cash requirements that would force
us to seek alternative financing. Furthermore, if we issue additional equity or
debt securities, stockholders may experience additional dilution or the new
equity securities may have rights, preferences or privileges senior to those of
existing holders of our common stock. If additional financing is not available
or is not available on acceptable terms, we will have to curtail our
operations.
Critical
Accounting Policies
Our
financial statements are prepared based on the application of accounting
principles generally accepted in the United States of America. These accounting
principles require us to exercise significant judgment about future events that
affect the amounts reported throughout our financial statements. Actual
events could unfold quite differently than our previous judgments had
predicted. Therefore, the estimates and assumptions inherent in the
financial statements included in this report could be materially different once
those actual events are known. We believe the following policies may
involve a higher degree of judgment and complexity in their application and
represent critical accounting policies used in the preparation of our financial
statements. If different assumptions or estimates were used, our financial
statements could be materially different from those included in this
report.
Revenue
Recognition
We
recognize revenues in accordance with Staff Accounting Bulletin 104, Revenue
Recognition in Financial Statements (SAB 104). We sell atmospheric water
generators. Revenue from such product sales is recognized when persuasive
evidence of an arrangement exists, delivery has occurred, the fee is
fixed or determinable and collectibility is probable. At this
time the earnings process is complete and the risks and rewards of ownership
have transferred to the customer, which is generally when the goods are shipped
and all our significant obligations have been satisfied.
Accounts
Receivable
We must
make judgments about the collectibility of our accounts receivable to be able to
present them at their net realizable value on the balance sheet. To
do this, we carefully analyze the aging of our customer accounts, try to
understand why accounts have not been paid, and review historical bad debt
problems. From this analysis, we record an estimated allowance for
receivables that we believe will ultimately become uncollectible. As
of June 30, 2008, we had an allowance for bad debts of $ 2,762. We actively
manage our accounts receivable to minimize our credit risks and believe that our
current allowance for doubtful accounts is fairly stated.
Reliability
of Inventory Values
We make
judgments about the ultimate realizability of our inventory in order to record
our inventory at its lower of cost or market. These judgments involve
reviewing current demand for our products in comparison to present inventory
levels and reviewing inventory costs compared to current market
values.
Recent
Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” ("SFAS
No. 157"). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value measurements. SFAS
No. 157 is effective for financial statements issued in fiscal years beginning
after November 15, 2007, but the FASB has partially delayed the effective date
for one year for certain fair value measurements when those measurements are
used for financial statement items that are not measured at fair value on a
recurring basis. We are currently evaluating the impact that the adoption of
SFAS No. 157 may have and have not yet determined its impact on our financial
statements.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities - Including an Amendment of SFAS No.
115” ("SFAS No. 159"). SFAS No. 159 creates a “fair value option” under
which an entity may elect to record certain financial assets or liabilities at
fair value upon their initial recognition. The Company would recognize
subsequent changes in fair value in earnings as those changes occur. We
would make the election of the fair value option on a contract-by-contract
basis, supported by the concurrent documentation or a preexisting documented
policy. SFAS No. 159 requires an entity to separately disclose the fair value of
these items on the balance sheet or in the footnotes to the financial statements
and to provide information that would allow the financials statement user to
understand the impact on earnings from changes in the fair value. SFAS No. 159
is effective for fiscal years beginning after November 15, 2007. We are
currently evaluating the impact that the adoption of SFAS No. 159 may have and
have not yet determined its impact on our financial statements.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” ("SFAS No. 141(R)"), which replaces SFAS No. 141, “Business
Combinations.” SFAS No. 141(R) retains the underlying concepts of SFAS No. 141
in that all business combinations are still required to be accounted for at fair
value under the acquisition method of accounting but SFAS No. 141(R) changed the
method of applying the acquisition method in a number of significant aspects.
Acquisition costs will generally be expensed as incurred; non-controlling
interests will be valued at fair value at the acquisition date; in-process
research and development will be recorded at fair value as an indefinite-lived
intangible asset at the acquisition date; restructuring costs associated with a
business combination will generally be expensed subsequent to the acquisition
date; and changes in deferred tax asset valuation allowances and income tax
uncertainties after the acquisition date generally will affect income tax
expense. SFAS No. 141(R) is effective on a prospective basis for all business
combinations for which the acquisition date is on or after the beginning of the
first annual period subsequent to December 15, 2008, with the exception of the
accounting for valuation allowances on deferred taxes and acquired tax
contingencies. SFAS No. 141(R) amends SFAS No. 109 such that adjustments made to
valuation allowances on deferred taxes and acquired tax contingencies associated
with acquisitions that closed prior to the effective date of SFAS No. 141(R)
would also apply the provisions of SFAS No. 141(R). Early adoption is not
permitted.
In
December 2007, the FASB issued Financial Accounting Standards No. 160,
“Non-controlling Interests in Consolidated Financial Statements – an amendment
of ARB No. 51” ("SFAS No. 160"). SFAS No. 160 is effective for fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008, with earlier adoption prohibited. This statement requires the
recognition of a non-controlling interest (minority interest) as equity in the
consolidated financial statements and separate from the parent’s equity. The
amount of net income attributable to the non-controlling interest will be
included in consolidated net income on the face of the income of the income
statement. It also amends certain of ARB No. 51’s consolidation procedures for
consistency with the requirements of SFAS No. 141(R). This statement also
includes expanded disclosure requirements regarding the interests of the parent
and its non-controlling interest. The impact to us of SFAS No. 160 is currently
being evaluated and has not yet been determined.
In March 2008, the FASB issued SFAS No.
161, “Disclosures about Derivative Instruments and Hedging Activities,” ("SFAS
No. 161"), which changes the disclosure requirements for derivative
instruments and hedging activities. SFAS No. 161 requires enhanced disclosures
about (a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under SFAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities” and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance, and cash flows.
This statement’s disclosure requirements are effective for fiscal years and
interim periods beginning after November 15, 2008. We are currently evaluating
this new statement and anticipate that the new statement will not have a
significant impact on our financial statements.
In
May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally
Accepted Accounting Principles" ("SFAS No. 162"). SFAS No. 162 identifies the
sources of accounting principles and the framework for selecting the principles
used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with GAAP in the United States of America. Any
effect of applying the provisions of SFAS No. 162 shall be reported as a change
in accounting principle in accordance with SFAS No. 154, Accounting Changes and
Error Corrections. SFAS No. 162 is effective 60 days following approval by
the Securities and Exchange Commission of the Public Company Accounting
Oversight Board amendments to AU Section 411, "The Meaning of Present
Fairly in Conformity with Generally Accepted Accounting Principles." Management
does not anticipate that the adoption of SFAS No. 162 will have a material
impact on our financial statements.
In
June 2008, the FASB issued FASB Staff Position EITF 03-6-1, "Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities" (“FSP 03-6-1”), which addresses whether instruments
granted in share-based payment transactions are participating securities prior
to vesting and, therefore, need to be included in earnings allocation in
computing earnings per share under the two-class method. The statement is
effective for financial statements issued for fiscal years beginning after
December 15, 2008 and retrospective application is required for all periods
presented. We are currently evaluating the effect of the implementation of FSP
03-6-1, but do not believe that it will have a material impact on the
calculation of earnings per share.
Not required under Regulation S-K for
“smaller reporting companies.”
WATERPURE
INTERNATIONAL, INC.
INDEX
TO FINANCIAL STATEMENTS
|
|
Page
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
|
F-1
|
|
FINANCIAL
STATEMENTS
|
|
|
|
Balance
Sheets
|
|
F-2
|
|
Statements
of Operations
|
|
F-3
|
|
Statements
of Changes in Stockholders’ Equity (Deficiency)
|
|
F-4
|
|
Statements
of Cash Flows
|
|
F-5
|
|
Notes
to Financial Statements
|
|
F-7
to F-16
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Stockholders and Board of Directors of
WaterPure
International, Inc.
We have
audited the accompanying balance sheets of WaterPure International, Inc. (a
development stage company) (the “Company”) as of June 30, 2008 and June 30,
2007, and the related statements of operations, changes in stockholders’ equity
(deficiency) and cash flows for the years then ended and for the period from
inception (June 22, 2005) through June 30, 2008. These financial statements are
the responsibility of the Company’s management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of WaterPure International, Inc. as of
June 30, 2008 and 2007, and the results of its operations and its cash flows for
the years then ended and for the period from inception (June 22, 2005) through
June 30, 2008, in conformity with accounting principles generally accepted in
the United States of America.
