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8-K - CURRENT REPORT - AQUA SOCIETY, INC.form8k.htm

RULE 15c2-11 DISCLOSURE STATEMENT
Of
AQUA SOCIETY, INC.

Dated September 26, 2011

The information contained in this Disclosure Statement has not been reviewed nor approved by the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority or any other securities administrator or regulatory organization.

FORWARD LOOKING STATEMENTS

Certain statements contained in this Disclosure Statement constitute "forward-looking statements.” These statements may be identified by words such as “plan,” "anticipate,” "believe,” "estimate,” "should,” "expect" and similar expressions, although not all forward-looking statements may be identified by these words or similar expressions. Forward-looking statements include our expectations and objectives regarding our future operations, performance, business strategies, financial position and operating results. These statements reflect the current views of management with respect to future events. Forward-looking statements by their nature are inherently subject to substantial risks, uncertainties and other factors such as the effect of general economic and business conditions, our ability to implement our business strategies and plans, our ability to compete with existing products or services, the availability of key personnel, changes in, or failure to comply with government regulations, and other risks, many of which may be outside of our control. Should one or more of these risks materialize or should the assumptions underlying our forward-looking statements prove to be incorrect, actual outcomes, results or performance may be material different from those described in the forward-looking statements.

Any forward-looking statements contained in this Disclosure Statement speak only as of the date of this Disclosure Statement, and we take no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.


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Name:

AQUA SOCIETY, INC.

 

(“we”, “us”, “our”, “Aqua” or the “Company”)

 

 

Predecessor Name(s):

VG Tech, Inc. (prior to December 27, 2004)

 

 

Principal Executive Offices:

Lagenbochumer Strasse 393

 

45701 Herten, Germany

 

Tel. +49 209 – 361530

 

Fax +49 209 – 3625311

 

 

Jurisdiction of Incorporation:

Nevada, USA

 

 

Authorized and Par Value of Securities:

300,000,000 shares of common stock, par value $0.001 per share

 
Total Shares Outstanding As of
Most Recent Fiscal Year End:

155,621,161 shares of common stock as of our most recent fiscal year end of September 30, 2010

 

 

 

Trading Symbol: AQAS

 

CUSIP: 03841C100

 

 

Transfer Agent:

Corporate Stock Transfer

 

 

 

3200 Cherry Creek Dr. South

 

Suite 430

 

Denver, CO 80209

 

Tel. (303) 282-4800

 

Fax (303) 282-5800

 

 

Facilities:

We do not currently own or lease any land other than our executive offices.


Executive Officers and Name Positions
Directors:    
Hubert Hamm Chief Executive Officer, President, Secretary and Treasurer and Director
     
Frank Iding Chief Financial Officer, Treasurer and Director

Nature of Business:

We are in the business of acquiring and obtaining rights to applied technologies in our core areas of expertise in energy optimization, HVAC&R and water filtration and developing and commercializing those technologies. Once we have developed marketable products, we seek out strategic alliances and joint ventures with outside parties who can bring the manufacturing, marketing and business expertise needed to assist us in bringing those products to market.

In 2010, our product development efforts led to our bringing the Steam Mission electricity generation module to market through our special purpose vehicle ENVA Systems GmbH. In addition to the Steam Mission, we are currently in the advanced stages of developing products for the utilization of waste heat energy (the Energy Mission) and generating drinking water from air (the Aqua Mission). However, we are currently focusing our existing resources on bringing the Steam Mission product to market.


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We currently operate our business through our wholly owned subsidiary Aqua Society GmbH (“Aqua GmbH”). In addition, we currently offer our Steam Mission product through ENVA Systems GmbH, a special purpose vehicle that we formed for the purpose of bringing the Steam Mission to market.

ENVA Systems GmbH

As part of our marketing and commercialization strategy for the Steam Mission, in October 2009, we formed ENVA Systems GmbH, as a subsidiary entity for bringing the Steam Mission to market. At the time of its formation, ENVA Systems was a wholly owned subsidiary of Aqua GmbH.

Currently, we own an 85% interest in ENVA Systems, with GVE Greiferbau und Verschleisstechnick Einbeck GmbH (“GVE”) owning a 5% interest in ENVA Systems and HUCON Swiss AG (“HUCON”) owning a 10% interest in ENVA Systems. GVE is a privately owned machining and manufacturing company based out of Einbeck, Germany, located approximately 250 km from our headquarters in Herten, Germany. GVE has over 100 years of experience in the business of machining and manufacturing engines, compressors and heavy machinery. GVE manufactures the Steam Mission for us. HUCON is the majority shareholder of GVE.

In September 2010, to further strengthen the relationship between GVE and ENVA Systems and in an effort to further ensure consistent manufacturing availability for our Steam Mission units, we purchased a 25.1% interest in GVE for a total purchase price of EUR 200,000. Under German law, our 25.1% interest in GVE provides us with the right to veto certain corporate changes to GVE, however we do not otherwise have any rights of control or active involvement in the management of GVE.

Products and Services:

The Steam Mission:

The Steam Mission is currently offered through ENVA Systems GmbH, a subsidiary that we formed for the purpose of bringing the Steam Mission to market. See “ENVA Systems GmbH”.

Developed by our team between 2007 and 2010, the Steam Mission energy module is a low pressure generator that is designed to utilize low pressure steam (0.6 to 5 bar) produced as a by-product of various industrial processes to generate electricity. This electricity can then be fed back into the industrial process to decrease external energy use or sold to the local energy grid. As an added benefit, because the Steam Mission does not use any additional fossil or other outside fuels, the Steam Mission process has zero carbon footprint.

Excess steam generated during industrial processes is generally handled in 1 of 3 ways:

  1.

Discharge into the atmosphere;

  2.

Cooled and condensed back into liquid form and re-fed back into the industrial process; or

  3.

Fed through pressure reduction stations, with the depressurized steam then used elsewhere in the industrial process.

In its application, the Steam Mission can be introduced as an add-on or bypass to the exiting steam circuit, thus avoiding the need for costly plant overhauls or redesigns for its application. By adding the Steam Mission as a bypass to existing steam circuits where the steam is used elsewhere in the industrial process, the existing steam depressurization or condensation systems are left in place as a redundancy in order to minimize plant downtimes during installation and maintenance of the Steam Mission. Feeding the industrial steam through the Steam Mission acts to reduce the pressure and temperature of the input steam, the cooled and depressurized output of which can then be discharged into the atmosphere (without additional pollutants), condensed and re-fed back into the industrial process, or used elsewhere in the industrial process.


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Prior to fiscal 2009, our strategy was to market customized, one-off systems that we would build for potential customers based on our technologies. In 2009, we shifted our focus to the development of standardized models that could be installed onto a customer’s industrial circuit either as stand-alone units or in series with little or no customization. We believe that this strategy will make it easier for us to market and commercialize the Steam Mission. To this effect, we have developed a product range of Steam Mission modules that we offer based on the expected input steam pressures

Steam-Mission*
Module Input Pressure Steam Quantity        Power Output (kW)** Production per year***
EM55 1,5 bar ~4,0 t/h 55 kW 440,000 kWhr
EM75 1,5 bar ~4,5 t/h 75 kW 600,000 kWhr
EM100 1,5 bar ~6,0 t/h 100 kW 800,000 kWhr
EM150 1,5 bar ~10 t/h 150 kW 1,200,000 kWhr

*Technical changes reserved **Outlet pressure 0.2 bar
***Anticipated output based on 8,000/hr continuous operation per year

The Steam Mission product has been fully developed and is currently ready for commercial use. Manufacturing of the Steam Mission has been outsourced to GVE Greiferbau und Verschleisstechnick Einbeck GmbH (“GVE”). GVE is a privately owned machining and manufacturing company based out of Einbeck, Germany, located approximately 250 km from our headquarters in Herten, Germany. GVE has over 100 years of experience in the business of machining and manufacturing engines, compressors and heavy machinery.

In February 2010, we installed our first Steam Mission module at a glass factory operated by the local energy producer Stadtwerke Luenen, Germany. The unit installed in Stadtwerke Luenen is currently producing electricity at a rate of 10kW/hr. For the first 4 weeks of its operation, this Steam Mission unit was operated manually, with the amount pressure and steam fed into the module regulated by hand. The unit is now being operated automatically, with electronic valves controlling the amount of pressure and steam being fed into the module. In September 2010, the TUEV Nord Group, an independent German accreditation and auditing company, certified the performance parameters of the module installed at Luenen, Germany, confirming the correlation between the amount of steam fed into the installed Steam Mission module and the electrical power produced by the module.


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In March 2010, an additional Steam Mission module was installed as a proof of concept at a limestone factory in Northern Germany. This unit is currently producing electricity at a rate of 17kW/hr. This module was installed as a proof of concept to demonstrate the feasibility of the Steam Mission. ENVA was not paid for this installation other than small amounts for the reimbursement of costs. In July 2011, client ordered a 30kW/hr unit to be installed at the same factory. We expect to be fully paid for the 30kW/hr installation.

In April 2011, Energiepark Gengenbach GmbH placed an order with ENVA for the delivery of a 65 kW/hr Steam Mission module to be installed at their biomass powerplant located in Gengenbach, Germany. The Steam Mission is being installed at the Gengenbach powerplant as part of Energiepark’s efforts to modernize the plant. Installation has begun and is expected to be completed before the end of October 2011.

In June 2011, Apparatebau Allenspach AG from Hermetschwil near Zurich/Switzerland, a global enterprise focusing on engineering and manufacturing high temperature technology, commissioned a 10 kW/hr Steam Mission module to be used at the premises of one of their clients. The parameters of this unit are similar to those of the Steam Mission installed at Stadtwerke Luenen. Installation was completed in August 2011.

In September 2011, we began the installation of a 100kW/hr Steam Mission module that will be used as a reference installation at a pressure reduction station in Bottrop, Germany. This installation will be fully funded by ENVA. Upon completion, ENVA intends to show the installation to prospective investors.

The Energy Mission

By adapting technologies originally developed as a means of optimizing the performance of cooling systems, the Energy Mission (also formerly referred to as the “Yellow Box”) is a product that is capable of converting low temperature heat into usable electricity. From 2007 until 2009, the Energy Mission was the primary focus of our technology and product development efforts. However, in fiscal 2009, we refocused our development and commercialization efforts to the Steam Mission as our management felt that the Steam Mission technology and product was closer to market.

Low temperature waste heat generated as a by product of industrial processes represents a largely untapped source of energy. The Energy Mission presents companies with an opportunity to tap into this potential source of energy. In addition to its potential utilization of industrial waste heat, the Energy Mission process can also generate electricity from the heat produced by other sources such as solar power, geothermal heat or technically conditioned waste heat flow from power stations and combined heat and power (CHP) plants. The utilization low temperature heat to generate electricity could have a major worldwide impact on the reduction of fossil fuel consumption and carbon emissions.

The Energy Mission process utilizes an Organic-Rankine-Cycle (ORC) whereby low temperature heat is used to evaporate a low boiling temperature working medium that in turn powers a turbine generator to generate electricity. Prototypes of our Energy Mission have demonstrated the ability to generate electricity from temperatures as low as 100°C (212°F). Internal studies on the efficiency of our process have been confirmed by independent sources.

Currently, our target markets for the Energy Mission are block heat and power plant operators, steel and aluminum smelters, and solar and geothermal power generators.

In May 2007, the Ministry of Innovation, Science, Research and Technology of North Rhine-Westphalia awarded us a grant to support 50% of the costs associated with the development of the Energy Mission technology. The overall grant was to provide us with EUR 226,759, whereby we would pre-finance the estimated project costs of EUR 453,519, and thereafter receive the grant funds in three instalments after successful completion of the project. Although we performed all of the necessary requirements of the project and were able to demonstrate a working prototype of our Energy Mission process, the Ministry failed to pay the grant funds. We attempted to sue the Ministry in order to recover the grant funds, however in December 2010, we dropped our legal action for commercial reasons as our potential recovery did not justify the costs of proceeding.


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In March 2008, we received an order for 4 Energy Mission modules from a German agricultural company that was to water at a temperature of 115°C as the input medium, the overall value of which was to be EUR 750,000. The first of the 4 ordered modules was installed in August 2008 as a proof of concept, testing of which successfully demonstrated the feasibility of the modules. However, because the actual temperature of the input water was only 85-90°C instead of the temperature previously indicated by the client, the installed unit was not economical and the client decided not to proceed with installation of the remaining 3 units.

Commercialization of the Energy Mission is currently on hold as we focus our resources on marketing and commercializing the Steam Mission.

The AquaMission

We have developed a water production unit that we call the AquaMission that utilizes a patented process to extract water from ambient air. The basic technology used in the AquaMission was adapted from the mining sector and utilizes condensation to produce drinking water from the humidity present in the air. While the systems used in mining were designed primarily to cool the air, and simply produced condensation water as a by-product, our AquaMission process is designed primarily to produce condensation water as the main product. The AquaMission takes in large volumes of air and cools that air down to its dew point. The resulting condensation water is then filtered and mineralized for consumption to quality standards set by the World Health Organization (WHO). In regions with high temperatures and high humidity levels, a single machine can generate up to 6,000 litres of drinking water per day, enough to supply drinking water for an entire village.

