NOTES TO FINANCIAL STATEMENTS
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (continued)
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 December 31, 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 result, believes that its accounts receivable, net of reserves, credit risk exposure is limited.
FAIR VALUE OF FINANCIAL INSTRUMENTS
FAS 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 receivable, 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 Notes 5 and 7 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.
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 AND PAYMENTS
The Company accounts for equity instruments exchanged for services in accordance with FAS No. 123(R), "Share-Based Payments." And EITF 96-18, "Accounting for Equity Investments that are Issued to Other than Employees for Acquiring, or in Conjunction with selling, Goals or Services." Under the provisions of FAS No.
RECENT ACCOUNTING PRONOUNCEMENTS
There are no accounting pronouncements not yet adopted that are expected to have a significant impact on the Company.
WATERPURE INTERNATIONAL, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - 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 $20,000 through July 31, 2008. On August 1, 2008, the Company and Everest Water LTD modified the payment terms of their licensing agreement. Under the amended payment terms, the Company cancelled the shares to be issued to Everest and agreed to pay Everest $430,000 over 33 months starting September 1, 2008, plus 8% royalty payments with guarantee minimum payments as follows: $50,000 in year one, $60,000 in year two, $70,000 in year three, $90,000 in year four and $100,000 each year after until the termination of the licensing agreement which coincides with the expiration of the last patent in August 2027.
The following table summarizes the various components of the Everest license as of December 31, 2008:
December 31, 2008 June 30, 2008
Amended value of license described above $ 1,094,864 $ 1,094,864
Less: accumulated amortization 67,662 38,079
License, net $ 1,027,202 $ 1,056,785
Total amortization for the six months ended December 31, 2008 and 2007 was $29,583 and 5,397, respectively.
Contingencies - Royalties
Pursuant to the licensing agreement as described above, the Company will pay Everest Water LTD an 8% royalty payment with a guaranteed minimum payment. The Company has recognized a liability of $750,442, which represents the present value of the minimum royalty payments the effective discount rate.
NOTE 5 - 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 accrue interest at 12% per annum and were due six-months from the date of issuance. On November 15, 2007, the terms of these notes were extended for an additional 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 and is included in current liabilities on the balance sheets.
NOTE 6 - ADVANCES FROM OFFICERS AND SHAREHOLDERS
Officers and stockholders of the Company have provided various short-term working capital advances. During the six months ended December 31, 2008, short-term working capital advances from officers and stockholders under this borrowing arrangement totaled $26,350 and $26,500 respectively. During the six months ended December 31, 2007, short-term working capital advances from officers and stockholders under this borrowing arrangement totaled $65,898 and $109,033 respectively. The Company issued 666,111 shares of common stock as repayment for $41,550 of the amount due to stockholders and issued 1,000,000 shares of common stock as repayment for $50,000 of the amount due to officers during the six months ended December 31, 2008. The Company does not intend to pay interest on the principal borrowed from officers and stockholders as the advances are intended to be short-term.
WATERPURE INTERNATIONAL, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - 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. 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.
The Company entered into a Securities Purchase Agreement with accredited investors on July 30, 2008 for the issuance of an aggregate of $50,000 of convertible notes. The convertible notes accrue interest at 8% per annum and are due one year from the date of the note. The note holders have the option to convert any unpaid note principal to the Company's common stock at a 30% discount to the average five day stock price prior to conversion. In accordance with EITF 98-5, during the six months ended December 31, 2008, the Company recorded a debt discount of $15,000 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.
The Company entered into a Securities Purchase Agreement with accredited investors on November 18, 2008 for the issuance of an aggregate of $10,000 of convertible notes. The convertible notes accrue interest at 12% per annum and are due one year 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 $0.005 per share. In accordance with EITF 98-5, during the six months ended December 31, 2008, the Company recorded a debt discount of $7,500 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 8 - STOCKHOLDERS' EQUITY
During the six-months ended December 31, 2008, the Company sold 1,000,000 shares of its common stock for $.01 per share or $10,000. The fair value of the shares was determined based on the closing market price of the shares at the date of the agreements. These shares have not been issued as of December 31, 2008.
During the six-months ended December 31, 2008, the Company issued 20,152,600 shares of its common stock for consulting services totaling $504,217.
During the six-months ended December 31, 2008, the Company issued 666,111 shares of common stock as repayment of $41,550 of the amount due to stockholders and issued 1,000,000 shares of common stock as repayment of $50,000 of the amount due to officers.
During the six months ended December 31, 2008, the Company cancelled 1,500,000 shares of common stock to be issued in accordance with an amendment to the repayment terms of its licensing agreement in the amount of $330,000 (Note 4).
During the six month ended December 31, 2008, the Company issued 25,000 shares of common stock previously classified as to be issued.
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.
WATERPURE INTERNATIONAL, INC. (A DEVELOPMENT STAGE COMPANY)
source : MarketWatch