The accompanying financial statements
have been prepared assuming that the Company will continue as a going
concern. As shown in the accompanying financial statements, the Company has
incurred a net loss since its inception totaling approximately $3.47 million,
has earned minimal revenues and has a working capital deficiency as of June 30,
2008. These factors raise substantial doubt about the Company’s ability to continue as a going
concern. Management’s plans in regards to these matters are
described in Note 2. These financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
/s/
CCR LLP
Glastonbury,
Connecticut
October
14, 2008
WATERPURE
INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE COMPANY)
BALANCE
SHEETS
JUNE
30, 2008 AND 2007
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$ |
5,421 |
|
|
$ |
10,918 |
|
Accounts receivable - net of
allowance ($2,762 at June 30, 2008 and $-0- at June 30,
2007)
|
|
|
- |
|
|
|
6,904 |
|
Other
receivables
|
|
|
- |
|
|
|
7,000 |
|
Inventories
|
|
|
87,957 |
|
|
|
63,642 |
|
Other
|
|
|
- |
|
|
|
7,035 |
|
|
|
|
|
|
|
|
|
|
Total current
assets
|
|
|
93,378 |
|
|
|
95,499 |
|
|
|
|
|
|
|
|
|
|
Trademark
|
|
|
325 |
|
|
|
325 |
|
Security
deposit
|
|
|
- |
|
|
|
200 |
|
Intangible asset - license, net of
accumulated amortization
|
|
|
1,056,785 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
1,150,488 |
|
|
$ |
96,024 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
122,641 |
|
|
$ |
3,098 |
|
Accrued
expenses
|
|
|
363,921 |
|
|
|
33,525 |
|
Notes
payable
|
|
|
25,000 |
|
|
|
50,000 |
|
Convertible
debt
|
|
|
50,000 |
|
|
|
50,000 |
|
Due to
officers
|
|
|
98,053 |
|
|
|
13,373 |
|
Due to
stockholders
|
|
|
105,169 |
|
|
|
74,350 |
|
|
|
|
|
|
|
|
|
|
Total current
liabilities
|
|
|
764,784 |
|
|
|
224,346 |
|
|
|
|
|
|
|
|
|
|
Accrued royalties
payable
|
|
|
496,373 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY
(DEFICIENCY)
|
|
|
|
|
|
|
|
|
Common stock, par value $.0001 per
share; 100,000,000 authorized
|
|
|
3,147 |
|
|
|
2,127 |
|
Common stock to be
issued
|
|
|
355,000 |
|
|
|
- |
|
Additional paid-in
capital
|
|
|
2,998,146 |
|
|
|
1,047,143 |
|
Accumulated
deficit
|
|
|
(3,466,962 |
) |
|
|
(1,177,592 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders' equity
(deficiency)
|
|
|
(110,669 |
) |
|
|
(128,322 |
) |
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders' equity (deficiency)
|
|
$ |
1,150,488 |
|
|
$ |
96,024 |
|
The
accompanying notes are an integral part of these financial
statements.
WATERPURE
INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE COMPANY)
STATEMENTS OF
OPERATIONS
FOR
THE FISCAL YEARS ENDED JUNE 30, 2008 AND JUNE 30, 2007 AND FOR THE
PERIOD
FROM JULY 22, 2005 (INCEPTION)
THROUGH JUNE 30, 2008
|
|
|
|
|
|
|
|
July
22,2005
|
|
|
|
Year
|
|
|
Year
|
|
|
(inception)
|
|
|
|
ended
|
|
|
ended
|
|
|
through
|
|
|
|
June 30,
2008
|
|
|
June 30,
2007
|
|
|
June 30,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$ |
65,651 |
|
|
$ |
6,279 |
|
|
$ |
71,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF GOODS
SOLD
|
|
|
67,656 |
|
|
|
3,411 |
|
|
|
71,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
(loss)
|
|
$ |
(2,005 |
) |
|
$ |
2,868 |
|
|
$ |
863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
expenses
|
|
|
2,207,502 |
|
|
|
1,096,034 |
|
|
|
3,367,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM
OPERATIONS
|
|
|
(2,209,507 |
) |
|
|
(1,093,166 |
) |
|
|
(3,367,034 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
10,275 |
|
|
|
20,065 |
|
|
|
30,340 |
|
Accrection of accrued
royalties
|
|
|
31,509 |
|
|
|
- |
|
|
|
31,509 |
|
Amortization
expense
|
|
|
38,079 |
|
|
|
- |
|
|
|
38,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income
taxes
|
|
|
(2,289,370 |
) |
|
|
(1,113,231 |
) |
|
|
(3,466,962 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income
taxes
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(2,289,370 |
) |
|
$ |
(1,113,231 |
) |
|
$ |
(3,466,962 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and
diluted
|
|
$ |
(0.09 |
) |
|
$ |
(0.05 |
) |
|
$ |
(0.16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average per common
share
|
|
|
24,125,379 |
|
|
|
20,764,873 |
|
|
|
21,639,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
WATERPURE
INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN
STOCKHOLDERS’ EQUITY(DEFICIENCY)
FOR THE PERIOD FROM
JULY 22, 2005 (INCEPTION) THROUGH
JUNE 30, 2008
|
|
Common stock to be
issued
|
|
|
Common stock issued and
outstanding
|
|
|
Additonal paid in
capital
|
|
|
Deficit
Accumulated
|
|
|
Total Stockholders'
Equity
(Deficiency)
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance July 22, 2005
(inception)
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock to be issued in
connection with Incorporation (July 22, 2005)
|
|
|
4,000,000 |
|
|
|
10,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock to be issued for
consulting services
|
|
|
16,150,000 |
|
|
|
40,375 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
40,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued - private
placement, net of issuance costs of $58,255
|
|
|
461,750 |
|
|
|
126,445 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
126,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(64,361 |
) |
|
|
(64,361 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30,
2006
|
|
|
20,611,750 |
|
|
|
176,820 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(64,361 |
) |
|
|
112,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of
shares
|
|
|
(20,611,750 |
) |
|
|
(176,820 |
) |
|
|
20,611,750 |
|
|
|
2,061 |
|
|
|
174,759 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial conversion of loan
discount
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
18,750 |
|
|
|
- |
|
|
|
18,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for consulting
services
|
|
|
- |
|
|
|
- |
|
|
|
660,000 |
|
|
|
66 |
|
|
|
622,334 |
|
|
|
- |
|
|
|
622,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of options for
compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
231,300 |
|
|
|
- |
|
|
|
231,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,113,231 |
) |
|
|
(1,113,231 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30,
2007
|
|
|
- |
|
|
|
- |
|
|
|
21,271,750 |
|
|
|
2,127 |
|
|
|
1,047,143 |
|
|
|
(1,177,592 |
) |
|
|
(128,322 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock to be
issued
|
|
|
1,750,000 |
|
|
|
355,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
355,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of
shares
|
|
|
- |
|
|
|
- |
|
|
|
4,330,000 |
|
|
|
433 |
|
|
|
468,567 |
|
|
|
- |
|
|
|
469,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares as repayment of
amount due to stockholders
|
|
|
- |
|
|
|
- |
|
|
|
467,626 |
|
|
|
47 |
|
|
|
70,097 |
|
|
|
- |
|
|
|
70,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for consulting
services
|
|
|
- |
|
|
|
- |
|
|
|
5,277,500 |
|
|
|
528 |
|
|
|
829,101 |
|
|
|
- |
|
|
|
829,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of options for
compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
582,937 |
|
|
|
- |
|
|
|
582,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of
options
|
|
|
- |
|
|
|
- |
|
|
|
125,000 |
|
|
|
12 |
|
|
|
301 |
|
|
|
- |
|
|
|
313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,289,370 |
) |
|
|
(2,289,370 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30,
2008
|
|
|
1,750,000 |
|
|
$ |
355,000 |
|
|
|
31,471,876 |
|
|
$ |
3,147 |
|
|
$ |
2,998,146 |
|
|
$ |
(3,466,962 |
) |
|
$ |
(110,669 |
) |
The accompanying notes are an
integral part of these financial statements.
WATERPURE
INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH
FLOWS
FOR
THE FISCAL YEARS ENDED JUNE 30, 2008 AND JUNE 30, 2007 AND FOR
THE
PERIODS
FROM JULY 22, 2005 (INCEPTION) THROUGH JUNE 30, 2008
|
|
|
|
|
|
|
|
July 22,
2005
|
|
|
|
Year
|
|
|
Year
|
|
|
(inception)
|
|
|
|
ended
|
|
|
ended
|
|
|
through
|
|
|
|
June 30,
|
|
|
June 30.
|
|
|
June 30.