The AquaMission technology allows water to be produced at any location in the world, independent of stationary water resources. The economic benefit is enhanced by the fact that the cold air generated in the condensation process can be used to air condition buildings. Through the decentralised water production, diseases borne by contaminated water are unable to spread. The process has the advantage of having no negative impact on the environment. There is no need to transport and store water at great expense as the water is produced when and where it is needed.

Commercialization efforts for the AquaMission are currently on hold as we focus our resources on marketing and commercializing the Steam Mission.

ThermoMobil

The ThermoMobil is a multi-purpose, self-contained, mobile refrigeration and heating unit designed to be loaded and transported onto a variety of large or small transport vehicles. The product is designed to allow users to convert ordinary transportation vehicles into refrigerated or heating transports. The refrigeration and heating unit itself can be loaded or unloaded from the transport vehicle and is capable of utilizing either 12 volt (automobile) or 230 volt (household) electricity for power. This allows users to load and unload cargo without interrupting the heating or refrigeration chain. In addition, the ThermoMobil does not require extensive modification to the transportation vehicle itself, allowing the vehicle to still be used as a non-refrigerated or heated transport while the ThermoMobil unit is still being used to provide temporary storage.


7

Financial Statements

Attached as Exhibit A to this Disclosure Statement are the following unaudited financial statements for our fiscal years ended September 30, 2010 and 2009:

1.

Unaudited Consolidated Balance Sheets as of September 30, 2010 and 2009;

   
2.

Unaudited Consolidated Statements of Operations for the years ended September 30, 2010 and 2009;

   
3.

Unaudited Consolidated Statements of Cash Flows for the years ended September 30, 2010 and 2009;

   
4.

Unaudited Consolidated Statement of Stockholders’ Equity (Deficiency) for the period from inception on May 13, 2004 through September 30, 2010; and

   
5.

Notes to Unaudited Consolidated Financial Statements.

Attached as Exhibit B to this Disclosure Statement are the following unaudited financial statements for our fiscal years ended September 30, 2008 and 2007:

1.

Unaudited Consolidated Balance Sheets as of September 30, 2008 and 2007;

   
2.

Unaudited Consolidated Statements of Operations for the years ended September 30, 2008 and 2007;

   
3.

Unaudited Consolidated Statements of Cash Flows for the years ended September 30, 2008 and 2007;

   
4.

Unaudited Consolidated Statement of Stockholders’ Equity (Deficiency) for the period from inception on May 13, 2004 through September 30, 2008; and

   
5.

Notes to Unaudited Consolidated Financial Statements.



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Certifications of Chief Executive Officer and Chief Financial Officer

I, Hubert Hamm certify that:

1.

I have reviewed this Disclosure Statement of Aqua Society, Inc.;

   
2.

Based on my knowledge, this Disclosure Statement does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Disclosure Statement; and

   
3.

Based on my knowledge, the financial statements and other financial information included in this Disclosure Statement, fairly present in all material respects the financial condition, results of operation and cash flows of the issuer as of, and for, the periods presented in this Disclosure Statement.

Date: September 26, 2011

/s/ Hubert Hamm
________________________________
Hubert Hamm
Chief Executive Officer, President and Secretary

 

I, Frank Iding, certify that:

1.

I have reviewed this Disclosure Statement of Aqua Society, Inc.;

   
2.

Based on my knowledge, this Disclosure Statement does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Disclosure Statement; and

   
3.

Based on my knowledge, the financial statements and other financial information included in this Disclosure Statement, fairly present in all material respects the financial condition, results of operation and cash flows of the issuer as of, and for, the periods presented in this Disclosure Statement.

Date: September 26, 2011

/s/ Frank Iding
________________________________
Frank Iding
Chief Financial Officer and Treasurer


EXHIBIT A
to the
Disclosure Statement of Aqua Society, Inc.
Dated September 26, 2011

1.

Unaudited Consolidated Balance Sheets as of September 30, 2010 and 2009;

   
2.

Unaudited Consolidated Statements of Operations for the years ended September 30, 2010 and 2009;

   
3.

Unaudited Consolidated Statements of Cash Flows for the years ended September 30, 2010 and 2009;

   
4.

Unaudited Consolidated Statement of Stockholders’ Equity (Deficiency) for the period from inception on May 13, 2004 through September 30, 2010; and

   
5.

Notes to Unaudited Consolidated Financial Statements.



 

 

 

AQUA SOCIETY, INC.

CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

September 30, 2010 and 2009
(Unaudited & Unreviewed)

 

 

 



AQUA SOCIETY, INC.            
CONSOLIDATED BALANCE SHEETS            
(Expressed in U.S. Dollars)            
(Unaudited & Unreviewed)            
    September 30,     September 30,  
    2010     2009  
ASSETS            
Current Assets            
     Cash and cash equivalents $  25,379   $  -  
     Accounts receivable   15,991     67,223  
     Government value added tax receivable   -     151,777  
     Loans receivable (Note 4 and 9)   279,396     165,119  
     Deferred tax asset, less valuation allowance of $6,974,425 (2009 -$6,721,736) (Note 7)   -     -  
Total Current Assets   320,766     384,119  
     Investments (Note 5)   1     1  
     Intangibles (Note 6)   756,299     233,828  
     Equipment (Note 6)   77,612     82,524  
Total Assets $  1,154,678   $  700,472  
LIABILITIES AND STOCKHOLDERS’ DEFICIT            
Current Liabilities            
     Bank indebtedness $  -   $  418,156  
     Deposits received   15,991     -  
     Accounts payable and accrued liabilities (Note 9)   1,713,934     2,923,368  
     Government value added tax payable   749     -  
     Loans Payable (Note 8 and 9)   2,266,467     2,132,708  
Total Current Liabilities   3,997,141     5,474,232  
Commitments and Contractual Obligations (Note 12 and 13)            
Stockholders’ Deficit            
     Common stock (Note 10)            
         Authorized            
               300,000,000 common shares, par value $0.001            
         Issued and outstanding            
               September 30, 2010 -155,621,161            
               September 30, 2009 -131,140,301   155,622     131,141  
     Additional paid-in capital   41,762,171     37,525,932  
     Non-controlling interest   79,748     -  
     Accumulated other comprehensive loss:            
           Foreign currency cumulative translation adjustment   (100,195 )   (565,137 )
     Deficit   (44,739,809 )   (41,865,696 )
Total Stockholders’ Deficit   (2,842,463 )   (4,773,760 )
Total Liabilities and Stockholders’ Deficit $  1,154,678   $  700,472  

The accompanying notes are an integral part of these consolidated financial statements.

F-2


AQUA SOCIETY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Expressed in U.S. Dollars)
(Unaudited & Unreviewed)

    Year     Year  
    Ended     Ended  
    September 30,     September 30,  
    2010     2009  
SALES $  945,952   $  173,383  
COST OF GOODS SOLD   (338,245 )   (157,816 )
    607,707     15,567  
EXPENSES            
     Accounting and audit fees   182,441     164,407  
     Advertising and promotion   15,467     83,607  
     Amortization   47,211     42,116  
     Bad debts   89,703     1,616  
     Bank charges and interest   219     195  
     Consulting fees   33,043     104,055  
     Development costs   111,357     211,940  
     Filing fees   1,317     1,468  
     Foreign exchange (gain) loss   210,004     (20,849 )
     Legal fees   162,039     152,825  
     Management fees   477,021     1,130,326  
     Office and miscellaneous   73,821     95,659  
     Rent   104,102     154,828  
     Salaries and benefits   469,478     987,975  
     Stock-based compensation   2,163,000     500,000  
     Transfer agent   1,823     1,545  
     Travel   30,533     42,474  
    (4,172,579 )   (3,654,683 )
LOSS BEFORE OTHER ITEMS AND INCOME TAXES   (3,564,872 )   (3,639,116 )
     Interest expense   (198,824 )   (116,638 )
     Interest income   11,837     12,134  
     Loss from litigation   -     (763,947 )
     Recovery of loan payable   71,118     -  
     Gain on sale of ENVA GmbH   850,845     -  
LOSS BEFORE INCOME TAXES   (2,829,896 )   (4,507,567 )
     Provision for income taxes   -     -  
NET LOSS   (2,829,896 )   (4,507,567 )
OTHER COMPREHENSIVE GAIN            
     Foreign currency translation adjustment   464,942     309,208  
COMPREHENSIVE LOSS $  (2,364,954 ) $  (4,198,359 )
GAIN (LOSS) ATTRIBUTABLE TO:            
       Owners of parent $  (2,874,113 ) $  -  
       Non-controlling interest $  44,217   $  -  
COMPREHENSIVE GAIN (LOSS) ATTRIBUTABLE TO:            
       Owners of parent $  (2,478,912 ) $  -  
       Non-controlling interest $  113,958   $  -  
BASIC AND DILUTED NET LOSS PER SHARE $  (0.02 ) $  (0.04 )
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING   132,447,829     120,985,293  

The accompanying notes are an integral part of these consolidated financial statements. 

F-3



AQUA SOCIETY, INC.            
CONSOLIDATED STATEMENTS OF CASH FLOWS            
(Expressed in U.S. Dollars)            
(Unaudited & Unreviewed)            
    Year     Year  
    Ended     Ended  
    September 30,     September 30,  
    2010     2009  
CASH FLOWS FROM OPERATING ACTIVITIES            
Net loss for the period $  (2,874,113 ) $  (4,507,567 )
Adjustments to reconcile net income to cash used in operating activities:            
     Amortization   47,211     42,611  
     Stock-based compensation   2,163,000     500,000  
     Imputed interest   84,901     61,093  
     Issuance of capital stock for management services   -     656,551  
     Recovery of loan payable   (71,118 )   -  
     Gain on sale of ENVA GmbH   (850,845 )   -  
     Non-controlling interest   44,217     -  
Change in operating assets and liabilities:            
     Decrease (increase) in receivables   46,373     (22,130 )
     Decrease in government value added tax receivable   48,111     33,190  
     Increase (decrease) in accounts payable and accrued liabilities   (444,065 )   1,392,664  
     Increase in accrued interest payable   101,959     44,060  
     Increase in accrued interest receivable   (11,793 )   (10,693 )
     Net cash used in operating activities   (1,622,990 )   (1,810,221 )
CASH FLOWS FROM INVESTING ACTIVITIES            
     Acquisition of intangibles   (555,931 )   (4,102 )
     Acquisition of capital assets   (26,379 )   (17,578 )
     Increase in loans receivable   (277,357 )   -  
     Net cash used in investing activities   (859,667 )   (21,680 )
CASH FLOWS FROM FINANCING ACTIVITIES            
     Bank indebtedness   418,156     417,186  
     Cash from non-controlling interest   898,876     -  
     Issuance of capital stock for cash   526,008     66,176  
     Proceeds from loans payable   1,249,057     861,672  
     Net cash provided by financing activities   2,255,785     1,345,034  
EFFECT OF FOREIGN CURRENCY TRANSLATION ON            
CASH DURING THE PERIOD   252,251     486,867  
NET INCREASE IN CASH   25,379     -  
CASH, BEGINNING OF PERIOD   -     -  
CASH, END OF PERIOD $  25,379   $  -  
Supplemental Disclosure with Respect to Cash Flows (Note 16)            

The accompanying notes are an integral part of these consolidated financial statements. 

F-4



AQUA SOCIETY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Expressed in U.S. Dollars)
(Unaudited & Unreviewed)

          Common Stock                       Accumulated              
                Additional     Special Warrants     Other              
                Paid-                 Comprehensive     Accumulated        
    Number     Par Value     in Capital     Number     Amount     Loss     Deficit     Total  
Sale of common stock for cash   1   $  31,042   $  -   $  -    $ -   $  - $     -   $  31,042  
Contribution of assets               25,056                             25,056  
Pursuant to acquisition of Aqua GmbH   10,000,000     10,000           34,000,000     34,000                 44,000  
Exchange of shares   (1 )   (31,042 )                                 (31,042 )
Outstanding shares of Company prior to acquisition   69,908,000     69,908                             (194,748 )   (124,840 )
Foreign currency translation adjustment                                 (997 )         (997 )
Net loss                                       (67,448 )   (67,448 )
Balance, September 30, 2004   79,908,000     79,908     25,056     34,000,000     34,000     (997 )   (262,196 )   (124,229 )
Sale of common stock for cash at $2.40 per unit,                                                
October 18, 2004   416,666     417     999,583                             1,000,000  
Sale of common stock for cash at $2.40 per unit,                                                
June 10, 2005   1,232,322     1,233     2,438,766                             2,439,999  
Pursuant to exercise of options at $1.70 per share   215,000     215     365,285                             365,500  
Conversion of special warrants   34,000,000     34,000           (34,000,000 )   (34,000 )               -  
Stock-based compensation               22,480,000                             22,480,000  
Foreign currency translation adjustment                                 89,594           89,594  
Net loss                                       (25,787,558 )   (25,787,558 )
Balance, September 30, 2005   115,771,988     115,773     26,308,690     -     -     88,597     (26,049,754 )   463,306  

The accompanying notes are an integral part of these consolidated financial statements.

