<PAGE>
As filed with the Securities and Exchange Commission on July 20, 2000
Registration No. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AQUACELL TECHNOLOGIES, INC.
(Name of small business issuer as specified in its charter)
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Delaware 3590 33-0750453
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
10410 Trademark Street
Rancho Cucamonga, California 91730
(909) 987-0456
(Address, telephone number of principal executive offices and principal place of
business)
____________________
James C. Witham
Chairman and Chief Executive Officer
AquaCell Technologies, Inc.
10410 Trademark Street
Rancho Cucamonga, California 91730
(909) 987-0456
(Name, address and telephone number of agent for service)
____________________
Copies to:
Gregory W. Preston, Esq. Steven Morse, Esq.
Allen Matkins Leck Gamble & Mallory LLP Lester Morse, P.C.
1900 Main Street, Fifth Floor 111 Great Neck Road, Suite 420
Irvine, California 92614-7321 Great Neck, New York 11021
Telephone: (949) 553-1313 Telephone: (516) 487-1446
Facsimile: (949) 553-8354 Facsimile: (516) 487-1452
Approximate date of proposed sale to the public:
As soon as practicable after this registration statement becomes effective.
__________
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
==============================================================================================================
Proposed Maximum Proposed Maximum
Title of Each Class of Amount To Be Offering Price Aggregate Offering Amount of
Securities Registered(1) Per Unit(2) Price(2) Registration Fee
To Be Registered
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Common Stock 2,012,500 $5.00 $10,062,500 $2,656.50
==============================================================================================================
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(1) Includes up to 262,500 shares of Common Stock which may be sold pursuant to
the over-allotment option granted by the registrant to the underwriters.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) of the Securities Act of 1933, as amended (the
"Securities Act").
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until this registration statement shall become effective
on such date as the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
The information in this Preliminary prospectus is not complete and may be
changed. The securities may not be sold until the registration statement filed
with the Securities and Exchange Commission is effective. This Preliminary
prospectus is not an offer to sell nor does it seek an offer to buy these
securities in any jurisdiction where the sale is not permitted.
SUBJECT TO COMPLETION, DATED JULY 20, 2000
PROSPECTUS
[LOGO]
1,750,000 Shares
AquaCell Technologies, Inc.
Common Stock
_________________
This is an initial public offering of 1,750,000 shares of Common Stock of
AquaCell Technologies, Inc. ("AquaCell"). No public market currently exists for
our Common Stock. We have applied to have the Common Stock quoted under the
symbol "AQUA" on the Nasdaq SmallCap Market ("Nasdaq") and under the symbol
"AQA" on the American Stock Exchange ("AMEX"). We presently expect that the
initial public offering price of the Common Stock will be $5.00 per share. The
offering price may not reflect the market price of our shares after the
offering.
Please see "Risk Factors" beginning on page 5 to read about certain factors
that you should consider before buying shares of the Common Stock.
_________________
Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
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Per Share Total
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Initial public offering price........................... $ $
Underwriting discount................................... $ $
Proceeds before expenses................................ $ $
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We have granted the underwriters a 45-day option to purchase up to an
additional 262,500 shares of Common Stock to cover over-allotments. The
underwriters expect to deliver the shares of Common Stock purchased in this
offering on _________, 2000.
GRADY & HATCH
AND COMPANY, INC.
Prospectus dated ___________, 2000.
<PAGE>
[Inside Front Cover Graphic]
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus in connection with this offering and, if given or made, such
information or representation must not be relied upon as having been authorized
by us or any underwriter. This prospectus does not constitute an offer to sell,
or solicitation of an offer to buy, any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer in such
jurisdiction. Neither the delivery of this prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information herein is correct as of any time subsequent to the date hereof or
that there has been no change in our affairs since such date.
____________________
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF OUR COMMON STOCK
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT COVERING TRANSACTIONS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN OUR COMMON STOCK ON NASDAQ AND AMEX IN ACCORDANCE WITH
RULE 103 OF REGULATION M. SEE "UNDERWRITING."
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
AS OF THE DATE OF THIS DOCUMENT, REGARDLESS OF THE TIME OF DELIVERY OF THIS
DOCUMENT OR ANY SALE OF OUR COMMON STOCK.
____________________
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus in connection with this offering and, if given or made, such
information or representation must not be relied upon as having been authorized
by us or any underwriter. This prospectus does not constitute an offer to sell,
or solicitation of an offer to buy, any of the securities offered hereby in any
jurisdiction in which or to any person to whom it is unlawful to make such offer
in such jurisdiction. Neither the delivery of this prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information herein is correct as of any time subsequent to the date hereof or
that there has been no change in our affairs since such date.
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Table of Contents
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Page
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Prospectus Summary..................................................... 2
Risk Factors........................................................... 5
Use of Proceeds........................................................ 14
Dividend Policy........................................................ 15
Capitalization......................................................... 15
Dilution............................................................... 17
Selected Consolidated Financial Data................................... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations......................................................... 20
Business............................................................... 23
Management............................................................. 29
Principal Stockholders................................................. 33
Description of Capital Stock........................................... 34
Certain Transactions................................................... 36
Shares Eligible for Future Sale........................................ 37
Underwriting........................................................... 37
Changes in Accountants................................................. 39
Legal Matters.......................................................... 39
Experts................................................................ 39
Additional Information................................................. 39
Index to Financial Statements.......................................... F-1
</TABLE>
Until ______________, 2000, (25 days after the commencement of this offering),
all dealers effecting transactions in our Common Stock, whether or not
participating in this distribution, may be required to deliver a prospectus.
This delivery requirement is in addition to the obligation of dealers to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this prospectus. AquaCell Technologies, Inc. is a start-up
company. We recently commenced operations in the water purification industry.
When we refer to water industry financial and statistical information, it is
based on trade articles and industry reports that we believe are reliable,
although we have not independently verified any of this information. An
investment in our Common Stock involves a high degree of risk, and you should
carefully consider the information set forth under "Risk Factors." As used in
this prospectus, except where the context clearly requires otherwise, references
made to "AquaCell", "we", "us", or "our" mean AquaCell Technologies, Inc. and
our wholly owned subsidiary Global Water-AquaCell, Inc.
This prospectus contains forward-looking statements which involve risks and
uncertainties and you should know that our actual results may differ from our
expectations. Factors that might cause a difference may include the matters
discussed under "Risk Factors" as well as those matters discussed elsewhere in
this prospectus.
The Company
We are in the business of providing drinking water purification products to a
broad base of national customers. Following our acquisition of selected assets
of KABB, Inc. and Aquacell International, Inc. (collectively the "KABB Assets")
in December 1998, we began to manufacture, sell and lease a patented automatic
refilling purified bottle water cooler to office and industrial customers. We
are a Delaware corporation incorporated on March 19, 1997. Our main offices are
located at 10410 Trademark Street, Rancho Cucamonga, California 91730 and our
Internet website is www.aquacell.com.
Industry Background
According to a recent article appearing in The Wall Street Journal, water
supply businesses generate approximately $400 billion in revenue worldwide.
Demand for water purification has continued to grow nationally and
internationally due to economic expansion, scarcity of usable water, concern
about water quality and regulatory requirements. One of the fastest growing
segment of the industry is the drinking water segment, including point-of-use
filtration systems for providing purified drinking water and bottled drinking
water.
Business, Marketing and Growth Strategy
We provide point of use drinking water, filtration and purification products
to a variety of customers. Our strategic plan is to grow rapidly within the
fragmented drinking water industry. We are presently targeting Fortune 500 and
other large companies with our patented five-gallon self-refilling bottle water
cooler. The filtration system on our cooler contains different combinations of
systems, which utilize sediment filters, reverse osmosis, carbon block, multi-
media filters and ultra-violet light. We replace traditional five-gallon
bottled water coolers and water fountains with a permanently installed,
convenient alternative where the bottle never needs changing and water bottles
no longer need to be delivered, stored or replaced.
Our strategic objective is to achieve rapid growth through the expansion of
the product lines utilizing a business to business marketing strategy primarily
targeted at Fortune 500 and other large companies, as well as through strategic
alliances with marketing partners.
KABB Assets Acquisition
On December 21, 1998, we acquired the selected KABB Assets, which include the
rights to certain products and the assignment of U.S. and Canadian patents for
the automatic refilling purified bottle water cooler system. We paid a total of
$250,000 for the KABB Assets, which included $50,000 in cash and $200,000 in
shares of our Common Stock. We provide a national lease financing program for
our water cooler. Lease applications are available to customers through our
Internet website (www.aquacell.com) and, in most cases, the review process will
be completed and customers will be notified within hours after an application is
submitted.
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<PAGE>
The Offering
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Shares of Common Stock offered by us......... 1,750,000 shares (2,012,500 shares if underwriters' over-allotment
is exercised in full).
Common Stock to be outstanding after
completion of this offering.................. 6,888,250 shares. This number excludes:
. 1,845,000 shares of Common Stock reserved for issuance upon the
exercise of outstanding warrants issued in connection with private
debt financing transactions;
. 1,000,000 shares of our Common Stock reserved for issuance upon
the exercise of options pursuant to our employee stock option plan
of which options to purchase 305,000 shares of Common Stock have
been granted and 40,000 shares of our Common Stock reserved for
issuance pursuant to incentive clauses of a sales representation
agreement;
. 175,000 shares of Common Stock reserved for issuance upon the
exercise of warrants granted to the underwriters of this offering;
and
. 262,500 shares reserved for issuance upon exercise of the
underwriters' over-allotment option.
Use of proceeds.............................. We intend to use the net proceeds from the sale of the Common
Stock for:
. repayment of promissory notes, including accrued interest,
issued in private debt financing transactions;
. marketing, advertising and promotions
. expansion of manufacturing facilities, research and new product
development, and potential improvement to our patented technology;
. accrued expenses and other payments; and
. working capital and general corporate purposes.
Risk Factors................................. The shares of Common Stock offered by us are speculative, involve
a high degree of risk, are subject to immediate and substantial
dilution, and should not be purchased by an investor who cannot
afford the loss of his or her entire investment.
Nasdaq symbol................................ AQUA
AMEX symbol.................................. AQA
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<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share amounts)
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Nine Months Ended March 31, Year Ended June 30,
----------------------------- -----------------------
(Unaudited)
2000 1999 1999 1998
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Statement of Operations Data:
Sales............................................................. $ 201 $ 10 $ 29 $ --
Net loss.......................................................... $ (982) $ (1,164) ($1,618) $ (573)
Net loss per common share-basic and diluted....................... $ (0.20) $ (0.25) $ (0.34) $ (0.14)
Weighted Average common shares outstanding-
basic and diluted................................................. 4,938 4,662 $ 4,731 4,223
</TABLE>
The following table provides a summary of our balance sheet at March 31, 2000:
. on an actual basis;
. on a pro forma basis to reflect the receipt of $200,000 in April, 2000
pursuant to a private placement of 200,000 shares of Common Stock and
the receipt of $200,000 in July, 2000 pursuant to a private loan
offering with three-year warrants to purchase 200,000 shares; and
. on a pro forma as adjusted basis to further reflect the deemed
conversion of 135,000 redeemable Common Stock into Common Stock and the
receipt of the net proceeds from our sale of 1,750,000 shares of Common
Stock in this offering, at an estimated initial public offering price of
$5.00 per share after deducting underwriting discounts and commissions
and our estimated offering expenses and the anticipated application of
the estimated net proceeds, including repayment of debt. See also "Use
of Proceeds" and "Capitalization."
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March 31, 2000
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(Unaudited)
Pro Forma
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Actual Pro Forma As Adjusted
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Balance Sheet Data:
Working Capital (Deficiency)......................... $ (2,280) $ (1,880) $ 5,195
Total Assets......................................... $ 561 $ 961 $ 6,036
Redeemable Common Stock.............................. $ 147 $ 147 $ --
Stockholders' Equity (Capital Deficiency)............ $ (1,983) $ (1,583) $ 5,472
</TABLE>
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<PAGE>
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. Prospective investors should carefully consider the following risk
factors, in addition to the other information contained in this prospectus,
before purchasing the securities offered hereby. This prospectus contains
forward-looking statements. Discussions containing such forward-looking
statements may be found in the material set forth hereunder, and under
"Prospectus Summary," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Use of Proceeds," and "Business," as well
as in this prospectus generally.
We have a limited operating history and our historical financial data is not a
reliable basis upon which to assess the prospects for our business; our success
will in part depend on our ability to integrate recently acquired assets.
Our historical financial data is not a reliable basis upon which to predict
our future revenues or operating expenses for a number of reasons, including our
limited operating history. Prior to the first fiscal quarter of 1999, we had not
commenced our principal operations. Our business must be considered in light of
the risks, expenses and problems frequently encountered by companies with a
limited operating history.
The continuation of our operations is contingent upon our success in
establishing markets for our products and services and achieving profitable
operations. Although we intend to expand our marketing of products and services,
no assurance can be given that we will be able to achieve these objectives or
that, if these objectives are achieved, we will ever be profitable. Such
operations could also require additional financing for us in the form of debt or
equity. There can be no assurance that we will achieve profitability and, if
achieved, sustain such profitability, nor can there be any assurance as to when
such profitability might be achieved. If we are unsuccessful in addressing any
of these risks, our business, results of operations and financial condition
could be materially adversely affected. Also, the price at which our securities
trade may be subject to substantial volatility because of fluctuations in our
financial results.
Our success will depend, in part, on our ability to successfully operate as a
water purification company following our recent acquisition of the KABB Assets.
Our management has limited prior experience in operating water purification
companies. There can be no assurance that our management will be able to
implement our operating or growth strategies effectively.
We may need to raise additional capital and it may not be available to us on
favorable terms or at all.
We anticipate, based on our currently proposed plans and assumptions, that the
proceeds of the sale of the shares of Common Stock offered hereby will be
sufficient to satisfy our contemplated cash requirements for at least the 12
month period following the completion of this offering. After that time, we may
require additional funding. There are no current arrangements with respect to
sources of additional financing. There can be no assurance that other financing
will be available on commercially reasonable terms, or at all. The inability to
obtain additional financing, when needed, would materially adversely affect us,
including possibly requiring us to curtail or cease operations. To the extent
that any future financing involves the sale of our equity securities, our then
existing stockholders' shares, including investors' shares purchased in this
offering, would be substantially diluted. The extent to which we will be able or
willing to use our capital stock for this purpose will depend on our market
value from time to time. To the extent we incur indebtedness or otherwise issue
debt securities, we will be subject to risks associated with indebtedness,
including the risk that interest rates may fluctuate and cash flow may be
insufficient to pay principal and interest on such indebtedness. We currently
have no credit facilities. No assurance can be given that we will be able to
obtain the capital we may need to finance a successful growth strategy and
provide for our other cash needs.
We may have to cease or curtail our operations if we are unable to obtain
sufficient financing or achieve profitability.
The independent auditor's report on our financial statements contains
explanatory language that substantial doubt exists about our ability to continue
as a going concern. The report states that we have incurred net losses, and
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<PAGE>
have a working capital deficiency. If we are unable to obtain sufficient
financing in the near term or achieve profitability, then we would, in all
likelihood, experience severe liquidity problems and may have to curtail or
cease our operations.
We currently have limited sales and distribution capabilities.
Currently we have a limited number of sales and marketing employees and we
have not established comprehensive distribution channels for all of our products
and services. There can be no assurance that we will be able to develop a
sufficient sales force and marketing group. The inability to develop a
sufficient sales force and marketing group would have a material adverse effect
on our business, results of operations and financial condition.
We could be adversely affected if we do not effectively manage growth.
If we successfully implement our business strategy, the resulting growth will
place significant demands on our management and internal controls. There can be
no assurance that management will effectively be able to direct us through a
period of significant growth. In particular, the pursuit of our business
strategy will place a significant strain on our managerial, operational and
financial resources. We will need to improve our financial and management
controls, reporting systems and procedures. We will also need to expand, train
and manage our work force for marketing, sales and support, product development,
site design, and network and equipment repair and maintenance, and manage
multiple relationships with various suppliers, strategic partners and other
third parties. We will need to continually expand and upgrade our technology
infrastructure and systems and ensure continued high levels of service, speedy
operation and reliability. In addition, we will have to improve our methods for
measuring the performance and commercial success of our different products to
better respond to customers demands for information on product effectiveness and
to better determine which products and services can be developed most
profitably.
We could be adversely affected by an economic downturn or increasing costs of
operations.
Any substantial downturn in economic conditions or any significant increase in
the cost of operations in general could significantly depress discretionary
spending and have a resulting material adverse effect on our sales of products
and services. In addition, the future unavailability of attractive financing
rates could adversely affect our business.
We may not use the net proceeds from this offering in the manner, that in
hindsight, would have been the most productive or efficient manner possible.
We intend to use the net proceeds from this offering as follows:
. $1,973,000 to pay in full the promissory notes issued in connection
with private debt financing transactions, including accrued
interest;
. Up to $2,500,000 for marketing, advertising and promotions;
. Up to $800,000 for expansion of manufacturing facilities, research
and new product development, and potential improvements to our
patented technology;
. Up to $405,000 for accrued expenses and other payments; and
. The remaining proceeds from this offering will be used for working
capital and general corporate purposes.
Management will have broad discretion in allocating the net proceeds of this
offering. Investors in this offering will not be able to direct the use of these
funds or have any opportunity to review the development or marketing of
products. Investors must therefore rely on our management for directing the
expenditure of the net offering proceeds. We may invest a portion of the
offering proceeds in investment grade and non-investment grade debt and equity
securities, which may have varying risks of loss. There can be no assurance that
we will allocate the net proceeds from this offering in the manner, that in
hindsight, would have been the most productive or efficient possible.
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<PAGE>
We have never paid dividends on our Common Stock and do not intend to pay
dividends in the foreseeable future.
We have never paid dividends on our Common Stock and we currently intend to
retain earnings to provide funds for the operation and expansion of our
business. Accordingly, we do not anticipate paying cash dividends in the
foreseeable future. Further, we may obtain credit facilities which may prohibit
the payment of dividends without the consent of the lenders.
Fluctuation in our quarterly operation results could materially adversely
affect our business, financial condition and results of operations.
We may experience quarterly fluctuations in operating results. Quarterly sales
and operating results will depend in part on the volume and timing of contracts
received and performed within the quarter, which are difficult to forecast. Any
significant delay or cancellation of a contract could have a material adverse
effect on our operations in any particular period. As a result, our operating
results could prove to be volatile. In addition, the timing of customer
purchases may be affected by various factors that are beyond our control,
including fluctuations in interest rates and business cycles, which could have a
material adverse effect on our business, financial condition and results of
operations.
Part of our business will be conducted outside of the United States and this
will subject us to risks associated with foreign operations.
Our business operations will be conducted on a national and international
basis. Accordingly, we may be subject to certain risks associated with doing
business in foreign countries, including risks resulting from certain political,
economic and other uncertainties, such as risks of war, expropriation or
nationalization of assets, renegotiation or nullification of existing contracts,
changing political conditions, changing laws and policies affecting trade and
investment, overlap of different tax structures, fluctuating currency exchange
rates and the general hazards associated with the assertion of sovereignty over
certain areas in which operations are conducted.
Certain aspects of our business operations may be subject to governmental
regulations in the countries in which they operate, including those relating to
currency conversion and repatriation, taxation of our earnings and earnings of
our personnel and use of local employees and suppliers. We may also be subject
to the risk of changes in laws and policies in the various jurisdictions in
which they occur. Some jurisdictions may impose restrictions on our operations,
including trade restrictions that could have a material adverse effect on our
business, financial condition and results of operations. Other types of
governmental regulation which could, if enacted or implemented, materially and
adversely affect our business, financial condition and results of operations
include expropriation or nationalization decrees, confiscatory tax systems,
primary or secondary boycotts directed at specific countries or companies,
embargoes and import restrictions or other trade barriers. We cannot determine
to what extent we may be affected by any such laws, regulations, changes in or
new interpretations of existing laws or regulations or other consequences of
doing business outside the United States.
Our foreign operations will subject us to risks associated with transacting
business in other currencies.