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(2,289,370 |
) |
|
$ |
(1,113,231 |
) |
|
$ |
(3,466,962 |
) |
Adjustments to reconcile net loss
to net cash used in operating
|
|
|
|
|
|
|
|
|
|
|
|
|
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of accrued
royalties
|
|
|
31,509 |
|
|
|
- |
|
|
|
31,509 |
|
Amortization
of intangible asset - license
|
|
|
38,079 |
|
|
|
- |
|
|
|
38,079 |
|
Common stock issued
for consulting services
|
|
|
829,629 |
|
|
|
622,400 |
|
|
|
1,492,404 |
|
Issuance of stock
options - employees
|
|
|
582,937 |
|
|
|
231,300 |
|
|
|
814,237 |
|
Amortization of
beneficial conversion discount
|
|
|
- |
|
|
|
18,750 |
|
|
|
18,750 |
|
Changes in operating
assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase)/Decrease
in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
6,904 |
|
|
|
(6,904 |
) |
|
|
- |
|
Other
receivables
|
|
|
7,000 |
|
|
|
(7,000 |
) |
|
|
- |
|
Inventories
|
|
|
(24,315 |
) |
|
|
(2,853 |
) |
|
|
(87,957 |
) |
Other
|
|
|
7,035 |
|
|
|
920 |
|
|
|
- |
|
Security
deposits
|
|
|
200 |
|
|
|
- |
|
|
|
- |
|
Increase/(Decrease)
in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
212,939 |
|
|
|
26,623 |
|
|
|
249,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating
activities
|
|
|
(597,453 |
) |
|
|
(229,995 |
) |
|
|
(910,378 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of
license
|
|
|
(63,000 |
) |
|
|
- |
|
|
|
(63,000 |
) |
Trademark
|
|
|
- |
|
|
|
(325 |
) |
|
|
(325 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(63,000 |
) |
|
|
(325 |
) |
|
|
(63,325 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from private
placement
|
|
|
- |
|
|
|
- |
|
|
|
126,445 |
|
Proceeds from sale of founders
shares
|
|
|
- |
|
|
|
- |
|
|
|
10,000 |
|
Net proceeds from sale of stock
and exercise of stock options
|
|
|
494,313 |
|
|
|
- |
|
|
|
494,313 |
|
Proceeds from notes
payable
|
|
|
- |
|
|
|
50,000 |
|
|
|
50,000 |
|
Repayment of notes
payable
|
|
|
(25,000 |
) |
|
|
- |
|
|
|
(25,000 |
) |
Advances from
officers
|
|
|
84,680 |
|
|
|
13,373 |
|
|
|
98,053 |
|
Advances from
stockholders
|
|
|
100,963 |
|
|
|
74,350 |
|
|
|
175,313 |
|
Proceeds from convertible
debt
|
|
|
- |
|
|
|
50,000 |
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing
activities
|
|
|
654,956 |
|
|
|
187,723 |
|
|
|
979,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE/(DECREASE) IN
CASH
|
|
|
(5,497 |
) |
|
|
(42,597 |
) |
|
|
5,421 |
|
CASH, beginning of
period
|
|
|
10,918 |
|
|
|
53,515 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH, end of
period
|
|
$ |
5,421 |
|
|
$ |
10,918 |
|
|
$ |
5,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash
flow information:
|
1The
Company is to issue 1,500,000 shares valued at $330,000 for the license
acquisition as described in Note 3.
2The
Company recorded a liability of $237,000 for amounts owed for the license
acquisition as described in Note 3.
3The
Company recorded accrued royalties of $496,373, which represents the present
value of the guaranteed minimum payments for the license acquisition as
described in Note 3.
4The
Company issued 467,626 shares of common stock valued at $70,144 as repayment of
amounts due to stockholders as described in Note 5.
The
accompanying notes are an integral part of these financial
statements
WATERPURE
INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL
STATEMENTS
NOTE
1 - SIGNIFICANT ACCOUNTING POLICIES
NATURE
OF OPERATIONS
WaterPure
International, Inc. (a development stage company) (the “Company”) was
incorporated in the state of Florida on July 22, 2005, for the purpose of
marketing selected private label products and services to the small office
and/or home office as well as the consumer markets. The Company intends to
market and eventually to manufacture the licensed Atmospheric Water Generators
from Everest Water Ltd., devices that harvest pure drinking water from ambient
air. These machines are engineered to produce drinking water virtually free of
any material, bacterial, organic or other contaminants. The Company also intends
to market mineral additives that will permit addition of organic minerals,
flavors and other desired additives to water produced by the machine. The
products will bear the Company's own exclusive WaterPure
branding.
DEVELOPMENT
STAGE COMPANY
The
Company is considered a development stage company as defined by Statement of
Financial Accounting Standards (SFAS) No. 7, as it has no principal operations
and/or minimal revenues from any source. Operations from the Company’s inception
through June 30, 2008 were devoted primarily to strategic planning, raising
capital and developing revenue-generating opportunities.
USE
OF ESTIMATES
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those
estimates.
CASH
AND CASH EQUIVALENTS
The
Company considers financial instruments with a maturity date of three months or
less from the date of purchase to be cash equivalents. The Company had no cash
equivalents at June 30, 2008 and 2007.
ACCOUNTS
RECIEVABLE
The
Company makes judgments about the collectability of accounts receivable to be
able to present them at their net realizable value on the balance sheet.
Such judgments require careful analysis of the aging of customer accounts,
consideration of why accounts have not been paid, and review of historical bad
debt issues. From this analysis, the Company determines an estimated
allowance for receivables that will ultimately become uncollectible. As of
June 30, 2008, the Company had an allowance for bad debts of $2,762. There was
no allowance at June 30, 2007.
INVENTORIES
The
Company states inventories at the lower of cost or market. As of June 30,
2008 and 2007, inventories consisted of purchased finished goods, plus directly
attributable acquisition costs. Cost of inventory is determined using the
weighted average cost method. The Company assesses the need to establish
inventory reserves for excess, obsolete or slow-moving inventory based on
changes in customer demand, technology developments and other
factors.
LONG-LIVED
ASSETS AND OTHER INTANGIBLE ASSETS
The
Company accounts for its long-lived assets in accordance with Statement of
Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible
Assets”, which requires that intangible assets with finite lives be amortized
over their respective estimated lives and No. 144, “Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed of,” which
requires that long-lived assets and certain intangible assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If undiscounted expected future
cash flows are less than the carrying value of the assets, an impairment loss is
to be recognized based on the fair value of the assets.
WATERPURE
INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL
STATEMENTS
NOTE
1 - SIGNIFICANT ACCOUNTING POLICIES (continued)
CONVERTIBLE
DEBT
The
Company accounts for its convertible debt in accordance with the provisions of
Emerging Issues Task Force Issue (“EITF”) 98-5 “Accounting for Convertible
Securities with Beneficial Conversion Features,” (“EITF 98-5”) and EITF
00-27 “Application of EITF
98-5 to Certain Convertible Instruments,” which require the embedded
beneficial conversion features present in convertible securities to be valued
separately at issuance and recognized and measured by allocating a portion of
the proceeds equal to the intrinsic value of that feature to additional paid-in
capital.
REVENUE
RECOGNITION
The
Company recognizes revenue in accordance with Securities and Exchange Commission
(“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition,” which
outlines the four basic criteria that must be met before revenue can be
recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has
occurred or services have been rendered; (3) the fee is fixed or
determinable; and (4) collectibility is reasonably assured. Determination
of criteria (3) and (4) are based on management’s judgments regarding the fixed
nature of the fee charged for services rendered and products delivered and the
collectibility of those fees.
INCOME
TAXES
The
Company recognizes deferred tax liabilities and assets for the expected future
tax consequences of events that have been included in the financial statements
or tax returns. Deferred tax liabilities and assets are determined based on the
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Differences between the financial statement
and tax bases of assets, liabilities, and other transactions did not result in a
provision for current or deferred income taxes for the periods from July 22,
2005 (inception) through June 30, 2008.
CONCENTRATIONS
OF CREDIT RISK
The
Company’s financial instruments that are exposed to a concentration of credit
risk are cash and accounts receivable. The Company places its cash with a high
credit quality institution. At June 30, 2008, the Company’s cash balance on
deposit did not exceed federal depository insurance limits. The Company
routinely assesses the financial strengths of its customers and, as a results,
believes that their accounts receivable, net of reserves, credit risk exposure
is limited.
FAIR
VALUE OF FINANCIAL INSTRUMENTS
Statement
of Financial Accounting Standards (SFAS) No. 107, Fair Value of Financial
Instruments, requires disclosure of the fair value of financial
instruments for which determination of fair value is practicable. SFAS No. 107
defines the fair value of a financial instrument as the amount at which the
instruments could be exchanged in a current transaction between willing parties.
The carrying amount of cash, accounts payable and accrued expenses, due to
officers and due to stockholders approximates fair value because of the
immediate or short-term maturity of these financial instruments. The fair value
of the notes payable was estimated by discounting the future cash flows using
current rates offered by lenders for similar borrowings with similar credit
ratings. The fair value of the notes payable approximate their carrying value.