F-5


AQUA SOCIETY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Expressed in U.S. Dollars)
(Unaudited & Unreviewed)

          Common Stock                       Accumulated              
                Additional     Special Warrants     Other              
                Paid-                 Comprehensive     Accumulated        
    Number     Par Value     in Capital     Number     Amount     Loss     Deficit     Total  

Sale of common stock for cash at $1.04 per unit, February 10, 2006

1,160,960 1,161 1,206,237 1,207,398

Sale of common stock for cash at $0.88 per unit, June 8, 2006

1,245,375 1,245 1,094,685 1,095,930

Foreign currency translation adjustment

                                (238,965 )         (238,965 )

Net loss

                                      (4,328,249 )   (4,328,249 )

Balance, September 30, 2006

  118,178,323     118,179     28,609,612     -       -      (150,368 )   (30,378,003 )   (1,800,580 )

Forgiveness of loans

              1,996,045                             1,996,045  

Stock-based compensation

              1,726,973                             1,726,973  

Foreign currency translation adjustment

                                (720,362 )         (720,362 )

Net loss

                                      (4,478,308 )   (4,478,308 )

Balance, September 30, 2007

  118,178,323     118,179     32,507,480     -       -      (870,730 )   (34,856,311 )   (3,276,232 )

Forgiveness of loans (Note 8)

              3,189,735                             3,189,735  

Sale of common stock for cash at Euro 0.22 (US $0.35) per unit, January 25, 2008

2,777,7770 2,778 729,930 732,708

Foreign currency translation adjustment

                                (3,615 )         (3,615 )

Net loss

                                      (2,501,818 )   (2,501,818 )

Balance, September 30, 2008

  120,956,093     120,957     36,252,295       -     -      (874,345 )   (37,358,129 )   (1,859,222 )

The accompanying notes are an integral part of these consolidated financial statements.

F-6


AQUA SOCIETY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Expressed in U.S. Dollars)
(Unaudited & Unreviewed)

          Common Stock                       Accumulated              
                Additional     Special Warrants     Other              
                Paid-                 Comprehensive     Accumulated        
    Number     Par Value     in Capital     Number     Amount     Loss     Deficit     Total  

Sale of common stock for cash at Euro 0.038 (US $0.056) per unit, September 21, 2009

  1,184,208     1,184     64,993                     66,177  

Issuance of common stock for services

  9,000,000     9,000     647,551                             656,551  

Stock-based compensation

              500,000                             500,000  

Imputed interest

              61,093                             61,093  

Foreign currency translation adjustment

                                309,208           309,208  

Net loss

                                      (4,507,567 )   (4,507,567 )

Balance, September 30, 2009

  131,140,301     131,141     37,525,932     -     -     (565,137 )   (41,865,696 )   (4,773,760 )

Sale of common stock for cash at Euro 0.05 (US $0.07) per share, November 10, 2009

  850,000     850     62,706                     63,556  

Sale of common stock for cash at Euro 0.08 (US $0.11) per share, March 10, 2010

  525,000     525     56,760                     57,285  

Sale of common stock for cash at Euro 0.15 (US $0.20) per share,. July 30, 2010

  133,334     133     25,997                     26,130  

Sale of common stock for cash at Euro 0.20 (US $0.26) per share, July 30, 2010

  1,000,000     1,000     260,301                     261,301  

Sale of common stock for cash at Euro 0.20 (US $0.26) per share, September 21, 2010

  550,000     550     143,316                     143,866  

Issuance of common stock for debt settlement (Note 9)

  16,422,526     16,423     1,269,928                     1,286,351  

Pursuant to exercise of options at Euro 0.05 (US $0.07) per share

  5,000,000     5,000     335,229                     340,229  

The accompanying notes are an integral part of these consolidated financial statements.

F-7


AQUA SOCIETY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Expressed in U.S. Dollars)
(Unaudited & Unreviewed)

          Common Stock                       Accumulated              
                Additional     Special Warrants     Other              
                Paid-                 Comprehensive     Accumulated        
    Number     Par Value     in Capital     Number     Amount     Loss     Deficit     Total  
Writeoff of loan receivable (Note 8)               (165,899 )                           (165,899 )
Stock-based compensation               2,163,000                             2,163,000  
Imputed interest               84,901                             84,901  
Foreign currency translation adjustment                                 464,942           464,942  
Net loss                                       (2,874,113 )   (2,874,113 )
Balance, September 30, 2010   155,621,161   $  155,622   $  41,762,171 $   $ -   $  -     (100,195 ) $   (44,739,809 ) $  (2,922,211 )
Non-controlling interest                                             79,748  
                                            $  (2,842,463 )

The accompanying notes are an integral part of these consolidated financial statements

F-8


AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2010
(Unaudited & Unreviewed)

1.

HISTORY AND ORGANIZATION OF THE COMPANY

   

Aqua Society, Inc. (formerly V G Tech, Inc.) (the “Company”) was incorporated on March 2, 2000, under the laws of the State of Nevada. Effective September 22, 2004, the Company acquired 100% of the issued and outstanding stock of Aqua Society GmbH (“ Aqua GmbH”), a German limited liability company, that is in the business of designing and developing technologies for application, and providing related consulting services, in the areas of heating, ventilation, air conditioning, refrigeration, water purification, waste water management and energy. In October 2009, Aqua Society GmbH incorporated a subsidiary, ENVA Systems GmbH, (“ENVA GmbH”), a German limited liability company, for the marketing and sales of a product called the energy-module. On November 12, 2009, 15% of the capital stock of ENVA GmbH was sold to GVE Greiferbau und Verschleisstechnik Einbeck GmbH (“GVE GmbH”), a German limited liability company, for cash of Euro 600,000 (US $898,876) and a commitment to increase the contributed surplus of ENVA GmbH by Euro 1,200,000 (US $1,799,910) by December 31, 2011. GVE GmbH has a contract with ENVA GmbH to produce the energy module (see Note 8).

   

Effective December 27, 2004, the Company changed its name to Aqua Society, Inc from VG Tech, Inc.

   

The consolidated financial statements of the Company include the accounts of the Company, Aqua GmbH and ENVA GmbH. All inter-company balances have been eliminated on consolidation.

   
2.

GOING CONCERN

   

These consolidated financial statements have been prepared with the on-going assumption that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. However, certain conditions noted below raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.

   

The operations of the Company have primarily been funded by the sale of common stock and loans received. Continued operations of the Company are dependent on the Company’s ability to complete equity financings, obtain additional loans or generate profitable operations in the future. Management’s plan in this regard is to secure additional funds through future equity financings and loans payable. Such financings or loans payable may not be available or may not be available on reasonable terms to the Company.

F-9


AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2010
(Unaudited & Unreviewed)

3.

SIGNIFICANT ACCOUNTING POLICIES

     

The financial statements of the Company have been prepared in conformity with generally accepted accounting principles in the United States of America and are stated in U.S. dollars. The significant accounting policies adopted by the Company are as follows:

     
(a)

Use of estimates

     
    The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from these estimates.
     
(b)

Foreign currency translation

     

The functional currency of the Company is the U.S. dollar. The Company’s subsidiary, Aqua GmbH, and Aqua GmbH’s subsidiary, ENVA GmbH, uses the Euro as its functional currency. Accordingly, monetary assets and liabilities denominated in a foreign currency are translated at the exchange rate in effect at the balance sheet date while non-monetary assets and liabilities are translated at historical rates. Revenue and expense items denominated in a foreign currency are translated at exchange rates prevailing when such items are recognized in the statement of operations. Exchange gains and losses arising on translation of foreign currency items are included in the statement of operations.

     

The Company follows the current rate method of translation to U.S. dollars with respect to its foreign subsidiary. Accordingly, assets and liabilities are translated into U.S. dollars at the year-end exchange rates while revenue and expenses are translated at the average exchange rates during the year. Related exchange gains and losses are included in a separate component of stockholders’ equity as accumulated other comprehensive income.

     
(c)

Cash and cash equivalents

     
    The Company considers cash held at banks and all highly liquid investments with original maturities of three months or less to be cash and cash equivalents.
     
(d)

Receivables

     

Receivables consist of receivables from customers. The Company provides an allowance for doubtful accounts through periodic evaluations of the aging of its accounts receivable.

F-10


AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2010
(Unaudited & Unreviewed)

3.

SIGNIFICANT ACCOUNTING POLICIES (continued)

     
(e)

Investments

     
    The Company accounts for investments in companies subject to significant influence (generally those companies in which interests ranging from 20% to 50% are held) on the equity basis. Investments in companies that the Company is unable to significantly influence are carried at cost.
     
    When there has been a loss in value of the investment, the investment is written down to recognize the loss.

 

    Investments in which the Company holds a 51% or greater interest are consolidated, unless control does not exist due to the Company’s inability to determine the investees strategic operating, financing and investing policies.
     
(f)

Intangibles

     
    Intangibles are recorded at cost. Capitalized amounts relate to purchase costs and legal, consulting and advisory costs incurred in the acquisition and/or registration of patents, patent licenses and intellectual property. Amortization is calculated using the straight-line method over the useful lives of the patents and license fee, estimated to be 20 years. Amortization is recorded upon the patents and patent licenses being awarded. No depreciation is provided for the intellectual property as it has an indefinite life.
     
(g)

Equipment

     
    Equipment is recorded at cost. Amortization is calculated using the straight-line method over the useful lives of the assets. Maintenance and repairs are expensed as incurred while betterments or renewals are capitalized.

The Company provides for amortization over the estimated life of each asset on a straight-line basis over the following periods:

Office equipment 2, 4 and 10 years
Leasehold improvements 4 years
     
(h)

Accounting for the impairment of long-lived assets and long-lived assets to be disposed of

The Company reviews all long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

(i)

Revenue recognition

The Company recognizes revenue from the sale of their products when the following criteria are met: persuasive evidence of an agreement exists, shipment has occurred, the price to the buyer is fixed and determinable and collectability is reasonably assured. Shipping and handling charges billed to customers are included in net revenue, and the related shipping and handling costs are included in cost of goods sold. The Company recognizes consulting revenue when the consulting service is provided.

F-11


AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2010
(Unaudited & Unreviewed)

3.

SIGNIFICANT ACCOUNTING POLICIES (continued)

     
(j)

Income taxes

     

A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carryforwards. Deferred tax expenses (benefit) result from the net change during the period of deferred tax assets and liabilities.

     

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

     
(k)

Fair value of financial instruments

     

The Company's financial instruments consist of cash and cash equivalents/bank indebtedness, receivables, government value added tax receivable, loans receivable, accounts payable and accrued liabilities and loans payable. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments. The fair value of these financial instruments approximates their carrying values, unless otherwise noted.

     
(l)

Stock-based compensation

     

The Company accounts for share-based compensation under the provisions of Accounting Standards Codificiation (“ASC”) 718, “Compensation-Stock Compensation”. Under the fair value recognition provisions, stock-based compensation expense is measured at the grant date for all stock-based awards to employees and directors and is recognized as an expense over the requisite service period, which is generally the vesting period. The Black-Scholes option valuation model is used to calculate fair value.

     
    The Company accounts for stock compensation arrangements with non-employees in accordance with ASC 718 which require that such equity instruments are recorded at their fair value on the measurement date. The measurement of stock-based compensation is subject to periodic adjustment as the underlying equity instruments vest. Non-employee stock-based compensation charges are amortized over the vesting period on a straight-line basis. For stock options granted to non-employees, the fair value of the stock options is estimated using a Black-Scholes valuation model.
     
(m)

Net loss per share

     

Basic net loss per share is computed by dividing the net loss for the period by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share takes into consideration shares of common stock outstanding (computed under basic earnings per share) and potentially dilutive shares of common stock. As of September 30, 2010 and 2009, there were no potentially dilutive securities outstanding.

     
(n)

Comprehensive income (loss)

     

The Company has adopted ASC 220-10 formerly of Statement of Financial Accounting Standards (“SFAS”) 130, “Reporting of Comprehensive Income,” which establishes guidelines for the reporting and display of comprehensive loss/and its components in financial statements. Comprehensive income (loss) includes foreign currency translation adjustments.

F-12


AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2010
(Unaudited & Unreviewed)

3.

SIGNIFICANT ACCOUNTING POLICIES (continued)

     
(o)

Concentration of credit risk

     
   

Cash is the only financial instrument that potentially subjects the Company to concentration of credit risk. The Company maintains cash in bank accounts that, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts.

     
(p)

Recent accounting pronouncements

     
   

During the third quarter of 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles in accordance with FASB ASC Topic 105,”Generally Accepted Accounting Principles”(the Codification). The Codification has become the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. Effective with the Company’s adoption on July 1, 2009, the Codification has superseded all prior non-SEC accounting and reporting standards. All other non- grandfathered non-SEC accounting literature not included in the Codification has become non-authoritative. As the adoption of the Codification only affected how specific references to GAAP literature have been disclosed in the notes to the Company’s financial statements, it did not result in any impact on the Company’s results of operations, financial condition, or cash flows.

     
    In September 2009, the FASB issued authoritative guidance regarding multiple-deliverable revenue arrangements. This guidance addresses how to separate deliverables and how to measure and allocate consideration to one or more units of accounting. Specifically, the guidance requires that consideration be allocated among multiple deliverables based on relative selling prices. The guidance establishes a selling price hierarchy of (1) vendor-specific objective evidence, (2) third-party evidence and (3) estimated selling price. This guidance is effective for annual periods beginning after June 15, 2010 but may be early adopted as of the beginning of an annual period. The Company is currently evaluating the effect that this guidance will have on its financial position and results of operations.
     