Our operations outside of the Unites States will face risks of fluctuating
currency and exchange rates, hard currency shortages and controls on currency
exchange. We may enter into foreign currency contracts in order to hedge against
these risks. There can be no assurance that we will be able to successfully
hedge against such risks and failure to adequately hedge against fluctuations in
currency and exchange rates, hard currency shortages or currency controls could
have a material adverse effect on our business, financial condition and results
of operations.
We depend on key personnel and could be materially adversely affected if we do
not retain those personnel.
Our operations will depend on the efforts of our executive officers, in
particular James C. Witham, our Chairman and Chief Executive Officer, and Karen
B. Laustsen, our President, Chief Operating Officer and Secretary. Should we be
unable to retain any of our executive officers, our business and prospects could
be materially adversely affected. As of the date of this prospectus, we will
have entered into five year employment agreements with Mr. Witham and Ms.
Laustsen. Our business or prospects could be materially adversely affected if
any of these senior management personnel do not continue in their management
roles and if we are unable to attract
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<PAGE>
and retain qualified replacements and additional members of management. We have
secured a $1,000,000 key man life insurance policy on Mr. Witham.
The water purification industry is highly competitive and our competitors may
have greater resources and better growth opportunities.
The water purification treatment industry is fragmented and highly competitive
due to the large number of businesses within certain product areas. We compete
with many companies which have greater market penetration, depth of product
line, resources and access to capital, all of which could be competitive
advantages. In addition, our competitors may have greater financial resources to
finance internal growth opportunities than we have. Consequently, we may
encounter significant competition in our efforts to achieve our objectives. Our
future growth and profitability will depend, in part, upon consumer and
commercial acceptance of our products. There can be no assurance that our
competitors will not develop products that are superior to ours or achieve
greater market acceptance than our products. Competition could have a material
adverse effect on our ability to consummate arrangements with customers or enter
into strategic business alliances, or on our business, financial condition and
results of operations. Moreover, as a strategic response to changes in the
competitive environment, we may make certain pricing, service or marketing
decisions or enter into acquisitions or new ventures that could have a material
adverse effect on our business, financial condition and results of operations.
Changes in environmental regulations could materially adversely affect us.
Federal, state, local and foreign environmental laws and regulations impose
substantial standards for properly purifying water, and impose liabilities for
noncompliance. Environmental laws and regulations will be a significant factor
affecting the marketability of our products. To the extent that demand for our
products is created by the need to comply with such environmental laws and
regulations, any modification of the standards imposed by such laws and
regulations may reduce demand for water purification, thereby adversely
affecting our business and prospects. The relaxation or repeal of any such laws
or regulations or the strict enforcement thereof could also adversely affect our
business and prospects.
We may sometimes have to provide guarantees for our services and products and
we could be materially and adversely affected if our services or products do not
perform as guaranteed.
In connection with providing certain products to customers, we may sometimes
be required to guarantee that the services and products we provide will attain
specified levels of quality or performance. Should a product fail to perform
according to a performance guarantee and should we be unable to remedy such
failure within any applicable cure period, we could incur financial penalties in
the form of liquidated damages or could be required to remove or replace the
equipment in order to meet the specifications. There can be no assurance that we
will be able to fulfill future guarantee obligations or that fulfilling such
obligations may not involve material costs that could have a material adverse
effect on our business, financial condition and results of operations.
We could be subject to personal injury claims resulting from the use of our
products.
We could be subject to claims for personal injury resulting from the use of
our products, including liability due to the presence of contaminants in water
to be purified through our products. There can be no assurance that we will not
be subject to a damage award or other liability in excess of available product
liability coverage, which could have a material adverse effect on our business,
financial condition and results of operations. In addition to direct loss
resulting from product liability claims, we may suffer adverse publicity and
damage to our reputation in the event of such product liability claims. Such
adverse publicity and harm to our reputation could have a material adverse
effect on our business, financial condition and results of operations.
Management will own or control a majority of our voting stock after this
offering and purchasers of our Common Stock in this offering will have no
effective voice in our management.
Upon the completion of this offering, management, consisting of Messrs. Witham
and Wolff and Ms. Laustsen, will own or control approximately 43% of our
outstanding voting stock. Together with our other existing stockholders,
approximately 75% of our voting stock will be owned or controlled by these
stockholders. Collectively, such stockholders will be able to effectively
control the decisions by us that require a majority vote of
-8-
<PAGE>
holders of the outstanding shares of our voting stock to authorize actions.
Therefore, the majority of our outstanding voting stock will be owned by our
existing stockholders who will possess voting control, giving them the ability
to amend corporate filings, elect all of our board of directors and otherwise
control all matters requiring approval by our stockholders, including approval
of significant corporate transactions. The purchasers of the shares of Common
Stock in this offering will have no effective voice in our management and we
will be controlled by our existing stockholders. This concentration of ownership
by existing stockholders may also have the effect of delaying or preventing a
change in control.
We have provisions in our Bylaws and Restated Certificate of Incorporation
that could delay or prevent another party from taking control of us.
Provisions of our Restated Certificate of Incorporation and Bylaws may have
the effect of delaying, discouraging, inhibiting, preventing or rendering more
difficult an attempt to obtain control of us by means of a tender offer,
business combination, proxy contest or otherwise. These provisions include the
charter authorization of "blank check" preferred stock, classification of the
Board of Directors and restrictions on the ability of stockholders to take
actions by written consent and to call special meetings.
Purchasers of our Common Stock in this offering will experience immediate and
substantial dilution, and may experience further future dilution.
Dilution represents the difference between the offering price and the net
tangible book value per share of Common Stock immediately after the completion
of this offering. Purchasers of Common Stock in this offering (i) will
experience immediate and substantial dilution in the net tangible book value of
their stock of $4.23 per share ($4.10 if the underwriters' over-allotment is
exercised in full) and (ii) may experience further dilution in value from
issuances of our capital stock in connection with future equity offerings or
acquisitions. In addition, dilution may occur in the event we reserve additional
shares of our capital stock in the future for issuance under stock option or
other incentive employee compensation plans. Our Board of Directors has the
legal power and authority to determine the terms of an offering of shares of our
capital stock (or securities convertible into or exchangeable for such shares),
to the extent of our shares of authorized and unissued capital stock.
Prior to this offering, there has been no public market for our Common Stock;
there can be no assurance that an active trading market for our Common Stock
will develop and the market price for our Common Stock may be extremely
volatile.
Prior to this offering, there has been no public market for our Common Stock.
Although we intend to apply for quotation of the Common Stock offered hereby on
the Nasdaq and the AMEX, there can be no assurance that an active trading market
will develop or be maintained. The market prices for securities of public
companies can be highly volatile. Such price changes have often been unrelated
to the operating performance of the affected companies. These broad market
fluctuations may adversely affect the market price of the Common Stock. Factors
that could cause the market price of the Common Stock to fluctuate substantially
include but are not limited to:
. Future technological innovations;
. New commercial products;
. Changes in regulations;
. Period to period fluctuations in financial performance;
. Fluctuations in the securities markets;
. Material announcements by us or our competitors;
. Governmental regulatory action;
. Conditions in the water purification industry;
. Fluctuations in foreign currency values and exchange rates; and
. Changing conditions in the economy in general or other events or factors,
many of which are beyond our control.
-9-
<PAGE>
Our initial public offering price for our Common Stock may bear no
relationship to the price at which the stock may trade after we complete this
offering.
Our initial public offering price for the shares of Common Stock offered
hereby will be determined by negotiations between us and Grady & Hatch and
Company, Inc., the representative of the several underwriters, and may bear no
relationship to the price at which our Common Stock may trade after completion
of this offering. Factors which may be considered in determining the initial
public offering price include but are not limited to:
. the information set forth in this prospectus and otherwise available to
Grady & Hatch and Company, Inc.;
. the history of and the prospects for the industry in which we operate;
. the assessment of our management;
. our past and present operations;
. our prospects for future earnings;
. the present state of our development;
. the general condition of the securities markets at the time of this
offering; and
. the recent market prices of and the demand for publicly traded common stock
of generally comparable companies.
A decline in the trading price of our Common Stock could also impact
negatively upon our ability to raise additional equity capital in the future.
We intend to have our Common Stock Quoted on Nasdaq and AMEX, but there can be
no assurances that we will be able to maintain those listings; if our Common
Stock is delisted from either Nasdaq or AMEX, it would be more difficult to sell
the stock and obtain quotations on its price.
We intend to have our Common Stock quoted on Nasdaq and AMEX, both of which
have rules that establish criteria for the continued listing of our securities.
If we were to continue to incur operating losses, we might be unable to maintain
the standards for continued listing on Nasdaq and AMEX. If our securities are
delisted, an investor would find it more difficult to dispose of our securities
or to obtain accurate quotations as to the price of our securities. Any news
coverage concerning our delisting may also adversely affect an investor's
ability to dispose of our securities. In addition, if our securities were
delisted, they would likely be subject to a rule that imposes additional sales
practice requirements on brokers who sell such securities to persons other than
established customers and accredited investors (accredited investors are
generally persons having net worth in excess of $1,000,000 or annual income
exceeding $200,000, or $300,000 together with a spouse). For transactions
covered by this rule, the broker must make a special suitability determination
for the purchaser and must have received the purchaser's written consent to the
transaction prior to sale, as well as disclosing certain information concerning
the risks of purchasing low priced securities on the market for such securities.
Consequently, delisting, if it occurred, would adversely affect the ability of
brokers to sell our securities and would make subsequent financing more
difficult.
If the price our Common Stock drops below $5.00 per share, then it could be
subject to certain "penny stock" rules restricting how and to whom it could be
sold.
If we are unable to meet Nasdaq and AMEX listing or maintenance requirements
and the price per share of our Common Stock were to drop below $5.00 per share,
then our securities would become subject to certain "penny stock" rules
promulgated by the Securities and Exchange Commission. Under such rules,
brokers who recommend such securities to persons other than established
customers and accredited investors must make a special written suitability
determination for the purchaser and receive the purchaser's written agreement to
a transaction prior to sale. Securities are exempt from this rule if the market
price is at least $5.00 per share.
-10-
<PAGE>
Future sales of our Common Stock could adversely affect our stock price.
Following completion of this offering, 6,888,250 shares of our Common Stock
will be outstanding. The 1,750,000 shares to be sold in this offering (other
than those that may be purchased by our affiliates ) will be freely tradeable.
The remaining outstanding shares of Common Stock may be publicly resold only
following their effective registration under the Securities Act of 1933, as
amended, or pursuant to an available exemption (such as provided by Rule 144
promulgated pursuant to the Securities Act) from the registration requirements
of the Securities Act. Sales made pursuant to Rule 144 must comply with
applicable holding periods and volume limitations and certain other
requirements. Sales of substantial amounts of Common Stock in the public
market, or the perception that such sales could occur, could adversely affect
prevailing market prices of the Common Stock and could impair our future ability
to raise capital through an offering of our equity securities.
We could be materially and adversely affected if we are required or elect to
indemnify our directors, officers or employees for actions brought against or
otherwise involving them.
Our Restated Certificate of Incorporation limits, to the maximum extent
permitted by the Delaware General Corporation Law, the personal liability of
directors for monetary damages for breach of their fiduciary duties as
directors, and provides that we shall indemnify our officers and directors and
may indemnify our employees and other agents to the fullest extent permitted by
law. Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify a director, officer, employee or agent made or
threatened to be made a party to an action by reason of the fact that he was a
director, officer, employee or agent of the corporation or was serving at the
request of corporation against expenses actually and reasonably incurred in
connection with such action if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the interests of the corporation,
and, with respect to any criminal action or proceeding, if he had no reasonable
cause to believe his conduct was unlawful. Delaware law does not permit a
corporation to eliminate a director's duty of care, and the provisions of our
Restated Certificate of Incorporation have no effect on the availability of
equitable remedies, such as injunction or rescission, for a director's breach of
the duty of care.
We may enter into indemnification agreements with our directors and officers
which may require us, among other things, to indemnify such directors and
officers against liabilities that may arise by reason of their status or service
as directors or officers (other than liabilities arising from willful misconduct
of a culpable nature), to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified, and to obtain
directors' and officers' insurance, if available on reasonable terms.
Our current intellectual property protections may not adequately protect our
rights and investments in our intellectual property assets.
We own a United States and a Canadian patent on our automatic-refilling
purified bottle water cooler. We also have federally registered our Purific
trademark and have a pending application to register our Artic Fresh mark.
While we believe that we own our trademarks, no assurance can be given that
any pending trademark applications will mature into registration. We may decide
to abandon prosecution of one or more of our trademark applications prior to the
issuance of a trademark. If any trademark issues, there can be no assurances
that it will be sufficiently broad to protect our rights or that the trademark
will not be circumvented by other means. Ownership of our patents or
registration of a trademark, still may not deter competitors or other third
parties from developing equivalent technology that does not infringe on our
rights or from marketing competitive products under different marks. In
addition, no assurance can be given that any trademarks that may be issued will
not be challenged, re-issued, re-examined, invalidated or held unenforceable.
Also, any rights granted to us through a patent or trademark do not guaranty
that such rights will adequately protect our investment in our technology and
intellectual property.
Even if we maintain patent protection and obtain trademark registration or
other proprietary rights for our technology or trademarks, no assurance can be
given that our products, trademarks or activities will not infringe on the
patents, trademarks or proprietary rights of others. Regardless of whether we
obtain or maintain any patents or trademarks, another party could bring an
action seeking to stop us from using some or all of our technology or trademarks
and to stop us from engaging in some or all of our activities. If another party
successfully prosecutes such an action, we may have to cease using some or all
of our technology or trademarks, have to cease some or all of our activities,
and be held liable for substantial damages.
-11-
<PAGE>
If the United States Patent and Trademark Office denies one or both of our
trademark applications, in whole or in part, our business, financial results and
the market price of our Common Stock could be significantly adversely affected.
Partial or complete denial of any or all of our trademark applications or loss
of an existing trademark registration would also, among other things,
substantially reduce our ability to prevent others from copying our trademarks
to develop and market competitive products or services and significantly limit
our ability to profit from licensing or selling our technology, products and
services to others. If we are unable to prevent others from copying any or all
of our trademarks to develop or market competitive products, we could also lose
a substantial portion or all of any technological and marketing advantages we
may currently have over any actual or potential competitors.
Even if we maintain patents for our technologies and federal registrations
for our trademarks, another party could still develop a competitive product or
service that infringes on our patented technology or trademarks. To stop such
infringement, we may have to sue the infringing party and convince a judge or
jury that our rights are being infringed. Such litigation would likely require
us to spend substantial amounts on legal fees and related costs and require
substantial management effort and participation. Due to the inherent
uncertainties of litigation, there is no guaranty that a judge or jury would
reach a conclusion favorable to us even if one or more of our patents or
trademarks was being infringed. Accordingly, other parties may be able to
infringe upon our patent or trademark rights for long or indefinite periods of
time. Even if we ultimately prevail in litigation, we may not be able to recover
any or all of our costs, expenses and lost profits associated with such
infringement.
If we fail to adequately protect our intellectual property rights, our
ability to compete could be seriously harmed. If other parties bring lawsuits
against us claiming infringement of their intellectual property rights, we could
be liable for significant damages.
Our success depends in large part on our ability to adequately protect our
intellectual property rights. We seek to protect our documentation and other
written materials under trade secret and copyright laws, which afford only
limited protection. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our technology or to obtain
and use information that we regard as proprietary. Policing unauthorized use of
our technology is difficult, and while we are unable to determine the extent to
which piracy of our products exists, piracy can be a persistent problem. In
addition, as we expand our operations globally, we become increasingly exposed
to intellectual property infringement since the laws of some foreign countries
do not protect our proprietary rights to as great an extent as do the laws of
the United States. Our means of protecting our proprietary rights may not be
adequate and our competitors may copy our products and services, independently
develop similar technology or services, or design around our intellectual
property rights. If we fail to adequately protect our intellectual property,
our business, financial results and the market price of our Common Stock could
be significantly adversely impacted.
It is possible that third parties may claim that our current or future
products or services infringe their intellectual property rights. Any
intellectual property claims, with or without merit, could be time-consuming,
result in costly litigation, cause product shipment delays or require us to
enter into royalty or licensing agreements. If a royalty or licensing agreement
is required, it may not be available to us on acceptable terms or at all. If
this occurs, our business, financial results and the market price of our Common
Stock could be significantly adversely impacted.
Agreements with key employees and consultants may not adequately protect
our intellectual property rights.
We have agreements with certain key employees which include provisions
designed to protect the confidentiality and our ownership of our intellectual
property. Despite these precautions, no assurance can be given that such
agreements will adequately protect our intellectual property rights. One or
more persons could, to our substantial detriment, disclose confidential
information concerning our business or claim ownership of our intellectual
property. No assurance can be given that our agreements with certain key
employees and consultants would provide us with meaningful remedies in the event
of improper use or disclosure of our intellectual property.
-12-
<PAGE>
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. The forward-looking
statements are contained principally in the sections entitled "Prospectus
Summary", "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business." These statements involve known and
unknown risks, uncertainties and other factors which may cause our actual
results, performance or achievements to be materially different from any future
results, performances or achievements expressed or implied by the forward-
looking statements. Forward-looking statements include, but are not limited to,
statements about:
. the future growth and size of the water purification industry;
. marketing and commercialization of our products;
. developing an in-house sales and marketing staff;
. our estimates for future revenues and profitability;
. establishing and expanding relationships with customers;
. laws and regulations governing water quality;
. our ability to offer our products at competitive prices;
. our ability to maintain and effectively manage our "just-in-time"
inventory procedures; and
. our estimates regarding our capital requirements and our needs for
additional financing .
This prospectus contains statistical data regarding the water purification
industry that we obtained from industry publications. These industry
publications generally indicate that they have obtained their information from
sources believed to be reliable, but do not guarantee the accuracy and
completeness of their information. Although we believe that the publications
are reliable, we have not independently verified their data.
In some cases, you can identify forward-looking statements by terms such as
"may," "will," "should," "could," "would," "expects," "intends," "plans,"
"anticipates," "believes," "estimates," "projects," "predicts," "potential" and
similar expressions intended to identify forward-looking statements. These
statements reflect our current views with respect to future events and are based
on assumptions and subject to risks and uncertainties. Given these
uncertainties, you should not place undue reliance on these forward-looking
statements. We discuss many of these risks in this prospectus in greater detail
under the heading "Risk Factors." Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievement. Also, the
forward-looking statements represent our estimates and assumptions only as of
the date of this prospectus.
You should read this prospectus and the documents that we reference in this
prospectus and have filed as exhibits to the registration statement, of which
this prospectus is a part, completely and with the understanding that our actual
future results may be materially different from what we expect. We qualify all
of our forward-looking statements by these cautionary statements.
-13-
<PAGE>
USE OF PROCEEDS
The net proceeds that we will receive from the sale of the shares of Common
Stock are estimated to be approximately $7,150,000 ($8,291,875 if the
underwriters over-allotment option is exercised in full). These numbers take
into account underwriting discounts and commissions and other estimated offering
expenses that we will pay. We intend to use these net proceeds as follows,
assuming no exercise of the underwriters over-allotment option.:
<TABLE>
<CAPTION>
Amounts Percent (%)
------- ----------
<S> <C> <C>
Payment of Private Transaction Notes Including
Accrued Interest through July 31, 2000............... $1,973,000 27.59%
Marketing and Sales................................... $2,500,000 34.97%
. We intend to use this amount to fund sales,
marketing, advertising and promotional programs
throughout our entire product line. If these
programs do not require the use of the entire
$2,500,000, the remaining amount will be used for
working capital and general corporate purposes.
Expansion of Manufacturing Facilities, Research and
New Product Development, and Potential Improvements
to our Patented Technology........................... $ 800,000 11.19%
. We intend to use this amount to expand
manufacturing facilities, for research and new
product development, and for potential
improvements to our patented technology. If
these programs do not require the use of the
entire $800,000, the remaining amount will be
used for working capital and general corporate
purposes.
Accrued Expenses and Other Payments................... $ 405,000 5.66%
. We intend to use a portion of the net proceeds to
pay $225,000 to our executive officers for unpaid
compensation as follows: James C. Witham -
$118,000, Karen B. Laustsen - $46,000, and Gary
S. Wolff - $61,000; and will use an additional
$180,000 for other miscellaneous accrued expenses
and payments.