The fair value of the convertible notes is not determinable because of the lack
of any quoted market price or trading activity in the instruments (see
Note 6 for a description of these instruments). The carrying value of the
accrued royalties payable approximate fair value and was estimated by
discounting future cash flows using a 12% discount rate. The Company’s financial
instruments are held for other than trading purposes.
WATERPURE
INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL
STATEMENTS
NOTE
1 - SIGNIFICANT ACCOUNTING POLICIES (continued)
NET
LOSS PER COMMON SHARE
The
Company presents “basic” earnings (loss) per share and, if applicable, “diluted”
earnings per share pursuant to the provisions of SFAS No. 128, Earnings per Share. Basic
earnings (loss) per share are calculated by dividing net income or loss by the
weighted average number of common shares outstanding during each
period.
STOCK BASED
COMPENSATION
The Company accounts for equity
instruments exchanged for services in accordance with Statement of Financial
Accounting Standards
(“SFAS”) No. 123(R), “Share-Based
Payment.” Under
the provisions of SFAS No. 123(R), share-based compensation issued to employees
is measured at the grant date, based on the fair value of the award, and is
recognized as an expense over the requisite service period (generally the
vesting period of the grant). Share-based compensation issued to non-employees
is measured at grant date, based on the fair value of the consideration received
or the fair value of the equity instruments issued, whichever is more readily measurable, and is
recognized as an expense over the requisite service period. The Company
granted employee stock-based compensation in the form of stock options during
the year ended June 30, 2008 and has recognized stock compensation related
expense of $582,937 for year ended June 30, 2008.
RECENT ACCOUNTING
PRONOUNCEMENTS
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” SFAS
No. 157 defines fair value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements. SFAS No. 157 is effective for
financial statements issued in fiscal years beginning after November 15, 2007,
but the FASB has partially delayed the effective date for one year for certain
fair value measurements when those measurements are used for financial statement
items that are not measured at fair value on a recurring basis. The Company is
currently evaluating the impact that the adoption of SFAS No. 157 may have and
has not yet determined its impact on the financial
statements.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities - Including an Amendment of SFAS No.
115.” SFAS No. 159 creates a “fair value option” under which an entity may elect
to record certain financial assets or liabilities at fair value upon their
initial recognition. The Company would recognize subsequent changes in fair
value in earnings as those changes occur. The Company would make the election of
the fair value option on a contract-by contract basis, supported by the
concurrent documentation or a preexisting documented policy. SFAS No. 159
requires an entity to separately disclose the fair value of these items on the
balance sheet or in the footnotes to the financial statements and to provide
information that would allow the financials statement user to understand the
impact on earnings from changes in the fair value. SFAS No. 159 is effective for
fiscal years beginning after November 15, 2007. The Company is currently
evaluating the impact that the adoption of SFAS No. 159 may have and has not yet
determined its impact on the financial statements.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (SFAS 141(R)), which replaces SFAS No. 141, “Business
Combinations.” SFAS 141(R) retains the underlying concepts of SFAS 141 in that
all business combinations are still required to be accounted for at fair value
under the acquisition method of accounting but SFAS 141(R) changed the method of
applying the acquisition method in a number of significant aspects. Acquisition
costs will generally be expensed as incurred; non-controlling interests will be
valued at fair value at the acquisition date; in-process research and
development will be recorded at fair value as an indefinite-lived intangible
asset at the acquisition date; restructuring costs associated with a business
combination will generally be expensed subsequent to the acquisition date; and
changes in deferred tax asset valuation allowances and income tax uncertainties
after the acquisition date generally will affect income tax expense. SFAS 141(R)
is effective on a prospective basis for all business combinations for which the
acquisition date is on or after the beginning of the first annual period
subsequent to December 15, 2008, with the exception of the accounting for
valuation allowances on deferred taxes and acquired tax contingencies. SFAS
141(R) amends SFAS 109 such that adjustments made to valuation allowances on
deferred taxes and acquired tax contingencies associated with acquisitions
that closed prior to the effective date of SFAS 141(R) would also apply the
provisions of SFAS 141(R). Early adoption is not permitted.
WATERPURE
INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL
STATEMENTS
NOTE
1 - SIGNIFICANT ACCOUNTING POLICIES (continued)
In
December 2007, the FASB issued Financial Accounting Standards No. 160,
“Non-controlling Interests in Consolidated Financial Statements – an amendment
of ARB No. 51.” This statement is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008, with
earlier adoption prohibited. This
statement requires the recognition of a non-controlling interest (minority
interest) as equity in the consolidated financial statements and separate from
the parent’s equity. The amount of net income attributable to the
non-controlling interest will be included in consolidated net income on the face
of the income of the income statement. It also amends certain of ARB No. 51’s
consolidation procedures for consistency with the requirements of SFAS 141(R).
This statement also includes expanded disclosure requirements regarding the
interests of the parent and its non-controlling interest. The impact to the
Company of SFAS No. 160 is currently being evaluated and has not yet been
determined.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities,” which changes the disclosure requirements for
derivative instruments and hedging activities. SFAS No. 161 requires enhanced
disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under SFAS No.
133, “Accounting for Derivative Instruments and Hedging Activities” and its
related interpretations, and (c) how derivative instruments and related hedged
items affect an entity’s financial position, financial performance, and cash
flows. This statement’s disclosure requirements are effective for fiscal years
and interim periods beginning after November 15, 2008. The Company is currently
evaluating this new statement and anticipates that the new statement will not
have a significant impact on the Company’s financial statements.
In
May 2008, the FASB issued SFAS 162, The Hierarchy of Generally Accepted
Accounting Principles. SFAS 162 identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with GAAP in the United States. Any effect of applying
the provisions of SFAS 162 shall be reported as a change in accounting principle
in accordance with SFAS 154, Accounting Changes and Error
Corrections. SFAS 162 is effective 60 days following approval by the
Securities and Exchange Commission of the Public Company Accounting Oversight
Board amendments to AU Section 411, The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles. Management does
not anticipate that the adoption of SFAS 162 will have a material impact on the
Company’s financial statements.
In
June 2008, the FASB issued FASB Staff Position EITF 03-6-1, "Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities," which
addresses whether instruments granted in share-based payment transactions are
participating securities prior to vesting and, therefore, need to be included in
earnings allocation in computing earnings per share under the two-class method.
The statement is effective for financial statements issued for fiscal years
beginning after December 15, 2008 and retrospective application is required
for all periods presented. The Company is currently evaluating the effect of the
implementation of FSP 03-6-1, but does not believe that it will have a material
impact on the calculation of earnings per share.
Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on the consolidated financial statements
upon adoption
NOTE 2 - GOING CONCERN/MANAGEMENT’S PLAN
The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern,
which contemplates the realization of assets and the settlement
of liabilities and commitments in the normal course of business. The Company has
incurred a net loss since its inception totaling $3,466,962, has earned minimal
revenues and has a working capital deficiency as of June 30, 2008. These matters raise
substantial doubt about the Company’s ability to continue as a going
concern. These financial statements do not include adjustments that might result
from the outcome of this uncertainty.
In order to generate revenues
and the working capital
needed to continue and expand operations, the Company’s management has committed to a plan for
increasing retail distribution channels for its products and raising additional
capital. There can be no assurances, however, that the Company will be able to obtain the necessary
funding to finance their operations or grow revenue in sufficient amounts to
fund their operations.
WATERPURE
INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL
STATEMENTS
NOTE 3
– INTANGIBLE ASSETS - LICENSE
On December 7, 2007, the Company
entered into licensing agreements with Everest Water LTD for the manufacturing
and marketing rights to atmospheric water generators and mineral additive units.
The Company agreed to pay $300,000, plus 1,500,000 shares of the Company’s
common stock valued at
$330,000 as consideration under this agreement. The Company paid $50,000 with
the execution of the agreement and an additional $10,000 in March 2008, On
August 1, 2008, the Company and Everest Water LTD modified their licensing
agreement so that the Company will pay Everest $430,000 over 33
months starting September 1, 2008, and 8% royalty payments with guarantee
minimum payments as follows: $50,000 year one, $60,000 year two, $70,000 year
three, $90,000 year four and $100,000 each year after.
The following table summarizes the various components
of the Everest license as of June 30, 2008:
|
|
2008
|
|
Cost of license described
above
|
|
$ |
1,094,864 |
|
Less: accumulated
amortization
|
|
|
38,079 |
|
License,
net
|
|
$ |
1,056,785 |
|
The total amortization expense for the
year ended June 30, 2008 amounted to $31,509.
Contingencies -
Royalties
Pursuant
to the licensing agreement as described above, the Company will pay Everest
Water LTD an 8% royalty payment with a guarantee minimum payment of $100,000
beginning in year four of the agreement. This agreement terminates with the
expiration of the patent on September 3, 2024. The Company has recognized a
liability of $496,373, which represents the present value of the fourteen annual
$100,000 payments that start in the fifth year of the agreement using a 12%
discount rate.