    In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820), Improving Disclosures about Fair Value Measurements, amending ASC 820. ASU 2010-06 requires entities to provide new disclosures and clarify existing disclosures relating to fair value measurements. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The Company is currently evaluating the impact of ASU 2010-06, but does not expect its adoption to have a material impact on the Company’s financial position or results of operations.

F-13


AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2010
(Unaudited & Unreviewed)

3.

SIGNIFICANT ACCOUNTING POLICIES (continued)

     
(p)

Recent accounting pronouncements (continued)

     

ASU 2010-09 removes the requirement for an SEC filer to disclose a date relating to its subsequent events in both issued and revised financial statements. ASU 2010-09 also eliminates potential conflicts with the SEC’s literature. Most of ASU 2010-09 is effective upon issuance of the update. The Company adopted ASU 2010- 09 in February 2010, and its adoption did not have a material impact on the Company’s financial reporting and disclosures.

     
(r)

Reclassifications

     
    Certain amounts reported in the prior periods have been reclassified to conform to the current period’s presentation.
     
4.

LOANS RECEIVABLE

     

During the year ended September 30, 2010, a loan was granted to an employee for Euro 5,300 (US $7,213). The loan is non-interest bearing, unsecured and due on demand.

     

During the year ended September 30, 2008, a loan was granted from a third party for Euro 100,000 (US $136,091). At September 30, 2010, the loan principal of Euro 100,000 (US $136,091) and accrued interest receivable totaling Euro 21,903 (US $29,807) were transferred to additional paid-in capital as collectability is uncertain. The loan bore interest at 7.5% per annum, was unsecured and was due on demand. Interest income included in the statement of operations for the years ended September 30, 2010 and 2009 totaled Euro 8,730 (US $11,822) and Euro 7,913 (US $10,709), respectively.

     
5.

INVESTMENT

     

UFI-Tech GmbH

     

By an agreement dated November 30, 2004 and effective December 10, 2004, the Company acquired a 33% interest in UFI-Tech GmbH (“UFI”), a German limited company, for consideration of Euro 25,565 (US $32,476). During the year ended September 30, 2005, the Company wrote down the $32,476 investment and related loans receivable of $67,227 to their net realizable value of $1. During the year ended September 30, 2006, the Company sold 13.1% of their 33% interest (19.9% interest remains) for proceeds of Euro 10,072 (US $12,237) and wrote down an additional loan receivable of $66,094 to its net realizable value of $1. During the year ended September 30, 2007, the Company wrote down the loan receivable to $0.

F-14


AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2010
(Unaudited & Unreviewed)

6.

EQUIPMENT AND INTANGIBLES

Equipment

 

 

2010

 

 

2009

 

       Office Equipment $  209,541   $  188,543  
       Accumulated depreciation   (131,929 )   (106,019 )
       Net book value $  77,612   $  82,524  

Intangibles

             
    2010     2009  
       Patents and patent rights $  242,954   $  259,664  
       Logo   15,663     -  
       License fee   544,818     -  
    803,435     259,664  
       Accumulated depreciation   (47,136 )   (25,836 )
       Net book value $  756,299   $  233,828  

During the year ended September 30, 2010 and 2009, the Company did not amortize intangibles totaling $40,231 and $26,342, respectively, as the patents have not yet been awarded yet and the intangibles have indefinite lives. Capitalized amounts relate to purchase costs and legal, consulting and advisory costs incurred to obtain patents, patent licenses and intellectual property.

F-15


AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2010
(Unaudited & Unreviewed)

7.

DEFERRED INCOME TAXES

Income tax benefits attributable to losses from United States of America operations was $Nil for the years ended September 30, 2010 and 2009, and differed from the amounts computed by applying the United States of America federal income tax rate of 34 percent to pretax losses as a result of the following:

    Year Ended     Year Ended  
    September 30,     September 30,  
    2010     2009  
Loss for the period $  (2,874,113 ) $  (4,507,567 )
Computed “expected” tax benefit   (977,199 )   (1,532,573 )
Non deductible expense –stock-based compensation   735,420     170,000  
Foreign tax rate differentials   (10,910 )   (221,203 )
Change in valuation allowance   252,689     1,583,776  
Income tax recovery $  -   $  -  

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at September 30, 2010 and 2009, is presented below:

    2010     2009  
Deferred tax assets:            
       Net operating loss carry forwards – US $  834,805   $  645,273  
       Net operating loss carry forwards – Germany   6,139,620     6,076,462  
Valuation allowance   (6,974,425 )   (6,721,736 )
Total deferred tax assets $  -   $  -  

The valuation allowance for deferred tax assets as of September 30, 2010 and 2009 was $6,974,425 and $6,721,736, respectively. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

The losses in Germany may be carried forward indefinitely and the losses in the United States expire in 2030.

F-16


AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2010
(Unaudited & Unreviewed)

8.

LOANS PAYABLE - CURRENT

During the year ended September 30, 2010, a loan was granted from a third party totaling Euro 15,000 (US $20,414). The loan is non-interest bearing, unsecured and due on demand.

During the year ended September 30, 2009, a loan was granted from a third party totaling US $5,000. The loan is non-interest bearing, unsecured and due on demand.

During the year ended September 30, 2009, a loan was granted from a third party totaling Euro 120,000 (US $163,310) of which Euro 45,000 (US $61,241) has been repaid. The loan bears interest at 3% per annum, is unsecured and due on demand. Prior to October 1, 2009, the loan bore interest at 18% per annum. Interest expense included in the statement of operations for the years ended September 30, 2010 and 2009 totaled Euro 3,600 (US $4,881) and Euro 2,555 (US $3,649), respectively.

During the year ended September 30, 2009, a loan was granted from a third party totaling Euro 60,000 (US $81,655). The loan bears interest at 3% per annum, is unsecured and due on demand. Prior to October 1, 2009, the loan bore interest at 18% per annum. Interest expense included in the statement of operations for the years ended September 30, 2010 and 2009 totaled Euro 1,800 (US $2,440) and Euro 2,940 (US $4,200), respectively.

During the year ended September 30, 2008, a loan was granted from a third party totaling Euro 30,000 (US $40,827). During the year ended September 30, 2009, an additional loan of Euro 20,000 (US $27,218) was granted and Euro 17,390 (US $23,666) was repaid. During the year ended September 30, 2010, an additional loan of Euro 15,000 (US $20,414) was granted and Euro 10,000 (US $13,609) was repaid. The loans bear interest at 6.5% per annum, are unsecured and are due on demand. Interest expense included in the statement of operations for the years ended September 30, 2010 and 2009 totaled Euro 2,999 (US $4,068) and Euro 2,160 (US $2,931), respectively.

During the year ended September 30, 2008, a loan was granted from a third party totaling $30,000. The loan is non-interest bearing, unsecured and due on demand.

During the year ended September 30, 2008, a loan was granted from a third party totaling Euro 100,000 (US $136,091) of which Euro 55,000 (US $74,850) has been repaid. At September 30, 2010, the Company recorded a recovery of the loan principal totaling Euro 45,000 (US $61,241) and accrued interest payable totaling Euro 7,258 (US $9,877) as the third party is now insolvent. The loan bore interest at 4.5% per annum, was unsecured and was due on demand. Interest expense included in the statement of operations for the years ended September 30, 2010 and 2009 totaled Euro 2,287 (US $3,099) and Euro 2,452 (US $3,312), respectively.

During the year ended September 30, 2006, a loan was granted from a third party for Euro 500,000 (US $735,944). During the year ended September 30, 2007, additional loans totaling Euro 1,500,000 (US $2,207,830) were granted from the same party. The loans bore interest at 7.5% per annum, were secured by shares of a private company owned by the officers and directors of the Aqua GmbH and were repayable on or before December 31, 2008. At December 31, 2007, the loans totaling Euro 2,000,000 (US $2,943,774) and accrued interest payable totaling Euro 167,106 (US $245,961) were waived and transferred to additional paid-in capital.

F-17


AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2010
(Unaudited & Unreviewed)

9.

RELATED PARTY TRANSACTIONS

Loan Receivable

During the year ended September 30, 2010, a loan was granted from GVE GmbH totaling Euro 200,000 (US $272,183). The loan is non-interest bearing, unsecured and is due December 31, 2010. The loan was granted as part of the 15% sale of the capital stock of ENVA GmbH to GVE GmbH (see Note 1).

Accounts Payable and Accrued Liabilities

At September 30, 2010, $271,310 in accounts payable and accrued liabilities owed to director and officers of the Company for management fees was settled by the issuance of 1,505,483 shares of the Company’s common stock.

At September 30, 2010, Euro 250,000 (US $340,229) in accounts payable and accrued liabilities owed to a director and officer of the Company for management fees was settled pursuant to the exercise of options for 5,000,000 shares of the Company’s common stock. At September 30, 2009 included in accounts payable and accrued liabilities is Euro 250,000 (US $364,751) owed to a director and officer of the Company for management fees.

At September 30, 2010 and 2009, included in accounts payable and accrued liabilities is Euro 98,000 (US $133,370) and Euro 98,000 (US $142,982), respectively, owed to former directors and officers of the Company for management fees.

At September 30, 2009 included in accounts payable and accrued liabilities is Euro 4,387 (US $6,400) owed to a managing director of Aqua GmbH for various operating expenses.

At September 30, 2010 and 2009, included in accounts payable and accrued liabilities is Euro 238,000 (US $323,898) and Euro 190,400 (US $277,794), respectively, owed to a director of the Company for development costs.

Amounts due to and from officers and directors are unsecured, non-interest bearing and due on demand.

Loans Payable

During the year ended September 30, 2010, a loan was granted from Ecoenergy GmbH for Euro 400,000 (US $544,366). The loan bears interest at 7.5% per annum, is unsecured and due December 31, 2011. The loan was granted as part of the license agreement between Ecoenergy Gmbh and ENVA GmbH. (see Note 13). Interest expense included in the statement of operations for the year ended September 30, 2010 totaled Euro 6,740 (US $8,689).

During the year ended September 30, 2010, loans were granted from GVE GmbH for Euro 32,099 (US $43,684). The loans bear interest at 4.5% per annum, are unsecured and are due on demand. Interest expense included in the statement of operations for the year ended September 30, 2010 totaled Euro 2,126 (US $2,768).

F-18


AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2010
(Unaudited & Unreviewed)

9.

RELATED PARTY TRANSACTIONS (continued)

   

Loans Payable (continued)

   

During the year ended September 30, 2008, a loan was granted from a director and officer of the Company for Euro 363,543 (US $494,751) which was offset by loans and accrued interest receivable of Euro 53,855 (US $73,292) from the same individual. During the year ended September 30, 2009, additional loans totaling Euro 451,284 (US $614,159) were granted by the same individual. During the year ended September 30, 2010, additional loans totaling Euro 778,938 (US $1,060,069) were granted by the same individual and/or a Company controlled by this individual of which Euro 261,474 (US $355,844) has been repaid. The loans bore interest at 8% per annum, were unsecured and were due on demand. During the year ended September 30, 2009, loan principal totaling Euro 760,972 (US $1,035,618) and accrued interest payable totaling Euro 21,782 (US $29,643) were waived by the lender. During the year ended September 30, 2010, loan principal totaling Euro 478,565 (US $651,286) and accrued interest payable totaling Euro 43,801 (US $59,609) were waived by the lender. These amounts were not transferred to additional paid-in capital as the amounts can be called back to debt at anytime. Imputed interest has been recorded during the period of forgiveness and posted to additional paid-in capital. Imputed interest for the years ended September 30, 2010 and 2009 totaled Euro 62,620 (US $84,901) and Euro 44,751 (US $61,093), respectively. At September 30, 2010, Euro 745,852 (US $1,015,041) was settled by the issuance of 14,917,043 shares of the Company’s common stock. Interest expense included in the statement of operations for the years ended September 30, 2010 and 2009 totaled Euro 43,812 (US $58,729) and Euro 5,797 (US $7,719), respectively.

   

During the year ended September 30, 2007, a loan was granted from a former director and officer of the company for Euro 350,000 (US $476,320). The loan bears interest at 4.5% per annum, is unsecured and is due on demand. Interest expense included in the statement of operations for the years ended September 30, 2010 and 2009 totaled Euro 17,602 (US $23,848) and Euro 16,698 (US $22,605), respectively.

   

Other

   

Management fees paid to a director and officer of the Company for the years ended September 30, 2010 and 2009 totaled $271,323 and $162,459, respectively. On September 30, 2009, the Company issued 9,000,000 shares of its common stock at Euro 0.05 (US $0.07) per share for management services with an aggregate value of $656,551.

   

Management fees paid to directors and officers of Aqua GmbH for the years ended September 30, 2010 and 2009 totaled Euro 153,353 (US $205,698) and Euro 226,000 (US $311,316), respectively.

   

Development costs paid to a Company owned by a director and officer of the Company for the year ended September 30, 2009 totaled Euro 120,000 (US $162,346).

   
10.

COMMON STOCK

   

The Company’s articles of incorporation allow it to issue up to 300,000,000 shares of common stock, par value $0.001.

F-19


AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2010
(Unaudited & Unreviewed)

11.