Working Capital and General Corporate Purposes........
. Working capital and general corporate purposes $1,472,000 20.59%
consist primarily of selling, general and ---------- -----
administrative expenses. Proceeds from the sale
of Common Stock if the underwriters'
over-allotment option is exercised, will also be
used for working capital and general corporate
purposes.
$7,150,000 100.00%
Total.......................................... ========== ======
</TABLE>
-14-
<PAGE>
The foregoing represents our best estimate of how we will allocate the net
proceeds from the sale of shares of Common Stock. This estimate is based upon
the current state of our business operations, our current plans and current
economic and industry conditions, and is subject to reallocation among the
categories listed above or for additional purposes. Accordingly, we will have
broad discretion as to the application of the net proceeds.
We believe that the net proceeds of this offering will be sufficient to
meet our projected needs for working capital and other capital requirements
through at least the 12 months following completion of this offering. Pending
such uses, we intend to invest the net proceeds from this offering in interest
bearing accounts, certificates of deposit, money market funds or other short
term investments.
DIVIDEND POLICY
We have never paid any dividends on our Common Stock. We do not intend to
declare or pay dividends on our Common Stock; rather, we intend to retain our
earnings from operations, if any, for use in the operation and expansion of our
business and we do not expect to pay cash dividends in the foreseeable future.
Any future decision with respect to dividends will depend on future earnings,
operations, capital requirements and availability, restrictions in future
financing agreements and other business and financial considerations.
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000:
. on an actual basis;
. on a pro forma basis to reflect the receipt of $200,000 in April, 2000
pursuant to a private placement of 200,000 shares of Common Stock and
the receipt of $200,000 pursuant to a private loan offering in July,
2000 with warrants to purchase 200,000 shares of Common Stock
exercisable at $1.00 per share (valued at $834,000); and
. on a pro forma as adjusted basis to further reflect the deemed
conversion of 135,000 redeemable Common Stock into Common Stock and the
receipt of the net proceeds from our sale of Common Stock in this
offering, at an estimated initial public offering price of $5.00 per
share, and the anticipated application of the net proceeds, including
repayment of debt. See also "Use of Proceeds."
The pro forma as adjusted table does not give effect to the following:
. 262,500 shares of our Common Stock issuable upon the exercise of the
underwriters' over-allotment option;
. 175,000 shares of our Common Stock reserved for issuance upon the
exercise of the warrants granted to the underwriters of this offering
exercisable during the four-year period commencing one year from the
date of this prospectus at an exercise price of 150% of the public
offering price;
. 1,000,000 shares of our Common Stock reserved for issuance upon the
exercise of options pursuant to our employee stock option plan, of which
options to purchase 305,000 shares of Common Stock have been granted,
and 40,000 shares of our Common Stock reserved for issuance pursuant to
incentive clauses of a sales representation agreement; and
. 1,845,000 shares of our Common Stock reserved for issuance upon the
exercise of warrants issued in connection with private debt financing
transactions.
-15-
<PAGE>
You should read this table in conjunction with our financial statements,
including the notes to our financial statements, which appear elsewhere in this
prospectus.
<TABLE>
<CAPTION>
March 31, 2000
--------------------------------
(Unaudited)
Pro Forma
--------------
Actual Pro Forma As Adjusted
---------------- -------------- --------------
(In thousands)
<S> <C> <C> <C>
Notes payable - private loan offerings
(face value $1,095,000, actual, and
$1,295,000 pro forma) .................................... $ 1,053 $ 1,053 --
Note payable - Union Labor Life Insurance Co.
(face value $517,000 actual and $543,000 pro forma)....... 517 543 --
------- -------
Total debt.............................................. 1,570 1,596 --
------- -------
Redeemable Common Stock (135,000 shares actual and pro
forma).................................................... 147 147 --
Stockholder's equity (capital deficiency):
Preferred Stock, $.001 par value, 10,000,000 shares
authorized, no shares issued and outstanding.
Common Stock, $.001 par value, 40,000,000 shares
authorized, 4,803,250 shares issued and outstanding,
actual; 5,003,250 issued and outstanding, pro forma;
and 6,888,250 shares issued and outstanding, pro forma
as adjusted ............................................. 5 5 7
Additional paid-in capital ............................. 1,197 2,231 9,526
Accumulated deficit .................................... (3,185) (3,185) (4,061)
Unamortized debt discount in excess of notes payable..... - (634) -
------- ------- -------
Total stockholders' equity (capital deficiency)....... (1,983) (1,583) 5,472
------- ------- -------
Total capitalization (deficiency)................ $ ( 266) $ (160) $ 5,472
======= ======= =======
</TABLE>
-16-
<PAGE>
DILUTION
Purchasers of the shares of Common Stock offered hereby will experience an
immediate and substantial dilution in the net tangible book value of their
investment. The difference between the initial public offering price per share
of Common Stock and the net tangible book value per share of Common Stock after
this offering constitutes the dilution per share of Common Stock to investors in
this offering. Net tangible book value per share is determined by dividing the
net tangible book value (total tangible assets less total liabilities) by the
number of outstanding shares of Common Stock. Without taking into effect any
changes in pro forma net tangible book value after March 31, 2000, the deficit
in the pro forma net tangible book value of AquaCell as of March 31,2000, after
giving effect to the sale of 200,000 shares pursuant to our private placement
completed in April, 2000, the borrowing of $200,000 pursuant to our private loan
offering completed during July, 2000 and the deemed conversion of 135,000
redeemable Common Stock into Common Stock, was approximately $1,606,000, or
approximately $.31 per share. After giving effect to the sale of the 1,750,000
shares offered in this offering, repayment of discounted debt with a face value
of $1,295,000 and after deducting estimated underwriting discounts and
commissions and estimated offering expenses ($7,150,000 net), our pro forma net
tangible book value as adjusted as of March 31, 2000, would have been
approximately $5,302,000, or approximately $.77 per share. This represents an
immediate increase in pro forma net tangible book value of approximately $1.08
per share to existing shareholders and an immediate dilution of approximately
$4.23 per share to new investors purchasing shares in this offering at the
assumed public offering price per share. The following table illustrates this
pro forma per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $5.00
Historical net tangible book value per share......................... $(.45)
Increase in net tangible book value per share attributable to
the conversion of redeemable common stock, private placement
and private loan offering........................................... .14
-----
Pro forma net tangible book value per share before this offering..... $(.31)
Increase in pro forma net tangible book value per share attributable
to new investors.................................................... 1.08
-----
Pro forma net tangible book value per share
after this Offering................................................. .77
-----
Dilution per share to new investors.................................. $4.23
=====
</TABLE>
Assuming the exercise of the underwriters over-allotment option in full,
the pro forma adjusted net tangible book value on March 31, 2000 would have been
$.90 per share. This represents an immediate increase in pro forma net tangible
book value of approximately $1.21 per share to existing shareholders and an
immediate dilution of approximately $4.10 per share to new investors purchasing
shares in this offering at the assumed public offering price per share.
The following table sets forth, as of April 30, 2000, the number of shares
of Common Stock purchased from us, the total consideration paid to us and the
average price per share paid to us by existing stockholders and the new
investors purchasing shares of Common Stock from us in this offering (before
deducting underwriting discounts and commissions and estimated offering
expenses). The following table does not include (i) 1,845,000 shares of Common
Stock reserved for issuance upon the exercise of outstanding warrants; (ii)
305,000 shares of Common Stock reserved for issuance upon the exercise of
outstanding stock options; (iii) 40,000 shares of Common Stock reserved for
issuance pursuant to incentive clauses of a sales representation agreement; and
(iv) 262,500 shares of Common Stock which may be sold in this offering if the
underwriters over-allotment option is exercised, in which case, new investors
will hold 2,012,500 shares of Common Stock representing 28.1% of the outstanding
shares after this offering, and the proceeds of $10,062,500 would represent
89.8% of total consideration paid by all investors.
-17-
<PAGE>
<TABLE>
<CAPTION>
Average
Shares Purchased Total Consideration Price
Number Percent Amount Percent Per Share
-------------- --------------- -------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Existing shareholders................. 5,138,250 74.6% $1,142,000 11.5% $0.22
New investors......................... 1,750,000 25.4% $8,750,000 88.5% $5.00
--------- ----- ---------- -----
Total............................... 6,888,250 100.0% $9,892,000 100.0%
========= ===== ========== =====
</TABLE>
-18-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share amounts)
Our statement of operations data for the fiscal years ended June 30, 1999
and 1998 and the balance sheet data as of June 30, 1999 included herein have
been derived from the Consolidated Financial Statements audited by Richard A.
Eisner & Company, LLP, independent auditors. The statement of operations data
for the nine months ended March 31, 2000 and 1999 and the balance sheet data as
of March 31, 2000, are derived from our unaudited consolidated financial
statements prepared on the same basis as our audited financial statements and,
in the opinion of our management, include all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of our financial
position and results of operations. The results of operations for an interim
period are not necessarily indicative of results to be expected for a full year.
The information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Result of Operations" and the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
prospectus.
The actual data presented below should be read in conjunction with the
financial information appearing elsewhere in this prospectus. See "AquaCell
Technologies, Inc. Audited Financial Statements" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
----------------- ----------
March 31, June 30,
-------- --------
(Unaudited)
----------
2000 1999 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Statement of Operations Data:
Sales................................................. $ 201 $ 10 $ 29 $ --
Cost of Sales......................................... 94 6 11 --
------ ------- ------- ------
Gross Profit.......................................... 107 4 18 --
Operating Expenses:
Salaries and Wages.................................... 380 277 401 154
Legal, Accounting and Consulting Expenses............. 101 175 198 118
Stock-based Compensation.............................. -- 231 231 --
Selling, General and Administrative Expenses.......... 381 387 605 296
Depreciation and Amortization......................... 37 16 28 5
------ ------- ------- ------
Loss Before Interest Expense.......................... (792) (1,082) (1,445) (573)
Interest Expense:
Amortization of Debt Discount....................... 83 61 127 --
Other............................................... 107 21 46 --
------ ------- ------- ------
Net Loss.............................................. $ (982) $(1,164) $(1,618) $ (573)
Accretion of redemption amount of redeemable common
stock................................................ 7 3 5 --
------ ------- ------- ------
Net Loss attributable to common stockholders.......... $ (989) $(1,167) $(1,623) $ (573)
====== ======= ======= ======
Net Loss Per Common Share -
Basic and Diluted..................................... $(0.20) $ (0.25) $( 0.34) $(0.14)
====== ======= ======= ======
Weighted Average Common Shares -
Basic and Diluted..................................... 4,938 4,662 4,731 4,223
</TABLE>
<TABLE>
<CAPTION>
March 31, 2000 June 30, 1999
-------------- -------------
(Unaudited)
<S> <C> <C>
Balance Sheet Data:
Cash................................................. $ 8 $ 18
Working Capital (Deficiency)......................... $(2,280) $(1,624)
Total Assets......................................... $ 561 $ 542
Redeemable Common Stock.............................. $ 147 $ 140
Capital Deficiency................................... $(1,983) $(1,296)
</TABLE>
-19-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and accompanying notes, which appear elsewhere in this prospectus.
This discussion contains forward-looking statements that involve risk and
uncertainties. Our actual results could differ materially from those
anticipated in these forward looking statements as a result of various risk
factors, including those discussed below and elsewhere in this prospectus,
particularly under the heading "Risk Factors."
Overview
We were incorporated in March, 1997. We were a development stage enterprise
through June 30, 1999 and we incurred significant non-recurring expenses through
that date in connection with our initial formation, interim financing
transactions, start-up of operations and various other transactions including:
legal and accounting expenses; costs incurred in connection with contracts for
and audits of acquisitions and potential acquisitions; and stock issued to
consultants and employees.
During the thirty-six month period from our inception through March 31,
2000, we paid $253,000 in compensation to our executive management team, after
$191,000 of unpaid salaries was contributed to capital by our officers and an
additional $225,000 was accrued and unpaid as of March 31, 2000.
In December, 1998 we completed the acquisition of the KABB Assets, which
included the rights to certain products and the assignment of U.S. and Canadian
patents for an automatic refilling purified bottle water system. We paid a
total of $250,000 for those assets, including $50,000 in cash and $200,000 in
shares of our Common Stock at $1.00 per share. Upon completion of this
acquisition we proceeded to set up our manufacturing facility in Rancho
Cucamonga, California.
In May, 1999 we began our business to business marketing program to 100 of
the Fortune 500 companies. In August 1999, we refocused our future direction
from an acquisition company to an operating company and expanded our operating
plan to market our point-of-use water purification systems to the Fortune 500
companies. We have created a proven business to business marketing strategy and
have begun to create a base of Fortune 500 customers that will be fully
developed by our in-house sales force, to be hired at the completion of the
initial public offering. We believe that our gross sales profits could average
approximately 58% of sales revenues.
Plan of Operations
Our business to business marketing strategy is to sell our point-of-use
automatic refilling water cooler with its patented attached five-gallon bottle
to Fortune 500 and other large companies. This product is designed to replace
expensive and cumbersome bottle water coolers, as well as to replace antiquated
water fountains that go unused. To date, sales have not been significant as we
have focused on building a client base with only Fortune 500 companies, which
have long sales cycles. All sales to date have been generated by our executive
management team, and we believe that the best indication of future growth in
developing companies such as ours, more important than current sales statistics,
is the potential future revenue stream to be developed from our customers. We
believe that our growth will come from the vertical expansion and roll out of
our programs to branches and affiliates of our existing customer base as well as
the expansion of our customer base to include other Fortune 500 companies.
Upon completion of this initial public offering we intend to invest
approximately $2,500,000 of the net proceeds in the development of an in-house
sales and marketing staff to concentrate on different industry classifications
within the Fortune 500. We believe that the development of an in-house sales
staff, as opposed to hiring independent sales reps, provides us with
significantly increased control and management of the client relationship. We
intend to use our business to business marketing strategy to build a blue chip
customer base to produce significant repeat business and to develop long term
relationships with Fortune 500 companies.
We believe that the net proceeds from this offering in the amount of
approximately $7,150,000, will provide sufficient funds to implement our
business plan, and to provide sufficient working capital over at least the
ensuing 12 month period. We do not presently expect to raise any additional
funds during that period.
-20-
<PAGE>
Results of Operations
Nine Months Ended March 31, 2000 and March 31, 1999. We commenced full
---------------------------------------------------
operations during the nine months ended March 31, 2000 and therefore were no
longer a development stage enterprise. During the nine months ended March 31,
1999, we had limited operations, generated minimal revenues and, accordingly,
management believes that comparison of these periods is not relevant to an
understanding of our current financial condition and results of operations.
On a consolidated basis, we generated revenues of $201,000 for the nine
months ended March 31, 2000 at a gross profit in excess of 53%. Operating
expenses, exclusive of depreciation and amortization, were $862,000. Paid
salaries and wages amounted to $155,000 or approximately 18% of our expenses and
we accrued $225,000 in salaries to our executive management team. Legal,
accounting and consulting expenses were $101,000, compared to $175,000 for the
nine-month period ended March 31, 1999 when we were a development stage company.
Approximately $272,000 of the $381,000 selling, general and administrative
expenses, or 71.4%, for the nine months ended March 31, 2000 represented the
overhead of our operating subsidiary, which was incorporated in December, 1998
and not in existence during the major portion of the comparable period of 1999.
The amortization of debt discount, a non-cash charge, attributed to warrants
issued in connection with notes payable amounted to $83,000 during the nine
months ended March 31, 2000 as compared to $61,000 during the same period ended
March 31, 1999.
Years Ended June 30, 1999 and June 30, 1998. We had limited operations
-------------------------------------------
during the year ended June 30, 1998 and accordingly, management believes that
the comparison of the yearly periods is not relevant to an understanding of our
current financial condition and results of operations.
We generated minimal revenues during the year ended June 30, 1999.
Beginning January 1999, following our December 1998 purchase of the KABB Assets,
we worked on formulating a manufacturing and marketing strategy, and in May 1999
began marketing our products.
Our operating expenses, exclusive of depreciation and amortization, were
$1,006,000 for the year ended June 30, 1999 as compared to $568,000 for the year
ended June 30, 1998. In addition, non-recurring consulting and compensation
expenses resulting from issuance of Common Stock amounted to $231,000, and
legal, accounting and other professional expenses amounted to $198,000, of which
the majority represented non-recurring costs incurred while operating as an
acquisition company. Of the remaining expenses for the year ended June 30,
1999, $121,000 represented compensation paid to employees, not including
$191,000 representing compensation to three of our executive officers that was
accrued at June 30, 1999 and contributed to capital by those officers during the
nine months ended March 31, 2000. The operating expenses for the year ended
June 30, 1999 include six months of overhead for our operating subsidiary,
incorporated in December 1998, in the amount of $356,000. The amortization of
debt discount, a non-cash charge, attributed to warrants issued in connection
with notes payable amounted to $127,000 during the year ended June 30, 1999.
Liquidity and Capital Resources
Nine Months Ended March 31, 2000. During the nine months ended March 31,
--------------------------------
2000, we financed our operations with $465,000, $458,000 of which was raised
through the sale of units in two private placements. Those private placements
consisted of $148,000 of current period loans from our officers and other
lenders which were converted into units of the private note offering and
$310,000 from subscriptions received from non-affiliates. An additional $7,000
in net proceeds was received in the form of additional loans from our officers.
Cash used by operations during the nine months ended March 31, 2000
amounted to $467,000. Net loss of $982,000 was decreased by non-cash
depreciation and interest on stock warrant issuance in the amount of $120,000.
Net loss was further decreased by increases in accounts payable and accrued
expenses in the amount of $447,000 and was increased by net changes in other
operating asset and liability accounts of $52,000.
Year Ended June 30, 1999. During the year ended June 30, 1999, we financed
------------------------
our operations through sales of 72,000 shares of Common Stock in connection with
a private placement that raised $72,000. We raised $500,000 from the Union
Labor Life Insurance Company through the placement of a 10% note payable with
attached warrants to acquire 500,000 shares of our Common Stock at an exercise
price of $1.00 per share for a four year period. A second private placement
raised $525,000 from 12 individuals by issuing 10% notes with warrants to
acquire
-21-
<PAGE>
525,000 shares of our Common Stock at an exercise price of $1.00 per share for a
three year period. The $1,025,000 of notes issued in connection with the private
offerings will be repaid from the net proceeds of the initial public offering,
as described in the "Use of Proceeds" section of this prospectus.
Cash used by operations in the year ended June 30, 1999, amounted to
$1,079,000. A net loss of $1,618,000 was decreased by a net increase in
operating assets and liabilities of $153,000, decreased by non-cash depreciation
and interest on stock warrant issuance in the amount of $155,000 and decreased
by the issuance of stock to employees and in payment of consulting fees in the
amount of $231,000.
Cash used by investing activities in the amount of $103,000 represented
expenditures of property and equipment in the amount of $30,000, purchase of
KABB Assets in the amount of $50,000 and costs related to the KABB acquisition
in the amount of $23,000.
Cash, in the net amount of $1,198,000, was provided by financing activities
from the issuance of Common Stock and promissory notes, referred to above, in
the amount of $1,097,000, collection of a subscription receivable for the
purchase of $50,000 of Common Stock in the private placement, and loans, net of
repayments, from officers and others in the amount of $51,000.
Year Ended June 30, 1998. During the year ended June 30, 1998, we financed
------------------------
our operations through the sales of Common Stock in private placement
transactions. As of June 30, 1998, we raised $435,000 through the sales of
435,000 shares of Common Stock and incurred expenses in the amount of $49,000.
Additional sales of shares of Common Stock to founding stockholders raised
$4,000.
Cash used by operations in the year ended June 30, 1998 amounted to $359,000.
A net loss of $573,000 was decreased by a net increase in operating assets and
liabilities of $210,000 and by non-cash depreciation of $4,000.
Cash used by investing activities represented expenditures for property and
equipment in the amount of $40,000.
Cash was provided by financing activities from the sale of Common Stock,
referred to above, and loans from officers in the amount of $61,000.