NOTE 4
– NOTES PAYABLE
The
Company entered into a Securities Purchase Agreement with accredited investors
on May 21, 2007 for the issuance of two $25,000 notes for a total of $50,000.
The notes payable accrued interest at 12% per annum and were due six months from
the date of the note. On November 15, 2007,
the terms of these notes were extended for an aditional six months.
During
the year ended June 30, 2008, the Company repaid one of the $25,000 notes. The
other note is currently in default.
NOTE 5
– ADVANCES FROM OFFICERS AND SHAREHOLDERS
Officers
and stockholders of the Company have provided various short-term working capital
advances. During the year ended June 30, 2008, short-term working capital
advances from officers and stockholders under this borrowing arrangement totaled
$84,680 and $100,963 respectively. During the year ended June 30, 2007,
short-term working capital advances from officers and stockholders under this
borrowing arrangement totaled $13,373 and $74,350 respectively. The
Company issued 467,626 shares of common stock as repayment for $70,144 of the
amount due to stockholders on March 21, 2008. The Company does not intend to pay
interest on the principal borrowed from officers and stockholders.
The
following table summarizes the Company’s debt to officers and stockholders as of
June 30, 2008 and 2007:
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Advances
from officers
|
|
$ |
98,053 |
|
|
$ |
13,373 |
|
Advances
from stockholders
|
|
$ |
105,169 |
|
|
$ |
74,350 |
|
WATERPURE
INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL
STATEMENTS
NOTE 6
– CONVERTIBLE DEBT
The
Company entered into a Securities Purchase Agreement with accredited investors
on May 21, 2007 for the issuance of an aggregate of $50,000 of convertible notes
(“Convertible Notes”). The Convertible Notes accrue interest at 12% per annum
and are due two years from the date of the note. The note holder has
the option to convert any unpaid note principal to the Company’s common stock at
a rate of $0.25 per share.
In
accordance with EITF 98-5, during the year ended June 30, 2007, the Company
recorded a debt discount of $18,750 on the debt, representing the intrinsic
value of the beneficial conversion features based upon the difference between
the fair value of the underlying common stock at the commitment date and the
effective conversion price embedded in the debt. The Company determined the
commitment date of the loans to be the date of the agreement.
NOTE 7
- STOCKHOLDERS’ EQUITY
The
Company had 100,000,000 and 40,000,000 shares of $.0001 par value common stock
authorized at June 30, 2008 and 2007, respectively. Of the authorized shares,
20,150,000 shares of common stock have been issued to the founders of the
Company (“founder’s shares”). The Company received $10,000 in cash and $40,375
in services in consideration of the founder shares.
As of
March 31, 2006, the Company completed a private placement to 40 investors and
allocated 461,750 shares of common stock at $.40 per share (“private placement
shares”). The Company received gross proceeds of $184,700 from the offering. The
Company incurred offering costs of $58,255 and has applied such costs against
the proceeds from the offering.
During
the year ended June 30, 2007, the Company issued 660,000 shares of its common
stock for consulting services for $622,400. The Company issued 575,000 shares
under the Company’s S-8 filing. The other 85,000 shares were issued pursuant to
Rule 144 promulgated by the Securities and Exchange Commission (“Rule 144”). The
fair values of the shares were determined based on the closing market price of
the shares at the date of the agreements.
The Company is to issue 250,000 shares
for the $25,000 of funds raised and collected relating to the private placement
initiated in December 2007.
During
the year ended June 30, 2008, the Company issued 5,290,000 shares of its common
stock for consulting services totaling $841,504. The Company also redeemed
12,500 shares that had been issued with a value of $11,875.
During
the year ended June 30, 2008, the Company issued 467,626 shares of common stock
for $70,144 due to stockholders.
During
the year ended June 30, 2008, in
separate transactions, the Company sold in private placements and issued 125,000
shares at $.40 per share for a total of $50,000, 4,055,000 shares at $.10 per
share for a total of
$405,500 and 150,000 shares at $.09 per share for a total of $13,500. The fair
values of the shares were determined based on the closing market price of the
shares at the date of the agreements.
The
Company is to issue 1,500,000 shares of common stock valued at $330,000 for the
license acquisition as described in Note 3.
NOTE 8-
CONTROL
As of
June 30, 2007, the President / Director has been issued, in the aggregate, 60.2%
of the Company’s common stock and, therefore, has the effective power to elect
all members of the Board of Directors and to control the vote on substantially
all other matters, without the approval of other stockholders.
WATERPURE
INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL
STATEMENTS
NOTE 8-
CONTROL (continued)
As of
June 30, 2008, the President / Director has been issued, in the aggregate, 33.9%
of the Company’s common stock.
NOTE 9 – STOCK OPTIONS
At the time of inception (July 22,
2005), the Company issued 125,000 options to one of its consultants for services
rendered. The exercise price was $.0025, the options were immediately
exercisable, and expired
five years from the grant date. These options were exercised on August 29,
2007.
During the year ended June 30, 2007, the
Company issued 500,000 options to one of its executive officers. The exercise
price is $0.55, which was the price of the Company’s common stock on the grant
date. The options are immediately exercisable and expire five years
from the grant date. The fair value of the options was estimated
at the date of grant using the Black-Scholes option price model. The Company
determined that the stock option compensation
was $231,300 and was recognized during the year ended June 30,
2007.
During the year ended June 30, 2008, the
Company issued 100,000 options to one of its executive officers. The exercise
price is $0.07, which was the price of the Company’s common stock on the grant
date. The options are immediately exercisable and expire five years
from the grant date. The fair value of the options was estimated
at the date of grant using the Black-Scholes option price model. The Company determined that the stock
option compensation was $6,845 and was recognized during the year ended June 30,
2008.
During the year ended June 30, 2008, the
Company also issued 3,000,000 options to one of its executive officers. The
exercise price was $0.10,
which is a discount to the price of the Company’s common stock price of $.20 on the
grant date. The options are immediately exercisable and expire five
years from the grant date. The fair value of the options was
estimated at the date of grant using the Black-Scholes option
price model. The Company determined that the stock option compensation was
$576,092 and was recognized during the year ended June 30,
2008.
To determine the fair value of the
options granted during the year ended June 30, 2008, the Company used the following
assumptions in its Black-Scholes option -price calculation:
Issue date
|
|
June 30,
2007
|
|
|
January 1,
2008
|
|
|
June 30,
2008
|
|
Options
issued
|
|
|
500,000 |
|
|
|
3,000,000 |
|
|
|
100,000 |
|
Risk-free interest
rate
|
|
|
5 |
% |
|
|
3 |
% |
|
|
3 |
% |
Expected option
life
|
|
5 years
|
|
|
5 years
|
|
|
5 years
|
|
Dividend
yield
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Volatility
|
|
|
120 |
% |
|
|
157 |
% |
|
|
194 |
% |
Exercise
price
|
|
$ |
0.55 |
|
|
$ |
0.10 |
|
|
$ |
0.07 |
|
These assumptions were determined as
follows:
·
|
The risk free interest rate for
the period within the contractual life of the option is based on the 5-year U.S.
Treasury yield at the time of the
grant.
|
·
|
The expected term of the options
granted represents the period of time that the options granted are
expected to be outstanding.
|
·
|
Historically, the Company has not
paid a dividend on its common shares and does not
expect to do so in the
future.
|
·
|
The volatility assumption
represents an expectation of the volatility of the price of the underlying
shares for the expected term of the option, considering factors such as
historical stock price and stock volatility of other
companies within the
industry.
|
WATERPURE
INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL
STATEMENTS
NOTE 9 – STOCK OPTIONS
(continued)
The following is a summary of the status
of stock option activity for the period from inception (July 22, 2005) through
June 30, 2008:
|
Options
|
|
Weighted Average Exercise
Price
|
|
Outstanding as of July 22, 2005
(inception)
|
-
|
|
$
|
-
|
|
Granted
|
125,000
|
|
|
0.0025
|
|
Exercised
|
-
|
|
|
-
|
|
Forfeited
|
-
|
|
|
-
|
|
Expired
|
-
|
|
|
-
|
|
Outstanding as of June 30,
2006
|
125,000
|
|
$
|
0.0025
|
|
Granted
|
500,000
|
|
|
0.5500
|
|
Exercised
|
-
|
|
|
-
|
|
Forfeited
|
-
|
|
|
-
|
|
Expired
|
-
|
|
|
-
|
|
Outstanding as of June 30,
2007
|
625,000
|
|
$
|
0.4400
|
|
Granted
|
3,100,000
|
|
|
0.0990
|
|
Exercised
|
125,000
|
|
|
0.0025
|
|
Forfeited
|
-
|
|
|
-
|
|
Expired
|
-
|
|
|
-
|
|
Outstanding as of June 30,
2008
|
3,600,000
|
|
$
|
0.1610
|
|
Exercisable as of June 30,
2008
|
3,600,000
|
|
$
|
579,600
|
|
During the year ended June 30, 2008,
125,000 options were exercised and $313 was received from the exercise of
options.