STOCK OPTIONS AND WARRANTS

Stock Options

On December 21, 2006, the Company adopted a second stock incentive plan (the “2006 Stock Option Plan”) to provide incentives to employees, directors, officers and permitted consultants. The 2006 Stock Plan provides for the issuance of up to 7,000,000 options with a term to be determined by the plan administer or, if not so established, ten years. The maximum aggregate number of shares that may be optioned under the 2006 Stock Option Plan will be increased effective the first day of each of the Company’s fiscal quarters (“adjustment date”), beginning with the fiscal quarter commencing April 1, 2007 by an amount equal to the lesser of i) 15% of the outstanding shares on the first day of the applicable quarter less a) the number of shares of common stock that may be optioned and sold under the plan prior to the adjustment date and b) the number of shares of common stock that may be optioned and sold under any other stock option plan in effect as of the adjustment date or ii) such lesser number of shares of common stock as may be determined by the Board.

A summary of the stock options outstanding as at September 30, 2010 and changes during the period is presented below:

          Weighted Average  
    Shares     Exercise Price  
Options outstanding at September 30, 2009   5,378,000   $ 0.18  
Granted   15,450,000   $ 0.07  
Exercised   5,000,000   $ 0.07  
Cancelled   (378,000 ) $ 1.70  
Options outstanding at September 30, 2010   15,450,000   $ 0.07  

A summary of stock options outstanding at September 30, 2010, is as follows:

Number Exercise Price    Expiry Date
15,000,000 Euro 0.05 (US $0.07) September 29, 2013
450,000 Euro 0.10 (US $0.14) September 29, 2013

The Company used the Black-Scholes option valuation model to compute the estimated fair value at each of the grant dates.

The Black-Scholes option-pricing model requires the input of highly subjective assumptions including the expected price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate and therefore the Black-Scholes model does not necessarily provide a reliable single measure of the fair value of the Company’s share purchase options.

F-20


AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2010
(Unaudited & Unreviewed)

11.

STOCK OPTIONS AND WARRANTS (continued)

Stock Options (continued)

On September 30, 2009 the Company used the Black-Scholes option pricing model to compute estimated fair value, based on the following assumptions:

Risk-free interest rate 1.44%
Dividend yield rate 0.00%
Price volatility 185.48%
Weighted average expected life of options 3 years
Weighted average fair value $0.10

On September 30, 2010 the Company used the Black-Scholes option pricing model to compute estimated fair value, based on the following assumptions:

Risk-free interest rate 0.64%
Dividend yield rate 0.00%
Price volatility 214.23%
Weighted average expected life of options 3 years
Weighted average fair value $0.14

The Company recognized stock-based compensation of $2,163,000 and $500,000 during the years ended September 30, 2010 and 2009, respectively.

Warrants            
          Weighted Average  
    Shares     Exercise Price  
Warrants outstanding at September 30, 2009   2,777,770   $ 0.31  
Granted   -     -  
Expired   (2,770,770 ) $ 0.31  
Warrants outstanding at September 30, 2010   -   $ 0.00  

F-21


AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2010
(Unaudited & Unreviewed)

12.

LICENSE AGREEMENT

     

On June 10, 2010, ENVA GmbH entered into a license agreement (the “License Agreement”) with Ecoenergy Patent GmbH (“Ecoenergy GmbH”), a German limited liability company, whereby Ecoenergy Patent GmbH granted ENVA the rights of use to patents and patent applications in the following technical areas:

     
(a)

energy production from the waste heat of combined heat and power plants (CHPs);

     
(b)

energy production from the waste heat of industrial thermal processes;

     
(c)

energy production from the heat contained in used air and effluent water flows.

     

In consideration of the grant of the license, ENVA has agreed to pay the following:

     
(a)

a transaction fee of Euro 400,000 (US $544,366). The transaction fee bears interest at 7.5% per annum beginning July 10, 2010, is unsecured and is due December 31, 2011;

     
(b)

a license fee of three percent (3%) of its net turnover (excluding VAT) up to Euro 20,000,000 (US $27,218,291) and two percent of its net turnover (excluding VAT) on amounts over Euro 20,000,000 (US $27,218,291).

     

The term of the license is for a period of fifteen years.

     

ENVA must achieve the following minimum annual turnover volumes: (i) 2010 -$0, (ii) 2011 -Euro 1,500,000 (US $2,041,372), (iii) 2012 –Euro 3,000,000 (US $4,082,744), (iv) 2013 –Euro (US $8,165,487), (v) 2014 and on –Euro 10,000,000 (US $13,609,145) to avoid the granting of additional licenses by Ecoenergy GmbH to third parties. If the minimum annual turnover is not achieved in two consecutive years, Ecoenergy GmbH may terminate the License Agreement without notice.

     
13.

COMMITMENTS

     

On September 30, 2004, Aqua GmbH entered into a management consulting contract effective October 1, 2004 to pay Euro 15,000 (US $20,414) per month to a managing director of GmbH for development, production and quality assurance services. The managing director of Aqua GmbH is also a director of the Company. This contract is for an unlimited term but may be terminated by either party with six months advance notice.

     

On October 1, 2004, the Company entered into a consulting agreement to pay $2,000 per month to a consultant of the Company. The agreement is effective for a term of 5 years. The Company granted 500,000 stock options upon signing of the agreement of which 122,000 have been exercised to date. The exercise price of the stock options was $1.70 per common share and the remaining options expired on October 15, 2009.

     

On November 10, 2004, Aqua GmbH entered into a management consulting contract to pay Euro 500 (US $680) per press release to a former managing director of Aqua GmbH. This contract is for an unlimited term but may be terminated by either party with one month advance notice.

F-22


AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2010
(Unaudited & Unreviewed)

13.

COMMITMENTS (continued)

On January 1, 2005, the Company entered into a management consulting contract to pay Euro 5,520 (US $7,512) per month for marketing, sales and distribution services. Effective November 10, 2006, the contract was amended and the payment was decreased to Euro 3,750 (US $5,103) per month with additional payments of Euro 10,000 (US $13,609) and Euro 5,000 (US $6,805) in November and December 2006 respectively. The contract is for an unlimited term but may be terminated by either party with three months advance notice.

On August 1, 2005, Aqua GmbH entered into a management consulting agreement to pay Euro 3,900 (US $4,760) per month for administration services for the research and development department. The contract is for an unlimited term and may be terminated by either party by giving six months advance notice. The contract was terminated effective January 31, 2009.

On December 12, 2005, Aqua GmbH entered into a management consulting contract effective January 1, 2006 to pay Euro 20,000 (US $27,218) per month to March 31, 2006 and Euro 25,000 (US $34,023) per month to December 31, 2006 for technical services. Effective September 18, 2006, the contract was amended and the payment was decreased to Euro 10,000 (US $13,609) per month and extended to June 30, 2007. Aqua GmbH continued to pay the management consulting contract on a month-to-month basis after June 30, 2007. The contract also specifies a payment of Euro 100,000 (US $13,609) if Aqua GmbH is awarded a government grant of Euro 250,000 (US $340,229) and 25% of any future government grants. The management consulting contract is with a company owned by a director of the Company. The contract was terminated effective September 30, 2009.

On August 30, 2007, the Company entered into a consultancy agreement to pay Euro 10,000 (US $13,609) per month for management services. The contract is for an unlimited term and may be terminated by either party by giving one month’s notice. The contract was terminated effective September 30, 2009.

On September 1, 2009, the Company entered into a consulting agreement to pay $9,000 per month effective October 1, 2009 for management services. Effective October 1, 2010, the contract was amended and the payment was increased to Euro 10,000 (US $13,609) per month. The contract also specifies an annual bonus equal to 2% of the amount, if any, by which the Company’s audited net income before taxes at year-end beginning with the fiscal year ended September 30, 2010, exceeds $1,000,000. The contract also specifies the annual grant of options to purchase 200,000 shares of the Company’s common stock beginning with the fiscal year ended September 30, 2010. The contract is for an unlimited term but may be terminated by either party with three months written notice.

On October 1, 2009, the Company entered into a consulting agreement to pay Euro 10,000 (US $13,609) per month for management services. The contract also specifies an annual bonus equal to 3% of the amount, if any, by which the Company’s audited net income before taxes at year-end beginning with the fiscal year ended September 30, 2010, exceeds $1,000,000. The contract also specifies the annual grant of options to purchase 250,000 shares of the Company’s common stock beginning with the fiscal year ended September 30, 2010. The contract is for an unlimited term but may be terminated by either party with three months written notice.

F-23


AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2010
(Unaudited & Unreviewed)

14.

SEGMENT INFORMATION

Geographic Information

The Company operates in two reportable operating segments, being the design, development and sale of technologies and equipment for application, and providing related consulting services, in the areas of refrigeration, water purification and water waste management.

    Germany     United States     Total  
 Year ended September 30, 2010                  
         Revenue $  (961,100 ) $  -   $  (961,100 )
         Net loss $  783,439   $  2,702,446   $  3,503,885  
         Current assets $  408,581   $  5,293   $  413,874  
         Long-term assets $  833,912   $  -   $  833,912  
         Total assets $  1,242,493   $  5,293   $  1,247,786  
 Year ended September 30, 2009                  
         Revenue $  (173,383 ) $  -   $  (173,383 )
         Net loss $  2,351,5 86   $  1,392,034   $  3,743,620  
         Current assets $  384,119   $  -   $  384,119  
         Long-term assets $  316,353   $  -   $  316,353  
         Total assets $  700,472   $  -   $  700,472  

Sales and Cost of Goods Sold

         

Year Ended

 

 

Year Ended

 
         

September 30,

 

 

September 30,

 
         

2010

 

 

2009

 
 Sales                  
         Equipment       $  961,100   $  173,383  
 Cost of goods sold                  
         Equipment         338,245     157,816  
        $  622,855   $  15,567  

 

F-24


AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2010
(Unaudited & Unreviewed)

15.

ECONOMIC DEPENDENCE AND FINANCIAL INSTRUMENTS RISK

Economic dependence

During the periods ended certain individual customers each provided more than 10% of total revenues as follows:

    Year ended     Year ended  
    September 30,     September 30,  
    2010     2009  
Number of customers over 10%   3     2  

Credit risk

The Company provides credit to its clients in the normal course of operations. It carries out, on a continuing basis, credit checks on its clients and maintains provisions for contingent credit losses. For other debts, the Company estimates, on a continuing basis, the probable losses, and provides a provision for losses based on the estimated realizable value. As at the period-ends, certain individual customers each represented more than 10% of total accounts receivables as follows:

    Year ended     Year ended  
    September 30,     September 30,  
    2010     2009  
Number of customers over 10%   1     4  

Foreign currency risk

The Company is exposed to fluctuations in foreign currencies through its operations in the United States and Germany. The Company monitors this exposure, but had no hedge positions at the year-ends.

F-25


AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2010
(Unaudited & Unreviewed)

16.

SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS

    Year ended     Year ended  
    September 30,     September 30,  
    2010     2009  
Cash paid for:            
     Interest $  13,249   $  11,129  
     Income taxes $  -   $  -  

Non-cash Transactions

Investing and financing activities that do not have an impact on current cash flows are excluded from the statement of cash flows.

During the year ended September 30, 2010, $271,310 in accounts payable was settled by the issuance of 1,505,483 shares of the Company’s common stock.

During the year ended September 30, 2010, $340,229 in accounts payable was settled by the exercise of stock options for 5,000,000 shares of the Company’s common stock.

During the year ended September 30, 2010, loan and accrued interest payable totaling Euro 522,366 (US $710,895) were waived. This amount was not transferred to additional paid-in capital as the amount can be called back to debt at anytime. Imputed interest has been recorded during the period of forgiveness and posted to additional paid-in capital. Imputed interest for the years ended September 30, 2010 totaled Euro 62,620 (US $84,901).

During the year ended September 30, 2010, loans payable totaling Euro 745,852 (US $1,065,261) was settled by the issuance of 14,917,043 shares of the Company’s common stock.

During the year ended September 30, 2010, loan and accrued interest receivable of Euro 121,903 (US $165,899) were transferred to additional paid-in capital as collectability is uncertain.

During the year ended September 30, 2009, loans and accrued interest payable totaling Euro 782,754 (US $1,065,261) were waived. This amount was not transferred to additional paid-in capital as the amount can be called back to debt at anytime. Imputed interest has been recorded during the period of forgiveness and posted to additional paid-in capital. Imputed interest for the year ended September 30, 2009 totaled Euro 44,751 (US $61,093) (see Note 9).

F-26


EXHIBIT B
to the
Disclosure Statement of Aqua Society, Inc.
Dated September 26, 2011

1.

Unaudited Consolidated Balance Sheets as of September 30, 2008 and 2007;

   
2.

Unaudited Consolidated Statements of Operations for the years ended September 30, 2008 and 2007;

   
3.

Unaudited Consolidated Statements of Cash Flows for the years ended September 30, 2008 and 2007;

   
4.

Unaudited Consolidated Statement of Stockholders’ Equity (Deficiency) for the period from inception on May 13, 2004 through September 30, 2008; and

   
5.

Notes to Unaudited Consolidated Financial Statements.



 

 

AQUA SOCIETY, INC.