Management believes that the anticipated net proceeds of the offering and cash
flows expected to be generated for future operations will be sufficient to meet
presently anticipated needs for working capital and capital expenditures through
at least the next 12 months. We presently have no material commitments for
future capital expenditures.
Recent Accounting Announcements
We are required to adopt Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information." Statement
No. 131 superseded statement No. 14, "Financial Reporting for Segments of a
Business Enterprise" and is effective for years beginning after December 31,
1997. Statement 131 establishes standards for the way that public business
enterprises report selected information about operating segments in financial
reports. Statement 131 also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The addition of
statement 131 will not affect our results of operations or financial position,
but may affect the disclosure of the segment information in the future.
-22-
<PAGE>
BUSINESS
Overview
We provide point-of-use drinking water, filtration and purification products
to a variety of customers. Our strategic plan is to grow rapidly within the
fragmented drinking water industry. We are presently targeting Fortune 500 and
other large companies with our patented five-gallon self-refilling bottle water
cooler. The filtration system on our cooler contains different combinations of
systems, which utilize sediment filters, reverse osmosis, carbon block, multi-
media filters and ultra-violet light.
We replace traditional five-gallon bottle water coolers with a permanently
installed convenient alternative where the bottle never needs changing and water
bottles no longer need to be delivered, stored or replaced. In addition, we
replace water fountains where users tend to have greater concerns as to
sanitation and water quality.
Water Purification Industry Background
The highly fragmented water purification industry has thousands of companies
involved in various capacities, including companies which design fully
integrated systems for processing millions of gallons of water for municipal,
industrial, and commercial applications, down to the independent water delivery
route person.
According to a recent article appearing in The Wall Street Journal, water
supply businesses generate approximately $400 billion in revenue worldwide.
Demand for water purification has continued to grow nationally and
internationally due to economic expansion, scarcity of usable water, concern
about water quality and regulatory requirements. One of the fastest growing
segment of the industry is the drinking water segment, including point-of-use
filtration systems for providing purified drinking water and bottled drinking
water.
Drinking Water Market Analysis
While many consumers use water filtration systems and drink bottled water for
improved taste, there are other more important reasons to do so.
Risks of Tap Water. Tap water, regardless of its source, may contain certain
------------------
contaminants that can effect one's health. Although municipalities are required
to provide drinking water which complies with the Safe Drinking Water Act
(SDWA), the water supplied to homes from municipalities may contain startling
levels of chlorine in addition to bacteria, toxins and parasites. Although the
water may be purified upon leaving the treatment facility, impurities may be
picked up from the pipes used to transfer it to the tap. Lead may also leach
into the water from pipes, especially in older construction.
In the United States, water quality is being compromised by pollution, aging
municipal water systems, and contaminated wells and surface water. A USA TODAY
investigation in October 1998 reported that the nation's safe drinking water
laws are failing. This special report, "Drinking Water's Hidden Dangers",
discloses that 58 million people received water that violated testing and purity
standards, and that 25 million people received water that had "significant"
violations posing "serious threats to public health".
The awareness level of consumers of the potential hazards of drinking tap
water is continuously increasing, and we believe that more educated consumers
will be seeking to minimize such potential risks through the purchase of point-
of-use filtration systems.
Risks of Bottled Water. While some people have resorted to drinking bottled
----------------------
water as a safe alternative to tap water, even bottled water can contain
impurities. In February 1999, the Natural Resources Defense Council released an
extensive four year scientific study of bottled water sold in the United States,
titled "BOTTLED WATER: Pure Drink or Pure Hype?" This study included testing of
more than 1000 bottles of 103 brands of bottled water. One-third of the bottled
waters tested were found, in at least one test sample, to contain levels of
contamination that exceeded allowable limits under either state or bottled water
standards. Contaminants found in the bottled waters included synthetic organic
chemicals, bacteria and arsenic. The study further revealed that, according to
government and industry estimates, 25% to 40% of bottled water is just tap
water - sometimes with additional treatment, sometimes not. The conclusion of
the study was that while consumers spend between 240 to 10,000 times more per
gallon for bottled water than they typically do for tap water, "no one should
assume that just
-23-
<PAGE>
because he or she purchases water in a bottle that it is necessarily any better
regulated, purer, or safer than most tap water".
Business Marketing and Growth Strategy
Our strategic objective is to achieve rapid growth through the expansion of
our business marketing and product lines utilizing a business-to-business
marketing strategy primarily targeted at Fortune 500 and other large companies,
as well as through strategic alliances with marketing partners.
Our initial marketing thrust is to create revenue through the sale and leasing
of our patented Purific(R) water cooler. Our Purific cooler contains an
extensive state-of-the art filtration system with additional features to ensure
maximum reliability for the Fortune 500 level of customer. A strong market
exists for this product because (i) most Fortune 500 companies are using bottled
water and are familiar with its high costs and inconveniences; (ii) water
fountain use is a substantially less popular alternative; and (iii) our self-
refilling cooler can lead to significant savings.
We chose a business-to-business marketing approach over utilization of
distributors in order to allow us to "own the customer" and therefore manage the
relationship. We determined that utilizing in-house sales personnel, as opposed
to manufactures' representatives, is critical in the implementation of our
marketing plan because in-house sales people are more likely to build customer
relationships, whereas commissioned sales representatives typically are
transaction oriented. Also, many Fortune 500 and other large companies prefer to
deal directly with the manufacturer and not with outside representatives or
distributors.
Our focus is to build interdependent relationships with the decision-makers of
our targeted Fortune 500 customers who have the ability to provide long-term
revenues through sales to their expansive multiple locations, subsidiaries and
operating divisions.
We have established our target customer based upon the following criteria:
. Number of employees
. Number of locations
. Geographical areas
. Industry segment
We firmly believe that the best source for new business is the existing
customer, because it is far less costly to retain and further develop a current
client than it is to acquire a new one.
In order to provide our self-refilling coolers to Fortune 500 and other major
companies with locations throughout the country, we utilize a national
installation group.
We have sold our Purific water cooler to the headquarter locations of several
Fortune 500 companies, each of which has significant long-term customer value.
We will continue to build relationships with the decision-makers of those
companies, and we will increase business through incremental sales to our
existing and future customers.
To date, all sales to Fortune 500 clients have been attained through the
efforts of our executive management team. In these situations our Purific water
cooler has replaced conventional water fountains, bottled water programs and
flat-top filtration coolers. Upon completion of this offering, we will hire and
train a sales force to further expand our Fortune 500 client base and to
cultivate each customer for significant future business.
Historically, our leads have been primarily obtained through a targeted
direct-mail campaign. The CEOs of certain Fortune 500 and other identified
companies were sent our "Message in a Bottle" mailing. This mailing included a
full size five-gallon bottle with product literature placed inside. Upon hiring
of sales personnel, additional mailings will be made to the balance of the
Fortune 500 companies and will then be made to other large companies included in
the Fortune 1000 and 2000.
-24-
<PAGE>
Additional marketing strategies that we intend to utilize include:
. Cross Marketing Sales. Cross marketing partners in diverse industries are
---------------------
being developed to place our Purific water cooler into our customers'
places of business with the bottle band advertising our partner's company
or product. This banding process is interchangeable and may be used to tie
in with other advertising campaigns. Cross marketing opportunities include:
doctor's offices, real estate offices, travel industry, insurance,
Internet, investment banking and many others.
. Internet. Our Purific water cooler is available for sale or lease on our
--------
web Site, www.aquacell.com. Additionally, we are registering with various
business-to-business suppliers to include our Purific cooler on their web
sites.
. General Services Administration (GSA). We have submitted extensive
-------------------------------------
documentation to secure a GSA contract number. Once this contract number
has been awarded, we will begin our marketing campaign towards government
facilities through such means as the exclusive GSA tradeshow and direct
mail campaigns.
. Marketing Partners. Sales to smaller businesses will be made through our
------------------
strategic market partners. Nearly every business, as well as churches,
doctor's offices, hospitals and other establishments have water coolers to
supply bottled water to their employees, members, patients or visitors.
Sales targets include:
. Corporate offices . Retail stores (employee lounges)
. Manufacturing facilities . Lobbies and waiting rooms
. Doctors/dentists/hospitals . Airline club rooms
. School administrative offices . Churches
. Auto dealers . Country clubs
. Banks . Government facilities
Products
Our water purification products are geared towards the drinking water market
that, according to industry studies, is one of the fastest growing sector of the
water purification industry.
Our flagship product is our patented self-refilling Purific water cooler. The
cooler is hooked up to a standard municipal (tap) water supply. The water is
purified and filtered through multiple step systems and the purified water
automatically and continuously fills the permanently attached five-gallon bottle
on our cooler system.
The Purific cooler is available in four models:
. HC-2 - Hot/Cold cooler with ProSystem II filtration system
. HC-3 - Hot/Cold cooler with ProSystem III filtration system
. RC-2 - Room Temp/Cold cooler with ProSystem II filtration system
. RC-3 - Room Temp/Cold cooler with ProSystem III filtration system
Our self-refilling Purific cooler has many advantages over standard water
coolers with the replaceable five gallon bottles:
. Saves money. Our self-filling cooler has been proven to save most companies
----------
a considerable amount of money over the costs of bottled water
alternatives.
. No bottles to change. When changing water bottles, most people spill or
--------------------
splash the water, and often a relatively strong person must be located to
change the bottle. Also, the cleanliness of the hands of the person
changing the bottle is an issue, since anything on their hands will end up
in the water.
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<PAGE>
. Reduce potential worker's compensation claims. Potential worker's
---------------------------------------------
compensation claims from injuries due to lifting the 40-pound bottle can be
costly. New proposed OSHA regulations will force companies to take more
precautions against potential claims.
. No bottles to store. Replacement water bottles are cumbersome to store,
-------------------
taking up a lot of valuable space in an office. The higher the rent, the
more it costs to store the water.
. Never run out of water. Since our Purific cooler continuously refills
----------------------
itself as water is dispensed, the cooler always has water available when
needed.
. No delivery problems. Deliveries of bottled water can disrupt office
--------------------
operations. Additionally, in large office buildings wait time for freight
elevators can delay bottled water delivery by several hours, further adding
to the inconvenience of bottled water delivery.
. Freshly filtered and purified water. The quality of bottled water varies
-----------------------------------
greatly depending upon the source and whether or not it is filtered or
purified. Also, water which has been stored in certain areas can absorb
taste and odor through the bottle. The water in our Purific water cooler
maintains its freshness as it is constantly being replenished.
. Air is filtered. The air used to displace water in our self-refilling
---------------
cooler is filtered through a 1-micron filter. When water is dispensed from
traditional water coolers, contaminated air from around the cooler bubbles
into the bottle. This air can contain invisible elements from contaminants
such as mold, algae, hair spray, oils, grease, dirt, pollen paint and
mildew, all of which can taint the water.
All of our Purific water coolers are equipped with state-of-the-art filtration
systems designed to provide high quality filtration and purification. Our
filtration systems are tested and validated by the Water Quality Association (a
trade association comprised of 2,600 members in the household, commercial,
industrial and small system water treatment industry). They are available in two
models - ProSystem II or ProSystem III. Both systems include a shut-off valve,
pressure regulator, water monitor, sediment filter, the AquaCell multi-media
filter and a carbon block filter. The major difference between our filtration
systems is that our ProSystem II utilizes ultraviolet light for disinfection,
and our ProSystem III utilizes reverse osmosis.
<TABLE>
<CAPTION>
ProSystem II (Ultraviolet) ProSystem III (Reverse Osmosis)
-------------------------- -------------------------------
<S> <C>
Does not require a drain line Requires a drain line
Keeps minerals and salts in water Removes minerals and salts from water
Fills bottle at a rate of .75 gallons per minute Produces 25 gallons of water per day
Produces one (1) gallon of water per one (1) gallon of Produces one (1) gallon of water per four (4) gallons of
tap water tap water
</TABLE>
For most customers, the ProSystem II will perfectly suit their needs. Some
customers, however, will prefer reverse osmosis water either because they have
gotten used to drinking water without minerals or because of poor quality water,
such as in areas where the water has a high salt content.
There are, however, certain times when the ProSystem III is not recommended,
such as (i) in offices with high employee concentration (in a typical 8-hour
work day, more than eight gallons of water may be consumed); (ii) in areas where
drain lines are not readily available; and (iii) where water conservation
concerns conflict with high water use.
Replacement Filters
We also sell replacement filters for our Purific water coolers. The filtration
systems on our patented water coolers require replacement after 2,000 gallons of
water have passed through the system or after one (1) year from
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<PAGE>
the date of installation, whichever comes first. The filtration system
automatically shuts off when the threshold for the preset number of gallons is
met, alerting the customer to call for replacement filters. We also contact our
customers on an annual basis to facilitate timely replacement of filters.
Customers with high water usage often stock replacement filters. The revenue
from replacement filters will be significant and will increase from year to year
as we sell more water coolers.
Other products to be offered by us include:
. Filtration systems are available for under-the-sink usage and they may also
be connected to standard water-fountains.
. Our "Traveler" system is a portable compact multi-stage filtration system
that provides drinkable water for campers, international travelers or for
emergency use.
Customers
Our customers currently consist mostly of Fortune 500 companies across a broad
range of industries including investment banking, consumer products, aerospace,
entertainment, banking, brokerage houses, manufacturing and insurance. Our
customers also include professional service providers and governmental agencies.
Production, Raw Materials and Supplies
Our Products are manufactured in our 10,000 square foot manufacturing facility
located in Rancho Cucamonga, California. This strategically located facility is
located within a 100 mile radius of 95% of our suppliers allowing for "just-in-
time" inventory. Our product has a low cost of manufacturing. Less than 10% of
product cost is in labor, allowing for high gross profit margins because our
operations do not require a large full time employee base and, when needed,
temporary employees are readily available.
Our facility utilizes manufacturing processes that follow the guidelines of
the Water Quality Association. The manufacturing process of our various products
includes utilization of injection molded parts, for which we own the molds.
Multiple vendors have been identified as sources for parts and supplies for our
products and we do not anticipate any shortages of such materials.
We maintain a controlled low inventory of finished goods. Upon completion of
manufacture, each product undergoes quality assurance testing prior to shipping
and installation. The raw materials and components used in these products are
commonly available commodities such as off the shelf water coolers, water
bottles, various fittings, plastic tubing, wiring, valves, sediment filters,
reverse osmosis membrane filters and ultra-violet lights. Our products are
fabricated from these materials and assembled together with products bought from
other companies to form an integrated product. We do not depend on any single
supplier. If any supplier were to become unable to perform, we believe we could
readily find a substitute source. We are not a party to any material long-term
fixed price supply contracts.
Government Regulation
Federal, state, local and foreign environmental laws and regulations require
substantial expenditures and compliance with water quality standards and impose
liabilities for noncompliance. We believe that environmental laws and
regulations and their enforcement are, and will continue to be, a significant
factor affecting the marketability of our products. The treatment of drinking
water in the United States is governed by the Safe Drinking Water Act. The 1996
amendments to the Act emphasize risk-based standards for contaminants in
drinking water, afford small water supply systems operational flexibility and
provide assistance to water system infrastructures through a multi-billion-
dollar Drinking Water State Revolving Fund. The Fund program assists public
water systems with the financing of the costs of drinking infrastructure that is
necessary to achieve or maintain compliance with the SDWA requirements and to
protect public health. The Fund, patterned after the State Revolving Fund
contained in the Clean Water Act, provides funding to the states to establish a
renewable source of financing for drinking water infrastructure projects. The
Fund program is designed to ensure that the drinking water supplies in the
United States remain safe and affordable, and that systems that receive funding
will be properly operated and maintained. Regulations under the Safe Water
Drinking Act also established maximum containment levels for a wide variety of
chemicals that may be present in drinking water treatment to meet applicable
standards.
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<PAGE>
Any changes in applicable regulations or their enforcement may affect our
operations by imposing additional regulatory compliance costs on our customers,
requiring modification of our products or affecting the market for our products.
To the extent that demand for our products are created by the need to comply
with such enhanced standards or their enforcement, any modification of the
standards or their enforcement may reduce demand, thereby adversely affecting
our business, financial condition or results of operations. Conversely, changes
in applicable environmental requirements imposing additional regulatory
compliance requirements or causing stricter enforcement of these laws or
regulations could increase the demand for our products.
Competition
The drinking water purification industry is fragmented and highly competitive
due to the large number of businesses within certain product areas. We compete
with many companies which have greater market penetration, depth of product
line, resources and access to capital, all of which could be competitive
advantages. Competitors include: bottled water companies such as Arrowhead, Deer
Park, Poland Spring, and Sparkletts; water filtration system manufacturers such
as Culligan (owned by US Filter Corporation), Brita (owned by Clorox) and Pur
(owned by Proctor and Gamble); and flat-top point-of-use water cooler
manufacturers such as Oasis, Cordley-Temprite, and Mutual of Omaha's Innowave
product.
While we believe that we can deliver our products on an economically
competitive basis, there can be no assurance in that regard. In addition, many
competitors have greater financial resources than us to finance their expansion
and internal growth opportunities. Consequently, we may encounter significant
competition in our efforts to achieve our strategic goals.
Intellectual Property
We own a United States and Canadian patent on our automatic-refilling purified
bottle water cooler. These patents do not expire until November 20, 2006 and
October 2, 2009, respectively. We have federally registered our Purific
trademark and have pending applications to federally register our AquaCell and
ArcticFresh marks. We also conduct business in California under the name Global
Water Solutions, Inc. We will seek to improve our patented technology and obtain
additional patent protection where appropriate. As part of our operating
strategy, we intend to focus on establishing brand name recognition in the
consumer and retail market segment of the water purification and treatment
industry with respect to our various product lines. We intend to seek
appropriate additional trademark or servicemark registrations in connection with
our product and service offerings.
Employees
As of May 1, 2000, we had approximately eight employees. None of our employees
are covered under collective bargaining agreements. Management believes we
maintain good relationship with our employees.
Legal Proceedings
We are not currently subject to any material litigation nor, to our knowledge,
is any material litigation being threatened against us.
Properties
Our principal executive office and our 10,000 square foot manufacturing
facility are located in Rancho Cucamonga, California under a five (5) year lease
that commenced on January 1, 1999 and expires on December 31, 2004. That lease
has an average annual base rent of $69,600. We also maintain an approximately
1,000 square foot satellite office in Englewood Cliffs, New Jersey under a three
(3) year lease that commenced on December 1, 1997 and expires on November 30,
2000. That lease has an average annual base rent of $17,334. We believe that, if
necessary, alternative space is readily available at comparable rates and on
comparable terms with respect to all of our leased properties. We also believe
that we can obtain additional space necessary to support increases in our future
operation. We believe that the properties described above are currently
protected by adequate insurance.
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<PAGE>
MANAGEMENT
Directors and Executive Officers
Information with respect to our directors and executive officers is set forth
below.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
James C. Witham............ 59 Chairman of the Board and Chief Executive Officer
Karen B. Laustsen.......... 40 President, Chief Operating Officer, Secretary and Director
Gary S. Wolff.............. 62 Treasurer, Chief Financial Officer and Director
Glenn A. Bergenfield....... 46 Director
Dr. William DiTuro......... 46 Director
Gregory W. Preston......... 44 Director
</TABLE>
Mr. James C. Witham founded AquaCell in March, 1997 and serves as its Chairman
and Chief Executive Officer. Prior to founding AquaCell, Mr. Witham founded JW
Acquisition Co. in May, 1996 and served as its Chief Executive Officer until
March, 1997. From April, 1987 through May, 1996, Mr. Witham founded and served
as Chairman, Chief Executive Officer and President of U.S. Alcohol Testing of
America, Inc. (USAT), a publicly traded company. Mr. Witham also served as
Chairman and Chief Executive Officer of USAT's two publicly held subsidiaries,
U.S. Drug Testing, Inc. and Good Ideas Enterprises, Inc. Mr. Witham is the
husband of Karen B. Laustsen, President of AquaCell.
Ms. Karen B. Laustsen is a founder of AquaCell and has served as its
President, Chief Operating Officer, Secretary, and as a Director since March,
1997. Prior to founding AquaCell, Ms. Laustsen served as President of JW
Acquisition Co. from May, 1996 through March, 1997. From April, 1986 through
May, 1996, Ms. Laustsen served as Executive Vice President and a director of
USAT. Ms. Laustsen also served on the board of directors of U.S. Drug Testing,
Inc. and Good Ideas Enterprises, Inc. Ms. Laustsen is the wife of James C.