The
intrinsic value of stock options granted was $582,937 for the year ended June
30, 2008, and $231,300 for the year ended June 30,
2007.
NOTE 10
- RELATED PARTY TRANSACTIONS
LEASE
The
Company subleases our office space from Stein, Feldman and Sampson, LLC, of
which, Mr. Orr, the Company's Chief Financial Officer is affiliated,
for $500 per month on a month-to-month basis.
The
Company’s executive office is shared with the office of another business of the
Company’s President. The rent for the office space is $170 a month. The
Company's lease ran through October 2007 and was extended on a month-to-month
basis.
DUE
TO OFFICERS
During
the year ended June 30, 2008, officers extended cash to the Company in the
amount of $84,680 to fund working capital needs and pay operating expenses.
The total amount due officers was $98,053 and $13,373 as of June 30, 2008 and
2007, respectively. The Company does not intend to pay interest on the amounts
borrowed from this officer.
WATERPURE
INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL
STATEMENTS
NOTE 10
- RELATED PARTY TRANSACTIONS (continued)
DUE
TO STOCKHOLDERS
During
the year ended June 30, 2008, certain stockholders extended cash to the Company
in the amount of $100,963 to fund working capital needs. The Company issued
467,626 shares of common stock as repayment for $70,144 of the amount due to
stockholders. The total amount due to stockholders was $105,169 and $74,350 as
of June 30, 2008 and 2007, respectively. The Company does not intend to pay
interest on the amounts borrowed from stockholders.
NOTE 11 - INCOME
TAXES
The Company adopted the provisions of
FASB Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes – an interpretation of FASB Statement No.
109” (“FIN No. 48”), on July 1, 2007. FIN No. 48 requires
that the impact of tax positions be recognized in the financial statements if
they are more likely than not of being sustained upon examination, based on the
technical merits of the position. The Company has a valuation allowance
against the full amount of its net deferred tax assets. The Company currently
provides a valuation allowance against deferred tax assets when it is more
likely than not that some portion, or all of
its deferred tax assets, will not be realized. There was no impact to the
Company as a result of adopting FIN No. 48 as the Company’s management has determined that the
Company has no uncertain tax positions requiring recognition under FIN No. 48 both on
July 1, 2007 (adoption) and on June 30, 2008.
The Company is subject to U.S. federal
income tax as well as income tax of certain state jurisdictions. The
Company has not been audited by the I.R.S. or any states in connection with income taxes. The
periods from inception – 2007 remain open to examination by the
I.R.S. and state authorities.
The Company recognizes interest accrued
related to unrecognized tax benefits in interest expense. Penalties, if
incurred, are recognized as
a component of tax expense.
Significant
items making up the deferred tax assets and deferred tax liabilities are as
follows:
|
|
2008
|
|
|
2007
|
|
Net
deferred tax assets:
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$ |
920,000 |
|
|
$ |
378,000 |
|
Less
valuation allowance
|
|
|
(920,000
|
) |
|
|
(378,000
|
) |
|
|
|
|
|
|
|
|
|
Total
net deferred tax assets
|
|
$ |
- |
|
|
$ |
- |
|
WATERPURE
INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL
STATEMENTS
NOTE 11 - INCOME TAXES
(continued)
A
valuation allowance is established if it is more likely than not that all or a
portion of the deferred tax asset will not be realized. Accordingly, a
valuation allowance was established in 2008 and 2007 for the full amount of the
deferred tax assets due to the uncertainty of
realization. Management believes that based upon its projection
of future taxable operating income for the foreseeable future, it is more likely
than not that the Company will not be able to realize the benefit of the
deferred tax asset at June 30, 2008. The valuation allowance as of July 1,
2007 was $378,000. The net change in the valuation allowance during the year
ended June 30, 2008 was a increase of $542,000.
The
Company had net operating loss carry-forwards for federal income tax purposes of
approximately $3,217,000 at June 30, 2008. These net operating loss
carry-forwards expire at various dates from 2026 through
2027.
The
Company’s effective income tax (benefit) rate for continuing operations differs
from the statutory federal income tax benefit rate as follows:
|
|
|
2007 |
|
|
2006 |
|
Federal
Statutory Rate
|
|
|
35
|
%
|
|
35
|
%
|
Other
|
|
|
(-7
|
)%
|
|
(-7
|
)%
|
Valuation
allowance
|
|
|
(-28
|
)%
|
|
(-28
|
)%
|
Effective
income tax (benefit) provision rate from continuing
operations
|
|
|
-
|
|
|
-
|
|
NOTE
12 – COMMITMENTS
The
Company’s executive offices are located in Plymouth Meeting, PA. The rent
for the office space is $500 a month, and the Company rents the space on a
month-to-month basis.
In June 2007, the Company opened a
regional operations center in Florida to accommodate administrative, sales and
customer relations’ personnel. The Company entered into a month-to-month
lease for $543 per month.
NOTE 13 - SUBSEQUENT
EVENTS
On July
30, 2008, the Company issued a $50,000, 8% convertible note due July 31, 2009.
The lender can convert this note at a 30% discount of the average five-day bid
price. The lender at any time may retire the note and give the Company an
additional $75,000 in exchange for 2,000,000 warrants with a strike price of
$.05
WATERPURE
INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL
STATEMENTS
NOTE 13 - SUBSEQUENT EVENTS (continued)
On August
1, 2008 the Company and Everest Water LTD modified their licensing agreement.
The Company will pay Everest $430,000, over 33 months starting
September 1, 2008, plus 8% royalty payments with guarantee minimum payments
as follows: $50,000 year one, $60,000 year two, $70,000 year three, $90,000 year
four and $100,000 each year after.
On September 11, 2008, the Company filed
a registration statement on Form S-8 registering 400,000 shares of common stock
as compensation for legal
services.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There
have been no disagreements between the Company and its accountants as to matters
which require disclosure.
Evaluation of
disclosure controls and procedures. We maintain "disclosure
controls and procedures," as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"), that
are designed to ensure that information required to be disclosed by us in
reports that we file or submit under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in Securities and
Exchange Commission rules and forms, and that such information is accumulated
and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating our disclosure controls and
procedures, management recognized that disclosure controls and procedures, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the disclosure controls and
procedures are met. Additionally, in designing disclosure controls and
procedures, our management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible disclosure controls and
procedures. The design of any disclosure controls and procedures also is based
in part upon certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions.
As of
June 30, 2008, we carried out an evaluation, under the supervision and with the
participation of our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on our evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that, as a result of the material weaknesses
described below, our disclosure controls and procedures are not designed at a
reasonable assurance level and are ineffective to provide reasonable assurance
that information we are required to disclose in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms, and that such information is not accumulated nor communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure. The
material weaknesses, which relate to internal control over financial reporting,
that were identified are:
|
a)
|
We
did not have sufficient personnel in our accounting and financial
reporting functions. As a result, we were not able to achieve
adequate segregation of duties and were not able to provide for adequate
reviewing of the financial statements. This control deficiency, which is
pervasive in nature, results in a reasonable possibility that material
misstatements of the financial statements will not be prevented or
detected on a timely basis;
|
|
b)
|
We
did not maintain sufficient personnel with an appropriate level of
technical accounting knowledge, experience, and training in the
application of US GAAP commensurate with our complexity and our financial
accounting and reporting requirements. This control deficiency is
pervasive in nature. Further, there is a reasonable possibility that
material misstatements of the consolidated financial statements including
disclosures will not be prevented or detected on a timely basis as a
result; and
|
|
c)
|
We
did not document or test our tests of key controls over financial
reporting in accordance with Section 404 of the Sarbanes Oxley Act of
2002. As a result, we cannot provide proper recording of the
framework for our internal controls nor the results of such controls.
There is a reasonable possibility that material misstatements of the
consolidated financial statements including disclosures will not be
prevented or detected on a timely basis without the ability to determine
if our testing was properly
conducted.
|
We are
committed to improving our financial organization. As part of this commitment,
we will create a segregation of duties consistent with control objectives and
will look to increase our personnel resources and technical accounting expertise
within the accounting function by the end of fiscal 2010 to resolve non-routine
or complex accounting matters. In addition, when funds are available to the
Company, which we expect to occur by the end of fiscal 2010, we will take the
following action to enhance our internal controls: Hiring additional
knowledgeable personnel with technical accounting expertise to further support
the current accounting personnel at the Company, which management estimates will
cost approximately $75,000 per annum. We will engage outside consultants in the
future as necessary in order to ensure proper treatment of non-routine or
complex accounting matters. In addition, management is working to
establish written procedures to document and test the key controls over
financial reporting in accordance with Section 404 of the Sarbanes Oxley Act of
2002.