 

CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

September 30, 2008 and 2007
(Unaudited & Unreviewed)

 

 


AQUA SOCIETY, INC.
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. Dollars)
(Unaudited & Unreviewed)

    September 30,     September 30,  
    2008     2007  
             
ASSETS            
             
Current Assets            
     Cash and cash equivalents $  -   $  263,744  
     Accounts receivable   42,901     23,738  
     Government value added tax receivable   185,739     179,098  
     Loans receivable (Note 4 and 9)   152,044     -  
     Deferred tax asset, less valuation allowance of $5,137,960 (2007 -$4,132,076) (Note 7)   -     -  
Total Current Assets   380,684     466,580  
             
     Investments (Note 5)   1     1  
     Patents & patent rights (Note 6)   239,896     242,349  
     Equipment (Note 6)   95,529     69,587  
             
Total Assets $  716,110   $  778,517  
             
LIABILITIES AND STOCKHOLDERS’ DEFICIT            
             
Current Liabilities            
     Bank indebtedness $  970   $  -  
     Accounts payable and accrued liabilities (Note 9)   1,430,289     516,075  
     Loans Payable (Note 8 and 9)   1,144,073     3,538,674  
Total Current Liabilities   2,575,332     4,054,749  
             
Commitments and Contractual Obligations (Note 12)            
             
Stockholders’ Deficit            
     Common stock (Note 10)            
         Authorized 
                300,000,000 common shares, par value $0.001 
         Issued and outstanding 
                September 30, 2008 -120,956,093 
                September 30, 2007 -118,178,323
  120,957     118,179  
     Additional paid-in capital   36,252,295     32,332,630  
     Accumulated other comprehensive loss:            
           Foreign currency cumulative translation adjustment   (874,345 )   (870,730 )
     Deficit   (37,358,129 )   (34,856,311 )
             
Total Stockholders’ Deficit   (1,859,222 )   (3,276,232 )
             
Total Liabilities and Stockholders’ Deficit $  716,110   $  778,517  

The accompanying notes are an integral part of these consolidated financial statements.

F-2


AQUA SOCIETY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Expressed in U.S. Dollars)
(Unaudited & Unreviewed)

    Year     Year  
    Ended     Ended  
    September 30,     September 30,  
    2008     2007  
             
SALES $  257,790   $  147,446  
COST OF GOODS SOLD   (249,126 )   (73,393 )
             
    8,664     74,053  
             
EXPENSES            
     Accounting and audit fees   171,858     231,029  
     Advertising and promotion   128,210     48,782  
     Amortization   60,226     19,176  
     Bad debts   4,120     31,958  
     Bank charges and interest   607     954  
     Consulting fees   163,960     118,962  
     Development costs   277,301     509,055  
     Filing fees   408     4,029  
     Foreign exchange loss (gain)   16,144     (290,924 )
     Legal fees   247,780     269,334  
     Management fees   451,613     495,900  
     Office and miscellaneous   184,179     158,538  
     Rent   118,197     116,915  
     Salaries and benefits   540,241     489,980  
     Stock-based compensation   -     1,726,973  
     Transfer agent   1,596     1,653  
     Travel   40,012     88,057  
             
    (2,406,452 )   (4,020,371 )
             
LOSS BEFORE OTHER ITEMS AND INCOME TAXES   (2,397,788 )   (3,946,318 )
             
     Interest expense   (115,148 )   (218,915 )
     Writedown of inventory   -     (312,668 )
     Writedown of investment and loan receivable (Note 4)   -     (2 )
     Loss on disposal of equipment   -     (1,152 )
     Interest income   11,118     747  
             
LOSS BEFORE INCOME TAXES   (2,501,818 )   (4,478,308 )
             
     Provision for income taxes   -     -  
             
NET LOSS   (2,501,818 )   (4,478,308 )
             
OTHER COMPREHENSIVE LOSS            
             
     Foreign currency translation adjustment   (3,615 )   (720,362 )
             
COMPREHENSIVE LOSS $  (2,505,433 ) $  (5,198,670 )
             
BASIC AND DILUTED NET LOSS PER SHARE $  (0.02 ) $  (0.04 )
             
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING   119,769,965     118,178,323  

The accompanying notes are an integral part of these consolidated financial statements.

F-3


AQUA SOCIETY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
(Unaudited & Unreviewed)

    Year     Year  
    Ended     Ended  
    September 30,     September 30,  
    2008     2007  
             
CASH FLOWS FROM OPERATING ACTIVITIES            
Net loss for the period $  (2,501,818 ) $  (4,478,308 )
Adjustments to reconcile net income to cash used in operating activities:            
     Amortization   60,226     19,176  
     Stock-based compensation   -     1,726,973  
     Writedown of inventory   -     312,668  
     Writedown of investment and loan receivable   -     2  
     Loss on disposal of equipment   -     1,152  
Change in operating assets and liabilities:            
     Decrease (increase) in receivables   (19,601 )   127,755  
     Decrease (increase) in government value added tax receivable   (4,509 )   61,413  
     Increase in inventory   -     18,653  
     Increase (decrease) in accounts payable and accrued liabilities   942,552     (53,525 )
     Increase in accrued interest payable   107,651     215,890  
     Increase in accrued interest receivable   (10,442 )   -  
             
     Net cash used in operating activities   (1,425,941 )   (2,048,151 )
             
CASH FLOWS FROM INVESTING ACTIVITIES            
     Acquisition of patents   (7,833 )   (23,392 )
     Acquisition of capital assets   (73,282 )   (16,412 )
     Increase in loans receivable   (228,458 )   -  
             
     Net cash used in investing activities   (309,573 )   (39,804 )
             
CASH FLOWS FROM FINANCING ACTIVITIES            
     Bank indebtedness   970     -  
     Issuance of capital stock for cash   732,708     -  
     Proceeds from loans payable   688,443     2,459,060  
             
     Net cash provided by financing activities   1,422,121     2,459,060  
             
EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH DURING THE PERIOD   125,961     (294,793 )
             
NET INCREASE (DECREASE) IN CASH   (187,432 )   76,312  
             
CASH, BEGINNING OF PERIOD   187,432     187,432  
             
CASH, END OF PERIOD $  -   $  263,744  

Supplemental Disclosure with Respect to Cash Flows (Note 15)

The accompanying notes are an integral part of these consolidated financial statements.

F-4


AQUA SOCIETY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Expressed in U.S. Dollars)
(Unaudited & Unreviewed)

    Common Stock                 Accumulated              
                Additional     Special Warrants     Other              
                Paid-                 Comprehensive     Accumulated        
    Number     Par Value     in Capital     Number     Amount     Loss     Deficit     Total  
                                                 
Sale of common stock for cash   1   $  31,042   $  -   $  -   $ -   $  -   $ -   $  31,042  
                                                 
Contribution of assets               25,056                             25,056  
                                                 
Pursuant to acquisition of Aqua GmbH   10,000,000     10,000           34,000,000     34,000                 44,000  
                                                 
Exchange of shares   (1 )   (31,042 )                                 (31,042 )
                                                 
Outstanding shares of Company prior to acquisition   69,908,000     69,908                             (194,748 )   (124,840 )
                                                 
Foreign currency translation adjustment                                 (997 )         (997 )
                                                 
Net loss                                       (67,448 )   (67,448 )
                                                 
Balance, September 30, 2004   79,908,000     79,908     25,056     34,000,000     34,000     (997 )   (262,196 )   (124,229 )
                                                 
Sale of common stock for cash at $2.40 per unit, October 18, 2004   416,666     417     999,583                     1,000,000  
                                                 
Sale of common stock for cash at $2.40 per unit, June 10, 2005   1,232,322     1,233     2,438,766                     2,439,999  
                                                 
Pursuant to exercise of options at $1.70 per share   215,000     215     365,285                             365,500  
                                                 
Conversion of special warrants   34,000,000     34,000           (34,000,000 )   (34,000 )               -  
                                                 
Stock-based compensation               22,480,000                             22,480,000  
                                                 
Foreign currency translation adjustment                                 89,594           89,594  
                                                 
Net loss                                       (25,787,558 )   (25,787,558 )
                                                 
Balance, September 30, 2005   115,771,988     115,773     26,308,690     -     -     88,597     (26,049,754 )   463,306  

The accompanying notes are an integral part of these consolidated financial statements

F-5


AQUA SOCIETY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Expressed in U.S. Dollars)
(Unaudited & Unreviewed)

    Common Stock                 Accumulated              
                Additional     Special Warrants     Other              
                Paid-                 Comprehensive     Accumulated        
    Number     Par Value     in Capital     Number     Amount     Loss     Deficit     Total  
                                                 
Sale of common stock for cash at $1.04 per unit, February 10, 2006   1,160,960     1,161     1,206,237                     1,207,398  
                                                 
Sale of common stock for cash at $0.88 per unit, June 8, 2006   1,245,375     1,245     1,094,685                     1,095,930  
                                                 
Foreign currency translation adjustment                                 (238,965 )         (238,965 )
                                                 
Net loss                                       (4,328,249 )   (4,328,249 )
                                                 
Balance, September 30, 2006   118,178,323     118,179     28,609,612     -     -     (150,368 )   (30,378,003 )   (1,800,580 )
                                                 
Forgiveness of loans (Note 8 and 9)               1,996,045                             1,996,045  
                                                 
Stock-based compensation               1,726,973                             1,726,973  
                                                 
Foreign currency translation adjustment                                 (720,362 )         (720,362 )
                                                 
Net loss                                       (4,478,308 )   (4,478,308 )
                                                 
Balance, September 30, 2007   118,178,323     118,179     32,332,630     -     -     (870,730 )   (34,856,311 )   (3,276,232 )
                                                 
Forgiveness of loans (Note 8)               3,189,735                             3,189,735  
                                                 
Sale of common stock for cash at Euro 0.22 (US $0.35) per unit, January 25, 2008   2,777,7770     2,778     729,930                     732,708  
                                                 
Foreign currency translation adjustment                                 (3,615 )         (3,615 )
                                                 
Net loss                                       (2,501,818 )   (2,501,818 )
                                                 
Balance, September 30, 2008   120,956,093   $  120,957   $  36,252,295   $ -   $  -   $  (874,345 ) $ (37,358.129 ) $  (1,859,222 )

The accompanying notes are an integral part of these consolidated financial statements.

F-6



AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2008
(Unaudited & Unreviewed)
 

1.

HISTORY AND ORGANIZATION OF THE COMPANY

   

Aqua Society, Inc. (formerly V G Tech, Inc.) (the “Company”) was incorporated on March 2, 2000, under the laws of the State of Nevada. Effective September 22, 2004, the Company acquired 100% of the issued and outstanding stock of Aqua Society GmbH (“ Aqua GmbH”), a German limited liability company, that is in the business of designing and developing technologies for application, and providing related consulting services, in the areas of heating, ventilation, air conditioning, refrigeration, water purification, waste water management and energy.

   

Effective December 27, 2004, the Company changed its name to Aqua Society, Inc from VG Tech, Inc.

   

The consolidated financial statements of the Company include the accounts of the Company and Aqua GmbH. All inter-company balances have been eliminated on consolidation.

   
2.

GOING CONCERN

   

These consolidated financial statements have been prepared with the on-going assumption that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. However, certain conditions noted below raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.

   

The operations of the Company have primarily been funded by the sale of common stock and loans received. Continued operations of the Company are dependent on the Company’s ability to complete equity financings, obtain additional loans or generate profitable operations in the future. Management’s plan in this regard is to secure additional funds through future equity financings and loans payable. Such financings or loans payable may not be available or may not be available on reasonable terms to the Company.

F-7



AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2008
(Unaudited & Unreviewed)
 

3.

SIGNIFICANT ACCOUNTING POLICIES

     

The financial statements of the Company have been prepared in conformity with generally accepted accounting principles in the United States of America and are stated in U.S. dollars. The significant accounting policies adopted by the Company are as follows:

     
(a)

Use of estimates

     

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from these estimates.

     
(b)

Foreign currency translation

     

The functional currency of the Company is the U.S. dollar. The Company’s subsidiary, Aqua GmbH, uses the Euro as its functional currency. Accordingly, monetary assets and liabilities denominated in a foreign currency are translated at the exchange rate in effect at the balance sheet date while non-monetary assets and liabilities are translated at historical rates. Revenue and expense items denominated in a foreign currency are translated at exchange rates prevailing when such items are recognized in the statement of operations. Exchange gains and losses arising on translation of foreign currency items are included in the statement of operations.

     

The Company follows the current rate method of translation to U.S. dollars with respect to its foreign subsidiary. Accordingly, assets and liabilities are translated into U.S. dollars at the year-end exchange rates while revenue and expenses are translated at the average exchange rates during the year. Related exchange gains and losses are included in a separate component of stockholders’ equity as accumulated other comprehensive income.

     
(c)

Cash and cash equivalents

     

The Company considers cash held at banks and all highly liquid investments with original maturities of three months or less to be cash and cash equivalents.

     
(d)

Receivables

     

Receivables consist of receivables from customers. The Company provides an allowance for doubtful accounts through periodic evaluations of the aging of its accounts receivable.

F-8



AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2008
(Unaudited & Unreviewed)
 

3.

SIGNIFICANT ACCOUNTING POLICIES (continued)

     
(e)

Investments

     

The Company accounts for investments in companies subject to significant influence (generally those companies in which interests ranging from 20% to 50% are held) on the equity basis. Investments in companies that the Company is unable to significantly influence are carried at cost.

     

When there has been a loss in value of the investment, the investment is written down to recognize the loss.