Witham, Chairman of AquaCell.
Mr. Gary S. Wolff is a founder of AquaCell and has served as its Treasurer,
Chief Financial Officer and as a Director since March, 1997. Prior to founding
AquaCell, Mr. Wolff served as Chief Financial Officer and a director of U.S.
Alcohol Testing of America, Inc. (USAT), a publicly held company from April,
1987 through July, 1996. Mr. Wolff also served as Chief Financial Officer and as
a director of U.S. Drug Testing, Inc. and as Treasurer and a director of Good
Ideas Enterprises, Inc. He is licensed as a Certified Public Accountant in the
States of New York and New Jersey and during the period from July, 1996 through
March, 1997 he was self-employed as a sole practitioner of accounting.
Mr. Glenn A. Bergenfield has been a director of AquaCell since July 1997. For
the past fifteen years, Mr. Bergenfield has been self-employed as a sole
practitioner of law in the State of New Jersey. Mr. Bergenfield served as
Treasurer and a director of USAT, and as a director of U.S. Drug Testing, Inc.
and Good Ideas Enterprises, Inc.
Dr. William DiTuro has been a director of AquaCell since July 1997. Dr. DiTuro
has been self-employed as a sole practitioner of general pediatrics since 1986
and has served as a clinical instructor of pediatrics at the Robert Wood Johnson
Medical School. Dr. DiTuro served as a director of USAT, U.S. Drug Testing, Inc.
and Good Ideas Enterprises, Inc.
Mr. Gregory W. Preston became a director of AquaCell in September, 1999. Mr.
Preston has been a partner in the law firm of Allen Matkins Leck Gamble &
Mallory LLP since October 1999. Previously he was a partner at McDermott, Will &
Emery from January, 1996 through September, 1999, and from January 1991 until
January 1996 he was a partner at Brobeck, Phleger & Harrison where he was also
an associate from 1983 until 1991. Mr. Preston received a L.L.M. degree from New
York University School of Law in 1983, a J.D. degree, cum laude, from
Southwestern University in 1982, and a B. A. degree from Colgate University in
1977.
-29-
<PAGE>
Classified Board
Our Restated Certificate of Incorporation provides for three classes of
directors. Directors Witham and Bergenfield have been appointed to Class I and
will serve until the meeting of stockholders in 2003; directors Laustsen and
DiTuro have been appointed to Class II and will serve until the meeting of
stockholders in 2002; and directors Wolff and Preston have been appointed to
Class III and will serve until the annual meeting of stockholders in 2001. After
these directors' terms expire, newly elected directors shall serve for three
year terms or until their successors are duly elected and qualified.
Board Committees
The Board of Directors maintains an Executive Committee currently consisting
of directors Witham, Laustsen and Wolff, which has all of the authority of the
Board of Directors except as limited by applicable law. In addition we have an
Audit Committee and a Compensation Committee which are required to consist of a
majority of outside directors. The Audit Committee, currently consisting of
directors Bergenfield and DiTuro, oversees actions taken by our independent
auditors and reviews our internal audit controls. The Compensation Committee,
currently consisting of directors Witham, Bergenfield and DiTuro, reviews the
compensation levels of our employees and makes recommendations to the Board
regarding compensation.
Director Compensation
The members of the Board of Directors and any advisors to the Board are
reimbursed for out-of-pocket and travel expenses incurred in attending Board
meetings. We have granted options to purchase 275,000 shares of Common Stock to
our independent directors at an exercise price of $1.00 per share. See
"Principal Stockholders" below. Additionally, each independent director and any
advisor will receive $2,000 for each Board meeting attended following completion
of this offering and they are also entitled to receive an option to purchase up
to 15,000 shares of our Common Stock for each year of service. Directors receive
no other compensation for service on the Board of Directors.
Compensation of Executive Officers
Summary Compensation Table. The following table sets forth compensation
information for James C. Witham, our Chairman of the Board and Chief Executive
Officer. No other officer or director received compensation in excess of
$100,000 for fiscal years 1997, 1998 or 1999.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
---------------------------
Options All Other
Name and Principal Position Year Salary Bonus Granted Compensation/(2)/
--------------------------- ---- ------ ----- ------- --------------
<S> <C> <C> <C> <C> <C>
James C. Witham................................................ 1999 $52,960/(1)/ $ -- -- $ --
Chairman of the Board and Chief Executive Officer 1998 $76,499 $ -- -- $30,000
1997 $ -- $ -- -- $ --
_______________
</TABLE>
/(1)/ After contribution to capital of $100,039 of accrued and unpaid salary in
1999.
/(2)/ Includes consulting fees paid to Mr. Witham from September 1, 1997 through
December 31, 1997, prior to his becoming an employee.
Employment Agreements. Effective with the completion of this offering, we
will enter into five-year employment agreements with each of Mr. Witham and Ms.
Laustsen, and a two-year employment agreement with Mr. Wolff. These agreements
are to provide for base salaries of $265,000, $160,000, and $142,000,
respectively, and are also to provide for bonuses to be paid based upon
established financial performance targets. Each of these employment agreements
is to contain standard noncompete, confidentiality and benefit provisions,
including provisions for severance compensation in the event of a termination
without cause or transactions that result in a change in control of AquaCell.
Each of these contracts provide that after the first year, the base salary
amounts will be subject to increase by 50% of the amount of any bonus, with such
bonus to be based on net sales and net income
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<PAGE>
earned during the prior year. The terms of the employment agreements, including
bonus criteria have been reviewed and approved by the Compensation Committee.
Summary of Incentive Stock Plan
Our 1998 Incentive Stock Plan, covering 1,000,000 shares of our Common Stock,
will be administered by the Compensation Committee of our Board of Directors.
Among the Compensation Committee's powers will be the authority to:
. interpret the plan;
. establish rules and regulations for its operation;
. select officers, other key employees, consultants and advisors to receive
awards; and
. determine the form, amount and other terms and conditions of awards.
Directors, officers, key employees and independent contractors will be
eligible to participate in the plan. The selection of participants is within the
discretion of the Compensation Committee.
The plan provides for the grant of any or all of the following types of
awards:
. stock options, including nonqualified stock options and incentive stock
options;
. stock awards;
. stock appreciation rights;
. performance shares; and
. performance units.
Awards may be granted by themselves, in combination or in tandem with other
awards as determined by the Compensation Committee.
. Under the plan, the Compensation Committee may grant awards in the form of
nonqualified stock options or incentive stock options, shares of our Common
Stock, stock appreciation rights, performance shares or performance units.
The Compensation Committee, with regard to each stock option, will
determine the number of shares subject to the option, the manner and time
of the option's exercise and vesting, and the exercise price per share of
stock subject to the option. The following limitations are applicable under
the plan: no incentive stock options may be exercisable later than ten
years after the date they are granted and no nonqualified stock options may
be exercisable later than fifteen years after the date they are granted;
. the aggregate fair market value at the time of grant of shares of Common
Stock with respect to which incentive stock options are exercisable for the
first time by a participant during any calendar year cannot be more than
$100,000;
. the exercise price of a stock option will not be less than 100% of the fair
market value of the shares of Common Stock on the date the option is
granted for incentive stock options or less than 85% of the market value
for non qualified stock options (or, in either case, not less than 110% of
fair market value if the optionee is an officer, director or a 10%
stockholder);
. the option price must be paid by a participant by check or, in the
discretion of the Compensation Committee, by delivery of our Common Stock;
and
. awards may be subject to such terms, conditions, restrictions or
limitations, as the Compensation Committee deems appropriate, including
restrictions on transferability and continued employment.
Under the plan, each stock appreciation right will entitle the holder to elect
to receive the appreciation in the fair market value of the shares subject to
the stock appreciation right up to the date the right is exercised. Stock
appreciation rights may be granted independent of, or in connection with, stock
options. In the case of stock appreciation rights issued independent of stock
options, the appreciation shall not be measured from a value less than 85% of
the fair market value of the shares on the date of grant. If the stock
appreciation rights are issued in
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<PAGE>
connection with stock options, the appreciation shall be measured from not less
than the option price. No stock appreciation right may be exercised earlier than
six months after the date of grant or later than the earlier of the term of the
related option or fifteen years after the date it was granted.
Performance shares and units may be awarded either alone or in addition to
other awards and will consist of:
. in the case of performance shares, the right to receive shares of Common
Stock or cash of equal value at the end of a specified performance
period; or
. in the case of performance units, the right to receive a fixed dollar
amount, payable in cash or shares of Common Stock or a combination of
both at the end of a specified performance period.
The Compensation Committee may condition the performance shares or units on the
attainment of specified performance goals or such other facts or criteria as the
committee shall determine.
The plan provides that awards shall not be transferable otherwise than by
law or by will or the laws of descent and distribution. However, the
Compensation Committee may permit the transferability of an award to members of
the participant's immediate family or trusts or family partnerships for the
benefit of such family members.
The Board of Directors has the right to amend, suspend or terminate the
plan at any time, subject to the rights of participants under any outstanding
awards. However, no amendment to the plan may be made without the approval of
our stockholders if such approval is required by law or regulatory authority.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our Common Stock and presently exercisable options to acquire
Common Stock, as of April 30, 2000, as adjusted to reflect the sale of our
Common Stock offered through this prospectus, held by (i) each person known by
us to own beneficially more than 5% of our Common Stock, (ii) each of our
directors, (iii) the Chief Executive Officer and each other executive officer,
and (iv) all directors and executive officers as a group. Except as otherwise
noted, we believe the persons listed below have sole investment and voting power
with respect to our Common Stock owned by them.
<TABLE>
<CAPTION>
Percentage of Common Stock
--------------------------
Shares of Common Stock Before After
---------------------- ----- -----
Name and Address Beneficially Owned Offering Offering
----------------------------------------------------- ------------------ -------- --------
<S> <C> <C> <C>
James C. Witham/(1)/................................... 2,100,000 40.1% 30.1%
10410 Trademark Street
Rancho Cucamonga, CA 91730
Karen B. Laustsen/(2)/................................. 600,000 11.5% 8.6%
10410 Trademark Street
Rancho Cucamonga, CA 91730
Michael Witham......................................... 337,500 6.6% 4.9%
10410 Trademark Street
Rancho Cucamonga, CA 91730
Gary S. Wolff/(3)/..................................... 507,500 9.8% 7.3%
10410 Trademark Street
Rancho Cucamonga, CA 91730
Glenn A. Bergenfield/(4)/.............................. 177,500 3.4% 2.5%
10410 Trademark Street
Rancho Cucamonga, CA 91730
Dr. William DiTuro/(5)/................................ 132,500 2.6% 1.9%
10410 Trademark Street
Rancho Cucamonga, CA 91730
Gregory W. Preston/(6)/................................ 65,000 1.2% .9%
10410 Trademark Street
Rancho Cucamonga, CA 91730
Union Labor Life Insurance Co./(7)/.................... 550,000 9.7% 7.4%
111 Massachusetts Ave., NW
Washington, DC 20001
All officers and directors as a group (six (6)
persons).............................................. 3,582,500 64.0% 48.8%
</TABLE>
______________________
/(1)/ Includes an aggregate of 500,000 shares owned of record by Witham Group,
LLC and JW Acquisitions, LLC which are entities in which Mr. Witham
controls 100% of the outstanding equity and 100,000 shares which are
issuable upon the exercise of currently outstanding warrants.
/(2)/ Includes 100,000 shares which are issuable upon the exercise of currently
outstanding warrants.
/(3)/ Includes 50,000 shares which are issuable upon the exercise of currently
outstanding warrants.
/(4)/ Includes 90,000 shares which are issuable upon the exercise of currently
vested stock options and outstanding warrants.
/(5)/ Includes 55,000 shares which are issuable upon the exercise of currently
vested stock options and outstanding warrants.
/(6)/ Consists entirely of shares which are issuable upon the exercise of
currently vested stock options.
/(7)/ Consists entirely of shares which are issuable upon the exercise of
currently outstanding warrants.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Our authorized capital stock consists of 50 million shares of capital
stock, par value $0.001 per share. Currently 40 million of such shares of
capital stock are classified as Common Stock and 10 million are classified as
Preferred Stock. As of April 30, 2000, 5,138,250 shares of our Common Stock were
outstanding and held of record by 52 stockholders. Our Restated Certificate of
Incorporation authorizes the Board to classify any of the unissued shares of
authorized Preferred Stock into one or more different classes or series of
Preferred Stock which may be issued from time to time with such distinctive
designations, rights and preferences as may be determined by the Board. We may
issue Preferred Stock for possible future financings of acquisitions or for
general corporate purposes without any legal requirement that further
stockholder authorization for such issuance be obtained. The issuance of
Preferred Stock could have the effect of making an attempt to gain control of us
more difficult by means of a merger, tender offer, proxy contest or otherwise.
Preferred Stock, if issued, could have a preference on dividend payments which
could affect our ability to make dividend distributions to the holders of our
Common Stock.
Common Stock
Dividends. Holders of our Common Stock will be entitled to dividends declared
---------
and payable at such times and in such amounts as the Board will from time to
time determine out of funds legally available therefore. The rights of holders
of our Common Stock to receive dividends will be subject and subordinate to the
rights of any future holders of Preferred Stock as may be authorized by us.
Liquidation. Upon our liquidation, dissolution or winding up (either
-----------
voluntary or involuntary), after payment of liabilities, any future holders of
classes of our Preferred Stock or other senior stock, as may be authorized by
us, will be entitled to receive the payment of all liquidation and other
preference amounts; the holders of our Common Stock will be entitled to receive
our remaining assets available for distribution to our stockholders pro rata
according to the number of shares held. The following shall not constitute a
liquidation, dissolution or winding up for the foregoing purposes: (i) our
consolidation or merger with or into another corporation; (ii) a merger of any
other corporation with or into us or (iii) the sale of all or substantially all
of our property or business (other than in connection with a winding up of our
business).
Voting. Each holder of our Common Stock is entitled to one vote for each
------
share held of record on each matter submitted to vote of holders of our Common
Stock.
Other Rights. There are no preemptive or other subscription conversion,
------------
redemption or sinking fund rights or provisions with respect to shares of our
Common Stock. We hold annual stockholder meetings, and special meetings may be
called by the President or Secretary or holders of at least 20% of the total
voting power of all outstanding share of our capital stock then entitled to vote
or a majority of the Board. Our Restated Certificate of Incorporation may be
amended in accordance with the Delaware General Corporation Law, subject to
certain limitations set forth therein.
Outstanding Options, Warrants and Contingent Shares. As of the date of this
---------------------------------------------------
prospectus, up to 2,190,000 shares of Common Stock are issuable pursuant to
outstanding options, warrants and contingent shares excluding the 175,000 shares
of Common Stock reserved for issuance upon the exercise of warrants granted to
the underwriters as follows:
. 1,845,000 shares of Common Stock are issuable, in connection with
outstanding warrants, of which 1,795,000 shares are issuable at an exercise
price of $1.00 per share and the remaining 50,000 shares are issuable at an
exercise price of $5.00 per share;
. 305,000 shares of Common Stock are issuable, in connection with outstanding
options, at an exercise price of $1.00 per share; and
. 40,000 shares of Common Stock are issuable at an exercise price of $1.00
per share upon achieving certain performance criteria contained in a sale
representation agreement.
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<PAGE>
Underwriters' Warrants. At the closing of this offering, we will sell to
----------------------
Grady & Hatch and Company, Inc. underwriters' stock warrants to purchase up to
175,000 shares of our Common Stock for an aggregate purchase price of $100. The
underwriters' stock warrants will be exercisable to purchase our Common Stock at
a price equal to $7.50 per share at any time during the four (4) year period
commencing one (1) year from the effective date of this prospectus. The
underwriters' stock warrants will expire four years after the date of this
prospectus.
Section 203 of the Delaware General Corporation Law
Our Restated Certificate of Incorporation expressly provides that we have
elected not to be governed by section 203 of the Delaware General Corporation
Law, which prohibits certain business combinations with certain stockholders for
a period of three (3) years after they acquire 15% or more of the outstanding
voting stock of a corporation.
Indemnification
Our Restated Certificate of Incorporation obligates us to indemnify our
directors and officers and to pay or reimburse expenses for such individuals, in
advance of the final disposition of a proceeding, to the maximum extent
permitted from time to time by the Delaware General Corporation Law. With
respect to our directors and officers, the Delaware General Corporation Law
permits us to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by us or in the right of us) by reason of the fact that the person is or was a
director, officer, employee or agent of ours, or is or was serving at our
request as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by the person in connection with such action,
suit or proceeding if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to our best interests, and, with
respect to any criminal action or proceeding, the person had no reasonable cause
to believe the conduct was unlawful. The Delaware General Corporation Law also
permits us to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by us or in
the right of us to procure a judgment in our favor by reason of the fact that
the person is or was a director, officer, employee or agent of ours, or is or
was serving at our request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by the
person in connection with the defense or settlement of such action or suit if
the person acted in good faith and in a manner the person reasonably believed to
be in or not opposed to our best interests and except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
is adjudged to be liable to us unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought determines upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses that the Court of Chancery or such other court deems
proper.
As authorized by the Delaware General Corporation Law, our Restated
Certificate of Incorporation provides that none of our directors will be
personally liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director except for liability (i) for any breach of the
director's duty of loyalty to us or our stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) in respect of certain unlawful dividend payments or stock
redemptions or repurchases and (iv) for any transaction from which the director
derives an improper personal benefit. The effect of this provision is to
eliminate our rights and our stockholders rights (through stockholders'
derivative suits on our behalf) to recover monetary damages against a director
for breach of the fiduciary duty of care as a director (including breaches
resulting from negligent or grossly negligent behavior) except in the situations
described in clauses (i) through (iv) above. This provision does not limit or
eliminate our rights or the rights of any stockholder to seek nonmonetary relief
such as an injunction or rescission in the event of a breach of a director's
duty of care. In addition, our Restated Certificate of Incorporation provides
that if the Delaware General Corporation Law is amended to authorize the further
elimination or limitation of the liability of a director, then the liability of
the directors shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted for directors, officers and controlling persons of
AquaCell pursuant to the foregoing provisions, or otherwise, we have been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable.
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<PAGE>
Transfer Agent and Registrar
The transfer agent and registrar for our Common Stock will be U.S. Stock
Transfer Corporation, 1745 Gardena Avenue, Glendale, California 91204.
CERTAIN TRANSACTIONS
On August 6, 1998 we completed the sale of 507,000 shares of our Common Stock
to individuals pursuant to a private placement and raised $507,000. A total of
90,000 shares out of those 507,000 shares were purchased by Mr. Bergenfield and
Dr. DiTuro.
During November 1998 we sold six (6) units of our note payable-private loan
offering. Each unit consists of a $25,000 six month promissory note with
interest at the rate of 10% per annum and a three year warrant exercisable for
25,000 shares of our Common Stock at $1.00 per share. Purchasers of these units
included Ms. Laustsen, Messrs. Wolff, Bergenfield and Dr. DiTuro.
On October 31, 1999, $200,000 in notes payable, representing a total of 2
units in a $500,000 note payable-private loan offering, were purchased by our
executive officers as follows: James Witham $100,000; Karen Laustsen $75,000;
and Gary Wolff $25,000. Each full unit consists of a $100,000 six month
promissory note with interest at the rate of 10% per annum and a three year
warrant exercisable for 100,000 shares of our Common Stock at $1.00 per share.
During September 1999 we had a capital contribution of $191,000 of prior year
accrued and unpaid salaries to our executive officers as follows: James Witham
$100,000; Karen Laustsen $39,200; and Gary Wolff $51,800.
At March 31, 2000 we had an aggregate of $225,000 in accrued and unpaid
salaries to our executive officers as follows: James Witham $118,000; Karen
Laustsen $46,000; and Gary Wolff $61,000. We intend to pay all accrued salaries
out of available working capital following the completion of this offering.