Management
believes that hiring additional knowledgeable personnel with technical
accounting expertise will remedy the following material weaknesses: (A) lack of
sufficient personnel in our accounting and financial reporting functions to
achieve adequate segregation of duties; and (B) insufficient personnel with an
appropriate level of technical accounting knowledge, experience, and training in
the application of US GAAP commensurate with our complexity and our financial
accounting and reporting requirements.
Management
believes that the hiring of additional personnel who have the technical
expertise and knowledge with the non-routine or technical issues we have
encountered in the past will result in both proper recording of these
transactions and a much more knowledgeable finance department as a whole. Due to
the fact that our accounting staff consists of a Chief Financial Officer and an
accounting clerk, additional personnel will also ensure the proper segregation
of duties and provide more checks and balances within the department. Additional
personnel will also provide the cross training needed to support us if personnel
turn over issues within the department occur. We believe this will greatly
decrease any control and procedure issues we may encounter in the
future.
We will
continue to monitor and evaluate the effectiveness of our disclosure controls
and procedures and our internal controls over financial reporting on an ongoing
basis and are committed to taking further action and implementing additional
enhancements or improvements, as necessary and as funds allow.
Management’s
Annual Report on Internal Control Over Financial
Reporting. Management is responsible for establishing
and maintaining an adequate system of internal control over financial reporting,
as defined in Rules 13a-15(f) and 15d-15(f) of 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 in accordance with
GAAP.
Our
internal control over financial reporting includes those policies and procedures
that:
|
•
|
pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect our transactions and dispositions of our
assets;
|
|
•
|
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP, and that
receipts and expenditures are being made only in accordance with
authorizations of our management and directors;
and
|
|
•
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have
a material effect on the financial
statements.
|
Management
has conducted, with the participation of our Chief Executive Officer and our
Chief Financial Officer, an assessment, including testing of the effectiveness
of our internal control over financial reporting as of June 30,
2008. Management’s assessment of internal control over financial
reporting was based on the framework in Internal Control over Financial
Reporting – Guidance for Smaller Public Companies issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this
evaluation, Management concluded that our system of internal control over
financial reporting was ineffective as of June 30, 2008.
The
effectiveness of our internal control over financial reporting as of June 30,
2008 has not been audited by CCR LLP, our independent registered public
accounting firm. 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 the Company to provide only management’s
report in this annual report.
Changes in
Internal Control Over Financial Reporting. There were no changes in
our internal control over financial reporting identified in connection with the
evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 that
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
None.
PART
III
Our
directors and executive officers and their ages as of the date hereof are as
follows:
Name
|
|
Age
|
Position
|
|
Paul
S. Lipschutz
|
|
62
|
President,
Chief Executive Officer and Director
|
|
Robert
F. Orr
|
|
42
|
Chief
Financial Officer and Director
|
|
Paul Lipschutz. Mr. Lipschutz
has been our President, Chief Executive Officer and a director since July 2005.
Since 1992, Mr. Lipschutz has been the Chief Executive Officer and Director of
Collectible Concepts Group, Inc. Mr. Lipschutz is a 1967 graduate of The Wharton
School of Finance and Commerce of the University of Pennsylvania.
Robert F. Orr. Mr.
Orr has been our
Chief Financial Officer and Director since July 2005. Since January
1997, Mr. Orr has worked for the accounting firm of Stein, Feldman and Sampson,
LLC. Since January, 1999, Mr. Orr has been the Chief Financial
Officer of Idayo Investor, a web based financial content
provider. Mr. Orr is a graduate from the University of Delaware and a
Certified Public Accountant.
Board
Committees
We
currently do not have any board committees; however, the Board of Directors will
form an audit committee at such time as there are at least two independent
directors. Our board of directors currently acts as our audit, compensation and
nominating committees.
Involvement
in Certain Legal Proceedings
Our
director, executive officer and control person have not been involved in any of
the following events during the part five years:
1.
|
any
bankruptcy petition filed by or against any business of which such person
was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that
time;
|
2.
|
any
conviction in a criminal proceeding or being subject to a pending criminal
proceeding (excluding traffic violations and other minor
offenses);
|
3.
|
being
subject to any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities or banking activities;
or
|
4.
|
being
found by a court of competent jurisdiction (in a civil action), the
Commission or the Commodity Futures Trading Commission to have violated a
federal or state securities or commodities law, and the judgment has not
been reversed, suspended, or
vacated.
|
Section
16(a) Beneficial Owner Reporting Compliance
Since we
are governed under Section 15(d) of the Exchange Act, we are not required to
file reports of executive officers and directors and persons who own more than
10% of a registered class of our equity securities pursuant to Section 16(a) of
the Exchange Act.
Code
of Ethics
We adopted a Code of Ethics for our
officers, directors and employees. A copy of the Code of Ethics is incorporated
by reference as an exhibit.
Summary
Compensation Table
The
following tables set forth certain information regarding our CEO and each of our
most highly-compensated executive officers whose total annual salary and bonus
for the fiscal years ending June 30, 2008 and 2007 exceeded
$100,000
Name and
Principal
Position
|
|
Fiscal
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($)
|
|
Non-equity
Incentive Plan
Compensation
($)
|
|
Change in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
All Other
Compensation
($)
|
|
Total
($)
|
|
Paul
S. Lipschutz (President, CEO and Director) (1)
|
|
|
2008
|
|
75,000
|
|
|
-0-
|
|
-0-
|
|
|
576,092
|
|
-0-
|
|
|
-0-
|
|
-0-
|
|
|
-0-
|
|
|
|
|
2007
|
|
-0-
|
|
|
-0-
|
|
-0-
|
|
|
-0-
|
|
-0-
|
|
|
-0-
|
|
-0-
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
F. Orr (CFO and Director)
|
|
|
2008
|
|
-0-
|
|
|
-0-
|
|
-0-
|
|
|
6,845
|
|
-0-
|
|
|
-0-
|
|
-0-
|
|
|
-0-
|
|
|
|
|
2007
|
|
-0-
|
|
|
-0-
|
|
-0-
|
|
|
231,300
|
|
-0-
|
|
|
-0-
|
|
-0-
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The full amount of
compensation due to Mr. Lipschutz has not been paid in the fiscal year
ended June 30, 2008. We and Paul Lipschutz have agreed to accrue his
salary until there is significant cash
flow to enable us to pay his
salary.
|
Employment
Agreements with Executive Officers
Paul
S. Lipschutz
Effective
January 1, 2008, we entered into an employment agreement with Paul S. Lipschutz
as Chief Executive Officer for a period of three years. Pursuant to the
agreement, Mr. Lipschutz receives an annual salary of $150,000. In addition, Mr.
Lipschutz is entitled to receive an annual bonus based upon various criteria
targets. Mr. Lipschutz received options to purchase three million shares of our
common stock at an exercise price of $0.10 upon execution of the agreement,
which expire five years after issuance. Additionally, Mr. Lipschutz is entitled
to participate in any and all benefit plans, from time to time, in effect for
executives, along with vacation, sick and holiday pay in accordance with our
policies established and in effect from time to time.
Robert
F. Orr
Effective
July 1, 2006, we entered into an employment agreement with Robert F. Orr as
Chief Financial Officer for a period of five years. Pursuant to the agreement,
Mr. Orr received 500,000 options for the fiscal year ended June 30, 2007 and
thereafter, receives an annual salary of 100,000 options per
year. The options have an exercise price equal to the closing price
of our common stock on June 30 of each year. Additionally, Mr. Orr is entitled
to participate in any and all benefit plans, from time to time, in effect for
executives, along with vacation, sick and holiday pay in accordance with our
policies established and in effect from time to time.
Option/SAR
Grants in Last Fiscal Year
Name
and Position
|
|
Number
of Units
|
|
Paul
S. Lipschutz, Chief Executive Officer
|
|
3,000,000
|
|
|
|
|
|
|
Robert
F. Orr, Chief Financial Officer
|
|
|
100,000
|
|
|
|
|
|
|
Executives
as a Group
|
|
|
3,100,000
|
|
Outstanding
Equity Awards at Fiscal Year-End Table.