     

Investments in which the Company holds a 51% or greater interest are consolidated, unless control does not exist due to the Company’s inability to determine the investees strategic operating, financing and investing policies.

     
(f)

Patents

     

Patents and patent applications are recorded at cost. Amortization is calculated using the straight-line method over the useful lives of the patents, estimated to be 20 years. Amortization is recorded upon the patents being awarded.

     
(g)

Equipment

     

Equipment is recorded at cost. Amortization is calculated using the straight-line method over the useful lives of the assets. Maintenance and repairs are expensed as incurred while betterments or renewals are capitalized.

     

The Company provides for amortization over the estimated life of each asset on a straight-line basis over the following periods:


  Office equipment 2, 4 and 10 years
  Leasehold improvements 4 years

(h)          Accounting for the impairment of long-lived assets and long-lived assets to be disposed of

The Company reviews all lo ng-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

(i)          Revenue recognition

The Company recognizes revenue from the sale of their products when the following criteria are met: persuasive evidence of an agreement exists, shipment has occurred, the price to the buyer is fixed and determinable and collectability is reasonably assured. Shipping and handling charges billed to customers are included in net revenue, and the related shipping and handling costs are included in cost of goods sold. The Company recognizes consulting revenue when the consulting service is provided.

F-9



AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2008
(Unaudited & Unreviewed)
 

3.

SIGNIFICANT ACCOUNTING POLICIES (continued)

     
(j)

Income taxes

     

A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carryforwards. Deferred tax expenses (benefit) result from the net change during the period of deferred tax assets and liabilities.

     

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

     
(k)

Fair value of financial instruments

     

The Company's financial instruments consist of cash and cash equivalents/bank indebtedness, receivables, government value added tax receivable, loans receivable, accounts payable and accrued liabilities and loans payable. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments. The fair value of these financial instruments approximates their carrying values, unless otherwise noted.

     
(l)

Stock-based compensation

     

Effective February 1, 2006, the Company accounts for stock-based compensation issued to employees in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) 123R, “Share- Based Payment.” which superseded Accounting Principles Board (“APB”) Opinion 25, “Accounting for Stock Issued to Employees.

     

The Company accounts for stock-based compensation issued to non-employees in accordance with the provisions of SFAS 123, “Accounting for Stock-Based Compensation,” and the consensus in Emerging Issues Task Force (“EITF”) No. 96-18, “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services.”

     
(m)

Net loss per share

     

Basic net loss per share is computed by dividing the net loss for the period by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share takes into consideration shares of common stock outstanding (computed under basic earnings per share) and potentially dilutive shares of common stock. As of September 30, 2008 and 2007, there were no potentially dilutive securities outstanding.

     
(n)

Comprehensive income (loss)

     

The Company has adopted SFAS 130, “Reporting of Comprehensive Income,” which establishes guidelines for the reporting and display of comprehensive income (loss) and its components in financial statements. Comprehensive income (loss) includes foreign currency translation adjustments.

F-10



AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2008
(Unaudited & Unreviewed)
 

3.

SIGNIFICANT ACCOUNTING POLICIES (continued)

     
(o)

Concentration of credit risk

     

Cash is the only financial instrument that potentially subjects the Company to concentration of credit risk. The Company maintains cash in bank accounts that, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts.

     
(p)

Recent accounting pronouncements

     

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS 157, “Fair Value Measurements. SFAS 157 establishes a framework for measuring the fair value of assets and liabilities. This framework is intended to provide increased consistency in how fair value determinations are made under various existing accounting standards which permit, or in some cases require, estimates of fair market value. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including any financial statements for an interim period within that fiscal year. FASB Staff Position (“FSP”) 157-2 delayed the effective date of SFAS 157 until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years, for all nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The Company adopted SFAS 157 on January 1, 2008, and utilized the one year deferral for nonfinancial assets and nonfinancial liabilities that was granted by FSP 157-2. The adoption of SFAS 157 did not have a material impact on the Company’s consolidated financial statements.

     

In February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115”. This statement permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS 159 apply only to entities that elect the fair value option. However, the amendment to SFAS 115 “Accounting for Certain Investments in Debt and Equity Securities” applies to all entities with available-for-sale and trading securities. SFAS 59 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provision of SFAS 157, “Fair Value Measurements”. The adoption of SFAS 159 did not have a material impact on the Company’s consolidated financial statements.

     

In December 2007, the FASB issued SFAS 141(R), Business Combinations (revised—2007). SFAS 141(R) is a revision to previously existing guidance on accounting for business combinations. The statement retains the fundamental concept of the purchase method of accounting, and introduces new requirements for the recognition and measurement of assets acquired, liabilities assumed and noncontrolling interests. SFAS 141(R) also requires acquisition-related transaction and restructuring costs to be expensed rather than treated as part of the cost of the acquisition. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company is currently evaluating the impact this statement will have on its financial position and results of operations and does not expect this statement to have a material impact on its financial position and results of operations.

F-11



AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2008
(Unaudited & Unreviewed)
 

4.

SIGNIFICANT ACCOUNTING POLICIES (continued)

   
(p)         Recent accounting pronouncements (continued)
   

In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial Statements. The Statement requires that noncontrolling interests be reported as stockholders equity, a change that will affect the Company's financial statement presentation of minority interests in its consolidated subsidiaries. The Statement also establishes a single method of accounting for changes in a parent's ownership interest in a subsidiary as long as that ownership change does not result in deconsolidation. The statement is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the impact of SFAS 160 and does not expect this statement to have a material impact on its financial position and results of operations.

   

In March 2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities”. SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities by requiring enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133, and how derivative instruments and related hedged items affect an entity’s operating results, financial position, and cash flows. SFAS 161 is effective for fiscal years beginning after November 15, 2008. Earlier adoption is permitted. The Company is currently reviewing the provisions of SFAS 161 and has not yet adopted the statement. However, as the provisions of SFAS 161 are only related to disclosure of derivative and hedging activities, the Company does not believe the adoption of SFAS 161 will have a material impact on its consolidated operating results, financial position, or cash flows.

   
(q)         Reclassifications
   
Certain amounts reported in the prior periods have been reclassified to conform to the current period’s presentation.

F-12



AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2008
(Unaudited & Unreviewed)
 

4.

LOAN RECEIVABLE

   

During the year ended September 30, 2008, a loan was granted from a third party for Euro 100,000 (US $144,446). The loan bears interest at 7.5% per annum, is unsecured and is due on demand. Interest income included in the statement of operations for the year ended September 30, 2008 totaled Euro 5,260 (US $8,010).

   
5.

INVESTMENTS

   

UFI-Tech GmbH

   

By an agreement dated November 30, 2004 and effective December 10, 2004, the Company acquired a 33% interest in UFI-Tech GmbH (“UFI”), a German limited company, for consideration of Euro 25,565 (US $32,476). During the year ended September 30, 2005, the Company wrote down the $32,476 investment and related loans receivable of $67,227 to their net realizable value of $1. During the year ended September 30, 2006, the Company sold 13.1% of their 33% interest (19.9% interest remains) for proceeds of Euro 10,072 (US $12,237) and wrote down an additional loan receivable of $66,094 to its net realizable value of $1. During the year ended September 30, 2007, the Company wrote down the loan receivable to $0.

   

TMR GmbH

   

By an agreement dated February 18, 2006, the Company acquired a 51% interest in TMR GmbH (“TMR”), a German limited company, for consideration of Euro 12,750 (US $15,999). TMR is involved in the development, installation, distribution and management of renewable resources. At the date of acquisition, TMR had no business, assets or liabilities. During the year ended September 30, 2006, the Company wrote down its investment by Euro 12,749 (US $15,674) to its net realizable value of $1. During the year ended September 30, 2007, the Company disposed of its interest in TMR for $1.

F-13



AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2008
(Unaudited & Unreviewed)
 

6.

EQUIPMENT AND PATENTS Equipment


      2008     2007  
  Office Equipment $  170,939   $  123,631  
  Accumulated depreciation   (75,410 )   (54,044 )
  Net book value $  95,529   $  69,587  

During the year ended September 30, 2007, the Company reallocated the net book value of leasehold improvements totaling $22,370 to development costs.

Patents and patent rights

      2008     2007  
  Patents $  253,730   $  242,606  
  Accumulated depreciation   (13,834 )   (257 )
  Net book value $  239,896   $  242,349  

During the years ended September 30, 2008 and 2007, the Company did not amortize patents totaling $26,090 and $240,477, respectively, as the patents have not yet been awarded yet. Capitalized amounts relate solely to legal and advisory costs incurred to obtain patents and patent rights.

F-14



AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2008
(Unaudited & Unreviewed)
 

7.

DEFERRED INCOME TAXES

   

Income tax benefits attributable to losses from United States of America operations was $Nil for the years ended September 30, 2008 and 2007, and differed from the amounts computed by applying the United States of America federal income tax rate of 34 percent to pretax losses as a result of the following:


      Year Ended     Year Ended  
      September 30,     September 30,  
      2008     2007  
               
  Loss for the period $  (2,501,818 ) $  (4,478,308 )
               
  Computed “expected” tax benefit   (850,618 )   (1,522,625 )
  Non deductible expense –stock-based compensation   -     587,171  
  Foreign tax rate differentials   (155,266 )   (177,034 )
  Change in valuation allowance   1,005,884     1,112,488  
               
  Income tax recovery $  -   $  -  

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at September 30, 2008 and 2007, is presented below:

      2008     2007  
  Deferred tax assets:            
         Net operating loss carry forwards – US $  341,982   $  234,893  
         Net operating loss carry forwards – Germany   4,795,978     3,897,183  
  Valuation allowance   (5,137,960 )   (4,132,076 )
  Total deferred tax assets $  -   $  -  

The valuation allowance for deferred tax assets as of September 30, 2008 and 2007 was $5,137,960 and $4,132,076, respectively. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

The losses in Germany may be carried forward indefinitely and the losses in the United States expire in 2028.

F-15



AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2008
(Unaudited & Unreviewed)
 

8.

LOANS PAYABLE - CURRENT

   

During the year ended September 30, 2008, a loan was granted from a third party totaling Euro 30,000 (US $43,334). The loan bears interest at 6.5% per annum, is unsecured and is due on demand. Interest expense included in the statement of operations for the year ended September 30, 2008 totaled Euro 162 (US $244).

   

During the year ended September 30, 2008, a loan was granted from a third party totaling $30,000. The loan is non-interest bearing, unsecured and due on demand.

   

During the year ended September 30, 2008, a loan was granted from a third party totaling Euro 100,000 (US $144,446) of which Euro 55,000 (US $79,445) has been repaid. The loan bears interest at 4.5% per annum, is unsecured and is due on demand. Interest expense included in the statement of operations for the year ended September 30, 2008 totaled Euro 2,519 (US $3,771).

   

During the year ended September 30, 2006, a loan was granted from a third party for Euro 500,000 (US $735,943). During the year ended September 30, 2007, additional loans totaling Euro 1,500,000 (US $2,207,830) were granted from the same party. At December 31, 2007, the loans totaling Euro 2,000,000 (US $2,943,774) and accrued interest payable totaling Euro 167,106 (US $245,961) were waived and transferred to additional paid-in capital. The loans bore interest at 7.5% per annum, were secured by shares of a private company owned by the officers and directors of the Aqua GmbH and were repayable on or before December 31, 2008. Interest expense included in the statement of operations for the years ended September 30, 2008 and 2007 totaled Euro 37,757 (US $54,663) and Euro 129,349 (US $184,468), respectively.

   

During the year ended September 30, 2007, loans granted from third parties totaling Euro 241,981 (US $345,095) were repayable on or before December 31, 2006. These loans were not repaid and were in default. At September 30, 2007, the loans were waived and transferred to additional paid-in capital. Of the total loans transferred to additional paid-in capital, Euro 149,365 (US $213,013) bore interest at 7.5% per annum and was secured by accounts receivable of Aqua GmbH and Euro 92,616 (US $132,082) bore interest at 7.5% interest and was unsecured.

F-16



AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2008
(Unaudited & Unreviewed)
 

9.

RELATED PARTY TRANSACTIONS

   

Loan Receivable

   

During the year ended September 30, 2008, a loan was granted to a director and officer of the Company for Euro 57,020 (US $82,363) of which Euro 4,860 (US $7,020) has been repaid. The remaining loan totaling Euro 52,160 (US $75,343) and accrued interest receivable totaling Euro 1,694 (US $2,448) was offset to loans payable by the same individual (see Note 9 –loans payable). The loan bears interest at 6% per annum and was due on demand. Interest income included in the statement of operations for the year ended September 30, 2008 totaled Euro 1,695 (US $2,583).

   

Accounts Payable and Accrued Liabilities

   

At September 30, 2008 included in accounts payable and accrued liabilities is Euro 59,500 (US $85,945) owed to a director of the Company for development costs.

   

At September 30, 2008 and September 30, 2007, included in accounts payable and accrued liabilities is Euro 130,000 (US $187,780) and Euro 10,000 (US $14,261), respectively, owed to a director and officer of the Company for management fees.

   

At September 30, 2008 and 2007, included in accounts payable and accrued liabilities is Euro 98,000 (US $141,557) and Euro 98,000 (US $139,760), respectively, owed to former directors and officers of the Company for management fees.