During March 2000 we sold a unit in our note payable-private loan offering to
Mr. Bergenfield. The unit consisted of a $35,000 six month promissory note with
interest at the rate of 10% per annum and a three year warrant exercisable for
35,000 shares of our Common Stock at $1.00 per share.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
On the closing of this offering, 6,888,250 shares of our Common Stock will be
outstanding. The 1,750,000 shares of our Common Stock to be sold in this
offering (other than those that may be purchased by our affiliates) will be
freely tradeable. The remaining outstanding shares of our Common Stock may be
publicly resold only following their effective registration under the Securities
Act or pursuant to an available exemption (such as provided by Rule 144
promulgated pursuant to the Securities Act) from the registration requirements
of the Securities Act. These remaining shares were issued and sold by us in
private transactions in reliance on exemptions from registration under the
Securities Act. The holders of our outstanding Common Stock have agreed that
they will not, without the prior written consent of Grady & Hatch and Company,
Inc., offer, sell or otherwise dispose of any shares of Common Stock, or any
securities convertible into, or exercisable for, shares of our Common Stock,
until after the expiration of the one (1) year Lock-up Period, except that they
may transfer shares of our Common Stock in a transaction not involving any
public offering, including to a family member, or in the event of death by will
or by operation of law, provided that any such transferee of our Common Stock
agrees to be bound by the one (1) year Lock-up Period. These restrictions will
be applicable to any shares any of those persons acquire in this offering or
otherwise during the one (1) year Lock-up Period. Sales made pursuant to Rule
144 must comply with applicable holding periods and volume limitations and
certain other requirements.
Sales of substantial amounts of our Common Stock in the public market, or the
perception that such sales could occur, could adversely affect prevailing market
prices of our Common Stock and could impair our future ability to raise capital
through an offering of our equity securities.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement among us and
Grady & Hatch and Company, Inc., as representative, each of the underwriters
named below has severally agreed to purchase from us, and we have agreed to sell
to each of the underwriters, the respective number of shares of our Common Stock
set forth opposite each underwriter's name.
Number of
Underwriter Shares
----------- ------
Grady & Hatch and Company, Inc.
Total
The underwriters propose to offer the shares of our Common Stock initially at
the public offering price set forth on the cover page of this prospectus, and to
selling group members at that price less a 10% discount, or $____ per share. The
underwriters may allow concession not in excess of $______ per share of our
Common Stock to certain other dealers who are members of the National
Association of Securities Dealers, Inc. The underwriters may allow and such
dealers may reallow concessions not in excess of $______ per share to certain
other dealers. After the public offering, the offering price and other selling
terms may be changed by the Underwriters.
We have agreed to pay Grady & Hatch and Company, Inc. a non-accountable
expense allowance of 3% of the aggregate offering price of our Common Stock sold
in this offering (including any shares purchased pursuant to the over-allotment
option), of which $10,000 has been paid by us to Grady & Hatch and Company, Inc.
to cover a portion of the due diligence expenses and underwriting costs related
to this offering.
The underwriters have been granted a 45-day over-allotment option to purchase
from us up to 262,500 additional shares of our Common Stock at the public
offering price less the underwriting discount. If the underwriters exercise such
over-allotment option, then each of the underwriters will have a firm
commitment, subject to certain conditions, to purchase approximately the same
percentage thereof as the number of shares of our Common Stock to be purchased
by it as shown in the above table bears to the 1,750,000 shares of our Common
Stock offered hereby exclusive of the underwriters' over-allotment option. The
underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the shares of our Common Stock offered hereby.
-37-
<PAGE>
The Underwriting Agreement provides that we will indemnify the underwriters
and controlling persons, if any, against certain civil liabilities, including
liabilities under the Securities Act, or will contribute to payments that the
underwriters or any such controlling persons may be required to make in respect
thereof.
The Underwriting Agreement also provides that Grady & Hatch and Company, Inc.
shall have the right to designate a non-voting advisor to our Board of Directors
for a period of two (2) years after the effective date of this prospectus,
provided such advisor is acceptable to us. This advisor shall attend meetings
of our Board of Directors and shall be entitled to receive reimbursement for all
reasonable costs incurred in attending such meetings. As of the date of this
prospectus, no such advisor has been designated.
We have agreed to sell to Grady & Hatch and Company, Inc. or its designees,
for nominal consideration, warrants to purchase an aggregate of 175,000 shares
of Common Stock at an exercise price of $7.50 per share. The shares of our
Common Stock subject to those warrants will be identical in all respects to the
shares of our Common Stock offered to the public by this offering. All of the
warrants sold to Grady & Hatch and Company, Inc. will be exercisable for a four-
year period commencing one (1) year after the date of this prospectus. We have
agreed to file and maintain a current registration statement with respect to the
underlying Common Stock during the period beginning one year after the date of
this prospectus and ending five (5) years after the date of this prospectus.
Those warrants will contain anti-dilution provisions providing for appropriate
adjustment of the exercise price and number of securities that may be purchased
upon the occurrence of certain specified events. Under NASD rules, the warrants
may be transferred to co-underwriters, members of the selling group and to their
respective officers and partners.
Upon the closing of this offering, we will enter into a financial consulting
agreement with Grady & Hatch and Company, Inc. pursuant to which Grady & Hatch
and Company, Inc. will receive a consulting fee in an amount equal to two (2%)
percent of the dollar amount of our Common Stock sold in this offering
(including securities sold pursuant to the over-allotment option, to the extent
exercised), for consulting services which shall be rendered by Grady & Hatch and
Company, Inc. for a period of one (1) years from the date of this prospectus.
Such consulting services shall include, but shall not be limited to, advising us
in connection with possible acquisition opportunities, advising us regarding
stockholder relations including the preparation of our annual report and other
releases, assisting in long-term financial planning, advising us in connection
with corporate reorganizations, expansion and capital structure, and other
financial assistance. Such consulting fee shall be paid in full in advance at
each closing of this offering.
The Underwriting Agreement also provides that if we, within three (3) years
from the effective date of this prospectus, enter into any agreement or
understanding with any person or entity exclusively introduced by Grady & Hatch
and Company, Inc. involving any of the following transactions which were
originated exclusively by Grady & Hatch and Company, Inc.:
. the sale of all or substantially all of our assets;
. the merger or consolidation of us (other than a merger or consolidation
effected for the purpose of changing our domicile) with another entity, or
. the acquisition by us of the assets or stock of another business entity,
which agreement or understanding is thereafter consummated, whether or not
during such three (3) year period.
then we, upon such consummation, shall pay to Grady & Hatch and Company, Inc. an
amount equal to the following percentages of the consideration paid by us in
connection with such transaction: 5% of the first $1,000,000 or portion
thereof, of such consideration; 4% of the second $1,000,000 or portion thereof
of such consideration; and 3% of such consideration in excess of the first
$2,000,000 of such consideration. The fees payable to Grady & Hatch and
Company, Inc. will be in the same form of consideration as that paid by or to
us, as the case may be, in any such transactions.
In order to facilitate this offering, certain persons participating in this
offering may engage in transactions that stabilize, maintain or otherwise affect
the price of our Common Stock during and after this offering. Specifically, the
underwriters may over-allot or otherwise create a short position in our Common
Stock for their own account by selling more shares of our Common Stock than have
been sold to them. The underwriters may elect to cover any such short position
by purchasing shares of our Common Stock in the open market or by exercising the
over-allotment option granted to the underwriters. In addition, such persons
may stabilize or maintain the price of our Common Stock by bidding for or
purchasing shares of our Common Stock in the open market and may impose penalty
bids, under which selling concessions allowed to syndicate members or other
broker-dealers participating in
-38-
<PAGE>
this offering are reclaimed if shares of our Common Stock previously distributed
in this offering are repurchased in connection with stabilizing transactions or
otherwise. The effect of these transactions may be to stabilize or maintain the
market price of our Common Stock at a level above that which might otherwise
prevail in the open market. The imposition of a penalty bid may also affect the
price of our Common Stock to the extent that it discourages resales thereof. No
representation is made as to the magnitude or effect of any such stabilization
or other transactions. Such transactions may be effected on Nasdaq and AMEX and,
if commenced, may be discontinued at any time.
In connection with this offering, certain underwriters and selling group
members or their respective affiliates who are qualified market makers on Nasdaq
or AMEX may engage in passive market making transactions in our Common Stock on
Nasdaq or AMEX in accordance with Rule 103 of Regulation M under the Securities
Exchange Act of 1934. Passive market makers must comply with applicable volume
and price limitations and must be identified as such. In general, a passive
market maker must display its bid at a price in excess of the highest
independent bid for such security; if all independent bids are lowered below the
passive market maker's bid, however, such bid must then be lowered when certain
purchase limits are exceeded.
CHANGES IN ACCOUNTANTS
In January 2000, we appointed Richard A. Eisner & Company, LLP ("Eisner") to
replace Deloitte & Touche LLP ("Deloitte") as our independent auditors. The
decision to change independent auditors was approved by our Board of Directors.
There were no disagreements between us and Deloitte on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures. Deloitte had not issued a report in the past two fiscal years
containing a disclaimer or adverse or qualified opinion. There were no
disagreements between the date of the last audit report prepared by Deloitte and
the date they were discharged in favor of Eisner.
LEGAL MATTERS
The validity of the issuance of our Common Stock offered hereby will be passed
upon by Allen Matkins Leck Gamble & Mallory LLP. Certain legal matters in
connection with this offering will be passed upon for the underwriters by Lester
Morse, P.C. A partner in Allen Matkins is a director of AquaCell and holds an
option to purchase 215,000 shares of our Common Stock.
EXPERTS
Our consolidated financial statements as of June 30, 1999 and 1998 and for the
years then ended and for the period from March 19, 1997 (date of inception)
through June 30, 1999, included in this prospectus have been audited by Richard
A. Eisner & Company, LLP, independent auditors, as stated in their report which
is included herein, and has been given upon their authority as experts in
accounting and auditing.
ADDITIONAL INFORMATION
We have not previously been subject to the reporting requirements of the
Securities and Exchange Act of 1934, as amended. We have filed a Registration
Statement on Form SB-2 (the "Registration Statement") under the Securities Act
with the Securities and Exchange Commission (the "Commission") with respect to
this offering. This prospectus, filed as part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement,
or the exhibits or schedules thereto, in accordance with the rules and
regulations of the Commission, and reference is hereby made to such omitted
information. The statements made in this prospectus concerning documents filed
as exhibits to the Registration Statement accurately describe the material
provisions of such documents and are qualified in their entirety by reference to
such exhibits for complete statements of their provisions. The Registration
Statement, of which this prospectus is a part, and exhibits and schedules
thereto can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's Regional Offices located at 7 World Trade
Center, New York, New York 10048 and Northwest Atrium, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission also maintains a
World Wide Web site (address: http://www.sec.gov) that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission.
-39-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Historical Financial Statements
Independent Auditors' Report.................................................................... F-2
Consolidated Balance Sheet as of June 30, 1999.................................................. F-3
Consolidated Statements of Operations for the years ended June 30, 1999 and June 30, 1998....... F-4
Consolidated Statements of Capital Deficiency for the years ended June 30, 1999 and
June 30, 1998................................................................................. F-5
Consolidated Statements of Cash Flows for the years ended June 30, 1999 and June 30, 1998....... F-6
Notes to Financial Statements................................................................... F-7
(Unaudited)
Condensed Consolidated Balance Sheet as of March 31, 2000....................................... F-14
Condensed Consolidated Statements of Operations for the nine months ended March 31, 2000 and
March 31, 1999................................................................................ F-15
Condensed Consolidated Statement of Capital Deficiency for the nine months ended March 31,
2000.......................................................................................... F-16
Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2000 and
March 31, 1999................................................................................ F-17
Notes to Condensed Consolidated Financial Statements............................................ F-18
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Aquacell Technologies, Inc.
Rancho Cucamonga, California
We have audited the accompanying consolidated balance sheet of Aquacell
Technologies, Inc. (formerly Global Water Solutions, Inc.) and subsidiaries (the
"Company") (a development stage enterprise) as of June 30, 1999 and the related
consolidated statements of operations, capital deficiency and cash flows for the
years ended June 30, 1999 and 1998 and for the period from March 19, 1997
(inception) through June 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of Aquacell Technologies,
Inc. and subsidiaries as of June 30, 1999, and the consolidated results of their
operations and their consolidated cash flows for the years ended June 30, 1999
and 1998 and for the period from March 19, 1997 (inception) through June 30,
1999, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A to the
financial statements, the Company has suffered recurring net losses since
inception and, as of June 30, 1999, has a working capital deficiency and a
capital deficiency which raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note A. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Richard A. Eisner & Company, LLP
New York, New York
February 21, 2000
F-2
<PAGE>
AQUACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Balance Sheet
June 30, 1999
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash $ 18,000
Accounts receivable 6,000
Inventories 47,000
Prepaid expenses and other current assets 3,000
-----------
Total current assets 74,000
Property and equipment, net 114,000
Other assets:
Patents, net 187,000
Loan receivable, net of allowance $50,000 0
Deferred offering costs 156,000
Security deposits 11,000
-----------
$ 542,000
===========
LIABILITIES
Current liabilities:
Accounts payable $ 181,000
Accrued expenses 374,000
Loans payable 42,000
Notes and loans payable to officer/stockholders 70,000
Notes payable - private loan offering, including accrued interest of $21,000, net of
debt discount of $10,000 536,000
Note payable - Union Labor Life Insurance Co., net of debt discount of $5,000 495,000
-----------
Total current liabilities 1,698,000
-----------
Redeemable common stock (135,000 shares outstanding), including accretion of
$5,000 140,000
-----------
Commitments and contingencies
CAPITAL DEFICIENCY
Preferred stock, par value $.001; 10,000,000 shares authorized; no shares issued
Common stock, par value $.001; 40,000,000 shares authorized; 4,803,250 issued and
outstanding (net of 135,000 redeemable shares) 5,000
Additional paid-in capital 895,000
Deficit accumulated during development stage (2,196,000)
-----------
(1,296,000)
-----------
$ 542,000
===========
</TABLE>
See independent auditors' report and notes to financial statements
F-3
<PAGE>
AQUACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
March 19,
1997
(Date of
Inception)
Year Ended Through
June 30, June 30,
-------------------------
1999 1998 1999
------------ ----------- -----------
<S> <C> <C> <C>
Sales $ 29,000 $ 29,000
Cost of sales 11,000 11,000
----------- -----------
Gross profit 18,000 18,000
----------- -----------
Expenses:
Salaries and wages 401,000 $ 154,000 555,000
Legal, accounting and other professional expenses 198,000 118,000 316,000
Stock-based compensation 231,000 231,000
Selling, general and administrative expenses 605,000 296,000 901,000
Depreciation and amortization 28,000 5,000 33,000
----------- ---------- -----------
1,463,000 573,000 2,036,000
----------- ---------- -----------
Loss before interest expense (1,445,000) (573,000) (2,018,000)
----------- ---------- -----------
Interest expense:
Amortization of debt discount 127,000 127,000
Other 46,000 46,000
----------- -----------
Total interest expense 173,000 173,000
----------- -----------
Net loss (1,618,000) (573,000) (2,191,000)
Accretion of redemption amount of redeemable common stock 5,000 5,000
----------- -----------
Net loss attributable to common stockholders $(1,623,000) $ (573,000) $(2,196,000)
=========== ========== ===========
Basic and diluted net loss per common share $ (0.34) $ (0.14)
=========== ==========
Weighted average number of common shares outstanding 4,731,000 4,223,000
=========== ==========
</TABLE>
See independent auditors' report and notes to financial statements
F-4
<PAGE>
AQUACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Capital Deficiency
<TABLE>
<CAPTION>
Deficit
Accumulated
Amount Additional During
Number of Per Common Paid-In Development
Shares Share Stock Capital Stage Total
--------- ------ ------ ------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance - March 19, 1997 (date of
inception)
May 1998 - sale of common stock
to founders 4,000,000 $0.001 $4,000 $ 4,000
Various dates - sale of common stock
for cash in connection with private
placement, net of costs of $49,000 435,000 $ 1.00 $ 386,000 386,000
Net loss - year ended June 30, 1998 $ (573,000) (573,000)
--------- ----- --------- ----------- -----------
Balance - June 30, 1998 4,435,000 4,000 386,000 (573,000) (183,000)
Various dates - sale of common stock
for cash in connection with private
placement 72,000 $ 1.00 72,000 72,000
Various dates - issuance of common
stock to employees and consultants
in exchange for services 231,250 $ 1.00 1,000 230,000 231,000
December 1998 - issuance of common
stock in connection with the purchase
of certain assets of KABB, Inc. 200,000 $ 1.00 200,000 200,000
Less shares which are mandatorily
redeemable (135,000) $ 1.00 (135,000) (135,000)
Issuance of 525,000 common stock
warrants in connection with
private loan offering 56,000 56,000
Issuance of 500,000 common stock
warrants to ULLICO 86,000 86,000
Accretion of redemption amount of
redeemable common stock (5,000) (5,000)
Net loss for the year ended June 30, 1999 (1,618,000) (1,618,000)
--------- ------ --------- ----------- -----------
Balance - June 30, 1999 4,803,250 $5,000 $ 895,000 $(2,196,000) $(1,296,000)
========= ====== ========= =========== ===========
</TABLE>
See independent auditors' report and notes to financial statements F-5
<PAGE>
AQUACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
March 19,
1997
(Date of
Inception)
Year Ended Through
June 30, June 30,
-------------------------
1999 1998 1999
------------------------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,618,000) $(573,000) $(2,191,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock based compensation 231,000 231,000
Interest expense related to stock warrant issuances 127,000 127,000
Depreciation and amortization 28,000 4,000 32,000
Changes in:
Accounts receivable (6,000) (6,000)
Prepaid expenses and other current assets (2,000) (1,000) (3,000)
Inventories (37,000) (37,000)
Security deposits (6,000) (5,000) (11,000)
Accounts payable (39,000) 64,000 25,000
Accrued expenses 222,000 152,000 374,000
Accrued interest 21,000 21,000
----------- --------- -----------
Net cash used in operating activities (1,079,000) (359,000) (1,438,000)
----------- --------- -----------
Cash flows from investing activities:
Purchase of property and equipment (30,000) (40,000) (70,000)
Purchase of KABB assets (73,000) (73,000)
----------- --------- -----------
Net cash used in investing activities (103,000) (40,000) (143,000)
----------- --------- -----------
Cash flows from financing activities:
Sales of common stock 122,000 340,000 462,000
Proceeds of notes payable 42,000 42,000
Proceeds of notes payable - private loan offering 525,000 525,000
Proceeds of notes payable - Union Labor Life Insurance Co. 500,000 500,000
Proceeds net of repayments from loans from officers and others 9,000 61,000 70,000
----------- --------- -----------
Net cash provided by financing activities 1,198,000 401,000 1,599,000
----------- --------- -----------
Increase in cash 16,000 2,000 18,000
Cash - beginning of period 2,000
----------- --------- -----------
Cash - end of period $ 18,000 $ 2,000 $ 18,000
=========== ========= ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 25,000 $ 25,000
Supplemental disclosure of noncash investing and financing activities:
In December 1998, the Company purchased certain assets of KABB, Inc./Aquacell International, Inc. through the issuance
of 200,000 shares of common stock valued at $1 per share and a cash payment of $50,000. In connection with this sale,
the Company granted the seller the option to put 135,000 shares of common stock back to the Company (Note K):
Details of asset purchase:
Inventory $ 10,000 $ 10,000
Property $ 65,000 $ 65,000
Patent $ 175,000 $ 175,000
Redeemable common stock $ (135,000) $ (135,000)
Common stock $ (65,000) $ (65,000)
Cash paid $ (50,000) $ (50,000)
Accrual of deferred offering costs $ 156,000 $ 156,000
</TABLE>
See independent auditors' report and notes to financial statements F-6
<PAGE>
AQUACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
(a development stage enterprise)
Notes to Financial Statements
June 30, 1999
Note A - Description of Business
Aquacell Technologies, Inc. (formerly Global Water Solutions, Inc.) (the
"Company") was incorporated in Delaware on March 19, 1997. The Company was
inactive until July 1, 1997; its principal business objective is to operate in
the water purification business. The Company is in the development stage and,
to date, has not generated any significant sales, has incurred expenses and
sustained losses. Consequently, its operations are subject to all the risks
inherent in the establishment of a new business enterprise.