Option
Awards
|
|
Stock
Awards
|
Name
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
|
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
(#)
|
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)
|
|
Equity
Incentive
Plan
Awards: Number
of
Unearned
Shares,
Units or Other Rights That Have Not
Vested
(#)
|
|
Equity
Incentive
Plan
Awards: Market or Payout
Value
of Unearned
Shares,
Units or Other Rights That Have Not Vested
($)
|
|
Paul
S. Lipschutz
|
|
|
3,000,000
|
|
-0-
|
|
|
-0-
|
|
.100
|
01/01/2013
|
-0-
|
|
|
-0-
|
|
-0-
|
|
|
-0-
|
|
Robert
F. Orr
|
|
|
600,000
|
|
-0-
|
|
|
-0-
|
|
.475
|
06/30/2012
|
-0-
|
|
|
-0-
|
|
-0-
|
|
|
-0-
|
|
Director
Compensation
Our
directors are elected by the vote of a majority in interest of the holders of
our voting stock and hold office until the expiration of the term for which he
or she was elected and until a successor has been elected and qualified.
A
majority of the authorized number of directors constitutes a quorum of the Board
of Directors for the transaction of business. The directors must be present at
the meeting to constitute a quorum. However, any action required or permitted to
be taken by the Board of Directors may be taken without a meeting if all members
of the Board of Directors individually or collectively consent in writing to the
action. We pay $1,500 in stock per quarter as compensation to our directors plus
reimbursement of reasonable expenses incurred in connection with providing
services as a director.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The
following table sets forth certain information regarding beneficial ownership of
our common stock as of October 6, 2008.
·
|
by
each person who is known by us to beneficially own more than 5% of our
common stock;
|
·
|
by
each of our officers and directors;
and
|
·
|
by
all of our officers and directors as a
group.
|
NAME
AND ADDRESS
OF
OWNER
|
TITLE
OF
CLASS
|
NUMBER
OF
SHARES
OWNED (1)
|
PERCENTAGE
OF
CLASS
(2)
|
|
|
|
|
Paul
S. Lipschutz
|
Common
Stock
|
13,980,000
(3)
|
33.88%
|
525
Plymouth Road, Suite 310
|
|
|
|
Plymouth
Meeting, PA
|
|
|
|
|
|
|
|
Robert
F. Orr
|
Common
Stock
|
1,210,000
(4)
|
3.11%
|
525
Plymouth Road, Suite 310
|
|
|
|
Plymouth
Meeting, PA
|
|
|
|
|
|
|
|
All
Officers and Directors
|
Common
Stock
|
15,190,000
(3) (4)
|
36.46%
|
As
a Group (2 persons)
|
|
|
|
(1)
Beneficial Ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to options or
warrants currently exercisable or convertible, or exercisable or convertible
within 60 days of October 6, 2008 are deemed outstanding for computing the
percentage of the person holding such option or warrant but are not deemed
outstanding for computing the percentage of any other person.
(2) Based
upon 38,262,987 shares issued and outstanding on October 6, 2008.
(3)
Includes 3,000,000 shares of common stock underlying options currently
exercisable. Also includes 1,535,000 shares owned by Paul Lipschutz’s
spouse.
(4)
Includes 600,000 shares of common stock underlying options currently
exercisable. Also includes Mr. Orr’s 25% ownership interest of two
partnerships, each of which owns 5,000 shares of our common stock.
Set forth
below are the related party transactions since June 30, 2006, among WaterPure
International Inc. and its shareholders, officers, and/or
directors:
Pursuant
to the employment agreement with our CFO dated July 1, 2006, we issued 500,000
five year options to Robert Orr. The strike price of the options is equal to the
closing price of our stock on June 30, 2007 (the last business day in our fiscal
year end) which was $0.55. We recognized $231,300 in expense for the issuance of
these options.
Pursuant to the employment agreement with our
CFO dated July 1, 2006, we issued 100,000 five year options to Robert Orr. The
strike price of the options is equal to the closing price of our stock on
June 30, 2008 (the last business day in our fiscal year end) exercise price was $0.07. We
recognized $6,845 in expense for the issuance of these options.
Pursuant
to the employment agreement with our CEO dated January 1, 2008, we issued
3,000,000 five-year options to Paul Lipschutz. The exercise price was $0.10,
which is a discount to the price of our common stock price of $.20 on the grant
date. The options were immediately exercisable and expire five years
from the grant date. The fair values of the options were estimated at
the date of grant using the Black-Scholes option price model. We determined that
the stock option compensation was $576,092 and was recognized during the year
ended June 30, 2008.
Lease
We
sublease our office space from Stein, Feldman and Sampson, LLC, of which, Mr.
Orr, our Chief Financial Officer is affiliated, for $500 per month on a month to
month basis.
In April
2006, we entered into a sublease for the rental of our office space with
Collectible Concepts Group, Inc., of which, Mr. Lipschutz, our Chief Executive
Officer is their President, for $170 per month for a six month period. In
October 2007, the lease was extended for an additional twelve
months.
Loans
During
the year ended June 30, 2008, Paul Lipschutz extended cash to us in the amount
of $84,680 to fund working capital needs to pay operating expenses. The total
amount due officers was $98,053 and $13,373 as of June 30, 2008 and 2007,
respectively. We do not intend to pay interest on the amounts borrowed from this
officer.
During
the year ended June 30, 2008, certain stockholders extended cash to us in the
amount of $100,963 to fund working capital needs. We issued 467,626 shares of
common stock as repayment for $70,144 of the amount due to stockholders. The
total amount due to stockholders was $105,169 and $74,350 as of June 30, 2008
and 2007, respectively. We do not intend to pay interest on the amounts borrowed
from these stockholders.
Procedures
for Approval of Related Party Transactions
Our board
of directors is charged with reviewing and approving all potential related party
transactions. All such related party transactions must then be reported
under applicable SEC rules. We have not adopted other procedures for review, or
standards for approval, of such transactions, but instead review them on a
case-by-case basis.
ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit
Fees
The
aggregate fees billed by our auditors for professional services rendered for the
audit of our annual financial statements during the years ended June 30, 2008
and 2007, and for the reviews of the financial statements included in our
Quarterly Reports on Form 10-QSB during the fiscal years, were $43,175 and
$37,789, respectively.
Audit-Related
Fees
There
were no audit related fees during the fiscal years ended June 30, 2008 and 2007
for audit related services.
Tax
Fees
There
were no tax related fees during the fiscal years ended June 30, 2008 and 2007
for tax compliance or tax consulting services.
.
All
Other Fees
Our
independent registered public accounting firm did not bill us during fiscal
years ended June 30, 2008 or 2007 for other services.
The Board
of Directors has considered whether the provision of non-audit services is
compatible with maintaining the principal accountant's
independence.
PART
IV
ITEM
15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibits:
3.1
|
Articles
of Incorporation, filed as an exhibit to the registration statement on
Form SB-2 filed with the Securities and Exchange Commission on July 14,
2006 and incorporated herein by
reference.
|
3.2
|
By-laws,
filed as an exhibit to the registration statement on Form SB-2 filed with
the Securities and Exchange Commission on July 14, 2006 and incorporated
herein by reference.
|
3.3
|
Certificate
of Amendment to the Articles of Incorporation, filed as an exhibit to the
registration statement on Form SB-2 filed with the Securities and Exchange
Commission on July 14, 2006 and incorporated herein by
reference.
|
10.1
|
Employment
Agreement by and between WaterPure International, Inc. and Paul S.
Lipschutz, dated as of January 1,
2008.
|
10.2
|
Employment
Agreement by and between WaterPure International, Inc. and Robert F. Orr,
dated as of July 1, 2006.
|
10.3
|
License
Agreement by and between WaterPure International, Inc. and Everest Water
Ltd., dated as of December 7, 2007.
|
10.4
|
Amendment
to License Agreement by and between WaterPure International, Inc. and
Everest Water Ltd., dated as of August 1,
2008.
|
14.1
|
Code
of Ethics, filed as an exhibit to the annual report on Form 10-KSB filed
with the Securities and Exchange Commission on September 28, 2007 and
incorporated herein by reference.
|
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
WATERPURE INTERNATIONAL,
INC. |
|
|
Date: October
14, 2008
|
By: /s/ PAUL S. LIPSCHUTZ
|
|
Paul
S. Lipschutz
|
|
Chief
Executive Officer (Principal Executive Officer)
|
|
|
Date: October
14, 2008
|
By: /s/ ROBERT F. ORR
|
|
Robert
F. Orr
|
|
Chief
Financial Officer (Principal Financial Officer and Principal Accounting
Officer)
|
Pursuant
to the requirements of 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.
Name
|
Position
|
Date
|
|
|
|
/s/ PAUL S. LIPSCHUTZ
|
Chief
Executive Officer (Principal Executive Officer) and
Director
|
October
14, 2008
|
Paul
S. Lipschutz
|
|
|
|
|
|
|
|
|
/s/ ROBERT F. ORR
|
Chief
Financial Officer (Principal Financial Officer and Principal Accounting
Officer)
|
October
14, 2008
|
Robert
F. Orr
|
|
|