   

At September 30, 2008 and 2007, included in accounts payable and accrued liabilities is Euro 22,570 (US $32,602) and Euro 746 (US $1,064), respectively, owed to a managing director of Aqua GmbH for various operating expenses and management fees.

   

At September 30, 2007, included in accounts payable and accrued liabilities is Euro 690 (US $984) owed to a relative of a managing director of Aqua GmbH for development costs.

   

Amounts due to and from officers and directors are unsecured, non-interest bearing and due on demand.

   

Loans Payable

   

During the year ended September 30, 2008, a loan was granted from a director and officer of the Company for Euro 363,543 (US $525,123) which was offset by loans receivable of Euro 53,855 (US $77,791) from the same individual (see Note 9 –loan receivable). The loan bears interest at 8% per annum, is unsecured and is due on demand. Interest expense included in the statement of operations for the year ended September 30, 2008 totaled Euro 15,985 (US $24,039).

   

During the year ended September 30, 2007, a loan was granted from a former director and officer of the company for Euro 350,000 (US $505,561). The loan bears interest at 4.5% per annum, is unsecured and is due on demand. Interest expense included in the statement of operations for the years ended September 30, 2008 and 2007 totaled Euro 15,949 (US $23,970) and Euro 1,969 (US $2,808), respectively.

F-17



AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2008
(Unaudited & Unreviewed)
 

9.

RELATED PARTY TRANSACTIONS (continued)

   

Loans Payable (continued)

   

During the year ended September 30, 2007, loans from a law firm of which a former director and officer of the Company is a partner totaling 1,157,646 (US $1,650,950) were repayable on or before December 31, 2006. These loans were not repaid and were in default. At September 30, 2007, the loans were waived and transferred to additional paid-in capital. Of the total loans transferred to additional paid-in capital, Euro 657,646 (US $937,887) was non-interest bearing and was secured by accounts receivable of Aqua GmbH; Euro 500,000 (US $713,063) was non-interest bearing and unsecured;

   

Other

   

Management fees paid to a director and officer of the Company for the years ended September 30, 2008 and 2007 totaled Euro 120,000 (US $181,193) and Euro 192,000 (US $256,503), respectively. Management fees paid to directors and officers of Aqua GmbH for the years ended September 30, 2008 and 2007 totaled Euro 180,000 (US $270,420) and Euro 180,000 (US $239,397), respectively.

   

Development costs paid to a Company owned by a director and officer of the Company for the years ended September 30, 2008 and 2007 totaled Euro 110,000 (US $164,694) and Euro 120,000 (US $159,598), respectively. Development and travel costs paid to a relative of a director and officer of the Company for the years ended September 30, 2008 and 2007 totaled Euro 7, 502 (US $11,103) and Euro 7,950 (US $10,453), respectively.

   
10.

COMMON STOCK

   

The Company’s articles of incorporation allow it to issue up to 300,000,000 shares of common stock, par value $0.001.

   
11.

STOCK OPTIONS AND WARRANTS

   

Stock Options

   

On December 21, 2006, the Company adopted a second stock incentive plan (the “2006 Stock Option Plan”) to provide incentives to employees, directors, officers and permitted consultants. The 2006 Stock Plan provides for the issuance of up to 7,000,000 options with a term to be determined by the plan administer or, if not so established, ten years. The maximum aggregate number of shares that may be optioned under the 2006 Stock Option Plan will be increased effective the first day of each of the Company’s fiscal quarters (“adjustment date”), beginning with the fiscal quarter commencing April 1, 2007 by an amount equal to the lesser of i) 15% of the outstanding shares on the first day of the applicable quarter less a) the number of shares of common stock that may be optioned and sold under the plan prior to the adjustment date and b) the number of shares of common stock that may be optioned and sold under any other stock option plan in effect as of the adjustment date or ii) such lesser number of shares of common stock as may be determined by the Board.

F-18



AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2008
(Unaudited & Unreviewed)
 

11.

STOCK OPTIONS AND WARRANTS (continued)

   

Stock Options (continued)

   

A summary of the stock options outstanding as at September 30, 2008 and changes during the period is presented below:


            Weighted Average  
      Shares     Exercise Price  
               
                Options outstanding at September 30, 2007   4,503,000   $ 0.40  
                Granted   -     -  
                Cancelled   (4,125,000 ) $ 0.28  
               
                Options outstanding at September 30, 2008   378,000   $ 1.70  
               
                Options exercisable at September 30, 2008   378,000        

A summary of stock options outstanding at September 30, 2008, is as follows:

Number Exercise Price Expiry Date
378,000 $1.70 October 15, 2009

The Company used the Black-Scholes option valuation model to compute the estimated fair value at each of the grant dates.

The Black-Scholes option-pricing model requires the input of highly subjective assumptions including the expected price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate and therefore the Black-Scholes model does not necessarily provide a reliable single measure of the fair value of the Company’s share purchase options.

On December 21, 2006 the Company used the Black-Scholes option pricing model to compute estimated fair value, based on the following assumptions:

  Risk-free interest rate 4.84%
  Dividend yield rate 0.00%
  Price volatility 132.10%
  Weighted average expected life of options 2.15 years
  Weighted average fair value $0.33

F-19



AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2008
(Unaudited & Unreviewed)
 

11.

STOCK OPTIONS AND WARRANTS (continued)

   

Stock Options (continued)

   

On June 7, 2007 the Company used the Black-Scholes option pricing model to compute estimated fair value, based on the following assumptions:


  Risk-free interest rate 5.03%
  Dividend yield rate 0.00%
  Price volatility 139.66%
  Weighted average expected life of options 2.00 years
  Weighted average fair value $0.22

The Company recognized stock-based compensation of $0 and $1,726,973 during the years ended September 30, 2008 and 2007, respectively.

Warrants

            Weighted Average  
      Shares     Exercise Price  
               
  Warrants outstanding at September 30, 2007   2,406,335   $ 1.20  
  Granted   2,777,770   $ 0.32  
  Expired   (2,406,335 ) $ 1.20  
               
  Warrants outstanding at September 30, 2008   2,777,770   $ 0.32  

A summary of warrants outstanding at September 30, 2008, is as follows:

  Date   Issued     Outstanding     Exercise Price     Expiry Date  
                           
  January 25, 2008   2,777,770     2,777,770     Euro 0.22 (US $0.32)   January 24, 2010  

12.

COMMITMENTS

   

On September 30, 2004, Aqua GmbH entered into a management consulting contract effective October 1, 2004 to pay Euro 15,000 (US $23,682) per month to a managing director of GmbH for development, production and quality assurance services. The managing director of Aqua GmbH is also a director of the Company. This contract is for an unlimited term but may be terminated by either party with six months advance notice.

   

On October 1, 2004, the Company entered into a consulting agreement to pay $2,000 per month to a consultant of the Company. The agreement is effective for a term of 5 years. The Company granted 500,000 stock options upon signing of the agreement of which 122,000 have been exercised to date. The exercise price of the stock options is $1.70 per common share and expires on October 15, 2009.

F-20



AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2008
(Unaudited & Unreviewed)
 

12.

COMMITMENTS (continued)

   

On October 1, 2004, Aqua GmbH entered into a management consulting contract to pay Euro 5,000 (US $7,894) per month for marketing and business development services. Effective October 1, 2005, the contract was amended to increase the payment to Euro 7,500 (US $11,841) per month. Effective October 1, 2006, the contract was amended to Euro 15,000 (US $23,682) per month for October, November and December, 2006. By an agreement dated November 1, 2006 and effective January 11, 2007, the Company agreed to the payment of Euro 2,000 (US $3,158) per month until December 31, 2007 and a 5% commission of gross sales to third parties which occurred as a result of the consultant’s work. The contract automatically renews for one year if not terminated at the end of a year by giving six months advance notice. The contract was terminated effective December 31, 2007.

   

On November 10, 2004, Aqua GmbH entered into a management consulting contract to pay Euro 500 (US $789) per press release to a former managing director of Aqua GmbH. This contract is for an unlimited term but may be terminated by either party with one month advance notice.

   

On January 1, 2005, the Company entered into a management consulting contract to pay Euro 5,520 (US $8,715) per month for marketing, sales and distribution services. Effective November 10, 2006, the contract was amended and the payment was decreased to Euro 3,750 (US $5,920) per month with additional payments of Euro 10,000 (US $15,787) and Euro 5,000 (US $7,894) in November and December 2006 respectively. The contract is for an unlimited term but may be terminated by either party with three months advance notice.

   

On August 1, 2005, Aqua GmbH entered into a management consulting agreement to pay Euro 3,900 (US $6,157) per month for administration services for the research and development department. The contract is for an unlimited term and may be terminated by either party by giving six months advance notice. The contract was terminated effective January 31, 2009.

   

On December 12, 2005, Aqua GmbH entered into a management consulting contract effective January 1, 2006 to pay Euro 20,000 (US $29,180) per month to March 31, 2006 and Euro 25,000 (US $36,475) per month to December 31, 2006 for technical services. Effective September 18, 2006, the contract was amended and the payment was decreased to Euro 10,000 (US $14,590) per month and extended to June 30, 2007. Aqua GmbH continued to pay the management consulting contract on a month-to-month basis after June 30, 2007. The contract also specifies a payment of Euro 100,000 (US $145,900) if Aqua GmbH is awarded a government grant of Euro 250,000 (US $364,751) and 25% of any future government grants. The management consulting contract is with a company owned by a director of the Company. The contract was terminated effective September 30, 2009.

   

On December 28, 2006, the Company entered into management consulting to pay directors and officers of the Company a total of Euro 56,000 (US $79,863) for the period October 1, 2006 to December 31, 2006 and Euro 14,000 (US $19,966) per month for the period January 1, 2007 to September 30, 2007. The contract is for an unlimited term but may be terminated by either party with three months advance notice. Effective September 30, 2007, the respective director and officers resigned and the contracts terminated.

   

On August 30, 2007, the Company entered into a consultancy agreement to pay Euro 10,000 (US $15,787) per month for management services. The contract is for an unlimited term and may be terminated by either party by giving one month’s notice. The contract was terminated effective September 30, 2009.

F-21



AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2008
(Unaudited & Unreviewed)
 

13.

SEGMENT INFORMATION

   

Geographic Information

   

The Company operates in two reportable operating segments, being the design, development and sale of technologies and equipment for application, and providing related consulting services, in the areas of refrigeration, water purification and water waste management.


      Germany     United States     Total  
                     
  Year ended September 30, 2008                  
                     
       Revenue $  (257,790 ) $  -   $  (257,790 )
       Net loss $  2,186,851   $  314,967   $  2,501,818  
       Current assets $  380,684   $  -   $  380,684  
       Long-term assets $  335,426   $  -   $  335,426  
       Total assets $  716,110   $  -   $  716,110  
                     
  Year ended September 30, 2007                  
                     
       Revenue $  (147,446 ) $  -   $  (147,446 )
       Net loss $  2,493,433   $  1,984,875   $  4,478,308  
       Current assets $  460,966   $  5,614   $  466,580  
       Long-term assets $  311,937   $  -   $  311,937  
       Total assets $  772,903   $  5,614   $  778,517  

Sales and Cost of Goods Sold

      Year Ended     Year Ended  
      September 30,     September 30,  
      2008     2007  
               
  Sales            
       Equipment $  257,790   $  147,446  
               
  Cost of goods sold            
       Equipment   249,126     73,393  
               
    $  8,664   $  74,053  

F-22



AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2008
(Unaudited & Unreviewed)
 

14.

ECONOMIC DEPENDENCE AND FINANCIAL INSTRUMENTS RISK

   

Economic dependence

   

During the periods ended certain individual customers each provided more than 10% of total revenues as follows:


      Year ended     Year ended  
      September 30,     September 30,  
      2008     2007  
               
  Number of customers over 10%   4     2  

Credit risk

The Company provides credit to its clients in the normal course of operations. It carries out, on a continuing basis, credit checks on its clients and maintains provisions for contingent credit losses. For other debts, the Company estimates, on a continuing basis, the probable losses, and provides a provision for losses based on the estimated realizable value. As at the period-ends, certain individual customers each represented more than 10% of total accounts receivables as follows:

      Year ended     Year ended  
      September 30,     September 30,  
      2008     2007  
               
  Number of customers over 10%   2     1  

Foreign currency risk

The Company is exposed to fluctuations in foreign currencies through its operations in the United States and Germany. The Company monitors this exposure, but had no hedge positions at the year-ends.

F-23



AQUA SOCIETY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2008
(Unaudited & Unreviewed)
 

15.

SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS


      Year ended     Year ended  
      September 30,     September 30,  
      2008     2007  
               
  Cash paid for:            
       Interest $  8,460   $  6,974  
       Income taxes $  -   $  -  
               

Non-cash Transactions

Investing and financing activities that do not have an impact on current cash flows are excluded from the statement of cash flows.

During the year ended September 30, 2008, loans and accrued interest payable totaling Euro 2,167,106 (US $3,189,735) was waived and transferred to additional paid-in capital (see Note 8).

During the year ended September 30, 2008, a loan and accrued interest receivable totaling Euro 53,854 (US $77,791) was offset against a loan payable (see Note 9).

During the year ended September 30, 2007, loans totaling Euro 1,399,627 (US $1,996,045) were waived and transferred to additional paid-in capital (see Notes 8 and 9).

F-24