The accompanying financial statements have been prepared on a going-concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. At June 30, 1999, the Company was
still in its development stage and had a capital deficiency of $1,296,000 and a
working capital deficiency of $1,624,000. For the year ended June 30, 1999, the
Company incurred a net loss of $1,618,000 and is reliant on current and future
stockholders' financial support to assist in meeting cash flow needs.
Management plans to continue, and ultimately complete, the Company's development
stage activities in the water purification industry. Additionally, management
plans to continue raising capital, and controlling costs at levels sufficient to
complete development stage activities, and ultimately to achieve sales volumes
that are sufficient to support the Company's cost structure. The Company is
attempting to raise additional financing through a proposed public offering (see
Note O).
The Company's continuation as a going concern is dependent on its ability to
achieve the development stage and operational improvement goals discussed in the
preceding paragraph, raise capital and ultimately to attain profitable
operations. However, no assurance can be given at this time as to whether the
Company will be able to achieve these objectives. These factors, among others,
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities that might be necessary should the Company be
unable to continue as a going concern for a reasonable period of time.
Note B - Purchase of Selected Assets of KABB, Inc./Aquacell International, Inc.
On December 21, 1998, the Company completed its purchase of selected assets of
KABB, Inc./Aquacell International, Inc. for a total price of $250,000, comprised
of $50,000 cash and 200,000 shares of its common stock valued at $1.00 per share
(see Note K).
Note C - Summary of Significant Accounting Policies
[1] Principles of consolidation:
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries since their dates of
acquisition or incorporation. Such subsidiaries are Global Water Holdings,
Inc., and Global Water - Aquacell, Inc., both of which were incorporated
December 21, 1998. All significant intercompany accounts and transactions
have been eliminated in consolidation.
[2] Inventories:
Inventories are carried at the lower of cost, determined using the FIFO
(first-in, first-out) method or market.
F-7
<PAGE>
AQUACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
(a development stage enterprise)
Notes to Financial Statements
June 30, 1999
Note C - Summary of Significant Accounting Policies (continued)
[3] Property and equipment:
Property and equipment is stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the related
assets, over five years.
[4] Patents:
The value of patents is amortized over their remaining useful lives of
approximately nine years as of June 30, 1999, using the straight-line
method. Patents at June 30, 1999 are stated net of accumulated amortization
of approximately $9,700.
[5] Revenue recognition:
Revenues are recorded at the time of shipment of products or performance of
services.
[6] Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
[7] Income taxes:
The Company accounts for income taxes using the asset and liability method
described in SFAS No.109, "Accounting For Income Taxes", the objective of
which is to establish deferred tax assets and liabilities for the temporary
differences between the financial reporting and the tax bases of the
Company's assets and liabilities at enacted tax rates expected to be in
effect when such amounts are realized or settled. A valuation allowance
related to deferred tax assets is recorded when it is more likely than not
that some portion or all of the deferred tax assets will not be realized.
[8] Net loss per common share:
Loss per common share is based upon the weighted average number of common
shares outstanding during the year including redeemable common stock.
Diluted loss per common share is the same as basic loss per share, as the
effects of potentially dilutive securities are antidilutive.
[9] Long-lived assets:
The Company accounts for the impairment and disposition of long-lived
assets in accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". In
accordance with SFAS No.121, long-lived assets to be held are reviewed
whenever events or changes in circumstances indicate that their carrying
value may not be recoverable. The Company periodically reviews the carrying
value of long-lived assets to determine whether or not an impairment to
such value has occurred, and has determined that as of June 30, 1999 and
1998, there was no impairment.
F-8
<PAGE>
AQUACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
(a development stage enterprise)
Notes to Financial Statements
June 30, 1999
Note C - Summary of Significant Accounting Policies (continued)
[10] Concentrations:
The Company utilizes a limited number of suppliers for certain components
used in its products but has no long-term supply contracts with them. Due
to the competitive conditions in the industry, there can be no assurance
that the Company will not experience difficulties in meeting its supply
requirements in the future.
[11] Financial instruments:
The carrying amounts of the Company's cash, receivables, and accounts
payable approximate fair value. The carrying amounts of the Company's loans
and notes payable approximate their fair value due to the short-term nature
of these items.
Note D - Inventories
Inventories consist of the following at June 30, 1999:
Raw materials $ 37,000
Work in progress 9,000
Completed product 1,000
--------
$ 47,000
========
Note E - Loan Receivable
At June 30, 1999, the loan receivable consisted of an unsecured note for $50,000
bearing interest at 8% per annum, due January 29, 2000. An allowance was
recorded at June 30, 1999, representing the full balance of the note.
Note F - Property and Equipment
Property and equipment is summarized as follows at June 30, 1999:
Furniture and fixtures $ 34,000
Equipment - office 24,000
Machinery and equipment 70,000
Leasehold improvements 7,000
--------
135,000
Less accumulated depreciation (21,000)
--------
$114,000
========
Note G - Loans Payable
At June 30, 1999, the loans payable consisted of unsecured notes bearing
interest at 10% per annum and are due on demand.
F-9
<PAGE>
AQUACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
(a development stage enterprise)
Notes to Financial Statements
June 30, 1999
Note H - Note and Loans Payable to Officer/Stockholders
Note and loans payable to officers consist of the following at June 30, 1999:
<TABLE>
<S> <C>
Unsecured demand loans bearing interest at the rate of 10% per annum $ 49,000
Unsecured demand note bearing interest at the rate of 8% per annum 20,000
Unsecured demand interest free loans 1,000
--------
$ 70,000
========
</TABLE>
Note I - Notes Payable - Private Loan Offering
At June 30, 1999, the notes payable-private loan offering amount represented
proceeds from the sale of 21 units of a private loan offering with each unit
consisting of a $25,000 six-month promissory note with maturities ranging from
November 5, 1999, through December 16, 1999, with interest at the rate of 10%
per annum and a three-year warrant exercisable for 25,000 shares of the
Company's common stock at exercise prices of $1.00 and $2.00 per share. At
September 1, 1999, 100,000 warrants exerciseable at $2.00 per share were
repriced to $1.00 per share. The due dates have been extended to June 15, 2000
(excluding $75,000 due May 5, 2000). At June 30, 1999, interest accrued with
respect to these loans amounted to $21,000.
In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company estimated the fair value of these warrants to purchase 525,000 shares to
be $56,000, using the following assumptions in applying the Black-Scholes
valuation method; risk-free interest rates ranging from 4.43% to 5.09%,
volatility of 1%, and a term of three years. Such amount is being amortized to
interest expense over the six-month period of the related promissory notes.
Amortization amounted to $46,000 during the year ended June 30, 1999.
Unamortized discount of $10,000 has been reflected as a reduction of the notes
payable amount in the accompanying June 30, 1999 financial statements.
Note J - Note Payable - Union Labor Life Insurance Company
On January 11, 1999, the Company closed a $500,000 note and warrant purchase
agreement with the Union Labor Life Insurance Co. ("ULLICO"). Under the terms of
the agreement, the Company issued a six-month senior note, with interest at the
rate of 10% per annum and 500,000 warrants to be exercisable for a four-year
period at $1.00 per share. The maturity date was subsequently extended to April
30, 2000. The Company estimated the fair value of these warrants to be $86,000,
using the following assumptions in applying the Black-Scholes valuation method:
a risk-free interest rate of 4.76%, volatility of 1% and a term of four years.
Such amount is being amortized to interest expense over the six-month term of
the note. Amortization amounted to $81,000 during the year ended June 30, 1999.
At June 30, 1999, unamortized debt discount of $5,000 has been reflected as a
reduction of the notes payable amount in the accompanying financial statements.
Interest expense in relation to this loan amounted to $24,000 during the year
ended June 30, 1999. In connection with extending the maturity date of the note
to April 30, 2000, the accrued interest at January 1, 2000 was added to
principal and the interest rate on the new principal amount was increased to
15%.
F-10
<PAGE>
AQUACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
(a development stage enterprise)
Notes to Financial Statements
June 30, 1999
Note K - Redeemable Common Stock
In connection with the purchase of selected assets of KABB, Inc./Aquacell
International, Inc. (consideration for which included 200,000 shares of the
Company's common stock), an option was granted to the holder of 135,000 shares
of common stock to put the stock back to the Company at a price of $1.00 per
share plus interest at 7% per annum if the Company does not complete an initial
public offering by December 21, 2000. Pending the Company's completion of such
an offering, interest has been accrued in the amount of $5,000, and the stock is
being reflected outside of the capital deficiency section of the June 30, 1999
balance sheet.
Note L - Capital Deficiency
[1] Authorized capital
During August 1998, the Company filed an amendment to its Certificate of
Incorporation, changing its authorized capital structure to designate
40,000,000 shares as common stock and 10,000,000 shares as preferred stock.
The Company further designated 500,000 shares of the preferred stock as
Series A preferred stock with a 10% dividend and right to convert to common
stock on a share-for-share basis upon completion of an initial public
offering. The Company does not anticipate issuing any shares of the Series
A preferred stock.
[2] Common stock issued to employees and consultants:
During the year ended June 30, 1999, the Company issued a total of 231,250
shares of common stock to employees and consultants for services rendered.
The statement of operations for the year ended June 30, 1999, reflects a
charge of $231,000 for those services, representing management's estimate
of the value of the stock and services received. None of these shares was
issued to management of the Company.
[3] Private placement:
The Company has raised capital through the sale of common shares in a
private placement at $1.00 per share. From October 1997 through August
1998, 507,000 shares had been sold for proceeds of approximately $458,000,
after related expenses.
[4] Stock option plan:
During August 1998, the Company adopted the 1998 Incentive Stock Plan (the
"Plan") under which options (either incentive or nonqualified), stock
appreciation rights, stock and other awards, covering an aggregate of
1,000,000 shares of common stock, may be granted to officers, directors,
employees and consultants of the Company. The exercise price established
for any awards granted under the Plan shall be determined by a Compensation
Committee appointed by the Company's Board of Directors. The exercise price
of incentive stock options cannot be less than 100% (110% for 10% or
greater shareholder employees) of the fair market value ("FMV") at the date
of grant and the exercise price of nonqualified options cannot be less than
85% of the FMV at the date of grant. The exercise period of incentive
options cannot extend beyond 10 years from the date of grant and
nonqualified options cannot extend beyond 15 years from the date of grant.
No options were granted during the year ended June 30, 1999.
F-11
<PAGE>
AQUACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
(a development stage enterprise)
Notes to Financial Statements
June 30, 1999
Note L - Capital Deficiency (continued)
[5] Common stock purchase warrants:
At June 30, 1999, the Company had warrants outstanding as follows:
Exercise
Price Shares Expiration Date
-------- ----------- --------------------------------
1.00 500,000 January 2003
1.00 425,000 November 2002 to March 2003 (1)
2.00* 100,000 May 2003 to June 2003 (1)
---------
1,025,000
=========
* Repriced to $1.00 at September 1, 1999.
(1) Warrants expire three years from issuance.
At June 30, 1999, the weighted average exercise price of the outstanding
warrants was $1.10 and the weighted average remaining contractual life of
the warrants was 3.06 years.
Note M - Income Taxes
At June 30, 1999, the Company had available federal net operating loss
carryforward to reduce future taxable income of approximately $2,000,000. The
net operating loss carryforwards expire at various dates through 2019.
At June 30, 1999, the Company has a deferred tax asset of approximately
$880,000, representing the benefits of its net operating loss carryforwards,
allowance for doubtful accounts and certain start-up costs capitalized for tax
purposes. The Company has not recorded a tax benefit because realization of the
benefit is uncertain and therefore a valuation allowance has been fully provided
against the deferred tax asset. The difference between the federal statutory
rate of 34% and the Company's effective tax rate of 0% is due to an increase in
the valuation allowance of $230,000 and $650,000 in 1998 and 1999, respectively.
Note N - Commitments and Contingencies
[1] Lease commitments:
The Company occupies office space in California and New Jersey. During
December 1998, the Company signed a five-year lease on behalf of its newly
formed subsidiary, Global Water-Aquacell, Inc. for 10,000 feet of combined
warehouse and office space in Rancho Cucamonga, California. The lease
became effective on January 1,1999 and provides for rents ranging from
$5,300 to $6,300 per month over the life of the lease.
F-12
<PAGE>
AQUACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
(a development stage enterprise)
Notes to Financial Statements
June 30, 1999
Note N - Commitments and Contingencies (continued)
[1] Lease commitments: (continued)
As of June 30, 1999, future minimum commitments under the leases are as
follows:
Year Ending
June 30,
-----------
2000 $ 82,000
2001 75,000
2002 71,000
2003 74,000
2004 38,000
--------
$340,000
========
Rent expense amounted to $74,000 and $28,000 for the years ended June 30,
1999 and 1998, respectively.
[2] Employment agreement:
In January 1999, the Company entered into a five-year employment agreement
with the president of the Global Water-Aquacell, Inc. subsidiary which
provides for an initial minimum annual salary of $105,000, plus a bonus
based on the achievement of certain financial targets. The president
resigned during January 2000.
[3] Consulting agreement:
In connection with the purchase of certain assets of KABB, Inc./Aquacell
International, Inc. (see Note B), the Company entered into two 18-month
consulting agreements with the founders of KABB, Inc/Aquacell
International, Inc. which commence in January 1999 for a total cost of
$77,000.
Note O - Proposed Public Offering
The Company received a letter of intent from an underwriter with respect to a
proposed public offering of shares of common stock. There is no assurance that
such offering will be consummated. The Company anticipates incurring
substantial expenses in connection with the proposed public offering which, if
the offering is not consummated, will be charged to expense.
Note P - Subsequent Event (Unaudited)
The Company has been conducting a private loan offering of units each of which
consists of a $25,000 six-month promissory note with three-year warrants to
purchase 25,000 shares of the Company's common stock at $1.00 per share (see
Note J). The Company sold units amounting to $465,000 during the fourth
calendar quarter of 1999.
F-13
<PAGE>
AQUACELL TECHNOLOGIES, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheet
March 31, 2000
(unaudited)
<TABLE>
<CAPTION>
ASSETS
Current assets:
<S> <C>
Cash $ 8,000
Accounts receivable, net 45,000
Inventories 63,000
Prepaid expenses and other current assets 1,000
-----------
Total current assets 117,000
Property and equipment, net 97,000
Other assets:
Patents, net 170,000
Loan receivable, net of allowance of $50,000 0
Deferred offering costs 167,000
Security deposits and other assets 10,000
-----------
$ 561,000
===========
LIABILITIES
Current liabilities
Accounts payable $ 278,000
Accrued expenses 446,000
Loans payable 1,000
Loans payable to officers/stockholders 6,000
Notes payable-private loan offering including accrued
interest of $76,000 net of debt discount of $42,000 1,129,000
Note payable-Union Labor Life Insurance Company, including 537,000
accrued interest of $20,000 -----------
Total current liabilities 2,397,000
-----------
Redeemable common stock(135,000 shares outstanding), 147,000
including accretion of $12,000 -----------
Commitment and contingencies
CAPITAL DEFICIENCY:
Preferred stock, par value $.001; 10,000,000 shares
authorized; no shares issued
Common stock, par value $.001; 40,000,000 shares authorized;
4,803,250 issued and outstanding (net of 135,000 redeemable
shares) 5,000
Additional paid-in capital 1,197,000
Accumulated deficit (3,185,000)
-----------
(1,983,000)
-----------
$ 561,000
===========
</TABLE>
See notes to condensed consolidated financial statements
F-14
<PAGE>
AQUACELL TECHNOLOGIES, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Condensed Consolidated Statements of Operations
(unaudited)
Nine Months Ended
March 31,
---------------------------
2000 1999
---------- -----------
<S> <C> <C>
Sales $ 201,000 $ 10,000
Cost of Sales 94,000 6,000
---------- -----------
Gross Profit 107,000 4,000
---------- -----------
Operating expenses:
Salaries and wages 380,000 277,000
Legal, accounting and consulting expenses 101,000 175,000
Stock-based compensation - 231,000
Selling, general and administrative expenses 381,000 387,000
Depreciation and amortization 37,000 16,000
---------- -----------
899,000 1,086,000
---------- -----------
Loss before interest expense (792,000) (1,082,000)
---------- -----------
Interest expense:
Amortization of debt discount 83,000 61,000
Other 107,000 21,000
---------- -----------
190,000 82,000
---------- -----------
Net loss (982,000) (1,164,000)
Accretion of redemption amount of redeemable
common stock 7,000 3,000
---------- -----------
Net loss attributable to common stockholders $ (989,000) $(1,167,000)
========== ===========
Net loss per common share - basic and diluted $ (0.20) $ (0.25)
========== ===========
Weighted average share outstanding - basic and diluted 4,938,000 4,662,000
========== ===========
</TABLE>
See notes to condensed consolidated financial statements
F-15
<PAGE>
AQUACELL TECHNOLOGIES, INC.
Condensed Consolidated Statement of Capital Deficiency
(unaudited)
<TABLE>
<CAPTION> Additional
Number of Common Paid-in Accumulated
Shares Stock Capital Deficit Total
-------------- ----------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Balance - July 1, 1999 4,803,250 $ 5,000 $ 895,000 $ (2,196,000) $ (1,296,000)
Issuance of 570,000 common stock warrants
in connection with private loan offering 111,000 111,000
Contribution of prior period accrued officers'
salaries to additional paid-in capital 191,000 191,000
Accretion of redemption amount of redeemable
common stock (7,000) (7,000)
Net loss - - - (982,000) (982,000)
-------------- ----------- -------------- --------------- --------------
Balance - March 31, 2000 4,803,250 $ 5,000 $ 1,197,000 $ (3,185,000) $ (1,983,000)
============== =========== ============== =============== ==============
</TABLE>
See notes to condensed consolidated financial statements
F-16
<PAGE>
AQUACELL TECHNOLOGIES, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended
March 31,
-------------------------------
2000 1999
---------- -----------
Cash flows from operating activites:
Net loss $(982,000) $(1,164,000)
Adjustments to reconcile net loss to
net cash used in operating activities;
Stock based compensation - 231,000
Interest expense related to stock
warrant issuances 83,000 61,000
Depreciation and amortization 37,000 16,000
Changes in;
Accounts receivable (39,000) (1,000)
Prepaid expenses and other
current assets 2,000 (24,000)
Inventory (16,000) (17,000)
Security deposits and other assets 1,000 (6,000)
Accounts payable 98,000 57,000
Accrued expenses 349,000 (13,000)
--------- -----------
Net cash used in operating
activities (467,000) (860,000)
========= ===========
Cash flows from investing activities;
Purchases of property and equipment (3,000) (30,000)
Purchase of KABB assets (73,000)
--------- -----------
Net cash used in investing
activities (3,000) (103,000)
--------- -----------
Cash flows from financing activities:
Sales of common stock - 122,000
Deferred offering costs (5,000) -
Proceeds of notes payable - private
loan offering 310,000 425,000
Loans from officers and others, net 155,000 (40,000)
Proceeds of notes payable - Union
Labor Life Insurance Co. - 500,000
--------- -----------
Net cash provided by
financing activities 460,000 1,007,000
--------- -----------
Increase (decrease) in cash (10,000) 44,000
Cash, beginning of period 18,000 2,000
--------- -----------
Cash, end of period $ 8,000 $ 46,000
========= ===========
Supplemental disclosure of cash flow
information:
Cash paid for interest $ 9,000 $ 7,000
Supplemental schedule of non-cash
investing and financing activities:
In December 1998, the Company
purchased certain assets of KABB,
Inc/Aquacell, Inc. through the
issuance of 200,000 shares of
common stock valued at $1 per share
and a cash payment of $50,000:
Details of asset purchase:
Inventory $ 10,000
Property $ 65,000
Patent $ 175,000
Common stock (including
135,000 redeemable shares) $ (200,000)
Cash paid $ (50,000)
Contribution of accrued salaries to
capital $ 191,000
Common stock warrants issued as debt
discount $ 111,000 $ 141,000
Accrued interest added to principal on
note payable $ 17,000
Conversion of notes and loans from
officers and others to notes payable
private loan offering $ 260,000
Accrual of deferred offering costs $ 162,000
See notes to condensed consolidated financial statements
F-17
<PAGE>
AQUACELL TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
March 31, 2000 and 1999 (Unaudited)
NOTE A - BASIS OF PRESENTATION
AquaCell Technologies, Inc. (formerly Global Water Solutions, Inc.) (the
"Company") was incorporated in Delaware on March 19, 1997. The Company was
inactive until July 1, 1997; its principal business objective is to operate in
the water purification business.
The Company commenced its principal operations and has generated sufficient
revenues during the fiscal year beginning July 1, 1999, to no longer be
considered a "development stage enterprise", as defined by Statement of
Financial Accounting Standards (SFAS) No. 7, "Accounting and Reporting by
Development and Stage Enterprise".
The accompanying condensed consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary. All significant
intercompany accounts and transactions have been eliminated in consolidation.
During the nine months ended March 31, 2000 an inactive holding company was
merged into its parent.
The accompanying condensed consolidated financial statements have been prepared
on a going-concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. At March 31,
2000, the Company had a capital deficiency of $1,983,000 and a working capital
deficiency of $2,280,000. For the nine months ended March 31, 2000, the Company
incurred a net loss of $982,000 and is attempting to raise additional financing
through a proposed public offering.
The Company's continuation as a going concern is dependant on its ability to
achieve the operational improvement goals discussed in the preceding paragraph,
raise capital and ultimately to attain profitable operations. However, no
assurance can be given at this time as to whether the Company will be able to
achieve these objectives. These factors, among others, raise substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern for a reasonable period of time.
In the opinion of the Company, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly the interim consolidated
financial position, results of operations and cash flows for the periods
presented. Results of operations for interim periods are not necessarily
indicative of the results of operations for a full year.
F-18
<PAGE>
AQUACELL TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
March 31, 2000 and 1999 (Unaudited)
NOTE B - INVENTORIES
Inventories consist of the following:
Raw materials $ 47,000
Work in progress 11,000
Completed product 5,000
--------
$ 63,000
========
NOTE C - LOAN RECEIVABLE
At March 31, 2000, the loan receivable amounting to $50,000, consisted of an
unsecured note from a previously affiliated company, bearing interest at 8% per
annum, due January 29, 2000. The Company has recorded an allowance for the full
amount of the receivable.
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
Furniture and fixtures $ 34,000
Equipment - office 26,000
Machinery and equipment 70,000
Leasehold improvements 8,000
--------
$138,000
Less accumulated depreciation 41,000
--------
$ 97,000
========
NOTE E - LOANS PAYABLE
At March 31, 2000, the loans payable to individuals consisted of unsecured
demand loans bearing interest at 10% per annum.
NOTE F - LOANS PAYABLE TO OFFICERS/STOCKHOLDERS
Loans payable to officers/stockholders consist of unsecured non-interest bearing
demand loans.
F-19
<PAGE>
AQUACELL TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
March 31, 2000 and 1999 (Unaudited)
NOTE G - NOTES PAYABLE - PRIVATE LOAN OFFERING.
At March 31,2000, notes payable - private loan offering represent the proceeds
from the sale of units in three private loan offerings. The first loan offering
commenced in November 1998 and was terminated September 1, 1999. The offering
consisted of thirty units, each unit consisting of a $25,000 six-month
promissory note with three-year warrants to purchase 25,000 shares of the
Company's common stock at exercise prices of $1.00 and $2.00 per share. A total
of twenty-one units were sold yielding gross proceeds of $525,000 through June
30, 1999, seventeen with warrants at $1 per share and four with warrants at
$2.00 per share. The Company recorded a debt discount based upon the estimated
value of the warrants totaling $62,000. The warrants were valued utilizing the
Black-Scholes model. On September 1, 1999, the $2.00 per share warrants were
repriced to $1.00 per share. In connection with the repricing the Company
recorded a debt discount based upon the estimated value of the warrants totaling
$16,000. The warrants were valued utilizing the Black-Scholes model.
Amortization of the debt discount for the nine months ended March 31, 2000 was
$26,000.
The Company sold five units in the second loan offering commenced in October
1999 and completed in February, 2000. Each unit consisted of a $100,000 six-
month promissory note with three-year warrants to purchase 100,000 shares of the
Company's common stock at an exercise price of $1.00 per share. The Company
recorded a debt discount based upon the estimated value of the warrants totaling
$83,000. The warrants were valued utilizing the Black-Scholes model. During
the nine months ended March 31, 2000 amortization of the debt discount amounted
to $56,000.
The Company sold two units in the third loan offering commenced in February,
2000 and terminated March 25, 2000 raising gross proceeds of $70,000. Each
unit consisted of a $35,000 six-month promissory note with three year warrants
to purchase 35,000 shares of the Company's common stock at an exercise price of
$1.00 per share. The Company recorded a debt discount based upon the estimated
value of the warrants totaling $12,000. The warrants were valued utilizing the
Black-Scholes model. During the nine months ended March 31, 2000 amortization
of the debt discount amounted to $1,000.
At March 31, 2000, interest accrued on these notes amounted to $76,000.
Interest expense during the nine months ended March 31, 2000 and 1999 amounted
to $55,000 and $9,000, respectively.
The maturity of all of the above notes have been extended to August 15, 2000 or
later.
F-20
<PAGE>
AQUACELL TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
March 31, 2000 and 1999 (Unaudited)
NOTE H - NOTES PAYABLE - UNION LABOR LIFE INSURANCE COMPANY
On January 11, 1999, the Company closed a $500,000 note and warrant purchase
agreement with the Union Labor Life Insurance Co. ("ULLICO"). Under the terms
of the agreement, the Company issued a six-month senior note that was
subsequently extended to have a maturity date of April 30, 2000, with interest
at the rate of 10% per annum and 500,000 warrants to be exercisable for a four-
year period at $1.00 per share. At January 1, 2000, interest accrued at
December 31, 1999 in the amount of $17,000 was added to principal on the note
and interest on the new note balance was computed at the rate of 15% per annum
from January 1, 2000. Interest expense during the nine months ended March 31,
2000 including interest added to principal amounted to $46,000. The Company
recorded a debt discount based upon the estimated value of the warrants totaling
$86,000. The warrants were valued using the Black-Scholes model. Amortization
of the debt discount during the nine months ended March 31, 2000 amounted to
$5,000. On May 4, 2000 the note was extended to July 30, 2000. Accrued
interest at April 30, 2000 in the amount of $26,000, was added to principal on
the note and interest on the new note balance will be computed at 15% from May
1, 2000. In connection with the note extension, the Company issued 50,000
warrants to ULLICO at an exercise price of $5.00 per share and expiring on
January 11, 2003. The Company will record a debt discount based upon the
estimated value of the warrant amounting to $39,000. The Warrants were valued
utilizing the Black-Scholes model and the Company will amortize this amount to
earnings over the life of the extension period.
NOTE I - WARRANTS
At March 31, 2000, the Company had warrants outstanding as follows:
Exercise Number of Expiration
Price Shares Date
-------- --------- -------------------------------
$1.00 500,000 January 2003.
1.00* 525,000 November, 2001-June, 2002 (1)
1.00 500,000 October, 2002-February, 2003(1)
1.00 70,000 February, 2003-March, 2003(1)
---------
1,595,000
=========
*100,000 warrants repriced from $2.00 per share to $1.00 per share,
September 1, 1999.
(1) Warrants expire three years from date of issuance.
At March 31, 2000, the weighted average remaining contractual life of the
outstanding warrants was 2.45 years.
F-21
<PAGE>
AQUACELL TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
March 31, 2000 and 1999 (Unaudited)
NOTE J - REDEEMABLE COMMON STOCK
In connection with the purchase of certain assets (consideration for which
included 200,000 shares of the Company's common stock), a put option was granted
to the holder of 135,000 shares of common stock at a price of $1.00 per share
plus interest at 7% per annum if the Company does not complete an initial public
offering by December 21, 2000. Pending the Company's completion of such an
offering, accretion of the estimated redemption amount is being recorded, and
the stock is being reflected outside of the capital deficiency section of the
accompanying March 31, 2000 balance sheet.
NOTE K - INCENTIVE STOCK PLAN
During the nine months ended March 31, 2000, the Company issued 305,000 options
under the August 1998 Incentive Stock Plan to employees and directors
exercisable at the current fair value of $1.00 per share exercisable through
September 15, 2004. At March 31, 2000 125,000 options were exercisable. If the
options had been accounted for under SFAS 123, net loss attributable to common
stockholders for the nine months would have been $1,014,000 or $0.21 per common
share. The Company also reserved 40,000 options in connection with incentive
clauses of a sales representation agreement. As of March 31, 2000, the required
sales levels have not been achieved.
NOTE L - ACCRUED OFFICERS' SALARIES CONTRIBUTED TO CAPITAL
During the nine months ended March 31, 2000, three officers/stockholders and
directors agreed to contribute to capital accrued salaries of $191,000.
NOTE M - SUBSEQUENT EVENT
Between April 4, 2000 and April 27, 2000 the Company completed a private
placement of 200,000 shares of its common stock at $1.00 per share.
Between July 1, 2000 and July 17, 2000 the Company completed the sale of 2 units
in it's $200,000 private loan offering with each unit consisting of a $100,000
six-month promissory note with interest at the rate of 10% per annum and a
three-year warrant exercisable for 100,000 shares of the Company's common stock
at an exercise price of $1.00 per share. The Company will record a debt
discount based upon the estimated fair value of the warrants, totaling $834,000
and will amortize this amount to earnings over the life of the notes.
F-22
<PAGE>
[Inside back cover graphic]
<PAGE>
________________________________________________________________________________
1,750,000 Shares
AQUACELL TECHNOLOGIES, INC.
Common Stock
PROSPECTUS
Grady & Hatch and Company, Inc.
_______, 2000
________________________________________________________________________________
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Under Section 145 of the Delaware General Corporation Law we have broad
powers to indemnify our directors and officers against liabilities they may
incur in such capabilities, including liabilities under the Securities Act. Our
Bylaws (the "Bylaws") (Exhibit 3.2 hereto) provide that we shall indemnify our
directors and officers if such officer or director acted (i) in good faith, (ii)
in a manner reasonably believed to be in or not opposed to our best interest,
and (iii) with respect to any criminal action or proceeding, with reasonable
cause to believe such conduct was lawful. We believe that indemnification under
our Bylaws covers at least negligence and gross negligence, and requires us to
advance litigation expenses in the case of stockholder derivative actions or
other actions, against an undertaking by the directors and officers to repay
such advances if it is ultimately determined that the director or officer is not
entitled to indemnification. Our Bylaws further provide that rights conferred
under our Bylaws shall not be deemed to be exclusive of any right such persons
may have or acquire under any agreement, vote of stockholders or disinterested
directors, or otherwise.
In addition, our Restated Certificate of Incorporation provides that,
pursuant to Delaware law, our directors shall not be liable to us for monetary
damages for breach of their fiduciary duty of care to us and our stockholders.
This provision in our Restated Certificate of Incorporation does not eliminate
the duty of care, and in appropriate circumstances equitable remedies such as
injunctive or other forms of non-monetary relief will remain available under
Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to us for acts or
omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for actions leading to improper personal benefit to the
director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a directors' responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws. Our Restated Certificate
of Incorporation further provides that we shall indemnify our directors and
officers to the fullest extent permitted by law, and requires us to advance
litigation expenses in the case of stockholder derivative actions or other
actions, against an undertaking by the director to repay such advances if it is
ultimately determined that the director is not entitled to indemnification. Our
Restated Certificate of Incorporation also provides that rights it confers shall
not be deemed to be exclusive of any other right such persons may have or
acquire under any statute, our Bylaws, agreement, vote of stockholders or
disinterested directors, or otherwise.
In addition, we have entered into agreements to indemnify our directors and
certain of our officers in addition to the indemnification provided for in our
Restated Certificate of Incorporation and Bylaws. These agreements will, among
other things, indemnify our directors and certain of our officers for certain
expenses (including attorneys' fees), judgments, fines and settlement amounts
incurred by such person in any action or proceeding, including any action by or
in the right of ours, on account of services as a director or officer of the
Company or as a director or officer of any subsidiary of ours, or as a director
or officer of any other company or enterprise that the person provides services
to at our request.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth an itemized statement of our expenses in
connection with the sale of the Common Stock being registered hereby. All of the
expenses are estimated, except for the SEC registration fee, the NASD filing fee
and the NASDAQ listing fee.
SEC registration fee................................... $2,656.00
NASD filing fee........................................ $1,506.25
Representatives' nonaccountable expense allowance...... $ *
Blue Sky fees and expenses
(including legal expenses)............................ $ *
Printing and engraving expenses........................ $ *
Legal fees and expenses................................ $ *
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Auditors' fees and expenses............................ $ *
Transfer Agent and Registrar fees...................... $ *
NASDAQ listing fee..................................... $ *
AMEX listing fee....................................... $ *
Miscellaneous expenses................................. $ *
----------
Total............................................. $ *
==========
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* To be filed by Amendment.
Item 26. Recent Sales of Unregistered Securities
Within the last three years we have issued securities without registration
under the Securities Act in the transactions and in reliance on the exemptions
described below.
1. Between March 19, 1997 and July 30, 1997, we issued an aggregate of
4,000,000 shares of our Common Stock to eight founding stockholders at the price
of $.001 per share. We relied on the exemption provided by Rule 505 of
Regulation D and Section 4(2) of the Securities Act.
2. Between September 18, 1997 and August 13, 1998, we issued an aggregate
of 507,000 shares of our Common Stock to 27 investors at the price of $1.00 per
share. We relied on the exemption provided by Rule 505 of Regulation D and
Section 4(2) of the Securities Act.
3. Between August 11, 1998 and September 24, 1999, we issued an aggregate
of 231,250 shares of our Common Stock to 10 investors at the price of $1.00 per
share. We relied on the exemption provided by Rule 505 of Regulation D and
Section 4(2) of the Securities Act.
4. On December 21, 1998 we completed our purchase of selected assets of
KABB, Inc. and AquaCell, Inc., and issued 200,000 shares of our Common Stock. We
relied on the exemption provided by Rule 505 of Regulation D and Section 4(2) of
the Securities Act.
5. Between November 1998 and June 1999, we sold 21 units of our note
payable-private loan offering. Each unit consisted of a $25,000 six month
promissory note with interest at the rate of 10% per annum and a three year
warrant exercisable for 25,000 shares of our Common Stock at the price of $1.00
per share. We relied on the exemption provided by Rule 505 of Regulation D and
Section 4(2) of the Securities Act.
6. On January 11, 1999 we closed a $500,000 note and warrant purchase
agreement with the Union Labor Life Insurance Company (ULLICO). Under the terms
of the agreement we issued a six month senior note with interest at the rate of
10% per annum and four year warrants to purchase 500,000 shares of Common Stock
at the price of $1.00 per share. We relied on the exemption provided by Rule 505
of Regulation D and Section 4(2) of the Securities Act. In connection with an
extension of the note, ULLICO was granted warrants to purchase an additional
50,000 shares of our Common Stock at the exercise price of $5.00 per share.
7. Between October 1999 and February 2000, we completed a $500,000 note
payable-private loan offering. Each unit consists of a $100,000 six month
promissory note with interest at the rate of 10% per annum and a three year
warrant exercisable for 100,000 shares of our Common Stock at the price of $1.00
per share. Fractional shares were made available at the discretion of
management. We relied on the exemption provided by Rule 505 of Regulation D and
Section 4(2) of the Securities Act.
8. Between February and March 2000 we sold $70,000 of a $140,000 note
payable-private loan offering. Each unit sold consists of a $35,000 six month
promissory note with interest at the rate of 10% per annum and a three year
warrant exercisable for 35,000 shares of our Common Stock at the price of $1.00
per share. The balance of the $140,000 loan offering was canceled. We relied on
the exemption provided by Rule 505 of Regulation D and Section 4(2) of the
Securities Act.
9. Between April 4 and April 27, 2000, we sold an aggregate of 200,000
shares of our Common Stock to two (2) investors at the price of $1.00 per share.
We relied on the exemption provided by Rule 505 of Regulation D and Section 4(2)
of the Securities Act.
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<PAGE>
10. Between July 1, 2000 and July 17, 2000, we sold two (2) units of a
note payable-private loan offering. Each unit consists of a $100,000 six month
promissory note with interest at the rate of 10% per annum and a three-year
warrant exercisable for 100,000 shares of our Common Stock at the price of $1.00
per share. We relied on the exemption provided by Rule 505 of Regulation D and
Section 4(2) of the Securities Act.
Item 27. Exhibits
A. Exhibits:
1.1 Form of Underwriting Agreement.*
3.1 Second Amended and Restated Certificate of Incorporation, together
with Amendment No. 1 thereto.*
3.2 Bylaws.*
4.1 Second Amended and Restated Certificate of Incorporation (filed as
Exhibit 3.1).
4.2 Bylaws, as amended (filed as Exhibit 3.2).
5.1 Legal Opinion of Allen Matkins Leck Gamble & Mallory LLP with respect
to the validity of the securities being registered.*
10.1 1998 Stock Incentive Plan.*
10.2 Forms of Employment Agreements with Messrs. Witham and Wolff and Ms.
Laustsen.*
23.1 Consent of Allen Matkins Leck Gamble & Mallory LLP (included in
Exhibit 5.1).
23.2 Independent Auditors' Consent of Richard A. Eisner & Company, LLP.
24.1 Power of Attorney (included on page II-6 of this Registration
Statement).
27.1 Financial Data Schedule.
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* To be filed by amendment.
B. Schedules:
No supporting schedules have been included because they are not required.
Item 28. Undertakings
We will provide to the underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in such
names as required by the underwriters to permit prompt delivery to each
purchaser.
Insofar as pursuant to the foregoing provisions or otherwise we may be
permitted to indemnify our directors, officers and controlling persons for
liabilities arising under the Securities Act, we have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by us of expenses incurred or paid by a director,
officer or controlling person of ours in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, we will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by us is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
For determining any liability under the Securities Act, we agree to treat
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant under Rule 424(b)(1) or (4) or 497(h) under
the Securities Act as part of this Registration Statement as of the time the
Commission declared it effective.
For determining any liability under the Securities Act, the Registrant
agrees to treat each post-effective amendment that contains a form of prospectus
as a new registration statement for the securities offered in the registration
statement and the offering of the securities at that time as the initial bona
fide offering of those securities.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorizes this Registration
Statement to be signed on its behalf by the undersigned, in the City of
Englewood Cliffs, State of New Jersey, on July 19, 2000.
AQUACELL TECHNOLOGIES, INC.
By: /s/ JAMES C. WITHAM
_____________________________
James C. Witham
Chairman and Chief Executive
Officer
Power of Attorney
We, the undersigned officers and directors of AquaCell Technologies, Inc.,
do hereby constitute and appoint James C. Witham and Karen B. Laustsen, and each
of them, our true and unlawful attorneys-in-fact and agents, each with full
power of substitution and resubstitution, for and their respective name, place
and stead, in any and all capacities, to sign any and all amendments to this
Registration Statement, and to file same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as such officer or director might or could do in person, hereby,
ratifying and confirming all that said attorneys-in-fact and agents, or their
respective substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed be by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ JAMES C. WITHAM hairman and Chief Executive Officer July 19, 2000
___________________________ Principal Executive Officer)
James C. Witham
/s/ GARY S. WOLFF Chief Financial Officer (Principal July 19, 2000
___________________________ Financial and Accounting Officer)
Gary S. Wolff
/s/ KAREN B. LAUSTSEN
___________________________ President, Chief Operating Officer July 19, 2000
Karen B. Laustsen and Secretary
/s/ GLENN A. BERGENFIELD
___________________________ Director July 19, 2000
Glenn A. Bergenfield
/s/ WILLIAM S. DITURO, M.D.
___________________________ Director July 19, 2000
William S. DiTuro, M.D.
/s/ GREGORY W. PRESTON
___________________________ Director July 19, 2000
Gregory W. Preston
</TABLE>
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